REG - Inspired PLC - Final Results 2022
29/03/2023 07:00
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RNS Number : 5407U Inspired PLC 29 March 2023
29 March 2023
Inspired PLC
("Inspired" or the "Group")
Final Results 2022
Results and FY23 outlook in line with expectations, with robust operational
performance and strong cash generation
Inspired (AIM: INSE), a leading technology-based service provider supporting
businesses to control energy costs and enable their journey to net-zero,
announces its consolidated, audited final results for the year ended 31
December 2022.
Financial Highlights
2021 %
2022 change
Revenue £88.8m £67.9m +31%
Gross profit £57.7m £50.7m +14%
Adjusted EBITDA* £21.0m £19.8m +6%
Adjusted profit before tax** £14.0m £13.4m +4%
(Loss)/profit before tax (£4.0m) £1.1m N/A
Underlying cash generated from operations*** £21.7m £10.2m +113%
Adjusted diluted EPS**** 1.31p 1.30p +1%
Diluted basic EPS (0.37p) 0.16p N/A
Net debt £37.2m £32.9m +13%
Corporate order book £69.0m £67.5m +2%
Dividend per share 0.27p 0.25p +8%
· Group revenues increased 31% to £88.8 million (2021: £67.9 million), with
all four of the Group's divisions generating growth in 2022.
· Underlying Group cash generated from operations (excluding non-recurring fees
associated with restructuring costs and deal fees) was £21.7 million (2021:
£10.2 million), up 113% driven by strong working capital management within
the Optimisation Services division.
· The increase in Group net debt of £4.3 million reflects a year in which the
cash generation was offset by the payment of £10.8 million of performance
payments, in the form of contingent cash consideration for acquisitions
reflecting the Group's strategy to pay for EBITDA when delivered, not on the
basis of forecast EBITDA. This strategy has proven to be effective in
protecting shareholders during periods of volatility in 2020 and 2021.
· Group Adjusted EBITDA margins reduced to 24% (2021: 29%), reflecting the
change in revenue stream mix and increased PLC costs.
· Adjusted profit before tax of £14.0 million (2021: £13.4 million) reflecting
the increase in finance costs from a higher level of debt over the year and
increased interest rates.
· Under IFRS measures, the Group reported a loss before tax for the year of
£4.0 million (2021: profit of £1.1 million), with statutory profit before
tax in the year significantly impacted by charges for changes in the fair
value of contingent consideration, the amortisation of intangible assets as a
result of acquisitions, share-based payment charges and restructuring costs.
Operational and Strategic Highlights
Strong performance across all four business divisions, which are underpinned
by long term structural growth drivers:
Assurance Services
· Record year for new business which counteracted an increase in client churn
because of the unprecedented conditions in UK energy markets.
· Delivered revenues in line with expectations with increased overheads to
maintain service level quality standards whilst addressing client needs during
the energy crisis, leading to a modest reduction in margin in the period.
Optimisation Services
· Revenues grew 64% to £47.7 million (2021: £29.1 million) driven by
significant demand as the ongoing energy crisis significantly sharpened
clients' focus on the economics of investment in energy reductions, combined
with the drive for delivering net-zero.
· Optimisation Services are a key component in increasing the lifetime value of
our clients as the repeatable demand for solutions to deliver net-zero and
reduce costs address the strong macro themes of ESG and managing responses to
climate change. These macro themes offer the opportunity to significantly
drive absolute EBITDA growth for the Group over the long term albeit at lower
blended Group EBITDA margin.
ESG Services
· ESG revenue up 167% on FY21, in line with uplifted expectations post the
Group's interim results, as the expanded service offering continues to gain
significant traction.
· ESG services not only offer an opportunity to increase the lifetime value of
the existing client base but also to bring new clients to the Group including
Videndum plc, Naked Wines plc, QA Limited, City Electrical Factors (CEF) and
John Wiley & Sons.
Software Services
· Performed in line with expectations, working with several flagship clients
including Peabody, NHS Property Services, Laser and SMS plc.
· A number of significant software solution modules are expected to be released
in 2023, providing opportunity for further upside growth.
Current Trading and Outlook
· Trading in Q1 2023 started with considerable momentum across the business
which is consistent with management expectations of double-digit percentage
EBITDA growth in year. Despite the ongoing macroeconomic and geopolitical
uncertainties, the Board is confident of the Group's continued ability to
deliver full year results in line with expectations.
· The Group has a substantial addressable market underpinned by an extensive and
blue-chip client base. The 'new normal', created by the energy crisis, has
resulted in increased demand for the Group's products and services with
optimisation and ESG becoming a revenue centric item for most businesses.
· For 2023, the Group intends to continue to refine its operating model in
Assurance Services, whilst adapting service levels to the new environment.
· Specific focus during the year will also be given to increasing the 'life-time
value' of clients by increasing penetration across the Group's suite of
services.
· The improved processes for managing working capital within the Optimisation
Services division have continued to operate well as we start the year
providing confidence that cash conversion for the year should operate in the
80% to 90% range.
Commenting on the results, Mark Dickinson, CEO of Inspired, said: "In what has
been the most challenging year ever seen in the UK energy markets, when the
need for our services has never been more apparent, I am incredibly proud of
the Group's performance across all divisions. We delivered significant growth
in Group revenues, adjusted EBITDA and strong underlying cash, demonstrating
the increased demand for our services, which we expect to continue into the
new financial year and beyond.
"The unprecedented conditions in the UK energy markets, which we believe has
started a transition to a 'new normal', have sharpened our clients' focus on
ensuring they have invested effectively in carbon and energy reduction. The
energy crisis has accelerated the focus on ESG objectives as a key priority at
board level across our client base and our evolving strategy is well aligned
to meet the resulting market demands and requirements.
"Whilst mindful of the current backdrop, the long-term opportunities for the
Group are clear and we have entered FY23 in a robust position, building on
momentum from the prior year. We have a substantial addressable market, high
profile clients, and a record new business pipeline, underpinning the Board's
confidence in the long-term growth and success of the Group."
Note
*Adjusted EBITDA is earnings before interest, taxation, depreciation, and
amortisation, excluding exceptional items and share-based payments.
**Adjusted (loss)/profit before tax is earnings before tax, amortisation of
intangible assets (excluding internally generated amortisation related to
computer software and customer databases), exceptional items, share-based
payments, the change in fair value of contingent consideration and foreign
exchange gains/(losses) (A reconciliation of Adjusted profit before tax to
reported (loss)/profit before tax 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 gains/(losses).
Enquiries please contact:
Inspired PLC www.inspiredplc.co.uk (http://www.inspiredplc.co.uk)
Mark Dickinson, Chief Executive Officer +44 (0) 1772 689250
Paul Connor, Chief Financial Officer
David Cockshott, Chief Commercial Officer
Shore Capital (Nominated Adviser and Joint Broker) +44 (0) 20 7408 4090
Patrick Castle
James Thomas
Rachel Goldstein
Liberum (Joint Broker) +44 (0) 20 3100 2000
Edward Mansfield
Will Hall
Antonia Brown
Alma PR +44 (0) 20 3405 0205
Justine James inspired@almapr.co.uk (mailto:inspired@almapr.co.uk)
Hannah Campbell
Will Ellis Hancock
Chairman's statement
2022 was a year of significant progress across all business divisions, with a
strengthened platform created, capable of generating long term growth, against
a very challenging backdrop in UK energy markets. As a Board, we are
incredibly proud of what our team has achieved during these unprecedented
times. We continue to overcome the challenges the UK market faces, positioning
the Group as the leading provider of services to help businesses to respond to
climate change and meet their net-zero targets.
The year started with the impact of the war in Ukraine causing significant
volatility and uncertainty across commodity and energy markets. The crisis
further highlighted energy as an essential board level priority and the Group
continues to take every opportunity to help all clients mitigate the cost of
energy and manage their energy consumption and carbon emissions during these
unprecedented times.
