Q3 2015 Trading Update

Avanti Communications delivers strong revenue growth
 
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 trading update for the period ended 31 March 2015.
 
Highlights
  • Revenue for the 9 months ended 31 March 2015 increased 26.0% to $48.9m
  • Constant currency continuing business revenue up 54.5% 
  • On-going progress in developing Avanti’s distribution platform across EMEA with 72 new contracts signed with both new and existing customers
  • Period end cash balance of $150.9m
 
Year to date trading
Trading in the 9 months to 31 March has been strong, with continuing business revenues, assuming constant currency, increasing 54.5% (adjusted for non-recurring European Space Agency grant revenue in the prior year). EBITDA was $1.6m in the third quarter. The move into profitability at the EBITDA level in Q3 partly offset the loss in the first six months of the financial year.
 
This growth is being driven by Avanti’s ability to meet the demand for data connections in high growth markets through its Ka-band satellite fleet. These satellites provide high-capacity, high quality data connections, at price points that address a greater range of applications and users than legacy satellite technologies.
 
Performance indicators
Avanti is introducing two new performance indicators in order to give investors better insight into the progress that the business is making.
 
The first of these is Top-20 Customer Bandwidth Revenue Growth. This metric helps to track Avanti’s growth trajectory from core service sales, excluding non-recurring items. It is calculated by comparing the revenues from Avanti’s current leading customers on a last 12 month basis, to the 12 months preceding that. Revenues from this customer group were 60.3% higher in the period ended 31 March 2015 than in the preceding period.
 
The second new performance indicator is Fleet Utilisation. This metric helps to track capacity uptake and gives an indication of revenue potential when Avanti’s fleet is mature. It is calculated by dividing average utilised capacity by total available capacity for the fleet of HYLAS 1 (3 GHz), HYLAS 2 (11 GHz) and Artemis (1 GHz).
 
Avanti’s average Fleet Utilisation was at the upper end of the 15% to 20% band in Q3 2015, having increased from the 10% to 15% range in the same period in the prior year.
 
Avanti’s average pricing has remained stable, at target levels, across all markets.
 
Avanti has historically disclosed contract backlog value as a key performance indicator. The usefulness of this metric has reduced as Avanti has moved towards selling through framework contracts, under which customers start with low initial capacity commitments, but typically increase these on a regular basis. Thus the business more closely resembles a telecoms company rather than a TV broadcasting business, and so backlog does not give a full indication of expected forward revenues. Backlog increased to $415m on 31 March 2015, from $410m on 31 December 2014. This was despite the strengthening of the US dollar versus Sterling and the Euro in the period.
 
Distribution platform development
Avanti provides connectivity to end users through service providers across the EMEA region. Service providers take time to adopt the product as they test and negotiate; and then prepare marketing and launch plans. Once fully engaged, almost all service providers grow strongly, and thus there is high value in the distribution platform that Avanti has built. 
 
The Group is making good progress in further developing its distribution platform, including in signing new and extended contracts with larger telecoms companies that have powerful distribution channels to end users.
 
Avanti signed 72 new and extended contracts in the first 9 months of the 2015 financial year. These were both from new customers and from existing customers extending their usage with relatively short sales cycles.
 
There is a range of substantial opportunities in the pipeline. Several of these are at an advanced stage, having already progressed through the sales cycle, which can be long for large new customer wins, often involving lengthy technical trials.
 
Fleet expansion
Construction of the key 28GHz HYLAS 4 satellite is progressing well. The launch remains on-track for early calendar 2017. Work on the smaller 4GHz HYLAS 3 satellite, which is a hosted payload on a European Space Agency space craft, is also progressing well. The manufacturer has advised that launch may be revised to the beginning of 2017. Avanti is working with the supplier to recover the schedule, and remaining capital expenditure payments have been deferred until launch. 
 
HYLAS 3 and HYLAS 4 will substantially complete Avanti’s coverage of EMEA, making it the largest Ka-band fixed service satellite operator in the region. In preparation for coverage in new markets, the Group has begun sales discussions with both existing and potential new customers for capacity take-up in those markets.
 
Balance sheet
Period end cash was $150.9m. Avanti had break even operating cash flow in the third quarter and capital expenditure paid of $19.3m, mainly on the HYLAS 4 satellite. Avanti does not have any material capital expenditure commitments for the remainder of the 2015 financial year.
 
The Group has sufficient cash balances to comfortably meet all of its short-term financial commitments and management expects cash generation to grow swiftly as revenues exceed Avanti’s largely fixed cost base.
 
Current trading and outlook
Current trading remains strong. Management expects the growth rate in constant currency revenues before the effect of non-recurring prior year business to continue into the fourth quarter and into 2016, as existing customers increase their usage and distribution through new customer wins grows.
 
There are a range of substantial opportunities in the pipeline that could augment the core growth levels.
 
Fleet utilisation is expected to continue to grow swiftly until the launches of HYLAS 3 and 4, which will prevent the Group from becoming capacity constrained, in addition to addressing new geographies.
 
David William’s Avanti’s CEO said:
“We have made good progress in growing robust recurring revenues during the period. We are developing our distribution platform across EMEA, extending our relationships with existing customers and winning some important new business. Once service providers are fully on-board the technology platform, we find that growth in their orders typically happens smoothly.  We now have strong inbuilt growth from our core customer base and some substantial incremental opportunities in the pipeline.”
 
 
For further information please contact:
Avanti: Matthew Springett, +44 (0)207 749 6703
Montfort: Nick Miles / James Olley, +44 (0)203 770 7909
Redleaf: Hannah Nicolas, +44 (0)207 382 4734
Cenkos Securities: Max Hartley (Nomad) / Julian Morse, +44 (0)207 397 8900
 
Notes to Editors
Avanti connects people wherever they are – in their homes, businesses, in government and on mobiles. Through the HYLAS satellite fleet and more than 150 partners in 118 countries, the network provides ubiquitous internet service to 27 per cent of the world’s population. Avanti delivers the level of quality and flexibility that the most demanding telecoms customers in the world seek.
 
Avanti is the first mover in high throughput satellite data communications in EMEA. It has rights to orbital slots and Ka-band spectrum that cover an end market of over 1.5bn people. The Group has invested $1.2bn in a network that incorporates satellites, ground stations, datacentres and a fibre ring. Avanti has a unique Cloud based flexible customer interface that is protected by patented technology. 
 
The Group has three satellites in orbit and a further two fully funded satellites under construction. 
 
Avanti Communications is listed in London on AIM (AVN:LSE).