Inspired Regulatory News (INSE)

9 September 2020

Inspired Energy plc

("Inspired Energy" or the "Group")

Results for the six months ended 30 June 2020

Inspired Energy (AIM: INSE), the leading consultant for energy procurement, utility cost optimisation and legislative compliance in the UK and Ireland, announces its consolidated, unaudited half year results for the six-month period ended 30 June 2020.

Financial Highlights

· The Corporate Division delivered record revenues, growing 34% to £24.94m (H1 2019: £18.68m), contributing 93% of Group revenue for the period (H1 2019: 87%).

· As a result of COVID-19 pandemic, organic revenue in the Corporate Division declined 5% in H1 2020 (2019: +6%), due to an average 14% decline in energy consumption in the period, offset in part by underlying growth.

· The Corporate Division's Adjusted EBITDA increased 2% to £9.18m (H1 2019: £8.97m), with the reduction in margin resulting directly from the short-term reduction in consumption experienced across the Corporate client portfolio due to the impact of the COVID-19 pandemic.

· The SME Division, representing 7% of revenue, was materially impacted by COVID-19, generated revenues of £1.91m (H1 2019: £2.88m) and Adjusted EBITDA of £0.50m (H1 2019: £0.97).

· Cash generated from operations (excluding restructuring costs and the impact of deal fees), which benefitted from deferral of VAT and PAYE payments totalling £2.76m, increased by 52% to £10.34m (H1 2019: £6.80m), noting subsequent to the period end, all agreed deferred PAYE payments have been paid.

· The Corporate Order Book increased to £61.50m in the period (31 December 2019: £57.50m) with strong customer retention and robust performance from significant new customer wins.

· At 31 August 2020, the Group's net debt was £12.5m, following the £31.3m placing in July 2020. The placing and the acquisition of Ignite, with its associated EBITDA and cash flow contribution, has significantly deleveraged the Group's balance sheet and provided significantly increased headroom on its revised banking covenants.

· Reinstatement of the interim dividend of 0.10 pence per share (H1 2019: 0.22 pence) in line with the Group's adopted policy with initial dividend cover of at least 3.0x earnings.

Post period end

Placing 

· Completed a fundraising of £31.3m (before expenses) in July through an oversubscribed placing of £30.0m, with a further £1.3m raised via an open offer.

· The net proceeds from the placing financed the initial cash consideration for the acquisition of the balancing interest of Ignite Energy LTD ("Ignite"), and the balance will provide the Group with financial strength and flexibility to execute on its pipeline of targeted opportunities, and accelerate its successful acquisition strategy, whilst deleveraging the Group's balance sheet.

Acquisitions 

· Inspired Energy acquired the balancing interest of 60 per cent of Ignite on 17 July 2020 for an initial consideration of £11.0m, on a cash free: debt free basis. Further contingent consideration of up to a maximum of £19.0m, may be payable subject to the achievement of challenging financial targets from completion to FY 2023.

· The acquisition of Ignite was swiftly followed by the completion of the bolt-on acquisition of LSI Energy Holdings Limited ("LSI") in August which further expands the Group's "Units of Opportunity".

Board changes

· Sarah Flannigan was appointed to the Board as a Non-Executive Director with effect from 28 July 2020, bringing a wealth of experience in the energy sector and technology transformation.

· Having served as a Non-Executive Director since January 2018, Gordon Oliver will step down from the Board on the 31 December 2020. On behalf of the Board and all at Inspired Energy, we would like to thank Gordon for his valuable contribution during a transitional phase for the Board, and a period of significant growth for the Group.

· Following Gordon's departure, the Board will consist of two Executive Directors supported by a Non-Executive Chairman and two Non-Executive Directors, both of whom the Board consider to be independent in accordance with the QCA guidelines, representing a broader mix of skills and diversity to align with the Group's evolving strategy.

Current trading and outlook

Following the outbreak of COVID-19, the Board undertook detailed scenario planning to manage the financial position and risk. The Board considered a "downside scenario" for the purpose of agreeing amendments to the Group's banking covenants which assumed a >40% reduction in energy consumption for Q2 and Q3 2020.

