AVN.L Regulatory News (AVN)

Avanti Communications Group plc

Preliminary Report for the Year ended 30 June 2010

Avanti Communications Group Plc (AIM: AVN), the broadband satellite operator, announces its audited Preliminary Results for the full year ended 30 June 2010.

Key points

·; Successful launch of HYLAS 1

·; High cost debt repaid in July 2010, balance sheet now very strong

·; HYLAS 2 fully financed and on schedule for launch in Spring 2012

·; Excellent progress with sales on both satellites

Financial highlights

·; Revenue of £5.82 million (2009: £8.04 million), falling as legacy businesses activity ceased in preparation for HYLAS 1 launch

·; Loss after tax £1.93 million, better than expectations (2009: profit after tax £1.05 million)

·; Closing cash £34.18 million (2009: £24.62 million)

·; Post balance sheet fund raising produced gross equity proceeds of £70m

Commenting on the results, John Brackenbury, CBE, Chairman said:

"As the Chairman of a company in possession of an in orbit satellite I have great pleasure in presenting Avanti Communications Group plc's results for the year ended 30 June 2010. The achievement of a start up company in launching a satellite is very rare. Avanti now has one satellite in orbit and a second launching in a little over a year, a very strong balance sheet with no debt service payments or cash flow covenants falling due until December 2012, huge untapped markets and a quite thrilling opportunity to create a company of genuine scale."

---ENDS---

For further information please contact:

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

David Williams

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

Nick Wells / Max Hartley

Jefferies International Limited Tel: +44 (0) 20 7029 8000

Julian Smith / Oliver Griffiths

Redleaf Communications Ltd Tel: +44 (0) 20 7566 6700

Samantha Robbins / Paul Dulieu

Notes to Editors:

About Avanti

¡ Avanti sells satellite broadband services at speeds of up to 10Mbps to telecoms companies which use them to supply residential, enterprise and institutional users.

¡ Avanti's first satellite, called HYLAS 1, launched on 26 November 2010 and is the first superfast broadband satellite to serve Europe.

¡ Avanti's second satellite, called HYLAS 2, is fully funded and is on target to launch in Q2 2012. It will extend Avanti's coverage to Africa and the Middle East.

¡ The market for 2Mb satellite broadband products in the markets served by Avanti is estimated at more than 100 million households.

  Chairman's Statement

As the Chairman of a company in possession of an in orbit satellite I have great pleasure in presenting Avanti Communications Group plc's results for the year ended 30 June 2010. The achievement of a start up company in launching a satellite is very rare. Avanti now has one satellite in orbit and a second launching in a little over a year, a very strong balance sheet with no debt service payments or cash flow covenants falling due until December 2012, huge untapped markets and a quite thrilling opportunity to create a company of genuine scale.

During a busy year we completed the construction of our first satellite and associated ground infrastructure and made strong progress in signing customers for its bandwidth around Europe. We also completed the financing of HYLAS 2 which involved facilities provided by the US and French government's Export Credit Agencies of £194 million. We have discovered very high early demand for the capacity in the Middle East and Africa. Equally important however was the repayment of our high yielding PIK bond which was completed after the year end following a £70 million equity fund raising. For a young company to have two satellites fully financed with no debt service payments for another two years gives me great comfort that we are in control of our own destiny and have everything we need over the next few years to create the strong cash flows we expect to generate for shareholders.

I would like to pay tribute to my Chief Executive David Williams in leading our team and also to David Bestwick who has masterminded the construction of our satellites. I am also pleased that all of our employees have shares in the company and so have a full opportunity to enjoy the financial success which they play their part in creating.

John Brackenbury, CBE

Chairman

 Chief Executive's Report

Introduction

I am pleased to report results for the year which exceed profit expectations, but which are nonetheless relatively immaterial in the context of the successful launch last week of HYLAS 1. The successful launch and the bringing into use of our spectrum undoubtedly creates the significant value we have been projecting for many years. The market for our products is evidently strong and we are confident of achieving the target of selling out HYLAS 1 within three years. With good progress in financing and building HYLAS 2 and the commencement of the HYLAS 3 project, the business changed its scale very dramatically during the year.

Financial Review

Our result for the year produced lower turnover of £5.82m (2009: £8.04m) resulting from our decision to stop selling our interim service on rented satellite capacity. The service sold in 2006-9 on old fashioned Ku band television satellite capacity is comparatively slow and expensive, and it makes a loss. It has however been invaluable in helping us to validate market assumptions and more importantly to develop and test in a live environment the control and management software which will deliver high quality customer experience and enable us to maximise the yield of our HYLAS satellites. The customers on this system will be migrated to HYLAS 1 in the next few months, and during 2010 we decided that there was no merit in installing systems which would be replaced within a few months. The financially unproductive nature of this activity is demonstrated in the gross profit line which showed only a marginal reduction to £2.68m (2009: £2.97m).

