Final Results

10 December 2012

Alternative Networks plc

Results for the year ended 30 September 2012

HIGHLIGHTS

·; Organic growth of 5% in underlying operating profits, and 10% growth in adjusted earnings per share

·; Year on year increase in both gross margins and operating margins

·; Strong balance sheet, with excellent free cash flow and 112% cash conversion of adjusted EBITDA

·; Significant increase in shareholder returns, with full year dividend ahead of expectations. Maintained guidance of a minimum 10% growth in 2013 and 2014.

·; Board strengthened with key appointments

KEY FINANCIAL INFORMATION

* Earnings before interest, taxation, depreciation and amortisation.

** Results before intangible assets amortisation excluding software, write off/back of contingent consideration through comprehensive income statement, share based payments, and costs of restructuring Scalable post acquisition.

*** In 2011, Statutory performance reflects IFRS requirement to expense £1.77m (2012: (£0.4m)) to the comprehensive income statement on the deferred consideration payable to the vendors of Scalable, because the terms of the acquisition require the vendors to remain as employees of the Company when this payment falls due. This has a one off 4 pence negative impact on Earnings per share in 2011.

**** Adjusted earnings per share are based on profits as set out in Notes 3 and 9

James Murray, Chief Executive of Alternative Networks, commented:

"We have again delivered a strong performance, in difficult market conditions. The on-going development and rebranding of our unique portal gives us a significant competitive advantage in terms of new and existing business; whilst our financial strength supports our ambitions for further acquisitions, as well as attractive growth in the dividend."

"The outlook remains challenging, but our converged customer offering, strong market position and experienced management team leave us well placed to achieve our objectives for the current year and beyond."

Enquiries:

Alternative Networks plc

Results for the year ended 30 September 2012

CHAIRMAN'S STATEMENT

Results

Alternative Networks has delivered another robust performance for the year, with continued progress made in building a strong financial and operational platform for further growth. Although turnover fell slightly from £117.3m in 2011 to £114.8m, this was due to several specific and identifiable factors, amounting to approximately £4m. Operating margins showed a further improvement from 12.4% to 13.3%, with adjusted EBITDA increasing by 5% to £16.1m (2011: £15.4m).

Cash generation was again very strong. Cash inflow from operations grew by 33% to £18.1m (2011: £13.6m), representing 112% of adjusted EBITDA. The Group's net cash position at 30 September 2012 was £20.6m (30 September 2011: £10.9m), some of which has been returned to shareholders since the year end, when the Group repurchased £5.0m of shares by tender offer for cancellation.

In line with its progressive policy, the Group has again increased the dividend, declaring a final dividend of 7.5 pence per share (2011: 7.0 pence), making a total dividend for the year of 11.5 pence (2011: 10.0 pence), an increase of 15%. The share repurchase and increased dividend, which was slightly higher than previous guidance, reflect the Group's high levels of cash generation and its commitment to growing shareholder returns. The Board intends to continue its progressive dividend policy, and has committed to increasing the dividend by a minimum of 10% in both 2013 and 2014.

Review of Operations

Against an economic backdrop which remains challenging, the Group has continued to win market share in several key growth areas. We have developed separate and dedicated Enterprise and SME teams which have both been successful in further penetrating their respective target markets. The Group's long established strategy of forming strong partner relationships has also underpinned this performance, supporting the cross-selling of a broader range of services to a growing customer base.

The customer Portal continues to set us apart from our competition, providing a unique combined procurement, operating and billing mechanism, covering the full spectrum of the Group's services. We have seen significantly increased usage of the portal, with average monthly usage doubling over the year, demonstrating its role as a vital tool in retaining customers. The portal has been rebranded "Synapse", with a view to giving it an even more distinct identity as the Group makes further inroads to the marketplace.

The Group secured two key mobile supplier contracts during the year. The O2 service provider framework licence was extended to 31 July 2015 and the managed base service agreement was also extended, to 30 September 2015, on improved terms.

Growth Strategy

The Group's strategy remains the same: combining steady organic growth with value adding acquisitions. The Board maintains a constant watch over the market, to identify suitable acquisition opportunities that meet its strict criteria of complementing the existing business while providing a further source of growth.

Organically, the Group will seek to make further progress in winning larger customers and retaining more of its existing base. We will also target a greater level of cross-selling and develop new products, and to this end, the Group intends to make further investment in its sales function in the forthcoming year.

Board Changes

We have announced today several changes to the Board, aimed at matching the Group's increased size and broader structure. James Murray is becoming Executive Chairman and Edward Spurrier is promoted to the role of Chief Executive. They will be supported by an expanded executive team which was strengthened during the year by the appointment of a new senior HR director and the promotion of the Commercial Director onto the Executive team.

James and Edward have led the business since its early days and have together overseen a successful period of organic and inorganic growth and have an outstanding track record. The change in their roles has been planned and is a natural progression as the Group enters its next phase. It is the Board's intention to appoint a Chief Financial Officer and talks are already under way with several suitable candidates. In the meantime, the function will be covered by the existing senior finance managers, where there is considerable strength in depth.

We are delighted to welcome Bernard Cragg to the Board as Deputy Chairman and Senior Independent Non-Executive Director. Bernard's executive experience with Carlton Communications and Arcadia Group and his more recent role as a Senior Independent Director for a number of quoted businesses is expected to bring significant benefits to the Group. We are also pleased to appoint Mark Quartermaine as a Non-Executive Director, who has extensive and relevant sector knowledge from his leadership roles at IBM, BT, Azzurri and Juniper.

