5th May 2009 12:08
5 May 2009
Inmarsat plc
Andrew Sukawaty, Chairman & Chief Executive Officer - Speech given to Shareholders at the Company's Annual General Meeting held on 5 May 2009
Good morning Ladies and Gentlemen. It is now 10.00am and it's time to start the proceedings. I offer a very warm welcome to all of you to today's annual general meeting.
I should start by noting that this is our fourth AGM as a listed company and in July this year, we celebrate 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 30 years ago. 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.
During the current period of global economic downturn, we are fortunate that many of the customers we serve, because of their own business needs, rely on our communications solutions and services even as economic conditions fluctuate. 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 2008, 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, and Kathleen Flaherty, also both independent non-executive directors.
Both Rick Medlock, who is Inmarsat's Chief Financial Officer is with us, along with Alison Horrocks, our company secretary.
Kathleen Flaherty, James Ellis and Rick Medlock are standing for re-appointment this year. 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. At our board meeting this afternoon, we will be discussing the opportunity to augment our board with another non-executive director, potentially drawing from the former board of the company we recently acquired, Stratos Global Corporation. If the board takes this decision, we will make an announcement this afternoon about an additional appointment which will come up for shareholders' approval at the 2010 AGM.
We are also joined by other members of the senior management team, including Perry Melton, who became our Chief Operating Officer in January this year, and Rupert Pearce, SVP of Inmarsat Enterprises and Group General Counsel. Jim Parm, President of Stratos Global Corporation is also present today.
We have already advised shareholders that Michael Butler was leaving Inmarsat on 30th April. I would like to thank Michael for his services to Inmarsat for the last 9 years - we appreciated his significant contributions and dedication to the business to the very end of his tenure last month. Michael's role was filled by the promotion of Perry Melton, which also had a knock-on effect on numerous roles in the Company, which we filled through internal promotions. We are very proud of the development of our team from within as demonstrated here.
One of the resolutions shareholders are being asked to approve today relates to the Remuneration Report. In this report we have provided full information about the Company's remuneration policies and how this is set for the executive directors. We have also provided details of all the incentive plans we operate for senior management and staff. We believe that the Company's policies ensure we retain the highest calibre of staff and have effective reward systems in place which are performance based. Many of our staff are world recognized experts in the highly technical and specialized field of satellite communications and we value their experience and dedication to the company. The remuneration policies reflect our focus on retention and incentivisation of our staff in alignment with business performance.
Before I provide an overview of how our business performed in 2008, I wanted to comment on the transaction we just completed on 15th April, a few weeks ago. In December 2007, one of our subsidiary companies provided a loan to a third party company to enable them to purchase Stratos Global Corporation, our largest distributor. As part of this transaction, we received an option to purchase Stratos in 2009 when the legal restrictions on our direct ownership of distribution partners expired. This restriction was an integral part of our five year distribution agreement which recently expired. We exercised the option to acquire Stratos at the first opportunity and we are delighted that they are now part of the Inmarsat Group. Due to accounting requirements, we had already been consolidating the Stratos results into the Inmarsat plc financial results and our 2008 results included a full reporting year for Stratos.
We have confirmed that Stratos will operate as an independent subsidiary company, managed by its existing management team, headed by Jim Parm who remains President. Jim Parm reports to me and will be a member of the Executive Staff. We are excited that the acquisition of Stratos, which is a complementary business, will enable us to be on a level playing field with all our competitors in the satellite industry who have been able to control some element of their end customer distribution for years.
In April this year, we also signed new distribution agreements with all of our distribution partners. These new agreements remove some of the restrictions under which we previously operated. We do not expect to have direct customer relationships ourselves, our ownership of Stratos will provide the retail relationship. We remain committed to a business model which primarily sells through our established and growing network of distribution partners and service providers. The new agreements allow increased flexibility regarding the pricing of our services and improved credit terms. The agreements are not tied to a specific renewal date and can roll forward in the future, removing the previous five year renewals which were in place. Our motivation in developing the new agreements has been to allow a continuation of the strong, and in many cases, long-standing relationships we have with our distributors to the benefit of our and their businesses. We look forward to continuing to work closely with all our partners to develop new market sectors, applications and expanding existing ones to enlarge the mobile satellite sector.
