22 Sep 2009 07:00
| Date: | 22 September 2009 |
| On behalf of: | Avanti Communications Group plc ('Avanti', 'the Group' or 'the Company') |
| Embargoed until: | 0700hrs |
Avanti Communications Group plc
Preliminary Report for the year ended 30 June 2009
Avanti Communications Group Plc (AIM: AVN), the satellite operator, announces its audited Preliminary Results for the full year ended 30 June 2009.
Key points
Presentation of profit before tax of £1.8 million, well ahead of expectations, resulting from strong operating result and effective hedging
Strong progress in creating a distribution network with 48 service providers now buying bandwidth in various volumes around Europe with a substantial new business pipeline
Successful and timely completion of rural broadband project with the Scottish Government
Compelling evidence of the growing importance of broadband to governments and consumers
An increasing available market for Avanti
Completion of a £31.5m equity placing, plus ESA €12.5m contribution to finance Launch Vehicle upgrade for HYLAS
Satellite on target for launch from French Guyana in Q2 2010
Financial highlights
Revenue £ 8.0 million (2008: £5.9 million)
Profit before tax £1.8 million (2008: loss £1.4 million)
Profit after tax £1.0 million (2008: loss £1.0 million)
Closing cash and cash equivalents balance £24.6 million (2008: £35.2 million)
Following receipt of equity proceeds on 3 July 2009 cash and cash equivalents was £55.9 million
Commenting on the results, John Brackenbury, CBE, Chairman said:
"I have great pleasure in presenting Avanti Communications Group plc's results for the year ended 30 June 2009. Through the exercise of cost discipline, prudent financial risk management, and the sale of services on our interim satellite capacity, we have managed to exceed expectations comfortably.
"We are now in our launch year, the year in which we will begin to realise our potential. The procurement of one of the most complex and innovative commercial satellite systems ever built has progressed well, with the system expected to operate at the top end of technical performance expectations. With the support of ESA and our very strong shareholder base we took the opportunity to de-risk our project with the purchase of an Arianespace launch, the World's most reliable launch service.
"During the year our market has grown and as a result, the decision of Avanti three years ago to make a pioneering investment in Ka band satellites is widely regarded as farsighted. With the launch of HYLAS we hope and expect that Avanti will become one of the World's most exciting telecommunications businesses - a pioneer, a market leader and a British national champion."
Enquiries to:
| Avanti Communications | www.avantiplc.com |
| David Williams / Nigel Fox | 020 7749 1600 |
| Redleaf Communications Ltd | avanti@redleafpr.com |
| Samantha Robbins / Paul Dulieu | 020 7566 6700 |
| Cenkos Securities | |
| Julian Morse/Ivonne Cantu | 020 7397 8900 |
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 high speed satellite broadband products in Europe is estimated at 70 million homes.
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 €2.8 billion over the next five years.
Chairman's Statement
I have great pleasure in presenting Avanti Communications Group plc's results for the year ended 30 June 2009. We have significantly exceeded expectations through the exercise of cost discipline, prudent financial risk management, and the sale of services on our interim satellite capacity.
We are now in our launch year, the year in which potential begins to turn into profit and cash. During 2008 we made important progress in procurement, finance and sales. The procurement of one of the most complex and innovative commercial satellite systems ever built has progressed well, with the system expected to operate at the top end of technical performance expectations. With the support of the British government, ESA and our very strong shareholder base we took the opportunity to de-risk our project with the purchase of a launch from Arianespace, the World's most reliable launch service provider.
During the year, our market grew strongly. Terrestrial broadband telecoms technologies continue to exclude very large populations around the World. There is now consensus that some 70m homes in Europe will not be able to access terrestrial broadband at speeds of 2Mb or more and consumer are demanding ever faster service. HYLAS will be the first superfast broadband satellite to launch in Europe and would be full with just 300,000 users so we have a vast yet lightly competed market to exploit.
