NASA.L Regulatory News (NASA)

Nasstar plc

Interim results for the 6 months ended 30 June 2016

Nasstar plc ("Nasstar", the "Company" or the "Group"; stock code: NASA), a provider of hosted managed and cloud computing services, announces its unaudited interim results for the 6 months ended 30 June 2016.

Financial Highlights

· 22% revenue growth compared to the same period last year

· 21% Gross Profit growth compared to the same period last year

· 14% adjusted EBITDA** growth compared to the same period last year

· Monthly recurring revenue run rate increased by 6% during H1

· Additional £17k per month of signed recurring revenue which will begin to impact from H2

· Adjusted earnings*** per share 0.3p for 6 months to 30 June 2016 (H1 2015: 0.3p)

· Basic loss per share 0.1p for 6 months to 30 June 2016 (H1 2015: 0.1p)

· Net debt position improved to £4.9m (2015: £5.1m)

· Post period end placing to raise £13.3m to fund the acquisition of Modrus and to reduce net debt

· Proforma net debt position immediately following placing and Modrus acquisition of £3.5m

*Comprising earnings adjusted for interest, taxation, depreciation, amortisation and share based payments

**adjusted for exceptional items being costs in relation to reorganisation costs and aborted transaction costs

***adjusted for amortisation of purchased intangibles, share based payments and exceptional items

Operational Highlights

· Integration of VESK progressing to plan, with full integration expected to complete in H2

· Enhanced marketing plan initiated including the subsidiary renaming strategy, with the Nasstar name being successfully redesigned and re-launched

· Secured notable hosted desktop contracts in both the legal and recruitment sectors whilst successfully cross-selling the Group's new public cloud integrated services to other Group customers

· Group Managing Director appointment, David McCarthy, has been particularly successful with a positive impact operationally and within the client base

· The continued development of the sub-Board management layer and the new single brand has positioned the Group to accelerate "go to market" and synergy opportunities presented to us

· Identified and, post period end, completed the acquisition of Modrus for a consideration of £13.0m (£11.7m cash, £1.3m equity)

· Successful placing of £13.3m completed to fund the acquisition of Modrus and reduce debt, bringing a number of new institutional shareholders onto the share register

Nigel Redwood, Chief Executive Officer of Nasstar, commented:

"The integration of VESK following the acquisition last year is progressing well and I expect to see the benefits of the full integration in the second half of the year. The first half of the year has progressed positively with trading in line with management expectations. I am pleased to report a healthy level of growth in the monthly recurring revenue base, running at 6 per cent. during the first half reflecting the benefits of some of the new management initiatives we have taken. The Board is optimistic for the remaining half of the year and believes we are progressing in line with full year expectations.

The appointment of David McCarthy as Group MD has been very successful and his support has enabled me to focus on the execution of Group Strategy. I was therefore delighted to announce the acquisition of Modrus in August and was equally reassured with the support shown by our current shareholders and encouraged by the addition of a number of new institutional investors during the recent placing. Modrus adds complementary exposure to vertical markets in which the Group is not currently represented, including Media, Property Services and independent software vendors (ISVs) whilst adding operational breadth as well as scale to the Group."

For further information, please contact:

Nasstar plc +44 (0) 20 7148 5000

Nigel Redwood, Chief Executive Officer

Niki Redwood, Finance Director

finnCap Limited (Nominated Adviser & Broker) +44 (0) 20 7220 0500

Julian Blunt, James Thompson (Corporate Finance)

Stephen Norcross (Corporate broking)

Chairman's Statement

I am delighted to report another strong set of results with revenues increasing by 22% compared with H1 2015, reflecting contribution from VESK Ltd (VESK), which was acquired in Oct 2015.

Furthermore the addition of £83K (including contracted recurring revenue scheduled for delivery in H2) per month of recurring revenue is encouraging, demonstrating the continued delivery of organic growth. Recurring revenue in H1 accounted for a significant proportion of total revenues, 88%, underpinning the Group's financial stability and visibility of earnings.

14% adjusted EBITDA growth is equally pleasing considering the Group has initiated its planned enhanced marketing plan whilst bolstering senior management with the successful appointment of the Group Managing Director David McCarthy.

The Operating loss for the period was £593,000 reflecting the investment into management and processes at group level in preparation for more effective consolidation of the subsidiaries and the subsequent acquisition of Modrus, alongside the launch of a central marketing and naming plan.

I am proud that the Nasstar name was selected for the unity brand name for the marketing plan and I believe the new look and feel of Nasstar is now an accurate reflection of our sophistication and strong service offerings that have come together as a result of our acquisition strategy.

