NASA.L Regulatory News (NASA)

Nasstar plc

Results for the year to 31 December 2014

7th April 2015

Nasstar plc ("Nasstar", the "Company" or the "Group"; stock code: NASA), a provider of hosted managed and cloud computing services, announces its results for the year ended 31 December 2014.

Financial Highlights

· Revenue of £11.2m (2013: £2.5m)

· Underlying organic revenue growth+ of 14% across all three operating businesses:

o e-know.net Ltd ("e-know.net"): up 18%

o Nasstar (UK) Ltd ("Nasstar UK"): up 5%

o Kamanchi Ltd ("Kamanchi"): up 10%

· Adjusted EBITDA of £2.3m*, 11% ahead of expectations demonstrating the transformation of the Group into a commercially focused, profitable and sustainable business

· Underlying organic adjusted EBITDA* growth+ of 86% across all three operating businesses

· Gross profit of £7.7m (2013: £1.0m)

· Gross margins strengthened to 69% (2013: 38%)

· Strong cash control resulted in year end net debt position of £0.07m (post £1.5m cash payment for Kamanchi acquisition)

· Adjusted earnings per share of 0.3p**

· Reported loss per share of 0.5p

*Comprising earnings adjusted for interest, taxation, depreciation, amortisation, impairment of goodwill, loss on disposal of intangible assets, share based payments and exceptional items (being costs in relation to acquisitions during the year, provisions and reorganisation costs).

**adjusted for amortisation of acquired intangibles, goodwill impairment, share based payments and exceptional items

+Underlying revenue and EBITDA comparisons are based on year on year 12 month comparisons

Key Performance Indicators

Operational Highlights

· Completed the acquisition of e-know.net on 10 January 2014 for a total consideration of £13m

· Kamanchi acquired for £2.5m on 24 July 2014

· Board strengthened with the appointment of new executive and non-executive directors

· Integration of our three operating businesses successfully completed ahead of schedule

· Nasstar UK transformed from losses into a sustainable profitable business, contributing positively at the EBITDA level during the second half

· Top honours achieved in both the "Fastest Growing Citrix Solution Advisor Northern Europe" and the "Fastest Growing Citrix Solution Advisor UK" categories, which are measured on improvements between 2013 and 2014 partner revenues

· Invited to join the Microsoft hosting partner incentive scheme

Nigel Redwood, Chief Executive Officer of Nasstar, commented:

"2014 has been a transformational year for Nasstar plc. I am delighted to say we have delivered on our financial and strategic targets alike, becoming a commercially focused, profitable and sustainable business fit to take advantage of what remains a clear market opportunity.

The restructuring of Nasstar UK, the acquisition of e-know.net followed closely by the acquisition of Kamanchi have provided the foundations for this transition, with all three businesses showing very pleasing underlying revenue growth. Investment into management resource and skill set will continue into 2015 to continue this trajectory."

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)

Victoria Bates, Stephen Norcross (Corporate broking)

Gresham PR (Financial PR) +44 (0) 7866 805 108

Neil Boom

Chairman's Statement

2014 has been a successful year of significant change for the Group with the acquisition of two companies and the successful delivery of our stated operational and strategic plans. I am delighted to have seen the evolution of the group during the year, benefiting from the acquisition by Nasstar of e-know.net during the first half followed by the addition of Kamanchi in the second half. The resulting financial performance of the Group is highly pleasing and greatly to the credit of all concerned.

The respective strengths of what were individual businesses now enables the Group to provide hosted managed services to a broad range of business types and sizes. Combining the three has allowed us to unlock cost synergies and benefit from inter-group revenue opportunities.

Historically Nasstar's primary sales channel had been via resellers. However, during 2013 the directors recognised the need to develop a direct route to market to enhance Group margins and compliment channel sales. The two acquisitions during 2014 provided the Group with a mature, tried and tested route to direct customers. e-know.net is focused principally on direct sales to the legal, financial services and recruitment sectors whilst Kamanchi further enhances the Group's standing in the recruitment segment. As a consequence the Group is now able to attract larger clients with larger user numbers with high recurring revenues per user, all of which should ultimately drive the quality, as well as quantum, of earnings.

Although the Group's primary aim for 2014 was to transform into a commercially focused and profitable business, this was not done at the expense of technological development. Our innovations department continues to look for the next technical enhancement which could give the Group a competitive edge. Current focus sees the integration of public cloud offerings with that of our hosted managed service offerings, providing our customers with choice and the ability to benefit from developments in the wider market.

