Aventus Group Annual Report 2010

Plain-text annual report

Avanti Communications Group plc Avanti Communications Group plc Avanti Communications Group plc Avanti Communications Group plc 74 Rivington Street 74 Rivington Street 74 Rivington Street 74 Rivington Street London EC2A 3AY London EC2A 3AY London EC2A 3AY London EC2A 3AY Tel: +44 (0)20 7749 1600 Tel: +44 (0)20 7749 1600 Tel: +44 (0)20 7749 1600 Tel: +44 (0)20 7749 1600 www.avantiplc.com www.avantiplc.com www.avantiplc.com www.avantiplc.com Avanti Communicati ons Group plc Avanti Communicati ons Group plc Avanti Communicati ons Group plc Avanti Communicati ons Group plc Annual Report & Accounts 2010 Annual Report & Accounts 2010 Annual Report & Accounts 2010 Annual Report & Accounts 2010 A A A A v v v v a a a a n n n n t t t t i i i i C C C C o o o o m m m m m m m m u u u u n n n n i i i i c c c c a a a a t t t t i i i i o o o o n n n n s s s s G G G G r r r r o o o o u u u u p p p p p p p p l l l l c c c c A A A A n n n n n n n n u u u u a a a a l l l l R R R R e e e e p p p p o o o o r r r r t t t t & & & & A A A A c c c c c c c c o o o o u u u u n n n n t t t t s s s s 2 2 2 2 0 0 0 0 1 1 1 1 0 0 0 0 AVN2561 AR10 COVER AW05.indd 1 01/12/2010 09:35 We sell wholesale satellite broadband to service providers. “For a young company to have two satellites fully ﬁ nanced with no debt service payments for another two years gives me great comfort that we are in control of our own desti ny.” Chairman John Brackenbury CBE  Chairman’s Statement, page 8 “The successful launch and the bringing into use of our spectrum undoubtedly creates the signiﬁ cant value we have been projecti ng for many years.”  Chief Executi ve’s Report, page 9 Chief Executi ve David Williams “In July 2010, the company announced a further placing of 16.3 million shares at 430 pence yielding gross proceeds of £70 million… £54 million was used to repay the PIK bond the company raised in July 2007”  Finance and Operati ng Review, page 12 Group Finance Director Nigel Fox  Highlights  Business Proﬁ le  The Year in Review Chairman’s Statement Chief Executi ve’s Statement Finance and Operati ng Review  Governance Board of Directors Employees Corporate Social Responsibility Directors’ Report Corporate Governance Report 01 02 08 08 09 12 16 16 18 20 22 26  Financial Statements Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Positi on Company Statement of Financial Positi on Statement of Cash Flows Statements of Changes in Equity Notes to the Financial Statements  Shareholder Informati on Noti ce of Annual General Meeti ng Form of Proxy Oﬃ cers and Professional Advisers 27 27 28 28 29 30 31 32 33 56 56 59 61 Oﬃ cers and Professional Advisers Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Bankers HSBC Bank Plc 70 Pall Mall London SW1Y 5EZ Solicitors Osborne Clark 2 Temple Black East Temple Quay Bristol BS1 6EG Registered Auditors PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RHT Directors F E J G Brackenbury CBE Chairman D J Williams Chief Executi ve D J Bestwick Chief Technology Offi cer N A D Fox Group Finance Director M J O’Connor Chief Operati ng Offi cer D A Foster Non-Executi ve Director W P Wyatt Non-Executi ve Director C R Vos Non-Executi ve Director I C Taylor MBE Non-Executi ve Director Secretary N A D Fox Registered Oﬃ ce 74 Rivington Street London EC2A 3AY Company Number 6133927 61 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27   i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 FRONT AW12.indd 2 AVN2561 AR10 COVER AW05.indd 2 01/12/2010 08:55 AVN2561 AR10 Back AW11.indd 61 01/12/2010 09:10 01/12/2010 09:35 Highlights Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc HYLAS 1 The successful launch of Avanti ’s ﬁ rst Ka-band satellite, HYLAS 1, on 26 November 2010 was a monumental achievement for Avanti . Commercial services will begin in early 2011. HYLAS 1 will serve the European market with satellite broadband and high speed data services. HYLAS 1, just before the launch HYLAS 2 Announced in December 2009, HYLAS 2 is under constructi on in the USA. The Ka-band satellite is fully funded and on target for a Spring 2012 launch. HYLAS 2 will increase Avanti ’s Ka-band capacity in Europe and introduce new coverage in the Middle East and Africa. HYLAS 3 Avanti initi ated the design of its third Ka-band satellite, HYLAS 3, in July 2010. Avanti aims to secure suﬃ cient customer demand to secure eﬃ cient debt ﬁ nancing before completi ng the procurement. HYLAS 2 HYLAS 2, Avanti ’s second satellite, is being built by the Orbital Sciences Corporati on in the USA. HYLAS 2 will triple Avanti ’s satellite capacity and provide 24 Ka-band transponders across Europe, the Middle East and Africa. HYLAS 2 is capable of operati ng in both civil and government frequency bands and has already att racted signiﬁ cant pre-launch interest. 01  H i g h l i g h t s 02  08  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 FRONT AW12.indd 1 01/12/2010 14:18 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 Assets Infrastructure Business Model HYLAS 1 was the ﬁ rst broadband satellite ever launched outside the USA and puts Ka-band capacity into Europe. HYLAS 2 is three ti mes larger and will put capacity into Europe, the Middle East and Africa. The HYLAS satellites are supported by a state-of-the-art dual redundant ground infrastructure, including Gateway Earth Stati ons (“GES”) in the UK, Germany, Cyprus and several other locati ons. Since 2007, Avanti has reﬁ ned its operati ng model by delivering satellite broadband to customers across Europe using leased satellite capacity. HYLAS 1, Avanti ’s ﬁ rst Ka-band satellite, will replace that leased capacity reducing operati ng costs and improving the range of services to customers. Avanti operates a Virtual Network Operator model. The design of its satellites, Gateway Earth Stati ons (“GES”), together with bespoke Avanti proprietary soft ware means that Avanti ’s customers can access the Avanti satellite network themselves to set up their own customers account, set service level agreements and characteristi cs and manage, shape and bill their own traﬃ c. Thus they gain many of the beneﬁ ts of behaving like network operators without the need to make any capital expenditures at all. Base stati on at Goonhilly, Cornwall 02 01  i H g h l i g h t s  08  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 FRONT AW12.indd 2 01/12/2010 14:18 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 1 – Assets | 2 – Strategy | 3 – Achievement Assets Customers Avanti sells its managed satellite broadband services to telecommunicati ons companies who sell onto end-users. Avanti has secured over 60 customers of its service at launch of HYLAS 1 serving government, enterprise and consumer end-users. 03 01  i H g h l i g h t s  08  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 FRONT AW12.indd 3 01/12/2010 14:18 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 Strategy Mission Markets Future Satellites Avanti is at the forefront of the expansion of the UK space industry, which the UK government assessed will grow to be worth £30 billion per annum. Avanti hopes to become the global leader in Ka- band satellite communicati ons, launching up to 20 satellites over ti me. Avanti is working on the procurement of HYLAS 3 and other satellites. New satellites will be subject to strict ﬁ nancing eﬃ ciency tests to minimise equity diluti on. Avanti focuses on four core markets: 1. Consumer broadband – Economic and geographical limitati ons mean that some 100 million households in Avanti ’s current coverage area cannot access good quality 2Mb broadband. Avanti ’s ﬁ rst two satellites can only serve 1.3 million of these at peak. 2. Enterprise networks – Businesses which demand ubiquity, resilience and security turn to satellite for bespoke internati onal networks. Avanti supplies, amongst others, the World’s number 1 in this sector, Hughes, which has a 50% market share. 3. Insti tuti onal – Government organisati ons have an increasing demand for high capacity satellite services, especially for the management of batt leﬁ eld communicati ons. 4. Cellular backhaul – The dramati c rise in data traﬃ c across mobile phone networks leaves many operators in need of backhaul capacity especially in rural areas or emerging markets. Base stati on at Goonhilly, Cornwall 04 01  i H g h l i g h t s  08  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 FRONT AW12.indd 4 01/12/2010 14:19 Strategy Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 1 – Assets | 2 – Strategy | 3 – Achievement 05 01  i H g h l i g h t s  08  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 FRONT AW12.indd 5 01/12/2010 14:19 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 HYLAS 1, just before the launch 06 01  i H g h l i g h t s  08  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 FRONT AW12.indd 6 01/12/2010 14:19 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 1 – Assets | 2 – Strategy | 3 – Achievement 07 01  i H g h l i g h t s  08  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 FRONT AW12.indd 7 01/12/2010 15:48 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 08 Chairman’s Statement Avanti now has two satellites fully funded, a very strong balance sheet with no debt service payments or cash ﬂ ow covenants falling due unti l December 2012. • Successful launch of HYLAS 1 • Valuable spectrum brought into use • High cost debt repaid in July 2010, balance sheet now very strong • HYLAS 2 fully ﬁ nanced and on schedule for launch in Spring 2012 • Excellent progress with sales on both satellites As the Chairman of a company in possession of an in-orbit satellite I have great pleasure in presenti ng Avanti Communicati ons Group plc’s results for the year ended 30 June 2010. The achievement of a start up company in launching a satellite is very rare. Avanti now has one satellite in-orbit and a second launching in a litt le over a year, a very strong balance sheet with no debt service payments or cash ﬂ ow covenants falling due unti l December 2012, huge untapped markets and a quite thrilling opportunity to create a company of genuine scale. During a busy year we completed the constructi on of our ﬁ rst satellite and associated ground infrastructure and made strong progress in signing customers for its bandwidth around Europe. We also completed the ﬁ nancing of HYLAS 2 which involved faciliti es provided by the US and French government’s Export Credit Agencies of £194 million. We have discovered very high early demand for the capacity in the Middle East and Africa. Equally important however was the repayment of our high yielding PIK bond which was completed aft er the year end following a £70 million equity fund raising. For a young company to have two satellites fully ﬁ nanced with no debt service payments for another two years gives me great comfort that we are in control of our own desti ny and have everything we need over the next few years to create the strong cash ﬂ ows we expect to generate for shareholders. I would like to pay tribute to my Chief Executive David Williams in leading our team and also to David Bestwick who has masterminded the construction of our satellites. I am also pleased that all of our employees have shares in the company and so have a full opportunity to enjoy the financial success which they play their part in creating. John Brackenbury CBE Chairman 01  i H g h l i g h t s 02   B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n John Brackenbury CBE Chairman Partnership Avanti has entered into a strategic partnership with Hughes Network Systems LLC for the supply of Ka-band earth stati on hubs and customer terminal equipment. Hughes hubs are installed in Avanti ’s Goonhilly and Lands End earth stati ons. Hughes is the global leader in Ka-band equipment and has consistently maintained a global market share of over 50%. AVN2561 AR10 MIDDLE (1-2) AW19.indd 8 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Chief Executi ve’s Report The market for our products is evidently strong and we are conﬁ dent of achieving the target of selling out HYLAS 1 within three years. David Williams Chief Executi ve Customers Avanti signed a contract with BT to supply satellite broadband to rural customers in Cornwall. This is a perfect example of the ideal business model whereby Avanti helps incumbent telecoms operators to solve problems at the edge of their network. The HYLAS 1 satellite experienced delays in manufacture and launch but it is easy to underestimate the scale of effort which has gone into this success. It is one of the most advanced commercial satellites ever flown and involved a complex partnership with the European Space Agency as well as our suppliers Astrium and Arianespace. Introducti on I am pleased to report results for the year which exceed expectati ons, but which are nonetheless relati vely immaterial in the context of the successful launch last week of HYLAS 1. The successful launch and the bringing into use of our spectrum undoubtedly creates the signiﬁ cant value we have been projecti ng for many years. The market for our products is evidently strong and we are conﬁ dent of achieving the target of selling out HYLAS 1 within three years. With good progress in ﬁ nancing and building HYLAS 2 and the commencement of HYLAS 3, the business changed its scale very dramati cally during the year. Financial Review Our result for the year produced lower turnover of £5.82m (2009: £8.04m) resulti ng from our decision to stop selling our interim service on rented satellite capacity. The service sold in 2006-9 on old fashioned Ku- band television satellite capacity is comparati vely slow and expensive, and it makes a loss. It has however been invaluable in helping us to validate market assumpti ons and more importantly to develop and test in a live environment the control and management soft ware which will deliver high quality customer experience and enable us to maximise the yield of our HYLAS satellites. The customers on this system will be migrated to HYLAS 1 in the next few months, and during 2010 we decided that there was no merit in installing systems which would be replaced within a few months. The ﬁ nancially unproducti ve nature of this acti vity is demonstrated in the gross proﬁ t line which showed only a marginal reducti on to £2.68m (2009: £2.97m). Naturally our costs increased during the year as recruitment ramped up to sell our bandwidth and also to manage three satellite projects instead of one. The increase in operati ng costs was oﬀ set by receivables in the form of contractual payments from suppliers resulti ng from certain manufacturing delays. Our currency exposures are all hedged so that there is no cash risk, but Accounti ng Standards oblige us to report the noti onal changes in value of hedging and again this year it can be seen that our hedging strategies protected us from losses, and this manifests itself in a proﬁ t of £0.97 million (2009: £2.92 million). 09 01  i H g h l i g h t s 02   B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (1-2) AW19.indd 9 01/12/2010 14:21 Groundbreaking Mobile Trials Avanti Consulti ng has completed a project designing and trialling femtocell technology for use in mobile network connecti vity. Femtocells provide a strong indoor signal in mobile phone “blackspots” by routi ng voice and data traﬃ c over a standard broadband connecti on. In this groundbreaking trial, codenamed Project Iron, Avanti demonstrated that satellite broadband can provide mobile coverage in areas where no terrestrial broadband access is available. Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 10 Chief Executi ve’s Report Conti nued Procurement with HYLAS 2 has proceeded well. We passed the Criti cal Design Review in November 2010 and in the ﬁ rst twelve months of the contract we have not lost a single day of schedule. Prudent ﬁ nancial management and cost control therefore restricted the net loss for the year to £1.93 million (2009: proﬁ t £1.05 million). During the year we raised £89 million in an equity placing to complement the Export Credit Agency debt faciliti es of £194 million which completes the full ﬁ nancing of the constructi on, launch and operati on of HYLAS 2. The debt is at att racti ve interest rates of 5.7% and is drawn down during the period to launch then repayable over a seven year period from December 2012. Post balance sheet we raised £70 million in an equity placing to reﬁ nance an expensive PIK bond which had onerous covenants and pending interest and principal payments. Removing this debt gives Avanti two years in which to generate strong cash ﬂ ows before we need to make debt payments so shareholders can draw great comfort from the stable long term ﬁ nancial resilience of our company. Business Overview Getti ng our ﬁ rst satellite into space and bringing our spectrum into use are events which in my opinion crystalise a huge amount of value, given the rapidly increasing demand for data worldwide. We are of the opinion that the World is beginning to see a data crunch where the demand for data transmission capacity will greatly outstrip supply across all market sectors and geographies, so any company in possession of long term rights to use large amounts of spectrum has a strong future. In parti cular, the transmission of video across all platf orms, and the emergence of cloud computi ng will fundamentally change consumers bandwidth requirements. In the enterprise sector, machine to machine communicati ons looks set to transform the way many businesses operate and we are seeing strong demand in telemetry, banking and retail for the movement of criti cal real ti me ﬁ nancial and performance data. We believe we have a strong role to play in helping mobile phone companies to maximise the ﬂ exibility and eﬃ ciency with which they can support network growth in rural areas. In the insti tuti onal market, the automati on of many operati ons, parti cularly in unmanned aerial vehicles creates a very signiﬁ cant opportunity – it is apparent that in the sector Ka-band beginning to experience mainstream demand and we are conﬁ dent of capitalising on this trend. For the moment we are focussed on ﬁ lling our ﬁ rst two satellites quickly since this puts us in a positi on to oﬀ er cash returns to shareholders and eﬃ ciently ﬁ nance more satellites. I expect the data crunch to give us opportunity and demand to ﬁ nance many satellites in the next decade or so. We have enough spectrum available to launch perhaps 20 satellites. Whilst I am overwhelmingly convinced that the demand will be there, many shareholders may wish to maximise the value of their shares in the cash ﬂ ows arising from HYLAS 1 and 2 and therefore would be reluctant to dilute ownership of those cash ﬂ ows with speculati ve projects. I have therefore committ ed to provide signiﬁ cant pre-sales on any new satellites which can be used to support eﬃ cient debt ﬁ nancing. This is the case with HYLAS 3. We began the design project aft er the 2009 year end and are working hard to produce an eﬃ cient ﬁ nancing strategy. 