AVN.L Regulatory News (AVN)

1 Jul 2009 07:00



For publication in the United Kingdom only. Not for release, publication or distribution in or into any other jurisdiction including the United States of America, Australia, Canada, the Republic of South Africa, the Republic of Ireland or Japan.

Date: 1 July 2009

Embargoed until: 0700hrs

Avanti Communications Group plc

Placing of £31.5 million, ESA Contract Extension, Launch Risk Reduction and Trading Update

Highlights

£31.5 million raised through new and existing institutional investors

£10.7 million cost contribution to upgrade from the European Space Agency

Upgrade of launch service provider to Arianespace

Full year results will be significantly ahead of expectations for both revenue and net profit

Background and details of the Placing

Avanti Communications Group plc (AIM: AVN) ("Avanti" or the "Company"), the satellite operator, is pleased to announce a placing ("Placing") of 14,000,000 new ordinary shares of 1p each in the Company ("Placing Shares") with new and existing institutional investors at 225p per Placing Share. The Placing raised £31.5 million (before expenses) to fund the upgrade of the launch service provider for the launch of its HYLAS satellite to Arianespace.  HYLAS will be the first superfast broadband satellite to be launched in Europe. The upgrade of the launch service provider greatly enhances the certainty over timing and success of launch and is expected to result in an acceleration in Avanti's success in pre-selling capacity as well as some new strategic developments. 

In addition to the £31.5 million raised through the Placing, the Company announces today that it has received a contribution to the upgrade costs of €12.5 million (£10.7 million) from the European Space Agency ("ESA") (using British Government budget) by way of an extension to the existing ESA contract which originally provided £24 million towards the costs of HYLAS (the "ESA Contribution"). The increased ESA Contribution does not bear any repayment terms and will have the effect of increasing the Company's shareholders' funds, strengthening Avanti's balance sheet.  The combined proceeds of the Placing and the ESA funds are £42.2 million.

Although Avanti's previous choice of launch service provider is expected to succeed, risks relating to schedule and launch heritage are greater and this has resulted in negative perception amongst some customers and potential investors which will now be removed. Arianespace is the most successful launch agency in the world with the longest unbroken record of success.  This is likely to facilitate new contract wins as well as the development of new projects. The Company has signed an agreement with Arianespace for a launch window of Q2 2010 (the earliest available launch window with Arianespace).

The HYLAS project is in advanced stages now with payload traffic testing, construction and ground systems completed and the Company is now entering the launch preparation phase which is anticipated to be complete in early 2010. The Company has made significant progress on the commercial front as well. Avanti has signed agreements with 47 distributors in 11 countries who have already committed to 13% of HYLAS capacity at launch.

In addition to the launch service upgrade, the funds raised will allow Avanti to develop new projects to pursue its strategy of becoming a multi-satellite operation. Specifically, the Company is in an advanced stage of due diligence regarding a government offer for the provision of low cost debt finance for a second satellite which would provide extra capacity in Europe and elsewhere for launch in Q4 2011. The upgrade to the HYLAS launch enhances the probability of this financing transaction reaching successful completion during calendar 2009.

The potential demand for satellite broadband services is vast and the Company is well positioned to capitalise on this opportunity. Terrestrial broadband networks have left an estimated 24 million homes and SMEs unserved in Europe. Avanti estimates that over 70 million homes are unserved at speeds over 2Mb.  The British Government's Digital Britain's report released in June 2009 further strengthens Avanti's prospects and it was important in this context to add to certainty of launch success.

Avanti continues to benefit from strong co-operation from its lenders who were most helpful in amending the existing debt facility to accommodate the change in launch services provider and associated matters.

Avanti has entered into a placing agreement with Cenkos Securities plc, pursuant to which Cenkos Securities plc has, on behalf of Avanti, conditionally placed the Placing Shares with institutional investors.

Application will be made for the Placing Shares to be admitted to trading on AIM and it is anticipated that admission will become effective and that trading in the Placing Shares on AIM will commence on 3 July 2009.

Caledonia Investments plc, which owns existing ordinary shares of 1p each representing approximately 24.4 per cent. of the existing issued share capital of the Company, has committed to subscribe for 2,711,111 Placing Shares under the Placing, and has also agreed to the amendment of the Company's existing debt facility, in which it participates as a lender. The commitment in relation to the Placing by Caledonia Investments plc and its agreement to the variations to the facility agreement constitute related party transactions under the AIM Rules. The Directors of the Company (other than William Wyatt who is connected with Caledonia Investments plc) consider, having consulted with Cenkos, that the terms of the transactions with Caledonia Investments plc are fair and reasonable insofar as the Company's shareholders are concerned.

Trading Update

Avanti is pleased to report that its financial results for the full financial year to 30 June 2009 will be significantly ahead of expectations for both revenue and net profit as a result of better than expected trading and careful financial management.

David Williams, Chief Executive of Avanti commented:

"The market for Avanti's services is far stronger than even we expected and is further strengthened by the British Government's Digital Britain report. Our success in pre-sales has been pleasing but there are some significant potential government and commercial customers whose commitment can only be secured early by reducing the perception of launch risks. The prospects of securing highly efficient financing for our second satellite are strong as we progress towards the end of due diligence with our government sponsor, and we hope to conclude a transaction which would be highly accretive to shareholders before the end of the year. Therefore for several reasons the upgrade to our launcher increases the quality of our project strongly.

"We are delighted with the support received from current investors and to welcome so many new, blue chip institutional shareholders to our share register in this significantly oversubscribed transaction. This is a strong indicator of the strength of our business."

Enquiries to:

Notes to Editors:

About Avanti Communications

Avanti sells satellite broadband services to telecoms companies which use them to supply homes and businesses. 

Avanti's first satellite, called HYLAS is under construction and will be the first superfast broadband satellite launched in Europe. 

The market for satellite broadband products in Europe is estimated by the EU at more than 24 million. 

Avanti currently provides satellite broadband services to customers in Europe using leased satellite capacity which it will transfer to HYLAS on launch. 

The European Commission has set aside funding for rural broadband projects in 79 regions across Europe with a total value of EUR2.8 billion over the next five years. 

Legal Notice 

Cenkos Securities plc ("Cenkos"), which is authorised and regulated in the United Kingdom by the FSA, is acting for the Company as Nominated Adviser and Broker for the purposes of the AIM Rules in connection with the Placing and will not be responsible to anyone other than the Company for providing the protections afforded to customers of Cenkos or for providing advice in relation to the Placing and the other arrangements described in this announcement.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.

This announcement is not an invitation nor is it intended to be an inducement to engage in investment activity for the purpose of section 21 of FSMA. The Placing Shares are in any event being placed only with (i) persons who have professional experience in matters relating to investments and who are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 of the United Kingdom (the "Financial Promotion Order") or (ii) persons who fall within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order (all such persons together being referred to as "relevant persons"). Any investment or investment activity to which this announcement relates is available only to relevant persons and will be engaged in only with relevant persons. Anyone other than a relevant person must not rely on this announcement. 

The Placing Shares have not been, and nor will they be, registered under the United States Securities Act of 1933 as amended (the "Securities Act") or qualified for sale under the laws of any state of the United States or under the applicable laws of any of Canada, Australia, the Republic of South Africa, the Republic of Ireland or Japan and, subject to certain exceptions, may not be offered or sold in the United States or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) or to any national or resident of Canada, Australia, the Republic of South Africa, the Republic of Ireland or Japan.