NASA.L Regulatory News (NASA)

29 April 2019

Nasstar plc

("Nasstar", the "Company" or the "Group")

Results for the year to 31 December 2018

Nasstar plc; (AIM: NASA), the provider of hosted managed and cloud computing services, is pleased to announce its preliminary results for the year ended 31 December 2018.

Financial Highlights

· Revenue up 7% to £25.7m (2017 restated: £24.1m)

· 91% of 2018 revenues generated from contracted recurring services (2017: 91%)

· EBITDA* up 9% to £5.2m* (2017 restated: £4.8m*)

· Adjusted EBITDA** up 6% to £5.6m** (2017 restated: £5.3m**)

· Adjusted EBITDA** margin 22% (2017 restated: 22%)

· Adjusted earnings per share up 9% to 0.50p *** (2017 restated: 0.46p***)

· Statutory Loss Per Share 0.17p (2017 restated: 0.23p)

· Proposed final dividend of 0.09p per share (2017: 0.06p per share), a 50% increase on prior year

· Year-end Net Cash+ at £1.5m (31 December 2017: Net Cash £1m)

· IFRS 9, 15 and 16 adopted as at 1 January 2018, prior year restated for IFRS 15

* Comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets and amortisation. Refer to Alternative Performance Measures for reconciliation to GAAP measure.

**Comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets, amortisation, share based payments and exceptional items (being costs in relation to reorganisation and data centre closure, share repurchase costs and provisions). Refer to Alternative Performance Measures for reconciliation to GAAP measure.

***Adjusted for amortisation of acquired intangibles, share based payments and exceptional items. Refer to Alternative Performance Measures for reconciliation to GAAP measure.

+ reported on a consistent basis with prior periods excluding IFRS 16 property lease liabilities from debt

Operational Highlights

· Second year of the "Nasstar 10-19" plan, with further investment in key strategic areas designed to:

o Secure future long-term growth

o Speed up delivery and recognition of revenues

o Improve efficiencies

o Retain competitive advantage

o Develop sales pipeline of larger opportunities

· Significant new three year contract win with top 50 UK law firm to deliver a fully managed public/private hybrid cloud solution to 850 users provides clear evidence of the benefit of the "Nasstar 10-19" programme - demonstrating ability to win contracts of increasing complexity and size.

· The implications of IFRS 15 are that contract setup revenues are spread over the full term of the customer contract rather than being recognised at the point of installation. The cost of the install is recognised as an asset with the cost recognised over the contract term in line with revenue. Therefore, in order to expedite short and long-term revenue delivery, the leadership team chose to invest into additional engineering resource.

· As a result of revenue recognition in respect of one-off setup revenues changing on the adoption of IFRS 15 combined with continuing cost pressure associated with licensing, gross margin percentages have reduced in 2018. In response to this, towards the end of 2018 Nasstar initiated further mitigation works designed to improve margins through a combination of pricing strategies and licensing cost reductions through driving further technical consolidation. In addition, the "Nasstar 10-19" programme objective around automation is designed to help further in this area.

· Further data centre rationalisation achieved with closure of the Singapore site. Rationalisation programme expected to complete in 2019 with the reduction of the UK footprint by a further two sites; Microsoft Azure ("Azure") being utilised for the certain workloads.

· Integration of all teams achieved across the Group under "Nasstar 10-19" programme; further operational cost savings will result in 2019 with the end of the London office lease.

· Development of an innovative talent management programme designed to help attract and retain the best talent in the face of an extremely competitive market for technical resource.

· Further investment into product strategy and increased account management capability.

· Principal impact of adoption of IFRS 9, 15 and 16 has been to defer contract set up revenues (and related costs) over the term of the customer contract, resulting in:

o Mitigating actions taken to counter margin impact, including pricing strategies and licensing cost reductions

o Additional investment in engineering resource to expedite short and long-term revenue delivery

o Adjusted EBITDA margin target associated with the "Nasstar 10-19" programme reset to 23% by the end of 2019

· Nasstar listed in the "1,000 Companies to Inspire Britain" for the third year running.

Nigel Redwood, Chief Executive Officer of Nasstar, commented:

"Despite the very challenging macroeconomics of the technical sector, caused by wider economic uncertainties combined with increasing cost pressures and competition, Nasstar has had a positive 2018. The "Nasstar 10-19" programme has focused on key areas to mitigate as much as possible the market pressures seen across the technical sector whilst structuring the business as a single entity.

