COMPANY NOTE Target | Estimate Change

9 March 2015

UK | Telecommunications | Telecom Services

BUY Price target 1,050.00p (from 925.00p) Price 891.00p

Clearer and Bluer Key Takeaway Developments since we first looked at the European Aviation Network underpin our conviction on the upside. On US government, we seek to flip the bear case on its head. Finally, we give our take on the AWS-3 auction read across for Inmarsat. Our Blue Skies analysis now sees a 1,450p (previously 1,300p) valuation within Inmarsat's medium term grasp. Reiterate Buy. European Aviation Network (EAN). We review industry / Inmarsat / Gogo-related developments since the publication of our "Blue Skies" (25 June 2015) note. Evident momentum leads us to reduce the discount on the 240p per share of upside from 50% to 40%. This remains an area of the story that is under-represented and under-estimated, though near-term commercial announcements (of which we envisage several) should snap consensus from its slumber. Unpicking the USG bear case. There have been concerns that Global Xpress' (GX) pursuit of US government revenue in the post-sequester world is a fool's errand. We'd argue the exact opposite: GX's combination of managed service / mobile / global augmentation in the military Ka-band is in the sweet-spot for USG as it embarks on the secular migration to proprietary supply. Sequestration will yet be proven to have played into management's hands.

Financial Summary Net Debt (MM):

$1,900.7

Market Data 52 Week Range: 902.00p - 653.00p Total Entprs. Value (MM): £5,257.2 Market Cap. (MM): £3,993.5 Insider Ownership: 0.4% Institutional Ownership: 80.0% Shares Out. (MM): 448.2 Float (MM): 445.8 Avg. Daily Vol.: 979,366

Spectrum. We debate the best way to read the AWS-3 spectrum auction results across to Inmarsat. We conclude that the "bird in the hand" (the co-op agreement) should remain the best valuation steer for investors (and not mark-to-market). Indeed, we are now in the LightSquared "end-game" and Inmarsat, as a supplier to (or even owner of) the business, is very well positioned (specifically, 100-300p per share of overnight upside). L-band surprise. We look at scope for L-band upside surprise given the plethora of growth opportunities Inmarsat has pursued in the past year as it seeks to "innovate, diversify and internationalise" that business. We conclude that 2015 looks to be an exciting year as Inmarsat harvests the seeds of growth it made in 2014, with scope to contribute to consensus upgrades. Valuation/Risks Our PT moves to 1,050p, driven by: 1. a lower EAN discount (as above); 2. higher GX revenue assumptions ($550m) on the back of our expectations that the fourth GX satellite will be launched; 3. lower tax contingency; 4. USDGBP strength. We revisit our Blue Skies valuation and now estimate that Inmarsat has a 1,450p valuation within its medium term grasp. Risks: third GX satellite launch failure; failure to execute on the EAN plan. USD Rev. (MM) EBITDA (MM)

Prev.

2014E

Prev.

2015E

Prev.

2016E

Prev.

2017E

1,263.0

1,285.9

1,265.3

1,260.5

1,415.9

1,412.0

1,552.9

1,544.2

669.1

701.0

661.7

659.8

773.5

774.2

897.7

861.7

0.88

0.77

EV/EBITDA EPS

11.3x 0.48

FY P/E

0.76

12.0x 0.41

17.7x

0.43

10.2x 0.59

31.2x

0.62

Div. Yield

0.47

0.49 3.65%

--

0.49

21.7x

3.65%

--

0.51 3.80%

+44 (0) 20 7029 8005 [email protected]

Jerry Dellis * Equity Analyst 44 (0) 20 7029 8517 [email protected]

Ulrich Rathe, CFA * Equity Analyst 44 (0) 20 7029 8286 [email protected]

Nicholas Prys-Owen * Equity Associate +44 (0) 20 7029 8044 [email protected]

* Jefferies International Limited

Price Performance 1,000

9.2x 900

17.4x

Dividend FY Dec

Giles Thorne * Equity Analyst

--

0.54

800

4.02% 700

600 MAR-14

JUL-14

NOV-14

MAR-15

Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 25 to 29 of this report.

EQUITY RESEARCH EUROPE

Inmarsat plc (ISAT LN)

ISAT LN Target | Estimate Change

Inmarsat: ISAT LN

9 March 2015

Buy: 1,050p Price Target

Target Investment Thesis

Upside Scenario

Downside Scenario



Core MSS revenue meets guidance of “growth” in FY15 (low single digit)



Core MSS revenue beats guidance of “growth” (mid-single digit)



Core MSS revenue misses guidance of “growth”



Sequestration remains only a short term headwind



Replacement capex comes down by 17.5%



FleetBroadband migration continues to drag revenue



Global Xpress (GX) launched on time with solid build-up in XpressLink wins



$660 of normalised GX revenue





100% of ATG / satellite EV

Sequestration cuts deeper into government revenue than expected



GX delivers FY13-16 CAGR in MSS revenue of 8.3% (8-12% guidance)



$100m LightSquared lease revenue



GX revenue misses expectations

2015 EPS of $0.50, re-rating to 45x, 1480p target price

ATG capex and no revenue

60% probability of ATG network











This implies 2015 EPS of $0.43, core PE of 37x, 1,050p target price

2015 EPS of $0.40, de-rating to 30x, 780p target price

Long Term Analysis 1 Year Forward P/E

Long Term Drivers

60x

40x

Other Considerations

FY14-17 EBITDA CAGR

7.1%

Organic Revenue Growth

6.3%

Acquisition Contribution

0.0%

Operating Margin Expansion

3pp

20x

2009

2011

1yr PE Upside

2013

 LightSquared Phase 2 payments ($50m per annum, indexed at 3%) have now restarted but likelihood of receiving the cash is low  Inmarsat has a number of open tax disputes with HMR&C that have been provided for but not paid ($80m in total)

0x 2007

THE LONG VIEW

Scenarios

2015

Target Downside

Source: FactSet

Peer Group Forward PEs

2014-17 earnings CAGR vs. P/E

40 x

20%

31.0x

30 x

22.0x

22.0x

SES

10%

20 x

ISAT

7.5x

0x ISAT

ETL

SES

I

Source: FactSet

Catalysts 

1Q15 results on 6 May 2015



I-5F3 launch in 2Q15



Announcement on Inmarsat-5F4, probably mid-2015

0%

0x

Rec.

PT

ISAT

Buy

1,050p

Buy

€35.0

ETL

Hold

€31.0

AVN

Buy

270p

Hold

$12.50

I

TEF

(10)%

Ticker SESG

ETL

10 x

Recommendation / Price Target

20x

40x

Source: FactSet

Company Description Inmarsat Plc operates as a provider of global mobile satellite communications solutions. It offers portfolio of solutions and value-added services for use on land, at sea and in the air. It operates through two segments: Inmarsat Global and Inmarsat Solutions. The Inmarsat Global segment engages in selling wholesale L-band satellite communications airtime to distribution partners, who then on-sell services to service providers and end-users. The Inmarsat Solutions segment operates direct and indirect distribution business, which offers a wide portfolio of remote telecommunications solutions to service providers and endusers, including L-band services. The company was founded on July 16, 1979 and is headquartered in London, the United Kingdom.

page 2 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015

Reiterate Buy, price target to 1,050p (from 925p) Following the investment in the new European Aviation Networks we moved to a sum of the parts DCF valuation for Inmarsat, splitting out the new venture from the L-band / Kaband (Global Xpress) businesses. Our PT moves to 1,050p from 925p. The drivers of the PT upgrade are: 1. USDGBP strength since last publishing (0.65 from 0.60); 2. lower base net debt for FY14; 3. lower tax provision following the successful resolution of $50m of the previously signalled $125m of contingent tax obligations; 4. reduced discount on European Aviation Network (40%, from 50%); and 5. increased GX revenue expectations. With a 3.6% dividend yield and 18.1% upside to our PT, we estimate 21.7% twelve month total return and rate Inmarsat a Buy within our ratings framework. Table 1: Inmarsat, sum of the parts valuation Valuation Methodology

EV ($'m)

L-band and GX DCF (WACC: 7.9%; Term gr: 1.5%) S-band (ATG / satellite) As above, 60% probability Enterprise value Less: tax provisions (FY14) Less: net debt (FY15) Equity value Shares in issue (FY15) Value per share (USD) Value per share (GBP) Current share price (GBP) 2015 dividend yield Upside / (downside) Total 1-year return

FY14 EBITDA FY15 EBITDA ($'m) ($'m)

8,289.2 981.0 9,270.1

649.9 n/a

772.5 n/a

EV / 2015 EBITDA

EV / 2016 EBITDA

12.8x n/a

10.7x n/a

Stake % Value to ISAT ($'m)

100% 100%

EV per share

% of EV

$18.49 $2.19 $20.68

89.4% 10.6% 100.0%

8,289.2 981.0 9,270.1 (80.0) (2,013.3) 7,176.9 448.3 $16.00 £10.50 £8.90 3.6% 18.1% 21.7%

Source: Jefferies estimates Inmarsat’s multiple upside catalysts justify the high multiple Inmarsat’s 2015 PE of 31x remains excessively high compared to peers on ~21x (Table 2). While the valuation is eye-watering at these levels, the marginal investor in Inmarsat now faces significant upside from a range of catalysts. Our 1,050p price target is based on conservative assumptions for the ultimate performance of the business: 

We now assume a terminal revenue potential of $550m for GX, which is consistent with management guidance, but doesn’t include the full revenue potential of the spare fourth GX satellite (our base case is now that the satellite is launched on the back of an incremental business case);



We have zero revenue in for Phase 2 lease payments from LightSquared;



We discount our standalone EV for the ATG / satellite business by 40%.

Table 2: Comparable valuation multiples* Current

Intelsat (Hold) SES (Buy) Eutelsat (Hold) Avanti (Buy) Inmarsat (Buy)

$11.56 €31.55 €30.79 £2.37 £8.91

Share price Target

$12.50 €35.00 €30.00 £2.70 £10.00

% diff

8.1% 10.9% (2.5%) 14.0% 12.3%

2014

8.6x 10.5x 9.3x nm 11.3x

EV / EBITDA 2015

8.4x 9.9x 8.8x nm 9.7x

PE 2016

8.2x 9.6x 8.4x nm 8.3x

2014

8.1x 22.0x 21.9x nm 31.4x

2015

8.0x 17.0x 20.3x nm 21.9x

2016

6.8x 15.6x 19.1x nm 16.4x

2014

Dividend yield 2015

0.0% 4.1% 3.4% 0.0% 3.6%

0.0% 4.5% 3.7% 0.0% 4.0%

2016

0.0% 5.0% 3.9% 0.0% 4.2%

Revenue

2014-17 CAGR EBITDA

(0.4)% 6.0% 5.7% 94.5% 6.3%

(0.7)% 5.8% 5.6% (206.5)% 8.6%

OpFCF

(4.5)% 2.7% 9.9% (5.9)% 24.8%

Source: Jefferies estimates, company data *Multiples are based on calendarised financials

page 3 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 In Table 3 we present scenario analysis that builds the valuation for each of the potential upside catalysts the Inmarsat equity currently benefits from. For a fuller discussion of the valuation impact of lower launch costs (Scenario 6) please see the Appendix of the aforementioned “Blue Skies” note. Should all the catalysts crystallise, we believe Inmarsat could be worth 1,450p, 66% above the current share price (Chart 1). Table 3: Valuation scenarios No.

