Inspired Regulatory News (INSE)

30 March 2022

Inspired PLC

("Inspired " or the "Group")

Final Results 2021

A year in which the Group delivered strong growth both financially and operationally

Inspired (AIM: INSE), a leading technology enabled service provider supporting businesses in their drive to reduce energy consumption, deliver net-zero, control energy costs and manage their response to climate change, announces its consolidated, audited final results for the year ended 31 December 2021.

Financial highlights

Operational and strategic highlights

· Completed acquisition of Businesswise Solutions Limited ("Businesswise") and General Energy Management Limited ("GEM") in Q1 2021.

- In line with strategy to acquire Energy Assurance businesses which add Units of Opportunity to our portfolio providing enhanced opportunity to cross sell our Net Zero Carbon services, enabling us to help those clients make a difference by removing carbon from the environment.

· Software - continued to deliver modules for our Software Solutions platform during 2021 and to develop incremental modules that underpin the technology enabled services we provide.

· ESG - 2021 saw the voluntary publication of our first TCFD (Task Force on Climate Related Financial Disclosures) disclosure for the Group and an ESG disclosure in accordance with GRI (Global Reporting Initiative) principles. The Group also retained its Green Economy Mark status during 2021.

Board update

· Richard Logan appointed Non-Executive Chairman with Sangita Shah and Dianne Walker appointed as independent Non-Executive Directors in H2 2021.

· Proposed appointment of David Cockshott, Chief Commercial Officer to the Board. David joined the Group in 2020 and will become an executive director on the Board from 1 April 2022, assuming operational responsibility for our Energy Solutions Division.

Current trading and outlook

Trading in Q1 has started in line with expectations as the Group continues to manage the current macroeconomic and geopolitical uncertainties.

Cash collection has started strongly in the new financial year following the increase in trade receivables at the year end as a result of the strong growth experienced in the Optimisation Division during H2 2021.

We note that new business sales have started particularly well with the orderbook values of new customer contracts signed in the first two months of the year being some 93% ahead of the previous year. This should not be confused with revenue growth as order book will flow to revenue over multiple years and this performance is likely to smooth over the year. However, a positive start despite a challenging macroeconomic environment.

Commenting on the results, Mark Dickinson, CEO of Inspired, said: "Despite the changing landscape, we are delighted to report on a period of significant progress across the Group in 2021, both financially and operationally. The performance reflects the continuing recovery in energy consumption, alongside a return to on site access to client premises, accelerating the delivery and implementation of energy optimisation services.

"Turning to current trading, we are pleased that Q1 has started in line with expectations, and we are continuing to successfully manage the uncertain macroeconomic and geopolitical backdrops. Inspired remains focused on helping its clients manage their costs and sustainability challenges through this crisis.

"Looking ahead, the trend towards greater ESG focus coupled with strong growth of the Group's revenues, and adjusted EBITDA in the year, has created a strengthened platform capable of generating long-term growth, and underpins the Board's confidence in achieving our financial goals."

Note

*Adjusted EBITDA is earnings before interest, taxation, depreciation, and amortisation, excluding exceptional items and share-based payments.

**Adjusted profit before tax is earnings before tax, amortisation of intangible assets (excluding internally generated amortisation related to computer software and customer databases), exceptional items, share-based payments, the change in fair value of contingent consideration and foreign exchange gains/(losses) (A reconciliation of Adjusted profit before tax to reported profit before tax can be found in note 5)

***Underlying cash generated from operations is cash generated from operations, as adjusted to remove the impact of restructuring costs, fees associated with acquisitions and dividends declared to NCI.

****Adjusted diluted earnings per share represents the diluted earnings per share, as adjusted to remove amortisation of intangible assets (excluding internally generated amortisation related to computer software and customer databases), exceptional items, share-based payments, the change in fair value of contingent consideration and foreign exchange gains/(losses).

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Chairman's Statement

The significant progress made during 2021 across the Group is, of course, at the time of writing, placed into stark context by the war in Ukraine and our thoughts are with all those who are suffering.

2021 was a year of significant progress across the Group, both financially and operationally, with a strengthened platform created, capable of generating long term growth as our targeted markets continue to recover from the impact of the pandemic.

2022 started as a year less dominated by Covid-19, but the landscape in which we all operate has dramatically changed due to the impact of the war in Ukraine, which continues to be fast moving, causing significant volatility and uncertainty across commodity and energy markets. The crisis has further highlighted energy as an essential board level priority and the Group continues to take every opportunity to help all customers mitigate the cost of energy, manage their energy consumption and carbon emissions during these unprecedented times.

Inspired PLC

In July 2021, Inspired Energy PLC became Inspired PLC. The name change was affected to reflect the structure into which the Group has evolved: a technology enabled service provider with the market leading position for energy procurement, utility cost optimisation and sustainability enhancement in the UK and Ireland with three clearly defined divisions: Inspired Energy Solutions, Inspired ESG and Inspired Software.

