Inspired Regulatory News (INSE)

6 September 2022

Inspired PLC

("Inspired" or the "Group")

Results for the six months ended 30 June 2022

Inspired (AIM: INSE), a leading technology enabled service provider supporting businesses in their drive to reduce energy consumption, deliver net-zero, control energy costs and manage their response to climate change, announces its consolidated, unaudited half year results for the six-month period ended 30 June 2022.

Financial Results

Highlights

· H1 performance was in line with Board expectations against an unprecedented backdrop in UK energy markets

· The Group delivered revenue growth on prior year of 24% in H1, with 3% growth organically in Energy Assurance and 49% organic growth in Energy Optimisation

· Adjusted EBITDA grew by £0.9m (10%) in H1, with Energy Assurance margins maintained; the mix of Energy Optimisation revenues resulted in Group EBITDA margin reducing to 24% (H1 2021: 27%)

· The Group order book remained consistent with levels seen at the end of 2021 being £67.5m at 30 June 2022. The order book is measured in terms of total contract value which, when energy prices are high can be reduced by the timing and duration of renewals of Energy Assurance services

· Underlying cash generation from operations of £5.8m represented a significant improvement over the prior year as operating cash generation moved back towards expected levels

· The increase in net debt in the period reflects the expected payment of £10.2m of contingent consideration in H1. The Group also paid £0.6m in initial consideration for the small bolt-on acquisitions completed in the period

· The interim dividend has been increased to 0.13p (H1 2021: 0.12p) reflecting the Board's continued confidence in the Group's prospects

Current trading and outlook

· The Group anticipates that current conditions will lead to increased volatility in the Energy Assurance market in the short term, albeit this is not expected to have a material net impact on H2 performance

· The over-arching necessity for energy efficiency initiatives should support continued strong demand for the value added by Energy Optimisation services in H2

· ESG services are expected to make further favourable progress in H2

· The Board remains confident in achieving its full year expectations noting it is also mindful of the unprecedented conditions in UK energy markets which are very challenging for the Group's customers

· The long-term opportunities in the Group's markets have been made even more apparent by the current energy crisis and the Board believes that Inspired's proven strategy will enable it to capitalise on these opportunities as market conditions stabilise

Commenting on the results, Mark Dickinson, CEO of Inspired, said: "We are pleased to have delivered solid financial and operational progress during H1. The elevated volatility in the energy market has made energy procurement challenging for customers, and our staff have gone above and beyond during this time to support them. We have been delighted by the momentum achieved in the Optimisation and ESG divisions, as these offerings become ever more relevant to our customers in the current climate.

"Whilst the economic backdrop continues to present risks, our solid first half performance, strong market position and unique ability to support customers across a wide offering, provide us with confidence for H2 and beyond."

Note

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

**Adjusted profit before tax is earnings before tax, amortisation of intangible assets (excluding internally generated amortisation related to computer software and customer databases), exceptional items, share-based payments, the change in fair value of contingent consideration and foreign exchange gains/(losses) (A reconciliation of Adjusted profit before tax to reported profit before tax can be found in note 3)

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

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

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Chairman's Statement

The continued progress made during the period is, of course, placed into context with the on-going global energy crisis, which has seen significant uncertainty across commodity and energy markets, driving record energy price inflation. Whilst this has created market volatility, it has further highlighted the importance of energy management as an essential Board level priority. The Group continues to take every opportunity to help customers mitigate the cost of energy and manage their energy consumption and carbon emissions during these extraordinary times.

The Board is pleased to report a period in which the Group has continued to deliver solid organic growth, in line with its expectations.

Acquisitions

During H1, the Group acquired two trading subsidiaries of Information Prophets Limited, in whom the Group previously held a strategic investment position. The businesses will enable Inspired to continue to strengthen its market leading position in software-enabled services.

Dividend

Since IPO in 2011, Inspired has established a track record of delivering profitable and cash-generative growth, which has facilitated a consistent and progressive dividend policy.

Accordingly, the Board is pleased to announce an interim dividend of 0.13 pence (H1 2021: 0.12 pence). The dividend aligns with the Board's stated policy of a dividend cover of at least 3x earnings, with the objective of delivering progressive dividend growth over time.

The interim dividend will be paid on 8 December 2022 to all shareholders on the register at close of business on 14 October 2022. The shares will be marked ex-dividend on 13 October 2022.