01  i H g h l i g h t s 02   B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (1-2) AW19.indd 10 01/12/2010 14:21 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 11 01  i H g h l i g h t s 02   B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n During the year we extended our customer base so that we have sold capacity to over sixty service providers in Europe. Given that each customer typically commits only to enough bandwidth to serve the business they can forecast in the short term, we expect them all to come back to us to buy more bandwidth to cope with growth. We would also expect to sign new customers whose cauti on prevented them from committi ng prior to the launch of HYLAS 1. Procurement with HYLAS 2 has proceeded well. We passed the Criti cal Design Review in November 2010 and in the ﬁ rst twelve months of the contract we have not lost a single day of schedule, so we remain on target to launch this satellite in Spring 2012. We supported our business during the development of the HYLAS satellites by selling an interim broadband service using rented capacity on an old style television satellite. We stopped acti vely selling our interim service over a year ago, since it is not possible to sell a proﬁ table broadband service on Ku-band satellites. However, that acti vity served several purposes in a) validati ng business model assumpti ons and b) giving us a live customer base for which to develop the customer service soft ware which will be used to manage and enhance HYLAS performance. Outlook HYLAS 1 is one of the most advanced commercial satellites ever ﬂ own and involved a complex partnership with the European Space Agency as well as our suppliers Astrium and Arianespace. It is humbling to know that over 1,000 engineers have been involved in bringing this satellite to life. At Avanti we have a very long term view of our business and I believe we have created some enduring business partnerships which will help to sustain long term growth, and I am grateful for the support of all our suppliers and partners. Before we begin to put customer traﬃ c onto HYLAS 1 aft er Christmas, we will be working to enhance the revenue generati ng potenti al of the satellite. As a result of certain extra acti viti es during manufacture HYLAS 1 has higher performance than the original design provided for, and enables us to oﬀ er certain new services, especially to insti tuti onal markets. We will analyse the precise performance characteristi cs of the satellite in these and other operati ng modes, along with certain customers, in order that we are best able to maximise the revenue generati ng potenti al of the satellite through its lifeti me. Looking forward, the key milestones for us now relate to the successful sale of our capacity on HYLAS 1 and HYLAS 2, the launch and sale of HYLAS 2 capacity and the project ﬁ nancing of further satellites. We have set prudent expectati ons for sale of capacity, with our ﬁ nancing based on three year ﬁ ll for HYLAS 1 and 5 years for HYLAS 2. It appears that the markets are more than strong enough to achieve this many ti mes over and I hope that we can ﬁ ll our satellites very quickly and then ﬁ nance growth in capacity on the back of success. The successful launch of HYLAS 1 is the ﬁ rst major step for us in creati ng a business which I hope will lead the World in Ka-band satellite communicati ons. David Williams Chief Executi ve AVN2561 AR10 MIDDLE (1-2) AW19.indd 11 01/12/2010 14:21 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 12 Finance and Operati ng Review In December 2009, the Company announced that it had agreed debt ﬁ nancing for HYLAS 2 with US EXIM bank and COFACE. By 31 July 2010, following the approved equity placing and the repayment of the PIK, shareholder equity stood at £220 million with no debt outstanding. Nigel Fox Group Finance Director Basis of reporti ng The Group ﬁ nancial statements in this report have been prepared in accordance with Internati onal Financial Reporti ng Standards (IFRS) and the associated Internati onal Financial Reporti ng Interpretati on Council (IFRIC) interpretati ons each as adopted for use in the EU. We have implemented the following standards in these ﬁ nancial statements: • The Group has adopted IFRS 8, ‘Operati ng Segments’. IFRS 8 requires operati ng segments to be identi ﬁ ed on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operati ng Decision Maker (the Avanti Executi ve Board) to allocate resources and assess performance. All resources are allocated on the basis of satellite services. As a result, Avanti Communicati ons Group plc are disclosing one segment being satellite services. • IAS 23 Borrowing costs (revised) – the Group early adopted IAS 23(R) as of 1 July 2007. • The Group has adopted IAS 1 (revised) Presentati on of Financial Statements. The amendment aﬀ ects the presentati on of owner changes in equity and introduces a ‘’Statement of Comprehensive Income’’. The Group has elected to present a single statement of performance, being the Statement of Comprehensive Income. • The amendment to IFRS 2 relates to vesti ng conditi ons and cancellati ons for share opti ons. No restatement of prior period informati on has been necessary as a consequence of adopti ng this standard. • Amendments to IFRS 7: Financial instruments has been adopted which gives enhanced disclosures about fair value measurements of ﬁ nancial instruments and over liquidity risk. Since the amendment only impacts presentati on and disclosure aspects, there is no impact on the Group’s results or net assets. Loss from operati ons before taxati on Depreciati on and other non-cash movements Change in working capital and provisions Net capital expenditure Operati ng cashﬂ ow Net interest received/ﬁ nancing exchange gains Free cashﬂ ows Movements in funding Increase/(decrease)in net funds 30 June 2010 £’000 30 June 2009 £’000 (2,436) 915 3,804 (108,803) (106,520) (512) (107,032) 116,598 9,566 (1,386) 337 (10,297) (2,850) (14,196) 3,381 (10,815) 189 (10,626) 01  i H g h l i g h t s 02   B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (1-2) AW19.indd 12 01/12/2010 14:21 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc The July 2010 placing facilitated the repayment of the PIK bond. Accounti ng policies The Group has reviewed its accounti ng policies in accordance with IAS 8 ‘Accounti ng Policies, Changes in Accounti ng Esti mates and Errors’ and determined that they are appropriate for the Group. Operati ng performance As we approached the launch of HYLAS 1 we restricted the number of new customers we installed on our rented capacity. As a result there was a planned fall in revenue to £5.8 million (2009: £8.0 million). Gross margins on our rented capacity remained at acceptable levels and yielded a gross proﬁ t of £2.7 million. Overheads, which are mainly salary related, increased by 23% over the prior period to £8.7 million (£7.1 million). These overheads are in line with planned levels as we gear up for the launch. Other operati ng income The Company conti nued to receive liquidated damages from Astrium for the late delivery of HYLAS. The receipt of these damages was concluded in November 2009, however the beneﬁ t is recognised through the income statement in line with the additi onal costs associated with the delay. An exchange gain of £426,000 (2009: £1,355,000 gain) arising from revaluati on of working capital was also recognised during the period. Taxati on The Group tax credit was £24,000 (2009: £752,000 charge). The rate was negati vely aﬀ ected by the anti cipated fall in the UK corporati on tax rate from 28% to 24%, which has aﬀ ected the brought forward deferred tax asset values. The Group currently generates all its taxable results in the UK. Note 8 to the ﬁ nancial statements provide details of the tax charge. Earnings per share Basic earnings per share fell to a loss of 3.68 pence per share (2009: 3.78 pence earnings per share). The earnings in 2009 were materially affected by foreign exchange gains. Note 9 to the financial statements provides details of these calculations. Financing and treasury In December 2009, the Company announced that it had agreed debt ﬁ nancing for HYLAS 2 with US EXIM bank and COFACE. This debt totalled £194 million which included a drawdown period through to June 2012, during which the interest during constructi on would be capitalised. Thereaft er the debt is repaid over a maximum of 7 years, giving an eﬀ ecti ve interest rate of 5.7%. As at the balance sheet date none of this debt has been drawn. In conjuncti on with this debt, the Company raised in January 2010 and additi onal £86 million of equity via a placing of 21.5 million shares at 400p to complete the ﬁ nancing of HYLAS 2. A further 750,000 was subsequently placed with a major shareholder at the same 400p price. In July 2010, the Company announced a further placing of 16.3 million shares at 430 pence yielding gross proceeds £70 million. These proceeds were received in early July 2010. £53.6 million was used to repay the PIK bond the Company raised in July 2007, which had begun to prove restrictive and expensive. The balance of the funds are to be used in relation to two projects. 13 01  i H g h l i g h t s 02   B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (1-2) AW19.indd 13 01/12/2010 14:21 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 14 Finance and Operati ng Review Conti nued Net cash received from ﬁ nancing of £117 million was enti rely uti lised on payments for ﬁ xed assets. Firstly, early stage development of satellite 3, and secondly to facilitate the re-domicile of the HYLAS 2 assets to Cyprus. HYLAS 2 covers Eastern Europe, Middle East, East and Southern Africa. Cyprus, therefore represents an ideal base from which to run this business when we also plan to put one of our main Ground Stati ons into the same country. As a secondary consequence of this move, proﬁ ts arising from the HYLAS 2 business will be taxed in Cyprus at the prevailing rates, currently 10%. The Cypriot companies were incorporated in July 2010. The Group has signiﬁ cant US dollar and Euro currency exposures. The Group’s policy is to hedge all currency transacti on exposures at the ti me of entering into a contractual commitment. To date the Euro receivables have formed a natural hedge against Euro payables to Astrium for HYLAS. US dollar payables have been hedged using opti ons and forward contracts. The Group has chosen not to adopt hedge accounti ng during the current or previous year. The HYLAS 2 companies having raised debt in US dollars, purchasing assets predominantly in US dollars, and anti cipati ng in excess of 50% of their revenues to arise in US dollars have a functi onal currency of US dollars. This will protect the income statement from any material changes in the US dollar to sterling exchange rate. Balance sheet At the balance sheet date, shareholder equity was £152.2 million (2009: £64.5 million). By 31 July 2010, following the approved equity placing and the repayment of the PIK, shareholder equity stood at £220 million with no debt outstanding. Fixed assets increased during the year to £170.2 million from £51.5 million. The vast majority of the additi ons are in relati on to the satellites under constructi on and further details are given in note 11 on page 41. Current assets excluding cash fell from £46.4 million to £17.9 million which is accounted for by the receipt of the unpaid share capital at June 2009, received in July 2009. As noted above the long term loan shown on the balance sheet and disclosed in note 21 on page 46 was repaid for £53.6 million. In additi on to the accrued interest, the diﬀ erence is represented by an early repayment penalty of £2.3 million. Cash ﬂ ow Net cash increased by £9.6 million. Net cash received from financing of £116.6 million was entirely utilised on payments for fixed assets. The net increase in funds therefore arose from reduced working capital, interest income offset by a cash outflow of £1.5 million from operating activities. Environmental factors The acti viti es of Avanti are judged to have a low environmental impact and are not expected to give rise to any signiﬁ cant inherent environmental risks over the next twelve months. Avanti ’s HYLAS satellites will have their transmissions powered by solar power. They therefore produce lower carbon emissions per customer than other forms of terrestrial telecommunicati ons. Principal risks and uncertainti es HYLAS 1 has now been successfully launched and the debt ﬁ nance on HYLAS 1 repaid. 01  i H g h l i g h t s 02   B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (1-2) AW19.indd 14 01/12/2010 14:21 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 15 01  i H g h l i g h t s 02   B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27  56  i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n macro-economics may aﬀ ect exchange rates, debt market prices, credit risks, liquidity risks and interest rates. We conti nue to carry a receivable of $7.6 million, under “other receivables” which was ﬁ rst recognised in June 2009. This amount is due from Space Explorati ons Inc (“SpaceX”), who Avanti originally contracted to launch HYLAS 1 on their Falcon 9 launch vehicle. However, as SpaceX had failed to generate the required launch heritage Avanti cancelled the launch services, as provided within the contract, and the monies previously paid were due to be refunded. SpaceX have failed to make the required refund and we took the dispute to arbitrati on in New York. The arbitrators are due to give their binding ruling in the early New Year. The directors are conﬁ dent that the monies will be recovered and no provision is necessary. Criti cal accounti ng policies Details of our critical accounting policies are in Note 1 to the consolidated Annual Report. Nigel Fox Group Finance Director HYLAS 1 is currently undergoing in-orbit acceptance. Any failure of the satellite during the ﬁ rst year of operati ons is covered by the launch insurance policy. Thereaft er we will take out an annual in- orbit policy that will cover issues of failure. The demand for Ka-band services is now well established. The predicted market for HYLAS 1 consumer broadband services over the regions which it can cover is 100 million households and SME’s. HYLAS 1 is the first Ka-band satellite to be deployed over Europe and can serve just 350,000 end users. In addition, business in Enterprise, Cellular Backhaul and Institutional markets can have a transformational impact on the speed of saturation. We therefore anticipate that the risk of failing to sell the capacity is very small. Whilst pricing is dynamic we do not anti cipate price pressure. As stated above the market is huge and supply is extremely restricted. Even with competi ti on, the market will remain largely unserved and as such normal supply and demand economics suggests that prices will not fall. The satellite industry has experience consistently rising prices for many years. HYLAS 2 is due for launch in the second quarter of 2012. The satellite is fully funded and the risks are therefore similar to HYLAS 1. In additi on, given that we are 18 months from launch there is a supplementary risk of delay. Delay could adversely aﬀ ect our revenues, proﬁ tability and liquidity. The satellite is sti ll on track for the due launch date. The global economic environment remains ﬂ uid. Whilst we do not expect this to aﬀ ect demand for our services, AVN2561 AR10 MIDDLE (1-2) AW19.indd 15 01/12/2010 14:21 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 16 Board of Directors 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n John Brackenbury CBE* + • Chairman John was founder Chairman of Pubmaster which was sold in 2003 to Punch Taverns. He is a leading industrialist with over 40 years experience in the drinks and leisure sector. He is also President of Business in Sport and Leisure Limited, Trustee and Director of Springboard UK, Trustee and Director of Bradﬁ eld Foundati on, Trustee and Director of GamCare. John is the founder Chairman and Chairman of the Nominati ons Committ ee of Avanti Communicati ons Group plc. David Williams Chief Executi ve David is a co–founder of the Company. Prior to this he spent ten years working in the City ﬁ nancing telecommunicati ons projects. David Bestwick Chief Technology Oﬃ cer David is a co-founder of the Company. David graduated from the University of Leicester in 1987 with a BSc in Physics with Astrophysics. Following three years at Marconi Research Centre (MRC), he joined VEGA Group PLC in 1990 where he worked on a wide range of satellite applicati ons projects. Nigel Fox Finance Director and Secretary Nigel is a Chartered Accountant and has held various senior ﬁ nance roles before joining Avanti Communicati ons in 2007, including Chief Financial Oﬃ cer of Climax Group; Group Financial Controller at ARC Internati onal; Finance Director of Ruberoid Building Products, and Group Financial Controller of Ruberoid Plc. Matt hew O’Connor Chief Operati ng Oﬃ cer Matt hew joined Avanti in 2005 having worked in the telecommunicati ons industry for 20 years initi ally for BT where he held a number of sales and marketi ng roles within the UK and Internati onal Divisions. He joined Telewest in 1996 as a Director of its Business Division, where he was part of the team that grew the business from a £30m regional business to a £300m turnover nati onal operati on in 6 years. He went on to be Managing Director of the Wholesale Division with customers that included T-Mobile, 3, Cable and Wireless, NTL, and many telecoms re-sellers. AVN2561 AR10 MIDDLE (2-2) AW15.indd 16 01/12/2010 14:21 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc William Wyatt * + • Non-Executi ve Will is Chief Executi ve Oﬃ cer of Caledonia Investments plc. He is also a Non-Executi ve Director on the boards of Bristow Group Inc, Cobepa, Melrose Resources plc, REI plc, TGE Marine AG, and Terrace Hill plc. Alan Foster+ • Non-Executi ve Alan was a senior partner of de Zoete & Bevan for over twenty years and, on the creati on of BZW Asset Management, he was appointed Deputy Chairman. This company was the forerunner of Barclays Global Investors. Alan is the Chairman of the Remunerati on Committ ee of Avanti Communicati ons Group plc. Richard Vos* Non-Executi ve Richard is a telecommunicati ons and satellite professional, with internati onal experience, gained over 40 years working in the industry. His previous positi ons included Chairman of SatCom Group Holdings plc, Inmedia Communicati ons Ltd. and of Inmarsat Ventures PLC, and Head of Satellite Investments for Briti sh Telecommunicati ons plc (BT), serving as Governor for the UK and Ireland on the Board of INTELSAT and as Chairman of the Board. Richard is the Chairman of the Audit Committ ee of Avanti Communicati ons Group plc. Ian Taylor Non-Executi ve Ian Taylor was a Member of the UK Parliament for 23 years unti l deciding to stand down ahead of the 2010 General Electi on. Ian was Minister for Science and Technology at the Department of Trade and Industry during 1994 - 1997 in a Conservati ve Government. He subsequently chaired the all-Party Parliamentary and Scienti ﬁ c Committ ee which includes the Parliamentary Engineering Group. Prior to entering Parliament, Ian had 18 years experience of providing corporate ﬁ nance and management advice to companies in the UK, France and USA. * Audit committ ee + Remunerati on committ ee • Nominati ons committ ee 17 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (2-2) AW15.indd 17 01/12/2010 14:21 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 18 Employees Drawing experti se from across the globe. 