We are delighted with the resilient revenue and margin performance of the
Assurance Services in 2022. The last three financial years have been an
especially challenging time for our Assurance Services, with COVID-19
impacting both 2020 and 2021, and the energy crisis impacting 2022. Our drive
to continue to provide a first-class level of service to our Assurance clients
has led to an increase in our overheads during the year, an investment in our
cost base which we believe is essential if we are to continue to be the market
leader.
Our decision to diversify, firstly into Optimisation Services in 2019 and
subsequently into ESG services in 2021, has proven to be an excellent
strategic choice. Optimisation has grown rapidly and now represents the
majority of Group revenues whilst ESG, from a standing start, is already
experiencing rapid growth. Both continue to provide significant opportunities
for long-term growth. Inspired has the benefit of a substantial client base
developed over the years through its Assurance division. The energy crisis has
provided the additional catalyst to potentially accelerate that growth through
increasing levels of cross selling into our client base supplementing
continued new business generation.
Together with the strong foundation of the performance of the Assurance
operation, we have created the platform for an exciting period of opportunity
for the business.
Environmental, Social & Governance (ESG)
As a service provider helping businesses deliver market leading ESG
disclosures, it is important that the Group is at the forefront of ESG
performance.
During 2022, the Group made the following progress towards its ESG objectives:
1. Modelled our net-zero pathway.
2. Piloted half hourly monitoring at our head office which will be
rolled out across our estate to drive energy efficiency and reduce our carbon
emissions.
3. Introduced an Electric Vehicle scheme to employees.
4. Introduced a new suite of professional skills development courses
for employees.
5. Prepared our third voluntary Task Force on Climate-Related
Financial Disclosure (TCFD).
6. Prepared our third voluntary ESG report aligned with the Global
Reporting Initiative (GRI).
7. Submitted our first CDP disclosure and achieved a B score.
For 2023, the Group's planned ESG deliverables can be summarised as:
1. Submit our near-term and net-zero targets for validation to the
Science-Based Targets Initiative (SBTi).
2. Engage with our top suppliers on ESG.
3. Start conducting life cycle assessments (LCA) on top selling
products.
4. Develop our STEM scholarship programme.
5. Prepare our first Task Force on Nature-Related Financial
Disclosure.
6. Prepare our fourth Task Force on Climate-Related Financial
Disclosure (TCFD).
7. Prepare our fourth voluntary ESG Report aligned to the Global
Reporting Initiative (GRI).
Dividend
Since IPO, Inspired has established a track record of delivering profitable
and cash-generative growth which has facilitated a consistent and progressive
dividend policy.
Accordingly, the Board is pleased to propose a final dividend of 0.14 pence
(2021: 0.13 pence) subject to shareholder approval at the AGM in June,
resulting in a full year dividend of 0.27 pence (2021: 0.25 pence). The
dividend aligns with the Board's stated policy of a dividend cover of at least
3x earnings, with the objective of delivering progressive dividend growth over
time and reflects the Board's confidence in the business.
The dividend will be payable on 26 July 2023 to all shareholders on the
register on 16 June 2023 and the shares will go ex-dividend on 15 June 2023.
Staff
On behalf of the Board, I would like to thank all our employees who continue
to overcome the challenges of these difficult times. We have continued,
throughout, to invest in our valued team and the business. The Group takes
every opportunity to help all clients mitigate the cost of energy and manage
their energy consumption and carbon emissions during these unprecedented
times.
Board update
On 2 March 2023, Sarah Flannigan stepped down from the Board and we welcomed
Peter Tracey, as a Non-Executive Director. I wish to thank Sarah for her
contribution to the Group's achievements since joining the Board in June 2020.
Sarah has been a trusted and valued member of the Board, providing strong
support and guidance throughout the COVID-19 pandemic and subsequent
unprecedented energy market volatility. Peter adds significant capital markets
experience and brings with him a skill set that complements those of the
existing Non-Executive Board members. The Board looks forward to benefitting
from Peter's knowledge and experience as we work towards another year of
significant growth and development.
The Board will continue to consist of three Executive Directors supported by a
Non-Executive Chairman and three independent Non-Executive Directors,
representing a broad mix of skills and diversity to align with the Group's
evolving strategy.
Richard Logan
Chairman
28 March 2023
Chief Executive Officer's statement
In what has been the most challenging year ever seen in the UK energy markets,
when the need for our services supporting clients in their drive to net-zero,
controlling energy costs and managing their response to climate change has
never been more apparent, Inspired's performance has been very strong, both
financially and operationally.
The unprecedented conditions in the UK energy markets, which we believe has
started a transition to a 'new normal', have sharpened our clients' focus on
ensuring they have invested effectively in carbon and energy reduction. The
energy crisis has accelerated the focus on ESG objectives as a key priority at
board level across our client base and our evolving strategy is well aligned
to meet the resulting market demands and requirements.
The secular market tailwinds are now well established, as the business
represents a pure play investment on the exciting macro ESG and net-zero
themes, providing a significant opportunity for the Group to grow and capture
a larger market share. Our strong performance this year is testament to our
evolving offering within each of our four divisions and the teams we have
working across our business.
The increased demand delivered a considerable acceleration in revenue growth
of 31% above FY21, at £88.8 million, ahead of previous market expectations.
With significant demand for Optimisation Services, a solid H2 performance in
Assurance Services, combined with encouraging momentum in our ESG Services
division, the Group delivered adjusted EBITDA of £21.0 million, being 6%
ahead of FY21. We delivered strong underlying cash generation in the period,
with cash generated from operations increasing 113% to £21.7 million, driven
by improved working capital management within Optimisation Services. The need
for energy efficiency initiatives continued to drive strong demand for our
services and we expect this momentum to continue heading into the new
financial year and beyond.
Whilst mindful of the current backdrop, and in particular the risk posed by
prolonged inflation in energy costs to our clients, which we constantly look
to help them mitigate, the long-term opportunities for the Group have been
made even more apparent in FY22. As a result, we have entered FY23 with
considerable momentum across the business which is reflected in our FY23
EBITDA growth expectations. We have a substantial addressable market, high
profile clients, and a high-quality business model driving growth in revenue,
Adjusted EBITDA and cash generation. These factors, coupled with a record new
business pipeline, underpin the Board's confidence in the long-term growth and
success of the Group.
During this period of uncertainty, the Group has continued to work tirelessly
to support clients in the face of such challenges and, on behalf of the Board,
I would like to thank all colleagues, clients and suppliers for their efforts
and collaboration during these challenging times.
Strategy
In 2021, the Group evolved to Inspired plc, with four key reporting segments.
During 2022, it has become clear that Optimisation Services are the logical
conclusion for clients who utilise our Assurance Services or our ESG Services,
as both lead to the implementation of a carbon action programme to reduce
energy costs and deliver net-zero. There remains a substantial opportunity to
provide the full suite of services across our client base who may currently
only purchase one of the Group's services. This will not only embed the Group
as a trusted provider and advisor to its clients but also substantially
increase the lifetime value and level of repeat revenues underpinning the
future growth of the business. All divisions are supported by our proprietary
software provided by our Software Services division.
This focus on client lifetime value ("CLV") has identified the opportunity to
materially change the client lifetime value of c.2,500 of our 3,500 clients.
For example, a retailer that the group has worked with for 13 years has an
Assurance Services CLV of c. £1.5 million. Its CLV from Optimisation
Services, where the Group has received repeat demand on 10 of the last 13
years, is over £20 million, an increase in CLV over the last 13 years of over
10 times with more to come. This provides a substantial organic revenue growth
opportunity if applied effectively across the Group's client portfolio.