As a result Nasstar is now better positioned than ever to take advantage of its increased capabilities to deliver larger and more complex projects and the wider acceptance by larger SMEs of cloud as the primary solution for their IT requirements. The securing of the recently announced UK top 50 law firm further demonstrates this capability.

2018 was the second year of our three-year integration strategy known as "Nasstar 10-19" and I am excited by the organisation this strategy has created."

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

I am pleased to report continued improvements in our key KPI's with contracted recurring revenues representing 91% of total revenues demonstrating Nasstar's strong visibility of earnings. Total revenues increased by 7% for the year, which is a very positive outcome and slightly ahead of management expectations. This has been achieved despite the inertia in the wider market place caused by the uncertainties in the economic climate.

The management team's concentration on the "Nasstar 10-19" priorities and commitment to delivering the three-year strategic plan has had a positive effect on EBITDA, which grew at 9%, a slightly faster rate than sales. Continued refinement of the Group strategy has been imperative to ensure Nasstar's capabilities are evolving to maximise the opportunities and mitigate the threats seen in the technical sector. As a result, I am very pleased to see the positive impact this has had on our customer relationships and capability in delivering larger more complex solutions.

Net Cash was in line with management expectations giving me continued confidence to support our progressive dividend policy with a final dividend for 2018 being declared of 0.09p per share (2017: 0.06p), a 50% increase on last year.

The "Nasstar 10-19" strategy has structured the business to be able to more effectively recognise revenue and cost synergies from potential acquisitions. As a result, the Board continues to be alert to further opportunities in this area.

The implications of the decision of the UK to leave the EU are obviously wide ranging, but the most notable one impacting Nasstar is the exposure that the Group has to the US Dollar exchange rate, as previously reported. On a trading front, our target market has predominately been UK head quartered businesses and therefore any immediate impacts of the UK leaving the EU are not expected to be material. We are alert to the fact that the continued delay in the BREXIT process could cause further delays in decision making which may slow new business wins, we also recognise that there is an increased risk of business failure within the customer base. As a result, the Board monitors the situation closely on a monthly basis and is prepared to adjust investment plans if necessary.

The continued development of the single leadership team has seen pleasing advancements in the capabilities of the functional management team driving further organisational resilience. Finally, I recognise that what makes Nasstar great is the combined effort of every member of the team, and I would like to place on record my thanks and appreciation for the hard work and dedication of every member of the Group.

Lord Daresbury

Chairman

Chief Executive's Report

Strategy execution during 2018

Continuing our strategic momentum during the second year of the three-year "Nasstar 10-19" programme, 2018 saw the launch of a number of projects with specific objectives designed to deliver continually improving customer service and efficiency in execution. These comprised:

· Priority objective: A continuation of the single leadership team and single team philosophy for each function across the entire Group with a clear focus on continuing to embed the right management structure acting on the right management information and KPI's. Activities against this objective included:-

o Invested in management and team leader training

o Improved the leadership team's business cadence combining strategy development and tactical execution

o Introduced external management mentoring from an industry and management expert

o Completed full team integration meaning at the end of the London office lease in 2019 it is likely that renewal will not be required, driving further operational cost savings

· Priority objective: A continuation of the consolidation of the technical platforms and the development of a new platform based on the best available hybrid technologies, with the goal of facilitating full technical consolidation of all customer systems across the Group. Activities against this objective included: -

o Closure of Singapore data centre migrating remaining workloads to Azure

o Data centre rationalisation expected to be completed in 2019 with the reduction of the UK footprint by a further two sites;

o Investment into expanding current platform to enable consolidation

o R&D team established to work on next generation hybrid design

· Priority objective: To embed further the Nasstar security-centric culture, placing "security at the heart" of all processes and technologies. Activities against this objective included:-

o Evolved a closer partnership with Nasstar's security partners

o Introduced mandatory multi factor authentication for all new clients and rebuilds

o Rolled out an enhanced internal information security programme training regime

o Employed additional security qualified resource

o Increased investment in intrusion prevention technologies

o Researched and tested intent based and artificial intelligence driven security technologies with a view to adoption in 2019

