Nasstar plc Interim results for the 6 months ended 30 June 2018

Transcription

1 Nasstar plc Interim results for the 6 months ended 30 June 2018 Nasstar plc ( Nasstar, the Company or the Group ; stock code: NASA), a provider of hosted managed and cloud computing services, announces its unaudited interim results for the 6 months ended 30 June Financial Highlights Revenue up 6% compared to the same period last year to 12.5m (H1 2017: 11.8m) 91% of H revenue generated from contracted recurring services (H1 2017: 92%) EBITDA* up 33% compared to the same period last year to 2.8m* (H1 2017: 2.1m) Adjusted EBITDA** up 16% compared to the same period last year to 3.0m** (H1 2017: 2.6m) 65% reduction in operating loss compared to the same period last year to 0.3m (H1 2017: 0.9m) Adjusted Profit Before Tax*** up 24% compared to the same period last year to 1.8m (H1 2017: 1.5m) 58% reduction in reported Loss Before Tax compared to the same period last year 0.4m (H m) Net cash position remained stable at 0.9m from 2017 year end Adjusted earnings*** per share 0.3p for 6 months to 30 June 2018 (H1 2017: 0.2p) Basic loss per share 0.1p for 6 months to 30 June 2018 (H1 2017: 0.2p) IFRS 9,15 and 16 adopted as at 1 January 2018 Interim and full year accounts for 2017 have been throughout *Comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets and amortisation **comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets, amortisation, share based payments and exceptional items (being costs in relation to reorganisation and data centre closure) ***adjusted for amortisation of acquired intangibles, share based payments and exceptional items Operational Highlights Year two of the Nasstar plan continued with further investment in key strategic areas designed to:- o secure future long term growth o improve efficiencies and margins o retain competitive edge in a fast-moving market Continued refinement of the organisational structure instigated in 2017 aimed at delivering an integrated company with one team for each function managed by a single leadership team. 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 (2017 revenue reduction of 0.4m). 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 revenue delivery, the leadership team chose to invest into additional engineering resource.

2 The result of the investment in engineering has enabled Nasstar to deliver the 1,000 users contract announced in November 17 and recognise contract revenue within a shorter timescale. The organic business development pipeline continues to include prospects of a similar size to this contract. As part of the Nasstar programme the Singapore data centre was closed during H1, with Microsoft Azure ( Azure ) being utilised for the remaining workloads. Plans continue to be executed to consolidate the UK data centre footprint by a further two data centres. This consolidation is complex and ongoing. The server farm rationalisation is expected to complete fully in As part of the strategy to standardise offerings across the Group, Nasstar launched its new Cloud Communications Service (hosted telephony) based on Mitel s MiCloud Flex solution. Early traction with the new service has been strong with three orders secured in the first quarter of service launch. Nigel Redwood, Chief Executive Officer of Nasstar, commented: 2018 saw the first year of operating under our new organisational structure and this combined with three large projects has really tested the team, which I am delighted to say has responded to the challenge. We have invested in the technical delivery teams to increase project throughput whilst continuing to focus on the Nasstar strategic initiatives. We are in year two of our three-year plan to achieve full integration and consolidation and I continue to be confident in the Nasstar objectives. I have worked closely with the new business team to develop a sales pipeline that continues to include deals of larger size and believe Nasstar is perfectly positioned and better structured to deliver on projects of increased complexity and size. For further information, please contact: Nasstar plc +44 (0) Nigel Redwood, Chief Executive Officer Niki Redwood, Finance Director finncap Limited (Nominated Adviser & Broker) +44 (0) Julian Blunt, James Thompson (Corporate Finance) Alice Lane (Corporate Broking) IFC Advisory Limited (Financial PR & IR) +44 (0) Tim Metcalfe Miles Nolan Zach Cohen Chairman s Statement I am pleased to report that H has continued to show improvements in all our key KPI s with contracted recurring revenues representing 91% of the total and revenues growing by 6% for the period. The period saw a 65% reduction in Operating Loss being reported whilst EBITDA increased by 33% clearly demonstrating tangible improvement. New priorities for 2018 were set in relation to the Nasstar programme in what is a critical second year of our three-year strategic plan. It is pleasing to see that the leadership team has continued to focus on such a strategy in what has been a very busy year. Of note in that area was the successful delivery of the 1,000 seat fully managed public/private Hybrid cloud solution combined with two other ongoing complex projects.

