SES Group profit up 30.2%

Interim results show continued revenue and earnings growth

Société Européenne des Satellites S.A. (Luxembourg Stock Exchange: SES; Frankfurt Stock Exchange: SDSL) announces the Group's financial results for the half year to June 30th, 2001.

HIGHLIGHTS

• Revenues increase by 11.5% to EUR 449.3 million
• EBITDA grows by 9.9% and EBITDA margin remains strong at 82.5%
• Depreciation and amortisation increase 23.0% to EUR 113.8 million
• Operating profit up by 4.9% to EUR 256.7 million
• New concession agreement benefits first half-year results by EUR 22.5 million
• Profit of the Group up 30.2% to EUR 147.8 million
• Net operating cash flow remains strong and grows 15.1% to EUR 302.6 million

SES GROUP KEY FINANCIAL FIGURES

 
¹ The results have been subject to a limited audit review by the company's auditors Ernst & Young.  
² EBITDA equals earnings before interest, tax, depreciation and amortisation.
³ Earnings per share are calculated on the basis of attributable profit of EUR 147.8 million (2000: EUR 113.5 million) and 37,240,800 shares, based on 31,034,000 A shares with 100% economic interest and 15,517,000 B shares with a 40% economic interest.
⁴ Calculated using annualised net income for the six-month periods
⁵ Net debt divided by the EBITDA for the previous 12 months to June 30, 2001 and June 30, 2000.

Commenting on the results, Romain Bausch, Director General and Chairman of the Management Committee of SES, stated: "SES has again strengthened its leading position in the European satellite market, with growth continuing to be driven by the increase of digital broadcast TV audiences.

The group is well on track in creating a broadband satellite infrastructure with a global reach. The newly formed SES Global expects successful completion of the Americom acquisition in the fourth quarter.

With SES Global poised to become the world's premier satellite services provider, growth prospects for the group remain positive, supported by its strong core business and its sound financial position."

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Financial Review

The financial results for the six months ended June 30, 2001 reflect the successful implementation of the Group's strategy. SES expanded and consolidated its European activities, experiencing continued demand for satellite transmission capacity at both orbital positions of 19.2° and 28.2° East and opening a third orbital position at 23.5° East following an agreement with Deutsche Telekom. The results of geographical expansion were important contributors to financial performance with AsiaSat contributing EUR 68.4 million, or 15.2%, and Nordic Satellite AB (NSAB) contributing EUR 10.1 million or 2.2%, to first half year Group revenues. Service diversification beyond the core broadcast business continues with the revenues earned from transponder capacity and related services for IP applications representing 13% of the total Group revenue increase.

The results were influenced by the revision of the depreciation rates for certain satellites in the ASTRA fleet reflecting the improvements in satellite technology, satellite performance and the resulting management estimate of economic lives. The accounting policy for satellites remains unchanged and all satellites are depreciated over 10 to 16 years on a straight-line basis with revisions being made to certain estimated lives within this policy. These changes in economic life estimates reduced depreciation by EUR 13.9 million and accounted for EUR 8.7 million of the Group's profit increase.

An important first half-year business development, with continuing favourable implications, was the re-negotiation of the concession agreement with the Luxembourg Government. SES has been granted the right of usage of the Luxembourg orbital positions from January 1, 2001 to December 31, 2021 for an amount of EUR 550 million, which will be capitalised and be amortised over 21 years and replaces the previous annual franchise fee charges. This development contributed EUR 22.5 million after tax to the first half year results compared to the net of tax franchise fee that would have been payable for the period under the previous agreement.

The first half-year results do not include any impact of the GE American Communications Inc. (Americom) acquisition, which will only be accounted for from the date of closure. The announced transaction remains subject to regulatory approvals.

AsiaSat provided a positive contribution to Group profits earlier than planned. The other new acquisitions of 50% of NSAB, 19.99% of Star One and 33.33% of iBEAM Europe were slightly dilutive, as expected.

Group revenues for the six months ended June 30, 2001 increased by EUR 46.3 million, or 11.5%, to EUR 449.3 million. This continued growth is due to the successful rollout of digital services at 28.2° East and 19.2° East, the continued service diversification of providing transponder capacity and related services for IP applications and the first time proportional (50%) consolidation of NSAB, which was acquired on October 1, 2000. This consolidation contributed EUR 10.1 million of the Group's first half-year revenues.

