CONTENTS
Strategic Report
01 Key Strengths
02 Highlights
03 Chairman’s Statement
04 Chief Executive’s Review
06 Market Overview
06 Key Performance Indicators
07 Our Business Model and Strategy
07 Outlook
08
11
Financial Review
Sustainability
Governance
13 Board of Directors
14 Chairman’s Introduction to Governance
15 Corporate Governance Report
19 Audit Committee Report
20 Nominations Committee Report
21
Technical Committee Report
22 Remuneration Committee Report
25 Report of the Board of Directors
27
Statement of Directors’ responsibilities
Financial Statements
28
Independent Auditor’s Report
29 Consolidated Income Statement
30 Consolidated Statement of Financial Position
31 Company Statement of Financial Position
32 Consolidated and Company Statement of Cash Flows
33 Consolidated and Company Statement of Changes in Equity
34 Notes to the Accounts
STRATEGIC REPORT
KEY STRENGTHS
1. Quality
Our network mirrors the quality of service
that terrestrial communications offer. We have
market beating Service Level Agreements and
no in-country coverage gaps.
2. Flexibility
Avanti has a unique Cloud-based customer
interface that provides a single point of co-
ordination and control, allowing partners to
become virtual network operators without the
need to deploy their own capital or expertise.
3. Innovation
We’ve developed proprietary and patented
technology which is deployed throughout
our network.
4. Very high throughput
The HYLAS fleet uses Ka-band which enables
our High Throughput Satellites (“HTS”) to
transmit over 10 times more data per satellite
than legacy systems.
5. High speed
Our network can provide download speeds
of up to 380Mbps, no matter how challenging
the location.
6. Affordability
Ka-band HTS services are far cheaper than
traditional and HTS Ku-band systems.
Avanti Communications Group plc
Annual Report and Accounts 2016
1
STRATEGIC REPORT
HIGHLIGHTS
Revenue of $82.8m for the full year (2015: $85.2m)
Revenue from capacity, services & equipment up 24% to $74.5m (2015: $60.1m)
Contract wins with key target customers including Everything Everywhere
Cash at year end $56.4m (2015: $122.2m)
Net debt1 at year-end of $588.9m (2015: $406.2m)
Loss for the year $69.2m (2015: $73.3m)
Top-20 Customer Bandwidth Revenue Growth2 of 50% (2015: 54%)
Year-end fleet utilisation2 up to the 25% to 30% band (2015: 20% to 25%)
Pro-forma current fleet utilisation3 was 35% to 40% (2015: 20% to 25%)
1 Net debt comprises current and non-current loans and borrowings less cash and cash equivalents
2 Top-20 Customer Bandwidth Revenue Growth and Year-end fleet utilisation are defined on page 6
3
Including full pro forma impact of future contracted customer ramps on the current fleet as described on page 6
2
Avanti Communications Group plc
Annual Report and Accounts 2016
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
We have now invested over $1.2bn in developing a business that
can meet the huge latent demand for affordable connectivity in
high growth markets across EMEA. Africa is expected to be the
fastest growing data market in the world and with the majority of
its capacity dedicated to Africa, Avanti is playing an important
role and has developed strong partnerships with the largest telcos
in our core markets. A successful conclusion to the proposed
Refinancing Transaction will provide the capital for Avanti to meet
its business plan and I look forward to putting a turbulent year
behind us and resuming our focus on growth.
During the year John Brackenbury and Matthew O’Connor left the
board and I would like to thank them for their long years of service.
I would also like to thank our employees, customers, suppliers and
investors for their ongoing support.
Paul Walsh
Chairman
Avanti made good progress in winning new key
accounts in its Carrier and Government business, and
the reduction in competition in both Europe and Africa
has helped the broadband business.
As announced in July 2016, the economic backdrop for the year
was challenging and both currency depreciation and credit terms
impacted on the Group’s working capital position. Post period end,
Avanti’s financial position es suffered disruption when the additional
debt facilities sought were not forthcoming on suitable terms the
provider of launch finance for HYLAS 4 effectively withdrew its
offer of essential finance at the last minute in the aftermath of the
EU referendum vote.
However, after a period of very hard work, our existing bondholders
long term investors have supported the Company with commitments
for the proposed refinancing transaction as announced on
20 December 2016 (the “Refinancing Transaction”) which, subject
to completion of a the proposed Refinancing Transaction process
expected to complete in January, Avanti will have the runway it
needs to launch HYLAS 4 and realise its ambition to fill its fleet.
Notwithstanding this unwelcome distraction, Avanti’s business
made some good progress in 2016 in developing its markets.
The network continues to perform at a very high level, meaning
that customers are pleased with quality of service, and the
Company is able to solve customer issues and requirements
to a standard that competitors are not able to meet.
The best example of this was the landmark contract win with
Everything Everywhere (EE). As part of the Home Office’s Emergency
Services Network programme, Avanti is providing to EE satellite
connectivity at almost 1,000 base stations in the UK in a seven-
year contract to help deliver a ubiquitous nationwide 4G service.
We believe this is the largest satellite 4G backhaul project of its
kind in the world. It clearly demonstrates Avanti’s pioneering
service in changing the role that satellite technology plays in
the telecoms market.
Avanti Communications Group plc
Annual Report and Accounts 2016
3
STRATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW
Our satellites provide high performance, affordable
connectivity to governments, businesses and
individuals across EMEA either directly through
satellite dishes installed at the user location, or by
providing backhaul connectivity to mobile networks.
Avanti reaches end users through national and international Service
Providers and we count many of the biggest and best telecoms
network operators as core customers.
We made encouraging progress in each of our target market
sectors this year.
In Broadband, we won significant new business in Europe, in deals
to migrate over 15,000 end user customers away from competitor
networks as well as winning new subscribers. Spain and Italy are
markets that showed strong improvement in the year. The sale by a
competitor of its Ka-band satellite for use in other markets resulted
in new broadband customers joining our network. Prospective
competition also decreased in Africa when one of two competing
Ka-band satellites for West Africa failed. The launch of a new 30Mb
service is also now making a positive impact on growth in the UK
and Germany. In Africa, we are deploying a broadband product
called ECO (“Every Child Online”) which provides a very low cost
broadband service, whilst also providing connectivity to schools.
ECO is a wi-fi hot spot hosted by the school. Community users can
use a proprietary Avanti app which works on low cost smart phones
to buy, or trade, peer to peer credits which enable them to buy very
small units of broadband access. We have won contracts to deploy
this in over 2,500 schools and expect growth in 2017.
In Government, we had an encouraging year. Our defence business
grew significantly, with several country-contract customers now
signed up for sizeable secure services applications. In civil, we
are providing large scale connectivity to government offices in all
of our core markets in Africa. The market for connectivity in schools
is expected to grow strongly and we won several national schools
projects (for simple connectivity, not just ECO).
In Enterprise, our network providing digital transmission to
cinemas is now in over 300 venues. We won new business in
Africa to support remote mining and energy sites, and machine to
machine communications – the “internet of things” – is becoming
a significant market.
In Carrier Services, our contract with EE is a landmark transaction.
As part of the British Government’s Emergency Services Network,
Avanti is providing 4G backhaul services to almost 1,000 mobile
towers. Connecting a 4G network to a satellite network is highly
sophisticated engineering and Avanti was the only company in
Europe capable of delivering the services. It is a valuable multi year
contract but also provides Avanti with a major marketing advantage
around the EMEA region.
During the year our distribution strategy evolved, mainly in
Broadband and Enterprise. We are seeing welcome consolidation
in our distribution channels, as large service providers buy the
customer bases of smaller ones. In some regions we are actively
encouraging this as it generates an economy of scale benefit for
Avanti in servicing fewer service providers who make larger
commitments. In some cases we have, and will continue to offer
Master Distribution or quasi exclusive status to Service Providers
who can buy substantially all of the capacity in a beam or territory
and several such deals are under negotiation.
An example of this in 2016 was the purchase by Eurona Wireless
Telecom (“Eurona”), a Spanish based ISP, of the exclusive rights
in perpetuity to sell capacity on any Avanti platform in Iberia
specifically for use in the consumer broadband market. Eurona
have a very large and well established customer base in the
region and this arrangement provided them with an opportunity
to strengthen their position in their local market and segment.
Following this deal, Eurona have acquired one of their main regional
competitors and a number of smaller players. This arrangement
was the first step for Avanti in securing Eurona as a significant new
partner and lays strong foundations to making significant headway
in the Iberian market.
To win volume in certain markets where end-customers are highly
price sensitive – such as broadband in Europe - we adjusted our
prices during the year. Our products are sold as Mb or managed
accounts or as fully integrated projects but we calculate the Price,
or Yield, per MHz per month. Yield was in the $1,600-$1,800 band
during 2016 (2015: $1,800-$2,000).
Demand is growing from an increasingly high quality customer
base and a demand and supply balance is emerging.
Net working capital increased during the year with receivables
increasing to $79.5m (2015: $35.5m) and payables increasing to
$82.8m (2015: $31.9m). The receivables balance increased mainly
as a result of contracts reaching milestones at the end of the final
quarter which resulted in invoicing or revenue accruals. Of the
receivables balance, $27.7m was accounted for by accrued
income (2015: $10.6m), $16.4 m of which was due from investment
grade counter parties, either Government customers or large
corporate customers where the underlying customer is a
Government.
As announced in July 2016, the economic backdrop for the year
was challenging and both currency depreciation and credit terms
impacted on the Group’s working capital position. Post period end,
Avanti’s financial position suffered disruption when the additional
debt facilities sought were not forthcoming on suitable termsin the
aftermath of the EU referendum vote.
4
Avanti Communications Group plc
Annual Report and Accounts 2016
STRATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW CONTINUED
However, after a period of very hard work, our existing bondholders
have supported the Company with commitments for the proposed
refinancing transaction as announced on 20 December 2016 (the
“Refinancing Transaction”). Subject to completion of the proposed
Refinancing Transaction process expected to complete in January,
Avanti will have the runway it needs to launch HYLAS 4 and realise
its ambition to fill its fleet.
The financial uncertainty of 2016 has impacted Avanti’s short term
growth rate but with strong support from long term investors, on
completion of the financial restructuring, we will have what we need
to realise our ambitions.
Finally, our founder Director Alan Foster, who retired in 2015,
passed away this year. He is greatly missed.
David Williams
Chief Executive
Avanti Communications Group plc
Annual Report and Accounts 2016
5
STRATEGIC REPORT
MARKET OVERVIEW
Satellites provide data communications and
broadcasting services around the world. Satellites
are used versus terrestrial infrastructure in situations
where they can provide superior economics to
customers or where other forms of communication
are not available.
Avanti operates in the fixed data communications part of the
satellite market. Avanti has pioneered the use of Ka-band
technology, which enables us to service this market at a lower
cost than legacy operators.
In turn, this vastly increases the addressable market for satellite
data communications. Particularly in the high growth geographies
where Avanti’s capacity is focused, but also closer to home where
Avanti can offer universal superfast broadband across Europe.
In these areas, dispersed populations and huge land areas make
terrestrial communications uneconomic to deploy. For example,
Africa has the same land mass as Europe, USA, China and India
combined, yet a population the same as just India alone.
As a result of this low population density, fibre will not be deployed
in European equivalent scale in the local loop during the lifetime of
our satellites and so Africa is moving directly to wireless. In wireless
technology, Ka-band HTS satellite is the best way to deliver high
capacity, low cost, data services.
We estimate that the addressable market for our HTS services
across the EMEA region, defined as users who both need satellite
connectivity and have the ability to pay for it, is over 1,000 Gbps.
Avanti’s HYLAS satellite fleet will provide up to 200 Gbps of data
throughput. According to Cisco, Africa and Middle East is the
fastest growing data market in the World with an anticipated growth
rate of 402% to 2020, and therefore Avanti is well placed to serve
this growth.
KEY PERFORMANCE INDICATORS
The Top-20 Customer Bandwidth Revenue Growth metric helps to
track Avanti’s growth trajectory from core service sales. It is
calculated by comparing the revenues from current leading
customers on a last 12 month and constant currency basis, to the
12 months preceding that. Revenues from this customer group
were 50% higher in the 2016 financial year ($32.4m) versus 2015
($21.5m).
The Fleet Utilisation metric helps to track capacity uptake and
gives an indication of revenue potential when Avanti’s fleet is
mature. It is calculated by expressing utilised capacity as a
percentage of total available capacity for the fleet of HYLAS 1
(3 GHz), HYLAS 2 (11 GHz) and ARTEMIS (1 GHz). Avanti’s Fleet
Utilisation was within the 25% to 30% band at the end of 2016,
having increased from the 20% to 25% range in 2015. Fleet
utilisation would be in the 35% to 40% range when the impact
of contracted capacity that customers will ramp up to over the
next 12-18 months is taken into account.
Top-20 Customer Bandwidth Revenue Growth
Tracks Avanti’s growth trajectory
from core service sales, excluding
non-recurring items
50%
2015: 54%
Fleet Utilisation
Tracks capacity uptake and gives
an indication of revenue potential
when Avanti’s fleet is mature
25%-30%
2015: 20%-25%
6
Avanti Communications Group plc
Annual Report and Accounts 2016
STRATEGIC REPORT
OUR BUSINESS MODEL AND STRATEGY
Our business model
Avanti generates revenue from the commercial exploitation of its
space and network assets. These assets include its spectrum
rights, satellites, intellectual property and ground station assets.
Avanti generates revenue by charging its Service Provider
customers for the use of its network and other assets. It charges in
a number of ways: broadband packages, managed capacity, fully
integrated project fees, raw capacity, pure spectrum and a number
of other product categories and charging models to suit customer
and market circumstances.
Avanti connects people wherever they are – in their homes,
businesses, in government and on mobiles. Through the HYLAS
satellite fleet serving service providers in 118 countries, the network
provides ubiquitous internet service to a quarter of the world’s
population. Avanti delivers the level of quality and flexibility that
the most demanding telecoms customers seek.
Avanti’s technology platform is made up of three operational
satellites in orbit, two under construction, a shared payload which
launched service in 2016 and a ground segment infrastructure
delivering comprehensive coverage of Europe, the Middle East
and Sub-Saharan Africa.
These assets are turned into a virtual network service accessible
by our Service Provider customers. This is done using the Avanti
Cloud, a software based control system that allows all parts of the
Avanti network to be controlled and configured online.
Avanti has developed proprietary and patented technology which
is deployed throughout its network. This technology has been
developed in house by its employees, who are amongst the
most experienced in the industry.
Avanti uses the high frequency Ka-band spectrum. This enables
our High Throughput Satellites to transmit over 10 times more data
per satellite than legacy systems, significantly reducing end-user
costs and creating a larger addressable market.
A combination of the efficiencies that are inherent in the use of
Ka-band and Avanti’s high-powered network design also make our
systems significantly more efficient than the emerging Ku-band high
throughput networks.
Our network can provide download speeds of up to 380Mbps and
we can offer customers price reductions versus legacy Ku-band
systems of up to 80%.
Avanti’s business model is differentiated from those of legacy
satellite operators primarily by its use of Ka-band technology and
the Avanti Cloud. The Avanti Cloud enables the sale of satellite
capacity as a service, rather than as an infrastructure purchase.
Like other infrastructure companies, Avanti’s business model
involves significant upfront capital expenditure to launch services
and a largely fixed operating cost base. This is expected to result
in initial cash outflows being followed by strong cash inflows as the
business grows.
The satellite industry has very high barriers to entry. These include
the intellectual capital that is needed to design and run a satellite
network and the requirement for orbital slots and spectrum. Avanti
believes that terrestrial wireless services are rapidly consuming all
of the available spectrum globally and recent industry debates
show that there is great pressure on spectrum. Thus Avanti’s estate
of spectrum rights should provide secure long term value to the
business.
Avanti seeks to lease and sell spectrum rights to third parties where
opportunities arise and to commercially exploit its satellite and
ground station assets outside of the operation of its own satellites,
for example through satellite interim missions, consultancy projects,
engineering services, satellite control services and ground station
operation services.
The risks to Avanti’s business model through technological change
are low, primarily due to the very long lead times needed to develop
and launch new satellite technologies.
Our strategy
Avanti’s strategy is founded on the assumptions that data usage will
continue to grow strongly for the foreseeable future; that terrestrial
infrastructure will not satisfy demand; and that high growth markets
offer the highest returns.
Avanti sells a managed service for fixed data connectivity. The go
to market strategy is to sell to telecoms companies and specialist
Service Providers for use in the Broadband, Enterprise, Government
and Carrier Services verticals.
The Group sells mainly through direct field sales with strong
engineering pre-sales support.
Outlook
As described in the Chief Executive’s Statement, the business
suffered from financial uncertainty in 2016 slowing its growth rate
but over the medium term it expects to generate constant currency
continuing business growth rate1 of at least 35% against a base of
the current financial year’s total revenue of $82.8m.
Avanti has a largely fixed cash cost base. There will be a modest
increase in costs in 2017 as further investments are made in sales
and marketing and ground operations ahead of the launches of
HYLAS 3 and HYLAS 4.
Management expects that the combination of revenue growth and
largely fixed cash cost base will lead to strong operating cash flows
in the medium-term.
1 Constant currency continuing business growth rate is a measure which refers
to revenue for the year, excluding any large, infrequently occurring items with
non-USD components of revenue figures for each year in question calculated
at the most recent relevant foreign exchange rate.
Avanti Communications Group plc
Annual Report and Accounts 2016
7
STRATEGIC REPORT
FINANCIAL REVIEW
Costs
Cash costs increased to $77.0m (2015: $71.3m). The costs of the
business are largely fixed irrespective of the amount of capacity
sold on the satellites. Costs will increase when a new satellite is
launched when new ground infrastructure is brought online. Most of
the staff costs and other operating expenses are incurred in pounds
Sterling but reported in US Dollars, which can lead to some
variation from period to period.
The cost of sub-contractors required to deliver value-added
services to Government customers fell from $11.4m to $7.8m as
a result of the nature of projects undertaken during the year. This
movement was broadly offset by an increase in costs related to the
purchase of equipment for resale from $6.8m in 2015 to $13.5m in
2016 as a result of higher levels of equipment sales, for example
as a result of the initial roll-out of the Group’s operations with EE.
EBITDA
Earnings before interest, tax, depreciation and amortisation
(“EBITDA”) fell to $7.3m (2015: $15.3m) as a result of the mix of
revenue and increases in other operating expenditures to $16.3 m
(2015: $13.3m).
Loss
The loss for the year reduced marginally to $69.2m (2015: $73.3m).
Despite positive EBITDA in both 2016 and 2015 the income
statement is still materially affected by the depreciation charge,
primarily from the satellites of $47.3m (2015: $47.9m) and finance
charges arising from the high level of debt of $40.9m (2015:
$40.5m).
With the launch of HYLAS 4 in 2017 the depreciation charge will
increase. Similarly, the finance expense will also increase as the
interest capitalised during construction will fall to the income
statement.
Loss per share
Loss attributable to shareholders of $68.7m (2015: $73.1m), which
included a net interest expense of $27.0m (2015: $40.5m), results in
a loss per share of 49.27 cents (2015: loss per share of 61.5 cents).
Going Concern and post balance sheet events
On 7 July 2016, the Company announced that it was probable that
additional funding would be required in order to ensure that the
Group had sufficient liquidity to complete and launch HYLAS 4 in
FY17. Avanti had based its funding plan on cash to be generated
from the business which had grown more slowly than expected.
On 11 July 2016, the Company announced the undertaking of a
strategic review (the “Strategic Review”) to consider all financial
and strategic options. As part of this exercise, Avanti conducted an
in-depth review of its business plan, financial position and strategic
options, including various routes to strengthen the Company's
balance sheet.
The output of the strategic review and the additional liquidity
that is expected to be forthcoming from a proposed Refinancing
Transaction has allowed the Directors to prepare the accounts
on a Going Concern basis. This is explained in further detail in
note 2 on page 34.
In summary, the Directors have concluded that based on the
Group’s expectation that the Consent Solicitation for the proposed
Refinancing Transaction will be successful, in addition to the
forecasts and launch of HYLAS 4, the Directors believe that the
Group will be able to have sufficient liquidity and comply with the
financial covenants under the amended and new Notes, and will be
able to meet its obligations as they fall due, and accordingly have
formed the judgement that it is appropriate to prepare the financial
statements on a going concern basis. There can, however, be no
certainty that the required consents will be received or that the
proposed Refinancing Transaction will be successfully completed.
Accordingly, successful completion of the proposed Refinancing
Transaction and the substantial achievement of cash flow forecasts
to enable the settlement of certain interest payments by the issue of
Notes represent a material uncertainty that may cast significant
doubt on the Group and the parent company’s ability to continue as
a going concern.
Revenue
Revenue
Capacity, services & equipment
Spectrum coordination
Sale of exclusivity rights
Total Revenue
Year ended
30 June
2016
$'m
Year ended
30 June
2015
$'m
74.5
–
8.3
82.8
60.1
25.1
–
85.2
Revenue in the year decreased 3% to $82.8m (2015: $85.2m).
Revenue from capacity, services and equipment increased by 24%
to $74.5m (2015: $60.1m). There was no revenue recognised from
Spectrum co-ordination in the year (2015: $25.1m) and $8.3m from
the sale of exclusivity rights (2015: $nil).
On a constant currency basis total revenue fell by less than 1% to
$82.8m ($83.1m), (i.e. translating 2015 non-USD revenues at the
average rate for 2016).
8
Avanti Communications Group plc
Annual Report and Accounts 2016
STRATEGIC REPORT
FINANCIAL REVIEW continued
Cash flow
Net cash outflow from operating activities during the year ended
June 30, 2016 was $92.3m as compared to $62.5m during the year
ended June 30, 2015. The increase of $29.8m primarily relates to
changes in working capital and in particular deferred payment
terms on contracts closed in the final quarter. It is also relevant
that the consideration received for sale of spectrum rights in 2015
was a payload (HYLAS-2B) as opposed to cash.
Net cash used in investing activities during the year ended June 30,
2016 was $93.5m as compared with $96.7m during the year ended
June 30, 2015. The decrease of $3.2m is due to lower capital
milestones during the current year.
Net cash flow from financing activities during the year ended
June 30, 2016 was $121.4m as compared with $85.2m during the
year ended June 30, 2015. The increase of $36.2m is as a result of
the proceeds from the bond and equity issues in the year ($125.7m)
compared to the $90.6m raised in the prior year.
