Inmarsat delivers 2018 results and doubles IFC revenues

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Inmarsat Aviation signInmarsat has delivered its 2018 results, showing good growth in revenue, with year-on-year increases of 5.3% and more than double inflight connectivity revenues.

Group Revenue (ex Ligado) for 2018 increased by $71.6m, or 5.7%, to $1,334.5m, including $26.6m increase in Q4.

Inflight connectivity (IFC) revenues more than doubled to $101.3m, including the first GX IFC airtime revenues.

Group profit after tax was down $60.0m (32.4%) to $125.0m, with higher EBITDA more than offset by higher depreciation.

Rupert Pearce, Chief Executive Officer, said: “Inmarsat delivered consistent growth in 2018, building on our return to growth established in 2017. I am particularly pleased by the 85% revenue growth in GX services and a doubling of our IFC revenues, both of which augur well for the future.

“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.

“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.”

Aviation market

In Aviation it operates in three market segments – Inflight Connectivity (IFC”), Business and General Aviation (BGA) and Safety and Operational Services (SOS).

IFC is predicted to become the largest global aviation segment for mobile satellite communications in the future, with around 23,000 commercial aircraft expected to be connected by 2027, up from 7,400 in 2017, by when the penetration of IFC solutions in commercial aviation is expected to be over 60%, from 30% in 20171

With the global IFC market in the midst of a highly-competitive market capture phase, Inmarsat says it has gained significant positive momentum in building a market position, winning new contracted customers, helping to install those customers with IFC systems and bringing those customers into service.

Its strategic collaboration agreement with Panasonic Avionics Corporation is expected to help further cement a global leadership position for Inmarsat in IFC over the longer term.

Growth in the BGA market will be driven by growing bandwidth requirements per aircraft and the continued increase in aircraft using connectivity services, with the number of connected business aircraft expected to grow by 5% CAGR, between 2017 to 2027, from 21,600 to 35,000 aircraft.

Diverse distribution market

Inmarsat has a sizeable customer base and diverse distribution network on which to build. This foundation enables Inmarsat to capture market share, through the on-going market penetration of its high-bandwidth product, Jet ConneX.

Its core Aviation business comprises SwiftBroadband and JetConneX for BGA, Classic Aero and SwiftBroadband-Safety for SOS and legacy products.

By the end of 2018, 428 aircraft were installed with JetConneX, its GX-based product for BGA, up from 165 at the end of 2017. JetConneX grew airtime revenue to $22.0m in 2018, up from $4.4m in 2017, including $7.6m in Q4 2018, up from $1.9m in Q4 2017.

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SwiftBroadband revenues grew $2.1m, or 2.8%, in the year to $77.4m, driven by higher usage, particularly during the first nine months of the year. Q4 revenues fell by $2.9m to $18.2m, reflecting a relatively high level of customer migration to JetConneX in that period.

In SOS, Classic Aero delivered revenue growth of $4.0m, or 9.6%, to $45.8m, reflecting more aircraft using the product, but was flat in Q4 at $11.1m.

Revenue in its legacy products, including leasing contracts and legacy safety services, was down by $1.4m to $9.6m in the year, and down by $0.9m to $1.3m in Q4, mainly due to the end of a leasing contract in H1 2018, as previously highlighted.

Direct costs in its core business remained fairly immaterial at $1.2m in 2018, including $0.3m in Q4, whilst indirect costs increased slightly to $10.2m in the year, including $2.8m in Q4.

EBITDA and Business Unit Operating Cash Flow for the Core Aviation business consequently both grew by $21.7m to $143.4m in the year, and by $1.4m to $35.4m in Q4.

IFC revenues

IFC revenues, comprising its GX Aviation services for IFC and its L-band-based IFC services for commercial aviation, together grew by $52.0m to $101.3m in 2018, including the first GX-generated IFC airtime revenue of $7.1m. In Q4 2018, IFC revenues grew by $22.8m to $33.9m, including $3.4m of GX airtime revenue.

It has c.1,580 aircraft under signed contracts for our GX and EAN IFC services. There are c. 450 further aircraft for which either existing customers have an option to install further aircraft or where new customers have committed to GX hardware with third party suppliers.

It said it continues to pursue its rolling new business pipeline of around 3,000 aircraft.

There was an industry wide slowdown in the volume of IFC contract awards in 2018, with some airlines maintaining a watching brief on how the IFC segment is expected to take shape in the coming years.

Despite this slowdown, a number of customers signed contracts for GX Aviation in Q4 2018, including Garuda Indonesia and Citilink, and some customers expanded their initial aircraft and fleet mandates for our IFC services.

Agreement with Panasonic

During the year, Inmarsat and Panasonic Avionics Corporation entered into a strategic collaboration agreement in Commercial Aviation, which will accelerate its drive to establish a global leadership position in IFC. Inmarsat will become Panasonic’s exclusive long-term provider of Ka-band IFC capacity, through GX, and will have access to Panasonic’s downstream IFE presence and capability.

At the end of 2018, there were 452 aircraft installed with Inmarsat GX and EAN equipment across a number of customers (up from 321 at the end of Q3), including over 100 GX connected aircraft now in commercial service.

It expects the rate of installation to further increase over the coming quarters.

Preparations are now well advanced for the service roll-out of the European Aviation Network (EAN), which is expected to take place during H1 2019, following a “soft launch” with its customer in March.

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