27th Feb 2007 07:01
Inmarsat PLC27 February 2007 Inmarsat plc Reports Preliminary Full Year Results 2006 London, UK: 27 February 2007. Inmarsat plc, the leading provider of globalmobile satellite communications services, today reported unaudited consolidatedfinancial 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 2006we have delivered on our target of accelerated revenue growth while maintainingstrong growth in operating cash flows. We are pleased that our revenue growthcontinues to be driven by strong performances across our business sectors and bythe fast growing contribution from BGAN services. With this momentum we areconfident about the year ahead. In 2007 we will see the first full yearcontribution from BGAN and begin the roll out of our first handheld satellitephone service. Together with the on-going healthy growth in our core maritimeand 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 fordata services drove revenue growth of 7% in our maritime sector in 2006. Newinstallations of our Fleet product range were strong during the year and throughthe 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%. Maritimedata revenue grew 11% year over year driven by growth in the number of Fleetterminals and high usage levels across both Fleet and Inmarsat B terminals.Maritime voice revenue declined by 1% year over year, a marked improvement onthe decline seen in recent years. The continued trend of stabilisation inmaritime voice revenue is due to the success of off-peak services for ship crewscombined with the diminishing impact of analogue to digital migration as theremaining analogue traffic on our network falls to low levels. Our land sector revenues benefited from a growing BGAN contribution in thesecond half of the year. While total land sector revenue was down 5% year overyear, the steady new growth in BGAN service revenue and the addition of ahandheld satellite phone product in September 2006 contributed to a strongersecond half. Land data revenue declined 1% year over year, but grew 7% in thesecond half compared to the second half 2005 despite a higher level of volumediscounts in 2006. BGAN contributed $7.4 million in the second half, comparedwith $2.1 million in the first half. We remain encouraged that the early demandfor BGAN continues to be largely driven by new customers and incremental demandfrom existing customers using BGAN for new applications. Furthermore, webelieve the appointment of new BGAN distribution partners has been successful inreaching new customers. Growth in BGAN and a strong year for our R-BGAN servicepartially offset reduced demand for our services in the Middle East andcontinued competition from VSAT. Competition from handheld satellite operators resulted in a fall in land voicerevenue of 19% year over year. At the beginning of 2006 we announced ourintention to launch our own handheld service and in September 2006 we signed acollaboration agreement with ACeS International of Indonesia to offer low-costhandheld satellite phone services initially in South East Asia. The launch ofour first handheld product and the geographical expansion of coverage plannedfor 2007 will allow us to enhance our land voice service offering and enable usto win new customers in this growth area. The continued success of our Swift 64 product in our aeronautical sectorresulted in revenue growth of 35% over the prior year. Installations of Swift64 terminals continued to grow during the year and through the fourth quarter,each quarter eclipsing the preceding quarter for new installations. During theyear we also announced the first tests of our forthcoming SwiftBroadband productwhich will offer further service improvements to our aeronautical customers andsupport the roll out of in-flight cellular services. We expect this service tobecome commercially available in mid-2007. Our leasing revenue declined 1% year over year primarily as a result of lowerdemand for leasing services during the first half. During the second half newleasing business contributed to a much improved performance with revenue growthof 21% over the first half 2006. Impact of volume discounts The volume discounts we offer to our distributors have an increasing impact onour margins as the year progresses. As our distributors reach certain volumetargets we reduce our wholesale prices and this process reduces our marginsuntil the end of the calendar year when our prices are then reset to theirpre-discount level. Volume discounts have their greatest impact on ourwholesale prices during the fourth quarter. As a result and consistent withprior years, our reported mobile satellite services revenue for the fourthquarter 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, madeup of cash of $42.8 million and total external debt of $879.4 million. At theend of the year we also had an available but undrawn credit facility of $300.0million. Outlook We are pleased with the performance of our core business and believe the growthdrivers of our 2006 performance can fuel further growth in 2007. We aretargeting growth across all our business sectors in 2007 and overall a higherlevel of revenue growth than we achieved in 2006. Our maritime and aeronautical businesses are experiencing steady demand for newterminals and will benefit from a full year contribution from the terminalsinstalled in 2006. We are pleased with the rate of growth in BGAN and see thepotential for greater traction in this important service in 2007. We continueto see opportunities for BGAN in new markets and will maintain a policy ofadding new distribution partners as appropriate to access these opportunities.During 2007 we also expect to launch our SwiftBroadband and FleetBroadbandservices, however, we do not expect material revenue contributions from theseservices until 2008. We expect to see a modest increase in our operating costs reflecting a full yearof costs from the operations we took over from ACeS International in September2006 and a full year of other satellite related costs, including in-orbitinsurance of our Inmarsat-4 satellites. These cost increases will be partiallyoffset by the full year effect of restructuring and headcount reductions made in2006. The level of cash capital expenditures we expect for 2007 will be largelydriven by the date of the launch of our third Inmarsat-4 satellite. Assumingthe launch does not occur in 2007, we expect cash capital expenditure to be inthe region of $120 million, including maintenance. In the event we can achievea launch in 2007, we would expect total cash capital expenditure to be in theregion of $240 million. Other Information A webcast recording of the analyst presentation to be held on 27 February at 9:00am will be posted to our website after the event. To access the webcastplease go to: www.inmarsat.com/investor_relations/. Inmarsat management willalso host a conference call on Tuesday, 27 February at 3:00pm London time(United States 10:00am EST). To access the call please dial +44 1452 542 300and enter reservation code 6620797. A recording of the call will be availablefor one week. To access the recording please dial +44 1452 550 000 and enterreservation code 6620797#. 