Inmarsat Plc
Annual Report 2018

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ENABLING CONNECTIVITY ANNUAL REPORT AND ACCOUNTS 2018 I N M A R S A T P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 8 Our investor proposition (cid:36) differentiated mar(cid:78)et position and diversified (cid:74)rowth portfolio Compelling market opportunity Highly differentiated proposition Long-standing market presence Diversified growth portfolio › (cid:54)pecialised in mo(cid:69)ility › (cid:48)ar(cid:78)et(cid:16)leadin(cid:74) capa(cid:69)ilities › (cid:55)wo complementary (cid:74)lo(cid:69)al networ(cid:78)s › (cid:42)lo(cid:69)al spectr(cid:88)m assets › (cid:55)echnolo(cid:74)y leadership (cid:54)i(cid:74)nificant f(cid:88)t(cid:88)re (cid:74)rowth in demand for data (cid:67)on the move’ Can only (cid:69)e served (cid:69)y satellite connectivity Mobility markets MARITIME GOVERNMENT AVIATION ENTERPRISE More about our performance in the CEO’s review Page 9 › 3(cid:28) year trac(cid:78) record in attractive (cid:74)rowth mar(cid:78)ets › (cid:47)on(cid:74) term c(cid:88)stomer relationships(cid:15) with hi(cid:74)h switchin(cid:74) costs › (cid:56)nrivalled (cid:74)lo(cid:69)al distri(cid:69)(cid:88)tion networ(cid:78) › (cid:42)lo(cid:69)al presence ena(cid:69)les meanin(cid:74)f(cid:88)l moderation in infrastr(cid:88)ct(cid:88)re cape(cid:91) after 2020 Base case › (cid:47)(cid:16)(cid:69)and (cid:69)ased services › (cid:42)(cid:59) services in inc(cid:88)m(cid:69)ency mar(cid:78)ets › (cid:44)n(cid:16)Fli(cid:74)ht Connectivity Incremental options › (cid:42)overnment strate(cid:74)ic deals and optempo › (cid:54)pectr(cid:88)m › (cid:39)i(cid:74)ital services › (cid:44)nternet of (cid:55)hin(cid:74)s › China and (cid:44)ndia (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:44)ntrod(cid:88)ction 01 ENABLING CONNECTIVITY Contents Strategic Report Key Performance Indicators IFC Our investor proposition Group at a glance 2 How we keep our customers connected 4 Chairman’s statement 6 9 Chief Executive’s strategic review 13 Market trends 14 Our strategy 16 Our business model 18 20 Business overview – Maritime 24 Business overview – Government 28 Business overview – Aviation 32 Business overview – Enterprise 36 Business overview – Central services 38 Chief Financial Officer’s review 42 Corporate social responsibility 49 Our people 52 Risk management 53 Principal risks and uncertainties 59 Viability statement Governance 60 Chairman’s introduction 61 Governance at work 62 Board of Directors 65 Executive management team 80 Relations with shareholders 81 Directors’ remuneration report 102 Report of the Directors 106 Directors’ responsibilities statement Financial Statements 107 Financial statements index 108 Independent Auditor’s report 116 Consolidated income statement 117 Consolidated statement of comprehensive income 118 Consolidated balance sheet 119 Consolidated statement of changes in equity 120 Consolidated cash flow statement 121 Notes to the consolidated financial statements 162 Company financial statements 164 Notes to the Company financial statements 166 Glossary 168 Additional information (cid:36)nywhere in the world(cid:15) (cid:44)nmarsat connects c(cid:88)stomers to a (cid:69)etter f(cid:88)t(cid:88)re(cid:17) (cid:43)owever (cid:69)i(cid:74) the challen(cid:74)e(cid:15) on land(cid:15) in the air or at sea(cid:15) (cid:44)nmarsat will (cid:69)e there(cid:17) (cid:44)nmarsat wants to t(cid:88)rn its c(cid:88)stomers’ (cid:69)i(cid:74)(cid:74)est challen(cid:74)es into their (cid:74)reatest opport(cid:88)nities Revenue $1,465.2m (cid:14)(cid:24)(cid:17)3(cid:8) EBITDA1 $770.1m (cid:14)(cid:23)(cid:17)2(cid:8) Cash CAPEX1 $590.7m 3(cid:17)8(cid:8) lower Profit after tax $125.0m (cid:11)32(cid:17)(cid:23)(cid:12)(cid:8) 1 (cid:55)hese represent alternative performance meas(cid:88)res (cid:11)(cid:67)(cid:36)(cid:51)(cid:48)s’(cid:12)(cid:17) (cid:51)lease refer to note 2 in the financial statements S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 02 Strategic Report | Group at a glance Inmarsat plc | Annual Report and Accounts 2018 Group at a glance Enabling connectivity across our chosen end markets Our four business units provide unrivalled global, mobile connectivity to our customers in our chosen end markets. Maritime Government Aviation Enterprise Inmarsat offers the most reliable and resilient communications solutions to the maritime industry. From the largest commercial fleets to coastal vessels, our services are based on our long track record of managing global networks and consequently, a unique understanding of the challenges of living and working in a maritime environment. Our secure, globally available services and products are helping to drive an evolution in: › Vessel performance and efficiency › Safety management and monitoring › Crew welfare Inmarsat remains a key partner to many governments around the world. We aim to augment a government’s existing communications network and ensure that, wherever they need to be, our secure, reliable and powerful mobile satellite networks are always available. Our mission-critical voice, video and data communications solutions help governments on land, at sea and in the air to: › Maintain their security › Ensure public safety › Deliver remote health, education and other crucial services in regions where terrestrial networks are not able to reach Inmarsat provides cabin connectivity to the Business and General Aviation (‘BGA’) sectors and the Commercial Aviation sector, through In-Flight Connectivity. Furthermore, our connectivity products in the Safety and Operational Services sector ensure safe and secure communications between the cockpit and air traffic control. Our unique position in the Aviation market is supported by: › Benefits of owner economics › Long track record serving the Aviation industry › Continual innovation and product development in this sector Inmarsat provides a wide portfolio of global voice, broadband data, Machine2Machine (‘M2M’) and value-added services. We see exciting growth opportunities in the medium- term from emerging new Internet of Things (‘IoT’) markets in sectors such as mining, smart cities, smart agriculture, logistics and transportation. Inmarsat has the ability to: › Extend the range of terrestrial networks and narrow the digital divide › Enhance resiliency and redundancy › Provide capabilities such as broadcast services and precision navigation services Maritime business overview Page 20 Government business overview Page 24 Aviation business overview Page 28 Enterprise business overview Page 32 REVENUE EBITDA Maritime $552.8m* Government $381.0m* $256.1m* Aviation $130.0m* Enterprise 42% 29% 19% 10% $1,319.9m Maritime $429.0m* Government $270.2m* $131.9m* Aviation $82.3m* Enterprise 47% 30% 14% 9% $913.4m * Numbers exclude the impact of central services (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:42)ro(cid:88)p at a (cid:74)lance 03 (cid:36)n (cid:88)nrivalled portfolio Through our best in class networks we help o(cid:88)r c(cid:88)stomers to comm(cid:88)nicate where terrestrial telecom networ(cid:78)s lac(cid:78) relia(cid:69)ility or covera(cid:74)e(cid:30) on land(cid:15) at sea or in the air 1,800+ Employees with a culture focused on innovation and performance excellence 39 Our office presence in countries around the world 13 Geostationary satellites owned and operated 10 Satellite Access Stations strategically located worldwide S t r a t e g i c R e p o r t (cid:42) o v e r n a n c e i F n a n c a i Inmarsat satellites in geostationary orbit 66 135135°°EE 1111 33 180180°° 135135°°WW 9090°°EE 1010 11 44 77 55 4545°°EE 00°° 4545°°WW 1212 22 9090°°WW 88 99 1313 l (cid:54) t a t e m e n t s 1 2 3 4 5 6 7 8 9 10 11 12 13 Global Xpress – a global, high bandwidth satellite network The European Aviation Network – a unique asset GX, based on our four Inmarsat-5 satellites currently in orbit, is a global, mobile, high bandwidth network. The GX network will be further augmented by new, low-cost technologies in the future, including GX5, which is planned for launch in 2019. The integrated S-band satellite and air-to-ground network, the EAN, will be a compelling and unique proposition for commercial aviation customers in Europe, compared to other satellite-only offerings. The network delivers higher capacity, wider coverage, superior cost per bit, faster speeds and lower latency, with smaller and lighter equipment which can be installed quickly, more cost effectively and with less fuel drag. High-performance mobility-designed L-band satellites – supported by secure networks and technology Our L-band networks, through eight Inmarsat-3 and Inmarsat-4 satellites, have helped Inmarsat to establish and develop a loyal customer and distribution base over time. The Inmarsat-6 satellites comprise two dual payload (L-band and Ka-band) satellites due to be launched at the start of the next decade. This will ensure the reorientation of our L-band capabilities towards new growth opportunities uniquely addressable by a cutting edge global network, with a small, low-cost, highly reliable and agile device to deliver our services to end users. 04 04 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:43)ow we (cid:78)eep o(cid:88)r c(cid:88)stomers connected (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 How we keep our customers connected O(cid:88)r satellites power (cid:74)lo(cid:69)al connectivity with voice and hi(cid:74)h(cid:16)speed data comm(cid:88)nication wherever it is needed Communications satellites Satellites are self-contained communications systems with the ability to receive and retransmit signals from and back to Earth, through the use of integrated receivers and transmitters of signals (transponders). Strategically located satellite access stations Ground stations – also known as satellite access stations (‘SAS’) – act as traffic gateways, directing the satellite signal to terrestrial networks such as the internet or the terrestrial telephone network and back again. Continuous global coverage In geostationary orbit, three satellites can provide continuous global coverage (excluding the poles) 1.5 billion km travelled by a satellite during its lifetime (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:43)ow we (cid:78)eep o(cid:88)r c(cid:88)stomers connected 05 05 On land, at sea or in the air O(cid:88)r services are accessed (cid:88)sin(cid:74) a variety of devices(cid:15) from hand(cid:16)held satellite phones and remote site fi(cid:91)ed installations(cid:15) to vessel(cid:15) vehic(cid:88)lar and air(cid:69)orne mo(cid:69)ile terminals(cid:15) offerin(cid:74) different performance options to s(cid:88)it o(cid:88)r c(cid:88)stomers’ needs(cid:17) Ensuring networks are available and meeting demand 24/7 The Network Operations Centre (‘NOC’) at our HQ in London is responsible for the co-ordination of all network activities, constantly monitoring the ground network to ensure our services are available. Our sophisticated technology enables the NOC team to increase capacity in any part of the world – for example, in the event of a natural disaster when demand from emergency responders and media users in a particular region increases. 24/7 Network availability From streaming must-watch movies, to mission-critical communications Satellite communications will continue to play a critical part in supporting a connected society. The major growth area in the industry will continue to be mobility connectivity, with significant expected growth in the use of data on the move and in remote areas in the future. 50 billion Connected devices by 2020 (Source: Cisco) S t r a t e g i c R e p o r t (cid:42) o v e r n a n c e i F n a n c a i l (cid:54) t a t e m e n t s 06 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Chairman’s statement (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Chairman’s statement Contin(cid:88)in(cid:74) to deliver (cid:44)nmarsat contin(cid:88)ed to perform well operationally and financially in 2018(cid:15) however(cid:15) headwinds in the sector (cid:74)enerally and challen(cid:74)es in o(cid:88)r (cid:48)aritime end mar(cid:78)et contin(cid:88)e to cast a shadow over si(cid:74)nificant (cid:74)rowth in the (cid:36)viation and (cid:42)overnment (cid:69)(cid:88)siness sectors(cid:17) (cid:55)his has certainly affected o(cid:88)r share price performance(cid:17) (cid:43)owever(cid:15) the (cid:48)ana(cid:74)ement and (cid:37)oard (cid:69)elieve that the si(cid:74)nificant investments made over the last five years will contin(cid:88)e to positively develop(cid:15) and th(cid:88)s enhance(cid:15) the (cid:42)ro(cid:88)p’s f(cid:88)t(cid:88)re financial performance and(cid:15) conse(cid:84)(cid:88)ently(cid:15) ret(cid:88)rns to o(cid:88)r shareholders ANDREW SUKAWATY CHAIRMAN Financial performance on track – revenue growth of 5% (cid:53)even(cid:88)e (cid:74)rowth was (cid:88)p (cid:24)(cid:8) year on year (cid:11)(cid:67)yoy’(cid:12) while (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) was (cid:88)p (cid:23)(cid:8) yoy(cid:17) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)ins were steady at aro(cid:88)nd (cid:24)3(cid:8) however profit after ta(cid:91) was down 32(cid:8) yoy(cid:17) Cape(cid:91) red(cid:88)ced (cid:69)y (cid:23)(cid:8)(cid:17) (cid:40)(cid:51)(cid:54) was 2(cid:26) cents per share(cid:17) (cid:54)i(cid:74)nificantly(cid:15) reven(cid:88)e from o(cid:88)r new (cid:42)lo(cid:69)al (cid:59)press constellation rose (cid:69)y 8(cid:24)(cid:8) to over (cid:7)2(cid:24)0m(cid:15) which (cid:69)odes well for the e(cid:91)pectations that came with this investment and is on trac(cid:78) for o(cid:88)r ann(cid:88)al reven(cid:88)e (cid:74)rowth tar(cid:74)et of (cid:7)(cid:24)00m (cid:69)y the end of 2020(cid:17) Global Xpress (GX) constellation proving to be growth catalyst (cid:58)ith the si(cid:74)nificant yoy reven(cid:88)e (cid:74)rowth from (cid:42)(cid:59)(cid:15) s(cid:88)pported (cid:69)y contri(cid:69)(cid:88)tions from (cid:42)overnment(cid:15) (cid:48)aritime and o(cid:88)r (cid:36)viation sectors(cid:15) the (cid:42)(cid:59) pro(cid:74)ramme is seein(cid:74) si(cid:74)nificant acceptance across a (cid:69)road and diversified (cid:74)ro(cid:88)p of c(cid:88)stomers(cid:17) (cid:58)ith a world leadin(cid:74) position and a head start over other commercial satellite players in this rapidly emer(cid:74)in(cid:74) (cid:74)lo(cid:69)al mo(cid:69)ile (cid:69)road(cid:69)and satellite opport(cid:88)nity(cid:15) (cid:44)nmarsat is well positioned to (cid:69)e a leader in these mar(cid:78)ets as they (cid:74)row(cid:17) O(cid:88)r investment thesis was and is that (cid:69)road(cid:69)and demand in (cid:36)viation(cid:15) (cid:42)overnment and (cid:48)aritime in (cid:74)eo(cid:74)raphic areas where terrestrial networ(cid:78)s cannot f(cid:88)nction(cid:15) will contin(cid:88)e to offer s(cid:88)perior profita(cid:69)le (cid:74)rowth opport(cid:88)nities for (cid:44)nmarsat(cid:17) (cid:40)arly indications are (cid:69)e(cid:74)innin(cid:74) to validate this thesis(cid:17) Disappointing share price performance – dividend reduction and other factors Fo(cid:88)r developments have clearly p(cid:88)t ne(cid:74)ative press(cid:88)re on o(cid:88)r share price in 2018(cid:17) Firstly(cid:15) we anno(cid:88)nced a si(cid:74)nificant red(cid:88)ction in o(cid:88)r dividend with o(cid:88)r 201(cid:26) (cid:53)es(cid:88)lts anno(cid:88)ncement(cid:17) (cid:58)e did this responsi(cid:69)ly(cid:15) to mana(cid:74)e o(cid:88)r (cid:69)alance sheet in li(cid:74)ht of ris(cid:78)s to cash (cid:74)eneration comin(cid:74) in the f(cid:88)t(cid:88)re from o(cid:88)r (cid:56)(cid:54) (cid:47)i(cid:74)ado contract and other pro(cid:74)rammes which were in process(cid:17) (cid:44)n addition(cid:15) we needed to accommodate the on(cid:74)oin(cid:74) capital investment re(cid:84)(cid:88)irements of the (cid:69)(cid:88)siness(cid:15) driven (cid:69)y o(cid:88)r (cid:42)lo(cid:69)al (cid:59)press (cid:74)rowth(cid:17) (cid:58)e also wanted to ens(cid:88)re that o(cid:88)r shareholders contin(cid:88)ed to (cid:69)e appropriately rewarded thro(cid:88)(cid:74)h a sta(cid:69)le(cid:15) al(cid:69)eit red(cid:88)ced(cid:15) level of ann(cid:88)al dividend payments(cid:17) (cid:54)econdly(cid:15) o(cid:88)r (cid:48)aritime (cid:69)(cid:88)siness contin(cid:88)es to see press(cid:88)re d(cid:88)e to the on(cid:74)oin(cid:74) recession in the commercial shippin(cid:74) ind(cid:88)stry(cid:15) as well as increased competition in the mid(cid:16)mar(cid:78)et se(cid:74)ment(cid:15) where we have (cid:69)y and lar(cid:74)e maintained mar(cid:78)et share in recent years(cid:15) (cid:43)owever(cid:15) these dynamics have ne(cid:74)atively affected pricin(cid:74) and cash flow overall(cid:17) Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Chairman’s statement 07 Thirdly, investors are concerned about the overall telecoms sector, due to regulatory, technological and competitive risks, as well as continued significant investment in infrastructure, combined with a slowing growth profile across the sector. to build its market share and invests to support this, it must also demonstrate to shareholders that the investment will pay off. We understand this and intend to begin demonstrating the financial performance to investors as the various segments stabilise and bed in. Within the telecoms sector, some concerns remain about overcapacity in the global commercial satellite sub-sector, particularly in structurally challenged services, including fixed video and telecoms. While these are markets in which Inmarsat does not generally operate, as we are focused on mobility services, our share price tends to track those of the fixed operators, which are directly impacted by these market forces. Fourthly, our Global Xpress constellation remains at an early stage of development, as Rupert outlines in detail in his review. Therefore, while significant investment has been made, particularly in the newly emerging IFC segment in Commercial Aviation, Inmarsat needs to demonstrate to shareholders its potential for profitability and cashflow generation, as our position in the market develops over time. Proposed takeover offer from EchoStar rejected As a publicly listed company, Inmarsat is open and committed to exploring opportunities to create value for shareholders. When approached by EchoStar during the course of 2018, we responsibly considered their conditional proposal in light of Inmarsat’s stand-alone risk adjusted prospects and concluded it was not in the interests of our shareholders. We believe that the commercial satellite sector is likely to see consolidation in the future and management and the Board remain open to consider strategic options which would enhance our shareholder returns. Aviation growth accelerating and opportunity is significant,  but profit opportunity needs  to be demonstrated Inmarsat continues to build a significant order book for installations of both Global Xpress and with growing interest in our new European Aviation network. Installations are occurring at an accelerating pace. This is happening in Commercial Aviation, Government Aviation and in the Business Jets markets. We believe that we have a market leading service to deliver Wi-Fi on aircraft globally. However, since this is a market for a new improved service, investors are rightly questioning its future potential to generate profits and cash flow. While Inmarsat continues This year we had an external assessment of Board performance conducted by an independent third party. See page 73 in the report on Corporate Governance for more detail. Overall the conclusion was that the Board continues to operate effectively and appropriately and challenges management to ensure thorough debate and consideration on issues of significance. Areas for improvement are shown in the Corporate Governance Report. Significant remuneration policy  changes proposed in light of 2018 shareholder vote On the back of both the dividend reduction and the share price decline, we received a second negative vote on our Annual Remuneration Report. As a result, we consulted with shareholders during the course of 2018 and in early 2019 to determine their specific concerns and to address them. As a direct result of these consultations, we are proposing a set of significant changes to update our remuneration policy and take on board comments from shareholders. In addition, we have recognised the ability of the Board, through the Remuneration Committee, to exercise its discretion to ensure that the payout outcomes are in line with shareholder experience. Details of these changes are contained in the Remuneration Report on page 81. As Remuneration norms and standards change in the future, we will endeavour to make regular changes to meet investors’ needs, as well as the needs of the Company to motivate and retain top quality talent. Board evolution and performance assessment Inmarsat continues to evolve our Board membership to maintain a capable diverse Group that contributes to our strategic thinking, maintains high standards in our reporting integrity, meets governance standards and challenges management regularly and appropriately. We are delighted to welcome Tracy Clarke as a new director in 2019. Tracy’s biography is included on page 63 and the criteria used for her selection on page 73. We welcome her global management experience, working in emerging markets, plus her previous Board experience and Remuneration Committee knowledge which will enhance our capabilities as a Board. Board evolution is an ongoing process. Guidelines have changed during the course of 2018. One area of change is in the tenure of Chairs for UK listed companies. Inmarsat is aware of this and during the course of 2019 will engage, through the Nominations Committee, to determine the optimal way to address this for the Company. We would also like to pay our respects to a former Director, Kathleen Flaherty, who sadly passed away this past year. Our core values We ARE Inmarsat – with a core set of values that guide and shape the way we work, behave and respect each other: Accountability We take ownership, get results and deliver on our promises to our customers and each other. Respect We collaborate, embrace diversity and value differences. Excellence We create bold solutions for our customers. Quality is at the heart of everything we do. GovernanceFinancial StatementsStrategic Report 08 Strategic Report | Chairman’s statement Inmarsat plc | Annual Report and Accounts 2018 The Board is humbly proud of what Inmarsat offers as a commercial business, as well as the public service it provides to countless users in time of need. I would like to thank our staff for their considerable hard work and commitment to supporting Inmarsat’s business. We cannot do this alone and our distributors, customers, manufacturers and wider ecosystem all play a significant role in our combined success. Thank you too to our shareholders, many of whom have been so since our IPO in 2005. We thank you for your ongoing support of our business. ANDREW SUKAWATY CHAIRMAN 18 March 2019 Chairman’s statement continued Board oversight of management’s Company culture development Inmarsat’s culture has been driven from the beginning of our creation, to serve the world by delivering highly reliable communications day in and day out, because our customers depend on us, often for their lives. This is a commitment that is embedded in our culture and is shown on the previous page in the values of Accountability, Respect and Excellence. Beyond this management has engaged in numerous programmes to ensure we are both in a good place to work and responsible corporate citizens in the ever-changing social environment in which we operate. This shows itself in our employees training programmes and in our diversity and development programmes. We have active networks for women in Inmarsat and a LGBT group. We have recently launched our Global Advisory Workforce Panel in response to the FCA workforce/Board engagement regulations. In addition we work closely with Télécoms Sans Frontières (‘TSF’) and International Telecommunication Union (‘ITU’)/UN agencies to support humanitarian aid at the time of disasters globally. Management continues to improve and evolve the way we efficiently and responsibly operate as our business moves forward. The Board will remain engaged in an oversight capacity to ensure this continues. Thank you for our 40th year Throughout our heritage, as we enter our 40th year, we have served those in need of critically important communications, often where there is no other means available. This remains a very strong purpose for us now and in the future. Through our maritime safety systems recognised by the International Maritime Organization (‘IMO’) and our close work with the International Mobile Satellite Organization (‘IMSO’) and in aviation, the International Civil Aviation Organisation (‘ICAO’), to the ongoing support we give to TSF for their work in responding to disaster relief and the work they do in disaster areas, our commitment remains to public service alongside our commercial activities. (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Chief (cid:40)(cid:91)ec(cid:88)tive’s strate(cid:74)ic review 09 Chief Executive’s strategic review (cid:36) year of (cid:69)(cid:88)ildin(cid:74) moment(cid:88)m (cid:44)n 2018(cid:15) we started to capitalise on the stron(cid:74) platform for f(cid:88)t(cid:88)re (cid:74)rowth (cid:69)(cid:88)ilt across o(cid:88)r (cid:69)(cid:88)siness (cid:39)(cid:88)rin(cid:74) the co(cid:88)rse of the year(cid:15) we delivered consistent profita(cid:69)le reven(cid:88)e (cid:74)rowth(cid:15) s(cid:88)pported (cid:69)y o(cid:88)r diversified (cid:74)rowth portfolio(cid:15) thro(cid:88)(cid:74)h a com(cid:69)ination of o(cid:88)r ro(cid:69)(cid:88)st fo(cid:88)ndation of esta(cid:69)lished (cid:47)(cid:16)(cid:69)and services and o(cid:88)r new(cid:15) hi(cid:74)her (cid:74)rowth (cid:69)road(cid:69)and (cid:42)(cid:59) services(cid:15) reven(cid:88)es for which (cid:74)rew (cid:69)y aro(cid:88)nd 8(cid:24)(cid:8)(cid:15) partic(cid:88)larly in the (cid:44)n(cid:16)fli(cid:74)ht Connectivity (cid:11)(cid:67)(cid:44)FC’(cid:12) se(cid:74)ment in (cid:36)viation(cid:17) (cid:55)his (cid:74)rowth was delivered in spite of an intensifyin(cid:74) competitive environment in the mid(cid:16)mar(cid:78)et in (cid:48)aritime which(cid:15) (cid:74)iven the relative wei(cid:74)htin(cid:74) of (cid:48)aritime in o(cid:88)r reven(cid:88)e (cid:69)ase(cid:15) contin(cid:88)es to (cid:69)e an important driver of investor sentiment and(cid:15) conse(cid:84)(cid:88)ently(cid:15) o(cid:88)r share price(cid:17) O(cid:88)r reven(cid:88)e (cid:74)rowth of (cid:24)(cid:8) for the year was a(cid:74)ain s(cid:88)pported (cid:69)y a foc(cid:88)s on operational levera(cid:74)e thro(cid:88)(cid:74)h a caref(cid:88)lly controlled cost (cid:69)ase(cid:15) with (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) (cid:74)rowin(cid:74) (cid:69)y (cid:23)(cid:8)(cid:15) and an infrastr(cid:88)ct(cid:88)re capital investment pro(cid:74)ramme that is e(cid:91)pected to meanin(cid:74)f(cid:88)lly moderate from the start of the ne(cid:91)t decade(cid:17) (cid:55)hese factors will help (cid:88)s to drive free cash flow (cid:74)rowth(cid:15) in line with o(cid:88)r reven(cid:88)e (cid:74)rowth(cid:15) over the medi(cid:88)m to lon(cid:74)(cid:16)term(cid:17) Further operational progress made across our Business Units (cid:58)e made f(cid:88)rther pro(cid:74)ress in levera(cid:74)in(cid:74) o(cid:88)r networ(cid:78)s across each of o(cid:88)r (cid:37)(cid:88)siness (cid:56)nits in 2018(cid:15) evidenced (cid:69)y o(cid:88)r delivery a(cid:74)ainst a n(cid:88)m(cid:69)er of strate(cid:74)ic proof points(cid:29) › (cid:44)n (cid:48)aritime(cid:15) there were f(cid:88)rther mar(cid:78)et share (cid:74)ains in the fast(cid:16)(cid:74)rowin(cid:74)(cid:15) hi(cid:74)h val(cid:88)e (cid:57)(cid:54)(cid:36)(cid:55) se(cid:74)ment(cid:15) with o(cid:88)r installed (cid:69)ase of vessels (cid:88)sin(cid:74) o(cid:88)r new Fleet (cid:59)press prod(cid:88)ct more than do(cid:88)(cid:69)lin(cid:74) d(cid:88)rin(cid:74) the year(cid:17) (cid:44)n the mid(cid:16)mar(cid:78)et we contin(cid:88)e to wor(cid:78) hard to ens(cid:88)re that as many as possi(cid:69)le of o(cid:88)r Fleet(cid:37)road(cid:69)and c(cid:88)stomers mi(cid:74)rate to (cid:57)(cid:54)(cid:36)(cid:55) with Fleet (cid:59)press(cid:15) (cid:55)his c(cid:88)stomer mi(cid:74)ration had an impact on Fleet(cid:37)road(cid:69)and reven(cid:88)es in 2018 › (cid:44)n (cid:42)overnment(cid:15) we made contin(cid:88)ed pro(cid:74)ress in (cid:69)(cid:88)ildin(cid:74) o(cid:88)r lon(cid:74)(cid:16)term contracted reven(cid:88)e (cid:69)ase and in diversifyin(cid:74) o(cid:88)r (cid:69)(cid:88)siness (cid:69)y (cid:74)eo(cid:74)raphy(cid:15) (cid:69)y c(cid:88)stomer(cid:15) (cid:69)y prod(cid:88)ct and (cid:69)y service(cid:17) O(cid:88)r (cid:56)(cid:54) (cid:42)overnment (cid:69)(cid:88)siness a(cid:74)ain e(cid:91)ceeded e(cid:91)pectations(cid:15) driven (cid:69)y f(cid:88)rther prod(cid:88)ct enhancements and as a res(cid:88)lt of o(cid:88)r (cid:69)(cid:88)r(cid:74)eonin(cid:74) c(cid:88)stomer relationships RUPERT PEARCE CHIEF EXECUTIVE OFFICER 5.3% Increase in revenue $251m Global Xpress revenue S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 10 Strategic Report | Chief Executive’s strategic review Inmarsat plc | Annual Report and Accounts 2018 Chief Executive’s strategic review continued Continued development of our future technology roadmap Inmarsat’s technology leadership position has been built over a period of 40 years through our ability to maintain and develop our global networks as differentiated offerings with capabilities that keep us highly competitive in a dynamic market environment. We continued to develop this position in 2018. In L-band, in collaboration with our manufacturing partner, we made further progress in our preparation for the launch and entry into commercial service of the first two satellites in our Inmarsat-6 fleet at the start of the next decade, timed to launch as the first two satellites in our Inmarsat-4 fleet approach the end of their design lives. The transition from our Inmarsat-4 fleet to our new Inmarsat-6 fleet in the 2021-22 time frame will not only materially extend the life expectancy of our legacy L-band services but will also deliver a significant network capacity and service capability upgrade to support both the launch of new and differentiated L-band services as well as future revenue and demand growth, as we continue to support our customers’ connectivity requirements. With this development of our core L-band network, we expect to leap-frog the competitive offerings that are due to arrive in the coming years, but which we believe will offer lower levels of service performance compared to the inherent capabilities of our Inmarsat-6 satellites. This puts us in a position to deliver the fastest, highest capacity, most agile and best-value services to the lowest cost and smallest form factor terminals by the start of the next decade. This will help us to maintain a solid platform for the continued relevance of L-band services over the medium and long term. 2018 also saw us finalise our long-term technology roadmap in the fast-growing area of mobile broadband. This is particularly important for the future prospects of the business, given the significant expected growth in demand from our customers for broadband connectivity services on the move. The development of our Global Xpress broadband satellite network is taking place over three phases, as we go from design and initial infrastructure investment, to market capture, and then into long-term growth. During the first phase, from 2010 to 2017, the first four GX satellites were designed, built, launched and deployed, creating the world’s first seamless global high throughput satellite constellation, within-orbit redundancy. The second phase, completed last year, focused on global commercial service introduction of an array of different GX services into each of our key target markets (maritime, government, aviation and enterprise) and initial revenue generation. In 2018, GX-generated airtime and related revenue was over $250m, up 85% from 2017, highlighting the value and growth that GX already is delivering for our business. We remain on track to achieve our target of an annual run rate of $500m of GX revenues by the end of 2020, five years after global commercial service introduction. In this second phase, we also started to prepare for the future development of the GX network, to meet burgeoning customer demand and to continue to build market share in our chosen markets, with follow-on capacity designed and procured with a fifth GX satellite and two Ka-band secondary payloads on our first two Inmarsat-6 satellites. Importantly, each of these follow-on GX capabilities is targeted and regional in coverage, focused on areas of greatest customer demand and brings significant capacity and capability augmentation, at much lower cost per bit compared to the first phase of the GX network creation. By the end of 2018, we had started the third phase in our GX network strategy, as we now look to further augment our GX network through new, agile, lower cost technologies. In the coming years, this next generation GX programme will ensure we have the pace, agility and continuous innovation to ensure we can react to market demand or new competitive pressures in much shorter time periods and in a highly efficient manner, adopting disruptive new technologies on a › Aviation was a key growth driver, delivering over 40% revenue growth during the year. Our installed base of aircraft which will use our services for IFC more than doubled, of which over 100 aircraft have now entered commercial service, using GX Aviation to provide passenger connectivity services. We also signed a landmark agreement with Panasonic Avionics which, over the medium to long-term, is expected to be a game- changing agreement for both businesses in this fast-growing sector. Combined, our GX and EAN Aviation IFC services now have around 1,580 aircraft under contract, as well as an additional 450 aircraft for which either existing customers have an option to install further aircraft or where new customers have committed to GX hardware with third party suppliers. Our Core Aviation business also delivered another strong performance, supported by product enhancements and upgrades, as well as increased customer usage › Our Enterprise business performed well to optimise the revenue generation of our legacy products, growth from which is being constrained by expanding cellular network coverage. However, the major long-term growth opportunity for Enterprise is in those Industrial Internet of Things (‘IIoT’) sectors where satellite services have a material role to play, with 2018 being a year in which we achieved important traction in the development of managed service offerings, with several trials and ‘proof-of-concept’ projects completed, ensuring that we are confident of scaling this business in 2019 These performances helped to drive consistent top line and bottom line growth in 2018, reflecting the strength of our diversified growth portfolio, with a solid foundation of a specialisation in satellite mobility services, market incumbency, differentiated capabilities and technology leadership. Our solid operational progress supported the Group in delivering revenue growth of over 5% for the year Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Chief Executive’s strategic review 11 This landmark agreement is clear evidence of Inmarsat delivering on its strategy and it strengthens our conviction that, building upon the success of the global GX network, aviation will be a significant growth driver of our overall business. We look forward to working closely with Panasonic as we develop our relationship with them and accelerate our respective innovation roadmaps. This will ensure that we continue to provide airlines and passengers with the world’s leading IFC experience. Landmark collaboration agreement with Panasonic During the year, we entered a strategic collaboration agreement with Panasonic Avionics Corporation (‘Panasonic’) in Commercial Aviation, for an initial ten-year period. The agreement combines our complementary market leading services to offer broadband in-flight connectivity (‘IFC’) paired with high-value solutions and services to customers in commercial aviation. The agreement enables airlines, aircraft manufacturers and passengers to benefit from the combined expertise of two companies that have been at the forefront of technology and innovation for nearly four decades. rolling basis to deliver very high relative returns on investment through low cost procurements and high satellite fill factors. With a lower absolute cost and much higher capacity that can be deployed with exceptional precision, these satellites will ensure that we can meaningfully moderate our annual infrastructure capex while still meeting rapid growth in customer bandwidth demand. Ultimately, this will enable us to be a leader in usable cost per bit delivered into space. 2018 saw us make good progress in developing this next generation of GX, with initial scoping and design work completed. Discussions continue with a number of potential manufacturing partners about delivering this technology, and we will provide more details about our plans in this area in 2019. Inmarsat’s diversified growth  portfolio ensures we remain well positioned for the future Supported by this technology leadership position, as well as our solid foundation of incumbency and differentiated capabilities, Inmarsat continues to manage a diverse growth portfolio of businesses and products that are, in aggregate, expected to deliver growth, with the portfolio mix expected to continue to evolve as individual markets fluctuate over the medium term. This diversified growth portfolio, with a focused set of attractive end markets that offer scale and growth potential, and where we lead with sustainable differentiation, will remain a key strength for Inmarsat going forward. Consequently, we aim to continue delivering consistent growth in Maritime, Government, Aviation and Enterprise from our long-established L-band services, with higher growth to come from the delivery of new GX services to customers in these markets. Furthermore, we expect to generate significant growth from our delivery of broadband services to the fast-growing and substantial IFC segment in commercial aviation. Our progress in each of these areas was evidenced by our performance in 2018, as this report sets out in detail later on in the individual business unit updates. Ian Dawkins,SVP Global Network Operations at PAC and CEO of ITC Global, and Phil Balaam, President, Inmarsat Aviation celebrate the collaboration agreement GovernanceFinancial StatementsStrategic Report 12 Strategic Report | Chief Executive’s strategic review Inmarsat plc | Annual Report and Accounts 2018 Chief Executive’s strategic review continued Our revenue growth was again supported by a focus on operational leverage through a carefully controlled cost base and an infrastructure capital investment programme that is expected to meaningfully moderate from the start of the next decade Based on our future delivery against these strategic objectives, we remain confident in the growth outlook for Inmarsat, based on the positive market outlook in mobile satellite communications and our strong position within it. Building on the strong operational momentum achieved in recent years, evidenced by our market share gains in different segments across our Business Units in 2018, our priorities are to deliver further revenue growth from material new GX revenue streams. Our L-band business will remain resilient over the medium to long-term, given its differentiated characteristics, with future growth expected to be generated from the emergence of new market opportunities and next generation safety services across our chosen end markets. We continue to target mid-single digit percentage revenue growth* on average over the next five years, from 2018 to 2022, with EBITDA* and free cash flow generation* expected to steadily improve as a result of the combined impact of this growing revenue base, an improved revenue mix, tightly managed overhead costs, completion of the I-6 satellite programme and the impact of new technologies. These last two elements will drive a meaningful moderation in our annual infrastructure capex from the start of the next decade. Finally, I would like to thank our employees for their on-going hard work and efforts to drive the business forward, as well as our partners, customers, shareholders and other major stakeholders for their continued support during 2018. RUPERT PEARCE CHIEF EXECUTIVE OFFICER 18 March 2019 We also have a number of incremental growth opportunities available over the medium to long term. These include delivering major strategic projects for Government customers, growing dedicated regional businesses in hitherto untapped geographies, leveraging our digital services capabilities and increasing our presence in IIoT. Our growth profile remains supported by our established market presence, our differentiated capabilities, our technology leadership, our specialisation in delivering satellite mobility services and our market-leading distribution channel. A consistent and clear strategic direction Inmarsat therefore remains well positioned to access the significant market opportunity created by continued growth in the use of data at sea, in the air and across remote areas. This will be supported by a consistent, and unchanged, strategic ambition to be an ‘enabler for the connected world’, more details of which can be found on the following pages. Anywhere in the world, Inmarsat connects customers to a better future, and our strategy continues to be based on the following priorities: › Capturing the maximum number of high speed broadband platforms › Positioning our L-band services for new growth › Establishing our digital platform and business › Creating a high-performance organisation and › Transforming our operating environment *Excluding Ligado Networks Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Market trends 13 Market trends The satellite communications industry continues to be driven by several major market trends, which are expected to impact Inmarsat and other satellite operators in the future Demand outlook: continued requirement for satellite connectivity Customer requirements for broadband satellite connectivity are expected to continue to grow, particularly for mobility-based applications, at sea, on land and in the air. In addition, a growing range of applications is emerging, predominantly in the area of ‘Industrial Internet of Things’ (‘IIoT’), to drive demand for lower bandwidth connectivity services. The growing demand for broadband satellite connectivity will be driven by data-rich applications and an increase in the number of connected devices. This is creating significant growth opportunities in the area of mobility, where satellite connectivity is often the only solution, given the absence of terrestrial network coverage. In Maritime, the growth potential of broadband services, referred to as VSAT, remains strong across all market segments, including merchant shipping, leisure, fishing and off-shore. These segments are serviced by operators and distributors of broadband satellite connectivity, particularly in the relatively high frequency Ka-band, which Inmarsat operates in, and Ku-band spectrum bands. Euroconsult estimates that over 50% of maritime VSAT capacity demand will be for Ka-band services by 2023, outpacing Ku-band satellite capacity demand, and growing at a CAGR of 35% between 2017 and 2027. The increasing demand for broadband connectivity in Maritime is driven by a commercial requirement for value-added data services to help improve a vessel’s operating environment, as well as a need for higher bandwidth to service a vessel’s crew, as they access basic applications in their everyday lives, like internet access and ‘Voice-over-Internet Protocol’ video calls. Government spend on satellite communications, particularly for secure, high-bandwidth connectivity to and from airborne and seaborne platforms is also expected to grow significantly in the future. Government customers are augmenting their proprietary military communications systems with fungible commercial satellite capabilities as they face increasing requirements to support applications such as communications on-the-move (‘COTM’) and Airborne Intelligence, Surveillance and Reconnaissance (‘AISR’), which drive demand for ubiquitous, consistent coverage, and high performance global satellite services. In Aviation, cabin connectivity, both in the Business and Commercial Aviation segments, is seeing rapid adoption by airlines and an increasing usage by passengers, as airlines are starting to explore the opportunities and advantages of the connected aircraft. Passenger demand as well as connected aircraft services will drive future bandwidth requirements per aircraft and lead to a continued increase in the number of aircraft using connectivity services. Aside from broadband, there is also expected to be growth in L-band satellite services in certain niche segments, particularly in the area of IIoT. Euroconsult is forecasting the number of active satellite IoT devices to increase from 3.5 million in 2017 to nearly 11 million by 2026. L-band offers differentiated utility for applications in this area, which requires small form factors and high resilience capabilities. The development of small and lower cost satellite IoT terminals in the future will unlock demand for this connectivity and enable new user applications in this exciting, emerging growth market over the long term. Supply outlook: rapidly evolving dynamics From a supply perspective, much of the swathes of capacity that were previously expected to come on-line in the coming years, mainly focused on land-based communication services such as consumer broadband in rural areas or GSM backhaul, remains highly uncertain and at a minimum will likely see substantial delays compared to initially targeted service dates. In particular for new broadband NGSO constellation projects significant hurdles remain, including: › Gaining key regulatory clearances › Organising spectrum coordination with regulators and other operators › Achieving Global market access through distribution partnerships › Nurturing on-going relationships with key commercial launch partners › Building relationships with key suppliers to develop terminals and equipment › Significant investment required, particularly on ground infrastructure › Addressing issues of space debris and de-orbiting requirements While all global LEO and MEO constellations would be covering the oceans, most of them are built for land based applications and not configured for mobility which will leave them with large amounts of their capacity stranded in areas of low demand and ultimately make them uncompetitive with future GEO satellites in terms of capacity cost and capacity available in demand hot spots. This will lead to a situation where, despite potential significant new capacity supply coming in the market, global mobility markets will require substantial amounts of new targeted, mobility-based, capacity to service a number of significant future hotspots of demand, in particular for customers in the In-Flight Connectivity segment in Commercial Aviation. Implications for satellite operators These dynamics bring challenges and opportunities for satellite operators, which will constantly need to innovate, evolve and adapt, to support efforts in capturing market share in high growth segments, particularly mobility. Satellite operators are changing their business models to move from selling pure capacity to marketing solutions and services. With a prospect of global aggregate overcapacity and partial capacity shortage in demand hotspots, future satellites are also being increasingly developed with flexible payloads, enabling coverage in areas with highest demand rather than wasting supply over low-demand regions. The increasing role of satellite in the wider connectivity landscape should create more opportunities for satellite operators. For mobility markets in particular, Inmarsat is extremely well positioned to capture a large part of the future growth given our: › Dedicated focus on mobility satcom markets › Established global market presence across all key mobility markets › Differentiated capabilities in end-to-end network management services to our customers networks › Technology leadership with best-in-class › Valuable global spectrum assets › Market-leading distribution channels GovernanceFinancial StatementsStrategic Report 14 Strategic Report | Our strategy Inmarsat plc | Annual Report and Accounts 2018 Our strategy Enabling the connected world Our strategy remains focused on delivering on our purpose of ‘enabling the connected world’ by meeting the remote and mobile connectivity requirements of our customers, reliably, securely and globally Our strategy is founded on our continued drive to pioneer innovation in mobile satellite communications services, to ensure we deliver higher data rates to increasingly smaller and lighter mobile terminals. Our seamless global coverage and market-leading consistency in network reliability remains attractive to commercial and government users, whose operations require mission and business critical communications support. Looking ahead, inherent in our purpose is an ambition to develop from being a mobile satellite communications operator to becoming a powerful, proactive digital enabler operating diversified networks and platforms across which we deliver highly-integrated, value-added digital solutions and services to our target markets and customers. By focusing on becoming an ‘enabler for the connected world’, we will be at the forefront of supporting our customers, as their requirements for higher levels of secure and reliable bandwidth, on a global basis, continues in the future. Our strategic vision OUR PURPOSE OUR STRATEGIC PRIORITIES 1 Capture the maximum number of broadband platforms 5 Transform our operating environment 2 Reposition L-band for new growth Enabling the connected world 4 Create a high performance organisation 3 Establish our Digital Platform and Business We will achieve our strategic priorities by Defining connectivity at sea Defining the connected aircraft Solving our customers’ hardest connectivity challenges Becoming the leading IoT connectivity partner Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Our strategy 15 1 Capture the maximum number of broadband platforms STRATEGIC PRIORITIES › Maintain a market-leading position in our mid-market merchant maritime heartland with Fleet Xpress (‘FX’) › Expand GX into high-end maritime VSAT markets › Maintain our BGA heartland position with JetConneX (‘JX’) › Become the leading player in global IFC, with GX and EAN › Become the leading provider of Comsatcoms and MilSatComs to government › Establish a strong position in the energy satcoms market › Manage the future trajectory of legacy L-band services › Drive Fleet One into new scaled maritime markets › Extend Fleetbroadband (‘FB’) into GMDSS compliance › Drive SwiftBroadband-Safety into new high-growth aviation markets › Become the leading satellite player in global IoT markets PROGRESS IN 2018 – KEY HIGHLIGHTS › GX generated revenue of $250.9m in 2018 (2017: $135.9m) › FX installed on over 5,375 vessels at end of 2018 (2017: 2,600) › JX installed on 428 aircraft in 2018 (2017: 165), generating revenue of $22.0m (2017: $4.4m) › Around 1,580 aircraft under signed contract for IFC services with GX, including 452 aircraft installed with GX and EAN terminals of which over 100 are in service on GX › Growth of U.S. Government business supported by contract with Boeing, as exclusive provider of GX milsatcoms to U.S. Government › L-band connectivity continues to contribute a significant portion of Inmarsat’s revenue base › Fleet One now installed on over 4,000+ vessels (2017: 3,000+) › FB now GMDSS compliant › Launch of SwiftBroadband-Safety › Further development of M2M initiatives around IoT opportunities › Digitise and virtualise our networks and service offerings › Launch a variety of digital products › Establish our end-to-end digital services platform › Develop compelling tools and value adds on our platform › Grow a Global Certified Application Partner ecosystem › Innovate around digital business models and partnerships › Establish a position around big data, information and AI › Recently established Product Group made progress in driving digitisation and digital product development › Product delivery priorities embedded in each part of the business › On-going development of a long-term product and digital roadmap › Product portfolio optimised to ensure focused investment in key areas › Develop strategic resourcing plans to enable access to the requisite skills › Attract and retain the best people via a compelling employee value proposition › Deliver excellence on talent management, career development and performance management › Align reward and recognition to support high-performance › Invigorate and embed our culture and values › Deliver best-in-class satellite and network operations › Implement enabling, light-touch core processes › Support with modern, work-aligned IT systems › Deliver best-in-class service delivery, assurance and support › Align our global locations with our growth potential › Manage-out legacy proactively to intensify focus of resources on growth › Enhance project management capability › Continue our investment in modern, agile and collaborative working environments › Strategic resourcing plans rolled out for each part of the business › Employee value proposition launched › Talent management and career development programmes launched › New reward and recognition processes designed and implemented › Significant progress made in embedding a refreshed culture and values across the organisation › 99.9% service availability continued to be delivered by our L-band networks › Further progress in scaling GX services whilst enhancing stability › On-going efforts to optimise operating footprint, assure service resilience and reduce legacy systems & services › 24/7 cyber operations further improved › Continued development of ‘One IT’ programme, driving technology efficiency across the organisation 2 Re-position L-band for new growth 3 Establish our digital platform and business 4 Create a high- performance organisation 5 Transform our operating environment Measuring our progress We measure progress towards our strategic vision using both financial and non-financial key performance indicators and robust risk management. These measures help us maintain a regular check against major milestones within each of our strategic priorities allowing us to flex and adjust as required to improve delivery and execution. Key performance indicators Page 18 Our principal risks and uncertainties Page 53 GovernanceFinancial StatementsStrategic Report 16 Strategic Report | Our business model Inmarsat plc | Annual Report and Accounts 2018 Our business model Placing our customers at the centre of everything we do Gaining competitive advantage through our corporate responsibility and our people Our competitive advantage comes from our networks, our innovative technology, the expertise of our people and the strength and breadth of our partnership ecosystem Market leading networks Supported by: L-BAND Our resilient L-band networks, based on our lnmarsat-3 and lnmarsat-4 satellite constellations, will continue to support the evolving mobile communications requirements in our key customer segments. Our new Inmarsat-6 satellites will support our growth ambitions. DUAL PAYLOAD The Inmarsat-6 satellites comprise two dual payload (L-band and Ka-band) satellites due to be launched at the start of the next decade. This will ensure the reorientation of our L-band capabilities towards new growth opportunities, as well as providing additional capacity to the existing GX network. KA-BAND Global Xpress (‘GX’), based on our 4 Inmarsat-5 satellites currently in orbit, is the world’s first global, mobile, high bandwidth network, designed to support our customers’ high bandwidth connectivity requirements. GX5 is planned for launch in 2019. OUR TECHNOLOGY We continue to invest in innovation to deliver market-winning solutions to our customers and differentiate our propositions. BEST-IN-CLASS PARTNER ECOSYSTEM Our relationships with our partners, from suppliers to distributors, help us to strengthen our service offering. HIGHLY SKILLED WORKFORCE Our people have the skills, competencies and experience to deliver our business objectives and create value. Our culture and values are focused on innovation and performance excellence. OUR FINANCIAL RESOURCES We use our balance sheet to support the organic and inorganic investment needed to deliver our strategic imperatives. S-BAND The integrated S-band satellite and air-to-ground network, the EAN, will be a compelling and unique proposition for commercial aviation customers in Europe. Corporate social responsibility Page 42 Our people Page 49 Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Our business model 17 Our value chain + Delivering value for our stakeholders By operating global satellite networks and fully optimised ground infrastructure networks, supported by market-leading distribution partnerships, we provide our customers with global coverage to any device We are committed to creating and delivering sustained value for all our stakeholders Our products, services and solutions enable our customers to operate safely, securely and efficiently and to deliver innovative communications services to their users across our four customer-focused business segments. Shareholders and bondholders We aim to drive profitable growth to help deliver value for our shareholders and bondholders. Maritime D E V ELOPERS Enterprise Aviation CUSTOMERS P A R T N E R S S R E LI P SUP Business overview Page 20 Government Our revenue streams Our four business units, Maritime, Government, Aviation and Enterprise, are our interfaces with our customers and drive the Group’s revenue. Customers and partners We focus on the key drivers of value for our partners and customers such as security, reliability and seamless delivery with global coverage and mobility. Employees We have a strong culture, underpinned by our values and our commitment to diversity, and we are focused on our employees’ career development, making internal promotions where possible. Communities We are proud of our public service ethos and the part we play in ensuring the safety of the public and particularly the maritime community. GovernanceFinancial StatementsStrategic Report 18 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:46)ey (cid:51)erformance (cid:44)ndicators (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Key Performance Indicators (cid:48)eas(cid:88)rin(cid:74) s(cid:88)ccess a(cid:74)ainst o(cid:88)r (cid:78)ey strate(cid:74)ic priorities Financial KPIs REVENUE (cid:55)otal (cid:42)ro(cid:88)p reven(cid:88)e (cid:74)enerated from operations incl(cid:88)din(cid:74) (cid:47)i(cid:74)ado (cid:49)etwor(cid:78)s(cid:17) Why it is important (cid:53)even(cid:88)e (cid:74)rowth validates o(cid:88)r (cid:69)(cid:88)siness model(cid:15) (cid:69)y demonstratin(cid:74) o(cid:88)r a(cid:69)ility to develop o(cid:88)r c(cid:88)stomer (cid:69)ase and increase (cid:36)(cid:53)(cid:51)(cid:56) across o(cid:88)r prod(cid:88)ct portfolio(cid:17) 1 2 $1,465.2m (cid:24)(cid:17)3(cid:8) 2018 2017* 2016* $1,465.2m $1,391.7m $1,314.1m Link to risks and remuneration (cid:55)he achievement of this (cid:46)(cid:51)(cid:44) depends on s(cid:88)ccessf(cid:88)l e(cid:91)ec(cid:88)tion of all o(cid:88)r strate(cid:74)ic priorities and minimisation of the ma(cid:77)ority of o(cid:88)r ris(cid:78)s(cid:17) (cid:44)ncentive plans incl(cid:88)de reven(cid:88)e as a performance metric so this will (cid:69)e meas(cid:88)red to determine incentive plan payments(cid:17) CASH CAPEX Cash capital e(cid:91)pendit(cid:88)re is the cash flow relatin(cid:74) to tan(cid:74)i(cid:69)le and intan(cid:74)i(cid:69)le asset additions(cid:30) it incl(cid:88)des capitalised la(cid:69)o(cid:88)r costs and e(cid:91)cl(cid:88)des capitalised interest(cid:17) Why it is important Cash cape(cid:91) indicates o(cid:88)r contin(cid:88)ed investment in (cid:74)rowth and development of o(cid:88)r networ(cid:78) and infrastr(cid:88)ct(cid:88)re(cid:15) as well as o(cid:88)r investment in the f(cid:88)t(cid:88)re technolo(cid:74)ies of the (cid:69)(cid:88)siness(cid:17) 1 2 3 5 $590.7m 3(cid:17)8(cid:8) 2018 2017* 2016* $590.7m $614.1m $419.8m Link to risks and remuneration (cid:55)he achievement of this (cid:46)(cid:51)(cid:44) depends on s(cid:88)ccessf(cid:88)l e(cid:91)ec(cid:88)tion of o(cid:88)r strate(cid:74)ic priorities and caref(cid:88)l mana(cid:74)ement of ris(cid:78)s(cid:17) (cid:44)ncentive plans incl(cid:88)de financial metrics as performance metrics so this (cid:46)(cid:51)(cid:44) will contri(cid:69)(cid:88)te to determinin(cid:74) incentive plan payments(cid:17) EBITDA (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) is total (cid:42)ro(cid:88)p profit (cid:69)efore net financin(cid:74) costs(cid:15) ta(cid:91)ation(cid:15) depreciation and amortisation(cid:15) (cid:74)ains(cid:18)losses on disposal of assets(cid:15) impairment losses and share of profit of associates(cid:17) Why it is important (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) is a commonly (cid:88)sed ind(cid:88)stry term to help o(cid:88)r shareholders (cid:88)nderstand contri(cid:69)(cid:88)tions made (cid:69)y o(cid:88)r (cid:69)(cid:88)siness (cid:88)nits(cid:17) (cid:44)t reflects how the effect of (cid:74)rowin(cid:74) reven(cid:88)es and cost mana(cid:74)ement deliver val(cid:88)e for o(cid:88)r shareholders(cid:17) 1 2 3 5 $770.1m (cid:23)(cid:17)2(cid:8) 2018 2017* 2016* $770.1m $739.3m $785.6m Link to risks and remuneration (cid:55)he achievement of this (cid:46)(cid:51)(cid:44) depends on s(cid:88)ccessf(cid:88)l e(cid:91)ec(cid:88)tion of o(cid:88)r strate(cid:74)ic priorities and minimisation of all o(cid:88)r principal ris(cid:78)s(cid:17) (cid:44)ncentive plans incl(cid:88)de (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) as one of the financial performance metrics so it will (cid:69)e meas(cid:88)red as a (cid:69)asis for incentive plan payments(cid:17) GX REVENUE (cid:53)even(cid:88)e (cid:74)enerated from the sale of airtime and other related services on the (cid:42)lo(cid:69)al (cid:59)press networ(cid:78)(cid:17) Why it is important (cid:42)rowth in (cid:42)(cid:59) reven(cid:88)e demonstrates o(cid:88)r a(cid:69)ility to transition o(cid:88)r c(cid:88)stomer (cid:69)ase and attract new c(cid:88)stomers to a hi(cid:74)her (cid:69)andwidth(cid:15) hi(cid:74)her val(cid:88)e platform(cid:15) there(cid:69)y ens(cid:88)rin(cid:74) we develop o(cid:88)r c(cid:88)stomer relationships and deliver val(cid:88)e for o(cid:88)r shareholders(cid:17) (cid:58)e have previo(cid:88)sly declared a tar(cid:74)et of (cid:7)(cid:24)00m of (cid:42)(cid:59) reven(cid:88)es (cid:69)y the end of 2020(cid:17) 1 3 5 $250.9m 8(cid:23)(cid:17)6(cid:8) 2018 2017* $135.9m 2016* $76.9m $250.9m Link to risks and remuneration (cid:55)he achievement of this (cid:46)(cid:51)(cid:44) depends on s(cid:88)ccessf(cid:88)l e(cid:91)ec(cid:88)tion of o(cid:88)r strate(cid:74)ic priorities and minimisation partic(cid:88)larly of certain ris(cid:78)s(cid:17) (cid:44)ncentive plans incl(cid:88)de (cid:42)(cid:59) reven(cid:88)e and delivery either incorporated within the overall reven(cid:88)e tar(cid:74)et or within the performance share plan strate(cid:74)ic o(cid:69)(cid:77)ective metric(cid:17) ADJUSTED EPS (cid:36)d(cid:77)(cid:88)sted (cid:42)ro(cid:88)p profit after ta(cid:91) attri(cid:69)(cid:88)ta(cid:69)le to e(cid:84)(cid:88)ity holders of the Company divided (cid:69)y the wei(cid:74)hted avera(cid:74)e n(cid:88)m(cid:69)er of shares in iss(cid:88)e (cid:11)e(cid:91)cl(cid:88)din(cid:74) shares held (cid:69)y the employee tr(cid:88)st(cid:12)(cid:17) Why it is important (cid:42)rowth in ad(cid:77)(cid:88)sted (cid:40)(cid:51)(cid:54) is a meas(cid:88)re of o(cid:88)r a(cid:69)ility to deliver profita(cid:69)le (cid:74)rowth (cid:69)y increasin(cid:74) o(cid:88)r reven(cid:88)e and deliverin(cid:74) cost efficiencies across the (cid:42)ro(cid:88)p(cid:15) there(cid:69)y deliverin(cid:74) val(cid:88)e for o(cid:88)r shareholders(cid:17) 1 2 5 $0.32 per share 23(cid:17)8(cid:8) 2018 2017* 2016* $0.32 $0.42 $0.63 Link to risks and remuneration (cid:55)he achievement of this (cid:46)(cid:51)(cid:44) depends on s(cid:88)ccessf(cid:88)l e(cid:91)ec(cid:88)tion of o(cid:88)r strate(cid:74)ic priorities and minimisation of the ma(cid:77)ority of o(cid:88)r principal ris(cid:78)s(cid:17) (cid:44)ncentive plans incl(cid:88)de financial metrics as performance metrics so this (cid:46)(cid:51)(cid:44) will contri(cid:69)(cid:88)te to determinin(cid:74) incentive plan payments(cid:17) (cid:13)(cid:53)estated for (cid:44)F(cid:53)(cid:54) 1(cid:24) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:46)ey (cid:51)erformance (cid:44)ndicators 19 Non-financial KPIs NETWORK AVAILABILITY On(cid:74)oin(cid:74) investment in o(cid:88)r space and (cid:74)ro(cid:88)nd infrastr(cid:88)ct(cid:88)re ens(cid:88)res that c(cid:88)stomers are s(cid:88)pported (cid:69)y an overall (cid:28)(cid:28)(cid:17)(cid:28)(cid:8) availa(cid:69)ility in each of o(cid:88)r (cid:42)(cid:59) and (cid:47)(cid:16)(cid:69)and networ(cid:78)s(cid:17) (cid:58)e meet the (cid:42)(cid:48)(cid:39)(cid:54)(cid:54) re(cid:84)(cid:88)irements set (cid:69)y the (cid:44)nternational (cid:48)aritime Or(cid:74)ani(cid:93)ation for safety services(cid:17) Why it is important (cid:40)ns(cid:88)rin(cid:74) o(cid:88)r networ(cid:78) is availa(cid:69)le and relia(cid:69)le is essential in providin(cid:74) the re(cid:84)(cid:88)ired (cid:84)(cid:88)ality of service to o(cid:88)r c(cid:88)stomers(cid:17) (cid:55)his relia(cid:69)ility is critical for safety at sea and aviation coc(cid:78)pit services(cid:17) 1 2 5 99.9% 2018 2017 2016 99.9% 99.9% 99.9% Link to risks and remuneration (cid:55)he ris(cid:78)s for this (cid:46)(cid:51)(cid:44) are specifically n(cid:88)m(cid:69)ers (cid:23)(cid:15) (cid:24) and 10(cid:17) (cid:44)ncentive plans have this (cid:46)(cid:51)(cid:44) indirectly lin(cid:78)ed to all the financial metrics as witho(cid:88)t this (cid:46)(cid:51)(cid:44) meetin(cid:74) the re(cid:84)(cid:88)ired relia(cid:69)ility levels(cid:15) o(cid:88)r financial tar(cid:74)ets can (cid:69)e affected(cid:17) EMPLOYEE TURNOVER (cid:57)ol(cid:88)ntary employee t(cid:88)rnover is calc(cid:88)lated as the n(cid:88)m(cid:69)er of vol(cid:88)ntary leavers in a year (cid:11)permanent employees(cid:12) divided (cid:69)y the avera(cid:74)e headco(cid:88)nt d(cid:88)rin(cid:74) the year(cid:17) Why it is important (cid:54)ome level of t(cid:88)rnover is healthy to ena(cid:69)le a refresh of o(cid:88)r s(cid:78)ills (cid:69)ase and create new opport(cid:88)nities for o(cid:88)r people to pro(cid:74)ress(cid:17) (cid:43)owever(cid:15) (cid:78)eepin(cid:74) it at a reasona(cid:69)le level is important to s(cid:88)stain en(cid:74)a(cid:74)ement(cid:15) retain (cid:78)ey s(cid:78)ills and (cid:78)nowled(cid:74)e and avoid (cid:88)nnecessary disr(cid:88)ption and recr(cid:88)itment costs(cid:17) 4 12.6% 2018 2017 2016 12.6% 9.7% 8.4% Link to risks and remuneration (cid:55)he ris(cid:78) for this (cid:46)(cid:51)(cid:44) is specifically n(cid:88)m(cid:69)er 13(cid:15) however employee performance affects m(cid:88)ltiple other ris(cid:78)s(cid:17) One of o(cid:88)r priority areas is a foc(cid:88)s on (cid:44)nmarsat as a hi(cid:74)h(cid:16)performin(cid:74) Company and this will (cid:69)e part of individ(cid:88)al incentive o(cid:69)(cid:77)ectives as well as part of the (cid:47)(cid:55)(cid:44)(cid:51) o(cid:69)(cid:77)ectives for the C(cid:40)O and his team(cid:17) EMISSIONS (cid:58)e set an interim tar(cid:74)et to red(cid:88)ce (cid:54)cope 1 and 2 emissions (cid:11)mar(cid:78)et (cid:69)ased(cid:12) (cid:69)y 20(cid:8) (cid:69)y 2018 compared to 2016(cid:17) (cid:58)e are c(cid:88)rrently (cid:88)nder(cid:74)oin(cid:74) a (cid:54)cope 3 screenin(cid:74) e(cid:91)ercise with the aim to set a science(cid:16)(cid:69)ased emissions red(cid:88)ction tar(cid:74)et(cid:17) Why it is important (cid:36)ltho(cid:88)(cid:74)h the direct activities of the (cid:42)ro(cid:88)p are (cid:77)(cid:88)d(cid:74)ed to have a low environmental impact(cid:15) we (cid:88)nderstand that(cid:15) (cid:88)nless (cid:88)r(cid:74)ent action is ta(cid:78)en to limit (cid:74)lo(cid:69)al temperat(cid:88)res to 2C (cid:11)3(cid:24)(cid:17)6F(cid:12) a(cid:69)ove pre(cid:16)ind(cid:88)strial levels(cid:15) climate chan(cid:74)e presents si(cid:74)nificant and systemic ris(cid:78)s(cid:17) 4 5 EMPLOYEE ENGAGEMENT (cid:40)mployee en(cid:74)a(cid:74)ement descri(cid:69)es an employee’s level of commitment and enth(cid:88)siasm to their wor(cid:78) and their company(cid:17) Why it is important (cid:44)t is important as hi(cid:74)her levels of employee en(cid:74)a(cid:74)ement have (cid:69)een proven to positively impact (cid:69)(cid:88)siness performance(cid:17) 4 8,605tCO2e 2(cid:26)(cid:8)† 2018 2017* 2016* 8,605 tCO2e 9,857 tCO2e 11,724 tCO2e Link to risks and remuneration (cid:55)he achievement of this (cid:46)(cid:51)(cid:44) is lin(cid:78)ed to o(cid:88)r corporate responsi(cid:69)ility to red(cid:88)ce (cid:74)lo(cid:69)al (cid:74)reenho(cid:88)se (cid:74)as emissions and avoid the worst effects of climate chan(cid:74)e(cid:17) (cid:55)his (cid:46)(cid:51)(cid:44) is incl(cid:88)ded within (cid:69)on(cid:88)s o(cid:69)(cid:77)ectives for relevant staff(cid:17) (cid:114)(cid:36)(cid:69)sol(cid:88)te (cid:54)cope 1 and 2 emissions 7.6/10 2018 2017 2016 0.0 7.6 7.4 Link to risks and remuneration (cid:55)he achievement of hi(cid:74)h levels of employee en(cid:74)a(cid:74)ement will contri(cid:69)(cid:88)te to o(cid:88)r drive for a hi(cid:74)h(cid:16)performance or(cid:74)anisation and therefore (cid:88)nderpins the delivery of all o(cid:88)r strate(cid:74)ic priorities(cid:17) (cid:48)any of o(cid:88)r ris(cid:78)s are affected if we do not have en(cid:74)a(cid:74)ed staff(cid:17) (cid:55)here are specific o(cid:69)(cid:77)ectives in short and lon(cid:74)(cid:16)term incentive plans to meas(cid:88)re this (cid:46)(cid:51)(cid:44)(cid:17) O(cid:88)r (cid:46)(cid:51)(cid:44)s are f(cid:88)ndamentally connected with o(cid:88)r (cid:78)ey strate(cid:74)ic priorities(cid:15) and therefore help (cid:88)s to meas(cid:88)re o(cid:88)r s(cid:88)ccess in deliverin(cid:74) these priorities(cid:17) 1 Capt(cid:88)re the ma(cid:91)im(cid:88)m n(cid:88)m(cid:69)er of (cid:69)road(cid:69)and platforms 2 Reposition (cid:47)(cid:16)(cid:69)and for new (cid:74)rowth 3 4 5 (cid:40)sta(cid:69)lish o(cid:88)r di(cid:74)ital platform and (cid:69)(cid:88)siness Create a hi(cid:74)h(cid:16)performin(cid:74) or(cid:74)anisation (cid:55)ransform o(cid:88)r operatin(cid:74) environment Our strategy Page 14 Our principal risks and uncertainties Page 53 Remuneration report Page 81 S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 20 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Business overview MARITIME CONNECTIVITY AT EVERY STAGE From shipping vessel to shopping basket, we’re helping revolutionise the maritime ecosystem Digitalisation remains the key driver of satellite connectivity in Maritime Customers are using data services and digital platforms to drive the efficiency of their operating environments and to deliver internet-based applications for their crew. Discover more at inmarsat.com The adoption of Fleet Xpress The adoption of Fleet Xpress “The adoption of Fleet Xpress across the globe indicates across the globe indicates across the globe indicates that it has become the key that it has become the key that it has become the key platform for converting platform for converting platform for converting industry talk into action industry talk into action industry talk into action on digitalisation” on digitalisation” on digitalisation” Ronald Spithout Ronald Spithout President Inmarsat Maritime Inmarsat Maritime (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview 21 S t r a t e g i c R e p o r t (cid:42) o v e r n a n c e i F n a n c a i l (cid:54) t a t e m e n t s The VSAT market remains the key growth opportunity for Inmarsat Increasing customer demand for higher bandwidth is driving the fast-growing VSAT market, which is being driven by vessels migrating from the mature mid-market as well as new builds. 50,000 vessels In the VSAT market by 2023 (Source: Euroconsult) Fleet Xpress now has 25% share of the VSAT market Inmarsat’s GX-based VSAT product, Fleet Xpress, which uniquely has our L-band product, FleetBroadband integrated seamlessly within it, now has a 25% market share in VSAT. Discover more at inmarsat.com 22 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Business overview MARITIME Market overview and Inmarsat’s position (cid:39)i(cid:74)italisation remains the (cid:78)ey driver of (cid:48)aritime satellite connectivity(cid:15) with an increasin(cid:74) (cid:88)se of commercial applications(cid:15) for e(cid:91)ample real(cid:16)time en(cid:74)ine monitorin(cid:74)(cid:15) ena(cid:69)lin(cid:74) a more efficient operatin(cid:74) environment for ship owners and fleet mana(cid:74)ers(cid:17) (cid:55)hese c(cid:88)stomers are also levera(cid:74)in(cid:74) (cid:69)andwidth to deliver internet applications for crew(cid:15) incl(cid:88)din(cid:74) entertainment streamin(cid:74) and social media platforms(cid:17) (cid:55)his increasin(cid:74) c(cid:88)stomer demand for hi(cid:74)her (cid:69)andwidth is drivin(cid:74) the fast(cid:16)(cid:74)rowin(cid:74) (cid:57)(cid:54)(cid:36)(cid:55) mar(cid:78)et(cid:15) which is e(cid:91)pected to increase si(cid:74)nificantly from c(cid:17) 2(cid:24)(cid:15)000 vessels today to over (cid:24)0(cid:15)000 vessels (cid:69)y the end of 20231(cid:17) (cid:55)he vast ma(cid:77)ority of this mar(cid:78)et (cid:74)rowth is e(cid:91)pected to (cid:69)e driven (cid:69)y vessels mi(cid:74)ratin(cid:74) from the mat(cid:88)re mid(cid:16)mar(cid:78)et(cid:15) as well as new ships comin(cid:74) to mar(cid:78)et with linefit(cid:16)installed (cid:57)(cid:54)(cid:36)(cid:55) terminals(cid:17) (cid:44)n 2016(cid:15) we la(cid:88)nched o(cid:88)r(cid:15) now(cid:15) mar(cid:78)et(cid:16)leadin(cid:74) (cid:42)(cid:59)(cid:16)(cid:69)ased (cid:57)(cid:54)(cid:36)(cid:55) prod(cid:88)ct(cid:15) Fleet (cid:59)press (cid:11)(cid:67)F(cid:59)’(cid:12)(cid:15) which (cid:88)ni(cid:84)(cid:88)ely has o(cid:88)r (cid:47)(cid:16)(cid:69)and prod(cid:88)ct(cid:15) Fleet(cid:37)road(cid:69)and (cid:11)(cid:67)F(cid:37)’(cid:12) inte(cid:74)rated seamlessly within it(cid:17) (cid:44)n 2018(cid:15) F(cid:59) (cid:74)arnered c(cid:17) (cid:24)0(cid:8) of all new (cid:57)(cid:54)(cid:36)(cid:55) installations (cid:74)lo(cid:69)ally1(cid:17) (cid:55)his s(cid:88)ccess has ens(cid:88)red that(cid:15) over the last 3 years(cid:15) o(cid:88)r installed (cid:57)(cid:54)(cid:36)(cid:55) vessel (cid:69)ase has more than do(cid:88)(cid:69)led to c(cid:17) 6(cid:15)200 vessels(cid:15) e(cid:84)(cid:88)atin(cid:74) to a c(cid:17) 2(cid:24)(cid:8) mar(cid:78)et share of the entire (cid:57)(cid:54)(cid:36)(cid:55) mar(cid:78)et1 (cid:11)2016(cid:29) c(cid:17) 3(cid:15)000 vessels(cid:15) c(cid:17) 1(cid:24)(cid:8) mar(cid:78)et share2(cid:12)(cid:17) (cid:36) si(cid:74)nificant portion of the vessels movin(cid:74) to (cid:57)(cid:54)(cid:36)(cid:55) are mi(cid:74)ratin(cid:74) from the mid(cid:16)mar(cid:78)et(cid:15) which c(cid:88)rrently stands at c(cid:17) (cid:23)(cid:24)(cid:15)000 vessels (cid:69)(cid:88)t is e(cid:91)pected to decline to c(cid:17) 2(cid:24)(cid:15)000 vessels (cid:69)y 2023(cid:15) almost entirely as a res(cid:88)lt of this mi(cid:74)ration(cid:17) (cid:55)his is a mar(cid:78)et where we have historically held s(cid:88)(cid:69)stantial mar(cid:78)et share thro(cid:88)(cid:74)h F(cid:37)(cid:15) which we aim to contin(cid:88)e to protect (cid:74)oin(cid:74) forward(cid:17) O(cid:88)r inc(cid:88)m(cid:69)ency(cid:15) com(cid:69)ined with o(cid:88)r mar(cid:78)et(cid:16)leadin(cid:74) (cid:57)(cid:54)(cid:36)(cid:55) offer(cid:15) positions (cid:88)s well for s(cid:88)stained mar(cid:78)et share (cid:74)rowth in the ind(cid:88)stry(cid:17) (cid:36)s part of this e(cid:91)pected transition(cid:15) in 2018 we saw a net red(cid:88)ction of 3(cid:15)(cid:26)3(cid:28) vessels in F(cid:37)(cid:15) o(cid:88)r leadin(cid:74) and lon(cid:74)(cid:16)esta(cid:69)lished mid(cid:16)mar(cid:78)et prod(cid:88)ct(cid:17) (cid:55)he most material driver of this red(cid:88)ction was c(cid:88)stomers movin(cid:74) to (cid:57)(cid:54)(cid:36)(cid:55) offerin(cid:74)s(cid:15) incl(cid:88)din(cid:74) 1(cid:15)(cid:24)8(cid:24) vessels mi(cid:74)ratin(cid:74) to o(cid:88)r F(cid:59) prod(cid:88)ct(cid:17) (cid:55)his is estimated to represent over (cid:24)0(cid:8) of o(cid:88)r F(cid:37) c(cid:88)stomers movin(cid:74) to (cid:57)(cid:54)(cid:36)(cid:55)(cid:15) with the remainder (cid:69)ein(cid:74) c(cid:88)stomers that moved to competitor (cid:57)(cid:54)(cid:36)(cid:55) offerin(cid:74)s(cid:17) (cid:47)(cid:16)(cid:69)and competition remains limited(cid:17) (cid:58)e are hi(cid:74)hly confident that(cid:15) over time(cid:15) we will contin(cid:88)e to (cid:74)row o(cid:88)r mar(cid:78)et share in the hi(cid:74)hly val(cid:88)a(cid:69)le and fast(cid:16)(cid:74)rowin(cid:74) (cid:57)(cid:54)(cid:36)(cid:55) mar(cid:78)et se(cid:74)ment(cid:15) (cid:69)oth thro(cid:88)(cid:74)h the mi(cid:74)ration of a hi(cid:74)h proportion of o(cid:88)r e(cid:91)istin(cid:74) F(cid:37) c(cid:88)stomers to F(cid:59)(cid:15) as well as thro(cid:88)(cid:74)h winnin(cid:74) a hi(cid:74)h proportion of new c(cid:88)stomers in the form of line(cid:16)fit new vessel installations or the transition of e(cid:91)istin(cid:74) vessels from third party (cid:57)(cid:54)(cid:36)(cid:55) networ(cid:78)s to (cid:42)(cid:59)(cid:17) (cid:58)e c(cid:88)rrently have over (cid:24)(cid:15)000 committed vessels on F(cid:59) from o(cid:88)r (cid:55)a(cid:78)e(cid:16)or(cid:16)(cid:51)ay partners(cid:17) (cid:44)n (cid:69)oth F(cid:37) and F(cid:59)(cid:15) we have introd(cid:88)ced enhanced prod(cid:88)ct offerin(cid:74)s (cid:11)for e(cid:91)ample Crew (cid:59)press(cid:15) o(cid:88)r new crew(cid:16)foc(cid:88)sed(cid:15) F(cid:59)(cid:16)(cid:69)ased(cid:15) prod(cid:88)ct(cid:12)(cid:15) tar(cid:74)eted price incentives and new sales and mar(cid:78)etin(cid:74) strate(cid:74)ies with favo(cid:88)ra(cid:69)le initial mar(cid:78)et reaction(cid:17) (cid:58)hilst these actions will ens(cid:88)re we contin(cid:88)e to retain and(cid:18)or capt(cid:88)re mar(cid:78)et share(cid:15) (cid:57)(cid:54)(cid:36)(cid:55) (cid:36)(cid:53)(cid:51)(cid:56) will contin(cid:88)e to red(cid:88)ce for some time as o(cid:88)r distri(cid:69)(cid:88)tion channel provides a (cid:74)reater proportion of new (cid:57)(cid:54)(cid:36)(cid:55) reven(cid:88)es at wholesale rather than retail pricin(cid:74)(cid:17) (cid:43)owever(cid:15) over the medi(cid:88)m to lon(cid:74) term(cid:15) the mi(cid:74)ration to F(cid:59) is e(cid:91)pected to have a (cid:69)eneficial impact on (cid:48)aritime’s overall (cid:36)(cid:53)(cid:51)(cid:56)(cid:15) driven (cid:69)y c(cid:88)stomer transition to hi(cid:74)her val(cid:88)e data pac(cid:78)a(cid:74)es(cid:17) Revenue $552.8m (cid:11)2(cid:17)6(cid:8)(cid:12) EBITDA $429.0m (cid:11)(cid:23)(cid:17)0(cid:8)(cid:12) Maritime Business Results (cid:53)even(cid:88)e (cid:39)irect costs Gross margin (cid:44)ndirect costs EBITDA (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in (cid:8) Cash cape(cid:91) Business Unit Operating Cash Flow PRODUCT PERFORMANCE Fleet(cid:37)road(cid:69)and (cid:11)(cid:67)F(cid:37)’(cid:12) (cid:57)(cid:54)(cid:36)(cid:55) (cid:11)(cid:59)(cid:47) and F(cid:59)(cid:12) Fleet One (cid:40)(cid:84)(cid:88)ipment sales (cid:47)e(cid:74)acy prod(cid:88)cts Year ended 31 December 2018 $m 552.8 (85.2) 467.6 (38.6) 429.0 77.6% (54.4) 374.6 201(cid:26) (cid:11)restated(cid:12) (cid:7)m (cid:24)6(cid:26)(cid:17)3 (cid:11)8(cid:23)(cid:17)0(cid:12) (cid:23)83(cid:17)3 (cid:11)36(cid:17)3(cid:12) (cid:23)(cid:23)(cid:26)(cid:17)0 (cid:26)8(cid:17)8(cid:8) (cid:11)(cid:23)(cid:24)(cid:17)(cid:28)(cid:12) (cid:23)01(cid:17)1 Chan(cid:74)e (cid:11)2(cid:17)6(cid:8)(cid:12) (cid:11)1(cid:17)(cid:23)(cid:8)(cid:12) (cid:11)3(cid:17)2(cid:8)(cid:12) (cid:11)6(cid:17)3(cid:8)(cid:12) (cid:11)(cid:23)(cid:17)0(cid:8)(cid:12) – (cid:11)18(cid:17)(cid:24)(cid:8)(cid:12) (cid:11)6(cid:17)6(cid:8)(cid:12) Revenue Number of vessels 2018 $m 311.6 151.4 7.6 20.1 62.1 201(cid:26) (cid:7)m 2018 201(cid:26) 3(cid:23)(cid:28)(cid:17)2 32,366 36(cid:15)10(cid:24) 12(cid:23)(cid:17)(cid:23) (cid:24)(cid:17)0 13(cid:17)(cid:28) (cid:26)(cid:23)(cid:17)8 6,219 4,072 n/a n/a (cid:23)(cid:15)332 3(cid:15)083 n(cid:18)a n(cid:18)a Average Revenue per User (‘ARPU’) per month 2018 $ 756 201(cid:26) (cid:7) (cid:26)80 2,391 2(cid:15)88(cid:24) 100 n/a n/a 100 n(cid:18)a n(cid:18)a (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview 23 (cid:58)e delivered consistent do(cid:88)(cid:69)le(cid:16)di(cid:74)it (cid:74)rowth in reven(cid:88)es and mar(cid:78)et share in the fast(cid:16)(cid:74)rowin(cid:74) VSAT segment F(cid:37) reven(cid:88)es fell (cid:69)y 10(cid:17)8(cid:8) in 2018(cid:15) incl(cid:88)din(cid:74) 1(cid:24)(cid:17)(cid:23)(cid:8) in (cid:52)(cid:23)(cid:15) with an ann(cid:88)al F(cid:37) vessel decline of 3(cid:15)(cid:26)3(cid:28) vessels(cid:17) (cid:55)he vast ma(cid:77)ority of the F(cid:37) vessels lost over the year moved to (cid:57)(cid:54)(cid:36)(cid:55)(cid:15) with over (cid:24)0(cid:8) of these mi(cid:74)rations estimated to have traded (cid:88)p to F(cid:59)(cid:15) with the remainder (cid:74)oin(cid:74) to competitor (cid:57)(cid:54)(cid:36)(cid:55) offerin(cid:74)s(cid:17) (cid:47)(cid:16)(cid:69)and competition remained limited(cid:15) while there was also some impact from scrappa(cid:74)e on F(cid:37) vessel losses (cid:69)(cid:88)t these were (cid:69)roadly offset (cid:69)y the n(cid:88)m(cid:69)er of F(cid:37) installations on new (cid:69)(cid:88)ilds d(cid:88)rin(cid:74) the year(cid:17) F(cid:37) (cid:36)(cid:53)(cid:51)(cid:56) declined (cid:69)y 3(cid:17)1(cid:8) to (cid:7)(cid:26)(cid:24)6 per month in 2018(cid:15) reflectin(cid:74) the mi(cid:74)ration to (cid:57)(cid:54)(cid:36)(cid:55) (cid:69)ein(cid:74) wei(cid:74)hted towards hi(cid:74)her (cid:88)sa(cid:74)e(cid:15) hi(cid:74)her (cid:36)(cid:53)(cid:51)(cid:56) c(cid:88)stomers(cid:17) Fleet One airtime and e(cid:84)(cid:88)ipment reven(cid:88)e increased (cid:69)y (cid:24)2(cid:17)0(cid:8) to (cid:7)(cid:26)(cid:17)6m(cid:17) (cid:40)(cid:84)(cid:88)ipment reven(cid:88)e(cid:15) to help drive mar(cid:78)et share and win new c(cid:88)stomers(cid:15) increased (cid:69)y (cid:7)6(cid:17)2m to (cid:7)20(cid:17)1m(cid:17) O(cid:88)r other(cid:15) mainly low mar(cid:74)in and le(cid:74)acy prod(cid:88)cts declined (cid:69)y (cid:7)12(cid:17)(cid:26)m(cid:15) or 1(cid:26)(cid:17)0(cid:8)(cid:15) to (cid:7)62(cid:17)1m(cid:17) 2018 Results (cid:48)aritime reven(cid:88)e declined (cid:69)y (cid:7)1(cid:23)(cid:17)(cid:24)m(cid:15) with f(cid:88)rther stron(cid:74) (cid:74)rowth from (cid:57)(cid:54)(cid:36)(cid:55) prod(cid:88)cts(cid:15) incl(cid:88)din(cid:74) F(cid:59)(cid:15) (cid:11)(cid:7)2(cid:26)(cid:17)0m(cid:12)(cid:15) hi(cid:74)her terminal sales (cid:11)(cid:7)6(cid:17)1m(cid:12)(cid:15) and modest (cid:74)rowth from Fleet One (cid:11)(cid:7)2(cid:17)6m(cid:12)(cid:15) offset (cid:69)y lower reven(cid:88)e from F(cid:37) (cid:11)(cid:7)3(cid:26)(cid:17)(cid:24)m(cid:15) of which (cid:7)1(cid:28)m(cid:15) or c(cid:17) (cid:24)0(cid:8)(cid:15) related to vessel mi(cid:74)rations to F(cid:59)(cid:12) and other mainly le(cid:74)acy prod(cid:88)cts (cid:11)(cid:7)12(cid:17)(cid:26)m(cid:12)(cid:17) (cid:39)irect costs increased (cid:69)y (cid:7)1(cid:17)2m in 2018(cid:15) mainly reflectin(cid:74) increased terminal sales and hi(cid:74)her provisions a(cid:74)ainst possi(cid:69)le f(cid:88)t(cid:88)re (cid:69)ad de(cid:69)ts(cid:15) which more than offset leased capacity cost savin(cid:74)s from the mi(cid:74)ration of (cid:59)(cid:47) vessels to F(cid:59)(cid:17) (cid:44)ndirect costs increased (cid:69)y (cid:7)2(cid:17)3m(cid:15) mainly d(cid:88)e to timin(cid:74) of mar(cid:78)etin(cid:74) spend for the (cid:57)olvo Ocean (cid:53)ace(cid:15) which finished in (cid:45)(cid:88)ne 2018(cid:17) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) declined (cid:69)y (cid:7)18(cid:17)0m(cid:17) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in decreased to (cid:26)(cid:26)(cid:17)6(cid:8) in the year(cid:17) (cid:48)aritime cape(cid:91) increased (cid:69)y (cid:7)8(cid:17)(cid:24)m to (cid:7)(cid:24)(cid:23)(cid:17)(cid:23)m d(cid:88)rin(cid:74) the year(cid:15) reflectin(cid:74) a hi(cid:74)her level of c(cid:88)stomer installations in F(cid:59) and (cid:59)(cid:47) mi(cid:74)rations(cid:17) (cid:55)here was consistent stron(cid:74) (cid:74)rowth in (cid:57)(cid:54)(cid:36)(cid:55) d(cid:88)rin(cid:74) 2018(cid:15) with 21(cid:17)(cid:26)(cid:8) reven(cid:88)e (cid:74)rowth in the year(cid:17) (cid:36)t the end of 2018(cid:15) there were 6(cid:15)21(cid:28) installed (cid:57)(cid:54)(cid:36)(cid:55) vessels (cid:11)(cid:24)(cid:15)3(cid:26)(cid:24) of which were F(cid:59) vessels(cid:12) with the installation (cid:69)ac(cid:78)lo(cid:74) remainin(cid:74) at c(cid:17) 6(cid:24)0 vessels(cid:17) (cid:55)he (cid:57)(cid:54)(cid:36)(cid:55) vessel (cid:69)ase installed (cid:69)y o(cid:88)r distri(cid:69)(cid:88)tion partners was 30(cid:8) of installed vessels(cid:15) from 1(cid:23)(cid:8) at the end of 201(cid:26)(cid:17) F(cid:59) installations remain in the ran(cid:74)e of o(cid:88)r anticipated (cid:84)(cid:88)arterly installation r(cid:88)n rate (cid:74)oin(cid:74) forward(cid:17) (cid:55)he proportion of new c(cid:88)stomer F(cid:59) installations remained hi(cid:74)h at c(cid:17) 1(cid:28)(cid:8) d(cid:88)rin(cid:74) the year(cid:17) (cid:55)he (cid:59)(cid:47) mi(cid:74)ration pro(cid:74)ramme is on trac(cid:78) for completion (cid:69)y the end of 201(cid:28)(cid:17) (cid:55)he vast ma(cid:77)ority of the F(cid:37) vessels lost over the year moved to (cid:57)(cid:54)(cid:36)(cid:55)(cid:15) with over (cid:24)0(cid:8) of these mi(cid:74)ratin(cid:74) to F(cid:59) 1 (cid:54)o(cid:88)rce(cid:29) (cid:40)(cid:88)cons(cid:88)lt(cid:17) (cid:48)ar(cid:78)et si(cid:93)e estimates incl(cid:88)de commercial maritime(cid:15) offshore ener(cid:74)y(cid:15) passen(cid:74)er ships and s(cid:88)per yachts 2 (cid:54)o(cid:88)rce(cid:29) Clar(cid:78)sons(cid:17) (cid:48)ar(cid:78)et si(cid:93)e estimates incl(cid:88)de commercial maritime(cid:15) offshore ener(cid:74)y(cid:15) passen(cid:74)er ships and s(cid:88)per yachts S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 24 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Business overview GOVERNMENT MISSION CRITICAL From forecasting weather patterns, to co-ordinating aid relief after the storm Continued growth expected in Governments’ use of commercial satellite connectivity Mobility communications in the Government segment will be driven by growing customer demand and by certain customers looking to augment their proprietary systems with commercial satellite communications. Discover more at inmarsat.com Inmarsat remains a trusted partner of major global governments We are becoming more embedded in customer platforms in the U.S. and will continue to diversify and internationalise outside the U.S. 7% growth In retail revenue for global Government and Military commercial satellite communications, to 2027 (Source: NSR) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview 25 S S t t r r a a t t e e g g i i c c R R e e p p o o r r t t (cid:42) o v e r n a n c e i F n a n c a i l (cid:54) t a t e m e n t s Access to reliable and “Access to reliable and resilient connectivity is connectivity is connectivity is connectivity is essential for our customers, essential for our customers, essential for our customers, essential for our customers, enabling the constant enabling the constant enabling the constant transmission of data transmission of data to transmission of data optimise operations” optimise operations” optimise operations” Susan Miller Susan Miller President and CEO President and CEO Inmarsat Government, Inc. Inmarsat Government, Inc. Inmarsat Government, Inc. Todd McDonell Todd McDonell President President Inmarsat Global Inmarsat Global Government Government 26 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 F(cid:88)rther mar(cid:78)et share (cid:74)ains and incremental penetration in the (cid:56)(cid:17)(cid:54)(cid:17)(cid:15) while reven(cid:88)es remain ro(cid:69)(cid:88)st in other mar(cid:78)ets Business overview GOVERNMENT 2018 results (cid:44)n 2018(cid:15) (cid:42)overnment reven(cid:88)e increased (cid:69)y (cid:7)1(cid:23)(cid:17)3m(cid:15) 3(cid:17)(cid:28)(cid:8)(cid:15) to (cid:7)381(cid:17)0m(cid:17) (cid:55)his performance was driven in partic(cid:88)lar (cid:69)y o(cid:88)r (cid:56)(cid:17)(cid:54)(cid:17) (cid:42)overnment (cid:69)(cid:88)siness(cid:15) which delivered reven(cid:88)e (cid:74)rowth of 6(cid:17)(cid:23)(cid:8) in 2018(cid:15) s(cid:88)pported (cid:69)y several new (cid:69)(cid:88)siness wins in the year(cid:17) (cid:55)here was f(cid:88)rther pro(cid:74)ress in the (cid:37)oein(cid:74) (cid:55)a(cid:78)e(cid:16)or(cid:16)(cid:51)ay contract(cid:15) with a f(cid:88)rther material increase in (cid:88)nderlyin(cid:74) reven(cid:88)es in the year(cid:17) O(cid:88)r performance in the (cid:56)(cid:17)(cid:54)(cid:17) was f(cid:88)rther (cid:69)olstered in the last (cid:84)(cid:88)arter of the year (cid:69)y new leases and increased (cid:74)overnment e(cid:91)pendit(cid:88)re (cid:88)nder lon(cid:74) term c(cid:88)stomer contracts(cid:17) O(cid:88)tside the (cid:56)(cid:17)(cid:54)(cid:17)(cid:15) reven(cid:88)es were 1(cid:17)1(cid:8) lower in the year(cid:17) (cid:58)e finished the year relatively well(cid:15) with reven(cid:88)es (cid:88)p 1(cid:17)3(cid:8) in (cid:52)(cid:23)(cid:15) driven (cid:69)y increased prod(cid:88)ct (cid:88)sa(cid:74)e across a n(cid:88)m(cid:69)er of c(cid:88)stomers(cid:17) (cid:39)irect costs increased (cid:69)y (cid:7)12(cid:17)(cid:24)m in 2018(cid:15) mainly d(cid:88)e to reven(cid:88)e (cid:74)rowth and mi(cid:91)(cid:17) (cid:44)ndirect costs were red(cid:88)ced (cid:69)y (cid:7)3(cid:17)2m in the year(cid:15) d(cid:88)e to lower employee costs and other cost savin(cid:74)s(cid:17) (cid:48)ainly as a res(cid:88)lt of hi(cid:74)her reven(cid:88)e(cid:15) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) increased (cid:69)y (cid:7)(cid:24)(cid:17)0m in 2018(cid:15) (cid:69)(cid:88)t (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in for the year decreased to (cid:26)0(cid:17)(cid:28)(cid:8) (cid:11)(cid:26)2(cid:17)3(cid:8)(cid:12)(cid:15) driven (cid:69)y reven(cid:88)e mi(cid:91)(cid:17) Market overview and Inmarsat’s position (cid:53)etail reven(cid:88)e in (cid:74)lo(cid:69)al (cid:42)overnment and (cid:48)ilitary commercial satellite comm(cid:88)nications is e(cid:91)pected to (cid:74)row (cid:69)y c(cid:17) (cid:26)(cid:8) per ann(cid:88)m(cid:15) from 201(cid:26) to 202(cid:26) (cid:11)so(cid:88)rce(cid:29) (cid:49)(cid:54)(cid:53)(cid:12)(cid:15) despite a competitive and price sensitive mar(cid:78)et environment(cid:15) driven (cid:69)y f(cid:88)rther increases in the provision of services for c(cid:88)stomers on the move(cid:17) (cid:55)his rise in mo(cid:69)ility comm(cid:88)nications will contin(cid:88)e to (cid:69)e f(cid:88)elled (cid:69)y c(cid:88)stomer demand for services over (cid:69)road(cid:69)and and (cid:47)(cid:16)(cid:69)and networ(cid:78)s and (cid:69)y some c(cid:88)stomers f(cid:88)rther a(cid:88)(cid:74)mentin(cid:74) their military comm(cid:88)nications systems with commercial satellite capa(cid:69)ilities(cid:17) Conse(cid:84)(cid:88)ently(cid:15) there is a si(cid:74)nificant opport(cid:88)nity for satellite operators with the appropriate level of capa(cid:69)ilities and covera(cid:74)e to (cid:69)ecome inte(cid:74)rated within proprietary networ(cid:78)s of certain (cid:78)ey (cid:74)overnment c(cid:88)stomers(cid:17) For a n(cid:88)m(cid:69)er of years(cid:15) (cid:44)nmarsat has (cid:69)een at the forefront of this dynamic(cid:15) evidenced (cid:69)y o(cid:88)r (cid:42)overnment (cid:69)(cid:88)siness (cid:74)rowin(cid:74) its reven(cid:88)e (cid:69)ase (cid:69)y c(cid:17) 33(cid:8) since 201(cid:24)(cid:17) (cid:55)his (cid:74)rowth has primarily (cid:69)een driven (cid:69)y o(cid:88)r (cid:56)(cid:17)(cid:54)(cid:17) (cid:42)overnment (cid:69)(cid:88)siness(cid:15) where we are (cid:69)ecomin(cid:74) more em(cid:69)edded in a n(cid:88)m(cid:69)er of si(cid:74)nificant c(cid:88)stomer platforms(cid:17) (cid:55)his will help to s(cid:88)pport a sta(cid:69)le lon(cid:74)(cid:16)term (cid:74)rowth profile(cid:15) with incremental reven(cid:88)e (cid:69)ein(cid:74) (cid:74)enerated from increased c(cid:88)stomer (cid:88)sa(cid:74)e thro(cid:88)(cid:74)h o(cid:88)r service delivery aro(cid:88)nd event(cid:16)driven activities and via a hi(cid:74)her n(cid:88)m(cid:69)er of installed terminals for c(cid:88)stomers(cid:17) O(cid:88)tside the (cid:56)(cid:17)(cid:54)(cid:17)(cid:15) we have contin(cid:88)ed to see(cid:78) to diversify and internationalise o(cid:88)r prod(cid:88)ct portfolio and mar(cid:78)et presence(cid:17) Revenue $381.0m (cid:14)3(cid:17)(cid:28)(cid:8) EBITDA $270.2m (cid:14)1(cid:17)(cid:28)(cid:8) Government Business Results (cid:53)even(cid:88)e (cid:39)irect costs Gross margin (cid:44)ndirect costs EBITDA (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in (cid:8) Cash cape(cid:91) Business Unit Operating Cash Flow Year ended 31 December 2018 $m 381.0 (66.9) 314.1 (43.9) 270.2 70.9% (5.0) 265.2 201(cid:26) (cid:7)m 366(cid:17)(cid:26) (cid:11)(cid:24)(cid:23)(cid:17)(cid:23)(cid:12) 312(cid:17)3 (cid:11)(cid:23)(cid:26)(cid:17)1(cid:12) 26(cid:24)(cid:17)2 (cid:26)2(cid:17)3(cid:8) (cid:11)(cid:28)(cid:17)(cid:28)(cid:12) 2(cid:24)(cid:24)(cid:17)3 Chan(cid:74)e 3(cid:17)(cid:28)(cid:8) (cid:11)23(cid:17)0(cid:8)(cid:12) 0(cid:17)6(cid:8) 6(cid:17)8(cid:8) 1(cid:17)(cid:28)(cid:8) – (cid:23)(cid:28)(cid:17)(cid:24)(cid:8) 3(cid:17)(cid:28)(cid:8) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview 27 Supporting the Spanish Navy in a critical humanitarian mission (cid:55)he (cid:36)(cid:17)O(cid:17)(cid:53)(cid:17) Canta(cid:69)ria(cid:15) a military s(cid:88)pply vessel(cid:15) which is part of the (cid:54)panish (cid:49)avy’s fleet(cid:15) recently led the s(cid:88)ccessf(cid:88)l delivery of (cid:67)Operation (cid:54)ophia’(cid:15) which entailed the resc(cid:88)e of lar(cid:74)e n(cid:88)m(cid:69)ers of mi(cid:74)rants stranded in the (cid:48)editerranean (cid:54)ea(cid:17) (cid:42)(cid:59) connectivity(cid:15) provided to the Canta(cid:69)ria thro(cid:88)(cid:74)h (cid:44)nmarsat’s partner(cid:15) (cid:54)atlin(cid:78) (cid:54)pain(cid:15) ena(cid:69)led the vessel to receive real(cid:16)time sit(cid:88)ational information re(cid:74)ardin(cid:74) the presence of a n(cid:88)m(cid:69)er of mi(cid:74)rant vessels(cid:17) (cid:55)he Canta(cid:69)ria was then a(cid:69)le to immediately and acc(cid:88)rately set co(cid:88)rse to the (cid:93)ones where the ships were located and then (cid:88)ltimately resc(cid:88)e the stranded mi(cid:74)rants(cid:17) (cid:58)e ena(cid:69)led the vessel to receive real(cid:16)time sit(cid:88)ational information re(cid:74)ardin(cid:74) the presence of a n(cid:88)m(cid:69)er of mi(cid:74)rant vessels S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 28 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Business overview AVIATION THE CONNECTED AIRCRAFT From cockpit to cabin, the future of high-speed In-Flight Connectivity is here In-Flight Connectivity will be a game- changer for satellite communications in Aviation Around 23,000 commercial aircraft are expected to be connected by 2027, by when the penetration of IFC solutions in commercial aviation is expected to be over 60% (Source: Euroconsult). Discover more at inmarsat.com (cid:107) (cid:42)(cid:59) (cid:36)viation for (cid:44)n(cid:16)Fli(cid:74)ht Connectivity is startin(cid:74) to emer(cid:74)e as an important (cid:74)rowth driver for o(cid:88)r (cid:69)(cid:88)siness(cid:121) (cid:51)hilip (cid:37)alaam (cid:51)resident (cid:44)nmarsat (cid:36)viation (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview 29 S t r a t e g i c R e p o r t (cid:42) o v e r n a n c e i F n a n c a i l (cid:54) t a t e m e n t s Growth in Business and General Aviation will be driven by more aircraft in service and higher bandwidth per aircraft The number of connected aircraft in this segment is expected to grow by 5% CAGR to 35,000 by 2027 (Source: Euroconsult). 