TIDMAVN
RNS Number : 3746A
Avanti Communications Group Plc
27 December 2017
27 December 2017
AVANTI COMMUNICATIONS GROUP PLC
2017 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 2017.
Highlights
-- Revenue of $56.6m for the full year (2016: $82.8m)
-- Significant provision against receivable from the Government of Indonesia
-- Impairment charges against HYLAS 1, HYLAS 2, and Filiago
-- Finance restructuring plan launched to equitise all of the
2023 notes, and to reduce the interest rate on the 2021 notes
-- Cash at year end of $32.7m (2016: $56.4m)
-- Net debt(1) at year end of $562.0m (2016: $588.9m)
-- David Williams, CEO, steps down shortly after the year end
(1) Net debt comprises current and non-current loans and
borrowings less cash and cash equivalents
Alan Harper Avanti's CEO said:
"The disruption of the early part of the year led to a
lengthening of the sales cycle which caused revenue to be
significantly lower than initially expected. However as recently
announced the restructuring of the balance sheet aims to correct
the capital structure and provide the platform for success over the
medium term."
For further information please contact:
Avanti: Alan Harper / Nigel Fox, +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
Chairman's statement
In the first half of the financial year, Avanti's financial
position suffered disruption when the additional debt facilities
sought were not forthcoming on suitable terms. After a period of
very hard work, our existing bondholders and long term investors
supported the Company through a refinancing transaction that
provided $242million of additional liquidity through a mixture of
new money and interest deferrals.
The disruption of the first six months of the year led to a
lengthening of the sales cycle as our customers and potential
customers waited for the refinancing and strategic review to be
completed. Following the completion of the transaction, some
confidence did return to the customer base, but the lag in the
sales cycle has taken some time to reverse, meaning that our
revenues for the year were significantly lower than initially
expected.
Nevertheless, Avanti did win some significant business towards
the end of the year. The award of a new 3 year contract worth up to
$21 million to deploy several hundred services to government sites
across Africa with an existing government customer strengthens our
business with governments across our target markets. Furthermore,
the SaT5G (Satellite and Terrestrial network for 5G) project has
started well. This project will research, develop and validate key
technologies required to enable the plug-and-play integration of
satellite communications into 5G networks. The project will trial
and assess these through live testbed demonstrations across
Europe.
Shortly after the year end David Williams, Chief Executive and
co-founder, left the business. Alan Harper, who at the time was a
non-executive director of the Company, agreed to take up the role
of interim Chief Executive. Alan has 25 years of experience in
European and African telecoms markets. He has worked at Vodafone as
Group Strategy Director and more recently founded and ran Eaton
Towers, which served most of the major telco that are a key part of
the strategy for expansion at Avanti. Alan is focussed on
rebuilding the sales momentum of the business and ensuring that the
Group has a go to market strategy that is fit for the current
market. The search for a full time replacement is underway and we
hope to make an announcement shortly.
As recently announced, the Board has launched a restructuring of
the Company's balance sheet. The restructuring is aimed at
correcting the capital structure that has developed given recent
trading and will provide the platform for success over the
medium-term. It is proposed to issue new shares to repay all of the
2023 notes which would reduce the Group's debt by in excess of
$500m. This is subject to the agreement of the shareholders at a
General Meeting to be held in early 2018. In addition, the Board
has agreed with our Bondholders, subject to necessary consents, to
reduce the interest rate on the 2021 notes to 9% with the ability
to pay cash or roll up the interest as appropriate. The combined
impact of these two developments will reduce the Group's annual
interest charge by approximately 70%. I hope that you see fit to
support this initiative which will give Avanti a significantly
strengthened balance sheet and remove a significant impediment to
sales growth.
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.
Trading in the first half of the year was slower than hoped for
primarily as a result of the uncertainty associated with the
strategic review which the Company initiated in July 2016.
This uncertainty manifested itself in lower than normal levels
of pipeline conversion and an extension in the sales cycle. Of the
high probability pipeline that existed at 30 June 2016, 30% was
signed by 31 December 2016 compared to historic conversion rates of
over 60%. Since the conclusion of the strategic review and the
successful provision of additional financing, we won some
significant new business and believe that the pipeline conversion
rate should now accelerate.
Chief executive's review continued
In late December 2016 we received significant new tender awards
and signed contracts in the wi-fi and cellular backhaul markets and
in government networks. We also picked up new customers for
broadband in Europe, spurred by our launch of new 40Mb platforms -
the highest speed satellite broadband in Europe.
In the second half of the year we saw some confidence return to
our customer base and secured some excellent contract wins across
all four markets of Broadband, Government, Enterprise and Backhaul.
A few notable examples are:
Satellite and Terrestrial Network for 5G (SaT5G). This project
will research, develop and validate key technologies required to
enable the plug-and-play integration of satellite communications
into 5G networks. The project will trial and assess these through
live testbed demonstrations across Europe. The goal of the project
is to deliver the seamless, and economically viable, integration of
satellite into 5G networks to ensure ubiquitous 5G access
everywhere. The project has identified a range of primary research
areas to address the integration of satellite into 5G networks,
which include extending 5G security to satellite and multicast for
content distribution. Each research area will deliver outputs and
benefits in relation to 5G ecosystem stakeholders. Live
demonstrations and validations will take place at the testbeds for
the project which are located in the UK, Germany and Finland. The
project will also drive standardisation, mainly in 3GPP and ETSI,
contributing to the definition of the 5G system and integration of
satellite communications.
The ERDF contract, which was signed in August 2016, will support
the deployment of 40Mbps broadband services to rural businesses
across Cornwall and Isles of Scilly. Services are available through
Avanti's certified service providers, Bentley Walker and SSW. The
service will provide the highest satellite broadband speeds
available in Europe via Avanti's Ka-band HYLAS 1 and HYLAS 2
satellites to Cornish businesses, no matter how rural the
location.
In March, the Company announced a partnership with leading
international telecommunications company Millicom, to bring
broadband connectivity to consumer, enterprise and government
applications. This will include the deployment of the Avanti ECO
initiative across Sub-Saharan Africa, which will provide ECO Wi-Fi
services to schools and communities, addressing the digital divide
in the region. By combining Avanti's world leading satellite
technology with the market reach expertise from Millicom, the
partnership will additionally commission a new Gateway Earth
Station (GES) in Senegal.
As we reported at the end of the last financial year in order to
win volume in certain markets where end-customers are highly price
sensitive, such as broadband in Europe, we have adjusted our
prices. 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. Global pricing for satellite capacity is falling in many
markets, although each region is different.
Our average price per MHz in the last 12 months across the fleet
was $1,400.
You will note from the financial statements that we have
impaired the carrying value of HYLAS 1 and HYLAS 2.
HYLAS 1 is 7 years old now and its cost per MHz is high in
comparison to the new generation of High Throughput Satellites. The
finite life of the satellite combined with falling capacity prices
resulted in an accounting impairment of $53.3m. HYLAS 1 remains an
integral part of the Avanti fleet, is forecast to generate good
EBITDA and cash flows, and continues to serve some important
customers in Western Europe.
Chief executive's review continued
In addition we have impaired HYLAS 2 by $60.8m, once again
reflecting falling capacity prices and the finite life of the
satellite. This impairment effectively eliminates previously
capitalised financing costs leaving the carrying value close to the
Net Book Value of the procured asset cost. HYLAS 2 is expected to
generate strong EBITDA and cash flows as revenues grow over the
largely fixed operating costs of the business.
The 3GHz 'HYLAS 2-B' satellite payload that joined the fleet in
2015 came online in the period with coverage over France, Germany,
Poland and the Baltic Sea. The addition of this new capacity, which
increases available capacity from 14GHz to 17GHz means the
utilisation metric has been re-based. The amended fleet utilisation
is in the 30-35% band (June 2016 re-based: 25-30% band).
The tactical 4 GHz HYLAS 3 is a hosted payload flying on board a
European Space Agency ('ESA') satellite, for which the ESA is
presently declaring a late-2018 launch which could slip further. We
are disappointed in the performance of the manufacturer of this
system and are considering all options.
The construction of Avanti's key 28GHz HYLAS 4 satellite is at
an advanced stage but has experienced some delays in the factory.
The spacecraft is now expected to be delivered in January 2018 with
a launch in March 2018. HYLAS 4 will complete Avanti's coverage of
EMEA. This will materially enhance the Group's revenue generation
potential, largely within the existing fixed cost base. The
efficient procurement of HYLAS 4 will bring the overall fleet cost
per MHz down significantly, mitigating some of the effects of
falling global prices for satellite bandwidth.
