Trading Statement

Alternative Networks plc

Trading Statement

Alternative Networks plc, ("the Group") , the UK business communications service provider, today issues the following trading update, ahead of its full year results for the year ending 30 September 2012, due to be announced on 10 December 2012.

Trading for the year has continued to be positive, and profits are expected to be in line with expectations, with cash flow ahead of analyst forecasts. Highlights of the second half of the financial year are:

·; Strong gains in market share in mobile - subscriber base up 13%

·; High levels of cash generation raising net cash balances to £20.5m, an increase of £7.4m in H2, and delivering an expected conversion ratio of over 100% EBITDA into cash generated from operations.

·; Strengthening gross margins across the Group.

·; Board continues to evaluate shareholder returns, given high cash levels, including special dividends, share buy backs and earnings accretive acquisitions.

Trading performance

Growth in market share in Mobile network services has been strong with 13% annual organic growth in mobile subscribers to over 77,000 at 30 September 2012. This represents an acceleration of growth in the second half due to lower subscriber churn in the period and some significant customer wins toward the end of the year. The market remains very competitive, but our own strong performance reflects the successful adoption of the enhanced Portal services by our customers in 2012. Headline revenues have grown year on year despite continued pressures, with the EU regulation lowering data usage revenues in the last three months and with the economic climate remaining depressed. Nonetheless, gross profits have increased comparatively by approximately 6% in the first 11 months of the financial year, with improved margins, and the momentum in overall growth in profitability from mobile services remains strong.

Fixed line network services trading has been stable and broadly in line with expectations. The transition to SIP, resulting in reduced line rental revenues, and the impact of lower mobile termination rates have each continued to impact opportunities for growth. The good news is that margins have increased in spite of these factors, meaning that full year gross profits are expected to be at least in line with last year's outturn

Advanced Solutions started the year well, but economic uncertainty has resulted in slower new business investment decision making, and total revenues for the full year are expected to be approximately 5% lower than in 2011. Margins have been resilient, at similar levels to last year, which is in line with expectations.

The slowdown is principally in new IP data switch installations in the Enterprise market (Scalable). Stripping out these one off revenues, the remainder of advanced solutions is expected to have grown by around 6% over 2011, with net growth in the customer support revenue base in both IP voice and data. Scalable finished the year well, and the value of backlog (orders signed but not yet completed) has shown good growth through the second half of the year, to provide confidence for renewed growth in revenues in 2013.

Dividend

As announced in March 2012, it remains the Board's intention to declare and pay a final dividend of not less than 7 pence, making not less than 11 pence for the full year (2011: 10 pence). Going forward, the Board intends to increase the dividend by not less than 10% each year in 2013 and 2014.

The Group continues to consider further returns to shareholders of surplus cash balances and in the past, the Group has paid a special dividend and also repurchased shares. Both options remain available to the Board. The Board continues to review potential earnings accretive acquisitions, which in the past has been the main application of cash generated from operations.

Portal development

Group investment in the Portal and progress in its development is in line with the Board's expectations. The Group has successfully executed all the previously announced schedule of enhancements, delivering improved online ordering, online reporting, and enabling widespread customer self-management. Feedback from customers has been excellent and the success is being reflected by the low churn rates of customers using the portal and the high adoption rates of existing customers using the new services. Further details will be available in our full year results. Following the launch of these services, over a quarter of mobile hardware is now ordered online and automatically provisioned, and on average over 1,500 transactions a month are now self-serviced by customers. We retain our confidence that it can remain unrivalled as a platform for growth across a diverse communications product set in the business and smaller enterprise markets.

Cash Flow

Cash flow remains very strong. Net cash balances at 30 September 2012 were approximately £20.5m, up from £13.1m at 31 March 2012. This is after paying out £1.9m interim dividend in the second half of the year. It is expected that the conversion rate of adjusted EBITDA into cash generated from operations will again exceed 100% for the full year, with the conversion in the second half well ahead of the 90% recorded in H1.

Board appointments

The Group is making good progress with its intended appointments to the Board following the departure of its Chairman, Tony Caplin, earlier in the year and following the recent announcement that Ben Marnham will be stepping down from the Board on 3 January 2013. The Group will announce these, along with additions to strengthen the Executive Management team, at the full year results in December.

Timetable

Enquiries: