AVN.L Regulatory News (AVN)

1 Oct 2007 07:01

Avanti Communications Group Plc01 October 2007 Date: 1 October 2007 On behalf of: Avanti Communications Group plc ("Avanti" or "the Company") Embargoed until: 0700hrs Avanti Communications Group plc • Preliminary results for year ended 30 June 2007 Avanti Communications Group plc (AIM: AVN), the satellite operator, is pleasedto announce its final results for the year ended 30 June 2007. Key points: • Maiden results presented on a pro forma basis • Profit before taxation was £20.2 million. • Underlying loss before tax of £3.1 million before exceptional gain. • Cash £9.7 million (September 28th: £42m) • HYLAS satellite procurement on target and on budget • Cape Canaveral Falcon 9 launch booked for March 31st 2009 launch. • Post balance sheet closure of the £32million debt deal in July, meaning that the HYLAS project is fully funded with stable long term finance and comfortable headroom to spare • Pre-sales activity very encouraging with a pipeline of potential sales of £168m, market demand and pricing moving in our favour • New satellite spectrum licenses announced David Williams, Avanti's Chief Executive, commented: "These results are in line with market expectations and we have achieved all ofthe key project milestones for the period. Avanti is Europe's first everEntrepreneur-created Fixed Satellite Services operator, and having broken into amarket dominated by multinational or quasi-governmental companies, we now havethe corporate structure, focus and resources required to take advantage of whatincreasingly looks like an outstanding and rare market opportunity." Enquiries to: Avanti Communications Group plc http://www.avanti-communications.com/David Williams 020 7749 1600 Redleaf Communications Ltd http://www.redleafpr.com/Emma Kane/Samantha Robbins/Adam Leviton 020 7822 0200 sr@redleafpr.com Hoare GovettJustin Jones/Hugo Fisher 020 7678 8000 Notes to Editors: About Avanti Communications - Avanti Communications Group's shares were admitted to AIM on 16 April2007; - Avanti Communications Group is the only licensed Fixed SatelliteServices operator headquartered in the UK (and one of only eight such groupsoperating in Europe); - Avanti is licensed to provide satellite services spectrum which providescoverage of Europe, India, The Middle East, Central Asia, Africa and LatinAmerica. - Avanti's first satellite, called HYLAS is under construction and due forlaunch in March 2009; the company plans further satellite projects; - Avanti, which has over 10 years' experience in the satellite industry,currently provides satellite data communications services to customers in Europeusing leased satellite capacity which it will transfer to HYLAS on launch; - Its customers include broadband service providers, businesses of allsizes, the British and foreign governments, the European Union and the EuropeanSpace Agency; - The core applications for which Avanti expects HYLAS capacity to be usedare broadband, corporate data networks, video distribution and military/security; - Avanti recently signed a debt facility agreement to borrow £32m. Thedebt facility provides sufficient capital for Avanti to complete the financingof its satellite construction, launch, insurance and operation together withample working capital headroom. No further funding is required for the HYLASproject. Chairman's Statement I have great pleasure in presenting Avanti Communications Group plc'sPreliminary Financial Results for the year ending 30 June 2007, atransformational year for our business. Avanti was de-merged from its formerparent company on 16 April 2007 and there is now no corporate connection betweenthe two companies. Avanti is now a focused Fixed Satellite Services operator, with complementaryNetwork Services and Consultancy divisions which will continue to make a smallcontribution; but the success of the Company rests in its exploitation of spaceassets. The results are presented here on a pro-forma basis as if Avanti had tradedindependently for the whole period. Pro-forma numbers for 2006 are presentedfor comparison. Key Highlights The Company performed in line with market expectations and met key milestones.Avanti is currently developing the infrastructure required to deliver itssatellite operator strategy. Although we have small revenue lines from theConsultancy and Networks Services divisions, our results are and will continueto be dominated by the Space activities which, as anticipated, required heavyinvestment during the year. Our focus is now on generating a large backlog ofcontracted revenue for future periods which will generate profit and cash flowafter the launch of HYLAS in March 2009, and we expect to see contracts flowthis year. Revenue £2.6m (2006: £9.7m) PBT £20.2m* (2006: £6.3m) Profit after tax £21.1m* (2006: £5.7m) Closing Cash balance £9.7m (2006: £11.4m) * includes an exceptional credit of £23.3m arising from the forgiveness of intercompany loans on de-merger. Since I last wrote to you, the Company has achieved a number of key milestones: • It completed a £32m