In November 2017, we successfully re-orbited Artemis.
The Company had to make a significant provision against a
government receivable at the end of the year. Avanti had contracted
with the Government of Indonesia (GoI) to lease capacity on its
Artemis satellite to support GoI's need to bring into use and
maintain its orbital slot at 123 degrees East. The total contract
value was in excess of $30 million. Avanti performed all of its
obligations under the contract and had extended payment deadlines
for GoI to assist with administrative delays. However, having
received in excess of $12m in the earlier stages of the contract,
Avanti received no payments for over a year. As a result, Avanti
terminated the contract and has initiated arbitration proceedings
in London. The outstanding amount at 30 June was $16.8 million and
has been fully provided in these accounts. GoI has not disputed
that the amounts are due and payable. Avanti is confident that the
arbitration panel will rule in the Group's favour and has provided
for the debt at the year end until the uncertainty related to the
arbitration and particularly enforcing the Group's expectation of
the arbitration panel's ruling has been sufficiently reduced.
HYLAS 4 is due for launch in March 2018 with a target of being
in orbital position ready for service at the start of the next
financial year. We are in discussion with a number of current and
new distributors to sign up master partnership distribution
agreements with Avanti to market this new capacity which is largely
over sub Saharan Africa countries.
Our strategy
The Group has performed a review of its go to market strategy
post year end. Avanti is well positioned in the attractive High
Throughput Services market with a strategy to pursue a focussed B2B
channel push strategy to become the satellite wholesale partner of
choice to its target customers.
Chief executive's review continued
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's end user application segments, which remain unchanged,
are:
-- Commercial Mobility
-- Enterprise Data - including cellular backhaul
-- Government & Military
-- Broadband Access
Avanti's focus is on developing deep relationships with a small
number of large key channel partners in the following three
distribution channels:
-- Satellite Operators
-- Major Mobile / Telecom Carriers
-- Major Satellite Resellers, Integrators and ISPs
Financial Review
Outlook
During the last 18 months, Avanti has taken steps to address the
appropriateness of its balance sheet given the current levels of
trading experienced in the recent periods and the capital
commitments required to launch HYLAS 4.
As reported last year, Avanti entered a period of strategic
review in July 2016. As a result the majority of the interest due
on 1 October 2016 was rolled into the principal of the outstanding
loan notes.
In January 2017, the Company announced that it had reached
agreement with its major bondholders to provide additional
financing of up to $242 million through new money and the ability
to P.I.K coupons on both the 2021 and the 2023 notes. We were also
pleased at that point to welcome onto the Board Craig Chobor,
Michael Leitner and Peter Reed as representatives of key
stakeholders.
This new facility also paved the way to add a super senior
facility at the top of the security structure. In July 2017 HPS
provided an additional $100 million of financing at an annual rate
of 7.5% with a maturity of June 2020. After the drawdown of the HPS
funds in July 2017 the gross debt of the Company was $926.5
million, as set out in the table below:
Face Book
Maturity Interest Rate Value Value
========= ================ ========== ==========
Cash PIK (%) $ millions $ millions
(%)
============== ========= ======= ======= ========== ==========
June
Super Senior 2020 7.5 n/a 100.0 95.8
October
2021 notes 2021 10.0 15.0 300.8 287.6
October
2023 notes 2023 12.0 17.5 512.2 293.6
Finance lease Various various n/a 13.5 13.5
============== ========= ======= ======= ========== ==========
TOTAL 926.5 689.5
========================= ======= ======= ========== ==========
Financial Review continued
In December 2017, the Board announced that subject to the
agreement of the bondholders and of the shareholders at a General
Meeting in early 2018, the entirety of the 2023 notes will be
repaid by issuing new ordinary shares in Avanti Communications
Group plc ("debt for equity swap"). In addition, subject to
agreement from the 2021 bondholders, the maturity of these notes
will be extended by 12 months to October 2022 and the interest rate
reduced to 9% for both cash and PIK.
As a result of the financial restructuring in January 2017,
there was a substantial modification to the 2023 notes. Therefore
we have recorded the liability on the balance sheet at the market
value immediately after the restructuring had been completed. The
carrying value of the 2023 notes was reduced from $481.6 million to
$245.6 million with the difference being credited to the income
statement (note 9), along with accelerated amortisation of
previously capitalised bond costs of $16.8m.
Income Statement
As previously mentioned, the strategic review caused some
disruption to the business in the six months to December 2016 which
included a significant lengthening of the sales cycle. This has
taken some months to reverse and has had a direct impact on the
revenue recognised in the year to June 2017. As a consequence, we
have reported revenue of $56.6 million down from $82.8 million in
2016.
As a result of the significant provision made against the
Government of Indonesia debt, total operating costs rose from $75.5
million in 2016 to $89.1 million. Excluding this provision of $13.9
million, costs fell by 0.4%.
Staff costs fell slightly to $23.6 million (2016: $24.3 million)
of which $3.9 million (2016: $4.5 million) was capitalised as costs
relating to staff working on the construction of HYLAS 3 and HYLAS
4.
We have taken impairment charges through the income statement as
described in notes 6 and 7 below.
Tax
There was a tax credit of $12.0m to the income statement (2016:
$2.2m charge). The credit primarily arose from the recognition of
deferred tax on losses (credit $15.6m) offset by the impact of
changes in the UK tax rate on the deferred tax balances largely
driven by future HYLAS 4 profits (charge $3.3m).
Corporate Interest Restrictions
With effect from April 1st 2017, the tax deductibility of
interest costs will broadly be restricted to 30% of 'UK Tax EBITDA'
(a new measure based on taxable profit). Disallowed interest is
carried forward indefinitely, but will only become deductible if
interest costs fall below 30% of UK Tax EBITDA in a future
period.
Group forecasts currently assume the Group will not increase its
debt from the current (post debt for equity swap) level. This
results in the disallowed interest arising in the next few years
becoming deductible in the future, supporting the recognition of a
deferred tax asset on that disallowed interest ($0.4m at 30 June
2017).
However, if the Group increases its indebtedness (e.g. to
finance future missions) interest costs may never fall beneath 30%
of UK Tax EBITDA. As a result the disallowed interest costs would
become permanently lost.
Financial Review continued
Changes to Loss Utilisation Rules
With effect from 1 April 2017, restrictions have been introduced
in the UK on the use of brought forward losses, which broadly limit
the use of brought forward losses to 50% for taxable profits above
GBP5m. This will result in a slower utilisation of those
losses.
Loss for the year
The loss for the year was $65.7 million (2016: $69.2 million)
resulting in a basic loss per share of 44.7 cents (2016: loss 49.3
cents).
Balance Sheet
Impairments
Each year the Group considers the carrying value of its assets
and looks for indications of impairment. Falling market prices for
satellite services have reduced the ability of future cash
generation to make-up for the slower than expected revenue
generation in the earlier years of HYLAS 1 and HYLAS 2. With the
satellites having a finite life the Group has concluded that it
would be appropriate to impair the carrying value of HYLAS 1 and
HYLAS 2. With a construction cost of $192.3 million and a carrying
value of $117.2 million, HYLAS 1 has a historic cost of $541 per
MHz per month. With a construction cost of $389.8 million and a
carrying value of $287.6 million, HYLAS 2 has a historic cost of
$381 per MHz per month. Using current selling prices and
anticipated fill rates together with a discount rate of 10.4% the
Company has concluded that more appropriate carrying values are
$58.1 million and $234.8 million respectively. As a result an
impairment charge of $114.1 million was made at the year end.
In addition, Filiago has not achieved the targets set in the
recent past. The Group has decided to make significant changes to
the way that business is managed. However, until those changes
deliver the required targets the Group has decided to impair the
carrying value by $9.9 million.
Artemis
The Artemis satellite was re-orbited from its position at 123E
in November 2017. This ends the life of the former ESA spacecraft
that was launched in July 2001.
Financial Review continued
Receivables
Receivables at 30 June were $60.6 million (2016: $79.5
million).
After the year end, in November 2017, the Group reluctantly
terminated a contract with the MOD of Indonesia for persistent
non-payment and has initiated arbitration proceedings in London.
