Inspired Regulatory News (INSE)

11 September 2023

Inspired PLC

("Inspired" or the "Group")

Results for the six months ended 30 June 2023

Solid financial and operational progress with strong momentum in Optimisation and ESG Divisions providing confidence in full year market expectations

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-months ended 30 June 2023.

Financial Results

Highlights

Operational and Strategic Highlights

Strong performance across all four divisions, underpinned by long term structural growth drivers:

Assurance Services

ESG Services

Optimisation Services

Software Services

Current trading and outlook

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 in particular, 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."

An overview video of the results, by CEO Mark Dickinson, is available to watch here: https://bit.ly/INSE_H123_overview

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 4)

***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).

†All per-share figures have been adjusted to reflect the 10:1 share consolidation undertaken on 3 July 2023.

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Chair's Statement

Inspired continues to take every opportunity to help customers mitigate the cost of energy and manage their energy consumption and carbon emissions during these challenging times.

The Group made good progress in the first half of the financial year, with the momentum continuing into H2. As a result, the Board is pleased to report robust results for the period ended 30 June 2023.

Deed of Variation - Ignite Energy LTD ("Ignite")

As we announced on 22 May 2023, the Group entered into a deed of variation to the share purchase agreement dated 9 July 2020 between the Company and vendors of Ignite Energy LTD ("Ignite Vendors"). The Optimisation Division delivered significant growth in FY22 and H1 2023, driven by an increase in demand as the ongoing energy crisis sharpened clients' focus on the economics of investment in energy reductions, combined with the drive for delivering net-zero. With national COVID-19 restrictions behind us, we are now able to deliver on-site services once again undisrupted, a material factor which is driving strong demand for our Optimisation Services the Deed of Variation will incentivise the Ignite Vendors to deliver substantial long term for Inspired in a manner that is entirely self-funding.

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 1.4 pence per share (H1 2022:1.3 pence), with the H1 2022 figure adjusted to reflect the 10:1 share consolidation undertaken on 3 July 2023. 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 2023 to all shareholders on the register at close of business on 13 October 2023. The shares will be marked ex-dividend on 12 October 2023.

Our People

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

Chair

10 September 2023

Chief Executive Officer's Statement

The first half of 2023 has been another period of strong progress for Inspired, delivering revenue growth of 10% to £44.6m and Adjusted EBITDA growth of 9% to £10.6m reflecting the increasing demand for our differentiated solutions, and in particular optimisation services, as businesses need to manage their energy costs and commence on their journeys to net-zero.

The unprecedented conditions in the UK energy markets during 2022 sharpened our clients' focus on ensuring they have invested effectively in carbon and energy reduction; as a consequence, managing energy costs and making ESG disclosures are now firmly embedded as operationally and commercially critical for most businesses. Supporting our customers is paramount to the whole team and Inspired's solid performance in the period, positions us well to continue supporting our customers and address their growing needs.

Each of the four divisions performed well, with Optimisation and ESG delivering particularly strong revenue growth. Optimisation continues to deliver organic growth from cross selling and a strong step up in in new customer demand, with clients focussing on the beneficial impacts of energy reduction and delivering net-zero. ESG has performed exceptionally well, increasing the lifetime value of existing clients and adding new clients to the Group providing incremental cross sell opportunities. Assurance continues to see momentum in new business generation, with client churn reducing and retention rates recovering. Software continues to deliver growth, rapidly becoming the market leading technology platform with strong client wins from competing technologies in the first half of the year as well as underpinning the Group's broader service delivery.

Whilst mindful of the challenges posed by the macro-economic environment, and in particular the impact on the Assurance Services division, we still expect to deliver double digit organic growth this year across the Group which is testament to the success of our diversification strategy to become a full suite sustainability services provider and underpins the Board's confidence in the continued success of Inspired in the long-term.

Strategy

FY22 saw the completion of the Group's initial five-year strategy to transition into a full suite sustainability services provider. We have created a business that has fully diversified from being solely an energy broker with low single digit organic revenue growth, to a business with a double-digit organic growth engine capable of delivering our ambition to double Adjusted EBITDA organically by FY27.