1 2 3 4 5 6 7

Description

Price Target (GBp)

GX revenue of $500m, GX replacement capex of $1.6bn Scenario 1 but GX replacement capex of only $1.2bn Scenario 1 but GX revenue of $660m* Scenario 3 plus LightSquared Phase 2 payments of $50m indexed at 3% Scenario 4 but LightSquared Phase 2 payments of $100m indexed at 3% Scenario 5 plus reduction in terminal capex of 17.5% Scenario 6 plus ATG / satellite network (EV of $1.8bn)

Upside

872 903 985 1,067 1,165 1,241 1,480

2014 dividend yield

(2.0%) 1.5% 10.7% 19.9% 30.9% 39.4% 66.3%

Total 12 month return

3.6% 3.6% 3.6% 3.6% 3.6% 3.6% 3.6%

1.6% 5.1% 14.3% 23.5% 34.5% 43.0% 69.9%

Source: Jefferies, company data *GX revenue run rate of $660m is estimated by scaling up the $500m run rate up from three satellites to four

Chart 1: Blue-sky valuation per share (GBp) 239

1,400 76 1,200

98 82

1,000

82

31

1,480

800 890

600

872

400

Current share price

L-band and GX GX r'ment capex GX revenue of LightSquared of $1.2bn $660m Phase 2 of $50m

LightSquared Phase 2 of $100m

17.5% reduction in replacement capex

S-band

Blue-sky

Source: Jefferies estimates Cheaper access to space: the omens are good In our recent note, “HTS-LEO: the good news outweighs the bad” (25 February 2015), we highlighted the positive industry developments we’ve seen on our previously presented upside catalyst from SpaceX’s march towards reusable rockets and the associated cheaper access to space. SpaceX’s successful first landing of a Falcon-9 is still pending, but could (we believe) happen in 2015. Elsewhere, CNES’s baby steps towards reusability (albeit, the renaissance of an abortive reusability programme from some 10 years ago) is another welcome catalyst. We continue to watch developments closely but don’t feel cause to revisit our terminal capex assumptions for Inmarsat at this stage given the legion number of questions that still need answering. But the omens are good. HTS-LEO risk lowest for Inmarsat In the aforementioned note, we also looked in some detail at the risk to the incumbent satellite operators from plans to launch HTS-LEO constellations. Out of all the satellite operators we cover, we see the risk to Inmarsat from a HTS-LEO constellation as the lowest. In addition to the points we make in the note about deliverability of HTS-LEO and the analysis that price elasticity could / should be positive enough to absorb all the incremental capacity, we would highlight that Inmarsat’s L-band heritage in mobile services will not readily be displaced by a disruptive challenger for self-evident reasons: highly reliable service, focus on mobility, trusted global supplier.

page 4 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Share price performance Since the 3Q14 results, Inmarsat’s equity has performed very well (Chart 2). We see multiple factors driving the share price rise: 1. the 3Q14 and 4Q14 results have been good and have provided welcome visibility on areas of historic earnings risk (principally sequestration); 2. increased visibility on the European aviation network; 3. the successful launch of the 2nd Global Xpress satellite, Inmarsat-5F2; 3. a positive read across from the AWS-3 spectrum auction in the US; and 4. appreciation of USD against sterling in 2015 (Chart 4). Chart 2: Inmarsat share price, 2-year performance £10

Chart 3: Forward 12-month PE, 2-year performance

Chart 4: USDGBP 0.70

35

£9

30

£8

25

£7

20

£6

15

0.65

0.60

£5 Mar-13

Sep-13

Mar-14

Sep-14

10 Mar-13

0.55

Sep-13

Sep-14

Mar-15

0.50 Mar-13

Sep-13

Mar-14

Sep-14

USDGBP

Inmarsat - forward PE

ISAT-GB

Source: FactSet

Mar-14

Source: FactSet

Source: FactSet

The shareholder returns profile is compelling Investors have been concerned that newly announced ATG / satellite network investment will push back the long awaited capex holiday and associated free cash flow ramp / deleveraging. While some push back is inevitable given the associated capex cost of the new network, the investment is not so large as to completely erode the capital returns story. Even on our capex forecasts, which include 100% of the cash outlay for the European aviation network, Inmarsat should de-lever over the short term. On a five year view, we still estimate enough leverage headroom to allow for a buyback of up to 20% of its equity so as to maintain 2.5-3.0x leverage (Table 4). Indeed, on the 4Q14 results call, the CFO indicated that even 3.5x would be a comfortable level. Of perhaps far greater importance is that the new investment will likely generate significant share price upside for investors. Table 4: Inmarsat, buyback potential FY14a

FY15e

FY16e

FY17e

FY18e

FY19e

FY20e

FY21e

Actual vs. target leverage

(0.0x)

0.3x

(0.1x)

(0.5x)

(0.9x)

(1.2x)

(1.5x)

(1.9x)

Potential buyback Buyback per share % of equity value (cumulative)

27.1 $0.06 0.4%

0.0 $0.00 0.0%

110.3 $0.25 1.8%

434.6 $0.97 7.1%

864.9 $1.93 14.2%

1,181.4 $2.64 19.4%

1,695.6 $3.78 27.9%

2,262.9 $5.05 37.2%

Source: Company data

page 5 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015

US government: addressing the bear case Some doubt has been expressed as to Inmarsat’s ability to grow USG revenue in the short and medium term. The argument has been centred on the conclusions of a 14 August 2014 DoD published report (the “Satellite Communications Strategy Report”) which called upon the Secretary of Defense, inter alia, to provide detail “a 5/10/25 year strategy for using an appropriate mix of proprietary and commercial satellite communications bandwidth” (“milsatcom” and “comsatcom”, respectively)”. Among many things, the report puts forward an overarching strategy of preferring proprietary satellite supply based on the cost differential of comsatcom versus milsatcom (in 2013, it was estimated that a unit of capacity for Wideband Global Satcom [a major proprietary USG satellite system] was $14,200 / MHz / year compared to “multiple year” contracts average annual costs of $56,220 / MHz / year for comsatcom) and the dedicated nature of milsatcom: so for wideband applications, WGS should always be used over comsatcom where / when WGS is available except when user demand exceeds the supply of WGS capacity or when the users ground infrastructure will only operate over commercial satellites. It feels like a slightly circuitous debate given the presence of profit seeking owners will always mean that comsatcom will “cost” more than milsatcom. Nonetheless, as a source of potential WGS augmentation, Global Xpress – it has been suggested – will be a net loser from greater use of “cheaper” WGS supply. We disagree with this line of thinking and would in fact argue the exact opposite. We present our logic below. We do see risks, but it is not in the augmentation argument, it is more on a return to budget sequester. A reminder of recent history: the Ku-band comsatcom gravy train… For context, the DoD’s military satellite capacity consists of three segments: 1. Protected wideband and narrowband segments (e.g. the Milstar and Advanced EHF systems) where the application is deemed so sensitive to national security as to be beyond the scope of use of comsatcom; 2. the wideband segment (Defense Satellite Communications System III [DSCS III] and Wideband Global Satcom [WGS]); and 3. the narrowband segment (Fleetsat, UHF Follow-on and MUOS). Prior to the events and immediate aftermath of 11 September 2001 (9-11), the majority of wideband milsatcom was provided, as referenced above, by the now retired DSCS III, which was based on a five satellite constellation operating in the X-band, the last of which was launched in 2003. The current wideband system, WGS (6 satellites on-orbit, with 10 ultimately planned, operating in X- and Ka-bands, ten times the capacity of DSCS III) was launched from 2007 onwards and is / was the successor to DSCS III. Given timings however, the ramp-up of op-tempo following 9-11 (Operation Enduring Freedom in Afghanistan and Iraqi Freedom in Iraq) precipitated a massive reliance on comsatcom, especially in the Ku-band (in spite of the investment in WGS / Ka-band, Kuband from commercial FSS operators was a readily available resource). At the same time, the ready availability of supplemental funding for “Overseas Contingency Operations” (which the Iraq and Afghanistan campaigns were) resulted in unconstrained growth for the commercial satellite operators. Intelsat and Eutelsat, along with most commercial operators, were huge beneficiaries of this trend. …was de-railed in 2013 We have now seen the dramatic end of the comsatcom “gravy train”. Prevailing trends in the US government segment are now well established: the potent mix of less in-theatre military operations coupled with the US government’s budget sequestering (the statutory-driven and broad-based cleaving of US spending across multiple areas of government, notably military) have created a glut in commercial satellite supply.

page 6 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Where does that leave the satellite operators in the post-sequester world? The implications of the decided shift from X-band to Ka-band by the DoD (i.e. in the act of replacing the X-band DSCS III with the Ka-band WGS) but the absence of available capacity at the time of a massive surge in demand should be considered in more detail. On the face of it, a big internal push to better utilise WGS would appear a risk to the commercial satellite operators, especially given the cost comparatives of the two options (though there is a lot of push back from the industry on the cost competitiveness of milsatcom to comsatcom). We do not see this as a blanket risk for the industry. As already touched upon, the upshot of the dearth of available milsatcom during the period 20012007 was that military commanders elected to invest in Ku-band comsatcom. In spite of evidence that WGS could yet be de-scoped in one way or another, the ascent of Ka-band in military applications is not a debate. It’s a fact. We also know that milsatcom supply is not sufficient to meet all the demand from the US government. In this context, we see Global Xpress, which has been built from the ground up to look and feel and operate interchangeably with WGS, as perfectly positioned to thrive in the post-sequester world. In that context, the US DoD report doesn’t represent a risk to Inmarsat – quite the opposite – it is evidence that underpins the opportunity for Inmarsat. Inmarsat has a history of augmenting milsatcom in narrowband (the Mobile User Objective System, or MUOS). We expect this to now be expanded into the wideband arena, the status of which, we turn to briefly now. Long term analysis of WGS augmentation A SpaceNews interview with the Head of the US Air Force Space Command, General John Hyten, on 18 December 2014 provides some critical visibility into the status of potential WGS augmentation by comsatcom. The US Air Force Space Command is currently undertaking an Analysis of Alternatives for wideband capacity. Details on exact scope are very limited but it would appear that the AOA is looking at all possible models for long– term wideband capability. In Hyten’s words, “it’s important to not just look at a traditional model but at any number of models and that’s what the AOA will ask us to do”. In terms of timing Hyten spoke of “showing his hand” for the FY17 budget (as this is the earliest point at which budgeting to start replacing the original WGS satellites will need to be made) in spite of the fact that the AOA won’t be completed by that time. NSR: focus on collaboration In a “Bottom Line” blog post from December 2014, Northern Sky Research picked up on the debate as to comparative costs of milsatcom versus comsatcom. NSR notes that with more proprietary capacity available, preferential reliance on internal assets will increase and consequently curb procurement from commercial vendors. But NSR goes on to suggest that despite ongoing arguments on cost / performance / security, the market will continue to feature a mixture of commercial and proprietary capacity and the debate will move on from being one about “who can do it better” to “how can both sides collaborate [to] address demand.” What the DoD report was really getting at, in our view For what it’s worth, having now read the report multiple times, it’s clear to us that the real thrust of the August 2014 DoD report was to identify shortcomings that prevent inefficient comsatcom procurement. Specifically, identifying why the DoD has not yet been able to move to longer term contracts for comsatcom capacity. The DoD’s regulations for financial management allow for “multi-year procurements” for up to five years based on a detailed assessment along the lines of three criteria: stability of requirements, stability of funding and realisation of substantial savings. Within that framework, to progress with longer term comsatcom contracts (which would remove a lot of volatility for Eutelsat / SES / Intelsat and others), the DoD feels it needs to address two issues:

page 7 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 

Demand prediction: an accurate estimate demand over the contract period is a key pre-requisite. Previous demand prediction has focused very much on milsatcom and not comsatcom, with the latter only being included more recently and has never been validated against existing scenarios to determine if predicted comsatcom demand was accurate. The historic decentralised approach to procurement (i.e. each “agency” within the military procured separately) plus the muddying impact of supplemental funding for OCO can’t be used for accurate demand forecasting. The strategy going forward is for more formal, rigorous and timely analysis of demand with processes for validation.