During the financial year ended June 2009, the Company has achieved a number of key milestones.
Presentation of maiden profit before tax of £1.8 million resulting from strong operating result and effective hedging
Strong progress in creating a distribution network with 48 service providers now committed around Europe plus a substantial new business pipeline
Successful and timely completion of largest ever rural broadband project with the Scottish Government
Compelling evidence of the growing importance of broadband to governments and consumers
Completion of a £31.5m equity placing, plus ESA €12.5m contribution to finance launch service change
Satellite on target for launch from French Guyana in Q2 2010
During the year our market has grown and as a result, the decision of Avanti three years ago to make a pioneering investment in Ka band satellites is widely regarded as farsighted. We have an excellent management team and an impressive shareholder list and so I am confident that we can continue to lead in a large and growing global market.
With the launch of HYLAS we hope and expect that Avanti will become one of the World's most exciting telecommunications businesses - a pioneer, a market leader and a British national champion.
John Brackenbury, CBE
Chairman
Chief Executive's Report
Introduction
I am pleased to report results for the year which exceed expectations. Our interim service has sold well, and we have been able to use this activity to prepare our business operations systems for full scale roll out as soon as HYLAS launches in the second quarter of 2010. Also, with the wise counsel of a very experienced board, we made the right decisions to protect and enhance our balance sheet through the credit crunch: securing debt finance early in the project, keeping our cash in safe custody and hedging currency and interest rate risks effectively. The successful development of our business model and the expansion of our market then enabled us to win the support of existing shareholders and an impressive array of new institutions in raising finance to improve the quality and reliability of our launch service, thereby removing the last significant technology risk from our project.
Business Overview
Avanti's business model remains simple. We own and operate a satellite called HYLAS. This satellite will be the first "Ka band" superfast broadband satellite launched outside America and one of the most advanced payloads ever built. It will deliver high speed broadband at very competitive prices around Western and Eastern Europe. We will provide broadband at speeds up to 10Mb (with the return path by satellite at up to 5Mb). The customer uses a small satellite dish, typically between 45cm and 78cms, and a small satellite modem connected to the PC or server. Ka band satellite technology is new, although the first generation has been proven both technically and commercially in the USA. The technology enable us to use higher frequency bands with multiple spot beams meaning that we can transmit at higher speeds and serve many more subscribers per satellite than was previously possible.
We sell to telecoms service providers, who are obliged to make minimum initial commitment to service volumes. They then sell to end users within their defined territories in the expectation of building a large subscriber base and increasing their bandwidth purchases from us. We provide to these service providers a managed broadband service (not just raw bandwidth) along with all of the software systems, marketing support and training they need to deliver service. We call these service providers VNOs (Virtual Network Operators). Our VNOs need to make no initial capex investment since we manage the satellite and own and operate all associated ground control and network communications infrastructure, with the sole exception of the end user customers' satellite dish and modem.
In addition to regular consumer and business customers, our broadband product has begun to find new markets this year. We currently have services running providing "backhaul" for mobile phone base stations (i.e. carrying user traffic from a rural base station back to the network centre), providing telemetry for wind farms and providing outside broadcasting transmissions for television companies. The product is the same, it's all broadband to Avanti, but the applications which customers find for our very high speed low cost services are definitely growing.
This was our second full year offering satellite broadband services on our rented capacity, and during the year we rapidly completed Europe's largest ever rural broadband project, for the Scottish Government. The success was verified by the award of a second contract from that customer. The service we provide to those and other current customers will be upgraded when HYLAS launches. The activity has had three benefits to our business:
We have demonstrated the role of satellite in solving the digital divide and raised its profile. This has been important and timely in the context of government exercises like Digital Britain.
We have a proven market and our ability to access it, using the early service to recruit 48 service providers in 12 countries in Europe.
