TIDMAVN
RNS Number : 3479S
Avanti Communications Group Plc
20 December 2016
20 December 2016
AVANTI COMMUNICATIONS GROUP PLC
2016 Full Year Results
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 financial year ended 30 June 2016.
Highlights
-- Revenue of $82.8m for the full year (2015: $85.2m)
-- Revenue from capacity, services & equipment up 24% to $74.5m (2015: $60.1m)
-- Contract wins with key target customers including Everything Everywhere
-- Cash at year end $56.4m (2015: $122.2m)
-- Net debt(1) at year-end of $588.9m (2015: $406.2m)
-- Loss for the year $69.2m (2015: $73.3m)
-- Top-20 Customer Bandwidth Revenue Growth(3) of 50% (2015: 54%)
-- Year-end fleet utilisation(2) up to the 25% to 30% band (2015: 20% to 25%)
-- Pro-forma current fleet utilisation(4) was 35% to 40% (2015: 20% to 25%)
(1) Net debt comprises current and non-current loans and
borrowings less cash and cash equivalents
(2) Year-end fleet utilisation helps to track capacity uptake
and gives an indication of revenue potential when Avanti's fleet is
mature. It is calculated by expressing utilised capacity as a
percentage of total available capacity for the fleet of HYLAS 1(3
GHz), HYLAS 2 (11 GHz) and ARTEMIS (1 GHz)
(3) Top-20 Customer Bandwidth Revenue Growth is defined on page
16
(4 Including full pro forma impact of future contracted customer
ramps on the current fleet as described in note 2 above)
David William's Avanti's CEO said:
'Despite the headwinds of the last six months, Avanti has the
most advanced technology platform in our region, delivering
outstanding service quality across many application areas from
broadband to defence, at prices that fundamentally change market
demand. Our distribution platform in existing geographies is now
mature, with success in signing the largest telecoms operators in
most of our key markets. Thus the conditions for growth have now
been demonstrated, with cash flows expected to build as customer
growth compounds."
For further information please contact:
Avanti: David Williams, +44 (0)207 749 1600
Cenkos Securities: Max Hartley Nicholas Wells, +44 (0)207 397
8900
Montfort: Nick Miles / James Olley, +44 (0)203 770 7909
Redleaf: Hannah Nicolas, +44 (0)207 382 4734
Chairman's statement
Avanti made good progress in winning new key accounts in its
Carrier and Government business, and the reduction in competition
in both Europe and Africa has helped the broadband business. As
announced in July 2016, the economic backdrop for the year was
challenging and both currency depreciation and credit terms
impacted on the Group's working capital position. Post period end,
Avanti's financial position suffered disruption when the additional
debt facilities sought were not forthcoming on suitable terms in
the aftermath of the EU referendum vote.
However, after a period of very hard work, our existing
bondholders have supported the Company with commitments for the
proposed refinancing transaction as announced on 20 December 2016
(the "Refinancing Transaction").Subject to completion for the
Refinancing Transaction process in January, Avanti will have the
runway it needs to launch HYLAS 4 and realise its ambition to fill
its fleet.
Notwithstanding this unwelcome distraction, Avanti's business
made some good progress in 2016 in developing its markets. The
network continues to perform at a very high level, meaning that
customers are pleased with quality of service, and the Company is
able to solve customer issues and requirements to a standard that
competitors are not able to meet.
The best example of this was the landmark contract win with
Everything Everywhere (EE). As part of the Home Office's Emergency
Services Network programme, Avanti is providing to EE satellite
connectivity at almost 1,000 base stations in the UK in a
seven-year contract to help deliver a ubiquitous nationwide 4G
service. We believe this is the largest satellite 4G backhaul
project of its kind in the world. It clearly demonstrates Avanti's
pioneering service in changing the role that satellite technology
plays in the telecoms market.
We have now invested over $1.2bn in developing a business that
can meet the huge latent demand for affordable connectivity in high
growth markets across EMEA. Africa is expected to be the fastest
growing data market in the world and with the majority of its
capacity dedicated to Africa, Avanti is playing an important role
and has developed strong partnerships with the largest telcos in
our core markets. A successful conclusion to the proposed
Refinancing Transaction will provide the capital for Avanti to meet
its business plan and I look forward to putting a turbulent year
behind us and resuming our focus on growth.
During the year John Brackenbury and Matthew O'Connor left the
board and I would like to thank them for their long years of
service. I would also like to thank our employees, customers,
suppliers and investors for their ongoing support.
Operating review
Chief executive's review
Our satellites provide high performance, affordable connectivity
to governments, businesses and individuals across EMEA either
directly through satellite dishes installed at the user location,
or by providing backhaul connectivity to mobile networks.
Avanti reaches end users through national and international
Service Providers and we count many of the biggest and best
telecoms network operators as core customers.
We made encouraging progress in each of our target market
sectors this year.
Chief executive's review continued
In Broadband we won significant new business in Europe, in deals
to migrate over 15,000 end user customers away from competitor
networks as well as winning new subscribers. Spain and Italy are
markets that showed strong improvement in the year. The sale by a
competitor of its Ka-band satellite for use in other markets
resulted in new broadband customers joining our network.
Prospective competition also decreased in Africa when one of two
competing Ka-band satellites for West Africa failed. The launch of
a new 30Mb service is also now making a positive impact on growth
in the UK and Germany. In Africa, we are deploying a broadband
product called ECO ("Every Child Online") which provides a very low
cost broadband service, whilst also providing connectivity to
schools. ECO is a wi-fi hot spot hosted by the school. Community
users can use a proprietary Avanti app which works on low cost
smart phones to buy, or trade, peer to peer credits which enable
them to buy very small units of broadband access. We have won
contracts to deploy this in over 2,500 schools and expect growth in
2017.
In Government we had an encouraging year. Our defence business
grew significantly, with several country-contract customers now
signed up for sizeable secure services applications. In civil, we
are providing large scale connectivity to government offices in all
of our core markets in Africa. The market for connectivity in
schools is expected to grow strongly and we won several national
schools projects (for simple connectivity, not just ECO).
In Enterprise our network providing digital transmission to
cinemas is now in over 300 venues. We won new business in Africa to
support remote mining and energy sites, and machine to machine
communications - the "internet of things" - is becoming a
significant market.
In Carrier Services, our contract with EE is a landmark
transaction. As part of the British Government's Emergency Services
Network, Avanti is providing 4G backhaul services to almost 1,000
mobile towers. Connecting a 4G network to a satellite network is
highly sophisticated engineering and Avanti was the only company in
Europe capable of delivering the services. It is a valuable multi
year contract but also provides Avanti with a major marketing
advantage around the EMEA region.
During the year our distribution strategy evolved, mainly in
Broadband and Enterprise. We are seeing welcome consolidation in
our distribution channels, as large service providers buy the
customer bases of smaller ones. In some regions we are actively
encouraging this as it generates an economy of scale benefit for
Avanti in servicing fewer service providers who make larger
commitments. In some cases we have, and will continue to offer
Master Distribution or quasi exclusive status to Service Providers
who can buy substantially all of the capacity in a beam or
territory and several such deals are under negotiation.
