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Freshtel In The Red And Happy |
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Written by Adam Gosling
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Tuesday, 28 February 2006 |
Enjoy it while you can! Publicly listed companies can only enjoy the honeymoon period, where red ink on the Profit and Loss is okay, for a limited period before investors come hunting for some returns.
But Freshtel is still in that period and so its $2.3 million loss for the half year to December 31 will most likely not be treated too harshly by the market. In fact the ocmpany's shares rose on news of the six month results.
Apart from anything else, the company has posted some pretty significant wins in the last half year, not least of all a major deal to be the whitelabel VoIP provider forBritains leading retailer, Tesco's.
The company has also begun making moves into the US market, which while highly competitive, is growing like crazy and is regarded as still 'wide open' by some analysts. Gaining a foothold there and in Europe could assure investor profits well into the future.
The company rightly points out that it is "extremely well positioned to deliver, with its alliance partners, internet telephony to the mass market".
Michael Carew, CEO of Freshtel said "It is very pleasing for us to have progressed so far during the last six months. We are gaining enormous traction in the market and are in the early stages of delivering our internet telephone service to mass consumer market in conjunction with our partners."
During the December 2005 half, Freshtel also made its foray into the wireless internet telephone market, with an agreement with Australian wireless broadband provider, Unwired. The global wireless broadband market offers enormous potential for internet telephony to challenge not only fixed line but also mobile services and Freshtel has proven that its network is highly compatible with wireless broadband services.
Revenue of $0.4m incorporated revenue from retail subscribers and an initial fee of $0.1m from Tesco. As at 31 December 2005, Freshtel had approximately 270,000 subscribers worldwide of which 65,000 were in Australia.
In readiness for the launch of the Tesco service, significant investment in terms of capital and operational expenditure was made during the 6 months to December 2006. As a result, operating expenses increased to $2.3m.
While an element of this expenditure was in infrastructure roll out, both the Freshtel UK and Freshtel Australia teams have been bolstered by additional operational staff, ensuring that the appropriate organisational structure is implemented to successfully manage the Company's rapid growth.
Net interest costs were impacted by the pay-out of the pre-existing joint venture funding arrangement, resulting in a one-off $0.5m cost of finance, partly offset by a corresponding trust distribution of $0.2m.
As at 31 December 2005, Freshtel's net cash balance was $10.4m. As a result of the increased scope and scale of Freshtel operations, particularly in relation to
Tesco, in October 2005 Freshtel raised A$12.3 million, net of costs, through the placement of 60 million shares at an issue price of $0.22.
Additionally, Freshtel announced on 29 December 2005 it had agreed to issue a further 9.5 million shares to Tesco Limited. The resultant proceeds of A$3.7million will be reflected in the March 2006 quarter.
A key focus for the remainder of 2006 will be the successful rollout of the Tesco service and the launch of the Binatone co-developed products.
The Tesco service will be rolled out in 4 phases. The first phase, which has just been completed, saw the successful launch of the service in 15 of Tesco's 1,780 UK stores. The service is expected to be available in Tesco's wider network of UK stores and via tesco.com by June 2006.
The initial focus of the agreement with Binatone will be to co-develop internet telephony hardware (handsets and analogue telephone adaptors) and achieve mass market distribution of these products. Binatone, a major global manufacturer of cordless handsets, already has relationships with major retailers, telecommunications companies and other branded handset manufacturers.
Freshtel will also be aggressively pursuing the opportunities to offer white label solutions to Binatone's existing clients, such as major international retail groups.
"We are very excited by the opportunities opening up to us, via our associations with Tesco and Binatone. Partnering with global leaders in their fields has, and will continue, to demonstrate our capabilities to other potential clients," said Carew.
Further scaling up of the business is planned for the remainder of the year to allow Freshtel to exploit some of the emerging opportunities in other markets outside of the UK. Significant revenue from the Tesco and Binatone contracts is not expected to be generated until the 2007 fiscal year with monthly losses expected to peak in the remainder of the 2006 financial year. The Company, however, has sufficient cash reserves to facilitate further substantial expansion of the Freshtel business.
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