Final Results

Alternative Networks plc

Results for the year ended 30 September 2011

HIGHLIGHTS

·; Organic growth and continued market share gains in mobile, fixed line, PBX and data services revenues

·; Successful acquisition of Scalable, high growth participant in Enterprise Data market

·; Margin improvement: new 3 year commercial agreement with mobile network provider

·; Strong cash conversion of profits

·; Securing leading market position in provision of converged telephony services

·; Increased cross-selling of services

·; Progressive dividend policy maintained with a 64% underlying growth in dividend.

KEY FINANCIAL INFORMATION

James Murray, Chief Executive of Alternative Networks, commented:

"We are very pleased with these results which demonstrate the momentum that has been continued from the previous year. We have increased both margins and market share, cross-sold more services and integrated a key acquisition. We have also maintained our financial strength and our cash position is strong, even after paying for Scalable, such that we have been able to announce a significantly increased dividend."

"The acquisition of Scalable has been a great success, exceeding expectations and adding the missing data element that has helped transform the business. Scalable has been fully integrated into the Group making us a unique operator in the market, better able to offer more services to more customers."

"We are now penetrating a broader market, as our all-round telephony, billing & data offering proves more appealing to larger customers. The flexibility and resilience built into our business differentiates us from our competitors. This remains the cornerstone of our strategy, to be able to operate under all market conditions by having a broad suite of communications products to offer to an increasing proportion of the market."

"We are under no illusions as to the challenges presented by the economic backdrop. But we are ready to meet the challenge, as we are in a strong financial position and we have made acquisitions that give us a much broader range of business opportunities than were previously available to us. The current financial year has begun well and we remain confident of achieving our objectives for the year and beyond."

Enquiries:

Alternative Networks plc

Results for the year ended 30 September 2011

Chairman's Statement

Results

Alternative Networks has continued to perform strongly, maintaining the momentum of the previous year. Turnover has increased by 22% to £117.3m (2010: £96.2m), with underlying organic growth of 4%. Operating margins grew slightly from 12.0% to 12.4%, enabling the Group to report adjusted EBITDA of £15.4m, an increase of 27% year on year (2010: £12.1m).

The Group continues to be strongly cash generative, with cash inflow of £15.4m (2010: £13.6m), representing a 100% conversion of adjusted EBITDA (2010: 112%), maintaining our strong financial position. Net cash at 30 September 2011 was £10.9m, slightly lower than at the end of the previous financial year (2010: £11.1m). A creditable result given this is after the payment of £9.5m for the purchase of Scalable.

The Group's continued growth and financial strength has enabled the Board to declare a final dividend of 7p per share, making a total dividend for the year of 10p per share. Excluding the special dividend of 3p paid in the previous year, this represents a year on year increase of 64% in real terms, further evidence of the Group's ability to generate excellent returns for all shareholders.

Market Share

Given the tough market conditions, we are pleased with these impressive results. The executive management's steadfast determination to implement a coherent growth strategy is clearly working. Not only has it delivered a strong financial performance, but the team's well respected experience, industry expertise and commercial acumen has enabled the Group to increase market share. The Group's mobile subscriber base grew by 10% to 68,207 (2010: 62,136), fixed lines and channels were up 9% to 87,237 (2010: 79,862) and Advanced Solutions revenues increased by 14% to £18.2m (excluding the contribution of Scalable). This is supported by the Group's success in cross selling its products which in this period has increased the proportion of customers up taking more than one product to 47% (2010: 46%) and, in the larger customer base, 78% of customers are buying more than one product. The growth in market share is a notable achievement in this market and in such times.

Acquisitions

The management team has demonstrated its ability to identify, negotiate, execute and integrate value adding acquisitions that fit well within the Group, complement organic growth and strengthen its market position. This strategy has created a powerful platform of systems (Echo), billing and software (AKJ) and data and IT services (Scalable), which demonstrate ours is not an indiscriminate buy and build strategy. We have a considered and low risk approach to inorganic growth; the emphasis is on the addition of reasonably priced businesses to the Group which can be fully integrated and improve the business as a whole, in terms of growth potential, flexibility and resilience.

The most recent acquisition, Scalable, at the very start of the reported financial year, is the best example to date. Scalable has performed beyond our initial expectations and has transformed the business, accelerating the Group's ability to offer the full range of telephony and data solutions. Scalable delivered an adjusted EBITDA of £1.7m on sales of £20.5m, with 160% cash conversion.

The acquisition of AKJ, in 2009, has also been a key factor behind the Group's increasingly multi-faceted offering, providing a further platform for growth and again making the Group more resilient to market conditions. AKJ achieved sales of £3.7m, which, on a like for like basis, represents 9% annual growth. However, in addition to its financial contribution, AKJ has also focused on the development of "Your Alternative Portal". The portal was successfully launched in 2011 and has delivered significantly increased functionality, visibility and accountability to customers, with in-house engineer and software capability a key differentiator. Over 95% of our customers now have access to the portal and over 80% use it every month. This is a further example of a service that enhances cross-selling and also improves customer retention.

We will continue with our strategy of only considering acquisitions that match our stringent criteria of price, business fit and ease of integration. Several prospects are being assessed and the tough market conditions may also give rise to additional opportunities, as smaller businesses conclude they will perform better as part of a larger Group.

Current Trading and Outlook

The current financial year has begun well and the Group is performing in line with expectations. The steps taken over the last two years have made the business significantly more flexible and resilient. We are now penetrating a larger proportion of the market, through offering a greater range of services to a broader base of customers. By being able to focus on different parts of the market in response to changing conditions, in terms of service and customer profile, the Group can be more nimble in targeting growth in a stagnant or contracting economy.

In spite of the difficult market conditions and the increasingly gloomy macro-economic prognosis, we believe the Group is better placed than most businesses to withstand these challenges. Our confidence is based on the Group's unique combination of a complementary and comprehensive set of telephony and data services, a highly experienced and respected management team, a strong balance sheet and a cash generative business model. We look forward to continued success and to delivering growth in market share, earnings and shareholder returns.

Tony Caplin

Non-Executive Chairman

5 December 2011

Alternative Networks plc

Results for the year ended 30 September 2011

Chief Executive's Report

Overview

This has been another excellent year on a number of fronts. Continuing the momentum of a successful 2010, we have again delivered record results for the Group in 2011, with the highest recorded sales, adjusted profits, operating cash receipts and dividends in our history.

