TIDMINSE
RNS Number : 6059O
Inspired Energy PLC
02 June 2020
2 June 2020
Inspired Energy plc
("Inspired Energy" or the "Group")
Final Results for the year ended 31 December 2019
Inspired Energy (AIM: INSE), the leading consultant for energy
procurement, utility cost optimisation and legislative compliance
in the UK and Ireland, announces its consolidated, audited final
results for the year ended 31 December 2019.
Highlights
2019
Financial Highlights 2019 2018 % change
------------------------------- --------- --------- ---------
Revenue GBP49.30m GBP32.69m +51%
--------- --------- ---------
Gross profit GBP40.93m GBP27.67m +48%
--------- --------- ---------
Adjusted EBITDA* GBP18.83m GBP13.75m +37%
--------- --------- ---------
Adjusted profit before tax** GBP14.72m GBP11.38m +29%
--------- --------- ---------
Profit before tax GBP4.75m GBP4.20m +13%
--------- --------- ---------
Underlying cash generated from
operations*** GBP13.77m GBP12.29m 12%
--------- --------- ---------
Cash generated from operations GBP10.35m GBP10.01m +3%
--------- --------- ---------
Adjusted Diluted EPS**** 1.74p 1.61p +8%
--------- --------- ---------
Diluted Basic EPS 0.53p 0.53p 0%
--------- --------- ---------
Net Debt GBP33.37m GBP23.25m +44%
--------- --------- ---------
Corporate Order Book GBP57.50m GBP53.00m +9%
--------- --------- ---------
-- Record revenues delivered by the Group of GBP49.3 million, up
51% year on year (2018: GBP32.7 million)
-- Corporate division accounted for 89% of Group revenue for the
period (2018: 84%), generating 60% revenue growth, of which 7% is
organic, contributing adjusted EBITDA in line with management
expectations
-- Group adjusted EBITDA increased 37% to GBP18.8 million (2018: GBP13.7 million)
-- Corporate Order Book as at 31 December 2019 of GBP57.5
million, an increase of 9% over the prior period (2018: GBP53.0
million); this increased to GBP60.1 million as at 30 April 2020
-- Revenues generated by the Corporate Division from 1 January
2020 to 30 April 2020, combined with the Corporate Order Book as at
30 April 2020 provide visibility over GBP39.7 million of Corporate
Division revenues for 2020. This Corporate Order Book does not
include demand side project revenues generated by Ignite Energy LTD
("Ignite")
-- Robust underlying cash from operations up 12% to GBP13.8 million (2018: GBP12.3 million)
-- SME division contributed adjusted EBITDA of GBP1.9 million
(2018: GBP2.4 million), representing a 34% adjusted EBITDA margin
(2018: 45%), with the reduction in generation margin being driven
by increased competition from private equity backed consolidators
in this segment.
-- Secured new GBP60.0 million facility agreement to refinance
existing borrowings and to provide further headroom to support the
continued acceleration of the Group's growth and acquisition
strategy
-- Subsequent to the year end, the Group has agreed an amendment
with its banks to 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
-- Final dividend to be deferred and reassessed at the release of the 2020 interim results
Operational and Acquisition highlights
Completion of one strategic investment and two acquisitions in
2019:
-- Strategic investment of 40% of the issued share capital of Ignite
- Consideration of GBP5.0 million on a cash free debt free
basis, with a further GBP3.0 million contingent on delivery of
GBP4.0 million adjusted EBITDA for the year ending 31 December
2019. The GBP3.0 million of contingent consideration was paid in
full post year end.
- Exclusive option to acquire the balancing interest of 60% on
pre-agreed terms (announced 2 August 2019)
- Trading in line with management's expectations with
cross-selling opportunities gaining traction
-- Acquisition of Waterwatch UK Limited ("Waterwatch")
- Consideration of GBP0.5 million on a cash free debt free
basis
- Waterwatch team integrated into the Group's existing
optimisation services offering
-- Acquisition of Independent Utilities Limited ("IU Energy")
- Consideration of GBP2.0 million on a cash-free debt-free
basis
- Initial consideration of GBP1.0 million with the balance
contingent on certain performance measures
-- Invested GBP0.7 million into incubator projects in the year,
supporting and facilitating the future growth opportunities within
the wider sector
COVID-19 update
The health, safety and wellbeing of our employees, their
families and our customers is 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 2020 we successfully implemented our
business continuity plan and c.80% of our workforce are currently
working remotely. The team has adapted extremely well to the
challenges faced and continue to deliver excellent levels of
service to our valued clients.
The Group is in the fortunate position of having a robust
balance sheet and resilient revenue streams underpinned by the
strength of its Corporate Order Book, and the diversity of its
2,800 Corporate customers that operate across all segments of the
UK and ROI economies. The year-end Corporate Order Book stood at
GBP57.5 million and increased to GBP60.1 million as at 30 April
2020. The first quarter of 2020 saw no impact on the assurance and
advisory services provided by the core Corporate division, which
represented c.89% of 2019 Group revenues.
The Group's SME division, which represents c.11% of 2019 Group
revenue, is experiencing a reduction in demand for energy supplier
switching services. In response, a significant number of staff in
this division have been placed on furlough, utilising the
Government's Coronavirus Job Retention Scheme, in order to mitigate
the immediate financial impact on the Group. A core team of
employees continue to service our SME clients.
Financial position, liquidity and dividend
The Group has a strong balance sheet position, having recently
refinanced its banking facilities to October 2023, with an option
to extend to October 2024. In addition to cash and cash equivalents
of GBP11.7 million on hand as at 30 April 2020, approximately
GBP14.0 million of the Group's GBP60.0 million Revolving Credit
Facility is undrawn with an additional GBP25.0 million accordion
option available, subject to continued covenant compliance.
Clearly, the ultimate impact of the COVID-19 pandemic is
difficult to predict and as such, we have considered scenarios when
stress testing the base financial forecasts for the period to
December 2022. We have based our stress testing on a prudent
downside scenario that reflects the current unprecedented
uncertainty, which we consider to be severe, of a very significant
reduction in revenue in Q2 and Q3 2020, with trading recovering in
Q4 2020 and continue to strengthen into 2021. In producing this
downside scenario, we have also considered the publicly available
information with regard to the reduction in utility consumption in
countries where the impact of COVID-19 happened earlier than in the
UK and ROI. In addition, we have reviewed the limited data
available in the UK regarding the impact on consumption to date and
based on this limited data, actual consumption by the commercial
market during the month of April 2020 appears to be notably higher
than the assumption applied within the downside scenario.
These projections show with the benefit of management continuing
to take appropriate mitigating actions to preserve cash reserves of
the Group, including the Board resolving not to recommend a final
dividend for the year ended 2019, that the Group can operate
without any further need to draw on the existing banking facilities
over the period. However, under a more extreme scenario, there
would have been a risk that the Group would breach its existing
adjusted leverage covenant under the facility agreement entered in
October 2019. As a result of this, in common with many other
companies, the Group has undertaken discussions with its banking
partners, who have approved an increase in the leverage covenant
for the test dates ending 30 June 2020 through to 30 June 2021
(inclusive), to a level which provides sufficient headroom to
remain compliant in the Board's prudent downside scenario.
Current trading and outlook
The Group was largely unaffected by Covid19 until very late in
March and the business delivered a strong performance in the first
quarter, with trading in line with the Board's expectations at the
time and ahead of the same period last year.
Whilst operational disruption has been more significant since
the end of the first quarter, the business has been able to operate
on a continuous basis whilst also benefiting from its significant
contracted income. Swift and effective action has been taken to
manage costs and preserve cash flow with the result that the Group
has remained both strongly cash generative and delivered profits
significantly ahead of the downside scenario during April. Whilst
the impact in the SME market (11% of FY2019 Group revenues) has
been more significant and visibility is still limited, the Board
has been encouraged by an initial uptick in activity levels during
May.
The Board has been encouraged by the performance of the business
during this very challenging period and believes that the Group is
well positioned to respond effectively as activity levels continue
to recover. The Board is monitoring conditions on a continuous
basis and should these continue to stabilise it expects to be in a
position to provide financial guidance for the current year, within
the next few months.
The COVID-19 crisis has presented an unprecedented challenge and
the Board has taken a number of prudent actions to reinforce its
financial position in the short term, so that the Group can retain
its market leading offering and talent as well as ensure it has the
flexibility to maintain its strategic momentum. As such and
retaining its disciplined approach to assessment, the Group
continues to develop its pipeline of acquisition opportunities.
Inspired Energy is a leader in its markets, the evolution of which
may well be accelerated by the current backdrop. The Board believes
that there will continue to be significant scope to progress its
successful acquisition strategy moving forward and will look to act
decisively where value-enhancing opportunities are presented.
Mark Dickinson, CEO of Inspired Energy , commented: " Whilst we
are undoubtedly in a period of economic uncertainty, the Board
believes that the Group's profitable and cash generative nature
coupled with a strong order book and substantial liquidity at its
disposal, will see it well placed as the economy emerges from the
current period of uncertainty.
"As a management team we will ensure we remain disciplined and
proportionate in our response to the crisis. At times of
significant trading pressures, companies like Inspired Energy tend
to be part of the solution for corporate energy consumers looking
to regain their competitiveness and restart their economic engines
and as such demand for our service often increases at times of
crisis. This was the experience of the energy advisory sector
during the financial crisis of 2008.
"The additional flexibility provided by the extension of our
banking covenants ensures that the Group does not have to undertake
any permanent restructuring actions which could prejudice the
effective implementation of our strategic growth plan as envisaged
prior to the COVID-19 crisis and which we expect to resume
unfettered, save for delay, once conditions allow.
"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."
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 variances. (A
reconciliation of this can be found in note 5
***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 variances.
Enquiries please contact:
Inspired Energy plc www.inspiredplc.co.uk
Mark Dickinson (Chief Executive Officer) +44 (0) 1772 689250
Paul Connor (Chief Financial Officer)
Shore Capital (Nominated Adviser and
Joint Broker)
Advisory
Dru Danford / Edward Mansfield / James
Thomas
Broking
Malachy McEntyre +44 (0) 20 7408 4090
Peel Hunt LLP (Joint Broker)
Mike Bell
Ed Allsopp +44 (0) 20 7418 8900
Alma PR +44 (0) 20 3405 0205
Justine James +44 (0) 7525 324431
Josh Royston inspired@almapr.co.uk
Chairman's statement
The Group has delivered significant growth and record results in
2019, a year in which we completed strategically important and
value-enhancing investments and acquisitions and further expanded
our capacity, both financially and operationally. The strength of
our business model and financial position have provided stability
through the ongoing COVID-19 crisis to position the Group to be
well placed as the economy emerges from the current period of
uncertainty.
