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Inspired PLC
Earnings Release • Mar 31, 2021
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Earnings Release
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National Storage Mechanism | Additional information 
RNS Number : 0381U
Inspired Energy PLC
31 March 2021
31 March 2021
Inspired Energy PLC
("Inspired Energy" or the "Group")
Final Results 2020
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 2020.
Year in review
| 2020 | 2019 | |
| *Restated | ||
| Continuing Operations | ||
| Revenue | £46.1m | £43.7m |
| Gross profit | £38.9m | £39.0m |
| Adjusted EBITDA** | £12.8m | £16.9m |
| Adjusted profit before tax*** | £6.9m | £13.0m |
| (Loss)/profit before tax | (£4.54m) | £3.08m |
| Underlying cash generated from operations**** | £11.6m | £12.9m |
| Adjusted diluted EPS***** | 0.70p | 1.74p |
| Diluted basic EPS | (1.34p) | 0.53p |
| Net debt | £18.8m | £33.4m |
| Corporate order book | £63.0m | £57.5m |
| Final dividend per share | 0.12p | nil |
Financial highlights in respect of the continuing operations of the Group
• Revenues delivered by the Group's continuing operations of £46.1 million, 6% ahead of 2019 (2019: £43.7 million).
• Group adjusted EBITDA from the continuing operations decreased 25%, to £12.8 million, as a result of the impact from the COVID-19 pandemic (2019: £16.9 million).
• Corporate Order Book at 31 December 2020 increased 10% year on year to £63.0 million (2019: £57.5 million); increasing further to £73.0 million following the post period end acquisition of Businesswise Solutions Ltd ("Businesswise") and General Energy Management Limited ("GEM").
• Underlying cash generated from continuing operations (excluding the impact of deal fees and restructuring costs) of £11.6 million (2019: £12.9 million).
• Completed a successful fundraising of £31.3 million (before expenses) in July 2020, with net debt reducing significantly to £18.8 million at the year-end (2019: £33.4 million).
• Reinstatement of the final dividend of 0.12 pence per share which delivers a full year dividend of 0.22 pence per share (2019: 0.22 pence per share), in line with the Group's stated policy of dividend cover of at least 3.0x earnings.
Operational and acquisition highlights
• The Group exited 2020 having made strong strategic progress and with a strengthened platform, capable of generating long term growth and significant stakeholder returns as its markets continue to recover.
• Successful exit from SME business, transforms the Group into a pure play technology enabled service provider delivering market leading energy advisory, ESG disclosure and sustainability solutions to UK and Irish corporate customers.
• Business now structured across three divisions, reflecting capabilities where the Group has a strongly differentiated offering, all of which are underpinned by long term structural growth drivers:
- Energy Solutions Division
- ESG Solutions Division
- Software Solutions Division
• £31.3 million fundraise provided capacity to execute on M&A opportunities, whilst retaining flexibility to invest in further opportunities to accelerate the Group's strategic momentum:
- Acquisition of the remaining 60% interest of Ignite Energy LTD ("Ignite") and LSI Energy Holdings Limited ("LSI"), in Q3, strengthened the Energy Optimisation Services offering, positioning the Group to be a leader in the delivery of Net Zero Carbon and ESG objectives for its clients.
- Post period end, the acquisition of Businesswise and GEM have increased our market share for Energy Assurance services, broadened customer base and significantly increased our units of opportunity.
• The significant development of our sustainability offering was recognised by the receipt of the London Stock Exchange Green Economy Mark.
• Further developed our technology capability through 2020, with the roll out of new digital technology through our Software Solutions Division offerings in 2021.
Board changes
• Sarah Flannigan appointed to the Board as a Non-Executive Director in July 2020, bringing a wealth of experience in the energy sector and technology transformation.
• Non-Executive Director Gordon Oliver stepped down from the Board on the 31 December 2020.
Current trading and outlook
2021 trading to date in the core Energy Assurance Services business (part of the Energy Solutions Division) remains in line with expectations and consistent with the Group's energy consumption assumptions, being approximately 13% below 2019 levels in Q1.
As anticipated the Group's Energy Optimisation Services (part of the Energy Solutions Division) business has been more significantly disrupted in Q1, as a result of ongoing lockdowns, with performance in line with management's expectations. Demand for optimisation services is expected to recover as clients' attention turns to the reopening their premises in a post lockdown world.
We are excited by the prospects of the Group's recently launched ESG Disclosure product which in Q1 reached first revenue six months ahead of expectations. The increasing requirements of Corporate Businesses to make mandatory ESG disclosures in 2022 provides a favourable back drop to our strategy for the ESG Services Division and we will continue our organic entry into this market.
One of the key areas of focus for the Group in 2021 is the evolution of the Software Solutions Division, which creates the proprietary software used by the Group to underpin its technology enabled services, as well by third parties under a SaaS model. We have been building the division for the last two years into a platform operation which we believe is capable of delivering incremental returns to the Group in 2022 which are greater than we had originally anticipated.
Whilst uncertainties relating to the global pandemic remain and should not be discounted, we continue to be excited by the prospects for the business especially as we transform from Inspired Energy PLC to the more holistic service offering under Inspired PLC and aim to return to delivering our pre-covid thesis.
As a business, we are proud to have delivered Carbon Neutrality on a market basis in 2020 and will continue our drive to achieve Net Zero by 2035 on a location basis. In addition, from 2021 onwards we shall include ESG performance as a key component of executive remuneration which continues to demonstrate the Group's commitment to lead by example with respect to Energy and ESG performance.
The Board is confident of the longer-term prospects of the Group with the secular trend towards ESG and improved energy usage. Despite the near-term challenges faced in Energy Optimisation Services, the Board remains confident of achieving current market expectations.
Commenting on the results, Mark Dickinson, CEO of Inspired Energy, said: "Whilst 2020 clearly presented challenging marketing conditions, the Group achieved significant strategic milestones whilst remaining profitable and cash generative and managing an effective response to the global pandemic.
"Looking at the year to date, the business is performing in line with expectations and consistently with our assumptions with respect to the global pandemic. Whilst the risks associated with the pandemic should not be discounted, we are excited by potential for the business to bounce back.
"In recognition of this strategic evolution, the Company is proposing to rename itself Inspired PLC at our AGM in June 2021, to better reflect the structure into which the Group has now evolved: a technology enabled service provider with the market leading position for energy procurement, utility cost optimisation and sustainability enhancement in the UK and Ireland."
Note
* The prior year income statement has been restated to reflect the impact of treating the SME Division as a discontinued operation (see note 5).
**Adjusted EBITDA is earnings before interest, taxation, depreciation, and amortisation, excluding exceptional items and share-based payments.
***Adjusted profit before tax is earnings before tax, amortisation of intangible assets (excluding internally generated amortisation related to computer software and customer databases), exceptional items, share-based payments, the change in fair value of contingent consideration and foreign exchange gains/(losses) (A reconciliation of this can be found in note 6)
****Underlying cash generated from operations is cash generated from operations, as adjusted to remove the impact of restructuring costs, fees associated with acquisitions and dividends declared to NCI.
*****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).
For further information, please contact:
| Inspired Energy PLC | www.inspiredplc.co.uk |
| Mark Dickinson, Chief Executive Officer | +44 (0) 1772 689 250 |
| Paul Connor, Chief Financial Officer | |
| Shore Capital (Nomad and Joint Broker) | +44 (0) 20 7408 4090 |
| Edward Mansfield James Thomas Michael McGloin |
|
| Peel Hunt LLP (Joint Broker) Mike Bell Ed Allsopp |
+44 (0) 20 7418 8900 |
| Alma PR | +44 (0) 20 3405 0205 |
| Justine James David Ison Molly Gretton |
+44 (0) 7525 324431 [email protected] |
Group Evolution
Inspired Energy has, over the past year, evolved into a UK market leading and technology enabled provider of energy advisory, ESG disclosure and sustainability services.
In November 2020, we were delighted to receive the London Stock Exchange Green Economy Mark, recognising the Group's environmental and strategic advice, service and support to customers and the impact the business has on the green economy.
Our 3,400 clients are present in every part of society, in both the public sector (education, NHS, local government and social housing) and private sector, particularly those businesses with large property estates (distribution, property management, retail and leisure) or which are highly energy intensive (data centres, waste and water, manufacturing and industrial), and all of whom typically spend more than £100,000 on energy and water per year ("Corporate Businesses").
The Group has evolved from solely providing assurance services to help Corporate Businesses manage their energy procurement, energy accounting and statutory reporting processes (Energy Assurance Services), into a leading designer of solutions that allow Corporate Businesses to reduce their energy consumption through the provision of optimisation services (Energy Optimisation Services), underpinned by a software offering to both Corporate clients and other service providers such as third party intermediaries (Software Solutions). The cheapest unit of energy is the one you don't consume; it also happens to be the cleanest.
Today, Inspired Energy is also emerging as a leading provider of ESG disclosure services, which takes our understanding of managing large data sets relating to environmental and social issues and supporting clients in making disclosures under a number of reporting taxonomies (ESG Disclosure Services).