If we consider the wider portfolio in terms of 10-year CLV opportunity, we can
see that of our 850 larger clients there is the opportunity to increase their
CLV from £0.2 million to £3.1 million and of our 1600 smaller clients there
is the opportunity to increase our CLV from £0.05 million to £0.5 million.
During 2022 we were active on site on a full-service basis with 12 large
clients and 15 smaller clients.
Our focus on CLV affords the Group the opportunity to double EBITDA
organically over the next five years and we believe this would require us to
cycle through c.15% of the client base on a full-service basis to achieve that
objective.
Assurance Services
Our Assurance Services division is at the front line of helping businesses
manage their energy pricing, the importance of which has never been greater
because of the energy crisis, helping them manage the risks of the energy
markets whilst taking advantage of opportunities to reduce costs as they
occur.
To do this effectively, thousands of pieces of data need to be processed every
month, which is made possible by our technology enabled service. Once this
data is collected and audited, it provides the detail required to identify and
deliver effective carbon action programmes and Optimisation Services.
The Assurance Services division performed resiliently through a challenging
year, with a small reduction in margin driven by increased operating costs as
the energy crisis increased the amount of re-work needed to place energy
supply contracts and the intensity of client interactions required to meet
their needs.
As expected, the division endured higher client churn than previously
experienced during the period. Despite this being largely offset by record new
business wins in the period, the time lag between a new business win
contracting and the contract commencing, with the Group only starting to
recognise revenue at the point a contract goes live, led to a reduction in
organic growth rates in the year, and we expect this to continue into 2023.
Impact of Macro Environment
The energy crisis saw some businesses facing up to 500% increases in energy
costs during 2022. Whilst energy prices are significantly lower as we come to
the end of Q1 2023, we observe the elevation of energy costs on board agendas
becoming a 'new normal', as businesses look to professionalise their approach
to managing energy costs and reducing carbon emissions.
Key Developments and Outlook
As the player of scale in the market the Group enjoyed a record year of new
client wins with companies including Aldi, Naked Wines plc, Arnold Clark LTD,
Signature Pubs, Hello Fresh, Moto, Extra MSA, and Saint-Gobain all becoming
clients during the period.
Increasing operating costs in the division have been a function of increased
service needs of clients during the energy crisis and challenges in supporting
business place contracts with energy suppliers.
As we look at 2023 and beyond, the Group will focus on increasing the CLV
where we can add material value to the client across all divisions.
ESG Services
The ESG Services division supports businesses with the production of their ESG
disclosures to meet their regulatory obligations and determining strategies to
deliver the ESG impacts they wish to make.
Once a business has a robust process for making consistent disclosures, its
board has the information it needs to make more effective decisions and the
data required to formulate a carbon action programme and deliver Optimisation
Services.
Following the Group's organic entry into the ESG market during 2021, the
division delivered revenue growth of 167% compared to FY21 and delivered
Adjusted EBITDA in line with the upgraded expectations post interim results.
This exceptional organic growth is testament to the Group creating a market
leading product at a market leading price point in a market which is still
forming in terms of its needs and requirements.
Whilst there are a range of consultative solutions in the marketplace, they
are often delivered by inexperienced resources and ultimately do not lead to a
functioning deliverable being produced that meet the client's needs. There are
also several businesses aiming to provide Software-as-a-Service (SaaS)
solutions which purport to meet the client's needs. However, typically these
only solve c.70% of the client's problem and the client doesn't generally have
resources available internally to use such software.
The Group is increasingly confident it has the most effective technology
enabled data driven solution in the market which is resonating well with
clients and is delighted to be a recipient of the LSE Green Economy mark.
Impact of Macro Environment
ESG has evolved from a reluctant compliance obligation to a revenue critical
item for many businesses. Even if a business does not currently have a
mandatory compliance obligation, if they want to win new business from their
clients, they invariably need to have an ESG disclosure and a carbon action
programme.
This macro environment makes a robust ESG disclosure service a
non-discretionary requirement for almost any business wishing to defend or
grow its revenue line and is likely to become increasingly mandatory as most
larger organisations are compelled to make TCFD disclosures by 2025.
Key Developments and Outlook
The ESG division is growing quickly within a new and exciting market that has
become non-discretionary for investors and businesses alike. The Group now
provides full ESG Disclosure Services for several substantive organisations
such as Lookers plc, Videndum plc, Naked Wines plc, QA Limited, City
Electrical Factors (CEF) and John Wiley & Sons.
The original mandatory ESG disclosures facing businesses in the UK market were
SECR and ESOS where the Group currently has approximately 282 clients with an
average 10-year CLV of £0.1 million, of which 16 have been converted to TCFD
and ESG disclosure services with an CLV of £0.4 million.
For 2023, the focus of the ESG Services division is increasing the lifetime
value of existing clients and adding new clients to the Group.
Optimisation Services
Once clients have benefitted from the Group's Assurance Services to manage the
price of their energy and are reporting their ESG disclosures effectively,
their attention quickly turns to how they can reduce energy and carbon
emissions.
The cornerstone of Assurance and ESG Services is data management, and this
data allows the Group to help clients identify opportunities to reduce carbon
emissions and energy consumption, delivering their response to climate change
and further reducing their energy costs. As a Group, we focus on providing
Optimisation Services to existing clients as a cross-sell service, which
dramatically improves the cost effectiveness and relevance of the solution as
we already understand the client's business intimately. This is where we can
significantly move the dial with respect to CLV where we expect that the Group
would only need to cycle c.15% of the client base to organically double EBITDA
over the next five years.
We process the data to identify projects that meet the clients return on
capital requirements, or support in identifying financing solutions and then
operate as a 'turn-key' solution provider, designing the project, procuring
the equipment, project managing the install and quality assuring the outcome
for the client.
Optimisation Services has performed ahead of expectations, with a strong step
up in demand as clients focus on the economics of investments of energy
reductions and delivering net-zero. We have observed this acceleration in
performance not only in the number of active projects on client premises but
also in the pipeline of prospective opportunities that are available, which
has surged 500% since the start of 2021.
As we address the strong macro themes of net-zero and ESG, we expect
Optimisation Services to be a key driver for revenue and EBITDA growth not
only into the near term but for the foreseeable future as the world strives to
meet 2050 targets.
One of the most pleasing things about this achievement is that it represents
the validation of an investment thesis initiated in 2018 and represents only a
fraction of the opportunity that is available to the Group. These results have
been achieved by active on-premise intervention, with only 27 clients from a
potential pool of over 3,500.
Impact of Macro Environment
Businesses have a need to manage their response to climate change and deliver
net-zero, which has been accelerated by the energy crisis and started the
transition to a 'new normal'. Optimisation Services are a board level agenda
item and there is a desire to work with technology agnostic service providers
who understand the client's business and can deliver in a timely manner with
cost certainty.
The 'learned experience' of the energy crisis means that businesses are
unlikely to ever want to experience the costs shocks seen during 2022 again
and the emergence of ESG as a revenue generating hygiene factor leads us to
believe the demand for Optimisation Services is likely to continue to
accelerate into the future.
Key Developments and Outlook
Strong data management from our Assurance and ESG Services has allowed us to
help clients identify and evaluate opportunities for energy and carbon
reduction, delivering ever increasing numbers of on-premise solutions for
clients.
During the period, we have been delighted to deliver solutions for clients
including WH Smiths, SSP, IVC, Interfloor, M.I. Dickson, Ann Summers and
Informa.
We have been particularly pleased by the repeatable nature of this demand,
noting that the need we satisfy for clients is not the one-off implementation
of a particular technology, but rather one of supporting them to deploy
marginal units of capital to deliver incremental carbon or energy reduction.
It is iterative in nature with continued refinement and improvement over time
using the information generated each period which is reported against under a
client's ESG disclosure requirements.