Our strategy for the next five years to deliver on the client life-time value opportunity, the intrinsic value of which has already firmly been embedded in the portfolio, can be summarised as:

The Group has made good progress executing this strategy in H1 adding new clients for Assurance Services and ESG Services and cross selling services to clients. Of particular note:

Assurance Services

Our Assurance Services division is a leader in helping businesses manage their energy costs and the risks of the energy markets, the importance of which has never been greater.

To do this effectively and take advantage of opportunities to reduce costs as they occur, thousands of pieces of data need to be processed every month, which is made possible by our proprietary software platform: 'Unify'. Once this data is collected and audited, it provides the detail required to identify and deliver effective carbon action programmes and opportunities to implement Optimisation Services.

The Group guided to low single digit revenue growth and a circa 40% Adjusted EBITDA margin for FY23 for the division reflecting the full year impact of client churn and increased costs to maintain service levels arising from the energy crisis. The division is performing as we expected in FY23 with a return to growth expected in FY24.

The Group has posted a record level of new client wins for the period including Central England Co-operative Limited, Focus Hotels Management Limited, and Rontec Roadside Retail Limited. New client wins have been driven by a flight to quality as businesses look for differentiated solutions from a full suite sustainability services provider to help them navigate through the energy crisis. We are also pleased to report that we expect retention levels to return to pre-energy crisis by FY24.

For H2 2023 the Group remains focussed on ensuring that Assurance Services continues to evolve to keep pace with the increasing challenges faced by clients and adding new clients to the Group.

ESG Services

The ESG Services division supports businesses with the production of their ESG disclosures to meet their regulatory obligations and determining strategies to deliver the ESG impacts clients' wish to make.

Once a business has a robust process for making consistent disclosures, its board has the information it needs to make more effective decisions and the data required to formulate a carbon action programme and deliver any necessary Optimisation Services.

The division has delivered 98% organic growth compared to H1 2022 and is expected to deliver a positive Adjusted EBITDA contribution in FY23 only two years since its inception as a boot strap market entrant.

We are delighted by the performance of the ESG Services division which added a number of clients to the Group in H1 2023 including YouGov plc, Empiric Student Property plc, Acteon Group Limited, Optimas OE Solutions Limited, FW Thorpe plc, and Dyer Engineering Ltd. These client wins also provide a further opportunity to develop the Group's revenues through cross selling the Group's product suite into the client.

As we look towards H2 2023 we see strong momentum leading management to expect organic growth of c.90% for FY23 for this division. 

Importantly the ESG macro environment continues to develop strongly with the anticipated introduction of the Corporate Sustainability Reporting Directive ('CSRD') set to encompass 50,000 European businesses under the umbrella of mandatory sustainability reporting compared to 1,800 in the UK.

Optimisation Services

Once clients have benefitted from the Group's Assurance Services to manage the price of their energy and are reporting their ESG disclosures effectively, their attention quickly turns to how they can reduce energy and carbon emissions.

The cornerstone of Assurance and ESG Services is data management through the data provided at the meter point, and this data allows the Group to help clients identify opportunities to reduce carbon emissions and energy consumption, delivering their response to climate change and further reducing their energy costs. It is the cross selling of Optimisation Services to Assurance Services and ESG Services' customers which provides the Group with the opportunity to remove carbon from the environment and allow clients drive material progress in the transition to net-zero; providing a key competitive advantage to the Group.

H1 2023 has seen 14% organic growth from the Optimisation Services division with sales pipelines for Optimisation Services on client sites reaching record levels and the division is expected to deliver in excess of 30% organic growth by the end of FY23. We have seen an increased interest for supporting clients with the provision of environmental certificates which help them attain carbon neutrality as they continue on their journey to deliver net-zero carbon.

Unlike the other divisions, Optimisation Services revenue is project driven and consequently, revenue, profits and operating cash conversion are impacted by the timing of project work over the year and, as we observed last year, we expect higher revenues in H2 than we experienced in H1 2023.

