Cash-flush Satellite Operators See Divergent Paths to Greater Profits: Eutelsat Eyes Organic Growth

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PARIS — Reporting double-digit growth in revenue and gross profit for the year ending June 30, satellite fleet operator Eutelsat said July 30 that recently launched satellites covering Europe, the Middle East and Africa have booked business faster than expected.

The Paris-based company, which has steered clear of acquisitions to focus on organic growth, said all its businesses — television broadcast, corporate data networks, broadband and military services — met or exceeded expectations.

“Our prospects have never been better,” Eutelsat Chief Executive Michel de Rosen said in a conference call with investors. “Some people ask us, ‘Why don’t you make an acquisition and become the biggest satellite operator in the world?’ We are not obsessed with size. We don’t want to be the largest; we want to be the best.”

Eutelsat’s strategy of focusing on what de Rosen referred to as “one-quarter of the geostationary orbit” over Europe, Africa, the Middle East and Central Asia to Russia has proved a winner as these regions include some of the world’s fastest-growing satellite markets.

They also include areas such as Iraq and Afghanistan that have made certain Eutelsat satellites extremely attractive to the U.S. military. Government, mainly military, demand for Eutelsat capacity has been the main reason customers in the Americas accounted for 11.2 percent of Eutelsat’s revenue for the year ending June 30, compared with 10.4 percent a year earlier.

For the full year, Eutelsat reported revenue of 1.05 billion euros ($1.28 billion at June 30 exchange rates), up 11.3 percent over the previous year. EBITDA, or earnings before interest, taxes, depreciation and amortization, was similarly up 11.5 percent and was 79 percent of revenue.

Backlog at June 30 stood at 4.88 billion euros, up 24 percent from a year earlier. The weighted average remaining contract life is eight years.

The company is going through an unusually large fleet replacement and expansion period, with spending on new satellites averaging 450 million euros per year. For the year ending June 30, spending was higher than average, at nearly 495 million euros.

Despite that, and the fact that it is regularly increasing its shareholder dividend — the company proposes a 15.2 percent hike this year — Eutelsat has reduced its net debt-to-EBITDA ratio to 2.93 as of June 30, Eutelsat Chief Financial Officer Catherine Guillouard said during the conference call.

Eutelsat has averaged 7 percent revenue growth in the past five years. The 11.3 percent increase in the most recent fiscal year should not be considered as the start of regular double-digit increases, Eutelsat Deputy Chief Executive Jean-Paul Brillaud said.

Brillaud pointed to what he said is “the exceptional character of the performance this year — a conjunction of several factors,” which he said are unlikely to be repeated. He said the company is forecasting revenue growth of 7 percent for the current fiscal year.

Driving the past year’s growth, Brillaud said, were five new satellites, including the 70-transponder W7 launched in November 2009. W7 has generated revenue faster than Eutelsat had expected. The 36 degrees east slot it occupies is home to 525 television channels, up 16.4 percent in the past year.

But Eutelsat, which used to be known almost exclusively as a television broadcaster, reported that its value-added, data, broadband and government services businesses grew much faster than the television business, albeit from a lower starting point, and now account for 29 percent of the company’s revenue.

Eutelsat’s biggest move away from its core business is expected late this year with the launch of the large Ka-Sat all-Ka-band broadband satellite, mainly intended for the consumer broadband market.

Ka-Sat, slated to launch in November, will be the first of a new generation of Ka-band satellites with a throughput of more than 10 times the current generation. Two similar satellites are in construction for U.S. broadband providers ViaSat and Hughes. Eutelsat expects Ka-Sat to generate 100 million euros in revenue per year starting in 2014.