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New Skies’ Business Strategy Boosts Earnings

By | August 18, 2003

      Cost controls, stabilizing prices and additional capacity allowed New Skies Satellites N.V. [NYSE: NSK] to post heightened revenues and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for second quarter 2003, compared with the same period last year.

      Those results were attained despite a “challenging” environment for satellite services, said Dan Goldberg, New Skies’ CEO. However, the difficult market conditions could cause “price compression” during the second half of the year, he added.

      Revenues for the second quarter of 2003 hit $54.7 million, up 11 percent from $49.2 million for the same quarter last year. Adjusted EBITDA for second quarter 2003 increased to $30.7 million, up 14 percent from $30.7 million for the same period last year.

      On the downside, net income for second quarter 2003 fell nearly 30 percent to $3.1 million, slipping from $4.4 million for the same quarter a year ago. The drop primarily stemmed from a jump in depreciation due to the launch of two new satellites, NSS-7 and NSS-6, company officials said.

      Overall, industry analysts praised News Skies’ performance during difficult times for satellite operators. However, they pointed out that New Skies’ fleet utilization rate only measured 50 percent during the second quarter due to the recent launch of two new satellites, NSS-6 and NSS-7.

      Robert Peck, a satellite analyst with Bear Stearns, said New Skies outperformed his estimates on all metrics during the second quarter.

      Revenues were aided by increased demand for government and news-gathering organizations due to the conflict in Iraq, he said.

      Highlights for the company’s second quarter included a number of new contracts with broadcasters worldwide, such as the European Broadcasting Union and Telediffusion d’Algeria, a North African broadcaster, Peck said.

      Tom Watts, a satellite analyst at SG Cowen, said New Skies’ increased net income during a time of weakened demand for services follows the same pattern set earlier when industry giants PanAmSat [Nasdaq: SPOT] and Intelsat reported their earnings for the same quarter.

      “We expect continued weakness in the FSS (fixed satellite services) sector until early 2004, when economic recovery should enable major media companies to expand their purchases of satellite capacity,” Watts said.

      On the plus side, New Skies showed that it has benefited from a well-diversified service offering and geographical reach, Watts said. Data and voice traffic rose to 44 percent to rank as the largest revenue source for the company during second quarter 2003, while video transmission, 37 percent, and transmission of IP traffic, 19 percent, lost ground, he added.

      -Paul Dykewicz

      (Tom Watts, SG Cowen, 212/278-4260; Robert Peck, Bear Stearns, 212/272-6665)

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