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Earnings Transcript for ETL.PA - Q2 Fiscal Year 2023

Operator: Good day and welcome to the Eutelsat Group Half Year 2023-'24 Results Conference Call. Please note, this call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Eva Berneke, Chief Executive Officer; and Christophe Caudrelier, Chief Financial Officer. Please go ahead. Thank you.
Eva Berneke: Good morning. Welcome and thank you for joining us for today's first half of Eutelsat '24 presentation. I'm Eva Berneke, Chief Executive Officer and I'm joined by Christophe, our CFO. So what are we going to do this morning? For today's agenda, we have 4 points. We have a bit the highlights of this past quarter and the 6 months. We go through our operational performance, then our financial performance and then, we'll come to the outlook and financial objectives. Let's start with the highlights of the past 6 months. First half operating verticals revenue stood at €571 million, confirming the return to top line growth. This was underpinned by Eutelsat's legacy business, thanks notably to the EUTELSAT 10B and KONNECT VHTS that gave us incremental capacity as well as the inclusion of OneWeb businesses since the second quarter. Second quarter operating verticals continues this trend, revenues up by 3.9% on a like-for-like basis and by 5.4% on a quarter-on-quarter. We delivered successful operational execution, notably with the entry into service of KONNECT VHTS in September and EUTELSAT 10B also in September, as well as the completion of the space segment of the OneWeb Constellation. The Eutelsat and OneWeb combination is effective since very late September and the integration is progressing well and synergies are well confirmed. We're seeing commercial traction for OneWeb with further growth in secured backlog as well as the activation of numerous key customer partnerships. And this, despite the delay in the rollout of the ground segment that we flagged at the end of January. So we are progressing really well on design on the next-gen OneWeb Constellation which focused on securing continuity of the current client service as well as a stepwise capacity and functionality improvement. This will lead to a reduction in expected CapEx for the period '25 to '30. Let's go down a few of the key elements. Let me start by confirming that the GEO business is doing well. Looking at the GEO business, we're delivering absolutely in line with our expectations and we confirm the return to top line growth. This is thanks to incremental connectivity capacity that came into service with the EUTELSAT 10B, it's located at 10 East and offering a visibility spanning Americas to Asia. It has 2 multi-beam HTS Ku-band payloads that are able to process more than 50 gigahertz of bandwidth, offering a throughput of around 35 gigabits. We have multi-year capacity commitments, both on maritime and in-flight connectivity with Panasonic, Intelsat and also recently a deal with Marlink. The other one is the big KONNECT VHTS which is a Ka-band capacity of 500 gigabits, embarking on the most powerful onboard digital processor ever put in orbit. It allows capacity allocation flexibility and optimal spectrum use. It does support development of European fixed broadband and in-flight connectivity. Commitments on this satellite alone totals €450 million, with key customers that includes Thales, Orange with its subsidiary Nordnet and TIM. Elsewhere in the GEO business, the second half is also set to benefit from more favorable comparison in the video business where the topline trend is expected to return to market average. But the big event and I think I am telling nobody news here is, of course, the combination with Eutelsat OneWeb. Just stepping back and just reminding of the whole rationale behind the deal is very clear, combining a legacy cash-generative GEO business with a high-growth activity in low orbit that generates strong revenue growth. We're accessing a massive and still growing satellite connectivity market where the majority of growth is going to come out of the non-GEO part of the segments. OneWeb is a truly unique asset. It is still 1 of only 2 LEO constellations, with the other one being Starlink, that has proven commercial and operational efficiency. Together, combining LEO and GEO assets makes us a really unique flair that can actually provide the best of both worlds, with a low latency of our LEO offering and the high capacity and flexible capacity of the GEO side. And finally now, 3 months into it, our integration is progressing well and we've validated the value creation and especially the synergies in this deal. So we are live. A major milestone was achieved when it was approved the 29th of September that we could combine Eutelsat and OneWeb. Since then, we've been focused on integrating the 2 companies as well as driving operational and commercial momentum. The space segment that's 650 approximately satellites is fully up and running and delivering proven and expected performance. OneWeb's order backlog continues to grow. It now stands at €700 million. That is a conversion into Europe, as well as excluding the Eutelsat part of the backlog but it continues to grow and we continue to see commercial traction with deals activated with quite a few customers. Progress on the ground rollout is following some delay but we track for a 90% coverage by mid-'24. And of course, that excludes China and Russia, as has been previously confirmed. As well as confirming the synergies, what we are seeing in terms of revenues, distribution partners are actually starting to provide multi-orbit services with a combination of GEO and LEO, both in