· Priority objective: We recognise that the management of talent is a significant contributor to the success and health of the business. The competitive landscape for attracting technical skills is more challenging than ever and, as a result, further investment is being made into our training and development strategy, health and wellbeing strategy, employee engagement techniques and apprenticeship programmes. All are designed to help attract and retain the best talent in the industry. Activities against this objective included:-

o Launched a new health and wellbeing programme

o Invested in additional HR resource focused on talent management

o Increased training budget across all technologies

o Launched a new online training platform for employees

o Launched an apprenticeship programme and apprentice's charter

o Launched a school's programme including schools visits, careers support and work experience placements

· Priority objective: Investment into product strategy and service acceptance 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. Activities against this objective included: -

o Head of Commercial Strategy role established to lead service acceptance and vendor management

o Creation of dedicated technical pre-sales team for new services

o Launch of Nasstar's new cloud communications offering based on Mitel's MiCloud Flex solution

o Refined the public/private cloud offering enabling the business to deliver larger and more complex integrations

· Priority objective: Investment in automation and systems integration continued in 2018 with the on-going roll out of Cherwell, our new IT Service Management (ITSM) solution, being pivotal to further integration benefits being recognised. Activities against this objective included: -

o Recruited a new Head of Internal Systems and allocated a budget for an increased team dedicated to system automation

o Created a knowledge management function for the increased use of the proactive knowledge base within Cherwell, designed to improve customer service and leverage economies of scale

o Rolled out an interim resource management solution whilst developing a new Group project management tool which will be fully integrated

o Plans established for 2019 to rationalise the remaining back office systems onto a centralised and fully integrated best of breed solution for each function

· Priority objective: Nasstar will continue to focus on its vertical markets, defining deeper and more selective criteria upon which to target customers. In addition, structured account plans for key customers are designed to ensure our long-term relationships with clients are maintained. Activities against this objective included: -

o Invested in desk-based account management team to proactively manage smaller clients, freeing field-based account managers to focus on key strategic accounts

o Reallocated customer account managers across the customer base to better align with the increased size and capability of the team

o Standardised account management procedures and process across all customers

· Priority objective: We will continue to invest in automation and improved processes and technical capabilities in our delivery teams in order to further decrease the on boarding time for clients. Activities against this objective included: -

o A full review of our install processes was completed

o A new Head of PMO (Project Management Office) was employed, bringing considerable experience of project and process improvement to a complex technical delivery

o Investment made into resource management tools giving a central view of all resource and projects

o Increased the size of the project management team to improve project throughput

· Priority objective: Resulting from the implementation of new financial reporting standards, in particular IFRS 15, the main impact being to defer contract set up revenues (and related costs) over the term of the customer contract, we took a number of specific decisions to assist alongside the many initiatives already implemented under the "10-19" programme, namely:-

o Incremental investment in engineering resource to expedite short and long-term revenue delivery, with the resulting spend deferred for subsequent amortisation over contract duration

o Implementation of new pricing strategies towards the end of the year

o Technical consolidation of all customer systems to drive licence cost savings

Employees

Nasstar recognise that the recruitment, retention and management of talent is a significant contributor to the success and health of the business. As a result, a priority objective of the "Nasstar 10-19" programme focused on developing Nasstar's talent management techniques, which saw further investments being made into training and development strategies, a health and wellbeing strategy, employee engagement techniques and apprenticeship programmes.

The entire team have embraced the opportunities that have developed as the Group has evolved into one integrated operation which has created an organisation that has given team members clear career progression opportunities. Nasstar acknowledge that every one of its employees make a significant contribution to the success of the business and we would like to take this opportunity to thank our loyal and hardworking team of employees.

Outlook

The high quality of earnings and financial security of the Group is underpinned by the high percentage of revenues that are generated by contracted recurring services across Nasstar's customer base (2018: 91%). That said we are by no means complacent and will continue during 2019 to take steps under the "Nasstar 10-19" programme to focus on strategies to mitigate the competitive pressure we experience every day in the context of a dynamic market place.

Our strategic goals for 2019 are well established with delivery in hand, including the ongoing review of our sales pricing policies and license cost consolidation through further technical integration and the continuation of our talent management scheme.

The continuation of our capabilities to win and deliver larger and more complex projects will be key for 2019 and will be evidenced by the implementation of the previously announced 850 user law firm.

The protracted BREXIT process continues to create an uncertain economic climate, the tangible effect of which for Nasstar has been the lengthening of the decision-making process seen in some opportunities in the sales pipeline. The majority of our customers are UK headquartered so are impacted by the continued climate of macroeconomic uncertainty. The Board monitors the situation on an ongoing basis and is prepared to make alterations to strategic plans and investment decisions as appropriate.

