Preliminary Results 2007

6th Mar 2008 07:01

Inmarsat PLC06 March 2008 Inmarsat plc Reports Preliminary Full Year Results 2007 London, UK: 6 March 2008. Inmarsat plc (LSE: ISAT), the leading provider ofglobal mobile satellite communications services, today reported unauditedconsolidated financial results for the year ended 31 December 2007. Following our announcement on 11 February 2008, these consolidated results forInmarsat plc include the financial results of CIP UK Holdings Limited and itssubsidiaries, including Stratos Global Corporation ("CIP") for the period 11December 2007 to 31 December 2007. Please note that where we refer to "InmarsatCore" we include only the results of Inmarsat plc and subsidiaries and excludeCIP. It should be noted that Inmarsat plc does not control CIP, but has a calloption to acquire CIP which is exercisable from 14 April 2009. Inmarsat plc - Full Year 2007 Highlights • Total revenue $576.5 million up 15.3% (2006: $500.1 million) • EBITDA $388.1 million up 17.0% (2006: $331.7 million) • Profit before tax $124.8 million up 39.0% (2006: $89.8 million) • Final dividend increased by 8.3% to 17.33 cents (US$) per share Inmarsat Holdings Limited - Q4 2007 Highlights • Q4 revenue up 6.7% to $133.4 million (2006: $125.0 million) • Q4 EBITDA up 7.6% to $85.4 million (2006: $79.4 million) • Q4 BGAN revenue $11.3 million up 10.8% sequentially on Q3 • BGAN subscribers reach 15,817 (1,943 additions in Q4) • Broadband platform extended to aeronautical and maritime sectors • Cooperative spectrum agreement signed with MSV for the Americas Andrew Sukawaty, Inmarsat's Chairman and Chief Executive Officer said, "2007 wasa very good year for Inmarsat. Our operating performance in terms of bothrevenue growth and cash flow generation was strong and exceeded our growthtargets. Importantly, we also completed the key new product launches thatfurther cement our market leadership. We now offer our customers mobilebroadband connectivity on sea, land and in the air. We are well positioned todeliver another year of continued growth in 2008 and we are therefore raisingour final dividend for the year by 8.3%." Inmarsat Core - Mobile Satellite Services Increased demand for data connectivity from the maritime industry was theprimary driver of revenue growth from our maritime sector of 9.0% year overyear. Maritime data revenue grew by 13.0% while voice revenue grew by 1.7%.Growth in our base of active maritime terminals was 5.6% for the year, includinggrowth of 40% in our base of Fleet terminals. During the fourth quarter welaunched our FleetBroadband service, providing our maritime customers with abroadband upgrade path, ensuring we keep pace with the industry's expandingdemand for data connectivity at sea. A successful year for our BGAN service saw land mobile sector revenue growth of8.4% for the year. Land data revenue saw year over year growth of 14.6%, whilevoice services declined 22.9%, primarily due to competitive erosion on a smallbase of revenue. Revenue for our BGAN service continues to be driven by take upby new customers, which has consistently outstripped the impact of migration toour BGAN service from older services. Although our base of active terminals inthe land sector as a whole was down 4.5% year over year, this reflectedcontraction in our base of lower value voice and telemetry terminals, while theservices that drive land data revenues (GAN, R-BGAN and BGAN) recorded netgrowth in active terminals of 21.2%. During the year we launched a portfolio of Satellite Phone Services, includingour first handheld service, to increase our penetration of the voice market. Weare encouraged by the early results and we reiterate our plan to achieve a 10%market share in this sector by 2010. Year over year growth in our aeronautical sector of 44.3% was primarily theresult of sustained demand and high levels of usage for our Swift 64 service,which mainly serves government aircraft and business jets. During the fourthquarter, we introduced broadband speeds to our aeronautical customer base withthe launch of our SwiftBroadband service. Prior to the end of the year one ofthe first SwiftBroadband terminals was in service supporting a trial ofin-flight mobile GSM services with Air France. Although revenue from our leasing business grew 9.8% year over year, weexperienced lower leasing revenue during the fourth quarter as a result of lowerdemand from a key customer. 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 progressively reducesour margins until the end of the calendar year when our rates are then reset totheir pre-discount level. Total volume discounts in 2007 were $51.3 million, anincrease of 21.9% compared to $42.1 million in 2006. The total amount of volumediscounts is affected by our overall revenue growth and by consolidation amongdistribution partners. As a result of the merger of Vizada SatelliteCommunications (formerly France Telecom Mobile Satellite Communications) withTelenor Satellite Services in September 2007, we expect the merged entity toearn higher volume discounts for the remaining term of our distributionagreements, which expire in April 2009. Liquidity At 31 December 2007, the Inmarsat plc group (including CIP) had total netexternal debt of $1,440.5 million. Inmarsat Core had net external debt of$1,131.1 million, made up of cash of $51.1 million and total external debt of$1,182.2 million. Inmarsat Core also had a revolving credit facility with anamount available but undrawn at the end of the year of $230 million. CIP had netborrowings at 31 December 2007 of $309.4 million, including cash of $63.9million and total borrowings of $373.3 million. Outlook for Inmarsat Core We believe our business will continue to deliver good growth in 2008 and beyond.The rate at which we are adding customers and terminals for key growth serviceshas retained a steady momentum throughout 2007 and supports our continuedgrowth. Trading conditions in our maritime, land and aeronautical sectors remainpositive, although we expect our leasing business to be flat in 2008. We expect our cost base to be impacted by the devaluation of the US dollar thatoccurred in 2007 and which has fed through to a deterioration in the averagerate at which we have hedged our 2008 Sterling operating costs from $1.81 in2007 to $2.01. We expect our cash capital expenditure in 2008 will be in a range of $210million to $230 million (excluding deferred satellite payments and capitalisedoperating costs). Our 2008 capital expenditure forecast reflects incrementallaunch costs for an accelerated launch of our third Inmarsat-4 satellite, thestart of manufacturing costs for the Alphasat project, and spend related to theaddition of further redundancy at our new satellite access station in Hawaii.Furthermore, we have committed to certain additional costs in relation to thenetwork and the modernisation of equipment for our Satellite Phone Services. Finally, we remain on track for a launch of our third Inmarsat-4 satellite andare targeting a launch in late April. The outlook provided here for Inmarsat Core should not be taken to incorporateor reflect the prospects for CIP in any way. Other Information A webcast recording of the analyst presentation to be held on 6 March at 9:00amwill be posted to our website after the event. To access the webcast please goto the investor relations section of our website at www.inmarsat.com. Inmarsatmanagement will also host a conference call on Thursday, 6 March at 3:00pmLondon time (United States 10:00am EST). To access the call, please dial +44(0)20 7162 0125 and enter the access code 783734. A recording of the call willbe available for one week after the event. To access the recording please dial+44 (0)20 7031 4064 and enter the access code 783734. 2007 Results for Inmarsat Holdings Limited and Inmarsat Group Limited Inmarsat Holdings Limited, through its subsidiary Inmarsat Finance II plc, isthe issuer of $450.0 million of 10.375% Senior Discount Notes due 2012. InmarsatGroup Limited, through its subsidiary Inmarsat Finance plc, is the issuer of$310.4 million of 7.625% Senior Notes due 2012. Inmarsat Holdings Limited andInmarsat Group Limited will report full year 2007 results on Form 20-F andexpect to file these reports with the SEC on or around 28 April 2008. To assist analysts and investors in their understanding of the results announcedtoday, the following unaudited financial tables for the fourth quarter areprovided for Inmarsat Holdings Limited, prepared in accordance with IFRS. Inmarsat Holdings Limited Revenue Breakdown (unaudited) Fourth quarter ended December 31, --------------------------------- 2007 2006 % Difference --------------------------------- Revenues (US$ in millions) Maritime sector: voice services 25.6 25.2 1.6% data services 49.9 45.8 9.0% -------------------------------- Total maritime sector 75.5 71.0 6.3% Land mobile sector: voice services 3.5 3.9 (10.3%) data services 24.9 22.2 12.2% -------------------------------- Total land mobile sector 28.4 26.1 8.8% Aeronautical sector 11.9 8.3 43.4% Leasing (incl. navigation) 14.7 16.7 (12.0%) -------------------------------- Total mobile satellite 130.5 122.1 6.9% communications services Other income 2.9 2.9 0.0% -------------------------------- Total revenue 133.4 125.0 6.7% -------------------------------- Inmarsat Holdings Limited Consolidated Financial Results Fourth quarter ended December 31, (unaudited) ---------------------------------- 2007 2006 % Difference ---------------------------------- (US$ in millions) Employee benefit costs 26.3 