UPDATED: iiNet revenue soars, profit down marginally

UPDATED: iiNet revenue soars, profit down marginally

Malone: "iiNet's new vision is to become your trusted partner in the digital world"

Perth-based ISP, iiNet, has returned a 48 per cent hike in revenue for the 2010/11 financial year.

In its Preliminary Financial report released today, revenue was listed at $699 million compared with $473.8 million in FY2009/10.

However, reported profit for FY2010/11 was down 3 per cent to $33.37 million (from $34.55 million) – a result the report states is mainly attributable to the changes in the tax consolidation regime in FY2010 where iiNet was entitled to claim $5.02 million tax deduction for the tax cost base allocated to prior year subscriber charges, which were previously treated as non-deductible for tax purposes.

Underlying profit for the year was up 12.2 per cent to $39.03 million (from $34.8 million).

iiNet stated that the revenue increase resulted from:

  • Continued organic growth in its products and services.
  • A full year contribution from the Netspace Group compared with only two month’s contribution in the comparative FY2009/10 financial period.
  • The acquisition of the AAPT Consumer Division on September 30, 2010.

Underlying earnings before interest, taxation, depreciation and amortisation (underlying EBITDA) were up 30 per cent to $104.85 million (from $62.46 million).

The company has declared a fully franked dividend of $0.07.

CEO Michael Malone, said in a statement, "iiNet continued doing what we do best, delivering on our focused strategy and growing the business across all key metrics. 2011 was a landmark year in which we realised our ambitious goal of becoming the leading challenger brand in the Australian residential telecommunications market, the new No. 2, with 641,000 broadband DSL subscribers.

"Even with increased competition in the sector, iiNet was able to lower churn, maintain ARPU, retain profitable customers and grow its customer base. Our strategy of providing awesome service, releasing cool new products, and building scale is paying off.

Other highlights were:

  • Total broadband customers up 19 per cent to 641,000 due to continued organic growth and the acquisition of AAPT's Consumer Division.
  • Continued focus on network migrations with 64 per cent now on-net (excluding AAPT Consumer Division).
  • New products launched including fetchtv, mobile voice plans, the Terabyte plan, BoB LiteTM, BoB2TM, Online Vault and new small business solutions.
  • Integration of Netspace substantially completed and AAPT Consumer Division on track.
  • Strong balance sheet, with comfortable gearing at 40 per percent debt/equity.

The report notes that ongoing court against commenced by the Australian Federation Against Copyright Theft (AFACT) on November 20, 2008, against iiNet Limited claiming breach of copyright laws has so far cost the ISP $7.38 million in legal costs of which $2 million has been reimbursed by the company’s insurer’s.

On February 4, 2010, iiNet Limited received a favourable ruling in this court action and was awarded its costs which were eventually awarded at 60 per cent. However, the initial ruling on the case was appealed , resulting in iiNet being successful again. Both applicants have now appealed the Full Federal Court decision to the High Court. It is anticipated this appeal will be heard in the next 12 months.

As result of the continuing appeals process the costs awarded to iNet have not been recognised as an asset in the FY2010/11 report as “the outcome of the appeal cannot be reliably determined at the time of release of the report”.

Trusted partner

However, the court action is the only slightly off-key note in what is a very positive report,

Malone said, "Having achieved our goal of becoming the leading challenger brand in the Australian residential telecommunications market, iiNet's new vision is to become your trusted partner in the digital world.

"Customer needs have evolved and Australians no longer simply want Internet access. They desire a variety of broadband services whenever they want and wherever they are. iiNet is already at the forefront of industry product development, and we are building stronger relationships with our customers through innovative products and excellent service.

"Service is the centre of everything we do ... Scale has become increasingly critical. The acquisition of AAPT's Consumer Division in September 2010 allowed iiNet to achieve its strategic goal of becoming the leading challenger brand in Australia with the second largest number of broadband DSL subscribers.

