Unaudited Interim Results for the twelve months ended 30 June 2018
Avanti Communications Group plc (“Avanti” or the “Group”), a leading provider of satellite data communications services in Europe, the Middle East and Africa, issues the following results for the twelve months ended 30 June 2018.
Highlights to 30 June
- HYLAS 4 launched successfully and now in service at 33.5W
- Balance sheet restructuring completed by equitizing the 2023 notes in April
- Revenue for the six months to June 2018 increased 23% to $29.9 million (2017: $24.3 million)
- EBITDA for the six months to June 2018 increased to $4.7 million from an EBITDA loss in 2017 of $26.2 million
- Kyle Whitehill joined as Chief Executive on 3 April 2018
Highlights post 30 June
- Successful arbitration proceedings against the Government of Indonesia and subsequent receipt of $20.1 million
- Master Distribution Agreement agreed with Comsat, gaining access to US Government
- $10 million contract signed with Viasat for HYLAS 4 capacity
- Seven-year wholesale capacity agreement signed for $84 million
Kyle Whitehill, Avanti’s CEO said:
“The restructuring of the balance sheet and the launch of HYLAS 4 has given Avanti the platform for growth. This is supported by the recently announced contract wins with Comsat and Viasat and develops our Government and wholesale strategy.”
For further information, please contact:
Avanti: Chris McLaughlin / Nigel Fox +44 (0)207 749 1600
Cenkos Securities: Max Hartley (Nomad) / Nicholas Wells, +44 (0)207 397 8900
Montfort: Nick Miles / James Olley, +44 (0)203 770 7909
Redleaf: Ralph Anderson
Notes to editors
Avanti connects people wherever they are – in their homes, businesses, in government and on mobiles. Through the HYLAS satellite fleet and more than 180 partners in 118 countries, the network provides ubiquitous internet service to a quarter of the world’s population. Avanti delivers the level of quality and flexibility that the most demanding telecoms customers in the world seek.
Avanti is the first mover in high throughput satellite data communications in EMEA. It has rights to orbital slots and Ka band spectrum in perpetuity that covers an end market of over 1.7bn people.
The Group has invested $1.2bn in a network that incorporates satellites, gateway earth stations, datacentres and a fibre ring.
Avanti has a unique Cloud based customer interface that is protected by patented technology.
The Group has three satellites in orbit and HYLAS 3 under construction.
Avanti Communications is listed in London on AIM (AVN:LSE).
This announcement contains Inside Information.
The six-month period ended 30 June 2018 was dominated by three key events for Avanti; the restructuring of the balance sheet, the successful launch of Hylas 4, and the arrival of Kyle Whitehill as CEO.
The restructuring was completed in April when the shareholders approved the equitisation of the 2023 notes in exchange for 92.5% of the issued share capital. In addition, we extended the maturity of the 2021 notes by one year to 2022 and reduced the coupon to 9% from 12.5% which can be paid in cash or in-kind. The result of this is a reduction in annual interest expense by approximately $90 million.
HYLAS 4 was successfully launched by Arianespace on 6 April from French Guyana. After a 90-day stop at 21.5E to bring that slot back into use, HYLAS 4 arrived at its final position at 31.5W in August and is now in service. This increases our total footprint capacity to 45 Ghz.
HYLAS 3, our co-payload condosat, has now completed TVAC testing and the EDRS-C satellite is continuing the environmental test campaign with preparation for mechanical test. We expect HYLAS 3 to launch in the middle of 2019.
Since the period end we were successful with our arbitration proceedings against the Government of Indonesia. In early August 2018, we received $20.1 million in full settlement. This enabled us to reverse the bad debt provision made in an earlier period.
With the launch of HYLAS 4, the vast majority of our capacity is now focused on Sub-Saharan Africa and the Middle East. We have concluded that we need a greater customer facing presence in the regions. We are building a hub structure with key offices in Johannesburg, Cyprus, Lagos, Nairobi and London.
In addition, we are also establishing a strategic presence in Washington, D.C. which will be purely focused on selling our Mil-Ka capacity to the US Government and related agencies.
We have concluded a unique Master Distribution Agreement with Comsat Inc, USA. They are a fully approved, long term satellite communications supplier to the US Department of Defense,
US Government and other related agencies. The seven-year contract enables Avanti to immediately access these key growth markets to offer its HTS network.
In August we signed our first HYLAS 4 contract for steerable capacity. This contract is worth $10 million over two years.
We are also extending our reach into higher value segments. We now have six channels to market being consumer broadband, cellular backhaul, enterprise data networks, civil and military government, and wholesale to other satellite operators.
The past eighteen months have been difficult for Avanti from a financial perspective. With these issues now largely behind us and with our revised strategy, engagement and branding we are firmly focused on delivering recurring core bandwidth revenue with the aim of increasing this by double digit percentage year on year.
The interest in HYLAS 4 evidenced by the initial contracts with Viasat and Comsat, gives us confidence that we will deliver solid progress in utilising the capacity of our fleet over the coming months.
