SES Delivers Strong 2010 Financial Results

SES S.A., reports financial results for the twelve months to 31 December 2010.

Romain Bausch, President and CEO, commented:

“SES delivered strong operational and financial results in 2010, overcoming the early challenges of a reduction of capacity on AMC-16, as well as satellite launch delays. Revenue and EBITDA growth was strong on both a reported and a recurring basis. Four satellites were launched or brought into service during the year, resulting in a net increase of 76 transponders to the fleet.

We participated in the final equity financing for O3b Networks, which is developing an exciting Ka-band service for emerging markets. Our focus is now on the successful launch and subsequent commercialisation of the six satellite missions scheduled this year, and to continue to identify and execute on profitable growth opportunities.

To enhance the execution of its growth strategy and to capture the potential in the emerging markets, the company has decided to adapt its organisation. By consolidating the operations of SES ASTRA and SES WORLD SKIES, as well as of Engineering, under a single management structure, we expect to achieve even stronger market and customer focus for the planned new growth capacity of the fleet. We are excited about the future opportunity to serve our customers with a single face to the market for our global fleet.”

¹ “Recurring” is a measure designed to represent underlying revenue / EBITDA performance by removing currency exchange effects, eliminating one-time items, considering changes in consolidation scope and excluding revenue / EBITDA from new business initiatives that are still in the start-up phase.

Financial Review

The financial progress of SES in 2010 has been pleasing, with the growth in both recurring revenue and EBITDA coming out at the top end of the guidance range of 4% to 5% - helped by a strong fourth quarter where the year-on-year recurring revenue and EBITDA growth was 6.3% and 7.0%, respectively. EBITDA margins on both infrastructure and services activities were strong. These results arose from strong contributions from both SES ASTRA and SES WORLD SKIES. The reported growth rates of full year revenue and EBITDA, at 7.1% and 8.6%, respectively, also benefited from the stronger U.S. dollar.

The growth in EBITDA drove a 10.8% increase in reported operating profit, to EUR 797.4 million. Net profit from continuing operations after tax increased by 4.9%, to EUR 523.8 million.

The ‘discontinued operations’ charge relating to ND SatCom of EUR 38.5 million taken in the first half has been reduced to EUR 36.3 million at the full year.

Net operating cash flow increased to EUR 1,107.1 million – an increase of 2.9% over the prior year level. Significant outflows for investing activities resulted, as expected, in a net decrease in free cash flows to EUR 194.7 million. Closing net debt rose by 5.6% to EUR 3,760.8 million, but with the expansion at the EBITDA level, the net debt/EBITDA ratio fell in the course of 2010 from 2.99 to 2.91 times, being well under the group’s self-imposed ceiling of 3.3 times. The fully protected contract backlog stood at EUR 6.6 billion at the year end.

The Board of Directors is proposing a dividend of 80 euro cent per A-Share, as compared to 73 euro cent per A-share last year.

Operations Review

During the year, SES brought into operation four new satellites, NSS-12, SES-1, ASTRA 3B and SES-7 (formerly designated ProtoStar 2). NSS-12 delivered replacement and substantial incremental capacity into the Indian Ocean Region and reached full utilisation shortly after entering commercial service. SES-1 replaced ageing capacity in the North American fleet, also enabling the repositioning of AMC-4 and AMC-2 for other missions. ASTRA 3B delivered important replacement and incremental capacity for Europe, as well as new capacity for the Middle East on a dedicated beam, which is now wholly contracted. SES-7 serves India, Indonesia and the Philippines / South China Sea region through three beams, of which the India beam is already fully utilised.

These launches, and the redeployment of NSS-5 from 57 degrees East to 340 degrees East, added 122 transponders to the group inventory. The new capacity on the ASTRA 3B, NSS-12 and NSS-5 spacecraft, complemented by the 10 additional transponders on Ciel-2 resulting from its full consolidation, were offset by the reduction of available capacity on AMC-16 and the retirement of AMC-5 from station-kept operations at 79 degrees West, as well as by some adjustments arising from fleet movements. The net increase was 76 transponders, increasing the fleet total to 1,249 transponders, of which 990 were contracted at the year end, resulting in a utilisation rate of 79.3% (2009: 82.7%).

Growth is being driven by the continued launch of new TV platforms and by the proliferation of HDTV programming. This continues to gain momentum in Europe and is also featuring in many of the new TV platforms around the world.