The post period end acquisition of Modrus and placing has enabled us to reduce net debt ahead of schedule giving us greater flexibility on funding options moving forward.

The team continues to integrate VESK and the addition of Modrus will see us focus over the next 12 months on these integrations to ensure we can achieve maximum operational gearing and synergy benefits that are now available to the enlarged Group.

Outlook

The acquisition of Modrus bolsters the recurring revenue base of the Group by approximately 40% to circa £1.7m per month whilst diversifying our customer base and target market with the addition of three new vertical market specialisms.

While it is too early to fully assess the wider economic implications of the UK's decision to leave the EU, the Board recognises the increased uncertainty in the macroeconomic outlook as well as the adverse impact this has had on Sterling, which, as previously announced, has potential to impact cost of sales with Nasstar buying licensing in US Dollars, whilst customer invoicing is in Sterling. The Board does however believe the Group remains well positioned, benefitting from high levels of recurring revenue, providing an essential service to its clients on a more reliable, efficient and flexible cost basis than they would be likely to achieve themselves.

We have a clear strategy and strong customer diversification combined with an organisational scale that provides a strong platform for growth from which we can continue to create shareholder value.

Lord Daresbury

Chairman

Business Review

The Group is a provider of hosted managed and cloud computing services, integrating private and public clouds supplying a robust, secure and stable hosted Information Technology service to business customers. This provides them with enhanced IT performance and greater cost control over their IT function. The Group owns its primary data centre, is head quartered in Telford with regional offices in Northampton, London & Bournemouth whilst 24 x 7 support is delivered from its Auckland office in New Zealand. Nasstar is an accredited Microsoft Gold Partner, officially certified against the Cloud Industry Forum Code of Practice, has G-Cloud 7 status and is certified to ISO 27001.

Nasstar specialise in building bespoke cloud hosted services to manage a client's entire application set, tailor made to suit specific industries, designing public, private and hybrid cloud solutions to meet the objectives of the client. The solution is a highly scalable service that provides benefits including anywhere access to computing; a standardised corporate solution that can be accessed globally in multiple languages; generating cost savings when compared to the traditional IT ownership model whilst replacing capital expenditure with a simple usage based payment model.

The bespoke cloud hosted services includes a comprehensive portfolio of solutions, offering Hosted Desktop, Office 365, Hosted Exchange, Software as a Service (SaaS), Infrastructure as a Service (IaaS), and Hosted Telephony services. Additionally, the Group hosts a wide variety of software applications on behalf of clients. Further, the Group provides managed networks and an extensive end user support service. All such services are supplied on a price per user per month basis building a strong longer term recurring revenue relationship with clients.

The Group holds a tier one agreement to sell Microsoft's cloud offerings known as Office 365 (O365) and Azure. The program enables the Group to supply O365 on a truly flexible per user per month model, with the Group contracting with the end user and retaining full invoicing and customer support. This has enabled the Group to further integrate the O365 offering into its hosted desktop solution, embracing the innovations of O365 as a clear differentiator over its competitors. In addition, the Cloud Solution Program (CSP) enables the Group to benefit from the economies derived from the use of the Microsoft Azure platform, Microsoft's hyper scale IaaS offering.

Furthermore, the Group through its central Professional Services Team provides consultancy services on business processes and application development to its clients in its targeted vertical markets. This enhances its added value service to its managed service client base. As an example, through its exclusive sector focus, Kamanchi has built strong relationships with the specialist recruitment software providers (authors), thus enabling it to offer clients a one-stop solution for all their essential recruitment applications. Similar relationships are established within the legal & financial services sectors.

Strategy

In 2016 the Group embarked on an enhanced marketing plan which includes a brand consolidation strategy. The first fruits of this were seen in July with the re-launch of the Nasstar brand supported by a new website properly reflecting the size and sophistication of the Group today.

Whilst Nasstar has now integrated many of the teams, processes and service offerings acquired in the last three years, the Nasstar, e-know.net, Kamanchi and VESK brands have still been going to market under their respective names. It was felt that this caused a level of confusion amongst clients when buying services from multiple entities across the Group.

The new launch will see all operating divisions consolidate under one Nasstar brand, with investment made into a single fully integrated sales and marketing plan. The aim of the brand consolidation is to maximise the respective strengths of the various offerings within the Group and to help differentiate the full stack of services that the Group can offer, thus ensuring maximum cross sell capabilities and revenue synergy opportunities.

