Investor Day 2014
Padraig McCarthy
Chief Financial Officer
25 June 2014
Stability, Profitability and Value
Our financial foundations – CFO
Key Financial Metrics
 Proven track record of profitable growth
4
 International growth & profitability improvement
5
 Profit growth outstrips revenue growth
6
 Replacement satellite CapEx reaching floor
7
 CapEx normalisation
8
 Substantial Free Cash Flow generation
9
 Strong balance sheet
10
 An investment grade issuer
11
 Strong backlog: future revenue foundation
12
 Investment & financing decisions
14
 Use of cash & financial headroom
19
Case Study
 Case study – Business Control
20
Summary
 Summary
24
Governing Financial Principles
2
Key Financial Metrics
Key Financial Metrics
Proven track record of profitable growth
EBITDA*
Revenue*
CAGR: 3.7% (ex-analogue: 8.0%)
CAGR: 3.4% (ex-analogue: 6.3%)
1,527
1,595
1,656
1,738
1,780
1,802
EUR million
1,863
23%
14%
73.3%
71.7%
1,095
1,143
1,219
1,298
1,310
1,328
1,365
5%
2%
83.3%
86%
77%
2007
2008
2009
Analogue
2010
2011
Infrastructure
2012
Services
2013
Group margin
Infrastructure
margin
81.5%
98%
95%
12.9%
17.1%
2007
2008
Analogue
2009
2010
Infrastructure
2011
Services
2012
Services
margin
2013
EBITDA margin
 Revenue CAGR of 3.4% despite analogue switch-off impact (excluding analogue impact: CAGR 6.3%,
infrastructure –4.5%, services –13%)
 EBITDA CAGR of 3.7% (excluding analogue impact: CAGR 8.0%)
 All margins improving over the period
* At
constant EUR/USD 2013 exchange rate, at same scope
Strong, profitable organic growth
4
Key Financial Metrics
International growth & profitability improvement
EUR million
Revenue by Region*
81.5%
1,527
1,595
1,656
International
11.9%
1,802
23%
24%
26%
28%
23%
22%
North America
0.3%
49%
50%
Europe 1.3%
(6.8%, digital)
2%
2012
2013
25%
24%
22%
21%
26%
41%
43%
44%
45%
47%
15%
13%
11%
10%
8%
2007
2008
2009
2010
2011
Europe
Total 3.4%
(6.3%, ex analogue)
1,780
21%
Analogue
1,863
1,738
19%
18%
CAGR
83.3%
North America
International
Infrastructure EBITDA margin
 Execution of investment strategy in emerging markets drives growth
 Solid revenue contribution from the North American market
 Strong digital revenue growth in European markets more than offsets analogue impact
* At
constant EUR/USD 2013 exchange rate, at same scope
Double-digit international CAGR & strong infrastructure margin
5
Key Financial Metrics
Profit growth outstrips revenue growth*
1,000
EUR million
CAGR
900
5.6%
800
6.3%
700
EBIT
5.8%
NOPAT
600
500
Net Income
29.4%
Net Income margin
26.8%
35.6%
35.5%
31.9%**
30.9%**
400
30.4%
28.1%
300
200
25.5%
100
0
2007
2008
2009
Net income margin
2010
EBIT
2011
2012
NOPAT
2013
Net Income
 All profit metrics show favourable development, with CAGRs at around 6% for the period 2007-2013
compared to revenue CAGR of around 3%
 Net income margin increased from 27% in 2007 to 30% in 2013
*
As reported, at same scope
**
Normalised for effective tax rate and for AMC-16 accelerated depreciation
Strong CAGRs at all profit levels
6
Key Financial Metrics
Replacement satellite CapEx reaching floor
EUR million
Total 2014-2018: EUR 2.0 to 2.3 billion
835
54
691
60
425
57
781
631
368
A 2011
A 2012
A 2013
480
100
50
280
T 2014
25
25
470
50
50
160
450
450
450
75
75
100
100
100
100
250
250
T 2017
T 2018
40
200
170
20
80
T 2015
T 2016
Estimated, Uncommitted Potential Growth
Investments (maximum)
Estimated, Uncommitted Potential Growth
Investments (minimum)
Estimated, Uncommitted Replacement
Satellite CapEx
Committed, Non Satellite CapEx Infrastructure and Services
Committed Satellite CapEx for
Replacement and Incremental Capacity
 CapEx efficiency and end of pronounced replacement cycle delivers significant CapEx reduction as of 2013
 2014 – 2018 Replacement Satellites: up to three programmes to complete the overall replacement cycle
 2014 – 2018 Investment Satellites: up to three potential programmes, yet to be committed, targeting growth markets
 CapEx as proportion of revenue reduces from 48% in 2011 to a range of 10% - 25% between 2013 and 2018
 All infrastructure projects to exceed minimum IRR hurdle rate of 10%
Notes: FX translation based on 1 EUR = 1.35 USD (Trend 2014-2018); including capitalised interest, not including financial or intangible investments
Low replacement CapEx, Incremental CapEx for growth
7
Key Financial Metrics
CapEx normalisation
 Calculation of normalised annual satellite replacement CapEx considers:
• Number of satellites to be replaced (depends on market dynamics and size of satellite)
- SES flies approximately 37 “Primary Mission” satellites in its fleet
• Cost per satellite programme; ranges from EUR 130-300 million
- Average cost is approximately EUR 220 million (excluding capitalised interest)
• Satellite lifetime; average design life of approximately 15 years
EUR million
“Primary mission” no. of satellites
x Cost per satellite
37
220
/ Average lifetime of satellite (years) 15
Norm. Sat. Repl. CapEx p.a.
~540
- SES typically depreciates satellites over 15 years
 Normalised annual replacement CapEx based on current fleet and satellites under procurement
of approximately EUR 540 million
• Non-satellite CapEx, typically up to EUR 60 million p.a., should also be expected
 Technological innovations have already reduced normalised CapEx by approx. 5% based on achievements
to date and therefore we see normalised annual satellite replacement CapEx in a range of EUR 510-520
million
Reduction in normalised CapEx of up to 20% as of 2018
8
Key Financial Metrics
Substantial Free Cash Flow generation
EUR million
726
CAGR:
CAGR: 7.6%
7.6%
536
467
363
31%
39%
256
24%
195
16%
2007
2008
2009
FCF
230
11%
13%
2010
2011
29%
2012
2013
FCF / Revenue
 FCF increased strongly since 2010 delivering a CAGR of approximately 55%
 FCF as a proportion of revenue increased from 11% in 2010 to 39% in 2013
 FCF CAGR (2007-2013) of 7.6% compares to revenue CAGR of approximately 3%
*
FCF = Free Cash Flow before dividend and interest payments; as reported; normalised for one-off items
Significant increase in Free Cash Flow
9
Key Financial Metrics
