NASA.L Regulatory News (NASA)

Nasstar plc

Preliminary results for the 15 month period ended 31 December 2013

7th April 2014

Nasstar plc ("Nasstar" or the "Company"; stock code: NASA), a provider of Hosted Desktop cloud computing, announces preliminary results for the 15 month period ended 31 December 2013. Nasstar has changed its year end to 31 December to bring its accounting reference date into line with that of e-know.net Ltd ("e-know.net"), which was acquired on the 10 January 2014, via acquisition of its holding company Denara Holdings Limited ("Denara").

Whilst the accounting period predates Nasstar's acquisition of e-know.net, the directors believe that a full update in respect of e-know.net's trading for the year ended 31 December 2013 is appropriate.

Nasstar financial highlights and key performance indicators

Nasstar highlights

· Released a new version of the Hosted Desktop platform

· Continued development of the technology to run from geographically diverse data centre locations

· Identified e-know.net as an acquisition target and a reverse takeover was completed post period end (10 January 2014) for a total consideration of £13m

· Strengthening of the Board of directors through the appointment of new executive and non-executive directors post period end

· Enlarged Group now has an annualised monthly recurring revenue equivalent to in excess of £9m per annum

Denara financial highlights and key performance indicators

Nigel Redwood, Chief Executive Officer of Nasstar, commented:

"I am very excited by the bringing together of two cornerstone hosted desktop providers and the opportunities that lie ahead of us. We are operating in a relevant and fast growing market, and see significant opportunities for growth moving forward.

Our initial period as a combined entity has seen us instigate our cost synergy program, operational integration is progressing well and expected opportunities for organic growth are developing.

Notwithstanding the still mixed macroeconomic environment, the Group is optimistic about the year ahead and believe we are progressing in line with our expectations. With a fast growing end market, a strong product offering and a robust balance sheet, we are well set for the coming period"

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 (Corporate Finance)

Victoria Bates (Corporate broking)

Oakley Capital (Financial Adviser) +44 (0) 20 7766 6900

Christian Maher

Victoria Boxall

Chairman's Statement

Nasstar has, over the last 10 years, invested heavily in innovation to create a powerful Hosted Desktop solution. The solution combines a quick and easy to use customer offering with an efficient web based administration system providing billing and the ability for customers to manage certain aspects of their Hosted Desktop and Hosted Exchange services. This focus on innovation has led to the development of a leading edge Hosted Desktop solution, culminating in winning the Citrix European Service Provider of the Year Award in 2012. This innovation continued in 2013 with the team developing services that are designed to run out of geographically diverse data centre locations whilst releasing an upgraded version of the Hosted Desktop.

During 2013, Nasstar concluded that it was appropriate to focus on growth in order to capitalise on the technical platform that has been developed. To date, Nasstar's primary sales channel has been via resellers however, due to the downward pressures on margins experienced within the channel, the directors recognised the need to develop a direct route to market to enhance Group margins whilst complimenting channel sales. Nasstar recognised its immaturity in the direct market and therefore identified e-know.net (e-know.net the sole operating subsidiary of Denara, which acts solely as its holding company) as an acquisition target, which would give the Company a mature and tried and tested route to direct customers.

e-know.net has focused principally on direct sales to the legal, financial services and recruitment sectors. The regulated nature of these industry sectors makes them particularly suitable for outsourced IT solutions of the type provided by e-know.net. e-know.net's services provide high levels of functionality and regulatory compliance to businesses in such sectors alleviating them of the immediate burden of IT compliance as well as providing them with access to evolving software solutions. As a result of e-know.net's disciplined sector focus, and complemented by the comprehensive product and services portfolio, e-know.net is able to demonstrate proven capability to prospective clients and has moved away from the lower to the mid-range of the SME market place. As a consequence, e-know.net has been able to attract larger clients with larger user numbers and higher recurring revenues per user.

The combination of the respective strengths of e-know.net and Nasstar will provide the Enlarged Group with a suite of products and services which are capable of providing Hosted Desktop to a broad range of business types and sizes. Combining e-know.net's marketing approach with Nasstar's technology provides the Group with significant revenue and cost synergy opportunities moving forward.

Going into 2014, the Enlarged Group already has monthly recurring revenues of greater than £750,000 with a clear strategy for further growth in future periods. I am pleased to say that cost synergies are on track with the plan we identified in January.

In addition, the recruitment of a new Board of directors, each with considerable market experience, has given me the confidence that the Group is capable of delivering on its potential and capitalising on the growing market for cloud based services.

Outlook

We believe the combination of Nasstar and e-know.net has created a strong platform for growth from which to create clear shareholder value. Whilst business and economic conditions remain mixed, we see continued growth in our markets and the opportunities for material synergies from the combination of the two companies. We believe we are well set for the coming year.

