SES Reports Financial Results
17 February 2012
SES S.A., reports financial results for the twelve months to 31 December 2011.
Romain Bausch, President and CEO, commented: “SES’ results for 2011 demonstrate the core resilience of our operating business. Revenue for the year was on target, despite the challenge of launch delays. Group profit grew by 26.8% year on year. In a busy second half, SES successfully launched four satellites. QuetzSat-1, a satellite wholly contracted by EchoStar, entered service in November, while the other new satellites carry mainly replacement capacity.
“SES’ organisational realignment was implemented during 2011. It is delivering real benefits, including enhanced focus on our key markets. Seven further satellites are being built and are
due to be launched before the end of 2014. The majority of the new capacity will be serving
customers in emerging markets. SES’ high quality orbital positions and footprints are laying
down the foundation for future growth.
“2012 is an important year in the ongoing transformation of SES. We are developing our
presence in emerging markets, while maintaining our strong position in the more mature
European and North American markets. In 2012 we will experience the exceptional impact of
the analogue TV switch-off in Germany. When eliminating the impact of this, we foresee an
underlying three year revenue CAGR (2012-2014) of approximately 7.5%. On a recurring
basis this is expected to be approximately 4.5%. This fully reflects the launch delays and
satellite health issues. We look to the future with confidence.”
Financial Review
SES continued to grow its operating business successfully during the year, with recurring
revenue and EBITDA increasing by 2.8% and 3.1%, respectively. Reported revenue remained
essentially flat, with reported EBITDA decreasing slightly, due to the adverse evolution of the
USD against the euro (average conversion rate in 2011 was 1.4035 compared to 1.3294 in
2010). Reported EBITDA also reflected the impact of the one-time reorganisation charge of
EUR 14.8 million.
SES’ recurring revenue development in 2011 was in line with expectations, although impacted
by the launch delays of QuetzSat-1 and SES-4, as well as by solar array anomalies on certain
Lockheed Martin A2100 model satellites. Revenue and EBITDA growth would have been
3.3% and 3.8%, respectively, excluding these elements.
A continued focus on cost management contributed to the rise in recurring EBITDA delivering
a recurring EBITDA margin of 74.6%. The reported EBITDA margin was 73.5%, incorporating
the reorganisation costs as mentioned. Infrastructure activities continued to deliver a strong
recurring EBITDA margin of 82.3%.
Reported operating profit was up 1.4% to EUR 808.2 million, while Profit of the group rose by
26.8% to EUR 617.7 million, the year-on-year increase being driven by a combination of
higher operating earnings, reduced financing and tax charges, as well as by the adverse
impact in 2010 of the discontinued operations charge of EUR 36.3 million taken in connection
with ND SatCom.
Net operating cash flow remained strong in 2011 at EUR 1,079.9 million, representing an
EBITDA conversion ratio of 84.7%. Outflows for investing activities, at EUR 850.3 million,
reflect the intensive satellite procurement programme.
The group’s contract backlog was substantially replenished, with about EUR 2 billion of
renewals and new business being signed during the year, raising the total backlog by 6.1%
from EUR 6.6 billion to EUR 7 billion.
Group indebtedness (Net Debt / EBITDA) stood at 3.12 times at the year end.
Earnings per A-share increased from EUR 1.24 in 2010, to EUR 1.56 in 2011. A dividend of
EUR 0.88 per A-share is being proposed to the Annual General Meeting of shareholders, to
be held on 5 April 2012.
Operations Review
SES’ satellite fleet continued to operate at high utilisation levels throughout the year, with
1,068 of 1,315 commercially available transponders utilised at year end, a utilisation rate of
81.2%. The increase in available transponders originated from the addition of 55
transponders in the ASTRA segment (+23 from YahSat 1A, +16 from ASTRA 1F and +16
from ASTRA 1N) and a further 10 in the North American segment (+32 from QuetzSat-1, -10
switched off on AMC-15, and -12 resulting from some C-band capacity on AMC-6 no longer
being marketed).
Operationally, 2011 was a year of transition, with incremental transponder capacity only being
launched late in the year, the disposal of the majority interest in the services company ND
SatCom, and an internal reorganisation to streamline functional areas and to strengthen sales
and marketing activities in the emerging markets where the bulk of the group’s new capacity
will be directed.
The intensive launch campaign started in April, with the launch of YahSat 1A. During the third
quarter, ASTRA 1N, SES-2 and SES-3, all replacement satellites, were launched, while
QuetzSat-1, a satellite wholly contracted to an EchoStar group company, was launched at the
end of September, some two months later than originally anticipated. The launches of SES-4
and SES-5, satellites due to deliver over 90 incremental transponders between them, were
delayed into 2012. SES-4 was successfully launched on 15 February 2012.
The strength of demand in Asia, particularly in India for DTH capacity, supported the decision
to procure a new satellite to complement the fleet at 95E. The satellite, designated SES-8, will
add capacity in the region and is expected to be launched in the first half of 2013.
