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Nasstar PLC  -  NASA   

Results for the year to 31 December 2017

Released 07:00 01-May-2018

RNS Number : 6590M
Nasstar PLC
01 May 2018
 

1 May 2018

 

 

Nasstar plc

("Nasstar", the "Company" or the "Group")

 

Results for the year to 31 December 2017

 

Nasstar plc; (AIM: NASA), the provider of hosted managed and cloud computing services, is pleased to announce its preliminary results for the year ended 31 December 2017.

 

Financial Highlights

 

·      Revenue up 31% to £24.5m (2016: £18.7m) (with underlying growth excluding acquisitions of 9%+)

 

·      88% of 2017 revenues generated from contracted recurring services (2016: 88%)   

 

·      EBITDA* up 47% to £5.2m* (2016: £3.6m*)

 

·      Adjusted EBITDA** up 50% to £5.6m** (2016: £3.5m**)

 

·      Adjusted EBITDA** margin increased to 23% (2016: 20%)

 

·      Adjusted profit before tax*** up 87% to £3.5m*** (2016: £1.9m***)

 

·      Reported loss before tax £1.2m (2016: £1.8m)

 

·      Proposed final dividend for the year of 0.06p per share, a 15% increase on prior year

 

·      Year-end Net Cash ahead of expectations at £1.0m (31 December 2016: Net Debt £2.8m)

 

·      Loss Per Share 0.2p (2016: 0.3p)

 

·      Adjusted earnings per share up 24% to 0.51p *** (2016: 0.41p***)

 

* Comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets and amortisation. Refer to Alternative Performance Measures for reconciliation to GAAP measure.

 

**Comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets, amortisation, share based payments and exceptional items (being costs in relation to acquisitions during the year, reorganisation costs, share repurchase costs and provisions). Refer to Alternative Performance Measures for reconciliation to GAAP measure.

 

***Adjusted for amortisation of acquired intangibles, share based payments and exceptional items Refer to Alternative Performance Measures for reconciliation to GAAP measure.

 

+ Excluding the impact of acquisitions in both years

 

 

Operational Highlights

 

·      2017 was focused on maximising the opportunity that was presented by the previous three years' acquisition activity. This focus saw the launch of the "Nasstar 10-19" programme designed to deliver an increased strategic focus to create one fully integrated business.

 

·      The resultant benefits of the "Nasstar 10-19" plan were realised with the Adjusted EBITDA** margin increasing to 23% against the target of 25% by the end of 2019.

 

·      Top to bottom organisational structure redesigned to deliver an integrated company, with one team for each function across the Group, managed by one leadership team.

 

·      Organic business development progressed well in 2017 with clear signs that the Nasstar offering is continuing to be more attractive to clients of an increased size.

 

·      Our industry leading capability in "public/private" cloud hybrid solutions was in evidence in November's contract win which secured a three-year contract to deliver a fully managed solution to a global workforce of 1,000 users.

 

·      Significant investment was made in the account management team designed to develop a consistent first class approach to customer service and maximise the revenue opportunity presented by the enlarged customer base.

 

·      All UK based out of hours support migrated to the Nasstar New Zealand office, generating operational efficiencies across the Group.

 

·      As part of the "Nasstar 10-19" programme, plans were initiated to close three of the Group's seven UK data centres. One of these three was successfully closed in 2017 with the final two now due for closure during 2018.

 

·      The Group's professional services team has been active on the development of its own application functionality, enhancing Nasstar's own IP whilst helping contribute to customer retention.

 

·      Broadening of the professional services team remit to create a public cloud centre of excellence, enabling Nasstar to deliver value added consultancy to clients that enables them to maximise the benefits of the public cloud feature set.

 

·      For the second year running Nasstar is listed in the "1,000 Companies to Inspire Britain".

 

 

Nigel Redwood, Chief Executive Officer of Nasstar, commented:

 

"2017 was a pivotal year for Nasstar, a year in which we focused on maximising the opportunities which our previous acquisition activity had created.

 

"The launch of the "Nasstar 10-19" strategy focused each and every employee on key priorities and laid solid foundations to help us deliver against our target to raise margins from 20% to 25% of revenue by the end of 2019.

 

"I was delighted to announce the November contract win that saw us secure a 1,000 user public / private hybrid cloud customer. This deal, amongst others in 2017, serves to endorse the technical strategy that we adopted when embracing the integration of the public cloud into our private cloud services. I am confident that this will continue to make Nasstar's offerings very relevant and attractive to the market in 2018."

