Inmarsat Regulatory News (ISAT)

Inmarsat plc reports First Quarter Results 2017

Continued solid progress

London, UK: 4 May 2017. 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 three months ended 31 March 2017.

Financial Headlines

Performance Highlights

· Solid performance in Q1 2017, despite markets which continue to be challenging:

o Group revenue grew 11.3% to $332.2m, (grew 7.5% to $301.7m, excluding Ligado)

o EBITDA2 grew 9.2% to $181.5m (grew 1.8% to $151.0m, excluding Ligado)

· Outlook and future guidance, disclosed on 8 March 2017, remain unchanged

· Continued positive impact of Global Xpress ("GX"):

o GX delivered revenue of $32.1m in Q1 2017, mainly from Government customers

o Continue to expect launch of I-5 F4 satellite during Q2 2017

· Maritime:

o Now over 10,000 vessels committed to Fleet Xpress ("FX")

o Distribution agreement signed with Satlink to install FX on over 1,500 vessels

o Resilient performance from FleetBroadband ("FB")

· Government:

o Another strong performance, despite continued market uncertainty

o FirstNet contract win provides further validation of our strong US Government relationships

· Aviation:

o Core business continued to grow, with over 16,500 connected terminals, and the first installations of JetConneX completed

o Further positive momentum achieved in in-flight connectivity ("IFC"), with 65 GX terminals installed by the end of the quarter, and over 950 expected aircraft under signed contracts

o Commitments to GX announced by AirAsia and Qatar Airways so far in second quarter, representing an additional 250 aircraft to utilise GX for IFC services

o On track for commercial service introduction of European Aviation Network ("EAN") during H2 2017, with launch of S-band satellite expected to take place by end of Q2 2017

· Enterprise:

o Key end markets remain challenging, in particular Oil & Gas

o On-going focus on commercial opportunities around "Internet of Things"

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Rupert Pearce, Chief Executive Officer, commented:

"Positive momentum was maintained across our business in the first quarter of 2017, following on from an encouraging performance in the final quarter of last year. This was achieved in spite of cyclical recession and other headwinds in many of our core markets.

In Maritime, we continued to successfully ramp up the installation of Fleet Xpress, supported by a number of installation partners, whilst our market-leading distribution network for Fleet Xpress was further bolstered by the addition of Satlink during the quarter. Our core FleetBroadband product delivered a resilient performance in the quarter and we made good progress on the new growth opportunities afforded by our new Fleet One service.

Our Government businesses delivered another good performance, supported by the introduction of GX and sustained operational tempo in one particular region. During the period, we announced our selection by AT&T as a core team member for the U.S. FirstNet network, for the provision of satellite communications solutions.

In Aviation, our core business produced further strong growth in the quarter, during which time we installed our first terminals for JetConneX, our GX-based product for the Business and General Aviation ("BGA") market. In IFC, we had completed 65 installations for the Deutsche Lufthansa Group by the end of the period, up from 20 at the end of 2016, and we confirmed that IAG have agreed to utilise our IFC services over the EAN, for which our plans for commercial deployment remain on track. So far in the second quarter of 2017, AirAsia and Qatar Airways have announced commitments to utilise GX for their IFC services, representing excellent progress on building revenue backlog for this new business, and we remain in discussions with a number of other airlines for the provision of our IFC services.

Supported by our performance in the first quarter of 2017, Inmarsat remains well placed for the medium term. We have well-established and proven communication networks, substantial spectrum assets to fuel those networks, differentiated capability in running global mobility services, a market-leading global distribution network and a significant base of loyal customers to whom we will continue to provide high quality service and delivery. These elements, particularly in challenging markets at a time of substantial change, provide Inmarsat with a strong foundation from which to capture the significant growth opportunities that will emerge in the coming years.

Finally, we have announced separately today that Warren Finegold will join our Board later this year as a non-Executive Director. Warren has a wealth of diverse and relevant experience - combining a knowledge of mobility and technology markets, having been a member of the Vodafone Group Executive Committee for over 10 years, plus significant experience in investment banking, and we look forward to his contribution."

