Member Info for HeadInTheSand

oops. pi r squared. Make that 200-300 square km deadspots, not 60 square km ones.

...within said activity (cf the swimming pool vs the 10,000 half-pint beer glasses).

Tyche, agreed that every man and his dog in the world of satellite, whether fleet operators or equipment manufacturers are chasing cellular backhaul as a market - the question is, in which geographies.

I acknowledge (of course) the $29m deal 2 years ago between AVN and EE, specifically for 4G backhaul within the UK. I'm presuming that was a locked-in deal, with no wiggle room. Re this, I will point out however that:-

1. the "multi-year" deal is progressing much much more slowly than at first envisaged.

2. the sole point of the AVN deal for EE/BT - as you know - was so that they could deliver on their Home Office ESN contract demanding a 99% 4G GEOGRAPHIC coverage of the UK (originally by 2020, I think from memory? But that's slipped...). That contract was/is worth a £blillion to EE, so $29 million to help achieve it is money well spent.

3. in their own words, EE's original press statements show exactly where they'll use satellite technology to infill for terrestrial backhaul - namely to "Implement satellite backhaul for Britain’s most hard-to-reach areas".

And I'm not even sure we're disagreeing here. Just as with a geography like Africa, where there's bugger all terrestrial fibre infrastructure, the UK's uninhabited areas are effectively the same. What's the realistic coverage radius of your average 4G mast, even at 800MHz? 8km? Maybe 10km? Even in a geography as densely populated as the UK, there'll be plenty of 60 square km deadspots that are miles away from the nearest fibre.

So no viable commercial way to get any backhaul (apart from satellite) to masts in the middle of literally nowhere with literally no inhabitants nearby to help mitigate costs by becoming subscribers of available services in some way. So sure, of course EE is going to use satellite to fill in many of these empty circles, tick the 99% 4G geographic coverage by 202? as set by the UK Govt and trouser the billion quid.

But this in no way means that satellite broadband technology is well-suited to supplying backhaul to 4G networks. At $29m, that's a mere smidgeon, (about 2%) of the billon quid contractual payment due. As such It's hardly a core part of EE's 4G network... just an edge infill to allow a contract to be met (with TBF the only technology that could viably do that).

As to whether EE will double down? Maybe - if they aren't getting to (or can't get to) the "99% of all UK onshore and offshore landmass to be covered by 4G metric" stipulated by gov.uk in the timescale specified..

As to latency, I'll park this and merely point out that all the TCP acceleration and clever multichannel multiplexing or compression techniques in the world cannot change the speed of light.

As to whether an unavoidable half second delay in any single data transaction being initiated/fulfilled is acceptable/noticeable? That entirely depends upon what one is seeking to do at the time and the inherent number of separate data transactions needing completing wit

Tyche at the risk of starting another entrenched kerfuffle... (heh)

Having read through that Gilat material, although everything said within it was factually accurate, I thought it was a tad disingenuous (or call it "marketing", if you like). It did not address the issue and instead conflated "throughput speeds" and "latency". These as you know are absolutely not the same thing.

Don't get me wrong. I've got nothing against Gilat. They make excellent kit and have great in-house technology and IP. Those Israelis are without a doubt smart guys - and trust me, just as smart when it comes to doing business..

But the point their pdf makes in response to the "What about latency?" question pretty much solely emphasises throughput. Now it is without question that, once a communication has been initiated - say "give me that 100GB file" or "stream me that video" - then that file can be served up to the requester at perfectly acceptable 100 Mbps+ speeds with today's satellite technology. The latency delay of probably at least 400ms in the real world at the very start of the initiation of that data transaction is going to make next to zero difference. That is undeniably true.

However, when it comes to other internet data transactions, which tend to be far more fragmented and consist of multiple much smaller requests from both ends of the communications chain, then that inherent latency will inevitably play a far more noticeable role. This is especially true in a live two-way situation, such as a voice or video call.

The best analogy I can come up with after 30 seconds' thought revolves around water. If you're looking to fill up a swimming pool, you couldn't care less if it's going to take the tap half a second to start, provided that the water then comes rushing out at high speed.

