PARIS — Satellite-component builder Com Dev International of Canada said a booming commercial-satellite market and a new U.S. business giving it access to U.S. military satellite work will boost the company’s revenue by 10-15 percent in 2008 despite the Canadian dollar’s strength against the U.S. dollar.
In a Dec. 13 conference call with investors, officials of the Cambridge, Ont.-based company said it continues to gain market share and won business on 16 of the 23 commercial telecommunications satellites ordered in the 12 months ending Oct. 31, which is Com Dev’s fiscal year.
Com Dev Chief Executive John Keating said the company still is competing for work on another four of these satellites. Com Dev expects 2008 to be an even better year in the commercial-satellite sector, with 26 satellites to be ordered worldwide.
Com Dev reported revenue
of 164.3 million Canadian dollars ($163.5
million) for the 12 months ending Oct. 31, a 7 percent increase over 2006. Its gross-profit margin was 21 percent. Both figures are below previous Com Dev forecasts, which Com Dev officials said is almost entirely due to the decline of the U.S. dollar against Canada’s currency.
In an example of how currency-exchange shifts can affect Com Dev’s financial performance, Com Dev Chief Financial Officer Gary Calhoun said the sharp U.S. dollar decline this fall
had the effect of transforming one marginally profitable Com Dev dollar-denominated satellite contract into a money-loser. Whether the contract will end up unprofitable is unknown, but Com Dev was obliged, under financial-reporting rules, to declare a complete loss over the life of the program in its fourth-quarter earnings statement. The result: a loss of 1 million Canadian dollars that dragged down Com Dev’s gross-profit margins.
Calhoun and Keating said the company should be able to adapt to the exchange-rate shift in 2008 as it charges higher prices for its products. This should permit the company to return to previous gross-profit margins of around 25 percent, they said. But for contracts already signed, Keating said, there is no way to renegotiate to account for the new currency-exchange picture.
Also hurting Com Dev in the latter part of 2007 was the inability of two of its equipment suppliers to keep up with surging demand. Business that would have been booked in the fourth quarter has therefore been delayed to early 2008.
Keating said the favorable market would continue in 2008, and that pressure on Com Dev suppliers would not let up – one reason why the company is seeking to broaden its supply-chain network.
Com Dev’s ability to forge relationships with the major satellite prime contractors, and to adjust its relationships as these larger companies’ commercial satellite fortunes rise and fall, helps account for its success, Keating said.
“A few years ago, Com Dev tended to have its strongest relationships … with Boeing and Lockheed Martin,” Keating said. “But as these companies shifted their focus to military space, we’ve seen other prime contractors increase their share. … [T]his could, and perhaps should, have been a problem for us. As it happens, we have been very successful in increasing our business with the prime satellite manufacturers who are currently the leaders in the commercial market – people like ThalesAlenia Space and Orbital Sciences.” Com Dev opened a new manufacturing plant in El Segundo, Calif., earlier this year as part of its Com Dev USA division. In addition to adding dollar-denominated costs and providing a natural hedge against future exchange-rate fluctuations, the U.S. subsidiary’s main job is to win U.S. Defense Department satellite business. ,
Keating said Com Dev USA’s new satellite component facility should be fully operational by spring – in time to benefit from a large wave of U.S. military satellite work to be contracted in the next year or two as a subcontractor to whichever of the major U.S. builders wins the contracts.
About 13 percent of Com Dev’s backlog, which stood at 146 million Canadian dollars at Oct. 31, is for military satellite work. Keating said Com Dev USA should be reporting revenue of around 50 million Canadian dollars per year “within the next few years.”