 

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)

 

IFC Advisory Limited (Financial PR & IR)                       +44 (0) 20 3934 6630

Tim Metcalfe

Graham Herring

Miles Nolan

 

Chairman's Statement

2017 was a year of integration, consolidation and ensuring the structure of the business was appropriate to take advantage of the historic acquisitions, whilst preparing the business for future growth. The creation of a single team for each function, led by a unified management structure was key to unlocking operational efficiencies, whilst creating a structure to deliver a consistent first class customer experience across the Group.

 

Against this backdrop and in a year in which no acquisitions were undertaken I am very pleased to see that the underlying strength of the business is evident and clear to see from the financial results achieved.

 

Underlying revenue growth of 9%+ was in line with management expectations and targets which I believe is healthy for a managed service provider. Overall revenue grew 31% to £24.5m, of which 88% was generated from long term contracted recurring revenue customers, clearly demonstrating the health and strength of the business.

 

Even more pleasing was the strong improvement in EBITDA* margins that our "Nasstar 10-19" strategy has delivered.  Adjusted EBITDA** grew an impressive 50% to £5.6m from £3.8m in 2016. Adjusted EBITDA** margin was 23%, meaning we are well on our way to our goal of 25% by the end of 2019.

 

Careful cash control, particularly during a period of growth and integration is very important. Therefore, to see us outperform our year end cash target was encouraging. Net Debt at the end of 2016 was £2.8m, with 2017 seeing an improvement of £3.8m to £1.0m of Net Cash at 31 December 2017. 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 0.25% to 2.50%.

 

Our progressive dividend policy has continued with a final dividend for 2017 being declared of 0.06p (2016: 0.052p) per share, a 15% growth on our dividend declared last year.

 

The implications of the decision of the UK to leave the EU are obviously wide ranging, but the most notable one impacting Nasstar is the exposure that the Company has to the US Dollar exchange rate, as previously reported. On a trading front, our target market has predominately been UK head quartered businesses and therefore any immediate impacts of the UK leaving the EU are not expected to be material.

 

We continue to work very closely with Microsoft and Citrix and have developed even closer relationships with Microsoft as more and more of our solutions incorporate aspects of their public cloud offerings.  

 

Our "Nasstar 10-19" strategy enters year two in 2018, and we have already launched internally the priorities for 2018 that will continue to drive a focus on operating efficiencies by truly acting as one company, driving innovation and continuing to embed a first-class customer experience at the heart of what we do.

 

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

 

Overview of the Business

 

The Group is a provider of hosted managed and cloud computing services. We integrate 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, UK, 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, a Tier 1 multi-region Cloud Solution Provider (CSP) partner for Microsoft Office 365 and Azure, an authorised Citrix CSP Partner, ITIL aligned 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. Public cloud solutions utilise services from multinational vendors such as Microsoft (O365 and Azure), private cloud solutions are delivered from Nasstar owned and controlled infrastructure whilst Hybrid solutions are an integrated combination of the two. 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 include a comprehensive portfolio of solutions, offering Hosted Desktop, Office 365, Hosted Exchange, Software as a Service (SaaS), Infrastructure as a Service (IaaS), Azure, 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 strong long term recurring revenue relationship with clients.

 

The Group holds a tier one agreement to sell Microsoft's cloud offerings known as Office 365 and Azure. The programme enables the Group to supply Office 365 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 Office 365 fully with hybrid platforms. Nasstar are one of a few Microsoft partners that hold such accreditation. This has enabled the Group to further integrate the Office 365 offering into its hosted desktop solution, embracing the innovations of Office 365 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.

 

Through our central Professional Services Team, Nasstar provides consultancy services on business processes and application development to its clients in its targeted vertical markets. In 2017 this team has expanded its knowledge to include the in-depth feature set of Office 365. This enhances its added value service to its managed service client base. In addition, 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 has bolstered its internal capabilities by partnering with a specialist in this area, Falanx Group Limited (Falanx). Falanx supplies 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 continues to be a growing service line adopted by the customer base.

 

Strategy

 

Targeting specific verticals and a clear strategy of creating long standing relationships with clients continues to be a focus of the Group. This 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. As a result, in 2017 we have invested in the Group's account management and service acceptance function in order to ensure the complete service portfolio of the entire Group is available to all clients.

 

Nasstar's growth strategy is underpinned by its vertical market specialism and operational focus. Nasstar specialises in delivering services to seven vertical markets, two of which (Legal and Recruitment) form the cornerstone of the customer base, representing circa 50% of revenues between them. We have invested heavily in developing the skills and know-how to service these cornerstone verticals and are now planning to replicate the go to market strategy that has worked well in Legal and Recruitment to the other five verticals (Financial Services, Property Services, NFP/Education, Media and Energy/Logistics).  

