Inspired Regulatory News (INSE)

22 August 2017

Inspired Energy plc

("Inspired" or the "Group")

Results for the six months ended 30 June 2017

Continued strong performance

Inspired Energy plc (AIM: INSE), a leading UK energy procurement consultant to UK and Irish corporates and SMEs, announces its consolidated, unaudited half year results for the six month period ended 30 June 2017.

Financial Highlights

* Earnings before interest, taxation, depreciation, amortisation, exceptional costs and share based payments

**Adjusted profit before tax is earnings before amortisation, excluding exceptional items and share based payments

· Results for the six months ended 30 June 2017 in line with management's expectations

· Strong cash generation from operations representing 74% of adjusted EBITDA (H1 2016: 68%; FY16; 60%)

· Interim dividend increased by 23% to 0.16p per share (H1 2016: 0.13p)

· The Procurement Corporate Order Book, which provides strong visibility of revenues and is a consistent guide to the future performance of the Corporate Division, has increased by 60% to £41.2m (H1 2016: £25.7m)

· Corporate division EBITDA reaches 91% of Group EBITDA for the period (2016: 86%)

Operational Highlights

· Mark Dickinson appointed Chief Operating Officer ("COO") of the Group, having joined Inspired as a non-executive Director in September 2016. Mark was previously CEO of M&C Energy Group where he led the buy and build strategy completing four acquisitions before selling the company to Schneider Electric in 2013

· Richard Logan appointed as a non-executive Director in March 2017

· Successful relocation and integration of Informed Business Solutions Limited ("Informed"), a corporate-focused acquisition completed in H2 2016

· Integration of Flexible Energy Management Limited ("FEML") and Churchcom Limited ("Churchcom") progressing well and in line with plans

Acquisitions and Finance

· Completed the acquisitions of FEML and Churchcom, with both businesses performing well and in line with expectations

· Completed the acquisition of Horizon Energy Group Limited ("Horizon") in July 2017 for a consideration of up to €15.0m, of which €9.0m was paid on completion 

· The Group entered into new banking facilities with Santander for £29.6m and €7.0m, of which £14.6m and €7.0m, was drawn, to refinance the existing indebtedness of Group and to further support the Group's acquisition strategy. The new facilities include a £12.5m acquisition facility and a £2.5m revolving credit facility. Both remain undrawn. As at 30 June 2017, Group net indebtedness was £12.6m (2016: £8.08m)

· The Group raised £9.0m via the placing of 62,068,966 new ordinary shares in the Company in July 2017, which was significantly oversubscribed, to fund the initial cash consideration in the acquisition of Horizon

Commenting on the results, Janet Thornton, CEO of Inspired, said: "I am delighted to report on a fantastic period of growth for the Group: financially, operationally and strategically. The work undertaken over the last 18 months, which culminated in the three Corporate acquisitions completed in the first half, the debt refinancing and the £9.0m placing, has provided an excellent platform for the business to continue its organic growth complemented by these significant further acquisitions.

"Inspired has delivered another period of strong growth on all fronts and the record results and performance once again demonstrate the commitment, drive and expertise of the whole team, which has now grown to 270 staff across the UK and Ireland. Our sector leading Corporate Division offers a breadth of innovative and cost effective solutions to a wide range of clients and sectors, backed-up by proactive advice and assurance throughout the life of a contract.

"The announcement of the strategic acquisition of Horizon after the period end will provide a platform to leverage the capabilities of the Group with the aim of becoming a market-leader in Ireland, and the net contribution from this and the two acquisitions in H1 enable us to look ahead into FY 2018 with even greater confidence.

"As demonstrated by the half year results and our key performance metrics including the Corporate Order Book, which continues to grow significantly both organically and through acquisitions, the Group is in an extremely strong position to continue to deliver a robust performance throughout the remainder of 2017 and beyond. On behalf of the Board, I would like to thank all of the Inspired team for the hard work over the past six months, as we look forward to completing another exciting year of growth and development of the business."