Available Funding. Funding for comsatcom has come down dramatically with supplemental funding bearing the largest cuts. Currently, as mentioned above, funding for comsatcom is decentralised with limited regard for sharing opportunities. This approach hinders centralised, multi-year acquisition and, moreover, the ability of the DoD to manage comsatcom and milsatcom “holistically”. We understand that a centralised approach is being actively considered, with the Space and Missiles Centre (within the US Air Force Space Command) as a candidate to play the role.

In summary, the document puts into action key initiatives designed to progress the DoD towards a more efficient use of comsatcom, with particular focus on demand prediction, utilisation monitoring, funding and procurement. The strategy is very much focused on moving towards larger bulk buys on longer term contracts (not about a vanilla switch-off of comsatcom). 2016 budget process – welcome visibility, but yet to be set in stone The Obama administration published its FY16 budget request on 2 February 2015. As was widely expected, after the aggressive budget sequesters of FY13 and FY14 (albeit, followed by the sequester relief for the current FY15 budget), the request was notable for a $38bn increase in defence spending (for a FY16 total defence budget of $534bn). It appears that the Obama administration has essentially ignored sequestration - Obama was quoted as saying that “I want to work with Congress to replace mindless austerity with smart investments that strengthen America”. This rhetoric builds on a number of voices from the military in the weeks running up to the budget request declaring that a return to automatic budget sequesters would be “crazy” at this time. Note that the Budget Control Act of 2011 was / is set to resume automatic budget sequesters from October 2015 following a two year hiatus. It is for Congress to pass a budget, but the President can veto it. The passage of the budget request could yet bring downside risk (and recent history is a salient reminder of the fraught passage of US government budgets). Notwithstanding, for the satellite operators, all of whom have been impacted by sequestration and continue to see declines in US government revenue, these developments provide some welcome, and positive, visibility on a major industry headwind. Summary: GX is uniquely positioned to excel in USG Putting the demand side environment, we conclude with a summary of why we think GX plays so well into the current USG environment: 

More with less: the USG dynamic must not be interpreted as a onedimensional reduction in spending. The pressure is on value not price. The USG wants to do more with less. As discussed above, Global Xpress is a unique extension and enhancement to the WGS system (Inmarsat is the only operator capable of selling global military Ka-band high throughput capacity). It's a managed service at a time when efficiencies and flexibility and agility are incredibly important to the USG. It delivers military Ka-band, procured, paid for and delivered by someone else (i.e. not on the government’s balance sheet) but in a highly secure and unique way, and for a reasonable price. In our view, Global Xpress is in the “sweet spot” in the post-sequester world.

page 8 of 29

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Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 

Mobile not fixed: Global Xpress has been built from the ground up to be mobile and to be global. It's not a patchwork quilt of different capabilities (as competition in the Ku-band is) and is fungible with proprietary systems. In the traditional FSS model, the USG would have to commit to fixed coverage for a fixed period of time over a fixed area – this is an inflexible model that doesn’t play well in the post-sequester world. Global Xpress can be switched on and off, anywhere in the world, at any time. This is a powerful value proposition for the USG. And, it goes without saying, Inmarsat’s whole heritage is in this type of mobile service (in the CEO’s words, “[don’t forget], we’re a mobile operator whose base station is in the sky”).

We now believe Inmarsat-5F4 will be launched We have long expounded the view that the GX revenue guidance could be conservative (see original note of the same title, 19 October 2012) and could support a launch of the “spare” Global Xpress satellite, Inmarsat-5F4 (first procured in November 2013 in response to Proton failures). We now have enough conviction to embed the same within our forecasts: 1. At the 4Q14 results presentation, the CEO shared his view that there is an incremental business case for the fourth satellite and expects to bring more news on the topic during 2015; 2. The 2016 capex guidance (only provided for the first time at the 4Q14 results), it has been confirmed, includes the launch cost for Inmarsat-5F4. Inmarsat has indicated that Inmarsat-5F4 will be completed during 1H16 and could be launched as early as 3Q16 on a Falcon-9 rocket (one of the options that Inmarsat secured with SpaceX back in Jul 2014 (and for which, the “option” prepayments were made during 4Q14). We increase our GX revenue expectations by $50m, being less than half the pro-rata implied revenue potential of a single GX satellite (i.e. $500m guidance divided by 3, equalling $167m). We had already assumed that all four GX satellite would be replaced in our terminal capex assumption, so this remains unchanged.

LightSquared: spectrum speculation Read across from the AWS-3 auction The AWS-3 spectrum in the United States completed on 29 January 2015, with the prices far outstripping initial expectations (>$44bn in total bids before discounts against reserve prices totalling $10.6bn). Inmarsat’s share price has responded well, with the market either: 1. treating the auction as a mark-to-market mechanism for Inmarsat’s “spare” spectrum currently being leased to LightSquared (a rather fanciful thing to be doing, for reasons discussed in the following paragraph); or 2. more credibly, seeing the auction as a salient reminder of the “strategic” nature of wireless spectrum (discrete raw material input to a growth industry) and therefore concluding this event the various LightSquared stakeholders to arrive at a successful restructuring. To mark-to-market, or not to mark-to-market, that is the question Let us, for a moment, assume that the auction was a meaningful mark-to-market mechanism. The unpaired B1 block of 10 MHz of 1700-1710 MHz spectrum (the spectrum most “comparable” to LightSquared’s spectrum) was auctioned for $0.707 / MHz / pop. Applying this to the 40 MHz of spectrum being made available to LightSquared equates to a valuation of $9.0bn or £13.3 per share. Clearly, the price paid for spectrum to be put to use in terrestrial mobile will far exceed satellite spectrum for use in MSS given that the size of the former market far outstrips the latter market. To assume that Inmarsat’s spectrum could converge towards AWS-3 prices, one needs to believe that the ITU and the FCC will allow MSS spectrum to be re-purposed towards terrestrial mobile, either fully or in part. This was a theme that Inmarsat’s Chairman picked up at the 4Q14 results. Investors must always ground their approach on the fact that spectrum is raw material input to a wireless business. The Chairman made the point that Inmarsat is an “operating satellite company” who uses spectrum “to drive a business”. Its L-band spectrum holdings have been used almost exclusively to date in MSS (as is its mandated purpose according to the FCC and

page 9 of 29

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Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 ITU), which is a profitable and attractive market, but nowhere near the size of cellular mobile. Inmarsat could have sought to agitate for L-band to be used in terrestrial applications but never felt the case was there. When LightSquared approached the company with the idea of a hybrid network (the ancillary terrestrial component network) and was willing to lead the charge on a fight with the FCC to approve the use of L-band in such a context, Inmarsat concluded that this was a risk-averse way to pursue putting its spectrum to work in “higher value” markets. But the philosophical approach has always been to create value through using spectrum, not speculating on it. Co-op agreement remains the most likely monetisation outcome We prefer to anchor our expectations to “axiomatic” truths that govern the ultimate direction of this important catalyst: 1. spectrum is a scarce resource; 2. there is a monetisation roadmap with LightSquared that could be worth between 100p and 300p per share (though there could be a renegotiation); and 3. the failure to restructure LightSquared and a move to liquidate the business would almost certainly result in a cancellation of the cooperation agreement and position Inmarsat as the front-runner to bid for the LightSquared spectrum (indeed, probably the only bidder but if other bidders emerged, a new co-operation agreement would undoubtedly have to be entered in to). In our view, Inmarsat will focus primarily on the “bird in the hand”. A successful restructuring of LightSquared remains the lowest risk route to monetising its spare L-band in North America. On this point, we found the CEO's language around the LightSquared situation to be the most concise and, frankly, optimistic we've ever heard it be at the 4Q14 results. He spoke of being in the "end-game of the bankruptcy" with a "fully-funded exit" possible. He spoke of Inmarsat, as it’s always been, as well positioned under the Cooperation Agreement and highlighted that the Phase 2 payments continue to be met. He spoke of being "cautiously optimistic" and looks forward to being a "more vigorous partner". All incrementally more positive rhetoric in our opinion and adds weight to our view that the AWS-3 auction in the US has been/will be a catalyst for the LightSquared stakeholders to finally reach a resolution (although actual news flow around the latest restructuring proposal isn’t completely consistent with the CEO’s optimism). Notwithstanding, the LightSquared situation remains in flux and we remain uninclined to second guess the myriad permutations and agendas that will ultimately deliver a monetisation event for Inmarsat’s 40 MHz of L-band spectrum currently being made available to LightSquared under the cooperation agreement. Too much remains open to speculation. Inmarsat is well positioned, but we keep the Phase 2 payments out of our forecasts.

page 10 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Chart 5: Cooperation Agreement, Phase 2 revenue stream, valuation per share

Chart 6: Cooperation Agreement, Phase 2 revenue stream, valuation per share as % of current share price

£3.12

35.4% 28.1%

£2.48

18.3%

£1.62 12.2%

£1.08

50

75

115

50

145

Source: Company data

75

115

145

Source: Company data

Looking to the Blue Skies: what’s new? In our note, “Looking to the Blue Skies” we considered in some detail the potential of Inmarsat’s European Aviation network (a recap of which is given in Table 5), concluding that the upside looks significant. The network gives Inmarsat a scaled, hard to replicate, structurally superior proposition in an, effectively, greenfield market with massive latent demand. In this note, we revisit some of our key findings and update our views for developments since the network was first announced in June 2014. Our approach is to consider developments in three different categories: 1. Inmarsat related; 2. wider industry news; and 3. Gogo related. Our work increases our conviction that Inmarsat will deliver the revenue and EBITDA growth we’ve previously disclosed, and hence why we unwind our discount to 40%. Our original (and unchanged) bottom-up workings for the European aviation network are included in the Appendix. Table 5: Overview of the European Aviation Network programme Objective

 Build an integrated ATG / satellite network covering the EU

Opportunity

 Pan-EU in-flight connectivity market

Timing

 Satellite segment to be launched in 2016  ATG segment to be rolled out as national licenses are obtained and business case supports, we expect from 2015 onwards, spread over six years

ATG segment

 Terrestrial cellular signals 30 MHz of S-band spectrum  Distributed from a series of ~300 towers spread across EU