Corporate Businesses can collect and manage auditable ESG data effectively, and disclose ESG information correctly, we further help them work from this baseline to design solutions to improve their ESG impact (ESG Impact Services)
| Inspired ESG | Inspired Energy | Inspired Software |
| Specialises in end-to-end solutions for investors and Corporate Businesses to make effective ESG Disclosures and transform them into ESG Impacts | Delivers energy, water and sustainability assurance and optimisation services, so Corporate Businesses can manage their costs better, reduce their carbon efficiently and meet their net zero targets. | Delivers technology and software solutions that underpin the services provided by Inspired PLC and makes them available to third parties. |
Chairman's Statement
The Board is pleased with the strategic progress achieved during the period, which ensured the Group exited 2020 having made significant progress and with a strengthened platform capable of generating long term growth and significant stakeholder returns, as our customers' markets continue to recover. Whilst the financial performance of the Group for FY20 was materially impacted by the challenges caused by the pandemic, as conditions normalise, the Group's medium and longer-term prospects are stronger than ever.
Green Economy Mark
The Board is delighted to have received the London Stock Exchange's Green Economy Mark in recognition of the sustainability credentials and high proportion of green revenue the Group generates through our services to customers. As ESG becomes more central to investment decisions for every business, energy is one of the highest cost components in the ESG wheel and one of the most data intensive elements of the Climate change segment. As an ESG solutions provider, it is important that we continue to lead by example in regard to best practice and reporting in order to remain at the forefront of energy and sustainability solutions in a Net Zero Carbon future.
Acquisitions and Fundraise
In July 2020, the Group completed a successful fundraising of £31.3 million (before expenses) through an oversubscribed placing of £30.0 million, with a further £1.3 million raised via an open offer (the "Fundraise"). I would like to thank our existing shareholders for their continued support, and I would like to extend a warm welcome to several new institutional investors who joined the register. Part of the proceeds from the Fundraise financed the initial cash consideration for the acquisition of the balancing interest of Ignite. Ignite offers a broad spectrum of energy management services, with a strong focus on delivering energy efficiency projects and Optimisation Services to blue chip corporate customers, increasing the capability of the Energy Optimisation Services business. The Group subsequently completed the value enhancing acquisition of LSI in August.
In early 2021, the Board was delighted to conclude the acquisition of Businesswise and GEM, which are highly complementary additions to the Group. The Fundraise provided the capacity to execute on M&A opportunities, which were carefully structured in light of the current economic uncertainty, to accelerate the Group's strategic momentum. Both acquisitions increase our market share for Energy Assurance services, broaden our customer base and significantly increase our units of opportunity.
We are delighted to welcome the LSI, Businesswise and GEM teams to the enlarged Group.
SME disposal
The disposal of the SME Division represented an important milestone in the strategic direction of Inspired Energy. Having taken the decision to exit this business, the Board concluded the sale of the SME Division by MBO was the optimal route as it enabled the Group to realise value, maintain continuity of service delivery to the customer base and enable Inspired Energy to maintain full market coverage. We wish the team every success for the future.
Dividend
Since its IPO in 2011, Inspired Energy has established a track record of delivering profitable and cash-generative growth which has facilitated a consistent and progressive dividend policy.
The pandemic brought a temporary halt to dividend payments, since re-established with an interim dividend declared in September 2020. The Board remains confident in the Group's prospects and continued ability to continue to pay a dividend. It is therefore it is proposing, subject to shareholder approval at the AGM, a final dividend of 0.12 pence (2019: nil pence). The final dividend aligns with the Board's stated policy of a dividend cover of at least 3.0x earnings, with the objective of delivering progressive dividend growth over time.
The dividend will be payable on 26 July 2021 to all shareholders on the register on 18 June 2021 and the shares will go ex-dividend on 17 June 2021.
Board changes
On 28 July 2020, the Board was pleased to welcome Sarah Flannigan to the Board as a Non-Executive Director. Her significant experience in the energy sector and in technology transformation is invaluable to the Board at a time when we are looking to revolutionise our sector with a full digitisation programme for our customers.
In addition, Gordon Oliver stood down from his position of Non-Executive Director on the 31 December 2020. On behalf of the Board and all at Inspired Energy, I would like to thank Gordon for his valuable contribution during a period of significant growth for the Group.
Staff
I would like to thank our employees who have risen to, and overcome, the challenges that we have faced in what was an unprecedented year. The health and wellbeing of our colleagues and customers remains our priority. We have continued to invest in the business and are well positioned for growth as we emerge from the pandemic.
Mike Fletcher
Chairman
30 March 2021
CEO's Statement
I am pleased to report on the Group's 2020 results, a period in which Inspired Energy has continued to deliver its strategic plan and remain profitable and cash generative, whilst managing an effective response to the global pandemic. In recognition of this strategic evolution, the Company is proposing to rename itself Inspired PLC subject to resolution of the Group's Annual General Meeting in June 2021, to better reflect the structure into which the Group has now evolved: a technology enabled service provider with the market leading position for energy procurement, utility cost optimisation and sustainability enhancement in the UK and Ireland.
As we reflect on FY20, there have been many noteworthy points throughout the year.
Record breaking indicators in Q1 FY20
The Group started Q1 with record performance in terms of contracted business, as we carried strong momentum into FY20 from FY19. During this time, we successfully transformed the business from one with an operational capability of delivering 6% to 8% annual organic growth, to one capable of delivering double digit organic growth.
Professional pandemic response
We were immensely proud of the way the business responded to the pandemic. We took the strategic decision some years ago to move all staff to laptops as an aid to productivity and were an early adopter of Microsoft Teams, so we had a strong platform on which to build.
Having transitioned to home working seamlessly, we were most proud of how our employees' efforts immediately focused on our clients' needs, including those where we have essential supplier status for (e.g. HMRC and Amey).
A key decision in our financial planning was to renegotiate and reset banking covenants through to June 2021 to further bolster our financial strength. This allowed us to operate effectively through the pandemic, remaining profitable and cash generative, without compromising our strategic focus.
Better than expected impact on Energy Assurance Services
In our early assessment of the potential impact of the COVID-19 pandemic, during Q2 2020, we identified that c.50% of the Group's revenues were potentially exposed. This is because client fees are recovered via the energy supplier, and therefore directly impacted by client consumption. In response to this, the Company based its planning assumptions on a 25% reduction in energy consumption over the period from March to December, which pleasingly proved to have been a conservative assessment with actual consumption reducing by only 18% in that period.
The biggest operational impact from the pandemic has been on optimisation services, within the Energy Solutions Division, where access to premises has been restricted. This led to a number of delayed orders, noting that whilst none of these orders have been cancelled, the impact has been a delay in revenues.
M&A execution
Inspired Energy has a clearly defined acquisition strategy and the pandemic has increased the pipeline of opportunities. We identified a strategic opportunity to accelerate our M&A strategy and took the opportunity to further strengthen our balance sheet to pursue this strategy through the £31.3 million fundraise in July 2020.
This facilitated the completion of the acquisition of the remaining 60% of Ignite, which is a key pillar to deliver our Net Zero Carbon solutions to our clients. Whilst optimisation services have been disrupted in the short term, Ignite has continued to build its pipeline, including signing projects with a major DIY products retailer and a leading variety retailer.
When we completed our Fundraise, we allocated £20 million of the Fundraise to a strategy of delivering between 3 and 5 acquisitions in the Energy Assurance Services market during H2 FY20. Since starting to execute this strategy, the UK has entered into two further national lock downs. In response to this disruption, we have maintained a disciplined approach to M&A, stepping away from one potentially significant transaction which did not meet our criteria. With the three acquisitions completed to date, we believe that in a post-Covid world we will have delivered c. £3 million EBITDA for c.£15.5 million consideration and this marks the completion of the M&A thesis that underpinned our placing. Our attention will now turn to further acquisitions that underpin our Energy Optimisation Services and Software Solutions Division. As always we will continue to evaluate our M&A strategy pragmatically in the context of the evolving pandemic situation and the opportunities that are available to us.
Focus on technology enabled service provision
Following the restructure at the end of FY20 on the Group now represents a pure play technology enabled services provider to Corporate Businesses across UK and Ireland. Capitalising on our position as the player of scale in the highly attractive, energy, sustainability and ESG markets, where we have strong regulatory and compliance drivers and non-discretionary calls to action, we provide a holistic suite of solutions to help Corporate Businesses meet their Net Zero Carbon and ESG objectives.
Leading the way on disclosures
We were delighted to publish our Streamlined Energy and Carbon Reporting (SECR) disclosure for FY19 a year early. SECR is a disclosure more than 12,000 businesses in the UK need to publish each year.
With a clear objective to lead by example in the sustainability arena, we have published a Taskforce for Climate related Financial Disclosures (TCFD) report a year earlier than guidance, as we strive to deliver on our own ESG strategy, in addition to delivering an ESG report to a GRI (Global Reporting Initiative) standard.
