Inspired Regulatory News (INSE)

4 September 2019

Inspired Energy plc

("Inspired" or the "Group")

Results for the six months ended 30 June 2019

Robust start to the year

Inspired (AIM: INSE), a leading energy consultant to UK and Irish corporates, announces its consolidated, unaudited half year results for the six-month period ended 30 June 2019.

Financial Highlights

Operational Highlights

·; Record revenues delivered by the Corporate Division, growing 36% to £18.68m (H1 2018: £13.76m), contributing 87% of Group revenue for the period (H1 2018: 85%).

·; Continued organic revenue growth of 6% in the Corporate Division, in line with the Group's stated target.

·; Corporate Division contributed Adjusted EBITDA of £8.97m, an increase of 40% (H1 2018: £6.43m).

·; SME Division generated revenues of £2.88m (H1 2018: £2.48m), growing 16% organically in the period.

·; Corporate Order Book increased to £55.4m in the period (31 December 2018: £53.0m) with strong customer retention and robust performance from significant new customer wins.

·; The Corporate Order Book provides 12 months secured revenue of £28.4m (31 December 2018: £26.0m) for the Corporate Division.

·; Underlying cash generation was robust in the period, with cash generated from operations (excluding restructuring costs and the impact of deal fees) of £6.8m (2018: £5.8m), an increase of 17% over the prior period

·; Transaction fees of £1.0m, relating to the acquisition of Inprova Finance Limited ("Inprova") were accrued into 2018, but paid in the period, together with expected non-recurring restructuring costs resulting from its integration, contributed to an increase in net debt to £25.09m (FY 2018: £23.54m).

·; The capital investment programme identified at the start of the year is underway and progressing in line with management expectations, resulting in the increase in payments to acquire intangible assets to £1.05m in H1 2019 (FY 2018: £1.51m).

·; Interim dividend increased by 16% to 0.22 pence per share (H1 2018: 0.19 pence).

Post period end acquisitions

·; Completed the acquisition of an initial 40 per cent of the issued share capital of Ignite Energy LTD ("Ignite") on 2 August 2019 (the "Strategic Investment"), with an exclusive option, until 31 July 2021, to acquire the balancing interest of 60 per cent under the terms of an option agreement. The Board believes the Strategic Investment accelerates the Group's ability to deliver on the stated strategy to grow its market share within the third-party intermediary optimisation services market.

·; The Strategic Investment in Ignite was financed from the Group's existing facilities with Santander.

Commenting on the results, Mark Dickinson, CEO of Inspired, said: "Concluding 2018 with the Inprova acquisition was a significant strategic milestone for the Group. 2019 has continued at pace with the acceleration of our next growth phase, further complementary and value-enhancing acquisitions completed in parallel with sustained organic growth."

"The Group is well placed to deliver another set of record results as we continue to benefit from further organic growth and the net contribution of recent acquisitions. On behalf of the Board, I would like to thank all of the Inspired team for their continued hard work and commitment over the past six months."

* 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 variances. (A reconciliation of this can be found in note 3 of the financial statements).

***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 variances.

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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 2019, a period in which the Group continued to deliver on all strategic fronts, achieving results in line with management's expectations.

The acquisition of Inprova in December 2018 was a significant milestone in the development of the Group, both strategically and financially, and the Board is pleased to report that its integration continues to progress well and to plan. During the first six months following completion of the acquisition, management restructured the Inprova senior management team, consolidated four operational offices into two, integrating and subsequently closing the Horsham office into the Burgess Hill office, and consolidating the Warrington office into the Group head office in Kirkham, whilst aligning central functions with Group.

The effectiveness of the integration of Inprova to date is testament to the investment made by the Group during 2017 and 2018 to develop its management bandwidth and platform to enable the realisation of operational leverage from acquisitions effectively and efficiently, without impacting service levels for clients.

It is important to note the Group sustained organic growth during the period in both the Corporate Division and the SME Division. The Group has a stated target for organic growth of 6% to 8% per annum and this has been achieved in the first half despite a non-repeat of the benefits of the extreme cold weather in the first half of 2018. We are confident that the strength of the Group's organic growth engine will enable us to sustain organic growth in line with our targets whilst we continue to execute the Group's acquisition strategy.

