Avanti Warns of Slow Growth even as It Finds Silver Lining in Government Austerity

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PARIS — Broadband satellite services provider Avanti Communications on July 10 warned investors that its revenue takeoff will be slower than expected because of late-arriving contracts and the possible loss of a big customer.

London-based Avanti, which has two satellites on orbit and a third under construction, nonetheless promised that most of the expected shortfall in the fiscal year ending June 30 is due to contract delays, not contract cancellations or the drying up of revenue prospects.

“Whilst forecasting the precise timing of revenue trajectory in this emerging business has been difficult, I am confident that the outlook for filling our fleet is strong,” Avanti Chairman John Brackenbury said in a July 10 statement.

Avanti operates two satellites. Hylas 1, covering Europe at 33.5 degrees west in geostationary orbit, was launched in November 2010 and provides Ka-band broadband and cellular backhaul services. Hylas 2, which was launched in August 2012 and entered commercial service in October, provides coverage over Africa, the Caucasus and the Middle East at 31 degrees east.

In its statement to investors, Avanti said that while Hylas 2 was operational for more than eight months of the fiscal year, many customers did not start service until later in the year than expected. Some Hylas 2 ground gateway Earth stations were declared operational after Hylas 2’s in-service date.

“The average Hylas 2 customer was invoiced for three months during the financial period,” Avanti said. “Revenue guidance for the period included the value of several major contracts in Africa that were expected to close before [June 30] but which are now expected to be completed in the next fiscal year. At the same time, since the period end, the revenue due from a contract which was signed during the financial year is no longer assured.”

Avanti said its backlog for the fiscal year ending June 30, 2014, stood at 42 million British pounds ($65 million) as of the end of last month. Fiscal year 2015 backlog was 46 million pounds, and fiscal year 2016 backlog totaled 40 million pounds.

The company said it has adopted a policy with prospective large, multinational companies that starts with framework agreements and only later translates to specific orders for bandwidth.

“Whilst these do not add to backlog initially, they circumvent lengthy approval processes and we found that orders were produced rapidly under them, and thus should make a significant contribution to revenues in 2014,” the company said.

Avanti, whose final year-end results are expected to be published in October, said it had 38 million pounds in cash and a gross debt of 205 million pounds as of June 30. The company said reached its goal of positive operating cash flow in June.

Austerity’s Silver Lining 

In a surprising announcement, Avanti said the decline in defense spending among several governments that use large volumes of satellite bandwidth has been “a benefit” to the company because it has positioned itself as a lower-cost provider of satellite capacity.

“Several service providers [to military end users] flourished with us in this market and some regional beams are almost full,” Avanti said.

Avanti is not alone in discovering that building a Ka-band broadband business in Europe is slow going. Paris-based Eutelsat, the world’s third-largest satellite fleet operator by revenue, has faced similar difficulties in ramping up its Tooway consumer broadband business with Eutelsat’s Ka-Sat satellite.

Avanti Chief Executive David Williams said in a statement: “Our products have competitive advantages which enable us to win good business with strong customers, albeit later than hoped. The progress we have made this year in selling to large multinational companies in applications like cellular backhaul, video distribution and government networks … points the way to filling our fleet.”