An example of this in 2016 was the purchase by Eurona Wireless
Telecom ("Eurona"), a Spanish based ISP, of the exclusive rights in
perpetuity to sell capacity on any Avanti platform in Iberia
specifically for use in the consumer broadband market. Eurona have
a very large and well established customer base in the region and
this arrangement provided them with an opportunity to strengthen
their position in their local market and segment. Following this
deal, Eurona have acquired one of their main regional competitors
and a number of smaller players. This arrangement was the first
step for Avanti in securing Eurona as a significant new partner and
lays strong foundations to making significant headway in the
Iberian market.
Chief executive's review continued
To win volume in certain markets where end-customers are highly
price sensitive - such as broadband in Europe - we adjusted our
prices during the year. Our products are sold as Mb or managed
accounts or as fully integrated projects but we calculate the
Price, or Yield, per MHz per month. Yield was in the $1,600-$1,800
band during 2016 (2015: $1,800-$2,000).
Demand is growing from an increasingly high quality customer
base and a demand and supply balance is emerging.
Net working capital increased during the year with receivables
increasing to $79.5m (2015: $35.5m) and payables increasing to
$82.8m (2015: $31.9m). The receivables balance increased mainly as
a result of contracts reaching milestones at the end of the final
quarter which resulted in invoicing or revenue accruals. Of the
receivables balance, $27.7m was accounted for by accrued income
(2015: $10.6m), $16.4 m of which was due from investment grade
counter parties, either Government customers or large corporate
customers where the underlying customer is a Government.
As announced in July 2016, the economic backdrop for the year
was challenging and both currency depreciation and credit terms
impacted on the Group's working capital position. Post period end,
Avanti's financial position suffered disruption when the additional
debt facilities sought were not forthcoming on suitable terms in
the aftermath of the EU referendum vote.
However, after a period of very hard work, our existing
bondholders have supported the Company with commitments for the
proposed refinancing transaction as announced on 20 December 2016
(the "Refinancing Transaction"). Subject to completion of the
proposed Refinancing Transaction process expected to complete in
January, Avanti will have the runway it needs to launch HYLAS 4 and
realise its ambition to fill its fleet.
The financial uncertainty of 2016 has impacted Avanti's short
term growth rate but with strong support from long term investors,
on completion of the financial restructuring, we will have what we
need to realise our ambitions.
Finally, our founder Director Alan Foster, who retired in 2015,
passed away this year. He is greatly missed.
Our strategy
Avanti's strategy is founded on the assumptions that data usage
will continue to grow strongly for the foreseeable future; that
terrestrial infrastructure will not satisfy demand; and that high
growth markets offer the highest returns.
Avanti sells a managed service for fixed data connectivity. The
go to market strategy is to sell to telecoms companies and
specialist Service Providers for use in the Broadband, Enterprise,
Government and Carrier Services verticals.
The Group sells mainly through direct field sales with strong
engineering pre-sales support.
Outlook
As described in the Chief Executive's Statement, the business
suffered from financial uncertainty in 2016 slowing its growth rate
but over the medium term it expects to generate constant currency
continuing business growth rate(1) of at least 35% against a base
of the current financial year's total revenue of $82.8m.
(1) Constant currency continuing business growth rate is a
measure which refers to revenue for the year, excluding any
large, infrequently occurring items with non-USD components of
revenue figures for each year in question calculated at the most
recent relevant foreign exchange rate.
Avanti has a largely fixed cash cost base. There will be a
modest increase in costs in 2017 as further investments are made in
sales and marketing and ground operations ahead of the launches of
HYLAS 3 and HYLAS 4.
Management expects that the combination of revenue growth and
largely fixed cash cost base will lead to strong operating cash
flows in the medium-term.
Financial Review
Going concern and post balance sheet events
On 7 July 2016, the Company announced that it was probable that
additional funding would be required in order to ensure that the
Group had sufficient liquidity to complete and launch HYLAS 4 in
FY17. Avanti had based its funding plan on cash to be generated
from the business which had grown more slowly than expected.
On 11 July 2016, the Company announced the undertaking of a
strategic review (the "Strategic Review") to consider all financial
and strategic options. As part of this exercise, Avanti conducted
an in-depth review of its business plan, financial position and
strategic options, including various routes to strengthen the
Company's balance sheet.
The output of the strategic review and the additional liquidity
that is expected to be forthcoming from a proposed Refinancing
Transaction has allowed the Directors to prepare the accounts on a
Going Concern basis. This is explained in further detail in note
2.
In summary, the Directors have concluded that based on the
Group's expectation that the Consent Solicitation for the proposed
Refinancing Transaction will be successful, in addition to the
forecasts and launch of HYLAS 4, the Directors believe that the
Group will be able to have sufficient liquidity and comply with the
financial covenants under the amended and new Notes, and will be
able to meet its obligations as they fall due, and accordingly have
formed the judgement that it is appropriate to prepare the
financial statements on a going concern basis. There can, however,
be no certainty that the required consents will be received or that
the proposed Refinancing Transaction will be successfully
completed. Accordingly, successful completion of the proposed
Refinancing Transaction and the substantial achievement of cash
flow forecasts to enable the settlement of certain interest
payments by the issue of Notes represent a material uncertainty
that may cast significant doubt on the Group and the parent
Company's ability to continue as a going concern.
Revenue
Revenue in the year decreased 3% to $82.8m (2015: $85.2m).
Revenue from capacity, services and equipment increased by 24% to
$74.5m (2015: $60.1m). There was no revenue recognised from
Spectrum co-ordination in the year (2015: $25.1m) and $8.3m from
the sale of exclusivity rights (2015: $nil).
On a constant currency basis total revenue fell by less than 1%
to $82.8m ($83.1m). (i.e. translating 2015 non-USD revenues at the
average rate for 2016).
Costs
Cash costs increased to $77.0m (2015: $71.3m). The costs of the
business are largely fixed irrespective of the amount of capacity
sold on the satellites. Costs will increase when a new satellite is
launched when new ground infrastructure is brought online. Most of
the staff costs and other operating expenses are incurred in pounds
Sterling but reported in US Dollars, which can lead to some
variation from period to period.
The cost of sub-contractors required to deliver value-added
services to Government customers fell from $11.4m to $7.8m as a
result of the nature of projects undertaken during the year. This
movement was broadly offset by an increase in costs related to the
purchase of equipment for resale from $6.8m in 2015 to $13.5m in
2016 as a result of higher levels of equipment sales, for example
as a result of the initial roll-out of the Group's operations with
EE.
EBITDA
Earnings before interest, tax, depreciation and amortisation
("EBITDA") fell to $7.3m (2015: $15.3m) as a result of the mix of
revenue and increases in other operating expenditures to $16.3m
(2015: $13.3m).
Loss
The loss for the year reduced marginally to $69.2m (2015:
$73.3m). Despite positive EBITDA in both 2016 and 2015 the income
statement is still materially affected by the depreciation charge,
primarily from the satellites of $47.3m (2015: $47.9m) and finance
charges arising from the high level of debt of $40.9m (2015:
$40.5m).
With the launch of HYLAS 4 in 2017 the depreciation charge will
increase. Similarly, the finance expense will also increase as the
interest capitalised during construction will fall to the income
statement.
Loss per share
Loss attributable to shareholders of $68.7m (2015: $73.1m),
which included a net interest expense of $27.0m (2015: $40.5m),
results in a loss per share of 49.27 cents (2015: loss per share of
61.50 cents).
