Inmarsat Regulatory News (ISAT)

Inmarsat plc reports First Quarter Results 2015

Solid operational performance; on track for launch of third GX satellite

London, UK: 6 May 2015. Inmarsat plc (LSE: ISAT.L), the leading provider of global mobile satellite communications services, today provided the following unaudited information for the three months ended 31 March 2015.

First Quarter Headlines

· Total revenues $304.8m (Q1 2014: $344.7m)

o Maritime up $1.6m to $149.8m (+1.1%)

o Government down $12.7m to $66.8m (-16.0%)

o Enterprise down $5.5m to $38.9m (-12.4%); underlying growth (excl. disposal) +6.9%

o Aviation up $4.9m to $27.1m (+22.1%)

o Revenues from LightSquared down $27.8m to $17.5m (Q1 2014: $45.3m)

· Wholesale Mobile Satellite Service (MSS) revenues $198.2m, up 3.5% (Q1 2014: $191.5m)

· Total EBITDA1 $176.8m (Q1 2014: $209.9m)

· Profit after tax $77.4m (Q1 2014: $100.2m)

Operational Highlights

· I-5 F2 launched and now deployed successfully into geostationary orbit

· I-5 F3 shipped to Baikonur and on track for launch in early June

· Key voice and data services in the EMEA region transitioned successfully to Alphasat

· Significant progress made in Aviation contracts and S-band licensing

· First Inmarsat Developer Conference held, to drive growth of innovative solutions

Rupert Pearce, Inmarsat's Chief Executive Officer, commented,

"This was a solid quarter of trading, although starting slowly, in particular in Maritime and certain Government contracts. However momentum developed well towards the end of the period, especially in Maritime, with strong growth in FleetBroadband subscribers and ARPU as well as XpressLink installations. We remain confident about the underlying growth and margin trends across all of our business units, and that we will deliver our wholesale MSS revenue target for 2015 and beyond.

Our third GX satellite, I-5 F3, has been shipped to Baikonur and is on track for launch in early June. We now expect commercial launch of global GX services mid-to-late in the third quarter, which is slightly later than originally planned but does not change our expectations for GX revenue growth in 2015 or over the longer term.

There was significant progress in Aviation in the quarter, with several major new cabin connectivity contracts in advanced stages of negotiation, and the S-band license acquisition process moving forward well. Plans for developing our air-to-ground network are also progressing well."

1 EBITDA is defined as profit before finance income and expenses, taxation, depreciation and amortisation, losses on disposal of assets, impairment losses and share of profit of associates

Outlook

Our expectations for the Group's performance in 2015 remain unchanged. The trading environment is expected to be broadly similar to 2014, with continuing underlying revenue growth in Maritime, Enterprise and Aviation and continued weakness in Government, particularly in the US.

The Group's longer term guidance remains unchanged:

· Wholesale MSS revenue is expected to fall within the 8-12% CAGR growth range for 2014-16.

· Annual GX revenues of $500m are expected by the fifth anniversary of the global launch of commercial GX services.

· 2015 capex is expected to be in the range $450-500m, and capex in both 2016 and 2017 is expected to be below $400m.

Results Conference Call

Inmarsat management will discuss the first quarter results in a conference call on Wednesday 6 May 2015 at 08.30 hrs London time.

To access the call please dial +44(0)20 3427 0503. The conference id for the call is 1288566. The call will also be web-cast at www.inmarsat.com.

The call will be recorded and available on our website after the event. A copy of this announcement can also be found on our website at www.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 or programmes, or the delivery of products or services under them; structural change in the satellite industry; relationships with customers; competition; and ability to attract personnel. You are cautioned not to rely on these forward-looking statements, which speak only as of the date of this announcement. We undertake no obligation to update or revise any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances.

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.

Media Enquiries:

Chris McLaughlin/Jonathan Sinnatt

Tel: +44 (0)77 9627 6033

chris.mclaughlin@inmarsat.com

jonathan.sinnatt@inmarsat.com

Operating and Financial Review

The following is a discussion of the unaudited consolidated results of operations and financial condition of Inmarsat plc (the "Company" or together with its subsidiaries, the "Group") for the three months ended 31 March 2015. You should read the following discussion 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 International Financial Reporting Standards ("IFRS") as adopted by the European Union.

In addition to IFRS measures, we use a number of non-IFRS measures 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. All discussion of results relates to the three months ended 31 March 2015, and all comparisons are with the three months ended 31 March 2014, unless specifically stated otherwise.

OPERATING REVIEW

Market environment

There was no material change in the market environment. We continued to see increasing demand for mobile data across all our Maritime, Aviation and Enterprise markets, although pressure on budgets and lower operational requirements continue to mean reduced spending on satellite communications by many of our traditional Government customers.

Global Xpress Programme update

Our second GX satellite, I-5 F2, was launched successfully on 1 February 2015, to cover the Americas and Atlantic Ocean region. The satellite and has now been deployed successfully into geostationary orbit and payload testing has been completed.

The third GX satellite, I-5 F3, has been shipped to the Baikonur Cosmodrome and we currently expect to launch this satellite in early June. This will enable it to arrive on station early-to-mid third quarter, and payload testing then to be carried out through mid-to-late third quarter.

