4 May 2010 12:10
4 May 2010
Inmarsat plc
Andrew Sukawaty, Chairman & Chief Executive Officer - Speech given to Shareholders at the Company's Annual General Meeting held on 4 May 2010.
Good morning Ladies and Gentlemen. It is now 10.00am and it's time to start the proceedings. Welcome to all of you to today's annual general meeting.
I should start by noting that this is our fifth AGM as a listed company. Since our last AGM in May 2009, we have celebrated our 30th anniversary. We were created as an intergovernmental organisation in 1979 and started satellite operations in 1982. While we have changed our shareholding status several times since then, our reputation for reliable service and innovative solutions remain as consistent now, as when we were founded. We continue to support mission critical applications to customers operating in extreme environments. We give them the confidence to know they can rely on our services to support their businesses when and where they need to.
Our customers often rely on our communications services for their businesses regardless of economic cycles and we saw that during 2009 while the global economy remained difficult. Our business benefits from the diversity of the sectors and customers we serve; on land, sea and air.
I will talk shortly about our activities during 2009, but first I'd like to introduce you to the members of your board.
I am joined today by my board colleagues -
John Rennocks, our Deputy Chairman and senior independent non-executive director. John is also Chairman of our Audit Committee;
Sir Bryan Carsberg and Stephen Davidson, both independent non-executive directors. Stephen is our Remuneration Committee Chairman;
Retired Admiral James Ellis Jr, Kathleen Flaherty and Janice Obuchowski, also independent non-executive directors.
Both Rick Medlock, who is Inmarsat's Chief Financial Officer, is with us, along with Alison Horrocks, our company secretary.
Sir Bryan, John and Stephen are standing for re-election this year and Janice is standing for election as she was appointed during 2009. A short summary of their experience will be provided when we get to the formal resolutions for the elections.
Our non-executive directors play a fundamental independent role, not only in corporate governance, but also in decision making and providing guidance to the management team.
We are also joined by other members of the senior management team, including Perry Melton, our Chief Operating Officer and Rupert Pearce, SVP of Inmarsat Enterprises and Group General Counsel. Jim Parm, President of Stratos Global Corporation, has been delayed due to flight problems from the US.
In 2009 we delivered another set of strong results as well as completing several key operations and corporate activities. I'd like to highlight these before I comment on the business' performance itself.
After two years in the planning, we achieved our ambition early in 2009 to reposition our Inmarsat-4 satellite constellation, which was a US$1.1 billion investment in three satellites. The Inmarsat-4 satellites are expected to be operating into the 2020s. This gives our customers comfort that they will have continuity of service for many years to come, providing them a good return on their cost of investment in their satellite equipment and service with Inmarsat.
Our Inmarsat-4 satellites are sophisticated, with the unique ability to generate beams of variable size and power to adjust the performance of the link with user terminals of different size, capability and capacity requirements. We have seen first-hand how this specific beam control can assist in times of humanitarian need such as Haiti in early 2010 and other natural disasters since then as well. We are able to direct additional satellite capacity to support government and aid agencies with reliable communications channels when terrestrial systems are not fully functioning, or congested.
I would like to mention our support of the telecommunications relief aid agency Télécoms sans Frontières which responds to disaster situations and was active in Haiti. In recognising the significant work they perform, particularly this year, we have made an additional charitable contribution to them in 2010 on top of our regular annual contribution of cash and airtime.
In April 2009 we completed the acquisition of Stratos Global Corporation, which is our largest distributor. Stratos is now a wholly-owned subsidiary and operating division of Inmarsat plc and continues to be managed by their existing strong management team led by their President, Jim Parm.
The Inmarsat Global and Stratos businesses retain their separate and defined roles. While we did not anticipate cost oriented integration synergies following the Stratos acquisition, an area where we do see the opportunity for integration efficiency is leveraging the network infrastructure operated by both businesses. We have cross-company teams exploring how to do this and the implementation planning between the two businesses is progressing very well.