Staff

On behalf of the Board, I would like to thank our colleagues, who continue to work tirelessly to support our customers through the challenges of these unprecedented times. We continue to invest in our valued team and the business. The Group's priority remains to help customers mitigate the rising cost of energy, manage their energy consumption and continue to reduce carbon emissions.

Richard Logan

Chairman

5 September 2022Chief Executive Officer's Statement

I am pleased to report on the Group's results for H1 2022, which are in line with the Board's expectations, despite the most challenging energy market conditions that anyone in the industry has experienced.

Volatility in the energy markets increased significantly during 2022. It has been a fast moving and difficult environment in which to operate, and we would, first and foremost, like to pay testament to our teams who have gone above and beyond to support their customers and the business.

Energy markets

As has been well documented in the press, the current energy markets are at unprecedented levels and the energy crisis continues to place pressure on energy suppliers.

We observe energy suppliers struggling to provide proposals to consumers, as they contend with exceptional market price volatility and declining access to credit insurance for the businesses they supply. We are cognisant that these challenges create both risks and opportunities: they have the potential to fundamentally change the operation of the Energy Assurance marketplace and further accelerate the demand for Energy Optimisation Services. 

During this period of uncertainty, the Group has continued to work tirelessly to support customers in the face of such challenges. We are of course keeping market developments closely under review, to ensure that the business remains correctly structured to manage any change in market dynamics.

We are pleased to update that further to the Group's announcement of 21 March 2022, relating to the potential financial risks associated with its business relationship with Gazprom Marketing and Trading Retail Limited ("Gazprom"), the parent company of the Gazprom entities in the UK, Gazprom Germania, was taken into public ownership in the immediate term by the German government. As a result, the former UK Gazprom entity under the name SEFE Energy Limited is now operating independently from the Russian state, meaning that the potential risks highlighted in March have now diminished significantly.

Energy Assurance Division

As a result of current energy market conditions, we anticipate changes in customer procurement behaviour in the short term: both increased customer churn and increased new business opportunity. From our experience to date, we do not expect an adverse impact on overall trading of the Energy Assurance Division during FY22.

The primary risk posed by the current environment is that continued energy cost inflation could create a financial viability risk for some of the Group's corporate customers. Our prudent planning assumption is that this may impact organic growth rates in the next 18 months. We are keen to learn of the Government's plans to support our customers in meeting the severe challenges of utility inflation.

Energy Optimisation Services

The benefits of being able to serve a consumer's entire energy cost equation has been highlighted during these unprecedented times and further underlines the strength of the Group's strategy.

Current market prices have transformed the economics of investments in energy reduction for our customers. Combined with the drive for delivering net zero, the Energy Optimisation Services division represents a key opportunity to help UK corporate businesses navigate through the current energy market crisis: we are seeing record interest in optimisation opportunities.

Through the strengthening of the growth drivers, we expect a continuation in the change of Group's revenue mix, through outperformance in Energy Optimisation Services in FY23.

ESG Services

We continue to be delighted by the performance of the ESG Services division, which has developed cost effective market leading solutions for our customers. Whilst still early in its evolution, it continues to perform at the higher end of management's expectations.

The full set of TCFD and ESG disclosures for Inspired PLC can be found on our website:

https://inspiredplc.co.uk/wp-content/uploads/2022/08/Inspired-2021-TCFD-Report.pdf

https://inspiredplc.co.uk/wp-content/uploads/2022/08/Inspired_2021-ESG-Report-1.pdf

These were produced using the same processes we provide to our customers; these processes are increasingly recognised as market leading. Full ESG disclosures have been provided to 33 customers to date, ranging from FTSE 100 to smaller publicly listed and private companies. A range of further ESG services have been provided to 453 customers to date.

Software Solutions

The Software Solutions division continues to deliver on developing its suite of solutions that underpin the delivery of the Group's technology enabled services.

The Unify platform is used to provide valuable data-led services to a growing number of energy advisors, or Third-Party Intermediaries ("TPIs"). In the first half of 2022, the number of TPIs that subscribed to the Unify platform increased from 58 to 64, generating healthy recurring SaaS revenue.

M&A strategy

Our current focus is on continuing to integrate and grow the acquisitions made in earlier years. We do not plan to engage in significant M&A activity in the short term but anticipate further good M&A opportunities in the medium to longer term.

