New Skies Plans Second Share Buyback

New Skies Satellites [NYSE: NSK] has announced plans for a second share buyback of up to 10 percent of its outstanding shares. The Feb. 11 announcement came as little surprise given the success of the first buyback, which the operator completed in September. The operator hopes the second buyback will be equally successful as it continues to leverage a strong balance sheet.

News Skies CEO Dan Goldberg had hinted to SATELLITE NEWS in November (SN, Nov. 24, 2003) that another share buyback was on the horizon. In its first share buyback, the operator acquired more than 13 million ordinary shares at a total cost of around $54 million. Around 93 percent of those shares came from New Skies’ original shareholder base.

The satellite operator is also planning the distribution of its first cash dividend for 2003 of 4 cents per ordinary share. Despite the share buyback and the dividend plans, Goldberg pointed out that this would not impact the operators’ ability to make strategic moves if it wanted to. Goldberg told analysts during a conference call: “No one should interpret the payment of a dividend as a sign that we are backing away from anything on the strategic front. It would still leave us with a meaningful amount of firepower. It would be wrong to say we are no longer open to strategic opportunities.”

In Line With Expectations

Certainly, the free cash flow numbers are significant indicators of the company’s healthy balance sheet. In 2003, New Skies generated positive free cash flow of $66 million, where as in 2002, it had negative cash flow of $119 million. This represents a swing of over $180 million. Its results were in line with analysts’ expectations.

Tom Watts, a satellite equity analyst at SG Cowen, was very bullish on the company. He said in a research note: “New Skies has positioned itself for strong organic growth as evidenced by the completion of several important projects – namely, the launch and repositioning of NSS-6 and NSS-5, respectively, the elimination of its debt, the completion of its share repurchase program, and the planned launch of its NSS-8 satellite.”

Robert Peck, a satellite equity analyst at Bear Stearns, was equally effusive. He said in a research note: “We think that New Skies has done an excellent job obtaining new business, managing cost and driving the company to free cash positive in what continues to be a challenging environment for all operators. In addition, the company has consistently hit our estimates over the past several quarters.”

New Skies revenue numbers were in line with expectations. In the quarter ending Dec. 31, 2003, it had revenues of $54.1 million, compared to $50.8 million in the same quarter in 2002. In terms of yearly numbers, New Skies had full year revenues of $214.9 million in 2003, compared to just a shade over $200 million in 2002. The numbers were in line with its own guidance and analysts’ expectations. Watts said: “Overall the results place New Skies at the top of the sluggish FSS [fixed satellite service] industry and represent among the best year-on-year performance with revenue and EBITDA [earnings before interest, taxes, depreciation and amortization] growth of 7 percent and 8 percent respectively.”

Despite the fact 2004 is likely to be a tough year for all those involved in the FSS industry, New Skies appears to be in a better position than most. It has diversity in terms of its revenue mix, in geography as well as applications. In terms of its revenues by region, North America and Europe still constitute the largest portion of its revenues, combining for 58 percent of its overall revenues. Interestingly, India and the Asia Pacific region combine for just under 30 percent. In terms of applications, data still represents 43 percent, video 37 percent and Internet 20 percent. Peck commented: “The importance of having such revenue diversity across applications and regions helps eliminate some risk, especially given the volatility of certain regions around the globe.”

Revenue Mix

The revenue mix is especially important given the continued pressure on transponder rates, which went down to $1.2 million in the fourth quarter, compared to $1.3 million in the third quarter. Goldberg admitted that the operator would be aggressive here if it had to be. “We are focused on improving utilization rates. If we have to be a little more aggressive on pricing to secure those deals on satellites, we will.”

On this issue, Watts commented: “Shorter lease terms are also driving declines in industry-wide backlogs and are partially responsible for the lower transponder rates the company gave in new business contracts for NSS-5. Absent these lower rates, fourth quarter transponder rates would have been $1.4 million. We view these new contracts favorably as they represent the company’s willingness to be competitive on price and improve or maintain fill rates [averaging 49 percent] on their fleet.”

In separate news, New Skies announced Feb. 9 a new communications hub in Athens, Greece, which will serve as its primary European gateway to the Middle East, Africa and Asia. It will relay broadband Internet, voice and data traffic, as well as digital video transmissions via the NSS-6 satellite. Greece’s UNITEL Hellas will provide the hub. The new communications hub will support New Skies’ special events and occasional use services associated with the 2004 Athens Olympic Games.

–Mark Holmes

(Robert Peck, Bear Stearns, e-mail: [email protected] ; Tom Watts, SG Cowen, e-mail: [email protected] )