As a Group we are undertaking the following initiatives as we align our objectives and behaviours to our purpose:
Adopting the UN Sustainable Development Goals (SDGs): The Group is in the process of rolling out the SDGs as underling principles across the organisation. Employees have the ability to track their activity via our proprietary 'SDGme" software which allows companies to track their actions against the SDGs is also available for use freely by all of our clients.
Aligning executive remuneration: To ensure the SDGs and ESG behaviours are embedded in our daily operations, they are now a key element in the award of performance related pay for the executive directors.
Embedding in the culture: The Company adopts the Blanchard framework (more detail for which can be found at: https://www.kenblanchard.com/) to create a common language of leadership across the organisation. The SDGs and ESG objectives of the business are embedded within this.
Outlook
Increasing scale in Energy Assurance Services
As the clear player of scale in the UK and Irish market for Energy Assurance Services, we are able to deliver services to a level of depth and quality that it is difficult for other advisors to compete with. The strength of our balance sheet and the impact of the pandemic provides an opportunity to accelerate our scale in this marketplace from a 13% market share to one between 16% and 18% through our acquisitions and organic growth during FY21.
This increase in scale provides a platform for sustainable double digit organic growth into the future.
Delivering Net Zero Carbon Solutions
The strategic investments the Group made in Energy Optimisation Services between FY18 and FY20 have created a market leading capability to deliver Net Zero Carbon Solutions to Corporate Businesses. With COP26 (the UN Climate Change Conference of Parties) taking place in the UK this year and an increasing recognition of the climate emergency, the Group is well placed to meet the needs of Corporate Businesses.
Acceleration of Software Solutions
Our Software Solutions Division is solving some of the biggest challenges facing Corporate Businesses with respect to optimising their energy cost equations, quantifying their carbon emissions, and delivering their ESG objectives.
Proprietary software, developed by our Software Solutions Division, underpins our technology enabled service provision and allows us to deliver market leading solutions to Corporate Businesses.
Some of the most attractive things about our market are the long contract durations (which provide strong revenue visibility), high client retention rates (which reduce revenue volatility) and its highly fragmented nature which provides an attractive consolidation opportunity. However, these attractive features also restrict the number of clients that the Group can access at any point in time and as such the Software Solutions Division also provides software to other energy advisors.
This software provision to c.50 other TPIs allows us to create value from more clients in the marketplace and to work with successful energy advisors that could be attractive acquisition targets in the future.
Currently our Software Solutions Division has an implied 5% share of the market for Energy Assurance Services.
Delivery of ESG Disclosure Services
We are delighted to have started generating revenues with respect to ESG Disclosure Services some six months ahead of plan and are very excited about the opportunities this represents.
In order to make repeatable, auditable and consistent disclosures, large amounts of unstructured data need to be processed. Many Corporate Businesses do not have the resources or expertise to do this. Our technology enabled service allows organisations to make effective disclosures against any taxonomy without distracting their internal resources.
The Group is also starting to build out its solutions with respect to ESG impact starting with the launch of the SDGme system which allows Corporate Businesses to record the contributions of their employees towards the SDGs.
Preparation for internationalisation
As a business we focus on accelerating each of our levers of value creation to their full potential whilst preparing for the next lever we intend to add. ESG Disclosures is naturally a global market and there are strong opportunities in Europe for Energy Assurance Services and Energy Optimisation Opportunities. With this in mind, we are looking to start the execution of our internationalisation strategy towards the end of FY21 focusing on acquisitions in Europe as part of thesis to provide a pan European service provider or Energy Assurance Services.
We estimate that the size of the European market in aggregate is six times larger than the UK market, representing an additional £8.4 billion market opportunity over and above the £1.4 billion opportunity the Company currently has in the UK.
Q1 2021 update
Looking at the year to date, the business is performing in line with expectations and consistently with our assumptions with respect to the global pandemic. Whilst the risks associated with the pandemic should not be discounted, we are excited by potential for the business to bounce back to levels of performance closer to 2019.
Despite the challenges the pandemic will undoubtedly bring, we find ourselves more excited and confident than ever about the opportunities ahead of us.
On behalf of the Board, I would like to thank our staff, customers and wider stakeholders, for their great support navigating through the past year of the COVID-19 pandemic and whose health, safety and wellbeing continues to be our overriding priority.
Mark Dickinson
Chief Executive Officer
30 March 2021
CFO's Statement
2020 has presented its challenges, and notwithstanding the significant change to working practices from Q2 2020 onwards, the Corporate Division, and continuing operations, delivered revenues growing 6% to £46.1 million (2019: £43.7million).
Corporate Division (continuing operations)
As a result of the COVID-19 pandemic, organic revenues in 2020 declined 20% in the Corporate Division (2019: +6%) driven by a reduction in energy consumption by our Corporate customers, and the deferral of optimisation revenues. The blended decline in consumption across Q2, Q3 and Q4 was 18%.
The Corporate Division contributed adjusted EBITDA of £16.1 million, a decline of 20% (2019: £20.2 million), with the division generating an EBITDA margin of 35% (2019: 46%) with the reduction in margin resulting primarily from the reduction in consumption experienced across the Corporate client portfolio.
The Corporate Order Book as at 31 December 2020 was £63.0 million, an increase of 10% over the prior period (2019: £57.5 million), with strong customer retention and robust performance from significant new customer wins providing visibility to the Group. The Corporate Order Book increased to £73.0 million following the post period end acquisition of Businesswise Solutions and GEM.
Following the disposal of the SME Division in December 2020, the Group intends to revise its segmental reporting from 2021 onwards, to reflect the revised Group structure of the Energy Solutions, Software Solutions and ESG Solutions divisions. During 2020, within the Energy Solutions Division, assurance services contributed £29.8 million of revenue (2019: £33.0 million) optimisation contributed £14.2 million (2019: £9.0 million) and software solutions contributed revenues of £2.1 million during 2020 (2019: £1.7 million).
SME Division disposal
The SME Division experienced a material impact to revenues from the pandemic and was the primary beneficiary of the Group's utilisation of the Government CJRS which protected jobs in the short term. The subsequent disposal of the SME Division represented an important milestone in the strategic direction of Inspired Energy. Having taken the decision to exit this business, the Board believes the sale of the SME Division by MBO was the optimal route as it enables the Group to realise value, maintain continuity of service delivery to the customer base and enable Inspired Energy to maintain full market coverage.
Aggregate consideration of up to £10.5 million payable to Inspired Energy on the collection and run off of the SME Division's accrued income balance, the majority of which is expected to be received within three years of completion.
In forming a view on the fair value of the contingent consideration to be recovered for the SME disposal, and resulting loss on disposal, an analysis of the Group's SME portfolio at completion of the disposal was undertaken with consideration given to the estimated impact of the pandemic on the consumptions levels, business failure rate and contracts not running the expected duration. As a result, the deemed fair value of expected future invoicing against the book was calculated to be £7.2 million prior to discounting for the time value of money, the inclusion of which equates to the £6.9 million contingent asset recognised in the balance sheet at the 31 December 2020, of which, in excess of 70% is expected to be recovered prior to 31 December 2022.
The net assets of the SME Division at disposal were valued at £13.4 million, including Trade and Other Payable balances of £11.3 million, which includes accrued income of £10.5 million and £1.2 million of goodwill from the acquisitions of Simply Business Energy and KWH Consulting in 2014. Therefore, the resulting loss on disposal recognised in the 2020 financial statements is (£6.5 million).
The disposal of the SME Division has a significant impact in reducing the working capital levels of the Group at 31 December 2020.
Group results
PLC costs of £3.4m (2019: £3.3m) remaining consistent over the year resulting in an overall adjusted EBITDA for the year of £12.8m (2019:£16.9m) which was impacted by the revenue reduction as a result of the pandemic. After deducting charges for depreciation, amortisation of internally generated intangible assets and finance expenditure the adjusted profit before tax for the year £6.9m (2019:£13.0m) from continuing operations once again reflecting the impact of the pandemic on the Group's performance.
Under IFRS measures the Group reported a loss before tax for the year from continuing operations of £4.5m (2019: profit of £3.1m). A full reconciliation of the Group's adjusted profit before tax to its reported profit before tax is included at note 6. The items included in the reconciliation include substantial charges for the amortisation of intangible assets as a result of acquisitions, share based payment charges, fees associated with acquisitions, restructuring costs and the changes in the fair value of contingent consideration.
Cash generation
Cash conversion was robust in the period with cash generated from operations of £9.2 million (2019: £9.4 million). Excluding non-recurring fees associated with restructuring costs and deal fees, cash generated from operations was £11.6 million (2019: £12.9 million).
The benefit of the deferral in Q2 VAT Payments, was offset by the reduction in deferred income, primarily within the project-based revenues within Ignite during the year, leading to a £0.9 million reduction in payables. Following the disposal of the SME Division, management expect cash conversion ratios in 2021 and beyond to remain consistent with the levels seen in 2020.