Revenues from audiovisual services continue to grow and provide the principal revenue stream. The first half-year saw the continuing success of the launch of digital services at 28.2° East, with revenues from this sector growing by 31.4%. Digital revenues at 19.2° East grew 18.1%. Revenues from analogue services decreased by 3.7%, reflecting the conversion process of analogue to digital services for the United Kingdom and Ireland.

Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by EUR 33.3 million, or 9.9%, to EUR 370.5 million with a resulting EBITDA margin of 82.5%.

Personnel costs and other operating costs increased by 13.9% or EUR 10.0 million and were affected by the consolidation of NSAB. Excluding this first time consolidation, these costs increased by 3.8%.

The 2001 EBITDA benefited from EUR 2.9 million of exceptional income (EUR 5.9 million for the first half of 2000). This relates to the recognition of part of the in-orbit insurance proceeds received in 1999, for an ASTRA 1A in-orbit claim, as a result of a partial loss of capacity. These proceeds were recognised over a twenty-four month period commencing from April 1999.

This exceptional income decrease resulted in the EBITDA margin returning to the more representative level of 82.5% compared to the EBITDA margin of 83.7% for the first six months of 2000.

Depreciation and amortisation increased by EUR 21.3 million, or 23.0%, to EUR 113.8 million. The increase reflects the bringing into service of ASTRA 2B and ASTRA 2D, (which became operational on December 1, 2000 and February 1, 2001 respectively), and the first time consolidation of NSAB. ASTRA 1B is fully depreciated as of April 15, 2001.

The charge has also been impacted by the revision of the depreciation rates for certain satellites in the ASTRA satellite fleet reflecting the improvements in satellite technology and satellite performance. The change in estimated economic lives was effective from January 1, 2001 and reduced the depreciation charge by EUR 13.9 million compared to previous rates. The Group's satellites remain depreciated over 10 to 16 years on a straight-line basis with the estimated depreciation lives of certain satellites being extended. Specifically, the depreciation lives for ASTRA 1C and 1E were increased from 10 to 12 years, ASTRA 1F, 1G and 2A were increased from 10 to 13 years and ASTRA 1H was increased from 12 to 13 years. The change in estimate applies prospectively from January 2001 with no adjustment being made to prior values.

The amortisation charge increased due to EUR 2.0 million of goodwill relating to the acquisition of the 50% participation in NSAB and to EUR 13.1 million for the amortisation of the right of usage of the Luxembourg orbital positions in accordance with the new concession agreement.

Operating profit increased by EUR 12.0 million, or 4.9%, to EUR 256.7 million. The revenue and EBITDA growth were outpaced by depreciation and amortisation growth as recently launched satellites commenced their commercial ramp up and the orbital position intangible asset is amortised. The latter item is more than compensated at group profit level by the elimination of franchise fees.

Interest received and similar income increased by EUR 4.1 million or 36.9%, mainly due to net exchange gains.

Interest paid and similar expenses increased EUR 11.5 million or 49.8%, due mainly to the financing required for the acquisitions of NSAB and Star One, both completed in the last quarter of 2000.

Taxation and franchise fee decreased by EUR 35.0 million, or 37.5%, to EUR 58.3 million. Effective from January 1, 2001 the previous franchise fee is replaced by a lump sum of EUR 550 million for the right of usage of the relevant orbital positions over a 21 year term, which is now amortised over this term.

The effective tax rate for the period was 24.6% with continued investment in the ASTRA satellite fleet resulting in investment tax credits reducing the effective tax rate by nine percentage points.

Share of losses from associates increased by EUR 4.7 million to EUR 5.4 million and represent the start-up losses made by iBEAM Europe of EUR 2.3 million and Speedcast Hong Kong of EUR 3.1 million.

Minority interests of EUR 25.8 million represent the share of AsiaSat profits not attributable to SES, but to the other AsiaSat shareholders.

Profit of the Group increased by EUR 34.3 million, or 30.2%, to EUR 147.8 million with a profit margin of 32.9% compared to 28.2% for the same period of last year.

Capital expenditures and financial investments for the six months ended June 30, 2001 were EUR 181.7 million compared to EUR 99.0 million for the first six months of 2000, reflecting the timing status of the completion of spacecraft under construction. The Group continued to invest in its satellite fleet with three satellites under construction (ASTRA 3A, ASTRA 1K, AsiaSat 4) and the launch of ASTRA 2C in June 2001.