debt financing - the first time a European satellite operator has raised non-recourse debt for the construction phase of its first satellite - a real milestone for our industry. This debt gives us long term security as the cash has been fully drawn down, no interest or principal payments are due until the end of the seven year term and the covenant structure in the early phase is light. • It has successfully managed the satellite procurement programme to contracted budgets and schedules. • It secured a launch at advantageous pricing for HYLAS for March 31st 2009. • It secured the use of two new orbital positions which will enable the launch of new satellites to provide Ka band data services to cover Africa, Middle East and Asia. • It completed the de-merger with very little disruption to ordinary trading activities. • It deployed its DVB-RCS high speed data services (using temporary leased capacity) into the market with full commercial launch, swiftly securing significant business. I should like to pay tribute to our executive team, led by our Chief Executive,David Williams, for their enormous energy and creativity which gives the Companyan edge over our competitors. I also welcome Nigel Fox, who joined the Companyas Finance Director on June 18th 2007. It is increasingly clear that the satellite market is exhibiting a shortage ofcapacity and rising demand which is well addressed by Avanti's technology andbusiness model. Satellite businesses are highly scalable, and we expect theCompany to expand significantly during the coming year. We ended September with£42m cash in the bank and HYLAS fully funded, a promising sales pipeline, andnew opportunities for international growth. I look forward with excitement toreporting to you again at the end of what I am sure will be another highlysuccessful period. Chief Executive's Report Introduction This was a year of enormous change for Avanti which has emerged with a businessin excellent shape to realise its very high ambitions. Our operations sufferedno disruption from the intensive corporate finance activities of the de-mergerand subsequent debt fund raising. I am pleased to report that our financial andoperational performance during the year was consistent with market expectations.We have a team of highly skilled and motivated staff, who are now implementinga very clear strategy in market conditions which strongly favour us. Business Overview The Company consists of three divisions, which are highly complementary: Space,Network Services and Consultancy. Space Space will be the key driver of revenue and profit growth for Avanti. We ownthe rights to use mainly Ka band and some Ku band spectrum in areas across theglobe, including Latin America, Europe, Africa, Middle East, Central Asia andIndia. We have our first satellite, called HYLAS, under construction byAstrium, part of EADS. The satellite procurement is proceeding smoothly,passing a number of key milestones during the year. We expect this satellite tolaunch on March 31st 2009. The satellite will use eight Ka band spot beams andone Ku band pan European beam to deliver up to forty 36MHz transponders. Avanti's target customers are companies which need satellite bandwidth totransport data from point to point and multipoint. These fall into four generalcategories: • Broadband service providers • Corporate data networks • Wholesale video distribution • Military and Homeland Security We have begun the process of selling capacity on HYLAS - whilst it is nottypical in our industry to have a high percentage of a satellite pre-sold duringconstruction phase, our current pipeline leads us to conclude that we willgenerate some significant pre-sales contracts before launch. We currently havea pipeline of £168m potential HYLAS business. Potential business is onlyrecorded to the pipeline once an approved proposal is submitted and negotiationshave commenced. Avanti is deploying disruptive new Ka band satellite technology which deliversboth cost and quality advantages over the existing market. Ka band is a higherpart of the frequency spectrum than has traditionally been used around the worldfor television and telecommunications. Our ability to use Ka band frequency hasonly emerged recently with advances in electronics. Avanti's technology lowersthe cost of satellite capacity whilst also increasing the quality - for exampleenabling customers to send data up to the satellite from inexpensive 60cm dishesat 8Mb per second. The incumbent satellite operators have high investment in fleets of Ku bandtechnology, so will not change to Ka band quickly. We do expect to see othercompanies begin to adopt our technology gradually, but our industry isrelatively conservative and slow to move, so we expect to have a window ofopportunity for long enough to become firmly established around the world. Although we have just one satellite under construction to cover Europe, werecently acquired satellite spectrum in new orbital positions which will enableus to provide the same products in Latin America, Africa, Middle East and Asia,in addition