Eutelsat Forecasts Slower Pentagon Sales Growth

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PARIS — Satellite fleet operator Eutelsat on Feb. 17 said it expects its total revenue to grow by more than 7 percent per year on average through 2014 but warned that investors should not expect the company’s government business — mainly selling short-term capacity to the U.S. Defense Department — to continue its recent rapid increase.

Paris-based Eutelsat said that its video business in the Balkans and its data-transmission business in parts of Africa also face headwinds as competition intensifies in both regions.

Reporting its six-month results to Dec. 31, Eutelsat declined to disclose the number of subscribers it had booked for its Tooway consumer broadband service, which uses the large Ka-Sat satellite that entered service in mid-2011.

In a conference call with investors, Eutelsat Chief Executive Michel de Rosen said the Ka-Sat and Tooway subscriber count would be disclosed when the company issues its annual results in July. Eutelsat’s fiscal year ends June 30.

Chief Financial Officer Catherine Guillouard nonetheless reiterated that Eutelsat is counting on generating 100 million euros ($130 million) in new revenue from Ka-Sat and Tooway by 2014.

Eutelsat is the world’s third-largest commercial satellite fleet operator when measured by revenue. Unlike its two larger competitors, SES of Luxembourg and Intelsat of Luxembourg and Washington, Eutelsat does not have a global presence. From its European origins, the company has expanded into Africa, Central and Eastern Europe, the Middle East, Central and South Asia and Russia.

That has put it in a position to capture a large slice of the commercial satellite-bandwidth demand of the U.S. Defense Department. Eutelsat labels this business “Multi-usage,” and it has been a star performer at Eutelsat for several years.

That remained true for the six months ending Dec. 31. Multi-usage revenue increased by 29.9 percent, to 74.4 million euros, and accounted for 12.5 percent of Eutelsat’s total revenue for the period.

In the conference call, de Rosen warned analysts not to extrapolate from this performance, especially since the wind-down of U.S. military activity in Iraq and Afghanistan may mean a slowdown in commercial satellite demand.

Among the major satellite fleet operators with coverage over the Middle East and South Asia, this remains a topic of debate: What will the U.S. troop withdrawal mean for demand for commercial satellite bandwidth? De Rosen did not answer the question. But he said even if much of today’s satellite capacity for troops is transferred to tomorrow’s demand to serve unmanned aerial vehicles’ streaming video, the demand curve is unlikely to continue up as sharply as it has in recent years.

“Going forward, we believe the market will continue to grow, but not as dramatically,” de Rosen said. “So slower growth, but still growth. The Pentagon will want to use more drones and more satellite capacity and they are investing less in their own satellites. They will need satellites like ours.”

Eutelsat’s U.S. Defense Department contracts typically are short term — no more than a year — and fetch premium prices relative to long-term contracts booked by television broadcasters. The contract renewal dates are September and February. De Rosen said it is too early to draw conclusions from February’s renewal rate.

For the business as a whole, he said, a 36-megahertz transponder on a Eutelsat satellite sold for 1.99 million euros a year ago, and an average of 1.97 million euros for the six months ending Dec. 31.

The decline is not due to pricing pressure so much as the fact that Eutelsat is expanding into emerging markets, where prices are generally lower — often substantially lower — than in Western Europe. Prices in general, de Rosen said, are going up.

For the six months ending Dec. 31, Eutelsat reported revenue of 602.4 million euros, up 4.6 percent over the same period a year ago. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 79.4 percent of revenue.

Eutelsat said its 7 percent annual growth rate through 2014 will be accomplished at an EBITDA margin averaging 77 percent of revenue.

The company’s backlog stood at 5.3 billion euros as of Dec. 31, up 9.6 percent over a year earlier.

Eutelsat has six satellites under construction and scheduled for launch by 2014. The new spacecraft will add 20 percent to the company’s total capacity.

Eutelsat Deputy Chief Executive Michel Azibert said recent satellite launches had Eutelsat’s fleet-wide fill rate to drop to 76.1 percent from 90.4 percent a year ago.

For the six months ending Dec. 31, 68 percent of Eutelsat’s revenue came from video broadcasting. The number of television channels carried on Eutelsat’s fleet rose by 10 percent, to 4,173, compared to a year earlier, Azibert said, adding that 283 of these channels were in high definition.