The I-5 constellation will then be in position for the launch of global commercial GX services mid-to-late third quarter of 2015, and we expect this to provide a revenue growth inflection opportunity for GX, as many of our customers are waiting for global coverage before committing to buy the service.

Our fourth GX satellite, I-5 F4 is currently under construction by Boeing in California, and remains on schedule for completion in mid-2016, with a potential SpaceX launch in the second half of 2016.

We expanded our GX Value Added Reseller (VAR) network in the quarter, with new agreements signed with Satcom Direct, AST, and Speedcast, covering our maritime and enterprise markets. Four new GX VAR agreements were also signed with Beijing Marine Communication Navigation Company (MCN), covering maritime, aviation, enterprise and Chinese government markets.

Development and testing of GX aviation equipment continued, including the successful over-the-air performance testing of Honeywell's JetWave on-board hardware, through which the GX network supported multiple file transfers and video streaming to the aircraft. We are also working with Honeywell and Kymeta to develop a new, flat panel GX wireless antenna for business and commercial aircraft, to deliver faster connectivity as well as reducing weight and drag.

European Aviation Network Programme update

Our S-band satellite currently under construction remains on schedule for launch in late 2016. We continue to make good progress in the development of our complementary Air-to-Ground (ATG) network, with discussions well advanced with potential partners and suppliers.

The acquisition of licenses from Member States is also progressing well. Licenses for the satellite component of the network have been received in 25 EU Member States. For the ground component licenses, in addition to the eleven countries from which we previously reported having received authorisations or in-principle approvals, we have now made significant progress in the majority of the remaining 17 Member States, including several in which the process had initially moved slowly.

We are in an advanced stage of discussions, directly and through channel partners, with a number of major European airlines, to provide both S-band and GX connectivity solutions for their passengers.

LightSquared Cooperation Agreement

A payment of $17.5m due from LightSquared on 31 December 2014 was received on 25 February 2015 and the revenue was recognised in the first quarter of 2015.

A quarterly payment of $17.5m due from LightSquared on 31 March 2015 was not received on time and as a result we have issued a default notice to LightSquared. This revenue was not recognised in the first quarter.

In March 2015 LightSquared received Court approval for its plan to exit from Chapter 11 of the US Bankruptcy Code. The exit from bankruptcy is subject, among other things, to FCC approval of change of control and payments from LightSquared therefore continue to be subject to material uncertainty.

At 31 March 2015, deferred income remaining in relation to the Cooperation Agreement of $208.8m was recorded on the balance sheet. Although the cash has been received, the timing of the recognition of this deferred income, together with any related future costs and taxes, remains uncertain.

Acquisitions and Disposals

Disposal of 19% stake in SkyWave

In January 2015 we completed the sale of our 19% holding in SkyWave Mobile Communications to ORBCOMM Inc. for total proceeds of $32.9m, giving rise to a profit after tax of $8.1m. ORBCOMM in turn acquired 100% of SkyWave.

The share sale was one part of a suite of agreements with ORBCOMM, covering the joint ownership and future development and commercialization of the IsatData Pro (IDP) technology. As part of these agreements we acquired SkyWave's ground network assets, hosted at three Inmarsat Satellite Access Stations, for $7.5m.

New Services and Developments

Transition of key services to Alphasat

In March we completed the successful transition of key voice and broadband data services for the EMEA region from our I-4 F2 satellite to Alphasat, including FleetBroadband, SwiftBroadband, BGAN and Classic Aero. GSPS services were transferred previously.

Following the transition of the last remaining services from I-4 F2, this satellite will be flown to a new orbital position to create a fourth full-service L-band region serving the Middle East and Asia (MEAS), which we plan will begin commercial services by the end of the year.

The transition to Alphasat enhances our capabilities in the EMEA region, adding additional capacity and providing us with a platform for delivering new and enhanced services. The creation of a fourth satellite region addresses the growing demand for our services in the region where we are currently seeing the highest traffic growth.

First Inmarsat Developer Conference

As part of the development of the next generation of our global mobile satellite technology and applications, we have initiated a new open technology strategy, opening up our platforms to developers to encourage new ideas that will add value for customers and drive airtime traffic.

The inaugural Inmarsat Developer Conference provided over 300 software, hardware and application developers with the opportunity to hear about this strategy and to meet other companies that are already using Inmarsat's infrastructure to develop innovative business solutions. New developers were also introduced to Inmarsat's Certified Application Partner programme.

The conference highlighted the biggest growth areas for satellite communications within each market sector, and enabled developers to identify ways to utilise Inmarsat's open technologies, focusing in particular on Global Xpress as a platform on which to build bespoke applications in new areas.

Flight tracking

We launched a partnership with Airservices Australia and other aviation industry stakeholders to trial improved flight tracking services on commercial airline flights to and from Australia. This followed the International Civil Aviation Organization (ICAO) resolution in February, supported by Inmarsat, to adopt a new 15-minute tracking standard for commercial aircraft.

Inmarsat is working with Airservices Australia, Qantas and Virgin Australia to develop the operational concept for the trial, using Automatic Dependent Surveillance - Contract (ADS-C) satellite technology in Australia's oceanic regions. ADS-C provides air traffic controllers with a constantly updated surveillance picture of their airspace, thereby allowing safe and efficient oceanic operations.