I am pleased to report another record year for Inspired Energy
in 2019 where the strategic initiatives delivered and the strong
financial performance have provided an excellent platform for the
Group to navigate through the ongoing COVID-19 crisis in addition
to continued organic and acquisitive growth in the future. The
robust performance further establishes Inspired Energy's
market-leading position as a third-party intermediary (TPI) in the
Industrial & commercial (I&C) sector.
The Group completed two-value enhancing acquisitions during the
year and the strategically important acquisition of an initial 40%
of the issued share capital of Ignite. The optimisation services
specialist expanded the Group's service offering and provides
significant cross-selling opportunities, which have substantially
increased the Group's white space bank of opportunity.
The record financial results highlight continued organic growth
in our core Corporate division, which has been achieved whilst also
integrating and restructuring the acquisitions completed in 2018,
including most notably Inprova.
ESG
With the growing focus on ESG likely to come to the forefront as
the economy is rebuilt in the coming period, many companies face
the issue of having the inability to accurately collect and audit
their energy consumption information.
As an ESG solutions provider, it is important that we
demonstrate ourselves to be a pioneer in this area, helping to
determine how reporting best practice evolves. To this end, during
the next twelve months we will be: adopting best practice with
respect to a number of initiatives; delivering our SECR obligations
early and to industry best practice; and adopting the UN
Sustainable Development Goals throughout our corporate culture and
staff values.
Acquisitions
The acquisitions of Inprova in December 2018 and Ignite in
August 2019 were significant milestones in the development of the
Group, both strategically and financially. The Board is pleased to
report that the integration of Inprova has been executed
successfully. Ignite is trading well and is in line with management
expectations with the validity of the cross sell strategy
underpinned by our first cross sell to Ignite notwithstanding the
challenges faced due to COVID-19
During the first year following completion of the Inprova
acquisition, management restructured Inprova's senior management
team and consolidated four operational offices into two, by
integrating and subsequently closing the Horsham office into the
Burgess Hill office, and consolidating the Warrington office into
the Group head office in Kirkham, whilst aligning central functions
with the Group.
The effectiveness of the integration of Inprova is testament to
the investment made by the Group during 2017 and 2018 to develop
its management bandwidth and platform to enable the realisation of
operational leverage from acquisitions effectively and efficiently,
without impacting service levels for clients.
Investment
During the second half of 2019, the Board took the decision to
accelerate its investment in the platform and additional talent in
our team to leverage the optimisation services opportunity. The
Board believes that, despite the current global crisis, the
additional investment will step up growth for FY2021 and
beyond.
New bank facilities
October 2019 saw the Group enter into a new GBP60.0 million
facility agreement with Santander UK plc ("Santander") and the
Governor and Company of the Bank of Ireland ("Bank of Ireland") in
order to refinance our existing borrowings and to provide further
headroom to support the continued acceleration of the Group's
growth and acquisition strategy. The relationship with Santander
has been instrumental in the growth of Inspired Energy since 2013,
and the Board sincerely appreciates the continued support of the
Group by Santander as we enter the next phase of growth. The Board
welcomes Bank of Ireland as a new partner to the Group providing
further validation of, and support to, the Group's strategy.
The acquisitions and refinancing completed in 2019 further
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.
COVID-19
Whilst we are undoubtedly in a period of economic uncertainty,
we feel our business, and our balance sheet, will prove resilient.
However, following a detailed re-forecasting exercise including
downside scenario analysis in common with many other businesses, at
this time, the Directors' assessment on going concern will include
reference to material uncertainty. Further details around the
consideration the Directors have given to going concern are
contained elsewhere in this report, notably note 1.1.
Notwithstanding this, the Directors confirm that, after due
consideration, they have an expectation that the Group has adequate
resources to continue for the foreseeable future and we have
thereby continued to adopt the going concern basis in preparing the
financial statements. We believe we are in a much better position
than ever to deal with these unexpected challenges.
Dividend
Since joining AIM in 2011, Inspired Energy has established a
track record of delivering on financial forecasts which has
facilitated a consistent and progressive dividend policy. Following
a successful 2019, and a strong Q1 to 2020, ordinarily the Board
would expect to propose a final dividend for the year in line with
that approach. However, considering the exceptional circumstances
caused by the COVID-19 outbreak, the Board deems it prudent to
defer declaration of the final dividend at this time and will
reassess the position on release of the 2020 interim results when
hopefully there will be more clarity on the outlook.
The team
The delivery of significant growth and the financial performance
in the year are testament to the professionalism of our team and
the support and advice they provide to our clients, and I would
like to take this opportunity to thank the whole Inspired Energy
team for their hard work. I would also like to thank them for how
well they have adapted to the new working environment we currently
find ourselves in and the continued excellent levels of service
they are providing to our valued clients.
Mike Fletcher
Chairman
1 June 2020
Chief Executive Officer's statement
This year marks Inspired Energy's 20(th) year of operation and
our 9(th) year as a listed company. Whilst we are undoubtedly in a
period of economic uncertainty, the Board believes that the Group's
profitable and cash generative nature coupled with a strong order
book and substantial liquidity at its disposal will see it well
placed as the economy emerges from the current period of
uncertainty.
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 it meets the need 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, which includes Inspired Energy
Solutions, Direct Energy Purchasing, Wholesale Power UK, STC Energy
Management, Informed Business Solutions, Flexible Energy
Management, Churchcom, Horizon, SystemsLink 2000, ECM, Squareone,
Professional Cost Management Group, Inprova, Ignite, Waterwatch and
IU Energy, 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 GBP100,000 per
year on energy. In this division we help the consumer manage the
whole energy cost equation and deliver its 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. Energy is often 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.
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 GBP100,000 per
year on energy, our Mid-Market team ensures that they have bought
professionally, accounted properly and complied with the law.
Through the strategic investment in Ignite, and acquisitions of
Waterwatch and IU Energy, the Group has extended its sector
specialism, most notably within the optimisation services sector,
further broadening the 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.
Delivery of ESG best practice
As a business providing services to 2,800 UK and ROI Corporate
Energy Consumers, helping them manage the large cost component of
the ESG wheel, it is important that Inspired Energy plc is a beacon
of best practice within the marketplace. We currently observe the
following issues with respect to the market's adoption of ESG
reporting:
1. much of the reporting is verbose and could appear to be
designed to cloud the issues rather than explain the challenge the
organisation is facing and how it is meeting that challenge;
2. the quality of data underpinning many ESG submissions is not
necessarily fit for purpose, auditable or consistent with the
financial data of the business; and
3. it is not clear that the best businesses in the market are
driving the ESG values throughout the organisation and creating an
endearing culture that supports it.
Practising what we preach
As a first step in terms of developing a standard of best
practice the Group will over the next twelve months:
1. adopt best practice from the GRI, CDP and PRI and the Group
shall ensure all employees are paid at least the real living
wage.
2. as the only independent UK Energy Advisor that must comply
with the SECR the Group shall continue to set the standard for how
a Corporate Energy Consumer should comply with this obligation.
3. adopt ESG reporting to a level that surpasses that produced
by many FTSE 100 organisations; and
4. embed the UN Sustainable Development Goals into our Company culture.
Strategy
The Corporate division which includes our traditional assurance
services which help energy consumers manage the price side of their
cost equation ("Assurance Services") continues to grow. FY2019 also
saw the early stage of the successful 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 over the
financial year as the Group develops its broader ESG offering.
The impact of the change in revenue mix from an increase in
contribution from Optimisation Services has reduced the divisions
EBITDA margin in 2019, as expected. The growth in Optimisation
Services revenues remains a focus of the Group in 2020 and beyond
as this represents a significantly greater market than traditional
Assurance Services.
The validity of this strategy is underpinned by our strong start
to Q1 where we successfully completed our first cross sell to
Ignite notwithstanding the challenges faced due to COVID-19.
Furthermore, the Board has noted a significant upturn in the number
of inbound queries from clients in relation to Optimisation
Services arising out of a focus from the client base on Net Zero
Carbon objectives and the significance of ESG reporting.
The strategic investment in Ignite and acquisitions of
Waterwatch and IU Energy have significantly accelerated the Group's
Optimisation Services capability. The Group is emerging as a
leading player in this sector and the Board continues to actively
review and assess organic and acquisitive opportunities for further
growth.
The Group's sustainable platform makes it well positioned to
endure the impact of the COVID-19 crisis, and able to deliver
substantial organic and acquisitive growth thereafter.
Continued acquisitive growth
The Group has an M&A and Integration infrastructure which
has capacity to complete four to five acquisitions per year. Our
focus for acquisitive growth is:
1. continuing to build optimisation services delivery capability.
2. further consolidation of the energy advisory sector; and
3. development of adjacent capability within the ESG wheel.
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.
Underlying trading
Over the last three years the Group has evolved into the player
of scale in the energy advisory market in the UK and ROI, with a
stable organic growth engine underpinning our Assurance Services
with respect to the price side of the Corporate Energy Consumers
cost equation.
Our investments in Optimisation Services have seen the team grow
from 3 FTEs to 100 FTEs within the three year period, which has
provided the Group with a strong platform to support its 2,800 UK
and ROI corporate clients deliver their Net Zero Carbon and ESG
objectives, which we expect to be an accelerant of organic
growth.
Our 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 growth, revenue and profits.
Our scalable platform and successful refinancing of bank
facilities 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.
Operational and acquisitive highlights
Strategic Investment in Ignite
The strategic investment in Ignite significantly accelerates the
Group's ability to deliver services which allow Corporate Energy
Consumers to deliver on their Net Zero Carbon and ESG
objectives.
Ignite has proven, over many years, to be capable of achieving
material improvements in the energy efficiency of its clients
delivering significant reduction in costs and increases in
sustainability. Inspired Energy currently has over 400 clients
which meet the Ignite customer profile and could benefit from the
services that Ignite provides giving significant cross selling
opportunities to the Group enabling the Group and materially
increase the level of revenue generated per meter point.
The UK Optimisation Services market remains relatively immature
and service delivery models in this area, which are typically
project based rather than recurring will evolve over time as
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 believes that it is important the
Group remains flexible and able to adapt its offering in this area
in line with market developments, which complements its growing
Optimisation Services capabilities.
The UK market for energy advisory services to Corporate Energy
Consumers is a GBP1.25 billion market opportunity. The Group
provides Assurance and Optimisation Services to clients in managing
their entire energy cost equation, including both price and
consumption sides of the client's energy cost equation. Procurement
and energy accounting services support the client in managing the
price side of the client's energy cost equation. For these
services, three in four Corporate Energy Consumers in the UK use a
TPI to assist them in these areas and this is a GBP0.4 billion
market opportunity and underpins the Group's stable underlying
organic growth engine delivering 6% to 8% organic growth. However,
only one in six Corporate Energy Consumers engage with TPIs on the
consumption side of the energy cost equation. This combined with
the fact GBP0.85 billion of the GBP1.25 billion market relates to
the provision of Optimisation Services illustrates the significant
opportunity within Optimisation Services for the Group and Ignite
will help to accelerate further organic growth in this area.