Satellite segment

 Shared payload on HellasSat-3, to be manufactured by Thales  Inmarsat’s payload to be called EuropaSat  Shared payload reduces by 50% the cost of delivering the satellite standalone

Cost

 ATG segment - $200-250m spread over six years  Satellite segment - $200m spread over three years

Financials

 No guidance yet provided (we present our expectations in this note)

Source: Company Data Inmarsat latest: significant progress From Inmarsat’s perspective, we would highlight the following: 

Alcatel-Lucent: Inmarsat announced on 20 November that Alcatel-Lucent had become a technology partner for the development of the European Aviation Network. Alcatel-Lucent will be delivering the ground infrastructure component of the network (the often referred to “Air-to-ground” or ATG segment). Inmarsat reiterated that commercial service should start by the end of 2016. This new development completed the major elements of the overall procurement “lineup”: Alcatel-Lucent for the ATG segment, Thales for the satellite segment (EuropaSat, confirmed at the time of the initial network announcement on 5

page 11 of 29

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Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 June). We had previously said that the ATG segment had low investment risk given it is essentially a terrestrial cellular network pointing up at the sky, so we can’t say this is a major de-risking of the overall business case. Nonetheless it is a positive to see tangible progress on the roll-out. Chart 7: Broadband speeds to the plane, Mbps Inmarsat ATG



Speed to the plane: another interesting element to come out of the AlcatelLucent release was confirmation that Inmarsat’s ATG network will offer the world’s fastest in-flight connectivity with speeds up to 75 Mbps (note that Gogo’s ATG network in the US is currently only able to offer 10 Mbps on some routes, but with a roadmap to 70 Mbps in time, Chart 7). This is back-up to our conviction view that with this network, Inmarsat is going to be able to offer a price / throughput trade-off that is: 1. far superior to any possible competing infrastructure; and 2. will be low enough to act as a catalyst for the greenfield European in-flight connectivity market.



Regulatory risk: at the 4Q14 results, Inmarsat confirmed that it has secured more regulatory approvals for the critical ground component – 11 EU countries have now provided authorisation or “in-principle” approvals, including 2 of the big 5 EU countries – this is up from 2 countries at 3Q14 results. We had previously highlighted regulatory risk as an overhang for the investment, so this news is welcome (indeed, the CEO's comments are that this process is tracking ahead of expectations).



Commercial momentum: We would have liked to have heard of new customer agreements for the network by now, in addition to the British Airways MoU. The CEO did indicate at the resutls presentation that interest is "huge" and that discussions with several major airlines and partners “are advanced”. On the face of it, we would expect commercial announcements to be forthcoming in the short term. At the results prsentation the CEO reiterated that European aviation is due to be 6,000 aircraft by the end of the decade, larger than Gogo’s North American market opportunity (note our European Aviation Network modelling assumes only 3,400 aircraft, see Appendix).



Interview with Leo Mondale: In an interview with the Runway Girl Network website (5 December 2014), Inmarsat’s president of aviation, Leo Mondale was quoted as saying the target is to launch the network in 2016. He was also quoted as saying that for the ATG / S-band network, Inmarsat was strongly considering the option of offering the service directly to airlines. Mondale says Inmarsat is “in constant communication with the partners in our eco-system to develop the best possible offer to airlines”, but he stresses that airlines are in the driver’s seat.



Ku-band land grab: it has become increasingly apparent that there is a land grab happening in the in-flight connectivity market, with incumbents pushing solutions hard (here, we’re referring to Panasonic Avionics, Gogo and Global Eagle) to ensure as large an installed base of customers as possible. The rationale being that once a commitment has been made, the long replacement cycle and high capex costs associated with fitting-out a plan make that customer hard to churn. What’s a concern from Inmarsat’s perspective is that that the land grab is happening in the Ku-band, given it is the readily available satellite capacity available. Inmarsat’s capabilities are in the L-band, Ka-band (Global Xpress) and the S-band (ATG). Inmarsat is having some success in securing share of airlines new to in-flight connectivity (see Table 6), but we do fear that investment decisions could be swayed by what’s available now.

75.0

Gogo 2KU

70.0

Gogo GTO

60.0

Gogo HTS

50.0

Gogo ATG-4

10.0

Gogo ATG

3.1

Inmarsat SBB

0.4

Iridium

0.0

0

20

40

Source: Company data

60

80 100

page 12 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Table 6: Recent announcements of in-flight deployments, non-US Date

Airline

15-Oct-13 19-Feb-14 5-Jun-14 26-Aug-14 16-Sep-14 17-Sep-14 7-Jan-15

Japan Airlines Air China British Airways AeroMexico Vietnam Airlines Virgin Atlantic Qatar Airways

Fleet / Route

Band

Domestic 777s A330s UK routes 737s 787s, A350s Existing fleet A350s

Ku Ka S Ku L / Ka Ku Ka

Product Provider (retail)

Ku GX ATG 2Ku SwiftBB / GX 2Ku GX

Gogo Honeywell British Airways Gogo Gogo Gogo OnAir

Provider (wholesale)

Multiple Inmarsat Inmarsat Multiple Inmarsat Multiple Inmarsat

Source: Company Data Industry latest: more interest, more momentum Across the industry there have been a number of notable developments, we would highlight the following: 

Ryanair: On 14 January 2015, it was reported that Ryanair will begin testing a free in-flight wifi service on selected routes. It will initially be a limited trial offered on a handful of aircraft. The cost of the service will be funded via targeted advertising. Ryanair is in talks with two partners. The Ryanair CTO has been quoted as saying the implementation and running costs of a service must come down before a mass roll-out can be considered and that “one possibility” is for Ryanair to use Inmarsat’s ATG network.



EasyJet: the question of inflight connectivity came up on the full year results for EasyJet, presented on 18 November. EasyJet CEO, Carolyn McCall, said that the business isn’t getting an “avalanche of customers” asking for the service now, but it is “going to become normal in the next few years”. Her comments that wifi is currently too highly priced and patchy and therefore doesn’t support being a first mover on in-flight connectivity are probably supporting of Inmarsat’s position given the ATG network will dramatically bring down the cost of the service.



Lufthansa: On 7 October 2014, Lufthansa issued an RFP for an in-flight connectivity service for its short and medium haul routes. We note that Lufthansa offers Panasonic Avionics’ Ku-band satellite-supported inflight connectivity solution on its long-haul aircraft.



AT&T: an issue that Gogo faced was replicability. On 28 April 2014 AT&T announced that it will be building a competing ATG network to address the US in-flight connectivity market in direct competition with Gogo by 2015. A fundamental factor that allowed AT&T to replicate Gogo’s network was that wireless spectrum in the US, for the most part, is licensed on a national basis. In August 2014, AT&T actually began to lobby the FCC to allow it to use some of its 2.3 GHz spectrum for an ATG network. This was a considerable threat to Gogo given AT&T’s heritage in wireless, its significantly larger spectrum assets and financial muscle. However, in November 2014 it emerged that AT&T was no longer looking at entering the market – after the Iusacell and DirecTV acquisitions, capital for this investment was no longer available. Indeed, Gogo has expressed a willingness to talk with AT&T about potentially leasing the aforementioned spectrum from AT&T.



SmartSky networks: After working in secret for the past four years, SmartSky announced at the NBAA convention in Orlando in October 2014 that it plans to take on Gogo with its own ATG network. SmartSky’s goal is to deliver wireless connectivity equal to that available on the ground. SmartSky promises to provide at least 10 times the typical speed and capacity of existing aviation networks by using 60MHz of spectrum for air-to-ground (ATG) data communication. SmartSky plans to launch an exclusive beta-customer trial for business aviation and airline customers in the USA in late 2015. A nationwide commercial roll-out is scheduled for 2016. Commenting on its 3Q14 results call,

page 13 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Gogo shared its view that SmartSky’s apparent use of unlicensed spectrum is an “extraordinarily risky” way of going about an ATG network.

Chart 8: Gogo, share price $40 $35 $30 $25 $20



Saturation point: In its latest report on the state of in-flight wifi, Routehappy notes that connectivity on US airlines is reaching saturation point with a clear trend of airlines returning to connectivity providers to upgrade (Virgin America upgraded to Gogo’s ATG-4, Alaska Airlines to follow). According to Runway Girl Network, there are virtually no commercial aircraft in the US not looking at connectivity.



Usage: ViaSat in its 3Q14 results call noted that per-device consumption has doubled on its flights over the past year. United Airlines seems to believe that inseat entertainment is “a dinosaur” (with rumours of tablet holders being installed on tray tables in first class with the plan to stream DirecTV to passenger’s devices). Glen Latta, president of Thales’ LiveTV unit, actually envisions, as the cost of delivery of connectivity continues to come down, that all personal entertainment will move to the cloud and being streamed to passengers, thereby saving airlines the cost of bulking and inefficient on-board equipment.



Echostar: As previously highlighted, Echostar is Inmarsat’s only source of potential “like-for-like” infrastructure competition for the European Aviation Network given it is the only other S-band license holder. For these reasons we closely track Echostar’s intentions. To date, the rather loosely worded objective is to build a hybrid network using satellite capacity and terrestrial repeaters in order to provide “MSS services”. On its 4Q14 results call, Echostar management indicated that the Echostar-21 S-band satellite for Europe should be launched in 1Q16. Management have indicated a level of frustration as to the “daunting task” of working with each EU member state to gain the necessary licenses to operate a complementary ground component in the S-band in each individual country.

Gogo latest: growing coverage, yield and capacity As a highly comparable peer for Inmarsat’s European Aviation network (namely, in-flight connectivity using a combination of ATG and satellite) we again revisit Gogo, and specifically recent developments in the latter’s progress since our detailed review of the business in the “Looking to the Blue Skies” note. Broadly, we continue to have a favourable impression of where Inmarsat’s investment could take it based on Gogo’s progress. We would highlight in particular: 

Addressable market: Gogo management have articulated the in-flight market as 40,000 commercial and business aircraft, climbing to 70,000 over the next 20 years, mostly outside the US. It is “inevitable” that most if not all aircraft will get connected, leading to, Gogo believes, a $30bn revenue industry within 20 years.



2Ku (I): on 25 February, Gogo announced that Delta had selected its narrowbody aircraft serving long-haul domestic / Latam / Caribbean routes will be upgraded to Gogo’s 2Ku technology, equal to a total of 250 aircraft (over 10% of Gogo’s commercial installed base of aircraft). 2Ku is a satellite based technology first announced in 1H14 and delivers a massive upgrade in deliverable speeds (70 Mbps to the plane, 20 times the original ATG speeds). As such, 2Ku is critical tool for addressing Gogo’s increasingly problematic capacity constraints.



2Ku (II): it’s important to put the optimism around 2Ku into context given that this marks satellite as the preeminent infrastructure for Gogo going forward, rather than the air-to-ground network. Investors could rightfully question why Inmarsat is pursuing ATG when Gogo is de-emphasising it. Firstly, Gogo’s ATG network, as we’ve previously highlighted, has only one tenth of the spectrum that Inmarsat’s will, causing absolute limitations on throughput – Gogo needs

$15 $10

$5 $0 Jun-13

Dec-13

Jun-14

Dec-14

GOGO-US

Source: FactSet

page 14 of 29

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Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 satellite to augment ATG, and in 2Ku they have a great solution. Indeed, note that Gogo’s 3 March 2015 $340m convertible bond offering is to build a war chest in anticipation of 500 MHz of 14 GHz spectrum being auctioned in the US. Secondly, Gogo’s embarking on a period of massive international expansion, where there are no ATG networks; hence satellite has to be the kernel of its network strategy.