Net operating cash flow remained strong at EUR 302.6 million for the first six months compared to EUR 262.8 million for the same period in the prior year reflecting the continued growth in profits.

Net debt as of June 30, 2001 was EUR 847.9 million, an increase of 67.9%, or EUR 342.9 million, from June 30, 2000 and an increase of 1.6%, or EUR 13.3 million, compared to December 31, 2000. The increase over June 2000 reflects the EUR 250 million facility taken to acquire NSAB and Star One and additional drawdowns for the satellites under construction.

Refinancing of debt facilities

In preparation for the acquisition of Americom the Company entered into a facilities agreement with an international bank syndicate providing new senior unsecured credit facilities.

The new facilities are comprised of USD 2.5 billion, which will be used as part of the consideration for the Americom acquisition. This consists of two facilities, an amount of USD 1.6 billion with a final maturity date of March 28, 2006 and USD 0.9 billion with a final maturity date of March 28, 2003. There has been no drawdown on these facilities to date.

They also include multi-currency facilities amounting to EUR 1.4 billion for the refinancing of existing secured credit facilities. All outstanding credit facilities with the exception of a subordinated loan were refinanced during April 2001. A total amount of EUR 790 million and USD 138.1 million have been drawn on these facilities and have a maturity date of March 2006.

In April, leading credit rating agencies Moody's and Standard & Poor's announced the results of their credit rating reviews. Moody's assigned an issuer rating of Baa1 on SES (stand alone). Standard & Poor's assigned an indicative "A-" long-term rating.

Operational Review

ASTRA Space Segment

During the first six months of the year, SES has further expanded and developed the ASTRA satellite system. ASTRA 2D, launched on December 19, 2000, entered active service at the orbital position of 28.2° East, on February 1, 2001. The spacecraft is used by UK broadcasters for the transmission of digital services targeting the UK and Eire.

Following the start of operational service of ASTRA 2D, ASTRA 1D, which had been temporarily operated at 28.2° East, has been redeployed at a third ASTRA orbital position. The spacecraft is now operating at 24.2° East, where it provides follow-up capacity for the DFS 1 Kopernikus FM3 satellite on behalf of Deutsche Telekom. ASTRA 1D is also scheduled to provide transmission capacity for broadband and IP-based services targeting the German-language markets on behalf of SES. Following the start of operational service of ASTRA 3A, expected in Q2, 2002, ASTRA 1D is expected to be used for other purposes.

On August 16, 2001, ASTRA 2C, launched on June 16, 2001, entered operational service at 19.2° East, where it provides back-up and reserve capacity within ASTRA's intersatellite protection system. As a consequence, ASTRA 1A, which is nearing the end of its operational lifetime, has left its 19.2° East orbital position and will be used in inclined orbit at an ASTRA orbital position.

During the period under review, SES pursued its strategy of:

• strengthening its core business of transmitting broadcast services in Europe;
• diversifying its business base through the development of broadband services, and
• extending its geographical reach through partnerships and investments in satellite operators beyond Europe.

Broadcast Services

SES continued to experience a sustained level of demand for digital transmission capacity at 28.2° East. At 19.2° East, reverted analogue transponder capacity previously used by British broadcasters has been partly taken up by German-language and other broadcasters targeting continental European audiences.

B1 (a regional German channel), MTV2, RTL Shop and TV PULS (owned by Telewizja Familijna S.A. of Poland) have started analogue services at 19.2° East.

At 28.2° East, SES has contracted with the ITV Network Ltd. for three transponders to digitally broadcast the ITV services to the UK. The BBC has contracted for a third digital transponder at 28.2°East.

In a first contract involving satellite capacity outside of its wholly-owned ASTRA Satellite System, SES has concluded a long-term contract with German-language TV broadcaster ChannelD, under which SES will provide satellite transmission capacity over the Americas, as well as a satellite-based transatlantic link. ChannelD will use capacity on Americom satellites. The agreement illustrates the value of SES' "global access" concept for global content providers.

Broadband Services

During the period under review, SES continued to expand its service portfolio in the field of broadband multimedia and IP-based services.

SES Multimedia, the multimedia affiliate of SES, and IBM formed a partnership to develop joint solutions using IP protocol for the broadcasting/multicasting market.

Xantic (formerly Station 12 and SpecTec) contracted for a complete IP-broadband ASTRA-NET platform as well as for satellite capacity on NSAB's SIRIUS satellite system.