Cash flow
Net cash outflow from operating activities during the year ended
June 30, 2016 was $92.3m as compared to $62.5m during the year
ended June 30, 2015. The increase of $29.8m primarily relates to
changes in working capital and in particular deferred payment terms
on contracts closed in the final quarter. It is also relevant that
the consideration received for sale of spectrum rights in 2015 was
a payload (HYLAS-2B) as opposed to cash.
Net cash used in investing activities during the year ended June
30, 2016 was $93.5m as compared with $96.7m during the year ended
June 30, 2015. The decrease of $3.2m is due to lower capital
milestones during the current year.
Net cash flow from financing activities during the year ended
June 30, 2016 was $121.4m as compared with $85.2m during the year
ended June 30, 2015. The increase of $36.2m is as a result of the
proceeds from the bond and equity issues in the year ($125.7m)
compared to the $90.6m raised in the prior year.
Balance sheet
Total equity fell to $201.5m (2015: $304.7m) as a result of the
loss for the year of $69.2m, the issue of share capital ($10.7m)
and foreign exchange losses ($45.1m) arising from the
re-translation of quasi-equity intercompany balances.
Total assets increased to $942.3m (2015: $881.8m) primarily as a
result of investments in satellite and ground assets.
Net working capital increased during the year with trade and
other receivables increasing to $79.5m (2015: $35.5m) and trade and
other payables increasing to $82.8m (2015: $31.9m). The receivables
balance increased mainly as a result of contracts reaching
milestones at the end of the final quarter which resulted in
invoicing or revenue accruals. Of the receivables balance $27.7m
was accounted for by accrued income (2015: $10.6m), $16.4m of which
was due from investment grade counter parties, either Government
customers or large corporate customers where the underlying
customer is a Government.
Insurance
Avanti maintains a full suite of insurance policies covering not
only space assets, but also business interruption associated with
the failure of its ground earth stations. The HYLAS 1 in orbit
insurance policy was renewed in November 2015 with an insured value
of GBP112m and the HYLAS 2 policy was renewed in August 2015 for
$306.0m. Artemis is insured for $30m.
Backlog
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. We do include projected
revenue from consultancy services provided to government customers
at the rate of $3.3m per year, based on the average revenue
generated by these services for the last five fiscal years. Our
backlog totalled $290.4m as of June 30, 2016.
Our backlog by end market as of June 30, 2016 was as
follows:
End Market Amount ($'m) Percent
================= ============ =======
Enterprise 107.2 37%
Broadband 54.4 19%
Carrier Services 27.0 9%
Government 101.8 35%
================= ============ =======
Total 290.4 100%
================= ============ =======
Principal risks and uncertainties
The Group faces a number of risks and uncertainties that may
adversely affect our business, operations, liquidity, financial
position or future performance, not all of which are wholly within
our control or known to us. Some such risks may currently be
regarded as immaterial and could turn out to be material. We accept
risk is an inherent part of doing business, and we manage the risks
based on a balance of risk and reward determined through careful
assessment of both the potential likelihood and impact as well as
risk appetite. The Group faces a number of ongoing operational
risks including credit and foreign exchange risk.
Global economy
The global economy remains fragile and it continues to be
difficult to predict customer demand. Avanti is susceptible to
decreased growth rates within high growth markets and/or continued
economic and market downturn in developing markets. The effects
could lead to a decline in demand and deteriorating financial
results, which in turn could result in the Group not realising its
financial targets.
Foreign exchange risk
We operate internationally and are exposed to foreign exchange
risk arising from various currency exposures, primarily with
respect to the pound Sterling and the Euro. In order to hedge the
foreign currency risk we enter into forward contracts or natural
hedges as considered appropriate. These risks are assessed on a
continual basis. Our reported results of operations and financial
condition are affected by exchange rate fluctuations due to both
transaction and translation risks.
Interest rate risk
We borrow in US Dollars and pounds Sterling at fixed rates of
interest and do not seek to mitigate the effect of adverse
movements in interest rates. Cash and deposits earn interest at
fixed rates based on banks' short-term treasury deposit rates.
Short-term trade and other receivables are interest free.
Credit risk
Credit risk is the risk of financial loss arising from
counterparty's inability to repay or service debt in accordance
with contractual terms. Credit risk includes the direct risk of
default and the risk of deterioration of creditworthiness. We
believe we currently have no significant concentrations of credit
risk. We assess the credit quality of major customers before
trading commences, taking into account customers' financial
position, past experience and other factors. Generally when a
balance becomes more than 90 days past its due date, we consider
that the amount will not be fully recoverable.
Liquidity risk
Liquidity risk is the risk that we may have difficulty in
obtaining funds in order to be able to meet both our day-to-day
operating requirements and our debt servicing obligations. We
manage our exposure to liquidity risk by regularly monitoring our
liabilities. Cash and cash forecasts are monitored on a daily
basis, and our cash requirements are met by a mixture of short term
cash deposits, debt and finance leases.
Future liquidity is also affected by the rate at which we fill
the satellites and the yield achieved.
See the going concern and post balance sheet section of this
financial review in addition to the going concern accounting policy
in Note 2 for a discussion of the planned financial restructuring
and commentary of the Group's medium term funding that this will
provide on completion.
Consolidated Income Statement
Year ended 30 June 2016
Year ended Year ended
30 June 30 June
2016 2015
Notes $'m $'m
================================================ ===== ========== ==========
Revenue
Capacity, services & equipment 3 74.5 60.1
Spectrum coordination(1) 3 - 25.1
Sale of exclusivity rights(1) 3 8.3 -
================================================ ===== ========== ==========
Total Revenue 82.8 85.2
================================================ ===== ========== ==========
Cost of sales - capacity, services
& equipment (excluding satellite depreciation) (40.9) (38.0)
Staff costs (19.8) (20.0)
Other operating expenses (16.3) (13.3)
Other operating income 1.5 1.4
================================================ ===== ========== ==========
EBITDA(2) 7.3 15.3
================================================ ===== ========== ==========
Depreciation and amortisation (47.3) (48.1)
================================================ ===== ========== ==========
Operating loss (40.0) (32.8)
================================================ ===== ========== ==========
Finance income 13.9 -
Finance expense (40.9) (40.5)
================================================ ===== ========== ==========
Loss before taxation (67.0) (73.3)
================================================ ===== ========== ==========
Income tax 4 (2.2) -
================================================ ===== ========== ==========
Loss for the year (69.2) (73.3)
================================================ ===== ========== ==========
Loss attributable to:
Equity holders of the parent (68.7) (73.1)
Non-controlling interests (0.5) (0.2)
Basic loss per share (cents) 5 (49.27c) (61.50c)
Diluted loss per share (cents) 5 (49.27c) (61.50c)
================================================ ===== ========== ==========
(1) There were no directly attributable costs related to the
sale of spectrum rights or exclusivity rights
(2) Earnings before interest, tax, depreciation and amortisation
Consolidated Statement of Comprehensive income
Year ended 30 June 2016
Year ended Year ended
30 June 30 June
2016 2015
$'m $'m
================================================= ========== ==========
Loss for the year (69.2) (73.3)
================================================= ========== ==========
Other comprehensive income
Exchange differences on translation of foreign
operations and investments that may be recycled
to the Income Statement:
Foreign currency translation differences
on foreign operations 13.8 0.1
Monetary items that form part of the net
