SES Launches New UHD HDR Demo Channel, Moves to Acquire Remaining O3b Stake
It’s been a busy couple of days for SES at its annual Industry Days event this week in Luxembourg, as the satellite giant announced the launch of a new 24/7 Ultra HD test channel for transmitting High Dynamic Range (HDR) content. The company also announced plans to acquire of the remaining shares in O3b Networks for $710 million (via capital raising to fund the acquisition). SES also utilized the opportunity at Industry Days (May 26-27) to demonstrate its SAT>IP technology for OTT streaming and to announce that The Philippines’ largest cable operator (Sky Cable) will use SES-9 and NSS-11 satellites to complement their existing TV offerings.
SES Launches UHD HDR Demo Channel
For the ninth edition of Industry Days, SES, together with industry partners, will present and demonstrate several technologies for enhancing the quality of Ultra HD television with High Dynamic Range. This feature will be key for next generation Ultra HD picture quality, as HDR provides much higher contrast and offers a more realistic viewing experience. Delegates of the event will be able to witness HDR implementations such as HDR 10, Dolby Vision, Hybrid Log Gamma and the Technicolor/Philips solution on state-of-the-art flat screens of major manufacturers.
As the broadcasting industry is in discussions to establish a standard for HDR transmission, the goal of SES’s HDR demo channel is to allow industry partners to test the various technology candidates. At the moment the channel carries Ultra HD content provided by LG Electronics, with a backwards compatible HDR technology called Hybrid Log Gamma (HLG). HLG HDR content will be demoed on LG’s E6 4K OLED TV.
“High Dynamic Range will be a major improvement for satellite delivered Ultra HD television,” says Thomas Wrede, VP Reception Systems at SES. “As industry and operators now face the challenge of standardising and implementing a plethora of technology candidates, we intend to support the process with our test channel. At the same time, we have started to implement relevant HDR technology at our Munich playout facility.”
In addition the UHD HDR, SES is also demonstrating how live television can be brought to all the major media player platforms via satellite, as SES’s industry partners are showcasing live satellite-delivered television brought to the latest 4th generation Apple TV, Amazon FireTV 4K and various devices running the Google Android TV operating system, using SAT>IP technology. SAT>IP is an architecture for receiving and distributing satellite signals via IP. These demonstrations leverage the work that SES and partners have already done to develop SAT>IP technology, which has now become a real enabler for these devices.
To date most media players do not provide the breadth of live television choice that satellite delivers. By combining SAT>IP with digital media players, these devices now get access to high quality live TV. Additionally, satellite TV benefits from the attractive interface and viewing experience enabled by the powerful software platforms that run on these players.
“SAT>IP was conceived right from the start as an enabling technology for next generation satellite TV experiences,” says Wrede.“With these demos, we will concretely show how this vision can change the experience of satellite-delivered television again.”
SES Moves to Acquire 100% of O3b Networks
SES has completed the capital raising to fund the acquisition of the remaining shares in O3b Networks, a next generation satellite operator with a constellation of 12 High Throughput Satellites (HTS) at Medium Earth Orbit (MEO) that delivers a unique, global ‘fibre in the sky’ connectivity solution with ultra-low latency. Plans for capital funding were first announced on May 26. The total gross proceeds from the capital raising amounts to EUR 908.8 million. SES will use the proceeds raised to fund the total consideration of USD 730 million to increase its ownership of O3b to 100%. The transaction is subject to regulatory approvals which are expected to be completed during H2 2016. SES will also use around USD 300 million to repay O3b’s most expensive debt facilities, leading to a reduction in annual financing costs after initially covering any repayment charges.
SES will issue 39,857,600 million new Fiduciary Depositary Receipts (FDRs) at a price of EUR 19.0. The number of new FDRs represents 11.6% of the existing number of total Class A shares. The Private Placement (“The Placement”) is part of a capital increase in which the existing Class B shareholders (Banque et Caisse d’Epargne de l’Etat, Société Nationale de Crédit et d’Investissement and Etat du Grand-Duché de Luxembourg) have agreed to subscribe for 19,928,800 newly-issued Class B shares, pro rata to their existing holding of Class B shares, as is necessary to maintain the ratio of 1:2 with the Class A shares, as provided in SES’s articles of association.
These new shares will rank pari passu with the existing A-shares and B-shares. Class B shares have 40% of the economic rights of Class A shares. As a result of the capital raising, the total number of shares will increase from 515.40 million to 575.19 million, and the total number of economic shares will increase from 412.32 million to 460.15 million.
The settlement-delivery and the admission of the new FDRs on Euronext Paris and the Luxembourg Stock Exchange (on the same line as SES’s existing shares, ISIN Code: LU0088087324) is expected to take place on 31 May 2016. A Listing Prospectus is expected to be approved by the Commission de Surveillance du Secteur Financier (CSSF) in advance of settlement.
Acquisition of 100% of O3b expands SES’s global network and solutions, by further incorporating O3b’s unique, low latency satellite constellation, which is already in operation. The deal also augments SES’s differentiated capabilities by leveraging the capabilities and features of the combined fleets to deliver the best customer offering across the data-centric verticals. SES also enhances its foundations for sustainable growth with O3b’s strong outlook representing an important accelerator of long-term growth. Bringing SES and O3b closer together also accelerating commercial and financing synergies. In addition, the deal delivers attractive returns within SES’s financial framework, with the transaction generating an IRR in excess of SES’s hurdle rate, while retaining the benefits of SES’s investment grade credit status.