Software Services
Assurance, Optimisation and ESG Services require significant management and
processing of unstructured data which underpins our service delivery. The
technology enablement of these solutions is provided by our proprietary
software which has been significantly developed over recent years.
Our technology platform is increasingly becoming a market standard with more
than .60 TPIs (where our technology underpins the services of competing
companies) and 200 direct clients utilising our platform.
Within the TPI market, the energy crisis has led to a reduced investment in
technology which has inhibited the organic growth of Software Services.
However, the division delivered growth in 2022 whilst retaining attractive
margins, adding a number of flagship clients to its user base including NHS
Property Services, Peabody, Laser and SMS plc.
Impact of Macro Environment
The reduction in technology investment caused by the energy crisis in 2022
appears to have been an issue pertaining to timing and availability of cash,
as opposed to a change in underlying demand. Whilst this has acted as a
dampener for growth, we expect it to have diminishing impact in 2023 as the
world adjusts to the 'new normal' and TPIs require software to meet evolving
client needs.
Key Developments and Outlook
During 2022, additional security features were added to the software, allowing
the division to normalise the prices of the base software across the client
base which we expect to deliver a full year effect in 2023.
In addition, we expect the release of the software modules during 2023 to
further stimulate the growth potential of this division during 2023.
Acquisitions
During 2022, the Group acquired Digital Energy Limited and Information
Prophets Compliance Limited, providing software which has been integrated into
our Software Services division, a portfolio of energy account clients which
has been integrated into Assurance Services, and a selection of building
certification clients that have been integrated into the Optimisation Services
division.
The Group continues to see M&A as a significant route to creating value
for shareholders and we have built a strong track record of earning enhancing
acquisitions and an ability to successfully integrate those acquisitions. This
strategy has materially contributed to the growth and development of the Group
over the years, both through scaling up the business and expanding the breadth
of services we now provide to our clients, the acquisition of Ignite Energy
LTD to enable the entry into Optimisation Services being a case in point.
In FY22 the Group paid £10.8 million of performance related payments for past
acquisitions. This payment was funded from our cash generated from operations
and existing facilities. In FY23 and FY24 we fully expect to make further
significant cash payments as past acquisitions perform and deliver against the
stringent growth metrics we set at the time of acquisition, further reducing
the contingent liabilities on our balance sheet.
Our approach to transaction structuring does focus on using performance
payments (in the form of contingent consideration), this enables us to pay for
actual realised EBITDA rather than on the basis of forecast EBITDA as well
other benefits. Our approach has meant that the 'see through' multiples for
the businesses acquired by the Group has averaged less than four times EBITDA
as the performance-based structures complete, and most importantly it has been
proven to protect our shareholders during periods of volatility such as in
2020 and 2021.
We maintain an active pipeline of M&A opportunities which can enhance our
products and services and the value we can deliver to clients. Together with
our focus on organic growth, acquisitions will form a key part of our overall
strategy to create long term sustainable value for our shareholders.
Strategic priorities and outlook
The 'new normal' created by the energy crisis and ESG becoming a revenue
centric item for most businesses has accelerated demand for the Group's
products and services.
For 2023, we will be focusing on refining our operating model in Assurance
Services, normalising margins and adapting service levels to the new
environment.
Specific focus will be given to increasing the 'lifetime value' of clients by
increasing the number of clients utilising the Group's Optimisation and ESG
Services.
Trading during Q1 2023 has started in line with management expectations to
deliver double digit percentage EBITDA growth in FY23 as the Group carried
positive momentum into the year.
Mark Dickinson
Chief Executive Officer
28 March 2023
Chief Financial Officer's Statement
We are pleased to report strong financial results for the year ended 31
December 2022, where we have remained agile and alert to the environment in
which we operate. Positive momentum in the second half enabled the Group to
deliver a strong overall trading performance for FY22, whilst also making
clear strategic progress and navigating unprecedented volatility in the UK
energy markets.
2022 was a year in which we achieved a 31% increase in revenue, with total
revenues of £88.8 million compared to £67.9m in 2021. The Group's organic
revenue increased by 30% (2021: 37%). Group Adjusted EBITDA increased by 6%,
to £21.0 million (2021: £19.8 million). In percentage terms the Adjusted
EBITDA margin was 24% (2021: 29%). The reduction was a combination of a
greater contribution from Optimisation services which has a lower underlying
Adjusted EBITDA percentage margin than our other operating units and a slight
reduction of margins within Assurance Services and increased PLC costs.
Divisional Performance
Assurance Services
The Group anticipated more volatility in Assurance Services because of the
unprecedented conditions in UK energy markets and whilst client churn has
increased, as expected, we have also seen a record year for new business.
Assurance Services delivered revenues in line with expectations, with
increased overheads to deliver our service as a result of market conditions
leading to a reduction in margin in the period.
Assurance Services generated 41% of total Group revenues in 2022 (2021: 52%)
being £36.0 million (2021: £35.5 million) a 1% increase.
Assurance Services continues to be the main contributor to the Group
representing 59% of Group EBITDA prior to accounting for PLC costs and
contributed adjusted EBITDA of £16.2 million (2021: £17.0 million), a
reduction of 5%. The adjusted EBITDA percentage margin was 45% (2021: 48%).
The Board anticipates that margins will remain impacted in the near term as
market volatility remains and we retain our objective to provide a first-class
level of service to our Assurance clients, which we believe is essential to
continue to be the market leaders in Assurance Services.
ESG Services
ESG Services generated revenues £2.6 million (2021: £1.0 million),
delivering 167% growth organically, reflective of the growing market for these
services. The ESG Services division delivered an Adjusted EBITDA loss of £0.7
million (2021: £0.0 million) in line with the upgraded market expectations
post our interim results as we continue to invest in resources in this
division.
The increasing focus of investors and businesses on net-zero targets, combined
with mandatory requirements for businesses to make ESG disclosures from 2022,
provides a favourable backdrop to continue to invest in the strategy for the
ESG Services division.
Optimisation Services
The ongoing energy crisis has significantly sharpened clients' focus on the
economics of investment in energy reductions, combined with the drive for
delivering net-zero, and this has translated into a significant step up in
demand and activity for the Optimisation Services division during H2 2022.
Optimisation Services generated 54% of total Group revenues in 2022 (2020:
43%), amounting to £47.7 million (2021: £29.1 million), an increase of 64%,
all of which was organic. Optimisation services contributed adjusted EBITDA of
£10.0 million (2021: £5.0 million), an increase of 100% and a resulting
improvement in Adjusted EBITDA margin to 21% (2021: 17%) in part as a result
of the adverse impact of COVID-19 restrictions on the trading performance and
resulting reduction in adjusted EBITDA percentage margins of the division in
H1 2021. Subject to product mix, management's expectation is that the division
will consistently generate Adjusted EBITDA margins of c.20%.
Demand for Optimisation Services continues to increase, with strong underlying
drivers, including the drive to net-zero, and also further accelerated by the
high commodity prices. As the division continues to represent a greater
proportion of Group revenues, Group margins will reflect the change in
business mix.
Software Services
The Group's Software Services division continues to develop well, with
revenues growing by 5% to £2.5 million (2021: £2.4 million) and Adjusted
EBITDA of £1.8 million (2021: £1.8 million), with the division producing a
strong sustainable adjusted EBITDA margin of 70% (2021: 74%).
Group results
PLC costs were £6.3 million (2021: £4.0 million), reflecting the increased
investment in management bandwidth including the appointment of a Chief
Commercial Officer, plus investment into central functions including
Marketing, Finance and HR, to support the acceleration in growth.