To date, market data indicates year-on-year industrial and commercial consumption reductions of 9% in March, 27% in April, 24% in May, 18% in June and 16% in July with the Group continuing to see a recovery in consumption levels since the period end, but remaining cognisant of a significant year-on-year consumption reduction in the near term. As such, Group EBITDA remained comfortably ahead of the Board's "downside scenario" in H1 and in July 2020. Trading remains in line with the Board's expectations and the Board believe the Group is well positioned to take advantage of the acquisitive growth opportunities that continue to exist for Inspired Energy and which may be accelerated by the disruption caused to its markets in 2020 by the COVID-19 pandemic.

Commenting on the results, Mark Dickinson, CEO of Inspired, said: "Whilst the six month period to 30 June 2020 has presented challenging market conditions and we undoubtedly remain in a period of economic uncertainty, the Group's strength has been affirmed in the robust trading performance and cash generation throughout the period. The results are testament to the hard work and dedication of the Inspired Energy team through these unprecedented times.

"Post the period end, the Board was delighted to have received strong levels of support in our fundraising from new and existing investors, enabling the acquisition of the outstanding 60% interest of Ignite. This represents an important milestone in Inspired Energy's strategic development, accelerating the Group's Optimisation Services offering and enabling us to develop market share in the £850m+ corporate optimisation services market. Inspired Energy will now be able to leverage off its existing platform to accelerate cross selling into its customer base, maximising the commercial overlap between the optimisation and assurance services market. The Group is already seeing the benefits of this with the first cross sell executed, and a pipeline of pilots underway with clients.

"Together, the funds raised in the July fundraising, and the benefits of the Ignite acquisition leave the Group in a strong financial position with the ability to make further progress in its organic and inorganic growth strategies. The pipeline of acquisition opportunities remains strong and the Board continues to review a number of potential transactions which could deliver strategic and financial benefits to the Group and long-term value to its shareholders.

"The Group's profitable and cash generative nature, coupled with continued growth in the order book and substantial liquidity at its disposal, will see it well placed as the economy navigates through the current period of uncertainty. On behalf of the Board, I would like to thank our staff, customers and wider stakeholders, whose health, safety, and wellbeing remains our overriding priority."

* 2019 is restated to reflect an increase in share-based payment charge. See CFO statement for further details

** 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

The robust trading performance through a globally challenging first half of the year demonstrates the resilience of our business model. This, combined with the oversubscribed fundraising in July, coupled with the acquisition of the balancing interest in Ignite, provides a strong platform to continue to navigate through the challenges presented by the COVID-19 pandemic. Notwithstanding the current wider economic backdrop, the Group is better placed than ever to further accelerate our market leading position as a third-party intermediary (TPI) in the Industrial & commercial (I&C) sector as the economy emerges from the current period of volatility.

I would like to thank our existing shareholders for their continued support, demonstrated through the successful equity fundraising, and I would like to extend a warm welcome to several new institutional investors who joined the register. The net proceeds will provide substantial liquidity and enable the Group to take advantage of its active pipeline of potential acquisition targets.

The acquisition of the balancing interest in Ignite will enable the Group to have full operational control and accelerate integration to cross-sell the Ignite services into the Group's existing customer base, enabling acceleration of the organic growth opportunity.

The successful fundraising, combined with the profit and cash flow benefits of wholly owning Ignite and the funding of the acquisition via equity, has significantly deleveraged the Group from a banking covenant perspective, ensuring the Group has the ability to act decisively where value enhancing acquisition opportunities arise as a result of economic uncertainty.

Inspired Energy subsequently completed the value enhancing acquisition of LSI in August, which will further broaden the Group's customer base, and increase the number meters under management. We are delighted to welcome the LSI team to the enlarged Group.

Whilst the Group delivered revenue of £26.86m in H2 2020 (H1 2019: £21.56m), representing growth of 25%, the Corporate Division saw a 5% organic decline (H1 2019: +6%) in the period directly as a result of the short term impact of the pandemic on energy consumption by the Group's Corporate customers offset, in part, by underlying organic growth.

Notwithstanding the current contraction of energy consumption in the market, the Group reported EBITDA which was comfortably ahead of the Board's "downside scenario" modelled for H1 and July 2020.