LAISR

We announced that our new L-band Airborne Intelligence, Surveillance and Reconnaissance (LAISR) service completed successful customer airborne testing and will be available for U.S. Government customers by June of this year. This new service will meet the high-speed, beyond line-of-sight connectivity requirements of Airborne Intelligence, Surveillance and Reconnaissance missions

LAISR will provide guaranteed L-band data transmission rates up to 10 Mbps and applications will include real-time high-definition video streaming, providing full situational awareness for the military and intelligence community. This capability can be added to existing platforms supporting our SwiftBroadband service, and operating in the L-band ensures the highest availability of service.

IsatPhone 2 emergency response service

We introduced free world-wide access to an emergency response service for all post-pay IsatPhone 2 customers. Pressing the IsatPhone 2's assistance button triggers a message containing the user's GPS co-ordinates that is routed to the GEOS International Emergency Response Coordination Center. On receipt of the message staff at the Centre, located in Houston, USA, contact the user directly to establish the nature of the emergency, and then notify the appropriate authorities based in-region.

FleetMedia

In March we announced initial trials of our Fleet Media service, delivering on-board entertainment for the commercial maritime market. A comprehensive catalogue of Hollywood and international film and television programming, along with sports and news content, will be available to crew over the Inmarsat network for on-demand, offline viewing. Fleet Media is currently available on XpressLink and will be available across the wider Inmarsat Maritime portfolio by the end of the first half of 2015.

FINANCIAL REVIEW

During the quarter ended 31 March 2015 Group revenue decreased by $39.9m (-11.6%) to $304.8m (Q1 2014: $344.7m). This included $27.8m lower revenues in respect of the LightSquared Cooperation Agreement and $8.0m less revenues as a consequence of the sale of retail energy-related assets within the Enterprise business unit in 2014.

Excluding the impact of these items, underlying revenues decreased by $4.1m or 1.4%, with underlying growth in Maritime, Enterprise and Aviation offset by continuing slowdown in our Government business. Included in the above is an increase in Wholesale MSS revenues of $6.7m, or 3.5%, to $198.2m.

Net operating costs decreased by $6.8m, or 5.0%, during the quarter ended 31 March 2015, compared with the same period in 2014. This is due primarily to the sale of retail energy-related assets within the Enterprise business unit in February 2014, and the impact of lower non-MSS sales in the revenue mix.

As a consequence, EBITDA for the quarter ended 31 March 2015 decreased by $33.1m (-15.8%) to $176.8m (Q1 2014: $209.9m). The EBITDA margin of 58.0% decreased from 60.9% in the prior year, principally as a result of lower LightSquaredCooperation Agreement revenue.

Results by Business Unit

The table below shows the Group's total revenue, EBITDA and operating result by business unit for each of the periods indicated:

Maritime

Maritime revenues for the quarter increased by $1.6m, or 1.1%, compared with the same period in 2014. This reflects continuing strong growth in our FleetBroadband (FB) revenues (+24%) and VSAT revenues (+13%), offset by the ongoing decline in our legacy services, particularly Fleet (-51%). Terminal revenues were also lower compared to the same period in 2014. 

Wholesale FB ARPU in the quarter increased to just over $700 per month (Q4 2014: $638), driven by the continuing end user migration to higher rate plans. After a slow start to the quarter, VSAT installations recovered strongly in March, with a healthy pipeline also developing.

Net operating costs for the quarter decreased by $3.8m, or 10.4%, compared with the same period of 2014. This decrease mainly reflects the growth in revenues from higher margin services and the decline in revenues from lower margin non-MSS sales.

During the quarter, Maritime EBITDA increased by $5.4m, or 4.8%, compared to the prior year, reflecting the stronger performance in the quarter from higher margin products, particularly FleetBroadband. This is also reflected in the EBITDA margin, which increased from 75.2% to 78.0%.

Government

We continue to see a decline in our Government business revenues as a result of continued downward pressure on budgets and reduced operational requirements among our traditional Government users. Total Government revenues for the quarter were down by $12.7m, or 16.0%, compared with the same period in 2014.

In the US, which accounted for the major part of the decline, we saw lower revenues across most of our main service areas, in particular leases and legacy aviation products. Lower margin non-MSS network services revenues also declined. The initial uptake of GX services was in line with our expectations.

Outside the US there was a slower start to the year due to lower operational requirements in some of our traditional Government users, reflected in particular in lower lease revenues, including the impact of one major contract that was renewed with a lower value and different usage profile.

Net operating costs were $4.6m, or 18.0%, lower than the same period of 2014, mainly reflecting the reduction in revenues.

Government EBITDA decreased $8.1m, or 15.0%, compared with the same quarter of 2014, primarily as a result of declining revenue. However, the EBITDA margin of 68.6% was slightly higher than the same period in 2014.

Enterprise

Enterprise revenues for the quarter decreased by $5.5m, or 12.4%, compared with 2014. This was due to the sale of retail energy-related assets in February 2014. Excluding the impact of these disposals, revenues were up by $2.5m, or 6.9%, in the quarter, compared with 2014. The growth was mainly driven by increased machine to machine (M2M) revenues (+29%) and FB airtime revenues (+51%), partially offset by the continuing decline in BGAN revenues (-9%).

Net operating costs decreased by $5.7m, or 31.0%, compared to the same period of 2014. This decrease was due to the disposals of our retail energy-related assets during 2014.