The Strategic Investment in Ignite post period end, a business which is highly complementary to Inspired's core Corporate Division, is further evidence of the Group delivering on its well-established and successful acquisition strategy. The Board believes that optimisation services represents a very significant future opportunity for the Group, leveraging its established market leading position in energy consultancy. The Strategic Investment accelerates the Group's ability to grow its market share within the third-party intermediary optimisation services market.

The Board is pleased to propose an interim dividend of 0.22 pence per share. This represents an increase of 16% over the interim dividend paid in 2018, being 0.19 pence per share.

We are delighted with the performance of the Group in the first half of 2019 and we enter the second half of 2019 with confidence. 

Michael Fletcher

Chairman

4 September 2019

CEO's Statement

Following the Group's achievements in 2018, we have carried that positive momentum into 2019 and have a clear strategy to build on this in the remainder of 2019 and beyond. Ensuring we maintain a market leading service for our clients is key as we continue to drive the business forward, whilst broadening our service offering through complementary acquisitions.

Acquisition Strategy

The Board continues to evaluate opportunities for the Group to participate in further industry consolidation. With a strong focus on building an enlarged and improved business, as demonstrated by the acquisitions to date, we believe that potential targets should offer one or more of the following criteria:

·; Increased geographic footprint building our Units of Opportunity;

·; Increased number of meter points with which we have a commercial relationship, building our Units of Opportunity;

·; Additional technical and/or service capability increasing our Accessible Revenue;

·; Sector specialism and diversification increasing our Accessible Revenue; and

·; Significant opportunities for sales or cost synergies to generate further economies of scale.

Ignite

The Strategic Investment in Ignite, post period end, significantly accelerates the Group's ability to deliver on its stated strategy to grow market share within the third-party intermediary ("TPI") optimisation services market, leveraging its established market leading position in energy consultancy.

Ignite has proven, over many years, to be capable of achieving material improvements in the energy efficiency of its clients. Inspired currently has over 500 clients within the estate and energy intensive segments who meet the Ignite customer profile and could benefit from the services that Ignite provides.

The UK optimisation services market remains relatively immature and service delivery models in this area, which are typically project based rather than recurring, will evolve over time as both customer understanding and technology develop. Against this backdrop, the Board believes that it is important the Company remains flexible and able to adapt its offering in this area in line with market developments, which complements its growing optimisation services capabilities.

The Strategic Investment is structured to enable Inspired to accelerate its own optimisation service offering to the Inspired customer base, drawing on the skills and experience of the Ignite team, whilst enabling Ignite to broaden and dilute its existing customer concentration through access to and servicing of the Inspired customer base. The Strategic Investment aligns the interests of Ignite's management with those of the Group, as the Option Consideration would capture the benefits if they are able to accelerate growth over the next two years. From the Group's perspective, the Option Agreement enables Inspired to secure ownership of Ignite at an attractive valuation, whilst retaining operational and capital flexibility.

The market for energy advisory services is a £1.2bn market opportunity. The Group provides consultancy services to clients in managing their entire energy cost equation, including both price and consumption sides of the client's energy cost equation. Procurement and energy accounting services support the client in managing the price side of the client's energy cost equation. For these services, three in four Corporate customers (defined by the Group as customers with energy consumption in excess of 0.5 Gwh per annum) in the UK use a TPI to assist them in these areas.

However, only one in six Corporate customers engage with third party intermediaries on the consumption side of the energy cost equation. This illustrates the significant market opportunity within optimisation services for the Group and Ignite will help to accelerate further growth in this area.

 Other Investments

I am pleased to report, post period end, the Group completed the acquisition of Waterwatch UK Limited ("Waterwatch") for a consideration of up to £0.50m, of which £0.25m was paid on completion. Waterwatch supports its clients in all areas of water cost management and has over 20 years' experience in water audit and cost recovery. The Waterwatch team will become part of the Group's Optimisation Services division, further expanding our expertise and knowledge in this area to support existing and potential new customers.

The Strategic Investment in Ignite and acquisition of Waterwatch have significantly accelerated the Group's Optimisation Services offering and the Board continues to actively review and assess organic and acquisitive opportunities for further growth in this area, as the business continues to evolve as a leading player in the sector.

The acquisition of Waterwatch was funded by cash reserves of the Group.

