Half year trading update

16 August 2024

Inspired PLC

("Inspired" or the "Group")

Half Year Trading Update

Termination of Deed of Variation

Notice of Results and Investor Presentation

Inspired (AIM: INSE), a leading technology-enabled service provider delivering solutions to enable businesses to transition to net-zero and manage their response to climate change, provides an update on trading for the six-month period ended 30 June 2024.

The Group made good progress in the first half of the financial year. The Board expects to report results in line with management expectations for the period ended 30 June 2024 and remains confident in delivering full year results in line with market consensus. This is dependent on delivering a small number of significant optimisation services projects, which are expected to be contracted and commence on-site in Q4 2024. The Group's strategy, which is centred on new client wins and expanding the number of services provided to existing customers, continues to drive growth in opportunities for 2024/25.

Divisional highlights

Robust performance across all four divisions, supported by long-term structural growth drivers:

·      Assurance Services: highly encouraging momentum in new business generation, with churn rates continuing to improve to deliver revenue growth and margins stabilising as expected.

·     Optimisation Services: increasing levels of repeatable demand from existing clients, alongside cross selling opportunities from the Assurance Division, with clients focussing on the beneficial impacts of energy reduction and delivering net-zero. Consistent with FY 2023, and as indicated in the FY 2023 results, the Group expects Optimisation Services to deliver c.60% of its gross profit contribution in H2 2024, when a small number of significant optimisation projects for large corporate customers are expected to contract and commence on site. Notably, margins remain robust, with working capital cycles improving in line with management's focus on invoicing and improved payment terms.

·    ESG Services: delivered good growth, increasing the lifetime value of existing clients and adding new clients to the Group.

·   Software Services: delivered consistent growth with new client wins, and continues to underpin the Group's broader service delivery.

Ignite Energy LTD - Termination of the Deed of Variation

Inspired has accelerated the integration of Ignite and terminated its Deed of Variation (the 'Deed') in relation to Ignite Energy LTD ('Ignite') and as a result has no outstanding contingent consideration payment obligations in relation to the Ignite transaction. The maximum contingent consideration remaining available under the Deed was £9.2m, of which £5.4m was provided for in the Group balance sheet as at 31 December 2023; this provision will now be released in full to the Income Statement in 2024.

By way of background, Inspired acquired a 40% interest in Ignite in August 2019, with the remaining balance of its share capital acquired in July 2020. In the period that followed, operational integration of the Ignite business was hindered as a result of COVID.   

As announced on 22 May 2023, the Group entered into the Deed to the share purchase agreement dated 9 July 2020 (the 'SPA'), to refresh the unearned contingent consideration from the SPA, realign incentives and reset a three year timeframe to facilitate a full transition of leadership and integration, whilst also retaining the services of the Ignite vendors to execute on a substantial growth opportunity for the Group.

The Group has made significant progress in converting the opportunity and growing Optimisation Services to become the largest contributor to the Group's financial performance, whilst completing the integration of Ignite and executing on the transition of leadership. The Group now anticipates a full transition of senior leadership will be completed by 31 May 2025 ('the Restructuring Period'), two years earlier than set out in the Deed.

As a result of this accelerated transition, the Ignite vendors, being Benjamin Higgins, David Higgins, Vanessa Higgins and Ethan Higgins, parties to the SPA and Deed (the 'Ignite Vendors') have entered into an agreement terminating the Deed (the 'Deed of Termination') and the Group now has no outstanding contingent consideration payment obligations related to the Deed.

The Group has also entered into consultancy agreements with David Higgins and Benjamin Higgins (the 'Consultants') for the Restructuring Period (the 'Consultancy Agreement'). The Consultancy Agreement contains a monthly fee payable to each Consultant which is equivalent to their previous employment contract and also includes a performance fee based on gross margin targets for Ignite during the Restructuring Period (the 'Performance Fee'). Based on Management's current expectations for the Ignite business, the total "on target" Performance Fee would be £2.3m, payable in two instalments over H1 2025 and satisfied from existing cash resources.

Net debt and cash generation

The Group's focus on cash generation delivered improved cash conversion of c.80% in H1 2024 (FY 2023: 75%), with cash conversion for the 12 months to 30 June 2024 in excess of 90%.

Following the cash payment in H1 2024 of £8.4m of the £10.6m contingent consideration payable in FY 2024, related to acquisitions made in 2020 and 2021, the Group's net debt was £57.0m at 30 June 2024, (31 December 2023: £48.7m), which is broadly in line with management's expectations.

Following the execution of the Deed of Termination, and the final contingent consideration payment relating to the Businesswise Solutions LTD transaction of £2.2m in H2 2024, the Group will have no further contingent consideration payments to fund. Accordingly, cash generated from operations will now primarily be allocated towards reducing the Group's net debt position and the pursuit of organic growth opportunities, particularly those in the Optimisation Services division.

Mark Dickinson, CEO of Inspired, commented: "The Group has delivered a robust H1 performance and is better placed than ever as a full-service provider of sustainability solutions for businesses. Managing energy costs and ESG are now firmly embedded as operationally and commercially critical for most businesses, creating sustained and increasing demand for Inspired's differentiated products and services.

"The Optimisation Division has delivered significant growth since the acquisition of Ignite. Ignite has been a key catalyst in the Group's transformation from an energy procurement adviser to a full suite sustainability services provider supporting businesses with the delivery of their net zero transformation.

"It is clear that the strategy we have in place, which is focused on ensuring customers have access to, and make use of, our full suite of sustainability services, is driving a step change in the business. We look forward to reporting further progress in cross selling across the Group's divisions for H1 2024 when we publish our half year results."

Notice of Results

Inspired will announce its unaudited half year results for the six months to 30 June 2024 on 12 September 2024.

Analyst Presentation

An analyst briefing call will be held at 9.00 a.m. on the morning of the results and those analysts wishing to join the presentation can register for details via [email protected]  

Retail Investor Presentation

A presentation to retail investors will be hosted on Thursday 12 September 2024 at 4.30 p.m. via the Investor Meet Company platform. The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via the Investor Meet Company dashboard up until 9.00 a.m. the day before the meeting or at any time during the live presentation.

Investors can sign up to Investor Meet Company for free and add to meet Inspired plc via:

https://www.investormeetcompany.com/inspired-plc/register-investor

Related Party Transaction

The Consultants are directors of Ignite which is a wholly owned subsidiary of the Company and therefore are deemed to be related parties of the Company under the AIM Rules for Companies ("AIM Rules"). Accordingly, the entering into the Deed of Termination and the Consultancy Agreements by the Company with the Ignite Vendors and Consultants respectively constitutes a related party transaction under the AIM Rules (the "Related Party Transaction"). The directors of the Company consider, having consulted with Shore Capital and Corporate Limited ("Shore Capital"), the Company's nominated adviser, that the terms of the Related Party Transaction are fair and reasonable insofar as shareholders of the Company are concerned.

^* The Company considers that the consensus forecasts for the year ended 31 December 2024 are revenue of £115.5m and Adjusted EBITDA of £27.4m.

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