mobility, enterprise and government. Cost synergies are fully on track and we think we have scope even to exceed our original plans. As a reminder, the annual expected run rate was around €80 million pre-tax synergies from the merger. And then finally, CapEx synergies are also confirmed with the design of the Next Generation OneWeb constellation based on a stepwise capacity and functionality improvement that will lead to significant reduction in our original CapEx estimates. Starting with some of the commercial momentum we are seeing, several important contracts are live with key customers across main LEO applications. If we start with Fixed Data, you might have seen our announcement together with Telstra on viewing backhaul services in some of the remote areas of Australia. Paratus is a satellite connectivity service that combines GEO and LEO to address enterprises in remote parts of South Africa. Tonomus is delivering LEO connectivity to applications in Saudi Arabia and across 15 countries in the Middle East and Africa. And then finally, SAT ONE is enterprise and maritime LEO connectivity services across Australia. So very strong traction seen there. But when we move to the government segment, I think there's also some very interesting new developments. Chunghwa in Taiwan is serving the government with both fixed and mobility services. Airbus will be delivering fixed and mobility solutions across both government and commercial-grade applications. And finally, Hughes, one of our long-standing partner, also on the GEO side, is also one of our major partners in government mobility in the LEO services. And finally, coming to mobility. Speedcast, we see connectivity in both passenger and cruise markets. And IP Access with a large fleet of LEO mobility solutions in the U.S. So across all 3 of our connectivity segments, we see very strong commercial traction on LEO but also on combination of LEO and GEO. We'll come back to the growth of these 2 segments in a minute. We see progress on the network coverage and we are progressing on the rollout of especially the ground network. So this refers to the ground networks In terms of space and satellite coverage. The whole globe is covered, so there are no holes in the coverage. But in terms of the network ground coverage, we have now 30 gateways built. And we've secured coverage of the entire American continent, both North and South, as well as the Southern Hemisphere, most importantly Australia and South Africa. By mid-'24, that's calendar '24, coverage will be extended to cover gaps in the Middle East and Asia as well as in North Atlantic, on track to meet our target of coverage of around 90%, including coverage of all the main markets. This is, of course, key to customers in those markets and especially in mobility customers that are in the backlog where near global coverage is a prerequisite for activating mobility services. Meanwhile, the Space segment is operational and delivering a high level of technical performance. Testing has validated robustness of the network, with an HTS technology delivering up to 7 gigabits per satellite and a robust 4G core network developed with telecom industry leaders. We had a satellite failure rate below 1% which is one of the best in the industries. We have better look angles leading to lower blockages which you sometimes can experience when you have the low look angles. Finally, when you turn actually to what is the user experience, we see some very positive elements with the global latencies of around 70 milliseconds. We see download speeds of up to 195 megabits and upload speed around 32 megabits. So we are supporting customers with fully managed service, both by our own teams but mainly through distribution partners. We now have around 11 user terminals that are available to customers in the specific segments and that are fitting their specific requirements. And we are well advanced in also the LEO and GEO combined user terminals which we expect to start operating mid-'24 with potential new use cases. Coming back to how this evolve in the future. We are progressing also well in how we look at the Next Generation OneWeb constellation, with potential solutions focused on especially customer service continuity and a step-wise improvement and enhancement of OneWeb services. This focus is informed by both operational and commercial dialogues in market as well as the experience now that the constellation is fully in service. The next-gen will progressively embark both additional capacity and enhanced functionality performances compared to the first-gen, with the scope to upgrade the constellation service and performances progressively. The cost of this approach is, however, lower than our previous estimates for the build-out in the OneWeb NextGen. So we are adjusting our midterm CapEx estimates. Our cash CapEx for '24 remains as expected in the range of €600 million to €650 million. However, for the period, '25 to '30, we expect cash CapEx after synergies in the range of €600 million to €700 million on average per year. Previously, this was set slightly higher, between €725 million and €875 million per year. I'll come back to some of these points. But first, I just want to let Christophe give you a perspective on the operational and more importantly, also the financial performance of this first half year. Just reminding everybody, it's a special year. It's a 6 months where we have around 3 months of Eutelsat historic stand-alone and 3 months in the combined. So there's a lot of numbers floating around and it can be a little bit of hard-to-follow numbers but I'll let Christophe explain all of this to you. Over to you, Christophe.