22.8 15.4% Network and satellite 8.7 8.1 7.4% operations costs Other operating costs 18.8 17.4 8.0% Work performed by the Group and capitalised (5.8) (2.7) 114.8% -------------------------------- Total net operating costs 48.0 45.6 5.3% -------------------------------- 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 other factorsthat may cause our actual results, performance or achievements, or industryresults, to be materially different from those projected in the forward-lookingstatements. These factors include: general economic and business conditions;changes in technology; timing or delay in signing, commencement, implementationand performance of programmes, or the delivery of products or services underthem; structural change in the satellite industry; relationships with customers;competition; and ability to attract personnel. You are cautioned not to rely onthese forward-looking statements, which speak only as of the date of thisannouncement. We undertake no obligation to update or revise any forward-lookingstatement to reflect any change in our expectations or any change in events,conditions or circumstances. Contact: Inmarsat, London, UK Investor EnquiriesSimon Ailes, +44 20 7728 [email protected] Media EnquiriesChristopher McLaughlin, +44 20 7728 [email protected] INMARSAT PLCPRELIMINARY CONSOLIDATED FINANCIAL RESULTSFor the year ended 31 December 2007(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 the Group's actual financial condition, results ofoperations and cash flows, and the development of the industry in which weoperate, may differ materially from those made in or suggested by theforward-looking statements contained in this document. In addition, even if theGroup's financial condition, results of operations and cash flows, and thedevelopment of the industry in which we operate, are consistent with theforward-looking statements in this document, those results or developments maynot be indicative of results or developments in subsequent periods. Importantfacts that could cause the Group's actual results of operations, financialcondition or cash flows, or the development of the industry in which we operate,to differ from current expectations include those risk factors disclosed in theGroup's Form 20-F Annual Report for Inmarsat Holdings Limited for the year ended31 December 2006 as filed with the Securities and Exchange Commission ("SEC") on30 April 2007. As a consequence, the Group's current plans, anticipated actions and futurefinancial condition, results of operations and cash flows, as well as theanticipated development of the industry in which we operate, may differ fromthose expressed in any forward-looking statements made by us or on the Group'sbehalf. Non-GAAP Measures We use a number of non-GAAP measures in addition to GAAP measures in order toprovide readers with a better understanding of the underlying performance of ourbusiness, and to improve comparability of our results for the periods concerned.Where such non-GAAP measures are given, this is clearly indicated and thecomparable GAAP measure is also given. 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. We useNet Borrowings as a part of our internal debt analysis. We believe that NetBorrowings is a useful measure as it indicates the level of borrowings aftertaking account of the financial assets within our business that could beutilised to pay down the outstanding borrowings. In addition the Net Borrowingsbalance provides an indication of the net borrowings on which we are required topay interest. 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. EBITDA and the related ratios are supplemental measures of our performance andliquidity under IFRS that are not required by, or presented in accordance with,IFRS. Furthermore, EBITDA is not a measurement of our financial performanceunder IFRS and should not be considered as an alternative to net income,operating income or any other performance measures derived in accordance withIFRS. We believe EBITDA among other measures facilitates operating performancecomparisons from period to period and management decision making. It alsofacilitates operating performance comparisons from company to company. EBITDAeliminates potential differences caused by variations in capital structures(affecting interest expense), tax positions (such as the impact on periods orcompanies of changes in effective tax rates or net operating losses) and the ageand book depreciation of tangible assets (affecting relative depreciationexpense). We also present EBITDA because we believe it is frequently used bysecurities analysts, investors and other interested parties in evaluatingsimilar issuers, the vast majority of which present EBITDA when reporting theirresults. TABLE OF CONTENTS Operating and Financial ReviewConsolidated Income Statement for the year ended 31 December 2007Consolidated Statement of Recognised Income and Expense for theyear ended 31 December 2007Consolidated Balance Sheet as at 31 December 2007Consolidated Cash Flow Statement for the year ended 31 December 2007Notes 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 2007. 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")and IFRIC 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 nearly 30 years of experience in designing, launching and operating itssatellite-based network. With a fleet of 10 owned and operated geostationarysatellites, the Group provides a comprehensive portfolio of global mobilesatellite communications services for use on land, at sea and in the air. Theseinclude voice and broadband data services, which support safety communications,as well as standard office applications such as email, internet, secure VPNaccess and videoconferencing. The Group's revenues, operating profit and EBITDAfor the year ended 31 December 2007 were US$576.5m, US$211.4m and US$388.1mrespectively (31 December 2006: US$500.1m, US$174.9m and US$331.7mrespectively). Included in our results for the year ended 31 December 2007 is21 days of trading activity for CIP UK Holdings Limited and its subsidiariesincluding Stratos ("CIP") following the deemed acquisition of CIP on 11 December2007, which is discussed in "CIP Canada offer for Stratos Global CorporationAccepted" and "Consolidation of CIP UK and its Subsidiaries" below. Where werefer to "Inmarsat Core" we include only the results of Inmarsat plc and itssubsidiaries excluding CIP. The results of the Group's operations are reported in US dollars as the majorityof revenues and borrowings are denominated in US dollars. CIP Canada offer for Stratos Global Corporation Accepted On 11 December 2007, CIP Canada Investment Inc ("CIP Canada"), a wholly-ownedsubsidiary of Communications Investment Partners Limited ("CIP Limited"),acquired the entire issued share capital of Stratos Global Corporation("Stratos"), our largest distribution partner, for a consideration of $294.0mCanadian dollars (US$263.3m). On the same date, Inmarsat Finance III Limited ("Inmarsat III"), a wholly ownedsubsidiary of Inmarsat plc, provided a loan for the full consideration paid andassociated fees to CIP UK Holdings Limited ("CIP UK") to fund the acquisition("Transaction") by its wholly-owned subsidiary CIP Canada (the "Loan Facility").The Loan Facility has a 10 year term and bears interest at 5.75% per annum until31 December 2010 (on a Pay In Kind basis to 14 April 2009) and 11.5% per annumthereafter, and is secured by means of a right of sale pledge over CIP Limited's100% shareholding in CIP UK. On the same date, CIP Limited granted Inmarsat III an option to acquire theentire issued share capital of CIP UK (the "Call Option"). The Call Option isonly exercisable after 14 April 2009, when certain of Inmarsat's distributionagreements expire, and terminates on 31 December 2010. The Call Option isexercisable for a payment of between US$750,000 and US$1.0m. Following theacquisition of Stratos by CIP Canada, and until such time as a decision is madeto exercise the Call Option, we have no control over the financial and operatingpolicies of Stratos and it is expected to continue its current operations andbusiness as usual. In order to fund the Loan Facility, Inmarsat III entered into a new US$411.5mborrowing facility with three banks in March 2007 (the "Facility"). In November2007 Inmarsat plc then issued US$287.7m in principal amount of 1.75% convertiblebonds due 2017 and therefore cancelled US$260.0m of the borrowing Facility. The remaining US$151.5m facility was available to Inmarsat III to fund anadditional loan as necessary to support CIP Canada's mandatory tender offer forStratos' outstanding bonds that was required following completion of CIPCanada's acquisition of Stratos. The mandatory tender period closed on 14January 2008 and at that time only US$1,000 of bonds had been tendered. As aresult, there were no drawings under the US$151.5m facility and the facility wascancelled on 21 January 2008. Consolidation of CIP UK and its Subsidiaries The consolidated results of the Group for 31 December 2007 include the financialresults of CIP for the period from 11 December 2007 to 31 December 2007. Although Inmarsat does not hold an equity interest in, nor have any control overthe financial and operating policies or any entitlement to receive dividendsfrom CIP UK, under IFRS (more specifically Standing Interpretations Committee("SIC") 12 Consolidation - Special Purpose Entities ("SPE")) the Group isrequired to consolidate the financial results of CIP UK, as it meets the SIC12/IAS 27 definition of a SPE given that the Group is