“Taking 100% control of O3b exceptionally strengthens the SES differentiation.” Karim Michel Sabbagh, President and CEO, says. “O3b allows SES to expand its global reach and solutions, augments SES’s essential capabilities across the data-centric verticals and enhances SES’s foundations for sustainable growth.”
O3b’s MEO constellation is a key accelerator in the execution of SES’s differentiated strategy and substantially improves SES’s competitive positioning, particularly for applications where low latency is an increasingly central feature. By moving to 100% now, SES and O3b can immediately begin to realise important commercial and financing synergies from bringing the two businesses even closer together.
SES and O3b will be uniquely positioned to provide customers with the optimal combination of technologies and solutions across a global GEO/MEO satellite network, allowing SES, O3b and our customers to all grow together. The transaction will also allow SES and O3b to develop a common technology and innovation roadmap.
The transaction exceeds SES’s investment hurdle rates and will further enhance returns on SES’s existing investment in O3b. The capital raising allows SES to capture the full benefits of O3b’s fast-growing top-line and accelerate significant synergy opportunities, while re-affirming SES’s long-standing commitment to maintaining its investment grade credit status (BBB/Baa2) and progressive dividend policy.”
Increasing SES’s share of O3b from a minority interest of 49.1% to 100% ownership
As announced on 29 April 2016, SES has agreed to pay USD 20 million to increase its fully diluted ownership of O3b from 49.1% to 50.5%. SES now intends to exercise its call option, under the purchase agreement, to acquire the remaining 49.5% of O3b shares for a consideration of USD 710 million, bringing SES’s aggregate equity investment in O3b to date to USD 1.0 billion (EUR 900 million). As a result, the Board of O3b will no longer evaluate an Initial Public Offering (IPO) process.
The transaction is subject to regulatory approvals which are expected to be completed during H2 2016, as previously foreseen. There will be no changes to the management of O3b, which has been highly successful to date in delivering the fastest growing satellite network in terms of capacity contracted.
The transaction is expected to generate returns exceeding SES’s hurdle rates for infrastructure investments and will further enhance the returns on SES’s existing investment in O3b. On completion, SES will consolidate O3b’s net debt, which is currently USD 1.2 billion with an average interest rate of 9.5% (including amortisation of loan origination costs and commitment fees), where significant refinancing synergies are possible and outlined below.
Since beginning commercial operations in September 2014, O3b has built a strong global customer base and now serves over 40 Enterprise, Mobility and Government clients across 31 countries. To date, over 50% of customers have already upgraded their initial service commitments, demonstrating the attraction of O3b’s unique and ‘game-changing’ solution. As at 31 March 2016, O3b had a fully protected contract backlog of USD 350 million.
O3b has procured an additional eight satellites to accommodate rapidly-expanding demand, with four satellites expected to be launched during H1 2018, and the remaining four satellites expected to be launched in H2 2019. These procurements will increase the size of the current fleet from 12 to 20 satellites (including three satellites currently flying as in-orbit back-up). At ‘steady-state’ utilisation, which is targeted to be achieved by the end of the third year of a satellite’s commercial service, the full operational constellation is expected to generate annualised revenue of between USD 32 million and USD 36 million per satellite.
O3b is expected to generate more than USD 100 million of revenue for the twelve months ended 31 December 2016, which represents nearly double the revenue recorded in the previous year. With the benefit of commercial and financing synergies, the acquisition is now expected to become free cash flow (before financing activities) and EPS accretive to SES in 2018.
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Largest cable operator in the Philippine archipelago will use SES-9 and NSS-11 satellites
Finally, SES has announced today a multi-year, multi-transponder agreement with Sky Cable, the largest cable television provider in the Philippines. Sky Cable will be broadcasting direct-to-home (DTH) satellite TV channels via SES satellites at 108.2 degrees East – the SES-9 and NSS-11 satellites.
The contracted capacity will enable Sky Cable to effectively roll out a nation-wide DTH satellite TV service across 251 cities and municipalities in the Philippine archipelago, complementing its existing cable offerings. The recently launched SES-9 is scheduled to enter service mid-year to provide incremental and replacement capacity at SES’s prime neighbourhood of 108.2 degrees East which reaches 22 million homes.
Sky Cable will be drawing on SES’s capabilities and global expertise of serving more than 40 DTH platforms worldwide hosted on SES’s comprehensive satellite network, to deliver high-quality content to homes across the Philippines. This includes broadcasting linear TV content to remote locations and islands that are underserved by terrestrial networks. Sky Cable currently offers cable TV services for 55 High Definition (HD) channels to 800,000 subscribers in 19 cities and municipalities in the Philippines.
“The geography of the Philippines presents a unique set of challenges for fibre or terrestrial connectivity. Our satellites are able to overcome these limitations and provide comprehensive and high-powered coverage over the entire archipelago including under-connected areas in the Philippines. We are glad to support Sky Cable as they use both ground and space infrastructure to expand their TV audience reach,” says Deepak Mathur, Senior Vice President Commercial, Asia-Pacific and the Middle East at SES. “This latest contract on SES-9 shows the continued momentum of serving our prime DTH neighbourhoods on our largest satellite dedicated for Asia-Pacific.”
Antonio S Ventosa, COO of SkyCable, says, “We are pleased to tap SES’s global expertise and extensive satellite footprint as we venture into providing satellite TV services for our growing subscriber base. We are confident that with our partnership with SES, we will be able to deliver content seamlessly to potential new customers all across the country.”