INC.L Regulatory News (INC)

2 Oct 2006 07:02

Avanti Screenmedia Group PLC02 October 2006 For Release 7am 2 October 2006 Avanti Screenmedia Group plc ("Avanti") Preliminary Results Avanti Screenmedia Group plc (AIM: ASG.L), the UK media and telecommunications business, is pleased to announce its final results for the year ended 30 June 2006. Key points: •Results demonstrate significant year on year growth •Turnover up 54% to £12.9m (2005: £8.4m) •Profit after tax up 55% to £3.1m (2005: £2.0m). •EPS of 16.26p (2005: 18.25p) following £25m placing •Net Cash of £10.0.m (2005: £2.05m) •The Networks division had a year of exceptional achievement • Avanti secured a spectrum licence from Ofcom making Avanti the only UK domiciled broadcast satellite operator and one of only eight in Europe • Avanti bought HYLAS, a satellite to be launched in 2008 (funded by a £25m government grant and a £25m equity placing) • Avanti pre sold 7.5% of HYLAS capacity for up to £25m •The Media division has made an excellent start to the year with recent, pioneering contract wins (SPAR, Woolworths, Setanta, MoMedia) John Brackenbury, Chairman, said: "I am delighted once again to present strong results showing excellent profitgrowth and a robust balance sheet. Both divisions have achieved key milestonessince I last reported. The Media division is now reaching its required critical mass, and we havefinally achieved the presence in the retail sector that we believe is a crucialcatalyst in bringing advertisers into the market. In the Networks division, we have achieved something incredibly rare - thecreation of a new European satellite operator with fantastic spectrum licensedfor a Pan-European footprint. The opportunities here are yet to be fullyappreciated, and although the timescales are quite long and our visionextensive, we will be working hard this year to communicate its true value. Thesatellite business is one with distant horizons, and our youthful managementteam is strongly committed to building value here for the long term. We areconvinced that its value will be transformational. We have made an excellent start to the year and the outlook for 2007 istherefore good." Enquiries: Avanti Screenmedia Group plc 020 7749 1600David Williams, Chief Executive Smithfield 020 7903 0676Sara MusgraveMiranda Good About Avanti: Avanti Screenmedia Group plc operates in two quite different divisions: Networksand Media. NetworksThrough its Networks division, Avanti is the only UK domiciled broadcastsatellite operator with its first satellite, HYLAS, funded and underconstruction for launch in 2008. In August 2005 Avanti was awarded by Ofcom the right to use the geo-stationaryorbital position at 33.5degreesW with 3.6Ghz of radio spectrum to operatesatellites. Avanti will use this to provide wholesale satellite servicesservices in Europe. MediaAvanti is the clear market leader in digital outdoor advertising, building anddeploying plasma screen networks in retail and leisure environments foradvertising, product promotion and customer entertainment. Avanti operates the UK's largest pub and shopping mall screenmedia network withapproximately 5,000 plasma screens installed throughout the country and inSeptember 2006 signed a groundbreaking deal to install plasma screens within 206SPAR convenience stores in the UK. In September 2006, Avanti won the advertising sales mandate for Setanta Sports.From August 2007 Setanta will broadcast English and Scottish Premiershipfootball into 45,000 pubs in the UK and Avanti has exclusive rights to selladvertising on this channel. Avanti listed on AIM, a market operated by the London Stock Exchange, on 9thJuly 2004, at an issue price of 130.0p. Avanti is included in the FTSE Mediasector and has a RIC code of ASG.L. CHAIRMANS REPORT Introduction I am delighted to present our results for the year ended 30 June 2006. Avantioperates under two quite different divisions: Networks and Media. In Networks,we are an emerging satellite operator, and the only licensed broadcast satelliteoperator in the UK. In Media, we are a clear market leader in the out of homedigital sector, building screen networks in retail and leisure environments foradvertising, product promotion and customer entertainment. For the Networks division, the year was one of quite exceptional achievement: InSeptember 2005, Avanti secured an authorisation from Ofcom for 3.6Ghz ofsatellite frequency, making Avanti the only licensed broadcast satelliteoperator in the UK. At the same time, Avanti received £25m of government fundingfrom ESA, which it complemented with a £25m placing to procure its firstsatellite, HYLAS, to be launched in 2008. Avanti thus entered the market forwholesale provision of satellite capacity, a market with high barriers to entry,limited competition and in Western Europe, premium pricing. We were delighted toannounce the sale in June of 7.5% of HYLAS capacity