Alternative Networks plc

Trading Statement

Alternative Networks plc ("the Group"), the UK business IT and communications service provider, today issues the following trading update for the half year ended 31 March 2015.

Trading in the first half of the year has been robust, giving the Board confidence that its full year expectations for the Group will be met. Highlights of the first half of the year were:

·    Strong performance in Advanced Solutions with good growth in both reported revenues and orders signed

·      Strong performance in Mobile including further gains in market share, with an 11% increase in the subscriber base year on year

·      Significant progress on the integration of ControlCircle and Intercept IT acquisitions

o  Properties rationalised - 5 London offices to 2 new locations

o  Significant upgrades to IT infrastructure across the Group on one platform

·      Continuing strong cash generation and operating cash conversion with closing net debt of £30.2m.  A target of below £20m set for 30 September 2015

·      Board remains committed to its progressive dividend policy of no less than 10% growth in the dividend year on year, progressing towards its longer term target of 15% annual growth in due course

Trading performance

Advanced Solutions

Performance in the business has been strong. The momentum seen over the past year has continued, with total orders signed in the first 6 months at least 15% higher than the prior year on a like for like (proforma) basis.  As a result of this continued momentum we expect revenue growth of at least 10% in the first half of the financial year. Cross selling remains a core focus and the Group has now signed 43 such contracts with customers in 14 months, with a further 250 opportunities being evaluated. Momentum continues to build, and evidence of this is expected to be reflected in future results.

Order backlog has increased substantially in the first half of the year, up from the record levels at the end of September 2014. This growth is due to new order growth and larger customer wins than previously experienced and will result in a higher weighting of revenue and profits to the second half than in previous years. New orders have been generated across the portfolio, with two notable new clients both in new verticals for Alternative. In the Service Provider vertical, Alternative was chosen as the networking hardware and support provider for a 5 year contract across multi-technologies for London Internet Exchange (LINX), and we have also secured major contract wins in the Defence and Secure Government markets. These supplement continued progress in the professional services and education verticals.

ControlCircle's performance has been satisfactory, with minimal client attrition and a number of client wins.  Trading has been impacted by two major customers putting new business on hold pending internal strategic reviews, resulting in lower non-recurring revenues. The remaining business performance has been encouraging, with new business sales excluding these customers growing by 4% and the new opportunity lifetime pipeline now worth over £30m at the gross margin level, largely due to increased interest generated from cross selling to the Group's existing clients.

Performance at Intercept IT in the first half has been strong, with double-digit revenue growth and improved margins year on year.  The hosted desktop market continues to grow and encouragingly Intercept IT has a record level of qualified pipeline to take into the second half.

Integration of the two businesses has progressed well and is expected to be completed by the end of the year. Relocation to one site under combined group management is now complete and integrated IT systems have been implemented across most of the Group operations. The whole Group will be branded as Alternative from April 2015.

Mobile Network Services 

Trading in Mobile Network Services is ahead of expectations, with the Group again increasing market share in the period with subscriber growth of 11% on an annualised basis.   Mobile Network Services is expected to contribute 30% of Group revenues.  Approximately 4,000 net additional connections were added in the period, bringing total mobile subscribers to over 95,000 at 31 March 2015. ARPU performance has been supported by continuing increases indata usage, largely offsetting voice and tariff erosion. As a result, mobile revenues in the first half are expected to be broadly in line with the prior year on a reported basis and approximately 9% ahead on an underlying basis, stripping out the revenue impact of new commercial arrangements that began in April 2014. Profit margins remain strong and gross profit for the six month period is expected to be at least 10% ahead of 2014.

Fixed Line Network Services

Overall performance of fixed line network services was in line with market performance and our expectations with the product group now contributing less than 20% of Group revenues. Line rental revenues continue to decrease, as expected, driven by the transition to 'SIP', revenues from which are recorded in Advanced Solutions, with circa 2,800 (representing a 30% increase) additional channels added in the first half.

New platform for growth

2015 is a year of significant change for the Group which will enhance its market position.  The first half of 2015 has seen a number of major investments and structural changes for the Group:

• The sale of its Battersea headquarters for £3.85m completed on the 9 April 2015;

• The move from 5 sites (effected with no financial penalties) in London to a new London headquarters in 240 Blackfriars, and an improved expanded regional office in Surbiton, both under long leases, bringing new demo facilities and combining all technical and sales teams in one space;

• Shift of all legacy on-premise IT infrastructure and hosted services into state-of-the-art managed secure datacentres; and

• Additional £0.5m exceptional capital investment to the Intercept and ControlCircle IT infrastructure, as identified at the time of acquisition, to improve resilience and enhance all DaaS (Desktop as a Service) services. This will also provide the backbone for future on-line cloud services.

The changes have been efficiently implemented with minimum disruption to trading and apositive response from staff, with very low levels of attrition. The new premises and IT infrastructure provide the Group with a sound platform for future growth, providing more space, more flexibility, more sales opportunities and an organisation more efficiently resourced.

Cash flow

The board continues to target net debt of below £20.0m by 30 September 2015.

Cash generation remains strong across the Group, with good underlying operating cash conversion and underlying free cash flow higher than the comparative period.  The Group net debt position at 31 March 2015 was £30.2m (30 September 2014: net debt £29.3m), in line with the Board's expectations, and includes exceptional capital expenditure of £2.3m on the Group's new London office space and payment of the FY14 final dividend of £4.6m.  Post period end the Group has received £3.1m of cash related to the sale of a London property.

Interim Results

The results for the half year ended 31 March 2015 are expected to be released on 3 June 2015.

Enquiries:

Alternative Networks plc                                                                      0870 190 7444
Edward Spurrier, Chief Executive Officer
Gavin Griggs, Chief Financial Officer

Investec Bank plc - Nominated Adviser and Joint Broker                    020 7597 5970

Patrick Robb / Carlton Nelson / Andrew Pinder

finnCap Limited - Joint Broker                                                             020 7220 0565

Stuart Andrews

Pelham Bell Pottinger                                                                          07802 442486

Archie Berens