Since its IPO in 2011, Inspired has established a track record of delivering on financial forecasts which has facilitated a consistent and progressive dividend policy. However, considering the exceptional circumstances from the impact of the COVID-19 outbreak, the Board deemed it prudent to defer declaration of the FY 2019 final dividend and reassess the position on release of the FY 2020 interim results.

The Board remains confident in the Group's ability to continue to pay a dividend and therefore it proposes, subject to no material deterioration in conditions, to recommence payment of dividends with the declaration of an interim dividend of 0.10 pence (Interim Dividend 2019: 0.22 pence). The interim dividend aligns with the Board stated policy of a dividend cover of at least 3.0x earnings, being mindful to adopt caution and prudence in the immediate term, with the objective of delivering a progressive dividend policy moving forward.

The ex-dividend date is 12 November 2020 with a record date of 13 November 2020. The dividend will be paid to shareholders on 9 December 2020.

On 28 July 2020, the Board was pleased to welcome Sarah Flannigan to the Board as a Non-Executive Director. Her significant experience in the energy sector and technology transformation will be valuable to the Board at a time when we are looking to revolutionise our sector with a full digitisation programme for our valued customers.

In addition, Gordon Oliver will stand down from his position of Non-Executive Director on the 31 December 2020. On behalf of the Board and all at Inspired Energy, I would like to thank Gordon for his valuable contribution during a transitional phase for the Board, and a period of significant growth for the Group.

I would like to take this opportunity to thank the whole Inspired Energy team for their hard work.

Despite the economic uncertainty, the robust financial performance in the period is testament to the robustness of our business model and to the enduring support and professionalism of our team and the support and advice they provide to our clients, which in these challenging times is more important than ever.

Michael Fletcher

Chairman

8 September 2020

CEO's Statement

I am pleased to report on Inspired Energy's H1 2020 results, a period in which we delivered a robust performance despite extremely challenging conditions for the Group and wider economy.

Whilst we undoubtedly remain in a period of economic uncertainty, the profitable and cash generative nature of the model, demonstrated in our H1 2020 trading, ensures we are well positioned to endure the impact of the COVID-19 crisis whilst retaining the ability to deliver substantial organic and acquisitive growth going forward.

OUR DIVISIONS

As every commercial energy consumer in the UK and ROI markets is a potential customer for Inspired Energy, it is important we segment our product offering so that we meet the needs of each of our clients. This segmentation ensures that we maintain a market-leading solution for each client that closely aligns to their differing needs and is augmented by one of the largest technology deployment processes in the market plus a continued focus on strategic acquisitions.

Corporate Division

The Corporate Division has seen significant growth both organically and through acquisition. The division delivers core services, including energy and water procurement, energy accounting, compliance consultancy and optimisation services for Corporate clients.

The Corporate Division is the core of the business operation, typically focusing on consumers who spend more than £100,000 per year on energy. In this division we help the consumer manage the whole energy cost equation and deliver their own Net Zero Carbon and ESG objectives.

Different types of consumer require different approaches to deliver their strategic objectives and as such we segment our Corporate services into four divisions:

Energy intensive: These consumers tend to have fewer buildings and meters associated with their sites, but a large amount of consumption with energy typically a feedstock to their business process. Our services are focused on optimising the timing of the buying decisions, securing all tax breaks and incentives available to the client, monetising any flexibility in the portfolio through demand Side response and maximising opportunities for self-generation and supply.

Estate intensive: These consumers tend to have many properties throughout the country. The estates can be volatile in terms of the opening and closing of properties, requiring the need for quick and effective new connections. Our services are focused on managing the movements in the property estate, accounting for the energy across a complex portfolio, delivering repeatable energy saving projects across different properties.

Following the acquisition of Ignite the Group has created a subsegment, focused on the Group's larger estate intensive clients, who would initially benefit from Ignite's Optimisation Services. The first cross sell has been achieved with a pipeline of pilot projects ongoing.

Public sector: The needs of a Public Sector client are generally the same as those of an estate intensive client with the added complexity for OJEU procurement regulations. The sector is split into NHS, Education and Local Authority and is an area of significant growth potential. Historically, this sector has been served by public buying organisations (PBOs) which are often not able to adequately resource services to meet client needs.

