Inmarsat profits drop as costs outweigh revenue gains

Inmarsat's annual profits faltered in 2018 as mounting costs offset revenue growth, which was driven by its global GX broadband offering.

For the year ended 31 December the mobile satellite communications outfit recorded profit before tax of $167.9m, down 28% compared to the year before, even as revenue increased by 5% to reach $1.5bn. Revenue was boosted by a 41% surge from the aviation division to $256.1m as the in-flight internet offering took off with various airlines.

Meanwhile, the key Maritime division saw revenue fall 3% to $552.8m, Government sales rose 4% to $381.0m, the contract with US-based Ligado contributed $145.3m, while Enterprise revenue fell 2% to $130.0m.

However, the overall increase in revenue was offset by operating costs, which increased by 7% to $695.1m.

Chief executive Rupert Pearce said: "We remain focused on building and defending substantial market share in our target markets, supported by our diversified product portfolio and leading-edge networks. This will ensure we are able to fully capitalise on both the immediate and longer-term growth opportunities in these markets."

At 31 December Inmarsat had cash and cash equivalents of $143.2m, down from $144.9m at the same point the year before.

For 2019 the FTSE 250-listed company said it expected revenue to be between $1.3-1.4bn, excluding a contribution from Ligando, while it is also targeting average annual revenue growth of a “mid-single digit percentage” from 2018 to 2022, along with EBITDA and free cash flow generation “improving steadily".

"Supported by a tightly controlled cost base and an infrastructure capital investment programme which we are confident will meaningfully and sustainably moderate from 2021, we expect to generate sustained free cash flow growth over the medium to long term," said Pearce.

Inmarsat's shares were up 2.93% at 411.00p at 0916 GMT.

Analysts at Credit Suisse said the results showed evidence of a "strong" fourth quarter, with group revenue 3% ahead of consensus and EBITDA 12% ahead of consensus, as the key Maritime business was "no worse than Q3 (and slightly ahead of consensus)" and management confirmed capex is falling.

RBC Capital Markets said the results were "decent", though the fleet broadband product saw its worst-ever quarter.

The wide 2019 revenue guidance compares to consensus of $1,374m, so range is 5% below to 2% above with the mid point -1.7% below.

With Inmarsat saying the market is likely to decline from circa 45k ships to circa 25k ships by 2023, RBC said: "If we assume a static 72% market share, this implies Inmarsat will have c.18k FBB ships by 2023. This is substantially below our estimates – we have c.25k by 2023. Our numbers assume a c.-5% CAGR decline in FleetBroadband to 2023. Inmarsat’s comments imply an -11% CAGR decline.

"Against these ship losses, Inmarsat is gaining a large number of ships migrating up to its higher-speed VSAT services. Inmarsat says it took 50% of global market share of these in 2018. However, since Inmarsat currently has c.72% market share, this implies significant market loss from those migrating."

With In-Flight Connectivity revenues now $101m, with 1,580 aircraft under contract and an additional 450 or so committed or optioned aircraft, RBC said this was also "decent".