AVN.L Regulatory News (AVN)

Avanti Communications Group plc

Interim Results Announcement

London - 12 February 2013. Avanti Communications Group plc (AIM: AVN, "Avanti" or "the Company"), the satellite operator, has published today its unaudited interim results for the six months ended 31 December 2012.

Key developments

·; Sales momentum growing. HYLAS 2 fully operational and attracting major telco customers

·; Avanti expects to become cash flow positive in the second half of the current financial year

Operational highlights

·; HYLAS 2 launched and in commercial operation

·; All pre-launch HYLAS 2 customers activated and billed by mid-January following customer activation, testing and training across 29 countries

·; HYLAS 2 steerable beam positioned over Libya with over half of its capacity sold

·; Contracts signed with five large multinational telecoms companies showing increasing mainstream adoption of Avanti's products.

·; Valuable spectrum filings for HYLAS 2 at 31.0 East confirmed by International Telecommunications Union

Financial highlights

·; Revenues increased by 68% to £8.6 million (2011: £5.1 million)

·; Cash at year end of £50.7 million

·; Backlog at 31 December 2012 of firm orders of £290m (up 60% on December 2011)

·; Strong sales momentum - the KPI of average monthly additions to Backlog of £11m achieved January to December 2012

Commenting, John Brackenbury, CBE, Avanti Chairman said:

"Sales momentum continues to build very well. We operate in rapidly developing markets in Africa and the Middle East which are showing very strong demand for our market-beating services, with several HYLAS 2 beams already fully sold.

"Avanti's customers value the resilience, quality and flexibility of our managed services. We are winning high value added business at expected prices in Europe as well as emerging markets. Technical milestones are now behind us and our forward visibility continues to improve. 2013 should show commercial transformation."

For further information please contact:

Avanti Communications Group Plc Tel: +44 (0) 20 7749 1600

David Williams, Chief Executive

Sean Watherston, Director of IR and Corporate Finance

Cenkos Securities plc Tel: +44 (0) 20 7397 8900

Max Hartley (Nomad)/Julian Morse

Jefferies Hoare Govett Tel: +44 (0) 20 7029 8000

Neil Collingridge/John Fishley

College Hill Tel: +44 (0) 20 7457 2020

Adrian Duffield/Kay Larsen

About Avanti

·; Avanti sells satellite data communications services to telecoms companies which use them to supply residential, enterprise and institutional users.

·; Avanti's first satellite called HYLAS 1, launched on November 26th 2010 and was the first superfast broadband satellite launched for Europe.

·; Avanti's second satellite, called HYLAS 2, launched on August 2nd 2012. It extended Avanti's coverage to Africa, Caucasia and the Middle East.

·; Avanti's third satellite HYLAS 3, to be launched in partnership with ESA in 2015, will provide further capacity in the EMEA region.

·; 83% of Avanti's fleet capacity addresses the emerging telecommunications markets of Africa, Caucasia and the Middle East.

Chairman's Statement

Overview

I am pleased to present the results for the six months ended 31 December 2012. During the period, we successfully launched and tested the HYLAS 2 satellite system, which included testing the ground control systems in three countries. We then commenced commercial service, which included training, configuring and activating service with customers in 29 countries. By January, service was fully operational with end user deployments rolling out and all customers invoiced. We will therefore report the first material revenues from HYLAS 2 in the second half of the current financial year. The HYLAS 1 satellite continued to deliver excellent quality of service and is almost full in Northern Europe, with signs that markets in Southern Europe are beginning to improve. HYLAS 3 is under construction for delivery in late 2015 to serve further African markets. Sales momentum across the business is building very well. 

Operational review

Avanti's business model is based on providing high speed data communications services to its four core application markets: Enterprise; Broadband; Carrier Services; and Defence and Security. Avanti believes that high quality of service is essential in data communications and has therefore prioritised high resilience in its system. It also believes that data markets change rapidly, and therefore flexibility is crucial. It is the flexibility and resilience of Avanti's products that is having the greatest impact on sales, enabling us to win important business in Enterprise and Government markets and in Carrier Services as well as Broadband. We sell a managed service which is highly differentiated from the competition.

