PARIS —on July 31 reported record gross-profit margins in its core satellite transponder-lease business and said it is sticking with its forecast of 5 percent average annual growth between 2008 and 2010 despite what it characterized as a temporary weakness in its ground-services business and continued softness in the North American market.
The Luxembourg-based satellite fleet operator, which is active in most of the world’s regions, said satellite prices are holding steady in the worst cases and trending slightly upward otherwise.
In a conference call with journalists and analysts, SES officials said the company increased the fill rate on its satellite fleet to 80.5 percent as of June 30, compared to 79.6 percent as of March 31. Contract backlog increased 11.6 percent, to 6.5 billion euros ($9.1 billion), as of June 30.
SES Chief Financial Officer Mark Rigolle declined to discuss pricing details, but said SES is gradually introducing inflation adjustments or, alternatively, fixed percentage price increases into its contracts. Most contracts cover multiyear leases of satellite capacity.
Another feature SES is trying to persuade customers to adopt is advance payment for capacity, rather than payment after the fact.
Rigolle said SES is adopting these measures on a case-by-case basis, depending in part on the pricing pressure the company faces in a given region. SES’s most profitable market, Western Europe, is most amenable to these tougher contract features. It is more difficult to insist on the new contract terms in North America, “which has been the most difficult and lowest-growth market we have,” Rigolle said.
But for SES officials, “difficult” is not bad for the moment. The company’s Americom division in North America showed a slight drop in the number of transponders in use, from 368 to 359, for a fill rate of 76.5 percent as of June 30.
Rigolle said the dip is temporary, and resulted from an Americom decision to reserve the transponders for a longer-term and more-profitable customer whose contract will begin shortly.
And despite the pricing pressure in North America, SES Americom reported profitability in line with SES’s other two main satellite operating divisions, SES Astra and SES New Skies. The blended EBITDA, or earnings before interest, taxes, depreciation and amortization, is 83.9 percent — a company record, Rigolle said.
Nearly 81 percent of SES revenue is from the satellite-lease operations, or what SES terms its infrastructure business. The remaining share is from divisions dealing with ground-based satellite services and hardware, including ND Satcom of Germany.
This services division reported a 2 percent drop in recurring revenue for the six months ending June 30 compared to the same period a year earlier. This was attributed in part to lower equipment sales at ND Satcom and a delay in several large projects that the services division expects to begin later this year. T
he services division reported an EBITDA margin of 11 percent, which when blended into the satellite-lease figure resulted in a company-wide margin of 72 percent.
SES reported two figures for revenue: reported revenue, which for the six months ending June 30 increased by 7 percent, to 843.4 million euros; and recurring revenue, which removes currency-exchange fluctuations and other one-time items from the equation. The U.S. dollar strengthened substantially relative to the euro in early 2009 compared to 2008, swelling the revenue figure; much of the company’s leasing business is done in dollars. Recurring revenue, according to SES, rose by just 2 percent, to 843 million euros. The company’s operating profit, at 359.9 million euros, was up 9.2 percent.
Rigolle acknowledged that a 2 percent increase is less than what the company is promising the market. But he said the ground-services division is likely to return to modest growth later this year, enough so that by the end of 2009 SES will be able to report at least a 4 percent increase over 2008.
The company is in the middle of a substantial expansion program, with eight satellites scheduled for launch by the end of 2011. A ninth satellite, also being built, is intended as a ground spare.
The eight new spacecraft will increase SES’s in-orbit capacity, as measured by commercially available transponders, by 19 percent. The company plans 823 million euros in capital spending in 2009, the peak spending year for the new expansion. All but 52 million euros of that spending will be on satellites, launches and satellite insurance