2 May 2018 11:36
INMARSAT PLC - ANNUAL GENERAL MEETING: 2 MAY 2018
ANDREW SUKAWATY: CHAIRMAN
Good morning, ladies and gentlemen, and welcome to Inmarsat plc's 2018 Annual General Meeting.
I would like to start today's meeting by introducing our board of directors:
· Dr Abe Peled, our senior independent non-executive director; Simon Bax, our Remuneration Committee Chairman; and Rob Ruijter, our Audit Committee Chairman
· Also with us are Sir Bryan Carsberg and Pip McCrostie, and we are also delighted to welcome Warren Finegold to his first Inmarsat AGM; Warren joined the Board in August 2017.
· Unfortunately three of our non-executive directors - Dr Hamadoun Touré, retired General Robert Kehler and Janice Obuchowski are not able to be here with us today due to unforeseen personal matters.
· Rupert Pearce, our Chief Executive Officer; and Tony Bates, our Chief Financial Officer along with Alison Horrocks, our Chief Corporate Affairs Officer and Company Secretary are also present.
Shortly Rupert Pearce, our CEO, will provide some comments of our business performance in 2017 and also provide some highlights from our first quarter results for 2018 which we announced this morning. Before he does, I would like to share some comments about Inmarsat.
We saw solid progress in 2017 towards our objectives of building a significant new mobile broadband business with our new Global Xpress constellation, as well as investing in establishing a leadership position in the largest growth opportunity in the commercial satellite sector, In-Flight Connectivity for the commercial aviation sector. In our core business overall, particularly in Maritime, Aviation and Government, we have seen solid steady performance in the face of growing competition.
However, we have been hit with headwinds as well, which have negatively affected our share price. We have received feedback from shareholders on this fact as we engaged with them ahead of the AGM and their disappointment that the share price has been under so much pressure. Some of these derive from issues in the sector we are in. Firstly, there is growing overcapacity in the fixed satellite space, derived from declining video and telecoms revenues, markets we are not in. Secondly, companies in the sector who are financially stressed have dropped prices. As a result of these factors, fixed satellite operators are attempting to enter the higher growth mobile satellite space where we operate. We believe these trends were predictable and known. It was contemplated as we invested further, over the last few years, so as to maintain leadership in the mobile satellite sector of commercial satellites. We also acknowledge that the share price has been affected by the change in dividend policy which we announced on 9 March, which I will touch on shortly.
Major accomplishments for the year include two successful satellite launches, a set of new service launches across land, sea and air, as well as tremendous progress on the build, licensing and sales of our soon to be launched European Aviation Network. We have built up our presence and costs in aviation so that we are in a position to successfully support and grow that business in the years ahead.
While certainly there were operational and sector challenges in 2017, overall the management team has executed well and achieved our primary strategic objectives for positioning the business for growth. We have met extensively with shareholders and listened. It is clear from this feedback that there is growing concern about the impact of our medium to long-term investments on the short-term financial performance of the business and the implications for our financial strength downstream. It is important to emphasise that our business remains on a solid footing financially and the Board remains supportive of the investment path we are on. However, we will continue to assess various paths to enhance our progress over the short term, as well as the long-term, to address the concerns which have been raised.
That brings me to the Board's decision on the dividend going forward. During 2017, particularly in the second half of the year, two elements started to become clearer. Firstly, the Board's conviction around our opportunity to build our position in the emerging and substantial In-Flight Connectivity segment continued to grow and, secondly, the continued lack of visibility and uncertainty around the future cash contribution from Ligado Networks. With these factors in mind, particularly their potential impact on our short to medium-term cash flow profile, the Board took the decision to reduce the level of annual (full year) dividend payments to shareholders to 20.00 cents ($) per share.
The dividend will remain at these levels until our cash flow grows sufficiently, to make future increases in the dividend appropriate. Whilst this was an extremely difficult decision for the Board to take, we had to ensure the right balance between providing our shareholders with attractive cash returns and doing what is right for the business.
Turning now to the Board. Early last year, two of our long-standing Directors retired from the Board, with one having been appointed at the time of our IPO in 2005 and the second in 2006. We would like to thank Stephen Davidson and Kathleen Flaherty for their significant contributions to the success of Inmarsat over more than a decade. Joining the Board during 2017 was Warren Finegold. Warren has tremendous experience in the telecoms sector, having recently retired as a senior executive with Vodafone, as well as significant experience in investment banking.
We have asked Sir Bryan Carsberg, a long-standing Director at Inmarsat, to stay on the Board, while recognising he is no longer deemed independent due to his tenure with us. Bryan will continue to participate in the Audit and Remuneration Committees, but no longer as a formal member.
The Board believes Inmarsat is on the right course to continue to grow profit and prosper for our customers, staff and shareholders. I would like to thank our shareholders who have supported the continued evolution of our business into new and essential growth opportunities.
RUPERT PEARCE - CEO
Good morning ladies and gentlemen. I will summarise some of the key elements of our performance in 2017 and then provide a few comments on our Q1 results announced this morning.