However, if you're instead looking to fill ten thousand half-pint beer glasses, then that half-second delay between turning the tap on and the water first emerging is going to cause noticeable issues - even though the "pressure" (or data throughput speed) of the flow is identical in both use cases. And of course it becomes even worse if it's you at one end filling up 5,000 half-pint glasses and they guy at the other end also filling up 5,000 half-pint glasses in alternating turn, with neither side being able to start until the other one's completed filling up a glass.

(Yes it's a laboured analogy I know, but still makes the point in some way, I think).

However, as I said, in geographies like Africa, a workable solution is far FAR better than no solution at all. Which is why I'm both heartened and entirely unsurprised at the recent report from the AVN AGM, which underlines the importance of the African market (NB with governmental/military/large enterprise customers) representing a) such a large slice of AVN's current income and b) being its prime target territory for incremental revenue.

AIMO.

Brad, one word. Backhaul.

4G and 5G, although most familiar to people in the context of mobile phones, are merely RF based data transmission standards, which can be used for all sorts of applications.

The most significant cost - especially in countries of a lower population density - is not putting up the mast with 4G or 5G transmitters on it (which 4G and 5G enabled devices near enough by can then connect to). It's getting internet connectivity to that mast (aka backhaul).

In geographies where there is little fibre infrastructure, then satellite delivered backhaul (to the mast, NOT directly to each individual user hung off that mast) is pretty much the only cost-effective way of doing things.

There are of course major downsides providing backhaul to 4G or 5G masts over satellite, the chief of which is latency. Terrestrial-fed latency on 4G is typically around 30 ms, and 5G is allegedly going to be around 1 ms (NB NOT right now, because current 5G services in the UK at least offer users 5G downlinks but 4G uplinks). Satellite latency is inevitably around 200ms absolute best case.

All of which is why I have a regularly recurrent argument here with Tyche about satelllite and 4G/5G backhaul in high population density/high level of fibre infrastructure geographies like the UK and W. Europe (which is why I maintain it's only appropriate for emergency/temporary deployment in such locations).

Having said that, for cellular comms backhaul in territories like Africa, satellite-delivered cellular backhaul is going to be the only commercially viable solution for years and years - so the latency issue doesn't really apply at all.

Given that nothing said so far in the company's entire history has turned out to be true, both while listed and delisted, or whether announced via RNS, website update or "private" email/phone convo/text...

...what do you reckon the chances are?

Tyche, that's a reasonable point - and it is of course a truism that pricewise, there's not much further than AVN could fall - although percentilely speaking there's of course the possibility of 100%, as there is with any share.

I don't disagree that AVN is (at last) doing the right thing and has been since KW came in. I've continually said this. I also don't think it's inevitable that the company goes pop either. There is of course a chance that it will turn things around fast enough.

However, I also don't believe that any current serious evaluation of AVN's prospects can - or indeed should - possibly ignore the attendant high risks caused by the legacy debt mountain - and to maintain that everything in the garden is rosy and that this is a fantastic multibagging opportunity would be misleading in the extreme.

At best this remains a gambler's punt - or red/black as KernowKen often says. In my view alone, existing PIs should hold and hope, rather than sell, but averaging down? Or new investors choosing to pile in at this stage? Sure - but only if the risks and current state of the company are properly recognised.

AIMO.

Maybe... except some here have been repeatedly assuring potential "newer investors" of the self-same "great opportunity" throughout the last 3+ years as the shareprice has plummeted downwards from £3+.

Hopefully none of those potential "newer investors" ever acted upon any such encouragement.

However, to play compulsive devil's advocate, it remains true that even a broken watch is right twice a day...

We'll just have to see, but I do note that AVN's "must hit" revenue increase forecasts would only take them up to around $90m of sales in 2019 and then $117m of sales in 2020, so still a million miles away from the 7x (or 5x) revenue lkevels needed to cover costs + interest.

Having said that, those seem to be the absolute minimum levels necessary to stop the bondholders kicking off terminally.

Kernowken, to be fair, given the mammoth issue of new shares in last year's D4E swap - which as you rightly say gave the company in almost its entirety to the bondholders and diluted existing PIs by an eye-watering factor of 13 or so - , an SP of £2.95 back in the day would today roughly equal an SP today of around 22p. However, I don't expect to see anything remotely approaching that either.

PS to be scrupulously fair, if AVN reduces its cost of sale by its targeted 15% (and thus puts its GM up from 35% to 50%), it'd then only need a 5 times increase in current revenues to cover current debt financing costs.