deemed to bear the residualrisks and economic benefits of CIP UK by virtue of the combination of the LoanFacility and the Call Option. We have accounted for the combination of Inmarsat Core and CIP using thepurchase method of accounting in accordance with IFRS 3 "Business Combinations".Results of operations for CIP have been included in the consolidated incomestatement for the Group for the period 11 December 2007 to 31 December 2007 (21days of activity). Non-controlling interests in the net assets of CIP are identified separatelyfrom the equity attributable to shareholders of Inmarsat plc. Non-controllinginterests consist of the amount of those interests at the date of acquisitionand a minority interest in one of CIP's subsidiaries. Convertible Bond Issue On 16 November 2007 Inmarsat plc issued US$287.7m in principal amount of 1.75%convertible bonds due 2017 (the "Bonds"). The Bonds are convertible intoordinary shares of the Company and have a 1.75% per annum coupon payablesemi-annually and a yield to maturity of 4.5%. The Bonds have an initialconversion premium of 32.5% over the reference share price of £4.6193representing approximately 5% of the Company's current issued share capital. The Bonds have been accounted for as a compound financial instrument and as suchbifurcated into a liability component of US$224.3m (classified as non-currentborrowings in our balance sheet) and an equity component of US$56.9m (classifiedas equity reserves in our balance sheet). We used US$269.0m of the net proceeds of the Bonds to indirectly provide a loanto fund the acquisition of Stratos by CIP Canada as discussed above in "CIPCanada offer for Stratos Global Corporation Accepted". The balance of the netproceeds are available for general corporate purposes. North America Spectrum agreement signed with SkyTerra and MSV During 2007 we held discussions with Mobile Satellite Ventures LP, MobileSatellite Ventures (Canada) and SkyTerra Communications, Inc. (together "MSV")about the efficient re-use and reorganisation of our respective L-band spectrumacross the Americas and we announced in December 2007 that a co-operationagreement for spectrum re-use was signed between us and MSV. This agreement includes conditional provisions for the co-ordination of theparties' respective existing and planned satellites serving the Americas and forthe reorganisation of our spectrum and that of MSV over the Americas to providecontiguous spectrum in larger blocks for both our operations and efficientre-use of L-band spectrum. The purpose of the agreement is to increase spectrumefficiency and protect both Mobile Satellite Communication Services ("MSS") andAncillary Terrestrial Component ("ATC") operations from inter-systeminterference. Additionally, the agreement sets up a framework for commercialcooperation between the parties to support the exploitation by MSV of hybridMSS-ATC services in North America. We believe that the cooperation agreement will bring significant benefits to uswith the reorganisation of the spectrum allocation over the Americas allowing usto continue to grow and deploy our L-band services, especially our BroadbandGlobal Area Network ("BGAN") services and Global Satellite Phone Services("GSPS"), in that region. Alphasat project In November 2007, we announced that agreements had been signed with the EuropeanSpace Agency ("ESA") for Inmarsat to become the commercial operator for theAlphasat project for the development and launch of a new satellite. Alphasat isan ESA initiative for the development of Alphabus, a new satellite platformcapable of carrying a large communications payload. Through the Alphasatproject, we will build and launch an advanced L-band satellite which willsupplement the existing Inmarsat-4 satellite constellation and offer theopportunity for new and advanced services with access to a new allocation ofL-band spectrum. Astrium Satellites, a subsidiary of the European AeronauticDefence and Space Agency ("EADS") has been contracted to build the satellite. Weexpect our investment for the satellite in orbit (excluding insurance) to be inthe region of €260.0m (net of the funding provided by ESA) with the launchexpected to occur in late 2012 or 2013. Introduction of New Services In July 2007, we launched the new handheld IsatPhone service and the fixedLandPhone service. IsatPhone, which is the first handheld satellite phone in theInmarsat portfolio, is a dual-mode satellite/GSM phone. It is targeted atbusiness and personal users who travel or work in areas where local telephonenetworks are unreliable or non-existent. LandPhone is a fixed land satellitephone installation targeted at remote villages. In addition in November 2007, welaunched FleetPhone, Inmarsat's new maritime satellite phone. Initially thesenew services, or Satellite Phone Services ("SPS") will be available across muchof the Middle East, Africa and Asia and will be rolled-out globally following anextensive network and terminal modernisation and development programme currentlyexpected to be completed by early 2009. In September 2007, we announced the introduction of our new low data rateservice, IsatM2M. IsatM2M is a next-generation satellite telematics servicebased on the trusted and globally-accepted Inmarsat D+ service. We haveappointed Satamatics and SkyWave as global distributors for this service. In October 2007 we launched our SwiftBroadband service and in November 2007, welaunched our FleetBroadband service. Our SwiftBroadband and FleetBroadbandservices will be accessed by end-users through dedicated terminals specificallydesigned for use in-flight and at sea, respectively. SwiftBroadband is suitablefor a range of applications from aircraft operation and management to cabinapplications such as email, internet access, SMS text messaging and integrationinto in-flight entertainment systems. SwiftBroadband is also being deployed intrials for the in-flight use of cellular phones and PDAs. With the launch of thethird Inmarsat-4 satellite, FleetBroadband will be the first maritimecommunications service to provide cost-effective broadband data and voice,simultaneously, on a global basis. BGAN Revenues from BGAN services during 2007 were US$36.6m, an increase of US$27.1m,or 285%, compared with 2006. These figures include voice, data and subscriptionrevenues. As at 31 December 2007, active BGAN subscribers were 15,817 comparedwith 7,119 as at 31 December 2006, an increase of 122% year on year. BGAN growthhas been driven largely by new customers, the use of new applications byexisting customers and during the later part of 2007 a decrease in demand in ourGAN and R-BGAN services with the migration of these users to our BGAN service.Although we expect the migration to BGAN to have a larger impact in the futurewe do not expect migration to adversely impact overall land data revenues. During 2007 we have continued to expand the availability of our high-speed dataservices further with the launch of SwiftBroadband in the aeronautical sectorand FleetBroadband in the martime sector, although we do not expect materialrevenue contributions from these services until later in 2008. Launch of our third Inmarsat-4 Satellite In August 2007, we signed a contract with International Launch Services ("ILS")for the launch of our third Inmarsat-4 satellite on a Proton launch vehicle andexpect the launch to occur in the second quarter of 2008. We have commencedpreparations for this launch. Our option to launch the third Inmarsat-4satellite using an Atlas launch vehicle was cancelled in February 2008. Thelaunch of the third Inmarsat-4 satellite will provide global coverage for ourBGAN, GSPS, SwiftBroadband and FleetBroadband services. Termination of our Inmarsat A Analogue Service On 31 December 2007, at the end of a five-year notice period given to ourend-user customers and the maritime industry, we switched off our only analogueservice, known as Inmarsat A. This service had been in continuous operationsince its launch in 1982, offering voice and data communications mostly to shipsand other vessels at sea. Although at one time accounting for a significantproportion of our revenues, the vast majority of users of the Inmarsat A servicehad migrated to our newer digital services prior to the switch off. During 2007the Inmarsat A service generated US$3.9m in revenue, however by December was notgenerating any material level of revenue, with the vast majority of users havingmigrated to newer Inmarsat services such as Fleet. Dividends On 25 May 2007, the Company paid a final dividend of 16.00 cents (US$) perordinary share in respect of the year ended 31 December 2006. On 26 October2007, the Company paid an interim dividend of 11.55 cents (US$) per ordinaryshare in respect of the year ended 31 December 2007, an 8.3% increase over 2006.The Inmarsat plc Board of Directors intends to recommend a final dividend of17.33 cents (US$) per ordinary share in respect of the year ended 31 December2007. In accordance with IAS 10, this final dividend has not been recorded as aliability in the financial statements at 31 December 2007. The total dividendpaid and proposed for the year ended 31 December 2007 equals 28.88 cents (US$)per ordinary share, an 8.3% increase over 2006, and amounts to US$132.1m. Galileo Inmarsat's proposed involvement in the Galileo Operating Company ended in June2007 when the EU decided to implement Galileo as a purely public programme, thusending a process set up to form a Public Private Partnership. Inmarsat continuesto have an interest in the Galileo project, and we continue