Given the materiality of the outstanding amounts at the year-end
($16.8 million) the Directors deemed it appropriate to make a full
provision for the outstanding amounts in these accounts. Revenue
was recognised on this contract during the year on the basis that
regular dialogue with the Government of Indonesia was undertaken,
formal commitments to pay were received and the debt remains
undisputed. Avanti is confident that the arbitration panel will
rule in the Group's favour and has provided for the debt at the
year end until the uncertainty related to enforcing the arbitration
panel's expected ruling has been sufficiently reduced.
During the year we terminated a contract with Qsat in Ireland
for consistent non-payment. Avanti had the right in its contract to
"step-in" and moved the majority of customers to one of our UK
based service providers. As a result we made provisions of $0.7
million and $2.5 million against receivables and accrued income
respectively associated with the Qsat contracts.
High yield debt
As described above, the 2023 notes were amended in a consent
solicitation process during December 2016 and January 2017. Under
the relevant accounting standards, the modification of the terms
were deemed to be substantial. As a result the original bonds are
required to be de-recognised and the new bonds recorded at market
value at that date. In the period after the modification was
ratified through the consent solicitation process, the bonds traded
down to 51 cents /$1. The consequence was that the carrying value
of this tranche of debt was reduced to $245.6 million with the
resulting credit of $219.2 million recognised in the income
statement as an Exceptional gain on substantial modification of
debt. The carrying value of the debt will accrete up to the face
value over the maturity of the bonds, giving rise to a higher
finance expense than would otherwise be recorded.
Cash flow
Net cash outflow from operating activities during the year ended
June 30, 2017 was $4.1 million as compared to an outflow of $31.8
million during the year ended June 30, 2016.
Interest paid was $3.5 million (2016: $60.5 million), the
significant decrease being due to the coupon payments due on debt
being settled through the issue of additional notes rather than the
payment of cash.
Capital expenditure fell from $95.7 million in 2016 to $66.5
million in 2017.
Additional financing net of restructuring costs brought in $51.9
million compared to $123.6 million raised in 2016.
Exchange losses accounted for net cash outflow of $1.5 million
leaving cash at the year-end of $32.7 million (2016: $56.4
million).
Financial Review continued
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 and 2 in
orbit insurance policies were renewed in November 2017 with an
insured value of GBP112m and $306m respectively.
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. Our backlog totalled
$103.9m as of June 30, 2017.
Due to political and economic difficulties in some of the
regions we operate, a number of the contracts signed with partners
in the early years of operations are proving to be impaired. We
have chosen to remove these from backlog whilst at the same time
working with those partners to find more appropriate terms on which
to continue to work. In addition the definition of backlog no
longer includes the run rate of consultancy projects.
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.
There are significant trade receivables with customers operating
in the African and Middle East regions. These businesses are often
operating in immature emerging markets for satellite communication
services and may have cashflow difficulties due to the market and
geopolitical environment in which they operate.
Continued uncertainty regarding the terms of the UK's exit from
the EU may have some effect on our ability to attract suitable UK
based staff.
Financial Review continued
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 mitigate
the foreign currency risk, the Group monitors the level at which
natural hedges occur and continually reviews the need to enter into
forward contracts in order to mitigate any material forecast
exposure. 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 a
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
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.
Launch of HYLAS 4
At this time the launch of HYLAS 4, the most advanced and
efficient spacecraft of the Avanti fleet, is critical. Whilst the
risk of launch failure is historically very low when using the
Arianespace 5 launch vehicle, and the spacecraft is insured for
$325 million, any failure would significantly impact the business
model. A replacement vehicle would take approximately 30 months to
procure.
Post balance sheet events
In July 2017 the Company drew down $100 million of the super
senior facility agreed in June 2017.
In November 2017 the Group terminated its contract with MOD of
Indonesia and made provisions against the year-end debt of $16.8
million.
Financial Review continued
Post balance sheet events continued
In December 2017 the Company announced that it had reached
agreement with the majority of its bondholders and significant
equity shareholders to repay the 2023 notes by issuing new shares
in Avanti Communication Group plc. In addition the 2021 notes will
extend their maturity by one year and the interest rate will be
reduced to 9% for both cash and PIK (previously 12%). This remains
subject to a formal consent solicitation process with the
bondholders and a shareholder vote to be held in early 2018.
Going Concern
As fully described in note 2 below, these accounts have been
prepared on a going concern basis.
In arriving at the conclusion, the Board of Directors were
pleased to announce on 13 December 2017 that it proposed to convert
the entire 2023 notes into equity, whilst at the same time
extending the maturity to the 2021 notes by 12 months and reducing
the cash and PIK coupons to 9%. These changes require the formal
consent of both the debt holders and the shareholders. With a
significant proportion of both parties signatories to the
restructuring agreement and lock-up letters, the directors are
confident that the restructuring will proceed.
The Directors have concluded that, based on the group's
expectation that the Consent Solicitation for a financial
restructure will be successful, together with the planned
additional fund raise and substantial achievement of cash flow
forecasts, the Directors believe that the Group will be able to
have sufficient liquidity and will be able to meet its obligations
as they fall due. The Directors have accordingly 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, planned fund raise and the
substantial achievement of cash flow forecasts 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.
Consolidated Income Statement
Year ended 30 June 2017
Year ended Year ended
30 June 30 June
2017 2016
Notes $'m $'m
================================================ ===== ========== ==========
Revenue
Capacity, services & equipment 3 56.6 74.5
Sale of exclusivity rights(1) 3 - 8.3
================================================ ===== ========== ==========
Total Revenue 56.6 82.8
================================================ ===== ========== ==========
Cost of sales - capacity, services
& equipment (excluding satellite depreciation) (59.4) (40.9)
Staff costs (19.7) (19.8)
Other operating expenses (12.0) (16.3)
Other operating income 2.0 1.5
================================================ ===== ========== ==========
EBITDA(2) (32.5) 7.3
================================================ ===== ========== ==========
Depreciation and amortisation (47.2) (47.3)
Impairment of satellites in operation (114.1) -
Impairment of goodwill (9.9) -
================================================ ===== ========== ==========
Operating loss (203.7) (40.0)
================================================ ===== ========== ==========
Finance income - 13.9
Finance expense (93.2) (40.9)
Exceptional gain on substantial modification
of debt 9 219.2 -
================================================ ===== ========== ==========
Loss before taxation (77.7) (67.0)
================================================ ===== ========== ==========
Income tax 4 12.0 (2.2)
================================================ ===== ========== ==========
Loss for the year (65.7) (69.2)
================================================ ===== ========== ==========
Loss attributable to:
Equity holders of the parent (65.2) (68.7)
Non-controlling interests (0.5) (0.5)
Basic loss per share (cents) 5 (44.74c) (49.27c)
Diluted loss per share (cents) 5 (44.74c) (49.27c)
================================================ ===== ========== ==========
(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
and impairment of non-current assets
Consolidated Statement of Comprehensive income
Year ended 30 June 2017
Year ended Year ended
30 June 30 June
2017 2016
$'m $'m
================================================= ========== ==========
Loss for the year (65.7) (69.2)
================================================= ========== ==========
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 3.7 13.8
Monetary items that form part of the net
investment in a foreign operation (9.7) (58.9)
================================================= ========== ==========
Total comprehensive loss for the year (71.7) (114.3)
================================================= ========== ==========
Attributable to:
Equity holders of the parent (71.2) (113.8)
Non-controlling interests (0.5) (0.5)
================================================= ========== ==========
Consolidated Statement of Financial Position
As at 30 June 2017
30 June 30 June
2017 2016
Notes $'m $'m
===================================== ===== ======= =======
ASSETS
Non-current assets
Property, plant and equipment 6 671.8 775.1
Intangible assets 7 9.3 10.8
Deferred tax assets 30.8 18.6
===================================== ===== ======= =======
Total non-current assets 711.9 804.5
===================================== ===== ======= =======
Current Assets
Inventories 2.6 1.9
Trade and other receivables 8 60.6 79.5
Cash and cash equivalents 32.7 56.4
===================================== ===== ======= =======
Total current assets 95.9 137.8
===================================== ===== ======= =======
Total assets 807.8 942.3
===================================== ===== ======= =======
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 70.3 82.8
Loans and other borrowings 9 2.1 3.3
===================================== ===== ======= =======
