NASA.L Regulatory News (NASA)

Nasstar plc

Interim results for the 6 months ended 30 June 2019

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 2019.

Financial Highlights

·; Revenue up 2% compared to the same period last year to £12.8m (H1 2018: £12.5m)

·; 90% of H1 2019 revenue generated from contracted recurring services (H1 2018: 91%)

·; EBITDA* in line compared to the same period last year £2.8m* (H1 2018: £2.8m), however up 19% on H2 2018 (H2 2018: £2.4m)

·; Adjusted EBITDA** in line compared to same period last year £3.0m** (H1 2018: £3.0m), however up 17% on H2 2018 (H2 2018: £2.6m)

·; Adjusted EBITDA** margin of 24% (2018: 22%)

·; Operating profit for the period was £0.5m (H1 2018: loss £0.3m)

·; Adjusted Profit Before Tax*** in line compared to same period last year £1.8m (H1 2018: £1.8m), however up 38% on H2 2018 (H2 2018: £1.3m)

·; Net cash+ position improved to £2.4m (H1 2018: £1m)

·; Adjusted earnings*** per share 0.3p for 6 months to 30 June 2019 (H1 2018: 0.3p)

·; Basic profit per share 0.1p for 6 months to 30 June 2019 (H1 2018 loss (0.1p))

*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 reorganisation and data centre closure)

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

+comprising cash less interest-bearing bank loans and borrowings

Operational Highlights

·; The final year of the "Nasstar 10-19" integration strategy has seen the final stages of the Data Centre (DC) consolidation strategy near completion in H1 with all live private cloud platforms now being delivered from two primary DCs.

·; The remaining priority focus of "Nasstar 10-19" centres around internal system consolidation and process automation. This has seen the delivery of an upgraded Dynamic NAV platform (finance) whilst the roll out of the new central IT service management system (Cherwell) has continued, completion of the initial roll out is expected in H2.

·; Internal systems automation, powered by Cherwell, offers an opportunity to deliver further efficiencies, with work stream automation to continue into 2020 and beyond.

·; The new Head of PMO (project management office) appointed in October 2018, has focused heavily on project and process improvement for complex and large-scale technical deliveries, improving management information, resource management, project scheduling and delivery efficiency.

·; The implementation of the previously announced three-year contract with a top 50 UK law firm has been an important work stream for the project and technical teams. Monthly revenues from this contract will begin to be recognised in H2 though full deployment will stretch into H1 2020.

·; Nasstar continue to develop and invest in their talent management programme designed to help attract and retain talent in the continuing hyper competitive technical employment market.

Nigel Redwood, Chief Executive Officer of Nasstar, commented:

"It is very pleasing to see the "Nasstar 10-19" programme come to fruition, delivering a more unified and streamlined Nasstar. With this nearing its conclusion we now enter a new period for the Group for which we are currently formulating strategic priorities; we look forward to providing more detail in due course.

Our central ITSM system, Cherwell, provides an opportunity to invest in further automation that will not only deliver efficiencies but drive further improvements in the consistency of our operating teams, delivering a continually improving support experience to the customer.

It was pleasing to see gross profit margins recover to 65% in the period, up from 63% in H2 2018, thanks to the mitigating strategies that we started to implement at the end of 2018.

We have seen decision timelines for both new business and current customer projects extended as a result of the continued political and economic uncertainties caused by BREXIT, notably from Q2 onwards so our focus on mitigation strategies is constant. Despite these challenges Nasstar continues to trade well, delivering another six months of solid performance."

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)

Alice Lane (Corporate Broking)

Chairman's Statement

As previously announced, I am stepping down as Chairman on the 23rd October 2019 and I am very pleased that the final five years of my tenure has seen Nasstar develop into one of the leading players in the hosted managed and cloud computing marketplace. We have really embraced the technical developments in both the private and public cloud space and this, combined with our vertical market focus, has seen the business go from strength to strength in recent years. I have every confidence that Nick Bate, as new chairman, will help build on the foundations that have been laid and I wish him and the rest of the management team, including Ben Marnham who joins the Board next month, all the very best for the future.