Enterprise EBITDA increased by $0.2m, or 0.8%, with underlying business growth offsetting the disposal of our retail energy-related assets in 2014. The significant improvement in EBITDA margin in the quarter to 67.4%, from 58.6% in the same quarter of 2014 was also attributable to disposals of the retail energy-related assets. 

Aviation

Aviation revenues increased by $4.9m, or 22.1% compared with 2014. This was primarily driven by growth in Swiftbroadband (SB) revenues (+38%). SB active SIMS increased by 455 in the quarter to 5,905 and SB ARPU also continued to grow strongly. Net operating costs increased by $3.1m compared to 2014, due mainly to higher employee related costs reflecting additional investment to support the growth in our passenger connectivity business.

EBITDA increased by $1.8m, or 8.8%, compared to 2014, as higher revenues more than offset the investment in the cost base. However there was some decline in EBITDA margin which decreased to 82.3% (Q1 2014: 92.3%), reflecting the increase in operating costs.

Central Services

Central Services revenues and EBITDA for the quarter decreased by $28.2m and $32.4m, respectively, due primarily to lower revenues from LightSquared.

Net operating costs increased by $4.2m, or 8.0%, compared with the same period of 2014.

The increase in depreciation and amortisation of $7.7m to $64.1m (Q1 2014: $56.4m) primarily relates to our Inmarsat-5 F1 satellite entering commercial service (and therefore starting to be depreciated) in July 2014.

Reconciliation of operating profit to profit after tax

Operating profit

As a result of the factors discussed above, operating profit for the quarter was $111.3m, a decrease of $30.4m (21.5%), compared with 2014.

Net finance expense

During the quarter, net finance expense reduced by $0.4m to $15.0m compared to net finance expense of $15.4m in the same period of 2014 due primarily to the reduction in the cost of the Senior Notes.

Income tax expense

The tax charge for the quarter was $18.9m (Q1 2014: $26.1m), a decrease of $7.2m, or 27.6% compared with 2014. The decrease in the tax charge was largely driven by the decrease in profit before tax, as outlined above.

The effective tax rate for the quarter was 19.6% (Q1 2014: 20.7%). This difference arises largely as a result of the reduction in the UK main rate of corporation tax from 21% to 20%. Whilst this did not become effective until 1 April 2015, this has the effect of lowering the average UK statutory tax rate for 2015, and therefore the rate upon which the three months ended 31 March 2015 tax charge is based, to 20.25% (Q1 2014: 21.5%).

Profit after tax

As a result of the factors discussed above, profit after tax for the quarter ended 31 March 2015 was $77.4m (Q1 2014: $100.2m), a decrease of $22.8m compared with the same quarter in 2014.

Earnings per share

Basic and diluted earnings per share for profit attributable to the equity holders of the Company were 17 cents and 17 cents respectively, compared with 22 cents and 22 cents respectively, in the same quarter of 2014.

Basic and diluted earnings per share adjusted to exclude the after-tax effect of the LightSquared contribution and impairment losses were 14 cents and 14 cents, respectively for the quarter, compared with 15 cents and 14 cents, respectively for the same period of 2014.

Cash Flow

In the quarter, free cash flow was $116.4m (2014: $39.4m) with the increase driven primarily by favourable movements in working capital and net cash tax inflows in the quarter.

Capital expenditure in the quarter of $88.7m included the launch and other costs of I-5 F2 and was $7.0 m lower (-7.3%) than in the same period last year.

The change in the working capital movement mainly reflects the $40.3m adjustment relating to LightSquared deferred revenue recognised through the profit and loss account in Q1 2014, and a reduction in trade receivables in Q1 2015 against an increase in the same quarter in 2014.

The cash tax paid in the quarter includes a tax refund of $30.3m received in January 2015 relating to the difference between UK corporation tax paid by instalment and the final amount due determined by the filing of the 2013 tax returns.

The disposal proceeds of $32.9m relate to the disposal of the Group's 19% stake in SkyWave announced in December 2014.

Group Liquidity and Capital Resources

At 31 March 2015, the Group had cash and cash equivalents of $377.5m and available but undrawn borrowing facilities of $958.1m under our Senior Credit Facility and Ex-Im Bank Facilities.

The strong cash flow in the quarter resulted in a reduction of $146.5m in the net borrowings, from $1,900.7m at the start of the quarter to $1,754.2m at the end of the quarter. At the end of the first quarter 2014 net borrowings was $1,801.4m.

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 the Group would incur a cash tax outflow of approximately $80m. Any material cash outflow would be unlikely to be incurred until 2016. The enquiries remain ongoing at this time.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group faces a number of risks and uncertainties that may adversely affect our business, operations, liquidity, financial position or future performance, not all of which are wholly within our control. Although many of the risks and uncertainties influencing our performance are macroeconomic and likely to affect the performance of businesses generally, others are particular to our operations in mobile satellite services.

Our principal risks and uncertainties are discussed below; however this summary is not intended to be an exhaustive analysis of all risks and uncertainties affecting our business. Some risks and uncertainties may be unknown to us and other risks and uncertainties, currently regarded as immaterial, could turn out to be material. All of them have the potential to impact our business, operations, liquidity, financial position or future performance adversely.