3 Work in progress (WIP), being orders signed but not yet delivered (or recognised in revenue), continues to keep the project team busy with in excess of 50,000 monthly recurring revenue in WIP at the end of June This continues to demonstrate the strong visibility of earnings of the model. At Nasstar we recognise that attracting and retaining the right talent is key to our success and future health and therefore the priority that focuses on talent management gives me confidence that we continue to plan for the long term. On behalf of the board I would like to express my gratitude to all new and old team members alike for their continued hard work and commitment. Outlook 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 new business pipeline, more notable with professional services opportunities. With that in mind however, Nasstar remains well positioned, benefiting from high levels of recurring revenue, providing an essential service to its clients. Continued focus on and investment in the Nasstar programme continues to deliver an everimproving service, delivering efficiencies whilst ensuring the business delivers new and relevant innovative solutions to the vertical markets that it targets. This continues to put Nasstar on solid foundations contributing to the long term positive outlook of the business. Lord Daresbury Chairman Business Review Overview of the Business The Group is a provider of hosted managed and cloud computing services. We integrate 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, UK, 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, a Tier 1 multi-region Cloud Solution Provider (CSP) partner for Microsoft Office 365 ( O365) and Azure, an authorised Citrix CSP Partner, ITIL (a set of detailed practices for IT service management) aligned and is certified to ISO 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. Public cloud solutions utilise services from multinational vendors such as Microsoft ( O365 and Azure ), private cloud solutions are delivered from Nasstar owned and controlled infrastructure whilst Hybrid solutions are an integrated combination of the two. 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 usagebased payment model. The bespoke cloud hosted services include a comprehensive portfolio of solutions, offering Hosted Desktop, O365, Hosted Exchange, Software as a Service (SaaS), Infrastructure as a Service (IaaS), Azure 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 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

4 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 a few Microsoft partners that hold such accreditation. This has enabled the Group to deeply 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 Azure platform, Microsoft s hyper scale IaaS offering. Through our central Professional Services Team, Nasstar provides consultancy services on business processes and application development to its clients in its targeted vertical markets. The team has an indepth knowledge of the feature set of O365. This enhances its added value service to its managed service client base. In addition, 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 bolsters its internal capabilities by partnering with a specialist in this area, Falanx Group Limited (Falanx). Falanx supplies protective monitoring services and cyber incident response support for Nasstar as well as additional consulting services for customers. Nasstar puts security at the heart of all operations, service and produce design. Cyber Defence as a Service for clients continues to be a growing service line adopted by the customer base. Strategy Targeting specific verticals and a clear strategy of creating long standing relationships with clients continues to be a focus of the Group. This 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. As a result investment has continued in the Group s account management and service acceptance function in order to ensure the complete service portfolio of the entire Group is available to all clients. Nasstar s growth strategy is underpinned by its vertical market specialism and operational focus. Nasstar specialises in delivering services to seven vertical markets, two of which (Legal and Recruitment) form the cornerstone of the customer base. We have invested heavily in developing the skills and know-how to service these cornerstone verticals and are now replicating the go to market strategy that has worked well in Legal and Recruitment to the other five verticals (Financial Services, Property Services, NFP/Education, Media and Energy/Logistics). The Group s acquisitive strategy, launched in 2014, was driven by the desire to add additional 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. As a result of this end to end capability, Nasstar s strategy continues to focus on integrating its acquired businesses and services in order to produce one company in organisation as well as name. In 2017 we launched our Nasstar programme designed to bring about increased strategic focus across the entire Nasstar business to achieve specific goals by the end of 2019, with a view to unifying the Group in structure, process and name. Continuing the strategic momentum, in year two of this three-year programme we launched the priority projects for 2018 that are all designed to deliver a continually improving customer service and efficiencies in delivery. The progress in H1 against the priority projects for 2018 is as follows: Priority objective: A continuation of the single leadership team and single team for each function philosophy, with clear focus on continuing to embed the right management structure acting on the right management information and KPI s. H1 activities against this objective included:- o Invested in management training and team leader training o Improved the leadership team s business cadence combining strategy development and tactical execution

