Interim Results

Nasstar plc

Interim results for the 6 month period ended 30 June 2014

Nasstar plc ("Nasstar" or the "Company" or the "Group"; stock code: NASA), a provider of Hosted Desktop cloud computing, announces its unaudited interim results for the 6 month period ended 30 June 2014.

Financial Highlights

· Underlying organic revenue growth of 17% across subsidiaries compared to the same period last year

· Recent acquisition of e-know.net Limited ("e-know.net") showing strong contribution to the group with a 19% organic growth in revenues compared to the same period last year

· Nasstar (UK) Limited ("Nasstar UK") has seen an 8% organic growth in revenues compared to the same period last year, despite the exiting of certain loss making contracts

· Adjusted EBITDA** of £1.1m, demonstrating the transformation of the Group into a commercially focused, profitable and sustainable business

· Underlying organic Adjusted EBITDA growth of 143% compared to the same period last year

· Positive Group net cash figure sustained at £0.5m

· Adjusted earnings*** per share 0.2p for 6 months to 30 June 14 (basic loss per share 0.3p)

*Comprising of earnings adjusted for interest, taxation, depreciation, amortisation, impairment of goodwill, loss on disposal of intangible assets and share based payments

**adjusted for exceptional items being costs in relation to the acquisition of Denara Holdings, provisions and reorganisation costs

***adjusted for amortisation of purchased intangibles, goodwill impairment, share based payments and exceptional items

Operational Highlights

· Good progress with the integration of e-know.net into the Group with cost and revenue synergies being achieved

· Datacentre consolidation executed as planned, reducing data centre numbers down to four from six by the end of May 2014

· Focus on restructuring Nasstar UK through the introduction of new pricing policies alongside cost consolidation programs has transformed the subsidiary from loss making to sustainable positive EBITDA contribution

· The continued focus on the vertical markets of Legal, Recruitment and Finance has generated business and profitability in line with expectations

· Identified Kamanchi Limited ("Kamanchi") as an acquisition target and a takeover was completed post period end (24 July 2014) for a consideration up to £2.5m

Nigel Redwood, Chief Executive Officer of Nasstar, commented:

"The integration of the e-know.net acquisition with Nasstar UK has been executed as expected, resulting in the first half of the year progressing positively and trading is in line with management expectations.

I am very excited by the further acquisition of Kamanchi, which further enhances our standing in one of our core vertical markets and adds considerable user numbers to our Hosted Desktop community. This acquisition supports our stated strategy of focusing on direct vertical markets, further securing the Group's foothold in both the legal and recruitment sectors.

I remain optimistic about the remaining half of the year and believe we are progressing comfortably in line with full year expectations."

For further information, please contact:

Nasstar plc +44 (0) 1952 225 000

Nigel Redwood, Chief Executive Officer

Niki Redwood, Finance Director

finnCap Limited (Nominated Adviser & Broker) +44 (0) 20 7220 0500

Julian Blunt, James Thompson (Corporate Finance)

Victoria Bates (Corporate broking)

Gresham PR (Financial PR) +44 (0) 77886 805 108

Neil Boom

Chairman's Statement:

During the first six months of trading I am delighted to have seen the evolution of the Group benefiting from the combination of Nasstar UK and e-know.net. This combination has provided the Group with a suite of products and services capable of providing Hosted Desktop to a broad range of business type and sizes. Combining the commercial and marketing approach of e-know.net with Nasstar UK technology has resulted in significant revenue and cost synergies.

Resultantly the Group has performed well in the six months ended 30 June 2014 exhibiting solid growth and pleasing improvement to margins at all levels. The recurring revenue base accounts for 92% of total revenue, this strength will continue to underpin the Group's financial stability. This stability has enabled the Board to execute its stated expansion strategy of organic growth augmented by strategic acquisitions with the takeover of Kamanchi which completed on the 24 July 2014.

Outlook

The acquisition of Kamanchi bolsters the recurring revenue base of the Group to circa £875k per month whilst giving us a further foothold in a key market sector. The new Board of directors that was assembled in January 2014, each with considerable market experience, has started to execute the strategy of the Group giving me confidence that we have a strong platform for growth from which to create clear shareholder value.