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Chairman's Statement

I am pleased to present the Group's unaudited interim results for the six months ended 30 June 2017, a period in which Inspired performed very strongly from a financial and operational perspective, delivering results in line with management's expectations.

The Group is delivering on all strategic fronts in the first half. We have strengthened the Board with the appointment of Mark Dickinson as COO and Richard Logan as an independent non-executive Director; implemented a new Long Term Incentive Plan ("LTIP"); announced three corporate-focused acquisitions; entered into new c.£35m banking facilities with Santander; and further strengthened the Group's institutional shareholder register through an over-subscribed £9.0m placing.

The strong performance and the strategic initiatives delivered during the period by the Group's team provides an excellent platform for future organic and acquisitive growth, further establishing the Group as a market leading energy consultant to UK and Irish Corporates and SMEs.

The Board is delighted with the appointment of Mark Dickinson as COO. Since joining the Board as a non-executive director in September 2016, Mark's expertise as an energy consultancy specialist, with over 20 years' experience of leading and advising companies in the sector has been invaluable, and we look forward to Mark contributing more broadly to the Company's continued development.

As noted above, the period also saw the implementation of a new LTIP for the benefit of Mark Dickinson and Paul Connor, Finance Director. Mark and Paul are key executives who are both important to the long-term success and value of the Company. By aligning the interests of Mark and Paul to our shareholders and by incentivising them over the long term, the Board believes that the Company will benefit significantly from their drive, energy and experience over the next six years.

The financial results highlight excellent growth, achieved whilst successfully integrating the corporate-focused acquisitions completed in the second half of 2016 and first half of 2017.

The core Corporate Division delivered a record set of results in the first half, underpinned by Procurement Order Book Sales of £8.4m (H1 2016: £7.2m), representing an increase of 17% for the period. As a result of this continued strong growth the Procurement Corporate Order Book has increased to £41.2m as at 30 June 2017 (H1 2016: £25.7m) representing a year on year increase of 60%. The Procurement Order Book remains a consistent guide to the future performance of the Group, providing strong visibility of revenues for FY 2017 and the next three years, enabling the Board to look forward with confidence over the short to medium term.

The acquisition of Informed in September 2016, in conjunction with excellent organic growth from the existing Corporate Division, increased revenue to £9.2m (H1 2016: £7.5m) which represents an increase of 23% and is over 75% of Group revenue. Adjusted EBITDA for the Corporate Division for the period is £4.3m (H1 2016: £3.2m) representing 91% of the Group's combined adjusted EBITDA (H1 2016: 86%). This continues to reinforce the Board's stated strategy to focus on growing the Corporate Division both through further acquisitions and organically.

The SME Division has continued to deliver strong revenue growth, profits and cash during H1 of 2017, with a minimal increase in headcount. Revenue for the SME Division in the six-month period was £3.0m (H1 2016: £2.6m) which represents an increase of 15% from the prior year. Adjusted EBITDA generated by the Division was £1.0m (H1 2016: £0.9m) and the SME Division contributed materially to cash generation in the period.

The acquisition of Horizon was a significant milestone in the development of the Group both strategically and financially and the Board is pleased to report that integration is progressing well, with both UK and Irish operations benefiting from the sharing of regional knowledge and expertise. The three acquisitions announced during the period have all enhanced Inspired's service offering, further broadened the client base and boosted the geographical spread within the Corporate Division. Further, we are pleased to report that all three acquired businesses are trading in line with expectations and we look forward to their contribution in the second half of 2017 and beyond.

Accordingly, the Board is pleased to propose an interim dividend of 0.16 pence per share (H1 2016: 0.13 pence per share).

We are delighted with the performance in the first half of 2017 and we enter the second half of 2017 and beyond with confidence. 