Satellites and our network

Our satellites are subject to significant operational risks at launch or while in orbit which, if they were to occur, could adversely affect our revenues, profitability and liquidity. Although we expect to maintain commercially prudent levels of launch and in-orbit insurance, this may be insufficient to cover all losses if we had a satellite failure. Even if our insurance cover was sufficient, delays in building and launching a replacement satellite could adversely affect our revenues, profitability and liquidity. In addition, if we are required to shorten the expected useful lives of our satellites, our profitability could be adversely affected.

As the majority of the customer traffic on our network is mobile in nature, the utilisation of our network capacity fluctuates and can be concentrated based on geography and other factors, such as the time of day or major events. For example, key shipping routes will tend to experience higher average traffic volumes than oceanic areas generally. Our ability to serve concentrated levels of traffic is limited by the capacity of our satellites and our ability to move capacity around our network. Although we have designed our network to accommodate expected geographic patterns and peak demand, our network could become congested if concentrated demand exceeds our expectations. Such congestion on a sustained basis could damage our reputation for service availability and harm our results from operations.

Cyber Security

Our networks, and those of our distribution partners, may be vulnerable to security risks. We expect the secure transmission of confidential information over our networks to continue to be a critical element of our operations. Our network and those of our distribution partners have in the past been, and may in the future be vulnerable to unauthorised access, computer viruses and other security risks. We have implemented industry-standard security measures, and have steadily increased our investment in counter cyber threat tools and staff. Indirect evidence is that our counter measures have been effective given the experience gained in previous cyber events. However the nature and diversity of cyber threats has also changed, both in sophistication and number, so these measures may prove inadequate and could result in system failures and delays that could have a material adverse effect on our business, financial condition and results of operations.

Critical partners

Although we have wholly-owned distribution capabilities, we continue to rely in part on other third party distribution partners and service providers to sell our services to end-users, and they determine the prices end-users pay. There is a risk that our distribution partners or service providers could fail to distribute our services effectively, or fail to offer services at prices which are competitive. In addition, the loss of any key distribution partners could materially affect our routes to market, reduce customer choice or represent a significant bad debt risk. Alternatively, changes in our business model could affect the willingness of third party distribution partners to continue to offer our services. Third party distribution partners also provide ground infrastructure for our existing and evolved services, if any of these distribution partners fail to provide or maintain these facilities, we would be forced to migrate traffic to our own facilities and our services would likely be interrupted whilst migration takes place.

We also rely on third parties to manufacture and supply terminals to end-users to access our services, and, as a result, we cannot control the availability of such terminals. In addition, our business relies on intellectual property, some of which is owned by third parties, and we may inadvertently infringe upon their patents and proprietary rights.

Spectrum

We rely on radio spectrum to provide our services. This has historically been allocated by the International Telecommunications Union without charge, and usage is coordinated with other satellite operators in our spectrum band. In the future, we may not be successful in coordinating our satellite operations under applicable international regulations and procedures or in obtaining sufficient spectrum or orbital resources necessary for our operations. In addition, in the future we may be faced with higher costs to acquire and retain spectrum.

Regulation

Our business is subject to regulation and we face increasing regulation with respect to the transmission of our satellite signals. The provision of our mobile satellite communication services in some countries could cause us to incur additional costs, could expose us to fines and could limit our ability to provide services.

We, our customers, and the companies with which we or our customers do business, may be required to have authority from each country in which we or such companies provide services or provide our or their customers with the use of our satellites. We may not be aware of whether some of our customers and/or companies with which we do business do not hold the requisite licenses and approvals as required in such countries.

In addition, our contractual relationships with our distribution partners may be subject to regulatory challenge, which could require us to renegotiate the contractual relationships and could result in the imposition of fines. Our distribution partners and services providers also face increasing regulation in many countries, and end-users often require licenses to operate end terminals. This regulatory burden could increase the costs to our distribution partners and service providers or restrict their ability to sell our products.

Next generation services and satellites

We are currently in the process of implementing two major investment programmes, Global Xpress and an integrated hybrid satellite/terrestrial network to serve the European aviation market. These programmes include the deployment of a global network of Ka-band satellites and one S-band satellite. These programmes, which include satellites, ground network, terminals and related services, may be subject to delays and/or material cost overruns. There can be no assurance that the development of new satellites, ground networks, or terminals and/or the introduction of new services will proceed according to anticipated schedules or cost estimates, or that the level of demand for the new services will justify the cost of setting up and providing such new services. A delay in the completion of such networks and/or services and/or the launch or deployment or operation of such satellites and/or new services, or increases in the associated costs, could have a material adverse effect on our revenue, profitability and liquidity.

Competition

Although Inmarsat is a market leader in MSS, the global communications industry is highly competitive. We face competition today from a number of communications technologies in the various target sectors for our services. It is likely that we will continue to face increasing competition from other network operators in some or all of our target sectors in the future, particularly from existing mobile satellite network operators; there is also a risk that new technologies introduced by our competitors may reduce demand for our services or render our technologies obsolete. In addition, communications providers who operate private networks using VSAT or hybrid systems also continue to target MSS users. While we believe that our L-band product offerings remain competitive in the markets we serve and that our investment in Global Xpress will position us favourably to compete with VSAT providers in the future, technological innovation in VSAT, together with increased C-band, Ku-band and Ka-band coverage and commoditisation, have increased, and we believe will continue to increase, the competitiveness of VSAT and hybrid systems in some traditional MSS sectors, including the maritime and aviation sectors. Furthermore, the gradual extension of terrestrial wireline and wireless communications networks to areas not currently served by them may reduce demand for some of our land mobile services in those areas.