 

The Group's acquisitive strategy, launched in 2014, was driven by the desire to add additional 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. As a result of this end to end capability, Nasstar' s strategy in 2017 focused on integrating its acquired businesses and services in order to produce one company in organisation as well as name.

 

In 2017 we 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, with a view to unifying the Group in structure, process and name. As previously detailed, 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 the 20% achieved in 2016 to 25% by the end of 2019;

 

·      Develop a single and excellent approach to customer service that is continually improving and which directly contributes to reducing customer churn through increased customer satisfaction;

 

·      Consolidate technology, licences and platforms, which includes the consolidation of data centres and technical platforms to save cost 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:

automate the key manual processes;

§ thus breaking the link between revenue and people;

§ 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 verticals; and

 

·      Create a structured and effective sales engine that:

continues to meet or beat the Group's current organic growth rate;

has a sales mix that maintains at least 85% recurring revenue;

delivers industry focused solutions, combining private & public clouds; and

continues to add key customer contracts each year.

 

During 2017 we have made considerable progress in all objectives of the "Nasstar 10-19" programme, highlights being:

 

·      Top to bottom organisational structure redesigned to deliver one true business, with one team for each function across the Group. A new leadership and management structure was established ensuring all teams are managed by one leadership team, creating a true single business in the process.

 

·      Organic business development has progressed well in 2017 with clear signs that the Nasstar offering is continuing to be more attractive to clients of an increased size. Our industry leading capability in "public/private" cloud hybrid solutions was in evidence in November's contract win which secured a three-year contract to deliver a fully managed solution to a global workforce of 1,000 users.

 

·      As part of "Nasstar 10-19" we centralised the projects function across the Group, opening up a larger pool of resource and skill to any one project. In addition, install processes were standardised where possible and investment made in automation. The benefits of this programme are already evidenced by the accelerated on boarding of certain larger contracts won towards the end of 2017.

 

·      We have invested significantly in the account management team to ensure that customers are proactively managed and revenue opportunities within the wider client base are maximised.

 

·      All UK based out of hours support was migrated to the Nasstar New Zealand office, thus generating operational efficiencies across the Group.

 

·      Plans were initiated to close three of the Group's seven UK data centres. One of these three was successfully closed in 2017 with the final two now due for closure during 2018.

 

·      As part of establishing a "single & excellent" approach to customer service, that is continually improving, we have:

consolidated all CRM systems across the Group onto one new Dynamics CRM platform;

rolled out Client Heartbeat as a single and central method of measuring customer satisfaction;

rolled out People HR and Office Vibe as the central platforms for managing talent across the Group;

rolled out Power BI to deliver management KPI dashboards giving the management team real time information to make timely decisions;

merged and centralised the scope of our ISO27001 certification to include all areas of the business;

merged and centralised ITIL processes across the Group, designed to deliver a consistent customer experience to all customers;

selected Cherwell as the single IT Service Management tool, with the roll out gaining momentum with full adoption expected in H1 2018; and

initiated the upgrade of Dynamics NAV, the Group's financial system, designed to increase automation.

Continuing the strategic momentum, we have already launched the priority projects for 2018 that are all designed to deliver a continually improving customer service and efficiencies in delivery. Delivery of these important initiatives is likely to see 2018 capital expenditure running at a higher level than 2017. The 2018 strategic focus can be summarised as follows:

 

·      A continuation of the single leadership team and single team for each function philosophy, with clear focus on continuing to embed the right management structure acting on the right management information and KPI's.

 

·      A continuation of the consolidation of the technical platforms and the development of a new platform based on the best available hybrid technologies, with the goal of facilitating full technical consolidation of all customer systems across the company.

 

·      To embed further the Nasstar security centric culture, placing "security at the heart" of all processes and technologies.

 

·      We recognise that the management of talent is a significant contributor to the success and health of the business. The competitive landscape for attracting technical skills is more challenging than ever and as a result, further investment is being made into our training and development strategy, health and wellbeing strategy, employee engagement techniques and apprenticeship programmes. All are designed to help attract and retain the best talent in the industry.

 

·      Investment into product strategy and service acceptance will continue in 2018 to ensure that innovation continues to be at the heart of our service capability, ensuring that our strategic product direction is well mapped in what is a very fast moving sector.

 

·      Investment in automation and systems integration continues in 2018 with the roll out of Cherwell being pivotal to further integration benefits being recognised.

 

·      Nasstar will continue to focus on its vertical markets, defining deeper and more selective criteria for which customers to target. In addition, structured account plans for key customers are designed to ensure our long-term relationships with clients are maintained.