Michael Fletcher

Chairman

22 August 2017

CEO's Statement

The Board is delighted with the excellent performance of the Group in the period to 30 June 2017, providing a very strong platform from which to continue the organic and acquisitive growth of the business, adding new service lines, sector specialisms and geographical spread through acquisitions as clearly demonstrated with FEML, Churchcom and Horizon. We look forward to the second half of 2017 and the opportunities for further growth.

Corporate Division

Overview

With three acquisitions announced in H1, the Group's Corporate Division now comprises:

· Inspired Energy Solutions (founder business);

· DEP (acquired in 2012);

· WPUK (acquired in H2 2015);

· STC (acquired in H2 2015);

· Informed (acquired in H2 2016)

· FEML (acquired in H1 2017)

· Churchcom (acquired in H1 2017)

· Horizon (acquired in H2 2017)

The Division's core services include the review, analysis and negotiation of gas and electricity contracts on behalf of clients ("Energy Procurement Services"). Once contracts are signed and a client is on-board, the Division provides in-contract, real time, bureau, bill checking and cost dispute resolution services to clients ("Bureau Services"). 

Following the successful relocation of WPUK, the Procurement Division of STC and Informed, all UK Energy Procurement Services are performed from the Group's Head Office in Kirkham. The Bureau Services are provided from a core team in Kirkham and by STC, which is located in Bromley. All the Group's Irish Energy Procurement Services are performed from the Horizon office in Cork, Ireland.

Highlights

Highlights in the first half of the year include:

· Revenue increased 23% to £9.2m (H1 2016: £7.5m)

· The Corporate Division generated adjusted EBITDA of £4.3m (H1 2016: £3.2m), a 34% year on year increase

· Procurement Corporate Order Book Sales, increased by 17% to £8.4m in the period to 30 June 2017 (H1 2016: £7.2 million)

Procurement Corporate Order Book increased by 60% to £41.2 million as at 30 June 2017 (H1 2016: £25.7 million)

The Procurement Corporate Order Book is defined as the aggregate revenue expected by the Group in respect of signed contracts between an Inspired client and an energy supplier for the remainder of such contracts (where the contract is live) or for the duration of such contracts (where the contract has yet to commence). No value is ascribed to expected retentions of contracts.

The Procurement Corporate Order Book only relates to the Corporate Division, and does not include any SME revenue or contracts within it. The growth of the Procurement Corporate Order Book provides an indicator of the latent growth of the business which has yet to be recognised as revenue of the Group. This is due to no revenue being recognised by Inspired's Corporate Division until the energy is physically consumed by the client.

Procurement Corporate Order Book Sales

Procurement Corporate Order Book Sales values represent the aggregated expected revenue due to the Group from contracts secured within a defined period. Expected revenue is calculated as the expected commission due to the Group from signed contracts between a client and energy supplier for an agreed consumption value at an agreed commission rate.

Procurement Corporate Order Book Sales which are in excess of revenue recognised, within a defined period, will increase the Procurement Corporate Order Book of the Group, providing an indicator of expected future growth already secured by the Group.

SME Division

The Group's SME Division includes: EnergiSave Online ("EnergiSave"), KWH Consulting ("KWH") and Simply Business Energy ("SBE"). Within the SME Division, the Group's energy consultants contact prospective SME clients to offer reduced tariffs and contracts based on the unique situation of the customer.

The SME Division has achieved strong growth in the six months to 30 June 2017, with revenue increasing 15% to £3.0 million (H1 2016: £2.6m). The SME Division increased adjusted EBITDA to £1.0 million from £0.9 million in the six months ending 30 June 2016, representing organic growth of 16%. Again, during the period, staff numbers remaining broadly stable.

Acquisition Strategy

The Board continues to investigate opportunities for the Group to participate in industry consolidation. To create an enlarged and improved business, as demonstrated by the acquisitions made year to date in 2017, we believe that potential targets should offer one or more of the following criteria:

· Additional technical and/or service capability;

· Sector specialism and diversification;

· Increased geographic footprint; and

· Significant opportunities for sales or cost synergies

The Board continues to seek acquisition opportunities, which fit with the Group's strategy in order to augment the Group's services, products or markets.