Mid-market: Where business consumers are neither energy intensive or estate intensive but spend more than £100,000 per year on energy, our Mid-Market team ensures that they have bought professionally, accounted properly, and complied with the law.

Through the initial strategic investment in Ignite in August 2019 and subsequent acquisition of the balancing interest in July 2020, the Group has extended its sector specialism, most notably within the optimisation services sector, further broadening our overall service offering to Corporate clients.

SME Division

SME energy consultants contact prospective SME clients to offer price comparison services and contract arrangement services based on the unique situation of the customer.

Leads are generated and managed by the Group's internally developed CRM and case management IT system. Tariffs are offered from a range of suppliers and the Group works with suppliers to increase the range of products available to SME clients.

Strategy

Growth of Assurance Services

The Corporate Division, which includes our traditional assurance services designed to help energy consumers manage the price side of their cost equation ("Assurance Services"), continues to grow the scale of the customer base with a target of 6% to 8% underlying organic growth.

Organic growth acceleration through Optimisation Services

Despite the disruption caused by the pandemic, H1 2020 saw the development of cross-selling of optimisation services to existing clients, helping them manage the consumption side of that cost equation ("Optimisation Services"). We expect the contribution of Optimisation Services to materially grow in FY 2021 and create a platform capable of delivering double digit organic growth.

The validity of this strategy was underpinned by our strong start in Q1 2020 where we successfully completed our first cross sell of an existing Inspired Energy customer to Ignite and moved to a trial stage for another major UK retailer. We have commenced the integration of the Ignite business where we will combine an initial 54 Inspired Energy customers with 24 Ignite clients to create a new Strategic Clients division focused on developing optimisation solutions for these clients to deliver their Net Zero Carbon objectives.

Continued acquisitive growth

The Group has an M&A and Integration infrastructure which has capacity to complete four to five acquisitions per year. The net proceeds from the £31.3m equity placing completed in July 2020, funded the initial cash consideration for the acquisition of the balancing interest of Ignite, with the remaining funds enabling the Group to take advantage of the active pipeline of potential acquisition targets.

For H2 2020 our primary focus of acquisitive growth is further consolidation of the energy advisory sector with respect to Assurance Services.

In parallel, the Group will continue to evaluate opportunities to: continue to build Optimisation Services capability; develop ESG capabilities; and initiate internationalisation.

Monetisation of software solutions

FY 2019 saw the Group scale up the capability of the technology development engine delivering new products in relation to:

1. SECR (Streamlined Energy and Carbon Reporting)

2. Profile alerts

3. Online client portal

4. Adoption of DocuSign technology for client interactions.

Our technology development engine is designed to deliver six solutions per year.

These solutions not only underpin the operations of the Corporate Division but they are licenced on a SaaS basis to other energy advisory businesses. Our software solutions are provided by our Systemslink subsidiary which operates on an arm's length basis to the Group. Since the acquisition of Systems-link, 19 new energy advisory businesses have started using our software solutions.

This growth has been achieved without deploying any new technology capability to such energy advisers. The state-of-the-art solutions we invested in over the last 12 months are being deployed to these clients in October 2020 which we expect to underpin further organic growth in revenues from software solutions in 2021.

Development of ESG solutions

Over H1 2020 the Board identified a potential solution gap in the market for the provision of ESG assurance solutions to UK and ROI businesses and the portfolio companies of investors and private equity firms. The skills and capability to meet this market needs are largely the same as those which already exist in the Assurance Services of the Group and the board had decided in H2 2020 to organically build out this capability. We expect this to be a £500,000 investment and to generate first revenues in H2 2021 and become cash generative in H2 2021.

Acquisitions

The Board is mindful of the uncertainty presented by the COVID-19 crisis and has taken a number of actions to reinforce its financial position in the short term. Notwithstanding this prudent approach, the Group continues to develop its pipeline of acquisition opportunities.

Inspired Energy is a leader in its markets, the evolution of which will be accelerated by the current backdrop and the Board believes that there will continue to be significant opportunities to accelerate the Group's strategic momentum in the future.