In 2017, we achieved a strong performance across all our business units. Our solid operational progress supported the Group in delivering revenue growth of over 5% for the year, with our investment in Global Xpress, our high bandwidth global mobile satellite network, starting to show material returns, generating over $140m of revenue in the year. We also delivered several notable successes in the ongoing development of our global networks, including the launch of our fourth Ka-band Global Xpress satellite, the launch of our S-band satellite to provide the space component of our hybrid European Aviation network, the procurement of our fifth GX satellite to be launched in 2019, ongoing progress with the manufacture of two Inmarsat-6 L-band satellites which will replace our ageing Inmarsat-4 satellites in 2020 and 2021, and the procurement of two new launchers for these satellite programmes including our first ever contract with Mitsubishi Heavy Industries for their H2A launch vehicle.
These extensive ongoing investments in our global network infrastructure drove an increase in capital expenditure in 2017, which was the primary driver behind the reduction in our free cash flow in the year.
Our performance in 2017, supported by the organisational developments we made in the year, will help to ensure that Inmarsat remains well positioned to capture the significant growth opportunities across all our markets that will become available in the coming years. We continue to see big growth in demand for both global mobile satellite broadband services as well as lower speed, high resilience satellite connectivity services to support emerging IoT applications. With two complementary global satellite communications networks (each with in-orbit redundancy), we are fully focused on meeting that demand with highest quality, differentiated capabilities to drive long-term revenue and EBITDA growth for Inmarsat.
As we announced our Q1 2018 results this morning, I would like to share some of the highlights with you.
Overall Inmarsat delivered another solid performance in the first quarter of 2018, with good revenue growth, building on the positive momentum we achieved during the course of 2017.
Group Revenue increased $15.9m (up 4.8%) to $345.4m (up 5.0% to $313.3m, excluding Ligado), driven by growth in Aviation, Enterprise and Maritime.
In Maritime there was another quarter of year-on-year revenue growth, supported by further market traction with Fleet Xpress. This is particularly pleasing in a market which remains in a cyclical downturn and in which competitive pressures are growing. The pace of FX installations remained strong, driven by the on-going ramp-up of our internal installation capability and increased engagement from our distribution partners, which is expected to further drive the FX installation rate going forward. FleetBroadband (FB) vessel numbers declined, principally as a result of ARPU-accretive customer migrations to Fleet Xpress, but also due to lower value users being impacted by market pressures or moving to one of our competitors. We want to stop this erosion of the bottom end of our FB base and are in the process of taking action to achieve this. In Fleet One, our L-band product for the smaller vessel market, we made reasonable progress in developing our new business pipeline and in developing new distribution channels and business models for this new market opportunity, with a view to scaling this product over the medium term.
As expected Government revenue reduced mainly due to lower contracted revenue from the Boeing Take-or-Pay contract and the end of some exceptional operational activities outside the US. However, we remain well-positioned for long-term growth in this sector, with a combination of unique global broadband and high resilience services tailored to the needs of our Government customers.
Within Aviation we saw continued double digit revenue growth in both our Core Aviation business and In-Flight Connectivity (IFC). We now have over 220 JetConneX installations in the BGA sector, representing a very fast start for this new broadband service. At the end of Q1 2018, we had over 1,300 aircraft expected under signed contracts for our GX Aviation IFC services with 245 GX-installed aircraft across a number of customers. Our pipeline of new business continues to look strong, with GX beginning to garner an excellent reputation for quality in the global marketplace for IFC services. Installation revenue is expected to ramp-up during the remainder of the year and we are expecting the first commercial GX IFC services to go live in the coming months.
For the European Aviation Network, our ground-breaking hybrid satellite/terrestrial network in S-band which promises to revolutionise passenger connectivity in the sizeable European short-haul segment, we have continued to make decent progress and anyone who has experienced the extensive ongoing air trials will have been impressed by the capabilities of the new service. We remain on track in our preparations with our launch customers for the service roll-out.
Finally, we have recently announced the commercial launch of our next generation safety product in L-band called SwiftBroadband-Safety, which we believe will position us strongly for future growth in safety, cockpit-based operational services and air traffic management support.
Enterprise has had its strongest quarter of growth for many years, mainly as a result of 100% growth in satellite phone airtime and handset revenue, driven by several important new partnerships. Machine to Machine (M2M) revenues continued their positive growth trajectory, providing a firm foundation from which we can incubate future development opportunities around "internet of things" applications over the long term.
A copy of the full detail of our Q1 results is available on our website.
To sum up, we made good early progress against our 2018 goals in the first quarter. This gives us further confidence we will continue to deliver sector-leading growth in the future and we reiterated this morning all elements of our future guidance around medium term revenue, EBITDA and free cash flow growth and also reconfirmed our capex expenditure for the period 2018-2020.
ANDREW SUKAWATY - CHAIRMAN
Thank you for your investment in Inmarsat. We appreciate your support of our business.