The HYLAS 1 network performed with 99.987% reliability in 2012. This is largely a factor of the resilience built into the ground network which is unique amongst competitors. In Europe, Avanti had success in content distribution both for digital cinema and outside broadcasting for major international media companies. We launched backhaul services for two wireless service providers, the first is for one of the largest wi-fi network operators and the second is the World's first Ka band backhaul network for a 3G/4Gmobile operator. These are powerful illustrations of our capabilities that will support us in winning more business in these markets.

The flexibility in our system enables us to use different hardware and software components to re-design services and meet these very bespoke customer requirements. This gives us competitive advantage over others offering a "one size fits all" approach. Our service providers have also had success in winning government funded broadband projects in the UK and Italy, and our broadband offering has been successfully growing across Northern Europe.

In Africa, on HYLAS 2 we have an added competitive advantage in terms of quality of coverage. One of Avanti's design objectives was to ensure that quality of service is consistent within national borders, making sure that service providers can deliver universal service within their large countries and to a uniform standard. This has been particularly important to service providers in broadband in South Africa, and also helped us to win our first government contract, via a service provider, in that country. We have now located the HYLAS 2 steerable beam over Libya and within two months of doing so, sold more than half of its capacity. This will make a significant impact on second half revenues. Beams over the Middle East have also been quick to sell out. 

As a result of technical successes in the design and testing of HYLAS 2, we have been able to increase the amount of capacity available for sale from 9GHz to 11GHz. Although HYLAS 2 launched some five months behind schedule, we were able to complete the networks testing and then activation and training of customers in a very short period. As a result, pre-sales service providers were all live and invoiced by January with many new customers signed and activated in that period. We now have customers in all beams, and some beams are almost fully sold with some customers prepared to pay deposits as well as several months' advance payment. 

Customers are expressing confidence in their own growth, with most of them locking into contracts with pre-committed quarterly increases in capacity. We have already observed that some customers have been successful in growing usage faster than planned, especially in Northern Europe, North Africa, and the Middle East, and have accelerated their purchase of capacity ahead of their contractual commitments. This has been combined with growing acceptance of Ka band satellite capacity in the mainstream telecoms industry - five large multinational TMT companies signed contracts with Avanti during the period. When large companies put their resources behind roll-outs, we expect to see capacity utilisation rise sharply.

Construction of HYLAS 3 is on schedule for delivery in late 2015 and we are now actively marketing the capacity across Africa. Having made the initial capital expenditure outlay, very little will be spent on the project until financial years June 2015 and 2016 because payments to the suppliers are back-end loaded.

Access to spectrum is a fundamental underpinning to value in the space business and it is administered through the International Telecommunications Union ("ITU"). During the period, the ITU accepted Avanti's rights to a UK satellite filing with Ka-band spectrum at 31.0 East and definitively rejected a challenge made by a competitor. All satellite operators undertake what is known as the "ITU co-ordination process" to ensure that satellites do not cause harmful interference to each other, and Avanti's first mover advantage results in a very strong position at 33.5 West and 31.0 East, orbital positions from which contiguous coverage can be delivered between the Americas and Asia.

The Board has been enhanced with the arrival of Paul Johnson, former chairman of KPMG's London & Eastern Counties business and a Partner for 24 years. Along with the arrival of Paul Walsh in the prior period, this brings the Board to a full complement with built in succession planning. This, combined with the selection of advisers which is underway, is an important pre-condition to our planned move to the Full List.

Results

Revenue at £8.6 million for the six months to 31 December is 68% higher than the comparative period to December 2011 (£5.1m) and 18% higher than the six months to 30 June 2012 (£7.3m). Costs of sale have increased following the in orbit acceptance of HYLAS 2 on 10 September 2012 due primarily to increased satellite depreciation relating to HYLAS 2, although little HYLAS 2 revenue was yet accounted for in the same period. In addition the three HYLAS 2 ground stations have operational costs that are incurred from the in service date. Depreciation is now shown separately in costs of sale. The satellites are depreciated on a straight line basis over their warranted lives of 15 years and since depreciation is charged regardless of the capacity sold, at this early stage of the HYLAS 2 service, this generates a gross loss.