Current Trading and Outlook

The Group has made excellent progress in implementing its long term growth plans, delivering a consistently strong performance and excellent shareholder returns. This is despite a tough macro-economic environment and challenging market conditions which continue to persist.

The Group has made a good start to the financial year, giving us confidence in the outlook for the year as a whole. Whilst exercising a suitable degree of caution, the Group is well positioned aided by its solid operating structure, a broad service offering, its established market position, and a strong balance sheet. This leaves us well placed to meet these challenges and achieve our long term growth objectives.

Timothy Holland Bosworth

Non-Executive Chairman

7 December 2012

Alternative Networks plc

Results for the year ended 30 September 2012

CHIEF EXECUTIVE'S REPORT

Overview

This has been another solid performance by the group in a tough market. I am particularly pleased to have been able to report an increase in profits and in dividends as the business performed well on a number of fronts. The major highlights have been as follows:

Operating highlights

o Continued gains in market share in key growth areas:

§ Mobile subscribers increased 13% to 77,174 (2011: 68,207).

§ Advanced solution revenues were up 7% to £19.4m, excluding Scalable.

o Successful completion of the integration of Scalable.

o Establishment of focussed Enterprise sales and support teams; and separate and focused SMB sales and support teams.

o Extended agreements on key mobile supply contracts - Managed Services until 30 September 2015, and O2 service provider agreement extended until 31 July 2015. The Vodafone agreement is due for renewal at 31 March 2014.

o Significant development of our unique customer Portal, where customer logins increased 100% over the year. This has been rebranded as "Synapse".

Financial highlights

o Underlying organic growth in operating profit of 5%.

o Margin expansion:

§ Gross margins up from 38.1% to 39.0%.

§ Group adjusted operating profit margins up from 12.4% to 13.3%.

o Strong balance sheet and excellent cash generation:

§ Free cash flow of £14.6m (2011: £9.6m).

§ Strong cash conversion at 112% adjusted EBITDA (2011: 100%).

§ Net cash funds of £20.6m at 30 September (2011 £10.9m).

o Improved shareholder returns:

§ Final dividend of 7.5p per share proposed. Together with the interim dividend of 4p, this equates to a total dividend for the year of 11.5 pence (2011: 10p).

§ Progressive dividend policy maintained with a minimum 10% dividend growth proposed for 2013 and 2014.

Financial Results

Group revenues were down 2% to £114.8m (2011: £117.3m) and adjusted operating profits increased 5% to £15.3m (£14.6m). Scalable was included for a full 12 months in both years.

At the underlying level, there were a number of factors which suppressed revenues in 2012 relative to 2011. Together these totalled approximately £4m:

·; Mobile telephony - EU Data revenues - regulatory change (£0.5m impact in 2012).

·; Mobile telephony - change in supplier terms (£1.0m extra revenue in 2011).

·; Fixed line telephony - "MTR" tariff reduction - regulatory change (approximately £0.5m extra revenue in 2011).

·; Advanced Solutions - Scalable - one off install wins in 2011 ahead of normal levels (£2.0m extra revenue in 2011).

These factors are reviewed in more detail below. Without these, the Group is estimated to have generated like for like (i.e. organic) revenue growth of between 1% and 2%.

Gross profit margins have increased to 39% (2011: 38%). 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 a major contributor (3 months better terms in 2012), as well as more margin-focussed tariffing. In fixed line telephony, the increased margins on usage have helped bolster performance. Margins per product set are reviewed in more detail below.

Group adjusted operating profits increased by 5% to £15.3m (2011: £14.6m). This was in spite of a lower contribution from Scalable (EBITDA reduced by £1.0m), and was due to improved telephony profits and a reduced sales and general overhead cost base, aided by our on-going investment in the Portal.

On a statutory basis, pre-tax profits increased 36% from £9.4m to £12.7m. Of this £3.3m increase, £2.5m is due to a reduction in non-recurring or adjusted costs: £1.9m in respect of the Scalable acquisition and £0.3m in each of the amortisation of acquired intangible assets and share options. These adjustments are shown on the face of the income statement, and also detailed in Note 9.

Cash generation continues to be very strong. Net cash generated from operations was £18.1m (2011: £13.6m) which was 112% of adjusted EBITDA in the period (2011: 100%). Free cash flow was £14.6m (2011: £9.6m), enabling the Group to finish the year with £20.6m net cash (2011: £10.9m).

Adjusted earnings per share increased 10% to 25.3p and, on a fully diluted basis, increased 10% to 22.4p. Statutory earnings per share increased 47% from 15.0p to 22.1p. A detailed reconciliation is set out in the financial and business review.

The Board has proposed a final dividend of 7.5p (2011: 7.0p), making a total of 11.5p for the year (2011: 10.0p), in line with our progressive dividend policy. Further details are in the financial and business review below.

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 for further "right-fit" acquisitions. The strict criteria remain that targets need to be successful, growing, highly cash generative, and profitable and have customers that provide cross selling opportunities for the Group, with the acquisition expected to be earnings enhancing in the first year of ownership. The strength of the Group's balance sheet, together with a weak broader economic landscape, is expected to bolster opportunities in 2013. Further bolt-on acquisitions to complement the existing products are being considered, as well as targeting businesses in adjacent product sets.

Strategy - Organic growth

The Group continues to focus successfully on the following four key factors for continued organic growth: winning larger customers in the SME space and targeting small Enterprise customers; reducing customer attrition; improved product cross selling; and product development to increase wallet share of its customer base. The development of our unique on-line Portal to deliver the services has been instrumental in improving performance in these factors.

Focus on larger customers in SME space and increasingly targeting Enterprise customers

We continue to target the mid enterprise market, particularly those customers with multi-sites and with 80 to 1000 employees. During the year, we split our sales and technical support teams into two customer-specific teams: firstly, Enterprise customers for those clients with more than 500 employees, and secondly, the Business Markets teams which target and service business customers with up to 500 employees. For the purposes of analysing cross sell below, we have classified a "larger customer" as one with a monthly spend of more than £1,000.

At 30 September 2012, excluding Scalable customers, the Group had 1,121 larger customers (30 September 2011: 1,214). During the year there was a net gain of 3 new larger customers won by the Group. However, 96 customers had their monthly spend reduced below the £1,000 threshold, for a number of reasons, including due to regulatory price reductions, and there was therefore a net reduction of 93 in the stated customer numbers. The average monthly spend of these larger customers at 30 September 2012 was £5,105 up slightly on £5,080 in 2011.

At 30 September 2012, Scalable had 100 recurring billing customers spending more than £1,000 per month. This represents an increase from 90 at 30 September 2011. Excluding one very large customer, their average spend was approximately £5,800, which has decreased 5% from £6,200 the previous year.

At 30 September 2012, the number of higher spending business customers who take 3 or more products dipped 3% to 724 from 746 at 30 September 2011, and the average monthly spend for these customers also dipped 4% to £5,648 in September 2012, down from £5,864 in September 2011, reflecting the regulatory drop in usage revenues. However, there was some good continuing cross sell into the larger customers as illustrated by the fact that larger customers taking 4 or more products increased from 411 to 440 in 2012.

Cross-selling

A key part of our organic growth strategy remains to sell more products to new and existing customers. During the year we have had further success in increasing the product penetration in our customer base. The number of customers taking more than one product is 48% (up 1% from 47% in September 2011). This has been helped by the number of multi-product new customers. In the larger customer base, we have seen a sustained resilience in high product penetration, with the number of large customers buying more than one product increasing slightly to 79% (78% in September 2011).

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 taking more than one product and who are users of the Alternative Portal (see below).

Product Development

During this period, new products included:

Advanced Solutions

We have launched an enhanced product and services portfolio this year to complement our Intelligent WAN offering. This gives clients detailed visibility and control over WAN utilisation to an application level, and allows them to identify and prioritise business critical applications that run over their WAN.

Next generation firewalls are of great importance to clients and have become a central part of our security led propositions. To this end, Alternative has partnered with market leading network security specialist Palo Alto Networks.

Mobile

Following the continued trend for multi-platform mobile fleets (Apple, Android, BlackBerry), Alternative has launched Mobile Device Management (MDM). This provides clients with vastly improved security, visibility and control over their fleet, its devices, their usage, and confidential data stored on them. Alternative's proposition is unique when MDM is combined with the mobile SIM control delivered through our Portal.

To address our own, and our clients' Corporate Social Responsibility (CSR) objectives, we have added handset recycling to our mobile portfolio.

Fixed line voice

The focus here has been on IP based telephony, particularly SIP (Session Initiation Protocol) as clients begin to migrate to SIP from ISDN30. Alternative has procured a new, improved agreement with a leading SIP network provider in 2012.

Additionally, we have launched the "SIP Divert" service within our SIP product set. This provides clients with additional inbound business continuity by re-routing calls in the event of an emergency.

Following trials on an exchange-based statistics reporting solution, we can now offer clients management information on call handling and circuit performance.

Over the next 12 months we expect the following developments:

Advanced Solutions

We will be developing our campus and data centre networking propositions to address challenges around IPv6, Software Defined Networking (SDN), Virtualisation, Consolidation and Virtual Desktop Infrastructure (VDI).

Following increasing demand for more secure internet access and inter-site connectivity, we are working to augment our existing WAN services portfolio with a range of hosted firewall services. These services will help negate the need for customer owned and operated security hardware and will provide Alternative with a strong WAN portfolio platform for future upsell opportunities, such as Web Filtering and SSL VPN based remote access.

We are scoping the opportunity for select hosted contact centre products. As many of the associated applications may be virtualised, we have identified the opportunity to utilise hosted 'virtual machines' from our WAN providers. This further supports the concept of the intelligent WAN 'multi-service pipe' product we are developing.

Mobile

Increased complexity is anticipated in integrating devices and platforms of different providers such as Microsoft 8, iPhone 5, RIM's new BB10 operating system, and new Android devices, such as Microsoft's Surface. We see an opportunity to help clients with confusion and security issues.

We will be deploying a refreshed mobile proposition to weave together elements such as multi-platform solutions, MDM, the portal and 4G developments, and linking these with other products in the portfolio, such as WAN and mobile broadband. This will provide choice, security solutions, management and control, across multi-platform estates comprising Blackberry, Microsoft, Android and iOS.

Fixed line voice

The main product thrust within fixed line will be combining SIP, outbound services and systems, and integrating these with enhanced inbound services.

The Alternative Portal

During 2012 we have seen a 100% increase in customer usage of the Portal, as we deliver relevant and appropriate content which significantly improves client experience. We now have more than 12,000 logons per month, with 1,300 companies accessing the portal, out of which there are 2,600 unique users per month.

The Portal is not only helping retain clients, but is also helping win new business. 40% of new business meetings are booked because of the portal proposition - and its functionality has helped the Group grow the mobile subscriber base by 13%.

We have built on the groundwork completed in 2011 and deployed a wealth of new features, including case reporting and order tracking across all products, as well as interactive financial reporting, a function which empowers clients to view spend and analyse usage trends over the most recent 24 months.

We have also increased self-service capabilities. Mobile SIM Management is a market leading feature and a key part of our Mobile Device Management proposition; and mobile hardware ordering allows clients to select and order from our diverse range of handsets and tablets. We have been testing "Live Chat" functionality to enable clients to resolve queries quickly, rather than raise a case or call. This will be launched in early 2013.

As a result of these developments, we are already seeing an improvement in service efficiency. At least 25% of handset orders are now being placed on the Portal, whilst 20% of cases are raised online; 2,000 mobile transactions are performed by clients online per month.

Synapse- "a market leading brand for a market leading product"

We have developed a new name and identity for the Portal, to continue to support its on-going development, its effectiveness as a retention tool and its increasing success as a new business driver. This will clarify its core benefits and help maximise its full marketing potential within all our target audiences both externally and internally. It is also a fresh opportunity to raise awareness throughout the marketplace and to engage at all levels with our clients.

The word Synapse plays on the metaphor of the human nervous system - a synapse being the structure that permits one neuron to pass a signal to another in a co-operative neural network. This symbolises just how the Portal works: passing information quickly from one point to another. Synapse as a word is strong both typographically and audibly, and from a design and illustration perspective, neural networks lend themselves well as a representation of communications networks.

Branding around Synapse has been tested and well received within client focus groups and will be rolled out at the start of 2013 with clear messaging and supporting collateral in the shape of online and offline productions and targeted social media.

New Synapse developments planned for the next 12 months:

·; Expanded product ordering functionality across the entire product portfolio. This will link our customers directly to our suppliers' systems and enables rapid service.

·; Integrate Scalable's existing portal with Synapse. This will deliver the benefits of both portals to a wider customer base, and we expect it to improve marketing for cross selling and up-selling.

·; Introduce self-service options, as available on mobile, across other product ranges, increasing efficiencies for the Group and our clients.

·; Enhance reporting - build upon the investment made last year in the data warehouse to provide more information across more products, more quickly.

·; Develop functionality to enable integration directly with client's payroll, accounting, case management and procurement. This will further drive customer efficiencies and enhance retention.

·; Launch "Live Chat" (currently being trialled), to improve customer's case resolution.

Outlook

We are very pleased with the progress we have made during the year, on a number of fronts. Our service offering has expanded so that we can justifiably claim to hold our position as a leading provider of converged communications solutions to UK businesses. We are also proud of our record of successfully combining an established track record of organic growth with a considered acquisition strategy. In addition, the development of our portal, "Synapse", has given us a unique customer solution which is helping the Group to increase its market share in key growth areas. We intend to continue looking for similar ways to enhance our offering.

As we enter the next stage of growth, there are therefore good reasons to be optimistic as to our long term prospects. Notwithstanding the on-going challenging market conditions, which we do not expect will abate in the short term; we intend to make further investment in our sales teams to take advantage of the opportunities we have to increase our market share. In addition, it is two years since we acquired Scalable, and our strong net cash position and high cash conversion together with our strengthened management team means we are well positioned to consider further acquisitions.

James Murray

Chief Executive Officer

7 December 2012

Alternative Networks plc

Results for the year ended 30 September 2012

FINANCIAL AND BUSINESS REVIEW

Trading review by products

In 2012, the Group operated four separate entities - Alternative Networks, Echo, AKJ, and Scalable. These are separate operating 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. These are Mobile, Fixed Line, and Advanced Solutions. These enable users to benchmark the Group's performance against competitors and enable the Board to understand more clearly the underlying drivers to the Group's business.

On 30 September 2012, the Group transferred the trade, assets and liabilities of Echo to Scalable, and will now only operate three separate entities.

Advanced Solutions - advance in recurring revenues but gross profits retreat 5% as one off install revenues slow

Advanced Solutions revenues were down 3% year on year. The large majority of revenue streams enjoyed organic growth with the notable exception of Scalable - IP Networks and IP PBX kit revenues, which was entirely responsible for the net decline and is covered in more detail below.

Excluding these, Advanced Solutions revenues delivered robust organic growth, increasing 8% to £25.9m from £24m.

IP PBX Installs, Support and Data services

o IP PBX install revenues increased 1% to £7.1m (2011: £7.0m). This was a good result in a year where the sales cycle noticeably lengthened in larger enterprises, and some parts of the public sector were closed for business. The second half was much stronger with £3.8m (H1 £3.3m) and the Group is taking a stronger "backlog" (orders signed not completed) into 2013 with a net increase of £0.3m. The vertical markets of professional services and charities were again good sources of business, with customer wins such as Amnesty and Shelter in the second half.

o IP PBX support revenues grew 3% to £4.8m as the Group acquired larger customers, to offset some revenue erosion where smaller customers decided not to renew support on their system. Average spend per customer increased 11% from £4,200 in 2011 to £4,674 in 2012, reflecting the larger customer wins, as mentioned above.

o Data circuit revenues increased 35% to £3.8m in 2012. This growth is on the back of SIP solutions for some existing and new customers (e.g. Encore Tickets), and some larger WAN solutions to enterprise customers such as Tata Technologies. The Group still has relatively low penetration of data products in its customer base, and this remains a focus for growth with a product suite covering MPLS, Ethernet First Mile, SIP, Data storage and business continuity products.

o Gross margins held up well at 40%. The 1% decline in margins is due entirely to the change in mix of revenues with the increase in lower margin data revenues. Install and maintenance margins held up year on year after a reduction in engineering costs which decreased 5% to £1.47m.

