TIDMNASA
RNS Number : 0487D
Nasstar PLC
24 April 2017
Nasstar plc
Results for the year to 31 December 2016
24(th) April 2017
Nasstar plc ("Nasstar", the "Company" or the "Group"; stock
code: NASA), a provider of hosted managed and cloud computing
services, announces its results for the year ended 31 December
2016.
Financial Highlights
-- Full year trading in line with expectations with a robust
performance from the core Group business offsetting the previously
disclosed underperformance of VESK acquired assets
-- Revenue up 36% to GBP18.7m (2015: GBP13.8m) (underlying growth 5% )
-- Monthly recurring revenue run rate increased 54% (underlying growth 8% )
-- Delivered gross margin of 69% despite the impact of the
weakening pound against the dollar (2015: 70%)
-- Adjusted EBITDA* up 32% to GBP3.8m* (2015: GBP2.9m*)
-- EBITDA*** up 50% to GBP3.5m*** (2015: GBP2.3m***)
-- Adjusted profit before tax** up 13% to GBP1.9m** (2015: GBP1.6m**)
-- Reported loss before tax GBP1.8m (2015: GBP1.3m), widening
due to the growing amortisation charge on acquired intangibles
-- Adjusted earnings per share of 0.6p** (2015: 0.7p)
-- Reported loss per share of 0.3p (2015: 0.1p)
-- Final dividend of 0.052p per share, a 16% increase on prior year
-- Year-end net debt GBP2.8m, in line with expectations
-- Bank covenant leverage targets surpassed resulting in ratchet
down of interest rate on fixed term loan (2.95% to 2.75%)
-- Successful placing and acquisition of Modrus which has traded
in line with expectations with integration well under way
Year to Year to
31 Dec 31 Dec
2016 2015
GBP000 GBP000
Revenue 18,748 13,759
Adjusted EBITDA* 3,759 2,853
Operating (Loss) (1,407) (1,163)
(Loss) before tax (1,771) (1,296)
Adjusted Profit before tax** 1,857 1,648
*Comprising earnings adjusted for interest, taxation,
depreciation, amortisation, share based payments and exceptional
items (being costs in relation to acquisitions during the year and
reorganisation costs).
**adjusted for amortisation of acquired intangibles, share based
payments and exceptional items.
*** Comprising earnings adjusted for interest, taxation,
depreciation and amortisation.
Underlying figures exclude the impact of acquisitions
Key Performance Indicators
31 Dec 31 Dec
2016 2015
Monthly recurring revenue run GBP1.8m GBP1.2m
rate pm pm
Average monthly recurring revenue GBP114 GBP119
per hosted desktop
Recurring % of total reported
revenue 88% 89%
Gross profit percentage 69% 70%
Operational Highlights
-- Relaunched Nasstar brand with new look and feel, better
reflecting the Group's capabilities; subsidiary brand names
dropped.
-- Successful acquisition of Modrus in September 2016
o Group technical capabilities broadened
o Further vertical market diversification delivered
o Group round the clock capabilities bolstered with 24x7 support
service delivered from New Zealand
o Successful cross-selling already in evidence
o Integration plan underway with wider integration plan due in
2017
-- Launched Nasstar consolidation programme for 2017 ("Nasstar
10-19"), designed to consolidate technologies, integrate teams and
automate processes, whilst defining a single approach to customer
service excellence. The "Nasstar 10-19" programme incorporates key
target KPIs.
-- The maturing of the Group's public cloud capabilities saw
Microsoft award Nasstar a number of Gold competences relating to
Office 365 (O365) and Azure.
-- Became Microsoft SCA accredited - Shared Computer Activation
accreditation enables Nasstar to integrate O365 fully with hybrid
platforms, where both public and private cloud platforms are
integrated in the delivery of the managed service to the customer.
Nasstar are one of only four other Microsoft partners that hold
such accreditation.
-- Continued to pioneer the public and private cloud hybrid
solution, with a high proportion of the recurring revenue growth
including hybrid solutions.
-- Conclusion to year long Microsoft SPLA audit.
-- Significant external industry validation with the award of
"Citrix Networking Partner of the Year".
-- Cyber security capabilities enhanced by partnering with
Falanx Cyber Defence (Falanx) for protective monitoring services
and cyber incident response support.
-- Right sizing of the PLC Board of Directors, leaving a
balanced Board of Chairman Lord Daresbury, CEO Nigel Redwood, FD
Niki Redwood and non-executive Directors Nick Bate and Mike
Read.
Nigel Redwood, Chief Executive Officer of Nasstar,
commented:
"During 2016 we continued to execute on our stated acquisition
strategy with the addition of Modrus to the Group. Modrus completes
our service portfolio and enables the Group to focus on maximising
and realising the benefit of bringing together five businesses over
the last three years.
Our enhanced marketing plan in 2016 saw the relaunch of our
Nasstar brand which I truly believe now reflects the capabilities
of our end to end fully managed service. The rebranding of the
subsidiaries continued in the second half of 2016 with both the
e-know.net and Kamanchi subsidiaries undertaking a full Nasstar
rebrand with their names changing to Nasstar.
The momentum of the public cloud continued in 2016 and I am
delighted Nasstar has embraced this technology and developed a
leading approach to hybrid computing ensuring our solutions
continue to supply a competitive advantage for our clients.
Our focus in 2017 is to realise the efficiencies that have been
made possible via our acquisition strategy with a view to improving
margins in future years. We believe this will continue to provide a
strong platform for organic growth and increase in shareholder
value."