Integration of Inprova

The Board is pleased to report that the integration of Inprova continues to progress well and to plan. During the first six months, following completion of the acquisition, the Inprova operation has consolidated from four operational offices in England and Wales, to two, maintaining the Caerphilly operation, integrating and subsequently closing the Horsham office into the Burgess Hill office, and consolidating the Warrington office into the Group head office in Kirkham.

During the period, the Inprova Senior Management Team was restructured and support functions including Finance, I.T, Marketing, Risk and Trading team were also re-aligned into Group.

This demonstrates the Group's platform to deliver operational leverage from acquisitions effectively and efficiently, without impacting the service levels for clients.

Exceptional costs

Exceptional costs of £1.2m (H1 2018: £0.9m) have been incurred in the period, which primarily relate to restructuring costs of £0.9m associated with the integration of Inprova, including the restructuring of the senior management team, consolidation of four operational offices to two, and the re-alignment of central support functions into Group.

Deal fees of £1.0m relating to the acquisition of Inprova accrued in 2018, were paid in the period, driving the reduction in Trade and Other Payables.

Strategy

Having established a strong and scalable platform for expansion, we have a clear strategy that will enable us to continue to build on the growth of the Group. We achieve this through four primary service lines:

1. Procurement: supporting clients with the selection of the best energy supply contracts

2. Energy Accounting: supporting clients with the validation of their energy invoices and accounting processes

3. Compliance: supporting clients with their compliance obligations with respect to energy and environmental reporting

4. Optimisation Services: supporting clients to increase the effectiveness of their energy consumption

As the largest energy procurement consultant in the UK, we continue to benefit from a highly fragmented market with attractive dynamics for acquisitive growth, which we expect to continue during H2 2019 and into 2020.

Our organic growth engine is targeted to deliver 6% to 8% organic revenue growth per annum and is driven by focusing on three primary Key Performance Indicators. During H1 2019 we have achieved the following:

1. Units of Opportunity: The number of meters in the market place, owned by clients with whom we have a transactional relationship, increased from c.350,000 to c.370,000 during H1 2019 (6% increase)

2. Meters Under Management: the number of meters (Unit of Opportunity) covered by our core services of Energy Procurement and Energy Accounting in the UK increased from c.129,000 to c.149,000 during H1 2019 (16% increase)

3. White Space Bank: the quantified value of cross selling our broader Compliance and Optimisation Services to existing Meters Under Management clients has increased from c.£13m to c.£50m (385%), the majority of which is attributable to the Ignite acquisition.

Corporate Division

Overview

The Corporate Division's core services include the review, analysis, negotiation and energy accounting for gas and electricity contracts with the service offering segmented into four broad categories of customer focus being:

·; Energy intensive

·; Commercial/estate intensive

·; Public services

·; Corporate

The Group continues to develop its product suite to meet the individual energy management requirements of clients, following the key themes we focus on in order to simplify, verify, protect, inform and optimise. The Group's current focus is on the following strategic areas:

Optimisation Services: Expansion of our Optimisation Services Division to match client needs which are becoming increasingly sophisticated with respect to monitoring, targeting and efficiency.

Software Solutions: Further developing the Software Services Division to provide software solutions across the energy value chain. SystemsLink, acquired in March 2018, is central to the development of the Group's software solutions.

Research and Development: Continuing to develop the 'Inspired Incubator' to allow Inspired to support early stage energy and utility solutions which have the potential to add value to energy consumers in the future.

Corporate Division Financial Highlights

Highlights in the period include:

·; Revenue increased 36% to £18.7m (H1 2018: £13.8m), including 6% organic revenue growth (2018: 8%).

·; The Corporate Division generated adjusted EBITDA of £9.0m (H1 2018: £6.4m), a 40% year on year increase.

·; Corporate Order Book increased by 38% to £55.4m (H1 2018: £40.1m).

The 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, or Inspired and a client in the instance of direct client fees, 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 Corporate Order Book only relates to the Corporate Division and does not include any SME revenue or contracts within it. The growth of the Corporate Order Book provides an indicator of the latent growth of the business which has yet to be recognised as revenue of the Group.

SME Division

Within the SME Division, the Group's energy consultants contact prospective SME clients to offer price comparison services and contract arrangement service based on the unique situation of the customer.

Highlights in the period include:

·; SME Division returned to growth, with revenue increasing 16% organically to £2.9m (H1 2018: £2.5m which was a 19% reduction from H1 2017).

