But Launch Accident Prompts Pullback on Forecast

Satellite-fleet operator SES reported increased revenue and profit for the three months ending March 31 but reduced its forecast for future revenue growth because of the loss of a fully booked satellite in a March launch failure.

The company now expects its revenue

over the next three years to grow by an average of 5 percent per year instead of the 6 percent-plus rate previously forecast.


Luxembourg-based SES said it expects to spend more than it planned this year on launch services following the purchase of an option to launch the Astra 1M telecommunications satellite aboard a European Ariane 5 rocket instead of an International Launch Services (ILS) Proton-M vehicle.


In an April 28 conference calls with journalists and investors, SES officials also said they are reducing their investment in their new entavio digital-television venture, which features retail sales of set-top boxes intended to include programming from multiple German programmers.

SES said it will take a loss of 16 million euros ($25
million) in 2008 on the entavio venture and will reduce spending on it to 700,000 euros per month as it recasts the business model toward a more business-oriented product.


The March failure of a Proton rocket carrying the SES AMC-14 satellite, which had been fully booked by satellite-television broadcaster EchoStar of Englewood, Colo., will deprive SES of between $35 million and $40 million per year in revenue
that had been expected over the next decade. SES Chairman Romain Bausch said there will be no replacement contract with EchoStar following the failure. SES expects to receive its $151 million share of the insurance settlement by June, he said.


SES’s Astra 1M satellite is scheduled for launch on an ILS Proton rocket late this year. But ILS and Proton’s manufacturers continue to investigate the March failure and have not set a return-to-flight date. To keep Astra 1M’s launch from slipping, SES recently signed an agreement with the Arianespace consortium of Evry, France, to launch the 5,300-kilogram Astra 1M late this year in the event the Proton rocket remains grounded for an extended period. The Arianespace consortium recently made available a late-2008 launch slot following the delay in the launch of the TerreStar-1 mobile-communications satellite.


Bausch said no decision has been made on whether to switch from Proton to Ariane 5. But if the satellite is transferred, it will cost SES substantially more than it intended to pay for the Astra 1M launch.


The company said
its Astra division would spend 28 million euros more this year than initially planned, mainly due to the increased cost of an Ariane 5 launch vehicle.


SES has negotiated a launch-backup agreement for 10 satellites with ILS and Arianespace, for launches to occur between 2009 and 2013. The package gives SES the right to switch vehicles up to four months before the scheduled launch. The Astra 1M is not part of that 10-satellite package.


Despite the entavio and launch-related costs, SES said its global business remains strong and is largely unaffected by the U.S. dollar’s decline relative to the euro or by the economic slowdown in several regions.


“Pricing is stable to gently rising,” Bausch said, adding that some customers from rival Intelsat of Bermuda and Washington have elected to sign on with SES for some of their services to reduce potential risks of being overly exposed to the heavily indebted Intelsat.


“What we see from our customers is that they are obviously looking at the financial situation of their service providers, including their satellite capacity providers,” Bausch said. “We see strong leads coming from current Intelsat customers who at least want to diversify their risk, taking into account the high leverage of a business partner which is providing them important satellite capacity … So the impact is that … the strong financial foundation of SES is helping us when competing with Intelsat in the market.”


Intelsat spokeswoman Dianne J. VanBeber said Intelsat
declined to comment on Bausch’s remarks.


SES Chief Financial Officer Mark Rigolle said SES’s main financial problem now is how to increase its debt to what it considers the optimal level of 3.5 times its trailing 12 months’ EBITDA, or earnings before interest, taxes, depreciation and amortization.


SES’s operations are throwing off so much cash, Rigolle said, that it might
be difficult to increase the debt ratio, now at 2.9 times EBITDA, even with the company’s ongoing share-buyback program. SES shares are traded on the Paris-based Euronext exchange. SES continues to look at possible acquisitions, Rigolle said.


For the three months ending March 31, SES reported revenue
of 390.6 million euros, up 9.1 percent over the same period a year earlier after accounting for businesses sold off since then. Net profit was 120.9 million euros, up 23.7 percent.


EBITDA was 70.5 percent of revenue
, up from 68.8 percent a year earlier.


The EBITDA figure includes SES’s ground-based services division, which operates at sharply lower EBITDA margins. When this business is removed, SES’s core satellite transponder-lease business reported EBITDA of 82.2 percent, compared to 81.5 percent a year ago. The company’s 38 satellites were
filled to 77 percent of capacity as of March 31.

Comments: pdeselding@gmail.com