to position Inmarsatas a potential contractor to manage the overall operations of the system when itachieves ongoing operational status in the future. Total Group Results The results reported reflect the consolidated results of operations andfinancial condition of Inmarsat plc (the Company or together with itssubsidiaries, the "Group") for the year ended 31 December 2007. Included inthese consolidated results for 2007 are 21 days of trading activity of CIP forthe period 11 December 2007 to 31 December 2007. Please see "Consolidation ofCIP UK and its Subsidiaries" above for further information on the acquisition.Where we refer to "Inmarsat Core" we include only the results of Inmarsat plcand its subsidiaries excluding CIP. Excluding CIP's results, revenues, EBITDA and operating profit for Inmarsat Corewere US$557.2m, US$383.5m and US$209.3m, respectively. The table below shows the combined results for Inmarsat Core for the year ended31 December 2007 and CIP for the 21 days of trading activity following itsacquisition. The table also identifies all associated intragroup eliminationsand adjustments for the reported consolidated Group position. (US$ in millions) Inmarsat CIP Intragroup Consolidated Core eliminations plc and adjustments 2007 2007 2007 2007 2006 (unaudited) (unaudited) (unaudited) (unaudited) (audited) ----------------------------------------------------------Revenue 557.2 31.6 (12.3) 576.5 500.1 ----------------------------------------------------------Employee benefit costs (94.3) (4.7) - (99.0) (92.7)Network and satelliteoperations costs (33.8) (20.8) 12.2 (42.4) (31.1)Other operating costs (64.1) (1.5) 0.1 (65.5) (56.6)Work performed by the Group and capitalised 18.5 - - 18.5 12.0 ----------------------------------------------------------EBITDA 383.5 4.6 - 388.1 331.7Depreciation and amortisation (174.2) (2.5) - (176.7) (156.8) ----------------------------------------------------------Operating profit 209.3 2.1 - 211.4 174.9Interest receivable and similar income 7.6 - (0.9) 6.7 8.3Interest payable and similar charges (91.4) (2.3) 0.4 (93.3) (93.4) ---------------------------------------------------------Net interest payable (83.8) (2.3) (0.5) (86.6) (85.1) ---------------------------------------------------------Profit/(loss) before income tax 125.5 (0.2) (0.5) 124.8 89.8Income tax (expense)/credit (28.3) (0.1) 0.2 (28.2) 37.9 ---------------------------------------------------------Profit/(loss) for the year 97.2 (0.3) (0.3) 96.6 127.7 --------------------------------------------------------- In order to provide investors with more meaningful comparative financialinformation for Inmarsat plc, we have chosen to discuss our trading results andposition split between Inmarsat Core and CIP. It should be noted that CIPoperates independently from Inmarsat Core and Inmarsat Core management have nocontrol over the financial and operating activities and results of CIP. CIP'sanalysis has substantially been obtained from trading results of the maintrading entity of the CIP Group, being Stratos, as incorporated in the StratosGlobal Corporation Annual Report for 2007. Inmarsat Core Results--------------------- Revenues Revenues for 2007 were US$557.2m, an increase of US$57.1m, or 11.4%, comparedwith 2006. The table below sets out the components of Inmarsat Core's total revenue foreach of the years under review: 2007 2006 Increase/ (unaudited) (audited) (decrease) -------------------------------- (US$ in millions)Revenues Maritime sector: voice services 102.6 100.9 1.7% data services 207.7 183.8 13.0% --------------------------- Total maritime sector 310.3 284.7 9.0%Land mobile sector: voice services 14.8 19.2 (22.9%) data services 111.0 96.9 14.6% --------------------------- Total land mobile sector 125.8 116.1 8.4%Aeronautical sector 44.3 30.7 44.3%Leasing (incl. navigation) 66.2 60.3 9.8% ---------------------------Total mobile satellite communications services 546.6 491.8 11.1% --------------------------Other income 10.6 8.3 27.7% ---------------------------Total revenue 557.2 500.1 11.4% --------------------------- % 2007 2006-- --------------MSS revenue by sectorMaritime 57% 58%Land mobile 23% 24%Aeronautical 8% 6%Leasing 12% 12% -------------- ('000s) 2007 2006------- ---------------Active terminals (a) (b)Maritime 147.3 139.5Land mobile 77.2 80.8Aeronautical 8.9 7.7 ---------------Total active terminals 233.4 228.0 ---------------____________________ (a) Active terminals are the number of subscribers (R-BGAN, BGAN and SPS) orterminals that have been used to access commercial services (except ACeSterminals) at any time during the preceding twelve-month period registered as at31 December. Active ACeS terminals are the average number of terminals active ona daily basis during the period.(b) Active terminals as at 31 December 2007 include 9,298 ACeS terminals and15,817 BGAN subscribers (as at 31 December 2006: 9,922 and 7,119, respectively). Total active terminals for Inmarsat Core grew to over 233,000 during 2007, a2.4% increase over 2006. Active terminal numbers showed strong growthparticularly in maritime, up 5.6% year over year, with our base of active Fleetterminals growing by 39.8%. In the aeronautical sector, continued growth inSwift 64 (high-speed data) and 'classic' aero (low-speed data) have increasedactive terminal numbers by 15.6% year over year. Land mobile terminal growthdecreased 4.5% year over year with fewer Mini M terminals being used as a resultof increased competition offset in part by growth in BGAN. Maritime Sector: During 2007, revenues from the maritime sector were US$310.3m,an increase of US$25.6m, or 9.0%, compared with 2006. This reflects an increasein both data and voice revenue. Revenues from data services in the maritimesector during 2007 were US$207.7m, an increase of US$23.9m, or 13.0%, comparedwith 2006. The increase in revenues from data services primarily reflectsgreater demand, as a result of the take-up and utilisation of our Fleet servicesin the new-build market. Revenues from voice services in the maritime sectorduring 2007 were US$102.6m, an increase of US$1.7m, or 1.7%, compared with 2006,reflecting increasing signs of stabilisation in this sector. Historically ourvoice revenues for maritime services have been affected in some cases bycompetition and by the migration of users from our higher-priced analogueservice to our lower-priced digital services. This stabilisation in voice hasbenefited from continued growth in our Fleet services and a full year ofrevenues from our ACeS collaboration, which began in September 2006 and theintroduction of our SPS service in July 2007. As discussed earlier, with effectfrom 31 December 2007 we have ceased our Inmarsat A analogue service following afive-year notice period to end-users. During 2007 the Inmarsat A servicegenerated US$3.9m in revenue, however by December was not generating anymaterial level of revenue, with the vast majority of users having migrated tonewer Inmarsat services such as Fleet. Land Mobile Sector: In 2007, revenues from the land mobile sector wereUS$125.8m, an increase of US$9.7m, or 8.4%, compared with 2006. Revenues fromdata services in the land mobile sector during 2007 were US$111.0m, an increaseof US$14.1m, or 14.6%, compared with 2006. The increase is a result of continuedstrong growth in BGAN offset in part by the decline in high-speed data trafficfollowing a reduction in traffic in the Middle East, competition from VSAT andthe migration of GAN and R-BGAN users to our BGAN service. Although we expectthe migration to BGAN to have a larger impact in the future, we do not expectmigration to adversely impact overall land data revenues. Revenues from voiceservices in the land mobile sector during 2007 were US$14.8m, a decrease ofUS$4.4m, or 22.9%, compared with 2006. This is as we had expected and continuesthe trend seen over the last few years of declining voice traffic volumesresulting from competition, principally for our Mini M and large antenna Mini Mservices, and from other MSS operators. This was partially offset by the growthin BGAN voice and our own handheld voice product, IsatPhone, over the initialInmarsat-4 coverage area with global SPS coverage expected by early 2009. Webelieve that SPS will enhance our land voice offering and enable us to continueto win customers in the handheld voice market and gain market share,particularly as competitive platforms come to the end of their lives. Revenues, including voice, data and subscription, from BGAN services during 2007were US$36.6m, an increase of US$27.1m, or 285%, compared with 2006. As at 31December 2007, there were 15,817 (2006: 7,119) active BGAN subscribers, anincrease of 122% compared with 31 December 2006. BGAN growth has been driven bynew customers, the use of new applications by existing customers and, during thelater part of 2007, the migration of GAN and R-BGAN users to our BGAN service. Aeronautical Sector: During 2007, revenues from the aeronautical sector wereUS$44.3m, an increase of US$13.6m, or 44.3%, compared with 2006. The increase isprimarily due to increased demand for our Swift 64 high-speed data service,which targets the government aircraft and business jet markets as well as beingused by commercial airlines. Leasing: During 2007, revenues from leasing were US$66.2m, an increase ofUS$5.9m, or 9.8%, compared with 2006. The increase relates primarily to newnavigation contracts and a full year of revenues for our Swift 64 lease. Weexperienced lower Inmarsat Core leasing revenue during the fourth quarter as aresult of lower demand