For further information, please contact:-
Nasstar plc +44 (0) 1952 225 000
Nigel Redwood, Chief Executive Officer
Niki Redwood, Finance Director
finnCap Limited (Nominated Adviser & Broker) +44 (0) 20 7220 0500
Julian Blunt, James Thompson (Corporate Finance)
Stephen Norcross (Corporate broking)
Chairman's Statement
I am very pleased that the team has been able to continue to
deliver organic growth whilst continuing with our acquisitive
strategy in 2016. When removing the effect of the Modrus
acquisition, the underlying growth in monthly recurring revenue was
8% for the year, which is healthy growth for a managed service
provider, comparing favourably with our peers. If you then combine
the acquisitive strategy, recurring revenue grew by 54% for the
year, an exciting number that further endorses the strategic plans
we began in 2014. Recurring revenue represents 88% of total
revenues providing excellent earnings visibility and a solid base
for the strategic direction of the business.
The implications of the BREXIT process and resultant decision of
the UK to leave the EU were wide ranging, but in particular we saw
two direct impacts. Uncertainty in the lead up to the vote and
subsequent result has seen business decisions being delayed, which
elongated the timings of sales cycle decision making by potential
clients. However, I feel Nasstar weathered that in 2016 and I hope
for less uncertainty in 2017. Secondly, a direct consequence of the
vote was a significant increase in our cost of sales due to the
weakening of the Pound against the US Dollar as Nasstar acquires
licenses from various vendors in US Dollars which forms a large
proportion of our cost of sales. Despite that, Gross Margin was
reported to be 69% of sales, a 1% reduction on 2015 due to emphasis
on cost reduction and control in other areas of cost of sales
helping to offset the impact of the exchange rate pressure.
EBITDA of GBP3.5m (2015: GBP2.3m) and full year adjusted EBITDA
of GBP3.8m (2015; GBP2.9m) were in line with expectations. This was
achieved despite a degree of underperformance at VESK which was
offset by robust trading from the remaining subsidiaries. The
Directors however, had built specific protection in the relevant
acquisition agreement which comprised performance-related deferred
consideration which was not triggered and the ability to claw back
initial consideration shares. Such protection demonstrates a mature
and cautious approach to acquisition activity.
As a result of bank covenant leverage targets being surpassed it
was pleasing to see the interest margin on our fixed term loan
reduce by 0.2% with Net Debt and cash at the end of the year being
on target.
The appointment in January 2016 of David McCarthy as Managing
Director has proven worthwhile. David has settled in very well and
has been instrumental in driving operational change and planning
for our integration strategy. At a non-executive level we have
rationalised the plc Board with Angus McCaffery and David Redwood
both stepping down during the year. I would like to thank both for
their valued contribution to Nasstar plc over the years.
We continue to work very closely with Microsoft and Citrix,
which was demonstrated by our winning in 2016 of the "Citrix
Networking Partner of the Year", a symbolic 3(rd) party validation
of our growing technical capabilities.
Our progressive dividend policy has continued with a final
dividend for 2016 being declared of 0.052p (2015: 0.045p) per
share, a 16% growth on our maiden dividend declared last year.
Furthermore, the Board have a desire to further accelerate the
dividend growth in 2018 and beyond.
Whilst much remains to be done in terms of delivering on the
various initiatives we have underway for 2017 and beyond, it has
been particularly pleasing to see sales progress with new contracts
of note being added during 2017 to date. We do recognise however
that the competitive landscape in our sector continues to evolve
and therefore protection and retention of our current recurring
revenue contracts is key to delivering growth and requires more
attention than ever. The "Nasstar 10-19" programme is an important
part of our response to this market dynamic.
Finally, the dedication, hard work and enthusiasm of all of our
staff is the backbone of all we achieve and underpins the success
of the Group. I would like to express my gratitude to all new and
old team members alike.
Lord Daresbury
Chairman
Chief Executive's Report
Review of the Business
The Group is a provider of hosted managed and cloud computing
services, integrating private and public clouds supplying a robust,
secure and stable hosted Information Technology service to business
customers. The Group provides a true end to end service for clients
providing them with enhanced IT performance and greater cost
control over their IT function. The Group owns its primary data
centre, is head quartered in Telford with regional offices in
Northampton, London and Bournemouth whilst 24 x 7 support is
delivered from its Auckland office in New Zealand. Nasstar is an
accredited Microsoft Gold Partner, has G-Cloud 7 status, is the
2016 Citrix Networking Partner of the Year and is certified to ISO
27001.
Nasstar specialises in building bespoke cloud hosted services to
manage a client's entire application set, tailor made to suit
specific industries, designing public, private and hybrid cloud
solutions to meet the objectives of the client. The solution is a
highly scalable service that provides benefits including "Anywhere
Access" to computing; a standardised corporate solution that can be
accessed globally in multiple languages; generating cost savings
when compared to the traditional IT ownership model whilst
replacing capital expenditure with a simple usage based payment
model.
The bespoke cloud hosted services includes a comprehensive
portfolio of solutions, offering Hosted Desktop, O365, Hosted
Exchange, Software as a Service (SaaS), Infrastructure as a Service
(IaaS), and Hosted Telephony services. Additionally, the Group
hosts a wide variety of software applications on behalf of clients.
Further, the Group provides managed networks and an extensive end
user support service. All such services are supplied on a price per
user per month basis building a stronger long term recurring
revenue relationship with clients.