Alternative performance measures
Acquisition activity can significantly distort underlying financial performance from IFRS measures and therefore the Board deems it appropriate to report adjusted metrics as well as IFRS measures for the benefit of primary users of the Group financial statements.
Exceptional costs
Exceptional costs of £3.5 million (2020: £2.6 million) were incurred in the year, which £1.4 million of deal fees associated with acquisitions completed in the year or subsequent to the year end, including £0.3m relating to the transaction aborted Q4.
Restructuring costs of £0.9 million have been incurred in the year, which includes £0.4 million of termination payments from the integration of acquisitions completed prior to 2020 and LSI acquired in August 2020, £0.3 million of termination payments as a result of the disposal of the SME Division and £0.2 million resulting from office and staff facility closures which the Group took the decision not to reopen.
Furthermore, a £1.2 million loss due to changes in the fair value of contingent consideration were treated as exceptional in the period.
These costs are considered by the Directors to be material in nature and non-recurring and therefore require separate identification to give a true and fair view of the Group's result for the period.
Financial position and liquidity
In May 2020, the Group agreed with its lenders to increase 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.
In July 2020, the Group raised £30.0 million (before expenses) through an oversubscribed placing of 200,000,000 new ordinary shares, with a further £1.3 million raised through an open offer to qualifying shareholders.
The net proceeds from the placing funded the initial cash consideration for the acquisition of the balancing interest of Ignite, with the remaining funds enabling the Group to take advantage of its active pipeline of potential acquisition targets.
In addition, the acquisition of Ignite has had a material benefit to the Group's financial position. The Group now receives the full free cash flow benefits of wholly owning Ignite, having previously only received 40% of profits distributed by Ignite every six months via dividends.
From a banking covenant perspective, prior to the acquisition of the balancing interest of Ignite in July 2020, under the Net Adjusted Leverage definition per the facility agreement, the EBITDA contribution from Ignite was not included within Group EBITDA. However, the Group now benefits from 100% of Ignite's contribution to Group EBITDA on an last twelve months basis. The treatment of Ignite EBITDA, the free cash flow of ownership and the funding of the transaction via equity, has significantly increased the headroom available to the Group from a covenant perspective.
In March 2021, the Board agreed with their lenders to amend the definition of Adjusted Net Leverage to apply from the 1 July 2021, to reverse the impact of the adoptions of IFRS 16 and the definition of contingent consideration to only included deferred consideration or crystalised contingent consideration. Collectively, these amends significantly reduce the forecast leverage of the Group for covenant purposes.
At 31 December 2020, the Group's net debt was £18.8 million. In addition to cash and cash equivalents of £26.9 million on hand as at 31 December 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 covenant compliance.
Dividend
The Board is pleased to announce the reinstatement of a final dividend of 0.12 pence per share (2019: nil pence) in line with the Groups' revised policy of paying dividends initially covered by at least 3.0x earnings.
The dividend will be payable on 26 July 2021 to all shareholders on the register on 18 June 2021 and the shares will go ex-dividend on 17 June 2021.
In summary
The strategic and financial initiatives delivered in the year, ensure the Group is well placed to endure the economic uncertainty generated by COVID-19, and in turn facilitate the effective implementation of our strategic growth plan as envisaged prior to the COVID-19 crisis, and which we expect to resume unfettered, save for delay, post this crisis.
The Group has started 2021 positively, despite the impact of the lockdown provisions in Q1 2021, with January and February trading in line with management expectations.
Paul Connor
Chief Financial Officer
30 March 2021
Group statement of comprehensive income
For the year ended 31 December 2020
| 2020 | 2019 | ||||
| (restated*) | |||||
| Note | £000 | £000 | |||
| Continuing operations | |||||
| Revenue | 46,110 | 43,696 | |||
| Cost of sales | (7,210) | (4,652) | |||
| Gross profit | 38,900 | 39,044 | |||
| Administrative expenses | (40,723) | (34,813) | |||
| Analysed as: | |||||
| Adjusted EBITDA | 12,767 | 16,920 | |||
| Exceptional costs | 6 | (3,513) | (2,547) | ||
| Depreciation | 7/8 | (1,173) | (1,627) | ||
| Amortisation of acquired intangible assets | 9 | (6,038) | (5,302) | ||
| Amortisation and impairment of internally generated intangible assets | 9 | (2,268) | (1,051) | ||
| Share-based payment cost | (1,598) | (2,162) | |||
| Operating (loss)/profit | (1,823) | 4,231 | |||
| Finance expenditure | 3 | (2,678) | (1,197) | ||
| Other financial items | (35) | 41 | |||
| (Loss)/profit before income tax | 6 | (4,536) | 3,075 | ||
| Income tax credit/(expense) | 4 | 251 | (581) | ||
| (Loss)/profit for the year from continuing operations | (4,285) | 2,494 | |||
| (Loss)/profit for the year from discontinued operations | 5 | (6,740) | 1,514 | ||
| (Loss)/profit for the year | (11,025) | 4,008 | |||
| Attributable to: | |||||
| Non-controlling interest | 1,448 | 602 | |||
| Equity owners of the company | (12,473) | 3,406 | |||
| Other comprehensive income: | |||||
| Items that will be reclassified subsequently to profit or loss: | |||||
| Exchange differences on translation of foreign operations | 364 | (414) | |||
| Total other comprehensive income/(expense) for the year | 364 | (414) | |||
| Total comprehensive (expense)/income for the year | (10,661) | 3,594 | |||
| Total comprehensive (expense)/income from continuing operations | (3,921) | 2,080 | |||
| Total comprehensive (expense)/income from discontinued operations | (6,740) | 1,514 | |||
| Attributable to: | |||||
| Non-controlling interest | 1,448 | 602 | |||
| Equity owners of the company | (12,109) | 2,992 | |||
| Continuing operations | |||||
| Basic earnings per share attributable to the equity holders of the company (pence) | 6 | (0.52) | 0.38 | ||
| Diluted earnings per share attributable to the equity holders of the company (pence) | 6 | (0.52) | 0.36 | ||
| Continuing and discontinued operations | |||||
| Basic earnings per share attributable to the equity holders of the company (pence) | 6 | (1.34) | 0.56 | ||
| Diluted earnings per share attributable to the equity holders of the company (pence) | 6 | (1.34) | 0.53 |
*The prior year income statement has been restated to reflect the impact of treating the SME Division as a discontinued operation (see note 5).
Group statement of financial position
At 31 December 2020
| 2020 | 2019 (restated*) |
||
| Note | £000 | £000 | |
| ASSETS | |||
| Non-current assets | |||
| Investments | 898 | 648 | |
| Goodwill | 9 | 63,776 | 61,627 |
| Other intangible assets | 9 | 16,351 | 18,887 |
| Property, plant and equipment | 7 | 2,322 | 2,684 |
| Right of use assets | 8 | 2,593 | 3,710 |
| Non-current assets | 85,940 | 87,556 | |
| Current assets | |||
| Trade and other receivables | 10 | 18,841 | 29,561 |
| Deferred contingent consideration | 10 | 6,925 | - |
| Inventories | 119 | 76 | |
| Cash and cash equivalents | 26,884 | 5,241 | |
| Current assets | 52,769 | 34,878 | |
| Total assets | 138,709 | 122,434 | |
| LIABILITIES | |||
| Current liabilities | |||
| Trade and other payables | 11 | 8,230 | 10,464 |
| Lease liabilities | 992 | 1,125 | |
| Contingent consideration | 7,741 | 3,311 | |
| Current tax liability | 2,456 | 3,618 | |
| Current liabilities | 19,419 | 18,518 | |
| Non-current liabilities | |||
| Bank borrowings | 45,730 | 38,614 | |
| Lease liabilities | 1,679 | 2,595 | |
| Contingent consideration | 4,198 | 1,280 | |
| Interest rate swap | 130 | 95 | |
| Deferred tax liability | 1,278 | 1,993 | |
| Non-current liabilities | 53,015 | 44,577 | |
| Total liabilities | 72,434 | 63,095 | |
| Net assets | 66,275 | 59,339 | |
| EQUITY | |||
| Share capital | 1,202 | 892 | |
| Share premium account | 67,000 | 37,422 | |
| Merger relief reserve | 20,995 | 15,535 | |
| Share-based payment reserve | 5,349 | 3,523 | |
| Retained earnings | (10,418) | 6,719 | |
| Investment in own shares | (6,742) | (6,742) | |
| Translation reserve | 272 | (92) | |
| Reverse acquisition reserve | (11,383) | (11,383) | |
| Equity attributable to shareholders | 66,275 | 45,874 | |
| Non-controlling interest | - | 13,465 | |
| Total equity | 66,275 | 59,339 |
*The prior year statement of financial position has been restated to reflect the impact of a change in goodwill (see note 13).
