Inmarsat plc reports Interim Results 2017


Inmarsat plc, the leading provider of global mobile satellite communications services, today provided the following unaudited information for the half year and second quarter ended 30 June 2017. Performance Highlights – H1 2017  Revenues up 9.4%, in spite of still challenging markets, driven by Government, Aviation and Global Xpress (“GX”): - Maritime: against a tough comparator in Q2 2017, strong growth in higher bandwidth services, resilient L-band revenues, and legacy product continuing to decline, as anticipated, with further improved revenue mix expected in H2 2017

- Government: continued outperformance, reflecting material new business win, particularly impacting Q2, first CSSC revenue, increased Boeing revenue & higher operational tempo

- Aviation: sustained double digit revenue growth in Core business and further positive momentum in In-Flight Connectivity (“IFC”), with Avianca and Qatar Airways contract wins, bringing total aircraft expected under signed contracts to 1,200, and service with Deutsche Lufthansa Group going live

- Enterprise: growth in M2M but continuing difficult markets otherwise

- Ligado: revenues up $9.3m to $62.7m, reflecting exercise of 30MHz option in March 2016

- GX revenues of $59.9m in H1 2017, including $27.8m in Q2 2017

 EBITDA up 2.2%, reflecting growth in revenues, continued investment in Aviation IFC market capture and higher operational delivery costs (which will continue through H2 2017)  Successful launches of Inmarsat-5 F4 and Inmarsat-S EAN satellites, build of 5th GX satellite announced and European Aviation Network (“EAN”) on track for commercial deployment in Q4 2017  Outlook and future guidance remain unchanged

 Interim dividend increased by 5% to 21.62 cents per share (2016: 20.59 cents per share) Rupert Pearce, Chief Executive Officer, commented: “With our on-going focus on operational execution, Inmarsat has continued to move forward in 2017, building on a strong performance towards the end of last year, despite on-going challenging markets.

In the Maritime market, Fleet Xpress is rapidly becoming a compelling product for our customers, establishing itself with fast-growing revenues from both our direct sales channel and through our distribution partners. During this period, we have added more key distributors, which has increased the number of committed ships to Fleet Xpress to over 10,000, and driven the pace of net installations to 266 ships per quarter during the first half (compared to an average of 136 VSAT ship additions per quarter during 2016). The expected future escalation in take-up of Fleet Xpress provides our Maritime business with a strong foundation for future growth. FleetBroadband remains a solid performer, despite the expected continued ARPU-accretive migration of customers to Fleet Xpress, and we continue to see further market development opportunities, for example from our recently launched Fleet One product in the sizeable, and largely untapped, small vessel market.

Our Government business continued to outperform against the competition. In the US, our partnership with Boeing continued to deliver material GX revenues. We also saw new contributions both from the CSSC contract, which we won last year, and a number of other confidential new contracts, one of which materially impacted the second quarter. Our successful participation in the FirstNet contract award, announced during the period, is another positive sign of our growing presence in the US market, but the contract will have no impact on our 2017 results. Outside the US, with the benefit of higher operational tempo, and further contract wins, we have sustained our business despite tough markets.

Our core Aviation business (Business and General Aviation (“BGA”) and Safety and Operational Services “SOS”)) delivered further solid growth over both quarters, with both ARPU and customer numbers rising. We continue to put in place the foundations for further growth, having achieved line-fit certification with all four of the leading manufacturers of business jets and installed 64 terminals for JetConneX, our GX product for BGA, by the end of the period.

In IFC, we signed further contracts for GX connectivity services during the period, in particular with Qatar Airways in the Middle East and Avianca in Latin America and now have over 1,200 aircraft expected under signed IFC contracts. Discussions continue with many other airlines, whose fleets’ aggregate connectivity requirements are of around 3,000 aircraft. The installation programme with Deutsche Lufthansa Group continues, bringing the number of installations to 101 aircraft, up from 65 at the end of the first quarter.

Whilst revenue in our legacy Enterprise business declined in H1 2017, it remains a business area with strong medium to long term growth potential, both in the Energy segment with GX and, with next generation L-band services, in the emerging “Internet of Things” markets, such as transportation, elogistics, agriculture, smart cities and mining & construction.

In the first half we successfully delivered two important satellite launches. In May, a 4th GX satellite, Inmarsat-5 F4, was launched to provide in-orbit redundancy and additional capacity for our global GX network. Then, in June, the Inmarsat-S EAN satellite was launched to provide one of the foundations of the European Aviation Network, which remains on track to be commercially deployed towards the end of this year. Following the award to Inmarsat of the Qatar Airways IFC contract, we also announced the design and build of our 5th GX satellite, which is expected to be launched during 2019, to enhance and supplement our existing global network.

We have also continued to build out the ground infrastructure and operational capability to support both GX and our evolving businesses. We are investing in our organisational infrastructure, cyber capabilities and our IT systems and processes to ensure that we have the sound foundations to support our demanding growth agenda.

Our robust performance in the first half of 2017 validates Inmarsat’s powerful position as the leading operator in global mobility markets, our operational and commercial strength, the uniqueness of our connectivity offerings and our continued success in commercialising our technology to service the requirements of our customers. We will continue to build on these strong foundations, supported by further investment into our organisational capabilities, using GX and the EAN to drive into new satellite broadband markets and to reposition our core L-band network for next generation opportunities.” Outlook & future guidance

We remain confident about the medium to long term outlook for Inmarsat. However, whilst we have delivered a robust performance in recent quarters, our markets remain challenging and the outlook continues to be difficult to predict. Inmarsat’s performance in 2017 and 2018 will continue to be particularly determined by our results in the IFC market and in the Government sector, as we outlined at our 2016 preliminary results in March 2017.

Given the combination of these factors, we reiterate the guidance originally disclosed in March of:  2017 revenue, excluding Ligado, of $1,200m to $1,300m;  2018 revenue, excluding Ligado, of $1,300m to $1,500m, including a contribution from I-5 F4;  Capex at $500m to $600m per annum for each of 2017 and 2018;  Annual GX revenues at a run rate of $500m by the end of 2020; and  Leverage (Net debt: EBITDA) to normally remain below 3.5x, compared to 2.5x as at 30 June 2017.

As previously highlighted, going forward, the Group’s EBITDA margin will be adversely impacted by the inclusion of additional lower margin service revenues related to IFC, by the cost of investment in IFC market capture and by higher central operational delivery costs.

We do not expect any significant changes to consensus forecasts for 2017 and 2018 as a consequence of our performance in the first half of 2017.

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