Total current liabilities 72.4 86.1
===================================== ===== ======= =======
Non-current liabilities
Trade and other payables 9.1 12.7
Loans and other borrowings 9 592.6 642.0
===================================== ===== ======= =======
Total non-current liabilities 601.7 654.7
===================================== ===== ======= =======
Total liabilities 674.1 740.8
===================================== ===== ======= =======
Equity
Share capital 2.7 2.5
EBT shares (0.1) (0.1)
Share premium 519.4 515.9
Retained earnings (317.7) (252.7)
Foreign currency translation reserve (67.5) (61.5)
===================================== ===== ======= =======
Total parent shareholders' equity 136.8 204.1
Non-controlling interests (3.1) (2.6)
===================================== ===== ======= =======
Total equity 133.7 201.5
===================================== ===== ======= =======
Total liabilities and equity 807.8 942.3
===================================== ===== ======= =======
Consolidated Statement of Cash Flows
Year ended 30 June 2017
Group
======================
Year ended Year ended
30 June 30 June
2017 2016
Notes $'m $'m
================================= ===== ========== ==========
Cash flow from operating
activities
Cash (absorbed)/generated
by operations 10 (4.1) (31.8)
Interest paid (3.5) (60.5)
Interest received - -
================================= ===== ========== ==========
Net cash (absorbed)/generated
by operating activities (7.6) (92.3)
================================= ===== ========== ==========
Cash flows from investing
activities
Payments for other financial
assets and investments - -
Payments for property, plant
and equipment (66.5) (95.7)
Proceeds from sale and leaseback - 2.2
================================= ===== ========== ==========
Net cash used in investing
activities (66.5) (93.5)
================================= ===== ========== ==========
Cash flows from financing
activities
Proceeds from bond issue 78.7 115.0
Proceeds from share issue 0.2 10.7
Payment of finance lease
liabilities (3.8) (4.1)
Debt issuance costs (23.2) (0.2)
================================= ===== ========== ==========
Net cash received from financing
activities 51.9 121.4
================================= ===== ========== ==========
Effects of exchange rate
on the balances of cash
and cash equivalents (1.5) (1.4)
Net (decrease)/increase
in cash and cash equivalents (23.7) (65.8)
Cash and cash equivalents
at the beginning of the
financial year 56.4 122.2
================================= ===== ========== ==========
Cash and cash equivalents
at the end of the financial
year 32.7 56.4
================================= ===== ========== ==========
Consolidated Statement of Changes in Equity
Year ended 30 June 2017
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
=================== ====== ======== ============== ======== ========= ================ =============== =======
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
=========================== ======== ============== ======== ========= ================ =============== =======
2017
At 1 July
2016 2.5 (0.1) 515.9 (252.7) (61.5) (2.6) 201.5
Loss for the
year - - - (65.2) - (0.5) (65.7)
Other comprehensive
income - - - - (6.0) - (6.0)
Issue of share
capital 0.2 - 3.5 - - - 3.7
Share based
payments - - - 0.2 - - 0.2
=========================== ======== ============== ======== ========= ================ =============== =======
At 30 June
2017 2.7 (0.1) 519.4 (317.7) (67.5) (3.1) 133.7
=========================== ======== ============== ======== ========= ================ =============== =======
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
2017 or 2016. Statutory consolidated financial statements for the
Group for the year ended 30 June 2016, prepared in accordance with
adopted IFRS, have been delivered to the Registrar of Companies and
those for 2017 will be delivered in due course. The auditors have
reported on those accounts: their report on the accounts for 2017
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 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.
This financial information for the year ended 30 June 2017 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 2017 Annual Report and Accounts as presented on the Avanti
Communications Group plc website. These have been consistently
applied throughout the 2017 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 13
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 and
Scheme of Arrangement processes described further below and while
the Directors believe that these processes will be completed
successfully, there remains a material uncertainty until the
remaining consents and approvals have been received.
Going concern continued
As described in Note 9, the Group has the following debt
instruments, excluding finance leases, as at the date of approval
of the financial statements:
Instrument Nominal Value Lien Due
Super Senior Facility $118.0m* 1st lien 21 June 2020
PIK Toggle Notes $323.0m 2nd lien 1 October 2021
Amended Existing Notes $557.0m 3rd lien 1 October 2022
*$118m was drawn down from the super senior facility post
year-end.
The financial restructuring announced on 13 December comprised
the following components which are described in further detail
below:
1. Debt for equity Swap - Exchange of all of the Amended
Existing Notes for ordinary share capital of the Company
2. Amendment to the economic terms of the PIK Toggle Notes
The restructuring culminated on 13 December 2017 when a Lock-Up
& Restructuring Agreement was signed by the Company with a
group of its largest holders of PIK Toggle Notes, Amended Existing
Notes and ordinary share capital ('Initial Consenting Investors').
The Company and the Initial Consenting Investors, representing
approximately:
-- 62% of the aggregate principal amount of the existing PIK Toggle Notes
-- 55% of the aggregate principal amount of the existing Amended Existing Notes and
-- 34% of the ordinary share capital
entered into the Restructuring Agreement on 13 December 2017
pursuant to which the Initial Consenting Investors contractually
agreed to:
-- approve the Amended Existing Notes restructuring by voting in
favour of the Scheme, tendering their Amended Existing Notes in the
exchange offer and voting in favour of the related shareholder
resolutions;
-- approve the PIK Toggle Notes restructuring by delivering
Consents in connection with the Solicitation, or approvals in
connect with the scheme of arrangement.
1. Repayment of the Amended Existing Notes
The exchange of all of the Amended Existing Notes for 92.5% of
Avanti's enlarged outstanding share capital. This debt for equity
swap will involve the settlement of the 3rd lien debt with a
nominal value of $557.0m and accrued interest of approximately
$22.4m through the issue of approximately 2.0 billion ordinary
shares of 1p each in the Company. The holders of the current
Amended Existing Notes will hold 92.5% of the Company's enlarged
share capital following completion of this restructuring.
Going concern continued
The debt for equity swap approval will be sought under an
English law scheme of arrangement (the 'Scheme') which requires
approval from 75% of the holders of the Amended Existing Notes.
The Scheme of Arrangement will commence in early January 2018
and the process will last for approximately 6-8 weeks. This process
will result in one of the two following outcomes:
1. Receipt of consents from note holders equating to at least
75% 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 Amended Existing Notes. The Initial Consenting Investors are
contractually committed to providing their consents and equate to
55% of the Existing Notes.
2. Consents will be received amounting to less than 75% of the
Existing Noteholders. This is considered unlikely given that the
Initial Consenting Investors are contractually committed to
providing their consents and equate to 55% 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.
2. Amendment to economic terms of the 2021 Notes
The amendment to the terms of the 2nd lien as follows:
-- extend the final maturity date from October 1, 2021 to October 1, 2022;
-- change the interest rate payable on the 2021 Notes from 10%
Cash / 15% PIK to 9% Cash / 9% PIK for all remaining interest
periods commencing October 1, 2017;
-- eliminate the step up in interest payable on the 2021 Notes
if the relevant minimum consolidated LTM EBITDA threshold is not
met;
-- eliminate the Maintenance of Minimum Consolidated LTM EBITDA
covenant contained in the indenture governing the 2021 Notes;
-- require interest payments on the 2021 Notes for all remaining
interest periods commencing October 1, 2017 (but excluding the
final interest payment) to be made in cash so long as Avanti has
sufficient cash, pro forma, to satisfy the applicable interest
coupon, the next cash interest payment due on the Super Senior Debt
and any necessary working capital requirements (i.e. 'Pay If You
Can' Interest).
The amendment to the economic terms of the PIK Toggle Notes will
be sought under a Consent Solicitation process. Under the terms of
the PIK Toggle Notes Indenture, consent to the changes is required
from holders of 90% of the PIK Toggle Notes. Should approval not be
received from 90% or more of the PIK Toggle Note holders, an
English law scheme of arrangement will be prepared which requires
approval from 75% of the holders of the PIK Toggle Notes.
Going concern continued
The Consent Solicitation will commence in early January 2018 and
will last for a maximum of 10 business days. This process will
result in one of the following outcomes:
1. Receipt of consents from note holders equating to at least
90% of the 2021 Notes by number and value. This will result in the
terms of the restructuring being approved and applied to 100% of
the 2021 Notes. The Initial Consenting Investors are contractually
committed to providing their consents and equate to 62% of the
Existing Notes.
2. Receipt of consents will be received amounting to less than
90% of the Existing Noteholders. In this scenario, an English law
scheme of arrangement would commence, seeking approval via an
alternative mechanism for the amendment to the economic terms of
the PIK Toggle Notes. The Scheme of Arrangement would run for
approximately 6-8 weeks and would result in one of the two
following outcomes:
3. Receipt of consents from note holders equating to at least
75% 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 Amended Existing Notes. The Initial Consenting Investors are
contractually committed to providing their consents and equate to
62% of the Existing Notes.