5 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 company. H1 activities against this objective included:- o Closure of Singapore data centre migrating remaining workloads to Azure 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. H1 activities against this objective included:- o Evolved a closer partnership with Falanx Group Limited, Nasstar s security partner 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 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. H1 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 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. H1 activities against this objective included:- o Head of Commercial Strategy role established to lead service acceptance and vendor management o o Creation of dedicated technical pre-sales team for new services Launch of Nasstar s new cloud communications offering based on Mitel s MiCloud Flex solution Priority objective: Investment in automation and systems integration continues in 2018 with the roll out of Cherwell being pivotal to further integration benefits being recognised. H1 activities against this objective included:- o Post period end recruited a new Head of Internal Systems and allocated a budget for an increased team dedicated to system automation o Continued with the project to roll out our new central ITSM (IT Service Management) solution Cherwell, which is ongoing into H2 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. H1 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 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. H1 activities against this objective included:- o Full install process review was launched in H1

6 o o Post period end, a new Head of PMO (Project Management Office) was employed, bringing considerable experience of project and process improvement to a complex technical delivery Post period end, investment made into resource management tools giving a central view of all resource and projects Financial Review The directors regularly review monthly revenue and operating costs to ensure that sufficient cash resources are available for the continued development and support of its service. Primary KPIs at the period end were as follows: 30 June June mths to 31 Dec 17 Total revenue 12,493 11,796 24,080 Recurring revenue 11,362 10,865 21,879 Recurring % of total reported revenue 91% 92% 91% Monthly recurring revenue at end of period 1,914 1,810 1,889 Operating costs, including cost of sales 10,546 10,186 20,740 Gross profit percentage 67% 69% 68% EBITDA* 2,841 2,139 4,802 Adjusted EBITDA** 3,005 2,592 5,274 EBITDA* % of revenues 23% 18% 20% Adjusted EBITDA** % of revenues 24% 22% 22% Operating Loss (330) (942) (1,357) Loss before tax (447) (1,071) (1,590) Adjusted Profit before tax*** 1,830 1,481 3,107 Current assets (excluding cash) 4,371 3,799 3,924 Current liabilities 8,997 8,155 8,885 Cash and cash equivalents 4,282 3,650 5,101 Loss per share (0.1p) (0.2p) (0.2p) Adjusted earnings per share*** 0.26p 0.22p 0.46p See Alternative Performance Measures for descriptions of performance measures presented above. Revenue for the period was 12.5m representing year on year growth of 6%. EBITDA* and Adjusted EBITDA** percentages have been included in key performance indicators to demonstrate the year on year movement in these margins as a result of the strategic initiatives implemented under the Nasstar program. Monthly recurring revenue at the end of the period is the revenue recognised in the income statement 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

7 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. Gross margin reduced to 67% from 69% in full year 2017, 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 consolidation programme leveraging our largest cost, the cost of people, together with savings from restructuring and closure of one further data centres. Reported loss before tax was 0.4m after exceptional expenses of 148,000 which were largely costs in relation to the closure of one data centre and the continued data centre rationalisation programme. In addition, 2.1m of amortisation of customer contracts has been charged to the Consolidated Statement of Profit and Loss in respect of acquired customer contract intangible assets. As previously reported capital expenditure during 2018 is running at a higher level than 2017 as we continue to deliver our Nasstar initiatives has also seen the Group, due to its increased size, move to an alternative VAT payment basis which has led to a one-off cash outflow. Fixed asset additions for the period were 1.6m. This was primarily servers and storage area network infrastructure to provide a platform for future growth and technology consolidation, together with investment needed in fixed assets on the new signing of customer contracts. Depreciation increased to 9% of sales from 7% in full year 2017 due to the increased depreciation charge on adoption of IFRS16. Alternative Performance Measures 30 June June mths to 31 Dec 17 Loss before tax (447) (1,071) (1,590) Amortisation of acquired intangibles 2,113 2,099 4,225 Share based payments Exceptional items Adjusted Profit before tax*** 1,830 1,481 3,107 Operating Loss (330) (942) (1,357) Depreciation and amortisation 3,190 3,081 6,163 Profit on sale of fixed assets (19) - (4) EBITDA* 2,841 2,139 4,802 Share based payments Exceptional items Adjusted EBITDA** 3,005 2,592 5,274 Cash and cash equivalents 4,282 3,650 5,101 Interest bearing liabilities(excluding IFRS16 lease liability) (3,381) (4,638) (4,148) Net Cash/(Debt) 901 (988) 953 Revenue from managed services Recurring revenue 11,362 10,865 21,879 Consultancy services ,107 Adhoc sales of hardware, software and other recharges ,094 Total Revenue 12,493 11,796 24,080

