SES Dials Back Revenue Forecast for 2011

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PARIS — Satellite fleet operator SES on Feb. 18 reduced its forecasts for revenue growth in the next two years, saying relatively minor launch delays for two satellites and the planned switch-off of analog television in Germany will force a dip in what the company says is a still healthy long-term growth profile.

Between 2010 and 2012, Luxembourg-based SES expects that its revenue will grow at between 4 and 5 percent annually, and not the 5 percent it had promised investors. For 2011, revenue is likely to increase by no more than 3 percent because of two satellites — QuetzSat and SES-4 — whose launches will be delayed by about three months each.

A three-month delay in the launch of a satellite that takes two-and-a-half years to build and has a 15-year service life is not usually a big event for a company the size of SES, whose fleet comprises about 40 satellites. That is because in many cases, satellites in orbit take months to win customers and increase their fill rates to anything near the fleet average of 70 percent or more.

But in the case of QuetzSat and SES-4, SES had booked customers pre-launch. With every month’s delay, revenue is lost, SES Chief Executive Romain Bausch said in Feb. 18 conference calls.

Also causing the revenue shortfall is the AMC-16 satellite, which has been leased by EchoStar of Englewood, Colo. AMC-16, a Lockheed Martin A2100 satellite, has had trouble with its power supply, forcing the shutdown of some of its capacity. That will cost SES about $14 million in 2011, SES said.

But the biggest problem facing SES, albeit one the company says will resolve itself by around 2015, is the switch-off of German analog television signals ordered by the German government for April 2012. Analog broadcasts use far more transponder capacity than do digital transmissions.

As some German broadcasters have already gone all-digital, SES has reduced its number of transponders broadcasting analog signals in Germany from 40 a couple of years ago to 33 today. These remain among the most profitable transponders SES operates now and is ever likely to operate.

SES said it has committed customers for nine of these 33 transponders, including five to be leased to German public television broadcasters. But these nine transponders that will find new customers immediately after the analog switch-off will not necessarily fetch the same high per-channel price as they command under the existing contracts.

SES currently expects the 24 yet-unsold channels to be sold in the German market, and also in France and Spain. The replacement contracts, the company said, are likely to take effect “over a couple of years from 2012.”

How quickly this capacity is resold, and at what price, will determine in part how quickly SES can return to revenue growth rates of 5 percent or more per year.

Globally, SES is counting more on expanding its reach in emerging markets in Africa, the Middle East, India and South Asia. It is for these markets that most of the company’s unprecedented capital spending is directed.

SES brought four new satellites into service in 2010. It has 13 satellites awaiting launch between 2011 and late 2014. This investment, which includes replacing in-orbit capacity and expansion into new markets, is costing nearly 3.6 billion euros ($4.9 billion).

As it spends, SES will continue to increase its dividend payment by about 10 percent per year for the next two years.

While the stock market did not appreciate the lower growth prospects — SES shares on the NYSE Euronext exchange closed more than 2 percent down Feb. 18 — the company sought to persuade investors that the news after 2011 is almost all good. Examples:

  • SES’s services business, which means everything it does besides raw satellite-bandwidth sales, is substantially more profitable now that the company has sold its ND Satcom satellite ground infrastructure company to Astrium Services, a transaction that should close in 2011. The services business’ gross-profit margin was 18.5 percent in 2010, up from 15.7 percent in 2009.
  • The company is consolidating its sales, marketing and back-office operations into a single entity, doing away with the distinctions between SES World Skies and SES Astra. It will incur a one-time charge of up to 15 million euros in 2011, but save that same amount in 2012. After 2013, the consolidation will generate a combination of savings and revenue increases of “well beyond 20 million euros” per year, Bausch said.
  • As expected, SES sold the S-band capacity on its SES-7 satellite to MCI Indovision of Indonesia for $95 million.
  • The company’s consumer-broadband service, Astra2Connect, which uses mainly spare Ku-band capacity on SES satellites covering Europe, now has more than 80,000 subscribers. SES has added Ka-band capacity to its mainly Ku-band satellites scheduled for its key European direct-to-home television market, leaving room for Astra2Connect to grow, if needed.
  • The HD+ high-definition television service introduced in late 2009 in Germany, which generated 16 million euros of revenue in 2010, is showing early signs of being even more successful than SES had hoped. After a 12-month grace period, subscribers are now being asked to pay for the HD+ service. SES said it would report on the subscriber uptake this spring.

Because of a surprisingly strong late 2010, SES reported a 7.1 percent increase in revenue for the year, to 1.735 billion euros. After one-time contributions and the effects of the appreciating U.S. dollar are taken out of the equation, growth was 5.1 percent, to 1.72 billion euros, which slightly exceeded the company’s forecasts.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was 76.1 percent of revenue. The core satellite bandwidth-sales business reported an EBITDA margin of 83 percent of revenue.

 

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