TIDMISAT
RNS Number : 5382W
Inmarsat PLC
02 August 2018
Inmarsat plc reports Interim Results 2018
Solid progress across diversified growth portfolio. Outlook and
guidance reiterated
London, UK: 2 August 2018. Inmarsat plc (LSE: ISAT.L),
("Inmarsat", the "Group"), 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 2018.
Financial Headlines:
$ in millions First Half Second Quarter
2018 2017 Change Change 2018 2017 (restated)(1) Change Change
(restated)(1) ($m) (%) ($m) (%)
----------- -------
Group revenue 717.2 683.7 33.5 4.9% 371.8 354.2 17.6 5.0%
----------- ----------------- ------- -------- ------- ------------------ ------- --------
Maritime 282.1 279.8 2.3 0.8% 140.1 140.0 0.1 0.1%
----------- ----------------- ------- -------- ------- ------------------ ------- --------
Government 183.1 187.5 (4.4) (2.3%) 104.8 101.5 3.3 3.3%
----------- ----------------- ------- -------- ------- ------------------ ------- --------
Aviation 115.5 83.2 32.3 38.8% 59.5 42.9 16.6 38.7%
----------- ----------------- ------- -------- ------- ------------------ ------- --------
Enterprise 64.0 62.3 1.7 2.7% 31.3 32.9 (1.6) (4.9%)
----------- ----------------- ------- -------- ------- ------------------ ------- --------
Other(2) 72.5 70.9 1.6 2.3% 36.1 36.9 (0.8) (2.2%)
----------- ----------------- ------- -------- ------- ------------------ ------- --------
EBITDA(3) 373.0 379.7 (6.7) (1.8%) 198.1 196.6 1.5 0.8%
----------- ----------------- ------- -------- ------- ------------------ ------- --------
PAT (131.8) 38.8 (170.6) (439.7%) (185.4) 44.4 (229.8) (517.6%)
----------- ----------------- ------- -------- ------- ------------------ ------- --------
Adjusted
PAT (3) 75.5 111.0 (35.5) (32.0%) 46.1 58.3 (12.2) (20.9%)
----------- ----------------- ------- -------- ------- ------------------ ------- --------
Operational highlights - H1 2018:
-- Group Revenue increased $33.5m (4.9%) to $717.2m (up 5.2% to
$652.4m, excluding Ligado), predominantly driven by growth in
Aviation and reflecting our diversified and resilient growth
portfolio:
o Maritime: solid performance supported by continued strong market traction with Fleet Xpress
o Government: robust performance against tough comparator in Q2
o Aviation: on-going double digit revenue growth:
-- In-flight Connectivity ("IFC") revenues doubled, with over
1,400 aircraft under contract and first IFC airtime revenues
generated
-- Another excellent performance in our Core business, with
revenues up 17.1%
o Enterprise: performance mainly driven by satellite phone airtime and handset revenues
o GX: airtime and related revenues doubled to $110.2m (H1
2017(1) : $53.0m), including $60.2m in Q2 2018, (Q2 2017(1) :
$24.8m) with continued customer take-up in every target market
o Q2 Group Revenue: increased 5.0% to $371.8m (up 5.5% to $339.1m, excluding Ligado)
-- Group EBITDA: decreased by $6.7m (1.8%) to $373.0m (down 2.5%
to $308.2m, excluding Ligado), with growth in revenue and gross
margin being offset by higher indirect costs, mainly due to adverse
currency movements in Q1:
o Q2 EBITDA: increased 0.8% to $198.1m (up 0.9% to $165.4m,
excluding Ligado), driven by generally higher revenues and gross
margin
-- Adjusted Profit After Tax (excluding impact on income
statement of unrealised conversion liability on 2023 convertible
bond): declined $35.5m, reflecting changes in EBITDA, depreciation,
financing costs and taxation. Statutory PAT (including the
unrealised conversion liability element) decreased $170.6m
-- Interim dividend of 8 cents per share, in line with the
Board's recently updated approach to dividend pay-outs (H1 2017:
21.62 cents per share)
-- Liquidity position further improved: with new 5 year
Revolving Credit Facility of $750m agreed, to replace existing
$500m facility, on substantially the same terms
(1) 2017 figures have been restated throughout this announcement
to reflect the adoption of IFRS15 and the reclassification of short
term deposits. The Group has also adopted IFRS16 and IFRS9 as of 1
January 2018. Please refer to Appendix 2 of this document for
further details.
(2) "Other" revenue comprises revenue contribution from Central
Services and Ligado Networks.
(3) In response to the Guidelines on Alternative Performance
Measures ('APM's) issued by the European Securities and Markets
Authority ('ESMA'), we have provided additional information on the
APMs used by the Group including definitions and reconciliations to
statutory measures within Appendix 1 of this document.
Rupert Pearce, Chief Executive Officer, commented on the results
and the outlook:
"Inmarsat produced a robust set of results for the first half of
2018, delivering against a number of key strategic objectives and
maintaining our continued positive operational momentum across a
resilient and diversified growth portfolio. This performance
highlights the quality of our business and our differentiated
market position, which ensured significant market capture gains
were achieved across our target end markets in the period.
Consequently, we remain well placed to deliver further consistent
revenue growth in the short term and to capture significant
additional growth opportunities over the medium to long term."
Inmarsat's market opportunity and strategic position
The use of data at sea and in the air is expected to continue
growing significantly in the future, creating a major opportunity
for mobile satellite broadband communication providers.
Inmarsat is extremely well positioned to access the significant
market opportunity ahead, given our established and material market
presence, our differentiated capabilities in end-to-end reliable
and secure networking services to our customers, not simply
broadband pipes, our technology leadership, our specialisation in
delivering satellite mobility services to customers, our valuable
global spectrum assets and our market-leading distribution
channel.
As a result of these elements, Inmarsat offers investors a
diversified growth portfolio with multiple paths to future value
creation, based on a solid foundation of incumbency and
differentiated capabilities. We aim to continue delivering moderate
growth in Maritime, Government, Aviation and Enterprise from our
long-established L-band services, with higher growth to come from
the delivery of new GX services to customers in these markets.
Furthermore, we expect to generate significant growth from our
delivery of broadband services to the fast-growing and substantial
IFC segment in commercial aviation. Our progress in each of these
areas was evidenced by our performance in the first half of
2018.
We also have a number of incremental growth opportunities
available over the medium to long term. These include monetising
the capabilities of our Inmarsat-5 F4 satellite, delivering major
strategic projects for Government customers, growing dedicated
regional businesses in hitherto untapped geographies, leveraging
our digital services capabilities, increasing our presence in the
"Internet of Things" environment and supporting Ligado Networks as
they lease our L-band spectrum in North America.
Our revenue growth profile will be supported by a focus on
operational leverage via a carefully controlled cost base and an
infrastructure capital investment programme that is expected to
meaningfully moderate from the start of the next decade. This will
help to drive our cash flow growth, in line with our revenue
growth, over the medium to long term.
Inmarsat is therefore confident in continued profitable growth,
ensuring we retain our position as a market leader in our target
end markets.
Outlook and future guidance
As a result of these dynamics, the Board remains confident in
the growth outlook for the business and we consequently reiterate
our financial guidance, as follows:
-- Medium term Group revenue, EBITDA and free cash flow growth (all excluding Ligado):
o Targeting mid-single digit percentage revenue growth on
average over the next five years, with EBITDA and free cash flow
generation expected to improve steadily.
-- Group revenue:
o 2018 revenue, excluding Ligado, of $1,300m to $1,500m;
o Annual GX revenues at a run rate of $500m by the end of
2020.
-- Group capex:
o Over 2018 to 2020, we expect that capital expenditure will be
within a range of $500m to $600m per annum;
o Based on current management plans, infrastructure capex is
expected to meaningfully moderate after 2020 as we bring to bear
our next generation network augmentation plans.
-- Group leverage:
o Net Debt: EBITDA to normally remain below 3.5x.
Results presentation
Inmarsat management will discuss the first half results in a
presentation on Thursday 2 August at 09.00 London time at the
company's offices at 99 City Road, London, EC1Y 1AX.
The presentation can be accessed by dialling +44 (0) 330 336
9125 (from the UK and Europe) or +1 929 477 0324 (from the US),
with a passcode of 2946863.
A web-cast of the presentation can be accessed via our website:
www.inmarsat.com.
Contacts:
Investor Enquiries: Media Enquiries:
Rob Gurner Jonathan Sinnatt
Tel: +44 (0)20 7728 1518 Tel: +44 (0)20 7728 1935
rob.gurner@inmarsat.com jonathan.sinnatt@inmarsat.com
Forward looking Statements
This announcement contains 'forward-looking statements' within
the meaning of the US Private Securities Litigation Reform Act of
1995. 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 of 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.
Other Information
While Inmarsat plc is the ultimate parent company of our group,
our subsidiary Inmarsat Group Limited is required by the terms of
our Senior Notes to report consolidated financial results on a
quarterly basis. A copy of the resulting financial report for
Inmarsat Group Limited will be available via the Investor Relations
section of our website.
OPERATING AND FINANCIAL REVIEW
The following is a discussion of the unaudited consolidated
results of the operations and financial condition of Inmarsat plc
(the "Company" or, together with its subsidiaries, the "Group") for
the six months ended 30 June 2018. This should be reviewed together
with the whole of this document including the historical
consolidated financial results and the notes. The consolidated
financial results were prepared in accordance with the measurement
requirements of International Financial Reporting Standards
("IFRS") as adopted by the European Union. In addition to IFRS
measures we use a number of Alternative Performance Measures (APMs)
in order to provide readers with a better understanding of the
underlying performance of our business, and to improve
comparability of our results for the periods concerned. These have
been explained in Appendix 1.
Inmarsat has adopted IFRS15, 16 and 9 for the financial year
ending 31 December 2018.
To reflect the adoption of IFRS15, both Q2 and Half Year 2017
figures have been restated throughout this document, primarily
impacting Maritime and Aviation, where revenue and costs related to
equipment installation are now spread over the length of the
contract, rather than being recognised at the time of installation.
Consequently, in Q2 2017, revenue is $1.8m lower, whilst EBITDA and
capital expenditure are higher by $1.6m and $3.2m respectively. The
half year has seen revenue decrease by $4.5m and EBITDA and capital
expenditure increase by $3.2m and $7.4m respectively.
IFRS16, which Inmarsat has adopted a year early, requires
vehicles and properties to be accounted for as "right-of-use
assets". This had a $5.6m positive impact on EBITDA in H1 2018,
including $3.3m positive impact in Q2, due to lease costs being
reclassified as depreciation and interest.
The impact of the adoption of IFRS9 is not material in the
period or in prior year reported numbers.
Short-term deposits which have an original maturity of more than
3 months have been re-classified from cash and cash equivalents to
short-term deposits to align with the requirements of IAS7.
More information on the changes in accounting policy can be
found in Appendix 2 of this document.
H1 2018 - Group Financial Highlights
H1 Q2
($ in millions) 2018 2017 (restated) Change 2018 2017 (restated) Change
------------------- ------- --------------- ------- ------- --------------- -------
Revenue
Satellite services 652.4 620.0 5.2% 339.1 321.5 5.5%
Ligado revenue 64.8 63.7 1.7% 32.7 32.7 -
------------------- ------- --------------- ------- ------- --------------- -------
Total revenue 717.2 683.7 4.9% 371.8 354.2 5.0%
Direct costs (118.2) (86.5) (36.6%) (65.2) (50.4) (29.4%)
------------------- ------- --------------- ------- ------- --------------- -------
Gross Margin 599.0 597.2 0.3% 306.6 303.8 0.9%
Indirect costs (226.0) (217.5) (3.9%) (108.5) (107.2) (1.2%)
------------------- ------- --------------- ------- ------- --------------- -------
EBITDA 373.0 379.7 (1.8%) 198.1 196.6 0.8%
EBITDA margin % 52.0% 55.5% - 53.3% 55.5% -
------------------- ------- --------------- ------- ------- --------------- -------
Cash capex 257.8 308.2 16.4% 116.5 173.8 33.0%
------------------- ------- --------------- ------- ------- --------------- -------
Group revenue increased by $33.5m, including an increase of
$17.6m in Q2, driven predominantly by growth in Aviation.
