TIDMISAT

RNS Number : 6863G

Inmarsat PLC

08 November 2018

Inmarsat plc reports Third Quarter Results 2018

Diversified growth portfolio continues to drive improved results - on track to deliver growth in Revenue, EBITDA and Free Cash Flow for the Full Year

London, UK: 8 November 2018. Inmarsat plc (LSE: ISAT.L), ("Inmarsat", the "Group"), the world leader in global mobile satellite communications, today published the following unaudited information for the third quarter, and nine months, ended 30 September 2018.

Financial Headlines:

 
                              Third Quarter ended 30                    Nine months ended 30 September 
$ in millions                        September 
                        2018  2017 (restated)(1)  Change   Change     2018            2017  Change   Change 
                                                              (%)            (restated)(1)              (%) 
                 -----------                                       ------- 
Group revenue          369.3               356.2   13.1      3.7%  1,086.5         1,039.9    46.6     4.5% 
                 -----------  ------------------  ------  -------  -------  --------------  ------  ------- 
Maritime               135.0               143.1  (8.1)    (5.7%)    417.1           422.9   (5.8)   (1.4%) 
                 -----------  ------------------  ------  -------  -------  --------------  ------  ------- 
Government              95.2                88.4   6.8       7.7%    278.3           275.9     2.4     0.9% 
                 -----------  ------------------  ------  -------  -------  --------------  ------  ------- 
Aviation                68.2                50.9   17.3     34.0%    183.7           134.1    49.6    37.0% 
                 -----------  ------------------  ------  -------  -------  --------------  ------  ------- 
Enterprise              34.6                38.2  (3.6)    (9.4%)     98.6           100.5   (1.9)   (1.9%) 
                 -----------  ------------------  ------  -------  -------  --------------  ------  ------- 
Other(2)                36.3                35.6   0.7       2.0%    108.8           106.5     2.3     2.2% 
                 -----------  ------------------  ------  -------  -------  --------------  ------  ------- 
EBITDA(3)              206.5               193.3   13.2      6.8%    579.5           573.0     6.5     1.1% 
                 -----------  ------------------  ------  -------  -------  --------------  ------  ------- 
PAT                    227.7               112.7  115.0    102.0%     95.9           151.5  (55.6)  (36.7%) 
                 -----------  ------------------  ------  -------  -------  --------------  ------  ------- 
Adjusted 
 PAT (3,4)              46.5                56.3  (9.8)   (17.4%)    122.0           167.3  (45.3)  (27.1%) 
                 -----------  ------------------  ------  -------  -------  --------------  ------  ------- 
 

Q3 2018 operational highlights:

-- Group Revenue (ex Ligado) increased by $12.6m, or 3.9%, to $336.4m, continuing to reflect the combined strength of the Group's diverse portfolio and the delivery of further strategic proof points

   o   Maritime: 

- Strong revenue and market share growth through Fleet Xpress ("FX") in fast-growing, high value VSAT segment

- FleetBroadband ("FB") revenues declined, reflecting customer migration to FX and increased VSAT competition

   o   Government: 

- Strong revenue growth, particularly from our non-US government business

   o   Aviation: 

- Strategic alliance with Panasonic to strengthen our drive for future global market leadership in IFC

- Double digit revenue and EBITDA growth, with an improved margin outlook for FY 2018

   o   Enterprise: 

- Best quarter so far this year, against a tough, event-driven, comparative

-- Group EBITDA (ex Ligado) increased by $12.7m, or 7.9%, to $173.6m reflecting higher revenues, particularly from Aviation, and lower costs

-- Updated 2018 guidance Revenue and EBITDA for FY 2018 (ex Ligado) are expected to be at least in line with current market consensus (Revenue: $1,325m, EBITDA: $610m)

   --      Medium term guidance for the Group unchanged 

(1) 2017 figures have been restated throughout this announcement to reflect the adoption of IFRS15 and the reclassification of short term deposits. The Group has also adopted IFRS16 and IFRS9 as of 1 January 2018. Please refer to Appendix 2 of this document for further details.

(2) "Other" revenue comprises revenue contribution from Central Services and Ligado Networks. See page 10 for more details.

(3) In response to the Guidelines on Alternative Performance Measures ('APM's) issued by the European Securities and Markets Authority ('ESMA'), we have provided additional information on the APMs used by the Group including definitions and reconciliations to statutory measures within Appendix 1 of this document.

(4) Adjusted PAT is defined as Profit after Tax excluding the non-cash impact of the unrealised movement in the fair value of the conversion liability component of the 2023 convertible bond and the realised movement in the loss on redemption of the 2017 convertible bonds in 2016. This is an APM.

Rupert Pearce, Chief Executive Officer, commented on the results:

"Inmarsat's improved results continue to reflect the overall strength of our diverse portfolio, which provides balance, operational synergy and protection against individual market cycles.

"In Maritime, we continue to build a strong market position in the fast-growing, key market segment of the future, VSAT, through Fleet Xpress, which has now established itself as the leading VSAT service for the international maritime market. In the mid-market, the pace of migration to VSAT continues to accelerate and we must continue to work hard to ensure that as many of our FB customers as possible are migrated to FX in the coming years. Both government businesses performed well, reflecting our global leadership position in this sector and highly diversified product portfolio. In Aviation, the major news during the quarter was our strategic alliance with Panasonic, which we expect will greatly accelerate our drive to establish a sustainable global market leadership position in IFC. In addition, we again reported double-digit revenue growth in both our IFC and core businesses in Aviation. Enterprise continued to perform well in its legacy product base, against a tough comparator, while making good progress in establishing strong foundations for future high growth, particularly in the area of satellite-led Industrial IoT".

"Inmarsat remains at the forefront of our chosen markets, leveraging the strength of our established market position, continuing to deliver an exciting technology roadmap and taking a highly disciplined approach to costs and capital expenditure. As a result, the Group remains well placed to continue delivering medium-term growth in revenue, EBITDA, and free cash flow."

Medium term guidance

The Board remains confident about the future prospects for the Group, with Inmarsat's unchanged medium term financial guidance (ex Ligado) being as follows:

-- A target of mid-single digit percentage revenue growth on average over the next five years, with EBITDA and free cash flow generation improving steadily*;

   --      Annual GX revenues at a run rate of $500m by the end of 2020; 

-- Capex of $500m to $600m per annum for 2018 to 2020. Capex is expected to meaningfully moderate after 2020 reflecting completion of the I-6 satellite programme and the impact of new technologies; and

   --      Net Debt: EBITDA to normally remain below 3.5x. 

The Group manages a diverse growth portfolio of businesses and products that are, in aggregate, expected to deliver the guidance above, with the portfolio mix expected to continue to evolve as individual markets fluctuate over the medium term.

We continue to believe that the "focused diversity" of our business, with a small but diverse set of core end markets that offer scale and growth potential, and where we lead with sustainable differentiation, will remain a key strength for Inmarsat going forward.

Results conference call

Inmarsat management will discuss the third quarter results in a conference call on Thursday 8 November at 09.00am UK time. The call can be accessed by dialling +44 (0) 330 336 9127 (from the UK and Europe) or +1 323-794-2093 (from the US), with a passcode of 1756307 and is also accessible via this link: https://edge.media-server.com/m6/p/x5vbd2a6.

Contacts:

 
Investor Enquiries:        Media Enquiries: 
 Rob Gurner                 Jonathan Sinnatt 
 Tel: +44 (0)20 7728 1518   Tel: +44 (0)20 7728 1935 
 rob.gurner@inmarsat.com    jonathan.sinnatt@inmarsat.com 
 

* Excluding any impact of ongoing exceptional tax matter discussed on page 11

Forward looking Statements

This announcement contains 'forward-looking statements' within the meaning of the US Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those projected in the forward-looking statements. These factors include general economic and business conditions; changes in technology; timing or delay in signing, commencement, implementation and performance or programmes, or the delivery of products 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 speak only as of the date of this announcement. We undertake no obligation to update or revise any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances.

OPERATING AND FINANCIAL REVIEW

The following is a discussion of the unaudited consolidated results of the operations and financial condition of Inmarsat plc (the "Company" or, together with its subsidiaries, the "Group") for the period ended 30 September 2018. This should be reviewed together with the whole of this document including the historical consolidated financial results and the notes. The consolidated financial results were prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. Inmarsat has adopted IFRS15, 16 and 9 for the financial year ending 31 December 2018, (with 2017 numbers being restated to reflect the adoption of IFRS15). Additionally a reclassification of short-term deposits has been made to better reflect the requirements of IAS7.

In addition to IFRS measures we use a number of Alternative Performance Measures (APMs) in order to provide readers with a better understanding of the underlying performance of our business, and to improve comparability of our results for the periods concerned. More detail on IFRS and APMs can be found in the Appendices of this report.

Introduction

Overall, Inmarsat produced another improved performance in the third quarter, as we continued to grow revenues, establish new strategic relationships, build new capabilities and deliver our technology road map whilst tightly managing our costs and capital expenditure.

Group Financial Highlights

 
                           Third Quarter ended 30              Nine months ended 30 
                                  September                          September 
($ in millions)         2018  2017 (restated)   Change     2018  2017 (restated)   Change 
-------------------  -------  ---------------  -------  -------  ---------------  ------- 
Revenue 
Satellite services     336.4            323.8     3.9%    988.8            943.8     4.8% 
Ligado revenue          32.9             32.4     1.5%     97.7             96.1     1.7% 
-------------------  -------  ---------------  -------  -------  ---------------  ------- 
Total revenue          369.3            356.2     3.7%  1,086.5          1,039.9     4.5% 
Direct costs          (61.4)           (47.2)  (30.1%)  (179.6)          (133.7)  (34.3%) 
-------------------  -------  ---------------  -------  -------  ---------------  ------- 
Gross Margin           307.9            309.0   (0.4%)    906.9            906.2     0.1% 
Indirect costs       (101.4)          (115.7)    12.4%  (327.4)          (333.2)     1.7% 
-------------------  -------  ---------------  -------  -------  ---------------  ------- 
EBITDA                 206.5            193.3     6.8%    579.5            573.0     1.1% 
EBITDA margin %        55.9%            54.3%             53.3%            55.1% 
-------------------  -------  ---------------  -------  -------  ---------------  ------- 
Cash capex             157.5            101.0  (55.9%)    415.3            409.2   (1.5%) 
-------------------  -------  ---------------  -------  -------  ---------------  ------- 
 
 

Group revenue in Q3 2018 increased by $13.1m, driven mainly by growth in Aviation. Ligado revenue was little changed at $32.9m (2017: $32.4m). GX-generated airtime and related revenues were $171.9m for the year-to-date (YTD 2017: $102.1m), including $61.7m in Q3 2018, (Q3 2017: $42.3m).

Direct costs increased by $14.2m, mainly reflecting the short-term addition of low margin equipment sales to help capture further market share and deliver long-term airtime revenues in Aviation. Indirect costs were $14.3m lower, reflecting both timing issues and reduced expenditure in a number of areas.

EBITDA increased by $13.2m and EBITDA margin increased to 55.9%, from 54.3% in Q3 2017.

Cash capex was $56.5m higher in the quarter, mainly reflecting the timing of investment in major infrastructure projects, in particular the GX5 and I-6 satellites.

Maritime

Market overview

In Maritime, the market is now quickly adopting broadband connectivity, with the pace of adoption being faster, and more disruptive, than previously expected in some areas. We continue to compete very strongly, winning material share in the key, high bandwidth, VSAT market segment, with c. 60% of new installations in the market this year being with our GX-based VSAT product, Fleet Xpress ("FX"). FX is very well positioned as the leading mobile broadband proposition in the Maritime market and we consequently expect that our market share in VSAT, which has grown from c. 15% in 2016 to c. 25% today, will continue to build strongly. Over the medium term, this key market segment is forecast to be the area of highest revenue growth and highest ARPU. The robust revenue growth and market share acquisition strategy that Inmarsat is successfully delivering is therefore fundamental to the longer term growth of Maritime revenues.