Board changes

On 1 July 2021, I was delighted to assume the role of Non-Executive Chairman having served as the senior independent Non-Executive Director of the Group since 2017, succeeding our retiring Chairman, Mike Fletcher, who had been a member of the Board since the Group's IPO in 2011. On behalf of the Board and all at Inspired, I wish to thank Mike for his invaluable contribution throughout his time on the Board.

During H2 2021, the Board was strengthened with the appointments of Sangita Shah, who chairs the Remuneration Committee, and Dianne Walker, chair of the Audit and Risk Committee, as independent Non-Executive Directors. Both bring a wealth of varied and relevant experience complementing the skill sets of our existing Board members.

The Board is also pleased to announce the proposed appointment to the board of David Cockshott, the Group's Chief Commercial Officer. David, who joined the Group in 2020 in the role of Chief Commercial Officer, will become an executive director on the Board from 1 April 2022. David is an experienced leader with over 30 years in energy, having held board positions at Marubeni-owned Smartest Energy Limited and at Inenco Group, as well as executive responsibility for I&C and latterly, Domestic Markets for energy supplier Npower. As the Group continues to grow, it is important to expand the executive leadership bandwidth and David will assume operational responsibility for our Energy Solutions Division for the 2022 year.

From the 1 April 2022, the Board will consist of three Executive Directors supported by a Non-Executive Chairman and three independent Non-Executive Directors, representing a broader mix of skills and diversity to align with the Group's evolving strategy.

Acquisitions

In March 2021, the Board was pleased to conclude the acquisitions of Businesswise and GEM, which are highly complementary additions to the Group. We welcome the Businesswise and GEM teams to the Group.

Integration of the acquisitions is progressing to plan, and both businesses are performing in line with management expectations, further increasing Inspired's market share in Energy Assurance Services.

Dividend

Since IPO, Inspired has established a track record of delivering profitable and cash-generative growth which has facilitated a consistent and progressive dividend policy.

Accordingly, the Board is pleased to propose a final dividend of 0.13 pence (2020: 0.12 pence) subject to shareholder approval at the AGM in June, resulting in a full year dividend of 0.25 pence (2021: 0.12 pence). The dividend aligns with the Board's stated policy of a dividend cover of at least 3x earnings, with the objective of delivering progressive dividend growth over time.

The dividend will be payable on 26 July 2022 to all shareholders on the register on 17 June 2022 and the shares will go ex-dividend on 16 June 2022.

Staff

On behalf of the Board, I would like to thank all our employees, who continue to overcome the challenges of these unprecedented times. We have continued, throughout, to invest in our valued team and the business. The Group takes every opportunity to help all customers mitigate the cost of energy, manage their energy consumption and carbon emissions during these unprecedented times.

Richard Logan

Chairman

29 March 2022

Chief Executive Officer's Statement

The Group delivered strong growth in 2021, as the UK economy bounced back from the pandemic. We made significant progress in delivering on its strategy to provide a holistic suite of services to support corporate businesses on their journey towards Net Zero Carbon and to manage their response to climate change.

Review of 2021

2021 was a strong year for the Group in which we delivered solid organic growth, with a significant increase in revenue, in part reflecting the bounce-back in activity as restrictions were lifted, with trading gaining strong momentum in H2 2021, as the strategic plans we initiated in 2019 came to fruition. The favourable underlying value drivers of Net Zero Carbon and ESG continued to drive growth and opportunity.

Evolving into Inspired PLC

During 2021, the Group completed its evolution into Inspired PLC, operating with three divisions and four reporting segments, with the Group starting to report financial results under this structure for the first time.

We continued to grow organically across all three divisions, with this supplemented by acquisitions within the Energy Solutions Division, increasing the active UK clients under management from 3,400 to 3,500. The Group's revenue base continued to diversify, with optimisation revenues increasing to 44% of the Group total (31% 2020), reflecting the societal shift towards climate change and Net Zero Carbon.

Energy Assurance Services

Energy Assurance Services trading in the year remained in line with expectations as the Group continued to deliver on its strategy to broaden its customer base and significantly increase its units of opportunity (carbon emission points), with energy consumption levels increasingly recovering to pre pandemic levels.

Energy Optimisation Services

Alongside the ability to access client sites more readily, Optimisation Services revenues also benefitted significantly from the accelerating focus on the Net Zero Carbon agenda and the need for businesses to respond to climate change, driving record revenues for the division in H2 2021.

The acceleration in Optimisation Services delivery in H2 2021, from a business with a low utilisation rate in H1 2021, led to an increase in working capital utilisation into the year end which we expect to normalise during 2022.

ESG Services

Our organic entry into the ESG market for the provision of disclosure services was very encouraging, as we went from a standing start to revenues of £0.9m, pioneering a pragmatic, practical and data driven service that cost effectively delivers ESG disclosures for clients.