4. Consents will be received amounting to less than 75% of the
Existing Noteholders. This is considered unlikely given that the
Initial Consenting Investors are contractually committed to
providing their consents and equate to 62% 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.
In addition to the consents required from the holders of the
Amended Existing Notes to have their notes converted into ordinary
share capital, the holders of the Company's ordinary share capital
pre-reorganisation also need to approve three shareholder
resolutions in order for the debt for equity swap to be
successfully completed:
1. An ordinary resolution to approve the issue of approximately
2.0 billion new ordinary shares of 1p each in the Company. This
resolution requires greater than 50% of votes cast to be
passed.
2. A special resolution to disapply pre-emption rights with
respect to the issue of these shares. This resolution requires
greater than 75% of votes cast to be passed.
3. A resolution for the waiver of rights of independent
shareholders to receive a mandatory takeover offer from one of the
Initial Consenting Investors who will hold in excess of 30% of the
ordinary share capital of the Company following the proposed
restructuring. This resolution requires greater than 50% of votes
cast by independent shareholders to be passed.
Going concern continued
Should any of these shareholder resolutions not be passed, the
restructuring of the Amended Existing Notes 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. The Initial Consenting Investors hold 34% of the ordinary
share capital in the Company and are committed to voting in favour
of these resolutions.
Additional fund raise
Following and contingent upon completion of the restructuring,
an additional fund raising will be completed in the form of equity,
new PIK Toggle Notes or a combination of both instruments. The
minimum value is likely to be $30.0m but may be adjusted dependent
on demand. The directors of the Company have received assurances
from members of the Initial Consenting Investors that they will
participate in the additional fund raising. Should this additional
fund raising not be completed successfully, the Group would need to
raise cash through another route such as an alternative fund
raising or asset sale in order to have sufficient resources to
continue in operational existence for the foreseeable future.
Following the signing of the Lock-Up & Restructuring
Agreement, which is the platform for a successful financial
restructuring, and in order to prepare and approve these Financial
Statements, the Directors have assessed forecast future cash flows
for the foreseeable future, being a period of at least a year
following the approval of the accounts. In assessing the Group's
ability to meet its obligation as they fall due, management
prepared cash flow forecasts based on the business plan for a
period of 12 months. Management considered various downside
scenarios to test the Group's resilience against operational risk
including:
-- Slower build in fleet/satellite utilisation
-- Planned revenue from exploitation of spectrum rights and
satellite interim missions doesn't materialise
However, were those downside scenarios to materialise,
Management would take mitigating actions, notably the ability to
PIK interest payable in October 2018 on the 2021 Notes. Management
therefore concluded that the Group's Capital Structure after the
planned financial restructuring comprising of the debt for equity
swap, and amendment to the economic terms of the PIK Toggle Notes,
together with the planned additional fund raise and the substantial
achievement of cash flow forecasts, provides sufficient headroom to
cushion against downside operational risks.
Management concluded that the Group's Capital Structure after
the planned financial restructuring comprised of the debt for
equity swap, and amendment to the economic terms of the PIK Toggle
Notes, together with the planned additional fund raise and the
substantial achievement of cash flow forecasts, provides sufficient
headroom to cushion against downside operational risks.
Going concern continued
In summary, the Directors have concluded that, based on the
group's expectation that the Consent Solicitation for a financial
restructure will be successful, together with the planned
additional fund raise and substantial achievement of cash flow
forecasts, the Directors believe that the Group will be able to
have sufficient liquidity and will be able to meet its obligations
as they fall due. The Directors have accordingly 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, planned fund raise and the
substantial achievement of cash flow forecasts 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 utilisation of its
space assets, namely its spectrum rights and satellites. These
revenues include the sale of satellite broadband services, the sale
and leasing of spectrum rights, the sale of services, typically to
Government customers, and the sale of terminals and other satellite
communications equipment.
The Avanti Executive Board, which is the chief operating
decision-maker in the Group's corporate governance structure,
manages 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
2017 2016
$'m $'m
======================================= ======= =======
Capacity, services & equipment revenue 56.6 74.5
Exclusivity rights - 8.3
Total revenue 56.6 82.8
======================================= ======= =======
The majority of total revenue for the year represents the sale
of satellite broadband capacity and related services provided to
external customers and the sale of terminals and other satellite
communications equipment. Of this, $5.3m (2016: $13.2m) relates to
the sale of terminals and other satellite communications
equipment.
The Group derived $11.1m (2016: $19.9m) of its turnover from
European countries outside the United Kingdom, $25.3m (2016:
$39.7m) from countries outside Europe and $20.2m (2016: $23.2m)
from the United Kingdom.
Sale of exclusivity rights
$8.3m was recognised during the prior financial year from the
sale of exclusivity rights.
During the year ended 30 June 2016, 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.
Sale of exclusivity rights continued
Eurona are required to pay a fixed, non-refundable fee of
EUR7.5m 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 revenue has been recognised within the sale
of capacity, services and equipment. The sale of EUR2.5m of
satellite communications equipment was recognised during the prior
financial year and a further EUR1.5m was recognised in the current
year under a modification to the original agreement.
The agreement with Eurona was assessed under the Group's
accounting policy for multi-deliverable arrangements. An assessment
was made as to 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.
The fair value of the undelivered components (residual value
method) was used to assess the fair value of the exclusivity rights
and equipment recorded in the prior year, and the equipment
recorded in the current year. 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
components, and of the contractual value and fair value of the
equipment components.
4. Income Tax
30 June 30 June
2017 2016
$'m $'m
======================================= ======= =======
Current tax
Current tax expense - -
Overseas tax - 0.1
Adjustment in respect of prior periods 0.2 0.1
======================================= ======= =======
Total current tax 0.2 0.2
======================================= ======= =======
Deferred tax
Origination and reversal of temporary
differences (15.9) (4.2)
Adjustment in respect of prior periods 0.4 4.1
Impact of change in UK tax rate 3.3 2.1
======================================= ======= =======
Total deferred tax (12.2) 2.0
======================================= ======= =======
Total income tax (credit)/charge (12.0) 2.2
======================================= ======= =======
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
2017 2016
$'m $'m
============================================= ======= =======
Loss before tax (77.7) (67.2)
============================================= ======= =======
Tax credit at the UK corporation tax rate
of 19.75% (2016: 20.00%) (15.3) (13.4)
Tax effect of non-deductible expenses 13.1 -
Adjustment in respect of prior periods 0.5 4.2
Effect of tax rates in foreign jurisdictions - 1.0
Impact of change in UK tax rate 3.3 2.1
Temporary differences for which no deferred
tax has been recognised 2.4 14.1
Recognition of previously unrecognised
temporary differences (30.3) (5.8)
Derecognition of previously recognised
temporary differences 14.3 -
Income tax (credit)/charge recognised
in the Income Statement (12.0) 2.2
============================================= ======= =======
The standard rate of corporation tax in the UK fell from 20% to
19% with effect from 1 April 2017. Accordingly, the Group's profits
for this accounting period are taxed at an effective rate of 19.75%
(2016: 20.0%).
The income tax credit of $12.0m (2016: $2.2m charge) equates to
an effective tax rate of 15% (2015: (3%)). This effective rate is
lower than the effective rate of tax of 19.75% due to a number of
items shown above. The rate is primarily driven by the Group
recognising a credit in respect of tax losses arising in prior
years as a result of forecast profit streams (in particular related
to HYLAS 4) against which these losses can be offset, and expenses
that are not deductible for tax purposes.
Factors that may affect future tax charges
Changes to reduce the UK corporation tax rate to 19% from 1
April 2017 and to 17% from 1 April 2020 were substantially enacted
on 15 September 2016. The deferred tax balance as at the year end
has been recognised at 17% (2016: 18%) which materially reflects
the rate for the period in which the deferred tax assets and
liabilities are expected to reverse.
Tax losses
At the balance sheet date the Group has unrecognised deferred
tax assets of $29.5m (2016: $37.2m) available for offset against
future profits. A deferred tax asset has been recognised in respect
of $64.3m (2016: $28.0m). No deferred tax asset has been recognised
in respect of the remaining losses and other temporary differences
on the basis that their future economic benefit is uncertain.
Under present tax legislation, these losses and other temporary
differences may be carried forward indefinitely. In the future if
these assets are recognised there will be a positive impact to the
Group's effective tax rate. Conversely, if revenues generated by
HYLAS 4 fall materially short of expectations there will be a
negative impact to the Group's effective tax rate.