The growth in the VSAT market segment is being fuelled not only by new vessels and but also by vessels migrating from the mid-market where Inmarsat has historically held substantial market share through its FleetBroadband ("FB") product. Whilst we are retaining a large share of FB customers who migrate to VSAT, we are currently also losing a larger number than expected to competitor offerings, including newly emerged, low-end VSAT offerings. We are working hard to address this competitive dynamic through enhanced product offerings, targeted price incentives and new sales strategies, which are progressively being introduced in both FB and FX.

Q3 2018 results

 
                               Third Quarter ended 30             Nine months ended 30 
                                      September                         September 
($ in millions)             2018  2017 (restated)   Change    2018  2017 (restated)   Change 
------------------------  ------  ---------------  -------  ------  ---------------  ------- 
Revenue                    135.0            143.1   (5.7%)   417.1            422.9   (1.4%) 
Direct Costs              (17.8)           (19.7)     9.6%  (61.4)           (60.3)   (1.8%) 
------------------------  ------  ---------------  -------  ------  ---------------  ------- 
Gross Margin               117.2            123.4   (5.0%)   355.7            362.6   (1.9%) 
Indirect costs             (8.5)            (9.1)     6.6%  (29.1)           (25.6)  (13.7%) 
------------------------  ------  ---------------  -------  ------  ---------------  ------- 
EBITDA                     108.7            114.3   (4.9%)   326.6            337.0   (3.1%) 
EBITDA margin %            80.5%            79.9%        -   78.3%            79.7%        - 
Cash capex                (13.0)           (11.7)  (11.1%)  (37.0)           (35.0)   (5.7%) 
------------------------  ------  ---------------  -------  ------  ---------------  ------- 
Business Unit Operating 
 Cash Flow                  95.7            102.6   (6.7%)   289.6            302.0   (4.1%) 
------------------------  ------  ---------------  -------  ------  ---------------  ------- 
 

Maritime revenue declined by $8.1m with further strong growth from VSAT products, including FX, ($7.3m) being offset by lower revenue from FB ($11.6m) and other mainly legacy products ($4.1m).

Direct costs decreased by $1.9m reflecting leased capacity cost savings from the migration of XpressLink ("XL") vessels to FX and improved revenue mix. Indirect costs fell by $0.6m in Q3, reflecting lower marketing costs

EBITDA was consequently $5.6m lower but EBITDA margin increased to 80.5%, from 79.9%.

Maritime capex (success-based capex supporting both customer installations in FX and XL migrations) increased marginally to $13.0m.

Product performance

 
                     Revenue        Number of vessels     Average Revenue 
                                                          per User ("ARPU") 
                 Q3 2018  Q3 2017    Q3 2018   Q3 2017    Q3 2018    Q3 2017 
---------------  -------  -------  ---------  --------  ---------  --------- 
FleetBroadband    $75.0m   $86.6m     33,509    36,809       $736       $777 
---------------  -------  -------  ---------  --------  ---------  --------- 
VSAT              $39.0m   $31.7m      5,772     3,960     $2,332     $2,811 
---------------  -------  -------  ---------  --------  ---------  --------- 
Fleet One          $1.7m    $1.3m      3,965     2,572       $105       $109 
---------------  -------  -------  ---------  --------  ---------  --------- 
Other products    $19.4m   $23.5m          -         -          -          - 
---------------  -------  -------  ---------  --------  ---------  --------- 
 

In VSAT, revenues grew strongly, rising by 23.0% in Q3 2018, with 5,772 installed VSAT vessels at the end of the quarter (4,726 of which were FX vessels) and a stable installation backlog of c. 650 vessels.

VSAT ARPU continues to reduce as our distribution channel brings new customers but also provides a greater proportion of new VSAT revenues (11% of installed vessels at Q3 2017, 27% at Q3 2018) at wholesale rather than retail pricing.

FX installations in Q3 of 604 vessels were at more normal levels following a particularly strong Q2 prior to the end of a short-term promotion. The proportion of completely new customer FX installations remained high at over 20% during the quarter.

FB revenues fell by 13.4% in Q3, with FB vessels declining by 3,300 vessels. Of the FB vessels lost, the overwhelming majority transitioned to VSAT services, including more than 1,400 vessels migrating to FX. The residual losses were to scrappage, L-band competition and transition to Fleet One. FB ARPU declined by 5.3% to $736 per month, reflecting the migration to VSAT being weighted towards the higher usage, higher ARPU customers.

Fleet One continues to build, with airtime and equipment revenue increasing by 31% to $1.7m and c. 300 new vessels being installed in Q3. Our other, mainly low margin and legacy products continued to decline at a similar rate to prior quarters.

Government

Market overview

Whilst the market remains competitive and the pricing environment remains intense, Government expenditure on commercial satcoms is expected to grow steadily over the medium term in both Ka-band and L-band applications.

Customer demand for broadband connectivity, especially in aviation and maritime remains strong. There are also opportunities to augment and extend the military Ka-band communications capabilities of government customers (for example through our GX network) and, in the medium term, as some government customers replace their proprietary space-based communications capabilities, there is the potential for commercial satcom capabilities to become more embedded within government networks.

We also expect to see growing market opportunities In L-band services, particularly in highly mobile connectivity, blue force tracking, IoT and mobile connectivity to smaller platforms, but also as new market segments beyond traditional defence and security continuing to open up.

Q3 2018 results

 
                             Third Quarter ended 30       Nine months ended 30 September 
                                    September 
                            2018         2017  Change     2018     2017 (restated)  Change 
($ in millions)                    (restated) 
------------------------  ------  -----------  ------  -------  ------------------  ------ 
Revenue                     95.2         88.4    7.7%    278.3               275.9    0.9% 
Direct costs              (14.9)       (12.4)   20.2%   (47.5)              (39.6)   19.9% 
------------------------          -----------                   ------------------ 
Gross Margin                80.3         76.0    5.7%    230.8               236.3  (2.3%) 
Indirect costs            (10.4)       (11.4)    8.8%   (31.7)              (33.9)    6.5% 
------------------------  ------  -----------  ------  -------  ------------------  ------ 
EBITDA                      69.9         64.6    8.2%    199.1               202.4  (1.6%) 
EBITDA margin %            73.4%        73.1%       -    71.5%               73.4%       - 
Cash capex                 (0.4)        (2.5)   84.0%    (2.1)               (7.4)   71.6% 
------------------------  ------  -----------  ------  -------  ------------------  ------ 
Business Unit Operating 
 Cash Flow                  69.5         62.1   11.9%    197.0               195.0    1.0% 
------------------------  ------  -----------  ------  -------  ------------------  ------ 
 

Government revenue increased by $6.8m, 7.7%, to $95.2m in Q3, as a result of strong performances from our US and non-US Government businesses across both our L-band and Ka-band networks.

Our US Government business continued to perform well, with revenue growth of 1.5% in Q3. This was supported by the renewal of a contract on revised terms earlier this year, with satisfactory progress in the Boeing Take-or-Pay contract, which delivered a further increase in underlying revenues, while the total contract continues to reduce to normalised levels.

In addition, our US Government business was successful in winning another important new customer contract in the period, to contribute from 2019, highlighting further progress against our strategic objective of increasing our long term contracted revenue base in Government.

Outside the US, revenues increased by 21.1% in the period, driven by increased product usage across key customers, particularly in L-band.

Direct costs increased by $2.5m, mainly due to the impact of an increased contribution from the lower margin CSSC contract. Indirect costs declined by $1.0m in the period, due to lower employee costs across the business. Mainly as a result of higher revenue, EBITDA increased by $5.3m and EBITDA margin increased to 73.4%.

Aviation

Market overview

In Aviation we focus on three market segments - In-Flight Connectivity ("IFC"), Business and General Aviation ("BGA") and Safety and Operational Services ("SOS").

In-Flight Connectivity ("IFC") is expected to transform commercial aviation in the medium term, with related ancillary revenues becoming an increasingly important driver of airline profitability. Consequently, while IFC remains in a highly competitive market capture phase, it is expected to become the largest global aviation segment for mobile satellite communications in the future.

The Business and General Aviation ("BGA") market (i.e. business jets) is also expected to grow, driven by a steady increase in aircraft in service and increasing bandwidth requirement per aircraft, driven by innovation in both cabin and cockpit applications.

The Safety and Operational Services ("SOS") market (i.e. cockpit connectivity for commercial aircraft) is also expected to continue growing strongly, with many more aircraft expected to enter service over the next five years and the arrival of a new generation of services to the cockpit, including connected aircraft applications and augmentation to regional Air Traffic Management systems.

Q3 2018 results

 
                           Third Quarter ended 30 September                      Nine months ended 30 
                                                                                       September 
($ in millions)              2018  2017 (restated)           Change         2018  2017 (restated)         Change 
----------------  ---------------  ---------------  ---------------  -----------  ---------------  ------------- 
Revenue                      68.2             50.9            34.0%        183.7            134.1          37.0% 
Direct costs               (16.1)            (6.0)         (168.3%)       (37.9)            (7.5)       (405.3%) 
----------------                   ---------------                                --------------- 
Gross Margin                 52.1             44.9            16.0%        145.8            126.6          15.2% 
Indirect costs             (15.6)           (19.4)            19.6%       (49.4)           (50.7)           2.6% 
----------------  ---------------  ---------------  ---------------  -----------  ---------------  ------------- 
EBITDA                       36.5             25.5            43.1%         96.4             75.9          27.0% 
EBITDA margin %             53.5%            50.1%                -        52.5%            56.6%              - 
Cash capex                 (10.7)           (30.4)            64.8%       (39.6)          (115.8)          65.8% 
----------------  ---------------  ---------------  ---------------  -----------  ---------------  ------------- 
Business Unit 
 Operating 
 Cash Flow                   25.8            (4.9)           626.5%         56.8           (39.9)         242.4% 
----------------  ---------------  ---------------  ---------------  -----------  ---------------  ------------- 
Aviation delivered outstanding revenue growth of $17.3m, or 
 34.0%, to $68.2m in Q3 2018, with further progress in both our 
 Core business and in rolling out IFC services in Commercial 
 Aviation. 
 EBITDA increased by $11.0m, 43.1%, to $36.5m, with EBITDA margin 
 up to 53.5% in the quarter (Q3 2017: 50.1%), driven by revenue 
 growth across the business and lower marketing expenditure in 
 IFC. 
 Cash flow from Aviation has also continued to improve with the 
 impact of higher EBITDA and lower capex together driving improvements 
 of $30.7m in the quarter and $96.7m year to date. 
 Aviation EBITDA and cash flow margins have been impacted as 
 we build a strong market position in the rapidly growing and 
 high potential IFC market. Overall, EBITDA margins in Aviation 
 consequently fell from over 60% in 2016 to 53% in 2017. We expect 
 that these margins will fall to no less than 45% in 2018, (an 
 increase from our previous guidance of around 40% in 2018), 
 before returning to at least 2016 margin levels, as a result 
 of higher revenues, improved revenue mix and more stable indirect 
 costs. 
---------------------------------------------------------------------------------------------------------------- 
Core / IFC - Third Quarter ended                        Core                                    IFC 
 30 September 
---------------------------------  ---------------------------------------------  ------------------------------ 
                                                            Q3 2018      Q3 2017          Q3 2018        Q3 2017 
($ in millions)                                                       (restated)                      (restated) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
Revenue                                          42.0                       32.3             26.2           18.6 
Direct costs                                    (0.3)                      (0.2)           (15.8)          (5.8) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
Gross Margin                                     41.7                       32.1             10.4           12.8 
Indirect costs                                  (2.3)                      (2.9)           (13.3)         (16.5) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
EBITDA                                           39.4                       29.2            (2.9)          (3.7) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
EBITDA margin %                                 93.8%                      90.4%              n/a            n/a 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
Cash capex                                        -                            -           (10.7)         (30.4) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
Business Unit Operating Cash Flow                39.4                       29.2           (13.6)         (34.1) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
 