Chart 9: Gogo, aircraft online*

It’s all about ARPA, not take-rate: a point we made in the aforementioned note was Gogo’s low take-rate for its service. This has remained low (LTM to 4Q14 of average of 6.7% compared to LTM to 1Q14 of 6.4%) but the message from Gogo management has been that the metric they measure the business on is average revenue per aircraft online in any given quarter which has been accelerating its growth (currently >20% yoy). The message is that monetisation of Gogo’s “connectivity” can take many forms rather than just basic internet access – and here Gogo has launched associated products such as Gogo Text and Gogo Vision – that take-rates are too one-dimensional. On its 4Q14 results call, Gogo was very clear that it has been using pricing as a tool for managing take-rates down in the US (total average revenue per internet session grew 7% in 2014).



Bringing more capacity to bear: Gogo has been very active in migrating aircraft to ATG-4, tripling the speeds to the plan in the process (3 Mbps to 10 Mbps). Management indicated the insatiable demand existing customers have for more capacity. More and more airlines are considering either Gogo’s 2Ku or GTO technology as a next logical step in their in-flight offering.



International expansion. Gogo is pushing hard on growth opportunities outside of the US. In 3Q14 it signed up Virgin Atlantic and Vietnam Airlines as customers, following on from pre-existing Aeromexico and Air Canada international customers. On 26 January 2015, Gogo announced that it was on track for record aircraft installs in 2015. The company now has a backlog of more than 1,000 commercial aircraft, more than half of which are expected to be installed in 2015 and 25% are international aircraft. Current aircraft online is 2,098.

Chart 10: Gogo, ARPS ($) 2,044

2,098

2,058

2,032

1,982

2,011

1,811

1,878

1,565

1,620

2,000

2,056

2,500



Chart 11: Gogo, connectivity take rate $11.7 $11.4

$12

$10.7 $10.7 $10.6 $10.6 $10.3$10.4 $10.3 $9.9

$11 $10

6.7%

6.5% 6.0%

$9.0

1,500

6.9%6.9%

7.0%

6.2% 5.9% 5.7%

$9

6.8%

6.2%

5.9% 5.8%

5.5% $8

1,000

5.0%

$7

500

4.5%

$6

0

4.0%

$5

2Q12

4Q12

2Q13

4Q13

2Q14

4Q14

4.8%

2Q12

4Q12

2Q13

4Q13

2Q14

4Q14

2Q12

4Q12

2Q13

4Q13

2Q14

4Q14

Source: Company data

Source: Company data

*Number of commercial aircraft on which Gogo’s ATG network equipment is installed and Gogo service has been made commercially available

*Average revenue per session is revenue divided by the total *Number of sessions during a period expressed as a number of sessions during the period. A session is defined as percentage of gross passenger opportunity (being, the total the use by a unique passenger of Gogo on a flight (multiple number of addressable passengers in any given period) logins or purchases under the same user name during one flight segment count as only one session)

page 15 of 29

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Source: Company data

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Chart 12: Gogo, revenue ($m)

Chart 13: Gogo, EBITDA margin

Chart 14: Gogo, EBITDA - capex ($m)

8%

80

0

70

(5) 6%

60

(10)

50 40

(15)

4%

30

(20)

20

2%

(25)

10 0 Commercial Commercial (US) (RoW) 2Q12 3Q12 4Q12 2Q13 3Q13 4Q13 2Q14 3Q14 4Q14

Business

1Q13 1Q14

Source: Company data

(30)

0%

(35) (2%)

(40) 2Q12

4Q12

2Q13

4Q13

Source: Company data

2Q14

4Q14

2Q12

4Q12

2Q13

4Q13

2Q14

4Q14

Source: Company data

L-band upside So much of the discussion of the Inmarsat equity has, necessarily, focused on Global Xpress. We must of course also consider the outlook for the legacy L-band business, which remains, in our view, a high quality growth / high barrier to entry growth business. Inmarsat continues the re-invention of the L-band business with a focus on “innovation, internationalisation, and diversification”. We share management’s optimism and believe the L-band business is positioned for upside surprise. We would highlight the following: Chart 15: Maritime MSS market segmentation



Maritime: in the maritime segment we see scope for both subscriber growth and ARPU growth. Inmarsat have highlighted its low market share in the leisure / fishing / yacht markets (Chart 15) where it has quantified $160m of incremental market share it will be able to address with the various new low-end product launches (Fleet One launched in 2Q14). In terms of ARPU growth, we see exceptionally strong growth tailwinds: 1. Price elasticity of demand as FleetBroadband brings down data pricing upon migration (45% of the FB base have already moved to higher volume plans); 2. New products will drive utilisation (and here, Fleet Media – the “downtime” streaming of movies / TV shows to ships – has huge scope); and 3. More qualitatively, the secular moves towards “smart shipping”, where vessels are seen as a node on a corporate network – this is perhaps best summed up by the change of perception by the shipping operators to viewing communications as “value not cost”.



Global government: with US government budget sequester dominating perceptions of “government” business, it is easy to overlook Inmarsat’s $126m global (i.e. non-US) government business. Inmarsat’s business is currently heavily skewed towards Europe (where budget constraints also exist) but with large scope to expand both market size and share in emerging market regions (in 2012, 80% of revenue was derived from six countries). NSR believes overall market growth to be 11% compounded from 2012-2022 from a $2.7bn base currently. Inmarsat is, not surprisingly, number 1 in MSS. The strategy is to grow into new markets, particularly emergency services / border protection / critical national infrastructure. The graphic from the CMD in Chart 16 gives a sense of the opportunity given the countries in yellow represent where Inmarsat has only recently established dedicated sales teams and those in red are in development. Inmarsat has now built direct or indirect presences in 24 countries since the start of 2014, with the incremental points of presence delivering revenue in excess of its costs. In 2015, the focus will be on driving penetration in these new markets.



Developers conference: in January 2015, Inmarsat hosted its first ever developer’s conference, a three day event attended by over 300 software, hardware and application developers. Inmarsat’s objective is to open up its

Source: Company Data

Chart 16: Global government*

Source: Company Data *Countries in yellow indicate where ISAT has only recently established dedicated sales teams

page 16 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 platforms to developers to encourage new ideas that will change the way satellite communications are implemented. The IDC builds upon Inmarsat’s October 2012 announcement of an alliance with Cisco to develop a service delivery platform that would work on Inmarsat’s satellites. The conference launched a Certified Application Partner programme that offers delegates the chance to become an official Inmarsat developer. By opening up its technology platforms to third parties, Inmarsat, in our view, has increased the scope for volume growth than if it had pursued a more close architecture. 

Enterprise and the “internet of things”: building upon the previous bullet point, a major thematic that constantly recurs with Inmarsat is the “big data” thematic, often interchangeably used with the phrase “the internet of things” or “the industrialised internet”. The idea is that, in time, everything will be connectable and therefore all providers / operators of communications infrastructure could yet benefit from huge increases in data demand. For Inmarsat’s L-band business, the enterprise segment is where the company would see the growth (in particular, in M2M). We look at this theme in some more detail below.

Spotlight on “internet of things” Cisco predicts that connected devices will grow from 12bn in 2013 to 50bn by 2020. NSR predicts the satellite M2M / IoT industry to grow at a CAGR of 9.3% from 2.4m units in 2013 to 6.0m in 2023. While infrastructure competition is fierce (given cellular coverage is now virtually ubiquitous over land) the strengths of satellite based solutions are many, particular on low cost coverage and perhaps most importantly of all, reliability. NSR predicts that L-band will dominate satellite M2M connections, with 93% share. L-band dominates primarily due its lower cost terminals, and their smaller size. This is welcome upside for Inmarsat, but the real challenge is to face-off against infrastructure competition to take a slice of the much bigger M2M “pie”: consumer IoT, which is set to be dominated by cellular connections but will be the largest segment of the overall 50bn installed base (as per the Cisco forecasts above). In NSR’s view, satellite consumer IoT has potential, although it is still finding its place. One specific opportunity NSR has highlighted is dual-mode solutions, which are IoT devices that can connect to both cellular and satellite signals. Eutelsat’s investment in IoT player Sigfox (announced on 11 February 2015), whose solution is cellular is testament to the satellite industry’s belief it can contribute. In NSR’s words, “whilst the majority of consumer applications will be based on cellular technologies, the vast growth of the number of connected devices will mean that even a small sliver of devices being connected to satellite networks will allow [for sustained growth]”. We would finally highlight Inmarsat’s November 2013 strategic alliance with Orbcomm covers the joint ownership and future development and commercialisation of the IsatData Pro (IDP) technology, enabling Inmarsat to enhance the offering to its M2M partner ecosystem, further supporting the adoption of IDP in multiple new markets.

page 17 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015

Changes to Estimates Table 7: Changes in estimates FY15

FY16

FY17

FY18

Revenue JEFe prior JEFe current Change Consensus JEFe vs. consensus

1,265.3 1,260.5 (0.4%) 1,269.0 (0.7%)

1,415.9 1,412.0 (0.3%) 1,365.1 3.4%

1,552.9 1,544.2 (0.6%) 1,498.9 3.0%

1,771.9 1,741.9 (1.7%) 1,717.9 1.4%

EBITDA JEFe prior JEFe current Change Consensus JEFe vs. consensus

661.7 659.8 (0.3%) 672.8 (1.9%)

773.5 774.2 0.1% 751.8 3.0%

897.7 861.7 (4.0%) 825.6 4.4%

967.5 950.2 (1.8%) 1,035.6 (8.2%)

Source: Jefferies estimates, FactSet consensus Table 8: Summary Forecast Changes for Inmarsat FY16e New

FY16e Old

% Change

Sales 1,260.5 1,265.3 (0.4%) 1,412.0 EBITDA 659.8 661.7 (0.3%) 774.2 EBIT 344.8 333.4 3.4% 461.2 EPS $0.432 $0.408 6.0% $0.620 Drivers of change: FY14 actual base shifting FY15 onwards with unchanged growth rates

FY15e New

FY15e Old

% Change

1,415.9 773.5 448.8 $0.593

(0.3%) 0.1% 2.8% 4.6%

Source: Jefferies estimates Table 9: Inmarsat, revenue forecasts ($’m) Revenue ($m) Maritime

1Q13a

2Q13a

3Q13a

4Q13a

1Q14a

2Q14a

3Q14a

4Q14a

FY14a

FY15e

FY16e

FY17e

126.7

132.8

132.4

132.9

148.2

152.6

147.6

147.2

595.6

631.7

688.6

741.4

Government Enterprise Aviation Central Services Total MSS and other revenue LightSquared Total revenue