Strong balance sheet
Balance sheet in EUR million
Dec-04
Dec-13
Property, Plant & Equipment
Intangible Assets
Other Assets
3.2
2.7
1.0
4.8
2.8
1.5
Total Assets
6.9
9.1
Total Equity
Debts
Deferred Tax Liabilities
Other Liabilities
3.4
2.1
0.7
0.7
2.9
4.3
0.6
1.3
Total Liabilities
6.9
9.1
Financial Metrics
Return On Tangible Assets
(excl. Assets Under Construction)
Dec-04
Dec-13
13%
20%
10%
26%
6%
10%
Dividend Yield
3.1%
4.6%
Net Debt Ratio
Net Debt / Equity
Net Debt / PPE*
Net Debt / EBITDA
50%
53%
2.16x
131%
78%
2.79x
Return On Equity
NOPAT / Equity
Return On Invested Capital
NOPAT / (Equity + Debt)
 Total assets and liabilities increased moderately over the last 10 years:
• higher asset base driven by ongoing investment in organic growth and acquisition of NEW SKIES in 2006
• higher liabilities reflecting share buybacks and cancellations with corresponding increase in leverage
 Return on equity increased from 10% in 2004 to 26% in 2013 reflecting leverage of share base and profitable growth
 Return on Invested Capital was 10% in 2013, up from 6%, well ahead of the current SES cost of capital (WACC of
6.6%)
* PPE = Property, Plant & Equipment (including assets under construction)
Delivering substantial returns
10
Key Financial Metrics
An investment grade issuer
Moody’s
Standard & Poor’s
FitchRatings
Rating (long-term)
Baa2
BBB
BBB
Outlook
Stable
Stable
Stable
Business Profile –
Strong
Global market leader; Clear strategy; Strong geographic diversity;
Focus on video-centric infrastructure business
Financial Profile –
Significant
Strong profitability; Significant cash flow visibility based on high backlog
and long-term contracts; Meaningful CapEx reduction; Good
deleveraging profile; Conservative liquidity profile
 Rating agency financial metrics for SES are improving, reflecting favourable operating financial development
and financial strength
 SES continues to manage its Net debt / EBITDA ratio below 3.3x
Current investment grade to be maintained
11
Key Financial Metrics
Strong backlog: future revenue foundation
Historic Backlog Development*
Roll-off as at 31 December 2013
7.5
EUR billion
1.4
CAGR: 3.4%
6.9
6.1
5.9
0.7
0.6
6.6
0.4
0.2
6.9
7.4
7.5
1.2
0.0
1.0
0.9
0.8
CAGR: 5.7%
5.4
5.3
2007
2008
EUR billion
6.5
6.4
6.8
7.4
0.7
7.5
0.6
0.5
0.4
2009
2010
Net backlog
2011
2012
2013
Analogue backlog
2014
2015
2016
2017
2018
2019
2020
2021
EOL
 Backlog CAGR 2007-2013 of 3.4% (excluding analogue impact: CAGR 5.7%)
 Backlog at end 2013 of EUR 7.5 billion = 4.0 x 2013 revenue
 Typically around 75% of following year’s revenue contracted by year end
 Weighted average remaining contract life of 8.5 years
* Fully protected or Net backlog with backlog related to German analogue contracts shown separately
Fully protected backlog at historic high
12
Governing Financial Principles
Governing Financial Principles
The investment decision
 The SES approach
Minimum rates of return
• Economic value creation when ROIC* > WACC
20.0%
• Satellite projects & acquisitions: Unlevered project IRR
15.0%
 Infrastructure / Services businesses
10.0%
• IRR to reflect the different businesses nature and risk
profiles
SES WACC
6.6%
• Minimum hurdle rate of 10% for infrastructure projects
and 15% for services
Investment
Risk
• IRRs based on individual satellites and if required,
individual payloads leading to optimum capital
allocation decisions
New SES businesses
 Detailed cross-functional and bottom-up investment analysis and regular post-investment review
* ROIC = Return On Invested Capital
Unlevered IRR after tax the key decision-making criterion
14
Governing Financial Principles
Satellite IRR
Actual / Planned IRR of satellites launched / to be launched
9.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
0.0%
5.0%
10.0%
Mean (14.6%)
7.00
Minimum hurdle rate Normal Distribution
8.00
15.0%
IRR
20.0%
25.0%
30.0%
 The majority of SES satellite projects within the last 10 years are expected to deliver an IRR exceeding 10%,
with two delivering marginally below 10% but still well in excess of our WACC
 The average IRR is 14.6%; some 30% of all satellite projects deliver an IRR over 15%
 Anchor customer approach and pre-opening of orbital positions benefit IRR
Investment decisions validated by IRRs
15
Governing Financial Principles
The financing decision
 Business performance delivering internal cash
• Key source of cash is operating cash flow, based on CCR* of approximately 90%
 External cash sources
• EUR-Bond, US-Bond, Coface, US Exim, Syndicated Committed Loan Facility, etc.
• Well diversified spread of maturities (extended from 6.4 to 8.0 years)
 FX hedging philosophy
• Target natural FX P&L hedge by increasing the percentage of USD debt from 34% (at end March 2014) up to 40% at year
end 2014, and increasing further in 2015
 Leverage objective
• Maintaining a leverage ratio below 3.3 times in order to optimise WACC, while maintaining investment grade credit rating
(BBB/Baa2)
* CCR = Cash Conversion Rate = Net operating cash flow / EBITDA
Current capital structure to be maintained
16
Governing Financial Principles
Soundly financed with optimised hedging profile
SES Debt Maturity Profile as per March 31, 2014
EUR million
Total Debt: EUR 5,112 million (Net debt: EUR 3,724 million)
805
Use for dividend
payment in April
(433) and EUR
bond maturing in
July (650)
87
Cash
1,388
711
6
567
544
13
430
544
USD
EUR
718
705
239
251
238
88
2015
554
13
151
2014
734
697
101
13
2017
190
33
88
2016
376
54
2018
2019
2020
2021
2022
2023
2024
2025+
 Including Club Deal facility of EUR 1.2 billion and cash-in-hand, liquidity is in place until the end of decade
 Debt maturity extended from 6.4 years to 8.0 years without increasing average financing cost
 Weighted average interest rate below 4%
 Natural FX P&L hedge further improved (hedged debt portion at 34% at end March 2014, expected to be greater than 40% by
year end)
Well balanced, cost effective and FX-hedged maturity profile
17
Governing Financial Principles
FX hedging and financing
Debt Profile
P&L Currency Profile