8 Adjusted earnings per share were 0.26p*** (2016:0.22p***) with a statutory loss per share recorded of 0.1p (2016:0.2p) as a result of the exceptional items and amortisation charges. Adjusted earnings per share has been calculated as follows: 30 June June mths to 31 Dec 17 Loss for the period (404) (898) (1,344) Amortisation of acquired intangibles net of tax impact 1,754 1,742 3,507 Share based payments Exceptional items Adjusted earnings 1,514 1,297 2,635 Weighted average number of shares 574,262, ,021, ,360,096 Adjusted earnings per share 0.26p 0.22p 0.46p In order to provide useful information about the Group s performance and to present information in a way that reflects how the Directors monitor and measure the performance of the Group, the Directors believe it is appropriate to present the results of the Group using selected alternative performance measures. The following provides an indication of the purpose and definition of each of the alternative performance measures presented, together with an appropriate reference to IFRS measures presented in the IFRS financial statements, where applicable. Adjusted profit before tax is shown as an alternative performance measure to present the underlying trading performance. The calculation excludes the impact of the non-cash items of amortisation of customer contracts and share based payments as well as eliminating one off exceptional items from the trading performance. Monthly recurring revenue at each month end represents the monthly revenue contracted to clients under managed service contracts which reflects revenue contracted but not yet delivered. Monthly revenue from these contracts is recognised on a straight-line basis over the life of the contract. Monthly recurring revenue at the year-end gives an indication of the revenue likely to be recognised from these contracts in future months. Recurring percentage of total reported revenue is the total revenue recognised in the period from recurring revenue contracts as a percentage of total revenue. Net debt is calculated in these interim results as cash less interest-bearing loans and borrowings, excluding IFRS 16 lease liabilities for the purposes of comparison to prior periods. * Comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets and amortisation. **Comprising earnings adjusted for interest, taxation, depreciation, profit on sale of fixed assets, amortisation, share based payments and exceptional items (being costs in relation to acquisitions during the year, reorganisation costs, share repurchase costs and provisions). ***Adjusted for amortisation of acquired intangibles, share based payments and exceptional items. 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 The standard has been adopted by the Group for the first time in the period ending 30 June The group has applied IFRS 15 retrospectively to each prior reporting period and has utilised certain practical expedients available in IFRS 15.

9 The adoption of IFRS 15 has not altered the total contract value or timing of cashflows, but there are three key areas where the adoption of IFRS 15 has changed historic revenue recognition: 1. Technical installation, consultancy and set up fees Under previous accounting policies, revenue from technical installation, consultancy or other one off setup 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. The impact for 2017 was a reduction of 0.4m in 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. 2. Workstation equipment The Group s managed service contracts, on occasion, include the provision of workstation equipment. The fee for these services is included within the overall managed service charge which is invoiced monthly in line with customer usage. Revenue was historically recognised rateably on a daily basis in accordance with the services provided. Under IFRS 15, the provision of workstation equipment is determined to be a separate performance obligation from the other services in the contract. However, management has determined that right to control the use of the equipment does not transfer to the customer. Hence, there is no upfront sale associated with the workstation equipment. The income from the satisfaction of the performance obligation to provide workstation equipment is recognised straight line over the length of the contract. This is in line with the current accounting under IAS 11/ Contract fulfilment assets The costs associated with the design and construction of the technology platform for each contract have previously been expensed to the income statement 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. Impact of adoption of IFRS 16 (Leases) IFRS 16 Leases is effective for periods beginning on or after 1 January IFRS 16 removes the operating and finance lease classification in IAS 17 Leases and replaces them with the concept of rightof-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. New Accounting standards 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.