It is nearly four years since Inmarsat successfully listed on the London Stock Exchange. Yet again, in 2008 our revenue growth continued to be driven by solid performances across our business sectors, with strong revenue contributions from our land based broadband service BGAN, our aero service Swift 64 and our Fleet and FleetBroadband maritime services. Our leasing sector also performed very well - we were "hitting on all cylinders" on the revenue side, so to speak.
As well as strong revenue growth, we also had other significant operational successes such as the launch of our third Inmarsat-4 satellite in August 2008. The launch of the third satellite was the final one in the series of Inmarsat-4 satellites and represented the eleventh consecutive successful launch by the company. We have had no launch failures. We are immensely proud of this achievement and it is a real tribute to the world class group of engineers and scientists that we have. The construction of our third ground station in Hawaii was completed in time to be operational for the launch of the third Inmarsat-4. We now have three ground stations which provide essential network backhaul and satellite control support for our broadband family of services - for BGAN, FleetBroadband and SwiftBroadband and our three Inmarsat-4 satellites. Our ground stations also support our Satellite Phone Services (referred to as SPS) and will carry our Global SPS when it is launched in 2010.
With the successful launch of the third Inmarsat-4 satellite, we commenced a repositioning programme of some of our satellites to provide global service for our broadband services and enhanced coverage for our land users. This repositioning involved 58 satellite manoeuvres on five satellites, perhaps the biggest single reconfiguration of a satellite network in the history of the commercial satellite industry. The repositioning timetable commenced in December 2008 and finished on schedule before the end of February 2009. We worked closely with all our distributors to minimise disruption for customers. Some of our distributors are responsible for operating land earth stations which carry traffic for our heritage services and they played an important role in the smooth management of the repositioning process. It is a testament to the skills of the many teams involved in how efficiently the process was completed with negligible effect on customers. The result of the repositioning is that we have global coverage for our broadband services as well as our heritage services, in all our sectors of land, sea and air.
Another operational programme which fully commenced in 2008 is our next generation satellite, Alphasat. We are making good progress with the Alphasat project, where we are the commercial partner for the European Space Agency in the construction of the Alphasat satellite. The satellite will add capacity, service capability and network redundancy to further enhance our business position. We expect to launch this in 2012/2013. In addition to Alphasat and due to the nature of our business, we must plan many years ahead for the next generation of satellites, which will be the Inmarsat-5s. The preliminary planning work on the Inmarsat-5s started in 2008. Satellite planning and construction is a multi-year programme and it is appropriate for us to start the initial work to look at the scope of the next generation. Significant funds on the Inmarsat-5s will not be spent until the middle of the next decade however, ensuring a period of significantly reduced capital expenditure needs for our core business in the years ahead.
In 2008, we submitted an application under the European S-band Application Process for an award of S-band spectrum. Awards under this new European satellite program we expect to be made in the weeks ahead. We submitted a strong application and believe that we stand a good chance of being awarded a license. If so, we are looking to develop, what is really a new line of business with commercial partners. We have identified partners to support our application and are pursuing discussions to establish commercial partnerships. We must ensure that the returns from the project will generate an acceptable rate on return, without undue risk or uncertainties for our business and we will proceed carefully until this funding is in place. The hybrid terrestrial/satellite network contemplated here, really does require terrestrial partners to be successful, so we are focused on this.
We also recently announced a strategic investment, long term global distribution agreement and new product development agreement with SkyWave Mobile Communications Inc. based in Canada. Skywave operate in the low data rate satellite market. Examples of this are in the rail or truck haulage services sector, using satellite tracking service for security or logistical purposes. We are investing in their business because we see the strong potential in the low data rate market which has an estimated size of US$600 million today in end user revenue and significant growth potential. This move with SkyWave, GlobalWave (which it acquired simultaneously with the transaction) and Roper Industries, positions us solidly competitively in this high growth market. This investment and partnership with SkyWave fits our strategic commitment to pursue opportunities that leverage our satellite network assets while leaving the applications development to independent companies such as SkyWave and Satamatics.
The areas I have touched on above give a flavour for the strategic areas we consider as a business. We 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 2008 Results.
Revenues for Inmarsat plc, including Stratos, took us to being almost a billion dollar revenue company. EBITDA, or earnings before interest, tax, depreciation and amortisation, at the group level was over US$530.0m with all other key performance indicators increasing from 2007.