investment in a foreign operation (58.9) (22.7)
================================================= ========== ==========
Total comprehensive loss for the year (114.3) (95.9)
================================================= ========== ==========
Attributable to:
Equity holders of the parent (113.8) (95.7)
Non-controlling interests (0.5) (0.2)
================================================= ========== ==========
Consolidated Statement of Financial Position
As at 30 June 2016
30 June 30 June
2016 2015
Notes $'m $'m
===================================== ===== ======= =======
ASSETS
Non-current assets
Property, plant and equipment 6 775.1 691.0
Intangible assets 10.8 11.0
Deferred tax assets 18.6 19.5
===================================== ===== ======= =======
Total non-current assets 804.5 721.5
===================================== ===== ======= =======
Current Assets
Inventories 1.9 2.6
Trade and other receivables 7 79.5 35.5
Cash and cash equivalents 56.4 122.2
===================================== ===== ======= =======
Total current assets 137.8 160.3
===================================== ===== ======= =======
Total assets 942.3 881.8
===================================== ===== ======= =======
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 82.8 31.9
Loans and other borrowings 8 3.3 4.7
===================================== ===== ======= =======
Total current liabilities 86.1 36.6
===================================== ===== ======= =======
Non-current liabilities
Trade and other payables 12.7 16.8
Loans and other borrowings 8 642.0 523.7
===================================== ===== ======= =======
Total non-current liabilities 654.7 540.5
===================================== ===== ======= =======
Total liabilities 740.8 577.1
===================================== ===== ======= =======
Equity
Share capital 2.5 2.4
EBT shares (0.1) (0.1)
Share premium 515.9 505.3
Retained earnings (252.7) (184.4)
Foreign currency translation reserve (61.5) (16.4)
===================================== ===== ======= =======
Total parent shareholders' equity 204.1 306.8
Non-controlling interests (2.6) (2.1)
===================================== ===== ======= =======
Total equity 201.5 304.7
===================================== ===== ======= =======
Total liabilities and equity 942.3 881.8
===================================== ===== ======= =======
Consolidated Statement of Cash Flows
Year ended 30 June 2016
Group
======================
Year ended Year ended
30 June 30 June
2016 2015
Notes $'m $'m
================================= ===== ========== ==========
Cash flow from operating
activities
Cash (absorbed)/generated
by operations 9 (31.8) (10.2)
Interest paid (60.5) (52.3)
Interest received - -
================================= ===== ========== ==========
Net cash (absorbed)/generated
by operating activities (92.3) (62.5)
================================= ===== ========== ==========
Cash flows from investing
activities
Payments for other financial
assets and investments - -
Payments for property, plant
and equipment (95.7) (102.0)
Proceeds from sale and leaseback 2.2 5.3
================================= ===== ========== ==========
Net cash used in investing
activities (93.5) (96.7)
================================= ===== ========== ==========
Cash flows from financing
activities
Proceeds from bond issue 115.0 -
Proceeds from share issue 10.7 90.6
Payment of finance lease
liabilities (4.1) (5.3)
Debt issuance costs (0.2) (0.1)
================================= ===== ========== ==========
Net cash received from financing
activities 121.4 85.2
================================= ===== ========== ==========
Effects of exchange rate
on the balances of cash
and
cash equivalents (1.4) 0.9
Net (decrease)/increase
in cash and cash equivalents (65.8) (73.1)
Cash and cash equivalents
at the beginning of the
financial year 122.2 195.3
================================= ===== ========== ==========
Cash and cash equivalents
at the end of the
financial year 56.4 122.2
================================= ===== ========== ==========
Consolidated Statement of Changes in Equity
Year ended 30 June 2016
Share Share Total
Employee Foreign currency
benefit trust Retained translation Non-controlling
capital (EBT) premium earnings reserve interests equity
Notes $'m $'m $'m $'m $'m $'m $'m
=================== ====== ======== ============== ======== ========= ================ =============== =======
2015
At 1 July
2014 2.0 (0.1) 415.1 (112.0) 6.2 (1.9) 309.3
Loss for the
year - - - (73.1) - (0.2) (73.3)
Other comprehensive
income - - - - (22.6) - (22.6)
Issue of share
capital 0.4 90.2 90.6
Share based
payments - - - 0.7 - - 0.7
=========================== ======== ============== ======== ========= ================ =============== =======
At 30 June
2015 2.4 (0.1) 505.3 (184.4) (16.4) (2.1) 304.7
=========================== ======== ============== ======== ========= ================ =============== =======
2016
At 1 July
2015 2.4 (0.1) 505.3 (184.4) (16.4) (2.1) 304.7
Loss for the
year - - - (68.7) - (0.5) (69.2)
EBT issue - - - - - - -
Other comprehensive
income - - - - (45.1) - (45.1)
Issue of share
capital 0.1 - 10.6 - - - 10.7
Share based
payments - - - 0.4 - - 0.4
=========================== ======== ============== ======== ========= ================ =============== =======
At 30 June
2016 2.5 (0.1) 515.9 (252.7) (61.5) (2.6) 201.5
=========================== ======== ============== ======== ========= ================ =============== =======
Notes to the preliminary statement
1. Basis of preparation
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 30 June
2016 or 2015. Statutory consolidated financial statements for the
Group for the year ended 30 June 2015, prepared in accordance with
adopted IFRS, have been delivered to the Registrar of Companies and
those for 2016 will be delivered in due course. The auditors have
reported on those accounts: their report on the accounts for 2016
was (i) unqualified and (ii) drew attention by way of emphasis
without qualifying their report to a material uncertainty in
respect of going concern and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006. Their
report on the accounts for 2015 was (i) unqualified, (ii) did not
include a reference to any matters to which the auditors drew
attention by way of any emphasis without qualifying their opinion
and (iii) did not contain a statement under Section 498 (2) or (3)
of the Companies Act 2006.
This financial information for the year ended 30 June 2016 has
been prepared by the directors based upon the results and position
that are reflected in the consolidated financial statements of the
Group.
The consolidated financial statements of Avanti Communications
Group plc and its subsidiaries have been prepared in accordance
with International Financial Reporting Standards as adopted by the
EU as relevant to the financial statements of Avanti Communications
Group plc.
2. Principal accounting policies
Full disclosure of the group accounting policies can be found in
the 2015 Annual Report and Accounts as presented on the Avanti
Communications Group plc website. These have been consistently
applied throughout the 2016 financial year and the disclosures made
in this statement. See below for additional disclosure with regard
to going concern.
Going concern
The financial statements have been prepared on a going concern
basis. In reaching their assessment, the Directors have considered
a period extending at least 12 months from the date of approval of
these financial statements. This assessment has focused on the
status of the financial restructuring announced by the Group on 20
December as well as those factors considered on an annual basis
such as forecast trading performance of the Group for the
foreseeable future, key assumptions, sensitivities and available
cash balances and facilities. As at the date of approval of these
financial statements, the successful completion of the financial
restructuring is conditional upon the Consent Solicitation process
and while the Directors believe that this process will be completed
successfully, there remains a material uncertainty until the
remaining consents have been received.
On 7 July 2016, the Company announced that it was probable that
additional funding would be required in order to ensure that the
Group had sufficient liquidity to complete and launch HYLAS 4 in
the 2017 financial year. Avanti had based its funding plan on cash
to be generated from the business which had grown more slowly than
expected. On 11 July 2016, the Company announced the undertaking of
a strategic review (the "Strategic Review") to consider all
financial and strategic options. As part of this exercise, Avanti
conducted an in-depth review of its business plan, financial
position and strategic options, including various routes to
strengthen the Company's balance sheet.