by a key customer. Other income: Other income for 2007 was US$10.6m, an increase of US$2.3m or27.7%, compared with 2006. The increase in other income relates to additionalin-orbit support services provided to other satellite operators. As well as theprovision of in-orbit services to other operators, other income consistsprimarily of income from the provision of conference facilities, renting surplusoffice space and revenue from sales of SPS end-user terminals. Net operating costs Net operating costs during 2007 were US$173.7m, an increase of US$5.3m or 3.1%compared to 2006. The increase reflects higher employee benefit costs, networkand satellite operations costs and other operating costs for our core businessoffset by higher capitalised costs. (US$ in millions) Inmarsat Consolidated Core plc 2007 2006 (unaudited) (audited) ---------------------------Employee benefit costs 94.3 85.9Restructuring costs includingtermination benefits - 6.8 ---------------------------Total employee benefit costs 94.3 92.7Network and satellite operations costs 33.8 31.1Other operating costs 64.1 56.6Work performed by the Group and capitalised (18.5) (12.0) ---------------------------Net operating costs 173.7 168.4 -------------------------- Employee benefit costs Employee benefit costs during 2007 were US$94.3m, an increase of US$8.4m, or9.8% compared with 2006 (excluding restructuring costs of US$6.8m in 2006). Theincrease is a result of additional headcount in both London and Batam (ouroperation in Indonesia), higher staff bonuses, additional non-recurring costsincurred as a result of changes made to our existing healthcare and home leaveemployee benefit schemes, the impact of annual salary increases and an adversemovement in the Group's hedged rate of exchange for Pounds Sterling, which hasincreased from US$1.77/£1.00 in 2006 to US$1.81/£1.00 in 2007 (the majority ofstaff costs are in Sterling and we report the Group's results in US dollars).Total full-time equivalent headcount at 31 December 2007 was 462 compared with436 as at 31 December 2006. Network and satellite operations costs Network and satellite operations costs during 2007 were US$33.8m, an increase ofUS$2.7m or 8.7%. The increase is primarily due to the inclusion of a full yearof in-orbit insurance costs for the Inmarsat-4 F2 satellite in 2007 whichcommenced on expiry of the launch insurance policy, being 8 November 2006. Theremainder of the increase relates to new maintenance contracts, in respect ofnetwork infrastructure, that commenced in 2007. Other operating costs During 2007, other operating costs were US$64.1m, an increase of US$7.5m, or13.3%, compared with 2006. The increase primarily relates to the direct cost ofsales of SPS terminals sold during the period and foreign exchange losses ofUS$2.9 million (2006: gain of US$1.6 million). Additionally, website developmentcosts and an amount of irrecoverable VAT were incurred. Offsetting the increasesin part, were lower office rental costs in 2007 due to an amendment made to theaccounting treatment on rental payments for our head office in 2006 and lowerprofessional fees in 2007 following the settlement of an outstanding arbitrationproceeding in 2006. Work performed by the Group and capitalised During 2007, own work capitalised was US$18.5m, an increase of US$6.5m, or54.2%. Own work capitalised reflects the shift of work from our BGAN andInmarsat-4 programme, now that it is largely operational, to work on the rolloutof our SPS service and our new services that were introduced in late 2007 suchas FleetBroadband and SwiftBroadband. EBITDA As a result of the factors discussed previously, EBITDA for 2007 was US$383.5m,an increase of US$51.8m, or 15.6%, compared with 2006 EBITDA. EBITDA marginincreased to 68.8% for 2007 compared with 66.3% for 2006. This reflects anincrease in revenue offset in part by a smaller increase in net operating costs. Depreciation and amortisation During 2007, depreciation and amortisation was US$174.2m, an increase ofUS$17.4m, or 11.1%, compared with 2006. The increase relates to both accelerateddepreciation costs following the cancellation of the Atlas launch vehicle optionwe had in place for the launch of our third Inmarsat-4 satellite and higherdepreciation charges following the commencement of depreciation on certainelements of the Inmarsat-4 ground network that became commercially operationalduring 2006. Operating profit As a result of the factors discussed above, operating profit during 2007 wasUS$209.3m, an increase of US$34.4m, or 19.7%, compared with 2006. Interest Interest payable for 2007 was US$91.4m, a decrease of US$2.0m, or 2.1% comparedwith 2006 with a decrease in finance costs associated with our pension andpost-retirement liabilities, offset in part by the increase in accretion ofprincipal on our Senior Discount Notes year on year. Interest receivable for 2007 was US$7.6m, a decrease of US$0.7m, or 8.4%compared with 2006. The decrease relates to the absence of any comparablerealised gain in 2007 (2006: US$2.8m) on an interest rate swap which expired atthe end of 2006 and lower cash balances in 2007 offset by additional interestincome accrued on the loan to CIP in 2007. Profit before tax For 2007, profit before tax was US$125.5m, an increase of US$35.7m, or 39.8%compared with 2006, as a result of higher operating profits and interest costslargely unchanged year over year. Income tax expense In 2007 the Group recorded a tax charge of US$28.3m, compared with a tax creditof US$37.9m in 2006. In December 2006, an intragroup lease receivable asset was disposed of andsubsequently terminated resulting in the net release of a deferred tax provisionof US$58.1m, which offset our tax liability for 2006. Excluding the effect ofthis transaction and a further credit arising from the review of certainhistorical tax provisioning positions, the tax charge for 2006 would have beenUS$27.3m, resulting in an effective tax rate of 30.4%. In 2007, the adjustment for the enacted reduction in the future corporation taxrate from 30% to 28% resulted in a deferred tax credit of US$11.6m. Excludingthis adjustment, the tax charge for 2007 would have been US$39.9m, resulting inan effective tax rate of 31.8%. The increase in the effective tax rate in 2007 is as a result of an increase inthe level of permanently disallowable expenditure. Profit for the year As a result of the factors discussed above, profit for the year 2007 wasUS$97.2m, a decrease of US$30.5m, or 23.9 %, compared with 2006. CIP Results----------- With effect from 11 December 2007, CIP UK and its subsidiaries ("CIP") have beenconsolidated into our Group results. CIP operates and is managed independentlyfrom Inmarsat Core. CIP's only trading subsidiary is Stratos for which alltrading information that follows primarily relates. For further information onStratos please refer to their 2007 Consolidated Financial Statements which canbe located at www.stratosglobal.com. Total revenues for CIP for the period 11 December 2007 to 31 December 2007 ("theperiod") were US$31.6m. Of this amount, MSS revenues were US$23.4m, Broadbandrevenues were US$5.8m and revenues from the sales and rental of equipment andrepairs was US$2.4m. Inmarsat services account for a large proportion ofStratos' MSS revenues. Intragroup revenues reported by Inmarsat Core fromStratos that are eliminated on consolidation were US$12.3m for the period. Total operating costs for CIP for the period were US$27.0m. Stratos' largestoperating costs category is network and satellite operations costs which largelyreflects costs of goods and services, variable expenses such as the cost ofairtime and space segment they purchase from satellite operators such asInmarsat, cost of equipment, materials and services they re-sell, and variablelabour costs related to the repair and service workforce. Intragroup costs thatare eliminated on Group consolidation were US$12.2m for the period for networkand satellite operations costs and US$0.1m for other operating costs. Depreciation and amortisation of US$2.5m for the period relates to capitalassets with a net book value of US$126.0m at 31 December 2007. As theacquisition of Stratos by CIP Canada occurred only 21 days prior to ourfinancial year end, book values of the assets and liabilities acquired were usedas fair values on a provisional basis. We expect to carry out a fair valueallocation of these assets and liabilities during 2008. Should the final fairvalues differ significantly from book values we expect to record an adjustmentto depreciation and amortisation costs in 2008. Interest expense of US$2.3m primarily reflects interest costs associated withStratos' outstanding Senior Credit Facilities of US$222.8m, Senior UnsecuredNotes of US$150.0m and interest on the Loan Facility that is payable to InmarsatIII in respect of the Transaction. Please see "CIP Canada offer for StratosGlobal Corporation Accepted" for further details of the Transaction and the LoanFacility. The Loan Facility and associated interest is eliminated on Groupconsolidation. A loss after tax of US$0.3m was incurred in the period. Total Group Results------------------- Earnings per share 2007 basic and diluted earnings per share for profit attributable to the equityholders of the Company were 21 cents (US$) and 21 cents (US$) respectively,compared with 28 cents (US$) and 28 cents (US$) respectively for 2006. Thedecrease is due to a large deferred tax credit in the prior year. 2006 basic anddiluted earnings per share adjusted to exclude the deferred tax credit were 17cents (US$) and 17 