SES and JSAT Corporation of Japan forged a co-operation for the transmission of broadband IP-based content using a combined satellite and terrestrial infrastructure.

ASTRA increased its reach to 89 million homes

Growing demand for broadcast and broadband services continued to drive the expansion of ASTRA's coverage during the first half year and contributed to strengthen its leading position in the European satellite market. By mid-year 2001, ASTRA delivered analogue and digital services to approximately 89 million homes in 30 European countries ¹ . About 32 million homes received ASTRA services via direct-to-home reception and another 57 million were served via cable networks.

At mid-year 2001, audio-visual and multimedia services from ASTRA at 19.2° East were received by more than 28 million homes, and services from ASTRA at 28.2° East by 5 million homes; some 1.5 million homes receive services from both orbital positions.

ASTRA leads the European digital satellite market

ASTRA's growth continued to be driven by the increase of digital audiences and the continuing conversion of analogue audiences. About 11 million digital satellite TV (DSTV) homes received services transmitted via ASTRA at mid-year 2001, up from 8 million a year earlier.

ASTRA's major digital growth markets were the UK, which increased by almost 1.5 million homes, Germany (+450,000), France (+360,000) and Spain (+250,000).

Satellite drives Europe's digital market

At mid-year 2001, over 19 million homes in Europe received digital services via satellite, cable or terrestrial networks, an increase of ca. 6 million homes. Digital represented approximately 9% of the total European reception market.

The number of homes receiving digital satellite services (all satellite systems) increased by 4 million homes to more than 14 million during the 12 months ended June 30, 2001. DSTV now represents about three-quarters of the total digital market.

¹ Austria, Belarus, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Kingdom, Ukraine.

Geographic developments

SES pursued its strategy of creating a broadband satellite infrastructure with global reach through partnerships, alliances, and investments in satellite operators outside of Europe. In a transaction announced on March 28, 2001, SES Global, a newly formed company, which is to hold all the participations and investments of SES, is to acquire 100% of Americom stock and other assets for US$5bn. Upon completion of the transaction, which is subject to regulatory approvals, SES Global will hold all SES Group participations, in particular SES ASTRA (up to 100%), SES Americom (100%), SES Multimedia (up to 100%), AsiaSat (34.10%), NSAB (50%), Star One (19.99%), and Americom's interests in Latin America and Asia.

Upon completion of the transaction, SES Global is expected to become the world's premier broadband satellite services provider with a combined satellite fleet comprised of 29 wholly-owned satellites (12 ASTRA and 17 Americom satellites) as well as 13 additional satellites through partnership and investment interests (3 AsiaSat, 3 SIRIUS, 5 Brasilsat and 2 other spacecraft through Americom's interests in Latin America and Asia). The SES Global fleet will provide coverage of Europe, the Americas, Asia and Oceania as well as transoceanic capacity, offering seamless coverage and global connectivity. The SES Global companies will combine premier regional satellite companies operating satellites in orbital positions optimised for landmass coverage.

Outlook

The long-term outlook for the Group remains favourable as it continues to successfully implement its strategy. The announced acquisition of Americom will enable the Group to provide services with global coverage. Based on 2000 proforma revenues, EBITDA and size of orbital fleet, SES Global is expected to be the world's premier satellite services provider.

Growth prospects for the Group remain positive. The Group continues to have a sound financial situation with a solid contract backlog of EUR 4.4 billion¹ and positive growth prospects. The Group's geographically diversified profile and the long-term nature of its contracts provide an efficient protection against economic fluctuations. However, economic and market developments are expected to impact our service diversification activities, with revenues from transponder capacity and related services for IP applications expected to grow at a slower pace than previously foreseen. Growth is expected to continue in broadcast audiovisual services, albeit at a reduced rate, as the conversion of analogue services to digital for the United Kingdom and Ireland is completed.

Careful control of costs will continue with the target of maintaining an EBITDA margin above 80%.

The re-negotiation of the concession agreement with the Luxembourg Government will continue to have a significantly positive impact on Group results compared to previous years. In addition, announced reductions in the Luxembourg income tax rates from the current rate of 37.5% to a rate of approximately 30%, commencing from 2002 onwards, will significantly reduce the Group's future effective income tax rate.

¹Contract backlog as at June 30, 2001 for SES S.A.

Société Européenne des Satellites S.A.
SES GROUP CONSOLIDATED ACCOUNTS

* The results have been subject to a limited audit review by the company's auditors Ernst & Young