In the meantime, we will continue to work hard to differentiate Nasstar by focusing on vertical specialisms, whilst investing heavily in account management capabilities, technical skills and support processes all designed to deliver first class customer service.

We believe that solutions delivered on public and private cloud hybrid technologies will continue to form the basis of a growing market and I therefore believe Nasstar is well positioned, from solid foundations to take advantage of the continuing opportunity.

Nigel Redwood

Chief Executive Officer

Financial review

Key Performance Indicators ('KPIs')

The directors regularly review monthly revenue and operating costs to ensure that sufficient cash resources are available for the continued development and support of its service. Primary KPIs at the year-end were as follows:

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

Revenue for the year was £25.7m representing year on year growth of 7%. Gross margin reduced to 65% from 68%, primarily due to increased licence costs and the continued pressure on exchange rates, therefore the margin on some hosted licences has reduced. An initiative to mitigate this pressure is being undertaken as part of the product strategy work started during the period, but is not expected to bear fruits until next year.

Adjusted EBITDA** margins reflect the "Nasstar 10-19" consolidation programme leveraging our largest cost, the cost of people, together with savings from restructuring and closure of one further data centre, which has allowed investment into other areas such as internal systems, account management and engineering resource, designed to secure future long-term growth and continue to improve efficiencies.

Reported loss before tax was £1.4m (2017: £1.6m) after exceptional expenses of £265,000 (2017: £432,000) which were largely costs in relation to the closure of one data centre and the continued data centre rationalisation programme. In addition, £4.2m (2017: £4.2m) of amortisation of customer contracts has been charged to the Consolidated Statement of Profit and Loss and Other Comprehensive Income in respect of acquired customer contract intangible assets.

As previously reported capital expenditure during 2018 ran at a higher level than 2017 as we continued to deliver our "Nasstar 10-19" initiatives. 2018 has also seen the Group, due to its increased size, move to an alternative VAT payment basis which, as previously reported, has led to a one-off cash outflow. Despite this, year-end net cash rose to £1.5m (31 December 2017: £1m).

Fixed asset additions for the period were £2.7m. 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 signing of new customer contracts. Depreciation increased to 8% of sales from 7% in 2017 due to the increased depreciation charge on adoption of IFRS16.

Monthly recurring revenue at the end of the period is the revenue recognised in the Consolidated Statement of Profit and Loss and Other Comprehensive Income in the final month of the reporting period from the long-term recurring revenue contracts.

Recurring Revenue

Recurring revenue is monthly revenue generated from long term contracts, initial terms being three to five years in length. Nasstar's recurring revenue is 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.

Alternative Performance Measures

Adjusted earnings per share were 0.50p*** (2017 restated: 0.46p***) with a statutory loss per share recorded of 0.17p (2017 restated: 0.23p) 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 year from recurring revenue contracts as a percentage of total revenue.

Net debt is calculated as cash less interest-bearing 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 reorganisation and data centre closure, share repurchase costs and provisions).

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

New IFRS implementation

Impact of adoption of IFRS 15 (Revenue from Contracts with Customers)

IFRS 15 Revenue from Contracts with Customers, is effective for periods beginning on or after 1 January 2018. The standard has been adopted by the Group for the first time in the year ended 31 December 2018. The Group has applied IFRS 15 retrospectively to each prior reporting period and has utilised certain practical expedients available in IFRS 15.

The adoption of IFRS 15 has not altered the total contract value or timing of cashflows. The following are the key areas where the adoption of IFRS 15 has changed historic revenue recognition:

Technical installation, consultancy and set up fees

Under previous accounting policies, revenue from technical installation, consultancy or other one off set- up fees was recognised up-front at the point of implementation. Under IFRS 15, technical installation, consultancy and set-up services that the Group deliver are not considered to meet the criteria to be a distinct performance obligation. The fees associated with these services are therefore combined with other promises in the contract and recognised over the contract term. This has resulted in a reduction of initial revenue previously recognised, an increase in deferred income and an increase in monthly recurring revenue.

In addition, there is a financing component within the set-up fee on three significant customer contracts. This arises due to both the size and payment profile of the set-up fee, compared to the satisfaction of this performance obligation over the life of the contract. The financing component of the fee has been separated from the monthly revenue and recognised separately as interest expense. There has been no change to the net contract value.