Balance sheet
Total equity fell to $201.5m (2015: $304.7m) as a result of the loss
for the year of $69.2m, the issue of share capital ($10.7m) and
foreign exchange losses ($45.1m) arising from the re-translation
of quasi-equity intercompany balances.
Total assets increased to $942.3m (2015: $881.8m) primarily as
a result of investments in satellite and ground assets.
Net working capital increased during the year with trade and
other receivables increasing to $79.5m (2015: $35.5m) and trade
and other payables increasing to $82.8m (2015: $31.9m). The
receivables balance increased mainly as a result of contracts
reaching milestones at the end of the final quarter which resulted in
invoicing or revenue accruals. Of the receivables balance $27.7m
was accounted for by accrued income (2015: $10.6m), $16.4m of
which was due from investment grade counter parties, either
Government customers or large corporate customers where the
underlying customer is a Government.
Insurance
Avanti maintains a full suite of insurance policies covering not only
space assets, but also business interruption associated with the
failure of its ground earth stations. The HYLAS 1in orbit insurance
policy was renewed in November 2015 with an insured value of
£112m and the HYLAS 2 policy was renewed in August 2015 for
$306m. Artemis is insured for $30m.
Backlog
Our backlog comprises our customers’ committed contractual
expenditure under existing contracts for the sale of bandwidth,
satellite services, consultancy services and equipment sales over
their current terms. Backlog does not include the value arising from
potential renewal beyond a contract’s current term or projected
revenue from framework contracts. We do include projected
revenue from consultancy services provided to government
customers at the rate of $3.3m per year, based on the average
revenue generated by these services for the last five fiscal years.
Our backlog totalled $290.4m as of June 30, 2016.
Our backlog by end market as of June 30, 2016 was as follows
(in millions, except percentages):
End Market
Enterprise
Broadband
Carrier Services
Government
Total
Amount ($’m)
107.2
54.4
27.0
101.8
290.4
Percent
37%
19%
9%
35%
100%
Principal risks and uncertainties
The Group faces a number of risks and uncertainties that may
adversely affect our business, operations, liquidity, financial
position or future performance, not all of which are wholly within our
control or known to us. Some such risks may currently be regarded
as immaterial and could turn out to be material. We accept risk is
an inherent part of doing business, and we manage the risks
based on a balance of risk and reward determined through careful
assessment of both the potential likelihood and impact as well as
risk appetite. The Group faces a number of ongoing operational
risks including credit and foreign exchange risk.
Global economy
The global economy remains fragile and it continues to be difficult
to predict customer demand. Avanti is susceptible to decreased
growth rates within high growth markets and/or continued economic
and market downturn in developing markets. The effects could lead
to a decline in demand and deteriorating financial results, which in
turn could result in the Group not realising its financial targets.
Avanti Communications Group plc
Annual Report and Accounts 2016
9
STRATEGIC REPORT
FINANCIAL REVIEW continued
Foreign exchange risk
We operate internationally and are exposed to foreign exchange
risk arising from various currency exposures, primarily with respect
to the pound Sterling and the Euro. In order to hedge the foreign
currency risk we enter into forward contracts or natural hedges as
considered appropriate. These risks are assessed on a continual
basis. Our reported results of operations and financial condition are
affected by exchange rate fluctuations due to both transaction and
translation risks.
Interest rate risk
We borrow in US Dollars and pounds Sterling at fixed rates
of interest and do not seek to mitigate the effect of adverse
movements in interest rates. Cash and deposits earn interest at
fixed rates based on banks’ short-term treasury deposit rates.
Short-term trade and other receivables are interest free.
Credit risk
Credit risk is the risk of financial loss arising from a counterparty’s
inability to repay or service debt in accordance with contractual
terms. Credit risk includes the direct risk of default and the risk of
deterioration of creditworthiness. We believe we currently have no
significant concentrations of credit risk. We assess the credit quality
of major customers before trading commences, taking into account
customers’ financial position, past experience and other factors.
Generally when a balance becomes more than 90 days past its due
date, we consider that the amount will not be fully recoverable.
Liquidity risk
Liquidity risk is the risk that we may have difficulty in obtaining
funds in order to be able to meet both our day-to-day operating
requirements and our debt servicing obligations. We manage our
exposure to liquidity risk by regularly monitoring our liabilities.
Cash and cash forecasts are monitored on a daily basis, and our
cash requirements are met by a mixture of short term cash
deposits, debt and finance leases.
Future liquidity is also affected by the rate at which we fill the
satellites and the yield achieved.
See the going concern and post balance sheet section of this
financial review in addition to the going concern accounting policy
in Note 2 for a discussion of the planned financial restructuring and
commentary of the Group’s medium term funding that this will
provide on completion.
Nigel Fox
Group Finance Director
10
Avanti Communications Group plc
Annual Report and Accounts 2016
STRATEGIC REPORT
SUSTAINABILITY
Our approach to sustainability
Avanti recognises that the long term sustainability of the Group
is secured by managing the current impacts of its operations and
products, and anticipating the future global business environment.
Avanti’s sustainability strategy is designed to ensure that we have
in place the following:
Responsible business practices to underpin business activities
and support employees in making the right decisions to drive
business performance;
A safe work environment for employees; and
A diverse range of talented employees with a broad range
of skills and capabilities to deliver against global
customer requirements.
The Chief Executive, supported by the Board, has overall
responsibility for the Group’s ongoing commitment to sustainability
to ensure that there are appropriate policies, systems, reporting
structures and metrics in place to achieve the Group’s sustainability
objectives. All of Avanti employees also have some responsibility
for sustainability, whether it is in their interactions with Service
Providers or making efficiencies to support our environmental aims.
The effectiveness of policies and processes is monitored and
reviewed on an ongoing basis and risks or opportunities are
assessed and managed.
Avanti uses targets and metrics to measure our performance and to
enhance future performance by learning from our past successes
and challenges. Avanti evaluates possible sustainability issues
based on their relevance to our current operations and the potential
future impact on the business in order to ascertain our priorities.
Priorities may change as the business develops and as we receive
feedback from our stakeholders, and we therefore review these on
a regular basis. For areas identified as having a high importance,
we have either already developed strategies and have controls in
place and are reporting on performance, or we are developing
more detailed strategies within our existing systems to focus on
specific aspects. By monitoring our performance in this way we will
also get valuable feedback for use in the continual improvement of
our policies, processes and procedures. Stakeholder engagement
is important to Avanti.
Talent/Avanti people
To have a sustainable business, Avanti must attract, develop and
retain talent and manage it across the business. Avanti contributes
to the wider community through the course of its business by
creating employment, offering work experience and graduate
training opportunities to young people and by investing in good
causes that are relevant to the business.
Attract and retain
Like many companies operating in the technology industry in the
UK, Avanti has concerns about current and future talent shortages
in the technology and engineering sectors. This is a particular issue
as the labour market becomes more fluid. Maximising the available
talent pool is at the heart of our recruitment strategy and Avanti
uses a diverse range of recruitment methods to achieve this;
including utilising social media and our own database of interested
candidates, harnessing our employees’ networks, online advertising
and building relationships with universities and other groups.
The measure of voluntary employee turnover provides insight into
retention at Avanti. Avanti monitors this on a monthly basis and
regular feedback ensures that any potential issues are identified
and dealt with. Avanti’s target for voluntary turnover (over a
12 month period) is under 15%. This level reflects the current
average levels of turnover experienced in London-based
commercial businesses, with an appropriate level of churn
to refresh the talent base.
To improve retention, Avanti has developed internal
communications and benefits and implemented a more structured
development strategy. These changes have had a positive impact
on retention. In the UK currently only 6% of the engineering
workforce is female. Avanti continues to buck this trend. Engineers
make up 60% of Avanti’s workforce and of those 11.6% are female.
At Avanti we continue to actively promote the industry to young
people and women through work with universities and colleges
and to promote fair and open recruitment and selection practices.
Avanti employs people from 33 countries speaking more than 27
languages. Through encouraging diversity within our workforce,
Avanti aims to reflect better the diversity of our customer base and
in order to respond better to its demands.
Working with young people
Avanti aims to encourage the workforce of the future by supporting
science, technology and engineering education through building
links with local colleges and universities, in particular through
involvement with the National Space Centre. Avanti also offers
internships and voluntary work experience placements as well as
providing expert technical talks to universities. Avanti’s graduate
scheme attracted over 300 enquiries this year and provides bright
graduates with training and hands on experience of technical roles
within the satellite communications industry. Now in its fourth year,
the graduate scheme provides the business with a strong pipeline
of committed and competent engineers from a range of technical
backgrounds.
Avanti Communications Group plc
Annual Report and Accounts 2016
11
STRATEGIC REPORT
SUSTAINABILITY continued
Avanti key behaviours
Avanti’s key behaviours set out the principles and standards
of business conduct expected of all employees wherever they
operate and in whatever role. These behaviours are embedded
into our induction and performance review processes. Avanti’s key
behaviours play a large role in ensuring that the strong values of the
Company are maintained as it grows in size. Avanti’s culture is an
important factor in driving quality and flexibility for customers and
other stakeholders in the business.
Human rights
Avanti requires that its business be conducted with honesty and
integrity, and in full compliance with all applicable laws. Company
policies establish clear ethical standards and guidelines for how
we do business and establish accountability. The Company has
clear accountability mechanisms in place to monitor and report on
compliance with these directives. Additionally, Avanti supports and
upholds the elimination of discriminatory practices with respect to
employment and occupation, and promotes and embraces diversity
in all aspects of its business operations.
Developing talent
Robust appraisal and performance management processes are
in place to ensure that Avanti is able to deliver quality and flexibility
throughout all areas of work by identifying and developing skills
and knowledge within the business and empowering employees
to suggest improvements and innovation. Avanti offers development
opportunities across the business in technical and management
skills to ensure that our workforce is ready to adapt to changes
in technology and markets. In the 12 months leading up to July,
Avanti provided over 400 training sessions for employees and the
development activity is paying off. Avanti is proud of its record of
developing talent and promoting from within; in the last year, 18%
of all vacancies were filled by internal promotion.
Key next steps
Avanti continues to develop and diversify its recruitment practices
and grow its links with relevant universities and other groups to
promote engineering and the satellite industry. We also continue
to review and improve our practices and policies to ensure that
we remain an attractive employer as the labour market is predicted
to become more challenging, and that our workforce is flexible and
able to adapt quickly to change and growth.
Health and safety
Avanti wants employees to work in a safe, healthy environment.
To achieve this we continue to review and update our policies,
procedures and practices to assess and mitigate against any
risks. Avanti has a robust health and safety audit and improvement
process, and encourages employees to report potential issues
and suggest improvements.
Environment
At Avanti we feel an environmental responsibility to both our
Service Providers and their wider communities. Fortunately, our
technology enables us and our Service Providers to behave in an
environmentally responsible way. Services and applications such
as teleworking, video conferencing, distance learning and e-
commerce allow Service Providers to exchange information and
ideas without actually travelling, saving energy and reducing
pollution. Today, Service Providers can use our wireless services to
make the distribution of goods more efficient; help reduce energy
use in workshops, offices and homes; and take advantage of
telemedicine and distance learning. Measuring the environmental
impact Avanti encourages all employees to avoid all unnecessary
travel by providing full telephone or video conferencing in meeting
rooms at Avanti sites. Employees are expected to consider the
necessity of their journeys and to use alternative methods of
communication where possible, such as remote accreditation of
partners and supporting partners via video conferencing. We also
carefully monitor energy usage and waste in our head office in
London, and hope to roll out this monitoring across other sites in
the near future.
Stakeholders
Avanti’s principal stakeholders include investors, employees,
partners, suppliers, government and non-government organisations
and the communities in which it operates. Avanti aims to
communicate openly with stakeholders about its business in order
to better understand their views and concerns, and explain the
Company’s approach.
Organisational departments
The structure at Avanti is designed to promote flexibility and
excellent customer service by encouraging accountability and
allowing for focused working. This is achieved by grouping the
functions whose main purposes are customer facing (the partner
support, deployment and logistics teams), sales and revenue
generation (marketing, sales and pre-sales) and technical
operations and innovation (procurement, satellite operations,
ground operations and networks). Interdepartmental working
is encouraged through the use of project teams and regular
meetings of the management team, as well as regular cross-
Company training.
The Strategic Report on pages 2 to 12 was approved by the Board
of Directors on 20 December 2016 and signed on its behalf by:
David Williams
Chief Executive
Nigel Fox
Group Finance Director
12
Avanti Communications Group plc
Annual Report and Accounts 2016
GOVERNANCE
BOARD OF DIRECTORS
Paul Walsh+ • Δ
Chairman
Paul Walsh is the former CEO of Diageo Plc. He is also Chairman
of Compass Group, Non-Executive Director of Unilever Plc, FedEx
Corporation and HSBC PLC. Paul became Chairman of Avanti in
March 2014.
Paul is the Chairman of the Nominations Committee.
David Williams
Chief Executive
David is a co-founder of the Company. Prior to this, he spent
10 years working in the City financing telecommunications projects
with Chase Manhattan, CIBC and Babcock and Brown. He
graduated from Leeds with a degree in Economics and Politics.
David Bestwick†
Technical Director
David is a co-founder of the Company. He graduated from
the University of Leicester in 1987 with a BSc in Physics with
Astrophysics. Following three years at Marconi Research Centre,
he joined VEGA Group plc in 1990 where he worked on a wide
range of satellite applications projects.
Michael is the Chairman of the Technical Committee.
Richard Vos+ • †
Non-Executive Director
Richard is a telecommunications and satellite professional, with
international experience, gained over 40 years working in the
industry. His previous positions include Chairman of SatCom Group
Holdings plc, Inmedia Communications Ltd and Inmarsat Ventures
plc, and Head of Satellite Investments for BT, serving as Governor
and Chairman for the UK and Ireland on the Board of INTELSAT.
He is a Non-Executive Director at One Horizon Group Inc. In July
2014, Richard was appointed Director of Tawsat Holdings Limited
and Tawsat Limited. Both are satellite IP development and licensing
companies, registered in Ireland.
Richard is the Chairman of the Remuneration Committee.
Paul Johnson+
Non-Executive Director
Paul is a Fellow of the Institute of Chartered Accountants in England
and Wales. He spent 24 years as a Partner in KPMG working with
companies in a variety of different industries in both the listed and
private sectors. For the last 12 years he was Chairman of KPMG’s
London Region and a member of KPMG’s UK Markets Executive.
David is responsible for all new technology and project
developments.
Paul is the Chairman of the Audit Committee.
Nigel Fox
Group Finance Director
Nigel is a Fellow of the Institute of Chartered Accountants in
England and Wales and has held various senior finance roles
before joining Avanti Communications in 2007, including Chief
Financial Officer of Climax Group; Group Financial Controller at
ARC International; Finance Director of Ruberoid Building Products;
and Group Financial Controller of Ruberoid plc.
Nigel is responsible for all aspects of Finance and Administration
of the Group.
Professor Michael Walker OBE FREng†
Non-Executive Director
Michael has spent more than 25 years in industry, the last 10 years
of which, until his retirement in September 2009, he was Group
Research and Development Director for the Vodafone Group of
companies, with responsibility for the Group’s research activities,
intellectual property and technology standards worldwide.
Michael also led technology innovation and managed engagement
with start-up companies for Vodafone, and was a member of
the Board of Vodafone Ventures, the venture capital arm of the
company. He is a Vodafone Fellow and an Executive Technical
Advisor to the company. He is Chairman of the Board of the
European Telecommunications Standards Institute. He holds
the Vodafone Chair in Telecommunications at Royal Holloway,
University of London, as a part-time professor, and is a visiting
professor at the University of Surrey.
Michael was awarded an OBE in June 2009 for his services to the
telecommunications industry.
Charmaine Eggberry†
Non-Executive Director
Charmaine is a Non-Executive Director on the Boards of GB
Group plc and Blue Prism Plc, Chairperson of Buzzmove, CEO
of Plan B Consulting and a Board member and trustee of The
Marketing Academy.
Previously, Charmaine was Global Senior Vice President at Nokia
and Managing Director & Vice President, EMEA at Research In
Motion (BlackBerry). She also led Wayra, the digital accelerator,
and was a Non-Executive Director of Wayra UnLtd, a joint venture
between the UK Government and Telefónica.
Andy Green• Δ
Non-Executive Director
Andy is Chairman of IG Group, DockOn, Inc. and the Digital
Catapult. Until 2012, he was CEO of Logica plc.
Prior to joining Logica, Andy was a Board member at BT plc. He is
also co-Chair of the UK Space Leadership Council and a member
of the Information Economy Council.
+ Audit
• Remuneration
Δ Nomination
† Technical
Avanti Communications Group plc
Annual Report and Accounts 2016
13
GOVERNANCE
CHAIRMAN’S INTRODUCTION TO GOVERNANCE
Avanti firmly supports the upholding of good principles
of corporate governance, not only because it is
required for compliance purposes but because effective
corporate governance serves to ensure that the
business is run properly and in the interests of all
of its stakeholders.
The Board of Directors (the “Board”) recognises that it is
accountable to shareholders for the Company’s activities and that
it is responsible for the effectiveness of corporate governance
practices. It remains committed to maintaining high standards of
corporate governance and, whilst the Company is AIM listed and
therefore not required to comply with the UK Corporate Governance
Code (the “Code”), the Board seeks to comply with the Code in all
material respects wherever it is practical and appropriate to do so
having regard to the size of the Company and the resources
available to it.
As a Board, we monitor closely for developments in legislation,
regulation and industry guidelines to ensure that our corporate
governance policies are kept up to date and that the Board
committees take into account all of the latest guidance in their
areas of activity.
The Board takes all appropriate measures to ensure that no conflict
of interest can exist between members of the Board and other
stakeholders in the Company.
Throughout the year ended 30 June 2016, the Board considers that
the Company complied in all material respects with those parts of
the Code that it considers appropriate. This Corporate Governance
Report, the Report of the Board and the Remuneration Report detail
how the Company has applied the main principles of the Code.
Paul Walsh
Chairman
14
Avanti Communications Group plc
Annual Report and Accounts 2016
GOVERNANCE
CORPORATE GOVERNANCE REPORT
Role of the Board
The Board has a collective duty to promote the long term success
of Avanti (the “Company”) for its shareholders. The Board sets the
Company’s strategy and ensures that the necessary resources are
in place to achieve the strategic priorities.
In determining the long term strategy and objectives of the
Company, the Board takes into account its duties and responsibilities
not just to its shareholders but also to customers, employees and
other stakeholders and makes its decisions objectively. It reviews
management and financial performance, monitors the delivery of
strategy and achievement of objectives and works within a rigorous
framework of internal controls and risk management. The Board
develops and promotes the collective vision of the Company’s
purpose, objectives, values and key behaviours.
Composition of the Board
The Board comprises a Non-Executive Chairman, five other Non-
Executive Directors and three Executive Directors. During the year,
John Brackenbury retired as a Non-Executive Director and Matthew
O’ Connor retired as an Executive Director. The balance of the
Board, together with the advice sought from other members of
senior management and the Company’s external advisors,
ensures that no individual has unfettered powers of decision.
Chairman and the Chief Executive
The Board is chaired by Paul Walsh who provides leadership that
demonstrates the values and behaviours of the Company. The
Chairman is responsible for creating the conditions for overall
Board and individual Director effectiveness. He ensures that both
Executive Directors and Non-Executive Directors make available
sufficient time to execute their duties in an appropriate manner, that
all Directors receive sufficient financial and operational information
and that there is proper debate at Board meetings. He is also
responsible, in consultation with the Chief Executive and the
Company Secretary, for setting the agenda for the Board’s
meetings.
David Williams is the Chief Executive and, supported by the Group
Finance Director and the Technical Director, he is responsible
for the day-to-day management of the Company. He provides
leadership to the Company to successfully plan and execute the
objectives and strategy agreed by the Board. The roles of the
Chairman and Chief Executive are separate with each having
clearly defined duties and responsibilities.
Non-Executive Directors
The Company benefits from the extensive experience of the Non-
Executive Directors in areas critical to the long term future success
of the Company, encompassing a deep understanding of the
industry, technology, corporate strategy, finance and investment.
The Non-Executive Directors help the Executive Directors by
contributing independent challenge and rigour to the Board’s
deliberations and assisting in the development of the Company’s
strategy. In addition, they are responsible for monitoring the
performance of the Executive Directors against agreed goals and
objectives. Their views are essential in overseeing the performance
of the Company.
Induction and ongoing training
All Directors have access to advice from the Company Secretary
and independent professionals at the Company’s expense. Training
is available for Directors as necessary. New Directors receive an
induction programme and all the Directors are encouraged to
continue professional education programmes.
Matters reserved for the Board
The Board recognises that, to ensure the long term success of
the Company, certain specific matters should be reserved for
the consideration and decision of the Board alone. Decisions
specifically reserved for approval by the Board are formally
recorded and include:
• Annual and interim accounts and Financial Statements;
• Dividend policy;
• Board appointments;
• Company strategy and annual operating budget;
• Changes to the Company’s capital structure;
• Changes to the Company’s management and control structure;
• Major capital expenditure, acquisitions and disposals;
• Treasury policies;
• Risk management strategy;
• Company corporate governance policy; and
• Environmental, health and safety and sustainability policies.
Avanti Communications Group plc
Annual Report and Accounts 2016
15
GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED
Board meetings
The Board met on seven occasions during the year. The Board also maintained an open dialogue throughout the year and contact by
telephone occurred whenever necessary.
Board attendance for the financial year
1 July 2015 to 30 June 2016
Chairman
Executive Directors
Non-Executive Directors
Paul Walsh
David Williams
David Bestwick
Nigel Fox
Matthew O’ Connor (Resigned 31 March 2016)
Richard Vos
Michael Walker
Paul Johnson
Charmaine Eggberry
Andy Green
John Brackenbury (Resigned 31 March 2016)
Attended
7/7
7/7
7/7
7/7
4/4
6/7
6/7
7/7
7/7
7/7
4/4
During the year, the Chairman continued the practice of maintaining
a 12 month agenda for Board and committee meetings. Agenda
items included permanent items such as progress reports from the
Executive Directors and the Company Secretary, as well as periodic
items such as updates from the Board committees, review of the
risk register and internal controls, strategy and succession
planning.
Board Committees
The Board has established a number of committees to assist in the
discharge of its responsibilities. The principal committees are the
Audit Committee, the Nominations Committee, the Remuneration
Committee and the Technical Committee. The responsibilities of
each of these Board committees are set out in their individual Terms
of Reference. The roles and responsibilities of the committees are
discussed further below.