Group results highlights include

o Revenues increase of 22% to £117.3m.

o Underlying organic revenue growth of 4%.

o Successful acquisition of Scalable on 2 October 2010 for an estimated £10m:

§ Impressive growth performance at Scalable which recorded results of £20.5m sales, £7.1m gross profits and adjusted EBITDA of £1.7m, with 160% cash conversion.

o Continued gains in market share:

§ Mobile subscribers increased 10% to 68,207 (2010: 62,136).

§ Fixed line customers' lines/channels increased 9% to 87,327 (2010: 79,862).

§ Advanced solution revenues were up 14% to £18.2m excluding Scalable.

o Improving profitability:

§ Gross margins up from 35.8% to 39.0%, excluding Scalable, and 38.1% with Scalable.

§ Group adjusted operating profit margins up from 12.0% to 12.4%.

o Strong balance sheet and excellent cash generation:

§ Free cash flow of £11.4m (2010: £10.9m).

§ Strong cash conversion at 100% adjusted EBITDA (2010: 112%).

§ Net cash funds of £10.9m at 30 September (2010: £11.1m).

o Improved shareholder returns:

§ Final dividend of 7p per share proposed. Together with the interim dividend of 3p, this equates to a total dividend for the year of 10 pence (2010: 9.1p, which included a special dividend of 3p). If the special dividend of 2010 is stripped out, the dividend increased by 3.9p or 64%.

§ Progressive dividend policy maintained with a minimum 10% dividend growth proposed for 2012 and 2013

The acquisition of Scalable and the broad spread of the Group's product, specifically a large mobility expertise to complement fixed line telephony, gives the Group greater opportunities to grow organically. This is partly through access to more and larger customers, but also because the Group has more solutions to cross sell to its core SME and enterprise customers.

Financial Results

This year has a material contribution from Scalable for the first time, following its acquisition on 2 October 2010. We have set out the summary contribution below:

This has been an excellent period of trading for the Group, with headline figures showing Group revenues up 22% and adjusted operating profits increased 26%. This result has been supported by the acquisition of Scalable, which has been a very good fit strategically and has performed well ahead of our initial expectations. The Group's business mix has been transformed with now approximately one third of its gross profits now coming from the Advanced Solutions data and voice integration business (including billing services), with a similar amount coming from each of fixed line and mobile telephony services.

At the underlying level, the Group generated estimated like for like (i.e. organic) revenue growth of 4%. This is estimated by excluding the impact of AKJ only having 11 months contribution in 2010; and excluding the loss of mobile revenues in 2011 from the Networks due to the change in commercial arrangements; and the loss of mobile revenue in 2011 due to EU regulation (call capping) of SMS and data revenues; and the loss of fixed line revenues due to the Ofcom changes to mobile termination rates.

Excluding Scalable, gross profits and operating profits were both significantly up on 2010 due to higher gross margins and improved economies of scale.

Gross profit margins have increased to 38% (2010: 36%). The key reason was the increase in telephony margins, both fixed line and mobile. In mobile, the change in supplier terms in January 2011 was the main factor and in fixed line, the increased margins on minutes have helped bolster performance. Margins per product set are reviewed in more detail below.

Group adjusted operating profits increased by 26% to £14.6m (2010: £11.5m). Scalable's contribution was £1.7m, after Group recharges. Scalable's operating margins were lower due to increasing headcount and a step up in the related operating costs of the business to support the continuing growth.

On a statutory basis, pre-tax profits increased 1% from £9.2m to £9.4m. The reason for the apparent disparity between the statutory performance and the adjusted performance is the £5.2m exceptional (See Note 10) items, increased from £2.4m in 2010. The main adjustment is the £1.8m deferred consideration for Scalable being expensed as an employee cost under the new IFRS standards, and supplemented by an increase in amortisation of £0.8m on Scalable's intangible assets acquired. These adjustments are shown on the face of the income statement, and also in Note 10.

Cash generation continues to be very strong. Net cash generated from operations was £15.4m (2010: £13.6m) which was 100% of adjusted EBITDA in the period (2010: 112%). Free cash flow was £11.4m (2010: £10.9m), enabling the Group to pay £9.5m for the purchase of Scalable and still end the year with £10.9m net cash (2010: £11.1m).

Adjusted earnings per share increased 28% to 23.1p and, on a fully diluted basis, increased 22% to 20.4p. Statutory earnings per share declined 4% from 15.7p to 15.0p. A detailed reconciliation is set out in the financial and business review.

The Board has proposed a final dividend of 7p (2010: 4.1p), making a total of 10p for the year (2010: 9.1p), in line with our progressive dividend policy. If the special dividend of 2010 is stripped out, the dividend increased by 3.9p or 64%. The dividend will be paid on 26 January 2012 to shareholders on the register at 23 December 2011.

Strategy

The Group has continued its successful twin strategy of organic and acquisitive growth to become the preferred Converged Communications partner of choice for the UK's SME business market.

Strategy - Acquisitions

The Group continues to monitor the market proactively looking for further acquisitions that will fit well into the Group. The strength of the Group's balance sheet, together with a weak broader economic landscape, are both expected to bolster opportunities in 2012. Our criteria remain that targets need to be successful, growing, profitable and have similar customer bases to the Group. Further bolt-on acquisitions to complement the existing products are being considered, as well as targeting businesses in adjacent product sets.

Since 30 September 2010, the Group has made one significant acquisition. We reported last year on the acquisition of Scalable Communications plc ('Scalable') in the annual report.

Scalable - update

Scalable is a fast growing IP networks integrator based in Buckinghamshire and London. Employee numbers have grown to 75 from just over 50 at acquisition. Scalable remains a major partner of Juniper, Extreme, Mitel and F5. It consults, builds, installs, and maintains IP configured voice and data networks, also supplying security and a number of other bespoke solutions. Typical clients include Charles Russell and Liverpool Women's NHS Foundation Trust.

Since acquisition, Scalable has won significant new accounts with Carillion, Ocado, Virgin Money and the Medical Research Council. It operates directly with clients and also with system integrators, and operates a modern Network Operating Centre ('NOC') in its head office, so it can constantly monitor and support its customers remotely.