...what there is to dispute here?

It's all in black and white and the facts are simple to anyone capable of the faintest objectivity.

The company under the previous DW regime spent years talking up the share price, taking on nigh on a billion dollars of debt and chasing entirely the wrong rabbit (consumer connectivity in W Europe).

The company has now (thank God) roughly halved its debt mountain, has a new regime in headed up by KW and is now focussed on chasing far more appropriate business.

The sole question is - can AVN quickly get to revenue levels that will allow it to stop bleeding tens of millions of dollars per annum in servicing the costs of the remaining c. $500m debt?

The answer so far is a big fat no. Revenue levels are currently around $53m per annum, costs are currently around $80m, giving the reported negative c. $27m EBITDA.

On top of that, there's debt servicing costs of c. $75m per annum.

So, ignoring extraordinary one-offs, AVN is currently bleeding around $100m per annum from a cash point of view. That's what they have themselves reported and that's why they've put those 5 caveats re "going concern", namely:-

They need to achieve the stated increases in revenues (+67% in 2019 and a further +30% in 2020)

They need to achieve the cost reductions of 15% by end 2020

They need to get agreement to postponing the $30m embarkation fee on H3 - or borrow more to cover this if not agreed.

They need to refinance the entirety of the c. $150m Super Senior Notes before maturation at end 2020.

They need to draw down on a further c $45m from their new 1.5 facility (they've already had c. $10m since year-end).

All that's in the Final Results RNS and if they miss any of the above, they're in severe trouble with the bondholders - hence the caveat.

The real point over and above this remains - can AVN get to the revenue levels that allow them to cover off interest payments?

Back of a fag packet time - and this seriously isn't rocket science (no pun intended).

AVN's gross margin seems to be running at between 30-37%, so let's call that 35%. Staff and other costs seem to be running at around $45m per annum and interest costs are c. $75m (prior to costs associated with the 1.5 facility drawdown, but let's ignore that).

Therefore just to to cover cost of sale, staff and other costs and already incurred financing costs, AVN needs to produce a GM of around $120m per annum, which at current margin levels would mean a sevenfold increase in revenue levels is required. If it doesn't, it'll continue to bleed cash to one extent or another.

AIMO, but I'll be interested to hear where the above quick calcs are majorly off...

And yes, I know I've ignored the one-off $30m due presumably to Arianespace before H4 launches and I also know I've assumed no increase in staff costs necessary to achieve increased revenue levels etc etc.

Tyche, why don't you read the RNS more carefully.

All the new efforts are (quite rightly) non-Europe focussed, with the possible exception of redeploying some H2B beams (but from Europe to Europe, so hardly incremental). There's a reason for H4 and H3's footprints, you know?

No specific mention of extra EE requirements either - despite your frequent protestations that these were bound to occur....

Not worth an RNS, presumably because there's no income guarantee.

However, at least another sensible deal from a geographic/application point of view, which reaffirms the far more appropriate direction taken by the new BoD. It's up for grabs whether this will turn out to be all too little and all too late.

AVN would almost certainly be in a very different place today if it hadn't been for the previous regime. DW has one hell of a lot to answer for...

...not that he'll personally care, given the obscene amounts of moolah he trousered whilst blithely steering AVN in the entirely wrong direction and in the process lumbering it with all that debt.

You call them "negatives", Tyche... I'd call them fundamentals. Facts. Realities. Things that have actually occurred over the last 12 months, rather than things which might happen over the next 12 months.

Either way, it's all there in black and white for people to pick through and interpret as they wish.

Thanks Matt.

A bit more detail (the devil is as usual in the detail... buried in various places in the RNS)

AVN's borrowings as of end Dec 2018 seem to have amounted to around $460m. $150m of that remains in Super Senior Facility bonds (which the company has stated it needs to refinance before the maturity date of Dec 2020. The remainder of $300m+ is in PIK Toggle notes - not a financial instrument I'm at all familiar with and one tending to be used by companies with their backs against the wall, according to the following webpage at least: https://www.investopedia.com/terms/p/pikbond.asp

AVN's borrowing has of course increased by a fair-sized chunk since end Dec - and it's pretty much bound to draw on that entire new $55m facility over the coming few months.