Overall, the Group generated Adjusted EBITDA for the year of £21.0 million
(2021: £19.8 million) in percentage terms the Adjusted EBITDA margin was 24%
(2021: 29%) and the reduction is due to underlying sales mix with Optimisation
Services generating a greater proportion of Group revenue, a reduction in the
Adjusted EBITDA margin from Assurance Services, and an increase in PLC costs.
After deducting charges for depreciation, amortisation of internally generated
intangible assets and finance expenditure, the adjusted profit before tax for
the year was £14.0 million (2021: £13.4 million). The increase in Adjusted
EBITDA was offset in part by an increase in finance costs. Finance costs were
higher than in 2021 due to a combination of the company carrying a higher
level of debt over the year and increased interest rates.
Under IFRS measures, the Group reported a loss before tax for the year of
£4.0 million (2021: profit of £1.1 million), with reported loss before tax
in the year impacted significantly by substantial charges for changes in the
fair value of contingent consideration, the amortisation of intangible assets
as a result of acquisitions, share-based payment charges and restructuring
costs.
A reconciliation of reported (loss)/profit before tax to adjusted profit
before tax is calculated as follows:
2022 2021
£000 £000
(Loss)/profit before income tax (3,957) 1,114
Share-based payment cost 1,732 1,030
Amortisation of acquired intangible assets 2,687 4,415
Foreign exchange variance 508 (339)
Exceptional costs:
- fees associated with acquisition 523 1,038
- restructuring cost 1,574 1,280
- Impairment of right of use assets - 113
- change in fair value of contingent consideration 10,936 4,735
Adjusted profit before tax 14,003 13,386
Alternative performance measures
Acquisition activity can significantly distort underlying financial
performance from IFRS measures. The Board therefore considers it appropriate
to report adjusted metrics, as well as IFRS measures, for the benefit of
primary users of the Group's financial statements. Reconciliations to Adjusted
Profit Before Tax and Adjusted Fully Diluted EPS can be found in note 5.
Exceptional costs
Exceptional costs of £2.1 million (2021: £2.3 million) incurred in the year
predominantly related to restructuring costs, which related to restructuring
programmes associated with the integration of businesses acquired prior to
2022.
Change in fair value of contingent consideration
The fair value of contingent consideration at the balance sheet date is a
judgement of the contingent consideration which will become payable based on a
weighted average range of performance outcomes of the acquired business during
an earn out period, which is subsequently discounted for the time value of
money and risk.
The Group recognised a £10.9 million loss (2021: loss of £4.7 million) in
the period as a result of changes in the fair value of contingent
consideration which was treated as exceptional. Of the £10.9 million loss
(2021: £4.7 million), £7.7 million (2021: £3.0 million) relates to the
increase in the liability for contingent consideration payable, of which £0.6
million (2021: £1.9 million) relates to the unwinding of discount rate, with
£8.5 million in respect of Ignite Energy LTD and Businesswise Solutions
Limited performing at the higher end of the range of possible performance
outcomes, in particular, Ignite Energy LTD benefitted from an increase in
demand for Optimisation Services as a result of the energy crisis in both 2022
which is expected to continue into the next financial year. In addition, the
greater visibility of Businesswise Solutions Limited performance as a result
of the resolution of the uncertainty relating to the future trading of Gazprom
Marketing and Trading Retail Limited contributed to the increase in contingent
consideration payable.
Of the £10.9 million loss, £3.2 million relates to the reduction in the
expected recovery of the deferred contingent consideration from the SME
disposal completed in December 2020. The reduction in expected recovery is
reflective of the impact of prolonged under consumption and site closures
within the SME portfolio due to firstly COVID-19, and then subsequently the
energy crisis.
Exceptional costs, amortisation and impairment of internally generated
intangible assets, share based payment charges and changes in fair value of
contingent consideration are considered by the Directors to be material in
nature and non-recurring; they, therefore, merit separate identification to
give a true and fair view of the Group's result for the period.
Cash and Working Capital
Group cash generated from operations during the period was £19.7 million
(2021: £7.9 million), a 149% increase in line with management expectations
and driven by strong working capital management within the Optimisation
Services division. Excluding non-recurring fees associated with restructuring
costs and deal fees, cash generated from operations was £21.7 million (2021:
£10.1 million).
Underlying operating cash conversion ratios remain a key focus for management,
acknowledging the need to facilitate the acceleration of growth within the
Optimisation Services division.
Trade and other receivables increased 12% in the period to £37.5 million
(2021: 33.4 million), with invoiced trade receivables reducing 25% to £12.3
million (2021: £16.5 million) as a result of strong cash collection within
the Optimisation Services division in H2 2022. Conversely, accrued income
increased in the period 59% to £18.6 million (2021: £11.7 million) primarily
as a result of increased activity levels and product mix within the
Optimisation Services division in H2 2022, and the balance is unwinding in
2023 as expected. Working capital management remains a key focus for the Group
in sustaining strong cash conversion.
Trade and other payables increased 39% to £17.1 million (2021: £12.3
million), driven by a 46% increase in deferred income, primarily within the
Optimisation Services division, and a 43% increase in trade payables to £6.0
million (2021: £4.2 million) and accruals increased to £3.1 million (2021:
£1.5 million) reflecting the increased activity levels.
As detailed in the 2021 CFO statement, during H2 2021, the Group made an
accelerated investment in solutions architecture and CRM, to ensure our
platforms can continue to scale and are interoperable with other systems. This
wasn't repeatable expenditure and led to the reduction in payments to acquire
intangible assets to £4.7 million in 2022 (2021: £5.9 million).
The Group's net debt (defined as bank borrowings less cash and cash
equivalents) increased by £4.3 million (13%) in the year to £37.2 million
(2021: £32.9 million), equating to 1.77x FY2022 Adjusted EBITDA. This level
of net debt is in line with the Board's objective to maintain net debt to less
than 2.00x Adjusted EBITDA, subject to the short-term impact of acquisition
payments.
The increase in Group net debt reflects a year in which the cash generation of
£19.7 million was offset by the payment of £10.8 million of contingent cash
consideration to the vendors of Ignite, BWS, ECM, LSI and GEM. together with
£0.7 million of initial cash consideration payable for Digital Energy Limited
and Information Prophets Compliance Limited. A further £13.0 million
performance payments, in the form of contingent cash consideration for
acquisitions expected to be paid in FY23, £2.6 million of which would be
payable in ordinary shares of the Group.
Financial position and liquidity
At 31 December 2022, the Group's net debt was £37.2 million (2021: £32.9
million). Cash and cash equivalents were £12.3 million (2021: £12.9 million)
on hand. Approximately £10.5 million of the Group's £60.0 million Revolving
Credit Facility was undrawn, with an additional £25.0 million accordion
option available to the Group, subject to covenant compliance.
On entering the current facility agreement with Santander and Bank of Ireland
in October 2019, the Group had an option to extend the term of the facility
from October 2023 to October 2024. The Group exercised that option in
September 2021, taking the term of the existing facility to October 2024.
Subsequently, the Group has agreed with the lenders to defer by 12 months the
tapering, from 2.50:1.00 to 2.00:1.00, of the Adjusted Net Leverage covenant;
this was due to apply in the quarter ending 31 December 2022, but its
application has now been extended to 31 December 2023, to align with the
extension of the facility.
Subsequent to the year end, the Group agreed with its banking partners in
March 2023 a resetting of the adjusted leverage covenant for quarters ending
31 March 2023 through to 30 June 2024, increasing the headroom available to
the Group from a covenant perspective through a period in which the Group
expects to make material contingent consideration payments, while facilitating
the acceleration of growth within the optimisation division.
In summary
The strategic and financial initiatives delivered in the year have ensured the
Group is well placed to deliver the effective implementation of our strategic
growth plan, whilst managing the additional risks created by market
volatility. The strong growth of the Group's revenues, and adjusted EBITDA in
the year, in a challenging environment coupled with a strengthened platform
capable of generating long-term growth position leaves Inspired well placed to
achieve its long-term financial goals.