Our success as a business depends on our global network of distribution partners and service providers. Although we own Stratos, we work with them on terms consistent with those offered to other distribution partners. We support all of our distribution partners in a way which is targeted at the growth of revenue and profitability of their businesses in parallel with our own. In April 2009, new distribution agreements came into effect providing Inmarsat with increased flexibility and putting us on a level playing field with other commercial satellite operators. All our existing distributors, and several new ones, signed these new agreements. It is our intention to continue down the path of selling primarily on a wholesale basis and we will continue to support diversified choices for customers to serve their needs.
In July 2009, we made an investment in SkyWave Mobile Communications and entered into a partnership arrangement with them which increases our presence in the satellite low data rate market, also known as the SLDR market. We already have some low data rate, or telemetry, business, although our focus has been on the high speed data market with products like our broadband services.
The telemetry market offers the key strategic benefit of driving more traffic onto our existing network, without requiring us to incur any material increases in capital expenditures or operating costs. We entered the SLDR market more actively because the revenue opportunity, which historically has been minimal, has more recently been growing as the applications possible through these units have been expanded.
Our next satellite development, Alphasat, is also progressing well. We are the commercial partner for the European Space Agency's Alphasat project, which is a major European initiative. Alphasat is an important investment for us, allowing us to progress new technology for our next generation network. It will also provide network redundancy that will further enhance our services. The new satellite will join our current satellite fleet of 11 geostationary satellites to offer advanced mobile voice and data communications services across Europe, Africa and the Middle East. We remain on schedule for a 2012 delivery of the satellite. During 2009, we announced that we will be using Arianespace to launch the satellite from French Guiana. In April this year, we also were very pleased to announce a financing arrangement with the European Investment Bank for Euros 225 million to fund the build and launch of the Alphasat satellite.
We are also looking to the future by starting to plan our next satellite generation - the Inmarsat-5s. The process for building and launching a new satellite constellation is a multi-year programme. As part of the planning process we review existing and future satellite technologies and alternatives for increasing bandwidth capabilities. This intelligence feeds into the final scope of our new satellite constellation programme. We expect to progress our plans for these satellites during 2010.
Government usage of our satellite capacity has been a major source of growth for us over the last 5 years and an area we have focused on for further growth.
In January 2010, we acquired the business and assets of Segovia Inc. Segovia is a leading provider of secure internet protocol managed solutions and services to various US government services. Segovia designs, deploys and operates mixed satellite and terrestrial networks. This expertise, together with its secure global dedicated IP network infrastructure has positioned it well in the US Department of Defense's transformation and modernisation programmes. The rationale for buying this business is the opportunity to strengthen our relationship with key government customers across all sectors, bringing enhanced services to the government sector generally and enhancing Segovia's standing as a premier supplier to the US DoD.
We are well positioned to benefit from the newly emerging development of 'hybrid' satellite terrestrial networks. These are referred to as ATC (Ancillary Terrestrial Component) networks in the US and CGC (Complementary Ground Component) networks in Europe. Working with SkyTerra under an agreement we signed with them in 2007, we remain poised to progress any opportunities should they arise in the US. Similarly in Europe, we were successful in our application for an award of S-band spectrum under the European S-band Application Process. Through one of our subsidiary companies, we are continuing to pursue discussions to establish commercial partnerships to develop the infrastructure, particularly the capital intensive terrestrial piece of this programme further.
We will soon be launching our own Global Satellite Phone Service. Our first handheld satellite phone is called IsatPhone Pro. We have developed the handset itself and the ground network through which the service will operate.
The ground network was completed in 2009 and we have finished upgrading and testing the three gateways which will enable us to launch the new service globally across all three Inmarsat-4 satellites. So far this year, we have been testing the prototypes of our handheld unit and we are now in full beta testing of the handset. The unit has been tested in harsh environments, has been built to have long battery life and is ruggedized for the remote environments in which our customers operate. We have announced the launch distribution partners for this service, who serve different geographic markets and sectors and there is increasing interest and excitement about the launch of this new service which is planned for June 2010.
We are highly confident that we will bring a quality offering to market that will be cost competitive on service and on handset price. Indications are that customers will be receptive to this new service and that we can take market share from our competitors.