The timing of my departure coincides with the conclusion of our three-year integration strategy "Nasstar 10-19". The strategy has seen the business focusing on ensuring we have the right leadership team running the business with one team for each function, that we have consolidated our technical footprint and service portfolio, invested in our talent management, whilst focusing on efficiencies with backend systems and automation. Our customer strategy and security at the heart of all we do have been underpinning pillars throughout the integration.

I am pleased to report that in H1 our key KPI's were in line with our expectations with continued focus on contracted recurring revenues being at the heart of our financial stability. The achievement of our H1 KPI's despite the very challenging political and technical landscape coupled with the pressure we see in wage inflation caused from the strong labour market is testament to the "Nasstar 10-19" strategy.

Work in progress (WIP), being orders signed but not yet delivered (or recognised in revenue), continues to keep the project team busy with in excess of £150,000 monthly recurring revenue in WIP at the end of June 2019. This continues to demonstrate the strong visibility of earnings of the Nasstar model.

As expected, the Group is for the first time reporting a statutory profit for the period which is as a result of the reduction in the amortisation of customer intangibles that were recognised on the acquisitions to date. Our integration strategy has structured the business to be able to more effectively recognise revenue and cost synergies from any potential acquisition and therefore the board do continue to be alert to any opportunities to augment organic growth through selective acquisitions.

As a business we are very alert to the range of exit possibilities that the BREXIT process could deliver, and we continue to monitor the increased risk and uncertainty closely. It is very encouraging that in H1 we have been able to meet profit KPI's in these circumstances despite the increased hesitancy we are witnessing in the sales process.

On this my final Chairman's Statement I would like to thank the Board, management team and every member of the organisation for their hard work, dedication and commitment over the years.

Lord Daresbury

Chairman

Strategy execution during H1 2019

In summary the three year "Nasstar 10-19" programme focused on the following objectives:-

·; Implementing and embedding the right leadership team and organisational structure with a single team philosophy for each function across the entire Group. Delivering a clear focus on embedding the right management structure acting on the right management information and KPI's.

·; 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 live systems across the Group into two primary private cloud datacentres integrated with Microsoft's public cloud offering Azure.

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

·; To attract and retain the best talent in the industry. We recognised 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, we invested into our training and development strategy, health and wellbeing strategy, employee engagement techniques and apprenticeship programmes.

·; To develop a single unified service offering and product catalogue. We have invested into our product strategy and service acceptance processes 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.

·; To deliver greater backend efficiencies and consistency in process. We have invested in automation and systems integration across the business, from finance through to project and support systems.

·; To continue to focus on vertical markets, defining deeper and more selective criteria upon which to target customers. To standardise account management processes in order to minimise the risk of customer churn.

·; To increase customer on boarding speed and project throughput, to invest in automation and improve processes and technical capabilities in our delivery teams in order to further decrease the on boarding time for clients, enabling the business to win contracts of increased complexity and size.

H1 2019 activities in respect of the above priorities have included:-

·; Live services migrated away from the final two private cloud data centres planned for closure, with all live private cloud platforms now delivered from two primary data centres.

·; The delivery of a Dynamics NAV upgrade providing the finance team with the latest functionality and management information reporting capabilities.

·; The continued development and roll out of Cherwell, our new ITSM solution. Cherwell incorporates knowledge management functionality, designed to improve customer service and maximise economies of scale.

·; The roll out of a new Mitel call centre solution, opening up the possibility for further automation and integration with Cherwell, designed to improve the end user experience when calling support.

·; As part of the focus on project and process improvement for complex and large-scale technical deliveries, improving management information, resource management and project scheduling the new Head of PMO has:-

o Introduced a new PMO career and competency framework

o Separated the team that implements large scale complex projects from the team that delivers small agile change for current clients

o Introduced new working methods, designed around clearly defined delineation of responsibility and accountability ("RASCI")

o Implemented a new project delivery lifecycle

o Implemented new resource planning capability, delivering longer term resource forecasting and capacity management

o Introduced new governance and reporting

·; Completed the R&D and selection of Nasstar's new cyber protective monitoring partner. This has seen Nasstar begin to implement a service from CrowdStrike, a new protective monitoring and machine learning technology called Falcon Overwatch. This is a completely new next generation anti-virus (AV), Malware and monitoring platform which does not rely on pattern matching and file scanning, but focusses more upon threat and intent, looking at patterns of activity as well as what specific applications are actually doing. Falcon Overwatch provides Nasstar with a team working 24/7 to proactively identify attacks. The partnership with CrowdStrike enhances Nasstar's in-house security resources to pinpoint malicious activities at the earliest possible stage.

