Pre-Close Trading Update

4 October 2011 

Alternative Networks plc

Pre Close Trading Update

Alternative Networks plc, the UK business communications service provider, today announces a pre close trading update for the full year ended 30 September 2011.

Trading for the year has continued to be positive, with revenues and profits expected to be in line with the Board's expectations.

Trading performance

Mobile trading has shown good growth and increased momentum in the second half, on the back of improved commercial terms, such that double-digit organic growth in gross profits is expected in the second half compared to H2 2010.

In Advanced Solutions, sales of PBX systems and data connectivity have shown continued growth and, similarly, double-digit organic growth in gross profits is expected in the second half when compared to H2 2010.

Scalable has continued to trade well, recording strong gains in new accounts and finishing the year with a record pipeline. Recent customer wins such as Ocado and the Medical Research Council, have helped Scalable trade in line with upgraded expectations.

Fixed Line trading has been robust. Outbound revenues and gross profits have continued to grow strongly over the previous year in line with the impressive performance of the first half. However, momentum has slowed and revenues and sales pipelines have recently been affected by the mobile termination rate cuts and an apparent softening in the economic activity of consumer facing businesses over the summer months. The latter particularly impacts inbound telephony, which is now only expected to record single-digit organic growth for the full year.

Throughout the last six months, the Group has continued to invest in the growth of the business, with increased headcount in Scalable and in the group product development and commercial teams. Whilst these investments are expected to bolster future gross margin performance and future sales pipeline, the selling costs and general overheads of the Group are expected to have increased by approximately £1m compared to the first half of the year. As ever, investment in these areas remains under close review and the Board will update the market with guidance for next year's investment levels at the time of its preliminary results announcement.

Portal and billing services

AKJ continues to trade well. Group investment in the Portal and progress in its development is in line with the Board's expectations. The core and foundation blocks of the Portal service have all been successfully deployed in 2011, as well as the release of on line customer services and asset management tools. The next 12 months will see regular releases of a scheduled Customer Experience Enrichment Program, with the focus on improving online ordering, online reporting, and enabling widespread customer self-management. We expect it to be unrivalled as a platform embracing such a diverse communications product set in the business and smaller enterprise markets.

Cash Flow

Cash flow remains strong. Net cash balances at 30 September 2011 were approximately £10.7m, up from £7.9m at 31 March 2011. This is after paying out £1.4m Scalable earn out and £1.4m interim dividend in the second half of the year.

Dividend

As announced in March 2011, it remains the Board's intention to declare and pay a final dividend of not less than 6 pence, making not less than 9 pence for the full year. Going forward, the Board intends to increase the dividend by not less than 10% each year in 2012 and 2013.

 Outlook

The Group's sales pipelines overall remain healthy, with no indications today of sales cycles lengthening. The Board is confident in the Group's ability to continue to win market share and, subject to exercising general caution over potentially reduced economic activity in 2012, deliver further sustained growth. The Board continues to review opportunities in the market for further acquisitions and is well supported by a strong balance sheet.

The preliminary results for the year ended 30 September 2011 are expected to be released on 6 December 2011.

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