SES Positioned To Overtake Intelsat in Revenue

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PARIS — Satellite fleet operator SES on Feb. 21 said it expected to grow its revenue and gross profit by 6.5 percent this year on the strength of new satellite capacity and that its government business, while not growing, has not declined with U.S. defense budget cuts.

A growth rate anywhere near that strong is all but certain to carry Luxembourg-based SES past competitor Intelsat, for the first time, as the world’s largest commercial fleet operator by revenue.

The change in position almost occurred in 2013 as Intelsat reported a slight decline in revenue and SES reported 1.9 percent growth. Both reported slight increases in gross profit.

The photo finish was expressed in dollars using a Dec. 31 exchange rate: Intelsat $2.604 billion, SES $2.563 billion.

In conference calls with reporters and investors, SES Chief Executive Romain Bausch said the diversity of SES’s government business — notably including European Union contracts to host EU GPS-augmentation payloads on SES satellites — has protected it from the worst effects of the U.S. defense budget storm.

“We are not looking at a decline” in the government business, Bausch said. The government division, which accounts for 12-13 percent of SES’s total revenue, was flat in 2013. Luxembourg-based SES said it has seen the same softness in U.S. military commercial satellite contract-lease renewals as its competitors, but Bausch said the company has few contracts with third parties that do not use the company’s fleet. Third-party contracts have been the most affected at Intelsat.

SES launched three satellites in 2013 and revenue from them will help drive the expected revenue increase this year. Two more satellites are scheduled for launch in 2014. Their addition to revenue growth will depend in part on when they launch.

The company has two other satellites set for launch in 2015 and 2016, both aboard Space Exploration Technologies Corp. Falcon 9 rockets.

Bausch said Hawthorne, Calif.-based SpaceX’s low launch prices are one factor, but not the major component, in the company’s declining capital spending. SES in 2012 spent 699 million euros ($960 million) — 38 percent of its revenue that year — on capital investments, mainly satellites and launch vehicles.

In 2013, capital spending was just 419 million euros, or 22 percent of total revenue, in part because launch costs were delayed because of late-arriving satellites.

Bausch said SES has not renewed multilaunch agreements with providers Arianespace of Europe and International Launch Services of Reston, Va., which markets Russia’s Proton vehicle.

SES does not have a multilaunch deal with SpaceX either, but its December 2013 launch of the SES 8 satellite, SpaceX’s first mission to geostationary transfer orbit, was one of four launches, including three options, that are part of the same contract.

With the addition of the SES-9 and SES-10, SES has converted two of the three options with SpaceX.

Bausch said the company “has had bad experiences with all our launch service providers” with respect to launch schedules.

The seven satellites SES expects to have launched between 2013 and 2016 will add 13 percent to the company’s in-orbit capacity, and 24 percent to what SES calls its international business, meaning outside Europe and North America.

SES Chief Financial Officer Padraig McCarthy said during the calls that the company’s services division, which includes a variety of terrestrial businesses that use satellite capacity, reported a 17.1 percent gross profit margin in 2013 on 432.5 million euros in revenue, a big jump from previous years.

The services business has always weighed on SES’s reported profit margin, which is led by its core satellite-lease business. In 2013, the core business reported EBITDA, or earnings before interest, taxes, depreciation and amortization, equivalent to 83.3 percent of revenue.

But the services business’ main role at SES is to drive demand for satellite capacity. McCarthy said it has accomplished this role.

Bausch said satellite transponder prices worldwide have remained stable in recent months. The average price per transponder on SES’s fleet is trending slightly down as the company’s international fleet accounts for an increasing share of the total insofar as nowhere in the world are prices as high as in Western Europe, where SES and Eutelsat have a dominant direct-to-home television position.

As the fastest-growing region for satellite-demand growth, Latin America has attracted multiple satellites over the region, with more on the way, including the newly announced SES-10.

Bausch said overcapacity in Latin America was a possibility but that SES-10 should have no problem finding customers. The orbital slot, at 67 degrees west, is ideal for South and Central America, and the four-nation Andean Community has agreed to purchase an undisclosed amount of capacity at attractive rates.

SES has two satellites at the orbital position now and SES-10 will be replacing them. Only 27 net new transponders will be added to 67 degrees west after accounting for the replacement capacity, he said. 

 

Follow Peter on Twitter: @pbdes


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