AKJ Billing Services

o AKJ Billing Services revenues were stable and unchanged at £3.7m. This is still ahead of the pre-acquisition level of £3.4m, and further growth in sales to third party customers has been constrained this year by the amount of intra group work required for Group companies, which was £0.7m at market value, up from £0.5m in 2011. During the year, AKJ won a hosted contract for managed billing and provisioning services in a new datacentre, worth £0.5m over three years.

o Gross margins at 47% were ahead of expectations, as the Group retained more customers than expected. The reduction on the previous year was expected due to higher levels of services intra group which are have not been capitalised. This includes work on the billing system and the support of the Portal.

Scalable

o Scalable IP networks and PBX revenues, including support revenues, totalled £17.3m down 11% on £19.5m achieved in 2011.

o Scalable IP and PBX hardware installation revenues were the area of weakness, with sales of £10.8m down 21% on 2011 levels. This was principally brought about by longer sales cycles in Enterprise customers, as the macro economy weakened, and also due to reduced spend in parts of the public sector. In addition, there was a small impact arising from the reorganisation of the Enterprise sales teams in this period.

Despite the headline revenue decline, there were a number of positive underlying indicators for future growth.. Firstly, backlog has grown through the year and there is an extra £0.5m to take into 2013 of orders signed not yet completed, compared to the end of 31 March 2012. Secondly, sales were 8% ahead of the £10m in the 12 months ended 30 September 2010 (pre-acquisition), and the 2011 performance was considerably ahead of expectations at the time of acquisition, with more than usual larger deals (Carillion, Virgin Money, Newsquest, Ocado, Medical Research Council) falling in the first earn out period. If viewed together, revenues for the two years post acquisition totalled £24.5m revenues, equal to an annual average of 12.5% growth on top of pre-acquisition annual revenues. Thirdly, Scalable continued to win a number of good new clients in borough councils, higher education and health verticals against a more competitive backdrop. In 2012, Scalable was named as Extreme Networks' number one partner in the EMEA region. Pipelines at the year-end were strong giving a leading indication that sales are on an upward trend.

o Scalable support revenues increased 12% to £6.5m. These include data revenues of £0.6m (2011: £0.5m). The growth has come from an increase in run rate at the beginning of two years, but also in particular from a net increase in the maintenance of larger customers such as Screwfix, and an increase in the amount of third party support services, e.g. IP security services. Scalable in-house support now averages over £20,000 per customer pa.

o Scalable gross margins remained stable at 35%, matching the first half performance and the full year of 2011.

Telephony Services

Mobile network services - 5% organic growth in gross profits, with strong organic increase in customer base and near record low churn levels

Mobile revenues

Headline mobile revenues have increased by 1% to £40.3m (2011: £39.9m). This does not reflect the strong gains in market share for reasons set out below. We estimate underlying revenues have increased 5%. This is calculated after adjusting the comparative period for £1m in respect of network bonuses no longer receivable, and £0.5m in respect of regulatory changes to EU roaming data tariffs on 1 July 2012.

In January 2011, the commercial arrangements changed such that bonus commissions on new connections were no longer received up front from one principal supplier, in exchange for higher gross margins for the lifetime of the customer. This means that on a like for like basis, £1m of bonus revenues received in the first quarter of 2011 should be reduced from the prior year to measure relative performance.

In July 2012, the EU imposed a regulatory cap on the amount a mobile supplier could charge for data usage in the EU zone. We have estimated that this cost the Group approximately £0.5m in lower revenues in the year ended 30 September 2012. We have also estimated that the revenues for 2013 full year will be between £1m and £1.2m lower than the total in 2012 on a like for like basis as a result of these changes. It will be important to recognise this impact when assessing underlying organic growth.

The net impact of these changes, combined with growth in the mobile base has been to deliver a 5% increase in gross profits.

Mobile Margins

Mobile gross margins have increased to 39% from 38%. The main increase is due to the three months extra impact of higher margins on the new network commercials in Q1 2012 compared to Q1 2011. Additionally, margins have further benefited from a 42% increase in the managed subscriber base revenues where margins are typically nearer 70% due to the net commission received. Other positive influences include an increase in the amount of deferred customer funds delayed to the last 12 months of a 24 month contract, and a reduction in the contracted VSP base which is typically lower margin revenue. Collectively, these have more than offset higher subscriber acquisition costs which increased by more than £2m in the year. Going forward, margins are expected to be between 37% and 40% with the key variables being the cost of subsidised smartphone equipment and the growth in data revenues.