In advance of each meeting, the Board is provided with
management reports and other relevant information in a timely
manner and in a form and quality that it considers appropriate.
The Chairman and the Board have confidence that the way in which
the Board meetings are conducted ensures that they cover all the
matters required to be discussed and that sufficient time is allowed
for discussion of each matter at the most appropriate meeting in the
year, enabling the members of the Board to discharge their duties
as Directors effectively.
The Company Secretary attends all Board meetings and is available
to advise on any corporate governance issues that may arise.
Re-appointment of Directors
All Directors are required to retire every three years and may offer
themselves for re-appointment, which is not automatic. As a
Company with a long-term growth strategy, it is appropriate for
Directors to serve on the Board for more than a single term, subject
to continuing satisfactory performance.
The Board is satisfied that all the Directors standing for re-election
continue to perform effectively and demonstrate commitment to
their roles, including commitment of time for Board and Board
committee meetings as well as any other duties which may be
undertaken by them from time to time.
Committee meetings are held independently of Board meetings
and invitations to attend are extended by the committee Chairman
to other Directors, the Company’s advisors and management
as appropriate.
Audit Committee
The Audit Committee is comprised of three Non-Executive
Directors: Paul Johnson, Richard Vos and Paul Walsh. The
Committee is chaired by Paul Johnson. Through their other
business activities, each member of the Committee has significant
experience in financial matters. The Company considers that the
composition of the Audit Committee is in accordance with the Code.
Further information on the activities of the Committee is set out in
the Audit Committee Report on page19.
Nominations Committee
The Nominations Committee is comprised of two Non-Executive
Directors: Paul Walsh and Andy Green. It is chaired by Paul Walsh.
For further information on the activities of the Committee please
refer to page 20.
16
Avanti Communications Group plc
Annual Report and Accounts 2016
GOVERNANCE
CORPORATE GOVERNANCE REPORT continued
Remuneration Committee
The Remuneration Committee is comprised of three Non-Executive
Directors: Richard Vos, Paul Walsh and Andy Green. It is chaired
by Richard Vos.
Executive Directors and senior management attend Remuneration
Committee meetings at the invitation of the Committee
Chairman only.
The Remuneration Committee meets according to the Company’s
requirements at least twice a year.
The Remuneration Committee determines, within agreed Terms of
Reference, specific remuneration packages for the Chairman, the
Executive Directors and the officers of the Company. This includes
implementation of Company share incentive plans. In accordance
with the Committee’s Terms of Reference, no Director may
participate in discussions relating to his or her own terms and
conditions of service or remuneration.
With regard to the remuneration policy, the Committee considers:
The pay scales applied to each Director’s package;
The proportion of the different types of reward within
each package;
The period within which performance related elements
become payable;
What proportion of rewards should be related to measurable
performance or enhanced shareholder value, and the balance
between short and long-term performance elements; and
Transparency of Directors’ remuneration in the annual
Financial Statements.
Further information on the activities of the Committee is set out
in the Remuneration Committee Report on pages 22 to 24.
Technical Committee
The Technical Committee is comprised of three Non-Executive
Directors, Michael Walker, Richard Vos and Charmaine Eggberry,
the Technical Director and other senior technical management
of the Company. It is chaired by Michael Walker. For further
information on the activities of the Committee, please refer to
page 21.
Relations with shareholders
The Board recognises the importance of establishing and
maintaining good relationships with all of the Company’s
shareholders. During the period under review, various Directors
have met with analysts and institutional shareholders to keep
them informed of significant developments and report to the
Board accordingly on the views of these stakeholders.
The Interim Report and the Annual Report and Accounts are
the primary means used by the Board for communication during
the year with all of the Company’s shareholders. The Board also
recognises the importance of the internet as a means of
communicating widely, immediately and cost effectively and a
Company website (www.avantiplc.com) is maintained to facilitate
communications with shareholders.
Information available online includes copies of the full and half
year Financial Statements, press releases and Company news,
corporate governance information and key dates in the
financial calendar.
The Board is committed to the constructive use of the Annual
General Meeting (“AGM”) as a forum to meet with shareholders
and to hear their views and answer their questions. The 2016 AGM
will be held on 29 December 2016 at 10.00 am.
Shareholders are encouraged to attend the AGM and to participate
in proceedings by asking questions during the formal part of the
meeting, voting on resolutions put to the meeting and providing
Board members with their views in informal discussions after
the meeting. Notice of the AGM has been sent to shareholders
and it is also available to download on the Company’s website.
Financial reporting
At the half year and the year end, all operating Group companies
are required to produce Financial Statements to comply with local
accounting regulations and to produce sufficient information
to enable the central finance team to produce IFRS-compliant
Consolidated Financial Statements.
The Board presents a balanced and understandable assessment
of the Company’s position and prospects in all interim and price
sensitive public reports whilst also reporting to regulators all
information required to be presented by statutory requirements.
Avanti Communications Group plc
Annual Report and Accounts 2016
17
GOVERNANCE
CORPORATE GOVERNANCE REPORT continued
Independence of the finance function: The finance function is
encouraged to act independently of general management in the
course of its preparation of monthly accounts and exercising of
control procedures.
Insurance and risk management policies: This includes a formal
annual risk review report to the Board. Regular meetings are
held with insurance and risk advisors to assess the risks
throughout the Group.
Documented policies: There are documented policies for a
range of areas including HR matters, expenditure, treasury
and financial reporting.
Cash: The cash and debt position at Group and operational level
is monitored daily and any variances from forecast levels are
investigated thoroughly. Working capital balances are reviewed
on a monthly basis at Group level, and any significant variances
are analysed and investigated.
Effectiveness: The Board continually reviews the effectiveness of
the systems of internal control and risk management procedures
throughout the year.
Ethics
The Group prides itself on carrying out its business in a fair, honest
and open manner, ensuring that it complies with all relevant laws
and regulations.
Under the Companies Act 2006, a Director of a company must
avoid a situation in which he or she has, or can have, a direct or
indirect interest that conflicts or may possibly conflict with the
interests of the company. The Company has a formal procedure in
place to manage the disclosure consideration and, if appropriate,
the authorisation of any such possible conflict. Directors are aware
of the requirement to notify the Board as soon as they become
aware of any possible future conflict or a material change to an
existing authorisation. Only Directors who have no interest in the
matter being considered are able to take the relevant decision.
None of the Non-Executive Directors has any material business
or other relationship with the Company or its management.
Details of the Directors’ service contracts, emoluments, the interests
of the Directors in the share capital of the Company and options to
subscribe for shares in the Company are provided in the
Remuneration Report on pages 22 to 24.
Bribery Act 2010
The Board performs an ongoing assessment of the risk environment
and has implemented a framework to ensure that the Group trades
in compliance with the UK Bribery Act 2010 and all other relevant
anti-bribery and corruption legislation.
Internal control and risk management
The Board has overall responsibility for the Company’s system of
internal control to safeguard Company assets and shareholders’
investments. The risk management process and systems of internal
control are designed to manage rather than eliminate the risk of
failure to achieve the Company’s objectives.
The Board has reviewed the effectiveness of the system of internal
control for the year ended 30 June 2016 and up to the date of the
signing of the Annual Report and Accounts. The Board will continue
to develop and implement internal control procedures appropriate
to the Company’s nature and scale.
The Company does not have an internal audit function due to the
small size of the Company’s administrative function and the high
level of Director review and authorisation of transactions. The Audit
Committee believes that these internal controls are adequate for
the Group’s current size and does not feel that a separate internal
audit function is currently warranted. This situation is kept under
regular review.
The Board recognises that an essential part of its responsibility
is the effective safeguarding of assets, the proper recognition of
liabilities and the accurate reporting of results. The Company has
a comprehensive system for regular reporting to the Board. This
includes an annual planning and budgeting system with budgets
approved by the Board.
The financial reporting system compares against budget and prior
year, and reconsiders its financial year forecast on a monthly basis.
The Board has established a formal policy of authorisation setting
out matters which require its approval and certain authorities
delegated to the Executive Directors.
The key features of the Group’s system of internal control are
as follows:
Management responsibility and accountability: There are clearly
defined management responsibilities, reporting lines and limits
of authority. The Chief Executive and the Group Finance Director
meet regularly with the Executive Directors and other members
of senior management to review progress on financial,
commercial, operational, supply chain, HR, health, safety and
environmental issues as well as regulatory and legal compliance
matters.
Strategy and planning: The Group updates its strategic plan
each year and this is approved by the Board.
Budgeting and reporting: Detailed management accounts are
prepared each month, consolidated and reviewed in detail with
senior management.
Expenditure approval: Authorisation and control procedures
are in place for capital expenditure and other major projects.
There is also a process to review capital expenditure projects
post completion to highlight any issues and improve future
projects. Authorisation procedures for operating costs and
contractual commitments are reviewed regularly.
18
Avanti Communications Group plc
Annual Report and Accounts 2016
GOVERNANCE
AUDIT COMMITTEE REPORT
All members of the Audit Committee are independent Non-
Executive Directors. The Board is confident that the collective
experience of the Audit Committee members enables them,
as a group, to act as an effective Committee.
By invitation, the meetings of the Audit Committee may be attended
by the Chief Executive and Group Finance Director. The KPMG LLP
audit engagement partner is present at the Audit Committee
meetings to ensure full communication of matters relating to the
audit. The Chairman of the Audit Committee meets regularly with
the Group Finance Director and external Auditor.
The Audit Committee has particular responsibility for monitoring the
financial reporting process, the adequacy and effectiveness of the
operation of internal controls and risk management and the integrity
of the Financial Statements. This includes a review of significant
issues and judgements, policies and disclosures. Its duties include
keeping under review the scope and results of the audit and its cost
effectiveness, consideration of management’s response to any
major external audit recommendations and the independence
and objectivity of the external Auditor.
During the year to 30 June 2016 the Audit Committee reviewed
and endorsed, prior to submission to the Board, half year and full
year Financial Statements, interim management statements and
results announcements. It considered internal management reports
and risk management updates, agreed external audit plans, received
updates on management responses to audit recommendations
and approved the review of accounting policies. Progress on
implementation of processes to meet the requirements of the
UK Bribery Act 2010 was also provided to the Committee.
Following the issue of high yield bonds in October 2013, the
Company commenced limited quarterly reporting and the Audit
Committee additionally required KPMG to carry out reviews on
revenue recognition and analytical reviews of the quarterly
Financial Statements with management.
Going Concern
As more fully explained in note 1 to the financial statements, in
determining the appropriate basis of preparation of the financial
statements, the Directors are required to consider whether the
Group can continue in operational existence for the foreseeable
future.
In assessing the Group’s ability to meet its obligations as they fall
due, management prepared cash flow forecasts based on the
business plan for a period in excess of 24 months. Management
considered various scenarios to test the Group’s resilience against
operational risks including:
Adverse movements in Sterling and Euro exchange rates against
US Dollar
Delays in the launch of HYLAS 4
Lower yield on capacity
Slower build in fleet / satellite utilisation
Management reported to the Committee the results of the going
concern assessment, noting to the committee that the Group’s
Capital Structure after the planned debt facilities amendments and
new money notes, together with the ability, conditional on certain
cash flow forecasts, to PIK certain interest coupons, provides
sufficient headroom to cushion against downside operational risks
and reduces the risk of breaching the new debt covenants.
The Committee challenged management on the key assumptions
used in the cash projections and sensitivities applied to arrive at
a downside scenario. The Committee was satisfied that the key
assumptions had been appropriately scrutinised, stress tested and
were sufficiently robust. The Committee was further satisfied that
the going concern disclosures in the financial statements were
appropriate and that an appropriate basis of preparation of the
financial statements had been arrived at. However, the need for
a successful completion of the financial restructuring (announced
on 20 December 2016) is conditional upon the Consent Solicitation
process and this, in addition to the substantial achievement of cash
flow forecasts to enable settlement of certain interest payments
by the issue of Notes represent a material uncertainty about the
Group’s ability to continue as a going concern as explained in
note 2 to the financial statements.
The auditor explained their audit procedures on management’s
going concern assessment and considered the Group’s disclosure
on the subject. On the basis of their audit work, the auditor
considered that the going concern basis of preparation of the
financial statement is appropriate and included an emphasis of
matter in relation to the material uncertainty regarding the need for
a successful completion of the financial restructuring and the
substantial achievement of cash flow forecasts to enable the
settlement of certain interest payments by the issue of Notes. Refer
to the auditor’s report on page 28 for the auditor’s opinion on the
going concern assumption.
External Auditor
Auditor objectivity and independence is safeguarded through
a variety of mechanisms. To ensure the Auditor’s independence,
the Committee annually reviews the Company’s relationship with
KPMG. Following the review in 2015, the Company concluded that
it continues to have an objective and professional relationship with
KPMG and that there are sufficient controls and processes in place
to ensure the required level of independence. In addition, the
Auditor is required to review and confirm its independence to the
Committee on a regular basis.
Non-audit services
The Company’s Auditor may also be employed where, as a result
of its position as Auditor, it either must, or is best placed to, perform
the work in question.
Paul Johnson
Audit Committee Chairman
Avanti Communications Group plc
Annual Report and Accounts 2016
19
GOVERNANCE
NOMINATIONS COMMITTEE REPORT
The Nominations Committee comprises independent Non-Executive
Directors. The Nominations Committee meets as and when
necessary and details of the membership of the Committee are
shown on page 20. The Nominations Committee has responsibility
for nominating to the Board candidates for appointment as
Directors, bearing in mind the need for diversity and a broad
representation of skills across the Board.
The Nominations Committee will also make recommendations
to the Board concerning the re-appointment of any independent
Non-Executive Director at the conclusion of his or her specified
term, the election and re-election of any Director by shareholders
and changes to senior management, including Executive Directors.
Another area of activity, which the Committee debated, and which
was also discussed with the full Board, related to Board diversity
and agreement to the issue of a statement of how the Board
considers diversity as part of its succession planning. Gender is
one element of the considerations made in appointing senior
management, Board appointees and as part of general recruitment
practices across the Company. The Nominations Committee gives
full consideration to succession planning in the course of its work,
taking into account the challenges and opportunities facing the
Company, how to take account of diversity, including gender, and
what skills and expertise are needed on the Board and from senior
management in the future.
Paul Walsh
Nominations Committee Chairman
20
Avanti Communications Group plc
Annual Report and Accounts 2016
GOVERNANCE
TECHNICAL COMMITTEE REPORT
The Board of Avanti has established a Technical Committee
to report on progress by the Company with all aspects of the
technology that underpins its business.
The Technical Committee is chaired by Professor Michael Walker,
with support from Richard Vos, Charmaine Eggberry, David
Bestwick and senior executives from within the Company.
The activities of the Committee include:
1. Reviewing progress on the development, deployment and
operation of the technology that supports Avanti’s business
on an ongoing basis;
2. Monitoring all technological risks identified in the Company
risk register;
This year the Technical Committee has focused its work on three
main topics:
1. Plotting a course to enable the Company to benefit from the
integration of satellite technologies with future 5G terrestrial
services;
2. Overseeing the managed transition of the control of Avanti’s
3. Assisting the Company with the resolution of technology
satellite fleet to in-house operations; and
problems and the realisation of technology opportunities;
4. Assessing whether the technology employed is the best fit for
the Avanti business, and that the technology team is strong
enough to develop, deliver, operate and maintain it in the best
interests of the business;
5. Bringing to the attention of the Board any issues with technology,
including disruptive technology which might have a significant
impact on the business of the Company; and
6. Preparing and maintaining a Technology Strategy for the
Company which is continuously updated.
3. Providing realistic assessments of the potential competitive
threat that the more speculative new satellite and terrestrial
systems might actually pose.
Overall the Technical Committee is pleased with the progress the
Company has made in continuing to build on its technological base
which is well adapted for the Company’s future growth.
Professor Michael Walker OBE FREng
Technical Committee Chairman
Avanti Communications Group plc
Annual Report and Accounts 2016
21
GOVERNANCE
REMUNERATION COMMITTEE REPORT
The Remuneration Committee comprises independent Non-Executive Directors only. The Committee, on behalf of the Board, meets as and
when necessary to review and approve, as appropriate, the remuneration of the Executive Directors and senior management and major
remuneration plans for the Company.
The Committee consists of Richard Vos (Chairman), Paul Walsh and Andrew Green, who replaced John Brackenbury in March 2016.
The Committee thanks John Brackenbury for his knowledgeable contribution over the past several years
During the year, the Remuneration Committee met four times.
Remuneration policy
The Company’s policy on remuneration of Directors is to attract, retain and motivate the best people, recognising the input they make to
the ongoing success of the business. Consistent with this policy, the remuneration and benefits package awarded to Directors is intended
to be competitive and comprises a mix of performance related and non-performance related elements designed to incentivise Directors in
the short and longer term, and align their interests with those of shareholders. Their remuneration accordingly consists of base pay, annual
bonus, Long Term Incentive Plan (“LTIP”), share options, pension contributions and other benefits such as health care.
Under the Company’s LTIP which came into operation in July 2013, shares will vest if specific targets are met after a fixed period of years
after they are allocated. The targets set by the Remuneration Committee reflect the desired performance of the Company as it develops
from a “start-up” to a more mature business.
The above represents no change from the Company’s existing remuneration policy and no further change is anticipated in the coming
year.
Remuneration 2016
The remuneration of the Directors for the year is set out below, the previous year’s figures being shown for comparison. Remuneration
is paid in Sterling , but reported in US Dollars, the exchange rates used being USD 1.47 in 2016 and USD 1.57 in 2015.
For the year ended 30 June 2016
Salaries
$
Bonus
$
Executive
D J Williams
D J Bestwick
N A D Fox
M J O'Connor (Resigned 31 March 2016)
Non-Executive
F E J G Brackenbury CBE
(Resigned 31 March 2016)
M Walker OBE FREng
P Walsh
C R Vos
P R Johnson
C Eggberry
A Green
Total
639,529
475,242
366,386
263,771
76,300
106,174
291,295
66,769
90,421
73,681
73,681
2,523,249
–
–
–
–
–
–
–
–
–
–
–
–
Other
benefits
$
85,156
57,247
42,335
26,189
Post-
employment
benefits
$
Total
2016
$
Total
GBP
£
60,581
88,955
49,157
26,588
785,266
621,444
457,877
316,549
538,865
424,031
313,305
215,156
10,655
–
–
–
–
–
–
221,582
–
–
–
–
–
1,324
–
226,605
86,955
106,174
291,295
66,769
90,421
75,005
73,681
2,971,436
58,325
72,089
198,030
46,103
61,470
50,991
50,091
2,028,457
22
Avanti Communications Group plc
Annual Report and Accounts 2016
GOVERNANCE
REMUNERATION COMMITTEE REPORT continued
For the year ended 30 June 2015
Salaries
$
Bonus
$
Other
benefits
$
Post
employment
benefits
$
Total
2015
$
Total
GBP
£
Executive
D J Williams
D J Bestwick
N A D Fox
M J O'Connor (Resigned 31 March 2016)
Non-Executive
P Walsh
F E J G Brackenbury CBE
(Resigned 31 March 2016)
C R Vos
M Walker OBE FREng
P R Johnson
C Eggberry (appointed 27 November 2014)
A Green (appointed 27 November 2014)
D A Foster (retired 31 March 2015)
W P Wyatt (retired 27 November 2014)
Total
564,788
414,185
328,707
288,616
275,119
189,161
86,466
82,536
86,466
40,567
40,567
62,235
30,524
2,489,937
484,651
355,417
235,678
119,424
–
–
–
–
–
–
–
105,006
68,600
50,514
32,566
–
12,652
–
–
–
–
–
–
–
50,120
36,232
1,154,445
838,202
665,019
476,838
734,333
533,174
423,013
303,313
–
–
–
–
–
–
–
275,119
201,813
175,000
128,372
86,466
82,536
86,466
40,567
40,567
62,235
30,524
4,040,797
55,000
52,500
55,000
25,804
25,804
39,587
19,416
2,570,316
1,195,170
269,338
86,352
Basic salary
Base salary is set by the Committee and reviewed annually, taking into account an individual’s performance and experience measured
by appraisal and market practice. The Executive Directors received no increase for the year ended 30 June 2016.
Pension
The Company does not operate a specific pension scheme for the Executive Directors. The Executives are entitled to a Company
contribution to their private pensions equal to 12.5% of their base salary. All Directors are entitled to participate in the Group workplace
pension scheme.
Cash bonus
Bonus awards, which are not pensionable, are made to the Executive Directors based on Group financial and individual performance.
Bonus payments are only payable if the Group meets a specific target threshold. As this was not achieved for 2016, no bonus payments
were made to the Executive Directors. Personal performance is appraised against the achievement of challenging objectives set at the
start of each financial year, and is linked to the Group’s strategic and operational performance.
Save As You Earn
During the year, one Executive Director made contributions into the Avanti Save As You Earn (“SAYE”) schemes. Nigel Fox made monthly
contributions of £250 into the November 2013 SAYE scheme.
Avanti Communications Group plc
Annual Report and Accounts 2016
23
GOVERNANCE
REMUNERATION COMMITTEE REPORT continued
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 J O'Connor (Resigned 31 March 2016)
P Walsh
F E J G Brackenbury (Resigned 31 March 2016)
C R Vos
P R Johnson
A Green
Fully paid Ordinary
Shares of 1p each
30 June
2016
1,714,848
1,301,954
134,580
203,961
230,000
516,432
21,030
10,000
21,888
30 June
2015
1,709,414
1,301,954
134,580
203,961
205,000
516,432
21,030
10,000
–
Directors’ Long Term Incentive Plans
LTIPs have been established by the Group with approval of the Remuneration Committee and with the advice and assistance of Deloitte
Touche Tohmatsu Limited to reward and incentivise the Executive Directors and senior managers of the Group.
All unvested shares are held in the Employee Benefit Trust (“EBT”). The LTIP allocations are in separate sub funds within the EBT and are
subject to automatic revocation if certain criteria are not met and continue to be revocable for the entire Trust period.
The total allocation to the executive is subject to specific performance criteria, which must be met a fixed number of years after the grant.
Currently, the criteria are twofold:
Two thirds of an award – “the Revenue Part” – or a proportion thereof will vest if specific revenue targets are achieved or bettered.
Revenue will be based on the Group’s audited Financial Statements for the relevant financial year. The Revenue Part will lapse to the
extent it does not vest.
One third of an award – “the Share Price Part” – or a proportion thereof will vest if the three-month average share price to 30 June is equal
to or above a specified amount. In the event of any variation in the share capital of the Company by way of capitalisation or rights issue,
consolidation, subdivision or reduction or otherwise, the Remuneration Committee shall make an appropriate adjustment to the share price
targets to reflect this.
