iiNet blames profit angst on clerical errors

Australia's third-largest ISP, iiNet, has issued a profit warning to investors and ordered an investigation into its March quarter figures. The announcement comes two weeks after the WA-based company suspended its trading shares.

In an ASX statement, the company said its 2006 financial year EBITDA would be significantly below former market guidance. Previously, it had been tipped to hit $40 million.

iiNet attributed the drop to a poor March quarter. This had been hidden by a discrepancy between revenue forecasts and clerical errors which had only recently been found, it claimed.

The ISP has appointed Ernst & Young to investigate the cause of the divide between forecast and actual results.

CEO, Michael Malone, would not comment further on the reasons for the clerical error, but said a revised forecast and explanation of the shortfall would be released next week.

iiNet suspended its shares on April 18. These closed at $1.69, a far cry from the $2.80 recorded in the beginning of November. Trading was scheduled to resume next week.

The latest setback comes on the back of a tumultuous 12 months at iiNet. In its half-yearly guidance report, released in December, the ISP admitted its $16.4 million EBITDA projection for the June-December period was well short of its budget of $19.1 million.

Although revenue was up by 89 per cent and EBITDA by 12 per cent, net profits after tax for the half-year period fell by 24 per cent to $6 million. Rising line rental and wholesale costs from Telstra were a major contributor to the reduced margin, the company said. The integration of the OzEmail business, which occurred over October/November, had also had a significant impact on the business.

Despite these concerns, iiNet announced in March that it had invested $15 million into rolling out 150 DSLAMs for its next generation ADSL 2+ network. The service will provide users with access speeds of up to 24Mbps. Malone said the network would be up and running by January next year.

The ISP also declared customer numbers in ADSL, VoIP and telephony were higher than forecasts, with churn on fixed dial-up accounts improving.