Inmarsat plc, the leading provider of global mobile satellite communications services, reported this week unaudited consolidated financial results for the year ended 31 December 2006.
Full Year 2006 Highlights
• Total revenue $500.1 million, MSS revenue up 4% to $491.8 million
• EBITDA up 5% to $331.7 million (2005: $316.0 million)
• Strong performance across all business sectors
• BGAN service revenue contribution $9.5 million in first year
• Handheld satellite phone service introduced in line with strategic plan
• Final dividend increased 4% to 16 cents (US$) per share, total 26.66 cents
• EPS 28 cents (US$) per share (2005: 17 cents)
Q4 2006 Highlights
(Inmarsat Holdings Limited)
• Q4 revenue up 6% to $125.0 million (2005: $117.5 million)
• Q4 EBITDA up 16% to $79.4 million (2005: $68.3 million)
• Q4 BGAN revenue $4.2 million, up 31% sequentially on Q3
• BGAN active terminals advance to 7,119 (1,572 increase in Q4)
• Continued strong demand in maritime and aeronautical sectors
Andrew Sukawaty, Inmarsat’s Chairman and Chief Executive Officer said, “In 2006 we have delivered on our target of accelerated revenue growth while maintaining strong growth in operating cash flows. We are pleased that our revenue growth continues to be driven by strong performances across our business sectors and by the fast growing contribution from BGAN services. With this momentum we are confident about the year ahead. In 2007 we will see the first full year contribution from BGAN and begin the roll out of our first handheld satellite phone service. Together with the on-going healthy growth in our core maritime and aeronautical businesses, we are on track to meet our objectives for 2007.”
Mobile Satellite Services (MSS)
Continued growth in the global shipping fleet combined with increased demand for data services drove revenue growth of 7% in our maritime sector in 2006. New installations of our Fleet product range were strong during the year and through the fourth quarter. Our total number of active maritime terminals grew by 14% year over year, while our base of active Fleet terminals grew by 56%. Maritime data revenue grew 11% year over year driven by growth in the number of Fleet terminals and high usage levels across both Fleet and Inmarsat B terminals. Maritime voice revenue declined by 1% year over year, a marked improvement on the decline seen in recent years. The continued trend of stabilisation in maritime voice revenue is due to the success of off-peak services for ship crews combined with the diminishing impact of analogue to digital migration as the remaining analogue traffic on our network falls to low levels.
Our land sector revenues benefited from a growing BGAN contribution in the second half of the year. While total land sector revenue was down 5% year over year, the steady new growth in BGAN service revenue and the addition of a handheld satellite phone product in September 2006 contributed to a stronger second half. Land data revenue declined 1% year over year, but grew 7% in the second half compared to the second half 2005 despite a higher level of volume discounts in 2006. BGAN contributed $7.4 million in the second half, compared with $2.1 million in the first half. We remain encouraged that the early demand for BGAN continues to be largely driven by new customers and incremental demand from existing customers using BGAN for new applications. Furthermore, we believe the appointment of new BGAN distribution partners has been successful in reaching new customers. Growth in BGAN and a strong year for our R-BGAN service partially offset reduced demand for our services in the Middle East and continued competition from VSAT.
Competition from handheld satellite operators resulted in a fall in land voice revenue of 19% year over year. At the beginning of 2006 we announced our intention to launch our own handheld service and in September 2006 we signed a collaboration agreement with ACeS International of Indonesia to offer low-cost handheld satellite phone services initially in South East Asia. The launch of our first handheld product and the geographical expansion of coverage planned for 2007 will allow us to enhance our land voice service offering and enable us to win new customers in this growth area.
The continued success of our Swift 64 product in our aeronautical sector resulted in revenue growth of 35% over the prior year. Installations of Swift 64 terminals continued to grow during the year and through the fourth quarter, each quarter eclipsing the preceding quarter for new installations. During the year we also announced the first tests of our forthcoming SwiftBroadband product which will offer further service improvements to our aeronautical customers and support the roll out of in-flight cellular services. We expect this service to become commercially available in mid-2007.
