Backlog more back-ended than expected at Avanti

Orders may be piling up at satellite operator Avanti Communications, but the big orders are set to kick in later than the company had previously envisaged.

The group said that the average monthly target of £11m in orders added to the backlog continues to be achieved, but the phasing is "more back-ended" than expected. Nevertheless, Avanti's two existing satellites are expected to be full at current run rate in 2016.

"Customers have typically committed to five year contracts with bandwidth usage which sharply escalates during the later period of the contract. Thus they lock in availability whilst minimising risks as they build their business," explained Avanti Chairman, John Brackenbury.

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"The benefit of 18 months selling on both satellites now gives the board more empirical data with which to plan future activity, and the company has used this data to offer conservative guidance to the market," Brackenbury added.

The company is still loss-making but revenue is growing fast, reflecting a full-year contribution from HYLAS-1, the company's first satellite.

Revenue in the year ended June 30th 2012 surged to £12.46m from £5.46m the year before, but the cost of sales grew faster still, from £7.68m last year to £16.78m this time round, reflecting a full year of depreciation on HYLAS-1 as opposed to only three months in 2011, plus a heavy investment in staff.

As a result, loss before tax widened to £16.01m from £12.73m the previous year. Loss before interest, tax, depreciation and amortisation narrowed to £5.3m from £9.7m the previous year. The loss per share was 14.86p (2011: 12.14p loss).

The group has carried forward net tax losses of £22m, up from £12m last year, so it will be a while before it starts paying tax. Indeed, it is in the position of receiving tax credits - £2.12m this year, £3.02m last year - which reduced post-tax losses to £13.89m (2011: £9.70m loss).

Cash at the end of the financial year stood at £76.7m after the company raised £75m in an equity placing to finance the HYLAS-3 project. The order backlog increased by 57% to £268m from £171m the year before, ahead of the launch of HYLAS-2, Avanti's second communications satellite, in August. Revenue from HYLAS-2 will start to be realised in the fourth quarter of calendar 2012.

"The experience of operating HYLAS 1 for over a year has given great confidence to our customers in Africa and the Middle East, who have been able to test real services in advance of the HYLAS 2 launch and see for themselves the quality and resilience Avanti has designed into its system," Brackenbury claimed.

"The emerging markets are experiencing high demand resulting from strong underlying economic growth and poor existing telecoms supply," Brackenbury continued. Around 83% of Avanti's capacity addresses emerging markets.

The company's third satellite, HYLAS-3, is fully financed and under construction, and the company is open to the idea of building and launching more, but only if they can be prudently debt financed without recourse to shareholders.

JH