Ignite

The acquisition was consistent with Inspired Energy's stated dual track strategy of generating growth organically and through acquisition.

The UK Optimisation Services market is a £850+m opportunity, twice the size of the Assurance Services market, and remains relatively immature with only one in six corporate consumers using an energy adviser. In addition, service delivery models in this area, which are typically project based rather than recurring are expected to evolve over time as customer demand is accelerated due to the growing demands of consumers and investors with respect to Net Zero Carbon and ESG. Against this backdrop, the Board has been focused on ensuring that, whilst it continues to build out its Optimisation Services capabilities, the Group remains flexible and able to adapt its offering in this area in line with market developments.

As part of this strategy, the Group acquired an initial 40% interest in Ignite on 2 August 2019, with the outstanding balance of 60% acquired in July 2020. Ignite has achieved material improvements in the energy efficiency for its clients delivering significant reduction in costs.

Ignite achieved 15% CAGR organic growth from 2016-2019 prior to the benefit of access to Inspired Energy's energy intensive customer base. In FY 2019 Ignite generated revenues of £15.9m from c.23 clients.

The acquisition has enabled Inspired Energy to have full control and utilise its position to leverage off its existing platform to cross-sell the broader range of capabilities and services that the Group provides into Ignite's customer base. Despite the disruption to Ignite's trading in Q2 2020, as a result of the inability to access clients' premises as a result of the on-going pandemic, Ignite continues to progress. The implementation of demand side reduction projects for the first Inspired Energy customer cross sell has now commenced and the implementation of projects at pilot sites for a further Inspired Energy customer is underway. Both customers are major UK retailers.

LSI Energy Holdings Limited

Following completion of the fundraising in July the Group has executed the first acquisition from its pipeline through the bolt on acquisitions of LSI Energy Holdings Limited ("LSI"). This was completed in August, further expanding the Group's number of meters under management which underpins the overall cross sell opportunity for Optimisation Services and the delivery of Net Zero Carbon opportunities.

The Group acquired LSI paying nil initial consideration at completion on a cash free, debt free basis. Contingent consideration may be payable subject to the realisation of the acquired order book revenue, renewal of the acquired order book, and the contribution of new business to the Group. The structure was devised in light of the ongoing economic uncertainty and to mitigate a number of risks associated with the COVID-19 pandemic.

· LSI provides energy management solutions to commercial energy consumers in the UK, focusing on energy procurement, carbon and energy management

· The consideration structure for LSI was constructed to mitigate the risks posed by ongoing economic uncertainty, including under consumption and business failure risk.

Underlying trading

Corporate Division

The decision to increase our resources with respect to Optimisation Services over the last two years has left us favourably positioned to meet the emerging and prevailing client needs to deliver in a Net Zero Carbon world which protects our Assurance Services revenues, whilst giving the opportunity to increase organic revenue and profit growth.

Our scalable platform will allow us to continue our considered approach to market consolidation and increased capability to invest in our platform to further our offering with respect to the ESG rating of our clients.

H1 2020 saw a short-term reduction in energy consumption across this increased customer base due to the COVID pandemic directly impacting organic revenue growth in the period. Consolidation of the market for Assurance Services remains a key focus of the group in H2 2020 as we deploy the capital recently raised.

SME Division

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

The financial performance of the Group's SME Division continues to be particularly impacted by the on-going pandemic, with the division continuing to experience a reduction in demand for energy supplier switching services. The Board expects the downturn in performance of the SME Division to continue for the remainder of 2020.

Our SME business represented 7% of Group revenues in H1 2020 (FY 2019: 11%).

COVID-19 update

The health, safety and wellbeing of our employees, their families, our customers, and stakeholders remains our overriding priority. We continue to support our employees during this unprecedented time and are actively encouraging them to precisely follow the latest Government guidance on COVID-19. In March we successfully implemented our business continuity plan and c.80% of our workforce continue to work remotely.

Outlook

We are continuing to see a positive recovery in consumption levels and remain comfortably ahead of the Board's downside scenario planning. Trading continues to strengthen and whilst we undoubtedly remain in a period of economic uncertainty, the robust, profitable and cash generative nature of the model, ensures we are well positioned to endure further impact of the COVID-19 crisis whilst retaining the ability to deliver substantial organic and acquisitive growth.

