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Inmarsat shares drop as it cuts dividend and reports decline in full year earnings

Inmarsat said it is well-placed to continue to grow its revenues in 2018
Inmarsat reported an 8% decline in underlying earnings

Inmarsat Plc (LON:ISAT) shares shed 7% on Friday after the satellite company cut its full-year dividend due to uncertainty over future payments from Ligado Networks and its plans to invest in the aviation market.

The company proposed a final dividend of 12 US cents per share for the 2017 fiscal year, bringing the total for the year to 33.62 cents, down from the 53.96 cents paid the previous year.

In late afternoon trading, the FTSE 250-listed stock was 7.1% lower at 430.9p.

READ: Inmarsat maintains full-year guidance despite "challenging" markets

Inmarsat said it needs sufficient financial resources to support its investment to upgrade its in-flight connectivity infrastructure to provide wifi to the aviation market.

It added that there was a lack of visibility over future cash payments from its contract with US satellite communications company Ligado Networks beyond the end of this year.

The group entered into a cooperation agreement with Ligado, formerly LightSquared, in 2007 as part of Ligado’s plans to develop a 4G network integrated with satellite coverage in the US.

Payments from Ligado will pause in 2019 and then resume in 2020 at about US$136mln per year and grow thereafter at a 3% compound rate over the next 99 years, Inmarsat said.

Full-year earnings drop but revenues rise

Inmarsat reported an 8% decline in underlying earnings (EBITDA) to US$731.5mln in the year to March 9, 2018, reflecting higher costs involved in capturing a greater share in its key markets.

Excluding a one-off restructuring charge of US$19.9mln, adjusted EBITDA dropped 5.5% to US$751.4mln.

Group revenue rose 5.4% to £1.2bn as growth in the aviation and government services segments offset declines in the maritime and enterprise divisions.

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

Capex guidance means more cash out the door

The company maintained its guidance for 2018 revenue, excluding Ligado, of US$1.3bn to US$1.5bn. Between 2018 to 2020, the group expects capital expenditure of US$500m to US$600m per year.

"This means more cash out the door and, in the take-no-prisoners world of results-day digestion and share price reaction, remember that revenues are vanity, profits are sanity but cash flow is reality. And if the spending doesn’t pay off…," said Mike van Dulken, head of research at Accendo Markets.

 -- Updates share price --

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