Outlook & future guidance

We remain confident about the medium to long term outlook for the business. However, whilst we delivered robust performances in both the fourth quarter of 2016 and in the first quarter of 2017, our markets remain challenging and the outlook continues to be difficult to predict, as we highlighted in our FY 2016 results in March 2017. As outlined at that time, our performance in 2017 and 2018 will be particularly determined by our results in the IFC market and in the Government sector.

Given the combination of these factors, we reiterate the guidance disclosed in March of:

· 2017 revenue, excluding Ligado, of $1,200m to $1,300m;

· 2018 revenue, excluding Ligado, of $1,300m to $1,500m, including a contribution from I-5 F4. Higher outcomes continue to be possible, depending principally on our performance in IFC and Government;

· Capex at $500m to $600m per annum for each of 2017 and 2018;

· Annual GX revenues at a run rate of $500m by the end of 2020; and

· Leverage to normally remain below 3.5x.

As previously disclosed, the Group's EBITDA margin will be adversely impacted by the inclusion of additional lower margin service revenues related to IFC, by the cost of investment in our Aviation capabilities to ensure we deliver on the IFC opportunity and by higher central operational delivery costs.

We do not expect any significant changes to consensus forecasts for 2017 and 2018 as a consequence of our performance in Q1 2017.

Conference call details

Inmarsat management will discuss the first quarter results in a conference call on Thursday 4 May at 08.00 hrs London time. The call can be accessed by dialling +44(0) 20 3427 1905 (from the UK and Europe) or +1 646 254 3361 (from the US), with a passcode of 7987611. A web-cast of the call can be accessed via our website: www.inmarsat.com.

Contacts:

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.

OPERATING AND FINANCIAL REVIEW OF Q1 2017 RESULTS

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 three months ended 31 March 2017. 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 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 2017, and all comparisons are with the three months ended 31 March 2016, unless specifically stated otherwise.

Introduction

Structural change will continue to impact the satellite communications industry, driven by potential technological and market disruption in the future. Inmarsat is well positioned as a leading incumbent operator to address and capitalise upon these market dynamics, particularly in mobility markets, where we have established a solid core business with material growth potential in the years ahead.

Our GX platform, which is now fully operational and gaining traction, will continue to support our growth ambitions, as we look to achieve our target of an annual revenue run rate of $500m from the first three GX satellites by the end of 2020. In the first quarter of 2017, GX delivered $32.1m of revenue, driven predominantly by our customers in Government, which establishes a strong platform for growth from GX for the remainder of 2017 and beyond.

Furthermore, in the period, we made good progress in starting to upgrade our GX proposition and service levels, having achieved throughput rates of 330 Mbps to a terminal in over-the-air testing to a live GX satellite in orbit, a significant improvement from our current throughput rates of around 50 Mbps to a terminal. This enhanced capability will be gradually introduced to the GX network during 2018 and 2019.

Our fourth GX spacecraft, I-5 F4, will be launched by SpaceX during Q2 2017 to provide both in-orbit redundancy and additional capacity and capabilities to deploy into new regional growth opportunities, thereby further strengthening our confidence around GX as a major platform for Inmarsat's future growth.

Financial Highlights & Summary

Inmarsat produced a solid overall performance in Q1 2017, with revenues increasing by $33.6m (11.3%) to $332.2m (Q1 2016: $298.6m) with growth in Aviation ($13.0m), Government ($17.3m) and Ligado income ($12.6m) partially offset by reduced contributions from Maritime ($4.0m) and Enterprise ($4.6m).

Net operating costs in the quarter increased by $18.3m to $150.7m (Q1 2016: $132.4m) mainly reflecting revenue growth, increased investment in our IFC capability in Aviation, an increase in central operational delivery costs and a gain from foreign exchange movements.

1 Capital expenditure is stated on a cash basis throughout this report. Cash capital expenditure is the cash flow relating to tangible and intangible asset additions, it includes capitalised labour costs and excludes capitalised interest. It has been reconciled to capital expenditure on an accruals basis in note 3 of this announcement. 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.

Whilst EBITDA increased by $15.3m (9.2%) to $181.5m (Q1 2016: $166.2m), EBITDA margin decreased slightly to 54.6%, from 55.7%, reflecting the growth in revenue offset by higher growth in operating costs described above.