Investments in Optimisation Services
In August 2019, the Group completed the acquisition of
Waterwatch for a consideration of up to GBP0.5 million, of which
GBP0.25 million was paid on completion on a cash-free and debt-free
basis, and a further GBP0.25 million was paid on a contingent basis
in October 2019. Waterwatch supports its clients in all areas of
water cost management and has over 20 years' experience in water
audit and cost recovery. The Waterwatch team is part of the Group's
Optimisation Services capability, further expanding our expertise
and knowledge in this area to support existing and potential new
customers.
The acquisition of Waterwatch was funded by cash reserves of the
Group.
In December 2019, the Group completed the acquisition of IU
Energy for a consideration of up to GBP2.0 million, of which GBP1.0
million was paid on completion on a cash-free and debt-free basis
with the balance contingent on certain performance measures.
IU Energy provides energy consultancy and Optimisation Services,
including renewable and energy efficient technology consultancy,
installation and subsequent servicing and maintenance.
The acquisition of IU Energy was funded by the new banking
facility.
Integration of Inprova
The Board is pleased to report that the integration of Inprova
has been successfully completed. During the period, the Inprova
Senior Management Team was restructured and support functions
including Finance, IT, Marketing, Risk and Trading team were also
re-aligned into Group.
This demonstrates the Group's platform to deliver operational
leverage from acquisitions effectively and efficiently, without
impacting the service levels for clients.
Acceleration in Product Development and Technology
We continued to scale up the capability of the technology
development engine delivering new products in relation to:
1. SECR,
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, and this will continue into FY2020.
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 SME business continues to increase activity rates and
delivered organic revenue growth; however, we note pressure on
margins in this sector by increased competition from private equity
backed consolidators.
Our SME business represents 11% of Group revenues and enables
full market coverage.
COVID-19 update
The health, safety and wellbeing of our employees, their
families, our customers, and stakeholders is 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 are currently working remotely.
The Group is in the fortunate position of having a robust
balance sheet and a business underpinned by the strength of its
Corporate Order Book, and the diversity of its 2,800 Corporate
customers that operate across all segments of the UK and ROI
economies. The year-end Corporate Order Book which stood at GBP57.5
million had increased further as at 30 April 2020 to GBP60.1
million. The first quarter of 2020 saw no impact on the assurance
and advisory services provided by the core Corporate Division,
which represents c.90% of 2019 Group revenues.
The Group's smaller SME division, representing c.10% of 2019
Group revenues, is currently seeing a reduction in demand for
energy supplier switching services. As such, a significant number
of staff in this division have been placed on furlough, with a core
team remaining to service this sector, as such the immediate
financial impact to the Group is being mitigated accordingly.
Outlook
Trading in Q1 2020 was strong with the Group being cash
generative and profitable in each month throughout the period.
Whilst we are undoubtedly in a period of economic uncertainty,
the Board believes that the Group's profitable and cash generative
nature coupled with a strong order book and substantial liquidity
at its disposal, will see it well placed as the economy emerges
from the current period of uncertainty.
As a management team we will ensure we remain disciplined and
proportionate in our response to the crisis. At times of
significant trading pressures, companies like Inspired Energy tend
to be part of the solution for Corporate Energy Consumers looking
to regain their competitiveness and restart their economic engines
and as such demand for our service often increases at times of
crisis. This was the experience of the energy advisory sector
during the financial crisis of 2008.
The resetting of our banking covenants has the added benefit of
the Group not having to undertake any permanent restructuring
actions which could prejudice the effective implementation of our
strategic growth plan as envisaged prior to the COVID-19 crisis,
and which we expect to resume unfettered, save for delay, post this
crisis.
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.
Mark Dickinson
Chief Executive Officer
1 June 2020
Chief Financial Officer's statement
I am delighted to report on a strong year in which the Group
delivered an increase of 51% in revenue to GBP49.3 million and
adjusted EBIDTA of GBP18.8 million. The momentum gained in FY2019,
ensured a strong start to 2020 and the Group has subsequently
responded to the demands and challenges that COVID-19 has presented
over the past few months. The Board remains confident for the year
ahead and the new bank facility agreed in October provided the
additional headroom for us to continue to evaluate opportunities,
even in a challenging business environment.
Financial position and liquidity
Inspired Energy has a strong balance sheet position, having
recently refinanced its banking facilities to October 2023, with an
option to extend to October 2024. In addition to cash and cash
equivalents of GBP11.7 million on hand as at 30 April 2020,
approximately GBP14.0 million of the Group's GBP60.0m Revolving
Credit Facility is undrawn with an additional GBP25.0 million
accordion option available, subject to continued covenant
compliance.
In considering the potential impact on the Group of the ongoing
COVID-19 outbreak, the Board considered several scenarios and
outcomes for the impact of trading of the Group in Q2 and Q3 of
2020, and the potential short-term impact on Group EBITDA. The
Board has completed a process with its banking partners of
resetting the existing banking covenants to provide sufficient
headroom until June 2021 should the worst of these scenarios be
realised.
The Board is actively focused on cash conservation and
management, taking prudent and proactive measures to preserve
cash.
Financial highlights
Corporate division
Highlights in the period include:
-- Revenue increased 60% to GBP43.7 million (2018: GBP27.3
million), including 7% organic revenue growth (2018: 8%).
-- The Corporate division generated adjusted EBITDA of GBP20.2
million (2018: GBP13.8 million), a 47% year-on-year increase.
-- The Corporate Order Book as at 31 December 2019 of GBP57.5
million, an increase of 9% over the prior period (2018: GBP53.0
million); this has continued to grow to GBP60.1 million as at 30
April 2020
-- Revenues generated by the Corporate division from 1 January
2020 to 30 April 2020, combined with the Corporate Order Book as at
30 April 2020 provide visibility of GBP39.7 million of Corporate
division revenues over 2020. This Corporate Order Book does not
include demand side project revenues generated by Ignite.
Organic growth is calculated by reference to revenue growth of
the Group, excluding current year acquisitions and considering the
growth of previously acquired businesses from the last financial
year prior to their acquisition by the Group.
The Corporate Order Book is defined as the aggregate revenue
expected by the Group in respect of signed contracts between an
Inspired Energy client and an energy supplier, or Inspired Energy
and a client in the instance of direct client fees, for the
remainder of such contracts (where the contract is live) or for the
duration of such contracts (where the contract has yet to
commence). No value is ascribed to expected retentions of
contracts. This Corporate Order Book does not include demand side
project revenues generated by Ignite.
The Corporate Order Book only relates to the Corporate division
and does not include any SME revenue or contracts within it. The
growth of the Corporate Order Book provides an indicator of the
latent growth of the business which has yet to be recognised as
revenue of the Group.
SME division
Our SME business represents 11% of Group revenue and provides
full market coverage.
Highlights in the period include:
-- SME division returned to growth, with revenue increasing 4%
organically to GBP5.6 million (2018: GBP5.4m)
-- SME division contributed adjusted EBITDA of GBP1.9 million
(2018: GBP2.4 million), representing a 34% adjusted EBITDA margin
(2018: 45%), with the reduction in margin being driven by increased
competition from private equity backed consolidators in this
segment.
In Q2 2020, the SME division is seeing a reduction in demand for
energy supplier switching services. As such, a significant number
of staff in this division have been placed on furlough utilising
the Government's Coronavirus Job Retention Scheme, with a core team
remaining to service this sector, as such, whilst revenues are
reduced, the immediate financial impact to the Group is being
mitigated accordingly.
PLC central overhead
Of the increase in PLC costs in the period, GBP0.5m was as per
management expectations, reflecting the growth of the central
functions following the organic and acquisitive growth in 2018. A
further GBP0.4m in excess of initial management expectations was
incurred as a result of increased audit costs and an investment to
accelerate the productization of our optimisation services and
increase the bandwidth and talent within the central functions and
platform of the enlarged Group to support further accelerated
growth. Specifically, the Group has increased the size and talent
of the marketing team in the year, and subsequently provided the
Group with a market leading bid writing and product development
team.
The Group believes the additional investment in the year will
facilitate acceleration of future growth opportunities.
Cash generation
Cash generated from operations was GBP10.4 million (2019:
GBP10.0 million) with growth in the period impacted by
restructuring and deal costs in the year, and deal costs associated
with the acquisition of Inprova at the end of 2018. Excluding
non-recurring restructuring costs and deal fees, which had been
accrued at 31 December 2018, but paid in the period, cash generated
from operations was GBP13.8 million (2018: GBP12.3 million), an
increase of 12% over the prior period.
The increase in Trade Receivables in the year of GBP3.0 million
was predominantly driven by Ignite (GBP1.9 million), and, the
continued increase in revenue mix towards direct fee to client,
resulting in an increase in Group debtor days in the year to 54
days (2018: 53 days).
Prepayments and Other receivables increased in the period by
GBP1.3 million (without the impact of acquired balances).
Accrued income increased by GBP3.3 million in the year, which in
part, was impacted by the pace of query resolution from energy
suppliers within the ROI. This contributed GBP0.8 million of the
increase in the year. These trends are not uncommon with the
experience of the UK market 5 -10 years ago, and we continue to use
our experience to work with the relevant suppliers to improve the
speed of query resolution, and ensure client invoices can be raised
and paid in a timely manner.
Deal fees of GBP1.0 million relating to the acquisition of
Inprova accrued in 2018, were paid in the period, impacting the
reduction in Trade and Other Payables.
We expect to see cash conversion return to 2018 levels in the
current year and beyond.
Alternative performance measures
Acquisition activity can significantly distort underlying
financial performance from IFRS measures and therefore the Board
deems it appropriate to report adjusted metrics as well as IFRS
measures for the benefit of primary users of the Group financial
statements.
Exceptional costs/(items)
Exceptional costs of GBP2.5 million (2018; GBP2.7 million) have
been incurred in the year, which include restructuring costs of
GBP1.7 million, of which GBP1.3 million was with the integration of
Inprova, including the restructuring of the senior management team,
consolidation of four operational offices to two, and the
restructuring and re-alignment of central support functions into
the Group. The balance related to the restructuring costs of
integrating the other four 2018 acquisitions into the enlarged
Group.
Exceptional costs also include deal fees of GBP0.8 million
relating to the acquisitions of Ignite, Waterwatch and IU Energy
recognised in the period.
Furthermore, a GBP0.1 million loss due to changes in the fair
value of contingent consideration were treated as exceptional in
the period.
Finance expenditure includes exceptional costs for the
accelerated write off of fees relating to the banking facility
which was replaced during the year.
These costs are considered by the Directors to be material in
nature and non-recurring and therefore require separate
identification to give a true and fair view of the Group's result
for the period.