Christophe Caudrelier: Thank you, Eva. Good morning, everybody. So just as a reminder, as Eva said, all commentary is on a like-for-like basis, i.e., at constant currency and perimeter. Reported indicators include OneWeb since October 1, 2023 and are compared to Eutelsat's H1 '22-'23 performance on a stand-alone basis. Total revenues for the first half of fiscal year '23-'24 stood at €572.6 million, down by 1.9% [ph] on a reported basis and up by 1% like-for-like. Revenues of the 4 operating verticals, that is to say excluding other revenues, stood at €571.1 million. They were up 1.2% on a like-for-like basis, excluding a negative currency impact of €18 million. Second quarter revenues stood at €298.7 million, up 3.7% like-for-like. Revenues of the 4 operating verticals stood at €298.6 million, up 3.9% year-on-year on a like-for-like basis and up 5.4% quarter-on-quarter. Let's look at revenues in more detail. Video revenues represented 58% of revenues, stood at €331 million in the first half, down 8%. The other 3 verticals include a contribution from OneWeb, consolidated since 1st of October. Government Services, 13% of revenues, stood at €74.2 million, up 10.5%. Mobile Connectivity, 12% of revenues, stood at €71.2 million, up to 35.6%. And Fixed Connectivity, now 17% of revenues, stood at €94.6 million, up 9.2%. Other revenues amounted to €1.6 million versus minus €8.1 million a year earlier. This improvement reflected a negative impact from hedging operations of €2 million compared with €12 million a year earlier. Turning to Video. First half revenues were down by 8% to €331.1 million, reflecting, first, the impact of the early nonrenewal of the capacity contract with Digitürk from mid-November 2022. Second, lower revenues in Europe related to volume reductions with certain resellers. And third, the effect of sanctions against Russia and Iran channel. Second quarter revenues stood at €167.6 million, down by 6.4% year-on-year and up 1.9% on a sequential basis. This increase was partly due to a one-off contract of around €3 million in Latin America. Professional Video revenues which account for less than 10% of the Video vertical, also decreased, reflecting ongoing structural headwinds. Looking ahead, the second half basis of comparison will no longer reflect the impact of sanctions, again, Russian and Iranian channels nor Digitürk nonrenewal. Revenues are, therefore, expected broadly in line with the wider market trend of a mid-single-digit decline. Going to Government Services. Revenues stood at €74.2 million, up by 10.5% year-on-year, reflecting the slightly better renewal rate of the Fall U.S. Department of Defense campaign above 80%, as well as the contribution of the EGNOS GEO-4 contract on HOTBIRD 13G. Second quarter revenues stood at €40.7 million, up by 17.4% year-on-year and by 4.2% quarter-on-quarter. The second half will benefit from the full period contribution from OneWeb's LEO-enabled connectivity solutions as well as the contribution from the above-mentioned EGNOS GEO-4 contract and HOTBIRD 13G. As a reminder, this contract is set to generate €100 million in revenues over 15 years. First half Mobile Connectivity revenues stood at €71.2 million, up 35.6% year-on-year, underpinned by the entry into service of the high-throughput satellite EUTELSAT 10B, with significant pre-commitments and the commercialization of the final beam on EUTELSAT QUANTUM for a maritime mobility client. Second quarter revenues stood at €36 million, up 28.2% year-on-year and up by 0.2% quarter-on-quarter, reflecting the tougher basis of comparison due to the above-mentioned entry into service of incremental capacity during the first quarter. Over the full year, Mobile Connectivity is expected to see double-digit growth, driven by strong demand for both GEO and LEO-based connectivity solutions. First half Fixed Connectivity revenues stood at €94.6 million. up 9.2% year-on-year, mainly reflecting the entry into service of KONNECT VHTS as well as the contribution from LEO connectivity. Second quarter revenues stood at €54.3 million, up 17.6% year-on-year and by 23.7% on a sequential basis, mainly reflecting contracts that started from mid-October following the entry into service of KONNECT VHTS. This positive dynamic is expected to translate into double-digit growth for the full year on the back of KONNECT VHTS as well as the contribution from the LEO connectivity offer. Moving to backlog; it stood at €3.9 billion on December 31, 2023, compared to €3.7 billion a year earlier and €3.4 billion in June 2023, representing 3.5 years of revenues. The contribution of OneWeb's growing backlog is amounting to €700 million at the end of December 2023. Natural erosion of the GEO backlog, especially on the Video segment, in the absence of major renewal. Video is accounting now for 46% versus 59% a year ago. This trend clearly illustrates the impact of successful telecom pivot strategy. Let's turn now to the financial performance. Starting with profitability. Adjusted EBITDA stood at €365.6 million at the end of December 2023 compared with €419 million a year earlier, down by 12.7%. Operating costs were €52.2 million, higher than last fiscal year, reflecting the impact of the consolidation of OneWeb. This was partially offset by a positive perimeter effect from the disposal of the BigBlu retail broadband operations as well as lower bad debt, especially in Video business. The adjusted EBITDA margin stood at 64.1% at constant currency, 63.8% reported versus 73% a year earlier. This is reflective of the progressive rebalancing of our business towards connectivity applications. Turning to the P&L. Group share of net income stood at minus €191.3 million versus plus €51.9 million a year earlier. This reflected other operating expenses negative of €183.9 million compared to a positive €34 million [ph] last year, mainly due to fair value adjustment of shares owned by Eutelsat before the combination with OneWeb. Higher depreciation of minus €316.1 million versus minus €233.8 million a year earlier, reflecting the perimeter effect from OneWeb as well as in-orbit -- higher in-orbit and on-ground depreciation. We have satellites; HOTBIRD 13 [ph], HOTBIRD 13G, EUTELSAT 10B and KONNECT VHTS that entered into service between April and September 2023. The net financial results, negative €60.7 million versus negative €56 million a year earlier, reflecting the higher interest rates, partly offset by favorable evolution of foreign exchange gains and losses. Corporate income tax is a gain of €28.5 million versus a tax cost of €0.8 million last year, reflecting the recognition of positive deferred tax on the C-band payment as well as a reduction of the French corporate tax rate. Higher income from associates, negative €23 million, reflecting the contribution of the stake in OneWeb for the first quarter which last year was from July 2022 onwards. Cash CapEx reaches €224 million versus €194 million last year. It is reflecting the perimeter effect from the consolidation of OneWeb. It's also not representative of the decrease in CapEx, reflecting phasing of satellite programs delivery last year for both Eutelsat and OneWeb. At the end of December 2023, net debt stood at €2,619, down €146 million versus end of June 2023. It reflected the receipt of Phase II of C-Band proceeds, net of tax for €330 million and negative impact from our financing activities, mostly related to structured debt combined with a decrease in cash flow from operating activities due to the consolidation with OneWeb. As a result, the net debt to adjusted EBITDA ratio stood at 4.13x compared to 3.55x at the end of December '22 and 3.35x at the end of June '23. The average cost of debt after hedging stood at 3.16%, 2.7% in H1 '22-'23. The weighted average maturity of the group's debt stood at 3.0 years, compared to 4.1 years at the end of December '23. Undrawn credit lines and cash stood at around €1.8 billion. Now, back to Eva for a comment on the outlook.