Contract fulfilment assets

The costs associated with the design and construction of the technology platform for each contract have previously been expensed to the Consolidated Statement of Profit and Loss and Other Comprehensive Income as incurred. Under IFRS 15, these costs have been capitalised as contract fulfilment assets, within trade and other receivables, and amortised over the life of the contract. The design and construction of the technology platform is undertaken before the performance obligation is delivered to the customer and meet the criteria for capitalisation as a contract fulfilment asset.

Impact of adoption of IFRS 16 (Leases)

IFRS 16 Leases is effective for periods beginning on or after 1 January 2019. IFRS 16 removes the operating and finance lease classification in IAS 17 Leases and replaces them with the concept of right-of-use assets and associated financial liabilities. This change results in the recognition of a liability on the balance sheet for all leases which convey a right to use the asset for the period of the contract. The lease liability reflects the present value of the future rental payments, discounted using either the effective interest rate or the incremental borrowing rate of the entity.

Nasstar plc has early adopted IFRS 16 for the year ending 31 December 2018, applying the cumulative catch up transition approach.

Impact of adoption of IFRS 9 (Financial Instruments)

In adopting IFRS 9, the only changes made from the previous reporting period is in relation to the impairment of financial assets. The Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that consider current and forecast credit conditions as opposed to relying on past historical default rates.

Dividend

A final dividend for 2017 of 0.06p per share was paid on 9 July 2018.

It is proposed to pay a final dividend of 0.09p in respect of 2018 on 5th July 2019 to shareholders on the register at the close of business on 24th May 2019, subject to approval at the Company's Annual General Meeting on 10th June 2019. In accordance with accounting standards, this dividend is not accounted for in the financial statements for the period under review as it had not been committed as at 31 December 2018.

The Board has adopted a progressive dividend policy, subject always to the free cash generation of the Group and the investment required to deliver sustainable growth in revenues and profits.

Niki Redwood

Finance Director

Consolidated Statement of Profit and Loss and Other Comprehensive Income

for the year ended 31 December 2018

Consolidated Statement of Financial Position

at 31 December 2018

Statement of Changes in Equity

Group

Other Reserves

Statement of Cash Flows

for the year ended 31 December 2018

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 AIM Market (AIM: NASA). Further copies of these results, and the full financial statements when published, will be available at the Company's registered office: Datapoint House, 400 Queensway Business Park, Queensway, Telford, Shropshire, TF1 7UL or on the Company website at www.nasstar.com.

2. Basis of preparation

These condensed preliminary financial statements of the Company and its subsidiaries ("the Group") for the year ended 31 December 2018 have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs). The same accounting policies, presentation and methods of computation are followed in both of the preliminary condensed sets of financial statements as applied in the Company's latest audited financial statements for the period ended 31 December 2017, where new IFRSs have been applied the impact has been disclosed.

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 £984,000. At the date of the financial statements the Group's ability to continue as a going concern reflect the net funds available to the Group at the period end, and the forecast for the following 24 months. On the basis of detailed working capital projections, in the opinion of the directors, the financial statements have been properly prepared on the assumption that the Group is a going concern.

Availability of audited accounts:

Copies of the 2018 audited accounts will be available later today on the Company's website (www.nasstar.com/investors) for the purposes of AIM Rule 26 and will be posted to shareholders in due course.

Forward-looking statements:

This report may contain certain statements about the future outlook for Nasstar plc. Although the directors believe their expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

Initial application of IFRS 15

IFRS 15 Revenue from contracts with customers, has been adopted by the Group in the current year, with a date of initial application of 1 January 2018. IFRS 15 requires recognition of revenue to depict the transfer of promised goods or services to customers, in an amount that reflects the consideration to which Nasstar expects to be entitled in exchange for those goods and services.

The Group has applied IFRS 15 fully retrospectively, restating the comparatives for year ending 31 December 2017 and adjusting opening reserves at 1 January 2017. The following practical expedients have been used on transition to IFRS 15:

· contracts that were completed at 1 January 2017 have not been restated;

· contracts which start and end in the same annual reporting periods have not been restated; and

· for all reporting periods prior to 2017, the group has chosen to not disclose the amount of the transaction price allocated to the remaining performance obligations and an expectation of when it expects to recognise that revenue.

The impact of adoption of IFRS 15 for each financial statement line item affected is set out below, along with an explanation of the key adjustments.