Dividends

The Board is delighted to propose interim dividend of 0.16 pence per share. This represents an increase of 23% over the interim dividend paid in 2016, being 0.13 pence per share.

The ex-dividend date is 7 September 2017 with a record date of 8 September 2016. The dividend will be paid to shareholders on 14 November 2017.

Outlook

The strong performance in the first half of 2017 underpins the robust operational and financial platform for the full year, in which the Group is well placed to deliver another set of record results. We continue to benefit from further organic growth and the net contribution from the three recent acquisitions, enabling us to look ahead into FY 2018 with even greater confidence. 

The Group's established acquisition strategy has delivered great results as demonstrated by the success achieved by the acquisition of FEML, Churchcom and Horizon, whilst organic growth momentum has continued.

The Corporate Division continues to go from strength to strength and we are excited by the opportunities which can now be maximised from the enhanced breadth and depth of skills and expertise that the team can provide to our expanding customer base. 

On behalf of the Board, I would like to thank all of the Inspired team for the hard work over the past six months, as we look forward to completing another exciting year of growth and development of the business.

Janet Thornton

Chief Executive Officer

22 August 2017

Group Statement of Comprehensive Income

For the six months ended 30 June 2017

Group Statement of Financial Position

At 30 June 2017

Group Statement of Cash Flows

For the six months ended 30 June 2017

Group Statement of Changes in Equity

For the six months ended 30 June 2017

1. Accounting Policies

Basis of Preparation

These consolidated, unaudited, interim financial statements are for the six months ended 30 June 2017. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), this announcement in itself does not contain sufficient information to comply with IFRS. Details of the accounting policies are those set out in the annual report for the year ended 31 December 2016. These accounting policies have remained unchanged for the six months ended 30 June 2017.

Going Concern

The Group's forecasts, which have been prepared for the period to 31 December 2018 after taking into account the contracted orders book, future sales performance, expected overheads, capital expenditure and debt service costs, show that the Group should be able to operate profitably and within the current financial resources available to the Group.

After making enquiries, the Directors have a reasonable expectation that the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the consolidated interim financial statements.

The preparation of financial statements, in conformity with generally accepted accounting principles under IFRS, requirements management to make estimates and assumptions that affect the reporting amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.

1.1 Revenue Recognition

Corporate Division

Commissions received from the energy suppliers are based upon the energy usage of the Corporate customer at agreed commission rates with the energy suppliers. Commission income is recognised in line with the energy usage of the Corporate customer over the term of the contract which is considered to be the point at which commission income can be reliably measured. This is due to the impact of the observed variability of actual to estimated energy usage on Corporate customer contracts on the substantial Procurement Corporate Order Book of the Corporate Division.

The majority of contracts are entered into as 'direct billing' contracts, whereby commissions are received in cash terms in line with the billing profile of the ultimate customer, which can be on a monthly or quarterly basis. For a minority of suppliers, 'up-front payment' contracts are entered into, whereby the supplier pays a percentage of the commission on the contract commencement date, with the remaining percentage on contract reconciliation at a future specified date.

Accrued income for the Corporate Division represents commission income recognised at the year-end in respect of customer energy usage prior to the year-end which has not been settled by the energy supplier at that point.

For risk managed contracts, where a number of services are provided to the Corporate customer over the term of the contract, commission income is similarly recognised in line with the energy usage of the customer which approximates to recognition on a straight line basis over the contract period.

In respect of contracts for on-going services billed directly to the Corporate customer including bureau services, which have increased since the acquisition of STC Energy and Carbon Holdings Limited, revenue represents the value of work done in the year. Revenue in respect of contracts for on-going consultancy services is recognised as it becomes unconditionally due to the group as services are delivered and is measured by reference to stage of completion as determined by cost profile.

