Pipex counts cost of competing with the big boys

Pipex told investors today its underlying profits suffered in 2006 because of borrowing to pay for rival ISPs Bulldog and Toucan, and home phone outfit Homecall.

Pre-tax profits, hit by bigger interest payments, sank to £4.8m, from £5.1m a year earlier. Margins fell away too, from 46 per cent in 2005 to 38.2 per cent last year, with Pipex blaming having to pay more line rental to BT because of the extra home phone customers it picked up in buy outs.

Pipex took on tens of millions in extra debt so it had cash to join in the feeding frenzy on ISPs last year, when many were looking to get out of the home bundle market which looks set to be dominated by just a few large firms.

Pipex said the review being carried out by bankers UBS, which was announced in March and will decide whether Pipex itself should make an exit, was "on track".

The board sniped at the press, which has reported that interests in an auction for Pipex from Sky, BT, TalkTalk, and Virgin Media all melted away during negotiations, calling it "highly speculative". Pipex said it will continue to explore its options, and expects to make an announcement once the review is completed in summer.

The acquisitions delivered a rise in sales of 121 per cent to £294m, since total subscriber numbers were boosted to over one million from under 300,000 at the beginning of the year. Broadband numbers went from 283,000 to 570,000. Total losses more than doubled, however, to £17.8m from £8.7m.

Pipex's full statement is here. ®