Going concern continued
On 17 October 2016, the Company announced the result of a
successful consent solicitation process ("September Consent
Solicitation") as the first step in its two-phase funding strategy.
The Company received consents from holders of 89.5% of its Senior
Secured Notes to permit paying the interest due on 1 October 2016
in respect of consenting holders' Senior Secured Notes in the form
of additional Senior Secured Notes on the same terms as the
existing Senior Secured Notes in lieu of cash. In order to further
support the strategic review process, the Company also entered into
binding agreements with certain suppliers to defer approximately
$39m of capital expenditure payments relating to HYLAS 4 to the
third quarter of the fiscal year ending 30 June 2017.
Following completion of the September Consent Solicitation, the
Company continued negotiations with the manufacturer of HYLAS 4,
Orbital Sciences ("Orbital"), and its largest holders of Senior
Secured Notes regarding phase 2 of the funding strategy. The second
phase of the planned restructuring of the Company's outstanding
indebtedness is to seek a long-term solution to its working capital
needs and to ensure that the Company can continue to operate as a
going concern in the future. The major components of the planned
restructuring which provide the Group with substantial additional
liquidity are:
1. New Money Notes - Issue of up to $132.5m of Senior Secured
Notes in three tranches by the Company to provide additional funds
for the Group. $82.5m will be issued on closing of the
restructuring with the ability to issue a further $15m on 30 June
2017 and $35m on 30 November 2017.
2. Amended Existing Notes - Amendments to the Existing notes,
which are described in more detail in Note 10, which include
capitalising (i.e settling through the issue of further Notes
rather than cash) the April 2017 coupon and the ability to
capitalise the October 2017 coupon for the $685m of Amended
Existing Notes conditional on certain cash forecast targets. In
addition the amendments allow for the ability to capitalise the
April 2018 coupon for approximately $485m of the Amended Existing
Notes conditional on certain cash forecast targets and extended
maturity dates which range between October 2021 and October
2022.
The restructuring, which is described in more detail in note 10,
culminated on 20 December 2016 when a Restructuring Agreement was
signed by the Company with a group of its largest holders of Senior
Secured Notes ("Initial Consenting Creditors"). The Company and the
Initial Consenting Creditors, representing approximately 73% of the
aggregate principal amount of the existing Senior Secured Notes
("Existing Notes"), entered into the Restructuring Agreement on 20
December 2016 pursuant to which the Initial Consenting Creditors
contractually agreed to approve the Existing Notes restructuring by
delivering Consents in connection with the Solicitation, tendering
their Existing Notes in the Exchange Offer and voting in favour of
the Scheme.
The Company and the Initial Consenting Creditors also entered
into the Backstop Purchase Agreement on 20 December 2016 pursuant
to which the Initial Consenting Creditors committed to fund up to
the entirety of the New Money Offer, subject to reduction for the
level of pro rata participation by the remaining Existing Note
holders that elect to participate in the New Money Offer.
The Consent Solicitation will commence on 21 December 2016 and
will run for a maximum of 20 business days. This process will
result in one of the three following outcomes:
1. Receipt of consents from note holders equating to at least
90% of the Existing Notes by number and value. This will result in
the terms of the restructuring being approved and applied to 100%
of the Existing Notes. The Initial Consenting Creditors are
contractually committed to providing their consents and equate to
73% of the Existing Notes.
2. Receipt of consents greater than or equal to 75% but less
than 90%. In this case, the consenting Existing Noteholders will
enter into a Scheme of Arrangement with the Company whereby they
agree to the terms of the restructuring being applied to their
Existing Notes. In addition, with 75% or more acceptance, the
$132.5m new money component of the restructuring and the
restructured notes would be approved. The terms of the
non-consenting Existing Note holders would remain unchanged.
3. Consents will be received amounting to less than 75% of the
Existing Noteholders. This is considered extremely unlikely given
that the Initial Consenting Creditors are contractually committed
to providing their consents and equate to 73% of the Existing
Notes. In this scenario, the restructuring would fail and the Group
would need to successfully complete an alternative restructuring or
raise new money in order to have sufficient resources to continue
in operational existence for the foreseeable future.
Following the signing of the Restructuring Agreement, which is
the platform for a successful Consent Solicitation and which will
in turn complete the Group's funding strategy, and in order to
prepare and approve these Financial Statements, the Directors have
assessed forecast future cash flows for the foreseeable future. In
assessing the Group's ability to meet its obligations as they fall
due, management prepared cash flow forecasts based on the business
plan for a period in excess of 24 months. Management considered
various downside scenarios to test the Group's resilience against
operational risks including:
-- Adverse movements in Sterling and Euro exchange rates against US Dollar
-- Delays in the launch of HYLAS 4
-- Lower yield on capacity
-- Slower build in fleet/ satellite utilisation
Management concluded that the Group's Capital Structure after
the planned debt facilities amendments and new money notes,
together with the ability to PIK certain interest coupons,
conditional on certain cash flow forecasts, provides sufficient
headroom to cushion against downside operational risks and reduces
the risk of breaching the new debt covenants.
In summary, the Directors have concluded that, based on the
Group's expectation that the Consent Solicitation for a financial
restructure will be successful, in addition to the forecasts and
launch of HYLAS 4, the Directors believe that the Group will be
able to have sufficient liquidity and comply with the financial
covenants under the amended and new Notes, and will be able to meet
its obligations as they fall due, and accordingly have formed the
judgement that it is appropriate to prepare the financial
statements on a going concern basis. There can, however, be no
certainty that the required consents will be received or that the
refinancing will be successfully completed. Accordingly, successful
completion of the refinancing and the substantial achievement of
cash flow forecasts to enable settlement of certain interest
payments by the issue of Notes represent a material uncertainty
that may cast significant doubt on the group and the parent
company's ability to continue as a going concern. The Group and the
parent company may, therefore, be unable to continue realising
their assets and discharging their liabilities in the normal course
of business, but the financial statements do not include any
adjustments that would result if the going concern basis of
preparation is inappropriate.
3. Revenue
The Group generates its revenues from the commercial
exploitation of its space assets, namely its spectrum rights,
satellites, intellectual property and ground station assets. These
revenues include, inter alia, the sale of satellite broadband
capacity, the sale of services, typically to Government customers,
the sale of terminals and other satellite communications equipment
and the sale and leasing of spectrum rights.
The Avanti Executive Board, which is the chief operating
decision-maker in the Group's corporate governance structure,
manage the business and the allocation of resources on the basis of
the utilisation of its space assets, resulting in one segment.
Revenue generated for the year was as follows:
30 June 30 June
2016 2015
$'m $'m
======================================= ======= =======
Capacity, services & equipment revenue 74.5 60.1
Spectrum coordination - 25.1
Exclusivity rights 8.3 -
Total revenue 82.8 85.2
======================================= ======= =======
The majority of total revenue for the year represents the sale
of satellite broadband capacity, related services and the sale of
terminals and other satellite communications equipment to external
customers. Of this $13.2m (2015: $5.7m) relates to the sale of
terminals and other satellite communications equipment.
Sale of exclusivity rights
$8.3m was recognised during the financial year from the sale of
exclusivity rights.