IFRS 10 - Ignite
The Group engaged an independent advisor to review the legal
documentation which underpin the strategic investment in Ignite.
The advice concluded that in line with IFRS10, for the duration of
the option period, being from completion to 31 July 2021, the
exclusive call option facilitates the Group having power over
Ignite, with the one-way option providing no barriers to exercise
the right, and it being deemed Inspired Energy has the financial
ability to exercise the option, and would benefit from the exercise
of the option. This illustrates the Group has substantive control
at the date of purchasing the 40% shareholding and entering into
the exclusive one-way option agreement and therefore Ignite should
be accounted for as a subsidiary until expiration of the option
period should Inspired Energy not choose to exercise the
option.
The Group paid consideration of GBP5.0 million on a cash free
debt free basis, with a further GBP3.0m of contingent on delivery
of GBP4.0 million adjusted EBITDA for the year ending 31 December
2019. The GBP3.0m of contingent consideration was paid in full in
May 2020.
Under the Option Agreement, from completion until 31 July 2021,
Inspired Energy has an exclusive one-way call option to acquire the
outstanding balance of 60% of the issued share capital of Ignite
("Remaining Ignite Shares"). Under the terms of the Option
Agreement, Inspired Energy will pay consideration for the Remaining
Ignite Shares which equates to an enterprise value of 6.0x earnings
before interest, tax, depreciation and amortisation ("EBITDA")
("Option Consideration"). The Option Consideration shall be based
off a minimum EBITDA of GBP3.0 million, and at the time of
exercising the Option Agreement, an amount of GBP10.8 million will
become payable by Inspired Energy. Should the EBITDA be greater
than GBP3.0 million in either of the scenarios shown below, then
additional consideration will become payable by Inspired Energy,
being the higher of 60% of:
- 6.0x Ignite's EBITDA for the last twelve months ending on the
date of the exercise of the option under the Option Agreement;
- 6.0x Ignite's EBITDA for the financial year ending the year in
which the option is exercised under the Option Agreement; or
- less the GBP10.8 million already paid on exercise of the
option, subject to a maximum EBITDA of GBP7.0 million.
Any additional consideration due will be payable within 90 days
following the end of the financial year in which the option
agreement is exercised, Ignite's financial year end is 31
December.
The Board deem the enterprise value multiple to be market rate
and therefore the call option itself has not been treated as a
material asset under IFRS 9.
The balancing 60% shareholding has been treated as a
non-controlling interest for the purpose of these financial
statements, as the shareholders of the 60% shareholders are still
subject to the risk and rewards associated with owning these shares
during the option period, prior to the Group exercising it's right
to acquire the balancing 60% shareholding.
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 31 December 2018, 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, the
calculation now reflects 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 has resulted in
an increase in the share-based payment charge in year but did not
result in any material difference versus the charges previously
recorded in the income statement of prior period financial
statements.
The charge recognised in the current year in respect of these
arrangements is GBP2,162,000 (2018: GBP471,000).
Updates to accounting policies
IFRS 16 Leases
IFRS 16 is effective for all accounting periods beginning on or
after 1 January 2019. For the Group, the first reporting period is
the year ending 31 December 2019.
On the adoption of IFRS 16, lease agreements will give rise to
both a right of use asset and a lease liability for future lease
payables. The right of use asset is depreciated on a straight-line
basis over the life of the lease. Interest is recognised on the
lease liability.
On a cash flow basis, the impact of adoption and transition to
IFRS 16 is GBPnil.
Transition
The Group has adopted the modified retrospective transition
approach where the initial right of asset values is equal to the
present value of the future lease payments at the date of
transition, being 1 January 2019.
The Group has also applied the recognition exemption for
short-term leases and leases of low value items.
Impact on the financial statements
On the transition date, being 1 January 2019 a right of use
asset of GBP3,488,000 was adjusted for with a corresponding lease
liability. Adoption of IFRS 16 has not led to any adjustments to
opening reserves as the impact is considered to be immaterial.
The most significant lease liabilities relate to property.
The impact on the statement of comprehensive income is an
increase to operating profit of GBP0.1m as the rental costs
previously charged to administrative expenses have been replaced by
a higher depreciation charge and also an interest charge within
finance costs.
There is no impact on cash flows, although the presentation of
the statement of cash flows changed with an increase in net cash
inflows from operating activities being offset by an increase in
net cash outflows from financing activities
Cash and borrowings
As at 31 December 2019, the Group had a cash balance of GBP5.2
million and outstanding balances on its senior term debt facilities
of GBP38.6 million.
As at 31 December 2019, net debt stood at GBP33.4 million, which
is an increase of GBP9.9 million in comparison to 31 December
2018.
In October 2019, the Group entered into a new facility agreement
with Santander and the Bank of Ireland in order to refinance its
borrowings and to provide further headroom to support the continued
acceleration of the Group's growth and acquisition strategy.
The facility consists of a GBP60.0 million revolving credit
facility, of which GBP38.6 million was drawn at 31 December 2019,
running to October 2023, with the Group having an option to extend
the term for a further year to October 2024. Furthermore, the
facility is supplemented by a GBP25.0 million accordion option
enabling a total commitment of up to GBP85.0 million.
The facility has an interest rate ranging from 2.00% to 3.25%
over LIBOR, with the applicable interest rate dependent on the
adjusted net leverage of the facility in the prior quarter.
The covenants attached to the facility are Interest Cover, which
is not to be less that 4.00:1.00 during the term of the Facility,
and Adjusted Net Leverage of the Group, which on entering the
facility is limited to not exceed 2.75:1.00 and then tapers to
2.25:1.00 across the term of the facility.
In calculating Adjusted Net Leverage, Group EBITDA is reduced
for all EBITDA contributed from Ignite, and Adjusted Net Debt
equates to Bank Debt less Cash and Cash Equivalents, plus Lease
Liabilities (including those as a result of the adoption of IFRS
16), and the contingent consideration liability at the test
date.
-- Subsequent to the year end, the Group has agreed an increase
in the 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.
The increase in net debt reflects a year in which the cash
generation of the Group was offset by the payment of GBP6.3 million
of initial cash consideration to the vendors of Waterwatch, Ignite
and IU Energy and GBP1.4 million of contingent cash consideration
to the vendors of E&CM (a wholly owned subsidiary of Inprova
with the liability pre-existing on acquiring Inprova), Horizon and
Squareone. The Group also invested GBP0.7 million into incubator
projects in the year. As at 31 December 2019, GBP5.5 million of
contingent consideration is held payable to the vendors of Ignite,
ECM, PCMG, IU Energy and Squareone.
In summary
The strategic and financial initiatives delivered in the year,
ensure the Group is well placed to endure the economic uncertainty
generated by COVID-19, and in turn facilitate the effective
implementation of our strategic growth plan as envisaged prior to
the COVID-19 crisis, and which we expect to resume unfettered, save
for delay, post this crisis.
Paul Connor
Chief Financial Officer
1 June 2020
Group statement of comprehensive income
For the year ended 31 December 2019
2019 2018
Note GBP000 GBP000
------------------------------------------------- ---- -------- --------
Revenue 49,298 32,692
Cost of sales (8,371) (5,018)
------------------------------------------------- ---- -------- --------
Gross profit 40,927 27,674
Administrative expenses (35,015) (22,171)
------------------------------------------------- ---- -------- --------
Operating profit 5,912 5,503
------------------------------------------------- ---- -------- --------
Analysed as:
Earnings before exceptional costs, depreciation,
amortisation, share-based payment costs, tax
and interest 18,830 13,752
Exceptional costs 5 (2,552) (2,704)
Depreciation 6/7 (1,657) (569)
Amortisation of acquired intangible assets 8 (5,329) (3,749)
Amortisation of internally generated intangible
assets (1,218) (756)
Share-based payment cost (2,162) (471)
------------------------------------------------- ---- -------- --------
5,912 5,503
------------------------------------------------- ---- -------- --------
Finance expenditure 3 (1,200) (1,380)
Other financial items 41 76
------------------------------------------------- ---- -------- --------
Profit before income tax 5 4,753 4,199
Income tax expense 4 (745) (960)
------------------------------------------------- ---- -------- --------
Profit for the year 4,008 3,239
------------------------------------------------- ---- -------- --------
Attributable to:
Non-controlling interest 602 -
Equity owners of the company 3,406 3,239
------------------------------------------------- ---- -------- --------
Other comprehensive income:
Items that will be reclassified subsequently
to profit or loss:
Exchange differences on translation of foreign
operations (414) 112
------------------------------------------------- ---- -------- --------
Total other comprehensive income for the year (414) 112
------------------------------------------------- ---- -------- --------
Total comprehensive income from continuing
operations 3,594 3,351
------------------------------------------------- ---- -------- --------
Attributable to:
Non-controlling interest 602 -
Equity owners of the company 2,992 3,351
------------------------------------------------- ---- -------- --------
Basic earnings per share attributable to the
equity holders of the company (pence) 5 0.56 0.55
Diluted earnings per share attributable to
the equity holders of the company (pence) 5 0.53 0.53
------------------------------------------------- ---- -------- --------
The notes form part of these financial statements. All items
relate to continuing operations.
