SES Full Year 2021 Results

SES S.A. announces financial results for the year ended 31 December 2021.

Solid performance delivering revenue of €1,782 million and Adjusted EBITDA⁽¹⁾ of €1,091 million at top end of financial outlook

• Improving Video trajectory (-4.6% YOY^(2,3) in 2021 vs. -8.0% YOY^(2,3) in 2020) ahead of our financial outlook
• Resilient Networks performance, +0.5% YOY^(2,3) in a COVID-impacted environment
• Adjusted Net Profit up 69% to €323 million including benefit of lower recurring operating, depreciation, and interest expenses
• $1 billion received from first C-band clearing milestone, strengthening the balance sheet, with second phase on track for end-2023
• Proposed 2021 dividend (paid in 2022) of €0.50 per A-share, representing a 25% YOY increase

On track to deliver robust 2022 Revenue and EBITDA and drive long-term value from differentiated growth investments

• Around 85% of 2022 Group Revenue outlook (€1,750-1,810 million⁽⁴⁾) already under contract
• 2022 Adjusted EBITDA outlook (€1,030-1,070 million⁽⁴⁾) reflects robust profitability despite added spend to drive Networks growth
• Over $900 million⁽⁵⁾ of backlog for SES-17 (in service mid-2022) & O3b mPOWER (service introduction end-2022)

Steve Collar, CEO of SES, commented: “2021 was a strong year for SES with revenue and Adjusted EBITDA in line with our objectives, over €1.2 billion of commercial renewals and new business wins secured, an increase in our Adjusted Net Profit reflecting our focus on all cost lines, and our net debt to EBITDA reaching a 6-year low.

Our Video business delivered an improved trajectory on the back of important renewals with our long-term broadcast partners, growing number of HD TV channels, and the expansion of the HD+ offering in Germany. Our Networks business performed well against the backdrop of an extended COVID environment, with a recovery in Mobility contributing to positive year-on-year growth in H2 2021, which we expect to accelerate over 2022.

2021 was also a pivotal year for our C-band initiative in the US as we completed phase one clearing ahead of the FCC deadline and received $977 million (pre-tax) in accelerated relocation payments. Phase two is fully on track with a busy year of satellite launches in 2022, paving the way to triggering an additional incentive of $3 billion in late 2023.

Looking forward and in 2022 we will bring our network of the future to the market with SES-17 entering commercial service in July and the first services on O3b mPOWER delivered before the end of the year. Customer engagement is growing well with almost a billion dollars of backlog now signed, including five of the top six major cruise lines, Microsoft, Marlink, and our landmark joint venture partnership with Reliance Jio. We also welcome the progress being made by the European Commission in the definition of a secure and sovereign multi-orbit European space architecture which aligns well with both our infrastructure and our vision.

Finally, we returned €275 million of cash to shareholders in 2021, underscoring our commitment to sustained and attractive shareholder returns. Increasing the base dividend for 2021 by 25% reflects our confidence in the long-term growth fundamentals and value creation of SES.”

Key business and financial highlights (at constant FX unless explained otherwise)

SES regularly uses Alternative Performance Measures (APM) to present the performance of the Group and believes that these APMs are relevant to enhance understanding of the financial performance and financial position.

• Underlying revenue (excluding periodic and other) was lower by 2.6% year-on-year at €1,780 million.

• Video underlying revenue of €1,046 million represents a reduction of 4.6% year-on-year, compared with -8.0% year-on-year in 2020, whereby lower revenue from mature markets was partially offset by the growth of HD+ in Germany and a recovery in Sports & Events.

• Networks underlying revenue of €734 million was flat compared with 2020 (+0.5%) with growth in Government (+3.8%) offsetting short-term COVID-related impacts on Mobility (-1.5%) and near-term declines in Fixed Data (-1.8%). Networks delivered a positive year-on-year performance in H2 2021 reflecting a recovery in Mobility, combined with new revenue from Cloud and MNO customers.

• Adjusted EBITDA of €1,091 million represented an Adjusted EBITDA margin of 61.2% (2020: 61.4%) with recurring operating expenses of €691 million (2020: €707 million).

• Adjusted EBITDA (as reported) excludes restructuring expenses of €8 million (2020: €40 million), an accelerated relocation payment of €839 million (2020: nil) associated with the repurposing of US C-band spectrum, and US C-band operating expenses (net of reimbursement income) of €60 million (2020: €33 million).

