Despite Revenue Fall, SES Global’s Results Impress

By | September 22, 2003 | Feature

SES Global [Luxembourg: SESG] posted a respectable performance in its first half year results, despite posting a 10 percent drop in revenues compared to the first six months of 2002. The largest satellite operator had total revenues of 642.2 million euros ($717.8 million) compared to 712.1 million euros ($796.1 million) in the first half of 2002. Yet, while a 10 percent drop in revenues doesn’t look good, the number is misleading. A large part of the revenues shortfall was a result of foreign exchange exposure. Taking this out of the equation, the revenues were stable, a good result in tough market conditions.

Investment bank analysts were also impressed with the figure. Robert Peck, a satellite equity analyst at Bear Stearns, said in a research report: “SES reported revenues of 642 million euros for the first half of 2003, beating our 597 million euros ($667.5 million) estimate by 45 million euros ($50.3 million). This bodes well for the company, given the continued difficult global operating environment for satellite operators in addition to the unfavorable foreign exchange markets.”

While its revenues fell, SES Global managed to reduce its net debt by 23 percent to just over two billion euros, an impressive result. Its contract backlog increased to 6.1 billion euros ($6.82 billion) compared to 6 billion euros ($6.7 billion) at the end of June 2002. SES Global CEO Romain Bausch told a conference call that most of the backlog was mainly coming from broadcasting customers, and not from new products and services.

However, profits fell 8 percent compared to last year. At the end of June 2003, SES had profits of 115 million euros ($128.6 million), compared to 125 million euros ($139.8 million) at the same stage of 2002.

Comparisons

The numbers are comparable to other satellite operators. PanAmSat [Nasdaq: SPOT] also saw its revenues fall in the first half of this year, although the reduction year-on-year was a little over 3 percent. Intelsat’s revenues in the first six months of 2003 also dropped compared to the same stage of 2002. Intelsat’s revenues dropped by just over 4 percent. New Skies Satellites [NYSE: NSK], with its new satellites on board, somewhat bucked the trend by increasing its revenues between 2002 and 2003 by 5.6 percent.

One of the interesting trends is that New Skies, PanAmSat and SES Global have beaten consensus analysts’ expectations in terms of their revenue numbers, albeit modestly.

While satellite operators have found the going tough in early 2003, the fact revenues have remained stable has been interpreted by analysts as positive. While SES has seen its revenues drop 10 percent and its profits 8 percent, there were enough encouraging signs that a return to revenue growth may not be far away. Despite continued pricing pressure in the market, SES Global executives told a conference call that they expect to see an improvement in revenues in 2004, which is clearly a good sign. Its EBITDA (earnings before interest, taxes, depreciation and amortization has also remained strong at 80.1 percent. In a research report, Tom Watts, a satellite equity analyst at SG Cowen, called this figure “exceptional” given the market conditions.

Utilization rates across SES Global’s fleet offered up some mixed news. SES Astra had a transponder utilization rate of 82 percent, where as SES Americom had a rate significantly lower at 63 percent, due mainly to the end of the PrimeStar contract in February.

The end of the PrimeStar contract took a little shine off some impressive contract wins overall for the operator. “Though demand for new business remains sluggish in general, SES signed more than 1 billion euros ($1.14 billion) of new and renewal contracts. However, due to the termination of the PrimeStar contract and run-off of prior contracts, backlog increased only 100 million euros ($114.5 million). However, even this increase demonstrates the growing strength in the FSS market, since the previous quarters have shown backlog declines both for SES and other FSS operators,” noted Watts.

SES Americom is fundamentally shifting some of the goals of its AMERICOM2Home platform. With the merger of DirecTV and EchoStar Communications [Nasdaq: DISH] a long since dead, SES hopes to supply capacity to the two operators from its 105.5 degrees West orbital position. Peck observed: “The spectrum could prove very valuable to either operator helping the companies build out more local channels as well as HDTV. In addition, the Ka-band spectrum it has at 105 degreesW could also prove valuable to broadband capabilities or further HDTV buildout.”

Bausch also told a conference call that the operator was unlikely to bid for any of Loral Space and Communications’ assets, noting that the assets were far more valuable to someone who did not already have such a strong presence in the U.S. market. Bausch indicated the assets would offer more value to operators such as Eutelsat and Intelsat.

–Mark Holmes

(Yves Feltes, SES Global, e-mail: yves.feltes@ses-global.com; Robert Peck, Bear Stearns, e-mail: rpeck@bear.com; Tom Watts, SG Cowen, e-mail: tom.watts@sgcowen.com )

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