 

·      We will continue to invest in automation and improved processes and technical capabilities in our delivery teams in order to further decrease the on boarding time for clients. 

Nasstar are prepared for the new demands of the General Data Protection Reregulation (GDPR) coming into force on the 25th May 2018. Security by design has always been at the heart of the technical solutions at Nasstar as highlighted by the strategic focus on our security centric culture.

 

Outlook

 

The Company remains well positioned, with 88% of 2017 revenue generated from contracted recurring services and a proven cash generative business model. Investment continues in innovation with our public and private hybrid cloud solution gaining momentum with notable contract wins.

 

The Group continues to differentiate itself by focusing on vertical specialisms, whilst investing heavily in account management capabilities, technical skills and support processes all designed to deliver first class customer service.

 

The "Nasstar 10-19" programme has good momentum, with clear margin improvement in 2017 giving us a visible path to our target of increasing Adjusted EBITDA** margin to 25% by the end of 2019.

 

We continue to assess the wider economic implications of the UK's decision to leave the EU, whilst the Board recognises the continued uncertainty in the macro economic outlook.

 

We believe that solutions delivered on public and private cloud hybrid technologies will continue to form the basis of a growing market and I therefore believe Nasstar is well positioned to take advantage of the continuing opportunity. Organic growth, combined with improving EBITDA* margins and a clear strategy for the business should continue to deliver strong improvement in shareholder value.

 

Nigel Redwood

Chief Executive Officer

 

 

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:

 

Year to 31 Dec 2017

£000

Year to 31 Dec 2016

£000

 

Total revenue

24,501

18,748

Recurring revenue

21,538

16,456

Recurring % of total reported revenue

88%

88%

December monthly recurring revenue

1,887

1,778

Operating costs, including cost of sales

20,796

16,527

Gross profit percentage

69%

69%

EBITDA*

5,167

3,505

Adjusted EBITDA**

 5,639

 3,759

EBITDA* % of revenues

21%

19%

Adjusted EBITDA** % of revenues

23%

20%

Operating Loss

(992)

(1,407)

Loss before tax

(1,223)

(1,771)

Adjusted Profit before tax***

 3,474

 1,857

Current assets (excluding cash)

3,866

4,731

Current liabilities

8,479

7,725

Cash and cash equivalents

5,101

2,969

Loss per share

(0.2p)

(0.3p)

Adjusted earnings per share***

0.51p

0.41p

See "Alternative Performance Measures" for descriptions of performance measures presented above.

 

Revenue for the year was £24.5m representing underlying year on year growth, removing the impact of acquisitions, of 9%. We finished the year with monthly recurring revenue of £1.9m (2016: £1.8m).  EBITDA* and Adjusted EBITDA** percentages have been included in key performance indicators to demonstrate the year on year movement in these margins as a result of the strategic initiatives implemented during the year. December monthly recurring revenue is the revenue recognised in the income statement in December from the long term recurring revenue contracts.

 

Recurring Revenue

 

Recurring revenue is monthly revenue generated from long term contracts, initial terms being three to five years in length. Nasstar's recurring revenue is predominately generated from complex managed services where Nasstar deliver a customer's entire application portfolio and data from a private and/or public cloud solution.  Nasstar generate additional recurring revenues from these contracts by upselling add on services such as managed networks, hosted telephony, and support services.  These additional services are very rarely sold without the complex managed hosting element and therefore the vast majority of Nasstar recurring revenue is generated from its complex managed hosted solutions.

 

Average monthly recurring revenue per hosted desktop for the year improved to £136 from £114 in 2016, reflecting the full year contribution from the Nasstar South Limited (formerly Modrus) customer contracts. Historically monthly recurring revenue per hosted desktop has been a key KPI for the Group. With the increasing move to hybrid cloud services this KPI is becoming less relevant as the revenue drivers move away from cost per hosted desktop seat. For comparative purposes we have included the KPI in this financial review although in future years contracted recurring revenue together with gross profit percentages will become the main KPI focus.

                                                                                                           

In 2017 Gross Margin held steady at 69% despite pressure from price rises from key licence suppliers as a result of their increased operating costs and the devaluation of Sterling against the US Dollar.

 

Adjusted EBITDA** margins reflect the "Nasstar 10-19" consolidation programme leveraging our largest cost, the cost of people, together with savings from restructuring and closure of one of the data centres.

 

Reported loss before tax was £1.2m after exceptional expenses of £432,000 which were largely reorganisation and restructuring costs.

 

In addition, £4.2m 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 £851,000 compared to prior year is due to a full year of amortisation costs in respect of the Modrus (acquired in 2016) intangibles compared to only four months of amortisation in 2016.

