1st Oct 2008 07:00
Date: 1st October 2008
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 2008
Avanti Communications Group Plc (AIM: AVN), the satellite operator, announces its unaudited Preliminary Results for the full year ended 30 June 2008.
Key points
Financial highlights
* excludes exceptional credit of £23.3 million arising on demerger from previous parent company.
Commenting on the results, John Brackenbury, CBE, Chairman said:
During the year our market has grown and we have been successful in proving that we can sell our products into it. Preparations are well advanced to manage the technical and commercial launch of HYLAS in 2009. In the USA, a similar business model to ours has already been proven with two broadband satellites launched, one of which is almost full in its second year of operation. Being the first to launch a broadband satellite in Europe gives us great confidence in our capability to deliver exceptional returns to shareholders.
Enquiries to:
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Avanti Communications Group plc |
http://www.avantiplc.com/ |
|
Nigel Fox |
020 7749 1600 |
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Redleaf Communications Ltd |
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Emma Kane/ Samantha Robbins/ Rebecca Sanders-Hewett/ Anna Dunkin |
020 7822 0200 |
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Cenkos Securities Ivonne Cantu / Julian Morse |
020 7678 8000 |
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Notes to Editors
About Avanti Communications
Avanti Communications Group plc is the only licensed Fixed Satellite Services operator headquartered in the UK (and one of only eight such groups operating in Europe);
Avanti sell satellite broadband services to distributors targeting consumer, enterprise and wholesale markets.
Avanti's first satellite, called HylasOne is under construction and due for launch in 2009; the company plans further satellite projects
Avanti, which has more than 10 years' experience in the satellite industry, currently provides satellite broadband services to customers in Europe using leased satellite capacity which it will transfer to HylasOne on launch
No further funding is required for the HylasOne project following successful completion of a long term debt facility in July 2007.
Chairman's Statement
I have great pleasure in presenting Avanti Communications Group plc's results for the year ended 30 June 2008. Our results are in line with expectations and reflect a year in which we have worked hard to prepare technically and commercially for the launch next year of our first satellite, HYLAS.
During the financial year ended June 2008, the Company has achieved a number of key milestones. We:
Our efforts to build distribution for HYLAS have been fruitful this year, with eighteen partners in ten countries now committed, with volume commitments, to selling our satellite broadband services. I believe this is evidence of the quality of our marketing, but also a testament to the novelty and appeal of our business model as well as the considerable advantages in price and service levels bestowed by our unique technology.
It is also apparent that the market for satellite broadband is growing. As we accurately forecasted in 2005, terrestrial networks leave large populations without broadband - an estimated 24 million homes in Europe. Broadband has become an essential tool for modern life both at home and in the office, and we are fortunate to be launching the first satellite which can address this market properly.
We have assembled a team of highly energetic, creative and skilled colleagues. Amongst our sixty-three employees, twenty-seven different nationalities are represented and Avanti employees have on average 1.02 degrees per person. This vibrant and highly skilled culture is a significant advantage. Avanti is Europe's first entrepreneur-created fixed satellite services company and we have only achieved this through the diversity and quality of our workforce. I want to thank the entire team this year for the skill and energy with which they continue to drive our business forward. I also welcome Ian Taylor, MBE MP, who joined the Board as a Non-Executive Director in 2008.
During the year our market has grown and we have been successful in proving that we can sell our products into it. Preparations are well advanced to manage the technical and commercial launch of HYLAS in 2009 and our company continues to offer a very exciting future.
John Brackenbury, CBE
Chairman
Chief Executive's Report
Introduction
This was our first full year of commercial service of our satellite broadband services which currently use old fashioned rented satellite capacity. We operate this service for two reasons: to test our operations systems and build our distribution channels prior to the launch of our own broadband satellite, HYLAS. With this capacity we have been able to demonstrate to our own satisfaction that the market is strong and growing and the ground components of our products (modems and software) work well in delivering customer expectations. We also spent a great deal of effort during the year developing and testing the back office systems which will be required to manage a rapidly growing customer base. We are therefore confident that our assumptions on our market, and our ability to exploit it with the more advanced and lower cost HYLAS capacity are correct and we feel technically and managerially ready to maximise our opportunity.
