Satellite Operator SES Reduces Revenue Forecast for 2009

by

PRAGUE, Czech Republic — Satellite fleet operator SES on Oct. 23 sharply reduced its forecasted revenue for 2009, saying its core satellite capacity-lease business is doing fine but that its wholly owned subsidiary, ground-hardware provider ND Satcom of Germany, has seen revenue plummet in recent months.

Luxembourg-based SES said it now expects overall company revenue growth to be just 1.5 percent for all of 2009, against a previous forecast of 3-4 percent. The shortfall totals about 30 million euros ($45 million).

In conference calls with journalists and financial analysts, SES officials said the reduction is almost entirely due to an expected revenue shortfall of 25 million euros at Friedrichshafen, Germany-based ND Satcom.

SES Chairman Romain Bausch and Chief Financial Officer Mark Rigolle said ND Satcom has suffered in recent months as the broader economic downturn has forced broadcasters to delay purchases of new ground gear, including satellite news-gathering equipment, that is sold by ND Satcom.

Another factor in ND Satcom’s poor performance is delays in several large contracts. This revenue will not disappear, but it has been delayed. Bausch mentioned two large ND Satcom contracts that fall into this category: an order for 5,000 terminals to equip Turkish schools with satellite data links and Germany’s SatcomBw military telecommunications program. SatcomBw’s first satellite, COMSATBw-1, was launched Oct. 1, and a second, nearly identical satellite is scheduled for launch in the first half of 2010.

Bausch characterized the ND Satcom problem as temporary and said it does not throw into question SES’s strategy of developing a ground-services business on the assumption that these companies, while much less profitable than SES’s core operations, drive business to SES’s satellite fleet and occasionally turn up opportunities that would have escaped SES’s attention.

Bausch said his company’s recent joint venture in satellite television with Yahsat of Abu Dhabi, United Arab Emirates, called YahLive, was made possible because of initial contacts with Yahsat made by ND Satcom.

Bausch conceded that ND Satcom, unlike the other SES-owned services companies, does not generate much business for SES’s satellites, but said the investment should be viewed as long term.

Despite the ND Satcom issues, SES said it expects its average growth in the coming years, and specifically 2010-2013, to be 5 percent per year even accounting for the expected switch-off of German analog television broadcasts as the country moves to digital transmissions.

Analog satellite broadcasts use much more capacity than digital, and Germany remains SES’s biggest single market. Some 38 satellite transponders at SES’s 19.2 degrees east longitude orbital slot are now devoted to German analog television broadcasts.

Bausch said at least half of these 38 transponders will remain booked by German broadcasters moving from analog directly to high-definition television transmissions. The remaining transponders will be marketed in smaller, less-profitable SES markets including France and Spain.

The net decline in revenue following the German analog switch-off will be about 40 million euros, Bausch said. He added that the planned April 2012 analog-switch-off date may be delayed further, in which case the revenue drop would be delayed.

Compensating for this loss will be SES’s rapid fleet expansion. The company has nine satellites scheduled for launch in the next 26 months. The new satellites will add about 19 percent to SES’s in-orbit transponder capacity and are expected to drive future growth.

“Over the mid- to long term this business should be able to grow at 5 percent,” Rigolle said. “That is the number we have been reaching and we see no reason for that to change.”

For the nine months ending Sept. 30, SES reported revenue of about 1.26 billion euros, a 5.4 percent increase helped by the strengthening of the U.S. dollar earlier in the year. Stripping out the exchange-rate effects, SES said revenue increased by 1.8 percent.

The main business of leasing satellite capacity worldwide posted a 4.2 percent increase in revenue for the first nine months of this year. EBITDA for this business, or earnings before interest, taxes, depreciation and amortization, was 83.3 percent. The satellite fleet’s fill rate was slightly up, to 82.2 percent.

The services business revenue dropped by 3.6 percent for the first nine months of 2009, dragged down by ND Satcom’s results. But the EBITDA margin for the services segment remained at around its forecasted level, at 11.6 percent.

When the satellite-lease and services businesses are blended together, the EBITDA margin for the entire company was 71.5 percent.

SES expects to spend 800 million euros in 2009, mainly on new satellites and launch vehicles, with spending to decline in the coming years as the company’s satellite-replacement cycle winds down.

The company’s spending this year includes an initial payment of 35 million euros for four satellites to be ordered in the coming weeks. SES has narrowed the competition for these satellites to two European manufacturers, Astrium Satellites and Thales Alenia Space.