Review of strategic priorities and financial objectives in the context of evolving market dynamics
Maximizing cash-flow of our core businesses
Return to broad top-line stability in FY 2017-18[1]
Maintain EBITDA margin above 75%
Capital expenditure reduced by 80m on average to 420m pa
Reduced cost of debt
Discretionary free cash flow[2] CAGR>10% from FY 2015-16 to FY 2018-19
Stable to progressive dividend
Returning to growth by building on our core Video business and capturing longer term potential in Connectivity
Paris, 27 June 2016 - In a context of slowing industry-wide momentum, Eutelsat Communications (ISIN: FR0010221234 - Euronext Paris: ETL) is announcing a review of its strategic priorities and financial objectives.
Rodolphe Belmer, Chief Executive Officer commented: It has become clear in recent months that the traditional businesses within the Fixed Satellite Services sector are facing a context of slowing industry-wide momentum. To face this lower growth environment, we are implementing an adaptation of our strategic priorities and financial objectives. Our immediate priority will be to maximize the free-cash-flow generation of our core businesses. We are confident in our ability to generate a level of discretionary free cash flow in the next three years, which will enable us to serve a stable to progressive dividend and reduce leverage, in line with our commitment to our investment grade rating. We will continue to invest selectively to prepare for a return to growth by building on our core Video business and capturing the longer term opportunities in Connectivity. Our objective is to return to broad top line stability as early as FY 2017-18.
ADAPTING STRATEGY TO EVOLVING MARKET DYNAMICS
In recent months it has become clear that the traditional businesses within the Fixed Satellite Services sector are facing slowing industry-wide momentum, reflecting broadly stable demand in developed markets (Europe), and economic headwinds in economies such as Russia and Latin America, only partly offset by more robust demand in Sub-Saharan Africa, the Middle-East and North Africa and Asia. Competition continues to intensify in the Data Services segment, where we anticipate ongoing downward pricing pressure.
Against this backdrop, Eutelsat has undertaken a review of its strategic priorities and financial objectives, leading to the adoption of a two-step strategy, based around the following priorities:
Step one: Immediately implement measures to maximize free-cash-flow generation of our core businesses (Video, Data and Government Services);
Step two: At the same time prepare for a return to growth by building on our core Video business and capturing the longer-term potential in Connectivity.
STEP ONE: maximize free-cash-flow generation of our core businesses
Eutelsat's focus in the immediate term will be to maximize the free cash flow generation of its existing businesses in order to secure ongoing deleveraging in line with its commitment to its Investment Grade rating, deliver stable to progressive dividend to shareholders and finance targeted investments to pave the way for a return to growth.
CAPEX Reduction
Capex savings will be achieved without impacting the current deployment plan and attendant future revenues. Savings will be driven by the implementation of a design to cost' approach, a focus on hosted payload and partnership or condosats opportunities when appropriate, as well as capitalization on industry-wide efficiency improvements. Ground capex will be placed under strict control.
In consequence, estimated average annual cash capex for the period July 2016 to June 2019 will be reduced to 420 million (versus an average of 500 million previously for the period July 2015 to June 2018).
Cost of debt optimization
The 500 million bond issue at a 1.125% coupon in June 2016 to refinance, along with cash in the balance sheet, the 850 million March 2017 bond, will lead to savings of c. 30 million per annum. Elsewhere, a swap-lock has been negotiated in anticipation of the January 2019 800 million bond maturity, while the Eutelsat Communications term loan has been extended for 12 months to 2021. Cumulated annual savings from January 2019 are anticipated in the region of 50million.
OPEX containment
Operating cost containment measures are under consideration, notably procurement and SG&A expenses, with a view to underpinning our EBITDA margin above a level of 75%.
Optimize asset portfolio
Eutelsat will continue to consider opportunities to streamline its portfolio of assets, following on from the divestment of Alterna'TV in April 2016. At the same time it will seek partnerships for some of its broadband projects, such as ViaSat in Europe and Inframed in Africa.
Streamlining the organization
Eutelsat's organization is being realigned along the following five business lines: Core businesses (Video, Data and Government services) and Connectivity (Fixed Broadband and Mobile Connectivity). Measures will be implemented to further strengthen the quality of the salesforce, while the metrics on which key personnel are measured will be aligned to our cash flow generation targets.
Within this framework, Eutelsat is adapting the strategies within its three core businesses (Video, Data and Government services) in order to optimize revenues based on its assumptions for their current and future operating contexts.
Video
Demand in the Video segment should rise modestly over the next five years. It should see continued growth in emerging markets, in particular MENA and Sub-Saharan Africa where Eutelsat has a strong footprint, notably driven by increasing channel count. The trend in Europe is expected to be broadly stable with HD and Ultra HD ramp-up broadly offsetting improving encoding and compression techniques.
Against this backdrop, E
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Review of strategic priorities and financial objectives in the context of evolving market dynamics 