Development of hybrid networks, including Ancillary Terrestrial Component ("ATC")

Proposed ATC services in North America or other countries may result in increased competition for the right to use L-band spectrum, and such competition may make it difficult for us to obtain or retain the spectrum resources we require for our existing and future services. We cannot be certain that the development of hybrid networks, including ATC, in North America or other countries will not result in harmful interference to our operations. If we are unable to prevent or mitigate against such interference it could have an effect on our operations, revenues, profitability and liquidity.

LightSquared Cooperation Agreement

Our Cooperation Agreement with LightSquared may present us with operational and financial risks. If fully implemented, the Cooperation Agreement will ultimately result in a reduction in available L-band spectrum for Inmarsat services over North America and the need for our L-band services to coexist in North America with ATC services in adjacent frequencies. Whilst we believe that we can continue to operate our L-band services over North America with minimal impact to our users, following the launch of ATC services by LightSquared, there is a risk that our services may be congested, interrupted and/or interfered with, which could have an adverse effect on our future L-band service performance in North America.

Reductions in spending by government customers, in particular the US Government

Following the US federal budget sequestration, we have experienced a significant contraction in business from the US Government. Sequestration resulted in the implementation of spending controls by the US Government and a further increase in competition for our Government business unit. As a result we have experienced a reduction in revenues and margins. Although the adverse impact on our business has been limited to our L-band revenue to date, our Global Xpress business plan relies on a material revenue contribution from government customers and may also be affected. If additional government spending controls are implemented, government contracting opportunities may be cancelled, de-scoped or delayed which could further adversely affect our revenues, profitability and results of operations.

Government sanctions relating to Ukraine may affect our ability to launch I-5 F3

The current unstable geo-political situation in Ukraine has created new risks for our business activities in Russia or with Russian entities including sanctions that may prohibit certain business activities. In particular the I-5 F3 satellite is committed to be launched on a Proton launch vehicle, a Russian-built rocket, from the Baikonur Cosmodrome in Kazakhstan, a facility which is leased and operated by the Russian Federation. We believe that the current restrictions in place do not affect this planned launch, but there is a risk that further erosion in the Ukraine situation or a broadening of Russian trading restrictions could cause unspecified launch delays and delay global coverage of our Global Xpress services, which could adversely affect our revenues, profitability and results of operations.

Financing and foreign exchange risk

We have a significant amount of debt and may incur substantial additional debt in the future. Although we believe our liquidity position is more than sufficient to meet the Group's needs for the foreseeable future, our substantial debt requires us to dedicate a substantial portion of our cash flows from operations to payment of our debt, which reduces our cash flow available to fund capital expenditure and for other general corporate purposes. Our ability to make payments on and refinance our debt will depend on our future operating performance and ability to generate sufficient cash. We are also subject to restrictive debt covenants.

We use the US Dollar as our functional and reporting currency. While almost all our revenues are denominated in US Dollars, a substantial portion of our operating expenses and, from time to time, a small proportion of our capital expenditures are denominated in currencies other than the US Dollar. Although we generally hedge our foreign exchange exposure in the short-term, there is no assurance that in the longer-term our results of operations would not be affected by fluctuations of the US Dollar against other currencies (primarily Pounds Sterling). The Group's hedged rate of exchange for 2015 is $1.59/£1.00, compared with $1.54/£1.00 in 2014, which does not give rise to a material variance in comparative costs.

Taxation

We operate in a number of jurisdictions around the world and from time to time have disputes on the amount of tax due. We maintain constructive engagement with the tax authorities and where appropriate we engage advisors and legal counsel to obtain opinions on tax legislation and principles, and we provide for any potential tax exposures in line with accounting standards.

Impairment losses

Accounting standards require the regular testing of the value of intangible assets, including goodwill. As our business evolves, further organisational, contractual and other changes may result in a requirement to record further impairment charges. Whilst these would not affect any cash outflow to the Group, they would have an adverse effect on our results of operations.

Management and employees

Technological competence and innovation are critical to our business and depend, to a significant degree on the work of technically skilled employees. In the future, we may not be able to recruit and retain the number and calibre of management or employees necessary for our business, which may adversely affect our revenues, profitability and liquidity.

RELATED PARTY TRANSACTIONS

There have been no material changes in the related party transactions described on page 130 of the 2014 Inmarsat plc Annual Report and Accounts.

Inmarsat plc

99 City Road

London EC1Y 1AX

By order of the Board,

Rupert Pearce Tony Bates

Chief Executive Officer Chief Financial Officer

6 May 2015 6 May 2015

INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

For the three months ended 31 March 2015 (unaudited)

Earnings per share for profit attributable to the equity holders of the Company during the period

(expressed in $ per share)

INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the three months ended 31 March 2015 (unaudited)

 INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM BALANCE SHEET

INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

 For the three months ended 31 March 2015

(a) The other reserve relates to ordinary shares held by the employee share trust.

INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT

 For the three months ended 31 March 2015 (unaudited)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. General Information

The principal activity of Inmarsat plc and its subsidiaries (together, the "Group") is the provision of mobile satellite communications services ("MSS").

