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.
Adjusted profit before tax**
Profit before tax
Underlying cash generated from operations***
Cash generated from operations
Adjusted Diluted EPS****
Diluted Basic EPS
Corporate Order Book
· Record revenues delivered by the Group of £49.3 million, up 51% year on year (2018: £32.7 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 £18.8 million (2018: £13.7 million)
· Corporate Order Book as at 31 December 2019 of £57.5 million, an increase of 9% over the prior period (2018: £53.0 million); this increased to £60.1 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 £39.7 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 £13.8 million (2018: £12.3 million)
· SME division contributed adjusted EBITDA of £1.9 million (2018: £2.4 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 £60.0 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 £5.0 million on a cash free debt free basis, with a further £3.0 million contingent on delivery of £4.0 million adjusted EBITDA for the year ending 31 December 2019. The £3.0 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 £0.5 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 £2.0 million on a cash-free debt-free basis
- Initial consideration of £1.0 million with the balance contingent on certain performance measures
· Invested £0.7 million into incubator projects in the year, supporting and facilitating the future growth opportunities within the wider sector
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 £57.5 million and increased to £60.1 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 £11.7 million on hand as at 30 April 2020, approximately £14.0 million of the Group's £60.0 million Revolving Credit Facility is undrawn with an additional £25.0 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."