Thursday 10 October 2013

Avanti (AVN) ... receivables looking a bit 50/50

Thursday 10th October 2013

I finally managed to get my hands on the prospectus for Avanti’s recent bond financing (issued on 27th September 2013). The group raised $370m through 10% Senior Secured Notes due 2019. The prospectus provides much more information than the group’s year end results RNS, and the figures are likely to resemble the full 2013 annual report, which is expected to be published at the end of this month or early November. The profile of debtors, I find alarming ...

Firstly however, it would appear that my assumption within my previous post, with regard to the group’s consultancy related revenue, was correct. I had assumed that AVN drew £2.0m in consultancy revenue per annum and that this was still ongoing. Indeed on page 12 of the prospectus, the group highlights: We do include projected revenue from consultancy services provided to government customers at the rate of £2.0 million per year, based on the average revenue generated by these services for the last five fiscal years.

Where I was wrong was in estimating that AVN received £1.8m in revenue attributable to kit/terminals within the year. I had assumed this because in 2012 it had received £1,780,000 (2011: £576,000) in revenue related to the sale of terminals. In the event it would seem I was too conservative for FY 2013. Within the prospectus in note 2 on page 230, AVN indicates that it was actually ... £2,582,000 (2012: £1,780,000) [which] relates to the sale of terminals. Therefore it seems more likely that the run rate of bandwidth sales was worse than what I’d estimated in my last posting.

Now for the mind-boggling figures ...

From notes 17 and 23 (b), on pages 239 and 244 of the prospectus, AVN highlights its trade and other receivables balances and the ageing of its debtors. Trade receivables for 2013 were estimated at £6,301,000 (2012: £1,441,000) while it then impaired these by £1,111,000 (2012: £268,000) to arrive at net trade receivables of £5,190,000 (2012: £1,173,000). I.e. 18% (2012: 19%) of its trade receivables were written off. However, what’s also alarming is observing the ageing of those remaining net trade receivables.

Trade receivables that were 60+ days past due were reported to total £1,721,000 during 2013 (2012: £127,000). This represented 33% (2012: 11%) of its net trade receivables. Bearing in mind that this excludes the all ready written off receivables mentioned above, suggests that during 2013, the group had 45% (2012: 27%) of its trade receivables either written off or declared at least 60 days past due! It’s worth noting that in the text of note 23, AVN says that Generally when the balance becomes more than 60 days past its due date it is considered that the amount will not be fully recoverable. Ay caramba!!!

What's wrong with this picture? ...

Avanti's percentage of trade receivables either impaired or 60 + days past due
Source: Annual Reports, Bond Prospectus

I have observations on the group’s purchase of the Artemis satellite from the European Space Agency, but will leave that for another posting.

But one more thing ... 
Filiago gets a mention in note 13 on page 236. Now with £7,449,000 of goodwill attached to it and what looks like £1,433,00 in intangibles (£127,000 for brand names and £1,306,000 for customer lists). And yet Filiago achieved £1.5m (2012: £1.1m) in revenue during 2013 and racked up another loss. This time, Filiago lost £0.4m (2012: £0.5m). Can you imagine how much goodwill and intangibles would be booked to the balance sheet were Filiago to have been profitable? I reckon I'd run out of digits on my Panasonic scientific calculator!  

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  1. I've bee in and out of these shares and back in again after the recent warnings. I've always thought the business has strategic value and that the steep discount to NAV was unjustified and provided some margin for safety. I've always thought that these assets would be much better managed by an encumbent and have been surprised that no one has ever bid for the company. The company's track record with debt is no good/ Sometime ago it issued a PIK with a 20% IRR that had to be eventually refinanced with equity when the revenues on Hylas did not materialise. This debt financing is another attempt to kick the "revenue problem" down the road. My issue now is that with so much debt, management have insulated themselves from the likelihood of a bid and any acquired will be able to buy the assets out of bankruptcy.

    When the CEO ran Avanti Screen Networks he jammed that business with "poor" quality revenue and it eventually went bust. He's up to the same tricks again.

  2. Don't think the assets are even worth that much. If Ka band satellite is so great why are none of the big operators building Ka only satellites? Since Eutelsat's revenue miss on its Ka band only satellite all the big guys are just slapping a few Ka band beams onto their Ku satellites (check SES and Eutelsat upcoming and recent launches). The Ku beams "pay" for the satellite as they're generally pre-sold to the TV companies and so the Ka band beams can be sold off at very low prices. Not good news for companies like Avanti that have gone all out for Ka.

  3. Matt,
    Do you have an email I contact you on?

  4. When will we get the observations on the purchase of the Artemis satellite or is it positive so you won't post it?

    1. I've been busy of late but will get round to it at some point. I'll give you two guesses as to whether it will be positive ... or not so much.