Group statement of financial position
At 31 December 2019
2019 2018
Note GBP000 GBP000
------------------------------------ ---- -------- --------
ASSETS
Non-current assets
Investments 648 -
Goodwill 8 52,233 44,366
Other intangible assets 8 18,887 14,978
Property, plant and equipment 6 2,684 2,083
Right of use assets 7 3,710 -
------------------------------------ ---- -------- --------
Non-current assets 78,162 61,427
------------------------------------ ---- -------- --------
Current assets
Trade and other receivables 9 29,561 21,906
Inventories 76 -
Cash and cash equivalents 5,241 2,190
------------------------------------ ---- -------- --------
Current assets 34,878 24,096
------------------------------------ ---- -------- --------
Total assets 113,040 85,523
------------------------------------ ---- -------- --------
LIABILITIES
Current liabilities
Trade and other payables 10 10,464 7,037
Lease liabilities 1,125 -
Bank borrowings - 3,047
Contingent consideration 3,311 1,479
Current tax liability 3,618 2,857
------------------------------------ ---- -------- --------
Current liabilities 18,518 14,420
------------------------------------ ---- -------- --------
Non-current liabilities
Bank borrowings 38,614 22,393
Trade and other payables 10 - 92
Lease liabilities 2,595 -
Contingent consideration 1,280 1,379
Interest rate swap 95 68
Deferred tax liability 1,993 1,856
------------------------------------ ---- -------- --------
Non-current liabilities 44,577 25,788
------------------------------------ ---- -------- --------
Total liabilities 63,095 40,208
------------------------------------ ---- -------- --------
Net assets 49,945 45,315
------------------------------------ ---- -------- --------
EQUITY
Share capital 892 892
Share premium account 37,422 37,422
Merger relief reserve 15,535 15,535
Share-based payment reserve 3,523 1,361
Retained earnings 6,719 7,908
Investment in own shares (6,742) (6,742)
Translation reserve (92) 322
Reverse acquisition reserve (11,383) (11,383)
------------------------------------ ---- -------- --------
Equity attributable to shareholders 45,874 45,315
------------------------------------ ---- -------- --------
Non-controlling interest 4,071 -
------------------------------------ ---- -------- --------
Total equity 49,945 45,315
------------------------------------ ---- -------- --------
Group statement of changes in equity
For the year ended 31 December 2019
Share-
Share Merger based Investment Reverse Total
Share premium relief payment Retained in own Translation acquisition Non-controlling shareholders'
capital account reserve reserve earnings shares reserve reserve interest equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- ------- ------- ------- ------- -------- ---------- ----------- ----------- --------------- -------------
Balance at
1 January
2018 711 14,203 14,914 1,231 7,354 (2,618) 210 (11,383) - 24,622
Brought
forward
IFRS 15
impact - - - - 222 - - - - 222
Balance at
1 January
2018
(restated) 711 14,203 14,914 1,231 7,576 (2,618) 210 (11,383) - 24,844
Profit for
the year - - - - 3,239 - - - - 3,239
Other
comprehensive
income for
the year - - - - - - 112 - - 112
Total
comprehensive
income for
the year - - - - 3,239 - 112 - - 3,351
-------------- ------- ------- ------- ------- -------- ---------- ----------- ----------- --------------- -------------
Shares issued
(22 March
2018) 4 - 621 - - - - - - 625
Shares issued
(29 March
2018) 2 145 - - - - - - - 147
Shares issued
(24 May 2018) 29 4,095 - - - - - - - 4,124
Shares issued
(7 June 2018) 1 37 - - - - - - - 38
Shares issued
(7 September
2018) 1 86 - - - - - - - 87
Shares issued
(31 December
2018) 144 18,856 - - - - - - - 19,000
Share-based
payment cost - - - 471 - - - - - 471
Share options
exercised - - - (341) 341 - - - - -
Purchase of
own shares - - - - - (4,124) - - - (4,124)
Dividends paid - - - - (3,248) - - - - (3,248)
-------------- ------- ------- ------- ------- -------- ---------- ----------- ----------- --------------- -------------
Total
transactions
with owners 181 23,219 621 130 332 (4,124) 112 - - 20,471
-------------- ------- ------- ------- ------- -------- ---------- ----------- ----------- --------------- -------------
Balance at
31 December
2018 892 37,422 15,535 1,361 7,908 (6,742) 322 (11,383) - 45,315
-------------- ------- ------- ------- ------- -------- ---------- ----------- ----------- --------------- -------------
Profit for
the year - - - - 3,406 - - - 602 4,008
------- ------- ------- ------- -------- ---------- ----------- ----------- --------------- -------------
Other
comprehensive
income for
the year - - - - - - (414) - - (414)
Total
comprehensive
income for
the year - - - - 3,406 - (414) - 602 3,594
Share-based
payment cost - - - 2,162 - - - - - 2,162
Acquisition
of subsidiary
undertaking - - - - - - - - 6,769 6,769
Dividends
declared - - - - - - - - (900) (900)
Dividends paid - - - - (4,595) - - - (2,400) (6,995)
-------------- ------- ------- ------- ------- -------- ---------- ----------- ----------- --------------- -------------
Total
transactions
with owners - - - 2,162 (1,189) - (414) - 4,071 4,630
-------------- ------- ------- ------- ------- -------- ---------- ----------- ----------- --------------- -------------
Balance at
31 December
2019 892 37,422 15,535 3,523 6,719 (6,742) (92) (11,383) 4,071 49,945
-------------- ------- ------- ------- ------- -------- ---------- ----------- ----------- --------------- -------------
Merger relief reserve
The merger relief reserve represents the premium arising on
shares issued as part or full consideration for acquisitions, where
advantage has been taken of the provisions of section 612 of the
Companies Act 2006.
Reverse acquisition reserve
The reverse acquisition reserve relates to the reverse
acquisition between Inspired Energy Solutions and Inspired Energy
on 28 November 2011 and arises on consolidation.
Translation reserve
The translation reserve comprises translation differences
arising from the translation of the financial statements of the
Group's foreign entities into GBP (GBP).
Share-based payment reserve
The share-based payment reserve is a reserve to recognise those
amounts in equity in respect of share-based payments.
Non-controlling interest
The non-controlling interest represents the outstanding 60% of
the issued share capital of Ignite held by third parties. Ignite is
consolidated and treated as a subsidiary as the Group has an
exclusive one-way call option to acquire the outstanding 60% of the
issued share capital. The Directors have recognised a
non-controlling interest as the Share Purchase Agreement (SPA) is
structured in such a way that the Group is deemed to have
substantive control.
Group statement of cash flows
For the year ended 31 December 2019
2018 (restated,
2019 note 30)
GBP000 GBP000
----------------------------------------------------- -------- ---------------
Cash flows from operating activities
Profit before income tax 4,753 4,199
Adjustments
Depreciation 1,657 569
Amortisation 6,547 4,505
Share-based payment cost 2,162 471
Finance expenditure 1,159 1,304
Exchange rate variances 82 (248)
Other financial items 136 (577)
----------------------------------------------------- -------- ---------------
Cash flows before changes in working capital 16,496 10,223
Movement in working capital
Decrease in inventories 15 -
Increase in trade and other receivables (5,200) (1,689)
(Decrease)/increase in trade and other payables (962) 1,479
----------------------------------------------------- -------- ---------------
Cash generated from operations 10,349 10,013
Income taxes paid (1,873) (1,853)
----------------------------------------------------- -------- ---------------
Net cash flows from operating activities 8,476 8,160
----------------------------------------------------- -------- ---------------
Cash flows from investing activities
Contingent consideration paid (2,156) (3,625)
Acquisition of subsidiaries, net of cash acquired
(note 11) (3,718) (12,892)
Payments to acquire property, plant and equipment (1,479) (869)
Payments to acquire intangible assets (2,654) (1,509)
Dividends paid by Non-Controlling Interest to third
parties (2,400) -
----------------------------------------------------- -------- ---------------
Net cash flows used in investing activities (12,407) (18,895)
----------------------------------------------------- -------- ---------------
Cash flows from financing activities
New bank loans 49,335 7,400
Debt issue costs (580) -
Proceeds from issue of new shares - 19,272
Repayment of bank loans (35,033) (14,631)
Interest on bank loans paid (1,159) (1,049)
Repayment of lease liabilities (978) -
Dividends paid (4,595) (3,248)
----------------------------------------------------- -------- ---------------
Net cash flows from financing activities 6,990 7,744
----------------------------------------------------- -------- ---------------
Net increase/(decrease) in cash and cash equivalents 3,059 (2,991)
Cash and cash equivalents brought forward 2,190 5,183
Exchange differences on cash and cash equivalents (8) (2)
----------------------------------------------------- -------- ---------------
Cash and cash equivalents carried forward 5,241 2,190
----------------------------------------------------- -------- ---------------
Notes to Final Results
1.1 Basis of preparation
The Group financial statements have been prepared under
applicable law and International Financial Reporting Standards as
adopted by the European Union (IFRSs). They have been prepared on
an accrual basis and under the historical cost convention except
for certain financial instruments measured at fair value.
The Group has taken advantage of the audit exemption for two of
its subsidiaries, Waterwatch UK Limited (company number 08854844)
and Independent Utilities Limited (05658810) by virtue of s479A of
the Companies Act 2006. The Group has provided parent guarantees to
these two subsidiaries which have taken advantage of the exemption
from audit. Under this guarantee, the Group has a contingent
liability of GBP0.9 million.
Statement of compliance
The financial information set out in this preliminary
announcement does not constitute the Group's statutory financial
statement for the years ended 31 December 2019 or 2018 as defined
in section 435 of the Companies act 2006 (CA 2006) but is derived
from those audited financial statements. Statutory financial
statements for 2018 have been delivered to the Registrar of
Companies and those for 2019 will be delivered in due course. The
auditors reported on those accounts; their reports were unqualified
and did not contain a statement under either Section 498(2) or
Section 498 (3) of the Companies Act 2006. For the year ended 31
December 2019 their report contains a material uncertainty in
respect of going concern to which the auditor drew attention by way
of emphasis without modifying their report.
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.
In addition to cash and cash equivalents of GBP11.7m on hand as at
30 April 2020, approximately GBP14.0m of the Group's GBP60.0m
Revolving Credit Facility is undrawn with an additional GBP25.0m
accordion option available, subject to continued 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. 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. However, a s governments
start to ease lock down, as they have during May in the UK and ROI,
then we expect demand and associated revenues to recover.
Clearly, the ultimate impact of the COVID-19 pandemic is
difficult to predict and as such, we have considered scenarios when
stress testing the base financial forecasts for the period to
December 2022. We have based our stress testing on a prudent
downside scenario that reflects the current unprecedented
uncertainty which we consider to be severe, of a very significant
reduction in revenue in Q2 and Q3 2020, with trading recovering in
Q4 2020 and into 2021. In producing this downside scenario, we have
considered the publicly available information with regards to the
reduction in utility consumption in countries where the impact of
Covid19 happened earlier than in the UK and ROI. In addition, we
have reviewed the limited data available in the UK regarding the
impact on consumption to date and based on this limited data,
actual consumption by the commercial market during the month of
April 2020 appears to be notably higher than the assumption applied
within the downside scenario. The latest UK government advice is
that the risk of a second spike is greatly reduced and further
easing of the lockdown is continuing which, again, points towards
our downside scenario being avoided.
These projections show with the benefit of management continuing
to take appropriate mitigating actions to preserve cash reserves of
the Group, including the Board resolving not to recommend a final
dividend for the year ended 2019, that the Group can operate
without any further need to draw on the existing banking facilities
over the period. However, under this scenario, the Group would have
been forecast to breach its adjusted leverage covenant under the
facility agreement entered in October 2019.
Therefore, the Group has undertaken discussions with its banking
partners, who have approved a resetting of the adjusted leverage
covenant for the quarters ending 30 June 2020 through to 30 June
2021, such that no covenant breaches are forecast under the prudent
downside scenario.
The resetting of our banking covenants also has benefit of the
Group having to not undertake any permanent restructuring actions
which could prejudice the effective implementation of our strategic
growth plan as envisaged prior to the COVID-19 crisis, and which we
expect to resume unfettered, save for delay, post this crisis.