Direct costs increased by $31.7m, including an increase of
$14.8m in Q2, reflecting the short term addition of low margin
equipment revenue to help capture further market share,
particularly in Aviation.
Indirect costs increased by $8.5m in the half, mainly as a
result of a c.$9m adverse impact of currency movements in Q1, which
more than offset a currency benefit of c.$1m in Q2. Indirect costs
benefited from successful cost containment in Central Services,
following a headcount reduction exercise implemented in Q4
2017.
EBITDA consequently decreased by $6.7m and EBITDA margin
decreased to 52.0%, from 55.5% in H1 2018. In Q2, EBITDA increased
by $1.5m, with margins decreasing to 53.3%, from 55.5%, mainly due
to higher direct costs, as discussed above.
Cash capex was $50.4m lower, reflecting the launch and insurance
costs of the I-5 F4 satellite in the prior year, but there
continues to be a high level of investment in major infrastructure
projects (in particular the GX-5 and I-6 satellites).
Maritime
H1 Q2
($ in millions) 2018 2017 (restated) Change 2018 2017 (restated) Change
------------------------ ------ --------------- ------- ------ --------------- -------
Revenue 282.1 279.8 0.8% 140.1 140.0 0.1%
Direct Cost (43.6) (40.6) (7.4%) (21.5) (21.3) (0.9%)
------------------------ ------ --------------- ------- ------ --------------- -------
Gross Margin 238.5 239.2 (0.3%) 118.6 118.7 (0.1%)
Indirect costs (20.6) (16.5) (24.8%) (10.3) (8.1) (27.2%)
------------------------ ------ --------------- ------- ------ --------------- -------
EBITDA 217.9 222.7 (2.2%) 108.3 110.6 (2.1%)
EBITDA margin % 77.2% 79.6% - 77.3% 79.0% -
Cash capex (24.0) (23.3) (3.0%) (12.6) (11.9) (5.9%)
------------------------ ------ --------------- ------- ------ --------------- -------
Business Unit Operating
Cash Flow 193.9 199.4 (2.8%) 95.7 98.7 (3.0%)
------------------------ ------ --------------- ------- ------ --------------- -------
Revenue Number of vessels Average Revenue
per User ("ARPU")
H1 2018 H1 2017 H1 2018 H1 2017 H1 2018 H1 2017
--------------- ------- ------- --------- -------- --------- ---------
FleetBroadband $163.2m $175.7m 34,496 37,532 $770 $775
--------------- ------- ------- --------- -------- --------- ---------
VSAT $72.6m $59.7m 5,364 3,563 $2,530 $3,040
--------------- ------- ------- --------- -------- --------- ---------
Fleet One $3.7m $1.9m 3,672 1,937 $113 $92
--------------- ------- ------- --------- -------- --------- ---------
Other products $42.6m $42.5m - - - -
--------------- ------- ------- --------- -------- --------- ---------
Revenue Number of vessels Average Revenue
per User ("ARPU")
Q2 2018 Q2 2017 Q2 2018 Q2 2017 Q2 2018 Q2 2017
--------------- ------- ------- --------- -------- --------- ---------
FleetBroadband $79.9m $87.9m 34,496 37,532 $762 $778
--------------- ------- ------- --------- -------- --------- ---------
VSAT $38.0m $30.5m 5,364 3,563 $2,508 $2,981
--------------- ------- ------- --------- -------- --------- ---------
Fleet One $1.4m $0.7m 3,672 1,937 $65 $87
--------------- ------- ------- --------- -------- --------- ---------
Other products $20.8m $20.9m - - - -
--------------- ------- ------- --------- -------- --------- ---------
Maritime delivered another solid revenue performance during the
half, with revenues up slightly to $282.1m, including $140.1m in
Q2.
Revenue from our products in the maritime VSAT market, Xpress
Link ("XL") and Fleet Xpress ("FX"), continued to grow strongly,
increasing by 21.6%, including growth of 24.6% in Q2, with 5,364
installed VSAT vessels at the end of the period, (4,121 of which
were FX vessels).
The VSAT installation order book was stable at c.670 vessels,
and the fast pace of FX installations continued, driven by our
internal installation capability and on-going engagement from our
four strategic distribution partners, all of which are now running
FX installation programmes.
The overall proportion of completely new customer installations
remained high at over 26% during the half (excluding XL
migrations).
Installed Fleet Xpress Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017
installations
---------------------------------- ------- ------- -------- -------- -------- --------
Opening balance of installed
FX vessels 3,259 2,614 1,963 1,337 808 335
XpressLink migrations 185 185 241 200 198 237
FleetBroadband upgrades 513 324 208 267 213 145
New customers 164 136 202 159 118 91
---------------------------------- ------- ------- -------- -------- -------- --------
Total installations & migrations 862 645 651 626 529 473
---------------------------------- ------- ------- -------- -------- -------- --------
Closing balance of installed
FX vessels 4,121 3,259 2,614 1,963 1,337 808
---------------------------------- ------- ------- -------- -------- -------- --------
As expected, VSAT ARPU has continued to decline, by 16.8% in H1
2018 and 15.9% in Q2, a slightly lower run rate from Q1. At this
stage of the launch and ramp-up of FX, we are primarily focused on
market capture, speed of service take-up and installation rates.
Accordingly, the recent ARPU decline reflected principally a sharp
increase in the proportion of indirect FX sales, (with wholesalers
increasing their share of aggregate VSAT installations from 7% (243
installed FX vessels) at the end of H1 2017 to 23% (1,296 installed
FX vessels) at the end of H1 2018), special wholesale discounts for
a small number of strategic partners in exchange for vessel
installation commitments, and a high proportion of installations
coming from entry level price plans and other short-term end user
incentives.
FleetBroadband ("FB") vessels declined to 34,496 at the end of
H1 2018, from 37,532 in H1 2017. Over 40% of the decline in FB
vessel numbers related to the migration of vessels up to FX in the
half, from around 30% in Q4 2017. The remainder, which were mainly
lower ARPU vessels, were lost as a result of scrappage and
increased competition. The rate of vessel losses for these reasons
declined during the half to c.350 in Q2, from c.420 in Q1 and c.
520 in Q4 2017. New pricing strategies and increased functionality
will be implemented over the next 12 months to address these FB
vessel losses.
FB revenues consequently declined by 7.1% in H1, including 9.1%
in Q2, with the migration to FX accounting for over half of this
reduction in H1. FB ARPU remained stable during H1 at around $770
per month.
Fleet One doubled its revenue to $3.7m of airtime and equipment
revenue in H1, including $1.4m in Q2 2018, with around 400 new
Fleet One terminals installed during Q2. The product's customer
base is now 3,672 vessels, up from 1,937 in H1 2017. Fleet One's
average airtime ARPU increased in H1 to around $113, but fell in Q2
to around $65 per month due to lower usage related to seasonality,
but is expected to normalise to around $100 per month in the coming
quarters.
During the period, the International Maritime Organization's
Maritime Safety Committee formally approved our Fleet Safety
solution as a new service to support the Global Maritime Distress
& Safety System ("GMDSS"). The GMDSS approval for Fleet Safety
is immediate and not conditional on a number of stringent
performance tests, unlike the conditional approval of Iridium's
GMDSS solution, which is planned for introduction in 2020.
Fleet Safety represents an upgrade to our existing Inmarsat-C
safety service, which is currently installed on over 160,000
vessels across the commercial maritime industry. The new service
will be delivered over our existing I-4 satellites, as well as over
our I-6 satellites. Ship owners and operators will be able to
combine maritime safety and broadband data services in a single FB
or Fleet One terminal.
Revenue from our mainly lower margin and legacy products was
flat in the half, with the on-going decline in legacy product
revenue being offset by a $6.8m increase in VSAT terminal sales in
H1 2018 (including an increase of $3.0m in Q2). Terminal sales will
remain a positive feature of our revenue mix over the next 12 to 18
months, helping to deliver new airtime revenues once installed.
Excluding terminal sales, other legacy products declined by $6.5m,
or 16.7%, to $32.4m in the half.
Direct costs increased by $3.0m in H1 2018, including an
increase of $0.2m in Q2, mainly due to higher bad debt provisions,
following temporarily slower customer collections resulting from
the introduction of a new billing system. Leased capacity savings
achieved from the migration of XL vessels to FX were broadly offset
by the addition of low margin terminal sales during the period.
These savings are expected to have an increasingly beneficial
impact on direct costs, as the XL migration programme draws to a
close by the end of 2019.
Indirect costs increased by $4.1m in H1 2018, including $2.2m in
Q2, mainly as a result of increased marketing activity related to
the Volvo Ocean Race, which has now finished.
As a result, EBITDA in H1 declined by $4.8m, with EBITDA margin
decreasing to 77.2%, from 79.6% (in Q2, EBITDA fell by $2.3m, with
EBITDA margin declining to 77.3%, from 79.0% in Q2 2017).
Maritime capex, which is all success-based capex supporting
customer installations in FX and XL migrations, helping to deliver
new airtime revenues once installed, was up slightly to $24.0m in
the period, including $12.6m in Q2.
Government
H1 Q2
2018 2017 Change 2018 2017 (restated) Change
($ in millions) (restated)
------------------------ ------ ----------- ------- ------ --------------- ------
Revenue 183.1 187.5 (2.3%) 104.8 101.5 3.3%
Direct costs (32.6) (27.2) (19.9%) (18.4) (17.1) (7.6%)
------------------------ ----------- ---------------
Gross Margin 150.5 160.3 (6.1%) 86.4 84.4 2.4%
Indirect costs (21.3) (22.5) 5.3% (10.5) (10.9) 3.7%
------------------------ ------ ----------- ------- ------ --------------- ------
EBITDA 129.2 137.8 (6.2%) 75.9 73.5 3.3%
EBITDA margin % 70.6% 73.5% - 72.4% 72.4% -
Cash capex (1.7) (4.9) 65.3% (0.3) (1.8) 83.3%
------------------------ ------ ----------- ------- ------ --------------- ------
Business Unit Operating
Cash Flow 127.5 132.9 (4.1%) 75.6 71.7 5.4%
------------------------ ------ ----------- ------- ------ --------------- ------
Government revenue declined by 2.3% to $183.1m in H1 2018, but
increased by 3.3% to $104.8m in Q2.
This growth was driven by an outstanding performance from our US
Government business, where revenue grew by 2.8% in the half,
including 7.8% in Q2, against a very tough comparator. This was the
result of the renewal of a contract on revised terms, as well as
one-off airtime leasing revenues and equipment sales in Q2. The
Boeing Take-or-Pay contract saw further progress, with underlying
revenues continuing to increase and breakage declining, but the
total contract continues to reduce to normalised levels.
Outside the US, revenues fell by 11.6% in the period, including
5.8% in Q2, mainly reflecting the previously highlighted end of
exceptional higher margin operational revenue in Q3 2017.
Direct costs increased by $5.4m in H1 2018, including $1.3m in
Q2, mainly due to the impact of the lower margin CSSC contract
during the period, partially offset by higher margin revenues from
the renewed contract and airtime leasing revenues outlined above.
Indirect costs declined by $1.2m in the period, including $0.4m in
Q2.