Looking ahead the completion of the Ignite acquisition is already gaining solid traction, with Ignite achieving the first major new client win under Group ownership to complement the first cross sell conversion and the implementation of projects at pilot sites progressing on the second cross sell; all three of which are with major UK retailers. This is further complemented by the scaling up of our state-of-the-art technology solutions, which we have invested in over the past year and will be deployed to clients from October 2020.

This confidence is further underpinned with the reinstatement of the dividend, whilst being mindful to adopt caution and prudence due to the challenges of predicting COVID-19 into the winter months.

On behalf of the Board, I would like to thank our staff, customers and wider stakeholders, whose health, safety and wellbeing continues to be our overriding priority

Mark Dickinson

Chief Executive Officer

8 September 2020

CFO's Statement

H1 2020 has presented its challenges, and notwithstanding the significant change to working practices in Q2 2020, the Corporate Division delivered record revenues, growing 34% to £24.94m (H1 2019: £18.68m), and contributing 93% of Group revenue for the period (H1 2019: 87%).

As a result of the COVID-19 pandemic, organic revenues in H1 2020 declined by 5% in the Corporate Division (2019: 6%) driven by declines in energy consumption by our Corporate customers. The blended decline in consumption across H1 2020 was 14%, due to the marked decline in Q2 2020 noted below. The associated decline in revenue was mitigated in part by strong underlying growth in sales from the Group.

Putting this into context, it is important to consider the Board's "downside scenario" for the purpose of agreeing amendments to the Group's banking covenants completed in May 2020, which assumed a >40% reduction in energy consumption for Q2 and Q3 2020. To date market data indicates year on year industrial and commercial consumption reductions of 9% in March, 27% in April, 24% in May, and 18% in June, with energy consumption continuing to recover since the period end. Group EBITDA therefore remained comfortably ahead of the Board's "downside scenario" in H1 and into July 2020. However, the Board remains cognisant of a significant YoY consumption reduction in the near term.

The Corporate Division contributed adjusted EBITDA of £9.18m, an increase of 2% (H1 2019: £8.97m), with the reduction in margin resulting directly from the reduction in consumption experienced across the Corporate client portfolio.

The Corporate Order Book increased to £61.50m in the period (31 December 2019: £57.50m) with strong customer retention and robust performance from significant new customer wins providing significant visibility to the Group.

The SME Division, which represents 7% of revenue for the period, was materially impacted by COVID-19 and generated revenues of £1.91m (H1 2019: £2.88m) and adjusted EBITDA of £0.50m (H1 2019: £0.97), with the Board expecting the downturn in performance of the SME Division to continue in the near term. As of 30 June 2020, the Group had not experienced any material change in the collection of the SME accrued income balance as a result of the impact of the pandemic on the consumptions levels and business failure rate within the Group's SME portfolio. The Board will continue to the assess the impact of the pandemic on the recoverability of the SME accrued income throughout H2 2020.

Cash generation was robust in the period with cash generated from operations (excluding restructuring costs and the impact of deal fees) of £10.34m (H1 2019: £6.80m), an increase of 52% over the prior period.

At the height of the uncertainty the Group took the prudent decision to take up the Government initiative to defer payment of £1.7m of PAYE and NI during Q2 to mitigate the uncertainty of any immediate financial impact of the pandemic on the Group. Subsequent to the period end, the Group has now made these payments and is up to date with HMRC. Cash generation of the Group in Q2 2020 also benefited from a £1.0m deferral of VAT, which will be paid in line with the revised government timetable.

In addition, the Group received £0.48m in H1 2020 from the utilisation of the Government Coronavirus Job Retention Scheme ("CJRS") and the Irish equivalent. At the start of the scheme the Group had c.140 employees under the protection of such schemes primarily in the SME Division. The Group is currently using these schemes for 62 employees in the SME Division.

The Group welcomed the intent and purpose of the CJRS which was to protect jobs and prevent redundancies. The scheme has saved c.80 jobs that would have been lost at the start of the crisis in the SME Division which would be loss making without the benefit of the scheme.

