Will New Skies Be Debt Free In 2004?

New Skies Satellites expects to clear any debt it picks up through its satellite rollout programme by the end of 2004. The operator, which has recently launched its NSS-7 satellite, is now preparing for the launches of NSS-6 and NSS-8 and believes its strong balance sheet should enable it to pay off its capital expenditure programme sooner rather than later.

Andrew Browne, CFO of New Skies Satellites, told Interspace in an exclusive interview: “These satellites have been part of our strategic plans since we started the company. We have been executing on that. In terms of debt, it will be in the range of $100 million to $120 million … Because the cashflows are so strong in our business and in the entire FSS [fixed satellite service] sector, we expect to be able to pay the amount we draw by the end of 2004. It is relatively short period of time until we get back to a debt free position.”

The NSS-6 satellite is due for launch in October this year, and NSS-8 is set to be launched at the end of 2003. New Skies can draw on a five-year unsecured loan facility if needed. The two new satellites will enable it to better serve the lucrative Americas and Asia markets. The launch of NSS-6 tops the agenda right now and tapping into the Asia Pacific markets is a key focus for the company. “The whole Asia Pacific region where we are launching the NSS-6 is a very exciting opportunity for us, especially if you look at the demographics, the populations of India and China, the economic engine and activity that is going in that whole area,” Browne said.

New Skies has around $54 million in cash and assets totalling over $1.1 billion. In terms of its capital expenditure programme, Browne says: “With our capital expenditures for the second half of this year, we are looking for something in the region of $150 million to $170 million, and next year we are maybe looking at $110 million to $130 million.”

Despite an ambitious capital expenditure programme, its financial clout remains a key strength. Robert Peck, a satellite equity analyst at Bear Stearns, said in a research note: “We remain encouraged by the company’s balance sheet, particularly as investors try and avoid companies that highly levered.”

Browne also believes that the company’s financial flexibility is a major bonus. While the company is focusing on organic growth and its capital expenditure programme, it could also look at acquisition opportunities. Browne admitted: “We think merger and acquisition opportunities make a lot of sense in our business. There are great economies of scale given the commonality of the expense base. It is something we believe in and something we are continuously looking at. But, we are not going to do something that is silly. We are very keen and we have our eyes open.”

Despite its financially prudent strategy, Browne does not rule out New Skies being involved in a large-scale transaction. “We are very open to any opportunity as long as it makes financial sense and is accretive to the company.”

2002 Revenue Guidance

In its recent results, New Skies had revenues of $49.2 million, a drop of $4 million compared to the same three-month period last year. In the six months ended June 20, it had revenues of $101 million, compared to $104.4 million for the same period in 2001. Its backlog increased to $635 million from $603 million in the first quarter of this year.

New Skies has maintained its financial guidance for 2002 and expects to have revenues around $200 million to $210 million. Peck said: “Revenues of $49 million were slightly short of our $52 million estimate. The slightly lowered than expected revenues was driven by the continued slowdown on the sector as a whole. From an operational standpoint, the company outperformed our estimates by $3 million, reporting total operating expenses at $22 million versus our $25 million estimate.”

Despite its strong balance sheet, an oversupply of transponders and a softening of transponder pricing is not making it easy for New Skies. The company has done a number of pre-launch deals for NSS-7, which could explain the slight fall in revenues. “In terms of pricing, with the launch of NSS-7, we have given some pre-launch discount deals that have modified our average pricing slightly,” Browne said. “So, we have seen a slight reduction in Q2 from Q1 in average pricing. Most of that is attributed to pre-launch discounts for NSS-7. As we said, markets and economies are difficult. There is a lot of economic pressure around the world, which translates into pressure on pricing. We feel comfortable in the position we are in today,” he added.

One of the major objectives for the operator going forward will be to get strong utilization rates on its new satellites. Its NSS-7 satellite already has a utilization rate of around 50 percent. According to Browne: “We also said we have done a number of large deals on the NSS-7 satellite and in fact our backlog in the quarter was up five percent over Q1. We put $80 million of new orders on the books during the quarter. NSS-7 was a large contributor to that. We feel very heartened by that. We would expect the fill rate on the NSS-7 to continue to grow as we progress through this year and into next year.”

The situation is slightly different for NSS-6, as NSS-7 was taking over some existing capacity from satellites New Skies had at that orbital position. Doing some pre-launch deals for NSS-6 is a key focus right now. “What we have said for NSS-6, is that we are looking at a range of 10-15 percent in deals prior to launch of the satellite. We still feel this is something that we will accomplish.”

–Mark Holmes