As a result of lower revenue and higher direct costs in the
period, EBITDA declined by $8.6m and EBITDA margin fell to 70.6%.
However, due to the increase in high margin revenue offsetting the
lower margin revenue generated in Q2, EBITDA in that quarter was up
by $2.4m to $75.9m, with EBITDA margin remaining flat at 72.4%.
As previously outlined, near-term future revenue growth in
Government is expected to be modest, with contract wins continuing
to be lumpy and irregular.
Aviation
H1 Q2
($ in millions) 2018 2017 (restated) Change 2018 2017 (restated) Change
--------------------- ------- --------------- ------------ ------------ --------------- ------------------
Revenue 115.5 83.2 38.8% 59.5 42.9 38.7%
Direct costs (21.8) (1.5) (1,353.3%) (13.9) (0.6) (2,216.7%)
--------------------- --------------- ---------------
Gross Margin 93.7 81.7 14.7% 45.6 42.3 7.8%
Indirect costs (33.8) (31.3) (8.0%) (19.3) (17.2) (12.2%)
--------------------- ------- --------------- ------------ ------------ --------------- ------------------
EBITDA 59.9 50.4 18.8% 26.3 25.1 4.8%
EBITDA margin % 51.9% 60.6% - 44.2% 58.5% -
Cash capex (28.9) (85.4) 66.2% (9.1) (36.4) 75.0%
--------------------- ------- --------------- ------------ ------------ --------------- ------------------
Business Unit
Operating
Cash Flow 31.0 (35.0) 188.6% 17.2 (11.3) 252.2%
--------------------- ------- --------------- ------------ ------------ --------------- ------------------
Aviation delivered another excellent period of growth in H1 2018,
with revenue up 38.8% to $115.5m, including up 38.7% to $59.5m
in Q2, highlighting continued traction across our Core business
and our on-going progress in delivering GX IFC services for our
customers.
EBITDA increased by $9.5m to $59.9m in H1 2018, including an improvement
of $1.2m in Q2, with EBITDA margin decreasing to 51.9% in the half
(H1 2017: 60.6%), and to 44.2% in Q2 (Q2 2017: 58.5%).
Despite our investment in IFC, Aviation moved into a positive operating
cash flow position during the period.
We continue to expect that, in the near term, Aviation EBITDA and
cash flow margins will be impacted by our on-going efforts to build
a strong market position in the rapidly growing and high potential
IFC market. Over the years 2016 to 2021, we expect overall EBITDA
margins in Aviation to fall from over 60% in 2016 to 53% in 2017
and then to around 40% in 2018, after which we expect that higher
revenues, improved revenue mix and more stable indirect costs will
start to deliver a return to 2016 margin levels.
Core / IFC - H1 Core IFC
------------------------------ ------------------------------------------- -----------------------------------
H1 2018 H1 2017 H1 2018 H1 2017 (restated)
($ in millions) (restated)
------------------------------ ----------------------------- ------------ --------------- ------------------
Revenue 74.3 63.6 41.2 19.6
Direct costs (0.7) (0.4) (21.1) (1.1)
------------------------------ ----------------------------- ------------ --------------- ------------------
Gross Margin 73.6 63.2 20.1 18.5
Indirect costs (5.0) (4.7) (28.8) (26.6)
------------------------------ ----------------------------- ------------ --------------- ------------------
EBITDA 68.6 58.5 (8.7) (8.1)
------------------------------ ----------------------------- ------------ --------------- ------------------
EBITDA margin % 92.3% 92.0% n/a n/a
------------------------------ ----------------------------- ------------ --------------- ------------------
Cash capex - - (28.9) (85.4)
------------------------------ ----------------------------- ------------ --------------- ------------------
Business Unit Operating Cash
Flow 68.6 58.5 (37.6) (93.5)
------------------------------ ----------------------------- ------------ --------------- ------------------
Core / IFC - Q2 Core IFC
------------------------------ ------------------------------------------- -----------------------------------
Q2 2018 Q2 2017 Q2 2018 Q2 2017 (restated)
($ in millions) (restated)
------------------------------ ----------------------------- ------------ --------------- ------------------
Revenue 37.6 32.1 21.9 10.8
Direct costs (0.3) (0.2) (13.6) (0.4)
------------------------------ ----------------------------- ------------ --------------- ------------------
Gross Margin 37.3 31.9 8.3 10.4
Indirect costs (2.8) (2.6) (16.5) (14.6)
------------------------------ ----------------------------- ------------ --------------- ------------------
EBITDA 34.5 29.3 (8.2) (4.2)
------------------------------ ----------------------------- ------------ --------------- ------------------
EBITDA margin % 91.8% 91.3% n/a n/a
------------------------------ ----------------------------- ------------ --------------- ------------------
Cash capex - - (9.1) (36.4)
------------------------------ ----------------------------- ------------ --------------- ------------------
Business Unit Operating Cash
Flow 34.5 29.3 (17.3) (40.6)
------------------------------ ----------------------------- ------------ --------------- ------------------
Core Aviation business
Our Core Aviation business comprises SwiftBroadband and
JetConneX for Business and General Aviation ("BGA"), Classic Aero
and SwiftBroadband-Safety for Safety and Operational Services
("SOS") and other legacy products. As in previous periods, revenue
growth across these businesses was particularly strong, increasing
by $10.8m, 16.8%, to $74.3m in the half, including an increase of
$5.6m, 17.1%, to $37.6m in Q2.
By the end of Q2 2018, 290 aircraft were installed with
JetConneX, our GX-based product for BGA, (from 67 at the end of Q2
2017). During the half, JetConneX grew airtime revenue by a factor
of seven times to $8.3m (H1 2017: $1.1m), including $4.6m in Q2 (Q2
2017: $0.6m).
SwiftBroadband revenues grew $3.3m, 8.8%, in the period to
$40.6m, including an increase of $1.4m, 7.4%, to $20.2m in Q2,
driven by higher usage, with the number of installed aircraft
remaining stable at around 4,000.
In SOS, Classic Aero delivered revenue growth of $2.3m, 11.9%,
to $21.6m in the half, including an increase of $1.2m, 12.4%, to
$10.9m in Q2, as a result of a change to the pricing structure, to
reflect higher usage. The number of aircraft using the service
remained stable at around 9,000.
Revenue in our other legacy products in our Core business
decreased to $3.7m (H1 2017: $5.8m), including $1.9m in Q2, (Q2
2017: $2.9m), due to the end of a leasing contract, as previously
highlighted, which will have a similar impact on H2 2018.
Direct costs in our Core business remained fairly immaterial at
$0.7m in the half, including $0.3m in Q2, whilst indirect costs
remained stable at $5.0m in H1 and $2.8m in Q2. EBITDA and Business
Unit Operating Cash Flow for the Core Aviation business
consequently both grew to $68.6m in H1 and to $34.5m in Q2.
IFC
IFC revenues, comprising our L-band-based IFC services for
commercial aviation, and our GX Aviation services for IFC, more
than doubled across the period, together growing by $21.6m, 110.2%,
to $41.2m in the half, including $11.1m, 102.8%, in Q2 to
$21.9m.
Our L-band-based IFC services delivered revenue growth of $4.7m,
26.3%, to $22.6m, including an increase of $0.8m, 7.9%, in Q2 to
$10.9m, driven by increased usage.
We also generated $18.7m of GX-related revenue in the half,
including $11.0m in Q2, (H1 2017: $1.6m, including $0.6m in Q2,
restated for IFRS15) of which $1.4m was higher margin airtime
revenue, generated for the first time. The remainder of this
revenue was relatively low margin equipment sales, which is a
precursor to further airtime revenue generation in the future.
We now have over 1,400 aircraft expected under signed contracts
for our GX and EAN Aviation IFC services, including a number of new
airline customers who signed airtime contracts or made GX hardware
commitments so far in 2018, including Citilink, Kuwait Airways,
Philippine Airlines and Emirates Airlines. We continue to advance
our new business pipeline of around 3,000 aircraft and we are
confident in the strength of our competitive position, with GX and
the EAN, to continue to win new IFC business on attractive
terms.
We now have 286 GX-installed aircraft across a number of
customers (up from 245 at the end of Q1 2018). Several customers,
including Qatar Airways and Air New Zealand, officially launched
Inmarsat-supported GX IFC services during Q2, and we now have 48
aircraft commercially activated, albeit with very low take-up rates
at this early stage of service delivery, generating airtime
revenue.
Preparations continue for the service roll-out of the European
Aviation Network ("EAN"). We continue to receive the outstanding
regulatory authorisations and remain confident that claims raised
by some of our competitors against national regulators will not
delay our plans.
IFC direct costs increased to $21.1m in H1 2018 (H1 2017:
$1.1m), including $13.6m in Q2 2018 (Q2 2017: $0.4m), due to
additional short term GX equipment sales being added to the revenue
mix. Indirect costs in IFC, related to investment in headcount and
other overhead costs associated with the pursuit and delivery of
the major growth opportunities in IFC, increased by $2.2m to $28.8m
in H1 and by $1.9m to $16.5m in Q2.
Cash capex in IFC decreased to $28.9m in H1 2018, (H1 2017:
$85.4), and to $9.1m in Q2 2018 (Q2 2017: $36.4m) mainly as a
result of infrastructure investment in the S-band satellite in the
prior year, ahead of its launch.
As a result of all of the factors outlined above, IFC EBITDA
improved in the period, with the Business Unit Operating Cash Flow
in IFC improving significantly, reducing the level of start-up
investment by $55.9m to $37.6m for the half.
Enterprise
H1 Q2
2018 2017 Change 2018 2017 Change
($ in millions) (restated) (restated)
------------------------ ------ ----------- ------- ----- ----------- -------
Revenue 64.0 62.3 2.7% 31.3 32.9 (4.9%)
Direct costs (12.2) (9.7) (25.8%) (6.2) (6.9) 10.1%
------------------------ ----------- -----------
Gross Margin 51.8 52.6 (1.5%) 25.1 26.0 (3.5%)
Indirect costs (11.1) (9.0) (23.3%) (6.0) (4.5) (33.3%)
------------------------ ------ ----------- ------- ----- ----------- -------
EBITDA 40.7 43.6 (6.7%) 19.1 21.5 (11.2%)
EBITDA margin % 63.6% 70.0% - 61.0% 65.3% -
Cash capex - (0.1) 100.0% - (0.1) 100.0%
------------------------ ------ ----------- ------- ----- ----------- -------
Business Unit Operating
Cash Flow 40.7 43.5 (6.4%) 19.1 21.4 (10.7%)
------------------------ ------ ----------- ------- ----- ----------- -------
Enterprise revenues increased by $1.7m, 2.7%, in H1 2018, mainly
as a result of significant growth in satellite phone airtime and
handset revenue in Q1. Revenues declined by $1.6m, 4.9%, in Q2 due
to a decline in revenues from our Broadband Global Area Network
("BGAN") product and the continued downward trajectory of
fixed-to-mobile revenues.
BGAN revenues were flat in the period, at $12.2m, but fell by
$0.4m, 7.3%, to $5.1m in Q2 due to a minor SIM reclassification.
Excluding this impact, BGAN delivered revenue growth of 4.1% in H1
and 12.7% in Q2, highlighting the strong underlying performance of
this product line.
Satellite phone airtime and handset revenue increased by $8.4m,
68.3%, to $20.7m, including by $2.1m, 27.3%, in Q2 to $9.8m, due to
several new partnerships for handset sales over the period.
Fixed-to-mobile revenues continued to decline, falling by $3.4m,
37.0% to $5.8m during the period, including by $1.6m, 38.1% to
$2.6m in Q2, reflecting on-going decline of satellite-based voice
products, driven by continued migration to Voice-over-IP.