Eva Berneke: Thank you, Christophe. Just a few words to sum up. The integration between Eutelsat and OneWeb is making really good progress. From a technical point of view, the LEO constellation is operational and delivering proven and robust performance. Acceleration in the ground network rollout is coming live following the recent delays. Multiple user terminals are now available addressing various customer segments. And the LEO-GEO terminal is expected by mid-'24 for mobility and opening additional use cases. On the commercial front, we see a very resilient GEO activity, continuing delivering as expected. We see a growing OneWeb backlog which is up 23% during the past quarter. Strong commercial momentum in multiple service deals activated with major customers in recent months. And finally, importantly, all synergies are confirmed. The integration between Eutelsat and OneWeb is progressing smoothly from an organizational point of views. All synergies are confirmed, most notably cost synergies, where we believe we have additional source of savings that we could tap into. And finally, design of OneWeb next-gen, based on a more step-wise design, assuring continuity of customer service, leading to significant CapEx savings. Turning to the outlook. The GEO business is on track and confirms its return to top line growth for '23-'24 financial year. As disclosed a couple of weeks ago, the results of LEO activities are running behind schedule relative to the original roadmap. We see delays in the availability of the ground network that impacts revenue ramp-up, especially in mobility and in certain geographies where market access is also still outstanding. While the revenue mix is more oriented than expected towards sale of user terminals, it's also impacting margins. The deployment of the ground network is progressing well and we are seeing strong momentum in take-up of pre-signed commitments from major customers. Nevertheless, this dynamic is not going to suffice to close the gap relative to our near-term expectations. So we have adjusted our financial objective for '23-'24 as follows. This is the same as you saw a few weeks back. Revenues are expected in the revenues of €1.25 billion to €1.3 billion versus previously €1.32 billion to €1.42 billion. Adjusted EBITDA is expected in the range of €650 million to €680 million, previously €725 million to €825 million. Cash CapEx for '24 remains expected in the range of €600 million to €650 million after synergies for the period of '25 to '30. The integration of this revised CapEx expectation from OneWeb NextGen means that CapEx is now expected to be between €600 million to €700 million on average per year. This is down from €725 million to €875 million and we continue to target a leverage of around 3x in the medium term. To allow for more accurate assessment of the prospects in this context of rapid development of the OneWeb business, our financial objectives for '24-'25 will be viewed and of course, shared with you at the results in August -- early August. We remain super confident in the prospects of OneWeb and the potential of combining GEO and LEO. The constellation achieved full global operational coverage and we anticipate revenues that continue to target double-digit CAGR in revenues and adjusted EBITDA in '24 to '28. Thank you for your attention and Christophe and I are ready to take your questions.
Operator: [Operator Instructions] We will take the first question from line Aleksander Peterc from Societe Generale.
Aleksander Peterc: I have 3 to start with. So the first one would be on the rephasing of spending for Gen 2, if you could define the stepwise enhancement a little better? Does it imply anything in terms of the availability of next-gen features and capacity? Does it have any impact at all on your view of how the revenue will develop on Gen 2? And then the second question would be specifically on the backlog growth which was quite strong at 25% quarter-on-quarter. Can we extrapolate this kind of growth into the near term? And what are the trends of this quarter? And I will have a quick follow-up after.
Eva Berneke: Did you have 2 or 3? I noted down 2 questions.
Aleksander Peterc: Yes, this is just two. And then, I will have a third one, I save it for later.