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n 26 Countries represented AVN2561 AR10 MIDDLE (2-2) AW15.indd 18 01/12/2010 14:21 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 19 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (2-2) AW15.indd 19 01/12/2010 14:21 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 20 Corporate Social Responsibility SOS Children is very glad to have partnered with Avanti Communicati ons for the last 2 years. The company’s support of our work is both committ ed and wide-ranging. SOS Children’s Villages Ennerdale, South Africa This village was the ﬁ rst to be built in South Africa, in 1984, 30km south of Johannesburg. Today it is home to over 150 children in its 15 family homes, as well as a house for reti red SOS mothers who act as grandmothers for the children. The adjoining SOS Kindergarten has a capacity to take in up to 100 children and the SOS Social Centre, which was opened in 2000, houses a clinic, a day-care centre and an HIV/ AIDS community-based child care and support programme. The clinic oﬀ ers treatment to up to 2,000 pati ents a year and the day-care centre has a capacity to take in up to 40 children between ages 0-3. HIV/AIDS aﬀ ected families receive materials, medical support, educati on and counselling and are supported with income generati ng acti viti es. Moreover, HIV/AIDS awareness and preventi on campaigns are organised. Avanti has contributed €3,087 in 2010. Medlanky, Czech Republic Within the village there are: 9 family houses for 59 children – a village director’s house with ﬂ ats for co-workers – a community building which includes rooms for SOS aunts who support the SOS mothers and take care of children when the mothers have a day oﬀ – an acti vity house for workshops for children – a multi - purpose building with rooms for the psychologist and pedagogue – a recently added playground. The tenth family house is currently being used as an SOS Youth Facility for the youngsters from SOS Children’s Village Chvalcov, who can stay there during their vocati onal training or higher educati on and prepare for an independent life. Avanti contributed €3,906 at the beginning of 2010. 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (2-2) AW15.indd 20 01/12/2010 14:21 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Not just a rocket scienti st… Lucy Edge, Avanti Space System Manager, combines her internati onal role as a key member of our satellite design, build and operati ons team with her passion for triathlon. With Astrophysics MPhys and Space Engineering MSc under her belt, she found that the Space industry would be both interesti ng and more than ‘just a job’. Lucy ﬁ nds that, to balance the training with the demands of her job, that sport helps her to decompress and gives her precious thinking ti me before work. With the launch of HYLAS 1 and the rapid progress of HYLAS 2, she’s made training compromises but performed bett er in races. “To perform well at anything, you need to sleep and eat well – training reminds me to do that and keeps me well for work.” Avanti is proud to sponsor Lucy, a member of Team Great Britain. 21 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (2-2) AW15.indd 21 01/12/2010 14:21 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 22 Directors’ Report 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n The directors have pleasure in submitti ng their annual report together with the audited ﬁ nancial statements for the year ended 30 June 2010. Principal acti viti es and review of the business The principal acti vity of the Company is the provision of satellite communicati on services. The services are principally provided via Ka-band satellite. Business review and key performance indicators (“KPI’s”) The Directors are required by the Companies Act to present a business review, reporti ng on the development and performance of the Group and the Company during the year and their positi ons at the end of the year. The informati on that fulﬁ ls the requirements of the business review including likely future developments, can be found in the Chief Executi ve’s report on pages 9 to 11, the Finance and Operati ng review on pages 12 to 15 and the Corporate Social responsibility report on pages 20 to 21, which are incorporated in this report by reference. As the company is sti ll the early stages of its strategy with a focus on the future, we do not currently have a focus on traditi onal KPI’s. Instead our business model is focussed on the launch of the satellite and subsequent capacity sales. In the Chief Executi ve’s report and Finance and Operati ng Review, we have highlighted key ﬁ nancial stati sti cs such as revenue and operati ng proﬁ t, however given the nature of the business at the current ti me, we do not consider them to be KPI’s. The Corporate Governance report on page 26 falls within the scope of this Directors’ report. Results and dividends The results for the year ended 30 June 2010 are shown on page 28. No equity dividend was paid in the year ended 30 June 2010 (2009: £nil). No ﬁ nal dividend is proposed at the year-end (2009: £nil). The loss for the year transferred to reserves was £1,932,000 (2009: proﬁ t of £1,049,000). Financial instruments A discussion of the Group’s ﬁ nancial risk management objecti ves and policies and the exposure of the group to interest rate, foreign exchange, credit and liquidity risk is included in Note 22 to the Consolidated Financial Statements. Further discussion is also included in the Finance and Treasury secti on of the Finance and Operati ng Review on page 13. Research and development The Group conti nues to invest in new services and technology through its research and development programs which can lead to proﬁ table exploitati on of Avanti ’s satellite capacity. These include pure research into new products as well as developing those services which have been demonstrated to have a proﬁ table business case. Post balance sheet events Details of material post balance sheet events are included in Note 31 to the consolidated ﬁ nancial statements. Directors The directors who served during the year were as follows: F E J G Brackenbury CBE D J Williams D J Bestwick M J O’Connor C R Vos I C Taylor MBE N A D Fox D A Foster W P Wyatt Directors’ emoluments The remunerati on of the directors including the highest paid director and Chairman was as follows: For the year ended 30 June 2010 Salaries and other short term employee beneﬁ ts £ Post employment beneﬁ ts £ Executi ve D J Williams D J Bestwick N A D Fox M J O'Connor Total executi ve 151,047 85,082 158,867 138,218 533,214 103,745 78,841 7,020 6,792 196,398 Total 2010 £ 254,792 163,923 165,887 145,010 729,612 AVN2561 AR10 MIDDLE (2-2) AW15.indd 22 01/12/2010 14:21 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Non-executi ve F E J G Brackenbury CBE D A Foster W P Wyatt I C Taylor MBE C R Vos Total non-executi ve For the year ended 30 June 2009 Executi ve D J Williams D J Bestwick N A D Fox M J O'Connor Total executi ve Non-executi ve F E J G Brackenbury CBE D A Foster W P Wyatt I C Taylor MBE C R Vos Total non-executi ve Salaries and other short term employee beneﬁ ts £ Post employment beneﬁ ts £ 60,000 25,000 25,000 25,000 25,000 160,000 – – – – – – Salaries and other short term employee beneﬁ ts £ Post employment beneﬁ ts £ 236,128 151,887 140,400 52,433 580,848 60,000 25,000 25,000 25,000 25,000 160,000 19,832 13,928 7,020 2,622 43,402 – – – – – – Total 2010 £ 60,000 25,000 25,000 25,000 25,000 160,000 Total 2009 £ 255,960 165,814 147,420 55,055 624,249 60,000 25,000 25,000 25,000 25,000 160,000 Directors’ Long Term Incenti ve Plans Original allocati ons: D J Williams D J Bestwick N A D Fox M J O'Connor Total Core 565,480 350,741 137,501 139,238 1,192,960 Excepti onal Extraordinary Total 2010/2009 350,741 209,384 50,000 69,445 679,570 279,884 279,884 50,000 69,445 679,213 1,196,105 840,009 237,501 278,128 2,551,743 The Long Term Incenti ve Plan (LTIP) has been established by the Company with approval from the Remunerati on Committ ee to reward and incenti vise the Executi ve Directors and senior managers of the Company. The LTIP allocati ons are in separate sub funds within the EBT and are subject to a discreti onary Trust. The shares are subject to automati c revocati on if certain criteria (set out below) are not met and conti nue to be revocable for the enti re Trust period. One additi onal grant was made during the year to a senior manager of 250,000 opti ons split across the three categories. The exercise criteria of this grant is consistent with the criteria of the existi ng LTIP scheme. The allocati ons into the LTIP vary for each executi ve. The total allocati on to each executi ve is split into three separate tranches: i) The core tranche This element of the grant becomes exercisable in 7 equal instalments. The ﬁ rst instalment was exercisable on grant and the second on 30 June 2008. The remaining 5 are yearly thereaft er. 4/7ths of this core grant is now exercisable. 23 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (2-2) AW15.indd 23 01/12/2010 14:21 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 24 Directors’ Report Conti nued 01  i H g h l i g h t s ii) The excepti onal achievement tranche This element of the grant was amended during the year. Originally, these opti ons were only exercisable if the average market value of the share exceeded £5 for a consecuti ve period of six months prior to 30 June 2010. Given the unprecedented market conditi ons over the previous year, the remunerati on committ ee considered that whilst the executi ves had performed well and that the share price had outperformed the FTSE 100 and AIM all share index since the LTIPs were granted, the target set in the LTIP rules may sti ll not be achieved. In May 2010 the remunerati on committ ee agreed to extend the target date to 31 December 2010 and that the six month average target price should be increased £5.50. iii) The extraordinary achievement tranche This element of the grant is only exercisable if the Market Value of a Share exceeds £10 for a consecuti ve period of six months before 30 June 2013. Non-executi ve directors’ unapproved plans F E J G Brackenbury CBE D A Foster C R Vos Total Total 2010/2009 62,863 15,000 15,000 92,863 The unapproved scheme was established during 2007. The opti ons are issued for 10 years with 25% vesti ng at the end of years 3, 4, 5 and 6. There are no performance criteria associated with these opti ons and they are exercisable as long as the opti on holder remains with the Company. Directors’ share interests The following Directors held interests in the share capital of the Company: D J Williams D J Bestwick N A D Fox M O’Connor F E J G Brackenbury CBE D A Foster W P Wyatt I C Taylor MBE C R Vos Fully paid Ordinary Shares of 1p each 30 June 2010 30 June 2009 1,543,905 1,102,264 89,897 144,564 442,891 359,639 11,200 6,300 6,030 1,541,655 1,051,158 70,254 124,673 426,891 339,639 11,200 6,300 6,030 At 29 October, the Company had been noti ﬁ ed, pursuant to the Financial Services Authority’s Disclosure & Transparency Rules, of the following noti ﬁ able voti ng rights in the Company’s issued ordinary share capital. M&G Investment Management Ltd Caledonia Investments plc Directors & Related and EBT AEGON Asset Management UK plc Capital Research Global Investors London London – Edinburgh Los Angeles 12,507,850 11,636,965 7,351,939 3,843,800 3,488,372 14.72% 13.70% 8.65% 4.52% 4.11% In additi on, 2.1 million shares are held under LTIP. Dividend and voti ng rights have been waived. 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (2-2) AW15.indd 24 01/12/2010 14:21 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Policy and practi ce on payment of creditors The Group’s policy and practi ce on payment of creditors is: • • • To pay all suppliers within the ti me limit agreed at the start of business with that supplier; To ensure that suppliers are aware of the terms of payment; and To pay in accordance with the contractual and other legal obligati ons whenever it is sati sﬁ ed that the supplier has provided goods and services in accordance with the agreed terms and conditi ons. At 30 June 2010, the Company did not have any trade creditors (2009: nil). Politi cal and charitable donati ons During the year the Group made a politi cal donati on to the Conservati ve party of £5,000. In additi on the Avanti staﬀ made charitable donati ons to SOS Children of €6,993 as detailed on page 20. Directors’ and Oﬃ cers’ liability insurance Avanti Communicati ons Group plc maintains appropriate insurance to cover Directors’ and Oﬃ cers’ liability for itself and its subsidiaries. At the date upon this report was approved and for the year to 30 June 2010, the Company provided an indemnity in respect of all of the Company’s Directors. Directors’ responsibiliti es The directors are responsible for preparing the Annual Report and the ﬁ nancial statements in accordance with applicable law and regulati ons. Company law requires the directors to prepare ﬁ nancial statements for each ﬁ nancial year. Under that law the directors have elected to prepare the group and parent company ﬁ nancial statements in accordance with Internati onal Financial Reporti ng Standards (IFRSs) as adopted by the European Union. In preparing these ﬁ nancial statements, the directors have also elected to comply with IFRSs, issued by the Internati onal Accounti ng Standards Board (IASB). Under company law the directors must not approve the ﬁ nancial statements unless they are sati sﬁ ed that they give a true and fair view of the state of aﬀ airs of the group and the company and of the proﬁ t or loss of the group for that period. In preparing these ﬁ nancial statements, the directors are required to: • select suitable accounti ng policies and then apply them consistently; • make judgements and accounti ng esti mates that are reasonable and prudent; • • state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed, subject to any material departures disclosed and explained in the ﬁ nancial statements; prepare the ﬁ nancial statements on the going concern basis unless it is inappropriate to presume that the company will conti nue in business. The directors are responsible for keeping adequate accounti ng records that are suﬃ cient to show and explain the company’s transacti ons and disclose with reasonable accuracy at any ti me the ﬁ nancial positi on of the company and the group and enable them to ensure that the ﬁ nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the preventi on and detecti on of fraud and other irregulariti es. The directors are responsible for the maintenance and integrity of the company’s website. Legislati on in the United Kingdom governing the preparati on and disseminati on of ﬁ nancial statements may diﬀ er from legislati on in other jurisdicti ons. In the case of each director in oﬃ ce at the date the directors’ report is approved: a) so far as the directors are aware, there is no relevant audit informati on of which the company’s auditors are unaware; and b) they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit informati on and to establish that the company’s auditors are aware of that informati on. Approved by the Board of Directors and signed on behalf of the Board. Nigel Fox Secretary and Group Finance Director London 30 November 2010 25 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (2-2) AW15.indd 25 01/12/2010 14:21 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 26 Corporate Governance Report The Group is quoted on AIM. Although the rules of AIM do not require the Company to comply with the Combined Code 2006 on Corporate Governance (‘the Code’) the Company fully supports the principles set out in the Code and will seek to comply wherever practi cal, given both the size and resources available to the Company. Details are provided below of how the Company applies those parts of the Code which it believes to be appropriate. The board The Company has appointed non-executive directors to bring an independent view to the board and to provide a balance to the executive directors. The board of directors comprises four executive directors and five non-executive directors one of whom is the chairman. Despite the fact that some of the non-executive directors have share options, the board considers that each of the non-executive directors is independent. The board meets at least six times per year and receives a board pack comprising individual reports from each of the executive directors and members of the senior management team, together with any other material deemed necessary for the board to discharge its duties. The board has responsibility for formulating, reviewing and approving the Group’s strategy, budgets, major items of expenditure and acquisitions. Board committ ees The Board has established three committ ees: audit, remunerati on and nominati ons, all having writt en terms of delegated responsibiliti es. Each is chaired by a diﬀ erent non-executi ve director. A copy of each committ ee’s terms of reference can be found at the Avanti website: www.avanti plc.com Audit committ ee The audit committ ee consists of R Vos, W Wyatt , and J Brackenbury and is chaired by R Vos. It meets at least twice a year and is responsible for ensuring that the appropriate ﬁ nancial reporti ng procedures are properly maintained and reported on and for meeti ng the auditors and reviewing their reports relati ng to the Group’s accounts and internal control systems. The committ ee also receives all internal operati onal review reports. Remunerati on committ ee The remunerati on committ ee consists of A Foster, J Brackenbury, and W Wyatt and is chaired by A Foster. It meets at least twice a year and is responsible for reviewing the performance of the executi ve directors and other senior executi ves and for determining appropriate levels of remunerati on. Nominati ons committ ee The nominati ons committ ee consists of W Wyatt , J Brackenbury and A Foster and is chaired by J Brackenbury. It meets as and when necessary and is responsible for nominati ng candidates for appointment as Directors to the Board, bearing in mind the need for a broad representati on of skills across the Board. Shareholder relati ons The Company meets with insti tuti onal shareholders and analysts as appropriate and uses its website to encourage communicati on with private, existi ng and prospecti ve shareholders. Avanti Communicati ons Group plc welcomes feedback from investors about its published reports and website. Please address your feedback to our investor relati ons team at Redleaf Communicati ons Limited by email info@redleafpr.com or in writi ng to Redleaf Communicati ons Limited, 9-13 St Andrews Street, London EC4A 3AF. Internal control and risk management The Group operates a system of internal control and conti nues to develop and review that system in accordance with the guidance published by the Insti tute of Chartered Accountants in England and Wales. The internal control system is designed to manage rather than eliminate the risk of failure to achieve business objecti ves. The board is responsible for the system of internal control and for reviewing its eﬀ ecti veness. It can only provide reasonable, but not absolute, assurance against material misstatement or loss. The board operates a formal process of risk assessment and reporti ng. Each major business unit carries out formal risk assessments annually and regularly updates those during the year. Reports on the assessments and related miti gati on acti ons of all signiﬁ cant risks are provided to the board. The Group does not have an internal audit functi on due to the small size of the Company’s administrati ve functi on, the high level of director review and authorisati on of transacti ons. However, the Company undertakes a programme of operati onal reviews designed to visit all major businesses on a regular basis. The ﬁ nance director is responsible for that programme and its reporti ng to the audit committ ee. The board recognises that an essenti al part of its responsibility is the eﬀ ecti ve safeguarding of assets, the proper recogniti on of liabiliti es and the accurate reporti ng of results. The Group has a comprehensive system for regular reporti ng to the board. This includes an annual planning and budgeti ng system with budgets approved by the board. The ﬁ nancial reporti ng system compares against budget and prior year and