investors presentation satcom systems - gilat satcom satcom investors presention 2014 en.pdf ·...
TRANSCRIPT
SATCOM SYSTEMS
Investors
Presentation
1
July 2014
2
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This presentation contains projections, estimates and assessments, as are known to the Satcom Systems Ltd (the "Company") in connection with theCompany its subsidiaries and its affiliates, at the time of preparation of this presentation and including, inter alia, forward-looking information as defined inthe Securities Law, 5728 – 1968. Such information contains, inter alia, prospects, targets, estimations, assessments and other information referring to futureevents which may or may not occur and may be effected from various factors. The forward-looking information is based on the Company's managementprospects that are based, inter alia, on information currently known to the Company's management including valuations on the Company's activities,statistical and publicly known facts which were published by different organizations and authorities but were never independently examined by theCompany and therefore the Company will not be held liable to their accuracy.
Forward-looking information is uncertain and mostly is not under the Company’s control and the realization or non-realization of forward-lookinginformation will be affected, among other things, by the risk factors characterizing the Company’s activity, as well as developments in the generalenvironment and external factors affecting the Company’s activity. The Company’s results and achievements in the future may differ materially from thosepresented in this presentation and the Company makes no undertaking to update or revise such projection or estimate and does not undertake to updatethis presentation.
This presentation was prepared for the sake of summary and convenience only and it cannot replace a reviewing of the prospectus and/or the periodicreport of the Company. Comprehensive information regarding the Company may be found on the periodic, immediate and annual reports posted on theIsraeli Security Authority website and the Tel Aviv Stock Exchange website.
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Content – Main Updates
1. Actions for the reinforcement of the capital structure
2. The Intelsat agreement:
I. Phase A: decline in expenditure in the amount of 6 million $ per annum duringphase A. Executed.
II. Phase B: evaluation of additional cutbacks of 2 million $ per annum.
In negotiations.
3. Significant increase in revenue from cellular customers in Africa (12 + new transactionsin terms of annual revenues)
4. Significant initial income from the fiber optics field
5. WIOCC – the potential has been realized
6. New technologies - PTT, HYBRID, Cellular Island
7. Increased streamlining and continuous improvement in gross profits
<For the balance click here>
<For the action taken click here>
<For efficiency results click here>
<For revenues from fibers - click here>
<WIOCC - potential - click here>
<For revenues from cellular - click here>
<For Improvement in gross profit - click here>
ID CARD Satcom Systems Ltd. holds an international group of communicationcompanies specializing in the provision of communication services in anevolving environment characterized by high demand, limited infrastructureand sensitive to the quality
The company has three main sectors of operation: data communication,mobile satellite services (MSS), telephony (VOICE)
The company’s services are aimed at a wide range of clients, including,amongst others, telecommunications companies, governments and more
The company is not dependent on any single customer or on the Israelimarket and most of its customers are international companies
Satcom Systems was listed for trading on the Tel Aviv Stock Exchange in1994. As of June 2014 the company's market value stands at about 50million ILS
In 2007, control in Satcom Systems was acquired by Eurocom (currentlyholding 79.93%)
CEO – Gilat Satcom
Dan Zichek
Deputy Chairman of
Eurocom
Communications
Chairman Gilat Satcom
Amikam Shorer
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(1) Private companies registered in Cyprus and held through nominee shareholders
(2) Private company registered in Nigeria
(3) A private company registered in Russia and held through nominee shareholders
(4) A private company registered in Zambia
The Satcom Systems group structure
100% 100% 50%
100%
5
100%100%
GayaCom Ltd.
Eurocom
Communications
Ltd.
Satcom Systems
Ltd.
TCL Teleserve
Communication
(1) Ltd
TNL Teleserve (1)
Network LTDGilat Satcom Ltd.
A.P. Planet
Network Ltd.