2006 Results for Inmarsat Holdings Limited and Inmarsat Group Limited Inmarsat Holdings Limited, through its subsidiary Inmarsat Finance II plc, isthe issuer of $450 million of 10.375% Senior Discount Notes due 2012. InmarsatGroup Limited, through its subsidiary Inmarsat Finance plc, is the issuer of$310.4 million of 7.625% Senior Notes due 2012. Inmarsat Holdings Limited andInmarsat Group Limited will report full year 2006 results on Form 20-F andexpect to file these reports with the SEC on or around 27 April 2007. To assist analysts and investors in their understanding of the results, thefollowing unaudited financial tables are provided for Inmarsat Holdings Limited,prepared in accordance with IFRS. ____________________ Inmarsat Holdings Limited Fourth quarter ended December 31, Revenue Breakdown (unaudited) ____________________ 2006 2005 Revenues (US$ 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 Fourth quarter ended December 31, Consolidated Financial Results (unaudited) ____________________ 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 ____________________ Forward-looking Statements Certain statements in this announcement constitute "forward-looking statements"within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.These forward-looking statements involve risks, uncertainties and otherfactors that may cause our actual results, performance or achievements, orindustry results, to be materially different from those projected in theforward-looking statements. These factors include: general economic andbusiness conditions; changes in technology; timing or delay in signing,commencement, implementation and performance of programmes, or the delivery ofproducts 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 speakonly as of the date of this announcement. We undertake no obligation to updateor revise any forward-looking statement to reflect any change in ourexpectations or any change in events, conditions or circumstances. Contacts: Inmarsat plc Investor Enquiries Media EnquiriesSimon Ailes, +44 20 7728 1518 John Warehand, +44 20 7728 [email protected] [email protected] INMARSAT PLC PRELIMINARY CONSOLIDATED FINANCIAL RESULTS For the year ended 31 December 2006 (unaudited) Forward-Looking Statements This document contains forward-looking statements. These forward-lookingstatements include all matters that are not historical facts. Statementscontaining the words "believe", "expect", "intend", "may", "estimate" or, ineach case, their negative and words of similar meaning are forward-looking. By their nature, forward-looking statements involve risks and uncertaintiesbecause they relate to events that may or may not occur in the future. Wecaution you that forward-looking statements are not guarantees of futureperformance and that our actual financial condition, results of operations andcash flows, and the development of the industry in which we operate, may differmaterially from those made in or suggested by the forward-looking statementscontained in this document. In addition, even if our financial condition,results of operations and cash flows, and the development of the industry inwhich we operate, are consistent with the forward-looking statements in thisdocument, those results or developments may not be indicative of results ordevelopments in subsequent periods. Important facts that could cause our actualresults of operations, financial condition or cash flows, or the development ofthe industry in which we operate, to differ from our current expectationsinclude those risk factors disclosed in our Initial Public Offering Prospectusas filed with the London Stock Exchange on 17 June 2005 and the InmarsatHoldings Limited and Inmarsat Group Limited Forms 20-F for the year ended 31December 2005. As a consequence, our current plans, anticipated actions and future financialcondition, results of operations and cash flows, as well as the anticipateddevelopment of the industry in which we operate, may differ from those expressedin any forward-looking statements made by us or on our behalf. Non-GAAP Measures We use a number of non-GAAP measures in addition to GAAP measures in order toprovide readers with additional understanding of the underlying performance ofour business, and to aid comparability of our results for the periods concerned. Net Borrowings Net Borrowings is defined as total borrowings less cash at bank and in hand lessshort term deposits with an original maturity of less than three months. EBITDA We define EBITDA as profit before interest, taxation, depreciation andamortisation. Other companies may define EBITDA differently and, as a result,our measure of EBITDA may not be directly comparable to the EBITDA of othercompanies. TABLE OF CONTENTS Operating and Financial ReviewConsolidated Income Statement for the year ended 31 December 2006Consolidated Statement of Recognised Income and Expense for the year ended 31 December 2006Consolidated Balance Sheet as at 31 December 2006Consolidated Cash Flow Statement for the year ended 31 December 2006Notes to the Consolidated Financial Results Operating and Financial Review The following is a discussion of the unaudited consolidated results ofoperations and financial condition of Inmarsat plc (the "Company" or togetherwith its subsidiaries, the "Group") for the year ended 31 December 2006. Youshould read the following discussion together with the whole of this documentincluding the historical consolidated financial results and the notes. Theconsolidated financial results were prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union (EU) andIFRIC interpretations issued and effective at the time of this report. Overview Inmarsat is the leading provider of global mobile satellite communicationsservices, providing data and voice connectivity to end-users worldwide. Inmarsathas more than twenty-seven years of experience in designing, launching andoperating its satellite-based network. With a fleet of ten owned and operatedgeostationary satellites, the Group provides a wide range of data and voiceservices, including telephony, fax, video, email and high-speed intranet andinternet access. The Group's revenues, operating profit and EBITDA for 2006 were$500.1m, $174.9m and $331.7m, respectively (2005: $491.1m, $209.5m and $316.0m,respectively). We report our results of operations in US dollars as the majority of ourrevenues and our borrowings are denominated in US dollars. Growth of BGAN Revenues Having commercially launched the Broadband Global Area Network ('BGAN') servicein December 2005, Inmarsat has shown consistent growth in revenue and subscribernumbers through 2006, recording $9.5 million of revenue in the year and 7,119subscribers at 31 December. We are encouraged that this revenue is largelyearned from new customers and from the use of new applications by existingcustomers, and believe that this reflects exciting opportunities for futuregrowth. We anticipate expanding the availability of our high-speed data servicesstill further with the launch of SwiftBroadband and FleetBroadband during 2007,although we do not expect material revenue contributions from these servicesuntil 2008. Launch of handheld service On 4 September 2006, Inmarsat and ACeS International Limited ('ACeS') announcedthe signing and completion of collaboration arrangements to offer low-costhandheld and fixed voice services, initially in the Asian market with extendedcoverage expected subsequently using the Inmarsat-4 satellites. Under thecollaboration arrangements, Inmarsat assumed responsibility for ACeS' satelliteand network operations, wholesale service provision and product and servicedevelopment. ACeS now focuses on distribution of MSS products in the Asian landand maritime markets and has become a distributor of Inmarsat's BGAN services. As a result of these arrangements, Inmarsat took over the daily active