Business Overview
This has been a year of very tight focus on our core opportunity, which is selling satellite broadband in Europe using HYLAS. There are other things we can do to advance our business, but it was essential to ensure readiness for the launch of HYLAS. In doing so, I believe that our strategy has evolved and clarified, and as a result we are more optimistic than we were a year ago about our market opportunity.
Production of the satellite is proceeding well, and we remain on schedule to launch within the previously announced window of March to December 2009. Broadband satellites (using "Ka-band" frequencies) make it possible for the first time for satellite broadband to match or exceed both the service quality and value for money of terrestrial broadband. Via our distribution partners, end users will be able to buy satellite broadband at prices from as little as €15 per month and at speeds of 8Mb. With a further development on our modems, due in 2010, HYLAS will provide speeds of up to 200 Mb to every household within our coverage area.
Avanti serves three core markets for satellite broadband in Europe: Consumer, Enterprise and Wholesale. We serve these markets through distributors, although often we act in consortia with them to maximise the financial strength of bids. We design our commercial offering to distributors to make it as easy as possible for them to enter and grow the nascent satellite broadband market. The satellite operator market in Europe has traditionally neglected satellite broadband, because both capacity and ground hardware were too expensive to grow a large market, and also the incumbent operators are focussed on selling capacity to the television market.
Our business model is therefore as radical as our technology. We have borrowed from the mobile phone industry in creating a "Virtual Network Operator" model through the use of new bespoke software as well as a more customer focussed commercial approach. Thus a small distributor, or a large telco with small satellite needs can benefit from the economics and flexibility of being a network operator without making significant capital expenditure or staffing up a large operations team. We sell in small and flexible units of capacity, and bundle the use of our network hardware and second line customer support. This is a first in the European satellite industry and in our first full year of service operation, we have signed up distributors in Scotland, Ireland, England, Spain, Germany, Poland, Czech Republic, Italy, Serbia and Albania. All of our distributors make commitments to minimum volumes so each contract adds to our order book. Of course some customers are already large users of satellite capacity (mainly in the less price sensitive Enterprise and Government markets) and have committed to large amounts of bandwidth in order to access the lowest possible rates.
We now have a full team at Avanti which is ready for the launch of HYLAS. In building this team, we have searched the whole world looking for talent. The satellite industry has very high barriers to entry, and one of those is the difficulty in recruiting and retaining skilled staff. I believe that the entrepreneurial culture of Avanti is very new for the satellite industry, and that attracts recruits; but also our highly diverse workforce makes for a more creative and vibrant culture and an environment where creativity flourishes.
During the year we have conducted significant new market research to support our distribution channels and prioritise our efforts. One of the conclusions we drew was that in the Consumer segment 89% of European homes cannot access terrestrial broadband and this equates to a potential market of £4bn per annum for satellite broadband. Already in the UK, broadband penetration in rural areas exceeds that of urban areas so we believe a large part of this market is available to us in the immediate term. The market we anticipated in 2004 when we first began planning HYLAS has almost doubled. It is this large un-served market which has prompted the European Commission to make €1.8bn of Structural Funds available to rural broadband projects. Given Avanti's success in deploying government funded rural broadband projects for the EU, ESA and British national and regional governments, we are hopeful that with our new distribution partners in Europe we can win a significant amount of this business. The Enterprise market shows similar level of growth in demand for private corporate networks. In Wholesale, there are opportunities for us to distribute bulk data for terrestrial network operators. During the year it has become particularly apparent that the expansion of mobile broadband leaves many base stations, especially outside big cities unable to cope with the demand for "backhaul" connectivity from the base station to the network core. Therefore cellular backhaul is an increasingly important application for our product in the wholesale sector and we hope to announce significant progress in this market soon.
