Here you will the details of our previous years business review.
Results for the year to 31 December 2016
Nasstar PLC (“Nasstar”, the “Company” or the “Group”; stock code: NASA), a provider of hosted managed and cloud computing services, results for the year ended 31 December 2016.
● Relaunched Nasstar brand, with new look and feel, better reflecting the Group’s capabilities; subsidiary brand names dropped.
● Successful acquisition of Modrus in September 2016:
● Group technical capabilities broadened
● Further vertical market diversification delivered
● Group round the clock capabilities bolstered with 24x7 support service delivered from New Zealand
● Successful cross-selling already in evidence
● Integration plan underway with wider integration plan due in 2017
● The maturing of the Group’s public cloud capabilities saw Microsoft award Nasstar a number of Gold competences relating to Office 365 (“O365”) and Azure.
● Became Microsoft SCA accredited – Shared Computer Activation accreditation enables Nasstar to integrate O365 fully with hybrid platforms where both public and private cloud platforms are integrated in the delivery of the managed service to the customer. Nasstar are one of only four other Microsoft partners that hold such accreditation.
● Continued to pioneer the public and private cloud hybrid solution, with a high proportion of the recurring revenue growth including hybrid solutions.
● Conclusion to year-long Microsoft SPLA audit.
● Significant external industry validation with the award of “Citrix Networking Partner of the Year”.
● Cyber security capabilities enhanced by partnering with Falanx Cyber Defence (“Falanx”) for protective monitoring services and cyber incident response support.
● Right sizing of the plc Board of Directors, leaving a balanced Board of Chairman Lord Daresbury, CEO Nigel Redwood, FD Niki Redwood and non-executive Directors Nick Bate and Mike Read.
I am very pleased that the team has been able to continue to deliver organic growth whilst continuing with our acquisitive strategy in 2016. When removing the effect of the Modrus acquisition, the underlying growth in monthly recurring revenue was 8% for the year, which is healthy growth for a managed service provider, comparing favourably with our peers. If you then combine the acquisitive strategy, recurring revenue grew by 54% for the year, an exciting number that further endorses the strategic plans we began in 2014. Recurring revenue represents 88% of total revenues providing excellent earnings visibility and a solid base for the strategic direction of the business.
The implications of the BREXIT process and resultant decision of the UK to leave the EU were wide ranging, but in particular we saw two direct impacts. Uncertainty in the lead up to the vote and subsequent result has seen business decisions being delayed, which elongated the timings of sales cycle decision making by potential clients. However, I feel Nasstar weathered that in 2016 and I hope for less uncertainty in 2017. Secondly a direct consequence of the vote was a significant increase in our cost of sales due to the weakening of the Pound against the US Dollar as Nasstar acquires licenses from various vendors in US Dollars which forms a large proportion of our cost of sales. Despite that, Gross Margin was reported to be 69% of sales, a 1% reduction on 2015, due to emphasis on cost reduction and control in other areas of cost of sales helping to offset the impact of the exchange rate pressure.
EBITDA of £3.5m (2015: £2.3m) and full year adjusted EBITDA of £3.8m (2015: £2.9m) were in line with expectations. This was achieved despite a degree of underperformance at VESK which was offset by robust trading from the remaining subsidiaries. The Directors however, had built specific protection in the relevant acquisition agreement which comprised performance-related deferred consideration which was not triggered and the ability to claw back initial consideration shares. Such protection demonstrates a mature and cautious approach to acquisition activity.
As a result of bank covenant leverage targets being surpassed it was pleasing to see the interest margin on our fixed term loan reduce by 0.2% with Net Debt and cash at the end of the year being on target.
The appointment in January 2016 of David McCarthy as Managing Director has proven worthwhile. David has settled in very well and has been instrumental in driving operational change and planning for our integration strategy. At a non-executive level we have rationalised the plc Board with Angus McCaffery and David Redwood both stepping down during the year. I would like to thank both for their valued contribution to Nasstar plc over the years.
We continue to work very closely with Microsoft and Citrix, which was demonstrated by our winning in 2016 of the “Citrix Networking Partner of the Year”, a symbolic third party validation of our growing technical capabilities.
Our progressive dividend policy has continued with a final dividend for 2016 being declared of 0.052p (2015: 0.045p) per share, a 16% growth on our maiden dividend declared last year. Furthermore, the Board have a desire to further accelerate the dividend growth in 2018 and beyond.