Software Solutions

The number of third parties using our software increased from 50 to 60, delivering 13% organic growth. The Group deployed three new modules during the year.

Acquisitions

We completed the acquisitions of Businesswise and GEM, in Q1 2021, as the final phase of the deployment of our capital from the 2020 equity raise. These acquisitions focused on the Energy Assurance Space and increased the units of opportunity (carbon emission points) that we work with and increases the surface area of opportunity to provide Optimisation and ESG services to these clients.

Post period end, the Group acquired I-Prophets Compliance Limited and Digital Energy Limited, for an aggregate consideration of £0.6m. I-Prophets Compliance Limited and Digital Energy Limited are two trading subsidiaries of Information Prophets Limited, in whom the Group previously held a strategic investment position. As part of the transaction to acquire I-Prophets Compliance Limited and Digital Energy Limited, the option to acquire Information Prophets Limited the Group entered in 2019 was amended to reflect the Group acquiring two of the trading subsidiaries of Information Prophets Limited.

The businesses are a niche competitor for our CARO monitoring and targeting software and give us access to 29,000 which further increases our units of opportunity.

Evolving our ESG Disclosures

The Group is delighted to publish its mandatory disclosures with respect to Streamlined Energy & Carbon Reporting (SECR) and our voluntary disclosures with respect to Taskforce on Climate Related Financial Disclosures (TCFD) and ESG (completed in line with GRI principles).

We are proud to retain our Green Economy Mark from the London Stock Exchange and achieve carbon neutrality for 2021. You will find a full disclosure of our Sustainability and ESG impacts in our separately published suite of disclosures on our website, along with a summary of all of our business policies and our performance against them during 2021.

Strengthening our Board

2021 saw a significant step forward in the composition of our Board, adding a broad range of skillsets suitable for enabling our ambition to grow from an enterprise value of c.£200m to £500m over the next five years. The appointments of Dianne Walker as an audit and finance specialist and Sangita Shah, who sits on the Board of the QCA as a strategy and governance specialist, combined with Sarah Flannigan as a technology specialist with energy experience, brings a wealth of relevant experience at Board level. Richard Logan, a veteran of AIM, was appointed as Chairman during 2021, positioning us well for the next phase of growth and development.

Increasing our Executive Bandwidth

As the group continues to grow and has effectively trebled in size since 2017, it is appropriate to expand our executive leadership. We are delighted that David Cockshott, who joined the Group in 2020 as Chief Commercial Officer, will become an executive director on the Board from 1 April 2022. David will have operational responsibility for our Energy Solutions Division for 2022.

Macro Environment

The war in Ukraine

At the time of publishing our 2021 results, the impacts of the war in Ukraine have been fast moving and continue to cause significant volatility and uncertainty across commodity and energy markets. As set out in our update to the market on 21 March 2022, we have proactively considered the impact of this event in its entirety and the Group is focused on the mitigating actions we can take by supporting clients with contract replacement. Inspired remains focused on helping its clients manage their costs and sustainability challenges through this crisis.

Managing an energy crisis

The impact of the energy crisis experienced during H2 2021 has continued into 2022. The impact on domestic energy consumers, including the raising of the price cap, has been well documented. The unprecedented nature of the crisis has and will present a number of challenges to society as a whole. However as corporate businesses do not benefit from an energy cap, the price inflation will impact those businesses more significantly.

It is important to note that Group revenues and profits are not directly impacted by changes in energy commodity prices. Market conditions, including record high commodity prices, have led to some customers delaying renewals of supply contracts, which is predominantly the point at which assurance customers contract with the Group. Management believes this is a point of timing, not contraction of demand, with customer retention remaining consistent with previous years during the period at c. 85%.

Inspired plc is focused on helping its clients manage their costs through this crisis and note that the economics of projects that reduce customers' energy consumption and carbon emissions offer a materially enhanced return on capital in this environment. The Group is well placed to help clients address this once the macro environment normalises.

Inflation

The compound effect of the war in Ukraine, together with the rapid rise in energy costs, is likely to lead to the current inflationary environment persisting for some time. This will provide medium to long term opportunity for the Group but, as with all businesses, could lead to short term pressures given the lag between absorbing inflation in the cost base and increasing the market price of our services to recover this.

In response to the potential for increased inflationary pressure the Group is accelerating its roll out of Robotic Process Automation (RPA) and the expansion of our operations centre in Mumbai.

Covid Recovery

Following the introduction of further lockdown measures in early 2021, which prevented access to customer sites, the delivery of Optimisation Services was severely disrupted during H1 2021. H2 2021 saw a return to business as usual and a catch up in the delivery of Optimisation Services, once we were allowed access to clients' sites again.. We observe that save for any new developments with respect to the pandemic this is no longer a limiting factor on business performance.

