Wednesday 13 November 2013

Avanti (AVN) ... 13 questions for the AGM

Wednesday 13th November 2013

Avanti’s AGM is scheduled for tomorrow at 9am. Only those that can prove they are shareholders are invited. As I am short shares in Avanti, I would not be welcome. However, were any shareholders intending to pitch-up, then here are a few questions I reckon it would be helpful to receive answers to:

The group announced on 27th September 2013, that it had signed a Memorandum of Understanding (MoU) with the European Space Agency (ESA) to acquire the Artemis satellite for a nominal sum. Avanti suggests that the satellite “... has a minimum of a further three years of useful life, occupies an orbital position at 21.5 East and gives the Company access to new opportunities.”

Within the group’s Bond prospectus, it highlights that “We estimate that Artemis has a potential revenue-generating capacity of up to £6.0 million per annum, which we believe (to) [sic] be sufficient to offset the operating costs to be assumed on acquisition of the satellite and could potentially generate a profit.”

  • Does this mean that Artemis is going to cost £6.0m per annum to operate and therefore that Avanti has to find revenues to cover that?
  • How much of the revenues for Artemis have already been signed up?


On 10th July 2013, the revenue guidance miss of c. £10m for 2013 year end was mentioned to be attributable to “... several major contracts in Africa that were expected to close before 30 June 2013 but which are now expected to be completed in the next financial year.” 

Further “At the same time, since the period end, the revenue due from a contract which was signed during the financial year is no longer assured.”

  • Have the delayed contracts now been signed?
  • Is the revenue due from the highlighted contract still no longer assured? 
  • Who was that contract with?


Within the group’s 2013 interim announcement to 31st December 2012 (released 12th February 2013), Avanti indicated that “... we have over £40 million of revenue already in backlog for the year to June 2014 with another 18 months of selling still to go, so visibility of future performance is strengthening.”

However, four months later, in the group’s year end trading update to June (released 10th July 2013), the backlog for 2014 was reported to be £42m. 

  • Does that mean that an additional £2m of bandwidth was sold during the period December (or possibly February) to June? 
  • Does this £42m include any (or all) of the £10m of the revenue miss which was delayed from inclusion in the 2013 revenue tally?

The £42m was also reiterated in September. 
  • What is the current backlog revenue figure for 2014?


  • On the basis of the worsening bad debt provision from 2013, will there be a similar provisioning commensurate with the expected £49m of consensus revenue for 2014?


From the 2013 accounts, it appears as though the cash interest on borrowings was below 3%. A total of £5.5m cash interest was paid on £14.9m in current bank loans and £185.9m in non-current bank loans (£200.8m total); or 2.75% cash interest. As highlighted in note 22 of the 2013 accounts, the prior financing agreement with US Exim bank and COFACE was for a total permitted draw-down of $328.2m (c. £205m) at an interest rate of 5.5%. I presume the other 2.75% of interest that was not paid in cash was capitalised.

  • Why did the company raise new debt at an interest rate (the new bonds carry interest at 10% per annum) of more than 3x the current existing cash rate? 

This will presumably cost shareholders over £15m of additional interest in the first year and present an even larger gap in the future on the basis that the debt under the old facility would have been paid down.


The Bond prospectus mentions that Avanti “... will have the right to place a new satellite in the same position [as Artemis] within three years of Artemis being de-orbited, ...” 

  • If the group does not launch a satellite within this period from de-orbit, is the slot lost? 
  • With the long lead time to construct and launch a satellite, will this require raising more finance as it would not appear that financing could be paid for out of prospective cash flow? 
  • As the operational costs whilst in orbit are suggested to be c. £6m per annum, does this include the cost of de-orbit and if not is it material?

Any answers would be welcomed. Thanks. Matt

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  1. Hi Mathew, what's your view on the interims today? (I've gone short)
    Peter Clothier

    1. Hi Peter,
      I have just posted a view. I see it as very unlikely they can meet this year's numbers.