Outlook

With the last six months of the final year of our integration strategy ahead, the remaining priority focus is centred on internal system consolidation and process automation. The roll out of the new ITSM system, Cherwell, has further opened up opportunities to deliver greater efficiencies with automated workstreams and we expect the automation work to continue beyond the "Nasstar 10-19" programme.

We have already began formulating the strategy for 2020 and beyond and do so from a strong and secure financial base, with a high level of contracted recurring revenue and a healthy cash position.

The foundation to the strategy moving forward will be to maximise the opportunity provided by our public and private cloud hybrid model, tailored to create vertically focused solutions, targeted at specific vertical markets. We will build further on the capability that the "Nasstar 10-19" programme has given the operating teams in delivering larger and more complex fully managed projects.

The Board remains cognisant to the threats that the continued protracted BREXIT process is having on the economy, and we have seen decision timelines in both new business and current customer projects extend as a result of the continued political and economic uncertainties. In the face of such uncertainty businesses are understandably scrutinising their larger investment decisions more closely which has extended sales cycles.

Despite these challenges Nasstar continues to trade well. We have delivered another six months of solid performance and we progress through the second half with a pipeline of work in progress which will in time add to our recurring revenue base, which puts us on solid foundations for the delivery of full year management expectations

Nigel Redwood

Chief Executive Officer

Financial Review

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 period end were as follows:

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

Revenue for the period was £12.8m representing year on year growth of 2.4%. Gross margin reduced from 67% in H1 last year to 65% , as noted in our annual report gross margin experienced pressure particularly during the second half of 2018 primarily due to increased licence costs and the continued pressure on exchange rates.

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 predominantly 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 generates 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.

Reported profit before tax was £0.4m after exceptional expenses of £128,000 which were largely costs in relation to the closure of two data centres and the continued data centre rationalisation programme. H1 2019 sees the delivery of operating profit for the first time, as Nasstar has historically reported operating losses.

In addition, £1.2m of amortisation of customer contracts has been charged to the Consolidated Statement of Profit and Loss in respect of acquired customer contract intangible assets.

Fixed asset additions for the period were £1m. 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. Depreciation remained consistent with prior period, at 9% of sales.

Alternative Performance Measures

Adjusted earnings per share were 0.27p*** (2018:0.26p***) with a statutory profit/(loss) per share recorded of 0.1p (2018:0.1p loss) as a result of the exceptional items and amortisation charges. Adjusted earnings per share has been calculated as follows:

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, 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.

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 in these interim results as cash less interest-bearing bank loans and borrowings, excluding IFRS 16 lease liabilities for the purposes of comparison to prior periods.

* 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.

Niki Redwood

Finance Director

30 September 2019

Condensed consolidated statement of Profit and Loss and other Comprehensive Income

Condensed Consolidated Statement of Financial Position

at 30 June 2019

Condensed Consolidated Statement of Changes in Equity

Condensed 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 27 September 2019 at 1700.

2. Basis of preparation

These condensed interim financial statements of the Company and its subsidiaries ("the Group") for the 6 months ended 30 June 2019 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 2019. The comparative figures for the 12-month period ended 31 December 2018 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 2018.

The condensed consolidated interim financial statements for the six months to 30 June 2019 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 2019 have been prepared on the basis of the accounting policies expected to be adopted for the year ending 31 December 2019. 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. 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

4. Taxation

The income tax charge for the period is based on the estimated rate of corporation tax that is likely to be effective for the year to 31 December 2019.

5. Dividends

A final dividend of 0.09p in respect of 2018 was paid on 5 July 2019 to shareholders on the register at the close of business on 24 May 2019.

6. Earnings per share

The calculation of the basic profit/(loss) per share for the six months ended 30 June 2019 is based upon the following.

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

7. Availability of audited and interim accounts

Copies of the 2018 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.