Inspired Regulatory News (INSE)

4 September 2018

Inspired Energy plc

("Inspired" or the "Group")

Results for the six months ended 30 June 2018

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 2018.

Financial Highlights

* 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 unwinding of deferred 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 unwinding of deferred consideration and foreign exchange variances.

Operational Highlights

· Record revenues delivered by the Corporate Division, growing 50% to £13.76m (H1 2017: £9.19m), contributing 85% of Group revenue for the period (H1 2017: 75%). 10% of the Corporate Division revenue growth in the period was organic (H1 2017: 6%).

· Corporate Division contributed Adjusted EBITDA of £6.43m, an increase of 50% (H1 2017: £4.28m).

· Strong cash generation from operations representing 76% of adjusted EBITDA (H1 2017: 74%; FY17: 63%).

· Interim dividend increased by 19% to 0.19p per share (H1 2017: 0.16p).

· 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 3% to £40.1m as at 31 August 2018 (FY 2017: £39.0m).

· Long Term Incentive Plan ("LTIP") extended to the 13 members of the Senior Management Team ("SMT") in order to deliver long-term value creation for shareholders.

· Completed the restructuring of the service offering in the Corporate Division by client category under a unified "Inspired Energy" brand, which the Board believes creates a more streamlined platform to deliver organic and acquisitive growth.

Acquisitions Highlights

· Completed the acquisitions of SystemsLink 2000 Limited ("SystemsLink") and Energy Cost Management Limited ("ECM") in March 2018, with both businesses performing well and in line with expectations.

· Completed the acquisition of Squareone Enterprise Limited ("Squareone") in August 2018, post period end, for a consideration of up to £1.38m, of which £0.75m was paid on completion 

· The acquisitions were all financed from the Group's existing £12.5 million acquisition facility with Santander.

· In July 2018, post period end, exercised the call option to acquire the outstanding 10 per cent interest in Horizon Energy Group Limited, for cash consideration of €1.0 million.

Board Transition

· Gordon Oliver, Group Finance Director of James Halstead plc, appointed as an independent non-executive Director in January 2018.

· Matthew Thornton stepped down as Sales Director and moved to Non-Executive Director in March 2018, completing the transition of the Board composition to two Executive Directors, supported by a Non-Executive Chairman and three Non-Executive Directors (two of whom are independent).

Corporate Highlights

· Ranked first place in the 2018 Cornwall Insight I&C TPI index rankings out of 111 TPI's shortlisted, reaffirming the Group's position as a market leader. This independent report is based on the opinions of business energy suppliers which reinforces to the Group's strong positioning within the TPI market and that its development and growth strategy has been well received.

Commenting on the results, Mark Dickinson, CEO of Inspired, said: "2018 has seen the acceleration of our next growth phase with three complementary and value-enhancing acquisitions completed to date whilst the Group has continued to deliver sustained organic growth. We remain focused on delivering our core financial, operational and strategic objectives, whilst simultaneously broadening the service offering for our clients, to help them to optimise the value of every pound spent on utilities through our bespoke service."

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

For further information, please contact:

Chairman's Statement

I am pleased to present the Group's unaudited interim results for the six months ended 30 June 2018, a period in which Inspired continued to deliver on all strategic fronts, achieving results in line with management's expectations.

We have completed the transition of the Board composition to two Executive Directors, supported by a Non-Executive Chairman and three Non-Executive Directors, with the appointment of Gordon Oliver as an independent non-executive, and Matthew Thornton stepping down as Sales Director and moving to Non-Executive Director.

The Board were pleased to announce the implementation of a LTIP for the benefit of the SMT. The structure of the LTIP tracks the award to the Executive Directors in July 2017, albeit for an extended period. The SMT is comprised of 13 key senior directors of the Group, who are important to the long-term success and value of the Company, and the Board believes that the Group will continue to benefit from their drive and energy in the future.

The acquisitions of SystemsLink and ECM during the period and, following the period end, Squareone, reinforce the focus of the Group delivering on its well-established acquisition strategy, being complementary to the Corporate Division, broadening the service offering and customer base of the Group and increasingly enabling the Group to benefit from operational leverage. Importantly, we are pleased to report that these acquisitions are integrating well and trading in line with management expectation.