The launch of the new brand and web site saw e-know.net Ltd immediately being renamed as Nasstar Group Ltd and the www.e-know.net domain being retired and redirected to www.nasstar.com. Over the coming months, as the new Nasstar brand gets established within the recruitment sector, the Kamanchi Ltd name will change to Nasstar For Recruitment Ltd and the VESK name will be dropped once Nasstar is established within the G-Cloud market place. Thus by the end of H2 the entire group is expected to be operating under the Nasstar brand (with the exception of recently acquired Modrus). It is anticipated that the Modrus name will be retained until the end of 2017, giving the Group time to establish Nasstar in the verticals that Modrus specialise in, these being Media, Property Services and ISVs.

A critical part to the Group's go to market strategy is the clear focus and specialisation on specific vertical markets, creating relationships with key software vendors, consultants and influencers in these sectors. This has enabled the Group to benefit from strong long term relationships with clients whilst further building momentum within the vertical sectors by encouraging customer referrals. Following the recent Modrus acquisition, the Group can boast vertical specialism in eight sectors, including legal, financial services, recruitment, Government & not for profit, education, property services, media and ISVs.

Towards the end of 2015 and during H1 2016 the Group made a significant investment in management infrastructure, systems and processes in order to ensure the delivery of continued growth and the efficient integration of acquisitions. This investment has positioned the Group well to ensure that potential benefits from future acquisitions, such as Modrus, can be recognised as quickly and fully as possible.

Financial Review

Group revenue for the six month period ending 30 June 2016 was £8.1m, representing growth of 22% compared to the same period last year (H1 2015: £6.6m). Delivered recurring revenue grew in H1 by £66k per month, which when combined with the signed but undelivered £17k per month, which will be recognised in H2, represented a 7% organic sales growth in recurring revenue.

Gross margin percentage has been maintained at 70% (full year 2015: 70%) and is in line with management key performance indicators and forecasts.

There has been 14% growth in adjusted EBITDA** to £1.6m (H1 2015: £1.4m). At 20% of revenues this maintains our strong performance and is in line with the Group's target, despite the increase in expenses represented by the enhanced marketing plan and continued investment in the management layer, which included the recruitment of a Group MD. These latter items contributed to an increased operating loss of £0.6m (H1 2015: £0.3m).

Adjusted profit before tax*** reduced slightly as a result of the additional interest incurred on the loan taken to finance the VESK acquisition. A portion of the over fund on the recent placing will be used to reduce this loan ahead of schedule therefore reducing the impact of the interest in H2. In addition, the Group will meet certain leverage targets in H2 which will reduce the interest on the loan from 2.95% to 2.5%.

Adjusted profit after tax rose 9% to £1m for the period (H1 2015: £0.9m) adjusted for amortisation of purchased intangibles, share based payments and exceptional items.

Loss after tax was £484,000 (2015: £362,000) reflecting increased finance costs and the investment into management resource and group marketing plan.

An amortisation charge of £1.5m has been charged to the Consolidated Statement of Comprehensive Income in respect of amortisation of the intangible assets represented by purchased customer contracts.

At the period end the Group showed a net debt position of £4.9m (after loans and finance leases) with £1.4m cash in the bank.

Post period end the Group raised £13.3m via an institutional placing, £11.7m of which was used to acquire Modrus, £0.6m used to cover costs whilst £1m has been used to further reduce net debt.

Adjusted earnings per share has been calculated as follows:-

*adjusted for amortisation of purchased intangibles, share based payments and exceptional items

**assumed not tax deductible for the purposes of this illustrative calculation

Subsequent Event, acquisition of Modrus and placing

On 2 September 2016, the Company acquired Modrus for a total consideration of £13.0m. £11.7m of the consideration was paid in cash and the balance was satisfied by the issue to the vendors of Modrus of 17,333,334 new Ordinary Shares. To fund the cash element of the acquisition consideration the Company placed 177,333,334 new Ordinary Shares at 7.5p per share to raise £13.3m (before expenses). The excess funds raised under the terms of the Placing over the £11.7m cash consideration were used to fund costs relating to the Acquisition and the Placing (£0.6m) with the balance of £1.0m used to reduce the Company's indebtedness.

Modrus was founded in 2004 by current Managing Director Edward Armitage and Mark Osborne. Modrus provides Information Technology ("IT") managed services and telecoms solutions to SMEs, offering a comprehensive cloud service including virtual desktop, managed exchange and internet based telephony services ("VoIP") overlaid with full connectivity services. It also offers a full IT managed service package for customers including software, hardware and support. Modrus has approximately 140 managed service clients with the majority of revenue derived from clients ranging in size from approximately 50 to 250 users. Given the nature of Modrus' services, customers tend to be contracted for long periods (typically three years) and tend to renew contracts, providing a high level of revenue visibility, with current monthly recurring revenue carried forward amounting to approximately £468,000 per month.