Paul Connor
Chief Financial Officer
28 March 2023
Group statement of comprehensive income
For the year ended 31 December 2022
2022 2021
Note £000 £000
Revenue 88,776 67,941
Cost of sales (31,070) (17,249)
Gross profit 57,706 50,692
Administrative expenses (58,524) (47,823)
Analysed as:
Adjusted EBITDA 21,000 19,791
Exceptional costs (2,097) (2,318)
Change in fair value of contingent consideration (10,936) (4,735)
Depreciation, impairment and loss on disposal 6/7 (1,827) (1,870)
Amortisation of acquired intangible assets 8 (2,687) (4,415)
Amortisation and impairment of internally generated intangible assets 8 (2,539) (2,554)
Share-based payment cost (1,732) (1,030)
Operating (loss)/profit (818) 2,869
Finance expenditure 3 (3,148) (1,860)
Other financial items 9 105
(Loss)/profit before income tax (3,957) 1,114
Income tax charge 4 329 524
(Loss)/profit for the year (3,628) 1,638
Attributable to:
Equity owners of the company (3,628) 1,638
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in deferred tax asset as a result of change in fair value of share 4 (1,323) -
options
Exchange differences on translation of foreign operations 119 (753)
Total other comprehensive income/(expense) for the year (1,204) (753)
Total comprehensive (expense)/income for the year (4,832) 885
Attributable to:
Equity owners of the company (4,832) 885
Basic earnings per share attributable to the equity holders of the company 5 (0.37) 0.17
(pence)
Diluted earnings per share attributable to the equity holders of the company 5 (0.37) 0.16
(pence)
Group statement of financial position
At 31 December 2022
2022 2021
Note £000 £000
ASSETS
Non-current assets
Investments 1,737 1,461
Goodwill 8 76,960 76,111
Other intangible assets 8 17,716 18,291
Property, plant and equipment 6 3,216 2,452
Right of use assets 7 1,428 2,180
Non-current assets 101,057 100,495
Current assets
Trade and other receivables 9 37,520 33,448
Deferred contingent consideration 1,077 4,529
Inventories 211 300
Cash and cash equivalents 12,270 12,944
Current assets 51,078 51,221
Total assets 152,135 151,716
LIABILITIES
Current liabilities
Trade and other payables 10 17,079 12,315
Lease liabilities 869 860
Contingent consideration 13,056 14,586
Current tax liability 3,091 1,823
Current liabilities 34,095 29,584
Non-current liabilities
Bank borrowings 49,462 45,847
Lease liabilities 552 993
Contingent consideration 5,699 7,165
Interest rate swap 17 25
Deferred tax liability 1,282 1,522
Non-current liabilities 57,012 55,552
Total liabilities 91,107 85,136
Net assets 61,028 66,580
EQUITY
Share capital 1,220 1,219
Share premium account 60,930 60,923
Merger relief reserve 20,995 20,995
Share-based payment reserve 8,111 6,379
Retained earnings (18,447) (11,036)
Investment in own shares (36) (36)
Translation reserve (362) (481)
Reverse acquisition reserve (11,383) (11,383)
Total equity 61,028 66,580
Group statement of changes in equity
For the year ended 31 December 2022
Share Share premium Merger Share-based payment Retained Investment in own Translation Reserve acquisition Total shareholders'
relief
capital account reserve reserve earnings shares reserve reserve equity
£000 £000 £000 £000 £000 £000 £000 £000 £000
Balance at 1 January 2021 1,202 67,000 20,995 5,349 (10,418) (6,742) 272 (11,383) 66,275
Profit for the year - - - - 1,638 - - - 1,638
Other comprehensive expense for the year - - - - - - (753) - (753)
Total comprehensive income/(expense) for the year - - - - 1,638 - (753) - 885
Share-based payment cost - - - 1,030 - - - - 1,030
Shares issued (8 April 2021) 13 376 - - - - - - 389
Shares issued (22 June 2021) 1 114 - - - - - - 115
Shares issued (28 July 2021) 1 62 - - - - - - 63
Shares issued (15 September 2021) 1 53 - - - - - - 54
Shares issued (21 December 2021) 1 12 - - - - - - 13
Shares issued to EBT* - (6,694) - - - 6,706 - - 12
Dividends paid - - - - (2,256) - - - (2,256)
Total transactions with owners 17 (6,077) - 1,030 (618) 6,706 (753) - 305
Balance at 31 December 2021 1,219 60,923 20,995 6,379 (11,036) (36) (481) (11,383) 66,580
Loss for the year - - - - (3,628) - - - (3,628)
Other comprehensive income for the year - - - - (1,323) - 119 - (1,204)
Total comprehensive income/(expense) for the year - - - - (4,951) - 119 - (4,832)
Share-based payment cost - - - 1,732 - - - - 1,732
Shares issued (12 April 2022) - 7 - - - - - - 7
Shares issued (7 December 2022) 1 - - - - - - - 1
Dividends paid - - - - (2,460) - - - (2,460)
Total transactions with owners 1 7 - 1,732 (7,411) - 119 - (5,552)
Balance at 31 December 2022 1,220 60,930 20,995 8,111 (18,447) (36) (362) (11,383) 61,028
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 Limited and Inspired PLC 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 (£).
Share-based payment reserve
The share-based payment reserve is a reserve to recognise those amounts in
equity in respect of share-based payments.
Investment in own shares equates to 29,115,000 (2021: 29,115,000) shares.
* During 2021, the valuation of the investments in own shares was
reassessed and revised to the nominal value of the shares held. This resulted
in a transfer of £6,694,000 from share premium to investment in own shares.
There is no impact upon total equity as a result of this transfer between
reserves.
Group statement of cash flows
For the year ended 31 December 2022
2022 2021
£000 £000
Cash flows from operating activities
(Loss)/profit before income tax (3,957) 1,114
Adjustments
Depreciation and impairment 1,827 1,870
Amortisation and impairment 5,226 6,969
Share-based payment cost 1,732 1,030
Finance expenditure 3,139 1,755
Exchange rate variances 151 266
Change in fair value of contingent consideration 10,936 4,735
Cash flows before changes in working capital 19,054 17,739
Movement in working capital
Decrease/(increase) in inventories 88 (180)
Increase in trade and other receivables (3,995) (9,841)
Decrease in trade and other payables 4,602 185
Cash generated from operations 19,749 7,903
Income taxes paid (421) (869)
Net cash flows from operating activities 19,328 7,034
Cash flows from investing activities
Contingent consideration paid (10,790) (1,086)
Acquisition of subsidiaries and investments, net of cash acquired (1,233) (7,268)
Disposal of investments 324 -
Repayment/(provision) of working capital facility to discontinued operation 375 (500)
Payments to acquire property, plant and equipment (1,137) (998)
Payments to acquire intangible assets (4,651) (5,866)
Net cash outflows from investing activities (17,112) (15,718)
Cash flows from financing activities
New bank loans 3,500 -
Proceeds from issue of new shares 8 645
Interest paid on financing activities (3,032) (2,069)
Repayment of lease liabilities (1,048) (1,443)
Dividends paid (2,460) (2,256)
Net cash outflows from financing activities (3,032) (5,123)
Net decrease in cash and cash equivalents (816) (13,807)
Cash and cash equivalents brought forward 12,994 26,884
Exchange differences on cash and cash equivalents 92 (83)
Cash and cash equivalents carried forward 12,270 12,994
Notes to Final Results
Statement of compliance
These Condensed Consolidated Financial Statements do not constitute statutory
financial statements within the meaning of Section 434 of the Companies Act
2006 for the financial year ended 31 December 2022 but has been extracted from
those financial statements. The annual financial statements for the year ended
31 December 2022 have been prepared in accordance with UK adopted
International Accounting Standards. These Condensed Consolidated Financial
Statements do not include all the disclosures required in financial statements
prepared in accordance with UK adopted International Accounting Standards and
accordingly do not themselves comply with UK adopted International Accounting
Standards.
