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 year ended 30 September 2015.

Highlights of the year were:

•  Good performance in Advanced Solutions with solid growth in both revenues and orders signed
• Strong performance as expected in Mobile with further gains in market share and an 9% increase in the subscriber base year on year and 4% since March 2015
• £1.0m investment in increasing account management resource to drive product penetration across the existing customer base
• Completion of the integration of 2014 acquisitions with the businesses rebranded Alternative and all teams now located together in new facilities
• Continuing strong cash generation with closing net debt materially ahead of target at £18.7m (target £20m) down from peak level of £41m in January 2014
• The Board remains committed to its progressive dividend policy and intends to propose a dividend at least 10% above the level of the ordinary dividend paid in 2014, progressing towards its longer term target of 15% annual growth in due course

Trading performance

Advanced Solutions

Overall performance in the business has been good with the momentum seen over recent periods continuing. Total orders signed in the year were 3% higher than the prior year on a like for like (proforma) basis, with growth aided by strong growth in the Systems part of the business in particular.

In keeping with wider market trends, the Group saw a slightly lower level of orders in the run up to the May General Election, but in the fourth quarter to September orders signed have returned to expected levels. As a result of this performance we expect revenue growth of at least 10% in the financial year and we ended the year with more than £4.0m of order backlog.  New orders have been generated across the portfolio, with some notable areas of success particularly in Higher Education, where the Group has signed contracts with fourteen universities and thirty three schools and colleges during the year.  

Hosted Managed Services and On Demand Services, formerly parts of ControlCircle and Intercept IT, are reported in Advanced Solutions and are now fully integrated into the Group with all teams located in a new, combined London office and the businesses rebranded as Alternative.  Trading performance has been satisfactory, with minimal client attrition. As previously reported, performance in the year was moderately impacted by two major customers putting new orders on hold pending internal strategic reviews, resulting in lower non-recurring revenues. Of these, one customer has returned to its pre-review order profile.  Now that the businesses are fully integrated we are encouragingly seeing improving order trends overall, which we expect to continue into the new financial year.

Mobile Network Services 

Trading in Mobile Network Services was as expected, with the Group increasing market share with subscriber growth of 9% over the year against a continuing competitive market landscape.  Over 4,000 net additional connections were added in the six month period to 30 September 2015 with a further 1,300 signed that will connect in the first quarter of the financial year, bringing total mobile subscribers to over 99,400 at 30 September 2015. ARPU performance has been supported by continuing increases in data usage, largely offsetting voice and tariff erosion although we saw a change in data roaming mix away from the rest of the world to the EU over the summer period. Overall, mobile revenues for the full year are expected to be up on the prior year on a reported basis and approximately 8% ahead on an underlying basis after stripping out the revenue impact of new commercial arrangements that began in April 2014.

Fixed Voice Network Services

Overall performance of fixed line network services was in line with market trends and this product group now contributes less than 20% of Group revenues. Line rental revenues continue to decrease, as expected, driven by the transition to 'SIP' with circa 3,500 (representing a 47% increase) additional channels added in the year.

Investment

2015 has been a period of investment and change for the Group which will enhance its future market position.  In the year there have been a number of major investments and structural changes:

• Investment of circa £1m in increasing Account management resource and Sales capability to improve customer retention and the cross selling capability of the expanded product portfolio into the customer base

• Rebranding all businesses in the Group under the Alternative name

• Restructuring of the property portfolio to enable all Customer facing and technical staff to be located together in new facilities resulting in £2.7m of exceptional capex

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

• £0.8m exceptional capital investment in the Hosted Managed Services and Online Desktop infrastructure, as identified at the time of acquisition, to improve resilience and enhance all DaaS (Desktop as a Service) services. This will provide the backbone for future on-line cloud services and has facilitated the launch of on demand managed service products.

The new premises and IT infrastructure provide the Group with a sound platform for future growth, providing the infrastructure to organically expand the managed service product portfolio and the selling capability to deliver the portfolio to new and existing customers more effectively.

Cash flow

Cash generation remains strong across the Group with good operating cash conversion.  The Group net debt position at 30 September 2015 was £18.7m (30 September 2014: net debt £29.3m), comfortably surpassing the £20m target outlined in June and down from £41m at the time of the acquisitions at January 2014.  This includes exceptional capital expenditure of £2.7m on the Group's new London office offset by £3.1m of net cash related to the sale of a London property.

Dividends

The Board remains committed to its progressive dividend policy and for 2015 it intends to propose a dividend at least 10% above the level of the ordinary dividend paid in 2014. Moving forward, and as previously communicated, the Board intends to move towards annual dividend growth of 15%.

Preliminary Results

The results for the year ended 30 September 2015 are expected to be released on 9 December 2015.

Enquiries:
Alternative Networks plc                                                                         0870 190 7444
Mark Quartermaine, 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

Bell Pottinger                                                                                         020 37722573

Elly Williamson/Archie Berens