TIDMNASA
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 GBP24.5m (2016: GBP18.7m) (with underlying
growth excluding acquisitions of 9%(+) )
-- 88% of 2017 revenues generated from contracted recurring services (2016: 88%)
-- EBITDA* up 47% to GBP5.2m* (2016: GBP3.6m*)
-- Adjusted EBITDA** up 50% to GBP5.6m** (2016: GBP3.5m**)
-- Adjusted EBITDA** margin increased to 23% (2016: 20%)
-- Adjusted profit before tax*** up 87% to GBP3.5m*** (2016: GBP1.9m***)
-- Reported loss before tax GBP1.2m (2016: GBP1.8m)
-- 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 GBP1.0m (31 December 2016: Net Debt GBP2.8m)
-- 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 GBP24.5m, 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 GBP5.6m from GBP3.8m 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 GBP2.8m, with 2017 seeing an improvement of GBP3.8m to GBP1.0m
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:
o 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:
o continues to meet or beat the Group's current organic growth
rate;
o has a sales mix that maintains at least 85% recurring
revenue;
o delivers industry focused solutions, combining private &
public clouds; and
o 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:
o consolidated all CRM systems across the Group onto one new
Dynamics CRM platform;
o rolled out Client Heartbeat as a single and central method of
measuring customer satisfaction;
o rolled out People HR and Office Vibe as the central platforms
for managing talent across the Group;
o rolled out Power BI to deliver management KPI dashboards
giving the management team real time information to make timely
decisions;
o merged and centralised the scope of our ISO27001 certification
to include all areas of the business;
o merged and centralised ITIL processes across the Group,
designed to deliver a consistent customer experience to all
customers;
o selected Cherwell as the single IT Service Management tool,
with the roll out gaining momentum with full adoption expected in
H1 2018; and
o 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 25(th) 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 Year to
31 Dec 2017 31 Dec 2016
GBP000 GBP000
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 GBP24.5m representing underlying year
on year growth, removing the impact of acquisitions, of 9%. We
finished the year with monthly recurring revenue of GBP1.9m (2016:
GBP1.8m). 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 GBP136 from GBP114 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 GBP1.2m after exceptional expenses
of GBP432,000 which were largely reorganisation and restructuring
costs.
In addition, GBP4.2m 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 GBP851,000 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 GBP6.1m, 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 GBP1m at the year ended (31
December 2016: GBP2.8m net debt) with GBP5.1m 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 GBP700,000.
Fixed asset additions for the year were GBP1.8m. 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
GBP000 GBP000
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
GBP000 GBP000
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 GBP300,000 and GBP600,000 and profit before tax would be
reduced by between GBP300,000 and GBP500,000. Net assets at 1
January 2017 would be reduced by between GBP100,000 and GBP200,000
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
GBP205,000 and GBP877,000 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 GBP200,000 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 GBP1.1m,
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 GBP0.3m 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 GBP0.3m.
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
EUR183,000 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 25(th) 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 Year ended
31 December 31 December
2017 2016
GBP000 GBP000
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
GBP000 GBP000
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
Other Reserves
Merger Capital
Share Share reserve redemption Retained Total
capital premium reserve deficit equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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 Year ended
31 December 31 December
2017 2016
GBP000 GBP000
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 GBP1,048,000. 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 Year ended
31 December 31 December
2017 2016
GBP000 GBP000
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 Year ended
31 December 31 December
2017 2016
Loss per share:
Basic: (0.2p) (0.3p)
Diluted (0.2p) (0.3p)
The calculation of the basic loss per share arising is based
upon the loss after tax attributable to ordinary shareholders of
GBP1,048,000 (2016: GBP1,127,000) 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 GBP299,000 (2016: GBP173,000) 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
END
FR URUKRWSASOAR
(END) Dow Jones Newswires
May 01, 2018 02:00 ET (06:00 GMT)
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