The Group holds a tier one agreement to sell Microsoft's cloud
offerings known as Office 365 (O365) and Azure. The programme
enables the Group to supply O365 on a truly flexible per user per
month model, with the Group contracting with the end user and
retaining full invoicing and customer support. In addition Nasstar
is Shared Computer Activation (SCA) accredited. This SCA
accreditation enables Nasstar to integrate O365 fully with hybrid
platforms. Nasstar are one of only four other Microsoft partners
that hold such accreditation today. This has enabled the Group to
further integrate the O365 offering into its hosted desktop
solution, embracing the innovations of O365 as a clear
differentiator over its competitors. In addition, the Cloud
Solution Programme (CSP) enables the Group to benefit from the
economies derived from the use of the Microsoft Azure platform,
Microsoft's hyper scale IaaS offering.
Furthermore, the Group through its central Professional Services
Team provides consultancy services on business processes and
application development to its clients in its targeted vertical
markets. This enhances its added value service to its managed
service client base. As an example, through its exclusive sector
focus, Nasstar has built strong relationships with the specialist
software providers (authors), thus enabling it to offer clients a
one-stop solution for all their essential applications.
Nasstar recognises that cyber security continues to be a rapidly
changing landscape and therefore bolstered their internal
capabilities by partnering with specialist in this area Falanx
Cyber Defence. Falanx supply protective monitoring services and
cyber incident response support for Nasstar as well as additional
consulting services for customers. Cyber Defence as a Service for
clients as a result is a growing service line adopted by the
customer base.
Strategy
2016 saw the successful execution of the enhanced marketing plan
which saw the relaunch of the Nasstar brand and consolidation of
the e-know.net and Kamanchi names. This has supplied a proven route
for brand consolidation which will see the Modrus and VESK names
being dropped in H1 2017. The aim of the brand consolidation was to
maximise the respective strengths of the combined offerings and to
help differentiate the full stack of services that the Group can
offer, thus ensuring maximum cross sell capabilities and revenue
synergy opportunities.
The Group continues to specialise in vertical markets widening
the sector focus with the acquisition of Modrus which brought with
it capabilities and customers in property services and media,
adding to the already established sector specialisms of legal,
recruitment and finance.
The acquisitive strategy of Nasstar has been driven by the
desire to add service portfolio capability and as a result Nasstar
can now deliver an end to end managed service. From the client
computer on the end users' desk, through the network, telephony and
hosting of applications and data, progressing up through the value
chain to application consultancy services and development.
Clear focus on creating long standing relationships with clients
continues, and is enhanced by the strategy to add more value for a
client during the life of a contract through the delivery of more
services to meet the client's changing needs. To this end, in 2017
we will be investing in the Business Relationship Management
function in order to ensure the complete service portfolio of the
entire Group is available to all clients.
The investment into management resources and skill sets during
2015 and 2016 to structure the business more effectively and lay
the foundations for future growth has been successful. The addition
of David McCarthy as Managing Director in particular has enabled
further focus to be channelled on the development and execution of
Group strategy with 2017 being a key year for strategic integration
and synergy realisation. To this end we have launched our "Nasstar
10-19" programme designed to bring about increased strategic focus
across the entire Nasstar business to achieve specific goals by the
end of 2019.
This initiative focuses on the following key strategic
integration and synergy realisation objectives:-
-- Align the whole team to a common mission: clear goal, clear priorities.
-- Develop a common Group-wide set of KPI's and governance,
ultimately designed to increase the Adjusted EBITDA percentage from
20% to 25% by the end of 2019.
-- Develop a single & excellent approach to customer service
that is continually improving that directly contributes to reducing
churn through increased customer satisfaction.
-- Consolidate technology, licences and platforms, which
includes the consolidation of data centres and technical platforms
to save costs and increase stability.
-- Integrate and streamline teams and reporting structures to
increase revenue per head by 25%.
-- Automate to facilitate efficiencies and realise economies of scale, to:
o automate the key manual processes;
o thus breaking the link between revenue and people;
o whilst reducing the time between contract signature and
revenue recognition.
-- Refine the market proposition and service pillars to maximise
the fit with our target customers and segments.
-- Create a structured and effective sales engine that:
o continues to meet or beat current organic growth rate;
o has a sales mix that maintains at least 85% recurring
revenue;
o delivers industry focused solutions, combining private &
public cloud;
o continues to add key customer contracts each year.
Acquisitions
Although the focus in 2017 is on the integration plans
previously mentioned, the Group continues to review possible
acquisition opportunities as they arise, although always with a
clear focus on the assessment of strategic rationale.
Modrus
We completed the acquisition of Modrus in September 2016 for a
total consideration of GBP13.0 million. GBP11.7 million of the
consideration was paid in cash with the balance satisfied by the
issue to the vendors of 17,333,334 new Ordinary Shares. A placing
at 7.5p per share to raise GBP13.3 million funded the cash
consideration, with the excess amount raised used to fund deal
costs (GBP0.6 million) and reduce Group debt (GBP1.0 million).
The focus on specific vertical markets has been a key element to
the Group since the acquisition of e-know.net (January 2014), whose
focus on regulated businesses (in particular the legal, financial
services and recruitment sectors) had been instrumental in its
success. Regulated sectors continue to be viewed by the Board as
being particularly receptive to hosted IT solutions; the burden of
regulation and compliance on these sectors makes them receptive to
the high levels of functionality and security provided by an
outsourced solution.
The acquisition of Kamanchi (July 2014) added to the Group's
expertise in the recruitment sector, whilst the acquisition of VESK
(October 2015) added to the Group's presence in the legal and
logistics sectors as well as bringing with it G-Cloud accreditation
and a Singapore data centre.
The acquisition of Modrus continued in the same vein, adding
breadth as well as scale to the Group, which the Directors believe
is important in building resilience to future earnings.
Modrus has high levels of recurring revenues (approximately
86%), long contract duration (typically three years) and low
customer churn making it highly complementary to Nasstar's quality
of earnings.
