Interview: Inmarsat boss Andrew Sukawaty
Andrew Sukawaty is having a busy day. He awoke to discover his satellite telecoms firm Inmarsat had tanked 13 per cent, leading the FTSE 100 fallers by a country mile.
But if the charismatic American – both chief executive and chairman – is flustered, he isn’t showing it. “The share price is for the market to decide,” he tells me. “It reacts the way it reacts.”
Inmarsat offers mobile connectivity solutions for anything from a single yacht travelling the Pacific to the thousands of US troops stationed in Afghanistan. It is a FTSE 100 powerhouse, but one which rarely makes headlines. Its share-price drop yesterday, rather unfairly, generated the most coverage it has seen in months.
This is despite it providing a huge proportion of the connectivity during the recent clashes in the Middle East, allowing journalists, protesters and aid workers to spread news about the fall of generation-old governments and the brutal clashes in Libya.
Inmarsat’s Old Street offices are decorated by models of the rockets used to launch its satellites. A giant solar-powered wing adorns the wall and, more bizarrely, giant palm trees grow in the foyer, apparently a throwback to when Shell owned the building.
A control-room akin to the bridge of the Star Ship Enterprise features a giant blinking map of the world. It charts where its thousands of units are located; most of it is coloured a pale green, with just one or two signals. A single user broadcasts from the middle of the Pacific ocean, most likely a long-haul flight making its way towards Beijing. But the Middle East is a vivid blue, with scores of signals beaming out of Egypt, Libya and Bahrain.
Other hotspots include shipping ports in Europe and Singapore, Iraq and Afghanistan – the US government accounts for 12 per cent of Inmarsat’s business – and China, where an annual political conference is taking place. The west coast of Africa is a hive of activity, with hundreds of boats signing up to its services as insurance against the threat of Somali pirates.
Inmarsat has also seen a spike in usage after events such as the earthquakes in Haiti and Chile, although Sukawaty says the impact in terms of revenue is relatively small, at around $5m (£3m).
“You pick up a newspaper and read about an event and that’s where our hotspots are,” he says.
The amount of revenue generated from any given event can vary dramatically. As a rule of thumb, if infrastructure in the area is under-developed (or, as in the case of Haiti, knocked out), satellite services will be used for longer and generate more income.
While these events are attention-grabbing, Inmarsat’s bread and butter comes from more mundane operations – shipping, air travel, government and NGO contracts. And the overall trend is positive: “People in remote environments, whatever they may be, want more and more connectivity,” he says. “Do people want data connectivity on an aircraft like they would on the ground? We think so.”
The problem, at least as far as the market is concerned, is that people are shifting from high cost voice calls to cheaper alternatives.
“The trends you see right here at your desk are the same trends you’ll see in a ship or an aircraft or in the desert. Rather than making a phone call, I’m more likely to send a text or an email.
“It’s cheaper, it’s becoming the way I run my life and my business. This is exactly what we’re seeing at sea. There is no magic or surprise to it, although it does have a dampening effect on revenue. A three minute phone call costs a lot more than 20 emails.”
This shift led to revenue growth in the fourth quarter falling to 8.4 per cent, compared to a full year rise of 12.9 per cent. Bearing this in mind, were investors right to sell the stock yesterday?
“The thing is, 20 emails becomes 40, becomes 50, becomes 100. So when we put data services onto a ship with more bandwidth it starts slowly and grows and grows. We’re pretty confident that, because the take-up rate of new terminals has been so strong, over an 18-24 month window the revenue we’re losing in terms of voice will pick up in data.”
As in the wider telecoms industry, data is a major growth area at Inmarsat. The firm has have experienced 15 per cent compound annual data growth over the last 10 years. Data now accounts for around 90 per cent of its traffic, compared to 80 per cent for voice just a few years ago.
A new constellation of satellites being launched in 2013 and 2014 will offer “enormous” bandwidth, increasing the speed at which its users can transfer large files – and the amount Inmarsat can charge for the privilege.
The firm has pulled through the recession largely unscathed. Its services are such that they are shielded from the worst affects of a downturn.
“The fact is we are a very steady business. The only variable aspects centre around things like Haiti. The rest tends to be very solid and predictable. We don’t boom in boom times and we don’t go down in recessions.”
Sukawaty’s own role in the company has come under scrutiny. As both chairman and chief executive, he has come under pressure to explain why his firm is not in line with corporate governance guidelines, which recommend the two roles should be distinct.
“We said at the IPO we would eventually split those roles. We extended it twice; once because we made an acquisition, the next because we had a large shareholder who was looking to buy the whole of the company and we didn’t want to do it in the middle of that. But it’s good to have a separation between shareholders and the management of the company.”
September has been slated for the new chief executive to start. Indications suggest an internal candidate is most likely – no headhunters have been hired – but Sukawaty is giving little away: “There are names in the hat. I’m not going to tell you who they are.”
The major shareholder who was eyeing Inmarsat was, of course, US hedge fund Harbinger, which accumulated 28 per cent of the firm before selling the stake down late last year.
“The reasons for Harbinger leaving are very straightforward. They came in three years ago with the intent of buying the whole company. The markets crashed and hedge funds got hit. They wanted to focus on the US so they sold us down.”
The surprise retreat by Harbinger – who Sukawaty says were “very supportive” – has created a renewed buzz around Inmarsat. Now it will remain a UK-run firm, its newspaper column inches are likely to creep up. Will its share price follow? “If I could predict share prices I would be in a different business. We just focus on the fundamentals and let the share price do what it does.”
CV | ANDREW SUKAWATY
Position: Chairman and chief executive of Inmarsat since 2004.
Other interests : He is also a non-executive Chairman of Ziggo, the privately-held Dutch cable TV company.
Career history: He has previously served as chief executive and president of Sprint, chief executive officer of NTL and held a senior role at AT&T.
Education: Holds a BBA from the university of Wisconsin and an MBA from the University of Minnesota.