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Business Review

Here you will the details of our previous years business review.

Results for the year to 31 December 2015 11th April 2015

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 2015.

Financial Highlights Nasstar

Key Performance Indicators Nasstar

Operational Highlights

• Three year contract renewal with the Group’s largest customer, Pertemps Network Administration Ltd, securing £1 million per annum of recurring revenue. • Successful acquisition of the VESK Group, integration progressing to plan.

• Further operational efficiencies achieved with the consolidation of Nasstar and Kamanchi premises in London.

• Continued innovation to maintain the portfolio’s competitive edge, including the successful integration of Microsoft’s public cloud (Office 365) with the Group’s private cloud solutions.

• Joined Microsoft's Cloud Solution Provider (CSP) program.

• Successful tender for G-Cloud 7 status, the latest iteration of the Government Digital Marketplace framework, opening potential for valuable new vertical markets.

• Included in the third edition of London Stock Exchange’s landmark “1,000 Companies to Inspire Britain” report.

• Initiation of an enhanced marketing plan for 2016 to maximise organic growth opportunity:

• Significant strengthening of management in support of this initiative, including a Group Sales Director (James Mackie), Head of Sales (Frank Ashworth) and Chief Marketing Officer (Guise Bule)

• New vertical markets to be targeted

• Brand consolidation exercise underway - single brand re-launch in 2016

• Identified and recruited an experienced Managing Director, David McCarthy, to join the Group in Jan 2016 strengthening the day to day management enabling the CEO to increase focus on Group Strategy.

Nigel Redwood, Chief Executive Officer of Nasstar, commented:

“2015 saw the completion of the integration of Kamanchi into the Group whilst further operational efficiencies were achieved with the consolidation of our London premises. All contributed positively towards another year of growth and we are particularly pleased to be declaring today Nasstar’s first ever dividend with a proposed payment of 0.045p per share.

We were delighted to add VESK to the Group in the final quarter of the year and welcome its founder James Mackie as our Group Sales Director, whilst in December I was very proud to secure the three year renewal of our largest client meaning both top 5 clients that entered into renewal negotiations have signed new agreements.

With cloud services now the de facto approach for SME’s the board has initiated an enhanced marketing plan with a view to maximising the organic growth opportunity; this will see the Group target new sectors to complement its leading position in the legal and recruitment verticals and ever developing financial sector. The new management appointments we have made to assist with this process have all now started with the Group and we look forward to their contribution.

I welcome our new Managing Director to the Group and look forward to the launch of a single unified brand.

Our four operating businesses provide us with a strong platform for continued organic growth which we will continue to augment through selective acquisitions. With a proven track record for identifying and integrating strategic acquisitions and a clear focus on the organic opportunity we look forward to 2016 and beyond with optimism.”

Chairman’s Statement

2015 has seen the continuation of the strategy that we initiated with the acquisition of in January 2014. This has transformed the Group into a commercially focused, profitable and sustainable business that is growing both organically and through selected acquisitions. The team has fully integrated the two businesses acquired in 2014 and further added to the Group in 2015 with the successful acquisition of VESK.

The respective strengths of the acquired businesses have ensured that we have been able to unlock cost synergies and benefit from cross-selling opportunities. The resulting financial performance of the Group is highly pleasing and greatly to the credit of all concerned. Evidence of the success of the last two years, as well as our confidence in the future, is demonstrated by the Board’s declaration today of Nasstar’s maiden final dividend of 0.045p per share and the adoption of a progressive dividend policy.

The continued focus on cost consolidation programmes has seen adjusted EBITDA grow at a quicker rate than revenue, such growth being 27% and 23% respectively. With the integration of Kamanchi completed in the year we have now embarked on an enhanced marketing plan with a view to capitalising on what remains a clear market opportunity. We have made some important hires into the Group to assist with this process, including the appointment of a new Managing Director in January 2016.

The recurring revenue base, which accounts for 89% of total revenue, continues to underpin the Group’s financial stability and visibility of earnings and I was delighted that monthly recurring revenue exceeded the £1m threshold during 2015, finishing the year on £1.2m per month. The Group’s cash generation has been very strong and it was pleasing that net debt at the year end of £5.1m was ahead of our earlier expectations.

The team have begun to target new vertical markets and as part of this strategy Nasstar successfully tendered for G-Cloud 7 status, the latest iteration of the Government Digital Marketplace framework. This complements VESK’s original G-Cloud 1 accreditation and opens up the services of the wider Group to prospects in the public sector, such as local authorities, schools and other central and local government organisations.

