Amos 5, launched this week, aims for $60m annual revenue

Spacecom CEO David Pollack tells "Globes" about his company's $200 million investment in the Amos 5 communication satellite.

"The launch was very moving, and afterwards we felt quite relieved. We allowed ourselves to raise a toast with the Russian Space Agency staff, and now we're moving on from excitement to work, as we begin the mad race to fill up the satellite as quickly as possible," Spacecom president and CEO David Pollack told "Globes" after the launch of the Amos 5 communications satellite.

Spacecom, controlled by Shaul Elovitch's Eurocom Group, said yesterday that the satellite has separated from the fourth and last section of the missile launcher, deployed solar panels and its communications antennas, and has completed the most important part of the launching process. Over the next two weeks, the satellite will continue to its destination, and on arrival, the satellite will undergo comprehensive tests ahead of commercial operations.

Spacecom expects revenue of $80-85 million in 2011, with Amos 5 significantly increasing revenue. Pollack says, "Within two years I hope to have a $60 million capacity, and to keep the satellite full for the duration of its lifespan."

Spacecom currently operates two communication satellites that were built by Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1): Amos 2 and Amos 3, which cover the Middle East, Europe, and the US east coast. Amos 5 was built by Russian Information Satellite Systems (ISI) at a cost of $200 million. Spacecom also paid to lease the point in the sky where it will be located for 30 years. The company's satellites provide a wide variety of communications services to its customers, such as Bezeq Israeli Telecommunication Co. Ltd.'s (TASE: BEZQ) DBS Satellite Services (1998) Ltd. (yes), which is also controlled by Elovitch. Yes owns 5% of Spacecom shares.

Amos 5's lifespan is 15 years, meaning Spacecom has also reserved this spot for the satellite that will replace Amos 5. Amos 5 will cover Africa, and is Spacecom's first satellite that was not built by IAI, a former Spacecom shareholder.

Were you happy working with ISS?

Pollack: "I have nothing but positive things to say after yesterday's launching. The entire process flowed smoothly from a technological viewpoint, and we are very satisfied. IAI could not have built Amos 5, since it is larger than Amos 1, 2 and 3. The jump was too steep for IAI, which required a longer time to get organized."

IAI is building Amos 4, which will cover Asia, and will be launched next year. IAI is currently conducting a tender for the building of Amos 6, which will replace Amos 2 over Europe in 2014.

Ready to take off running, not walking

"Amos 5 will be the first satellite to cover Africa. Two years ago, Spacecom leased a satellite that was towards the end of its life from AsiaSat and moved it over Africa so that it could sign contracts with clients, who would move over to Amos 5 after its launching.

The satellite was supposed to be in operation for 18 months, but it became unfit for operation a short time after it was purchased, and the two companies got caught up in a legal wrangle yet to be resolved. Pollack says, "The temporary satellite lasted less time than we expected, but the advantage is that now we know the market, and have clients that we temporarily transferred to other satellites and are now coming back to us."

Pollack says, "We began working in Africa four years ago in order to familiarize ourselves with and prepare the market. Until you begin working there, you don't realize how big it is. We have sales managers and local representatives in the important countries, such as South Africa, Nigeria, Kenya, and Angola, and we are ready to take off running, not walking."

Working in Africa has brought new challenges, since the payment culture can be problematic. So far, Spacecom has signed $160 million worth of contracts with telecom operators on the continent. However, three weeks ago, the company reported that one of its clients with which it had signed a multi-year $65 million contract, has not yet paid its $500,000 deposit, and as a result, Spacecom cannot estimate the chances that this deal will succeed.

"We have not yet given up hope that we will receive the deposit, but we cannot be 100% sure," Pollack says. "We will have to formulate a stricter policy for clients. We have veteran clients there, like France Telecom, which we treat like secure clients. And there are more problematic clients, with whom we'll need to be more cautious with respect to conduct and reporting. We also operate in other parts of the world where the situation is not simple, and we take into consideration that there will be problems here and there. But if we are prepared, and we manage business properly, we can minimize the difficulties."

The challenge has moved from the hands of the technicians to the sales people.

"We estimate that in 2012 Amos 5 will bring in revenue of $24 million, $47 million in 2013, $66 million in 2014, and from 2015, which is a representative year, and on, it will contribute $71 million," IBI Investment head of research Ori Licht told "Globes" today.

"Now that the satellite is in orbit, it will be much easier to sign new contracts, and I believe that we will see a rise in sales prices on contracts with Spacecom. The company does not publicize the price it charges for leasing space on the satellite, but after the satellite has been launched, the price rises. The biggest challenge now rests in the hands of the sales people, not the technicians," Licht said.

Licht prepared a company overview last month in which he wrote that the successful launching of the satellite will bring about a significant increase in Spacecom's worth, and will boost the company's shares from NIS 76 to NIS 84, a premium of 37% on the current price.

Licht added that, "What is interesting from a pricing viewpoint, is that once the satellite has been launched, there are very few expenses. Earnings before interest, taxes, depreciation, and amortization (EBITDA) are currently at 80%. If everything continues as it should, the investment in building, launching, and operating the satellite will be very worthwhile."

Published by Globes [online], Israel business news - www.globes-online.com - on December 13, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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