We continue to see strong momentum in demand for optimisation projects and solutions for clients with pipelines for the rest of FY23 and FY24 at record levels and more than capable of supporting double digit growth expectations.

The Board is cognisant that there are elements outside of the Group's control with respect to the macro-environment and the timing of individual companies' decisions to deploy capital on projects, which can lead to variations in the timing of revenue, gross margin and cash conversion but the Board remains confident in meeting expectations for the division for FY23.

Software Services

Assurance, Optimisation and ESG Services require significant management and processing of unstructured data which underpins our service delivery. The technology enablement of these solutions is provided by 'Unify' our proprietary software platform which has been significantly developed over recent years and provides a market leading platform.

Software Services delivered 22% organic growth in H1 2023 compared to H1 2022 whilst maintaining significant margins, increasing expenditure from existing clients by 18% and introducing ten new TPIs and 5 direct clients to the Group.

We continue to develop incremental functionality to the platform and expect to deliver organic growth in excess of 20% for the full year FY23.

Acquisitions

Since IPO the Group has successfully completed 21 acquisitions adding £44.8m revenue and £14.4m of Adjusted EBITDA. Prior to 2017 the strategic focus of the Group was scale through consolidation, and nine Assurance Services acquisitions were completed in five years which added £12.4m of Assurance Services revenue and £5.6m Adjusted EBITDA. This strategy has allowed the Group to transform from a subscale business into a platform business. However, this single service business strategy delivered relatively low organic growth with exposure to macro risks, such as COVID-19.

From 2017 to 2022 the Group completed 12 further acquisitions, including Ignite under a self-funding structure, adding £15.6m of Assurance Services revenue and £5.7m Adjusted EBITDA, £15.5m of Optimisation Services revenue and £2.6m Adjusted EBITDA and £1.3m of Software Services revenue and £0.5m Adjusted EBITDA. These acquisitions accelerated the diversification of the Group into a full suite sustainability services provider capable of delivering double digit organic growth whilst reducing the Groups exposure to macro risks. 

The Groups acquisition strategy has created a player of scale in the Assurance Services market, with a full suite of sustainability services, capable of delivering double digit organic growth with the ambition to double Adjusted EBITDA organically by the end of FY27.

After a slow down over the past few years impacted by the energy crisis and challenges of COVID-19, M&A activity in the sector is now resuming. The Board continues to monitor opportunities which can enhance the Group performance and shareholder returns in the long-term, in line with the Group's five-year strategy. 

Inspired's own ESG and people

As a service provider helping businesses deliver market leading ESG disclosures, it is important that the Group is at the forefront of ESG performance. During H1 2023 the Group made the following progress with respect its ESG targets:

Strategic priorities and outlook 

Managing energy costs and ESG have now become firmly embedded as operationally and commercially critical for most businesses. This is creating sustained and increasing demand for Inspired's differentiated products and services as a full-service provider.

The Group's objective is to deliver double digit Adjusted EBITDA growth for FY23 and double Adjusted EBITDA organically by FY27 and the Board is pleased to confirm that, with our performance in H1 2023 and having started H2 2023 well, we are on track to achieve our objectives and deliver in line with market consensus for the year.

Mark Dickinson

Chief Executive Officer

10 September 2023

Chief Financial Officer's Statement

We are pleased to report strong financial results for the six months period ended 30 June 2023; we have remained agile and alert to the challenging environment in which we operate whilst making clear strategic progress.

In H1 2023 the Group achieved 10% organic revenue growth at £44.6m (H1 2022: £40.5m). Group Adjusted EBITDA increased by 9% to £10.6m (H1 2022: £9.7m). Group margins remained stable and in-line with expectations at 24% (H1 2022: 24%) with the lower margin within Assurance Services offset by margin improvement in Optimisation Services.

Divisional performance

Assurance Services

Whilst continuing to face volatility in UK energy markets, the Group's Assurance Services delivered revenues in line with expectations. The division continued to see momentum in new business generation and recovery in retention rates after the increase in client churn experienced in FY22 as a result of the unprecedented conditions in UK energy markets. Margins were in line with expectations, with an anticipated increase in overheads, to maintain the highest service quality standards for our clients, whilst supporting them in managing their energy costs.