The Share Price Part will lapse to the extent it does not vest in accordance with the schedule.
In 2016, the Remuneration Committee determined that the criteria for the 2016 awards had not been met and that the awards should
therefore lapse. The Committee decided to review the relevance of the current LTIP scheme to the Group’s longer-term ambitions prior
to consideration of any further LTIP award. Accordingly, no LTIP awards have been made in 2016.
Current allocations are as set out below:
Outstanding allocations
David Williams
David Bestwick
Nigel Fox
Total
Richard Vos
Remuneration Committee Chairman
Potentially
vesting
2015
153,427
117,270
44,954
315,651
Potentially
vesting
2016
329,869
252,129
96,731
678,729
Potentially
vesting
2017
338,116
258,432
99,149
695,697
Potentially
vesting
2018
355,022
271,354
104,106
730,482
Total
1,176,434
899,185
344,940
2,420,559
24
Avanti Communications Group plc
Annual Report and Accounts 2016
GOVERNANCE
REPORT OF THE BOARD OF DIRECTORS
The Directors have pleasure in presenting their Annual Report
together with the audited Financial Statements for the year ended
30 June 2016.
Principal activities
The principal activity of the Group is the provision of communication
services and it is expected to be so for the foreseeable future
Avanti generates revenue from the commercial exploitation of its
space and network assets. These assets include its spectrum
rights, satellites, intellectual property and ground station assets.
Avanti’s first satellite, HYLAS 1, was launched in November 2010
and brought into commercial service in April 2011. The second
satellite, HYLAS 2, was successfully launched on 2 August 2012
and came into commercial service in October 2012. ARTEMIS was
acquired from the European Space Agency (‘‘ESA’’) on 31
December 2013. Two further satellites are under construction.
HYLAS 3 is a payload on ESA’s EDRS-C satellite and construction
on HYLAS 4 commenced in August 2014. Both HYLAS 3 and
HYLAS 4 are scheduled for launch in 2017.
A review of the Group’s business and developments during the
year is included in the Chairman’s Statement and the Chief
Executive’s Review within the Strategic Report.
Going Concern
In determining the appropriate basis for preparation of the financial
statements, the Directors are required to consider if it is appropriate
to adopt the going concern basis of accounting.
Full disclosure of the Directors deliberations to determine whether
it is appropriate to adopt the going concern basis of accounting
is provided in note 2 to the financial statements on page 34.
In summary, the Directors have concluded that based on the Group’s
expectation that the Consent Solicitation for a financial restructure will
be successful, in addition to the forecasts and launch of HYLAS 4, the
Directors believe that the Group will be able to have sufficient liquidity
and comply with the financial covenants under the amended and
new Notes, and will be able to meet its obligations as they fall due,
and accordingly have formed the judgement that it is appropriate
to prepare the financial statements on a going concern basis. There
can, however, be no certainty that the required consents will be
received or that the refinancing will be successfully completed.
Accordingly, successful completion of the refinancing and the
substantial achievement of cash flow forecasts to enable the
settlement of certain interest payments by the issue of Notes represent
a material uncertainty that may cast significant doubt on the Group
and the parent company’s ability to continue as a going concern.
Business review and key performance indicators
Avanti operates two key performance indicators in order to give
investors better insight into the progress that the business is
making. The first performance indicator is Top-20 Customer
Bandwidth Revenue Growth, which helps to track Avanti’s growth
trajectory from core service sales, and is calculated by comparing
the revenues from Avanti’s current leading customers on a last
12 month basis, to the 12 months preceding that.
The second performance indicator is Fleet Utilisation, which helps
to track satellite capacity uptake and gives an indication of revenue
potential when Avanti’s fleet is mature, and is calculated by dividing
utilised capacity by total available capacity for the fleet of HYLAS 1
(3 GHz), HYLAS 2 (11 GHz) and ARTEMIS (1 GHz).
A review of the Group’s business and developments during the
year is included in the Chairman’s Statement and the Chief
Executive’s Review within the Strategic Report.
Results and dividends
The results for the year ended 30 June 2016 are shown on page 29.
No equity dividend was paid in the year ended 30 June 2016 (2015:
$nil). No final dividend is proposed at the year-end (2015: $nil). The
loss for the year transferred to the shareholders’ funds was $68.7m
(2015: loss of $73.1m). The net asset position at year end is
$201.5m (2015: $304.7m).
Share capital
The Company issued 3,593,000 new Ordinary Shares and
2,000,000 new Ordinary Shares into the EBT during the year ended
30 June 2016 (2015: 30,066,720 new shares). Details of the
Company’s share capital are given in Note 24 to the Consolidated
Financial Statements.
Qualitative and quantitative disclosures about interest,
foreign exchange, credit and liquidity risks
A discussion of the Group’s financial risk management objectives
and policies and the exposure of the Group to interest rate, foreign
exchange, credit and liquidity risk is included on pages 58 to 61 in
Note 23 to the Consolidated Financial Statements.
Research and development
The Group continues to invest in new services and technology
through its research and development programmes which can lead
to profitable exploitation 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 profitable
business case.
Directors
The Directors who served during the year and were in office up to
the date of signing were as follows:
P Walsh
D J Williams
D J Bestwick
N A D Fox
M J O’Connor (resigned 31 March 2016)
F E J G Brackenbury CBE (resigned 31 March 2016)
C R Vos
M Walker OBE FREng
P R Johnson
C Eggberry
A Green
Avanti Communications Group plc
Annual Report and Accounts 2016
25
GOVERNANCE
REPORT OF THE BOARD OF DIRECTORS
The Company believes in equal opportunities for all employees and
prospective employees irrespective of nationality, ethnicity, religion,
age, gender, sexuality or disability. The Company has zero
tolerance of discrimination in any form.
Political donations
During the year the Company made no political donations
(2015: $nil).
Corporate Governance
The Corporate Governance Report is provided on pages 14
to 18 and includes reports from the Board’s Audit, Nominations,
Remuneration and Technical Committees.
Notice of Annual General Meeting
The notice of the Company’s AGM was sent to shareholders
on 5 December 2016.
Disclosure of information to the auditors
Each of the persons who is a Director at the date of approval of this
report confirms that:
1. So far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware.
2. The Director has taken all steps that they ought to have taken as
a Director in order to make themselves aware of any relevant audit
information and to ensure that the Company’s auditor is aware of
that information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
Directors’ and Officers’ liability insurance
The Company maintains appropriate insurance to cover Directors’
and Officers’ liability for itself and its subsidiaries. At the date upon
which this report was approved and for the year ended 30 June
2016, the Company provided an indemnity in respect of all of
the Company’s Directors in respect of all losses arising out of
or in connection with the execution of their powers, duties and
responsibilities as Directors to the extent permitted by the
Companies Act 2006 and the Company’s Articles of Association.
Patrick Willcocks
Company Secretary
A biography for each Director is provided on page 13.
In accordance with the Company’s Articles of Association, all
Directors offer themselves for re-election every three years.
The Board believes that the members of the Board continue
to be effective and to demonstrate commitment to their roles,
the Board and the Company. The Board therefore recommends
the re-appointment of both Directors who are up for re-election
at the AGM.
Directors’ emoluments
Remuneration Policy
The Company’s policy on remuneration of Directors is to attract,
retain and motivate the best people, recognising the input they
have to the ongoing success of the business. Consistent with this
policy, the benefit package awarded by Avanti Communications
Group plc to its Directors is intended to be competitive. It
comprises a mix of performance related and non-performance
related remuneration designed to incentivise the Directors and align
their interest with those of shareholders and consists of base pay,
annual bonus, LTIP, pension contributions and other benefits such
as healthcare.
Major shareholders
At 9 December 2016, the Company had been notified, pursuant
to the Financial Conduct Authority’s Disclosure & Transparency
Rules, of the following notifiable voting rights in the Company’s
issued Ordinary Share capital.
9 December 2016:
M & G Investment Management
Solus Alternative Asset Management
Mast Capital Management
PAR Investment Partners
Avanti Communications EBT
Caledonia Investments
Capital Group
Directors & Employees
18.56%
16.55%
10.06%
5.77%
4.87%
4.20%
3.29%
2.33%
Employees
The Group employed 240 people at 30 June 2016 (2015: 213
people).
Employees are key to the Group’s success and we rely on the
workforce being committed to helping us achieve our business
objectives.
Employees are regularly updated about market and industry
developments.
Communication between the Board and employees at all levels
is highly valued and this is achieved through regular staff
presentations given by the Chief Executive and regular email
communication.
26
Avanti Communications Group plc
Annual Report and Accounts 2016
GOVERNANCE
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT,
THE DIRECTORS AND THE FINANCIAL STATEMENTS
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the parent company and enable them to ensure
that its financial statements comply with the Companies Act 2006.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the group
and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
David Williams
Chief Executive
The directors are responsible for preparing the Strategic Report,
Directors’ Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare group and parent
company financial statements for each financial year. As required
by the AIM Rules of the London Stock Exchange they are required
to prepare the group financial statements in accordance with
IFRSs as adopted by the EU and applicable law and have
elected to prepare the parent company financial statements
on the same basis.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and parent company and
of their profit or loss for that period. In preparing each of the group
and parent company financial statements, the directors are
required to:
select suitable accounting policies and then apply them
consistently;
make judgements and estimates that are reasonable and
prudent;
state whether they have been prepared in accordance with
IFRSs as adopted by the EU; and
prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the
parent company will continue in business.
Avanti Communications Group plc
Annual Report and Accounts 2016
27
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF AVANTI COMMUNICATIONS GROUP PLC
We have audited the financial statements of Avanti Communications Group plc for the year ended 30 June 2016 set out on pages 29 to 71.
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion the information given in the Strategic Report and the
Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
Matters on which we are required to report by
exception
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 accounting 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 financial statements are not in agreement
with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law
are not made; or
we have not received all the information and explanations we
require for our audit.
Tudor Aw (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
20 December 2016
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement
set out on page 27, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit, and express an
opinion on, the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is
provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
the financial statements give a true and fair view of the state of
the group’s and of the parent company’s affairs as at 30 June
2016 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared
in accordance with IFRSs as adopted by the EU;
the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU and
as applied in accordance with the provisions of the Companies
Act 2006; and the financial statements have been prepared in
accordance with the requirements of the Companies Act 2006.
Emphasis of matter – Going concern
In forming our opinion on the financial statements, which is not
modified, we have considered the adequacy of the disclosure
made in note 2 to the financial statements concerning the group’s
and the parent company’s ability to continue as a going concern,
in particular the successful completion of the financial restructuring
(to be announced on 20 December 2016) is conditional upon the
Consent Solicitation process, which is expected to commence on
21 December and will run for a maximum of twenty business days
and the substantial achievement of cash flow forecasts to enable
the settlement of certain interest payments by the issue of Notes.
These conditions, along with the other matters explained in note 2
to the financial statements, indicate the existence of a material
uncertainty which may cast significant doubt on the group’s and
the parent company’s ability to continue as a going concern. The
financial statements do not include the adjustments that would
result if the group and the parent company were unable to continue
as a going concern.
28
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Year ended 30 June 2016
Revenue
Capacity, services & equipment
Spectrum coordination1
Sale of exclusivity rights1
Total Revenue
Cost of sales – capacity, services & equipment (excluding satellite depreciation)
Staff costs
Other operating expenses
Other operating income
EBITDA2
Depreciation and amortisation
Operating loss
Finance income
Finance expense
Loss before taxation
Income tax
Loss for the year
Loss attributable to:
Equity holders of the parent
Non-controlling interests
Basic loss per share (cents)
Diluted loss per share (cents)
Year ended
30 June
2016
$’m
Year ended
30 June
2015
$’m
Notes
4
4
4
7
5
8
9
9
10
11
11
74.5
–
8.3
82.8
(40.9)
(19.8)
(16.3)
1.5
7.3
(47.3)
(40.0)
13.9
(40.9)
(67.0)
(2.2)
(69.2)
60.1
25.1
–
85.2
(38.0)
(20.0)
(13.3)
1.4
15.3
(48.1)
(32.8)
–
(40.5)
(73.3)
–
(73.3)
(68.7)
(0.5)
(49.27c)
(49.27c)
(73.1)
(0.2)
(61.50c)
(61.50c)
1 There were no directly attributable costs related to the sale of spectrum rights or exclusivity rights.
2 Earnings before interest, tax, depreciation and amortisation
The Notes on pages 34 to 71 are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 30 June 2016
Loss for the year
Other comprehensive income
Exchange differences on translation of foreign operations and investments that may be recycled
to the Income Statement:
Foreign currency translation differences on foreign operations
Monetary items that form part of the net investment in a foreign operation
Total comprehensive loss for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
The Notes on pages 34 to 71 are an integral part of these Consolidated Financial Statements.
Avanti Communications Group plc
Annual Report and Accounts 2016
Year ended
30 June
2016
$’m
(69.2)
Year ended
30 June
2015
$’m
(73.3)
13.8
(58.9)
(114.3)
(113.8)
(0.5)
0.1
(22.7)
(95.9)
(95.7)
(0.2)
29
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2016
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Current Assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables
Loans and other borrowings
Total current liabilities
Non-current liabilities
Trade and other payables
Loans and other borrowings
Total non-current liabilities
Total liabilities
Equity
Share capital
EBT shares
Share premium
Retained earnings
Foreign currency translation reserve
Total parent shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
30 June
2016
$’m
30 June
2015
$’m
Notes
13
14
19
17
18
20
21
22
21
22
24
24
24
775.1
10.8
18.6
804.5
1.9
79.5
56.4
137.8
942.3
82.8
3.3
86.1
12.7
642.0
654.7
740.8
2.5
(0.1)
515.9
(252.7)
(61.5)
204.1
(2.6)
201.5
942.3
691.0
11.0
19.5
721.5
2.6
35.5
122.2
160.3
881.8
31.9
4.7
36.6
16.8
523.7
540.5
577.1
2.4
(0.1)
505.3
(184.4)
(16.4)
306.8
(2.1)
304.7
881.8
The Financial Statements of company number 6133927 on pages 29 to 71 were approved by the Board of Directors on 20 December 2016
and signed on its behalf by:
Nigel Fox
Group Finance Director
30
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
COMPANY STATEMENT OF FINANCIAL POSITION
As at 30 June 2016
ASSETS
Non-current assets
Investments
Loan receivable
Deferred tax assets
Total non-current assets
Current Assets
Trade and other receivables
Total current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables
Loans and other borrowings
Total current liabilities
Non-current liabilities
Loans and other borrowings
Total liabilities
Equity
Share capital
EBT shares
Share premium
Retained earnings
Foreign currency translation reserve
Total shareholders’ equity
Total liabilities and equity
30 June
2016
$’m
30 June
2015
$’m
Notes
15
18
19
18
21
22
22
24
24
24
148.7
642.5
0.5
791.7
390.7
390.7
1,182.4
46.2
2.8
49.0
632.2
681.2
2.5
(0.1)
515.9
(1.2)
(15.9)
501.2
1,182.4
148.7
917.6
0.5
1,066.8
93.3
93.3
1,160.1
154.8
2.7
157.5
514.3
671.8
2.4
(0.1)
505.3
(3.4)
(15.9)
488.3
1,160.1
The financial statements of company number 6133927 on pages 29 to 71 were approved by the Board of Directors on 20 December 2016
and signed on its behalf by:
Nigel Fox
Group Finance Director
Avanti Communications Group plc
Annual Report and Accounts 2016
31
FINANCIAL STATEMENTS
CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS
Year ended 30 June 2016
Group
Company
Year ended
30 June
2016
$’m
Year ended
30 June
2015
$’m
Year ended
30 June
2016
$’m
Year ended
30 June
2015
$’m
(93.0)
(52.3)
55.6
(89.7)
(3.4)
–
5.3
(3.4)
–
90.6
(2.7)
(0.1)
93.1
–
–
–
–
Cash flow from operating activities
Cash (absorbed)/generated by operations
Interest paid
Interest received
Notes
30
(31.8)
(60.5)
–
(10.2)
(52.3)
–
(121.1)
(60.5)
63.0
Net cash (absorbed)/generated by operating activities
(92.3)
(62.5)
(118.6)
Cash flows from investing activities
Payments for other financial assets and investments
Payments for property, plant and equipment
Proceeds from sale and leaseback
Net cash used in investing activities
Cash flows from financing activities
Proceeds from bond issue
Proceeds from share issue
Payment of finance lease liabilities
Debt issuance costs
Net cash received from financing activities
Effects of exchange rate on the balances of cash and
cash equivalents
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the
financial year
Cash and cash equivalents at the end of the
financial year
–
(95.7)
2.2
(93.5)
115.0
10.7
(4.1)
(0.2)
121.4
(1.4)
(65.8)
–
(102.0)
5.3
(96.7)
–
90.6
(5.3)
(0.1)
85.2
0.9
(73.1)
122.2
195.3
20
56.4
122.2
(5.0)
–
2.2
(2.8)
115.0
10.7
(4.1)
(0.2)
123.6
–
–
–
–
The Notes on pages 34 to 71 are an integral part of these Consolidated Financial Statements.
32
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 30 June 2016
Consolidated
2015
At 1 July 2014
Loss for the year
Other comprehensive
income
Issue of share capital
Share based payments
At 30 June 2015
2016
At 1 July 2015
Loss for the year
EBT issue
Other comprehensive
income
Issue of share capital
Share based payments
At 30 June 2016
Company
2015
At 1 July 2014
Loss for the year
Issue of share capital
Share based payments
At 30 June 2015
2016
At 1 July 2015
Profit for the year
Issue of share capital
Share based payments
At 30 June 2016
Share
capital
$’m
Employee
benefit trust
(EBT)
$’m
Share
premium
$’m
Retained
earnings
$’m
Notes
Foreign
currency
translation
reserve
$’m
Non-controlling
interests
$’m
2.0
–
–
0.4
–
2.4
2.4
–
–
–
0.1
–
2.5
(0.1)
–
–
–
(0.1)
(0.1)
–
–
–
–
–
(0.1)
415.1
–
–
90.2
–
505.3
505.3
–
–
–
10.6
–
515.9
(112.0)
(73.1)
–
0.7
(184.4)
(184.4)
(68.7)
–
–
–
0.4
(252.7)
6.2
–
(22.6)
–
(16.4)
(16.4)
–
–
(45.1)
–
–
(61.5)
25
25
Share
capital
$’m
Employee
benefit trust
(EBT)
$’m
Share
premium
$’m
Retained
earnings
$’m
Notes
2.0
–
0.4
–
2.4
2.4
–
0.1
–
2.5
(0.1)
–
–
–
(0.1)
(0.1)
–
–
–
(0.1)
415.1
–
90.2
–
505.3
505.3
–
10.6
–
515.9
(3.1)
(0.3)
–
–
(3.4)
(3.4)
1.8
–
0.4
(1.2)
25
25
(1.9)
(0.2)
–
–
(2.1)
(2.1)
(0.5)
–
–
–
–
(2.6)
Foreign
currency
translation
reserve
$’m
(15.9)
–
–
–
(15.9)
(15.9)
–
–
–
(15.9)
Total
equity
$’m
309.3
(73.3)
(22.6)
90.6
0.7
304.7
304.7
(69.2)
–
(45.1)
10.7
0.4
201.5
Total
equity
$’m
398.0
(0.3)
90.6
–
488.3
488.3
1.8
10.7
0.4
501.2
Avanti Communications Group plc
Annual Report and Accounts 2016
33
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS
1. General information
The consolidated financial statements of Avanti Communications Group plc (the 'Group') for the year ended 30 June 2016 were authorised
for issue in accordance with a resolution of the directors on 20 December 2016.
Avanti Communications Group plc (the ‘Company’ or together with its subsidiaries, the ‘Group’) is a company incorporated in the United
Kingdom and domiciled in England and Wales. The address of its registered office is Cobham House, 20 Black Friars Lane, London, EC4V
6EB. The nature of the Group’s operations and its principal activities are set out in the revenue recognition accounting policy in note 2.
The Company is a public limited company, which is listed on the Alternative Investment Market (“AIM”) and trades under the ticker “AVN.L”
on the London Stock Exchange.
2. Principal accounting policies
The principal accounting policies applied in the preparation of these Financial Statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The Group and Company Financial Statements have been prepared in accordance with International Financial Reporting Standards as
adopted by
the EU (”IFRSs”), International Financial Reporting Interpretations Committee Interpretations, and the Companies Act 2006 applicable to
companies preparing their accounts under IFRS. The financial statements have been prepared under the historical cost convention except
for certain financial instruments that have been measured at fair value, as described later in these accounting policies.
The Group has chosen to amend the presentation of the Consolidated Income Statement in the 2016 year-end Financial Statements.
These changes have been applied to the 2015 comparatives and include showing revenue categories separately on the face of the
Income Statement when such presentation is relevant to an understanding to the Group’s financial performance. In addition costs of sale
and operating expenditure have been presented together with the removal of the gross profit sub-total and addition of a line item showing
earnings before interest, taxation, depreciation and amortisation (“EBITDA”). Depreciation and amortisation of non-current assets are
shown separately after the EBITDA sub-total which, given the relatively fixed costs of the business, we believe provides more useful
information to the readers of the Financial Statements.
The Company has taken the exemption under section 408 of the Companies Act 2006 to not present the parent Company Income
Statement or Statement of Comprehensive Income.
Going concern
The financial statements have been prepared on a going concern basis. In reaching their assessment, the Directors have considered a
period extending at least 12 months from the date of approval of these financial statements. This assessment has focused on the status
of the financial restructuring announced by the Group on 20 December as well as those factors considered on an annual basis such as
forecast trading performance of the Group for the foreseeable future, key assumptions, sensitivities and available cash balances and
facilities. As at the date of approval of these financial statements, the successful completion of the financial restructuring is conditional
upon the Consent Solicitation process and while the Directors believe that this process will be completed successfully, there remains a
material uncertainty until the remaining consents have been received.
On 7 July 2016, the Company announced that it was probable that additional funding would be required in order to ensure that the
Group had sufficient liquidity to complete and launch HYLAS 4 in the 2017 financial year. Avanti had based its funding plan on cash to
be generated from the business which had grown more slowly than expected. On 11 July 2016, the Company announced the undertaking
of a strategic review (the “Strategic Review”) to consider all financial and strategic options. As part of this exercise, Avanti conducted
an in-depth review of its business plan, financial position and strategic options, including various routes to strengthen the Company's
balance sheet.