To further complement the market diversification I was pleased to see customer wins outside of our traditional sector focus of legal, finance and recruitment with the signing of some prestigious new customers such as the Royal College of Radiologists and The Royal Aeronautical Society.

I was very proud that Nasstar were included in the third edition of London Stock Exchange’s landmark “1,000 Companies to Inspire Britain” report. I recognise that the success of the Group however is only made possible by the dedication and hard work of all of our staff, and I would like to express my gratitude to all new and old team members alike.

Lord Daresbury

Chief Executive’s Report

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. This provides them with enhanced IT performance and greater cost control over their IT function. The Group owns its primary data centre, is an accredited Microsoft Gold Partner, officially certified against the Cloud Industry Forum Code of Practice, has G-Cloud 7 status and is certified to ISO 27001.

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

The Group holds a tier one agreement to sell Microsoft’s cloud offering known as Office 365 (O365). The program enables the Group to supply O365 on a truly flexible per user per month model, with the Group contracting with the end user and retaining full invoicing and customer support. This has enabled the Group to further integrate the O365 offering into its hosted desktop solution, embracing the innovations of O365 as a clear differentiator over its competitors.

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


During 2015 a detailed sales and marketing plan was developed following the addition in the final quarter of a new Head of Sales, Chief Marketing Officer and Group Sales Director. As a result, in 2016 the Group will see all operating divisions consolidated into one brand and investment made into a single fully integrated sales and marketing plan. The aim of the brand consolidation is to maximise the respective strengths of the 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 will continue to specialise in vertical markets, though we plan to widen the specialist areas by capitalising and building on our collective experience and establishing knowledge and expertise in new vertical sectors.

As part of the strategy to expand into new vertical markets we successfully tendered for G-Cloud 7 status, the latest iteration of the Government Digital Marketplace framework. The Group also secured some prestigious new clients in the second half of the year outside of its traditional sector focus, including the Royal College of Radiologists and The Royal Aeronautical Society, further demonstrating the expanded capability of the Group.

A critical part of the Group’s strategy has been the clear focus on creating long standing relationships with clients. This was evidenced during the second half of the year when the Group secured the three year renewal of their largest customer. The agreement increases the contracted minimum users from 700 to 1,125 hosted desktop users per month. The three year term which will generate some £3m of recurring revenues also includes an option to extend to five years. By the end of the three year term the Group will have been working in partnership with this customer for 12 years.

During the year the Group initiated a search for a Managing Director who could support the CEO in day to day operations enabling further focus to be channelled on the execution of the Group strategy. As a result, in January 2016 David McCarthy joined the Group demonstrating the continued commitment to investing in management resource and skill set to structure the business more effectively, further laying firm foundations for future growth.

Results overview

Revenue for the year was £13.8m representing underlying year on year growth across the three subsidiaries (excluding VESK) of 3%, this was achieved despite the impact of the unexpected and unrelated customer events we faced in July 2015 which reduced recurring revenue by 11% per month. Notwithstanding this we finished the year with contracted monthly recurring revenue of £1.2m (2014: £942,000) whilst strong cost and cash control helped reduce the cumulative impact of these events on full year results. Since the year end the Group has continued to build the recurring revenue base with annualised monthly recurring revenues now equivalent to in excess of £14.4m per annum.

Gross margin improved to 70% from 69% reflecting the savings achieved by taking advantage of consolidating the licensing reporting of the three subsidiaries and negotiating better SPLA (Service Provider Licensing Agreement) costs by switching SPLA licensing partners.

Adjusted EBITDA* improved as a result of the synergy savings made and cost rationalisation programs enacted during the year, primarily the merging of the Nasstar and Kamanchi London offices.

Reported loss before tax was £1.3m reflecting a number of exceptional items, including transaction costs of £257,000 and reorganisation costs of £41,000. The reorganisation costs relate to the data centre rationalisation and office consolidation.

In addition £2.4m of amortisation of customer contracts has been charged to the Consolidated Statement of Profit and Loss in respect of acquired customer contract intangible assets.

Adjusted earnings per share stood at 0.7p** with a statutory loss per share recorded of 0.1p as a result of the exceptional items referred to above.

Customer contracts were valued at the time of each acquisition to assess their fair value. The fair value of VESK customer contracts at acquisition was £3.5m resulting in goodwill on acquisition of £5.4m.

Further funds of £6,375,000 (before expenses) were raised during the year from a fixed 5 year term loan agreement with RBS repayable in quarterly instalments of £318,750 on usual quarter dates with interest of 2.95% over base per annum. There is also the ability to reduce this to 2.5% over base if certain leverage targets are met. The funds raised were used to fund the cash element of the VESK acquisition. Shares in Nasstar plc with fair value of £1.5m were also issued as vendor consideration within the year.