During the second half of 2011, incremental solar array circuit failures on AMC-15, a
spacecraft wholly contracted by DISH Network, resulted in part of the payload being taken out
of service. This payload reduction reduces the customer’s payments by approximately EUR 5
million per annum.
The launch of the SES-2 spacecraft, a replacement in the North American fleet, marked a
new operational milestone with the carriage of a ‘hosted payload’ for the U.S. government
(CHIRP “Commercially Hosted Infra-Red Payload”). Other hosted payload opportunities are
under discussion with the U.S. and other governments.
The YahSat 1A satellite was declared operational at the beginning of October 2011. SES
holds 35.0% of YahLive, a partnership with YahSat/Mubadala Corporation of the UAE, which
will commercialise the 23 Ku-band transponders on the satellite. In December, Yahlive
announced a long-term agreement with MBC Group of Dubai, a major regional broadcaster,
for HD broadcasting in the region. This was followed by a broadcasting agreement with the
Saudi Sports Bouquet, comprising six HD channels of the Saudi football league, for viewers in
Europe.
Europe
The ASTRA satellite system maintained its momentum in European DTH (‘Direct-To-Home’)
broadcasting by extending its technical reach beyond the 135 million European households
recorded at end 2010 and by growing its market reach relative to other distribution
technologies. In Germany, as at year end 2011, 17.5 million households received TV via
satellite, more than any other medium, and satellite households outnumber cable households
for the first time. Of these, 5.9 million receive HDTV, and 1.8 million households receive
analogue satellite transmissions.
Although operating at high utilisation rates, ASTRA continued its growth even as analogue
capacity in Germany was switched off, reflecting the solid demand in European markets. The
capacity dedicated to analogue broadcasts in Germany reduced from 35 to 32 transponders
during the year. Three further transponders terminated analogue transmissions at 31
December 2011. The remaining 29 transponders carrying analogue transmissions via satellite
will be switched off at the end of April 2012.
HD+, the technical platform delivering encrypted Free-To-Air HDTV in Germany, made
excellent progress, surpassing expectations. Viewers have an initial 12-month free viewing
period, after which a modest annual technical service charge is payable to enable continued
reception of the 12 HD channels currently broadcast via the platform. At the end of 2011, the
number of viewers had risen to 2.3 million, of whom 1.9 million were in the free viewing
period. At the year end, 0.4 million viewers had elected to continue viewing by paying the
technical service charge. This positive development demonstrates the success of HDTV in
Germany.
New broadcasting capacity was contracted across the region, with the emergence of a
number of new players in Eastern Europe. In Georgia, MagtiCom has introduced a new DTH
offering, while in Ukraine, Zeonbud contracted capacity for satellite distribution of digital
terrestrial TV signals. A new DTH platform was introduced in Serbia by Telekom Srbija,
initially broadcasting two public TV channels. Towercom contracted a fourth transponder at
23.5E to support SD and HD TV transmissions on its growing Skylink bouquet, serving
subscribers in the Czech Republic and Slovakia.
KDG, a customer using satellite capacity at 23.5E for content distribution to its cable head
ends in Germany, has largely implemented fiber connectivity to these networks. The contracts
on the 15 transponders used by KDG will terminate during Q2 2012, as planned. Past and
current guidance includes this development.
A strategic partnership with Gazprom Space Systems was signed, under the terms of which
the ASTRA 1F satellite will operate at 55E until Gazprom’s Yamal-402 enters service later this
year. Gazprom will utilise 16 transponders on ASTRA 1F and SES will commercialise a
certain amount of capacity on Yamal-402 after that satellite enters service.
ASTRA2Connect, the service delivering broadband internet connectivity via satellite,
continued to enhance its offering, increasing download speeds to 10 Mbps. In 2012, it is
planned to increase maximum download speeds to 20 Mbps as new Ka-band capacity is
brought into use. Subscriber numbers remained stable throughout the period, at
approximately 80,000.
The Americas
In the relatively mature North American market, demand and utilisation remained essentially
stable. Growth was delivered through the wholly contracted QuetzSat-1 satellite, which was
declared operational during November, and from the hosted payload, CHIRP, carried on
board the SES-2 replacement satellite which was launched in July.
SES continued to increase capital efficiency across the North American fleet. One satellite
(AMC-5) no longer needs to be replaced, while another satellite, SES-3, has been temporarily
relocated to serve strong demand in Asia.
SES Government Solutions, which provides U.S. government services, gained FCSA (“Future
Commercial Satellite Acquisition”) authorisation. This authorisation simplifies the tendering
process when calls for tenders are published by the U.S. government, thus improving SES
Government Solutions’ chances of winning new business.
In South America, developments continued apace. TIBA, the Argentina-based cable network
services provider throughout the region, contracted additional capacity on the SES-6 satellite
that is to be launched in 2013, to satisfy the rising demand for new channels and HD content.
The sports network ESPN Brazil took additional capacity for regional HD distribution. AxeSat,
a regional broadband provider, extended its contract to two transponders on AMC-4 at 67W to
support demand from corporate customers across the Latin American and Caribbean
markets.