Outlook

We have seen unprecedented conditions in UK energy markets during the first half of 2022, which are anticipated to persist through H2 at the very least. These conditions will continue to present a very challenging backdrop for the Group's customers.

We anticipate this will lead to more volatile conditions in the Energy Assurance market in the short term, which we expect will limit the growth opportunities in the near future, albeit this is not expected to have a material net impact on H2 performance. Conversely, these conditions and the increasingly compelling value represented by energy efficiency initiatives should support continued strong demand for Energy Optimisation services in H2. Although smaller in scale, ESG Services should also see continued progress over the remainder of FY22.

Whilst mindful of the current backdrop, and in particular the risk posed by prolonged inflation in energy costs to our customers, we have entered the second half in a solid position. Our divisions are well aligned with market demands and requirements, and we have a dedicated and hard-working team as well as a strong balance sheet, all of which provides the Board with confidence in achieving its full year expectations.

Market conditions beyond the current year are difficult to predict at this point, including the impact of cost base inflation, but the long-term opportunities for the Group have been made even more apparent by the current energy crisis and the Board believes that Inspired's proven strategy will enable it to capitalise on these as market conditions normalise.

On behalf of the Board, I would like to thank our colleagues, customers and suppliers for their continued support and collaboration during these unprecedented times.

Mark Dickinson

Chief Executive Officer

5 September 2022

Chief Financial Officer's Statement

We have delivered a 24% increase in revenue and a 10% increase in Adjusted EBITDA in H1 2022, as the Group continues to navigate the macro-economic challenges and the global energy crisis.

Divisional performance

Energy Solutions Division

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

Energy Assurance Services

Energy Assurance Services trading in the period remained in line with expectations. Energy Assurance Services generated 45% of total Group revenues in H1 2022 (H1 2021: 55%) being £18.4 million (H1 2021: £17.9 million) an increase of 3% organically.

Energy Assurance Services contributed adjusted EBITDA of £8.3 million (H1 2021: £8.3 million). The adjusted EBITDA percentage margin was 45% (H1 2021: 47%).

Energy Optimisation Services

The Group's Energy Optimisation Services division continued to gain momentum throughout H1 2022 with revenues increasing 49% organically, amounting to £19.6 million (H1 2021: £13.2 million) contributing 49% of total Group revenues in the period (H1 2021: 40%). Energy Optimisation Services contributed adjusted EBITDA of £3.1 million, (H1 2021: £1.5 million) an increase of 107%. The optimisation services division in H2 2022 delivered Adjusted EBITDA margins of 16% (FY2021: 17%) reflecting the impact of product mix during the period.

Demand for energy optimisation services continues to increase, with strong underlying drivers, including high commodity prices and the drive to net-zero. As a result, the Board expects to see a continued shift in revenue mix towards Energy Optimisation Services.

ESG Solutions Division

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

ESG Solutions generated revenues of £1.2 million (H1 2021: £0.4 million), delivering 215% growth organically, reflective of the growing market for these services. ESG Solutions contributed modestly to Adjusted EBITDA during the period, at £0.1 million (H1 2021: £nil). The increasing focus of investors and businesses on Net Zero Carbon targets, combined with mandatory requirements for businesses to make ESG disclosures from 2022, provides a favourable backdrop to continued investment in the Inspired ESG division.

Software Solutions Division

The Group's Software Solutions Division delivered revenue of £1.2 million (H1 2021: £1.2 million), an increase of 5% and generated Adjusted EBITDA of £0.9 million (H1 2021: £0.9 million), with the division producing a strong sustainable Adjusted EBITDA margin of 74% (FY 2021: 74%).

Group results

PLC costs were £2.7 million (6.7% of revenue) (H1 2021: £2.0 million; 6.1% of revenue), reflecting the increased investment in central functions, including Marketing and Finance, to support the growth opportunities within the Optimisation and ESG Services Division.

Overall, the Group generated Adjusted EBITDA for the period of £9.7 million (H1 2021: £8.8 million) an increase of 10%. After deducting charges for depreciation, amortisation of internally generated intangible assets and finance expenditure, the adjusted profit before tax for the period was £6.5 million (H1 2021: £6.0 million), an increase of 8%.

Under IFRS measures the Group reported a profit before tax for the half-year of £2.4 million (H1 2021: £0.9 million), with reported profit before tax in the period impacted significantly by charges of £3.6 million (2021 H1: £1.5 million) for the amortisation of intangible assets as a result of acquisitions, share-based payment charges, fees associated with acquisitions, restructuring costs and the changes in the fair value of contingent consideration.