During the year, we have integrated all of Scalable's administrative functions into the Group, refreshed the Scalable brand to bring it into line with the Group's identity, and recently combined the London sales office with our own office in Bishopsgate, London. The former finance director is set to leave in January 2012 but the rest of the management remains in place.

Strategy- Organic growth

Review of Organic Growth factors - update on Key Performance Indicators

The four key organic growth factors supporting our strategy remain:

Focus on larger customers in SME space

We continue to target the mid enterprise market, particularly those customers with multi-sites and employees ranging from 80 to 1000.

At 30 September 2011, excluding Scalable's new customers, we had 1,214 customers with spends over £1k per month. This is slightly down on 1,249 at 30 September 2010, due to the reduction in spends in fixed line telephony by existing clients which took them below the threshold, and reflecting the economic softening and MTR reductions of some customers on the cusp rather than a net loss of larger customers. There was a net gain of 57 newly acquired customers during the period. These included a number in targeted industry verticals such as the professional services sector and Charities. The average monthly spend of these larger customers at 30 September 2011 was £5,080 up 7% on £4,765 in 2010.

At 30 September 2011, the number of higher spending business customers who take more than 3 products from the Group increased to 746 from 734 at 30 September 2010, representing 61% of the larger client base (2010: 59%). The average monthly spend for these customers also increased 7% to £5,864 in September 2011, up from £5,506 in September 2010.

At 30 September 2011, Scalable had 235 customers. Their average spend is nearly 5 times the size of the remainder of Alternative Networks' customers and in some cases, the customers are clearly large Enterprises, rather than SME businesses. This supports the continuing trend of increasing the size of the Group's customers, and the longer term strategy is to continue to introduce and develop products and services which larger customers might take from a single platform.

The success of cross selling products into our existing smaller customers so that smaller customers become larger ones can also be measured as below.

Cross-selling

A key part of our organic growth strategy remains to sell more products to new and existing customers. During the period we have had further success in this objective increasing the product penetration in our customer base. The number of customers taking more than one product is 47% (up 1% from 46% in September 2010). This has been helped by the number of multi-product new customers. In the larger customer base (i.e. those spending over £1k per month) we have seen a sustained resilience in high product penetration, with the number of large customers buying more than one products remaining at 78% (78% in September 2010).

Reduction in churn

The Group has continued to experience low churn levels across all products (mobile churn is covered separately below). Unsurprisingly, churn remains lower in customers who take more than one product and are users of "Your Alternative Portal" (see below).

Product Development

During the year the Group continued to ensure it was in a position to provide clients the full range of communications technology. The main addition, aside from Scalable's LAN and data centre IP integration skills, was a much broader set of wide area networking and internet connectivity products. As a result, the Group is well positioned in the UK market to provide advice and services to business customers and ensure their organisations have the right infrastructure to be IP and Cloud enabled, and be more competitive in the mobile workplace.

During this period, new products included:

Advanced Solutions

The Internet and Wide Area Networking portfolios were completed this year with the addition of Ethernet First Mile connectivity and a new suite of MPLS, VPLS and Ethernet services allowing aggregated access from a number of tier-one providers. We launched the first cloud based services to be delivered over this infrastructure providing data backup and storage solution ("Alternative backup"). In order to improve business continuity and flexibility, the Group developed its virtualisation capabilities with the addition of VMware to the portfolio which complements the Mitel Virtualised PBX update launched this year. Enhancements to the Group's unified communication suite included the addition of Video Conferencing from Polycom.

Mobile

The Group extended and improved its commercial arrangements with both Vodafone and O2. The key feature of the year was the addition of Apple's iPhones and iPads to the Group's product portfolio, and a broader mobile device range including the latest versions of all the major operating systems (BlackBerry, Apple iOS, Windows, and Android). Major device launches included BlackBerry's Torch 9810, 9860, Bold Touch 9900 and Playbook, and Android devices including Samsung Galaxy S2 and S Tablet and the Motorola Zoom tablet. To complement the core Mobile offering, we also added a solution for Mobile Call Recording to help our financial services clients meet new compliance regulations.

Fixed Line

During the year, the Group consolidated its position as a leading provider of business grade SiP Connectivity, converting customers from traditional voice services to SiP and delivering clients greater flexibility, enhanced resilience and the opportunity to consolidate their voice estate. Due to AKJ's extensive experience with BT Openreach's platform, the Group was able to enhance its customers' services with a range of business continuity services from the WLR3 platform. As a result, they benefitted from better engineer visit booking, better visibility of spare capacity at exchanges, and temporary lines products, which have been adopted to service our hospitality and construction industry clients.

New developments planned for the next six months:

Mobile

We expect the growth in Smartphones to increase, along with the trend for 'Bring your own Technology ("BYOT"), resulting in the need for organisations to support multiple mobile operating systems and increase the security of important corporate data on a range of devices. To meet these challenges, the Group will launch a range of Mobile Device Management solutions in the first half of the year, allowing our clients to achieve the highest levels of security and device management on the main mobile operating systems. To continue to offer choice and flexibility, the first half of the year will see the addition of HTC and Nokia devices to the portfolio alongside new BlackBerry devices running the new BBX operating system and the new Playbook which has the important addition of native email client and Citrix support.

Fixed Line Voice

The focus for the first half of the year in Fixed Line is for us to package products to provide enhanced business continuity services, fixed and mobile VPN services, enhanced reporting and to develop a new Alternative own-label Inbound platform.

Advanced Solutions

Advanced Solutions continue to show the greatest growth for the Group and to give added impetus to this we are developing a new Optimised Wide Area Network solution complimented by an enhancement to the group's Network Operations Centre.

Your Alternative Portal

The portal was successfully launched in 2011. This involved £0.5m investment in the architecture and data warehouse, and the software required to replicate all previous on-line services. Since March 2011, the Group has focussed on adding enhancements to the system and there is a phased roll out planned for 2011/2012 with scheduled work planned until December 2012. The highlights of the deployments in 2011 were:

·; Successfully deployed the new Portal Framework and hardware as a platform on which to grow new functionality in the next 18 months.

·; Launched an integrated Case Management service across all five product sets (Outbound fixed line, Inbound fixed line, Mobile, PBX systems, and Data), which gives clients industry leading visibility of their service experience.

·; Released a new Asset Management module that gives clients the ability to upload all of their telecoms estate (including those services that are not being provided by the Group) in order to manage it centrally. Future releases will allow cases to be raised and services changed directly from this module.

·; Increased the Portal penetration in the managed client base to over 95% enjoying Portal access, and over 80% using it every month.

·; Over 200 key clients are engaged in the Portal Focus Group, which helps to drive both the roadmap and give feedback on what we deliver.

The next 12 months will see:

·; Release of Mobile Management in 2011 which will allow mobile clients to self-administer "bars" and add or reduce bespoke services.

·; Develop enhanced reporting that will improve both the delivery of the information, and the depth of data available. This will be done with a view to incorporating additional reporting across all product ranges and service levels.

·; Enable on-line ordering for all product sets and enable tracking of on-line orders.

·; Further integration with suppliers systems that will allow both client self-service and also increase operational efficiencies.

Outlook

All of our operations are currently trading in line with expectations, and we have a healthy pipeline of opportunities. The most encouraging feature of our business today is that, in many cases, customers are expressing an interest in more than one part of our offering, evidence that our strategy is gaining further momentum. We are also very excited about the prospects for Scalable, and have ambitious plans to drive further growth as it capitalises on increasing demand by customers for faster and more cost efficient data management services. Finally, we remain alert to acquisition opportunities, especially as worsening market conditions force independent businesses in our market to consider a different course.

We are therefore optimistic as to future growth prospects, notwithstanding the difficult economic backdrop. We have created a unique business that is ideally placed to meet customers' requirements to manage their communications and data requirements cheaply, seamlessly and efficiently. We have a committed and experienced sales and marketing team that are adept at recognising customers' varying needs and who are able to deliver value for money at a time when all organisations are scrutinising their costs. Few businesses in our sector are able to do this, and it leaves us well equipped to enter 2012 ready for all eventualities.

James Murray

Chief Executive Officer

5 December 2011

Alternative Networks plc

Results for the year ended 30 September 2011

Financial and Business Review

Trading review by products

The Group operates four separate entities - Alternative Networks, Echo, AKJ, and Scalable. These are separate trading segments whose services are respectively described as Telephony Services (Alternative Networks), Advanced Solutions - Voice (Echo), Advanced Solutions - Billing Services (AKJ), and Advanced Solutions - Data (Scalable). Telephony Services includes both Mobile and Fixed Line network services. In order to assist investors, the Group splits out its KPIs into 3 distinct revenue groupings, Mobile, Fixed Line, and the balance in Advanced Solutions, because these enable users to benchmark performance against competitors and understand more clearly the underlying drivers to the Group's business.

Advanced Solutions - revenues and gross profits more than doubled

Advanced Solutions revenues were more than doubled, helped considerably by the acquisition of Scalable, which contributed twelve months revenue of £19.5m, and is covered separately below. These services now make up approximately one third of Group gross profits.

The legacy business of the Group performed well and revenues in each category made strong gains growing 14% to £18.2m.

IP PBX and Data services

o IP PBX install revenues increased 11% to £7.0m (2010: £6.2m) reflecting the successful investment in the sales teams in 2010. The sales teams successfully targeted key verticals and made significant headway in the professional services and charity market segments, with business coming from clients such as Towers Watson and Save the Children and Mencap. These wins in resilient market sectors help drive growth while public sector spending was lower than in the previous year. However, the "blue lights" team continued to make decent headway with wins of South East Coast Ambulance Services, and Nottingham and Derbyshire NHS trusts. These customers are considerably smaller than those targeted by Scalable, in that maximum order size tends to be around £0.25m.

o IP PBX support revenues grew 4% to £4.7m as the Group acquired larger customers, to offset some revenue erosion where smaller customers decided not to renew support on their system. There are now 40 customers spending more than £20,000 a year on support and this is up 11% on the previous year. Average spend per customer also increased 11% from £3,800 in 2010 to £4,200 in 2011, reflecting the larger customer wins.

o Data circuit revenues increased 33% to £2.8m from £2.1m in 2010. This reflects the growth in sales from the new sales team established in summer 2010, and the launch of several new products over the last year, e.g. MPLS, Ethernet First Mile, SiP, Data storage and business continuity products.

o Gross margins held up well at 41%. The 1% decline in margins is due to a small reduction in IP PBX support margins, as a result of an increase in contracted-out third party support for customers, mostly overseas. This more than offset an encouraging gain in IP PBX install margins in the year. Engineering costs for these services increased 5% to £1.55m.

AKJ Billing Services

o AKJ Billing Services revenues increased 19% to £3.7m. However the year ended 30 September 2010 included only 11 months sales contribution following acquisition. On a like for like basis we estimate revenues grew 9% year on year, which was a very pleasing result, given the focus of AKJ on the development of the Portal for the Group. During the year, the development time spent by AKJ on group products was approximately worth £0.5m at market value, and twice as much as in the previous year. Gross margins at 53% were slightly down on the previous year due to higher levels of services intra group which are not capital in nature.

o The main reason for the increase in revenues was the previously announced major contract with a mobile network operator for their fixed line billing and provisioning services. In this period, sales of £0.4m were derived from installing and managing these services. This three year project successfully went live in February 2011.

o During the year, in the rest of its 70 strong customer base, AKJ incurred a net loss of three customers. There were four customers who billed more than £20,000 per year and in each case, their decision to leave AKJ's platform was due to disposal of their businesses, and subsequent acquisition by other operators with their own billing platforms. The net position is a lower level of recurring revenues at the end of 2011, than at the start of the year, which means revenues are unlikely to grow significantly in the next year.

o Going forward the business will remain similarly committed to developing the Portal and group services in 2012, which will also deliver considerable benefit to the customer base, in terms of technology and new functionality, as the system evolves at pace. Although continuing consolidation in the sector presents challenges to net customer growth, AKJ intends to build on its recent large customer win, and is currently developing a hosted billing data centre to support growth in larger customers.

Scalable

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o Scalable revenues were £19.5m, with revenues in the second half of the year £9.9m compared to £9.6m in the first half. This was a tremendous achievement, given we had highlighted the unusually large deals of Carillion and Virgin Money in the first half of the year. In the second half of the year, Scalable continued to win some major new accounts, including the Medical Research Council, Newsquest and Ocado.

o The key achievement of the year was for Scalable to establish itself as a significant partner for Juniper in both IP security and networking product in and around the corporate data centre. In addition, it continued to develop an excellent reputation in the enterprise market and won considerable consulting business around its existing products, e.g. Extreme and Mitel.

o At acquisition, we estimated forecast revenues for the year to 30 September 2011 would be in the region of £14m for these Advanced Solutions' products and services, compared to approximately £11.5m in the calendar year 2009. The growth in revenues achieved has been higher than expected, and the Group has had to invest substantially to support this growth, with the number of heads increased from 53 at acquisition to 75 at the year end.

o Scalable gross margins were slightly ahead of management expectations for the year at 35%. This was due to more IP voice revenues than expected, particularly in the first half of the year, and these are slightly higher margin.

o Scalable's pipeline remains strong and currently at record levels, which would, if converted, deliver continued strong growth.

Telephony Services

Mobile network services - 10% organic growth in gross profits

The performance in the key metrics of subscriber growth, ARPU and churn are set out below and represent a good performance in a very competitive market:

·; The mobile subscriber base has grown by over 6,000 subscribers net to 68,207, representing 10% annual growth, and has grown 5% in the 6 months since 31 March 2011.

o The key change is the large increase of nearly 4,500 subscribers in the managed subscriber base. The largest customer win was RSM Tenon with over 2,500 connections in March 2011.

o The core business subscriber base has increased by 2,327 to 56,788 subscribers since the year end. Notably, over three quarters of this increase came in the second half of the year, after the new commercial agreements were in place.

o The gross new connections in the period were 21,847 (2010: 15,044), made up of 15,113 (2010: 14,271) on the Alternative contracted base, and 6,734 on the managed base (2010: 773). This represents a significant increase on 2010, and reaffirms the Group's ongoing success in direct sales and marketing in a flat overall market.

o Small net subscriber losses were recorded on a base of customers which are directly contracted with Alternative but via a virtual service provider ('VSP'). This business was acquired with ICB in 2005, and has gradually declined to less than 500 connections, with nearly 750 net disconnections in the last year. Following the new commercial framework established in the period, it is expected that these declines will start to be reversed in 2012.

·; Data connections continued to grow rapidly, at the expense of voice only connections decreasing. They now represent 53% of all connections, up from 46% a year ago.

o "Converged devices" or Smartphones continue to gain wider adoption with Apple devices being added to our Android and BlackBerry portfolio this year. The number of Smartphones has grown 17% (2010: 25%) in the year to over 22,000 connections (2010: 19,000), and they now account for over 33% of all connections. This trend is set to continue.

o Data only devices include connections for iPad, generic netbooks and tablets as well as traditional "dongles". These are low ARPU and tend to dilute ARPU, but are a core part of our business service. These have grown significantly in 2011 - up 43% to 13,949 connections.

o During the period, 74% of all devices shipped to customers were either Smartphones or data only devices. This compares to 72% in 2010. At the end of the year, Apple data products represented only 3% of our total base of subscribers, after our first year of supplying their products, but this is clearly likely to grow in 2012.

·; "ARPU" represents the average spends in line rental and usage charges per live connection per month in AN's contracted base of subscribers. It has reduced by £1.38 from £51.63 to £50.25, representing a 3% reduction, in line with expectations.

o The positive influences on ARPU are the 17% increase in smartphones combined with significant growth in data usage across the base of customers.

o This is then offset by a few negative influences on composite ARPU in this period -

§ Reduction in EU roaming tariffs. These were reduced again in July 2011, and are estimated to have reduced monthly ARPU by £1 (£0.25 impact for this period).

§ Significant growth in data-only subscriptions over the year. These have much lower ARPU.

§ A reduction in international voice usage - minutes billed were down by 9% against the previous year.

·; Churn:

o Network churn was marginally higher than 2010 at 20% (2010: 19%). The small increase was expected and is due to more willingness from customers to switch networks (but remain with the Group) and convert to one smartphone devices, as opposed to keeping one voice and one separate data device. Since the change in commercial terms with one network provider, "network churn" no longer drives the margins and costs of sale for that revenue, and means network churn is less important to the Group going forward.

o More important is the metric of churn by value, which ultimately relates to the value of all contracted customers to the Group. In 2011, churn by value was lower at 17% compared with 18% in 2010. This is a relatively low metric in our industry where churn levels of 3% a month are not unusual.

o The number of contracted subscribers in contract has reduced from 75% to 72%. This is an on-going trend as many data only devices continue to roll on monthly terms beyond their minimum contract length, and contracts are not formally renewed as it is not economic for the Group to do so.

o The churn in the relatively new managed subscriber base has averaged 25% over the period, but this was in line with expectations; however, at the year-end over 90% of the base is contracted in, so churn rates are expected to fall in 2012.

Although total Group mobile revenues have decreased by 8% to £39.9m (2010: £43.3m), this does not reflect the full impact of the business in making continued market share gains, much of which was in the second half of the year. Nor does it reflect the good performances in ARPU and churn in the period, set out above. This revenue reduction is principally due to the change in commercial arrangements with one of the major mobile networks from 1 January 2011, which meant that approximately £3m of network subsidies which would have been recognised in turnover as a commission for connection to their network, have not been received. Also during the year, there has been a significant increase in the managed subscriber base. A net commission is received for these customers which means a much lower revenue is now recognised in turnover, but with much higher margins. This applied to some customers who were previously contracted customers in 2010.

The net impact of these changes, combined with growth in the mobile base has been to deliver a strong growth in gross profits, which were up 10% in line with the subscriber base growth (10%), in spite of marginally lower ARPUs. In return for the removal of connection commissions, gross margins on services are significantly enhanced and are expected to be at least 37% going forward. The agreement also allows for further margin gains if certain performance criteria are met. The new commercial agreement is to last for three years to end March 2014, and applies specifically to all "AN contracted base" and "AN contracted VSP" (third party distributors) on that network. The "managed subscriber" base on the Vodafone network is subject to a separate agreement, which comes up for renewal in September 2013.

As a result, mobile gross margins have increased to 38% from 32%. Going forward the margins of the Group are expected to settle in the 36% to 40% range, with the key variables being the cost of subsidised smartphone equipment and the growth in data revenues.