"We have now substantially completed the integration of Netspace into iiNet, achieving significant synergies through on-net migrations and IP bandwidth savings. The integration of AAPT's consumer division is tracking as planned, with service improvements resulting in lower churn numbers than first thought,.

Malone was also upbeat about the number of new products and services iiNet released over the past 12 months that have cemented the Company's position at the forefront of the sector.

"Some of the products iiNet has launched include the fetchtv, our self-developed BoBs from our iiLabs team, the Terabyte plan, hosted applications like Online Vault and new Business Packs for the SME market. Our product and content pipeline is bursting with new initiatives to be launched in the next twelve months that will further strengthen iiNet's position at the forefront of industry product developments."

NBN praised

In commenting on the evolving operating environment, Malone said that following the release of the Federal Government's NBN Co business plan early this year, the company now had a much better picture of what the NBN environment would look like for iiNet.

"We are genuinely excited by the increased market opportunities the NBN will bring, doubling the available market for iiNet's services," he said. "iiNet's scale, broad product suite, focus on customer service, and successful experience in migrating large numbers of customers, uniquely positions iiNet to benefit from the NBN and grow shareholder value.

"Whilst the 2011 financial year has been the most active in iiNet's history, we have no intention of slowing down. We will continue to invest in providing awesome customer service and expand iiNet's product and content portfolio to deliver what our customers need in an their digital world."

On market buy-back

iiNet also announced it intends to undertake an on-market share buy-back of up to 5 per cent of its issued capital to be funded from surplus cash and existing debt facilities. The buy-back is expected to commence on August 29 and continue for up to 12 months. All shares acquired under the buy-back will be cancelled.

The Board has a strong focus on capital management and growing shareholder value, and considers that iiNet's current market price does not fully reflect the underlying value and potential of the Company as the leading challenger brand in the Australian market," Malone said.

iiNet's policy of declaring interim and final dividends will not be impacted by the announced on-market buyback program.

Unmarketable parcels share sale facility

iiNet also announced a share sale facility for holders of unmarketable parcels of iiNet shares valued at less than $500. Impacted shareholders, mostly previous Amcom shareholders holding less than approximately 5200 Amcom shares prior to the announced consolidation, will be contacted directly by iiNet in due course.

iiNet has appointed Euroz Securities Limited to act as its broker to the on-market buy-back program and unmarketable parcel share sale facility.

On subscriber growth iiNet indicated that its subscriber growth rate for the year was marginal, largely ended up increasing only 7000 for the full year.

However, Malone said that when that number is split out, it demonstrates its growth of 51,000 on-net customers during the year, which is suburbia growth and largely regional off-net growth decreased by 43,000.

He added that some of the numbers is a result of the company migrating its customers to its own infrastructure but, most of it is due to the loss of market share in those areas where iiNet is purchasing wholesale services from Telstra – which is charging more for the port than for retail.

On predictions for 2011/12

iiNet chief financial officer, David Buckingham, said its EBITDA revenue increases are in line with company guidance goals considering market changes within the year. It aims to take that forward into the next 12 months.

“We got available headroom on our banking facilities of over 100 million, which allows us plenty of headroom for further growth. Clearly that allows us significant opportunity to grow organically and inorganically if the opportunity comes along,” he added.

The company’s increased operating cashflow has enabled it to grow into a sizeable business and its increased capital expenditure allows it to invest into growth.

The company is expecting to see further organic growth in the coming year, but their main focus will be on getting the costs out on APT over the next few years.

It also expects to win market share over the coming years in reaching to broadband customers, but the real push will be into what additional products it can provide their customers with.

“One of the aspirations we have laid out here is that at the moment we have less than two products per customer. Over the next few years, we are planning to try and increase that to around three products per customer. It will be a great challenge trying to convince customers to buy an additional product from us,” Malone added.

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Tags ISPTelconbn coiiNetTelecommunicationsNational Broadband Network (NBN)Australian Federation Against Copyright Theft (AFACT)mobile solutions

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