base ofapproximately 10,000 terminals operated by ACeS, and 53 employees located atACeS' operational centre in Batam, Indonesia. Inmarsat will pay ACeS a total of$15.0m over four years, of which an initial payment of $4.0m was made oncompletion and a second payment of $1.5m was made on 30 January 2007. Thearrangements taken together constitute a business combination under IFRS 3, 'Business Combinations'. Revenues in the land voice and maritime voice segments,as disclosed below, each contain a small element of revenue earned sincecompletion. To enable expanded handheld voice services coverage using the existingInmarsat-4 satellites, Inmarsat will undertake a process of network upgrades andan accelerated modernisation of the ACeS R190 handheld satellite phone. It iscurrently intended that an interim service will be available over the Inmarsat-4F1 footprint from around the middle of 2007 and over the full Inmarsat-4coverage area by the end of 2008. New Distribution Partners Eight new BGAN distribution partners have been appointed since 31 December 2005.Allowing for the completion of the merger of Stratos and Xantic on 14 February2006, the total number of BGAN distributors is now 16. Restructuring programme In January 2006 the Group announced its intention to effectorganisational changes to reflect the fact that the Inmarsat-4 programme wasnearing completion. The principal action in the restructuring plan was aredundancy programme involving 42 employees. The redundancies primarily relatedto those employees responsible for the completion of the Inmarsat-4 programme,with the departure of staff being phased across the year. Redundancy and otherrestructuring costs of $6.8m have been recognised as an expense for the yearended 31 December 2006, and are expected to result in annualised savings ofapproximately $8.7m. Dividends On 26 May 2006, the Company paid a final dividend of 10.95 cents(US$) per ordinary share in respect of the year ended 31 December 2005. On 27October 2006, the Company paid an interim dividend of 10.66 cents (US$) perordinary share in respect of the year ended 31 December 2006. The Board intendsto recommend a final dividend of 16 cents (US$) per ordinary share in respect ofthe year ended 31 December 2006. In accordance with IAS 10, this final dividendhas not been recorded as a liability in the financial statements at 31 December2006. The total dividend paid and proposed for the year ended 31 December 2006equals 26.66 cents (US$) per ordinary share, a 4.1% increase over 2005, andamounts to $121.6m. Disposal of lease receivable and associated settlement On 11 December 2006 the Group announced the disposal of itswholly-owned subsidiary Burses Limited (formerly Inmarsat Leasing (Three)Limited). At the date of disposal, the sole asset of Burses Limited was anintra-group lease receivable. This lease amount, and an additional premium, wassettled in full by the Group subsequent to the disposal. Following thesettlement, the Group has no further liability to, or interest in, BursesLimited. Revenues Revenues for 2006 were $500.1m, an increase of $9.0m, or 1.8%,compared with 2005. Revenues excluding subsidiaries disposed of increased by4.4%, from $479.2m to $500.1m. The table below sets out the components of our total revenue foreach of the periods under review. _____________________________________________________________________________________________________ 2006 2005 Increase/ (unaudited) (audited) (decrease)_____________________________________________________________________________________________________ (US$ in millions) %_____________________________________________________________________________________________________RevenuesMaritime sector:voice services 100.9 102.0 (1.1)data services 183.8 165.1 11.3_____________________________________________________________________________________________________Total maritime sector 284.7 267.1 6.6Land sector:voice services 19.2 23.6 (18.6)data services 96.9 98.2 (1.3)_____________________________________________________________________________________________________Total land sector 116.1 121.8 (4.7)Aeronautical sector 30.7 22.7 35.2Leasing (incl. navigation) 60.3 60.9 (1.0)_____________________________________________________________________________________________________Total mobile satellite communications services 491.8 472.5 4.1_____________________________________________________________________________________________________Subsidiaries disposed of in 2005 - 11.9Other income 8.3 6.7 23.9_____________________________________________________________________________________________________Total revenue 500.1 491.1 1.8_____________________________________________________________________________________________________ ____________________________________________________________________________________('000s) 2006 2005____________________________________________________________________________________Active terminals (1) (2)Maritime 139.5 122.6Land 80.8 76.9Aeronautical 7.7 6.8____________________________________________________________________________________Total active terminals 228.0 206.3__________________________________________________________________________________ (1) Active terminals are the number of subscribers (R-BGAN and BGAN) orterminals that have been used to access commercial services at any time duringthe preceding twelve-month period (other services except handheld) registered asat 31 December. Active handheld terminals are the average number of terminalsactive on a daily basis during the period. (2) Active terminals as at 31 December 2006 include 9,922 ACeS terminals and7,119 BGAN subscribers (as at 31 December 2005: nil and nil, respectively).The average daily active number of handheld SIM cards was 13,904. During 2006, revenues from mobile satellite communicationservices were $491.8m, an increase of $19.3m, or 4.1%, compared with 2005.Growth has been strong as a result of continued success in services such asFleet and Swift 64; the launch of BGAN in December 2005; and we haveadditionally seen a revenue contribution from handheld services since September2006. This growth has been partly offset by lower demand for our services in theMiddle East and competition from other technologies. The maritime, land,aeronautical and leasing sectors accounted for 57.9%, 23.6%, 6.2% and 12.3% oftotal revenues from mobile satellite communication services respectively during2006. Revenues for 2006 reflect the increased volume discounts arising from themerger of Stratos and Xantic which was completed on 14 February 2006. Revenuesfor 2005 included the effect of the relief work arising out of the Asian tsunamiof 26 December 2004. We do not consider that our revenues in 2006 havebenefited from any 'one-off' or event-type revenues. Maritime Sector. During 2006, revenues from the maritime sectorwere $284.7m, an increase of $17.6m, or 6.6%, compared with 2005. Thisprincipally reflects an increase in data revenue with a decrease in voice.Revenues from data services in the maritime sector during 2006 were $183.8m, anincrease of $18.7m, or 11.3%, compared with 2005. The increase in revenues fromdata services reflects greater demand, as a result of the take-up andutilisation of our Fleet services in the new-build market, and increased datausage over our smaller terminals with lower-speed capabilities, such as InmarsatB and Mini M. Revenues from voice services in the maritime sector during 2006were $100.9m, a decrease of only $1.1m, or 1.1%, compared with 