The Group's financial results are not subject to significant seasonal trends.

These unaudited consolidated interim financial results have been approved by the Board of Directors for issue on 6 May 2015.

The financial information presented in this release for the year ended 31 December 2014 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. A copy of the statutory accounts for the year has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report, and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

2. Principal accounting policies

Basis of preparation

The unaudited consolidated financial results for the quarter ended 31 March 2015 have been prepared using International Financial Reporting Standards ("IFRS") as adopted by the European Union and in accordance with International Accounting Standard ("IAS") 34, 'Interim Financial Reporting'. This announcement does not contain sufficient information to comply with all of the disclosure requirements of IFRS.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the Group's most recent annual consolidated financial statements, which are for the year ended 31 December 2014 and which are available on our website at www.inmarsat.com. Except as described below, the condensed consolidated financial statements are based upon accounting policies and methods consistent with those in the Group's 2014 annual consolidated financial statements prepared under IFRS, set out on pages 88 to 130. Operating results for the quarter ended 31 March 2015 are not necessarily indicative of the results that may be expected for the year ending 31 December 2015. The consolidated Balance Sheet as at 31 December 2014 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by IFRS for complete financial statements.

The Group has a robust and resilient business model, strong free cash flow generation and is compliant with all covenants. As a consequence and despite the continuing uncertain economic climate, 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 has 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 all of the Group's subsidiaries and the presentation currency is the US Dollar, as the majority of operational transactions and borrowings are denominated in US Dollars.

The preparation of the condensed consolidated financial statements in conformity with IFRS requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and expenses during the reported period. Although these estimates are based on management's best estimate of the amount, event or actions, these results ultimately may differ from those estimates.

In particular, the calculation of the Group's tax balances and of its potential liabilities or assets necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority, or, as appropriate, through a formal legal process. The amounts recognised or disclosed are derived from the Group's best estimation and judgement. However, the inherent uncertainty regarding the outcome of these means eventual realisation could differ from the accounting estimates and therefore impact the Group's results and cash flows.

Accounting policies adopted in preparing these condensed consolidated financial statements have been selected in accordance with IFRS.

3. Segment information

IFRS 8, 'Operating Segments', requires reporting segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker ("CODM") to allocate resources and assess performance. The CODM is the Chief Executive Officer who is responsible for assessing the performance of the individual segments.

The segments are aligned to five market-facing business units, being:

· Maritime, focusing on worldwide commercial maritime services;

· Enterprise, focusing on worldwide energy, industry, media, carriers, and M2M services;

· Aviation, focusing on commercial aviation services;

· US Government, focusing on US civil and military government services; and

· Global Government, focusing on worldwide civil and military government services.

These five business units are supported by "Central Services" which includes satellite operations and backbone infrastructure, corporate administrative costs, and all other income that is not directly attributable to the individual business units. 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 IFRS. Therefore, the Group's reportable segments are Maritime, Enterprise, Aviation, Government and Central Services.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 2. Segment profit represents the profit earned by each segment without allocation of central costs, investment revenue, finance costs and income tax expense.

The tables below represent segmental information based on the revised basis with three months ended 31 March 2014 restated accordingly.

Segment information:

4. Net finance expense

5. Income tax expense

Please see note 10 for further details on the Group's contingent liabilities relating to income tax.

6. Net Borrowings

These balances are shown net of unamortised deferred finance costs, which have been allocated as follows:

1. This facility matures on 30 April 2018 and became repayable in equal annual instalments on both tranches with effect from 30 April 2012. Interest is equal to three-month USD LIBOR plus a margin, payable in April, July, October and January each year.

2. During 2014, the Group signed a 7-year $185.9m direct financing agreement with Ex-Im Bank. The facility has a total availability period of two years and will then be repayable in equal semi-annual instalments over a further 5 years. Drawings under the facility incur interest at a fixed rate of 1.96% for the life of the loan. In addition, the $700.0m facility signed in 2011 is available for four years and will then be repayable in equal instalments over a further 8.5 years. Drawings under the facility incur interest at a fixed rate of 3.11% for the life of the loan.

3. The remaining $287.0m, 1.75% Convertible Bonds are due in 2017 (the "Convertible Bonds"). As at 31 March 2015, the conversion price of the bonds was $12.31 and the total number of shares to be issued if all bonds are converted is 23.3 million shares.

4. On 4 June 2014, the Group issued $1 billion aggregate principal amount of 4.875% Senior Notes due in 2022 ("Senior Notes due 2022"). The aggregate gross proceeds were $991.9m, net of $8.1m issuance discount.

5. On 30 June 2011, the Group signed a five-year $750.0m revolving credit facility ("Senior Credit Facility"). Advances under the facility bear interest at a rate equal to the applicable USD LIBOR, plus a margin of between 1.00% and 2.50% determined by reference to our ratio of net debt to EBITDA. As at 31 March 2015, there were no drawings on the Senior Credit Facility.

7. Financial instruments fair value disclosures

The Group held financial instruments at fair value at 31 March 2015, as set out below. The Group has no financial instruments 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.

Recurring fair value measurements at the end of the reporting period were:

The fair value of foreign exchange contracts are based upon a valuation provided by the counterparty and are classified as level 2 in the fair value hierarchy according to IFRS 7.