Telephony Services

 Fixed Line network services - gross profits up 8%

Group revenues are up 8% year on year to £39.8m. This includes £1m from Scalable, and without these, like for like sales have grown strongly, and organically, by 5% from £36.9m to £38.8m. There has been continued good momentum, after a strong first half, with the Group continuing to win market share and the number of lines and connections in the estate grew by 9% over 2010. This is an excellent performance given market conditions. In the second half of the year, revenues were only just ahead of the second half of 2010, and this was due to a softening of the economy, and customer price reductions being triggered by the Mobile Termination Rate ("MTR") cuts introduced by Ofcom from April 2011.

On a worst case estimated scenario, the impact of the MTR cuts on the Group could reduce overall fixed line revenues by up to 7% over the year, followed by a further 3% annual reduction from April 2012. To date, that level of price reduction has not been seen and the industry does not appear be handing over the whole price reduction to the retail customers. However, assuming that the worst case could arise and combined with a softening of the economy which has already been seen to impact inbound revenues in the second half, the continuing impact of Ofcom's regulation on MTRs means that the likelihood for revenue growth for the Group in fixed line over the next two years is now no longer assured, even with Alternative Networks making further market share gains.

Gross margin performance has been excellent. Gross margins are overall up 0.5% (the table above does not bear this out due to rounding). Stripping out Scalable's lower margin fixed line business at 15%, the gross margins were nearly 1% ahead of 2010, with a strong performance across all products. The key points were:

·; Outbound rental margins were slightly ahead of 2010 and a small adverse change in sales mix in 2011 to 2010 has meant that for once, there has been no net adverse impact on Group margins.

·; Outbound minutes' margins were up 4% for the full year, with the gain coming mostly in the second half as the Group retained some of the lower costs of mobile calls passed on from the carriers.

·; Inbound margins held up better than expected - guidance was given for 48%-52% - largely on the back of improved buy rates negotiated from the carriers. In spite of this, longer term guidance remains that margins will gradually move to the bottom of this range.

The Group is focussed on retaining and improving margins, especially as revenues are constrained by regulatory impact. Recent negotiations have been successful, and margins in 2012 are expected to be in the 37-38% range, even assuming a similar sales mix.

Outbound services - Fixed line

·; Outbound revenues increased 9% to £31.9m (2010: £29.3m). Scalable made a contribution of £1m for the first time. Excluding Scalable, line rental revenues grew 12% to £15.5m, reflecting market share gains, and usage revenues were 1% down to £15.4m for reasons set out above.

·; Usage revenues - with the exception of calls to mobiles, average call values are declining at a much lower rate than previous years:

o The number of billed call minutes increased 2% year on year (2010: 6%) due to a continuing increase in higher usage customers, offsetting lower levels of calls being made in customers' offices.

o Total usage revenues were down 1%, with overall price drops of approximately 3% (2010: between 6% and 10%).

·; Outbound average revenue per customer per month ('ARPU') has increased 9% over the year, as more customers take both line rentals and calls, and with the addition of larger customers in the period. Significant customer wins included Persimmon plc and British Car Auctions.

·; Wholesale Line Rental revenues ('WLR') grew 13% to £15.1m from £13.4m. The number of lines grew by 7,465, representing 9% growth. In the second half, growth was 10%, and this was after a small but noticeable increase in the number of disconnection of old analog lines by continuing customers, who were cleaning up their estates as they benefitted from the Portal's new reporting on asset management. WLR now accounts for 49% of outbound revenues (2010: 46%), with a further increase expected as MTR cuts push down usage revenues.

Inbound services - Fixed line

·; Inbound services grew 3% organically over the year to £7.9m. There were no revenues from Scalable. In the first half of the year, revenue growth was strong, up 11% on the previous year's first six months at £4.1m and having added new customers such as Ceridian UK Limited. In the second half, revenues were £3.8m, down 4% year on year, a return to the average of 2010. A review of spends showed :

o Across the board there were lower levels of activity in both 08xx and revenue share customers especially in the last three months of the year. Many of these customers are call centres for retail or consumer activity which is being hit in the economic downturn.

o In 2010, there was an additional one off revenue of £0.1m in April 2010 due to the "Ash Cloud" which meant call centre revenue share for airlines and holiday companies spiked. This did not repeat in 2011.

Notwithstanding the economic impact, the outlook for inbound services remains positive. It is a niche market with relatively few players, and the Group still has a small market share, and so a return to double digit revenue growth is feasible.

Capital investment

The Group invested £1.0m (2010: £0.2m) in tangible fixed assets and intangible software assets during the year. This was in line with expectations.

Actual spend was £0.5m on the Portal of which approximately £0.2m was hardware, and the balance in software. £0.2m was spent in Scalable on data switches and servers required as rotating spares of data switches at Scalable customers. The balance was routine expenditure on IT for the Group.

In 2012, we estimate that a further £1m will be spent. This is £0.3m ahead of previous guidance - an additional £0.2m is on AKJ hosted data centre established for its managed billing services for Vodafone and which relates to a contract hosting agreement, with the balance of £0.1m being on investment in Scalable's NOC, their new London premises, and customer management systems. Further investment on the Portal in 2012 is expected to be £0.3m as previously guided.

Scalable consideration - update on deferred consideration and accounting treatment

The first period of the deferred consideration, for which there was a maximum £2.25m consideration payable, was the year ended 31 December 2010. The amount of the consideration due to the shareholders of Scalable has been settled at £1.5m, being approximately two thirds of the maximum amount. In the acquisition agreement, there is a mechanism for the Scalable shareholders to claw back any shortfall to the extent that the deferred consideration in the year ended 31 December 2010 fell short of the maximum, by outperforming targets in the year ended 31 December 2011 on a pro rata basis. Current estimates of the deferred consideration payable are £2.9m in total, of which £1.5m has been paid.

Recent amendments to accounting standards under IFRS have meant that 75% of the deferred consideration is to be deducted from profits as an employee cost, on the basis that the deferred consideration of the two founders and largest shareholders was linked to them being employed by the Group at the time the payments fell due. The element which relates to performance up to 30 September 2011 (being the 2010 earn out, and three quarters of the 2011 earn out) is estimated at £1.77m and has been treated as an exceptional item in the comprehensive income statement (Note 10).