SME Division

The SME Division provides services through procuring contracts with energy suppliers on behalf of SME customers and generates revenues by way of commissions received directly from the energy suppliers. No further services regarding procurement are performed once the contract is authorised by the supplier. Commissions earned by the SME Division fall into two broad categories:

Change of Tenancy Agreements ('COTS')

COTS agreements are largely entered into by customers on moving into new premises. Revenue relates to an upfront fixed commission received from the energy supplier, on setting up a new supply agreement. The commission received has no linkage to future energy usage and hence revenue can be reliably measured at the point the contract has been authorised by the energy supplier. Revenue is recognised at the point the contract has been authorised by the energy supplier.

Other SME Agreements

For other SME agreements, commissions are based upon the energy usage of the SME customer at agreed commission rates with the energy suppliers. The expected commission over the full term of the contract is recognised at the point the contract is authorised by the supplier. Where actual energy use by the business differs to that calculated at the date the contract goes live, an adjustment is made to revenue once the actual data is known.

The cash received profile relating to these revenues varies according to the contract terms in place with the energy supplier engaged and can be received before the date the contract goes live or spread over the terms of the contract between the energy supplier and the end customer which can be for a period of up to three years. Accrued revenue relates to commission earned, not yet received or paid and are discounted at an appropriate rate.

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 six month period to 30 June 2017 were determined on the basis of the reporting presented at regular Board meetings of the Group which is by nature of customer and level of procurement advice provided. The segments comprise:

The Corporate Division ("Corporate")

This sector comprises the operations of Inspired Energy Solutions Limited, Direct Energy Purchasing Limited, Wholesale Power UK Limited, STC Energy Management Limited, Informed Business Solutions Limited, Flexible Energy Management Limited and Churchcom Limited. The Corporate's core services are primarily in the review, analysis and negotiation of gas and electricity contracts on behalf of corporate clients. Additional services provided include Energy Review and Benchmarking, Negotiation and Bill Validation. The Group's Corporate Division benefits from a market leading trading team, who actively focus on high volume customers, providing more complex, long-term energy frameworks based on agreed risk management strategies.

The SME Division (SME)

This sector comprises the operations of the Energisave Online Limited, KWH Consulting Limited and Simply Business Energy Limited. Within the SME Division, the Group's energy consultants contact prospective SME clients to offer reduced tariffs and contracts based on the unique situation of the customer. Leads are generated and managed by the Group's internally generated, bespoke CRM and case management IT system. Tariffs are offered from a range of suppliers and the Group is actively working with new suppliers to increase the range of products available to SME clients.

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.

3. Earnings Per Share

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

The weighted average number of shares in issue for the adjusted diluted earnings per share include the dilutive effect of the 17,847,019 share options in issue to senior staff of Inspired.

Adjusted earnings per share represents the earnings per share, as adjusted to remove the effect of the fees associated with acquisition/listing, amortisation of intangible assets, share based payments and exceptional items which have been expensed to the income statement in the period.

Alternate adjusted earnings per share represents the earnings per share, as adjusted to remove the effect of the fees associated with acquisition/listing, amortisation of intangible assets (excluding amortisation related to computer software and customer databases), share based payments and exceptional items which have been expensed to the income statement in the period.

4. Property, Plant and Equipment

5. Intangible assets and goodwill

Computer software is a combination of assets internally generated and assets acquired through business combinations. Amortisation charged in the period to 30 June 2017 associated with computer software acquired through business combinations is £328,150. The additional £151,058 charged in the period relates to the amortisation of internally generated computer software. Amortisation of customer databases of £181,160 is also in relation to internally generated intangible assets.

6. Availability of this announcement

This announcement together with the financial statements herein and a presentation in respect of the interim financial results are available on the Group's website, www.inspiredplc.co.uk