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SES Revenues Fall But Results “Ahead of Consensus”

By | July 27, 2018
SES offices with antennas. Photo: SES

SES offices with antennas. Photo Credit: SES

SES saw a fall of more than 17 percent in net profits for the first half of this year, compared to the same stage last year. This was one of the highlights of its half-year results announced today. With an additional decline in overall revenue, the operator will have its work cut out to grow the business. Net profits for the six months to the end of June were 227.7 million euros ($266.23 million). At the same stage last year, this figure was 275.5 million euros ($322.12 million) — a significant drop.

Overall revenues for the six months were 981.4 million euros ($1.147 billion). At the same stage last year, this had reached 1.049 billion euros ($1.23 billion). However, there are reasons to remain optimistic. Underlying revenues were up 1.5 percent compared to the same stage last year. Additionally, SES Networks revenues were up over 10 percent compared to the same stage last year — an indicator of the growing importance of this part of the business. SES saw particularly strong growth in the mobility and government segments of its business. Mobility revenues were up over 30 percent, which shows the importance of this line of business within Networks.

Analyst View

However, while some of the key figures were down, the results seem to suggest that the operator is now performing above expectations. “For the second quarter in a row, we’ve seen a strong performance against expectations,” said Jeffries Satellite Equity Analyst Giles Thorne in a research note. “Revenue was +4.8 percent ahead of consensus, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) +3.6 percent ahead. Every revenue line out-performed, most notably, Video (which is critical to sentiment). SES has returned to constant Foreign Exchange Market (FX) growth (+4.0 percent from -4.9 percent / -8.7% in 1Q18 / 4Q17), with both divisions performing in a manner that should improve sentiment, namely SES Video ‘stable’ (-0.2 percent in 2Q18 from -3.8 percent / -3.0 percent) and SES Networks ‘growth’ (+13.0 percent from -4.5 percent).”

It will also be interesting to see how SES’ Video business does given its importance, and how the revenues are struggling to grow. “The 2020 Video guidance implies that Video will be stable/slightly down over the next two years,” Thorne added. “The voiceover is that management has done a deep dive on the Video business and chosen to focus more on those areas of genuine differentiation, highlighting that there remains within the Services segment some low margin re-seller business that doesn’t meet this criteria (and it sounds like SES will walk away from it, something we’ve seen before). Management wants to focus on services businesses ‘that really creates value for our customers and really delivers interesting OTT solutions.’ Management also spoke about anticipating that within the ‘long tail of channels,’ there are some channels with very low viewership that could go to solely online distribution.”

Sami Kassab, a satellite equity analyst at Exane BNP Paribas, also hailed the results. “After several years of disappointing operating trends, SES reported higher than expected revenues and EBITDA in H1 18,” he said in a research note. “Q2 18 group organic revenue growth of 4 percent (3 percent excluding periodic revenues) resulted in a 5 percent beat at the top line and drove H1 18 EBITDA 2 percent ahead of consensus expectations. SES Video revenues were flat in Q2 while SES Networks benefited from the entry in service of recently launched satellites and grew 13 percent.”

Kassab also highlighted the growing influence of the Networks business for SES. “SES Networks is guided to represent over 40 percent of group revenues in FY20 (vs. 32 percent in FY17). We have increased our 2018 and 2020 revenue forecasts by 3 percent and 2 percent respectively,” he added.

These results are an indication (if any were needed) of the importance of the Networks business for SES. Tellingly, SES Networks Chief Executive Officer (CEO) JP Hemingway told Via Satellite recently that Networks will be the growth engine of SES. “We expect to be an equal revenue contributor if not more over the coming years. We are expecting year-on-year double-digit growth, and are looking to double the business over the next five years,” he said.