Nasstar plc A positive 2018 despite challenging backdrop

Nasstar plc; (LON: NASA), the provider of hosted managed and cloud computing services, today announced its preliminary results for the year ended 31 December 2018.

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.”

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.

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