Eva Berneke: Okay. Let me start. I think in terms of rephasing of the Gen 2, I think our priority has been now that we are operational and we have significant customer commitments that reach into the multi-year is, of course, ensuring that we can continue to give them the service and increase capacity over time. And that's why we've taken the step-wise approach and we'll embark technologies on the new satellites as they become mature, both in order to ensure that we don't get any delays related to immature technology but also allow us to increase capacity more stepwise over time as customer orders come in and continue to increase. In terms of the backlog, the 23% increase, I'm not sure I want to be -- give you any kind of idea on how we will evolve our backlog over time. It comes, as you might imagine, a little bit in bumps. But we continue to have quite a lot of customer dialogues on what we call the take-or-pays or confirm backlog. So we do expect to see an increase, whether it can increase -- continue to increase 25% every single quarter, I'm not going to promise you that.
Aleksander Peterc: Okay, excellent. And then maybe a question for Christophe. If you could tell me a little bit about the structured debt increase, what exactly was going on there? What's behind that? And also, if I look at your duration of debt in about 3 years, weighted average, that means refinancing quite soon. Do you have any plans in that respect?
Christophe Caudrelier: Okay, thank you. Yes, first, Aleksander, on the structured debt, this is really main -- really related to the CapEx line. We've got a specific CapEx line that, as you probably know, to finance the investment on the GEO side. And we had 3 tranches of this CapEx line and we have withdrawn the last tranche of this facility. But that's the explanation for the increase in the structured debt. On the second question, related to the financing and the terms of the 3-year terms for our debt, the next, I would say, deadline is the bond, the €800 million bond that is going to mature at the end of October 2025. So it's a bit more than a year from now. We obviously have the plan to refinance this bond ahead, so the -- we have different actions ongoing at the moment. First is to address debt refinancing and the situation has obviously changed for Eutelsat, because we are moving from an investment-grade environment to high-yield environment. So we are -- we have the plan to refinance this €800 million bond ahead of time. So it's going to be very soon now. We obviously have to address and we are addressing with our banks, the subject of the liquidity because we currently have a level of €850 million of RCF lines, undrawn RCF lines with our banks which are maturing also at the same time as the €800 million bond. So this is the second step that we are addressing. And obviously, we also have opportunities, if I look at the needs for the second-gen of -- the next-gen of the constellation. Our financing plan is based upon 2 things. First of all, obviously, the cash generated by the resilient GEO business. But we also assume, in our financing plan, a significant part of ECA financing in order to cope with this liquidity level.
Operator: We will take the next question from line Mark Watts from Citi.
Mark Watts: Just to confirm that on the refinancing plan. You're saying that you aim to do it. Is that before the October '24 deadline, before they come current? And would that be in conjunction with addressing your term loans?
Eva Berneke: I think it's October, it's late '25, the deadline is there for the refinancing. So I think what we do in refinancing is that we have the maturities in -- I think, actually November '25...
Christophe Caudrelier: It's October '25.
Eva Berneke: October '25, so we have around 18 months ahead. And we start just to prepare and be ready for potential financing -- refinancing of that.
Mark Watts: Okay. But the idea would be to do the refinancing of the bonds in conjunction with your RCF undrawn facility.
Christophe Caudrelier: Yes. And again, the objective is to do that well ahead of the October '25 due date, obviously.
Mark Watts: Sure. And the expectation on the refinancing would still be an unsecured bond? Or how do you -- is that the kind of...
Christophe Caudrelier: Yes, Mark, it's the way we are working and it's -- we've been addressing this question with the market. And yes, we are going to -- are likely to go for a bond issuance on the high-yield market. But I need to be precise we are probably going to do that at the Eutelsat SA level.
Mark Watts: Okay, right. So the opco level; understood. Can I confirm a few other points here? So on C-Band proceeds coming in, does that end this year, no more proceeds expected for next year...
Eva Berneke: Yes.
Mark Watts: Okay, great. And I guess the other thing is just your medium leverage term target of 3 turns. So can you just specify? I mean you guys were over 4, got a fairly large CapEx guide for the next 2 to 3 years? One, what exactly is medium term? But two, how do you aim to get there in the next, I guess, 2 to 3 years ahead of what will be another sort of chunk of debt refinancing to do?
Christophe Caudrelier: Yes. I understand. Let me try to answer to your question, Mark. Well, first of all, what we plan is -- according to the needs and CapEx needs, we plan to have a net debt which would be rather flat. So the big part of the -- or let's say, the majority of the parts of the improvement of the ratio -- of the leverage ratio will come from the improvement of the EBITDA. And the improvement of -- the growth of EBITDA will come obviously with the ramp-up of the OneWeb activity. So it's really -- it's not, I would say, related to the decrease in the net debt which, again, is planned to be rather flat over the period but it's coming from the significant improvement of the EBITDA. And the improvement of the EBITDA will be possible, thanks to the implementation of the synergies on one side. And on the second side, obviously, the topline growth for the LEO activity leading to significant improvement of EBITDA level.
Mark Watts: And sorry, if I could squeeze in one more. It's just to ask in terms of the...
Eva Berneke: Can you move a bit closer to your mic? Just so we can hear you.
Mark Watts: Yes, sure. So I guess I just wanted to follow up on the actual constellation itself, just so I understand. So with, I guess, your 90% of satellites installed, do you actually receive the revenues for those currently? Like how is the OneWeb revenue? How are you actually getting that even though some of that ground network hasn't been connected? Could you just walk us through that because that's not clear to me?