MG Zambia (4)
Limited
Gilat Satcom (3
OOO Limited
LLC
Gilat Satcom
Nigeria (2)
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MSSVOICE
66%15%19%
Data Communication
Clients
Description
Territory
Access services (link and Infrastructure) to the
internet, networks services, communication
systems
Internet connectivity services,
mobile data communications,
telephony services M2M
services
Call routing services to
various destinations
around the world
ISP, cell phone companies,
distributors and organizations
Africa, the Middle East, IsraelActivity in Israel, Russia and Africa
Telecom operators
Global
Telephony
servicesMobile satellite
communications
Security forces, security
agencies, airlines,
governments, OEM
33,449K$7,713K$9,496K$
6
The company’s revenues in 2013 - by segment of operation
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Satcom is part of the Eurocom Group, Israel's leading communications group controlling,
among others, the Bezeq Group, many satellite and communications companies, and
holding quality real estate properties and energy assets.
YES – D.B.S. Satellite
Services (1998) Ltd.
Space Communications
Ltd.
Satcom Sys Ltd.
Satlink Communications
Ltd.
Traded on TASE
Traded on NASDAQ
Internet Gold
Golden Lines Ltd.
Bezeq
B Communications
Pelephone
Bezeq International
Bezeq On-Line
Telecom Services Media Satellite ServicesTelecom Consumer
Electronic Products
Eurocom Cellular
Communications
(Nokia)
Eurocom Digital
Communications
(Panasonic)
D.M. Engineering
Ltd.
Eurocom Communications
Walla
Eurocom Real
Estate Ltd.
Real Estate
Enlight Renewable
energy Ltd.
Eurocom Capital
Finance Ltd.
Investments & Finance
EITAG . Ltd.
Midtown Project
7
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Data Communication
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Data communications – in Africa• According to World Bank data the communications market in
Africa is on a path of continuous growth
• The deployment of third-generation services and the launch of
low-cost Internet service led to increased demand for data
communication services
• At the initial stage, the landing of fiber optics in Africa led to a
passage from satellite services to fiber-based services
• The fall in prices led to an increase in the demand for
international data communications
• “Informa” estimates that the increase in demand for data
communication services (especially in inland countries)
generates an increase in demand for both satellite services and
fiber-based services
JOHANNESBURG, April 17 2014 (Reuters) –* At least four satellites to be launched in 2014Africa's demand for bandwidth is doubling every year, outpacing the laying of terrestrial telecomfiber links and encouraging commercial satellite operators to launch more units into orbit.
"There will be times when they compete, but such is the growth in demand for bandwidth thatthere is room for plenty of players," said Mark Newman, chief research officer at industryresearch company Informa Telecoms & Media. "If you are in a landlocked country, it might wellbe that even though satellite would seem to be expensive compared to the cost of fiber capacitythat lands on the coast somewhere, by the time you get that capacity in land, it's no cheaperthan satellite, Newman said."
9Fro
m t
he IC
T C
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rep
ort
by
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an
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Data communications – the company’s activity10
The challenge
Disconnections as
a result of the
entry of fibers to
Africa
High prices
Excess capacity
Effect on activity
The fibers reaching all coastal states in Africa created
a wave of disconnections from satellite services (this
process has passed its apex)
Gilat Satcom has undertaken high capacities in past
contracts. As a result of disconnections the company
paid for many unused capacities
Since capacity was sunk cost for some customers, the
company sold services at a loss
In 2010, Gilat Satcom has signed long-term agreements
with satellite providers. These agreements fixed the prices
that were customary before the fiber period. These
agreements prevented Gilat Satcom from competing with
the new and lower prices on which the market stabilized
The steps we have taken
1. Targeting areas where it is difficult to
provide service through fiber
2. Targeting cellular companies (additional
services)
3. Development of innovative satellite services
4. Providing service on fiber
1. Opening agreements with satellite
companies and the returning of excess
capacity
2. Transition to a B2B mechanism for
major customers
3. Disconnecting unprofitable customers
Opening agreements, especially with
INTELSAT and adapting them to market
prices
Reducing disconnections is expected to lead to an
increase in net sales.