Outlook

The bigger picture

The war in Ukraine, at the time of writing, places all of the risks and opportunities in perspective when considered in the context of life and death situations. The geopolitical and macroeconomic environment make the excitement of our opportunities seem trivial and provides a backdrop of risks that are out of our control to be managed.

Despite this unprecedented backdrop, we find ourselves with a strong platform for growth, an evolved strategy and one of the market leaders in our space. We are well placed to deliver value to corporate businesses.

I am sure many share our shock at the abhorrent actions of the Russian regime and our hope that the war and resulting humanitarian crisis ends soon with a peaceful resolution.

Delivering Net Zero Carbon Solutions

Further to COP26 and noting the favourable macro drivers in relation to Net Zero Carbon and ESG, for 2022 we will be focusing on delivering further cross sells to our existing clients and maximising the potential of each of the Units of Opportunity within the portfolio.

Acceleration of ESG Solutions

During 2021, we proved the concept of ESG solutions, demonstrating we could sell and deliver services to existing clients and developing an understanding of the value proposition and the value that clients will ascribe to such services.

Given that our organic entry into ESG has proved successful, 2022 will see us start to make a more substantive investment into ESG resources and capability. We will reinvest c.£1.5m of EBITDA in order to expand our ESG delivery capabilities (through people and processes) in order to scale up, so the Group can stay ahead of demand.

More generally we would expect this investment to be a catalyst for accelerating the growth of the ESG Solutions division, which we believe has an addressable market that is equivalent to the size of the market for Energy Assurance and Optimisation Services and provides an opportunity for material organic growth.

Delivering Software Solutions

Our Software Solutions Division is continuing to develop modules which allow the evolution of our technology enabled services and expand the number of the third parties that we provide such software to.

The provision of our software to other service providers in the marketplace generates additional economic rents from capital expenditure that the Group would have to undertake in order to provide its own technology enabled service. Furthermore, by technology enabling other service providers in the marketplace, we professionalise our pipeline for future M&A activity. As our technology helps those other service providers grow and their owners seek to de-risk, the Group becomes a natural buyer for such businesses.

Continued M&A

In addition to a track record of consistently delivering organic growth, the Group has built a strong capability to deliver and integrate acquisitions. Having completed three acquisitions in 2021, the next year will see us continuing to build our acquisition pipeline with a particular focus on businesses that help build our capability with respect to Optimisation and ESG Services.

Q1 2022 update

Trading in Q1 has started in line with expectations as the Group continues to manage the current macroeconomic and geopolitical uncertainties.

Cash collection has started strongly in the new financial year following the increase in trade receivables at the year end as a result of the strong growth experienced in the Optimisation Division during H2 2021.

We note that new business sales have started particularly well with the orderbook values of new customer contracts signed in the first two months of the year being some 93% ahead of the previous year. This should not be confused with revenue growth as order book will flow to revenue over multiple years and this performance is likely to smooth over the year. However, a positive start despite a challenging macroeconomic environment.

Mark Dickinson

Chief Executive Officer

29 March 2022

Chief Financial Officer's Statement

We are pleased to report strong financial results for the year ended 31 December 2021 where we have remained agile and alert to the changing restrictions and environment in which we operate, navigating the challenges of the ongoing pandemic and global energy crisis.

2021 was a year in which we achieved a 47% increase in revenue, with total revenues of £67.9m compared to £46.1m in 2020. Following the significant impact of the Covid-19 pandemic in 2020 and Q1 2021, the Group's organic revenue showed a strong recovery in 2021, increasing by 37% (2020: -20%). Group Adjusted EBITDA increased by 55%, driven by significant increases in contribution from Optimisation Services, generating £5.0 million having contributed a loss of (£0.5) million in 2020, and Assurance Services EBITDA increasing 18% to £17.0 million (2020: £14.3 million).

This reflects the ongoing economic activity recovery from the challenges presented by the pandemic, partly driven by a recovery in energy consumption by our assurance customers and, as anticipated, the resumption, and subsequent acceleration of optimisation projects in H2 2021 once access to client's premises was no longer restricted by pandemic rules.

The war in Ukraine has created volatility across commodity and energy markets and the Group continues to manage the uncertain macroeconomic backdrop, where additional risks need to be managed.

Divisional Performance

Energy Solutions Division

The Energy Solutions Division comprises Energy Assurance Services and Energy Optimisation Services.

Energy Assurance Services

Energy Assurance Services trading in the year remained in line with expectations. The Group continued to deliver on its strategy to broaden its customer base and significantly increase its units of opportunity (also referred to as client meter points or carbon emission points), with energy consumption levels continuing to recover to pre pandemic levels.

Energy Assurance Services generated 52% of total Group revenues in 2021 (2020: 64%) being £35.5 million (2020: £29.6 million) an increase of 20%, of which 5% was organic.

Energy Assurance Services contributed adjusted EBITDA of £17.0 million, an increase of 19% (2020: £14.3 million). The adjusted EBITDA percentage margin was 48% (2020: 48%).