Lord Daresbury

Chairman

Business Review

The Group is a Hosted Desktop and managed services provider supplying a robust, secure and stable hosted Information Technology service to business customers, providing them with enhanced IT performance and greater cost control over their IT function. The Group is an accredited Microsoft Gold Partner, officially certified against the Cloud Industry Forum Code of Practice and is certified to ISO 27001.

The Group provides a comprehensive cloud service package, offering Hosted Desktop, Hosted Exchange and Hosted Telephony services, with the ability to host a wide variety of software applications on behalf of clients. In addition the Group provides managed networks and an extensive user support service.

The Group now principally focuses on direct sales to three vertical markets: legal, finance and recruitment. The regulated nature of these industry sectors combined with the Group's ability to demonstrate proven capability to prospective clients has enabled the Group to target the mid-range of the SME market place.

Previously Nasstar's primary sales channel has been through resellers, however due to the downward pressures on margins experienced within the channel the Group has continued to further build the direct route to market therefore complementing channel sales.

There has been significant focus on restructuring the subsidiary Nasstar UK in terms of cost base and pricing strategy in order to ensure the subsidiary is contributing profitably to the Group. Good progress on the integration of Nasstar UK and e-know.net has been made with cost and revenue synergies being achieved. A significant cost synergy has been the consolidation of the six Group data centres down to four in May 2014. Further consolidation is expected to bring the total number of data centres down to three before the year end.

A critical part of the Group's strategy has been the clear focus on creating long-standing and loyal clients. This has been achieved through a concerted focus on customer service and staff development/retention, which has in turn been instrumental in providing continuity for clients and helped to develop and retain client relationships.

As planned, 2014 represents a year in which the historic investment into technology and R&D bear fruit and moves the Group into a commercially focused, profitable and sustainable business.

Financial Review

Group revenue for the six month period ending 30 June 2014 was £5m, this represents a 17% underlying growth in revenue when compared to the same period last year combining Nasstar UK and e-know.net comparative figures. The organic growth of the individual subsidiaries was 19% for e-know.net and 8% for Nasstar UK.

Gross margin percentage has increased to 68% from 38% reported in December 2013. This is as a direct result of the implementation of synergy savings, new pricing policies and the acquisition of e-know.net. Adjusted EBITDA is 21% of revenues, the comparative figure for the combined subsidiaries was 10% for the same six month period last year.

Reported loss before tax was £1.2m. It is important to note however that there are a number of exceptional items reported in the Consolidated Statement of Comprehensive Income. Exceptional items comprise of transaction costs, reorganisation costs and onerous contract provisions. Adjusted profit before tax is £0.6m adjusted for amortisation, share based payments and exceptional items.

An amortisation charge of £0.9m has been charged to the Consolidated Statement of Comprehensive Income in respect of amortisation of the intangible asset represented by purchased customer contracts.

The Group at the period end showed a net cash position of £0.5m (after loans and finance leases) with £1.7m cash in the bank.

Adjusted earnings per share has been calculated as follows:-

****assumed not tax deductible for the purposes of this illustrative calculation

Subsequent Event, acquisition of Kamanchi

On 24 July 2014, Nasstar acquired the entire issued share capital of Kamanchi Limited ("Kamanchi"), a specialist IT outsourcer and Hosted Desktop provider in the recruitment sector, for a consideration up to £2.5m satisfied as to up to £1.5m payable in cash, and £1m in new Nasstar Ordinary Shares. The acquisition is expected to be immediately earnings enhancing.

Kamanchi has built a leading position providing specialist IT services to the recruitment sector. Since 2009 the business has focused exclusively on this market. Today, it provides worldwide recruitment clients with a variety of IT systems and services, including fully managed Hosted Desktop, as well as development and consultancy services on buying and integrating new recruitment applications.

Through its exclusive sector focus, Kamanchi has built strong relationships with the specialist recruitment software providers enabling it to offer clients a one-stop solution for all their essential recruitment applications. It also provides IT help desk services and project-based IT consultancy. All Kamanchi software application services are delivered from the Cloud on their Hosted Desktop platform branded SilverBullet.