Outlook
Our financial results for the year are in line with market expectations, and whilst they are relatively immaterial in the context of our HYLAS business plan they do reflect the availability of a nascent but flourishing satellite broadband market. We received a sceptical response in our industry four years ago but this is no longer the case. It has become axiomatic that satellite data traffic will move to Ka band and that the new economics and service quality of Ka band will grow the satellite broadband market dramatically. Broadband has become a fundamental personal and business communication tool worldwide, and we believe it is largely insensitive to recession should one occur, especially given large scale government investment in rural broadband. We have a market which is very poorly served by limited competition and compelling technology advantages.
I am therefore highly optimistic about the market environment in which we operate and also about our readiness to exploit it. Also the success of the start up Ka band operators in the USA has pointed the way and shows that we are not trying to do anything that has not already been achieved elsewhere.
This is an exciting time to work at Avanti Communications and I look forward to reporting further progress in achieving our goals next year.
David Williams
Chief Executive
Finance and operating review
Operating performance
Revenue increased 131% to £5.92 million (2007: £2.56million) and loss from operations before exceptional credit of £23.3 million (see note 3) in 2007 reduced by 51% to £1.86 million (2007: loss £3.76* million). Gross profit margins in 2008 were 68% compared to a negative margin in 2007.
The results for the year have been impacted by two fair value adjustments as required by International Financial Reporting Standards (IFRSs) being share based payments and financial instruments.
As a result of share options issued to staff and directors during the year, £0.87 million has been recognised as a share based payments expense representing the current year allocation of the fair value of share options granted, in accordance with IFRS 2 Share based payments.
A fair value book gain of £0.12 million has been recognised as a financing gain and a corresponding derivative asset, in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The gain represents the mark to market value of USD currency options outstanding at 30 June 2008 (2007: nil) and will reverse in the following year when these options mature.
The underlying loss before taxation fell by 57% to £1.36 million (2007: loss £3.15* million before exceptionals).
* excludes exceptional credit of £23.3 million arising on demerger from previous parent company.
Exceptional items
The group separately identifies and discloses any significant one-off or unusual items (termed "exceptional items"). This is consistent with the way that financial performance is measured by management and we believe assists in providing a meaningful analysis of the trading results of the group. Exceptional items may not be comparable to similarly titled measures used by other companies.
Taxation
The tax credit of £0.36 million (2007: credit £0.90 million) represents an effective rate of 26.7% (2007: 4.5%). The group currently generates all its taxable results in the UK. Note 5 to the financial information provides details of the tax charge.
Earnings per share
Basic earnings per share fell to 3.60p loss per share (2007: 82.05p earnings per share). However, the underlying earnings per share for 2007 excluding the exceptional credit was 8.8p loss per share. Note 6 to the financial information provides details of these calculations.
Financing, cash flow and treasury
In July 2007 the Group concluded its debt financing for HYLAS with the completion of a £32 million loan. The interest accrues on a quarterly basis at LIBOR +10.5%. The loan has a 7 year bullet repayment with early repayment permitted in December 2009. At the same time the lead debt provider also subscribed for 2 million new ordinary shares at 200p per share.
The combination of this and earlier fundraising means that the HYLAS project is fully financed. The funding of the business is not at any significant risk from the current turbulence in the capital markets.
The Group has significant US dollar and Euro currency exposures. The Group's policy is to hedge all currency transaction exposures at the time of entering into a contractual commitment. To date the Euro receivables have formed a natural hedge against euro payables to Astrium (Astrium are the manufacturer of HYLAS) for HYLAS. US dollar payables have been hedged using options and forward contracts. The group has not adopted hedge accounting during the current or previous year.