Cash flow

Cash inflow from operations was again strong, bringing in £15.4m (2010: £13.6m), compared to adjusted operating profits of £14.6m (2010: £11.5m). This included a working capital inflow of £0.1m (2010: inflow of £1.8m).

The working capital inflow includes the £0.6m inflow for the new provision for deferred consideration payable to the two principal former shareholders in Scalable as above.

Excluding this item there was a small working capital outflow of £0.5m, in line with the £0.5m forecast outflow for the year. The main changes in working capital were a £0.2m increase in stocks due to Scalable growth, and a £1m reduction of trade receivables due largely to improved collection of Scalable debts; and a £2.2m reduction in trade payables which was principally due to resolving a number of mobile supplier issues and the change in mobile commercials in the period, both offsetting the impact of an increase in VAT.

The high rates of cash conversion continue to highlight the Group's strong control over working capital (the cash conversion rate of adjusted EBITDA averaged around 106% in the previous three years). In 2011, the cash conversion is 100% adjusted EBITDA (2010: 112%). The cash conversion of Scalable's adjusted EBITDA was 160% in its first year, twice the level (80%) it averaged in the two years prior to acquisition. This was due to exerting some significant control over payment cycles of trade debtors and creditors.

The operating cash flow of the Group was derived and applied as follows:

The Group has renewed its facilities at a lower level in 2011. It has unutilised bank facilities of £6m (2010: £12m) which are committed until March 2014.

Tax

The effective tax rate was 29.4% (2010: 27.4%). This has increased in spite of a 1% fall in the expected main composite rate of corporation tax to 27% in this period, achieved by six months at 28%, followed by six months at 26% since April 2011.

The reason for the increased tax rate (above 27%) was the significant impact of the £1.8m deduction for the deferred consideration for the Scalable acquisition, which is not allowable as a deduction for tax. Without this, the tax rate would have been 24.7%, a rate that is lower than the headline rate due principally to the benefit of schedule 23 deductions for share options exercised in the year outweighing the share option charges in the statement of comprehensive income.

Earnings per share

Fully diluted adjusted earnings per share ('EPS') have increased by 22% to 20.4p (2010: 16.7p). Basic adjusted earnings per share have increased 28% from 18p to 23.1p.

The statutory or unadjusted fully diluted earnings per share have decreased 8% from 14.5p to 13.3p. This is due to the adjustments for the deferred consideration for Scalable which has been written off to the income statement, and the deal costs (e.g. stamp duty). If these costs of £1.9m were added back, the basic fully diluted earnings per share would be 3.8 pence higher and would have delivered 18% growth to 17.1p from 14.5p.

The weighted average number of shares in the year used for calculating the basic earnings per share has increased by 1.19m. This is due almost entirely to exercise of share options in the two years by staff, with 655,811 options being exercised in this year. The fully diluted number of shares has increased 2.3m to take into account the potential LTIP share issues, following strong share price performance in 2011.

Dividend per Share

The Board has proposed a final dividend of 7 pence per share (2010: 4.1 pence per share) making a total dividend of 10 pence per share for the full year (2010: 9.1 pence per share). In 2010, a "special" dividend of 3 pence was paid on 1 April 2010. If this dividend is stripped out, the comparative increase was 3.9 pence or 64%. The Board remains committed to a progressive dividend policy, and has announced its intention to raise the dividend by at least 10% successively in 2012 and 2013.

The dividend will be paid on 26 January 2012 to shareholders on the register as of 23 December 2011, with an "ex-dividend" date of 21 December 2011.

The Trustees of the Alternative Networks plc Employee Benefit Trust ("EBT") have waived their rights to receive dividends on 2 million shares during the vesting period of the Value Creation Plan, which runs until 31 December 2012.

Edward Spurrier

Chief Financial Officer

5 December 2011

Alternative Networks plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2011

Alternative Networks plc

CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION

As at 30 September 2011

Alternative Networks plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

a) the balance classified as share capital includes the proceeds arising on issue of the Company's equity share capital, comprising 0.125p ordinary shares and the cancellation of shares purchased during the year.

b) Share premium represents the difference between the fair value consideration received and nominal value of shares issued.

c) Capital redemption reserve arose from the purchase of own share capital.

d) The merger reserve results from the previous acquisitions of Integrated Communications for Business (UK) Limited, Aurora Kendrick James Limited and The Telecom Centre Limited and represents the difference between the value of the shares acquired (nominal value plus related share premium) and the nominal value of the shares issued.

e) Shares acquired in relation to the employee Share Incentive Plan are held in treasury until such time as the awards vest. At 30 September 2011 the number of shares held in treasury was 980,326 (2010: 1,000,000). These had a nominal value of £1,225 (2010: £1,250) and a market value of £2.74 million (2010: £1.92 million). During the year 19,674 treasury shares were issued to employees under incentives plans at their market value of £1.92 per share. Treasury were purchased as an average price of £1.42 so this issue resulted in the creation of £10,000 of share premium.

Alternative Networks plc

CONSOLIDATED statement OF Cash flowS

For the year ended 30 September 2011

Alternative Networks plc

Basis of preparation

Alternative Networks plc is a company incorporated and domiciled in the United Kingdom under the Companies Act 2006. The address of the registered office is Chatfield Court, 56 Chatfield Road, London, SW11 3UL.

This financial information is abridged and does not contain the Group's full financial statements for the years ended 30 September 2010 and 2011.

The financial statements have been prepared in accordance with IFRS as adopted by the EU and IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention.

Full financial statements for the year ended 30 September 2010 (which received an unqualified audit report) have been filed with the Registrar of Companies. Financial statements for the year ended 30 September 2011 were approved by the Board of Directors on 5 December 2011 and will be presented to the Members at the forthcoming Annual General Meeting.

1 Taxation on profit on ordinary activities

The current tax assessed for the year is higher (2010: lower) than the average rate of corporation tax in the UK of 27% (2010: 28%) applied to the profits before tax for the year. The differences are explained below:

2 Dividends

The 2010 proposed final dividend of 4.10 pence per 0.125p ordinary share (2009: 3.50 pence) was paid on 27 January 2011. The amount of dividend paid was £1,875,000 (2009: £1,552,000).