• Adjusted Net Profit (as reported) improved to €323 million including lower depreciation expense (down 8.0% year-on-year), a 21.1% reduction in the net interest expense, a net foreign exchange gain of €37 million (2020: loss of €32 million), and income tax expense of €34 million (2020: income tax expense of €66 million).

• Adjusted Net Profit excludes (net of tax) the restructuring expenses and C-band items noted above, as well as €724 million in non-cash impairment expenses comprising €673 million relating to the write-down of goodwill in the North American cash generating unit, triggered largely by the recognition of the income from the first US C-band accelerated relocation payment of €839 million (pre-tax), and €51 million of net impairment expense for space segment assets.

• At 31 December 2021, Adjusted Net Debt (including 50% of the €1.175 billion of hybrid bonds as debt) stood at €3,120 million, compared with €3,418 million 12 months ago, and represented an Adjusted Net Debt to Adjusted EBITDA ratio of 2.9 times (compared with 3.0x a year ago). Cash and cash equivalents of €1,049 million at 31 December 2021 included €344 million received as part of the C-band accelerated relocation payment, while the balance of the payment (€518 million) was received in early January 2022.

• Contract backlog at 31 December 2021 was €5.2 billion (€5.8 billion gross backlog including backlog with contractual break clauses).

• Board of Directors has proposed a 2021 dividend of €0.50 per A-share and €0.20 per B-share, representing a 25% increase over the prior year. Subject to shareholders’ approval at the Annual General Meeting (7 April 2022), the dividend will be paid on 21 April 2022.

Financial Outlook

• 2022 group revenue (assuming an FX rate of €1=$1.13, nominal satellite health, and nominal launch schedule) is expected between €1,750-1,810 million, with mid-single digit year-on-year decline in Video and low- to mid-single digit year-on-year Networks growth.

• 2022 Adjusted EBITDA (excluding restructuring and US C-band repurposing) is expected to be between €1,030-1,070 million (assuming an FX rate of €1=$1.13, nominal satellite health, and nominal launch schedule). The implied year-on-year increase in recurring operating expenses reflects additional operating expenses in Networks associated with the entries into commercial service of SES-17 and O3b mPOWER during H2 2022.

• SES-17 and O3b mPOWER are expected to be important drivers of low- to mid-single digit average growth (at constant FX) in group revenue and Adjusted EBITDA from 2023 onwards. This outlook anticipates a ‘flattening of the curve’ in Video to low-single digit average decline being more than offset by an acceleration to high-single/low-double digit average growth in Networks.

• Capital expenditure (net cash absorbed by investing activities excluding acquisitions, financial investments, and US C-band repurposing) is expected to be €950 million in 2022 reflecting the growth investments in SES-17 and O3b mPOWER. Thereafter, capital expenditure is expected to reduce to €540 million in 2023, €570 million in 2024, €380 million in 2025, and €360 million in 2026.

Operational performance and commentary

REVENUE BY BUSINESS UNIT

“At constant FX” refers to comparative figures restated at the current period FX to neutralise currency variations. “Underlying” revenue represents the core business of capacity sales, as well as associated services and equipment. This revenue may be impacted by changes in launch schedule and satellite health status. “Periodic” revenue separates revenues that are not directly related to or would distort the underlying business trends on a quarterly basis. Periodic revenue includes: the outright sale of transponders or transponder equivalents; accelerated revenue from hosted payloads during construction; termination fees; insurance proceeds; certain interim satellite missions and other such items when material. “Other” includes revenue not directly applicable to Video or Networks
1) 2021 periodic revenue: €1 million (2020: €8 million)

Video: 59% of group revenue

At 31 December 2021, SES delivers 8,386 total TV channels (up 1% year-on-year) to more than 355 million TV homes around the world. This includes some 3,105 TV channels in High Definition which has grown by 6% compared with 31 December 2020. 71% of total TV channels carried over the SES network are broadcast in MPEG-4 with an additional 5% broadcast in HEVC.

The impact from customers ‘right-sizing’ volumes in mature markets (Western Europe and the US), lower US wholesale revenue, and the decision to reduce exposure to low margin services activities led to an overall year-on-year revenue reduction, albeit at a much slower pace of decline as compared with the trends in 2020 and 2019.