We have learned the lessons of operational deployment in volume. We have field tested all of the back office software systems which we have developed to manage customer activation, support and billing and have completed detailed process manuals to guide both our staff and our VNOs in their management of the products. This means that when HYLAS launches, execution of the ramp up in business should be smooth.
The market demand for broadband in general and the competitive dynamic has evolved significantly since the beginning of our project. It is now overwhelmingly clear that:
Competing technologies leave very large populations unserved for reasons of technical and economic limitation. It is widely held that:
Copper ADSL networks leave populations of between 10% and 40% without adequate broadband all over the World
Fibre optic cable networks to the home are not economically viable in large parts of the world, leaving at least 40% of the population unserved even in densely populated countries like the UK
3G/4G networks, whilst providing excellent mobile data, cannot be used for fixed broadband substitution because they have insufficient capacity and spectrum available to cope with the high volumes of data (especially video) now demanded by consumers at home.
Wi-fi and Wi-Max technology suffering from a combination of line of sight, quality of service, base station density and infrastructure cost efficiency issues and has not made a significant impact on any major European markets.
Universal broadband service is now regarded as critical national infrastructure in most countries of the world and governments are acting to accelerate its achievement.
There remains very little competition to Avanti. Only one other dedicated Ka band satellite is planned for Europe, launching a year after HYLAS. In aggregate the two satellites can serve probably at most only 1 million 2Mb services, in a market which has potential demand for 70 million.
There is now broad consensus in government and telecoms circles that Ka band satellites have a major role to play in the patchwork of varying technologies which will provide universal high speed broadband. We are confident therefore of our future market opportunity.
We have made great strides this year in building our distribution channels. We now have 48 VNOs signed in twelve countries (Scotland, Ireland, England, France, Spain, Germany, Poland, Czech Republic, Italy, Serbia, Hungary, and Albania).
These VNOs commitments range from £100,000 to £9,000,000 and from 3 to 15 years. For the first year of service we have more than 13% of HYLAS capacity pre-sold and hope to top 20% by the day of launch. These VNOs of course all expect to build their own subscriber bases rapidly and to return to Avanti to buy more capacity. Based on Avanti's experiment of offering service on rented capacity, it is clear that a small specialised VNO can sell and install at least 2,000 subscribers per annum per country (especially with EU funding assistance). HYLAS will be full with around 200,000 - 300,000 end user customers, depending on the mix of service levels sold by the VNOs (0.5Mb to 10Mb). We therefore have enough VNOs already to be confident that we can achieve our plan to fill HYLAS quickly and are currently signing one or two new VNOs per month. We are also now making progress with larger telecoms companies who are typically adopting satellite broadband as a product for the first time to address their own universal service obligations and therefore the average order size is likely to increase.
Manufacture of the satellite is proceeding well, and we remain on schedule to launch within the previously announced window of April to June 2010. During the year we raised £31.5m in an equity placing plus €12.5m contribution from the British Government via the European Space Agency to fund the upgrade of our Launch Service to Arianespace, the most reliable launch service available. Moving to Arianespace was expensive, but has given greater comfort and certainty to investors, customers and our government partners. We have thus removed the last major technology risk, and can now focus our energies on maximising the price and pace at which we sell out HYLAS capacity.
Outlook
We now have full confidence in the imminent delivery of a fully operational satellite into orbit. Our fortunes now rest on our ability to sell out HYLAS quickly and at the best yield. The distribution channels we have established should enable us to achieve this. But we are also now finding that the larger traditional telecoms service providers are beginning to adopt our product in volume and also new application markets are opening up. The sales pipeline is strong, and should be given a further boost by the Digital Britain project in the UK and the increasing activity of projects in Europe funded by European Commission budgets. We are highly confident that HYLAS will sell out quickly, and are therefore busy working on two new projects to increase our capacity. An investment bank has been retained to help us to close financing which has been offered by government sponsors. The success of this effort is not yet definitive but we hope to report positively on this soon.