During the financial year, the Group entered into an agreement
with Eurona Wireless Telekom SA ("Eurona"), a Spanish based
Internet Service Provider, under which Eurona were sold the
exclusive rights in perpetuity to the provision of services to the
consumer broadband market in Spain and Portugal ("Iberia") from any
existing or future Avanti Satellite.
Eurona are required to pay a fixed, non-refundable fee of
EUR7.5m ($8.3m) under a non-cancellable agreement in consideration
for the rights. As a result, Eurona have sole rights to sell
capacity directed over Iberia on any Avanti satellite for use in
delivering service to the consumer broadband market.
The exclusivity right does not convey or include any satellite
capacity, which must be purchased separately.
At the same time, Eurona entered into an agreement to purchase
substantial initial capacity over Iberia with a value of EUR17.2m
over a 10 year period. The provision of capacity commenced in the
2017 financial year and as a result no capacity revenue was
recognised in these financial statements. The sale of EUR2.5m of
satellite communications equipment was recognised during the
financial year and is included within revenue from the sale of
capacity, services and equipment.
The agreement with Eurona was assessed under the Group's
accounting policy for multiple deliverable arrangements. An
assessment was made over whether the sale of exclusivity rights,
capacity and equipment represented separate units of account. This
assessment concluded that each component was separable on the basis
that each deliverable has stand-alone value to Eurona and the
fair-value of the item can be objectively and reliably
determined.
Sale of exclusivity rights continued
The fair value of the undelivered components (residual value
method) was used to assess the fair value of the exclusivity
rights. This assessment led to the conclusion that there was no
material difference between the contractual value of $8.3m
(EUR7.5m) and the fair value of the exclusivity component.
Spectrum revenue
In June 2015, the Group entered into an agreement to sell, in
perpetuity, certain spectrum rights related to geographic markets
in which the Group does not seek to operate. The indefeasible right
to use ("IRU") a 3 GHz Ka-band payload over its estimated remaining
life of 13 years was received in consideration. The IRU arrangement
has a fixed cost payable per annum and a variable cost based on the
capacity of the payload that is sold. The payload can be directed
over the Group's core market of Europe, the Middle East and Africa
and increased the Group's current satellite capacity by
approximately 20%. Revenue of $Nil (2015: $25.1m) was recognised
for this transaction related to the utilisation of the Group's
space assets.
The revenue recognised was based on the fair value of the
consideration received, in this case the IRU of the Ka-band
payload. The IRU was valued on a replacement cost basis which took
into account the cost of building and launching a comparable
payload with equivalent capacity and a 13 year remaining life. The
Group used the costs that it has experienced in constructing and
launching its existing satellite fleet, including those under
construction, as a benchmark to reach this accounting estimate. The
IRU valuation also takes into account the fixed cost payable per
annum under the IRU agreement discounted at the Group's estimated
cost of capital of 10%.
The Group derived $19.9m (2015: $36.5m) of its turnover from
European countries outside the United Kingdom, $39.7m (2015:
$27.2m) from countries outside Europe and $23.2m (2015: $21.5m)
from the United Kingdom.
As disclosed in the highlights on page 1, the Top-20 Customer
Bandwidth Revenue Growth metric helps to track Avanti's growth
trajectory from core service sales. It is calculated by comparing
the revenues from current leading customers on a last 12 month and
constant currency basis, to the 12 months preceding that. Revenues
from this customer group were 50% higher in the 2016 financial year
($32.4m) versus 2015 ($21.5m).
4. Income Tax
30 June 30 June
2016 2015
$'m $'m
================================================== ======= =======
Current tax
Current tax expense - -
Overseas tax 0.1 -
Adjustment in respect of prior periods 0.1 -
================================================== ======= =======
Total current tax 0.2 -
================================================== ======= =======
Deferred tax
Origination and reversal of temporary differences (4.2) 1.6
Adjustment in respect of prior periods 4.1 (1.4)
Impact of change in UK tax rate 2.1 (0.2)
================================================== ======= =======
Total deferred tax 2.0 -
================================================== ======= =======
Total income tax 2.2 -
================================================== ======= =======
Income tax continued
The tax on the Group's loss 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
2016 2015
$'m $'m
================================================= ======= =======
Loss before tax (67.2) (73.3)
================================================= ======= =======
Tax credit at the UK corporation tax rate
of 20.00% (2015: 20.75%) (13.4) (15.2)
Tax effect of non-deductible expenses - 0.1
Adjustment in respect of prior periods 4.2 (1.4)
Effect of tax rates in foreign jurisdictions 1.0 (0.9)
Impact of change in UK tax rate 2.1 (0.2)
Temporary differences for which no deferred
tax has been recognised 14.1 17.6
Recognition of previously unrecognised temporary
differences (5.8) -
Income tax charge recognised in the Income
Statement 2.2 -
================================================= ======= =======
The standard rate of corporation tax in the UK fell from 21% to
20% with effect from 1 April 2015. Accordingly, the Group's profits
for this accounting period are taxed at an effective rate of 20%
(2015: 20.75%).
The income tax charge of $2.2m (2015: nil) equates to an
effective tax rate of (3)% (2015: 0%). This effective rate differs
from the standard rate of corporation tax of 20% due to a number of
items shown above. The rate is primarily driven by the Group not
recognising a credit in respect of tax losses arising in the year
due to the unpredictability of future profit streams against which
these losses can be offset.
Factors that may affect future tax charges
Changes to the UK corporation tax rates were announced in the
Chancellor's Budget on 16 March 2016. The change announced is to
reduce the main rate to 17% from 1 April 2020. Changes to reduce
the UK corporation tax rate to 19% from 1 April 2017 and to 18%
from 1 April 2020 had already been substantially enacted on 26
October 2015. As the change to 17% had not been substantively
enacted at the balance sheet date its effect is not included in
these financial statements. The deferred tax balance as at the
year-end has been recognised at 18% (2015: 20%).
Tax losses
At the balance sheet date the Group has unrecognised deferred
tax assets of $37.2m (2015: $30.9m) available for offset against
future profits. A deferred tax asset has been recognised in respect
of $28.1m (2015: $30.5m). No deferred tax asset has been recognised
in respect of the remaining losses and other temporary differences
due to the unpredictability of future profit streams against which
these losses could be offset. Under present tax legislation, these
losses and other temporary differences may be carried forward
indefinitely.
In the future when these assets are recognised there will be a
positive impact to the Group's effective tax rate.
5. Loss per share
30 June 30 June
2016 2015
cents cents
================================= ======= =======
Basic and diluted loss per share (49.27) (61.50)
================================= ======= =======
The calculation of basic and diluted 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.