Energy Optimisation Services

The Group's Energy Optimisation Services division gained momentum throughout 2021, accelerating in H2 2021, following the lifting of Covid-19 related restrictions, which had previously impeded access to sites.

Energy Optimisation Services generated 43% of total Group revenues in 2021 (2020: 30%), amounting to £29.1 million (2020: £13.9 million), an increase of 109%, all of which was organic. Energy Optimisation Services contributed adjusted EBITDA of £5.0 million having been loss making in 2020 due to the Covid-19 disruption (2020: loss of £0.5 million). The optimisation services division in H1 2021 delivered Adjusted EBITDA margins of 11% reflecting the impact of Covid-19 restrictions on the trading performance of the division, with the benefits of the investment made into the division reaped during the second half of the year as activity levels increased, H2 2021 Adjusted Margins recovered to 22%. As a result, the full year Adjusted EBITDA percentage margin for 2021 was 17% (2020: -3%). Operating at full capacity, management's expectation is that the division will consistently generate Adjusted EBITDA margins of 20%-25%.

Demand for energy optimisation services continues to increase, with strong underlying drivers, including high commodity prices and the drive to net-zero.

Software Solutions Division

The Group's Software Solutions Division continues to develop well with revenues growing organically by 13% to £2.4 million (2020: £2.1 million) and generating Adjusted EBITDA of £1.8 million (2020: £1.4 million), with the division producing a strong sustainable adjusted EBITDA margin of 74% (2020: 68%).

ESG Solutions Division

The ESG Solutions Division comprises ESG Disclosure Services and ESG Impact Services.

ESG Solutions generated revenues £1.0 million in its first full year of operation (2020: £0.5 million), delivering 96% growth organically, reflective of the growing market for these services. The increasing focus of investors and businesses on Net Zero Carbon targets, combined with mandatory requirements for businesses to make ESG disclosures from 2022, provides a favourable backdrop to continue to invest in the strategy for the Inspired ESG division.

Group results

PLC costs were £3.9 million (2020: £2.7 million), reflecting the increased investment in management bandwidth and talent.

Overall, the Group generated Adjusted EBITDA for the year of £19.8 million (2020: £12.8 million). After deducting charges for depreciation, amortisation of internally generated intangible assets and finance expenditure, the adjusted profit before tax for the year was £13.4 million (2020: £6.9 million). The increase in Adjusted EBITDA was in part offset by an increase in depreciation and internally generated amortisation. Finance costs were higher than anticipated, as the Group chose to hold a higher level of cash and cash equivalents than reduce the balance drawn under the revolving credit facility with its lenders.

Under IFRS measures the Group reported a profit before tax for the year of £1.9 million (2020: loss of £4.5 million), with reported profit before tax in the year impacted significantly by substantial charges for the amortisation of intangible assets as a result of acquisitions, share-based payment charges, fees associated with acquisitions, restructuring costs and the changes in the fair value of contingent consideration.

A full reconciliation of the Group's adjusted profit before tax to its reported profit before tax is included at note 5.

Alternative performance measures

Acquisition activity can significantly distort underlying financial performance from IFRS measures, the Board therefore, considers it appropriate to report adjusted metrics, as well as IFRS measures, for the benefit of primary users of the Group's financial statements. Reconciliations to Adjusted Profit Before Tax and Adjusted Fully Diluted EPS can be found in note 5.

Cash generation

Group cash generated from operations during the period was £7.9 million (2020: £8.4 million). Excluding non-recurring fees associated with restructuring costs and deal fees, cash generated from operations was £10.2 million (2020: £11.6 million).

· Energy Assurance Services division generated operating cash of 80% of Adjusted EBITDA during 2021, being £13.6 million.

· The acceleration in Energy Optimisation project delivery, in particular in Q4 2021 which was a record quarter for the divisions, drove an increase in trade receivables into the year end. As a result of this working capital cycle in 2021, underlying cash generated from operations within the division was a cash outflow of £1.0 million, being -11% of the Adjusted EBITDA of the division.

Trade receivables within the Energy Optimisation Services division at the yearend were £11.0 million, of which 75% has been collected in Q1 2022 to date. Within the 25% which remains uncollected in Q1 2022, is an aged balance of £2.1 million due from a major public sector optimisation customer. As noted in the January trading update, measures remain in place to collect this balance during H1 2022. Excluding this specific aged balance, 90%+ of the year end optimisation balance has been collected to date in Q1.

· Software Solutions Services division - Operating cash of 107% of Adjusted EBITDA during 2021, being £1.9 million.

Overall, following a cash outflow in PLC costs of £4.3 million, and minimal cash contribution from ESG Solutions, underlying cash generated from operations for the period was £10.2 million.

At the time of publishing the 2021 final results, 80% of the Group trade receivables balance at the 31 December 2021 has been received to date in Q1 2022, and with the exclusion of the £2.1 million aged receivable within the Optimisation Services Division, 90% of the Group trade receivables balance has been recovered in Q1 2022.