Core / IFC - Nine months ended 30 
 September                                              Core                                    IFC 
---------------------------------  ---------------------------------------------  ------------------------------ 
                                                           YTD 2018     YTD 2017         YTD 2018       YTD 2017 
                                                                                                      (restated) 
($ in millions)                                                       (restated) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
Revenue                                                       116.3         95.8             67.4           38.3 
Direct costs                                                  (1.0)        (0.6)           (36.9)          (6.9) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
Gross Margin                                                  115.3         95.2             30.5           31.4 
Indirect costs                                                (7.4)        (7.6)           (42.0)         (43.1) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
EBITDA                                                        107.9         87.6           (11.5)         (11.7) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
EBITDA margin %                                               92.8%        91.4%              n/a            n/a 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
Cash capex                                                        -            -           (39.6)        (115.8) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
Business Unit Operating Cash Flow                             107.9         87.6           (51.1)        (127.5) 
---------------------------------  --------------------------------  -----------  ---------------  ------------- 
 
 

Core Aviation business

Our Core Aviation business comprises SwiftBroadband and JetConneX for BGA, Classic Aero and SwiftBroadband-Safety for SOS and legacy products. Revenue growth across these businesses remained strong, increasing by $9.7m, 30.0%, to $42.0m in Q3 2018.

By the end of Q3 2018, 362 aircraft were installed with JetConneX, our GX-based product for BGA, (from 109 at the end of Q3 2017). In the year to date, JetConneX grew airtime revenue by a factor of four times to $6.1m in the quarter.

SwiftBroadband revenues grew $1.6m, 9.4%, in the quarter to $18.5m, driven by higher usage, with the number of installed aircraft remaining stable at around 4,000.

In SOS, Classic Aero delivered revenue growth of $1.9m, 16.9%, to $13.1m in the quarter, mainly reflecting higher usage. The number of aircraft using Classic Aero remained stable at around 9,000.

Revenue in our legacy products increased to $4.0m (Q3 2017: $2.2m), driven by a one-off deferred revenue release of $2.7m in the quarter.

Direct costs in our Core business remained fairly immaterial at $0.3m in Q3 2018, whilst indirect costs reduced slightly to $2.3m. EBITDA and Business Unit Operating Cash Flow for the Core Aviation business consequently both grew by $10.2m to $39.4m in the quarter.

IFC

IFC revenues, comprising our GX Aviation services for IFC and our L-band-based IFC services for commercial aviation, together grew by $7.6m, 40.9%, to $26.2m in Q3 2018, including $3.3m of high margin GX airtime revenue.

We have over 1,400 aircraft expected under signed contracts for our GX and EAN Aviation IFC services and we continue to advance our new business pipeline of around 3,000 aircraft.

Several customers have selected GX Aviation for their IFC service offering, but have not yet signed contracts with Inmarsat or our channel partner. These include Garuda Indonesia, announced last week, SpiceJet in India, as well as other major carriers in Asia, Europe and the Middle East. A number of our existing customers are expected to expand their aircraft and fleet mandates with Inmarsat.

We have 321 aircraft installed with Inmarsat equipment across several customers (from 286 at the end of Q2), including the first installed aircraft on the European Aviation Network. We expect the rate of installation to increase over the coming quarters.

On 20 September 2018, Inmarsat and Panasonic Avionics Corporation ("Panasonic") entered into a landmark strategic collaboration agreement for Commercial Aviation. This agreement accelerates our drive to establish a sustainable global leadership position in IFC, by combining Inmarsat's position as the leading global mobile satellite provider and Panasonic's market-leading position in IFC and in-flight entertainment ("IFE"). As part of the agreement, 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, enhancing our IFC service proposition through provision of Panasonic's airline services to our direct customers.

IFC direct costs increased to $15.8m in Q3 2018 (Q3 2017: $5.8m), due to additional short term GX equipment sales being added to the revenue mix and some contractual start-up costs.

Indirect costs in IFC in Q3 were $3.2m lower than last year at $13.3m, reflecting lower marketing expenditure.

Cash capex in IFC decreased to $10.7m in Q3 2018, (Q3 2017: $30.4m), mainly as a result of lower investment in GX equipment for customers.

As a result of all of the factors outlined above, IFC EBITDA improved marginally in the period. IFC Operating Cash Flow improved significantly, however, reducing the level of start-up investment by $20.5m to $13.6m for the quarter.

Enterprise

Market overview

In Enterprise, there is limited future growth potential for our legacy markets and products, due to increasing terrestrial network deployments in remote and rural areas. Consequently, legacy products, such as Broadband Global Area Network ("BGAN") and satellite phones will continue to decline gradually, but with a re-orientation towards back-up, emergency and event-driven usage.

Over the longer term, significant growth is expected from the emerging Industrial Internet of Things markets, either principally served by satellite or served by terrestrial technologies augmented by satellite services. Several of these markets are now in proof of concept or early trial stage as the value that real time data brings becomes more apparent.

Q3 2018 results

 
                             Third Quarter ended 30        Nine months ended 30 
                                    September                    September 
                           2018         2017   Change    2018         2017   Change 
($ in millions)                   (restated)                    (restated) 
------------------------  -----  -----------  -------  ------  -----------  ------- 
Revenue                    34.6         38.2   (9.4%)    98.6        100.5   (1.9%) 
Direct costs              (7.3)        (7.4)     1.4%  (19.5)       (17.1)  (14.0%) 
------------------------         -----------                   ----------- 
Gross Margin               27.3         30.8  (11.4%)    79.1         83.4   (5.2%) 
Indirect costs            (5.4)        (4.2)  (28.6%)  (16.5)       (13.2)  (25.0%) 
------------------------  -----  -----------  -------  ------  -----------  ------- 
EBITDA                     21.9         26.6  (17.7%)    62.6         70.2  (10.8%) 
EBITDA margin %           63.3%        69.6%        -   63.5%        69.9%        - 
Cash capex                    -        (0.1)        -       -        (0.2)        - 
------------------------  -----  -----------  -------  ------  -----------  ------- 
Business Unit Operating 
 Cash Flow                 21.9         26.5  (17.4%)    62.6         70.0  (10.6%) 
------------------------  -----  -----------  -------  ------  -----------  ------- 
 

Enterprise revenues declined by $3.6m, 9.4%, in Q3 2018, mainly reflecting a tough prior year comparator (which included higher revenues relating to the hurricane season) and lower fixed-to-mobile revenues.

This was highlighted in Q3 2018 by revenues from BGAN which fell by $1.1m, 12.9%, to $7.4m and by satellite phone airtime and handset revenue which declined by $0.8m, 7.1%, to $10.4m.

Fixed-to-mobile revenues declined by $1.7m, 40.4% to $2.5m, reflecting continued migration to Voice-over-IP.

Machine to Machine ("M2M") revenue increased by $0.9m, 19.6%, to $5.5m driven by on-going demand for M2M in commercial applications. Furthermore, in line with our strategy to establish new foundations for future growth around "Internet of Things" opportunities, we made good progress in establishing a number of proof-of-concept initiatives in this area during the period.

Direct costs fell marginally to $7.3m while indirect costs increased by $1.2m in Q3 2018, as a result of legal fees in the period. EBITDA was consequently $4.7m lower in Q3 2018, with EBITDA margin declining to 63.3%.

Central Services

 
                                Third Quarter ended 30               Nine months ended 30 
                                       September                           September 
($ in millions)              2018  2017 (restated)    Change     2018  2017 (restated)   Change 
------------------------  -------  ---------------  --------  -------  ---------------  ------- 
Revenue 
Ligado Networks              32.9             32.4      1.5%     97.7             96.1     1.7% 
Other                         3.4              3.2      6.3%     11.1             10.4     6.7% 
------------------------  -------  ---------------  --------  -------  ---------------  ------- 
Total Revenue                36.3             35.6      2.0%    108.8            106.5     2.2% 
Direct costs                (5.3)            (1.7)  (211.8%)   (13.3)            (9.2)  (44.6%) 
------------------------  -------  ---------------  --------  -------  ---------------  ------- 
Gross Margin                 31.0             33.9    (8.6%)     95.5             97.3   (1.8%) 
Indirect costs             (61.5)           (71.6)     14.1%  (200.7)          (209.8)     4.3% 
------------------------  -------  ---------------  --------  -------  ---------------  ------- 
EBITDA                     (30.5)           (37.7)     19.1%  (105.2)          (112.5)     6.5% 
Cash capex                (133.4)           (58.1)  (129.6%)  (336.6)          (250.8)  (34.2%) 
------------------------  -------  ---------------  --------  -------  ---------------  ------- 
Business Unit Operating 
 Cash Flow                (163.9)           (95.8)   (70.9%)  (441.8)          (363.3)  (21.6%) 
------------------------  -------  ---------------  --------  -------  ---------------  ------- 
 

Revenue and EBITDA from Ligado was little changed at $32.9m in Q3 2018.

Direct costs increased by $3.6m, mainly due to higher inventory provisions.

Indirect costs decreased by $10.1m reflecting timing issues and reduced expenditure in a number of areas, as well as the impact of the implementation of IFRS16 which moved lease costs of $2.9m into depreciation. For 2018 as a whole, we continue to expect low single digit percentage growth in central services costs.

Central Services capital expenditure increased by $75.3m to $133.4m, due to the timing of expenditure, on our major infrastructure programmes, including the 5(th) GX satellite and the I-6 satellite infrastructure.

Reconciliation of EBITDA to profit after tax

 
                                        Third Quarter ended            Nine months ended 30 September 
                                            30 September 
($ in millions)                    2018  2017 (restated)    Change      2018   2017 (restated)   Change 
------------------------------  -------  ---------------  --------  --------  ----------------  ------- 
EBITDA                           206.5        193.3         6.8%     579.5         573.0         1.1% 
Depreciation and amortisation   (115.0)      (103.4)      (11.2%)   (347.5)       (297.5)       (16.8%) 
Asset impairments 
 & Other                         (6.6)        (3.0)       (120.0%)   (6.4)         (3.4)        (88.2%) 
------------------------------  -------  ---------------  --------  --------  ----------------  ------- 
Operating profit                 84.9         86.9         (2.3%)    225.6         272.1        (17.1%) 
Net financing income/(costs)     154.5        36.6         322.1%   (105.3)        (85.2)       (23.6%) 
Taxation charge                 (11.7)       (10.8)        (8.3%)    (24.4)        (35.4)        31.1% 
------------------------------  -------  ---------------  --------  --------  ----------------  ------- 
Profit after tax                 227.7        112.7        102.0%     95.9         151.5        (36.7%) 
------------------------------  -------  ---------------  --------  --------  ----------------  ------- 
Addback of change 
 in fair value of derivative 
 (2023 convertible 
 bond)                          (181.2)      (56.4)       (221.3%)    26.1          15.8         65.2% 
------------------------------  -------  ---------------  --------  --------  ----------------  ------- 
Adjusted profit after 
 tax                             46.5         56.3        (17.4%)    122.0         167.3        (27.1%) 
------------------------------  -------  ---------------  --------  --------  ----------------  ------- 
 

Operating profit

Operating profit for the quarter ended 30 September 2018 decreased by $2.0m to $84.9m. This was driven by this increase in EBITDA of $13.2m discussed above, which was offset by additional depreciation of $11.6m attributable mainly to the GX4 (I-5 F4) and S-Band satellites coming into commercial service in Q4 2017.