30 June 30 June
2016 2015
============================================= =========== ===========
Loss for the year attributable to equity
holders of the parent Company $(68.7)m $(73.1)m
Weighted average number of ordinary shares
for the purpose of basic earnings per share 139,428,427 118,975,177
============================================= =========== ===========
6. Property, plant and equipment
Leasehold Network Fixtures Satellites Satellites Group
improvement assets and fittings in operation in construction total
$'m $'m $'m $'m $'m $'m
========================= ============ ======= ============= ============= ================ ======
Cost
Balance at 30 June
2014 2.0 14.1 2.4 667.3 44.4 730.2
Additions - 0.7 0.3 39.5 110.6 151.1
Transfer - - - 5.6 (5.6) -
Disposals - (0.2) - (1.7) (1.4) (3.3)
Effect of movements
in exchange rates (0.2) (1.6) (0.1) (19.7) (3.4) (25.0)
========================= ============ ======= ============= ============= ================ ======
Balance at 30 June
2015 1.8 13.0 2.6 691.0 144.6 853.0
Additions - 2.8 0.4 0.5 167.2 170.9
Disposals - - - 0.2 (8.0) (7.8)
Effect of movements
in exchange rates (0.2) (3.1) (0.4) (34.7) (7.1) (45.5)
========================= ============ ======= ============= ============= ================ ======
Balance at 30 June
2016 1.6 12.7 2.6 657.0 296.7 970.6
========================= ============ ======= ============= ============= ================ ======
Accumulated depreciation
Balance at 30 June
2014 0.9 9.6 1.5 107.4 - 119.4
Charge for the year 0.3 1.4 0.4 45.8 - 47.9
Disposals - - - - - -
Effect of movements
in exchange rates (0.1) (0.9) - (4.3) - (5.3)
========================= ============ ======= ============= ============= ================ ======
Balance at 30 June
2015 1.1 10.1 1.9 148.9 - 162.0
Charge for the year 0.3 1.4 0.4 45.1 - 47.2
Disposals - - - - - -
Effect of movements
in exchange rates (0.2) (2.1) (0.3) (11.1) - (13.7)
========================= ============ ======= ============= ============= ================ ======
Balance at 30 June
2016 1.2 9.4 2.0 182.9 - 195.5
========================= ============ ======= ============= ============= ================ ======
Net book value
Balance at 30 June
2016 0.4 3.3 0.6 474.1 296.7 775.1
========================= ============ ======= ============= ============= ================ ======
Balance at 30 June
2015 0.7 2.9 0.7 542.1 144.6 691.0
========================= ============ ======= ============= ============= ================ ======
Property, plant and equipment under finance lease
At 30 June 2016, the Group held assets under finance lease
agreements with a net book value of $47.8m (2015: $46.7m). A
depreciation charge for the year of $1.7m (2015: $1.3m) has been
provided on these assets. These assets are included in satellites
in operation and network assets.
Satellites in operation
Satellites in operation include the following:
-- HYLAS 1 - Came into service on 1 April 2011
-- HYLAS 2 - Came into service on 1 October 2012
-- HYLAS 2B - Payload received as consideration on 24 June 2015
and came into service on 7 November 2016
-- ARTEMIS - Acquired on 31 December 2013
All 4 satellites and their related ground infrastructure have
been depreciated from the date that they came into operational
service.
HYLAS-2B
Satellites in operation includes a Ka-band payload that the
Group operates under an indefeasible right of use ("IRU") agreement
entered into in June 2015 for the estimated remaining useful life
of the payload of 13.5 years. This payload is known as HYLAS-2B and
Note 3 provides more detail on the transaction through which this
payload was received. The IRU agreement is accounted for as a
finance lease and a Net Book Value ("NBV") of $35.1m is included
within satellites in operation and also within the assets held
under finance lease disclosure provided above.
The IRU of HYLAS-2B was initially recognised at its fair value
of $35.1m. This asset value will subsequently be depreciated over
the life of the IRU agreement from the date it commences
operational service. The IRU was valued on a depreciated
replacement cost basis. This was determined to be the most
appropriate valuation technique as it had the most observable
inputs into the model. Under this approach, the fair value was
calculated as the cost of constructing and bringing into service an
asset that could provide equivalent capacity. The fair value was
reached by aggregating the estimated fair value of the cost to
build the payload and the cost of launching the payload, including
insuring the launch, in addition to the cost of designing and
managing the procurement of the asset. Each of the four inputs have
been classified as level 2 inputs within the fair value hierarchy.
The Group obtained third party quotations for some elements and
applied rates known from the existing fleet of satellites for other
elements.
Satellite in construction
The satellites in construction assets of $296.7m relate to HYLAS
3 and HYLAS 4 (2015: $144.6m in relation to HYLAS 3 and HYLAS
4).
Capitalised finance costs
Included in the satellites in operation and satellites in
construction are capitalised finance costs of $97.4m (2015: $72.0m)
related to the HYLAS 2 and HYLAS 4 satellites.
HYLAS 1 satellite impairment review
HYLAS 1 is a 3 Ghz Ka-band High Throughput Satellite that came
into operational service on 1 April 2011. An impairment review was
conducted and disclosed in the prior year as a result of growth in
revenues being slower than forecast.
Significant and long term new business was won during FY16 on
HYLAS 1. Nevertheless, an impairment review was conducted on the
HYLAS 1 satellite and associated network infrastructure ("HYLAS
1"), together representing the cash-generating unit ("CGU"), at 30
June 2016 to update this assessment. The review showed that the
carrying value of the assets is supported and therefore no
impairment has been recorded.
The recoverable amount of the CGU is determined using value in
use, which is calculated by using the discounted cash flow method.
This method considers the forecast cash flows of the HYLAS 1
satellite and associated network infrastructure over the remaining
useful economic life of the CGU of 11 years.
Estimates of future cash flows originate from the detailed
budget for the year to 30 June 2017 as reviewed and approved by the
Board. Forecasts for the subsequent periods assume a ramp-up of
satellite capacity sold over the remaining useful life of the CGU,
derived from a combination of contractual ramps, development of
existing customer relationships, and a modest underlying growth
assumption in utilisation in addition to those factors of
approximately 1.5% per annum. When the ramps with signed contracts
mature over the coming 12-18 months, the HYLAS 1 satellite will be
approximately 60% utilised. Further growth from new and existing
customers is expected in addition to this and has been included
within the forecast cash flows. The present value of cash flows is
calculated by discounting the cash flow at 10%.
The estimate of future cash flows resulted in significant
headroom over the carrying value of the CGU. Sensitivity analysis
was carried out by management over assumptions made in the
impairment model relating to yield, growth in utilisation and the
discount factor applied. It was identified that, all other
assumptions being consistent, headroom would be eliminated by
a:
-- 70% increase in discount factor applied; or
-- 40% decrease in forecast yield ($/MHz per month); or
-- scenario in which uncontracted capacity is sold at a
significantly slower rate than forecast.
The above scenarios are not considered likely and the risks that
they represent are considered to have been appropriately included
in the impairment review.
There are no indicators of impairment for any other assets
within Property, plant and equipment. As a part of management's
assessment of the presence of any indicators of impairment,
consideration was given to the current market capitalisation of the
Group in addition to the financial restructuring process underway
to support the construction of HYLAS 4. Management noted that the
estimated enterprise value of the Group was well in excess of the
carrying value of its assets and that the current value of the
equity represented by the market capitalisation differed from the
enterprise value, primarily due to the debt funding on the Group
balance sheet in addition to a risk element that would be present
until the restructuring is completed.
