SES Global posted positive results in the 2007 first quarter that were in line with expectations, but the talk among analysts stemmed from comments by SES hinting at potential savings the company thinks it might realize in the procurement of future satellites.

SES saw a strong increase in revenues, which improved by more than 20 percent to 399.5 million euros ($542.9 million) in the 2007 first quarter, which closed March 30. In the 2006 first quarter, SES recorded revenues of around 330 million euros ($448.5 million). The gains included nearly 6 percent organic growth and contributions from the acquisitions of SES New Skies and ND SatCom.

Profits slipped over the same period, falling 17 percent to 98 million euros ($133.6 million). Earnings in the 2006 first quarter included a gain of 15 million euros ($20.5 million) related to the sale of SES R�, and SES also recorded a non-recurring charge in the 2007 first quarter related to the January loss of the NSS-8 satellite in a launch failure.

"The year has begun extremely well with the conclusion of a significant agreement with Canal+ for the transmission of its French pay-TV offer on Astra and the completion of the transaction with [General Electric Co.]," Romain Bausch, president and CEO of SES, said. "These two events deliver a combination of guaranteed growth in Europe and improved development potential for our assets worldwide. In particular, the GE transaction has now removed the share overhang associated with their shareholding and has facilitated the optimization of the SES fleet." SES closed a $1.2 billion transaction with General Electric (GE) in April, exchanging GE’s 103.1 million shares in SES for 100 percent of a new company, SES International Holdings Inc., and SES expects the financial impact of the transaction to appear in the second quarter.

"GE was an exceptionally good deal for them," Sarah Simon, a satellite equity analyst at Morgan Stanley, said. "They are able to get rid of a whole lot of assets that were not really doing anything for them and actually confusing the story. AsiaSat has been an underperforming story for years, but they could never get control of it. The AMC-23 has been been a problem child for them. They had Latin America assets through Quetzsat, so they don’t really need StarOne also. They have cleaned up the portfolio and given themselves greater ability to control the assets that they have."

"The results are a bit uneventful," Mathieu Robilliard, a satellite equity analyst at Exane BNP Paribas, said. "It is an OK set of numbers. They are in line with guidance. In terms of margins, they are quite good. Service revenue margin is going in the right direction."

Kristof Samoy, a satellite equity analyst at KBC Securities, said in a research note that "results show the integration of acquired business is progressing swiftly, and management confirmed guidance given mid February. Capex guidance is up considerably compared to guidance given mid February. Satellite capex guidance now reflects the inclusion of the NSS-8R (NSS-8 exploded in January) and AMC-5R. However, the press release suggests that the increase in capex will be offset by lower capex on other procurement programs. All in all a decent set of results."

In a conference call, Bausch said SES had selected a company to manufacture the Americom-5R satellite, but he declined to name the winner. Another seven satellites under construction would add another 230 transponders to SES’ fleet — a 23 percent increase in overall capacity — and SES also has made progress in reaching long-term deals with launch providers.

The discussion of SES’s capital expenditure plans for the next several years was the highlight of the announcement, said Simon. "They are basically saying 20 percent savings on procurement of satellites in the [United States]," she said. "There are more efficiencies to come in terms of capital expenditure. From a stock market perspective, the valuation is really sensitive to that. Has it come as a surprise? No. They were hinting about this at their full-year results. [But] 20 percent is a big saving. It is surprising it is as large as that."

Alexandre Dergatcheff, a satellite equity analyst at UBS, added, "The main point is about capital expenditure guidance. They said in the [United States] they are able to reduce the price of the satellite by 20 percent, which is significant. This is significant in terms of cost efficiencies and this has been one of our main risks for SES Global. This is good news and a positive surprise."

Simon believes SES Global is benefiting from the influence of New Skies Satellites. "I believe they have got smarter through New Skies. When they bought New Skies, they said New Skies had a more aggressive approach to capital expenditure. If anyone is going to get economies of scale, they should. They have a lot of satellites to buy and they should be able to make the economies work. I would say the magnitude of the scale (20 percent) is somewhat surprising. The fact they are getting benefits is not, but it was never factored into estimates."

— Mark Holmes