David Williams
Chief Executive
UNAUDITED CONSOLIDATED INCOME STATEMENT
Year ended 30 June 2009
| UNAUDITED Year ended 30 June 2009 | AUDITED Year ended 30 June 2008 | |||
| Notes | £'000 | £'000 | ||
| Revenue | 8,041 | 5,921 | ||
| Cost of sales | (5,068) | (1,918) | ||
| Gross Profit | 2,973 | 4,003 | ||
| Operating expenses | (7,086) | (6,450) | ||
| Other operating income | 3 | 2,727 | 589 | |
| Loss from operations | (1,386) | (1,858) | ||
| Financing exchange gain and movement in derivative fair value | 4 | 2,932 | 119 | |
| Finance income | 4 | 417 | 585 | |
| Finance expense | 4 | (162) | (201) | |
| Net financing income | 4 | 3,187 | 503 | |
| Profit/(Loss) before tax | 1,801 | (1,355) | ||
| Income tax (expense)/credit | 5 | (752) | 361 | |
| Profit/(Loss) for the year | 1,049 | (994) | ||
| Attributable to: | ||||
| Equity holders of the parent | 1,049 | (994) | ||
| Basic earnings/(loss)per share (pence) | 6 | 3.78p | (3.60)p | |
| Diluted earnings per share (pence) | 6 | 3.39p | - | |
UNAUDITED CONSOLIDATED BALANCE SHEET
As at 30 June 2009
| UNAUDITED 30 June 2009 | AUDITED 30 June 2008 | ||
| Notes | £'000 | £'000 | |
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 51,534 | 39,647 | |
| Intangible assets | 21 | 95 | |
| Deferred tax assets | 5 | 1,037 | |
| Total non-current assets | 51,560 | 40,779 | |
| Current Assets | |||
| Inventories | 352 | 249 | |
| Unpaid share capital | 9 | 31,500 | - |
| Trade and other receivables | 14,584 | 8,656 | |
| Cash and cash equivalents | 7 | 24,615 | 35,241 |
| Total current assets | 71,051 | 44,146 | |
| Total assets | 122,611 | 84,925 | |
| LIABILITIES AND EQUITY | |||
| Current liabilities | |||
| Trade and other payables | 12,164 | 13,743 | |
| Provisions for other liabilities | 30 | 86 | |
| Loans and other borrowings | 402 | 545 | |
| Total current liabilities | 12,596 | 14,374 | |
| Non-current liabilities | |||
| Trade and other payables | 2,899 | 1,365 | |
| Provisions for other liabilities | 63 | 129 | |
| Loans and other borrowings | 42,574 | 36,322 | |
| Total non-current liabilities | 45,536 | 37,816 | |
| Total liabilities | 58,132 | 52,190 | |
| Equity | |||
| Share capital | 8 | 417 | 277 |
| Share premium | 8 | 34,041 | 3,858 |
| Retained earnings and reserves | 8 | 30,021 | 28,600 |
| Total shareholders' equity | 64,479 | 32,735 | |
| Total liabilities and equity | 122,611 | 84,925 |
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 June 2009
| UNAUDITED Year ended 30 June 2009 | AUDITED Year ended 30 June 2008 | |||
| Notes | £'000 | £'000 | ||
| Cash flow from operating activities | ||||
| Loss from operations before taxation | (1,386) | (1,858) | ||
| Net foreign exchange gain | (1,184) | (589) | ||
| Depreciation of property, plant and equipment | 768 | 648 | ||
| Depreciation of intangible assets | 51 | 96 | ||
| Write off of fixed assets | - | 31 | ||
| Provision for impairment of trade receivables | 172 | 188 | ||
| Onerous lease provision | (123) | 215 | ||
| Share based payments expense | 653 | 871 | ||
| (1,049) | (398) | |||
| Movement in working capital | ||||
| (Increase) in inventories | (102) | (218) | ||
| (Increase) in debtors | (5,626) | (1,936) | ||
| (Decrease) in trade and other payables | (4,569) | (117) | ||
| Cash used by operations | (11,346) | (2,669) | ||
| Interest received | 951 | 1,736 | ||
| Interest paid | (162) | (201) | ||
| Net cash used by operating activities | (10,557) | (1,134) | ||
| Cash flows from investing activities | ||||
| Payments for property, plant and equipment | (2,850) | (7,543) | ||
| Net cash used in investing activities | (2,850) | (7,543) | ||
| Cash flows from financing activities | ||||
| Proceeds from borrowings | - | 32,000 | ||
| Repayment of borrowings | (21) | (390) | ||
| Debt issue cost paid | - | (988) | ||
| Proceeds from share issue | - | 4,000 | ||
| Share issue costs | - | (122) | ||
| Proceeds from finance leases | 802 | - | ||