 

 

Leverage targets, in relation to the bank loan raised to fund the VESK acquisition, were exceeded and interest costs reduced to 2.5% from 2.75% as a result.

 

Net cash from operating activities was strong at £6.1m, which represents 117% EBITDA* cash conversion, calculated by dividing cash from operating activities by EBITDA* for the year, primarily due to the application of Group credit control procedures  to the Modrus customer base to improve the collection of debtors. The Group showed a net cash position of £1m at the year ended (31 December 2016: £2.8m net debt) with £5.1m cash in the bank. Capital expenditure during 2018 is likely to run at a higher level than 2017 as we continue to deliver our "Nasstar 10-19" initiatives. 2018 will also see the Group, due to its increased size, move to an alternative VAT payment basis which will lead to a one-off cash outflow in the region of £700,000.

 

Fixed asset additions for the year were £1.8m. 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 new signing of customer contracts. As a result, depreciation as a percentage of sales remained at 7%, in line with last year.

 

Alternative Performance Measures

 

 

2017

2016

 

£000

£000

Loss before tax

(1,223)

(1,771)

Amortisation of acquired intangibles

4,225

3,374

Share based payments

40

47

Exceptional items

432

207

Adjusted Profit before tax***

3,474

1,857

 

 

 

Operating Loss

(992)

(1,407)

Depreciations

1,782

1,341

Amortisation

4,381

3,571

Profit on sale of fixed assets

(4)

-

 

 

 

EBITDA*

5,167

3,505

Share based payments

40

47

Exceptional items

432

207

Adjusted EBITDA**

5,639

3,759

 

 

 

Cash and cash equivalents

5,101

2,969

Interest bearing liabilities

(4,148)

(5,802)

Net Cash/(Debt)

953

(2,833)

 

 

 

Revenue from managed services - Recurring revenue

21,538

16,456

Consultancy services

1,713

1,606

Adhoc sales of hardware, software and other recharges

1,250

686

Total Revenue

24,501

18,748

 

Adjusted earnings per share were 0.51p*** (2016:0.41p***) with a statutory loss per share recorded of 0.2p (2016:0.3p) as a result of the exceptional items and amortisation charges. Adjusted earnings per share has been calculated as follows:

 

 

2017

2016

 

£000

£000

Loss for the period

(1,048)

(1,127)

Amortisation of acquired intangibles net of tax impact

3,507

2,697

Share based payments

40

47

Exceptional items

432

207

Adjusted earnings

2,931

1,824

 

 

 

Weighted average number of shares

576,360,096

449,942,286

Adjusted earnings per share

0.51p

0.41p

 

 

 

In order to provide useful information 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.

 

Adjusted profit before tax is shown as an alternative performance measure to present the underlying trading performance. The calculation excludes the impact of the non-cash items of amortisation of customer contracts and share based payments as well as eliminating one off exceptional items from the trading performance.

 

Monthly recurring revenue at each month end 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 with regards to organic performance.

 

Recurring percentage 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

 

* Comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets and amortisation.

 

**Comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets, amortisation, share based payments and exceptional items (being costs in relation to acquisitions during the year, reorganisation costs, share repurchase costs and provisions).

 

***Adjusted for amortisation of acquired intangibles, share based payments and exceptional items.

 

Dividend

 

A final dividend for 2016 of 0.052p per share was paid on 10 July 2017.

 

It is proposed to pay a final dividend of 0.06p in respect of 2017 on 9 July 2018 to shareholders on the register at the close of business on 8 June 2018, subject to approval at the Company's Annual General Meeting on 7 June 2018. 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 2017.

 

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.

 

New IFRS implementation

 

Impact of adoption of IFRS 15 (Revenue from Contracts with Customers)

 

IFRS 15 Revenue from Contracts with Customers, is effective for periods beginning on or after 1 January 2018.  The standard will be adopted by the Group for the first time in the year ending 31 December 2018.  The group will apply IFRS 15 retrospectively to each prior reporting period and will utilise certain practical expedients available in IFRS 15.C5.

 

During H2 2017, the Group carried out a detailed assessment of the impact that adoption of IFRS 15 may have on the Group's revenue streams. Based on the work performed to date if IFRS 15 was adopted for the current reporting period, reported revenue would be reduced by between £300,000 and £600,000 and profit before tax would be reduced by between £300,000 and £500,000. Net assets at 1 January 2017 would be reduced by between £100,000 and £200,000 IFRS 15 will have no impact on the cash position of the Group.