Modrus has focused principally on direct sales to five key vertical sectors, being recruitment, professional services (comprising primarily financial services organisations and property services), media, private education and software vendors. Businesses in these verticals tend to rely heavily on their IT systems making them very suitable for outsourced IT solutions such as those provided by Modrus. Therefore, the acquisition of Modrus builds scale in the Group's Recruitment and Financial Services segments whilst adding complementary exposure to vertical markets in which the Group is not currently represented, including Media, Property Services and software vendors.

Modrus is headquartered in Bournemouth and currently employs 43 people in the UK and four in New Zealand. The New Zealand based employees provide a 24 hour help desk service to Modrus' clients, and is seen as a platform for growing the enlarged Group's out of hours support function on a lower cost basis than would be the case in the United Kingdom

The Directors have identified a number of areas in which they consider long term synergies can be achieved whilst the wider geographic footprint resulting from the acquisition will be helpful in terms of increasing the catchment area from which to recruit suitably qualified technical people in future.

Conclusion

The Board feels that Nasstar continues to deliver in line with its stated strategy. The latest acquisition combined with the enhanced marketing plan which has seen the re-launch of the Nasstar brand, continues to position the business to take advantage of the growth in adoption of cloud services.

The Group has a very tight focus on providing complex cloud based IT managed services with end to end offerings for specific vertical markets, giving Nasstar a clear differentiation from other cloud buy and build platforms, thus protecting against commoditisation. Success continues to be achieved by knowing our customers, harnessing fast moving technologies, inspiring our people and creating partnerships that truly enable the delivery of the very best solutions for the customer.

The combination of our five operating businesses has further diversified the customer base and increased the target market, thus contributing to our strong platform for continued growth which we believe will drive shareholder value.

Nigel Redwood

Chief Executive Officer

26 September 2016

Consolidated statement of Profit and Loss and other Comprehensive Income

Consolidated Statement of Financial Position

at 30 June 2016

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the interim 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 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. These consolidated interim financial statements were approved by the Board of Directors on 21 September 2016.

2. Basis of preparation

These condensed interim financial statements of the Company and its subsidiaries ("the Group") for the 6 months ended 30 June 2016 have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

These consolidated interim financial statements of the Group are for the six months ended 30 June 2016. The comparative figures for the 12 month period ended 31 December 2015 are derived from the Group's statutory accounts for that financial period. Those statutory accounts have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditor was (i) unmodified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without modifying its report and (iii) did not contain a statement under Section 498 of the Companies Act 2006.

The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 December 2015.

The condensed consolidated interim financial statements for the six months to 30 June 2016 have not been audited or reviewed by an auditor pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

The condensed consolidated interim financial statements for the six months to 30 June 2016 have been prepared on the basis of the accounting policies expected to be adopted for the year ending 31 December 2016. These are anticipated to be consistent with those set out in the Group's latest annual financial statements for the year ended 31 December 2015. These accounting policies are drawn up in accordance with International Financial Reporting Standards, International Accounting Standards (IASs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively IFRSs) as adopted for use in the European Union.

AIM-listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

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 hosted managed 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

On 2 September 2016 the Group completed the acquisition of 100% of the issues share capital of Modrus Limited for £13.0m comprising £11.7m in cash and £1.3m in new Nasstar plc equity. The cash consideration was funded by a placing of 177,333,334 new ordinary shares to raise £13.3m at a price of 7.5p per ordinary share. Fair value calculations for this acquisition have not been completed due to the proximity of the acquisition to the date of these results and as such have not been disclosed.

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

6. Income tax credit

The income tax credit for the period is based on the estimated rate of corporation tax that is likely to be effective for the year to 31 December 2016.

7. Dividends

A maiden final dividend of 0.045p in respect of 2015 was paid on 4 July 2016 to shareholders on the register at the close of business on 3 June 2016.

8. Earnings per share

The calculation of the basic loss per share for the six months ended 30 June 2016 is based upon the following.

The diluted loss per share for all periods is the same as the basic loss per share as the losses have an anti-dilutive effect.

9. Provisions

10. Availability of audited and interim accounts

Copies of the 2015 audited accounts are available on the Company's website (http://www.nasstar.com/investors/financial-reports) for the purposes of AIM rule 26. Further copies of these interim results 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.