Whilst much remains to be done in terms of delivering on the various initiatives we have underway for 2017 and beyond, it has been particularly pleasing to see sales progress with new contracts of note being added during 2017. We do recognise however that the competitive landscape in our sector continues to evolve and therefore protection and retention of our current recurring revenue contracts is key to delivering growth and requires more attention than ever. The “Nasstar 10-19” programme is an important part of our response to this market dynamic.
Finally, the dedication, hard work and enthusiasm of all of our staff is the backbone of all we achieve and underpins the success of the Group. I would like to express my gratitude to all new and old team members alike.
Review of the business
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. The Group provides a true end to end service for clients providing 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 and Bournemouth whilst 24 x 7 support is delivered from its Auckland office in New Zealand. Nasstar is an accredited Microsoft Gold Partner, has G-Cloud 7 status, is the 2016 Citrix Networking Partner of the Year and is certified to ISO27001.
Nasstar specialises 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, O365, 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 stronger long term recurring revenue relationship with clients.
The Group holds a tier one agreement to sell Microsoft’s cloud offerings known as O365 and Azure. The programme 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. In addition Nasstar is Shared Computer Activation (SCA) accredited. This SCA accreditation enables Nasstar to integrate O365 fully with hybrid platforms. Nasstar are one of only four other Microsoft partners that hold such accreditation today. 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 Programme (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, Nasstar has built strong relationships with the specialist software providers (authors), thus enabling it to offer clients a one-stop solution for all their essential applications.
Nasstar recognises that cyber security continues to be a rapidly changing landscape and therefore bolstered their internal capabilities by partnering with specialist in this area Falanx. Falanx supply protective monitoring services and cyber incident response support for Nasstar as well as additional consulting services for customers. Cyber Defence as a Service for clients as a result is a growing service line adopted by the customer base.
2016 saw the successful execution of the enhanced marketing plan which saw the relaunch of the Nasstar brand and consolidation of the e-know.net and Kamanchi names. This has supplied a proven route for brand consolidation which will see the Modrus and VESK names being dropped in H1 2017. The aim of the brand consolidation was to maximise the respective strengths of the combined offerings 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 Group continues to specialise in vertical markets widening the sector focus with the acquisition of Modrus which brought with it capabilities and customers in property services and media, adding to the already established sector specialisms of legal, recruitment and finance.
The acquisitive strategy of Nasstar has been driven by the desire to add service portfolio capability and as a result Nasstar can now deliver an end to end managed service. From the client computer on the end users’ desk, through the network, telephony and hosting of applications and data, progressing up through the value chain to application consultancy services and development.
Clear focus on creating long standing relationships with clients continues, and is enhanced by the strategy to add more value for a client during the life of a contract through the delivery of more services to meet the client’s changing needs. To this end, in 2017 we will be investing in the Business Relationship Management function in order to ensure the complete service portfolio of the entire Group is available to all clients.
The investment into management resources and skill sets during 2015 and 2016 to structure the business more effectively and lay the foundations for future growth has been successful. The addition of David McCarthy as Managing Director in particular has enabled further focus to be channelled on the development and execution of Group strategy with 2017 being a key year for strategic integration and synergy realisation. To this end we have launched our “Nasstar 10-19” programme designed to bring about increased strategic focus across the entire Nasstar business to achieve specific goals by the end of 2019.
This initiative focuses on the following key strategic integration and synergy realisation objectives:
● Align the whole team to a common mission: clear goal, clear priorities
● Develop a common Group wide set of KPI’s and governance, ultimately designed to increase the Adjusted EBITDA percentage from 20% to 25% by the end of 2019.
● Develop a single and excellent approach to customer service that is continually improving that directly contributes to reducing churn through increased customer satisfaction.
● Consolidate technology, licences and platforms, which includes the consolidation of data centres and technical platforms to save costs and increase stability.
● Integrate and streamline teams and reporting structures to increase revenue per head by 25%.
● Automate to facilitate efficiencies and realise economies of scale to:
- automate the key manual processes;
- thus breaking the link between revenue and people
- whilst reducing the time between contract signature and revenue recognition.
● Refine the market proposition and service pillars to maximise the fit with our target customers and segments
● Create a structured and effective sales engine that:
continues to meet or beat current organic growth rate;
has a sales mix that maintains at least 85% recurring revenue;
delivers industry focused solutions, combining private and public cloud;
- continues to add key customer contracts each year.
Although the focus in 2017 is on the integration plans previously mentioned, the Group continues to review possible acquisition opportunities as they arise, although always with a clear focus on the assessment of strategic rationale.