Statutory PAT declined by (113.4%) to $(6.1)m as a result of the non-cash impact of an unrealised increase of $58.3m in the fair value of the conversion liability component of the convertible bond on the net financing charge. Adjusted PAT, excluding this impact, grew by 14.5% to $52.2m.

Maritime

Whilst the merchant shipping environment remains in a cyclical downturn, the addressable market for high bandwidth Very Small Aperture Terminal ("VSAT") connectivity services is expected to almost double in size in the coming years, on the back of strong demand for broadband connectivity. This market will drive Inmarsat's growth prospects in Maritime over the medium to long term. Early signs of this potential growth trajectory continue to emerge, with our VSAT product offerings, XpressLink ("XL") and Fleet Xpress ("FX"), delivering year-on-year revenue growth of 17.7% in the first quarter of 2017, as outlined in the following table:

1  FB is utilised by customers on a standalone basis, but also as an integrated element of our VSAT products, as an L-band back-up, for utilisation in turbulent weather conditions

The installation programme for FX, our GX product for Maritime, is running ahead of schedule, with strong progress being made through both our internal capability and the installation networks of our distribution partners. In the first quarter of 2017, we signed an additional take-or-pay distribution agreement with Satlink, as well as FX installation commitments from Hapag-Lloyd and Fleet Management Limited. With these agreements, together with our previously agreed distribution and installation contracts and our internal plan to migrate our XL customers to FX, we now have over 10,000 vessels committed to FX.

By the end of the period, there were 808 vessels installed with FX, up from 335 at the end of 2016. Growth in our FX installed base included 237 migrations from XL, 145 migrations from FleetBroadband ("FB") and 91 new customers - all installed during the first quarter of 2017.

As anticipated, VSAT Average Revenue per User ("ARPU") in the first quarter was 4.6% lower than the same period in 2016, mainly reflecting early 2016 issues, including the impact of more lay-ups, the decline of legacy contracts, (with higher ARPU), and a weaker Norwegian Kroner. VSAT ARPU has remained stable over the last four quarters but is expected to start to decline as wholesale revenues are added to the mix. Our VSAT installation order book increased to around 650 vessels, up from around 500 vessels at the end of 2016.

Revenues for FleetBroadband, our core product, declined by 2.1% during the quarter, as outlined in the table above, primarily as a result of a decline in vessels utilising the product. This was mainly driven by the ARPU-accretive migration of ships up to FX and ongoing market weakness.

FB ARPU increased year-on-year as a result of the continued transitioning of FB customers to higher value communication packages and price increases in the prior year, partially offset by the migration of vessels to FX, and bandwidth usage optimisation by some customers.

Fleet One continued to grow, with over 340 new users added during the first quarter, taking the Fleet One customer base to over 1,600 vessels by the end of the period. Our Fleet One deal pipeline remains strong and indicative of strong growth potential for this new service.

Revenue from our mainly lower margin and legacy products continued to decline, as expected, falling 22.7% to $22.1m in the first quarter of 2017, from $28.6m in the prior year.

Operating costs for the quarter decreased by $2.5m (8.1%), mainly reflecting the impact of an internal reorganisation in July 2016 which moved nearly $3m per quarter of costs from Maritime into Central Services. EBITDA in the quarter decreased by $1.5m (1.3%) compared with the prior year period, and the EBITDA margin improved to 79.7% from 78.5%.

Government

Despite continued downward pressure on the satellite industry in the Government sector, as a result of a range of cyclical and financial headwinds, Inmarsat remains well-placed to be able to offer our Government customers differentiated and high value-added services including interoperability with military satellite resources. This was evident during the first quarter of 2017, when our Government revenues increased year-on-year by 25.2% to $86.0m.

During the period, the adoption of GX gained further traction across our Government customer base, with our major take-or-pay contract with Boeing, a key channel partner in the US for military Ka-band services, continuing to be the key driver of our performance. Mainly as a result of the impact of this contract, our US Government revenues grew by 37.0% in the first quarter. Our performance in the US was also supported by initial revenue generation from the US Navy's Commercial Broadband Satellite Program Satellite Services Contract ("CSSC"), won in 2016. During the period, we announced our inclusion in AT&T's consortium to provide satellite-based solutions for FirstNet, a planned nationwide emergency response network in the US which will be implemented over the coming years.