reconsiders its ﬁ nancial year forecast on a monthly basis. The board has established a formal policy of authorisati on setti ng out matt ers which require its expressed approval and certain authoriti es delegated to the executi ve directors. In compliance with AIM rules the Company has established a policy and share dealing code relati ng to dealing in the Company’s shares by directors, employees and connected persons. The Company maintains appropriate insurance cover in respect of legal acti ons against directors as well as against material loss or claims against the Group, and reviews the adequacy of cover regularly. There were no noti ﬁ able environmental impacts at any Avanti Communicati ons Group site during the ﬁ nancial year. 01  i H g h l i g h t s 02  08   27  56  B u s i n e s s P r o ﬁ e l Y e a r i n R e v i e w G o v e r n a n c e i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 MIDDLE (2-2) AW15.indd 26 01/12/2010 14:21 Independent Auditors’ Report to the members of Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc We have audited the group and parent company ﬁ nancial statements (the ‘‘ﬁ nancial statements’’) of Avanti Communicati ons Group plc for the year ended 30 June 2010 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of ﬁ nancial positi on, the company statement of ﬁ nancial positi on, the statement of cash ﬂ ows , the statement of changes in equity and the related notes. The ﬁ nancial reporti ng framework that has been applied in their preparati on is applicable law and Internati onal Financial Reporti ng Standards (IFRSs) as adopted by the European Union and, as regards the parent company ﬁ nancial statements, as applied in accordance with the provisions of the Companies Act 2006. Respecti ve responsibiliti es of directors and auditors As explained more fully in the Directors’ Responsibiliti es Statement set out on page 25, the directors are responsible for the preparati on of the ﬁ nancial statements and for being sati sﬁ ed that they give a true and fair view. Our responsibility is to audit the ﬁ nancial statements in accordance with applicable law and Internati onal Standards on Auditi ng (UK and Ireland). Those standards require us to comply with the Auditi ng Practi ces Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Secti ons 495 and 496 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writi ng. Scope of the audit of the ﬁ nancial statements An audit involves obtaining evidence about the amounts and disclosures in the ﬁ nancial statements suﬃ cient to give reasonable assurance that the ﬁ nancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounti ng policies are appropriate to the group’s and parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signiﬁ cant accounti ng esti mates made by the directors; and the overall presentati on of the ﬁ nancial statements. Opinion on ﬁ nancial statements In our opinion: • • • the ﬁ nancial statements give a true and fair view of the state of the group’s and of the parent company’s aﬀ airs as at 30 June 2010 and of the group’s loss and group’s and parent company’s cash ﬂ ows for the year then ended; the group ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the ﬁ nancial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matt er prescribed by the Companies Act 2006 In our opinion the informati on given in the Directors’ Report for the ﬁ nancial year for which the ﬁ nancial statements are prepared is consistent with the ﬁ nancial statements. Matt ers on which we are required to report by excepti on We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • • • adequate accounti ng records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company ﬁ nancial statements are not in agreement with the accounti ng records and returns; or certain disclosures of directors’ remunerati on speciﬁ ed by law are not made; or • we have not received all the informati on and explanati ons we require for our audit. J. Booker (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 30 November 2010 27 01 01   i i H H g g h h l l i i g g h h t t s s 02 02   08 12   B B u u s s i i n n e e s s s s P P r r o o ﬁ ﬁ e e l l Y Y e e a a r r i i n n R R e e v v i i e e w w 16 18   G G o o v v e e r r n n a a n n c c e e   56 56   i i F F n n a a n n c c i i a a l l S S t t a a t t e e m m e e n n t t s s S S h h a a r r e e h h o o d d e e r r l l I I n n f f o o r r m m a a ti ti o o n n AVN2561 AR10 MIDDLE (2-2) AW15.indd 27 01/12/2010 14:21 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 28 Consolidated Income Statement Year Ended 30 June 2010 Revenue Cost of sales Gross proﬁ t Operati ng expenses Other operati ng income Loss from operati ons Financing exchange gain and movement in derivati ve fair value Finance income Finance expense Net ﬁ nance income (Loss)/proﬁ t before tax Income tax credit/(expense) (Loss)/proﬁ t for the year Att ributable to: Equity holders of the parent Basic (loss)/earnings per share (pence) Diluted (loss)/earnings per share (pence) Year ended 30 June 2010 £’000 Year ended 30 June 2009 £’000 Notes 2 3 6 7 7 7 7 8 9 9 5,815 (3,140) 2,675 (8,739) 3,628 (2,436) 972 99 (591) 480 (1,956) 24 (1,932) (1,932) (3.68p) (3.68p) 8,041 (5,068) 2,973 (7,086) 2,727 (1,386) 2,932 417 (162) 3,187 1,801 (752) 1,049 1,049 3.78p 3.39p Consolidated Statement of Comprehensive Income Year Ended 30 June 2010 (Loss)/proﬁ t for the year Other comprehensive income Notes Year ended 30 June 2010 £’000 Year ended 30 June 2009 £’000 (1,932) 1,049 Exchange diff erences on translati on of foreign operati ons Total comprehensive (loss)/income for the year 13 (1,919) – 1,049 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 28 01/12/2010 14:20 Consolidated Statement of Financial Positi on as at 30 June 2010 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc ASSETS Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Total non-current assets Current assets Inventories Unpaid share capital Trade and other receivables Derivati ve fi nancial instruments Cash and cash equivalents Total current assets Total assets LIABILITIES AND EQUITY Current liabiliti es Trade and other payables Derivati ve fi nancial instruments Provisions for other liabiliti es Interest bearing liabiliti es Total current liabiliti es Non-current liabiliti es Trade and other payables Provisions for other liabiliti es Loans and other borrowings Total non-current liabiliti es Total liabiliti es Equity Share capital Share premium Retained earnings and other reserves Total shareholders’ equity Total liabiliti es and equity Notes 30 June 2010 £’000 30 June 2009 £’000 11 12 17 15 16 18 19 20 21 19 20 21 23 24 24 170,231 51,534 11 268 21 5 170,510 51,560 1,398 – 15,993 525 34,181 52,097 352 31,500 14,237 347 24,615 71,051 222,607 122,611 13,460 11,369 – 30 269 795 30 402 13,759 12,596 7,228 33 49,404 56,665 70,424 639 120,496 31,048 152,183 222,607 2,899 63 42,574 45,536 58,132 417 34,041 30,021 64,479 122,611 The fi nancial statements of company number 6133927 on pages 28 to 55 were approved by the Board of Directors on 30 November 2010 and signed on its behalf by: Nigel Fox Finance Director 30 November 2010 29 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 29 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 30 Company Statement of Financial Positi on as at 30 June 2010 ASSETS Non-current assets Deferred tax assets Investments Total non-current assets Current Assets Trade and other receivables Derivati ve fi nancial instruments Unpaid share capital Total current assets Total assets LIABILITIES AND EQUITY Current liabiliti es Trade and other payables Derivati ve fi nancial instruments Total current liabiliti es Total liabiliti es Equity Share capital Share premium Retained earnings and other reserves Total shareholders’ equity Total liabiliti es and equity Notes 30 June 2010 £’000 30 June 2009 £’000 17 13 16 19 23 24 24 62 41,320 41,382 80,234 525 – 80,759 122,141 9 – 9 9 686 120,496 950 122,132 122,141 102 289 391 7,291 347 31,500 39,138 39,529 4,278 795 5,073 5,073 449 34,041 (34) 34,456 39,529 The fi nancial statements of company number 6133927 on pages 28 to 55 were approved by the Board of Directors on 30 November 2010 and signed on its behalf by: Nigel Fox Finance Director 30 November 2010 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 30 01/12/2010 14:20 Statement of Cash Flows Year Ended 30 June 2010 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Group Company Year ended 30 June 2010 £’000 Year ended 30 June 2009 £’000 Year ended 30 June 2010 £’000 Year ended 30 June 2009 £’000 Notes Cash ﬂ ow from operati ng acti viti es Loss from operati ons before taxati on Net foreign exchange gain Depreciati on of property, plant and equipment Amorti sati on of intangible assets Provision for impairment of trade receivables Onerous lease provision uti lised Share based payments expense 3 3 16 20 25 (2,436) (439) 759 10 13 (30) 602 (1,521) (1,386) (1,183) 768 51 172 (123) 652 (1,049) Movement in working capital (Increase)/decrease in inventories (1,047) (102) (59) (285) – – – – – 54 (5) – – – – – – 155 (130) – (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Interest received Interest paid Net cash generated from/(used by) operati ng acti viti es Cash ﬂ ows from investi ng acti viti es Investments Payments for property, plant and equipment Net cash used in investi ng acti viti es Cash ﬂ ows from ﬁ nancing acti viti es Proceeds from borrowings Repayment of borrowings Debt issue cost paid Proceeds from share issue Share issue costs Proceeds from fi nance leases Finance lease paid Net cash received from ﬁ nancing acti viti es Eff ects of exchange rate on the balances of cash and cash equivalents Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the fi nancial year Cash and cash equivalents at the end of the ﬁ nancial year (1,756) (5,626) (72,872) (1,882) 6,607 2,283 99 (155) (4,569) (11,346) 951 (162) (3,092) (75,969) – – 2,227 (10,557) (75,969) – – (41,031) (108,803) (108,803) (2,850) (2,850) – (41,031) – – – 120,500 (3,500) – (402) 116,598 – (21) – – – 802 (592) 189 (456) 2,592 9,566 (10,626) 24,615 34,181 35,241 24,615 18 – – – 120,500 (3,500) – – 117,000 – – – – 2,012 – – – – – – – – – – – – – – – – – – – 31 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 31 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 32 Statement of Changes in Equity Year Ended 30 June 2010 Share Capital £’000 Share premium £’000 Retained earnings £’000 Total equity £’000 277 – 140 – – 417 417 – 237 (15) – – – 3,858 – 30,183 – – 28,600 1,049 – 652 (280) 34,041 30,021 34,041 – 86,455 – – – – 30,021 (1,919) – – 2,181 602 163 31,048 32,735 1,049 30,323 652 (280) 64,479 64,479 (1,919) 86,692 (15) 2,181 602 163 152,183 639 120,496 Share Capital £’000 Share premium £’000 Retained earnings £’000 Total equity £’000 309 – 140 – – 449 449 – 237 – – – 3,858 – 30,183 – – 34,041 34,041 – 86,455 – – – 686 120,496 (146) (14) – 154 (28) (34) (34) 723 – 174 54 33 950 4,021 (14) 30,323 154 (28) 34,456 34,456 723 86,692 174 54 33 122,132 Group 2009 At 1 July 2008 Total comprehensive profi t for the year Issue of share capital Share based payments Tax expense taken directly to reserves At 30 June 2009 2010 At 1 July 2009 Total comprehensive loss for the year Issue of share capital EBT treasury shares Foreign currency translati on reserve Share based payments Tax credit taken directly to reserves At 30 June 2010 Company 2009 At 1 July 2008 Total comprehensive loss for the year Issue of share capital Share based payments Tax expense taken directly to reserves At 30 June 2009 2010 At 1 July 2009 Total comprehensive profi t for the year Issue of share capital Foreign currency translati on reserve Share based payments Tax credit taken directly to reserves At 30 June 2010 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 32 01/12/2010 14:20 Notes to the Accounts Year Ended 30 June 2010 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 1. Accounti ng policies Statement of compliance The Group fi nancial statements have been prepared in accordance with Internati onal Financial Reporti ng Standards (IFRS) as adopted by the EU issued by the Internati onal Accounti ng Standards Board (IASB), and with the Internati onal Financial Reporti ng Interpretati ons Committ ee (IFRIC), and those parts of the Companies Act 2006 applicable to companies preparing their accounts under IFRS. The principal accounti ng policies applied in the preparati on of these fi nancial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparati on The fi nancial statements have been prepared on the historical cost basis, with the excepti on of share based payments and fi nancial derivati ves, which are incorporated using fair value. The Company has elected to take the exempti on under secti on 408 of the Companies Act 2006 to not present the parent company income statement. New standards applied during the year ended 30 June 2010 The Group has adopted IFRS 8, ‘Operati ng Segments’. IFRS 8 requires operati ng segments to be identi fi ed on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operati ng Decision Maker (the Avanti Executi ve Board) to allocate resources and assess performance. All resources are allocated on the basis of satellite services. As a result, the Group is disclosing one segment being satellite services. IAS 23 Borrowing costs (revised) – the Group early adopted IAS 23(R) as of 1 July 2007. The Group has adopted IAS 1 (revised) Presentati on of Financial Statements. The amendment aff ects the presentati on of owner changes in equity and introduces a ‘’Statement of Comprehensive Income’’. The Group has elected to present a single statement of performance, being the Statement of Comprehensive Income. The amendment to IFRS 2 relates to vesti ng conditi ons and cancellati ons for share opti ons. No restatement of prior period informati on has been necessary as a consequence of adopti ng this standard. Amendments to IFRS 7: Financial instruments has been adopted which gives enhanced disclosures about fair value measurements of fi nancial instruments and over liquidity risk. Since the amendment only impacts presentati on and disclosure aspects, there is no impact on the Group’s results or net assets. New standards and interpretati ons The following new standards, amendments to standards or interpretati ons are mandatory for the fi rst ti me for the fi nancial year beginning 1 July 2009 but are not currently relevant for the Group, or have had no impact: IFRS 3 (R) – Business Combinati ons IAS 27 (R) – Consolidated and Separate Financial Statements Amendments to various IFRSs and IASs arising from May 2008 Annual Improvements to IFRSs Amendment to IAS 39 - Eligible hedged items Amendment to IFRS 5 - Non-current Assets Held for Sale and Disconti nued Operati ons Amendment to IFRIC 9 and IAS 39: Embedded derivati ves Amendment to IAS 32 Financial instruments: Presentati on IFRIC 12, Service concession arrangements IFRIC 13, Customer loyalty programmes relati ng to IAS 18, Revenue IFRIC 14 The limit on a defi ned benefi t asset, minimum funding requirements and their interacti on IFRIC 15 Agreements for the constructi on of real estate IFRIC 16 Hedges of a net investment in a foreign operati on IFRIC 17 Distributi ons of Non cash assets to Owners IFRIC 18 Transfers of assets from customers The following new standards, amendments to standards and interpretati ons are mandatory for the fi rst ti me for the fi nancial year beginning 1 July 2010: Amendments to various IFRSs and IASs arising from 2010: Annual Improvements to IFRSs (eff ecti ve 1 January 2010) Amendment to IFRS 2 Share based payments group cash-sett led transacti ons (eff ecti ve 1 January 2010) IFRS 1 First-ti me Adopti on – Additi onal exempti ons (eff ecti ve 1 January 2010) Amendment to IAS 32 Financial instruments: Classifi cati on of rights issues (eff ecti ve 1 February 2010) Amendment to IFRS 1: ‘First ti me adopti on’ – fi nancial instrument disclosures (eff ecti ve 1 July 2010) IFRIC 19 Exti nguishing fi nancial liabiliti es with equity instruments (eff ecti ve 1 July 2010) 33 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 33 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 34 Notes to the Accounts Conti nued 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n 1. Accounti ng policies conti nued New standards and interpretati ons The Directors do not anti cipate that the adopti on of any of the above standards, amendments or interpretati ons will have a material impact on the Group’s fi nancial statements on initi al applicati on. The following new standards, amendments to standards and interpretati ons have been issued, but are not eff ecti ve for the fi nancial year beginning 1 July 2010 and have not been early adopted: Amendments to various IFRSs and IASs arising from 2010: Annual Improvements to IFRSs (eff ecti ve 1 January 2011) Amendment to IAS 24 Related party disclosures (eff ecti ve 1 January 2011) Amendments to IFRIC 14 Prepayments on a minimum funding requirement (eff ecti ve 1 January 2011) Phase 1 of IFRS 9 Financial instruments: classifi cati on and measurement (eff ecti ve 1 January 2013) The Group is currently assessing the impact of the standards on its results, fi nancial positi on and cash ﬂ ows. The Group conti nues to monitor the potenti al impact of other new standards and interpretati ons which may be endorsed by the European Union and require adopti on by the Group in future accounti ng periods. Criti cal accounti ng esti mates and management judgement The presentati on of fi nancial statements in conformity with IFRS requires the use of certain criti cal accounti ng esti mates. It also requires management to exercise its judgement in the process of applying the Group’s accounti ng policies. The esti mates and assumpti ons that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabiliti es within the next fi nancial year are addressed below. (a) Income taxes The Group’s income tax balance is the sum of the total current and deferred tax balances. The calculati on of this, and of the Group’s potenti al liabiliti es or assets, necessarily involves a degree of esti mati on and judgement in respect of certain items whose tax treatment cannot be fi nally determined unti l resoluti on has been reached with the relevant tax authority. The amounts recognised or disclosed are derived from the Group’s best esti mati on and judgement. However, the inherent uncertainty regarding the outcome of these means eventual realisati on could diff er from the accounti ng esti mates and therefore impact the Group’s results and cash ﬂ ows. (b) Revenue recogniti on The group uses the percentage-of-completi on method in accounti ng for its consultancy and space projects. Use of the percentage-of completi on method requires the group to esti mate the services performed to date as a proporti on of the total services to be performed. (c) Space Explorati ons Inc (“Spacex”) The group conti nues to carry a receivable of $7.6 million, under “other receivables” which was fi rst recognised in June 2009. This amount is due from Spacex, who Avanti originally contracted to launch HYLAS 1 on their Falcon 9 launch vehicle. However, as Spacex had failed to generate the required launch heritage Avanti cancelled the launch services, as provided within the contract, and the monies previously paid were due to be refunded. SpaceX have failed to make the required refund and the dispute was taken to arbitrati on in New York. The arbitrators are due to give their binding ruling in early 2011. The directors are confi dent that the monies will be recovered and no provision will be necessary. Going concern The accounts have been prepared on a going concern basis which assumes that the Group will conti nue in operati