40.9% Increase in Inmarsat’s Aviation revenue in 2018 Safety and Operational Services will be supported by a new generation of services to the cockpit Wholesale revenues in this segment are expected to grow by a factor of 4.5x to $900m by 2027 (Source: NSR). Discover more at inmarsat.com 30 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Business overview AVIATION Market overview and Inmarsat’s position (cid:44)n (cid:36)viation we operate in three mar(cid:78)et se(cid:74)ments (cid:113) (cid:44)n(cid:16)Fli(cid:74)ht Connectivity (cid:11)(cid:67)(cid:44)FC’(cid:12)(cid:15) (cid:37)(cid:88)siness and (cid:42)eneral (cid:36)viation (cid:11)(cid:67)(cid:37)(cid:42)(cid:36)’(cid:12) and (cid:54)afety and Operational (cid:54)ervices (cid:11)(cid:67)(cid:54)O(cid:54)’(cid:12)(cid:17) (cid:44)FC is predicted to (cid:69)ecome the lar(cid:74)est (cid:74)lo(cid:69)al aviation se(cid:74)ment for mo(cid:69)ile satellite comm(cid:88)nications in the f(cid:88)t(cid:88)re(cid:15) with aro(cid:88)nd 23(cid:15)000 commercial aircraft e(cid:91)pected to (cid:69)e connected (cid:69)y 202(cid:26)(cid:15) (cid:88)p from (cid:26)(cid:15)(cid:23)00 in 201(cid:26)(cid:15) (cid:69)y when the penetration of (cid:44)FC sol(cid:88)tions in commercial aviation is e(cid:91)pected to (cid:69)e over 60(cid:8)(cid:15) from 30(cid:8) in 201(cid:26) (cid:11)so(cid:88)rce(cid:29) (cid:40)(cid:88)rocons(cid:88)lt(cid:12)(cid:17) (cid:58)ith the (cid:74)lo(cid:69)al (cid:44)FC mar(cid:78)et in the midst of a hi(cid:74)hly competitive mar(cid:78)et capt(cid:88)re phase(cid:15) (cid:44)nmarsat has (cid:74)ained si(cid:74)nificant positive moment(cid:88)m in (cid:69)(cid:88)ildin(cid:74) a mar(cid:78)et position(cid:15) winnin(cid:74) new contracted c(cid:88)stomers(cid:15) helpin(cid:74) to install those c(cid:88)stomers with (cid:44)FC systems and (cid:69)rin(cid:74)in(cid:74) those c(cid:88)stomers into service(cid:17) O(cid:88)r strate(cid:74)ic colla(cid:69)oration a(cid:74)reement with (cid:51)anasonic (cid:36)vionics Corporation (cid:11)(cid:67)(cid:51)anasonic’(cid:12) is e(cid:91)pected to help f(cid:88)rther cement a (cid:74)lo(cid:69)al leadership position for (cid:44)nmarsat in (cid:44)FC over the lon(cid:74)er term(cid:17) (cid:42)rowth in the (cid:37)(cid:42)(cid:36) mar(cid:78)et will (cid:69)e driven (cid:69)y (cid:74)rowin(cid:74) (cid:69)andwidth re(cid:84)(cid:88)irements per aircraft and the contin(cid:88)ed increase in aircraft (cid:88)sin(cid:74) connectivity services(cid:15) with the n(cid:88)m(cid:69)er of connected (cid:69)(cid:88)siness aircraft e(cid:91)pected to (cid:74)row (cid:69)y (cid:24)(cid:8) C(cid:36)(cid:42)(cid:53)(cid:15) (cid:69)etween 201(cid:26) to 202(cid:26)(cid:15) from 21(cid:15)600 to 3(cid:24)(cid:15)000 aircraft(cid:17) (cid:58)ith a lon(cid:74)(cid:16)standin(cid:74)(cid:15) leadin(cid:74)(cid:15) position in this se(cid:74)ment(cid:15) (cid:44)nmarsat has a si(cid:93)ea(cid:69)le c(cid:88)stomer (cid:69)ase and diverse distri(cid:69)(cid:88)tion networ(cid:78) on which to (cid:69)(cid:88)ild(cid:17) (cid:55)his fo(cid:88)ndation ena(cid:69)les (cid:44)nmarsat to capt(cid:88)re mar(cid:78)et share(cid:15) thro(cid:88)(cid:74)h the on(cid:16)(cid:74)oin(cid:74) mar(cid:78)et penetration of o(cid:88)r hi(cid:74)h (cid:69)andwidth prod(cid:88)ct(cid:15) (cid:45)et Conne(cid:59)(cid:17) (cid:58)ith more commercial aircraft e(cid:91)pected to enter service and the arrival of a new (cid:74)eneration of services to the coc(cid:78)pit(cid:15) as well as the opport(cid:88)nity to s(cid:88)pport the deployment of real(cid:16)time (cid:67)connected aircraft’ (cid:44)(cid:44)o(cid:55) applications(cid:15) the (cid:54)O(cid:54) mar(cid:78)et is also e(cid:91)pected to (cid:74)row stron(cid:74)ly over the comin(cid:74) years(cid:17) (cid:58)holesale reven(cid:88)es in this sector are e(cid:91)pected to (cid:74)row from (cid:7)200m in 201(cid:26) to (cid:7)(cid:28)00m (cid:69)y 202(cid:26) (cid:11)(cid:54)o(cid:88)rce(cid:29) (cid:49)(cid:54)(cid:53)(cid:12)(cid:17) (cid:44)nmarsat is already a leader in this mar(cid:78)et and we e(cid:91)pect to stren(cid:74)then o(cid:88)r mar(cid:78)et position f(cid:88)rther thro(cid:88)(cid:74)h new prod(cid:88)cts and services(cid:17) 2018 results (cid:36)viation delivered another e(cid:91)cellent performance(cid:15) with reven(cid:88)e (cid:74)rowth of (cid:7)(cid:26)(cid:23)(cid:17)3m(cid:15) (cid:23)0(cid:17)(cid:28)(cid:8)(cid:15) to (cid:7)2(cid:24)6(cid:17)1m in 2018(cid:15) driven (cid:69)y contin(cid:88)in(cid:74) stron(cid:74) (cid:74)rowth in o(cid:88)r Core (cid:69)(cid:88)siness and reven(cid:88)es in o(cid:88)r (cid:44)FC services more than do(cid:88)(cid:69)lin(cid:74)(cid:17) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) conse(cid:84)(cid:88)ently increased (cid:69)y (cid:7)28(cid:17)0m or 26(cid:17)(cid:28)(cid:8)(cid:15) to (cid:7)131(cid:17)(cid:28)m in 2018 with (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in of (cid:24)1(cid:17)(cid:24)(cid:8) for the year (cid:11)201(cid:26)(cid:29) (cid:24)(cid:26)(cid:17)2(cid:8)(cid:12)(cid:17) Cash flow from (cid:36)viation has also improved materially with the impact of (cid:69)oth hi(cid:74)her reven(cid:88)es and lower cape(cid:91) to(cid:74)ether drivin(cid:74) an improvement of (cid:7)13(cid:26)(cid:17)0m in the year(cid:17) (cid:36)viation (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) and cash flow mar(cid:74)ins(cid:15) which have (cid:69)een impacted (cid:69)y o(cid:88)r efforts to (cid:69)(cid:88)ild a stron(cid:74) mar(cid:78)et position in the rapidly (cid:74)rowin(cid:74) and hi(cid:74)h potential (cid:44)FC mar(cid:78)et(cid:15) are now recoverin(cid:74)(cid:17) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)ins in (cid:36)viation fell from over 60(cid:8) in 2016(cid:15) to (cid:24)1(cid:8) in 2018 (cid:69)(cid:88)t we remain confident that these mar(cid:74)ins will (cid:74)rad(cid:88)ally ret(cid:88)rn to at least their 2016 mar(cid:74)in levels over the ne(cid:91)t three years(cid:17) Revenue $256.1m (cid:14)(cid:23)0(cid:17)(cid:28)(cid:8) EBITDA $131.9m (cid:14)26(cid:17)(cid:28)(cid:8) Aviation Business Results (cid:53)even(cid:88)e (cid:39)irect costs Gross margin (cid:44)ndirect costs EBITDA (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in (cid:8) Cash cape(cid:91) Business Unit Operating Cash Flow CORE/IFC – FULL YEAR (cid:53)even(cid:88)e (cid:39)irect costs Gross margin (cid:44)ndirect costs EBITDA (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in (cid:8) Cash cape(cid:91) Business Unit Operating Cash Flow Year ended 31 December 2018 $m 256.1 (56.3) 199.8 (67.9) 131.9 51.5% (34.8) 97.1 201(cid:26) (cid:11)restated(cid:12) (cid:7)m 181(cid:17)8 (cid:11)12(cid:17)3(cid:12) 16(cid:28)(cid:17)(cid:24) (cid:11)6(cid:24)(cid:17)6(cid:12) 103(cid:17)(cid:28) (cid:24)(cid:26)(cid:17)2(cid:8) (cid:11)1(cid:23)3(cid:17)8(cid:12) (cid:11)3(cid:28)(cid:17)(cid:28)(cid:12) Year ended 31 December Core IFC 2018 $m 201(cid:26) (cid:11)restated(cid:12) (cid:7)m 154.8 132(cid:17)(cid:24) 2018 $m 101.3 (1.2) (cid:11)1(cid:17)0(cid:12) (55.1) Chan(cid:74)e (cid:23)0(cid:17)(cid:28)(cid:8) (cid:11)3(cid:24)(cid:26)(cid:17)(cid:26)(cid:8)(cid:12) 1(cid:26)(cid:17)(cid:28)(cid:8) (cid:11)3(cid:17)(cid:24)(cid:8)(cid:12) 26(cid:17)(cid:28)(cid:8) – (cid:26)(cid:24)(cid:17)8(cid:8) 3(cid:23)3(cid:17)(cid:23)(cid:8) 201(cid:26) (cid:11)restated(cid:12) (cid:7)m (cid:23)(cid:28)(cid:17)3 (cid:11)11(cid:17)3(cid:12) 38(cid:17)0 153.6 (10.2) 143.4 131(cid:17)(cid:24) 46.2 (cid:11)(cid:28)(cid:17)8(cid:12) (57.7) (cid:11)(cid:24)(cid:24)(cid:17)8(cid:12) 121(cid:17)(cid:26) (11.5) (cid:11)1(cid:26)(cid:17)8(cid:12) (cid:28)2(cid:17)6(cid:8) (cid:28)1(cid:17)8(cid:8) n(cid:18)a n(cid:18)a – – (34.8) (cid:11)1(cid:23)3(cid:17)8(cid:12) 143.4 121(cid:17)(cid:26) (46.3) (cid:11)161(cid:17)6(cid:12) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview 31 O(cid:88)r (cid:69)(cid:88)siness in (cid:44)n(cid:16)Fli(cid:74)ht Connectivity was driven (cid:69)y a (cid:74)rowin(cid:74) aircraft (cid:69)ac(cid:78)lo(cid:74) and stron(cid:74)er mar(cid:78)et position Core Aviation business O(cid:88)r Core (cid:36)viation (cid:69)(cid:88)siness comprises (cid:54)wift(cid:37)road(cid:69)and and (cid:45)etConne(cid:59) for (cid:37)(cid:42)(cid:36)(cid:15) Classic (cid:36)ero and (cid:54)wift(cid:37)road(cid:69)and(cid:16)(cid:54)afety for (cid:54)O(cid:54) and le(cid:74)acy prod(cid:88)cts(cid:17) (cid:55)here was stron(cid:74) (cid:74)rowth across these (cid:69)(cid:88)sinesses d(cid:88)rin(cid:74) the year(cid:15) with reven(cid:88)e (cid:88)p (cid:69)y (cid:7)22(cid:17)3m(cid:15) or 16(cid:17)8(cid:8)(cid:15) to (cid:7)1(cid:24)(cid:23)(cid:17)8m(cid:17) (cid:37)y the end of 2018(cid:15) (cid:23)28 aircraft were installed with (cid:45)etConne(cid:59)(cid:15) o(cid:88)r (cid:42)(cid:59)(cid:16)(cid:69)ased prod(cid:88)ct for (cid:37)(cid:42)(cid:36)(cid:15) (cid:88)p from 16(cid:24) at the end of 201(cid:26)(cid:17) (cid:45)etConne(cid:59) (cid:74)rew airtime reven(cid:88)e to (cid:7)22(cid:17)0m in 2018(cid:15) (cid:88)p from (cid:7)(cid:23)(cid:17)(cid:23)m in 201(cid:26)(cid:17) (cid:54)wift(cid:37)road(cid:69)and reven(cid:88)es (cid:74)rew (cid:7)2(cid:17)1m(cid:15) or 2(cid:17)8(cid:8)(cid:15) in the year to (cid:7)(cid:26)(cid:26)(cid:17)(cid:23)m(cid:15) driven (cid:69)y hi(cid:74)her (cid:88)sa(cid:74)e(cid:15) partic(cid:88)larly d(cid:88)rin(cid:74) the first nine months of the year(cid:17) (cid:44)n (cid:54)O(cid:54)(cid:15) Classic (cid:36)ero delivered reven(cid:88)e (cid:74)rowth of (cid:7)(cid:23)(cid:17)0m(cid:15) or (cid:28)(cid:17)6(cid:8)(cid:15) to (cid:7)(cid:23)(cid:24)(cid:17)8m(cid:15) reflectin(cid:74) more aircraft (cid:88)sin(cid:74) the prod(cid:88)ct(cid:17) (cid:39)irect costs in o(cid:88)r Core (cid:69)(cid:88)siness remained fairly immaterial at (cid:7)1(cid:17)2m in 2018(cid:15) whilst indirect costs increased sli(cid:74)htly to (cid:7)10(cid:17)2m in the year(cid:17) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) and (cid:37)(cid:88)siness (cid:56)nit Operatin(cid:74) Cash Flow for the Core (cid:36)viation (cid:69)(cid:88)siness conse(cid:84)(cid:88)ently (cid:69)oth (cid:74)rew (cid:69)y (cid:7)21(cid:17)(cid:26)m to (cid:7)1(cid:23)3(cid:17)(cid:23)m in the year(cid:17) IFC (cid:44)FC reven(cid:88)es(cid:15) comprisin(cid:74) o(cid:88)r (cid:42)(cid:59) (cid:36)viation services for (cid:44)FC and o(cid:88)r (cid:47)(cid:16)(cid:69)and(cid:16)(cid:69)ased (cid:44)FC services for commercial aviation(cid:15) to(cid:74)ether (cid:74)rew (cid:69)y (cid:7)(cid:24)2(cid:17)0m to (cid:7)101(cid:17)3m in 2018(cid:15) incl(cid:88)din(cid:74) the first (cid:42)(cid:59)(cid:16)(cid:74)enerated (cid:44)FC airtime reven(cid:88)e of (cid:7)(cid:26)(cid:17)1m(cid:17) (cid:58)e have c(cid:17) 1(cid:15)(cid:24)80 aircraft (cid:88)nder si(cid:74)ned contracts for o(cid:88)r (cid:42)(cid:59) and (cid:40)(cid:36)(cid:49) (cid:44)FC services(cid:17) (cid:55)here are c(cid:17) (cid:23)(cid:24)0 f(cid:88)rther aircraft for which either e(cid:91)istin(cid:74) c(cid:88)stomers have an option to install f(cid:88)rther aircraft or where new c(cid:88)stomers have committed to (cid:42)(cid:59) hardware with third party s(cid:88)ppliers(cid:17) (cid:58)e contin(cid:88)e to p(cid:88)rs(cid:88)e o(cid:88)r rollin(cid:74) new (cid:69)(cid:88)siness pipeline of aro(cid:88)nd 3(cid:15)000 aircraft(cid:17) (cid:36) n(cid:88)m(cid:69)er of c(cid:88)stomers si(cid:74)ned contracts for (cid:42)(cid:59) (cid:36)viation in 2018 and some c(cid:88)stomers e(cid:91)panded their initial aircraft and fleet mandates for o(cid:88)r (cid:44)FC services(cid:17) (cid:44)n(cid:16)Fli(cid:74)ht Connectivity reven(cid:88)es more than do(cid:88)(cid:69)led to (cid:7)101m(cid:15) incl(cid:88)din(cid:74) the first (cid:42)(cid:59) (cid:44)FC airtime reven(cid:88)es of (cid:7)(cid:26)m SwiftBroadband-Safety: the next generation of safety and operational services (cid:54)wift(cid:37)road(cid:69)and(cid:16)(cid:54)afety (cid:11)(cid:67)(cid:54)(cid:37)(cid:16)(cid:54)’(cid:12)(cid:15) (cid:88)tilisin(cid:74) o(cid:88)r (cid:47)(cid:16)(cid:69)and networ(cid:78)(cid:15) is (cid:44)nmarsat’s new (cid:74)lo(cid:69)al safety service in (cid:36)viation(cid:17) (cid:55)he service ena(cid:69)les the e(cid:91)chan(cid:74)e of detailed real(cid:16)time information (cid:69)etween an aircraft and the (cid:74)ro(cid:88)nd(cid:15) (cid:88)nloc(cid:78)in(cid:74) new levels of intelli(cid:74)ence to help drive decision(cid:16)ma(cid:78)in(cid:74) and optimise fleet performance(cid:17) (cid:55)he (cid:78)ey advanta(cid:74)e of the prod(cid:88)ct for airlines is that it drives operational efficiencies thro(cid:88)(cid:74)h f(cid:88)el savin(cid:74)s(cid:15) (cid:69)etter asset (cid:88)tilisation(cid:15) the potential to increase capacity and ass(cid:88)red safety(cid:17) For the ind(cid:88)stry(cid:15) (cid:54)(cid:37)(cid:16)(cid:54) ena(cid:69)les (cid:74)lo(cid:69)al air traffic mana(cid:74)ement modernisation and a(cid:88)tomation to deal with ever more con(cid:74)ested s(cid:78)ies(cid:17) (cid:39)(cid:88)rin(cid:74) the year(cid:15) (cid:44)nmarsat and (cid:51)anasonic (cid:36)vionics Corporation (cid:11)(cid:67)(cid:51)anasonic’(cid:12) entered into a strate(cid:74)ic colla(cid:69)oration a(cid:74)reement in Commercial (cid:36)viation(cid:15) which will accelerate o(cid:88)r drive to esta(cid:69)lish a (cid:74)lo(cid:69)al leadership position in (cid:44)FC(cid:17) (cid:44)nmarsat will (cid:69)ecome (cid:51)anasonic’s e(cid:91)cl(cid:88)sive lon(cid:74)(cid:16)term provider of (cid:46)a(cid:16)(cid:69)and (cid:44)FC capacity(cid:15) thro(cid:88)(cid:74)h (cid:42)(cid:59)(cid:15) and will have access to (cid:51)anasonic’s downstream (cid:44)F(cid:40) presence and capa(cid:69)ility(cid:17) (cid:36)t the end of 2018(cid:15) there were (cid:23)(cid:24)2 aircraft installed with (cid:44)nmarsat (cid:42)(cid:59) and (cid:40)(cid:36)(cid:49) e(cid:84)(cid:88)ipment across a n(cid:88)m(cid:69)er of c(cid:88)stomers(cid:15) incl(cid:88)din(cid:74) over 100 (cid:42)(cid:59) connected aircraft now in commercial service(cid:17) (cid:58)e e(cid:91)pect the rate of installation to f(cid:88)rther increase over the comin(cid:74) (cid:84)(cid:88)arters(cid:17) (cid:51)reparations are well advanced for the service roll(cid:16)o(cid:88)t of the (cid:40)(cid:88)ropean (cid:36)viation (cid:49)etwor(cid:78)(cid:15) which is e(cid:91)pected to ta(cid:78)e place d(cid:88)rin(cid:74) (cid:43)1 201(cid:28)(cid:15) followin(cid:74) a (cid:67)soft la(cid:88)nch’ with o(cid:88)r c(cid:88)stomer in (cid:48)arch 201(cid:28)(cid:17) (cid:44)FC direct costs increased to (cid:7)(cid:24)(cid:24)(cid:17)1m (cid:11)201(cid:26)(cid:29) (cid:7)11(cid:17)3m(cid:12)(cid:15) d(cid:88)e to additional short term (cid:42)(cid:59) e(cid:84)(cid:88)ipment sales and contract(cid:88)al start(cid:16)(cid:88)p costs(cid:17) (cid:44)ndirect costs in (cid:44)FC increased to (cid:7)(cid:24)(cid:26)(cid:17)(cid:26)m (cid:11)201(cid:26)(cid:29) (cid:7)(cid:24)(cid:24)(cid:17)8m(cid:12)(cid:15) mainly reflectin(cid:74) an increase in service delivery headco(cid:88)nt (cid:69)(cid:88)t also lower mar(cid:78)etin(cid:74) e(cid:91)pendit(cid:88)re(cid:17) Cash cape(cid:91) in (cid:44)FC decreased (cid:69)y (cid:7)10(cid:28)(cid:17)0m to (cid:7)3(cid:23)(cid:17)8m(cid:15) reflectin(cid:74) investment in the (cid:54)(cid:16)(cid:69)and satellite in the first half of 201(cid:26) and lower investment in (cid:42)(cid:59) on(cid:69)oard e(cid:84)(cid:88)ipment in 2018(cid:17) (cid:44)FC (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) improved (cid:69)y (cid:7)6(cid:17)3m to (cid:7)(cid:11)11(cid:17)(cid:24)(cid:12)m(cid:17) (cid:44)FC Operatin(cid:74) Cash Flow improved si(cid:74)nificantly red(cid:88)cin(cid:74) the level of start(cid:16)(cid:88)p investment (cid:69)y (cid:7)11(cid:24)(cid:17)3m to (cid:7)(cid:23)6(cid:17)3m(cid:17) S t r a t e g i c R e p o r t (cid:42) o v e r n a n c e i F n a n c a i l (cid:54) t a t e m e n t s 32 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Business overview ENTERPRISE Industrial Internet of Things (‘IIoT’) is a significant opportunity  for satellite operators In the IIoT market, satellite connectivity will directly serve end users or augment cellular technology in doing so. Discover more at inmarsat.com We are focused on delivering end-to-end solutions for a small number of IIoT markets Mining, agriculture and fisheries, transportation and the global supply chain are key potential growth areas for our solutions and services. 7.6% Growth in our Machine to Machine revenues in 2018 (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview 33 S t r a t e g i c R e p o r t (cid:42) o v e r n a n c e OPTIMISING OPERATIONS From field to fork – we’re connecting the physical world to the digital world, wherever the location (cid:107) (cid:58)e are re(cid:16)ali(cid:74)nin(cid:74) o(cid:88)r (cid:40)nterprise (cid:69)(cid:88)siness (cid:88)nit to ens(cid:88)re we are placed to capt(cid:88)re the ma(cid:77)or lon(cid:74) term (cid:74)rowth opport(cid:88)nity in (cid:44)(cid:44)o(cid:55)(cid:121) (cid:51)a(cid:88)l (cid:42)(cid:88)donis (cid:51)resident (cid:44)nmarsat (cid:40)nterprise We continue to seek to stabilise and optimise our legacy product base Despite increasing competitive pressure from terrestrial coverage, we aim to stabilise our legacy product base and re-orientate them towards back-up, emergency and event-driven usage. Discover more at inmarsat.com i F n a n c a i l (cid:54) t a t e m e n t s 34 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Business overview ENTERPRISE Market overview and Inmarsat’s position (cid:55)he ma(cid:77)or lon(cid:74)(cid:16)term (cid:74)rowth opport(cid:88)nity for (cid:40)nterprise is in the emer(cid:74)in(cid:74) (cid:44)nd(cid:88)strial (cid:44)nternet of (cid:55)hin(cid:74)s (cid:11)(cid:67)(cid:44)(cid:44)o(cid:55)’(cid:12) mar(cid:78)et(cid:15) where satellite connectivity will directly serve end (cid:88)sers or a(cid:88)(cid:74)ment cell(cid:88)lar technolo(cid:74)y in doin(cid:74) so(cid:17) (cid:55)o capt(cid:88)re this (cid:74)rowth opport(cid:88)nity(cid:15) we are re(cid:16)ali(cid:74)nin(cid:74) o(cid:88)r (cid:40)nterprise (cid:69)(cid:88)siness to deliver connectivity as a service(cid:15) foc(cid:88)sed on deliverin(cid:74) end(cid:16)to(cid:16)end sol(cid:88)tions to a small n(cid:88)m(cid:69)er of tar(cid:74)eted (cid:54)atellite (cid:44)(cid:44)o(cid:55) mar(cid:78)ets(cid:15) incl(cid:88)din(cid:74) minin(cid:74) (cid:11)where (cid:54)atellite (cid:44)(cid:44)o(cid:55) can for e(cid:91)ample lead to material improvements in safety(cid:12)(cid:15) a(cid:74)ric(cid:88)lt(cid:88)re and fisheries(cid:15) transportation and the (cid:74)lo(cid:69)al s(cid:88)pply chain(cid:17) (cid:36) n(cid:88)m(cid:69)er of these services are at an early trial sta(cid:74)e with (cid:69)l(cid:88)e chip corporations(cid:15) as we (cid:69)(cid:88)ild a s(cid:88)staina(cid:69)le (cid:44)(cid:44)o(cid:55) platform for the lon(cid:74) term(cid:17) (cid:58)hile there is limited f(cid:88)t(cid:88)re (cid:74)rowth potential for o(cid:88)r le(cid:74)acy prod(cid:88)cts(cid:15) d(cid:88)e to increasin(cid:74) terrestrial networ(cid:78) covera(cid:74)e which places o(cid:88)r le(cid:74)acy mar(cid:78)ets in sec(cid:88)lar decline(cid:15) we will contin(cid:88)e to see(cid:78) to optimise the reven(cid:88)e (cid:74)eneration of o(cid:88)r le(cid:74)acy prod(cid:88)cts(cid:15) s(cid:88)ch as (cid:37)road(cid:69)and (cid:42)lo(cid:69)al (cid:36)rea (cid:49)etwor(cid:78) (cid:11)(cid:67)(cid:37)(cid:42)(cid:36)(cid:49)’(cid:12) and satellite phones(cid:17) (cid:58)hile these prod(cid:88)cts will contin(cid:88)e to decline over time(cid:15) we will re(cid:16)orientate these prod(cid:88)cts towards (cid:69)ac(cid:78)(cid:16)(cid:88)p(cid:15) emer(cid:74)ency and event(cid:16)driven (cid:88)sa(cid:74)e(cid:17) 2018 results (cid:40)nterprise reven(cid:88)es declined (cid:69)y (cid:7)2(cid:17)6m or 2(cid:17)0(cid:8) in the year(cid:15) as a res(cid:88)lt of the on(cid:16)(cid:74)oin(cid:74) mar(cid:78)et press(cid:88)re on o(cid:88)r le(cid:74)acy prod(cid:88)ct (cid:69)ase o(cid:88)tlined a(cid:69)ove(cid:17) (cid:55)his mar(cid:78)et press(cid:88)re(cid:15) as well as a challen(cid:74)in(cid:74) (cid:52)3 201(cid:26) comparator(cid:15) impacted (cid:37)(cid:42)(cid:36)(cid:49) d(cid:88)rin(cid:74) the year(cid:15) when reven(cid:88)es fell (cid:69)y (cid:7)2(cid:17)(cid:24)m or (cid:28)(cid:17)0(cid:8)(cid:15) to (cid:7)2(cid:24)(cid:17)3m(cid:17) (cid:54)atellite phone reven(cid:88)e increased (cid:69)y (cid:7)(cid:28)(cid:17)2m(cid:15) or 30(cid:17)0(cid:8)(cid:15) to (cid:7)3(cid:28)(cid:17)(cid:28)m in 2018(cid:15) driven principally (cid:69)y several si(cid:93)ea(cid:69)le handset orders d(cid:88)rin(cid:74) the year(cid:17) Fi(cid:91)ed(cid:16)to(cid:16)mo(cid:69)ile reven(cid:88)es declined (cid:69)y (cid:7)(cid:24)(cid:17)8m to (cid:7)10(cid:17)(cid:28)m(cid:15) reflectin(cid:74) contin(cid:88)ed mi(cid:74)ration to (cid:57)oice(cid:16)over(cid:16)(cid:44)(cid:51)(cid:17) (cid:48)achine to (cid:48)achine (cid:11)(cid:67)(cid:48)2(cid:48)’(cid:12) reven(cid:88)e increased (cid:69)y (cid:7)1(cid:17)(cid:23)m(cid:15) or (cid:26)(cid:17)6(cid:8)(cid:15) to (cid:7)1(cid:28)(cid:17)8m in 2018(cid:15) driven (cid:69)y on(cid:16)(cid:74)oin(cid:74) demand for (cid:48)2(cid:48) in commercial applications(cid:17) (cid:58)e made contin(cid:88)ed pro(cid:74)ress in developin(cid:74) a n(cid:88)m(cid:69)er of proof(cid:16)of(cid:16)concept initiatives in (cid:44)(cid:44)o(cid:55) d(cid:88)rin(cid:74) the year(cid:17) (cid:53)even(cid:88)e from other services within (cid:40)nterprise fell (cid:69)y (cid:7)(cid:23)(cid:17)(cid:28)m to (cid:7)3(cid:23)(cid:17)1m in 2018(cid:17) (cid:55)hese services incl(cid:88)de leasin(cid:74) contracts of (cid:7)13(cid:17)(cid:24)m and F(cid:37) for ener(cid:74)y c(cid:88)stomers of (cid:7)(cid:24)(cid:17)(cid:24)m for the year(cid:17) From (cid:52)1 201(cid:28)(cid:15) o(cid:88)r F(cid:37) ener(cid:74)y (cid:69)(cid:88)siness in (cid:40)nterprise will (cid:69)e transitioned into (cid:48)aritime and(cid:15) conse(cid:84)(cid:88)ently(cid:15) related reven(cid:88)es of c(cid:17) (cid:7)(cid:24)m pa will (cid:69)e reported in the (cid:48)aritime (cid:37)(cid:88)siness (cid:56)nit (cid:74)oin(cid:74) forward(cid:17) (cid:36)r(cid:69)itration proceedin(cid:74)s contin(cid:88)e for (cid:44)nmarsat’s (cid:42)(cid:59) (cid:55)a(cid:78)e(cid:16)or(cid:16)(cid:51)ay contract with (cid:53)i(cid:74)(cid:49)et(cid:17) (cid:44)n (cid:39)ecem(cid:69)er 2018(cid:15) the (cid:44)nternational Centre for (cid:39)isp(cid:88)te (cid:53)esol(cid:88)tion’s ar(cid:69)itration tri(cid:69)(cid:88)nal iss(cid:88)ed a r(cid:88)lin(cid:74) in favo(cid:88)r of (cid:44)nmarsat to concl(cid:88)de (cid:51)hase 1 of the ar(cid:69)itration proceedin(cid:74)s(cid:17) (cid:55)he tri(cid:69)(cid:88)nal’s r(cid:88)lin(cid:74) fo(cid:88)nd that a (cid:55)a(cid:78)e(cid:16)or(cid:16)(cid:51)ay o(cid:69)li(cid:74)ation (cid:88)nder the ori(cid:74)inal 201(cid:23) contract had commenced and conse(cid:84)(cid:88)ently (cid:53)i(cid:74)(cid:49)et owed (cid:44)nmarsat (cid:7)(cid:24)0(cid:17)8m pl(cid:88)s interest(cid:15) s(cid:88)(cid:69)(cid:77)ect to any offset from (cid:53)i(cid:74)(cid:49)et’s co(cid:88)nterclaims in (cid:51)hase 2(cid:15) which are e(cid:91)pected to (cid:69)e ad(cid:77)(cid:88)dicated (cid:88)pon d(cid:88)rin(cid:74) the second half of 201(cid:28)(cid:17) (cid:39)irect costs increased (cid:69)y (cid:7)2(cid:17)8m to (cid:7)26(cid:17)2m in 2018(cid:15) d(cid:88)e to a hi(cid:74)her proportion of lower (cid:74)ross mar(cid:74)in satellite phone handsets sold in the period(cid:17) (cid:44)ndirect costs increased (cid:69)y (cid:7)(cid:23)(cid:17)2m to (cid:7)21(cid:17)(cid:24)m in 2018(cid:15) mainly as a res(cid:88)lt of le(cid:74)al costs associated with the (cid:53)i(cid:74)(cid:49)et ar(cid:69)itration(cid:17) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) was conse(cid:84)(cid:88)ently (cid:7)(cid:28)(cid:17)6m lower in 2018(cid:15) with (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in declinin(cid:74) to 62(cid:17)(cid:26)(cid:8)(cid:17) C(cid:88)stomer and prod(cid:88)ct fo(cid:88)ndations to penetrate the emer(cid:74)in(cid:74) (cid:74)lo(cid:69)al satellite (cid:67)(cid:44)nd(cid:88)strial (cid:44)nternet(cid:16)of(cid:16)(cid:55)hin(cid:74)s’ opport(cid:88)nity (cid:69)(cid:88)ildin(cid:74) steadily Revenue $130.0m (cid:11)2(cid:17)0(cid:8)(cid:12) EBITDA $82.3m (cid:11)10(cid:17)(cid:23)(cid:8)(cid:12) Enterprise Business Results (cid:53)even(cid:88)e (cid:39)irect costs Gross margin (cid:44)ndirect costs EBITDA (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in (cid:8) Cash cape(cid:91) Business Unit Operating Cash Flow Year ended 31 December 2018 $m 130.0 (26.2) 103.8 (21.5) 82.3 201(cid:26) (cid:7)m 132(cid:17)6 (cid:11)23(cid:17)(cid:23)(cid:12) 10(cid:28)(cid:17)2 (cid:11)1(cid:26)(cid:17)3(cid:12) (cid:28)1(cid:17)(cid:28) 63.3% 6(cid:28)(cid:17)3(cid:8) – 82.3 – (cid:28)1(cid:17)(cid:28) Chan(cid:74)e (cid:11)2(cid:17)0(cid:8)(cid:12) (cid:11)12(cid:17)0(cid:8)(cid:12) (cid:11)(cid:23)(cid:17)(cid:28)(cid:8)(cid:12) (cid:11)2(cid:23)(cid:17)3(cid:8)(cid:12) (cid:11)10(cid:17)(cid:23)(cid:8)(cid:12) – – (cid:11)10(cid:17)(cid:23)(cid:8)(cid:12) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview 35 Delivering reliable connectivity to the aquaculture sector (cid:36)(cid:84)(cid:88)ac(cid:88)lt(cid:88)re is one of the fastest(cid:16)(cid:74)rowin(cid:74) food ind(cid:88)stries in the world(cid:15) d(cid:88)e to a steady increase in cons(cid:88)mer demand for fish and the contin(cid:88)in(cid:74) depletion of wild fish stoc(cid:78)s(cid:17) Fish farmers are constantly loo(cid:78)in(cid:74) for innovative ways to accelerate the (cid:74)rowth of their stoc(cid:78)s(cid:15) which can (cid:69)e achieved (cid:69)y ens(cid:88)rin(cid:74) that sea ca(cid:74)es(cid:15) (cid:11)lar(cid:74)e nets attached to floatin(cid:74) platforms anchored off(cid:16)shore(cid:12)(cid:15) have the optimal level of o(cid:91)y(cid:74)en(cid:17) O(cid:59)(cid:61)O(cid:15) a leadin(cid:74) Chilean specialist in o(cid:91)y(cid:74)en sol(cid:88)tions for the salmon farmin(cid:74) ind(cid:88)stry(cid:15) developed specialist technolo(cid:74)y to monitor the level of o(cid:91)y(cid:74)en in the water in sea ca(cid:74)es and distri(cid:69)(cid:88)te additional o(cid:91)y(cid:74)en(cid:15) if s(cid:88)(cid:69)se(cid:84)(cid:88)ently re(cid:84)(cid:88)ired(cid:17) (cid:43)owever(cid:15) as the ca(cid:74)es are often many miles away from the shore(cid:15) it was critical that the o(cid:91)y(cid:74)enation e(cid:84)(cid:88)ipment co(cid:88)ld (cid:69)e operated and controlled remotely(cid:15) ma(cid:78)in(cid:74) constant connectivity essential(cid:17) Ori(cid:74)inally(cid:15) O(cid:59)(cid:61)O e(cid:84)(cid:88)ipped the platforms with (cid:46)(cid:88)(cid:16)(cid:69)and satellite technolo(cid:74)y(cid:17) (cid:43)owever(cid:15) constant movement of the platforms(cid:15) d(cid:88)e to ocean swells(cid:15) res(cid:88)lted in the weather(cid:16)s(cid:88)scepti(cid:69)le (cid:46)(cid:88)(cid:16)(cid:69)and antennas losin(cid:74) connectivity(cid:17) (cid:55)he s(cid:88)(cid:69)se(cid:84)(cid:88)ent constant re(cid:16)ali(cid:74)nment of the platforms too(cid:78) (cid:88)p m(cid:88)ch time and was very costly(cid:17) The Inmarsat-based solution O(cid:59)(cid:61)O then en(cid:74)a(cid:74)ed (cid:55)esacom(cid:15) a specialist in deployin(cid:74) inte(cid:74)rated comm(cid:88)nication networ(cid:78)s in remote environments(cid:15) to develop a sol(cid:88)tion that was (cid:69)ased on (cid:44)nmarsat’s (cid:74)lo(cid:69)al (cid:47)(cid:16)(cid:69)and satellite networ(cid:78)(cid:15) accessed thro(cid:88)(cid:74)h a (cid:43)(cid:88)(cid:74)hes (cid:48)2(cid:48) inte(cid:74)rated terminal(cid:17) (cid:58)ith (cid:28)(cid:28)(cid:17)(cid:28)(cid:8) availa(cid:69)ility(cid:15) the (cid:44)nmarsat(cid:16) (cid:69)ased sol(cid:88)tion delivered constant connectivity and relia(cid:69)le transmission of data from the floatin(cid:74) platforms to the company’s monitorin(cid:74) centre(cid:17) (cid:55)his sol(cid:88)tion ens(cid:88)red that the o(cid:91)y(cid:74)en distri(cid:69)(cid:88)tion system co(cid:88)ld (cid:69)e effectively monitored remotely(cid:15) re(cid:74)ardless of conditions(cid:15) (cid:69)y ena(cid:69)lin(cid:74) constant and relia(cid:69)le comm(cid:88)nication (cid:69)etween the control room and the o(cid:91)y(cid:74)en (cid:74)eneration e(cid:84)(cid:88)ipment(cid:15) to ens(cid:88)re f(cid:88)ll a(cid:88)tomation of the delivery of o(cid:91)y(cid:74)en at its floatin(cid:74) platforms(cid:17) (cid:37)y ens(cid:88)rin(cid:74) an optimal level of o(cid:91)y(cid:74)en was present in the ca(cid:74)es at all times(cid:15) there(cid:69)y speedin(cid:74) (cid:88)p the fish c(cid:88)ltivation process(cid:15) O(cid:59)(cid:61)O co(cid:88)ld red(cid:88)ce costs and improve prod(cid:88)ctivity(cid:15) ens(cid:88)rin(cid:74) the provision of the very (cid:69)est service to its clients(cid:17) (cid:55)he (cid:44)nmarsat(cid:16) (cid:69)ased sol(cid:88)tion delivered constant connectivity and relia(cid:69)le transmission of data from the floatin(cid:74) platforms to the company’s monitorin(cid:74) centre S t r a t e g i c R e p o r t (cid:42) o v e r n a n c e i F n a n c a i l (cid:54) t a t e m e n t s 36 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 ENABLING CONNECTIVITY From managing and operating our networks to helping the business deliver its strategic priorities, Central Services is there to ensure we serve our customers’ needs 24/7 (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) (cid:37)(cid:88)siness overview 37 Business overview CENTRAL SERVICES O(cid:88)r Central (cid:54)ervices team is responsi(cid:69)le for mana(cid:74)in(cid:74) and operatin(cid:74) o(cid:88)r satellite and (cid:74)ro(cid:88)nd networ(cid:78)s and s(cid:88)pportin(cid:74) the (cid:69)(cid:88)siness to deliver its strate(cid:74)ic priorities(cid:17) Technology O(cid:88)r Central (cid:55)echnolo(cid:74)y Office mana(cid:74)es and operates o(cid:88)r (cid:74)lo(cid:69)al satellite and (cid:74)ro(cid:88)nd infrastr(cid:88)ct(cid:88)re(cid:15) and mana(cid:74)es the desi(cid:74)n(cid:15) (cid:69)(cid:88)ild and la(cid:88)nch of o(cid:88)r new satellite networ(cid:78)s(cid:17) O(cid:88)r (cid:47)(cid:16)(cid:69)and satellite networ(cid:78)s(cid:15) thro(cid:88)(cid:74)h o(cid:88)r (cid:44)nmarsat(cid:16)3 and (cid:44)nmarsat(cid:16)(cid:23) satellites(cid:15) have helped (cid:44)nmarsat to esta(cid:69)lish and develop a loyal c(cid:88)stomer and distri(cid:69)(cid:88)tion (cid:69)ase over time(cid:17) O(cid:88)r avera(cid:74)e (cid:47)(cid:16)(cid:69)and networ(cid:78) availa(cid:69)ility remains at (cid:28)(cid:28)(cid:17)(cid:28) per cent(cid:15) with this relia(cid:69)ility remainin(cid:74) attractive to (cid:74)overnment and commercial (cid:88)sers whose operations re(cid:84)(cid:88)ire mission and (cid:69)(cid:88)siness critical comm(cid:88)nications s(cid:88)pport(cid:17) (cid:55)he (cid:44)nmarsat(cid:16)6 satellites comprise two d(cid:88)al payload (cid:11)(cid:47)(cid:16)(cid:69)and and (cid:46)a(cid:16)(cid:69)and(cid:12) satellites to (cid:69)e la(cid:88)nched at the start of the ne(cid:91)t decade(cid:17) (cid:55)his will ens(cid:88)re the reorientation of o(cid:88)r (cid:47)(cid:16)(cid:69)and capa(cid:69)ilities towards new (cid:74)rowth opport(cid:88)nities (cid:88)ni(cid:84)(cid:88)ely addressa(cid:69)le (cid:69)y a c(cid:88)ttin(cid:74) ed(cid:74)e (cid:74)lo(cid:69)al networ(cid:78)(cid:15) with a small(cid:15) low(cid:16)cost(cid:15) hi(cid:74)hly relia(cid:69)le and a(cid:74)ile device to deliver o(cid:88)r services to end (cid:88)sers(cid:17) (cid:55)he (cid:42)(cid:59) networ(cid:78)(cid:15) (cid:69)ased on o(cid:88)r fo(cid:88)r (cid:44)nmarsat(cid:16)(cid:24) satellites in (cid:46)a(cid:16)(cid:69)and(cid:15) is f(cid:88)lly operational and has (cid:69)een reven(cid:88)e (cid:74)eneratin(cid:74) since 2016(cid:15) with (cid:42)(cid:59)(cid:16)(cid:24) to (cid:69)e la(cid:88)nched in 201(cid:28)(cid:17) (cid:58)ith f(cid:88)ll (cid:74)lo(cid:69)al covera(cid:74)e esta(cid:69)lished(cid:15) o(cid:88)r f(cid:88)t(cid:88)re strate(cid:74)y for (cid:42)(cid:59) is to a(cid:88)(cid:74)ment o(cid:88)r networ(cid:78) with new(cid:15) low(cid:16)cost technolo(cid:74)ies which will provide additional capacity (cid:69)y addin(cid:74) hi(cid:74)hly(cid:16)tar(cid:74)eted density(cid:17) (cid:55)his new satellite technolo(cid:74)y will (cid:69)e a(cid:69)le to deliver a si(cid:74)nificant step(cid:16)(cid:88)p in thro(cid:88)(cid:74)hp(cid:88)t and capacity into (cid:78)ey re(cid:74)ions of hi(cid:74)h demand at low cost(cid:17) Operations O(cid:88)r or(cid:74)anisational infrastr(cid:88)ct(cid:88)re is mana(cid:74)ed and operated (cid:69)y o(cid:88)r Central Operations Office(cid:15) with s(cid:88)pport from o(cid:88)r f(cid:88)nctional teams in Finance(cid:15) (cid:43)(cid:53)(cid:15) (cid:48)ar(cid:78)etin(cid:74)(cid:15) (cid:47)e(cid:74)al(cid:15) (cid:53)e(cid:74)(cid:88)latory(cid:15) Compliance(cid:15) (cid:53)is(cid:78) and (cid:42)overnance(cid:17) (cid:58)e contin(cid:88)e to drive (cid:69)est practice and innovation to drive o(cid:88)t cost and comple(cid:91)ity across o(cid:88)r or(cid:74)anisation(cid:15) to (cid:69)ecome more a(cid:74)ile and to (cid:69)ecome easier for partners(cid:15) c(cid:88)stomers and s(cid:88)ppliers to do (cid:69)(cid:88)siness with(cid:17) Product Group (cid:44)n 201(cid:26)(cid:15) we esta(cid:69)lished a Central (cid:51)rod(cid:88)ct (cid:42)ro(cid:88)p to drive end(cid:16)to(cid:16)end prod(cid:88)ct development and mana(cid:74)ement across the (cid:42)ro(cid:88)p(cid:15) (cid:69)rin(cid:74)in(cid:74) to(cid:74)ether all prod(cid:88)ct(cid:16)related activities (cid:88)nder one roof(cid:15) with the addition of a nascent di(cid:74)ital services team(cid:17) (cid:55)his will provide more foc(cid:88)s and a(cid:74)ility in o(cid:88)r prod(cid:88)ct and service innovation(cid:15) development and life cycle mana(cid:74)ement(cid:15) (cid:69)oth di(cid:74)ital and non(cid:16)di(cid:74)ital(cid:17) (cid:55)he (cid:51)rod(cid:88)ct (cid:42)ro(cid:88)p will wor(cid:78) as a catalyst (cid:69)etween the (cid:69)(cid:88)siness (cid:88)nits and the central f(cid:88)nctions(cid:15) foc(cid:88)sin(cid:74) on the strate(cid:74)ic and commercial val(cid:88)e of these services(cid:15) as well as drivin(cid:74) a m(cid:88)lti(cid:16)disciplinary approach to (cid:69)(cid:88)ildin(cid:74) them(cid:17) 2018 results for Central Services (cid:53)even(cid:88)e and (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) from (cid:47)i(cid:74)ado increased (cid:69)y (cid:7)1(cid:17)(cid:28)m and (cid:7)3(cid:17)8m(cid:15) respectively(cid:15) in line with o(cid:88)r co(cid:16)operation a(cid:74)reement with (cid:47)i(cid:74)ado(cid:17) (cid:55)his a(cid:74)reement stip(cid:88)lates that payments from (cid:47)i(cid:74)ado to (cid:44)nmarsat will pa(cid:88)se in 201(cid:28) (cid:11)(cid:88)nless (cid:47)i(cid:74)ado o(cid:69)tains its FCC licence d(cid:88)rin(cid:74) 201(cid:28)(cid:15) in which event payments will res(cid:88)me thereafter(cid:12) and then res(cid:88)me from the (cid:69)e(cid:74)innin(cid:74) of 2020 at c(cid:17) (cid:7)136m per ann(cid:88)m(cid:15) (cid:74)rowin(cid:74) thereafter at 3(cid:8) compo(cid:88)nd over the ne(cid:91)t 8(cid:28) years(cid:17) (cid:36)ny payments not made in 201(cid:28) (cid:11)(cid:88)p to (cid:7)132(cid:17)3m in a(cid:74)(cid:74)re(cid:74)ate(cid:12)(cid:15) to(cid:74)ether with prior payments deferred (cid:69)etween 2016 and 2018 (cid:11)appro(cid:91)imately (cid:7)3(cid:24)m in a(cid:74)(cid:74)re(cid:74)ate(cid:12) will (cid:69)ecome d(cid:88)e for payment (cid:69)y (cid:47)i(cid:74)ado with interest from their ori(cid:74)inal date of payment no later than 30 (cid:45)(cid:88)ne 2021(cid:17) (cid:47)i(cid:74)ado contin(cid:88)es in its efforts to o(cid:69)tain its licence from the Federal Comm(cid:88)nications Commission (cid:11)(cid:67)FCC’(cid:12)(cid:15) with the timin(cid:74) and conse(cid:84)(cid:88)ent impact on (cid:44)nmarsat of any s(cid:88)ch decision remainin(cid:74) (cid:88)ncertain(cid:17) Central (cid:54)ervices direct costs increased (cid:69)y (cid:7)3(cid:17)8m in the year mainly d(cid:88)e to hi(cid:74)her inventory provisions(cid:17) (cid:44)ndirect costs in Central (cid:54)ervices fell (cid:69)y (cid:7)2(cid:26)(cid:17)2m(cid:15) mainly reflectin(cid:74) the (cid:7)1(cid:28)(cid:17)(cid:28)m restr(cid:88)ct(cid:88)rin(cid:74) char(cid:74)e in (cid:52)(cid:23) 201(cid:26)(cid:15) the impact of the implementation of (cid:44)F(cid:53)(cid:54) 16 which moved lease costs into depreciation d(cid:88)rin(cid:74) the year (cid:11)(cid:7)12(cid:17)8m(cid:12)(cid:15) lower operatin(cid:74) costs and adverse c(cid:88)rrency movements of (cid:7)8(cid:17)(cid:26)m(cid:17) Central (cid:54)ervices cape(cid:91) increased (cid:69)y (cid:7)82(cid:17)0m to (cid:7)(cid:23)(cid:28)6(cid:17)(cid:24)m(cid:15) d(cid:88)e to the timin(cid:74) of e(cid:91)pendit(cid:88)re on ma(cid:77)or infrastr(cid:88)ct(cid:88)re pro(cid:74)rammes(cid:15) incl(cid:88)din(cid:74) the (cid:24)th (cid:42)(cid:59) satellite and the (cid:44)(cid:16)6 satellite infrastr(cid:88)ct(cid:88)re(cid:17) Central (cid:54)ervices(cid:17) Revenue related to Ligado Networks $130.7m (cid:14)1(cid:17)(cid:24)(cid:8) EBITDA $(143.3)m (cid:14)1(cid:24)(cid:17)1(cid:8) Central services results Revenue (cid:47)i(cid:74)ado (cid:49)etwor(cid:78)s Other Total Revenue (cid:39)irect costs Gross Margin (cid:44)ndirect costs EBITDA Cash cape(cid:91) Business Unit Operating Cash Flow Year ended 31 December 2018 $m 201(cid:26) (cid:11)restated(cid:12) (cid:7)m 130.7 14.6 145.3 (20.4) 124.9 (268.2) (143.3) (496.5) (639.8) 128(cid:17)8 1(cid:23)(cid:17)(cid:24) 1(cid:23)3(cid:17)3 (cid:11)16(cid:17)6(cid:12) 126(cid:17)(cid:26) (cid:11)2(cid:28)(cid:24)(cid:17)(cid:23)(cid:12) (cid:11)168(cid:17)(cid:26)(cid:12) (cid:11)(cid:23)1(cid:23)(cid:17)(cid:24)(cid:12) (cid:11)(cid:24)83(cid:17)2(cid:12) Chan(cid:74)e 1(cid:17)(cid:24)(cid:8) 0(cid:17)(cid:26)(cid:8) 1(cid:17)(cid:23)(cid:8) (cid:11)22(cid:17)(cid:28)(cid:8)(cid:12) (cid:11)1(cid:17)(cid:23)(cid:8)(cid:12) (cid:28)(cid:17)2(cid:8) 1(cid:24)(cid:17)1(cid:8) (cid:11)1(cid:28)(cid:17)8(cid:8)(cid:12) (cid:11)(cid:28)(cid:17)(cid:26)(cid:8)(cid:12) S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 38 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Chief Financial Officer’s review (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Chief Financial Officer’s review Consistent reven(cid:88)e and (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) (cid:74)rowth (cid:44)nmarsat prod(cid:88)ced another year of reven(cid:88)e (cid:74)rowth in 2018(cid:15) helpin(cid:74) (cid:88)s to deliver solid (cid:74)rowth in (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:15) driven (cid:69)y the stren(cid:74)th of o(cid:88)r diversified (cid:74)rowth portfolio and contin(cid:88)ed operational delivery TONY BATES CHIEF FINANCIAL OFFICER Highlights Group Results 5.3% Increase in Group revenue 4.2% Increase in EBITDA › (cid:39)il(cid:88)ted (cid:40)(cid:51)(cid:54) of 2(cid:26) cents › (cid:49)et de(cid:69)t to (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) of 2(cid:17)8(cid:91) › Over (cid:7)1(cid:69)n of li(cid:84)(cid:88)idity Revenue (cid:54)atellite services (cid:47)i(cid:74)ado reven(cid:88)e Total revenue (cid:39)irect costs Gross margin (cid:44)ndirect costs EBITDA (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in (cid:8) Cash capex Full Year 2017 (restated) $m 1(cid:15)262(cid:17)(cid:28) 128(cid:17)8 1,391.7 2018 $m 1(cid:15)33(cid:23)(cid:17)(cid:24) 130(cid:17)(cid:26) 1,465.2 Change (cid:24)(cid:17)(cid:26)(cid:8) 1(cid:17)(cid:24)(cid:8) 5.3% (cid:11)2(cid:24)(cid:24)(cid:17)0(cid:12) (cid:11)1(cid:28)0(cid:17)(cid:26)(cid:12) (cid:11)33(cid:17)(cid:26)(cid:8)(cid:12) 1,210.2 1,201.0 (cid:11)(cid:23)(cid:23)0(cid:17)1(cid:12) 770.1 (cid:24)2(cid:17)6(cid:8) 590.7 (cid:11)(cid:23)61(cid:17)(cid:26)(cid:12) 739.3 (cid:24)3(cid:17)1(cid:8) 614.1 0.8% (cid:23)(cid:17)(cid:26)(cid:8) 4.2% 3.8% (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Chief Financial Officer’s review 39 Group Results (cid:42)ro(cid:88)p reven(cid:88)es increased in 2018 (cid:69)y (cid:7)(cid:26)3(cid:17)(cid:24)m(cid:15) mainly driven (cid:69)y do(cid:88)(cid:69)le(cid:16)di(cid:74)it (cid:74)rowth in (cid:36)viation(cid:15) as well as another stron(cid:74) (cid:42)overnment performance(cid:17) (cid:42)(cid:59)(cid:16)(cid:74)enerated airtime and related reven(cid:88)es1 were (cid:7)2(cid:24)0(cid:17)(cid:28)m for the year(cid:15) (cid:88)p from (cid:7)13(cid:24)(cid:17)(cid:28)m in 201(cid:26)(cid:17) (cid:39)irect costs increased (cid:69)y (cid:7)6(cid:23)(cid:17)3m in the year(cid:15) mainly reflectin(cid:74) increased low mar(cid:74)in e(cid:84)(cid:88)ipment sales(cid:15) partic(cid:88)larly in (cid:36)viation(cid:15) and hi(cid:74)her provisions a(cid:74)ainst possi(cid:69)le f(cid:88)t(cid:88)re (cid:69)ad de(cid:69)ts(cid:17) (cid:44)ndirect costs fell (cid:69)y (cid:7)21(cid:17)6m(cid:15) mainly reflectin(cid:74) the (cid:7)1(cid:28)(cid:17)(cid:28)m restr(cid:88)ct(cid:88)rin(cid:74) char(cid:74)e in (cid:52)(cid:23) 201(cid:26) which was not repeated in 2018(cid:17) (cid:36)n adverse impact from c(cid:88)rrency movements was offset (cid:69)y the impact of implementation of (cid:44)F(cid:53)(cid:54) 16(cid:15) which moved lease costs into depreciation(cid:17) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) was conse(cid:84)(cid:88)ently (cid:7)30(cid:17)8m hi(cid:74)her in 2018(cid:17) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) mar(cid:74)in fell sli(cid:74)htly to (cid:24)2(cid:17)6(cid:8)(cid:15) from (cid:24)3(cid:17)1(cid:8) in 201(cid:26)(cid:17) (cid:42)ro(cid:88)p reven(cid:88)es and (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) e(cid:91)cl(cid:88)din(cid:74) (cid:47)i(cid:74)ado increased (cid:69)y (cid:7)(cid:26)1(cid:17)6m to (cid:7)1(cid:15)33(cid:23)(cid:17)(cid:24)m and (cid:7)2(cid:26)(cid:17)0m to (cid:7)63(cid:28)(cid:17)(cid:24)m respectively(cid:17) (cid:47)i(cid:74)ado contri(cid:69)(cid:88)ted reven(cid:88)es of (cid:7)130(cid:17)(cid:26)m (cid:11)201(cid:26)(cid:29) (cid:7)128(cid:17)8m(cid:12) and (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) of (cid:7)130(cid:17)6m (cid:11)201(cid:26)(cid:29) (cid:7)126(cid:17)8m(cid:12) for the year(cid:17) Cash cape(cid:91) levels contin(cid:88)e to reflect the c(cid:88)rrent ma(cid:77)or infrastr(cid:88)ct(cid:88)re pro(cid:77)ects(cid:15) partic(cid:88)larly the (cid:42)(cid:59)(cid:16)(cid:24) and (cid:44)(cid:16)6 satellite infrastr(cid:88)ct(cid:88)res(cid:17)2 Depreciation and amortisation (‘D&A’) & other costs (cid:39)(cid:9)(cid:36) increased (cid:69)y (cid:7)(cid:24)6(cid:17)(cid:24)m in 2018(cid:15) mainly d(cid:88)e to the (cid:44)(cid:16)(cid:24) F(cid:23) and (cid:54)(cid:16)(cid:69)and satellites comin(cid:74) into commercial service in (cid:52)(cid:23) 201(cid:26)(cid:17) (cid:55)he increase in other costs is attri(cid:69)(cid:88)ta(cid:69)le to fi(cid:91)ed asset impairments totallin(cid:74) (cid:7)1(cid:23)(cid:17)(cid:24)m for the year(cid:17) Net financing cost (cid:49)et financin(cid:74) costs for the year increased (cid:69)y (cid:7)30(cid:17)(cid:23)m(cid:15) driven mainly (cid:69)y the increase in the (cid:88)nrealised conversion lia(cid:69)ility on the 2023 Converti(cid:69)le (cid:37)ond of (cid:7)23(cid:17)2m(cid:17) Financin(cid:74) costs e(cid:91)cl(cid:88)din(cid:74) derivative ad(cid:77)(cid:88)stments remained relatively flat for the year at (cid:7)10(cid:24)(cid:17)8m(cid:17) Taxation (cid:55)he total ta(cid:91) char(cid:74)e for the year decreased (cid:69)y (cid:7)(cid:24)(cid:17)(cid:28)m to (cid:7)(cid:23)2(cid:17)(cid:28)m mainly reflectin(cid:74) lower stat(cid:88)tory profit (cid:69)efore ta(cid:91)(cid:17) (cid:55)he (cid:88)nderlyin(cid:74) effective ta(cid:91) rate for the year (cid:11)after removin(cid:74) the impact of the (cid:88)nrealised conversion lia(cid:69)ility of the converti(cid:69)le (cid:69)onds and reassessment of prior year estimates(cid:12) was 18(cid:17)1(cid:8) (cid:11)201(cid:26)(cid:29) 1(cid:24)(cid:17)(cid:26)(cid:8)(cid:12)(cid:15) driven primarily (cid:69)y the non(cid:16)rec(cid:88)rrin(cid:74) item of chan(cid:74)es to provisions in respect of on(cid:74)oin(cid:74) en(cid:84)(cid:88)iries with a n(cid:88)m(cid:69)er of ta(cid:91) a(cid:88)thorities(cid:15) as well as a red(cid:88)ction in (cid:56)(cid:46) patent (cid:69)o(cid:91) relief (cid:69)ein(cid:74) availa(cid:69)le in 2018 and on(cid:74)oin(cid:74) chan(cid:74)es in the relative levels of profita(cid:69)ility in (cid:77)(cid:88)risdictions where the stat(cid:88)tory ta(cid:91) rate is different to the (cid:56)(cid:46)(cid:17) (cid:55)he effective ta(cid:91) rate for 2018 of 2(cid:24)(cid:17)(cid:24)(cid:8) (cid:11)201(cid:26)(cid:29) 20(cid:17)(cid:28)(cid:8)(cid:12) is hi(cid:74)her than the (cid:56)(cid:46) stat(cid:88)tory rate of 1(cid:28)(cid:8) (cid:11)201(cid:26)(cid:29) 1(cid:28)(cid:17)2(cid:24)(cid:8)(cid:12) reflectin(cid:74) all of the iss(cid:88)es noted a(cid:69)ove(cid:17) From time to time(cid:15) the (cid:42)ro(cid:88)p may (cid:69)e involved in disp(cid:88)tes in relation to on(cid:74)oin(cid:74) ta(cid:91) matters where a ta(cid:91) a(cid:88)thority adopts a different interpretation to o(cid:88)r own(cid:17) (cid:55)he (cid:42)ro(cid:88)p maintains ta(cid:91) provisions in respect of on(cid:74)oin(cid:74) en(cid:84)(cid:88)iries with ta(cid:91) a(cid:88)thorities(cid:17) (cid:44)n the event that all s(cid:88)ch en(cid:84)(cid:88)iries were settled entirely in favo(cid:88)r of the a(cid:88)thorities(cid:15) the (cid:42)ro(cid:88)p wo(cid:88)ld inc(cid:88)r a cash ta(cid:91) o(cid:88)tflow of c(cid:17) (cid:7)110m(cid:15) e(cid:91)cl(cid:88)din(cid:74) interest(cid:15) d(cid:88)rin(cid:74) 201(cid:28)(cid:17) (cid:55)he (cid:84)(cid:88)ant(cid:88)m and timin(cid:74) of this cost remains (cid:88)ncertain (cid:69)(cid:88)t it is s(cid:88)(cid:69)stantially provided for and the en(cid:84)(cid:88)iries remain on(cid:74)oin(cid:74) at this time(cid:17) (cid:55)he (cid:42)ro(cid:88)p anticipates an initial concl(cid:88)sion in respect of the most si(cid:74)nificant en(cid:84)(cid:88)iry in 201(cid:28)(cid:17) Profit after tax (‘PAT’) (cid:36)d(cid:77)(cid:88)sted (cid:51)(cid:36)(cid:55)(cid:15) which e(cid:91)cl(cid:88)des the impact of the (cid:88)nrealised conversion lia(cid:69)ility(cid:15) decreased (cid:69)y (cid:7)(cid:23)(cid:24)(cid:17)2m(cid:17) (cid:55)his reflects chan(cid:74)es in (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:15) depreciation(cid:15) financin(cid:74) costs and ta(cid:91)ation noted a(cid:69)ove(cid:17) (cid:54)tat(cid:88)tory (cid:51)(cid:36)(cid:55) saw a lar(cid:74)er decrease of (cid:7)60(cid:17)0m for the year compared to (cid:36)d(cid:77)(cid:88)sted (cid:51)(cid:36)(cid:55)(cid:15) d(cid:88)e to an increase in the (cid:88)nrealised conversion lia(cid:69)ility on the 2023 Converti(cid:69)le (cid:37)ond disc(cid:88)ssed a(cid:69)ove(cid:17) Reconciliation of EBITDA to Profit after tax ($ in millions) EBITDA (cid:39)epreciation and amortisation Other Operating profit (cid:49)et financin(cid:74) income(cid:18)(cid:11)costs(cid:12) (cid:55)a(cid:91)ation char(cid:74)e Profit after tax (cid:36)dd(cid:69)ac(cid:78) of chan(cid:74)e in fair val(cid:88)e of derivative (cid:11)2023 converti(cid:69)le (cid:69)ond(cid:12) (cid:36)dd(cid:69)ac(cid:78) restr(cid:88)ct(cid:88)rin(cid:74) char(cid:74)e after ta(cid:91) Adjusted profit after tax Full Year 2017 (restated) $m 739.3 (cid:11)(cid:23)11(cid:17)8(cid:12) Change 4.2% (cid:11)13(cid:17)(cid:26)(cid:8)(cid:12) (cid:11)3(cid:17)3(cid:12) (cid:11)2(cid:28)(cid:26)(cid:17)0(cid:8)(cid:12) 324.2 (cid:11)(cid:28)0(cid:17)(cid:23)(cid:12) (cid:11)(cid:23)8(cid:17)8(cid:12) (11.0%) (cid:11)33(cid:17)6(cid:8)(cid:12) 12(cid:17)1(cid:8) 185.0 (32.4%) (cid:11)(cid:26)(cid:17)(cid:26)(cid:12) 16(cid:17)1 (cid:11)(cid:23)01(cid:17)3(cid:8)(cid:12) – 2018 $m 770.1 (cid:11)(cid:23)68(cid:17)3(cid:12) (cid:11)13(cid:17)1(cid:12) 288.7 (cid:11)120(cid:17)8(cid:12) (cid:11)(cid:23)2(cid:17)(cid:28)(cid:12) 125.0 23(cid:17)2 – 148.2 193.4 (23.4%) (cid:44)nfrastr(cid:88)ct(cid:88)re cape(cid:91) is e(cid:91)pected to meanin(cid:74)f(cid:88)lly moderate after 2020 1 (cid:42)(cid:59) reven(cid:88)es restated for (cid:44)F(cid:53)(cid:54) 1(cid:24) (cid:11)impactin(cid:74) 201(cid:26) fi(cid:74)(cid:88)res only(cid:12) and to incl(cid:88)de Fleet (cid:59)press terminal reven(cid:88)es(cid:15) which were not previo(cid:88)sly incl(cid:88)ded 2 Cash cape(cid:91) in 201(cid:26)(cid:15) restated for (cid:44)F(cid:53)(cid:54) 1(cid:24)(cid:15) was (cid:7)1(cid:24)(cid:17)(cid:23)m hi(cid:74)her than previo(cid:88)sly stated(cid:15) d(cid:88)e to the reclassification of installation costs from cash (cid:74)enerated from operations to cash (cid:88)sed in investin(cid:74) activities S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 40 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Chief Financial Officer’s review (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Chief Financial Officer’s review contin(cid:88)ed Group Balance Sheet (cid:55)he increase in the (cid:42)ro(cid:88)p’s non(cid:16)c(cid:88)rrent assets of (cid:7)1(cid:28)(cid:28)(cid:17)0m is lar(cid:74)ely d(cid:88)e to o(cid:88)r on(cid:74)oin(cid:74) investment in new technolo(cid:74)y and infrastr(cid:88)ct(cid:88)re(cid:15) incl(cid:88)din(cid:74) (cid:42)(cid:59) and (cid:44)(cid:16)6 constellation(cid:15) less the depreciation of e(cid:91)istin(cid:74) assets in service(cid:17) (cid:55)he net decrease in c(cid:88)rrent assets of (cid:7)16(cid:23)(cid:17)(cid:24)m has (cid:69)een driven mainly (cid:69)y the decrease in short term deposits which have (cid:69)een (cid:88)sed to f(cid:88)nd additional capital investment in the (cid:69)(cid:88)siness(cid:17) (cid:55)he decrease in c(cid:88)rrent lia(cid:69)ilities of (cid:7)(cid:24)0(cid:17)1m is lar(cid:74)ely attri(cid:69)(cid:88)ta(cid:69)le to the decrease in trade and other paya(cid:69)les of (cid:7)8(cid:28)(cid:17)0m to (cid:7)(cid:24)(cid:23)(cid:24)(cid:17)(cid:23)m(cid:17) (cid:55)his was mainly d(cid:88)e to the timin(cid:74) of the settlement of trade paya(cid:69)les aro(cid:88)nd the year end(cid:17) (cid:49)on(cid:16)c(cid:88)rrent lia(cid:69)ilities decreased (cid:69)y (cid:7)1(cid:23)(cid:17)1m to (cid:7)2(cid:15)826(cid:17)(cid:26)m(cid:17) (cid:55)his was primarily driven (cid:69)y a decrease in non(cid:16)c(cid:88)rrent (cid:69)orrowin(cid:74)s of (cid:7)(cid:28)(cid:26)(cid:17)6m d(cid:88)e to a portion of the (cid:40)(cid:91)(cid:16)(cid:44)m (cid:69)an(cid:78) facilities (cid:69)ecomin(cid:74) d(cid:88)e within one year and conse(cid:84)(cid:88)ently (cid:69)ein(cid:74) reclassified to c(cid:88)rrent lia(cid:69)ilities(cid:17) Cash Flow (cid:49)et cash flow improved (cid:69)y (cid:7)(cid:28)1(cid:17)2m(cid:15) with the impact of lower cash dividends (cid:11)(cid:7)132(cid:17)8m(cid:12) more than offsettin(cid:74) a (cid:7)30(cid:17)(cid:26)m decrease in free cash flow(cid:17) (cid:55)he red(cid:88)ction in free cash flow was mainly driven (cid:69)y an increase in wor(cid:78)in(cid:74) capital which more than offset hi(cid:74)her (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) of (cid:7)30(cid:17)8m(cid:15) lower capital e(cid:91)pendit(cid:88)re of (cid:7)23(cid:17)(cid:23)m and lower ta(cid:91) paid of (cid:7)22(cid:17)1m(cid:17) Over 2018(cid:15) the amo(cid:88)nt of cash invested in wor(cid:78)in(cid:74) capital increased (cid:69)y (cid:7)61(cid:17)6m(cid:15) driven primarily (cid:69)y increased receiva(cid:69)les(cid:15) inventories and trade paya(cid:69)les(cid:17) (cid:53)eceiva(cid:69)les increased (cid:69)y (cid:7)(cid:24)6(cid:17)1m reflectin(cid:74) hi(cid:74)her reven(cid:88)es and the impact of to(cid:88)(cid:74)her mar(cid:78)et conditions on certain c(cid:88)stomers and a new (cid:69)illin(cid:74) system(cid:15) (cid:69)oth of which adversely impacted the pace of c(cid:88)stomer collections(cid:17) (cid:44)nventories increased (cid:69)y (cid:7)16(cid:17)8m(cid:15) reflectin(cid:74) a hi(cid:74)her level of terminal e(cid:84)(cid:88)ipment held in stoc(cid:78)(cid:17) (cid:44)n contrast(cid:15) in 201(cid:26)(cid:15) (cid:7)30(cid:17)(cid:26)m was released from wor(cid:78)in(cid:74) capital mainly reflectin(cid:74) the timin(cid:74) of s(cid:88)pplier payments which more than offset increased receiva(cid:69)les(cid:17) Cash capital e(cid:91)pendit(cid:88)re fell (cid:69)y (cid:7)23(cid:17)(cid:23)m(cid:15) driven mainly (cid:69)y the timin(cid:74) of ma(cid:77)or infrastr(cid:88)ct(cid:88)re investment(cid:15) partic(cid:88)larly the (cid:42)(cid:59)(cid:24) and (cid:44)(cid:16)6 satellites(cid:17) (cid:54)(cid:88)ccess(cid:16)(cid:69)ased cape(cid:91) was (cid:7)31(cid:17)6m lower(cid:15) mainly reflectin(cid:74) lower levels of (cid:42)(cid:59) installations in (cid:36)viation(cid:17) Other cape(cid:91) has remained consistent with the prior year as hi(cid:74)her investments in (cid:44)(cid:55) were offset (cid:69)y lower capitalised prod(cid:88)ct and service development e(cid:91)pendit(cid:88)re(cid:17) Group Balance Sheet (cid:49)on(cid:16)c(cid:88)rrent assets C(cid:88)rrent assets Total assets C(cid:88)rrent lia(cid:69)ilities (cid:49)on(cid:16)c(cid:88)rrent lia(cid:69)ilities Total liabilities Net assets Cash Flow EBITDA (cid:49)on(cid:16)cash items Chan(cid:74)e in wor(cid:78)in(cid:74) capital Cash generated from operations Cash Capital e(cid:91)pendit(cid:88)re (cid:49)et interest paid (cid:55)a(cid:91) received(cid:18)(cid:11)paid(cid:12) Free cash flow (cid:39)ividends paid to shareholders Other movements Net cash flow (cid:44)ncrease(cid:18)(cid:11)decrease(cid:12) to cash reclassified from short(cid:16)term deposits (cid:53)epayment of (cid:69)orrowin(cid:74)s Net increase/(decrease) in cash and cash equivalents Cash flow o(cid:88)tlined in this ta(cid:69)le is non(cid:16)stat(cid:88)tory Liquidity and net borrowings Cash and cash equivalents (cid:36)t (cid:69)e(cid:74)innin(cid:74) of the period (cid:49)et increase(cid:18)(cid:11)decrease(cid:12) in cash and cash e(cid:84)(cid:88)ivalents Forei(cid:74)n e(cid:91)chan(cid:74)e ad(cid:77)(cid:88)stment Sub-total (net of bank overdrafts) Short term deposits (cid:36)t (cid:69)e(cid:74)innin(cid:74) of the period (cid:49)et (cid:11)decrease(cid:12)(cid:18)increase in short term deposits Sub-total Total cash, cash equivalents and short term deposits Opening net borrowings1 (cid:49)et cash flow (cid:49)on(cid:16)cash movements2 Closing net borrowings1 At 31 December 2018 $m (cid:23)(cid:15)332(cid:17)0 (cid:26)0(cid:24)(cid:17)(cid:26) 2017 (restated) $m (cid:23)(cid:15)133(cid:17)0 8(cid:26)0(cid:17)2 5,027.7 5,003.2 (cid:11)86(cid:23)(cid:17)2(cid:12) (cid:11)(cid:28)1(cid:23)(cid:17)3(cid:12) (cid:11)2(cid:15)826(cid:17)(cid:26)(cid:12) (cid:11)2(cid:15)8(cid:23)0(cid:17)8(cid:12) (3,690.9) (3,755.1) 1,336.8 1,248.1 Full Year 2018 $m 770.1 (cid:23)(cid:17)(cid:28) (cid:11)61(cid:17)6(cid:12) 713.4 (cid:11)(cid:24)(cid:28)0(cid:17)(cid:26)(cid:12) (cid:11)11(cid:23)(cid:17)(cid:24)(cid:12) 2(cid:17)3 10.5 (cid:11)(cid:26)0(cid:17)1(cid:12) (cid:11)13(cid:17)(cid:28)(cid:12) (73.5) 1(cid:28)6(cid:17)3 (cid:11)12(cid:26)(cid:17)1(cid:12) (4.3) Full Year 2018 $m 1(cid:23)(cid:23)(cid:17)6 (cid:11)(cid:23)(cid:17)3(cid:12) 2(cid:17)(cid:28) 143.2 3(cid:23)2(cid:17)0 (cid:11)1(cid:28)6(cid:17)3(cid:12) 145.7 288.9 2017 (restated) $m 739.3 1(cid:28)(cid:17)8 30(cid:17)(cid:26) 789.8 (cid:11)61(cid:23)(cid:17)1(cid:12) (cid:11)11(cid:23)(cid:17)(cid:26)(cid:12) (cid:11)1(cid:28)(cid:17)8(cid:12) 41.2 (cid:11)202(cid:17)(cid:28)(cid:12) (cid:11)3(cid:17)0(cid:12) (164.7) (cid:24)3(cid:17)0 (cid:11)3(cid:17)(cid:24)(cid:12) (115.2) 2017 (restated) $m 261(cid:17)(cid:24) (cid:11)11(cid:24)(cid:17)2(cid:12) (cid:11)1(cid:17)(cid:26)(cid:12) 144.6 3(cid:28)(cid:24)(cid:17)0 (cid:11)(cid:24)3(cid:17)0(cid:12) 342.0 486.6 2,078.6 1,894.8 (cid:26)3(cid:17)(cid:24) 2(cid:23)(cid:17)6 16(cid:23)(cid:17)(cid:26) 1(cid:28)(cid:17)1 2,176.7 2,078.6 1 (cid:49)et (cid:69)orrowin(cid:74)s incl(cid:88)des the converti(cid:69)le (cid:69)ond(cid:15) total (cid:69)orrowin(cid:74)s less cash and cash e(cid:84)(cid:88)ivalents and short(cid:16)term investments(cid:17) (cid:37)orrowin(cid:74)s e(cid:91)cl(cid:88)de accr(cid:88)ed interest and any derivative lia(cid:69)ilities 2 (cid:49)on(cid:16)cash movements relate primarily to the amortisation of deferred financin(cid:74) costs and the accretion of the principal amo(cid:88)nt of the converti(cid:69)le (cid:69)ond (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Chief Financial Officer’s review 41 Capital Expenditure (cid:48)a(cid:77)or infrastr(cid:88)ct(cid:88)re pro(cid:77)ects1 (cid:54)(cid:88)ccess(cid:16)(cid:69)ased cape(cid:91)2 Other cape(cid:91)3 Cash flow timin(cid:74)4 Total cash capital expenditure Full Year 2018 $m 333(cid:17)(cid:24) 80(cid:17)(cid:23) 11(cid:24)(cid:17)3 61(cid:17)(cid:24) 590.7 2017 (restated) $m (cid:23)23(cid:17)(cid:24) 112(cid:17)0 11(cid:24)(cid:17)2 (cid:11)36(cid:17)6(cid:12) 614.1 (cid:67)(cid:48)a(cid:77)or infrastr(cid:88)ct(cid:88)re pro(cid:77)ects’ cape(cid:91) consists of satellite desi(cid:74)n(cid:15) (cid:69)(cid:88)ild and la(cid:88)nch costs and (cid:74)ro(cid:88)nd networ(cid:78) infrastr(cid:88)ct(cid:88)re costs 1 2 (cid:67)(cid:54)(cid:88)ccess(cid:16)(cid:69)ased cape(cid:91)’ consists of capital e(cid:84)(cid:88)ipment installed on ships(cid:15) aircraft and other c(cid:88)stomer platforms 3 (cid:23) (cid:107)Cash flow timin(cid:74)(cid:121) represents the difference (cid:69)etween accr(cid:88)ed cape(cid:91) and the act(cid:88)al cash flows (cid:67)Other cape(cid:91)’ investment primarily incl(cid:88)des infrastr(cid:88)ct(cid:88)re maintenance(cid:15) (cid:44)(cid:55) and capitalised prod(cid:88)ct and service development costs (cid:55)he cash flow timin(cid:74) ad(cid:77)(cid:88)stment shows the difference (cid:69)etween fi(cid:91)ed asset additions as reported in the (cid:69)alance sheet and the (cid:88)nderlyin(cid:74) cash dis(cid:69)(cid:88)rsements(cid:17) (cid:55)he movement (cid:69)etween years shown a(cid:69)ove was driven mainly (cid:69)y the timin(cid:74) of contract(cid:88)al payments on the (cid:44)(cid:16)6 and (cid:42)(cid:59)(cid:16)(cid:24) satellite pro(cid:74)rammes(cid:17) (cid:49)et interest paid was lar(cid:74)ely (cid:88)nchan(cid:74)ed at (cid:7)11(cid:23)(cid:17)(cid:24)m in 2018 with the impact of sli(cid:74)htly hi(cid:74)her net de(cid:69)t (cid:69)ein(cid:74) offset (cid:69)y hi(cid:74)her ret(cid:88)rns from invested cash (cid:69)alances(cid:17) (cid:55)he cash ta(cid:91) inflow in the year of (cid:7)2(cid:17)3m (cid:11)201(cid:26)(cid:29) (cid:7)1(cid:28)(cid:17)8m o(cid:88)tflow(cid:12) reflects a red(cid:88)ction in (cid:56)(cid:46) ta(cid:91)a(cid:69)le profits followin(cid:74) new research and development allowances and overseas ta(cid:91) prepayments now (cid:69)ein(cid:74) ref(cid:88)nded(cid:17) Group Liquidity and Net Borrowings Closin(cid:74) (cid:49)et (cid:37)orrowin(cid:74)s increased (cid:69)y (cid:7)(cid:28)8(cid:17)1m to (cid:7)2(cid:15)1(cid:26)6(cid:17)(cid:26)m(cid:15) mainly d(cid:88)e to short(cid:16)term deposits (cid:69)ein(cid:74) (cid:88)sed to f(cid:88)nd additional capital investment in the (cid:69)(cid:88)siness(cid:17) (cid:36)t 31 (cid:39)ecem(cid:69)er 2018(cid:15) the (cid:42)ro(cid:88)p had over (cid:7)1(cid:69)n in availa(cid:69)le li(cid:84)(cid:88)idity(cid:15) incl(cid:88)din(cid:74) cash and cash e(cid:84)(cid:88)ivalents of (cid:7)1(cid:23)3(cid:17)2m(cid:15) short term deposits of (cid:7)1(cid:23)(cid:24)(cid:17)(cid:26)m and availa(cid:69)le (cid:69)(cid:88)t (cid:88)ndrawn committed (cid:69)orrowin(cid:74) facilities of (cid:7)(cid:26)(cid:24)0m (cid:88)nder a (cid:54)enior (cid:53)evolvin(cid:74) Credit Facility(cid:17) Future Guidance (cid:55)he (cid:37)oard remains confident a(cid:69)o(cid:88)t the f(cid:88)t(cid:88)re prospects and o(cid:88)tloo(cid:78) for the (cid:42)ro(cid:88)p(cid:15) and provide the followin(cid:74) (cid:74)(cid:88)idance(cid:29) › (cid:36) tar(cid:74)et of mid(cid:16)sin(cid:74)le di(cid:74)it percenta(cid:74)e reven(cid:88)e (cid:74)rowth on avera(cid:74)e over the five year period(cid:15) 2018 to 2022(cid:15) with (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) and free cash flow (cid:74)eneration improvin(cid:74) steadily(cid:13) (cid:11)(cid:88)nchan(cid:74)ed(cid:12) › 201(cid:28) reven(cid:88)e(cid:15) e(cid:91) (cid:47)i(cid:74)ado(cid:15) of (cid:7)1(cid:15)300m to (cid:7)1(cid:15)(cid:23)00m (cid:11)new(cid:12) › (cid:36)nn(cid:88)al (cid:42)(cid:59) reven(cid:88)es at a r(cid:88)n rate of (cid:7)(cid:24)00m (cid:69)y the end of 2020 (cid:11)(cid:88)nchan(cid:74)ed(cid:12) › Cape(cid:91) of (cid:7)(cid:24)00m to (cid:7)600m per ann(cid:88)m for 201(cid:28) and 2020 (cid:11)(cid:88)nchan(cid:74)ed(cid:12) › Cape(cid:91) is e(cid:91)pected to meanin(cid:74)f(cid:88)lly moderate thereafter 2020(cid:15) fallin(cid:74) initially to within a ran(cid:74)e of (cid:7)(cid:23)(cid:24)0m to (cid:7)(cid:24)(cid:24)0m in 2021 (cid:11)(cid:88)pdated(cid:12) › (cid:49)et (cid:39)e(cid:69)t(cid:13)(cid:13)(cid:29) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) to normally remain (cid:69)elow 3(cid:17)(cid:24)(cid:91) (cid:11)(cid:88)nchan(cid:74)ed(cid:12) (cid:55)he (cid:42)ro(cid:88)p mana(cid:74)es a diverse (cid:74)rowth portfolio of (cid:69)(cid:88)sinesses and prod(cid:88)cts that in a(cid:74)(cid:74)re(cid:74)ate are e(cid:91)pected to deliver the (cid:74)(cid:88)idance a(cid:69)ove(cid:15) with the portfolio mi(cid:91) e(cid:91)pected to contin(cid:88)e to evolve as individ(cid:88)al mar(cid:78)ets develop over the medi(cid:88)m term(cid:17) (cid:55)he diversity of o(cid:88)r (cid:69)(cid:88)siness(cid:15) with a foc(cid:88)sed and attractive set of core end mar(cid:78)ets that offer scale and (cid:74)rowth potential(cid:15) and where we lead with s(cid:88)staina(cid:69)le differentiation(cid:15) will remain a (cid:78)ey stren(cid:74)th for (cid:44)nmarsat (cid:74)oin(cid:74) forward(cid:17) Dividends (cid:44)n (cid:48)arch 2018(cid:15) the dividend was red(cid:88)ced to an ann(cid:88)al rate of 20 cents per share(cid:15) with an e(cid:91)pectation that the ann(cid:88)al dividend will remain at these levels (cid:88)ntil the cash flow of the (cid:69)(cid:88)siness re(cid:69)(cid:88)ilds s(cid:88)fficiently to ma(cid:78)e an increase appropriate(cid:17) (cid:36) 2018 final dividend of 12 cents per share will therefore (cid:69)e proposed to shareholders in line with the 201(cid:26) final dividend(cid:17) (cid:44)nmarsat will contin(cid:88)e to provide shareholders with the option of a scrip dividend alternative for dividend payments(cid:15) and will review this approach on a re(cid:74)(cid:88)lar (cid:69)asis(cid:17) (cid:36)t the interim sta(cid:74)e(cid:15) the scrip option was ta(cid:78)en (cid:88)p (cid:69)y shareholders holdin(cid:74) a total of 8(cid:23)(cid:15)(cid:28)22(cid:15)(cid:24)(cid:24)6 shares (cid:11)18(cid:17)(cid:23)(cid:8) of the then iss(cid:88)ed share capital(cid:12) with an iss(cid:88)e val(cid:88)e of (cid:7)6(cid:17)8m(cid:17) (cid:55)hese shares were iss(cid:88)ed on 1(cid:28) Octo(cid:69)er 2018(cid:17) (cid:44)nmarsat plc now has (cid:23)63(cid:15)(cid:23)80(cid:15)8(cid:28)(cid:26) shares in iss(cid:88)e(cid:17) (cid:55)he dividend is to (cid:69)e paid on 30 (cid:48)ay 201(cid:28) to ordinary shareholders on the share re(cid:74)ister at the close of (cid:69)(cid:88)siness on 23 (cid:36)pril 201(cid:28)(cid:17) (cid:54)hareholders will (cid:69)e as(cid:78)ed to approve the final dividend payment at the (cid:36)nn(cid:88)al (cid:42)eneral (cid:48)eetin(cid:74) on 1 (cid:48)ay 201(cid:28)(cid:17) (cid:39)ividend payments are made in (cid:51)o(cid:88)nds (cid:54)terlin(cid:74) or in shares (cid:88)sin(cid:74) an e(cid:91)chan(cid:74)e rate derived from the (cid:58)(cid:48)(cid:53)e(cid:88)ters (cid:42)(cid:37)(cid:51)(cid:18)(cid:56)(cid:54)(cid:39) (cid:28)am fi(cid:91) (cid:11)(cid:47)ondon time(cid:12) fo(cid:88)r (cid:69)(cid:88)siness days prior to the date of anno(cid:88)ncement of the scrip reference price(cid:17) (cid:55)he 2018 final dividend is not recorded as a lia(cid:69)ility in the financial statements at 31 (cid:39)ecem(cid:69)er 2018(cid:17) TONY BATES CHIEF FINANCIAL OFFICER 18 (cid:48)arch 201(cid:28) (cid:13) (cid:40)(cid:91)cl(cid:88)din(cid:74) any impact of on(cid:74)oin(cid:74) e(cid:91)ceptional ta(cid:91) matter disc(cid:88)ssed on pa(cid:74)e 3(cid:28) (cid:13)(cid:13) (cid:56)nder (cid:44)nmarsat’s levera(cid:74)e policy(cid:15) noted here(cid:15) (cid:67)(cid:49)et (cid:39)e(cid:69)t’ is defined as total e(cid:91)ternal de(cid:69)t net of cash and cash e(cid:84)(cid:88)ivalents and short(cid:16)term deposits as reported in note 20(cid:17) (cid:47)ease lia(cid:69)ilities are not incl(cid:88)ded in levera(cid:74)e calc(cid:88)lations S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 42 Strategic Report | Corporate social responsibility Inmarsat plc | Annual Report and Accounts 2018 Corporate social responsibility Delivering a positive impact Corporate responsibility is a key enabler for our business, supporting sustainable long-term performance by managing non-financial risks that can impact reputation and shareholder value Ensuring we act in an ethical manner, taking account of our responsibilities – socially and environmentally – is important in the way we operate and interact with our stakeholders, including investors, employees, suppliers and business partners. This way of working contributes to how we create value for all stakeholders. More information on our Corporate Social Responsibility (‘CSR’) activities can be found on our website. Our heritage in supporting safety of life at sea and enabling connectivity where there would otherwise be none, is something we have provided for 40 years and we are proud of how we therefore contribute to a global society. This section of the Annual Report is prepared in accordance with the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016. We have included information on new developments and performance and discussed the impact of our activity relating to environmental, employee and social matters. CSR is embedded into our governance structure. The Board provides oversight on activity and delegates these responsibilities to the Chief Executive Officer (who has an ESG objective within his annual objectives) who cascades these duties within the Executive Management Team. The Board is updated where there are any issues which need to be reported on CSR. We are also committed to improving transparency in these areas and, as a result, respond annually to the RobecoSAM Corporate Sustainability Assessment. Materiality Our 2017 Annual Report and Accounts (published in 2018) reported on topics recognised by our stakeholders as having a significant impact on our business in respect of economic, social and environmental (ESG) issues. This was the first time we reported on ESG matters in line with the Global Reporting Initiative (GRI) standards and we are pleased this year to build on this. Material topics reported by stakeholders as important to them in 2018 were cyber security, access to services and customer privacy. 2018 Materiality results HIGH 1 2 2 3 4 5 8 7 9 16 11 6 9 10 17 19 15 12 14 18 Top 3 Cyber security Customer privacy Access to worldwide services l s r e d o h e r a h s o t e c n a v e e R l LOW Relevance to ICT industry HIGH 1 Cyber security 2 Customer privacy 3 Access to worldwide services 4 Anti-bribery and corruption 5 Customer climate change adaptation 6 Supplier screening on social issues 7 Customer energy efficiency 8 Training and investing in people Equal opportunities, diversity 9 and outreach activities Inmarsat emissions target 10 Environmental impact of satellite launches 11 12 Environmental impact of space debris 13 Waste in operations 14 Charitable giving 15 Use of raw materials including precious metals 16 Procuring renewable energy 17 Engaging with suppliers to reduce emissions 18 Energy efficiency of operations 19 Public policy & political contributions The Company recognises the importance of electronic information, systems and network security (cyber security) and security updates are included as Board agenda items several times a year. We have a dedicated cyber security team whose primary role is to safeguard the Company to meet its legal and regulatory obligations, maintain business continuity and limit damage to business interests. In recognition of the work undertaken throughout 2018 we achieved ISO 27001 accreditation at the end of 2018. There were no material cyber security incidents during the year. There were no leaks, theft or losses of customer data. We were in compliance with the new GDPR requirements applicable from May 2018, with our policies and processes implemented and tested. We have continued to invest in our controls and review our current policies. In 2018, we continued our engagement with our external and internal stakeholders including employees, customers, suppliers and shareholders. We held stakeholder interviews and sent out surveys to understand the level of stakeholder concern regarding a wide range of sustainability issues. We then assessed the relative importance of the issues identified by our stakeholders to the ICT industry by conducting analysis of key sustainability topics reported by companies in the DJSI (Dow Jones Sustainability Indices) World Index. The results are shown on the matrix above and have informed the content included within this report. In 2019, we will continue to engage with stakeholders, internally and externally, to prioritise sustainability issues and help us better manage our impact. We have utilised the GRI framework again to structure our disclosures. Our GRI Content Index can be found on the CSR section of our website. There have been no significant restatements or changes in the reporting boundary since the previous reporting year. We will continue to engage with our stakeholders on an ongoing basis. Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Corporate social responsibility 43 Code of conduct, anti-corruption and anti-bribery and corporate tax evasion Our Code of Ethics requires Directors, officers, employees and contractors to conduct business with the highest standards of personal and professional integrity. A copy of our Code of Ethics is published on our website. We comply with local laws where we operate and, in 2018, we have received no fines or penalties associated with non-compliance to any law relating to the environment, human rights violations, labour standards, anti-corruption or related to claims of tax evasion. Across our Group we ensure our employees comply with the UK Bribery Act and the U.S. Foreign and Corrupt Practices Act. A summary of our anti-bribery and anti-corruption policy can be found on our website. As part of our commitment to preventing bribery and establishing a culture that does not tolerate corruption wherever and in whatever form it takes, we ask our employees and contractors to confirm annually that they understand the restrictions outlined in the policy and the implications for breaching the policy for the business and them as individuals. Our anti-bribery policy operates in line with current legislation. The policy also incorporates guidelines on dealing with gifts and accepting and giving hospitality. Our latest training module on this subject was issued to employees in February 2018. We have policies in place dealing with ethics, fraud, the use of inside information and whistleblowing. These policies are fully endorsed and supported by the Board which has ultimate oversight. They are captured together in the Group legal compliance review which is circulated once a year for completion and accessed through the online training platform Nebula reaching our global employees. We have a worldwide anonymous telephone service for employees to use if they have any concerns. No calls were received by the external provider in 2018. There is also an email address for use by employees which is publicised on our intranet and in our policy documents. In addition, our internal audit team complete regular anti-corruption and anti-bribery risk assessments as part of the ongoing internal audit programme. All third parties that are in contact with Inmarsat during the course of any business matter, are also assessed for risks related to corruption through visual compliance and due diligence checks. We have detailed clauses in our contracts with agents, suppliers and partners regarding the need to adhere to anti-bribery requirements. Internal Audit has its annual plan in conducting reviews of business operations, financial and internal controls, IT and cyber security, and legal and regulatory compliance. Through these reviews Internal Audit assessed the key risks, including risks related to bribery and corruption, and mitigation activities undertaken by management, and reported its findings to the Audit Committee. In 2018 Internal Audit had not identified, or reported, or been aware of any incidences of corruption. Moreover, no legal cases relating to corruption have been brought against Inmarsat or its employees during the reporting period. No employees have been dismissed or disciplined for corruption activity and no business partners have had their contracts terminated or not renewed due to violations related to corruption in the reporting period. The Company has invested significant time and resources, working closely with an expert external organisation, to review its processes to ensure compliance with the recent new legislation regarding corporate tax evasion, combining the review with an updated assessment of its anti-bribery and corruption processes. The work has highlighted where improvements can be made to existing business processes and practices. Human rights We are committed to respecting the human rights of employees, customers, suppliers, business partners and the wider communities in which we operate. We could affect our people’s rights if our employment standards fall short, or workers in our supply chain through buying practices are not treated in accordance with local requirements. Inmarsat has had no incidents of non-compliances with labour standards or of human rights violations (including those relating to child labour or forced labour) within the reporting period. During 2019 we will be launching an overarching human rights policy and embedding it into our business. Wellbeing and health and safety The Inmarsat plc Board receives an annual update on the wellbeing and the health and safety activities across the Group. Rupert Pearce, CEO, has been identified as having responsibility for wellbeing and the health and safety issues within the Group and one of his 2018 objectives related to Health and Safety overview across the Group and the monitoring and performance of ESG requirements. We have a dedicated Health and Safety Manager who is located in our London headquarters and our subsidiary operations have identified managers responsible for health and safety. Our collective focus on employee wellbeing and the health and safety of employees and those who work on, or visit, our sites is a contributory factor to the success of our organisation. Our culture, with a safety focus, and our employees demand high standards for all aspects of health and safety. This is supported both by our mandated Health and Safety Policy and the principles contained within our Code of Ethics for employees. We promote wellbeing through a wide variety of programmes, including exercise and fitness promotion, flexible working, nutrition and occupational health checks. We know that good mental and physical health contributes to better decision making, greater productivity and higher levels of employee satisfaction. We run campaigns to encourage employees to take responsibility for their health problems, such as heart disease, diabetes and cancer. Our goal is to encourage strong leadership in championing the importance of a common-sense approach to health and safety in the workplace. We recognise the need to provide a safe working environment for our employees, contractors and any visitors. Health and Safety does not work in isolation from how we operate across our business. This year, new and improved processes were introduced to improve our ways of working. We had 23 (2017: 27) accidents or near misses reported, and again we had no fatalities. During the year we undertook the following activities: › Carried out Construction Design and Management compliance and audit assessments in relation to the refurbishment of our London headquarters › A global gap analysis was carried out to compare current conditions and practices in order to identify gaps and areas in need of improvement. Opportunities for improvement have already begun and will continue as part of our 2019 framework › We reviewed our fire strategy at our London office with a view to continue this approach into 2019 for all sites › Risk assessments continue to be a key focus of our business for different activities and legislative requirements › Mental health and first aid training and awareness was once again arranged and was well received across our global offices › The annual Wellbeing Week, with a focus on maintaining a healthy eating lifestyle for employees, continued to be supported by offices in all our key hubs GovernanceFinancial StatementsStrategic Report 44 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Corporate social responsi(cid:69)ility (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Corporate social responsibility contin(cid:88)ed › (cid:58)e contin(cid:88)ed to drive improvements in operatin(cid:74) in a safe operatin(cid:74) c(cid:88)lt(cid:88)re › (cid:58)e em(cid:69)edded processes in o(cid:88)r corporate systems for capt(cid:88)rin(cid:74) staff(cid:15) contractors or interns (cid:74)lo(cid:69)ally who may have a disa(cid:69)ility or mo(cid:69)ility impairment to (cid:69)e compliant with the (cid:40)(cid:84)(cid:88)ality (cid:36)ct 2010 (cid:58)e introd(cid:88)ced an on(cid:16)line tool for staff to lo(cid:74) incidents(cid:17) (cid:55)his will allow (cid:88)s to capt(cid:88)re data to monitor trends and implement corrective action where necessary(cid:17) (cid:55)his is partic(cid:88)larly (cid:88)sef(cid:88)l for o(cid:88)r field en(cid:74)ineers and those wor(cid:78)in(cid:74) in shipyards for installations and we have seen it (cid:69)ein(cid:74) (cid:88)sed across m(cid:88)ltiple (cid:74)ro(cid:88)p offices(cid:17) (cid:44)n 2018(cid:15) we participated in several (cid:56)(cid:46) local (cid:74)overnment(cid:16)led meetin(cid:74)s with emer(cid:74)ency service representatives to identify and assess ris(cid:78)s that may ca(cid:88)se an emer(cid:74)ency for o(cid:88)r (cid:69)(cid:88)siness and how to respond(cid:17) (cid:36)reas covered incl(cid:88)ded floodin(cid:74)(cid:15) pandemic fl(cid:88)(cid:15) (cid:88)tility fail(cid:88)res and terrorist attac(cid:78)s(cid:17) (cid:36)s part of o(cid:88)r (cid:69)(cid:88)siness of operatin(cid:74) a (cid:74)lo(cid:69)al satellite networ(cid:78)(cid:15) we operate a n(cid:88)m(cid:69)er of satellite access stations(cid:15) (cid:57)(cid:54)(cid:36)(cid:55) and telemetry and trac(cid:78)in(cid:74) facilities where there are satellite dishes which (cid:74)enerate radiation(cid:17) (cid:36)ccess to these sites is restricted and there are re(cid:74)(cid:88)lar health and safety chec(cid:78)s to ens(cid:88)re that they are in protected areas away from access (cid:69)y the (cid:74)eneral p(cid:88)(cid:69)lic(cid:17) (cid:51)ersonnel who wor(cid:78) at these sites are provided with relevant trainin(cid:74) as to health and safety iss(cid:88)es(cid:17) (cid:36)n additional area of ens(cid:88)rin(cid:74) we monitor effectively the safety of o(cid:88)r satellite operations is that we have adopted the hi(cid:74)hest ind(cid:88)stry standards in terms of space de(cid:69)ris miti(cid:74)ation(cid:17) (cid:55)his incl(cid:88)des end(cid:16)of(cid:16)life (cid:74)raveyard manoe(cid:88)vre plans for the disposal of satellites when they reach the end of their commercial life(cid:17) (cid:58)e operate o(cid:88)r satellites in (cid:74)eosynchrono(cid:88)s or(cid:69)it which is appro(cid:91)imately 36(cid:15)000(cid:78)m (cid:11)22(cid:15)(cid:24)00 miles(cid:12) a(cid:69)ove the (cid:40)arth(cid:17) (cid:55)his or(cid:69)it has si(cid:74)nificantly less de(cid:69)ris than at low earth or(cid:69)it which is appro(cid:91)imately (cid:26)00(cid:78)m a(cid:69)ove the (cid:40)arth and where several (cid:48)(cid:54)(cid:54) operators have their satellite constellations(cid:17) (cid:58)e are also a fo(cid:88)ndin(cid:74) mem(cid:69)er of the (cid:54)pace (cid:39)ata (cid:36)ssociation (cid:11)(cid:67)(cid:54)(cid:39)(cid:36)’(cid:12)(cid:17) (cid:36)lon(cid:74) with (cid:44)ntelsat(cid:15) (cid:54)(cid:40)(cid:54) and (cid:40)(cid:88)telsat we aim to improve the satellite safety of fli(cid:74)ht and ma(cid:78)e operations in space safer and more relia(cid:69)le(cid:17) Our technology (cid:58)e have identified technolo(cid:74)y as one of the (cid:78)ey reso(cid:88)rces s(cid:88)pportin(cid:74) o(cid:88)r (cid:69)(cid:88)siness model(cid:17) (cid:58)hile investment in innovation is clearly important(cid:15) havin(cid:74) talented and e(cid:91)perienced teams who (cid:88)nderstand how technolo(cid:74)y and innovation can wor(cid:78) to(cid:74)ether is essential(cid:17) O(cid:88)r teams monitor Volvo Ocean Race (cid:44)nmarsat contin(cid:88)ed its partnership with the (cid:57)olvo Ocean (cid:53)ace(cid:15) providin(cid:74) safety(cid:15) comm(cid:88)nications and advanced (cid:69)roadcastin(cid:74) services to the whole fleet(cid:17) (cid:55)he 201(cid:26)(cid:113)18 edition had s(cid:88)staina(cid:69)ility at its heart(cid:17) (cid:55)he team (cid:67)(cid:55)(cid:88)rn the (cid:55)ide on (cid:51)lastic’ formed part of the (cid:56)(cid:49) (cid:40)nvironment’s (cid:67)Clean (cid:54)eas’ Campai(cid:74)n(cid:15) which aims to (cid:69)etter (cid:88)nderstand the iss(cid:88)e of plastic poll(cid:88)tion in o(cid:88)r oceans and inspire the millions of race fans to ta(cid:78)e action a(cid:74)ainst sin(cid:74)le(cid:16)(cid:88)se plastic in their day(cid:16)to(cid:16)day lives(cid:17) what happens in the macro environment and see how this affects f(cid:88)t(cid:88)re innovation so we prod(cid:88)ce services o(cid:88)r c(cid:88)stomers want to (cid:88)se in a way which ta(cid:78)es into acco(cid:88)nt how we can wor(cid:78) with o(cid:88)r satellite man(cid:88)fact(cid:88)rers to ens(cid:88)re their processes are as environmentally friendly as possi(cid:69)le and also how o(cid:88)r la(cid:88)nch providers are also respondin(cid:74) to this(cid:17) (cid:54)pace(cid:59)(cid:15) with whom we have had a s(cid:88)ccessf(cid:88)l la(cid:88)nch(cid:15) is an e(cid:91)ample of a la(cid:88)nch provider which re(cid:88)ses some of its la(cid:88)nch vehicles and we (cid:69)elieve there will (cid:69)e a foc(cid:88)s on (cid:74)reener technolo(cid:74)y to (cid:69)e adopted more (cid:69)y all connected with the satellite ind(cid:88)stry (cid:74)oin(cid:74) forwards(cid:17) Our partners O(cid:88)r partners are critical to o(cid:88)r (cid:69)(cid:88)siness s(cid:88)ccess and s(cid:88)pplement o(cid:88)r own capa(cid:69)ilities(cid:17) (cid:58)e rely on their e(cid:91)perience to s(cid:88)pport o(cid:88)r (cid:69)(cid:88)siness o(cid:69)(cid:77)ectives and stren(cid:74)then o(cid:88)r service offerin(cid:74) and therefore(cid:15) we aspire to ne(cid:74)otiate deals that allow o(cid:88)r partners to ma(cid:78)e a fair ret(cid:88)rn whilst maintainin(cid:74) cost certainty and competitive mar(cid:78)et deals(cid:17) (cid:55)he roll(cid:16)o(cid:88)t of (cid:44)nmarsat’s (cid:54)treamline (cid:51)ro(cid:74)ramme for c(cid:88)stomers has contin(cid:88)ed thro(cid:88)(cid:74)ho(cid:88)t 2018(cid:17) (cid:55)he (cid:54)treamline (cid:51)ro(cid:74)ramme encompasses (cid:88)pdated terms and conditions and a(cid:74)reements for o(cid:88)r c(cid:88)stomers which can (cid:69)e accessed thro(cid:88)(cid:74)h the (cid:67)(cid:48)y (cid:44)nmarsat’ partner portal which contains pricin(cid:74) and prod(cid:88)ct information as well(cid:17) (cid:48)any of o(cid:88)r (cid:78)ey c(cid:88)stomers have transitioned to this new way of wor(cid:78)in(cid:74)(cid:17) (cid:36)dditionally(cid:15) all new prod(cid:88)cts are availa(cid:69)le via this partner portal and all new c(cid:88)stomers are (cid:88)sin(cid:74) the (cid:54)treamline (cid:51)ro(cid:74)ramme as standard(cid:17) (cid:55)his roll(cid:16)o(cid:88)t will contin(cid:88)e into 201(cid:28)(cid:17) O(cid:88)r (cid:51)roc(cid:88)rement team has delivered a n(cid:88)m(cid:69)er of ma(cid:77)or corporate deals d(cid:88)rin(cid:74) 2018(cid:15) savin(cid:74) (cid:88)s over (cid:7)(cid:23)6m (cid:113) hi(cid:74)hli(cid:74)hts incl(cid:88)de the award of (cid:42)(cid:59)(cid:24) contracts (cid:11)(cid:74)ro(cid:88)nd infrastr(cid:88)ct(cid:88)re(cid:15) antennas(cid:15) site preparation ready for the la(cid:88)nch of o(cid:88)r fifth (cid:42)(cid:59) satellite(cid:12) and so(cid:88)rcin(cid:74) a comple(cid:91) m(cid:88)lti(cid:16)vendor landscape to ena(cid:69)le a ma(cid:77)or (cid:44)(cid:55) transformation pro(cid:74)ramme (cid:11)One (cid:44)(cid:55)(cid:12) that will overha(cid:88)l o(cid:88)r internal service delivery capa(cid:69)ilities(cid:17) (cid:58)e contin(cid:88)e to lead the rationalisation of the vendor (cid:69)ase (cid:69)y reviewin(cid:74) different ways of (cid:69)(cid:88)yin(cid:74)(cid:17) (cid:36)doptin(cid:74) a different strate(cid:74)y on le(cid:74)acy iss(cid:88)es(cid:15) s(cid:88)ch as s(cid:88)pportin(cid:74) prod(cid:88)cts (cid:88)sin(cid:74) alternative s(cid:88)ppliers(cid:15) has helped (cid:88)s remove cost for o(cid:88)r sta(cid:78)eholders to spend on more val(cid:88)e added prod(cid:88)cts and services(cid:17) (cid:44)n addition we contin(cid:88)e to ne(cid:74)otiate appropriate terms of payment with o(cid:88)r vendors res(cid:88)ltin(cid:74) in paid on time invoices and wor(cid:78)in(cid:74) capital (cid:69)enefits(cid:17) Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Corporate social responsibility 45 Other notable events were the nomination, for the first time, for a Chartered Institute of Purchasing and Supply Management Award, which is known for recognising excellent performance in the UK, and the appointment of a new VP for Global Procurement, moving us forward on the next steps of our continuous improvement programme. As part of our ongoing programme of vendor due diligence we worked with a third party agency to review our entire vendor base to undertake a risk review including credit, compliance and other business risk areas. This analysis will be used to identify and mitigate risk in our supply chain and the supply chains of our vendors. The simplification of our Procure to Pay (‘P2P’) function was further supported by a number of enhancements to our core finance system. The Procurement Portal went live in early 2018, enabling a new, easier, more compliant way to buy across Inmarsat, ensuring employees are guided to the preferred and approved vendors we want them to use to ensure we make effective buying decisions. A P2P Kaizen event took place in Q3 2018, focused on improvements for working with our vendors. This, in conjunction with, the expansion of Purchasing Cards will allow the business to acquire the goods and services it needs using the most cost-effective methods. Our Modern Slavery Statement can be accessed on our website. An assessment of our vendors identified that the majority are located in very low risk areas. Inmarsat remains focused on the vendor due diligence it undertakes and highlights anything that doesn’t ‘feel right’ with the existing vendors we use. We also have clear guidelines on how we work with agents and government organisations. During 2019 we will be reviewing and publishing a new supplier code of conduct to hold suppliers to account for standards of ethical behaviour, environmental awareness, health and safety and other relevant working practises. Meeting our public responsibility Our website provides considerable information about how we connect with organisations, individuals and our different partners to extend the reach of our services to support those who may need assistance either for humanitarian needs or charitable endeavours. You can find out more online at inmarsat.com and review case studies and updates in our CSR section. As we enter our 40th year, we are very proud of our heritage for saving lives across the world through our connectivity capabilities. UN Sustainable Development Goals Inmarsat fully supports the objectives of the UN Sustainable Development Goals. We support various humanitarian and charitable organisations with either free airtime or support for hardware, and work with organisations in many developing parts of the world. Our heritage of saving lives at sea and our ability to connect people in areas where there is little or no infrastructure, reflects how our work touches directly or indirectly our support of the UN Goals. We will continue to identify ways we can work through our own staff, our partners and wider ecosystem to develop our support of these Goals further. Maritime Safety Services Maritime Safety is firmly embedded into the DNA of Inmarsat, with us continuing to be proud providers of the Global Maritime Distress and Safety Systems (‘GMDSS’). Inmarsat has been the sole satellite provider responsible for the safe keeping of our 1.6 million global seafarers around the world. We continue to be the only satellite communications provider currently providing the recognised services approved by the International Maritime Organisation (‘IMO’). Although we have a long and successful history in providing these emergency services, we do not stand still. We are continually pushing regulatory and technical advances to ensure we provide new, innovative and functional safety services and continue to look forward with our long-term investment into Safety Of Life At Sea. In 2018 we achieved unprecedented full IMO recognition for our latest GMDSS technology ‘Fleet Safety’. Fleet Safety is already being applauded as playing a pivotal role in modernising the GMDSS service. This new offering from Inmarsat, due to be commercially released in 2019, has already won two awards in 2018. The judging | TheGlobalGoals@trollback.com | +1.212.529.1010 Developed in collaboration with For queries on usage, contact: dpicampaigns@un.org panel for The Safety4Sea Technology Award acknowledged Fleet Safety as ‘a significant technological breakthrough’, recognising that the system will improve the safety of mariners and vessels worldwide. At the prestigious Safety at Sea Awards 2018, the Terminal was named ‘Best Safety Service of the Year’. We have not only further enhanced maritime safety technology for the seafarer, but we have also created a new service for the Maritime Rescue Coordination Centres (‘RCC’) called ‘RescueNET’. This free service enables Search and Rescue (‘SAR’) authorities to co-ordinate and communicate with vessels in distress and other SAR authorities quicker and easier than ever before. RescueNET is currently being used by 21 countries around the world, ensuring that no matter what waters a vessel sails in, there is an Inmarsat associated RCC waiting to assist if disaster was to strike. This new service is already saving lives including a rescue by RCC New Zealand of three men in a 15 foot wooden boat missing in Kiribati (Marshall Islands), approximately 2,800 nautical miles northeast of New Zealand. Our dedicated Maritime Safety Team not only ensure the smooth running of our GMDSS service, but also provided training in 2018 to a varied audience, including an annual three day seminar to the World Maritime University, Search and Rescue capacity building within three African countries and educational talks to national authorities and schools. We work closely with IMSO, who oversees our GMDSS performance. During 2018, we transitioned our safety services from our older Inmarsat-3 satellites to the Inmarsat-4 satellites and are preparing for our next generation Inmarsat-6 satellites currently being built to provide safety services into the future. GovernanceFinancial StatementsStrategic Report 46 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Corporate social responsi(cid:69)ility (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Corporate social responsibility contin(cid:88)ed Charitable Partnerships (cid:58)e contin(cid:88)ed to s(cid:88)pport the telecomm(cid:88)nications relief aid or(cid:74)anisation(cid:15) (cid:55)(cid:184)l(cid:184)coms (cid:54)ans Fronti(cid:185)res (cid:11)(cid:67)(cid:55)(cid:54)F’(cid:12) who cele(cid:69)rated 20 years of savin(cid:74) lives in (cid:48)ay 2018(cid:17) (cid:58)e contri(cid:69)(cid:88)ted in 2018 a (cid:7)260(cid:78) cash donation to (cid:55)(cid:54)F and (cid:7)100(cid:78) in free airtime to a partner in connection with (cid:55)(cid:54)F’s airtime (cid:88)sa(cid:74)e(cid:17) (cid:58)e also paid (cid:7)11(cid:24)(cid:78) to the (cid:58)orld (cid:48)aritime (cid:56)niversity as part of o(cid:88)r s(cid:88)pport for the ed(cid:88)cation of maritime specialists and we also provide visitin(cid:74) spea(cid:78)ers to provide ed(cid:88)cation (cid:88)pdates as well as one of o(cid:88)r employees sittin(cid:74) as a (cid:37)oard mem(cid:69)er to provide e(cid:91)pert s(cid:88)pport(cid:17) (cid:58)e s(cid:88)pport (cid:55)eam (cid:53)(cid:88)(cid:69)icon (cid:56)(cid:46) (cid:11)(cid:67)(cid:55)(cid:53)(cid:56)(cid:46)’(cid:12) (cid:11)see (cid:69)elow(cid:12) with charita(cid:69)le donations of (cid:7)8(cid:28)(cid:78)(cid:17) (cid:55)hese three payments are o(cid:88)r most si(cid:74)nificant charita(cid:69)le payments(cid:17) (cid:55)he total charita(cid:69)le donations amo(cid:88)nt paid in 2018 was appro(cid:91)imately (cid:7)(cid:23)16(cid:78)(cid:17) (cid:55)his amo(cid:88)nt e(cid:91)cl(cid:88)des the free airtime and terminals we offer to m(cid:88)ltiple charities as we s(cid:88)pport their endeavo(cid:88)rs thro(cid:88)(cid:74)ho(cid:88)t the year(cid:17) O(cid:88)r core charita(cid:69)le s(cid:88)pport remains on the wor(cid:78) carried o(cid:88)t (cid:69)y (cid:55)(cid:54)F(cid:17) (cid:55)(cid:54)F r(cid:88)ns pro(cid:74)rammes on disaster relief and preparedness(cid:15) trainin(cid:74) for other relief or(cid:74)anisations and re(cid:74)ional and national disaster response a(cid:74)encies a(cid:69)o(cid:88)t the availa(cid:69)le capa(cid:69)ilities for emer(cid:74)ency telecomm(cid:88)nications(cid:17) (cid:55)hey have adapted well to wor(cid:78)in(cid:74) with o(cid:88)r latest technolo(cid:74)y(cid:15) Inmarsat reinforces commitment to maritime safety at Our Ocean 2018 O(cid:88)r Ocean (cid:74)athers representatives from co(cid:88)ntries aro(cid:88)nd the world to infl(cid:88)ence concrete and actiona(cid:69)le commitments to preserve the oceans’ health(cid:17) (cid:55)he 2018 priorities incl(cid:88)de(cid:29) com(cid:69)attin(cid:74) maritime crimes(cid:30) promotin(cid:74) maritime safety and sec(cid:88)rity(cid:30) innovations in s(cid:88)rveillance and monitorin(cid:74)(cid:30) and sharin(cid:74)(cid:16)mechanisms to improve maritime safety(cid:17) (cid:58)e contin(cid:88)e to contri(cid:69)(cid:88)te to the tar(cid:74)ets set (cid:69)y O(cid:88)r Ocean (cid:69)y improvin(cid:74) the vessel monitorin(cid:74) system (cid:11)(cid:67)(cid:57)(cid:48)(cid:54)’(cid:12) technolo(cid:74)y for trac(cid:78)in(cid:74) and re(cid:74)(cid:88)latory enforcement in the fishery ind(cid:88)stry(cid:15) and the wor(cid:78) we are (cid:88)nderta(cid:78)in(cid:74) with the (cid:44)(cid:48)O to modernise the (cid:42)lo(cid:69)al (cid:48)aritime (cid:39)istress and (cid:54)afety (cid:54)ystem(cid:17) $260k Donated to relief aid organisation Télécoms Sans Frontières (cid:42)lo(cid:69)al (cid:59)press(cid:15) and find it is very (cid:69)eneficial to allow many of the victims they meet to connect with their families and friends more easily (cid:88)sin(cid:74) their own phones(cid:17) O(cid:88)r technolo(cid:74)y chan(cid:74)es therefore have a (cid:69)eneficial impact on the way (cid:55)(cid:54)F is a(cid:69)le to respond to s(cid:88)pport those who are displaced(cid:17) (cid:58)e have also contin(cid:88)ed o(cid:88)r s(cid:88)pport for the (cid:44)nternational (cid:55)elecomm(cid:88)nications (cid:56)nion (cid:11)(cid:67)(cid:44)(cid:55)(cid:56)’(cid:12)(cid:17) (cid:44)n 2018(cid:15) we contin(cid:88)ed to stren(cid:74)then o(cid:88)r s(cid:88)pport for (cid:55)eam (cid:53)(cid:88)(cid:69)icon (cid:56)(cid:46) which (cid:88)nites the s(cid:78)ills and e(cid:91)periences of military veterans with first responders to rapidly deploy emer(cid:74)ency response teams worldwide(cid:17) (cid:54)ome (cid:24)0 individ(cid:88)als from across the (cid:44)nmarsat (cid:69)(cid:88)siness are now trained as (cid:55)eam (cid:53)(cid:88)(cid:69)icon (cid:67)(cid:42)reyshirts’(cid:15) which means they have completed trainin(cid:74) co(cid:88)rses to (cid:69)e a(cid:69)le to s(cid:88)pport the charity(cid:17) (cid:58)e s(cid:88)pported deployments in the (cid:56)(cid:46)(cid:15) (cid:44)ndonesia(cid:15) (cid:49)epal and (cid:43)aiti (cid:69)y providin(cid:74) reso(cid:88)rces(cid:15) comm(cid:88)nications e(cid:84)(cid:88)ipment and airtime(cid:17) O(cid:88)r staff are enco(cid:88)ra(cid:74)ed to (cid:74)et involved d(cid:88)rin(cid:74) Company time