Machine to Machine ("M2M") revenue increased by $1.0m, 11.2%, to
$9.9m during the half, including by $0.5m, 11.1%, to $5.0m in Q2,
driven by on-going demand for M2M in commercial applications and an
increase in terminals to over 360,000.
Direct costs increased by $2.5m in the half, mainly reflecting
the substantial satellite phone handset sales agreements in Q1, but
declined by $0.7m in Q2, given a lower level of handset sales.
Indirect costs increased by $2.1m in the period, including an
increase of $1.5m in Q2, as a result of legal fees in the
period.
Consequently, EBITDA was down by $2.9m in H1 2018, and down by
$2.4m in Q2. EBITDA margin declined to 63.6% in the half and to
61.0% in Q2.
Central Services
H1 Q2
($ in millions) 2018 2017 (restated) Change 2018 2017 (restated) Change
------------------------ ------- --------------- ------ ------- --------------- -------
Revenue
Ligado Networks 64.8 63.7 1.7% 32.7 32.7 -
Other 7.7 7.2 6.9% 3.4 4.2 (19.0%)
------------------------ ------- --------------- ------ ------- --------------- -------
Total Revenue 72.5 70.9 2.3% 36.1 36.9 (2.2%)
Direct costs (8.0) (7.5) (6.7%) (5.2) (4.5) (15.6%)
------------------------ ------- --------------- ------ ------- --------------- -------
Gross Margin 64.5 63.4 1.7% 30.9 32.4 (4.6%)
Indirect costs (139.2) (138.2) (0.7%) (62.4) (66.5) 6.2%
------------------------ ------- --------------- ------ ------- --------------- -------
EBITDA (74.7) (74.8) (0.1%) (31.5) (34.1) (7.6%)
Cash capex (203.2) (194.5) (4.5%) (94.5) (123.6) (23.5%)
------------------------ ------- --------------- ------ ------- --------------- -------
Business Unit Operating
Cash Flow (277.9) (269.3) (3.2%) (126.0) (157.7) 20.1%
------------------------ ------- --------------- ------ ------- --------------- -------
Revenue from Ligado increased $1.1m during the half, but was
flat in Q2, driven by the terms of our 2016 agreement.
Direct costs increased by $0.5m in H1 2018, and by $0.7m in
Q2.
Indirect costs increased by $1.0m in H1 2018, but decreased by
$4.1m in Q2, with costs contained as a result of the headcount
reduction programme initiated in Q4 2017, a currency benefit of
c.$1m and the impact of the implementation of IFRS16 which moved
lease costs of $3.3m into depreciation.
As previously outlined, growth in central operational delivery
costs in 2018 is expected to be in low single digits, in percentage
terms.
Central Services capital expenditure in H1 2018 increased by
$8.7m, due to the timing of expenditure on our major infrastructure
programmes, including in Q1 2018 the 5(th) GX satellite and the I-6
satellite infrastructure. This was partially offset by a reduction
of $29.1m in capital expenditure in Q2 2018, due to the launch and
insurance costs of I-5 F4 satellite in the prior year.
Reconciliation of EBITDA to profit after tax
H1 Q2
($ in millions) 2018 2017 (restated) Change 2018 2017 (restated) Change
------------------------------ ------- --------------- -------- ------- --------------- --------
EBITDA 373.0 379.7 (1.8%) 198.1 196.6 0.8%
Depreciation and amortisation (232.5) (194.1) (19.8%) (116.5) (96.4) (20.9%)
Other 0.2 (0.4) 150.0% (0.3) (0.8) 62.5%
------------------------------ ------- --------------- -------- ------- --------------- --------
Operating profit 140.7 185.2 (24.0%) 81.3 99.4 (18.2%)
Net financing costs (259.8) (121.8) (113.3%) (256.4) (37.3) (587.4%)
Taxation charge (12.7) (24.6) 48.4% (10.3) (17.7) 41.8%
------------------------------ ------- --------------- -------- ------- --------------- --------
Profit after tax (131.8) 38.8 (439.7%) (185.4) 44.4 (517.6%)
------------------------------ ------- --------------- -------- ------- --------------- --------
Addback of change
in fair value of derivative
(2023 convertible
bond) 207.3 72.2 187.5% 231.5 13.9 1,565.5%
------------------------------ ------- --------------- -------- ------- --------------- --------
Adjusted profit after
tax 75.5 111.0 (32.0%) 46.1 58.3 (20.9%)
------------------------------ ------- --------------- -------- ------- --------------- --------
Operating profit
Operating profit decreased by $44.5m (including a decrease of
$18.1m in Q2) to $140.7m. This is largely attributable to the I-5
F4 and S-Band satellites coming into commercial service in Q4 2017
which resulted in increased depreciation and amortisation of $38.4m
in the first half ($20.1m for Q2).
Net financing cost
Net financing costs for the half increased by $138.0 to $259.8m,
including an increase of $219.1m to $256.4m in Q2. This has been
driven by the significant increase in the unrealised conversion
liability on the 2023 Convertible Bond. The fair value of the
conversion liability is calculated as the difference between the
market value of the Convertible Bond and the 'book value' of the
cash element of the convertible bond. The convertible price
increased substantially in Q2, following EchoStar's takeover
approach in June. This drove an increase in the fair value
liability and a corresponding charge in the income statement. Since
then, the market value of the convertible bond has reduced sharply.
The impact of the unrealised conversion liability will reverse to
nil if the convertible bonds reach maturity and are not
converted.
Financing costs, excluding the non-cash impact of the
convertible bond adjustments outlined above, increased marginally
by $2.9m and $1.9m for the half and quarter respectively due to an
increase in net debt.
Taxation
The underlying effective tax rate for the half year was 16.3%
(2017: 15.7%). This rate is lower than the UK statutory rate of 19%
(2017: 19.25%), due to some profits being earned in jurisdictions
where the tax rate is lower than the UK and the benefit that the
business gains in the UK from the Patent Box regime, which allows
income to be taxed at 10%, rather than the statutory rate of
19%.
Any gain or reduction in the unrealised conversion liability on
the convertible bond which is reported in net financing costs, as
outlined in note 7, is non-taxable.
The Group maintains tax provisions in respect of ongoing
enquiries with tax authorities. In the event all such enquiries
were settled as currently provided for, we estimate that the Group
would incur a cash tax outflow of approximately $90m, excluding
interest, during 2019. The enquiries remain ongoing at this
time.
Profit after tax ("PAT")
Adjusted PAT, which excludes the impact on the income statement
of the unrealised conversion liability on the 2023 convertible
bond, declined by $35.5m for H1 2018 (including a decrease of
$12.2m in Q2 2018), reflecting changes in EBITDA, depreciation,
financing costs and taxation noted above. Including this impact,
statutory PAT decreased by $170.6m to a loss of $131.8m (including
a decrease of $229.8m in Q2 2018).
Cash Flow(1)
H1 Q2
($ in millions) 2018 2017 (restated) 2018 2017 (restated)
------------------------------------------------------------------ ------- --------------- ------- ---------------
EBITDA 373.0 379.7 198.1 196.6
Non-cash items - 11.5 (3.5) 3.0
Change in working capital (61.6) 10.5 (31.2) 14.9
------------------------------------------------------------------ ------- --------------- ------- ---------------
Cash generated from operations 311.4 401.7 163.4 214.5
Capital expenditure (257.8) (308.2) (116.5) (173.8)
Net interest paid (59.7) (54.8) (38.2) (33.5)
Tax paid 1.4 (16.6) (0.2) (2.9)
------------------------------------------------------------------ ------- --------------- ------- ---------------
Free cash flow (4.7) 22.1 8.5 4.3
Dividends paid to shareholders (38.9) (117.9) (38.9) (117.9)
Other movement including foreign exchange 1.4 (2.6) 0.7 (1.6)
------- --------------- ------- ---------------
Net cash flow (42.2) (98.4) (29.7) (115.2)
Increase/(decrease) to cash reclassified from short-term deposits 170.5 (20.0) 26.8 -
Increase/(decrease) in cash from borrowings (68.6) (42.5) (3.9) (1.0)
------------------------------------------------------------------ ------- --------------- ------- ---------------
Net increase/ (decrease) in cash and cash equivalents 59.7 (160.9) (6.8) (116.2)
------------------------------------------------------------------ ------- --------------- ------- ---------------
Cash and cash equivalents
At beginning of the period 144.6 261.5 211.1 216.8
Net increase/(decrease) in cash and cash equivalents 59.7 (160.9) (6.8) (116.2)
----------------------------------------------------- ------- ------- ------ -------
Sub-total (net of bank overdrafts) 204.3 100.6 204.3 100.6
----------------------------------------------------- ------- ------- ------ -------
Short term deposits
At beginning of the period 342.0 395.0 198.3 415.0
Net (decrease)/increase in short term deposits (170.5) 20.0 (26.8) -
----------------------------------------------------- ------- ------- ------ -------
Sub-total 171.5 415.0 171.5 415.0
----------------------------------------------------- ------- ------- ------ -------
Total cash, cash equivalents and short term deposits 375.8 515.6 375.8 515.6
----------------------------------------------------- ------- ------- ------ -------
Opening net borrowings(2) 2,078.6 1894.8 2100.7 1884.9
Net cash flow 42.2 98.4 29.7 115.2
Non-cash movements(3) 18.7 12.6 9.1 5.7
-------------------------- ------- ------ ------ ------
Closing net borrowings(2) 2,139.5 2005.8 2139.5 2005.8
-------------------------- ------- ------ ------ ------
Free cash flow decreased in the half by $26.8m, with lower
capital expenditure of $50.4m and lower tax of $18.0m more than
offset by a working capital outflow of $61.6m, driven by both
higher receivables and inventory. The increase in receivables was
largely due to a temporary slowdown in customer collections
relating to the introduction of a new billing system and the higher
inventory levels were driven by additional inventory being held to
support new terminal installations in the Aviation business.
(1) Cash flow outlined in this table is non-statutory.
(2) Net borrowings includes the convertible bond, total
borrowings less cash and cash equivalents and short-term
investments. Borrowings exclude accrued interest
and any derivative liabilities.
(3) Non-cash movements relate primarily to the amortisation of
deferred financing costs and the fair value of the convertible
bond.
Capital Expenditure
H1 Q2
($ in millions) 2018 2017 (restated) 2018 2017 (restated)
--------------------------------- ------ --------------- ------ ---------------
Major infrastructure projects(1) 149.7 203.5 95.0 127.3
Success-based capex(2) 74.9 60.8 19.2 26.6
Other capex(3) 51.9 58.8 25.0 29.0
Cash flow timing(4) (18.7) (14.9) (22.7) (9.1)
--------------------------------- ------ --------------- ------ ---------------
Total cash capital expenditure 257.8 308.2 116.5 173.8
--------------------------------- ------ --------------- ------ ---------------
The decrease in capital expenditure on major infrastructure
projects for both the half and Q2 was mainly due to the launch and
insurance costs of the I-5 F4 satellite impacting the prior year
periods. Success-based capex increased in H1, due to the higher
levels of spend in Q1 relating to GX installations in Maritime and
Aviation, but decreased in Q2 due to the timing of GX installations
in Aviation. Other capex remained relatively stable during the
period, with investment continuing in areas like IT and Cyber. Cash
flow timing for the half and quarter was impacted by the timing of
contractual payments on GX-5.
Group Liquidity and Capital Resources
At 30 June 2018, the Group had cash and cash equivalents of
$204.3m, short term deposits of $171.5m and available but undrawn
borrowing facilities of $500.5m under our Senior Revolving Credit
Facility. In July 2018, a new 5 year Senior Revolving Credit
Facility of $750m was agreed, to replace existing $500m facility,
on substantially the same terms, allowing the Group to drawdown
against it to meet any short term operational liquidity needs, if
required, through to 2023.