Assurance Services generated 41% of total Group revenues in H1 2023 (H1 2022: 45%), being £18.4m (H1 2022: £18.4m).

Assurance Services continues to be a significant contributor to the Group, representing 55% of Group Adjusted EBITDA, prior to accounting for PLC costs, and contributed Adjusted EBITDA of £7.7m (H1 2022: £8.3m), a reduction of 7%. The Assurance Services adjusted EBITDA percentage margin was 42% (H1 2022: 45%). We retain our objective to provide a first-class level of service to our Assurance clients, which we believe is essential to retain our market leadership position in Assurance Services and to generate client lifetime value for the Group.

ESG Services

ESG Services generated revenues of £2.4m (H1 2022: £1.2m), delivering 98% growth organically, reflective of the demand and growing market for these services. ESG Services was break even for the period as the Group continues to invest to scale up the division in response to the substantial market opportunity.

The increasing focus of investors and businesses on net-zero targets, combined with mandatory requirements for businesses to make ESG disclosures from 2022, provides a favourable backdrop for the ESG Services division.

Optimisation Services

The ongoing energy crisis has significantly sharpened clients' focus on the economics of investment in energy reductions. Combined with the drive for delivering net-zero, this has translated into a significant step up in demand and activity for the Optimisation Services division.

Optimisation Services generated 50% of Group revenues in H1 2023 (H1 2022: 49%), amounting to £22.4m (H1 2022: £19.6m), an increase of 14%, all of which was organic. Optimisation Services contributed Adjusted EBITDA of £5.1m (H1 2022: £3.1m), an increase of 68% and a resulting improvement in Adjusted EBITDA margin to 23% (H1 2022: 16%).

Demand for Optimisation Services continues to increase, with strong underlying drivers, including the drive to net-zero and the need to manage high commodity prices. As the division continues to represent a growing proportion of Group revenues, Group margins will reflect the change in business mix in the future.

Software Services

Software Services continues to develop well, with revenues growing by 22% to £1.5m (H1 2022: £1.2m) and Adjusted EBITDA of £1.0m (H1 2022: £0.9m) reflecting momentum in client acquisition activity and an increase in revenue generated from existing clients. The division produced an Adjusted EBITDA margin of 70% in line with FY2022 (H1 2022: 74%).

Group results

PLC costs were £3.3m (H1 2022: £2.7m) in line with expectations, the increase over the prior period reflecting the investment made in FY 22 into central functions including Marketing, Finance and HR, to support the acceleration in growth.

Overall, the Group generated Adjusted EBITDA of £10.6m in H1 2023 (H1 2022: £9.7m). In percentage terms the Adjusted EBITDA margin was stable in line with expectations at 24% (H1 2022: 24%). After deducting charges for depreciation, amortisation of internally generated intangible assets and finance expenditure, the adjusted profit before tax for the half-year was £6.2m (H1 2022: £6.5m). The increase in Adjusted EBITDA was offset by an increase in finance costs, due to a combination of the company carrying a higher level of debt over the period and increased interest rates.

Under IFRS measures, the Group reported a profit before tax for the half-year of £0.2m (H1 2022: £2.4m), with the reduction in reported profit before tax being primarily driven by increased charges for changes in the fair value of contingent consideration. Other items contributing to the reduction in the adjusted profit before tax include the amortisation of intangible assets as a result of acquisitions, share-based payment charges and restructuring costs, all of which have reduced from H1 2022.

A reconciliation of reported profit/(loss) before tax to adjusted profit before tax is set out below:

Alternative performance measures

Acquisition activity can significantly distort underlying financial performance from IFRS measures. The Board therefore considers it appropriate to report adjusted metrics, as well as IFRS measures, for the benefit of primary users of the Group's financial statements. Reconciliations to adjusted profit before tax and adjusted fully diluted EPS can be found in note 4.

Exceptional costs

Exceptional costs of £0.5m (H1 2022: £0.8m) incurred in the period related to restructuring programmes associated with the integration of businesses acquired prior to 2022, reducing significantly from the prior year.

