LETTER TO
SHAREHOLDERS

Dear shareholders,

It is an honour, as the president of HISPASAT, to present the annual report corresponding to the 2018 business year, which summarises the most notable milestones of the company.

As we hinted in the previous annual report, the transformation of the industry is already a fact and, for this reason, this year HISPASAT has focused on the evolution of its business model and has kept very up-to-date on new technological developments to continue being on the cutting edge of telecommunications and develop new solutions that satisfy the needs of our groups of interest.

We are taking on these new opportunities without forgetting that our company must provide profits for its shareholders as well as its workers and clients and to society as a whole: in other words, we have to be a sustainable company and the reality around us sustainable as well. As a matter of fact, we are putting our greatest effort into all of this.

In the hyperconnected world of the 21st century, satellites are a key element to carry digitalisation to any place on Earth, offering new opportunities for development and connection where other networks don’t reach: rural areas, moving vehicles, disaster or emergency situations, 5G extension. Our growth strategy comes from providing greater added value to satellite services and adapting them to new demands of the market to help build a new digital ecosystem that will shake up the way we communicate with each other and create economic activity. An ecosystem that will only be achieved by reaching everyone with satellite technology, the only thing that can guarantee equality in opportunities in access to the Information Society.

In this time of change sweeping across the industry, we are getting prepared to actively participate in that future, already close, in which the new telecommunications paradigm will be a hybrid, and satellite technology will be one of its essential elements. I am certain that HISPASAT will continue to have success because we have the best professionals who, with their daily effort, will make this company continue to be a company of reference in the sector. Being technology important, what makes the difference today are the people and organizations that are built in an open and collaborative way.

I would like to thank all of them and also our Board of Directors for their support and confidence.

Dear shareholders,

As the CEO of HISPASAT, it is my pleasure to present, one more year, the annual report of the company which summarises the main milestones of the 2018 business year.

Once again, we have faced a complex year. The satellite sector is changing very quickly because of digital progress, new consumption habits, high competition among operators, downward trends in prices and the appearance of new technologies. We have made an effort to adapt our business model with the goal of continuing to be competitive, striving for innovation to search for new opportunities, face new challenges from the market and satisfy the needs of our clients.

In this way, we have been able to compensate, in part, for the negative impact that the current market conditions are having on satellite operators, although for the first time in the past few years the revenue of the company has gone down compared to the previous year, at €204.1 million, 13.2% less than in 2017. This decrease in revenue is mainly due to the ending of the contract with Digital+ in Spain, which subtracted €20.6 million in the 2018 accounts, as well as the unfavourable effects of the exchange rate. However, the commercial effort made was able to maintain the company’s guaranteed backlog satellite capacity contracts among the highest levels in the sector, being about 4.4 times the annual revenue of HISPASAT, €898 million.

The American market has consolidated as the main source of revenue from leasing space capacity, having generated 67.7% of the revenue there, while 32.3% comes from Europe and other regions.

The EBITDA went down to €161.2 million, 16.1% less than in 2017, while the EBITDA margin is still among the highest of the sector at 78.9%, which confirms the high profitability of the company.

As a consequence of this situation, the net profit has gone down in 2018, reaching €41.1 million compared to 80.5 from the previous business year. This is a direct consequence of the decrease in EBITDA, the increase in repayments from an investment phase and the financial expenses associated with the entry into service of the Hispasat 36W-1 and Amazonas 5 satellites, put into orbit in 2017.

The amount of investment reached in 2018, €57.2 million, corresponds to the latest payments for the manufacture and launch of the Hispasat 30W-6 satellite, the initial payment of the Amazonas 6 satellite launcher and investments in online broadband platforms, with the business being oriented towards the provision of higher added value managed services. Said figure was reduced by 49.7% compared to 2017 due to the slowing of the investment rate from the ending of the current growth phase of the fleet, which culminated in the launch of the Hispasat 30W-6 in March of last year. The result of all this is the decrease in the debt ratio of the company, which is 1.77 times the net debt/EBIDTA.

Compared to the general negative situation in the industry, Hispasat has reacted by making a significant effort in innovation, both in technological developments and in new business models. The Innovation Committee has had its own budget for the first time and has been able to work with companies such as Phasor or hiSky to develop new satellite antennae which allow for starting new businesses, like mobile communications for transportation by motorway or by sea, the transmission of data in the IoT world or the field of emergencies and security, verticals which, according to all estimates, are going to have remarkable growth in the coming years.

We have also advanced in the deployment of new business models, characterised by a much greater degree of involvement by Hispasat in offering the service. In these models, Hispasat shares the risk with its local partner, by dividing up the necessary investments and the revenue from the project, which allows its implementation to be controlled more closely and positions Hispasat as a strategic provider of capacity for said partners. In this regard, we have reached important agreements with different partners, like the one with DISH to connect Mexico with ON, a new high-quality satellite Internet access service; or in the audiovisual field, the launch of a new DTH with Pantelio, a platform for the Slovakian and Czech markets.

On the other hand, we have continued to drive the managed services through the investment in broadband platforms in our areas of interest and attaining important agreements, such as the alliance with Gilat for selling HTS capacity in the Ka band of the Amazonas 3 and 5 satellites in Brazil. Additionally, we have worked on defining new products, like WiFi hotspots via satellite in order to extend connectivity to rural areas, which are adapted in terms of use and price to the needs of said users. The key goal is connecting those who are not connected and thus contribute to the reduction of the digital breach in rural areas, which nowadays require connectivity services in similar conditions to those which exist in urban centres.

These examples are an answer to the objective of offering the best and most innovative solutions aiming to respond to the new demands of the market, thus opening new paths towards the future for Hispasat’s business. We have to plant right now the harvests we will reap in the coming years with an open mind, imagination and technical soundness.

To conclude, I would like to take this opportunity to thank our shareholders, clients and providers for their confidence and trust, as well as to show our gratitude to all the professionals at HISPASAT who make the company what it is, thanks to their dedication, effort and commitment.