M&A bolsters iiNet FY2012 results: Analysts

Analysts upbeat on iiNet but question impact of NBN on future profitability.

Successful acquisitions drove iiNet success in fiscal-year 2012, analysts said after the broadband company reported spikes in revenue and profits.

In FY2012, iiNet increased revenue by 19 per cent to $831 million and reported EBITDA by 47 per cent to $144.8 million.

The acquisitions of Internode and TransACT were major factors behind iiNet’s revenue and profit growth in FY2012, IDC analyst Dustin Kehoe told Computerworld Australia. “Once you are able to move customers from competitors’ networks to your own network, you have better cost structure [and] you improve your margins.”

Integration of the acquired companies appears to be “on track,” Kehoe said. “The trick” will be integrating billing systems and backends, aligning products, training salespeople, writing marketing material and consolidating branding, he said.

Ovum analyst, David Kennedy, said iiNet “has been able to integrate its acquisitions successfully, realizing its scale advantage.” The broadband company “has successfully grown their revenue by building a customer base by both organic and inorganic means. They have also shifted that customer base from iiNet’s original resale product to a DSLAM network, delivering margin growth as well.

“Issues that iiNet needs to address are the transition to the NBN, which will likely see broadband retail margins fall in the long run, and upward pressure on mobile wholesale prices over the next two years."

However, iiNet executives cited NBN and mobile as opportunities to increase profits.

NBN allows iiNet to expand into regions lacking broadband, providing opportunity to increase revenue, Kehoe said. However, it’s likely cheaper “to support customers using your own network” and so NBN “might not be a good thing for profit.”

Increased focus on mobile is a “good move” for iiNet because consumers and business customers are increasingly demanding mobility, Kehoe said. “You really have to have all components” of a bundle “to be attractive, otherwise your customers will go to your competitors.”

The strong iiNet results show that customer service costs “don’t have to be a drag on financial performance and profitability,” said Gartner analyst, Geoff Johnson. The company’s high customer satisfaction ratings “are in severe contrast” with Vodafone’s, he said. “It also shows the economic imperative for Telstra to be investing significantly in improved customer service mechanisms.”

Follow Adam Bender on Twitter: @WatchAdam

Follow Computerworld Australia on Twitter: @ComputerworldAU, or take part in the Computerworld conversation on LinkedIn: Computerworld Australia

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