IiNet announces profit downgrade, PowerTel alliance

IiNet has announced a massive downgrade in its expected financial results for the year ending 30 June 2006.

The struggling ISP now expects an EBITDA of $24.6 million, before any abnormal items, down from the previous guidance of $40.1 million.

Revenues are forecast to be about $250 million and the company now expects to report a net loss for the year after amortisation and depreciation.

IiNet managing director Michael Malone said in an ASX statement that several one off costs incurred since January and improvements in the network cost base had been responsible for the downgrade.

The company’s financial report cites a range of issues including a double counting of usage revenue to the tune of $1,800,000, dial-up revenue shortfalls of $3,100,000 and underperforming average revenue per user for its voice and ADSL services to the value of $2,510,000.

“We recognise that this situation is unsatisfactory for shareholders, but the Company remains in a good position, with over 600,000 services and Australia’s largest ADSL2+ network,” he claimed.

Executive chairman Peter Harley pointed the finger of blame at iiNet’s aggressive acquisition strategy which saw the company snap up iHug in NZ and OzEmail locally.

“In every other six month period since 2001, there has been either a large acquisition or a major integration,” he said. “This is the first clear period without such activity and it is now obvious that, with the rapid expansion of the business, our processes did not keep pace.”

Harley said the company’s continued suspension from trading, which first occurred on April 18, was part of a “conservative approach” aimed at allowing iiNet to fully review its business.

The company expects to complete the strategic review by the end of June and will issues updated guidance on the 2007 financial year.

In related news, iiNet has also announced a new partnership with PowerTel which will see PowerTel commit to a 14.9 percent placement in iiNet, based on current issued capital.

The deal will see PowerTel gain access to iiNet’s network under an exclusive wholesale arrangement. PowerTel will provide iiNet with its wholesale network
services.

PowerTel managing director, Paul Broad, said the alliance would effectively create the second largest access network in Australia.