Eva Berneke: Yes, I can. So there are several things of getting to revenue, because I think that's probably what you're looking for. The first thing is that the satellites are all in place, so we now have the 650 satellites circling where they need to be. So in terms of the space coverage, we're there. And where we are operational, we see that at a 99.5% network efficiency. So that is good. Space is there. Now, the way it works is that once it -- you touch a satellite, it gets back on ground to a gateway or an SNP. We need around 43 to cover the entire globe of those and we have around 30 of them done now. A few are missing, South India, Saudi Arabia. So a few are missing. And before we had these ground stations there, the signal -- I mean, it could get to the satellite but it can't get back down. So then the operational network is not operational. It's solved for all of North America and South America. So there's lots of areas, that was the map with the orange blotched on, that means that you have the ground network working so you can actually use the full signal. So the only thing that might block in those areas is in country landing rights. So there are a few countries where you also need specific market access licenses which either we have ourselves or our distributors need to take. So a few countries have taken a bit of time to approving that because they needed to understand what LEO was all about. So ground network and market access are the 2 additional hoops you need to jump through once you have the satellites in place. And as you can see, a combination of that gives the rollout in the orange blotch you saw on one of the pages over the next month. We expect to be at that 90% ground coverage in 3 to 6 months' time, so over the midyear, where we'll have all of those countries. And there will still be a few countries that have specific license and landing rights requirements. You see that also with Starlink, some countries are only opening for Starlink now or not even open for Starlink. That's a country-by-country approach. But we actually have quite a few countries where we see solid progress, in India and Saudi is done already. So I think those are the 2 additional hoops to do there. And then revenue start coming in. It's only when we have the landing rights and licenses in place, we can actually start building a customer. So that's how we can see the ramp-up. And that's why you see a backlog that continues to grow with a lot of customers wanting to buy but either because -- either we don't have the gateway in their region in, let's say, South India or other place, or Angola is another place where we need to have a gateway there before we can actually start serving or because the country has not yet approved landing rights which is a few countries there before we can actually start building. And a lot of our backlog is actually in mobility and it's clear that the mobility, of course, they want to be able to sail across the ocean with whatever that requires of both gateways and landing rights. So the revenues will start kicking in there. We now have a quite close connection between when is the country going to open, what are the take-or-pays or the backlog we have in that country, so when do we turn it on, especially, of course, important for Saudi Arabia, where we have a large take-or-pay with Tonomus. But we now do this on a country by country and I'm sitting here with kind of all the countries that are expected to go live in March, all the countries that are expected to go live in April. So we know when we can actually start expecting that but that's how it work. Did I talk too much? Did that actually answer your questions, get more clear?
Mark Watts: Yes. I mean great summary. I just wanted to know like how much of the revenue are you actually making from those 650-odd satellites that are installed. I realize you've still got some land network...
Eva Berneke: No, I mean we -- I mean, all the satellites are functioning, so we can make all the revenues. The problem is when the -- if signal gets either where the terminal needs to be, there you need to be allowed to use those landing rights, that's a country-by-country thing. Those of countries that are open, I think, we have 50 -- more than 54 countries opened with everything in green. So you can just go and plug in your terminal if you take it under your arm. Then we have some where we have the network and ground network is fine but landing rights are still pending. So that can be some of the African countries who need to get there, where we still have that pending. And then we have a few countries where they're still missing a gateway. Sometimes the landing rights are there, so they're just waiting for the gateway. Saudi is one example. The landing rights are fine but they're needing one more gateway to open up fully. And then, of course, we have very few countries where both things are the issues. But those are going to get there as well. Tanzania is one where we have both things that needs to get fixed over the next 3 months. But many other countries will get -- it has only 1 pending thing and we'll get it fixed over the next couple of months.
Operator: We will take the next question from line Brian O'Brien from UBS.
Brian O' Brien: Really just thinking about funding the CapEx. I mean, obviously, when you announced the OneWeb acquisition, you were an IG company in a very different rates environment. And today, you're a high-yield company in a very different rates environment. Has that really changed the way you think about structuring the financing for this CapEx? And have you looked at, say, secured debt solutions? Or is it possible to raise debt specifically at the OneWeb entity? Any thoughts on that would be much appreciated.
