IIN - iiNet Limited

Re: IIN - Bounce back?

my view. this stock will continue to struggle over the long term as it has serious lack of sustainable competitive advantage. Big muscle man TLS will continue to squeeze at all ends.

Re: IIN - iNet Limited

Oops! Bet very many were not expecting this, wonder how bad the downgrade will really be...just as it was coming out of the downtrend too.

1 May 2006
The Manager
Company Announcements Office
Australian Stock Exchange Limited
Level 4, 20 Bridge Street
SYDNEY NSW 2000

UPDATE ON SUSPENSION
iiNet Limited (ASX: IIN) advises that its shares will remain suspended from ASX trading.

The Company’s financial performance in the March quarter has been well below expectations.

This situation was not identified earlier due to deficiencies in forecasting and clerical errors in revenue recognition that have only recently emerged. It has become clear, however, that expected EBITDA for the 2006 financial year will be significantly below the Company’s guidance to the market.

The Company, in conjunction with its auditors Ernst & Young, is currently investigating the issues that have arisen. This work is well advanced and also involves a thorough analysis of the variances between the guidance and the actual financial results in the March quarter. These issues are material, but the underlying business remains strong.

Operationally, customer numbers and service delivery continue to track well. ADSL, VoIP and Telephony growth is higher than expected. Churn of fixed monthly dial up accounts and call centre performance have improved. The New Zealand business (iHug) is performing well and is expected to produce an EBITDA result for the full year above the level included in the guidance.

However, the Company believes it is prudent to remain suspended from trading until it is in a position to provide the market with an analysis of the performance to date and a revised guidance for the full financial year.
The Company currently expects to resume trading during the week commencing 8th May, 2006.

Stephen Fewster
Company Secretary
Phone: (08) 9213 1358

Click to expand...

This whole iinet situation looks really messy to me. They stop trading on their shares for over a week, then finally announce that its because of a significant miscalculation in their earnings and say that they may start trading again next week. I'd be expecting a pretty major fall in the share price when trading resumes and I dont see a very happy future. Telstra seems to be really hurting iinet at the moment.

Looks very ominous to me. "clerical errors in revenue recognition" that have led to material differences. Yeah right, and senior iiNet management didn't spot this?? Doesn't exactly instill confidence in their Corporate Governance. Not on an Enron scale of course, but investor confidence will be shot after this...

I bought iinet a long time ago now, and I did it because at the time I worked for another ISP and they hired the best Cisco guy in Perth at that time. As a competitor during that time I had grudging respect for them. I expect the price will drop to what I paid for them.

I have no doubt they really understand the ISP business and made a lot of smart moves, but I think that the management team lack the experience of managing a larger company. They are no longer the nimble small company they once were and I think this debacle illustrates that the management of this company are overrated.

However, I do beleive in the long term they will recover from this. They still have a much lower cost base than a lot of their competitors and still have some very experienced staff that I have a lot of respect for.

I wonder if this will cost Michael Malone his job though? There will be serious shareholder fury..

pch said:

I bought iinet a long time ago now, and I did it because at the time I worked for another ISP and they hired the best Cisco guy in Perth at that time. As a competitor during that time I had grudging respect for them. I expect the price will drop to what I paid for them.

I have no doubt they really understand the ISP business and made a lot of smart moves, but I think that the management team lack the experience of managing a larger company. They are no longer the nimble small company they once were and I think this debacle illustrates that the management of this company are overrated.

However, I do beleive in the long term they will recover from this. They still have a much lower cost base than a lot of their competitors and still have some very experienced staff that I have a lot of respect for.

I wonder if this will cost Michael Malone his job though? There will be serious shareholder fury..

Click to expand...

That's a great comment about management pch, this might be a well needed wake up call; would be good for the longterm to focus on key management issues and personnel. I'm glad you rate them highly technically as I have heard good reports about their strategies. Only issues now are: what really are the problems with the books (or whatever else it is) and how long will this pain last?

From The West Australian on 13 May 2006

http://www.thewest.com.au/20060513/business/tw-business-home-sto134164.html

High speed fall for iiNet

NEALE PRIOR and JULIE-ANNE SPRAGUE


A little over 12 months ago, it looked liked iiNet boss Michael Malone had hit the big time when the business he started in his mum's garage became the nation's third biggest internet service provider.

Mr Malone had just won the bidding war for dot.com discard Ozemail and the group was making an audacious challenge to Telstra's dominance of broadband internet with plans to install high-speed internet units on racks in the telecommunications giant's own exchanges.