In the UK, with effect from 1 April 2017, only 50% of profits
above $5m may be offset by losses brought forwards. This will slow
the rate at which the deferred tax asset on losses can be utilised,
and hence will result in the Group paying cash tax in the UK
earlier than would otherwise be the case.
5. Loss per share
30 June 30 June
2017 2016
cents cents
================================= ======= =======
Basic and diluted loss per share (44.74) (49.27)
================================= ======= =======
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
2017 2016
============================================= =========== ===========
Loss for the year attributable to equity
holders of the parent Company $(65.2)m $(68.7)m
Weighted average number of ordinary shares
for the purpose of basic earnings per share 145,625,369 139,428,427
============================================= =========== ===========
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
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
Additions - 3.0 0.1 1.4 64.0 68.5
Reclassification* - (1.1) - (5.8) - (6.9)
Effect of movements
in exchange rates 0.1 1.4 - (7.6) (1.2) (7.3)
Balance at 30 June
2017 1.7 16.0 2.7 645.0 359.5 1,024.9
========================= ============ ======= ============= ============= ================ =======
Accumulated depreciation
and impairment
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
Charge for the year 0.4 2.2 0.3 43.1 - 46.0
Reclassification* - (0.6) - (0.2) - (0.8)
Impairment - - - 114.1 - 114.1
Effect of movements
in exchange rates (0.1) 0.7 - (2.3) - (1.7)
========================= ============ ======= ============= ============= ================ =======
Balance at 30 June
2017 1.5 11.7 2.3 337.6 - 353.1
========================= ============ ======= ============= ============= ================ =======
Net book value
Balance at 30 June
2017 0.2 4.3 0.4 307.4 359.5 671.8
========================= ============ ======= ============= ============= ================ =======
Balance at 30 June
2016 0.4 3.3 0.6 474.1 296.7 775.1
========================= ============ ======= ============= ============= ================ =======
* Reclassifications relate to the reclassification of satellite
control software between tangible and intangible assets.
Property, plant and equipment under finance lease
At 30 June 2017, the Group held assets under finance lease
agreements with a net book value of $39.8m (2016: $47.8m). A
depreciation charge for the year of $2.3m (2016: $1.7m) has been
provided on these assets. These assets are included in 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 four satellites and their related ground infrastructure have
been depreciated from the date that they came into operational
service.
Satellite in construction
The satellites in construction assets of $359.5m relate to HYLAS
3 and HYLAS 4 (2016: $296.7m 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 $145.7m (2016:
$97.4m) 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. Each year the Group
consider the carrying value of its assets and looks for indications
of impairment. An impairment review was conducted for the HYLAS 1
satellite and associated network infrastructure ('HYLAS 1'), at 30
June 2017 as a result of growth in revenues being slower than
forecast.
With falling market prices for Ka-band services reducing the
ability of future cash generation to make-up for the slower than
expected revenue generation in the earlier years of HYLAS 1, the
review showed that an impairment of $53.3m was required to bring
the carrying value of HYLAS 1 to $58.1m.
The recoverable amount of HYLAS 1 was 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 asset of approximately 9.5
years.
Estimates of future cash flows originate from the detailed
budget for the year to 30 June 2018 as reviewed and approved by the
Board.
Forecasts for the subsequent periods are driven by the following
key assumptions:
1. Capacity ramp - The discounted cash flow forecast assumes a
ramp up in capacity utilisation of 8% per year to full utilisation
at the end of FY24, from a combination of contractual ramps,
development of existing customer relationships and new business
development
2. Yield - price per unit of capacity - The discounted cash flow
forecast makes assumptions about the price per unit of capacity
which is driven by both market conditions and the efficiency of
data throughput which varies due to a number of factors such as
customer type and hardware platform
3. Satellite life - The discounted cash flow forecast is
prepared over the estimated remaining useful economic life of the
asset
4. Discount rate - The present value of the cash flows is
calculated by using a pre-tax discount rate of 10.4% derived using
the Group's incremental cost of borrowing
Sensitivity analysis was carried out by management over the
assumptions made in the impairment model relating to yield, growth
in utilisation and the discount factor applied. This sensitivity
analysis was performed as a part of the impairment exercise in
order to provide insight into the sensitivity of the impairment
charge to changes in these key assumptions:
HYLAS 1 satellite impairment review continued
-- a 10% decrease in the forecast yield on the uncontracted
capacity over the life of the cash flow forecast would increase the
impairment charge by $3.7m. A 10% increase in the forecast yield
would have an equivalent impact in decreasing the impairment
charge.
-- a scenario in which the ramp-up of the currently unutilised
capacity occurs at 80% of the forecast growth would increase the
impairment charge by $7.4m.
-- a 1% increase in discount factor applied would increase the impairment charge by $2.7m
The position adopted in the HYLAS 1 impairment review represent
management's best estimate of the forecasts and assumptions.
HYLAS 2 satellite impairment review
HYLAS 2 is an 11 Ghz Ka-band High Throughput Satellite that came
into operational service on 1 October 2012. Each year the Group
considers the carrying value of its assets and looks for
indications of impairment. An impairment review was conducted for
the HYLAS 2 satellite and associated network infrastructure ('HYLAS
2'), at 30 June 2017 as a result of growth in revenues being slower
than forecast.
With falling market prices for Ka-band services reducing the
ability of future cash generation to make-up for the slower than
expected revenue generation in the earlier years of HYLAS 2, the
review showed that an impairment of $60.8m was required to bring
the carrying value of HYLAS 2 to $234.8m.
The recoverable amount of HYLAS 2 was 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 2
satellite and associated network infrastructure over the remaining
useful economic life of the asset of approximately 10.5 years.
Estimates of future cash flows originate from the detailed
budget for the year to 30 June 2018 as reviewed and approved by the
Board. Forecasts for the subsequent periods are driven by the
following key assumptions:
1. Capacity sold - The discounted cash flow forecast assumes a
ramp up in capacity utilisation of 12% per year to the end of FY23,
with modest incremental growth thereafter, from a combination of
contractual ramps, development of existing customer relationships
and new business development
2. Yield - price per unit of capacity - The discounted cash flow
forecast makes assumptions about the price per unit of capacity
which is driven by both market conditions and the efficiency of
data throughput which varies due to a number of factors such as
customer type and hardware platform
3. Satellite life - The discounted cash flow forecast is
prepared over the estimated remaining useful economic life of the
asset
4. Discount rate - The present value of the cash flows is
calculated by using a pre-tax discount rate of 10.4% derived using
the Group's incremental cost of borrowing
Sensitivity analysis was carried out by management over the
assumptions made in the impairment model relating to yield, growth
in utilisation and the discount factor applied. This sensitivity
analysis was performed as a part of the impairment exercise in
order to provide insight into the sensitivity of the impairment
charge to changes in these key assumptions.
HYLAS 2 satellite impairment review continued
-- a 10% decrease in the forecast yield on the uncontracted
capacity over the life of the cash flow forecast would increase the
impairment charge by $19.3m. A 10% increase in the forecast yield
would have an equivalent impact in decreasing the impairment
charge.
-- a scenario in which the ramp-up of the currently unutilised
capacity occurs at 80% of the forecast growth would increase the
impairment charge by $38.5m.
-- a 1% increase in discount factor applied would increase the impairment charge by $13.4m.
The position adopted in the HYLAS 2 impairment review represent
management's best estimate of the forecasts and assumptions.
Impairment of other assets
There are no indicators of impairment for any other assets
within Property, plant and equipment.
HYLAS-2B
Satellites in operation also 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.
The IRU agreement is accounted for as a finance lease and a net
book value ('NBV') of $33.4m is included within satellites in
operation and also within the assets held under finance lease
disclosure provided above.