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 an earn out period, which is subsequently discounted for the time value of money and risk.

The Group reported a £0.2m pre-tax profit (H1 2022: £2.4m) in the period, of which £3.8m (H1 2022: £0.9m) related to the increase in the liability for contingent consideration payable, of which £0.7m (H2 2022: £0.9 m) related to the unwinding of discount rate, and £3.1m in respect of Ignite Energy LTD and Businesswise Solutions Limited performing at the higher end of the range of possible performance outcomes. The changes in the fair value of contingent consideration was treated as exceptional.

Exceptional costs, amortisation and impairment of internally generated intangible assets, share based payment charges 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.

Cash and Working Capital

Group cash generated from operations in H1 2023 was £3.0m (H1 2022: £5.0m), impacted by the timing and profile of optimisation services projects over the period and receipts post the period end. Excluding non-recurring fees associated with restructuring costs and deal fees, cash generated from operations was £3.4m (H1 2022: £5.8m).

Underlying operating cash conversion remain a key focus for management, acknowledging the need to facilitate the acceleration of growth within the Optimisation Services division.

Trade and other receivables increased 19% in the period to £45.8m (FY 2022: 38.6m), driven by a 52% increase in trade receivables to £18.7m (2022: £12.3m) as a result of the increased activity levels, and invoicing in the Optimisation Services division, which unwound post period end. Accrued income reduced in the period to £18.3m (FY 2022: £18.6m). Working capital management remains a key focus for management in sustaining strong cash conversion.

Trade and other payables increased 5% to £18.0m (FY 2022: £17.1m), driven by an increase in deferred income to £4.9m, primarily within the Optimisation Services division, as the division continues to focus on improving the number of stage payments it receives from its Optimisation project customers.

The Group's net debt (defined as bank borrowings less cash and cash equivalents) increased by £11.9m in the period to £49.1 million (FY 2022: £37.2m) in line with expectations.

The increase in Group net debt reflects the payment of £8.6m of contingent cash consideration to the vendors of Ignite, BWS and LSI, with a further £2.6m paid to the vendors of Ignite in ordinary shares of the Group. A further £4.0m performance payments, in the form of contingent cash consideration for acquisitions is expected to be paid in H2 2023. The balance of the contingent consideration within current liabilities will be payable in H1 2024.

Financial position and liquidity

At 30 June 2023, the Group's net debt was £49.1m (H1 2022: £42.9m). Cash and cash equivalents stood at £8.4m (H1 2022: £6.4m). Approximately £2.4m of the Group's £60.0m Revolving Credit Facility was undrawn, with an additional £25m accordion option available to the Group, subject to covenant compliance.

On entering the current facility agreement with Santander and Bank of Ireland in October 2019, the Group had an option to extend the term of the facility from October 2023 to October 2024. The Group exercised that option in September 2021, taking the term of the existing facility to October 2024.

In March 2023, the Group agreed with its lenders a resetting of the adjusted leverage covenant for quarters ending 31 March 2023 through to 30 June 2024, increasing the headroom available to the Group from a covenant perspective through a period in which the Group expects to make material contingent consideration payments, while facilitating the acceleration of growth within the Optimisation Services division.

Summary

The strategic and financial initiatives delivered in the year have ensured that the Group is is in a strong position to implement our strategic growth plan effectively, whilst managing the additional risks created by the continued market volatility. The strong performance in the Group's revenues, and adjusted EBITDA, in a challenging environment coupled with a strengthened platform capable of generating enhanced long-term growth leaves Inspired better placed than ever to achieve its long-term financial goals.

Paul Connor

Chief Financial Officer

10 September 2023

Group Statement of Comprehensive Income

For the six months ended 30 June 2023

Group Statement of Financial Position

At 30 June 2023

Group Statement of Cash Flows

For the six months ended 30 June 2023

Group Statement of Changes in Equity

For the six months ended 30 June 2023

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 2023. 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 2022. The accounting policies in this announcement are consistent with those set out in the annual report for the year ended 31 December 2022.

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. Finance Expenditure