The interest rates AVN is having to endure on its various borrowing instruments are pretty eye-watering - but that's no surprise, given that it's obviously a high-risk venture for lenders.

As for the Hylas 3 embarkation fee that AVN apparently needs to defer payment of without delaying launch? That's $30m it needs to get agreed on the never-never.

Overall, AVN's released results were pretty much bang in line with my expectations. Once one's discounted the confusion possible with an 18 month period vs a 12 month one, the following fundamentals are clear:-

12 month revenues were only $53.5m, of which only $31m were higher margin-earning bandwidth related.

Operating costs were around $80m, giving a negative $26.5 EBITDA

Finance costs (mainly the cost of carrying even the reduced debt) were then still an eye-popping $75m.

I'll ignore extraordinary one-offs and also depreciation and impairment, because the latter has no cash impact, just a balance sheet one. However it's worth noting that H2 particularly has needed substantial extra impairment, because as stated it has proven itself incapable of providing the earnings originally forecast.

Overall revenues are allegedly set to grow by 67% in 2019 (so, to c. $90m) and by a further 30% in 2020 (so to c $117m). If these numbers are hit, they might "result in a positive EBITDA" for the bandwidth part of the business in 2019 and beyond. However, they simply haven't got any prayer of getting anywhere near covering off AVN's cash-depleting finance costs, as previously mentioned.

The BoD knows this - as they say, AVN's continuing survival as a going concern depends on all of the following:-

1) The above increases in sales revenues being achieved
2) Forecast cost savings also being achieved
3) Managing to postpone payment of a hefty "embarkation fee" due on H3 WITHOUT delaying its launch
4) Borrowing a further $20m to keep the lights on
5) Refinancing the entirety of the Super Senior Notes before they mature in Dec 2020 and need paying off. I think this item amounts to around $400m, from memory?).

Positives? Not a huge number, but It's good to see Kyle Whitehill stating in back and white what's long been obvious - the consumer connectivity market for AVN is a margin-eroded complete waste of time. Government/military/large corporate/sub-Saharan Africa should remain AVN's key area of focus - almost to the exclusion of all else.

AIMO.

Dougal, you confuse the Hell out of me more often than not. A couple of things...

I wonder what it is, after 2 1/2 years of your unfailingly keeping the faith, that's seemingly made you change your mind? Nothing's changed?

I don't think that the "pre-IPOers" - as you call them - have any reason to "bay for blood". Let's face it, anyone choosing to invest at that pre-IPO stage last year was investing in a private, unlisted and unregulated company located in the Cayman Islands. What's more, they were doing so without a prospectus and so presumably solely on the word of a CEO who had multiply proven himself in the past to be shall we say less than accurate. I'm n o lawyer, but I'd say that there's precisely zero recourse there.

Those who actually would have valid cause to "bay for blood" are the original PIs locked in for the last 2 1/2 years, who presumably bought in on the basis of multiple incorrect information released via RNS from a then listed / then regulated / then UK headquartered company. However that ship has long sailed IMV.

However, if the preceding post was indeed your last post, I'll wish you all the best and also happier/smarter investing for the future.

This sorry saga indeed does need to come to a conclusion for PIs' sakes, Dougal - let alone the fact that things should never have even got anywhere near their current position.

Sadly IMV, there's neither a necessity nor an obligation for this to "come to a conclusion". You can obviously discount any moral obligations - it's abundantly clear by now that high moral standards have never been in any sort of evidence regarding CTAG, its most senior management and their many empty promises and assurances.

Nope, unfortunately I fully expect things to be in the exact same limbo position this time next year... and the year after that... repeat ad infinitum. Whatever is there that makes you think that things HAVE to change?

MTB, a word to the wise.

If you're going to pull out a touch of the old français - and combine it with a MENSA reference, probably best to spell it correctly. Oh, the irony!

Au contraire, I think you'll find. :P

(Yes, yes I know... a piece of linguistic nit-pickery, the pointing out of which will no doubt send Dan into paroxysms of positive ecstasy. However, AVN still utterly sucks).

https://www.youtube.com/watch?v=Jet29TQv2uA

Gentlemen, honestly... all this jockeying for position.

It reminds me that some people have accused me before now of being egotistical and self-obsessed...

...but enough about them.