7. Intangible assets
Computer Brand Customer Group
software name lists Goodwill total
$'m $'m $'m $'m $'m
========================= ========= ===== ======== ======== ======
Cost
Balance at 30 June
2015 0.6 0.2 1.9 9.7 12.4
Effect of movements
in exchange rates - - - - -
------------------------- --------- ----- -------- -------- ------
Balance at 30 June
2016 0.6 0.2 1.9 9.7 12.4
Additions 3.0 - - - 3.0
Reclassification* 6.9 - - - 6.9
Effect of movements
in exchange rates - - 0.1 0.3 0.4
Balance at 30 June
2017 10.5 0.2 2.0 10.0 22.7
========================== ========= ===== ======== ======== ======
Accumulated amortisation
and impairment
Balance at 30 June
2015 0.6 0.2 0.6 - 1.4
Effect of movements
in exchange rates - - 0.2 - 0.2
========================== ========= ===== ======== ======== ======
Balance at 30 June
2016 0.6 0.2 0.8 - 1.6
Charge for the year 1.1 - 0.1 - 1.2
Reclassification* 0.8 - - - 0.8
Impairment - - - 9.9 9.9
Effect of movements
in exchange rates - - (0.1) - (0.1)
========================== ========= ===== ======== ======== ======
Balance at 30 June
2017 2.5 0.2 0.8 9.9 13.4
========================== ========= ===== ======== ======== ======
Net book value
Balance at 30 June
2017 8.0 - 1.2 0.1 9.3
========================== ========= ===== ======== ======== ======
Balance at 30 June
2016 - - 1.1 9.7 10.8
========================== ========= ===== ======== ======== ======
* Reclassifications relate to the reclassification of satellite
control software between tangible and intangible assets.
Filiago impairment review
The goodwill, customer lists and brand name intangibles arose
from the Group obtaining control of Filiago GmbH & Co
('Filiago') on 1 November 2011. Filiago is a German based Internet
service provider specialising in the sale of satellite broadband
services to consumer and enterprise customers. The Filiago
operation is considered a Cash Generating Unit ('CGU').
The Filiago goodwill is not subject to amortisation and so is
required to be reviewed annually for impairment. Filiago's goodwill
impairment review performed for the 30 June 2017 year end showed
that an impairment of all of the goodwill was required. The
impairment review also showed that the present value of the
forecast cash flows supported the customer list intangible of $1.2m
on the balance sheet at the year end.
The recoverable amount of the Filiago CGU was determined using
the value-in-use approach. The value-in-use was estimated by
preparing a discounted cash flow forecast for Filiago over a five
year period with a terminal value forecast into perpetuity after
that period.
Underlying the forecast cashflow is the position that Filiago's
current management team have not been successful at achieving
revenue targets that have been set for recent financial years.
Whilst the business has been capable of maintaining a largely
steady state, it has not been able to capitalise on the significant
advantage it has been bestowed as a result of Avanti's HYLAS-2B
payload coming into operational service early in FY17. As a result,
the Group has decided to make significant changes to the way that
the company is managed. However, when preparing the current year's
impairment review, the Group has used forecast's based on what it
is confident can be delivered, given the actual performance in
recent years.
The discounted cash flow forecast assumes a revenue growth rate
of 5% per annum over the 5 year forecast period with a 2% growth
rate applied in the terminal value calculation. Management consider
that the 5% growth rate is modest based on the commercial
advantages that Filiago has as a result of access to the HYLAS 2-B
platform; namely the fastest consumer satellite broadband speeds in
Europe, pan-Germany coverage and access to capacity in a market
where supply is limited.
Sensitivity analysis was carried out by management over the
revenue growth assumptions. An increase in the growth rate to 10%
from the third year of the forecast period, predicated on the new
management team delivering stronger performance, would reduce the
impairment charge by $2.2m. A forecast which assumes flat revenue
growth during the 5 year forecast period would result in an
increase in the impairment charge of $1.6m such that the Filiago
intangible assets were fully impaired. Management do not consider
that no growth during the forecast period is an appropriate
assumption based on the commercial and market advantages Filiago
has at its disposal. Similarly, in preparing this impairment
review, management is exercising caution in forecasting future
growth rates given the failure of the business to deliver these in
recent years. Management also noted that the variance in the
impairment charges under the sensitivity analysis were not material
to the Group's depreciation, amortisation and impairment charge nor
its profit before tax.
The present value of the forecast cash flows was calculated
using the Group's estimated pre-tax cost of capital of
approximately 10.5% and is not considered to have a significant
impact on the impairment conclusions.
The brand names acquired in the course of the Filiago business
combination have been fully amortised. The customer lists acquired
of $2.4m are amortised on a straight line basis over a period of 15
years. At the year end, the carrying amount of the customer lists
is $1.2m (2016: $1.1m) after charging $0.1m (2016: $0.1m) of
amortisation in the year.
8. Trade and other receivables
Group Company
================ ================
30 June 30 June 30 June 30 June
2017 2016 2017 2016
$'m $'m $'m $'m
================================= ======= ======= ======= =======
Trade receivables 44.3 45.8 5.5 0.1
Less provision for impairment
of trade receivables (21.5) (6.5) - -
================================= ======= ======= ======= =======
Net trade receivables 22.8 39.3 5.5 0.1
================================= ======= ======= ======= =======
Accrued income 13.7 27.7 17.2 -
Prepayments 17.7 10.3 4.0 5.2
Amounts due from Group companies - - 132.6 385.4
Other receivables 6.4 2.2 4.8 -
================================= ======= ======= ======= =======
60.6 79.5 164.1 390.7
================================= ======= ======= ======= =======
Net trade receivables and accrued income have decreased mainly
as a result of a significant provision made against a government
receivable, described below, in addition to the comparative balance
being high due to contracts reaching milestones at the end of the
final quarter of that financial year which resulted in invoicing or
revenue accruals. Of the accrued income balance $9.6m (2016:
$16.4m) was due from investment grade customers who are either
Governments or very well established corporations whose underlying
customer is a government. The credit terms associated with the
components within accrued income are largely consistent with the
Group's trade receivables which are in the range of 30 to 90
days.
Government of Indonesia
The provision for impairment of trade receivables includes
$16.8m (2016: Nil) related to a full provision for the receivable
due from the Government of Indonesia ('GoI') at the end of the
year. This provision comprised a bad debt expense of $12.4m and
following termination of the contract post year end, the
reclassification of $4.4m from deferred income to the bad debt
provision related to amounts billed but for which services had not
been delivered at 30 June 2017.
Avanti had contracted with the Government of Indonesia (GoI) to
provide services on its Artemis satellite related to GoI's need to
firstly bring into use, and secondly to maintain its orbital slot
at 123 degrees east. The total contract value was in excess of $30
million. Avanti performed all of its obligations under the contract
and had extended payment deadlines for GoI to assist with
administrative delays. However, after no payments had been received
for a significant period of time, Avanti terminated the contract
and has initiated arbitration proceedings in London. The
outstanding amount is $16.8m and has been fully provided in these
accounts. GoI has not disputed that the amounts are due and
payable. Avanti is confident that the arbitration panel will rule
in the Group's favour and has provided for the debt at the year end
until the uncertainty related to enforcing the arbitration panel's
ruling has been sufficiently reduced.
Long Term Receivables
Included in the Group's trade receivables balance at 30 June
2017 are two contractual long term receivables:
-- $4.4m (2016: $7.2m) related to an agreement where the
outstanding debt is payable in quarterly instalments ending on 30
June 2019. 63% of the original balance has already been collected
as at the date of approval of this Annual Report. In addition to
the instalments payable, interest is payable at 5.25% per
annum.
-- EUR10.15m (2016: EUR10.5m) related to an agreement where the
outstanding debt is payable in quarterly instalments over periods
ranging from 3-5 years. 27% of the original balance has already
been collected as at the date of approval of this Annual Report. In
addition to the instalments payable, interest is payable at rates
ranging between 3.5% and 5.25% per annum.
Company Receivables
The Company has non-current trade and other receivables of
$663.0m (2016: $642.5m) relating to amounts due from Group
companies classified as loans receivable. The Company has current
trade and other receivables of GBP5.5m relating to amounts due from
Group companies.
In light of the impairment of HYLAS 1 and HYLAS 2 assets during
the year, the Directors have reviewed intercompany receivables owed
to the Company and as at 30 June 2017. Based on the underlying net
assets recorded on the balance sheet of each subsidiary, the value
of spectrum rights that have no corresponding balance sheet asset
and the future forecast cash flows of those subsidiaries, the
Directors have made a provision against $400.0m of intercompany
receivables. The remaining carrying value of the outstanding debt
of $741.6m is believed to be supported by the net assets of the
subsidiaries.
The provision against intercompany receivables is an estimate
which is based on the difference between the book value of the
receivables and the forecast net present value of the cash flows
that the business will generate from assets held by the
subsidiaries. The sensitivities referred to in the Property, plant
and equipment note (Note 13) give an indication of how upward or
downward changes in the forecast performance of the HYLAS 1 and
HYLAS 2 assets would impact the impairment assessment. Those
sensitivities also apply to the provision for intercompany
receivables. In addition, the assessment also notably includes
HYLAS 4 cash flows forecast for a period of 19 years following that
satellite coming into service. Sensitivity analysis was carried out
by management over the assumptions made in the HYLAS 4 forecasts
relating to yield and growth in utilisation, with the following
sensitivities identified:
-- a 10% decrease in the forecast yield over the life of the
cash flow forecast would increase the provision by $57.7m.