 

The adoption of IFRS 15 will not alter the total contract value or timing of cashflows, but there are three key areas where the adoption of IFRS 15 will change current revenue recognition: 

 

1. Technical installation, consultancy and set up fees

 

Under current accounting policies, revenue from technical installation, consultancy or other one off set- up fees is recognised up-front at the point of implementation.  Under IFRS 15, technical installation, consultancy and set-up services that the Group currently deliver are not considered likely to meet the criteria to be a distinct performance obligation.  The fees associated with these services will be combined with other promises in the contract and recognised over the contract term.  This will result in a reduction of initial revenue previously recognised, an increase in deferred income and an increase in monthly recurring revenue going forward.  

 

In addition, there is a financing component within the set-up fee on one significant customer contract.  This arises due to both the size and payment profile of the set-up fee, compared to the satisfaction of this performance obligation over the life of the contract.  The financing component of the fee will be separated from the monthly revenue and recognised separately as interest expense.  There will be no change to the net contract value. 

 

Technical installation, consultancy and other set-up fees of £205,000 and £877,000 were recorded by the Group in the years ending 31 December 2016 and 31 December 2017 respectively. 

 

2. Workstation equipment

 

The Group's managed service contracts may include the provision of workstation equipment.  The fee for these services is included within the overall managed service charge which is invoiced monthly in line with customer usage.  Revenue has historically been recognised rateably on a daily basis in accordance with the services provided. 

 

Under IFRS 15, the provision of workstation equipment is likely to be  a separate performance obligation from the other services in the contract.  However, management has determined that right to control the use of the equipment does not transfer to the customer.  Hence, there is no upfront 'sale' associated with the workstation equipment.  The income from the satisfaction of the performance obligation to provide workstation equipment will be recognised straight line over the length of the contract.  This is in line with the current accounting under IAS 11/18.  However, the enhanced IFRS 15 and 16 disclosure requirements will result in a disaggregation of income from the provision of workstation equipment from the income associated with other services in the contract. The impact of IFRS 16 on leases is covered in the section below. 

 

3. Contract fulfilment assets

 

The costs associated with the design and construction of the technology platform for each contract have previously been expensed to the income statement as incurred.  Under IFRS 15, these costs will be capitalised as contract fulfilment assets, within trade and other receivables, and amortised over the life of the contract. Work is continuing to determine the net impact but it is currently expected to be less than £200,000 in respect of the year ended 31 December 2017.

 

 

Impact of adoption of IFRS 16 (Leases)

 

IFRS 16 Leases is effective for periods beginning on or after 1 January 2019. IFRS 16 removes the operating and finance lease classification in IAS 17 Leases and replaces them with the concept of right-of-use assets and associated financial liabilities. This change results in the recognition of a liability on the balance sheet for all leases which convey a right to use the asset for the period of the contract. The lease liability reflects the present value of the future rental payments, discounted using either the effective interest rate or the incremental borrowing rate of the entity.

 

Nasstar plc will early adopt IFRS 16 for the year ending 31 December 2018, applying the cumulative catch up transition approach. The adoption of IFRS 16 will result in the recognition of a lease liability and right-of-use asset of approximately £1.1m, relating to property leases, at 1 January 2018. The finance lease liabilities and assets recognised in the financial statements in the year ended 31 December 2017 relating to equipment leases will be re-classified as lease liabilities and right-of-use assets under IFRS 16. It is currently estimated that there will be minimal net overall impact on the income statement for the year ending 31 December 2018 due to the adoption of IFRS 16. There will be an increase in EBITDA* of approximately £0.3m in the year ending 31 December 2018, and subsequent periods, due to property lease rentals being deducted from the lease liability under IFRS 16, compared to being charged as an expense to the consolidated income statement under IAS 17. There will be an increase in depreciation of approximately £0.3m.

 

Niki Redwood

Finance Director

 

 

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 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.

 

In addition, the Group has declared a strategy to consolidate its UK data centre footprint further contributing to lowering its carbon footprint.

 

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, public, private and hybrid cloud computing services 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 and longevity of customer relationships. 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 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 2017 consolidated to a single brand name and continued to invest in its vertical go to market strategy. In addition, investment into the account management function during 2017 and 2018 is designed to deliver a consistently excellent service to all clients with the aim to promote longevity in the relationships with customers. The directors consider the rate and causes of churn and implement strategies with the aim to minimise 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 2017 the Company held $42,000 and €183,000 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 report license usage by user. Such license declaration costs were equivalent to 10% of revenue for the year ended 31 December 2017.

 

Nasstar recognise that the new demands of the General Data Protection Reregulation coming into force on the 25th May 2018 apply extra responsibilities on data processors over and above those already enforced by the current Data Protection Act. Security by design has always been at the heart of the technical solutions at Nasstar, however this new regulation means Nasstar are further tightening procedural processes when processing personal data. 