Principal Risks and Uncertainties
There have been no material changes in the principal risks and
uncertainties from those described on pages 51 - 55 of the 2017
Inmarsat plc Annual Report and Accounts.
Related Party Transactions
There have been no material changes in the related party
transactions described on page 151 of the of the 2017 Inmarsat plc
Annual Report and Accounts.
Dividends
At our full year results for 2017 on 9 March 2018, the Board
took a decision to reduce the annual dividend to 20 cents per
share, with the annual dividend expected to stay at these levels
until the cash flow of the business rebuilds sufficiently to make
an increase appropriate. The Board will therefore propose to
shareholders a 2018 interim dividend of 8 cents per share, based on
the reduced annual level of dividend of 20 cents per share and
Inmarsat's historic allocation of 60% of the full year dividend to
the final dividend.
A full scrip dividend election opportunity is available for
shareholders, enabling them to elect in their absolute discretion
to take all or any part of their cash dividend entitlement in
Inmarsat shares. This option is available to shareholders in
relation to the 2018 interim dividend. Dividend payments that are
due to be paid in cash will be paid in Pounds Sterling based on the
exchange rate from the WMReuters GBP/USD 9am fix (London time) four
business days prior to the date of announcement of the scrip
reference price. The procedure that will apply for scrip dividends
will be advised to shareholders in due course. The 2018 interim
dividend is not recorded as a liability in the financial statements
at 30 June 2018.
Inmarsat plc
99 City Road
London EC1Y 1AX
By order of the Board,
Rupert Pearce Tony Bates
Chief Executive Officer Chief Financial Officer
2 August 2018 2 August 2018
(1) "Major infrastructure projects" capex consists of satellite
design, build and launch costs and ground network infrastructure
costs.
(2) "Success-based capex" consists of capital equipment
installed on ships, aircraft and other customer platforms.
(3) "Other capex" investment primarily includes infrastructure
maintenance, IT and capitalised product and service development
costs.
(4) Cash flow timing represents the difference between accrued
capex and the actual cash flows
INMARSAT PLC
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT
For the half year ended 30 June 2018 (unaudited)
Half year ended Three months ended
30 June 30 June
($ in millions) 2018 2017 (restated) 1 2018 2017 (restated) (1)
---------------------------------------- --------------------- ----------------- ------- -------------------
Revenues 717.2 683.7 371.8 354.2
Employee benefit costs (151.9) (140.7) (74.8) (70.8)
Network and satellite operations costs (94.8) (96.7) (47.3) (51.7)
Other operating costs (117.4) (90.5) (61.5) (47.4)
Own work capitalised 19.9 23.9 9.9 12.3
---------------------------------------- --------------------- ----------------- ------- -------------------
Total net operating costs (344.2) (304.0) (173.7) (157.6)
--------------------- ----------------- ------- -------------------
EBITDA 373.0 379.7 198.1 196.6
---------------------------------------- --------------------- ----------------- ------- -------------------
Depreciation and amortisation (232.5) (194.1) (116.5) (96.4)
Impairment loss - (1.8) - (1.4)
---------------------------------------- --------------------- ----------------- ------- -------------------
Loss on disposals of assets (1.6) - (1.2) -
---------------------------------------- --------------------- ----------------- ------- -------------------
Share of profit of associates 1.8 1.4 0.9 0.6
---------------------------------------- --------------------- ----------------- ------- -------------------
Operating profit 140.7 185.2 81.3 99.4
Financing income 4.3 4.3 2.4 2.0
Financing costs (56.8) (53.9) (27.3) (25.4)
Change in fair value of derivative2 (207.3) (72.2) (231.5) (13.9)
---------------------------------------- --------------------- ----------------- ------- -------------------
Net financing costs (259.8) (121.8) (256.4) (37.3)
---------------------------------------- --------------------- ----------------- ------- -------------------
Profit before tax (119.1) 63.4 (175.1) 62.1
---------------------------------------- --------------------- ----------------- ------- -------------------
Taxation charge (12.7) (24.6) (10.3) (17.7)
--------------------- ----------------- ------- -------------------
Profit for the period (131.8) 38.8 (185.4) 44.4
--------------------- ----------------- ------- -------------------
Attributable to:
Equity holders (132.1) 38.5 (185.6) 44.3
Non-controlling interest(3) 0.3 0.3 0.2 0.1
---------------------------------------- --------------------- ----------------- ------- -------------------
Earnings per share for profit
attributable to the equity holders of
the Company during the
period (expressed in $ per share)
---------------------------------------- --------------------- ----------------- ----------------------------
- Basic (0.29) 0.08 (0.41) 0.10
---------------------------------------- --------------------- ----------------- ------- -------------------
- Diluted (0.29) 0.08 (0.40) 0.10
---------------------------------------- --------------------- ----------------- ------- -------------------
Adjusted earnings per share for profit
attributable to the equity holders of
the Company during
the period
(expressed in $ per share)
---------------------------------------- --------------------- ----------------- ----------------------------
- Basic 0.08 0.24 - 0.13
---------------------------------------- --------------------- ----------------- ------- -------------------
- Diluted 0.08 0.24 - 0.13
---------------------------------------- --------------------- ----------------- ------- -------------------
(1) 2017 figures have been restated throughout this announcement
to reflect the adoption of IFRS15 and the reclassification of short
term deposits. The Group has also adopted IFRS16 and IFRS9 as of 1
January 2018. Please refer to Appendix 2 of this announcement for
further details.
(2) The change in fair value of derivatives relates to the
mark-to-market valuation of the conversion liability component of
the convertible bonds due 2023, issued in Q3 2016.
(3) Non-controlling interest ("NCI") refers to the Group's 51%
shareholding in Inmarsat Solutions ehf.
INMARSAT PLC
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE
INCOME
For the half year ended 30 June 2018 (unaudited)
Half year ended
30 June Three months ended 30 June
($ in millions) 2018 2017 (restated) 2018 2017 (restated)
-------------------------------------------------------------- ------- --------------- --------- -----------------
Profit for the period (131.8) 38.8 (185.4) 44.4
-------------------------------------------------------------- ------- --------------- --------- -----------------
Other comprehensive income
Items that may be reclassified subsequently to the Income
Statement:
Foreign exchange translation differences - 0.4 (0.2) 0.6
Net gain/(loss) on cash flow hedges 0.8 8.2 (4.4) 5.7
Items that will not be reclassified subsequently to the Income
Statement:
Remeasurement of the defined benefit asset 16.0 1.5 12.2 1.5
Tax credited directly to equity (3.6) (0.4) - (0.4)
Other comprehensive income for the period, net of tax 13.2 9.7 7.6 7.4
-----------------
Total comprehensive loss for the period, net of tax (118.6) 48.5 (177.8) 51.8
-------------------------------------------------------------- ------- --------------- --------- -----------------
Attributable to:
Equity holders (118.9) 48.2 (178.0) 51.7
Non-controlling interest 0.3 0.3 0.2 0.1
-------------------------------------------------------------- ------- --------------- --------- -----------------
INMARSAT PLC
CONDENSED CONSOLIDATED INTERIM BALANCE SHEET (unaudited)
As at As at As at
30 June 2018 31 Dec 2017 30 June 2017
(restated)
(unaudited) (restated
($ in millions) & unaudited)
------------------------------------ ------------- ------------ --------------
Assets
Non-current assets
Property, plant and equipment 3,283.9 3255.5 3,163.2
Intangible assets 779.1 788.9 762.2
Investments 17.3 16.2 14.7
Right of Use Assets 66.8 - -
Other receivables 35.6 23.9 16.3
Deferred tax asset 31.0 35.4 37.6
Derivative financial instruments - 0.3 -
------------------------------------ ------------ --------------
4,213.7 4,120.2 3,994.0
------------------------------------ ------------- ------------ --------------
Current assets
Cash and cash equivalents(1) 204.6 144.9 101.4
Short-term deposits(2) 171.5 342.0 415.0
Trade and other receivables 362.7 344.4 315.3
Inventories 46.5 33.9 31.5
Current tax assets 10.8 13.8 14.2
Derivative financial instruments - 1.2 1.9
Restricted cash 3.0 2.8 2.9
------------------------------------ ------------- ------------ --------------
799.1 883.0 882.2
------------------------------------ ------------- ------------ --------------
Total assets 5,012.8 5,003.2 4,876.2
------------------------------------ ------------- ------------ --------------
Liabilities
Current liabilities
Borrowings 63.8 125.6 102.9
Trade and other payables 573.6 634.4 572.4
Provisions 7.5 16.2 1.2
Current tax liabilities 138.3 130.2 131.0
Derivative financial instruments 5.6 7.9 10.8
Lease obligations 12.2 - -
------------------------------------ ------------- ------------ --------------
801.0 914.3 818.3
------------------------------------ ------------- ------------ --------------
Non-current liabilities
Borrowings 2,451.8 2439.9 2,419.2
Other payables 19.0 25.0 27.2
Provisions 9.0 9.7 14.0
Deferred tax liabilities 237.6 238.4 218.5
Derivative financial instruments 334.4 127.8 212.9
Lease obligations 63.8 - -
------------------------------------ ------------- ------------ --------------
3,115.6 2,840.8 2,891.8
------------------------------------ ------------- ------------ --------------
Total liabilities 3,916.6 3,755.1 3,710.1
------------------------------------ ------------- ------------ --------------
Net assets 1,096.2 1,248.1 1,166.1
------------------------------------ ------------- ------------ --------------
Shareholders' equity
Ordinary shares 0.3 0.3 0.3
Share premium 761.0 745.4 731.6
Other reserves 98.8 92.0 78.2
Retained earnings 235.8 409.8 355.7
------------------------------------ ------------- ------------ --------------
Equity attributable to shareholders 1,095.9 1247.5 1,165.8
Non-controlling interest 0.3 0.6 0.3
------------------------------------ ------------- ------------ --------------
Total equity 1,096.2 1248.1 1,166.1
------------------------------------ ------------- ------------ --------------
(1) Cash and cash on deposits with maturity at acquisition of
less than 3 months.
(2) Short-term deposits are cash held on deposit with maturity
at acquisition of between 3 and 12 months.
INMARSAT PLC
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
(unaudited)
For the half year ended 30 June 2018
Cash
Share flow Retained
Share Share Equity option hedge earnings
($ in millions) capital premium reserve reserve reserve Other(1) (restated) NCI(2) Total
------------------------ -------- -------- -------- -------- -------- -------- ----------- ------ -------
Balance at 1 January
2017 (audited) 0.3 700.4 - 87.9 (23.3) (2.8) 467.5 0.6 1,230.6
------------------------ -------- -------- -------- -------- -------- -------- ----------- ------ -------
Share-based payments(3) - - - 7.8 - - (0.2) - 7.6
Dividend declared - - - - - - (151.2) (0.6) (151.8)
Scrip dividend
cash reinvestment(5) - - - - - - 31.2 - 31.2
Scrip dividend share
issue(5) 31.2 - - - - - - -
Comprehensive Income: - - - - - - - - -
Profit for the
year - - - - - - 38.5 0.3 38.8
OCI(4) - before
tax - - - - 8.2 0.4 1.5 - 10.1
-------- -------- -------- -------- -------- -------- ----------- ------ -------
OCI(4) - tax - - - - - - (0.4) - (0.4)
------------------------ -------- -------- -------- -------- -------- -------- ----------- ------ -------
Balance at 30 June
2017 (unaudited) 0.3 731.6 - 95.7 (15.1) (2.4) 355.7 0.3 1,166.1
------------------------ -------- -------- -------- -------- -------- -------- ----------- ------ -------
Balance at 1 January
2018 (audited) 0.3 745.4 - 97.1 (7.8) 2.7 409.8 0.6 1,248.1
------------------------ -------- -------- -------- -------- -------- -------- ----------- ------ -------
Share-based payments(2) - - - 6.0 - - 0.7 - 6.7
Dividend declared - - - - - - (55.0) (0.6) (55.6)
Scrip dividend
cash reinvestment(5) - - - - - - 15.6 - 15.6
Scrip dividend
share issue(5) - 15.6 - - - - (15.6) - -
- - - - - - - -
Profit for the
year - - - - - - (132.1) 0.3 (131.8)
OCI(4) - before
tax - - - - 0.8 - 16.0 - 16.8
OCI(4) - tax - - - - - - (3.6) - (3.6)
-------- -------- -------- -------- -------- -------- ----------- ------ -------
Balance at 30 June
2018 (unaudited) 0.3 761.0 - 103.1 (7.0) 2.7 235.8 0.3 1,096.2
------------------------ -------- -------- -------- -------- -------- -------- ----------- ------ -------
1 The 'other' reserve relates to ordinary shares held by the
Employee Share Trust debit of $3.1m (2017: $2.4m), the currency
reserve credit of $1.0m (2017: $0.6m) and the revaluation reserve
of $0.6m (2017: $0.6m).
