SES Plans New Satellites, Reports Higher Margins in Services

PARIS — SES Global is about to order two new satellites and plans to use existing in-orbit satellites




to fill one or more Canadian orbital positions if it can secure




Canadian licenses in the coming months, according to




Romain
Bausch, the company’s chief executive




.

Reporting on its half-year results Aug. 7, Luxembourg-based SES Global also said it has boosted the gross profit margins in its satellite services business to 9.9 percent before interest, taxes and depreciation.

This business, which includes teleport operations in the United States and Europe, continues to be a drag on the satellite-fleet operator’s core-business profit margins of 78 percent and is one reason why SES Global’s stock has suffered in the past six months despite the company’s overall profitability and financial health.

SES Global Chief Financial Officer Mark Rigolle said in separate conference calls




with journalists and investors Aug. 7 that SES’s core infrastructure business – selling satellite transponder capacity to television broadcasters and other customers – is




as profitable as ever, especially in Europe, the Middle East and Africa




.

Rigolle
said SES intends to boost the profit margin of its services business to 10 percent by the end of this year. Consolidating teleports in the United States that came




with the company’s purchase




of Verestar in 2004 will save $5 million per year and contribute




to the improved profitability of the business, Rigolle said.

Aided by the $1.1 billion purchase of satellite-fleet operator New Skies in March, SES Global reported that revenues for the first six months of 2006 increased by 16.6 percent, to 710.5 million euros ($915.1




million).




EBITDA, or earnings before interest, taxes, depreciation and amortization, was 70.3 percent of revenues, again showing the drag effect of the services business.

Bausch said




SES’s board of directors this month approved the acquisition of an Astra 3B satellite, to be launched in early 2009 into a slot at 23.5 degrees east longitude,




boosting




capacity for direct-broadcast television, two-way broadband and other services in Europe and the Middle East.

The company also has




approved




construction of




the NSS-9 satellite for the New Skies division. NSS-9 will be launched in early 2009 and stationed at the slot currently occupied by the NSS-5 satellite. NSS-5 will be moved to a new slot, at 20 degrees west longitude, where it will be able to serve businesses in South America and Africa. Company officials said the exact contours of its coverage have yet to be decided.

With these two satellites, and the 10 spacecraft already under construction for SES Global and its affiliates in Asia and Canada,




SES Global will be adding 250




transponders to its global commercial offer,




a 23-percent increase over the company’s current portfolio of 1,110 available




transponders worldwide, Bausch said.

“In terms of new satellite capacity, this launch rate means SES will be, by far, the most dynamic satellite operator,” Bausch said. The company’s satellites, including the New Skies spacecraft, are 74 percent full, Bausch said.

SES Global also made these points during the conference calls




:

The Canadian government’s decision to license up to 28 satellite orbital slots for Ku- and Ka-band transmissions provides “a very, very interesting opportunity” for SES Global’s Canada-based Ciel Satellite Communications affiliate. Bausch said several of the most interesting slots will expire under international regulatory rules if they are not filled quickly, a fact that favors a large fleet operator like SES, which has in-orbit satellites it can assign immediately to the Canadian positions.

SES’s biggest customer, EchoStar Communications Corp. of Englewood, Colo., has asked that the AMC-14 satellite’s payload be modified to provide increased coverage flexibility. As a result, the satellite will be a further six months late in being completed by Lockheed Martin Commercial Space Systems of Newtown, Pa.

With a scheduled launch in 2007,




AMC-14 will not be operational before 2008, delaying revenues to SES Global from EchoStar. The schedule slip means SES Global will not meet its goal of having an average 10-percent revenue growth between 2005 and 2007.

The EchoStar decision on AMC-14 will permit the satellite to be located, at least temporarily, at the Mexican orbital slot of 77 degrees west, a position that SES and EchoStar are jointly developing to serve the U.S. and Mexican markets. The AMC-14 decision will delay the order for a satellite for SES’s Mexican affiliate, QuetzSat, which was created to cover




EchoStar’s capacity shortage over the United States.

If Boeing shuts down its Connexion satellite-broadband service to commercial airline passengers, SES would receive about $70 million from Boeing in contract-termination penalties, Rigolle said.

The struggling Connexion service leases capacity on three SES-owned satellites:




AMC-23, providing C- and Ku-band coverage over the Pacific Ocean and Asian land mass; and the AMC-4 and AMC-6 satellites, which cover the




Americas, the




Atlantic and parts of the




Pacific




. Bausch said Connexion’s




AMC-4 and AMC-6




leases are for Ku-band capacity and would be relatively easy to replace with other customers.

SES’s Star One affiliate in Brazil has accelerated its plans to lease capacity on the AMC-12 satellite. It had been scheduled to lease




six transponders on the satellite in 2006 and three in 2007. It will now lease




all nine transponders this year.