Group statement of changes in equity
For the year ended 31 December 2020
| Share- | ||||||||||
| Share | Merger | based | Investment | Reverse | Non- | Total | ||||
| Share | premium | relief | payment | Retained | in own | Translation | acquisition | controlling | shareholders' | |
| capital | account | reserve | reserve | earnings | shares | reserve | reserve | Interest (as restated) |
equity | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Balance at 1 January 2019 | 892 | 37,422 | 15,535 | 1,361 | 7,908 | (6,742) | 322 | (11,383) | - | 45,315 |
| Profit for the year | - | - | - | - | 3,406 | - | - | - | 602 | 4,008 |
| Other comprehensive income for the year | - | - | - | - | - | - | (414) | - | - | (414) |
| Total comprehensive income for the year | - | - | - | - | 3,406 | - | (414) | - | 602 | 3,594 |
| Share-based payment cost | - | - | - | 2,162 | - | - | - | - | - | 2,162 |
| Acquisition of subsidiary undertaking (note 13) | - | - | - | - | - | - | - | - | 16,163 | 16,163 |
| Dividends declared | - | - | - | - | - | - | - | - | (900) | (900) |
| Dividends paid | - | - | - | - | (4,595) | - | - | - | (2,400) | (6,995) |
| Total transactions with owners (as restated) | - | - | - | 2,162 | (1,189) | - | (414) | - | 13,465 | 14,024 |
| Balance at 31 December 2019 (as restated) | 892 | 37,422 | 15,535 | 3,523 | 6,719 | (6,742) | (92) | (11,383) | 13,465 | 59,339 |
| (Loss)/profit for the year | - | - | - | - | (12,473) | - | - | - | 1,448 | (11,025) |
| Other comprehensive income for the year | - | - | - | - | - | - | 364 | - | - | 364 |
| Total comprehensive income for the year | - | - | - | - | (12,473) | - | 364 | - | 1,448 | (10,661) |
| Share-based payment cost | - | - | - | 1,598 | - | - | - | - | - | 1,598 |
| Shares issued (2 June 2020) | 6 | - | - | - | - | - | - | - | - | 6 |
| Shares issued (10 July 2020) | 89 | 10,620 | - | - | - | - | - | - | - | 10,709 |
| Shares issued (17 July 2020) | 40 | - | 5,460 | - | - | - | - | - | - | 5,500 |
| Shares issued (28 July 2020) | 172 | 18,958 | - | - | - | - | - | - | - | 19,130 |
| Shares issued (15 September 2020) | 3 | - | - | - | - | - | - | - | - | 3 |
| Acquisition of subsidiary undertaking (note 12) | - | - | - | - | (3,740) | - | - | - | (14,163) | (17,903) |
| Disposal of subsidiary undertaking (note 5) | - | - | - | 228 | - | - | - | - | - | 228 |
| Dividends paid | - | - | - | - | (924) | - | - | - | (750) | (1,674) |
| Total transactions with owners | 310 | 29,578 | 5,460 | 1,826 | (17,137) | - | 364 | - | (13,465) | 6,936 |
| Balance at 31 December 2020 | 1,202 | 67,000 | 20,995 | 5,349 | (10,418) | (6,742) | 272 | (11,383) | - | 66,275 |
The acquisition of subsidiary undertaking in 2019 has been restated. Please see note 13 for further details.
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 Energy 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.
Non-controlling interest
The non-controlling interest represented the outstanding 60% of the issued share capital of Ignite Energy LTD (IGN) held by third parties. IGN was consolidated and treated as a subsidiary in the prior year as the Group had an exclusive one-way call option to acquire the outstanding 60% of the issued share capital. The Directors recognised a non-controlling interest as the Share Purchase Agreement (SPA) was structured in such a way that the Group was deemed to have substantive control. On 17 July 2020, IGN became 100% owned and as such a non-controlling interest was no longer held.
Group statement of cash flows
For the year ended 31 December 2020
| 2020 | 2019 | |
| £000 | £000 | |
| Cash flows from operating activities | ||
| (Loss)/profit before income tax | (11,276) | 4,753 |
| Adjustments | ||
| Depreciation | 1,173 | 1,657 |
| Amortisation and impairment | 8,306 | 6,547 |
| Share-based payment cost | 1,598 | 2,162 |
| Loss for the year from discontinued operations | 6,740 | - |
| Finance expenditure | 2,678 | 1,159 |
| Exchange rate variances | (323) | 82 |
| Change in fair value of contingent consideration | 1,157 | 136 |
| Cash flows before changes in working capital | 10,053 | 16,496 |
| Movement in working capital | ||
| (Increase)/decrease in inventories | (43) | 15 |
| Increase/(decrease) in trade and other receivables | 154 | (5,200) |
| Dividends declared to NCI | (900) | 900 |
| Decrease in trade and other payables | (925) | (1,862) |
| Cash generated from operations | 8,339 | 10,349 |
| Income taxes paid | (2,222) | (1,873) |
| Net cash flows from operating activities | 6,117 | 8,476 |
| Cash flows from investing activities | ||
| Contingent consideration paid | (3,800) | (2,156) |
| Acquisition of subsidiaries, net of cash acquired (note 12) | (5,866) | (3,718) |
| Provision of working capital facility to discontinued operation | (250) | - |
| Payments to acquire property, plant and equipment | (1,925) | (1,479) |
| Payments to acquire intangible assets | (3,716) | (2,654) |
| Net cash flows used in investing activities | (15,557) | (10,007) |
| Cash flows from financing activities | ||
| New bank loans | 7,000 | 49,335 |
| Repayment of bank loans | - | (35,033) |
| Debt issue costs | - | (580) |
| Proceeds from issue of new shares | 29,848 | - |
| Interest on financing activities | (2,273) | (1,159) |
| Repayment of lease liabilities | (918) | (978) |
| Dividends paid to NCI | (1,650) | (2,400) |
| Dividends paid | (924) | (4,595) |
| Net cash flows from financing activities | 31,083 | 4,590 |
| Net increase in cash and cash equivalents | 21,643 | 3,059 |
| Cash and cash equivalents brought forward | 5,241 | 2,190 |
| Exchange differences on cash and cash equivalents | - | (8) |
| Cash and cash equivalents carried forward | 26,884 | 5,241 |
Notes to Final Results
Statement of compliance
These Condensed Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS). They do not include all of the information required for full annual statements and should be read in conjunction with the 2020 Annual Report. The comparative figures for the financial year 31 December 2019 have been extracted from the Group's statutory accounts for that financial year. The Group Financial Statements for the year ended 31 December 2020 were approved by the Board on [30] March 2021. They have been reported on by the Group's auditors and will be delivered to the registrar of companies in due course. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The Board of directors approved the Condensed Consolidated Financial Statements on [30] March 2021. They are not statutory accounts within the meaning of section 435 of the Companies Act 2006.
The Consolidated Financial Statements of the Group as at and for the year ended 31 December 2020 (2020 Annual Report) are available upon request from the Company Secretary, Inspired Energy plc, 29 Progress Park, Orders Lane, Kirkham, Lancashire, PR4 2TZ.
The principal accounting policies applied in the preparation of these Group financial statements are set out below.
1. Basis of preparation
The Group financial statements have been prepared under applicable law and International Financial Reporting Standards as adopted by the European Union (IFRSs). They have been prepared on an accrual basis and under the historical cost convention except for certain financial instruments measured at fair value.
The Group has taken advantage of the audit exemption for eleven of its subsidiaries, Waterwatch UK Limited (company number 08854844), Direct Energy Purchasing Limited (03529303), Utility Management Holdings Limited (06969480), Energy Team (UK) Limited (06285279), Energy Team (Midlands) Limited (02913371), Churchcom Limited (05343736), Flexible Energy Management Limited (10264309), Inspired 4U Limited (08895906), Squareone Enterprises Limited (05261796), Energy Cost Management Limited (03377082) and Professional Cost Management Group Limited (06511368) by virtue of s479A of the Companies Act 2006. The Group has provided parent guarantees to these eleven 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 2022, including the ability to adhere to banking covenants.
The Directors believe the Group has a strong balance sheet position, having refinanced its banking facilities in October 2019 through to October 2023, with an option to extend to October 2024. Furthermore, in July 2020, the Group completed a fundraise of £30.0 million (before expenses) through an oversubscribed placing of 200,000,000 new ordinary shares, with a further £1.3 million via an open offer to qualifying shareholders.
As a result, at 31 December 2020 the Group's net debt was £18.8 million, reducing from £33.4 million at 31 December 2019. In addition to cash and cash equivalents of £26.9 million on hand as at 31 December 2020, approximately £14.0 million of the Group's £60.0 million Revolving Credit Facility is undrawn with an additional £25.0m 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. Following the onset of the COVID-19 pandemic in March 2020, the Group agreed with its banking partners in May 2020 a resetting of the adjusted leverage covenant for quarters ending 30 June 2020 through to 30 June 2021.
Furthermore, the Group has agreed in March 2021 with its banking partners to amend the treatment of contingent consideration and IFRS 16 under the Net Adjusted Leverage covenant, which will be applied from the quarter ending 30 September 2021. The amendment has significantly increased the headroom available to the Group from a covenant perspective.
Having considered this information, excluding the potential impact of COVID-19, which is considered below, the directors conclude that the Group has adequate resources to continue to trade for the foreseeable future and that the accounts should be prepared on a going concern basis.
