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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Nasstar Plc | LSE:NASA | London | Ordinary Share | GB00B0T1S097 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 12.75 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
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
Hot Features
Premium
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
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April 24, 2017 02:00 ET (06:00 GMT)
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