s(cid:88)pported (cid:69)y the Company vol(cid:88)nteerin(cid:74) pro(cid:74)ramme(cid:17) O(cid:88)r C(cid:40)O(cid:15) (cid:53)(cid:88)pert (cid:51)earce serves as Commissioner to the (cid:37)road(cid:69)and Commission for (cid:39)i(cid:74)ital (cid:39)evelopment(cid:17) (cid:44)t was set (cid:88)p (cid:69)y the (cid:44)(cid:55)(cid:56) and (cid:56)(cid:49)(cid:40)(cid:54)CO with the aim of (cid:69)oostin(cid:74) the importance of (cid:69)road(cid:69)and on the international policy a(cid:74)enda and e(cid:91)pandin(cid:74) (cid:69)road(cid:69)and access to accelerate pro(cid:74)ress towards national and international development tar(cid:74)ets(cid:15) as proposed (cid:69)y the (cid:56)(cid:49)(cid:17) (cid:43)e is also a mem(cid:69)er of the (cid:37)road(cid:69)and Commission’s (cid:58)or(cid:78)in(cid:74) (cid:42)ro(cid:88)ps on (cid:39)i(cid:74)ital (cid:40)ntreprene(cid:88)rship(cid:15) (cid:57)(cid:88)lnera(cid:69)le Co(cid:88)ntries and (cid:39)i(cid:74)ital (cid:43)ealth (cid:58)or(cid:78)in(cid:74) (cid:42)ro(cid:88)p(cid:17) (cid:58)e have also committed to the (cid:58)or(cid:78)in(cid:74) (cid:42)ro(cid:88)p on (cid:37)road(cid:69)and for (cid:36)ll(cid:29) (cid:36) (cid:67)(cid:39)i(cid:74)ital (cid:44)nfrastr(cid:88)ct(cid:88)re (cid:48)oonshot’ for (cid:36)frica(cid:17) (cid:55)hese types of activities contri(cid:69)(cid:88)te to o(cid:88)r s(cid:88)pport of the (cid:56)(cid:49) (cid:54)(cid:88)staina(cid:69)ility (cid:42)oals mentioned earlier(cid:17) O(cid:88)r (cid:56)niversal (cid:54)ervice O(cid:69)li(cid:74)ations see(cid:78) to s(cid:88)pport the (cid:88)se of o(cid:88)r services(cid:15) normally payphones(cid:15) in r(cid:88)ral villa(cid:74)es in remote re(cid:74)ions of the world(cid:15) where terrestrial voice services are poor or non(cid:16)e(cid:91)istent(cid:17) O(cid:88)r (cid:74)lo(cid:69)al offices s(cid:88)pport local ca(cid:88)ses at a corporate and employee level and we enco(cid:88)ra(cid:74)e staff to (cid:74)et involved in local comm(cid:88)nity initiatives(cid:17) (cid:40)mployees across o(cid:88)r offices are enco(cid:88)ra(cid:74)ed to s(cid:88)pport individ(cid:88)al charities of their choice(cid:15) and for employees in o(cid:88)r principal (cid:56)(cid:46) office(cid:15) this is enco(cid:88)ra(cid:74)ed thro(cid:88)(cid:74)h the (cid:56)(cid:46) (cid:42)overnment’s ta(cid:91) approved contri(cid:69)(cid:88)tions scheme(cid:17) (cid:39)(cid:88)rin(cid:74) 2018(cid:15) one of o(cid:88)r employees(cid:15) wor(cid:78)in(cid:74) with a small team(cid:15) has mo(cid:69)ilised o(cid:88)r wor(cid:78)force to s(cid:88)pport him to raise f(cid:88)ndin(cid:74) for (cid:55)(cid:53)(cid:56)(cid:46) raisin(cid:74) tens of tho(cid:88)sands of po(cid:88)nds in the process(cid:17) International Partnership Programmes (cid:44)n 2018(cid:15) we implemented three ma(cid:77)or international development pro(cid:74)rammes(cid:15) each of which is s(cid:88)pported (cid:69)y the (cid:56)(cid:46) (cid:54)pace (cid:36)(cid:74)ency’s (cid:44)nternational (cid:51)artnership (cid:51)ro(cid:74)ramme (cid:11)(cid:67)(cid:44)(cid:51)(cid:51)’(cid:12)(cid:17) (cid:55)he (cid:44)(cid:51)(cid:51) is a f(cid:88)nd that s(cid:88)pports international development o(cid:69)(cid:77)ectives ali(cid:74)ned to the (cid:54)(cid:88)staina(cid:69)le (cid:39)evelopment (cid:42)oals (cid:11)(cid:67)(cid:54)(cid:39)(cid:42)’(cid:12)(cid:17) (cid:44)t (cid:88)ses the (cid:88)ni(cid:84)(cid:88)e advanta(cid:74)es of space (cid:69)ased systems to provide service and data to disadvanta(cid:74)ed pop(cid:88)lations(cid:17) (cid:36)ll of the pro(cid:77)ects m(cid:88)st meet defined (cid:54)(cid:39)(cid:42) am(cid:69)itions and demonstrate that (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Corporate social responsi(cid:69)ility 47 the pro(cid:77)ect is the most effective way of meetin(cid:74) the international development o(cid:69)(cid:77)ective(cid:17) › Indonesia fisheries: (cid:40)nhancin(cid:74) the safety(cid:15) prod(cid:88)ctivity and food sec(cid:88)rity of (cid:44)ndonesian fishers and their comm(cid:88)nities (cid:69)y desi(cid:74)nin(cid:74) and implementin(cid:74) innovative sol(cid:88)tions for smart satellite technolo(cid:74)y to promote incl(cid:88)sive and s(cid:88)staina(cid:69)le fishin(cid:74) practices in (cid:44)ndonesia › Philippines: (cid:53)ed(cid:88)cin(cid:74) the impact of nat(cid:88)ral disasters (cid:69)y prepositionin(cid:74) powerf(cid:88)l (cid:69)(cid:88)t easily deploya(cid:69)le e(cid:84)(cid:88)ipment(cid:15) s(cid:88)pported (cid:69)y effective trainin(cid:74) to permit the operation of disaster response comm(cid:88)nications › Nigeria eHealth: (cid:53)aisin(cid:74) the standard of (cid:49)i(cid:74)erian healthcare o(cid:88)tcomes (cid:69)y e(cid:91)tendin(cid:74) the reach of (cid:69)asic medical services into remote areas of the co(cid:88)ntry(cid:15) deliverin(cid:74) professional trainin(cid:74)(cid:15) data collection and disease monitorin(cid:74) in areas with poor comm(cid:88)nications thro(cid:88)(cid:74)h the application of satellite connectivity (cid:58)e have (cid:69)een very pro(cid:88)d to (cid:69)e involved with these pro(cid:74)rammes where we can see a direct impact of the val(cid:88)e satellite connectivity can (cid:69)rin(cid:74) to comm(cid:88)nities(cid:17) Environment (cid:44)n 2018 (cid:44)nmarsat achieved a C(cid:39)(cid:51) score of (cid:37) (cid:11)201(cid:26)(cid:29) (cid:37)(cid:12)(cid:15) maintainin(cid:74) o(cid:88)r performance and demonstratin(cid:74) that we are mana(cid:74)in(cid:74) o(cid:88)r environmental impact(cid:15) as well as climate chan(cid:74)e related (cid:69)(cid:88)siness ris(cid:78)s and opport(cid:88)nities(cid:17) (cid:36)ltho(cid:88)(cid:74)h the direct activities of the (cid:42)ro(cid:88)p are (cid:77)(cid:88)d(cid:74)ed to have a low environmental impact(cid:15) we (cid:88)nderstand that (cid:88)nless (cid:88)r(cid:74)ent action is ta(cid:78)en to limit (cid:74)lo(cid:69)al temperat(cid:88)res to 2C (cid:11)3(cid:24)(cid:17)6F(cid:12) a(cid:69)ove pre(cid:16)ind(cid:88)strial levels(cid:15) climate chan(cid:74)e presents si(cid:74)nificant and systemic ris(cid:78)s(cid:17) (cid:58)e s(cid:88)pport the recommendations of the (cid:55)as(cid:78) Force on Climate(cid:16)(cid:53)elated Financial (cid:39)isclos(cid:88)res (cid:11)(cid:67)(cid:55)CF(cid:39)’(cid:12) and will loo(cid:78) to contin(cid:88)e to develop transparent reportin(cid:74) aro(cid:88)nd climate(cid:16)related ris(cid:78)s and opport(cid:88)nities for o(cid:88)r (cid:69)(cid:88)siness(cid:17) (cid:58)ithin o(cid:88)r ann(cid:88)al C(cid:39)(cid:51) response we provide details on (cid:44)nmarsat’s s(cid:88)(cid:69)stantive re(cid:74)(cid:88)latory(cid:15) physical and rep(cid:88)tational ris(cid:78)s and opport(cid:88)nities relatin(cid:74) to climate chan(cid:74)e(cid:17) For e(cid:91)ample(cid:15) risin(cid:74) sea levels as a res(cid:88)lt of climate chan(cid:74)e co(cid:88)ld impact o(cid:88)r satellite access stations which are located at strate(cid:74)ic points aro(cid:88)nd the world and act as traffic (cid:74)ateways connectin(cid:74) c(cid:88)stomers (cid:88)sin(cid:74) the (cid:44)nmarsat satellites to terrestrial networ(cid:78)s(cid:17) (cid:55)o mana(cid:74)e this ris(cid:78)(cid:15) we have esta(cid:69)lished site selection d(cid:88)e dili(cid:74)ence processes which incorporate climatic (cid:74)eo(cid:74)raphical considerations(cid:17) O(cid:88)r 2018 C(cid:39)(cid:51) response is availa(cid:69)le on o(cid:88)r corporate we(cid:69)site(cid:17) (cid:47)oo(cid:78)in(cid:74) (cid:69)eyond o(cid:88)r direct climate impact(cid:15) we have noted that o(cid:88)r sta(cid:78)eholders identified that wor(cid:78)in(cid:74) with s(cid:88)ppliers and c(cid:88)stomers to red(cid:88)ce emissions in o(cid:88)r val(cid:88)e chain sho(cid:88)ld (cid:69)e a priority for (cid:44)nmarsat(cid:17) (cid:36)s a res(cid:88)lt(cid:15) we are c(cid:88)rrently wor(cid:78)in(cid:74) with o(cid:88)r s(cid:88)staina(cid:69)ility partner(cid:15) Car(cid:69)on Credentials(cid:15) to (cid:84)(cid:88)antify emissions from o(cid:88)r indirect (cid:11)(cid:54)cope 3(cid:12) activities with the am(cid:69)ition of en(cid:74)a(cid:74)in(cid:74) with o(cid:88)r partners to set meanin(cid:74)f(cid:88)l emissions red(cid:88)ctions tar(cid:74)ets(cid:17) (cid:55)his wor(cid:78) feeds into o(cid:88)r on(cid:74)oin(cid:74) pro(cid:74)ramme to set a science(cid:16)(cid:69)ased emission red(cid:88)ction tar(cid:74)et in line with the (cid:56)(cid:46)’s commitment (cid:88)nder the (cid:56)(cid:49) (cid:51)aris (cid:36)(cid:74)reement(cid:17) (cid:58)e have appro(cid:91)imately 1(cid:15)800 staff in 3(cid:28) locations aro(cid:88)nd the world(cid:17) Of those offices(cid:15) wareho(cid:88)ses and satellite access stations(cid:15) over 80(cid:8) operate from ei(cid:74)ht locations(cid:17) S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s Team Rubicon case study (cid:44)nmarsat first (cid:69)ecame (cid:55)eam (cid:53)(cid:88)(cid:69)icon (cid:56)(cid:46)’s satellite comm(cid:88)nications partner in 201(cid:24)(cid:17) (cid:54)ince then we have (cid:69)een providin(cid:74) connectivity for (cid:55)eam (cid:53)(cid:88)(cid:69)icon’s emer(cid:74)ency relief efforts and lon(cid:74)(cid:16)term reconstr(cid:88)ction pro(cid:77)ects(cid:17) (cid:58)e also have (cid:24)0 (cid:44)nmarsat staff trained as (cid:42)reyshirts vol(cid:88)nteers(cid:17) (cid:55)he (cid:49)ational (cid:55)hree (cid:51)ea(cid:78)s Challen(cid:74)e was made (cid:88)p of a team from (cid:44)nmarsat(cid:15) o(cid:88)r partner (cid:54)pectra and (cid:55)eam (cid:53)(cid:88)(cid:69)icon (cid:56)(cid:46)(cid:17) 48 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) Corporate social responsi(cid:69)ility (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Corporate social responsibility contin(cid:88)ed O(cid:88)r environmental principles are to(cid:29) › (cid:51)rovide first(cid:16)class ener(cid:74)y and environmental mana(cid:74)ement practices › Comply with all relevant (cid:74)lo(cid:69)al environmental le(cid:74)islation and re(cid:74)(cid:88)latory controls › (cid:44)dentify si(cid:74)nificant environmental and social impacts and esta(cid:69)lish o(cid:69)(cid:77)ectives and tar(cid:74)ets for improvement › (cid:44)n o(cid:88)r main (cid:56)(cid:46) site(cid:15) recycle a minim(cid:88)m of (cid:28)0(cid:8) of (cid:74)enerated waste and to constantly review the opport(cid:88)nity to (cid:88)se recycled prod(cid:88)cts › (cid:36)ctively enco(cid:88)ra(cid:74)e the conservation of ener(cid:74)y(cid:15) water and nat(cid:88)ral reso(cid:88)rces thro(cid:88)(cid:74)h the increased efficiency and introd(cid:88)ction of new and modern technolo(cid:74)y › (cid:40)nco(cid:88)ra(cid:74)e all employees to (cid:69)e proactive in their daily activities (cid:69)y separatin(cid:74) their waste into dry and wet waste receptacles › (cid:40)ns(cid:88)re that printer cartrid(cid:74)es are recycled › (cid:54)witch off li(cid:74)hts(cid:15) comp(cid:88)ters(cid:15) phone char(cid:74)ers and any other electrical items when not in (cid:88)se › (cid:53)ed(cid:88)ce (cid:69)(cid:88)siness travel and (cid:88)sin(cid:74) more site(cid:16)(cid:69)ased technolo(cid:74)y s(cid:88)ch as video and a(cid:88)dio conferencin(cid:74) and › (cid:53)eplace inefficient (cid:69)(cid:88)ildin(cid:74) li(cid:74)htin(cid:74) with (cid:47)(cid:40)(cid:39) technolo(cid:74)y (cid:58)e contin(cid:88)e to monitor o(cid:88)r ener(cid:74)y cons(cid:88)mption and comply with o(cid:88)r social and le(cid:74)al responsi(cid:69)ilities in terms of car(cid:69)on emissions(cid:17) (cid:51)lease see o(cid:88)r s(cid:88)mmary of car(cid:69)on emissions within the (cid:53)eport of the (cid:39)irectors on pa(cid:74)e 102(cid:17) (cid:58)e set an interim tar(cid:74)et to red(cid:88)ce a(cid:69)sol(cid:88)te (cid:54)cope 1 and 2 emissions (cid:69)y 20(cid:8) compared to 2016(cid:17) (cid:58)e have achieved this tar(cid:74)et with o(cid:88)r a(cid:69)sol(cid:88)te (cid:54)cope 1 and 2 emissions havin(cid:74) decreased (cid:69)y 2(cid:26)(cid:8) since 2016 (cid:11)(cid:88)sin(cid:74) the mar(cid:78)et(cid:16)(cid:69)ased (cid:54)cope 2 acco(cid:88)ntancy method(cid:12)(cid:17) (cid:55)his decrease in emissions is a res(cid:88)lt of o(cid:88)r switch to a renewa(cid:69)le electricity s(cid:88)pply at o(cid:88)r (cid:47)ondon head(cid:84)(cid:88)arters(cid:15) o(cid:88)r lar(cid:74)est electricity(cid:16)cons(cid:88)min(cid:74) site(cid:15) and a n(cid:88)m(cid:69)er of ener(cid:74)y(cid:16)savin(cid:74) initiatives rolled o(cid:88)t across the (cid:42)ro(cid:88)p(cid:17) (cid:36)ll new office (cid:69)(cid:88)ilds(cid:15) s(cid:88)ch as in (cid:54)t (cid:45)ohns (cid:11)Canada and (cid:37)atam (cid:11)(cid:44)ndonesia(cid:12)(cid:15) are desi(cid:74)ned with ener(cid:74)y efficiency in mind(cid:17) (cid:58)e contin(cid:88)e to improve operations to ens(cid:88)re they consider occ(cid:88)pational (cid:88)sa(cid:74)e(cid:15) incl(cid:88)din(cid:74) the efficient r(cid:88)nnin(cid:74) of servers at o(cid:88)r data centres(cid:17) (cid:36)cross the (cid:74)ro(cid:88)p (cid:47)(cid:40)(cid:39) li(cid:74)htin(cid:74) has (cid:69)een installed where appropriate(cid:17) (cid:57)ideo conferencin(cid:74) and other colla(cid:69)oration tools allowin(cid:74) vis(cid:88)al connectivity are (cid:69)ein(cid:74) (cid:88)sed to red(cid:88)ce the dependency on air transport and are a pop(cid:88)lar means of comm(cid:88)nication with staff wor(cid:78)in(cid:74) in different locations and across different time (cid:93)ones(cid:17) (cid:36)t o(cid:88)r head(cid:84)(cid:88)arters in (cid:47)ondon we are c(cid:88)rrently (cid:88)nderta(cid:78)in(cid:74) a si(cid:74)nificant ref(cid:88)r(cid:69)ishment pro(cid:77)ect that will help red(cid:88)ce ener(cid:74)y cons(cid:88)mption at this principal site(cid:17) (cid:58)e are in the process of replacin(cid:74) the ener(cid:74)y(cid:16)intensive chillers on(cid:16)site with new environmentally friendly machines which prod(cid:88)ce less car(cid:69)on emissions per (cid:88)nit of (cid:74)as inp(cid:88)t and operate 20(cid:8) more efficiently(cid:17) (cid:55)he ref(cid:88)r(cid:69)ishment will also offer a fresher(cid:15) more colla(cid:69)orative wor(cid:78) place for o(cid:88)r people and visitors(cid:17) (cid:58)ith a(cid:69)o(cid:88)t (cid:26)0(cid:8) of the wor(cid:78) completed at the end of 2018(cid:15) we are already seein(cid:74) the (cid:69)enefits of an improved wor(cid:78) environment where colla(cid:69)oration areas are well (cid:88)sed(cid:17) Commercial waste and water (cid:44)n the (cid:47)ondon office and at o(cid:88)r ma(cid:77)or sites(cid:15) we contin(cid:88)e a pro(cid:74)ressive approach to waste mana(cid:74)ement(cid:17) (cid:53)ecyclin(cid:74) is mana(cid:74)ed locally in the lar(cid:74)er sites with the separation of plastics(cid:15) paper and non(cid:16)recycla(cid:69)le materials(cid:17) (cid:44)n the head office in (cid:47)ondon(cid:15) which is the sin(cid:74)le lar(cid:74)est office for the (cid:42)ro(cid:88)p(cid:15) 100(cid:8) of waste is diverted from landfill and this policy has (cid:69)een in place since 200(cid:28)(cid:17) (cid:58)e separate o(cid:88)r waste into fo(cid:88)r streams(cid:29) recycla(cid:69)le(cid:15) non(cid:16)recycla(cid:69)le(cid:15) (cid:74)lass and confidential waste(cid:17) Confidential waste is shredded and p(cid:88)lped to (cid:69)e re(cid:88)sed in paper prod(cid:88)cts(cid:17) (cid:44)n 2018(cid:15) o(cid:88)r total waste from the (cid:47)ondon head office increased (cid:69)y 11(cid:8)(cid:17) (cid:58)e contin(cid:88)e to wor(cid:78) with o(cid:88)r (cid:47)ondon office caterers to red(cid:88)ce o(cid:88)r impact on the environment and(cid:15) for e(cid:91)ample(cid:15) coo(cid:78)in(cid:74) oils are now collected and converted to s(cid:88)staina(cid:69)le (cid:69)iof(cid:88)els(cid:17) O(cid:88)r water (cid:88)se(cid:15) in o(cid:88)r (cid:47)ondon office(cid:15) in 2018 was do(cid:88)(cid:69)le the (cid:88)sa(cid:74)e in 201(cid:26)(cid:17) (cid:55)his is somethin(cid:74) we are contin(cid:88)ally monitorin(cid:74) and improvin(cid:74) d(cid:88)rin(cid:74) o(cid:88)r ref(cid:88)r(cid:69)ishment(cid:17) (cid:39)(cid:88)rin(cid:74) the year we replaced and (cid:88)p(cid:74)raded o(cid:88)r instant water (cid:69)oilers and water fo(cid:88)ntain machines to improve water efficiency and (cid:84)(cid:88)ality(cid:17) (cid:58)e contin(cid:88)e to monitor o(cid:88)r ener(cid:74)y cons(cid:88)mption and comply with o(cid:88)r social and le(cid:74)al responsi(cid:69)ilities in terms of car(cid:69)on emissions Enabling environmental sustainability across the value chain (cid:55)hro(cid:88)(cid:74)h o(cid:88)r services(cid:15) we can help red(cid:88)ce car(cid:69)on emissions and increase resiliency in other sectors(cid:17) For e(cid:91)ample(cid:15) the a(cid:74)ric(cid:88)lt(cid:88)re sector is faced with a m(cid:88)ltit(cid:88)de of challen(cid:74)es(cid:15) tas(cid:78)ed with increasin(cid:74) the amo(cid:88)nt it prod(cid:88)ces while red(cid:88)cin(cid:74) its impact on the environment(cid:17) (cid:36) st(cid:88)dy (cid:88)nderta(cid:78)en (cid:69)y (cid:44)nmarsat shows that a(cid:74)ric(cid:88)lt(cid:88)re or(cid:74)anisations are adoptin(cid:74) (cid:44)nd(cid:88)strial (cid:44)nternet of (cid:55)hin(cid:74)s (cid:11)(cid:67)(cid:44)(cid:44)o(cid:55)’(cid:12) to help them achieve these (cid:74)oals(cid:17) (cid:43)owever(cid:15) witho(cid:88)t the ri(cid:74)ht connectivity networ(cid:78)s(cid:15) (cid:44)(cid:44)o(cid:55) deployments won’t deliver the improvements in s(cid:88)staina(cid:69)ility they are capa(cid:69)le of(cid:17) (cid:55)he (cid:74)lo(cid:69)al nat(cid:88)re of the a(cid:74)ric(cid:88)lt(cid:88)re sector means that or(cid:74)anisations need relia(cid:69)le connectivity to (cid:74)ather critical data from every area of their operations and analyse it in real(cid:16)time(cid:17) (cid:58)ith (cid:74)lo(cid:69)al and relia(cid:69)le covera(cid:74)e(cid:15) o(cid:88)r satellite comm(cid:88)nications offer the levels of connectivity or(cid:74)anisations need to ma(cid:78)e (cid:44)(cid:44)o(cid:55) a s(cid:88)ccess(cid:17) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) O(cid:88)r people 49 Our people O(cid:88)r people are (cid:69)ehind every aspect of o(cid:88)r strate(cid:74)y (cid:58)e (cid:69)elieve passionately that (cid:44)nmarsat is a (cid:88)ni(cid:84)(cid:88)e or(cid:74)anisation to (cid:69)e part of and the (cid:74)reat people who wor(cid:78) here are the fo(cid:88)ndation on which it is (cid:69)(cid:88)ilt (cid:54)(cid:88)pportin(cid:74) o(cid:88)r drive to create a hi(cid:74)h performance or(cid:74)anisation is a (cid:78)ey pillar of o(cid:88)r company strate(cid:74)y and 2018 saw f(cid:88)rther acceleration and pro(cid:74)ress in the delivery of o(cid:88)r am(cid:69)itio(cid:88)s (cid:51)eople (cid:54)trate(cid:74)y across all areas of the employee e(cid:91)perience(cid:17) Central to o(cid:88)r wor(cid:78) this past year has (cid:69)een o(cid:88)r foc(cid:88)s on creatin(cid:74) the ri(cid:74)ht c(cid:88)lt(cid:88)re and val(cid:88)es(cid:16)centric environment where o(cid:88)r employees can thrive and drive the (cid:69)(cid:88)siness forward(cid:17) (cid:36)lon(cid:74)side this we have (cid:69)(cid:88)ilt and stren(cid:74)thened leadership capa(cid:69)ility(cid:15) foc(cid:88)sed on mana(cid:74)in(cid:74) for performance across o(cid:88)r (cid:74)lo(cid:69)al wor(cid:78)force(cid:15) created and comm(cid:88)nicated a compellin(cid:74) employee val(cid:88)e proposition(cid:15) la(cid:88)nched o(cid:88)r diversity and incl(cid:88)sion strate(cid:74)y(cid:17) (cid:58)e also contin(cid:88)ed to (cid:69)(cid:88)ild an effective or(cid:74)anisation (cid:69)y ens(cid:88)rin(cid:74) o(cid:88)r mar(cid:78)et facin(cid:74) (cid:69)(cid:88)sinesses have the ri(cid:74)ht capa(cid:69)ility and str(cid:88)ct(cid:88)re to s(cid:88)stain o(cid:88)r f(cid:88)t(cid:88)re (cid:74)rowth(cid:17) Culture and values Creatin(cid:74) an en(cid:74)a(cid:74)in(cid:74) and inspirin(cid:74) place to wor(cid:78) remains at the heart of o(cid:88)r people philosophy and this year we have (cid:69)een wor(cid:78)in(cid:74) to drive an internal c(cid:88)lt(cid:88)ral transformation(cid:17) (cid:55)he (cid:43)i(cid:74)h (cid:51)erformance C(cid:88)lt(cid:88)re pro(cid:74)ramme(cid:15) which la(cid:88)nched with senior leaders at the end of 201(cid:26)(cid:15) has now reached aro(cid:88)nd (cid:28)0(cid:8) of o(cid:88)r (cid:74)lo(cid:69)al employee wor(cid:78)force(cid:15) via a two(cid:16)day immersive wor(cid:78)shop delivered lar(cid:74)ely (cid:69)y (cid:44)nmarsat facilitators(cid:17) O(cid:88)r 2018 foc(cid:88)s saw (cid:88)s start to actively shape o(cid:88)r c(cid:88)lt(cid:88)re (cid:69)y ali(cid:74)nin(cid:74) o(cid:88)r employees aro(cid:88)nd (cid:78)ey (cid:69)ehavio(cid:88)ral concepts that resonated with everyone and introd(cid:88)ced a shared lan(cid:74)(cid:88)a(cid:74)e and (cid:88)nderstandin(cid:74) of how we want to wor(cid:78) to(cid:74)ether(cid:17) (cid:44)n 201(cid:28) the foc(cid:88)s moves to em(cid:69)eddin(cid:74) these concepts across (cid:74)lo(cid:69)al offices co(cid:88)ntries and (cid:26)0 nationalities and applyin(cid:74) the c(cid:88)lt(cid:88)re tools to enhance (cid:69)(cid:88)siness practices(cid:17) (cid:55)his c(cid:88)lt(cid:88)ral ali(cid:74)nment is startin(cid:74) to shape a common approach to how we wor(cid:78) to(cid:74)ether and deliver for o(cid:88)r c(cid:88)stomers(cid:17) (cid:26)1(cid:8) of respondents to o(cid:88)r recent c(cid:88)lt(cid:88)re impact s(cid:88)rvey said they colla(cid:69)orate more as a team with hi(cid:74)her levels of tr(cid:88)st and 83(cid:8) (cid:69)elieve the c(cid:88)lt(cid:88)re process will ma(cid:78)e o(cid:88)r company more s(cid:88)ccessf(cid:88)l(cid:17) (cid:40)arly indication shows that we are startin(cid:74) to colla(cid:69)orate (cid:69)etter across departments and o(cid:88)r vision and strate(cid:74)y are (cid:69)etter (cid:88)nderstood than previo(cid:88)sly(cid:17) (cid:55)he pro(cid:74)ramme is also intrinsically ali(cid:74)ned with and (cid:88)nderpins o(cid:88)r new val(cid:88)es of (cid:36)cco(cid:88)nta(cid:69)ility(cid:15) (cid:53)espect and (cid:40)(cid:91)cellence(cid:17) (cid:47)istenin(cid:74) and (cid:88)nderstandin(cid:74) what mattered to o(cid:88)r people res(cid:88)lted in these val(cid:88)es (cid:113) val(cid:88)es that p(cid:88)t the c(cid:88)stomer at the heart of what we do(cid:15) and loo(cid:78) to the collective power of o(cid:88)r people to deliver pioneerin(cid:74) sol(cid:88)tions to meet their needs(cid:17) (cid:36)n innovative (cid:67)colla(cid:69)oration caf(cid:184)’ wor(cid:78)shop ran across the (cid:74)lo(cid:69)e to immerse the or(cid:74)anisation in (cid:88)nderstandin(cid:74) what they mean for (cid:88)s(cid:17) (cid:36)n internal comm(cid:88)nications s(cid:88)rvey showed that over three (cid:84)(cid:88)arters of o(cid:88)r people have a (cid:74)ood (cid:88)nderstandin(cid:74) of these new val(cid:88)es(cid:17) (cid:55)his c(cid:88)lt(cid:88)ral foc(cid:88)s has helped (cid:88)s (cid:69)(cid:88)ild the ri(cid:74)ht internal environment and (cid:69)ehavio(cid:88)rs that will (cid:88)nderpin o(cid:88)r f(cid:88)t(cid:88)re (cid:74)rowth as a company(cid:17) Strengthening leadership (cid:47)eaders are pivotal to shapin(cid:74) c(cid:88)lt(cid:88)re and to drivin(cid:74) employee performance(cid:15) reven(cid:88)e (cid:74)rowth and (cid:88)ltimately o(cid:88)r (cid:69)(cid:88)siness s(cid:88)ccess(cid:17) (cid:36)t the heart of (cid:44)nmarsat’s people strate(cid:74)y lies o(cid:88)r am(cid:69)ition to attract and develop world class leaders and s(cid:88)pport them in their careers at (cid:44)nmarsat(cid:17) (cid:44)n 2018 we have made (cid:74)reat strides in stren(cid:74)thenin(cid:74) o(cid:88)r leadership capa(cid:69)ility in a n(cid:88)m(cid:69)er of ways(cid:17) Firstly(cid:15) o(cid:88)r foc(cid:88)s on senior level leadership has seen a talent review of o(cid:88)r senior level pop(cid:88)lation to inform s(cid:88)ccession plannin(cid:74) and active mana(cid:74)ement of o(cid:88)r talent pipeline(cid:17) (cid:44)n a relatively small(cid:15) hi(cid:74)hly specialised ind(cid:88)stry sector(cid:15) this is increasin(cid:74)ly important to ens(cid:88)re o(cid:88)r f(cid:88)t(cid:88)re s(cid:78)ills and capa(cid:69)ility needs are met(cid:17) (cid:44)nsi(cid:74)ht from o(cid:88)r talent review has informed the active pro(cid:74)ramme of tailored development for o(cid:88)r senior leaders(cid:17) (cid:51)artnerin(cid:74) with C(cid:36)(cid:54)(cid:54) (cid:37)(cid:88)siness (cid:54)chool(cid:15) we have delivered a commercial c(cid:88)rric(cid:88)l(cid:88)m(cid:15) (cid:69)(cid:88)ildin(cid:74) s(cid:78)ills across a (cid:69)road spectr(cid:88)m of areas(cid:17) (cid:58)e have also partnered with (cid:43)enley and Cranfield to deliver an (cid:40)(cid:91)ec(cid:88)tive (cid:48)(cid:37)(cid:36) pro(cid:74)ramme and c(cid:88)rrently have 1(cid:23) employees enrolled in the pro(cid:74)ramme(cid:17) (cid:58)e have also made a si(cid:74)nificant improvement in the (cid:74)ender diversity of o(cid:88)r (cid:40)(cid:91)ec(cid:88)tive team(cid:15) (cid:88)p to 31(cid:8) from 2(cid:24)(cid:8) in 201(cid:26)(cid:17) (cid:44)n an ind(cid:88)stry challen(cid:74)ed (cid:69)y the pipeline of female talent(cid:15) it is important that we made chan(cid:74)es at the hi(cid:74)hest level in the or(cid:74)anisation(cid:17) (cid:55)his incl(cid:88)des s(cid:88)pportin(cid:74) o(cid:88)r female talent to pro(cid:74)ress(cid:15) which has also (cid:69)een an area of foc(cid:88)s(cid:15) and a partnership with (cid:53)(cid:36)(cid:39)(cid:36) has delivered (cid:40)(cid:91)ec(cid:88)tive (cid:51)resence development for (cid:69)oth senior and mid(cid:16)level female leaders(cid:17) (cid:13) (cid:55)he (cid:67)(cid:74)rowth’ score in o(cid:88)r (cid:51)eople (cid:51)(cid:88)lse en(cid:74)a(cid:74)ement s(cid:88)rvey indicates how people feel a(cid:69)o(cid:88)t trainin(cid:74) and development opport(cid:88)nities (cid:55)he initiatives set in train this year will form the fo(cid:88)ndation of o(cid:88)r approach for the years to come(cid:17) Learning and development (cid:36)lon(cid:74)side developin(cid:74) o(cid:88)r senior leaders(cid:15) ens(cid:88)rin(cid:74) we lead and mana(cid:74)e for performance across every level of the or(cid:74)anisation is critically important too(cid:17) (cid:55)his year we have contin(cid:88)ed to stren(cid:74)then o(cid:88)r (cid:69)road learnin(cid:74) and development offerin(cid:74)(cid:15) and this has (cid:69)een reflected in the (cid:74)rowth score(cid:13) improvement from (cid:26)(cid:17)0 to (cid:26)(cid:17)(cid:23) in o(cid:88)r (cid:51)eople (cid:51)(cid:88)lse en(cid:74)a(cid:74)ement s(cid:88)rvey over the co(cid:88)rse of 2018(cid:17) (cid:48)ana(cid:74)in(cid:74) for performance is (cid:88)nderpinned (cid:69)y o(cid:88)r (cid:67)(cid:37)e (cid:60)o(cid:88)r (cid:37)est’ development conversation(cid:16)led approach and 2018 has (cid:69)een its first f(cid:88)ll cycle(cid:17) (cid:55)ailored we(cid:69)inars and ’(cid:28)0 min(cid:88)te learnin(cid:74) wor(cid:78)o(cid:88)ts’ have s(cid:88)pported all o(cid:88)r employees to (cid:69)(cid:88)ild their s(cid:78)ills and capa(cid:69)ilities in leadin(cid:74) and participatin(cid:74) in (cid:74)reat performance conversations(cid:17) O(cid:88)r wor(cid:78)shops have not (cid:69)een constrained to this foc(cid:88)s area(cid:15) (cid:69)(cid:88)t also covered a (cid:69)road ran(cid:74)e of leadership and mana(cid:74)ement topics and are provin(cid:74) pop(cid:88)lar with (cid:24)(cid:24) sessions and a total of 322 employees completin(cid:74) one in 2018(cid:17) (cid:55)o s(cid:88)pport and em(cid:69)ed the (cid:67)(cid:37)e (cid:60)o(cid:88)r (cid:37)est’ cycle we have also inte(cid:74)rated o(cid:88)r talent and reward processes(cid:15) to (cid:88)nderpin more holistic conversations a(cid:69)o(cid:88)t performance(cid:15) talent potential(cid:15) development and reward(cid:17) (cid:39)evelopin(cid:74) mentorin(cid:74) capa(cid:69)ility has (cid:69)een a priority(cid:15) and over the co(cid:88)rse of 2018 we have rolled o(cid:88)t a new mentorin(cid:74) pro(cid:74)ramme(cid:15) s(cid:88)pported (cid:69)y a comprehensive tool(cid:78)it(cid:17) (cid:58)e now have forty trained mentors who are a(cid:69)le to s(cid:88)pport collea(cid:74)(cid:88)es across the (cid:69)(cid:88)siness(cid:17) O(cid:88)r (cid:47)earnin(cid:74) h(cid:88)(cid:69) (cid:113) o(cid:88)r foc(cid:88)s area for all online learnin(cid:74) (cid:113) contin(cid:88)es to e(cid:91)tend its reach and has seen a 66(cid:17)(cid:24)(cid:8) increase in (cid:88)sa(cid:74)e across the year(cid:15) with over 1(cid:15)300 (cid:88)sers across the system accessin(cid:74) a total of appro(cid:91)imately (cid:26)(cid:24)0 different e(cid:16)learnin(cid:74) co(cid:88)rses and pro(cid:74)rammes(cid:17) S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 50 (cid:54)trate(cid:74)ic (cid:53)eport (cid:95) O(cid:88)r people (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Our people contin(cid:88)ed (cid:58)e have also made technical online trainin(cid:74) availa(cid:69)le to o(cid:88)r en(cid:74)ineerin(cid:74) and technical people(cid:15) (cid:88)sin(cid:74) online platforms that provide a ran(cid:74)e of relevant and (cid:88)p to date s(cid:78)ills trainin(cid:74)(cid:17) Launching our people promise (cid:39)eliverin(cid:74) an en(cid:74)a(cid:74)in(cid:74) employee e(cid:91)perience remains at the heart of the (cid:51)eople (cid:54)trate(cid:74)y and o(cid:88)r principle meas(cid:88)re of s(cid:88)ccess is the overall employee en(cid:74)a(cid:74)ement score(cid:15) trac(cid:78)ed in the si(cid:91)(cid:16)monthly (cid:51)eople (cid:51)(cid:88)lse s(cid:88)rvey(cid:17) O(cid:88)r final s(cid:88)rvey of 2018 showed a si(cid:74)nificant improvement this year from (cid:26)(cid:17)(cid:23)(cid:18)10 to (cid:26)(cid:17)6(cid:18)10(cid:17) (cid:55)his is validation of wor(cid:78) across all pillars of o(cid:88)r (cid:51)eople (cid:54)trate(cid:74)y and is endorsement of its direction and am(cid:69)ition(cid:17) (cid:56)nderpinnin(cid:74) the employee e(cid:91)perience is a clear artic(cid:88)lation of (cid:67)what’s in it for me’ or the employee val(cid:88)e proposition(cid:17) (cid:44)n (cid:48)ay we were pro(cid:88)d to la(cid:88)nch o(cid:88)r (cid:67)(cid:51)eople (cid:51)romise’ that set o(cid:88)t o(cid:88)r commitment to o(cid:88)r employees in terms of how we intend to en(cid:74)a(cid:74)e(cid:15) develop(cid:15) reward and reco(cid:74)nise them in their wor(cid:78)in(cid:74) life at (cid:44)nmarsat(cid:17) O(cid:88)r (cid:51)eople (cid:51)romise was (cid:69)(cid:88)ilt on rich insi(cid:74)ht and feed(cid:69)ac(cid:78) from o(cid:88)r employees(cid:15) (cid:74)athered from a series of nine (cid:74)lo(cid:69)al wor(cid:78)shops(cid:15) competitor review and other feed(cid:69)ac(cid:78) ro(cid:88)tes(cid:17) (cid:44)nsi(cid:74)ht from this wor(cid:78) has driven a n(cid:88)m(cid:69)er of initiatives(cid:17) (cid:53)eco(cid:74)nisin(cid:74) o(cid:88)r people’s passion for ma(cid:78)in(cid:74) a difference(cid:15) we have la(cid:88)nched a new vol(cid:88)nteerin(cid:74) policy that enco(cid:88)ra(cid:74)es employees to s(cid:88)pport their local comm(cid:88)nities(cid:15) alon(cid:74)side o(cid:88)r contin(cid:88)ed s(cid:88)pport of employees’ trainin(cid:74) as (cid:55)eam (cid:53)(cid:88)(cid:69)icon (cid:42)reyshirts(cid:17) (cid:58)e have seen a steady ta(cid:78)e (cid:88)p of staff ta(cid:78)in(cid:74) vol(cid:88)nteerin(cid:74) days in 2018 to s(cid:88)pport ca(cid:88)ses s(cid:88)ch as homeless charities and (cid:49)orway’s (cid:53)ednin(cid:74)ssel(cid:78)apet life(cid:69)oat service(cid:17) (cid:58)e’ve ali(cid:74)ned and improved o(cid:88)r reco(cid:74)nition approach to reflect o(cid:88)r new val(cid:88)es(cid:15) incl(cid:88)din(cid:74) o(cid:88)r peer nominated (cid:67)(cid:54)pot (cid:37)eam (cid:36)wards’ that offer employees the chance to reco(cid:74)nise e(cid:91)ceptional val(cid:88)es(cid:16)led (cid:69)ehavio(cid:88)rs and achievements of their collea(cid:74)(cid:88)es across the Company(cid:17) (cid:44)n 2018 we have seen over 3(cid:24)0 s(cid:88)ch award nominations(cid:17) (cid:58)e have contin(cid:88)ed o(cid:88)r wor(cid:78) to advance o(cid:88)r internal comm(cid:88)nications(cid:15) from improvin(cid:74) o(cid:88)r cascade and storytellin(cid:74) a(cid:69)o(cid:88)t o(cid:88)r p(cid:88)rpose and strate(cid:74)y(cid:15) increasin(cid:74) visi(cid:69)ility of o(cid:88)r (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam(cid:15) and enco(cid:88)ra(cid:74)in(cid:74) more two(cid:16)way comm(cid:88)nications(cid:17) O(cid:88)r first internal comm(cid:88)nications s(cid:88)rvey showed a (cid:74)ro(cid:88)p internal comm(cid:88)nications inde(cid:91) score of 63(cid:8)(cid:17) (cid:58)e are also la(cid:88)nchin(cid:74) a (cid:42)lo(cid:69)al (cid:58)or(cid:78)force (cid:36)dvisory (cid:51)anel (cid:11)(cid:67)(cid:42)(cid:58)(cid:36)(cid:51)’(cid:12) providin(cid:74) a direct cond(cid:88)it and effective dialo(cid:74)(cid:88)e (cid:69)etween the wor(cid:78)force(cid:15) the (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam and the (cid:37)oard(cid:15) in line with re(cid:84)(cid:88)irements o(cid:88)tlined in the recently (cid:88)pdated Financial (cid:53)eportin(cid:74) Co(cid:88)ncil’s (cid:56)(cid:46) Corporate (cid:42)overnance Code(cid:17) (cid:42)(cid:58)(cid:36)(cid:51) will capt(cid:88)re the views of employees on proposals and iss(cid:88)es which affect o(cid:88)r people(cid:15) reco(cid:74)nisin(cid:74) (cid:69)arriers and ena(cid:69)lers and helpin(cid:74) to address them(cid:17) (cid:42)(cid:58)(cid:36)(cid:51) will promote a c(cid:88)lt(cid:88)re of colla(cid:69)oration and hi(cid:74)h performance(cid:15) and cons(cid:88)lt on and provide advice(cid:15) s(cid:88)pport and feed(cid:69)ac(cid:78) d(cid:88)rin(cid:74) the implementation of pro(cid:74)rammes and policies(cid:17) (cid:48)ost meetin(cid:74)s of (cid:42)(cid:58)(cid:36)(cid:51) will (cid:69)e held virt(cid:88)ally d(cid:88)e to the (cid:74)lo(cid:69)al nat(cid:88)re of the (cid:69)(cid:88)siness (cid:69)(cid:88)t there will (cid:69)e an ann(cid:88)al meetin(cid:74) with the (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam and (cid:37)oard in (cid:47)ondon(cid:17) (cid:42)(cid:58)(cid:36)(cid:51) held its first meetin(cid:74) in Fe(cid:69)r(cid:88)ary 201(cid:28)(cid:17) O(cid:88)r (cid:56)(cid:46) (cid:54)taff For(cid:88)m and (cid:49)etherlands (cid:58)or(cid:78)s Co(cid:88)ncil contin(cid:88)e to act as formal staff cons(cid:88)ltation (cid:69)odies and will Gender parity in the workplace (cid:55)he (cid:37)oard has (cid:88)ltimate oversi(cid:74)ht of the development of the people and c(cid:88)lt(cid:88)re pro(cid:74)ramme to contri(cid:69)(cid:88)te to a s(cid:88)staina(cid:69)le (cid:69)(cid:88)siness and ens(cid:88)re this is dele(cid:74)ated to the C(cid:40)O and his mana(cid:74)ement team to deliver thro(cid:88)(cid:74)ho(cid:88)t the Company(cid:17) (cid:51)ip (cid:48)cCrostie(cid:15) one of the (cid:49)on(cid:16)e(cid:91)ec(cid:88)tive (cid:39)irectors(cid:15) too(cid:78) part in the Company’s first panel disc(cid:88)ssion on (cid:74)ender parity in the wor(cid:78)place which demonstrated o(cid:88)r commitment to (cid:69)ein(cid:74) an incl(cid:88)sive or(cid:74)anisation for o(cid:88)r (cid:74)lo(cid:69)al employees(cid:17) (cid:51)ip said she (cid:107)hopes to s(cid:88)pport mana(cid:74)ement to inspire the ne(cid:91)t (cid:74)eneration of leaders at (cid:44)nmarsat (cid:69)y ens(cid:88)rin(cid:74) there is a level playin(cid:74) field for everyone(cid:121)(cid:17) wor(cid:78) colla(cid:69)oratively with the (cid:42)(cid:58)(cid:36)(cid:51)(cid:17) (cid:44)n total 12(cid:24) employees in the (cid:49)etherlands and (cid:36)(cid:88)stralia are covered (cid:69)y collective (cid:69)ar(cid:74)ainin(cid:74) a(cid:74)reements(cid:17) (cid:58)e are also committed to s(cid:88)pportin(cid:74) o(cid:88)r people with fle(cid:91)i(cid:69)le wor(cid:78)in(cid:74) policies that ena(cid:69)le them to (cid:69)alance their wor(cid:78)in(cid:74) and personal lives(cid:17) (cid:55)his is (cid:78)ey to attractin(cid:74) and retainin(cid:74) talent(cid:15) and we contin(cid:88)e to champion this approach(cid:17) (cid:44)n reco(cid:74)nition of o(cid:88)r efforts to ma(cid:78)e (cid:44)nmarsat a (cid:74)reat place to wor(cid:78)(cid:15) we were pro(cid:88)d that o(cid:88)r (cid:54)t (cid:45)ohn’s office (cid:49)ewfo(cid:88)ndland(cid:15) was ran(cid:78)ed one of (cid:36)tlantic Canada’s top employers for the second year r(cid:88)nnin(cid:74)(cid:17) (cid:55)he award reflects o(cid:88)r commitment to employee en(cid:74)a(cid:74)ement and the colla(cid:69)orative and positive c(cid:88)lt(cid:88)re that we have contin(cid:88)ed to (cid:69)(cid:88)ild in the office(cid:17) Diversity (cid:53)(cid:88)pert (cid:51)earce(cid:15) o(cid:88)r C(cid:40)O(cid:15) (cid:69)elieves we do not (cid:77)(cid:88)st want diversity (cid:113) we need it(cid:17) (cid:36)s di(cid:74)italisation and (cid:74)lo(cid:69)alisation contin(cid:88)e to transform the world(cid:15) every aspect of o(cid:88)r lives (cid:69)ecomes more connected(cid:17) (cid:58)e are immensely pro(cid:88)d of o(cid:88)r diverse ma(cid:78)e (cid:88)p as a m(cid:88)lti(cid:16)national(cid:15) m(cid:88)lti(cid:16)ethnic or(cid:74)anisation(cid:17) (cid:58)e (cid:69)elieve that the (cid:69)readth and richness of s(cid:78)ills(cid:15) contri(cid:69)(cid:88)tion and viewpoints is central to o(cid:88)r s(cid:88)ccess(cid:17) Creatin(cid:74) an environment that is incl(cid:88)sive and diverse(cid:15) where everyone can (cid:69)e themselves is central to o(cid:88)r three(cid:16)year diversity and incl(cid:88)sion strate(cid:74)y that la(cid:88)nched in 2018(cid:17) (cid:55)he strate(cid:74)y to(cid:88)ches every aspect of the employee life cycle from attraction(cid:15) recr(cid:88)itment to development and retention(cid:17) (cid:37)rin(cid:74)in(cid:74) e(cid:91)ternal perspectives into o(cid:88)r plannin(cid:74) has (cid:69)een critical and we have partnered with (cid:54)tonewall and the (cid:37)(cid:88)siness (cid:39)iversity For(cid:88)m as we have developed o(cid:88)r strate(cid:74)y(cid:15) to ens(cid:88)re it is ro(cid:69)(cid:88)st and ali(cid:74)ned to (cid:69)est ind(cid:88)stry practice(cid:17) (cid:58)e want to foster the richness of ideas(cid:15) tho(cid:88)(cid:74)hts(cid:15) opinions(cid:15) perspectives(cid:15) (cid:69)ac(cid:78)(cid:74)ro(cid:88)nds and e(cid:91)periences to create val(cid:88)e(cid:17) O(cid:88)r initial foc(cid:88)s has (cid:69)een on (cid:74)ender diversity(cid:15) from o(cid:88)r (cid:40)arly (cid:60)ears’ (cid:51)ro(cid:74)rammes and how we foster and n(cid:88)rt(cid:88)re interest in (cid:54)(cid:55)(cid:40)(cid:48) s(cid:88)(cid:69)(cid:77)ects in the ne(cid:91)t (cid:74)eneration(cid:15) to improvin(cid:74) o(cid:88)r (cid:74)ender mi(cid:91) at the most senior levels as evidenced thro(cid:88)(cid:74)h o(cid:88)r achievement of the recommended (cid:43)ampton (cid:36)le(cid:91)ander tar(cid:74)et for o(cid:88)r (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam(cid:17) (cid:58)e also s(cid:88)pport and ena(cid:69)le o(cid:88)r internal female talent to flo(cid:88)rish thro(cid:88)(cid:74)h the (cid:53)(cid:36)(cid:39)(cid:36) pro(cid:74)ramme for female mid and senior level leaders(cid:17) (cid:44)n addition(cid:15) we now have an active (cid:58)omen’s employee networ(cid:78)(cid:15) sponsored (cid:69)y an (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam mem(cid:69)er(cid:15) and its role is to actively champion and s(cid:88)pport female collea(cid:74)(cid:88)es across the company(cid:17) (cid:55)he (cid:74)ender split across the (cid:42)ro(cid:88)p (cid:11)e(cid:91)cl(cid:88)din(cid:74) contin(cid:74)ency wor(cid:78)ers(cid:12) is ill(cid:88)strated in the followin(cid:74) ta(cid:69)le(cid:17) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 51 2018 201(cid:26) Male Female Male Female with 201(cid:26)(cid:15) reflectin(cid:74) the pro(cid:74)ress we have made in female representation in the last 12 months(cid:17) (cid:39)iversity of plc (cid:37)oard 83% 17% 83(cid:8) 1(cid:26)(cid:8) (cid:39)iversity of (cid:40)(cid:91)ec(cid:88)tive Management Team 69% 31% (cid:26)(cid:24)(cid:8) 2(cid:24)(cid:8) (cid:39)iversity of senior mana(cid:74)ers (cid:39)iversity of all other employees (cid:11)e(cid:91)cl(cid:88)din(cid:74) contin(cid:74)ency wor(cid:78)ers(cid:12) 71% 29% 81(cid:8) 1(cid:28)(cid:8) 70% 30% (cid:26)1(cid:8) 2(cid:28)(cid:8) (cid:58)e’re pleased to say that in 2018 we have seen pro(cid:74)ress in o(cid:88)r (cid:74)ender diversity(cid:15) most nota(cid:69)ly in the (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam and (cid:54)enior (cid:48)ana(cid:74)er pop(cid:88)lations(cid:17) O(cid:88)r diversity and incl(cid:88)sion strate(cid:74)y e(cid:91)tends (cid:69)eyond (cid:77)(cid:88)st (cid:74)ender(cid:15) and in addition to the women’s employee networ(cid:78)(cid:15) we have also la(cid:88)nched a f(cid:88)rther networ(cid:78) for (cid:47)es(cid:69)ian (cid:42)ay (cid:37)i(cid:16)se(cid:91)(cid:88)al (cid:55)rans(cid:74)ender pl(cid:88)s other (cid:74)ro(cid:88)ps that identify across the (cid:47)(cid:42)(cid:37)(cid:55) spectr(cid:88)m(cid:17) (cid:55)his networ(cid:78)(cid:15) has an (cid:40)(cid:91)ec(cid:88)tive (cid:54)ponsor(cid:17) (cid:58)e have also introd(cid:88)ced an ally framewor(cid:78) and en(cid:74)a(cid:74)ed with the (cid:56)(cid:46) st(cid:88)dent pop(cid:88)lation a(cid:69)o(cid:88)t (cid:47)(cid:42)(cid:37)(cid:55) incl(cid:88)sion(cid:17) (cid:55)his year we as(cid:78)ed o(cid:88)r people in o(cid:88)r en(cid:74)a(cid:74)ement s(cid:88)rvey a(cid:69)o(cid:88)t their views on o(cid:88)r e(cid:84)(cid:88)ality in the wor(cid:78)place and we are pro(cid:88)d to report that this (cid:84)(cid:88)estion scored 8(cid:17)2 o(cid:88)t of 10(cid:17) (cid:55)o (cid:88)nderstand more ro(cid:69)(cid:88)stly what o(cid:88)r diversity foc(cid:88)s sho(cid:88)ld (cid:69)e(cid:15) we have cond(cid:88)cted a diversity and incl(cid:88)sion s(cid:88)rvey to (cid:74)ive (cid:88)s a (cid:69)aseline (cid:88)nderstandin(cid:74) of how we are doin(cid:74) and to inform and s(cid:88)pport activity (cid:74)oin(cid:74) forwards(cid:17) Gender pay (cid:58)e have p(cid:88)(cid:69)lished o(cid:88)r second (cid:56)(cid:46) (cid:42)ender (cid:51)ay (cid:42)ap report(cid:15) showin(cid:74) data as of 6 (cid:36)pril 2018(cid:17) (cid:36)s in 201(cid:26)(cid:15) the 2018 report provides data on o(cid:88)r entire (cid:56)(cid:46) wor(cid:78)force(cid:15) as well as for employees employed (cid:69)y (cid:44)nmarsat (cid:42)lo(cid:69)al (cid:47)td(cid:15) the one (cid:56)(cid:46) entity we operate with more than 2(cid:24)0 employees(cid:17) (cid:44)n (cid:36)pril 2018 we had (cid:26)(cid:28)2 employees in the (cid:56)(cid:46)(cid:15) (cid:26)1(cid:8) of whom are men and 2(cid:28)(cid:8) are women(cid:17) (cid:55)he overall (cid:74)ap in earnin(cid:74)s is 21(cid:17)(cid:28)(cid:8) (cid:11)mean(cid:12) and 22(cid:17)8(cid:8) (cid:11)median(cid:12) (cid:11)201(cid:26)(cid:29) 2(cid:23)(cid:17)(cid:24)(cid:8) (cid:11)mean(cid:12) and 2(cid:23)(cid:17)(cid:23)(cid:8) (cid:11)median(cid:12)(cid:12)(cid:17) (cid:36)s many other or(cid:74)anisations(cid:15) partic(cid:88)larly those in the technolo(cid:74)y ind(cid:88)stry(cid:15) (cid:44)nmarsat’s (cid:74)ender pay (cid:74)ap also reflects the challen(cid:74)es we have in recr(cid:88)itin(cid:74) e(cid:84)(cid:88)al n(cid:88)m(cid:69)ers of men and women to all parts of o(cid:88)r (cid:69)(cid:88)siness(cid:15) especially in the technical(cid:18)en(cid:74)ineerin(cid:74) and sales areas(cid:15) which tend to (cid:69)e more hi(cid:74)hly paid in the (cid:56)(cid:46) mar(cid:78)et(cid:17) (cid:58)e are pleased to report that o(cid:88)r (cid:74)ender pay (cid:74)ap n(cid:88)m(cid:69)ers have red(cid:88)ced in 2018 compared (cid:58)e (cid:78)now that a red(cid:88)ction in o(cid:88)r (cid:74)ender pay (cid:74)ap will only res(cid:88)lt from a holistic com(cid:69)ination of (cid:78)ey interventions and o(cid:88)r diversity and incl(cid:88)sion strate(cid:74)y sets o(cid:88)r approach to achieve this(cid:17) (cid:44)n 2018 we saw the start of (cid:78)ey initiatives to s(cid:88)pport (cid:74)ender parity in the (cid:69)roadest sense possi(cid:69)le(cid:15) incl(cid:88)din(cid:74) pay(cid:17) (cid:44)n 201(cid:28) we will (cid:69)e improvin(cid:74) a n(cid:88)m(cid:69)er of policies to s(cid:88)pport women across the employee life cycle(cid:15) introd(cid:88)cin(cid:74) (cid:69)lind C(cid:57)s and contin(cid:88)in(cid:74) to raise awareness and ed(cid:88)cate o(cid:88)r employees on this topic(cid:17) Early years’ programmes (cid:58)ith a (cid:74)rowin(cid:74) (cid:54)(cid:55)(cid:40)(cid:48) s(cid:78)ills shorta(cid:74)e and o(cid:88)r desire for o(cid:88)r wor(cid:78)force to (cid:69)e diverse and incl(cid:88)sive(cid:15) 2018 has seen the development of a holistic approach to fosterin(cid:74) and developin(cid:74) the f(cid:88)t(cid:88)re pipeline of (cid:54)(cid:55)(cid:40)(cid:48) and other talent that we need(cid:17) (cid:58)e have esta(cid:69)lished an early years’ fo(cid:88)ndation pro(cid:74)ramme that encompasses three (cid:78)ey areas(cid:17) Firstly ed(cid:88)cational en(cid:74)a(cid:74)ement that manifests in (cid:44)nsi(cid:74)ht days(cid:15) secondly (cid:74)rad(cid:88)ate pro(cid:74)rammes that incl(cid:88)de placements and s(cid:88)mmer internships and finally apprenticeships in a variety of fields incl(cid:88)din(cid:74) en(cid:74)ineerin(cid:74)(cid:15) sales(cid:15) (cid:43)(cid:53) and (cid:48)ar(cid:78)etin(cid:74) that we are f(cid:88)ndin(cid:74) thro(cid:88)(cid:74)h the apprenticeship levy(cid:17) (cid:36)s a res(cid:88)lt of o(cid:88)r new entry level pro(cid:74)rammes aro(cid:88)nd 30 yo(cid:88)n(cid:74) people have e(cid:91)perienced o(cid:88)r (cid:69)(cid:88)siness this year(cid:15) risin(cid:74) to 80 with one wee(cid:78) wor(cid:78) e(cid:91)perience placements(cid:17) (cid:36)ll have e(cid:91)perienced a str(cid:88)ct(cid:88)red pro(cid:74)ramme while with (cid:88)s ena(cid:69)lin(cid:74) them to (cid:74)ain (cid:78)nowled(cid:74)e and s(cid:78)ills and for (cid:88)s to (cid:69)enefit from their s(cid:78)ills and talents(cid:17) O(cid:88)r (cid:55)echnolo(cid:74)y and (cid:40)n(cid:74)ineerin(cid:74) (cid:42)rad(cid:88)ate (cid:51)ro(cid:74)ramme is a two(cid:16)year rotational scheme with a mission to (cid:74)row individ(cid:88)als to have a solid (cid:88)nderstandin(cid:74) of o(cid:88)r or(cid:74)anisation(cid:15) developin(cid:74) stron(cid:74) fo(cid:88)ndations to ena(cid:69)le them to (cid:69)ecome (cid:54)(cid:88)(cid:69)(cid:77)ect (cid:48)atter (cid:40)(cid:91)perts or f(cid:88)t(cid:88)re leaders(cid:17) (cid:58)e have also r(cid:88)n a (cid:74)rad(cid:88)ate pro(cid:74)ramme for (cid:74)rad(cid:88)ates (cid:77)oinin(cid:74) o(cid:88)r (cid:54)ales teams(cid:17) (cid:58)e are (cid:69)(cid:88)ildin(cid:74) relationships with a (cid:74)rowin(cid:74) n(cid:88)m(cid:69)er of primary and secondary schools(cid:15) colle(cid:74)es and (cid:88)niform (cid:74)ro(cid:88)ps and over 1(cid:24)0 yo(cid:88)n(cid:74) people (cid:69)enefited from spendin(cid:74) an insi(cid:74)ht day at o(cid:88)r (cid:47)ondon head(cid:84)(cid:88)arters(cid:17) (cid:55)hese days provide opport(cid:88)nities for yo(cid:88)n(cid:74) people to (cid:88)nderstand more a(cid:69)o(cid:88)t the ind(cid:88)stry and specifically the wor(cid:78) that we do(cid:15) and to meet and tal(cid:78) to o(cid:88)r employees(cid:17) (cid:44)n addition(cid:15) and perhaps more f(cid:88)ndamentally(cid:15) they (cid:74)et to (cid:69)e hands on(cid:15) solvin(cid:74) a(cid:74)e appropriate en(cid:74)ineerin(cid:74) challen(cid:74)es to develop a nat(cid:88)ral c(cid:88)riosity and an interest to wor(cid:78) in a (cid:54)(cid:55)(cid:40)(cid:48) related career(cid:17) +150 Young people benefited from spending an insight day at our London headquarters. Once a(cid:74)ain this year we have invested in partnerin(cid:74) with City and (cid:44)slin(cid:74)ton Colle(cid:74)e to r(cid:88)n an en(cid:74)a(cid:74)in(cid:74) and stretchin(cid:74) si(cid:91) wee(cid:78) strate(cid:74)y challen(cid:74)e with aro(cid:88)nd 18 st(cid:88)dents(cid:15) as part of their initiation into tac(cid:78)lin(cid:74) real world (cid:69)(cid:88)siness pro(cid:69)lems(cid:17) (cid:58)e have seen a n(cid:88)m(cid:69)er of these st(cid:88)dents(cid:15) after completin(cid:74) the challen(cid:74)e(cid:15) (cid:88)se this e(cid:91)perience to s(cid:88)pport their (cid:88)niversity applications and it has also led them to (cid:88)nderta(cid:78)e a wor(cid:78) e(cid:91)perience placement(cid:17) 2018 also saw (cid:88)s partner with (cid:40)nvision who develop yo(cid:88)n(cid:74) people’s employa(cid:69)ility (cid:69)y empowerin(cid:74) them to tac(cid:78)le real(cid:16)life social pro(cid:69)lems(cid:17) (cid:44)n the (cid:56)(cid:46)(cid:15) this saw (cid:88)s wor(cid:78)in(cid:74) with (cid:54)ydenham (cid:54)chool for (cid:74)irls and raisin(cid:74) money for yo(cid:88)n(cid:74) careers in (cid:47)ewisham(cid:17) (cid:36)ll of the 1(cid:23) participants of the pro(cid:74)ramme were s(cid:88)pported over the three month pro(cid:77)ect d(cid:88)rations (cid:69)y (cid:44)nmarsat mentors to develop s(cid:78)ills in teamwor(cid:78)(cid:15) determination to s(cid:88)cceed and confidence(cid:17) (cid:48)any of the early careers initiatives have (cid:69)een s(cid:88)pported (cid:69)y the dedication of o(cid:88)r own employees(cid:15) findin(cid:74) time to wor(cid:78) with the yo(cid:88)n(cid:74) people to inspire them a(cid:69)o(cid:88)t (cid:54)(cid:55)(cid:40)(cid:48) careers and the wor(cid:78)in(cid:74) life at (cid:44)nmarsat(cid:17) (cid:44)n addition to the a(cid:69)ove initiatives(cid:15) over (cid:24)0 (cid:44)nmarsat staff were involved in some way in vol(cid:88)nteerin(cid:74) with yo(cid:88)n(cid:74) people(cid:17) O(cid:88)r we(cid:69)site contains more information on the areas of ed(cid:88)cation we s(cid:88)pport(cid:15) incl(cid:88)din(cid:74)(cid:15) for e(cid:91)ample o(cid:88)r contin(cid:88)ed s(cid:88)pport for (cid:58)orld (cid:54)pace (cid:58)ee(cid:78)(cid:15) an initiative started (cid:69)y the (cid:56)nited (cid:49)ations in 1(cid:28)(cid:28)(cid:28)(cid:17) Delivering HR excellence (cid:48)(cid:88)ch pro(cid:74)ress has (cid:69)een made this year on improvin(cid:74) the (cid:84)(cid:88)ality of (cid:43)(cid:53) service delivery(cid:15) incl(cid:88)din(cid:74) chan(cid:74)in(cid:74) o(cid:88)r operatin(cid:74) model and si(cid:74)nificantly (cid:88)ps(cid:78)illin(cid:74) the team(cid:17) (cid:44)n partic(cid:88)lar(cid:15) we have transformed the reso(cid:88)rcin(cid:74) f(cid:88)nction(cid:15) shiftin(cid:74) the (cid:69)alance more towards so(cid:88)rcin(cid:74) talent directly (cid:11)rather than thro(cid:88)(cid:74)h a(cid:74)encies(cid:12) res(cid:88)ltin(cid:74) in cost savin(cid:74)s(cid:18)avoidance of over (cid:7)3m thro(cid:88)(cid:74)ho(cid:88)t the year(cid:17) ALISON HORROCKS CHIEF CORPORATE AFFAIRS OFFICER AND COMPANY SECRETARY 18 (cid:48)arch 201(cid:28) S t r a t e g i c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 52 Strategic Report | Risk management Inmarsat plc | Annual Report and Accounts 2018 Risk management Reducing risks to the execution of our strategy Effective risk management is fundamental to our ability to meet both our short-term and longer-term strategic objectives Risk framework Risk comes hand-in-hand with business opportunity. Risk is not something that should be driven out of the business but rather something to be identified, intelligently assessed and managed. The aim is not to eliminate all risks, but to foster a culture supportive of effective risk management by encouraging appropriate risk-taking to achieve our objectives. The Group’s approach to risk is brought together in an overarching risk management policy. This policy, together with the risk management process for risk assessment and mitigation, have been implemented to focus risk management on strategic and business objectives, mitigation of the largest risks, and to comply with and support the ISO 27001 standard and accreditation. The policy sets out our risk appetite as well as roles and responsibilities. The Board believes that the behaviour of individuals across the business is key to underpinning an effective risk management culture. Across the Group, use of our Inmarsat Values is helping promote the right set of values to support effective risk management. As required by the policy, management applies the risk process to identify, quantify, assess, mitigate and report significant risks within the business, and to report to the Board on how those risks are being managed. Risks are initially identified, assessed and described together with mitigation actions for each business unit and area in individual risk reports which are reviewed and discussed with the relevant Executive Management Team member. On a quarterly basis, the risks and mitigation plan progress are formally reviewed by senior management on a Central Risk Committee represented by each component part of the business. These risks are assessed and consolidated in a systematic way to identify the Group’s principal risks and the result is a Group risk report. This quarterly Group risk report is further discussed and reviewed by the Audit Committee and the Board, which has overall responsibility for the risk management framework. Whilst the focus in on the principal risks, the Central Risk Committee and business areas also identify and mitigate secondary risks at each meeting. With risk assessments completed across the Group by the end of 2017, the focus in 2018 has been on progressing and completing risk mitigation actions. The individual risk reports are assessed by the Central Risk Committee. All the reports represent a robust description of the Group’s risk profile with targeted mitigation actions to reduce the risks. Due to the risk assessments focusing on strategic objectives, the new process contributes to and supports our achievement of strategic goals. Our objectives-based risk workshops and risk workshops on information assets, using the same process, are important components of Inmarsat’s project to obtain ISO 27001 certification. Risk management process risk culture and principles INMARSAT PLC BOARD › Defines the risk governance framework, › Sets overall risk strategy and policy › Approves risk levels › Responsible for an effective system › Approves risk decisions that are beyond delegated authorities of internal controls AUDIT COMMITTEE › Reviews the risk management framework and the effectiveness of internal controls, risk management systems and major risk initiatives › Reviews the internal audit programme and reports EXECUTIVE MANAGEMENT BOARD › Reviews the risk management framework and the effectiveness of internal controls, risk management systems and major risk initiatives across the Group › The Executive Risk Committee assesses the risks for the whole Group CENTRAL RISK COMMITTEE › Reviews the risk profile against risk appetite and makes recommendations to management in relation to risk profile, strategy and key controls › Reviews the sustainability of risk methodologies, metrics and policies › Assesses major risk-related projects BUSINESS OPERATIONS › Implement mitigation strategies Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Risk management 53 The Board regularly, and as part of the year end process, reviews the Group’s principal risks and the actions being taken to mitigate those risks. As part of the Long Range Business Plan and the risk management process, the Board will determine the level of risk carried and the extent of mitigating activity required to deliver an acceptable level of risk. The Board defines the risk governance framework and sets the overall risk strategy and the Audit Committee reviews the risk management framework and the effectiveness of internal controls particularly with regard to financial controls. This includes reviewing the internal audit programme and related reports to ensure that all key mitigating controls are being periodically reviewed and where issues are identified that they are being addressed on a timely basis. Assurance on broader risk controls is provided by a combination of internal management information, internal audits, external audits and Board oversight. There is also an externally supported whistleblowing facility. The management of risk is embedded in our everyday business activities and culture, with all our employees and contractors having an important role to play. The diligence applied by our workforce to consider risk is reflected in business cases which are submitted for approval by management and the Board. Ongoing projects have risks reported on a regular basis. Principal risks and uncertainties Principal risks The Group faces a number of risks that may adversely affect our strategic and business objectives, operations, liquidity, financial position, reputation or future performance, not all of which are wholly within our control or known to us. Some such risks may currently be regarded as immaterial and could turn out to be material. Some risks are external so we can only reduce the potential impact, while other risks can be mitigated by reducing both probability and impact. We accept that risk is an inherent part of doing business. We manage the risks based on a balance of risk and reward determined through careful assessment of both the potential probability and impact as well as risk appetite. Risk appetite is considered as part of the compilation of business cases, annual business plan and budget and long range business plan. There will be a balance of risk and opportunity considered as we take our investment decisions. We consider reputational as well as financial impact, recognising the value attributable to our brand. The Group faces a number of ongoing operational risks including damage to satellites and ground network operations, litigation, credit and foreign exchange risk and the risks associated with dealing with tax authorities in multiple jurisdictions. The importance of these risks will vary over time and will be kept under constant review. Although many of the risks influencing our performance are macroeconomic and likely to affect the performance of businesses generally, others are specific to our operations in mobile satellite communications services. In accordance with the provisions of the UK Corporate Governance Code 2014, the Board has taken into consideration the principal risks in the context of determining whether to adopt the going concern basis of accounting and when assessing the prospects of the Company for the purpose of preparing the Viability Statement which can be found on page 59. The Going Concern statement is provided on page 103 in the Directors’ Report. Our principal risks are discussed on the next few pages and are as summarised in the Preliminary Results Statement distributed on 7 March 2019. These have been subject to robust assessment and review. This summary, however, is not intended to be an exhaustive analysis of all risks and uncertainties affecting our business and are not listed in any order of priority. In identifying the principal risks we have disclosed those risks that we currently consider to be the most significant to the Group at the date of this Annual Report. The principal risks have been updated compared to last year. A new Risk Workshop with the Executive team has resulted in an updated list of principal risks that better describe our risk profile. While the risk list has changed, the risk profile has not changed materially. The risk trend for each principal risk as compared to a year ago has been assessed as either stable, increasing or reducing in size, measured in both net impact and net probability. The principal risks are identified over the next few pages and we have indicated against each risk how it principally relates to our strategic objectives, noting that all risks will impact the strategy to some extent. We show against each risk how it links to our strategy (see page 14) and the movement of each risk during the year. Strategic priorities 1 Capture the maximum number of broadband platforms 2 Reposition L-band for new growth 3 4 5 Establish our digital platform and business Create a high-performing organisation Transform our operating environment Movement Increased No change Decreased Risk Background and impact Mitigation Movement 1. Event leads to sharp reduction of air traffic Link to strategy: 1 › There has been a few events like this in the last twenty years, e.g. 9/11, SARS, the ash cloud. Similar events in the future could reduce air traffic volumes sharply, which could in turn impact our business. Our customers may ask us to cancel or halt ongoing contracts and it could be difficult to sign new contracts. › We build a broad business portfolio and ensure the company is financially robust and resilient to any sudden sharp downturn in any one of our markets. › We will take all possible actions to continue to deliver on existing contracts, to the extent agreed with our customers. GovernanceFinancial StatementsStrategic Report 54 Strategic Report | Risk management Inmarsat plc | Annual Report and Accounts 2018 Risk management continued Risk Background and impact Mitigation Movement 2. Geo-political risk, political uncertainty including Brexit impact Link to strategy: 1 2 3 4 5 3. Competition – technology disruption, new entrants and different business plans Link to strategy: 1 2 3 › Downturns in the economy of a country and/or the world economy, trade wars, as well as very low or very high oil prices could all have large effects on world trade and consequently impact our business and strategy. › Armed conflicts, including war in space could also have an impact, locally and globally. We may suffer a terrorist attack or a natural disaster on one of our ground network or office locations. › We do a large amount of business with governments across the globe. Political uncertainty with policy changes, decisions and sanctions could impact our business. › We could fail to comply with applicable international legislation and international reporting requirements. › Our staff and their families may suffer a local epidemic or global pandemic. › Brexit negotiations outcomes including a no-deal exit could have some impact. › This risk has increased in 2018 because of uncertainties in trade and Brexit negotiation outcomes. › We may fail to optimally assess our market, technological changes, customer requirements, capacity needs and competitors’ strategy and therefore fail to exploit market opportunities. › We may fail to effectively address the significant changes going on in the industry, e.g. price and capacity, plus a greater focus on digital enablement. › We may develop next generation broadband services that will not meet these market opportunities or fail to meet customer requirements or capacity needs, or these developments could have delays or cost overruns impacting on our market position, revenue or returns on investment. › Competitors and new entrants may launch disruptive technology, or new business plans with, for example, connectivity at very low prices or for free. Our competitors may consolidate which may impact our competitive position. › We may fail to roll out new services including migrating existing customers, which could be due to upgrade costs, or our developments could have delays or cost overruns. › Our competitors may provide better products to the market and at more competitive prices. › We ensure the Company is financially robust and resilient to economic downturns and operating a diversified portfolio supports our resiliency. › We continuously review and adapt our strategy in reaction to developing political or economic situations. › We assess and manage new risks such as changes in government, epidemics, natural disasters, etc. that potentially could impact our people and business. › Inmarsat’s Brexit committee analyses the impact of the UK Brexit including no-deal scenarios and deploys strategies to minimise possible impact. › The United Kingdom leaving the European Union is not expected to have a significant financial impact on the Group as the majority of revenue, capital expenditure and long-term borrowings are based outside of Continental Europe and are denominated in US Dollars reducing our exposure to a weakening Sterling. › We monitor technology, competitor and market developments. › We develop a broad portfolio of products and services to address customer requirements and opportunities in several markets. This makes us more resilient to adverse developments. › We rely on a close relationship between our customer-facing BUs, our operations team who deal directly with operating new products and services and the engineering and product teams. › We have well-established relationships with partners and signed significant strategic alliance agreements. We work closely with our partners to ensure our services, technology and capacity can meet the demand from our existing and new customers. We invest in new satellites to meet customer capacity demands. We adapt our product and services portfolio to address technological developments. We seek to identify new customers and to migrate existing customers who would benefit from our new services. › We have professional, experienced teams who focus on large scale programmes and we develop close relationships with third parties we use to deliver them. › We critically review our detailed business cases before we proceed and regularly assess our progress against the original business cases. We thoroughly review and approve major development of new services or technology. All significant product and service developments are subject to approval and regular programme reviews to identify critical issues, changes, delivery delays and resolutions, and projected cost against budget. We are able to prioritise investment activity to focus on new requirements if this is felt appropriate. We seek to identify and improve the functionality in existing products. › Inmarsat has formed a new division which concentrates on product life cycle management and the innovation and development of new differentiating products and services. This Product Group brings together all product development activities to ensure a clear focus on identifying and delivering an effective product strategy. Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Risk management 55 Risk Background and impact Mitigation Movement 3. Competition – technology disruption, new entrants and different business plans continued Link to strategy: 1 2 3 › We may fail to develop competitive technology and product roadmaps, competitive pricing, to differentiate ourselves, to obtain applicable licences or fail to deliver on or have delays in our contracts. Products may become obsolete. We may fail to enable or incentivise our distribution partners enough so they choose to sell our competitors’ products instead. › The risk has increased since a year ago due to increased competition and fast moving technological developments. 4. Not enough network capacity Link to strategy: 1 2 › We may fail to keep up with the developing business needs of our existing and new customers. We may fail to optimally assess our market, technological changes, customer requirements and competitors’ strategy, so we have not enough capacity to meet the demands. We may not be able to meet capacity needs for various reasons such as network or satellite issues, or technological difficulties which would impact our ability to generate revenues. 5. Major operational failure Link to strategy: 1 2 3 5 › We face risks when our satellites are in orbit. Our satellites, our control of them or our network may fail technically or be sabotaged. Our network may not be able to cope with the demand from users. Elements of our ground network may fail or be damaged, which may affect our ability to provide services to our partners and customers. › Our network may suffer a cyberattack that damages our service offering and reputation. › If our service is interrupted, it may cause physical and financial damage with possible legal and financial consequences for our business. › The risk has decreased since a year ago because of strengthened resilience in our satellites and ground network. › We establish the necessary focused sales and marketing capability to effectively deliver good business opportunities for Inmarsat and its partners. We focus on digital offerings as an additional value add to customers. We are reviewing market opportunities, for example IoT and Big Data, to create new business streams. We are investing in digital services and in differentiated platform and service offerings designed to provide both additional value to our customers and enhance our customer relationships. › We improve the robustness and resilience of our systems and processes by systematic continuous work to improve and document existing processes. Our systems need to be agile to be able to respond to any changing needs and having open network systems enables this agility by us and our wider partners. › We liaise closely with third parties across our ecosystem to review requirements and then plan our delivery against these. › Internal approval processes include assessment of available network capacity to serve specific customer needs. › Business units provide pipeline assessment to allow future capacity assessments to be performed. The capacity requirements are compared to the current infrastructure and any predicted unmet demand is used to specify future infrastructure needs. Our systems need to be agile to be able to respond to any changing needs and having open network systems enables this agility by us and our wider partners. › GX5, a new Ka-band broadband satellite, is planned to be launched Q4 2019 and will provide additional capacity over Europe and the Middle East. This will be followed by Inmarsat-6 F1 and F2 that will provide additional L-band and Ka-band capacity in the early 2020’s. › In certain geographies, we are able to acquire 3rd party capacity to augment our own networks in a seamless manner. › We build in a high degree of redundancy in our satellites, constellations and ground network, providing a high level of protection against single points of failure. All customer-facing systems are monitored continuously by sophisticated systems and highly skilled staff who are equipped to respond to operational emergencies. › We buy insurance to compensate for the financial loss in the event a satellite or ground network element is damaged or lost. › We have disaster recovery plans for satellite and network operations which are regularly tested to ensure contingency plans work. › We are focused on ensuring our systems operate with a high degree of cyber security protection which is covered below in a separate risk. › We are careful in avoiding taking on consequential damages in our contracts. GovernanceFinancial StatementsStrategic Report 56 Strategic Report | Risk management Inmarsat plc | Annual Report and Accounts 2018 Risk management continued Risk Background and impact Mitigation Movement 6. Satellite launch failure Link to strategy: 1 2 7. Protectionism affects our business operations Link to strategy: 1 2 3 4 5 8. Security risk Link to strategy: 1 2 3 4 5 › We face risks when we launch our satellites. There are only a few satellite launch companies and if they encounter problems, our launch risk may increase. › The risk has increased since there were no satellite launches in 2018 but in 2019 we plan to launch our GX5 satellite. › Growing protectionism including policy changes, sanctions and trade wars could impact our business, including our supply chain and our ability to carry out installations. We provide our services to many government organisations around the world which may have conflicting requirements, and our revenue may be affected by governments’ reduction in spending and their other political priorities. With rising protectionism, we must especially maintain our ability to do business with governments worldwide via relationships with them. › This risk has increased due to global political changes occuring. › We may suffer damage to satellites, networks, information/data, systems, processes and our services to customers as a result of malicious or flawed code, unauthorised access, service denial ransom/coercion, or security compromise. There is also a significant risk of aggregated minor risks having an impact on service delivery. Data or IP could be stolen. This could also have consequential impact on our reputation, business plans and operations, and future revenue from risk averse customers/markets. › The risk is reduced by the continued successful cooperation between our space engineering team, satellite manufacturers and launch companies. › We deploy an experienced team to prepare for satellite launches. › We buy insurance to compensate for the financial loss in the event a satellite launch failure. › We continuously review and adapt our strategy in reaction to developing political or economic situations. We assess and manage new risks from political decisions including protectionism that potentially could impact our business. › Inmarsat Government operates with a proxy board to allow it to manage its business in accordance with U.S. requirements and compete effectively for U.S. Government business. › We maintain industry-standard security measures, and have increased our investment in state-of-the-art cyber countermeasures and enhanced cyber security operations to improve detection and response to incidences. We achieved ISO 27001 Certification in Q4 2018 and we have now initiated a continuous improvement programme, the progress of which will be independently assessed. We have completed risk assessments on information assets across the Group, and as a consequence, we are deploying appropriate controls. › Through the OneIT project we are building a modern computer infrastructure that enhances protection of critical assets and data. We have ensured our processes are compliant with the GDPR legislation. › We have improved our incident response capability. We have disaster recovery and business continuity plans for important elements of our networks; and these contingency plans are tested regularly. Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Risk management 57 Risk Background and impact Mitigation Movement 9. Loss of or failed customer or supplier Link to strategy: 1 2 3 10. Spectrum, orbital slots and market access risk Link to strategy: 1 2 › We rely on our distribution channel for part of our revenue and they might not sell our services effectively or competitively. We have critical GX and FX contracts which require careful management to ensure successful execution. We may not meet customer needs with some declining legacy products. › We provide our services to many government organisations around the world which may have conflicting requirements, and our revenue may be affected by governments’ reduction in spending and their other political priorities. We may lose customers due to poor quality service delivery or operations, or fail to keep up with the business needs of our customers. We may fail to roll out new services including migrating existing customers. › A competitor may buy a critical supplier or partner. Partners may merge or grow and as a result outcompete smaller partners. Partners may prefer selling our competitors’ services due to better terms and conditions. › We rely on a limited number of third party suppliers and partners in the production of our satellites, launch providers’ systems, terminals and products and we may have limited control over availability, quality and delivery of these goods. A satellite manufacturer or a supplier to the satellite manufacturer, may fail or have serious damage to a production facility that delays the delivery of our satellite. A satellite launch provider may additionally have a launch failure which affects the timing of our planned launches. A competitor may buy a critical supplier or partner. A critical supplier may fail financially or one of their systems may fail. › Relying on some critical customers may increase our financial exposure if they fail to make payments for our services. › We build strong relationships with all our partners and provide them with excellent services to sell in their markets. We encourage sharing of information and developing ideas through direct meetings with our partners and through our regional and global conferences. We continuously review and refine our pricing, overall offering and terms with our partners. › We monitor market and partner developments and adjust our strategy to mitigate negative developments as well as to explore opportunities. › We continue to improve the reliability of our satellites and services which are critical to our end users. We have simplified our standard contracts and pricing in order to make it easier to do business with us. We promote fair play in our distribution channel and will not promote customer churn. We introduce new services with common technologies and develop more competitive pricing strategies. We continue to broaden our customer base through sales strategies and new service offerings. › We work closely with our suppliers to review programme plans, delivery quality and timing to ensure that they meet our requirements. We have a highly experienced quality assurance team at satellite manufacturing sites to check design and production activities and also at launch sites ahead of our satellite launches. › The Group Procurement department’s reviews and actions reduce the risk, for example exploring dual sourcing and assessing suppliers’ quality, technical know-how and financial viability. › We can operate in an agile way to seek new satellite launch providers if required, as we did to secure an alternative provider for the delayed S-band satellite launch in 2017. › We have an effective credit management process in place, assessing the credit risk of new and existing customers. › We rely on radio spectrum, which has historically been allocated without charge, to provide our services. We must agree how it is used in coordination with other satellite operators and need to coordinate its ongoing availability. We may not be able to coordinate usage in the future and/or may be charged for the spectrum which could affect our ability to provide services. Channel consolidation may drive down prices and ARPU. › We require orbital slots to place our satellites in the correct position to provide adequate coverage and deliver our services. We may not be able to obtain adequate orbital slots or we may miss deadlines to bring orbital slots into use. › Given the nature of the satellite business it is important to have access to all areas of the globe and provide coverage world-wide. This requires licensing from multiple national authorities. We may not be able to gain these licences for various reasons. Market access may not be allowed in certain countries which restricts our services being offered. We may lose licences after they have been obtained due to non-compliance or legal challenges. › We regularly improve the efficiency of our spectrum usage through innovation and system enhancement. We also educate and inform regulators and governments as to the unique socio-economic contribution of our mobile satellite services. We work on various World Radio Conference preparatory groups to brief them on the ongoing need for our frequency allocations. › We proactively make ITU filings for orbital slots through several national administrations in order to create opportunities to meet our short and long-term spectrum and orbital slot requirements. › We negotiate with other companies on orbital slots and the ability to achieve better spectrum usage and allocation. › We obtain in-country market access for our distribution channel as far as possible and make any licensing requirements as straightforward as possible for our partners. › We engage with and support regulators to defend our licences. GovernanceFinancial StatementsStrategic Report 58 Strategic Report | Risk management Inmarsat plc | Annual Report and Accounts 2018 Risk management continued Risk Background and impact Mitigation Movement 11. Financing risk Link to strategy: 1 2 3 5 12. Currency risk Link to strategy: 3 5 13. Loss of people and key skills Link to strategy: 1 2 3 4 5 › The company finances the business through operating cash flow and capital market instruments. Our ability to finance the business in the medium term could be affected by the closure of capital markets, by failing to materially deliver on our business plans and strategy, or by downturns in the economy of a country and/or the world economy. › We have never experienced closed capital markets. › Downturns in the economy of a country and/or world economy, armed conflicts and trade restrictions could impact currency exchange rates and our business and strategy. We have costs in GBP, so a significant change in GBP value could impact our business. Some USD rate changes may only have translational effects in our accounts and results. › We may fail to hire skilled people or adequately improve skills to maintain and grow our business, deliver our strategy and complete programmes and projects. We may lose highly technical and specialist employees who have very specific skill sets that are vital to the business. We may lose knowledge with employees and consultants who leave the company. Brexit negotiations outcomes could impact EU citizens working in London and UK citizens in Europe. We may lose employee engagement and motivation. Our employees may suffer injury from terrorist attacks or natural disasters in our locations. › We ensure the Company is financially robust and resilient to economic downturns. The Board has defined and approved a robust financial policy. › We continuously review and adapt our business focus in reaction to developing political or economic situations. Our strengthened forecasting process informs our business focus. › We document and improve our internal processes. › We maintain an ongoing informed dialogue with the investment community. › We carefully manage and monitor our cash flows, budget and plans and are prepared to make adjustments in case of large currency exchange rates. We are prepared to hedge large contracts and cash flows. › We implement our People strategy where we identify key employees, skills and skills gaps to manage human resources effectively and enable delivery of the Company’s strategy. We invest in training and development for our employees and develop and implement recruitment strategies to ensure we have people with the skills the Company needs. Our employee value proposition focuses on career development, training and reward to ensure we have an engaged and motivated workforce. › Inmarsat’s Brexit committee analyses the impact of the UK Brexit including no-deal scenarios and deploys strategies to minimise possible impact. There are other risks that are either secondary to the Principal risks described above or risks of a long-term nature. These risks include but are not limited to: › Ethical and compliance risks › Failed delivery of internal programmes or projects › Patent infringement › Restrictions on terminal use because of physical, psychological or social reasons › Environmental damage from our operations › Risks from climate change Inmarsat plc | Annual Report and Accounts 2018 Strategic Report | Risk management 59 Viability statement In accordance with provision C.2.2 of the UK Corporate Governance Code 2014, the Directors have assessed the viability of the Group over a three-year period, taking into account the Group’s current position and the potential impact of the principal risks documented on pages 52 to 58 of the Annual Report. Assessment period The Directors have determined that a three year period to 31 December 2021 is an appropriate period over which to provide its viability statement. This is the key period of focus within the Group’s strategic planning process and it reflects the period over which the Group has reasonable visibility of both customer contracts and product development programmes. Assessment process The Long Range Business Plan (‘the Plan’, or ‘LRBP’), which is updated annually, formed the basis for the viability assessment. The Plan, as a matter of routine, takes account of ‘business as usual risks’ including slower revenue growth, increased operating costs, higher working capital requirements and adverse outcomes to disputed items. In completing the viability assessment, the Plan was tested against a number of severe but plausible principal risk scenarios. The scenarios were determined by considering which of the principal risks to the business outlined previously contribute significantly to the longer term viability of the Company. The following risks were deemed as having the potential to threaten the operational viability of the group: › Event leads to sharp reduction of air traffic: We modelled the impact of materially lower Aviation passenger connectivity growth rates than expected › Geo-political risk, political uncertainty including Brexit impact: We modelled the loss of government revenue due to geo-political events outside the control of the Company › Competition – technology disruption, new entrants and different business plans: We modelled the impact of materially lower growth rates than expected › Major operational failure: We modelled the separate impact of a catastrophic failure to a satellite in each of our I-4, I-5 or GX5 constellations › Protectionism: We modelled the impact of materially lower growth rates than expected › Security risk: We modelled the impact of aggressive cyber-attacks that penetrate our networks and/or key systems › Loss of failed customer: We modelled the impact of the loss of a key customer › Spectrum, Orbital slots and Market access risk: We modelled the impact of our inability to retain appropriate licenses and market access to deliver services to our key markets Each scenario was tested and the financial impact estimated based upon a combination of internal estimates and data available from external sources. Mitigation strategies were identified and costed in conjunction with internal experts to calculate the net likely financial impact of each scenario in both isolation and if they were to occur concurrently. The Audit Committee reviewed and discussed the process undertaken by management. Conclusion Based on this assessment, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2021. In reaching this conclusion, the Directors noted that the Group is exposed to particularly high levels of risk when a satellite is launched although this risk is routinely mitigated through launch insurance, for which there is a well-developed market. Once satellites have been successfully placed into orbit, the experience of the last 35 years is that failures are rare, which is due in part to the high levels of redundancy that are routinely built into the satellites and ground network. Looking beyond the risks associated with the satellites and our network the geographical and sector diversification of the Group’s operations helps reduce the risk of a loss that might endanger the viability of the Group. GovernanceFinancial StatementsStrategic Report 60 (cid:42)overnance (cid:95) Chairman’s introd(cid:88)ction (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Chairman’s introduction to Governance (cid:39)(cid:88)rin(cid:74) 2018 there were no chan(cid:74)es in (cid:37)oard mem(cid:69)ership(cid:17) (cid:44)n (cid:45)an(cid:88)ary 201(cid:28)(cid:15) we were deli(cid:74)hted to anno(cid:88)nce the appointment of an additional female (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector(cid:15) (cid:55)racy Clar(cid:78)e(cid:15) who (cid:77)oined the (cid:37)oard on 1 Fe(cid:69)r(cid:88)ary(cid:17) (cid:48)ore is provided on this appointment and the proposed re(cid:16)election of all e(cid:91)istin(cid:74) (cid:39)irectors in the (cid:49)ominations Committee (cid:53)eport on pa(cid:74)e (cid:26)2(cid:17) (cid:36)s Chairman (cid:44) am a(cid:69)le to call on a (cid:69)road and diverse ran(cid:74)e of s(cid:78)ills and e(cid:91)perience from all my (cid:39)irectors(cid:17) (cid:55)he (cid:69)lend of e(cid:91)perience(cid:15) nationalities and ran(cid:74)e of c(cid:88)lt(cid:88)ral e(cid:91)perience within the (cid:37)oard is val(cid:88)a(cid:69)le to (cid:88)s as we f(cid:88)lfil o(cid:88)r d(cid:88)ties(cid:17) (cid:55)he diversity already on o(cid:88)r (cid:37)oard allows (cid:88)s to (cid:69)e c(cid:88)lt(cid:88)rally aware and respond where there are areas which need (cid:74)reater foc(cid:88)s(cid:17) (cid:54)(cid:88)ccession plannin(cid:74) for the (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors remains a (cid:78)ey foc(cid:88)s for the (cid:49)ominations Committee and the (cid:37)oard(cid:17) (cid:58)e will review the si(cid:93)e and composition of the (cid:37)oard over 201(cid:28)(cid:17) (cid:55)he (cid:37)oard will consider this year the recommendations in the F(cid:53)C’s report a(cid:69)o(cid:88)t Chair s(cid:88)ccession plannin(cid:74) and start the process for this search(cid:17) (cid:58)e hope the information in this (cid:53)eport will help yo(cid:88) to (cid:88)nderstand how yo(cid:88)r (cid:37)oard r(cid:88)ns the Company(cid:15) mana(cid:74)es ris(cid:78)s(cid:15) monitors internal controls(cid:15) and how decisions ta(cid:78)en over the year have (cid:69)een made(cid:17) ANDREW SUKAWATY CHAIRMAN 18 (cid:48)arch 201(cid:28) (cid:58)e are committed to the hi(cid:74)hest standards of (cid:74)overnance set at the (cid:37)oard level and implemented thro(cid:88)(cid:74)ho(cid:88)t the Company (cid:55)he (cid:37)oard approves the (cid:42)ro(cid:88)p’s (cid:74)overnance framewor(cid:78) with the (cid:37)oard Committees contri(cid:69)(cid:88)tin(cid:74) their specialist foc(cid:88)s to (cid:78)ey areas s(cid:88)ch as financial reportin(cid:74)(cid:15) rem(cid:88)neration policy(cid:15) internal controls and ris(cid:78) mana(cid:74)ement(cid:17) O(cid:88)r (cid:74)overnance framewor(cid:78) reflects the re(cid:84)(cid:88)irements of the (cid:56)(cid:46) Corporate (cid:42)overnance Code (cid:11)(cid:67)the Code’(cid:12) and the (cid:47)ar(cid:74)e and (cid:48)edi(cid:88)m(cid:16)si(cid:93)ed Companies and (cid:42)ro(cid:88)ps (cid:11)(cid:36)cco(cid:88)nts and (cid:53)eport(cid:12) (cid:11)(cid:36)mendment(cid:12) (cid:53)e(cid:74)(cid:88)lations 2013 (cid:11)(cid:67)the (cid:53)e(cid:74)(cid:88)lations’(cid:12)(cid:17) (cid:55)he Financial (cid:53)eportin(cid:74) Co(cid:88)ncil’s (cid:11)(cid:67)F(cid:53)C’(cid:12) 2018 (cid:56)(cid:46) Corporate (cid:42)overnance Code p(cid:88)ts the relationships (cid:69)etween companies(cid:15) shareholders and sta(cid:78)eholders at the heart of lon(cid:74)(cid:16)term s(cid:88)staina(cid:69)le (cid:74)rowth(cid:17) (cid:55)he (cid:37)oard reco(cid:74)nises how the ri(cid:74)ht corporate c(cid:88)lt(cid:88)re (cid:88)nderpins how a company creates and s(cid:88)stains val(cid:88)e over the lon(cid:74)er term(cid:15) which is a (cid:78)ey element of maintainin(cid:74) a rep(cid:88)tation for hi(cid:74)h standards of (cid:69)(cid:88)siness cond(cid:88)ct(cid:17) (cid:44)n 2018(cid:15) we en(cid:74)a(cid:74)ed with o(cid:88)r investors(cid:15) c(cid:88)stomers and s(cid:88)ppliers on a wide ran(cid:74)e of s(cid:88)staina(cid:69)ility iss(cid:88)es for a second time(cid:17) (cid:55)his e(cid:91)ercise provides insi(cid:74)ht into o(cid:88)r relevant (cid:69)(cid:88)siness impacts and their effect on o(cid:88)r a(cid:69)ility to (cid:74)enerate and preserve val(cid:88)e over the lon(cid:74)er term(cid:17) (cid:58)e (cid:69)elieve o(cid:88)r contin(cid:88)ed en(cid:74)a(cid:74)ement in this way will foster a deeper more relevant disclos(cid:88)re on (cid:78)ey iss(cid:88)es affectin(cid:74) o(cid:88)r (cid:69)(cid:88)sinesses’ s(cid:88)staina(cid:69)le prospects whilst red(cid:88)cin(cid:74) less val(cid:88)e(cid:16)relevant disclos(cid:88)res(cid:17) (cid:48)ore information on the 2018 materiality assessment can (cid:69)e fo(cid:88)nd on pa(cid:74)e (cid:23)2(cid:17) (cid:36)s we loo(cid:78) forward to the year ahead(cid:15) we will contin(cid:88)e this policy of deeper en(cid:74)a(cid:74)ement with all sta(cid:78)eholders to ens(cid:88)re we (cid:88)nderstand and reco(cid:74)nise the needs of o(cid:88)r shareholders and sta(cid:78)eholders(cid:17) ANDREW SUKAWATY CHAIRMAN (cid:36)s Chairman (cid:44) am a(cid:69)le to call on a (cid:69)road and diverse ran(cid:74)e of s(cid:78)ills and e(cid:91)perience from all my (cid:39)irectors Inmarsat plc | Annual Report and Accounts 2018 Governance | Governance at work 61 Governance at work This section of the Annual Report summarises how we manage the Company to meet the needs of the business and our stakeholder responsibilities The Board is committed to the highest standards of governance and it does this whilst being responsible for the overall conduct of the Group’s business and by providing leadership and guidance. Board activities in 2018 › Reviewed the Group’s strategy in relation to technology capabilities; approved investment in future ground networks to support new satellites being built and investments in key operating systems to improve billing and IT infrastructure to benefit customers and employees › Discussed the Group’s capital structure and took the decision to reduce the dividend payment › Discussed the conditional proposal from EchoStar to reach a decision on how to respond › Discussed the Nomination Committee’s recommendations for re-election of existing Directors and the appointment of an additional Director › Received feedback from the extensive engagement programmes with major shareholders regarding their response to the dividend reduction, share price performance and remuneration consultation For more information please see Role of the Board on page 68 Leadership Accountability In this section This section provides an overview of the Board and how it and its Committees work together. Details of the type of activity considered by the Board and also some of the core responsibilities for certain Directors are also explained. As part of the external Board evaluation process, the Directors are asked to consider a wide range of discussion areas and there are comments from the review within this Report. Why this is important It is important to have strong leadership from the Board as a whole to support the Executive Directors and management in their day-to-day running of the business. The Board supports an open and transparent culture which is endorsed by the Executive Directors and the Executive Management Team. See pages 67 to 71 In this section The work of the Audit Committee extends and expands as the number of new auditing and governance requirements grows. Why this is important Two of our Board Committees have responsibility for oversight of our telecoms regulatory requirements and audit reporting. These are significant areas of focus for our business and it is important for stakeholders to know that this is recognised at the highest level in the Company. It is critical to know that there is a process of accountability running throughout the Company with good processes in place and defined levels of responsibility. See pages 75 to 79 Effectiveness Remuneration In this section In the Report from the Nominations Committee Chairman, we reflect on the elements of how the Board is made up, how we plan to ensure success in the future and how we make sure on an annual basis that we are being held accountable to each other as Board members and also to our stakeholders. Why this is important Having an effective and contributing diverse Board, with the right skills, experience and willingness to contribute to the Company’s culture, is very important to our success as a company and therefore to our stakeholders. It is incumbent on the Board to make sure that it is diligent in its succession planning – at Board level and also contributing to what happens at the Executive Management Team level and understanding succession planning generally. In this section This section of the governance report provides a review of what remuneration has been paid to Executive Directors in 2018 and what is intended to be paid in 2019 (called the implementation report) and how we have structured a new Remuneration Policy following extensive shareholder consultation. Shareholders are asked to vote at the AGM annually on the implementation report, and in 2019, on a new Remuneration Policy. Why this is important Our Remuneration Committee carries the responsibility to deliver a clear articulation of our Remuneration Policy and consider this in the context of the pay arrangements for all our employees. It is important for stakeholders to understand how remuneration is determined and that the appropriate links between remuneration, strategy, risk and our KPIs are made. See pages 72 to 74 See pages 81 to 101 GovernanceFinancial StatementsStrategic Report 62 (cid:42)overnance (cid:95) (cid:37)oard of (cid:39)irectors (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Board of Directors (cid:55)he ri(cid:74)ht (cid:69)alance of s(cid:78)ills BOARD COMPOSITION (cid:40)(cid:91)ec(cid:88)tive(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)2 (cid:49)on(cid:16)e(cid:91)ec(cid:88)tive (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)11 BOARD TENURE 0(cid:113)3 years (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)3 (cid:23)(cid:113)8 years (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)7 (cid:28)(cid:14) years (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)3 BOARD MEMBERS BY GENDER Male (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)10 Female (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)3 BOARD NATIONALITY UK (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)6 (cid:56)(cid:17)(cid:54)(cid:17) (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)4 Mali (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)1 (cid:49)ew (cid:61)ealand (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)1 (cid:49)etherlands (cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)(cid:17)1 BOARD EXPERIENCE Regulatory Developing economies Corporate finance Manufacturing Government Cyber security Telecommunications Tax Technology Mergers and Acquisitions Financial management Digital 1 2 1. ANDREW SUKAWATY CHAIRMAN Dates of appointments Chairman(cid:15) (cid:45)an(cid:88)ary 201(cid:24)(cid:30) (cid:40)(cid:91)ec(cid:88)tive Chairman(cid:15) (cid:45)an(cid:88)ary 2012 (cid:113) (cid:39)ecem(cid:69)er 201(cid:23)(cid:30) (cid:40)(cid:91)ec(cid:88)tive Chairman and C(cid:40)O(cid:15) (cid:48)arch 200(cid:23) (cid:113) (cid:39)ecem(cid:69)er 2011(cid:30) Chairman (cid:39)ecem(cid:69)er 2003 Background and relevant experience (cid:36)ndy was the (cid:54)enior (cid:44)ndependent (cid:39)irector of (cid:54)(cid:78)y (cid:51)(cid:47)C (cid:88)ntil his resi(cid:74)nation in Octo(cid:69)er 2018(cid:17) (cid:43)e was previo(cid:88)sly Chairman of (cid:61)i(cid:74)(cid:74)o (cid:49)(cid:17)(cid:57)(cid:17)(cid:15) (cid:59)yrate(cid:91) (cid:55)echnolo(cid:74)ies and (cid:55)elenet and also (cid:39)ep(cid:88)ty Chairman of O2 (cid:51)(cid:47)C(cid:17) (cid:43)e has also (cid:69)een an advisor to (cid:36)pa(cid:91) (cid:51)artners and (cid:58)ar(cid:69)(cid:88)r(cid:74) (cid:51)inc(cid:88)s(cid:17) (cid:43)e has previo(cid:88)sly (cid:69)een Chief (cid:40)(cid:91)ec(cid:88)tive Officer and (cid:51)resident of (cid:54)print (cid:51)C(cid:54)(cid:15) a (cid:49)(cid:60)(cid:54)(cid:40) listed (cid:74)lo(cid:69)al national wireless carrier and Chief (cid:40)(cid:91)ec(cid:88)tive Officer of (cid:49)(cid:55)(cid:47) (cid:47)imited(cid:17) (cid:43)e has also held vario(cid:88)s mana(cid:74)ement positions with (cid:56)(cid:54) (cid:58)est and (cid:36)(cid:55)(cid:9)(cid:55) and (cid:69)een a (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive director on vario(cid:88)s listed companies(cid:17) (cid:36)ndy holds a (cid:37)(cid:37)(cid:36) and (cid:48)(cid:37)(cid:36) respectively from the (cid:56)niversity of (cid:58)isconsin and (cid:48)innesota(cid:17) External appointments (cid:39)irector of (cid:53)(cid:40)(cid:47)(cid:59) plc(cid:30) Chairman of (cid:43)(cid:74) Capital (cid:56)(cid:54)(cid:36)(cid:17) 2. RUPERT PEARCE C(cid:43)(cid:44)(cid:40)F (cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) OFF(cid:44)C(cid:40)(cid:53) Dates of appointments (cid:40)(cid:91)ec(cid:88)tive (cid:39)irector(cid:15) (cid:45)(cid:88)ly 2011(cid:30) Chief (cid:40)(cid:91)ec(cid:88)tive Officer(cid:15) (cid:45)an(cid:88)ary 2012 Background and relevant experience (cid:53)(cid:88)pert has (cid:69)een (cid:44)nmarsat’s Chief (cid:40)(cid:91)ec(cid:88)tive Officer since (cid:45)an(cid:88)ary 2012(cid:17) (cid:43)e (cid:77)oined (cid:44)nmarsat in (cid:45)an(cid:88)ary 200(cid:24) and (cid:69)etween then and 2011(cid:15) he was (cid:42)eneral Co(cid:88)nsel and (cid:54)enior (cid:57)ice (cid:51)resident(cid:15) (cid:44)nmarsat (cid:40)nterprises(cid:17) (cid:51)revio(cid:88)sly(cid:15) (cid:53)(cid:88)pert was a partner in (cid:36)tlas (cid:57)ent(cid:88)re(cid:15) a leadin(cid:74) transatlantic vent(cid:88)re capital investment (cid:69)o(cid:88)ti(cid:84)(cid:88)e(cid:15) specialisin(cid:74) in the (cid:44)(cid:55)(cid:15) comm(cid:88)nications and (cid:69)iotech sectors(cid:17) (cid:37)efore (cid:36)tlas (cid:57)ent(cid:88)re(cid:15) he was also a partner at the international law firm (cid:47)in(cid:78)laters(cid:15) specialisin(cid:74) in corporate finance(cid:15) mer(cid:74)ers (cid:9) ac(cid:84)(cid:88)isitions and private e(cid:84)(cid:88)ity transactions(cid:17) (cid:53)(cid:88)pert received an (cid:48)(cid:36) (cid:11)First Class(cid:12) in (cid:48)odern (cid:43)istory from O(cid:91)ford (cid:56)niversity and won the 1(cid:28)(cid:28)(cid:24) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:37)oard of (cid:39)irectors 63 COMMITTEE MEMBERSHIP Nominations Committee (cid:55)elecoms (cid:53)e(cid:74)(cid:88)latory Committee (cid:36)(cid:88)dit Committee (cid:53)em(cid:88)neration Committee (cid:39)enotes Chairman 3 4 5 6 7 8 F(cid:88)ll(cid:69)ri(cid:74)ht Fellowship in (cid:56)(cid:17)(cid:54)(cid:17) sec(cid:88)rities law(cid:15) st(cid:88)dyin(cid:74) at the (cid:42)eor(cid:74)etown (cid:47)aw Center(cid:17) (cid:43)e has (cid:69)een a visitin(cid:74) fellow of the (cid:44)mperial Colle(cid:74)e (cid:37)(cid:88)siness (cid:54)chool(cid:15) (cid:47)ondon lect(cid:88)rin(cid:74) on the school’s (cid:40)ntreprene(cid:88)rship pro(cid:74)ramme(cid:15) and is the co(cid:16)a(cid:88)thor of (cid:67)(cid:53)aisin(cid:74) (cid:57)ent(cid:88)re Capital’ (cid:11)(cid:58)iley(cid:12)(cid:17) External appointments (cid:48)em(cid:69)er of the (cid:37)oard of (cid:39)irectors of the (cid:40)(cid:48)(cid:40)(cid:36) (cid:54)atellite Operators (cid:36)ssociation (cid:11)(cid:67)(cid:40)(cid:54)O(cid:36)’(cid:12)(cid:30) Commissioner on the (cid:37)road(cid:69)and Commission for (cid:39)i(cid:74)ital (cid:39)evelopment(cid:30) (cid:48)em(cid:69)er of the (cid:54)teerin(cid:74) Committee of the (cid:54)mart (cid:36)frica (cid:44)nitiative(cid:17) 3. TONY BATES C(cid:43)(cid:44)(cid:40)F F(cid:44)(cid:49)(cid:36)(cid:49)C(cid:44)(cid:36)(cid:47) OFF(cid:44)C(cid:40)(cid:53) Dates of appointments (cid:40)(cid:91)ec(cid:88)tive (cid:39)irector and Chief Financial Officer(cid:15) (cid:45)(cid:88)ne 201(cid:23) Background and relevant experience (cid:55)ony previo(cid:88)sly held the roles of (cid:42)ro(cid:88)p CFO of (cid:60)ell (cid:42)ro(cid:88)p (cid:51)lc (cid:11)hi(cid:69)(cid:88) (cid:51)lc(cid:12)(cid:15) (cid:42)ro(cid:88)p CFO and then COO of Colt (cid:42)ro(cid:88)p (cid:54)(cid:17)(cid:36)(cid:17) and (cid:42)ro(cid:88)p Finance (cid:39)irector at (cid:40)(cid:48)(cid:44) plc(cid:17) (cid:55)ony holds a First Class (cid:43)ono(cid:88)rs de(cid:74)ree in (cid:48)ana(cid:74)ement (cid:54)ciences from the (cid:56)niversity of (cid:48)anchester(cid:17) (cid:43)e is a Fellow of the (cid:44)nstit(cid:88)te of Chartered (cid:36)cco(cid:88)ntants in (cid:40)n(cid:74)land and (cid:58)ales(cid:17) External appointments (cid:49)one(cid:17) 4. SIMON BAX (cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55) (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) Date of appointment (cid:45)(cid:88)ne 2013 Background and relevant experience (cid:54)imon (cid:37)a(cid:91) was(cid:15) from 2008 (cid:113) 2013(cid:15) the Fo(cid:88)nder and C(cid:40)O of (cid:40)ncompass (cid:39)i(cid:74)ital (cid:48)edia (cid:44)nc(cid:15) which provides technical services to (cid:69)roadcasters(cid:15) ca(cid:69)le networ(cid:78)s and (cid:74)overnment a(cid:74)encies(cid:17) (cid:43)e previo(cid:88)sly served as CFO and (cid:40)(cid:91)ec(cid:88)tive (cid:57)ice (cid:51)resident of (cid:51)i(cid:91)ar (cid:36)nimation and CFO and (cid:51)resident of (cid:54)t(cid:88)dio Operations of Fo(cid:91) Filmed (cid:40)ntertainment(cid:17) (cid:48)r (cid:37)a(cid:91) holds an hono(cid:88)rs de(cid:74)ree in (cid:43)istory from Cam(cid:69)rid(cid:74)e (cid:56)niversity and is a chartered acco(cid:88)ntant(cid:17) External appointments Chairman of (cid:36)rchant (cid:47)imited(cid:30) (cid:49)on(cid:16)e(cid:91)ec(cid:88)tive director and Chairman of the (cid:36)(cid:88)dit Committee of Channel (cid:23)(cid:17) 5. SIR BRYAN CARSBERG (cid:49)O(cid:49) (cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55) (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) Date of appointment (cid:45)(cid:88)ne 200(cid:24) Background and relevant experience (cid:54)ir (cid:37)ryan is a Chartered (cid:36)cco(cid:88)ntant(cid:17) (cid:43)e served ei(cid:74)ht years as (cid:39)irector (cid:42)eneral of the (cid:55)elecomm(cid:88)nications (cid:11)head of Oftel(cid:12)(cid:15) and then served as (cid:39)irector (cid:42)eneral of Fair (cid:55)radin(cid:74) and (cid:54)ecretary (cid:42)eneral of the (cid:44)nternational (cid:36)cco(cid:88)ntin(cid:74) (cid:54)tandards (cid:37)oard(cid:17) (cid:43)e was previo(cid:88)sly Chairman of the Co(cid:88)ncil of (cid:47)o(cid:88)(cid:74)h(cid:69)oro(cid:88)(cid:74)h (cid:56)niversity(cid:15) a non(cid:16)e(cid:91)ec(cid:88)tive director of Ca(cid:69)le and (cid:58)ireless Comm(cid:88)nications plc and (cid:53)(cid:48) plc(cid:30) and a non(cid:16)e(cid:91)ec(cid:88)tive Chairman of (cid:48)(cid:47)(cid:47) (cid:55)elecom (cid:47)imited(cid:17) (cid:43)e was (cid:78)ni(cid:74)hted in (cid:45)an(cid:88)ary 1(cid:28)8(cid:28)(cid:17) (cid:54)ir (cid:37)ryan is an (cid:43)onorary Fellow of the (cid:44)nstit(cid:88)te of (cid:36)ct(cid:88)aries and holds an (cid:48)(cid:54)c (cid:11)(cid:40)con(cid:12) from the (cid:56)niversity of (cid:47)ondon(cid:17) 7. WARREN FINEGOLD (cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55) (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) Date of appointment (cid:36)(cid:88)(cid:74)(cid:88)st 201(cid:26) Background and relevant experience (cid:58)arren was previo(cid:88)sly a mem(cid:69)er of the (cid:57)odafone (cid:42)ro(cid:88)p (cid:40)(cid:91)ec(cid:88)tive Committee for over 10 years(cid:15) and for most of that time he was (cid:42)ro(cid:88)p (cid:54)trate(cid:74)y and (cid:37)(cid:88)siness (cid:39)evelopment (cid:39)irector(cid:17) (cid:37)efore that(cid:15) (cid:58)arren was a (cid:48)ana(cid:74)in(cid:74) (cid:39)irector of (cid:56)(cid:37)(cid:54) (cid:44)nvestment (cid:37)an(cid:78) where he was (cid:43)ead of the (cid:55)echnolo(cid:74)y (cid:55)eam in (cid:40)(cid:88)rope(cid:30) previo(cid:88)sly he was an (cid:40)(cid:91)ec(cid:88)tive (cid:39)irector at (cid:42)oldman (cid:54)achs (cid:44)nternational in (cid:49)ew (cid:60)or(cid:78) and (cid:47)ondon foc(cid:88)sin(cid:74) on mer(cid:74)ers and ac(cid:84)(cid:88)isitions and raisin(cid:74) capital(cid:17) (cid:58)arren holds an (cid:48)(cid:36) in (cid:51)hilosophy(cid:15) (cid:51)olitics and (cid:40)conomics from O(cid:91)ford (cid:56)niversity and a (cid:48)aster’s de(cid:74)ree in (cid:37)(cid:88)siness (cid:36)dministration from (cid:47)ondon (cid:37)(cid:88)siness (cid:54)chool(cid:17) External appointments (cid:54)enior (cid:44)ndependent (cid:39)irector of (cid:36)vast plc(cid:17) External appointments (cid:49)on(cid:16)e(cid:91)ec(cid:88)tive director of (cid:36)ct(cid:88)al (cid:40)(cid:91)perience plc(cid:17) 8. GENERAL C. ROBERT KEHLER (RTD) (cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55) (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) 6. TRACY CLARKE (cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55) (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) Date of appointment 1 Fe(cid:69)r(cid:88)ary 201(cid:28) Background and relevant experience (cid:55)racy has over 30 years’ e(cid:91)perience in a ran(cid:74)e of international roles at (cid:54)tandard Chartered (cid:37)an(cid:78) (cid:51)(cid:47)C(cid:15) and is c(cid:88)rrently (cid:53)e(cid:74)ional C(cid:40)O(cid:15) (cid:40)(cid:88)rope and (cid:36)mericas and C(cid:40)O(cid:15) (cid:51)rivate (cid:37)an(cid:78)(cid:17) (cid:43)er previo(cid:88)s senior roles at (cid:54)tandard Chartered (cid:37)an(cid:78) incl(cid:88)de (cid:42)ro(cid:88)p (cid:43)ead Corporate (cid:36)ffairs(cid:15) (cid:42)ro(cid:88)p (cid:43)ead (cid:43)(cid:88)man (cid:53)eso(cid:88)rces(cid:15) and (cid:39)irector(cid:15) (cid:47)e(cid:74)al and Compliance(cid:17) (cid:55)racy has previo(cid:88)sly held (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector positions at (cid:54)(cid:78)y plc and ea(cid:74)a plc(cid:17) External appointments (cid:37)oard mem(cid:69)er at (cid:55)heCity(cid:56)(cid:46) and (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector at (cid:40)n(cid:74)land (cid:49)et(cid:69)all(cid:17) Date of appointment (cid:48)ay 201(cid:23) Background and relevant experience (cid:42)eneral (cid:46)ehler retired from the (cid:56)(cid:17)(cid:54)(cid:17) (cid:36)ir Force in (cid:45)an(cid:88)ary 201(cid:23) with over 38 years of service(cid:17) (cid:43)e oversaw a (cid:74)lo(cid:69)al networ(cid:78) of satellite command and control(cid:15) comm(cid:88)nications(cid:15) missile warnin(cid:74) and la(cid:88)nch facilities(cid:15) and ens(cid:88)red the com(cid:69)at readiness of (cid:36)merica’s intercontinental (cid:69)allistic missile force(cid:17) Over his career(cid:15) he served in a variety of important operational and staff assi(cid:74)nments(cid:15) and s(cid:88)ccessf(cid:88)lly led lar(cid:74)e or(cid:74)anisations with (cid:74)lo(cid:69)al responsi(cid:69)ilities(cid:17) External appointments (cid:49)on(cid:16)e(cid:91)ec(cid:88)tive director of (cid:48)(cid:36)(cid:59)(cid:36)(cid:53) (cid:55)echnolo(cid:74)ies(cid:30) (cid:55)r(cid:88)stee of the (cid:48)itre Corporation(cid:30) (cid:39)irector of (cid:48)onocle (cid:36)c(cid:84)(cid:88)isition Corporation(cid:30) (cid:36)cts as (cid:54)pecial (cid:36)dvisor to two (cid:56)(cid:17)(cid:54)(cid:17) or(cid:74)anisations(cid:17) i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 64 (cid:42)overnance (cid:95) (cid:37)oard of (cid:39)irectors (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Board of Directors contin(cid:88)ed COMMITTEE MEMBERSHIP Nominations Committee (cid:55)elecoms (cid:53)e(cid:74)(cid:88)latory Committee (cid:36)(cid:88)dit Committee (cid:53)em(cid:88)neration Committee (cid:39)enotes Chairman 9 10 11 12 13 14 9. PHILLIPA McCROSTIE (cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55) (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) Date of appointment (cid:54)eptem(cid:69)er 2016 Background and relevant experience (cid:51)hillipa (cid:11)(cid:67)(cid:51)ip’(cid:12) was a mem(cid:69)er of (cid:40)(cid:60)’s (cid:42)lo(cid:69)al (cid:40)(cid:91)ec(cid:88)tive (cid:37)oard for ei(cid:74)ht years (cid:88)ntil her retirement in (cid:45)(cid:88)ne 2016(cid:17) (cid:51)ip was also (cid:42)lo(cid:69)al (cid:43)ead of Corporate Finance(cid:17) (cid:54)he transformed Corporate Finance into a (cid:69)(cid:88)siness with reven(cid:88)es e(cid:91)ceedin(cid:74) (cid:7)3(cid:69)n d(cid:88)rin(cid:74) the (cid:74)lo(cid:69)al recession(cid:17) (cid:43)er responsi(cid:69)ilities incl(cid:88)ded (cid:51)(cid:9)(cid:47)(cid:15) strate(cid:74)y(cid:15) investment(cid:15) people development and ris(cid:78)(cid:17) (cid:51)ip led the ac(cid:84)(cid:88)isition and inte(cid:74)ration of (cid:51)arthenon(cid:15) a (cid:74)lo(cid:69)al strate(cid:74)y cons(cid:88)ltin(cid:74) (cid:69)(cid:88)siness(cid:17) (cid:51)ip has deep e(cid:91)perience of international (cid:48)(cid:9)(cid:36) and ta(cid:91) and is a (cid:84)(cid:88)alified lawyer(cid:17) External appointments (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive director and mem(cid:69)er of the (cid:49)omination Committee and (cid:36)(cid:88)dit Committee of (cid:48)ar(cid:78)s and (cid:54)pencer (cid:42)ro(cid:88)p plc(cid:30) (cid:48)em(cid:69)er of the (cid:37)oard of (cid:51)eterson (cid:44)nstit(cid:88)te of (cid:44)nternational (cid:40)conomics and Chair of its (cid:36)(cid:88)dit Committee(cid:30) (cid:54)enior advisor to (cid:40)(cid:60)’s (cid:42)lo(cid:69)al (cid:40)(cid:91)ec(cid:88)tive and a re(cid:74)(cid:88)lar contri(cid:69)(cid:88)tor on (cid:69)(cid:88)siness iss(cid:88)es to C(cid:49)(cid:37)C(cid:15) C(cid:49)(cid:49)(cid:15) (cid:37)loom(cid:69)er(cid:74) and (cid:53)e(cid:88)ters(cid:17) 11. DR ABE PELED SENIOR INDEPENDENT (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) Date of appointment (cid:45)(cid:88)ne 2013 Background and relevant experience (cid:36)(cid:69)e was Chief (cid:40)(cid:91)ec(cid:88)tive Officer of (cid:49)(cid:39)(cid:54) (cid:42)ro(cid:88)p plc from 1(cid:28)(cid:28)(cid:24) (cid:113) 2012(cid:15) a di(cid:74)ital pay(cid:16)(cid:55)(cid:57) technolo(cid:74)y company(cid:15) and served as Chairman and Chief (cid:40)(cid:91)ec(cid:88)tive Officer from 200(cid:23) (cid:113) 2012(cid:17) (cid:43)e was (cid:54)enior (cid:57)ice (cid:51)resident of Cisco from (cid:36)(cid:88)(cid:74)(cid:88)st 2012 (cid:113) (cid:45)an(cid:88)ary 201(cid:23) and has previo(cid:88)s senior mana(cid:74)ement e(cid:91)perience with (cid:44)(cid:37)(cid:48) and (cid:40)lron(cid:17) (cid:36)(cid:69)e has a (cid:37)(cid:54)c and (cid:48)(cid:54)c in (cid:40)lectrical (cid:40)n(cid:74)ineerin(cid:74) and a (cid:51)h(cid:39) in (cid:39)i(cid:74)ital (cid:54)i(cid:74)nal (cid:51)rocessin(cid:74)(cid:17) (cid:44)n (cid:48)arch 2013(cid:15) (cid:39)r(cid:17) (cid:51)eled is a (cid:47)ife Fellow of (cid:44)(cid:40)(cid:40)(cid:40)(cid:15) and was awarded the (cid:47)ifetime (cid:36)chievement (cid:36)ward (cid:69)y (cid:39)i(cid:74)ital (cid:55)(cid:57) (cid:40)(cid:88)rope(cid:17) External appointments (cid:51)artner of Cy(cid:69)erClo(cid:88)d (cid:57)ent(cid:88)res(cid:30) (cid:54)enior advisor on technolo(cid:74)y (cid:69)(cid:88)sinesses to (cid:51)ermira(cid:30) Chairman of (cid:55)eam(cid:57)iewer (cid:42)m(cid:69)(cid:43)(cid:30) Chairman of (cid:54)ynamedia (cid:47)td(cid:17) 12. ROBERT RUIJTER (cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55) (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) 10. AMBASSADOR JANICE OBUCHOWSKI (cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55) (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) Date of appointment Fe(cid:69)r(cid:88)ary 201(cid:24) Date of appointment (cid:48)ay 200(cid:28) Background and relevant experience (cid:45)anice held several senior positions (cid:69)oth in the (cid:56)(cid:54) (cid:74)overnment and in the private sector(cid:17) (cid:54)he was formerly (cid:43)ead of (cid:39)ele(cid:74)ation and (cid:56)(cid:54) (cid:36)m(cid:69)assador to the (cid:58)orld (cid:53)adiocomm(cid:88)nication Conference(cid:15) (cid:36)ssistant (cid:54)ecretary for (cid:49)ational (cid:55)elecomm(cid:88)nications and (cid:44)nformation (cid:36)dministration (cid:11)(cid:67)(cid:49)(cid:55)(cid:44)(cid:36)’(cid:12) at the (cid:56)(cid:17)(cid:54)(cid:17) (cid:39)epartment of Commerce and (cid:54)enior (cid:36)dvisor to the Chairman at the Federal Comm(cid:88)nications Commission (cid:11)(cid:67)FCC’(cid:12)(cid:17) (cid:40)arlier in her career she also led international (cid:74)overnment affairs for (cid:49)(cid:60)(cid:49)(cid:40)(cid:59) (cid:11)now (cid:57)eri(cid:93)on(cid:12) and practised private sector antitr(cid:88)st law(cid:17) External appointments (cid:51)resident of Freedom (cid:55)echnolo(cid:74)ies (cid:44)nc(cid:17)(cid:30) (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive director of C(cid:54)(cid:42) (cid:54)ystems(cid:15) (cid:44)nc(cid:17) Background and relevant experience (cid:53)o(cid:69) served as Chief Financial Officer of (cid:57)(cid:49)(cid:56) (cid:49)(cid:17)(cid:57)(cid:17)(cid:15) a p(cid:88)(cid:69)licly listed mar(cid:78)etin(cid:74) and p(cid:88)(cid:69)lishin(cid:74) company (cid:11)now the (cid:49)ielsen company(cid:12) (cid:69)etween 200(cid:23) and 200(cid:26)(cid:17) (cid:43)e previo(cid:88)sly served as the Chief Finance Officer of (cid:46)(cid:47)(cid:48) (cid:53)oyal (cid:39)(cid:88)tch (cid:36)irlines from 2001 (cid:88)ntil its mer(cid:74)er with (cid:36)ir France in 200(cid:23)(cid:15) and as Chief Finance Officer of (cid:36)(cid:54)(cid:48) (cid:44)nternational (cid:49)(cid:17)(cid:57)(cid:17) a p(cid:88)(cid:69)licly listed man(cid:88)fact(cid:88)rer of electronic components(cid:17) (cid:53)o(cid:69) is a Certified (cid:51)(cid:88)(cid:69)lic (cid:36)cco(cid:88)ntant in the (cid:56)nited (cid:54)tates and in (cid:55)he (cid:49)etherlands and a mem(cid:69)er of the (cid:36)C(cid:55) in the (cid:56)(cid:46)(cid:17) External appointments (cid:48)em(cid:69)er of the (cid:54)(cid:88)pervisory (cid:37)oard and chair of the a(cid:88)dit committee at (cid:58)avin (cid:49)(cid:17)(cid:57)(cid:17)(cid:30) (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive director and chair of the a(cid:88)dit committee at (cid:44)nter(cid:91)ion (cid:49)(cid:17)(cid:57)(cid:17) (cid:11)(cid:49)(cid:60)(cid:54)(cid:40)(cid:12)(cid:30) (cid:48)em(cid:69)er of the (cid:54)(cid:88)pervisory (cid:37)oard of (cid:49)(cid:49) (cid:42)ro(cid:88)p (cid:49)(cid:17)(cid:57)(cid:17)(cid:30) (cid:48)em(cid:69)er of the Contin(cid:88)ity Fo(cid:88)ndation of (cid:36)(cid:54)(cid:48)(cid:44) (cid:49)(cid:57)(cid:17) 13. DR HAMADOUN TOURÉ (cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55) (cid:49)O(cid:49)(cid:16)(cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)C(cid:55)O(cid:53) Date of appointment (cid:48)arch 201(cid:24) Background and relevant experience (cid:43)amado(cid:88)n was (cid:54)ecretary (cid:42)eneral of the (cid:44)nternational (cid:55)elecomm(cid:88)nication (cid:56)nion (cid:11)(cid:67)(cid:44)(cid:55)(cid:56)’(cid:12)(cid:15) the specialised information and comm(cid:88)nication technolo(cid:74)ies a(cid:74)ency of the (cid:56)nited (cid:49)ations from 200(cid:26) (cid:113) 201(cid:23)(cid:17) (cid:43)e was a mem(cid:69)er of the (cid:56)(cid:49) Chief (cid:40)(cid:91)ec(cid:88)tive (cid:37)oard and served as Chairman of the (cid:56)(cid:49) (cid:44)C(cid:55) (cid:49)etwor(cid:78)(cid:17) (cid:43)e was the fo(cid:88)ndin(cid:74) mem(cid:69)er of the (cid:37)road(cid:69)and Commission for (cid:39)i(cid:74)ital (cid:39)evelopment and served as co(cid:16)vice chair (cid:88)ntil his retirement from (cid:44)(cid:55)(cid:56)(cid:17) (cid:43)e was a mem(cid:69)er of the (cid:36)dvisory (cid:37)oard of the (cid:44)nternational (cid:48)(cid:88)ltilateral (cid:51)artnership (cid:36)(cid:74)ainst Cy(cid:69)er (cid:55)hreats (cid:11)(cid:67)(cid:44)(cid:48)(cid:51)(cid:36)C(cid:55)’(cid:12) (cid:88)ntil (cid:39)ec 201(cid:23)(cid:17) (cid:43)e has also had a distin(cid:74)(cid:88)ished career in the satellite ind(cid:88)stry(cid:17) (cid:43)amado(cid:88)n holds a (cid:48)aster’s (cid:39)e(cid:74)ree in (cid:40)lectrical (cid:40)n(cid:74)ineerin(cid:74) from the (cid:55)elecomm(cid:88)nications (cid:44)nstit(cid:88)te of (cid:54)t(cid:17) (cid:51)eters(cid:69)(cid:88)r(cid:74) (cid:11)(cid:53)(cid:88)ssian Federation(cid:12) and a (cid:51)h(cid:39) in (cid:40)lectrical (cid:40)n(cid:74)ineerin(cid:74) from the (cid:56)niversity of (cid:44)nformatics and (cid:55)elecoms of (cid:48)oscow (cid:11)(cid:53)(cid:88)ssian Federation(cid:12)(cid:17) External appointments Fo(cid:88)ndin(cid:74) (cid:40)(cid:91)ec(cid:88)tive (cid:39)irector of (cid:54)mart (cid:36)frica (cid:11)(cid:45)an(cid:88)ary 2016 (cid:113) (cid:48)arch 201(cid:28)(cid:12)(cid:30) (cid:48)em(cid:69)er of the (cid:37)oard for (cid:54)(cid:88)staina(cid:69)le (cid:39)evelopment (cid:42)oals Center for (cid:36)frica (cid:69)y the (cid:56)nited (cid:49)ations(cid:30) (cid:43)e was a non(cid:16)e(cid:91)ec(cid:88)tive (cid:37)oard (cid:48)em(cid:69)er(cid:15) (cid:55)(cid:40)(cid:47)(cid:46)O(cid:48) (cid:54)o(cid:88)th (cid:36)frica from (cid:45)an(cid:88)ary 2016 (cid:113) (cid:36)(cid:88)(cid:74)(cid:88)st 2018(cid:17) Chairman (cid:51)(cid:48)(cid:51) on Cy(cid:69)er (cid:54)ec(cid:88)rity and Cy(cid:69)er (cid:51)eace at the (cid:58)orld Federation of (cid:54)cientists (cid:11)(cid:67)(cid:58)F(cid:54)’(cid:12)(cid:15) (cid:48)em(cid:69)er of the (cid:54)wedish (cid:53)oyal (cid:36)cademy of (cid:54)cience (cid:11)(cid:67)(cid:44)(cid:57)(cid:36)’(cid:12)(cid:17) 14. ALISON HORROCKS C(cid:43)(cid:44)(cid:40)F CO(cid:53)(cid:51)O(cid:53)(cid:36)(cid:55)(cid:40) (cid:36)FF(cid:36)(cid:44)(cid:53)(cid:54) OFF(cid:44)C(cid:40)(cid:53) AND COMPANY SECRETARY Date of appointment Fe(cid:69)r(cid:88)ary 1(cid:28)(cid:28)(cid:28) Background and relevant experience (cid:36)lison (cid:77)oined (cid:44)nmarsat in 1(cid:28)(cid:28)(cid:28) and is responsi(cid:69)le for ris(cid:78)(cid:15) compliance and corporate (cid:74)overnance across the Company(cid:17) (cid:54)he acts as Company (cid:54)ecretary to the (cid:37)oard and its Committees(cid:17) (cid:54)he is a mem(cid:69)er of the (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam and Chairman of the (cid:55)r(cid:88)stee Company for the (cid:44)nmarsat (cid:56)(cid:46) pension plans(cid:17) (cid:36)lison mana(cid:74)es o(cid:88)r operations in (cid:44)ndia and China and also the corporate mar(cid:78)etin(cid:74) team(cid:17) (cid:54)he was (cid:42)ro(cid:88)p Company (cid:54)ecretary of (cid:44)nternational (cid:51)(cid:88)(cid:69)lic (cid:53)elations plc(cid:15) a worldwide p(cid:88)(cid:69)lic relations company(cid:15) for 11 years prior to (cid:77)oinin(cid:74) (cid:44)nmarsat(cid:17) (cid:36)lison is a Fellow of the Chartered (cid:54)ecretaries and (cid:36)dministrators(cid:17) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:40)(cid:91)ec(cid:88)tive mana(cid:74)ement team 65 Executive management team (cid:54)(cid:88)pportin(cid:74) the development of (cid:44)nmarsat as a hi(cid:74)h(cid:16)performin(cid:74) company and a foc(cid:88)s on c(cid:88)lt(cid:88)re are (cid:78)ey elements of this team’s responsi(cid:69)ilities 1 2 3 4 5 6 1. RUPERT PEARCE C(cid:43)(cid:44)(cid:40)F (cid:40)(cid:59)(cid:40)C(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) OFF(cid:44)C(cid:40)(cid:53) (cid:39)etails shown previo(cid:88)sly on pa(cid:74)e 62 2. PHILIP BALAAM (cid:51)(cid:53)(cid:40)(cid:54)(cid:44)(cid:39)(cid:40)(cid:49)(cid:55)(cid:15) (cid:36)(cid:57)(cid:44)(cid:36)(cid:55)(cid:44)O(cid:49) Tenure 3 years Responsibilities (cid:51)hil is responsi(cid:69)le for deliverin(cid:74) the (cid:36)viation (cid:37)(cid:88)siness (cid:56)nit’s (cid:69)(cid:88)siness plan in line with its (cid:74)rowth strate(cid:74)y(cid:17) (cid:55)his incl(cid:88)des sec(cid:88)re coc(cid:78)pit comm(cid:88)nications(cid:15) (cid:69)(cid:88)siness aviation and commercial airline ca(cid:69)in connectivity(cid:17) Previous roles include (cid:44)nmarsat Chief (cid:54)trate(cid:74)y Officer (cid:11)2016 (cid:113) 201(cid:26)(cid:12)(cid:30) (cid:36)siasat (cid:57)(cid:51)(cid:15) (cid:54)trate(cid:74)y(cid:15) (cid:37)(cid:88)siness development and (cid:54)ales (cid:11)2011 (cid:113) 2016(cid:12)(cid:30) (cid:36)rianespace (cid:54)ales (cid:39)irector and vario(cid:88)s roles (cid:11)1(cid:28)(cid:28)8 (cid:113) 2011(cid:12)(cid:17) 3. TONY BATES C(cid:43)(cid:44)(cid:40)F F(cid:44)(cid:49)(cid:36)(cid:49)C(cid:44)(cid:36)(cid:47) OFF(cid:44)C(cid:40)(cid:53) (cid:39)etails shown previo(cid:88)sly on pa(cid:74)e 63 4. TRUDY COOKE GROUP GENERAL COUNSEL Tenure (cid:33)1 year 6. PAUL GUDONIS (cid:51)(cid:53)(cid:40)(cid:54)(cid:44)(cid:39)(cid:40)(cid:49)(cid:55)(cid:15) (cid:40)(cid:49)(cid:55)(cid:40)(cid:53)(cid:51)(cid:53)(cid:44)(cid:54)(cid:40) Tenure 12 years Responsibilities (cid:51)a(cid:88)l leads the (cid:44)nmarsat (cid:40)nterprise (cid:37)(cid:88)siness (cid:56)nit(cid:15) which is responsi(cid:69)le for land(cid:16)(cid:69)ased sectors incl(cid:88)din(cid:74) a(cid:74)ric(cid:88)lt(cid:88)re(cid:15) aid and (cid:49)(cid:42)Os(cid:15) ener(cid:74)y(cid:15) minin(cid:74)(cid:15) media(cid:15) and transport and lo(cid:74)istics(cid:17) (cid:54)ince he started in his role in 2016(cid:15) (cid:51)a(cid:88)l has moved the foc(cid:88)s of the (cid:37)(cid:88)siness (cid:56)nit towards deliverin(cid:74) transformational (cid:69)(cid:88)siness o(cid:88)tcomes thro(cid:88)(cid:74)h mana(cid:74)ed services and the (cid:44)nd(cid:88)strial (cid:44)nternet of (cid:55)hin(cid:74)s (cid:11)(cid:67)(cid:44)(cid:44)o(cid:55)’(cid:12)(cid:17) (cid:58)ith over 10 years of e(cid:91)perience in (cid:44)nmarsat(cid:15) (cid:51)a(cid:88)l is re(cid:74)(cid:88)larly invited to comment on ind(cid:88)stry news and to spea(cid:78) at events(cid:15) and is viewed as a tho(cid:88)(cid:74)ht(cid:16)leader for the (cid:74)lo(cid:69)al application of (cid:44)nd(cid:88)strial (cid:44)o(cid:55) technolo(cid:74)y(cid:17) Previous roles include (cid:44)nmarsat (cid:48)aritime (cid:11)2012 (cid:113) 201(cid:24)(cid:12)(cid:15) (cid:44)nmarsat (cid:42)lo(cid:69)al (cid:36)cco(cid:88)nt (cid:48)ana(cid:74)er (cid:11)200(cid:26) (cid:113) 2012(cid:12)(cid:15) (cid:37)ritish (cid:36)rmy (cid:11)1(cid:28)(cid:28)(cid:26) (cid:113) 200(cid:26)(cid:12)(cid:17) Responsibilities (cid:55)r(cid:88)dy (cid:69)rin(cid:74)s e(cid:91)tensive international le(cid:74)al(cid:15) (cid:48)(cid:9)(cid:36) and mana(cid:74)ement e(cid:91)perience(cid:17) (cid:54)he has wor(cid:78)ed for over 20 years(cid:15) first as a corporate lawyer and then more recently as the Chief Operatin(cid:74) Officer and mem(cid:69)er of the (cid:40)(cid:91)ec(cid:88)tive (cid:37)oard at a leadin(cid:74) international private e(cid:84)(cid:88)ity investment firm in (cid:47)ondon(cid:17) (cid:55)r(cid:88)dy is responsi(cid:69)le for mana(cid:74)in(cid:74) (cid:44)nmarsat’s (cid:47)e(cid:74)al and (cid:53)e(cid:74)(cid:88)latory ris(cid:78)s and for providin(cid:74) (cid:47)e(cid:74)al(cid:15) (cid:53)e(cid:74)(cid:88)latory and (cid:54)trate(cid:74)ic services to the Company(cid:17) Previous roles include (cid:55)erra Firma(cid:15) vario(cid:88)s roles incl(cid:88)din(cid:74) Chief Operatin(cid:74) Officer and (cid:42)ro(cid:88)p (cid:42)eneral Co(cid:88)nsel (cid:11)200(cid:23) (cid:113) 2018(cid:12)(cid:15) (cid:47)ovells (cid:11)2000 (cid:113) 200(cid:23)(cid:12)(cid:15) Os(cid:69)orne Clar(cid:78)e (cid:11)1(cid:28)(cid:28)(cid:24) (cid:113) 2000(cid:12) 5. NATASHA DILLON C(cid:43)(cid:44)(cid:40)F (cid:51)(cid:40)O(cid:51)(cid:47)(cid:40) OFF(cid:44)C(cid:40)(cid:53) Tenure 2 years Responsibilities (cid:49)atasha is responsi(cid:69)le for creatin(cid:74) and implementin(cid:74) (cid:44)nmarsat’s people strate(cid:74)y(cid:15) incl(cid:88)din(cid:74) developin(cid:74) e(cid:91)cellent leadership(cid:15) (cid:69)(cid:88)ildin(cid:74) an effective and capa(cid:69)le or(cid:74)anisation(cid:15) deliverin(cid:74) a compellin(cid:74) employee val(cid:88)e proposition for o(cid:88)r people and drivin(cid:74) stron(cid:74) performance(cid:17) Previous roles include (cid:46)orn Ferry (cid:43)ay (cid:42)ro(cid:88)p(cid:15) (cid:54)enior Client (cid:51)artner (cid:11)201(cid:24) (cid:113) 2016(cid:12)(cid:30) (cid:43)ay (cid:42)ro(cid:88)p(cid:15) (cid:36)ssociate (cid:39)irector (cid:11)2012 (cid:113) 201(cid:24)(cid:12)(cid:30) (cid:40)rnst and (cid:60)o(cid:88)n(cid:74)(cid:15) (cid:54)enior (cid:48)ana(cid:74)er(cid:18) (cid:48)ana(cid:74)er (cid:11)2010 (cid:113) 2012(cid:12)(cid:30) (cid:37)(cid:51)(cid:15) vario(cid:88)s commercial and (cid:43)(cid:53) roles (cid:11)1(cid:28)(cid:28)(cid:26) (cid:113) 200(cid:28)(cid:12)(cid:17) i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 66 (cid:42)overnance (cid:95) (cid:40)(cid:91)ec(cid:88)tive mana(cid:74)ement team (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Executive management team contin(cid:88)ed 7 8 9 10 11 12 12. RONALD SPITHOUT (cid:51)(cid:53)(cid:40)(cid:54)(cid:44)(cid:39)(cid:40)(cid:49)(cid:55)(cid:15) (cid:48)(cid:36)(cid:53)(cid:44)(cid:55)(cid:44)(cid:48)(cid:40) Tenure (cid:26) years Responsibilities (cid:54)ince the end of 201(cid:23)(cid:15) (cid:53)onald has (cid:69)een responsi(cid:69)le for (cid:44)nmarsat’s (cid:48)aritime (cid:37)(cid:88)siness and its (cid:74)lo(cid:69)al commercial strate(cid:74)y and e(cid:91)ec(cid:88)tion in (cid:48)erchant (cid:48)arine(cid:15) Offshore (cid:40)ner(cid:74)y(cid:15) Fishin(cid:74)(cid:15) (cid:51)assen(cid:74)ers and (cid:47)eis(cid:88)re mar(cid:78)ets(cid:17) (cid:37)ased on a strate(cid:74)y of c(cid:88)stomer intimacy and channel en(cid:74)a(cid:74)ement the (cid:48)aritime (cid:37)(cid:88)siness (cid:56)nit is effectively drivin(cid:74) themes of (cid:67)(cid:39)i(cid:74)italisation at (cid:54)ea’ and (cid:67)the Connected (cid:57)essel’ to deliver lon(cid:74)(cid:16)term s(cid:88)staina(cid:69)le (cid:74)rowth for (cid:44)nmarsat in the sector(cid:17) Previous roles include (cid:44)nmarsat(cid:15) (cid:51)resident (cid:40)nterprise (cid:37)(cid:88)siness (cid:11)2012 (cid:113) 210(cid:23)(cid:12)(cid:30) (cid:54)tratos (cid:42)lo(cid:69)al(cid:15) (cid:54)enior (cid:57)ice (cid:51)resident (cid:42)lo(cid:69)al (cid:48)ar(cid:78)etin(cid:74) and (cid:54)ales (cid:11)2006 (cid:113) 2011(cid:12)(cid:17) (cid:55)en(cid:88)re denotes time with (cid:44)nmarsat and does not incl(cid:88)de service with companies ac(cid:84)(cid:88)ired (cid:69)y (cid:44)nmarsat(cid:17) 7. PETER HADINGER C(cid:43)(cid:44)(cid:40)F (cid:55)(cid:40)C(cid:43)(cid:49)O(cid:47)O(cid:42)(cid:60) OFF(cid:44)C(cid:40)(cid:53) Tenure 8 years Responsibilities (cid:51)eter (cid:69)ecame C(cid:55)O in 2018(cid:17) (cid:43)e leads the en(cid:74)ineerin(cid:74) teams responsi(cid:69)le for deliverin(cid:74) (cid:44)nmarsat’s f(cid:88)t(cid:88)re satellites(cid:15) networ(cid:78) infrastr(cid:88)ct(cid:88)re(cid:15) terminal technolo(cid:74)ies and spectr(cid:88)m reso(cid:88)rces(cid:17) C(cid:55)O delivers the differentiated and relia(cid:69)le (cid:74)lo(cid:69)al comm(cid:88)nications capa(cid:69)ilities that ma(cid:78)e a difference in the lives of o(cid:88)r c(cid:88)stomers and ens(cid:88)re that (cid:44)nmarsat remains a leader in ena(cid:69)lin(cid:74) the connected world(cid:17) Previous roles include (cid:44)nmarsat(cid:15) (cid:51)resident (cid:56)(cid:17)(cid:54)(cid:17) (cid:42)overnment (cid:37)(cid:88)siness (cid:56)nit (cid:11)2013 (cid:113) 2018(cid:12)(cid:30) (cid:44)nmarsat(cid:15) (cid:57)(cid:51) (cid:42)(cid:59) (cid:42)overnment (cid:11)2011 (cid:113) 2013(cid:12)(cid:30) (cid:55)(cid:53)(cid:58) (cid:49)orthrop (cid:42)r(cid:88)mman (cid:54)pace(cid:15) (cid:47)eadership roles in (cid:40)n(cid:74)ineerin(cid:74) and (cid:37)(cid:88)siness (cid:39)evelopment (cid:11)1(cid:28)81 (cid:113) 2011(cid:12)(cid:17) 8. ALISON HORROCKS C(cid:43)(cid:44)(cid:40)F CO(cid:53)(cid:51)O(cid:53)(cid:36)(cid:55)(cid:40) (cid:36)FF(cid:36)(cid:44)(cid:53)(cid:54) OFF(cid:44)C(cid:40)(cid:53) AND COMPANY SECRETARY (cid:39)etails shown previo(cid:88)sly on pa(cid:74)e 6(cid:23) 9. TODD McDONELL (cid:51)(cid:53)(cid:40)(cid:54)(cid:44)(cid:39)(cid:40)(cid:49)(cid:55)(cid:15) (cid:42)(cid:47)O(cid:37)(cid:36)(cid:47) (cid:42)O(cid:57)(cid:40)(cid:53)(cid:49)(cid:48)(cid:40)(cid:49)(cid:55) Tenure 6 years Responsibilities (cid:55)odd (cid:69)ecame president in 2018 and is responsi(cid:69)le for leadin(cid:74) and drivin(cid:74) (cid:44)nmarsat’s (cid:74)overnment (cid:69)(cid:88)siness in all re(cid:74)ions of the world o(cid:88)tside of the (cid:56)(cid:54)(cid:36)(cid:17) (cid:55)his incl(cid:88)des developin(cid:74) strate(cid:74)ies that deliver (cid:74)reater operational capa(cid:69)ility to (cid:74)overnments and providin(cid:74) holistic sol(cid:88)tions that meet (cid:74)overnment telecomm(cid:88)nications re(cid:84)(cid:88)irements(cid:17) Previous roles include (cid:44)nmarsat(cid:15) (cid:57)(cid:51) (cid:42)lo(cid:69)al (cid:42)overnment (cid:54)ol(cid:88)tions 2013 (cid:113) 2018(cid:30) (cid:55)C Comm(cid:88)nications(cid:15) C(cid:40)O 2003 (cid:113) 2013(cid:17) 10. SUSAN MILLER PRESIDENT AND CEO – (cid:44)(cid:49)(cid:48)(cid:36)(cid:53)(cid:54)(cid:36)(cid:55) (cid:42)O(cid:57)(cid:40)(cid:53)(cid:49)(cid:48)(cid:40)(cid:49)(cid:55)(cid:15) (cid:44)(cid:49)C(cid:17) Tenure (cid:24) years Responsibilities (cid:54)(cid:88)san is responsi(cid:69)le for(cid:29) definin(cid:74) and implementin(cid:74) the overall strate(cid:74)y of e(cid:91)pandin(cid:74) (cid:44)nmarsat’s leadership position across (cid:56)(cid:17)(cid:54)(cid:17) defense(cid:15) intelli(cid:74)ence(cid:15) homeland sec(cid:88)rity and civilian or(cid:74)ani(cid:93)ations(cid:17) (cid:39)eliverin(cid:74) innovative c(cid:88)stomi(cid:93)ed(cid:15) sec(cid:88)re comm(cid:88)nication capa(cid:69)ilities to land(cid:15) maritime and aero (cid:88)sers(cid:15) meetin(cid:74) mission(cid:16)critical connectivity needs aro(cid:88)nd the world(cid:17) (cid:55)heir (cid:69)(cid:88)siness mana(cid:74)es a ro(cid:69)(cid:88)st partnership pro(cid:74)ramme that incl(cid:88)des wor(cid:78)in(cid:74) with (cid:69)est(cid:16)of(cid:16)(cid:69)reed channel partners to deliver (cid:44)nmarsat’s relia(cid:69)le satellite comm(cid:88)nication services and sol(cid:88)tions to (cid:56)(cid:17)(cid:54)(cid:17) (cid:74)overnment end (cid:88)sers worldwide(cid:17) Previous roles include (cid:48)(cid:55)(cid:49) (cid:54)atellite Comm(cid:88)nications(cid:15) (cid:40)(cid:91)ec(cid:88)tive (cid:57)(cid:51)(cid:15) (cid:54)trate(cid:74)y and Corporate (cid:39)evelopment (cid:11)2012(cid:16)2013(cid:12)(cid:30) (cid:54)pacenet (cid:44)nte(cid:74)rated (cid:42)overnment (cid:54)ol(cid:88)tions(cid:15) (cid:44)nc(cid:17)(cid:15) C(cid:40)O (cid:11)200(cid:28) (cid:113) 2012(cid:12)(cid:30) (cid:54)(cid:78)y(cid:55)erra(cid:15) (cid:44)nc(cid:17)(cid:15) (cid:54)enior (cid:57)(cid:51)(cid:15) (cid:54)atellite (cid:54)ervices (cid:11)200(cid:26) (cid:113) 200(cid:28)(cid:12)(cid:30) (cid:44)ntelsat (cid:42)eneral Corp(cid:17)(cid:15) (cid:51)resident and Chairman of the (cid:37)oard (cid:11)2002 (cid:113) 2006(cid:12)(cid:17) 11. JASON SMITH C(cid:43)(cid:44)(cid:40)F O(cid:51)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)O(cid:49)(cid:54) OFF(cid:44)C(cid:40)(cid:53) Tenure 2 years Responsibilities (cid:45)ason is responsi(cid:69)le for (cid:44)nmarsat’s (cid:74)lo(cid:69)al operations and service delivery(cid:15) incl(cid:88)din(cid:74) the satellite fleet and (cid:74)ro(cid:88)nd networ(cid:78)(cid:15) (cid:69)(cid:88)siness and (cid:44)(cid:55) systems(cid:15) (cid:69)(cid:88)siness transformation pro(cid:74)rammes(cid:15) (cid:74)lo(cid:69)al service delivery and distri(cid:69)(cid:88)tion(cid:15) ass(cid:88)rin(cid:74) the (cid:84)(cid:88)ality of service and c(cid:88)stomer e(cid:91)perience e(cid:91)cellence(cid:17) Previous roles include (cid:53)olls(cid:16)(cid:53)oyce(cid:29) (cid:51)resident (cid:49)(cid:88)clear(cid:18)COO (cid:49)(cid:88)clear(cid:18) (cid:51)resident (cid:54)(cid:88)(cid:69)marines (cid:11)200(cid:28) (cid:113) 201(cid:24)(cid:12)(cid:30) (cid:36)(cid:58)(cid:40)(cid:29) (cid:39)ep(cid:88)ty (cid:48)ana(cid:74)in(cid:74) (cid:39)irector(cid:18)(cid:51)ro(cid:74)ramme and (cid:37)(cid:88)siness (cid:48)ana(cid:74)ement (cid:39)irector (cid:11)2000 (cid:113) 200(cid:28)(cid:12)(cid:17) Inmarsat plc | Annual Report and Accounts 2018 Governance | Leadership 67 Leadership Overall summary statement on governance The Company is committed to the highest standards of governance. The Directors consider that the Company has, throughout the year, complied with the provisions of the 2018 UK Corporate Governance Code save as noted below. During 2018, Andrew Sukawaty was Chairman. He did not meet the independence criteria on appointment as he had previously been an Executive Director. Although the Code recommends that the Chairman is independent on appointment, the Board unanimously believes that his wide experience means that he remains extremely well qualified to lead the Company as its Chairman and has the skills and experience to ensure that the Board continues to function effectively. Andrew Sukawaty has also been in post beyond the advisory nine years due to the time served as executive Chairman. With the recent FRC guidelines regarding the recommendation that Chairs should retire after nine years, during 2019, the Board and the Nominations Committee will start the process to seek a new Chair. To support succession planning the Board supports his continued service as Chairman. Our Senior Independent Director, Dr Abe Peled, was appointed to this position in November 2015 and plays a key role within the Company on any matters which may be raised of a governance nature. Last year, we advised shareholders that Sir Bryan, due to his tenure is no longer considered independent, however the Board recommends him too for re-election. Sir Bryan remains valuable to support the Company’s strategic objectives. The Board recognises the recommended term within the Code and will transition the longer-serving Directors. We added a new Director to the Board in 2019 which means that out of the now 10 Non-Executive Directors (excluding the Chairman), only one is classed as non-independent by the Board. A copy of the UK Corporate Governance Code can be found at frc.co.uk. How the Board operates To ensure effective governance, the Board has structured its governance framework as set out below. The Board has established Committees to assist it in exercising its authority. The permanent Committees of the Board are the Audit, Remuneration, Nominations and Telecoms Board committees CHAIRMAN: ANDREW SUKAWATY Key objectives: › Leadership, operation and governance of the Board › Setting the agenda for the Board INMARSAT PLC BOARD 13 Directors: two Executive Directors, the Chairman, one Non-Independent Non-Executive Director and nine Independent Non-Executive Directors Key objectives: › Responsible for the overall conduct of the business; setting strategy and a positive culture AUDIT COMMITTEE Chairman: Robert Ruijter Key objectives: › Oversight and review of financial and operational risk management, audit and internal control issues REMUNERATION COMMITTEE NOMINATIONS COMMITTEE TELECOMS REGULATORY COMMITTEE CHIEF EXECUTIVE Chairman: Simon Bax Chairman: Dr Abe Peled Key objectives: › Oversight and review of remuneration, bonus and share plan issues Key objectives: › Oversight and review of Board and senior management appointments and succession planning Chairman: Andrew Sukawaty Key objectives: › Oversight of key regulatory challenges CEO: Rupert Pearce Key objectives: › Management of the overall business › Implementation of strategy and policy EXECUTIVE MANAGEMENT TEAM Chairman: Rupert Pearce Key objectives: › To focus on strategy, financial performance, culture, succession planning, business growth, organisational development and adherence to Group-wide policies GovernanceFinancial StatementsStrategic Report 68 Governance | Leadership Inmarsat plc | Annual Report and Accounts 2018 Leadership continued Regulatory Committees. Each Committee has Terms of Reference under which authority is delegated by the Board. Copies can be found on our website at inmarsat.com. Reports of the Committees can be found on pages 72 to 101. Role of the Board Our Board is responsible for the overall conduct of the Inmarsat Group’s (the ‘Group’) business. It is the primary decision-making body for all material matters affecting the Group. It provides leadership and guidance and sets our strategic direction. Our Board is ultimately accountable to the shareholders for: › being responsible for the long-term success of the Company, having regard for the interests of all stakeholders › being responsible for ensuring the effectiveness and reporting on our system of governance and › the performance and proper conduct of the business and ensuring a positive culture is supported Responsibility for developing and implementing strategy within the Group’s operations and for day-to-day management of the business is delegated to the Chief Executive Officer who, as the head of the Executive Management Team, cascades this responsibility through the Group. The CEO is empowered by the Board to handle all business activities up to a designated level of authorisation and to report to the Board for guidance, support and approval on other matters which require Board input. A list of the members of the Executive Management Team is provided on pages 65 and 66. A formal schedule of matters specifically reserved for decision or consideration by the Board as a whole has been agreed by the Directors. This schedule covers areas such as: › the Group’s business strategy and long-term plans › major capital projects › significant capital structure changes › investments and › acquisitions and divestments The Board has an annual rolling plan of items for discussion which is reviewed formally at Board meetings and adapted regularly to ensure all matters reserved for the Board, with other items as appropriate, are discussed. There is an established procedure for the review of the agenda between the Chairman, Executive Directors and Company Secretary in advance of each Board meeting. At each Board meeting there is a detailed report on current trading from the Chief Executive and Chief Financial Officer and detailed papers are provided on matters where the Board will be required to make a decision or give approval. Where appropriate, specific responsibilities are delegated to Board Committees or to committees convened for special purposes. In 2018 we focused our attention on the following key areas: Strategy review and development: › Attended a focused Group strategy day, in addition to the regularly occuring strategy discussions with members of the Executive Management Team and other senior executives, to consider key strategic priorities and the market environment › Discussed and approved the Group strategy › Received regular strategy and business development reports from the CEO and other senior management at each Board meeting › Reviewed strategic objectives and updates on the operational performance for the Group’s key business areas › Received reports on technology and innovation and related industry developments › Reviewed Group risk and cyber security as part of the discussion on strategy › Received detailed competitive assessments of traditional and disruptor technology companies › The appointment of a new Group General Counsel with the overall responsibility of Group Strategy Ensuring appropriate financial and operational management: › Received and discussed reports from the CEO on the performance of the Group’s operations › Received and discussed regular reports on the Group’s financial performance › Approved financial announcements for publication › Discussed the annual budget and long range business plan › Reviewed and approved the changes to the Company’s dividend policy, recommendations and payments thereof › Discussed the Group’s capital structure and completed a new RCF facility › Reviewed reports from the Company’s corporate brokers following meetings with shareholders and executive management Implementing governance and ethics and monitoring risk: › Assessed the risks faced by the Group and received updates on internal controls › Reviewed regular reports on legal and compliance matters from the Company Secretary › Received reports from the Board Committee Chairmen › Received reports in the implementation of GDPR › Held individual Director meetings with an external evaluator as part of the Board evaluation process, the outcome of which was discussed at the January 2019 Board meeting › Reviewed the Directors’ Conflicts of Interest procedures › Discussed the additional focus on s172 reporting and other outputs from the revised Governance Code and FRC reporting Workplace reviews: › Received an annual health and safety report covering activity across the Group as well as a report on emissions from the Company’s largest sites › Received regular updates from the CEO about reorganisation and restructuring activity taking place › Received a detailed update regarding new People policies being introduced in the Company including improved training capabilities for all employees, succession planning and identification of high performing individuals Special business: › Received multiple presentations on the aviation business with a specific focus on In-Flight passenger Connectivity and associated capex and opex costs › Spent dedicated time to review the maritime business to understand the performance and competitive impacts › Reviewed the Group’s capital funding structure › Approved investment in the modernisation of a multi-year programme to change the billing and IT capabilities across the Group Independent Non-Executive Directors The diverse experience and backgrounds of the Non-Executive Directors ensures that they can provide a strong independent element on the Board, debate and constructively challenge management both in relation to the development of strategy and review of the Group’s operational and financial performance. Inmarsat plc | Annual Report and Accounts 2018 Governance | Leadership 69 KEY ROLES AND RESPONSIBILITIES The Chairman – Andrew Sukawaty The role of the Chairman is set out in writing and agreed by the Board. He is responsible for: › effective leadership, operation and governance of the Board › ensuring the effectiveness of the Board › setting the agenda, style and tone of Board discussions and › ensuring Directors receive accurate, timely and clear information The Chief Executive Officer – Rupert Pearce The role of the Chief Executive is set out in writing and agreed by the Board. He is responsible for: › the development and implementation of the business strategy › the day-to-day management of Inmarsat’s operations and its financial results › recommending the strategic objectives for the Inmarsat Group, for debate, challenge and approval by the Board › ensuring we meet the milestones for our key programmes with a priority to target revenue growth and deliver enhanced returns to shareholders and › chairing the Executive Management Team Mr Pearce is the Board sponsor for environmental and social governance, community investment, and other corporate social responsibility matters, as well as responsibility for Health and Safety. These elements have been included as part of his annual objectives. The Senior Independent Director – Dr Abe Peled The Senior Independent Director is responsible for: › acting as a sounding board for the Chairman › serving as an intermediary for the other Directors › reviewing the Chairman’s performance with the Non-Executive Directors › being available as an alternative channel to discuss issues or concerns from our shareholders where they have been unable to resolve them through existing channels for investor communications and › convening regular meetings of the Non-Executive Directors The Company Secretary – Alison Horrocks The Company Secretary acts as Secretary to the Board and its Committees and in doing so she: › assists the Chairman in ensuring that all Directors have full and timely access to all relevant information › assists the Chairman by organising induction and training programmes › assists the Chairman with the annual Board evaluation procedure › is responsible for ensuring that the correct Board procedures are followed and advises the Board on governance matters and › administers the procedure under which Directors can, where appropriate, obtain independent professional advice at the Company’s expense (no requests for external professional advice were received during the year) To determine their independence, all Non-Executive Directors are reviewed by the Nominations Committee annually against any circumstances relevant to their current or ongoing independence as set out in the Code and recommendations are made to the Board for election or re-election. Executive Management Team The Chief Executive chairs the Executive Management Team which meets on a monthly basis for generally 1.5/2 days. As part of its remit, this team focuses on the Group’s strategy, financial reviews and long range business planning, the competitive landscape, strategic updates from all areas of the business, risk reviews, culture, learning and development and organisational development. It has regular executive development days. The Executive Management Team includes the Executive Directors, the Business Unit Presidents and the key functional heads. The names of the Executive Management team are shown on pages 65 and 66. Governance and conduct of Board meetings Our Board meets as often as necessary to effectively conduct its business. During 2018, the Board met eight times, with one of those meetings being held over two days in Washington DC and another held over two days in The Hague, Netherlands. The meetings in local offices provide the Board with greater insight into our local business operations, and an opportunity for interaction with employees. This helps the Board develop deeper insights into the quality of our current senior management and the potential for succession in the next generation of managers. Key management are invited to attend all Board meetings to present on specific business issues which will include an operations update from each of the Business Units and central services divisions, covering commercial, technology and operational matters. Unscheduled supplementary meetings also take place as and when necessary, for example the calling of Defence Committee meetings regarding the conditional proposal from EchoStar and the need of the Board generally to be available to provide timely inputs and decisions. At each regular Board meeting, the Chief Executive Officer and Chief Financial Officer provide reports to the Board. The Board is regularly given exposure to the next layer of management at the Executive Management Team level and often to their direct reports. This is helpful to the Board as it provides it with additional insight into internal talent and provides additional inputs when discussing for GovernanceFinancial StatementsStrategic Report 70 Governance | Leadership Inmarsat plc | Annual Report and Accounts 2018 Leadership continued management succession. Strategy sessions are attended by several senior executives. Elements of the business strategy and business development are reviewed as appropriate at each Board meeting throughout the year ensuring that all Directors are kept up to date with discussions and activities. All Committee Chairmen report verbally on the proceedings of their Committees at the next Board meeting. Meeting proceedings and any unresolved concerns expressed by any Director are minuted by the Company Secretary. In instances where a Director is unable to attend Board or Committee meetings, any comments which he or she may have arising out of the papers to be considered at the meeting are relayed in advance to the relevant Chairman or the Company Secretary who would then report to the Board or Committee thereon. The Senior Independent Director will convene meetings with the Non-Executive Directors at least annually and on an ad-hoc basis as required to discuss Board balance, monitor the powers of individual Executive Directors and raise any issues between themselves as appropriate. During 2018, these meetings were held more regularly and also discussed the FRC reporting guidelines regarding Chair succession. The Chairman will attend these meetings but will not be in attendance where there is discussion about his own performance or succession. Indemnification of Directors Directors’ and Officers’ insurance cover has been established for all Directors and Officers to provide cover against their reasonable actions on behalf of the Company. In accordance with our Articles of Association and to the extent permitted by the laws of England and Wales, Directors, the Company Secretary and certain employees who serve as directors of subsidiaries at the Group’s request have been granted indemnities from the Company in respect of liabilities incurred as a result of their office. Neither our indemnity nor the insurance provides cover in the event that a Director is proven to have acted dishonestly or fraudulently. No amount has been paid under any of these indemnities during the year. Conflicts of interest The Company has in place procedures for managing conflicts of interest and is aware of any potential conflict through an annual review of the other commitments of its Directors. We are satisfied these commitments do not conflict with their duties as Directors of Inmarsat. During the year, where there were agenda items being raised for discussion which could have the perception of a conflict of interest for the individual Director, these were discussed at the relevant Board meeting and agreed in each case there were no conflicts of interest identified. The Company’s Articles of Association contain provisions to allow the Directors to authorise potential conflicts of interest so that a Director is not in breach of his/her duty under company law. As noted above and as happens in practice, should a Director become aware that they have an interest, directly or indirectly, in an existing or proposed transaction with the Company, they are required to notify this to the Company Secretary. Directors have a continuing duty to notify any changes to their conflicts of interest and to their external Board commitments to the Company Secretary and any changes are noted in the conflicts register. Board meeting attendance The attendance of the Directors at the Board meetings held in 2018 is shown in the below table. Attendance at Committee meetings is shown in the relevant Committee reports. Number of scheduled Board meetings held and meeting attendance in 2018 Meetings Percentage attendance Andrew Sukawaty (Chairman) Rupert Pearce Tony Bates Simon Bax Sir Bryan Carsberg Warren Finegold General C. Robert Kehler (Rtd) Phillipa McCrostie Dr Abe Peled Janice Obuchowski Robert Ruijter Dr Hamadoun Touré1 8/8 8/8 8/8 8/8 8/8 8/8 8/8 8/8 8/8 8/8 8/8 6/8 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 75% 1 Dr Touré missed two Board meetings due to time taken to put his candidature forward to become President of the country of Mali. The Chairman gave him permission to miss the meetings and briefed him regarding the meetings he had not been able to participate in Risk management process An overview of the Group’s framework for identifying and managing risk, both at an operational and strategic level, is set out on pages 52 to 58 in the Strategic Report. The Board has responsibility for managing risk and although the Audit Committee has responsibility for the risk management process the Board does not delegate overall responsibility for risk to either the Audit Committee or management. There has been additional work undertaken in 2018 on risk processes and assessment and updates were noted in the changing content and improved presentations presented to the Audit Committee and Board. The Board has annual updates on the Company’s policies for compliance with the UK Bribery Act and the U.S. Foreign Corrupt Practices Act (‘FCPA’) requirements and health and safety. As part of our commitment to preventing bribery and establishing a culture that does not tolerate corruption wherever and in whatever form it may be encountered, we have a formal Board-approved anti-corruption policy and a summary of the anti-bribery policy is included on our website. We have appropriate procedures in place to ensure compliance with current legislation. An independently managed, confidential whistleblowing helpline (email and telephone) is available for employees to use. There was no use of it during 2018. Additionally, the Board was updated on the Company’s compliance with the recent legislation concerning a Corporate Criminal Offence relating to failure to prevent tax evasion. The Company recognises the importance of electronic information, systems and network security (cyber security) and this is included as a separate agenda item at least twice a year and also incorporated in strategy discussions and other key projects. We are increasingly required to be compliant with, or align to, various legal, contractual and regulatory standards and codes of practice relative to information security governance and the preservation of the confidentiality, integrity and availability of customer or internal data and services. This is part of a broader programme supported by a dedicated cyber security team whose primary role is to safeguard the Company to meet its legal and regulatory obligations, maintain business continuity and limit damage to business interests by preventing and reducing the occurrence of security incidents and their impact upon business operations. In recognition of this importance, in 2018 we were accredited with the ISO 27001 certification which requires us to have an information management security procedure in place. We also increased our investments on cyber security during 2018 in terms of resources and on tools. There has been focus within the Company during 2018 on the work required to ensure compliance with the new General Data Protection Regulation (‘GDPR’) which came into effect in May 2018. We had tested procedures in place by the due date. Inmarsat plc | Annual Report and Accounts 2018 Governance | Leadership 71 Internal controls The Board acknowledges its responsibility for establishing and maintaining the Group’s system of internal controls and it receives regular reports from management identifying, evaluating and managing the risks within the business. The system of internal controls is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The Audit Committee reviews the system of internal controls through reports received from management, along with those from both internal and external auditors. Management continues to focus on how internal control and risk management can be further embedded into the operations of the business and to deal with areas of improvement which come to management’s and the Board’s attention. There is an agreed process for determining what information is required to be included in the public disclosure of financial and related information and other procedures necessary to enable the Chief Executive Officer and the Chief Financial Officer to provide their certifications in relation to publicly disclosed information. This review is undertaken by the Chief Financial Officer, Company Secretary, IR Director and senior finance staff. The Board and the Audit Committee have carried out a review of the effectiveness of the system of internal controls during the year ended 31 December 2018 and for the period up to the date of approval of the consolidated financial statements contained in the Annual Report. The review covered all material controls, including financial, operational and compliance controls and risk management systems. The Board confirms that the actions it considers necessary have been, or are being taken to remedy any significant failings or weaknesses identified from its review of the system of internal control. This has involved considering the matters reported to it and developing plans and programmes that it considers are reasonable in the circumstances. The Board also confirms that it has not been advised of material weaknesses in the part of the internal control system that relates to financial reporting. The key elements of the Group’s system of internal controls, which have been in place throughout the year under review and up to the date of this Report, include: › Risk management: an overarching risk management policy is in place which sets out the tolerance for risk within the Group and how this is measured across identified macro and business risks. As required by the policy, management operates a risk management process to identify, evaluate and report significant risks within the business and to report to the Board on how those risks are being managed and mitigated. Risks are highlighted through a number of different reviews and culminate in a risk register, monitored by Risk Committees across the Group, which identify the risk area, the probability of the risk occurring, the impact if it does occur and the actions being taken to manage the risk to the desired level. All the risk registers are reviewed by senior management and provided quarterly to the Board and to the Audit Committee. Details of the risk process and key risks are shown on pages 52 to 58 in the Strategic Report. › Management structure: there is a clearly defined organisational structure throughout the Group with established lines of reporting and delegation of authority based on job responsibilities and experience. The delegation policy is regularly updated where there are changes in business operations. Within the business, senior management meetings occur regularly to allow prompt discussion of relevant business issues. A process of self-certification is used where Directors and senior managers are required to detail and certify controls in operation to mitigate risk in key process areas. The Presidents of the Business Units, and now the Executive Management Team members responsible for their functional areas, also confirm every quarter that they are not aware of any breach of key policies including our sensitive information policy (which relates to protection of partner data) and any anti-bribery activities. › Financial reporting: monthly management accounts provide relevant, reliable and up-to-date financial and non-financial information to management and the Board. Analysis is undertaken of differences between actual results and the annual budget on a monthly basis. Annual plans, forecasts, performance targets and long-range business plans allow management to monitor the key business and financial activities, and the progress towards achieving the financial objectives. The annual budget is approved by the Board, as is the long-range business plan. The Group reports half-yearly based on a standardised reporting process, and in addition, also reports on a quarterly basis. › Information systems: information systems are developed to support the Group’s long-term objectives and are managed by professionally staffed teams. Appropriate policies and procedures are in place covering all significant areas of the business. › Contractual commitments: there are clearly defined policies and procedures for entering into contractual commitments. These include detailed requirements that must be completed prior to submitting proposals and/or tenders for work, both in respect of the commercial, control and risk management aspects of the obligations being entered into. Business plan approval and procurement process procedures also strengthen the review of contractual commitments before any such commitment is agreed to. › Monitoring of controls: the Audit Committee receives regular reports from the internal and external auditors and assures itself that the internal control environment of the Group is operating effectively. There are formal policies and procedures in place to ensure the integrity and accuracy of the accounting records and to safeguard the Group’s assets. Significant capital projects and acquisitions and disposals require Board approval. There are formal procedures by which staff can, in confidence, raise concerns about possible improprieties in financial and pensions administration and other matters – often referred to as ‘whistleblowing’ procedures. There is a worldwide anonymous whistleblowing programme in place and monthly reports are issued by the external provider to the Company Secretary and Head of Internal Audit. No issues were reported in the year. Where there are any reports made, arrangements are in place for proportionate and independent investigation and appropriate follow-up action with the results being reported to the Audit Committee. The annual anti-bribery and corruption training also highlights the ways in which an employee can raise an issue in a confidential way. Directors’ remuneration Details of the Company’s remuneration policy and Directors’ remuneration are contained in the Directors’ Remuneration Report on pages 81 to 101. GovernanceFinancial StatementsStrategic Report 72 (cid:42)overnance (cid:95) (cid:53)eport of the (cid:49)ominations Committee (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Effectiveness (cid:53)eport of the (cid:49)ominations Committee MEMBERS IN 2018 Dr Abe Peled (Chairman) Andrew Sukawaty Dr Hamadoun Touré General C R Kehler (Rtd)1 (cid:54)ched(cid:88)led meetings attended 2(cid:18)2 2(cid:18)2 2(cid:18)2 1(cid:18)1 1 (cid:42)eneral (cid:46)ehler (cid:77)oined the committee effective (cid:49)ovem(cid:69)er 2018 DR ABE PELED CHAIRMAN, NOMINATIONS COMMITTEE (cid:36)n area of contin(cid:88)ed foc(cid:88)s for the Committee has (cid:69)een (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector s(cid:88)ccession plannin(cid:74)(cid:15) leadin(cid:74) to the appointment of an additional (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector in Fe(cid:69)r(cid:88)ary 201(cid:28) (cid:44)ndependent (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors ma(cid:78)e (cid:88)p a ma(cid:77)ority of mem(cid:69)ers of the Committee(cid:17) (cid:55)he (cid:49)ominations Committee meets as and when necessary(cid:15) (cid:74)enerally formally twice a year(cid:17) (cid:39)r (cid:36)(cid:69)e (cid:51)eled has (cid:69)een Chairman since (cid:49)ovem(cid:69)er 201(cid:24)(cid:17) Other mem(cid:69)ers of the Committee are (cid:36)ndrew (cid:54)(cid:88)(cid:78)awaty(cid:15) (cid:39)r (cid:43)amado(cid:88)n (cid:55)o(cid:88)r(cid:184) and more recently (cid:42)eneral (cid:46)ehler who (cid:77)oined the Committee in (cid:49)ovem(cid:69)er 2018(cid:17) (cid:55)he Committee has responsi(cid:69)ility for nominatin(cid:74) candidates for appointment as (cid:39)irectors to the (cid:37)oard(cid:15) (cid:69)earin(cid:74) in mind the need for diversity (cid:11)incl(cid:88)din(cid:74) (cid:74)ender(cid:15) nationality and e(cid:91)perience(cid:12) and ens(cid:88)rin(cid:74) a (cid:69)road representation of s(cid:78)ills across the (cid:37)oard(cid:17) (cid:44)n doin(cid:74) this(cid:15) the Committee (cid:74)ives f(cid:88)ll consideration to s(cid:88)ccession plannin(cid:74) and the leadership needs of the Company(cid:17) (cid:55)he Committee also ma(cid:78)es recommendations to the (cid:37)oard on the composition of the (cid:37)oard’s Committees and will review and ma(cid:78)e recommendations in relation to the str(cid:88)ct(cid:88)re(cid:15) si(cid:93)e and composition of the (cid:37)oard incl(cid:88)din(cid:74) the diversity and (cid:69)alance of s(cid:78)ills(cid:15) (cid:78)nowled(cid:74)e and e(cid:91)perience(cid:15) and the independence of the (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors(cid:15) incl(cid:88)din(cid:74) the ten(cid:88)re of each (cid:39)irector(cid:17) (cid:48)ore recently with the recommendations from the (cid:56)(cid:46) Financial (cid:53)eportin(cid:74) Co(cid:88)ncil re(cid:74)ardin(cid:74) ten(cid:88)re for Chairs of (cid:56)(cid:46) listed p(cid:88)(cid:69)lic companies(cid:15) the (cid:37)oard and the Committee will d(cid:88)rin(cid:74) 201(cid:28) start the process to see(cid:78) a new Chair(cid:17) (cid:48)r (cid:54)(cid:88)(cid:78)awaty(cid:15) the Company’s c(cid:88)rrent Chairman(cid:15) will not (cid:69)e involved in any decision re(cid:74)ardin(cid:74) the individ(cid:88)al appointment of a new Chair(cid:15) (cid:69)(cid:88)t will (cid:69)e as(cid:78)ed to provide his inp(cid:88)ts into the s(cid:78)ills and capa(cid:69)ilities he (cid:69)elieves relevant to ens(cid:88)rin(cid:74) a s(cid:88)ccessf(cid:88)l appointment is made(cid:17) (cid:36)s the timin(cid:74) mat(cid:88)res for anno(cid:88)ncin(cid:74) any dates for a new appointment(cid:15) we will advise shareholders(cid:17) (cid:55)he (cid:49)ominations Committee will also ma(cid:78)e recommendations to the (cid:37)oard concernin(cid:74) the ann(cid:88)al reappointment (cid:69)y shareholders of any (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector and separately assessin(cid:74) each year whether (cid:39)irectors contin(cid:88)e to (cid:69)e independent(cid:17) (cid:55)he Committee also has responsi(cid:69)ility for approvin(cid:74) any chan(cid:74)es to (cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors and also senior mana(cid:74)ement appointments(cid:17) (cid:36)ll c(cid:88)rrently appointed (cid:39)irectors will retire at the 201(cid:28) (cid:36)(cid:42)(cid:48) and offer themselves for election or re(cid:16)election as appropriate(cid:17) (cid:48)rs Clar(cid:78)e(cid:15) o(cid:88)r new (cid:39)irector(cid:15) will (cid:69)e elected at the 201(cid:28) (cid:36)(cid:42)(cid:48)(cid:17) (cid:36)s noted earlier in the (cid:42)overnance (cid:53)eport(cid:15) the Committee contin(cid:88)es to (cid:69)elieve that (cid:54)ir (cid:37)ryan remains an effective and contri(cid:69)(cid:88)tin(cid:74) (cid:37)oard mem(cid:69)er and are recommendin(cid:74) to shareholders therefore(cid:15) that he (cid:69)e re(cid:16)elected as a non(cid:16)independent(cid:15) (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector(cid:17) (cid:55)he Committee will review the contin(cid:88)ed appointment of (cid:39)irectors to the (cid:37)oard on an ann(cid:88)al (cid:69)asis(cid:17) Composition O(cid:88)r (cid:37)oard comprises (cid:39)irectors drawn from a wide ran(cid:74)e of professional (cid:69)ac(cid:78)(cid:74)ro(cid:88)nds(cid:17) (cid:36)ll o(cid:88)r (cid:39)irectors (cid:69)rin(cid:74) stron(cid:74) (cid:77)(cid:88)d(cid:74)ement to the (cid:37)oard’s deli(cid:69)erations and we (cid:69)elieve o(cid:88)r new (cid:39)irector(cid:15) (cid:55)racy Clar(cid:78)e(cid:15) will also contri(cid:69)(cid:88)te in this way(cid:17) Over the years(cid:15) we have added new (cid:39)irectors to the (cid:37)oard ahead of lon(cid:74)er servin(cid:74) ones retirin(cid:74)(cid:17) (cid:51)rior to (cid:55)racy’s appointment(cid:15) the previo(cid:88)s appointments were in 2016 and 201(cid:26)(cid:17) (cid:36)s at (cid:48)arch 201(cid:28)(cid:15) the composition of the (cid:37)oard is two (cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors(cid:15) 10 (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors and a (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive Chairman(cid:17) (cid:58)ith the e(cid:91)ception of (cid:55)racy Clar(cid:78)e(cid:15) all c(cid:88)rrent (cid:39)irectors served thro(cid:88)(cid:74)ho(cid:88)t the year(cid:17) (cid:55)he names of the (cid:39)irectors on o(cid:88)r (cid:37)oard(cid:15) their relevant s(cid:78)ills and e(cid:91)perience are set o(cid:88)t in their (cid:69)io(cid:74)raphical details and can (cid:69)e fo(cid:88)nd on pa(cid:74)es 62 to 6(cid:23)(cid:17) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:53)eport of the (cid:49)ominations Committee 73 (cid:55)he composition of the (cid:37)oard and its vario(cid:88)s Committees is re(cid:74)(cid:88)larly reviewed and eval(cid:88)ated so as to reflect the (cid:69)alance of s(cid:78)ills(cid:15) (cid:78)nowled(cid:74)e(cid:15) diversity (cid:11)of which (cid:74)ender is one component(cid:12)(cid:15) e(cid:91)perience and the a(cid:69)ility of (cid:39)irectors to provide s(cid:88)fficient time to f(cid:88)lfil their (cid:37)oard responsi(cid:69)ilities(cid:17) (cid:39)(cid:88)rin(cid:74) 2018(cid:15) an additional mem(cid:69)er was made to (cid:69)oth the (cid:49)ominations and (cid:53)em(cid:88)neration Committees(cid:17) (cid:51)rivate (cid:37)an(cid:78)(cid:17) (cid:43)er previo(cid:88)s senior roles at (cid:54)tandard Chartered (cid:37)an(cid:78) incl(cid:88)de (cid:42)ro(cid:88)p (cid:43)ead Corporate (cid:36)ffairs(cid:15) (cid:42)ro(cid:88)p (cid:43)ead (cid:43)(cid:88)man (cid:53)eso(cid:88)rces(cid:15) and (cid:39)irector(cid:15) (cid:47)e(cid:74)al and Compliance(cid:17) (cid:54)he is an e(cid:91)perienced director on vario(cid:88)s listed company (cid:69)oards(cid:17) (cid:36)side her si(cid:74)nificant e(cid:91)perience she also (cid:69)rin(cid:74)s (cid:74)lo(cid:69)al mana(cid:74)ement e(cid:91)perience as well as wor(cid:78)in(cid:74) in emer(cid:74)in(cid:74) mar(cid:78)ets(cid:17) Succession planning (cid:36)ppointments to the (cid:37)oard are made on merit(cid:15) a(cid:74)ainst o(cid:69)(cid:77)ective criteria and with d(cid:88)e re(cid:74)ard to the (cid:69)enefits of diversity on the (cid:37)oard(cid:17) (cid:55)his process is led (cid:69)y the Chairman of the Committee(cid:15) with s(cid:88)pport of additional (cid:39)irectors who form part of the interview and assessment process(cid:15) which also incl(cid:88)des several mem(cid:69)ers of the (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam as part of the interview process(cid:17) (cid:36)fter eval(cid:88)atin(cid:74) the (cid:69)alance of s(cid:78)ills(cid:15) (cid:78)nowled(cid:74)e and e(cid:91)perience of each (cid:39)irector(cid:15) and in addition considerin(cid:74) the diversity to the (cid:37)oard that a potential (cid:39)irector will contri(cid:69)(cid:88)te(cid:15) the (cid:49)ominations Committee Chairman will ma(cid:78)e a recommendation to the (cid:37)oard(cid:17) (cid:36)n e(cid:91)ternal cons(cid:88)ltancy search will (cid:69)e (cid:88)sed to identify potential candidates for a Chair role when the (cid:37)oard has a(cid:74)reed the (cid:84)(cid:88)alities and e(cid:91)perience re(cid:84)(cid:88)ired for a new person(cid:17) (cid:55)his process will commence d(cid:88)rin(cid:74) 201(cid:28)(cid:17) (cid:44)n appointin(cid:74) (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors(cid:15) the (cid:37)oard’s practice is to (cid:88)se a com(cid:69)ination of e(cid:91)ternal cons(cid:88)ltants and personal referrals(cid:17) (cid:55)he appointment of (cid:55)racy Clar(cid:78)e was thro(cid:88)(cid:74)h a personal referral(cid:17) (cid:58)here there has (cid:69)een a personal referral(cid:15) we will (cid:74)enerally invite more participants than (cid:88)s(cid:88)al to (cid:69)e part of the interview and assessment process(cid:17) (cid:44)n (cid:55)racy’s process(cid:15) she met the Chairman of the (cid:49)ominations Committee(cid:15) one (cid:49)(cid:40)(cid:39)(cid:15) (cid:69)oth (cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors(cid:15) the Chief (cid:51)eople Officer and Chief Corporate (cid:36)ffairs Officer who is also the Company (cid:54)ecretary(cid:17) (cid:54)he also met the (cid:37)oard Chairman a(cid:74)ain(cid:17) (cid:44)n considerin(cid:74) the s(cid:78)ills re(cid:84)(cid:88)ired for the new (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector(cid:15) there was foc(cid:88)s on see(cid:78)in(cid:74) an individ(cid:88)al who had (cid:69)road corporate(cid:15) p(cid:88)(cid:69)lic company e(cid:91)perience with recent e(cid:91)perience too of sittin(cid:74) and ideally chairin(cid:74) a (cid:53)em(cid:88)neration Committee to (cid:88)nderstand the increasin(cid:74) demands made in rem(cid:88)neration plannin(cid:74)(cid:17) (cid:55)racy has over 30 years’ e(cid:91)perience in a ran(cid:74)e of international roles at (cid:54)tandard Chartered (cid:37)an(cid:78) (cid:51)(cid:47)C(cid:15) and is c(cid:88)rrently (cid:53)e(cid:74)ional C(cid:40)O(cid:15) (cid:40)(cid:88)rope and (cid:36)mericas and C(cid:40)O(cid:15) (cid:55)he Committee(cid:15) when reviewin(cid:74) s(cid:88)ccession plannin(cid:74)(cid:15) considers diversity in its (cid:69)roadest sense and ta(cid:78)es this into acco(cid:88)nt in its recommendations to the (cid:37)oard(cid:17) (cid:44)t ta(cid:78)es into acco(cid:88)nt the challen(cid:74)es and opport(cid:88)nities facin(cid:74) the Company(cid:17) (cid:44)n determinin(cid:74) s(cid:88)ccession plannin(cid:74)(cid:15) diversity(cid:15) incl(cid:88)din(cid:74) (cid:74)ender(cid:15) and what c(cid:88)lt(cid:88)ral e(cid:91)perience(cid:15) s(cid:78)ills and e(cid:91)pertise are needed on the (cid:37)oard and from senior mana(cid:74)ement in the f(cid:88)t(cid:88)re are considered(cid:17) (cid:42)ender is one element of the considerations made in appointin(cid:74) senior mana(cid:74)ement and (cid:37)oard mem(cid:69)ers and as part of (cid:74)eneral recr(cid:88)itment practices across the (cid:42)ro(cid:88)p(cid:17) (cid:55)he Committee has iss(cid:88)ed an (cid:88)pdated (cid:39)iversity (cid:51)olicy which hi(cid:74)hli(cid:74)hts its s(cid:88)pport for diversity in its (cid:69)roadest sense(cid:15) and an o(cid:69)(cid:77)ective of achievin(cid:74) 33(cid:8) of senior mana(cid:74)ement roles held (cid:69)y females (cid:69)y 2020(cid:17) (cid:55)he Committee (cid:74)ives f(cid:88)ll consideration to s(cid:88)ccession plannin(cid:74) in the co(cid:88)rse of its wor(cid:78) and receives (cid:88)pdated mana(cid:74)ement s(cid:88)ccession plans which loo(cid:78) at s(cid:88)ccession plannin(cid:74) for the (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam and identifies the ne(cid:91)t layer of mana(cid:74)ement (cid:69)elow them who are identified as those with potential for promotion to senior mana(cid:74)ement positions(cid:17) (cid:36) detailed disc(cid:88)ssion of (cid:40)(cid:91)ec(cid:88)tive s(cid:88)ccession plannin(cid:74)(cid:15) incl(cid:88)din(cid:74) identification of hi(cid:74)h potential employees was held at the (cid:45)(cid:88)ne 2018 (cid:37)oard meetin(cid:74)(cid:17) (cid:36)s this is a critical disc(cid:88)ssion(cid:15) not only for disc(cid:88)ssion (cid:69)y this Committee(cid:15) this presentation incl(cid:88)ded the f(cid:88)ll (cid:37)oard(cid:17) (cid:55)here will (cid:69)e f(cid:88)t(cid:88)re ann(cid:88)al (cid:88)pdates to the (cid:37)oard on this (cid:78)ey iss(cid:88)e(cid:15) with additional s(cid:88)mmaries as needed(cid:17) Induction and ongoing professional development (cid:55)o ens(cid:88)re that each (cid:39)irector receives appropriate s(cid:88)pport on (cid:77)oinin(cid:74) the (cid:37)oard(cid:15) they are (cid:74)iven a comprehensive(cid:15) formal and tailored ind(cid:88)ction pro(cid:74)ramme or(cid:74)anised thro(cid:88)(cid:74)h the Company (cid:54)ecretary(cid:15) incl(cid:88)din(cid:74) the provision of (cid:69)ac(cid:78)(cid:74)ro(cid:88)nd material on the Company and (cid:69)riefin(cid:74)s with each of the (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam mem(cid:69)ers(cid:17) (cid:55)hese meetin(cid:74)s will ens(cid:88)re that the on(cid:16)(cid:69)oardin(cid:74) process for a new (cid:39)irector provides a view of each area of the (cid:69)(cid:88)siness with the opport(cid:88)nity for f(cid:88)rther disc(cid:88)ssion as appropriate(cid:17) (cid:40)ach (cid:39)irector’s individ(cid:88)al e(cid:91)perience and (cid:69)ac(cid:78)(cid:74)ro(cid:88)nd is ta(cid:78)en into acco(cid:88)nt in developin(cid:74) a pro(cid:74)ramme tailored to his or her own re(cid:84)(cid:88)irements(cid:17) (cid:55)he ind(cid:88)ction pro(cid:74)ramme was reviewed and (cid:88)pdated in 201(cid:26) for (cid:48)r Fine(cid:74)old and will (cid:69)e refined for (cid:48)rs Clar(cid:78)e(cid:17) (cid:55)he ind(cid:88)ction process will r(cid:88)n over a n(cid:88)m(cid:69)er of days to allow s(cid:88)fficient time for each meetin(cid:74)(cid:17) For professional on(cid:74)oin(cid:74) development(cid:15) the (cid:37)oard receives presentations relevant to the Company’s (cid:69)(cid:88)siness and (cid:88)pdates on any chan(cid:74)es in le(cid:74)islation which may affect the Company’s operations(cid:17) (cid:55)he Company (cid:54)ecretary s(cid:88)pplies all (cid:39)irectors with information on relevant le(cid:74)al and (cid:69)est practice(cid:17) (cid:39)irectors are (cid:74)iven the opport(cid:88)nity to as(cid:78) for any separate trainin(cid:74) and development needs and also ta(cid:78)e steps to ens(cid:88)re they are ade(cid:84)(cid:88)ately informed a(cid:69)o(cid:88)t the Company and their responsi(cid:69)ilities as a (cid:39)irector and attend e(cid:91)ternal (cid:69)riefin(cid:74)s and receive information (cid:88)pdates(cid:17) (cid:55)he (cid:37)oard is confident that its mem(cid:69)ers have the (cid:78)nowled(cid:74)e(cid:15) a(cid:69)ility and e(cid:91)perience to perform the f(cid:88)nctions re(cid:84)(cid:88)ired of a (cid:39)irector of a listed company(cid:17) Board evaluation (cid:44)n 2018(cid:15) the Company (cid:88)ndertoo(cid:78) an e(cid:91)ternal eval(cid:88)ation(cid:15) facilitated (cid:69)y (cid:39)(cid:88)ncan (cid:53)eed of Condi(cid:74)n (cid:37)oard Cons(cid:88)ltin(cid:74)(cid:17) (cid:55)his was the third time (cid:48)r (cid:53)eed had (cid:88)nderta(cid:78)en the e(cid:91)ternal eval(cid:88)ation as it was felt helpf(cid:88)l to have someone (cid:88)nderta(cid:78)e the review to (cid:69)(cid:88)ild on the previo(cid:88)s eval(cid:88)ations(cid:17) (cid:49)either (cid:48)r (cid:53)eed nor Condi(cid:74)n (cid:37)oard Cons(cid:88)ltin(cid:74) have any other commercial relationships with (cid:44)nmarsat(cid:17) (cid:55)he 201(cid:26) (cid:37)oard eval(cid:88)ation was (cid:88)nderta(cid:78)en (cid:69)y the Company (cid:54)ecretary on (cid:69)ehalf of the Chairman which too(cid:78) the form of a (cid:84)(cid:88)estionnaire to all (cid:39)irectors and a meetin(cid:74) (cid:69)etween the Company (cid:54)ecretary and each of the (cid:39)irectors(cid:17) For the 2018 review(cid:15) all participants were sent a disc(cid:88)ssion (cid:74)(cid:88)ide (cid:69)y (cid:48)r (cid:53)eed in advance of individ(cid:88)al meetin(cid:74)s(cid:17) Formal (cid:67)peer(cid:16)to(cid:16)peer’ (cid:39)irector eval(cid:88)ation was also incl(cid:88)ded in this process(cid:17) (cid:58)ith the ver(cid:69)al(cid:15) anonymised feed(cid:69)ac(cid:78) (cid:74)athered as part of the process(cid:15) the Chairman will (cid:69)e reviewin(cid:74) the performance of the (cid:39)irectors at the appropriate time(cid:15) as will the (cid:54)enior (cid:44)ndependent (cid:39)irector (cid:11)(cid:67)(cid:54)(cid:44)(cid:39)’(cid:12) in relation to the Chairman(cid:17) i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 74 (cid:42)overnance (cid:95) (cid:53)eport of the (cid:49)ominations Committee (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Report of the Nominations Committee contin(cid:88)ed (cid:55)he s(cid:88)mmary from the report was that f(cid:88)ndamentally this remains (cid:113) as noted also at the last formal e(cid:91)ternal eval(cid:88)ation in 201(cid:24) (cid:113) a f(cid:88)nctional(cid:15) and effective(cid:15) (cid:69)oard of committed(cid:15) e(cid:91)perienced and perceptive individ(cid:88)als(cid:17) (cid:44)t still is a relatively diverse (cid:74)ro(cid:88)p(cid:15) in more than (cid:77)(cid:88)st its (cid:74)ender ma(cid:78)e(cid:16)(cid:88)p and is a (cid:69)oard with an incl(cid:88)sive(cid:15) respectf(cid:88)l c(cid:88)lt(cid:88)re(cid:17) (cid:44)nternally(cid:15) stri(cid:78)in(cid:74) and maintainin(cid:74) the ri(cid:74)ht (cid:69)alance of challen(cid:74)e with s(cid:88)pport is one of the most important tas(cid:78)s for any chairman and also for his collea(cid:74)(cid:88)es which has (cid:69)een (cid:69)alanced well ta(cid:78)in(cid:74) into acco(cid:88)nt some of the si(cid:74)nificant corporate activities d(cid:88)rin(cid:74) 2018(cid:17) (cid:55)he (cid:37)oard reported it has (cid:74)ood access to and inp(cid:88)t from the (cid:69)(cid:88)siness (cid:88)nit and other (cid:78)ey f(cid:88)nctional heads(cid:17) (cid:55)he (cid:37)oard a(cid:74)reed an action that an added de(cid:74)ree of foc(cid:88)s on reviewin(cid:74) pricin(cid:74) evol(cid:88)tion to s(cid:88)pport (cid:69)(cid:88)siness (cid:74)rowth was important(cid:17) (cid:55)here will (cid:69)e wor(cid:78) which will (cid:69)e (cid:88)nderta(cid:78)en to comply with the new re(cid:84)(cid:88)irements on wor(cid:78)force en(cid:74)a(cid:74)ement(cid:15) with the decision ta(cid:78)en already to have a formal (cid:74)ro(cid:88)p providin(cid:74) inp(cid:88)ts to the (cid:37)oard and (cid:40)(cid:91)ec(cid:88)tive (cid:48)ana(cid:74)ement (cid:55)eam(cid:17) (cid:55)here was some interest to enco(cid:88)ra(cid:74)e e(cid:91)ternal spea(cid:78)ers to (cid:69)rief the (cid:37)oard from time to time on e(cid:91)ternal perspectives on ind(cid:88)stry and competitive matters and this will (cid:69)e considered for f(cid:88)t(cid:88)re meetin(cid:74)s(cid:17) (cid:55)he (cid:37)oard sho(cid:88)ld loo(cid:78) to (cid:69)alance the time it spends on the commercial ena(cid:69)lers of the delivery of strate(cid:74)y(cid:15) alon(cid:74)side the foc(cid:88)s it (cid:74)ives to technical or en(cid:74)ineerin(cid:74) matters(cid:15) new pro(cid:77)ects or initiatives(cid:17) (cid:55)he (cid:37)oard contin(cid:88)es to val(cid:88)e the early incl(cid:88)sion from e(cid:91)ec(cid:88)tive mana(cid:74)ement on strate(cid:74)ic plannin(cid:74) (cid:69)efore any decisions are presented for decision(cid:17) (cid:55)he (cid:49)(cid:40)(cid:39) sessions will contin(cid:88)e(cid:15) with time on some occasions for them to review the Chairman’s performance witho(cid:88)t him (cid:69)ein(cid:74) present(cid:17) (cid:55)hese sessions were also helpf(cid:88)l to ens(cid:88)re all the (cid:49)(cid:40)(cid:39)s were (cid:69)riefed on the sensitive disc(cid:88)ssions on rem(cid:88)neration iss(cid:88)es in preparation for finalisin(cid:74) a new (cid:53)em(cid:88)neration (cid:51)olicy(cid:17) External directorships (cid:55)he (cid:37)oard (cid:69)elieves(cid:15) in principle(cid:15) in the (cid:69)enefit of (cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors acceptin(cid:74) non(cid:16)e(cid:91)ec(cid:88)tive directorships of other companies in order to widen their s(cid:78)ills and (cid:78)nowled(cid:74)e for the (cid:69)enefit of the Company(cid:17) (cid:36)ll s(cid:88)ch appointments re(cid:84)(cid:88)ire the prior approval of the (cid:37)oard and the n(cid:88)m(cid:69)er of p(cid:88)(cid:69)lic company appointments is (cid:74)enerally limited to two(cid:17) (cid:55)he n(cid:88)m(cid:69)er of appointments will (cid:69)e (cid:78)ept (cid:88)nder review in line with corporate (cid:74)overnance re(cid:84)(cid:88)irements(cid:17) (cid:39)etails of e(cid:91)ternal appointments for the C(cid:40)O can (cid:69)e fo(cid:88)nd in his (cid:69)io(cid:74)raphy on pa(cid:74)e 62(cid:17) (cid:55)here were no fees paid to the C(cid:40)O for these d(cid:88)ties(cid:17) Appointment and reappointment (cid:55)he (cid:39)irectors may appoint additional mem(cid:69)ers to (cid:77)oin the (cid:37)oard d(cid:88)rin(cid:74) the year(cid:17) (cid:39)irectors appointed in this way will(cid:15) (cid:88)pon the recommendation of the (cid:37)oard(cid:15) offer themselves for election (cid:69)y shareholders at the first (cid:36)nn(cid:88)al (cid:42)eneral (cid:48)eetin(cid:74) (cid:11)(cid:67)(cid:36)(cid:42)(cid:48)’(cid:12) after their appointment(cid:17) (cid:55)racy Clar(cid:78)e(cid:15) who was appointed on 1 Fe(cid:69)r(cid:88)ary 201(cid:28) will fall into this cate(cid:74)ory(cid:17) (cid:55)he reappointment of (cid:39)irectors is s(cid:88)(cid:69)(cid:77)ect to their on(cid:74)oin(cid:74) commitment to (cid:37)oard activities and satisfactory performance(cid:17) (cid:36)ll (cid:39)irectors will stand for re(cid:16)election ann(cid:88)ally in accordance with the provision of the Code(cid:17) (cid:55)he (cid:49)ominations Committee confirmed to the (cid:37)oard that the contri(cid:69)(cid:88)tions made (cid:69)y the (cid:39)irectors offerin(cid:74) themselves for re(cid:16)election at the 201(cid:28) (cid:36)(cid:42)(cid:48) contin(cid:88)e to (cid:69)enefit the (cid:37)oard and the Company sho(cid:88)ld s(cid:88)pport their re(cid:16)election(cid:17) (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors are appointed initially for three years and all (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors may not(cid:15) (cid:88)nless a(cid:74)reed (cid:69)y the (cid:37)oard(cid:15) remain in office for a period lon(cid:74)er than si(cid:91) years(cid:15) or two terms in office(cid:15) whichever is the shorter(cid:17) (cid:58)here there has (cid:69)een service lon(cid:74)er than si(cid:91) years(cid:15) the Committee has recommended those (cid:39)irectors alon(cid:74)side other remainin(cid:74) (cid:39)irectors for re(cid:16)election(cid:17) (cid:36)s noted earlier in this (cid:53)eport(cid:15) the (cid:37)oard contin(cid:88)es to s(cid:88)pport the re(cid:16)election of (cid:54)ir (cid:37)ryan Cars(cid:69)er(cid:74) as a non(cid:16)independent (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector at the 201(cid:28) (cid:36)(cid:42)(cid:48)(cid:17) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:53)eport of the (cid:55)elecoms (cid:53)e(cid:74)(cid:88)latory Committee 75 Accountability (cid:53)eport of the (cid:55)elecoms (cid:53)e(cid:74)(cid:88)latory Committee MEMBERS IN 2018 Andrew Sukawaty (Chairman) Sir Bryan Carsberg Janice Obuchowski Dr Hamadoun Touré (cid:54)ched(cid:88)led meetings attended 1(cid:18)1 1(cid:18)1 1(cid:18)1 1(cid:18)1 ANDREW SUKAWATY CHAIRMAN, TELECOMS REGULATORY COMMITTEE (cid:55)he foc(cid:88)s for the Committee was to contri(cid:69)(cid:88)te oversi(cid:74)ht and (cid:74)(cid:88)idance for the Company’s activities across the different (cid:74)lo(cid:69)al re(cid:74)(cid:88)latory activities with which we are involved (cid:55)he (cid:55)elecoms (cid:53)e(cid:74)(cid:88)latory Committee was created in (cid:48)ay 201(cid:24)(cid:15) specifically to ens(cid:88)re there was foc(cid:88)s from the (cid:37)oard on this (cid:78)ey area which affects all parts of the Company’s (cid:69)(cid:88)siness operations(cid:17) (cid:55)he Committee comprises a n(cid:88)m(cid:69)er of independent (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors and meets as and when necessary(cid:15) (cid:74)enerally twice a year(cid:17) (cid:36)ndrew (cid:54)(cid:88)(cid:78)awaty is Chairman(cid:17) (cid:55)he Committee had one meetin(cid:74) d(cid:88)rin(cid:74) 2018 where there were detailed (cid:88)pdates provided on some (cid:78)ey re(cid:74)(cid:88)latory matters(cid:17) (cid:36)t this meetin(cid:74)(cid:15) the Committee also met the new (cid:42)ro(cid:88)p (cid:42)eneral Co(cid:88)nsel who wo(cid:88)ld (cid:69)e responsi(cid:69)le for leadin(cid:74) the re(cid:74)(cid:88)latory team(cid:17) (cid:55)he (cid:55)elecoms (cid:53)e(cid:74)(cid:88)latory Committee is a(cid:88)thorised (cid:69)y the (cid:37)oard to(cid:29) › (cid:53)eview (cid:78)ey re(cid:74)(cid:88)latory challen(cid:74)es facin(cid:74) the (cid:69)(cid:88)siness of the Company and the strate(cid:74)y and action plans proposed to meet s(cid:88)ch challen(cid:74)es › (cid:39)isc(cid:88)ss the Company’s strate(cid:74)y for ac(cid:84)(cid:88)isition of spectr(cid:88)m and fre(cid:84)(cid:88)ency ri(cid:74)hts › Facilitate hi(cid:74)h level en(cid:74)a(cid:74)ement with (cid:74)overnments(cid:15) re(cid:74)(cid:88)latory (cid:69)odies and international or(cid:74)anisations as identified (cid:69)y the Company › (cid:53)eview (cid:88)pcomin(cid:74) (cid:78)ey re(cid:74)(cid:88)latory meetin(cid:74)s(cid:15) the proposed a(cid:74)endas and events and the Company’s plans to cover s(cid:88)ch events › (cid:54)(cid:88)pport the Company in vario(cid:88)s co(cid:88)ntries to sec(cid:88)re a(cid:88)thorisations for mar(cid:78)et access as identified (cid:69)y the Company › O(cid:69)tain the advice and assistance of any of the Company’s e(cid:91)ec(cid:88)tives havin(cid:74) partic(cid:88)lar e(cid:91)pertise in s(cid:88)ch matters and › (cid:53)eview(cid:15) and advise on(cid:15) the on(cid:74)oin(cid:74) appropriateness and relevance of the Company’s re(cid:74)(cid:88)latory policy and strate(cid:74)y as presented (cid:69)y the Company’s e(cid:91)ec(cid:88)tives and provide (cid:74)(cid:88)idance on proactive meas(cid:88)res proposed (cid:69)y the Company to maintain its leadin(cid:74) position and competitiveness in the ind(cid:88)stry One of the (cid:78)ey foc(cid:88)s areas disc(cid:88)ssed at the meetin(cid:74) in (cid:54)eptem(cid:69)er 2018 was (cid:24)(cid:42) plannin(cid:74) and (cid:44)nmarsat’s positionin(cid:74) in this (cid:74)lo(cid:69)al disc(cid:88)ssion(cid:17) (cid:55)he Committee heard how the re(cid:74)(cid:88)latory policy team was participatin(cid:74) in re(cid:74)(cid:88)latory reviews in (cid:40)(cid:88)rope(cid:15) the (cid:56)(cid:17)(cid:54)(cid:17) and in (cid:44)(cid:55)(cid:56) meetin(cid:74)s to e(cid:91)plain how satellite co(cid:88)ld (cid:69)e part of the sol(cid:88)tion(cid:17) (cid:36)n (cid:88)pdate on the (cid:54)(cid:16)(cid:69)and (cid:40)(cid:36)(cid:49) re(cid:74)(cid:88)latory pro(cid:74)ress was also provided which covered deep dive reviews on the en(cid:74)a(cid:74)ement with re(cid:74)(cid:88)lators(cid:15) the reportin(cid:74) o(cid:69)li(cid:74)ations to the (cid:40)(cid:88)ropean Commission(cid:15) an (cid:88)pdate on the le(cid:74)al cases which had (cid:69)een made a(cid:74)ainst individ(cid:88)al re(cid:74)(cid:88)lators and the (cid:40)C(cid:15) the pro(cid:74)ress (cid:69)ein(cid:74) made with c(cid:88)stomers to ta(cid:78)e the (cid:40)(cid:36)(cid:49) service and(cid:15) d(cid:88)e to (cid:37)re(cid:91)it(cid:15) the action ta(cid:78)en to redomicile the (cid:44)nmarsat s(cid:88)(cid:69)sidiary which is the licence holder for the (cid:40)(cid:36)(cid:49)(cid:17) (cid:55)he Committee received an (cid:88)pdate on the re(cid:74)(cid:88)latory pro(cid:74)ress in select co(cid:88)ntries (cid:74)lo(cid:69)ally(cid:15) notin(cid:74) the c(cid:88)rrent framewor(cid:78) in each and disc(cid:88)ssed the c(cid:88)rrent mar(cid:78)et access plans(cid:17) (cid:55)he ne(cid:91)t (cid:44)(cid:55)(cid:56) (cid:58)orld (cid:53)adiocomm(cid:88)nication Conference will (cid:69)e held in (cid:40)(cid:74)ypt d(cid:88)rin(cid:74) (cid:49)ovem(cid:69)er 201(cid:28)(cid:17) (cid:55)his is one of the si(cid:74)nificant re(cid:74)(cid:88)latory meetin(cid:74)s where (cid:78)ey re(cid:74)(cid:88)latory a(cid:74)enda items will (cid:69)e disc(cid:88)ssed(cid:17) (cid:55)he Committee was (cid:69)riefed on the activities (cid:69)ein(cid:74) cond(cid:88)cted (cid:69)y the re(cid:74)(cid:88)latory and spectr(cid:88)m mana(cid:74)ement teams in preparation for the meetin(cid:74)(cid:15) which incl(cid:88)ded the Company participatin(cid:74) in (cid:44)(cid:55)(cid:56) wor(cid:78)in(cid:74) parties and C(cid:40)(cid:51)(cid:55) technical (cid:74)ro(cid:88)ps as well as involvement in some of the national and re(cid:74)ional preparatory (cid:74)ro(cid:88)ps(cid:17) i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 76 (cid:42)overnance (cid:95) (cid:53)eport of the (cid:36)(cid:88)dit Committee (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Accountability (cid:53)eport of the (cid:36)(cid:88)dit Committee MEMBERS IN 2018 Robert Ruijter (Chairman) Sir Bryan Carsberg1 Janice Obuchowski Phillipa McCrostie2 Warren Finegold (cid:54)ched(cid:88)led meetings attended (cid:23)(cid:18)(cid:23) 2(cid:18)2 (cid:23)(cid:18)(cid:23) 3(cid:18)(cid:23) (cid:23)(cid:18)(cid:23) 1 (cid:54)ir (cid:37)ryan Cars(cid:69)er(cid:74) ceased to (cid:69)e a mem(cid:69)er in (cid:48)ay 2018 and now attends meetin(cid:74)s as an o(cid:69)server 2 (cid:51)ip (cid:48)cCrostie was (cid:88)na(cid:69)le to attend one meetin(cid:74) of the Committee d(cid:88)e to personal reasons ROBERT RUIJTER CHAIRMAN, AUDIT COMMITTEE (cid:36)ll mem(cid:69)ers of the (cid:36)(cid:88)dit Committee are independent (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors and the ma(cid:77)ority have si(cid:74)nificant(cid:15) recent and relevant financial e(cid:91)perience(cid:17) (cid:55)he (cid:37)oard is confident that the collective e(cid:91)perience of the (cid:36)(cid:88)dit Committee mem(cid:69)ers ena(cid:69)les them(cid:15) as a (cid:74)ro(cid:88)p(cid:15) to act as an effective Committee (cid:55)he ta(cid:69)le shows the composition of the (cid:36)(cid:88)dit Committee and their attendance at meetin(cid:74)s d(cid:88)rin(cid:74) 2018(cid:17) (cid:53)o(cid:69)ert (cid:53)(cid:88)i(cid:77)ter has (cid:69)een Chairman since (cid:49)ovem(cid:69)er 201(cid:24)(cid:17) (cid:36)ll mem(cid:69)ers(cid:15) apart from (cid:45)anice O(cid:69)(cid:88)chows(cid:78)i(cid:15) are considered financial e(cid:91)perts(cid:17) (cid:37)y invitation(cid:15) the meetin(cid:74)s of the (cid:36)(cid:88)dit Committee may (cid:69)e attended (cid:69)y the Chairman(cid:15) Chief (cid:40)(cid:91)ec(cid:88)tive Officer(cid:15) Chief Financial Officer and the (cid:43)ead of (cid:44)nternal (cid:36)(cid:88)dit and other senior finance mem(cid:69)ers(cid:17) (cid:54)ir (cid:37)ryan Cars(cid:69)er(cid:74) also now attends on invitation d(cid:88)e to his e(cid:91)pertise in the field(cid:17) (cid:55)he (cid:39)eloitte (cid:47)(cid:47)(cid:51) (cid:11)(cid:67)(cid:39)eloitte’(cid:12) a(cid:88)dit en(cid:74)a(cid:74)ement partner is present at all (cid:36)(cid:88)dit Committee meetin(cid:74)s to ens(cid:88)re f(cid:88)ll comm(cid:88)nication of matters relatin(cid:74) to the a(cid:88)dit(cid:17) (cid:55)he Chairman of the (cid:36)(cid:88)dit Committee meets re(cid:74)(cid:88)larly with the internal and e(cid:91)ternal a(cid:88)ditors and at the end of each (cid:36)(cid:88)dit Committee meetin(cid:74) there is a short meetin(cid:74) of (cid:77)(cid:88)st the Committee(cid:15) Company Chairman and a(cid:88)ditors (cid:11)which incl(cid:88)des the internal a(cid:88)ditor several times d(cid:88)rin(cid:74) the year(cid:12) for an open disc(cid:88)ssion a(cid:69)o(cid:88)t the a(cid:88)dit process and relationship with mana(cid:74)ement(cid:17) (cid:55)he (cid:36)(cid:88)dit Committee has partic(cid:88)lar responsi(cid:69)ility for(cid:29) › (cid:48)onitorin(cid:74) the financial reportin(cid:74) process › (cid:55)he ade(cid:84)(cid:88)acy and effectiveness of the operation of internal controls and ris(cid:78) mana(cid:74)ement › (cid:55)he inte(cid:74)rity of the financial statements(cid:17) (cid:55)his incl(cid:88)des a review of si(cid:74)nificant iss(cid:88)es and (cid:77)(cid:88)d(cid:74)ements(cid:15) policies(cid:15) and disclos(cid:88)res › (cid:46)eepin(cid:74) (cid:88)nder review the scope and res(cid:88)lts of the a(cid:88)dit and its cost effectiveness › Consideration of mana(cid:74)ement’s response to any ma(cid:77)or e(cid:91)ternal or internal a(cid:88)dit recommendations › (cid:53)eviewin(cid:74) the ris(cid:78) mana(cid:74)ement process and reportin(cid:74) thro(cid:88)(cid:74)ho(cid:88)t the year › (cid:37)ein(cid:74) ass(cid:88)red of the independence and o(cid:69)(cid:77)ectivity of the internal and e(cid:91)ternal a(cid:88)ditor and › (cid:39)(cid:88)rin(cid:74) 2018 there was partic(cid:88)lar foc(cid:88)s on the new (cid:44)F(cid:53)(cid:54) (cid:28)(cid:15) 1(cid:24) and 16 acco(cid:88)ntin(cid:74) standards and their implementation (cid:55)he (cid:37)oard re(cid:84)(cid:88)ested that the Committee advise whether it (cid:69)elieves the (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts(cid:15) ta(cid:78)en as a whole(cid:15) is fair(cid:15) (cid:69)alanced and (cid:88)nderstanda(cid:69)le and provides the information necessary for shareholders to assess the Company’s financial position(cid:15) performance(cid:15) (cid:69)(cid:88)siness model and strate(cid:74)y(cid:17) (cid:55)he financial res(cid:88)lts incl(cid:88)de those from (cid:44)nmarsat (cid:42)overnment (cid:44)nc(cid:17)(cid:15) a pro(cid:91)y company (cid:69)ased in the (cid:56)(cid:17)(cid:54)(cid:17) which is mana(cid:74)ed (cid:88)nder a (cid:51)ro(cid:91)y arran(cid:74)ement as re(cid:84)(cid:88)ired (cid:69)y the (cid:56)(cid:17)(cid:54)(cid:17) (cid:42)overnment to ens(cid:88)re it is ins(cid:88)lated from forei(cid:74)n ownership(cid:15) control or infl(cid:88)ence(cid:17) (cid:55)his company was ac(cid:84)(cid:88)ired in 2010 and has (cid:69)een operatin(cid:74) (cid:88)nder the (cid:51)ro(cid:91)y arran(cid:74)ement since that time(cid:17) (cid:39)eloitte is a(cid:88)ditor to this company and o(cid:88)r C(cid:40)O attends their (cid:69)oard meetin(cid:74)s to receive appropriate (cid:69)riefin(cid:74)s on items he is a(cid:88)thorised to receive(cid:17) (cid:55)he Committee’s terms of reference to reflect (cid:69)est practice(cid:15) and can (cid:69)e fo(cid:88)nd on o(cid:88)r we(cid:69)site(cid:17) (cid:39)etails a(cid:69)o(cid:88)t the Committee’s assessment are shown at the end of this (cid:53)eport(cid:17) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:53)eport of the (cid:36)(cid:88)dit Committee 77 (cid:55)here is a forward a(cid:74)enda (cid:88)sed for the year’s activities which foc(cid:88)ses on(cid:29) › (cid:53)eview of the ann(cid:88)al financial statements and the res(cid:88)lts of the ann(cid:88)al e(cid:91)ternal a(cid:88)dit and review of the e(cid:91)ternal a(cid:88)ditor’s (cid:84)(cid:88)arterly and interim review wor(cid:78) and relevant (cid:84)(cid:88)arterly and interim financial reportin(cid:74) and the e(cid:91)ternal a(cid:88)dit plan › (cid:53)eview of the ris(cid:78) mana(cid:74)ement process and reportin(cid:74) › Consideration of new acco(cid:88)ntin(cid:74) standards and (cid:74)overnance chan(cid:74)es › (cid:53)eview of the preparation of the via(cid:69)ility statement for (cid:88)se in the 2018 (cid:51)reliminary (cid:54)tatement and (cid:36)nn(cid:88)al (cid:53)eport and › (cid:53)eview of internal a(cid:88)dit plans and(cid:15) disc(cid:88)ssin(cid:74) staffin(cid:74) impact on their wor(cid:78) load(cid:15) findin(cid:74)s and recommendations (cid:55)he (cid:36)(cid:88)dit Committee ens(cid:88)res that the e(cid:91)ternal a(cid:88)dit process and a(cid:88)dit (cid:84)(cid:88)ality are effective(cid:17) (cid:44)t does this (cid:69)y(cid:29) › (cid:48)onitorin(cid:74) the en(cid:74)a(cid:74)ement (cid:69)etween the (cid:36)(cid:88)dit Committee Chairman and the lead a(cid:88)dit en(cid:74)a(cid:74)ement partner which will (cid:74)enerally (cid:69)e thro(cid:88)(cid:74)h face(cid:16)to(cid:16)face meetin(cid:74)s › (cid:48)onitorin(cid:74) the reports which are (cid:69)ro(cid:88)(cid:74)ht to the Committee (cid:69)y the lead a(cid:88)dit en(cid:74)a(cid:74)ement partner and other senior mem(cid:69)ers of the a(cid:88)dit team › (cid:48)onitorin(cid:74) the (cid:84)(cid:88)ality of the mana(cid:74)ement responses to a(cid:88)dit (cid:84)(cid:88)eries › (cid:48)onitorin(cid:74) meetin(cid:74)s held (cid:69)y the C(cid:40)O and the Chairman with the lead a(cid:88)dit en(cid:74)a(cid:74)ement partner which are reported to the (cid:36)(cid:88)dit Chairman and Committee › (cid:48)onitorin(cid:74) a review of independence and o(cid:69)(cid:77)ectivity of the a(cid:88)dit firm and also the (cid:84)(cid:88)ality of the formal a(cid:88)dit report (cid:74)iven (cid:69)y the (cid:36)(cid:88)ditor to shareholders and › (cid:54)ee(cid:78)in(cid:74) feed(cid:69)ac(cid:78) from mem(cid:69)ers of the finance team(cid:15) the Company (cid:54)ecretary and the (cid:43)ead of (cid:44)nternal (cid:36)(cid:88)dit (cid:39)(cid:88)rin(cid:74) the reportin(cid:74) year to 31 (cid:39)ecem(cid:69)er 2018(cid:15) the activities of the (cid:36)(cid:88)dit Committee were to(cid:29) › Confirm to the (cid:37)oard that the (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts is fair(cid:15) (cid:69)alanced and (cid:88)nderstanda(cid:69)le › (cid:53)eview and endorsement(cid:15) prior to s(cid:88)(cid:69)mission to the (cid:37)oard(cid:15) the half(cid:16)year and f(cid:88)ll(cid:16)year financial statements(cid:15) interim mana(cid:74)ement statements and res(cid:88)lts anno(cid:88)ncements › (cid:53)eview and approve internal a(cid:88)dit reports(cid:15) and findin(cid:74)s and recommendations arisin(cid:74) from the reports › (cid:53)eview and approve ris(cid:78) mana(cid:74)ement (cid:88)pdates and the ann(cid:88)al ris(cid:78) mana(cid:74)ement process › (cid:36)(cid:74)ree e(cid:91)ternal and internal ann(cid:88)al a(cid:88)dit plans › (cid:53)eceive (cid:88)pdates on mana(cid:74)ement responses to a(cid:88)dit recommendations › Complete a detailed assessment of the 201(cid:26) (cid:36)(cid:88)dit (cid:40)ffectiveness (cid:88)sin(cid:74) the F(cid:53)C (cid:74)(cid:88)idance reports for a(cid:88)dit committees and ethical standards e(cid:91)pected of a(cid:88)ditors as reference material(cid:17) (cid:55)he assessment o(cid:88)tcome was that the Committee had s(cid:88)fficient (cid:78)nowled(cid:74)e a(cid:69)o(cid:88)t its own responsi(cid:69)ilities and those of the a(cid:88)ditors › (cid:53)eview (cid:78)ey acco(cid:88)ntin(cid:74) (cid:77)(cid:88)d(cid:74)ements relatin(cid:74) to specific transactions as well as chan(cid:74)es to any acco(cid:88)ntin(cid:74) policies affectin(cid:74) the (cid:42)ro(cid:88)p’s financial position and › (cid:53)e(cid:74)(cid:88)larly monitor (cid:78)ey pro(cid:74)rammes across the (cid:42)ro(cid:88)p incl(cid:88)din(cid:74) the plans for the implementation of a new (cid:69)illin(cid:74) and acco(cid:88)nts paya(cid:69)le system (cid:53)eviews (cid:69)y the Committee of a(cid:88)dit plans and ris(cid:78) reports incl(cid:88)de all (cid:42)ro(cid:88)p operations(cid:17) (cid:39)etailed ris(cid:78) reportin(cid:74) is (cid:88)sed for all (cid:42)ro(cid:88)p companies and (cid:69)(cid:88)siness operations(cid:17) One of o(cid:88)r s(cid:88)(cid:69)sidiary companies(cid:15) (cid:44)nmarsat (cid:42)ro(cid:88)p (cid:47)td(cid:15) is re(cid:84)(cid:88)ired to prod(cid:88)ce (cid:84)(cid:88)arterly financial statements(cid:15) as re(cid:84)(cid:88)ired (cid:69)y its loan a(cid:74)reements(cid:30) the format and content for these are (cid:69)ased on the (cid:88)ltimate (cid:74)ro(cid:88)p reportin(cid:74) which falls (cid:88)nder the Committee’s review(cid:17) (cid:55)he (cid:84)(cid:88)arterly review of the ris(cid:78) reports and the process adopted to mana(cid:74)e ris(cid:78) is a (cid:78)ey area of foc(cid:88)s for the Committee(cid:17) (cid:58)ith several si(cid:74)nificant chan(cid:74)es to (cid:44)F(cid:53)(cid:54) reportin(cid:74) (cid:69)ein(cid:74) implemented(cid:15) the Committee received detailed (cid:69)riefin(cid:74)s and (cid:88)pdates from mana(cid:74)ement re(cid:74)ardin(cid:74) pro(cid:74)ress(cid:17) (cid:36)(cid:88)dit Committee meetin(cid:74)s (cid:74)enerally ta(cid:78)e place (cid:77)(cid:88)st prior to a (cid:37)oard meetin(cid:74) to ma(cid:91)imise effectiveness and time plannin(cid:74) efficiency of those attendin(cid:74)(cid:17) (cid:55)he Committee’s Chairman reports to the (cid:37)oard as part of a separate a(cid:74)enda item on the activity of the Committee and matters of partic(cid:88)lar relevance to the (cid:37)oard in the cond(cid:88)ct of their wor(cid:78)(cid:17) (cid:36)ll mem(cid:69)ers of the (cid:37)oard have access to (cid:36)(cid:88)dit Committee papers and min(cid:88)tes of meetin(cid:74)s(cid:15) and may(cid:15) on re(cid:84)(cid:88)est to the Chairman(cid:15) attend the meetin(cid:74)s(cid:17) (cid:36)s part of the preparation of the financial statements(cid:15) there is an internal senior team(cid:15) which incl(cid:88)des the CFO and Company (cid:54)ecretary(cid:15) which reviews the preparation and content of the reportin(cid:74) to ens(cid:88)re there is timely disclos(cid:88)re of financial and other material information to the (cid:37)oard(cid:17) (cid:55)his preparation provided the i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s (cid:36)(cid:88)dit Committee with doc(cid:88)ments which the Committee reviewed and provided clarity on the completeness of financial reportin(cid:74) disclos(cid:88)res prior to their release (cid:69)y the (cid:37)oard(cid:17) Significant accounting matters (cid:39)(cid:88)rin(cid:74) 2018(cid:15) the (cid:36)(cid:88)dit Committee considered the si(cid:74)nificant acco(cid:88)ntin(cid:74) matters descri(cid:69)ed (cid:69)elow(cid:17) (cid:44)n addressin(cid:74) these iss(cid:88)es the Committee considered the appropriateness of mana(cid:74)ement’s acco(cid:88)ntin(cid:74) estimates and (cid:78)ey (cid:77)(cid:88)d(cid:74)ements(cid:15) o(cid:88)tlined in note (cid:23) to the consolidated financial statements(cid:17) (cid:55)he Committee disc(cid:88)ssed these with the e(cid:91)ternal a(cid:88)ditor d(cid:88)rin(cid:74) the year and(cid:15) where appropriate(cid:15) details of how they have (cid:69)een addressed are provided in the (cid:44)ndependent (cid:36)(cid:88)ditors’ (cid:53)eport on pa(cid:74)es 108 to 11(cid:24)(cid:17) Change in accounting policies Chan(cid:74)es to acco(cid:88)ntin(cid:74) policies impactin(cid:74) reven(cid:88)e acco(cid:88)ntin(cid:74)(cid:15) lease acco(cid:88)ntin(cid:74) and financial instr(cid:88)ments have (cid:69)een adopted in 2018 in response to the new acco(cid:88)ntin(cid:74) standards (cid:44)F(cid:53)(cid:54) 1(cid:24)(cid:15) (cid:44)F(cid:53)(cid:54) 16 and (cid:44)F(cid:53)(cid:54) (cid:28) respectively(cid:17) (cid:44)F(cid:53)(cid:54) 16 has (cid:69)een early adopted in 2018 as the overall impact on the financial statements is considered low(cid:17) (cid:36)s part of the adoption(cid:15) mana(cid:74)ement has o(cid:88)tlined the (cid:42)ro(cid:88)p’s (cid:88)pdated acco(cid:88)ntin(cid:74) policies to ali(cid:74)n with each of the standards(cid:17) (cid:53)even(cid:88)e reco(cid:74)nition(cid:15) installation and (cid:47)i(cid:74)ado reven(cid:88)e have each had their reco(cid:74)nition policies (cid:88)pdated and the comparatives ad(cid:77)(cid:88)sted as permitted (cid:69)y (cid:44)F(cid:53)(cid:54) 1(cid:24)(cid:17) For lease acco(cid:88)ntin(cid:74)(cid:15) a (cid:67)ri(cid:74)ht to (cid:88)se’ asset was recorded on the statement of financial position as at 1 (cid:45)an(cid:88)ary 2018 with a correspondin(cid:74) lease lia(cid:69)ility(cid:15) while chan(cid:74)es in the income statement have (cid:69)een mainly presentational(cid:17) For financial instr(cid:88)ments(cid:15) there are no material chan(cid:74)es(cid:17) F(cid:88)rther details of the ad(cid:77)(cid:88)stments are o(cid:88)tlined in note 1 to the financial statements(cid:17) Revenue recognition (cid:55)he timin(cid:74) of reven(cid:88)e reco(cid:74)nition is a (cid:78)ey area of (cid:77)(cid:88)d(cid:74)ement(cid:15) especially in the telecomm(cid:88)nications ind(cid:88)stry(cid:17) (cid:55)he (cid:42)ro(cid:88)p’s acco(cid:88)ntin(cid:74) policy on reven(cid:88)e reco(cid:74)nition has (cid:69)een ad(cid:77)(cid:88)sted to accommodate (cid:44)F(cid:53)(cid:54) 1(cid:24)(cid:15) refer to note 2 for more details(cid:17) (cid:55)he (cid:42)ro(cid:88)p’s (cid:44)nternal (cid:36)(cid:88)dit team have (cid:78)ept si(cid:74)nificant reven(cid:88)e systems(cid:15) processes and reco(cid:74)nition as a foc(cid:88)s area d(cid:88)rin(cid:74) the year and the e(cid:91)ternal a(cid:88)ditor performed detailed a(cid:88)dit proced(cid:88)res on reven(cid:88)e reco(cid:74)nition(cid:15) with the findin(cid:74)s of (cid:69)oth (cid:69)ein(cid:74) reported to the (cid:36)(cid:88)dit Committee(cid:17) (cid:55)he (cid:36)(cid:88)dit Committee has therefore concl(cid:88)ded that the (cid:42)ro(cid:88)p’s reven(cid:88)e reco(cid:74)nition policies contin(cid:88)e to (cid:69)e in line with (cid:44)F(cid:53)(cid:54) re(cid:84)(cid:88)irements(cid:17) 78 (cid:42)overnance (cid:95) (cid:53)eport of the (cid:36)(cid:88)dit Committee (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Report of the Audit Committee contin(cid:88)ed Revenue in respect of the Ligado networks cooperation agreement (cid:55)he (cid:36)(cid:88)dit Committee contin(cid:88)es to review the acco(cid:88)ntin(cid:74) treatment for the reco(cid:74)nition of reven(cid:88)e and costs in respect of each phase of the (cid:47)i(cid:74)ado (cid:49)etwor(cid:78)s (cid:11)formerly (cid:47)i(cid:74)ht(cid:54)(cid:84)(cid:88)ared(cid:12) Cooperation (cid:36)(cid:74)reement(cid:17) (cid:39)eferred income in respect of (cid:51)hase 1 from (cid:47)i(cid:74)ado contin(cid:88)es to (cid:69)e carried on the (cid:69)alance sheet(cid:17) (cid:36)ltho(cid:88)(cid:74)h the cash has (cid:69)een received(cid:15) the timin(cid:74) of the reco(cid:74)nition of this deferred income(cid:15) to(cid:74)ether with any related f(cid:88)t(cid:88)re costs and ta(cid:91)es(cid:15) is dependent (cid:88)pon a n(cid:88)m(cid:69)er of factors that contin(cid:88)e to (cid:69)e (cid:88)ncertain(cid:17) (cid:55)he impact of the fore(cid:74)oin(cid:74) on the deferred reven(cid:88)e (cid:69)alance of (cid:7)206(cid:17)(cid:26)m (cid:11)201(cid:26) restated(cid:29) (cid:7)206(cid:17)8m(cid:12) carried (cid:69)y the Company in respect of the costs of implementation of this a(cid:74)reement is still to (cid:69)e determined(cid:17) (cid:39)(cid:88)rin(cid:74) 2018(cid:15) (cid:44)nmarsat reco(cid:74)nised (cid:7)0(cid:17)1m (cid:11)201(cid:26)(cid:29) (cid:7)2(cid:17)0m(cid:12) of deferred income(cid:17) (cid:44)n (cid:48)arch 2016(cid:15) (cid:47)i(cid:74)ado (cid:49)etwor(cid:78)s a(cid:74)reed to ta(cid:78)e the 30(cid:48)(cid:43)(cid:93) option (cid:11)the (cid:67)30(cid:48)(cid:43)(cid:93) (cid:51)lan’(cid:12) (cid:88)nder the Cooperation (cid:36)(cid:74)reement (cid:69)etween the companies(cid:17) (cid:44)n e(cid:91)chan(cid:74)e for the deferral of some payments from (cid:47)i(cid:74)ado to (cid:44)nmarsat(cid:15) the parties a(cid:74)reed to delay the transition to the 30(cid:48)(cid:43)(cid:93) (cid:51)lan(cid:15) with (cid:47)i(cid:74)ado providin(cid:74) (cid:44)nmarsat enhanced spectr(cid:88)m (cid:88)sa(cid:74)e ri(cid:74)hts for its satellite operations for a minim(cid:88)m period of two years(cid:17) (cid:58)ith this in mind(cid:15) (cid:47)i(cid:74)ado made (cid:84)(cid:88)arterly payments to (cid:44)nmarsat of (cid:7)118(cid:17)(cid:24)m d(cid:88)rin(cid:74) the co(cid:88)rse of 2018 and reco(cid:74)nised reven(cid:88)e of (cid:7)130(cid:17)(cid:26)m(cid:15) increasin(cid:74) the receiva(cid:69)le in relation to deferrals to (cid:7)3(cid:24)(cid:17)0m as at 31 (cid:39)ecem(cid:69)er 2018 (cid:11)201(cid:26) restated(cid:29) (cid:7)2(cid:24)(cid:17)0m(cid:12)(cid:17) (cid:55)he (cid:36)(cid:88)dit Committee has deemed the c(cid:88)rrent acco(cid:88)ntin(cid:74) treatment of all phases of the Cooperation (cid:36)(cid:74)reement appropriate(cid:17) Taxation (cid:55)he calc(cid:88)lation of some of the (cid:42)ro(cid:88)p’s potential ta(cid:91) assets and lia(cid:69)ilities involves a de(cid:74)ree of estimation and (cid:77)(cid:88)d(cid:74)ement in respect of certain items(cid:15) whose ta(cid:91) treatment cannot (cid:69)e finalised (cid:88)ntil resol(cid:88)tion has (cid:69)een reached with the relevant ta(cid:91) a(cid:88)thority(cid:15) or(cid:15) as appropriate(cid:15) thro(cid:88)(cid:74)h a formal le(cid:74)al process(cid:17) (cid:44)ss(cid:88)es can(cid:15) and often do(cid:15) ta(cid:78)e a n(cid:88)m(cid:69)er of years to resolve(cid:17) (cid:55)he (cid:42)ro(cid:88)p’s ta(cid:91) strate(cid:74)y is p(cid:88)(cid:69)lished on the we(cid:69)site and this is s(cid:88)(cid:69)(cid:77)ect to review (cid:69)y the (cid:37)oard of (cid:44)nmarsat plc on an ann(cid:88)al (cid:69)asis(cid:17) (cid:44)nmarsat is committed to(cid:29) › O(cid:69)servin(cid:74) all applica(cid:69)le laws(cid:15) r(cid:88)les and re(cid:74)(cid:88)lations in meetin(cid:74) o(cid:88)r ta(cid:91) compliance and reportin(cid:74) responsi(cid:69)ilities everywhere we operate › (cid:36)pplyin(cid:74) dili(cid:74)ent professional care and (cid:77)(cid:88)d(cid:74)ement to ens(cid:88)re that the ta(cid:91) ris(cid:78) is mana(cid:74)ed with a hi(cid:74)h de(cid:74)ree of certainty › (cid:58)or(cid:78)in(cid:74) positively(cid:15) pro(cid:16)actively and transparently with ta(cid:91) a(cid:88)thorities to minimise the e(cid:91)tent of disp(cid:88)tes(cid:15) to achieve early a(cid:74)reement on disp(cid:88)ted iss(cid:88)es when they arise and achieve certainty wherever possible and › (cid:40)ns(cid:88)rin(cid:74) that ta(cid:91) strate(cid:74)y is ali(cid:74)ned with the wider (cid:69)(cid:88)siness and commercial strate(cid:74)y From time to time the (cid:42)ro(cid:88)p may (cid:69)e involved in disp(cid:88)tes in relation to on(cid:74)oin(cid:74) ta(cid:91) matters where a ta(cid:91) a(cid:88)thority adopts a different interpretation to o(cid:88)r own(cid:17) (cid:55)he level of provisionin(cid:74) for these disp(cid:88)tes is an iss(cid:88)e where mana(cid:74)ement and ta(cid:91) (cid:77)(cid:88)d(cid:74)ement are important(cid:17) (cid:55)he Committee addresses these matters thro(cid:88)(cid:74)h a ran(cid:74)e of reportin(cid:74) from senior mana(cid:74)ement and (cid:69)y challen(cid:74)in(cid:74) the appropriateness of mana(cid:74)ement’s views incl(cid:88)din(cid:74) the de(cid:74)ree to which these are s(cid:88)pported (cid:69)y third party e(cid:91)pert advice(cid:17) (cid:55)his is an area of hi(cid:74)her a(cid:88)dit ris(cid:78) and accordin(cid:74)ly(cid:15) the Committee received detailed ver(cid:69)al and written reports from the e(cid:91)ternal a(cid:88)ditor on these matters(cid:17) Followin(cid:74) these proced(cid:88)res(cid:15) the (cid:36)(cid:88)dit Committee deemed the income ta(cid:91) assets and lia(cid:69)ilities (cid:69)alances for the year(cid:15) as well as the (cid:42)ro(cid:88)p’s disclos(cid:88)re in respect of income ta(cid:91)es and related lia(cid:69)ilities(cid:15) to (cid:69)e appropriate(cid:17) (cid:58)e ens(cid:88)re that the (cid:42)ro(cid:88)p’s ta(cid:91) ris(cid:78) is mana(cid:74)ed conservatively and professionally(cid:15) (cid:69)y o(cid:69)servin(cid:74) laws and meetin(cid:74) o(cid:88)r compliance o(cid:69)li(cid:74)ations in all territories in which we operate(cid:17) (cid:58)e see(cid:78) to wor(cid:78) proactively and colla(cid:69)oratively with o(cid:88)r sta(cid:78)eholders(cid:15) incl(cid:88)din(cid:74) ta(cid:91) a(cid:88)thorities and collea(cid:74)(cid:88)es within the (cid:69)(cid:88)siness(cid:15) whilst ens(cid:88)rin(cid:74) that the (cid:42)ro(cid:88)p’s ta(cid:91) strate(cid:74)y is ali(cid:74)ned with the wider (cid:69)(cid:88)siness and its commercial strate(cid:74)y of (cid:74)eneratin(cid:74) s(cid:88)staina(cid:69)le val(cid:88)e for o(cid:88)r shareholders(cid:17) (cid:39)(cid:88)rin(cid:74) 2018(cid:15) we provided trainin(cid:74) to o(cid:88)r staff on the re(cid:84)(cid:88)irements iss(cid:88)ed (cid:69)y the (cid:56)(cid:46) (cid:43)(cid:48)(cid:53)C re(cid:74)ardin(cid:74) the fail(cid:88)re to prevent the criminal facilitation of ta(cid:91) evasion(cid:30) this was incl(cid:88)ded in o(cid:88)r anti (cid:69)ri(cid:69)ery trainin(cid:74) mod(cid:88)le(cid:17) Capitalisation of space segment assets and associated borrowing costs (cid:54)pace se(cid:74)ment assets comprise satellite constr(cid:88)ction(cid:15) la(cid:88)nch and other associated costs(cid:15) incl(cid:88)din(cid:74) (cid:74)ro(cid:88)nd infrastr(cid:88)ct(cid:88)re(cid:17) (cid:44)n addition(cid:15) (cid:69)orrowin(cid:74) costs attri(cid:69)(cid:88)ta(cid:69)le to (cid:84)(cid:88)alifyin(cid:74) space se(cid:74)ment assets are added to the cost of those assets(cid:17) (cid:42)iven the nat(cid:88)re of the (cid:42)ro(cid:88)p’s (cid:69)(cid:88)siness(cid:15) si(cid:74)nificant capital e(cid:91)pendit(cid:88)re is inc(cid:88)rred on space se(cid:74)ment assets(cid:17) (cid:55)he (cid:78)ey (cid:77)(cid:88)d(cid:74)ements involved in the capitalisation of space se(cid:74)ment assets and associated (cid:69)orrowin(cid:74)s costs are(cid:29) › (cid:58)hether the capitalisation criteria of the (cid:88)nderlyin(cid:74) (cid:44)F(cid:53)(cid:54) have (cid:69)een met › (cid:36)llocation of an appropriate asset class and associated (cid:88)sef(cid:88)l economic life in accordance with (cid:42)ro(cid:88)p policies › (cid:58)hether an asset is deemed to (cid:69)e s(cid:88)(cid:69)stantially complete and as a res(cid:88)lt capitalisation of (cid:69)orrowin(cid:74) costs sho(cid:88)ld cease and › (cid:58)hether an asset is ready for (cid:88)se and as a res(cid:88)lt f(cid:88)rther capitalisation of costs sho(cid:88)ld cease and depreciation sho(cid:88)ld commence (cid:55)he e(cid:91)ternal a(cid:88)ditor e(cid:91)amined the capitalisation of development costs in the year(cid:15) partic(cid:88)larly in relation to the (cid:42)lo(cid:69)al (cid:59)press and (cid:54)(cid:16)(cid:69)and satellite pro(cid:74)rammes and reported its control findin(cid:74)s to the (cid:36)(cid:88)dit Committee(cid:17) (cid:55)he (cid:36)(cid:88)dit Committee is satisfied that space se(cid:74)ment assets and associated (cid:69)orrowin(cid:74) costs have (cid:69)een capitalised correctly in the year(cid:17) Viability statement (cid:55)he (cid:36)(cid:88)dit Committee received a detailed paper from mana(cid:74)ement settin(cid:74) o(cid:88)t (cid:69)oth the (cid:39)irectors’ o(cid:69)li(cid:74)ation to incl(cid:88)de a via(cid:69)ility statement in the (cid:36)nn(cid:88)al (cid:53)eport and a detailed assessment of the (cid:42)ro(cid:88)p’s via(cid:69)ility(cid:17) (cid:55)he Committee endorsed the selection of a three(cid:16)year time hori(cid:93)on as a (cid:69)asis for the statement and reviewed the detailed via(cid:69)ility assessment incl(cid:88)din(cid:74) the ass(cid:88)mptions that had (cid:69)een made in cond(cid:88)ctin(cid:74) the assessment(cid:17) F(cid:88)rther detail on the assessment of via(cid:69)ility and the via(cid:69)ility statement are set o(cid:88)t on pa(cid:74)e (cid:24)(cid:28)(cid:17) Internal audit (cid:48)onitorin(cid:74) and review of the scope(cid:15) e(cid:91)tent and effectiveness of the activity of the (cid:44)nternal (cid:36)(cid:88)dit (cid:39)epartment is an a(cid:74)enda item at each Committee meetin(cid:74)(cid:17) (cid:36)dditionally(cid:15) the Chairman of the Committee meets re(cid:74)(cid:88)larly with the (cid:44)nternal (cid:36)(cid:88)ditor(cid:17) (cid:44)nternal (cid:36)(cid:88)dit prepares its ann(cid:88)al a(cid:88)dit plan (cid:69)ased on the principal ris(cid:78)s of the Company for the Committee to approve(cid:17) (cid:44)nternal (cid:36)(cid:88)dit cond(cid:88)cts reviews of (cid:69)(cid:88)siness operations(cid:15) financial and internal controls(cid:15) (cid:44)(cid:55) and cy(cid:69)er sec(cid:88)rity(cid:15) and le(cid:74)al and re(cid:74)(cid:88)latory compliance(cid:17) (cid:44)t presents its reports at each meetin(cid:74) coverin(cid:74) (cid:88)pdates on (cid:44)nternal (cid:36)(cid:88)dit activities(cid:15) res(cid:88)lts of a(cid:88)dits and follow(cid:16)(cid:88)p actions re(cid:84)(cid:88)ired(cid:17) (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:53)eport of the (cid:36)(cid:88)dit Committee 79 External auditor (cid:55)he Financial (cid:53)eportin(cid:74) Co(cid:88)ncil iss(cid:88)ed a (cid:74)(cid:88)ide for (cid:36)(cid:88)dit Committees to help them eval(cid:88)ate a(cid:88)ditor effectiveness(cid:17) (cid:55)here are several criteria incl(cid:88)ded within the report and in 2018 the Committee completed a detailed assessment of the 201(cid:26) (cid:36)(cid:88)dit so that (cid:39)eloitte and mana(cid:74)ement co(cid:88)ld review how any chan(cid:74)es co(cid:88)ld (cid:69)e made to improve the effectiveness (cid:74)oin(cid:74) forward(cid:17) (cid:55)he Committee receives inp(cid:88)ts from different so(cid:88)rces s(cid:88)ch as the (cid:36)(cid:88)ditors themselves(cid:15) mana(cid:74)ement(cid:15) as well as the inp(cid:88)t from the mem(cid:69)ers of the Committee which assisted it to determine that the (cid:36)(cid:88)ditor and its wor(cid:78) were effective(cid:17) (cid:36)t each of the (cid:36)(cid:88)dit Committee meetin(cid:74)s(cid:15) the (cid:36)(cid:88)ditor report on any iss(cid:88)es it perceived related to (cid:84)(cid:88)ality control and where it tho(cid:88)(cid:74)ht (cid:77)(cid:88)d(cid:74)ements had (cid:69)een applied (cid:69)y mana(cid:74)ement and if it a(cid:74)reed with these(cid:15) or offered an alternative view if appropriate(cid:17) (cid:55)he findin(cid:74)s and reports from the (cid:36)(cid:88)ditor help the (cid:36)(cid:88)dit Committee ma(cid:78)e assessments a(cid:69)o(cid:88)t the need to (cid:88)pdate processes or (cid:88)nderta(cid:78)e f(cid:88)rther review wor(cid:78) on any partic(cid:88)lar iss(cid:88)es(cid:17) (cid:39)eloitte (cid:47)(cid:47)(cid:51) were reappointed at the 2018 (cid:36)nn(cid:88)al (cid:42)eneral (cid:48)eetin(cid:74) and will also (cid:69)e p(cid:88)t forward for reappointment at the 201(cid:28) (cid:36)nn(cid:88)al (cid:42)eneral (cid:48)eetin(cid:74)(cid:17) (cid:56)nder the (cid:40)(cid:56) directive(cid:15) (cid:39)eloitte are now capa(cid:69)le of (cid:69)ein(cid:74) reappointed for a f(cid:88)rther 10 years after the retender (cid:11)2016(cid:12)(cid:15) however shareholder approval will (cid:69)e re(cid:84)(cid:88)ired each year(cid:17) (cid:36)(cid:88)ditor o(cid:69)(cid:77)ectivity and independence is safe(cid:74)(cid:88)arded thro(cid:88)(cid:74)h a variety of mechanisms(cid:17) (cid:55)o ens(cid:88)re the (cid:36)(cid:88)ditor’s independence(cid:15) the Committee ann(cid:88)ally reviews the Company’s relationship with (cid:39)eloitte and receives s(cid:88)mmaries at each (cid:36)(cid:88)dit Committee meetin(cid:74) from the (cid:36)(cid:88)ditor as to their independence(cid:17) (cid:55)he Committee concl(cid:88)ded that it contin(cid:88)es to have an o(cid:69)(cid:77)ective and professional relationship with (cid:39)eloitte and that there are s(cid:88)fficient controls and processes in place to ens(cid:88)re the re(cid:84)(cid:88)ired level of independence(cid:17) (cid:55)he (cid:40)(cid:91)ternal (cid:36)(cid:88)ditor is re(cid:84)(cid:88)ired to chan(cid:74)e the a(cid:88)dit partner responsi(cid:69)le for the (cid:42)ro(cid:88)p a(cid:88)dit every five years(cid:17) (cid:44)n 2016(cid:15) a new a(cid:88)dit partner was identified and too(cid:78) over as the lead for the 2016 reportin(cid:74) period after (cid:39)eloitte’s s(cid:88)ccessf(cid:88)l reappointment(cid:17) (cid:39)(cid:88)rin(cid:74) the year(cid:15) (cid:39)eloitte char(cid:74)ed the (cid:42)ro(cid:88)p (cid:7)1(cid:17)2m (cid:11)201(cid:26)(cid:29) (cid:7)1(cid:17)2m(cid:12) for a(cid:88)dit and a(cid:88)dit(cid:16)related services(cid:17) (cid:44)nmarsat’s policy is to adopt a strict (cid:26)0(cid:8) cap for allowa(cid:69)le non(cid:16)a(cid:88)dit services(cid:17) (cid:55)o ens(cid:88)re the policy is ade(cid:84)(cid:88)ately controlled(cid:15) we adopt several processes(cid:15) which were reviewed and confirmed as (cid:69)ein(cid:74) (cid:88)sed d(cid:88)rin(cid:74) 2018(cid:17) Fees char(cid:74)ed (cid:69)y (cid:39)eloitte in respect of non(cid:16)a(cid:88)dit services re(cid:84)(cid:88)ire the prior approval of the (cid:36)(cid:88)dit Committee(cid:15) e(cid:91)cept where the fee is less than (cid:100)(cid:24)0(cid:15)000(cid:17) (cid:36)ny commitments a(cid:69)ove this amo(cid:88)nt will re(cid:84)(cid:88)ire the (cid:36)(cid:88)dit Committee Chairman’s approval(cid:17) (cid:36) s(cid:88)mmary is availa(cid:69)le to the (cid:36)(cid:88)dit Committee where amo(cid:88)nts have (cid:69)een committed (cid:69)elow (cid:100)(cid:24)0(cid:15)000(cid:17) (cid:54)eparate en(cid:74)a(cid:74)ement letters are si(cid:74)ned (cid:69)y o(cid:88)r CFO for each a(cid:88)dit and non(cid:16)a(cid:88)dit en(cid:74)a(cid:74)ement with (cid:39)eloitte(cid:17) (cid:36) (cid:69)rea(cid:78)down of the fees paid to (cid:39)eloitte d(cid:88)rin(cid:74) the year(cid:15) incl(cid:88)din(cid:74) non(cid:16)a(cid:88)dit services(cid:15) is set o(cid:88)t in note 6 to the consolidated financial statements(cid:17) (cid:44)t is the Company’s practice that it will see(cid:78) (cid:84)(cid:88)otes from several firms(cid:15) which may incl(cid:88)de (cid:39)eloitte(cid:15) (cid:69)efore wor(cid:78) on non(cid:16)a(cid:88)dit pro(cid:77)ects is awarded(cid:17) Contracts are awarded to o(cid:88)r s(cid:88)ppliers (cid:69)ased on individ(cid:88)al merits(cid:17) (cid:55)he Committee and the Company’s mana(cid:74)ement are aware that the level of fees paid to (cid:39)eloitte for non(cid:16)a(cid:88)dit services compared to a(cid:88)dit services was si(cid:74)nificantly hi(cid:74)her several years a(cid:74)o d(cid:88)e to wor(cid:78) (cid:88)nderta(cid:78)en re(cid:74)ardin(cid:74) specialist ta(cid:91) advice on certain transactions and(cid:15) has wor(cid:78)ed to ens(cid:88)re that the non(cid:16)a(cid:88)dit fee levels have red(cid:88)ced or are nil over the last few years as in 201(cid:26) and 2018(cid:17) (cid:58)e receive advice from other firms for specific pro(cid:77)ects and other lon(cid:74)(cid:16)term pro(cid:77)ects(cid:17) (cid:58)e have contin(cid:88)ed to (cid:88)se (cid:51)wC(cid:15) (cid:46)(cid:51)(cid:48)(cid:42) and (cid:40)(cid:60) for vario(cid:88)s pro(cid:77)ects (cid:113) some are new pro(cid:77)ects and some have (cid:69)een contin(cid:88)in(cid:74) for several years(cid:17) (cid:58)e also (cid:88)se different firms to s(cid:88)pport (cid:88)s on (cid:57)(cid:36)(cid:55) and ad hoc (cid:51)(cid:36)(cid:60)(cid:40) iss(cid:88)es(cid:17) Fair, balanced and understandable (cid:58)hen formin(cid:74) its opinion as to whether the (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts is fair(cid:15) (cid:69)alanced and (cid:88)nderstanda(cid:69)le(cid:15) the Committee reflected on the information it had received and its disc(cid:88)ssions thro(cid:88)(cid:74)ho(cid:88)t the year(cid:17) › (cid:36)re the (cid:78)ey messa(cid:74)es in the narrative reflected in the financial reportin(cid:74)(cid:34) › (cid:36)re the (cid:46)(cid:51)(cid:44)s disclosed at an appropriate level (cid:69)ased on the financial reportin(cid:74) and are they the ri(cid:74)ht ones to (cid:88)se to descri(cid:69)e the (cid:69)(cid:88)siness(cid:34) Is the report balanced? › (cid:44)s there a (cid:74)ood level of consistency (cid:69)etween the narrative reportin(cid:74) in the front and the financial reportin(cid:74) in the (cid:69)ac(cid:78) of the report(cid:15) and does the messa(cid:74)in(cid:74) reflected in each remain consistent when read independently of each other(cid:34) › (cid:44)s the (cid:36)nn(cid:88)al (cid:53)eport a doc(cid:88)ment which is (cid:88)nderstanda(cid:69)le (cid:69)y shareholders(cid:34) › (cid:36)re the stat(cid:88)tory and ad(cid:77)(cid:88)sted meas(cid:88)res e(cid:91)plained clearly with appropriate prominence(cid:34) › (cid:36)re the (cid:78)ey (cid:77)(cid:88)d(cid:74)ements referred to in the narrative reportin(cid:74) and the si(cid:74)nificant iss(cid:88)es reported in this (cid:36)(cid:88)dit Committee (cid:53)eport consistent with the disclos(cid:88)res of (cid:78)ey estimation (cid:88)ncertainties and critical (cid:77)(cid:88)d(cid:74)ements set o(cid:88)t in the financial statements(cid:34) › (cid:43)ow do these compare with the ris(cid:78)s that (cid:39)eloitte plan to incl(cid:88)de in their a(cid:88)dit report(cid:34) Is the report understandable? › (cid:44)s there a clear and (cid:88)nderstanda(cid:69)le framewor(cid:78) to the report(cid:34) › (cid:36)re the important messa(cid:74)es hi(cid:74)hli(cid:74)hted appropriately thro(cid:88)(cid:74)ho(cid:88)t the doc(cid:88)ment(cid:34) › (cid:44)s the layo(cid:88)t clear with (cid:74)ood lin(cid:78)a(cid:74)e thro(cid:88)(cid:74)ho(cid:88)t in a manner that reflects the whole story(cid:34) Conclusion Followin(cid:74) its review(cid:15) the Committee was of the opinion that the 2018 (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts is representative of the year and presents a fair(cid:15) (cid:69)alanced and (cid:88)nderstanda(cid:69)le overview(cid:15) providin(cid:74) the necessary information for shareholders to assess the (cid:42)ro(cid:88)p’s position(cid:15) performance(cid:15) (cid:69)(cid:88)siness model and strate(cid:74)y(cid:17) (cid:44)n partic(cid:88)lar(cid:15) the Committee considered the same themes as it had in 201(cid:26)(cid:29) ROB RUIJTER CHAIRMAN, AUDIT COMMITTEE Non-audit services (cid:55)he Company’s (cid:36)(cid:88)ditor may also (cid:69)e (cid:88)sed to provide specialist advice where(cid:15) as a res(cid:88)lt of their position as (cid:36)(cid:88)ditor(cid:15) they either m(cid:88)st(cid:15) or are (cid:69)est placed to(cid:15) perform the wor(cid:78) in (cid:84)(cid:88)estion(cid:17) (cid:36) formal policy is in place in relation to the provision of non(cid:16)a(cid:88)dit services (cid:69)y the (cid:36)(cid:88)ditor to ens(cid:88)re that there is ade(cid:84)(cid:88)ate protection of their independence and o(cid:69)(cid:77)ectivity(cid:17) Is the report fair? › (cid:44)s the whole story presented and has any sensitive material (cid:69)een omitted that sho(cid:88)ld have (cid:69)een incl(cid:88)ded(cid:34) › (cid:44)s the reportin(cid:74) on the (cid:69)(cid:88)siness se(cid:74)ments in the narrative reportin(cid:74) consistent with those (cid:88)sed for the financial reportin(cid:74) in the financial statements(cid:34) 18 (cid:48)arch 201(cid:28) i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 80 (cid:42)overnance (cid:95) (cid:53)elations with (cid:54)hareholders (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Relations with shareholders Communicating with the investment community (cid:42)iven the importance placed (cid:69)y the Company in comm(cid:88)nicatin(cid:74) with o(cid:88)r investors(cid:15) we see(cid:78) to maintain a re(cid:74)(cid:88)lar and open dialo(cid:74)(cid:88)e with c(cid:88)rrent e(cid:84)(cid:88)ity shareholders(cid:15) potential e(cid:84)(cid:88)ity investors(cid:15) de(cid:69)t investors and sell side and credit analysts thro(cid:88)(cid:74)h a comprehensive investor relations pro(cid:74)ramme(cid:17) (cid:55)his pro(cid:74)ramme is (cid:69)ased aro(cid:88)nd investor and analyst presentations (cid:69)y senior mana(cid:74)ement(cid:15) coverin(cid:74) the f(cid:88)ll year and interim res(cid:88)lts (cid:11)in person(cid:12)(cid:15) and (cid:84)(cid:88)arterly res(cid:88)lts anno(cid:88)ncements (cid:11)(cid:69)y we(cid:69)cast and conference call(cid:12)(cid:17) (cid:55)he shareholder comm(cid:88)nication pro(cid:74)ramme incorporates the (cid:36)(cid:42)(cid:48)(cid:15) investor roadshow meetin(cid:74)s(cid:15) investor conference participation as well as presentations to analysts and investment (cid:69)an(cid:78)s’ e(cid:84)(cid:88)ity sales teams(cid:17) (cid:48)ana(cid:74)ement participated in meetin(cid:74)s with investment comm(cid:88)nities in the (cid:56)(cid:46)(cid:15) the (cid:56)(cid:17)(cid:54)(cid:17) and in (cid:40)(cid:88)rope in 2018(cid:17) (cid:55)he (cid:78)ey o(cid:69)(cid:77)ective of the Company’s investor comm(cid:88)nication pro(cid:74)ramme is to ens(cid:88)re that the investment comm(cid:88)nity contin(cid:88)es to have a comprehensive and clear (cid:88)nderstandin(cid:74) of the vario(cid:88)s dynamics and elements relatin(cid:74) to (cid:44)nmarsat’s (cid:69)(cid:88)siness(cid:15) mar(cid:78)et environment(cid:15) strate(cid:74)y(cid:15) operational performance and f(cid:88)t(cid:88)re o(cid:88)tloo(cid:78)(cid:17) (cid:55)he (cid:37)oard is aware that instit(cid:88)tional shareholders and (cid:69)ondholders may (cid:69)e in more re(cid:74)(cid:88)lar contact with the Company than other shareholders(cid:15) (cid:69)(cid:88)t care is e(cid:91)ercised to ens(cid:88)re that any price(cid:16)sensitive information is released to all shareholders(cid:15) instit(cid:88)tional and private(cid:15) at the same time in accordance with the Financial Cond(cid:88)ct (cid:36)(cid:88)thority re(cid:84)(cid:88)irements(cid:17) Investor communication channels (cid:55)he (cid:37)oard is responsi(cid:69)le for ens(cid:88)rin(cid:74) that a consistent and open dialo(cid:74)(cid:88)e with shareholders is maintained(cid:15) with the Chief (cid:40)(cid:91)ec(cid:88)tive Officer(cid:15) Chief Financial Officer and (cid:43)ead of (cid:44)nvestor (cid:53)elations (cid:69)ein(cid:74) the Company’s principal representatives with the investment comm(cid:88)nity(cid:17) F(cid:88)rthermore(cid:15) the Chairman and (cid:54)enior (cid:44)ndependent (cid:39)irector are availa(cid:69)le to shareholders if they have concerns which cannot (cid:69)e raised thro(cid:88)(cid:74)h the normal channels or if s(cid:88)ch concerns have not (cid:69)een resolved(cid:17) (cid:44)n total(cid:15) senior mana(cid:74)ement participated in over 600 meetin(cid:74)s or conference calls with (cid:69)(cid:88)y side and sell side instit(cid:88)tions in 2018(cid:15) (cid:69)oth in the e(cid:84)(cid:88)ity and de(cid:69)t mar(cid:78)ets(cid:15) incl(cid:88)din(cid:74) e(cid:91)istin(cid:74) shareholders and potential shareholders(cid:17) (cid:55)he (cid:37)oard o(cid:69)tains feed(cid:69)ac(cid:78) from senior mana(cid:74)ement as well as from its (cid:77)oint corporate (cid:69)ro(cid:78)ers(cid:15) (cid:45)(cid:17)(cid:51)(cid:17) (cid:48)or(cid:74)an Ca(cid:93)enove and Credit (cid:54)(cid:88)isse(cid:15) on the views of instit(cid:88)tional investors on a non(cid:16)attri(cid:69)(cid:88)ted and attri(cid:69)(cid:88)ted (cid:69)asis(cid:17) (cid:36)s a matter of ro(cid:88)tine(cid:15) the (cid:37)oard receives re(cid:74)(cid:88)lar reports on iss(cid:88)es relatin(cid:74) to share price and tradin(cid:74) activity(cid:15) and details of movements in instit(cid:88)tional investor shareholdin(cid:74)s(cid:17) (cid:55)he (cid:37)oard is also re(cid:74)(cid:88)larly provided with c(cid:88)rrent analyst opinions and forecasts(cid:17) (cid:39)(cid:88)rin(cid:74) 2018(cid:15) after the 2018 (cid:36)(cid:42)(cid:48)(cid:15) there have (cid:69)een three sets of shareholder comm(cid:88)nications to (cid:78)ey shareholders and pro(cid:91)y a(cid:74)encies as part of a detailed shareholder cons(cid:88)ltation e(cid:91)ercise re(cid:74)ardin(cid:74) a new (cid:53)em(cid:88)neration (cid:51)olicy(cid:17) (cid:55)his has (cid:69)een led (cid:69)y the (cid:53)em(cid:88)neration Committee Chairman(cid:15) the (cid:37)oard Chairman and the Company (cid:54)ecretary(cid:17) (cid:55)he en(cid:74)a(cid:74)ement from those cons(cid:88)lted has (cid:69)een very m(cid:88)ch appreciated(cid:17) 600+ Meetings or conference calls with analysts and institutions in 2018 2018 Annual Report and 2019 AGM (cid:55)his a(cid:88)dited 2018 (cid:36)nn(cid:88)al (cid:53)eport will (cid:69)e made availa(cid:69)le to shareholders and all res(cid:88)lts are posted on the Company’s we(cid:69)site(cid:15) as are presentations made in respect of the company’s financial res(cid:88)lts(cid:17) (cid:54)hareholders are welcome at the Company’s (cid:36)(cid:42)(cid:48) where they will have an opport(cid:88)nity to meet the (cid:37)oard(cid:17) (cid:55)he notice of the (cid:36)(cid:42)(cid:48) is sent to all shareholders at least 20 wor(cid:78)in(cid:74) days (cid:69)efore the meetin(cid:74)(cid:17) (cid:55)he Chairmen of the (cid:36)(cid:88)dit and the (cid:53)em(cid:88)neration Committees(cid:15) to(cid:74)ether with as many (cid:39)irectors as possi(cid:69)le(cid:15) will attend the 201(cid:28) (cid:36)(cid:42)(cid:48) and (cid:69)e availa(cid:69)le to answer shareholders’ (cid:84)(cid:88)estions(cid:17) (cid:57)otin(cid:74) on all resol(cid:88)tions at the (cid:36)(cid:42)(cid:48) is on a poll(cid:17) (cid:55)he pro(cid:91)y votes cast(cid:15) incl(cid:88)din(cid:74) details of votes withheld(cid:15) are disclosed on o(cid:88)r we(cid:69)site and anno(cid:88)nced to the (cid:56)(cid:46) (cid:47)istin(cid:74) (cid:36)(cid:88)thority thro(cid:88)(cid:74)h a (cid:53)e(cid:74)(cid:88)latory (cid:44)nformation (cid:54)ervice immediately after the meetin(cid:74)(cid:17) Facilities are provided for shareholders to vote electronically either thro(cid:88)(cid:74)h (cid:40)lectronic (cid:51)ro(cid:91)y (cid:57)otin(cid:74) or thro(cid:88)(cid:74)h C(cid:53)(cid:40)(cid:54)(cid:55)(cid:17) Details of our results announcements for 2019 are shown below: 1 May 2019 (cid:36)(cid:42)(cid:48) and (cid:52)1 201(cid:28) res(cid:88)lts 1 August 2019* (cid:44)nterim res(cid:88)lts for the half year to 30 (cid:45)(cid:88)ne 201(cid:28) 7 November 2019* (cid:52)3 201(cid:28) res(cid:88)lts (cid:13) (cid:55)hese dates are provisional and may chan(cid:74)e (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:39)irectors’ (cid:53)em(cid:88)neration (cid:53)eport 81 Directors’ Remuneration Report In this section 81 Annual Statement from Committee Chairman 84 2019 Directors’ Remuneration Policy 86 (cid:54)hareholdin(cid:74) (cid:74)(cid:88)idelines 8(cid:26) (cid:51)erformance meas(cid:88)rement selection 8(cid:26) (cid:53)em(cid:88)neration policy for other employees 8(cid:26) (cid:51)ay scenario charts for the C(cid:40)O and CFO 8(cid:26) (cid:36)pproach to recr(cid:88)itment rem(cid:88)neration 88 (cid:40)(cid:91)ec(cid:88)tive (cid:39)irector service contracts and e(cid:91)it payment policy 8(cid:28) (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors 8(cid:28) (cid:40)(cid:91)ternal appointments 8(cid:28) Consideration of shareholder views 90 Annual Report on Remuneration (cid:28)0 (cid:53)em(cid:88)neration Committee mem(cid:69)ership in 2018 (cid:28)0 (cid:36)dvisors (cid:28)0 (cid:54)(cid:88)mmary of shareholder votin(cid:74) at the 201(cid:26) and 2018 (cid:36)(cid:42)(cid:48)s (cid:28)1 (cid:54)in(cid:74)le fi(cid:74)(cid:88)re of total rem(cid:88)neration for (cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors (cid:11)a(cid:88)dited(cid:12) (cid:44)ncentive o(cid:88)tcomes for the year ended 31 (cid:39)ecem(cid:69)er 2018 (cid:11)a(cid:88)dited(cid:12) (cid:28)1 (cid:28)(cid:23) (cid:36)dditional disclos(cid:88)re of 201(cid:26) performance tar(cid:74)ets (cid:11)a(cid:88)dited(cid:12) (cid:28)(cid:24) (cid:54)cheme interests awarded in 2018 (cid:11)a(cid:88)dited(cid:12) (cid:28)(cid:24) (cid:51)ension (cid:11)a(cid:88)dited(cid:12) (cid:28)6 (cid:54)in(cid:74)le fi(cid:74)(cid:88)re of total rem(cid:88)neration for (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors (cid:11)a(cid:88)dited(cid:12) (cid:28)6 (cid:40)(cid:91)it payments made in the year (cid:11)a(cid:88)dited(cid:12) (cid:28)6 (cid:51)ayments to past (cid:39)irectors (cid:11)a(cid:88)dited(cid:12) (cid:28)6 (cid:40)(cid:91)ternal appointments for (cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors (cid:36)nn(cid:88)al statement from the (cid:53)em(cid:88)neration Committee Chairman(cid:15) (cid:54)imon (cid:37)a(cid:91) Dear shareholder On (cid:69)ehalf of the (cid:37)oard(cid:15) (cid:44) am pleased to present the (cid:39)irectors’ (cid:53)em(cid:88)neration (cid:53)eport for the year ended 31 (cid:39)ecem(cid:69)er 2018(cid:17) (cid:36)t o(cid:88)r 2018 (cid:36)(cid:42)(cid:48) a ma(cid:77)ority of shareholders voted a(cid:74)ainst the resol(cid:88)tion to approve o(cid:88)r rem(cid:88)neration report(cid:17) (cid:55)his o(cid:88)tcome followed a hi(cid:74)h vote a(cid:74)ainst o(cid:88)r rem(cid:88)neration report in 201(cid:26)(cid:17) (cid:58)e have heard from those cons(cid:88)lted since the (cid:36)(cid:42)(cid:48) that there was no sin(cid:74)le reason for the hi(cid:74)h vote a(cid:74)ainst the rem(cid:88)neration report(cid:15) altho(cid:88)(cid:74)h d(cid:88)rin(cid:74) the e(cid:91)tensive cons(cid:88)ltation that we have (cid:88)nderta(cid:78)en it is clear that the overridin(cid:74) iss(cid:88)e has (cid:69)een that the level of e(cid:91)ec(cid:88)tive pay was felt to (cid:69)e ins(cid:88)fficiently ali(cid:74)ned to performance and partic(cid:88)larly share price performance(cid:17) SIMON BAX CHAIRMAN, REMUNERATION COMMITTEE (cid:28)6 (cid:44)mplementation of (cid:53)em(cid:88)neration (cid:51)olicy for 201(cid:28) (cid:28)8 (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive (cid:39)irector fees (cid:28)8 (cid:55)otal shareholder ret(cid:88)rn (cid:28)8 C(cid:40)O nine(cid:16)year rem(cid:88)neration history (cid:11)a(cid:88)dited(cid:12) (cid:28)(cid:28) (cid:51)ercenta(cid:74)e chan(cid:74)e in C(cid:40)O rem(cid:88)neration (cid:28)(cid:28) C(cid:40)O pay ratio (cid:28)(cid:28) (cid:53)elative importance of spend on pay 100 (cid:39)irectors’ shareholdin(cid:74) (cid:11)a(cid:88)dited(cid:12) 100 (cid:39)irectors’ interests in shares in (cid:44)nmarsat lon(cid:74)(cid:16)term incentive plans and all(cid:16)employee plans (cid:11)a(cid:88)dited(cid:12) 100 (cid:44)nmarsat (cid:37)on(cid:88)s (cid:54)hare (cid:36)wards (cid:11)a(cid:88)dited(cid:12) 101 (cid:44)nmarsat (cid:51)erformance (cid:54)hare (cid:36)wards (cid:11)a(cid:88)dited(cid:12) 101 (cid:44)nmarsat (cid:54)haresave (cid:54)cheme (cid:44)n relation to the policy itself(cid:15) even tho(cid:88)(cid:74)h (cid:28)0(cid:8) of shareholders s(cid:88)pported the policy in 201(cid:26) we have listened to comments that the policy for incentive pay is too hi(cid:74)h(cid:15) too foc(cid:88)sed on the short term and over(cid:16)complicated (cid:69)y havin(cid:74) two incentive plans (cid:69)oth of which are deemed to (cid:69)e short term as they meas(cid:88)red performance over a sin(cid:74)le year(cid:17) (cid:44)n relation to the application of the policy(cid:15) investors felt that there was an (cid:88)nhelpf(cid:88)l d(cid:88)plication of (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) across the plans(cid:15) ins(cid:88)fficient disclos(cid:88)re in relation to the strate(cid:74)ic tar(cid:74)ets in the (cid:51)(cid:54)(cid:36) (cid:11)o(cid:88)r (cid:47)(cid:55)(cid:44)(cid:51)(cid:12) and a feelin(cid:74) that the performance conditions have not (cid:69)een s(cid:88)fficiently stretchin(cid:74) to (cid:77)(cid:88)stify the rem(cid:88)neration levels paid(cid:17) Finally(cid:15) we la(cid:74)(cid:74)ed (cid:69)est practice (cid:69)y not disclosin(cid:74) the performance tar(cid:74)ets for the ann(cid:88)al (cid:69)on(cid:88)s and (cid:37)(cid:54)(cid:36) immediately(cid:15) (cid:69)(cid:88)t a year in arrears(cid:17) (cid:36)s part of a very comprehensive en(cid:74)a(cid:74)ement process with a s(cid:88)(cid:69)stantial n(cid:88)m(cid:69)er of investors and representative (cid:69)odies(cid:15) and havin(cid:74) listened very caref(cid:88)lly and modified o(cid:88)r thin(cid:78)in(cid:74) as we have finalised o(cid:88)r plannin(cid:74)(cid:15) we are proposin(cid:74) a new policy which will (cid:69)rin(cid:74) o(cid:88)r disclos(cid:88)re in line with the standards e(cid:91)pected (cid:69)y shareholders(cid:17) (cid:58)e will simplify the incentive plans(cid:15) ens(cid:88)re stretchin(cid:74) tar(cid:74)ets are (cid:88)sed(cid:15) red(cid:88)ce the overall rem(cid:88)neration opport(cid:88)nity and improve the ali(cid:74)nment of lon(cid:74)(cid:16)term and short(cid:16)term interests (cid:69)etween e(cid:91)ec(cid:88)tives and shareholders(cid:17) (cid:58)e will (cid:69)rin(cid:74) o(cid:88)r disclos(cid:88)re in line with the standards e(cid:91)pected (cid:69)y shareholders and provide information for 2018 performance in this (cid:53)eport(cid:17) (cid:44)n finalisin(cid:74) the o(cid:88)tcome of the overall rem(cid:88)neration for 2018(cid:15) the Committee is (cid:88)sin(cid:74) its discretion to red(cid:88)ce si(cid:74)nificantly the total amo(cid:88)nt we are payin(cid:74) o(cid:88)r e(cid:91)ec(cid:88)tives for performance in 2018 in lar(cid:74)e part to reco(cid:74)nise the overall shareholder e(cid:91)perience in 2018(cid:17) i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 82 Governance | Directors’ Remuneration Report Inmarsat plc | Annual Report and Accounts 2018 Remuneration Report continued We spent considerable time engaging with shareholders to ensure the new policy and its implementation is appropriate In addition to seeking shareholder approval for a new remuneration policy and the annual shareholder vote on the remuneration report, there is a further resolution to approve an increase to the individual limit in our long-term incentive plan, to facilitate a rebalancing of incentives from short-term to longer-term performance. I very much hope that the changes set out in this report and summarised in my Statement will ensure a positive outcome at the 2019 AGM on all three resolutions. Performance in 2018 and incentive payments to executives Business performance during 2018 sets the context for how the Committee has reviewed pay for performance and assessed achievement against objectives. During the course of the year, we delivered consistent profitable revenue growth, supported by our diversified portfolio, through a combination of our established L-band services and our new, higher growth broadband GX services, particularly in the In-Flight Connectivity segment in Aviation. This growth was delivered in spite of an intensifying competitive environment in the mid-market in Maritime, which, given the relative weighting of Maritime in our revenue base, continues to be an important driver of investor sentiment and, consequently, our share price. Our revenue growth of 5% for the year was again supported by a focus on operational leverage through a carefully controlled cost base, with EBITDA growing by 4%, and an infrastructure capital investment programme that is expected to meaningfully moderate from the start of the next decade. These factors will help us to generate sustained free cash flow over the medium to long term. Looking at the specifics of performance from a remuneration viewpoint, the performance conditions for the Annual Bonus and BSA were our Revenue and EBITDA performance and for the Annual Bonus a small part of the overall opportunity was based on the individual performance of the executive directors. At the start of the year our business plan was forecasting relatively flat performance against both Revenue and EBITDA and we were pleased to deliver year on year growth of 5% and 4% respectively against both measures. At the same time there has been strong performance of the executive directors against the achievement of the short-term operational milestones on which their individual performance was based. For the PSA award granted in 2016, 2018 represented the final year of the three-year performance measurement period. Performance conditions were Total Shareholder Return, EBITDA and Strategic Objectives. Over the three years to 2018, the Company has made good progress against its strategic objectives, which has positioned us well for the future. However, over the three-year performance period we fell short of the challenging EBITDA targets that were set and we experienced a significant decline in our share price. This meant that whilst there was partial vesting against the Strategic Objectives there was no vesting of the portions of the award measured by reference to EBITDA or TSR performance. On the basis of the formula-driven performance conditions the total remuneration for the Chief Executive and Chief Financial Officer would have been £2,347k and £1,899k respectively. However, recognising the wider performance factors and in particular the shareholder experience over the year under review (and the three-year performance period of the financial elements of the 2016 PSA) the Committee has used its discretion to reduce pay for FY18 very significantly. The pay-out level under the PSA has been reduced from £150k and £115k for the CEO and CFO respectively to £75k and £58k. This was considered appropriate recognising that, despite good progress against the Company’s Long Range Business Plan, against wider business KPIs the performance had fallen short of the Board’s expectations. Additionally the Committee reviewed the pay-out level under the BSA and determined that the indicative level of vesting was too high in relation to the improvements in financial performance over the year and when considering the share price performance over 2018. Accordingly, the Committee determined that the payment should be reduced from £1,008k and £781k for the CEO and CFO respectively to £415k and £317k. Overall the level of pay has been reduced by £593k and £464k for the CEO and CFO respectively, which ensures that their pay for FY18 is lower than that received for FY17 (which itself followed a trend of reducing pay over recent years) on the single figure reported in the 2017 Annual Report and the 2017 figure reported in this Annual Report which is adjusted for the actual share price rather than average. We believe that this decisive use of discretion to reduce pay for FY18 is in shareholders’ short and long-term interests. Inmarsat plc | Annual Report and Accounts 2018 Governance | Directors’ Remuneration Report 83 If the formula driven payments deliver a result which is at odds with the wider performance of the business the Committee will, again, consider the use of discretion to adjust the outcome. Our shareholding guideline will remain at 500% of base salary, which our Chief Executive comfortably exceeds and our Chief Financial Officer is building towards. These continue to be at the upper end of what is the norm and support the alignment with shareholders. Further detail on the implementation of our Policy for 2019 is included on pages 90 to 101. Corporate Governance Code and Companies Act reporting changes We aim to comply with the new UK Corporate Governance Code during FY19 and, in particular, are looking at broader stakeholder engagement carefully. Also, we are reporting early in line with the new legislative requirements for Directors’ pay, including disclosing our CEO pay ratios to the rest of the UK workforce in this report. Summary I would like to thank shareholders for their input during the year. We believe that we have significantly improved our policy and the way it will be operated. I hope we can count on shareholders’ support at the 2019 AGM, where I will be available to respond to any questions shareholders may have on this report or in relation to the Committee’s activities. I continue to be available to meet and discuss our remuneration arrangements with shareholders. SIMON BAX CHAIRMAN, REMUNERATION COMMITTEE 18 March 2019 A new remuneration policy for FY19-21 During the year the Committee undertook a very detailed review of our remuneration policy to ensure that it addresses shareholder concerns by providing a stronger link between reward and performance. We spent considerable time engaging in extensive discussions with shareholders during 2018 and early in 2019 to ensure that the new policy, and its operation are appropriate going forward. We have adapted the policy to take on board shareholder comments through the consultation process and are appreciative of the constructive and helpful engagement we received from them and the proxy agencies. Under the new policy we have strengthened the link between pay and performance in the following ways: › A material reduction in the level of incentive pay under the policy and compared to FY18 actual incentive levels › An increase to the proportionate weighting to the long-term incentive, for example from a combined potential opportunity for the CEO of 310% of salary under the two short-term plans and 185% of salary on the PSA, to 200% of salary being based on short-term performance and 250% of salary based on long-term performance › One simpler single annual bonus plan instead of two › The annual bonus maximum opportunity has been reduced materially to 200% for both Executive Directors, with 50% invested in shares which must be held for the long term › There is no duplication of performance measures in annual bonus and long-term incentives › Long-term incentive awards have been increased to 250% for both Executive Directors › We have included a formal overriding discretion to adjust the formulaic outcome of incentive awards as envisaged by the Corporate Governance Code › We have robust clawback and malus provisions which have been strengthened This builds on some strong attributes of our previous policy, especially the very high share ownership requirements (500% of salary) and the very low level of pension contributions. There are further changes to the detail of the policy, which are summarised on pages 84 to 89. Implementation of the remuneration policy in 2019 Our salary review takes place in June with any changes taking effect from 1 July. Any changes to salary levels will be no higher than the workforce average. The Executive Directors participate in the same pension and benefits programmes as other employees in the UK and on the same basis. The employer pension contribution will remain at circa 3% of salary, which is equivalent of 12.5% of capped salary. In addition to making significant changes to the policy for incentives, we have made several changes to its operation. In particular we have increased the weighting to financial performance measures under the annual bonus and are focusing on two important business KPIs that we use to measure underlying financial performance: Revenue, which will apply to 30%, and EBITDA, which will apply to 50% of the bonus. Stretching performance conditions have been set for each measure, which represent a significant improvement on the FY18 year-end numbers (noting that 2018 included contributions from our co-operation agreement with Ligado and there is no such contribution in 2019) and an improvement on prior years’ ranges. The element based on non-financial measures and personal performance will be weighted at a maximum of 20% of the overall bonus. In addition to setting challenging target ranges, the Committee has adjusted the sliding scales for payment so that the pay-outs commence for performance at 5% below target (not 10%) and the target level of pay-out is 60% of the maximum (down from 71.9% as the average across both of the previous bonus plans). We will keep under review the target level of pay-out over the policy period. The maximum annual bonus opportunity will be 200% of base salary, with half (after deduction for tax) delivered in shares, which must be held for the long term. There will be no overlap between the performance measures used for the annual bonus and the PSA awards. Vesting for the PSA will continue to be based on relative TSR, measured against the constituents of the FTSE 250 (instead of FTSE 50-150) excluding investment trusts (50% of total award), Free Cash Flow (25%) and the delivery of specific strategic objectives considered key drivers to our future success (25%). The PSA award level will now be 250% of salary, with 25% of the award vesting for threshold performance. A two-year holding period will continue to apply to vested PSA shares, during which time shares may not be sold except to cover taxes. GovernanceFinancial StatementsStrategic Report 84 Governance | Directors’ Remuneration Report Inmarsat plc | Annual Report and Accounts 2018 The Group’s Remuneration Policy is designed to align directors’ pay with the long-term strategy and sustainable success of the Group. We take into account the Group’s overall business strategy, business performance in the current year and expectations for future years as incorporated into our Long Range Business Plan (‘LRBP’), pay arrangements in the wider Inmarsat workforce and alignment of remuneration policy throughout the Group, and the global economic situation as well as investor views and feedback. We will consult with shareholders in advance of major changes to the Remuneration Policy or where we consider there are material changes to operation of the Policy. The Committee is committed to the principle that the Company should pay at the appropriate level to recruit and retain executives and incentivise them to achieve the Company’s business strategy to create long-term sustained value for shareholders. Remuneration Report continued 2019 Directors’ Remuneration Policy At our 2018 AGM a majority of shareholders voted against the resolution to approve our remuneration report. This means we must seek shareholder approval for a new remuneration policy at our May 2019 AGM. As noted in the Chairman’s Statement we have consulted extensively with shareholders and this Directors’ Remuneration Policy is put forward for a binding shareholder vote at the 2019 AGM and will take effect from the date of the AGM. The changes we have made to the new remuneration policy compared to the 2017 policy are summarised as follows: › Maximum employer pension contribution is reduced from 20% of salary to 12.5% of salary (although current directors will receive contributions of circa 3% of salary) › We currently have two bonus schemes measuring performance over a single year; the Cash Bonus (up to 125% of salary) and the Bonus Share Award (BSA) (up to 200% of salary). The total current short term incentive opportunity is 325% of salary overall. Instead, maximum annual bonus opportunity will be significantly reduced under a single new annual bonus plan to 200% of salary › 50% of any bonus earned will be payable in cash and the remaining 50% will be required to be invested in shares, after tax. The shares will be owned beneficially by the executive at the outset but must be held and not sold for at least one, two and three years and then in equivalent one third tranches. The shares will remain subject to clawback during the holding period › There will be flexibility for up to 20% of annual bonus to be subject to non-financial/ strategic performance measures (previously 30%) for the Cash Bonus › The threshold level of bonus payment will be no more than 25% of maximum. Previously this was much higher at 35.8% across both the Cash Bonus and BSA › The target level for the annual bonus payment is being removed from the Policy and will be set annually in line with the business plan. The target level though will not exceed 60%. Target payment was previously much higher across both the previous Cash Bonus and BSA › For the PSA there will be policy flexibility for up to 25% of the award to be subject to strategic measures (previously 40%). At a threshold level of performance 25% of any PSA award may vest under any measure. Previously the threshold level for a TSR, EBITDA or Strategic performance condition was 30%/0%/0% › Clawback and malus provisions have been strengthened to add reputational damage and corporate failure as specified ‘trigger events’ for clawing back previous payments, in line with the 2018 UK Corporate Governance Code (the Code) requirements › There will be a discretionary override for all incentive payments to allow the Committee to adjust the formula driven outturn for any incentive payment, taking into account all relevant factors › We have considered carefully the requirements in the Code for post cessation of employment shareholding requirements. The ‘good leaver’ provisions in the annual bonus and PSA will require that performance is measured over the full period (not accelerated to cessation of employment). Holding requirements for beneficially owned shares for all categories of leaver under the bonus and PSA will continue after cessation of employment as well as for unvested awards retained by good leavers. On this basis there would continue to be a significant interest in shares after an executive has left Inmarsat plc | Annual Report and Accounts 2018 Governance | Directors’ Remuneration Report 85 The remuneration policy is set out in the table below: How does this link to strategy What happens in practice What amounts can be paid How do we assess performance BASIC SALARY Paying market-competitive base salaries, commensurate with the individual’s role, responsibilities and experience, allows us to recruit and retain Executive Directors of the calibre required to implement our strategy. Providing an appropriate fixed level of pay commensurate for the role, ensures no over reliance on variable pay. BENEFITS IN KIND We provide cost-effective benefits which support the wellbeing of employees and maximise business continuity. PENSION We provide defined contribution pension arrangements, or cash in lieu of pension. Salaries are reviewed annually with any increase generally made in July or following a material change in responsibilities. Any increase is determined by a formal appraisal by the Committee; taking into account market pay levels; a review of salaries against companies of similar size, complexity and type; Group and individual performance, as well as the remuneration arrangements operated throughout the Group, with reference to UK-based employees in particular for pay comparison levels. Provision of death, long-term sickness and medical and dental insurance cover (which can include spouse and dependants cover). Life assurance of four times salary, paid holiday and medical check-ups are also provided. If required, the Company would provide access to independent financial and legal advice on a case-by-case basis. Provision of other reasonable benefits including in the event of relocation, temporary accommodation and other related costs will be considered on a case-by-case basis. The Company may make contributions to its defined contribution pension plan, similar pension plans as appropriate to the Executive Director’s nationality or location, our auto-enrolment pension scheme and/or make cash payments in lieu based on a percentage of salary. Based on Company performance and individual contribution. Not applicable. The maximum annual salary increase will normally be in line with the average increase applied to the UK workforce. However, larger increases may be awarded in certain circumstances including, but not limited to, an increase in scope or responsibility of the role; to apply salary progression for a newly appointed Director; where the Director’s salary has fallen behind market positioning. The benefits provided, which may vary by role and levels of cover provided, will reflect market practice and the individual circumstances of the Executive Directors. It is not anticipated that the current cost of benefits (as set out in the Annual Report on Remuneration) would increase materially over the period for which this Policy will apply. The Committee retains the discretion to approve a higher cost in exceptional circumstances (e.g. relocation) or in circumstances where factors outside the Company’s control have changed materially. Maximum employer contributions are 12.5% of the basic salary. Not applicable. GovernanceFinancial StatementsStrategic Report 86 Governance | Directors’ Remuneration Report Inmarsat plc | Annual Report and Accounts 2018 Remuneration Report continued How does this link to strategy What happens in practice What amounts can be paid How do we assess performance ANNUAL BONUS To incentivise the achievement of annual financial, strategic and operational goals in line with Group strategy. Bonus payment levels are determined by the Committee annually by reference to performance against targets set at the start of the financial year. The requirement for Executive Directors to acquire shares with their bonus provides a mechanism for alignment with longer-term performance and alignment of shareholders’ interests. The annual bonus is determined by pre-determined performance conditions. The Committee has the discretion to adjust the formulaic bonus outcome where the outcome is not truly reflective of performance, delivery of value to shareholders or reward outcomes more widely within the workforce. Maximum opportunity: › 200% of salary for both the CEO and CFO Threshold opportunity: › 25% of maximum The Target opportunity will be determined annually. Bonus is based on achievement of annual financial and strategic objectives. Performance measures and objectives are selected at the beginning of the year that best support the delivery of the Company’s strategy. The strategic element will not account for more than 20% of the total in any year. For the financial measures a graduated scale of targets will be set. In relation to strategic objectives the structure of the target will vary based on the nature of the target set and it will not always be practicable to set targets using a graduated scale. Vesting may therefore take place in full if specific criteria are met and judgement may be applied by the Committee. Details of the measures and weightings and performance against targets for the financial year under review are provided in the Annual Report on Remuneration. The Committee selects performance measures and objectives at the time awards are granted that best support the delivery of the Company’s long-term strategy. Strategic measures, if included, will not account for more than 25% of the total award in any year. Details of the measures, weightings and targets applicable to an award are provided prospectively in the Annual Report on Remuneration implementation of policy section for the year ahead. Maximum opportunity for all Executive Directors is up to 250% of salary. Threshold performance is 25% of maximum. There is the opportunity for an exceptional award of up to 300% of salary which would not be used unless it was appropriate to do so and fully explained in the implementation report. Participation levels set by HMRC or relevant local laws from time to time. Not applicable. The level of requirement and calculation is set out in the Annual Report on Remuneration. Not applicable. The bonus is paid in cash and the Executive Directors are required to invest 50% of the bonus earned (after payment of taxes) in shares in the Company. One third of the shares must be held for one, two and three years. The holding period continues post cessation of employment. The Committee may apply malus and claw back bonuses in circumstances including (but not limited to) error in calculation, gross misconduct, fraud, corporate failure, reputational damage or misstatement. PERFORMANCE SHARE AWARD (‘PSA’) The PSA aligns executives’ interests with long-term performance and shareholder value creation through rewarding the delivery of our longer-term business strategy with shares in the Company which are then retained for a period post vesting. The performance measures in the PSA reflect the value drivers in the LRBP. We make annual awards of conditional shares, which vest after a minimum of three years subject to performance over a three-year period. A mandatory two-year holding period (after sales to meet taxes) applies to vested awards. Additional shares in lieu of accrued dividends over the vesting period are awarded only on the number of shares that vest. Unvested awards are subject to adjustment for malus and clawback, i.e. forfeiture or reduction in exceptional circumstances including (but are not limited to) error in calculation, gross misconduct, fraud, corporate failure, reputational damage or misstatement. EMPLOYEE SHARE PLANS To encourage share ownership across all employees as allowed by HMRC and relevant local laws. We operate employee share savings plans for our global workforce where, depending on location, savings periods of between two and three years operate. We will look at opportunities to offer other employee share plans in the future. The Executive Directors must retain at least 50% of shares acquired from annual bonus payments and vesting of PSA awards until the shareholding requirement of 500% of salary is achieved. SHAREHOLDING GUIDELINE To build and retain a holding of shares in the Company which increases alignment of interest between management and shareholders and the longer-term performance of the Company. Inmarsat plc | Annual Report and Accounts 2018 Governance | Directors’ Remuneration Report 87 Legacy arrangements Authority is given to the Company to honour any share awards entered into with the Executive Directors under the 2014 and 2017 Policies. Details of such outstanding share awards to Executive Directors are provided in the Annual Report on Remuneration. Performance measurement selection Performance measures and objectives are selected that best support the delivery of the Company’s strategy, both short term and longer term. Performance targets are stretching, taking into account a range of reference points including the Group’s annual budget, LRBP, the market in which the Company operates, the expected performance of competitors in these same markets, broker forecasts, the market and economic outlook, and latest internal forecasts. The Committee may adjust and/or set different performance measures and targets following a corporate event (such as a change in strategy, a material acquisition and/or divestment of a Group business) or a significant change in prevailing market conditions either specific to the Company’s sector or macro-economic events which causes the Committee to determine that the measures and/or targets are no longer appropriate and that amendment is required so that the relevant award achieves its original purpose provided that the new targets are not materially less difficult to satisfy. How the Executive Director pay policy aligns to the remuneration policy for other employees Inmarsat operates remuneration arrangements to support our business strategy and attract and retain high-performing individuals. These principles apply to all employees across the Group, including the Executive Directors. As a global organisation, we also ensure that remuneration arrangements, particularly pensions and employee benefits are appropriate to each local market in which we operate. The financial metrics and targets for our group-wide bonus plan are consistent with those which apply to the Executive Directors. The members of the Group Executive Management Team (senior direct reports to the CEO) participate in the PSA along with the two Executive Directors. Some performance measures are different for the Executive Team. We also operate sales incentive plans for our front-line sales employees, which have measures and targets appropriate for their roles and accountabilities. The Executive Directors participate in the same pension and benefits programmes as other employees in the UK. We do not operate separate ‘executive pension or benefits plans’. Inmarsat operates a number of all employee share plans, which have defined rules and are subject to local regulations. Currently these are the UK Sharesave Scheme, Employee Share Participation Plan (for U.S. and Canadian employees) and the International Sharesave Scheme. The Executive Directors are eligible to participate in the plans relevant to their geography on the same basis as other local employees. The Committee takes into consideration the remuneration arrangements for the wider employee population in making its decisions on remuneration for senior executives. This relates to our philosophy around levels of base salary, operating bonus plans for all employees, pension entitlement and provision of benefits also being available across the Group. The Group consults with its employees on general employment policies in a range of ways, including formal consultation forums in some countries where it operates. Our staff are encouraged to provide feedback directly to their line managers or to the HR team or to a confidential email address which will receive queries on all issues including anti-bribery. Pay scenario charts for the CEO and CFO The following charts illustrate the potential future reward opportunities for the two current Executive Directors (CEO and CFO), and the potential split between the different elements of pay under three different performance scenarios: ‘Minimum’, ‘Target’, and ‘Maximum’. Potential reward opportunities are based on Inmarsat’s incentive opportunities for FY19, applied to salaries as at 1 January 2019. The Maximum scenario includes an additional element to represent 50% share price growth from the date of grant to vesting but apart from this the projected values exclude the impact of any share price movement. PAY SCENARIOS £000 Chief Executive Officer Maximum On-target 19% 28% Minimum 100% £620 45% 36% £3,920 45% 27% £2,219 Fixed pay PSA Chief Financial Officer Annual bonus PSA with 50% share price growth Maximum On-target 19% 28% Minimum 100% £512 45% 36% £3,218 45% 27% £1,823 Fixed pay PSA Annual bonus PSA with 50% share price growth Each element of remuneration reflects the following assumptions: › Minimum: includes fixed remuneration only, i.e. base salary as at 1 January 2019, taxable benefits (as disclosed for the previous financial year) and pension › Target: includes fixed remuneration plus 60% of the maximum annual bonus opportunity and 50% of the PSA award › Maximum: includes fixed remuneration and maximum payment under the annual bonus (200% of salary for both the CEO and CFO) and PSA (250% of salary for both the CEO and CFO), and includes the total maximum remuneration assuming 50% share price growth in PSA awards Approach to recruitment remuneration The remuneration package for a new Director will be set within the terms of the approved Remuneration Policy. In determining appropriate remuneration arrangements for a newly recruited Executive Director the Committee will take into consideration all relevant factors (including but not limited to current remuneration, the structure of remuneration for other Inmarsat executives, external market data and the jurisdiction the candidate was recruited from and may be based in). The Policy enables the Committee to include benefits such as relocation assistance, housing or schooling expenses, paying only what is necessary to secure the right candidate and limiting certain benefits to a specified period where possible. Annual bonus opportunity will normally reflect the period of service for the year. For an internal appointment any incentive plans in respect of an executive’s prior role will normally be allowed to continue according to its original terms. GovernanceFinancial StatementsStrategic Report 88 Governance | Directors’ Remuneration Report Inmarsat plc | Annual Report and Accounts 2018 Remuneration Report continued The Committee may compensate on hiring an external candidate for incentive pay forfeited or benefits foregone on leaving a previous employer. Replacement cash or share awards would take account of quantum forgone, any performance conditions attached to incentive pay awards, the form in which they were granted (for example, cash or shares), the time over which they would have vested, the likelihood of meeting any performance conditions and the share price at the time of buy-out. The Committee may grant Performance Share Awards or Restricted Share Awards if these reflect the terms of the awards forfeited. The Committee may grant these incentive awards under the provision provided for under Listing Rules (Chapter 9.4.2). Executive Director service contracts and exit payment policy Executive Director Rupert Pearce Date of service contract Term of office Notice period 18 January 2012 Indefinite until termination by either party Tony Bates 21 February 2014 Indefinite until termination by either party 12 months’ written notice by Company or Director 12 months’ written notice by Company and six months’ written notice by the Director Notice periods will not exceed 12 months and for future appointments the same notice period will apply for both the Company and Director. The Executive Directors have a clause to allow a payment in lieu of notice to be made. For the Executive Directors, the Company may make such payments monthly (up to 12 months) and these payments shall be reduced if the executive finds alternative employment. At the discretion of the Committee a pro-rata bonus may become payable at the normal payment date for the period of active employment with financial performance targets based on full year performance. The default treatment for share based awards is that any unvested award will lapse on termination of employment. However, in certain prescribed circumstances, such as death, injury, ill-health, retirement with the Company’s agreement, redundancy, leaving the Group because the employer company or business leaves the Group or where the Committee determines otherwise, awards would be eligible to vest subject to the performance conditions being met over the normal performance period (or a shorter period in exceptional circumstances at the Committee’s discretion) and with the award being reduced by an amount to reflect the proportion of the performance period not actually served (unless the Committee considers, in exceptional circumstances, a different treatment is appropriate). The Company may also pay outplacement, legal and other reasonable relevant costs associated with termination and may settle any claim or potential claim relating to the termination. Upon a change of control of the Company, share awards vest in accordance with the Executive Share Plan Rules, based on the extent to which the Committee determines that the performance conditions have been met and normally scaled back pro rata. For the annual bonus, the Committee will assess performance against targets at the point of change of control and any resulting bonus will be pro-rated for time and paid thereafter. Non-Executive Directors The Non-Executive Director (‘NED’), receives a letter of appointment that summarises the time commitment expected of them and sets out details of their fees (base fee and Committee membership fee). Maximum The maximum annual aggregate fee for all Group NEDs is set out in the Company’s Articles of Association. Element NED fees Purpose and link to strategy Operation To provide fees reflecting time commitments and responsibilities of each role to enable recruitment of the right calibre of NED who can further the interests of the Group through their experience, stewardship and contribution to strategy All NEDs are paid a basic fee at the same level. The Committee Chairmen and other members of the Board Committees (currently but not limited to Audit, Remuneration, Nominations and Telecoms Regulatory Committees) and the Senior Independent Director are paid supplements to reflect their additional responsibilities and time commitment. Supplements may also be paid for any new roles or responsibilities that the NEDs may undertake. The Chairman of the Board is paid a single fee for all his responsibilities. NED fee levels are reviewed periodically by the Chairman and Executive Directors with reference to market levels in comparably sized FTSE companies as well as any increase in the scale, scope or responsibility of the role and a recommendation is then made to the Board. The Chairman’s fee is reviewed periodically by the Committee taking into account time commitment, performance and fee levels at comparator companies and is then approved by the Board. If any changes are to be made, they are usually effective in July. Reasonable expenses incurred by the NEDs in carrying out their duties may be reimbursed by the Company including (grossed up) any personal tax payable by the Non-Executive Directors as a result of reimbursement of those expenses. Healthcare cover is provided for the Chairman, as a continuation of the cover provided to him previously as an Executive. Inmarsat plc | Annual Report and Accounts 2018 Governance | Directors’ Remuneration Report 89 NED appointments are initially for three years and unless agreed by the Board, NEDs may not remain in office for a period longer than six years, or two terms in office, whichever is the shorter unless the Nominations Committee recommends them to the Board to continue in the role past six years. All NEDs are subject to re-election by shareholders at each AGM. Non-Executive Directors do not have service contracts but letters of appointment with appointment terminating on: › A Director choosing to resign voluntarily › A Director being prohibited from serving by law, bankruptcy or illness › If the Nominations Committee does not approve the extension of the appointment › A Director is found guilty of misconduct or › A Director is not re-elected by the shareholders following retirement at an AGM Dates of NED appointment letters are as follows: Name Simon Bax Sir Bryan Carsberg Tracy Clarke Warren Finegold General C. Robert Kehler (Rtd) Phillipa McCrostie Janice Obuchowski Dr Abe Peled Robert Ruijter Andrew Sukawaty Dr Hamadoun Touré Date of appointment letter Date of appointment 28 May 2013 18 April 2005 18 June 2013 22 June 2005 29 January 2019 1 February 2019 13 March 2017 13 March 2014 1 August 2017 6 May 2014 18 May 2016 1 September 2016 6 May 2009 10 May 2013 5 May 2009 18 June 2013 16 December 2014 1 February 2015 16 September 2014 1 January 2015 16 December 2014 1 March 2015 External appointments Executive Directors serving as Non-Executive Directors on the Board of other companies are permitted to retain all remuneration and fees earned from outside directorships subject to a maximum of two external Board appointments. Directors accepting such positions shall take into account any guidelines for external directorships as contained in the UK Corporate Governance Code, subject at all times to pre-authorisation of the appointment by the Chairman. NEDs taking additional board positions are asked to speak to the Chairman in advance to ensure no conflict of interest and for the Chairman to speak to the Senior Independent Director for anything affecting him. Consideration of shareholder views The Remuneration Committee Chairman, Company Chairman, Senior Independent Director and Company Secretary engage proactively with major shareholders and shareholder representatives whenever appropriate. The Committee is always open to feedback from shareholders on its Remuneration Policy and operation and is committed to consulting shareholders in advance of making changes to Policy and its implementation. The Committee also considers specific investor remuneration guidelines as well as those of proxy voting agencies. GovernanceFinancial StatementsStrategic Report 90 Governance | Directors’ Remuneration Report Inmarsat plc | Annual Report and Accounts 2018 Remuneration Report continued Annual report on remuneration The following section provides details of how Inmarsat’s 2017 Remuneration Policy was implemented during the financial year ended 31 December 2018 and how the Committee intends to implement the new Policy which is subject to shareholder approval at our 2019 AGM. Remuneration Committee membership in 2018 The Committee consists of independent Non-Executive Directors. We had five scheduled meetings during the year to discharge our responsibilities. In 2018, because of the need for preparation and consultation on a new Policy, we have held multiple additional Committee meetings and conference calls. Committee membership and attendance at scheduled meetings are set out in the table below: Committee members Simon Bax (Committee Chairman) Warren Finegold General C. Robert Kehler (Rtd) Pip McCrostie Attendance 5/5 5/5 5/5 1/1 Pip McCrostie was appointed to the Committee in December 2018. Tracy Clarke who joined the Inmarsat plc Board in February 2019 has also been appointed to the Committee. During the year, the Committee operated to a forward agenda which ensured that items were discussed at the appropriate time during the year. In addition to regular standing items, following the high level of shareholder dissent at the AGM the key focus has been on engaging with shareholders to understand their concerns and designing a new policy to be presented to shareholders at the 2019 AGM. This has entailed significant work to design the new policy and its operation for FY19 and discuss this with our institutional shareholders and shareholder representative bodies. Advisors During 2018, the Committee received input from Andrew Sukawaty (Chairman), Rupert Pearce (CEO), Tony Bates (CFO), Alison Horrocks (Chief Corporate Affairs Officer and Company Secretary), Natasha Dillon (Chief People Officer) and Alan Moore (Director of Reward). Dr Abe Peled, the Senior Independent Director, and Sir Bryan Carsberg also attended meetings. No member of management is present at a Committee meeting when their own remuneration arrangements are being discussed. Korn Ferry was appointed by the Committee as its independent advisor in June 2018 following a tendering process. Until Korn Ferry’s appointment the Committee received advice from Mercer Kepler. Both Korn Ferry and Mercer Kepler reported directly to the Committee Chairman and are signatories of the Code of Conduct for Remuneration Consultants (which can be found at remunerationconsultantsgroup.com). Korn Ferry provides other consulting services on leadership development, but this is an entirely separate team independent from the team advising the Committee and the advice to the Committee is therefore considered independent. Mercer Kepler’s parent, the MMC Group, provides only unrelated services to the Company in the areas of pension investment advice and actuarial services to the Trustee to the Inmarsat UK Pension Plan and Mercer Kepler was therefore also considered independent. During 2018, Mercer Kepler’s fees were based on time and materials and in relation to advice to the Committee (excluding VAT and expenses) totalled £20,814 (2017: £49,520). Korn Ferry’s fees were based on time and materials and (excluding VAT and expenses) totalled £150,000. Summary of shareholder voting at the 2017 and 2018 AGM on Remuneration matters At the 2017 Annual General Meeting (‘AGM’), shareholders were asked to approve the current remuneration policy. At the 2018 AGM shareholders were asked to approve the FY17 Annual Report on Remuneration. The votes received for the Policy resolution at the 2017 AGM and the Annual Report on Remuneration at the 2018 AGM and shown below: For (including discretionary) Against Total votes cast (excluding withheld votes) Votes withheld 2018 AGM: Vote on the 2017 Annual Report on Remuneration 2017 AGM: Vote on the Directors’ Remuneration Policy Total number of votes 141,196,411 198,994,463 340,190,874 22,105 % of votes cast 41.51% 58.49% Total number of votes 291,331,925 30,971,298 322,303,223 % of votes cast 90.39% 9.61% n/a 29,263,436 n/a The vote on the Annual Report on Remuneration was defeated at the 2018 AGM. Accordingly, the Company is required to bring its Directors’ Remuneration Policy to shareholders for approval at its 2019 AGM, a year early. Since the 2018 AGM the Committee has conducted a detailed review of its current Directors’ Remuneration Policy as well as the implementation of its Policy. This has included extensive consultation with investors and proxy voting agencies. This exercise has resulted in a new revised policy being brought to shareholders for approval at the 2019 AGM as well as the revision of certain aspects of policy operation for FY18. Further details of the changes made and the new policy are set out in the Remuneration Chairman’s Annual Statement and Policy Section of this Remuneration Report. Inmarsat plc | Annual Report and Accounts 2018 Governance | Directors’ Remuneration Report 91 Total remuneration paid to Executive Directors (audited) The table below sets out the total remuneration received by each Executive Director for the year ended 31 December 2018 and the prior year: Rupert Pearce £000 2018 (before discretion) 2018 (after discretion) Basic salary Taxable benefits1 Pension2 Annual cash bonus3 Bonus Share Award4 Performance Share Award5 Total6 594 2 17 575 1,008 150 2,346 594 2 17 575 415 75 Tony Bates £000 2018 (before discretion) 2018 (after discretion) 487 2 17 495 781 116 487 2 17 495 317 58 2017 583 3 17 478 492 121 2017 477 3 17 422 381 92 1,679 1,694 1,898 1,377 1,392 1 Taxable benefits: include healthcare 2 Pension: payment made by the Company as cash in lieu of pension (see page 95 for details) 3 Annual cash bonus: cash bonus payments in relation to the financial years ended 31 December 2018 and 2017 (see pages 92 to 94 for details) 4 BSA: Shows the value of the BSA shares in relation to financial performance measured during the financial years ended 31 December 2018 and 2017. Performance targets tested over the relevant financial year determine the number of BSA shares that will vest on the relevant vesting dates. For 2017, the value is based on the spot share price on the determination date (being 9 March 2018) of £4.33. The award value has been revised from last year’s report to reflect the actual share price on determination. For 2018, the share price for the award is valued using the average share price over the last quarter of 2018 of £4.43. The mid-market share price at the date of grant on 9 March 2018 was £4.33 5 PSA: the value at vesting of awards where vesting is determined by performance over the three-year periods ended 31 December 2018 and 31 December 2017. For 2017, the 2015 PSA is valued based on the spot share price on the vesting and sale date of £3.492. The award value has been revised from last year’s report to reflect the actual share price on vesting, plus additional shares representing reinvested dividends. For 2018, as the share price on the vesting date is currently unknown, the 2016 PSA is valued using the average share price over the last quarter of 2018 of £4.43 6 The total remuneration figure for FY17 has been restated to reflect the actual value of PSA and BSA awards that vested in respect of FY17 performance (rather than basing this on the closing three month average share price for FY17). As the share price reduced significantly between the FY17 year end and the actual date of vesting, the total remuneration actually received by executive directors was significantly lower than the total single figure shown in last year’s Directors’ Remuneration Report by £181,000 and £140,000 for the CEO and CFO respectively Incentive outcomes for the year ended 31 December 2018 (audited) Annual cash bonus in respect of 2018 performance The annual cash bonus was based on the achievement of Group financial targets for 70% of the bonus and individual performance objectives for the remaining 30%. The financial performance targets (70%) were split as to Group revenue 33% and EBITDA 67%. Performance against targets and resulting bonus payable is set out below: Financial performance measure EBITDA Revenue Total Performance targets Threshold ($m) 0% of max payable 673.3 1,293.6 Target ($m) 60% of max payable 748.1 1,437.3 Weighting (% of financial element) 67% 33% 100% Stretch ($m) 785.5 1,509.2 Actual performance ($m) 770 1,465 Actual bonus outcome (% of financial element) 83.8% 75.6% 81.1% The individual performance objectives for the Executive Directors and scoring are set out below: Rupert Pearce Objectives Weighting Achievements towards objectives/performance targets set at the start of the year Capture maximum number of broadband platforms Reposition L-band for new growth 40% 25% Establish our digital platform and business 10% Create high performance organisation 10% Transform our operating environment 15% Total score out of 30% Good progress on Maritime and aviation installation targets Partial achievement of Maritime targets Good delivery against Aviation, USG and Enterprise objectives A miss on Maritime objectives but good progress made on other digital products with a solid pipeline generated Objective of delivering new operating model for ABU partially completed Excellent progress against People objectives Successful merger of IG and USG business units Successful delivery of major IT project on Billing systems and Customer Excellence Programme Scoring overall (as a % of maximum) 9% (out of 12%) 5% (out of 7.5%) 1% (out of 3%) 2.5% (out of 3%) 3.5% (out of 4.5%) 21% GovernanceFinancial StatementsStrategic Report 92 Governance | Directors’ Remuneration Report Inmarsat plc | Annual Report and Accounts 2018 Remuneration Report continued Tony Bates Objectives Add value to the bottom line Transform the Finance operating environment Create a high performing Finance function Total score out of 30 Weighting Achievements towards objectives/performance (as % of maximum) 50% 40% 10% Significant overachievement against Cost Savings targets Delivered scheduled BTP releases (but at a higher cost than estimated) and Atlas roll-out Much more robust Long Range Business Plan Strengthened senior finance team and processes Scoring overall 14% (out of 15%) 8% (out of 12%) 2.5% (out of 3%) 24.5% The calculation of cash bonus outcome is set out below: Financial element Individual objectives Total Executive Director Rupert Pearce Tony Bates Maximum bonus (% salary) Actual bonus (% salary) Weighting 70% 30% 100% Actual bonus outcome (% of maximum) 81.1% CEO 70% CFO 82% CEO 77.5% CFO 81.3% 87.5% 37.5% 125% 70.1% CEO 26.3% CFO 30.1% CEO 96.8% CFO 101.7% Actual bonus £ 575,266 495,000 Salary £ 594,000 487,000 Actual 2018 bonus (% of salary) 96.8% 101.7% BSA in respect of 2018 performance The number of conditional shares subject to the 2018 BSA award made on 12 March 2018 at a share price of £4.327 that will be confirmed in March 2019 is determined by financial performance during FY18 as set out below. 