The acquisition of Modrus built scale in Nasstar's Recruitment
and Financial Services segments and added complementary exposure to
vertical markets in which the Group was not represented, including
Media, Property Services and software vendors.
As well as bringing with it additional technically able staff,
the Directors believe that the wider geographic footprint resulting
from the acquisition will be helpful in terms of increasing the
catchment area from which to recruit suitably qualified technical
people in future.
Trading within Modrus has been in line with Board expectations
since acquisition and integration is well under way. We were
pleased to report in January that Modrus' increased capabilities
and technologies in the telephony and networking space had already
been successfully cross-sold into the wider Group's customer base
and we continue to identify areas in which long term synergies can
be achieved.
VESK
Performance of the VESK acquisition, as reported previously,
fell short of ambitious 2016 targets. The Directors had built
specific protection in the relevant acquisition agreement. The
protection comprised performance-related deferred consideration of
up to GBP318,750, which has not been triggered, together with a
right to claw back initial consideration in the event of further
EBITDA shortfall. Accordingly, by agreement between the relevant
parties, claw back will take place in the sum of GBP461,960 in
total, which is to be satisfied by the cancellation of 5,279,544 of
the initial consideration shares allotted at the time of VESK's
acquisition in October 2015.
This process will be structured as a buy-back (and subsequent
cancellation of the relevant shares) by the Company, of certain of
the VESK vendors holdings of Nasstar shares out of distributable
reserves in consideration, in effect for the write- off of the
claw-back amount due.
In order to give effect to the above an ordinary resolution will
need to be passed by shareholders. The appropriate resolution will
be put to members at the Company's AGM on 25 May 2017. In the
intervening period the affected shareholders have agreed to waive
any dividends declared and also to refrain from voting, in respect
of the relevant ordinary shares.
James Mackie left the Group in January 2017 and his position as
Head of Sales for the Group was filled by the internal promotion of
Mark Flynn, who previously led the sales function at Modrus. Mark
reports directly to Nigel Redwood.
Financial review
Key Performance Indicators ('KPIs')
The directors regularly review monthly revenue and operating
costs to ensure that sufficient cash resources are available for
the continued development and support of its service. Primary KPIs
at the year-end were as follows:
2016 2015
GBP000 GBP000
Revenues 18,748 13,759
Operating costs, including cost
of sales 16,527 11,978
Current assets (excluding cash) 4,731 2,432
Current liabilities 7,725 4,744
Cash and cash equivalents 2,969 1,579
Total Revenue 18,748 13,759
Recurring Revenue 16,456 12,201
Recurring % of total reported revenue 88% 89%
Average monthly recurring revenue GBP114 GBP119
per hosted desktop
Revenue for the year was GBP18.7m representing underlying year
on year growth, removing the impact of acquisitions, of 5%. We
finished the year with monthly recurring revenue of GBP1.8m (2015:
GBP1.2m). Recurring revenue, including contracted but not yet
delivered, increased by 8% in the year when removing the impact of
acquisitions. Annualised monthly recurring revenue, calculated by
taking December recurring revenue and annualising, is now in excess
of GBP21.5m per annum. Average monthly recurring revenue per hosted
desktop for the year dipped slightly due to the full year
contribution from the acquired VESK customers which typically have
a lower price point.
2016 2015
GBP000 GBP000
Total monthly recurring revenue
at December 1,793 1,167
Growth in recurring revenue 54%
Total monthly recurring revenue
at December 1,793 1,167
Modrus monthly recurring revenue
at December 527
Underlying monthly recurring revenue
at December 1,266 1,167
Growth in underlying recurring
revenue 8%
Gross margin reduced to 69% from 70% reflecting the increased
cost of licences bought in USD due to the weakening of the pound
against the dollar as a direct result of BREXIT.
Adjusted EBITDA margins reflect the investment made during the
year into the enhanced marketing plan and name consolidation,
together with the management investment noted last year. This
investment into management demonstrated the commitment to investing
in management resource and skill set to structure the Group more
effectively and facilitate the integration plans for 2017.
Reported loss before tax was GBP1.8m after exceptional expenses
of GBP207,000 which were costs in relation to acquisitions.
The Microsoft SPLA audit was a significant process covering 5
years of SPLA declarations, much management time was expended in
providing assistance to the auditors and we were pleased to bring
the process to a conclusion in December 2016.
In addition GBP3.4m of amortisation of customer contracts has
been charged to the Consolidated Statement of Profit and Loss in
respect of acquired customer contract intangible assets, the
increase of GBP950,000 compared to prior year is due to a full year
of amortisation costs in respect of the VESK intangibles and four
months of amortisation of the Modrus intangible assets.
Adjusted earnings per share stood at 0.6p* (2015:0.7p) with a
statutory loss per share recorded of 0.3p (2015:0.1p) as a result
of the exceptional items and amortisation charges referred to
above.
Customer contracts were valued at the time of each acquisition
to assess their fair value. The fair value of Modrus customer
contracts at acquisition was GBP6.2m resulting in goodwill on
acquisition of GBP7.3m.
Leverage targets, in relation to the bank loan raised to fund
the VESK acquisition, were met and interest margin reduced to 2.75%
from 2.95% as a result.
The Modrus acquisition was funded by the placing of 177,333,334
ordinary shares at 7.5p per share raising GBP13.3m of which
GBP11.7m was used to fund the cash consideration for Modrus.
The Group showed a net debt position of GBP2.8m at the year end
with GBP3.0m cash in the bank.