The Group showed a net debt position of £5.1m at the year end with £1.6m cash in the bank.

*Comprising earnings adjusted for interest, taxation, depreciation, amortisation, share based payments and exceptional items (being costs in relation to acquisitions during the year, charge in respect of onerous contract provisions and reorganisation costs).

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


It is proposed to pay a maiden final dividend of 0.045p in respect of 2015 on 4 July 2016 to shareholders on the register at the close of business on 3 June 2016, subject to approval at the Company’s Annual General Meeting on 23 May 2016. 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 2015.

In the future the Board intends to adopt 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 continues to identify and review possible acquisition opportunities, although always with a clear focus on the assessment of strategic rationale. Acquisitions will be targeted on prospects where we can add intellectual property, technical expertise and sector knowledge. In support of this strategy a team has been created internally to run the life cycle of the acquisition process, from identification and screening, through due diligence, implementation and post-acquisition integration.

In October 2015 the Group announced the acquisition of the business and assets of VESK Virtual Desktop LLP, Appiam Ltd and VESK Ltd (together the "VESK Group" or “VESK”). VESK is one of the largest pure play hosted desktop providers in the UK after Nasstar and has doubled in size each year during the four years prior to its acquisition. VESK has a reputation for excellent technical expertise, service and continual uptime.

The VESK acquisition secured a further significant foothold in the legal sector for Nasstar, adding a further 13 law firms representing approximately 520 users of hosted desktop to the Group’s customer base, placing Nasstar at the head of the Hosted Desktop market for the legal sector delivering Hosted Desktop services to approximately 50 legal firms with approximately 3,300 legal professional end users.

Importantly VESK’s experience with the G-Cloud offered Nasstar an established route to building a new vertical market to complement its existing focus in the legal, recruitment and finance verticals. In addition, one of VESK’s largest clients is Whistl (formerly TNT), which when added to Nasstar’s current customer, APC, created a foundation for building a vertical specialism in the logistics sector.

VESK brings to Nasstar additional data centre presence in both London & Singapore. This expands the opportunity to grow existing services in the Asia region, as Nasstar already delivers services to a number of recruitment clients in Singapore. Having a data centre presence in that region will open up new opportunities to deliver more services.

Trading from this recent acquisition has been in line with Board expectations. Group financial working disciplines have already been rolled out within VESK which is now working closely with the rest of our operating businesses to maximise cross selling opportunities across the Group.

Financial Review Nasstar

Environment 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. This is demonstrated by the Group winning Acquisition International 2015 Business Excellence Award for “Environmentally Friendly Data Centre of the Year – UK” for the Group’s primary Date Centre at its Telford headquarters.

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 resulting in a better than average PUE (Power Usage Effectiveness) rating of 1.7. The Group takes a comprehensive approach to measuring its PUE and is constantly reviewing technologies that can further increase the efficiency of the facility to drive the PUE rating down further.

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


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. As a mitigation to this risk the Group in 2016 will consolidate to a single brand name and embark 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. Finally the investment into R&D and innovation ensures the Group’s solutions evolve so customers are offered a mix of cloud based services that, when, combined differentiate the solution from the competition thus helping protect overall gross profit margins.

Credit risk

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

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.

Currency risk

The Group purchases licences from Microsoft 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 2015 the Group held $38,000 and €323 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.

Compliance risk

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 11% of revenue for the year ended 31 December 2015.

At the time of these results the Group is currently mid-way through a routine Microsoft SPLA audit being conducted by Ernst and Young. This process is not expected to complete until May.


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.

Nasstar Employees


In order to continue the drive in organic growth and take advantage of the market conditions that has made the move to cloud services the de facto approach for SMEs, the Directors feel 2016 is the right year to invest in a single brand and a significantly enhanced marketing plan. This plan will result in further operating expenditure in 2016 to enable the Group to target new sectors to complement its established leading position in the legal and recruitment verticals and ever developing financial sector. The primary sales focus will remain on a direct “go to market” strategy supplemented by a select group of Resellers that add value to the proposition.

The Group feels that its private cloud solutions will continue the trend of integrating with multiple public clouds to supply the end user with one aggregated access to their cloud based services.

The combination of our four operating businesses has created a strong platform for continued organic growth which we believe will continue to drive shareholder value. This growth will continue to be augmented by selective acquisitions where the Company can add intellectual property, technical expertise and sector knowledge. With a proven track record for identifying and integrating strategic acquisitions and a clear focus on the organic opportunity we look forward to 2016 and beyond with optimism.

Nigel Redwood

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