onal existence for the foreseeable future. Basis of consolidati on Where the company has the power, either directly or indirectly, to govern the fi nancial and operati ng policies of another enti ty or business so as to obtain benefi ts from its acti viti es, it is classifi ed as a subsidiary. The fi nancial statements present the results of the company and its subsidiaries, including the Employee Benefi t Trust (“the group”) as if they formed a single enti ty. Intercompany transacti ons, balances, income and expenses are therefore eliminated in full. The results of subsidiaries acquired during the year are included in the consolidated income statement from the date of acquisiti on. There are no minority interest in the net assets of the Group, and no goodwill arising on acquisiti on of subsidiaries. The fi nancial statements of subsidiaries are prepared for the same reporti ng year as the parent company using consistent accounti ng policies. Revenue recogniti on The group currently earns revenue primarily from the sale of satellite broadband services to customers and from providing consultancy advice connected with the exploitati on of the space assets. Following the launch of HYLAS 1, revenue from the sale of satellite broadband services will be the key revenue stream of the business with space consultancy contracts being a smaller proporti on of the total revenues. AVN2561 AR10 Back AW11.indd 34 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Broadband satellite communicati ons services revenues are recorded on a straight-line basis over the term of the contract concerned net of discounts, VAT and other similar allowances. Revenues also include sales of terminals recognised upon installati on when the risks and rewards of ownership have transferred to the customer. Revenue from space consultancy and other consultancy contracts connected with the exploitati on of the space assets are recognised by reference to the stage of completi on of the contract acti vity at the balance sheet date. The contracts are broken down into key milestones and work packages which are all judged individually on a percentage of completi on basis in order to ascertain the completeness of an overall project. By its nature these projects require a certain element of judgement by management. Contract costs are recognised as an expense in the period they are incurred. Accrued income represents the diff erence between amounts invoiced and revenues recognised. Deferred income represents any unearned balances remaining from amounts received from customers pursuant to prepaid contracts. Appropriate allowances for esti mated irrecoverable amounts are recognised against revenue when there is objecti ve evidence that trade receivables are impaired. Accounts receivable balances are specifi cally reviewed to assess a customer’s ability to make payments. Leased assets Assets acquired under hire purchase or fi nance lease are capitalised in the balance sheet. Those held under hire purchase and fi nance lease contracts are depreciated over their esti mated useful lives. The interest element of these obligati ons is charged to the profi t and loss account over the relevant period. The capital element of the future payments is treated as a liability. Operati ng lease payments are recognised as an expense on a straight-line basis over the lease term. Interest income and expense Borrowing costs incurred for the constructi on of the satellite assets are capitalised during the period of ti me that is required to complete and prepare the asset for its intended use, in accordance with IAS 23 ‘Borrowing Costs’. Other borrowing costs are expensed in the Income Statement. Interest income on cash deposits is recognised on an eff ecti ve interest rate methodology, taking into account the principal amounts outstanding and the interest rates applicable. Foreign currency Transacti ons entered into by the group enti ti es in a currency other than the currency of the primary economic environment in which it operates (the “functi onal currency”) are recorded at the rates ruling when the transacti ons occur. Foreign currency monetary assets and liabiliti es are translated at the rate ruling at the balance sheet date. Exchange diff erences arising on the retranslati on of unsett led monetary assets and liabiliti es are similarly recognised immediately in the income statement. The presentati onal currency of the Group is sterling. The functi onal and presentati onal currency of the parent and its subsidiaries is sterling (with the excepti on of Avanti Hylas 2 Limited and Avanti Hylas 2 Launch Services Limited which have US dollars as their presentati onal and functi onal currency). Pension schemes Employees have the opti on to establish their own pension scheme to which the Group will match employee contributi ons up to a maximum amount. There is no on-going liability to the Group beyond the period that the contributi ons are made. The cost of such contributi ons are charged to the income statement when incurred. Share based payments The group operates a number of equity-sett led, share based compensati on plans. The fair value of these employee share opti on plans, representi ng employee services received in exchange for the grant of the opti ons, is calculated using an opti on-pricing model. In accordance with IFRS 2 “Share based payment”, the resulti ng cost is charged to the income statement over the vesti ng period of the opti ons. The amount of the charge is adjusted to reﬂ ect expected and actual levels of opti ons vesti ng. Current tax The charge for taxati on is based on taxable profi ts for the year. Taxable profi ts diff er from profi t as reported in the income statement because it excludes items of income and expenses that are taxable or deducti ble in other years and it further excludes items that are never taxable or deducti ble. Current tax assets and liabiliti es are measured at the amount expected to be recovered from or paid to the taxati on authoriti es based on tax rates that have been enacted or substanti ally enacted by the balance sheet date. Deferred tax Deferred tax is recognised on diff erences between the carrying amount of assets and liabiliti es in the fi nancial statements and the corresponding tax bases used in the computati on of taxable profi t, and is accounted for using the balance sheet liability method. 35 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 35 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 36 Notes to the Accounts Conti nued 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n 1. Accounti ng policies conti nued Deferred tax conti nued Deferred tax liabiliti es are generally recognised for all taxable temporary diff erences, and deferred tax assets are generally recognised for all deducti ble temporary diff erences to the extent that it is probable that taxable profi ts will be available against which those deducti ble temporary diff erence can be uti lised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suffi cient taxable profi ts will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabiliti es are measured at the tax rates that are expected to apply in the period in which the liability is sett led or the asset realised, based on tax rates that have been enacted or substanti ally enacted by the balance sheet date. The measurement of the deferred tax liabiliti es and assets reﬂ ects the tax consequences that would follow from the manner in which the Group expects, at the reporti ng date, to recover or sett le the carrying amount of its assets and liabiliti es. Deferred tax assets and liabiliti es are off set when the group has a legally enforceable right to off set current tax assets and liabiliti es and the deferred tax assets and liabiliti es relate to taxes levied by the same taxati on authority on either the same taxable group company; or diff erent group enti ti es which intend either to sett le current tax assets and liabiliti es on a net basis, or to realise the assets and sett le the liability simultaneously, in each future period in which signifi cant amounts of deferred tax assets or liabiliti es are expected to be sett led or recovered. Property plant and equipment Property, plant and equipment are stated at cost less accumulated depreciati on and any accumulated impairment losses. Depreciati on is provided so as to write off the cost or valuati on of assets, other than assets under constructi on, over their esti mated useful lives using the straight-line method. Cost includes the original purchase price of the asset and the costs directly att ributable to bringing the asset to its working conditi on for its intended use. Motor vehicles 25% per annum Plant and machinery 25% per annum Network assets 20-25% per annum Leasehold improvements 25% per annum Fixtures and fi tti ngs 25% per annum Satellite in constructi on Nil The esti mated useful lives, residual values and depreciati on method are reviewed at each year end, with the eff ect of any changes in esti mate accounted for on a prospecti ve basis. The gain or loss arising on the disposal of assets is charged to the profi t and loss account and is calculated as the diff erence between the disposal proceeds and the carrying amount of the assets. Assets held under fi nance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. Satellite in constructi on relate to costs (including employee related costs) directly att ributable to the constructi on of the HYLAS satellites. These assets will be transferred to a space asset category and depreciated over the life of the satellites once they become operati onal and placed into service. No depreciati on has been charged on these assets. It is anti cipated that the life of HYLAS 1 will be 15 years and therefore the fi rst annual depreciati on will be in the year ended 30 June 2011 following successful launch of HYLAS 1. Research and development costs in relati on to the satellites are capitalised if they meet the conditi ons set out in IAS 38 ‘Intangible Assets’ which are that development costs are only capitalised once a business case has been demonstrated as to the technical feasibility and commercial viability. Capitalised development costs are amorti sed over the expected useful life of the assets. Where the conditi ons are not met the costs are expensed through the income statement. Intangible assets Intangible assets comprise of computer soft ware and are stated at cost less accumulated amorti sati on and any accumulated impairment losses. Amorti sati on is provided so as to write off the cost or valuati on of assets, other than assets under constructi on, over their esti mated useful lives using the straightline method. The amorti sati on rate on computer soft ware is 25%. Cost includes the original purchase price of the asset and the costs att ributable to bringing the asset to its working conditi on for its intended use. The esti mated useful lives, residual values and amorti sati on method are reviewed at each year end, with the eff ect of any changes in esti mate accounted for on a prospecti ve basis. The gain or loss arising on the disposal of assets is charged to the profi t and loss account and is calculated as the diff erence between the disposal proceeds and the carrying amount of the assets. AVN2561 AR10 Back AW11.indd 36 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Impairment of non-ﬁ nancial assets Assets that are subject to amorti sati on and depreciati on are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The impairment review comprises a comparison of the carrying amount of the fi xed asset with its recoverable amount, which is the higher of fair value less costs to sell and value in use. Fair value less costs to sell is calculated by reference to the amount at which the asset could be disposed of. Value in use is calculated by discounti ng the expected future cash ﬂ ows obtainable as a result of the asset’s conti nued use, including those resulti ng from its ulti mate disposal, at a market-based discount rate on a pre-tax basis. An impairment loss is recognised in the Income Statement whenever the carrying amount of an asset exceeds its recoverable amount. The carrying amount will only be increased where an impairment loss recognised in a previous period for an asset either no longer exists or has decreased, up to the amount that it would have been had the original impairment not occurred. For the purpose of conducti ng impairment reviews, CGUs are identi fi ed as groups of assets and liabiliti es that generate cash ﬂ ows that are largely independent of other cash ﬂ ow streams. The assets and liabiliti es include those directly involved in generati ng the cash ﬂ ows and an appropriate proporti on of corporate assets. For the purposes of impairment review space segment assets are treated as one CGU. European Space Agency (ESA) Funding When payments are made by ESA direct to the satellite contractor EADS Astrium, the group records the transacti on by capitalising the amount to property, plant and equipment ‘space assets’ and recognising the deferred revenue. Both the satellite asset and the deferred revenue will be depreciated/released to the income statment over the expected life of the asset. There are no conti ngencies associated with the ESA funding. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present locati on and conditi on. Cost is determined by the fi rst-in fi rst -out method. Net realisable value is based on esti mated selling price less any further costs expected to be incurred to completi on and disposal. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of directly att ributable issue costs. Trade receivables Trade receivables are measured at initi al recogniti on at fair value and are subsequently measured at amorti sed cost using the eff ecti ve interest rate method where the ti me value of money is material. Appropriate allowances for esti mati ng irrecoverable amounts are recognised in the Income Statement where there is evidence that the asset is impaired. This impairment would be recognised within operati ng expenses. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise of cash on hand and demand deposits, and other short term highly liquid investments that are readily converti ble into known amounts of cash and are subject to an insignifi cant risk of change in value. For the purpose of the consolidated cash ﬂ ow statement, cash and cash equivalents are stated net of outstanding bank overdraft s. Provisions Provisions are recognised when the Group has a legal or constructi ve obligati on to transfer economic benefi ts arising from past events and the amount of the obligati on can be esti mated reliably. Provisions are not recognised unless the outf low of economic benefi ts to sett le the obligati on is more likely than not to occur. Borrowings Interest-bearing bank loans and overdraft s are measured initi ally at fair value, net of transacti on costs incurred. Borrowings are subsequently stated at amorti sed cost; any diff erence between the proceeds and the redempti on value is recognised in the income statement over the period of the borrowings using the eff ecti ve interest method. Borrowings are classifi ed as current liabiliti es unless the group has an unconditi onal right to defer sett lement of the liability for at least 12 months aft er the balance sheet date. Trade payables Trade payables are initi ally measured at fair value, and are subsequently measured at amorti sed cost. Financial instruments and hedging acti viti es Financial assets and fi nancial liabiliti es are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. 37 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 37 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 38 Notes to the Accounts Conti nued 1. Accounti ng policies conti nued Financial instruments and hedging acti viti es conti nued The group uses derivati ve fi nancial instruments mainly to reduce exposure to foreign exchange risks. The group does not hold or issue derivati ve fi nancial instruments for trading purposes. Derivati ves are recognised at fair value on the date a contract is entered into and are subsequently re-measured at their fair value. Hedge accounti ng is currently not applied. Changes in fair value of derivati ve fi nancial instruments are recognised in the income statement as they arise. 2. Revenue As noted in note 1, the group currently earn revenue primarily from the sale of satellite broadband services to customers and from providing consultancy advice connected with the exploitati on of the space assets. On adopti on of IFRS 8, ‘Operati ng Segments’, the group concluded that the Chief Operati ng Decision Maker (the Avanti Executi ve Board) manage the business and the allocati on of resources on the basis of the provision of satellite services, resulti ng in one segment. Revenue of £5,815,000 (2009: £8,041,000) represents invoiced sales of satellite broadband services provided to external customers, revenue on space and consultancy contracts recognised on a percentage of completi on basis and the sale of terminals. The group derived £1,334,000 (2009: £2,597,000) of its turnover from European countries outside the United Kingdom, and £4,481,000 (2009: £5,444,000) from the United Kingdom. 3. Operati ng expenses Costs are presented by the nature of the expense to the Group and include the following: Depreciati on of property, plant and equipment Amorti sati on of intangible assets Research and development costs writt en off as incurred Employee benefi t expense Operati ng lease expenses – Minimum lease payments – Sublease payments – Onerous lease provision uti lised – Onerous lease provision released 4. Auditors’ remunerati on Fees payable to company’s auditor for the audit of parent company and consolidated fi nancial statements Fees payable to the company’s auditor for other non audit services: – The audit of company’s subsidiaries pursuant to legislati on – Other services pursuant to legislati on – Tax services 30 June 2010 £’000 30 June 2009 £’000 759 10 15 4,542 408 (50) (30) - 768 51 2 3,744 384 (50) (23) (99) 30 June 2010 £’000 30 June 2009 £’000 67 20 4 270 361 43 16 6 11 76 £224,000 of the tax services fees relate to the feasibility study and initi al advice regarding the re-domicile of the Hylas 2 assets to Cyprus. The remaining balance relates to fees for normal ongoing tax advice. 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 38 01/12/2010 14:20 5. Employee beneﬁ t costs The aggregate remunerati on of all employees comprised: Wages and salaries Social security costs Pension costs Share based payment expense Less: costs capitalised as satellite in constructi on Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 30 June 2010 £’000 30 June 2009 £’000 4,898 534 229 602 6,263 (1,721) 4,542 4,091 438 113 652 5,294 (1,550) 3,744 Employee numbers The average monthly number of people (including the Executi ve Directors) employed during the year by category of employment: Operati ons Sales and marketi ng Development and engineering Administrati on and executi ve 6. Other operati ng income Exchange gain on trade receivables and payable balances Liquidated damages received 30 June 2010 No. employees 30 June 2009 No. employees 21 21 21 18 81 17 19 12 17 65 30 June 2010 £’000 30 June 2009 £’000 426 3,202 3,628 1,355 1,372 2,727 Liquidated damages were received from Astrium due to the late delivery of HYLAS 1 in November 2009. These damages compensate for the additi onal costs incurred as a result of the late delivery of the satellite and are recognised on a straight-line basis over the additi onal period that the incremental running costs were being incurred. All liquidated damages have now being recognised in the income statement. 