The company expects a growth in revenue as a
result of targeting the cellular market, new product
development and sales of data communications
using fiber.
The company’s prices are competitive and allow it
to both retain existing customers and gain new
customers.
1. Almost 100% of the company’s capacity is used
2. If significant transactions are not renewed the
company can return the excess capacity to the
satellite provider
3. Improved profitability of customers purchasing
the service
The positive effect
Thousands of dollars
Continuous annual improvement in the sector’s results
Thousands of dollars
Continuous annual reduction in the sector’s expenses
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Fiber optics activity as a growth engine 2011-2014
• The first fiber landed in Africa in 2001
• From 2009 until today another 8 fibers landed - established through consortia of
telecommunications companies. (Source: TeleGeography)
• There are two fibers on the east coast, and the rest are on the west coast of the continent
• According to “TeleGeography” the growth in demand for international communication in
Africa is the highest in the world
• “TeleGeography” estimates that in 2012-2019 growth in demand is expected to be about
50% per annum
• In 2007 the company acquired 5.9% of WIOCC shares for 660K $ (value in the books)
• Satcom has a communications network deployed in Africa, including 5 POPs, 3 POPS
are backed and connected to two different fiber optics
• As a shareholder the company enjoys favorable prices from WIOCC for international
communication and domestic services in Africa
• The company manages capacity of one gigabyte, providing improvement in local
conditions
• The company is exclusive in routing the Tanzania – Malawi fiber
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Source: TeleGeography, 2013
Projected International Bandwidth Demand Growth by Region
Sustained growth trend in fiber sales
Gilat Satcom
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• Satcom Group owns 5.9% of the shares in the African fiber company, WIOCC
• WIOCC has 14 shareholders, most of whom are telecom operators in different
countries; the collaboration with the shareholders allows WIOCC to sell services in the
shareholders’ territories and to use their infrastructure
• WIOCC finished 2013 with a profit
• Dan Zichek, the company’s CEO, is a member of the WIOCC Board of Directors
Fiber optics activity – investment in
West
East
12
• WIOCC is a member in the EASSY consortium and holds about 30%
• WIOCC replaced some of the capacity on EASSY with WACS capacity
• WIOCC provides capacity both from the East and the West
• WIOCC is a leader in the sale of communications services on fiber optics
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Focusing on providing services to cellular companies
Satcom has a long standing reputation for reliability and
professionalism
The company has developed dedicated solutions to the
cellular world:
Cellular Island – Allowing the expansion of cell service to
remote locations at low cost
Sat Back – A backup solution using an Insurance principle for
connection to the central backbone in the cellular company
• Cellular companies are the major communications provider
in Africa
• The cellular market is the growth engine of the
telecommunications market in Africa
• The challenge facing the market is reducing costs and
improving the stability of the infrastructure
• Cell carriers are strengthened at the expense of the
traditional ISPs, especially in the private sector
• Transactions with the cellular companies are long-term
13
Growth trend in sales to the cellular market
283379
458552 620
735804 860 906
$0
$200
$400
$600
$800
$1,000
2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F
Cellular penetration in Africa
JOHANNESBURG, April 17 2014 (Reuters)
MOBILES DRIVE DEMAND
The demand for Internet and data services in Africa has been driven by affordable
mobile broadband connections. Mobile broadband users could grow by nearly eight
times to 806 million by the end of 2018, according to Informa estimates.
In Q1 2014 revenue increased more than in all of 2012
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O3B is a new satellite network beginning operation
these days. The investors in the network are:
• This network provides connectivity at fiber optic
speed with the reliability of satellite.
• Gilat Satcom together with the local partner in DRC,
will begin to provide internet services based on the
new technology during Q2
• Currently, final tests are conducted on the first O3B-
PoP in Africa.
15 April 2014, Kinshasa, DRC
14
DRCNigeriaZambia
28 February 2014, Lagos,
Nigeria
Gilat Satcom Nigeria is the local arm of
Satcom.