107.7 54.9 16.3 5.2 310.8 2.9 313.7

111.0 57.1 17.6 5.9 324.4 2.2 326.6

94.1 53.0 18.2 4.3 302.0 4.8 306.8

95.5 56.6 21.3 6.1 312.4 2.4 314.8

79.5 44.4 22.2 5.1 299.4 45.3 344.7

80.5 39.9 23.8 9.0 305.8 1.8 307.6

76.3 40.9 20.7 5.3 290.8 9.8 300.6

83.6 41.5 34.4 7.8 314.5 18.5 333.0

319.9 166.7 101.1 27.2 1,210.5 75.4 1,285.9

302.0 166.7 121.3 27.7 1,249.4 10.0 1,259.4

350.3 179.2 145.6 28.3 1,392.0 10.0 1,402.0

376.6 186.4 167.4 28.9 1,500.6 10.0 1,510.6

Revenue growth Maritime Government Enterprise Aviation Central Services Total MSS and other revenue LightSquared

6.3% (7.0%) n/a n/a n/a n/a n/a

3.8% (8.2%) n/a n/a n/a n/a n/a

3.4% (17.9%) n/a n/a n/a n/a n/a

4.3% (18.7%) n/a n/a n/a n/a n/a

17.0% (26.2%) (19.1%) 36.2% (1.9%) (3.7%) 1462.1%

14.9% (27.5%) (30.1%) 35.2% 52.5% (5.7%) (18.2%)

11.5% (18.9%) (22.8%) 13.7% 23.3% (3.7%) 104.2%

10.8% (12.5%) (26.7%) 61.5% 27.9% 0.7% 670.8%

13.5% (21.7%) (24.8%) 37.7% 26.5% (3.1%) 513.0%

6.1% (5.6%) 0.0% 20.0% 2.0% 3.2% (86.7%)

9.0% 16.0% 7.5% 20.0% 2.0% 11.4% 0.0%

7.7% 7.5% 4.0% 15.0% 2.0% 7.8% 0.0%

n/a

n/a

n/a

n/a

9.9%

(5.8%)

(2.0%)

5.8%

1.9%

(2.1%)

11.3%

7.7%

Total revenue

Source: Jefferies estimates, company data Table 10: Inmarsat, EBITDA forecasts ($’m) 1Q13a

2Q13a

3Q13a

4Q13a

1Q14a

2Q14a

3Q14a

4Q14a

FY14a

FY15e

FY16e

FY17e

Maritime Government Enterprise Aviation Central Services Total MSS and other EBITDA Margin Margin progression Growth

98.1 66.5 27.6 15.3 (53.2) 154.3 49.6% n/a n/a

106.3 74.8 28.5 15.9 (52.6) 172.9 53.3% n/a n/a

107.6 63.1 28.7 16.9 (52.3) 164.0 54.3% n/a n/a

104.5 63.5 30.8 19.1 (69.3) 148.6 47.6% n/a n/a

111.5 53.9 26.0 20.5 (47.2) 164.7 55.0% 5.4pp 6.7%

114.9 53.6 23.5 21.4 (55.3) 158.1 51.7% (1.6pp) (8.6%)

113.8 51.4 24.5 17.4 (50.8) 156.3 53.7% (0.6pp) (4.7%)

110.2 57.5 28.1 27.9 (76.8) 146.9 46.7% (0.9pp) (1.1%)

450.4 216.4 102.1 87.2 (230.1) 626.0 51.7% 0.5pp (2.2%)

649.9 52.0% 0.3pp 3.8%

772.5 55.5% 3.5pp 18.9%

862.9 57.5% 2.0pp 11.7%

LightSquared Total EBITDA

0.9 155.2

1.1 174.0

4.7 168.7

2.3 150.9

45.2 209.9

1.7 159.8

9.7 166.0

18.4 165.3

75.0 701.0

9.9 659.8

9.9 782.4

9.9 872.8

Margin Margin progression Growth

49.5% n/a n/a

53.3% n/a n/a

55.0% n/a n/a

47.9% n/a n/a

60.9% 11.4pp 35.2%

52.0% (1.3pp) (8.2%)

55.2% 0.2pp (1.6%)

49.6% 1.7pp 9.5%

54.5% 3.1pp 8.0%

52.4% (2.1pp) (5.9%)

55.8% 3.4pp 18.6%

57.8% 2.0pp 11.6%

Source: Jefferies estimates, company data

page 18 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Table 11: P&L forecasts ($’m) 3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

FY14a

FY15e

FY16e

FY17e

Revenue Growth

306.8

314.8

344.7 9.9%

307.6 (5.8%)

300.6 (2.0%)

333.0 5.8%

1,285.9 1.9%

1,260.5 (2.0%)

1,412.0 12.0%

1,544.2 9.4%

Net operating costs Growth

(138.1)

(163.9)

(134.8) (15.0%)

(147.8) (3.1%)

(134.6) (2.5%)

(167.7) 2.3%

(584.9) (4.6%)

(600.7) 2.7%

(637.8) 6.2%

(682.5) 7.0%

EBITDA Margin Growth

168.7 55.0%

150.9 47.9%

209.9 60.9% 35.2%

159.8 52.0% (8.2%)

166.0 55.2% (1.6%)

165.3 49.6% 9.5%

701.0 54.5% 8.0%

659.8 52.3% (5.9%)

774.2 54.8% 17.3%

861.7 55.8% 11.3%

D&A % of capex

(60.2) 53.0%

(63.5) 1411.1%

(67.6) 39.0%

(68.5) 67.1%

(76.5) 105.4%

(79.2) (3600.0%)

(291.8) 84.4%

(317.6) 76.8%

(315.6) 88.3%

(318.4) 98.2%

3.0 nm

1.6 nm

0.0 nm

0.0 nm

0.0 nm

0.0 nm

0.0 nm

0.0 nm

0.0 nm

0.0 nm

(77.0)

(98.9)

(1.1)

0.4

(0.1)

(1.7)

(2.5)

0.0

0.0

0.0

0.7

0.2

0.5 (37.5%)

0.8 33.3%

0.8 14.3%

0.5 150.0%

2.6 13.0%

2.6 0.0%

2.6 0.0%

2.6 0.0%

35.2 11.5%

(9.7) (3.1%)

141.7 41.1% 51.9%

92.5 30.1% (22.7%)

90.2 30.0% 156.3%

84.9 25.5% (975.3%)

409.3 31.8% 71.7%

344.8 27.4% (15.8%)

461.2 32.7% 33.8%

546.0 35.4% 18.4%

1.1

1.6

Acquisition related adjustments Growth Gain on sales of assets / (impairments) Income from associates Growth Operating income Margin Growth Interest income Growth

0.9

5.7

0.9

0.6

8.1

2.0

0.2

(0.3)

(35.7%)

612.5%

(18.2%)

(62.5%)

65.3%

(74.8%)

(90.2%)

(267.1%)

Interest expense Effective interest rate

(12.8)

(25.5)

(9.1) 0.5%

(49.2) 3.0%

13.0 (0.7%)

(29.8) 1.6%

(75.1) 4.0%

(91.1) 4.7%

(94.6) 4.7%

(93.8) 4.8%

Profit before tax Margin

23.5 7.7%

(33.6) (10.7%)

133.5 38.7%

49.0 15.9%

104.1 34.6%

55.7 16.7%

342.3 26.6%

255.8 20.3%

366.8 26.0%

451.9 29.3%

54.5%

(56.6%)

343.0%

(265.8%)

81.0%

(25.3%)

43.4%

23.2%

Growth Income tax expense Effective tax rate

(13.9)

(9.2)

(27.3) 20.4%

(7.2) 14.7%

(25.3) 24.3%

58.6 (105.2%)

(1.2) 0.4%

(61.4) 24.0%

(88.0) 24.0%

(108.4) 24.0%

Minority interests Growth

(0.2)

(0.2)

(0.1) 0.0%

(0.2) 100.0%

(0.1) (50.0%)

(0.2) 0.0%

(0.6) 0.0%

(0.6) 0.0%

(0.6) 0.0%

(0.6) 0.0%

Net income attributable Margin Growth

9.4 3.1%

(43.0) (13.7%)

106.1 30.8% 63.5%

41.6 13.5% (41.2%)

78.7 26.2% 737.2%

114.1 34.3% (365.3%)

340.5 26.5% 233.8%

193.8 15.4% (43.1%)

278.2 19.7% 43.5%

342.8 22.2% 23.2%

Source: Jefferies estimates, company data Table 12: Cash flow forecasts ($’m) 3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

FY14a

FY15e

FY16e

FY17e

195.9

(1.5)

303.9

153.7

197.8

(2.0)

653.4

650.5

764.9

852.4

Interest received Income taxes paid Net cash flows from operating activities

0.2 (1.1) 195.0

1.2 (2.1) (2.4)

0.4 (1.8) 302.5

0.0 3.0 156.7

0.2 (1.1) 196.9

0.3 (9.6) (11.3)

0.9 (9.5) 644.8

2.0 (61.4) 591.1

0.2 (88.0) 677.0

(0.4) (108.4) 743.5

Capex Additions to capitalised development costs Own work capitalised

(113.5) (7.5) (7.0)

(4.5) (8.3) (6.3)

(173.4) (15.9) (15.8)

(102.1) (7.3) 0.0

(72.6) (6.0) (6.3)

2.2 0.2 (8.7)

(345.9) (29.0) (30.8)

(413.3) 0.0 0.0

(357.5) 0.0 0.0

(324.2) 0.0 0.0

(0.6) (128.6)

1.5 (17.6)

(18.5) (223.6)

4.5 (104.9)

0.0 (84.9)

(4.7) (11.0)

(18.7) (424.4)

25.0 (388.3)

0.0 (357.5)

0.0 (324.2)

(1.9) 27.2 (0.9) (12.5) 0.0 0.0 (0.1)

44.2 (130.5) 150.6 (2.8) 0.0 0.0 (2.7)

(142.1) 98.8 (8.9) (47.4) 0.0 0.0 13.8

(142.1) 91.9 (8.7) (36.7) 0.0 0.0 13.4

(1.6) 10.4 (2.1) (11.3) 0.0 0.0 0.6

73.2 (42.6) 5.9 6.4 0.2 0.0 (27.5)

(212.6) 158.5 (13.8) (89.0) 0.2 0.0 0.3

(219.5) (94.7) 0.0 (73.0) 0.0 0.0 0.0

(230.5) (83.4) 0.0 (70.0) 0.0 0.0 0.0

(242.0) (73.4) 0.0 (67.4) 0.0 0.0 0.0

Net cash flow from financing activities

11.8

58.8

(85.8)

(82.2)

(4.0)

15.6

(156.4)

(387.2)

(383.9)

(382.8)

FX impact Increase / (decrease) in cash

0.2 78.4

0.5 39.3

0.5 (6.4)

0.0 (30.4)

(0.6) 107.4

(0.3) (7.0)

(0.4) 63.6

0.0 (184.4)

0.0 (64.4)

0.0 36.6

Cash generated from operations

Acquisition of subsidiaries Net cash flow from investing activities Dividends paid to shareholders Net drawdown / (repayment) debt Other loan charges Interest paid Net proceeds from issue of shares Buybacks Other financing activities

Source: Jefferies estimates, company data

page 19 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Table 13: EPS and DPS forecasts 3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

