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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Inspired Plc | LSE:INSE | London | Ordinary Share | GB00BR2Q0V58 | ORD 1.25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -7.50 | -8.47% | 81.00 | 80.00 | 82.00 | 86.00 | 81.00 | 85.00 | 158,162 | 11:26:09 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Business Services, Nec | 88.78M | -3.63M | -0.0360 | -22.50 | 81.62M |
From Apr 2019 to Apr 2024
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
Hot Features
Premium
2019
Financial Highlights 2019 2018 % change
------------------------------- --------- --------- ---------
Revenue GBP49.30m GBP32.69m +51%
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Gross profit GBP40.93m GBP27.67m +48%
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Adjusted EBITDA* GBP18.83m GBP13.75m +37%
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Adjusted profit before tax** GBP14.72m GBP11.38m +29%
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Profit before tax GBP4.75m GBP4.20m +13%
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Underlying cash generated from
operations*** GBP13.77m GBP12.29m 12%
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Cash generated from operations GBP10.35m GBP10.01m +3%
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Adjusted Diluted EPS**** 1.74p 1.61p +8%
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Diluted Basic EPS 0.53p 0.53p 0%
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Net Debt GBP33.37m GBP23.25m +44%
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Corporate Order Book GBP57.50m GBP53.00m +9%
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-- 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.
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