7. Trade and other receivables
Group Company
================ ================
30 June 30 June 30 June 30 June
2016 2015 2016 2015
$'m $'m $'m $'m
================================= ======= ======= ======= =======
Trade receivables 45.8 22.2 0.1 -
Less provision for impairment
of trade receivables (6.5) (4.4) - -
================================= ======= ======= ======= =======
Net trade receivables 39.3 17.8 0.1 -
================================= ======= ======= ======= =======
Accrued income 27.7 10.6 - -
Prepayments 10.3 5.5 5.2 7.5
Amounts due from Group companies - - 385.4 85.6
Other receivables 2.2 1.6 - 0.3
================================= ======= ======= ======= =======
79.5 35.5 390.7 93.3
================================= ======= ======= ======= =======
Net trade receivables and accrued income increased mainly as a
result of contracts reaching milestones at the end of the final
quarter which resulted in invoicing or revenue accruals. Of the
accrued income balance of $27.7m, $16.4m was due from investment
grade customers who are either Government's or very well
established corporations whose underlying customer is a government.
The credit terms associated with the components within accrued
income are largely consistent to the Group's trade receivables
which are in the range of 30 to 90 days.
Included in the Group's trade receivables balance at 30 June
2016 is a long term receivable of $7.2m (2015: $8.5m). 31% of the
original balance has already been collected, with the remainder
payable in instalments due every three months such that the
receivable will be fully repaid by 30 June 2019. In addition to the
instalments payable, interest is payable at 5.25% per annum.
8. Loans and borrowings
Group current Group non-current
================ ===================
30 June 30 June 30 June 30 June
2016 2015 2016 2015
$'m $'m $'m $'m
============================== ======= ======= ========= ========
Secured at amortised cost
High yield bonds - - 629.5 510.3
Finance lease liabilities (i) 3.3 4.7 12.5 13.4
============================== ======= ======= ========= ========
3.3 4.7 642.0 523.7
============================== ======= ======= ========= ========
(i) Finance lease obligations are secured by retention of title
to the related assets. The borrowings are on fixed interest rate
debt with repayment periods between 3 and 13.5 years.
High yield bonds
The Company issued 10% Senior Secured Notes of $370.0m, $150.0m
and $125.0m on 1 October 2013, 17 June 2014 and 17 August 2015
respectively.
Original notional
Issuer value Description of instrument Due
===================== ================= ========================= ==============
Avanti Communications $645.0M 10% Senior Secured 1 October 2019
Group plc Notes
===================== ================= ========================= ==============
High yield bonds continued
The high yield bonds are disclosed in non-current loans and
borrowings as detailed below:
30 June 30 June
2016 2015
$'m $'m
==================================== ======= =======
High yield bonds 645.0 520.0
Add: Amortised issue premium 4.6 6.0
Less: Amortised issue discount (7.8) -
Less: Amortised debt issuance costs (12.3) (15.7)
==================================== ======= =======
629.5 510.3
==================================== ======= =======
The fair value of the High Yield Bonds, which are listed on the
Irish Stock Exchange (Level 1 in the fair value hierarchy), at 30
June 2016 was $0.75 for each bond with a face value of $1(2015:
$0.95). See Note 10 for details of a restructuring of the existing
Senior Secured Notes after the balance sheet date and the issue of
new Senior Secured Notes.
9. Cash absorbed by operations
Group Group
30 June 30 June
2016 2015
$'m $'m
================================= ======== ========
(Loss)/profit before taxation (67.2) (73.3)
Interest receivable - -
Interest payable 38.8 37.7
Amortised bond issue costs 2.4 1.8
Foreign exchange loss/(gain) (13.6) 1.0
Depreciation and amortisation
of non-current assets 47.3 48.1
Provision for doubtful debts 1.5 1.0
Share based payment expense 0.4 0.7
Sale of Spectrum rights (Note
2) - (25.1)
Decrease in stock 0.6 (0.9)
Decrease/(increase) in debtors (50.9) 1.6
(Decrease)/increase in trade and
other payables 10.6 (2.8)
Effects of exchange rate on the
balances of working capital (1.5) -
================================= ======== ========
Cash absorbed by from operations (31.8) (10.2)
================================= ======== ========
10. Post balance sheet events
As described in the going concern accounting policy in Note 2,
on 7 July 2016, the Company announced that it was probable that
additional funding would be required in order to ensure that the
Group had sufficient liquidity to complete and launch HYLAS 4 in
the 2017 financial year. Avanti had based its funding plan on cash
to be generated from the business which had grown more slowly than
expected. On 11 July 2016, the Company announced the undertaking of
a strategic review (the "Strategic Review") to consider all
financial and strategic options. As part of this exercise, Avanti
conducted an in-depth review of its business plan, financial
position and strategic options, including various routes to
strengthen the Company's balance sheet.
On 17 October 2016, the Company announced the result of a
successful consent solicitation process ("September Consent
Solicitation") as the first step in its two-phase funding strategy.
The Company received consents from holders of 89.5% of its Senior
Secured Notes to permit paying the interest due on 1 October 2016
in respect of consenting holders' Senior Secured Notes in the form
of additional Senior Secured Notes on the same terms as the
existing Senior Secured Notes in lieu of cash. The cash coupon of
$3.4m was paid to the 10.5% of holders from whom consent was not
received in October 2016.
Post balance sheet events continued
In order to further support the strategic review process, the
Company also entered into binding agreements with certain suppliers
to defer approximately $39m of capital expenditure payments
relating to HYLAS 4 to the third quarter of the fiscal year ending
30 June 2017.
Following completion of the September Consent Solicitation, the
Company continued negotiations with the manufacturer of HYLAS 4,
Orbital Sciences ("Orbital"), and its largest holders of Senior
Secured Notes regarding phase 2 of the funding strategy. The second
phase was a restructuring of the Company's outstanding indebtedness
in order to seek a long-term solution to its working capital needs
and to ensure that the Company could continue to operate as a going
concern in the future.
The restructuring drew towards its conclusion on 20 December
2016 when a Restructuring Agreement was signed by the Company with
a group of its largest holders of Senior Secured Notes ("Initial
Consenting Creditors"). The Company and the Initial Consenting
Creditors, representing approximately 73% of the aggregate
principal amount of the existing Senior Secured Notes ("Existing
Notes"), entered into the Restructuring Agreement on 20 December
2016 pursuant to which the Initial Consenting Creditors
contractually agreed to approve the Existing Notes restructuring by
delivering Consents in connection with the Solicitation, tendering
their Existing Notes in the Exchange Offer and voting in favour of
the Scheme.
The Company and the Initial Consenting Creditors also entered
into the Backstop Purchase Agreement on 20 December 2016 pursuant
to which the Initial Consenting Creditors committed to fund up to
the entirety of the New Money Offer, subject to reduction for the
level of pro rata participation by the remaining Existing Note
holders that elect to participate in the New Money Offer.
The major components of the restructuring, which will provide
the Group with substantial additional liquidity, are:
1. New Money Notes - Issue of up to $132.5m of Senior Secured
Notes in three tranches by the Company to provide additional funds
for the Group. $82.5m will be issued on closing of the
restructuring with the ability to issue a further $15m on 30 June
2017 and $35m on 30 November 2017.
2. Amended Existing Notes - Amendments to the Existing notes
which include capitalising the April 2017 coupon and the ability to
capitalise the October 2017 coupon for the $685m of Amended
Existing Notes based on certain cash forecast targets. In addition
the amendments allow for the ability to capitalise the April 2018
coupon for approximately $485m of the Amended Existing Notes based
on certain cash forecast targets and extended maturity dates which
range between October 2021 and October 2022.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR URUKRNVAUURA
(END) Dow Jones Newswires
December 20, 2016 04:28 ET (09:28 GMT)
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