7. Net ﬁ nance income Finance income Fair value gain on derivati ves Financing exchange gain Interest income on bank deposits Finance expense Interest expense on borrowings and loans Financing exchange loss Finance lease expense Net fi nance income 30 June 2010 £’000 30 June 2009 £’000 972 – 972 99 1,071 (88) (456) (47) (591) 480 340 2,592 2,932 417 3,349 (109) – (53) (162) 3,187 39 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 39 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 40 Notes to the Accounts Conti nued 8. Income tax (credit)/expense Current tax Adjustment in respect of prior periods Total current tax Deferred tax Originati on and reversal of temporary diff erences Adjustment in respect of prior periods Impact of change in UK tax rate Total deferred tax Total income tax (credit)/expense 30 June 2010 £’000 30 June 2009 £’000 76 76 (403) 278 25 (100) (24) – – 587 165 – 752 752 The tax on the group’s profi t before tax diff ers from the theoreti cal amount that would arise using the weighted average tax rate applicable to profi ts of the consolidated enti ti es as follows: (Loss)/profi t before tax Tax (credit)/charge at the corporate tax rate of 28% (2009: 28%) Tax eff ect of non-deducti ble expenses Adjustment in respect of prior periods Impact of change in UK tax rate Income tax (credit)/expense 9. Earnings/(loss) per share Basic (loss)/earnings per share Diluted (loss)/earnings per share 30 June 2010 £’000 (1,956) (548) 145 354 25 (24) 30 June 2009 £’000 1,801 504 83 165 – 752 30 June 2010 pence 30 June 2009 pence (3.68) (3.68) 3.78 3.39 The calculati on of basic and diluted (loss)/earnings per share is based on the earnings att ributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. 30 June 2010 £’000 30 June 2009 £’000 (Loss)/profi t for the year att ributable to equity holders of the parent company (1,932) Weighted average number of ordinary shares for the purpose of basic earnings per share 52,430,725 Restricted shares held in the Employee Benefi t Trust (EBT) 3,813,258 Weighted average number of ordinary shares for the purpose of diluted earnings per share 56,243,983 1,049 27,787,491 3,172,930 30,960,421 10. Proﬁ t of the parent company As permitt ed by Secti on 408 of the Companies Act 2006, the profi t and loss account of the parent Company is not presented as part of these accounts. The parent company’s profi t aft er tax for the year ended 30 June 2010 amounted to £723,000 (2009: £14,000 loss). 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 40 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 11. Property, plant and equipment Leasehold improvements £’000 Network assets £’000 Fixtures and ﬁ tti ngs £’000 Plant and machinery £’000 Satellites in constructi on £’000 Motor vehicles £’000 Group total £’000 Cost Balance at 1 July 2008 Additi ons Disposals Balance at 1 July 2009 Additi ons Disposals 234 16 – 250 4 – 3,170 151 – 3,321 2,239 – Balance at 30 June 2010 254 5,560 Depreciati on Balance at 1 July 2008 Charge for the year Disposals Balance at 1 July 2009 Charge for the year Disposals Balance at 30 June 2010 Net book value Balance at 30 June 2010 Balance at 30 June 2009 130 51 – 181 39 – 220 34 69 1,166 643 – 1,809 618 – 2,427 3,133 1,512 410 108 (3) 515 92 – 607 312 53 – 365 68 – 433 174 150 112 – (112) – – – – 112 – (112) – – – – – – 37,441 12,271 – 49,712 117,094 – – 112 – 112 27 – 41,367 12,658 (115) 53,910 119,456 – 166,806 139 173,366 – – – – – – – 166,806 49,712 – 21 – 21 34 – 55 84 91 1,720 768 (112) 2,376 759 – 3,135 170,231 51,534 At 30 June 2010 the Group held assets under fi nance lease agreements with a net book value of £416,000 (2009: £747,000). A depreciati on charge for the year of £331,000 (2009: £331,000) has been provided on these assets. These assets are included in network assets. The satellites in constructi on relate to the HYLAS 1 and HYLAS 2 satellites. £103,166,000 relates to the HYLAS 1 satellite, and £63,640,000 relates to the HYLAS 2 satellite. Included in the satellite in constructi on costs is interest capitalisati on of £18,159,523 all relati ng to the HYLAS 1 satellite. Interest is charged at 16.5 basis points above LIBOR. 41 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 41 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 42 Notes to the Accounts Conti nued 12. Intangible assets Cost Balance at: 1 July 2008 Additi ons Disposals Balance at 1 July 2009 Additi ons Disposals Balance at 30 June 2010 Amorti sati on Balance at: 1 July 2008 Charge for the year Disposals Balance at: 1 July 2009 Charge for the year Disposals Balance at 30 June 2010 Net book value Balance at 30 June 2010 Balance at 30 June 2009 Computer soft ware £’000 418 3 (26) 395 – – 395 323 51 – 374 10 – 384 11 21 13. Investments Company Shares in subsidiary undertakings Beginning of the year Capital contributi on Equity investments in Avanti HYLAS 2 Limited End of year 30 June 2010 £’000 30 June 2009 £’000 289 15 41,016 41,320 289 – – 289 In the year ended June 2010, the Company contributed £15,000 (1,500,000 shares at £0.01 each) to the Avanti Employee Benefi t Trust established in July 2007. The directors believe that the carrying value of the investments is supported by their underlying net assets. A full list of the company’s subsidiaries is disclosed in note 14. 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 42 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 14. Subsidiaries As at the end of the year the group and company held the following investments in subsidiary companies: Name of subsidiary Avanti Communicati ons Limited Avanti Space Limited Avanti Space 2 Limited Avanti Space 3 Limited Avanti Launch Services Limited Avanti Broadband Limited Avanti Broadband (Ire) Limited Avanti (NI) Limited Avanti Hylas 2 Limited * Avanti Hylas 2 Launch Services Limited * Avanti Communicati ons Infrastructure Company Limited Avanti Caledonian Broadband Limited Avanti Employee Benefi t Trust Nature of business Telecommunicati on consultancy Satellite services Satellite services Satellite services Management services Satellite broadband business Satellite broadband business Satellite broadband business Satellite services Management services Holding company Scotti sh satellite business Employee benefi t trust All the above enti ti es were incorporated in England & Wales, except for Avanti Launch Services Limited and Avanti Hylas 2 Launch Services Limited which were incorporated in the Isle of Man. The company holds 100% ownership interest and voti ng power in all the above enti ti es. * These enti ti es were incorporated during the 2010 fi nancial year. Subsequent to year end, the following subsidiary companies have been incorporated: Name of subsidiary Avanti Hylas 2 Cyprus Limited Avanti Hylas 2 Services Limited Avanti Communicati ons Marketi ng Services Nature of business Satellite broadband business Project management services Sales and marketi ng Avanti Communicati ons Marketi ng Services Limited was incorporated in England & Wales, and Avanti Hylas 2 Cyprus Limited and Avanti Hylas 2 Services Limited were incorporated in Cyprus. The company holds 100% ownership interest and voti ng power in all the above enti ti es. 15. Inventories Group Finished goods 30 June 2010 at cost £’000 30 June 2009 at cost £’000 1,398 352 The cost of inventories recognised as an expense during the year was £448,000 (2009: £1,705,000). There have been no write-downs of inventory during the year. 43 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 43 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 44 Notes to the Accounts Conti nued 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n 16. Trade and other receivables Trade receivables Less provision for impairment of trade receivables Net trade receivables Accrued income Prepayments Amounts due from group companies Other receivables Group Company 30 June 2010 £’000 30 June 2009 £’000 30 June 2010 £’000 30 June 2009 £’000 611 (3) 608 8,545 1,185 – 5,655 15,993 789 (16) 773 7,484 1,375 – 4,605 14,237 – – – – 6 80,228 – 80,234 – – – – – 7,291 – 7,291 For discussion of credit risk, refer to Note 22(b). The other receivable is primarily the $7.6m due from Space Explorati ons Inc (“Spacex”) as disclosed on page 15 of the Finance and Operati ng Review. This amount has been reclassifi ed from trade receivables to other receivables. The impact of this reclassifi cati on was to decrease trade receivables by £5,049,000 (2009: £4,600,000) and to increase other receivables by the same amount. 17. Deferred taxati on Deferred income tax assets and liabiliti es are off set when there is a legally enforceable right to off set current tax assets against current tax liabiliti es and when the deferred income taxes relate to the same fi scal authority. The off set amounts are as follows: The gross movement on the deferred income tax account is as follows: Non-current Deferred tax assets Deferred tax liabiliti es Balance at 1 July Income tax (expense)/credit Tax credited directly to equity Balance at 30 June Group 30 June 2010 Tax assets Provisions and deferred income Share based payment Unused tax losses Total tax assets Tax liabiliti es Derivati ve fi nancial asset Property, plant and equipment Total tax liabiliti es Net deferred tax asset/(liability) Group Company 30 June 2010 £’000 30 June 2009 £’000 30 June 2010 £’000 30 June 2009 £’000 6,157 (5,889) 268 5 100 163 268 3,617 (3,612) 5 1,037 (752) (280) 5 62 – 62 102 (73) 33 62 Opening balance £’000 Charged to the income statement £’000 Charged to equity £’000 817 110 2,690 3,617 – (3,612) (3,612) 5 989 29 1,359 2,377 – (2,277) (2,277) 100 – 163 – 163 – – – 163 102 – 102 88 42 (28) 102 Closing balance £’000 1,806 302 4,049 6,157 – (5,889) (5,889) 268 AVN2561 AR10 Back AW11.indd 44 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Charged to the income statement £’000 Charged to equity £’000 Opening balance £’000 446 535 1,794 2,775 (33) (1,705) (1,738) 1,037 371 (145) 896 1,122 33 (1,907) (1,874) (752) Opening balance £’000 Charged to the income statement £’000 23 79 102 4 (77) (73) Opening balance £’000 Charged to the income statement £’000 42 46 88 9 33 42 – (280) – (280) – – – (280) Charged to equity £’000 33 – 33 Charged to equity £’000 (28) – (28) Closing balance £’000 817 110 2,690 3,617 – (3,612) (3,612) 5 Closing balance £’000 60 2 62 Closing balance £’000 23 79 102 Group 30 June 2009 Tax assets Provisions and deferred income Share based payment Unused tax losses Total tax assets Tax liabiliti es Derivati ve fi nancial asset Property, plant and equipment Total tax liabiliti es Net deferred tax asset/(liability) Company 30 June 2010 Tax assets Share based payment Unused tax losses Total tax assets Company 30 June 2009 Tax assets Share based payment Unused tax losses Total tax assets At 30 June 2010, none of the deferred tax asset of £6.2m (2009: £3.6m) is expected to be recovered in the next 12 months. At 30 June 2010, none of the deferred tax liability of £5.9m (2009: £3.6m) is expected to be sett led in the next 12 months. 18. Cash and cash equivalents For the purpose of the cash ﬂ ow statement, cash and cash equivalents include cash in hand and at banks net of outstanding overdraft s. Cash and cash equivalents at the end of the fi nancial year as shown in the cash ﬂ ow statement can be reconciled to the related items in the balance sheet as follows: Group Cash and bank balances Short term deposits Net cash and cash equivalents 30 June 2010 £’000 30 June 2009 £’000 918 33,263 34,181 2,376 22,239 24,615 45 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 45 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 46 Notes to the Accounts Conti nued 19. Trade and other payables Current Trade payables Social security and other taxes Other payables Amounts due to group companies Accruals and deferred income Non-current Group Company 30 June 2010 £’000 30 June 2009 £’000 30 June 2010 £’000 30 June 2009 £’000 7,118 177 1,104 – 5,061 13,460 5,416 132 630 – 5,191 11,369 – – – – 9 9 – Accruals and deferred income 7,228 2,899 20. Provisions for other liabiliti es Group Onerous lease provision Balance at 1 July 2009 Used during the year Balance at 30 June 2010 Current £’000 Non-current £’000 30 – 30 63 (30) 33 – – – 3,092 1,186 4,278 – Total £’000 93 (30) 63 The Group leases premises at Hoxton Square and sublets the premises to a third party. The amount that the Group pays for the lease is not covered by the rent received in respect of the premises. As a result, an onerous lease provision has been recorded and is being released over the life of the committ ed lease period. During the year, the Group has released £30,000 to the income statement. The remaining £62,500 will be released over the next 25 months. 21. Loans and other borrowings Secured at amorti sed cost Bank loans Finance lease liabiliti es (i) Current Non-current 30 June 2010 £’000 30 June 2009 £’000 30 June 2010 £’000 30 June 2009 £’000 – 269 269 – 402 402 49,191 213 49,404 42,093 481 42,574 (i) Finance lease obligati ons are secured by retenti on of ti tle to the related assets. The borrowings are on fi xed interest rate debt with repayment periods not exceeding 5 years. The group entered into a Senior Finance Term Facility Agreement on 29 July 2007 of £32 million. This money was raised for the sole purpose of funding the HYLAS 1 satellite. As noted in Note 31, in order to avoid further interest charges, the group repaid this loan of 30 July 2010 prior to its maturity date of 31 March 2014. In accordance with IAS 23 – Borrowing Costs, qualifying borrowing costs have been capitalised as part of the cost to HYLAS 1, recognised as Satellite in Constructi on in Note 11. 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 46 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 22. Financial instruments and risk management The Group is subject to the risks arising from adverse movements in interest rates and foreign currency. The Group uses a variety of derivati ve fi nancial instruments to manage these foreign currency risks. The managing of these risks, along with the day-to- day managing of treasury acti viti es is performed by the Finance team. All fi nancial instruments have been measured at amorti sed cost, except for derivati ve assets recognised as fair value through the income statement. As such fi nancial assets being cash and cash equivalents and trade and other receivables are classifi ed as ‘Loans and Receivables’ and fi nancial liabiliti es being trade and other payables and interest bearing liabiliti es have been classifi ed as ‘Other Financial Liabiliti es’. a) Market risk i) Foreign exchange risk management The Group’s presentati on currency is pounds sterling although some transacti ons are executed in non-sterling currencies, including Euros and US Dollars. The transacti onal amounts realised or sett led are therefore subject to the eff ect of movements in these currencies against the pound. When a contract is entered into in a foreign currency the group seeks to enter into a forward exchange contract or use natural hedging within the group to limit the exposure to foreign currency risk. The risks are assessed on a conti nual basis. Financial instruments by currency 30 June 2010 30 June 2009 GBP £’000 EURO £’000 USD £’000 Total £’000 GBP £’000 EURO £’000 USD £’000 Total £’000 Financial assets Cash and short term deposits 32,884 Trade and other receivables 2,233 35,117 Financial liabiliti es 1,198 8,608 9,806 99 34,181 22,718 5,152 15,993 34,103 5,251 50,174 56,821 1,380 7,279 8,659 517 24,615 4,699 46,081 5,216 70,696 Trade and other payables (8,463) (4,211) (786) (13,460) (4,377) (5,290) (1,939) (11,606) Interest bearing liabiliti es (49,673) – – (49,673) (42,977) – – (42,977) (58,136) (4,211) (786) (63,133) (47,354) (5,290) (1,939) (54,583) Net fi nancial positi on (23,019) 5,595 4,465 (12,959) 9,467 3,369 3,277 16,113 At 30 June 2010, if the Euro had weakened/strengthened against the sterling by 5% with all other variables held constant, post tax profi t would have worsened by £127,000 or improved by £116,000 (2009: post tax profi t would have worsened by £127,000 or improved by £116,000). At 30 June 2010, if the US Dollar had weakened/strengthened against the sterling by 5% with all other variables held constant, post tax profi t would have worsened by £44,000 or improved by £49,000 (2008: post tax profi t would have worsened by £44,000 or improved by £116,000). Management believes that a 5% sensiti vity rate provides an adequate analysis into the expected changes in foreign exchange rates. This is the assumpti on we used last year and management feel it is sti ll valid. Cash and deposits earn interest at ﬂ oati ng rates based on banks’ short term treasury deposit rates. Short term trade and other receivables are interest free. b) Credit risk management The Group’s principal fi nancial assets are cash and short term deposits and trade and other receivables. The Group has no signifi cant concentrati ons of credit risk, with the excepti on of the receivable from Spacex of $7.6 million as described in Note 16. Cash and cash equivalents are deposited with high-credit quality fi nancial insti tuti ons with a minimum rati ng of A+ and trade receivables are principally from well established corporati ons. The credit quality of major customers is assessed before trading commences taking into account its fi nancial positi on, past experience and other factors. 47 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 47 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 48 Notes to the Accounts Conti nued 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n 22. Financial instruments and risk management conti nued b) Credit risk management conti nued The ageing of trade receivables which have not been impaired was as follows: 30 June 2010 30 June 2009 Not past due £’000 89 19 1-30 days £’000 60 704 31-60 days £’000 135 36 60+ days £’000 324 14 Total £’000 608 773 Movements in the provision for impairment of trade receivables are as follows: At 1 July 2009 Allowances made in the period Amounts used and reversal of unused amounts Bad debts writt en off At 30 June 2010 30 June 2010 £’000 30 June 2009 £’000 16 58 (34) (37) 3 188 27 (11) (188) 16 The provision of £2,906 (2009: £16,267) has been raised against gross trade receivables of £608,000 (2009: £773,000). Every major customer is assessed on an individual basis and we take a prudent approach when providing for debts. For our smaller customers we provide for every debt over 60 days and the provision gets charged to Cost of Sales. Other receivables include accrued revenue of £8,545,000 which, due to their nature, are all current and also amounts due from Spacex of £5,049,000 which are described in Note 16 and on page 15 of the fi nance and operati ng review. c) Liquidity risk management The groups exposure to liquidity risk management is minimillised due to the prudent monitoring of all of the groups liabiliti es. 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 fi nance leases. The following table analyses the Group’s fi nancial liabiliti es into relevant maturity groupings based on the expected undiscounted cash ﬂ ows: Within 1 year £’000 53,606 299 7,118 – 455 5,416 1 to 2 years £’000 – 220 – – 518 – 2 to 5 years £’000 Over 5 years £’000 Contractual amount £’000 Carrying amount £’000 – – – – – – – – – 53,606 49,191 – – – – 92,888 92,888 42,093 – – – – – – 30 June 2010 Bank loans Finance leases Trade Payables 30 June 2009 Bank loans Finance leases Trade Payables The bank loan contractual amount is based on repayment in July 2010 and includes an early repayment penalty. Refer to note 31. d) Fair value of ﬁ nancial instruments The directors consider the carrying value of all fi nancial assets and liabiliti es to be approximate to their fair values. e) Capital risk management The Group’s objecti ves when managing capital are to safeguard the Group’s ability to conti nue as a going concern in order to provide returns for shareholders and benefi ts for other stakeholders and to maintain an opti mal capital structure to reduce the cost of capital. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 21, cash and cash equivalents (note 18) and equity att ributable to equity holders of the parent (notes 23 and 24), comprising ordinary share capital, share premium, other reserves and retained earnings. AVN2561 AR10 Back AW11.indd 48 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 23. Share capital – issued and fully paid At 1 July 2009 Shares issued Less transacti on costs Issue of treasury shares to Employee Benefi t Trust At 30 June 2010 Number of shares ‘000 44,922 23,750 – – 68,672 Group ordinary shares £’000 417 237 – (15) 639 Company ordinary shares £’000 Group and company share premium £’000 449 237 – – 686 34,041 88,777 (2,322) – 120,496 On 6 January 2010, the Group issued 22,250,000 shares at £4.00 per share. On 29 June 2009, the Group issued 14,000,000 shares at £2.25 per share. The shares issued were fully paid on 3 July 2009. The total authorised number of ordinary shares is 100 million shares (2009: 100 million) at £0.01 each. Refer to Note 31 for details of shares issued on 12 July 2010. 24. Reserves Group 2009 At 1 July 2008 Profi t for the year Issue of share capital Transacti on costs related to share issue Share based payments Tax expense taken directly to reserves At 30 June 2009 2010 At 1 July 2009 Comprehensive loss for the year Issue of share capital Transacti on costs related to share issue Foreign currency translati on reserve Share based payments Tax credit taken directly to reserves At 30 June 2010 Share premium £’000 Retained earnings £’000 3,858 – 31,360 (1,177) – – 34,041 34,041 – 88,777 (2,322) – – – 120,496 28,600 1,049 – – 652 (280) 30,021 30,021 (1,919) – – 2,181 602 163 31,048 Total reserves £’000 32,458 1,049 31,360 (1,177) 652 (280) 64,062 64,062 (1,919) 88,777 (2,322) 2,181 602 163 151,544 49 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 49 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 50 Notes to the Accounts Conti nued 24. Reserves conti nued Company 2009 At 1 July 2008 Loss for the year Issue of share capital Transacti on costs related to share issue Share based payments Tax expense taken directly to reserves At 30 June 2009 2010 At 1 July 2009 Profi t for the year Issue of share capital Transacti on costs related to share issue Foreign currency translati on reserve Share based payments Tax credit taken directly to reserves At 30 June 2010 Share premium £’000 Retained earnings £’000 3,858 – 31,360 (1,177) – – 34,041 34,041 – 88,777 (2,322) – – – 120,496 (146) (14) – – 154 (28) (34) (34) 723 – – 174 54 33 950 Total reserves £’000 3,712 (14) 31,360 (1,177) 154 (28) 34,007 34,007 723 88,777 (2,322) 174 54 33 121,446 25. Share based payments The fair value of share opti ons charged to the income statement in the period was £602,000 (2009: £652,000). The full fair value of these opti ons is recognised over the vesti ng period for those opti ons. All share based payment plans are equity sett led and details of these plans are set out below. The Company has established three share opti on schemes: The Avanti Communicati ons Group plc approved Enterprise Management Incenti ves Scheme (EMI), the Avanti Communicati ons Group plc Unapproved Share Opti on Plan and a Long Term Incenti ve Plan (LTIP). During the year, the Company also established a Save As You Earn (SAYE) opti on scheme. Contributi ons to the scheme commenced on 1 July 2010 and the fair value charge associated with this scheme will be recognised in the next fi nancial period. The 2010 charges and weighted average fair value for each of the plans above were as follows: 2010 charge Weighted average fair value 2009 charge Weighted average fair value EMI £150,000 £2.04 £150,000 £2.04 Unapproved plan £47,000 £2.42 £127,000 £1.76 LTIP £405,000 £2.72 £375,000 £0.67 To date all opti ons have been granted with a strike price of 1 pence. In July 2007 an Employee Benefi t Trust (EBT) was established. The EBT is managed by Bedell Trustees in Jersey. The results of the EBT have been consolidated into the Group’s results. 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 50 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc The opti ons granted under each scheme are as follows: Outstanding at start of year Granted during year Forfeited in year Exercised during the year Outstanding at end of year 2010 EMI Number of opti ons Weighted average exercise price Weighted average share price Unapproved scheme (est. 2007) Number of opti ons Weighted average exercise price Weighted average share price Unapproved scheme (est. 2010) Number of opti ons Weighted average exercise price Weighted average share price LTIP 339,505 £0.01 £2.23 107,863 £0.01 £1.86 – – – – – – – – – 292,490 £0.01 £4.30 (51,000) (39,202) 249,303 £0.01 £2.16 £0.01 £2.16 – – – (3,000) £0.01 £4.30 – – – – – – – – – – – – £0.01 £2.26 107,863 £0.01 £1.86 289,490 £0.01 £4.30 2,762,418 £0.01 £1.67 Number of opti ons 2,512,418 250,000 Weighted average exercise price Weighted average share price £0.01 £1.44 £0.01 £3.94 2009 EMI Outstanding at start of year Granted during year Forfeited in year Exercised during the year Outstanding at end of year Number of opti ons Weighted average exercise price Weighted average share price Unapproved scheme (est. 2007) Number of opti ons Weighted average exercise price Weighted average share price LTIP Number of opti ons Weighted average exercise price Weighted average share price 344,932 £0.01 £2.23 107,863 £0.01 £1.86 2,551,743 £0.01 £1.45 – – – 50,000 £0.01 £1.86 – – – (4,000) £0.01 £1.82 (1,427) £0.01 £2.50 339,505 £0.01 £2.23 – – – – – – (50,000) 107,863 £0.01 £1.86 £0.01 £1.86 (39,325) 2,512,418 £0.01 £1.78 £0.01 £1.44 17,926 of the EMI opti ons, and 170,423 of the LTIP opti ons had vested and were exercisable from 30 June 2010. No Unapproved Scheme opti ons were exercisable at 30 June 2010. The exercise price of opti ons outstanding at 30 June 2010 was £0.01 and the weighted average remaining contractual life was 4.6 years. Each model has slightly diff erent exercise criteria and therefore separate valuati on models were used. 51 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 51 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 52 Notes to the Accounts Conti nued 25. Share based payments conti nued EMI Scheme The EMI scheme was used to issue opti ons to staff on 24 July 2007 at an exercise price of 1p. The new opti ons are issued for 10 years with 25% vesti ng at the end of years 3, 4, 5 and 6. Those staff who had previously held unvested opti ons in the former parent company at the ti me of the de-merger were given a shorter vesti ng period for these new opti ons. There are no performance criteria associated with these opti ons and are exercisable as long as the opti on holder remains an employee of the Company. The weighted average inputs to the Black-Scholes model are as follows: Share price at date of Grant Weighted average exercise price Expected volati lity Expected Life Risk free rate Expected dividend yield £2.16 £0.01 35% 4 years 5.5% 1% Expected volati lity was determined by calculati ng the actual volati lity of the Group’s share price since ﬂ otati on. The expected life used in the model has been adjusted, based on management’s best esti mate, for the eff ects of non-transferability, exercise restricti ons, and behavioural considerati ons. Unapproved Scheme (est. 2007) The unapproved scheme was established during 2007. The opti ons are issued for 10 years with 25% vesti ng at the end of years 3, 4, 5 and 6 (with the excepti on of one former employee who had the ability to exercise in April 2009). There are no performance criteria associated with these opti ons and are exercisable as long as the opti on holder remains with the Company. The weighted average inputs to the Black-Scholes model are as follows: Share price at date of Grant Weighted average exercise price Expected volati lity Expected Life Risk free rate Expected dividend yield £1.86 £0.01 35% 3 years 5.5% 1% Expected volati lity was determined by calculati ng the actual volati lity of the Group’s share price since ﬂ otati on. The expected life used in the model has been adjusted, based on management’s best esti mate, for the eff ects of non-transferability, exercise restricti ons, and behavioural considerati ons. Unapproved Scheme (est. 2010) The unapproved scheme was established in March 2010. The opti ons are issued for 10 years with 33% vesti ng at the end of years 3, 4 and 5. In order for the vesti ng conditi ons to be met the market value of the shares must be £10.00 or more per share for a consecuti ve period of six months. The weighted average inputs to the Black-Scholes model are as follows: Share price at date of Grant Weighted average exercise price Expected volati lity Expected Life Risk free rate Expected dividend yield £4.33 £0.01 21% 3 years 2.1% 1% Expected volati lity was determined by calculati ng the actual volati lity of the Group’s share price since ﬂ otati on. The expected life used in the model has been adjusted, based on management’s best esti mate, for the eff ects of non-transferability, exercise restricti ons, and behavioural considerati ons. 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 52 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Long Term Incenti ve Plan The LTIP has been established by the Company with approval from the Remunerati on Committ ee to reward and incenti vise the Executi ve Directors and senior managers of the Company. The LTIP allocati ons are in separate sub funds within the EBT and are subject to a discreti onary Trust. The shares are subject to automati c revocati on if certain criteria (set out below) are not met and conti nue to be revocable for the enti re Trust period. One additi onal grant was made during the year to a senior manager of 250,000 opti ons split across the three categories. The exercise criteria of this grant is consistent with the criteria of the existi ng LTIP scheme. The allocati ons into the LTIP vary for each executi ve. The total allocati on to each executi ve is split into three separate tranches: i) The Core Tranche This element of the grant becomes exercisable in 7 equal instalments. The fi rst instalment was exercisable on grant and the second on 30 June 2008. The remaining 5 are yearly thereaft er. ii) The Excepti onal Achievement Tranche This element of the grant was amended during the year. Originally, these opti ons were only exercisable if the average market value of the share exceeded £5 for a consecuti ve period of six months prior to 30 June 2010. Given the unprecedented market conditi ons over the previous year, the remunerati on committ ee considered that whilst the executi ves had performed well and that the share price had outperformed the FTSE 100 and AIM all share index since the LTIPs were granted, the target set in the LTIP rules may sti ll not be achieved. In May 2010 the remunerati on committ ee agreed to extend the target date to 31 December 2010 and that the six month average target price should be increased £5.50. iii) The Extraordinary Achievement Tranche This element of the grant is only exercisable if the Market Value of a Share exceeds £10 for a consecuti ve period of six months before 30 June 2013. Number of opti ons: Executi ve Directors Senior managers Core Excepti onal Extraordinary Total 1,153,635 125,000 1,278,635 679,570 62,500 742,070 679,213 62,500 741,713 2,512,418 250,000 2,762,418 The Core Tranche has been modelled using the Black-Scholes model while the Excepti onal and Extraordinary Tranches have been modelled using the Monte-Carlo model, allowing for the market-based performance conditi ons. The weighted average inputs to both models are as follows: Share price at date of Grant Weighted average exercise price Expected volati lity Expected Life Risk free rate Expected dividend yield £1.67 £0.01 34% 5 years 5.1% 1% Expected volati lity was determined by calculati ng the actual volati lity of the Group’s share price since ﬂ otati on and also taking into account historic volati lity of other companies within the same sector who have been listed for longer periods. The expected life used in the model has been adjusted, based on management’s best esti mate, for the eff ects of non-transferability, exercise restricti ons, and behavioural considerati ons. 53 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 53 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 54 Notes to the Accounts Conti nued 26. Obligati ons under ﬁ nance leases Leasing arrangements Finance leases relate to capital equipment with lease terms of 5 years. The Group has the opti on to purchase the equipment for a nominal value at the conclusion of the lease agreement. The Group’s obligati ons under fi nance leases are secured by the lessor’s ti tle to the leased assets. Finance lease liabiliti es No later than one year Later than 1 year no later than 5 years Less future fi nance charge Minimum lease payments Present value of lease payments 30 June 2010 £’000 30 June 2009 £’000 30 June 2010 £’000 30 June 2009 £’000 299 220 519 (37) 482 455 518 973 (90) 883 269 213 482 – 482 402 481 883 – 883 30 June 2010 £’000 30 June 2009 £’000 Included in the fi nancial statements as: Current borrowings Non-current borrowings Present value of minimum lease payments 269 213 482 27. Obligati ons under operati ng leases The Group’s future aggregate minimum lease payments under non-cancellable operati ng leases are as follows: No later than one year Within 1 to 5 years Aft er 5 years 30 June 2010 30 June 2009 Land & buildings £’000 345 874 860 2,079 Other £’000 – – – – Land & buildings £’000 345 954 1,125 2,424 402 481 883 Other £’000 8 – – 8 Operati ng lease commitments principally relate to leased offi ce space of the Group’s head offi ce located at 74 Rivington Street, London. The total of future sub-lease payments expected to be received under non-cancellable sub leases at 30 June 2010 is £100,000 over 2 years (as at 30 June 2009: £150,000 over 3 years). 28. Capital commitments At 30 June 2010, Avanti Space Limited had contracted for satellite expenditure totalling £22.9million which has yet to be paid. £5.4 million is reﬂ ected in the year end creditor balance. Part of the total price, amounti ng to €10.6 million, is due to be paid directly from the European Space Agency (ESA) to the satellite contractor, Astrium EADS Limited and €12.5 million to Arianespace thereby reducing the commitment due directly from the Group. Avanti Hylas 2 limited has contracted for satellite expenditure totalling $162.6 million. 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 54 01/12/2010 14:20 Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 29. Related party transacti ons and directors’ emoluments Transacti ons with Directors – Group Details of the Directors’ remunerati on are set out below in aggregate for each of the categories specifi ed in the Companies Act 2006. Salaries and other short term employee benefi ts Post employment benefi ts 30 June 2010 30 June 2009 693 196 889 741 43 784 Pension contributi ons amounti ng to £196,000 (2009: £43,000) were made into personal pension schemes in respect of four (2009: four) of the Directors. The emoluments of the highest paid Director totalled £255,000 (2009: £256,000), made up of: Total emoluments Salaries and other short term benefi ts Post employment benefi ts Total emoluments 30 June 2010 30 June 2009 151 104 255 236 20 256 Transacti ons with Directors and key management personnel – Group and company Details of the remunerati on of Directors and key management personnel are set out below in aggregate for each of the categories specifi ed in IAS 24 “Related Party Disclosures”. Salaries and other short term employee benefi ts Post employment benefi ts Share based payments Group Company 30 June 2010 30 June 2009 30 June 2010 30 June 2009 1,053 265 474 1,792 1,051 115 429 1,595 255 – 19 274 264 – 32 296 Other related party transacti ons Subsidiaries Intra-group transacti ons are eliminated on consolidati on and are not reported in the group accounts. Transacti ons between the company and its management fee charged to: Avanti Communicati ons Limited (‘ACL’) Avanti Broadband Limited (‘ABL’) Avanti Space Limited (‘ASL’) Avanti (NI) Limited Avanti Caledonian Broadband Limited 30 June 2010 30 June 2009 688 1,368 1,212 1,172 784 5,224 610 1,158 719 186 1,091 3,764 30. Conti ngent liabiliti es The Group’s bankers have provided guarantees totalling £7 million to certain customers in the event of a failure to operati onally deploy the HYLAS satellite. The group has arranged launch and in-orbit insurance on HYLAS. 31. Post balance sheet events On 26 November 2010 the Group successfully launched HYLAS 1. The Group received £70,000,000 on 30 July 2010 in payment for the 16,279,070 shares issued on 12 July 2010. This is discussed further in the fi nance and operati ng review on page 13. In additi on, on 30 July 2010 the Group repaid its long term loan carried at £49,398,000. The loan was repaid earlier than scheduled as the Group wanted to avoid further interest charges. On sett lement, the Group repaid £53,606,000 including interest and an early repayment penalty of £2,300,000. 55 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e  56  F i n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 55 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 56 Noti ce of Annual General Meeti ng 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27   i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n Noti ce is hereby given that the Annual General Meeti ng of the Company for 2010 will be held on 23 December 2010 at 9.00 am at 74 Rivington Street, London EC2A 3AY, for the following purposes: Ordinary business To consider and, if thought fi t pass the following resoluti ons which will be proposed as ordinary resoluti ons: 1. To receive the accounts for the year ended 30 June 2010, together with the reports of the Directors and Auditors therein. 2. To re-elect David Williams as a Director of the Company. 3. To re-elect John Brackenbury as a Director of the Company. 4. To re-elect Alan Foster as a Director of the Company. 5. To re-elect PricewaterhouseCoopers LLP as auditors to the Company. 