As expected, operating expenses have increased to £8.96 million (30 June 2012: £7.79 million) reflecting the run rate of staff recruited in the prior year and additional sales and marketing activity around the time of the launch and testing of HYLAS 2 in the period.

Net interest charges have increased to £1.21 million (June 2012: £0.25 million). This increase is due to the interest on the Export Credit Agency facilities for HYLAS 2 being expensed to the income statement after in orbit acceptance, whereas prior to this they were capitalised as part of the satellite asset during the build and launch phase.

Satellite assets increased to £392.6 million (June 2012: £372.3 million) after a depreciation charge of £9.2 million. Gross debt increased to £192 million (June 2012: £175 million) with cash balances of £50.7 million (June 2012: £76.7 million). Net assets fell to £253.2 million (June: £269.6 million).

Outlook

Avanti has enough business in backlog and pipeline to expect to achieve its targets, and pleasingly we have over £40 million of revenue already in backlog for the year to June 2014 with another 18 months of selling still to go, so visibility of future performance is strengthening.

Sales momentum for HYLAS 1 and 2 continues to build very well with a Backlog of firm committed orders of £290 million giving us confidence that we will sell out our satellites in the timescales contemplated.

With the growth of many of our customers business accelerating beyond their initial plans, and the success with a number of large multinational companies choosing Avanti for its quality of service and coverage, shareholders can have growing confidence that this is a business which is set to deliver on its ambitions.

AVANTI COMMUNICATIONS GROUP PLC

CONSOLIDATED UNAUDITED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 31 December 2012

CONSOLIDATED UNAUDITED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 December 2012

CONSOLIDATED UNAUDITED STATEMENT OF FINANCIAL POSITION

AS AT 31 December 2012

CONSOLIDATED UNAUDITED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31 December 2012

The accompanying notes form an integral part of this condensed consolidated interim financial information.

CONSOLIDATED UNAUDITED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 December 2012

1. General Information

Avanti Communications Group plc ('the Company') is a public company incorporated and domiciled in the United Kingdom. The address of its registered office is 74 Rivington Street, London EC2A 3AY. The Company is listed on AIM.

These unaudited condensed consolidated interim financial statements were approved for issue on 11 February 2013.

2. Basis of Preparation

These unaudited condensed interim consolidated financial statements ("the interim financial statements") for the six months ended 31 December 2012 have been prepared in accordance with IAS 34, "Interim Financial Reporting", as adopted by the EU. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2012, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs"), as adopted by the EU.

The accounting policies applied are consistent with those of the annual financial statements for the year ended 30 June 2012, except as described below.

The interim financial statements have not been audited or reviewed and do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The audited statutory accounts for the year ended 30 June 2012 were approved by the Board of Directors on 18 October 2012 and have been delivered to the Registrar of Companies. The auditor's report on these accounts was not qualified, did not draw attention to any matter by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2005.

3. Accounting Policies

Except as described below, the same accounting policies, presentation and methods of computation are followed in these condensed consolidated interim financial statements as were applied in the preparation of the Group's annual financial statements for the year ended 30 June 2012.

The condensed consolidated interim financial information presented does not comply with the full disclosure requirements of all applicable IFRSs.

4. Segmental reporting

The Group adopted IFRS 8, 'Operating Segments', in the financial year commencing 1 July 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker (the Avanti Executive Board) to allocate resources and assess performance.

All resources are allocated on the basis of satellite services. As a result, the Group only has one operating segment, being satellite services.

5. Taxation

The income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 30 June 2013 is 23.8% (the estimated tax rate for the six months ended 31 December 2012 is 23.8%).

6. Earnings per share

The calculations of the earnings per ordinary share are based on the profit on the ordinary earnings after taxation and the weighted number of shares in issue in the reporting period.

7. Other operating income

8. Net Finance (Expense)/Income

9. Property, plant and equipment

During the period, additions to property, plant and equipment totalled £34.8m. The additions relate to capitalised costs associated with the construction of the HYLAS 2 and HYLAS 3 satellite.

10. Cash generated from operations