cents (US$) respectively. Liquidity and capital resources Inmarsat Core had net borrowings at 31 December 2007 of US$1,184.4m primarilycomprising drawings on the Senior Credit Facility of US$250.0m, Revolving CreditFacility of US$70.0m, Convertible Bonds of US$231.4m (including accretion ofprincipal), Senior Notes of US$218.8m (net of US$91.6m Senior Notes held by theGroup, being 30% of the aggregate principal amount outstanding), Senior DiscountNotes of US$412.0m (including accretion of principal) and deferred satellitepayments of US$52.4m, net of cash and cash equivalents of US$51.1m. CIP had net borrowings at 31 December 2007 of US$309.4m, primarily comprisingdrawings on Senior Credit Facilities of US$222.8m and Senior Unsecured Notes ofUS$150.0m, net of cash and cash equivalents of US$63.9m. The total borrowings figures given in note 8 can be reconciled to the netborrowings figures above as follows: (US$ in millions) As at As at 31 December 31 December 2007 2006 (unaudited) (audited) --------------------------Inmarsat CoreTotal borrowings 1,235.5 941.1Cash and cash equivalents (51.1) (42.8) -------------------------- 1,184.4 898.3CIPTotal borrowings 373.3 -Cash and cash equivalents (63.9) - ------------------------- 309.4 - -------------------------Group Net Borrowings (excluding deferred finance costs) 1,493.8 898.3 ------------------------- The table below shows the combined cash flow for Inmarsat Core for the yearended 31 December 2007 and CIP for the 21 days of trading activity following itsacquisition. The table also identifies all associated intragroup eliminationsand adjustments for the reported consolidated Group cash flow position. (US$ in millions) Inmarsat CIP Intragroup Consolidated Core eliminations plc and adjustments 2007 2007 2007 2007 2006 (unaudited) (unaudited) (unaudited) (unaudited) (audited) -----------------------------------------------------------Net cash from operating activities 379.1 11.6 - 390.7 330.0Net cash used in investing activities excluding capital (28.0) (242.9) 29.7 (241.2) (18.0)expenditureCapital expenditure (209.9) (3.7) - (213.6) (114.4)Dividends paid to shareholders (125.9) - - (125.9) (98.2)Net cash from/(used in) financingactivities excluding dividends (6.6) 298.9 (29.7) 262.6 (91.6)Foreign exchange adjustment (0.3) - - (0.3) (0.2) ----------------------------------------------------------Net increase in cash and cashequivalents 8.4 63.9 - 72.3 7.6 --------------------------------------------------------- Net cash from operating activities during 2007 was US$390.7m compared toUS$330.0m during 2006. The increase arises from increased EBITDA, movements inworking capital and inclusion of CIP. Net cash used in investing activities, excluding capital expenditure, during2007 was US$241.2m compared with US$18.0m for 2006. The increase in cashoutflows reflects the acquisition of Stratos by CIP Canada for a considerationof $294.0m Canadian Dollars (which we had hedged to an exposure value ofUS$263.3m) net of US$56.0m of CIP cash acquired. The adjustment of US$29.7mrepresents hedging gains which have been applied against the purchase price ofStratos by CIP Canada on consolidation. Capital expenditure during 2007 was US$213.6m compared with US$114.4m for 2006.The increase reflects capital expenditure for the continued construction of ourInmarsat-4 ground infrastructure, prepaid launch costs associated with ourInmarsat-4 F3 satellite, costs incurred on the construction of our thirdsatellite access station in Hawaii, the payment of outstanding contractualmilestones relating to the construction of our Inmarsat-4 satellites, investmentin other new BGAN services such as FleetBroadband and SwiftBroadband and our newSPS network. CIP's cash outflow in respect of capital expenditure for property,plant and equipment was US$3.7m for the period. Net cash from financing activities, excluding the payment of dividends, during2007 was US$262.6m compared to cash used of US$91.6m during 2006. During 2007,the Group issued US$287.7m of 1.75% convertible bonds due 2017 in November 2007resulting in net proceeds of US$281.9m and drew down US$70.0m on its revolvingcredit facility. Offsetting these inflows in part were the Group's purchase ofUS$38.0m principal of its Senior Notes (2006: US$43.6m) and payment of US$39.8minterest on the Senior Notes and Facilities (2006: US$36.4m). As discussedabove, the adjustment of US$29.7m represents hedging gains applied against thepurchase price of Stratos by CIP Canada on consolidation. The Group continually evaluates sources of capital and may repurchase,refinance, exchange or retire current or future borrowings and/or debtsecurities from time to time in private or open-market transactions, or by anyother means permitted by the terms and conditions of borrowing facilities anddebt securities. Balance Sheet The table below shows the combined balance sheets of Inmarsat Core and CIP at31 December 2007. The table also identifies all associated intragroupeliminations and adjustments for the reported consolidated Group balance sheet. (US$ in millions) Inmarsat CIP Intragroup Consolidated Core eliminations plc and adjustments 2007 2007 2007 2007 2006 (unaudited) (unaudited) (unaudited) (unaudited) (audited) -----------------------------------------------------------Non-current assets 2,097.9 628.6 (328.0) 2,398.5 1,769.5Current assets 219.3 218.0 (71.2) 366.1 204.1 -----------------------------------------------------------Total assets 2,317.2 846.6 (399.2) 2,764.6 1,973.6Current liabilities (262.3) (159.2) 100.7 (320.8) ( 167.8)Non-current liabilities (1,321.8) (687.5) 299.2 (1,710.1) (1,089.3) ----------------------------------------------------------Total liabilities (1,584.1) (846.7) 399.9 (2,030.9) (1,257.1) ----------------------------------------------------------Net assets 733.1 (0.1) 0.7 733.7 716.5 ----------------------------------------------------------- The Group's non-current assets totalled US$2,398.5m at 31 December 2007 comparedwith US$1,769.5m at 31 December 2006. The increase is due primarily tointangible assets of US$475.9m reflecting goodwill of US$407.3m acquired as aresult of the acquisition of CIP with the remainder relating to other CIPintangible assets on acquisition. In addition, the increase reflects an increasein property, plant and equipment assets of US$144.6m as a result of theacquisition of CIP (US$123.8m) offset in part by a decrease in such assets forInmarsat Core due to the first full year of depreciation on two of ourInmarsat-4 satellites and a major part of our BGAN infrastructure with theInmarsat-4 programme now substantially complete and operational. The adjustmentof US$328.0m represents the elimination of the intragroup loan between InmarsatIII and CIP UK, an adjustment for transaction costs in Inmarsat Core which arecapitalised to goodwill on consolidation., an adjustment for non-controllinginterests and an adjustment for the US$29.7m in hedging gains applied againstthe purchase price of Stratos by CIP Canada on consolidation. Current assets for the Group were US$366.1m at 31 December 2007 compared withUS$204.1m at 31 December 2006. Cash and cash equivalents increased from US$42.8mat 31 December 2006 to US$115.0m at 31 December 2007, of which US$63.9m in 2007relates to CIP. Trade and other receivables increased from US$152.0m at 31December 2006 to US$234.8m at 31 December 2007. The increase reflects CIP tradereceivables of US$143.1 offset in part by the elimination of intra group amountsbetween Inmarsat Core and CIP. The adjustment of US$71.2m represents theelimination of intragroup receivables. Non-current liabilities for the Group were US$1,710.1m at 31 December 2007compared with US$1,089.3m at 31 December 2006. The increase primarily relates toadditional non-current borrowings representing the liability component of theconvertible bonds issued in November by Inmarsat plc of US$224.3m and theconsolidation of CIP non-current borrowings of US$361.7m. The adjustment ofUS$299.2m represents the elimination of the intragroup loan between Inmarsat IIIand CIP UK. Current liabilities for the Group at 31 December 2007 were US$320.8m comparedwith US$167.8m at 31 December 2006. The US$81.9m increase in current borrowingsrelates to the drawdown on the revolving senior credit facility of US$70.0m andthe consolidation of CIP borrowings of US$11.6m. Trade and other payables haveincreased by US$48.1m from 2006 and largely relate to the consolidation of CIPpayables of US$67.2m offset by lower payables for Inmarsat Core as a result oflower capital expenditure accruals in 2007. The adjustment of US$100.7mrepresents the elimination of intragroup payables and unamortised hedged gainsin Inmarsat III which have been applied against the purchase price of Stratos byCIP Canada on consolidation. With the deemed acquisition of CIP being so close to the Group's reporting yearend there have been no fair value adjustments made to the book values of CIP'sassets and liabilities as of 11 December 2007. For opening balance sheetpurposes we recognised US$842.1m in assets and US$559.5m in liabilities. Wewill carry out a fair value allocation of these assets and liabilities during2008. The increase in liabilities for CIP at 31 December 2007 primarily relatesto the loan between Inmarsat III and CIP. Seasonality and volume discounts Revenues are impacted by volume discounts which increase over the course of theyear with lower discount levels in early quarters and higher discounts in laterquarters as our distribution partners meet specific volume thresholds. Volumediscounts