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Inmarsat plc Reports Preliminary Full Year Results 2011
Inmarsat plc - Full Year 2011 Highlights
- Total revenue $1,409m up 20% (2010: $1,172m)
- EBITDA $854m up 23% (2010: $696m)
- Profit before tax $367m up 10% (2010: $334m)
- Strong growth in FleetBroadband ARPUs
- IsatPhone Pro subscribers exceed 50,000 to date
- Final dividend of 24.96 cents US$ up 10%
- $270m of cash returned to shareholders
Inmarsat Group Limited - Fourth Quarter 2011 Highlights
- Total revenue $362m up 24% (2010: $292m)
- Total Inmarsat Global MSS revenue$241m up 23%(2010: $195m)
- EBITDA $203m up 18% (2010: $172m)
Rupert Pearce, Chief Executive Officer,said, "We are pleased with the progress we are making in MSS subscriber growth and in the development of our next generation Global Xpress satellite services. As a result, we are confident in both the on-going cash flow generation in our core MSS business and in the potential for significantly renewed revenue growth once our Global Xpress services become available from late next year.We expect our 2012 revenue growth trends in our core MSS business to improve on 2011."
Revenue from our Cooperation Agreement with LightSquared, recorded within Other income, was the primary driver of overall revenue growth for 2011. Recent regulatory developments in the United States have created significant uncertainty over the viability of LightSquared's ATC business model and a payment from LightSquared that was due in February 2012 under the Cooperation Agreement was not received by us and remains outstanding. Inmarsat has entered into discussions with LightSquared, but cannot provide any assurance that the outstanding payment or further payments in relation to the Cooperation Agreement will now be received. The revenue generation of Inmarsat's core MSS and Inmarsat Solutions businesses remains unaffected by the LightSquared developments.
In the maritime sector, while our 2011 revenue was impacted by continuing customer migration to our FleetBroadband service, we saw strong growth in customer usage as the year progressed. Customer migration has impactedservice revenue because FleetBroadband pricing is typically lower than the older services being replaced. In addition, voice to email substitution and, to a lesser extent, competition from alternative providers, contributed to lower than expected revenue growth in 2011. However, activations of new FleetBroadband terminals have remained strong throughout the year and we added 9,818 terminals during the year, of which 2,276 were activated in the fourth quarter.Average revenue per user ("ARPU") for FleetBroadband hasalso grown strongly during the year and exceeded $600 per month in the fourth quarter for our FleetBroadband 250 and 500 terminals.
Consistent growth in FleetBroadband ARPUs continues to support our view that maritime customers are increasing their usage with FleetBroadband and that during 2012 this trend will offset the revenue impact of service migration. In addition, we are implementing a number of pricing initiatives to further incentivise customer migration to FleetBroadband, the take up of fixed-term value-added pricing plans, and to improve the yield from certain older services. Some of these initiatives have already taken effect in 2012, while others will be brought in later in the year after notice periods have expired.
We are also seeing high levels of interest in our new XpressLink maritime L-band/Ku-band hybrid service and expect this service to take share in the maritime VSAT market during 2012. In January 2012, we announced that Frontline, a leading shipping line, had committed to XpressLink for more than 100 vessels.
In the land mobile sector, data revenue continues to be affected by reduced usage from customers in Afghanistan. During 2011, although MSS revenue from Afghanistan declined materially, much of this decline was offset by high usage levels from events in Japan and North Africa. However, towards the end of the year, usage from North Africa began to fall back as events in the region abated. We continue to see new demand for our BGAN service and added subscribers in both the third and fourth quarters. However, while organic BGAN growth is encouraging, it is unlikely to be sufficient to offset the impact of decline in data revenue from Afghanistan during 2012.
Growth in land mobile voice revenue was driven by usage of our handheld IsatPhone Pro service where unit sales remained strong. We recently passed the milestone of 50,000 active units which we believe puts us on track to reach our initial market share target during 2012. Revenue from IsatPhone Pro continues to develop, although at a slower than expected rate. We believe penetration of higher spending customers is taking longer due to the entrenched position of competitors who have been providing service to these customers for many years prior to our market entry. However, positive feedback from distributors suggests that penetration of higher spending customer accounts will gradually build, allowing us to target growth in land voice revenue during 2012.
Aviation and Leasing
During 2011, we saw fluctuations in demand from our aviation government customers, particularly for service over Afghanistan. In addition, the consolidation of certain customer business with existing aviationleases also constrained growth during the year. While we expect reduced usage in Afghanistan to be a factor in 2012, take up of our SwiftBroadband service remains strong and revenue growth from this service is building well. The roll out of SwiftBroadband to support in-flight passenger services continues to add new revenues to our aviation business and we remain well-positioned for this opportunity.
A range of factors is expected to affect results from our leasing business in 2012. We expect some leases relating to Afghanistan not to be renewed, or to be reduced in value. We alsoexpect certain leases for our InmarsatB maritime service not to be renewed, or to transition to our XpressLink service. While we expect to retain the majority of this customer business through migration to our non-lease services, we may not retain all of the business or achieve the same revenue value. As a result, while we expect leasing revenue to be lower in 2012 year over year, there will be some offsetting gains in other business lines, mostly in our maritime sector.