to Europe. Our market opportunity has strengthened since we began the project. There isclear evidence in market research reports and in the recent public statements ofour competitors that capacity is very scarce and demand is strong and that as aresult pricing is rising. These trends are set to continue, and given Avanti'stechnology and price advantage, the Company is very well positioned. Network Services Avanti already offers some data communications services using a small amount ofsatellite capacity which it has leased until its first satellite, HYLAS islaunched in 2009. We are doing this for two reasons. Firstly it gives us anopportunity to understand in relatively small scale the operational parametersour customers for HYLAS capacity will work with. Secondly it allows us to buildup a base of resellers and agents for some of our products which can betransferred later to HYLAS with an uplift in quality and value for money. Consultancy Avanti uses some of the scientists and engineers who initiated the HYLASprogramme to offer advice to government and private sector clients on satellitetechnology research, development and exploitation. We have a significantpresence within this industry and are currently working on projects innavigation and earth observation as well as communications. We expect to growthis cash generative business without the need for further investment. Space Strategy Since our Space division is the driver of future value and operates in anunfamiliar industry for most observers our strategy merits some detaileddescription. Most Fixed Satellite Service operators (as distinct from Mobile SatelliteService operators) are infrastructure providers rather than the suppliers ofservices to end users. Most telecommunications or television companies do notown or operate their own satellites. They buy transmission services, in theform of long term transponder leases from specialised Fixed Satellite Serviceoperators, of whom there are only around forty in the world. There are a numberof advantageous market trends which, we believe underpin the large scale ofAvanti's opportunity: - Satellite Spectrum Is Scarce There are some physical and regulatory limitations to the amount of satellitecapacity which is potentially available. In that part of the frequency spectrumwhich is used mainly in Europe, called Ku band, there is very little availablecapacity remaining. This is mainly because Europe's many different national andlanguage groupings have many different satellite television offerings, whichconsume far more satellite capacity than is seen on continents with largersingle language populations. The demand for satellite data services is alsogrowing very rapidly, spurred on largely by the increasing complexity ofservices one can transmit over a telecoms link, such as real time or downloadedvideo communications. - Data Customers Are Being "Crowded Out" The established customers for television capacity are unlikely to move largescale existing customer bases to new orbital positions because of the disruptionand cost of re-pointing satellite dishes. Therefore they are less sensitive toprice increases and in the current tight market transponder prices in thosepositions used for Direct to Home (DTH) television services have risen as highas €5m per annum. This, and the knock on effect to other positions, mean thatthe customers for data capacity (who typically are price sensitive and do nothave dish inertia) are facing steep price rises which are not supportable - theyare being "Crowded Out" of the bandwidth market. The Crowding Out effect isalso being observed in Asia, the Middle East and Africa and most satelliteoperators are reporting high utilisation rates. - HYLAS Can Compete On Price & Quality Price advantages for HYLAS are resulting in strong pipeline of potential sales.However, the unique design of HYLAS also means that it offers much higher power/data rates than the legacy satellite technology. Thus Avanti can compete onboth price and quality simultaneously. Sales lead times in the satelliteindustry are long because of the complexity and high value of transponderleases, but with almost a year's marketing behind us, we are confident thatpre-sales contracts will flow soon. We expect to sell out the capacity on HYLASfairly soon after launch, at which point the creation of additional capacitywould be relatively easy to finance through project finance debt which maximisesthe value of equity. - More Satellites Will Be Financed By Customer Commitments The advantage that Avanti can seize from the Crowding Out effect is likely tolast for several years, but eventually other operators will deploy largervolumes of Ka band satellites. We therefore regard it as essential to populateour new orbital positions with Ka band capacity as soon as possible, in order togain or extend first mover advantage geographically. In order to do this we arepursuing a variety of customer/partnership negotiations which if successful willresult in large capacity sales which in turn will help us to efficiently financemore