The financial information for the period ended 31 December 2021 is derived
from the statutory accounts for that year which have been delivered to the
Registrar of Companies. The statutory accounts for the year ended 31 December
2022 will be delivered to the Registrar of Companies following the Company's
annual general meeting. The auditors have reported on the financial statements
for the years ended 31 December 2021 and 2022; their reports were unqualified,
did not include any matters to which the auditor drew attention by way of
emphasis and did not contain a statement under s498(2) or s498(3) of the
Companies Act 2006.
The Board of directors approved the Condensed Consolidated Financial
Statements on 28 March 2023.
The Consolidated Financial Statements of the Group as at and for the year
ended 31 December 2022 (2022 Annual Report) are available upon request from
the Company Secretary, Inspired PLC, 29 Progress Park, Orders Lane, Kirkham,
Lancashire, PR4 2TZ.
The principal accounting policies applied in the preparation of the Group
financial statements are set out below.
1. Basis of preparation
The Group financial statements have been prepared in accordance with the
Companies Act 2006 and UK adopted International accounting standards. 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 18 of its
subsidiaries, Independent Utilities Limited (company number 05658810), LSI
Independent Utility Brokers Limited (04072919), Energy Team (UK) Limited
(06285279), Energy Team (Midlands) Ltd (02913371), Waterwatch UK Limited
(08854844), Inspired Energy EBT Limited (10807501), Energy Broker Solutions
Limited (07355726), Flexible Energy Management Limited (10264309), Inspired 4U
Limited (08895906), Squareone Enterprises Limited (05261796), Energy Cost
Management Limited (03377082), STC Energy Management Limited (03094427),
Professional Cost Management Group Limited (06511368), Energy and Carbon
Management Limited (05498141), Inprova Energy Limited (04729586), General
Energy Management Limited (07236859), I-Prophets Compliance Limited (04194486)
and Digital Energy Limited (07369818) by virtue of s479A of the Companies Act
2006. The Group has provided parent guarantees to these 18 subsidiaries which
have taken advantage of the exemption from audit.
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 Group's base case
financial forecast through to 31 December 2024, 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.
Furthermore, on entering the current facility agreement with Santander and
Bank of Ireland in October 2019, the Group had an option to extend the term of
the facility from October 2023 to October 2024. The Group exercised that
option in September 2021, taking the term of the existing facility to October
2024. Whilst a refinancing is not required in order to conclude on the going
concern basis being appropriate given existing facilities the Group expects to
refinance its current facility during the financial year ending 31 December
2023.
At 31 December 2022, the Group's net debt was £37.2 million, increasing from
£32.9 million at 31 December 2021. In addition to cash and cash equivalents
of £12.3 million on hand as at 31 December 2022, approximately £10.5 million
of the Group's £60.0 million revolving credit facility is undrawn with an
additional £25.0 million accordion option available, subject to covenant
compliance. The facility is subject to two covenants, which are tested
quarterly, adjusted leverage to adjusted EBITDA and adjusted EBITDA to net
finance charges.
In March 2022, the Group agreed with the lenders to defer the tapering of the
adjusted net leverage covenant from 2.50:1.00 to 2.00:1.00, which was due to
commence in the quarter ending 31 December 2022 for twelve months to 31
December 2023 to align with the extension of the facility completed in
September 2021.
Furthermore, subsequent to the year end, the Group agreed with its banking
partners in March 2023 a resetting of the adjusted leverage covenant for
quarters ending 31 March 2023 through to 30 June 2024, significantly
increasing the headroom available to the Group from a covenant perspective
through a period in which the Group expects to make material contingent
consideration payments, while facilitating the acceleration of growth within
the Optimisation Services division.
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 in the next twelve months and considering the available
liquidity, including banking facilities, have a reasonable expectation that
the Group has adequate resources to continue in operational existence for the
next twelve months following the date of approval of these financial
statements. Therefore, the Directors continue to adopt the going concern basis
of accounting in preparing the financial statements.
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 2022 were determined on the basis of the reporting presented at
regular Board meetings of the Group. The segments comprise:
Assurance Services
Key services provided are the review, analysis and negotiation of gas and
electricity contracts on behalf of clients in the UK and ROI. To access this
market, we have a professional bid response team, direct field sales team, and
partnership channel.
Optimisation Services
This division focuses on the optimisation of a client's energy consumption.
Services provided include forensic audits, energy efficiency projects and
water solutions.
Software Services
This division comprises the provision of energy management software to third
parties.
ESG Services
Within this division, the Group manages the data collection and validation of
consumption data to provide the resources for the creation of mandatory ESG
disclosures, such as Streamlined Energy and Carbon Reporting (SECR) and
Taskforce on Climate-related Financial Disclosure (TCFD) reporting.
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.
Any charges between segments are made in line with the Group's transfer
pricing policy. These amounts have been removed, via consolidation, for the
purposes of the information shown below.
2022 2021
Assurance Optimisation Software ESG PLC Total Assurance Optimisation Software ESG PLC Total
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Revenue 35,972 47,710 2,514 2,580 - 88,776 35,521 29,059 2,395 966 - 67,941
Cost of sales (3,231) (27,427) (157) (255) - (31,070) (2,856) (14,328) (65) - - (17,249)
Gross profit 32,741 20,283 2,357 2,325 - 57,706 32,665 14,731 2,330 966 - 50,692
Administrative expenses (17,410) (10,373) (596) (2,935) (20,157) (51,471) (16,407) (9,852) (608) (935) (11,182) (38,984)
EBITDA 15,331 9,910 1,761 (610) (20,157) 6,235 16,258 4,879 1,722 31 (11,182) 11,708
Analysed as:
Adjusted EBITDA 16,177 9,979 1,768 (572) (6,352) 21,000 17,015 4,961 1,770 31 (3,986) 19,791
Share-based payment cost - - - - (1,732) (1,732) - - - - (1,030) (1,030)
Exceptional costs (846) (69) (7) (38) (1,137) (2,097) (757) (82) (48) - (1,431) (2,318)
Change in fair value of contingent consideration - - - - (10,936) (10,936) - - - - (4,735) (4,735)
15,331 9,910 1,761 (610) (20,157) 6,235 16,258 4,879 1,722 31 (11,182) 11,708
Depreciation and impairment and loss on disposal (1,827) (1,870)
Amortisation and impairment (5,226) (6,969)
Finance expenditure (3,148) (1,860)
Other financial items 9 105
(Loss)/profit before income tax (3,957) 1,114
Segmental assets and liabilities are not reviewed separately by operating
segment.
3. Finance expenditure
2022 2021
£000 £000
Interest payable on bank borrowings 2,268 1,485
Interest payable on lease liabilities 83 177
Foreign exchange variance 508 (325)
Other interest 20 46
Loan facility fees 153 361
Amortisation of debt issue costs 116 116
3,148 1,860
4. Income tax credit
The income tax credit is based on the (loss)/profit for the year and
comprises:
2022 2021
£000 £000
Current tax
Current tax expense 2,379 1,757
Adjustments in respect of prior years (1,145) (1,739)
1,234 18
Deferred tax
Origination and reversal of temporary differences (1,563) (542)
(1,563) (542)
Total income tax credit (329) (524)
Reconciliation of tax credit to accounting (loss)/profit:
(Loss)/profit on ordinary activities before taxation (3,957) 1,114
Tax at UK income tax rate of 19% (2021: 19%) (752) 212
Disallowable expenses 2,490 1,142
Exchange rate difference (99) (112)
Share options (628) (820)
Effects of current year events on prior year balances (1,145) (1,739)
Movement in deferred tax asset not recognised (59) (201)
Adjust closing deferred tax to reflect change in tax rate - 645
Excess of taxation allowances over depreciation on all non-current assets (320) -
Non-eligible intangible assets 184 349
Total income tax credit (329) (524)
In the prior year the deferred tax asset pertaining to unexercised share
options was valued at the share price as at 31 December 2021. As the share
price decreased substantially in 2022 the deferred tax asset also decreased.