The pandemic clearly creates uncertainty and we cannot predict
all future events or conditions and subsequent events may result in
outcomes that are inconsistent with judgements and assumptions that
were reasonable at the time they were made in the construction of
our prudent downside scenario. If the impact of the on-going
pandemic is worse than the assumptions applied in construction of
our prudent downside scenario, the Group would look to undertake
more substantive restructuring measures to mitigate the impact
and/or seek to ease the banking covenants further, and/or look to
raise additional equity capital.
However, in the event that further information becomes
available, which would have further adverse effect on the Group's
performance in excess of the assumptions applied to the downside
scenario, which cannot be mitigated by such cost side action,
further easing of banking covenants, and/or the raising additional
equity capital, then there is a risk that the revised covenants may
be breached. As a result, there is a material uncertainty, which
may cast significant doubt over the Group's ability to continue as
a going concern should the mitigating actions outlined not prove
sufficient.
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 reasonably possible
changes in trading performances and considering the existing
banking facilities, including the available liquidity and 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
the financial statements. Therefore, the Directors continue to
adopt the going concern basis of accounting in preparing the
financial statements.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and
other key sources of estimation uncertainty at the statement of
financial position date, that have a significant risk of causing a
material adjustment to the carrying amount of assets and
liabilities within the next financial year. Item (v) is considered
a critical judgement:
i. 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 the 31 December 2018,
the underlying calculation did not recognise the element of the
share price at grant attributable to Inspired Energy EBT Limited's
("EBT") interest in the ordinary shares held by the option holder.
After taking additional advice from an external expert, the
calculation now reflects 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 has resulted in
an increase in the share-based payment charge in year but did not
result in any material difference versus the charges previously
recorded in the Income Statement of prior period financial
statements.
Graded vesting is applicable for some options; see note 8 for
details of the vesting periods. Management has to exercise
judgement over the likely exercise period, the expected number of
individuals who will leave the company such that there incentives
do not vest and also the probability of the Group achieving
earnings targets upon which otherwise the options would not vest.
These items involve a large degree of estimation and actual results
may differ. Should the number of individuals who leave the company
be fewer by half than estimated, this would increase the
share-based payment charge in the current year by GBP204,000.
Should the company achieve all of its earnings targets then the
charge in the current year would be GBP510,000 higher. The charge
recognised in the current year in respect of these arrangements is
GBP2,162,000 (2018: GBP471,000).
ii. Contingent consideration
An element of consideration relating to three of the business
acquisitions made is contingent on the future revenue targets being
achieved by the acquired businesses. On acquisition, estimates are
made of the expected future revenue based on forecasts prepared by
management. These estimates are reassessed at each reporting date
and adjustments are made where necessary. Amounts of deferred
consideration payable after one year are discounted. The carrying
value of contingent consideration, after discounting, at 31
December 2019, is GBP4,591,000 (2018: GBP2,858,000). The maximum
undiscounted consideration payable is GBP5.0 million, producing an
additional GBP0.4 million of additional liability as at 31 December
2019.
Key judgements
i. Control of Ignite Energy Ltd
The Group has an exclusive one-way call option (from completion
until 31 July 2021) to acquire the outstanding 60% of the issued
share capital of Ignite Energy Ltd.
The Group engaged an independent advisor to review the legal
documentation which underpin the strategic investment in Ignite
Energy LTD. The advice concluded that in line with IFRS10, for the
duration of the option period, being from completion of the
acquisition of the 40% shareholding to 31 July 2021, the exclusive
call option facilitates the Group having power over Ignite, with
the one-way option providing no barriers to exercise the right, and
it being deemed Inspired Energy have the financial ability to
exercise the option, and would benefit from the exercise of the
option. Therefore, this illustrates the Group has substantive
control at the date of purchasing the 40% shareholding and entering
into the exclusive one-way option agreement and therefore Ignite
should be accounted for as a subsidiary until expiration of the
option period should Inspired Energy not choose to exercise the
option.
Under the terms of the Option Agreement, the Group will pay
consideration for the Remaining Ignite Shares which equates to an
enterprise value of 6.0x earnings before interest, tax,
depreciation and amortisation (EBITDA). The Board deem the EV of
6.0x EBITDA to be market rate and therefore the call option itself
has not been treated as a material asset under IFRS 9.
The balancing 60% shareholding has been treated a
non-controlling interest for the purpose of these financial
statements, as the shareholders of the 60% shareholders are still
subject to the risks and rewards associated with owning these
shares during the option period, prior to the Group exercising
their right to acquire the balancing 60% shareholding.
1.2 IFRS 16 Leases
IFRS 16 is effective for all accounting periods beginning on or
after 1 January 2019. For the Group the first reporting period is
the year ending 31 December 2019.
On the adoption of IFRS 16, lease agreements will give rise to
both a right of use asset and a lease liability for future lease
payables. The right of use asset is depreciated on a straight-line
basis over the life of the lease. Interest is recognised on the
lease liability.
On a cash flow basis, the impact of adoption and transition to
IFRS 16 is GBPnil.
Transition
The Group has adopted the modified retrospective transition
approach where the initial right of asset values is equal to the
present value of the future lease payments at the date of
transition being 1 January 2019.
The Group has also applied the recognition exemption for short
term leases and leases of low value items.
On transition to IFRS 16 the weighted average incremental
borrowing rate applied to lease liabilities recognised under IFRs
16 was 3%.
Impact on the financial statements
On the transition date, being 1 January 2019, a right of use
asset of GBP3,488,000 was adjusted for with a corresponding lease
liability. Adoption of IFRS 16 has not led to any adjustments to
opening reserves as the impact is considered to be immaterial.
The following table summarises the impacts of adopting IFRS 16
on the financial statements:
31 December 1 January
2018 prior 2019 post
to IFRS IFRS 16
16 adoption IFRS16 adoption
GBP000 GBP000 GBP000
------------------------------ ------------ ------- ----------
ASSETS
Non-current assets
Goodwill 44,366 - 44,366
Other intangible assets 14,978 - 14,978
Property, plant and equipment 2,083 (231) 1,852
Right of use assets - 3,719 3,719
------------------------------ ------------ ------- ----------
Non-current assets 61,427 3,488 64,915
------------------------------ ------------ ------- ----------
Current assets 24,096 - 24,096
------------------------------ ------------ ------- ----------
Total assets 85,523 3,488 89,011
------------------------------ ------------ ------- ----------
LIABILITIES
Current liabilities
Trade and other payables 7,037 (131) 6,906
Lease liabilities - 1,076 1,076
Bank borrowings 3,047 - 3,047
Contingent consideration 1,479 - 1,479
Current tax liability 2,857 - 2,857
------------------------------ ------------ ------- ----------
Current liabilities 14,420 945 15,365
------------------------------ ------------ ------- ----------
Non-current liabilities
Bank borrowings 22,393 - 22,393
Trade and other payables 92 (92) -
Lease liabilities - 2,635 2,635
Contingent consideration 1,379 - 1,379
Interest rate swap 68 - 68
Deferred tax liability 1,856 - 1,856
------------------------------ ------------ ------- ----------
Non-current liabilities 25,788 2,543 28,331
------------------------------ ------------ ------- ----------
Total liabilities 40,208 3,488 43,696
------------------------------ ------------ ------- ----------
Net assets 45,315 - 45,315
------------------------------ ------------ ------- ----------
EQUITY
Total equity 45,315 - 45,315
------------------------------ ------------ ------- ----------
The most significant lease liabilities relate to property.
The impact on the statement of comprehensive income is an
increase to operating profit of GBP0.1 million as the rental costs
previously charged to administrative expenses have been replaced by
a higher depreciation charge and also an interest charge within
finance costs.
There is no impact on cash flows, although the presentation of
the statement of cash flows changed with an increase in net cash
inflows from operating activities being offset by an increase in
net cash outflows from financing activities
The following is a reconciliation of total operating lease
commitments at 31 December 2018 (as disclosed in the financial
statements to 31 December 2018) and the lease liabilities
recognised at 1 January 2019:
2019
GBP000
--------------------------------------------------------------- -------
Operating lease contributions disclosed as at 31 December
2018 (restated*) 3,882
Operating lease commitments discounted using the leases
incremental borrowing rate at the date of initial application (824)
Low value leases recognised on a straight-line basis
as expense (21)
Adjustments as a result of different treatment of extension
and termination options 448
Other movements (9)
Total lease liabilities recognised under IFRS 16 as
at 1 January 2019 3,476
---------------------------------------------------------------- -------
*Following a detailed review of the lease commitments on
transition to IFRS 16, the opening balance of the operating lease
commitments at 31 December 2018 was corrected
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 sector comprises the operations of Inspired Energy
Solutions Limited, Direct Energy Purchasing Limited, Wholesale
Power UK Limited, STC Energy and Carbon Holdings Limited, Informed
Business Solutions Limited, Flexible Energy Management Limited,
Churchcom Limited, Horizon Energy Group Limited, Energy Cost
Management Limited, SystemsLink 2000 Limited, Professional Cost
Management Group Limited, Squareone Enterprises Limited, 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 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.
2019 2018
------------------------ --------------------------------------- ---------------------------------------
Corporate SME PLC costs Total Corporate SME PLC costs Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
Revenue 43,695 5,603 - 49,298 27,311 5,381 - 32,692
Cost of sales (4,652) (3,719) - (8,371) (1,923) (3,095) - (5,018)
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
Gross profit 39,043 1,884 - 40,927 25,388 2,286 - 27,674
Administrative expenses (28,129) (202) (6,684) (35,015) (13,848) (157) (8,166) (22,171)
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
Operating profit 10,914 1,682 (6,684) 5,912 11,540 2,129 (8,166) 5,503
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
Analysed as:
EBITDA 20,228 1,911 (3,309) 18,830 13,769 2,431 (2,448) 13,752
Depreciation (1,493) (30) (134) (1,657) (514) (36) (19) (569)
Amortisation (3,903) (194) (2,450) (6,547) (727) (120) (3,658) (4,505)
Share-based payment
cost (2,162) - - (2,162) (157) (19) (295) (471)
Exceptional costs (1,756) (5) (791) (2,552) (831) (127) (1,746) (2,704)
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
10,914 1,682 (6,684) 5,912 11,540 2,129 (8,166) 5,503
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
Finance expenditure (1,200) (1,380)
Other financial
items 41 76
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
Profit before income
tax 4,753 4,199
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
Total assets 6,544 8,442 98,054 113,040 26,134 6,938 52,451 85,523
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
Total liabilities 18,504 511 41,680 60,695 7,641 684 31,883 40,208
------------------------ --------- ------- --------- -------- --------- ------- --------- --------
Consideration was given as to whether the demand side reduction
project segment of Ignite Energy Ltd constituted an operating
segment to be disclosed separately in accordance with IFRS8 and was
deemed to be materially below all 3 quantitative tests prescribed
in the standard.
