Profit warning for ihug parent

Australia's third-largest internet service provider, iiNet, is downgrading its profit forecast but says there will be no impact on its New Zealand subsidiary, ihug.

Trading on the ASX in iiNet has been suspended since April 20 while rumours circulated including that the company was being sold, that it was making an acquisition, that Westpac was reviewing its bank debt.

The company told the market yesterday that earnings before interest, tax, depreciation and amortisation (ebitda) for the 2006 financial year would be significantly below the forecast of A$40.1 million ($47.8 million).

Managing director Michael Malone said there would be no changes at ihug in New Zealand as a result of the earnings downgrade. Internet provider ihug was expected to produce an ebitda result for the full year above previous guidance.

"We're pretty delighted with New Zealand actually," he said. "It's business as usual, we're happy with the way it's going, we think the guys over there are doing a terrific job and we're pretty optimistic about [local loop unbundling]."

Ihug is the third-largest ISP here, with about 120,000 customers.

Financial performance in the March quarter for iiNet had been well below expectations, but this had not been identified earlier due to deficiencies in forecasting and clerical errors in revenue recognition that have only recently emerged.

Chief financial officer Stephen Fewster said the company would next week provide details and analysis of where the business had changed.

"There was a posting error in one of the months which, as a result, we didn't detect the disconnect from the forecast at the time," Fewster said.

"The market will be disappointed, given the figures that we released in December won't be the numbers that we release in the next week or so."

Work with auditors Ernst and Young to investigate the issues, which were described as material, was well advanced, he said.

However, the underlying business was said to remain strong.

"The business made earnings in the first half and will continue to make earnings in the second half, albeit not at a level we'd expected," Fewster said.
Customer numbers and service delivery continued to track well, Protocols such as ADSL and VoIP, and telephony growth, were higher than expected and the churn of fixed monthly dial-up accounts and call-centre performance had improved.