Nigel Fox
Financial Director
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UNAUDITED CONSOLIDATED INCOME STATEMENT |
|||||||
|
Year ended 30 June 2008 |
|||||||
|
Note |
2008 unaudited |
2007 audited |
|||||
|
£'000 |
£'000 |
||||||
|
Revenue |
5,921 |
2,562 |
|||||
|
Cost of Sales |
(1,918) |
(2,763) |
|||||
|
Gross Profit (loss) |
4,003 |
(201) |
|||||
|
Operating expenses |
(5,861) |
(3,562) |
|||||
|
Exceptional item |
3 |
0 |
23,343 |
||||
|
(Loss) / profit from operations |
(1,858) |
19,580 |
|||||
|
Finance income |
4 |
704 |
715 |
||||
|
Finance expense |
4 |
(201) |
(99) |
||||
|
(Loss)/ profit before tax |
(1,355) |
20,196 |
|||||
|
Income tax credit |
5 |
361 |
898 |
||||
|
(Loss) / profit for the year from continuing operations |
(994) |
21,094 |
|||||
|
Attributable to: |
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|
Equity holders of the parent |
(994) |
21,094 |
|||||
|
Basic (loss) / earnings per share (pence) |
6 |
(3.60)p |
82.05p |
||||
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UNAUDITED CONSOLIDATED BALANCE SHEET |
||||||
|
As at 30 June 2008 |
||||||
|
Note |
2008 |
2007 |
||||
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ASSETS |
unaudited |
audited |
||||
|
£'000 |
£'000 |
|||||
|
Non-current assets |
||||||
|
Property, plant and equipment |
39,742 |
20,036 |
||||
|
Deferred tax assets |
1,037 |
384 |
||||
|
Total non-current assets |
40,779 |
20,420 |
||||
|
Current Assets |
||||||
|
Inventories |
249 |
31 |
||||
|
Trade and other receivables |
8,537 |
5,764 |
||||
|
Derivative financial asset |
119 |
0 |
||||
|
Cash |
7 |
35,241 |
10,651 |
|||
|
Total current assets |
44,146 |
16,446 |
||||
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Total assets |
84,925 |
36,866 |
||||
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LIABILITIES AND EQUITY |
||||||
|
Current liabilities |
||||||
|
Trade and other payables |
13,743 |
4,476 |
||||
|
Provisions for other liabilities |
86 |
- |
||||
|
Interest bearing liabilities |
545 |
1,369 |
||||
|
Total current liabilities |
14,374 |
5,845 |
||||
|
Non-current liabilities |
||||||
|
Trade and other payables |
1,365 |
1,365 |
||||
|
Provisions for other liabilities |
129 |
- |
||||
|
Interest bearing liabilities |
36,322 |
968 |
||||
|
Total non-current liabilities |
37,816 |
2,333 |
||||
|
Total liabilities |
52,190 |
8,178 |
||||
|
Equity |
||||||
|
Share capital |
8 |
277 |
257 |
|||
|
Share premium |
8 |
3,858 |
- |
|||
|
Other reserves |
8 |
1,163 |
- |
|||
|
Retained earnings |
8 |
27,437 |
28,431 |
|||
|
Total shareholders' equity |
32,735 |
28,688 |
||||
|
Total liabilities and equity |
84,925 |
36,866 |
|
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT |
||||
|
Year ended 30 June 2008 |
||||
|
Notes |
2008 |
2007 |
||
|
unaudited |
audited |
|||
|
£'000 |
£'000 |
|||
|
cash flow from operating activities |
||||
|
(Loss)/Profit from operations |
(1,858) |
19,580 |
||
|
Net foreign exchange gain |
(589) |
(1) |
||
|
Derivative gain |
(119) |
- |
||
|
Depreciation |
744 |
565 |
||
|
Write off of fixed assets |
31 |
- |
||
|
Provision for impairment of trade debtors |
188 |
- |
||
|
Onerous lease provision |
215 |
- |
||
|
Share based payments expense |
871 |
- |
||
|
(517) |
20,144 |
|||
|
Movement in working capital |
||||
|
(Increase) in inventories |
(218) |
(31) |
||
|
(Increase)/decrease in debtors |
(1,936) |
7,921 |
||
|