3. Finance expenditure
2019 2018
GBP000 GBP000
-------------------------------------- ------- -------
Interest payable on bank borrowings 1,269 1,071
Interest payable on lease liabilities 132 -
Foreign exchange variance (414) 254
Write off of debt issue costs 192 -
Amortisation of debt issue costs 19 55
-------------------------------------- ------- -------
1,200 1,380
-------------------------------------- ------- -------
4. Income tax expense
The income tax expense is based on the profit for the year and
comprises:
2019 2018
GBP000 GBP000
------------------------------------------------------ ------- -------
Current tax
Current tax charge 2,155 1,584
Adjustments in respect of prior periods - (87)
------------------------------------------------------ ------- -------
2,155 1,497
------------------------------------------------------ ------- -------
Deferred tax
Origination and reversal of temporary differences (1,410) (537)
Adjustment in respect of prior periods - -
------------------------------------------------------ ------- -------
(1,410) (537)
------------------------------------------------------ ------- -------
Total income tax charge 745 960
------------------------------------------------------ ------- -------
Reconciliation of tax charge to accounting profit:
Profit on ordinary activities before taxation 4,754 4,199
------------------------------------------------------ ------- -------
Tax at UK income tax rate of 19% (2018: 19%) 903 798
Disallowable expenses 429 319
Exchange rate difference (186) -
Share options (400) (70)
Movement in deferred tax asset not recognised (130) -
Non-eligible intangible assets 129 -
Effects of current period events on current tax prior
period balances - (87)
------------------------------------------------------ ------- -------
Total income tax charge 745 960
------------------------------------------------------ ------- -------
5. Earnings per share
The basic earnings per share is based on the net profit for the
year attributable to ordinary equity holders divided by the
weighted average number of ordinary shares outstanding during the
year.
2019 2018
GBP000 GBP000
------------------------------------------------------ ------- -------
Profit attributable to equity holders of the Group 4,008 3,239
Fees associated with acquisition 725 2,345
Restructuring costs 1,691 935
Accelerated write off of capitalised debt facility
arrangement fees upon refinancing 333 -
Changes in fair value of contingent consideration 136 (576)
Amortisation of acquired intangible assets 5,329 3,749
Foreign exchange variance (414) 254
Deferred tax in respect of amortisation of intangible
assets (843) (536)
Share-based payment cost 2,162 471
------------------------------------------------------ ------- -------
Adjusted profit attributable to owners of the Group 13,127 9,881
------------------------------------------------------ ------- -------
Weighted average number of ordinary shares in issue
('000) 713,973 587,602
Dilutive effect of share options ('000) 38,736 27,679
------------------------------------------------------ ------- -------
Diluted weighted average number of ordinary shares
in issue ('000) 752,709 615,281
------------------------------------------------------ ------- -------
Basic earnings per share (pence) 0.56 0.55
Diluted earnings per share (pence) 0.53 0.53
Adjusted basic earnings per share (pence) 1.84 1.68
Adjusted diluted earnings per share (pence) 1.74 1.61
------------------------------------------------------ ------- -------
The weighted average number of shares in issue for the adjusted
diluted earnings per share includes the dilutive effect of the
share options in issue to senior staff of the Group.
Adjusted earnings per share represents the earnings per share,
as adjusted to remove the effect of fees associated with
acquisitions, restructuring costs, the amortisation of intangible
assets (excluding internally generated amortisation related to
computer software and customer databases), exceptional item and
share-based payment costs which have been expensed to the Group
statement of comprehensive income in the year, the unwinding of
contingent consideration and foreign exchange variances. The
adjustments to earnings per share have been disclosed to give a
clear understanding of the Group's underlying trading
performance.
Adjusted profit before tax is calculated as follows:
2019 2018
GBP000 GBP000
----------------------------------------------------- ------- -------
Profit before income tax 4,753 4,199
Share-based payment cost 2,162 471
Amortisation of acquired intangible assets 5,329 3,749
Foreign exchange variance (414) 254
Exceptional costs/(items):
- fees associated with acquisition 725 2,345
- restructuring cost 1,691 935
- accelerated write off of capitalised debt facility
arrangement fees upon refinancing 333 -
- change in fair value of contingent consideration 136 (576)
14,715 11,377
----------------------------------------------------- ------- -------
Acquisitional activity can significantly distort underlying
financial performance from IFRS measures and therefore the Board
deems it appropriate to report adjusted metrics as well as IFRS
measures for the benefit of primary users of the Group financial
statements.
6. Property, plant and equipment
Fixtures
and Motor Computer Leasehold
fittings vehicles equipment improvements Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------ --------- --------- ---------- ------------- -------
Cost
At 1 January 2018 743 69 1,472 441 2,725
Acquisitions through business
combinations 156 15 228 12 411
Foreign exchange variances - 1 1 - 2
Additions 62 88 460 258 868
Disposals - (40) 1 - (39)
------------------------------------ --------- --------- ---------- ------------- -------
At 31 December 2018 961 133 2,162 711 3,967
Acquisitions through business
combinations 46 13 19 - 78
Transfer of asset to right of
use assets - on adoption of IFRS16 (231) - - - (231)
Foreign exchange variances (1) (6) (7) (1) (15)
Additions 68 1 1,075 337 1,481
Disposals - - (566) - (566)
At 31 December 2019 843 141 2,683 1,047 4,714
------------------------------------ --------- --------- ---------- ------------- -------
Depreciation
At 1 January 2018 373 2 841 102 1,318
Charge for the year 121 26 370 52 569
Disposals - (3) - - (3)
------------------------------------ --------- --------- ---------- ------------- -------
At 31 December 2018 494 25 1,211 154 1,884
Charge for the year 123 35 447 102 707
Disposals - - (561) - (561)
------------------------------------ --------- --------- ---------- ------------- -------
At 31 December 2019 617 60 1,097 256 2,030
------------------------------------ --------- --------- ---------- ------------- -------
Net book value
At 31 December 2019 226 81 1,586 791 2,684
------------------------------------ --------- --------- ---------- ------------- -------
At 31 December 2018 467 108 951 557 2,083
------------------------------------ --------- --------- ---------- ------------- -------
At 31 December 2017 370 67 631 339 1,407
------------------------------------ --------- --------- ---------- ------------- -------
Included within the net book value is GBPnil (31 December 2018:
GBP231,000) relating to assets held under hire purchase agreements.
The depreciation charged to the financial statements in the period
in respect of such assets amounted to GBPnil (31 December 2018:
GBP56,000). With the adoption of IFRS 16 during the year assets
previously classified as a held under hire purchase agreements,
with a net book value of GBP231,000, have been transferred to right
of use assets.
7. Right of use assets
Fixtures
and fittings Motor vehicles Property Total
GBP000 GBP000 GBP000 GBP000
------------------------------------------- ------------- -------------- -------- -------
Cost
At 1 January 2019 - - - -
On adoption of IFRS 16 - 118 3,389 3,507
Acquisitions through business combinations - 135 410 545
Transfer of assets from property, plant
and equipment - on adoption of IFRS
16 231 - - 231
Additions 241 66 70 377
At 31 December 2019 472 319 3,869 4,660
-------------------------------------------- ------------- -------------- -------- -------
Depreciation
At 1 January 2019 - - - -
Charge for the year 69 103 778 950
At 31 December 2019 69 103 778 950
-------------------------------------------- ------------- -------------- -------- -------
Net book value
At 31 December 2019 403 216 3,091 3,710
-------------------------------------------- ------------- -------------- -------- -------
At 31 December 2018 - - - -
-------------------------------------------- ------------- -------------- -------- -------
8. Intangible assets and goodwill
Total
Computer Trade Customer Customer Customer other
software name databases contracts relationships intangibles Goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
Cost
At 1 January 2018 5,805 115 1,498 10,751 1,989 20,158 22,190 42,348
Additions 1,411 - 98 - - 1,509 - 1,509
Acquisitions through
business combinations 2,134 - - 3,848 242 6,224 22,140 28,364
Foreign exchange
variances - - - 88 - 88 36 124
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
At 31 December 2018 9,350 115 1,596 14,687 2,231 27,979 44,366 72,345
Additions 2,595 - 58 - - 2,653 - 2,653
Acquisitions through
business combinations - - - 2,861 5,280 8,141 6,984 15,125
Adjustment to previous
business combinations
(note 27) - - - - - - 992 992
Foreign exchange
variances - - - (338) - (338) (109) (447)
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
At 31 December 2019 11,945 115 1,654 17,210 7,511 38,435 52,233 90,668
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
Amortisation
At 1 January 2018 2,273 12 1,317 3,841 1,053 8,496 - 8,496
Charge for the year 1,589 6 120 2,246 544 4,505 - 4,505
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
At 31 December 2018 3,862 18 1,437 6,087 1,597 13,001 - 13,001
Charge for the year 2,121 6 134 3,473 813 6,547 - 6,547
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
At 31 December 2019 5,983 24 1,571 9,560 2,410 19,548 - 19,548
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
Net book value
At 31 December 2019 5,963 91 83 7,650 5,101 18,887 52,233 71,120
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
At 31 December 2018 5,488 97 159 8,600 634 14,978 44,366 59,344
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
At 31 December 2017 3,532 103 181 6,910 936 11,662 22,190 33,852
------------------------- --------- ------- ---------- ---------- -------------- ------------ -------- -------
Computer software is a combination of assets internally
generated and assets acquired through business combinations.
Amortisation charge in the period to 31 December 2019 associated
with computer software acquired through business combinations is
GBP1,037,000 (2018: GBP953,000). The additional GBP1,084,000 (2018:
GBP636,000) charged in the period relates to the amortisation of
internally generated computer software. Amortisation of customer
databases of GBP134,000 (2018: GBP120,000) is also in relation to
internally generated intangible assets. The total amortisation
charged in the period to 31 December 2019 associated with
intangible assets acquired through business combinations is
GBP5,045,000 (2018: GBP3,749,000).
Included within goodwill is GBP800,000 relating to a deed of
variation with regards to 64 Energy Limited during the prior
year.
9. Trade and other receivables
Group Company
------------------ ---------------- ----------------
2019 2018 2019 2018
GBP000 GBP000 GBP000 GBP000
------------------ ------- ------- ------- -------
Trade receivables 8,712 5,671 - 1,756
Other receivables 1,194 667 50 19
Prepayments 2,136 1,346 114 59
Accrued income 17,519 14,222 - -
------------------ ------- ------- ------- -------
29,561 21,906 164 1,834
------------------ ------- ------- ------- -------
10. Trade and other payables
Group Company
---------------- ----------------
2019 2018 2019 2018
GBP000 GBP000 GBP000 GBP000
------------------------------------------- ------- ------- ------- -------
Current
Trade payables 1,977 1,629 164 598
Social security and other taxes 2,857 1,844 195 237
Accruals 1,954 2,484 191 1,424
Deferred income 3.676 949 - -
Amounts due under hire purchase agreements - 131 - -
------------------------------------------- ------- ------- ------- -------
10,464 7,037 550 2,259
------------------------------------------- ------- ------- ------- -------
Non-current
Amounts due under hire purchase agreements - 92 - -
------------------------------------------- ------- ------- ------- -------
- 92 - -
------------------------------------------- ------- ------- ------- -------
11. Business combinations
Ignite Energy Ltd (IGN)
On 2 August 2019, the Group acquired an initial 40% of the
issued share capital and voting rights of Ignite Energy LTD, a
company based in the United Kingdom. IGN offers a full spectrum of
energy management services, with a strong focus on delivering
energy efficiency projects and optimisation services to large,
multi-site estate intensive, commercial energy customers. IGN's
optimisation services support clients through increasing the
effectiveness of their energy consumption by implementing large
scale energy demand reduction projects.