2005, reflectingincreasing signs of stabilisation in this sector. Historically our voicerevenues for maritime services have been affected in some cases by competitionand by the migration of users from our higher-priced analogue service to ourlower priced digital services although the remaining levels of analogue users onour network are now at much lower levels. This stabilisation in voice hasbenefited from growth in both our newer Fleet service and various promotions forMini M, which we have initiated to promote greater use of our services by ships'crews and to respond to increased competition. Land Sector. In 2006, revenues from the land sector were $116.1m, adecrease of $5.7m, or 4.7%, compared with 2005. Revenues from data services inthe land sector during 2006 were $96.9m, a decrease of $1.3m, or 1.3%, comparedwith 2005. The decrease is a result of the decline in high-speed data trafficfollowing a reduction in traffic in the Middle East and competition from VSAT.This has been offset in part by the launch of BGAN and increased demand forR-BGAN with both services contributing strongly in the second half. Revenuesfrom voice services in the land sector during 2006 were $19.2m, a decrease of$4.4m, or 18.6%, compared with 2005. This continues the trend seen over the lastfew years of declining traffic volumes resulting from competition, principallyfor our Mini M and large antenna Mini M services, from operators of handheldsatellite telephones who offer lower-priced voice services. We believe that thelaunch of our own handheld voice product over the Inmarsat-4 coverage area willenhance our land voice offering and enable us to win customers in this growtharea. Revenues from BGAN services during 2006 are set out in the table below. Thesefigures include voice, data and subscription revenues. As at 31 December 2006there were 7,119 active BGAN subscribers. ________________________________________________________________________________________________BGAN Services Three months ended Year ended________________________________________________________________________________________________ 31 March 30 June 30 September 31 December 31 December 2006 2006 2006 2006 2006________________________________________________________________________________________________Revenues (US$ in millions) 0.5 1.6 3.2 4.2 9.5Active subscribers 2,113 3,367 5,547 7,119 7,119________________________________________________________________________________________________ Aeronautical Sector. During 2006, revenues from the aeronauticalsector were $30.7m, an increase of $8.0m, or 35.2%, compared with 2005. Theincrease continues to be attributed primarily to increased demand for our Swift64 high-speed data service, which targets the government aircraft and businessjet markets as well as being used by commercial airlines. Leasing. During 2006, revenues from leasing were $60.3m, a decreaseof $0.6m, or 1.0%, compared with 2005. The decrease relates primarily to thefirst half of the year, with a strong improvement in the second half due to thesigning of a significant Swift 64 lease. Leasing growth in the land andaeronautical sectors has been offset by a decline in the maritime sector. Subsidiaries disposed of in 2005. Subsidiary revenues in 2005represent revenues from former subsidiary operations Invsat Limited and RydexCorporation Limited. Both these operations were disposed of during 2005. Other income. Other income for 2006 was $8.3m, an increase of $1.6m or 23.9%,compared with 2005. Other income consists primarily of income from the provisionof conference facilities, renting surplus office space, fees for in-orbitsupport services and revenue from sales of R-BGAN end user terminals. Net operating costs Net operating costs during 2006 were $168.4m, a decrease of $5.6m or 3.2%compared to 2005. The table below sets out the components of the Group's netoperating costs for each of the periods under review: ________________________________________________________________________________________________(US$ in millions) 2006 2005________________________________________________________________________________________________Employee benefits costs (85.9) (97.0)Restructuring costs including termination benefits (6.8) -Network and satellite operations costs (31.1) (38.8)Other operating costs (56.6) (63.4)Work performed by the Group and capitalized 12.0 25.2________________________________________________________________________________________________Total net operating costs (168.4) (174.0)________________________________________________________________________________________________ Employee benefits costs Employee benefits costs (excluding restructuring costs) during 2006were $85.9m, a decrease of $11.1m, or 11.4% compared with 2005. 2005 amountsincluded $4.5m in relation to subsidiaries disposed of during that year. Theaverage headcount (excluding staff employed in Indonesia as a result of the ACeScollaboration agreement) decreased to 389 in 2006 from 404 in 2005 (excludingsubsidiaries disposed of), principally due to the restructuring plan. In 2006the Group recognised $5.2m of share option costs (2005: $6.5m) relatingprincipally to the all staff option scheme implemented in November 2004. Theoptions under the all staff scheme vested over a period of approximately 18months from July 2005 to December 2006. Restructuring costs including termination benefits During 2006 the Group recognised $6.8m of termination costs relatedto the restructuring plan discussed earlier (2005: $nil). Network and satellite operations costs Network and satellite operations costs during 2006 were $31.1mcompared to $38.8m during 2005, a reduction of $7.7m or 19.8%. Included in thiscategory are costs for leasing satellite capacity from Thuraya for the R-BGANservice. In 2005 the Group incurred four months of costs, being $11.7m, inrelation to this. There were no equivalent costs in 2006. This reduction wasoffset in part by an increase in the costs of in-orbit insurance with twoInmarsat-4 satellites having been in service for the whole year, and by anincrease in warranty and other maintenance costs on our Inmarsat-4 groundinfrastructure that were not incurred to the same extent in 2005. Other operating costs During 2006, other operating costs were $56.6m, a decrease of $6.8m,or 10.7%, compared with 2005. This primarily reflects the absence of subsidiaryoperating costs which amounted to $7.8m in 2005. Other operating costs incurredas a result of the ACeS collaboration agreement in September 2006 are notsignificant. Costs in 2006 have increased by $4.7m as a result of amending theaccounting treatment for rental payments on our head office building to recordcosts on a straight-line basis. Of this, $2.1m, although recognised in 2006,relates to 2005 and is therefore non-recurring. In 2005 we incurred $3.0m ofnon-recurring costs working on a venture in Korea with a potential newdistribution partner. There were no equivalent costs in 2006. Work performed by the Group and capitalised During 2006, own work capitalised was $12.0m, a decrease of $13.2m,or 52.4%. This reflects the completion and bringing into service of majorelements of the Inmarsat-4 ground infrastructure, though substantial work isstill being carried out on planned new service expansions. EBITDA As a result of the factors discussed above, EBITDA for 2006 was$331.7m, an increase of $15.7m, or 5.0%, compared with 2005 EBITDA. EBITDAmargin has increased to 66.3% for 2006 compared to 64.3% for 2005. Thisreflects an increase