Lord Daresbury

Chairman

Chief Executive's Review

2013 marks the final year of Nasstar being positioned as primarily a research and development business. To date the Company has developed a platform to position the Company for growth rather than near term profitability. 2014 should represent a year in which this investment bears fruit and moves Nasstar into a commercially focused, profitable and sustainable business. The acquisition of e-know.net and the combination of Nasstar's technology with the go to market capability of e-know.net provides the foundation for this transition.

Subsequent event, acquisition of Denara

On 10 January 2014, Nasstar acquired the entire issued and to be issued share capital of Denara for an aggregate consideration of £13m. In order to fund the cash element of the total consideration payable (£9m) pursuant to the acquisition, as well as transaction costs and ongoing working capital requirements, the Company undertook a placing to raise £10.5m. The acquisition constituted a reverse takeover of the Company for the purposes of the AIM Rules for Companies and accordingly required Shareholder approval.

Background on e-know.net

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 109 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 directors 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.

Potential synergies created by the acquisition

Significant cost synergies are expected to arise from the combination of the two businesses. These will include the amalgamation of key resources such as data centres, where clear scope exists to migrate some of Nasstar's and e-know.net's servers from outsourced data centres to e-know.net's own data centre in Telford where spare capacity currently exists. To date, three months' notice has already been given to terminate two of the six data centre contracts, whilst by year end we plan to have further consolidated leaving three operational data centres in total.

In addition, the finance functions of the two businesses have now been consolidated in Telford under the direct control of the new Finance Director, Niki Redwood. The management of sales & marketing has been centralised and technical support will all be consolidated as appropriate, as plans continue to progress throughout the year.

As well as the above cost synergies, we believe that a range of operational and revenue synergies will accrue to the Enlarged Group in terms of:

· Imposing e-know.net's marketing and pricing disciplines on the Enlarged Group;

· Increased buying power (user licenses for example) arising from the higher user numbers (already evidenced by the invitation to join the Microsoft hosting partner incentive scheme);

· Enabling e-know.net to capitalise on smaller opportunities which it was not previously able to service economically by using Nasstar's multi-tenanted Hosted Desktop platform;

· Up-selling e-know.net functionality to Nasstar customers (which has already been evident in the early part of 2014);

· Pooling of technical know-how and experience.

Nasstar results for the 15 month period ending 31 December 2013

Nasstar monthly recurring revenue increased to £170,000 per month during the period and when combined with that of e-know.net, the Enlarged Group now has an annualised recurring revenue in excess of £9m per annum.

Revenue for the 15 month period ending 31 December 2013 was £2.5m whilst the gross margin percentage fell to 38% as a result of the investment into the second and third data centres, coupled with increased license costs imposed by Microsoft under the Service Provider License Agreement. The investment into these data centres has created a level of spare capacity negatively impacting the gross margin percentage.

Reported loss before tax is £3m. It is important to note that there are a number of exceptional items reported in the Consolidated Statement of Comprehensive Income. Exceptional items can be categorised into two types: transaction costs of £605,000 in relation to the acquisition of e-know.net and contract provisions of £413,000. In addition, goodwill of £844,000 has been impaired during the period whilst a deferred tax asset of £174,000 has also been impaired.

Further funds of £892,000 (before expenses) were raised during the period from an institutional placing. In addition, share options to the value of £12,000 were exercised during the period.

Nasstar at the period end showed a net cash position of £96,000 (after loans and finance leases) with £314,000 cash in the bank.

e-know.net results for the year ending 31 December 2013

e-know.net grew revenue by 20% versus 2012 to £6.9m, with a further focus on improving profit margins and cash generation. EBITDA and net profit margin improvements have been aided by the strategic focus on winning larger sized contracts alongside a number of cost focused strategies. As a result, the adjusted EBITDA margin grew to 19% from 16% during 2013 and adjusted profit before tax margin grew to 12% from 8%. Reported EBITDA and profit before tax include £236,000 of exceptional items being transaction costs in relation to the acquisition.

At year-end net cash (after loans and finance leases) was £618,000 with £1.6m of cash in the bank. Cash conversion during the period was strong, with net cash flow from operating activities of £1.2m versus EBITDA of £1.1m, boosted by strong control of working capital during the year.