Some 48% of group revenues are USDdenominated
A move of 1 U.S. cent against EUR will result in:
Fixed / Floating Mix
Debt Currency Mix
31 March 2014
end of 2014*
9%
• ± EUR 6.8 million at Revenue level
40%
• ± EUR 5.0 million at EBITDA level
60%
91%
• ± EUR 2.8 million at EBIT level
• ± EUR 1.4 million at Net Profit level**
 P&L is not hedged as a natural business hedge exists, to be
further improved as the proportion of USD debt increases
 At net profit level the natural FX hedge has improved by
30% vs 2012 (net income impact EUR 2 million) mainly due to
2013/2014 refinancing
Fixed
EUR
Floating
 The proportion of USD
fixed debt stands at 91%
 At free cash flow level there is a natural Cash Flow hedge as
the USD-denominated portion in Net Operating Cash Flow
(driven by EBITDA) exceeds the USD-based CapEx
commitment
USD
 Balance Sheet is
selectively hedged against
USD exposure through
USD debts, to protect
shareholders' equity
* EUR USD debt split as anticipated at year-end 2014 after the refinancing of the EUR 650 million bond in October 2014
Foreign exchange risk is naturally hedged
18
Governing Financial Principles
Use of cash & financial headroom
Priority
Approach
1.
Fund Execution of current
Business Plan