| Finance lease paid | (592) | (550) | ||
| Net cash received from financing activities | 189 | 33,950 | ||
| Effects of exchange rate on the balances of cash and cash equivalents | 2,592 | 20 | ||
| Net (decrease)/increase in cash and cash equivalents | (10,626) | 25,293 | ||
| Cash and cash equivalents at the beginning of the financial year | 35,241 | 9,948 | ||
| Cash and cash equivalents at the end of the financial year | 7 | 24,615 | 35,241 | |
1. General Information
The preliminary results for the year ended 30 June 2009 have been extracted from the unaudited consolidated financial statements. These unaudited consolidated financial results were approved for issue by the Board of Directors on 22nd September 2009.
The financial information for the year ended 30 June 2009 and 2008 set out in this announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and section 240 of the Companies Act 1985. Statutory accounts for 2009 will be delivered following the Company's Annual General Meeting. The auditors, PricewaterhouseCoopers LLP, have not reported on these accounts.
The financial information for the year ended 30 June 2008 is derived from the statutory accounts for that year. The statutory financial statements for the year ended 30 June 2008 have been filed with the Registrar of Companies. The report of the auditors, PricewaterhouseCoopers LLP, on those accounts was unqualified and did not contain a statement under section 237(2) or 237(4) of the Companies Act 1985.
2. Principal accounting policies
The following standard has been adopted with effect from the 1 July 2008:
IFRIC 11, 'IFRS 2 - Group and treasury share transactions', provides guidance on whether share-based transactions involving treasury shares or involving group entities (for example, options over a parent's shares) should be accounted for as equity-settled or cash-settled share-based payment transactions in the stand alone accounts of the parent and group companies. This interpretation does not have an impact on the group's financial statements. The company's accounting policy for share based compensation arrangements is already in compliance with the interpretation.
Basis of preparation
The unaudited Group financial statements have been prepared on a basis consistent with the IFRS accounting policies as set out on pages 32 to 36 of the audited Consolidated Financial Statements for the year to 30 June 2008, as available on our website www.avantiplc.com/reports_accounts.htm as augmented by the 2009 accounting standard described above. The applied International Financial Reporting Standards ("IFRS") accounting policies were selected by management considering all applicable IFRSs issued by the International Accounting Standards Board ("IASB") and adopted by the European Union. This announcement does not contain sufficient information to comply with all of the disclosure requirements of IFRS.
The functional and presentation currency of the Company and all of the Group's subsidiaries is GBP sterling, as the majority of operational transactions and borrowings are denominated in GBP sterling.
Critical accounting estimates and management judgements
The preparation of the consolidated financial statements in conformity with IFRS requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and expenses during the reported period. Although these estimates are based on management's best knowledge of the amount, events or actions, the actual results ultimately may differ from those estimates.
3. Other operating income
| 30 June 2009 £'000 | 30 June 2008 £'000 | |
| Exchange gain on trade receivables and payable balances | 1,355 | 589 |
| Liquidated damages received | 1,372 | - |
| 2,727 | 589 |
Liquidated damages have been received from Astrium due to the late delivery of HYLAS. These damages accrue daily and will continue until November 2009. These damages compensate for the additional costs incurred as a result of the late delivery of the satellite.
