“We have created a circle of banks for placements”
Treasury and Finance Manager, Eutelsat SA
Lettre du Trésorier
How would you describe Eutelsat?
Eutelsat Communications is the company which has been listed on the Euronext A since December 2005 and is also the holding company of Eutelsat SA, which is the operating company and one of the top three worldwide telecommunications satellite operators based on revenues. The group, which in the 1970s was originally a European international organisation consisting of the principal national telecommunications companies, was privatised and became a société anonyme – public limited company – in July 2001. At present, there are two key shareholders: the Caisse des Depots et Consignations with a stake of approximately 26%, and the Spanish group, Abertis, which owns around 32%. The rest of the shares are quoted on the stock exchange. With its resources in orbit on over 27 satellites, Eutelsat offers a full coverage of Europe, the Middle East, Africa, India and large areas of Asia and the American continent. These satellites broadcast over 3,200 TV channels and 1,100 radio stations, but are also used for fixed and mobile telecommunications, to transmit corporate network data and also for broadband services offered by Internet Service Providers. Eutelsat Communications has set itself the goal of exceeding revenues of €925m for the 2008-2009 financial year. Its revenues are generated mostly from video applications – TV channels and interactive services. An important detail – the company operates telecommunications satellites but does not manufacture them, four of which were launched over the past six months.
What is the economic model and to what extent does it provide a structure for the treasury function?
ST: A traditional satellite programme costs between €2m and €3m, including the launch and insurance, which generates recurring financial requirements. In terms of receipts, we mainly have long-term contracts, most often based on the life-span of the satellites, which represent a strong commitment for our clients and gives us an exceptional visibility of our revenues with an order book currently equal to almost four time revenues.
The group is not very geographically dispersed-our main subsidiaries are located in Italy, the United States and Germany.
In general, the sector is marked by relatively high but manageable debt levels due to high and regular cash flows generated from operations. Currently net debt amounts to €2.4bn which is equal to or slightly less than 3.4 times the gross operating surplus with an equity capital of around €1.4bn. We are rated BB+ by Standard & Poor’s and are one of the few companies to have been upgraded recently. In March, Moody’s increased our rating from Ba2 to Ba1. These ratings are principally of use to us in our relations with our banking pool because our financing is assured in full by syndicated credits.
At the moment, the management of the debt requires regular attention on the part of the treasurer, particularly in terms of interest-rate hedging. This continuous hedging policy at Eutelsat is reflected by the usage of swaps and caps to hedge 100% of the loans redeemable on maturity and to some extent the revolving credits.
We endeavour to classify the hedges under IFRS accounting standards – all the instruments which are eligible for this in order to benefit from the hedge accounting which allows us to reduce the impact of the variations in fair value of the financial instruments on profits, as it is possible to partly record the effective – and generally the largest – part under equity.
What other risks are there?
ST: The other risks relate to currencies, in our case the euro-dollar parity. Approximately 20% of our billing is denominated in dollars, while on the expenses side we pay for some of our launches mainly in that currency. We therefore hedge the net position and to do that have recourse to classic options or zero-premium activating options. Overall this risk remains limited for a company like ours and accounts for an average of around 3-4% of revenues.