We completed the acquisition of Modrus in September 2016 for a total consideration of £13.0 million. £11.7 million of the consideration was paid in cash with the balance satisfied by the issue to the vendors of 17,333,334 new Ordinary Shares. A placing at 7.5p per share to raise £13.3 million funded the cash consideration, with the excess amount raised used to fund deal costs (£0.6 million) and reduce Group debt (£1.0 million).
The focus on specific vertical markets has been a key element to the Group since the acquisition of e-know.net (January 2014), whose focus on regulated businesses (in particular the legal, financial services and recruitment sectors) had been instrumental in its success. Regulated sectors continue to be viewed by the Board as being particularly receptive to hosted IT solutions; the burden of regulation and compliance on these sectors makes them receptive to the high levels of functionality and security provided by an outsourced solution.
The acquisition of Kamanchi (July 2014) added to the Group’s expertise in the recruitment sector, whilst the acquisition of VESK (October 2015) added to the Group’s presence in the legal and logistics sectors as well as bringing with it G-Cloud accreditation and a Singapore data centre.
The acquisition of Modrus continued in the same vein, adding breadth as well as scale to the Group, which the Directors believe is important in building resilience to future earnings.
Modrus has high levels of recurring revenues (approximately 86 per cent.), long contract duration (typically three years) and low customer churn making it highly complementary to Nasstar’s quality of earnings.
The acquisition of Modrus built scale in Nasstar’s Recruitment and Financial Services segments and added complementary exposure to vertical markets in which the Group was not currently represented, including Media, Property Services and software vendors.
As well as bringing with it additional technically able staff, the Directors believe that 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.
Trading within Modrus has been in line with Board expectations since acquisition and integration is well under way. We were pleased to report in January that Modrus’ increased capabilities and technologies in the telephony and networking space had already been successfully cross-sold into the wider Group's customer base and we continue to identify areas in which long term synergies can be achieved.
Performance of the VESK acquisition, as reported previously, fell short of ambitious 2016 targets. The Directors had built specific protection in the relevant acquisition agreement. The protection comprised performance-related deferred consideration of up to £318,750, which has not been triggered, together with a right to claw back initial consideration in the event of further EBITDA shortfall. Accordingly, by agreement between the relevant parties, claw back will take place in the sum of £461,960 in total, which is to be satisfied by the cancellation of 5,279,544 of the initial consideration shares allotted at the time of VESK’s acquisition in October 2015.
This process will be structured as a buy-back (and subsequent cancellation of the relevant shares) by the Company, of respective holdings of Nasstar shares out of distributable reserves in consideration, in effect for the write- off of the claw-back amount due.
In order to give effect to the above an ordinary resolution will need to be passed by shareholders. The appropriate resolution will be put to members at the Company’s AGM on 25 May 2017. In the intervening period the affected shareholders have agreed to waive any dividends declared and also to refrain from voting, in respect of the relevant ordinary shares.
James Mackie left the Group in January 2017 and his position as Head of Sales for the Group was filled by the internal promotion of Mark Flynn, who previously led the sales function at Modrus. Mark reports directly to Nigel Redwood.
Gross margin reduced to 69% from 70% reflecting the increased cost of licences bought in USD due to the weakening of the pound against the dollar as a direct result of BREXIT.
Adjusted EBITDA margins reflect the investment made during the year into the enhanced marketing plan and name consolidation, together with the management investment noted last year. This investment into management demonstrated the commitment to investing in management resource and skill set to structure the Group more effectively and facilitate the integration plans for 2017.
Reported loss before tax was £1.8m after exceptional expenses of £207,000 which were costs in relation to acquisitions.
The Microsoft SPLA audit was a significant process covering 5 years of SPLA declarations, much management time was expended in providing assistance to the auditors and we were pleased to bring the process to a conclusion in December 2016.
In addition £3.4m of amortisation of customer contracts has been charged to the Consolidated Statement of Profit and Loss in respect of acquired customer contract intangible assets, the increase of £950,000 compared to prior year is due to a full year of amortisation costs in respect of the VESK intangibles and four months of amortisation of the Modrus intangible assets.
Adjusted earnings per share stood at 0.6p (2015: 0.7p) with a statutory loss per share recorded of 0.3p (2015: 0.1p) as a result of the exceptional items and amortisation charges referred to above.
Customer contracts were valued at the time of each acquisition to assess their fair value. The fair value of Modrus customer contracts at acquisition was £6.2m resulting in goodwill on acquisition of £7.3m.
Leverage targets, in relation to the bank loan raised to fund the VESK acquisition, were met and interest margin reduced to 2.75% from 2.95% as a result.
