SES Predicts 5% Annual Revenue Growth Through 2010

PARIS — While the growth of satellite demand in North America may be slowing with the economic downturn, satellite fleet operator SES is telling investors the company’s businesses in Europe, Africa and South Asia are in robust health and will assure the company overall revenue growth of 5 percent or more through 2010.

The Luxembourg-based company, which is the world’s largest commercial satellite operator by revenue, also reiterated to investors that while the decline of the U.S. dollar is a drag on SES’s top-line revenue, it has almost no effect on bottom-line profit.

In conference calls with journalists and investors Aug. 4, SES officials said that for the first six months of 2008 the company’s revenue was flat compared to the same period a year earlier, at 788.5 million euros ($1.23 billion). The company’s EBITDA, or earnings before interest, taxes, depreciation and amortization, also was flat at 550.2 million euros, or 69.8 percent of revenue.

SES Chairman Romain Bausch said that if the dollar’s decline against the euro was removed from the equation, the company would report an 8.7 percent increase in revenue and a 7.7 percent increase in EBITDA.

Some 40 percent of SES’s revenue are in dollar-denominated contracts. But the company also incurs many of its costs in dollars, including contracts for satellite manufacturing and launch, and the cost of its SES Americom subsidiary in the
United States
.

These dollar-based costs neutralize the negative effects of the dollar’s decline and help explain why SES reported operating profit for the first half of 2008 increased by 10.3 percent, to 329.5 million euros. Net profit was up 13.5 percent, to 235.8 million euros.

SES plans to launch 10 satellites in the next 18 months. Bausch said that once these spacecraft are operational they will increase the company’s in-orbit capacity, measured in commercially available transponders, by 23 percent.

“Our competitive position is as good as it’s ever been,” Bausch said. “Growth is coming from all three regions [
North America
,
Europe
and the rest of the world], but
North America
is definitely the market where growth is the lowest. There is still growth, but it is not as strong as in
Europe
or the rest of the world.”

The company announced that it has suffered varying degrees of unanticipated power loss on nine of the Lockheed Martin A2100 satellites it operates in orbit. The power loss on two satellites – the AMC-4 and AMC-16 – are the most serious.

For AMC-4, the problem has been resolved by moving the AMC-2 satellite from its former location at 85 degrees west longitude to the AMC-4 position at 101 degrees west, thereby providing backup in the event AMC-4’s condition worsens.

For AMC-16, which is leased by EchoStar Corp., SES said it will be receiving lower monthly revenue from EchoStar as a result of the power issue, but that this reduction is already factored into the company’s revenue projections.

AMC-4 was launched in November 1999. SES Chief Financial Officer Mark Rigolle said the company may file an insurance claim as a result of the power reduction. AMC-16, launched in December 2004, is part of a broad insurance package that includes a deductible that makes it unlikely an insurance claim will be filed.

Dee Valleras, a spokeswoman for Lockheed Martin Commercial Space Systems of Newtown, Pa., issued the following statement Aug. 4 about the A2100 issue: “Lockheed Martin has conducted a comprehensive investigation with our customers to identify the root cause of anomalous solar array circuit performance of varying degrees affecting some A2100 spacecraft. All 35 A2100 spacecraft remain functional and continue to provide service capabilities to customers.

“Customers have reported solar-array circuit anomalies that have resulted in spacecraft loss of power in varying degrees. In many cases, power has been restored to solar array circuits that had previously lost power. The most likely root cause for the majority of the circuit anomalies is electrostatic discharge (ESD) affecting the solar array circuits, leading to power loss.

“Lockheed Martin has defined key corrective actions and implemented them on all A2100 spacecraft launched since April 2006. Spacecraft launched since 2006 have performed at 100 percent capability, accumulating 20 [solar] wing years to date without anomalies.”

In its Aug. 4 announcement, SES said it had leased the Thor 2 satellite owned by Telenor Satellite Broadcasting of Norway and moved it to an SES-registered slot at 5 degrees east.

Thor 2 was being prepared for retirement by Telenor. SES will use the satellite in inclined orbit – meaning no north-south stabilization to save fuel – to meet regulatory deadlines for placing satellites at orbital slots where the company currently has no satellites, Bausch said.