2 Non-controlling interest ("NCI") refers to the Group's 51%
shareholding in Inmarsat Solutions ehf.
3 Represents the fair value of share option awards recognised in
the period.
4 OCI refers to Other Comprehensive Income.
5 Represents the cash value of the scrip dividend reinvested
into the Company.
INMARSAT PLC
CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT
For the half year ended 30 June 2018 (unaudited)
Half year ended Three months ended
30 June 30 June
2018 2017 (restated) 2018 2017
($ in millions) (restated)
-------------------------------------- ----------------- ----------------- ------------- -------------
Cash flow from operating activities
Cash generated from operations 311.4 401.7 163.4 214.5
Interest received 2.7 1.5 2.1 0.9
Tax paid 1.4 (16.6) (0.2) (2.9)
-------------------------------------- ----------------- -------------
Net cash inflow from operating
activities 315.5 386.6 165.3 212.5
-------------------------------------- ----------------- ----------------- ------------- -------------
Cash flow from investing activities
Purchase of property, plant and
equipment (162.3) (275.6) (57.2) (158.8)
Additions to intangible assets (75.5) (8.6) (50.3) (2.6)
Own work capitalised (20.0) (24.0) (9.0) (12.4)
Short-term cash deposits >3 months 170.5 (20.0) 26.8 -
Investment in financial asset - (1.1) - (1.1)
Net cash used in investing activities (87.3) (329.3) (89.7) (174.9)
-------------------------------------- ----------------- ----------------- ------------- -------------
Cash flow from financing activities
Dividends paid to shareholders (38.9) (117.9) (38.9) (117.9)
Repayment of borrowings (61.1) (40.4) - -
Interest paid (62.4) (56.3) (40.3) (34.4)
Arrangement costs of financing (0.6) (1.2) - (0.1)
Cash payments for the principal
portion of the lease obligations (6.9) - (3.9) -
Other financing activities (1.0) (0.9) (0.5) (1.2)
----------------- -------------
Net cash used in financing activities (170.9) (216.7) (83.6) (153.6)
-------------------------------------- ----------------- ----------------- ------------- -------------
Foreign exchange adjustment 2.4 (1.5) 1.2 (0.2)
-------------------------------------- ----------------- ----------------- ------------- -------------
Net decrease in cash and cash
equivalents 59.7 (160.9) (6.8) (116.2)
-------------------------------------- ----------------- ----------------- ------------- -------------
Cash and cash equivalents
At beginning of the period 144.6 261.5 211.1 216.8
Net increase/(decrease) in cash
and cash equivalents 59.7 (160.9) (6.8) (116.2)
-------------------------------------- ----------------- -------------
At end of the period (net of bank
overdrafts) 204.3 100.6 204.3 100.6
-------------------------------------- ----------------- ----------------- ------------- -------------
Comprising:
Cash at bank and in hand 101.3 72.6 101.3 72.6
Short-term deposits with original
maturity of less than three months 103.3 28.8 103.3 28.8
-------------------------------------- ----------------- ----------------- ------------- -------------
Cash and cash equivalents 204.6 101.4 204.6 101.4
-------------------------------------- ----------------- ----------------- ------------- -------------
Bank overdrafts (0.3) (0.8) (0.3) (0.8)
-------------------------------------- ----------------- ----------------- ------------- -------------
Net cash and cash equivalents
at end of period 204.3 100.6 204.3 100.6
-------------------------------------- ----------------- ----------------- ------------- -------------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(unaudited)
1. General information
Inmarsat plc ('the Company' or, together with its subsidiaries,
'the Group') is a company incorporated in the United Kingdom and
registered in England.
2. Principal accounting policies
Basis of preparation
The condensed consolidated interim financial statements for the
half year 30 June 2018 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, 'Interim Financial Reporting' as adopted
by the European Union. They were approved by the Board of Directors
on 2 August 2018.
The financial information presented in this release does not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The statutory accounts for the year ended 31
December 2017 were approved by the Board of Directors on 9 March
2018. The auditor's report on those accounts was unqualified, did
not draw attention to any matters by way of emphasis and did not
contain a statement under Section 498(2) or (3) of the Companies
Act 2006.
Going Concern
The Group has a robust and resilient business model, and is
expected to generate positive free cash flow over the medium term
and is compliant with all banking covenants. Because of this, the
Directors believe that the Company and the Group are well placed to
manage their business risks successfully. After considering current
financial projections and facilities available and after making
enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly,
Inmarsat plc continues to adopt the going concern basis in
preparing the consolidated financial statements.
Basis of accounting
The functional currency of the Company and most of the Group's
subsidiaries and the presentation currency is the US Dollar, as the
majority of receipts from operational transactions and borrowings
are denominated in US Dollars.
The preparation of the consolidated financial statements in
conformity with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the balance sheet date and the reported amounts of revenue and
expenses during the period. Although these estimates are based on
management's best estimate of the amount, event or actions, the
actual results may ultimately differ from these estimates.
In the current period the Group has adopted IFRS15, IFRS16,
IFRS9 and IAS7. The impact of these changes in accounting policies
has been discussed in Appendix 2 of this announcement. Other than
those discussed within Appendix 2, the accounting policies used are
consistent with the 2017 financial statements.
3. Segment information
Operating segments are reported in a manner consistent with the
internal reporting provided to the Chief Operating Decision Maker
to allocate resources and assess the performance of the Group. The
Group's operating segments are aligned to five market-facing
business units, being:
-- Maritime, focusing on worldwide commercial maritime services;
-- US Government, focusing on US civil and military government services; and
-- Global Government, focusing on worldwide civil and military government services.
-- Aviation, focusing on commercial IFC, business and general aviation services;
-- Enterprise, focusing on worldwide energy, industry, media, carriers, and M2M services;
3. Segment information (continued)
These five business units are supported by 'Central Services'
which include satellite operations and backbone infrastructure,
corporate administrative costs, and any income that is not directly
attributable to a business unit such as Ligado Networks. The Group
has aggregated the US Government and Global Government operating
segments into one reporting segment, as the segments meet the
criteria for aggregation under IFRS8. Therefore, the Group's
reportable segments are Maritime, Government, Aviation, Enterprise
and Central Services. The accounting policies of the operating
segments are the same as the Group's accounting policies described
in Note 2. Segment results are assessed by the Chief Operating
Decision Maker at the EBITDA level without the allocation of
central costs, depreciation, net financing costs and taxation.
Half year ended Three months ended
30 June 30 June
($ in millions) 2018 2017 (restated) 2018 2017 (restated)
----------------------------------- ------- --------------- -------- -----------------
Revenues
Maritime 282.1 279.8 140.1 140.0
Government 183.1 187.5 104.8 101.5
Aviation 115.5 83.2 59.5 42.9
Enterprise 64.0 62.3 31.3 32.9
Central Services(1) 72.5 70.9 36.1 36.9
----------------------------------- ------- --------------- --------
Total revenues 717.2 683.7 371.8 354.2
----------------------------------- ------- --------
EBITDA
Maritime 217.9 222.7 108.3 110.6
Government 129.2 137.8 75.9 73.5
Aviation 59.9 50.4 26.3 25.1
Enterprise 40.7 43.6 19.1 21.5
Central Services(1) (74.7) (74.8) (31.5) (34.1)
----------------------------------- ------- --------------- --------
Total EBITDA 373.0 379.7 198.1 196.6
Depreciation and amortisation (232.5) (194.1) (116.5) (96.4)
Other 0.2 (0.4) (0.3) (0.8)
----------------------------------- ------- --------------- -------- -----------------
Operating profit 140.7 185.2 81.3 99.4
Net financing costs (259.8) (121.8) (256.4) (37.3)
----------------------------------- ------- --------------- -------- -----------------
Profit before tax (119.1) 63.4 (175.1) 62.1
Taxation charge (12.7) (24.6) (10.3) (17.7)
----------------------------------- ------- --------------- -------- -----------------
Profit for the period (131.8) 38.8 (185.4) 44.4
--------------- -----------------
Cash capital expenditure
Maritime 24.0 23.3 12.6 11.9
Government 1.7 4.9 0.3 1.8
Aviation 28.9 85.4 9.1 36.4
Enterprise - 0.1 - 0.1
Central Services 203.2 194.5 94.5 123.6
----------------------------------- ------- --------------- -------- -----------------
Total cash capital expenditure 257.8 308.2 116.5 173.8
----------------------------------- ------- --------------- -------- -----------------
Financing costs capitalised in the
cost of qualifying assets 16.3 22.6 10.1 12.3
Cash flow timing 18.7 14.9 22.7 9.1
----------------------------------- ------- --------------- -------- -----------------
Total capital expenditure 292.8 345.7 149.3 195.2
----------------------------------- ------- --------------- -------- -----------------
(1) Central Services includes revenue and EBITDA from
Ligado.