On 17 October 2016, the Company announced the result of a successful consent solicitation process ("September Consent Solicitation")
as the first step in its two-phase funding strategy. The Company received consents from holders of 89.5% of its Senior Secured Notes to
permit paying the interest due on 1 October 2016 in respect of consenting holders’ Senior Secured Notes in the form of additional Senior
Secured Notes on the same terms as the existing Senior Secured Notes in lieu of cash. In order to further support the strategic review
process, the Company also entered into binding agreements with certain suppliers to defer approximately $39m of capital expenditure
payments relating to HYLAS 4 to the third quarter of the fiscal year ending 30 June 2017.
34
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
2. Principal accounting policies continued
Going concern continued
Following completion of the September Consent Solicitation, the Company continued negotiations with the manufacturer of HYLAS 4,
Orbital Sciences ("Orbital"), and its largest holders of Senior Secured Notes regarding phase 2 of the funding strategy. The second phase
of the planned restructuring of the Company’s outstanding indebtedness is to seek a long-term solution to its working capital needs and
to ensure that the Company can continue to operate as a going concern in the future. The major components of the planned restructuring
which provide the Group with substantial additional liquidity are:
1. New Money Notes - Issue of up to $132.5m of Senior Secured Notes in three tranches by the Company to provide additional funds for
the Group. $82.5m will be issued on closing of the restructuring with the ability to issue a further $15m on 30 June 2017 and $35m on
30 November 2017.
2. Amended Existing Notes - Amendments to the Existing notes, which are described in more detail in Note 31, which include capitalising
(i.e settling through the issue of further Notes rather than cash) the April 2017 coupon and the ability to capitalise the October 2017
coupon for the $685m of Amended Existing Notes conditional on certain cash forecast targets. In addition the amendments allow for the
ability to capitalise the April 2018 coupon for approximately $485m of the Amended Existing Notes conditional on certain cash forecast
targets and extended maturity dates which range between October 2021 and October 2022.
The restructuring, which is described in more detail in note 31, culminated on 20 December 2016 when a Restructuring Agreement was
signed by the Company with a group of its largest holders of Senior Secured Notes ("Initial Consenting Creditors"). The Company and
the Initial Consenting Creditors, representing approximately 73% of the aggregate principal amount of the existing Senior Secured Notes
("Existing Notes"), entered into the Restructuring Agreement on 20 December 2016 pursuant to which the Initial Consenting Creditors
contractually agreed to approve the Existing Notes restructuring by delivering Consents in connection with the Solicitation, tendering
their Existing Notes in the Exchange Offer and voting in favour of the Scheme.
The Company and the Initial Consenting Creditors also entered into the Backstop Purchase Agreement on 20 December 2016 pursuant to
which the Initial Consenting Creditors committed to fund up to the entirety of the New Money Offer, subject to reduction for the level of pro
rata participation by the remaining Existing Note holders that elect to participate in the New Money Offer.
The Consent Solicitation is expected to commence on 21 December 2016 and will run for a maximum of 20 business days. This process
will result in one of the three following outcomes:
1. Receipt of consents from note holders equating to at least 90% of the Existing Notes by number and value. This will result in the terms
of the restructuring being approved and applied to 100% of the Existing Notes. The Initial Consenting Creditors are contractually
committed to providing their consents and equate to 73% of the Existing Notes.
2. Receipt of consents greater than or equal to 75% but less than 90%. In this case, the consenting Existing Noteholders will enter into a
Scheme of Arrangement with the Company whereby they agree to the terms of the restructuring being applied to their Existing Notes.
In addition, with 75% or more acceptance, the $132.5m new money component of the restructuring and the restructured notes would
be approved. The terms of the non-consenting Existing Note holders would remain unchanged.
3. Consents will be received amounting to less than 75% of the Existing Noteholders. This is considered extremely unlikely given that the
Initial Consenting Creditors are contractually committed to providing their consents and equate to 73% of the Existing Notes. In this
scenario, the restructuring would fail and the Group would need to successfully complete an alternative restructuring or raise new
money in order to have sufficient resources to continue in operational existence for the foreseeable future.
Following the signing of the Restructuring Agreement, which is the platform for a successful Consent Solicitation and which will in turn
complete the Group's funding strategy, and in order to prepare and approve these Financial Statements, the Directors have assessed
forecast future cash flows for the foreseeable future. In assessing the Group’s ability to meet its obligations as they fall due, management
prepared cash flow forecasts based on the business plan for a period in excess of 24 months. Management considered various downside
scenarios to test the Group’s resilience against operational risks including:
Adverse movements in Sterling and Euro exchange rates against US Dollar
Delays in the launch of HYLAS 4
Lower yield on capacity
Slower build in fleet/ satellite utilisation
Management concluded that the Group’s Capital Structure after the planned debt facilities amendments and new money notes, together
with the ability to PIK certain interest coupons, conditional on certain cash flow forecasts, provides sufficient headroom to cushion against
downside operational risks and reduces the risk of breaching the new debt covenants.
Avanti Communications Group plc
Annual Report and Accounts 2016
35
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
2. Principal accounting policies continued
Going concern continued
In summary, the Directors have concluded that, based on the group’s expectation that the Consent Solicitation for a financial restructure
will be successful, in addition to the forecasts and launch of HYLAS 4, the Directors believe that the Group will be able to have sufficient
liquidity and comply with the financial covenants under the amended and new Notes, and will be able to meet its obligations as they fall
due, and accordingly have formed the judgement that it is appropriate to prepare the financial statements on a going concern basis.
There can, however, be no certainty that the required consents will be received or that the refinancing will be successfully completed.
Accordingly, successful completion of the refinancing and the substantial achievement of cash flow forecasts to enable settlement of
certain interest payments by the issue of Notes represent a material uncertainty that may cast significant doubt on the group and the
parent company’s ability to continue as a going concern. The group and the parent company may, therefore, be unable to continue
realising their assets and discharging their liabilities in the normal course of business, but the financial statements do not include any
adjustments that would result if the going concern basis of preparation is inappropriate.
Basis of accounting
The consolidated financial statements are presented in US Dollars, the functional currency of the Company and most of the Group’s
subsidiaries. The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of revenue and expenses during the year. Although these estimates are based on management’s
best estimate of the amount, event or actions, the actual results ultimately may differ from these estimates. Further discussion on these
estimates and assumptions are disclosed in note 3.
Accounting policy changes
New and amended accounting standards adopted by the Group
There are no new IFRS or IFRIC Interpretations that are effective for this financial year that have had a material impact on the Group.
New and amended accounting standards that have been issued but are not yet effective and have not been early adopted
IFRS 15 ‘Revenue from contracts with customers’ will be effective for periods beginning on or after 1 January 2018. The standard sets out
the requirements for recognising revenue from contracts with customers, and will supersede the current revenue recognition guidance
including IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’ and the related interpretations. IFRS 15 will require the Group to apportion
revenue earned from contracts to each deliverable that qualifies as a ‘performance obligation’. The transaction price receivable from
customers must be allocated to each performance obligation on a relative stand-alone selling price basis, based on a five-step model.
The Group is currently assessing the impact of this standard on the financial statements.
IFRS 16 ‘Leases’ will be effective for periods beginning on or after 1 January 2019, subject to endorsement by the EU. The standard sets
out requirements for recognising assets and liabilities in respect of leases, and will supersede the existing accounting guidance in IAS 17
‘Leases’ and the related interpretations. IFRS 16 will require the Group, where it is the lessee, to recognise assets and liabilities for most
leases, however there is little change to IAS 17 where the Group is the lessor. The Group is currently assessing the impact of this standard
on the financial statements.
IFRS 9 ‘Financial Instruments’ will be effective for periods beginning on or after 1 January 2018, subject to endorsement by the EU.
The standard will impact the classification and measurement of financial instruments and will supersede IAS 39 ‘Financial Instruments:
Recognition and Measurement’. While the Group has not finalised its assessment of this standard, it does not expect the changes to have
a material impact on the financial statements. There are no other IFRS or IFRIC Interpretations that are not yet effective that would be
expected to have a material impact on the Group.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its controlled undertaking (“subsidiaries”),
after the elimination of all material inter-company transactions. Subsidiaries are consolidated from the date the Company obtains control
until such time as control ceases. Acquisitions of subsidiaries are accounted for using the purchase method of accounting. The financial
statements of subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments
are made to bring into line any dissimilar accounting policies that may exist. For details regarding the subsidiaries included in the
consolidated financial statements see Note 16.
Non-controlling interests in the net assets of consolidated subsidiaries which consist of the amounts of those interests at the date of the
original business combination and the non-controlling interests’ share of changes in equity since the date of the combination, are not
material to the Group’s financial statements.
36
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
2. Principal accounting policies continued
Business combinations
Business combinations are accounted for using the acquisition method. When the Group acquires a business, it identifies the assets
and liabilities of the acquiree at the date of acquisition and measures them at fair value. Only separately identifiable intangible assets
are recognised.
Consideration is the fair value at the acquisition date of the assets transferred and liabilities incurred in acquiring the business.
Acquisition-related costs are expensed as incurred and included in operating costs.
Goodwill is initially measured at cost as the difference between the fair value of the consideration for the acquisition and fair value of the
net identifiable assets acquired, including any intangible assets other than goodwill. If the assessment of goodwill results in an excess of
the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in the income statement.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing,
goodwill is allocated to each of the Group’s cash-generating units (CGUs) that are expected to benefit from the business combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets.
Revenue recognition
Business Model
The Group's business model is the commercial exploitation of its space assets, namely its spectrum rights, satellites, intellectual property
and ground station assets. The Group generates its revenues from the commercialisation of these assets either directly or through the
Group's extensive partner base using product categories and charging models to suit customer and market circumstances.
This gives rise to the following primary revenue streams:
Capacity - Sale of satellite broadband packages and capacity to customers
Services - Sale of services in addition to satellite broadband capacity, typically to Government customers
Equipment - Sale of terminals and other satellite communications equipment
Spectrum coordination - Sale and leasing of spectrum rights
Exclusivity rights – Sale of exclusivity rights across a region or product type
Additional product categories and charging models which generate revenue include, and are not limited to, satellite interim missions,
consultancy projects, engineering services, satellite control services and ground station operation services.
Capacity, Services & Equipment
Revenue for satellite broadband communications services are recognised for Avanti’s three main products as follows:
Pure – Raw bandwidth – Customers have exclusive use of a defined number of MHz in specific beams – The proportion of the total
contract value recognised as revenue in a period equates to the proportion of the total contracted capacity provided in that period.
Custom – Managed IP service – Customers have exclusive use of a defined number of Mb in specific beams – The proportion of the
total contract value recognised as revenue in a period equates to the proportion of the total contracted capacity provided in that period.
Select – Packaged broadband – Customers buy individual broadband user accounts, which are managed and defined by Avanti –
Revenues are recognised in the period that the service is delivered based on the number of user accounts and contracted prices
per account.
Capacity revenue includes the sale of transponders in addition to the sale of indefeasible rights of use where the revenue recognition
criteria are met.
Revenue from services sold as a fully integrated package with satellite capacity, consultancy and other services contracts connected
with the utilisation of the Group's space assets are recognised by reference to the stage of completion of the contract activity at the
reporting date.
Avanti Communications Group plc
Annual Report and Accounts 2016
37
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
2. Principal accounting policies continued
Revenue recognition continued
Capacity, Services & Equipment continued
The contracts are broken down into separable elements which are all judged individually on a percentage of completion 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. Where Avanti is judged to be the prime partner, revenues
are recognised on a gross basis in line with the risks and rewards of the contract.
Revenue from the sale of terminals and other satellite communication equipment is recognised when the risks and rewards of ownership
have transferred to the customer.
Spectrum Coordination
Revenue from spectrum co-ordination agreements is typically recognised on a straight-line basis over the period where spectrum is leased
or immediately where the Group sells spectrum assets in perpetuity.
Exclusivity Rights
Revenue from the sale of exclusive distribution rights across a region or product type for a fixed term are recognised over the period of the
agreement. Revenue from the sale of exclusive distribution rights in perpetuity are recognised immediately where the revenue recognition
criteria are met. Specifically that the sale is for a fixed, non-refundable fee under a non-cancellable agreement and there is no significant
further managerial involvement required.
Policies Applicable to All Revenue Streams
The Group offers certain products and services as part of multiple deliverable arrangements. Multi-deliverable arrangements are divided
into separate units of accounting provided: 1) the deliverable has a stand-alone value to the customer if it is sold separately, and 2) the fair
value of the item can be objectively and reliably determined. Consideration for these items is measured and allocated to each separate
unit based on their relative fair values or using the fair value of the undelivered components (residual value method) and the relevant
revenue recognition policies are applied to them.
Where goods or services are provided in exchange for dissimilar goods or services, the revenue is measured at the fair value of the goods
or services received where these can be reliably measured, otherwise at the fair value of the goods or services given up, adjusted by the
amount of cash or cash equivalents received.
The Group discloses the amount of each significant category of revenue recognised during the year in a note to the Financial Statements.
The Group presents revenue from a given transaction or revenue stream separately on the face of the Income Statement when such
presentation is relevant to an understanding of the Group's financial performance. Factors including the nature and function of items
of revenue are considered in determining the appropriate presentation.
Accrued income represents the excess of revenue recognised over amounts invoiced. Deferred income represents any unearned
balances remaining from amounts received from customers pursuant to prepaid contracts.
Indefeasible rights of use
Where the Group enters into an arrangement which constitutes an indefeasible right of use (“IRU”), the arrangement is reviewed to
establish whether the IRU is a lease, a service contract or a sale of goods. Whether an arrangement contains a lease is assessed by
considering whether the provision of a service depends on the use of one or more specific assets and whether the agreement conveys
a right to use those assets.
Once it has been determined that an IRU is or contains a lease, then the arrangement is accounted for in accordance with the leased
assets accounting policy.
38
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
2. Principal accounting policies continued
Leased assets
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires
an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and whether the
arrangement conveys the right to use the asset.
Leases of property, plant and equipment where the Group holds substantially all the risks and rewards of ownership are classified as
finance leases. Assets acquired under hire purchase or a finance lease are capitalised in the Statement of Financial Position. Those held
under hire purchase and finance lease contracts are depreciated over the shorter of either their estimated useful lives or the term of the
lease. The interest element of these obligations is charged to the Income Statement over the relevant period. The capital element of the
future payments is treated as a liability.
Leases where a significant portion of the risks and rewards are held by the lessor are classified as operating leases. Rentals are charged
to the Income Statement on a straight line basis over the period of the lease.
Interest income and expense
Borrowing costs incurred for the construction of the satellite assets are capitalised during the period of time required to complete and
prepare the assets for their 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 effective interest rate methodology, taking into account the principal amounts
outstanding and the interest rates applicable.
Foreign currency
Transactions entered into by the Group entities in a currency other than the currency of the primary economic environment in which it
operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and
liabilities are translated at the rate ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary
assets and liabilities are recognised immediately in the Income Statement.
The presentational currency of the Group is US Dollars.
On consolidation, assets and liabilities of foreign undertakings are translated into US Dollars at year end exchange rates. The results
of foreign undertakings are translated into US Dollars at average rates of exchange for the year (unless this average is not a reasonable
approximation of the cumulative effects of the rates prevailing on the transaction dates, in which case income and expenses are translated
at the dates of the transactions). Foreign exchange differences arising on retranslation are recognised directly in a separate component
of equity, the foreign currency translation reserve.
In the event of the disposal of an undertaking with assets and liabilities denominated in a foreign currency, the cumulative translation
difference associated with the undertaking in the translation reserve is charged or credited to the gain or loss on disposal recognised
in the Income Statement.
Pension schemes
Employees have the option to participate in the Group’s defined contribution pension scheme or to establish their own pension scheme to
which the Group will match employee contributions up to a maximum amount. There is no ongoing liability to the Group beyond the period
that the contributions are made. The costs of such contributions are charged to the Income Statement when incurred.
Avanti Communications Group plc
Annual Report and Accounts 2016
39
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
2. Principal accounting policies continued
Share based payments
The Group operates a number of equity settled share based payment arrangements, under which the Group receives services from
employees as consideration for equity instruments (share options and shares) of the Group. Equity settled share based payments are
measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant, but include any market based
performance criteria and the impact of vesting conditions. The fair value determined at the grant date is recognised on a straight line
basis over the vesting period, based on the Group’s estimate of the options or shares that will eventually vest and adjusted for the effect
of non-market based vesting conditions.
Fair value is measured using either the Binomial options pricing model, the Black-Scholes model or Monte Carlo simulations, whichever
is most appropriate to the award.
Service and performance conditions are vesting conditions. Any other conditions are non-vesting conditions which have to be taken into
account to determine the fair value of equity instruments granted. In the case that an award or option does not vest as a result of a failure
to meet a non-vesting condition that is within the control of either counterparty, this is accounted for as a cancellation. Cancellations must
be treated as accelerated vesting and all remaining future charges are immediately recognised. As the requirement to save under an
employee share save arrangement is a non-vesting condition, employee cancellations must be treated as an accelerated vesting.
Current tax
The charge for taxation is based on taxable profits for the year. Taxable profit differs from profit as reported in the Income Statement
because it excludes items of income and expenses that are taxable or deductible in other years and it further excludes items that are
never taxable or deductible.
The tax expense for the period comprises current and deferred tax. Tax is recognised in the Income Statement, except to the extent
that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other
comprehensive income or directly in equity respectively.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities based
on tax rates that have been enacted or substantially enacted by the reporting date.
Deferred tax
Deferred tax is recognised on differences between the carrying amount of assets and liabilities in the Financial Statements and the
corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised
for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible
temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or
the asset realised, based on tax rates that have been enacted or substantively enacted by the reporting date. The measurement of the
deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the
reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and
the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable Group company; or
different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the
liability simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled
or recovered.
40
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
2. Principal accounting policies continued
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is
provided so as to write off the cost of assets, other than assets under construction, over their estimated useful lives using the straight line
method. Depreciation on satellite assets commences once in orbit testing has been completed and the satellite is available for use.
Cost includes the original purchase price of the asset and the costs directly attributable to bringing the asset to its working condition
for its intended use. Property, plant and equipment is depreciated using the straight line method based on the following useful lives:
Motor vehicles 25% per annum
Network assets 20-25% per annum
Fixtures and fittings 25% per annum
Satellite in operation 6.67% per annum
Plant and machinery 25% per annum
Leasehold improvements 25% per annum
Satellite in construction Nil
The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in
estimate accounted for on a prospective basis. The gain or loss arising on the disposal of assets is charged to the Income Statement
account and is calculated as the difference between the disposal proceeds and the carrying amount of the assets.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter,
the term of the relevant lease.
Satellites in construction assets relate to costs (including employee related costs) directly attributable to the construction of the HYLAS
satellites. Once the satellites become operational and placed into service, the assets are transferred to a space asset category and
depreciated over the life of the satellites.
Where the conditions are not met the costs are expensed through the Income Statement.
Intangible assets
Intangible assets are stated at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is provided
so as to write off the cost of assets, other than assets under construction, over their estimated useful lives using the straight line method.
The amortisation rate on computer software is 25%. Newly acquired intangible assets as part of the business combination, customer lists
and trade name are amortised over 15 and 5 years respectively.
Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its
intended use.
The estimated useful lives, residual values and amortisation method are reviewed at each year end, with the effect of any changes in
estimate accounted for on a prospective basis. The gain or loss arising on the disposal of assets is charged to the Income Statement
and is calculated as the difference between the disposal proceeds and the carrying amount of the assets.
Research and development costs in relation to the satellites are capitalised if they meet the conditions 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 amortised over the expected useful life of the assets.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill or intangible assets not ready for use, are not subject to amortisation and will
be tested annually for impairment.
Assets that are subject to amortisation and depreciation 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 fixed
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
discounting the expected future cash flows obtainable as a result of the asset’s continued use, including those resulting from its ultimate
disposal, at a market based discount rate on a pre-tax basis.
Avanti Communications Group plc
Annual Report and Accounts 2016
41
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
2. Principal accounting policies continued
Impairment of non-financial assets continued
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 conducting impairment reviews, CGUs are identified as groups of assets and liabilities that generate cash flows that
are largely independent of other cash flow streams. The assets and liabilities include those directly involved in generating the cash flows
and an appropriate proportion of corporate assets. For the purposes of impairment, individual satellites are treated as individual CGUs.
For the purpose of impairment testing of goodwill, goodwill is allocated to a group of CGUs (being subsidiaries acquired in each
acquisition). Such group of CGUs represent the lowest level within the Group for which the goodwill is monitored for internal
management purposes.
Investments
Investments are recorded at cost. Investments are reviewed for impairment when events or changes in circumstances indicate that the
carrying amount may not be fully recoverable.
Investments in subsidiaries are stated at cost and reviewed for indicators of impairment on an annual basis.
Grant funding
Other grant income which has capital expenditure and job creation/safeguarding targets is recognised on a straight line basis over the
relevant period irrespective of cash and claims, and is disclosed as other operating income.
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 location and condition.
Cost is determined by the first-in first-out method.
Net realisable value is based on estimated selling price less any further costs expected to be incurred to completion and disposal.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of directly attributable issue costs.
Trade receivables and other financial assets
Trade and loan receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the
effective interest rate method where the time value of money is material. Appropriate allowances for estimating irrecoverable amounts are
recognised in the Income Statement where there is evidence that the asset is impaired. This impairment would be recognised within
operating expenses.
Appropriate allowances for estimated irrecoverable amounts are recognised as expenses when there is objective evidence that trade
receivables are impaired.
Cash and cash equivalents
Cash and cash equivalents in the Statement of Financial Position are comprised of cash in hand and demand deposits, and other short
term highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of change in
value. For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents are stated net of outstanding bank overdrafts.
Provisions
Provisions are recognised when the Group has a legal or constructive obligation to transfer economic benefits arising from past events
and the amount of the obligation can be estimated reliably. Provisions are not recognised unless the outflow of economic benefits to settle
the obligation is more likely than not to occur.
42
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
2. Principal accounting policies continued
Borrowings
Interest-bearing bank loans and overdrafts are measured initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortised cost; any difference between the proceeds and the redemption value is recognised in the Income
Statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
12 months after the reporting date.
Trade payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost amortised cost.
Derivative financial instruments
Financial assets and financial liabilities are recognised on the Group’s Statement of Financial Position when the Group becomes a party
to the contractual provisions of the instrument.