Naturally our costs increased during the year as recruitment ramped up to sell our bandwidth and also to manage three satellite projects instead of one. The increase in operating costs was offset by receivables in the form of contractual payments from suppliers resulting from certain manufacturing delays. Our currency exposures are all hedged so that there is no cash risk, but Accounting Standards oblige us to report the notional changes in value of hedging and again this year it can be seen that our hedging strategies protected us from losses, and this manifests itself in a profit of £0.97 million (2009: £2.92 million). Prudent financial management and cost control therefore restricted the net loss for the year to £1.93 million (2009: profit £1.05m).

During the year we raised £89 million in an equity placing to complement the Export Credit Agency debt facilities of £194 million which completes the full financing of the construction, launch and operation of HYLAS 2. The debt is at attractive interest rates of 5.7% and is drawn down during the period to launch then repayable over a seven year period from December 2012.

Post balance sheet we raised £70 million in an equity placing to refinance an expensive PIK bond which had onerous covenants and pending interest and principal payments. Removing this debt gives Avanti two years in which to generate strong cash flows before we need to make debt payments so shareholders can draw great comfort from the stable long term financial resilience of our company.

Business Overview

Getting our first satellite into space and bringing our spectrum into use are events which in my opinion crystalise a huge amount of value, given the rapidly increasing demand for data Worldwide. We are of the opinion that the World is beginning to see a data crunch where the demand for data transmission capacity will greatly outstrip supply across all market sectors and geographies, so any company in possession of long term rights to use large amounts of spectrum has a strong future. In particular, the transmission of video across all platforms, and the emergence of cloud computing will fundamentally change consumers' bandwidth requirements. In the enterprise sector, machine to machine communications looks set to transform the way many businesses operate and we are seeing strong demand in telemetry, banking and retail for the movement of critical real time financial and performance data. We believe we have a strong role to play in helping mobile phone companies to maximise the flexibility and efficiency with which they can support network growth in rural areas. In the institutional market, the automation of many operations, particularly in unmanned aerial vehicles creates a very significant opportunity - it is apparent that in the sector Ka band beginning to experience mainstream demand and we are confident of capitalising on this trend.

For the moment we are focussed on filling our first two satellites quickly since this puts us in a position to offer cash returns to shareholders and efficiently finance more satellites. I expect the data crunch to give us opportunity and demand to finance many satellites in the next decade or so. We have enough spectrum available to launch perhaps 20 satellites. Whilst I am overwhelmingly convinced that the demand will be there, many shareholders may wish to maximise the value of their shares in the cash flows arising from HYLAS 1 and 2 and therefore would be reluctant to dilute ownership of those cash flows with speculative projects. I have therefore committed to provide significant pre-sales on any new satellites which can be used to support efficient debt financing. This is the case with HYLAS 3. We began the design project after the 2009 year end and are working hard to produce an efficient financing strategy.

During the year we extended our customer base so that we have sold capacity to over sixty service providers in Europe. Given that each customer typically commits only to enough bandwidth to serve the business they can forecast in the short term, we expect them all to come back to us to buy more bandwidth to cope with growth. We would also expect to sign new customers whose caution prevented them from committing prior to the launch of HYLAS 1.

Procurement with HYLAS 2 has proceeded well. We passed the Critical Design Review in November 2010 and in the first twelve months of the contract we have not lost a single day of schedule, so we remain on target to launch this satellite in Spring 2012.

We supported our business during the development of the HYLAS satellites by selling an interim broadband service using rented capacity on an old style television satellite. We stopped actively selling our interim service over a year ago, since it is not possible to sell a profitable broadband service on Ku band satellites. However, that activity served several purposes in a) validating business model assumptions and b) giving us a live customer base for which to develop the customer service software which will be used to manage and enhance HYLAS performance.

Outlook

The HYLAS 1 satellite is one of the most advanced commercial satellites ever flown and involved a complex partnership with the European Space Agency as well as our suppliers Astrium and Arianespace. It is humbling to know that over 1,000 engineers have been involved in bringing this satellite to life. At Avanti we have a very long term view of our business and I believe we have created some enduring business partnerships which will help to sustain long term growth, and I am grateful for the support of all our suppliers and partners.

Before we begin to put customer traffic onto HYLAS 1 after Christmas, we will be working to enhance the revenue generating potential of the satellite. As a result of certain extra activities during manufacture HYLAS 1 has higher performance than the original design provided for, and enables us to offer certain new services, especially to institutional markets. We will analyse the precise performance characteristics of the satellite in these and other operating modes, along with certain customers, in order that we are best able to maximise the revenue generating potential of the satellite through its lifetime.

Looking forward, the key milestones for us now relate to the successful sale of further capacity on HYLAS 1 and HYLAS 2, the launch of HYLAS 2 and the project financing of further satellites. We have set prudent expectations for the sale of capacity, with a target of three years to fill HYLAS 1 and five years to fill HYLAS 2. It appears that the markets we serve are more than strong enough to achieve this many times over and I hope that we can fill our satellites very quickly and then finance growth in capacity on the back of success. The successful launch of HYLAS 1 is the first major step for us in creating a business which I hope will lead the World in Ka band satellite communications.

