SES Global and its affiliates are likely to be ordering two new satellites this year to add to the seven spacecraft currently under construction as the company seeks to position itself for greater coverage of North America, SES Global officials said.
The Luxembourg-based satellite-fleet operator is forecasting robust growth through 2007 and is prepared to issue bank debt of up to 750 million euros ($926 million) to finance acquisitions or boost its stock dividend.
In Aug. 8 presentations to journalists and financial analysts, SES Global Chairman Romain Bausch and Chief Financial Officer Mark Rigolle said SES is extending its previous commitment of double-digit revenue growth in 2005 and 2006 to include 2007.
Rigolle said the company’s ideal debt load is three times its earnings before interest, taxes, depreciation and amortization (EBITDA). Using that as a target, SES is insufficiently indebted, which is why the company is planning to add to its debt load, Rigolle said.
Bausch said SES is looking to purchase small satellite operators, particularly in Asia, whose orbital fleets are too small, and their financial performance too poor, to permit them to remain viable in a video-transmission-based industry.
The company is investing near-term in minority equity stakes in additional capacity for full-U.S. coverage, and in two start-up satellite operators in North America.
SES Global’s SES Americom subsidiary in the United States is awaiting U.S. regulatory approval for a Ku-band satellite that would cover all 50 U.S. states from an orbital slot at 125 degrees west longitude. SES Global recently agreed to pay competitor New Skies Satellites Holdings of The Netherlands $9.5 million in return for New Skies’ agreement not to occupy this slot, for which it had regulatory approval.
Bausch acknowledged that New Skies may have been bluffing when it threatened to occupy the orbital position before its December regulatory deadline, perhaps by purchasing or leasing a satellite already in orbit.
But the 125 degrees west position, Bausch said, is too valuable to SES to run the risk of losing it to New Skies. Bausch said that once the U.S. Federal Communications Commission approves the SES Americom request, the company will solicit bids for a new satellite.
Meanwhile, Ciel Satellite Communications Inc. of Canada also is likely to be seeking bids late this year for a new satellite, Bausch said. QuetzSat of Mexico, which recently received a Mexican government license to provide direct-broadcast television services in Mexico, will need more time before concluding that the market there merits a new satellite, Bausch said. SES Global is an equity shareholder in both companies.
Ciel and QuetzSat recently occupied their respective orbital slots by placing aging satellites owned by EchoStar Communications Corp. of Littleton, Colo., into position to meet Canadian and Mexican government deadlines. Both companies plan to use their satellites to do business in the United States in addition to their home countries.
SES Global also announced that it is changing its in-orbit insurance policy by creating an insurance subsidiary that will self-insure 20 percent of the value of the company’s satellites, with a limit of 30 million euros per satellite. The new policy will affect only the insurance policies that apply to in-orbit satellites, usually a year after their launch.
Reducing the amount of coverage it purchases commercially from insurance underwriters will permit SES to maintain its total annual premium payments about where they are now despite the fact that the company is continuing to invest in new satellites.
A new satellite carries a higher value than an older one, and thus commands higher insurance premiums , even if the premium rate expressed as a percentage is the same.
Rigolle said SES’s record of in-orbit satellite health is more than twice as good as the industry’s as a whole, but added that the company is not getting substantially better rates than those paid by satellite operators with poorer records.
SES Global reported revenues of 609 million euros for the first six months of 2005, a 9.7 percent increase over the first half of 2004, and up 11 percent if only the recurring business is compared. It is this recurring business that the company says will grow by at least 10 percent per year, on average, between 2005 and 2007.
EBITDA was 437.6 million euros, for an EBITDA margin of 71.8 percent of revenues. When the company’s satellite solutions businesses — Verestar, Digital Playout Center GmbH and Satlynx — are removed from the equation, the EBITDA margin was 81 percent.
The services businesses themselves posted an EBITDA margin of 3.5 percent. One of SES Global’s tasks in the next year will be to improve this figure.
“You’ll be looking at one unhappy CFO in a year’s time if we’re not close to 10 percent or more in this,” Rigolle said. “I would see that very much as a minimum.”
The services businesses, while much less profitable than leasing transponder capacity, feed customers to SES’s satellites, meaning their value to the company cannot be judged only by their financial performance, Rigolle said.
