Space firm in transition as profits fall


Perched just off the south-eastern corner of famous "Silicon Roundabout", at the heart of the UK's burgeoning tech start-up scene, you can find the headquarters of a company that is one of the standard-bearers of the UK's space industry.

Inmarsat, a FTSE-100 member as recently as two years ago, is a global leader in the field of satellite technology.

Its 13 satellites enable thousands of ships to traverse the globe, airlines to provide wi-fi services to their passengers in the air, enables engineers in the oil and gas sector to do work remotely and also helps journalists broadcast from far-away locations.

And it's also a major supplier to the US military.

At the moment, though, it's fair to say that this is a business going through something of a transition.

Full year results on Friday brought news of a 23% fall in pre-tax profits, to $229.8m (this UK company reports in US dollars as most of its trading income is in that currency), despite a 5% rise in annual revenues to $1.4bn.

Worse still, so far as shareholders will be concerned, was news that the dividend in respect of the second half of the year has been cut by 60% to a level where it is "expected to stay" until cash flows recover.

Shares of Inmarsat have fallen by almost 6% on this development which, the company is stressing, has to be seen in the context of it having returned $2.1bn to investors since its stock market flotation in 2005.

There are two elements at play here.

The first is that Inmarsat has decided it would be unwise to depend on future cash payments from Ligado Networks, a US satellite company that was previously called LightSquared, which uses some of its airwaves.

These payments, worth $136m to Inmarsat, are due to "pause" at the end of the year before resuming in 2020 but questions remain over whether Ligado will receive a licence from US regulators allowing it to reinvent itself as a mobile network.

That licence approval is critical to future payments to Inmarsat, which has pointed out that its contract with the company has already survived Ligado going through a previous bankruptcy process.

The other factor is that Inmarsat wishes to conserve its cash while it continues to invest in future opportunities.

During 2017, the company launched two new satellites, one of which went up in one of entrepreneur Elon Musk's Falcon 9 rockets.

This pushed up Inmarsat's capital expenditure by 45%, to $598.7m, but it wants to carry on investing this year to boost its position, in particular, in the aviation sector.

It believes providing in-flight connectivity (IFC) to airlines is going to be its main growth opportunity in coming years on the basis that, in order to compete more effectively, commercial airlines are going to have to offer this to passengers as a matter of course.

Inmarsat said: "The retail value for satellite operators and services providers delivering IFC connectivity services to the industry is predicted to grow from around $1bn in 2017 to $5.4bn by 2026.

"Fuirthermore, there is expected to be a ramp-up in the number of connected aircraft in operation in the future – from 6,000 in 2015 to over 20,000 by the middle of the next decade.

"Over 70% of these new aircraft are expected to be based in the relatively nascent IFC markets of Europe, Asia Pacific, the Middle East and Latin America.

"These regions will drive the majority of the future growth of the global air transport industry and are therefore key target areas for Inmarsat."

Companies asking shareholders to exchange returns today for jam tomorrow is nothing new.

However, in this instance, it looks justified.

More from Business

Demand for aviation is going to grow strongly in coming years, particularly in emerging markets, while people are increasingly expecting to be connected everywhere.

Connecting them while they are in the air therefore does look to be a great opportunity for this fascinating company – even if it means that, for those of us who prefer to travel in relative peace and quiet, things may get a bit noisier when we're in the air in future.

Original Article

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