What's more, iiNet had just completed an $85 million capital raising through its long-standing supporters at stockbroking firm Euroz at $3.05 a share - a price that valued Mr Malone's 16.6 per cent stake at more than $55 million.

Now it is anybody's guess what Mr Malone's stake is worth after a four-week suspension of the company's shares as auditors and iiNet staff try to work out just what has been going on with the accounts. The shares last traded at $1.69, but analysts fear the price could halve when it returns to trading.

Analysts now see iiNet as being open for takeover after it appointed Euroz, its long-time market supporter and feeder of its appetite for equity, to advise the group on approaches from potential suitors and GEM Consulting to carry out a strategic review.

And investors and analysts are left wondering just what is going inside iiNet, with Mr Malone this week being effectively sidelined with the elevation of technology stock veteran Peter Harley from non-executive chairman to executive chairman and chief financial officer Stephen Fewster told to report directly to Mr Harley.

"When you call in Euroz to review unsolicited offers you are in play," said one analyst yesterday. "If you sideline the managing director who owns a big stake in the company, you are very definitely in play."

The hottest favourite as a potential suitor is Australia's number two telecommunications and internet group Optus, the Singapore Telecommunications subsidiary which is belatedly making its own push into providing genuinely fast broadband to its customers.

Mr Malone has overseen a $20 million-plus investment over the past year in advanced internet technology that can give customers broadband services more than eight times the speed of Telstra's offering.

And the group plans to borrow money from its bankers and spend another $15 million in coming months installing special broadband transmitter units, known as Dslams, into Telstra phone exchanges that can push data down Telstra's copper phone lines at high speeds.

Its customer base of more than 175,000 broadband users, including 85,000-plus customers using its own high-speed broadband, makes iiNet appealing to potential suitors - if the price is right.

In hindsight, the writing was on the wall in September when Telstra chief Sol Trujillo intensified a public campaign to loosen the regulatory shackles on Telstra and crank up the fees it charges wholesale customers, such as iiNet.

By November Mr Malone was warning investors that iiNet's profits would be squeezed by Telstra's price rises, sending iiNet's shares into a tailspin.

Its shares plunged from $2.62 to $1.68 before the group officially slashed its forecast for first half earnings before interest, tax, depreciation and amortisation (EBITDA) from $19.1 million to $16.4 million on December 19. It told investors its full year earnings would be $40.1 million.

Two months later iiNet appeared to be back on course. It unveiled a $16.43 million interim EBITDA in accounts reviewed and signed off by auditors Ernst & Young. It then reaffirmed its earnings guidance and outlook at a presentation to stockbrokers on March 8.

This month iiNet revealed it had called in Ernst & Young to unearth "forecasting and clerical errors in revenue recognition" that masked a serious downturn in the March quarter.

The shock for the analysts advising some of Australia's biggest stockbroking firms was not the downturn in trading performance - it was why and how Australia's third largest ISP did not know how much money was flowing in and out the door.

"People have been burnt once and now twice, and there will be people now who will exit this stock and not want to come back," one analyst said. "They will not buy Michael Malone's blue sky any more."

"They've got Ernst & Young in there to help them out, it hardly inspires management confidence," said another.

IiNet is yet to tell investors how it fumbled the books and why it took so long to detect. That is expected to take a further one to two weeks.

One telecommunications industry consultant said highly sophisticated accounting system were needed to accurately determine revenue when there were high levels or pre-payments and customers on long-term contracts.

He said the blaming of so-called "forecasting and clerical errors in revenue recognition" pointed to problems with the group's accounting system. "It basically means their accounting systems are not working properly," he said.

Mr Malone said this week the problem was human error. He could not be contacted yesterday.

One rival internet company executive said the entire industry is facing a price squeeze from Telstra as the giant pushes up the wholesale price of its copper wire network and broadband.

But he said Mr Malone and iiNet were playing a particularly risky game by publicly taking on the "500 pound gorilla" while relying on Telstra's co-operation in gaining access to its exchanges and connecting customers.

"They've got iiNet saying 'up your nose with a rubber hose and, by the way, we need another couple of racks'," he said.

PowerTel buys in as iiNet slumps

http://www.theaustralian.news.com.au/story/0,20867,19268594-643,00.html

Michael Sainsbury
May 27, 2006

AUSTRALIA's third-biggest internet service provider, iiNet, has issued a profit downgrade after securing a $10 million investment from network player PowerTel that may signal a broader round of consolidation in the $33 billion a year sector.

Analysts expect iiNet's shares to fall by as much as half when they resume trading on Monday after being suspended for five weeks.

PowerTel, which will end up with about 13 per cent in iiNet after its two-tranche investment is executed, is paying only 85c a share for most of its shares, against iiNet's last traded price of $1.69.