The areas I have touched on above give a flavour for the strategic areas we consider as a business. We continually look for additional, non-traditional sources of revenue on our three global satellite constellations and related ground infrastructure. We also look at opportunities if they can deliver value to shareholders and maximise the investment already made in our satellites.
I will now focus on some comments on the 2009 Results.
Revenues for Inmarsat plc, including Stratos, took us to being a billion dollar revenue company. EBITDA, or earnings before interest, tax, depreciation and amortisation, at the group level was almost US$595 million with all other key performance indicators increasing from 2008.
Taking account of the strong trading results, and the healthy financial position of the group, we paid a second interim dividend of 20.63 cents (US$) per share on 1 April 2010 to holders on the share register on 19 March 2010. This dividend was paid in lieu of a final dividend for the 2009 financial year. This brought the total dividend payable for 2009 to 33.36 cents (US$) per share, an increase of 10.0% on the total dividend paid in 2008.
The increase in the dividend payment underlines our confidence in the sustainability of our operating performance and in the strength of our balance sheet.
I think it is worth my mentioning our strong liquidity position. We were in a comfortable position with our debt at the end of 2008, but set about improving our position during 2009 in order to give us greater security. Last year, we were pleased to sign a new Senior Credit Facility with our banks and in addition in November 2009, we successfully completed a US$650 million bond offering. This funding allowed us to redeem our previous two long term debt instruments which has reduced our cost of debt, and extended our debt maturity profile. The success of these transactions, plus the recent EIB financing, reflects well on the strength of our business and the solid track record we have delivered since we became a public company.
I'd like now to break out a bit of a picture of our two businesses separately and comment on the performance of Inmarsat Global, which is the wholesaler of airtime to our distribution partners and then refer to Stratos's performance.
2009 revenues for the maritime sector increased 7.4% to US$357 million, with data revenues increasing 10.8%. Voice revenues remained in line with those of 2008 at US$104.7 million. Maritime customers are still increasing their use of connectivity at sea, despite the recession, as they adopt new technology and provide more social access to their crews as a crew retention and support tool.
Additions of Fleet and FleetBroadband terminals remained at consistent levels during 2009. FleetBroadband is becoming the maritime industry standard and the level of new terminal sales now exceeds our Fleet service. We have already seen good take-up of our newest FleetBroadband service - FleetBroadband 150 which is targeted at smaller vessels. The FleetBroadband family allows ship operators to invest in new operating applications, often using information technology applications on board to reduce on-board costs. Also, there is the added benefit of improving crew morale through providing them access to low cost voice and data communications services which is also growing in demand.
Our heritage lies in our provision of safety services at sea. We remain the only provider of the Global Maritime Distress and Safety System, also known as the GMDSS, to the maritime community. We remain fully committed to ensuring that mariners can rely on our service in times of need. In 2009, we also introduced an additional safety service called '505'. Vessels with FleetBroadband can now dial this number and are connected to recognised maritime rescue co-ordination centres and receive assistance. This service is not intended to replace the GMDSS service, which is accessed by some of our other services, but is an additional means of safety communications for ship operators and their crew. We are also progressing our plans to provide a GMDSS approved service on our FleetBroadband service in the future. This will ensure that these highly reliable global safety services continue into the next decade.
Revenues from our land mobile sector were US$146.5 million, an increase of 3.3% compared to 2008. Data revenues increased 5.7% with voice revenues decreasing by US$2.8 million in line with expectations.
Land mobile sector revenue comes from a wide range of customer groups. The sensitivity of these land customers to world events, such as earthquakes and military activities, cause higher variability in this area compared to our maritime and aeronautical sectors. We are seeing over time, a diversification develop in the land data business. By far the largest contributor to land mobile revenue is the government sector, whose usage can be hard to forecast and also volatile from quarter to quarter.
The usage profile of our customer groups is such that they rely on Inmarsat services to provide essential value-for-money communications for remote operations. Unless our customers' needs significantly change, this day-to-day usage continues to translate into somewhat consistent ongoing revenues. We have seen from past experience that providing broadband to these customers has produced a growing and diversified base of revenues, beyond the event driven and less predictable revenues. This is a real positive for the long term outlook for BGAN.