The uncertainty as to the future impact on the Group of the COVID-19 pandemic has been separately considered as part of the consideration of the going concern basis of preparation. As a Group, we earn our revenue based on providing advice and expertise in commercial utility consumption in the UK and ROI which is a fundamental input into any economy. Therefore, there will naturally be a reduction in utilities consumption and demand for associated consultancy services, such as optimisation, and revenues in the UK and ROI commercial markets, as a result of the ongoing Covid19 pandemic.
Market data indicates year-on-year industrial and commercial consumption reductions averaging 22% across Q2 2020, 10% in Q3 2020 and 9% in Q4 2020. January and February 2021 saw an average 11% reduction to 2020 and 2019 comparatives.
In consideration of this market consumption data, the Group's base case for 2021 assumes an 11% reduction in consumption across Q1 2021 (being an average of the variance of consumption seen in January and February 2021), Q2 2021 assumes a 9% reduction (as per Q4 2020), and subsequently a 6% on going reduction from H2 2021 onwards.
In addition to consumption-based revenues of the Group being directly impacted by the pandemic from Q2 to Q4 2020, the Group's Energy Optimisation Services businesses, which are project based and typically require access to customer sites, were disrupted from April to September as a result of pandemic restrictions resulting in some project deferrals. Whilst October saw the start of a recovery for the Optimisation Services business, the lockdowns during November again restricted site access and caused the deferral of some projects into FY2021.
The Group's base case assumes significant disruption to optimisation revenues in Q1, and then optimisation revenues recovering during Q2 2021 as the UK progresses through the roadmap to the economy re-opening in June 2021.
Clearly, the ultimate impact, and duration of the COVID-19 pandemic is difficult to predict and as such, we have considered scenarios when stress testing the downside scenario forecasts for the period to December 2022.
Our stress testing indicates that to breach the banking covenants, the Group would have to miss forecast Q1 and Q2 EBITDA per the base case by more than 25% for the last twelve months test periods ending 31 March 2021 and 30 June 2021, with the levels of headroom increasing further to in excess of 40% from the quarter ending 30 September 2021 onwards.
The Board considered a severe downside scenario which assumed the Optimisation Service Revenues performed in Q2, Q3 and Q4 2021 as per the 2020 comparative and year-on-year consumption levels (2021 vs 2019) in Q2 through to Q4 matched the reductions seen in Q2 2020 of 22%. In this scenario, even prior to the Group taking any mitigating actions in relation to costs or cash, the Group would still have sufficient headroom under its banking covenants.
The Directors note that the Group traded marginally ahead of the base case during January and February 2021.
Therefore, despite the ongoing uncertainty created by the pandemic, 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 the impact of the pandemic on 2020 and YTD 2021 trading, reasonably possible changes in trading performances in the next 12 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 12 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 2020 were determined on the basis of the reporting presented at regular Board meetings of the Group which is by nature of customer and level of procurement advice provided. Following the decision to dispose of the SME Division, the Group is organised into two operating segments. The segments comprise:
The Corporate Division ("Corporate")
This sector comprises the operations of Inspired Energy Solutions Limited, Direct Energy Purchasing Limited, Wholesale Power UK Limited, STC Energy and Carbon Holdings Limited, Informed Business Solutions Limited, Flexible Energy Management Limited, Churchcom Limited, Horizon Energy Group Limited, Energy Cost Management Limited, SystemsLink 2000 Limited, Professional Cost Management Group Limited, Squareone Enterprises Limited, Inprova Finance Limited, Ignite Energy LTD, Waterwatch UK Limited, Independent Utilities Limited and LSI Independent Utility Brokers Limited. Corporate's core services are the review, analysis and negotiation of gas and electricity contracts on behalf of UK and ROI Corporate clients. Additional services provided include energy review and benchmarking, negotiation, bill validation, cost recovery, optimisation services and software solutions. The Group's Corporate Division benefits from a market-leading trading team, which actively focuses on energy intensive and public sector customers, providing more complex, long-term energy frameworks based on agreed risk management strategies.
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.
The comparative year segmental information has been restated to remove the SME Division. Information about the income, expenses, cash flows and net assets of the SME Divisions is provided in note 5.
| 2020 | 2019 (restated) | ||||||||||
| Corporate | PLC costs | Total | Corporate | PLC costs | Total | ||||||
| £000 | £000 | £000 | £000 | £000 | £000 | ||||||
| Revenue | 46,110 | - | 46,110 | 43,696 | - | 43,696 | |||||
| Cost of sales | (7,210) | - | (7,210) | (4,652) | - | (4,652) | |||||
| Gross profit | 38,900 | - | 38,900 | 39,044 | - | 39,044 | |||||
| Administrative expenses | (28,858) | (11,865) | (40,723) | (25,337) | (9,476) | (34,813) | |||||
| Operating (loss)/profit | 10,042 | (11,865) | (1,823) | 13,707 | (9,476) | 4,231 | |||||
| Analysed as: | |||||||||||
| EBITDA | 16,119 | (3,352) | 12,767 | 20,229 | (3,309) | 16,920 | |||||
| Depreciation | (771) | (402) | (1,173) | (1,493) | (134) | (1,627) | |||||
| Amortisation and impairment | (2,639) | (5,667) | (8,306) | (1,111) | (5,242) | (6,353) | |||||
| Share-based payment cost | (1,598) | - | (1,598) | (2,162) | - | (2,162) | |||||
| Exceptional costs | (1,069) | (2,444) | (3,513) | (1,756) | (791) | (2,547) | |||||
| 10,042 | (11,865) | (1,823) | 13,707 | (9,476) | 4,231 | ||||||
| Finance expenditure | (2,678) | (1,197) | |||||||||
| Other financial items | (35) | 41 | |||||||||
| (Loss)/profit before income tax | (4,536) | 3,075 | |||||||||
| Total assets | 5,416 | 133,293 | 138,709 | 6,544 | 98,054 | 104,598 | |||||
| Total liabilities | 15,055 | 57,379 | 72,434 | 20,904 | 41,680 | 62,584 |
3. Finance expenditure
| 2020 | 2019 | |
| (restated) | ||
| £000 | £000 | |
| Interest payable on bank borrowings | 1,766 | 1,268 |
| Interest payable on lease liabilities | 288 | 132 |
| Foreign exchange variance | 253 | (414) |
| Other interest | 30 | - |
| Loan facility fees | 225 | 192 |
| Amortisation of debt issue costs | 116 | 19 |
| 2,678 | 1,197 |
4. Income tax (credit)/expense
The income tax (credit)/expense is based on the (loss)/profit for the year and comprises:
| 2020 | 2019 (restated) |
|
| £000 | £000 | |
| Current tax | ||
| Current tax expense | 575 | 1,885 |
| 575 | 1,885 | |
| Deferred tax | ||
| Origination and reversal of temporary differences | (826) | (1,304) |
| (826) | (1,304) | |
| Total income tax (credit)/expense | (251) | 581 |
| Reconciliation of tax (credit)/expense to accounting (loss)/profit: | ||
| (Loss)/profit on ordinary activities before taxation | (4,536) | 3,470 |
| Tax at UK income tax rate of 19% (2019: 19%) | (862) | 659 |
| Disallowable expenses | 501 | 429 |
| Exchange rate difference | (145) | (186) |
| Share options | 164 | (295) |
| Movement in deferred tax asset not recognised | (271) | (130) |
| Non-eligible intangible assets | 362 | 104 |
| Total income tax (credit)/expense | (251) | 581 |
5. Discontinued operations
On 10 December 2020, the Group completed the sale of the SME Division, consisting of subsidiaries Energisave Online Limited, KWH Consulting Limited and Simply Business Energy Limited, to its management team by way of a management buyout.