David Williams

Chief Executive

CONSOLIDATED INCOME STATEMENT

Year ended 30 June 2010

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 30 June 2010

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2010

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 June 2010

1. Basis of preparation

The final results for the year to 30 June 2010 have been extracted from the audited consolidated financial statements which have not yet been delivered to the Registrar of Companies but will be published on 1 December 2010.

The financial information set out above does not constitute the company's statutory accounts for the years to 30 June 2010 or 2009 but is derived from those accounts. Statutory accounts for the year to 30 June 2009 were approved by the Board of Directors on 24 September 2009, published on 24 September 2009 and delivered to the Registrar of Companies, and those for the year to 30 June 2010 will be published on 1 December 2010. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 in respect of the accounts for the year to 30 June 2009 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for the year to 30 June 2010.

2. Principal accounting policies

New standards applied during the year ended 30 June 2010:

The Group has adopted IFRS 8, 'Operating Segments'. 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, Avanti Communications Group plc are disclosing one segment being satellite services.

The Group early adopted IAS 23(R) 'Borrowing Costs' as of 1 July 2007.

The Group has adopted IAS 1 (revised) Presentation of Financial Statements. The amendment affects the presentation of owner changes in equity and introduces a ''Statement of Comprehensive Income''. The Group has elected to present a single statement of performance, being the Statement of Comprehensive Income.

The amendment to IFRS 2 relates to vesting conditions and cancellations for share options. No restatement of prior period information has been necessary as a consequence of adopting this standard.

Amendments to IFRS 7: Financial instruments has been adopted which gives enhanced disclosures about fair value measurements of financial instruments and over liquidity risk. Since the amendment only impacts presentation and disclosure aspects, there is no impact on the Group's results or net assets.

The Group financial statements have been prepared on a basis consistent with the IFRS accounting policies as set out on pages 31 to 35 of the audited Consolidated Financial Statements for the year to 30 June 2009, as available on our website www.avantiplc.com as augmented by the 2010 accounting standards 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 (with the exception of Avanti HYLAS 2 Limited and Avanti HYLAS 2 Launch Services Limited which have US dollars as their presentational andfunctional currency).

Principal risks and uncertainties (extracted from the Avanti Communications Group plc Annual Report 2010)

HYLAS 1 has now been successfully launched and the debt finance on HYLAS 1 repaid.

HYLAS 1 is currently undergoing in orbit acceptance. Any failure of the satellite during the first year of operations is covered by the launch insurance policy. Thereafter we will take out an annual in orbit policy that will cover issues of failure.

The demand for Ka band services is now well established. The predicted market for HYLAS 1 services over the regions which it can cover is 70 million households and SME's. HYLAS 1 is the first Ka band satellite to be deployed over Europe and can serve just 300,000 end users. We therefore anticipate that the risk of failing to sell the capacity is very small.

Whilst pricing is dynamic we do not anticipate price pressure. As stated above the market is huge and supply is extremely restricted. Even with competition, the market will remain largely unserved and as such normal supply and demand economics suggests that prices will not fall.

HYLAS 2 is due for launch in the second quarter of 2012. The satellite is fully funded and the risks are therefore similar to HYLAS 1. In addition, given that we are 18 months from launch there is a supplementary risk of delay. Delay could adversely affect our revenues, profitability and liquidity. The satellite is still on track for the due launch date.

The global economic environment remains weak. Whilst we do not expect this to affect demand for our services, macro-economics may affect exchange rates, debt market prices, credit risks, liquidity risks and interest rates.

We continue to carry a receivable of $7.6 million, under "other receivables" which was first recognised in June 2009. This amount is due from Space Explorations Inc ("SpaceX"), who Avanti originally contracted to launch HYLAS 1 on their Falcon 9 launch vehicle. However, as SpaceX had failed to generate the required launch heritage Avanti cancelled the launch services, as provided within the contract, and the monies previously paid were due to be refunded. SpaceX have failed to make the required refund and we took the dispute to arbitration in New York. The arbitrators are due to give their binding ruling in the early New Year. The directors are confident that the monies will be recovered and no provision will be necessary.

Critical accounting policies

Details of our critical accounting policies are in Note 1 (pages 33 to 38) of the audited Consolidated Financial Statements for the year to 30 June 2009, as available on our website www.avantiplc.com as augmented by the 2010 accounting standards described above.

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

Liquidated damages were received from Astrium due to the late delivery of HYLAS in November 2009. These damages compensate for the additional costs incurred as a result of the late delivery of the satellite and are recognised on a straight-line basis over the additional period that the incremental running costs were being incurred. All liquidated damages have now being recognised in the income statement.

4. Net finance income

5. Income tax (credit)/expense

The tax on the group's (loss)/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:

6. (Loss)/earnings per share

The calculation of basic and diluted (loss)/earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.

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:

8. Statement of changes in equity

Year ended 30 June 2010