Investors Presentation SATCOM SYSTEMS - Gilat Satcom Satcom Investors presention 2014 EN.pdf ·...

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$9,496K$

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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

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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."

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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

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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

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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%

17

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%

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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

Numbers are in $To return to Contents

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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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