As the recognition was not in the current year, the movement on the deferred
tax asset was reversed through other comprehensive income.
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.
2022 2021
£000 £000
(Loss)/profit attributable to equity holders of the Group (3,628) 1,638
Fees associated with acquisition 523 1,038
Restructuring costs 1,574 1,280
Changes in fair value of contingent consideration 10,936 4,735
Amortisation of acquired intangible assets 2,687 4,415
Impairment of right of use assets - 113
Foreign exchange variance 508 (339)
Deferred tax in respect of amortisation of intangible assets (673) (783)
Share-based payment cost 1,732 1,030
Adjusted profit attributable to owners of the Group 13,659 13,127
Weighted average number of ordinary shares in issue (000) 975,071 970,589
Dilutive effect of share options (000) 70,999 40,870
Diluted weighted average number of ordinary shares in issue (000) 1,046,070 1,011,459
Basic (loss)/earnings per share (pence) (0.37) 0.17
Diluted (loss)/earnings per share (pence) (0.37) 0.16
Adjusted basic earnings per share (pence) 1.40 1.35
Adjusted diluted earnings per share (pence) 1.31 1.30
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), deferred
tax in respect of amortisation of intangible assets, exceptional items 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 on continuing operations is calculated as follows:
2022 2021
£000 £000
(Loss)/profit before income tax (3,957) 1,114
Share-based payment cost 1,732 1,030
Amortisation of acquired intangible assets 2,687 4,415
Impairment of right of use assets - 113
Foreign exchange variance 508 (339)
Exceptional costs:
- fees associated with acquisition 523 1,038
- restructuring cost 1,574 1,280
- change in fair value of contingent consideration 10,936 4,735
Adjusted profit before tax on continuing operations 14,003 13,386
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 Office
fittings vehicles equipment improvements equipment Total
£000 £000 £000 £000 £000 £000
Cost
At 1 January 2021 937 158 2,412 592 - 4,099
Acquisitions through business combinations - - - 222 - 222
Foreign exchange variances (4) (5) (11) (5) - (25)
Additions 15 - 981 2 - 998
Disposals (228) (46) (378) (5) - (657)
At 31 December 2021 720 107 3,004 806 - 4,637
Transfer between classes (368) 42 92 386 415 567
Foreign exchange variances 5 - 4 - - 9
Additions 8 32 1,094 - 3 1,137
Disposals (30) (66) (60) - - (156)
At 31 December 2022 335 115 4,134 1,192 418 6,194
Depreciation
At 1 January 2021 743 70 638 326 - 1,777
Charge for the year 88 4 604 120 - 816
Disposals (167) (36) (200) (5) - (408)
At 31 December 2021 664 38 1,042 441 - 2,185
Transfer between classes (450) 38 281 70 293 232
Charge for the year 27 22 496 123 56 734
Foreign exchange variances 3 - 4 - (33) (26)
Disposals (30) (3) (60) (29) (25) (147)
At 31 December 2022 224 95 1,763 605 291 2,978
Net book value
At 31 December 2022 111 20 2,371 587 127 3,216
At 31 December 2021 56 69 1,962 365 - 2,452
7. Right of use assets
Fixtures Motor
and fittings vehicles Property Intangibles Total
£000 £000 £000 £000 £000
Cost
At 1 January 2021 490 314 3,326 - 4,130
Acquisitions through business combinations - 4 44 - 48
Remeasurement of finance lease - - (17) - (17)
Additions 133 106 386 - 625
Disposals - (71) (50) - (121)
At 31 December 2021 623 353 3,689 - 4,665
Transfer between classes - (14) (277) - (291)
Foreign exchange variances - 1 (5) - (4)
Additions - 86 360 301 747
Disposals (368) (5) (433) - (806)
At 31 December 2022 255 421 3,334 301 4,311
Depreciation
At 1 January 2021 138 86 1,313 - 1,537
Charge for the year 144 116 681 - 941
Disposals - (56) (50) - (106)
At 31 December 2021 282 146 1,944 - 2,372
Transfer between classes - 19 25 - 44
Charge for the year 87 169 742 50 1,048
Foreign exchange variances - (2) 14 - 12
Disposals (211) (22) (473) - (706)
At 31 December 2022 158 310 2,252 50 2,770
Impairment
At 1 January 2022 - - 113 - 113
Charge for the year - - - - -
At 31 December 2022 - - 113 - 113
Net book value
At 31 December 2022 97 111 969 251 1,428
At 31 December 2021 341 207 1,632 - 2,180
8. Intangible assets and goodwill
Computer Customer Customer Total other
software Trade name contracts relationships intangibles Goodwill Total
£000 £000 £000 £000 £000 £000 £000
Cost
At 1 January 2021 16,315 115 18,076 7,511 42,017 63,776 105,793
Additions 5,821 45 - - 5,866 - 5,866
Acquisitions through business combinations - - 3,491 - 3,491 12,494 15,985
Adjustments to previous business combinations - - 8 - 8 - 8
Disposals (819) - - - (819) - (819)
Foreign exchange variances - - - - - (159) (159)
At 31 December 2021 21,317 160 21,575 7,511 50,563 76,111 126,674
Additions 4,651 - - - 4,651 - 4,651
Acquisitions through business combinations - - - - - 730 730
Foreign exchange variances - - - - - 119 119
At 31 December 2022 25,968 160 21,575 7,511 55,214 76,960 132,174
Amortisation
At 1 January 2021 8,829 30 13,582 3,225 25,666 - 25,666
Charge for the year 2,933 7 3,214 815 6,969 - 6,969
Disposals (363) - - - (363) - (363)
At 31 December 2021 11,399 37 16,796 4,040 32,272 - 32,272
Charge for the year 2,920 8 1,531 767 5,226 - 5,226
Foreign exchange variances - - - - - - -
At 31 December 2022 14,319 45 18,327 4,807 37,498 - 37,498
Net book value
At 31 December 2022 11,649 115 3,248 2,704 17,716 76,960 94,676
At 31 December 2021 9,918 123 4,779 3,471 18,291 76,111 94,402
Computer software is a combination of assets internally generated, and assets
acquired through business combinations. The amortisation charge in the period
to 31 December 2022 associated with computer software acquired through
business combinations is £381,000 (2021: £381,000). The additional
£2,539,000 (2021: £2,552,000) charged in the period relates to the
amortisation of internally generated computer software. The total amortisation
charged in the period to 31 December 2022 associated with intangible assets
acquired through business combinations is £2,687,000 (2021: £4,415,000).
Amortisation is charged to administrative expenses for both financial years.
9. Trade and other receivables
Group
2022 2021
£000 £000
Trade receivables 12,298 16,492
Other receivables 1,078 1,472
Deferred contingent consideration 1,077 4,529
Prepayments 5,524 3,802
Accrued income 18,620 11,682
38,597 37,997
Deferred contingent consideration relates to the collection and run off of the
SME division's accrued income balance at disposal.
The Group does not hold any collateral as security (2021: none). Group debtor
days were 42 days (31 December 2021: 74 days).
10. Trade and other payables
Group
2022 2021
£000 £000
Current
Trade payables 5,952 4,154
Social security and other taxes 5,117 3,504
Accruals 3,141 1,502
Deferred income 1,861 1,268
Other payables 1,008 1,887
17,079 12,315
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