Net financing income/(cost)

Net financing income for the quarter increased by $117.9m to $154.5m, driven by a decrease of $181.2m in the unrealised conversion liability on the 2023 Convertible Bond.

The fair value of the conversion liability is calculated as the difference between the market value of the Convertible Bond and the 'book value' of the cash element of the convertible bond. The convertible price decreased during Q3, following the withdrawal of EchoStar's proposed takeover approach at the end of Q2, driving a decrease in the fair value liability and corresponding benefit in the income statement. The impact of the unrealised conversion liability will reverse to nil if the convertible bonds reach maturity and are not converted.

Net financing costs, excluding the non-cash impact of the convertible bond adjustments outlined above, increased by $6.9m to $26.7m for the quarter due to an increase in net debt and a reduction in capitalised interest.

Taxation

The tax charge has increased marginally by $0.9m in the third quarter to $11.7m. The effective tax rate reported for the quarter was 4.9% (2017 restated: 8.8%), reflecting removal of the unrealised gain on the conversion liability of the convertible bonds which is non-taxable. The underlying effective tax rate was 23.0% (2017 restated: 16.8%). This rate is higher than the UK statutory rate of 19% (2017: 19.25%) due to impairments which have been treated as non-deductible in the period and some profits being earned in jurisdictions where the tax rate is higher than the UK.

The Group maintains tax provisions in respect of ongoing enquiries with tax authorities. In the event that all such enquiries were settled entirely in favour of the authorities, the Group would incur a cash tax outflow of c. $110m during the first half of 2019. The quantum and timing of this cost remains uncertain but it is substantially provided for and the enquiries remain ongoing at this time.

Profit after tax ("PAT")

Statutory PAT increased by $115.0m in the quarter, driven additionally by a reduction in the unrealised conversion liability on the 2023 Convertible Bond discussed above.

Adjusted PAT, which excludes the impact of the unrealised conversion liability, decreased by $9.8m in the quarter, reflecting the changes in EBITDA, depreciation, financing costs and taxation noted above.

Cash Flow(1)

 
                                             Third Quarter ended 30 September          Nine months ended 30 September 
($ in millions)                                 2018           2017 (restated)          2018           2017 (restated) 
--------------------------------------  ------------  ------------------------  ------------  ------------------------ 
EBITDA                                         206.5                     193.3         579.5                     573.0 
Non-cash items                                   4.9                       7.8           4.9                      19.4 
Change in working capital                      (1.7)                    (13.5)        (63.3)                     (3.0) 
--------------------------------------  ------------  ------------------------  ------------  ------------------------ 
Cash generated from operations                 209.7                     187.6         521.1                     589.4 
Cash Capital expenditure                     (157.5)                   (101.0)       (415.3)                   (409.2) 
Net interest paid                             (17.9)                    (22.7)        (77.6)                    (77.5) 
Tax received/(paid)                              2.5                     (1.5)           3.9                    (18.1) 
--------------------------------------  ------------  ------------------------  ------------  ------------------------ 
Free cash flow                                  36.8                      62.4          32.1                      84.6 
Dividends paid to shareholders                 (1.1)                     (0.1)        (40.0)                   (118.0) 
Other movement including foreign 
 exchange                                          -                     (4.1)           1.4                     (7.7) 
                                        ------------  ------------------------  ------------  ------------------------ 
Net cash flow                                   35.7                      58.2         (6.5)                    (41.1) 
Increase/(decrease) to cash 
 reclassified from short-term deposits         120.6                     132.7         291.1                     112.7 
Repayment of borrowings                       (67.5)                    (40.4)       (136.1)                    (82.0) 
--------------------------------------  ------------  ------------------------  ------------  ------------------------ 
Net increase/ (decrease) in cash and 
 cash equivalents                               88.8                     150.5         148.5                    (10.4) 
--------------------------------------  ------------  ------------------------  ------------  ------------------------ 
 

(1) Cash flow outlined in this table is non-statutory.

Cash and net borrowings

 
                                         Third Quarter ended 30 September        Nine months ended 30 September 
($ in millions)                                          2018  2017 (restated)        2018       2017 (restated) 
------------------------------  -----------------------------  ---------------  ----------  -------------------- 
At beginning of the period                              204.3            100.6       144.6                 261.5 
Net increase/(decrease) in 
 cash and cash equivalents                               88.8            150.5       148.5                (10.4) 
------------------------------  -----------------------------  ---------------  ----------  -------------------- 
Sub-total (net of bank 
 overdrafts)                                            293.1            251.1       293.1                 251.1 
------------------------------  -----------------------------  ---------------  ----------  -------------------- 
Short term deposits 
At beginning of the period                              171.5            415.0       342.0                 395.0 
Net (decrease)/increase in 
 short term deposits                                  (120.6)          (132.7)     (291.1)               (112.7) 
------------------------------  -----------------------------  ---------------  ----------  -------------------- 
Sub-total                                                50.9            282.3        50.9                 282.3 
------------------------------  -----------------------------  ---------------  ----------  -------------------- 
Total cash, cash equivalents 
 and short term deposits                                344.0            533.4       344.0                 533.4 
------------------------------  -----------------------------  ---------------  ----------  -------------------- 
 
 
 
Opening net borrowings(1)   2,139.5  2,005.7  2,078.6  1,894.8 
Net cash flow                (35.7)   (58.2)      6.5     41.1 
Non-cash movements(2)          11.9      4.5     30.6     16.1 
--------------------------  -------  -------  -------  ------- 
Closing net borrowings(1)   2,115.7  1,952.0  2,115.7  1,952.0 
--------------------------  -------  -------  -------  ------- 
 

Free cash flow decreased by $25.6m for the quarter ended 30 September 2018 mainly reflecting the increase in EBITDA, improved working capital requirements and lower interest paid and taxation, but also higher capital expenditure of $56.5m.

The reduction of $11.8m in the working capital outflow was mainly due to a decrease in receivables, with customer collections starting to improve, having slowed in previous quarters after the introduction of a new billing system earlier this year.

Capital Expenditure

 
                                     Third Quarter ended 30 September     Nine months ended 30 September 
($ in millions)                         2018           2017 (restated)      2018          2017 (restated) 
---------------------------------  ---------  ------------------------  --------  ----------------------- 
Major infrastructure projects(3)        88.1                      40.7     225.8                    244.2 
Success-based capex(4)                  16.2                      32.2      61.3                     93.0 
Other capex(5)                          20.8                      36.3      68.3                     95.1 
Cash flow timing(6)                     32.4                     (8.2)      59.9                   (23.1) 
---------------------------------  ---------  ------------------------  --------  ----------------------- 
Total cash capital expenditure         157.5                     101.0     415.3                    409.2 
---------------------------------  ---------  ------------------------  --------  ----------------------- 
 

The increase in capital expenditure on major infrastructure projects relates to the timing of investment in the I-6 satellite infrastructures, while the decrease in success-based capex is due to the timing of GX installations in Aviation. Other capex decreased mainly due to the timing of investment in IT and Cyber compared to the prior year. Cash flow timing was impacted by contractual payments on GX5.

In line with our guidance that capital expenditure is expected to meaningfully moderate after 2020, we continue to develop the next generation of GX satellites, to augment the global coverage we have in place today, using new, lower cost satellite technologies. Discussions continue with a number of potential manufacturing partners about delivering this technology, and we expect to be able to provide more specific guidance about our plans in this regard in the coming quarters.

(1) Net borrowings includes the convertible bond, total borrowings less cash and cash equivalents and short-term investments. Borrowings exclude accrued interest and any derivative liabilities.

(2) Non-cash movements relate primarily to the amortisation of deferred financing costs and the fair value of the convertible bond.

(3) "Major infrastructure projects" capex consists of satellite design, build and launch costs and ground network infrastructure costs.

(4) "Success-based capex" consists of capital equipment installed on ships, aircraft and other customer platforms.

(5) "Other capex" investment primarily includes infrastructure maintenance, IT and capitalised product and service development costs.

(6) Cash flow timing represents the difference between accrued capex and the actual cash flows

Group Liquidity and Capital Resources

At 30 September 2018, the Group had over $1 billion in available liquidity, including cash and cash equivalents of $293.1m, short term deposits of $50.9m and available but undrawn committed borrowing facilities of $750m under a Senior Revolving Credit Facility.

Principal Risks and Uncertainties

There have been no material changes in the principal risks and uncertainties from those described on pages 51 - 55 of the 2017 Inmarsat plc Annual Report and Accounts.

Related Party Transactions

There have been no material changes in the related party transactions described on page 151 of the 2017 Inmarsat plc Annual Report and Accounts.

Inmarsat plc

99 City Road

London EC1Y 1AX

By order of the Board,

   Rupert Pearce                                                               Tony Bates 
   Chief Executive Officer                                                  Chief Financial Officer 
   7 November 2018                                                           7 November 2018 

INMARSAT PLC

CONDENSED CONSOLIDATED INCOME STATEMENT

For the nine months ended 30 September 2018 (unaudited)

 
                                                                Third Quarter ended              Nine months ended 
                                                                    30 September                    30 September 
($ in millions)                                             2018  2017 (restated) (1)     2018     2017 (restated) (1) 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
Revenues                                                   369.3                356.2  1,086.5                 1,039.9 
Employee benefit costs                                    (73.9)               (78.2)  (225.8)                 (218.9) 
Network and satellite operations costs                    (45.3)               (46.2)  (140.1)                 (142.9) 
Other operating costs                                     (52.6)               (51.8)  (170.0)                 (142.3) 
Own work capitalised                                         9.0                 13.3     28.9                    37.2 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
Total net operating costs                                (162.8)              (162.9)  (507.0)                 (466.9) 
                                                         -------  -------------------  -------  ---------------------- 
EBITDA                                                     206.5                193.3    579.5                   573.0 
Depreciation and amortisation                            (115.0)              (103.4)  (347.5)                 (297.5) 
Impairment loss                                            (7.0)                    -    (7.0)                       - 
Loss on disposals of assets                                (0.6)                (3.7)    (2.2)                   (5.5) 
Share of profit of associates                                1.0                  0.7      2.8                     2.1 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
Operating profit                                            84.9                 86.9    225.6                   272.1 
Financing income                                             2.0                  1.8      6.3                     6.1 
Financing costs                                           (28.7)               (21.6)   (85.5)                  (75.5) 
Change in fair value of derivative2                        181.2                 56.4   (26.1)                  (15.8) 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
Net financing costs                                        154.5                 36.6  (105.3)                  (85.2) 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
Profit before tax                                          239.4                123.5    120.3                   186.9 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
Taxation charge                                           (11.7)               (10.8)   (24.4)                  (35.4) 
                                                         -------  -------------------  -------  ---------------------- 
Profit for the period                                      227.7                112.7     95.9                   151.5 
                                                         -------  -------------------  -------  ---------------------- 
Attributable to: 
Equity holders                                             227.5                112.7     95.4                   151.2 
Non-controlling interest(3)                                  0.2                    -      0.5                     0.3 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
 
Earnings per share for profit attributable to the 
equity holders of the Company during the 
period (expressed in $ per share) 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
- Basic                                                     0.50                 0.25     0.21                    0.33 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
- Diluted                                                   0.49                 0.25     0.21                    0.33 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
Adjusted earnings per share for profit attributable to 
the equity holders of the Company during 
the period 
(expressed in $ per share) 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
- Basic                                                     0.10                 0.12     0.27                    0.37 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
- Diluted                                                   0.10                 0.12     0.26                    0.37 
-------------------------------------------------------  -------  -------------------  -------  ---------------------- 
 

(1) 2017 figures have been restated throughout this announcement to reflect the adoption of IFRS15 and the reclassification of short term deposits. The Group has also adopted IFRS16 and IFRS9 as of 1 January 2018. Please refer to Appendix 2 of this announcement for further details.

(2) The change in fair value of derivatives relates to the mark-to-market valuation of the conversion liability component of the convertible bonds due 2023, issued in Q3 2016.

(3) Non-controlling interest ("NCI") refers to the Group's 51% shareholding in Inmarsat Solutions ehf

INMARSAT PLC

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the nine months ended 30 September 2018 (unaudited)

 
                                                                          Third Quarter ended     Nine months ended 
                                                                              30 September           30 September 
($ in millions)                                                          2018  2017 (restated)   2018  2017 (restated) 
----------------------------------------------------------------------  -----  ---------------  -----  --------------- 
Profit for the period                                                   227.7            112.7   95.9            151.5 
----------------------------------------------------------------------  -----  ---------------  -----  --------------- 
Other comprehensive income 
Items that may be reclassified subsequently to the Income Statement: 
Foreign exchange translation differences                                (0.1)            (0.1)  (0.1)              0.3 
Net gain/(loss) on cash flow hedges                                       2.1              5.8    2.9             14.0 
Items that will not be reclassified subsequently to the Income 
Statement: 
Remeasurement of the defined benefit asset                                  -                -   16.0              1.5 
Tax credited directly to equity                                             -            (0.1)  (3.6)            (0.5) 
Other comprehensive income for the period, net of tax                     2.0              5.6   15.2             15.3 
                                                                                                       --------------- 
Total comprehensive loss for the period, net of tax                     229.7            118.3  111.1            166.8 
----------------------------------------------------------------------  -----  ---------------  -----  --------------- 
Attributable to: 
Equity holders                                                          229.5            118.3  110.6            166.5 
Non-controlling interest                                                  0.2                -    0.5              0.3 
----------------------------------------------------------------------  -----  ---------------  -----  --------------- 
 

INMARSAT PLC

CONDENSED CONSOLIDATED INTERIM BALANCE SHEET (unaudited)

 
                                      30 September  31 December    30 September 
                                              2018         2017            2017 
                                       (unaudited)   (restated)       (restated 
($ in millions)                                                    & unaudited) 
------------------------------------  ------------  -----------  -------------- 
Assets 
Non-current assets 
Property, plant and equipment              3,307.1      3,255.5         3,165.7 
Intangible assets                            776.8        788.9           776.5 
Investments                                   17.9         16.2            15.2 
Right of Use Assets                           64.9            -               - 
Other receivables                             35.3         23.9            16.8 
Deferred tax asset                            27.3         35.4            42.3 
Derivative financial instruments                 -          0.3               - 
------------------------------------  ------------  -----------  -------------- 
                                           4,229.3      4,120.2         4,016.5 
------------------------------------  ------------  -----------  -------------- 
Current assets 
Cash and cash equivalents                    293.8        144.9           251.6 
Short-term deposits                           50.9        342.0           282.3 
Trade and other receivables                  340.5        344.4           328.4 
Inventories                                   50.5         33.9            30.4 
Current tax assets                             8.4         13.8            12.9 
Derivative financial instruments               0.3          1.2             2.7 
Restricted cash                                3.1          2.8             2.9 
------------------------------------  ------------  -----------  -------------- 
                                             747.5        883.0           911.2 
------------------------------------  ------------  -----------  -------------- 
Total assets                               4,976.8      5,003.2         4,927.7 
------------------------------------  ------------  -----------  -------------- 
Liabilities 
Current liabilities 
Borrowings                                   124.6        125.6           103.7 
Trade and other payables                     538.8        634.4           588.1 
Provisions                                     6.2         16.2             1.7 
Current tax liabilities                      141.1        130.2           136.0 
Derivative financial instruments               3.8          7.9            10.0 
Lease obligations                             12.5            -               - 
------------------------------------  ------------  -----------  -------------- 
                                             827.0        914.3           839.5 
------------------------------------  ------------  -----------  -------------- 
Non-current liabilities 
Borrowings                                 2,335.8      2,439.9         2,382.2 
Other payables                                18.4         25.0            27.6 
Provisions                                     9.1          9.7            14.0 
Deferred tax liabilities                     240.6        238.4           223.7 
Derivative financial instruments             153.1        127.8           152.1 
Lease obligations                             61.2            -               - 
------------------------------------  ------------  -----------  -------------- 
                                           2,818.2      2,840.8         2,799.6 
------------------------------------  ------------  -----------  -------------- 
Total liabilities                          3,645.2      3,755.1         3,639.1 
------------------------------------  ------------  -----------  -------------- 
Net assets                                 1,331.6      1,248.1         1,288.6 
------------------------------------  ------------  -----------  -------------- 
Shareholders' equity 
Ordinary shares                                0.3          0.3             0.3 
Share premium                                761.0        745.4           731.7 
Other reserves                               104.9         92.0            88.2 
Retained earnings                            464.9        409.8           468.1 
------------------------------------  ------------  -----------  -------------- 
Equity attributable to shareholders        1,331.1      1,247.5         1,288.3 
Non-controlling interest                       0.5          0.6             0.3 
------------------------------------  ------------  -----------  -------------- 
Total equity                               1,331.6      1,248.1         1,288.6 
------------------------------------  ------------  -----------  -------------- 
 

INMARSAT PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the nine months ended 30 September 2018 (unaudited)

 
                             Share     Share     Share      Cash  Other(1)     Retained  NCI(2)    Total 
                           capital   premium    option      flow               earnings 
                                               reserve     hedge             (restated) 
($ in millions)                                          reserve 
------------------------  --------  --------  --------  --------  --------  -----------  ------  ------- 
Balance at 1 January 
 2017 (audited)                0.3     700.4      87.9    (23.3)     (2.8)        467.5     0.6  1,230.6 
------------------------  --------  --------  --------  --------  --------  -----------  ------  ------- 
Share-based payments(3)          -         -      12.1         -         -        (0.4)       -     11.7 
Dividend declared                -         -         -         -         -      (151.2)   (0.6)  (151.8) 
Scrip dividend 
 cash reinvestment(5)            -         -         -         -         -         31.2       -     31.2 
Scrip dividend 
 share issue(5)                  -      31.2         -         -         -       (31.2)       -        - 
Comprehensive Income: 
Profit for the 
 year                            -         -         -         -         -        151.2     0.3    151.5 
OCI(4) - before 
 tax                             -       0.1         -      14.0       0.3          1.5       -     15.9 
OCI(4) - tax                     -         -         -         -         -        (0.5)       -    (0.5) 
------------------------  --------  --------  --------  --------  --------  -----------  ------  ------- 
Balance at 30 September 
 2017 (unaudited)              0.3     731.7     100.0     (9.3)     (2.5)        468.1     0.3  1,288.6 
------------------------  --------  --------  --------  --------  --------  -----------  ------  ------- 
Balance at 1 January 
 2018 (audited)                0.3     745.4      97.1     (7.8)       2.7        409.8     0.6  1,248.1 
------------------------  --------  --------  --------  --------  --------  -----------  ------  ------- 
Share-based payments(3)          -         -      10.1         -         -          2.3       -     12.4 
Dividend declared                -         -         -         -         -       (55.0)   (0.6)   (55.6) 
Scrip dividend 
 cash reinvestment(5)            -         -         -         -         -         15.6       -     15.6 
Scrip dividend 
 share issue(5)                  -      15.6         -         -         -       (15.6)       -        - 
Comprehensive Income: 
Profit for the 
 year                            -         -         -         -         -         95.4     0.5     95.9 
OCI(4) - before 
 tax                             -         -         -       2.9     (0.1)         16.0       -     18.8 
OCI(4) - tax                     -         -         -         -         -        (3.6)       -    (3.6) 
                          --------  --------  --------  --------  --------  -----------  ------  ------- 
Balance at 30 September 
 2018 (unaudited)              0.3     761.0     107.2     (4.9)       2.6        464.9     0.5  1,331.6 
------------------------  --------  --------  --------  --------  --------  -----------  ------  ------- 
 

1 The 'other' reserve relates to ordinary shares held by the Employee Share Trust debit of $3.1m (2017: $2.4m), the currency reserve credit of $1.1m (2017: $0.6m) and the revaluation reserve of $0.6m (2017: $0.6m).

2 Non-controlling interest ("NCI") refers to the Group's 51% shareholding in Inmarsat Solutions ehf.

3 Represents the fair value of share option awards recognised in the period.

4 OCI refers to Other Comprehensive Income.

5 Represents the cash value of the scrip dividend reinvested into the Company

INMARSAT PLC

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the nine months ended 30 September 2018 (unaudited)

 
                                           Third Quarter ended      Nine months ended 
                                               30 September            30 September 
                                          2018             2017      2018         2017 
($ in millions)                                      (restated)             (restated) 
----------------------------------  ----------  ---------------  --------  ----------- 
Cash flow from operating 
 activities 
Cash generated from operations           209.7            187.7     521.1        589.4 
Interest received                          1.8              3.0       4.5          4.5 
Tax received/(paid)                        2.5            (1.5)       3.9       (18.1) 
----------------------------------              ---------------            ----------- 
Net cash inflow from operating 
 activities                              214.0            189.2     529.5        575.8 
----------------------------------  ----------  ---------------  --------  ----------- 
Cash flow from investing 
 activities 
Purchase of property, plant 
 and equipment                         (136.0)           (83.2)   (323.8)      (358.8) 
Additions to intangible 
 assets                                 (12.7)            (4.6)    (62.7)       (13.2) 
Own work capitalised                     (8.8)           (13.2)    (28.8)       (37.2) 
Short-term cash deposits 
 >3 months                               120.6            132.7     291.1        112.7 
Investment in financial 
 asset                                       -                -         -        (1.1) 
Net cash (used)/generated 
 in investing activities                (36.9)             31.7   (124.2)      (297.6) 
----------------------------------  ----------  ---------------  --------  ----------- 
Cash flow from financing 
 activities 
Dividends paid to shareholders           (1.1)            (0.1)    (40.0)      (118.0) 
Repayment of borrowings                 (61.1)           (40.4)   (122.2)       (80.8) 
Interest paid                           (19.7)           (25.7)    (82.1)       (82.0) 
Arrangement costs of financing           (3.8)                -     (4.4)        (1.2) 
Cash payments for the principal 
 portion of the lease obligations        (2.6)                -     (9.5)            - 
Other financing activities                 0.1            (0.7)     (0.9)        (1.6) 
                                    ----------                   -------- 
Net cash used in financing 
 activities                             (88.2)           (66.9)   (259.1)      (283.6) 
----------------------------------  ----------  ---------------  --------  ----------- 
Foreign exchange adjustment              (0.1)            (3.5)       2.3        (5.0) 
----------------------------------  ----------  ---------------  --------  ----------- 
Net increase/(decrease) 
 in cash and cash equivalents             88.8            150.5     148.5       (10.4) 
----------------------------------  ----------  ---------------  --------  ----------- 
 
Cash and cash equivalents 
At beginning of the period               204.3            100.6     144.6        261.5 
Net increase/(decrease) 
 in cash and cash equivalents             88.8            150.5     148.5       (10.4) 
----------------------------------              ---------------            ----------- 
At end of the period (net 
 of bank overdrafts)                     293.1            251.1     293.1        251.1 
----------------------------------  ----------  ---------------  --------  ----------- 
Comprising: 
Cash at bank and in hand                 165.7             56.4     165.7         56.4 
Short-term deposits with 
 original maturity of less 
 than three months                       128.1            195.2     128.1        195.2 
----------------------------------  ----------  ---------------  --------  ----------- 
Cash and cash equivalents                293.8            251.6     293.8        251.6 
----------------------------------  ----------  ---------------  --------  ----------- 
Bank overdrafts                          (0.7)            (0.5)     (0.7)        (0.5) 
----------------------------------  ----------  ---------------  --------  ----------- 
Net cash and cash equivalents 
 at end of period                        293.1            251.1     293.1        251.1 
----------------------------------  ----------  ---------------  --------  ----------- 
 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)

   1.    General information 

Inmarsat plc ('the Company' or, together with its subsidiaries, 'the Group') is a company incorporated in the United Kingdom and registered in England.

   2.    Principal accounting policies 

Basis of preparation

The condensed consolidated interim financial statements for the quarter and nine months ended 30 September 2018 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. These are approved by the Board of Directors on 7 November 2018.

The financial information presented in this release does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2017 were approved by the Board of Directors on 9 March 2018. The auditor's report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

Going Concern

The Group has a robust and resilient business model, and is expected to generate positive free cash flow over the medium term and is compliant with all banking covenants. The Directors therefore believe that the Company and the Group are well placed to manage their business risks successfully. After considering current financial projections and facilities available and after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, Inmarsat plc continues to adopt the going concern basis in preparing the consolidated financial statements.

Basis of accounting

The functional and reporting currency of the Company and most of the Group's subsidiaries is the US Dollar, as the majority of receipts from operational transactions and borrowings are denominated in US Dollars.

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the period. Although these estimates are based on management's best estimate of the amount, event or actions, the actual results may ultimately differ from these estimates.

In the current period the Group has adopted IFRS15, IFRS16 and IFRS9. Additionally a reclassification of short-term deposits has been made to better reflect the requirements of IAS7. The impact of these changes in accounting policies has been discussed in Appendix 2 of this announcement. Other than those discussed within Appendix 2, the accounting policies used are consistent with the 2017 financial statements.

   3.    Segment information 

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker to allocate resources and assess the performance of the Group. The Group's operating segments are aligned to five market-facing business units, being:

   --      Maritime, focusing on worldwide commercial maritime services; 
   --      US Government, focusing on US civil and military government services; and 
   3.   Segment information (continued) 
   --      Global Government, focusing on worldwide civil and military government services. 
   --      Aviation, focusing on commercial IFC, business and general aviation services; 
   --      Enterprise, focusing on worldwide energy, industry, media, carriers, and M2M services; 

These five business units are supported by 'Central Services' which include satellite operations and backbone infrastructure, corporate administrative costs, and any income that is not directly attributable to a business unit such as Ligado Networks. The Group has aggregated the US Government and Global Government operating segments into one reporting segment, as the segments meet the criteria for aggregation under IFRS8. Therefore, the Group's reportable segments are Maritime, Government, Aviation, Enterprise and Central Services. The accounting policies of the operating segments are the same as the Group's accounting policies described in Note 2. Segment results are assessed by the Chief Operating Decision Maker at the EBITDA level without the allocation of central costs, depreciation, net financing costs and taxation.

 
                                         Third Quarter             Nine months ended 
                                             ended                    30 September 
                                          30 September 
($ in millions)                     2018  2017 (restated)       2018  2017 (restated) 
-------------------------------  -------  ---------------  ---------  --------------- 
Revenues 
Maritime                          135.0             143.1      417.1            422.9 
Government                          95.2             88.4      278.3            275.9 
Aviation                            68.2             50.9      183.7            134.1 
Enterprise                          34.6             38.2       98.6            100.5 
Central Services(1)                 36.3             35.6      108.8            106.5 
-------------------------------  -------  ---------------  --------- 
Total revenues                     369.3            356.2    1,086.5          1,039.9 
-------------------------------  -------                   --------- 
EBITDA 
Maritime                           108.7            114.3      326.6            337.0 
Government                          69.9             64.6      199.1            202.4 
Aviation                            36.5             25.5       96.4             75.9 
Enterprise                          21.9             26.6       62.6             70.2 
Central Services(1)               (30.5)           (37.7)    (105.2)          (112.5) 
-------------------------------  -------  ---------------  --------- 
Total EBITDA                       206.5            193.3      579.5            573.0 
Depreciation and amortisation    (115.0)          (103.4)    (347.5)          (297.5) 
Other                              (6.6)            (3.0)      (6.4)            (3.4) 
-------------------------------  -------  ---------------  ---------  --------------- 
Operating profit                    84.9             86.9      225.6            272.1 
Net financing costs                154.5             36.6    (105.3)           (85.2) 
-------------------------------  -------  ---------------  ---------  --------------- 
Profit before tax                  239.4            123.5      120.3            186.9 
Taxation charge                   (11.7)           (10.8)     (24.4)           (35.4) 
-------------------------------  -------  ---------------  ---------  --------------- 
Profit for the period              227.7            112.7       95.9            151.5 
                                          ---------------             --------------- 
 
Cash capital expenditure 
Maritime                            13.0             11.7       37.0             35.0 
Government                           0.4              2.5        2.1              7.4 
Aviation                            10.7             30.4       39.6            115.8 
Enterprise                             -              0.1          -              0.2 
Central Services                   133.4             56.3      336.6            250.8 
-------------------------------  -------  ---------------  ---------  --------------- 
Total cash capital expenditure     157.5            101.0      415.3            409.2 
-------------------------------  -------  ---------------  ---------  --------------- 
Financing costs capitalised in 
 the cost of qualifying assets      10.3             15.0       26.6             37.6 
Cash flow timing                  (32.4)              8.2     (59.9)             23.1 
-------------------------------  -------  ---------------  ---------  --------------- 
Total capital expenditure          135.4            124.2      382.0            469.9 
-------------------------------  -------  ---------------  ---------  --------------- 
 

(1) Central Services includes revenue and EBITDA from Ligado.

   4.    Net financing costs 
 
                                               Third Quarter               Nine months ended 
                                                    ended                     30 September 
                                                30 September 
($ in millions)                           2018  2017 (restated)      2018     2017 (restated) 
-------------------------------------  -------  ---------------  --------  ------------------ 
Bank interest receivable and other 
 interest                                (2.0)            (1.8)     (6.3)               (6.1) 
Total financing income                   (2.0)            (1.8)     (6.3)               (6.1) 
-------------------------------------  -------  ---------------  --------  ------------------ 
Interest on Senior Notes and credit 
 facilities                               23.3             23.7      69.7                70.9 
Interest on Convertible Bonds              9.6              9.4      28.7                28.0 
Amortisation of debt issue costs           4.2              2.3      10.1                 8.8 
Amortisation of discount on Senior 
 Notes due 2022                            0.3              0.3       0.8                 0.8 
Amortisation of discount on deferred 
 satellite liabilities                       -                -       0.1                 0.3 
Net interest on the net pension 
 asset and post-employment liability       0.2              0.4       0.2                 1.8 
Other interest                             1.4              0.5       2.5                 2.5 
-------------------------------------  -------  ---------------  --------  ------------------ 
                                          39.0             36.6     112.1               113.1 
Less: Amounts capitalised in the 
 cost of qualifying assets              (10.3)           (15.0)    (26.6)              (37.6) 
-------------------------------------  -------  ---------------  --------  ------------------ 
Financing costs excluding derivative 
 adjustments                              28.7             21.6      85.5                75.5 
Change in fair value of derivative 
 liability component of the 2023 
 Convertible Bonds                     (181.2)           (56.4)      26.1                15.8 
-------------------------------------  -------  ---------------  --------  ------------------ 
Net financing costs                    (154.5)           (36.6)     105.3                85.2 
-------------------------------------  -------  ---------------  --------  ------------------ 
 
   5.    Taxation 
 
                                               Third Quarter ended           Nine months ended 
                                                   30 September                 30 September 
($ in millions)                            2018     2017 (restated)    2018     2017 (restated) 
--------------------------------------  -------  ------------------  ------  ------------------ 
Current tax: 
Current period                              6.5                10.3    12.5                22.0 
Adjustments in respect of prior 
 periods                                    0.7                   -     2.5                 1.5 
--------------------------------------  -------  ------------------  ------  ------------------ 
Total current tax                           7.2                10.3    15.0                23.5 
--------------------------------------  -------  ------------------  ------  ------------------ 
Deferred tax: 
Origination and reversal of temporary 
 differences                                7.9                 0.5    18.0                11.0 
Adjustments in respect of prior 
 periods                                  (3.4)                   -   (8.6)                 0.9 
--------------------------------------  -------  ------------------  ------  ------------------ 
Total deferred tax                          4.5                 0.5     9.4                11.9 
--------------------------------------  -------  ------------------  ------  ------------------ 
Total taxation charge                      11.7                10.8    24.4                35.4 
--------------------------------------  -------  ------------------  ------  ------------------ 
 
   6.    Net Borrowings 

These balances are shown net of unamortised deferred finance costs, which have been allocated as follows:

 
                               At 30 September 2018           At 31 December 2017 
                                     Deferred                     Deferred 
                                      finance       Net            finance 
($ in millions)              Amount     costs   balance   Amount     costs  Net balance 
--------------------------  -------  --------  --------  -------  --------  ----------- 
Current: 
Bank overdrafts                 0.7         -       0.7      0.3         -          0.3 
Deferred satellite 
 payments                       1.7         -       1.7      3.1         -          3.1 
Ex-Im Bank Facilities         122.2         -     122.2    122.2         -        122.2 
--------------------------                               -------  --------  ----------- 
Total current borrowings      124.6         -     124.6    125.6         -        125.6 
--------------------------  -------  --------  --------  -------  --------  ----------- 
Non-current: 
Deferred satellite 
 payments                       4.4         -       4.4      5.6         -          5.6 
Senior Notes due 
 2022                       1,000.0     (4.2)     995.8  1,000.0     (5.1)        994.9 
- Net issuance discount       (3.7)         -     (3.7)    (4.5)         -        (4.5) 
Senior Notes due 
 2024                         400.0     (4.3)     395.7    400.0     (4.9)        395.1 
Ex-Im Bank Facilities         386.5     (8.6)     377.9    508.7    (14.9)        493.8 
Convertible Bonds 
 due 2023                     561.6     (5.7)     555.9    549.2     (6.6)        542.6 
- Accretion of principal        9.8         -       9.8     12.4         -         12.4 
--------------------------                               -------  --------  ----------- 
Total non-current 
 borrowings                 2,358.6    (22.8)   2,335.8  2,471.4    (31.5)      2,439.9 
--------------------------  -------  --------  --------  -------  --------  ----------- 
Total borrowings            2,483.2    (22.8)   2,460.4  2,597.0    (31.5)      2,565.5 
--------------------------  -------  --------  --------  -------  --------  ----------- 
Cash and cash equivalents   (293.8)         -   (293.8)  (144.9)         -      (144.9) 
Short-term deposits          (50.9)         -    (50.9)  (342.0)         -      (342.0) 
--------------------------  -------  --------  --------  -------  --------  ----------- 
Net borrowings              2,138.5    (22.8)   2,115.7  2,110.1    (31.5)      2,078.6 
--------------------------  -------  --------  --------  -------  --------  ----------- 
 
 

For further details of the Group's debt structure please refer to note 19 of the 2017 Annual Report.

   7.    Fair value of financial instruments 

The Group's derivative financial instruments consist of forward foreign currency contracts which are primarily designated as cash flow hedges and the conversion liability component of the Convertible Bonds due 2023.

The Group generally does not hedge foreign currency transactions. Where there is a material contract with a foreign currency exposure, a specific hedge to match the specific risk will be evaluated. At present the Group only hedges certain foreign currency milestone payments to Airbus for the construction of the I-6 satellites.

The fair values at the Balance Sheet date were:

 
                                                 At 30 September  At 31 December 
($ in millions)                                             2018            2017 
-----------------------------------------------  ---------------  -------------- 
Financial assets: 
Forward foreign currency contracts - 
 designated cash flow hedges                                 0.3             1.5 
Forward foreign currency contracts -                           -               - 
 undesignated cash flow hedges 
-----------------------------------------------  ---------------  -------------- 
Total derivative financial assets                            0.3             1.5 
-----------------------------------------------  ---------------  -------------- 
Financial liabilities: 
Conversion liability component of 2023 
 Convertible Bond                                        (151.8)         (125.7) 
Forward foreign currency contracts- designated 
 cash flow hedges                                          (5.1)           (9.9) 
Forward foreign currency contracts - 
 undesignated cash flow hedges                                 -           (0.1) 
-----------------------------------------------  ---------------  -------------- 
Total derivative financial liabilities                   (156.9)         (135.7) 
-----------------------------------------------  ---------------  -------------- 
Net derivative financial liability                       (156.6)         (134.2) 
-----------------------------------------------  ---------------  -------------- 
 

The fair values of forward foreign exchange contracts are based on the difference between the contract amount at the current forward rate at each period end and the contract amount at the contract rate, discounted at a variable risk-free rate at the period end.

On issuance the Convertible Bond 2023 was bifurcated between a cash debt and conversion liability component, as shown below. The cash debt component meets the definition of net borrowings and over the term of the bond will accrete up to the principal value of $650m with the cost of that accretion recognised in net financing costs. The conversion liability component represents the value of the conversion rights associated with the instrument and is accounted for at fair value through profit and loss.

The fair value of the conversion liability is calculated as the difference between the fair value of the Convertible Bond (being the principal multiplied by the closing bond price at the Balance Sheet date) and the accreted balance of the cash debt component. At 30 September 2018, the fair value of the Convertible Bond was $723.2m and the accreted balance of the cash debt component was $571.4m, meaning the conversion liability was valued at $151.8m. As shown in the table below, the movement in the conversion liability from December 2017 to 30 September 2018 of $26.1m has been recognised in the income statement through net financing costs:

 
($ in millions)                  At 30 September 2018  At 31 December 2017  On issuance 
-------------------------------  --------------------  -------------------  ----------- 
Cash debt component                             571.4                561.6        545.5 
Conversion liability component                  151.8                125.7        104.5 
-------------------------------  --------------------  -------------------  ----------- 
Total fair value                                723.2                687.3        650.0 
-------------------------------  --------------------  -------------------  ----------- 
 

The impact of the unrealised conversion liability will reverse to nil if the convertible bonds reach maturity and are not converted.

The Group has no financial instruments with fair values that are determined by reference to significant unobservable inputs i.e. those that would be classified as level 3 in the fair value hierarchy, nor have there been any transfers of assets or liabilities between levels of the fair value hierarchy. There are no non-recurring fair value measurements.

Except as detailed in the following table, the Directors consider that the carrying value of non-derivative financial assets and liabilities approximately equal to their fair values:

 
                                            At 30 September 2018             At 31 December 2017 
                                                    Carrying    Fair        Carrying         Fair 
($ in millions)                                        Value   value           value        value 
---------------------------  -------------------------------  ------  --------------  ----------- 
Financial liabilities: 
Senior Notes due 2022                                1,000.0   996.1         1,000.0      1,000.8 
Senior Notes due 2024                                  400.0   406.7           400.0        408.1 
Ex-Im Bank Facilities                                  508.7   508.9           630.9        639.7 
Convertible Bonds due 2023                             571.4   723.1           561.6        687.3 
---------------------------  -------------------------------  ------  --------------  ----------- 
 
 
   8.    Dividends Payable 
 
($ in millions)                                                      At 30 September 2018  At 30 September 2017 
-------------------------------------------------------------------  --------------------  -------------------- 
 
Final dividend for the year ended 31 December 2017 of 12 cents ($) 
 (year ended 31 December 2016: 33.37 cents ($)) per share                            55.0                 151.2 
-------------------------------------------------------------------  --------------------  -------------------- 
Dividends in statements of changes in equity                                         55.0                 151.2 
Dividends settled in shares                                                        (15.6)                (31.2) 
-------------------------------------------------------------------  --------------------  -------------------- 
Dividends settled in cash                                                            39.4                 120.0 
-------------------------------------------------------------------  --------------------  -------------------- 
 

The Board declared, and on 19 October 2018 paid, an interim dividend of 8.00 cents ($) per ordinary share to ordinary shareholders on the share register at the close of business on 14 September 2018. Dividend payments were made in Pounds Sterling based on the exchange rate from the WMReuters GBP/USD 9am fix (London time) four business days prior to the date of announcement of the scrip reference price. In accordance with IAS 10, this dividend has not been recorded as a liability at 30 September 2018.

With effect from the 2016 interim dividend, we introduced a scrip dividend election opportunity for shareholders, to take their cash dividend entitlement in Inmarsat shares. For our 2018 interim dividend the scrip amounted to 1,044,660 new shares (0.22% of the then issued share capital). These shares were issued and made available for trading on 19 October 2018. As at 19 October 2018, Inmarsat plc had 462,617,429 shares in issue.

   9.    Earnings per share 

Earnings per share for the three and nine months ended 30 September 2018 has been calculated based on the profit attributable to equity holders for the period and the weighted average number of ordinary shares in issue (excluding shares held by the Employee Benefit Trust).

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. These represent share options and awards granted to employees under the employee share plans.

 
                                        Third Quarter             Nine months ended 
                                            ended                    30 September 
                                         30 September 
                                                 2018  2017 (restated)   2018         2017 
($ in millions)                                                                 (restated) 
------------------------------------  ---------------  ---------------  -----  ----------- 
Profit attributable to equity 
 holders of the Company                         227.5            112.7   95.4        151.2 
------------------------------------  ---------------  ---------------  -----  ----------- 
Weighted average number of ordinary 
 shares in issue (m's)                          458.0            452.0  458.0        452.1 
Potentially dilutive ordinary 
 shares (m's)                                     6.2              4.4    6.2          4.4 
------------------------------------  ---------------  ---------------  -----  ----------- 
Weighted average number of diluted 
 ordinary shares (m's)                          464.2            456.4  464.2        456.5 
------------------------------------  ---------------  ---------------  -----  ----------- 
Basic earnings per share ($ per 
 share)                                          0.50             0.25   0.21         0.33 
Diluted earnings per share ($ 
 per share)                                      0.49             0.25   0.21         0.33 
------------------------------------  ---------------  ---------------  -----  ----------- 
 
 
   10.   Adjusted earnings per share 

Adjusted earnings per share for the three and nine months ended 30 September 2018 has been calculated based on profit attributable to equity holders adjusted for the pre-tax impact of the change in the fair value of the conversion liability component of the 2023 Convertible Bonds.

 
                                           Third Quarter          Nine months ended 
                                                ended 
                                            30 September            30 September 
                                           2018         2017          2018         2017 
($ in millions)                                   (restated)                 (restated) 
--------------------------------------  -------  -----------  ------------  ----------- 
Profit attributable to equity holders 
 of the Company                           227.5        112.7          95.4        151.2 
Adjusted for: 
Increase/(decrease) in fair value 
 of conversion liability component 
 of 2023 Convertible Bonds              (181.2)       (56.4)          26.1         15.8 
Adjusted profit attributable to 
 equity holders of the Company             46.3         56.3         121.5        167.0 
--------------------------------------  -------  -----------  ------------  ----------- 
Weighted average number of ordinary 
 shares in issue (m's)                    458.0        452.0       458.0.0        452.1 
Potentially dilutive ordinary shares 
 (m's)                                      6.2          4.4         6.2.2          4.4 
--------------------------------------  -------  -----------  ------------  ----------- 
Weighted average number of diluted 
 ordinary shares (m's)                    464.2        456.4       464.2.2        456.5 
--------------------------------------  -------  -----------  ------------  ----------- 
Basic adjusted earnings per share 
 ($ per share)                             0.10         0.12          0.27         0.37 
Diluted adjusted earnings per share 
 ($ per share)                             0.10         0.12          0.26         0.37 
--------------------------------------  -------  -----------  ------------  ----------- 
 
   11.   Contingent liabilities 

The Group is subject to periodic legal claims in the ordinary course of its business, none of which is expected to have a material impact on the Group's financial position. There have been no material changes to the Group's contingent liabilities from those reported in the financial statements for the year ended 31 December 2017.

   12.   Events after the balance sheet date 

There have been no other material events since the balance sheet date.

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors confirm to the best of their knowledge that:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34, "Interim Financial Reporting"

(b) the interim management report includes a fair review of the information required by Disclosure and Transparency Rule ('DTR') 4.2.7R, being an indication of important events during the first nine months and description of principal risks and uncertainties for the remaining three months of the year; and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R, being the disclosure of related parties' transactions and changes therein.

The Directors of Inmarsat plc are listed on our website at www.inmarsat.com.

By order of the Board,

Rupert Pearce Tony Bates

Chief Executive Officer Chief Financial Officer

7 November 2018 7 November 2018

APPIX 1: ALTERNATIVE PERFORMANCE MEASURES ("APMs")

The Directors use APMs to better understand the underlying financial performance of the Group and to provide comparability of information between reporting periods and business units. The measures are also used in discussions with the investment analyst community and the credit rating agencies. Given that APMs are not defined by International Financial Reporting Standards they may not be directly comparable with other companies who use similar measures. APMs used in these financial statements are:

 
APM                          Description and Reconciliation 
---------------------------  ---------------------------------------------------- 
 1. EBITDA                   EBITDA is defined as profit for the year 
                              before net financing costs, taxation, depreciation 
                              and amortisation, gains/losses on disposal 
                              of assets, impairment losses and share 
                              of profit of associates. EBITDA is a commonly 
                              used industry measure which helps investors 
                              to understand the contribution made by 
                              each of our business units. It reflects 
                              how the effect of growing revenues and 
                              cost management deliver value for our shareholders. 
                              This has been reconciled to both operating 
                              profit and profit after tax on page 10. 
---------------------------  ---------------------------------------------------- 
2. Adjusted PAT               Adjusted PAT is defined as Profit after 
                               Tax excluding the non-cash impact of the 
                               unrealised movement in the fair value of 
                               the conversion liability component of the 
                               2023 convertible bond. A reconciliation 
                               to Profit after tax can be found on page 
                               10. 
---------------------------  ---------------------------------------------------- 
      3. Cash Capex          Cash capital expenditure is the cash flow 
                              relating to tangible and intangible asset 
                              additions, it includes capitalised labour 
                              costs and excludes capitalised interest. 
                              Cash capex indicates our continued investment 
                              in the growth and development of our network 
                              and infrastructure as well as our investment 
                              in the future technologies of the business. 
                              This has been reconciled to total capital 
                              expenditure within Note 3. 
---------------------------  ---------------------------------------------------- 
4. Adjusted EPS              Adjusted Earnings Per Share is computed 
                              as Group Adjusted Profit After Tax attributable 
                              to equity holders of the Company divided 
                              by the weighted average number of shares 
                              in issue (excluding shares held by the 
                              Employee Trust). Growth in adjusted EPS 
                              is a measure of our ability to deliver 
                              profitable growth by increasing our revenue 
                              and delivering cost efficiencies across 
                              the Group, thereby delivering value for 
                              our shareholders. Please refer to Note 
                              10 for the reconciliation of Adjusted EPS 
                              to EPS. 
---------------------------  ---------------------------------------------------- 
5. Free Cash Flow            Free Cash Flow represents how much cash 
                              is available to pay back borrowings, distribute 
                              to investors or invest in the business 
                              in future periods. This has been reconciled 
                              to the net increase or decrease in cash 
                              and cash equivalents on page 12. 
---------------------------  ---------------------------------------------------- 
6. Underlying effective      The underlying effective tax rate is used 
 tax rate                     to analyse differences from the corporate 
                              tax rate which are implicit to business 
                              operations rather than driven by accounting 
                              adjustments. For the quarter, this has 
                              been calculated by taking the tax charge 
                              ($11.7m) add prior year adjustments ($2.7m) 
                              and less revaluation of deferred tax balances 
                              ($0.9m) divided by PBT ($239.4m) adjusted 
                              for the impact of the unrealised conversion 
                              liability of the convertible bonds ($181.2m). 
---------------------------  ---------------------------------------------------- 
 7. Business Unit Operating  This is indicative of the cash generated 
  Cash Flow                   by the relevant business unit for the period 
                              in review. It is calculated by taking EBITDA 
                              less cash capex. Both EBITDA and Cash Capex 
                              have been defined above and reconciled. 
---------------------------  ---------------------------------------------------- 
 

APPIX 2: ACCOUNTING POLICY CHANGES

IFRS15 'Revenue from contracts with customers'

The Group has adopted IFRS15 on 1 January 2018 using the fully retrospective method. Two revenue streams were identified as areas requiring Group policy change to align with IFRS15. These are revenues from the Ligado contract and installation revenues.

The impact due to these changes is set out below:

 
                          Third Quarter ended           Nine months ended 
                            30 September 2017            30 September 2017 
($ in millions)       Reported  IFRS 15  Restated  Reported  IFRS 15  Restated 
--------------------  --------  -------  --------  --------  -------  -------- 
Revenues                 358.3    (2.1)     356.2   1,046.5    (6.6)   1,039.9 
Other operating 
 costs                  (55.9)      4.1    (51.8)   (154.1)     11.8   (142.3) 
--------------------            -------                      ------- 
EBITDA                   191.3      2.0     193.3     567.8      5.2     573.0 
Depreciation and 
 amortisation          (102.2)    (1.2)   (103.4)   (294.1)    (3.4)   (297.5) 
--------------------  --------  -------  --------  --------  -------  -------- 
Operating profit          86.1      0.8      86.9     270.3      1.8     272.1 
Financing income          36.3      0.3      36.6    (86.1)      0.9    (85.2) 
--------------------  --------  -------  --------  --------  -------  -------- 
 Profit before tax       122.4      1.1     123.5     184.2      2.7     186.9 
Tax                     (10.4)    (0.4)    (10.8)    (34.6)    (0.8)    (35.4) 
--------------------  --------  -------  --------  --------  -------  -------- 
Profit after tax         112.0      0.7     112.7     149.6      1.9     151.5 
--------------------  --------  -------  --------  --------  -------  -------- 
Total comprehensive 
 income                  117.6      0.7     118.3     164.9      1.9     166.8 
--------------------  --------  -------  --------  --------  -------  -------- 
 

Within the income statement, the main impact of IFRS 15 is on the treatment of installation revenue which was previously recognised in full on completion of the work. Under IFRS15, installation revenue is in most instances added to the transaction price and spread over the contract period. Similarly installation costs, which were previously expensed on installation, are now capitalised and depreciated over the contract period. These changes flow through to the balance sheet leading to increases in property, plant and equipment due to the capitalisation of installation costs and an increase in deferred income, reported within trade and other payables, reflecting the corresponding delay in the recognition of installation revenue.

 
                                   As at 30 September 2017              As at 31 December 2017 
($ in millions)                          Reported  IFRS 15  Restated  Reported  IFRS 15  Restated 
------------------------  -----------------------  -------  --------  --------  -------  -------- 
Non-current assets 
Property, plant 
 and equipment                            3,149.3     16.4   3,165.7   3,236.6     18.9   3,255.5 
Deferred income 
 tax asset                                   42.4    (0.1)      42.3      35.6    (0.2)      35.4 
------------------------  -----------------------  -------  --------  --------  -------  -------- 
Current assets 
Trade and other 
 receivables                                306.9     21.5     328.4     319.4     25.0     344.4 
------------------------  -----------------------  -------  --------  --------  -------  -------- 
Total assets                              4,889.9     37.8   4,927.7   4,959.5     43.7   5,003.2 
------------------------  -----------------------  -------  --------  --------  -------  -------- 
Current liabilities 
Trade and other 
 payables                                   543.2     44.9     588.1     584.6     49.8     634.4 
------------------------  -----------------------  -------  --------  --------  -------  -------- 
Non-current liabilities 
Deferred income 
 tax liabilities                            222.9      0.8     223.7     237.3      1.1     238.4 
------------------------  -----------------------  -------  --------  --------  -------  -------- 
Total liabilities                         3,593.4     45.7   3,639.1   3,704.2     50.9   3,755.1 
------------------------  -----------------------  -------  --------  --------  -------  -------- 
Net assets (Equity)                       1,296.5    (7.9)   1,288.6   1,255.3    (7.2)   1,248.1 
------------------------  -----------------------  -------  --------  --------  -------  -------- 
 
 

The Ligado impact is largely limited to the balance sheet with payments which were contractually deferred and were previously offset against deferred revenue now being recognised as receivables.

 
                                  Third Quarter ended         Nine months ended 
                                                               30 September 2017 
                                   30 September 2017 
($ in millions)1           Reported   IFRS 15  Restated  Reported  IFRS 15  Restated 
------------------------  ---------  --------  --------  --------  -------  -------- 
Cash generated 
 from operations              183.8       3.8     187.6     577.5     11.2     588.7 
------------------------             --------                      ------- 
Net cash inflow 
 from operating 
 activities                   185.3       3.8     189.1     563.9     11.2     575.1 
Purchase of property, 
 plant and equipment         (79.4)     (3.8)    (83.2)   (347.6)   (11.2)   (358.8) 
------------------------  ---------  --------  --------  --------  -------  -------- 
Net cash used in 
 investing activities       (167.3)     (3.8)   (171.1)   (190.0)   (11.2)   (201.2) 
------------------------  ---------  --------  --------  --------  -------  -------- 
Net (decrease)/increase 
 in cash and cash 
 equivalents                 (52.4)         -    (52.4)      85.3        -      85.3 
------------------------  ---------  --------  --------  --------  -------  -------- 
 

In the cash flow statement the impact of the accounting policy change is limited to the reclassification of installation costs from cash generated from operations into investing activities. The overall movement in cash remains unchanged.

IFRS16 'Leases'

IFRS16 has been adopted by the Group on 1 January 2018 using the modified retrospective approach which allows for the recognition of the lease liability and asset as at 1 January 2018 with no restatement of prior period financial statements.

The main impact is around property leases where the Group is the lessee.

 
                                       Balance Sheet as at 1 January 
                                                                2018 
($ in millions)                      Reported   IFRS16   Post IFRS16 
---------------------------------  ----------  -------  ------------ 
Non-current assets 
Right of use asset                          -     75.7          75.7 
Total assets                          4,959.5     75.7       5,035.2 
---------------------------------  ----------  -------  ------------ 
Current liabilities 
Trade and other payables                584.6   (11.5)         573.1 
Obligations under finance leases            -     13.1          13.1 
---------------------------------  ----------  -------  ------------ 
Non-current liabilities 
Obligations under finance leases            -     74.1          74.1 
Total liabilities                     3,704.2     75.7       3,779.9 
---------------------------------  ----------  -------  ------------ 
Net assets (Equity)                   1,255.3        -       1,255.3 
---------------------------------  ----------  -------  ------------ 
 

A lease liability of $87.2m has been calculated using the present value of the unpaid lease payments over the lease term specific to each lease, using the incremental borrowing rate as the discount rate. The liability has been separated between a current ($13.1m) and a non-current liability ($74.1m). A right of use asset of $75.7m has been created based on the lease liability, adjusted by $11.5m of accruals related to the phasing of lease payments.

There was an EBITDA benefit of $3.3m in the quarter from lease-related costs being accounted for as depreciation and interest rather than indirect costs. Overall there was no impact to PBT due to the forex gain of $0.7m offsetting the interest charge of $0.7m.

1 The reported numbers in the cash flow table above have not been adjusted for the impact of reclassification of short term deposits which is discussed later in this appendix. The restated numbers above therefore need to be considered in aggregate.

IFRS9 'Financial Instruments'

IFRS9 has been adopted in January 2018. There has been no material impact on 2018 or prior year reported numbers.

In Q4 2017, the Group changed the basis for recognising short term deposits with a maturity less than 3 months to more accurately reflect the requirements of IAS7. Previously short term deposits with less than 3 months remaining until maturity at the reporting date were classified as cash and cash equivalents. This has been changed so that only those short-term deposits that have a 3 month maturity at their acquisition date are classified as cash and cash equivalents. As a result, the comparative financial numbers for the year to Q3 2017 have been restated.

The impact on short term deposits was an increase of $95.7m to $282.3m and cash & cash equivalents net of bank overdrafts were reduced by $95.7m to $251.1m. The overall impact on current assets is zero and is detailed in the table below:

 
                                 Third Quarter ended                 Nine months ended 
                                   30 September 2017                  30 September 2017 
($ in millions)               Reported     Adj.  Restated             Reported    Adj.  Restated 
--------------------------  ----------  -------  --------  -------------------  ------  -------- 
Cash and cash equivalents 
---------------------------  ---------  -------  --------  -------------------  ------  -------- 
At beginning of the 
 period                          399.2  (298.6)     100.6                261.5       -     261.5 
Net increase/(decrease) 
 in cash and cash 
 equivalents                    (52.4)    202.9     150.5                 85.3  (95.7)    (10.4) 
---------------------------  ---------  -------  --------  -------------------  ------  -------- 
Sub-total (net of 
 bank overdrafts)                346.8   (95.7)     251.1                346.8  (95.7)     251.1 
---------------------------  ---------  -------  --------  -------------------  ------  -------- 
Short term deposits 
At beginning of the 
 period                          116.4    298.6     415.0                395.0             395.0 
Net (decrease)/increase 
 in short term deposits           70.2  (202.9)   (132.7)              (208.4)    95.7   (112.7) 
---------------------------  ---------  -------  --------  -------------------  ------  -------- 
Sub-total                        186.6     95.7     282.3                186.6    95.7     282.3 
---------------------------  ---------  -------  --------  -------------------  ------  -------- 
Total cash, cash 
 equivalents and short 
 term deposits                   533.4        -     533.4                533.4       -     533.4 
---------------------------  ---------  -------  --------  -------------------  ------  -------- 
 
 

The impact on the cash flow statement can be seen in the following table:

 
                             Third Quarter ended          Nine months ended 
                               30 September 2017          30 September 2017 
($ in millions)           Reported   Adj.  Restated  Reported    Adj.  Restated 
 (1) 
------------------------  --------  -----  --------  --------  ------  -------- 
Short-term cash 
 deposits >3 months         (70.2)  202.9     132.7     208.4  (95.7)     112.7 
------------------------  --------  -----  --------  --------  ------  -------- 
Net cash used in 
 investing activities      (167.3)  202.9      35.6   (190.0)  (95.7)   (285.7) 
------------------------  --------  -----  --------  --------  ------  -------- 
Net (decrease)/increase 
 in cash and cash 
 equivalents                (52.4)  202.9     150.5      85.3  (95.7)    (10.4) 
------------------------  --------  -----  --------  --------  ------  -------- 
 

1 The reported numbers in the table above have not been adjusted for the impact of IFRS15 which is discussed earlier in this appendix. The restated numbers above therefore need to be considered in aggregate.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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November 08, 2018 02:00 ET (07:00 GMT)

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