for up to £25m. The Media division continues to mature, and although some key contracts wereslightly delayed, we have been pleased to be able to announce over the course ofthe last week that a number of these have now been completed. Our success in theretail sector, along with the addition of Premiership football to our portfoliohas in our opinion created a mature media business capable of maintaining itscommanding lead in the digital outdoor advertising space. Advertising revenuesgrew strongly in the year, demonstrating increasing market acceptance of ourmedium. Results Our results for the year demonstrate significant year on year growth. Turnoverrose 54% to £12.9m (2005: £8.4m), and profit before tax increased 55% to £3.1m(2005 - £2.0m). The revenue mix was not quite as expected with contract delaysin the Media business being offset by early success in the sale of some HYLASsatellite capacity and associated network design services in the Networksdivision. EPS fell by 11% to 16.26p (2005 - 18.25p) following the £25m placingin association with the purchase of the HYLAS satellite. Some of the delayedMedia contracts have been concluded following the period end, providing a solidstart to the new financial year. The Company ended the year with net Cash of£10.0m. During the year, the Company was awarded government funding of £25m towards thecapital expenditure cost of procuring its first satellite, complemented by a£25m placing in November 2005. Avanti signed a contract to procure the satellitefrom EADS Astrium in May 2006, although work had been underway via preliminaryagreements since December 2005. I am pleased to report that the project iscurrently proceeding on schedule with no unforeseen problems. In June the Company was successful in selling three transponders (7.5% of HYLAS'full capacity) plus associated design services for £25 million. Of this, twotransponders represent options which the Company expects to be exercised. Thefirst transponder was sold outright, with £5m of the fees relating to designservices and therefore taken to P&L within the year. Board We offer our thanks to non-executive director David G. Williams who left theboard on 30th September, his insights have been valuable and we wish him well. We welcome to the board Richard Vos. As former Chairman of the world's largestsatellite company, Intelsat, Richard's experience in the global satelliteindustry is incomparable and his contribution to the board will be invaluable. Dividend The Networks Division requires further capital expenditure and the boardtherefore concludes that it would not be appropriate to recommend payment of adividend. Conclusions I would like to thank the staff of Avanti for their exceptional hard work anddedication during the year; I believe we have made dramatic progress this year. The Media division is now reaching its required critical mass, and we havefinally achieved the presence in the retail sector that we believe is a crucialcatalyst in bringing advertisers into the market. In the Networks division, we have achieved something incredibly rare - thecreation of a new European satellite operator with fantastic spectrum licensedfor a Pan-European footprint. The opportunities here are yet to be fullyappreciated, and although the timescales are quite long and our visionextensive, we will be working hard this year to communicate its true value. Thesatellite business is one with distant horizons, and our youthful managementteam is strongly committed to building value here for the long term - we areconvinced that this value will be transformational. Our shareholders have beenincredibly supportive of our efforts in this sector and we are very excitedabout the returns we can deliver to them. We have made an excellent start to the year and the outlook for 2007 istherefore good. John Brackenbury, CBEChairman CHIEF EXECUTIVE'S REPORT Summary of Avanti's business Avanti operates two divisions: Media and Networks. MEDIA Avanti is the market leader in the UK for the provision of screenmedia services,whereby it builds satellite or terrestrial content distribution and screennetworks, creates channel strategies, makes video content and sells media space.Clients use this service to entertain customers, build their brand, promoteproducts and sell advertising at or close to the point of sale. Avanti is the only supplier in the UK market with a complete turnkey competencein-house, from engineering and network maintenance to video production and mediasales. Avanti supplies these services in two core sectors: Leisure and Retail. Leisure Avanti supplies pop music video channels to pubs and clubs. Its premier product,called Genie, is a Video DJ system which enables bar managers to customise andtake control of their audio visual entertainment. Avanti also sells advertisingon these channels; clients are attracted to Avanti's ability to deliver theirmessage to the