Increase in trade and other payables |
2 |
3,973 |
||
|
Cash (used)/generated from operations |
(2,669) |
32,007 |
||
|
Interest received |
1,756 |
715 |
||
|
Interest paid |
(201) |
(99) |
||
|
(1,114) |
32,623 |
|||
|
Cash flows from investing activities |
||||
|
Payments for property, plant & equipment |
(7,543) |
(10,305) |
||
|
Net cash used in investing activities |
(7,543) |
(10,305) |
||
|
Cash flows from financing activities |
||||
|
Proceeds from borrowings |
32,000 |
430 |
||
|
Intercompany movement - de-merger |
- |
(24,128) |
||
|
Repayment of borrowings |
(390) |
(111) |
||
|
Debt issue costs paid |
(988) |
- |
||
|
Proceeds from share issue |
4,000 |
- |
||
|
Share issue costs |
(122) |
- |
||
|
Finance lease paid |
(550) |
- |
||
|
Net cash received from/(used in) financing activities |
||||
|
33,950 |
(23,809) |
|||
|
Net increase/(decrease) in cash and cash equivalents |
||||
|
25,293 |
(1,491) |
|||
|
Cash and cash equivalents at the beginning of the financial year |
||||
|
9,948 |
11,439 |
|||
|
Cash and cash equivalents net of bank overdrafts at the end |
|
|||
|
of the financial year |
7 |
35,241 |
|
9,948 |
1.General Information
The preliminary results for the year ended 30 June 2008 have been extracted from the unaudited consolidated financial statements. These unaudited consolidated financial results were approved for issue by the Board of Directors on 30th September 2008. The financial information for the year ended 30 June 2008 and 2007 set out in this announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. Statutory accounts for 2008 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 2007 is derived from the statutory accounts for that year. The statutory financial statements for the year ended 30 June 2007 have been filed with the Registrar of Companies. The report of the auditors, Kingston-Smith 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 standards have been adopted with effect from the 1 July 2007.
IFRS 2 - Share based payments. Share options and an LTIP scheme have been introduced since the last financial year end. The fair values of the options have been estimated at the time of the grants, and will be charged to the Income Statement over the vesting periods. The approved and unapproved share options simply vest over time (normally 4 years) and the charge is spread over that period. The LTIP, for senior managers, is split into 3 tranches. The first tranche (46%) vests over 7 years. The second tranche (27%) is only exercisable if the share price reaches £5 before 30 June 2010 and the final tranche (27%) is only exercisable if the share price reaches £10 before 30 June 2013. The charges for each of these tranches are spread over the relevant period.
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 29 to 31 of the audited Consolidated Financial Statements for the year to 30 June 2007, as available on our website www.avantiplc.com/reports_accounts as augmented by those 2008 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, 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 Exceptional item
|
|
30 June
|
30 June
|
|
|
2008
|
2007
|
|
|
£’000
|
£’000
|
|
Inter-company debt repayment waived
|
-
|
23,343
|
The exceptional item in the prior year related to the write back of the inter-company loan due from Avanti Communications Group to Avanti Screenmedia Group (its previous parent). The write off had no cash flow effect.