Fixed asset additions for the year were GBP2.2m, this was
primarily servers and storage area network infrastructure to
provide a platform for future growth and technology consolidation
together with investment needed in fixed assets on the renewal of
the Company's largest customer contract. As a result depreciation
as a percentage of sales increased moderately to 7% from 6% last
year. It was also necessary to restate Modrus' fixed asset book
values to correct historic treatment of fixed assets, this was also
a contributing factor to the increase in depreciation charge for
the year.
On 2 October 2015, the Group acquired the business and assets of
VESK Limited. On Acquisition, all of the assets and liabilities
were fair valued. During the year, new information has been made
available to the Group relating to circumstances in existence at
acquisition date regarding fair values of the assets acquired.
Therefore the fair values have been re-measured and the goodwill
restated. This is within the measurement period and the
comparatives have been restated.
The Group notes IFRS15 Revenue from Contracts with Customers
which is to be adopted for accounting periods beginning on or after
1 January 2018. The Group also notes IFRS 16 Leases which is to be
adopted for accounting periods beginning on or after 1 January
2019.
A detailed review is underway to assess the impact of these new
standards, at this time it is not practical to provide a reasonable
estimate of the effect of implementation.
Alternative performance measures
In order to provide useful information to users of this
announcement about the Group's performance and to present
information in a way that reflects how the Directors monitor and
measure the performance of the Group the Directors believe it is
appropriate to present the results of the Group using selected
alternative performance measures.
The following provides an indication of the purpose and
definition of each of the alternative performance measures
presented in the Annual report and financial statements, together
with an appropriate reference to IFRS measures presented in the
IFRS financial statements, where applicable.
Monthly recurring revenue run rate represents the monthly
revenue contracted to clients under managed service contracts which
reflects revenue contracted but not yet delivered. Monthly revenue
from these contracts is recognised on a straight-line basis over
the life of the contract. Monthly recurring revenue at the year end
gives an indication of the revenue likely to be recognised from
these contracts in future months.
Underlying growth is growth achieved compared to the previous
year excluding the impact of acquisitions, in both periods, to
provide clearer comparative information in regards to organic
performance.
Recurring % of total reported revenue is the total revenue
recognised in the period from recurring revenue contracts as a
percentage of total revenue.
Net debt is calculated as cash less interest bearing loans and
borrowings
*adjusted for amortisation of acquired intangibles, share based
payments and exceptional items
Dividend
A final dividend for 2015 of 0.045p per share was paid on 2 July
2016.
It is proposed to pay a final dividend of 0.052p in respect of
2016 on 10 July 2017 to shareholders on the register at the close
of business on 9 June 2017, subject to approval at the Company's
Annual General Meeting on 25 May 2017. In accordance with
accounting standards, this dividend is not accounted for in the
financial statements for the period under review as it had not been
committed as at 31 December 2016.
The Board has adopted a progressive dividend policy, subject
always to the free cash generation of the Group and the investment
required to deliver sustainable growth in revenues and profits.
Environment
The Group recognises the importance of environmental impact
management and is committed to playing a part in helping society
address climate change and as a result has an Environmental Impact
Management System. The primary purpose of this is to measure and
manage the environmental impact of the business.
The Group is committed to meeting the requirements of
Environmental Impact Management good practice and is continually
seeking ways in which it can improve. Everyone within the Group has
an important role to play to ensure that the environmental impact
of the business is kept to a minimum and each member of staff has
their own specific tasks and responsibilities to that end.
The Group expects the business's core behaviour of
professionalism and customer focus to be reflected in the
Environmental Impact Management processes and procedures.
Datapoint House, the Group's primary, state of the art, data
centre is one of the most eco-friendly and advanced facilities in
the UK, incorporating leading technologies for free cooling and
efficient operation. The Group takes a comprehensive approach to
measuring its PUE (Power Usage Effectiveness) and is constantly
reviewing technologies that can further increase the efficiency of
the facility to drive the PUE rating down further. This is
demonstrated by the recent deployment of extra intelligence to the
air conditioning cooling systems in the primary data centre which
has seen the PUE rating improve from 1.7 to 1.6.
Recycling is enforced Group wide as is WEEE (waste, electrical
and electronic equipment) disposal, with this also offered as a
service to clients. The Group encourages eco-friendly methods of
commuting for its staff through optional cycle to work and bus pass
schemes.
Principal Risks and Uncertainties
Competition and product development
The Group operates as a provider of hosted managed and cloud
computing services. Whilst the Board considers this to be a market
with considerable growth potential, there is a risk that the
Group's business will not meet current expectations if the sales
assumptions are incorrect. The market for hosted desktop, cloud
computing services and hosted exchange is competitive and, given
that the Board believes that the market is fast-growing, it is
likely that competition will increase, which could affect the
Group's sales performance. Large and well-funded businesses may
decide to enter the market and this could affect the Group's
ability to achieve its sales forecasts. As the market becomes more
competitive and commoditised there is a risk that the Group's gross
profit margin per user may reduce, and there is a risk that
customer churn will increase as a result of competition. As a
mitigation to this risk the Group in 2016 consolidated to a single
brand name and embarked on a significantly enhanced marketing plan.
The aim of the brand consolidation is to maximise the respective
strengths of the combined offerings and to help differentiate the
full stack of services that the Group can offer. The directors
monitor the rate and causes of churn and implement strategies with
the aim to minimising customer churn. Finally the investment into
R&D and innovation ensures the Group's solutions evolve so
customers are offered a mix of public and private cloud based
services that, when, combined differentiate the solution from the
competition thus helping protect overall gross profit margins.