Management expects underlying operating cash conversion ratios from FY2022 onwards to further improve, as the Energy Optimisation division's trading growth profile stabilises.

During H2 2021, the Group made an accelerated investment in solutions architecture and CRM, to ensure our platforms can continue to scale and are interoperable with other systems. This wasn't repeatable expenditure, with management expecting intangible spend to return to expected levels in 2022.

The increase in net debt reflects a year in which the cash generation of the Group was offset by the payment of £7.3 million initial cash consideration for BWS and GEM, and £1.1 million of contingent cash consideration to the vendors of ECM, PCMG and LSI.

Exceptional costs

Exceptional costs of £2.3 million (2020: £2.3 million) were incurred in the year, which includes £1.0 million (2020: £1.4 million) of deal fees associated with acquisitions completed in the year.

Restructuring costs of £1.2 million (2020: £0.9 million) were incurred in the year, which included £0.9 million relating to restructuring programmes associated with the integration of businesses acquired prior to 2021 and £0.3 million of termination payments as a result of the disposal of the SME Division.

Change in Fair Value of Contingent Consideration

The fair value of contingent consideration at the balance sheet date is a judgement of the contingent consideration which will become payable based on a weighted average range of performance outcomes of the acquired business during the earn out period, which is subsequently discounted for the time value of money and risk.

The Group recognised a £4.7 million loss (2020: £1.1 million) in the period as a result of changes in the fair value of contingent consideration which was treated as exceptional. Of the £4.7 million loss, £3.0 million relates to the increase in the liability for contingent consideration payable, of which £1.9 million relates to the unwinding of discount rate, with £1.0m representative of the on-going economic recovery post the significant impact on trading of Covid-19 for Ignite Energy LTD.

Of the £4.7 million loss, £1.7 million relates to the reduction in the expected recovery of the deferred contingent consideration from the SME disposal completed in December 2020, of which £0.2 million relates to the unwinding of discount rate. The reduction in expected recovery is reflective of the impact of failed energy suppliers during the period, most notably CNG, and the impact of prolonged under consumption and site closures within the SME portfolio due to Covid-19.

Exceptional costs and changes in fair value of contingent consideration are considered by the Directors to be material in nature and non-recurring; they, therefore, merit separate identification to give a true and fair view of the Group's result for the period.

Financial position and liquidity

At 31 December 2021, the Group's net debt was £32.9 million (H1 2021: £30.17 million - 2020: £18.8 million). Cash and cash equivalents were £12.9 million (2020: £26.9 million) on hand. Approximately £14.0 million of the Group's £60.0 million Revolving Credit Facility was undrawn, with an additional £25.0 million accordion option available to the Group, subject to covenant compliance.

In March 2021, the Board agreed with their lenders to amend the definition of Adjusted Net Leverage to apply from the 1 July 2021, to take account of the impact of the adoption of IFRS 16 and the re-definition of contingent consideration to only include deferred consideration or crystallised contingent consideration. Collectively, these agreed changes significantly reduce the forecast leverage of the Group for covenant purposes.

On entering the current facility agreement with Santander and Bank of Ireland in October 2019, the Group had an option to extend the term of the facility from October 2023 to October 2024. The Group exercised that option in September 2021, taking the term of the existing facility to October 2024. Subsequently, the Group has agreed with the lenders to defer by 12 months the tapering, from 2.50:1.00 to 2.00:1.00, of the Adjusted Net Leverage covenant; this was due to apply in the quarter ending 31 December 2022, but its application has now been extended to 31 December 2023, to align with the extension of the facility.

Dividend

The Board is pleased to propose a final dividend of 0.13 pence per share (2020: 0.12 pence) in line with the Group's revised policy of paying dividends covered by at least 3.0x earnings.

The dividend will be payable on 26 July 2022 to all shareholders on the register on 17 June 2022 and the shares will go ex-dividend on 16 June 2022.

In summary

The strategic and financial initiatives delivered in the year have ensured the Group is well placed to deliver the effective implementation of our strategic growth plan, whilst managing the additional risks created by the war in Ukraine. The strong growth of the Group's revenues, and adjusted EBITDA in the year, coupled with a strengthened platform capable of generating long-term growth position Inspired well to achieve its long-term financial goals.

Paul Connor

Chief Financial Officer

29 March 2022

Group statement of comprehensive income

For the year ended 31 December 2021

Group statement of financial position

At 31 December 2021

Group statement of changes in equity

For the year ended 31 December 2021

Merger relief reserve

The merger relief reserve represents the premium arising on shares issued as part or full consideration for acquisitions, where advantage has been taken of the provisions of section 612 of the Companies Act 2006.

Reverse acquisition reserve

The reverse acquisition reserve relates to the reverse acquisition between Inspired Energy Solutions Limited and Inspired PLC on 28 November 2011 and arises on consolidation.