Gilat Satcom Nigeria allows the foundation for
independent activity, up to the home user
level in the largest growing economy in Africa.
The company has local licenses to:
IDA - International Data Access getaway
ISP - Internet Service Provider
The company is in stages of setting up POP for
fiber optics in the compound.
The company has six local employees.
• In 2012 SATCOM entered into a strategic cooperation
agreement with the Microlink Zambia Company
• Under the agreement, the company acquired class
shares in a the company in Zambia conferring Gilat
Satcom the right to dividends from the company’s
profits with an investment of approximately U.S. $
250,000
• Provision of satellite-based, optic cables (in
transactions of 3 Mbps or higher) and wireless
communications (Wimax) solutions to end customers
in Zambia and outside it
• The local partner provides all the necessary licenses
for the provision of communications services in
Zambia
• Gilat Satcom provides the enterprise with satellite
capacity and optic cables procurement services for
favorable terms
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The MSS Market
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The MSS market is growing
Figures include revenue from satellite connectivity, the sale of
modules and the supply of IT services and software
Source: IDATE Mar 2012
• Key players: Iridium, Inmarsat
• Key services - VOICE, DATA, M2M
• According to TMF:
• The MSS market revenues are expected to grow at a rate of 4% per annum
• The end units are expected to grow at a rate of 13% by 2016
• According to the Deutsche Bank Wireless Industry Model, 42% of the total
revenue of mobile satellite data communications is due to land-based services,
the forecast is that the rate will increase to 57% in 2015
• According to Northern Sky Research, M2M Industry Profile (November 2011),
the M2M market will grow by at least 10% per annum
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55%
30%
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MSS operating results
Continuous increase in revenues
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Iridium CEO Matt Desch estimated the value of
its Russian market opportunity at $70 million to
$100 million and predicted his company would
capture at least 40 percent of the Russian
mobile satellite market by 2015.
Operations in Russia
• Gilat Russia was established in 2013
• Gilat Russia has domestic licenses for domestic satellite service
• Gilat Russia has long-term agreements for the supply of a variety of network
communication solutions on Iridium and Inmarsat networks (the largest mobile
satellite communications providers in the world)
• Gilat Satcom operations in Russia are in the initial stages
• According to Iridium’s estimates the mobile satellite market in Russia will reach
70 to 100 million $
• In addition to Gilat Satcom, only five Iridium licensees are operating in Russia.
• Gilat Satcom is active in the development of technology for the M2M market in
Russia.www.satellitetoday.com
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MSS operations in Israel
• Satcom is the single winner in the tender of the Accountant General’s office in the Ministry of
Finance for the supply of equipment and communications services through satellite and
maintenance services for government agencies for a period of 36 months + option for 18 additional
months
• Satcom is the major supplier of mobile satellite communications equipment to the security forces,
government agencies and the emergency sector
• In Israel, the company has an exclusive license to operate mobile satellite terminal equipment on the
Iridium network
• Satcom has an intimate relationship with Iridium, in which the company takes part in developing
products pre-launch, such as PTT services (Push to talk) for satellites
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The company manages from Israel over 100 direct links to leading international operators.
33%
30%
20
VOICE – operations’ results Continuous increase in revenues
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Implementation of
the strategic process
has stopped the
erosion in income
and results in regular
improvement in
revenues and
profitability growth
יצירת מחסומי יציאה גבוהים
Providing
satellite
services
only
2012 2013 2014Global Communication
Strategy integrated according
stages from 2013
21
Adding fibers
to the product
range
Focusing on
high profit
services
From:
Provision of
services
To:
Provision of
solutions
Addition to
integration
solutions
From:
Focusing on
revenues
To:
Focusing on
profitability
From:
Satellite
communications
provider
To:
Global
communications
provider
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Streamlining and growth trends
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Sustained and significant streamlining in operating expenses – the satellite resource
Ongoing streamlining is being carried out in managing the satellite resource by reducing the required capacity and the dynamic
adjustment of prices to market conditions
• Carried out - returning transponders on ABS at the end of 2011
• Carried out - returning transponders on NSS at the end of 2012
• Carried out - in the middle of 2013 an agreement was signed with INTELSAT under which excess capacity was returned and
capacity prices were adjusted to market prices, the updating of the agreement brought an immediate reduction of $ 500K per
month and the reduction of liability until the end of the contract in the amount of $ 11 million
As of 2012, Gilat Satcom invested heavily in adapting the cost structure to market changes.