Credit risk
Credit risk arises principally from the Group's trade and other
receivables. It is a risk that the counterparty fails to discharge
its obligation in respect of the instrument. The maximum exposure
to credit risk equals the carrying value of these items in the
financial statements. The Group uses credit reference software
which monitors customer's credit risk and has strong credit control
procedures in place, with regular review by management of
receivable balances.
Liquidity risk
Liquidity risk arises principally from the Group's management of
working capital and the amount of funding committed to its software
and hardware platforms. It is a risk that the Group will encounter
difficulty in meeting its financial obligations as they fall
due.
The Group's policy is to ensure that it will always have
sufficient cash to allow it to meet its liabilities when they
become due. The principal liabilities of the Group arise in respect
of operational and administrative expenditure, trade and other
payables and the servicing of interest bearing debt which comprises
lease finance obligations and bank loans. Trade and other payables
are all payable within four months.
The Board receives cash flow projections on a regular basis as
well as information on cash balances.
Interest rate risk
The Group is exposed to interest rate risk on bank loans as bank
interest rates change, this is monitored regularly by the Board.
The Group is also exposed to interest rate risk in respect of
surplus funds held on deposit. The Board does not currently
undertake hedging arrangements, although interest rates and
exposure to fluctuations are regularly reviewed by management.
Currency risk
The Group purchases licences from various software vendors in
USD and is therefore exposed to risk from currency fluctuations.
The Group undertakes a limited number of forward contracts for
payments in USD. The timing and amounts of payments are known in
advance enabling forward contracts to be used to manage foreign
exchange risk. At 31 December 2016 the Company held $346,000 and
EUR131,000 in cash balances.
A small number of European customers are invoiced in Euros. The
risk from currency fluctuation is managed by protection within the
customer service terms and conditions enabling the Group to adjust
pricing with any significant currency fluctuation.
Compliance risk
The Group acquires Microsoft licensing via the Service Provider
Licensing Agreement (SPLA) programme. Such licensing models see the
Group declare license volumes and versions on a provider
declaration basis which is subsequently audited approximately every
5 years. Microsoft have the ability to change pricing and usage
rights on a regular basis which can directly impact the cost base
of a solution. The Group annually review the usage rights of each
product and rely on an internal database to interrogate Active
Directory to report license usage by user. Such license declaration
costs were equivalent to 16% of revenue for the year ended 31
December 2016.
The Company is pleased to report that during 2016 Nasstar Group
Ltd concluded a full five year Microsoft SPLA audit.
Cybercrime risk
Nasstar recognise that the threat landscape from cybercrime is
ever changing and mitigation techniques need continual appraisal.
This is further evidenced by a report published in January 2017 by
Kroll, the risk management company, that stated the number of UK
businesses affected by corporate fraud and cybercrime has risen by
16% over the past year. Nasstar therefore recognise the importance
of having systemic processes in place to prevent, detect and
respond to the risk of cybercrime. Therefore to enhance Nasstar
capabilities in this area, the Company has partnered with Falanx
consuming protective monitoring services and cyber incident
response support services from them.
Acquisition and integration risk
The Group has continued with the planned strategy of augmenting
organic growth with acquisitions during the year, the Group
recognises that acquisitions may not always realise the benefits
expected at the time of completion. Furthermore a failure to
successfully integrate acquisitions may impact on Group
profitability and cause operational disturbance. The Group
mitigates this risk by undertaking detailed due diligence and
ensuring adequate protection in the acquisition agreements by
undertaking warranties and indemnities from vendors and mechanisms
for adjustment of the purchase price if trading is not in line with
expectations, whenever possible.
Revenue risk
Concentration in a limited number of clients carries the risk
that fluctuations in revenue could be significant. The Group
continues to develop a strong pipeline to broaden the customer
base. Time from acquisition of a new customer to recognition of the
revenue from that customer can be substantial due to the complexity
of solutions particularly for larger customers. A dedicated project
management office has been created to manage and monitor the
progress of implementations of new customers and significant delays
reported to management. Protection is also built into customer
contracts to ensure customer caused delays do not impact on revenue
recognition.
Employees
We would like to take this opportunity to thank our loyal and
hardworking team of employees. Our business is built on
relationships with people and the stability of our teams. The Group
recognises that success is dependent on the experience, motivation
and skill of its people. It is recognised that staff retention is
key, and therefore our core values, employee of the month and year
schemes, benefit packages, training and career development
opportunities ensure that employees are supported and motivated for
success.
Outlook
Whilst we continue to assess the wider economic implications of
the UK's decision to leave the EU the Board recognises the
continued uncertainty in the macro economic outlook as well as the
adverse impact that continues to have on Sterling, and thus a
proportion of Nasstar's cost of sales. The Board does however
believe the Company remains well positioned, benefiting from high
levels of recurring revenue, providing an essential service to its
clients on a more reliable, efficient and flexible cost basis than
they would likely be able to achieve internally.
Nasstar continue to see an organic growth opportunity within the
market place for managed service solutions based on public and
private cloud hybrid technologies and feel that the Group continues
to be well positioned to take advantage of that opportunity.
Organic growth, combined together with the integration and
rationalisation programmes being prioritised in 2017 should
continue to deliver strong catalysts for improvement in shareholder
value.