-- a scenario in which the ramp-up of the capacity occurs at 80%
of the forecast growth would increase the provision by $126.7m.
9. Loans and borrowings
Group current Group non-current
================ ===================
30 June 30 June 30 June 30 June
2017 2016 2017 2016
$'m $'m $'m $'m
==================================== ======= ======= ========= ========
Secured at amortised cost
High Yield Bonds - Original notes - - - 629.5
High Yield Bonds - Amended Existing
Notes - - 293.6 -
High Yield Bonds - PIK Toggle
Notes - - 287.6 -
Finance lease liabilities (i) 2.1 3.3 11.4 12.5
==================================== ======= ======= ========= ========
2.1 3.3 592.6 642.0
==================================== ======= ======= ========= ========
(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
October 2016 Coupon Capitalisation
The Company had 10% Senior Secured Notes ('Original Notes') with
a nominal value of $645.0m in issue at the beginning of the year.
On 17 October 2016, the Company announced the result of a
successful consent solicitation process. 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. As a result, additional Senior
Secured Notes with a nominal value of $40.4m were issued in lieu of
$28.9m of the cash coupon due on that date. A cash coupon of $3.4m
was paid to the 10.5% of holders from whom consent was not received
in October 2016.
January 2017 Senior Secured Notes Restructuring
On 23 January 2017, the Group completed a financial
restructuring which, inter alia, modified the Senior Secured Notes
with a nominal value of $685.4m in issue at that date into two
tranches of Notes as follows:
-- $203.8m of the Original Notes were converted into $203.8m of
10%/15% Senior Secured Notes ('PIK Toggle Notes')
-- $481.6m of the Original Notes were converted into $481.6m of
12%/17.5% Senior Secured Notes ('Amended Existing Notes')
In addition $6.5m of additional PIK Toggle Notes were issued on
completion of the restructuring to settle the accrued interest on
the proportion of Original Notes that were converted into PIK
Toggle Notes. The accrued interest at the restructuring date on the
proportion of the Original Notes that were converted into Amended
Existing Notes was settled on 1 April 2017 as described below under
the heading April 2017 Coupon.
PIK Toggle Notes
The PIK Toggle Notes included the following primary
modifications to the terms of the Original Notes:
-- the ability to PIK the April 2017 and October 2017 coupon
payments, subject to a minimum cash threshold metric
-- an extension of the maturity date from 1 October 2019 to 1 October 2021
-- the introduction of a Margin Increase mechanism which could
see the cash coupon rate of 10% and the PIK rate of 15% increase by
a maximum of 2.5% in two steps of 1.25%, dependent on the Group's
performance against EBITDA targets
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 Original Notes into 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 less than
10% different, the modification was accounted for as
non-substantial.
As a result, the existing debt converted of $203.8m remained on
the balance sheet at its current carrying value. The debt will be
accreted up to its final redemption value over the extended term to
maturity using an amended Effective Interest Rate.
Amended Existing Notes
The Amended Existing Notes included the following primary
modifications to the terms of the Original Notes:
-- an increase in the cash coupon from 10% to 12%
-- the ability to PIK the April 2017, October 2017 and April
2018 coupon payments, subject to a minimum cash threshold
metric
-- an extension of the maturity date from 1 October 2019 to 1 October 2022
-- the introduction of a Margin Increase mechanism which could
see the cash coupon rate of 10% and the PIK rate of 15% increase by
a maximum of 2.5% in two steps of 1.25%, dependent on the Group's
performance against EBITDA targets
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 Original Notes into Amended Existing 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 Original Notes converted into Amended Existing Notes
of $481.6m was de-recognised and the Amended Existing Notes with a
nominal value of $481.6m were recognised on the balance sheet at
the date of modification at their fair value of $245.6m. The fair
value at the date of modification of $0.51 per note was obtained
from the price of the first trade in the Amended Existing Notes
after modification. The gain arising on substantial modification of
$219.2m) comprises the $236.0m difference between the derecognised
financial liability and fair value of the new financial liability
in addition to $16.8m of unamortised costs of issues and discounts
related to the substantially modified Original Notes.
New Money
As a part of the same restructuring completed on 23 January
2017, the Group issued new PIK Toggle Notes with a nominal value of
$82.5m with a 3% discount.
April 2017 Coupon
The April 2017 coupon payments due on the PIK Toggle Notes and
Amended Existing Notes were both settled through the issue of
additional notes rather than the payment of cash. $7.9m of PIK
Toggle Notes were issued in respect of interest due on these notes
between 23 January 2017 and 1 April 2017. $30.6m of Amended
Existing Notes were issued in respect of interest due on these
notes between 2 October 2016 and 1 April 2017. The interest accrued
as at 23 January 2017 on the portion of the Original Notes
converted into PIK Toggle Notes was settled through the issue of
$6.5m of additional PIK Toggle Notes on the date that the
restructuring was completed.
30 June 2017
===================== ================= ========================= ==============
Original notional
Issuer value Description of instrument Due
===================== ================= ========================= ==============
Avanti Communications
Group plc $512.2m Amended Existing Notes 1 October 2022
Avanti Communications
Group plc $300.8m PIK Toggle Notes 1 October 2021
===================== ================= ========================= ==============
30 June 2016
===================== ================= ========================= ==============
Original notional
Issuer value Description of instrument Due
===================== ================= ========================= ==============
Avanti Communications $645.0m 10% Senior Secured 1 October 2019
Group plc Notes
===================== ================= ========================= ==============
The high yield bonds are disclosed in non-current loans and
borrowings as detailed below:
30 June 30 June
2017 2016
$'m $'m
===================================================== ======= =======
High yield bonds 813.0 645.0
Add: Unamortised issue premium - 4.6
Less: Unamortised credit on substantial modification (218.6) -
Less: Unamortised issue discount (13.2) (7.8)
Less: Unamortised debt issuance costs - (12.3)
===================================================== ======= =======
581.2 629.5
===================================================== ======= =======
10. Cash absorbed by operations
Group Group
30 June 30 June
2017 2016
$'m $'m
================================== ======== ========
(Loss)/profit before taxation (77.7) (67.2)
Interest receivable - -
Interest payable 74.4 38.8
Amortised bond issue costs 19.0 2.4
Foreign exchange loss/(gain) (0.1) (13.6)
Depreciation and amortisation
of non-current assets 47.2 47.3
Provision for doubtful debts 15.0 1.5
Exceptional credit on substantial
modification (219.2) -
Share based payment expense 0.2 0.4
Impairment 124.0 -
Decrease in stock (0.8) 0.6
Decrease/(increase) in debtors (95.5) (50.9)
(Decrease)/increase in trade and
other payables 104.4 10.6
Effects of exchange rate on the
balances of working capital 5.0 (1.5)
================================== ======== ========
Cash absorbed by from operations (4.1) (31.8)
================================== ======== ========
11. Post balance sheet events
In July 2017 the Company drew down $100 million of the
three-year super senior facility agreed in June 2017 which has an
interest rate of 7.5%.
In November 2017 the Group terminated its contract with MOD of
Indonesia and made provisions against the year-end debt of $16.8
million.
As described in the going concern accounting policy in Note 2,
on 13 December 2017, the Company announced that it had reached
agreement with noteholders representing approximately 62% of its
outstanding 2021 Notes and 55% of its outstanding 2023 Notes
(together, the "Majority Holders") and shareholders representing
34% of its existing issued share capital to implement a
restructuring of the Group's indebtedness.
The restructuring consists of repayment of the outstanding
12%/17.5% Senior Secured Notes due 2023 of $557 million by issuing
approximately 2.0 billion new ordinary shares of 1 pence each in
Avanti Communication Group plc which will represent approximately
92.5% of the Company's issued ordinary share capital. This remains
subject to approval by the Group's shareholders in addition to a
consent solicitation process, and UK Scheme of Arrangement process
if needed, which will be completed in January and February
2018.
In addition the terms of the 10%/15% Senior Secured Notes due
2021 will be revised such that the interest rate will be reduced to
9% for both cash and PIK and their maturity will be extended by one
year to 2022. This remains subject to a formal UK Scheme of
Arrangement process with the bondholders.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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