A full reconciliation of the Group's adjusted profit before tax to its reported profit before tax is included at note 3.

Alternative performance measures

Acquisition activity can significantly distort underlying financial performance from IFRS measures. The Board therefore also reports adjusted metrics, as well as IFRS measures, for the benefit of primary users of the Group's financial statements. Segmental reporting can be found in the Accounting Policies section below. Reconciliations to Adjusted Profit Before Tax and Adjusted Fully Diluted EPS can be found in note 3.

Cash generation

Group cash generated from operations during H1 was £5.0 million (H1 2021: cash outflow of £0.5 million). Excluding non-recurring fees associated with restructuring costs and deal fees, cash generated from operations was £5.8 million (H1 2021: £1.1 million). The improved comparative cash generation position reflects in part the abnormal profile of Optimisation Services trading during H1 2021, impacted by COVID restrictions at that time.

Within trade receivables within the Energy Optimisation Services division is an aged balance of £2.2 million due from a major public sector Optimisation customer. As noted in the 2021 final results, sustained focus is being applied to ensuring the debt is collected in the most efficient way, noting the Board had expected to make further collections during H1 2022 which have not materialised. The Board believes the commercial view taken to support the client, will further strengthen the relationship with a material customer into the future.

Excluding this exceptional aged debt not collected during the period, cash generated from operations in the period was in line with management expectations, and cash generation is expected to continue to improve during H2 and beyond.

The increase in net debt reflects a period in which the cash generation of the Group was offset by the payment of £0.6 million initial cash consideration for I-Prophets Compliance Limited and Digital Energy Limited, and £10.2 million of contingent cash consideration to the vendors of Ignite Energy LTD, Businesswise Solutions Ltd and LSI Independent Utilities Brokers Limited.

Exceptional costs

Exceptional costs of £0.76 million (H1 2021: £1.04 million) were incurred in the period, which includes £0.14 million (H1 2021: £0.80 million) of deal fees associated with acquisitions completed in the period.

Restructuring costs were £0.62 million (H1 2021: £0.24 million), related to restructuring programmes associated with the integration of acquisitions.

Change in fair value of contingent consideration

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

The Group recognised a £0.9 million loss (H1 2021: £0.9 million) in the period as a result of changes in the fair value of contingent consideration which was treated as exceptional, which purely related to the unwinding of discount rate.

At 30 June 2022 the Group has deferred contingent consideration of £4.2 million from the sale of its SME division in 2020. The primary risk of recovery of this balance is the ability of SME entities to withstand the risks posed by continued energy cost inflation as a result of the energy crisis, along with the possibility of prolonged reduction in energy consumption by SME customers in an effort to reduce costs. We continue to assess the recoverability of this balance as we get greater visibility.

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

Financial position and liquidity

At 30 June 2022, the Group's net debt was £42.9 million (H1 2021: £30.17 million - FY 2021: £32.3 million). In addition to cash and cash equivalents of £6.4 million on hand, as at 30 June 2022, approximately £10.5 million of the Group's £60.0 million Revolving Credit Facility is undrawn with an additional £25.0 million accordion option available, subject to covenant compliance.

Dividend

The Board is pleased to confirm an interim dividend of 0.13 pence per share (H1 2021: 0.12 pence) in line with the Group's revised policy of paying dividends covered by at least 3.0x earnings.

The interim dividend will be paid on 8 December 2022 to all shareholders on the register at close of business on 14 October 2022. The shares will be marked ex-dividend on 13 October 2022.

Summary

The strategic and financial initiatives delivered in the period have ensured the Group is well placed to deliver our strategic growth plan, whilst managing the additional risks created by the volatility and uncertainty within commodity and energy markets.

Paul Connor

Chief Financial Officer

5 September 2022

Group Statement of Comprehensive Income

For the six months ended 30 June 2022

Group Statement of Financial Position

At 30 June 2022

Group Statement of Cash Flows

For the six months ended 30 June 2022

Group Statement of Changes in Equity

For the six months ended 30 June 2022

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 2022. 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 2021. The accounting policies in this announcement are consistent with those set out in the annual report for the year ended 31 December 2021.

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. The Group reports under four reporting segments, namely Assurance, Optimisation, Software and ESG.

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: