Inmarsat Share News (ISAT)

LONDON (Alliance News) - Inmarsat PLC on Friday slashed its dividend and warned of more cuts in payouts as annual earnings fell on rising costs and "lack of visibility" over a key contract, although revenue rose year-on-year.

The satellite telecommunications firm cut its final dividend for 2017 to 12 US cents per share, down nearly two-thirds from 33.37 cents the year prior. For the full year, Inmarsat's dividend fell 38% to 33.62 cents from 53.96 cents in 2016.

Inmarsat also issued new guidance for future payout of 20 cents. The dividend distribution will remain at this level until cash flow recovers, the company said.

In 2017, free cash flow fell 85% to USD41.2 million from USD274.5 million in 2016.

This was after Inmarsat's full year pretax profit fell 23% to USD229.8 million from USD299.2 million in 2016. This was despite revenue increasing 5.4% to USD1.40 billion from USD1.33 billion the year prior.

Profit performance was held back by a sizeable rise in costs. Network and satellite costs rose to USD192.6 million from USD168.6 million the year before. Other operating costs also rose to USD212.1 million from USD139.9 million. An additional USD19.9 million restructuring charge also served as a drag.

Even revenue growth performance was a fairly mixed bag. Revenue from the company's largest Maritime unit fell 1.8% to USD564.3 million and its smallest Enterprise unit fell 8.3% to USD132.6 million. In contrast, its Government unit grew 11% to USD366.7 million and Aviation advanced 37% to USD195.0 million.

"Inmarsat delivered further operational and strategic progress in 2017," Inmarsat Chief Executive Officer Rupert Pearce said, "comprising both gratifying near term revenue growth as well as several important strategic proof-points around exciting medium term growth opportunities, especially in in-flight connectivity."

"Our investment in Global Xpress, our high bandwidth global mobile satellite network, is starting to show material returns, generating over USD140 million of revenue in the year," Pearce added. "Our strategic investment in GX will enable us to retain and develop our competitive positions in Maritime and Government and will ensure that we are well placed to access the substantial opportunity in IFC in Aviation."

"In Maritime, we made important strategic progress in securing the long term future for Fleet Xpress, with significant commitments signed with leading distribution partners," Pearce said. "After a challenging year in 2016, which continued into Q1 2017, we delivered quarter-on-quarter growth throughout the year, and year-on-year revenue growth in the fourth quarter."

"In Government," Pearce continued, "we delivered on our strategy to diversify our contracted revenue base and product base, supported by another excellent operational performance during the year. In Aviation, we further established our market position in IFC, through commercial momentum and strategic investment, and our core business delivered double digit revenue growth throughout 2017. In Enterprise, notwithstanding current challenges, we remain optimistic about the long term future demand for M2M connectivity in the emerging global internet of things market."

Inmarsat felt compelled to make the dividend cut in order to retain funds. Partly this is due to what it described as the "increasingly clear opportunity" for investment in the fast-growing aviation business.

Inmarsat, however, also sought to retain resources due to what it termed the "lack of visibility" over its Ligado Networks cash payments beyond the end of 2018. Inmarsat originally signed a collaboration agreement with Ligado's predecessor firm LightSquared in 2007.

LightSquared entered bankruptcy in 2012, exiting in 2015 and becoming Ligado in 2016.

Payments from the Ligado contract will pause in 2019, Inmarsat explained. Payments will then resume in 2020 at around USD136.0 million a year, growing 3% at a compound rate over the next 99 years.

"Should Ligado obtain its licence from the Federal Communications Commission in 2018, there would be no pause in 2019," Inmarsat explained. "Any payments not made in 2019, together with payments deferred between 2016 and 2018 (approximately USD35 million) will be due for payment by Ligado with interest at the earlier of commissioning their network or 30 June 2021."

Ligado has been awaiting a decision on its application since 2015.

"Whilst the outlook for Ligado remains uncertain there are many ways in which the Ligado position could evolve positively for the group," Inmarsat said. "Ligado has been through bankruptcy once already with Inmarsat's contract enduring this event as without that contract, Ligado's stated business model and potential high market valuation are not viable. Whilst Inmarsat will continue to adopt a prudent approach to Ligado in its financial planning, the group's contract provides material possible upside value."

Inmarsat is nonetheless confident on the medium to long-term growth outlook for the company, and said it is strongly positioned in its chosen markets.

"Given Inmarsat's track record, unique capabilities and differentiated market position, we are well placed to continue to grow our revenues in 2018 and beyond and to capture significant additional medium term growth opportunities available to us, particularly in in-flight connectivity."

Excluding Ligado, Inmarsat is targeting mid-single digit percentage revenue growth over the next five years. It also expects earnings before interest, tax, depreciation and amortisation and free cash flow to improve "steadily".

Ebitda in 2017 stood at USD731.5 million, down 8.0% from the US794.8 million in 2016.

For 2018, revenue is guided between USD1.30 billion and USD1.50 billion.

Capital expenditure between 2018 to 2020 is expected within the range of USD500.0 million to USD600.0 million per year. In 2017, capital expenditure stood at USD598.7 million which was 45% higher than the USD412.9 million in 2016. This was because of infrastructural investments including two satellite launches.

Shares in Inmarsat were down 6.2% lower at 435.30 pence on Friday. Inmarsat's stock has fallen 43% over the last 12 months, having traded as high as 865 pence in March 2017 and 1,140 pence in December 2015. It had been a constituent of the FTSE 100 index until June 2016.