The results of the discontinued operation and the effect of the disposal on the financial position of the Group were as follows:
Results for the discontinued operations for the period to disposal
| 2020 | 2019 | ||
| Income Statement | £000 | £000 | |
| Revenue | 3,128 | 5,603 | |
| Operating costs | (3,376) | (3,921) | |
| Operating (loss)/profit | (248) | 1,682 | |
| Net finance costs | (4) | (3) | |
| (Loss)/profit before tax | (252) | 1,679 | |
| Tax expense | - | (164) | |
| (Loss)/profit from operating activities, net of tax | (252) | 1,515 | |
| Loss on sale of discontinued operation | (6,488) | - | |
| (Loss)/profit from discontinued operations, net of tax | (6,740) | 1,515 |
Effect of disposal on the financial position of the Group
| 2020 | |||
| Net assets disposed of and loss on disposal | £000 | ||
| Goodwill | 1,208 | ||
| Intangible assets | 187 | ||
| Right of use assets | 10 | ||
| Property, plant and equipment | 12 | ||
| Trade and other receivables | 11,353 | ||
| Cash and cash equivalents | 63 | ||
| Current tax assets | 420 | ||
| Deferred tax liabilities | - | ||
| Trade and other payables | (68) | ||
| Share-based payment reserve | 228 | ||
| 13,413 | |||
| Deferred contingent consideration receivable | 6,925 | ||
| Loss on sale of discontinued operation | (6,488) |
As the deferred contingent consideration gives the Group a contractual right to receive cash consideration, and that consideration is variable depending on revenue, the financial asset meets the definition of a derivative financial asset as defined by IFRS 9 and has been recognised at fair value through profit or loss.
| 2020 | 2019 | ||
| Cash flows from/(used in) discontinued operation | £000 | £000 | |
| Net cash flows from operating activities | (1,756) | 161 | |
| Net cash flows from investing activities | (101) | (63) | |
| Net cash flows from financing activities | (1,346) | (2) | |
| Net cash flows from discontinued operations | (3,203) | 96 | |
| Net cash flows from intra-group funding and transactions | 3,035 | (194) | |
| Net cash flows from discontinued operations, net of intercompany | (168) | (98) | |
6. 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.
| 2020 | 2019 | |
| £000 | £000 | |
| (Loss)/profit attributable to equity holders of the Group | (11,025) | 4,008 |
| Fees associated with acquisition | 1,366 | 725 |
| Restructuring costs | 990 | 1,691 |
| Accelerated write off of capitalised debt facility arrangement fees upon refinancing | - | 333 |
| Changes in fair value of contingent consideration | 1,157 | 136 |
| Loss on disposal of subsidiary entities | 6,740 | - |
| Amortisation of acquired intangible assets | 6,038 | 5,329 |
| Foreign exchange variance | 253 | (414) |
| Deferred tax in respect of amortisation of intangible assets | (1,025) | (843) |
| Share-based payment cost | 1,598 | 2,162 |
| Adjusted profit attributable to owners of the Group | 6,092 | 13,127 |
| Weighted average number of ordinary shares in issue (000) | 824,647 | 713,973 |
| Dilutive effect of share options (000) | 49,107 | 38,736 |
| Diluted weighted average number of ordinary shares in issue (000) | 873,754 | 752,709 |
| Basic earnings per share (pence) | (1.34) | 0.56 |
| Diluted earnings per share (pence) | (1.34) | 0.53 |
| Adjusted basic earnings per share (pence) | 0.74 | 1.84 |
| Adjusted diluted earnings per share (pence) | 0.70 | 1.74 |
| 2020 | 2019 (restated) |
|
| £000 | £000 | |
| (Loss)/profit attributable to equity holders of the Group | (11,025) | 4,008 |
| Loss/(profit) from discontinued operations | 6,740 | (1,284) |
| Underlying (loss)/profit from continuing operations attributable to equity holders of the Group | (4,285) | 2,724 |
| Weighted average number of ordinary shares in issue (000) | 824,647 | 713,973 |
| Dilutive effect of share options (000) | 49,107 | 38,736 |
| Diluted weighted average number of ordinary shares in issue (000) | 873,754 | 752,709 |
| Basic earnings per share from continuing operations (pence) | (0.52) | 0.38 |
| Diluted earnings per share from continuing operations (pence) | (0.52) | 0.36 |
The weighted average number of shares in issue for the adjusted diluted earnings per share includes the dilutive effect of the share options in issue to senior staff of the Group.
Adjusted earnings per share represents the earnings per share, as adjusted to remove the effect of fees associated with acquisitions, restructuring costs, the amortisation of intangible assets (excluding internally generated amortisation related to computer software and customer databases), exceptional 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:
| 2020 | 2019 (restated) |
|
| £000 | £000 | |
| (Loss)/profit before income tax | (4,536) | 3,075 |
| Share-based payment cost | 1,598 | 2,162 |
| Amortisation of acquired intangible assets | 6,038 | 5,302 |
| Foreign exchange variance | 253 | (414) |
| Exceptional costs: | ||
| - fees associated with acquisition | 1,366 | 725 |
| - restructuring cost | 990 | 1,686 |
| - accelerated write off of capitalised debt facility arrangement fees upon refinancing | - | 333 |
| - change in fair value of contingent consideration | 1,157 | 136 |
| 6,865 | 13,005 |
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
7. Property, plant and equipment
| Fixtures and | Motor | Computer | Leasehold | ||
| fittings | vehicles | equipment | improvements | Total | |
| £000 | £000 | £000 | £000 | £000 | |
| Cost | |||||
| At 1 January 2019 | 961 | 133 | 2,162 | 711 | 3,967 |
| Acquisitions through business combinations | 46 | 13 | 19 | - | 78 |
| Transfer of asset to right of use assets - on adoption of IFRS 16 | (231) | - | - | - | (231) |
| Foreign exchange variances | (1) | (6) | (7) | (1) | (15) |
| Additions | 68 | 1 | 1,075 | 337 | 1,481 |
| Disposals | - | - | (566) | - | (566) |
| At 31 December 2019 | 843 | 141 | 2,683 | 1,047 | 4,714 |
| Acquisitions through business combinations | 22 | - | - | - | 22 |
| Assets transferred to disposal group | (12) | - | (11) | (17) | (40) |
| Assets transferred to intangible assets | - | - | (1,338) | - | (1,338) |
| Foreign exchange variances | - | 3 | 1 | 1 | 5 |
| Additions | 200 | 29 | 1,624 | 72 | 1,925 |
| Disposals | (116) | (15) | (547) | (511) | (1,189) |
| At 31 December 2020 | 937 | 158 | 2,412 | 592 | 4,099 |
| Depreciation | |||||
| At 1 January 2019 | 494 | 25 | 1,211 | 154 | 1,884 |
| Charge for the year | 123 | 35 | 447 | 102 | 707 |
| Disposals | - | - | (561) | - | (561) |
| At 31 December 2019 | 617 | 60 | 1,097 | 256 | 2,030 |
| Charge for the year | 221 | 21 | 75 | 254 | 571 |
| Charge for the year transferred to intangible assets | - | - | (380) | - | (380) |
| Assets transferred to disposal group | (10) | - | (10) | (8) | (28) |
| Disposals | (85) | (11) | (144) | (176) | (416) |
| At 31 December 2020 | 743 | 70 | 638 | 326 | 1,777 |
| Net book value | |||||
| At 31 December 2020 | 194 | 88 | 1,774 | 266 | 2,322 |
| At 31 December 2019 | 226 | 81 | 1,586 | 791 | 2,684 |
| At 31 December 2018 | 467 | 108 | 951 | 557 | 2,083 |
8. Right of use assets
| Fixtures | Motor | |||
| and fittings | vehicles | Property | Total | |
| £000 | £000 | £000 | £000 | |
| Cost | ||||
| At 1 January 2020 | 472 | 319 | 3,869 | 4,660 |
| Acquisitions through business combinations | - | - | 156 | 156 |
| Remeasurement of Finance lease | - | - | (347) | (347) |
| Assets transferred to disposal group | - | (66) | - | (66) |
| Disposals | (5) | (164) | (352) | (521) |
| Additions | 23 | 225 | - | 248 |
| At 31 December 2020 | 490 | 314 | 3,326 | 4,130 |
| Depreciation | ||||
| At 1 January 2020 | 69 | 103 | 778 | 950 |
| Charge for the year | 69 | 125 | 788 | 982 |
| Assets transferred to disposal group | - | (56) | - | (56) |
| Disposals | - | (86) | (253) | (339) |
| At 31 December 2020 | 138 | 86 | 1,313 | 1,537 |
| Net book value | ||||
| At 31 December 2020 | 352 | 228 | 2,013 | 2,593 |
| At 31 December 2019 | 403 | 216 | 3,091 | 3,710 |
9. Intangible assets and goodwill
| Computer | Customer | Customer | Customer | Total other | ||||
| software | Trade name | databases | contracts | relationships | intangibles | Goodwill (as restated) |
Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Cost | ||||||||
| At 1 January 2019 | 9,350 | 115 | 1,596 | 14,687 | 2,231 | 27,979 | 44,366 | 72,345 |
| Additions | 2,595 | - | 58 | - | - | 2,653 | - | 2,653 |
| Acquisitions through business combinations (restated - see note 13) | - | - | - | 2,861 | 5,280 | 8,141 | 16,379 | 24,520 |
| Adjustment to previous business combinations | - | - | - | - | - | - | 992 | 992 |
| Foreign exchange variances | - | - | - | (338) | - | (338) | (110) | (448) |
| At 31 December 2019 (as restated) | 11,945 | 115 | 1,654 | 17,210 | 7,511 | 38,435 | 61,627 | 100,062 |
| Additions | 3,615 | - | 101 | - | - | 3,716 | - | 3,716 |
| Acquisitions through business combinations | 37 | - | - | 583 | - | 620 | 3,241 | 3,861 |
| Transfer from property, plant and equipment | 1,338 | - | - | - | - | 1,338 | - | 1,338 |
| Impairment | (188) | - | - | - | - | (188) | - | (188) |
| Assets transferred to disposal group | (432) | - | (1,755) | - | - | (2,187) | (1,208) | (3,395) |
| Foreign exchange variances | - | - | - | 283 | - | 283 | 116 | 399 |
| At 31 December 2020 | 16,315 | 115 | - | 18,076 | 7,511 | 42,017 | 63,776 | 105,793 |
| Amortisation | ||||||||
| At 1 January 2019 | 3,862 | 18 | 1,437 | 6,087 | 1,597 | 13,001 | - | 13,001 |
| Charge for the year | 2,121 | 6 | 134 | 3,473 | 813 | 6,547 | - | 6,547 |
| At 31 December 2019 | 5,983 | 24 | 1,571 | 9,560 | 2,410 | 19,548 | - | 19,548 |
| Charge for the year | 2,895 | 6 | - | 4,022 | 815 | 7,738 | - | 7,738 |
| Charge for the year transferred from property, plant and equipment | 380 | - | - | - | - | 380 | - | 380 |
| Assets transferred to disposal group | (429) | - | (1,571) | - | - | (2,000) | - | (2,000) |
| At 31 December 2020 | 8,829 | 30 | - | 13,582 | 3,225 | 25,666 | - | 25,666 |
| 1Net book value | ||||||||
| At 31 December 2020 | 7,486 | 85 | - | 4,494 | 4,286 | 16,351 | 63,776 | 80,127 |
| At 31 December 2019 (as restated) | 5,962 | 91 | 83 | 7,650 | 5,101 | 18,887 | 61,627 | 80,514 |
| At 31 December 2018 | 5,488 | 97 | 159 | 8,600 | 634 | 14,978 | 44,366 | 59,344 |
Computer software is a combination of assets internally generated and assets acquired through business combinations. The amortisation charge in the period to 31 December 2020 associated with computer software acquired through business combinations is £1,195,000 (2019: £1,037,000). The additional £2,080,000 (2019: £1,084,000) charged in the period relates to the amortisation of internally generated computer software. The total amortisation charged in the period to 31 December 2020 associated with intangible assets acquired through business combinations is £6,038,000 (2019: £5,329,000).