elusive 18-30 demographic - not typically a large consumer ofmedia and therefore hard for advertisers to reach. Avanti's expertise in the leisure media market has recently resulted in itswinning the advertising sales mandate for Setanta Sports. From August 2007Setanta will broadcast English and Scottish Premiership football into 45,000pubs in the UK and Avanti has exclusive rights to sell advertising on thischannel. This is an exciting revenue opportunity for Avanti, but also increasesits profile in the media industry where football is a highly sought after mediaproperty, giving Avanti many more opportunities to engage a wider group of mediaclients with a highly coveted product. Retail Avanti operates the country's largest shopping mall screenmedia network withscreens installed in 34 malls. The channels provide a combination ofinformation, entertainment and product promotion and offer advertisers anopportunity to create a call to action close to the point of sale, directing customers' shopping journeys and influencing behaviour. Our pilot scheme for Woolworth's has been sufficiently successful that theinitial two-store project will now be increased to a further twelve stores.Avanti hopes that this success will continue and ultimately result in a largescale roll out during the current financial year. Recently Avanti was successful in securing its first large scale retail roll outfor SPAR. We believe that convenience stores are the perfect environment forscreenmedia because they combine the benefits of a large number of available FMCG (Fast Moving Consumer Goods) brands with a strong impulse purchase element.FMCG brands account for a large proportion of UK advertising spend and it hasbeen important to find an opportunity to bring these brands into the screenmediamarket, which is what we believe our contract with SPAR will achieve. NETWORKS During the year Avanti was awarded a satellite license by Ofcom to use 3.6Ghz ofradio spectrum from an orbital position of 33.5degreesW. To put this intocontext, 3.63Ghz is approximately twice as much radio spectrum as the governmentauctioned in the 3G auction in 1999. From 33.5degreesW, Avanti's satellite willbe able to transmit to most of Europe, excluding Scandinavia, and as far east asHungary. The capacity awarded is sufficient, in principle, to support numeroussatellite launches. Avanti has financed and procured its first satellite, calledHYLAS. HYLAS will be used for the following purposes: • The provision of wholesale capacity to terrestrial telecoms, television and data network operators • The provision of wholesale capacity to satellite broadband operators • The provision of Direct To End User satellite broadband services in the UK The business plan is not predicated upon entering the Direct To Home satelliteTV market. Avanti might consider such opportunities, should they arise, butthese have not been factored into our projections for the commercial value ofHYLAS. Avanti believes the demand for its capacity is driven by the following factors: • High Definition Television consumes up to ten times as much satellite capacity as standard digital TV, resulting in serious demand pressure on those orbital positions that are used for DTH, and the resultant crowding out of other applications and increase in pricing • Terrestrial networks such as 3G, DTT and DSL are all being used to transmit a rapidly increasing volume of video at higher data rates. These networks struggle to find the capacity required close to the end user, and satellite has an increasing role to play here, in what is known as "edge-casting" • Standard IP backbone traffic is growing very rapidly • Corporate data networks were the most rapidly growing satellite market in 2005 - Avanti has core expertise here The European satellite market has attractive characteristics: • There are no satellite licenses left • There are only seven other operators • Average satellite capacity utilisation in Europe was 78% in 2005 (including old or spare satellites or those in positions or with frequencies of limited use) and this is expected to rise(1) • Average revenue per transponder in Europe in 2005 was €2.49m per annum In the face of this tight market with high pricing, Avanti is building a highlyadvanced satellite which re-uses frequencies efficiently and is able to extractunusually high capacity from a small payload. HYLAS has up to 40 (36 MHzequivalent) transponders available and a lifetime of 15 years. Thefully-launched costs of the satellite are approximately €110m equating tocapital costs per transponder of approximately €183,333 per annum. Operatingexpenses for a satellite operator are low, limited to a small amount of groundinfrastructure, sales and operational staff and ongoing insurance. Europeanaverage pricing of €2.5m per annum therefore gives a high margin for priceflexibility. Avanti believes that given the supply and demand