Mobile Operating KPIS

The performance in the key metrics of subscriber growth, ARPU and churn are set out below and represent an excellent performance in a very competitive market, in a year in which there were significant regulatory changes to mobile pricing:

·; The mobile subscriber base has grown by nearly 9,000 subscribers net to 77,174, representing 13% annual growth, and has grown 9% in the 6 months since 31 March 2012. There were a number of larger customers won in the period, including notably Findel plc and Lambert Smith Hampton.

o The key change in the year was the large increase of 6,659 subscribers in the Alternative contracted business subscriber base (2011: 2,327). This is due to lower levels of churn in the period and larger customers being acquired, as a direct result of the considerable benefits of Synapse, our upgraded customer portal, coming on-stream in 2012 and being marketed more actively by the Group.

o The managed base has increased by 2,500 subscribers, with one main customer accounting for over 800. During the year, the Network operator renewed the managed base contract until 30 September 2015, on terms which are more favourable, and this confirms the success of the partnership to date.

o The gross new connections in the period were 22,649 (2011: 21,847; 2010: 15,044), This represents a 4% increase on 2011, and confirms the Group's continuing success in direct sales and marketing in a flat overall market.

o Minor 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 200 connections. In 2012, the Group established a new competitive offering and at 30 September 2012, had signed up its first new VSP customer and now expect small accretions to this base throughout 2013.

·; Data connections continued to grow rapidly, with accelerated growth at the expense of voice only connections. Data connections now represent 70% of all connections, up from 53% a year ago.

o Smartphones continue to gain much wider adoption with Apple devices being added to our Android and BlackBerry portfolio for the full year. The number of Smartphones has grown 61% in the year to over 35,000 connections (2011: 22,000), and they now account for 46% of all connections (2011: 33%). This year has seen a sharp uplift in penetration as two thirds of all devices shipped were Smartphones, and many smartphones previously shipped have now been enabled in this year for full data services. At the year end, Apple products accounted for 12% of product dispatched, up from 3% in the previous year. Data only devices include connections for iPad, generic netbooks and tablets as well as traditional "dongles". These are low ARPU and tend to dilute total ARPU, but are a core part of our business service. These have grown again significantly in 2012 - up 32% to 18,439 connections.

o "ARPU" represents the average spends in line rental and usage charges per live connection per month in AN's contracted base of subscribers. ARPU has reduced by £3 from £50 to £47, representing a 6% reduction. This was broadly in line with expectations. We would normally expect the significant increase in Smartphones in the customer base to be ARPU enhancing; and we expect an ARPU increase should have arisen in 2012 from the change in the mix of devices over the year. However there was a net fall and this was due to:

§ Economic softening - lower activity in usage of voice and data in the domestic market. This was the primary influence.

§ Regulatory - Reduction in EU roaming tariffs, particularly on data usage. These were reduced again in July 2012. The latter had a £1 negative impact on ARPU.

§ A reduction in international voice usage - minutes billed were down by 4% against the previous year, but on a per connection basis were down 12%. This is due to lower economic activity (business travel), but also confirms the trend to more data usage by customers, including wi-fi services. This also accounted for a £1 reduction in ARPU.

§ Technology shift - A significant move by Blackberry clients on renewal opting to have cloud based Blackberry services rather than on premise (BES) server based services which are more expensive. This was a key contributor to line rental ARPU being reduced by £0.50.

·; Churn:

o Network churn at 16% was significantly lower than 2011 (2011: 20%). This excellent performance was achieved in spite of a more fluid market with customers freely switching between networks, and is a testament to the improved service offering (e.g. Synapse) and increase in net retention of customers by Alternative and renewal of contracts. This is shown by the fall in "churn by value" below, and the number of contracted subscribers "in contract" has increased from 72% to 74%.

o More important is the metric of "churn by value", which ultimately relates to the value of all contracted customers to the Group. In 2012, churn by value was significantly lower at 14% compared with 17% in 2011. This is a top of class performance in our industry where churn levels of 2% to 3% a month are the norm.

o Churn in the managed subscriber base has averaged 10% in the year (2011: 25%). This improvement was anticipated at 30 September 2011, because 90% of the customers were fully contracted in at that date.

Telephony Services

 Fixed Line network services - gross profits up 1%

Fixed line revenues are down 5% year on year to £37.9m. The contribution from Scalable was lower at £0.8m (2011: £1m), and underlying sales were 4% down, largely due to the change in mobile termination rates ("MTR") reducing outbound call revenues during the year, and a reduction in legacy analogue and digital access, as customers increasingly move to IP telephony. Inbound revenues have returned to growth with a 3% increase to £8.1m, secured largely from the addition of one larger customer.

Gross margin performance was excellent, with an increase of 2% to 39%. The key points were:

·; Outbound rental margins were slightly ahead of 2011, as a result of reductions in the regulated supplier pricing in the second half of the year. The sales mix change contributed a very small reduction in margins, as line rental margins are substantially lower than those on usage, and had a negligible drag effect.

·; Outbound usage margins were up 7% for the full year, with the gain coming as the Group continued to retain the benefit of lower costs of mobile calls passed on from the carriers, mirroring a change in market behaviour.

·; Inbound margins were lower at 45%, slightly below expectations, due in part to margins in 2011 being higher due to a rebate of revenue share that has not repeated in 2012, and also due to major contracts being renewed at lower levels during the year.

The Group is focussed on retaining and improving margins, especially as revenues are continued to be affected by regulatory changes and the migration to IP telephony. Margins in 2013 are expected to be in the 38-40% range, assuming a similar sales mix, increased from the 37-38% range guided last year.