The fair value of foreign exchange contracts is based upon 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.

Except as detailed in the following table, the Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values:

8. Dividends

The Inmarsat plc Board of Directors have recommended a final dividend of 30.26 cents per share in respect of the year ended 31 December 2014, to be paid on 29 May 2015 to ordinary shareholders on the register of members at the close of business on 15 May 2015. The 2014 final dividend is not recorded as a liability in the financial statements at 31 March 2015.

9. Earnings per share

Basic and diluted earnings per share

The basic and diluted earnings per share are based on a weighted average number of ordinary shares in issue of448,306,475 and potentially in issue of 452,511,199, respectively (31 March 2014: 447,930,140 and 452,352,496, respectively). Diluted earnings per share is calculated by the weighted average number of ordinary shares outstanding for the dilutive potential ordinary shares in respect of the share options/awards in relation to employee share plans and the convertible bonds. The impact of the convertible bonds was antidilutive for the periods ended 31 March 2015 and 2014.

At 31 March 2015, there were a total of 449,567,682 (31 December 2014: 448,321,387) ordinary shares in issue.

Adjusted earnings per share

Adjusted earnings per share reflects the basic and diluted earnings per share for period ended 31 March 2015 and 2014 adjusted to exclude the after-tax effect of impairment losses and the contribution of LightSquared to earnings.

The table below sets out the adjusted earnings attributable to equity holders of the Company that was used in the calculation of both the adjusted basic and adjusted diluted earnings per share. The weighted average number of ordinary shares in issue did not differ from the unadjusted earnings per share calculations.

10. Contingent liability

In the ordinary course of business, the Group is subject to contingencies pursuant to requirements that it complies with relevant laws, regulations and standards. Failure to comply could result in restrictions in operations, damages, fines, increased tax, increased cost of compliance, interest charges, reputational damage and other sanctions. These matters are inherently difficult to quantify.

In cases where the Group has an obligation as a result of a past event existing at the balance sheet date, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated, a provision will be recognised based on best estimates and management judgement. 

The Group has contingent liabilities in respect of taxes for which no provisions have been made. During 2013, the Group received enquiries from HMRC in respect of prior periods. The potential tax liability in relation to these enquiries is estimated to be in the region of $18m.

The Group has sought external advice and management does not believe that a material economic outflow is probable; therefore no provision has been recorded in these financial statements. However, this disclosure has been made in light of the ongoing enquiries being made by HMRC. No accurate estimation of the time required to settle this matter can currently be given.

11. Disposal groups

In January 2015, the Group completed the sale of its 19% holding in SkyWave Mobile Communications to ORBCOMM Inc. for total proceeds of $32.9m and recognised an after-tax gain of $8.1m. The share sale was one part of a suite of agreements with ORBCOMM, covering the joint ownership and future development and commercialization of the IsatData Pro (IDP) technology. As part of these agreements the Group acquired SkyWave's satellite network assets, hosted at three Inmarsat Satellite Access Stations, for $7.5m.

USE OF NON-GAAP FINANCIAL INFORMATION

Non-IFRS Measures

In addition to International Financial Reporting Standards ("IFRS") measures, we use a number of non-IFRS measures 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. Where such non-IFRS measures are given, this is clearly indicated and the comparable IFRS measure is also given. However, non-IFRS measures presented are not uniformly defined by all companies, including those in the Group's industry. Accordingly, it may not be comparable with similarly titled measures and disclosures by other companies.

Net Borrowings

Net borrowings is defined as total borrowings less cash at bank and in hand less short-term deposits with an original maturity of less than three months. We use net borrowings as a part of our internal debt analysis. We believe that net borrowings is a useful measure as it indicates the level of borrowings after taking account of the financial assets within our business that could be utilised to pay down the outstanding borrowings. In addition the net borrowings balance provides an indication of the net borrowings on which we are required to pay interest.

Free Cash Flow

We define free cash flow ("FCF") as cash generated from operations less capital expenditure (including own work capitalised), net interest and cash tax payments. FCF is a supplemental measure of our performance and liquidity under IFRS that is not required by, or presented in accordance with, IFRS. Furthermore, FCF is not a measurement of our performance or liquidity under IFRS and should not be considered as an alternative to profit for the period and operating profit as a measure of our performance and net cash generated from operating activities as a measure of our liquidity, or any other performance measures derived in accordance with IFRS.

We believe FCF is an important financial measure for use in evaluating our financial performance and liquidity and that it provides supplemental information to our statement of cash flows.

EBITDA

We define EBITDA as profit before interest, taxation, depreciation and amortisation, loss on disposal of assets, acquisition-related adjustments, impairment losses and share of profit of associates. EBITDA and the related ratios are supplemental measures of our performance and liquidity that are not required by, or presented in accordance with, IFRS. Furthermore, EBITDA is not a measurement of our financial performance under IFRS and should not be considered as an alternative to profit for the period, operating profit or any other performance measures derived in accordance with IFRS.

We believe EBITDA, among other measures, facilitates operating performance comparisons from period to period and management decision-making.

Underlying performance

We use underlying performance to remove the impacts of acquisitions or dispositions from the operating results of our segments. We believe it facilitates operating performance comparisons from period to period and management decision-making.

Enterprise - underlying performance excludes the results attributable to the energy business disposed of in 2014.