Christophe Caudrelier: Okay. Just to answer quickly to the first point. It hasn't changed anything. It has not changed in terms of plan. Obviously, the environment is totally different but this was foreseen at the beginning and since the beginning when we decided to do this strategic move. So it was included in our plans, including moving to a different type of debt environment, so coming from IG to a high-yield environment. In terms of cost of financing, this had also been factored out. Obviously, the rates environment has changed since. And this, we have updated and we have included this increasing environment into our models. So that's the first point. Second point is we still believe that our financing is going to be based upon, I would say, 3 major legs. The first one is obviously the strong generation of cash from the Eutelsat legacy activities. Eutelsat has generated, for many years, a significant amount of cash. And this is also supported by the decision to stop distributing dividends and to use this cash generation in order to fund the needs in CapEx. So that's the first leg. The second leg is, obviously, the refinancing of the current debt at Eutelsat level and this is what we are dealing with and with the refinancing of the bond that I've mentioned just before. And we still think -- and we have approached the markets accordingly. We still think that the unsecured type is the right solution for us, obviously and that's why I mentioned that our plan is to do that at the level of Eutelsat SA that is generating the cash. Obviously, we need to negotiate and to define the circulation of the cash within the group but this is also something we have addressed and we are really confident that we can do. And the third leg, I would say is, again, the ECA financing. Most of the financing of the CapEx needs for the constellation -- for the new constellation will come from ECA financing. And by the way, I can -- I would add one point, I forgot to mention in -- when I answered to Mark. One of the reasons why the structured debt has increased is because we have included at the level of OneWeb already an ECA financing from India related to the last launch for the constellation, the first generation of constellation. So coming back to the ECA financing, as it was an example, we strongly believe that we are just in the heart of the strategy, I would say, of ECA financing. And this is why we -- in our models, we consider that we will finance more or less, I would say, around 2 -- a bit more than 2/3 -- 4/5 of the needs of the CapEx requirements for the next generation through ECA financing.
Brian O' Brien: Okay, great. And just remind me, that's unsecured lending typically, is that correct?
Christophe Caudrelier: Yes, definitely. Yes. It's a back -- I mean it's a kind of financing which is backed by, I would say, government agencies. We are mostly dealing with -- so we are started with India. But we are also talking to UKEF and BPI in France. So yes, there are -- I would say, it's a debt supplied, I would say, by the banks but backed up by government agencies.
Operator: We will take the next question from line Tom Singlehurst from Citi.
Tom Singlehurst: Tom here from Citi. Sort of echoing Mark but the -- I had a couple of questions, maybe 3 actually, if it's okay. The first one on the sort of change in the sort of the way that you're planning on investing in CapEx to Gen 2. I'm just interested in whether that is a decision that's been taken with a sort of financial sort of leverage hat on or one that's been taken on with a -- taken with a sort of operational hat on. I mean are you doing -- are you choosing that new mode because it's the best thing for constellation and for the users and then customers? Or is it because it just eases the burden in terms of CapEx spend? That's the first question. The second question on 2025 financial year guidance which you've obviously withdrawn. I'm just -- I know it's slightly academic but I'm interested in whether you just withdrawn that because you don't know when OneWeb will sort of light up and you'll start really seeing the revenues. Or is it because you've got a sort of more cautious view on the run rate and opportunity from OneWeb? If you can clarify that, that would be great. And then finally, any update on IRIS² would be very much appreciated.
Eva Berneke: Thank you, Tom. You just take all the light questions, right? So let me dive into them. Starting out with the change in approach on investment, this is clearly an operational choice we've taken. Given that we start having customers who come in with multi-year, 5-year, commitments, of course, they're going to be very interested in having continuity of service, compatibility of service in the way the capacity issues did. They don't want to pull their airplanes or ships back in harbor to either change terminals or do anything. So the continuity of services is clearly important. Also, in terms of integrating new technologies, dialogues with vendors and you follow this industry, so you also know that there's sometimes a solid degree of optimism in how fast you can mature technologies and how fast you can get them there which has led to multiple delays in the past. So we're taking a much more -- or somewhat more conservative approach on when do we embark new technologies, where are they mature enough, because we will need to get continuity of service up there. So we're taking that a more stepwise approach and finding a way where we can over time bring more new technology, new functionality to the constellation without having a big cut. And that maybe also on IRIS² will also allow for some of the innovations that will come with IRIS² to be embarked, where we see IRIS² as a way of maturing a lot of technology development in the European constellation context which also will allow us to profit from some of the potential synergies there. Just maybe finishing on that IRIS² is we are in the process of -- in the consortium where we're in a consortium with Airbus, Thales, Hispasat and SES, finalizing the buffer that needs to go into the commission these days. So that is in good progress. It's something we've spent quite a lot of time on. And we continue to very strongly believe that this is a very important investment and area of interest for the European Commission. Also that's also what we see in the dialogue with the commission. They've shown themselves to be super collaborative with the SpaceRISE consortium. Then coming back to '25 guidance, I mean we've never guided on multiple years, so I think it would be -- it would actually be more odd to continue to do that and especially in an environment where we are seeing much more growth and much more future growth coming in. It's very hard to guess 18 months out, especially with the uncertainties we see right now and precisely when will some of these very big take-or-pays actually starting to kick into revenues. So we will do the guidance as we normally do with our full year results for the coming year rather than try to guess what happens over the next couple of years.
Operator: We will take the next question from line Roshan Ranjit from Deutsche Bank.