Nigel Redwood
Chief Executive Officer
Consolidated Statement of Profit and Loss and Other
Comprehensive Income
for the year ended 31 December 2016
Note Year ended Year
31 December ended
2016 31 December
2015
GBP000 GBP000
Revenue 18,748 13,759
Cost of sales (5,805) (4,085)
Gross profit 12,943 9,674
Administrative expenses (14,350) (10,837)
-------------------------------------- --------------- ------------- ------------
Share based payments (47) (222)
Amortisation of customer
intangibles (3,374) (2,424)
Other administrative expenses (10,722) (7,893)
------------- ------------
Administrative expenses before
exceptional items (14,143) (10,539)
Operating loss before exceptional
items (1,200) (865)
Exceptional items 5 (207) (298)
-------------------------------------- --------------- ------------- ------------
Operating loss (1,407) (1,163)
Financial income 1 1
Financial expenses (365) (134)
Loss before tax (1,771) (1,296)
Taxation 644 987
Loss for the period and total
comprehensive income for the
period, attributable to shareholders (1,127) (309)
============= ============
Loss per share: 6
Basic (0.3p) (0.1p)
Diluted (0.3p) (0.1p)
===================== ============
Consolidated Statement of Financial Position
at 31 December 2016
Note 2016 2015
GBP000 GBP000
Non-current assets
Goodwill 15,421 8,148
Intangible assets 13,645 10,835
Plant and equipment 5,235 3,296
34,301 22,279
------ ------
Current assets
Inventories 9 10
Other financial assets 7 -
Trade and other receivables 4,715 2,422
Cash and cash equivalents 2,969 1,579
7,700 4,011
Total assets 42,001 26,290
====== ======
Non-current liabilities
Interest-bearing loans and
borrowings 4,091 4,943
Deferred tax liability 1,946 1,493
6,037 6,436
Current liabilities
Interest-bearing loans and
borrowings 1,711 1,766
Trade and other payables 6,014 2,978
7,725 4,744
Total liabilities 13,762 11,180
====== ======
Net assets 28,239 15,110
====== ======
Equity attributable to equity
holders of the
parent
Share capital 5,795 3,849
Other Reserves 22,444 11,261
Total equity 28,239 15,110
Statement of Changes in Equity
Group
Other Reserves
Share Share Merger Retained Total
capital premium reserve deficit equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2015 3,664 12,718 4,737 (7,466) 13,653
Comprehensive income
Loss for the period
recognised in profit
and loss - - - (309) (309)
Total comprehensive
income for the period - - - (309) (309)
Shares issued in
the period 185 1,359 - - 1,544
Reduction of capital - (2,825) - 2,825 -
Share based payment
recognised in equity - - - 222 222
At 31 December 2015 3,849 11,252 4,737 (4,728) 15,110
Comprehensive income
Loss for the year
recognised in profit
and loss - - - (1,127) (1,127)
Total comprehensive
income for the year - - - (1,127) (1,127)
Shares issued in
the year 1,946 11,528 1,279 - 14,753
Expenses of share
issue - (371) - - (371)
Share based payment
recognised in equity - - - 47 47
Dividends paid - - - (173) (173)
-------- -------- -------- -------- -------
At 31 December 2016 5,795 22,409 6,016 (5,981) 28,239
======== ======== ======== ======== =======
Statement of Cash Flows
for the year ended 31 December 2016
Group
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
Cash flows from operating activities
Loss for the period (1,127) (309)
Adjustments for:
Net finance charges 364 133
Taxation (644) (987)
Depreciation and amortisation 4,912 3,496
Share based payments 47 222
Corporation tax payments 17 135
Net cash flow from operating
activities before changes in
working capital 3,569 2,690
(Increase)/decrease in inventories 29 (1)
(Increase)/decrease in trade
and other receivables (1,046) (8)
(Decrease)/Increase in trade
and other payables 669 (564)
------------ ------------
Net cash from operating activities 3,221 2,117
------------ ------------
Cash flows from investing activities
Acquisition of intangible assets (137) (141)
Acquisition of property, plant
and equipment (1,672) (712)
Acquisition of subsidiary undertaking
net of cash acquired (10,921) (5,763)
Net cash used in investing
activities (12,730) (6,616)
------------ ------------
Cash flows used from financing
activities
Issue of ordinary shares 13,300 -
Expenses of issue of ordinary
shares (371) -
Bank finance raised - 6,375
Cost of raising bank finance - (187)
Repayment of lease finance
arrangements (526) (486)
Repayment of bank loan (967) (399)
Interest paid (365) (134)
Interest received 1 1
Dividend Paid (173) -
Net cash from financing activities 10,899 5,170
------------ ------------
Net increase/(decrease) in
cash and cash equivalents 1,390 671
Cash and cash equivalents at
start of period 1,579 908
Cash and cash equivalents at
31 December 2,969 1,579
============ ============
Notes to the preliminary statement
1. Corporate information
Nasstar plc ("the Group") is a company incorporated in England
and Wales and quoted on the London Stock Exchange's Alternative
Investment Market (NASA). Further copies of these results, and the
full financial statements when published, will be available at the
Company's registered office: Datapoint House, 400 Queensway
Business Park, Queensway, Telford, Shropshire, TF1 7UL or on the
Company website at www.nasstar.com.
2. Basis of preparation
These condensed preliminary financial statements of the Company
and its subsidiaries ("the Group") for the year ended 31 December
2016 have been prepared using accounting policies consistent with
International Financial Reporting Standards (IFRSs). The same
accounting policies, presentation and methods of computation are
followed in both of the preliminary condensed sets of financial
statements as applied in the Company's latest audited financial
statements for the period ended 31 December 2015.
The information contained within this announcement has been
extracted from the audited financial statements which have been
prepared in accordance with IFRS as adopted by the European Union
('adopted IFRS'), and with those parts of the Companies Act 2006
applicable to companies reporting under adopted IFRS. They have
been prepared using the historical cost convention except where the
measurement of balances at fair value is required.