In response to customer requests, particularly from broadcasters, we developed and launched our BGAN X-Stream service. This service delivers the world's fastest on-demand mobile satellite-based video streaming, guaranteeing streaming data rates from a minimum of 384kbps up to 450kbps.
Revenues for our aeronautical sector were US$75.8 million, an increase of 17.7% compared with 2008. We offer two types of services: Classic Aero and SwiftBroadband. The Classic Aero services are currently used in more than 8,000 airlines, business jets and military aircraft for operations and safety-critical services, providing links between the flight deck and air traffic control. All of the world's top intercontinental airlines use our services.
In 2009, the Classic Aero services became available over the Inmarsat-4 satellites following a network upgrade. These services already operate over the Inmarsat-3 constellation. This enhancement to the Inmarsat network allows customers to enjoy the benefits of satellite-aided air traffic control alongside SwiftBroadband-based high-speed connectivity for passenger and crew applications. The ability to use a single installation for safety services, operational communications and passenger connectivity is one of the key benefits of our solution as well as giving the airliner the option to add passenger connectivity to their existing capabilities at a comparatively low incremental cost.
SwiftBroadband continues to see orders related to the introduction of in-flight cellular services on commercial airlines. While we see positive take-up of SwiftBroadband, for these passenger applications, we are at an early stage and revenue is not yet material to us. The airline industry is going through a tough economic period and we expect that this will have some impact on the speed of take-up of SwiftBroadband for passenger services.
As this is the first time we are reporting on the activities for Stratos, I thought it would be helpful to summarise briefly their business as well. Stratos, as our major distributor, provides services directly to the customer, or through a network of service providers. Stratos provides some Inmarsat services, such as GAN, Inmarsat C and Fleet, through its own terrestrial based network. It also offers fixed-site remote telecommunications services over fixed satellite systems and through its owned and operated microwave facilities. Stratos also provides customised turnkey remote telecommunications solutions, value-added services and equipment and engineering services.
The Stratos revenues comprise two revenue streams: the first being the MSS business. The second segment is the broadband business. The dominant portion of MSS revenues comprises Inmarsat airtime sales, which is approximately 77% of total MSS revenues and this represents around two thirds of total Stratos revenues.
In 2009, the largest contributor to growth for Stratos was from the leasing sector. This is a result of increased usage by government and military customers and a shift of certain on-demand GAN and Swift 64 usage to leasing contracts. This change in mix of service comes with price discounts but also provides a commitment from customers which assures revenue commitments for longer periods. It was a successful year in lease renewals as well, which contributed to the leasing growth. Stratos is building up an inventory of longer term business that can help smooth volatility over time at both the Stratos and Inmarsat Global level.
Broadband revenues reduced by 13.4% to US$91.1 million in 2009. The broadband division has experienced lower demand and operates in an increasingly competitive trading environment. Stratos' management has already taken a range of actions, and are planning further actions, to improve results.
To draw to a close, I would like to let you know that the first quarter 2010 results for Inmarsat Group Limited, our bond reporting company, will be published on 11th May. These results will be available on our website for you to download. As these will be issued shortly, I'm not able to provide any specific comments on the first quarter's results at today's meeting.
To conclude, I would like to repeat what we said when we announced our preliminary results in March this year.
2009 was another solid year of growth for Inmarsat. It was also transformational for our distribution, network and services which are poised to serve us and our customers well, for many years to come.
With a portfolio of broadband services now fully deployed globally over our Inmarsat-4 satellites, we are well positioned to meet our customers' growing data application needs and continue our revenue growth. Our land, sea and air family of broadband services were truly proven and established in the market place in 2009.
In addition, we are excited about entering the handheld satellite phone voice market. We believe this represents an attractive new growth opportunity for the future. In view of these factors we believe the group can continue to deliver solid revenue growth in 2010.
Thank you for your investment in Inmarsat.