 

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 by Kroll (Kroll Global Fraud & Risk Report - 2017/2018), the risk management company.

 

Their report found that 86% of surveyed executives said that their company had experienced a cyber incident or information/data theft, loss or attack in the last 12 months. 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.  In addition, in 2018, Nasstar is, via its "10-19" programme, promoting the importance of security to all personnel, through a mantra of "security being at the heart of all processes".

 

Acquisition and integration risk

 

The Group has continued with the planned strategy of augmenting organic growth with acquisitions, 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 obtaining 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 minimise customer caused delays impacting revenue recognition.

 

Employees

 

We would like to take this opportunity to thank our loyal and hardworking team of employees. The "Nasstar 10-19" programme has resulted in significant team changes and operational refinement. Change can always be challenging, however the Nasstar team have really embraced the opportunity that integration has presented them with.

 

The Group recognises that our continued success is dependent on the experience, motivation and skill of its people. Staff retention is key, and therefore the launch of our talent management programme in 2018 continues to focus on the career development of all employees, helping attract and retain the best talent in the industry.

 

 

 

Consolidated Statement of Profit and Loss and Other Comprehensive Income

for the year ended 31 December 2017

 

 

 

Note

Year ended
31 December
2017

 

Year ended
31 December
2016

 

 

 

 

£000

 

£000

 

 

 

 

 

 

 

 

 

Revenue

 

24,501

 

18,748

 

 

Cost of sales

 

(7,681)

 

(5,805)

 

 

 

 

 

 

 

 

 

Gross profit

 

16,820

 

12,943

 

 

 

 

 

 

 

 

 

Administrative expenses

 

(17,812)

 

(14,350)

 

 

 

 

 

 

 

 

 

  Share based payments

 

(40)

 

(47)

 

 

  Amortisation of customer intangibles

 

(4,225)

 

(3,374)

 

 

  Other administrative expenses

 

(13,115)

 

(10,722)

 

 

 Administrative expenses before exceptional items

 

(17,380)

 

(14,143)

 

 

 

 

 

 

 

 

 

Operating loss before exceptional items

 

(560)

 

(1,200)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exceptional items

4

(432)

 

(207)

 

 

 

 

 

 

 

 

 

Operating loss

 

(992)

 

(1,407)

 

 

 

 

 

 

 

 

 

Financial income

 

-

 

1

 

 

Financial expenses

 

(231)

 

(365)

 

 

 

 

 

 

 

 

 

Loss before tax

 

(1,223)

 

(1,771)

 

 

 

 

 

 

 

 

 

Taxation

 

175

 

644

 

 

 

 

 

 

 

 

 

Loss for the period and total comprehensive income for the

 

(1,048)

 

 

 

 

period, attributable to shareholders

 

 

 

(1,127)

 

 

 

 

 

 

 

 

 

Loss per share:

5

 

 

 

 

 

Basic

 

(0.2p)

 

(0.3p)

 

  Diluted

       

(0.2p)

 

(0.3p)

 

 

 

 

 

 

 

 

 

 

 

 

 

                         

 

 

 

 

Consolidated Statement of Financial Position

at 31 December 2017

 

 

Note

2017

2016

 

 

£000

£000

Non-current assets

 

 

 

Goodwill

 

15,421

15,421

Intangible assets

 

9,455

13,645

Plant and equipment

 

5,006

5,235

 

 

 

 

 

 

29.882

34,301

 

 

 

 

Current assets

 

 

 

Inventories

 

68

9

Other financial assets

 

-

7

Trade and other receivables

 

3,798

4,715

Cash and cash equivalents

 

5,101

2,969

 

 

 

 

 

 

8,967

7,700

 

 

 

 

Total assets

 

38,849

42,001

 

 

 

 

Non-current liabilities

 

 

 

Interest-bearing loans and borrowings

 

2,587

4,091

Deferred tax liability

 

1,312

1,946

 

 

 

 

 

 

3,899

6,037

 

 

 

 

Current liabilities

 

 

 

Interest-bearing loans and borrowings

 

1,561

1,711

Trade and other payables

 

6,872

6,014

Provisions

 

46

-

 

 

 

 

 

 

8,479

7,725

 

 

 

 

Total liabilities

 

12,378

13,762

 

 

 

 

Net assets

 

26,471

28,239

 

 

 

 

Equity attributable to equity holders of the

  parent

 

 

 

Share capital

 

5,743

5,795

Other Reserves

 

20,728

22,444

 

 

 

 

Total equity

 

 