·; The division generated Adjusted EBITDA of £1.0m (H1 2018: £0.9m).

The Board continues to explore the opportunity to provide complementary services that add value to SME consumers including proof of concept expansion into Merchant Services, Insurance and Telecoms.

PLC Costs

PLC costs increased in the period by £0.3m, reflecting further investment made to increase the talent within the central functions of the enlarged Group.

Cash generation

Cash generated from operations was £4.6m, (H1 2018: £5.0m) with the reduction in the period largely reflecting the impact of the acquisition of Inprova at the end of 2018. Excluding non-recurring restructuring costs in relation to the Inprova integration and the payment of deal fees of £1.0m, which had been accrued at 31 December 2018, but paid in the period, cash generated from operations was £6.8m (2018: £5.8m), an increase of 17% over the prior period.

Alternative performance measures

Acquisition 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.

Updates to Accounting Policies

IFRS 16 - Leases

The H1 2019 results herein adopt IFRS 16, the impact of which is a £0.3m increase in EBITDA and £0.3m increase in depreciation in the period, and an immaterial impact to Adjusted and Basic EPS. As outlined in the 2018 preliminary results statement, the adoption of IFRS 16 has not had a significant impact on the Group's financial statements, and therefore future forecasts of the Group remain unchanged.

Dividends

The Board is delighted to propose an interim dividend of 0.22 pence per share. This represents an increase of 16% over the interim dividend paid in 2018, being 0.19 pence per share.

The ex-dividend date is 24 October 2019 with a record date of 25 October 2019. The dividend will be paid to shareholders on 12 December 2019.

Outlook

Our excellent performance in the first half of 2019, underpinned by strong organic growth, provides a strong operational and financial platform for the full year. The Group is well placed to deliver another set of record results, as we continue to benefit from further organic growth and contribution from the 2018 and 2019 acquisitions.

The Group's established acquisition strategy has delivered strong results, as demonstrated by the success achieved from the value enhancing acquisitions made in 2018, and 2019 year to date. In addition to our continued focus on delivering organic growth, we continue to evaluate varied acquisition opportunities in the sector which provides an attractive opportunity for market consolidation.

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.

Mark Dickinson

Chief Executive Officer

4 September 2019

Group Statement of Comprehensive Income

For the six months ended 30 June 2019

Group Statement of Financial Position

At 30 June 2019

Group Statement of Cash Flows

For the six months ended 30 June 2019

Group Statement of Changes in Equity

For the six months ended 30 June 2019

1. Accounting Policies

Basis of preparation

The financial information set out in this announcement does not constitute the statutory accounts of the Group for the period ended 30 June 2019. Whilst the financial information included in this interim announcement has been computed in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). They have been prepared on an accrual basis and under the historical cost convention except for certain financial instruments measured at fair value. 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 2018. The accounting policies in this announcement are consistent with those set out in the annual report for the year ended 31 December 2018 apart from the adoption of IFRS 16 Leases. IFRS 16 is effective from periods beginning on or after 1 January 2019 and removes the operation and finance lease classification in IAS 17 Leases and replaces them with the concept of right of use assets and associated financial liabilities.

Going Concern

The Group's forecasts, which have been prepared for the period to 31 December 2021 after taking into account the contracted order 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 Company and 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 Group financial statements.

The preparation of financial statements, in conformity with Generally Accepted Accounting Principles under IFRSs, requires 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.

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 period to 30 June 2019 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 and Carbon Holdings Limited, Informed Business Solutions Limited, Flexible Energy Management Limited, Churchcom Limited, Horizon Energy Group Limited, Energy Cost Management Limited, SystemsLink 2000 Limited, Professional Cost Management Group Limited, Squareone Enterprises Limited and Inprova Finance Limited. 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 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 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, 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. Adjusted profit before tax is calculated as follows:

4. Property, Plant and Equipment

Property, plant and equipment includes right of use assets following the adoption of IFRS 16, which is effective from periods beginning on or after 1 January 2019. The adoption has resulted in the recognition of right of use assets (along with associated lease liabilities) of £3,286,000 with depreciation of £281,000 recognised in the period.

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 2019 associated with computer software acquired through business combinations is £477,000. The additional £519,000 charged in the period relates to the amortisation of internally generated computer software. Amortisation of customer databases of £68,000 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