6. To authorise the Directors to determine the remunerati on of the auditors. Special business To consider and, if thought fi t pass the following resoluti ons of which 7 will be proposed as an ordinary resoluti on and 8 will be proposed as a special resoluti on: 7. That the Directors are generally and unconditi onally authorised pursuant to secti on 551 of the Companies Act 2006 (The Act”) (in substi tuti on for all or such existi ng authoriti es which are hereby revoked) to allot shares in the Company, and grant rights to subscribe for or to convert any security into shares of the Company (such shares, and rights to subscribe for or to convert any security into shares of the Company being “relevant securiti es”) at such ti mes and to such persons, on such terms and in such manner as they think fi t, up to an aggregate nominal amount of £60,000, and unless previously renewed, revoked, varied or extended, this authority shall expire at the earlier of the date which is 18 months from the date of the passing of this resoluti on and the conclusion of the next annual general meeti ng of the Company except that the Company may at any ti me before such expiry make an off er or agreement which would or might require relevant securiti es to be allott ed aft er such expiry and the Directors may allot relevant securiti es in pursuance of such an off er or agreement as if this authority had not expired. Special resoluti ons 8. That, in substi tuti on for any equivalent authoriti es and powers granted to the Directors prior to the passing of this resoluti on, the Directors be and they are hereby empowered pursuant to secti on 570(1) of the Act to allot equity securiti es (as defi ned in secti on 560(1) of the Act) of the Company wholly for cash pursuant to the authority of the Directors under secti on 551 of the Act conferred by resoluti on 7 above, and/or where such an allotment consti tutes an allotment of equity securiti es by virtue of secti on 560(2) of the Act, as if secti on 561(1) of the Act did not apply to such allotment provided that the power conferred by this resoluti on shall be limited to: (a) the allotment of equity securiti es in connecti on with an invitati on or off er of equity securiti es to the holders of ordinary shares in the capital of the Company (excluding any shares held by the Company as treasury shares (as defi ned in secti on 724(5) of the Act)) on a fi xed record date in proporti on (as nearly as practi cable) to their respecti ve holdings of such shares or in accordance with the rights att ached to such shares (but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relati on to fracti onal enti tlements or as a result of legal or practi cal problems under the laws of, or the requirements of any regulatory body or any stock exchange in any territory or otherwise howsoever); (b) the allotment of equity securiti es pursuant to the exercise of any opti ons granted by the Company at the date of this resoluti on; and (c) the allotment, otherwise than pursuant to paragraph (a) above, of equity securiti es up to an aggregate nominal value equal to £60,000, and unless previously renewed, revoked, varied or extended, and unless previously renewed, revoked, varied or extended this power shall expire on the earlier of the date which is 18 months from the date of the passing of this resoluti on and the conclusion of the next annual general meeti ng of the Company except that the Company may before the expiry of this power make an off er or agreement which would or might require equity securiti es to be allott ed aft er such expiry and the Directors may allot equity securiti es in pursuance of such off er or agreement as if this power had not expired. By Order of the Board Nigel Fox Secretary Registered oﬃ ce: 74 Rivington Street, London EC2A 3AY Registered number: 6133927 30 November 2010 AVN2561 AR10 Back AW11.indd 56 01/12/2010 14:20 Notes to Noti ce of Annual General Meeti ng Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc 1. Proxies A member who is enti tled to att end, speak and vote at the Annual General Meeti ng may appoint a proxy to att end, speak and vote instead of him. A proxy need not be a member of the Company but must att end the meeti ng in order to represent you. A member may appoint more than one proxy provided each proxy is appointed to exercise rights att ached to diff erent shares (so a member must have more than one share to be able to appoint more than one proxy). A Form of Proxy accompanies this document. The notes to the Form of Proxy include instructi ons on how to appoint the Chairman of the Annual General Meeti ng or another person as a proxy and how to appoint a proxy electronically. To be valid the Form of Proxy must reach the Company’s registrar, Neville Registrars at Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA by at least 48 hours before the Annual General Meeti ng. 2. Documents on display The following documents are available for inspecti on at the registered offi ce of the Company during the usual business hours on any weekday (Saturday, Sunday or public holidays excluded) from the date of this noti ce unti l the conclusion of the Annual General Meeti ng and will also be available for inspecti on at the place of the Annual General Meeti ng from 9:30 a.m. on the day of the Annual General Meeti ng unti l its conclusion: (a) copies of the executi ve directors’ service contracts with the Company and any of its subsidiary undertakings and lett ers of appointment of the non-executi ve directors; and (b) the Register of Directors’ Interests in the share capital of the Company. 3. Right to att end and vote The Company, pursuant to Regulati on 41 of the Uncerti fi cated Securiti es Regulati ons 2001, specifi es that only those shareholders registered in the register of members of the Company at 9.00 a.m. on 21 December 2010 (or, if the Annual General Meeti ng is adjourned, 2 working days before the ti me fi xed for the adjourned Annual General Meeti ng) shall be enti tled to att end and vote at the Annual General Meeti ng in respect of the number of shares registered in their name at that ti me. In each case, changes to the register of members aft er such ti me shall be disregarded in determining the rights of any person to att end or vote at the Annual General Meeti ng. 4. Please note that communicati ons regarding the matt ers set out in this Noti ce of Annual General Meeti ng will not be accepted in electronic form, other than as specifi ed in the accompanying Form of Proxy. 5. A member that is a company or other organisati on not having a physical presence cannot att end in person but can appoint someone to represent it. This can be done in one of two ways: either by the appointment of a proxy (described in Note 1 above) or of a corporate representati ve. Members considering the appointment of a corporate representati ve should check their own legal positi on, the Company’s arti cles of associati on and the relevant provision of the Companies Act 2006. Introducti on Aft er his opening remarks, the Chairman will explain in the detail the procedures for the conduct of the meeti ng, parti cularly for asking questi ons. The resoluti ons which are set out in the Noti ce of Meeti ng will then be put to the meeti ng. How to ask questi ons At the meeti ng, shareholders will be given the opportunity to ask questi ons. Please explain the nature of your questi on and give your name and address. You may be asked to wait unti l called upon to speak. Please remember to state your name before asking your questi on. Time The doors will open at 8.30 am and the meeti ng will start promptly at 9.00 am. Cameras, tape recorders etc. No cameras, video recorders, tape recorders or mobile phones will be allowed into the meeti ng. Registrati on To ensure your entrance to the meeti ng is dealt with promptly, please bring your att endance card with you and register at the registrati on desk inside the building. Shareholder informati on If you have any questi ons concerning your shareholding, please speak to Avanti Communicati ons Group plc staff . Important If you have questi ons about the meeti ng, or if you need any assistance, please telephone Georgina Campbell-Harris at Avanti Communicati ons Group plc on 0207 749 1600 during normal working hours. 57 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27   i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 57 01/12/2010 14:20 Avanti Communicati ons Group plc Annual Report and Accounts for the year ending 30 June 2010 58 Notes to Noti ce of Annual General Meeti ng conti nued Analysis of Shareholders Range of holdings Less than 10,001 10,001-20,000 20,001-50,000 50,001-100,000 100,001-150,000 150,000-300,000 301,000-500,000 500,001-1,000,000 1,000,001 + Financial Calendar 23 December 2010 Annual General Meeti ng Number of shares Number of shareholders 3,523,575 1,122,508 1,996,122 2,660,027 2,308,961 5,709,797 6,551,173 10,384,492 50,694,480 1,941 74 63 37 19 25 17 16 16 February 2011 Interim results for the six months ended 31 December 2010 September 2011 Preliminary results for the year ended 30 June 2011 Shareholder informati on Annual General Meeti ng The Annual General Meeti ng will be held at 74 Rivington Street, London, EC2A 3AY. Details of the resoluti ons to be proposed at the Annual General Meeti ng are contained in the Noti ce of Annual General Meeti ng on page 56. Dividend The Directors have not recommended the payment of a dividend for the year ended 30 June 2010. Listi ng Ordinary shares of Avanti Communicati ons Group plc are traded on AIM. The share price is available from the Avanti website at www.avanti plc.com and in The Financial Times and The Times. Registrars All administrati ve enquiries relati ng to shareholdings should be directed to The Registrar, Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3BR. Avanti ’s services Informati on about Avanti ’s services can be found at www.avanti plc.com 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27   i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 58 01/12/2010 14:20 ✂ T e a r a l o n g p e r f o r a ti o n Form of Proxy for Avanti Communicati ons Group plc (incorporated and registered in England and Wales under number 6133927) (the ‘Company’) Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc For use by holders of ordinary shares of 1p each in the Company (the ‘Shareholders’) at the annual general meeti ng of the Company to be held at 74 Rivington Street, London EC2A 3AY at 9.00 am on 23 December 2010 (the ‘AGM’). Please read the Noti ce of AGM and associated notes. I/We* of being Shareholder(s)* enti tled to att end and vote at meeti ngs of Shareholders, hereby appoint the Chairman of the AGM † as my/our proxy to att end, speak and vote for me/us and on my/our behalf at the AGM and at any adjournment thereof in relati on to the resoluti ons specifi ed in the noti ce of the AGM dated 1 December 2010 (the “Resoluti ons”) and any other business (including adjournments and amendments to the Resoluti ons) which may properly come before the AGM or any adjournment thereof. † If it is desired to appoint some other person to be your proxy: (i) delete ‘the Chairman of the AGM’; (ii) (iii) initi al the alterati on; and insert the full name, ti tle and address of the person you wish to appoint as your proxy IN BLOCK CAPITALS. * Delete as appropriate. Please indicate with an ‘X’ in the appropriate space how you wish your proxy to vote on the Resoluti ons set out in the Noti ce. Ordinary Resoluti ons For Against Vote withheld (note 2) Discreti onary (note 2) To receive the accounts for the year ended 30 June 2010, together with the reports of the Directors and Auditors therein. To re-elect David Williams as a Director of the Company. To re-elect John Brackenbury as a Director of the Company. To re-elect Alan Foster as a Director of the Company. To re-elect PricewaterhouseCoopers LLP as auditors to the Company. To authorise the directors to allot relevant securiti es. To authorise the Directors to determine the remunerati on of the auditors. 1 2 3 4 5 6 7 Special Resoluti ons 8 To disapply the statutory pre-empti on rights in certain circumstances. Number of shares: Class of shares: This proxy appointment is one of a multi ple proxy appointment (Note 4) Dates: Signed: 59 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27   i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 59 01/12/2010 14:20 Avanti Communications Group plc Annual Report and Accounts for the year ending 30 June 2010 ✂ T e a r a l o n g p e r f o r a ti o n 1. Only holders of ordinary shares of 1p each in the capital of the Company are entitled to attend, speak and vote at the AGM and may appoint one or more proxies to attend, speak and vote instead of them. 2. Please indicate by inserting an “X” in the appropriate box how you wish your vote to be cast on the Resolutions. If you mark the box “vote withheld” it will mean that your proxy will abstain from voting and, accordingly, your vote will not be counted either for or against the relevant resolution. If you mark the box “discretionary” or fail to select any of the given options, the proxy can vote as he or she chooses or can decide not to vote at all. 3. If the proxy is being appointed for less than your full entitlement, please indicate above your signature the number and class of shares in relation to which that person is authorised to act as your proxy. If left blank, your proxy will be deemed to be authorised in respect of your full entitlement. 4. A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares (so a member must have more than one share to be able to appoint more than one proxy). A separate form of proxy must be deposited for each proxy appointed. Further copies of this form may be obtained by contacting Neville Registrars Limited between 9.00am and 5.00pm (London time) Monday to Friday on 0121 585 1131 from within the UK or +44 121 585 1131 if calling from outside the UK or you may photocopy this form. If you appoint multiple proxies, please indicate above your signature the number and class of shares in relation to which the person named on this form is authorised to act as your proxy. Please also indicate by ticking the box provided if the proxy instruction is one of multiple instructions being given. All forms must be signed and returned to Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA together in the same envelope. Where multiple proxies are appointed, failure to specify the number of shares to which this proxy appointment relates, or specifying a number which exceeds the number held by the member when totalled with the number specified on other proxy appointments by the same member, will render all appointments invalid. 5. To be valid, this form of proxy together with any power of attorney or other authority under which it is signed or a notarially certified copy of such power or authority must reach the Company’s registrars, Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA by no later than 48 hours before the time of the AGM (or if the AGM is adjourned, 48 hours before the time fixed for the adjourned AGM). 6. The appointment of a proxy will not preclude a member from attending the AGM and voting in person but if he or she does so this proxy appointment will terminate automatically. 7. In the case of a company, this form of proxy must be executed under the common seal or signed on its behalf by an officer or attorney of the company. 8. In the case of joint holders, the proxy appointment of the most senior holder will be accepted to the exclusion of any appointments by the other joint holders. For this purpose, seniority is determined by the order in which the names are stated in the register of members of the Company in respect of the joint holding. 9. Any alterations made to this form of proxy should be initialled. 10. A member wishing to change his or her proxy instructions should submit a new proxy appointment using the methods set out in note 4 above. A member who requires another form of proxy should contact Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA. The time limits for proxy appointments in note 5 also apply to changes to proxy instructions. Any change to proxy instructions received after that time will be disregarded. If a member submits more than one valid proxy appointment, the appointment received last before the time limit in note 3 will take precedence. 11. A member wishing to revoke his or her proxy appointment should do so by sending a notice to that effect to the Company’s registrars to the address set out in note 5. The revocation notice must be received by the Company’s registrars by the time limit set out in note 5. Subject to note 6, any revocation notice received after this time will not have effect. 12. Please note that communications regarding the matters set out in this form of proxy will not be accepted in electronic form. Please return to the following address in the envelope supplied: Neville Registrars Limited Neville House 18 Laurel Lane Halesowen West Midlands B63 3BR 60 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27   i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 Back AW11.indd 60 01/12/2010 14:20 We sell wholesale satellite broadband to service providers. “For a young company to have two satellites fully ﬁ nanced with no debt service payments for another two years gives me great comfort that we are in control of our own desti ny.” Chairman John Brackenbury CBE  Chairman’s Statement, page 8 “The successful launch and the bringing into use of our spectrum undoubtedly creates the signiﬁ cant value we have been projecti ng for many years.”  Chief Executi ve’s Report, page 9 Chief Executi ve David Williams “In July 2010, the company announced a further placing of 16.3 million shares at 430 pence yielding gross proceeds of £70 million… £54 million was used to repay the PIK bond the company raised in July 2007”  Finance and Operati ng Review, page 12 Group Finance Director Nigel Fox  Highlights  Business Proﬁ le  The Year in Review Chairman’s Statement Chief Executi ve’s Statement Finance and Operati ng Review  Governance Board of Directors Employees Corporate Social Responsibility Directors’ Report Corporate Governance Report 01 02 08 08 09 12 16 16 18 20 22 26  Financial Statements Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Positi on Company Statement of Financial Positi on Statement of Cash Flows Statements of Changes in Equity Notes to the Financial Statements  Shareholder Informati on Noti ce of Annual General Meeti ng Form of Proxy Oﬃ cers and Professional Advisers 27 27 28 28 29 30 31 32 33 56 56 59 61 Oﬃ cers and Professional Advisers Annual Report and Accounts for the year ending 30 June 2010 Avanti Communicati ons Group plc Bankers HSBC Bank Plc 70 Pall Mall London SW1Y 5EZ Solicitors Osborne Clark 2 Temple Black East Temple Quay Bristol BS1 6EG Registered Auditors PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RHT Directors F E J G Brackenbury CBE Chairman D J Williams Chief Executi ve D J Bestwick Chief Technology Offi cer N A D Fox Group Finance Director M J O’Connor Chief Operati ng Offi cer D A Foster Non-Executi ve Director W P Wyatt Non-Executi ve Director C R Vos Non-Executi ve Director I C Taylor MBE Non-Executi ve Director Secretary N A D Fox Registered Oﬃ ce 74 Rivington Street London EC2A 3AY Company Number 6133927 61 01  i H g h l i g h t s 02  08  B u s i n e s s P r o fi e l Y e a r i n R e v i e w 16  G o v e r n a n c e 27   i F n a n c i a l S t a t e m e n t s S h a r e h o d e r l I n f o r m a ti o n AVN2561 AR10 FRONT AW12.indd 2 AVN2561 AR10 COVER AW05.indd 2 01/12/2010 08:55 AVN2561 AR10 Back AW11.indd 61 01/12/2010 09:10 01/12/2010 09:35 Avanti Communications Group plc Avanti Communications Group plc Avanti Communications Group plc Avanti Communications Group plc 74 Rivington Street 74 Rivington Street 74 Rivington Street 74 Rivington Street London EC2A 3AY London EC2A 3AY London EC2A 3AY London EC2A 3AY Tel: +44 (0)20 7749 1600 Tel: +44 (0)20 7749 1600 Tel: +44 (0)20 7749 1600 Tel: +44 (0)20 7749 1600 www.avantiplc.com www.avantiplc.com www.avantiplc.com www.avantiplc.com Avanti Communicati ons Group plc Avanti Communicati ons Group plc Avanti Communicati ons Group plc Avanti Communicati ons Group plc Annual Report & Accounts 2010 Annual Report & Accounts 2010 Annual Report & Accounts 2010 Annual Report & Accounts 2010 A A A A v v v v a a a a n n n n t t t t i i i i C C C C o o o o m m m m m m m m u u u u n n n n i i i i c c c c a a a a t t t t i i i i o o o o n n n n s s s s G G G G r r r r o o o o u u u u p p p p p p p p l l l l c c c c A A A A n n n n n n n n u u u u a a a a l l l l R R R R e e e e p p p p o o o o r r r r t t t t & & & & A A A A c c c c c c c c o o o o u u u u n n n n t t t t s s s s 2 2 2 2 0 0 0 0 1 1 1 1 0 0 0 0 AVN2561 AR10 COVER AW05.indd 1 01/12/2010 09:35

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