The Board is cognisant that the impact of the COVID-19 pandemic remains on-going and the ultimate impact is difficult to predict. The Board welcomed the support the CJRS provided at the most impactful time of the pandemic and will continue to review the requirement of the funding from the scheme within the SME division.

Financial position and liquidity

In May 2020, the Group agreed with its banks to increase its leverage covenant covering the test periods ending 30 June 2020 through to 30 June 2021 (inclusive) as part of its prudent and measured response to the COVID-19 pandemic.

In July 2020, the Group raised £30.0m (before expenses) through an oversubscribed placing of 200,000,000 new ordinary shares, with a further £1.3m raised through an open offer to qualifying shareholders.

The net proceeds from the placing funded the initial cash consideration for the acquisition of the balancing interest of Ignite, with the remaining funds enabling the Group to take advantage of its active pipeline of potential acquisition targets.

In addition, the acquisition of Ignite has had a material benefit to the Group's financial position. The Group now receives the full free cash flow benefits of wholly owning Ignite, having previously only received 40% of profits distributed by Ignite every six months via dividends.

From a banking covenant perspective, prior to the acquisition of the balancing interest of Ignite in July 2020, under the Net Adjusted Leverage definition per the facility agreement, the EBITDA contribution from Ignite was not included within Group EBITDA. However, the Group now benefits from 100% of Ignite's contribution to Group EBITDA on an LTM basis. The treatment of Ignite EBITDA, the FCF of ownership and the funding of the transaction via equity, has significantly increased the headroom available to the Group from a covenant perspective. As a result, the Board are in discussions with its banking partners as to whether the reset covenant positions are no longer necessary. These conversations remain on-going.

At 31 August 2020 the Group's net debt was £12.5m, following the £31.3m raise in July. In addition to cash and cash equivalents of £33.0m on hand as at 31 August 2020, approximately £14.0m of the Group's £60.0m Revolving Credit Facility is undrawn with an additional £25.0m accordion option available, subject to covenant compliance.

Dividend

The Board is pleased to announce the reinstatement of an interim dividend of 0.10 pence per share (H1 2019: 0.22 pence) in line with the Groups' revised policy of paying dividends initially covered by at least 3.0x earnings.

The ex-dividend date is 12 November 2020 with a record date of 13 November 2020. The dividend will be paid to shareholders on 9 December 2020.

Share-based incentive arrangements

Share-based incentive arrangements are provided to management and certain employees. In addition to share options granted under the Inspired Energy PLC Share Option Scheme 2011, the Group implemented a Long-Term Incentive Plan ("LTIP") in July 2017, with awards to date made in July 2017 and May and December 2018. The structure of the LTIP scheme is complex and the price to be paid for any awards under the scheme depends on the share price of the options available to the recipient. Prior to 30 June 2019, the underlying calculation did not recognise the element of the share price at grant attributable to Inspired Energy EBT Limited's ("EBT's") interest in the ordinary share held by the option holder.

After taking additional advice from an external expert in H2 2019, the calculation was amended to reflect the full price of the option awarded, taking account of the nil-cost option the option holder receives at the award date over the EBT's interest. The amend resulted in an increase in the share-based payment charge in the final 2019 results. As this amend was made in H2 2019, the H1 2019 interim charge has been restated to align with the full year 2019 charge.

Paul Connor

Chief Financial Officer

8 September 2020

Group Statement of Comprehensive Income

For the six months ended 30 June 2020

Group Statement of Financial Position

At 30 June 2020

Group Statement of Cash Flows

For the six months ended 30 June 2020

Group Statement of Changes in Equity

For the six months ended 30 June 2020

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 2020. 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 2019. The accounting policies in this announcement are consistent with those set out in the annual report for the year ended 31 December 2019.

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 base financial forecast through to 31 December 2022, 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, with an option to extend to October 2024. Furthermore, in July 2020, the Group completed a fundraise of £30.0m (before expenses) through an oversubscribed placing of 200,000,000 new ordinary shares, with a further £1.3m via an open offer to qualifying shareholders.