With our growth in top line revenues and EBITDA performance and free cash flow during 2008, we have been able to increase our dividend payments. Your board has proposed a final dividend of 18.20 cents (US$) per share, making a full year dividend of 30.33 cents (US$). This represents an increase of 5% over 2007 and is in line with our policy of building sustainable cash returns to our shareholders. The final dividend, if shareholders approve the resolution at today's AGM, will be paid on 29th May to shareholders on the share register at 15th May.
The financial information I refer to now relates to the Inmarsat Core business, which excludes results for Stratos.
Revenues for the Inmarsat Core business for 2008 were US$634.7m, up 13.9% from 2006. With our strong revenue growth and well controlled costs, our EBITDA, increased by 12.5% to US$431.6m. This revenue growth has continued to ensure that we are delivering against and comfortably exceeding the revenue growth target of 5-6% per annum set at the time of our public company listing in 2005. We increased this target to 6-8% annual growth through 2010, and we have continued to exceed this target. Our business is by and large a fixed cost base and is highly leverageable, in other words, as revenues grow we see margin expansion and strong operating profit growth and this has now been clearly and consistently demonstrated.
Data revenues in the maritime sector for 2008 increased by 9.7% to US$227.8m, driven by increased usage of our Fleet service and the strong take up of our new FleetBroadband service. Our maritime voice services showed a return to revenue growth, which has been achieved through pricing stability and continued success with low cost voice services.
Data revenues in the land mobile sector increased 17.6% to US$130.5m reflecting continued strong growth in our BGAN services introduced just 21/2 years ago. Although we've noticed a decline in the concentrated high-speed data traffic in the Middle East during 2008, we also saw good signs of more diversified growth in the use of BGAN across a significant number of countries, some where we previously had little or no traffic so the service is diversifying among users, which bodes well for its future. BGAN revenues during 2008 reflected a significant increase over 2007, with subscriber numbers increasing 75% over the same period, with over 11,800 new terminals activated. In line with our expectations, we saw migration to BGAN from our R BGAN service, which closed, as planned, at the end of 2008, and our GAN service.
We have already announced we will be launching a global satellite hand-held phone service and we are targeting the second quarter of 2010 for the availability of the new handset. When we introduce our global service, we are positioned to take an immediate share in this established market, where we currently have no presence. We believe our established brand, reputation for quality and reliability, competitive prices and network of global distribution partners will allow us to play a significant role in the mobile satellite hand-held market.
Moving on to the Aero market, our Swift 64 aeronautical service helped to boost our aero revenues by over 45% in 2008 and we also saw continued growth in our classic aeronautical services. New applications using our new aero service, SwiftBroadband, have started to be adopted by airlines and we expect there to be on-going fleet roll-outs of SwiftBroadband during 2009. Our partners are continuing to see strong interest from airlines in the in-flight use of mobile phone and other communications devices such as PDAs and Blackberrys.
At the start of my comments today, I mentioned that our customers use Inmarsat for mission critical services globally, at times in the most extreme environments on our planet. Whether it is life saving services at sea, humanitarian efforts in war zones on land or vital communication services while airborne, they depend on Inmarsat services to be there when they need them. This is an obligation we take extremely seriously. Now our move into broadband services, drives our service quality levels and reliability further, allowing our customers to access the same services in the same way, wherever they go globally. I would also like to emphasise that we remain committed to the maritime community, and are still the only provider of satellite communications services for the Global Maritime Distress and Safety System, known as GMDSS. These global life securing services at sea were the reason for our creation by the International Maritime Organization and remains a fundamental element of what we deliver with our satellites past, present and future.
The results for our US reporting entities for the first quarter of 2009 will be published on 8th May. The Stratos results for the first quarter will be announced on 7th May (US time). Both sets of results will be available on our website for you to download. As these will be issued shortly, I am 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. We produced very strong results in 2008, against a backdrop of the start of the global downturn. We saw sustained growth across all our market sectors and as a consequence were able to deliver results well ahead of market expectations. The successful launch of our third Inmarsat-4 satellite completed global coverage for our broadband services and places us in a strong position to continue our growth. At the same time our capital needs will reduce substantially.
Despite global economic uncertainty, Inmarsat Core trading results since the start of the year have been positive and we remain cautiously optimistic that we can deliver solid revenue growth in 2009.
Thank you for your investment in Inmarsat.
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