Outside the US, Government revenues rose by 9.6% during the quarter, supported by the continued benefit of sustained operational tempo in one region, which began in Q3 2015, as well as increased hardware sales.

Despite operating costs for the quarter increasing by 8.5% in response to the growth in revenue, EBITDA improved by 32.0% to $64.3m, from $48.7m in the prior period, reflecting higher revenues and an improved revenue mix. Consequently, the EBITDA margin increased to 74.8%, from 70.9% in the prior period.

Aviation

Our Aviation business remains well positioned for growth and produced a strong performance in the first quarter of 2017, in both the core Aviation business (serving the Business & General Aviation ("BGA") and Safety & Operations Services ("SOS") segments) and in IFC - in customer installations of GX, in winning new mandates in this area and in continuing to roll-out our service infrastructure.

Inmarsat's core Aviation business delivered revenue growth of 27.3% in the quarter, mainly from SwiftBroadband and Classic Aero, our L-band based products, which ended the period with over 16,500 connected terminals.

In the first quarter of 2017, SwiftBroadband delivered revenue growth of 27.7%, including growth from our L-band based IFC services in commercial aviation, whilst Classic Aero produced revenue growth of 26.3%. The performance of both products was supported by strong growth in the number of installed aircraft and ARPU, driven by robust demand and customer usage. In addition, we were successful in completing the first installations of JetConneX, our new GX-based product for BGA, during the period.

In IFC, we made good progress in on-boarding customers to GX. By the end of the period, a total of 65 Deutsche Lufthansa Group aircraft had been installed with GX terminals, up from 20 at the end of 2016, resulting in $3.9m of relatively low margin pass-through installation revenues (there were an additional 15 installations in April 2017, taking the total number of installations to 80 to date). As a result of this installation programme, capital expenditure in Aviation increased to $45.4m, from $3.0m in the prior year.

We have signed contracts which are expected to involve the provision of IFC services to over 950 aircraft. In addition, during the second quarter, AirAsia announced a Memorandum of Understanding for GX and Qatar Airways announced their intention to install GX across their flagship A350 and 777 fleets. These additional airline-announced commitments represent an additional 250 aircraft utilising GX for IFC services. We remain in late stage discussions with a number of other airlines and we expect to steadily convert a proportion of our active pipeline of around 3,000 aircraft into contracts in due course.

We continue to expect the EAN to enter commercial service during the second half of 2017. The launch of the S-band satellite is planned for Q2 2017 with Arianespace, whilst Deutsche Telekom continues to make good progress with the build-out of our complementary ground component network. We remain confident that the final outstanding European regulatory approvals for the EAN will be obtained as the system moves into live operation. We have all 28 EU territory MSS authorisations plus Norway and Switzerland. In addition, 27 countries have provided us with authorisations or in-principle approvals for the CGC.

As outlined in our FY 2016 results press release, as we on-board the necessary capabilities to support our proposition in IFC in the short term, our financial performance in Aviation will be adversely affected by the net cost of this investment. In Q1 2017, operating costs in Aviation increased by $9.9m, or 112.5%, to $18.7m (Q1 2016: $8.8m), due to increased headcount and other overhead costs associated with the pursuit and delivery of the major growth opportunities in IFC as well as an increase in direct costs due to additional lower margin installation revenues being added to the revenue mix. Overhead, or indirect, costs in Aviation are expected to increase to around $70m for FY2017.

As a result of these factors, despite EBITDA in the first quarter of 2017 increasing by $3.1m, or 13.8%, to $25.5m, the EBITDA margin decreased to 57.7%, from 71.8% in the prior year period.

Enterprise

Our markets in Enterprise remain challenging, with continued competitive pressures and the effect of a depressed Oil and Gas sector. This particularly impacted the performance of our Broadband Global Area Network ("BGAN") product, where revenues declined by 17.2% year-on-year in the first quarter.

GSPS revenues, comprising both terminals and airtime, were 13.1% below the prior period, as a result of a tough comparator and an overall decline in customer usage, despite a slight increase in the number of connected terminals to over 160,000 at the end of the quarter. Fixed-to-mobile revenues decreased by 17.6%, reflecting expected continued decline in the voice market, including the on-going migration to Voice-over-IP.