characteristics, it is likelyto find customer demand and justification for the launch of additionalsatellites. However, Avanti has no intention of approaching the equity marketfor funding in the near future, and would only order a second satellite if thedemand was proven through pre-sales on HYLAS, in which case the debt projectfinance market is likely to provide a strong source of funding. The AIM markethas proven to be a first rate market for Avanti and the Company intends toremain on AIM for the long term. We will be closely reporting on the progress of the satellite construction. Workon the contract began in December 2005. The project is currently running on timeand satisfactorily passing all milestones. We have appointed Marsh to arrangeinsurance for the satellite, and will select a launch vehicle provider duringthe next six months. Avanti also currently deploys corporate data networks using rented satellitecapacity. We intend to build up a customer base which will then switch over toHYLAS when it is launched, generating a massive increase in the gross margin ofthose customer contracts. We have been selling services directly, but ourreseller activity has been the biggest early success for us. As a result, we nowhave over 1,200 customers using our satellite broadband services. Having taken acautious approach to the initial deployment, we are now confident that we are incontrol of technology and process and intend to build our reseller base rapidlyin the coming year. NEW CONTRACTS During the year, Avanti enhanced the quality of its pub and mall estates, withcontract wins from Regent Inns, TCG, M&B, Meadowhall and Cribbs Causeway. Thefootball World Cup proved successful for advertising, resulting in Avanti'sfirst ever target beating advertising quarter. During the year, we deployed anetwork of Bluetooth servers in 400 malls and pubs, enabling us to offer mobilemessaging aligned to screen advertising. This proved attractive to advertisersduring the World Cup and could become a significant future source of revenue. In Networks, as detailed above, we received our Ofcom license, but also wereawarded £25m of grant funding from the European Space Agency to cover part ofthe cost of HYLAS. Also, we successfully sold our first capacity on HYLAS. In adeal worth up to £25m: one transponder was sold, and two were optioned (Avantiexpects the options to be exercised). Thus, we have demonstrated that at a priceof £555k per transponder annum there is serious demand for the capacity, eventwo years before launch. Having shown the market that Avanti has arrived, we donot intend to pre-sell further capacity at a similar discount, but hope to buildup a strong revenue backlog in the coming year. The sale of corporate data network contracts was commenced during the year,exceeding targets significantly. CURRENT TRADING AND FUTURE PROSPECTS The Company has made a very strong start to the new financial year. SPAR is thefirst retailer to sign a long term, fully commercial roll-out contract forplasma screens and the groundbreaking agreement is expected to be a significantcatalyst event for the screenmedia market. The first contract for SPAR TV with Tates, the largest operator of SPAR storesin the UK, is very valuable to us. We also hope to extend the channel to theoperators of other SPAR stores around the country, targeting 1,000 fully paidinstallations. Our success in winning the advertising mandate for the Setanta Premiershipfootball channels broadcast into 45,000 pubs is expected to change the way inwhich Out of Home digital media is perceived, and to assure Avanti's place inthat sector. Football is a highly sought after media property and this contractsubtly changes the nature of our relationship with media agencies, giving us amore valuable and easier to understand media offering. The media sales contractsigned in the transport sector to sell advertising on the screens deployed on700 commuter buses by Motional Media also extends our offering into a moretraditional part of the outdoor advertising market. The last financial year has been an exceptionally busy one for the Company.Winning the Ofcom license, the ESA funding, negotiating and signing thesatellite procurement contract, appointing insurance brokers and selling ourfirst capacity is not a list of actions I would have expected to achieve in justa single year. However an extremely talented and dedicated team have made allthat possible. On the Media side of our business, although they were completed alittle late, we have achieved the crucial large scale retail roll out, and wonsome other exciting contracts which puts the business in very good shape. I am proud of our achievements this year, and hope that our shareholders shareour excitement about the future. D J WilliamsChief Executive GROUP PROFIT AND LOSS ACCOUNTFor the year ended 30th June 2006 Notes Unaudited Audited Year Year ended 