2018 is the final year in which the Executive Directors will participate in an award under the BSA. Performance measure EBITDA Revenue Total Performance targets Threshold ($m) 60% of award vests 673.3 1,293.6 Target ($m) 80% of award vests 748.1 1,437.3 Weighting (% of financial element) 67% 33% 100% Stretch ($m) 785.5 1,509.2 Actual performance ($m) 770 1,465 Actual BSA outcome (% of element) before application of discretion Actual BSA outcome following application of discretion 91.9% 87.8% 90.5% 37.3% (CEO) 36.7% (CFO Based on performance, although before discretion 90.5% of the original allocation of shares made in March 2018 would have been confirmed, after discretion by the Committee, a reduced number will be confirmed in March 2019 and vest in equal tranches in March 2020, 2021 and 2022. The table below shows the confirmation of the number of shares awarded for the 2018 BSA and an estimate of the value of the shares that will vest. Executive Director Rupert Pearce Tony Bates Maximum monetary award £1,088,910 £843,850 Market value of a share on award (9 March 2018) £4.33 £4.33 Number of shares awarded in March 2018 251,655 195,020 Vesting level based on performance for year ended 31 December 2018 90.5% 90.5% Value of shares that will vest before application of discretion* £1,008,082 £781,213 Value of shares that will vest following application of discretion* Confirmed number of shares based on vesting percentage after discretion £414,997 £316,961 93,756 71,608 * Value of BSA at the time the number of shares is confirmed is calculated using a rounded share price of £4.43 (three month average to 31 December 2018) as the actual share price will only be known in March 2019 Inmarsat plc | Annual Report and Accounts 2018 Governance | Directors’ Remuneration Report 93 2016 PSA award in respect of performance over the three years ending 2018 In 2016, the CEO and CFO received awards of conditional shares under the PSA, for which the performance period ended on 31 December 2018 with vesting and performance against the performance conditions as set out below: Executive Director Date of grant Award as % of salary Number of shares subject to Award (2016) Market price of a share at date of award Face value at grant of award (2016) Value of shares on vesting before application of discretion* Value of shares following application of discretion* Number of shares Vesting Vesting date Rupert Pearce 23 March 2016 Tony Bates 23 March 2016 185% 175% 112,564 87,241 £9.30 £9.30 £1,046,845 £149,473 £74,737 16,884 23 March 2019 £811,341 £115,845 £57,950 13,092 23 March 2019 * Value of the PSA at vesting is calculated using a rounded share price of £4.43 (three month average to 31 December 2018) as the actual share price will only be known in March 2019. The number of shares vesting will have additional shares in lieu of accrued dividends added to this number Performance measure Three-year TSR vs. FTSE 50-150 (excluding investment trusts) Weighting (% of maximum) 30% Performance target Below median: nil vesting Median: 30% vesting Upper quartile: 100% vesting Actual performance Actual vesting outcome 89 out of 93 0% (out of 30%) (straight-line vesting applies between median and upper quartile) Three-year EBITDA growth p.a. (excluding Ligado) 30% Less than 5%: 0% vesting 11%: 100% vesting 0.16% p.a. 0% (out of 30%) Strategic objectives Total vesting outcome (straight-line vesting applies between 5% and 11%) 40% The strategic objectives and performance against them are noted below See below 30%1 (out of 40%) 30%1 of total award 1 The 30% out of 40% assessment for the Strategic Element of the PSA has been reduced by the Committee to 15% out of 40%, after considering the broader performance (financial and TSR) over the three-year performance period. This results in a total vesting outcome of 15% of the total award Details of performance against the strategic objectives: Strategic objectives Weighting Achievements towards objectives/performance Complete successful market entry for next generation of Inmarsat satellites 40% 1. Successful satellite launch of GX-4 2. Required run rate of GX revenue targets achieved by H2 2018 and on track to achieve Put in place all key building blocks of Aviation business case (to support material revenues forecast for beyond 2017) 10% 5 year goal of $500m 3. Successful conversion of XL into GX Maritime by H2 2019 4. Successful foray into Energy/resources markets 5. Successful extension into broader Government and milsatcoms markets including delivery of Boeing Take or Pay agreement 6. Successful extension into selected Enterprise markets 7. Successful extension into global Air Passenger market 1. Deliver S-band satellite on time and to budget for launch no later than H1 2017 2. Deliver ACGC network and on-board equipment for first revenues in 2017 3. Secure spectrum via 25+ MSS licences no later than H2 2017 4. Secure opportunity by 28+ ACGC licences no later than end 2017 5. Secure airline wins/strategic channel/technology partners for future revenue ramp 6. Run rate of European revenues/installations through EAN on track to deliver set targets Aggressively work to sustain L-band revenues despite GX migration, on-going US sequestration and increasing competition To maximise the overall net contribution of Ligado to Inmarsat Remuneration Committee overall assessment of performance 30% 1. Level of L-band revenues in 2018 vs. 2015 2. Level of new revenues from key replacement revenue product programmes, for example : IsatPhone, IsatHub, IDP, SB200, Fleet One, BRM/RFIC productisation and L-TAC 3. Success in key globalisation programmes – through Global Government outreach, greater focus on India, China market opportunities and channel evolution 20% To maximise the overall net contribution of Ligado to Inmarsat Scoring 100% 60% 100% 50% 80% 0% 90% 100% 80% 100% 90% 100% 20% 70% 50% 100% 100% 75% out of 100% (30% out of 40%) before application of discretion GovernanceFinancial StatementsStrategic Report 94 Governance | Directors’ Remuneration Report Inmarsat plc | Annual Report and Accounts 2018 Remuneration Report continued Additional disclosure of 2017 performance targets (audited) Annual cash bonus in respect of 2017 performance Last year, the Company committed to disclose the 2017 bonus financial targets in this year’s Annual Report on Remuneration. The targets and actual performance against them are set out below. In future the Annual Report on Remuneration will disclose performance targets for the annual bonus and performance against them for the reporting year just ended. Performance measure EBITDA Revenue Total Performance targets for 2017 Financial Year Weighting (% of financial element) Threshold ($m) 0% of max payable Target ($m) 60% of max payable 67% 33% 100% 620 1,252 730 1,391 Stretch ($m) 803 1,461 Actual performance ($m) 732 1,400 Actual bonus outcome (% of financial element) 65.1% 61.1% 62.8% Costs in respect of workforce reduction were not budgeted for at the start of 2017 and therefore not taken into account in target setting but were included in the EBITDA outturn for calculation of bonus purposes. The calculation of the cash bonus outcome which was paid in March 2018 is set out below: Financial element Individual objectives Total Weighting 70% 30% 100% Actual bonus outcome (% of maximum for each element) 62.8% CEO 73.3% CFO 90.0% CEO 65.7% CFO 70.7% Maximum bonus (% salary) Actual bonus (% salary) 87.5% 37.5% 125% 54.95% CEO 27.49% CFO 33.75% CEO 82.5% CFO 88.7% Individual objectives and performance against them was disclosed in last year’s Annual Report on Remuneration. Executive Director Rupert Pearce Tony Bates BSA in respect of 2017 performance The 2017 BSA targets and actual performance against them are set out below: Salary £ in 2017 530,818 477,485 Actual bonus (% of salary) Actual bonus £ 82.5% 88.7% 478,000 422,000 Performance measure EBITDA Revenue Total Performance targets Threshold ($m) 60% of max payable Target ($m) 80% of max payable 620 1,252 730 1,391 Weighting (% of financial element) 67% 33% 100% Stretch ($m) 803 1,461 Actual performance ($m) Actual bonus outcome (% of element) 732 1,400 82.6% 80.5% 81.22% Costs in respect of workforce reduction were not budgeted for at the start of 2017 and therefore not taken into account in target setting but were included in the EBITDA outturn for calculation of bonus purposes. Executive Director Rupert Pearce Tony Bates Maximum monetary award £1,068,187 £827,890 Market value of a share on award (9 March 2017) £7.62 £7.62 Number of shares awarded in March 2017 140,182 108,647 Vesting level based on performance for year ended 31 December 2017 Confirmed number of shares based on vesting percentage 81% 81% 113,779 88,183 Value of shares that vested on 9 March 2018 (date of determination) at £4.33 £492,663 £381,832 Inmarsat plc | Annual Report and Accounts 2018 Governance | Directors’ Remuneration Report 95 Scheme interests awarded in 2018 (audited) 2018 PSA award in respect of performance over the period 2018 – 2020 In March 2018, the Executive Directors received PSA share awards which will vest on the third anniversary of grant subject to performance over the three years to 31 December 2020. At vesting, shares can be sold to cover the tax liability due and the balance must be retained for a further period of two years. Executive Director Rupert Pearce Tony Bates Date of grant 12 March 2018 12 March 2018 Number of shares subject to Award 251,655 195,020 Market price of a share at date of award Face value at date of award Award as % of salary Vesting date £4.33 £4.33 £1,088,910 £843,850 185% 175% 12 March 2021 12 March 2021 Vesting of the awards is determined by the following performance targets: Performance measure Three-year TSR vs. FTSE 50-150 (excluding investment trusts) Weighting (% of maximum) 30% Performance target Below median: nil vesting Median: 30% vesting Upper quartile: 100% vesting Three-year EBITDA growth p.a. (excluding Ligado) Strategic objectives 30% 40% (straight-line vesting applies between median and upper quartile) Less than 3%: nil vesting 3%: 0% vesting 7%: 100% vesting (straight-line vesting applies between 3% and 7%) The strategic objectives are: › capture the maximum number of broadband platforms for our high-speed GX services and EAN aviation service › reposition L-band for new growth by focusing on additional targeted market opportunities › establish our digital platform and business to drive new services and product innovation › transform our operating environment to be more efficient in service delivery for customers and efficiency for all stakeholders › maximise the overall contribution from an ongoing key strategic contract › create a high-performance organisation which enhances our employee value proposition and encourages a high-performance culture The objectives will be disclosed in detail at the end of the three-year performance period. They will be reassessed separately for performance against each objective. In 2017, the Executive Directors received a PSA award for the period 2017 – 2019 which will vest in March 2020 subject to performance conditions being met with the requirement to retain a net number after tax of the resulting shares for a further two years. The strategic objectives for the 2017 PSA are shown below. The other performance measures are EBITDA growth and TSR performance. Full details of performance against all measures will be provided in the 2019 Annual Report. Strategic objectives 40% The strategic objectives are: › Global Xpress: complete successful market entry to satellite broadband market through the next generations of Inmarsat satellites › Aviation: put in place all key building blocks of the aviation business case (to support material revenues forecast over the LRBP period) › L-band: work assiduously to sustain L-band revenues despite L-band migration and both ongoing tight budgets and strong competition in all markets › Strategic contract: maximise the overall net contribution of the contract to Inmarsat The objectives will be disclosed in detail at the end of the three-year performance period. They will be assessed separately for performance against each objective. Pension (audited) The current employer contribution to the pension scheme (subject to the cap of £153,600 for the 2017/18 tax year and £160,200 for the 2018/19 tax year) is 12.5% of capped salary. The capped salary level increases nominally each year. Mr Pearce and Mr Bates receive a cash supplement of 12.5% of capped salary. This amount is reduced by the cost to the Company of the employer national insurance, the effect of which is that the Executive Directors receive an equivalent 11% of capped salary, or approximately 3% of their gross salary. Executive Director Rupert Pearce Tony Bates Pension value £17,000 paid in 2018 £17,000 paid in 2018 GovernanceFinancial StatementsStrategic Report 96 Governance | Directors’ Remuneration Report Inmarsat plc | Annual Report and Accounts 2018 Remuneration Report continued Fees paid to Non-Executive Directors (audited) The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the year ended 31 December 2018 and the prior year: Andrew Sukawaty2 Simon Bax Sir Bryan Carsberg Warren Finegold General C. Robert Kehler (Rtd)3 Phillipa McCrostie4 Janice Obuchowski Dr Abe Peled Robert Ruijter Dr Hamadoun Touré Total Base fee £000 Additional fees £000 Taxable benefits £0001 Total £000 2018 318.8 55.6 55.6 55.6 111.2 55.6 55.6 55.6 55.6 55.6 2017 312.6 54.5 54.5 23.0 109.1 54.5 54.5 54.5 54.5 54.5 874.8 826.4 2018 0.0 15.3 10.3 11.2 6.5 6.1 11.2 31.0 15.3 11.2 118.1 2017 0.0 15.2 16.7 4.7 5.5 5.5 11.1 30.3 15.2 11.1 115.3 2018 19.1 0.0 0.9 0.0 0.0 1.7 0.0 0.0 0.0 0.0 2017 18.0 0.4 1.1 0.1 0.0 1.9 0.0 0.0 0.0 0.0 2018 337.9 70.9 66.8 66.8 117.7 63.4 66.8 86.6 70.9 66.8 2017 330.6 70.1 72.3 27.7 114.6 62.0 65.6 84.8 69.7 65.6 21.7 21.5 1014.6 963.2 1 The taxable benefits received by the Non-Executive Directors were associated with accommodation costs incurred with attendance at two-day Board meetings. The tax due in respect of these benefits is settled by the Company. The Company also reimburses the travel costs incurred by the Non-Executive Directors for travel to Board meetings where these do not take place in the country in which they are domiciled. The figures shown in the table are gross amounts 2 Mr Sukawaty receives healthcare cover 3 The fees for General C. Robert Kehler (Rtd) include a fee of £55,631 as a Non-Executive Director of Inmarsat Inc, a wholly-owned subsidiary in the U.S. and additionally includes a fee for joining the Nominations Committee in November 2018 4 Mrs McCrostie joined the Remuneration Committee in December 2018 and is entitled to a fee for participating in this Committee Exit payments to departing Directors made in the year (audited) There were no exit payments made in 2018. Payments to past Directors (audited) No payments were made to past Directors in 2018. External appointments for Executive Directors The Executive Directors do not currently hold positions in other companies as Non-Executive Directors. Mr Pearce holds various positions in organisations affiliated to the satellite industry which are disclosed in his biography on page 62; none are currently fee-paying. Implementation of remuneration policy for 2019 Base salary Salaries are typically reviewed annually in July for the Executive Directors and the general workforce. The Committee conducted its 2018 salary review in July 2018 and approved an increase of 2% for both the CEO and the CFO. This is consistent with the increase across the Executive Management Team and is below the average salary increase across the Group of 2.4% and across eligible UK employees of 2.7%. Salaries will next be reviewed in July 2019, which is the same time for the general workforce. The table below shows the Executive Directors’ salaries as at July 2017 and July 2018. Executive Director Rupert Pearce Tony Bates Salary at 1 July 2017 £588,600 £482,200 % change 2% 2% Salary at 1 July 2018 £600,400 £491,800 Pension Pension contribution will be unchanged at approximately £17,000 for each Executive Director. Annual bonus The maximum annual bonus opportunity for Executive Directors will be 200% of salary for each of the CEO and CFO. The performance measures and weightings are set out below. Measure EBITDA Revenue growth Individual strategic measures Weighting 50% 30% 20% (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:39)irectors’ (cid:53)em(cid:88)neration (cid:53)eport 97 (cid:53)even(cid:88)e and (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) are si(cid:74)nificant operational (cid:46)(cid:51)(cid:44)s for the (cid:69)(cid:88)siness and stretchin(cid:74) slidin(cid:74) scale tar(cid:74)ets have (cid:69)een set for (cid:69)oth meas(cid:88)res(cid:17) (cid:55)he individ(cid:88)al o(cid:69)(cid:77)ectives for the C(cid:40)O and CFO will (cid:69)e (cid:69)ased on the followin(cid:74)(cid:29) Rupert Pearce Objectives (cid:48)aritime (cid:74)rowth (cid:36)viation (cid:74)rowth (cid:55)echnolo(cid:74)y advancement (cid:54)trate(cid:74)ic activity Tony Bates Objectives Weighting Basis for assessment at the year end 30(cid:8) 30(cid:8) 2(cid:24)(cid:8) 1(cid:24)(cid:8) (cid:48)aritime reven(cid:88)e(cid:15) vessel installations and c(cid:88)stomer retention (cid:49)(cid:88)m(cid:69)er of aircraft installed and in(cid:16)fli(cid:74)ht connectivity reven(cid:88)e (cid:39)elivery of (cid:78)ey technolo(cid:74)y pro(cid:77)ects in line with approved (cid:69)(cid:88)siness plans (cid:48)ana(cid:74)ement of (cid:78)ey strate(cid:74)ic ris(cid:78)s Weighting Basis for assessment at the year end (cid:51)roc(cid:88)rement cost savin(cid:74)s 30(cid:8) Cost savin(cid:74)s for 201(cid:28) vs(cid:17) previo(cid:88)s years (cid:40)(cid:91)ec(cid:88)tion of Corporate Financin(cid:74) initiatives 30(cid:8) (cid:36)chievement of (cid:37)oard a(cid:74)reed corporate financin(cid:74) (cid:74)oals Commercial architect(cid:88)re rollo(cid:88)t (cid:58)or(cid:78)in(cid:74) capital improvements 2(cid:24)(cid:8) 1(cid:24)(cid:8) (cid:54)(cid:88)ccessf(cid:88)l delivery of (cid:78)ey finance systems (cid:53)ed(cid:88)ction in wor(cid:78)in(cid:74) capital at year end vs(cid:17) 201(cid:28) (cid:69)(cid:88)d(cid:74)et (cid:24)0(cid:8) of the (cid:69)on(cid:88)s is paid in cash and (cid:24)0(cid:8) will (cid:69)e (cid:88)sed (cid:69)y the (cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors to ac(cid:84)(cid:88)ire shares in the Company that m(cid:88)st (cid:69)e held as to one(cid:16)third for a f(cid:88)rther one(cid:15) two and three years(cid:17) (cid:55)he shares are owned (cid:69)eneficially (cid:69)(cid:88)t cannot (cid:69)e sold (cid:69)efore the end of the holdin(cid:74) period(cid:30) they will also remain s(cid:88)(cid:69)(cid:77)ect to claw(cid:69)ac(cid:78)(cid:17) PSA award (cid:36) (cid:51)(cid:54)(cid:36) award will (cid:69)e (cid:74)ranted immediately after the (cid:48)ay 201(cid:28) (cid:36)(cid:42)(cid:48) (cid:88)sin(cid:74) the then share price(cid:17) (cid:55)he award will (cid:69)e made in (cid:48)ay 201(cid:28) as it is part of the new rem(cid:88)neration policy(cid:17) (cid:55)he level of award will (cid:69)e 2(cid:24)0(cid:8) of salary for the C(cid:40)O and CFO(cid:17) (cid:51)erformance conditions will (cid:69)e meas(cid:88)red over the three years to 31 (cid:39)ecem(cid:69)er 2021 and awards will vest after the anno(cid:88)ncement of res(cid:88)lts for the year ended 31 (cid:39)ecem(cid:69)er 2021(cid:17) (cid:36) mandatory two(cid:16)year holdin(cid:74) period applies to vested (cid:51)(cid:54)(cid:36) awards(cid:17) (cid:49)o shares may (cid:69)e sold d(cid:88)rin(cid:74) the holdin(cid:74) period e(cid:91)cept to cover ta(cid:91) lia(cid:69)ilities(cid:17) (cid:55)he performance conditions are as follows(cid:29) Performance measure (cid:55)hree(cid:16)year (cid:55)(cid:54)(cid:53) vs(cid:17) F(cid:55)(cid:54)(cid:40) 2(cid:24)0 (cid:11)e(cid:91)cl(cid:88)din(cid:74) investment tr(cid:88)sts(cid:12) Weighting (% of maximum) (cid:24)0(cid:8) (cid:36)(cid:74)(cid:74)re(cid:74)ate free cash flow1 2(cid:24)(cid:8) (cid:54)trate(cid:74)ic O(cid:69)(cid:77)ectives2 2(cid:24)(cid:8) (cid:69)ro(cid:78)en down (cid:69)elow Performance target Below median: nil vestin(cid:74) Median: 2(cid:24)(cid:8) vestin(cid:74) Upper quartile: 100(cid:8) vestin(cid:74) (cid:11)strai(cid:74)ht(cid:16)line vestin(cid:74) applies (cid:69)etween median and (cid:88)pper (cid:84)(cid:88)artile(cid:12) Less than -$50m: nil vestin(cid:74) -$50m: 2(cid:24)(cid:8) vestin(cid:74) $150m: 100(cid:8) vestin(cid:74) (cid:11)strai(cid:74)ht(cid:16)line vestin(cid:74) applies (cid:69)etween (cid:16)(cid:7)(cid:24)0m and (cid:7)1(cid:24)0m(cid:12) (cid:48)aritime (cid:74)rowth(cid:29) (cid:39)elivery of a mar(cid:78)et(cid:16) leadin(cid:74)(cid:15) profita(cid:69)le maritime (cid:69)road(cid:69)and service and sec(cid:88)rin(cid:74) o(cid:88)r le(cid:74)acy Fleet(cid:37)road(cid:69)and c(cid:88)stomer (cid:69)ase (cid:36)viation (cid:74)rowth(cid:29) (cid:39)elivery of a mar(cid:78)et(cid:16)leadin(cid:74)(cid:15) profita(cid:69)le aviation (cid:69)road(cid:69)and (cid:69)(cid:88)siness (cid:44)nfrastr(cid:88)ct(cid:88)re development and deployment(cid:29) (cid:55)ransformation of o(cid:88)r (cid:74)lo(cid:69)al networ(cid:78) infrastr(cid:88)ct(cid:88)re 3(cid:24)(cid:8) (cid:55)he n(cid:88)m(cid:69)er of vessels installed(cid:15) reven(cid:88)e and the (cid:48)aritime (cid:69)(cid:88)siness (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) 3(cid:24)(cid:8) 30(cid:8) (cid:55)he n(cid:88)m(cid:69)er of aircraft installed(cid:15) reven(cid:88)e and (cid:36)viation (cid:37)(cid:56) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) (cid:54)(cid:88)ccessf(cid:88)l la(cid:88)nch of satellites and development of f(cid:88)t(cid:88)re technolo(cid:74)ies (cid:44)n line with past practice all financial performance meas(cid:88)res (cid:88)sed for the (cid:51)(cid:54)(cid:36) e(cid:91)cl(cid:88)de the financial contri(cid:69)(cid:88)tion from the contract si(cid:74)ned in 200(cid:26) with (cid:47)i(cid:74)ado (cid:49)etwor(cid:78)s(cid:17) 1 Free cash flow performance will (cid:69)e disclosed in the financial statements each year(cid:17) (cid:55)he tar(cid:74)et ran(cid:74)e reco(cid:74)nises that we are in an investment phase of o(cid:88)r strate(cid:74)y(cid:15) as already comm(cid:88)nicated to investors and the mar(cid:78)et(cid:17) (cid:55)ar(cid:74)ets have (cid:69)een set(cid:15) and performance will (cid:69)e meas(cid:88)red(cid:15) e(cid:91)cl(cid:88)din(cid:74) only the o(cid:88)tcome of a lon(cid:74) o(cid:88)tstandin(cid:74) ta(cid:91) matter that is also disclosed separately in the Company’s financial statements(cid:17) Overall the Committee is satisfied that the ran(cid:74)e is appropriately stretchin(cid:74) in view of the o(cid:88)tloo(cid:78) for the (cid:69)(cid:88)siness 2 (cid:36)side from financial meas(cid:88)res o(cid:88)r lon(cid:74)(cid:16)term strate(cid:74)y means that(cid:15) more so than most other companies(cid:15) we m(cid:88)st ma(cid:78)e (cid:78)ey strate(cid:74)ic decisions for the lon(cid:74)(cid:16)term interests of o(cid:88)r shareholders and all sta(cid:78)eholders(cid:17) (cid:55)his means we consider that it is important to assess a proportion of (cid:51)(cid:54)(cid:36) awards a(cid:74)ainst the strate(cid:74)ic milestones which contri(cid:69)(cid:88)te towards the achievement of o(cid:88)r lon(cid:74)(cid:16)term (cid:74)oals i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 98 Governance | Directors’ Remuneration Report Inmarsat plc | Annual Report and Accounts 2018 Remuneration Report continued Non-Executive Directors’ fees The current NED fee levels are set out in the table below. Fees were reviewed during the year in the context of market fee levels and time commitment, and increased by 2% with effect from July 2018. NED fees as at 31 December 2018 Basic fee Senior Independent Director (inclusive of any additional Committee fees) Non-Executive Chairman (inclusive of any additional Committee fees) Additional Committee fees: Chairman of the Audit Committee Chairman of the Remuneration Committee Chairman of the Nominations Committee Chairman of the Telecoms Regulatory Committee Committee membership (per Committee) Amount £56,182 £87,190 £322,004 £15,300 £15,300 £10,200 £10,200 £5,610 Fees will next be reviewed in July 2019 and any increases will be for the decision of the Board, excluding the Non-Executive Directors. The Chairman also receives international healthcare cover (£19,077 in 2018). Total shareholder return The following graph shows the Company’s performance over the last ten years, measured by total shareholder return on a holding in the Company’s shares compared to a hypothetical holding of shares in the FTSE 350 index (excluding investment trusts). The FTSE 350 index has been selected as it provides a view of our performance against a broad equity market index, and Inmarsat is a constituent of the index. TOTAL SHAREHOLDER RETURN 400 300 200 100 0 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Inmarsat FTSE 350 xIT CEO ten-year remuneration history (audited) The table below details the Chief Executive’s total remuneration and actual variable pay outcomes over the same ten-year period. For the years 2009-2011, the Executive Chairman and Chief Executive (Andrew Sukawaty (‘AS’)) was the same individual reflecting a salary for the combined role. Rupert Pearce (‘RP’) became Chief Executive on 1 January 2012. Year ended 31 Dec 2009 31 Dec 2010 31 Dec 2011 31 Dec 2012 31 Dec 2013 31 Dec 2014 31 Dec 2015 31 Dec 2016 31 Dec 2017 31 Dec 2018 Single figure of total remuneration1 (£000) Annual bonus outcome (% of maximum) BSP/BSA conversion (% of maximum) AS RP AS RP AS RP PSP/PSA award vesting (% of maximum) AS RP 2,218 – 98% – 100% – 100% – 3,661 – 100% – 100% – 100% – 2,819 – 84% – 98% – Nil – 3,8502 1,596 2,5112 1,434 4,4272 2,595 – – 2,579 2,346 – 91% – 100% – Nil – 83% – 73% – Nil – 96% – 100% – 54% – 72% – 100% – 50% – 71%3 – 100% – 48% – 1,694 – 65% – 81%4 – 30% 1,679 77.5% 37.3%5 15%5 1 See page 91 for detail of the single figure of total remuneration for 2018 and 2017 2 We are only required to show the single figure for each year for the Chief Executive. However, because Mr Sukawaty was the highest paid Director as Executive Chairman in 2012, 2013 and 2014, we have also shown his single figure in this table for information 3 Formulaic bonus outcome prior to application of voluntary reduction 4 BSA payout calculated on a new basis where 80% is paid for target performance 5 Following application of discretion to reduce the level of remuneration paid (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:39)irectors’ (cid:53)em(cid:88)neration (cid:53)eport 99 Percentage change in CEO remuneration (cid:55)he data for other employees relates to the avera(cid:74)e pay across staff (cid:69)ased in the (cid:56)(cid:46)(cid:15) which is deemed to (cid:69)e the most appropriate employee (cid:74)ro(cid:88)p(cid:17) (cid:55)he data is (cid:69)ased on all (cid:44)nmarsat (cid:56)(cid:46) employees(cid:15) incl(cid:88)din(cid:74) (cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors (cid:11)apart from the C(cid:40)O(cid:12) and the senior mana(cid:74)ement team(cid:17) Change in remuneration from 2017 to 2018 (cid:54)alary1 (cid:55)a(cid:91)a(cid:69)le (cid:69)enefits2 (cid:54)hort(cid:16)term incentives3 CEO Other UK employees5 2018 £000 594 2.0 990 2017 £000 (cid:24)83 2(cid:17)0 (cid:28)(cid:26)04 % change % change 1(cid:17)(cid:28) 0(cid:17)0 2(cid:17)1 3(cid:17)0 0(cid:17)0 1(cid:28)(cid:17)6 1 (cid:55)he C(cid:40)O’s salaries shown relate to the avera(cid:74)e salaries paid in respect of each of the financial years 2 (cid:55)a(cid:91)a(cid:69)le (cid:69)enefits incl(cid:88)de healthcare (cid:69)enefits 3 (cid:53)epresents the ann(cid:88)al (cid:69)on(cid:88)s payment for the financial year (cid:77)(cid:88)st ended pl(cid:88)s the val(cid:88)e of (cid:37)(cid:54)(cid:36) shares as set o(cid:88)t in the sin(cid:74)le fi(cid:74)(cid:88)re ta(cid:69)le on pa(cid:74)e (cid:28)1(cid:17) (cid:55)he (cid:37)(cid:54)(cid:36) fi(cid:74)(cid:88)re (cid:88)sed is that after discretion has (cid:69)een applied (cid:23) (cid:55)he 201(cid:26) fi(cid:74)(cid:88)res are restated for act(cid:88)al share price as shown on pa(cid:74)e (cid:28)1 (cid:24) (cid:55)he n(cid:88)m(cid:69)er of employees is (cid:69)ased on those who were in employment for the whole year Gender pay (cid:36) copy of the Company’s report on (cid:42)ender (cid:51)ay is incl(cid:88)ded on o(cid:88)r we(cid:69)site and we have provided some comments in the (cid:53)eso(cid:88)rces and (cid:53)elationships section of this (cid:36)nn(cid:88)al (cid:53)eport on pa(cid:74)e (cid:24)1(cid:17) CEO pay ratio (cid:55)he Companies (cid:11)(cid:48)iscellaneo(cid:88)s (cid:53)eportin(cid:74)(cid:12) (cid:53)e(cid:74)(cid:88)lations 2018 (cid:36)ct re(cid:84)(cid:88)ires all (cid:56)(cid:46) listed firms with more than 2(cid:24)0 employees to p(cid:88)(cid:69)lish(cid:15) as part of their (cid:39)irectors’ (cid:53)em(cid:88)neration (cid:53)eport(cid:15) the ratio of their C(cid:40)O’s total rem(cid:88)neration to the median (cid:11)(cid:24)0th(cid:12)(cid:15) 2(cid:24)th(cid:15) and (cid:26)(cid:24)th percentile rem(cid:88)neration of their (cid:56)(cid:46) employees(cid:17) (cid:55)he ta(cid:69)le (cid:69)elow shows the relevant data for (cid:44)nmarsat’s (cid:56)(cid:46) employees for (cid:69)oth 201(cid:26) and 2018(cid:15) calc(cid:88)lated (cid:88)sin(cid:74) Option (cid:36) as set o(cid:88)t in the le(cid:74)islation(cid:17) Year 201(cid:26) 2018 Methodology 25th percentile Median 75th percentile A A (cid:100)(cid:24)1(cid:15)10(cid:26) (cid:100)(cid:24)1(cid:15)30(cid:26) (cid:100)(cid:26)6(cid:15)386 (cid:100)(cid:26)(cid:28)(cid:15)828 (cid:100)103(cid:15)(cid:24)8(cid:28) (cid:100)108(cid:15)(cid:28)(cid:24)(cid:26) (cid:55)he ta(cid:69)le (cid:69)elow shows the C(cid:40)O sin(cid:74)le total fi(cid:74)(cid:88)re of rem(cid:88)neration for F(cid:60)201(cid:26) and F(cid:60)2018 e(cid:91)pressed as a ratio of the (cid:56)(cid:46) employee val(cid:88)es(cid:17) Year 201(cid:26) 2018 Method Option A Option A 25th Percentile Pay Ratio Median Pay Ratio 75th Percentile Pay Ratio 33(cid:29)1 33(cid:29)1 22(cid:29)1 21(cid:29)1 16(cid:29)1 1(cid:24)(cid:29)1 (cid:55)he C(cid:40)O pay ratio is hi(cid:74)hly infl(cid:88)enced (cid:69)y the mi(cid:91) of fi(cid:91)ed and performance(cid:16)related compensation(cid:15) (cid:69)oth for employees and for the C(cid:40)O(cid:17) For (cid:44)nmarsat’s (cid:56)(cid:46) employees(cid:15) the val(cid:88)e of performance(cid:16)related rem(cid:88)neration typically represents less than 1(cid:24)(cid:8) of total rem(cid:88)neration(cid:17) (cid:44)n contrast(cid:15) nearly 66(cid:8) of the C(cid:40)O (cid:54)in(cid:74)le (cid:55)otal Fi(cid:74)(cid:88)re of (cid:53)em(cid:88)neration is the res(cid:88)lt of performance(cid:16)related pay (cid:11)(cid:69)oth short term and lon(cid:74) term(cid:12)(cid:15) with a lar(cid:74)e percenta(cid:74)e of total rem(cid:88)neration delivered in (cid:44)nmarsat shares(cid:17) Relative importance of spend on pay (cid:55)o assist in (cid:88)nderstandin(cid:74) the relative importance of spend on pay(cid:15) we show (cid:69)elow rem(cid:88)neration for all employees in comparison to distri(cid:69)(cid:88)tions to shareholders (cid:11)dividends(cid:12) and other si(cid:74)nificant spend(cid:17) Capital e(cid:91)pendit(cid:88)re has (cid:69)een presented as a meas(cid:88)re of si(cid:74)nificant spend as it shows the investment (cid:69)ein(cid:74) made in the Company’s f(cid:88)t(cid:88)re (cid:74)rowth(cid:17) RELATIVE IMPORTANCE OF SPEND ON PAY (cid:7)m Total employee pay Dividends Cash capital expenditure 2018 *Restated 2017 $301.4m $312.9m $91.9m $249.8m $590.7m $614.1m* i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 100 (cid:42)overnance (cid:95) (cid:39)irectors’ (cid:53)em(cid:88)neration (cid:53)eport (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Remuneration Report contin(cid:88)ed Directors’ shareholding (audited) (cid:55)he ta(cid:69)le (cid:69)elow shows the shareholdin(cid:74) of each (cid:39)irector a(cid:74)ainst their respective shareholdin(cid:74) re(cid:84)(cid:88)irement as at 31 (cid:39)ecem(cid:69)er 2018 (cid:69)ased on a share price of (cid:100)3(cid:17)(cid:26)(cid:28) as at 31 (cid:39)ecem(cid:69)er 2018(cid:29) (cid:53)(cid:88)pert (cid:51)earce (cid:55)ony (cid:37)ates (cid:36)ndrew (cid:54)(cid:88)(cid:78)awaty (cid:54)imon (cid:37)a(cid:91) (cid:54)ir (cid:37)ryan Cars(cid:69)er(cid:74) (cid:58)arren Fine(cid:74)old (cid:42)eneral C(cid:17) (cid:53)o(cid:69)ert (cid:46)ehler (cid:11)(cid:53)td(cid:12) (cid:51)hillipa (cid:48)cCrostie (cid:45)anice O(cid:69)(cid:88)chows(cid:78)i (cid:39)r (cid:36)(cid:69)e (cid:51)eled5 (cid:53)o(cid:69)ert (cid:53)(cid:88)i(cid:77)ter (cid:39)r (cid:43)amado(cid:88)n (cid:55)o(cid:88)r(cid:184) Shares held as at 31 Dec 2017 Shares held as at 31 Dec 2018 Unvested and subject to deferral1 Unvested and subject to performance conditions2 Shareholding guideline (% salary) Current3 shareholding (% salary) Requirement met? (cid:28)20(cid:15)623 (cid:28)(cid:28)8(cid:15)(cid:28)86 262(cid:15)2(cid:28)(cid:24) 3(cid:28)1(cid:15)83(cid:26) (cid:24)(cid:28)(cid:15)682 118(cid:15)060 202(cid:15)61(cid:28) 303(cid:15)66(cid:26) (cid:24)00(cid:8) (cid:24)00(cid:8) 63(cid:26)(cid:8) (cid:28)2(cid:8) Yes No4 1(cid:15)1(cid:26)2(cid:15)3(cid:24)2 1(cid:15)1(cid:28)(cid:28)(cid:15)18(cid:23) 23(cid:15)000 16(cid:15)32(cid:26) 30(cid:15)000 3(cid:15)000 2(cid:15)000 (cid:26)(cid:15)000 2(cid:23)(cid:15)000 – – 23(cid:15)000 16(cid:15)32(cid:26) 30(cid:15)000 3(cid:15)000 2(cid:15)000 1(cid:23)(cid:15)200 33(cid:15)6(cid:24)0 – – 1 (cid:55)he (cid:88)nvested and s(cid:88)(cid:69)(cid:77)ect to deferral col(cid:88)mn incl(cid:88)des (cid:37)(cid:54)(cid:36) awards confirmed in 2016(cid:15) 201(cid:26) and 2018 and 1(cid:24)(cid:8) of the 2016 (cid:51)(cid:54)(cid:36) as performance has (cid:69)een tested altho(cid:88)(cid:74)h the award has not yet vested(cid:17) (cid:55)he amo(cid:88)nts which are shown are net of ta(cid:91)(cid:15) th(cid:88)s representin(cid:74) (cid:24)3(cid:8) of the total (cid:88)nvested and s(cid:88)(cid:69)(cid:77)ect to deferral 2 (cid:55)he (cid:88)nvested and s(cid:88)(cid:69)(cid:77)ect to performance conditions col(cid:88)mn incl(cid:88)des (cid:51)(cid:54)(cid:36) awards made in 201(cid:26) and 2018 3 (cid:55)he calc(cid:88)lation at 31 (cid:39)ecem(cid:69)er 2018 is not compara(cid:69)le to last year(cid:15) as (cid:88)nvested and s(cid:88)(cid:69)(cid:77)ect to deferral shares are not incl(cid:88)ded and the fi(cid:74)(cid:88)re incl(cid:88)des (cid:69)eneficially held shares only(cid:17) (cid:55)his e(cid:91)cl(cid:88)des shares added followin(cid:74) vestin(cid:74) of (cid:37)(cid:54)(cid:36) awards in (cid:48)arch 201(cid:28)(cid:15) where (cid:48)r (cid:51)earce and (cid:48)r (cid:37)ates retained (cid:24)(cid:24)(cid:15)(cid:26)8(cid:28) and (cid:24)0(cid:15)0(cid:28)(cid:24) shares respectively (cid:23) (cid:48)r (cid:37)ates (cid:77)oined the Company in (cid:45)(cid:88)ne 201(cid:23)(cid:17) (cid:55)he shareholdin(cid:74) (cid:74)(cid:88)ideline of five times salary is to (cid:69)e achieved over a five(cid:16) to seven(cid:16)year period (cid:24) (cid:55)he 201(cid:26) interest has (cid:69)een restated to show the correct (cid:69)eneficial interest (cid:39)irectors interests for (cid:48)r (cid:51)earce and (cid:48)r (cid:37)ates have increased followin(cid:74) the vestin(cid:74) of the (cid:37)(cid:54)(cid:36) awards on 8 (cid:48)arch 201(cid:28)(cid:17) Directors’ interests in shares in Inmarsat long-term incentive plans and all-employee plans (audited) (cid:55)his information is acc(cid:88)rate as at 31 (cid:39)ecem(cid:69)er 2018(cid:17) Inmarsat bonus share awards (audited) (cid:55)he ta(cid:69)le (cid:69)elow shows details of (cid:37)(cid:54)(cid:36) awards where the n(cid:88)m(cid:69)er of shares has (cid:69)een confirmed (cid:69)(cid:88)t which are still to vest with one third vestin(cid:74) each year over a three(cid:16)year period(cid:17) Rupert Pearce (cid:54)hare award confirmed in (cid:48)arch 201(cid:24) (cid:54)hare award confirmed in (cid:48)arch 2016 (cid:54)hare award confirmed in (cid:48)arch 201(cid:26) (cid:54)hare award confirmed in (cid:48)arch 2018 Tony Bates (cid:54)hare award confirmed in (cid:48)arch 201(cid:24) (cid:54)hare award confirmed in (cid:48)arch 2016 (cid:54)hare award confirmed in (cid:48)arch 201(cid:26) (cid:54)hare award confirmed in (cid:48)arch 2018 Andrew Sukawaty3 (cid:54)hare award confirmed in (cid:48)arch 201(cid:24) Share awards held at 1 January 2018 Awarded during the year Reinvested dividends during the year1 Vested during the year Share awards held at 31 December 2018 Allocation price2 2(cid:28)(cid:15)062 82(cid:15)32(cid:23) 11(cid:28)(cid:15)1(cid:23)0 – – – – 2(cid:28)(cid:15)062 – (cid:100)8(cid:17)(cid:28)1 1(cid:15)(cid:23)8(cid:28) (cid:23)1(cid:15)160 (cid:23)2(cid:15)6(cid:24)3 (cid:100)(cid:28)(cid:17)30 2(cid:15)8(cid:26)(cid:23) 3(cid:28)(cid:15)(cid:26)12 82(cid:15)302 (cid:100)(cid:26)(cid:17)62 – 113(cid:15)(cid:26)(cid:26)(cid:28) (cid:23)(cid:15)11(cid:26) – 11(cid:26)(cid:15)8(cid:28)6 (cid:100)(cid:23)(cid:17)33 1(cid:28)(cid:15)330 62(cid:15)(cid:23)(cid:28)(cid:28) (cid:28)2(cid:15)338 – – – – 1(cid:28)(cid:15)330 – (cid:100)8(cid:17)(cid:28)1 1(cid:15)130 31(cid:15)2(cid:24)3 32(cid:15)383 (cid:100)(cid:28)(cid:17)30 2(cid:15)22(cid:26) 30(cid:15)(cid:26)(cid:26)(cid:28) 63(cid:15)(cid:26)86 (cid:100)(cid:26)(cid:17)62 – 88(cid:15)183 3(cid:15)1(cid:28)0 – (cid:28)1(cid:15)3(cid:26)3 (cid:100)(cid:23)(cid:17)33 (cid:24)0(cid:15)(cid:26)(cid:23)1 – – (cid:24)0(cid:15)(cid:26)(cid:23)1 – (cid:100)8(cid:17)(cid:28)1 Vesting date F(cid:88)lly vested(cid:29) (cid:48)arch 2018 was the last vestin(cid:74) date (cid:48)arch 2018 and (cid:48)arch 201(cid:28) (cid:48)arch 2018(cid:15) (cid:48)arch 201(cid:28) and (cid:48)arch 2020 (cid:48)arch 201(cid:28)(cid:15) (cid:48)arch 2020 and (cid:48)arch 2021 F(cid:88)lly vested(cid:29) (cid:48)arch 2018 was the last vestin(cid:74) date (cid:48)arch 2018 and (cid:48)arch 201(cid:28) (cid:48)arch 2018(cid:15) (cid:48)arch 201(cid:28) and (cid:48)arch 2020 (cid:48)arch 201(cid:28)(cid:15) (cid:48)arch 2020 and (cid:48)arch 2021 F(cid:88)lly vested(cid:29) (cid:48)arch 2018 was the last vestin(cid:74) date (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 (cid:42)overnance (cid:95) (cid:39)irectors’ (cid:53)em(cid:88)neration (cid:53)eport 101 1 (cid:55)he n(cid:88)m(cid:69)er of shares s(cid:88)(cid:69)(cid:77)ect to the award increases (cid:69)y the n(cid:88)m(cid:69)er of shares that the (cid:40)(cid:91)ec(cid:88)tive (cid:39)irector co(cid:88)ld have p(cid:88)rchased with the val(cid:88)e of dividends they wo(cid:88)ld have received on their award(cid:15) (cid:69)ased on the share price on the e(cid:91)(cid:16)dividend date 2 (cid:55)he price is that (cid:88)sed to calc(cid:88)late the n(cid:88)m(cid:69)er of shares to (cid:69)e allocated s(cid:88)(cid:69)(cid:77)ect to performance at the (cid:74)rant date and is different to the share price on the date of determination when the shares are confirmed 3 (cid:48)r (cid:54)(cid:88)(cid:78)awaty(cid:15) as (cid:49)on(cid:16)(cid:40)(cid:91)ec(cid:88)tive Chairman(cid:15) remains entitled to receive the shares when they vest as they were awarded and earned while he was an (cid:40)(cid:91)ec(cid:88)tive (cid:39)irector For the (cid:37)(cid:54)(cid:36) awards that vested in (cid:48)arch 2018 (cid:11)last third of the 201(cid:24) award(cid:15) second third of the 2016 award and first third of the 201(cid:26) award(cid:12)(cid:15) the (cid:39)irectors all sold s(cid:88)fficient shares to cover ta(cid:91) and retained the remainin(cid:74) shares(cid:17) (cid:55)he share price on 12 (cid:48)arch 2018 when the sales too(cid:78) place was (cid:100)(cid:23)(cid:17)16(cid:28)2 which is si(cid:74)nificantly lower than the share prices (cid:88)sed at the date of allocation(cid:17) (cid:48)r (cid:51)earce and (cid:48)r (cid:37)ates’ 2018 (cid:37)(cid:54)(cid:36) awards will (cid:69)e confirmed in (cid:48)arch 201(cid:28) for (cid:28)3(cid:15)(cid:26)(cid:24)6 and (cid:26)1(cid:15)608 shares respectively (cid:69)ased on performance d(cid:88)rin(cid:74) F(cid:60)18 and reflect a red(cid:88)ced n(cid:88)m(cid:69)er of shares followin(cid:74) discretion (cid:69)y the Committee(cid:17) (cid:55)he first vestin(cid:74) will (cid:69)e in (cid:48)arch 2020(cid:15) then in 2021 and 2022(cid:17) Inmarsat performance share awards (audited) (cid:55)he ta(cid:69)le (cid:69)elow shows details of o(cid:88)tstandin(cid:74) (cid:51)(cid:54)(cid:36) awards(cid:17) Rupert Pearce (cid:36)ward made in 201(cid:24)2 (cid:36)ward made in 20163 (cid:36)ward made in 201(cid:26) (cid:36)ward made in 2018 Tony Bates (cid:36)ward made in 201(cid:24)2 (cid:36)ward made in 20163 (cid:36)ward made in 201(cid:26) (cid:36)ward made in 2018 Share awards held at 1 January 2018 Awarded during the year Reinvested dividends during the year1 Vested during the year Lapsed during the year Share awards held at 31 December 2018 111(cid:15)08(cid:28) 112(cid:15)(cid:24)6(cid:23) 1(cid:23)0(cid:17)182 – – – – 2(cid:24)1(cid:15)6(cid:24)(cid:24) (cid:23)(cid:15)(cid:28)26 38(cid:15)2(cid:24)2 (cid:26)(cid:26)(cid:15)(cid:26)63 – – – – – – – – – 8(cid:23)(cid:15)33(cid:26) 8(cid:26)(cid:15)2(cid:23)1 108(cid:15)6(cid:23)(cid:26) – – – – 1(cid:28)(cid:24)(cid:15)020 3(cid:15)(cid:26)3(cid:28) 2(cid:28)(cid:15)0(cid:23)0 (cid:24)(cid:28)(cid:15)063 – – – – – – – – – – 112(cid:15)(cid:24)6(cid:23) 1(cid:23)0(cid:15)182 2(cid:24)1(cid:15)6(cid:24)(cid:24) – 8(cid:26)(cid:15)2(cid:23)1 108(cid:15)6(cid:23)(cid:26) 1(cid:28)(cid:24)(cid:15)020 Award price (cid:100)(cid:28)(cid:17)3(cid:23) (cid:100)(cid:28)(cid:17)30 (cid:100)(cid:26)(cid:17)62 (cid:100)(cid:23)(cid:17)33 (cid:100)(cid:28)(cid:17)3(cid:23) (cid:100)(cid:28)(cid:17)30 (cid:100)(cid:26)(cid:17)62 (cid:100)(cid:23)(cid:17)33 Vesting date (cid:48)arch 2018 (cid:48)arch 201(cid:28) (cid:48)arch 2020 (cid:48)arch 2021 (cid:48)arch 2018 (cid:48)arch 201(cid:28) (cid:48)arch 2020 (cid:48)arch 2021 1 (cid:55)he n(cid:88)m(cid:69)er of shares s(cid:88)(cid:69)(cid:77)ect to the award increases (cid:69)y the n(cid:88)m(cid:69)er of shares that the (cid:40)(cid:91)ec(cid:88)tive (cid:39)irector co(cid:88)ld have p(cid:88)rchased with the val(cid:88)e of dividends they wo(cid:88)ld have received on their award(cid:15) (cid:69)ased on the share price on the e(cid:91)(cid:16)dividend date 2 30(cid:8) of the 201(cid:24) (cid:51)(cid:54)(cid:51) vested in 2018 3 1(cid:24)(cid:8) of the 2016 (cid:51)(cid:54)(cid:36) will vest in (cid:48)arch 201(cid:28) which is after discretion has (cid:69)een e(cid:91)ercised (cid:69)y the Committee to red(cid:88)ce the overall n(cid:88)m(cid:69)er Inmarsat sharesave scheme (2018 award) (audited) (cid:55)he information (cid:69)elow relates to the (cid:56)(cid:46) (cid:54)haresave plan which the (cid:40)(cid:91)ec(cid:88)tive (cid:39)irectors can contri(cid:69)(cid:88)te monthly savin(cid:74)s to over a three(cid:16)year period(cid:17) Executive Director (cid:53)(cid:88)pert (cid:51)earce (cid:55)ony (cid:37)ates Options held at 1 January 2018 1(cid:15)(cid:24)8(cid:23) 1(cid:15)(cid:23)8(cid:28) – 1(cid:15)(cid:24)8(cid:23) 1(cid:15)(cid:23)8(cid:28) – Granted during the year – – (cid:24)(cid:15)(cid:28)82 – – (cid:24)(cid:15)(cid:28)82 Lapsed during the year Exercised during the year Options held at 31 December 2018 Option price per share Date from which exercisable Expiry date 1(cid:15)(cid:24)8(cid:23) 1(cid:15)(cid:23)8(cid:28) – 1(cid:15)(cid:24)8(cid:23) 1(cid:15)(cid:23)8(cid:28) – – – – – – – – – – – – – (cid:100)(cid:24)(cid:17)68 (cid:100)6(cid:17)02 (cid:100)3(cid:17)01 (cid:100)(cid:24)(cid:17)68 (cid:100)6(cid:17)02 (cid:100)3(cid:17)01 (cid:36)(cid:88)(cid:74)(cid:88)st 201(cid:28) (cid:45)an(cid:88)ary 2020 (cid:36)(cid:88)(cid:74)(cid:88)st 2020 (cid:45)an(cid:88)ary 2021 (cid:45)(cid:88)ly 2021 (cid:45)an(cid:88)ary 2022 (cid:36)(cid:88)(cid:74)(cid:88)st 201(cid:28) (cid:45)an(cid:88)ary 2020 (cid:36)(cid:88)(cid:74)(cid:88)st 2020 (cid:45)an(cid:88)ary 2021 (cid:45)(cid:88)ly 2021 (cid:45)an(cid:88)ary 2022 Approval (cid:55)his report was approved (cid:69)y the (cid:37)oard of (cid:39)irectors on 18 (cid:48)arch 201(cid:28) and si(cid:74)ned on its (cid:69)ehalf (cid:69)y SIMON BAX CHAIRMAN, REMUNERATION COMMITTEE 18 (cid:48)arch 201(cid:28) i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s 102 (cid:42)overnance (cid:95) (cid:53)eport of the directors (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Report of the directors For the year ended 31 (cid:39)ecem(cid:69)er 2018 (cid:55)his (cid:53)eport has (cid:69)een prepared in accordance with the re(cid:84)(cid:88)irements o(cid:88)tlined within the Companies (cid:36)ct 2006 (cid:11)(cid:67)2006 (cid:36)ct’(cid:12) and (cid:47)istin(cid:74) (cid:53)(cid:88)le (cid:28)(cid:17)8(cid:17)(cid:23)(cid:53) and forms part of the mana(cid:74)ement report as re(cid:84)(cid:88)ired (cid:88)nder (cid:39)isclos(cid:88)re and (cid:55)ransparency (cid:53)(cid:88)le (cid:23) Certain information that f(cid:88)lfils the re(cid:84)(cid:88)irements of the (cid:53)eport of the (cid:39)irectors is incorporated into the (cid:53)eport (cid:69)y reference and is referred to (cid:69)elow(cid:17) (cid:55)he p(cid:88)rpose of this (cid:53)eport is to provide information to the Company’s shareholders(cid:17) (cid:55)he (cid:53)eport contains certain forward(cid:16)loo(cid:78)in(cid:74) statements (cid:69)ased on (cid:78)nowled(cid:74)e and information availa(cid:69)le at the date of preparation of the (cid:53)eport(cid:17) (cid:55)hese statements involve (cid:88)ncertainty since f(cid:88)t(cid:88)re events and circ(cid:88)mstances can ca(cid:88)se res(cid:88)lts and developments to differ from those anticipated(cid:17) (cid:49)othin(cid:74) in this (cid:53)eport sho(cid:88)ld (cid:69)e constr(cid:88)ed as a profit forecast(cid:17) Responsibility statement (cid:55)he (cid:53)esponsi(cid:69)ility (cid:54)tatement made (cid:69)y the (cid:37)oard re(cid:74)ardin(cid:74) the preparation of the financial statements is set o(cid:88)t on pa(cid:74)e 106(cid:17) Business review, strategic report and future developments (cid:36) description of the Company’s (cid:69)(cid:88)siness model(cid:15) strate(cid:74)y(cid:15) and factors li(cid:78)ely to affect the (cid:42)ro(cid:88)p’s f(cid:88)t(cid:88)re developments are incorporated into this (cid:53)eport (cid:69)y reference(cid:17) (cid:55)hey are set o(cid:88)t in the (cid:54)trate(cid:74)ic (cid:53)eport on pa(cid:74)es 1 to (cid:24)(cid:28)(cid:17) Governance report (cid:56)nder (cid:39)isclos(cid:88)re and (cid:55)ransparency (cid:53)(cid:88)le (cid:26)(cid:15) a re(cid:84)(cid:88)irement e(cid:91)ists for certain parts of the (cid:42)overnance (cid:53)eport to (cid:69)e o(cid:88)tlined in the (cid:53)eport of the (cid:39)irectors(cid:17) (cid:55)his information is laid o(cid:88)t in the (cid:42)overnance (cid:53)eport on pa(cid:74)es 60 to 106(cid:17) Post-balance sheet events (cid:55)here were no s(cid:88)ch events re(cid:84)(cid:88)ired to (cid:69)e disclosed(cid:17) Results and dividends (cid:55)he res(cid:88)lts for the year are shown in the Consolidated (cid:44)ncome (cid:54)tatement on pa(cid:74)e 116(cid:17) (cid:36) final dividend of 12 cents (cid:11)(cid:56)(cid:54)(cid:7)(cid:12) will (cid:69)e paid on 30 (cid:48)ay 201(cid:28) to shareholders on the share re(cid:74)ister at the close of (cid:69)(cid:88)siness on 23 (cid:36)pril 201(cid:28)(cid:17) (cid:39)ividend payments are made in (cid:51)o(cid:88)nds (cid:54)terlin(cid:74) or in shares (cid:88)sin(cid:74) an e(cid:91)chan(cid:74)e rate derived from the (cid:58)(cid:48)(cid:18)(cid:53)e(cid:88)ters (cid:42)(cid:37)(cid:51)(cid:18)(cid:56)(cid:54)(cid:39) (cid:28)am fi(cid:91) (cid:11)(cid:47)ondon time(cid:12) fo(cid:88)r (cid:69)(cid:88)siness days prior to the anno(cid:88)ncement of the scrip reference price(cid:17) (cid:40)(cid:91)planatory doc(cid:88)mentation in respect of the operation of the scrip dividend is availa(cid:69)le on o(cid:88)r we(cid:69)site(cid:17) Interest capitalisation (cid:55)he (cid:42)ro(cid:88)p capitalised (cid:7)(cid:23)3(cid:17)(cid:26)m d(cid:88)rin(cid:74) the period (cid:88)nder review(cid:17) (cid:55)he (cid:7)(cid:23)3(cid:17)(cid:26)m of interest capitalised in the period has (cid:69)een treated as f(cid:88)lly ta(cid:91) ded(cid:88)cti(cid:69)le in the (cid:56)(cid:46)(cid:17) Branches (cid:55)he (cid:42)ro(cid:88)p has activities operated thro(cid:88)(cid:74)h many (cid:77)(cid:88)risdictions(cid:17) Capital structure and rights attaching to shares (cid:55)he Company’s ordinary shares of (cid:40)(cid:88)ro 0(cid:17)000(cid:24) each are listed on the (cid:47)ondon (cid:54)toc(cid:78) (cid:40)(cid:91)chan(cid:74)e (cid:11)(cid:47)(cid:54)(cid:40)(cid:29) (cid:44)(cid:54)(cid:36)(cid:55)(cid:17)(cid:47)(cid:12)(cid:17) (cid:39)etails of the iss(cid:88)ed share capital of the Company(cid:15) to(cid:74)ether with movements in the iss(cid:88)ed share capital d(cid:88)rin(cid:74) the year(cid:15) can (cid:69)e fo(cid:88)nd in note 2(cid:24) to the consolidated financial statements(cid:17) (cid:55)he Company has one class of ordinary share which carries no ri(cid:74)hts to fi(cid:91)ed income(cid:17) On a poll(cid:15) each mem(cid:69)er is entitled to one vote for each share of (cid:40)(cid:88)ro 0(cid:17)000(cid:24) held(cid:17) (cid:36)ll (cid:26)6(cid:15)612 ordinary shares held (cid:69)y the (cid:44)nmarsat (cid:40)mployee (cid:54)hare Ownership (cid:55)r(cid:88)st carry votin(cid:74) ri(cid:74)hts(cid:17) ALISON HORROCKS CHIEF CORPORATE AFFAIRS OFFICER AND COMPANY SECRETARY Inmarsat plc | Annual Report and Accounts 2018 Governance | Report of the directors 103 There are no specific restrictions on the size of holding or on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any arrangements between shareholders that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid. Going concern Despite the continuing rerating of the satellite sector and increased competitive environment, coupled with a continuing uncertain economic outlook particularly regarding Brexit and its potential impact on the global economy, the Directors believe that the Group has a resilient business model and is compliant with all its financial covenants. In making their assessment of going concern, the Directors considered the Board-approved budget, the rolling forecast, the cash flow forecast and the most recent five-year long-range business plan. In addition, the Directors considered the maturity profile of existing debt facilities, other liabilities as well as actual and forecast covenant calculations. Furthermore, the forecasts and covenant calculations were stress tested by applying a set of downside scenarios. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, Inmarsat continues to adopt the going concern basis in preparing the consolidated financial statements. Viability statement The viability statement containing a broader assessment by the Board of the Company’s ongoing viability is set out on page 59. On-market purchase authority The Directors’ authorities are determined by UK legislation and the Articles of Association. At the 2018 AGM, the Directors were authorised by shareholders to allot ordinary shares up to agreed limits and to have the ability to make market purchases of ordinary shares. Shareholders are being requested to renew these authorities at the 2019 AGM. Indemnities and insurance Details of the Directors’ and Officers’ liability insurance and the indemnities provided to the Directors, Company Secretary and certain employees where they serve as directors of subsidiaries at the Group’s request are provided on page 70 in the Governance Report. Employment policies and employee involvement Details of the employment policies and employee involvement are provided in the Our People section and also in the Governance Report. Long-term incentive schemes Details of the long-term incentive schemes can be found on page 101 of the Directors’ Remuneration Report. GREENHOUSE GAS EMISSIONS Greenhouse gas emissions (tCO2e) Combustion of fuel and operation of facilities (Scope 1) Electricity, heat, steam and cooling purchased for our own use (Scope 2: location-based) Electricity, heat, steam and cooling purchased for our own use (Scope 2: market-based) Other indirect emissions (Scope 3) 2018 849 2017 1,048 2016 1,164 11,053 11,014 11,743 7,756 15,117 8,808 21,044 10,559 13,568 Emissions from the consumption of electricity outside the UK and Scope 2 emissions calculated using the market-based approach using supplier specific emission factors are calculated and reported in tCO2e METHODOLOGY Greenhouse gas emissions (tCO2e) Total Scope 1 and 2 tCO2e per full-time equivalent (‘FTE’) employee Location-based approach Market-based approach 2018 11,902 2017 11,918 2016 12,907 2018 8,605 2017 9,712 2016 11,724 6.5 6.9 6.8 4.7 5.7 6.2 The emissions intensity calculation is based on a figure of 1,842 employees in 2018, 1,737 employees in 2017 and 1,900 employees in 2016. We have restated our total Scope 2 figures for 2017 due to improved data quality and accuracy within Scope 3 emissions Health and safety The Group is committed to maintaining high standards of health and safety for its employees, customers, visitors, contractors and anyone affected by its business activities. During 2018, we continued to work closely with our subsidiary companies to harmonise health and safety best practice. Rupert Pearce, our CEO, is the Director designated for health and safety matters at Board level. One of the objectives for the CEO includes how health and safety is managed across the Company. Environmental performance and strategy We operate in over 39 locations with a combined workforce of approximately 1,800 staff. Due to our diversity of activities the Company recognises it has impacts affecting the local and global environment. However, it should be noted that the satellite industry and our own business is low on the scale of carbon generators. The satellite launch industry is reviewing how it becomes more accountable for carbon generation through innovative new satellite launch techniques and we will work with these launch providers to see how we can benefit from improved techniques for our future launches. We have provided details of our objectives for how we manage our environmental activities on pages 47 and 48. The following information summarises our actual environmental performance over the year. Our environmental impacts include the use of natural resources, the consumption of energy and water, the production of a variety of waste, as well as staff and visitors who travel extensively. All energy and waste management activities are controlled by the Business Environment team which is based in London and are supported by inputs from colleagues across the Group. The CEO has an objective to ensure there is an effective process in place to monitor environmental, social and governance matters. Greenhouse gas emissions This section has been prepared in accordance with our regulatory obligation to report greenhouse gas (‘GHG’) emissions pursuant to Section 7 of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. The table shows our greenhouse gas emissions for the years ended 31 December 2016 to 2018. We are in the process of having our emissions independently verified to the ISO 14064-3 standard to ensure continuous improvement of our GHG reporting. GovernanceFinancial StatementsStrategic Report 104 Governance | Report of the directors Inmarsat plc | Annual Report and Accounts 2018 Report of the directors continued Methodology We quantify and report our organisational GHG emissions according to the Greenhouse Gas Protocol. Consumption data has been collated by our sustainability consultant, Carbon Credentials, and has been converted into CO2 equivalent using the UK Government 2018 Conversion Factors for Company Reporting and the International Energy Agency international electricity conversion factors in order to calculate emissions from corresponding activity data. This report has been prepared in accordance with the GHG Protocol’s Scope 2 Guidance; we have therefore reported both a location-based and market-based Scope 2 emissions figure. The Scope 2 market-based figure reflects emissions from electricity purchasing decisions that Inmarsat has made. When quantifying emissions using the market-based approach we have used a supplier specific emissions factor where possible. If these factors were unavailable, a residual mix emissions factor was then used, and as a final alternative the location-based grid emissions factor was used. The table on this page shows our total emissions and our emissions as a metric for the year ended 31 December 2018 using the two different Scope 2 accounting methodologies. Performance We set an interim target to reduce absolute Scope 1 and 2 emissions by 20% by year end 2018 compared to a 2016 baseline. We achieved a 27% decrease in our emissions Scope 1 and 2 emissions by since 2016 (using the market-based Scope 2 accountancy method) and exceeded our target. We continue to expand the number of low emissions sources of electricity across the Group and have already switched to a renewable electricity supply at our London Head Office, our largest electricity-consuming site. Overall, 37% of the electricity we use is from renewable sources. Our emissions intensity has decreased by 18% from 5.7 (2017) to 4.7 (2018) tCO2e/FTE (using the market-based Scope 2 accounting approach). We have also chosen to voluntarily disclose a selection of our Scope 3 emissions, including water, waste, business travel and WTT electricity emissions and emissions associated with the transmission and distribution of electricity. Our Scope 3 emissions have decreased by 28% between 2017 and 2018. This is largely due to a decrease in business travel. TOTAL EMISSIONS 2018 tCO2e 23,722 › Scope 1: Natural gas combustion within boilers, gas oil combustion within generators, road fuel combustion within owned and leased vehicles, and fugitive refrigerants from air-conditioning equipment › Scope 2: Purchased electricity consumption for our own use › Scope 3: Business travel, water, waste, and well-to-tank and transmission & distribution electricity emissions Assumptions and estimations In some cases, missing data has been estimated using either extrapolation of available data from the reporting period or data from previous years as a proxy. Scope 1 ...................................................................................849 Scope 2 (market-based) ............................................7,756 Scope 3 ............................................................................... 15,117 Principal risks and uncertainties Details of principal risks and uncertainties are provided on pages 52 to 58. EMISSIONS INTENSITY – SCOPE 1 AND 2 (MARKET-BASED) tCO2e/FTE 4.7 2018 2017 4.7 5.7 In 2019 we will be working with Carbon Credentials to assess our full value chain (Scope 3) emissions with the ambition of setting a science-based emission reduction target in line with the UK’s commitment under the UN Paris Agreement, thereby contributing to the global effort to prevent the worst consequences of climate change. Reporting boundaries and limitations We consolidate our organisational boundary according to the operational control approach and have adopted a materiality threshold of 5% for GHG reporting purposes. As a result, emissions from locations with fewer than 15 staff on-site have been reasonably estimated as immaterial and are thus excluded from our GHG disclosure. Emissions for all significant sites have been included in our calculations, which includes our top five highest consuming locations: London, Burum (The Netherlands), Auckland (New Zealand), Paumalu (USA) and Perth (Australia). The GHG sources that constitute our operational boundary for the 2018 reporting period are: Financial risk management Details of the financial risk management objectives and policies of the Group, including hedging policies and exposure of the entity to price risk, credit risk, liquidity risk and cash flow risk are given in notes 3 and 31 to the consolidated financial statements. Research and development The Group continues to invest in new services and technology necessary to support its activities through research and development programmes. Political donations During the year, no political donations were made. It remains the policy of the Company not to make political donations or incur political expenditure. The Company will be reducing the aggregate limits it will seek approval for from shareholders at its 2019 AGM. We consider that it is in the best interests of shareholders for the Company to participate in public debate and opinion-forming on matters which affect the Company’s business. The definition of donation is widely defined within the context of the Companies Act 2006 and can extend to bodies concerned with policy review, law reform and the representation of the business community, including special interest groups which the company (and its subsidiaries) might wish to support and the Company believes it is appropriate to renew the authority, on lower limits, at the 2019 AGM to avoid any inadvertent infringement of the Act. Inmarsat plc | Annual Report and Accounts 2018 Governance | Report of the directors 105 Interests in voting rights As at 18 March 2019, the Company had been notified, in accordance with chapter 5 of the Financial Services Authority’s Disclosure and Transparency Rules, of the following significant interests: Percentage of voting rights over ordinary shares of €0.0005 each Shareholder Lansdowne Partners Limited Capital Group Companies, Inc. Aberdeen Asset Managers Artemis Investment Management Nomura International plc Jupiter Asset Management Limited Openheimer Funds, Inc Standard Life Investments Ltd Pictet Asset Management Allianz SE 11.43% 9.83% 6.30% 5.21% 5.03% 4.91% 4.83% 4.32% 3.13% 2.98% Voting rights are based on the information submitted via TR1 forms from shareholders to the Company, adjusted for the issued share capital of 463,480,897 as at 18 March 2019. Rules governing directors’ appointments Shareholders can appoint or remove Directors by an ordinary resolution in a general meeting but specific conditions on vacation of office apply where a Director becomes prohibited by law or regulation from holding office; or where a Director becomes bankrupt, mentally incapacitated or persistently absent from Directors’ meetings. Further information on Directors’ appointments are provided on pages 72 and 73 of the Governance Report. Directors’ power General powers of the Directors are provided by the Company’s Articles of Association and the Companies Act 2006 (the ‘Act’). The powers are subject to limitations imposed by statute and directions given by special resolution of the shareholders applicable at a relevant time. Details of Directors’ powers are provided on pages 67 to 69 of the Governance Report. 2019 Annual General Meeting The Annual General Meeting will be held on 1 May 2019 at 10.00am at 99 City Road, London EC1Y 1AX. The Notice of Meeting, which sets out the resolutions to be proposed at the forthcoming AGM, is contained in a separate circular and is enclosed with this Annual Report. By order of the Board ALISON HORROCKS FCIS CHIEF CORPORATE AFFAIRS OFFICER AND COMPANY SECRETARY 18 March 2019 Directors and their interests A full list of the individuals who were Directors of the Company during the financial year ended 31 December 2018 is set out below: Tony Bates, Simon Bax, Sir Bryan Carsberg, Warren Finegold, General C. Robert Kehler (Rtd), Phillipa McCrostie, Rupert Pearce, Dr Abe Peled, Janice Obuchowski, Robert Ruijter, Andrew Sukawaty and Dr Hamadoun Touré. We were delighted to announce the appointment of Tracy Clarke as an additional Non-Executive Director effective 1 February 2019. Details of the interests of each Director and their connected persons in the Company’s ordinary shares and share awards held are set out in full in the Directors’ Remuneration Report on pages 100 to 101. Details of the Directors’ conflicts of interest policy are provided on page 70. Articles of Association The Articles of Association can only be amended by special resolution of the shareholders. This year we are seeking to amend Article 83 which relates to the overall level of fee paid to the Non-Executive Directors, details of this special resolution are contained in the AGM Notice of Meeting. Auditor Each of the Directors has confirmed that: › so far as the Director is aware, there is no relevant audit information of which the Company’s Auditor is unaware and › the Director has taken all the steps that he/she ought to have taken as a Director to make him/herself aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. A resolution to re-appoint Deloitte LLP as Auditor of the Company and to authorise the Audit Committee of the Board of Directors to determine its remuneration will be proposed at the 2019 AGM. GovernanceFinancial StatementsStrategic Report 106 Governance | Directors’ responsibilities statement Inmarsat plc | Annual Report and Accounts 2018 Directors’ responsibilities statement The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the Parent Company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the Parent Company financial statements, the Directors are required to: › select suitable accounting policies and then apply them consistently › make judgements and accounting estimates that are reasonable and prudent › state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material departures disclosed and explained in the financial statements and › prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business Responsibility statement We confirm that to the best of our knowledge: › the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole › the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face and › the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy By order of the Board RUPERT PEARCE DIRECTOR 18 March 2019 In preparing the Group financial statements, International Accounting Standard 1 requires that Directors: › properly select and apply accounting policies › present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information › provide additional disclosures when compliance with the specific requirements of IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance and › make an assessment of the Company’s ability to continue as a going concern The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 107 107 FINANCIAL STATEMENTS THIS REPORT IS SEPARATED INTO THE FOLLOWING SECTIONS TO AID REVIEW: 108 Independent Auditor’s Report to the Members of Inmarsat plc 148 Note 27. Reserves 149 Note 28. Earnings per share 116 Consolidated financial statements 150 Note 29. Pensions and post-employment benefits 116 Consolidated income statement 155 Note 30. Operating lease and other commitments 117 Consolidated statement of comprehensive income 155 Note 31. Capital risk management 118 Consolidated balance sheet 155 Note 32. Financial instruments 119 Consolidated statement of changes in equity 158 Note 33. Capital commitments 120 Consolidated cash flow statement 159 Note 34. Contingent assets and liabilities 159 Note 35. Events after the balance sheet date 121 Notes to the consolidated financial statements 159 Note 36. Related party transactions 121 Note 1. General information 121 Note 2. Principal accounting policies 127 Note 3. Financial risk management 160 Note 37. Principal subsidiary undertakings 162 Company financial statements 128 Note 4. Critical accounting estimates and key judgements 162 Company balance sheet 130 Note 5. Segmental information 132 Note 6. Operating profit 132 Note 7. Employee benefit costs 163 Company statement of changes in equity 164 Notes to the Company financial statements 133 Note 8. Key management compensation 164 Note A) Principal accounting policies 133 Note 9. Net financing costs 134 Note 10. Taxation 164 Note B) Critical accounting estimates and key judgements 164 Note C) Income statement 134 Note 11. Net foreign exchange gain/(loss) 164 Note D) Financial instruments 135 Note 12. Dividends 135 Note 13. Property, plant and equipment 165 Alternative Performance Measures 166 Glossary of terms 168 Additional information 136 Note 14. Intangible assets 137 Note 15. Leases 138 Note 16. Investments 138 Note 17. Cash and cash equivalents 139 Note 18. Trade and other receivables 140 Note 19. Inventories 140 Note 20. Net borrowings 142 Note 21. Trade and other payables 143 Note 22. Provisions 143 Note 23. Current and deferred taxation 145 Note 24. Reconciliation of cash generated from operations 145 Note 25. Share capital 146 Note 26. Employee share options and awards i S t r a t e g c R e p o r t G o v e r n a n c e F i n a n c i a l S t a t e m e n t s 108 108 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INMARSAT PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS OPINION IN OUR OPINION: › the financial statements of Inmarsat plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2018 and of the Group’s profit for the year then ended; › the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union; › the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’; and › the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We have audited the financial statements which comprise: › the consolidated income statement; › the consolidated statement of comprehensive income; › the consolidated and parent company balance sheets; › the consolidated and parent company statements of changes in equity; › the consolidated cash flow statement; and › the related notes 1 to 37. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice). BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. SUMMARY OF OUR AUDIT APPROACH Key audit matters Materiality Scoping The key audit matters that we identified in the current year were: › accounting for capitalised development expenditure; › accounting for complex revenue contracts; and › classification and disclosure of the convertible bond. Within this report, any new key audit matters are identified with ▲ and any key audit matters which are the same as the prior year identified with ►. The materiality that we used for the Group financial statements was $16.0m which was determined on the basis of a number of relevant benchmarks including EBITDA. We have performed full-scope audit procedures for components which represent 99% of net assets, revenue and profit before tax. Significant changes in our approach In the current year we have reported on a new key audit matter in respect of classification and disclosure of the convertible bond following significant fluctuations in market value of the bond in the year. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 109 109 CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT We confirm that we have nothing material to report, add or draw attention to in respect of these matters. We confirm that we have nothing material to report, add or draw attention to in respect of these matters. Going concern We have reviewed the Directors’ statement in note 2 to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements. We considered as part of our risk assessment the nature of the Group, its business model and related risks including where relevant the impact of Brexit, the requirements of the applicable financial reporting framework and the system of internal control. We evaluated the Directors’ assessment of the Group’s ability to continue as a going concern, including challenging the underlying data and key assumptions used to make the assessment, and evaluated the Directors’ plans for future actions in relation to their going concern assessment. We are required to state whether we have anything material to add or draw attention to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained in the audit. Principal risks and viability statement Based solely on reading the Directors’ statements and considering whether they were consistent with the knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue as a going concern, we are required to state whether we have anything material to add or draw attention to in relation to: › the disclosures on pages 52 to 58 that describe the principal risks and explain how they are being managed or mitigated › the Directors’ confirmation on page 53 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity or › the directors’ explanation on page 59 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions We are also required to report whether the Directors’ statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the new key audit matter in respect of classification and disclosure of the convertible bond, we have redefined the key audit matter in respect of revenue recognition, pinpointing the risk in the current year to accounting for complex contracts. In the prior year the key audit matter was in respect of accuracy, completeness and occurrence of manual adjustments to airtime revenue. GovernanceFinancial StatementsStrategic Report 110 110 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INMARSAT PLC CONTINUED REVENUE RECOGNITION – ACCOUNTING FOR COMPLEX REVENUE CONTRACTS ▲ Key audit matter description Inmarsat has entered into a number of one-off contracts in the year and has generated revenue of $101.3m in respect of in-flight connectivity contracts. These contracts are complex in nature given there are no standardised terms and conditions and in some cases these contracts are classified. In addition, a fraud risk has been identified in respect of these complex contracts due to the level of judgement required. On entering into new contracts a detailed assessment of the accounting for these under IFRS 15 Revenue from contracts with customers is prepared by management. Each month manual postings are made to revenue accounts to adjust for items such as contract assets, contract liabilities or liquidated damages to ensure revenue recognition meets the requirements of IFRS 15. The accounting policy for the recognition of revenue is set out in note 2 to the financial statements and includes the policies on the deferral of revenue and multiple-element contracts. Refer to page 77 where this is included as a significant matter in the Audit Committee report. In the prior year we had recognised a key audit matter in respect of the accuracy, completeness and occurrence of manual adjustments to airtime revenue. In view of the low incidence of issues identified in prior periods, this is no longer considered a key audit matter. We have evaluated the design and implementation of controls relevant to complex contracts and controls designed to ensure accounting judgements taken are reasonable. We have met with management, both from within finance and in the market-facing business to discuss results in each business unit and as a whole to gain an understanding of significant trends and transactions and to inform our substantive testing. We have obtained and reviewed signed contracts and contract amendments to identify key terms and areas of accounting complexity under IFRS 15. Where these are classified contracts we have involved our security cleared specialists to review these contracts on our behalf with oversight from the Group audit team. We have obtained and challenged management’s accounting analysis and judgements taken, reviewing these for bias that could result in material misstatement due to fraud or error. We have done this through consulting our Firm’s technical accounting specialists on complex judgements and evaluating the substance of the contracts through our knowledge of the business. How the scope of our audit responded to the key audit matter Key observations The results of our testing were satisfactory. We had no significant findings to report to the Audit Committee in respect of the accounting for complex contracts. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 111 111 ACCOUNTING FOR CAPITALISED DEVELOPMENT EXPENDITURE ► Key audit matter description The Group capitalised significant internal labour costs, external costs and qualifying borrowing costs in respect of major capital projects, most notably relating to satellite programmes and associated infrastructure such as the Global Xpress programme, European Aviation Network and the Inmarsat-6 constellation of satellites. How the scope of our audit responded to the key audit matter There is a key audit matter, whether due to fraud or error, in respect of valuation and allocation of assets, that costs which do not meet the criteria for capitalisation in accordance with IAS 16 Property, Plant and Equipment, IAS 38 Intangible Assets and IAS 23 Borrowing Costs are inappropriately recorded on the balance sheet rather than expensed or that costs continue to be held on the balance sheet despite no longer meeting the relevant capitalisation criteria. The Group’s policy on the capitalisation of assets is included in note 2 to the financial statements. As shown in note 13 to the financial statements, property, plant and equipment of $474.6m (2017: $615.0m) was capitalised in the year, of which $449.6m (2017: $351.6m) relates to assets in the course of construction. As shown in note 14 to the financial statements, intangible assets of $98.0m (2017: $88.8m) were capitalised in the year. As disclosed in note 9 to the financial statements, capitalised borrowing costs totalled $43.7m (2017: $40.2m) in the year. Refer to page 78 where this is included as a significant matter in the Audit Committee report. We have evaluated the design and implementation of controls in respect of the processes and procedures which govern the capitalisation of development costs, and tested operating effectiveness of controls in respect of internal labour costs. We have met the project leaders for the most financially significant capital projects, which account for 92% of current year capital expenditure, to corroborate the project status, feasibility of completion, impact of Brexit and other geopolitical risks, and performance against budget, including investigation of any deviations from budget. This process enabled us to focus on projects we considered to have a higher risk of misstatement. In addition, we have carried out sample-based testing in relation to each element of capitalised costs including inspecting supporting evidence for a sample of the costs capitalised, understanding the nature of these costs and considering whether they meet the capitalisation requirements of IAS 16 and IAS 38. We reviewed the ageing profile of assets in the course of construction, to determine whether the ongoing technical feasibility and intended completion of the project could be demonstrated. For a sample of assets which entered service in the period we inspected supporting evidence to determine whether depreciation was commenced at a time in accordance with IAS 16. In relation to borrowing costs we obtained the supporting calculations and verified the inputs to the calculation, including testing a sample of cash payments. Additionally, we tested the mechanical accuracy of the model and reviewed the model to determine whether the borrowing costs for completed projects are no longer being capitalised and accounting is therefore in line with the requirements of IAS 23. Key observations Our audit testing was completed satisfactorily, and we concur with the judgements management has taken in determining that capital assets meet the capitalisation criteria of IAS 16, IAS 23 and IAS 38. We did not identify any audit misstatements that warranted reporting to the Audit Committee. GovernanceFinancial StatementsStrategic Report 112 112 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INMARSAT PLC CONTINUED CLASSIFICATION AND DISCLSOURE OF THE CONVERTIBLE BOND ▲ Key audit matter description How the scope of our audit responded to the key audit matter On 9 September 2016, the Group issued $650m of 3.875% convertible bonds due 9 September 2023. This bond is a net settled instrument which is currently convertible by bondholders into cash and possibly equity depending on the conversion price, which is linked to the Group’s equity share price. Following a takeover offer during the year, which led to a significant non cash net financing cost at the half year, we identified a key audit matter in respect of whether the convertible bond is correctly classified as a non-current liability and whether the disclosures relating to the convertible bond are appropriate. Under IAS 1 Presentation of Financial Statements a liability is classified as current if the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Under the terms of the convertible bond, the Company is unable to prevent a bondholder from converting. However as the Group’s equity share price remains significantly below the conversion price of the bonds ($13.41), any bondholder who converts their Convertible Bond, rather than selling it on the market, would make a material loss. As such this conversion option is not considered substantive. As shown in note 20 the convertible bond has a debt component with a carrying value of $569.4m (2017: $555.0m) and an embedded derivative component valued at $148.8m (2017: $125.7m). The Group’s policy on the accounting for convertible bonds is included in note 2 to the financial statements. We have evaluated the design and implementation of controls relating to accounting for the convertible bond. We have performed the following procedures: › involved our technical accounting specialists to support our review of the convertible bond agreement › challenged whether the embedded options were substantive through the performance of Black-Scholes analysis of future share price expectations › evaluated whether the change of control feature should trigger presentation of the whole instrument as a current liability and › evaluated the appropriateness of the disclosure of the convertible bond in the financial statements Key observations We concur with the treatment of the convertible bond as a non-current liability. We did not identify any audit misstatements that warranted reporting to the Audit Committee. We note that the Group has put in place an additional control to monitor the performance of the convertible bond over time and to reflect any changes needed to the accounting in the financial statements. OUR APPLICATION OF MATERIALITY We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Group financial statements Parent company financial statements Materiality $16.0m (2017: $18.0m) $13.9m (2017: $15.7m) Basis for determining materiality We determined materiality using a range of forecast benchmarks and this represented 2.5% of EBITDA (2017: 2.5%), 1.3% of revenue (2017: 1.3%) and 7.6% of profit before tax (2017: 7.6%) adjusted to remove the volatility described above. EBITDA is reconciled to statutory profit before tax on page 39. Rationale for the benchmark applied We consider the use of a number of benchmarks in determining materiality to be appropriate since a number of measures are relevant to the users of the financial statements, including EBITDA. Parent Company materiality equates to 3% of net assets, which has been capped at the highest level of component materiality (2017: same basis). The Parent Company exists as a holding company therefore we have used net assets as the basis for materiality. We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $800k (2017: $900k), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 113 113 AN OVERVIEW OF THE SCOPE OF OUR AUDIT Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our Group audit scope primarily on the audit work performed in the following locations: › London, United Kingdom › St. John’s, Canada and › Reston, United States With the exception of one specific part of the Inmarsat Government business, where we used a component audit team, we performed the Group audit with one integrated audit team led from London. The supervision of the audit team included the London team visiting the members of the audit team located in St. John’s and Reston. We determined there to be three components in the Group, as follows: › The core Inmarsat business unit headquartered in London with operations also in St. John’s › The Inmarsat Government retail business in Reston and › Non-core entities, which include Inmarsat Australia Pty Ltd, based in Sydney, Australia The Inmarsat Government retail business and non-core entities are considered to be separate components as they had a separate financial control environment during the year. The core Inmarsat component was subject to a full scope audit, the Inmarsat Government component to an audit of specified account balances and limited procedures were performed on the non-core component due to its relative financial significance. The components subject to a full scope audit represent the principal business units and account for 99.8% (2017: 99.8%) of the Group’s net assets, 98.8% (2017: 99.0%) of the Group’s revenue and 99.9% (2017: 98.8%) of the Group’s profit before tax. They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Our audit work at the three locations was executed at levels of materiality which were lower than the Group materiality and ranged from $4.8m to $13.9m (2017: $5.4m to $15.7m). At the Parent Company level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no key audit matters of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit of specified account balances. The Senior Statutory Auditor met with Inmarsat Government component management in 2018 and last performed a site visit in 2017. For this component we involved the component audit partner and manager in our team briefing, discussed their risk assessment and reviewed documentation of the findings from their work. OTHER INFORMATION The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. We have nothing to report in respect of these matters Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that: › Fair, balanced and understandable – the statement given by the Directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or › Audit committee reporting – the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or › Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. GovernanceFinancial StatementsStrategic Report 114 114 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INMARSAT PLC CONTINUED RESPONSIBILITIES OF DIRECTORS As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. IDENTIFYING AND ASSESSING POTENTIAL RISKS RELATED TO IRREGULARITIES In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following: › enquiring of management, internal audit and the audit committee, including obtaining and reviewing supporting documentation, concerning the Group’s policies and procedures relating to: – identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance – detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud and – the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations › discussing among the engagement team, significant component teams and involving relevant internal specialists, including tax, valuations, and IT, regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the following areas: accounting for capitalised development expenditure and accounting for complex contracts. › obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the Group. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and tax legislation in the jurisdictions it operates in. In addition, compliance with terms of the Group’s operating licence were fundamental to the Group’s ability to continue as a going concern. AUDIT RESPONSE TO RISKS IDENTIFIED As a result of performing the above, we identified accounting for complex contracts and accounting for capitalised development expenditure as key audit matters. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters. In addition to the above, our procedures to respond to risks identified included the following: › reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations discussed above › enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims › performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud › reading minutes of meetings of those charged with governance and reviewing internal audit reports and › in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 115 115 REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: › the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements and › the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements In the light of the knowledge and understanding of the Group and of the Parent Company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the Directors’ report. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: › we have not received all the information and explanations we require for our audit or › adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us or › the Parent Company financial statements are not in agreement with the accounting records and returns Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not been made or the part of the Directors’ remuneration report to be audited is not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. We have nothing to report in respect of these matters. OTHER MATTERS AUDITOR TENURE On recommendation of the audit committee following a successful tender in 2016, we were appointed by the Company at the Annual General Meeting on 5 May 2016 to audit the financial statements for the year ending 31 December 2016 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 13 years, covering the years ending 31 December 2006 to 31 December 2018. CONSISTENCY OF THE AUDIT REPORT WITH THE ADDITIONAL REPORT TO THE AUDIT COMMITTEE Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK). USE OF OUR REPORT This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. PAUL FRANEK FCA SENIOR STATUTORY AUDITOR For and on behalf of Deloitte LLP Statutory Auditor London, United Kingdom 18 March 2019 GovernanceFinancial StatementsStrategic Report 116 116 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2018 ($ in millions) Revenues Employee benefit costs1 Network and satellite operations costs Impairment of financial assets Other operating costs Own work capitalised Total net operating costs EBITDA Depreciation and amortisation Impairment loss on fixed and intangible assets Loss on disposal Share of profit of associates Operating profit Financing income Financing cost Change in fair value of derivative2 Net financing costs Profit before tax Taxation charge Profit for the year Attributable to: Equity holders Non-controlling interest3 Earnings per share for profit attributable to the equity holders of the Company (expressed in $ per share) › Basic › Diluted Adjusted earnings per share for profit attributable to the equity holders of the Company (expressed in $ per share) › Basic › Diluted Note 2018 2017 (restated) 4 1,465.2 (301.4) (183.3) (18.1) (230.0) 37.7 (695.1) 770.1 (468.3) (14.5) (2.5) 3.9 288.7 8.2 (105.8) (23.2) (120.8) 167.9 (42.9) 125.0 124.2 0.8 0.27 0.27 0.32 0.32 1,391.7 (312.9) (192.8) (3.0) (192.8) 49.1 (652.4) 739.3 (411.8) – (7.3) 4.0 324.2 7.8 (105.9) 7.7 (90.4) 233.8 (48.8) 185.0 184.4 0.6 0.41 0.40 0.42 0.42 7 18 6 6 6 16 9 9 9 9 10 28 28 28 28 1 Employee benefit costs for 2017 includes the one-off restructuring charge of $19.9m 2 The change in fair value of derivative relates to the mark-to-market valuation of the conversion liability component of the convertible bonds due 2023 3 Non-controlling interest relates to the Group’s 51% shareholding in Inmarsat Solutions ehf 4 2017 figures have been restated to reflect the adoption of IFRS 15 and the accounting policy change for unallocated launch slots. The Group has also adopted IFRS 16 and IFRS 9 as of 1 January 2018. Please refer to note 2 of this document for further details Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 117 117 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2018 ($ in millions) Profit for the year Other comprehensive income Items that may be reclassified subsequently to the Income Statement: Foreign exchange translation differences Gains/(losses) on cash flow hedges Items that will not be reclassified subsequently to the Income Statement: Re-measurement of the defined benefit and post-employment asset/liability Tax charged directly to equity Other comprehensive income net of tax Total comprehensive income net of tax Attributable to: Equity holders Non-controlling interest 1 Comparatives have been restated as a result of initial application of IFRS 15 and the change in accounting policy for unallocated launch slots discussed in note 2 Note 27 29 10 2018 2017 (restated)1 125.0 185.0 (0.1) (5.2) 19.7 (3.1) 11.3 136.3 135.5 0.8 – 14.1 12.7 (2.9) 23.9 208.9 208.3 0.6 GovernanceFinancial StatementsStrategic Report 118 118 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 CONSOLIDATED BALANCE SHEET at 31 December 2018 ($ in millions) Assets Non-current assets Property, plant and equipment Intangible assets Investments Right-of-use assets Other receivables Deferred tax assets Derivative financial instruments Current assets Cash and cash equivalents Short-term deposits Trade and other receivables Inventories Current tax assets Derivative financial instruments Restricted cash Total assets Liabilities Current liabilities Borrowings Trade and other payables Provisions Current tax liabilities Derivative financial instruments Lease obligations Non-current liabilities Borrowings Other payables Provisions Deferred tax liabilities Derivative financial instruments Lease obligations Total liabilities Net assets Shareholders’ equity Ordinary shares Share premium Other reserves Retained earnings Equity attributable to shareholders Non-controlling interest Total equity Note 2018 2017 (restated) 1 2016 (restated) 1 13 14 16 15 18 23 32 17 18 19 23 32 24 20 21 22 23 32 15 20 21 22 23 32 15 25 3,352.7 800.4 18.8 62.4 35.2 52.5 – 3,255.5 808.1 16.2 – 17.5 35.4 0.3 2,979.9 802.8 13.2 – 5.3 39.3 0.1 4,322.0 4,133.0 3,840.6 143.2 145.7 358.7 50.7 4.6 0.3 2.5 144.9 342.0 331.6 33.9 13.8 1.2 2.8 262.0 395.0 317.9 34.3 8.5 1.7 2.8 705.7 5,027.7 870.2 5,003.2 1,022.2 4,862.8 123.2 545.4 14.3 168.5 2.4 10.4 864.2 125.6 634.4 16.2 130.2 7.9 – 914.3 103.8 537.7 1.9 129.0 5.9 – 778.3 2,342.3 2,439.9 2,448.0 13.9 11.1 249.4 150.4 59.6 2,826.7 3,690.9 1,336.8 0.3 767.8 106.9 461.0 1,336.0 0.8 1,336.8 25.0 9.7 238.4 127.8 – 2,840.8 3,755.1 1,248.1 0.3 745.4 92.0 409.8 1,247.5 0.6 1,248.1 41.5 2.8 208.3 153.5 – 2,854.1 3,632.4 1,230.4 0.3 700.4 61.8 467.3 1,229.8 0.6 1,230.4 1 The Group has adopted IFRS 15 using the fully retrospective method and changed the accounting policy for unallocated launch slots. The 31 December 2016 balance sheet has been provided to show the impact on the opening position of the prior period The consolidated financial statements of the Group on pages 116 to 120 were approved by the Board of Directors on 18 March 2019 and were signed on its behalf by RUPERT PEARCE CHIEF EXECUTIVE OFFICER TONY BATES CHIEF FINANCIAL OFFICER Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 119 119 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2018 Ordinary share capital Share premium account Share option reserve Cash flow hedge reserve Retained earnings (restated)5 Non- controlling interest2 Other1 Notes (23.3) (2.8) 467.5 ($ in millions) Balance at 1 January 2017 Share-based payments3 Dividend declared Scrip dividend cash reinvestment4 Scrip dividend share issue4 Losses on cash flow hedges capitalised to tangible assets Comprehensive income: Profit for the year (restated) Other comprehensive loss – before tax Other comprehensive loss – tax Total comprehensive income for the year Balance at 31 December 2017 Share-based payments3 Dividend declared Scrip dividend cash reinvestment4 Scrip dividend share issue4 Losses on cash flow hedges capitalised to tangible assets Comprehensive income: Profit for the year Other comprehensive gain – before tax Other comprehensive gain – tax Total comprehensive income for the year 12 12 12 12 12 12 0.3 700.4 – – – – – – – – – – – – 45.0 – – – – – 87.9 14.6 – – – – – – – – – – – – – – – – – – – – 22.4 – – – – – 11.3 – – – – – – – – (249.8) (0.6) (250.4) Total 1,230.6 12.5 0.6 – – – – 0.6 – – 0.6 0.6 – 45.0 – 1.5 185.0 26.8 (2.9) 208.9 1,248.1 13.6 (0.6) (92.5) – – – 22.4 – 8.9 (2.1) 45.0 (45.0) – 184.4 12.7 (2.9) 194.2 2.3 (91.9) 22.4 (22.4) – 124.2 0.8 125.0 (0.1) (0.1) (2.9) 19.7 (3.1) 140.8 461.0 – – 0.8 0.8 14.4 (3.1) 136.3 1,336.8 – – – – 1.5 – 14.1 – 14.1 – – – – – – – – – – – – – – – – – – – 8.9 – (5.2) (5.2) (4.0) Balance at 31 December 2018 0.3 767.8 113.8 1 The ‘other’ reserve relates to ordinary shares held by the employee share trust debit of $2.4m (2017: $2.4m), the currency reserve debit of $1.1m (2017: $1.3m) and the revaluation reserve of $0.6m (2017: $0.9m) 2 Non-controlling interest (‘NCI’) refers to the Group’s 51% shareholding in Inmarsat Solutions ehf 3 Represents the fair value of share option awards, net of tax, recognised in the year 4 Represents the cash value of the scrip dividend reinvested into the Company 5 Comparatives have been restated as a result of initial application of IFRS 15 and the change in accounting policy for unallocated launch slots discussed in note 2 0.3 745.4 102.5 (7.7) (2.8) 409.8 GovernanceFinancial StatementsStrategic Report 120 120 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2018 ($ in millions) Cash flow from operating activities Cash generated from operations Interest received Tax received/(paid) Net cash inflow from operating activities Cash flow from investing activities Purchase of property, plant and equipment Additions to intangible assets Own work capitalised Proceeds from short-term deposits1 Repayments of short-term deposits1 Investment in financial asset Net cash used in investing activities Cash flow from financing activities Dividends paid Repayment of borrowings Drawdown of borrowings Interest paid Arrangement costs of financing Cash payments for the principal portion of the lease obligations Other financing activities Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents At the beginning of the year Net (decrease)/increase in cash and cash equivalents Foreign exchange gains/(losses) on cash and cash equivalents At the end of the year (net of bank overdrafts) Comprising: Cash at bank and in hand Short-term deposits with original maturity of less than three months Cash and cash equivalents Bank overdrafts Net cash and cash equivalents at the end of the year 1 Proceeds from and repayments of short-term deposits are net of interest and have an original maturity of more than 3 months 2 Comparatives have been restated as a result of initial application of IFRS 15 and the change in accounting policy for unallocated launch slots discussed in note 2 Note 24 2018 2017 (restated)2 713.4 6.0 2.3 721.7 789.8 5.5 (19.8) 775.5 (460.3) (454.3) (93.0) (37.4) 459.5 (110.7) (49.1) 455.1 (263.2) (402.0) 16 – (1.1) (394.4) (562.1) (70.1) (122.2) – (120.5) (4.9) (12.3) (1.6) (331.6) (4.3) 144.6 (4.3) 2.9 143.2 143.2 – 143.2 – 143.2 (202.9) (80.8) 78.4 (120.2) (1.2) – (1.9) (328.6) (115.2) 261.5 (115.2) (1.7) 144.6 109.9 35.0 144.9 (0.3) 144.6 15 17 17 20 Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 121 121 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION Inmarsat plc (the ‘Company’ or, together with its subsidiaries, the ‘Group’) is a company incorporated in the United Kingdom and domiciled in England and Wales. The address of its registered office is 99 City Road, London EC1Y 1AX, United Kingdom. 2. PRINCIPAL ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been applied consistently to all the years presented unless otherwise stated. BASIS OF PREPARATION These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union, the Companies Act 2006 and Article 4 of the EU IAS Regulation. The financial statements have been prepared under the historical cost convention except for certain financial instruments that have been measured at fair value, as described later in these accounting policies. GOING CONCERN The Group has a robust and resilient business model, positive free cash flow generation and is compliant with all banking covenants. Because of this, the Directors believe that the Company and the Group are well-placed to manage its 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. Further discussion of the Group’s business activities, together with factors likely to affect its future development, performance and position are set out in the Strategic Report which encompasses the Chairman’s review, the Chief Executive’s review, the financial review and the viability statement on pages 1 to 59. BASIS OF ACCOUNTING The consolidated financial statements are presented in US Dollars, which is the functional currency of the Company and most of the Group’s subsidiaries. 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 year. Although these estimates are based on management’s best estimate of the amount, event or actions, the actual results ultimately may differ from these estimates. Further discussion on these estimates and assumptions are disclosed in note 4. ACCOUNTING POLICY CHANGES New and amended accounting standards adopted by the Group IFRS 15 ‘Revenue from contracts with customers’ The Group has adopted IFRS 15 Revenue from Contract with Customers (‘revenue standard’) for the year ended 31 December 2018 using the fully retrospective method. Two revenue streams were identified as areas requiring Group policy change to align with IFRS 15. These are installation revenues and revenues from the Ligado contract. Installation revenues have previously been recognised in full on completion of work. Under IFRS 15, installation on equipment owned by the Group is not considered a distinct performance obligation. The price charged to the customer is added to the transaction price and is spread over the related contract period. Similarly installation costs, which were previously expensed on installation, are now capitalised and depreciated over the contract period. Revenues relating to Ligado was previously recognised when amounts fell due. This differs from the treatment under IFRS 15 which requires the full transaction price to be apportioned over the contract term. This has been calculated using an output measure. A finance component in relation to deferred payments has been recognised. The table below shows the combined impact on Group comprehensive income: ($ in millions) Revenues Other operating costs EBITDA Depreciation and amortisation Operating profit Financing income Profit before tax Tax Profit after tax Income statement for year ended 31 December 2017 Reported IFRS 15 adjustment Restated 1,400.2 (8.5) 1,391.7 (209.1) 731.5 (406.7) 321.5 6.5 229.8 (47.5) 182.3 16.3 7.8 (5.1) 2.7 1.3 4.0 (1.3) 2.7 (192.8) 739.3 (411.8) 324.2 7.8 233.8 (48.8) 185.0 On the balance sheet, property, plant and equipment increased due to the capitalisation of installation costs. Additionally an increase in trade and other payables in the form of deferred income was recognised, reflecting the corresponding delay in the recognition of installation revenue. 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. IFRS 15 has resulted in an increase to property, plant and equipment, trade and other receivables and trade and other payables of $8.5m, $11.0m and $29.4m respectively on the 2017 opening balance sheet. This has led to a decrease in the opening retained earnings of $9.9m. ($ in millions) Non-current assets Balance sheet as at 31 December 2017 Reported IFRS 15 adjustment Restated Property, plant and equipment Deferred income tax asset 3,236.6 35.6 18.9 (0.2) 3,255.5 35.4 Current assets Trade and other receivables1 Total assets Current liabilities 319.4 4,959.5 25.0 43.7 344.4 5,003.2 Trade and other payables 584.6 49.8 634.4 Non-current liabilities Deferred income tax liabilities Total liabilities Net assets (Equity) 237.3 3,704.2 1,255.3 1.1 238.4 50.9 3,755.1 (7.2) 1,248.1 1 Trade and other receivables do not include the adjustment for the change in accounting policy relating to unallocated launch slots GovernanceFinancial StatementsStrategic Report 122 122 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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. ($ in millions) Cashflow as at 31 December 2017 Reported IFRS 15 adjustment Restated Cash generated from operations 774.4 15.4 789.8 Net cash inflow from operating activities Purchase of property, plant and equipment Net cash used in investing activities Net (decrease)/increase in cash and cash equivalents 760.1 15.4 775.5 (438.9) (546.7) (15.4) (15.4) (454.3) (562.1) (115.2) – (115.2) In terms of the Group’s financial performance for 2018, EBITDA is $7.5m higher under IFRS 15 compared to the previous standard, as revenues removed of $2.5m did not exceed costs removed of $10.0m. Profit after tax was $4.5m higher driven by the increased EBITDA and finance income of $2.4m and offset by increased depreciation of $5.4m. Restated basic and diluted EPS is $0.41 and $0.40 per share. IFRS 16 ‘Leases’ IFRS 16 ‘Leases,’ as issued by the IASB in January 2016, has been adopted by the Group on 1 January 2018 in advance of its effective date. The Group has applied IFRS 16 using the modified retrospective approach. This approach allows the recognition of the lease liability and asset as at 1 January 2018 with no restatement of prior period financial statements. The Group has also applied the practical expedient on transition to apply a single discount rate to a portfolio of leases with reasonably similar characteristics. The Group has adopted the practical expedients relating to short term and low value assets which allow these to be expensed through the income statement. The main impact is around property leases where the Group is the lessee. The Group also has a number of unrecognised non-cancellable contractual commitments relating to network service contracts and maintenance contracts, which have varying terms. These do not constitute identified assets and do not meet the definition of a lease under IFRS 16. These have therefore continued to be expensed through the income statement. The adjustments as at 1 January 2018 to the Group’s Balance Sheet are the recognition of right-of-use assets and lease liabilities. These are shown in the table below. ($ in millions) Non-current assets Right of use asset Total assets Current liabilities Balance sheet as at 1 January 2018 Reported IFRS 16 adjustment Post IFRS 16 adjustment – 4,959.5 75.7 75.7 75.7 5,035.2 The lease liability of $87.2m has been calculated as at 1 January 2018 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 being equal to the lease liability, adjusted by $11.5m of accruals related to the phasing of lease payments. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities recognised at the date of initial application was 3.6%. In terms of the Group’s financial performance for 2018, EBITDA is $12.8m higher under IFRS 16 compared to the previous standard (excluding the gain on revaluation of lease liabilities), as lease costs are removed from operating costs and used to reduce the liability. Profit before tax is only $0.6m higher as the right-of-use assets attract depreciation and the unwinding of the discounted cash flows result in an interest charge. IFRS 9 ‘Financial Instruments’ IFRS 9 ‘Financial Instruments,’ as issued by the IASB in July 2014, has been adopted by the Group on the effective date of 1 January 2018. IFRS 9 supersedes the existing accounting guidance in IAS 39 ‘Financial Instruments: Recognition and Measurement’ and the related interpretations. The standard was applied using the modified retrospective approach for year ended 31 December 2018 with the exception of hedge accounting. The Group has not restated prior periods or recognised any adjustments in opening retained earnings The new standard covers the accounting treatment of the following three areas: › classification and measurement of financial assets and liabilities › impairment of financial assets › hedge accounting Classification and measurement of financial assets and liabilities IFRS 9 requires financial asset classification to be based on contractual cash flow characteristics and the objective of the Group in holding the financial asset. The new measurement model results in the reclassification of all financial assets due to the reduction in classification categories to amortised cost, fair value through profit and loss and fair value through other comprehensive income. The changes have not had a quantitative impact on the financial statements with accounting treatment remaining unchanged. The table below shows the assessment performed by the Group. Financial Asset Trade receivables Accrued income Other receivables Cash and cash equivalents IAS 39 Classification IAS 39 Measurement IFRS 9 Classification & measurement Loans and receivables Loans and receivables Loans and receivables Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Fair value through profit and loss Fair value through profit and loss Fair value through profit and loss Trade and other payables 584.6 (11.5) 13.1 573.1 13.1 Short-term deposits Loans and receivables Amortised cost Amortised cost Lease obligations Non-current liabilities Lease obligations Total liabilities Net assets (Equity) – – 3,704.2 74.1 75.7 74.1 3,779.9 1,255.3 – 1,255.3 Impairment of financial assets The IAS 39 ‘incurred loss model’ is replaced by the IFRS 9 forward looking ‘expected credit loss model’. The new model requires either 12-month expected credit losses (‘ECLs’), or lifetime ECLs to be recognised for all financial assets at initial recognition, before an impairment event occurs. The Group has applied the simplified approach under the expected credit loss model, which leads to lifetime expected credit losses always being recognised. Under the standard, a provisioning matrix can be used to group financial assets and calculate the expected credit losses based on these groupings. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 123 123 The Group uses a matrix based on ageing and internal credit ratings which are allocated to all debtors. Refer to note 18 for further details. There has been no material impact on 2018 or the prior year due to the adoption of the ECL model. Hedge Accounting Given the Group’s limited hedging activities and the lack of benefit to financial statement users for adopting the hedging requirements of IFRS 9, the Group has elected not to adopt this until mandatory and has maintained the treatment under IAS 39. IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’ IFRIC 22 is effective from 1 January 2018 and is applied prospectively. The interpretation clarifies how to account for transactions that involve advance consideration paid or received in a foreign currency. This has had no impact on the Group. Revised accounting policies adopted by the Group Unallocated launch slots Following significant investment in future growth combined with rapid changes in technologies, the Group has refined operational processes to be more agile and adaptive in order to capture and secure market share. In turn the Group have reassessed their current accounting policies specifically around the launch process to ensure these are reflective of the operational changes. The Group consider the need for a portfolio of launch slots to provide flexibility to launch satellites as and when they are required. Previously unallocated launch slots were recorded in prepayments. These have been reclassified to intangible assets. As a result, the comparative financial numbers for the year 2017 have been restated and intangible assets have increased by $19.2m to $808.1m and total prepayments have decreased by $19.2m to $30.7m. There has been no impact to total assets. New and amended accounting standards that have been issued but are not yet effective and have not been adopted by the Group IFRIC 23 ‘Uncertainty over Income Tax Treatments’ IFRIC 23 will be effective for periods beginning on or after 1 January 2019. The interpretation clarifies the application of recognition and measurement requirements in IAS 12 for uncertain tax positions. Guidance is provided on a number of areas including whether uncertain tax positions should be considered separately or together, the appropriate method to reflect uncertainty, and how to account for changes in facts or circumstances. When IFRIC 23 is adopted, it can be applied either on a full retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, where possible without the use of hindsight or with the cumulative retrospective impact of IFRIC 23 applied as an adjustment to equity on the date of adoption. The Group is expected to adopt IFRIC 23 retrospectively on the 1 January 2019 with the cumulative effect recognised in equity on the date of adoption. The Group has assessed the impact that IFRIC 23 will have on the uncertain tax positions as at 31 December 2018. The material impact of the adoption of IFRIC 23 is a change in the most appropriate method to reflect the uncertainty in the uncertain tax positions. The expected adjustment as at 1 January 2019 in the Group’s Balance Sheet is an increase of $7.5m to the current tax creditor and an increase of $6.2m to the deferred tax creditor, while opening 2019 retained earnings are expected to decrease by $13.7m. IFRS 17 ‘Insurance Contracts’ IFRS 17 will be effective for periods beginning on or after 1 January 2021 and supersedes IFRS 4 ‘Insurance Contracts,’ subject to endorsement by the EU. Neither standard is applicable to the Group. Amendments to accounting standards that are effective for the current period The following standards have all been endorsed by the EU and are effective for the current period. The Group has considered all the below amendments and has determined that these do not have a material impact. › Amendments to IAS 40: Transfers of Investment Property › Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions › Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts BASIS OF CONSOLIDATION The consolidated financial statements include the financial statements of the Company and all its subsidiaries, and incorporate the share of the results of associates using the equity method of accounting. The results of subsidiary undertakings established or acquired during the period are included in the consolidated income statement from the date of establishment or acquisition of control. The results of subsidiary undertakings disposed of during the period are included until the date of disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All transactions, balances, income and expenses with and between subsidiary undertakings have been eliminated on consolidation. Non-controlling interests in the net assets of consolidated subsidiaries, which consist of the amounts of those interests at the date of the original business combination and the non-controlling interests’ share of changes in equity since the date of the combination, are not material to the Group’s financial statements. BUSINESS COMBINATIONS Business combinations are accounted for using the acquisition method. When the Group acquires a business, it identifies the assets and liabilities of the acquiree at the date of acquisition and measures them at fair value. Only separately identifiable intangible assets are recognised. Any assets or disposal groups held for sale at the acquisition date are measured at fair value less costs to sell. Consideration is the fair value at the acquisition date of the assets transferred and liabilities incurred in acquiring the business and includes the fair value of any contingent consideration. Changes in fair value of contingent consideration after the acquisition date are recognised in the income statement. Acquisition-related costs are expensed as incurred and included in operating costs. Goodwill is initially measured at cost as the difference between the fair value of the consideration for the acquisition and fair value of the net identifiable assets acquired, including any identifiable intangible assets other than goodwill. If the assessment of goodwill results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in the income statement. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash- generating units (‘CGUs’) that are expected to benefit from the business combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. FOREIGN CURRENCY TRANSLATION The functional currency of the Company and most of the Group’s subsidiaries, as well as the presentation currency of the Group, is US Dollar. This is as the majority of operational transactions and financing are denominated in US Dollars. Foreign exchange gains and losses resulting from the settlement of transactions and the translation of monetary assets and liabilities denominated in foreign currencies at period end exchange rates are recognised in the income statement line which most appropriately reflects the nature of the item or transactions. On consolidation, assets and liabilities of foreign operations are translated into the Group’s presentation currency at the prevailing spot rate at year end. The results of foreign operations are translated into US Dollars at the average rates of exchange for the year. Foreign currency translation differences resulting from consolidating foreign operations are recognised in other comprehensive income. GovernanceFinancial StatementsStrategic Report 124 124 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED REVENUE The Group applies the 5 step-model as required by IFRS 15 in recognising its revenues. A contract’s transaction price is allocated to each distinct performance obligation and recognised as revenue when, or as, the performance obligation is satisfied. Mobile satellite communications service revenues result from utilisation charges that are recognised as revenue over the minimum contract period. The selection of the method to measure progress towards completion requires judgement and is based on the nature of the products or services to be provided. Because of control transferring over time, revenue is recognised based on the extent of progress towards completion of the performance obligation. Deferred income attributable to mobile satellite communications services or subscription fees represents the unearned balances remaining from amounts received from customers pursuant to prepaid contracts. The Group enters into minimum spend contracts with customers, known as ‘take-or-pay’ contracts, whereby customers agree to purchase a minimum value of mobile satellite communications services over a fixed period. Any unused portion of the prepaid contracts or the take-or-pay contracts (‘breakage’) that is deemed highly probable to occur by the expiry date is estimated at contract inception and recognised over the contract period in line with the pattern of actual usage of units by the customer. Revenue from the sale of prepaid credit is deferred until such time as the customer uses the airtime and subsequently recognised over time. Breakage from prepaid credit deferrals which is considered highly probable is estimated and recognised from contract inception. Mobile satellite communications service revenues from capacity sold are recognised on a straight-line basis over the term of the contract concerned, which is typically between one and 12 months, unless another systematic basis is deemed more appropriate. Revenue from spectrum coordination agreements (such as Ligado Networks), is recognised at a point in time based on standalone selling prices. Revenue from service contracts is recognised as the service is provided over time based on the contract period. Revenue of terminals and other communication equipment sold are recognised at the point in time when control is transferred to the customer. Installation revenues relating to this are also recognised at a point in time. Revenue from installation of terminals and other communication equipment owned by Inmarsat and used in the delivery of the service to the customer is however recognised over the contract term. The Group offers certain products and services as part of multiple deliverable arrangements. Consistent with all other contracts, the Group will assess whether the performance obligations are distinct by considering whether 1) the customer can benefit from good or service on its own; or together with other readily available resources 2) the good or service is distinct in the context of the contract. The transaction price is allocated to each performance obligation based on its stand-alone selling price relative to the total of all performance obligations’ stand-alone selling prices under the contract. The nature of the contracts within the Group may give rise to variable consideration. This is estimated as the most likely amount based largely on an assessment of the anticipated performance and all information (historical, current and forecasted) that is reasonably available and is included in the transaction price to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue will not occur. Where a contract contains a significant financing component, the Group adjusts the transaction price to a present value where the effect of discounting is deemed to be material. The Group has adopted the practical expedient whereby it is not required to adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less. For contracts with an overall duration greater than one year, the practical expedient also applies if the period between performance and payment for that performance is one year or less. A contract asset or a contract liability will arise when the performance of either party exceeds the performance of the other. Contract assets are rights to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditional on something other than the passage of time. Contract liabilities are obligations to transfer goods or services to a customer for which the entity has received consideration, or for which an amount of consideration is due to the customer. These are referred to as deferred income within the Group. Contract costs to obtain a contract and fulfil a contract are capitalised and amortised on a systematic basis, consistent with the pattern of transfer of the goods or services to which the capitalised cost relates. As a practical expedient, a cost to obtain contract with a customer will be immediately expensed if it has an amortisation period of one year or less. FINANCING INCOME AND FINANCING COST Financing income comprises interest receivable on funds invested in short- term deposits. Financing costs comprise interest payable on borrowings including the Senior Notes and Convertible Bonds, accretion of the liability component of the Convertible Bonds, amortisation of deferred financing costs, the unwind of the discount on deferred satellite liabilities, interest on lease liabilities and interest on the net defined benefit and post-employment asset/liability. Finance charges are recognised in the income statement at the effective interest rate. The change in fair value of the derivative liability component of the 2023 Convertible Bond is presented within net financing costs in the income statement. Further details on the accounting for derivative financial instruments is provided below. FINANCIAL ASSETS Trade and other receivables Trade and other receivables, including prepaid and accrued income, are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. The Group stratifies trade debtors based on internal credit ratings. The Group calculates the loss allowance for trade receivables and contract assets based on lifetime expected credit losses under the IFRS 9 simplified approach. Cash and cash equivalents Cash and cash equivalents, measured at fair value, comprises cash balances, deposits held on call with banks, money market funds and other short-term, highly liquid investments with an original maturity of three months or less. Bank overdrafts are shown as current liabilities within borrowings on the balance sheet. FINANCIAL LIABILITIES AND EQUITY Equity instruments An equity instrument is any contract that evidences a residual interest in the net assets of the Group. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue cost. Trade and other payables Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method. Borrowings Borrowings, comprising interest-bearing bank loans and overdrafts, are initially recognised at fair value which equates to the proceeds received, net of direct transaction and arrangement costs. They are subsequently measured at amortised cost. Finance charges related to borrowings, including amortisation of direct transaction costs, are charged to the income statement over the term of the borrowing using the effective interest rate method. Borrowings are generally classified as current liabilities unless the Group has the unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date, in which case borrowings are classified as non-current liabilities. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 125 125 Convertible Bonds The Group has issued Convertible Bonds which are net share settled instruments. Upon conversion the Group will repay the principal in cash and satisfy the remaining conversion value by issuing ordinary shares of the Company (if the market value of the Company’s shares at settlement date exceeds the conversion price). Upon issuance, the embedded options did not meet the ‘fixed-for-fixed’ criterion under IAS 32. These embedded options represent non-closely related embedded derivatives that are bifurcated from the host debt contract and measured at fair value through profit and loss. The issued instrument has multiple embedded derivatives, all derivatives that relate to the same risk exposure are assessed and accounted for as a single compound instrument. The cash debt component is initially recognised as the present value of the principal and interest payments using a discount rate for a similar instrument with the same terms and conditions but without the conversion option. After initial recognition, it is measured at amortised cost using the effective interest method with the interest expense recognised in the income statement and a cash outflow resulting from coupon payments to bond holders. The derivative liability component is initially assigned the residual amount after deducting from the fair value of the instrument as a whole, the fair value of a comparable, non-convertible bond, known as a debt host contract. The derivative liability is sensitive to changes in the bond price and is marked- to-market at each reporting date with the increase or decrease recognised in the income statement. Senior Notes The Group has issued Senior Notes that are included within borrowings, and are initially recognised at fair value which equates to the proceeds received, net of direct transaction costs and any premium or discount. These instruments are subsequently measured at amortised cost. Finance charges, including amortisation of direct transaction costs and any premium or discount, are recognised in the income statement over the term of the borrowing at the effective interest rate method. Net borrowings Net borrowings consists of total borrowings less cash and cash equivalents and short-term investments. Borrowings exclude accrued interest and any derivative financial liabilities. Derivative financial instruments In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading or speculative purposes. Derivatives are initially recognised at fair value on the date the contract is entered into and subsequently measured at fair value. The gain or loss on remeasurement is recognised in the income statement, except where the derivative is used to hedge against risks such as fluctuations in interest rates or foreign exchange rates. The accounting policy for hedging follows below. Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income and accumulated in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the income statement within financing costs. 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 and Thales for the construction of the I-6 and GX-5 satellites. Amounts recognised as other comprehensive income are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised, or when a forecast sale occurs. When the hedged item is the future purchase of a non-financial asset or non-financial liability, the amount recognised as other comprehensive income is transferred to the initial carrying amount of the non-financial asset or liability. EMPLOYEE BENEFITS Wages, salaries, social security contributions, accumulating annual leave, bonuses and non-monetary benefits are accrued in the year in which the associated services are performed by the employees of the Group. Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it has demonstrably committed to either terminate the employment of current employees or to provide termination benefits, as a result of an offer made to encourage voluntary redundancy. The Group recognises liabilities relating to defined benefit pension plans and post-employment benefits in respect of employees. The Group’s net obligations in respect of defined benefit pension plans and post-employment benefits are calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. The estimated future benefit is discounted to its present value, from which the fair value of any plan assets is deducted to calculate the plan’s net asset/liability position. The calculations are performed by qualified actuaries using the projected unit credit method. All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are immediately recognised in the statement of comprehensive income. The Group also operates a number of defined contribution pension schemes. Pension costs for the defined contribution schemes are charged to the income statement when the related employee service is rendered. The Group issues equity-settled share options and awards to employees. Equity-settled share option awards are measured at fair value of the options at the date of the grant. The fair value of the options is expensed on a straight- line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. TAXATION Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement as it excludes items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax Deferred tax is provided on temporary differences arising between assets and liabilities’ tax bases and their carrying amounts (the balance sheet method). Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary deductible differences or tax loss carry forwards can be utilised. Deferred tax liabilities are provided on all taxable temporary differences except on those: › arising from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit › associated with investments in subsidiaries and associates, but only to the extent that the Group controls the timing of the reversal of the differences and it is probable that the reversal will not occur in the foreseeable future Deferred tax assets and liabilities are offset when there is a legally enforceable right to set them off, when they relate to income taxes levied by the same taxation authority and if the Group intends to settle its current tax assets and liabilities on a net basis. GovernanceFinancial StatementsStrategic Report 126 126 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Uncertain tax positions The Group’s policy is to comply with all enacted laws in the relevant jurisdictions in which the Group prepares its tax returns. However, tax legislation, especially as it applies to corporate taxes, is not always prescriptive and more than one interpretation of the law may be possible. In addition, tax returns in many jurisdictions are filed in arrears a year or more after the end of the accounting period to which they relate. The tax authorities often have a significant period in which to enquire into these returns after their submission. As a result, differences in view, or errors in returns, may not come to light until some time after the initial estimate of tax due is determined. This necessarily leads to a position of uncertain tax positions. Depreciation Depreciation is calculated to write-off the historical cost less residual values, if any, of fixed assets, except land, on a straight-line basis over the expected useful lives of the assets concerned. The Group selects its depreciation rates and residual values carefully and reviews them annually to take into account any changes in circumstances or expectations. When determining useful lives, the principal factors considered are the expected rate of technological developments, expected market requirements for the equipment and the intensity at which the assets are expected to be used. Any change in useful lives are accounted for prospectively. The Group also reviews the residual values and depreciation methods on an annual basis. Where the Group is aware of significant areas where the law is unclear and where this has been relied upon in a filing position of a tax return, or, in an area where different outcomes and interpretations are possible and may lead to a different result, the Group provides for the uncertain tax position. A provision is made when, based on the available evidence, the Group considers that it is probable that further amounts will be payable, or a recoverable tax position will be reduced, and the adjustment can be reliably estimated. The Group calculates the uncertain tax position using a single best estimate of the most likely outcome on a case-by-case basis. PROPERTY, PLANT AND EQUIPMENT General Property, plant and equipment assets are initially recognised at cost and subsequently treated under the cost model: at cost less accumulated depreciation and any accumulated impairment losses. Space segment assets Space segment assets comprise satellite construction, launch and other associated costs, including ground infrastructure. Expenditure charged to space segment projects includes invoiced progress payments, amounts accrued appropriate to the stage of completion of contract milestones, external consultancy costs and direct internal costs. Internal costs, comprising primarily staff costs, are only capitalised when they are directly attributable to the construction of an asset. Progress payments are determined on milestones achieved to date together with agreed cost escalation indices. Deferred satellite payments represent the net present value of future payments dependent on the future performance of each satellite and are recognised in space segment assets when the satellite becomes operational. Depreciation on space segment assets is recognised over the life of the satellites from the date they become operational and are placed into service. The associated liability is stated at its net present value and included within borrowings. Assets in the course of construction These assets are carried at cost with no depreciation charged whilst in the course of construction. The assets will be transferred to space segment assets and depreciated over the life of the satellites or services once they become operational and placed into service. Capitalised borrowing costs The Group incurs borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to get ready for its intended use or sale. Such borrowing costs are capitalised as part of the cost of the asset. Capitalisation commences when the Group begins to incur the borrowing costs and related expenditures for the asset, and when it undertakes the activities that are necessary to prepare the asset for its intended use or sale. Capitalisation of borrowing costs ceases when substantially all of the activities necessary to prepare the asset for its intended use or sale are complete. Other fixed assets Other fixed assets are initially recognised at cost and subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. Derecognition An item of property plant or equipment is derecognised upon disposal or when no future economic benefit is expected from its use or disposal. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is recognised in the income statement. GOVERNMENT GRANTS Government grants are recognised when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. A grant that relates to an expense item is recognised as income on a systematic basis over the period(s) that the related costs are expensed. A grant that relates to an asset is deducted from the cost of the relevant asset, thereby reducing the depreciation charge over the useful life of the asset. INTANGIBLE ASSETS Intangible assets comprise goodwill, trademarks, software, terminal development and network access costs, spectrum rights, orbital slots, unallocated launch slots and licences, customer relationships and intellectual property. Intangible assets acquired separately are initially recognised at cost. Intangible assets acquired as part of a business combination are initially recognised at their fair values as determined at acquisition date. After initial recognition, intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses. Research and development costs Research costs related to internally generated intangibles are expensed in the period that the expenditure is incurred. Development costs are expensed when the costs are incurred unless it meets criteria for capitalisation under IAS 38. Development costs are only capitalised if the technical feasibility, availability of appropriate technical, financial and other resources and commercial viability of developing the asset for subsequent use or sale have been demonstrated and the costs incurred can be measured reliably. Capitalised development costs are amortised in the income statement on a straight-line basis over the period of expected future benefit. Amortisation Intangible assets with a finite useful life are amortised on a straight-line basis over the useful life of the asset. The amortisation period and method are reviewed on an annual basis. Intangible assets with an indefinite useful life, such as goodwill, are not amortised but reviewed annually for impairment. IMPAIRMENT REVIEWS Goodwill is not amortised, but is tested annually for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the full carrying amount may not be recoverable. Indicators of impairment may include changes in technology and business performance. An asset is tested for impairment on an individual basis as far as possible to determine its recoverable amount. Where this is not possible, assets are grouped and tested for impairment in a cash generating unit. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 127 127 An asset will be impaired if the carrying amount exceeds its recoverable amount, which is the higher of the fair value less costs to sell the asset and the value in use. The impairment loss will be recognised in the income statement. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Subsequent to an impairment loss, if indications exist that an asset’s recoverable amount might have increased, the recoverable amount will be reassessed and any impairment reversal recognised in the income statement. An impairment loss is reversed only to the extent that the asset’s carrying amount will not exceed the depreciated historical cost (what the carrying amount would have been had there been no initial impairment loss). Impairment losses in respect of goodwill are not reversed. LEASES Contracts which convey the right to control the use of an identified asset for a period of time in exchange for consideration are accounted for as leases by the Group. At the commencement date, the Group, as lessee, recognises a right- of-use asset and a lease liability. The lease liability is measured at the present value of the lease payments that are not paid at that date, discounted using the rate implicit in the lease, unless such a rate is not readily determinable, in which case the incremental borrowing rate is used. The right-of use asset comprises the amount of the initial measurement of the lease liability, adjusted for any lease payments made at or before the commencement date, less any lease incentives received and any initial direct costs incurred by the Group. Lease term is determined as the non-cancellable period of a lease adjusted for any reasonably certain extension or termination option. After commencement date, the right-of use asset is depreciated on a straight- line basis to the end of the lease term. The lease liability is accounted for by reducing the carrying amount to reflect the lease payments made, and increasing the carrying amount to reflect the interest on the lease liability. As lessor for operating leases, the Group recognises lease payments as income. The underlying asset is depreciated on a straight-line basis over its expected useful life. NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE Non-current assets and disposal groups are classified as ‘held for sale’ when their carrying values will be recovered through a sales transaction rather than through continued use. This classification is subject to meeting the following criteria: › management is committed to a plan to sell and the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value › the asset is available for immediate sale › the sale is highly probable to be concluded within 12 months of classification as held for sale and › it is unlikely that the plan to sell will be significantly changed or withdrawn Disposal groups are groups of assets and associated liabilities to be disposed of together in a single transaction. At the reporting date they are separately disclosed as current assets and liabilities on the balance sheet. When non-current assets or disposal groups are classified as held for sale, depreciation and amortisation will cease and the assets are remeasured at the lower of their carrying amount and fair value less costs to sell. Any resulting impairment loss is recognised in the income statement, except for assets treated under the revaluation model, where the adjustment would first decrease the revaluation reserve before any excess will be recognised as an impairment loss in the income statement. Any remainder in the revaluation reserve will be released to the income statement on the date of sale. INVENTORIES Inventories are stated at the lower of cost (determined by the weighted average cost method) and net realisable value. Allowances for obsolescence are recognised in other operating costs when there is objective evidence that inventory is obsolete. PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The expense relating to a provision is recognised in the income statement, except where the obligation is to dismantle or restore an item of property, plant or equipment, in which case the amount is capitalised to the cost of the asset. The capitalised amount is subsequently depreciated to the income statement over the remaining useful life of the underlying asset. Provisions are discounted to a present value at initial recognition where the effect of discounting is deemed to be material. Discounted provisions will unwind over time using the amortised cost method with finance cost recognised in the income statement. Provision estimates are revised each reporting date and adjustments recognised in line with the provision’s initial recognition (either in the income statement or recognised against the cost of the asset). Asset retirement obligations The fair value of legal obligations associated with the retirement of tangible property, plant and equipment is recognised in the financial statements in the period in which the liability is incurred. Upon initial recognition of a liability for an asset retirement obligation, a corresponding asset retirement cost is added to the carrying amount of the related asset, which is subsequently amortised to income over the remaining useful life of the asset. Following the initial recognition of an asset retirement obligation, the carrying amount of the liability is increased for the passage of time by applying an interest method of allocation to the liability with a corresponding accretion cost reflected in operating expenses. Revisions to either the timing or the amount of the original estimate of undiscounted cash flows are recognised each period as an adjustment to the carrying amount of the asset retirement obligation. ALTERNATIVE PERFORMANCE MEASURES In addition to IFRS measures the Group uses a number of Alternative Performance Measures (‘APMs’) in order to provide readers with a better understanding of the underlying performance of the business, and to improve comparability of our results for the period. More detail on IFRS and APMs can be found on page 165. 3. FINANCIAL RISK MANAGEMENT BREXIT The United Kingdom leaving the European Union on 29 March 2019 is not expected to have a significant financial impact on the Group. The majority of revenue, capital expenditure and long-term borrowings are denominated in US Dollars reducing our exposure to a weakening Sterling. Additional costs incurred from professional fees for legal advice and work permits for employees are expected to be limited. For information pertaining to the potential operational impacts to the Group, refer to pages 52 to 58 for the Group’s principal risks. FINANCIAL RISK FACTORS The Group’s operations and significant debt financing expose it to a variety of financial risks that include the effects of changes in debt market prices, foreign currency exchange rates, credit risks, liquidity risks and interest rates. The Group has in place a risk management programme that seeks to limit adverse effects on the financial performance of the Group by using forward exchange contracts to limit exposure to foreign currency risk and to limit the impact of fluctuating interest rates by minimising the amount of floating rate long-term borrowings. The Board of Directors has delegated to the treasury department the responsibility for setting and implementing the financial risk management policies applied by the Group. The treasury department has an operating manual that sets out specific guidelines for managing foreign exchange risk, interest rate risk and credit risk (see note 32). The Group does not hold or issue derivative financial instruments for speculative or trading purposes. GovernanceFinancial StatementsStrategic Report 128 128 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED (A) MARKET RISK (i) Foreign exchange risk The functional currency of Inmarsat plc is the US Dollar. Apart from the deferred satellite liability, all of the Group’s long-term borrowings are denominated in US Dollars, the majority of its revenue is earned in US Dollars and the majority of capital expenditure is denominated in US Dollars, which are therefore not subject to risks associated with fluctuating foreign currency rates of exchange. However, the Group operates internationally, resulting in approximately 3% and 16% of total revenue and total expenditure, respectively, being denominated in currencies other than the US Dollar. Approximately 28% (2017: 27%) of the Group’s operating costs are denominated in Pounds Sterling. The Group’s exposure therefore needs to be carefully managed to avoid variability in future cash flows and earnings caused by volatile foreign exchange rates. As at 31 December 2018 it is estimated that a hypothetical 10% increase in the US Dollar/Sterling year-end exchange rate (US$1.27/£1.00 to US$1.4/£1.00) would have decreased the 2018 profit before tax by approximately $2.6m (2017: $4.8m). Management believes that a 10% sensitivity rate provides a reasonable basis upon which to assess expected changes in foreign exchange rates. (ii) Price risk The Group is not exposed to significant equity securities price risk or commodity price risk. (B) INTEREST RATE RISK The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has interest-bearing assets such as cash and cash equivalents, short-term deposits, and non-current other receivables however interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk; however, as at 31 December 2018, the Group has no borrowings issued at variable. The Senior Notes due 2022 and 2024, the Convertible Bonds due 2023 and the Ex-Im Bank Facilities are all at fixed rates. (C) CREDIT RISK Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. A debt will be deemed uncollectable and therefore written off based on one or more of the following criteria: › Insolvency (formal or just ceased trading) › Debtor cannot be located › Debt uneconomical to pursue For any write-offs, a standard procedure is followed with authorisations obtained in-line with the Group’s framework. Financial instruments that potentially subject the Group to a concentration of credit risk consist of cash and cash equivalents, short-term deposits, trade receivables, other receivables, accrued income and derivative financial instruments. The credit risk on liquid funds (cash and cash equivalents and short-term deposits) and derivative financial instruments is limited because the counterparties are highly rated financial institutions. The maximum exposure to credit risk as at 31 December is: ($ in millions) Cash and cash equivalents Short term deposits Trade receivables, other receivables and accrued income Derivative financial instruments Total credit risk Note 17 32 32 2018 143.2 145.7 2017 144.9 342.0 337.7 275.3 0.3 1.5 626.9 763.7 The Group’s average age of trade receivables as at 31 December 2018 was approximately 79 days excluding Ligado and approximately 72 days including Ligado (2017: 57 days excluding Ligado and 52 days including Ligado). At 31 December 2018, $257.5m (2017: $170.0m) of trade receivables were not yet due for payment. No interest is charged on trade receivables until the receivables become overdue for payment. Thereafter, interest may be charged at varying rates depending on the terms of the individual agreements. The Group has credit evaluation, approval and monitoring processes intended to mitigate potential credit risks, and utilises both internal and third-party collection processes for overdue accounts. The Group maintains provisions for potential credit losses that are assessed on an ongoing basis. The provision for uncollectible trade receivables has increased to $28.4m as at 31 December 2018 (2017: $12.5m). For 2018, no customer comprised greater than 10% of the Group’s total revenues (2017: no customer). (D) LIQUIDITY RISK The Group is exposed to liquidity risk with respect to its contractual obligations and financial liabilities. Prudent liquidity risk management implies maintaining sufficient cash and short-term deposits and the availability of funding through an adequate amount of committed credit facilities. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The available liquidity of the Group as at 31 December is: ($ in millions) Note 2018 Cash and cash equivalents Available but undrawn borrowing facilities1 Total available liquidity 17 20 143.2 750.2 893.4 2017 144.9 500.5 645.4 1 Relates to the Senior Revolving Credit Facility (see note 20) The Directors believe the Group’s liquidity position is more than sufficient to meet its needs for the foreseeable future. 4. CRITICAL ACCOUNTING ESTIMATES AND KEY JUDGEMENTS The preparation of the consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and expenses during the reported period. ESTIMATES AND ASSUMPTIONS The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The following key estimates have been made: (A) TAXATION The calculation of the Group’s uncertain tax provisions involves estimation in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority, or, as appropriate, through a formal legal process. Issues can, and often do, take a number of years to resolve. The amounts recognised or disclosed are derived from the Group’s best estimation. However, the inherent uncertainty regarding the outcome of these means eventual realisation could differ from the accounting estimates and therefore impact the Group’s results and cash flows. In the event that all such enquiries were settled entirely in favour of the authorities, the Group would incur a cash tax outflow of $110m, excluding interest, during 2019. The quantum and timing of this cost remains uncertain but it is substantially provided for and the enquiries remain ongoing at this time. The Group anticipates an initial conclusion in respect of the most significant enquiry in 2019. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 129 129 (B) REVENUE IN RESPECT OF THE LIGADO NETWORKS COOPERATION AGREEMENT In December 2007, Inmarsat and Ligado Networks (formerly LightSquared LP, Skyterra (Canada) Inc. and LightSquared Inc.) entered into a Cooperation Agreement for the efficient use of L-band spectrum over North America. The Cooperation Agreement was segregated into phases and designed to enable and support the deployment of an ATC network by Ligado in North America. In March 2016, Ligado Networks agreed to take the 30MHz option (the ‘30MHz Plan’) under Phase 2 of the Cooperation Agreement between the companies. In exchange for the deferral of some payments from Ligado to Inmarsat, the parties agreed to delay the transition to the 30MHz Plan, with Ligado providing Inmarsat enhanced spectrum usage rights for its satellite operations for a minimum period of two years. The timing of the revenue recognition and related costs is dependent on when Ligado receive their FCC licence, which remains uncertain. Key estimates relating to the determination of the transaction price have been made driven by the expected contract term and payment profile. For the year ended 31 December 2018, the Group recognised $130.7m of revenue with $0.1m operating costs (year ended 31 December 2017: $126.7m and $2.0m respectively). JUDGEMENTS In the process of applying the Group’s accounting policies, the following judgements have been made, which have the most significant effect on the amounts recognised in the consolidated financial statements: (C) REVENUE IN RESPECT OF THE LIGADO NETWORKS COOPERATION AGREEMENT At 31 December 2018, deferred income in respect of the Cooperation Agreement of $206.7m was recorded on the balance sheet. Although the cash has been received, the timing of the recognition of this deferred income, together with any related future costs and taxes, is dependent upon when Ligado receive their FCC licence, which remains uncertain. An accounting judgement has been made in assuming that there remains a future obligation. During 2018, $0.1m was recognised in relation to costs incurred on interference. At 31 December 2018, a receivable of $35.0m has been recorded on the balance sheet relating to the deferrals. This was previously netted off within the deferred income, however this has been disclosed separately on the adoption of IFRS 15. The Group believe that this receivable is recoverable. (D) CAPITALISATION OF SPACE SEGMENT ASSETS AND ASSOCIATED BORROWING COSTS The net book value of space segment assets is currently $2,231.5m (2017: $2,510.3m). There have been additions of $0.6m in the year (2017: $174.9m). The key judgements involved in the capitalisation of space segment assets and associated borrowings costs are: › whether the capitalisation criteria of the underlying IAS have been met › whether an asset is ready for use and as a result further capitalisation of costs should cease and depreciation should commence and › whether an asset is deemed to be substantially complete and as a result capitalisation of borrowing costs should cease (E) PROXY BOARD ARRANGEMENT The Group has made key judgements in determining the appropriateness of consolidating Inmarsat Government Inc. The U.S. Government element of Inmarsat’s Government business unit is managed through the U.S. trading entity, Inmarsat Government Inc., a wholly- owned subsidiary of the Group. The business is managed through a Proxy agreement as required by the U.S. National Industrial Security Program (‘NISP’). A Proxy agreement is an instrument intended to mitigate the risk of foreign ownership, control or influence when a foreign person owns, acquires or merges with a U.S. entity that has a facility security clearance under the NISP. The Proxy agreement conveys the foreign owner’s voting rights to the Proxy Holders, comprised of the Proxy board. There are three Proxy holders who are U.S. citizens cleared and approved by the U.S. Defence Security Service (‘DSS’). The Proxy holders have a fiduciary duty, and agree, to perform their role in the best interests of the Group (including the legitimate economic interest), and in a manner consistent with the national security interests of the U.S. The DSS requires Inmarsat Government Inc. to enter into a Proxy agreement because it is indirectly owned by the Group and it has contracts with the Department of Defence which contain certain classified information. The Proxy agreement enables Inmarsat Government Inc. to participate in such contracts with the U.S. Government despite being owned by a non-U.S. corporation. Under the Proxy agreement, the Proxy holders have the power to exercise all privileges of share ownership of Inmarsat Government Inc. In addition, as a result of the Proxy agreement, certain limitations are placed on the information which may be shared, and the interaction which may occur, between Inmarsat Government Inc. and other Group companies. The Group maintains its involvement in Inmarsat Government Inc.’s activities through normal business activity and liaison with the Chair of the Proxy Board. Inmarsat Government Inc.’s commercial and governance activity is included in the business update provided in regular Executive reports to the Board. This activity is always subject to the confines of the Proxy regime to ensure that it meets the requirement that Inmarsat Government Inc. must conduct its business affairs without direct external control or influence, and the requirements necessary to protect the U.S. national security interest. In accordance with IFRS 10 ‘Consolidated financial statements’, an assessment is required to determine the degree of control or influence the Group exercises and the form of any control to ensure that the financial statement treatment is appropriate. On the basis of the Group’s ability to affect the financial and operating policies of the entity, we have concluded that the Group meets the requirements of IFRS 10 in respect of control over the entity and, therefore, consolidates the entity in the Group’s consolidated accounts. There have been no changes in circumstances which impact any of the key judgements made by the Group. (F) PRESENTATION OF CONVERTIBLE BOND The Group holds the Convertible Bond as a non-current liability on the Balance Sheet, reflecting the expected redemption date of 9 September 2023. The bond is convertible from 20 October 2016 meaning a Bondholder could theoretically convert their holding prior to the due date of 9 September 2023. In the event that the share price remains significantly below the conversion price of the bonds ($13.41), any bondholder who converts their Convertible Bond, rather than selling it on the market, would make a material loss. Consequently, in practice, the Group does not believe that any material amounts of the Convertible Bond will be repaid in the next 12 months. GovernanceFinancial StatementsStrategic Report 130 130 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. SEGMENTAL 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 › U.S. Government, focusing on U.S. civil and military government services › Global Government, focusing on worldwide civil and military government services › Aviation, focusing on commercial, business and general aviation services › Enterprise, focusing on worldwide energy, industry, media, carriers, and M2M services Details of these business units are given on pages 20 to 37. 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 U.S. Government and Global Government operating segments into one reporting segment as the segments have a similar type of customer for the products and services and meet the criteria for aggregation under IFRS. 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 and amortisation, net financing costs and taxation. 2018 Maritime Government Aviation Enterprise 552.8 – 552.8 (123.8) 429.0 381.0 – 381.0 (110.8) 270.2 256.1 – 256.1 (124.2) 131.9 130.0 – 130.0 (47.7) 82.3 Central Services 14.6 130.7 145.3 (288.6) (143.3) SEGMENT RESULTS ($ in millions) Revenue Ligado revenue Total revenue Net operating costs EBITDA Depreciation and amortisation Other1 Operating profit Net financing cost Profit before tax Taxation Profit for the year Cash capital expenditure 54.4 5.0 34.8 – 496.5 Financing costs capitalised in the cost of qualifying assets Cash flow timing2 Total capital expenditure ($ in millions) Timing of revenue recognition At a point in time Over time Total 1 Other relates to the share of profit from associates ($3.9m), loss on disposal of assets ($2.5m) and impairment of assets ($14.5m) 2 Cash flow timing represents the difference between accrued capex and the actual cash flows Total 1,334.5 130.7 1,465.2 (695.1) 770.1 (468.3) (13.1) 288.7 (120.8) 167.9 (42.9) 125.0 590.7 43.7 (61.5) 572.9 At 31 December 2018 Total 262.4 1,202.8 1,465.2 Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 131 131 2017 (restated) Maritime Government Aviation Enterprise 567.3 – 567.3 (120.3) 447.0 366.7 – 366.7 (101.5) 265.2 181.8 – 181.8 (77.9) 103.9 132.6 – 132.6 (40.7) 91.9 Central Services 14.5 128.8 143.3 (312.0) (168.7) ($ in millions) Revenue Ligado revenue Total revenue Net operating costs EBITDA Depreciation and amortisation Other1 Operating profit Net financing cost Profit before tax Taxation Profit for the year Cash capital expenditure 45.9 9.9 143.8 – 414.5 Financing costs capitalised in the cost of qualifying assets Cash flow timing2 Total capital expenditure ($ in millions) Timing of revenue recognition At a point in time Over time Total Total 1,262.9 128.8 1,391.7 (652.4) 739.3 (411.8) (3.3) 324.2 (90.4) 233.8 (48.8) 185.0 614.1 40.2 36.6 690.9 At 31 December 2017 Total 227.7 1,164.0 1,391.7 1 Other relates to the share of profit from associates ($4.0m) and loss on disposal of assets ($7.3m) 2 Cash flow timing represents the difference between accrued capex and the actual cash flows SEGMENTAL ANALYSIS BY GEOGRAPHY The Group’s operations are located in the geographical regions listed below. Revenues are allocated to countries based on the billing address of the customer. For wholesale customers, this is the distribution partner who receives the invoice for the service, and for retail customers this is the billing address of the customer for whom the service is provided. Assets and capital expenditure are allocated based on the physical location of the assets. ($ in millions) United Kingdom Rest of Europe North America Asia and Pacific Rest of the world Unallocated1 1 Unallocated items relate to satellites which are in orbit 2018 2017 (restated) Non-current segment Revenue assets Revenue 71.4 444.7 594.0 257.4 97.7 – 1,465.2 1,044.1 1,059.2 121.1 114.3 0.3 1,899.6 4,238.6 78.9 420.2 561.5 246.1 85.0 – 1,391.7 Non-current segment assets 860.1 861.9 117.4 116.8 0.1 2,123.2 4,079.5 GovernanceFinancial StatementsStrategic Report 132 132 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED REMAINING PERFORMANCE OBLIGATIONS The table below shows the remaining revenue to be derived from unsatisfied (or partially unsatisfied) performance obligations under non-cancellable contracts with customers at the end of the year. ($ in millions) Within one year Between two to five years Greater than five years At 31 December 2018 Total 509.8 926.0 254.1 1,689.9 All other contracts are for periods of one year or less or are billed based on time incurred. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed. As permitted under the transitional provisions in IFRS 15, the transaction price allocated to partially unsatisfied performance obligations as of 31 December 2017 is not disclosed. 6. OPERATING PROFIT Costs are presented by the nature of the expense to the Group. Network and satellite operation costs comprise costs to third parties for network service contracts and services. A breakdown of employee benefit costs is given in note 7. Operating profit is stated after charging the following items: ($ in millions) Depreciation of property, plant and equipment Amortisation of intangible assets Depreciation of right-of-use assets Restructuring costs Loss on disposal of assets Impairment1 Operating lease rentals: Land and buildings Cost of inventories recognised as an expense Write downs of inventories recognised as an expense Research costs expensed Remuneration payable to the Group’s auditor Deloitte LLP and its associates in the year is analysed below: ($ in millions) Audit fees: Annual audit of the Company Annual audit of subsidiary companies Total audit fees Audit-related assurance services2 Total audit and audit-related fees Other services Total non-audit fees Total auditor’s remuneration 1 Relates to $1.2m and $13.3m of tangible and intangible asset impairments respectively 2 Fees paid for audit-related assurance services refer to the half year and quarterly reviews of the Group’s interim financial statements 7. EMPLOYEE BENEFIT COSTS ($ in millions) Wages and salaries Social security costs Share-based payments (including employers’ national insurance contribution) Defined contribution pension plan costs Defined benefit pension plan costs1 Post-employment benefits costs1 Restructuring charge Total employee benefit costs 1 Defined benefit pension plan costs and post-employment benefits costs include current service cost and gain on curtailment for 2017 (see note 29) Note 2018 2017 (restated) 13 14 15 19 Note 29 29 370.1 86.8 11.4 – 2.5 14.5 – 115.3 2.1 8.9 328.6 83.2 – 19.9 7.3 – 13.8 62.3 5.1 8.0 2018 2017 0.2 0.9 1.1 0.1 1.2 0.3 0.3 1.5 2018 255.5 25.0 8.2 10.9 1.4 0.4 – 301.4 0.2 0.9 1.1 0.1 1.2 – – 1.2 2017 247.8 20.6 16.2 6.0 2.0 0.4 19.9 312.9 Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 133 133 EMPLOYEE NUMBERS The average monthly number of employees (including the Executive Directors) employed during the year: By activity: Operations Sales and marketing Development and engineering Administration By segment: Maritime Government Enterprise Aviation Central Services 2018 2017 851 334 237 403 825 394 250 385 1,825 1,854 103 184 63 197 1,278 1,825 107 199 65 171 1,312 1,854 The employee headcount numbers presented above refer to permanent full time and part time employees and exclude contractors and temporary staff. Employee benefit costs of $24.8m (2017: $30.1m) relating to contractors and temporary staff have been included in the cost table above. 8. KEY MANAGEMENT COMPENSATION The Group’s Executive and Non-Executive Directors are the key management personnel of the business. Details of the total amounts earned during the year are as follows: ($ in millions) Short-term benefits Share-based payments1 1 Includes employers’ national insurance or other social security contributions 2018 4.1 4.4 8.5 2017 3.8 4.8 8.6 The Remuneration report contains full disclosure of Directors’ remuneration on pages 81 to 101. In both the current and prior year, no Director has been a member of the Group’s defined contribution pension plan. 9. NET FINANCING COSTS ($ in millions) Bank interest receivable and other interest Total financing income Interest on Senior Notes and credit facilities Interest on Convertible Bonds Amortisation of debt issue costs Amortisation of discount on Senior Notes due 2022 Unwinding of discount on deferred satellite liabilities Net interest on the net defined benefit asset and post-employment liability Interest on lease obligations Other interest Financing costs Less: Amounts capitalised in the cost of qualifying assets Financing costs excluding derivative adjustments Change in fair value of the derivative liability component of the Convertible Bonds1 Net financing cost 1 For further details of the derivative liability component of the Convertible Bonds due 2023 please refer to note 20 2018 2017 (restated) (8.2) (8.2) 92.8 38.4 13.2 1.0 0.2 0.3 2.9 0.7 149.5 (43.7) 105.8 23.2 120.8 (7.8) (7.8) 93.9 37.5 7.9 1.0 0.4 2.0 – 3.4 146.1 (40.2) 105.9 (7.7) 90.4 Borrowing costs capitalised in the cost of qualifying assets during the year are calculated by applying a capitalisation rate to expenditures on such assets. The average interest capitalisation rate for the year was 7.4% (2017: 8.5%). GovernanceFinancial StatementsStrategic Report 134 134 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 10. TAXATION The tax charge for the year recognised in the income statement: ($ in millions) Current tax: Current year Adjustments in respect of prior years Total current tax Deferred tax: Origination and reversal of temporary differences Adjustments due to reduction in corporation tax rates Adjustments in respect of prior years Total deferred tax Total taxation charge The effective tax rate is 25.5% (2017: 20.9%) and is reconciled below: ($ in millions) Profit before tax Income tax at 19.0% (2017: 19.25%) Differences in overseas tax rates Adjustments in respect of prior periods Adjustments due to reduction in the corporation tax rate Impact of UK patent box regime Impact of change in fair value of derivative liability component of Convertible Bond Other non-deductible expenses/non-taxable income Total taxation charge Tax credited directly to equity: ($ in millions) Deferred tax credit/(charge) on share-based payments Deferred tax credit/(charge) on pensions Total tax credited directly to equity Tax (charged)/credit directly to other comprehensive income: ($ in millions) Deferred tax (charged)/credit on remeasurement of defined benefit asset and post-employment benefits Total tax (charged)/credited directly to other comprehensive income 11. NET FOREIGN EXCHANGE (GAIN)/LOSS ($ in millions) Defined benefit plan and post-employment benefits Other operating income Total foreign exchange (gain)/loss Note 29 2018 2017 (restated) 49.5 1.3 50.8 (14.8) 0.2 6.7 (7.9) 42.9 21.8 (4.5) 17.3 14.6 9.1 7.8 31.5 48.8 2018 2017 (restated) 167.9 31.9 (4.4) 8.0 0.2 (1.7) 4.4 4.5 42.9 2018 1.0 0.3 1.3 2018 (3.1) (3.1) 2018 0.2 (1.9) (1.7) 233.8 45.0 (6.3) 3.3 9.1 (3.2) (1.5) 2.4 48.8 2017 (0.2) – (0.2) 2017 (2.3) (2.3) 2017 1.5 (0.3) 1.2 Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 135 135 12. DIVIDENDS During 2018, the 2018 interim dividend of $36.9m (8 cents per ordinary share) and the 2017 final dividend of $55.0m (12 cents per ordinary share) were paid to the Company’s shareholders. For the 2018 interim dividend, the Group offered a scrip dividend election allowing shareholders to take their cash dividend entitlement in Inmarsat shares. This option was taken up by shareholders holding approximately 84.9m shares (2017 interim dividend: 63.3m shares), representing 18.4% (2017 interim dividend: 13.9%) of our issued share capital. The scrip amounted to 1,044,660 new shares (2017 interim dividend: 1,617,973 new shares) and 0.23% (2017 interim dividend: 0.35%) of the issued share capital, which represented a $6.8m (2017 interim dividend: $13.7m) cash dividend savings. These shares were issued and made available for trading on 19 October 2018 (2017 interim dividend: 20 October 2017). For the 2017 final dividend, the Group offered a scrip dividend election allowing shareholders to take their cash dividend entitlement in Inmarsat shares. This option was taken up by shareholders holding approximately 129.8m shares, representing 28.3% of our issued share capital. The scrip amounted to 3,015,936 new shares and 0.66% of the issued share capital, which represented a $15.6m cash dividend savings. These shares were issued and made available for trading on 26 May 2018. During 2017, the 2017 interim dividend of $98.6m (21.62 cents per ordinary share) and the 2016 final dividend of $151.2m (33.37 cents per ordinary share) were paid to the Company’s shareholders. The Inmarsat plc Board of Directors intends to recommend a final dividend of 12 cents per ordinary share in respect of the year ended 31 December 2018 to be paid on 30 May 2019 to ordinary shareholders on the share register at the close of business on 23 April 2019. ($ in cents) Interim dividend paid per ordinary share Final dividend per ordinary share Total dividend per ordinary share 13. PROPERTY, PLANT AND EQUIPMENT ($ in millions) Cost: 1 January 2017 (restated) Additions Disposals Transfers from assets in the course of construction and reclassifications1 31 December 2017 (restated) Additions Disposals Transfers from assets in the course of construction and reclassifications1 31 December 2018 Accumulated depreciation: 1 January 2017 Charge for the year Disposals 31 December 2017 (restated) Charge for the year Impairment Disposals 31 December 2018 Net book amount at 31 December 2017 Net book amount at 31 December 2018 2018 8.00 12.00 20.00 2017 21.62 12.00 33.62 Service equipment, fixtures and fittings (restated) 2 Freehold land and buildings Space segment Assets in the course of construction 20.6 – – – 20.6 – – – 20.6 (10.5) (0.5) – (11.0) (0.4) – – 359.9 88.5 (226.7) 64.2 285.9 24.4 (84.8) 96.2 321.7 3,652.6 174.9 (99.9) 565.6 4,293.2 0.6 (160.4) 20.9 4,154.3 (289.1) (60.7) 216.8 (1,615.4) (267.4) 99.9 (133.0) (1,782.9) (69.6) (300.1) – 79.3 – 160.2 861.8 351.6 (0.9) (629.8) 582.7 449.6 (0.4) (117.1) 914.8 – – – – – (1.2) – Total 4,894.9 615.0 (327.5) – 5,182.4 474.6 (245.6) – 5,411.4 (1,915.0) (328.6) 316.7 (1,926.9) (370.1) (1.2) 239.5 (11.4) (123.3) (1,922.8) (1.2) (2,058.7) 9.6 9.2 152.9 198.4 2,510.3 2,231.5 582.7 913.6 3,255.5 3,352.7 1 Reclassifications relate to movements between tangible and intangible asset categories throughout the year to align accounting policies across the Group 2. The numbers restated have been discussed in note 2 GovernanceFinancial StatementsStrategic Report 136 136 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Depreciation of property, plant and equipment is charged using the straight-line method over the estimated useful lives, as follows: Space segment assets: Satellites Other space segment, including ground infrastructure Fixtures and fittings, and services-related equipment Buildings 13–15 years 5–12 years 3–15 years 50 years Freehold land is not depreciated. At 31 December 2018 and 2017, the Group was carrying certain freehold land and buildings with a net book value of $9.2m (2017: $9.6m). Had they been revalued on a market basis, their carrying amount at 31 December 2018 would have been $32.9m (2017: $30.4m). Market valuation is based on the Directors’ best estimates. In 2018 the Group received government grants in relation to the purchase and construction of certain assets. The grants have been deducted from the cost of the relevant asset to arrive at the carrying amount. Government grants received in 2018 were $2.5m (2017: $5.7m). 14. INTANGIBLE ASSETS ($ in millions) Cost: 1 January 2017 Additions Disposals 31 December 2017 Additions Disposals Goodwill Trademarks Software 781.3 – – 781.3 – – 25.5 0.1 – 25.6 – – 276.3 54.9 (64.2) 267.0 44.8 (12.8) 31 December 2018 781.3 25.6 299.0 (359.2) – – (359.2) – – – (13.1) (1.0) – (14.1) (1.0) – – (185.1) (36.2) 63.9 (157.4) (39.8) (6.3) 13.1 Accumulated amortisation: 1 January 2017 Charge for the year Disposals 31 December 2017 Charge for the year Impairment Disposals 31 December 2018 Net book amount at 31 December 2017 Net book amount at 31 December 2018 Terminal development and network access costs Intellectual property Customer relationships Other (restated) 0.7 – (0.1) 0.6 – – 0.6 (0.7) – 0.1 (0.6) – – – 212.6 17.9 (13.8) 216.7 45.4 – 262.1 (116.1) (12.5) 13.8 (114.8) (16.4) – – 396.1 – – 396.1 – – 396.1 (261.0) (29.1) – (290.1) (25.3) – – 61.7 15.9 (3.4) 74.2 7.8 (8.6) 73.4 (16.2) (4.4) 3.4 (17.2) (4.3) (7.0) 2.7 Total 1,754.2 88.8 (81.5) 1,761.5 98.0 (21.4) 1,838.1 (951.4) (83.2) 81.2 (953.4) (86.8) (13.3) 15.8 (359.2) (15.1) (190.4) (0.6) (131.2) (315.4) (25.8) (1,037.7) 422.1 11.5 109.6 422.1 10.5 108.6 – – 101.9 106.0 57.0 808.1 130.9 80.7 47.6 800.4 Goodwill represents the excess of consideration paid on an acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities acquired at the date of acquisition. Trademarks are being amortised on a straight-line basis over their estimated useful lives, which are between seven and 20 years. Software includes the Group’s billing system and other internally developed operational systems and purchased software, which are being amortised on a straight- line basis over its estimated useful life of three to eight years. The Group capitalises costs associated with the development and enhancement of user terminals and associated network access costs as intangible assets and amortises these over the estimated sales life of the related services, which range from five to ten years. Customer relationships acquired in connection with acquisitions are being amortised over the expected period of benefit of between 12 and 14 years, using the straight-line method. Other consists of orbital slots, licences, spectrum rights and unallocated launch slots. Orbital slots and licences relate to the Group’s satellite programmes, and each individual asset is reviewed to determine whether it has a finite or indefinite useful life. Orbital slots are amortised over the useful life of the satellite occupying them. Amortisation of the GX programme finite life assets commenced when the Inmarsat-5 satellites went operational in December 2015. Unallocated launch slots are not amortised until allocated to a satellite asset where they are re-classed to Property, Plant and Equipment and depreciated in-line with Group policy discussed in note 2. As at December 2018, the Group has no indefinite useful life intangible assets other than Goodwill. Government grants received in 2018 were $nil (2017: $0.1m).The grants have been deducted from the cost of the relevant asset to arrive at the carrying amount. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 137 137 ANNUAL IMPAIRMENT REVIEW: GOODWILL Impairment reviews of goodwill are performed at the level of the Group’s cash-generating units (‘CGUs’). For the Group, these are considered to be the Maritime, Enterprise, Aviation, U.S. Government and Global Government business units. The recoverable amount of each CGU has been determined based on value in use calculations. The key assumptions used by management in these calculations are the cash flow projections, long-term growth rates and discount rates for each CGU. The impairment review conducted annually has identified sufficient headroom in the recoverable value of each CGU above their carrying value. A sensitivity analysis has been undertaken by changing key assumptions used for each CGU. Based on this sensitivity analysis, no reasonably possible change in the assumptions resulted in the recoverable amount of the CGUs being reduced to their carrying value. We do not anticipate any changes over the next 12 months that would result in the recoverable amount of the CGUs being reduced to their carrying value. Key assumptions used to calculate the recoverable amount of the CGUs were as follows: ($ in millions) Maritime Enterprise Aviation U.S. Government Global Government Total Group Allocated goodwill Pre-tax discount rate Long-term growth rate 215.5 54.8 46.4 50.6 54.8 422.1 8.5% 8.5% 8.5% 8.5% 8.5% 2.0% 2.0% 2.0% 2.0% 2.0% Cash flow projections The recoverable amount of each CGU is based on the value in use, which is determined using cash flow projections derived from the most recent financial budgets and forecasts approved by management covering a five-year period. The short and medium-term cash flows reflect management’s expectations of future outcomes taking into account past experience, adjusted for anticipated growth from both existing and new business in line with our strategic plans for each segment of our business. The cash flows also take into consideration our assessment of the potential impact of external economic factors. Long-term growth rates A long-term growth rate has been applied to extrapolate the cash flows into perpetuity. The growth rate has been determined using long-term industry growth rates and management’s conservative expectation of future growth. The long-term growth rates are consistent across each of the CGUs given the similarities in exposure to economic and competitive conditions. Discount rates The discount rates reflect the time value of money and are derived from the Group’s weighted average cost of capital, adjusted for the risk associated with the CGUs. The risk premium, when compared with the Group discount rate, was consistent across each of the CGUs given the similarities in exposure to economic and competitive conditions. 15. LEASES RIGHT OF USE ASSETS The right-of-use assets for the Group’s property and vehicle leases are presented in the table below. ($ in millions) Net carrying amount: 1 January 2018 Additions and changes in terms Impairment Charge for the year 31 December 2018 Property Vehicles Total 75.2 (1.8) (0.4) (11.0) 62.0 0.5 0.3 – (0.4) 0.4 75.7 (1.5) (0.4) (11.4) 62.4 One property lease and two vehicle leases expired in the current financial year. The expired contracts were replaced by new leases for identical underlying assets. In total there were additions to right-of-use assets of $1.8m in 2018. The Group does not hold options to purchase any leased assets for a nominal amount at the end of the lease term. The Group expenses short-term leases and low-value assets as incurred which is in accordance with the recognition exemption in IFRS 16. Expenses for short-term leases and low-value assets were less than $0.1m in 2018. As at 31 December 2018, the Group is committed to less than $0.1m of short-term leases and low-value assets. The Group received less than $0.1m in relation to income from the subleasing of right-of-use assets. LEASE LIABILITIES Lease liabilities are calculated at the present value of the lease payments that are not paid at the commencement date. The Group’s lease liabilities as of 31 December 2018 comprise the transition of existing contracts, as well as contracts entered into during the financial year 2018. The table below presents the split of these liabilities by category: ($ in millions) Lease liability non-current Lease liability current 31 December 2018 Property Vehicles 59.5 10.1 69.6 0.1 0.3 0.4 Total 59.6 10.4 70.0 GovernanceFinancial StatementsStrategic Report 138 138 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED The average lease term of the Group’s property and vehicle leases is 3.3 and 1.2 years respectively. The maturity profile of the Group’s leases is shown in the table below. ($ in millions) Within one year Between two to five years Greater than five years At 31 December 2018 Property Vehicles 10.1 40.8 18.7 69.6 0.3 0.1 – 0.4 Total 10.4 40.9 18.7 70.0 The table below reconciles the difference between the presentation of operating leases under IAS 17 and IFRS 16 as at 31 December 2017. ($ in millions) Within one year Within two to five years After five years At 31 December 2017 Lease maturity under IAS 17 IFRS 16 Differences1 Lease maturity under IFRS 16 12.7 46.6 29.3 88.6 0.4 (6.7) 4.9 (1.4) 13.1 39.9 34.2 87.2 Other unrecognised contractual commitments2 6.9 40.3 0.4 47.6 IFRS 16 differences are caused by the discounting of cash flows, as well as cash flows for renewal periods being included in lease liability under the new standard 1 2 Other unrecognised contractual commitments relate to the Group’s network service contracts and maintenance contracts, which have varying terms. Under IFRS 16, these do not constitute identified assets and do not meet the definition of a lease. These contracts continue to be expensed through the income statement For the year ended 31 December 2018, the weighted average discount rate applied was 3.7%. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The total cash flow relating to all lease obligations in 2018 was $12.3m with lease obligations denominated in various currencies. Total lease interest paid was $2.8m. The Group does not face a significant liquidity risk with regard to its lease liabilities. The Group’s obligations are secured by the lessors’ title to the leased assets for such leases. 16. INVESTMENTS ($ in millions) Interest in associates Other investments Total investments At 31 December 2018 At 31 December 2017 17.7 1.1 18.8 15.1 1.1 16.2 Interest in associates represents the Group’s investments which have been treated as associates and have all been accounted for using the equity method of accounting. Individually, all of the investments in associates are deemed to be immaterial and as a result the associates’ assets, liabilities, revenues and profits have not been presented. Other investments represent the Group’s 0.6% investment in Actility S.A. which was made on 5 April 2017 and is accounted for as fair value through profit and loss. Cash dividends received from the associates for the year ended 31 December 2018 total $1.3m (2017: $2.1m). The Group’s aggregate share of its associates’ profits for the year is $3.9m (2017: $4.0m) and has been recognised in the income statement. 17. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less, and for the purposes of the cash flow statement also includes bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. ($ in millions) Cash at bank and in hand Short-term deposits with original maturity of less than three months Cash and cash equivalents At 31 December 2018 At 31 December 2017 143.2 – 143.2 109.9 35 144.9 At 31 December 2018, the Group has $145.7m of cash held in short-term deposits with an original maturity of between three and 12 months (2017: $342.0m). This amount is presented separately within current assets in the balance sheet. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 139 139 Cash and cash equivalents include the following for the purposes of the cash flow statement: ($ in millions) Cash and cash equivalents Bank overdrafts Net cash and cash equivalents 18. TRADE AND OTHER RECEIVABLES ($ in millions) Current: Trade receivables Other receivables Accrued income Prepayments Total trade and other receivables Non-current: Prepayments and accrued income Defined benefit pension asset Other receivables Total other receivables Note 20 At 31 December 2018 At 31 December 2017 143.2 – 143.2 144.9 (0.3) 144.6 At 31 December 2018 At 31 December 2017 (restated) 285.0 222.8 34.9 13.6 25.2 358.7 – 30.9 4.3 35.2 25.4 52.7 30.7 331.6 (0.6) 18.1 – 17.5 The Group applies the simplified approach under IFRS 9 for the impairment of receivables and contract assets. A provisioning matrix based on internal debtor credit ratings has been used in order to calculate the lifetime loss allowances for each grouping. Debtors have been grouped based on ageing and each debtor’s internal credit rating. This rating is a measure from A to E (with E being the highest risk of default) and considers the debtors financial strength, history and magnitude of past defaults, personal credit history with the Group and the associated level of sovereign and market risk. The information used in assigning ratings is both historical and forward looking as regular contact with debtors is maintained to understand if there is any additional risk forecast. Specific allowances are made to reflect any additional risk identified. The table below presents the lifetime expected credit losses for trade receivables within each debtor category. No loss allowance has been recognised for other receivables and accrued income. ($ in millions) Internal rating A Internal rating B Internal rating C Internal rating D/E 2018 Total Carrying value of trade receivables (gross) 1 Lifetime ECL Specific Allowances Group Loss Allowance 1 This is presented gross of credit note allowances of $21.2m 66.4 0.7 – 0.7 149.9 3.2 – 3.2 116.6 6.4 16.4 22.8 1.7 1.7 – 1.7 334.6 12.0 16.4 28.4 The Group’s trade and other receivables are stated after impairments. Movements during the year were as follows: ($ in millions) At 1 January Charged in the year Utilised in the year Released in the year At 31 December1 2018 12.5 24.5 (2.2) (6.4) 28.4 2017 13.7 9.7 (4.2) (6.7) 12.5 1 The maturity of the Group’s provision for uncollectable trade receivables for the year ended 31 December 2018 is $4.2m current, $5.0m between one and 30 days overdue, $8.0m between 31 and 120 days overdue and $11.2m over 120 days overdue (2017: $0.9m between one and 30 days overdue, $4.8m between 31 and 120 days overdue and $6.8m over 120 days overdue) The Directors consider the carrying value of trade and other receivables to approximate to their fair value. GovernanceFinancial StatementsStrategic Report 140 140 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 19. INVENTORIES ($ in millions) Finished goods Work in progress Total inventories The Group’s inventories are stated after allowances for obsolescence. Movements in the allowance during the year were as follows: At 31 December 2018 At 31 December 2017 50.0 0.7 50.7 33.3 0.6 33.9 At 31 December 2018 At 31 December 2017 11.6 6.2 (2.1) 15.7 12.8 3.9 (5.1) 11.6 ($ in millions) At 1 January Charged to the allowance in respect of the current year Released in the year At 31 December 20. NET BORROWINGS ($ in millions) Current: Bank overdrafts Deferred satellite payments Ex-Im Bank Facilities Total current borrowings Non-current: Deferred satellite payments Senior Notes due 2022 – Net issuance discount Senior Notes due 2024 Ex-Im Bank Facilities Convertible Bonds due 2023 – Accretion of principal Total non-current borrowings Total borrowings Cash and cash equivalents Short-term deposits Net borrowings At 31 December 2018 At 31 December 2017 Amount Deferred financing cost Net balance Amount Deferred financing cost Net balance – 1.0 122.2 123.2 4.4 1,000.0 (3.4) 400.0 386.5 561.6 13.2 2,362.3 2,485.5 (143.2) (145.6) – – – – – (3.9) – (4.2) (6.5) (5.4) – (20.0) (20.0) – – – 1.0 122.2 123.2 4.4 996.1 (3.4) 395.8 380.0 556.2 13.2 2,342.3 2,465.5 (143.2) (145.6) 2,196.7 (20.0) 2,176.7 0.3 3.1 122.2 125.6 5.6 1,000.0 (4.5) 400.0 508.7 549.2 12.4 2,471.4 2,597.0 (144.9) (342.0) 2,110.1 – – – – – (5.1) – (4.9) (14.9) (6.6) – (31.5) (31.5) – – 0.3 3.1 122.2 125.6 5.6 994.9 (4.5) 395.1 493.8 542.6 12.4 2,439.9 2,565.5 (144.9) (342.0) (31.5) 2,078.6 EX-IM BANK FACILITIES The Group has two direct financing agreements with the Export-Import Bank (the ‘Ex-Im Bank Facilities’) of the United States. The $700.0m facility signed in 2011 was available to be drawn down for four years and is now repayable in equal semi-annual instalments over a further 7.5 years. This facility will mature in 2023. Drawings under this facility incur interest at a fixed rate of 3.11% for the life of the loan. The $185.9m facility signed in 2014 was available for two years and is now repayable in equal semi-annual instalments over a further five years and will mature in 2021. Drawings under this facility incur interest at a fixed rate of 1.96% for the life of the loan. SENIOR NOTES DUE 2022 AND 2024 On 4 June 2014, the Group issued $1.0bn of 4.875% Senior Notes due 15 May 2022. The aggregate gross proceeds were $992.1m, net of $7.9m issuance discount. On 22 September 2016, the Group issued $400.0m of 6.5% Senior Notes due 1 October 2024. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 141 141 SENIOR REVOLVING CREDIT FACILITY On 16 July 2018, the Group signed a new five-year $750.2m revolving credit facility (‘Senior Revolving Credit Facility’) to replace the previous $500m facility, on substantially the same terms. Advances under the facility bear interest at a rate equal to the applicable USD LIBOR or, in relation to any loan in euro, EURIBOR, plus a margin of between 0.7% and 2.0% determined by reference to the ratio of net debt to EBITDA. At 31 December 2018, there were no drawings under the Senior Revolving Credit Facility. CONVERTIBLE BONDS On 9 September 2016, the Group issued $650m of 3.875% Convertible Bonds due 9 September 2023. The bonds are convertible into ordinary shares of the Company and have a 3.875% pa coupon payable semi-annually and a yield to maturity of 3.681%. The bond is a net share settled instrument, meaning upon conversion the Group will repay the principal of $650m in cash and satisfy the remaining conversion value in ordinary shares (if the market value of the Company’s shares at settlement date exceeds the conversion price of $13.41 and the option is exercised by the Bondholder). The Bond is convertible from 20 October 2016 and there is a call option after 2 October 2021 based on conditions set out within the Bond agreement. In the event of a change of control in ownership of the Group, the conversion price will be adjusted from $13.41 to the undisturbed share price prior to the offer. Upon issuance, the instrument was bifurcated between a cash debt component and a derivative liability component, being $545.5m and $104.5m respectively. Issue costs totalled $8.1m. ($ in millions) Fair value of Convertible Bonds issued Cost of issue Net proceeds Derivative liability component Debt liability component net of issue costs At inception 650.0 (8.1) 641.9 (104.5) 537.4 The debt component meets the definition of net borrowings and over the term of the bond will accrete up to the principal value of $650.0m with the cost of that accretion recognised in net financing costs. ($ in millions) Debt liability component at date of issue net of issue costs Cumulative amortisation of debt issue costs to 31 December Cumulative interest charged to 31 December Cumulative coupon interest to 31 December Debt liability component at 31 December 2018 537.4 2.7 87.5 (58.2) 569.4 2017 537.4 1.5 49.1 (33.0) 555.0 The derivative liability represents the value of the conversion rights, call option and other embedded features associated with the instrument and is accounted for at fair value through profit and loss. It is excluded from net borrowings with the mark-to-market movements recognised in net financing costs as this represents the movement in fair value of the derivative component of the bond. ($ in millions) Fair value of debt host liability component at 31 December Fair value of derivative liability component at 31 December Fair value of Convertible Bond at 31 December 2018 545.8 148.8 694.6 2017 561.6 125.7 687.3 EFFECTIVE INTEREST RATE The interest charged for the year is calculated by applying an effective interest rate of 6.8% to the liability component. The total interest charge is split between the coupon interest charge of $58.2m and accreted interest of $29.3m, with both charges recognised in net financing costs in the income statement. The coupon interest is paid semi-annually in March and September with the liability recognised in accrued interest (note 20). Similarly, the bonds accrete semi-annually in March and September with the liability recognised in borrowings. The Directors consider the carrying value of borrowings, other than the Senior Notes, Convertible Bonds and the Ex-Im Bank 2011 Facility to approximate to their fair value (see note 31). The effective interest rates at the balance sheet dates were as follows: Effective interest rate % Bank overdrafts Senior Notes due 2022 Senior Notes due 2024 Ex-Im Bank 2011 Facility Ex-Im Bank 2014 Facility Deferred satellite payments Convertible Bonds due 2023 2018 7.5% 5.1% 6.7% 4.4% 3.7% 1.7% 6.8% 2017 6.5% 4.9% 6.5% 3.1% 3.6% 3.0% 6.8% GovernanceFinancial StatementsStrategic Report 142 142 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Reconciliation of movements in liabilities to cash flows arising from financing activities: ($ in millions) Short-term borrowings Long-term borrowings Convertible Bond2 Total liabilities from financing activities ($ in millions) Short-term borrowings Long-term borrowings Convertible Bond2 Total liabilities from financing activities At 31 December 2016 Drawdowns and repayments Cash flows Transfers1 Interest expense Arrangement cost amortisation Movement in Fair Value Other cash movements At 31 December 2017 103.8 1,906.5 674.9 (80.8) 78.4 – (3.1) (92.0) (25.1) 2,685.2 (2.4) (120.2) 105.1 (105.1) – – 3.2 90.7 37.5 131.4 – 6.4 1.1 7.5 – – (7.7) (2.6) – – 125.6 1,884.9 680.7 (7.7) (2.6) 2,691.2 At 31 December 2017 Drawdowns and repayments Cash flows Transfers1 125.6 1,884.9 680.7 (122.2) – – (3.5) (87.6) (25.3) 2,691.2 (122.2) (116.4) 122.2 (122.2) – – Interest expense Arrangement cost amortisation Movement in Fair Value Other cash movements 3.4 87.1 38.4 – 11.3 1.2 – – 23.2 (2.3) (0.6) – At 31 December 2018 123.2 1,772.9 718.2 128.9 12.5 23.2 (2.9) 2,614.3 1 Transfers comprise debt maturing from long-term to short-term borrowings 2 Includes derivative liability component 21. TRADE AND OTHER PAYABLES ($ in millions) Current: Trade payables Other taxation and social security payables Other payables Accruals Deferred income1 Total trade and other payables Non-current: Other payables Defined benefit pension and post-employment liability Total other payables At 31 December 2018 At 31 December 2017 (restated) 134.6 6.3 5.1 95.1 304.3 545.4 2.5 11.4 13.9 210.5 6.2 4.5 117.4 295.8 634.4 7.5 17.5 25.0 1 The deferred income balance includes $206.7m (2017: $206.8m) relating to payments received from Ligado Networks. During the current financial year, $0.1m (2017: $2.0m) of these payments were released to the income statement The Directors consider the carrying value of trade and other payables to approximate to their fair value. DEFERRED INCOME Deferred income represents obligations to transfer goods or services to a customer for which the entity has received consideration and is therefore considered a contract liability. The group has recognised the following movements in deferred income throughout the year ($ in millions) At January Contract liability raised in the year Contract liability utilised in the year At December 2018 295.8 297.8 (289.3) 304.3 2017 285.7 289.6 (279.5) 295.8 Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 143 143 22. PROVISIONS Movements in the current portion of the Group’s provisions were as follows: ($ in millions) At 1 January 2017 Charged in respect of current year Utilised in current year At 31 December 2017 Charged in respect of current year Utilised in current year At 31 December 2018 Current provisions Non-current provisions 1.9 21.8 (7.5) 16.2 10.1 (12.0) 14.3 2.8 6.9 – 9.7 2.0 (0.6) 11.1 Total 4.7 28.7 (7.5) 25.9 12.1 (12.6) 25.4 The Group’s current provisions mainly consist of a $7.4m (2017: nil) contract obligation and a $5.1m (2017: $16.0m) restructuring provision. The associated cash flows in respect of both provisions outstanding at 31 December 2018 are expected to occur within one year. 23. CURRENT AND DEFERRED TAXATION The current tax asset of $4.6m and current tax liability of $168.5m (2017: $13.8m and $130.2m, respectively), represent the tax payable in respect of current and prior periods less amounts paid. RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) for the year are shown below: At 31 December 2018 At 31 December 2017 (restated) 1 ($ in millions) Assets Liabilities Property, plant and equipment and intangible assets Borrowing costs capitalised in the cost of qualifying assets Other Pension and post-employment benefits Share options Tax losses Net deferred tax liabilities (35.1) – (9.9) – (3.8) (25.8) (74.6) 222.8 44.2 0.9 3.6 – – 271.5 Net 187.7 44.2 (9.0) 3.6 (3.8) (25.8) 196.9 Assets Liabilities (25.8) – (11.4) (0.2) (1.5) (20.4) (59.3) 230.9 27.8 2.5 1.1 – – 262.3 Net 205.1 27.8 (8.9) 0.9 (1.5) (20.4) 203.0 Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The value of deferred income tax assets and liabilities included in the net deferred income tax balance is shown below: ($ in millions) Deferred tax assets Deferred tax liabilities Net deferred tax liabilities 1 Comparatives have been restated as a result of initial application of IFRS 15 and the change in accounting policy for unallocated launch slots discussed in note 2 At 31 December 2018 At 31 December 2017 (restated) 1 (52.5) 249.4 196.9 (35.4) 238.4 203.0 GovernanceFinancial StatementsStrategic Report 144 144 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Movement in temporary differences during the year: ($ in millions) At 1 January 2018 Recognised in income Recognised in equity Recognised in other comprehensive income At 31 December 2018 Property, plant and equipment and intangible assets 205.1 (17.4) 27.8 (8.9) 0.9 (1.5) (20.4) 203.0 At 1 January 2017 165.7 33.7 (9.2) (2.0) (3.8) (15.4) 169.0 Borrowing costs capitalised in the cost of qualifying assets Other Pension and post-employment benefits Share-based payments Tax losses Total ($ in millions) Property, plant and equipment and intangible assets Borrowing costs capitalised in the cost of qualifying assets Other Pension and post-employment benefits Share-based payments Tax losses Total Total unprovided deferred tax assets: ($ in millions) Unused income tax losses Unused capital losses Total 16.4 (0.1) (0.1) (1.3) (5.4) (7.9) – – – (0.3) (1.0) – (1.3) – – – 3.1 – – 3.1 187.7 44.2 (9.0) 3.6 (3.8) (25.8) 196.9 Recognised in income Recognised in equity Recognised in other comprehensive income At 31 December 2017 (restated) 39.4 (5.9) 0.3 0.6 2.1 (5.0) 31.5 – – – – 0.2 – 0.2 – – – 2.3 – 2.3 205.1 27.8 (8.9) 0.9 (1.5) (20.4) 203.0 At 31 December 2018 At 31 December 2017 (3.3) (17.7) (21.0) (2.4) (23.0) (25.4) Deferred tax assets are recognised to the extent there is probable utilisation of the underlying temporary difference using existing tax laws and forecasts of future taxable profits based on Board-approved business plan forecasts. Unprovided deferred tax assets in respect of unused income tax losses of $13.2m (2017: $9.1m) include $6.9m of losses that will expire if not used within 5 years, $1.4m of losses that will expire if not used within 20 years and $4.8m of losses with no expiry date. The unused capital losses of $104.1m (2017: $121.0m) have no expiry date. Overseas dividends received are largely exempt from UK tax but may be subject to foreign withholding taxes. The unrecognised gross temporary difference in respect of the unremitted earnings of those overseas subsidiaries affected by such taxes is $nil (2017: $nil), resulting in a deferred tax liability of $nil (2017: $nil). The unrecognised gross temporary difference in respect of the investments in associates is $1.7m (2017: $1.4m), resulting in an unrecognised deferred tax liability of $0.5m (2017: $0.4m). The Budget announced by the Chancellor on 16 March 2016 included changes to the main rates of corporation tax for UK companies. The standard rate of corporation tax reduced to 19% with effect from 1 April 2017, and there will be a further reduction to 17% from 1 April 2020. The deferred tax assets and liabilities at the balance sheet date are calculated taking account of the forecast impact of the reduction of the corporation tax rate from 20% to the substantively enacted rate of 17%. On 22 December 2017 the US President signed the Tax Cuts and Jobs Act, which included changes to the Federal tax rate. The Federal tax rate reduced from 35% to 21% with effect from 1 January 2018. The deferred tax assets and liabilities at the balance sheet date are calculated taking account of this reduction of the Federal tax rate. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 145 145 24. RECONCILIATION OF CASH GENERATED FROM OPERATIONS Reconciliation of profit for the year to cash generated from operations: ($ in millions) Profit for the year Adjustments for: Taxation charge Financing costs Financing income Change in fair value of derivative Operating profit Depreciation and amortisation Impairment loss Loss on disposal of assets Share of profit of associates EBITDA Dividends received from associates Non-cash employee benefit costs Non-cash foreign exchange movements Changes in net working capital: Increase in restricted cash1 (Increase)/decrease in trade and other receivables Decrease/(Increase) in inventories Increase/(decrease) in trade and other payables Increase in provisions Cash generated from operations 2018 2017 (restated) 125.0 185.0 42.9 105.8 (8.2) 23.2 288.7 468.3 14.5 2.5 (3.9) 770.1 1.3 9.8 (6.2) 0.3 (56.1) (16.8) 10.8 0.2 713.4 48.8 105.9 (7.8) (7.7) 324.2 411.8 – 7.3 (4.0) 739.3 2.1 16.2 1.5 – (38.3) 0.4 54.0 14.6 789.8 1 At 31 December 2018, the Group had $2.5m (2017: $2.8m) of restricted cash on the balance sheet, the majority of which are funds held in escrow in relation to the disposal of SkyWave 25. SHARE CAPITAL ($ in millions) Authorised: 1,166,610,560 ordinary shares of €0.0005 each (2017: 1,166,610,560) Allotted, issued and fully paid: 462,617,429 ordinary shares of €0.0005 each (2017: 457,659,212) At 31 December 2018 At 31 December 2017 0.7 0.7 0.3 0.3 0.7 0.7 0.3 0.3 During the year ended 31 December 2018, a total of 897,621 (2017: 1,005,403) ordinary shares of €0.0005 each were allotted and issued by the Company under its employee share schemes. In addition, 3,015,936 ordinary shares and 1,044,660 ordinary shares (2017: 2,973.025 and 1,617,973) of €0.0005 each were allotted and issued by the Company as part of the final 2017 and interim 2018 scrip dividend offering respectively. No shares were repurchased during 2018 or 2017. GovernanceFinancial StatementsStrategic Report 146 146 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 26. EMPLOYEE SHARE OPTIONS AND AWARDS The Group operates a number of share plans used to award options and shares to Directors and employees as part of their remuneration packages. In 2014, the Inmarsat plc Executive Share Plan (‘ESP’) was approved by shareholders and replaced the previous Executive Share Plans. Share awards since May 2014 have been made in accordance with the new share plan rules. Under the ESP, the Company can grant Bonus Share Awards (‘BSA’) and Performance Share Awards (‘PSA’). The costs of these awards are recognised in the income statement (see note 7) based on the fair value of the awards on the grant date. Further information on how these are calculated can be found on the next page and under ‘Employee benefits’ in the principal accounting policies on page 125. INMARSAT EMPLOYEES’ SHARE OWNERSHIP PLAN TRUST Under the legacy Staff Value Participation Plan (the ‘2004 Plan’), shares were transferred to the Inmarsat Employees’ Share Ownership Plan Trust (the ‘Trust’) (resident in Jersey). These options have now vested and expired, but some remaining shares are still held by the Trust and can be used to satisfy vesting under other existing share plans. A summary of all share activity within the Trust as at 31 December 2018, is as follows: ($ in millions) Balance at 1 January 2018 Exercised Balance at 31 December 2018 Available at 31 December 2018 Shares available for grant 77,276 − 77,276 77,276 BONUS SHARE AWARD Awards have been made regularly under the BSA to Executive Directors and certain members of senior management. Further information on awards granted to Directors can be found in the Remuneration report on pages 81–101. Awards are made in the form of a conditional allocation of shares. The performance conditions attached to the BSA are non-market-based performance conditions. Any dividends paid by the Company will accrue and be added as additional shares upon vesting. Under the rules of the BSA, the Remuneration Committee has the discretion to satisfy the awards using cash instead of shares. It is, however, the intention to generally satisfy the awards using newly-issued shares. As the BSA provides non-contributory share awards that have an entitlement to dividends and no market-based performance conditions attached, the fair value of the awards is the value of the grant. This is due to the fact that regardless of the market price at the time the award of shares is made, the total value of shares to be awarded (excluding shares added in lieu of dividends) will not increase, although may decrease subject to performance conditions not being achieved, and/or discretion by the Remuneration Committee being exercised. PERFORMANCE SHARE AWARD The PSA makes regular annual awards to Executive Directors and certain members of senior management. Further information on awards granted to Directors can be found in the Remuneration Report. Participants are entitled to receive the value of any dividends that are paid between the date of award and the date of vesting in the form of additional shares. Any such additional shares are only added to the number of shares which will vest subject to performance conditions being satisfied. The PSA shares will not ordinarily be transferred to participants until the third anniversary of the award date. The transfer of shares is dependent upon performance conditions being satisfied over the three consecutive financial years starting in the financial year the award date falls. The rules of the PSA provide that the Remuneration Committee has the discretion to satisfy the awards using cash instead of shares. It is, however, the intention to satisfy the awards using newly- issued shares at the end of the relevant three-year period. Executive Directors are required, for the PSA award made in 2017 onwards, to hold a net number of shares after deduction of tax for a further two-year period after the expiry of the three-year performance period. The performance conditions for the Executive Directors for the PSA have been based on the Group’s Total Shareholder Return (‘TSR’) relative to constituents of the FTSE 50-150 (excluding investment trusts), and on EBITDA growth measured over a three-year period. The vesting schedule is structured so that 30% of the reward is linked to the performance of TSR for Executive Directors (for any participants below Executive Director level this is linked to revenue growth over the three-year period of the awards), 30% is linked to EBITDA and 40% is linked to strategic objectives set out prior to the grant date of the scheme. The market- based performance condition has been incorporated into the fair value. The proposed new Remuneration Policy has new performance measures to be used for the 2019 PSA awards which will be made to the Executive Directors. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 147 147 A Stochastic model has been used to value the TSR element attached to 30% of the Executive Directors’ awards, for all other elements a Black-Scholes model has been used. The fair values and the assumptions used in the calculation of PSA awards vesting or due to vest in 2019 or after are presented in the table below. Volatility has been calculated taking account of the historical return index (the share price plus dividends reinvested) over a period commensurate with the reminder of the performance period at grant. Grant date Grant price Market price at date of grant Exercise price Bad leaver rate Vesting period Volatility Fair value per share option (Executive Director level) Fair value per share option (below Executive Director level) Performance Share Awards 12 March 2018 22 March 2017 23 March 2016 £4.33 £4.10 nil 12% 3 years 33.1% £1.64 £4.10 £7.62 £7.63 nil 12% 3 years 28.6% £4.43 £7.63 £9.30 £9.43 nil 12% 3 years 22.5% £4.39 £9.43 Both the BSA and PSA share awards expire 10 years after date of grant or such shorter period as the Remuneration Committee may determine before the grant of an award. For share awards outstanding at the period end the weighted average of the remaining contractual life for the BSA and PSA share awards at 31 December 2018 is 1.6 and 1.5 years, respectively. UK SHARESAVE SCHEME AND INTERNATIONAL SHARESAVE PLAN The UK Sharesave Scheme is an approved HM Revenue and Customs scheme. A grant made in May 2018 with an option price of £3.01 (reflecting the maximum discount permitted of 20%) will mature in July 2021. A grant made in June 2017 with an option price of £6.04 (reflecting the maximum discount permitted of 20%) will mature in August 2020. The International Sharesave Plan mirrors the operation of the UK Sharesave Scheme as closely as possible. Participants are given either the opportunity to receive options in the same way as the UK Sharesave Scheme, or the spread between the share price at the date of exercise and the grant price, delivered (at the Company’s discretion) in cash or shares. It is the Company’s intention to satisfy the awards using shares, some of which are held by the Trust and some of which will be newly-issued. A grant made in May 2018 with an option price of £3.01 (reflecting the maximum discount permitted of 20%) will mature in August 2021. A grant made in June 2017 with an option price of £6.04 (reflecting the maximum discount permitted of 20%) will mature in August 2020. Options under the UK Sharesave Scheme and International Sharesave Plan expire after a maximum of 3.5 years following the initial savings payments having been made. The weighted average of the remaining contractual life for the current grant of the UK Sharesave Scheme and International Sharesave Plan at 31 December 2018 is 2.4 and 2.2 years respectively for each plan. EMPLOYEE STOCK PURCHASE PLAN The Employee Stock Purchase Plan (‘ESPP’) is for U.S. and Canadian employees to purchase the Company’s stock at a 15% discount using funds accumulated from monthly contributions. A grant made under the scheme in December 2015 with an option price of £9.22 (reflecting the maximum discount permitted of 15%) matured in March 2018. A grant made under the scheme in June 2017 with an option price of £7.16 (reflecting the maximum discount permitted of 15%) will mature in July 2019. A grant made under the scheme in May 2018 with an option price of £3.03 (reflecting the maximum discount permitted of 15%) will mature in June 2020. The weighted average of the remaining contractual life for the ESPP schemes as at 31 December 2018 is 1.4 years. Options under the UK Sharesave Scheme, International Sharesave Plan and ESPP have been valued with a Black-Scholes model using the following assumptions: Grant date Market price at date of grant Exercise price Bad leaver rate Vesting period Volatility Dividend yield assumption Risk-free interest rate Fair value per option Sharesave Scheme (UK and International) 30 May 2018 Sharesave Scheme (UK and International) 6 June 2017 Sharesave Scheme (UK and International) 30 June 2016 ESPP 30 May 2018 ESPP 6 June 2017 £3.63 £3.01 3% pa £8.43 £6.04 3% pa £8.05 £5.68 3% pa £3.63 £3.03 3% pa £8.43 £7.16 3% pa 36 months 36 months 36 months 25 months 25 months 32.7% 6.8% 0.7% £0.66 27.9% 24.6% 5.1% 0.1% £1.93 4.5% 0.1% £1.85 35.7% 6.8% 0.6% £0.68 32.7% 5.0% 0.1% £1.61 GovernanceFinancial StatementsStrategic Report 148 148 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED UK SHARE INCENTIVE PLAN The UK Share Incentive Plan (‘SIP’) has made several awards and is an approved HM Revenue and Customs scheme. The last award was made in 2010 and as the SIP holding period has passed, the shares can be transferred to participants at any time free of tax. A summary of share awards activity as at 31 December 2018 is as follows: Balance at 1 January 2018 Granted/allocated Forfeited/lapsed Exercised/sold/transferred Balance at 31 December 2018 Available at 31 December 2018 Exercise price per share SIP (UK) 185,941 – – BSA PSA Total 2,813,188 1,479,323 4,478,452 2,260,801 1,058,347 3,319,148 (311,087) (423,705) (734,792) (27,298) (748,608) (149,013) (924,919) 158,643 4,014,294 1,964,952 6,137,889 158,643 n/a – nil 158,643 – nil A summary of share option activity as at 31 December 2018 and the weighted average exercise price per award is as follows: Balance at 1 January 2018 Granted/allocated Forfeited/lapsed Exercised Sharesave (UK) Weighted average exercise price Sharesave (International) Weighted average exercise price 905,856 1,824,319 (886,896) – £5.86 £3.01 £5.60 – 708,730 1,332,687 (563,125) – £5.86 £3.01 £5.83 – Weighted average exercise price £8.11 £3.09 £7.65 – ESPP 105,347 202,845 (102,951) – Total 1,719,933 3,359,851 (1,552,972) – Balance at 31 December 2018 1,843,279 £3.16 1,478,292 £3.30 205,241 £3.38 3,526,812 Exercisable at 31 December 2018 – – – – – – – 27. RESERVES Cash flow hedge reserve: ($ in millions) Balance at 1 January Loss recognised on cash flow hedges: Forward exchange contracts Losses on cash flow hedges capitalised to Tangible Assets: Forward exchange contracts Balance at 31 December 2018 (7.7) 2017 (23.3) (5.2) 14.1 8.9 (4.0) 1.5 (7.7) There are no gains and losses reclassified from equity included within the income statement for the period ended 31 December 2018 (2017: nil). Gains and losses relating to the effective portion of cash flow hedges are recognised in other comprehensive income and accumulated in the cash flow hedge reserve. When a hedged item is recognised in the income statement the cumulative deferred gain or loss accumulated in other comprehensive income and the cash flow hedge reserve is reclassified to the income statement. When a hedged item is recognised as a non-financial asset or liability in the balance sheet the accumulated gain or loss is removed from the cash flow hedge reserve and included directly in the initial cost of the asset or liability. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 149 149 28. EARNINGS PER SHARE Earnings per share for the year ended 31 December 2018 has been calculated based on profit attributable to equity holders for the year 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. The convertible bonds due 2023 could potentially dilute basic earnings per share in the future, however these shares were not included in the calculation of diluted earnings per share because they were anti-dilutive in the period, as the contingent conditions associated to the bond had not been met. ($ in millions) Profit attributable to equity holders of the Company Profit attributable to equity holders for diluted earnings per share (millions) Weighted average number of ordinary shares in issue Potentially dilutive ordinary shares Weighted average number of ordinary shares for diluted earnings per share ($ per share) Basic earnings per share Diluted earnings per share 2018 2017 (restated) 124.2 124.2 184.4 184.4 2018 2017 (restated) 460.3 7.1 467.4 454.8 5.1 459.9 2018 2017 (restated) 0.27 0.27 0.41 0.40 Adjusted earnings per share Adjusted earnings per share for the year ended 31 December 2018 has been calculated based on profit attributable to equity holders adjusted for the impact of the movement in the fair value of the conversion liability component of the 2023 convertible bonds and the post-tax impact of restructuring costs (2017 only). ($ in millions) Profit attributable to equity holders of the Company Adjustment for: (Decrease)/Increase in fair value of conversion of the liability component of 2023 convertible bonds Restructuring costs (post-tax) Adjustable profit attributable to equity holders of the Company (millions) Weighted average number of ordinary shares in issue Potentially dilutive ordinary shares Weighted average number of ordinary shares for diluted earnings per share ($ per share) Basic earnings per share Diluted earnings per share 2018 2017 (restated) 124.2 184.4 23.2 – 147.4 (7.7) 16.1 192.8 2018 2017 (restated) 460.3 7.1 467.4 454.8 5.1 459.9 2018 2017 (restated) 0.32 0.32 0.42 0.42 GovernanceFinancial StatementsStrategic Report 150 150 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 29. PENSIONS AND POST-EMPLOYMENT BENEFITS The Group operates pension schemes in each of its principal locations. The Group’s pension plans are provided through both defined benefit schemes and defined contribution arrangements. The Group operates defined benefit pension schemes in the United Kingdom, regulated by the Pensions Regulator, and The Netherlands. The Group’s principal defined benefit pension plan is the Inmarsat Global scheme, which is a UK funded scheme with assets held in a separate fund administered by a corporate trustee; the scheme is closed to new employees and the Company closed the defined benefit plan to future accruals during 2018. The trustee is required by law to act in the interest of the fund and of all relevant stakeholders in the scheme. The trustees of the pension schemes are responsible for the investment policy with regards to the assets of the fund. The Group is required to ensure that the plan is fully funded where the future liabilities for benefits are covered by the fund’s assets. The size of the asset that can be recognised as a result of a pension surplus should not exceed the recoverable amount and is restricted to the asset ceiling per IAS 19. The Inmarsat Global defined benefit plan was valued using the projected unit credit method with the valuation undertaken by professionally qualified and independent actuaries as at 31 December 2018. The results of the valuation, which have been updated for any material transactions and material changes in circumstances (including changes in market prices and interest rates) up to 31 December 2018, are set out below. There are no guaranteed minimum pension (‘GMP’) benefits held under the scheme and there was therefore no impact to the liability as a result of High Court ruling on 26 October 2018. There have been no plan amendments, curtailments or settlements since the previous year end that we have been made aware of. The plan closed to future DB accrual with effect from 1 April 2017, and a curtailment gain (arising from the break in salary link for active members) was reflected in the 2017 year-end accounting disclosures. The Group also provides post-employment benefits for some of its employees. The Group’s principal scheme is the Inmarsat Global post-retirement healthcare benefit scheme, which is the provision of healthcare to retired employees (and their dependants) who were employed before 1 January 1998. Employees who have 10 years of service at the age of 58 and retire are eligible to participate in the post-retirement healthcare benefit plans. Membership of this plan is multinational, although most staff are currently employed in the UK. The plans are self-funded and there are no plan assets from which the costs are paid. The cost of providing these benefits is actuarially determined and accrued over the service period of the active employee groups. The Group’s post-retirement medical liability is capped at CPI plus 1%. Schemes denominated in local currencies are subject to fluctuations in the exchange rate between US Dollars and local currencies. The primary risk to which the Inmarsat Global defined benefit plan exposes the Group is the risk arising through a mismatch between the plan’s assets and its liabilities. This is primarily made up of a number of strategic investment risks. The key strategic investment risks inherent in the current investment strategy are as follows: › market risk (the risk that investment returns on assets are lower than assumed in the actuarial valuation, thereby resulting in the funding level being lower than expected) › interest rate risk (the risk that the assets do not move in line with the value placed on the liabilities in response to changes in interest rates) › inflation risk (similar to interest rate risk but concerning inflation) › credit risk (the risk that payments due to corporate bond investors may not be made) › active management risk (the risk that active managers underperform the markets in which they invest, resulting in lower-than-expected investment returns) and › currency risk (the risk that currency market movements adversely impact investment returns) In addition to the investment-related risks, the plan is also subject to the risk that members live longer than expected, or that the financial assumptions used in valuing the liabilities are not borne out in practice. This could lead to unexpected contributions from the Group being required to meet the benefit payments due. The principal actuarial assumptions used to calculate the Group’s pension and post-employment benefits liabilities under IAS 19 are: Weighted average actuarial assumptions: Discount rate Future salary increases Medical price inflation Future pension increases At 31 December 2018 At 31 December 2017 2.9% 2.4% 3.2% 2.9% 2.6% 2.3% 3.2% 2.9% Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 151 151 Mortality assumptions have been updated to reflect experience and expected changes in life expectancy. The average life expectancy assumptions for the Company’s pension and post-employment benefits liabilities are as follows: Male current age 65 Female current age 65 Life expectancy 2018 Life expectancy 2017 88.2 89.4 88.8 90.0 Mortality assumptions used are consistent with those recommended by the individual scheme actuaries and reflect the latest available tables, adjusted for the experience of the Group where appropriate. For the Inmarsat Global defined benefit pension scheme and the Inmarsat Global post-retirement healthcare benefits for 2018, mortality has been assumed to follow the S2PA tables with -1 year age rating for males and CMI 2017 improvement with a long-term trend of 1.75% pa. Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected salary increase, mortality and healthcare cost trend rates. The sensitivity analysis below is for the Group’s principal pension and post-employment benefits schemes, and has been determined based on reasonable possible changes of the assumptions occurring at the end of the reporting period assuming that all other assumptions are held constant. Inmarsat Global defined benefit scheme: Change in assumption ($ in millions) Increase in discount factor of 0.25% Decrease in discount factor of 0.25% Increase in inflation of 0.25% Decrease in inflation of 0.25% Mortality: -2 years for males and -1 year for females Inmarsat Global post-retirement healthcare benefit scheme: Change in assumption ($ in millions) Increase in discount factor of 0.5% Increase in inflation of 0.5% Increase in medical price inflation trend rate of 1% Decrease in medical price inflation trend rate of 1% Impact on benefit obligation increase/ (decrease) Impact on projected pension cost increase/ (decrease) (4.5) 4.8 4.8 (4.5) 3.1 (0.2) 0.2 0.2 (0.1) 0.1 Impact on benefit obligation increase/ (decrease) Impact on service cost increase/ (decrease) (0.7) 0.8 1.6 (1.3) – – 0.1 – In reality, there is an expectation of inter-relationships between the assumptions, for example, between discount rate and inflation. The above analysis does not take the effect of these inter-relationships into account. Amounts recognised in the balance sheet are: ($ in millions) Present value of funded defined benefit obligations (pension) Present value of unfunded defined benefit obligations (pension) Present value of unfunded defined benefit obligations (post-employment benefits) Fair value of defined benefit assets Net defined benefit asset/(liability) recognised in the balance sheet The above net liability is recognised in the balance sheet as follows: ($ in millions) Defined benefit pension asset Defined benefit pension and post-employment liability At 31 December 2018 At 31 December 2017 (96.3) (0.5) (9.9) 126.2 19.5 (126.5) (0.5) (15.9) 143.5 0.6 At 31 December 2018 At 31 December 2017 30.9 (11.4) 18.1 (17.5) Note 18 21 GovernanceFinancial StatementsStrategic Report 152 152 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Analysis of the movement in the present value of the defined benefit obligations is as follows: ($ in millions) At 1 January 2017 Current service cost Past service cost1 Interest cost Remeasurement gains: Actuarial gains arising from changes in financial assumptions Foreign exchange loss Benefits paid Contributions by pension participants At 31 December 2017 Current service cost Past service cost1 Interest cost Remeasurement gains: Actuarial gains arising from changes in demographic assumptions Actuarial gains arising from changes in financial assumptions Change in experience adjustment Foreign exchange loss Benefits paid Contributions by pension participants At 31 December 2018 Analysis of the movement in the fair value of the assets of the defined benefit pension plans is as follows: ($ in millions) At 1 January Interest income Remeasurement gains/(losses): Experience return on plan asset (excluding interest income) Actuarial (loss)/gains arising from changes in financial assumptions Contributions by employer Contributions by pension participants Benefits paid Expenses paid (included in service cost) Foreign exchange gain/(loss) At 31 December Defined benefit pension plan Post- employment benefits 136.3 1.6 (4.1) 3.6 (2.6) 11.3 (19.5) 0.4 127.0 1.0 – 3.1 (3.8) (10.0) (6.4) (6.0) (8.3) 0.2 96.8 2018 143.5 3.4 (6.2) – 0.8 0.2 (8.1) (0.4) (7.0) 126.2 16.7 0.4 – 0.5 (3.3) 1.9 (0.3) – 15.9 0.4 – 0.4 (5.0) (0.8) 0.1 (0.8) (0.3) – 9.9 2017 140.0 3.7 7.2 (0.4) 1.0 0.3 (19.6) (0.4) 11.7 143.5 1 The Group Defined Benefit Pension Plan closed to further benefit accrual on 31 March 2017 and all former active members have now become deferred members. This curtailment has resulted in a past service credit and decrease to the defined benefit obligation in 2017 Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 153 153 Amounts recognised in the income statement in respect of the plans are as follows: ($ in millions) Current service cost Past service gain Net interest (income)/expense Foreign exchange (gain)/loss 2018 2017 Defined benefit pension plan Post- employment benefits Defined benefit pension plan Post- employment benefits 1.4 – (0.3) 1.0 2.1 0.4 – 0.4 (0.8) – 2.0 (4.1) (0.1) (0.4) (2.6) 0.4 0.0 0.5 1.9 2.8 Current service cost is included within employee benefit costs (note 7). The net financing costs together with foreign exchange gains and losses are included within interest payable (note 9). Amounts recognised in the statement of comprehensive income in respect of the plans are as follows: ($ in millions) Actuarial gains arising from changes in demographic assumptions Actuarial gains arising from changes in financial assumptions Actuarial gains arising from changes in experience adjustment Return on plan asset (excluding interest income) Remeasurement of the net defined benefit asset and liability The assets held in respect of the Group’s defined benefit schemes were as follows: Equities Cash Bonds Other Fair value of scheme assets 2018 2017 Defined benefit pension plan Post- employment benefits Defined benefit pension plan Post- employment benefits (3.8) (10.0) (6.4) 6.2 (14.0) (5.0) (0.8) 0.1 – (5.7) – (2.2) – (7.2) (9.4) – (3.3) – – (3.3) At 31 December 2018 At 31 December 2017 Value ($ in millions) Percentage of total plan assets Value ($ in millions) Percentage of total plan assets 10.3 0.4 87.3 28.2 126.2 8.2% 0.3% 69.2% 22.3% 30.7 1.4 80.9 30.5 143.5 21.4% 1.0% 56.4% 21.2% All of the Plan assets are invested in pooled investment funds. The majority of these are priced daily, but are not quoted market prices. The exceptions to this are certain weekly priced funds (UCITS Alternatives Strategies) and monthly priced funds (High Income UK Property, Liquid Alternative Strategies Alternatives and Multi Asset Credit). With regards to private debt, the portfolio will be valued on an absolute basis, using the ‘best efforts’ value on a quarterly basis. Therefore, fund investments are primarily valued based on the market value/capital account statements received from the underlying general partners of the underlying funds. Capital account statements and unaudited financial statements are distributed approximately 90 days after each quarter. The fund also distributes US GAAP audited financials, including capital account statements, for each 31 December fiscal year-end around 30 June of the subsequent year. The actual allocations to each of the investment funds as at 31 December 2018 are shown in the table below. The investment portfolio seeks to mitigate the investment risks identified above through a combination of asset class diversification, underlying investment manager diversification and the use of currency hedging where appropriate. The assets are split into two portfolios: the growth portfolio and the matching portfolio. The assets within the growth portfolio are invested so as to achieve an appropriate level of growth above that of the Plan’s liabilities, ensuring a sufficiently diversified portfolio of investments provides the Plan with a variety of sources of return, without unduly exposing the Plan to a single type of risk. The assets within the matching portfolio are invested so as to reduce the level of unrewarded risk and ensure the portfolio broadly matches changes in the value of the Plan’s liabilities. GovernanceFinancial StatementsStrategic Report 154 154 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED The allocations to each of the investment funds as at 31 December 2018 are as follows: Fund Global Fundamental (RAFI) Equity Global Low Volatility Equity Global Small Cap Equity Sustainable Equity Global Listed Infrastructure Equity Eurozone Equity Emerging Markets Equity Emerging Markets Debt Global High Yield Bonds Multi Asset Credit Absolute Return Fixed Income Liquid Alternatives Strategies Mercer UCITS Alternatives Strategies High Income UK Property Private Debt Total Growth Portfolio UK Credit Tailored Credit Fund UK Long Gilt Fund Inflation Linked Bonds Nominal LDI Bond Fund Medium Flexible Enhanced Matching Fixed Long Flexible Enhanced Matching Fixed Short Flexible Enhanced Matching Inflation Short Flexible Enhanced Matching Real Medium Flexible Enhanced Matching Real Long Flexible Enhanced Matching Real Total Matching Portfolio Total Assets Legal structure Mercer QIF CCF MGI Funds PLC MGI Funds PLC MGI Funds PLC MGI Funds PLC MGI Funds PLC MGI Funds PLC MGI Funds PLC MGI Funds PLC Mercer QIF Fund PLC MGI Funds PLC Mercer QIF Fund PLC MGI Funds PLC Mercer QIF CCF Mercer Private Investment Partners (Offshore), LP Mercer PIF Fund PLC Mercer QIF Fund PLC MGI Funds PLC MGI Funds PLC Mercer PIF Fund plc Mercer QIF Fund PLC Mercer QIF Fund PLC Mercer QIF Fund PLC Mercer QIF Fund PLC Mercer QIF Fund PLC Mercer QIF Fund PLC Allocation (%) 1.8 1.0 1.6 1.3 0.5 0.2 2.4 2.0 0.2 1.6 0.8 9.3 1.7 3.0 2.1 29.5 14.2 7.6 6.0 6.9 3.5 6.5 0.7 6.8 5.0 5.1 8.2 70.5 100.0 The investment portfolio seeks to mitigate the investment risks identified above through a combination of asset class diversification, underlying investment manager diversification and the use of currency hedging where appropriate. The assets are split into two portfolios, the growth portfolio and the matching portfolio. The assets within the growth portfolio are invested so as to achieve an appropriate level of growth above that of the plan’s liabilities, ensuring a sufficiently diversified portfolio of investments provides the plan with a variety of sources of return, without unduly exposing the plan to a single type of risk. The assets within the matching portfolio are invested so as to minimise the level of unrewarded risk and ensure the portfolio broadly matches changes in the value of the plan’s liabilities. This is achieved by investing in a range of pooled investment funds as outlined in the table above, with the allocation to each fund determined by a combination of the following: the nature of the plan’s liability structure, the target level of hedging deemed appropriate to reflect the Trustee’s risk tolerance and a ‘fair value’ assessment of market levels. Some of these funds achieve their objectives by utilising a range of bond or bond type instruments, resulting in leveraged exposure which enables the plan to match a greater proportion of its liabilities than would be possible by only holding physical securities. Instruments utilised within the funds include fixed interest gilts, index-linked gilts, corporate bonds, gilt repos, interest rate swaps, inflation swaps and total return swaps. The plan does not hold any direct investments in the Group; however, due to the pooled nature of the investment funds, there may be some indirect investment. The duration of the defined benefit liabilities within the Inmarsat Global defined benefit plan is approximately 21 years. The defined benefit obligation as at December 2018 is split as follows: Active members 0% (following the closure of the plan to future accrual effective 1 April 2017, all former active members have become deferred members) Deferred members Pensioner members 81% 19% Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 155 155 The average age of the deferred and pensioner members at the date of the last statutory funding valuation for the Inmarsat Global defined benefit plan (31 December 2018) was 56 years and 69 years, respectively. The estimated contributions expected to be paid into the Inmarsat Global defined benefit pension plan during 2019 are $0.5m. In 2018 actual contributions under this plan were $nil (2017: $0.2m). 30. OPERATING LEASES During the year the Group received income from various agreements deriving revenue from leased equipment. These amounts are recorded as revenue on a straight-line basis over the respective lease terms and represent the majority of the Group’s future aggregate minimum lease payments under non-cancellable operating leases expected to be received. ($ in millions) Within one year Within two to five years 31. CAPITAL RISK MANAGEMENT The following table summarises the capital of the Group: ($ in millions) As per balance sheet Cash and cash equivalents Short-term deposits greater than three months Borrowings1 Net borrowings Equity attributable to shareholders of the parent Capital At 31 December 2018 At 31 December 2017 20.0 33.5 53.5 28.7 18.7 47.4 At 31 December 2018 At 31 December 2017 (restated) (143.2) (145.7) 2,465.5 2,176.6 1,336.0 3,512.6 (144.9) (342.0) 2,565.5 2,078.6 1,247.5 3,326.1 1 This excludes the conversion liability on the convertible bond of $148.8m and lease obligations of $71.0m at 31 December 2018 The Group’s objective when managing its capital is to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group continually evaluates sources of capital and may repurchase, refinance, exchange or retire current or future borrowings and/or debt securities from time to time in private or open-market transactions, or by any other means permitted by the terms and conditions of borrowing facilities and debt securities. Additionally, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group uses a maximum ratio of net borrowings to EBITDA as an internal planning parameter and in regular forecasting and monitoring activities. In addition, movements in cash and borrowings as well as total available liquidity are monitored regularly. The net borrowings to EBITDA ratio for the year ended 31 December 2018 is 2.8 (2017: 2.8). The Group’s liquidity is disclosed in note 3(d). No changes were made in the Group’s objectives, policies or processes for managing capital during the current or preceding year. 32. FINANCIAL INSTRUMENTS TREASURY MANAGEMENT AND STRATEGY The Group’s treasury activities are managed by its treasury department which reports into the Chief Financial Officer. The treasury department operations are bound by the Board-approved treasury policy and related treasury operating manual. The overriding objective of treasury activities is to manage financial risk. Key features of treasury management include: › ensuring that the Group is in a position to fund its obligations in appropriate currencies as they fall due › maintaining adequate undrawn borrowing facilities and › maximising return on short-term investments based on counterparty limits and credit ratings Treasury activities are only transacted with counterparties who are on the approved counterparty list approved by the Board. The Group’s foreign exchange policy is not to hedge its 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 and must be approved by the Chief Financial Officer prior to any hedge being undertaken. GovernanceFinancial StatementsStrategic Report 156 156 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FINANCIAL INSTRUMENTS BY CATEGORY The following table sets out the categorisation of financial assets and liabilities under IFRS 9: At 31 December 2018 At 31 December 2017 ($ in millions) Assets as per balance sheet Amortised cost Fair value through profit and loss Derivatives used for hedging Trade receivables and other1 337.7 Cash and cash equivalents Short-term deposits Derivative financial instruments – – – – 143.2 145.7 – 337.7 288.9 1 Consists of trade receivables, other receivables and accrued income (see note 18) – – – 0.3 0.3 Amortised cost Fair value through profit and loss Derivatives used for hedging 275.3 – – – 275.3 – 144.9 342.0 – 486.9 – – – 1.5 1.5 Total 337.7 143.2 145.7 0.3 626.9 ($ in millions) Liabilities as per balance sheet Borrowings Trade payables and other1 Derivative financial instruments At 31 December 2018 Amortised cost Fair value through profit and loss Derivatives used for hedging At 31 December 2017 Fair value through profit and loss Derivatives used for hedging Total Amortised cost 2,465.5 237.2 – 2,702.7 – – 148.8 148.8 – – 4.0 4.0 2,465.5 237.2 152.8 2,565.5 328.0 – 2,855.5 2,893.5 – – 125.7 125.7 – – 10.0 10.0 Total 275.3 144.9 342.0 1.5 763.7 Total 2,565.5 328.0 135.7 3,029.2 1 Consists of trade payables, other payables and accruals (see note 21) The table below analyses the Group’s financial liabilities and net-settled derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying values as the impact of discounting is not significant. ($ in millions) Borrowings1 Trade payables and other Derivative financial instruments At 31 December 2018 Less than 1 year Between 1 and 2 years Between 2 and 5 years 254.4 234.8 2.4 491.6 251.1 1556.2 0.3 1.5 0.6 148.9 Over 5 years 1,001.1 1.5 0.0 Total 3062.8 237.2 152.8 252.9 1,705.7 1,002.6 3,452.8 1 Includes interest obligations on the Senior Notes due 2022 and 2024, Ex-Im Bank Facilities and Convertible Bonds. The interest obligations on those borrowings are at fixed rates for the term of the borrowing ($ in millions) Borrowings1 Trade payables and other Derivative financial instruments At 31 December 2017 Less than 1 year Between 1 and 2 years Between 2 and 5 years 260.2 321.3 7.9 589.4 254.4 1,694.0 1.7 1.9 3.5 0.2 258.0 1,697.7 Over 5 years 1,188.5 1.5 125.7 1,315.7 Total 3,397.1 328.0 135.7 3,860.8 1 Includes interest obligations on the Senior Notes due 2022 and 2024, Ex-Im Bank Facilities and Convertible Bonds. The interest obligations on those borrowings are at fixed rates for the term of the borrowing Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 157 157 FAIR VALUES OF DERIVATIVE 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. Derivative financial instruments are initially measured at fair value (see further below) on the contract date and are re-measured at each reporting date. The change in the fair value is accounted for differently depending on whether the instrument qualifies for hedge accounting (eg where a forward foreign currency transaction is designated as a cash flow hedge) or not (eg undesignated cash flow hedges and the conversion liability component of the 2023 convertible bond). Under hedge accounting, the change in fair value initially goes through other comprehensive income. At the point hedge accounting is discontinued, ie when the hedging instrument expires, is exercised or no longer qualifies for hedge accounting, the amounts sitting in other comprehensive income are recycled to the income statement or, where appropriate, capitalised to the balance sheet. Where hedge accounting does not apply, the change in fair value is included in net financing costs in the income statement. The fair values at the balance sheet date were: ($ in millions) Financial assets: Forward foreign currency contracts – designated cash flow hedges Forward foreign currency contracts – undesignated Total derivative financial assets Current portion of derivative financial assets Non-current portion of derivative financial assets Financial liabilities: Conversion liability component of 2023 Convertible Bond Forward foreign currency contracts – designated cash flow hedges Forward foreign currency contracts – undesignated Total derivative financial liabilities Current portion of derivative financial liabilities Non-current portion of derivative financial liabilities At 31 December 2018 At 31 December 2017 0.3 – 0.3 0.3 – 148.8 3.4 0.6 152.8 2.4 150.4 1.5 – 1.5 1.2 0.3 125.7 9.9 0.1 135.7 7.9 127.8 The full value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability if the maturity of the hedged item is less than 12 months. 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. The fair value of the conversion liability component of the Convertible Bonds due 2023 is determined as the difference between the market value of the Convertible Bond and the fair value of a comparable, non-convertible bond, known as a debt host contract. Both are classified as level 2 in the fair value hierarchy according to IFRS 13. The Group has no financial instruments with fair values that are determined by reference to significant unobservable inputs, ie 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. FORWARD FOREIGN EXCHANGE The following tables set out the face value and fair value of forward foreign exchange contracts outstanding for the Group as at 31 December 2018 and 2017: Outstanding forward foreign exchange contracts (in millions) Face value At 31 December 2018 Maturing within 1 year Maturing between 1 and 2 years Maturing between 2 and 5 Years GBP contracts- USD:GBP1 1:0.73 CAD contracts- USD:CAD1 1:1.30 1 Weighted Average Foreign Exchange Rate £24.0 £20.1 £3.3 £0.6 CAD 12.0 CAD 9.0 CAD 3.0 CAD 0.0 Outstanding forward foreign exchange contracts (in millions) Face value At 31 December 2017 Maturing within 1 year Maturing between 1 and 2 years Maturing between 2 and 5 Years GBP contracts- USD:GBP1 1:0.70 CAD contracts- USD:CAD1 1:1.30 1 Weighted Average Foreign Exchange Rate £105.2 £87.6 £13.7 £3.8 CAD 30.9 CAD 20.1 CAD 7.8 CAD 3.0 Fair value (US$) (1.8) (0.3) Fair value (US$) (9.0) 0.9 GovernanceFinancial StatementsStrategic Report 158 158 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED The Group has entered into contracts to build the I-6 satellite. The Group has entered into forward foreign exchange contracts (for terms equivalent to when the milestone payments fall due) to hedge the exchange rate risk arising from these anticipated milestone payments, which are designated as cash flow hedges. As at 31 December 2018, the aggregate amount of losses under forward foreign exchange contracts deferred in the cash flow hedging reserve relating to the exposure on these payments is $4.0m. The milestone payments will take place at irregular periods throughout each year until 2021, at which time the related cash flow hedges deferred in equity will be transferred and included in the initial carrying value of the hedged non-financial assets. Hedge ineffectiveness can arise from changes in both the creditworthiness of counterparties hedged with and the credit risk of the Group. The hedge ineffectiveness for 2018 was less than $0.1m (2017: nil). NON-DERIVATIVE FINANCIAL ASSETS AND FINANCIAL LIABILITIES Non-derivative financial assets consist of cash at bank, short-term investments, trade receivables, other receivables and accrued income. Non-derivative financial liabilities consist of borrowings, trade payables, other payables and accruals. FAIR VALUE OF NON-DERIVATIVE FINANCIAL ASSETS AND FINANCIAL LIABILITIES With the exception of the Senior Notes, the Ex-Im Bank Facilities and the Convertible Bonds, the fair values of all non-derivative financial instruments approximate to the carrying value in the balance sheet. The fair value of Senior Notes, Ex-Im Bank Facilities and Convertible Bonds are classified as level 2 in the fair value hierarchy according to IFRS 13. The following methods and assumptions have been used to determine fair values: › the fair values of cash at bank, overdrafts and short-term deposits approximate their carrying values because of the short-term maturity of these instruments (see note 17) › the fair value of trade and other receivables and payables, accrued income and costs, and deferred consideration approximate their carrying values (see notes 18 and 21 respectively) › the carrying amount of deferred satellite payments represents the present value of future payments discounted, using an appropriate rate, at the period end. This carrying amount approximately equals fair value (see note 20) › the Senior Notes due 2022 are reflected in the balance sheet net of unamortised arrangement costs and net issuance premium of $3.9m and $3.4m, respectively (see note 20). The fair values of the Senior Notes due 2022 are based on the market price of the bonds and are reflected in the next table › the Senior Notes due 2024 are reflected in the balance sheet net of unamortised arrangement costs of $4.2m (see note 20). The fair values of the Senior Notes due 2024 are based on the market price of the bonds and are reflected in the next table › the Ex-Im Bank Facilities are reflected in the balance sheet net of unamortised arrangement costs of $6.5m (2017: $14.9m). The fair value of the 2011 facility has been based on the implicit interest rate of the 2014 facility (see note 20) and › the debt liability component of the Convertible Bonds is reflected in the balance sheet on an amortised cost basis, net of unamortised arrangement costs of $5.4m (2017: $6.6m) (see note 20). The fair value of the Convertible Bonds is based on the market price of the bonds and is reflected in the table below ($ in millions) Senior Notes due 2022 Senior Notes due 2024 Ex-Im Bank Facilities Convertible Bonds due 2023 debt component 1 Gross of unamortised arrangement cost 33. CAPITAL AND PURCHASE COMMITMENTS At 31 December 2018 At 31 December 2017 Carrying amount1 1,000.0 400.0 508.7 574.8 Fair value amount 945.6 382.1 508.9 545.8 Carrying amount 1,000.0 400.0 630.9 561.6 Fair value amount 1,000.8 408.1 639.7 566.5 The Group had authorised and contracted but not provided for capital commitments as at 31 December 2018 of $492.5m (2017: $968.0m). These amounts primarily represent commitments in respect of the Group’s I-6 satellite programmes. The Group has not reported the split between tangible assets and intangible assets for these capital commitments, as the necessary information is not available and the cost to develop it would be excessive. In addition, the Group has the following purchase commitments, relating to future obligations to purchase space segment capacity: ($ in millions) Within one year Within two to five years At 31 December 2018 At 31 December 2017 14.0 1.7 15.7 24.7 11.5 36.2 Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 159 159 34. CONTINGENT ASSETS AND LIABILITIES CONTINGENT ASSETS In respect of the ongoing legal dispute surrounding the provision of services to RigNet, the Phase I ruling by the Centre for Dispute Resolution’s Arbitration tribunal was in favour of the Group. This concluded that the Group is owed $50.8m by RigNet. This is an interim ruling and RigNet is not required to pay until the tribunal’s Phase II ruling has taken place towards the end of 2019. This asset has not been recognised during the financial year as its receipt is not virtually certain and the amount is dependent on the outcome of the Phase II ruling. CONTINGENT LIABILITIES In the ordinary course of business, the Group is subject to contingencies pursuant to requirements that it complies with relevant laws, regulations and standards. Failure to comply could result in restrictions in operations, damages, fines, increased tax, increased cost of compliance, interest charges, reputational damage and other sanctions. These matters are inherently difficult to quantify. In cases where the Group has an obligation as a result of a past event existing at the balance sheet date, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated, a provision will be recognised based on best estimates and management judgement. A contingent liability is disclosed where the existence of the obligation will only be confirmed by future events, or where the amount of the obligation cannot be measured with reasonable reliability. At 31 December 2018, the Group had no material contingent liabilities. 35. EVENTS AFTER THE BALANCE SHEET DATE Since the balance sheet date there have been no other significant events which would require disclosure in the 31 December 2018 financial statements. 36. RELATED PARTY TRANSACTIONS In the normal course of operations the Group engages in transactions with its equity-owned investees Navarino UK and JSAT Mobile Communications Inc. These transactions represent sales of airtime and equipment and are measured at the amounts exchanged. Group revenue from the related parties for the 2018 financial year was $39.7m and $15.6m, respectively (2017: $38.1m and $16.9m, respectively). The amount receivable from the related parties at 31 December 2018 was $17.2m and $1.7m, respectively (2017: $12.6m and $1.7m, respectively). Amounts owing to the Executive as at 31 December 2018 is $1.4m (2017: $1.2m) and relates to remuneration earned in the normal course of operations (see note 8). GovernanceFinancial StatementsStrategic Report 160 160 Financial Statements | Consolidated financial statements Financial statements | Consolidated financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 37. PRINCIPAL SUBSIDIARY UNDERTAKINGS At 31 December 2018, the Company had investments in the following subsidiaries and associates: Inmarsat Holdings Limited Inmarsat Group Limited Inmarsat Finance PLC Inmarsat Investments Limited Inmarsat Ventures SE Inmarsat Global Limited ISAT Global Xpress OOO Inmarsat Brasil Eireli Inmarsat Leasing (Two) Limited Inmarsat New Zealand Limited Inmarsat Services Limited PT ISAT Inmarsat Communications Company LLC Inmarsat Group Holdings Inc. ISAT US Inc. Inmarsat Government Inc. Stratos Government Services Inc. Inmarsat Commercial Services Inc. Inmarsat Solutions (US) Inc. Inmarsat Inc. Inmarsat US Investments Limited Europasat Limited Inmarsat Employment Company Limited Inmarsat Trustee Company Limited Inmarsat Finance III Limited Inmarsat Solutions Limited Inmarsat Solutions (Canada) Inc. Stratos Holdings (Cyprus) Limited Inmarsat Germany (GmBH) Stratos Global Japan KK Stratos Investments BV Inmarsat Solutions B.V. Inmarsat Solutions SA (PTY) Limited Inmarsat Spain S.A. Inmarsat Hong Kong Limited Inmarsat (IP) Company Limited Inmarsat Hellas Satellite Services SA Inmarsat Navigation Ventures Limited Inmarsat Global Xpress Limited Inmarsat SA Inmarsat Solutions Global Limited Inmarsat Solutions AS Inmarsat Solutions Pte. Limited Inmarsat Solutions ehf. Inmarsat Australia Pty Limited Inmarsat KK Inmarsat Solutions (Shanghai) Co. Limited Inmarsat India Private Limited Inmarsat Licences (Canada) Inc. Flysurfer Colombia S.A.S. Flysurfer Peru S.A.C. Inmarsat New Ventures Limited Flysurfer-Ecuador S.A. Inmarsat Satellite Services S.R.L. Inmarsat BH d.o.o. Inmarsat Solutions doo Beograd Inmarsat DOOEL Skopje Navarino UK Limited JSAT Mobile Communications Inc. 1 For the list of registered addresses please refer to the next table Principal activity Holding company Holding company Finance company Holding company Operating company Satellite telecommunications Operating company Dormant Satellite leasing Operating company Operating company Operating company Operating company Operating company Operating company Operating company Operating company Operating company Operating company Holding company Dormant Operating company Employment company Dormant Operating company Holding company Operating company Holding company Operating company Holding company Holding company Operating company Operating company Operating company Operating company Dormant Satellite telecommunications Operating company Operating company Operating company Operating company Operating company Operating company Operating company Operating company Operating company Operating company Operating company Holding company Operating company Operating company Operating company Operating company Operating company Operating company Operating company Operating company Associate Associate Country of incorporation/ registered address key1 England and Wales/A England and Wales/A England and Wales/A England and Wales/A England and Wales /A England and Wales/A Russian Federation/X Brazil/H England and Wales/A New Zealand/U England and Wales/A Indonesia/Q United Arab Emirates/AC United States/C United States/C United States/D United States/D United States/D United States/D United States/D England and Wales/A England and Wales/A Jersey/T England and Wales/A England and Wales/A England and Wales/A Canada/B Cyprus/K Germany/L Japan/S The Netherlands/V The Netherlands/V South Africa/Z Spain/AA Hong Kong/N England and Wales/A Greece/M England and Wales/A England and Wales/A Switzerland/AB England and Wales/A Norway/W Singapore/Y Iceland/O Australia/F Japan/S China/J India/P Canada/B Columbia/I Peru/R England and Wales/A Ecuador/AE Romania/AF Bosnia and Herzegovina/AG Serbia/AH Macedonia/E England and Wales/AD Japan/G Interest in issued ordinary share capital at 31 December 2018 Interest in issued ordinary share capital at 31 December 2017 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 90% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 51% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% 26.67% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 90% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 51% 100% 100% 100% 100% 100% 100% 100% – – – – – – 49% 26.67% Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Consolidated financial statements Financial Statements | Consolidated financial statements 161 161 In accordance with s479A of the Companies Act 2006, the following companies are exempt from the requirements relating to the audit of individual accounts for the year ended 31 December 2018: Inmarsat Trustee Company Limited (03688399), Inmarsat (IP) Company Limited (03930467) and Inmarsat US Investments Limited (07100989). REGISTERED ADDRESS KEY Key Registered Address A B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA AB AC AD AE AF AG AH 99 City Road, London EC1Y 1AX, United Kingdom 34 Glencoe Drive, Box 5754, Donovan’s Bus. Park, Mount Pearl Newfoundland A1N 4S8, Canada 874 Walker Road, Suite C, City of Dover DE 19904, United States 251 Little Falls Drive, Wilmington DE 19808, United States Str. Risto Ravanovski no 13a, Skopje, Republic of Macedonia, Macedonia, the former Yugoslav Republic of Level 40, Governor Macquarie Tower, 1 Farrer Place, Sydney NSW 2000, Australia Nisso Building #22 8F, Azabudai1-11-10, Minato-ku, Tokyo 106-0041, Japan Av Presidente Juscelino Kubitschek 50, Suite 172, Room 7, 17th Floor, São Paulo, CEP 04543-000, Brazil Cra. 7 No. 71-52 Tower B 9th Floor, Bogota, DC, Colombia 110231 No 20–4 Ronghui Park, Yuhua Road, Area B, Tianzhu Airport Industrial Zone, Shanyi District Beijing, China 1, Lampousas, Nicosia, 1095, Cyprus Aarberger Strasse 18, 12205, Berlin, Germany 280 Kifisias Avenue, Halandri, 152 32, Greece 19 Floor, Milennium trade Centre, No. 56 Kwai Cheong Road, Kwai Chung, New Territories, Hong Kong Hlíðarsmára 10, 201 Kópavogi P-24, Green Park Extension, Delhi. 110016. India Panbil Residence 1st – 2nd Floor, Jl. Ahmad Yani, Muka Kuning – Batam – 29433, Indonesia Dentons Gallo Barrios Pickmann SCRL, General Córdova N° 313, Miraflores – Lima 18, Perú Level 25 Ark Hills Sengokuyama Mori Tower, 1-9-10, Roppongi, Minato-ku, Tokyo, 106-0032, Japan 44 Esplanade, St. Helier, Jersey JE4 9WG, Jersey Bell Gully, Lvl 22, Vero Centre, 48 Shortland Street, Auckland, 1010, New Zealand Loire 158-160, 2491 AL, The Hague, Netherlands NMK – Borgundveien 340, 6009 Ålesund, Norway Bld. 5, 13 Kasatkina Street, 129301, Moscow, Russian Federation 11 Lorong 3 Toa Payoh , #01-31, Jackson Square, 319579, Singapore Deloitte Place, The Woodlands, 20 Woodlands Drive, Woodmead, Sandton, Johannesburg, Gauteng, South Africa, 2052 Príncipe de Vergara 73, 28006, Madrid, Spain Route de Crassier 19, 1262, Eysins, Switzerland Al Maktoum Street, Al Reem Tower, Suite 402, P.O. Box 27313, Dubai, UAE, United Arab Emirates Camburgh House, 27 New Dover Road, Canterbury, Kent CT1 3DN, United Kingdom Republica de El Salvador N35-146 y Suecia, Edif. Prisma Norte, Piso 11, Quito, C.P. 170505, Ecuador 22 Tudor Vladimirescu Biv., Building Green Gate Office, Bucharest, 5th Floor 573Campus07, Sector, Bucharest, Romania Street Skenderpasina 1, Sarajevo, Bosnia and Herzegovina GTC Avenue 19, 38-40 Vladimira Popovica Street, New Belgrade, Servia, 11070, Serbia GovernanceFinancial StatementsStrategic Report 162 162 Financial Statements | Company financial statements Financial statements | Company financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 COMPANY BALANCE SHEET at 31 December 2018 ($ in millions) Assets Non-current assets Investments1 Other receivables2 Deferred tax assets Current assets Cash and cash equivalents Trade and other receivables3 Current tax assets Restricted cash Total assets Liabilities Current liabilities Trade and other payables4 Non-current liabilities Borrowings5 Derivative financial instruments Total liabilities Net assets Shareholders’ equity Ordinary shares Share premium Other reserves Retained earnings Total equity 2018 2017 1,561.3 – 0.3 1,111.0 438.0 0.2 1,561.6 1,549.2 5.0 242.2 7.9 – 255.1 1,816.7 46.0 46.0 569.4 148.8 718.2 764.2 1,052.5 0.3 767.8 110.9 173.5 1,052.5 1.8 19.0 10.8 0.4 32.0 1,581.2 44.2 44.2 555.0 125.7 680.7 724.9 856.3 0.3 745.4 99.6 11.0 856.3 Investments consist of a $1,448.8m investment in Inmarsat Holdings Limited (2017: $1,007.8m) and $112.5m of capital contributions to Group companies in respect of share-based payments (2017: $103.2m) 1 2 Other receivables consist of $nil amounts due from Group companies (2017: $438.0m) 3 Trade and other receivables consist of $242.1m amounts due from Group companies (2017: $19.0m) 4 Trade and other payables consists of $1.5m due to shareholders in respect of dividends paid during 2018 (2017: $1.4m), accruals of $11.8m (2017: $11.7m), amounts due to Group companies of $33.1m (2017: $30.2m) and other payables of $0.1m (2017: 0.9m) 5 Borrowings comprise the Convertible Bonds discussed in note 20 to the consolidated financial statements The Company reported a profit for the financial year ended 31 December 2018 of $253.3m (2017: $281.4m). The financial statements of the Company, registered number 4886072, on pages 162 to 163 were approved by the Board of Directors on 18 March 2019 and signed on its behalf by RUPERT PEARCE CHIEF EXECUTIVE OFFICER TONY BATES CHIEF FINANCIAL OFFICER Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Company financial statements Financial Statements | Company financial statements 163 163 COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2018 ($ in millions) Balance at 1 January 2017 Share-based payments Dividends declared Scrip dividend cash reinvestment Scrip dividend share issue Profit for the year Balance at 31 December 2017 Share-based payments Dividends declared Scrip dividend cash reinvestment Scrip dividend share issue Profit for the year Balance at 31 December 2018 Ordinary share capital Share premium account Share option reserve 0.3 700.4 – – – – – 0.3 – – – – – 0.3 – – – 45.0 – 745.4 – – – 22.4 – 767.8 87.9 14.6 – – – – 102.5 11.3 - – – – Other reserve1 (2.9) – – – – – (2.9) – – – – – Retained earnings (19.9) (0.7) Total 765.8 13.9 (249.8) (249.8) 45.0 (45.0) 281.4 11.0 1.1 (91.9) 22.4 (22.4) 253.3 173.5 45.0 – 281.4 856.3 12.4 (91.9) 22.4 – 253.3 1,052.5 113.8 (2.9) 1 The ‘other reserve’ relates to ordinary shares held by the employee share trust GovernanceFinancial StatementsStrategic Report 164 164 Financial Statements | Company financial statements Financial statements | Company financial statements Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 NOTES TO THE COMPANY FINANCIAL STATEMENTS for the year ended 31 December 2018 A) PRINCIPAL ACCOUNTING POLICIES BASIS OF ACCOUNTING The Company meets the definition of a qualifying entity under FRS 100 ‘Application of Financial Reporting Requirements’ issued by the Financial Reporting Council (‘FRC’). Accordingly, the Company financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to presentation of a cash flow statement, the reconciliation of net cash from operations, capital management, presentation of comparative information in respect of certain assets, standards not yet effective, impairment of assets and related party transactions, share based payments and financial instruments. Where required, equivalent disclosures have been given in the Group accounts of Inmarsat plc. The accounting policies and financial risk management policies and objectives, where relevant to the Company, are consistent with those of the consolidated Group as set out in notes 2 and 3 to the consolidated financial statements. B) CRITICAL ACCOUNTING ESTIMATES AND KEY JUDGEMENTS The critical accounting estimates and key judgements, where relevant to the Company, are consistent with those of the consolidated Group as set out in note 4 to the consolidated financial statement. C) INCOME STATEMENT The Company has taken advantage of the exemption available under Section 408 of Companies Act 2006 and has not presented an income statement. The profit for the year ended 31 December 2018 was $253.3m (2017: $281.4m). AUDITOR’S REMUNERATION During the year, the Company paid its external auditor $0.1m for statutory audit services (2017: $0.1m). EMPLOYEE COSTS AND DIRECTORS’ REMUNERATION The average monthly number of people employed during the year was two (2017: two). Total staff costs for 2018 were $8.2m (2017: $9.2m). Full details of Directors’ remuneration and Directors’ share options and share awards are given in the Remuneration report. FOREIGN CURRENCY TRANSLATION Accounting for foreign currency transactions of the Company is consistent with that of the Group, which is disclosed in note 2 to the consolidated financial statements. SHARE CAPITAL The share capital of the Company is disclosed in note 25 to the Group’s consolidated financial statements. D) FINANCIAL INSTRUMENTS The IFRS 7, ‘Financial Instruments’ disclosures, where relevant to the Company, are consistent with that of the Group as set out in note 31 to the consolidated financial statements. The differences between the Group and the Company in relation to intercompany balances are $242.1m (2017: $466.0m) amounts due from Group companies and $33.1m (2017: $30.2m) amounts due to Group companies, which eliminate on consolidation. The Directors consider the carrying value of the intercompany balances to approximate to their fair value. The Group has assessed the intercompany receivables under the IFRS 9 expected credit loss model and no impairment losses have been recognised. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Company financial statements Financial Statements | Company financial statements 165 165 ALTERNATIVE PERFORMANCE MEASURES The Directors use Alternative Performance Measures (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 1. EBITDA 2. Adjusted PAT 3. Direct and indirect costs 4. Revenue (ex Ligado) 5. EBITDA (ex Ligado) 6. Cash Capex 7. Adjusted EPS 8. Free Cash Flow 9. Underlying effective tax rate Description and Reconciliation 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 measure has been reconciled to both operating profit and profit after tax within the CFO report. 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 post tax restructuring charge. This measure allows investors to evaluate PAT after stripping out material non-operational items. A reconciliation to Profit after tax can be found within the CFO report. Direct costs are defined as expenses that can be traced directly to the sale of a product or service. Indirect costs are those costs which are not directly attributable to a sale. This measure is useful to investors because it allows them to understand the potential development of our cost profile in the future. The sum of direct and indirect costs incurred in 2018 were $695.1m which equals total net operating costs in the Income Statement. Revenue (ex Ligado) is defined as Group revenue less Ligado revenue. This measure is useful to investors because it excludes revenue that is not considered part of our core operations. This has been reconciled to total revenue within the CFO report. EBITDA (ex Ligado) is defined as Group EBITDA less Ligado EBITDA. Ligado EBITDA consists of Ligado revenues less Ligado costs incurred. This measure allows investors to evaluate the EBITDA that is only attributable to our core operations. Ligado EBITDA for 2018 was $130.6m and comprised of $130.7m revenue and $0.1m. Group EBITDA was $770.1m. Therefore, EBTDA (Excl. Ligado) was $639.5m. 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 5. 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 28 for the reconciliation of Adjusted EPS to EPS. 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 within the CFO report. The underlying effective tax rate is used to analyse differences from the corporate tax rate which are implicit to business operations rather than driven by accounting adjustments. For the year, this has been calculated by taking the tax charge ($42.9m) add prior year adjustments ($8.0m) less revaluation of deferred tax balances ($0.2m) divided by PBT ($167.9m) adjusted for the impact of the unrealised conversion liability of the convertible bonds ($23.2m). 10. Business Unit Operating Cash Flow This is indicative of the cash generated 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. 1 2018 APMs include the impact of IFRS 16 and therefore may not be directly comparable GovernanceFinancial StatementsStrategic Report 166 166 Financial Statements | Glossary of terms Financial statements | Glossary of terms Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 GLOSSARY OF TERMS Due to the technical nature of satellite communications and financial reporting we use a number of terms and abbreviations in this Annual Report and Accounts that are widely used within those industries but are less commonly used by our broader community of stakeholders. The principal ones are summarised below. A Active terminal A terminal that has been used to access commercial services (except certain handheld terminals) at any time during the preceding 12 months and is registered with one of our services at the period end. It includes the average number of certain handheld terminals active on a daily basis during the final month of a period and excludes M2M terminals. Alphasat A satellite developed with the European Space Agency and launched in 2013, also known as I-4 F4 in our Inmarsat-4 satellite constellation. ARPA Average Revenue Per Aircraft. ARPU Average Revenue Per User. ATC Ancillary Terrestrial Components provide communications services from ground stations either as stand-alone services or to complement satellite services. ATG ATG means the air to ground terrestrial component of the EAN. B Bandwidth The radio spectrum is divided into different bands which each cover a section of frequencies that are usually used for a similar purpose. Bands are allocated to specific uses at international level by the ITU and regulated at a national level by domestic organisations and governments. BGAN Broadband Global Area Network is a high-speed data satellite network using L-band frequency that spans the globe. Business and General Aviation (‘BGA’) Business and General Aviation refers to all civil aviation operations other than commercial air transport, covering private jets flying globally and regionally. C G Cash capital expenditure Cash capital expenditure is the cash flow relating to tangible and intangible asset additions, it includes capitalised labour costs and excludes capitalised interest. Commissioned terminal A terminal that is registered with one of our services at the period end. CAGR The Compound Annual Growth Rate measures average annual growth over a period of time and is used in the Executive Performance Share Award scheme. [Being edited by front end team] CGU A cash-generating unit is the smallest group of assets that generates cash inflows largely independently from the other parts of the business and which represents the lowest level at which goodwill is monitored within the business. The Company Where we refer to the Company we are referring to Inmarsat plc, the holding company of the Inmarsat Group. D Defined benefit and defined contribution schemes Defined benefit pensions schemes provide post-employment benefits based on an employee’s final salary. Defined contribution pension schemes are schemes into which Inmarsat makes fixed contributions based on a percentage of an employee’s salary. Distribution Partner (‘DP’) A Distribution Partner is an entity that has a direct relationship with Inmarsat and re-sells Inmarsat’s services to an end customer. E EAN Our European Aviation Network (‘EAN’) comprises an integrated satellite and complementary ground component (‘CGC’). F FleetBroadband (‘FB’) Our flagship L-band maritime service providing voice and broadband data services across the world’s oceans. Fleet Xpress (‘FX’) Fleet Xpress is Inmarsat’s GX-based product for the maritime market using our Ka-band satellites. The FX Service includes a FBL-band back-up service. GAAP Generally Accepted Accounting Principles is the standard financial reporting framework as defined by a body of accounting standards and other guidance used in a given jurisdiction (see ‘IFRS’). Geostationary orbit A circular geosynchronous orbit directly above the Earth’s equator. Satellites in geosynchronous orbit match their orbit to the orbit of the earth and so remain permanently in the same area of the sky. Global Xpress (‘GX’) Services offered by Inmarsat using Inmarsat’s Inmarsat-5 satellites and Ka-band frequencies. GlobalXpress is the first high-speed broadband satellite network to span the globe, from a single operator. It uses powerful beams able to reach small antennas on earth providing digital connections for aviation, land and maritime use. GMDSS Global Maritime Distress and Safety Service which is a system designed to automate a vessel’s radio distress alert, eliminating the need for manual watchkeeping of distress channels. Inmarsat is the only provider currently of this Maritime Safety Service and is approved by the International Maritime Organization (‘IMO’). The Group The Group refers to Inmarsat plc and all of its subsidiaries. We may also use ‘we’ and ‘our’ in reference to the Group, depending on the context. GSPS Global Satellite Phone Services are our handheld products and services including IsatPhone Pro and IsatPhone 2. Global Workforce Advisory Panel (‘GWAP’) In compliance with new regulations recommended by the Financial Reporting Council within the UK Corporate Governance Code, Inmarsat has created a Global Workforce Advisory Panel which is made up of workforce representatives from across the Company allowing Board members to hear feedback from the workforce. I IAS or IFRS International Accounting Standards or International Financial Reporting Standards are the accounting standards issued by the International Accounting Standards Board. IFRS is also used to refer to international GAAP as a whole. Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 Financial statements | Glossary of terms Financial Statements | Glossary of terms 167 167 Industrial Internet of Things (‘IIoT’) The Industrial Internet of Things describes the concept of networked, machine-to-machine, data-producing elements that are delivering new levels of insight to businesses across the global production, transportation, logistics and supply chain. In-Flight Connectivity (‘IFC’) In-Flight Connectivity refers to data connectivity and data services provided to commercial airlines, for aircraft passengers to access the internet, use email, social chat and messaging, and for airline crew to access non-critical connected airline operations. In-Flight Entertainment (‘IFE’) In-Flight Entertainment refers to digital entertainment services provided to commercial airlines, for aircraft passengers to use content services on seatback or overheads screens, and increasingly digital services provided over personal devices such as mobile phones and tablets, but not connected to data sources outside the plane. ICAO International Civil Aviation Organization. Inmarsat-3 (‘I-3’), Inmarsat-4 (‘I-4’), Inmarsat-5 (‘I-5’), Inmarsat-6 (‘I-6’) The third, fourth, fifth and sixth generations of Inmarsat satellites. Individual satellites in each constellation are numbered F1, F2, F3, etc., so I-5 F2 refers to the second satellite launched in the fifth generation of Inmarsat satellites. Inmarsat gateway Our platform for GX delivering customer support, network services and an app store. It also opens up our networks to innovators through a developer portal. ITU International Telecommunications Union. J Jet ConneX (‘JX’) JetConneX is Inmarsat’s GX-based product for the business and general aviation market. K Ka-band Downlink frequencies between 18GHz and 22GHz and uplink frequencies between 27GHz and 31GHz. Often referred to as 20/30GHz. This is the frequency band used by our GX satellites, it has higher bandwidth than other bands allowing more data to be transmitted over the same satellite capacity. Ku-band Downlink frequencies between 10.7GHz and 12.74GHz and uplink frequencies between 13.75GHz and 14.8GHz. Often referred to as 11/14 or 12/14GHz. This is the frequency band used by a limited number of products and services that we procure from other satellite network operators. L L-band Uplink and downlink frequencies between satellites and mobile users between 1.5GHz and 1.6GHz. This is the frequency band used by our Inmarsat-3 and Inmarsat-4 satellites and also by our planned Inmarsat-6 satellites. Ligado networks A Cooperation Agreement between Inmarsat [Being edited by front end team] and Ligado Networks (formerly LightSquared LP, Skyterra (Canada) Inc. and LightSquared Inc.) for the use of L-band in North America. M M2M Machine-to-machine services and products. MSS Mobile Satellite Services. MBPS Megabits per second are the units used to measure data transfer rates in the satellite communications industry. N Network Operations Centre (‘NOC’) The network operations centre is one or more locations from which network monitoring and control, or network management, is exercised over our satellite network. Network and satellite operations costs The costs of operating our ground stations. O Own work capitalised Employee-related costs including salary and travel costs incurred in bringing property, plant and equipment into use. Own work capitalised is capitalised as part of the total cost of an asset. S SAS Satellite Access Stations that receives the satellite signal and transfers it via our ground network to terrestrial systems Safety and Operational Services (‘SOS’) Safety and Operational Services refers to connectivity and related services to ensure the safety, operational efficiency and safe navigation of aircraft as well as data services for critical flight operations and pilot communications. SOS Safety and Operational Services S-band A mobile satellite band between 2 and 2.5GHz, which we are using for a high-speed broadband service under development for the EU aviation industry. The programme has an Inmarsat S-band satellite fully integrated with a ground network. We also use the term S-band to refer to the S-band programme in general. Scope 1, 2 and 3 emissions Carbon emissions as defined by the greenhouse gas protocol. Scope 1: All direct greenhouse gas emissions. Scope 2: Indirect emissions from purchased electricity, heat or steam. Scope 3: Other indirect emissions including travel. SwiftBroadband A global service providing voice and high-speed data simultaneously through a single installation on an aircraft. Télécoms Sans Frontières (‘TSF’) The telecommunications relief aid organisation is a core beneficiary of our charitable support. Terminals The consumer hardware used to receive and transmit voice and data from earth across our satellite network. It includes antenna enabled hardware such as satellite phones and onboard antennas. V Vessel monitoring system (‘VMS’) A vessel monitoring system is fitted to fishing vessels to track and report the location, course and speed at regular intervals (typically 30 minutes to 1 hour) to fishing regulators. VMS Vessel monitoring system. VSAT Very Small Aperture Terminals are small mobile two-way satellite antennas able to receive and transmit voice and broadband data to a satellite. VSAT services are typically charged using a fixed monthly fee. GovernanceFinancial StatementsStrategic Report 168 168 168 Financial (cid:54)tatements (cid:95) (cid:36)dditional information Financial statements | Additional information Financial statements | Additional information ADDITIONAL INFORMATION ADDITIONAL INFORMATION (cid:44)nmarsat plc (cid:95) (cid:36)nn(cid:88)al (cid:53)eport and (cid:36)cco(cid:88)nts 2018 Inmarsat plc | Annual Report and Accounts 2018 Inmarsat plc | Annual Report and Accounts 2018 FIVE-YEAR SUMMARY FIVE-YEAR SUMMARY ($ in millions) Revenues ($ in millions) EBITDA Revenues EBITDA margin EBITDA Profit before tax EBITDA margin Profit for year Profit before tax Net cash inflow from operating activities Profit for year Net cash used in investing activities Net cash inflow from operating activities Net cash used in financing activities Net cash used in investing activities Total assets Net cash used in financing activities Total liabilities Total assets Shareholders’ equity Total liabilities 2018 2017 (restated) 2016 (restated) 20151 20141 1,465.2 1,314.1 1,391.7 2018 2017 (restated) 2016 (restated) 785.6 739.3 770.1 1,314.1 1,391.7 1,465.2 59.8% 53.1% 52.6% 785.6 739.3 770.1 288.4 233.8 167.9 59.8% 53.1% 52.6% 232.6 185.0 125.0 288.4 233.8 167.9 777.8 775.5 721.7 232.6 185.0 125.0 (814.8) (562.1) (394.4) 777.8 775.5 721.7 122.1 (328.6) (331.6) (814.8) (562.1) (394.4) 4,862.8 5,003.2 5,027.7 122.1 (328.6) (331.6) (3,632.4) (3,755.1) (3,690.9) 4,862.8 5,003.2 5,027.7 1,230.4 1,248.1 1,336.8 (3,632.4) (3,755.1) (3,690.9) 1,274.1 20151 726.0 1,274.1 57.0% 726.0 338.0 57.0% 282.0 338.0 705.5 282.0 (460.7) 705.5 (275.2) (460.7) 4,246.1 (275.2) (2,996.2) 4,246.1 1,249.9 (2,996.2) 1,285.9 20141 701.0 1,285.9 54.5% 701.0 342.3 54.5% 341.1 342.3 644.8 341.1 (424.4) 644.8 (156.4) (424.4) 4,091.9 (156.4) (2,908.8) 4,091.9 1,183.1 (2,908.8) 1 Comparatives not restated for the impact of IFRS 15 and the change in accounting policy for unallocated launch slots discussed in note 2 Shareholders’ equity 1,336.8 1,248.1 1,230.4 1,249.9 1,183.1 1 Comparatives not restated for the impact of IFRS 15 and the change in accounting policy for unallocated launch slots discussed in note 2 FINANCIAL CALENDAR 2019 FINANCIAL CALENDAR 2019 1 May BROKERS J.P. Morgan Cazenove BROKERS 25 Bank Street J.P. Morgan Cazenove London E14 5JP 25 Bank Street Credit Suisse London E14 5JP 1 Cabot Square Credit Suisse London E14 4QJ 1 Cabot Square London E14 4QJ 18 April 1 May 23 April 18 April 30 May 23 April August 30 May October August November October November REGISTERED OFFICE AUDITOR 99 City Road REGISTERED OFFICE London EC1Y 1AX 99 City Road Tel: +44 (0)20 7728 1000 London EC1Y 1AX Fax: +44 (0)20 7728 1044 Tel: +44 (0)20 7728 1000 www.inmarsat.com Fax: +44 (0)20 7728 1044 www.inmarsat.com REGISTERED NUMBER 4886072 England and Wales REGISTERED NUMBER Deloitte LLP AUDITOR 2 New Street Square Deloitte LLP London EC4A 3BZ 2 New Street Square London EC4A 3BZ SOLICITORS Clifford Chance LLP SOLICITORS 10 Upper Bank Street Clifford Chance LLP London E14 5JJ 10 Upper Bank Street London E14 5JJ 4886072 England and Wales CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS CAUTIONARY STATEMENT REGARDING Certain statements in this Annual Report constitute ‘forward-looking FORWARD-LOOKING STATEMENTS statements’ within the meaning of the U.S. Private Securities Litigation Certain statements in this Annual Report constitute ‘forward-looking Reform Act of 1995. These forward-looking statements involve statements’ within the meaning of the U.S. Private Securities Litigation risks, uncertainties and other factors that may cause our actual results, Reform Act of 1995. These forward-looking statements involve performance or achievements, or industry results, to be materially different risks, uncertainties and other factors that may cause our actual results, from those projected in the forward-looking statements. These factors include: performance or achievements, or industry results, to be materially different general economic and business conditions; changes in technology; timing from those projected in the forward-looking statements. These factors include: or delay in signing, commencement, implementation and performance of general economic and business conditions; changes in technology; timing programmes, or the delivery of products or services under them; structural or delay in signing, commencement, implementation and performance of change in the satellite industry; relationships with customers; competition; programmes, or the delivery of products or services under them; structural and ability to attract personnel. You are cautioned not to rely on these forward- change in the satellite industry; relationships with customers; competition; looking statements, which speak only as of the date of this Annual Report. and ability to attract personnel. You are cautioned not to rely on these forward- Inmarsat undertakes no obligation to update or revise any forward-looking looking statements, which speak only as of the date of this Annual Report. statement to reflect any change in its expectations or any change in events, Inmarsat undertakes no obligation to update or revise any forward-looking conditions or circumstances, except where it would be required to do so statement to reflect any change in its expectations or any change in events, under applicable law. conditions or circumstances, except where it would be required to do so under applicable law. Annual General Meeting and Q1 2019 results Ex-dividend date for 2019 final dividend Annual General Meeting and Q1 2019 results Record date for 2019 final dividend Ex-dividend date for 2019 final dividend 2018 final dividend payment date Record date for 2019 final dividend 2019 interim results 2018 final dividend payment date 2019 interim dividend payment 2019 interim results Q3 2019 results 2019 interim dividend payment REGISTRARS Q3 2019 results Equiniti Limited REGISTRARS PO Box 4630 Equiniti Limited Aspect House PO Box 4630 Spencer Road Aspect House Lancing Spencer Road West Sussex BN99 6DA Lancing West Sussex BN99 6DA (cid:39)esi(cid:74)ned and prod(cid:88)ced (cid:69)y (cid:51)rinted at (cid:51)(cid:88)reprint (cid:42)ro(cid:88)p(cid:15) (cid:44)(cid:54)O 1(cid:23)001(cid:17) F(cid:54)C® certified and Car(cid:69)on(cid:49)e(cid:88)tral®(cid:17) (cid:55)his report is printed on (cid:56)(cid:51)(cid:48) Finesse (cid:54)il(cid:78) which is F(cid:54)C® certified(cid:15) as well as havin(cid:74) (cid:44)(cid:54)O 1(cid:23)001 (cid:40)(cid:48)(cid:54)(cid:15) (cid:40)(cid:48)(cid:36)(cid:54) and the (cid:40)(cid:88)ropean (cid:40)co(cid:47)a(cid:69)el(cid:17) (cid:51)rinted in the (cid:56)(cid:46) (cid:69)y (cid:51)(cid:88)reprint (cid:88)sin(cid:74) its p(cid:88)reprint® environmental printin(cid:74) technolo(cid:74)y(cid:15) and ve(cid:74)eta(cid:69)le in(cid:78)s were (cid:88)sed thro(cid:88)(cid:74)ho(cid:88)t(cid:17) (cid:51)(cid:88)reprint is a Car(cid:69)on(cid:49)e(cid:88)tral® company(cid:17) (cid:37)oth man(cid:88)fact(cid:88)rin(cid:74) mill and the printer are re(cid:74)istered to the (cid:40)nvironmental (cid:48)ana(cid:74)ement (cid:54)ystem (cid:44)(cid:54)O 1(cid:23)001 and are Forest (cid:54)tewardship Co(cid:88)ncil® (cid:11)F(cid:54)C(cid:12) chain(cid:16)of(cid:16)c(cid:88)stody certified(cid:17) IN THE SPOTLIGHT OUR RECENT AWARDS Inmarsat GX Aviation wins ‘Connectivity Enablement’ at Inflight Middle East Awards February 2019 Fleet Safety wins Safety4Sea Technology Award October 2018 Inmarsat and TSF win Corporate Engagement Award June 2018 SMART4SEA Personality Award presented to Inmarsat SVP Peter Broadhurst January 2019 European Aviation Network wins German Innovation Award June 2018 Inmarsat recognised as one of Atlantic Canada’s Top Employers two years running January 2019 & 2018 SwiftBroadband-Safety wins prestigious 2018 Jane’s ATC Award March 2018 Inmarsat CPO Natasha Dillon wins 2018 HRO Today Award November 2018 Inmarsat’s L-TAC service wins ‘Top Government Mobility Satcom Innovation’ award March 2018 Inmarsat wins Best Safety Service of the Year Award October 2018 Inmarsat GX Aviation wins ‘Connectivity Enablement’ at Inflight Middle East Awards January 2018 inmarsat.com I N M A R S A T P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 8 Inmarsat plc 99 City Road London EC1Y 1AX United Kingdom inmarsat.com

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