EPS Growth DPS Pay-out ratio (earnings) Pay-out ratio (cash) Yield Growth

FY14a

FY15e

FY16e

FY17e

$0.760 233.8% $0.489 64.4% 146.2% 3.6% 5.0%

$0.432 (43.1%) $0.514 118.9% 219.9% 3.8% 5.0%

$0.620 43.5% $0.540 87.0% 97.0% 4.0% 5.0%

$0.764 23.2% $0.567 74.1% 72.2% 4.2% 5.0%

Source: Jefferies estimates, company data Table 14: Cash flow forecasts ($’m) EBITDA Capex Operating cash flow Growth Cash generated from operations Capex Net interest paid Tax paid Equity free cash flow Growth

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

FY14a

FY15e

FY16e

FY17e

168.7 (128.0)

150.9 (19.1)

209.9 (205.1)

159.8 (109.4)

166.0 (84.9)

165.3 (6.3)

701.0 (405.7)

659.8 (413.3)

774.2 (357.5)

861.7 (324.2)

40.7

131.8

4.8 (104.1%)

50.4 316.5%

81.1 99.3%

159.0 20.6%

295.3 332.4%

246.5 (16.5%)

416.7 69.1%

537.6 29.0%

195.9 (128.0) (12.3) (1.1) 54.5

(1.5) (19.1) (1.6) (2.1) (24.3)

303.9 (205.1) (47.0) (1.8) 50.0 (219.9%)

153.7 (109.4) (36.7) 3.0 10.6 (114.6%)

197.8 (84.9) (11.1) (1.1) 100.7 84.8%

(2.0) (6.3) 6.7 (9.6) (11.2) (53.9%)

653.4 (405.7) (88.1) (9.5) 150.1 (278.7%)

650.5 (413.3) (71.0) (61.4) 104.7 (30.2%)

764.9 (357.5) (69.8) (88.0) 249.5 138.2%

852.4 (324.2) (67.7) (108.4) 352.0 41.1%

Source: Jefferies estimates, company data Table 15: Net debt Reported net debt (Jefferies calc) Reported net debt (Inmarsat) Difference Net debt / EBITDA

1Q14

2Q14

3Q14

4Q14

FY14a

FY15e

FY16e

FY17e

1,952.8 1,952.8

1,615.2 1,615.2

1,811.2 1,811.2

1,900.7 1,900.7

1,900.7 1,900.7

2,013.3 2,013.3

2,018.8 2,018.8

1,935.2 1,935.2

0.0 5.41x

0.0 2.34x

0.0 2.64x

0.0 2.71x

0.0 2.71x

0.0 3.05x

0.0 2.61x

0.0 2.25x

Source: Jefferies estimates, company data

page 20 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015

Appendix: European Aviation Network Table 16: The arguments against the upside potential from the S-band ATG / satellite investment Arguments against the investment

Thoughts for consideration

 Echostar will launch a competing ATG / satellite network

 It is only fair to assume that this eventuality could indeed play out. Echostar is far further along the track vis-à-vis the satellite segment than Inmarsat and could probably partner with mobile operators / infrastructure operators to replicate the ATG segment (given it has the only other pan-EU spectrum license)  Bear in mind that the major enabling factor of this opportunity would be the ATG segment, where Inmarsat does have first mover advantage  What Echostar will never be able to replicate is Inmarsat’s ability to roam seamlessly onto a global high throughput network (i.e. Global Xpress). This is a major source of competitive differentiation for Inmarsat

 Regulatory risks (obtaining national licenses, spectrum / license fees)

 Inmarsat would not have moved to announce the investment programme without road testing the proposition with national regulatory authorities  There is an 80:20 dynamic to the national licenses with just five countries representing the comfortable majority of European airspace and passengers  The ATG segment capex will only follow behind the securing of national licenses  At most, Inmarsat is “at risk” for the $200m of satellite capex, which as a hosted payload is half what it would’ve cost to do standalone  As Inmarsat moves forward, it will be accruing value with each license obtained, irrespective of whether the full set of 28 national licenses are obtained

 Gogo only delivers 3.1 Mbps with its ATG network, and 9.8 Mbps with its ATG-4 network

 Even at 3.1 Mbps, this is a competitive offering compared to what’s achievable on a wide-beam satellite. Nonetheless, Inmarsat’s ATG segment, given it has a far larger spectrum availability will far outstrip Gogo’s throughput for the same cost (compared to Gogo’s ATG or ATG-4 technology). This combination ensures the service has consumer appeal

 Gogo is aggressively pushing into the international, non-US, markets

 Gogo and Inmarsat have a memorandum of understanding for the former to use Inmarsat’s Global Xpress network outside of the US. We would take it as almost certain that that MoU incorporates some form of noncompete agreement that would cover the proposed ATG / satellite network to cover the EU

 Gogo held its first ever capital markets day on 18 June. The number of international proposals that Gogo has submitted in 2014 has increased 400 percent compared with 2013. It is targeting achieving contract awards of 500 to 1,000 aircraft by the end of 2015, compared with 332 today  Gogo top-line growth is impressive (Chart 11) but the profitability is low (Chart 12) and it has negative operating cash flow (Chart 13)

 Indeed, it wouldn’t be a surprise to see Inmarsat and Gogo partner on the European operation, allowing the latter to deliver the retail capability (marketing, software, billing etc.) where the airline doesn’t have the appetite to control the customer relationship  Gogo is at the very bottom of the S-curve. It is investing to grow, focusing on both expanding geographical markets (opex) and increasing its network capacity (the aforementioned technology roadmap, capex)  Gogo management have spoken, with high conviction, that its 50% gross margins can translate to attractive profitability as the business matures

 The ATG / satellite network cannibalises GX

 GX was never about aviation. The aviation market was consistently positioned by Inmarsat as an interesting, growth segment into which it plays well with GX, but it was never the primary focus (US government was / is the primary focus for GX)  With the ATG / satellite network, Inmarsat is basically investing a superior infrastructure to GX to address the aviation market in Europe, but we would argue that European aviation with the GX business plan was only ever a very small contributor

 The European airlines don’t want to have to wait three years

 Inmarsat has unequivocal first move advantage on ATG, the best technical solution for in-flight connectivity

 Competing options will win market share now, with long equipment replacement cycles

 Inmarsat expects to be able to launch a service using the ATG segment in certain geographies independently of the satellite segment, therefore reducing time to market  In-flight connectivity is a greenfield market opportunity currently

 Getting the ATG / satellite equipment certified and retrofit / line-fit onto planes is a big bottleneck

 Inmarsat does not have a standing start. It has now accumulated significant certification experience from the execution of its L-band and GX aviation strategies  The certification process for ATG equipment is significantly less onerous than for satellite equipment given its much smaller and less sophisticated

Source: Jefferies We perform our own analysis on Inmarsat’s potential addressable market, using Gogo’s operational KPIs as a framework. Our objective is to quantify the “Gross Passenger Opportunity” (GPO) for Inmarsat as a foundation for generating a potential revenue forecast. GPO measures the total number of passengers in any given period that could potentially subscribe for a broadband service while in flight. It is a function of the total number of “aircraft online” (i.e. planes with Inmarsat’s equipment installed), average seats per plane, average flights per day, total flying days and load factor. The output of our analysis is presented in Table 17 below, with all key assumptions given in the footnotes. In short, we see Inmarsat having an annual GPO of ~200m five years of launch (growing to 300m in time). We can then apply a “connectivity take rate” and a spend assumptions to arrive at a revenue figure.

page 21 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Table 17: Addressable market (building the “Gross Passenger Opportunity”, or GPO) 2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

3,400.0 n/a

3,434.0 1.0%

3,468.3 1.0%

3,503.0 1.0%

3,503.0 0.0%

3,503.0 0.0%

3,503.0 0.0%

3,503.0 0.0%

3,503.0 0.0%

3,503.0 0.0%

3,503.0 0.0%

3,503.0 0.0%

Aircraft online (units)2 Penetration of total aircraft

0.0 0.0%

34.3 1.0%

104.1 3.0%

175.2 5.0%

525.5 15.0%

875.8 25.0%

1,050.9 30.0%

1,226.1 35.0%

1,401.2 40.0%

1,576.4 45.0%

1,751.5 50.0%

1,751.5 50.0%

Average seats per plane (units)3 Growth

180.0 n/a

180.0 0.0%

180.0 0.0%

180.0 0.0%

180.0 0.0%

180.0 0.0%

180.0 0.0%

180.0 0.0%

180.0 0.0%

180.0 0.0%

180.0 0.0%

180.0 0.0%

3.5 n/a

3.5 0.0%

3.5 0.0%

3.5 0.0%

3.5 0.0%

3.5 0.0%

3.5 0.0%

3.5 0.0%

3.5 0.0%

3.5 0.0%

3.5 0.0%

3.5 0.0%

Flying days (units)4 Growth

360.0 n/a

360.0 0.0%

360.0 0.0%

360.0 0.0%

360.0 0.0%

360.0 0.0%

360.0 0.0%

360.0 0.0%

360.0 0.0%

360.0 0.0%

360.0 0.0%

360.0 0.0%

Load factor5 Change

80.0% n/a

80.0% 0.0%

80.0% 0.0%

80.0% 0.0%

80.0% 0.0%

80.0% 0.0%

80.0% 0.0%

80.0% 0.0%

80.0% 0.0%

80.0% 0.0%

80.0% 0.0%

80.0% 0.0%

0.0 nm

6.2 nm

18.9 203.0%

31.8 68.3%

95.3 200.0%

158.9 66.7%

190.7 20.0%

222.5 16.7%

254.2 14.3%

286.0 12.5%

317.8 11.1%

317.8 0.0%

Total aircraft (units)1 Growth

Average flights per day (units)4 Growth

Gross Passenger Opportunity (m)7 Growth

Source: Jefferies, company data 1

Based on fleet size for the top 6 European airlines (Table 18) grossed up for the Top 6 share of airline passengers in 2013 (68%, source: Anna.aero) Defined as total number of commercial aircraft on which Inmarsat’s ATG network equipment is installed and service made available. Penetration rate lags behind what Gogo achieved in North American market (Chart 14) 3 Based on capacity of BA’s core short haul airplane, Airbus 320 / Boeing 767 4 Based on JEFe 5 Measures the % of available seats actually sold. Based on IATA data 2

Table 18: Fleet size for top 6 European airlines Number of short Number of medium haul planes haul Planes

IAG AF-KLM Lufthansa RyanAir EasyJet Turkish Airlines Total

0 141 162 0 0 0 303

Number of long haul Planes

Total

153 172 177 0 0 141 643

419 529 604 303 217 231 2,303

266 216 265 303 217 90 1,357

Source: Company Data Chart 17: JEFe for Inmarsat “aircraft online” as % of total EU fleet compared to Gogo’s ramp rate since launch in August 2008 in North America 60% 50% 40% 30% 20% 10%

0% FY14

FY15

FY16

FY17

FY18

FY19

Aircraft online (Gogo, time-shifted)

FY20

FY21

FY22

FY23

FY24

Aircraft online (Inmarsat)

Source: Jefferies, company data We outline our approach to modelling revenue for the ATG / satellite business (Table 20): 

Retail revenue calculation. We build on our estimate of Inmarsat’s GPO with estimates for the potential connectivity take-rate (i.e. how many passengers within the GPO are actually using the service in any given period) and average revenue per session (how much they’re paying for it). Again, this approach

page 22 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 mirrors Gogo’s reporting of its operational KPIs. Gogo’s current connectivity take-rate is 6.9%, with guidance that the market should see significant uplift in this number in time (“to saturation”). In our modelling, we make the relatively conservative assumption that the take-rate climbs to just over a third by 2025. Gogo’s current average revenue per session in 1Q14 was $10.55. We translate this to Euros (€8). For reference, we include a table summarising Gogo’s current retail pricing (Table 19). Table 19: Gogo, pricing over time Tariff name

1-Hour pass

All day pass

Airline Unlimited

Gogo Unlimited

Price on 4 February 2015 Hours Cost per hour of connectivity Terms

$5.00 1 $5.00 Continuous use Single flight

$16.00 24 $0.67 Continuous use Multiple flights Single airline

$49.95 60 $0.83 Multi-use Multiple flights Single airline

$59.95 60 $1.00 Multi-use Multiple flights Multiple airlines

Price on 27 July 2015 Hours Cost per hour of connectivity Terms

$5.00 1 $5.00 Continuous use Single flight

$16.00 24 $0.67 Continuous use Multiple flights Single airline

$49.95 60 $0.83 Multi-use Multiple flights Single airline

$59.95 60 $1.00 Multi-use Multiple flights Multiple airlines

Source: Jefferies, company data 

Revenue share: our model is based on the assumption that Inmarsat pursues an exclusively wholesale model (this is still an area of debate). On that basis, we need to make an assumption on how our estimate of retail revenue passes through to Inmarsat as the wholesale access provider. We use a basic assumption that 45% of retail revenue will be withheld at the retail end of the value chain, and 55% will pass to Inmarsat. This is based on our understanding of the revenue share model between Eutelsat and its distributers for its Tooway consumer satellite broadband product.