As a result, at 31 August 2020 the Group's net debt was £12.5m, reducing from £33.5m at 30 June 2020 (£33.4m at 31 December 2019). In addition to cash and cash equivalents of £33.0m on hand as at 31 August 2020, approximately £14.0m of the Group's £60.0m Revolving Credit Facility is undrawn with an additional £25.0m 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.

Having considered this information, excluding the potential impact of COVID-19, which is considered below, the directors conclude that the Group has adequate resources to continue to trade for the foreseeable future and that the accounts should be prepared on a going concern basis.

The uncertainty as to the future impact on the Group of the recent COVID-19 pandemic has been separately considered as part of the consideration of the going concern basis of preparation. As a Group, we earn our revenue based on providing advice and expertise in commercial utility consumption in the UK and ROI which is a fundamental input into any economy. Therefore, there will naturally be a reduction in utilities consumption and demand for associated consultancy and revenues in the UK and ROI commercial markets, as a result of the on-going Covid19 pandemic.

Market data indicates year on year industrial and commercial consumption reductions of 9% in March, 27% in April, 24% in May, 18% in June and 16% in July. Putting this more into context, it is important to consider the Board's "downside scenario" for the purpose of agreeing amendments to the Group's banking covenants completed in May 2020, which assumed a >40% reduction in energy consumption for Q2 and Q3 2020. The assumption applied to the potential energy consumption reduction was deemed to be severe but was cognisant of the levels of uncertainty at the time of completing the scenario analysis. As a result, Group EBITDA remaining comfortably ahead of the Board's "downside scenario" in H1 and into July 2020.

In addition, the acquisition of Ignite has had a material benefit to the Group's financial position. The Group now receives the full free cash flow benefits of wholly owning Ignite, having previously only received 40% of profits distributed by Ignite every six months via dividends.

From a banking covenant perspective, prior to the acquisition of the balancing interest of Ignite in July 2020, under the Net Adjusted Leverage definition per the facility agreement, the EBITDA contribution from Ignite was not included within Group EBITDA. However, the Group now benefits from 100% of Ignite's contribution to Group EBITDA on an LTM basis. The treatment of Ignite EBITDA, the FCF of ownership and the funding of the transaction via equity, has significantly increased the headroom available to the Group from a covenant perspective.

Clearly, the ultimate impact, and duration of the COVID-19 pandemic is difficult to predict and as such, we have considered scenarios when stress testing the downside scenario forecasts for the period to December 2022.

Our stress testing indicates that to breach the banking covenants reset in May 2020, the Group would have to miss forecast LTM EBITDA per the downside scenario by more than 55% for the LTM test period ending 30 Sept 2020, with the levels of headroom increasing further to 90% in December 2022.

Noting the Group has significantly deleveraged under it's banking covenants as a result of the equity placing and acquisition of the balancing interest of Ignite post the period end, the Board are in discussions with it's banking partners as to whether the reset covenant positions are no longer necessary. These conversations remain on-going.

Our stress testing indicates that to breach the original banking covenants set at the point of refinancing in October 2019, the Group would have to miss forecast EBITDA per the downside scenario by more than 40% in Sept 2020, increasing to 90% in December 2022.

The Directors note that the Group traded comfortably ahead of the downside scenario in H1 and July 2020.

Therefore, despite the ongoing uncertainty created by the pandemic, 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 impact of the pandemic on YTD 2020 trading, reasonably possible changes in trading performances in the next 12 months and considering the available liquidity, including banking facilities, and the increase in adjusted leverage covenant, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the next 12 months following the date of approval of this interim results statement. 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 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 segment 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, Inprova Finance Limited, Ignite Energy Ltd, Waterwatch UK Limited and Independent Utilities Limited. Corporate's core services are the review, analysis and negotiation of gas and electricity contracts on behalf of UK and ROI Corporate clients. Additional services provided include energy review and benchmarking, negotiation, bill validation, cost recovery, optimisation services and software solutions. The Group's Corporate Division benefits from a market-leading trading team, which actively focuses on energy intensive and public sector customers, providing more complex, long-term energy frameworks based on agreed risk management strategies.

The SME Division ("SME")

This segments 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

5. Right of use assets

6. 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 2020 associated with computer software acquired through business combinations is £505,000. The additional £768,000 charged in the period relates to the amortisation of internally generated computer software.

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