26,471

28,239

 

 

 

 

 

 

 

 

Statement of Changes in Equity

Group

 

Share

capital

Share

premium

Merger
reserve

Capital redemption reserve

Retained

deficit

Total

equity

 

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

At 1 January 2016

3,849

11,252

4,737

-

(4,728)

15,110

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

Loss for the period recognised in profit and loss

-

-

-

-

(1,127)

(1,127)

 

 

 

 

 

 

 

Total comprehensive income for the period

-

-

-

 

(1,127)

(1,127)

Shares issued in the period

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

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

Loss for the year recognised in profit and loss

-

-

-

 

(1,048)

(1,048)

 

 

 

 

 

 

 

Total comprehensive income for the year

-

-

-

-

(1,048)

(1,048)

Shares cancelled in the year

(52)

-

-

52

(461)

(461)

Share based payment recognised in equity

-

-

-

-

40

40

Dividends paid

-

-

-

-

(299)

(299)

At 31 December 2017

5,743

22,409

6,016

52

(7,749)

26,471

 

 

 

 

 

 

 

 

 

 

Statement of Cash Flows

for the year ended 31 December 2017

Group

 

 

Year ended
31 December
2017

Year ended
31 December
2016

 

 

£000

£000

Cash flows from operating activities

 

 

 

Loss for the period

 

(1,048)

(1,127)

Adjustments for:

 

 

 

Net finance charges

 

231

364

Taxation

 

(175)

(644)

Depreciation and amortisation

 

6,163

4,912

Profit on sale of fixed assets

 

(4)

-

Share based payments

 

40

47

Corporation tax payments

 

(123)

17

 

 

 

 

Net cash flow from operating activities before changes in working capital

 

 

5,084

 

3,569

(Increase)/decrease in inventories

 

(59)

29

Decrease/(increase) in trade and other  receivables

 

462

(1,046)

Increase in trade and other payables

 

522

669

 Increase in provisions

 

46

-

 

 

 

 

Net cash from operating activities

 

6,055

3,221

 

 

 

 

Cash flows from investing activities

 

 

 

Acquisition of intangible assets

 

(191)

(137)

Acquisition of property, plant and equipment

 

(1,583)

(1,672)

Proceeds on sale of fixed assets

 

34

-

Acquisition of subsidiary undertaking net of cash acquired

 

-

(10,921)

 

 

 

 

Net cash used in investing activities

 

(1,740)

(12,730)

 

 

 

 

Cash flows used from financing activities

 

 

 

Issue of ordinary shares

 

-

13,300

Expenses of issue of ordinary shares

 

-

(371)

Repayment of lease finance arrangements

 

(351)

(526)

Repayment of bank loan

 

(1,355)

(967)

Interest paid

 

(178)

(365)

Interest received

 

-

1

Dividend Paid

 

(299)

(173)

 

 

 

 

Net cash from financing activities

 

(2,183)

10,899

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

2,132

1,390

Cash and cash equivalents at start of period

 

2,969

1,579

 

 

 

 

Cash and cash equivalents at 31 December

 

5,101

2,969

 

 

 

 

 

 

 

 

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 AIM Market (AIM: 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 2017 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 2016.

 

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 £1,048,000. 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, 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 2017 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.         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 31 December 2017

 

£000

 

Year ended 31 December 2016

 

£000

 

 

 

 

Costs of reorganisation / restructuring following acquisitions

332

 

-

Acquisition costs

-

 

207

Share repurchase costs

13

 

-

Provision for onerous lease

87

 

-

 

 

 

 

 

432

 

207

 

 

 

 

 

 

Reorganisation costs relate to costs incurred following the acquisitions and subsequent consolidation strategy led by the "Nasstar 10-19" programme, details of which are set out in both the Chairman's statement and the Strategic Report.

 

 

5.         Loss per share

 

 

Year ended 31 December 2017

Year ended 31 December 2016

 

Loss per share:

Basic:

Diluted

 

(0.2p)

(0.2p)

 

(0.3p)

(0.3p)

 

 

The calculation of the basic loss per share arising is based upon the loss after tax attributable to ordinary shareholders of £1,048,000 (2016: £1,127,000) and a weighted average number of shares in issue for the year of 576,360,096 (2016: 449,942,286).

 

The diluted loss per share in 2017 and 2016 is the same as the basic loss per share as losses have an anti-dilutive effect.

 

6.         Dividend

 

Dividends of £299,000 (2016: £173,000) were recognised in the financial statements as distributions to equity shareholders. The Company is proposing a final dividend of 0.06p in respect of the year ended 31 December 2017.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Results for the year to 31 December 2017 - RNS