Operational currency. Given the pan-EU nature of this opportunity, we use Euros as our operational currency for modelling purposes. We translate our revenue estimates to USD based on the spot rate for EURUSD.

Table 20: Revenue forecasts 2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

6.2 nm

18.9 203.0%

31.8 68.3%

95.3 200.0%

158.9 66.7%

190.7 20.0%

222.5 16.7%

254.2 14.3%

286.0 12.5%

317.8 11.1%

317.8 0.0%

Average connectivity take rate1 Penetration of total aircraft

2.0% 2.0%

6.0% 4.0%

12.0% 6.0%

18.0% 6.0%

23.0% 5.0%

27.0% 4.0%

30.0% 3.0%

32.5% 2.5%

34.5% 2.0%

35.5% 1.0%

35.5% 0.0%

Average revenue per session2 Growth

€8.00 0.0%

€8.00 0.0%

€8.00 0.0%

€8.00 0.0%

€8.00 0.0%

€8.00 0.0%

€8.00 0.0%

€8.00 0.0%

€8.00 0.0%

€8.00 0.0%

€8.00 0.0%

Avg. monthly revenue per aircraft Growth

€0 nm

€0 nm

€18,212 nm

€32,659 79.3%

€34,776 6.5%

€35,628 2.5%

€39,079 9.7%

€41,933 7.3%

€44,186 5.4%

€45,201 2.3%

€42,941 (5.0%)

Retail revenue (€m)3 Growth

1.0 nm

9.1 nm

30.5 nm

137.3 350.0%

292.4 113.0%

411.9 40.9%

533.9 29.6%

661.0 23.8%

789.4 19.4%

902.5 14.3%

902.5 0.0%

Retail revenue ($m)3 Growth

1.1 nm

10.0 nm

33.6 nm

151.0 350.0%

321.6 113.0%

453.0 40.9%

587.3 29.6%

727.1 23.8%

868.3 19.4%

992.8 14.3%

992.8 0.0%

Gross Passenger Opportunity (m) Growth

Revenue to Inmarsat (55%, $m)

0.6

5.5

18.5

83.1

176.9

249.2

323.0

399.9

477.6

546.0

546.0

Growth

nm

nm

nm

350.0%

113.0%

40.9%

29.6%

23.8%

19.4%

14.3%

0.0%

Source: Jefferies, company data 1 2 3

Jefferies estimate of penetration of the GPO Jefferies estimate based on current Gogo retail pricing Product of GPO x Take-rate x Average revenue per session

page 23 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015 Normalised EBITDA margins of 50% over time Based on our assumption that Inmarsat will stay focused on the wholesale segment of the value chain, we can expect superior normalised margins to Gogo (who is active across the whole chain). Inmarsat’s wholesale margins within its L-band business are ~70%. We believe an integrated ATG / satellite network will necessarily have lower margins given the additional cost of maintaining the terrestrial infrastructure. We assume ~50% normalised margins over time, which is below what the typical terrestrial telecom operators (BT, DT et al) generate on their wholesale revenue lines (c.55%). Table 21: EBITDA forecasts EBITDA ($m) % of revenue Margin (compression) / expansion Growth

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

0.0 0.0% 0.0pp

(8.2) (150.0%) (150.0pp)

(11.1) (60.0%) 90.0pp

(8.3) (10.0%) 50.0pp

0.0 0.0% 10.0pp

49.8 20.0% 20.0pp

129.2 40.0% 20.0pp

200.0 50.0% 10.0pp

238.8 50.0% 0.0pp

275.7 50.5% 0.5pp

274.6 50.3% (0.2pp)

nm

nm

nm

(25.0%)

(100.0%)

#DIV/0!

159.3%

54.8%

19.4%

15.5%

(0.4%)

Source: Jefferies, company data Capex Our capex forecasts for the roll-out period reflect management guidance ($200m for the satellite segment spread over three years, $200-250m for the ATG segment spread over six years). For normalised capex, we assume $10m p.a. We also accrue $3.3m per year to cover the potential cost of replacing the S-band license upon expiry of its initial 15 year term. In our terminal year (2025) we inflate the capex to cover the replacement cost of EuropaSat ($200m divided by 15 years of life, plus $5m normalised capex). See Table 22. Table 22: Capex forecasts 2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Satellite segment capex Growth

66.7 nm

66.7 0.0%

66.7 0.0%

5.0 (92.5%)

5.0 0.0%

5.0 0.0%

5.0 0.0%

5.0 0.0%

5.0 0.0%

5.0 0.0%

18.3 266.7%

ATG segment capex Growth

37.5 nm

37.5 0.0%

37.5 0.0%

37.5 0.0%

37.5 0.0%

37.5 0.0%

5.0 (86.7%)

5.0 0.0%

5.0 0.0%

5.0 0.0%

5.0 0.0%

3.3 nm

3.3 nm

3.3 nm

3.3 nm

3.3 nm

3.3 nm

3.3 nm

3.3 nm

3.3 nm

3.3 nm

3.3 nm

107.5 nm

107.5 0.0%

107.5 0.0%

45.8 (57.4%)

45.8 0.0%

45.8 0.0%

13.3 (70.9%)

13.3 0.0%

13.3 0.0%

13.3 0.0%

26.7 100.0%

Spectrum license fees Growth Total capex Growth

Source: Jefferies, company data Standalone valuation of $1.8bn Our discounted cash flow analysis values the ATG / satellite venture at $1.8bn (Table 23). We use the same WACC (7.9%) and terminal growth rate (1.5%) assumptions that we use for the group. The valuation is highly sensitive to input assumptions around addressable market, airline and passenger take-up, wholesale revenue share and EBITDA margins. Nonetheless, our consistent focus on conservative assumptions leads us to have reasonable conviction in this initial estimate of value. As touched upon in the valuation section, we apply a 50% discount to the standalone ATG / satellite network valuation in our Inmarsat SoTP to reflect the various execution risks. Table 23: DCF valuation EBITDA Capex Cash tax (24%) Free cash flow Discount factor (WACC of 7.9%) PV of free cash flow Terminal value (USDm) Terminal growth rate Terminal cash flow Terminal value Enterprise value (USDm) PV of modelled period PV of terminal value Enterprise value

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

(8.2) (107.5) 27.8 (87.9) 0.93

(11.1) (74.2) 20.5 (64.8) 0.86

(8.3) (45.8) 13.0 (41.1) 0.80

0.0 (45.8) 11.0 (34.8) 0.74

49.8 (23.3) (6.4) 20.1 0.68

129.2 (13.3) (27.8) 88.1 0.63

200.0 (13.3) (44.8) 141.8 0.59

238.8 (13.3) (54.1) 171.3 0.54

275.7 (13.3) (63.0) 199.4 0.50

274.6 (26.7) (59.5) 188.4 0.47

(81.5)

(55.6)

(32.8)

(25.7)

13.8

55.8

83.3

93.2

100.6

88.1

1.50% 191.3 2,986.8 239.1 1,395.8 1,634.9

Source: Jefferies, company data

page 24 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015

Company Description Inmarsat is the global leader in mobile satellite services MSS. It owns a fleet of 11 L-band GEO satellites in nine orbital locations offering seamless coverage globally across land, sea and air for voice and data services. Inmarsat Global wholesales its services through distributors but in 2009 it acquired one of the largest, Stratos, followed by Segovia and Ship Equip. It is set to launch a global Ka-band service called Global Xpress in 2013/14, and is leasing L-band spectrum in N. America to LightSquared.

Analyst Certification: I, Giles Thorne, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Jerry Dellis, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Ulrich Rathe, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Nicholas Prys-Owen, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Registration of non-US analysts: Giles Thorne is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-US analysts: Jerry Dellis is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-US analysts: Ulrich Rathe, CFA is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-US analysts: Nicholas Prys-Owen is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement.

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Meanings of Jefferies Ratings Buy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-month period. The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12month period. NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/ or Jefferies policies. CS - Coverage Suspended. Jefferies has suspended coverage of this company. NC - Not covered. Jefferies does not cover this company. Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities regulations prohibit certain types of communications, including investment recommendations. Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on the investment merits of the company are provided. page 25 of 29

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ISAT LN Target | Estimate Change 9 March 2015

Valuation Methodology Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months. Jefferies Franchise Picks Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason for inclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it triggers a stop loss. Stocks having 120 day volatility in the bottom quartile of S&P stocks will continue to have a 15% stop loss, and the remainder will have a 20% stop. Franchise Picks are not intended to represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment style such as growth or value.

Risk which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.

Other Companies Mentioned in This Report • Alcatel-Lucent (ALU: $3.70, HOLD) • AT&T Inc. (T: $32.78, BUY) • Avanti Communications (AVN LN: p241.75, BUY) • Cisco Systems, Inc. (CSCO: $28.66, HOLD) • easyJet plc (EZJ LN: p1,737.00, BUY) • Eutelsat (ETL FP: €30.68, HOLD) • Inmarsat plc (ISAT LN: p891.00, BUY) • Intelsat S.A. (I US: $11.27, HOLD) • Ryanair Holdings plc (RYA ID: €10.50, BUY) • SES (SESG FP: €32.03, BUY)

page 26 of 29

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Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015

Distribution of Ratings IB Serv./Past 12 Mos. Rating BUY HOLD UNDERPERFORM

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Count

Percent

Count

Percent

1056 839 174

51.04% 40.55% 8.41%

289 159 11

27.37% 18.95% 6.32%

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

ISAT LN Target | Estimate Change 9 March 2015

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Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]

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page 29 of 29

Please see important disclosure information on pages 25 - 29 of this report.

Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, [email protected]