Revenue increased by 23.0% to $29.9 million for the six months to 30 June 2018 from $24.3 million for the comparative period. Revenue for the twelve months to 30 June 2018 decreased by $6.6 million to $50.0 million from $56.6 million.
Costs of sale decreased by $27.2 million to $8.1 million in the 6 months to 30 June 2018 against $35.3 million in the 6 months to 30 June 2017. Cost of sale for the twelve months to 30 June 2018 decreased by $32.9 million to $26.5 million compared to $59.4 million for the comparative period. The significant decrease in both periods is largely the result of a release of $12.5 million bad debt provision relating to the Government of Indonesia arbitration ruling in June 2018, and $13.9 million bad debt expense in June 2017 for the same case.
Staff and other operating expenses for the six months were $22.4 million compared to $16.6 million for the six months to 30 June 2017 due to an end to a hiring freeze in place for the first six months of 2017. Other operating income increased from $1.4 million to $5.3 million, reflecting compensation for late delivery of the HYLAS 3 and HYLAS 4 satellites.
This resulted in EBITDA of $4.7 million for the six-month period compared to an EBITDA loss of $26.2 million primarily driven by the Government of Indonesia settlement. EBITDA adjusted for the Government of Indonesia bad debt provision and subsequent reversal for the six-month period was $7.8 million loss (2017: $12.3 million loss).
The finance expense not including exceptional items decreased by $8.6 million to $50.9 million in the six months to 30 June 2018, as a result of the debt restructuring which converted the outstanding 2023 notes to equity, and reduced the rate of interest on the PIK Toggle Notes from 12.5%/15% to 9%/9%. For more information see note 11.
The Group has recently signed contracts for new business in excess of $100m and obtained a commitment for an additional $34.5m of debt, which is expected to close within the next month. After closing this facility, the Group may require a modest amount of additional funding over the next year and a half, the amount of which will depend on various operating and strategic developments. Although it is never certain that funds will be available when they are needed, the Group believes it has ample ability to obtain this additional funding from multiple different sources, including but not limited to, sales of additional second lien debt and/or equity. The Group is currently reviewing its plans to raise additional capital in light of these positive material developments and has prepared these interim financial statements under a going concern basis.
For the twelve months to 30 June 2018, cash absorbed from operations was $58.6 million (2017: $4.1 million). With higher cash interest paid of $7.9 million (2017: $3.5 million), cash absorbed from operating activities was $65.1 million (2017: absorbed $7.6 million).
Capital expenditure remained steady at $65.5 million (2017: $66.5 million) reflecting the completion of HYLAS 4. With net proceeds from new bond and share issues of $114.3 million during the period, cash decreased by $21.7 million (2017: decreased $23.7 million) to $11.0 million.
Total non-current assets have increased by $159.7 million from 30 June 2017, due to significant capital expenditure on HYLAS 4 and capitalisation of interest costs.
In current assets, trade and other receivables increased to $76.5 million from $60.6 million as at 30 June 2017, primarily due to a receivable from Government of Indonesia of $20.1 million. Inventories have also increased by $17.6 million to $20.2 million as a result of Spectrum held for resale.
The most significant movement in the period was the decrease in loans and other borrowings following the completion of the debt for equity swap on the Amended Existing Notes, which was partially offset by the drawdown of Super Senior debt of $118.0 million, the PIK of interest in October 2017 of $67.4 million, and the PIK of interest in April 2018 of $20.2 million.
Our backlog comprises our customers’ committed contractual expenditure under existing contracts for the sale of bandwidth, satellite services, consultancy services and equipment sales over their current terms. Backlog does not include the value arising from potential renewal beyond a contract’s current term or projected revenue from framework contracts. Our backlog totalled $87 million (June 2017: $104 million). With the wholesale capacity contract announced on 24 September 2018, backlog increased to $165 million.
CONSOLIDATED UNAUDITED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED 30 JUNE 2018
CONSOLIDATED UNAUDITED STATEMENT OF COMPREHENSIVE INCOME
FOR THE TWELVE MONTHS ENDED 30 JUNE 2018
CONSOLIDATED UNAUDITED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2018
CONSOLIDATED UNAUDITED STATEMENT OF CASHFLOWS
FOR THE TWELVE MONTHS ENDED 30 JUNE 2018
CONSOLIDATED UNAUDITED STATEMENT OF CHANGES IN EQUITY
FOR THE TWELVE MONTHS ENDED 30 JUNE 2018
* A gain on debt for equity swap was recognised in the income statement in the 6 months to 30 June 2018 being the difference between the carrying amount of the liability extinguished, and the fair value of the equity instruments issued as consideration in the transaction. Under UK company law, the amount to be credited to share capital and share premium is based on the value of the consideration received for the issue of shares, in this case the face value of the liability. Therefore a transfer has been done between equity components.
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 20 Black Friars Lane, London EC4V 6EB. The Company is listed on AIM.