4 Net finance income
|
|
30 June
|
30 June
|
|
|
2008
|
2007
|
|
Interest expense
|
£’000
|
£’000
|
|
Borrowings and loans
|
(130)
|
(60)
|
|
Finance leases
|
(71)
|
(39)
|
|
|
(201)
|
(99)
|
|
Interest income
|
|
|
|
Bank deposits
|
585
|
715
|
|
Fair value gain on derivatives
|
119
|
-
|
|
|
704
|
715
|
|
Net finance income
|
503
|
616
|
5 Income tax credit
|
|
30 June
|
30 June
|
|
|
2008
|
2007
|
|
Current tax
|
£’000
|
£’000
|
|
Current tax
|
247
|
-
|
|
Total current tax
|
247
|
-
|
|
Deferred Tax
|
|
|
|
Origination and reversal of temporary differences
|
(651)
|
(898)
|
|
Adjustment in respect of prior periods
|
25
|
-
|
|
Impact of change in UK tax rate
|
18
|
-
|
|
Total income tax credit
|
(361)
|
(898)
|
|
|
|
|
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
|
30 June
|
|
|
2008
|
2007
|
|
|
£’000
|
£’000
|
|
(Loss) / Profit before tax
|
(1,355)
|
20,196
|
|
Tax charge at corporate tax rate of 29.5% (2007: 30%)
|
(400)
|
6,059
|
|
Tax effect of non-deductible expenses
|
49
|
18
|
|
Tax effect of non-taxable revenue
|
-
|
(7,002)
|
|
Effect of deferred tax charged for the period
|
-
|
27
|
|
Previously unrecognised tax losses
|
(53)
|
-
|
|
Adjustment in respect of prior periods
|
25
|
-
|
|
Impact of change in UK tax rate
|
18
|
-
|
|
Income tax credit
|
(361)
|
(898)
|
Deferred tax balances have been re-measured as a result of the change in the UK Corporation Tax rates from 30% to 28% effective from 1 April 2008. Deferred tax relating to temporary differences which are expected to reverse after 30 June 2008 is measured at the tax rate of 28% as these are the tax rates that will apply on reversal.
6 (Loss)/Earnings per share
|
|
30 June
|
30 June
|
|
|
2008
|
2007
|
|
|
pence
|
pence
|
|
Basic and diluted (loss)/earnings per share
|
(3.60)
|
82.05
|
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. There is no dilution to the basic earnings per share calculation required as any adjustments would be anti-dilutive.
|
|
30 June
|
30 June
|
|
|
2008
|
2007
|
|
|
£’000
|
£’000
|
|
(Loss)/Profit for the year attributable to equity holders of the parent company
|
(994)
|
21,094
|
|
Weighted average number of ordinary shares for the purpose of basic and diluted earnings per share (all measures)
|
27,587,955
|
25,708,503
|
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
|
30 June
|
|
|
2008
|
2007
|
|
Group
|
£’000
|
£’000
|
|
Cash and bank balances
|
1,050
|
3,651
|
|
Short term deposits
|
34,191
|
7,000
|
|
Cash
|
35,241
|
10,651
|
|
Bank overdraft
|
-
|
(703)
|
|
Cash and cash equivalents
|
35,241
|
9,948
|
8 Statements of changes in equity
Year ended 30 June 2008
|
Group |
Share capital |
Share premium |
Share based payments reserve |
Retained earnings |
Total reserves |
|
2007 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 July 2006 |
- |
180 |
- |
7,414 |
7,594 |
|
Profit for the year |
- |
- |
- |
21,094 |
21,094 |
|
Intercompany movement following de-merger |
257 |
(180) |
- |
(77) |
- |
|
At 30 June 2007 |
257 |
- |
- |
28,431 |
28,688 |
|
2008 |
|||||
|
At 1 July 2007 |
257 |
- |
- |
28,431 |
28,688 |
|
(Loss) for the year |
- |
- |
- |
(994) |
(994) |
|
Issue of share capital |
20 |
- |
- |
- |
20 |
|
Premium on shares issued |
- |
3,858 |
- |
- |
3,858 |
|
Share based payments |
- |
- |
871 |
- |
871 |
|
Tax credit taken directly to reserves |
- |
- |
292 |
- |
292 |
|
At 30 June 2008 |
277 |
3,858 |
1,163 |
27,437 |
32,735 |
Related Shares:
AVN.L