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New Skies Considers Options

By | September 10, 2003

      New Skies Satellites [NYSE: NSK] has completed its share buy back program, buying back over 13 million shares. The completion of the program was announced on Sept. 3.

      Andrew Browne, CFO of New Skies, told Interspace that further share buy backs could be in the pipeline. “We do have authorisations to do up to two additional share repurchases after the cancellation of the first programme. I think the use of our balance sheet is a great strength and it provides us with the potential for additional programmes or other investment opportunities including participating in consolidation activity. However, we will wait for the right opportunities to come along prior to committing our balance sheet. I think there are many examples of companies who have used their financial resources in areas where they have not seen the returns they might have expected.”

      A further share buy back could be implemented later this year. “We have now successfully completed our first buy back programme with repurchasing over 13 million shares representing an average price of $4.14 per share. Today we are trading at circa $5.7 per share, thus accruing value to our shareholders. Additionally, we have commenced the process of cancelling the shares, which takes a little over two months in the Netherlands and we will wait until the shares have been cancelled prior to making any decisions on commencement of a second programme.”

      New Skies continues to have a healthy balance sheet. Its only committed capital is on the NSS-8 satellite. It has around $130 million left to pay on that satellite over the next 18 months, but the operator soon hopes to generate ever more positive amounts of positive cash flow. In the second quarter of 2003, New Skies generated over $26 million of positive free cash flow. But, it may not be until 2005 when this figure begins to ramp up significantly. “We expect to see positive cash flows this year in the ballpark of $20-$30 million. This compares with negative free cash flows of approximately $120 million last year.”

      He continued: “We have not given guidance beyond 2003 but notwithstanding we would still anticipate being free cash flow positive. Looking beyond that date, we would expect to see increasingly higher levels as we continue to increase our fill rates and if we have no additional investment programs beyond our current commitments.”

      With its financial house in good order, the main challenge for the company will be to sell capacity on its new satellites, NSS-6 and NSS-7. Improving the fill rates remains the top priority for the company. Browne commented: “If you were to exclude our recent additions to the fleet of the NSS-6 and NSS-7 we would have a fill rate of approximately 70 per cent. I would note that this is up from a fill rate of 48 per cent when we commenced our initial operations and took over the current assets in late 1998. By including our new capacity we now have a fill rate of 50 per cent, which is up over last quarter. Our anticipation is to steadily grow that fill rate as we go forward. Our plan over time is to grow utilisation rates into the 70 per cent range where we would expect to see an accompanying growth in both our operating and bottom line margins.”

      Despite the fact that New Skies is in good financial health, overall conditions for fixed-satellite service operators remain difficult. Most of the FSS operators are seeing flat growth in terms of revenue numbers. Browne is unsure when a recovery will take place, but hopes it could happen next year. “As we have said at the time of our analyst call and in our second quarter earnings release, overall markets for satellite capacity remain difficult at this time. Macroeconomic challenges continue in addition to some overcapacity in certain regions of the world. However, traditionally markets are cyclical, and it is our belief, as well as I think the belief of the FSS industry, that cycles will reverse themselves and we would expect to see an improvement in the demand supply equation alongside the return of economic growth. When this will take place I don’t know and it is hard to predict but it would be nice to see some improvement in the back half of 2004. Traditionally, we have seen somewhat of a lag in recovery in the satellite sector of that in the broader consumer economies.”

      –Mark Holmes

      (Contact: Jeff Bothwell, New Skies Satellites, e-mail:

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