Our leasing revenue declined 1% year over year primarily as a result of lower demand for leasing services during the first half. During the second half new leasing business contributed to a much improved performance with revenue growth of 21% over the first half 2006.
Impact of volume discounts
The volume discounts we offer to our distributors have an increasing impact on our margins as the year progresses. As our distributors reach certain volume targets we reduce our wholesale prices and this process reduces our margins until the end of the calendar year when our prices are then reset to their pre-discount level. Volume discounts have their greatest impact on our wholesale prices during the fourth quarter. As a result and consistent with prior years, our reported mobile satellite services revenue for the fourth quarter 2006 was lower than revenue reported for the third quarter 2006.
Liquidity
At the end of the year our total net external debt stood at $836.6 million, made up of cash of $42.8 million and total external debt of $879.4 million. At the end of the year we also had an available but undrawn credit facility of $300.0 million.
Outlook
We are pleased with the performance of our core business and believe the growth drivers of our 2006 performance can fuel further growth in 2007. We are targeting growth across all our business sectors in 2007 and overall a higher level of revenue growth than we achieved in 2006.
Our maritime and aeronautical businesses are experiencing steady demand for new terminals and will benefit from a full year contribution from the terminals installed in 2006. We are pleased with the rate of growth in BGAN and see the potential for greater traction in this important service in 2007. We continue to see opportunities for BGAN in new markets and will maintain a policy of adding new distribution partners as appropriate to access these opportunities. During 2007 we also expect to launch our SwiftBroadband and FleetBroadband services, however, we do not expect material revenue contributions from these services until 2008.
We expect to see a modest increase in our operating costs reflecting a full year of costs from the operations we took over from ACeS International in September 2006 and a full year of other satellite related costs, including in-orbit insurance of our Inmarsat-4 satellites. These cost increases will be partially offset by the full year effect of restructuring and headcount reductions made in 2006. The level of cash capital expenditures we expect for 2007 will be largely driven by the date of the launch of our third Inmarsat-4 satellite. Assuming the launch does not occur in 2007, we expect cash capital expenditure to be in the region of $120 million, including maintenance. In the event we can achieve a launch in 2007, we would expect total cash capital expenditure to be in the region of $240 million.
2006 Results for Inmarsat Holdings Limited and Inmarsat Group Limited
Inmarsat Holdings Limited, through its subsidiary Inmarsat Finance II plc, is the issuer of $450 million of 10.375% Senior Discount Notes due 2012. Inmarsat Group Limited, through its subsidiary Inmarsat Finance plc, is the issuer of $310.4 million of 7.625% Senior Notes due 2012. Inmarsat Holdings Limited and Inmarsat Group Limited will report full year 2006 results on Form 20-F and expect to file these reports with the SEC on or around 27 April 2007.
To assist analysts and investors in their understanding of the results, the following unaudited financial tables are provided for Inmarsat Holdings Limited, prepared in accordance with IFRS.
Inmarsat Holdings Limited
Revenue Breakdown (unaudited) Fourth quarter ended December 31,
2006 2005
Revenues (US$ in millions)
Maritime sector:
voice services 25.2 25.5
data services 45.8 40.5
Total maritime sector 71.0 66.0
Land sector:
voice services 3.9 5.6
data services 22.2 21.5
Total land sector 26.1 27.1
Aeronautical sector 8.3 6.4
Leasing (incl. navigation) 16.7 15.8
Total mobile communications services 122.1 115.3
Subsidiary revenues - 0.1
Other income 2.9 2.1
Total revenue 125.0 117.5
Inmarsat Holdings Limited
Consolidated Financial Results (unaudited) Fourth quarter ended December 31,
2006 2005
(US$ in millions)
Employee benefits costs 22.8 28.1
Network and satellite operations costs 8.1 7.0
Other operating costs 17.4 19.2
Work performed by the group and capitalised (2.7) (5.1)
Total net operating costs 45.6 49.2