The two acquisitions completed during the year significantly enhanced revenues which increased by 348% to £11.2m, but more pleasing was the underlying organic growth in both revenues (14%) and adjusted EBITDA (86%) across all three subsidiaries.

The Group's cash generation has been very strong, enabling us to pay £1.5m for the Kamanchi acquisition out of cash reserves whilst strong cash control ensured the cash position at the year end was ahead of expectations with net debt at virtually zero.

As we progress through 2015 recurring revenues represent 89% of total revenue and have moved beyond £942,000 per month with a clear organic growth strategy designed to take advantage of the evolving market for cloud services. Our primary focus is to continue development of our current group of companies though we remain alert to value enhancing strategic acquisitions.

The new Board of directors, which was formed in January 2014, has enabled the Group to realise the outlined strategies identified and detailed to the market. The solid experience of the Board continues to lay the foundations for the future of the Group and gives us a strong platform for growth from which to create clear shareholder value.

It is recognised that the success of the Group is only made possible by the incredible dedication and hard work of all of our staff, and I would like to say thank you to all new and old team members alike.

Lord Daresbury

Chairman

Chief Executive's Strategic Review

Review of the Business

Objectives

There were four high level objectives for the Group in 2014:

1) Turn Nasstar plc into a commercially focused, profitable and sustainable business;

2) Deliver organic growth from underlying market opportunities;

3) Create a solid foundation for future growth through the successful integration of our three operating businesses, whilst ensuring that the management structure of the Group is enhanced to support its growth;

4) Grow through strategic acquisitions that add intellectual property, technical expertise, sector knowledge and / or market share.

Commercially Focused, Profitable and Sustainable Business

A number of important initiatives have been implemented during the year, many of which were identified as possible revenue and cost synergies at the time of the acquisition of e-know.net.

The data centre consolidation was executed as planned with the termination of residence in three third party data centres, taking advantage of spare capacity in e-know.net's own data centre in Telford. We also centralised Group finance, purchasing, administration, HR, Sales & Marketing functions, as well as other selected technical teams.

New pricing policies and cost consolidation programs were implemented within Nasstar UK, moving this subsidiary from a loss making position to a sustainable positive EBITDA contribution. At the same time we exited a number of loss making customer and reseller contracts within Nasstar UK which further assisted in its turnaround, whilst only having a minor impact (1% of Group) on revenue figures.

The Group's enhanced scale, arising in particular from our higher user numbers, gave us increased buying power and enabled us to benefit from our membership of the Microsoft hosting partner incentive scheme which delivers rebates based on volume.

Organic Growth

We have imposed centralised marketing and pricing disciplines across the Group and all three of our operating businesses showed strong year on year revenue growth. This was achieved through the continued focus on a vertically aligned go to market strategy, focused on direct sales to the legal, financial services and recruitment sectors.

Where possible we have sought to upsell and cross sell the capabilities of each of the three businesses, capitalising on the wider breadth of opportunities created by the availability of the differing technical and service offerings of each subsidiary.

Our continued focus on R&D and product development also plays its part in providing new services to be sold to the incumbent customer base.

Integration and Management Structure

The Group's management has changed markedly during 2014 through the acquisition of e-know.net, the addition of experienced non-executive directors and the creation of an operating board spanning the three operating businesses.

As part of the integration process, centralised working disciplines have now been rolled out across all three subsidiaries with a view to improving commercial discipline and control across the Group. In addition we have adopted ITIL (Information Technology Infrastructure Library), a set of practices for IT service management, which focus on aligning IT services with the needs of our customers.

Our focus on the continued development of a "Group customer ethos" is relentless and seeks to ensure that each and every staff member understands that individually and collectively they can make their own contribution to continuous service improvement.

Investment in management resource and skill set remains an ongoing process, to structure the business to more effectively integrate Nasstar UK, e-know.net, Kamanchi and any future acquisitions.

Acquisitions

The acquisitions of e-know.net and Kamanchi were successfully completed during the year and we remain vigilant to market developments and the possibility of further value enhancing acquisitions.