in revenue against a reduction in net operating costs.EBITDA excluding the one time non-recurring termination costs was $338.5m, anincrease of 7.1% over 2005. Impact of disposal of subsidiaries On 2 September 2005 the Group sold Invsat Limited, a 100% ownedsubsidiary, to Nessco Limited. On 17 October 2005 the Group disposed of theassets and business of Rydex Corporation Limited, a 100% owned subsidiary, toSeawave LLC. These businesses contributed the following amounts to the resultsfor 2006 and 2005: ________________________________________________________________________________________________(US$ in millions) 2006 2005________________________________________________________________________________________________Revenue - 11.9Employee benefits costs - (4.5)Other operating costs - (7.8)________________________________________________________________________________________________EBITDA - (0.4)________________________________________________________________________________________________ Depreciation and amortisation During 2006, depreciation and amortisation was $156.8m, an increaseof $50.3m, or 47.2%, compared with 2005. This increase is a result of thedepreciation for a full year of the Inmarsat-4 F1 satellite and related groundinfrastructure (2005: seven months) and of the Inmarsat-4 F2 satellite andrelated ground infrastructure (2005: nil). This is partially offset by theprospective extension, from 1 October 2005, of the useful lives of these twosatellites from 13 years to 15 years to better reflect the design life of thespacecraft, the better than expected performance of the launch vehicles and theadoption of a near optimal mission strategy which are expected to extend theorbital lives of these satellites. Operating profit As a result of the factors discussed above, operating profit during2006 was $174.9m, a decrease of $34.6m, or 16.5%, compared with 2005. Net interest payable Interest payable for 2006 was $93.4m, a decrease of $70.4m comparedwith 2005. Following the listing of Inmarsat plc's shares on the London StockExchange in June 2005, the Group restructured its debt facilities and as suchinterest costs have been reduced substantially compared to the costs incurred inthe first half of that year. See "Liquidity and capital resources". Interest receivable for 2006 was $8.3m, a decrease of $41.5mcompared with 2005. The decrease principally relates to a realised foreignexchange gain of $39.3m in 2005 arising on the repayment of the euro denominatedSubordinated Preference Certificates. There was no equivalent amount in 2006.See "Use of proceeds" and "Liquidity and capital resources". Profit before tax For 2006, profit before tax was $89.8m, a decrease of $5.7m comparedwith 2005, with lower operating profits partially offset by lower net interestcosts following the favourable restructuring of our debt portfolio. Income tax expense In 2006 the Group recorded a tax credit of $37.9m, compared to a charge of$31.1m for 2005. This reflects a $58.1m deferred tax credit recorded on thetermination of the Burses Limited lease amount disposed of in December 2006.Further reducing the effective tax rate in 2006 is a credit of $4.6m relating tothe review of certain historic tax provisioning positions. Excluding the effectof both of these items would increase the tax charge to $27.3m, resulting in anadjusted effective tax rate of 30.4%. The underlying movement in effective tax rate from 32.6% in 2005 to the adjustedeffective tax rate of 30.4% in 2006 is as a result of a reduction in the levelof permanently disallowable expenditure. Profit for the year As a result of the factors discussed above, profit for the year 2006was $127.7m, an increase of $63.1m, or 98.0%, compared with 2005. Earnings per share 2006 basic and diluted earnings per share for profit attributable tothe equity holders of the Company were 28 cents (US$) and 28 cents (US$)respectively, compared to 17 cents (US$) and 17 cents (US$) respectively for2005. 2006 basic and diluted earnings per share adjusted to exclude thedisposal of Burses Limited lease receivable and associated deferred tax creditwere 17 cents (US$) and 17 cents (US$) respectively, consistent with 2005. Liquidity and capital resources Historically, the Group's principal uses of cash have been forcapital expenditure, to fund the development, marketing and distribution of newservices and to fund our working capital requirements. Those requirements weremet by cash flows from our operating activities as well as from borrowings underbank facilities and issuance of debt. Following the London Stock Exchangelisting on 22 June 2005 and the related transactions, the Group's indebtednessand debt service obligations decreased significantly. The Group had net borrowings at 31 December 2006 of $879.6mprimarily comprising drawings on the Senior Credit Facility of $250m, SeniorNotes of $256.8m (net of $53.6m Senior Notes held by the Group, being 17% of theaggregate principal outstanding), Senior Discount Notes of $367.6m and deferredsatellite payments of $48.9m, net of cash and cash equivalents and short termdeposits of $42.8m. See note 7 to the Preliminary Consolidated FinancialResults. Net cash generated from operating activities during 2006 was $316.0mcompared to $317.3m during 2005. The decrease relates to a decrease of $7.8m ininterest income and movements in working capital partially offset by increasedEBITDA. Net cash used in investing activities during 2006 was $118.4m compared with$43.2m for 2005. During 2006 the Group had an outflow from maturing short-termdeposits of $nil, compared to $151.7m for 2005. In addition in 2005 the Groupreceived net proceeds of $9.4m for the sale of Invsat Limited and RydexCorporation Limited. During 2006 the Group incurred continued capitalexpenditure for the construction of our Inmarsat-4 satellites and associatedground infrastructure of $114.4m. Included in investing activities during 2006was an initial payment of $4.0m on completion of the ACeS collaborationarrangements. Net cash used in financing activities during 2006 was $189.8mcompared to $470.0m during 2005. During 2006, the Group purchased $43.6mprincipal of its Senior Notes, paying a premium of $1.2m (2005: $10.0m, paying apremium of $0.3m) and paid $36.4m interest on Senior Notes and Facilities, areduction of $40.5m as a result of lower levels of debt following the listingand related transactions which took place in June 2005. The Group paiddividends of $98.2m in 2006 compared to $24.7m in 2005. The Group continually evaluates sources of capital and mayrepurchase, refinance, exchange or retire current or future borrowings and/ordebt securities from time to time in private or open-market transactions, or byany other means permitted by the terms and conditions of borrowing facilitiesand debt securities. Seasonality Our revenues for the first and last months of each year are impactedby changes in demand from end-users during the holiday season. In particular,revenues from data services tend to decline during the holiday season,reflecting reduced business activity. Historically, the impact of this seasonaldecline in data services on our results of operations has been limited, as thedecline has been substantially offset by increased voice traffic. However, asdata revenues increase as a percentage of our total revenues, we expect theseasonal decline in the volumes may have a more pronounced effect on our firstand fourth quarter results. The impact of volume discounts increases over thecourse of the