The Modrus acquisition was funded by the placing of 177,333,334 ordinary shares at 7.5p per share raising £13.3m of which £11.7m was used to fund the cash consideration for Modrus.
The Group showed a net debt position of £2.8m at the year end with £3m cash in the bank.
Fixed asset additions for the year were £2.2m 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 renewal of the Group’s largest customer contract. As a result depreciation as a percentage of sales increased moderately to 7% from 6% last year. It was also necessary to restate Modrus’ fixed asset book values to correct historic treatment of fixed assets, this was also a contributing factor to the increase in depreciation charge for the year.
The Group notes IFRS15 Revenue from Contracts with Customers which is to be adopted for accounting periods beginning on or after 1 January 2018. The Group also notes IFRS 16 Leases which is to be adopted for accounting periods beginning on or after 1 January 2019.
A detailed review is underway to assess the impact of these new standards, at this time it is not practical to provide a reasonable estimate of the effect of implementation.
Alternative performance measures
In order to provide useful information to users of these financial statements about the Group’s performance and 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 in the Annual report and financial statements, together with an appropriate reference to IFRS measures presented in the IFRS financial statements, where applicable.
Monthly recurring revenue run rate represents the monthly revenue contracted under managed service contracts with clients and 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.
Underlying growth is growth achieved compared to the previous year, excluding the impact of acquisitions, in both periods, to provide clearer comparative information with regard to organic performance.
Recurring % 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 as cash less interest bearing loans and borrowings.
*adjusted for amortisation of acquired intangibles, share based payments and exceptional items
A final dividend for 2015 of 0.045p per share was paid on 2 July 2016.
It is proposed to pay a final dividend of 0.052p in respect of 2016 on 10 July 2017 to shareholders on the register at the close of business on 9 June 2017, subject to approval at the Company’s Annual General Meeting on 25 May 2017. 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 2016.
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.
The Group recognises the importance of environmental impact management and is committed to playing a part in helping society address climate change and as a result has an Environmental Impact Management System. The primary purpose of this is to measure and manage the environmental impact of the business.
The Group is committed to meeting the requirements of Environmental Impact Management good practice and is continually seeking ways in which it can improve. Everyone within the Group has an important role to play to ensure that the environmental impact of the business is kept to a minimum and each member of staff has their own specific tasks and responsibilities to that end.
The Group expects the business’s core behaviour of professionalism and customer focus to be reflected in the Environmental Impact Management processes and procedures.
Datapoint House, the Group’s primary, state of the art, data centre is one of the most eco-friendly and advanced facilities in the UK, incorporating leading technologies for free cooling and efficient operation. The Group takes a comprehensive approach to measuring its PUE (Power Usage Effectiveness) and is constantly reviewing technologies that can further increase the efficiency of the facility to drive the PUE rating down further. This is demonstrated by the recent deployment of extra intelligence to the air conditioning cooling systems in the primary data centre which has seen the PUE rating improve from 1.7 to 1.6.
Recycling is enforced company wide as is WEEE (waste, electrical and electronic equipment) disposal, with this also offered as a service to clients. The Group encourages eco-friendly methods of commuting for its staff through optional cycle to work and bus pass schemes.
Principal Risks and Uncertainties
Competition and product development
The Group operates as a provider of hosted managed and cloud computing services. Whilst the Board considers this to be a market with considerable growth potential, there is a risk that the Group’s business will not meet current expectations if the sales assumptions are incorrect. The market for hosted desktop, cloud computing services and hosted exchange is competitive and, given that the Board believes that the market is fast-growing, it is likely that competition will increase, which could affect the Group’s sales performance. Large and well-funded businesses may decide to enter the market and this could affect the Group’s ability to achieve its sales forecasts. As the market becomes more competitive and commoditised there is a risk that the Group’s gross profit margin per user may reduce, and there is a risk that customer churn will increase as a result of competition. As a mitigation to this risk the Group in 2016 consolidated to a single brand name and embarked on a significantly enhanced marketing plan. The aim of the brand consolidation is to maximise the respective strengths of the combined offerings and to help differentiate the full stack of services that the Group can offer. The directors monitor the rate and causes of churn and implement strategies with the aim to minimising customer churn. Finally the investment into R&D and innovation ensures the Group’s solutions evolve so customers are offered a mix of public and private cloud based services that, when, combined differentiate the solution from the competition thus helping protect overall gross profit margins.