"We are extremely disappointed to report this downgrade," iiNet chief executive Michael Malone said.

"There are a number of reasons that have combined in this half to produce a result that is significantly less than our market guidance, and we attach a detailed analysis.

"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."

Macquarie Equities analyst Tim Smart said: "Clearly iiNet has grown at a pace that has far exceeded the company's ability to manage it."

In a lengthy stock exchange statement listing a litany of operational woes, iiNet said it would miss previous guidance of $40 million for underlying profits.

Instead, the figure would be $26.4 million and the company expected to post a bottom-line loss.

IiNet has experienced problems integrating a number of acquisitions including former No2 ISP OzEmail early last year.

The company has been plagued with difficulties at its call centres and teething problems on its new ADSL network. Chairman Peter Harley said: "In every other six-month period since 2001, there has been either a large acquisition or a major integration.

"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.

"Following the discovery of the gap between the actual and forecast position, we chose to adopt a conservative approach, resulting in a longer than expected period of suspension from trading."

IiNet's troubles also reflect those of the sector, which has been hit by increased competition and an unexpected hike in network prices by former monopoly player Telstra.

PowerTel yesterday pitched its investment as a strategic alliance.

"This strategic alliance has significantly accelerated PowerTel's progress in the wholesale consumer, small business broadband and voice markets," PowerTel chief Paul Broad said.

"This will bring forward more than $10 million in revenue growth for PowerTel and its wholesale partners."

IiNet will use PowerTel's east coast fibre network.

Between them the two groups will have the country's second-biggest ADSL network.

The move comes only weeks after PowerTel failed in a cash and shares bid worth about $400million for Telecom New Zealand's local subsidiary, AAPT.

PowerTel chief executive Paul Broad said the company had decided to take a stake in iiNet so it "had a foot on a big chunk, in case, before anybody else".

IiNet is on track to complete the strategic review of the business by the end of June 2006. Updated guidance on the 2007 financial year will be provided at the conclusion of that process.

IiNet will conduct an investor roadshow across Australia next week.

Well iinet are trading again and have released the results of their audit.

In short, systematic and repeated screw-ups across all sectors of their business. If I were part of the management team I would be very embarressed at the scale and scope of it all.

Pages 3-6 of their "Profit Update" document is gold as a reference to their competitors to learn how *not* to do the same.

Think it could have been oversold a tad today - and think it may go back towards the dollar tomorrow.
Time will tell.

canny said:

Think it could have been oversold a tad today - and think it may go back towards the dollar tomorrow.
Time will tell.

Click to expand...

I hope not.

I am in my first short trade today and really wish I hadn't bothered.High risk and don't say I like it too much.

Maybe my risk tolerence isn't as high as I thought.

It has been trending downwards over a long period of time, is there any reason why it should go up in the near future?

serp said:

It has been trending downwards over a long period of time, is there any reason why it should go up in the near future?

Click to expand...

Doesn't seem to be any reason, short term volatility is another issue, 45c valuation according to this report due to analysts becoming aware of more information, increase in risk profile. It's hard to say that this was an accounting anomaly, this is a genuine profit warning and signal that all is not well, it's not like someone hit the wrong button or forgot to include a report. Possibly a candidate for the cockroach theory- when you find one there are bound to be others about to come out, not about to die but looks like a long recovery, especially with Telstra becoming more aggressive: http://www.smh.com.au/news/Business...rofit-downgrade/2006/05/29/1148754930110.html

Sounds like ENG is a better bet at the moment

Sounds as if Optus, Telstra and Singapore Singtel are all after them -
Can only push the price back up if a bidding was begins.

I'm an iinet customer and I think iinet did a very naughty thing. They book me two months in advance for my internet connection
So I think the financial thing could be down to that booking revenues before it's due...

I wrote a letter of complain to them and they reverse my charge to monthly basis not two months in advance. hmmmmm

All sorts of fun and games happening here, Amcom (AMM) have purchased almost 20% of IIN in the last 2 days.

Rod.

Yeah~ It's really fun to watch the rollercoaster ride..
Wish I have bought some at .67 and sold at 1.09

RodC said:

All sorts of fun and games happening here, Amcom (AMM) have purchased almost 20% of IIN in the last 2 days.

Rod.

Click to expand...

I think that this is a good thing for both companies. Amnet's fibre network will save iinet money and amnet will not have to keep rolling out dslams.

Both will save costs in backoffice stuff like payroll, billing, and call centre too..

Do we buy IINET?

YAY or NAY?
The price seems alittle low .80cents for a company with over 600,000 subscribers