year with lower discount levels in early quarters and higherdiscounts in later quarters. The effect of these volume discounts will be mostprominent in the fourth quarter. Recent Events In a letter dated 24 January 2007, under its contract for launchservices with Lockheed Martin Commercial Launch Services Inc., Inmarsatexercised its option to launch the Inmarsat-4 F3 on an Atlas V launch vehicle.The exact launch date is yet to be finalised. The arbitration proceedings between the Group and three of its distributionpartners, concerning the correct implementation of new distribution partnerappointment processes set out in the Group's distribution agreements, have nowbeen concluded. As a consequence of the arbitration award, the appointment ofone BGAN Inmarsat distribution partner has been regularised by means of the newappointment of a member of the same group of companies. The arbitration award isnot expected to have any material financial or commercial impact on the Group. The Board intends to recommend a final dividend of 16 cents (US dollars) perordinary share in respect of the year ended 31 December 2006 to be paid on 25May 2007 to ordinary shareholders on the register of members at the close ofbusiness on 11 May 2007. Shareholders will be asked to approve the finaldividend payment at the Annual General Meeting to be held on 8 May 2007.Dividend payments will be made in Pounds Sterling based on the exchange rateprevailing in the London market four business days prior to payment. Thisdividend has not been recognised as a liability for 2006. Subsequent to 31 December 2006 other than the events discussed above there havebeen no other material events which would affect the information reflected inthe consolidated financial results of the Group. INMARSAT PLC CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2006 ________________________________________________________________________________________________(US$ in millions) 2006 2005 (unaudited) (audited)________________________________________________________________________________________________Revenue 500.1 491.1________________________________________________________________________________________________Employee benefits costs (85.9) (97.0)Restructuring costs including termination benefits (6.8) -________________________________________________________________________________________________Total employee benefits costs (92.7) (97.0) Network and satellite operations costs (31.1) (38.8)Other operating costs (56.6) (63.4)Work performed by the Group and capitalised 12.0 25.2Loss on termination of subsidiary undertakings - (1.1)________________________________________________________________________________________________EBITDA 331.7 316.0Depreciation and amortisation (156.8) (106.5)________________________________________________________________________________________________Operating profit 174.9 209.5Interest receivable 8.3 49.8Interest payable and similar charges (93.4) (163.8)________________________________________________________________________________________________Net interest payable (85.1) (114.0)________________________________________________________________________________________________Profit before income tax 89.8 95.5Income tax credit/(expense) 37.9 (31.1)________________________________________________________________________________________________Profit for the year 127.7 64.4________________________________________________________________________________________________ Earnings per share for profit attributable to the equityholders of the Company during the year (expressed in US$ pershare) - Basic 0.28 0.17- Diluted 0.28 0.17 Earnings per share (expressed in US$ per share) adjusted toexclude disposal of lease receivable and associated deferredtax credit - Basic 0.17- Diluted 0.17 INMARSAT PLC CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2006 _____________________________________________________________________________________________________ (US$ in millions) 2006 2005 (unaudited) (audited)(restated)_____________________________________________________________________________________________________Profit for the year 127.7 64.4Actuarial gains/(losses) from pension and post retirement 5.2 (8.7)healthcare benefitsGains/(losses) on cash flow hedges 8.2 (15.6)Movement in cumulative translation reserve (6.6) (0.8)Tax (charged)/credited directly to equity (2.4) 8.1_____________________________________________________________________________________________________Total recognised income for the year 132.1 47.4_____________________________________________________________________________________________________ INMARSAT PLC CONSOLIDATED BALANCE SHEET At 31 December 2006 _____________________________________________________________________________________________________(US$ in millions) 2006 2005 (unaudited) (audited)_____________________________________________________________________________________________________AssetsNon-current assetsProperty, plant and equipment 1,247.5 1,319.1Intangible assets 522.0 524.5_____________________________________________________________________________________________________ 1,769.5 1,843.6_____________________________________________________________________________________________________Current assetsCash and cash equivalents 42.8 35.3Trade and other receivables 152.0 143.3Inventories 0.8 0.3Derivative financial instruments 8.5 2.3_____________________________________________________________________________________________________ 204.1 181.2_____________________________________________________________________________________________________Total assets 1,973.6 2,024.8_____________________________________________________________________________________________________LiabilitiesCurrent liabilitiesBorrowings 11.8 10.6Trade and other payables 146.0 172.4Provisions 1.6 0.4Current income tax liabilities 8.4 23.1Derivative financial instruments - 3.6_____________________________________________________________________________________________________ 167.8 210.1_____________________________________________________________________________________________________Non-current liabilitiesBorrowings 910.6 908.9Other payables 6.7 33.8Provisions 37.6 37.6Deferred income tax liabilities 134.4 157.6Derivative financial instruments - 0.3_____________________________________________________________________________________________________ 1,089.3 1,138.2_____________________________________________________________________________________________________Total liabilities 1,257.1 1,348.3_____________________________________________________________________________________________________Net assets 716.5 676.5_____________________________________________________________________________________________________Shareholders' equityOrdinary shares 0.4 0.4Share premium 675.4 672.3Other reserves 11.3 8.7Retained earnings/(accumulated losses) 29.4 (4.9)_____________________________________________________________________________________________________Total shareholders' equity 716.5 676.5_____________________________________________________________________________________________________ INMARSAT PLC CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2006 _____________________________________________________________________________________________________(US$ in millions) 2006 2005 (unaudited) (audited)Cash flow from operating activitiesCash generated from operations 313.9 307.7Interest received 2.6 10.4Income