Market opportunity and competitive environment

There are a variety of reasons as to why an organisation might move to a Hosted Desktop solution, including the following:

· Increased cost-efficiencies, reduced overheads, reduced Capex and greater cost predictability

· Better alignment of IT resources to business needs

· Enhanced usability with anytime, anywhere access

· In-built business continuity, disaster recovery and data security

· Readier compliance with regulatory and commercial demands

· More affordable access to new applications and technologies

· Heightened business agility thanks to rapid roll-out capability

· Easier business planning and forecasting through scalable cost model

· Extensive and expert on-tap IT resources available 24/7

· Leaner and greener working with reduced IT footprint

· Sustained competitive advantage through fast, robust and smooth delivery of enabling IT

· Improved productivity driven by stable platform and 99+% guaranteed uptime

These market drivers are now contributing to a global Hosted Desktop market which is currently estimated to be growing at a compound annual growth rate of 86% between 2011 to 2016 (Source: 'Workspace-as-a-Service (''WaaS'') 2012-2016 Forecast of the Emerging WaaS Market'; IDC Worldwide, December 2012) with approximately 77 million Hosted Desktop users expected by 2016 (Source: Forecast: Hosted Virtual Desktops, Worldwide, 2012-2016, 2012 Update; Gartner Inc.; 29 June 2012). Whilst 86% compound growth is not operationally possible, this research does back up the plans of the business.

Hosting capabilities are well advanced however, the extent to which hosting has been adopted is still relatively low with recent survey data of 2,000 UK companies ranging in size from 2 to 250 users indicating that just 2% use Desktop as a Service (''DaaS'') (Source: EDGE Microsoft SMB Research - 2012). At the same time, there is clear survey evidence to suggest that businesses are now more cognisant of the benefits of DaaS and as a consequence, their likely propensity to adopt it is increased(Source: Gartner Forecast Hosted Virtual Desktops, Worldwide, 2012-2016, 2012 Update). The Enlarged Group will seek to establish itself as a leading Hosted Desktop provider, most prominently in the key sectors it has identified and also by taking advantage of the fragmentation of competition within the market.

We have identified three direct routes via which we will seek to gain market share for the Enlarged Group; consultants, authors and governing bodies. It is our experience that a majority of mid-size companies use consultants to assist them in defining their IT needs and to advise them on appropriate providers. The Enlarged Group intends to broaden and strengthen its relationships with such consultants. e-know.net also holds agreements with a number of software application authors to host their software for their client base (where hosting is more appropriate than a capital software sale). We plan to expand these relationships.

The key sectors to which the Enlarged Group will seek to provide Hosted Desktop solutions are regulated sectors. It is our belief that companies within these sectors may look to their governing bodies and societies for 'approved' IT outsourcing companies. The Enlarged Group will seek to capitalise upon and add to the relationships e-know.net has already established with certain governing or professional bodies and societies (including the regionalised Law Societies).

In addition to the three direct routes detailed above, the Enlarged Group will further develop the Nasstar reseller and distribution channel with a new pricing and marketing strategy. However, it is our belief that the primary focus has to be on selling directly to the end user. Selling directly to the end user facilitates the value of the proposition to be positioned correctly, enabling financial and operating control over the relationship with the ultimate end user.

Employees

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

Conclusion

The combined organisations can enjoy a very exciting future. The long term strategy is to run the two businesses as one combined operation, independent of physical location. We have already defined the organisation structure and reporting lines merging the two teams whilst applying the management control of e-know.net to the Enlarged Group. We have compiled a dedicated team to lead the integration of systems and server farms to ensure day to day operations are not impacted. As a result cost synergies, operational integration and the development of the sales and marketing strategy is progressing as planned. Although early in the amalgamation of the businesses, we are currently progressing in line with our expectations.

Nigel Redwood

Chief Executive Officer

Consolidated statement of Profit and Loss and other Comprehensive Income

Consolidated Statement of Financial Position

at 31 December 2013

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

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 subsidiary ("the Group") for the 15 months ended 31 December 2013 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 year ended 30 September 2012.

While the financial figures included within this preliminary report have been computed in accordance with IFRSs applicable to the period, these preliminary financial statements do not constitute Statutory Accounts under the Companies Act 2006, have not been audited, and do not include all of the information required for full annual financial statements. They should be read in conjunction with the Group's consolidated annual financial statements for the year ended 31 December 2013. The auditors' opinions on the 2013 and 2012 Statutory Accounts were unqualified and did not draw attention to any other matters required by the Companies Act 2006. Statutory accounts for the year ended 30 September 2012 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2013 will be delivered to the Registrar in due course.Availability of audited accounts:

Copies of the 2013 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 software as a service, 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. Impairment of goodwill

The amount attributed to goodwill was fully impaired at 31 March 2013.

5. Acquisition

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.

In order to calculate the goodwill on acquisition against the £13,000,000 consideration management have assessed the provisional 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 share price on 10 January 2014 which was 5p. The goodwill of £3,242,000 can be attributed to the anticipated profitability through the growth of the enlarged group and synergistic benefits.

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 £3,151,000 (year ended 30 September 2012: £313,000) and a weighted average number of shares in issue for the year of 60,414,758 (year ended 30 September 2012: 52,727,892).

The diluted loss per share in 2013 and 2012 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.