10 Nigel Redwood Chief Executive Officer 24 September 2018 Condensed consolidated statement of Profit and Loss and other Comprehensive Income Note 30 Jun 18 6mths to 30 Jun mths to 31 Dec 17 Revenue 12,493 11,796 24,080 Cost of sales (4,150) (3,694) (7,681) Gross profit 8,343 8,102 16,399 Administrative expenses (8,673) (9,044) (17,756) Share based payments (16) (42) (40) Amortisation of customer intangibles (2,113) (2,099) (4,225) Other administrative expenses (6,396) (6,492) (13,059) Administrative expenses before exceptional items (8,525) (8,633) (17,324) Operating loss before exceptional items (182) (531) (925) Exceptional items 4 (148) (411) (432) Operating loss (330) (942) (1,357) Financial income Financial expenses (117) (129) (233) Loss before tax (447) (1,071) (1,590) Taxation Loss for the period and total comprehensive income for the period, attributable to shareholders (404) (898) (1,344) Loss per share: 7 Basic (0.1p) (0.2p) (0.2p) Diluted (0.1p) (0.2p) (0.2p)

11 Condensed Consolidated Statement of Financial Position at 30 June 2018 Note 30 Jun 18 6mths to 30 Jun mths to 31 Dec 17 Non-current assets and liabilities Goodwill 15,421 15,421 15,421 Intangible assets 7,526 11,607 9,455 Plant and equipment 5,452 4,889 5,006 Right of Use assets 1, Trade and other receivables ,966 32,104 30,067 Current assets Inventories Trade and other receivables 4,252 3,771 3,856 Cash and cash equivalents 4,282 3,650 5,101 8,653 7,449 9,025 Total assets 38,619 39,553 39,092 Non-current liabilities Interest-bearing loans and borrowings 1,908 3,000 2,587 Deferred taxation 927 1,635 1,222 Lease Liabilities Trade and other payables Current liabilities 4,288 4,856 4,113 Interest-bearing loans and borrowings 1,473 1,638 1,561 Trade and other payables 7,261 6,387 7,278 Lease liabilities Provisions ,997 8,155 8,885 Total liabilities 13,285 13,011 12,998 Net assets 25,334 26,542 26,094 Equity attributable to equity holders of the parent Share capital 5,743 5,743 5,743 Other reserves 19,591 20,799 20,351 Total equity 25,334 26,542 26,094

12 Condensed Consolidated Statement of Changes in Equity Merger Capital Share capital Share premium reserve Reduction reserve Retained deficit Total equity Balance at 1 January 2017 as previously 5,795 22,409 6,016 - (5,981) 28,239 reported Adjustment on initial application of IFRS (81) (81) 15 Restated balance at 1 January ,795 22,409 6,016 - (6,062) 28,158 Comprehensive income Loss for the period recognised in profit and loss (898) (898) Total comprehensive income for the (898) (898) period Shares cancelled in the period (52) (461) (461) Share based payment recognised in equity Dividend (299) (299) At 30 June ,743 22,409 6, (7,678) 26,542 Comprehensive income Loss for the period recognised in profit and loss (446) (446) Total comprehensive income for the (446) (446) period Share based payment recognised in (2) (2) equity At 31 December ,743 22,409 6, (8,126) 26,094 Adjustment on initial application of IFRS (27) (27) Comprehensive income Loss for the period recognised in profit and loss (404) (404) Total comprehensive income for the (404) (404) period Share based payment recognised in equity Dividend (345) (345) 5,743 22,409 6, (8,886) 25,334 At 30 June 2018 Condensed Consolidated Statement of Cash Flows Cash flows from operating activities 30 Jun 18 6mths to 30 Jun mths to 31 Dec 17 Loss for the period (404) (898) (1,344)