 Outbound services - Fixed line

·; Outbound revenues decreased 7% to £29.8m (2011: £31.9m, 2010: £29.3m). The reduction was due to lower rental revenues and lower usage revenues, and Scalable made a smaller contribution of £0.8m (2011: £1.0m), as prices were reduced for its one significant customer on renewal. This is very much in line with industry trends as the reduction in call spends to mobiles, due to regulatory price reductions, and a move to email and mobile and IP based telephony continues to cannibalise traditional office based telephony revenues. Usage revenues per customer were flat year on year, as the Group continued to acquire more higher-spending customers.

·; Outbound average revenue per customer per month ('ARPU') has increased 3% over the year to £1,362, as more customers take both line rentals and calls, and with the addition of larger customers in the period. Average contract periods have dipped a little in the second half as more contracts were agreed at 12 or 18 months, reflecting the customers' desire to be able to move to SIP based products in that timeframe.

·; Wholesale Line Rental revenues ('WLR') declined 5% to £14.8m from £15.5m. The number of lines in the estate declined by 9,666, a 10% decline. Over 5,000 of these represented old analogue lines disconnected by customers, who were cleaning up their estates as they benefitted from Synapse's new reporting on asset management. Approximately 3,000 lines were lost due to four customers leaving, which were all single product customers. The remainder of the net decline was due to the continued transition to SIP. In spite of this, the Group continues to attract strong new customers. Significant customer wins in the period included Direct Wines Limited.

Inbound services - Fixed line

·; Inbound services revenue grew 3% organically over the year to £8.1m. This marks a return to growth, on the back of new customer additions, such as British Pregnancy Advisory Services. In addition, revenues were helped by improved revenue share received from the network operators. This has helped offset lower levels of activity in both 08xx and revenue share customers in the year, particularly over the latter six months. Many of these customers are call centres for retail or consumer activity which is suffering in the economic downturn.

·; 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, which can be increased.

Capital investment

The Group invested £1.0m (2011: £1.0m) in tangible fixed assets and intangible software assets during the year. This was in line with expectations.

In 2012, £0.4m was spent on IT hardware, including £0.2m on equipment installed in a third party data centre to host managed services for AKJ customers and support the Group's IT infrastructure. £0.4m was spent on software development of the Portal by Group employees. The balance of £0.2m was on rotating spares of data switches at Scalable customers, and routine office equipment.

In 2013, we estimate that a total of £1.5m will be invested. This is £0.5m ahead of previous guidance - a further £0.3m is earmarked for the Portal to accelerate the plans outlined above and an additional £0.2m is to be spent on upgrading the existing CRM platform to enable improved email integration and multi device deployment. The Group is also investing £0.3m on building out the data centre to host other services for customers in the future.

 Cash flow

Cash inflow from operations was again very strong, bringing in £18.1m (2011: £13.6m), compared to adjusted operating profits of £15.3m (2011: £14.6m). This included a working capital inflow of £2.2m (2011: inflow of £0.1m).

The main cause for the inflow of working capital was a £1.1m payment to a key supplier falling immediately after the balance sheet date as the direct debit was taken on 2 October 2012. This benefit is expected to reverse in 2013. The remainder was expected due largely to an improvement in the trade receivables collections particularly in Scalable, for the second successive year.

The high rates of cash conversion continue to highlight the Group's strong control over working capital. In 2012, the cash conversion is 112% of adjusted EBITDA (2011: 100%). Even after removing the unexpected working capital inflow of £1.1m, the conversion was 106%.

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

Outlook for year ahead

The Scalable deferred consideration for the year ended 31 December 2011 has been agreed at £0.5m and this will be paid in the first half of the year ended 30 September 2013. Other significant cash transactions in 2013 are the share repurchase on 31 October 2012 of £5m, a transfer to the EBT of £1.5m in January 2013 to enable the Trustees to purchase the interests of Ben Marnham in some jointly owned shares, and up to £1m of national insurance due on the exercise of LTIP options (nil cost) before 31 December 2013. The LTIP option exercises will give rise to a large corporation tax deduction and immediate cash flow benefit of approximately £1.3m through reduction of corporation tax payments on account. The net impact of all these transactions is expected to be an outflow of £6.7m.

The Group has unutilised bank facilities of £6m (2012: £6m) which are committed until March 2014.

Tax

The effective tax rate for the year was 22.8% (2011: 29.4%). This is lower than the main rate of corporation tax of 25% expected for the year (2011: 27%).

The effective tax rate was lower because firstly, the £0.4m write back of deferred consideration previously expensed for the Scalable acquisition (note 9) which is included in the profits is not taxable, and secondly, due to the adjustment of prior period tax submissions relating to the benefit of schedule 23 deductions for share options exercised, and the successful claiming of tax credits for research and development expenditure. Before these adjustments, the effective tax rate was 25.1%.

In 2011, the effective tax rate was significantly higher due to the impact of the £1.8m of deferred consideration for the Scalable acquisition, which was not allowed as a deduction for tax purposes.

Earnings per share

Fully diluted adjusted earnings per share ('EPS') have increased by 10% to 22.4p (2011: 20.4p). Basic adjusted earnings per share have increased 10% from 23.1p to 25.3p.

The statutory or unadjusted fully diluted earnings per share have increased 47% from 13.3p to 19.5p. The prior year included adjustments for the deferred consideration for Scalable which was written off to the income statement, and deal costs (e.g. stamp duty). If these costs of £1.9m were added back, the prior year basic fully diluted earnings per share would have been 3.8 pence higher and this year would have delivered 14% growth to 19.5p from 17.1p.