We continue to identify and review possible acquisition opportunities, though always with a clear focus on the assessment of strategic rationale. In support of our acquisition strategy we have created a team internally to run the life cycle of the acquisition process, from identification and screening, through due diligence, implementation and post-acquisition integration.

e-know.net

On 10 January 2014, Nasstar acquired Denara Holdings Limited (e-know.net's parent company) for £13m in conjunction with a placing to raise £10.5m to fund the cash element of the total consideration payable (£9m), as well as transaction costs and ongoing working capital requirements.

e-know.net is a Hosted Desktop and managed services provider which was founded in 1999. e-know.net supplies a robust, secure and stable hosted Information Technology service to businesses, providing them with enhanced IT performance and greater cost control over their IT function. e-know.net is an accredited Microsoft Gold Partner, officially certified against the Cloud Industry Forum Code of Practice and is certified to ISO 27001.

e-know.net provides a comprehensive cloud service package, offering Hosted Desktop and Hosted Exchange services, with the ability to host a wide variety of software applications on behalf of clients. e-know.net additionally hosts internet based telephony systems (known as Voice Over Internet Protocol (''VoIP'')), provides managed networks and an extensive user support service. e-know.net has approximately 111 managed service clients, ranging in size from 1 to approximately 1,500 users.

e-know.net has focused principally on direct sales to three vertical markets: legal, finance and recruitment. The regulated nature of these industry sectors combined with e-know.net's ability to demonstrate proven capability to prospective clients has enabled e-know.net to target the mid-range of the SME market place. As a consequence, e-know.net has been able to attract larger clients whilst justifying a premium price per user.

A critical part of e-know.net's strategy has been the clear focus on creating long-standing and loyal clients. Whilst the cost of switching providers has been a positive factor in retaining clients and typical contract durations range from 3 to 5 years, the management of e-know.net have continued to explore other means to improve customer lifetimes. This has been achieved through a concerted focus on customer service and staff development/retention, which has in turn been instrumental in providing continuity for clients and helped to develop and retain client relationships.

Kamanchi

On the 24 July 2014 we acquired Kamanchi, a specialist IT outsourcer and Hosted Desktop provider in the recruitment sector, for £2.5m. This perfectly complemented one of the verticals already served by e-know.net and has enabled the Group to strengthen its position significantly in this sector. We now deliver Hosted Desktop services to 40+ recruitment firms totalling 2,700+ recruitment consultant end users, giving us a market leading position.

Through its exclusive sector focus, Kamanchi has built strong relationships with the specialist recruitment software providers enabling it to offer clients a one-stop solution for all their essential recruitment applications. It also provides IT help desk services and project-based IT consultancy. All Kamanchi software application services are delivered from the Cloud on their Hosted Desktop platform.

Since acquisition we have been able to cross sell Kamanchi's offering to our other recruitment clients, thereby improving revenues, profitability, client value proposition as well as client loyalty and retention.

The acquisition of Kamanchi is consistent with our stated expansion strategy of organic growth augmented by selective acquisitions where the Company can add intellectual property, technical expertise and sector knowledge and contacts in its three main vertical markets.

Financial Review

Key Performance Indicators ('KPIs')

The directors regularly review monthly contracted revenue, net margins, operating costs, and product development 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:

Total monthly recurring revenue increased from £170,000 per month to £942,000 per month during the year. The Group now has annualised monthly recurring revenue equivalent to in excess of £11m per annum.

Revenue for the year was £11.2m representing underlying year on year growth across all three subsidiaries of 14%. Gross margin improved to 69% from 38% reflecting the savings from the consolidation of date centres, improved pricing policies and volume discounts.

Adjusted EBITDA margins also improved as a result of the synergy savings made and cost rationalisation programs enacted during the year. The resultant margin was 20%, in line with EBITDA margins achieved by e-know.net in prior periods.

Reported loss before tax was £1.9m reflecting a number of exceptional items: transaction costs of £177,000, reorganisation costs of £566,000 and onerous contract provisions of £196,000. The reorganisation costs relate to the acquisition of Denara Holdings Ltd (e-know.net's holding company) and comprised director severance costs, capital reduction fees and data centre rationalisation costs.

In addition £1.9m of amortisation of customer contracts has been charged to the Consolidated Statement of Profit and Loss in respect of acquired customer contract intangible assets.

Adjusted earnings per share stood at 0.3p (adjusted for amortisation of acquired intangibles, goodwill impairment, share based payments and exceptional items) with a statutory loss per share recorded of 0.5p as a result of the exceptional items referred to above.

Customer contracts were valued at the time of each acquisition to assess their fair value. The fair value of e-know.net customer contracts at acquisition was £8.6m resulting in goodwill on acquisition of £3.2m. The fair value of Kamanchi customer contracts at acquisition was £2.6m resulting in goodwill of £0.3m.

Further funds of £10.5m (before expenses) were raised during the year from an institutional placing, principally to fund the £9m cash element of the e-know.net acquisition. Shares with market value of £5m were also issued as vendor consideration within the year.