30/06/06 ended 30/06/05 £'000 £'000 Turnover 12,852 8,440Cost of sales (3,381) (3,277) ---------- --------- Gross Profit/(Loss) 9,471 5,163 Administration expenses (6,805) (3,233) ---------- --------- Operating Profit/(Loss) 2,666 1,930 Interest receivable 594 80Interest payable (189) (110) ---------- --------- Profit on Ordinary Activities beforeTaxation 3,072 1,900 Tax on profit on ordinary activities - 83 ---------- --------- Retained Profit for Year 3,072 1,983 ========== ========= Earnings per Share Basic earnings per share 3 16.26p 18.25p ========== ========= Diluted earnings per share 3 14.78p 16.34p ========== ========= There are no recognised gains or losses other than the profit for the financialyear GROUP BALANCE SHEETAt 30th June 2006 Note Unaudited Audited At 30/06/06 At 30/06/05 £'000 £'000 £'000 £'000Fixed AssetsTangible Assets 13,302 3,538Intangible Assets - Goodwill 1,969 2,015- Negative Goodwill 2 - (441) -------- -------- 15,271 5,112 Current AssetsStocks 505 109Debtors 16,027 5,367Cash at Bank and in Hand 12,159 4,292 -------- -------- 28,691 9,768 -------- --------Creditors: Amounts falling due within (5,164) (3,754)one year -------- -------- Net Current Assets 23,527 6,014 -------- -------- 38,798 11,126 -------- --------Creditors: Amounts falling due after one year (1,040) (835) -------- -------- Net Assets 37,758 10,291 ======== ======== Capital and ReservesCalled up Share Capital 228 123Share Premium Account 31,781 7,491Profit and Loss Account 5,749 2,677 -------- -------- Shareholders' Funds 37,758 10,291 -------- -------- GROUP CASH FLOW STATEMENTFor the year ended 30th June 2006 Unaudited Audited 2006 2005 £'000 £'000 Net cash (outflow) from operating activities (5,969) (757)Returns on investments and servicing of finance 405 (31)Taxation - 83Capital expenditure and financial investment (11,023) (1,234)Investment in subsidiary undertaking - (542) --------- ---------Net cash (outflow) before financing (16,587) (2,481)Financing 25,158 6,410 --------- ---------Increase in cash 8,571 3,929 ========= ========= Reconciliation of Operating Profit to Net Cash (Outflow) from OperatingActivities Operating profit 2,666 1,930Depreciation 1,409 839Amortisation of goodwill (397) (444)Decrease / (Increase) in stocks (397) 44(Increase) in debtors (10,660) (4,072)Increase in creditors 1,410 946 --------- --------- (5,969) (757) ========= ========= Reconciliation of Movement of Net CashNet Cash / (Debt) at start of year 2,052 (947)Increase in cash 8,571 3,929Cash (inflow) from increase in loans 40 (129)Cash inflow from increase in finance lease obligations (698) (801) --------- ---------Net Cash at close of year 9,965 2,052 ========= ========= Analysis of Funds / (Net Debt)Cash at bank and in hand 12,159 4,292Bank overdrafts (140) (845) --------- --------- 12,019 3,447Bank loans due within one year (122) (222)Bank loans due within one year (402) (341)Finance leases and hire purchase agreements (1,530) (832) --------- ---------Net Cash at close of year 9,965 2,052 ========= ========= Notes 1. Presentation of results This Preliminary Statement was approved by the directors on 29th September 2006. The results have been prepared using accounting policies and practicesconsistent with those adopted in the 2006 Report and Accounts but have not beenaudited. The audited results of Avanti Screenmedia Group plc for the twelve months ended30th June 2005 have been filed with the Registrar of the Companies and on whichthe auditors gave an unqualified audit opinion. The financial information contained in this Preliminary Statement does notconstitute statutory accounts as defined by Section 240 of the Companies Act1985. 2. Negative Goodwill written back Negative Goodwill arising on the acquisition of Translucis Holdings Limited isbeing amortised over a period of 36 months from 1st June 2003 and is beingmatched to the depreciation of the revalued assets from which it arose. 3. Basic and diluted earnings per share The calculation of the basic and diluted earnings per share is based on theearnings attributable to ordinary shareholders, divided by the weighted averagenumber of shares in issue during the year. Earnings per share of 16.26p (2005: earnings per share of 18.25p) is calculatedon the profit attributable to ordinary shares of £3,701,565 (2005: £1,983,201)divided by the weighted number of ordinary shares in issue during the year. 2006 2005Computation of basic earnings per share: Net profit £3,071,565 £1,983,201Weighted average number of shares outstanding 18,855,333 10,867,501Basic earnings per share 16.26p 18.25p Computation of diluted earnings per share: Net profit £3,071,565 £1,983,201Weighted average number of shares outstanding 20,783,106 12,138,947Basic earnings per share 14.78p 16.34p --------------------------(1) EUROCONSULT 2006 This information is provided by RNS The company news service from the London Stock Exchange