Revenues in the Machine to Machine ("M2M") segment continued to rise steadily, growing by 4.9% in the quarter. The number of connected M2M terminals increased to over 335,000 by the end of the period.

Operating costs for the quarter decreased to $7.3m, from $7.9m in the prior period but, as a result of the decline in revenue in the period, EBITDA was 15.3% lower at $22.1m, from $26.1m in the prior period, with EBITDA margin consequently declining to 75.2%, from 76.8% in the prior period.

We made good progress in driving initiatives based on medium to long term commercial opportunities around the Internet of Things ("IoT") especially in the connected transport and smart agriculture segments. At the start of the second quarter, in line with our drive to maximise this opportunity, we made a small minority investment in Actility, an IoT solutions specialist, following our recently established partnership with them to extend the reach of our satellite networks through the addition of a Low Power Wide Area Network extension for IoT applications globally.

Central Services

Revenue from Ligado Networks ("Ligado") in the quarter increased by $12.6m, or 70.4%, to $30.5m, reflecting the impact of the exercise of the 30MHz option by Ligado in March 2016. Full details of that exercise are set out in the interim results announcement for 2016. Ligado revenue in the quarter includes $3.5m of deferred revenue released to reflect the economic cost of the revenue deferral arising under the revised transition agreement. There have been no other developments in respect of this agreement in the quarter. At 31 March 2017 we continue to hold $194.3m of deferred revenue on the balance sheet in respect of the expected costs of implementation of this agreement.

Operating costs increased by $9.8m, or 15.1%, to $74.7m (Q1 2016: $64.9m) due to the transfer of nearly $3m of activities from Maritime, as part of a mid-year internal reorganisation in 2016, as outlined above, and additional central operational delivery costs.

Capital expenditure increased to $70.9m, from $23.4m in the prior year, as a result of increased spend on the GX, I-6 and S-band satellite infrastructures, and further investment in operational infrastructure, including IT and Cyber Security.

Reconciliation of EBITDA to profit after tax

Depreciation and amortisation increased by $6.0m to $96.5m as a result of increased capital expenditure.

Net financing costs for the quarter increased by $67.0m to $84.8m (Q1 2016: $17.8m). This includes a charge of $58.3m (Q1 2016: nil) relating to the increase in the unrealised conversion liability component of the new convertible bonds which is largely driven by the appreciation in the share price during the first quarter of 2017. This impact will reduce to nil if the bonds reach maturity and are not converted. Excluding this, net financing costs for Q1 were $26.5m, an increase of $8.7m from the same period last year. The increase is primarily due to $6.5m of interest on the new senior notes due 2024 and $1.0m higher interest accrued on the new convertible bond due 2023, compared to the previous convertible bond that was due in 2016.

The tax charge for the quarter was $6.7m, a decrease of $6.2m versus the prior year, due to the more favourable treatment of profits under the patent box regime secured in 2017 and applied retrospectively, resulting in some profit being taxed at 10%, rather than the statutory rate of 19.25%. The normalised effective tax rate for the quarter was 18.9% compared to 19.4% for the first quarter of 2016, mainly reflecting the reduction in UK tax rate from 20% in 2016, to 19.25% in 2017. The charge relating to the unrealised conversion liability component of the new convertible bonds, outlined above, is non-deductible for tax purposes, in line with UK Tax legislation on derivative instruments.

The Group maintains tax provisions in respect of ongoing enquiries with tax authorities. In the event that all such enquiries were settled as currently provided for, we estimate that the Group would incur a cash tax outflow of approximately $90m over 2017 and 2018. The enquiries remain ongoing at this time.

Adjusted Profit after Tax excludes the non-cash impact of the unrealised change in the fair value of the conversion liability component of the 2023 Convertible Bonds on the net financing charge.

Basic and diluted earnings per share for profit/(loss) attributable to the equity holders of the Company were both a loss of 1 cent, compared with a profit of 10 cents for both in 2016. Adjusted basic and diluted earnings per share, excluding the non-cash impact of the unrealised change in the fair value of the conversion liability component of the 2023 Convertible Bonds, were 12 cents and 11 cents, respectively, compared with 10 cents for both in 2016. The 2023 Convertible Bonds had not yet been issued in the same period in 2016.

