Com Dev Bounces Back Strong

by












  Space News Business

Com Dev Bounces Back Strong

By PETER B. de SELDING
Space News Staff Writer
posted: 17 July 2006
03:08 pm ET


Canadian satellite-component builder Com Dev International Ltd. has returned to financial health after what Chief Executive John Keating calls “a rough period” and is forecasting double-digit revenue growth and gross profit margins of better than 20 percent.

The company also is scouting for possible acquisitions to complement its product line. In late 2005 Com Dev purchased two Canadian space-hardware divisions of EMS Technologies of Atlanta, in Ottawa and near Montreal, for 5 million Canadian dollars ($4.5 million). The EMS businesses added 18 million Canadian dollars to the company’s backlog.

Cambridge, Ont.-based Com Dev has a reputation of being a barometer for the commercial satellite sector. It supplies satellite payload components to all the principal U.S. and European satellite prime contractors.

The commercial sector was down earlier this decade after the boom period in the late 1990s ended, and the satellite market has returned to a healthier level of around 20 satellite orders per year.

Com Dev used the market downturn early in the decade to diversify into the government business, both civil and military.

The company’s current backlog, up more than 60 percent compared to a year ago, to 104 million Canadian dollars , is 32 percent military, 30 percent civil government and just 38 percent commercial.

Revenues in 2005 were 29.8 million Canadian dollars, and the company is forecasting 10-15 percent growth this year and “at least 10 percent” per year for the next several years. Gross profit margins above 20 percent are sustainable during the period, according to forecasts Com Dev has given to financial analysts.

The company is traded on the Toronto Stock Exchange, and its stock has followed the revenue and profit trail, more than doubling since January.

Com Dev has been hiring new staff to keep up with demand and now counts 842 employees.

In a July 4 interview, Keating said he will keep work-force growth to a minimum because he does not want to relive the trauma of firing dedicated employees when the next market downturn arrives. Com Dev’s costs have come down since the market downturn, and so far the company has not had to expand its production sites to digest the new orders — one reason the profit margins are where they are.

The new hires, he said, are to eliminate production bottlenecks, which posed problems for Com Dev in 2005 when the company missed several delivery deadlines. “We let our customers down and we let our shareholders down,” Keating said. “We now have a better handle on our capacity, and a quicker reaction time. Our capex [capital expenditure] is going up to make sure we stay ahead of the curve this time.”

Most of Com Dev’s revenues come from building multiplexers, routers, switches and other satellite payload equipment. For Com Dev, the number of satellites is only a partial indicator of business strength: What counts just as much is the number of transponders being placed into service.

By Com Dev’s count, the average satellite launched in 2005 carried 59 transponders, compared to 33 in 1995. The company forecasts that the total number of transponders placed on order worldwide in 2005 was about 1,000 and will climb past 2,000 transponders per year by 2008 before declining in 2011.

One benefit of the business niche Com Dev has carved out for itself is that it does not depend on a few large satellite programs. Most of the company’s contracts are valued at less than 5 million Canadian dollars, in which case they are not announced.

Com Dev estimates that it has a more than 50-percent share of the multiplexer market that is available to it — some satellite competitions and selections of transponder providers are not open to international competition — and 60 percent of the switching market. Some satellite competitions, and the selection of transponder builder, are not open to international competition. The move by some satellite prime contractors to focus on core competencies and outsource more work has benefited Com Dev.

The future Canadian Radarsat Constellation program, still under study by the Canadian Space Agency, may be an exception to the small-and-steady contract history. Com Dev and MacDonald, Dettwiler & Associates Ltd. (MDA) of Richmond, B.C., are under contract to the agency to design a new system that could feature between three and six relatively small spacecraft.

“The nominal constellation is three satellites with a total cost of around 450 million [Canadian] dollars,” Keating said. “But there is a possibility that it will grow to six satellites, and in that case the total program value could be about 650 million dollars.”

What portion of that sum would be contracted to Com Dev cannot be estimated now, Keating said.

Comments: pdeselding@compuserve.com