The financial results highlight strong organic growth in our core Corporate Division, achieved whilst also executing the Group's acquisition strategy and completing the process of restructuring the service offering within the Corporate Division by client category under a unified "Inspired Energy" brand. The Board believes the client category led structure provides the Corporate Division with the best platform to facilitate future organic and acquisitive growth.

The Procurement Corporate Order Book has increased to £40.1m as at 31 August 2018 (31 December 2017: £39.0m), representing an increase of 3% in the period. This remains a consistent guide to the future performance of the Group, providing strong visibility of revenues for FY 2018 and the next three years, enabling the Board to look forward with great confidence over the short to medium term.

Contribution from the 2017 and H1 2018 acquisitions, in conjunction with sustained organic growth from the existing Corporate Division, increased the Corporate Division revenue to £13.8m (H1 2017: £9.2m) an increase of 50% and representing 85% of Group revenue. The restructuring of the service offering in the Corporate Division has assisted in increasing the focus on driving organic growth. Organic growth is calculated by reference to revenue growth of the Group excluding current year acquisitions and taking into account the growth of previously acquired business from the last financial year prior to their acquisition into the Group. As a result of this increased focus the board are pleased to note that organic revenues in the Corporate Division grew by 10% in the period (H1 2017: 6%). Adjusted EBITDA for the Corporate Division for the period was £6.4m (H1 2017: £4.3m). This growth underpins the strong fundamentals of the Board's stated strategy to focus on growing the Corporate Division both organically and through further acquisitions.

In the first half of 2018, the Board took the decision to streamline the focus of the SME Division and discontinue the non-profit generating revenue streams, including the affiliate channel. As a result, revenue for the SME Division in the six-month period was down 17% at £2.5m (H1 2017: £3.0m). However, margins have improved and the EBITDA contribution was maintained such that the SME Division has continued to contribute strong profits and cash during H1 of 2018. Adjusted EBITDA generated by the division was £0.9m (H1 2017: £1.0m) and the SME Division contributed materially to cash generation in the period.

Accordingly, the Board is pleased to propose an interim dividend of 0.19 pence per share (H1 2017: 0.16).

We are delighted with the performance of the Group in the first half of 2018 and we enter the second half of 2018 with confidence. 

Michael Fletcher

Chairman

4 September 2018

CEO's Statement

The first half of 2018 has started with great momentum for the Group, organic growth has improved to higher end of management's expectations in our core Corporate Division and we have successfully completed three acquisitions. The Board remains focused on delivering continued growth and strives to maintain and build on the excellent performance of the Group in the first half of 2018.

Having established a strong and scaleable 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 by:

1) Recognising that the UK and Irish energy markets have a known number of energy consumers and these consumers occupy buildings and infrastructure with a series of meter points. 

2) Understanding that different types of business have different needs at their meter points and each meter point represents an opportunity for Inspired to service the specific needs of the client (our 'Units of Opportunity').

3) Expanding the number of Units of Opportunity we have a transactional or commercial relationship with, through acquisitive and organic growth of the Group's client base.

4) Broadening the service offering of the Group and in turn the value Inspired can add to a client at each meter point (our 'Accessible Revenue').

5) Quantifying our bank of cross selling opportunities into our existing client base on a case by case basis and systematically engaging with clients to maximise their utilisation of relevant services.

During H1 2018 we have achieved the following:

1. We have increased the number of Units of Opportunity that we have a commercial relationship with by c.250% through the acquisition of SystemsLink.

2. Increased the potential Accessible Revenue per meter point (assuming all clients could take all services) by c.106% through the ECM acquisition and by 2.5% through the acquisition of Squareone.

3. The integration of SystemsLink and ECM was successfully completed as scheduled in H1 of 2018.

In addition, through increased utilisation and optimisation of the Group's integrated IT platforms, which continue to be developed, the Corporate Division has increased efficiency, benefiting from operational leverage as the Group continues to grow organically and by acquisition whilst delivering increased levels of a broader and more diversified service to our valued clients.

Our commitment to the acceleration of our growth strategy is clearly demonstrated by our systematic and pragmatic approach to the integration of our acquired businesses, the expansion of our executive bandwidth to support the Group's growth and implementation of remuneration structures designed to align our performance with shareholder interests. We continue to identify exciting opportunities for further growth as the business evolves as a leading player in the sector.

Corporate Division

Overview

The Corporate Division's core services include the review, analysis, negotiation and bureau of gas and electricity contracts.