Cash Flow

2 Includes the impact of deferred financing costs.

Free cash flow decreased by $114.7m to $17.8m (Q1 2016: $132.5m) driven primarily by an increase of $91.7m in capital expenditure (see below) and a negative movement in working capital, driven primarily by the timing of receipts from Ligado. There was also $10.5m higher cash interest paid as a result of the refinancing in Q3 2016.

In addition, there was a scheduled payment of $41.5m on the Ex-IM bank facility during the period.

Capital Expenditure

"Major infrastructure projects" capex consists of satellite design, build and launch costs and ground network infrastructure costs. In Q1 2017, expenditure in this category related primarily to the GX, I-6 and S-band satellite infrastructures.

"Success-based capex" consists of capital equipment installed on ships, aircraft and other customer platforms. This expenditure ties closely to near term new revenues. During Q1 2017 this principally related to expenditure in Maritime and Aviation, relating to the installation of GX terminals for customers.

"Other capex" investments consist primarily of infrastructure maintenance, IT and capitalised product and service development costs.

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.

RELATED PARTY TRANSACTIONS

There have been no material changes in the related party transactions described on page 156 of the 2016 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

4 May 2017 4 May 2017

INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

For the three months ended 31 March (unaudited)

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the three months ended 31 March (unaudited)

INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM BALANCE SHEET

1 Short-term deposits are cash held on deposit with a maturity of between 3 and 12 months.

INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

For the three months ended 31 March

1 The 'other' reserve relates to ordinary shares held by the Employee Share Trust debit of $2.4m (2016: $2.4m), the currency reserve debit of $1.2m (2016: $1.0m) and the revaluation reserve credit of $0.6m (2016: $0.6m).

2 Represents the fair value of share option awards recognised in the year.

3 Issue of share capital relates to the issue of shares by the company under its employee share schemes.

4 Non-controlling interest ("NCI") refers to the Group's 51% shareholding in Inmarsat Solutions ehf.

.

INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT

For the three months ended 31 March (unaudited)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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 and Wales.

2. Principal accounting policies

Basis of preparation 

The condensed consolidated interim financial statements for the three months ended 31 March 2016 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 4 May 2017. The same accounting policies and methods of computation are followed in the interim statements as in the most recent annual financial statements, at 31 December 2016.

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 2016 were approved by the Board of Directors on 8 March 2017. 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, strong free cash flow generation 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 condensed consolidated interim 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 is 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.

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;

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

· Aviation, focusing on commercial, business and general aviation services;

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

· Global Government, focusing on worldwide civil and military government 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 IFRS 8. Therefore, the Group's reportable segments are Maritime, Government, Enterprise, Aviation 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 at the EBITDA level without the allocation of central costs, depreciation, net financing costs and taxation.

4. Net financing costs

5. Taxation

6. Net Borrowings

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

For further details of the Group's debt structure please refer to note 19 of the December 2016 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 new convertible bonds due 2023 (further details are provided in note 19 of the December 2016 Annual Report).

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:

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.

The fair value of the conversion liability component of the Convertible Bonds due 2023 is determined as the difference between the market value of the convertible bond and the carrying amount of the liability component of the convertible bond. Both are classified as level 2 in the fair value hierarchy according to IFRS 7.

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:

8. Dividends

The Inmarsat plc Board of Directors intends to recommend a final dividend of 33.37 cents per ordinary share in respect of the year ended 31 December 2016 to be paid on 26 May 2017 to ordinary shareholders on the share register at the close of business on 21 April 2017. The 2016 final dividend is not recorded as a liability for the period ended 31 March 2017.

9. Earnings per share

Earnings per share for the three months ended 31 March 2017 has been calculated based on the (loss) or 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.

10. Adjusted earnings per share

Adjusted earnings per share for the three months ended 31 March 2017 have been calculated based on profit attributable to equity holders adjusted for the post-tax impact of the unrealised change in the fair value of the conversion liability component of the 2023 Convertible Bonds.

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 2016.

12. Events after the balance sheet date

There have been no 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 three months and description of principal risks and uncertainties for the remaining three 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

4 May 2017 4 May 2017