13 Adjustments for: Net finance charges Taxation (43) (173) (246) Depreciation and amortisation 3,190 3,081 6,163 Profit on sale of fixed assets (19) - (4) Share based payments Corporation tax payments (21) (65) (123) Net cash flow from operating activities before changes in working capital 2,836 2,116 4,719 (Increase) in inventories (51) (19) (59) (Increase)/decrease in trade and other receivables (724) (Decrease)/increase in trade and other payables (314) Net cash from operating activities 1,747 2,671 6,055 Cash flows from investing activities Acquisition of intangible assets (281) (129) (191) Acquisition of property, plant and equipment (1,318) (568) (1,583) Proceeds on sale of fixed assets Net cash from investing activities (1,580) (697) (1,740) Cash flows from financing activities Repayment of lease finance arrangements (111) (197) (351) Repayment of bank loan (677) (968) (1,355) Interest paid (71) (129) (178) Repayment of lease liability (127) - - Dividend paid - - (299) Net cash from financing activities (986) (1,294) (2,183) Net (decrease)/increase in cash and cash equivalents (819) 680 2,132 Cash and cash equivalents the beginning of the period 5,101 2,969 2,969 Cash and cash equivalents at the end of the period 4,282 3,649 5,101 Notes to the interim statement 1. Corporate information Nasstar plc ("the Company") is a company incorporated in England and Wales and quoted on the London Stock Exchange's Alternative Investment Market (NASA). Further copies of these results will be available at the Company s registered office: Datapoint House, 400 Queensway Business Park, Queensway, Telford, Shropshire, TF1 7UL or on the Company website at These consolidated interim financial statements were approved by the Board of Directors on 21 September 2018 at Basis of preparation These condensed interim financial statements of the Company and its subsidiaries ("the Group") for the 6 months ended 30 June 2018 have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

14 These consolidated interim financial statements of the Group are for the six months ended 30 June The comparative figures for the 12-month period ended 31 December 2017 are derived from the Group s statutory accounts for that financial period, for the implementation of IFRS 15. Those statutory accounts have been reported on by the Group s auditors and delivered to the Registrar of Companies. The report of the auditor was (i) unmodified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without modifying its report and (iii) did not contain a statement under Section 498 of the Companies Act The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group s annual financial statements as at 31 December The condensed consolidated interim financial statements for the six months to 30 June 2018 have not been audited or reviewed by an auditor pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. The condensed consolidated interim financial statements for the six months to 30 June 2018 have been prepared on the basis of the accounting policies expected to be adopted for the year ending 31 December These are anticipated to be consistent with those set out in the Group s latest annual financial statements for the year ended 31 December 2017, along with the application of IFRS 9, 15 and 16. These accounting policies are drawn up in accordance with International Financial Reporting Standards, International Accounting Standards (IASs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively IFRSs) as adopted for use in the European Union. AIM-listed companies are not required to comply with IAS 34 Interim Financial Reporting and accordingly the Company has taken advantage of this exemption. Forward-looking statements: This report may contain certain statements about the future outlook for Nasstar plc. Although the directors believe their expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different. 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 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 The following practical expedients have been used on transition to IFRS 15: contracts that were completed at 1 January 2017 have not been ; contracts which start and end in the same annual reporting periods have not been ; 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 to IFRS 15 for each financial statement line item effected is set out below, along with an explanation of the key adjustments 2017 Consolidated Statement of Profit and Loss