satellites with project finance debt. We also have Ku band spectrum overEurope. We have access to enough of the highly valued and very scarce Ku bandspectrum to occupy one large satellite, but it is not core to our business planor proposition and so we are seeking to monetise this through partnership to puta Ku band satellite into orbit as soon as possible. Outlook Whilst our financial results for the year are in line with market expectations,they are relatively immaterial in the context of our business plan. Themilestones we achieved during the year are very significant, and we now have avery clear strategy and the people and resources to execute it. Avanti isEurope's first ever Entrepreneur-created Fixed Satellite Services operator, andhaving broken into a market dominated by multinational or quasi-governmentcompanies, we now have the corporate structure, focus and resources required totake advantage of what increasingly looks like an outstanding and rare marketopportunity. I expect the scale and value of that opportunity to be wellillustrated during the coming year with the pre-selling of satellite capacity.This is an exciting time to work at Avanti Communications and I look forward toreporting significant progress in delivering our vision next year. CONSOLIDATED INCOME STATEMENTYear ended 30 June 2007 Year Year ended ended 30/06/2007 30/06/2006 Note unaudited unaudited £'000 £'000 Revenue 3 2,562 9,720Cost of sales (2,763) (1,124) Gross Profit (201) 8,596 Operating expenses (3,562) (2,848) Other operating income 23,343 - Profit from operations 19,580 5,748 Finance income 715 578 Finance Expense (99) (68) Profit before tax 20,196 6,258 Taxation 898 (513) Profit for the year from continuing operations 21,094 5,745 Attributable to: Equity holders of the parent 21,094 5,745 Basic earnings per share (pence) 82.51p 21.30p There are no recognised gains or losses other than the profit for the financialyear. CONSOLIDATED BALANCE SHEETAs at 30 June 2007 30 June 30 June 2007 2006 unaudited unaudited £'000 £'000 ASSETSNon-current assetsProperty, plant and equipment 20,036 10,296Total non-current assets 20,036 10,296 Current AssetsInventories 31 -Trade and other receivables 1,238 11,061Other assets 4,526 3,818Current tax assets 823 -Cash and short term deposits 10,651 11,531Total current assets 17,269 26,410 Total assets 37,305 36,706 LIABILITIES AND EQUITY Current liabilitiesTrade and other payables 5,933 27,282Borrowings 1,277 429Total current liabilities 7,210 27,711 Non-current liabilitiesDeferred tax liabilities 439 513Borrowings 968 888Total non-current liabilities 1,407 1,401Total liabilities 8,617 29,112 Equity attributable to equity holders of the parent companyShare capital 257 -Share premium - 180Retained earnings 28,431 7,414Total equity 28,688 7,594Total liabilities and equity 37,305 36,706 CONSOLIDATED CASH FLOW STATEMENTfor the year ended 30 June 2007 30 June 30 June 2007 2006 unaudited unaudited £'000 £'000Cash flow from operating activities Profit from operations before taxation 19,580 5,748Net foreign exchange (gain)/loss (1) -Depreciation and amortisation of non-current assets 565 467 20,144 6,215Movement in working capitalDecrease/(increase) in stock (31) 38Decrease/(increase) in debtors 9,526 (10,046)Decrease/(increase) in other assets (1,605) (417)Increase in trade and other payables 3,076 1,779Cash generated from operations 31,110 (2,431)Interest received 615 510Net income tax deferred 898 -Net cash generated by operating activities 32,623 (1,921)Cash flows from investing activitiesPayments for property, plant and equipment (10,305) (9,655) Net cash used in investing activities (10,305) (9,655) Cash flows from financing activitiesProceeds from borrowings 430 883Intercompany movement following de-merger (24,128) 22,299Repayment of borrowings (385) -Net cash used in Financing activities (24,083) 23,182 Net (decrease)/increase in cash and cash equivalents (1,765) 11,606 Cash and cash equivalents at the beginning of the financial year 11,439 (167) Effect of exchange rate changes on the balance of cash held in foreign 1 -currencies Cash and cash equivalents at the end of the financial year 9,675 11,439 NOTES TO THE PRELIMINARY RESULTS Year ended 30 June 2007 1. Presentation of results This Preliminary Statement was approved by the Directors on 28th September 2007. The results have been prepared using accounting policies and practicesconsistent with those adopted in prior periods but have not been audited. The financial information contained in this Preliminary Statement does notconstitute statutory accounts as defined by Section 240 of the Companies Act1985. 2. Following the de-merger in April 2007 the consolidated results for both 2006and 2007 are shown using merger accounting as there has been no change in theunderlying shareholdings of the Group. 3. Segmental Revenue 30 June 30 June 2007 2006 £'000 £'000 Consultancy 2,059 4,260Space - 5,000Network Services 503 460Consolidated Revenue 2,562 9,720 This information is provided by RNS The company news service from the London Stock Exchange