Roshan Ranjit: I got three, please. And maybe just going back to your points on previous question around CapEx and the operational change that drove that decision. I guess is there a risk that you kind of lose the first-mover advantage if you're waiting for the evolution of the technology and you're waiting for your customers to come on board rather than building a tower and trying to attract them on to the Gen 2 network? And I guess coupled with that, you used the word like step-wise, so whilst we've seen this reduction in the kind of annual CapEx guidance, what should we be thinking about the overall envelope? Is there scope to still build out that network over time, so we're still looking at the kind of -- I think you previously said a €4 billion CapEx spend on Gen 2? So anything you could say there will be super helpful, please. Secondly, just circling back to IRIS². I think when we caught up at the end of last year, you emphasized that Gen 2 certainly won't be delayed as a result of IRIS² but you are also keen to incorporate some of the parameters that you would see once in IRIS [ph] within Gen 2. So are those timeframes running in parallel? And also how should we think about the, I think, 40% subsidy and how that could fit in with the kind of build-out of Gen 2? And finally, a quick one. On the 90% of ground stations to be built, I think you said by Q2, does that then suggest that global operations of Gen 1 should be done by the summer? So we should expect kind of global coverage by the summer there. And what is the CapEx component for the remaining around 13 ground stations to be built?
Eva Berneke: Thank you. Let me really start with the last one because I think we have around 40 -- we have exactly 43 ground stations we need. We are now at 30, so 3-0. And we expect to be at that 90%, so probably missing a bit less than a handful by the summer. So we -- that will give us that 90% coverage. There's still a few -- some for the Indian Ocean and some out in the Atlantic which will take longer. The CapEx is in our plan for that. It is not massive but it is in our plan already. This is mainly kind of civil works on putting in pads for antennas. So it's not like the same order of magnitude as you see for launching satellites. So that's the expectations on the remainder of the ground network. Then coming back to your bigger questions on going out in the future for the space, I think we expect to kind of overall a kind of around 30% reduction in that overall envelope we have seen previously, kind of in order of magnitude. And it's very much driven by this -- by actually making sure we maintain our first or you might call it second-mover advantage because over the next -- and we believe at least until '27, '28, it is really only going to be us and Starlink that are in this market. Starlink will be there but we think that both the Telesat project and the Amazon project will be there, '27, '28 earliest. So we really need to make sure that we have that continuity service and that we can keep our customers in those long-term contracts that they've signed with us already. So having any kind of gap there would not be good. In terms of -- at that time, potentially see some of those new competitors coming live. And that's why we do this step-wise where we can also embark -- and that was, I think, a little bit also your question with the IRIS. If there are public sector subsidies to developing some of these new technologies in terms of financing what we in the industry call the nonrecurring costs, so the actual development cost, it would just make sense for us to say let's align with that development, make sure that we are several payers for maturing these technologies and then embark them on the constellation in the timing that works well for not having to do all the spending on the nonrecurring costs. So that's what's driving that stepwise approach. But it's also really to make sure that the timeline works. I think it's very important for us that we keep the continuity of service with our customers in these multi-year contracts and step them up over time and then bring the new functionality when it's ready and when it's potentially, as you said, financed or subsidized partly by other developments as well.
Roshan Ranjit: Okay, that's really helpful. If I may, just a quick follow-up on the time frame. So I mean, again, I guess, you're not going to be pushed on this but the global -- it seems to be that the global operations probably towards the end of the year then if -- by the summer, you'll still have a few filings still to be signed. Is that right, towards the end of the year for global equation...
Eva Berneke: No, I think in terms of ground coverage, I think we expect to be at that 90% kind of over the summer. However, what I will say is that I don't have full control over all the landing rights and licensing because that is a country-by-country, almost door-to-door opening. But in terms of network coverage, at least that should be available kind of over the summer. And then there will be a few pending holes, mainly in some of the oceans, where we have a few -- a bit difficult areas for some of these ground gateways to cover. So those will be the -- there's going to be a lot of ocean pending.
Roshan Ranjit: And these ocean rights are also needed for global coverage -- service coverage?
Eva Berneke: Some of them are but not truly. I mean this is the south part of the Pacific. It'd be nice to have for some crews. But I'd say a lot of the mobility what they're looking for is, let's say, at least get the Mediterranean covered well or the Caribbean covered well, so they -- but it needs to be some of those -- the Indian Ocean needs to be covered well. So it is -- but it needs not just to be one country, right? They do need multiple countries where they come in.
Operator: It appears no further questions at this time. I'll hand it back over to your host for closing remarks.
Eva Berneke: Okay. Well, thank you for all the questions and thank you for showing up here on a Friday morning which at least for France is on the way onto the winter vacation, so maybe some are going. We're super happy to -- that we've been able to explain a little bit to you where we are in this very interesting first half year of the combined entity which actually only has 3 months of combination and 3 months of Eutelsat historic business. So we're looking forward to taking it on into the next half year. And are there any questions, we have Hugo and Joanna, who can probably help you navigate if I said something totally bonkers or if there's something you just need a little bit of help to understand? So feel free. And other than that, just have a great Friday.
Operator: Thank you for joining today's call. You may now disconnect.