AVN.L Regulatory News (AVN)

Avanti Communications Group plc

Q3 Trading Update

London - 12 May 2014. Avanti Communications Group plc (AIM: AVN, "Avanti" or "the Company"), the satellite operator, has published today its trading update for the nine months ended 31 March 2014.

Key developments

• 26 new contracts in the period

• World first fully commercial 3G IP cellular backhaul project with Vodafone

• Demonstrated World first 4G backhaul network for a government customer

• Continuing sales momentum with a range of high quality customers

Financial highlights

• 9 month revenues of $39million

• 9 month EBITDA of $(2) million

• Cash at period end of $65 million

• Net Debt at period end of $299 million

• Backlog at 31 March 2014 of $458 million

Commenting, David Williams, Avanti Chief Executive said:

"The business has clearly reached some important milestones this year. The quality and flexibility of our products continue to bring a strong flow of both new customers and order increases. Predicting short term outcomes remains imprecise, but the growth in the scale and quality of the customer base, and in particular the repeat customer rate and shortening sales cycle gives us confidence that we are building a profitable and enduring business."

Chief Executive's Commentary

During the quarter we signed and announced important contracts in each of our sectors. We announced a World first fully commercial 3G IP cellular backhaul project with Vodafone, which has proceeded to plan and we demonstrated the World's first 4G backhaul network for a government customer. We won the business of several consumer broadband services providers such as Avonline, Gondwana and Telone from competitors. We won new government business in Africa and the UK. In Enterprise, we secured our place in the outside broadcasting market by providing service for a growing number of events in Africa and Middle East for the BBC, Reuters and others.

Backlog increased to $458m, a net increase of $3million since December, meaning that the backlog taken to revenue (causing backlog to fall) was more than offset by new orders taken (additions to backlog).

We signed 26 new contracts in the period, of which additional orders from repeat customers numbered 10. We now have a total of 132 customers.

We also report on two additional KPIs which are used internally to track progress: Customer Increase Rate and Sales Cycle.

During the quarter, the Customer Increase rate was 32%. This means that 32% of the value of all new orders taken were from existing customers increasing their bandwidth, (i.e. existing customers buying additional capacity to service their growth in existing or new territories rather than renewals of expired contracts). This rate has increased from 12% in March 2013.

This is a natural consequence of our strategy to make customer entry easy by allowing them to sign small commitment or framework contracts initially, which are generally followed by multiple long term orders. It is much easier to sell more services to existing customers than to sign new customers, and this points to a healthy growth curve.

In the early days of selling service, we found that deals took much longer to close than we had anticipated, and there is still an element of that. However, the Sales Cycle has compressed significantly this year, and in this quarter. The Sales Cycle is quantified by the number of days a potential sale spends on the pipeline before the contract is signed. A deal enters the pipeline software system as soon as a price proposal is sent. The average days on pipeline in 2013 was 125 days. The average for the trailing twelve month period was 106 days. The average in Q3was 91 days.

The combination of a shorter Sales Cycle and growing Customer Increase rate tells us that the business is gaining traction as the market has accepted our product, understands its purpose and capabilities and our customers like what we do. We have leadership in Ka-band with spectrum filings at three orbital locations in the ITU Master Register. As a result we have a very strong position versus other operators wishing to follow us into this market in future, in an environment where spectrum is becoming increasingly scarce and valuable.

Current Trading and Outlook

Avanti has faced many challenges as it has pioneered the use of Ka-band satellites for data communications in Europe, the Middle East and Africa. We experienced significant delays in the launch of HYLAS 1 and HYLAS 2. We also found more initial conservatism in the target customer base than expected, putting us behind our business plan. However, we now know that we have a product which is superior to the competition in quality and flexibility. We now have 132 customers, with the base growing strongly each quarter, and a very strong repeat rate.

Precise forecasting remains difficult, given that we have grown quickly from a small revenue base and large contracts have a disproportionate impact on quarterly outcomes. Trading in Q4 has started well. We have good visibility over around 90% of expected full year revenues due to the step up in escalating bandwidth contracts ("ramps"), the anticipated conversion of major tenders that have been awarded into contracts with payments commencing in Q4 and the achievement of milestones in some contracts. Further achievement in the quarter is dependent upon conversion of pipeline to revenue and closing and billing tenders that have been awarded before year end. 

Our momentum is picking up and growth is starting to look more like a J-curve than a straight line. Our performance against these KPIs gives us confidence that we continue to expect to achieve our objective of selling our capacities out during 2016.

For further information please contact:

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

David Williams, Chief Executive

Nigel Fox, Finance Director

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

Tulchan Communications Tel: +44 (0) 20 7353 4200James Macey-White

About Avanti

· Avanti is a carriers' carrier, selling wholesale data telecoms to service providers which use them to create networks for enterprise, carrier, government and consumer users.

· Avanti serves customers in Europe, Middle East and Africa.

· Avanti's network consists of three satellites in orbit plus a fourth under construction and an international fibre network connecting data centres in several countries.

· Customers access the fleet through the Avanti Cloud platform, the most powerful proprietary system in the Industry.

· Avanti has Ka band (and some Ku and S band) spectrum filings in the ITU Master Register at 33.5°W, 21.5° East and 31.0° East