SES Expects Strong Sales, High Margins Through 2010

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  Space News Business

SES Expects Strong Sales, High Margins Through 2010

By PETER B. de SELDING
Space News Staff Writer
posted: 09 November 2007
01:58 pm ET





PARIS —


SES of Luxembourg, which in 2007 is likely to overtake rival Intelsat as the world’s biggest satellite-fleet operator in terms of revenue, said the robust health of its existing and emerging businesses will help increase sales by more than 6 percent per year through 2010 while guaranteeing continued high profitability.

In Oct. 29 conference calls with journalists and investors, company officials said the near-term picture is positive despite the fact that 2008 revenue will be hurt by two unrelated events involving its partner, direct-broadcast satellite television provider EchoStar of the United States.



EchoStar is leasing SES’s AMC-14 satellite in its entirety. Any delay in the satellite’s launch translates into a direct hit on SES revenue. AMC-14 had been scheduled for launch late this year but has been delayed for about two months, to February, following the September failure of Russia’s Proton rocket.



Englewood, Colo.-based EchoStar also is ending a multiyear lease of all the Ku-band capacity on SES’s AMC-2 satellite covering North America in mid February. Launched in 1997 with an estimated 15-year service life, AMC-2 carries 24 C-band transponders, which have been idle, and 24 Ku-band transponders leased by EchoStar.



SES Chief Executive Romain Bausch said the company is confident it will be able to find new customers for AMC-2, either at its current location or at some other, undisclosed orbital slot. He conceded that it would take time for the revenue generated by the satellite to climb back to where they have been under the EchoStar lease.

Bausch said SES is looking either for an anchor customer to take a large portion of AMC-2’s capacity, or for a new orbital slot that subsequently can be developed with future spacecraft. “We want to strike a balance between short-term revenues and a strategic opportunity,” Bausch said.



The SES Sirius-4 telecommunications satellite also has been delayed for two months because of the Proton rocket failure and now is expected to be launched Nov. 18.



SES has a multi-satellite relationship with EchoStar that includes the Ciel-2 satellite operated by Canada’s Ciel Satellite group, of which SES owns 70 percent. Ciel-2, most of whose capacity will be leased to EchoStar, is scheduled for launch in late 2008.

Bausch said he expects SES and EchoStar will agree before the end of the year on a final configuration of a large satellite for their jointly owned QuetzSat




subsidiary in Mexico.

QuetzSat
is one of two new satellites SES expects to have under contract before January. The second will be for Asian or African business managed by the SES New Skies division.

Not including these two spacecraft, SES has 10 satellites under construction, five of them scheduled for launch by the end of 2008. These 10 satellites will add 230 commercially available transponders to the SES fleet, boosting capacity by some 22 percent.

SES also runs a satellite services business that provides teleport links and other satellite-related




terrestrial services. That business that helps steer customers to SES’s traditional transponder-leasing operation but is nowhere near as profitable.



For the first nine months of this year, SES reported sales of 1.187 billion euros ($1.7 billion), up 7.6 percent over the same period a year ago after one-time items are removed. EBITDA – or earnings before interest, taxes, depreciation and amortization – for the satellite leasing business was 82.7 percent. The services business had an EBITDA of 10.9 percent. When the two are blended together, SES’s overall EBITDA was 69.5 percent.



SES Chief Financial Officer Mark Rigolle said SES’s infrastructure business – leasing satellite capacity to broadcasters – remains second to none in profitability.



In a clear swipe at rival Eutelsat‘s claims that it is the most profitable large satellite-fleet operator, Rigolle said a fair comparison would set only the satellite-lease businesses side by side.



“It’s very easy for someone whose business is 95 percent infrastructure to report 77 or 78 percent EBITDA margins,” Rigolle said. “But anyone who can get 82 to 83 percent margins can come and talk to us here in Betzdorf




any time.” SES’s headquarters is in Betzdorf Castle in Luxembourg.



Paris-based Eutelsat, the world’s third-largest satellite-fleet operator by 2006 revenue, said it expects to report an EBITDA margin of 77.5 percent for its 2007 fiscal year, which ends June 30.



Meanwhile, Rigolle said, SES recently renewed its one-year insurance coverage for multiple satellites in a bulk policy that resulted in better rates.



The cost of in-orbit satellite insurance has dropped dramatically in the past two years. In-orbit premiums, which were 2.25-2.5 percent as recently as 2005, have dropped to 1.5-1.6 percent. SES was able to secure an even lower rate by grouping multiple satellites into a single policy, which took effect Sept. 1. SES retains part of the risk for its in-orbit fleet, meaning the company insures only a portion of the book value of each spacecraft.

Bausch said SES’s new IP-Prime service in North America, which lets telecommunications providers




add television to their telephone and broadband Internet offerings without having to invest in their own infrastructure, is reporting early success with the National Rural Telecommunications Cooperative (NRTC).

The first three NRTC affiliates to have adopted IP-Prime report that more than 50 percent of their subscribers have signaled that they want the service – an “incredibly high” early acceptance rate, Bausch said.