Two Degrees $52m loss 'in line with plan'
- 15 July, 2010 22:00
Cellphone firm Two Degrees has revealed it lost more than $52 million in the last nine months of 2009. The company which sells pre-pay cellphones through electronics stores and supermarkets, said the loss was "expected and in line with our plan". The results represent a loss of almost $190,000 a day. After years in planning, Two Degrees launched its service in August, and quickly picked up thousands of customers from Telecom and Vodafone. Director of corporate affairs Mathew Bolland said the loss reflected the cost of setting up a mobile network and shareholders, including United States private equity group Trilogy International, which owns a majority stake, were comfortable with its progress. "These losses are completely in line with what you would expect to enter a market that's got revenues in the billions of dollars. You have to invest to get in," says Bolland. "The shareholders understand the size of the market, the size of the opportunity and are very pleased with the way it's going." Two Degrees Mobile Ltd's accounts received an unqualified signoff from auditors Grant Thornton. The commentary accompanying the results included an assurance that the company's two largest shareholders would provide more equity or loans if required for "the foreseeable future", although they have not guaranteed its liabilities. As well as Trilogy, Two Degrees' shareholders include British private equity group Communication Venture Partners, Maori Hautaki Trust and unnamed "associated interests". In February the company said it had attracted 206,000 customers in its first six months since its launch, including 85,000 who had transferred their existing numbers from other providers. Yesterday it declined to comment on how many customers it had picked up since. Two Degrees has said it plans to roll out its own retail network over the next 12 months and is thought to be on the verge of launching a 3G network, moves which would allow it to attract higher-value term-contract customers. The results for the nine months to December 31 included revenue of $27.3 million as well as a gain on currency movements of $2.1 million. The $52 million loss compared to an $8.2 million loss in the year to March 31, 2009, before it launched its retail service. During the period covered in the accounts, which have just been published by the Companies Office, it spent $8.5 million on advertising and marketing, including a campaign fronted by comedian Rhys Darby. Two Degrees also incurred a liability of $9.7 million to Trilogy and saw its cash at hand fall from $14.7 million to $6 million. It has since received an $11.1 million cash injection from its shareholders in a share placement. Forsyth Barr telecommunications analyst Guy Hallwright says he was not surprised by the loss, which was inevitable whenever a new telecommunications network was established. "That's what it costs to set up mobile operations, you lose money. These operations would lose money for at least three years, although you hope those losses would diminish," says Hallwright. "The guys that invest in this, Trilogy and the like, have done this in a number of markets and they will be fully aware of what the losses are in the early part of the operation."