The company has changed the cost structure and significantly reduced the costs of satellite resources and manpower mix, all
without damaging activity.
Cost savings in satellite resource following the updating of the agreements without affecting service
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Sustained and significant streamlining in operating expenses – salary expenses
Thousands of ILS
An evolutionary change was carried out in the company’s organizational structure, reducing declining
operations and focusing and strengthening the line and assessments of the increase in fiber services
• A reducing of administrative hierarchy was carried out
• An improvement of work processes shortening the sales cycle was carried out
• Departments were consolidated and duplicate functions were eliminated
• Manpower was reduced as a derivative of the streamlining process
• Sustained and effective actions were carried out to reduce the average salary
Reduction in salary expenses and adjusting them to the revenues
The streamlining process is dynamic and continued in 2014 as well.
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Thousands of ILS
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Continuous improvement in gross profit
Thousands
of $
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Financial Data
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The company’s strategic focus in the developing of additional sources of
income allows the company to maintain the level of income in spite of all the
changes in the markets in which it operates
Change in the
revenue mix
2011-2013
2011 2012
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2013 Q1-14 Fiber data communication
Satellite data communication
MSS
Voice
Cellular data communications
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Reducing losses and transition to an equilibriumFocusing on customer retention, increase in sales of fibers and focusing on cellular vertical together
with reducing operating expenses led to continuous rise in company's results.
- At the end of Q3 an update was signed to an agreement with INTELSAT significantly reduced satellite costs.
Thousands of $Reducing losses over time and a transition from a negative to a balanced P&L at the end of 2013
28
Disregarding
the write off of
a tax asset
1.7M$
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Balances 2013 vs Q1-2014
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As of
March
31st
As of
December
31 st
As of
March
31st
As of
December
31 st
2014201320142013
Short-term loans1,6001,600 Cash and cash
equivalents1,3962,088
Current maturities of long-
term loans and other
obligations
3341,177Trade receivables5,9475,296
Current maturities under
finance leases4,1644,123Inventory1,5161,560
Trade accounts payables10,4759,933
Obligations under finance
leases1,9332,973
Financial assets
available for sale660660
Long-term loan333417Fixed assets, net10,20110,971
Long-term liabilities3,3592,483 Intangible assets4,7174,766
Equi ty1,3101,309
Assets
Non-current assets
Current assets
L iabi l i t ies and Equi ty
Current l iabi l i t ies
Non-current l iabi l i t ies
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Profit and Loss2013 vs Q1-2014
30 P&L
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$ '000YTD 2010YTD 2013 Q1.2014
Revenues 50,657 13,253
Cost of Revenues 42,324 10,453
Gross Profit 8,334 2,800
%Gross Profit 16.5% 21.1%
Sales&Marketing Expenses 5,257 1,110
General & Admin Expenses 6,357 1,575
Total Operation Expenses 11,614 2,685
Operation Profit (Loss) (3,281) 115
% Operation Profit -6% 1%
EBITDA 4,481 1,190
8.8% 9%
Financial Income (Expenses), net 380 (118)
Profit (Loss) before tax (2,901) (3)
% Net Profit (Loss) before tax -6% 0%
Tax Income (expense) (1 ,373) (3)
Net Profit (loss) for the period (4,274) (6)
-8% 0%
Financial debt in 2013
Financial debt:
Net financial debt:
Net financial debt for the balance:
$2,350K
$262K
1%
31
2013
* $627K delay in collection
from two significant
customers (received in
April).
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