The Group uses derivative financial instruments mainly to reduce exposure to foreign exchange risks. The Group does not hold or issue
derivative financial instruments for trading purposes. Derivatives are recognised at fair value on the date a contract is entered into and
are subsequently remeasured at their fair value. Fair value is measured using the closing bank rate compared with the contract rate.
Hedge accounting is currently not applied. Changes in fair value of derivative financial instruments are recognised in the Income
Statement as they arise.
Segment reporting
Operating segment(s) are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segment(s),
has been identified as the Avanti Executive Board who make the strategic decisions.
3. Critical accounting estimates and management judgement
The presentation of Financial Statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are addressed below.
(a) Revenue recognition
The Group uses the percentage of completion method in accounting for its Government services projects. Use of the percentage of
completion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed.
The Group assesses the level of completion at the balance sheet date by reference to a combination of time or cost incurred to date
compared to the forecast total required to deliver each service and project.
Should the service completion take substantially more or less time to complete post year-end, then the revenue recognised in the current
and future financial period would in hindsight be misstated.
The estimates and judgements made by management in accounting for the sale of exclusivity rights in the current year and the sale of
spectrum rights in the comparative financial year are disclosed in Note 4 and Note 13.
(b) HYLAS 1 satellite impairment review
The carrying amount of HYLAS 1 of $118.5m is dependent on the Group’s ability to sell sufficient capacity on the satellite over its
remaining useful economic life. Management remains confident that cash flows from existing customers in addition to growth in cash flows
from existing customers and sales to new customers will continue to underpin the carrying value of the satellite. As a result the HYLAS 1
impairment review showed that no impairment was required as at 30 June 2016. The estimates and judgements made by management
in undertaking this impairment review are disclosed in Note 13.
Avanti Communications Group plc
Annual Report and Accounts 2016
43
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
3. Critical accounting estimates and management judgement continued
(c) Filiago goodwill impairment review
Goodwill with a carrying value at 30 June 2016 of $9.7m on the balance sheet relates to the Filiago business combination. The goodwill
on acquisition of Filiago is not subject to amortisation and so is required to be reviewed annually for impairment. Filiago’s forecast cash
flows, which have been supplemented by the HYLAS-2B payload coming on-line in Q2 of FY17, continue to support the carrying value
of goodwill. The estimates and judgements made by management in undertaking this impairment review are disclosed in Note 14.
(d) Deferred tax
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be
available in the future against which the reversal of temporary differences can be deducted. To determine the future taxable profits,
reference is made to the latest available profit forecasts. Where the temporary differences are related to losses, relevant tax law is
considered to determine the availability of the losses to offset against the future taxable profits.
Recognition therefore involves judgement regarding the future financial performance of the particular legal entity or tax group in which the
deferred tax asset has been recognised. Significant items on which the Group has exercised accounting judgement include recognition of
deferred tax assets in respect of losses and accelerated capital allowances in the United Kingdom.
The amounts recognised in the consolidated financial statements in respect of each matter are derived from the Group’s best estimation
and judgement as described above. However the inherent uncertainty regarding the outcome of these items means eventual resolution
could differ from the accounting estimates and therefore impact the Group’s results and cash flows. See note 19 to the consolidated
financial statements.
(e) Trade and other receivables
The Group has trade and other receivables of $79.5m (2015: $35.5m) on the balance sheet at the year-end date. The receivables balance
increased mainly as a result of contracts reaching milestones at the end of the final quarter which resulted in invoicing or revenue
accruals. Of the receivables balance, $27.7m was accounted for by accrued income (2015: $10.6m), $16.4 m of which was due from
investment grade counter parties, either Government customers or large corporate customers where the underlying customer is a
Government. Management made an estimate of the recoverability of all trade and other receivables in preparing the year-end financial
results which could differ from the accounting estimates and therefore impact the Group’s results and cash flows.
4. Revenue
As stated in Note 2, the Group generates its revenues from the commercial exploitation of its space assets, namely its spectrum rights,
satellites, intellectual property and ground station assets. These revenues include, inter alia, the sale of satellite broadband capacity, the
sale of services, typically to Government customers, the sale of terminals and other satellite communications equipment and the sale and
leasing of spectrum rights.
The Avanti Executive Board, which is the chief operating decision-maker in the Group’s corporate governance structure, manage the
business and the allocation of resources on the basis of the utilisation of its space assets, resulting in one segment. Revenue generated
for the year was as follows:
Capacity, services & equipment revenue
Spectrum coordination
Exclusivity rights
Total revenue
30 June
2016
$’m
74.5
–
8.3
30 June
2015
$’m
60.1
25.1
–
82.8
85.2
The majority of total revenue for the year represents the sale of satellite broadband capacity, related services and the sale of terminals and
other satellite communications equipment to external customers. Of this $13.2m (2015: $5.7m) relates to the sale of terminals and other
satellite communications equipment.
44
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
4. Revenue continued
Sale of exclusivity rights
$8.3m was recognised during the financial year from the sale of exclusivity rights.
During the financial year, the Group entered into an agreement with Eurona Wireless Telekom SA ("Eurona"), a Spanish based Internet
Service Provider, under which Eurona were sold the exclusive rights in perpetuity to the provision of services to the consumer broadband
market in Spain and Portugal ("Iberia") from any existing or future Avanti Satellite.
Eurona are required to pay a fixed, non-refundable fee of €7.5m ($8.3m) under a non-cancellable agreement in consideration for the
rights. As a result, Eurona have sole rights to sell capacity directed over Iberia on any Avanti satellite for use in delivering service to the
consumer broadband market.
The exclusivity right does not convey or include any satellite capacity, which must be purchased separately.
At the same time, Eurona entered into an agreement to purchase substantial initial capacity over Iberia with a value of €17.2m over a
10 year period. The provision of capacity commenced in the 2017 financial year and as a result no capacity revenue was recognised
in these financial statements. The sale of €2.5m of satellite communications equipment was recognised during the financial year and
is included within revenue from the sale of capacity, services and equipment.
The agreement with Eurona was assessed under the Group's accounting policy for multiple deliverable arrangements. An assessment
was made over whether the sale of exclusivity rights, capacity and equipment represented separate units of account. This assessment
concluded that each component was separable on the basis that each deliverable has stand-alone value to Eurona and the fair-value
of the item can be objectively and reliably determined.
The fair value of the undelivered components (residual value method) was used to assess the fair value of the exclusivity rights.
This assessment led to the conclusion that there was no material difference between the contractual value of $8.3m (€7.5m) and the
fair value of the exclusivity component.
Spectrum revenue
In June 2015, the Group entered into an agreement to sell, in perpetuity, certain spectrum rights related to geographic markets in which
the Group does not seek to operate. The indefeasible right to use (“IRU”) a 3 GHz Ka-band payload over its estimated remaining life of
13 years was received in consideration. The IRU arrangement has a fixed cost payable per annum and a variable cost based on the
capacity of the payload that is sold. The payload can be directed over the Group’s core market of Europe, the Middle East and Africa and
increased the Group’s current satellite capacity by approximately 20%. Revenue of $Nil (2015: $25.1m) was recognised for this transaction
related to the utilisation of the Group’s space assets.
The revenue recognised was based on the fair value of the consideration received, in this case the IRU of the Ka-band payload. The IRU
was valued on a replacement cost basis which took into account the cost of building and launching a comparable payload with equivalent
capacity and a 13 year remaining life. The Group used the costs that it has experienced in constructing and launching its existing satellite
fleet, including those under construction, as a benchmark to reach this accounting estimate. The IRU valuation also takes into account the
fixed cost payable per annum under the IRU agreement discounted at the Group’s estimated cost of capital of 10%.
The Group derived $19.9m (2015: $36.5m) of its turnover from European countries outside the United Kingdom, $39.7m (2015: $27.2m)
from countries outside Europe and $23.2m (2015: $21.5m) from the United Kingdom.
Avanti Communications Group plc
Annual Report and Accounts 2016
45
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
5. Operating expenses
Loss from operations for the year is stated after charging the following:
Cost of sales:
Recognition of ESA grant income
Satellite services
Materials purchased
Sub-contractors
Operating expenses:
Employee benefit expense
Operating lease expenses
Depreciation and amortisation:
Space asset depreciation
Depreciation of property, plant and equipment
Amortisation of intangible assets
6. Auditor remuneration
Remuneration payable to the Group’s auditor, KPMG LLP and its associates in the year is analysed below:
Audit fees:
Annual audit of the Company
Annual audit of subsidiary companies
Total audit fees
Audit related assurance services
Total audit and audit-related fees
Tax compliance services
Total non-audit services
Total auditor’s remuneration
30 June
2016
$’m
30 June
2015
$’m
(1.2)
15.4
13.5
7.8
19.8
2.3
45.1
2.0
0.2
(1.4)
13.4
6.8
11.4
20.0
2.3
45.8
2.1
0.2
30 June
2016
$’m
30 June
2015
$’m
0.2
–
0.2
–
0.2
–
–
0.2
0.2
–
0.2
–
0.2
–
–
0.2
46
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
7. Employee benefit costs
The aggregate remuneration of all employees comprised:
Wages and salaries
Social security costs
Pension costs
Share based payment expense
Less: costs capitalised as satellite in construction
30 June
2016
$’m
20.9
2.4
0.6
0.4
24.3
(4.5)
19.8
30 June
2015
$’m
20.8
2.0
0.5
0.7
24.0
(4.0)
20.0
Employee numbers
The average monthly number of people (including the Executive Directors) employed during the year by category of employment:
Operations
Sales and marketing
Development and engineering
Administration and executive
8. Other operating income
Other grant income
30 June
2016
No.
employees
56
71
64
42
233
30 June
2015
No.
employees
49
58
50
35
192
30 June
2016
$’m
1.5
30 June
2015
$’m
1.4
Other grant income relates to a Regional Growth Fund grant linked to capital expenditure and job creation/safeguarding targets in the
South West of the UK and is recognised on a straight line basis over 6 years.
9. Finance income and expense
Finance income
Foreign exchange gain
Finance expense
Interest expense on loans and other borrowings
Foreign exchange loss
Finance lease expense
Less: interest capitalised to satellite in construction
Net finance expense
Avanti Communications Group plc
Annual Report and Accounts 2016
30 June
2016
$’m
30 June
2015
$’m
13.9
13.9
(67.4)
–
(1.8)
28.3
(40.9)
–
–
(54.4)
(1.0)
(0.1)
15.0
(40.5)
(27.0)
(40.5)
47
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
10. Income tax charge
Current tax
Current tax expense
Overseas tax
Adjustment in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Impact of change in UK tax rate
Total deferred tax
Total income tax
30 June
2016
$’m
30 June
2015
$’m
–
0.1
0.1
0.2
(4.2)
4.1
2.1
2.0
2.2
–
–
–
–
1.6
(1.4)
(0.2)
–
–
The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable
to profits of the consolidated entities as follows:
Loss before tax
Tax credit at the UK corporation tax rate of 20.00% (2015: 20.75%)
Tax effect of non-deductible expenses
Adjustment in respect of prior periods
Effect of tax rates in foreign jurisdictions
Impact of change in UK tax rate
Temporary differences for which no deferred tax asset has been recognised
Recognition of previously unrecognised temporary differences
Income tax charge recognised in the Income Statement
30 June
2016
$’m
(67.2)
(13.4)
–
4.2
1.0
2.1
14.1
(5.8)
2.2
30 June
2015
$’m
(73.3)
(15.2)
0.1
(1.4)
(0.9)
(0.2)
17.6
–
–
The standard rate of corporation tax in the UK fell from 21% to 20% with effect from 1 April 2015. Accordingly, the Group's profits for this
accounting period are taxed at an effective rate of 20% (2015: 20.75%).
The income tax charge of $2.2m (2015: nil) equates to an effective tax rate of (3)% (2015: 0%). This effective rate differs from the standard
rate of corporation tax of 20% due to a number of items shown above. The rate is primarily driven by the Group not recognising a credit in
respect of tax losses arising in the year due to the unpredictability of future profit streams against which these losses can
be offset.
Factors that may affect future tax charges
Changes to the UK corporation tax rates were announced in the Chancellor’s Budget on 16 March 2016. The change announced is to
reduce the main rate to 17% from 1 April 2020. Changes to reduce the UK corporation tax rate to 19% from 1 April 2017 and to 18% from
1 April 2020 had already been substantially enacted on 26 October 2015. As the change to 17% had not been substantively enacted at
the balance sheet date its effect is not included in these financial statements. The deferred tax balance as at the year-end has been
recognised at 18% (2015: 20%).
Tax losses
At the balance sheet date the Group has unrecognised deferred tax assets of $37.2m (2015: $30.9m) available for offset against future
profits. A deferred tax asset has been recognised in respect of $28.1m (2015: $30.5m). No deferred tax asset has been recognised in
respect of the remaining losses and other temporary differences due to the unpredictability of future profit streams against which these
losses could be offset. Under present tax legislation, these losses and other temporary differences may be carried forward indefinitely.
In the future when these assets are recognised there will be a positive impact to the Group's effective tax rate.
48
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
11. Loss per share
Basic and diluted loss per share
30 June
2016
cents
(49.27)
30 June
2015
cents
(61.50)
The calculation of basic and diluted loss per share is based on the earnings attributable to ordinary shareholders divided by the weighted
average number of shares in issue during the year.
Loss for the year attributable to equity holders of the parent Company
Weighted average number of ordinary shares for the purpose of basic earnings per share
30 June
2016
$(68.7)m
139,428,427
30 June
2015
$(73.1)m
118,975,177
12. Profit of the parent Company
As permitted by section 408 of the Companies Act 2006, the Income Statement of the parent Company is not presented as part of these
accounts. The profit of the parent Company after tax for the year ended 30 June 2016 amounted to $1.8m (2015: $0.3m loss).
13. Property, plant and equipment
Cost
Balance at 30 June 2014
Additions
Transfer
Disposals
Effect of movements in exchange rates
Balance at 30 June 2015
Additions
Disposals
Effect of movements in exchange rates
Balance at 30 June 2016
Accumulated depreciation
Balance at 30 June 2014
Charge for the year
Disposals
Effect of movements in exchange rates
Balance at 30 June 2015
Charge for the year
Disposals
Effect of movements in exchange rates
Balance at 30 June 2016
Net book value
Balance at 30 June 2016
Balance at 30 June 2015
Leasehold
improvement
$’m
Network
assets
$’m
Fixtures and
fittings
$’m
Satellites in
operation
$’m
Satellites in
construction
$’m
2.0
–
–
–
(0.2)
1.8
–
–
(0.2)
1.6
0.9
0.3
–
(0.1)
1.1
0.3
–
(0.2)
1.2
0.4
0.7
14.1
0.7
–
(0.2)
(1.6)
13.0
2.8
–
(3.1)
12.7
9.6
1.4
–
(0.9)
10.1
1.4
–
(2.1)
9.4
3.3
2.9
2.4
0.3
–
–
(0.1)
2.6
0.4
–
(0.4)
2.6
1.5
0.4
–
–
1.9
0.4
–
(0.3)
2.0
0.6
0.7
667.3
39.5
5.6
(1.7)
(19.7)
691.0
0.5
0.2
(34.7)
657.0
107.4
45.8
–
(4.3)
148.9
45.1
–
(11.1)
182.9
474.1
542.1
44.4
110.6
(5.6)
(1.4)
(3.4)
144.6
167.2
(8.0)
(7.1)
296.7
–
–
–
–
–
–
–
–
–
296.7
144.6
Avanti Communications Group plc
Annual Report and Accounts 2016
Group
total
$’m
730.2
151.1
–
(3.3)
(25.0)
853.0
170.9
(7.8)
(45.5)
970.6
119.4
47.9
–
(5.3)
162.0
47.2
–
(13.7)
195.5
775.1
691.0
49
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
13. Property, plant and equipment continued
Property, plant and equipment under finance lease
At 30 June 2016, the Group held assets under finance lease agreements with a net book value of $47.8m (2015: $46.7m). A depreciation
charge for the year of $1.7m (2015: $1.3m) has been provided on these assets. These assets are included in satellites in operation and
network assets.
Satellites in operation
Satellites in operation include the following:
HYLAS 1 – Came into service on 1 April 2011
HYLAS 2 – Came into service on 1 October 2012
HYLAS 2B – Payload received as consideration on 24 June 2015 and came into service on 7 November 2016
ARTEMIS – Acquired on 31 December 2013
All 4 satellites and their related ground infrastructure have been depreciated from the date that they came into operational service.
HYLAS-2B
Satellites in operation includes a Ka-band payload that the Group operates under an indefeasible right of use (“IRU”) agreement entered
into in June 2015 for the estimated remaining useful life of the payload of 13.5 years. This payload is known as HYLAS-2B and Note 4
provides more detail on the transaction through which this payload was received. The IRU agreement is accounted for as a finance lease
and a Net Book Value (“NBV”) of $35.1m is included within satellites in operation and also within the assets held under finance lease
disclosure provided above.
The IRU of HYLAS-2B was initially recognised at its fair value of $35.1m. This asset value will subsequently be depreciated over the life
of the IRU agreement from the date it commences operational service. The IRU was valued on a depreciated replacement cost basis.
This was determined to be the most appropriate valuation technique as it had the most observable inputs into the model. Under this
approach, the fair value was calculated as the cost of constructing and bringing into service an asset that could provide equivalent
capacity. The fair value was reached by aggregating the estimated fair value of the cost to build the payload and the cost of launching
the payload, including insuring the launch, in addition to the cost of designing and managing the procurement of the asset. Each of the
four inputs have been classified as level 2 inputs within the fair value hierarchy. The Group obtained third party quotations for some
elements and applied rates known from the existing fleet of satellites for other elements.
Satellite in construction
The satellites in construction assets of $296.7m relate to HYLAS 3 and HYLAS 4 (2015: $144.6m in relation to HYLAS 3 and HYLAS 4).
Capitalised finance costs
Included in the satellites in operation and satellites in construction are capitalised finance costs of $97.4m (2015: $72.0m) related to the
HYLAS 2 and HYLAS 4 satellites.
HYLAS 1 satellite impairment review
HYLAS 1 is a 3 GHz Ka-band High Throughput Satellite that came into operational service on 1 April 2011. An impairment review was
conducted and disclosed in the prior year as a result of growth in revenues being slower than forecast.
Significant and long term new business was won during FY16 on HYLAS 1. Nevertheless, an impairment review was conducted on the
HYLAS 1 satellite and associated network infrastructure (“HYLAS 1”), together representing the cash-generating unit ("CGU"), at 30 June
2016 to update this assessment. The review showed that the carrying value of the assets is supported and therefore no impairment has
been recorded.
The recoverable amount of the CGU is determined using value in use, which is calculated by using the discounted cash flow method.
This method considers the forecast cash flows of the HYLAS 1 satellite and associated network infrastructure over the remaining useful
economic life of the CGU of 11 years.
50
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
13. Property, plant and equipment continued
HYLAS 1 satellite impairment review continued
Estimates of future cash flows originate from the detailed budget for the year to 30 June 2017 as reviewed and approved by the Board.
Forecasts for the subsequent periods assume a ramp-up of satellite capacity sold over the remaining useful life of the CGU, derived from
a combination of contractual ramps, development of existing customer relationships, and a modest underlying growth assumption in
utilisation in addition to those factors of approximately 1.5% per annum. When the ramps with signed contracts mature over the coming
12-18 months, the HYLAS 1 satellite will be approximately 60% utilised. Further growth from new and existing customers is expected in
addition to this and has been included within the forecast cash flows. The present value of cash flows is calculated by discounting the
cash flow at 10%.
The estimate of future cash flows resulted in significant headroom over the carrying value of the CGU. Sensitivity analysis was carried out
by management over assumptions made in the impairment model relating to yield, growth in utilisation and the discount factor applied.
It was identified that, all other assumptions being consistent, headroom would be eliminated by a:
70% increase in discount factor applied; or
40% decrease in forecast yield ($/MHz per month); or
scenario in which uncontracted capacity is sold at a significantly slower rate than forecast.
The above scenarios are not considered likely and the risks that they represent are considered to have been appropriately included in the
impairment review.
There are no indicators of impairment for any other assets within Property, plant and equipment. As a part of management’s assessment
of the presence of any indicators of impairment, consideration was given to the current market capitalisation of the Group in addition to
the financial restructuring process underway to support the construction of HYLAS 4. Management noted that the estimated enterprise
value of the Group was well in excess of the carrying value of its assets and that the current value of the equity represented by the market
capitalisation differed from the enterprise value, primarily due to the debt funding on the Group balance sheet in addition to a risk element
that would be present until the restructuring is completed.
14. Intangible assets
Cost
Balance at 30 June 2014
Effect of movements in exchange rates
Balance at 30 June 2015
Effect of movements in exchange rates
Balance at 30 June 2016
Accumulated amortisation
Balance at 30 June 2014
Charge for the year
Balance at 30 June 2015
Charge for the year
Balance at 30 June 2016
Net book value
Balance at 30 June 2016
Balance at 30 June 2015
Computer
software
$’m
Brand
name
$’m
Customer
lists
$’m
Goodwill
$’m
0.6
–
0.6
–
0.6
0.6
–
0.6
–
0.6
–
–
0.3
(0.1)
0.2
–
0.2
0.2
–
0.2
–
0.2
–
–
2.3
(0.4)
1.9
–
1.9
0.4
0.2
0.6
0.2
0.8
1.1
1.3
12.0
(2.3)
9.7
–
9.7
–
–
–
–
–
9.7
9.7
Group
total
$’m
15.2
(2.8)
12.4
–
12.4
1.2
0.2
1.4
0.2
1.6
10.8
11.0
The goodwill and intangible assets arose from the Group obtaining control of Filiago GmbH & Co (“Filiago”) on 1 November 2011 and
resulted in the initial recognition of $12.1m of goodwill and $2.7m of intangible assets, representing the Filiago brand name and customer
lists. Filiago is a German based Internet Service Provider specialising in the sale of satellite broadband services to consumer and
enterprise customers.
The Filiago operation is considered a Cash Generating Unit ("CGU").
Avanti Communications Group plc
Annual Report and Accounts 2016
51
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
14. Intangible assets continued
The Filiago goodwill is not subject to amortisation and so is required to be reviewed annually for impairment. Filiago’s goodwill impairment
review showed that no impairment was required as at 30 June 2016.
The recoverable amount of the Filiago CGU was determined using the value in use approach. The value in use was estimated by
preparing a discounted cash flow forecast for Filiago over a six year period with a terminal value forecast into perpetuity after that period.