4. Net finance income
| 30 June 2009 £'000 | 30 June 2008 £'000 | |
| Finance income | ||
| Fair value gain on derivatives | 340 | 119 |
| Financing exchange gain | 2,592 | - |
| 2,932 | 119 | |
| Interest income on bank deposits | 417 | 585 |
| 3,349 | 704 | |
| Finance expense | ||
| Interest expense on borrowings and loans | (109) | (130) |
| Finance lease expense | (53) | (71) |
| (162) | (201) | |
| Net finance income | 3,187 | 503 |
5. Income tax credit
| 30 June 2009 £'000 | 30 June 2008 £'000 | |
| Current tax | ||
| Current tax | - | - |
| Total current tax | - | - |
| Deferred tax | ||
| Origination and reversal of temporary differences | 588 | (404) |
| Adjustment in respect of prior periods | 164 | 25 |
| Impact of change in UK tax rate | - | 18 |
| Total income tax expense/(credit) | 752 | (361) |
The tax on the group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:
| 30 June 2009 £'000 | 30 June 2008 £'000 | |
| Profit / (Loss) before tax | 1,801 | (1,355) |
| Tax charge / (credit) at the corporate tax rate of 28% (2008: 29.5%) | 504 | (400) |
| Difference in overseas tax rates | (5) | - |
| Tax effect of non-deductible expenses | 89 | 49 |
| Previously unrecognised tax losses | - | (53) |
| Adjustment in respect of prior periods | 164 | 25 |
| Impact of change in UK tax rate | - | 18 |
| Income tax expense/(credit) | 752 | (361) |
6. Earnings / (Loss) per share
| 30 June 2009 pence | 30 June 2008 pence | |
| Basic earnings/(loss) per share | 3.78 | (3.60) |
| Diluted earnings per share | 3.39 | - |
The calculation of basic and diluted earnings / (loss) per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.
There is no comparative balance for 30 June 2008 because there was no dilution to the basic earnings per share calculation required as any adjustments would have been anti-dilutive.
7. Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents include cash in hand and at banks net of outstanding overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement can be reconciled to the related items in the balance sheet as follows:
| 30 June 2009 £'000 | 30 June 2008 £'000 | |
| Cash and bank balances | 2,376 | 1,050 |
| Short term deposits | 22,239 | 34,191 |
| Net cash and cash equivalents | 24,615 | 35,241 |
8. Statement of changes in equity
Year ended 30 June 2009
| Share capital | Share premium | Profit and loss account reserves | Total reserves | |
| £'000 | £'000 | £'000 | £'000 | |
| 2008 | ||||
| At 1 July 2007 | 257 | - | 28,431 | 28,688 |
| (Loss) for the year | - | - | (994) | (994) |
| Issue of share capital | 52 | - | - | 52 |
| EBT Treasury shares | (32) | - | - | (32) |
| Premium on shares issued | - | 3,858 | - | 3,858 |
| Share based payments | - | - | 871 | 871 |
| Tax expense taken directly to reserves | - | - | 292 | 292 |
| At 30 June 2008 | 277 | 3,858 | 28,600 | 32,735 |
| 2009 | ||||
| At 1 July 2008 | 277 | 3,858 | 28,600 | 32,735 |
| Profit for the year | - | - | 1,049 | 1,049 |
| Issue of share capital | 140 | 30,183 | - | 30,323 |
| Share based payments | - | - | 652 | 652 |
| Tax credit taken directly to reserves | - | - | (280) | (280) |
| At 30 June 2009 | 417 | 34,041 | 30,021 | 64,479 |
9. Post Balance Sheet Event
The net proceeds from the £31.5m share placing were received on 3 July 2009.