Africa
Canal+ Overseas signed a major renewal of its capacity at 338E to serve the francophone
DTH markets in Africa, also committing to additional capacity on the SES-4 satellite which is
to replace NSS-7. The agreement enables the extension of the bouquet with additional
channels and new HD content. Meanwhile, Globecast expanded its capabilities, contracting a
transponder on SES-4 and an additional transponder on ASTRA 4A, to support the launch of
two new DTH platforms for sub-Saharan Africa, demonstrating the level of demand in the
region.
In East Africa, Wananchi brought its new DTH offering, Zuku TV, onstream in the second half
of the year.
India and Asia-Pacific
In February, a contract with ISRO was announced covering the entire 12 transponders of Kuband
capacity on SES-7’s India beam, for Indian DTH operations by Bharti.
The strength of demand for DTH capacity in India drove the decision to procure a new
satellite, SES-8, which will be launched into 95E and co-located with NSS-6 at that orbital
position. SES-8 is scheduled for launch in the first half of 2013.
SpeedCast, an Asia-based satellite services provider, took capacity on three SES satellites to
support its maritime broadband service offering in the Atlantic and Indian Ocean regions.
Other Developments
O3b Networks
O3b Networks, in which SES currently has a 39% interest in the shares outstanding, rising to
approximately 45% in 2013 as funding commitments are met and contributions in kind are
recognised, made good progress in the year. The Critical Design Review of the system was
passed and the satellite programme is on schedule for launch of the first four satellites in Q1
2013, with the second batch of four to be launched in Q2 2013. In October 2011, O3b
secured incremental financing for a further four satellites. The acceleration of the procurement
for these satellites reflects the strength of demand in O3b’s target markets. O3b presently has
some USD 600 million of sales commitments for its constellation.
Satellite Health Issues
The SES fleet presently includes 11 Lockheed Martin A2100 model satellites which are
susceptible to solar array power generation anomalies. Mitigation planning, including
accelerated replacements, has lowered the potential impact of circuit failures across most of
the fleet. SES operates two satellites (AMC-15 and AMC-16), wholly contracted by a
customer, for which circuit failures cannot currently be mitigated. In 2011, the AMC-15
satellite suffered a failure requiring part of the payload to be turned off, thus resulting in a
reduction of the revenue generated from that satellite. Separately, 12 unutilised C-band
transponders on the AMC-6 model A2100 satellite have been taken out of the marketable
inventory, enhancing the power margin for the balance of the payload on this spacecraft.
Forthcoming launches in 2012
Two more satellites have been scheduled for launch during the year. SES-5 is scheduled to
be launched in the middle of 2012, from Baikonur. The ASTRA 2F satellite is scheduled to be
launched in Q4 2012.
Recent Developments
In January 2012, the AMC-16 spacecraft experienced a failure requiring an additional part of
its payload to be switched off, further reducing the revenue generated by this satellite.
The SES-4 satellite was successfully launched on 15 February. Two successive launch
delays related to the Proton launch vehicle had moved the launch from late December 2011.
In February 2012, the AMC-3 satellite was redeployed to the 67W orbital position, to deliver
additional capacity to serve the Latin American growth markets.
Also in February 2012, a long-term capacity agreement was announced with Media Networks
Latin America (MNLA), which will be expanding its pay-TV service across Central America
and the Caribbean. The agreement relates to several transponders on the AMC-4 satellite,
serving at the 67W orbital position.
Outlook and guidance
SES’ 2012 revenue growth will be primarily driven by SES’ investment in incremental capacity
for emerging markets, QuetzSat-1 and continued growth from European digital infrastructure
and services. This growth is significantly offset by the impact of the German analogue
satellite TV switch-off which will be completed in April this year.
In 2012, excluding the analogue impact, the underlying revenue and EBITDA improve by
approximately 9%, demonstrating the strong underlying growth in SES’ business. The recent
satellite launch delays and solar array circuit failures affect the 2012 revenue and EBITDA
growth rates by approximately 1% point. Including all these factors, recurring revenues and
EBITDA are expected to increase by approximately 2% and 1% respectively. The EBITDA
growth is expected to lag revenue growth slightly, due to an increased contribution from
services during 2012.
Relative to the previously provided 2010-2012 revenue and EBITDA CAGR guidance of 4-5%,
and apart from the impact of launch delays and circuit failures, SES expects to report within
the range, but at the low end. Factoring in these elements, the resulting revenue CAGR will
be approximately 3.5%.
The new outlook, at constant scope, for the three-year CAGR 2012-2014 is for revenue to
increase by approximately 4.5% and EBITDA to increase by approximately 4.0%. When
excluding analogue revenue from the basis, the growth rates for both revenue and EBITDA
improve to approximately 7.5%. The strong growth is driven primarily from emerging markets,
the steady recontracting of capacity formerly serving analogue transmissions, and continued
growth in services. These positive developments build on the foundation of SES’ investment
programme and the greater efficiencies arising from the reorganisation implemented during
2011.