15 As reported 31 Dec 2017 Impact of IFRS 15 Restated year ended 31 Dec 2017 Revenue 24,501 (421) 24,080 Cost of Sale (7,681) - 7,681 Gross profit 16,820 (421) 16,399 Administrative expenses (17,812) 56 (17,756) Operating Loss (992) (365) (1,357) Financial expenses (231) (2) (233) Loss before tax (1,223) (367) (1,590) Tax Loss after tax (1,048) (296) (1,344) As reported 30 June 2017 Impact of IFRS 15 Restated period ended 30 Jun 2017 Revenue 11,871 (75) 11,796 Cost of Sale (3,694) - (3,694) Gross profit 8,177 (75) 8,102 Administrative expenses (9,061) 17 (9.044) Operating Loss (884) (58) (942) Financial expenses (129) - (129) Loss before tax (1,013) (58) (1,071) Tax Loss after tax (851) (47) (898) Consolidated Statement of Financial Position at 31 December 2017 As reported 31 December 2017 Impact of IFRS 15 Restated year ended 31 December 2017 Non-current assets Contract assets Current assets Contract assets Trade and other receivables 3,798 (196) 3,602 Non-current liabilities Contract liabilities Deferred tax liability 1,312 (90) 1,222 Current liabilities Contract liabilities - 2,127 2,127 Trade and other payables 6,872 (1,721) 5.151

16 Net assets 26,471 (377) 26,094 Consolidated Statement of Financial Position at 1 January 2017 As reported 1 January 2017 Impact of IFRS 15 Restated period ended 1 January 2017 Non-current assets Contract assets Current assets Contract assets Trade and other receivables 4,715 (393) 4,322 Non-current liabilities Contract liabilities Deferred tax liability 1,946 (19) 1,927 Current liabilities Contract liabilities Trade and other payables 6,014 (894) 5,120 Net assets 28,239 (81) 28,158 Consolidated Statement of Financial Position at 30 June 2017 Non-current assets As reported 30 June 2017 Impact of IFRS 15 Restated period ended 30 June 2017 Contract assets Current assets Contract assets Trade and other receivables 3,753 (217) 3,536 Non-current liabilities Contract liabilities Deferred tax liability 1,665 (30) 1,635 Current liabilities Contract liabilities - 1,532 1,532 Trade and other payables 6,246 (1,391) 4,855 Net assets 26,669 (127) 26,542 Consolidated Statement of Changes in Equity No reconciliation of the consolidated statement of changes in equity has been presented as the only changes to this primary statement are: Recognition of retained earnings at 1 January 2017, as presented in the Consolidated Statement of Financial Position as at this date. Recognition of the profit for the year ending 31 December 2017 as presented in the Consolidated Statement of Profit and Loss and Other Comprehensive Income.

17 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 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 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 IFRS 16 removes the operating and finance lease classification in IAS 17 Leases and replaces them with the concept of rightof-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 1.1m, relating to property leases, at 1 January 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, Segmental analysis A segment is a distinguishable component of the Group 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 hosted managed services, and in one market, the United Kingdom. The disclosures required by IFRS8 relating to profits, losses, assets and liabilities of the segment are therefore shown by the financial statements as a whole. 4. Exceptional items

18 The following items are considered significant by virtue of their size and nature and therefore have been recognised as exceptional items during the period 30 Jun Jun mths to 31 Dec 17 Nasstar organisational re-structure Nasstar data centre consolidation & office closure Share repurchase costs Provision for onerous lease Income tax credit The income tax credit for the period is based on the estimated rate of corporation tax that is likely to be effective for the year to 31 December Dividends A final dividend of 0.06p in respect of 2016 was paid on 9 July 2018 to shareholders on the register at the close of business on 8 June Earnings per share Loss per share: Basic Diluted (0.1p) (0.1p) The calculation of the basic loss per share for the six months ended 30 June 2018 is based upon the following. 30 Jun Jun mths to 31 Dec 17 Weighted average no. of shares in issue 574,542, ,021, ,360,096 Loss attributable to shareholders of the parent ( 404,000) ( 898,000) ( 1,344,000) Loss per 1p ordinary share (0.1p) (0.2p) (0.2p) The diluted loss per share for all periods is the same as the basic loss per share as the losses have an anti-dilutive effect. 8. Availability of audited and interim accounts Copies of the 2017 audited accounts are available on the Company s website ( for the purposes of AIM rule 26. Further copies of these interim results will be available at the Company's registered office: Datapoint House, 400 Queensway Business Park, Queensway, Telford, Shropshire, TF1 7UL or on the Company website at