On 23 May 2018 the Board approved the change of the Company’s financial year end from 30 June to 31 December. Therefore the next audited financial statements will be for the 18 months to 31 December 2018. These unaudited condensed consolidated interim financial statements for the 12 months to June 2018 (“the interim financial statements”) were approved for issue on 28 September 2018.
2. Basis of preparation
These interim financial statements for the 12 months ended 30 June 2018 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 2017, 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 2017.
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 2017 were approved by the Board of Directors on 27 December 2017 and have been delivered to the Registrar of Companies. The auditor’s report on these accounts was not qualified, did not contain statements under section 498(2) or (3) of the Companies Act 2005 but did draw attention to a matter by way of emphasis.
3. Accounting policies
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 2017.
The condensed consolidated interim financial information presented does not comply with the full disclosure requirements of all applicable IFRSs.
4. Segmental reporting
Operating segment(s) are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segment(s), has been identified as the Avanti Executive Board who make the strategic decisions.
5. Income tax – outstanding
The effective tax rate was (14.2)%, based on our current estimated effective tax rate for the full year. This is lower than the standard UK corporation tax rate of 19% principally due to the reduction in the deferred tax liability on financial instruments following the debt for equity swap that took place earlier this year. The group is forecasting only a modest increase in deferred tax assets on losses due to the disallowance of almost all of the group’s finance costs under the UK’s Corporate Interest Restriction (‘CIR’). The CIR was implemented in the UK on 1 April 2017 and so this is the first period in which its full impact is visible.
6. Cost of sales
During the year to 30 June 2017 the Group provided for debt from the Government of Indonesia and commenced arbitration proceedings, resulting in a write of off unbilled accrued income of $1.4m, and a provision against trade receivables of $16.8m comprised of a bad debt expense of $12.4m following termination of the contract post year end, the reclassification of $4.3m from deferred income to the bad debt provision related to amounts billed but for which services had not been delivered at 30 June 2017.
Following a ruling in the Group’s favour as announced on 7 June 2018, this provision was released in full resulting in a credit of $12.5m to the bad debt expense and recognition of previously deferred revenue of $4.4m.
The Group received the full $20.1m outstanding payment from the Government of Indonesia post period end on 13 August 2018.
7. Net finance (expense)/income
8. Earnings/(loss) per share
The calculation of basic and diluted earnings/(loss) per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.
10. Trade and other receivables
11. Loans and borrowings
The Company had Notes with a nominal value of $998.3m in issue at 1 January 2018, consisting of $557.0m Amended Existing Notes, $323.3m PIK Toggle Notes, and $118.0m Super Senior Notes.
Debt for Equity Swap
On 26 April 2018 the Company completed a debt for equity swap consisting of repayment of the 12%/17.5% Senior Secured Notes due 2023 of $557.0m by issuing 1,999,676,704 new ordinary shares with a nominal value of 1 pence each in Avanti Communications Group plc. The interest accrued on the Amended Existing Notes as at 25 April 2018 was settled through the issue of additional notes, and included in the debt for equity swap. $55.7m of Amended Existing Notes were issued in respect of interest due on these notes between 2 October 2017 and 1 April 2017. The fair value of the shares at the date of the Swap was 6.11 pence per share, giving total consideration of $170.4m. The carrying value of the liability at the date of the Swap was $425.3m, after issue of April PIK. The resulting gain of $254.9m has been recognised in the Income Statement as an exceptional gain on debt for equity swap.
Modification of debt
On 26 April 2018 the restructuring of the 10%/15% Senior Secured Notes due 2021 completed, and from this date the interest rate reduced from 12.5%/17.5% to 9% for both cash and PIK and their maturity was extended by one year to 2022. The interest accrued on the PIK Toggle Notes as at 25 April 2018 was settled through the issue of additional notes. $20.2m of PIK Toggle Notes were issued in respect of interest due on these notes between 2 October 2017 and 1 April 2017.
The Group performed an assessment under its accounting policies and the requirements of IAS 39 as to whether the restructuring of the terms of the PIK Toggle Notes represented a substantial modification. As the net present value of the cash flows under the original terms and the modified terms was greater than 10% different, the modification was accounted for as substantial.
As a result, on completion of the restructuring, the carrying value of the PIK Toggle Notes of $312.4m was de-recognised and the amended PIK Toggle notes with a nominal value of $343.7m were recognised on the balance sheet at the date of modification at their fair value of $258.6m. The fair value at the date of modification of $0.8 per note was obtained from the price of the first trade of the PIK Toggle Notes after modification. The gain arising on substantial modification of the PIK Toggle Notes was $53.8m which has been recognised in the Income Statement as an exceptional gain on substantial modification.
12. Share capital
13. Cash absorbed by operations
14. Post balance sheet events
After the period end on 13 August 2018 the Company received settlement of $20.1m from Government of Indonesia in respect of the successful arbitration ruling announced on 7 June 2018.
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