The directors paid a 2011 interim dividend of 3.00 pence per 0.125p ordinary share (2010: 2.00 pence), with a total payment value of £1,380,000 (2010: £888,000). This was paid on 1 July 2011 to shareholders on the register on 17 June 2011.

In addition, the directors are proposing a final dividend in respect of the financial year ending 30 September 2011 of 7.00 pence per 0.125p ordinary share (2010: 4.10 pence) which will require an estimated £3,233,000 of shareholders' funds (2010: £1,875,000). Assuming it is approved by the shareholders at the Annual General Meeting on 23 January 2012, it will be paid on 26 January 2012 to shareholders who are on the register of members at 23 December 2011.

3 Earnings per share

The calculation of basic and fully diluted earnings per ordinary share is based on the profit attributable to equity holders of the Company divided by the weighted average number of ordinary shares in issue during the year.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has one category of potential ordinary shares: those share options granted to employees where the exercise price is less than the average price of the Company's ordinary share during the year.

The profit and weighted average number of shares used in the calculations are set out below:

The adjusted EPS is based on the adjusted profit before tax as set out in note 10, and the weighted average number of shares as described above.

Share option costs included within adjusted profit attributable to shareholders are reducing the earnings per share in 2011 by 2.2p (2010: 2.2p).

As in prior periods, the calculation of the weighted average number of shares in issue excludes 1,915,200 shares held by the Alternative Networks Employee Benefit Trust (EBT). These shares are then added to the total of extant options when calculating the fully diluted weighted average number of shares.

In 2010, a further 2,000,000 shares were subscribed to by the EBT which have also been excluded from the weighted average number of shares for both basic and diluted EPS.

There were 49,161,766 shares in issue at 30 September 2011 including 980,326 shares held in treasury. On 30 September 2010 there were 48,482,552 shares (inclusive of 1,000,000 shares held in treasury). The weighted average number of shares during the year was 43,913,478 (2010: 42,720,001).

4 Acquisition of Scalable Communications plc

On 2 October 2010 the Group acquired 100% of the ordinary shares of Scalable Communications plc (Scalable) and obtained control of the Company. Scalable is a computer network integrator based in Buckinghamshire and London and employed more than 50 staff on the date of acquisition. As a result of the acquisition, the Group expects to increase its presence in the SIP (Session Initiation Protocol) market, have greater cross-selling opportunities and to reduce costs through increased Group purchasing power.

The revenue included in the consolidated statement of comprehensive income since 2 October 2010 contributed by Scalable was £20,546,000. Scalable also contributed profit after tax of £885,000 over the same period.

The following unaudited pro forma summary presents consolidated information of the Group as if the business combination had occurred on 1 October 2010.

These amounts have been calculated after applying the Group's accounting policies from 1 October 2010, together with the consequential tax effects.

The following tables summarise the consideration transferred to acquire Scalable and the amounts of identified assets acquired and liabilities assumed at the acquisition date.

The contingent consideration arrangement requires the Group to pay certain former owners of Scalable dependent on the gross profit and the recurring gross profit for the twelve month periods ending 31 December 2010 and 31 December 2011 respectively. A maximum undiscounted amount of £1,000,000 (£250,000 in shares and £750,000 cash) is to be paid if all of the following criteria are met:

a) Systems gross profit for year ending December 2010 is greater than £3,450,000

b) Systems gross profit for year ending December 2011 is greater than £4,170,000

c) Recurring gross profit for year ending December 2010 is greater than £3,390,000

d) Recurring gross profit for year ending December 2011 is greater than £3,920,000

A further £250,000 (cash) will be paid contingent on a schedule 23 tax deduction being obtained relating to Scalable share options exercised pre-acquisition.

The potential undiscounted amount of all future payments that the Group could be required to make under the contingent consideration arrangement is between £nil and £1,250,000. Management's estimate, at the date of acquisition, of the amount potentially payable was £923,000.

Additionally, the Company is required to pay up to £3,000,000 (£750,000 in shares and £2,250,000 cash) to the key shareholders based on the performance criteria stated above. These payments are conditional on their continued employment within the Group. Under IFRS3 (revised) this amount is debited to the income statement over the earn-out period as employee costs, rather than being treated as deferred consideration on acquisition. The total expense during the current year was £1,774,000 and the amount accrued at 30 September 2011 is £656,000.

As part of the above agreement £1,493,000 was paid during the year relating to the targets for the year ending December 2010 of which £1,448,000 was paid in cash. £1,118,000 of this cash payment relates to the amount recognised through the income statement and the remaining £330,000 forms part of the cost of investment in Scalable. The 23,403 shares issued in the year as contingent consideration make up part of the cost of investment in Scalable and had a fair value of £45,000.

The fair value of trade and other receivables was £5,800,000 and included trade receivables with a fair value of £4,358,000. The gross contractual amount for trade receivables due was £4,387,000, of which £29,000 was impaired at the acquisition date.

The residual goodwill of £3,627,000 arising from the acquisition consists largely of the workforce of the acquired business and the significant synergies and economies of scale expected from combining the operations of the Group and Scalable.

None of the goodwill recognised is expected to be deductible for income tax purposes.

The Group incurred £73,000 of third-party costs related to this acquisition. These expenses are included in operating costs in the Company's consolidated statement of comprehensive income for the period ended 30th September 2011.

5 Trade and other receivables

6 Cash and cash equivalents

7 Called up share capital

During the year 655,811 shares were allotted under share option schemes as follows;

43,387 issued at 102.5p resulting in a share premium of £44,417

501,724 issued at 150.5p resulting in a share premium of £754,467

110,700 issued at 135.5p resulting in a share premium of £149,860

23,403 shares were issued as deferred consideration on the acquisition of Scalable Communications plc which resulted in the creation of £45,139 of merger reserve.

8 Trade and other payables

9 Cash generated from operations

10 Reconciliation to adjusted performance

Adjusted EPS is calculated on adjusted earnings after deduction of share option costs.

This analysis is provided as the Group considers it provides a truer reflection of the underlying performance of the business, and is common practice in the investment analyst community.

For the purpose of providing the users an analysis of the Group's underlying performance, management have termed certain items as exceptional costs. These include large one-off costs, significant non-cash charges, and charges relating to acquisitions.