The financial statements have been prepared on the assumption
that the Group is a going concern. The financial statements show a
loss for the year of GBP1.1m. At the date of the financial
statements the Group's ability to continue as a going concern
reflect the net funds available to the Group at the period end, the
impact of the acquisition of Modrus Limited (note 4) and the
forecast for the following 24 months. On the basis of detailed
working capital projections, in the opinion of the directors, the
financial statements have been properly prepared on the assumption
that the Group is a going concern.
Availability of audited accounts:
Copies of the 2016 audited accounts will be available later
today on the Company's website (www.nasstar.com/investors) for the
purposes of AIM rule 26 and will be posted to shareholders in due
course.
Forward-looking statements:
This report may contain certain statements about the future
outlook for Nasstar plc. Although the directors believe their
expectations are based on reasonable assumptions, any statements
about future outlook may be influenced by factors that could cause
actual outcomes and results to be materially different.
3. Segmental analysis
A segment is a distinguishable component of the Company that is
engaged in providing products or services in a particular business
sector (business segment) or in providing products or services in a
particular economic environment (geographic segment), which is
subject to risks and rewards that are different in those other
segments.
The Company operated in the period in one segment, the provision
of IT services, and in one market, the United Kingdom. The
disclosures required by IFRS8 relating to profits, losses, assets
and liabilities of the segment are therefore shown by the financial
statements as a whole.
4. Acquisitions during the period
(a) Acquisition of Modrus Limited
On 2 September 2016 the Group acquired Modrus Limited. Modrus
Limited was acquired for an aggregate consideration of GBP13.3m. of
the total consideration GBP11.7m was payable as cash with the
remainder settled by issue of 17,333,334 new Nasstar ordinary
shares at a fair value of 8.38p. The cash consideration was funded
by a placing of 177,333,334 new ordinary shares to raise GBP13.3m
at a price of 7.5p per ordinary share.
Modrus is a specialist IT outsourcer and Hosted Desktop provider
and the acquisition offered the opportunity for the Group to
increase its presence in this space and target new vertical
markets.
In the four months to December 2016, this acquisition has
contributed total revenue of GBP2.3m and profit of GBP378,000. If
the acquisition had been completed on the first day of the Group's
financial year management estimates that the total revenue would
have been GBP6.5m and the total profit would have been GBP1m.
In determining these amounts, management have ensured that the
fair value adjustments, determined provisionally, that arose on the
date of acquisition would have been the same if the acquisition had
occurred on 1 January 2016.
In order to calculate the goodwill on acquisition against the
fair value of the consideration transferred, management have
assessed the fair value of the net assets of Modrus Limited as
shown in the table below.
Under IFRS 3 "Business combinations" the only separately
identifiable intangible assets arising from the acquisition related
to customer contracts and a non-compete clause in a director's
service agreement.
Management have assessed the fair value of customer contracts
based on the net present value of expected cash flows from these
contracts.
The key assumptions used within this judgment are:
i. Discount rate 12%
ii. Annual Attrition rate 3.5%
iii. Cost of inflation 2%
iv. Growth rate 2%
v. Forecast cash flows for 18 years
Book value Accounting Fair Fair
policy value value
alignment adjustment
GBP000 GBP000 GBP000 GBP000
Non-current assets and
liabilities
Property plant and equipment 476 354 251 1,081
Intangibles - customer
contracts and relationships 6,151 6,151
Intangibles - non compete
clause 93 93
Deferred Tax (53) (1,102) (1,155)
Current assets and liabilities
Stock 39 (12) 27
Debtors 1,193 22 1,215
Cash 956 - 956
Liabilities (1,855) (487) (2,342)
Non-current liabilities
Liabilities (36) (36)
---------- ---------- ----------- -----------
Net assets 5,990
Total consideration
- fair value 13,263
===========
Satisfied by:
Cash 11,877
Equity instruments
issued 1,453
Completion accounts
adjustments (67)
Total consideration 13,263
===========
Goodwill on acquisition 7,273
===========
The fair value of the equity instruments issued was based on
market price at the date of acquisition which was 8.38p.Trade
receivables acquired totaled GBP1,071,000 net of a bad debt
provision of GBP13,000. The goodwill of GBP7,273,000 can be
attributed to the anticipated profitability through the growth of
the enlarged Group, workforce in place and synergistic
benefits.
Fair values determined on a provisional basis
The fair value table determined above is considered provisional
as it is still within the twelve month re-measurement period.
5. Exceptional items
The following items are considered significant by virtue of
their size and nature and therefore have been recognised as
exceptional items during the period.
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
Costs of reorganisation / restructuring
following acquisitions - 41
Acquisition costs 207 257
207 298
Reorganisation costs relate to costs incurred following the
acquisition of VESK in respect of restructuring of the
business.
6. Loss per share
Year ended Year ended
31 December 31 December
2016 2015
Loss per share:
Basic: (0.3p) (0.1p)
Diluted (0.3p) (0.1p)
The calculation of the basic loss per share arising is based
upon the loss after tax attributable to ordinary shareholders of
GBP1,127,000 (2015: GBP309,000) and a weighted average number of
shares in issue for the year of 449,942,286 (2015:
370,686,141).
The diluted loss per share in 2016 and 2015 is the same as the
basic loss per share as losses have an anti-dilutive effect.
7. Dividend
Dividends of GBP173,000 (2015: Nil) were recognised in the
financial statements as distributions to equity shareholders. The
Company is proposing a final dividend of 0.052p in respect of the
year ended 31 December 2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFVRSLILFID
(END) Dow Jones Newswires
April 24, 2017 02:00 ET (06:00 GMT)
Nasstar (LSE:NASA)
Historical Stock Chart
From May 2024 to Jun 2024
Nasstar (LSE:NASA)
Historical Stock Chart
From Jun 2023 to Jun 2024