SES ASTRA

Europe

In Western Europe, incremental capacity was contracted for the German, French, Spanish and Dutch markets. Some of this demand was met through the termination of German analogue programming at the core orbital position of 19.2 degrees East. The ending of the 5-transponder contract with UPC Direct at the end of 2010 will enable the growth of HD programming at this major orbital position; one of these transponders has already been re-contracted. As of 1 January 2011, there were still 33 transponders delivering analogue transmissions into the German language markets. Analogue satellite transmissions are scheduled to finish at the end of April 2012. Nine of the 33 transponders have committed customers, notably in Germany where five have been contracted by the public broadcasters ARD/ZDF, while the remaining 24 are in the process of being remarketed. More than half of this analogue capacity is expected to be recontracted in the German market, with the remainder being taken up in the French and Spanish markets. This process is foreseen to take place over a couple of years from 2012. The growth of digital terrestrial television distributed over satellite, namely TNTSAT in France and Freesat in the UK, successfully increased ASTRA’s reach in these key markets. Subscriber growth of platforms in all linguistic markets, especially in Eastern Europe, contributed to ASTRA’s DTH reach.

SES ASTRA’s HD+ product, a platform for access to commercial HDTV programmes in Germany, made significant progress, as set top boxes and Common Interface modules became widely available. By the end of 2010, over 1.5 million HD+ smart cards had been delivered to equipment manufacturers, more than 400,000 HD+ set-top boxes and over 100,000 Common Interface modules had been sold. HD+ presently delivers 8 HD channels from the leading private broadcasters. Delivering revenue of EUR 16 million in 2010, HD+ will be reported as a recurring activity as from 1 January 2011.

Business at the new orbital position of 31.5 degrees East is developing momentum, with an important new video delivery agreement signed with Ukraine’s national broadcaster, Ukrkosmos, in early December. This agreement establishes 31.5 degrees East as an important orbital position for this significant new market, delivering content for terrestrial and cable redistribution. The Ukrkosmos accord was closely followed by an agreement with Central European Media Enterprises (CME), as anchor customer for Romania and Bulgaria, through which SES ASTRA will deliver programming to millions of cable households in one of the biggest growth markets in Europe.

In Central and Eastern Europe, ASTRA2Connect signed a number of new customers for its satellite broadband offering via ASTRA 3B at 23.5 degrees East. Recent agreements have raised the number of subscribers served by ASTRA2Connect to over 75,000.

Africa

Outside the European markets, Top TV, a South African pay-TV operator in which SES owns a 20% stake, started operations in mid-year using three transponders on the ASTRA 4A satellite at 5 degrees East. ASTRA Platform Services, based in Munich, provides platform uplink and playout services for the customer. Top TV’s subscriber numbers exceeded 200,000 at year end 2010.

SES WORLD SKIES

The Americas

The North American market remained essentially stable. Puerto Rico Telephone’s DTH operator, Claro TV, began operations on the AMC-21 satellite, using five transponders. Future growth in North America will largely be delivered through the development of outsourced capacity, the latest of which is the QuetzSat-1 satellite, wholly contracted by EchoStar, being prepared for launch this year. In view of the weak demand for new capacity, the decision was taken not to replace the AMC-5 satellite at the 79 degrees West orbital position, and its customers have been migrated to other satellites in the fleet. This action reduces the replacement investment required for the fleet and enhances the group’s capital efficiency.

In September, following the modification of Canadian foreign ownership rules, SES’ voting interest in Ciel was increased to 70%, entitling a change to the accounting for SES’ interest in Ciel from 70% proportional consolidation to full consolidation. Accordingly, with effect from Q4 2010, revenues were recognised from the full payload of 32 transponders on Ciel-2, as against 22 in the prior periods.

In Latin America, the growth potential of the market is being addressed by the new capacity that SES WORLD SKIES is delivering in the region. AMC-4 has been relocated to initiate operations at the 67 degrees West orbital position, through an agreement with the Andean Community.

In the Atlantic Ocean region, SES-4 is to be launched mid-year, replacing NSS-7. This launch will deliver incremental capacity connecting the Americas with Europe and Africa, adding to that already delivered today by NSS-5.

In a development in early 2011, long-term customer, TIBA, serving cable networks throughout Latin America, renewed its capacity agreement through the planned replacement of NSS-806 by SES-6, in an agreement through to that satellite’s end of life in 2030.

Africa

In Africa, new business was signed with Wananchi, a Kenyan television and broadband operator, which has contracted five transponders on the NSS-12 satellite. Wananchi hosts a powerful DTH lineup and VSAT networks delivering services from reliable high-speed internet access to Voice-Over-IP and videoconferencing.

India and Asia-Pacific

The strength of demand for satellite capacity over India has led to all available capacity in the region having been sold out. The SES-7 satellite (formerly named ProtoStar 2) has been colocated at SES’ 108.2 degrees East orbital position. SES has entered into a multi-year agreement for all 12 transponders on the South Asian beam for a DTH platform in India.

Elsewhere in Asia, Vietnamese DTH operator, AVG, began services in May on the NSS-6 satellite, initially using two and a half transponders to deliver its 80-channel DTH line-up. AVG has an option for another transponder which it can exercise to accommodate further channel expansion.

In the Philippines, GSAT contracted an additional transponder on the NSS-11 satellite, leveraging 108.2 degrees East’s strength as one of Asia’s significant DTH neighbourhoods, to develop its HDTV offering.

Other Developments

ND SatCom

Following the decision to sell a majority interest in the satellite services unit ND SatCom, an agreement was reached with Astrium to dispose of a 75.1% interest. The transaction is expected to close during Q1 2011, subject to the satisfaction of certain conditions. Transaction terms have not been disclosed.

O3b Networks

SES committed to invest a further USD 75 million in the final equity financing round which closed in November 2010. O3b Networks is now fully funded through the launch and entry into service of the first 8 satellites in its Medium Earth Orbit constellation. The start of commercial operations is expected in 2013. SES’ incremental investment results in a shareholding of 33%, which is expected to rise to approximately 44% as contributions via services in kind are recognised.

Satellite Health

The SES fleet presently includes eleven Lockheed Martin A2100 model satellites which are susceptible to solar array power generation anomalies. During the year, operations on AMC-16 were impacted following the failure of solar array circuits. Part of the payload has been switched off, with an annualised revenue impact of USD 14 million. No other spacecraft of this model and vintage experienced anomalies that resulted in any impact on commercially available capacity during 2010.

Forthcoming launches in 2011

Six satellites are scheduled for launch during the year. In the second quarter, ASTRA 1N and SES-3 will deliver fleet replacement capacity for continuity of service in Europe and North America, respectively. The third quarter has three launches scheduled – SES-2, carrying further replacement capacity for the North American fleet; SES-4, which replaces and significantly extends the capacity delivered today by NSS-7 at 338 degrees East; and QuetzSat-1, carrying 32 transponders of new capacity for North American markets. During the fourth quarter, SES-5, carrying new capacity for Europe and Africa, will be the final launch on SES’ 2011 schedule.

In addition to this heavy launch manifest, YahSat-1A will deliver 23 transponders of new Ku-band capacity for the Middle East and North Africa region to YahLive!, the SES partnership with Abu Dhabi-based YahSat.

Recent Development

In order to capitalise on the strong DTH demand in Asia, SES has commissioned the SES-8 spacecraft for a launch in the first quarter of 2013.

SES-8 will be co-positioned with the NSS-6 satellite at 95 degrees East. SES continues to see robust growth in the emerging markets, particularly in West Asia, India and South East Asia. SES-8 will support key strategic customers with their growth plans and build on the extremely valuable video and data neighbourhood at this orbital position.

Outlook and guidance

SES’ growth is essentially based on the delivery of new capacity to serve the strong demand in the emerging markets. In 2011, new capacity will be launched on three satellites, as detailed above, as well as on YahSat-1A. The entry into commercial service of these spacecraft is expected to be approximately three months after launch, following the completion of the extensive in-orbit testing programme.

Revenue growth in 2011 will largely be contributed by SES WORLD SKIES from full year contributions of contracts initiated during 2010 and from new capacity launched during 2011. New capacity contributions will derive from QuetzSat-1 (+32 transponders) – 100% contracted by EchoStar – which is expected to enter service in Q4 2011; from SES-4 (+27 transponders) – expected to start operational service in Q4 as well, while YahSat-1A (+23 transponders), supporting the YahLive! offering, is expected to start commercial operations by mid-year.

The 2010 guidance for full year revenue and EBITDA growth was 4-5%. This incorporated the impact of satellite launch delays and a payload reduction due to health issues on AMC-16. SES now identifies this range of 4-5% for its 3 year revenue CAGR (2010-2012) guidance.

SES' revenue growth does not develop on a linear basis. It depends on the timing of satellite launches and of the entry into service of a spacecraft, on the ending of customer contracts (e.g. German analogue transponders) and the timing of new agreements. Indeed, the QuetzSat-1 and SES-4 launches have each been delayed by approximately three months, and the AMC-16 revenue reduction carries through the full year. Taking these factors into account, SES anticipates recurring revenue growth of approximately 3% in 2011. It will rise strongly thereafter as the group will benefit from the full year impact of the new capacity launched in 2011.

Group indebtedness in 2011 is foreseen to stay within the group’s self-imposed net debt/EBITDA ceiling of 3.3 times.

The new organisational structure is anticipated to deliver enhanced efficiencies with corresponding revenue, operating expense and EBITDA synergies for ongoing and future growth. Some one-time charges are also expected to be incurred in accomplishing these synergies. The guidance set out above does not incorporate the impact of these activities. On completion of the comprehensive planning and review process, an update will be delivered at the time of the Q1 results announcement in May.