While Others Discuss Consolidation, Sukawaty Focuses on Business
[Satellite News 08-08-08] Inmarsat got back to basics this week with the announcement of an impressive set of results, which saw strong increases in operating profits and revenues for the first half of 2008. The mobile satellite services (MSS) company reported revenues of $311.6 million, an increase of close to 10 percent compared to the same period in 2007, while operating profits were $133.1 million, an increase of $15 million.
Despite its results, the main talking points surrounding Inmarsat is whether its main shareholder, Harbinger Capital Partners Funds, which owns 28 percent of the MSS company, will look to acquire Inmarsat and combine it with SkyTerra Communications to create an even bigger player in the MSS space. “The combination of SkyTerra and Inmarsat would present an excellent opportunity to advance the realization of ubiquitous wireless coverage of the United States and Canada through an integrated satellite-terrestrial communications network,” Harbinger said in a recent statement.
Inmarsat’s CEO Andy Sukawaty spoke with Satellite News about the company’s latest set of results as well as his views about the Harbinger situation.
Satellite News: Were your results in line with expectations?
Sukawaty: The numbers were ahead of consensus and our own expectations. I think it is pretty obvious where that came from. We had almost 46 percent growth from the aeronautical segment. That is a tremendous quarter. The leasing business saw a growth of 22 percent, and as you probably know, we were predicting a fairly flat year in this area. BGAN (Broadband Global Area Network) just continues to blossom. We had 3,400 subscriber additions, which was our highest quarterly figure ever. The [average revenue per user] was $323 a month. Now that we are up to a large number of terminals, we are seeing a very diversified generation of that revenue. It is not concentrated among a few thousand terminals. It is all spread out. There is a good balance of traffic geographically, and we are seeing good solid recurring revenues.
Satellite News: Terminal numbers showed only a small percentage increase. Is this a concern?
Sukawaty: Not really, because underlying that is one trend, Mini M’s. There are tens of thousands of those out there. Many of them were in fairly limited use in the last five years. We are seeing some of those come off. In some quarters, we have actually seen a decline in the number of terminals, but when you take-off the Mini M, which gets used once every six months, and put on a BGAN terminal, which is getting heavily used week by week and day by day, the revenue difference is significant. We will take revenue growth over terminal growth any day.
If you look at our new broadband services, which are really driving this growth, it started with BGAN on land. The first year, some could say, was lackluster, even though we hit our targets, but that has accelerated as the demand for these DSL speeds on laptops has grown in those remote areas. Secondly, at the end of last year, we introduced SwiftBroadband and FleetBroadband. Maritime is our biggest market with 60 percent of overall revenues. So we introduced a higher speed product in maritime and have seen tremendous growth over the last five years in data services. It bodes very well for future growth. The installation and certification process by the big ship owners of these FleetBroadband terminals has been right on target and schedule.
Satellite News: Aeronautical service revenues saw a huge increase in the second quarter. What are your expectations for this market?
Sukawaty: It is hard to say when that growth will stabilize. The consensus was we would have almost 30 percent growth for the year, and our own forecast was lower than that. It continues to please us, but not surprise us. The demand from private and government aircraft is growing dramatically. People want to be connected when they are in the air, and as people expect more from their electronic communications, it is a natural extension to take it where people want it to go, particularly in this highly priced government and corporate market.
Satellite News: Is it just a matter of time before Harbinger brings its interests in SkyTerra and Inmarsat together?
Sukawaty: They have entered a regulatory process, which they tell us will take 12 to 18 months to complete. Stepping back from it all, we have a very solid franchise. This quarter demonstrates that as an independent company, we have a very healthy present and future. We are profitable. We fund our own growth and we provide very healthy returns for shareholders based on dividend growth, cash flow growth and profitability growth. We intend to continue to do that. If someone like Harbinger, with whom we have a constructive relationship as they are a 28 percent shareholder, wants to make an offer to the other shareholders for the whole of the company, that is their prerogative. As long as that value and price exceeds what people feel they can get with us as an independent company, then we are open to that. We are a publicly listed company. We are not in the position to try to block bids. In fact, we are in the opposite position. We want all of our shareholders to benefit from a purchase that is in our interests.
Satellite News: Does the combination of SkyTerra and Inmarsat make strategic sense?
Sukawaty: We have everything we need based on our business plan to drive our future growth and value. We do not need an addition to do that. Having said that, is more radio spectrum a good thing? [Ancillary terrestrial component service] is starting to take shape, and I think it will start to takeoff in the future. You could say there are various combinations with various satellite operators globally which could make sense. We see consolidation in the industry, and believe this is a good thing. We are not in the business of selling the company. We are in the business of driving organic growth in this business to give good healthy shareholder returns, and I would say we have been doing that since privatization. Certainly in the last three years, the share price and dividend payouts illustrate that, and we continue to stay on that course. If something comes along that is better for our shareholders, we are very open to that.
Satellite News: Are there any concerns about combining Inmarsat with a company that has not yet established its business?
Sukawaty: As an independent company, with the assets we have in place and the investments we have made, we are in a very solid position to drive our own destiny in the future. If someone chooses to buy us and combine us with someone else, that is their prerogative. If in that instance we were a private or public company or if the company was profiled in a different way, you may not see investors buy into that. Investors buy into companies for various reasons. Sometimes they are in a growth mode. Sometimes they are in a harvest mode relative to cash flow. There are a whole variety of strategies that can drive shareholder value. We are clearly in the mode of driving higher profitability, growing revenues and cash flow and returning that in the form of dividends and higher share price growth to reflect our profitability growth. That is the page we are on.
I think if we said we were not going to be profitable for the next three years, some may not like that, but another shareholder base may not see that as a negative. Some are more speculative in these ventures. I would not throw stones at other people’s business plans at this stage, but the one I will throw stones at is the [low-Earth orbit satellite] operator, because I think they are a flawed concept. They are too expensive and will offer the same applications that [geostationary satellites] will serve. If they get funding for a second constellation, they will take a hit for a second time.