Kamanchi has established a loyal customer base totalling 22 contracted recruitment clients with over 525 end users with an average recurring revenue per user per month of £190. The acquisition secures a further significant foothold in a key strategic vertical market and places Nasstar at the head of the Hosted Desktop market for the recruitment sector delivering Hosted Desktop services to 33 recruitment firms totalling 2,682 recruitment consultant end users.

Conclusion

The strategy to run Nasstar UK and e-know.net as one combined operation has proceeded as planned in the first half of the year and will continue into the second half of the year, and to date has returned solid financial results in line with expectations.

The acquisition of Kamanchi is in line with our stated growth strategy and brings the group a tangible differentiation in its offering to the recruitment sector.

The Group has entered the second half of the year in a good position to deliver our expected outcomes to the full year end.

Nigel Redwood

Chief Executive Officer

15 September 2014

Consolidated statement of Profit and Loss and other Comprehensive Income

Consolidated Statement of Financial Position

at 30 June 2014

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the preliminary statement

1. Corporate information

Nasstar plc ("the Company") is a company incorporated in England and Wales and quoted on the London Stock Exchange's 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 www.nasstar.com. These consolidated interim financial statements were approved by the Board of Directors on 14 September 2014.

2. Basis of preparation

These condensed interim financial statements of the Company and its subsidiaries ("the Group") for the 6 months ended 30 June 2014 have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

These consolidated interim financial statements of the Group are for the six months ended 30 June 2014. The comparative figures for the 15 month period ended 31 December 2013 are derived from the Group's statutory accounts for that financial period, prior to the acquisition of the Denara Holdings Group. 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) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report and (iii) did not contain a statement under Section 498 of the Companies Act 2006.

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 2013.

The condensed consolidated interim financial statements for the six months to 30 June 2014 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 2014 have been prepared on the basis of the accounting policies expected to be adopted for the year ending 31 December 2014. These are anticipated to be consistent with those set out in the Group's latest annual financial statements for the year ended 31 December 2013. These accounting policies are drawn up in accordance with International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and International Financial

Reporting Interpretations Committee (IFRIC) interpretations (collectively IFRSs) as adopted for use in the European Union.

Significant accounting policies:

AIM-listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

Availability of audited accounts:

Copies of the 2013 audited accounts are available on the Company's website (www.nasstar.com/investors) for the purposes of AIM rule 26.

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.

3. 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 software as a service, 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. Acquisitions

Denara Holdings Limited

On 10 January 2014 the Group acquired 100% of the issued share capital of Denara Holdings Limited, the holding company of e-know.net Limited. Denara Holdings Limited was acquired for an aggregate consideration of £13.0 million, funded by a £10.5 million placing of ordinary shares at 5 pence. 80,000,000 new ordinary shares were issued as vendor consideration and 210,000,000 ordinary shares were issued in the placing.

In order to calculate the goodwill on acquisition against the £13,000,000 consideration management have assessed the provisional fair value of the net assets of the Denara Group as shown in the table below.

Under IFRS 3 "Business combinations" the only separately identifiable intangible asset arising from the acquisition related to customer contracts. Management have assessed the fair value of customer contracts based on the net present value of expected cash flows from these contracts.

The key assumptions used within this judgment are:

i. Discount rate 8.3%

ii. Growth rate 2% relating to organic growth net of attrition

iii. Cost of inflation 4%

iv. Forecast cash flows for 7 years

The fair value of the equity instruments issued was based on the placing share price on 10 January 2014 which was 5p. The goodwill of £3,244,000 can be attributed to the anticipated profitability through the growth of the enlarged group and synergistic benefits.

Kamanchi Limited

On 24 July 2014 the Group acquired 100% of the issued share capital of Kamanchi Limited. Kamanchi Limited was acquired for an aggregate consideration of £2.5 million, funded by £1.5 million in cash and a £1 million placing of 12,484,394 Ordinary Shares at 8.01 pence per share.

Due to the proximity of the acquisition date to the date of release of these results the provisional fair value of the net assets of Kamanchi Limited and resulting fair value table have not been finalised at this date.

5. Exceptional items

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

6. 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 2014.

7. Dividends

As a result of the loss reported for the first half, the Board does not propose to pay an interim dividend.

8. Earnings per share

The calculation of the basic loss per share for the six months ended 30 June 2014 is based upon the following.

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.

9. Provisions