iiNet financials worse than expected, shares remain suspended

Perth ISP iiNet today revealed forecasting and clerical errors will significantly impact its 2005-06 results, the first hint of explanation for the trading halt announced almost two weeks ago which remains in force.

Managing director and founder Michael Malone told WA Business News the issue revolved around business performance rather than administration, and reflected the fact that forecasting models proved to be wrong, and there was a time lag in determining that the problem existed.

He confirmed that the Western Australian pioneer internet service provider's financial performance in the March quarter had been well below expectations, and subsequently its expected 2006 financial year EBIT will be significantly lower than previously announced to the market.

"It is definitely not a business in distress," Mr Malone said.

The financial issues at the company were not identified earlier because of recently uncovered forecasting errors and clerical mistakes in recording revenue.

"As soon as it became clear we had performance issues we decided it was prudent to halt."

Next week iiNet plans to announce a robust forecast for the full year results, an explanation between old and new forecast figures and an explanation as to why it took so long to identify the problem.

The company is working with its auditors Ernst & Young over the issues, and believes its is prudent to remain in a trading halt until it can provide further specific details to the market.

Responding to speculation, he ruled out any intention to sell down his holding, was not contemplating a capital raising and was pleased with the New Zealand business' performance.

Its shares will remain suspended from trading on the ASX, with the company now saying it expects its stock top resume trading during the week commencing May 8, after previously stating it had hoped to be back on the boards last week.

iiNet, Australia's third largest internet service provider, initially announced a trading halt on Tuesday April 18 followed by a request for a suspension of its stock two days later, which fuelled speculation about its immediate plans.

Market analysts have speculated that the trading halt may be precursor to some adverse news from iiNet, whose shares have declined sharply in recent months - from $3.40 in September to $1.69 before the suspension.

THE FULL ASX ANNOUNCMEMENT APPEARS BELOW.

Announced by: IIN
Announced on: 01/05/2006 13:10:16

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.