Credit risk arises principally from the Group’s trade and other receivables. It is a risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk equals the carrying value of these items in the financial statements. The Group uses credit reference software which monitors customer’s credit risk and has strong credit control procedures in place, with regular review by management of receivable balances.
Liquidity risk arises principally from the Group’s management of working capital and the amount of funding committed to its software and hardware platforms. It is a risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The principal liabilities of the Group and company arise in respect of operational and administrative expenditure, trade and other payables and the servicing of interest bearing debt which comprises lease finance obligations and bank loans. Trade and other payables are all payable within four months.
The Board receives cash flow projections on a regular basis as well as information on cash balances.
Interest rate risk
The Group is exposed to interest rate risk on bank loans as bank interest rates change, this is monitored regularly by the Board. The Group is also exposed to interest rate risk in respect of surplus funds held on deposit. The Board does not currently undertake hedging arrangements, although interest rates and exposure to fluctuations are regularly reviewed by management.
The Group purchases licences from various software vendors in USD and is therefore exposed to risk from currency fluctuations. The Group undertakes a limited number of forward contracts for payments in USD. The timing and amounts of payments are known in advance enabling forward contracts to be used to manage foreign exchange risk. At 31 December 2016 the Group held $346,000 and €131,000 in cash balances.
A small number of European customers are invoiced in Euros. The risk from currency fluctuation is managed by protection within the customer service terms and conditions enabling the Group to adjust pricing with any significant currency fluctuation.
The Group acquires Microsoft licensing via the Service Provider Licensing Agreement (SPLA) programme. Such licensing models see the Group declare license volumes and versions on a provider declaration basis which is subsequently audited approximately every 5 years. Microsoft have the ability to change pricing and usage rights on a regular basis which can directly impact the cost base of a solution. The Group annually review the usage rights of each product and rely on an internal database to interrogate Active Directory to report license usage by user. Such license declaration costs were equivalent to 16% of revenue for the year ended 31 December 2016.
The Group is pleased to report that during 2016 Nasstar Group Limited concluded a full five year Microsoft SPLA audit.
Nasstar recognise that the threat landscape from cybercrime is ever changing and mitigation techniques need continual appraisal. This is further evidenced by a report published in January 2017 by Kroll, the risk management company, that stated the number of UK businesses affected by corporate fraud and cybercrime has risen by 16% over the past year. Nasstar therefore recognise the importance of having systemic processes in place to prevent, detect and respond to the risk of cybercrime. Therefore to enhance Nasstar’s capabilities in this area, the Group has partnered with Falanx consuming protective monitoring services and cyber incident response support services from them.
Acquisition and integration risk
The Group has continued with the planned strategy of augmenting organic growth with acquisitions during the year, the Group recognises that acquisitions may not always realise the benefits expected at the time of completion. Furthermore a failure to successfully integrate acquisitions may impact on Group profitability and cause operational disturbance. The Group mitigates this risk by undertaking detailed due diligence and ensuring adequate protection in the acquisition agreements by undertaking warranties and indemnities from vendors and mechanisms for adjustment of the purchase price if trading is not in line with expectations, whenever possible.
Concentration in a limited number of clients carries the risk that fluctuations in revenue could be significant. The Group continues to develop a strong pipeline to broaden the customer base. Time from acquisition of a new customer to recognition of the revenue from that customer can be substantial due to the complexity of solutions particularly for larger customers. A dedicated project management office has been created to manage and monitor the progress of implementations of new customers and significant delays reported to management. Protection is also built into customer contracts to ensure customer caused delays do not impact on revenue recognition.
We would like to take this opportunity to thank our loyal and hardworking team of employees. Our business is built on relationships with people and the stability of our teams. The Group recognises that success is dependent on the experience, motivation and skill of its people. It is recognised that staff retention is key, and therefore our core values, employee of the month and year schemes, benefit packages, training and career development opportunities ensure that employees are supported and motivated for success.
At the end of the financial year, the number of employees of the Group was as follows:
Whilst we continue to assess the wider economic implications of the UK’s decision to leave the EU the board recognises the continued uncertainty in the macro economic outlook as well as the adverse impact that continues to have on Sterling, and thus a proportion of Nasstar’s cost of sales. The Board does however believe the Group remains well positioned, benefiting 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 likely be able to achieve internally.
Nasstar continue to see an organic growth opportunity within the market place for managed service solutions based on public and private cloud hybrid technologies and feel that the Group continues to be well positioned to take advantage of that opportunity. Organic growth, combined together with the integration and rationalisation programmes being prioritised in 2017 should continue to deliver strong catalysts for improvement in shareholder value.