taxes paid (0.5) (0.8)_____________________________________________________________________________________________________Net cash inflow from operating activities 316.0 317.3_____________________________________________________________________________________________________Cash flow from investing activitiesPurchase of property, plant and equipment (113.0) (201.9)Consideration under ACeS collaboration arrangement (4.0) -Additions to capitalised development costs (1.4) (2.4)Short-term deposits - 151.7Disposal of subsidiaries (net of transaction costs) - 9.4_____________________________________________________________________________________________________Net cash used in investing activities (118.4) (43.2)_____________________________________________________________________________________________________Cash flow from financing activitiesDividends paid to shareholders (98.2) (24.7)Purchase of Senior Notes (43.6) (10.0)Interest paid on Senior Notes and Facilities (36.4) (76.9)Net settlement of finance lease (11.6) -Net proceeds from issue of ordinary shares - 637.5Net proceeds from new Senior Credit Facility - 244.4Repayment of previous Senior Credit Facilities - (737.5)Arrangement costs of Senior Notes and Senior Discount Notes - (0.8)Repayment of Senior Notes - (167.1)Repayment of Subordinated Preference Certificates - (334.8)Interest paid on finance leases - (0.1)_____________________________________________________________________________________________________Net cash used in financing activities (189.8) (470.0)_____________________________________________________________________________________________________Foreign exchange adjustment (0.2) (0.6)_____________________________________________________________________________________________________Net increase/(decrease) in cash and cash equivalents 7.6 (196.5)_____________________________________________________________________________________________________Movement in cash and cash equivalentsAt beginning of year 35.1 231.6Net increase/(decrease) in cash and cash equivalents 7.6 (196.5)_____________________________________________________________________________________________________As reported on balance sheet (net of bank overdrafts) 42.7 35.1_____________________________________________________________________________________________________At end of year, comprisingCash at bank and in hand 1.5 1.6Short-term deposits with original maturity of less than 3 41.3 33.7monthsBank overdrafts (0.1) (0.2)_____________________________________________________________________________________________________ 42.7 35.1_____________________________________________________________________________________________________ 1. General Information The Company was re-registered as a public limited company and changed its nameto Inmarsat plc on 27 May 2005. The Company is incorporated and domiciled inEngland and Wales. The address of its registered office is 99 City Road, London, EC1Y 1AX. The Company listed on the London Stock Exchange on 22 June 2005. These unaudited consolidated financial results were approved for issue by theBoard of Directors on 26 February 2007. The financial information for the year ended 31 December 2006 does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. Statutory accounts for 2006 will be delivered following the Company'sAnnual General Meeting. The auditors have not reported on these accounts. The statutory financial statements for the year ended 31 December 2005 have beenfiled with the Registrar of Companies. The auditors' report on those accountswas unqualified and did not contain statements under section 237(2) or 237(4) ofthe Companies Act 1985. 2. Principal accounting policies Basis of preparation The unaudited Group results for the 2006 have been prepared on a basisconsistent with the IFRS accounting policies as set out on pages 43 to 50 of theaudited Consolidated Financial Statements for the year to 31 December 2005, asavailable on our website www.inmarsat.com/about us/investor relations/financialreports/2005 Annual Report and Accounts. The applied IFRS accounting policieswere selected by management considering all applicable IFRS's issued by theInternational Accounting Standards Board (IASB) and adopted by the EuropeanUnion. This announcement does not contain sufficient information to comply withall of the disclosure requirements of IFRS. The preparation of the consolidated financial statements in conformity with IFRSrequires management to make certain estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the balance sheet dates and the reported amounts of revenueand expenses during the reported period. Although these estimates are based onmanagement's best knowledge of the amount, events or actions, the actual resultsultimately may differ from those estimates. The functional currency of the Company and all of the Group's subsidiaries andthe presentation currency is the US dollar, as the majority of operationaltransactions and borrowings are denominated in US dollars. Restatements The 2005 Consolidated Statement of Recognised Income and Expense has beenrestated to include the $5.5m deferred tax credit on share options, previouslydisclosed in the Reconciliation of Movements in Shareholders' Equity, note 6,only. 3. Segment information The Group operates in one business segment being the supply of mobile satellitecommunications services (MSS). 'Other' in 2006 principally comprises income from the provision of conferencefacilities and leasing surplus office space to external organisations. In addition, 'Other' in 2005 comprised the results of the subsidiaries, Invsatand Rydex, prior to their respective disposals. Primary reporting format-Business segments 2006_______________________________________________________________________________________________________________________(US$ in millions) Mobile Other Unallocated Total satellite communications services_______________________________________________________________________________________________________________________Revenue 493.0 7.1 - 500.1_______________________________________________________________________________________________________________________Segment result (operating profit) 175.1 (0.2) - 174.9Net interest charged to the Income Statement - - (85.1) (85.1)_______________________________________________________________________________________________________________________Profit before income tax 89.8Income tax expense 37.9_______________________________________________________________________________________________________________________Profit for the year 127.7_______________________________________________________________________________________________________________________Segment assets 1,930.8 - 42.8 1,973.6Segment liabilities (191.9) - (1,065.2) (1,257.1)Capital expenditure (incl. acquisitions) (82.8) - - (82.8)Depreciation (138.4) - - (138.4)Amortisation of intangible assets (18.4) - - (18.4)_______________________________________________________________________________________________________________________ 2005_______________________________________________________________________________________________________________________(US$ in millions) Mobile satellite Other Unallocated Total communications services_______________________________________________________________________________________________________________________Revenue 474.2 16.9 - 491.1_______________________________________________________________________________________________________________________Segment