The Group has an exclusive one-way call option (from completion
until 31 July 2021) to acquire the outstanding 60% of the issued
share capital of IGN.
The Group engaged an independent advisor to review the legal
documentation which underpin the strategic investment in IGN. The
advice concluded that in line with IFRS10, for the duration of the
option period, being from completion of the acquisition of the 40%
shareholding to 31 July 2021, the exclusive call option facilitates
the Group having power over IGN, with the one-way option providing
no barriers to exercise the right, and it being deemed Inspired
Energy have the financial ability to exercise the option, and would
benefit from the exercise of the option. Therefore, this
illustrates the Group has substantive control at the date of
purchasing the 40% shareholding and entering into the exclusive
one-way option agreement and therefore Ignite should be accounted
for as a subsidiary until expiration of the option period should
Inspired Energy not choose to exercise the option.
Under the terms of the Option Agreement, the Group will pay
consideration for the remaining IGN shares which equates to an
enterprise value of 6.0x earnings before interest, tax,
depreciation and amortisation (EBITDA). The Board deem the EV of 6x
EBITDA to be market rate and therefore the call option itself has
not been treated as a material asset under IFRS 9.
The balancing 60% shareholding has been treated a
non-controlling interest for the purpose of these financial
statements, as the shareholders of the 60% shareholders are still
subject to the risk and rewards associated with owning these shares
during the option period, prior to the Group exercising their right
to acquire the balancing 60% shareholding.
The acquisition of IGN was completed for a total consideration
of GBP9,600,000. This includes an initial consideration of
GBP5,000,000 in cash.
The acquisition was financed through the drawdown on the Group's
refinanced facilities with Santander and Bank of Ireland. The
details of the business combination are as follows:
Recognised amounts of identifiable net assets
Provisional
Book fair value Provisional
value adjustment fair value
GBP000 GBP000 GBP000
Property, plant and equipment 153 - 153
CGUs - 8,141 8,141
Inventories 524 (399) 125
Trade and other receivables 3,371 (1,025) 2,346
Cash and cash equivalents 4,748 - 4,748
----------------------------------------------------- ------- ----------- -----------
Total assets 8,796 6,717 15,513
----------------------------------------------------- ------- ----------- -----------
Trade and other payables 2,198 100 2,298
Current tax liability 356 - 356
Deferred tax liability 30 1,547 1,577
----------------------------------------------------- ------- ----------- -----------
Total liabilities 2,584 1,647 4,231
----------------------------------------------------- ------- ----------- -----------
Provisional fair value of identifiable net
assets 11,282
Provisional goodwill 5,087
----------------------------------------------------- ------- ----------- -----------
Fair value of consideration transferred 16,369
----------------------------------------------------- ------- ----------- -----------
Satisfied by:
- cash consideration paid 5,000
- deferred consideration paid 1,600
- contingent consideration 3,000
- non-controlling interest (60%) 6,769
----------------------------------------------------- ------- ----------- -----------
16,369
----------------------------------------------------- ------- ----------- -----------
Net cash outflow arising from business combinations:
- cash consideration paid 6,600
- cash and cash equivalents acquired (4,748)
----------------------------------------------------- ------- ----------- -----------
Net cash outflow 1,852
----------------------------------------------------- ------- ----------- -----------
Since acquisition IGN has contributed GBP5,301,000 to revenue
and GBP1,300,000 to profit before income tax. If the acquisition
had taken place at the start of the financial period, IGN would
have contributed GBP16,093,000 to revenue and GBP4,207,000 to
profit before income tax.
Goodwill
The goodwill arising on this acquisition is attributable to
niche market expertise enabling cross-selling opportunities
achieved from combining the acquired customer bases and trade with
the existing Group.
Identifiable net assets
A provisional fair value exercise to determine the fair value of
assets and liabilities acquired in relation to IGN has been carried
out. Fair values are provisional as they are still within the
twelve-month hindsight period to adjust fair values.
The fair value of the acquired longstanding customer
relationships was calculated as GBP5,280,000. The excess earnings
approach was used in valuing IGN's existing customer relationships.
The value of the customer relationships is calculated as the sum of
the present value of the projected cash flow, in excess of returns
on contributory assets over the life of the relationship with the
customer.
The fair value of the customer contracts was calculated to be
GBP2,861,000.
The Group estimates costs incurred in relation to the
transaction to be GBP144,000. These costs are included within
exceptional costs/items in the Group statement of comprehensive
income.
Waterwatch UK Limited (WW)
On 9 August 2019, the Group acquired 100% of the issued share
capital and voting rights of Waterwatch UK Limited, a company based
in the United Kingdom. WW offers a bespoke and customer centred
approach to the provision of water audits broadening Inspired
Energy service offering within its core Corporate division.
The acquisition of WW was completed for a total consideration of
GBP613,000. The initial GBP363,000 was satisfied in cash. The
additional GBP250,000 was contingent upon WW achieving a
challenging EBITDA target until 31 July 2019 and was paid on 8
November 2019 and settled by cash.
The acquisition was financed through existing working capital.
The details of the business combination are as follows:
Recognised amounts of identifiable net assets
Provisional
Book fair value Provisional
value adjustment fair value
GBP000 GBP000 GBP000
----------------------------------------------------- ------- ----------- -----------
Property, plant and equipment 3 - 3
Trade and other receivables 288 (130) 158
Cash and cash equivalents 182 - 182
Deferred tax asset 9 (9) -
----------------------------------------------------- ------- ----------- -----------
Total assets 482 (139) 343
----------------------------------------------------- ------- ----------- -----------
Trade and other payables 135 101 236
Total liabilities 135 101 236
----------------------------------------------------- ------- ----------- -----------
Provisional fair value of identifiable net
assets 107
Provisional goodwill 506
----------------------------------------------------- ------- ----------- -----------
Fair value of consideration transferred 613
----------------------------------------------------- ------- ----------- -----------
Satisfied by:
- cash consideration paid 363
- contingent consideration 250
613
----------------------------------------------------- ------- ----------- -----------
Net cash outflow arising from business combinations:
- cash consideration paid 363
- cash and cash equivalents acquired (182)
----------------------------------------------------- ------- ----------- -----------
Net cash outflow 181
----------------------------------------------------- ------- ----------- -----------
Since acquisition WW has contributed GBP315,000 to revenue and
GBP136,000 to profit before income tax. If the acquisition had
taken place at the start of the financial period, ECM would have
contributed GBP766,000 to revenue and GBP282,000 to profit before
income tax.
Goodwill
The goodwill arising on this acquisition is attributable to
niche market expertise enabling cross-selling opportunities
achieved from combining the acquired customer bases and trade with
the existing Group.
Identifiable net assets
A provisional fair value exercise to determine the fair value of
assets and liabilities acquired in relation to WW has been carried
out. Fair values are provisional as they are still within the
twelve-month hindsight period to adjust fair values. No value was
ascribed to customer contracts or customer relationships
themselves, or any likely renewals of contracts outside of a period
of exclusivity.
The Group estimates costs incurred in relation to the
transaction to be GBP20,000. These costs are included within
exceptional costs/items in the Group statement of comprehensive
income.
Independent Utilities Limited (IU)
On 23 December 2019, the Group acquired 100% of the issued share
capital and voting rights of Independent Utilities Limited, a
company based in the UK. IU provides business energy and renewable
energy consultancy and procurement services to a range of Corporate
customers.
The acquisition of IU was completed for a total consideration of
GBP1,744,000. The initial GBP866,000 was satisfied in cash. The
additional GBP878,000 is contingent upon IU achieving challenging
EBITDA targets until 31 December 2020 payable on 31 March 2021. The
range of potential outcomes of consideration payable varied from
GBPnil to GBP1.0 million.
The acquisition was financed through the drawdown on the Group's
refinanced facilities with Santander and Bank of Ireland. The
details of the business combination are as follows:
Recognised amounts of identifiable net assets
Provisional
Book fair value Provisional
value adjustment fair value
GBP000 GBP000 GBP000
----------------------------------------------------- ------- ----------- -----------
Property, plant and equipment 119 - 119
Intangible assets 1 - 1
Inventories (33) (24) (57)
Trade and other receivables 1,512 (1,551) (49)
Cash and cash equivalents 78 - 78
----------------------------------------------------- ------- ----------- -----------
Total assets 1,677 (1,585) 92
----------------------------------------------------- ------- ----------- -----------
Trade and other payables 1,429 (821) 608
Deferred tax liability 9 - 9
Total liabilities 1,438 (821) 617
----------------------------------------------------- ------- ----------- -----------
Provisional fair value of identifiable net
liabilities (525)
Provisional goodwill 1,391
----------------------------------------------------- ------- ----------- -----------
Fair value of consideration transferred 866
----------------------------------------------------- ------- ----------- -----------
Satisfied by:
- cash consideration paid 866
866
----------------------------------------------------- ------- ----------- -----------
Net cash outflow arising from business combinations:
- cash consideration paid 866
- cash and cash equivalents acquired (78)
----------------------------------------------------- ------- ----------- -----------
Net cash outflow 788
----------------------------------------------------- ------- ----------- -----------
Since acquisition IU has contributed GBPnil to revenue and
GBPnil to profit before income tax. If the acquisition had taken
place at the start of the financial period, IU would have
contributed GBP1,699,000 to revenue and GBP219,000 to profit before
income tax.
Goodwill
The goodwill arising on this acquisition is attributable to
niche market expertise enabling cross-selling opportunities
achieved from combining the acquired customer bases and trade with
the existing Group.
Identifiable net assets
A provisional fair value exercise to determine the fair value of
assets and liabilities acquired in relation to IU has been carried
out. Fair values are provisional as they are still within the
twelve-month hindsight period to adjust fair values. No value was
ascribed to customer contracts or customer relationships
themselves, or any likely renewals of contracts outside of a period
of exclusivity.
The Group estimates costs incurred in relation to the
transaction to be GBP44,000. These costs are included within
exceptional costs/items in the Group statement of comprehensive
income.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKDBKDBKBNAK
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