4. Net financing costs
Half year ended Three months ended
30 June 30 June
($ in millions) 2018 2017 (restated) 2018 2017 (restated)
------------------------------------- ------ --------------- -------- -------------------
Bank interest receivable and other
interest (4.3) (4.3) (2.4) (2.0)
Total financing income (4.3) (4.3) (2.4) (2.0)
------------------------------------- ------ --------------- -------- -------------------
Interest on Senior Notes and credit
facilities 46.4 47.2 23.0 23.5
Interest on Convertible Bonds 19.1 18.6 9.6 9.4
Amortisation of debt issue costs 5.9 6.5 2.9 2.5
Amortisation of discount on Senior
Notes due 2022 0.5 0.5 0.2 0.2
Amortisation of discount on deferred
satellite liabilities 0.1 0.3 - 0.2
Net interest on the net pension
asset and post-employment liability - 1.4 - 0.7
Other interest 1.1 2.0 1.7 1.2
------------------------------------- ------ --------------- -------- -------------------
73.1 76.5 37.4 37.7
Less: Amounts capitalised in the
cost of qualifying assets (16.3) (22.6) (10.1) (12.3)
------------------------------------- ------ --------------- -------- -------------------
Financing costs excluding derivative
adjustments 56.8 53.9 27.3 25.4
Change in fair value of derivative
liability component of the 2023
Convertible Bonds 207.3 72.2 231.5 13.9
------------------------------------- ------ --------------- -------- -------------------
Net financing costs 259.8 121.8 256.4 37.3
------------------------------------- ------ --------------- -------- -------------------
5. Taxation
Half year ended Three months ended
30 June 30 June
($ in millions) 2018 2017 (restated) 2018 2017 (restated)
-------------------------------------- ------ --------------- ------- ------------------
Current tax:
Current period 6.0 11.7 7.5 6.2
Adjustments in respect of prior
periods 1.8 1.5 1.8 4.6
-------------------------------------- ------ --------------- ------- ------------------
Total current tax 7.8 13.2 9.3 10.8
-------------------------------------- ------ --------------- ------- ------------------
Deferred tax:
Origination and reversal of temporary
differences 10.1 10.5 (1.0) 6.0
Adjustments in respect of prior
periods (5.2) 0.9 2.0 0.9
-------------------------------------- ------ --------------- ------- ------------------
Total deferred tax 4.9 11.4 1.0 6.9
-------------------------------------- ------ --------------- ------- ------------------
Total taxation charge 12.7 24.6 10.3 17.7
-------------------------------------- ------ --------------- ------- ------------------
6. Net Borrowings
These balances are shown net of unamortised deferred finance
costs, which have been allocated as follows:
At 30 June 2018 At 31 December 2017
Deferred Deferred
finance Net finance
($ in millions) Amount costs balance Amount costs Net balance
-------------------------- ------- -------- -------- ------- -------- -----------
Current:
Bank overdrafts 0.3 - 0.3 0.3 - 0.3
Deferred satellite
payments 2.4 - 2.4 3.1 - 3.1
Ex-Im Bank Facilities 61.1 - 61.1 122.2 - 122.2
-------------------------- ------- -------- -----------
Total current borrowings 63.8 - 63.8 125.6 - 125.6
-------------------------- ------- -------- -------- ------- -------- -----------
Non-current:
Deferred satellite
payments 4.7 - 4.7 5.6 - 5.6
Senior Notes due
2022 1,000.0 (4.5) 995.5 1,000.0 (5.1) 994.9
- Net issuance discount (4.0) - (4.0) (4.5) - (4.5)
Senior Notes due
2024 400.0 (4.5) 395.5 400.0 (4.9) 395.1
Ex-Im Bank Facilities 508.7 (10.7) 498.0 508.7 (14.9) 493.8
Convertible Bonds
due 2023 561.6 (6.0) 555.6 549.2 (6.6) 542.6
- Accretion of principal 6.5 - 6.5 12.4 - 12.4
-------------------------- ------- -------- -----------
Total non-current
borrowings 2,477.5 (25.7) 2,451.8 2,471.4 (31.5) 2,439.9
-------------------------- ------- -------- -------- ------- -------- -----------
Total borrowings 2,541.3 (25.7) 2,515.6 2,597.0 (31.5) 2,565.5
-------------------------- ------- -------- -------- ------- -------- -----------
Cash and cash equivalents (204.6) - (204.6) (144.9) - (144.9)
Short-term deposits (171.5) - (171.5) (342.0) - (342.0)
-------------------------- ------- -------- -------- ------- -------- -----------
Net borrowings 2,165.2 (25.7) 2,139.5 2,110.1 (31.5) 2,078.6
-------------------------- ------- -------- -------- ------- -------- -----------
For further details of the Group's debt structure please refer
to note 19 of the 2017 Annual Report.
7. Fair value of financial instruments
The Group's derivative financial instruments consist of forward
foreign currency contracts which are primarily designated as cash
flow hedges and the conversion liability component of the
Convertible Bonds due 2023.
The Group generally does not hedge foreign currency
transactions. Where there is a material contract with a foreign
currency exposure, a specific hedge to match the specific risk will
be evaluated. At present the Group only hedges certain foreign
currency milestone payments to Airbus for the construction of the
I-6 satellites.
The fair values at the Balance Sheet date were:
($ in millions) At 30 Jun 2018 At 31 Dec 2017
----------------------------------------------- -------------- --------------
Financial assets:
Forward foreign currency contracts -
designated cash flow hedges - 1.5
Forward foreign currency contracts - - -
undesignated cash flow hedges
----------------------------------------------- -------------- --------------
Total derivative financial assets - 1.5
----------------------------------------------- -------------- --------------
Financial liabilities:
Conversion liability component of 2023
Convertible Bond (333.0) (125.7)
Forward foreign currency contracts- designated
cash flow hedges (7.0) (9.9)
Forward foreign currency contracts -
undesignated cash flow hedges - (0.1)
----------------------------------------------- -------------- --------------
Total derivative financial liabilities (340.0) (135.7)
----------------------------------------------- -------------- --------------
Net derivative financial liability (340.0) (134.2)
----------------------------------------------- -------------- --------------
The fair values of forward foreign exchange contracts are based
on the difference between the contract amount at the current
forward rate at each period end and the contract amount at the
contract rate, discounted at a variable risk-free rate at the
period end.
On issuance the Convertible Bond 2023 was bifurcated between a
cash debt and conversion liability component, as shown below. The
cash debt component meets the definition of net borrowings and over
the term of the bond will accrete up to the principal value of
$650m with the cost of that accretion recognised in net financing
costs. The conversion liability component represents the value of
the conversion rights associated with the instrument and is
accounted for at fair value through profit and loss.
The fair value of the conversion liability is calculated as the
difference between the fair value of the Convertible Bond (being
the principal multiplied by the closing bond price at the Balance
Sheet date) and the accreted balance of the cash debt component. At
30 June 2018, the fair value of the Convertible Bond was $901.1m
and the accreted balance of the cash debt component was $568.1m,
meaning the conversion liability was valued at $333.0m. As shown in
the table below, the movement in the conversion liability from
December 2017 to 30 June 2018 of $207.3m has been recognised in the
income statement through net financing costs:
($ in millions) At 30 June 2018 At 31 December 2017 On issuance
------------------------------- --------------- ------------------- -----------
Cash debt component 568.1 561.6 545.5
Conversion liability component 333.0 125.7 104.5
------------------------------- --------------- ------------------- -----------
Total fair value 901.1 687.3 650.0
------------------------------- --------------- ------------------- -----------
The impact of the unrealised conversion liability will reverse
to nil if the convertible bonds reach maturity and are not
converted.
The Group has no financial instruments with fair values that are
determined by reference to significant unobservable inputs i.e.
those that would be classified as level 3 in the fair value
hierarchy, nor have there been any transfers of assets or
liabilities between levels of the fair value hierarchy. There are
no non-recurring fair value measurements.
Except as detailed in the following table, the Directors
consider that the carrying value of non-derivative financial assets
and liabilities approximately equal to their fair values:
At 30 June 2018 At 31 December 2017
Carrying Fair Carrying Fair
($ in millions) Value value value value
--------------------------- -------------------------- ------ -------------- -----------
Financial liabilities:
Senior Notes due 2022 1,000.0 983.9 1,000.0 1,000.8
Senior Notes due 2024 400.0 403.2 400.0 408.1
Ex-Im Bank Facilities 569.8 570.1 630.9 639.7
Convertible Bonds due 2023 568.1 901.1 561.6 687.3
--------------------------- -------------------------- ------ -------------- -----------
8. Dividends
($ in millions) At 30 June 2018 At 30 June 2017
------------------------------------------------------------------- --------------- ---------------
Final dividend for the year ended 31 December 2017 of 12 cents ($)
(year ended 31 December 2016: 33.37 cents ($)) per share 39.4 151.2
------------------------------------------------------------------- --------------- ---------------
The Board intends to declare an interim dividend of 8.00 cents
($) per ordinary share, to be paid on 19 October 2018 to ordinary
shareholders on the share register at the close of business on 14
September 2018. Dividend payments will be made in Pounds Sterling
based on the exchange rate from the WMReuters GBP/USD 9am fix
(London time) four business days prior to the date of announcement
of the scrip reference price. In accordance with IAS 10, this
dividend has not been recorded as a liability for the half year
ended 30 June 2018.
9. Earnings per share
Earnings per share for the half year ended 30 June 2018 has been
calculated based on the profit attributable to equity holders for
the period and the weighted average number of ordinary shares in
issue (excluding shares held by the Employee Benefit Trust).
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares. These represent share options
and awards granted to employees under the employee share plans.
Half year ended Three months ended
30 June 30 June
2018 2017 (restated) 2018 2017
($ in millions) (restated)
-------------------------------------- ----------------- --------------- ---------- ------------
Profit attributable to equity holders
of the Company (132.1) 38.5 (185.6) 44.3
-------------------------------------- ----------------- --------------- ---------- ------------
(millions)
-------------------------------------- ----------------- --------------- ---------- ------------
Weighted average number of ordinary
shares in issue 458.0 453.8 458.0 453.8
Potentially dilutive ordinary shares 5.5 3.7 5.5 3.7
-------------------------------------- ----------------- --------------- ---------- ------------
Weighted average number of diluted
ordinary shares 463.5 457.5 463.5 457.5
-------------------------------------- ----------------- --------------- ---------- ------------
($ per share)
-------------------------------------- ----------------- --------------- ---------- ------------
Basic earnings per share (0.29) 0.08 (0.41) 0.10
Diluted earnings per share (0.29) 0.08 (0.40) 0.10
-------------------------------------- ----------------- --------------- ---------- ------------
10. Adjusted earnings per share
Adjusted earnings per share for the half year ended 30 June 2018
has been calculated based on profit attributable to equity holders
adjusted for the pre-tax impact of the change in the fair value of
the conversion liability component of the 2023 Convertible
Bonds.
Half year ended Three months ended
30 June 30 June
2018 2017 2018 2017
($ in millions) (restated) (restated)
----------------------------------------- ----------------- ----------- --------- -----------
Profit attributable to equity holders
of the Company (132.1) 38.5 (185.6) 44.3
Adjusted for:
Increase in fair value of conversion
liability component of 2023 Convertible
Bonds after tax 167.4 72.2 186.9 13.9
Adjusted profit attributable to equity
holders of the Company 35.3 110.7 1.3 58.2
----------------------------------------- ----------------- ----------- --------- -----------
Weighted average number of ordinary
shares in issue (m's) 458.0 453.8 458.0 453.8
Potentially dilutive ordinary shares
(m's) 5.5 3.7 5.5 3.7
----------------------------------------- ----------------- ----------- --------- -----------
Weighted average number of diluted
ordinary shares (m's) 463.5 457.5 463.5 457.5
----------------------------------------- ----------------- ----------- --------- -----------
Basic adjusted earnings per share
($ per share) 0.08 0.24 - 0.13
Diluted adjusted earnings per share
($ per share) 0.08 0.24 - 0.13
----------------------------------------- ----------------- ----------- --------- -----------
11. Contingent liabilities
The Group is subject to periodic legal claims in the ordinary
course of its business, none of which is expected to have a
material impact on the Group's financial position. There have been
no material changes to the Group's contingent liabilities from
those reported in the financial statements for the year ended 31
December 2017.
12. Events after the balance sheet date
The interim dividend and the renegotiation of the Senior Credit
Facility discussed on page 13 are both considered material non
adjusting post balance sheet events as per IAS10. There have been
on other material events since the balance sheet date.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm to the best of their knowledge that:
(a) the condensed set of financial statements has been prepared
in accordance with IAS 34, "Interim Financial Reporting"
(b) the interim management report includes a fair review of the
information required by Disclosure and Transparency Rule ('DTR')
4.2.7R, being an indication of important events during the first
six months and description of principal risks and uncertainties for
the remaining six months of the year; and
(c) the interim management report includes a fair review of the
information required by DTR 4.2.8R, being the disclosure of related
parties' transactions and changes therein.
The Directors of Inmarsat plc are listed on our website at
www.inmarsat.com.
By order of the Board,
Rupert Pearce Tony Bates
Chief Executive Officer Chief Financial Officer
2 August 2018 2 August 2018
INDEPENT REVIEW REPORT TO INMARSAT PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the condensed
consolidated interim income statement, the condensed consolidated
interim statement of comprehensive income, the condensed
consolidated interim balance sheet, the condensed consolidated
interim statement of changes in equity, the condensed consolidated
interim cash flow statement, related notes 1 to 12 and appendices 1
and 2. We have read the other information contained in the
half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
2 August 2017
APPIX 1: ALTERNATIVE PERFORMANCE MEASURES ("APMs")
The Directors use APMs to better understand the underlying
financial performance of the Group and to provide comparability of
information between reporting periods and business units. The
measures are also used in discussions with the investment analyst
community and the credit rating agencies. Given that APMs are not
defined by International Financial Reporting Standards they may not
be directly comparable with other companies who use similar
measures. APMs used in these financial statements are:
APM Description and Reconciliation
--------------------------- ---------------------------------------------------
1. EBITDA EBITDA is defined as profit for the year
before net financing costs, taxation, depreciation
and amortisation, gains/losses on disposal
of assets, impairment losses and share of
profit of associates. EBITDA is a commonly
used industry measure which helps investors
to understand the contribution made by each
of our business units. It reflects how the
effect of growing revenues and cost management
deliver value for our shareholders. This
has been reconciled to both operating profit
and profit after tax on page 11.
--------------------------- ---------------------------------------------------
2. Adjusted PAT Adjusted PAT is defined as Profit after Tax
excluding the non-cash impact of the unrealised
movement in the fair value of the conversion
liability component of the 2023 convertible
bond. A reconciliation to Profit after tax
can be found on page 11.
--------------------------- ---------------------------------------------------
3. Cash Capex Cash capital expenditure is the cash flow
relating to tangible and intangible asset
additions, it includes capitalised labour
costs and excludes capitalised interest.
Cash capex indicates our continued investment
in the growth and development of our network
and infrastructure as well as our investment
in the future technologies of the business.
This has been reconciled to total capital
expenditure within Note 3.
--------------------------- ---------------------------------------------------
4. Adjusted EPS Adjusted Earnings Per Share is computed as
Group Adjusted Profit After Tax attributable
to equity holders of the Company divided
by the weighted average number of shares
in issue (excluding shares held by the Employee
Trust). Growth in adjusted EPS is a measure
of our ability to deliver profitable growth
by increasing our revenue and delivering
cost efficiencies across the Group, thereby
delivering value for our shareholders. Please
refer to Note 10 for the reconciliation of
Adjusted EPS to EPS.
--------------------------- ---------------------------------------------------
5. Free Cash Flow Free Cash Flow represents how much cash is
available to pay back borrowings, distribute
to investors or invest in the business in
future periods. This has been reconciled
to the net increase or decrease in cash and
cash equivalents on page 12.
--------------------------- ---------------------------------------------------
6. Underlying effective The underlying effective tax rate is used
tax rate to analyse differences from the corporate
tax rate which are implicit to business operations
rather than driven by accounting adjustments.
For the half year, this has been calculated
by taking the tax charge ($12.7m) add prior
year adjustments ($3.4m) and less revaluation
of deferred tax balances ($1.7m) divided
by PBT (loss of $119.1m) adjusted for the
impact of the unrealised conversion liability
of the convertible bonds ($207.3m).
--------------------------- ---------------------------------------------------
7. Business Unit Operating This is indicative of the cash generated
Cash Flow by the relevant business unit for the period
in review. It is calculated by taking EBITDA
less cash capex. Both EBITDA and Cash Capex
have been defined above and reconciled.
--------------------------- ---------------------------------------------------
APPIX 2: ACCOUNTING POLICY CHANGES
IFRS15 'Revenue from contracts with customers'
The Group has adopted IFRS15 on 1 January 2018 using the fully
retrospective method. Two revenue streams were identified as areas
requiring Group policy change to align with IFRS15. These are
revenues from the Ligado contract and installation revenues.
The impact due to these changes is set out below:
Half year ended Three months ended
30 June 2017 30 June 2017
($ in millions) Reported IFRS 15 Restated Reported IFRS 15 Restated
-------------------- --------- ------- -------- -------- ------- --------
Revenues 688.2 (4.5) 683.7 356.0 (1.8) 354.2
Other operating
costs (98.2) 7.7 (90.5) (50.8) 3.4 (47.4)
-------------------- ------- -------
EBITDA 376.5 3.2 379.7 195.0 1.6 196.6
Depreciation and
amortisation (191.9) (2.2) (194.1) (95.4) (1.0) (96.4)
-------------------- --------- ------- -------- -------- ------- --------
Operating profit 184.2 1.0 185.2 98.8 0.6 99.4
Financing income 3.7 0.6 4.3 1.7 0.3 2.0
-------------------- --------- ------- -------- -------- ------- --------
Profit before tax 61.8 1.6 63.4 61.2 0.9 62.1
Tax (24.2) (0.4) (24.6) (17.5) (0.2) (17.7)
-------------------- --------- ------- -------- -------- ------- --------
Profit after tax 37.6 1.2 38.8 43.7 0.7 44.4
-------------------- --------- ------- -------- -------- ------- --------
Total comprehensive
income 47.3 1.2 48.5 51.1 0.7 51.8
-------------------- --------- ------- -------- -------- ------- --------
Within the income statement, the main impact of IFRS 15 is on
the treatment of installation revenue which was previously
recognised in full on completion of the work. Under IFRS15
installation revenue is in most instances added to the transaction
price and spread over the contract period. Similarly installation
costs, which were previously expensed on installation, are now
capitalised and depreciated over the contract period. These changes
flow through to the balance sheet leading to an increases in
property, plant and equipment due to the capitalisation of
installation costs and an increase in deferred income, reported
within trade and other payables, reflecting the corresponding delay
in the recognition of installation revenue.
As at 30 June 2017 As at 31 December 2017
($ in millions) Reported IFRS 15 Restated Reported IFRS 15 Restated
---------------------------- -------- ------- -------- -------- ------- --------
Non-current assets
Property, plant and
equipment 3,149.3 13.9 3,163.2 3,236.6 18.9 3,255.5
Deferred income tax
asset 37.6 - 37.6 35.6 (0.2) 35.4
---------------------------- -------- ------- -------- -------- ------- --------
Current assets
Trade and other receivables 297.3 18.0 315.3 319.4 25.0 344.4
---------------------------- -------- ------- -------- -------- ------- --------
Total assets 4,844.3 31.9 4,876.2 4,959.5 43.7 5,003.2
---------------------------- -------- ------- -------- -------- ------- --------
Current liabilities
Trade and other payables 532.4 40.0 572.4 584.6 49.8 634.4
---------------------------- -------- ------- -------- -------- ------- --------
Non-current liabilities
Deferred income tax
liabilities 218.1 0.4 218.5 237.3 1.1 238.4
---------------------------- -------- ------- -------- -------- ------- --------
Total liabilities 3,669.7 40.4 3,710.1 3,704.2 50.9 3,755.1
---------------------------- -------- ------- -------- -------- ------- --------
Net assets (Equity) 1,174.6 (8.5) 1,166.1 1,255.3 (7.2) 1,248.1
---------------------------- -------- ------- -------- -------- ------- --------
The Ligado impact is largely limited to the balance sheet with
payments which were contractually deferred and were previously
offset against deferred revenue now being recognised as receivables
leading to an increase of $18m in both current assets and current
liabilities.
The overall impact of the accounting policy change is a decrease
in net assets and retained income of $8.5m as at the 30 June
2017.
Half year ended Three months ended
30 June 2017 30 June 2017
($ in millions) Reported IFRS 15 Restated Reported IFRS 15 Restated
--------------------------- ---------------- ------- -------- ----------- ------- --------
Cash generated from
operations 393.7 7.4 401.1 210.7 3.2 213.9
--------------------------- ------- -------
Net cash inflow
from operating activities 378.6 7.4 386.0 208.7 3.2 211.9
Purchase of property,
plant and equipment (268.2) (7.4) (275.6) (155.6) (3.2) (158.8)
--------------------------- ---------------- ------- -------- ----------- ------- --------
Net cash used in
investing activities (22.7) (7.4) (30.1) (42.5) (3.2) (45.7)
Net (decrease)/increase
in cash and cash
equivalents 137.7 - 137.7 12.4 - 12.4
In the cash flow statement the impact of the accounting policy
change is limited to the reclassification of installation costs
from cash generated from operations into investing activities. The
overall movement in cash remains unchanged.
IFRS16 'Leases'
IFRS16 has been adopted by the Group on 1 January 2018 using the
modified retrospective approach which allows for the recognition of
the lease liability and asset as at 1 January 2018 with no
restatement of prior period financial statements.
The main impact is around property leases where the Group is the
lessee.
Balance Sheet as at 1 January
2018
($ in millions) Reported IFRS16 Post IFRS16
--------------------------------- ---------- ------- ------------
Non-current assets
Right of use asset - 75.7 75.7
Total assets 4,959.5 75.7 5,035.2
--------------------------------- ---------- ------- ------------
Current liabilities
Trade and other payables 584.6 (11.5) 573.1
Obligations under finance leases - 13.1 13.1
--------------------------------- ---------- ------- ------------
Non-current liabilities
Obligations under finance leases - 74.1 74.1
Total liabilities 3,704.2 75.7 3,779.9
--------------------------------- ---------- ------- ------------
Net assets (Equity) 1,255.3 - 1,255.3
--------------------------------- ---------- ------- ------------
A lease liability of $87.2m has been calculated using the
present value of the unpaid lease payments over the lease term
specific to each lease, using the incremental borrowing rate as the
discount rate. The liability has been separated between a current
($13.1m) and a non-current liability ($74.1m). A right of use asset
of $75.7m has been created based on the lease liability, adjusted
by $11.5m of accruals related to the phasing of lease payments.
There was an EBITDA benefit of $5.7m in the quarter from
lease-related costs being accounted for as depreciation and
interest rather than indirect costs. Overall PBT was positively
impacted by $6.0m mainly due to the forex gain of $3m.
IFRS9 'Financial Instruments'
IFRS9 has been adopted in January 2018. There has been no
material impact on Q1 or prior year reported numbers.
IAS7 Reclassification of short term deposits
In Q4 2017, the Group changed the basis for recognising short
term deposits with a maturity less than 3 months to more accurately
reflect the requirements of IAS7. Previously short term deposits
with less than 3 months remaining until maturity at the reporting
date were classified as cash and cash equivalents. This has been
changed so that only those short-term deposits that have a 3 month
maturity at their acquisition date are classified as cash and cash
equivalents.
As a result, the comparative financial numbers for the year to
Q2 2017 have been restated and short term deposits have increased
by $298.6m to $415.0m and cash & cash equivalents have
decreased by $298.6m to $101.4m. The overall impact on current
assets is zero. The corresponding impact on the cash flow statement
can be seen in the table below:
Half year ended Three months ended
30 June 2017 30 June 2017
($ in millions) Reported Adj. Restated Reported Adj. Restated
------------------------ --------- ------- -------- -------- ------- --------
Short-term cash
deposits >3 months 116.4 298.6 415.0 116.4 298.6 415.0
------------------------ --------- ------- -------- -------- ------- --------
Net cash used in
investing activities (22.7) (298.6) (321.3) (42.5) (128.6) (171.1)
------------------------ --------- ------- -------- -------- ------- --------
Net (decrease)/increase
in cash and cash
equivalents 137.7 (298.6) (160.9) 12.4 (128.6) (116.2)
------------------------ --------- ------- -------- -------- ------- --------
1 The reported numbers in the table above have been adjusted for
the impact of IFRS15 which is discussed earlier in this appendix.
The restated numbers above therefore need to be considered in
aggregate.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKDDNPBKDQFK
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