Forecast cash flows originate from the detailed budget for the year to 31 December 2016, as reviewed and approved by the Board.
Underlying the forecast cash flow is revenue growth as a result of Avanti's HYLAS-2B payload coming into operational service in Q2 FY17.
This launch has transformed Filiago's product offering through the availability of a coherent territory wide solution to enterprise and
residential users in Germany and improved quality of service. The launch also offers Filiago dedicated coverage over large portions of new
territories including Poland & Austria. With an existing brand presence it is expected the Filiago business will deliver strong and consistent
growth for the foreseeable future.
Sensitivity analysis was carried out by management over assumptions, with revenue growth and the extent to which Filiago's operating
base could be absorbed into the Avanti business being the two key variables. While management do not consider there is a significant risk
to the achievement of revenue targets, the sensitivity considered was that if revenues only grew by 3% over the forecast period as a result
of inflation on a steady end user base and Filiago's operating base was largely absorbed into the Avanti business then there would be
€5.9m of headroom over the carrying value of goodwill at 30 June 2016.
The present value of the forecast cash flows was calculated using the Group’s estimated pre-tax cost of capital of approximately 12.5%
and is not considered to have a significant impact on the impairment conclusions.
The brand names acquired in the course of the Filiago business combination of $0.3m are amortised on a straight line basis over a period
of five years. At the year end the NBV of the brand names is $Nil (2015: $0.03m), after charging $0.03m (2015: $0.06m) of amortisation in
the year.
The customer lists acquired in the course of the Filiago business combination of $2.4m are amortised on a straight line basis over a period
of 15 years. At the year end the carrying amount of the customer lists is $1.1m (2014: $1.3m) after charging $0.2m (2015: $0.2m) of
amortisation in the year.
15. Investments
Company
Shares in subsidiary undertakings
Beginning and end of the year
30 June
2016
$’m
148.7
30 June
2015
$’m
148.7
The Directors believe that the carrying value of the investments is supported by the underlying net assets recorded on the balance sheet
of those subsidiaries, the value of spectrum rights that have no corresponding balance sheet asset and the future forecast cash flows of
those subsidiaries.
A full list of the Company’s subsidiaries is disclosed in Note 16.
52
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
16. Subsidiaries
As at the end of the year the Group and Company held the following investments in subsidiary companies:
Name of subsidiary
Avanti Communications Limited
Avanti Space Limited
Avanti Local TV Services Limited*
Avanti Space 3 Limited*
Avanti Launch Services Limited
Avanti Broadband Limited
Avanti Broadband (Ire) Limited*
Avanti HYLAS 2 Limited
Avanti HYLAS 2 Launch Services Limited
Avanti Communications Infrastructure Limited*
Avanti Employee Benefit Trust
Avanti HYLAS 2 Cyprus Limited
Avanti HYLAS Services Limited
Avanti Communications Marketing Services Limited
Avanti Communications Germany GmbH
Avanti Communications Sweden AB
Avanti Turkey Uydu Telekomunikasyon Limited Sirketi
Avanti Communications South Africa Pty Limited
Hybeam Limited
Avanti Communications Kenya Limited
Avanti Communications Africa Infrastructure Limited
Avanti Communications Africa 1 Infrastructure Limited
Avanti Communications Africa 2 Infrastructure Limited
Avanti Satellite Communications Services CC Limited
* Company was dormant in the year ending 30 June 2016.
Nature of business
Satellite services
Satellite services
Satellite services
Satellite services
Management services
Satellite services
Satellite services
Satellite services
Management services
Holding company
Employee benefit trust
Satellite services
Project management services
Sales and marketing
Satellite services
Satellite services
Satellite services
Satellite services
Satellite services
Satellite services
Holding company
Holding company
Holding company
Satellite services
Place of incorporation
England & Wales
England & Wales
England & Wales
England & Wales
Isle of Man
England & Wales
England & Wales
England & Wales
Isle of Man
England & Wales
England & Wales
Cyprus
Cyprus
England & Wales
Germany
Sweden
Turkey
South Africa
England & Wales
Kenya
England & Wales
England & Wales
England & Wales
Nigeria
The Company holds 100% ownership interest and voting power in all the above entities.
On 1 November 2011 (the “date of control”) the Group took effective control of Filiago by enhancing the security over its loans with Filiago.
The terms of the enhanced security gave the Group power over Avanti through Board control, continued exposure to variable returns of the
loans provided to Filiago and the ability for Avanti to use its power over Filiago to affect the Group’s returns.
Since the date of control, Filiago has been accounted for as a subsidiary in the Consolidated Financial Statements because of the control
now held but, because the Group has not purchased any equity shares in the Company, a 100% non-controlling interest is recognised on
the Statement of Financial Position.
Avanti Communications Group plc
Annual Report and Accounts 2016
53
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
17. Inventories
Group
Finished goods
30 June
2016
$’m
1.9
30 June
2015
$’m
2.6
Finished goods represent customer premises equipment which includes dishes, modems and outdoor unit transceivers.
The cost of inventories recognised as an expense during the period was $13.5m (2015: $6.8m).
There have been no write-downs of inventory during the year.
18. 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
2016
$’m
45.8
(6.5)
39.3
27.7
10.3
–
2.2
79.5
30 June
2015
$’m
22.2
(4.4)
17.8
10.6
5.5
–
1.6
35.5
30 June
2016
$’m
0.1
–
0.1
–
5.2
385.4
–
390.7
30 June
2015
$’m
–
–
–
–
7.5
85.6
0.3
93.3
Net trade receivables and accrued income increased mainly as a result of contracts reaching milestones at the end of the final quarter
which resulted in invoicing or revenue accruals. Of the accrued income balance of $27.7m, $16.4m was due from investment grade
customers who are either Government’s or very well established corporations whose underlying customer is a government. The credit
terms associated with the components within accrued income are largely consistent to the Group’s trade receivables which are in the
range of 30 to 90 days.
Included in the Group’s trade receivables balance at 30 June 2016 is a long term receivable of $7.2m (2015: $8.5m). 31% of the original
balance has already been collected, with the remainder payable in instalments due every three months such that the receivable will be
fully repaid by 30 June 2019. In addition to the instalments payable, interest is payable at 5.25% per annum.
For discussion of credit risk, refer to Note 23(b).
The Company has non-current trade and other receivables of $642.5.m (2015: $917.6m) relating to amounts due from Group companies.
The Directors believe that the carrying value of the intercompany balances is supported by the underlying net assets recorded on the
balance sheet of those subsidiaries, the value of spectrum rights that have no corresponding balance sheet asset and the future forecast
cash flows of those subsidiaries.
54
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
19. Deferred taxation
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset tax assets against tax liabilities and
when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:
Deferred tax assets
Deferred tax liabilities
The gross movement on the deferred income tax account is as follows:
Balance at beginning of year
Income tax recognised in the income statement
Tax (credited)/charged directly to equity
Effects of movements in exchange rates
Balance at end of year
Group
Group
Company
30 June
2016
$’m
28.0
(9.4)
18.6
19.5
(1.9)
–
1.0
18.6
30 June
2015
$’m
30.5
(11.0)
19.5
21.1
–
–
(1.6)
19.5
30 June
2016
$’m
0.5
–
0.5
0.5
–
–
–
0.5
30 June
2015
$’m
0.5
–
0.5
0.5
–
–
–
0.5
Credited/
(charged) to
the Income
Statement
$’m
(Credited)/
charged
to equity
$’m
Effects of
movements
in exchange
rates
$’m
Opening
balance
$’m
Closing
balance
$’m
30 June 2016
Tax assets
Unused tax losses
Provisions and deferred income
Share based payment
Total tax assets
Tax liabilities
Property, plant and equipment
Total tax liabilities
Net deferred tax asset
Group
30 June 2015
Tax assets
Unused tax losses
Provisions and deferred income
Share based payment
Total tax assets
Tax liabilities
Property, plant and equipment
Total tax liabilities
Net deferred tax asset
25.7
3.7
1.1
30.5
(11.0)
(11.0)
19.5
3.0
(1.0)
(1.2)
0.8
(2.7)
(2.7)
(1.9)
–
–
–
–
–
–
–
(2.8)
(0.6)
0.1
(3.3)
4.3
4.3
1.0
Credited/
(charged) to
the Income
Statement
$’m
(Credited)/
charged
to equity
$’m
Effects of
movements
in exchange
rates
$’m
Opening
balance
$’m
26.1
3.7
1.0
30.8
(9.7)
(9.7)
21.1
1.6
–
–
1.6
(1.6)
(1.6)
–
–
–
–
–
–
–
–
(2.0)
0.1
–
(1.9)
0.3
0.3
(1.6)
Avanti Communications Group plc
Annual Report and Accounts 2016
25.9
2.1
–
28.0
(9.4)
(9.4)
18.6
Closing
balance
$’m
25.7
3.8
1.0
30.5
(11.0)
(11.0)
19.5
55
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
19. Deferred taxation continued
Company
30 June 2016
Tax assets
Share based payment
Unused tax losses
Total tax assets
Company
30 June 2015
Tax assets
Share based payment
Unused tax losses
Total tax assets
At 30 June 2016:
Credited/
(charged) to
the Income
Statement
$’m
(Credited)/
charged
to equity
$’m
Effects of
movements
in exchange
rates
$’m
Opening
balance
$’m
Closing
balance
$’m
0.1
0.4
0.5
–
–
–
–
–
–
–
–
–
0.1
0.4
0.5
Credited/
(charged) to
the Income
Statement
$’m
(Credited)/
charged
to equity
$’m
Effects of
movements
in exchange
rates
$’m
Opening
balance
$’m
0.1
0.4
0.5
–
–
–
–
–
–
–
–
–
Closing
balance
$’m
0.1
0.4
0.5
none of the deferred tax asset of $28.0m (2015: $30.5m) is expected to be recovered in the next 12 months
none of the deferred tax liability of $9.4m (2015: $11.0m) is expected to be settled in the next 12 months
the total unrecognised deferred tax asset totalled $37.2m (2015: $30.9m). This is made up of unused tax losses of $37.2m
(2015: $24.9m) and other temporary differences of $Nil (2015: $6.0m).
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will
be available in the future against which the reversal of temporary differences can be deducted. To determine the future taxable profits,
reference is made to the latest available profit forecasts. Where the temporary differences are related to losses, relevant tax law is
considered to determine the availability of the losses to offset against the future taxable profits.
Recognition therefore involves judgement regarding the future financial performance of the particular legal entity or tax group in which the
deferred tax asset has been recognised.
Significant items on which the Group has exercised accounting judgement include recognition of deferred tax assets in respect of losses
and accelerated capital allowances in the United Kingdom.
The amounts recognised in the consolidated financial statements in respect of each matter are derived from the Group’s best estimation
and judgement as described above. The inherent uncertainty regarding the outcome of these items means eventual resolution could
differ from the accounting estimates and therefore impact the Group’s results and cash flows. The nature of the evidence supporting the
recognition of the deferred tax asset included contracted revenue that will be recognised in future periods, revenue from new business
signed in FY17, forecast revenue in future periods from opportunities in the pipeline and taxable temporary differences of an appropriate
type that reverse in an appropriate period,
56
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
20. Cash and cash equivalents
Cash and cash equivalents at the end of the financial year as shown in the Statement of Financial Position and the Cash Flow Statement
is shown in the table below. The Group has no bank overdrafts.
Group
Cash and bank balances
Short-term deposits
Net cash and cash equivalents
21. Trade and other payables
Current
Trade payables
Social security and other taxes
Other payables
Accruals
Deferred income
Amounts due to Group companies
Non-current
Deferred income
30 June
2016
$’m
55.0
1.4
56.4
30 June
2015
$’m
120.6
1.6
122.2
Group
30 June
2016
$’m
Company
30 June
2015
$’m
30 June
2016
$’m
30 June
2015
$’m
49.5
0.7
3.8
22.0
6.8
–
82.8
12.7
12.7
3.9
0.7
1.1
23.5
2.7
–
31.9
16.8
16.8
0.1
–
–
16.2
–
29.9
46.2
–
–
–
–
–
13.1
-
141.8
154.8
–
–
Accruals above include the interest accrued in the Company of $16.1m (2015: $13.0m) in relation to the High Yield Bonds. See Note 22
Loans & Borrowings for further details.
22. Loans and other borrowings
Secured at amortised cost
High yield bonds
Finance lease liabilities(i)
Secured at amortised cost
High yield bonds
Finance lease liabilities(i)
Group current
Group non-current
30 June
2016
$’m
30 June
2015
$’m
30 June
2016
$’m
–
3.3
3.3
–
4.7
4.7
629.5
12.5
642.0
30 June
2015
$’m
510.3
13.4
523.7
Company current
Company non-current
30 June
2016
$’m
30 June
2015
$’m
30 June
2016
$’m
–
2.8
2.8
–
2.7
2.7
629.5
2.7
632.2
30 June
2015
$’m
510.3
4.0
514.3
(i) Finance lease obligations are secured by retention of title to the related assets. The borrowings are on fixed interest rate debt with repayment periods between 3 and
13.5 years. See Note 26 for more details.
Avanti Communications Group plc
Annual Report and Accounts 2016
57
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
22. Loans and other borrowings continued
High yield bonds
The Company issued 10% Senior Secured Notes of $370.0m, $150.0m and $125.0m on 1 October 2013, 17 June 2014 and 17 August
2015 respectively.
Issuer
Avanti Communications Group plc
Original notional value
Description of instrument
$645.0M 10% Senior Secured Notes
Due
1 October 2019
The high yield bonds are disclosed in non-current loans and borrowings as detailed below:
High yield bonds
Add: Amortised issue premium
Less: Amortised issue discount
Less: Amortised debt issuance costs
30 June
2016
$’m
645.0
4.6
(7.8)
(12.3)
629.5
30 June
2015
$’m
520.0
6.0
–
(15.7)
510.3
The fair value of the High Yield Bonds, which are listed on the Irish Stock Exchange (Level 1 in the fair value hierarchy), at 30 June 2016
was $0.75 for each bond with a face value of $1(2015: $0.95). See Note 31 for details of a restructuring of the existing Senior Secured
Notes after the balance sheet date and the issue of new Senior Secured Notes.
23. Financial instruments and risk management
Group
The Group’s principal financial instruments comprise High Yield Bonds, finance leases and cash and short-term deposits. The main
purpose of these financial instruments is to provide finance for the Group’s operations. The Group has various other financial assets
and liabilities such as trade receivables and payables which arise directly from operations.
The Group is subject to the risks arising from adverse movements in interest rates and foreign currency. Credit risk and liquidity risk
also arise from the Group’s financial instruments. The managing of these risks, along with the day-to-day managing of treasury activities,
is performed by the finance team.
All financial instruments have been measured at amortised cost. As such, financial assets being cash & cash equivalents and trade and
other receivables are classified as “Loans and Receivables” and financial liabilities being trade and other payables and interest-bearing
liabilities have been classified as “Other Financial Liabilities”.
a) Market risk
i) Foreign exchange risk management
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect
to GBP and the Euro. In order to mitigate the foreign currency risk the Group monitors the level to which natural hedges occur and
continually reviews the need to enter into forward contracts in order to mitigate any material forecast exposure.
At 30 June 2016, if the Euro had weakened/strengthened against the US Dollar by 5% with all other variables held constant, post tax loss
would have worsened by $0.4m or improved by $0.4m (2015: post tax loss would have worsened by $0.4m or improved by $0.4m).
At 30 June 2016, if Sterling had weakened/strengthened against the US Dollar by 5% with all other variables held constant, post tax loss
would have improved by $0.7m or worsened by $0.7m (2015: post tax loss would have improved by $0.8m or worsened by $0.8m).
The Group has a presentational currency of US Dollars. Whilst a number of companies within the Group have a functional currency that is
also US Dollars, certain trading subsidiaries have a functional currency of Sterling or Euro’s. As a result, the Group experiences translation
foreign exchange risk of assets and liabilities of non US Dollar subsidiaries on consolidation in addition to the translation of US Dollar
inter-company loans to non US Dollar functional currency subsidiaries that are accounted for as akin to equity. These two factors drive
the foreign exchange movements disclosed in the Consolidated Statement of Other Comprehensive Income.
The average volatility of rates during the year compared to the year-end exchange rate was 5.2% and therefore management believes that
a 5% sensitivity rate provides a reasonable basis upon which to assess expected changes in foreign exchange rates.
58
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
23. Financial instruments and risk management continued
Group continued
a) Market risk continued
ii) Interest Risk Management
The Group borrows in pounds Sterling and US Dollars at fixed rates of interest and does not seek to mitigate the effect of adverse
movements in interest rates. Cash and deposits earn interest at fixed rates based on banks’ short term treasury deposit rates. Short-term
trade and other receivables are interest free.
b) Credit risk management
The Group’s principal financial assets are cash and short term deposits and trade and other receivables. Cash and cash equivalents are
deposited with high-credit quality financial institutions with a minimum rating of A+. The Group has no significant concentrations of credit
risk. Trade receivables are principally from Government customers and well established corporations. The increase in trade receivables
at 30 June 2016 is due to contracts reaching milestones at the end of the final quarter which resulted in invoicing to such Government
customers and well established corporations. The credit quality of major customers is assessed before trading commences taking into
account its financial position, past experience and other factors.
Trade receivables
Total
30 June
2016
$’m
39.3
39.3
The ageing of trade receivables and other financial assets which have not been impaired was as follows:
30 June 2016
30 June 2015
Not past due
$’m
29.5
12.7
1-30 days
$’m
5.4
1.7
31-60 days
$’m
1.0
0.7
60+ days
$’m
3.4
2.7
Movements in the provision for impairment of trade receivables are as follows:
At 1 July 2015
Allowances made in the period
Amounts used and reversal of unused amounts
At 30 June 2016
30 June
2016
$’m
4.4
2.4
(0.3)
6.5
30 June
2015
$’m
17.8
17.8
Total
$’m
39.3
17.8
30 June
2015
$’m
4.6
1.7
(1.9)
4.4
The provision of $6.5m (2015: $4.4m) has been raised against gross trade receivables of $45.8m (2015: $22.2m). Every major customer
is assessed on an individual basis and we provide for bad debts when an impairment has been identified.
In addition to trade receivables, the year-end balance sheet includes $27.7m of accrued income (2015: $10.6m). $16.4m of accrued
income was due from investment grade counter parties, either Government customers or large corporate customers where the underlying
customer is a Government. The credit terms associated with the components within accrued income are largely consistent to the Group’s
trade receivables which are in the range of 30 to 90 days.
Avanti Communications Group plc
Annual Report and Accounts 2016
59
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
23. Financial instruments and risk management continued
Group continued
c) Liquidity risk management
Liquidity risk is the risk that we may have difficulty in obtaining funds in order to be able to meet both our day-to-day operating
requirements and our debt servicing obligations. We manage our exposure to liquidity risk by regularly monitoring our liabilities.
Cash and cash forecasts are monitored on a daily basis and our cash requirements are met by a mixture of short term cash deposits,
debt and finance leases.
The following table analyses the Group’s financial liabilities into relevant maturity groupings based on the expected undiscounted
cash flows.
30 June 2016
High yield bonds
Finance leases
Trade payables
30 June 2015
High yield bonds
Finance leases
Trade payables
Within
1 year
$’m
–
4.7
49.5
–
5.8
3.9
1-2 years
$’m
2-5 years
$’m
5+ years
$’m
Contractual
amount
$’m
Carrying
amount
$’m
–
3.3
–
–
4.6
–
645.0
6.9
–
520.0
7.0
–
–
11.6
–
–
12.4
–
645.0
26.5
49.5
520.0
29.8
3.9
629.5
15.8
49.5
510.3
18.1
3.9
Interest is payable on the high yield bonds at 10% per annum over the three year remaining life of the bonds. See Note 31 for
a post year-end financial restructuring which has extended the maturity of the high yield bonds.
In addition, the Company has net intercompany receivables carried at $355.4m (2015: net receivables carried at $861.4m).
The contractual amount is the carrying amount.
d) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The capital structure of the Group consists of debt, which includes borrowings (Note 22), cash and cash equivalents (Note 20) and equity
attributable to equity holders of the parent, comprising Ordinary Share capital, share premium, other reserves and retained earnings.
We endeavour to maximise earnings and minimise risk through an appropriate balance of debt and equity.
e) Financial instruments by category
Group
Assets as per balance sheet
30 June 2016
Trade and other receivables (excl prepayments)
Cash and cash equivalents
30 June 2015
Trade and other receivables (excl prepayments)
Cash and cash equivalents
Loans and
receivables
$’m
69.2
56.4
125.6
30.0
122.2
152.2
Total
$’m
69.2
56.4
125.6
30.0
122.2
152.2
60
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
23. Financial instruments and risk management continued
Group continued
e) Financial instruments by category continued
Liabilities as per balance sheet
30 June 2016
Borrowings (excl finance lease liabilities)
Finance lease liabilities
Trade and other payables (excl non-financial liabilities)
30 June 2015
Borrowings (excl finance lease liabilities)
Finance lease liabilities
Trade and other payables (excl non-financial liabilities)
Company
Assets as per balance sheet
30 June 2016
Trade and other receivables (excl prepayments)
30 June 2015
Trade and other receivables (excl prepayments)
Liabilities as per balance sheet
30 June 2016
Borrowings (excl finance lease liabilities)
Finance lease liabilities
Trade and other payables (excl non-financial liabilities)
30 June 2015
Borrowings (excl finance lease liabilities)
Finance lease liabilities
Trade and other payables (excl non-financial liabilities)
Other financial
liabilities at
amortised cost
$’m
629.5
15.8
94.9
740.2
510.3
18.1
48.0
576.4
Loans and
receivables
$’m
385.5
385.5
85.8
85.8
Other financial
liabilities at
amortised cost
$’m
629.5
5.5
46.2
681.2
510.3
6.7
154.8
671.8
Total
$’m
629.5
15.8
94.9
740.2
510.3
18.1
48.0
576.4
Total
$’m
385.5
385.5
85.8
85.8
Total
$’m
629.5
5.5
46.2
681.2
510.3
6.7
154.8
671.8
The Group has no financial instruments carried at fair value through profit or loss. All financial liabilities are carried at amortised cost and
all loans and receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the
effective interest rate method where the time value of money is material. Appropriate allowances for estimating irrecoverable amounts
are recognised in the Income Statement where there is evidence that the asset is impaired.