Revenue growth in our Inmarsat Solutions division has primarily been driven by recognition of new revenues following the acquisition of Ship Equip and by growth in our Segovia business. We are pleased with the performance of the Segovia and Ship Equip acquisitions, which are delivering on their targets and adding strategic value.
In 2012, we expect overall growth in Inmarsat Solutions to come from our maritime XpressLink service as recent business wins are implemented and as new contracts are signed,as well as from a full year contribution from our Ship Equip acquisition. We also expect growth from government services, due to new contact wins. We expect Inmarsat MSS revenue to be impacted by the factors already described in relation to wholesale MSS revenues. In addition,competition from other Inmarsat distributorsand service migration to both other Inmarsat services and to XpressLink will also constrain growth in Inmarsat MSS revenues. The structural revenue impact on Inmarsat MSS revenues is expected to contribute to lower gross margin and lower EBITDA at the Inmarsat Solutions level year over year.
In January 2012, we announced a new organisational structure for our business that will align our operations more closely to our core vertical market segments and strengthen our support to both direct and indirect distribution of services. This reorganisation will draw together wholesale and retail sales, marketing and delivery teams across the group, focusing our customer-facing activities to make us more effective in the future and to prepare the way for a fully-integrated sales platform for Global Xpress services. This reorganisation is now largely implemented.
Outlook and Medium Term Targets
We are confident in the growth prospects of our key new services, among which are XpressLink, FleetBroadband, SwiftBroadband, and IsatPhone Pro. These products are seeing strong subscriber take-up and ARPU growth and will extend our market leading MSS franchise well into the future. In the near term, however, overall revenue growth will be constrained by reducing revenue from Afghanistan and service migration factors. We believe like-for-like cost growth in our core Inmarsat Global business will be minimal, although a certain level of incremental operating costs will be required to support the development of our Global Xpress service.
We are providing the following medium term revenue targets for our core Inmarsat Global MSS revenue for the period 2012 and 2013 and separately for the period 2014 to 2016, in each case on a compound annual growth rate basis (CAGR). Over the period 2012 and 2013 we expect MSS revenue growth to be between 0% and 2%.This period excludes revenue from our Global Xpress service which is not expected to generate any material revenue before 2014. Over the period 2014 to 2016 we expect MSS revenue growth,which will include revenue from our Global Xpress service, to be between 8% and 12%. Our target for the period 2014 to 2016 is subject to the commercial launch of Global Xpress services remaining on our current schedule.
We continue to implement our Global Xpress investment programme, including the build and launch of three Ka-band satellites, at an expected total cost of $1.2bn. This programme remains on track as to schedule and cost expectations. We reiterate our target to achieve $500m of annual revenues from the Global Xpress servicenot later than five years after global service launch, which is currently expected to occur in late 2014.
Our outlook for total capital expenditure for new investment programmes and on-going maintenance remains unchanged. Capital expenditure on a cash basis in 2012 is expected to be between $650m and $700m.
At 31 December 2011, the Inmarsat plc group had net borrowings of $1,394.1m, made up of cash and cash equivalents of $183.5m and total borrowings of $1,577.6m. Including cash and available but undrawn borrowing facilities, the group had total available liquidity of $1,356.2m.We believe our available liquidity is sufficient to meet all of the group's needs for the foreseeable future and we are committed to maintaining strong levels of liquidity as we move through the peak spending period of our current investment phase.
Our Financial Reports
While Inmarsat plc is the ultimate parent company of our group, our subsidiary Inmarsat Group Limited is required by the terms of our 2017 7.375% Senior Notes to report consolidated financial results. We expect that a copy of the full year 2011 results for Inmarsat Group Limited will be posted to our website on or before 30 April 2012.
To assist analysts and investors in their understanding of the results announced today, the following unaudited tables for Inmarsat Group Limited for the fourth quarter are provided below.
Inmarsat management will host a presentation of the results on Tuesday, 6 March at Inmarsat's offices, 99 City Road, London EC1Y 1AX. The presentation will begin at 9:30am London time, (United States 4:30am). A live webcast of the presentation will also be available through our website. To register to attend the results presentation, please contact Laura Slater at Inmarsat on +44 (0)20 7728 1206, or email@example.com.
Inmarsat management will also host a results conference call at 3:00pm London time, (United States 10:00am) on Tuesday, 6 March. To access the call please dial +44 (0)20 7162 0125 and quote conference id 912241. A replay of the call will be available for one week after the event. To access the recording please dial +44 (0)20 7031 4064 and enter access code 912241. The call will also be available via a webcast accessible through our website.
Certain statements in this announcement constitute "forward-looking statements". These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those projected in the forward-looking statements. These factors include: general economic and business conditions; changes in technology; timing or delay in signing, commencement, implementation and performance or programmes, or the delivery of products or services under them; structural change in the satellite industry; relationships with customers; competition; and ability to attract personnel. You are cautioned not to rely on these forward-looking statements, which speak only as of the date of this announcement. We undertake no obligation to update or revise any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances.
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