The weighted average number of shares in the year used for calculating the basic earnings per share has increased by 425,000. This is due almost entirely to the exercise of share options in the two years by staff, with 121,557 options being exercised in this year (2011: 655,811). The fully diluted number of shares has increased by 539,000 to take into account the potential LTIP share issues.

Dividend per Share

The Board has proposed a final dividend of 7.5 pence per share (2011: 7 pence per share) making a total dividend of 11.5 pence per share for the full year (2011: 10 pence per share). The final dividend is slightly higher than guidance, reflecting the savings arising from the share buyback and also the significant free cash generated in the year. The Board remains committed to a progressive dividend policy, and has announced its intention to raise the dividend by at least 10% successively in 2013 and 2014.

The dividend will be paid on 31 January 2013 to shareholders on the register as of 28 December 2012, with an "ex-dividend" date of 24 December 2012.

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.

Post balance sheet event

On 31 October 2012, the Group repurchased 1,992,012 ordinary shares for cancellation. These were cancelled on 31 October 2012. The purchase was by way of a tender offer, the terms of which were announced on 11 October 2012. The price per share was 251 pence and the total consideration was just under £5m. This was in accordance with the mandate given to the Board at a general meeting on 29 March 2010, when the Group was granted authority to repurchase up to 4,436,085 shares before 29 March 2013.

Share Repurchase authority

The Board has not tabled a resolution at the forthcoming AGM to extend this authority. This is because the renewal of this authority after 29 March 2013 will also require an ordinary resolution passed by the shareholders in respect of the waiver needed from the Takeover Panel to cover the potential increase in shareholdings of James Murray and his associates, and the Board consider it sensible to convene a separate general meeting to cover both those resolutions in due course or to deal with the resolutions at a subsequent AGM. It is an onerous process, involving advisers, and costs, and the Board is likely to recommend that any extension in authority proposed is for three years in length, to avoid annual iterations.

Edward Spurrier,

Chief Financial Officer

7 December 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2012

 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2012

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) All treasury shares were cancelled during the year.

CONSOLIDATED statement OF Cash flowS

For the year ended 30 September 2012

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 2011 and 2012.

These 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 2011 (which received an unqualified audit report) have been filed with the Registrar of Companies. Financial statements for the year ended 30 September 2012 were approved by the Board of Directors on 7 December 2012 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 lower (2011: higher) than the average rate of corporation tax in the UK of 25% (2011: 27%) applied to the profits before tax for the year. The differences are explained below:

The standard rate of corporation tax in the UK changed from 26% to 24% with effect from 1 April 2012. Accordingly, the Group's profits for this accounting period are taxed at an effective rate of 25%. Further changes to the UK Corporation tax system were announced in the March 2012 Budget Statement. The Finance Bill 2012 includes legislation to reduce the main rate of corporation tax from 24% to 23% from 1 April 2013. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014. The changes have been substantively enacted at the balance sheet date and, therefore, are included in these financial statements.

The proposed reductions of the main rate of corporation tax by 1% per year to 22% by 1 April 2014 are expected to be enacted separately each year. The overall effect of the further changes from 24% to 22%, if these applied to the deferred tax liability at 30 September 2012, would be to reduce the deferred tax liability by £60,000 (being recognised in 2013). In addition, if these applied to the deferred tax asset at 30 September 2012, this would reduce the deferred tax asset by £87,000 (being recognised in 2013).

2 Dividends

The 2011 proposed final dividend of 7.00 pence per 0.125p ordinary share (2010: 4.10 pence) was paid on 26 January 2012. The amount of dividend paid was £3,237,000 (2010: £1,875,000).

The directors paid a 2012 interim dividend of 4.00 pence per 0.125p ordinary share (2011: 3.00 pence), with a total payment value of £1,852,000 (2011: £1,380,000). This was paid on 6 July 2012 to shareholders on the register on 22 June 2012.

In addition, the directors are proposing a final dividend in respect of the financial year ending 30 September 2012 of 7.50 pence per 0.125p ordinary share (2011: 7.00 pence) which will require an estimated £3,476,000 of shareholders' funds (2011: £3,233,000). Assuming it is approved by the shareholders at the Annual General Meeting on 29 January 2013, it will be paid on 31 January 2013 to shareholders who are on the register of members at 28 December 2012.

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 after tax as set out in note 9, 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 2012 by 1.6p (2011: 2.2p).

As in prior periods, the calculation of the weighted average number of shares in issue excludes 3,915,200 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.

There were 48,321,557 shares in issue at 30 September 2012 and no shares held in treasury. On 30 September 2011 there were 49,161,766 shares (inclusive of 980,326 shares held in treasury). The weighted average number of shares during the year was 44,338,853 (2011: 43,913,478).

4 Trade and other receivables

5 Cash and cash equivalents

6 Called up share capital

During the year 121,557 shares were allotted under share option schemes as follows;

15,644 issued at 102.5p resulting in a share premium of £16,016

54,775 issued at 150.5p resulting in a share premium of £82,368

51,138 issued at 135.5p resulting in a share premium of £69,228

18,560 shares were issued to employees at 279.0p (market price) as part of a long-term incentive plan resulting in the creation of £50,944 of share premium.

7 Trade and other payables

8 Cash generated from operations

9 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.

Scalable acquisition costs and associated items consist of the following;