Operating cash flow to fuel current replacement
requirements and existing pipeline of organic
growth opportunities
2.
Annual Dividend

Maintain a progressive dividend policy

To be validated annually based on cash flow
developments and other factors such as yield and
payout ratio
3.
4.
Growth Investments

Organic

Minimum hurdle rate of 10% for infrastructure
projects and 15% for services to be respected

Inorganic

M&A (minimum IRR hurdle rate applied)

Potential to move to control of O3b Networks

Option to optimize WACC through leverage
Share Repurchases
Consistent use of cash policy
19
Case Study
Financial Control Case Study
Business control (1/3)
FORECASTING & PLANNING
January
February
March
April
May
June
July
August
September October
November December
2014 STRATEGIC PLAN
2014 BUSINESS PLAN
2015 Budget
 SES business development and success follows a comprehensive strategic management process:
• Applying standard analysis tools e.g. Porter’s 5 forces, SWOT analysis
• Considering industry attributes (e.g. regulation & spectrum, investment, long-term nature, suppliers)
• Analysing the key future markets and growth drivers
 Rigorous planning process based on a Business Plan (current year + 7 years) plus a Budget, both performed
annually
• Thorough bottom-up planning by cost centre and target market; link to accountability
• Detailed revenue and cost programmes
• Separate infrastructure and services businesses analysis
21
Financial Control Case Study
Business control (2/3)
E.g.: Risk management
 Detailed sales and cost budgeting control
 Focused cost management and zero-based budgeting
Board of
Directors
Audit and Risk
Committee
 Cross-functional and empowered regional teams
 Risk management
Executive
Committee
 Internal audit
 Audit Committee governance
 OneERP system and One Sat plan: Unified view of the
company and of our customers
 Proactive OpEx management programmes
 Fully integrated, company-wide vendor management for all
procurement activities
Internal Audit
Risk Management
Committee
Risk
Management
Coordinator
Risk Category
Owner
22
Financial Control Case Study
Business control (3/3)
EUR million
CAGR 2007-2013
1,591
Creation of SES
World Skies
SES
Reorganisation
1,396
259
264
252
262
267
Excluding
Analogue
Including Analogue
2.2%
5.4%
266
259
0.4%
2007
2008
2009
2010
Infrastructure Cost Development*
2011
2012
2013
Headcount in international
markets has more than doubled
Infrastructure Revenue*
 Infrastructure costs since 2007 have been firmly controlled, with a CAGR of 0.4% over the period well below inflation. The key
drivers are:
• Detailed sales and cost budgeting control
• Organisational streamlining and productivity improvements (e.g. SES reorganisation and OneERP system)
• Targeted cost optimisation
* At constant FX, normalised for one-offs
Strong infrastructure cost management, while doubling international presence
23
Summary
Conclusion
 Proven track record of profitable growth
 Free cash flow increases significantly as CapEx reduces
 Best-in-class balance sheet supports delivery of excellent shareholder returns
 Normalised satellite replacement CapEx to reduce by up to 20% by 2018
 Investment grade rating to be maintained
 Substantial contract backlog
 Soundly financed with improving debt maturity and currency profile
 Governing financial rigour and principles
 Continuation of consistent use of cash policy, maximising long term shareholder returns
Long term shareholder returns through strong financial performance
25