2017 Consolidated Statement of Profit and Loss

Consolidated Statement of Financial Position at 31 December 2017

Consolidated Statement of Financial Position at 1 January 2017

Consolidated Statement of Changes in Equity

No reconciliation of the restated consolidated statement of changes in equity has been presented as the only changes to this primary statement are:

· Recognition of restated retained earnings at 1 January 2017, as presented in the restated Consolidated Statement of Financial Position as at this date.

· Recognition of the restated profit for the year ending 31 December 2017 as presented in the restated Consolidated Statement of Profit and Loss and Other Comprehensive Income.

Consolidated Statement of Cash Flows

There has been a change in net cash from operating activities and cash flow from financial activities, because of the financing element associated with certain implementation fees.

In addition, there are certain re-classifications in the components of cash flow movements:

· Contract assets have been recognised at 1 January 2017 with amortisation of these assets recorded in the Consolidated Statement of Profit and Loss and Other Comprehensive Income for the year ending 31 December 2017.

· The movements in cash flows from operating activities reflects the non-cash movement recorded in the Consolidated Statement of Profit and Loss and Other Comprehensive Income.

· The Group has restated debtor and creditor balances in the Statement of Financial Position. The movement in cash flows from operating activities reflect the relevant cash and non-cash movements in reclassified line items.

Explanation of significant areas for adjustment

The significant areas of adjustment are in respect of:

· The spreading of revenue associated with technical installation and consultancy, which is not a separate performance obligation under IFRS 15 and is combined with other deliverables in the contract. This revenue was previously recognised up front under IAS 18. The recognition of this revenue over the life of the contract has resulted in a decrease in revenue at the start of the contract and a corresponding increase in deferred income.

· The recognition of a financing component for contracts with a material up-front fee for technical installation and consultancy.

· Recognition of contract fulfilment asset in respect of the costs associated with the design and construction of the technology platform. These costs are then amortised over the life of the contract.

· Reclassification of sales commission from trade and other receivables to contract assets.

Initial application of IFRS 16

IFRS 16 Leases, is effective for periods beginning on or after 1 January 2019. IFRS 16 removes the operating and finance lease classification in IAS 17 Leases and replaces them with the concept of right-of-use assets and associated financial liabilities. This change results in the recognition of a liability on the balance sheet for all leases which convey a right to use the asset for the period of the contract. The lease liability reflects the present value of the future rental payments, discounted using either the effective interest rate or the incremental borrowing rate of the entity.

The group has early adopted IFRS 16 for the year ending 31 December 2018, applying the cumulative catch up transition approach. The adoption of IFRS 16 has resulted in the recognition of a lease liability and right-of-use asset of £1.2m, relating to property leases, at 1 January 2018, an increase in depreciation of £223,000, interest of £49,000 and a decrease in rent charges of £263,000. Adoption of IFRS 16 has not led to any adjustments to opening reserves.

The weighted average incremental borrowing rate at transition was 4.44%.

Initial application of IFRS 9

IFRS 9 is effective as at 1 January 2018 and has been adopted from that date. The impact on reserves and increase in receivable provision at adoption was £27,000.

3. Segmental analysis

A segment is a distinguishable component of the Company that is engaged in providing products or services in a particular business sector (business segment) or in providing products or services in a particular economic environment (geographic segment), which is subject to risks and rewards that are different in those other segments.

The Group operated in the period in one segment, the provision of IT services, and in one market, the United Kingdom. The disclosures required by IFRS 8 relating to profits, losses, assets and liabilities of the segment are therefore shown by the financial statements as a whole.

4. Exceptional items

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

Reorganisation costs relate to costs incurred following the acquisitions and subsequent consolidation strategy led by the "Nasstar 10-19" programme, details of which are set out in both the Chairman's statement and the Strategic Report.

5. Loss per share

The calculation of the basic loss per share arising is based upon the loss after tax attributable to ordinary shareholders of £984,000 (2017: £1,344,000) and a weighted average number of shares in issue for the year of 574,359,318 (2017: 576,360,096).

The diluted loss per share in 2018 and 2017 is the same as the basic loss per share as losses have an anti-dilutive effect.

6. Dividend

Dividends of £345,000 (2017: £299,000) were recognised in the financial statements as distributions to equity shareholders. The Company is proposing a final dividend of 0.09p in respect of the year ended 31 December 2018.