result (operating profit) 209.7 (0.2) - 209.5Net interest charged to the Income Statement - - (114.0) (114.0)_______________________________________________________________________________________________________________________Profit before income tax 95.5Income tax expense (31.1)_______________________________________________________________________________________________________________________Profit for the year 64.4Segment assets 1,989.0 - 35.8 2,024.8Segment liabilities (247.8) (0.3) (1,100.2) (1,348.3)Capital expenditure (305.0) - - (305.0)Depreciation (94.6) (0.7) - (95.3)Amortisation of intangible assets (11.2) - - (11.2)_______________________________________________________________________________________________________________________ 4. Net interest payable ___________________________________________________________________________________________________________(US$ in millions) 2006 2005___________________________________________________________________________________________________________ Interest on Senior Notes and Senior Credit Facilities (38.1) (59.2)Accretion of principal on the Senior Discount Notes (35.8) (32.4)Net premium on early settlement of Burses finance lease (6.2) -Pension and post-retirement liability finance costs (5.8) -Unwinding of discount on deferred satellite liabilities (3.7) (3.1)Amortisation of debt issue costs (3.2) (8.2)Interest and facility fees payable on bank loans, overdrafts and finance leases (0.4) (1.2)Other interest (0.2) -Previous Senior Credit Facility deferred debt issue costs written off - (19.9)Accretion of principal on the Subordinated Preference Certificates - (19.6)Deferred debt issue costs written off and redemption premium paid on repayment - (18.8)of 35% of the Senior Notes due 2012Interest rate swap - (1.4)___________________________________________________________________________________________________________Total interest payable and similar charges (93.4) (163.8)___________________________________________________________________________________________________________Bank interest receivable and other interest 5.5 6.1Interest rate swap 2.8 -Realised gain on repayment of Subordinated Preference Certificates - 39.3Realised gain on amendment to interest rate swap - 3.4Senior Notes premium written-off - 1.0___________________________________________________________________________________________________________Total interest receivable and similar income 8.3 49.8___________________________________________________________________________________________________________Net interest payable (85.1) (114.0)___________________________________________________________________________________________________________ 5. Income tax credit/(expense) ___________________________________________________________________________________________________(US$ in millions) 2006 2005Current tax:Current year (5.3) (1.6)Adjustments in respect of prior periods 13.9 -___________________________________________________________________________________________________ Total current tax credit/(expense) 8.6 (1.6)___________________________________________________________________________________________________ Deferred tax: Origination and reversal of temporary differences (19.5) (29.5) Disposal of lease receivable 58.1 - Reassessment of likelihood of recovery of deferred tax assets (9.3) -___________________________________________________________________________________________________ Total deferred tax credit/(expense) 29.3 (29.5)___________________________________________________________________________________________________ Total income tax credit/(expense) 37.9 (31.1)___________________________________________________________________________________________________ 6. Reconciliation of movements in shareholders' equity ______________________________________________________________________________________________________________(US$ in millions) Ordinary Share Other (Accumulated losses)/ share premium Reserves retained earnings capital account Total______________________________________________________________________________________________________________ Balance at 1 January 2005 0.3 34.8 21.4 (44.0) 12.5Fair value losses - cash flow hedges - - (15.6) - (15.6)Issue of share capital 0.1 637.5 - - 637.6Share options charge - - 3.7 - 3.7Profit for the year - - - 64.4 64.4Dividends payable - - - (24.7) (24.7)Actuarial losses from pension and post- (8.7) (8.7) retirement healthcare benefits - - -Movement in cumulative translation reserve - - (0.8) - (0.8)Tax credited directly to equity - - - 8.1 8.1______________________________________________________________________________________________________________Balance at 31 December 2005 0.4 672.3 8.7 (4.9) 676.5______________________________________________________________________________________________________________Fair value gains - cash flow hedges - - 8.2 - 8.2Issue of share capital - 3.1 - - 3.1Share options charge - - 3.0 - 3.0Profit for the year - - - 127.7 127.7Dividends payable - - - (98.2) (98.2)Actuarial gains from pension and post- - - - 5.2 5.2 retirement healthcare benefitsMovement in cumulative translation reserve - - (6.6) - (6.6)Tax charged directly to equity - - (2.0) (0.4) (2.4)______________________________________________________________________________________________________________Balance at 31 December 2006 0.4 675.4 11.3 29.4 716.5______________________________________________________________________________________________________________ 7. Net borrowings These balances are shown net of unamortised deferred finance costs, which havebeen allocated as follows: ______________________________________________________________________________________________________ As at 31 December 2006 As at 31 December 2005(US$ in millions) Amount Deferred Net Amount Deferred Net finance balance finance balance cost cost______________________________________________________________________________________________________ Current:Bank overdraft 0.1 - 0.1 0.2 - 0.2Deferred satellite payments 11.7 - 11.7 10.4 - 10.4______________________________________________________________________________________________________Total current borrowings 11.8 - 11.8 10.6 - 10.6______________________________________________________________________________________________________Non-current:Senior Credit Facility 250.0 (1.6) 248.4 250.0 (2.3) 247.7Senior Discount Notes, 10.375% 367.6 (8.2) 359.4 332.2 (8.7) 323.5-Accretion of principal 4.9 - 4.9 4.4 - 4.4Senior Notes 256.8 (8.9) 247.9 300.4 (10.6) 289.8Premium on Senior Notes 1.1 - 1.1 1.3 - 1.3Deferred satellite payments 48.9 - 48.9 42.2 - 42.2______________________________________________________________________________________________________Total non-current borrowings 929.3 (18.7) 910.6 930.5 (21.6) 908.9______________________________________________________________________________________________________Total Borrowings 941.1 (18.7) 922.4 941.1 (21.6) 919.5______________________________________________________________________________________________________Cash and cash equivalents (42.8) - (42.8) (35.3) - (35.3)______________________________________________________________________________________________________Net Borrowings 898.3 (18.7) 879.6 905.8 (21.6) 884.2______________________________________________________________________________________________________ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Inmarsat