Pre-close trading update and dividend guidance

1 April 2011

Alternative Networks plc ("the Group or "Alternative")

Pre-close trading update and Dividend guidance for 6 months ended 31 March 2011

The Group today provides an update on current trading ahead of entering a close period in respect of the six month to 31 March 2011.

SUMMARY:

·; Underlying organic growth in line with expectations

·; Scalable performing ahead of expectations

·; Mobile likely to deliver better than expected performance due to higher margins

·; Sales pipeline growing rapidly

·; Strong cash generation

·; Intention to increase dividend in 2011 to at least 9 pence per share

·; Guidance of 10% annual growth in dividend to 2013

·; Overall strong confidence for the full year

The Group has continued to build on the success of 2010 in the six months to 31 March 2011.

Organic revenue growth

In the first four months of the year, revenues and gross profits have continued to grow in each of the key product sets.

Sales pipelines across the Group are growing rapidly, after a slower than expected first quarter, when poor weather delayed new business signings. Customer retention to date has been in line with management expectations. Performance to date gives management confidence in the full year.

Mobile - improved margins

The Group has successfully renegotiated its commercial arrangements with one of its major suppliers. This is a simpler arrangement for both parties and is expected to be beneficial in terms of lifetime value to the Group of each mobile customer. The new deal effective from early January is a three year agreement to March 2014. In the year to 30 September 2011, it is expected that headline mobile revenues will now be lower by £3m, but that lower costs of sale and higher margins will more than offset this, and a net benefit will accrue to the Group. The scale of benefit is dependent on how much the Group reinvests in future growth through costs of new customer acquisition, and further guidance will be given later in the year.

Scalable - significant outperformance

Scalable has traded ahead of expectations since its acquisition at the beginning of October 2010 with sales running over 15% ahead of budget in the first 5 months, and sales pipeline running 30% over target. This reflects a successful exploitation of Scalable's excellent reputation and the opportunities in the fast growing Ethernet data centre market. Scalable's gross margins are ahead of target and prior periods, and we have upgraded our expectations of the full year EBITDA target for Scalable by 35%. In order to cope with the increased business, Alternative has agreed to expand the Scalable headcount by 10% and to date in 2011, no employees have left the company.

In addition to the buoyant trading, the Group recognises the excellent cross sell opportunity and has made progress connecting and motivating all the Group's sales teams. Currently over 25 bids are being worked on, with some early indications of potential success.

An update to the earn-out estimates will be provided with the interim results in June 2011. The first tranche of the earn-out is due to be settled in April 2011.

Net Cash position and new bank facilities (undrawn)

The group has continued to generate strong cash flow.

Net Cash funds at 31 March 2011 were £7.8m (£11.1m at 30 September 2011), reflecting £7.5m spent on Scalable in October 2010, and paying the final dividend in January 2011 of £1.9m. Before these payments, the Group has generated £6.1m of cash in the first half of the current financial year.

Alternative has also renewed its banking facilities during this period. The group has renewed a £6m three year drawdown loan facility available on demand, but has not renewed the overdraft facility, as it is not a current requirement.

The Group continues to review a number of acquisition prospects and the outlook on engaging a suitably complementary opportunity remains positive.

Dividend guidance

As a result of the positive start to trading this year, continued good cash generation, and following a structured review of distributions by companies in the sector and otherwise of similar profiles, the Board has determined to increase the Group's distributions to shareholders in 2011 and maintain a higher level of payout in subsequent years, in line with its stated progressive policy.

In the year to 30 September 2011, the Board expects to pay a total dividend of not less than 9 pence per share. In the previous year, the dividend per share was 9.1 pence, but this included a 3 pence special dividend, and the underlying dividend was 6.1 pence. This therefore represents an increase of approximately 50% in real terms.

It is not expected that the additional annual cost of approximately £1m will have any impact on any proposed acquisition activity.

It is expected the split between interim and final dividends will remain at approximately one third and two thirds respectively.

In the two years to 30 September 2012 and 2013, the Board then expects to increase the dividend by at least 10% each year.

Outlook

As stated above, organic revenue growth is in line with expectations. However, with margins increasing through the new supplier arrangements in Mobile, and a stronger than expected performance by Scalable, the overall Group performance gives strong confidence for the full year.

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