for 2007 were US$51.3m compared to US$42.1m during 2006, a 21.9%increase year on year. The effect of these volume discounts are most prominentin the third and fourth quarters. Additionally, the total amount of volumediscounts is affected by the growth in underlying revenue and the consolidationof distribution partners. During the remaining term of our distributionagreements, which expire on 14 April 2009, we expect our distribution partnersto achieve higher levels of volume discounts as a result of growth in ourrevenues. The merger of Stratos Global Limited and Xantic B.V. in February 2006has resulted in increased levels of discounts during 2007 compared to 2006.Additionally, we expect Vizada Satellite Communications to earn higher volumediscounts in 2008 compared to 2007 as a result of their consolidation with theformer Telenor Satellite Services which was completed in September 2007. Recent Events The Inmarsat plc Board of Directors intends to recommend a final dividend of17.33 cents (US dollars) per ordinary share in respect of the year ended 31December 2007 to be paid on 23 May 2008 to ordinary shareholders on the registerof members at the close of business on 9 May 2008. Shareholders will be asked toapprove the final dividend payment at the Annual General Meeting to be held on 6May 2008. Dividend payments will be made in Pounds Sterling based on theexchange rate prevailing in the London market four business days prior topayment. This dividend has not been recognised as a liability for 2007. Subsequent to 31 December 2007 other than the events discussed above there havebeen no other material events which would affect the information reflected inthe consolidated financial results of the Group. INMARSAT PLCCONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2007 (US$ in millions) 2007 2006 (unaudited) (audited) ---------------------------Revenue 576.5 500.1Employee benefit costs (99.0) (92.7)Network and satellite operations costs (42.4) (31.1)Other operating costs (65.5) (56.6)Work performed by the Group and capitalised 18.5 12.0 --------------------------EBITDA 388.1 331.7Depreciation and amortisation (176.7) (156.8) --------------------------Operating profit 211.4 174.9Interest receivable 6.7 8.3Interest payable and similar charges (93.3) (93.4) --------------------------Net interest payable (86.6) (85.1) --------------------------Profit before income tax 124.8 89.8Income tax (expense)/credit (28.2) 37.9 --------------------------Profit for the year 96.6 127.7 -------------------------- Earnings per share for profitattributable to the equity holders ofthe Company during the year (expressedin US$ per share)- Basic 0.21 0.28- Diluted 0.21 0.28 INMARSAT PLCCONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 31 December 2007 (US$ in millions) 2007 2006 (unaudited) (audited) --------------------------- Profit for the year 96.6 127.7Actuarial gains from pension and postretirement healthcare benefits 7.3 5.2Net gains on cash flow hedges 11.8 8.2Transfer to carrying amount of non-financialhedged item on cash flow hedges (29.7) -Cancellation of deferred shares 0.1 -Movement in cumulative translation reserve - (6.6)Tax credited/(charged) directly to equity 3.1 (2.4) ---------------------------Total recognised income for the year 89.2 132.1 --------------------------- INMARSAT PLCCONSOLIDATED BALANCE SHEETAt 31 December 2007 (US$ in millions) 2007 2006 (unaudited) (audited) ---------------------------AssetsNon-current assetsProperty, plant and equipment 1,392.1 1,247.5Intangible assets 997.9 522.0Investments 7.5 -Other receivables 1.0 - -------------------------- 2,398.5 1,769.5 --------------------------Current assetsCash and cash equivalents 115.0 42.8Trade and other receivables 234.8 152.0Inventories 15.8 0.8Derivative financial instruments 0.5 8.5 ------------------------- 366.1 204.1 -------------------------Total assets 2,764.6 1,973.6 -------------------------LiabilitiesCurrent liabilitiesBorrowings 93.7 11.8Trade and other payables 194.1 146.0Provisions 0.1 1.6Current income tax liabilities 28.6 8.4Derivative financial instruments 4.3 - ------------------------ 320.8 167.8 ------------------------Non-current liabilitiesBorrowings 1,483.5 910.6Other payables 7.6 6.7Provisions 40.4 37.6Deferred income tax liabilities 170.9 134.4Derivative financial instruments 7.7 - 1,710.1 1,089.3 ------------------------Total liabilities 2,030.9 1,257.1 -------------------------Net assets 733.7 716.5 ------------------------- Shareholders' equityOrdinary shares 0.3 0.4Share premium 677.1 675.4Equity reserve 56.9 -Other reserves (7.4) 11.3Retained earnings 5.4 29.4 -----------------------Equity attributable to shareholders of the parent 732.3 716.5 ------------------------Non-controlling interest 1.4 - ------------------------Total shareholders' equity 733.7 716.5 ------------------------ INMARSAT PLCCONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2007 (US$ in millions) 2007 2006 (unaudited) (audited) --------------------------Cash flow from operating activitiesCash generated from operations 384.3 327.9Interest received 6.3 2.6Income taxes paid 0.1 (0.5) ---------------------------Net cash from operating activities 390.7 330.0 ---------------------------Cash flow from investing activitiesPurchase of property, plant and equipment (205.3) (113.0)Consideration under ACeS collaborationarrangement (3.0) (4.0)Additions to capitalised development costs (8.3) (1.4)Work performed by the Group and capitalised(a) (17.5) (14.0)CIP transaction fees (12.7) -Purchase of Stratos, net of cash acquired (207.3) -Purchase of CIP UK option (0.7) - --------------------------Net cash used in investing activities (454.8) (132.4) --------------------------Cash flow from financing activitiesDividends paid to shareholders (125.9) (98.2)Purchase of Senior Notes (38.0) (43.6)Interest paid on Senior Notes and Facilities (39.8) (36.4)Net settlement of finance lease - (11.6)Net proceeds from Senior Credit RevolvingFacility 70.0 -Net proceeds from issue of Convertible Bonds 281.9 -Payment on purchase of own shares byemployee benefit trust (10.1) -Finance lease disposal fees (1.4) - ------------------------Net cash from/(used) in financing activities 136.7 (189.8) ------------------------Foreign exchange adjustment (0.3) (0.2) ------------------------Net increase in cash and cash equivalents 72.3 7.6 ------------------------ Movement in cash and cash equivalentsAt beginning of year 42.7 35.1Net increase in cash and cash equivalents 72.3 7.6 ------------------------As reported on balance sheet (net of bankoverdrafts) 115.0 42.7 ------------------------At end of year, comprisingCash at bank and in hand 65.5 1.5Short-term deposits with original maturityof less than 3 months 49.5 41.3Bank overdrafts - (0.1) ------------------------ 115.0 42.7 ------------------------ (a) The Group previously classified the cash impact of 'Work performed by theGroup and capitalised' within 'Cash flow from operating activities'. Managementbelieves that the inclusion as part of 'Cash flow from investing activities' isa fairer representation of the Group's activities, and as a result, US$14.0m ofcash flow in the 2006 financial year has been reclassified from 'Cash flow fromoperating activities' to 'Cash flows from investing activities'. NOTES TO THE CONSOLIDATED FINANCIAL RESULTS 1. General Information These unaudited consolidated financial results were approved for issue by theBoard of Directors on 6 March 2008. The financial information for the year ended 31 December 2007 does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. Statutory accounts for 2007 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 2006 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 2007 have been prepared on a basis consistentwith the IFRS accounting policies as set out on pages 45 to 51 of the auditedConsolidated Financial Statements for the year to 31 December 2006, as availableon our website www.inmarsat.com/about us/investor relations/financial reports/2006 Annual Report and Accounts. The applied International Financial ReportingStandards ("IFRS") accounting policies were selected by management consideringall applicable IFRSs issued by the International Accounting Standards Board("IASB") and adopted by the European Union. This announcement does not containsufficient information to comply with all of the disclosure requirements ofIFRS. 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. 3. Consolidation of CIP UK and its Subsidiaries The consolidated results for 31 December 2007 include the financial results ofCIP UK Holdings Limited ("CIP UK") and its subsidiaries including Stratos forthe period 11 December 2007 to 31 December 2007 ("CIP"). On 11 December 2007,Inmarsat Finance III Limited ("Inmarsat III"), a wholly owned subsidiary of theInmarsat plc, provided a loan of US$269.0m to CIP UK to fund the acquisition(the "Loan Facility") by its wholly-owned subsidiary CIP Canada. On this date,CIP granted Inmarsat III an option to acquire the entire issued share capital ofCIP UK (the "Call Option"). The Call Option is only exercisable after 14 April2009, when certain of Inmarsat's distribution agreements expire, and terminateson 31 December 2010. The Call Option is exercisable for a payment of betweenUS$750,000 and US$1.0m. Although Inmarsat does not hold an equity interest in, nor have any control overthe financial and operating policies or any entitlement to receive dividendsfrom CIP UK, under IFRS (more specifically Standing Interpretations Committee("SIC") 12 Consolidation - Special Purpose Entities ("SPE")) the Group isrequired to consolidate the financial results of CIP UK, as it meets the SIC12/IAS 27 definition of a SPE given that the Group is deemed to bear the residualrisks and economic benefits of CIP UK by virtue of the combination of the LoanFacility and the Call Option. We have accounted for the combination of Inmarsat and CIP using the purchasemethod of accounting in accordance with IFRS 3 "Business Combinations". Resultsof operations for CIP have been included in the consolidated income statementfor the Group for the period 11 December 2007 to 31 December 2007 (21 days ofactivity). Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. Non-controlling interests in the net assets of CIP are identified separatelyfrom the equity attributable to shareholders of the Inmarsat plc.Non-controlling interests consist of the amount of those interests at the dateof acquisition, which represents the maximum amount of US$1.0m payable byInmarsat III on exercise of the option and a minority interest in one of CIP'ssubsidiaries. This amount will not vary materially with the results of Stratos. 4. Segment information The Group operates primarily in one business segment being the supply of mobilesatellite communications services ("MSS"). 'Other' principally comprises income from technical support to other operators,the provision of conference facilities leasing surplus office space to externalorganisations and CIP's Broadband business. Primary reporting format-Business segments 2007 (unaudited)(US$ in millions) Mobile satellite communications services Other Unallocated Total --------------------------------------------------------Revenue 562.1 14.4 - 576.5Segment result (operating profit) 210.3 1.1 - 211.4Net interest charged to theIncome Statement - - (86.6) (86.6) -------------------------------------------Profit before income tax 124.8Income tax expense (28.2) -------------------------------------------Profit for the year 96.6 -------------------------------------------Segment assets 2,156.1 86.2 115.0 2,357.3Goodwill on CIP transaction(a) - - 407.3 407.3Segment liabilities (263.5) (17.6) (1,749.8) (2,030.9)Capital expenditure(b) (187.4) - (0.2) (187.6)Depreciation (154.6) (0.3) (1.0) (155.9)Amortisation of intangible assets (20.8) - - (20.8) ------------------------------------------- (a) The goodwill arising on the CIP transaction will be allocated to specificsegments once we have conducted a fair value review of the assets andliabilities, which will take place during 2008.(b) Capital expenditure stated using accruals basis. 2006 (audited)(US$ in millions) Mobile satellite communications services Other Unallocated Total --------------------------------------------------------- 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(a) (82.8) - - (82.8)Depreciation (138.4) - - (138.4)Amortisation of intangible assets (18.4) - - (18.4) -----------------------------------------------(a) Capital expenditure stated using accruals basis. 5. Net interest payable (US$ in millions) 2007 2006 (unaudited) (audited) --------------------- Interest on Senior Notes and Senior Credit Facilities (40.1) (38.1)Accretion of principal on the Senior Discount Notes (39.5) (35.8)Interest on convertible bonds (2.6) -Net premium on early settlement of Burses finance lease - (6.2)Pension and post-retirement liability finance costs (1.3) (5.8)Unwinding of discount on deferred satellite liabilities (3.3) (3.7)Amortisation of debt issue costs (3.7) (3.2)Interest on CIP borrowings (2.0) -Other interest (0.8) (0.6) ------------------Total interest payable and similar charges (93.3) (93.4) ------------------Bank interest receivable and other interest 6.4 5.5Interest rate swap 0.3 2.8 ------------------Total interest receivable and similar income 6.7 8.3 ------------------Net interest payable (86.6) (85.1) ------------------ 6. Income tax (expense)/credit (US$ in millions) 2007 2006 (unaudited) (audited) ----------------------Current tax:Current year (13.1) (5.3)Adjustments in respect of prior periods - 13.9 ---------------------Total current tax (expense)/credit (13.1) 8.6 ---------------------Deferred tax:Origination and reversal of temporary differences (24.3) (19.5)Adjustments in respect of the reduction in the 9.2 -Corporation Tax rate from 30% to 28%Disposal of lease receivable - 58.1Reassessment of likelihood of recovery of deferred tax assets - (9.3) --------------------Total deferred tax (expense)/credit (15.1) 29.3 --------------------Total income tax (expense)/credit (28.2) 37.9 -------------------- 7. Reconciliation of movements in shareholders' equity Ordinary Share Equity Other (Accumulated losses)/ Non-controlling Total share premium reserve reserves retained earnings interest capital account -------------------------------------------------------------------------------------------(US$ in millions) Balance at 1 January 2006 0.4 672.3 - 8.7 (4.9) - 676.5 -------------------------------------------------------------------------------------------Net 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 pensionand post-retirement healthcarebenefits - - - - 5.2 - 5.2Movement in cumulativetranslation 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(audited)Attributable on combinationof CIP - - - - - 1.4 1.4Net fair value gains - cash flow hedges - - - 11.8 - - 11.8Transfer to carrying amount ofnon-financial hedged item oncash flow hedges - - - (29.7) - - (29.7)Issue of share capital - 1.7 - - - - 1.7Recognition of equity componentof convertible bonds - - 56.9 - - - 56.9Cancellation of deferredshares (0.1) - - 0.1 - - -Purchase of shares byemployee benefit trust - - - (10.1) - - (10.1)Share options charge - - - 4.1 - - 4.1Profit for the year - - - - 96.6 - 96.6Dividends payable - - - - (125.9) - (125.9)Actuarial gains from pensionand post-retirement healthcarebenefits - - - - 7.3 - 7.3 Tax credited/(charged)directly to equity - - - 5.1 (2.0) - 3.1 -----------------------------------------------------------------------------------------Balance at 31 December 2007(unaudited) 0.3 677.1 56.9 (7.4) 5.4 1.4 733.7 ----------------------------------------------------------------------------------------- 8. Net borrowings These balances are shown net of unamortised deferred finance costs, which havebeen allocated as follows: As at 31 December 2007 As at 31 December 2006 (unaudited) (audited)(US$ in millions) Amount Deferred Deferred finance Net finance Net cost balance Amount cost balance Current:Bank overdraft - - - 0.1 - 0.1Deferred satellite payments 12.1 - 12.1 11.7 - 11.7Senior Credit Facility 70.0 - 70.0 - - -CIP Mortgage obligation 0.1 - 0.1 - - -CIP Senior Credit Facilities 11.5 - 11.5 - - - ---------------------------------------------------Total current borrowings 93.7 - 93.7 11.8 - 11.8 ---------------------------------------------------Non-current:Senior Credit Facility 250.0 (1.1) 248.9 250.0 (1.6) 248.4Senior Discount Notes, 10.375% 406.7 (7.3) 399.4 367.6 (8.2) 359.4-Accretion of principal 5.3 - 5.3 4.9 - 4.9Senior Notes 218.8 (7.2) 211.6 256.8 (8.9) 247.9Premium on Senior Notes 0.9 - 0.9 1.1 - 1.1Deferred satellite payments 40.3 - 40.3 48.9 - 48.9Convertible Bonds 229.4 (5.1) 224.3 - - --Accretion of principal 2.0 - 2.0 - - -CIP Senior Credit 211.3 (4.3) 207.0 - - -FacilitiesCIP Mortgage obligation 0.4 - 0.4 - - -CIP Senior Unsecured Notes 150.0 (6.6) 143.4 - - - ---------------------------------------------------Total non-current borrowings 1,515.1 (31.6) 1,483.5 929.3 (18.7) 910.6 ---------------------------------------------------Total Borrowings 1,608.8 (31.6) 1,577.2 941.1 (18.7) 922.4 ---------------------------------------------------Cash and cash equivalents (115.0) - (115.0) (42.8) - (42.8) ---------------------------------------------------Net Borrowings 1,493.8 (31.6) 1,462.2 898.3 (18.7) 879.6 --------------------------------------------------- On 16 November 2007 Inmarsat plc issued US$287.7m in principal amount of 1.75%convertible bonds due 2017 (the "Bonds"). The Bonds are convertible intoordinary shares of the Company and have a 1.75% per annum coupon payablesemi-annually and a yield to maturity of 4.5%. The Bonds have an initialconversion premium of 32.5% over the reference share price of £4.6193representing approximately 5% of the Company's current issued share capital. Theinitial conversion price is US$12.694 and the total number of common shares tobe issued if all the Bonds are converted is 22.7 million shares. The Bonds have been accounted for as a compound financial instrument and as suchbifurcated into a liability component of US$224.3m (classified as non-currentborrowings in our balance sheet) and an equity component of US$56.9m (classifiedas equity reserves in our balance sheet). The gross proceeds of US$287.7m less issue costs of US$6.5m, have been split oninitial recognition into the liability and equity components of US$224.3m andUS$56.9m respectively. The liability component represents the fair value of theunderlying liability. The equity component initially brought to account isdetermined by deducting the amount of the liability component from the fairvalue of the compound instrument as a whole, and represents the option for theholder to convert the bond into equity of the company. Issue costs areapportioned between the liability and equity components based on theirrespective carrying amounts at the date of issue. This information is provided by RNS The company news service from the London Stock Exchange

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