Organic growth and integration of division

In H2 2017, the Board identified that there was scope to leverage specialist knowledge and improve efficiency by streamlining the business and re-focusing the commercial structure. The Board initiated the process of consolidating the Corporate service offering from subsidiary brands, to operating under a unified "Inspired Energy" brand with the service offering segmented into four broad categories of customer focus being:

· Energy intensive

· Commercial/estate intensive

· Public services

· Corporate

The customer focused structure of the Corporate Division ensures the delivery of a high level of tailored service to corporate customers which, coupled with the continuous development of our product suite, enables us to meet the individual energy management requirements of the 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: Creation of a Software Services Division to provide software solutions across the energy value chain.

Research and Development: Creation of an '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 first half of the year include:

· Revenue increased 50% to £13.76m (H1 2017: £9.19m), including 10% organic revenue growth (H1 2017: 6%).

· The Corporate Division generated adjusted EBITDA of £6.4m (H1 2017: £4.3m), a 50% year on year increase.

· Procurement Corporate Order Book increased by 3% to £40.1m as at 31August 2018 (FY 2017: £39.0 million).

· High customer retention rates maintained at 85% across the Corporate Division, whilst delivering strong new customer win performance.

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.

SME Division

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.

In the first half, the Board took the decision to streamline the focus of the division and discontinue the non-profit generating revenue streams, including the affiliate channel. Whilst revenue for the SME Division in the six-month period was down 17% at £2.5m (H1 2017: £3.0m), the reorganisation of the division has allowed it to continue to contribute strong profits and cash in the period, delivering adjusted EBITDA of £0.9m (H1 2017: £1.0m), with increased margins enabling the division to contribute materially to the cash generation of the Group.

Having completed the transition of the revenue mix for the SME Division we now have a steady state platform to allow focus on the complementary services that add value to SME consumers including Merchant Services, Insurance and Telecoms (the "Complementary Services").

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:

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

· Sector specialism and diversification increasing our Accessible Revenue;

· Increased geographic footprint building our Units of Opportunity;

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

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

The Board continues to explore 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 an interim dividend of 0.19 pence per share. This represents an increase of 19% over the interim dividend paid in 2017, being 0.16 pence per share.

The ex-dividend date is 18 October 2018 with a record date of 19 October 2017. The dividend will be paid to shareholders on 6 December 2018.

Outlook

Our excellent performance in the first half of 2018, 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 the net contribution from the three recent acquisitions.

In parallel, we remain focused on developing three strategic areas, outlined above, with the expansion of our Optimisation Services and creation of Software Services division and further Research and Development which, when combined, enable us to look ahead into FY 2019 with even greater confidence.

The Group's established acquisition strategy has delivered strong results as demonstrated by the success achieved by value enhancing acquisitions made in 2017 and 2018 year to date. In addition our increased focus on delivering organic growth, delivering results in our core Corporate Division we remain focused on evaluating varied opportunities in the sector.

As the Corporate Division continues to build on its firm foundations, we are excited by the opportunity to build on the enhanced capacity, depth, skills and expertise our team can provide to our expanding customer base allowing us to accelerate our activity levels and exploit the multiplicative effect of delivering growth on multiple dimensions of scale. 

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 2018

Group Statement of Comprehensive Income

For the six months ended 30 June 2018

Group Statement of Financial Position

At 30 June 2018

Group Statement of Cash Flows

For the six months ended 30 June 2018

Group Statement of Changes in Equity

For the six months ended 30 June 2018

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 2018. 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 2017.

The Group has completed its assessment of the impact of IFRS 15, which has been adopted in the current financial year, and current revenue recognition policies, and whilst unaudited, following that assessment, the Board believe that the adoption of IFRS 15 has not resulted in a material change to the Group statement of comprehensive income.

Going Concern

The Group's forecasts, which have been prepared for the period to 31 December 2020 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.

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 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 period 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 ongoing services billed directly to the Corporate customer, including bureau services (range of services tailored to a client's specific requirement), revenue represents the value of work done in the year. Revenue in respect of contracts for ongoing 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. For 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. This amount is not discounted as the impact is immaterial. Accrued revenue relates to commission earned, not yet received or paid.

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 2018 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 and Squareone Enterprises 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

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 2018 associated with computer software acquired through business combinations is £430,803. The additional £281,158 charged in the period relates to the amortisation of internally generated computer software. Amortisation of customer databases of £87,468 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