Company
Overall interest rate risk, foreign exchange risk, market risk, credit risk and liquidity risk are managed on a Group wide basis. Any derivatives,
of which there are none at 30 June 2016 (2015: None) are measured at fair value and intercompany balances and accruals are measured
at amortised cost. All intercompany balances are repayable on demand and accruals and derivatives mature in less than 1 year.
There is no provision for impairment against any of the Company’s financial assets.
Avanti Communications Group plc
Annual Report and Accounts 2016
61
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
24. Share capital – issued and fully paid
At 1 July 2015
Shares issued
Issue of treasury shares to EBT
At 30 June 2016
Number of
shares
‘000
141,803
3,593
2,000
147,396
Group and
Company
ordinary
Shares
$’m
2.4
0.1
–
2.5
Group and
company
share
premium
$’m
505.3
10.6
–
515.9
EBT
shares
$’m
(0.1)
–
–
(0.1)
On 18 August 2015, the Group issued 3,592,781 of ordinary shares at £2.01 per share. On 16 October 2015, the Group issued 2,000,000
shares to the EBT at £0.01 per share.
25. Share based payments
The fair value of share based payments charged to the Income Statement in the period was $0.5m (2015: $0.7m). The full fair value of
these share based payments are recognised over their respective vesting periods. All share based payment plans are equity settled and
details of these plans are set out below.
The Company has established 18 share based payment schemes:
Enterprise Management Incentives scheme (“EMI”)
Long Term Incentive Plan (“LTIP”)
Unapproved share option plan (2007)
Unapproved share option plan (March 2010)
Unapproved share option plan (July 2010)
Unapproved share option plan (October 2010)
Unapproved share option plan (April 2011)
Unapproved share option plan (July 2011)
Unapproved share option plan (October 2011)
Unapproved share option plan (October 2011) key management personnel
Save As You Earn scheme (“SAYE”) (November 2011)
Unapproved share option plan (March 2012)
Unapproved share option plan (April 2012)
Long Term Incentive Plan (“LTIP”) (July 2013)
Unapproved share option plan (October 2013)
Save As You Earn scheme (“SAYE”) (November 2013)
Unapproved share option plan (May 2014)
Unapproved share option plan (May 2015)
The 2016 charges for each of the significant plans above were as follows:
LTIP schemes
Unapproved schemes
2016
charge
$’m
–
0.4
0.4
2015
charge
$’m
0.1
0.6
0.7
To date all options (with exception of the SAYE scheme) have been granted with a strike price of 1 pence. The strike price on the
SAYE scheme 2011 is £3.09, and £2.10 on the SAYE scheme 2013.
In July 2007 an Employee Benefit 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.
62
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
25. Share based payments continued
The table below sets out the number and weighted average exercise prices (“WAEP”) of, and movements in, the share schemes during
the year:
EMI
Outstanding at the beginning of the year
Granted during the year
Forfeited in the year
Exercised during the year
Outstanding at the end of the year
Unapproved schemes
Outstanding at the beginning of the year
Granted during the year
Forfeited in the year
Exercised during the year
Cancelled in the year
Reissued in the year
Outstanding at the end of the year
SAYE schemes
Outstanding at the beginning of the year
Granted during the year
Forfeited in the year
Exercised during the year
Outstanding at the end of the year
2016
No.
2016
WAEP
2015
No.
126,344
–
–
(8,000)
118,344
£0.01
–
–
£0.01
£0.01
131,078
–
(2,066)
(2,668)
126,344
1,218,162
11,000
(91,000)
(91,000)
–
–
1,047,162
96,015
–
–
–
96,015
£0.01
£0.01
£0.01
£0.01
–
–
£0.01
£2.10
–
–
–
£2.10
884,691
445,000
(111,529)
–
(485,162)
485,162
1,218,162
209,669
–
(113,654)
–
96,015
2015
WAEP
£0.01
–
£0.01
£0.01
£0.01
£0.01
£0.01
£0.01
–
£0.01
£0.01
£0.01
£2.70
–
£3.09
–
£2.10
The weighted average share price for the year ended 30 June 2016 was £1.56 (2015: £2.24). 118,344 (2015: 126,344) of the EMI options
were exercisable at 30 June 2016.
The exercise price of the share based payments outstanding at 30 June 2016 was £0.01 and the weighted average remaining contractual
life was 8.5 years (2015: 9.4 years).
Each scheme has slightly different exercise criteria and therefore separate valuation models were used.
EMI Scheme
The EMI scheme was used to issue share based payments to staff on 24 July 2007 at an exercise price of 1p. The new share based
payments were issued for 10 years with 25% vesting at the end of years 3, 4, 5 and 6. Those staff who had previously held unvested share
based payments in the former parent Company at the time of the de-merger were given a shorter vesting period for these new share
based payments. There are no performance criteria associated with these options and they are exercisable as long as the option 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
Fair Value
Expected volatility
Weighted average exercise price
Expected life
Expected dividend yield
Risk-free interest free
£2.16
£2.04
35%
£0.01
4 years
1%
5.5%
Avanti Communications Group plc
Annual Report and Accounts 2016
63
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
25. Share based payments continued
EMI Scheme continued
Expected volatility was determined by calculating the actual volatility of the Group’s share price since flotation. The expected life used
in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and
behavioural considerations.
Long Term Incentive Plan
The LTIP was established by the Company with approval from the Remuneration Committee to reward and incentivise the Executive
Directors and senior managers of the Company.
The LTIP allocations are in separate sub funds within the EBT and are subject to a discretionary Trust. The shares are subject to automatic
revocation if certain criteria (set out below) are not met and continue to be revocable for the entire Trust period.
The allocations into the LTIP vary for each executive. The total remaining allocation to each executive falls into the following tranches:
i) The Core Tranche
This element of the grant became exercisable in seven equal instalments. The first instalment was exercisable on grant and the second
on 30 June 2008. The remaining five were exercisable yearly thereafter.
ii) The Exceptional Achievement Tranche
This element of the grant was amended during 2010. Originally, these options were only exercisable if the average market value of the
share exceeded £5.00 for a consecutive period of six months prior to 30 June 2010. Given the unprecedented market conditions over
the previous year, the Remuneration Committee considered that whilst the executives 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 still not be
achieved.
In May 2010 the Remuneration Committee agreed to extend the target date to 31 December 2010 and that the six month average target
price should be increased £5.50. The benchmark for this tranche of LTIP was satisfied in November 2010.
iii) The Extraordinary Achievement Tranche
This element of the grant was only exercisable if the market value of a share exceeded £10.00 for a consecutive period of six months
before 30 June 2013. At 30 June 2013, the criteria of the extraordinary achievement tranche had not been met, therefore the outstanding
shares were returned to the EBT.
Original allocations:
Core
Exceptional
Extraordinary
Additional grant July 2010
Total allocation
Core vested
Exceptional vested
Unvested balance returned to the EBT
Outstanding balance 30 June 2015
Movements in year ended 30 June 2016:
Core vested
Outstanding balance at 30 June 2016
64
Avanti Communications Group plc
Annual Report and Accounts 2016
Executive
directors
No.
Senior
managers
No.
1,192,960
679,570
679,213
400,000
2,951,743
(1,192,960)
(679,570)
(1,079,213)
–
125,000
62,500
62,500
–
250,000
(107,143)
(62,500)
(62,500)
17,857
–
–
(17,857)
–
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
25. Share based payments continued
Long Term Incentive Plan continued
iv) The Share Award Tranche
The share award LTIP 2015 was issued 30 July 2013 to 30 June 2015. Two-thirds of the award was based on revenue performance for
the year ending 30 June 2015. One-third of the award was based on the share price as at 30 June 2015.
In 2015, the Remuneration Committee determined that 50% of the 2015 award should be made but that, in the longer term interests of the
Company, vesting should be made subject to the achievement of an additional criterion that the share price should remain at or above
a certain level for three consecutive months. This amended award shall lapse if this is not achieved by 30 June 2020.
A second LTIP award was issued on 14 January 2014 to 30 June 2016. As consistent with the earlier LTIP, two-thirds of the award is based
on revenue performance for the year ending 30 June 2016. Therefore there is no charge relating to that part of the LTIP. One-third of the
award is based on the share price as at 30 June 2016. The revenue performance and share price criteria were not met as at 30 June 2016.
However, the Remuneration Committee determined that, in the longer term interests of the Company, the award should remain extant but
vesting should be made subject to the achievement of an additional criterion that the share price should remain at or above a certain level
for three consecutive months. This amended award shall lapse if this is not achieved by 30 June 2020.
A third LTIP award was issued on 5 November 2014 to 30 June 2017. As consistent with the earlier LTIP awards, two-thirds of the award is
based on revenue performance for the year ending 30 June 2017. Therefore there is no charge relating to that part of the LTIP. One-third
of the award is based on the share price as at 30 June 2017.
A fourth LTIP award was issued on 9 October 2015 to 30 June 2018. As consistent with the earlier LTIP awards, two-thirds of the award
is based on revenue performance for the year ending 30 June 2018. Therefore there is no charge relating to that part of LTIP. One-third
of the award is based on a share price as at 30 June 2018.
The total number of options issued under the awards was as follows:
Executive directors
Senior managers
Executive directors
Senior managers
30 June 2015
30 June 2016
Amended
award
Dependent on
share price
315,651
104,773
420,424
Total award
Two-thirds
One-third
Dependent on
revenue
performance
452,486
147,526
600,012
Dependent on
share price
226,243
73,763
300,006
678,729
221,289
900,018
30 June 2017
30 June 2018
Total award
Two-thirds
One-third
Total award
Two-thirds
One-third
Dependent on
revenue
performance
463,798
203,251
667,049
Dependent on
share price
231,899
101,626
333,525
695,697
304,877
1,000,574
Dependent on
revenue
performance
486,988
212,065
699,053
Dependent on
share price
243,494
106,032
349,526
730,482
318,097
1,048,579
Avanti Communications Group plc
Annual Report and Accounts 2016
65
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
25. Share based payments continued
Unapproved Schemes
At 30 June 2016, there were 13 unapproved schemes in place, established at various dates since 2007.
Under each scheme, the options are issued for 10 years with 33% vesting at the end of years 3, 4 and 5.
Prior to 1 May 2015, nine of the schemes (noted below) required the market value of the shares to be £10.00 or more per share for a
consecutive period of six months in order for the vesting conditions to be met. On 1 May 2016, the remaining options in these schemes
were cancelled, and reissued where the option holder continued to be employed by the Group. The reissued options require the market
value of the shares to be £5.00 or more per share for a consecutive period of six months in order for the vesting conditions to be met.
Other terms remained the same.
Unapproved schemes reissued with £5.00 share price vesting criteria:
Unapproved share option plan (March 2010)
Unapproved share option plan (October 2010)
Unapproved share option plan (April 2011)
Unapproved share option plan (July 2011)
Unapproved share option plan (October 2011)
Unapproved share option plan (March 2012)
Unapproved share option plan (April 2012)
Unapproved share option plan (July 2013)
Unapproved share option plan (May 2014)
In addition, one new unapproved scheme was established in the year ended 30 June 2015, also with £5.00 share price vesting criteria:
Unapproved share option plan (May 2015)
For all other schemes, there are no performance criteria and the options are exercisable as long as the time vesting criteria are met and
the option holder remains with the company.
Save as you earn (“SAYE”) schemes
The SAYE schemes were established in November 2011 and November 2013 and were open to all employees of the Company at the time.
SAYE is an HMRC approved all employee savings-related share option scheme under which employees save up to a limit of £250.00 on
a four weekly basis with an option to buy shares in the Company at the end of a three year period at a discount of up to 20% of the market
value on the grant date. Options are not subject to performance conditions. All options are exercisable from three years from the date of
grant. All options expire six months from their exercise date.
66
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
26. Obligations under finance leases
Leasing arrangements
Finance leases relate to capital equipment with typical lease terms of three to five years. The Group has the option to purchase the
equipment for a nominal value at the conclusion of the lease agreement. The Group’s obligations under finance leases are secured
by the lessor’s title to the leased assets.
Also included under finance leases is the 13.5 year IRU agreement described in Note 4. The IRU was assessed as constituting a lease
on the basis that:
the Ka-band payload that the Group has the right to use is judged as being a specific, identifiable and physically separate asset that
is not capable of substitution under the agreement
the Group has the right to direct others how to operate the asset
the Group has obtained all of the asset’s output
The lease was assessed as a finance lease on the basis that the lease transfers substantially all the risks and rewards incidental to
ownership, including:
Avanti have full control over the commercialisation of the payload.
Avanti carry substantially all of the risk associated with lack of sales from the payload
Avanti carry all of the risk associated with any deterioration, including complete failure, of the payload’s performance over the
lease term
Further supporting the conclusion that the lease is a finance lease is the fact that the lease is for the remainder of the assets useful
economic life.
The minimum lease payments comprise the annual fixed costs payable over the life of the IRU agreement. The minimum lease payments
exclude the variable cost payable per month based on the capacity of the payload that is sold as this is considered to be a contingent
payment. The variable cost is expensed within cost of sales in the period that it relates to.
The present value of the minimum lease payments in relation to this agreement and included below is $10.5m of which $0.4m is current
and $10.1m is non-current.
Finance lease liabilities
No later than 1 year
Later than 1 year no later than 5 years
Later than 5 years
Less future finance charge
No later than 1 year
Later than 1 year no later than 5 years
Less future finance charge
Group
Minimum lease payments
Group
Present value of lease payments
30 June
2016
$’m
4.7
10.2
11.6
26.5
(10.7)
15.8
30 June
2015
$’m
5.8
11.6
12.4
29.8
(11.7)
18.1
30 June
2016
$’m
3.3
5.4
7.1
15.8
–
15.8
30 June
2015
$’m
4.7
7.3
6.1
18.1
–
18.1
Company
Minimum lease payments
Company
Present value of lease payments
30 June
2016
$’m
3.1
3.8
6.9
(1.4)
5.5
30 June
2015
$’m
3.0
5.4
8.4
(1.7)
6.7
30 June
2016
$’m
2.8
2.7
5.5
–
5.5
Avanti Communications Group plc
Annual Report and Accounts 2016
30 June
2015
$’m
2.7
4.0
6.7
–
6.7
67
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
26. Obligations under finance leases continued
Finance lease liabilities continued
Included in the Financial Statements as:
Current borrowings
Non-current borrowings
Present value of minimum lease payments
Group
Company
30 June
2016
$’m
3.3
12.5
15.8
30 June
2015
$’m
4.7
13.4
18.1
30 June
2016
$’m
2.8
2.7
5.5
30 June
2015
$’m
2.7
4.0
6.7
27. Obligations under operating leases
The Group’s future aggregate minimum lease payments under non-cancellable operating leases are as follows:
No later than one year
Later than 1 year no later than 5 years
After 5 years
30 June
2016
Land &
Buildings
$’m
1.8
6.9
20.4
29.1
30 June
2015
Land &
Buildings
$’m
2.0
10.1
23.9
36.0
Operating lease commitments principally relate to leased office space of the Group’s head office. The Group entered in a 20 year lease
on the property on 6 May 2013, with annual rent of $1.7m.
28. Capital commitments
As at 30 June 2016 the Group has contracted but not provided for capital commitments of $42.7m in relation to the procurement of
HYLAS 3 (2015: $45.2m) and $82.3m in relation to the procurement of HYLAS 4 (2015: $nil). As at 30 June 2015, the Group had not
been contractually committed to any future payments related to the construction of HYLAS 4.
29. Related party transactions and directors’ emoluments
Transactions with Directors
Details of the Directors’ remuneration are set out below in aggregate for each of the categories specified in the Companies Act 2006.
Salaries and other short term employee benefits
Bonus
Payments into defined contribution schemes
30 June
2016
$’m
2.7
–
2.7
0.2
2.9
30 June
2015
$’m
2.8
1.2
4.0
0.1
4.1
Pension contributions amounting to $0.2m (2015: $0.1m) were made into personal pension schemes in respect of four (2015: two)
of the Directors.
No Non-Executive directors exercised share options in the period.
68
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
29. Related party transactions and directors’ emoluments continued
Transactions with Directors continued
The emoluments of the highest paid Director totalled $0.8m (2015: $1.2m), made up of:
Total emoluments
Salaries and other short term employee benefits
Bonus
Payments into defined contribution schemes
Total emoluments
30 June
2016
$’m
0.7
–
0.1
0.8
30 June
2015
$’m
0.7
0.5
–
1.2
Transactions with Directors and key management personnel – Group and Company
Details of the remuneration of Directors and key management personnel are set out below in aggregate for each of the categories
specified in IAS 24 “Related Party Disclosures”.
Key management personnel are considered to be the Board (executive and non-executive), the general counsel, the head of regulatory,
and the managing director of the Government division.
Total emoluments
Salaries and other short term employee benefits
Bonus
Payments into defined contribution schemes
Group
Company
30 June
2016
$’m
3.1
0.1
0.3
3.5
30 June
2015
$’m
4.0
1.8
0.1
5.9
30 June
2016
$’m
0.4
–
–
0.4
30 June
2015
$’m
0.6
–
–
0.6
Other related party transactions
Subsidiaries
Intra-Group transactions are eliminated on consolidation and are not reported in the Group accounts. The Company charged the following
management fees to its subsidiaries:
Avanti Communications Limited
Avanti Broadband Limited
Avanti Space Limited
Avanti HYLAS 2 Limited
The parent Company had the following intercompany balances outstanding at the year-end:
Avanti Communications Limited
Avanti Space Limited
Avanti Broadband Limited
Avanti HYLAS 2 Limited
Avanti Communications Infrastructure Limited
Intercompany balances are unsecured and repayable on demand.
Avanti Communications Group plc
Annual Report and Accounts 2016
30 June
2016
$’m
2.9
4.6
1.6
1.9
11.0
30 June
2016
$’m
–
9.6
–
612.6
375.8
998.0
30 June
2015
$’m
3.1
3.6
1.3
1.8
9.8
30 June
2015
$’m
52.8
19.6
6.5
782.4
–
861.4
69
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
30. Cash absorbed by operations
(Loss)/profit before taxation
Interest receivable
Interest payable
Amortised bond issue costs
Foreign exchange loss/(gain)
Depreciation and amortisation of non-current assets
Provision for doubtful debts
Share based payment expense
Sale of Spectrum rights (Note 2)
Decrease in stock
Decrease/(increase) in debtors
(Decrease)/increase in trade and other payables
Effects of exchange rate on the balances of working capital
Cash absorbed by operations
Group
30 June
2016
$’m
(67.2)
–
38.8
2.4
(13.6)
47.3
1.5
0.4
–
0.6
(50.9)
10.6
(1.5)
(31.8)
Group
30 June
2015
$’m
(73.3)
–
37.7
1.8
1.0
48.1
1.0
0.7
(25.1)
(0.9)
1.6
(2.8)
–
(10.2)
Company
30 June
2016
$’m
1.7
(67.7)
63.2
2.4
(1.5)
–
–
0.4
–
–
(0.1)
(119.5)
–
(121.1)
Company
30 June
2015
$’m
(0.3)
(55.6)
52.3
2.1
(0.5)
–
–
0.7
–
–
(96.0)
4.9
(93.0)
70
Avanti Communications Group plc
Annual Report and Accounts 2016
FINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS CONTINUED
31. Post balance sheet events
As described in the going concern accounting policy in Note 2, on 7 July 2016, the Company announced that it was probable that
additional funding would be required in order to ensure that the Group had sufficient liquidity to complete and launch HYLAS 4 in the 2017
financial year. Avanti had based its funding plan on cash to be generated from the business which had grown more slowly than expected.
On 11 July 2016, the Company announced the undertaking of a strategic review (the “Strategic Review”) to consider all financial and
strategic options. As part of this exercise, Avanti conducted an in-depth review of its business plan, financial position and strategic
options, including various routes to strengthen the Company's balance sheet.
On 17 October 2016, the Company announced the result of a successful consent solicitation process ("September Consent Solicitation")
as the first step in its two-phase funding strategy. The Company received consents from holders of 89.5% of its Senior Secured Notes to
permit paying the interest due on 1 October 2016 in respect of consenting holders’ Senior Secured Notes in the form of additional Senior
Secured Notes on the same terms as the existing Senior Secured Notes in lieu of cash. The cash coupon of $3.4m was paid to the 10.5%
of holders from whom consent was not received in October 2016. In order to further support the strategic review process, the Company
also entered into binding agreements with certain suppliers to defer approximately $39m of capital expenditure payments relating to
HYLAS 4 to the third quarter of the fiscal year ending 30 June 2017.
Following completion of the September Consent Solicitation, the Company continued negotiations with the manufacturer of HYLAS 4,
Orbital Sciences ("Orbital"), and its largest holders of Senior Secured Notes regarding phase 2 of the funding strategy. The second phase
was a restructuring of the Company’s outstanding indebtedness in order to seek a long-term solution to its working capital needs and to
ensure that the Company could continue to operate as a going concern in the future.
The restructuring drew towards its conclusion on 20 December 2016 when a Restructuring Agreement was signed by the Company with
a group of its largest holders of Senior Secured Notes ("Initial Consenting Creditors"). The Company and the Initial Consenting Creditors,
representing approximately 73% of the aggregate principal amount of the existing Senior Secured Notes ("Existing Notes"), entered into
the Restructuring Agreement on 20 December 2016 pursuant to which the Initial Consenting Creditors contractually agreed to approve the
Existing Notes restructuring by delivering Consents in connection with the Solicitation, tendering their Existing Notes in the Exchange Offer
and voting in favour of the Scheme.
The Company and the Initial Consenting Creditors also entered into the Backstop Purchase Agreement on 20 December 2016 pursuant
to which the Initial Consenting Creditors committed to fund up to the entirety of the New Money Offer, subject to reduction for the level
of pro rata participation by the remaining Existing Note holders that elect to participate in the New Money Offer.
The major components of the restructuring, which will provide the Group with substantial additional liquidity, are:
1. New Money Notes - Issue of up to $132.5m of Senior Secured Notes in three tranches by the Company to provide additional funds for
the Group. $82.5m will be issued on closing of the restructuring with the ability to issue a further $15m on 30 June 2017 and $35m on
30 November 2017.
2. Amended Existing Notes - Amendments to the Existing notes which include capitalising the April 2017 coupon and the ability to
capitalise the October 2017 coupon for the $685m of Amended Existing Notes based on certain cash forecast targets. In addition the
amendments allow for the ability to capitalise the April 2018 coupon for approximately $485m of the Amended Existing Notes based
on certain cash forecast targets and extended maturity dates which range between October 2021 and October 2022.
Avanti Communications Group plc
Annual Report and Accounts 2016
71