The initial benefit of the increase in the cost to renew a 12-month subscription implemented in March 2021 and continued growth in the average number of paying subscribers led to year-on-year growth for HD+ in Germany. Looking forward, the full annualised contribution from the price increase and the introduction of new Internet Protocol-based solutions, such as HD+ ToGo (launched in October 2021) and HD+ IP (launched in February 2022), into the market are expected to support the future development of the business.

In addition, international market revenue was flat year-on-year, while revenue from Sports & Events is continuing to recover, with improved performance compared with 2020 which was impacted by cancellations and delays caused by the COVID pandemic.

Networks: 41% of group revenue

In Government, the positive contribution from new MEO- and GEO-enabled network and institutional solutions for both the US and Global customers led to year-on-year growth in revenue compared with 2020. This was partly offset by the cancellation of services during Q3 2021 resulting from the US withdrawal from Afghanistan.

For Fixed Data underlying revenue decreased by a low-single digit amount compared with the prior year as lower year-on-year revenue in the Pacific region and wholesale business in Africa was not yet being balanced with the ongoing growth in new business from tier one mobile network operators, notably in the Americas and Asian regions, as well as new revenue in the global cloud segment.

In the Mobility segment, the continued effects of the COVID pandemic on customers in the commercial aviation and cruise segments resulted in lower revenue compared with 2020. This was partly offset by a positive year-on-year performance in commercial shipping revenues. The long-term fundamentals remain strong with sequential revenue improvement during H2 2021 reflecting recovery in Cruise, as ships return to service, and new business providing additional capacity to commercial aviation customers.

Future satellite launches

In October 2021, SES-17 was successfully launched by Arianespace. This Ka-band high throughput satellite is expected to enter commercial service by mid-2022 and will deliver broadband connectivity over the Americas, the Caribbean, and Atlantic Ocean. Thales Avionics is the anchor customer and will use SES-17 to deliver connectivity solution for commercial aviation clients over North America.

In November 2021, SES ordered two geostationary Ku-band satellites for its prime orbital slot at 19.2 degrees East to maintain the premium services it provides to its European video customers and to capture new opportunities in the region. These two replacement satellites (ASTRA 1P and ASTRA 1Q) are expected to replace the four satellites (ASTRA 1KR, ASTRA 1L, ASTRA 1M, and ASTRA 1N) that are currently serving customers at this orbital location, realising significant efficiencies by reducing capital expenditure needs at 19.2 degrees East by more than 50%.

CONSOLIDATED INCOME STATEMENT

Year ended 31 December

1) Earnings per share is calculated as profit attributable to owners of the parent divided by the weighted average number of shares outstanding during the year, as adjusted to reflect the economic rights of each class of share. For the purposes of the EPS calculation only, the net profit for the year attributable to ordinary shareholders has been adjusted to include the assumed coupon, net of tax, on the perpetual bonds. Fully diluted earnings per share are not significantly different from basic earnings per share

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December

1) Trade and other receivables (current and non-current) include €1,273 million related to US C-band repurposing (31 December 2020: €21 million). 2) Fixed Asset Suppliers (current and non-current) includes €655 million (31 December 2020: €313 million) related to US C-band repurposing

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 31 December

1) Including €38 million related to US C-band repurposing (2020: €10 million). 2) Net of dividends received on treasury shares of €2 million (2020: €2 million)

SUPPLEMENTARY INFORMATION

QUARTERLY INCOME STATEMENT (AS REPORTED)

1) Earnings per share is calculated as profit attributable to owners of the parent divided by the weighted average number of shares outstanding during the year, as adjusted to reflect the economic rights of each class of share. For the purposes of the EPS calculation only, the net profit for the year attributable to ordinary shareholders has been adjusted to include the coupon, net of tax, on the perpetual bonds. Fully diluted earnings per share are not significantly different from basic earnings per share.

QUARTERLY OPERATING PROFIT (AT CONSTANT €/$ FX RATE OF €1: $1.13)

ALTERNATIVE PERFORMANCE MEASURES

SES regularly uses Alternative Performance Measures (‘APM’) to present the performance of the Group and believes that these APMs are relevant to enhance understanding of the financial performance and financial position. These measures may not be comparable to similarly titled measures used by other companies and are not measurements under IFRS or any other body of generally accepted accounting principles, and thus should not be considered substitutes for the information contained in the Group’s financial statements.