The Group showed a net debt position of £75,000 at the year end with £908,000 cash in the bank.

Dividend Strategy

In the AIM Admission document we published in December 2013 in connection with the acquisition of Denara Holdings Limited we committed to providing an update on the Company's dividend policy at this stage. In the absence of unforeseen circumstances we expect to declare our maiden final dividend this time next year in respect of the year to 31 December 2015 and will adopt a progressive policy thereafter, subject always to the free cash generation of the Group and the investment required to deliver sustainable growth in revenues and profits.

Environment

The Group recognises the importance of environmental impact management and is committed to playing a part in helping society address climate change and as a result has an Environmental Impact Management System. The primary purpose of this is to measure and manage the environmental impact of the business.

The Group is committed to meeting the requirements of Environmental Impact Management good practice and is continually seeking ways in which it can improve. Everyone within the Group has an important role to play to ensure that the environmental impact of the business is kept to a minimum and each member of staff has their own specific tasks and responsibilities to that end.

The Group expects the business's core behaviour of professionalism and customer focus to be reflected in the Environmental Impact Management processes and procedures. This is demonstrated by the Group winning Acquisition International 2015 Business Excellence Award for "Environmentally Friendly Data Centre of the Year - UK".

Datapoint House, the Group's primary data centre, is a state of the art data centre, it is one of the most eco-friendly and advanced facilities in the UK, incorporating leading technologies for free cooling and efficient operation resulting in a better than average PUE (Power Usage Effectiveness) rating of 1.7. The Group takes a comprehensive approach to measuring its PUE and is constantly reviewing technologies that can further increase the efficiency of the facility to drive the PUE rating down further.

Recycling is enforced company 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

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 made by the Board are incorrect. The market for hosted desktop and hosted exchange is competitive and, given that the Board believes that the market is fast-growing, it is likely that competition will increase, which could affect the Group's sales performance. Large and well funded businesses may decide to enter the market and this could affect the Group's ability to achieve its sales forecasts. As the market becomes more competitive and commoditised there is a risk that the Group's gross profit margin per user may reduce.

Credit risk

Credit risk arises principally from the Group's trade and other receivables and cash and cash equivalents. 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.

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 and Company arise in respect of operational and administrative expenditure, trade and other payables and the servicing of interest bearing debt which comprises lease finance obligations. 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 in respect of surplus funds held on deposit. The Board does not currently undertake hedging arrangements.

Currency risk

The Group purchases licences from Microsoft 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 2014 the Group held $86,000 and €32,000 in cash balances.

Employees

We would like to take this opportunity to thank our loyal and hardworking team of employees. Our business is built on relationships with people and the stability of our teams. The Company recognises that success is dependent on the experience, motivation and skill of its people. It is recognised that staff retention is key, and therefore our core values, employee of the month and year schemes, benefit packages, training and career development opportunities ensure that employees are supported and motivated for success.

Outlook

In order to continue the drive in organic growth, the Group is currently adding capacity to its sales team, including the appointment of a new Head of Sales who joins us in May 2015. The primary sales focus will remain on a direct "go to market" strategy supplemented by a select group of Resellers that add value to the proposition. The competitive evolution of the market place continues and during 2014 the Group began to integrate public cloud offerings such as Microsoft Office 365 into its fully managed offering.

The combination of the three subsidiaries has created a strong platform for continued growth which will drive shareholder value. Notwithstanding the still mixed macroeconomic environment, the Group is optimistic about the year ahead. With a fast growing end market, a strong product offering and a robust balance sheet, we are well positioned for 2015.

Nigel Redwood

Chief Executive Officer

Consolidated Statement of Profit and Loss and Other Comprehensive Income

for the year ended 31 December 2014

Consolidated Statement of Financial Position

at 31 December 2014

Statement of Changes in Equity

Group

Statement of Cash Flows

for the year ended 31 December 2014

Group

Notes to the preliminary statement

1. Corporate information

Nasstar plc ("the Company") is a company incorporated in England and Wales and quoted on the London Stock Exchange's Alternative Investment Market (NASA). Further copies of these results, and the full financial statements when published, will be available at the Company's registered office: Datapoint House, 400 Queensway Business Park, Queensway, Telford, Shropshire, TF1 7UL or on the Company website at www.nasstar.com.

2. Basis of preparation

These condensed preliminary financial statements of the Company and its subsidiaries ("the Group") for the year ended 31 December 2014 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 Group's latest audited financial statements for the period ended 31 December 2013.