Translation reserve

The translation reserve comprises translation differences arising from the translation of the financial statements of the Group's foreign entities into GBP (£).

Share-based payment reserve

The share-based payment reserve is a reserve to recognise those amounts in equity in respect of share-based payments.

Non-controlling interest

The non-controlling interest represented the outstanding 60% of the issued share capital of Ignite Energy LTD (IGN) held by third parties. IGN was consolidated and treated as a subsidiary in 2019 as the Group had an exclusive one-way call option to acquire the outstanding 60% of the issued share capital. The Directors recognised a non-controlling interest as the Share Purchase Agreement (SPA) was structured in such a way that the Group was deemed to have substantive control. On 17 July 2020, IGN became 100% owned and as such a non-controlling interest was no longer held.

Group statement of cash flows

For the year ended 31 December 2021

Notes to Final Results

Statement of compliance

These Condensed Consolidated Financial Statements do not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006 for the financial year ended 31 December 2021 but has been extracted from those financial statements. The annual financial statements for the year ended 31 December 2021 have been prepared in accordance with UK adopted International Accounting Standards. These Condensed Consolidated Financial Statements do not include all the disclosures required in financial statements prepared in accordance with UK adopted International Accounting Standards and accordingly do not themselves comply with UK adopted International Accounting Standards.

The financial information for the period ended 31 December 2020 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2021 will be delivered to the Registrar of Companies following the Company's annual general meeting. The auditors have reported on the financial statements for the years ended 31 December 2020 and 2021; their reports were unqualified, did not include any matters to which the auditor drew attention by way of emphasis and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006.

The Board of directors approved the Condensed Consolidated Financial Statements on 29 March 2021.

The Consolidated Financial Statements of the Group as at and for the year ended 31 December 2021 (2021 Annual Report) are available upon request from the Company Secretary, Inspired Energy plc, 29 Progress Park, Orders Lane, Kirkham, Lancashire, PR4 2TZ.

The principal accounting policies applied in the preparation of the Group financial statements are set out below.

1. Basis of preparation

The Group financial statements have been prepared in accordance with the Companies Act 2006 and UK adopted International Financial Reporting Standards. They have been prepared on an accrual basis and under the historical cost convention except for certain financial instruments measured at fair value.

The Group has taken advantage of the audit exemption for twenty-three of its subsidiaries, Independent Utilities Limited (company number 05658810), LSI Independent Utility Brokers Limited (04072919), Energy and Carbon Management Holdings Limited (09974219), Energy Team (UK) Limited (06285279), Energy Team (Midlands) Ltd (02913371), UES Energy Group Ltd (07741114), UES Holdings Ltd (06903390), Waterwatch UK Limited (08854844), Wholesale Power UK Limited (02717985), Informed Business Solutions Limited (04943661), Inspired Energy EBT Limited (10807501), Energy Broker Solutions Limited (07355726), BWS Holdco Limited (13027713), Direct Energy Purchasing Limited (03529303), Utility Management Holdings Limited (06969480), Churchcom Limited (05343736), Flexible Energy Management Limited (10264309), Inspired 4U Limited (08895906), Squareone Enterprises Limited (05261796), Energy Cost Management Limited (03377082), STC Energy Management Limited (03094427), Inprova Finance Ltd (07371389) and Professional Cost Management Group Limited (06511368) by virtue of s479A of the Companies Act 2006. The Group has provided parent guarantees to these twenty-three subsidiaries which have taken advantage of the exemption from audit.

Going concern

For the purposes of assessing the appropriateness of preparing the Group's accounts on a going concern basis, the Directors have considered the current cash position, available banking facilities and the Group's base case financial forecast through to 31 December 2023, including the ability to adhere to banking covenants.

The Directors believe the Group has a strong balance sheet position, having refinanced its banking facilities in October 2019 through to October 2023. Furthermore, on entering the current facility agreement with Santander and Bank of Ireland in October 2019, the Group had an option to extend the term of the facility from October 2023 to October 2024. The Group exercised that option in September 2021, taking the term of the existing facility to October 2024.

At 31 December 2022 the Group's net debt was £32.9 million, increasing from £18.8 million at 31 December 2020. In addition to cash and cash equivalents of £12.9 million on hand as at 31 December 2021, approximately £14.0 million of the Group's £60.0 million Revolving Credit Facility is undrawn with an additional £25.0 million accordion option available, subject to covenant compliance. The facility is subject to two covenants, which are tested quarterly, adjusted leverage to Adjusted EBITDA and Adjusted EBITDA to net finance charges. Following the onset of the Covid-19 pandemic in March 2020, the Group agreed with its banking partners in May 2020 a resetting of the adjusted leverage covenant for quarters ending 30 June 2020 through to 30 June 2021.

In March 2021, the Board agreed with their lenders to amend the definition of Adjusted Net Leverage to apply from 1 July 2021, to reverse the impact of the adoptions of IFRS 16 and the definition of contingent consideration to only included deferred consideration or crystallised contingent consideration. Collectively, these changes reduce the Net Adjusted Leverage of the Group and significantly increased the headroom available to the Group from a covenant perspective.

Furthermore, subsequent to the year end, the Group has agreed with the lenders to defer the tapering of the Adjusted Net Leverage covenant from 2.50:1.00 to 2.00:1.00, which was due to commence in the quarter ending 31 December 2022 for 12 months to 31 December 2023 to align with the extension of the facility.

The future likely impact on the Group of the Covid-19 pandemic has been considered as part of the consideration of the going concern basis of preparation, and the Board is comfortable that the base case represents the Group returning to a business as usual status.

Noting the impacts of the war in the Ukraine and the resulting volatility and uncertainty across commodity and energy markets, from a going concern perspective, the Group considered a number of scenarios in relation to Gazprom Marketing and Trading Retail Limited ceasing trading in the UK, from the whom the Group are forecast to collect revenue from during 2022 and 2023. The Board is comfortable that in a severe scenario, the Group would have sufficient headroom under its banking covenants.

Therefore, the Directors believe that the Group is well placed to manage its business risks and, after making enquiries including a review of forecasts and scenarios, taking account of the potential impact of the macroeconomic uncertainty created by the war in Ukraine, reasonably possible changes in trading performances in the next twelve months and considering the available liquidity, including banking facilities, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the next twelve months following the date of approval of these financial statements. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

2. Segmental information

Revenue and segmental reporting

The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group's Executive Directors. Operating segments for the year to 31 December 2021 were determined on the basis of the reporting presented at regular Board meetings of the Group. The segments comprise:

Assurance Division

Key services provided are the review, analysis and negotiation of gas and electricity contracts on behalf of clients in the UK and ROI. To access this market we have a professional bid response team, direct field sales team, and partnership channel.

Optimisation Division

This division focuses on the optimisation of a client's energy consumption. Services provided include forensic audits, energy efficiency projects and water solutions.

Software Division

This division comprises the provision of energy management software to third parties.

ESG Division

Within this division the Group manages the data collection and validation of consumption data to provide the resources for the creation of mandatory ESG disclosures, such as Streamlined Energy and Carbon Reporting (SECR) and Taskforce on Climate-related Financial Disclosure (TCFD) reporting.

PLC costs

This comprises the costs of running the PLC, incorporating the cost of the Board, listing costs and other professional service costs, such as audit, tax, legal and Group insurance.

Any charges between segments are made in line with the Group's transfer pricing policy. These amounts have been removed, via consolidation, for the purposes of the information shown below.

Prior to 2021, the Group reported under three segments, namely the SME Division, the Corporate Division and PLC costs. These divisions were derived according to the nature and size of the customer and the level of procurement advice provided. Following the disposal of the SME Division in December 2020, the Board were presented with a more granular view of the Corporate Division driven by the evolution of the service offerings which has resulted in the following reportable segments being disclosed: Assurance, Optimisation, Software, ESG and PLC.

3. Finance expenditure

4. Income tax (credit)/expense

The income tax (credit)/expense is based on the (loss)/profit for the year and comprises:

5. Earnings per share

The basic earnings per share is based on the net profit for the year attributable to ordinary equity holders divided by the weighted average number of ordinary shares outstanding during the year.

The weighted average number of shares in issue for the adjusted diluted earnings per share includes the dilutive effect of the share options in issue to senior staff of the Group.

Adjusted earnings per share represents the earnings per share, as adjusted to remove the effect of fees associated with acquisitions, restructuring costs, the amortisation of intangible assets (excluding internally generated amortisation related to computer software and customer databases), exceptional items and share-based payment costs which have been expensed to the Group statement of comprehensive income in the year, the unwinding of contingent consideration and foreign exchange variances. The adjustments to earnings per share have been disclosed to give a clear understanding of the Group's underlying trading performance.

Adjusted profit before tax on continuing operations is calculated as follows:

Acquisitional activity can significantly distort underlying financial performance from IFRS measures and therefore the Board deems it appropriate to report adjusted metrics as well as IFRS measures for the benefit of primary users of the Group financial statements.

6. Property, plant and equipment

7. Right of use assets

The impairment during the year of £113,000 relates to vacation of property and early exit of a lease.

8. Intangible assets and goodwill

Computer software is a combination of assets internally generated, and assets acquired through business combinations. The amortisation charge in the period to 31 December 2021 associated with computer software acquired through business combinations is £381,000 (2020: £1,195,000). The additional £2,552,000 (2020: £2,080,000) charged in the period relates to the amortisation of internally generated computer software. The total amortisation charged in the period to 31 December 2021 associated with intangible assets acquired through business combinations is £4,415,000 (2020: £6,038,000). Amortisation is charged to administrative expenses for both financial years.

9. Trade and other receivables