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 £1,710,000 and net current liabilities of £337,000. 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, the impact of the acquisition of Denara Holdings Ltd and Kamanchi Ltd and associated fund raising (note 4) and the forecast for the following 24 months. On the basis of detailed working capital projections, in the opinion of the directors, the financial statements have been properly prepared on the assumption that the Group is a going concern.

Availability of audited accounts:

Copies of the 2014 audited accounts will be 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 Group 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 Group operated in the period in one segment, the provision of IT services, and in one market, the United Kingdom. The disclosures required by IFRS8 relating to profits, losses, assets and liabilities of the segment are therefore shown by the financial statements as a whole.

4. Acquisitions during the period

(a) Acquisition of Denara Holdings

On 10 January 2014 the Group acquired 100% of the issued share capital of Denara Holdings Limited, the holding company of e-know.net Limited. Denara Holdings Limited was acquired for an aggregate consideration of £13.0 million, funded by a £10.5 million placing of ordinary shares at 5 pence. 80,000,000 new ordinary shares were issued as vendor consideration and 210,000,000 ordinary shares were issued in the placing.

The company is a Hosted Desktop and managed services provider and the acquisition offered significant synergy opportunities to the enlarged group.

In the twelve months to December 2014, this acquisition has contributed total revenue of £8.1m and profit of £718,000.

In order to calculate the goodwill on acquisition against the £13,000,000 consideration management have assessed the fair value of the net assets of the Denara Group as shown in the table below.

Under IFRS 3 "Business combinations" the only separately identifiable intangible asset arising from the acquisition related to customer contracts.

Management have assessed the fair value of customer contracts based on the net present value of expected cash flows from these contracts.

The key assumptions used within this judgment are:

i. Discount rate 8.3%

ii. Growth rate 2% relating to organic growth net of attrition

iii. Cost of inflation 4%

iv. Forecast cash flows for 7 years

The fair value of the equity instruments issued was based on the placing price on 10 January 2014 which was 5p. The goodwill of £3,244,000 can be attributed to the anticipated profitability through the growth of the enlarged group, workforce in place and synergistic benefits.

(b) Acquisition of Kamanchi Limited

On 24 July 2014, the Group acquired 100% of the issued share capital of Kamanchi Limited. Kamanchi Limited was acquired for an aggregate consideration of £3.1 million, funded by the issue of 12,484,394 new ordinary shares, the balance payable from cash reserves.

The company is a specialist IT outsourcer and Hosted Desktop provider in the recruitment sector and the acquisition offered the opportunity for the Group to increase its presence in this space.

In the five months to December 2014, this acquisition has contributed total revenue of £1.0m, and profit of £21,000. If the acquisition had been completed on the first day of the Group's financial year management estimates that the total revenue would have been £2.2m and the total profit would have been £259,000. In determining these amounts, management have ensured that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2014.

In order to calculate the goodwill against the £3.1 million consideration, management have assessed the fair value of the net assets of Kamanchi Limited as shown in the table below.

Under IFRS 3 "Business combinations" the only separately identifiable intangible asset arising from the acquisition related to customer contracts.

Management have assessed the fair value of customer contracts based on the net present value of expected cash flows from these contracts.

The key assumptions used within this judgment are:

i. Discount rate 9.6%

ii. Growth rate 2% relating to organic growth net of attrition

iii. Cost of inflation 4%

iv. Forecast cash flows for 7 years

Trade receivables acquired totalled £240,000 net of a bad debt provision of £Nil.

The fair value of the equity instruments was based on market price at the date of acquisition, which was 8.1p. The goodwill of £290,000 can be attributed to the anticipated profitability through growth of the enlarged group and synergistic benefits.

Fair values determined on a provisional basis

The fair value table determined above is considered provisional as it is still within the twelve month remeasurement period.

5. Exceptional items

The following items are considered significant by virtue of their size and nature and therefore have been recognised as exceptional items during the period.

Reorganisation costs relate to costs incurred following the acquisition of Denara Holdings Ltd and Kamanchi Ltd in respect of restricting of the business, in particular director severance costs, capital reduction fees ahead of a proposed reduction in 2015 and data centre rationalisation.

6. Loss per share

The calculation of the basic loss per share arising is based upon the loss after tax attributable to ordinary shareholders of £1,710,000 (Period ended 31 December 2013: £3,151,000) and a weighted average number of shares in issue for the year of 351,311,842 (Period ended 31 December 2013 60,414,758).

The diluted loss per share in 2014 and 2013 is the same as the basic loss per share as losses have an anti-dilutive effect.

7. Dividend

No dividend has been paid or proposed in the period