10. Trade and other receivables
| Group | |||
| 2020 | 2019 | ||
| £000 | £000 | ||
| Trade receivables | 6,995 | 8,712 | |
| Other receivables | 297 | 606 | |
| Deferred contingent consideration | 6,925 | - | |
| Prepayments | 2,764 | 2,041 | |
| Accrued income | 8,785 | 18,202 | |
| 25,766 | 29,561 |
Deferred contingent consideration relates to the collection and run off of the SME Division's accrued income balance at disposal.
11. Trade and other payables
| Group | |||
| 2020 | 2019 | ||
| £000 | £000 | ||
| Current | |||
| Trade payables | 1,943 | 1,977 | |
| Social security and other taxes | 4,162 | 2,857 | |
| Accruals | 866 | 1,954 | |
| Deferred income | 745 | 3,676 | |
| Other payables | 514 | - | |
| 8,230 | 10,464 |
12. Business combinations
LSI Energy Holdings Limited (LSI)
On 14 August 2020, the Group acquired 100% of the issued share capital and voting rights of LSI Energy Holdings Limited, a company based in the United Kingdom. LSI provides business energy and procurement services to a range of Corporate and SME customers, broadening Inspired Energy's service offering within its core Corporate Division.
The acquisition of LSI was completed for a total consideration of up to £9,122,000. The initial £3,122,000 was satisfied in cash. The additional £6,000,000 comprises of three earn out tranches as follows. Of the aggregate contingent consideration of £6,000,000, £1,750,000 is payable based on conversion of the order book of LSI at completion to cash, £2,250,000 is payable as twelve months' value of contract renewals completed within three years of completion, and £2.000,000 is payable as twelve months' value of contracted new business generated within three years of completion. The range of potential outcomes varied from £1,750,000 to £6,000,000.
The fair value of the contingent consideration of £3,600,000 was estimated by calculating the present value of the future cash flows and discounted using a rate of 13%.
The acquisition was financed through the drawdown of the Group's refinance facilities with Santander and Bank of Ireland. The details of the business combination are as follows:
Recognised amounts of identifiable net assets
| Provisional | |||
| Book | fair value | Provisional | |
| value | adjustment | fair value | |
| £000 | £000 | £000 | |
| Property, plant and equipment | 1 | - | 1 |
| Intangible assets | - | 583 | 583 |
| Trade and other receivables | 254 | - | 254 |
| Current tax asset | 365 | - | 365 |
| Cash and cash equivalents | 3,064 | - | 3,064 |
| Total assets | 3,684 | 583 | 4,267 |
| Trade and other payables | 534 | - | 534 |
| Deferred tax liability | - | 111 | 111 |
| Total liabilities | 534 | 111 | 645 |
| Provisional fair value of identifiable net assets | 3,622 | ||
| Provisional goodwill | 3,100 | ||
| Fair value of consideration transferred | 6,722 | ||
| Satisfied by: | |||
| - cash consideration paid | 3,122 | ||
| - contingent consideration | 3,600 | ||
| 6,722 | |||
| Net cash outflow arising from business combinations: | |||
| - cash consideration paid | 3,122 | ||
| - cash and cash equivalents acquired | (3,064) | ||
| Net cash outflow | 58 |
Since acquisition LSI has contributed £943,000 to revenue and £113,000 to profit before income tax. If the acquisition had taken place at the start of the financial period, LSI would have contributed £2,081,000 to revenue and £224,000 to profit before income tax.
Goodwill
The goodwill arising on this acquisition is attributable to niche market expertise enabling cross-selling opportunities achieved from combining the acquired customer bases and trade with the existing Group.
Identifiable net assets
A provisional fair value exercise to determine the fair value of assets and liabilities acquired in relation to LSI has been carried out. Fair values are provisional as they are still within the twelve-month hindsight period to adjust fair values.
The fair value of the customer contracts was calculated to be £583,000.
The Group estimates costs incurred in relation to the transaction to be £111,000. These costs are included within exceptional costs in the Group statement of comprehensive income.
A reconciliation of acquisition of subsidiaries, net of cash acquired is as follows:
| £000 | |||
| LSI - net cash outflow (per above) | (58) | ||
| Completion of 100% acquisition of Ignite Energy LTD | 5,500 | ||
| Acquisition of 100% of Energy Broker Solutions Limited | 174 | ||
| Investment in Switchd Ltd | 250 | ||
| Acquisition of subsidiaries, net of cash acquired | 5,866 |
13. Business combinations - prior year
Ignite Energy LTD (IGN)
As disclosed in the 31 December 2019 annual report and accounts the Group acquired an initial 40% of the issued share capital and voting rights of IGN.
During the year ended 31 December 2020, the Group deemed it appropriate to change the way the non-controlling interest was measured at acquisition, from the proportionate share method to the fair value method. This change in accounting policy had the following impact on the business combination and associated goodwill.
Recognised amounts of identifiable net assets
| Book | Fair value | Fair value as | Fair value as | ||
| value | adjustment | originally presented | Adjustment | restated | |
| £000 | £000 | £000 | £000 | £000 | |
| Property, plant and equipment | 153 | - | 153 | - | 153 |
| Intangible assets | - | 8,141 | 8,141 | - | 8,141 |
| Inventories | 524 | (399) | 125 | - | 125 |
| Trade and other receivables | 3,371 | (1,025) | 2,346 | - | 2,346 |
| Cash and cash equivalents | 4,748 | - | 4,748 | - | 4,748 |
| Total assets | 8,796 | 6,717 | 15,513 | - | 15,513 |
| Trade and other payables | 2,198 | 100 | 2,298 | - | 2,298 |
| Current tax liability | 356 | - | 356 | - | 356 |
| Deferred tax liability | 30 | 1,547 | 1,577 | - | 1,577 |
| Total liabilities | 2,584 | 1,647 | 4,231 | - | 4,231 |
| Provisional fair value of identifiable net assets | 11,282 | - | 11,282 | ||
| Provisional goodwill | 5,087 | 9,394 | 14,481 | ||
| Fair value of consideration transferred | 16,369 | 9,394 | 25,763 | ||
| Satisfied by: | |||||
| - cash consideration paid | 5,000 | - | 5,000 | ||
| - deferred consideration paid | 1,600 | - | 1,600 | ||
| - contingent consideration | 3,000 | - | 3,000 | ||
| - non-controlling interest (60%) | 6,769 | 9,394 | 16,163 | ||
| 16,369 | 9,394 | 25,763 | |||
| Net cash outflow arising from business combinations: | - | ||||
| - cash consideration paid | 6,600 | - | 6,600 | ||
| - cash and cash equivalents acquired | (4,748) | - | (4,748) | ||
| Net cash outflow | 1,852 | - | 1,852 |
Waterwatch UK Limited (WW)
As disclosed in the 31 December 2019 annual report and accounts the Group acquired 100% of the issued share capital and voting rights of WW.
The provisional fair value of identifiable net assets was carried out and no adjustment is to be made following the completion of the twelve-month hindsight period.
Independent Utilities Limited (IU)
As disclosed in the 31 December 2019 annual report and accounts the Group acquired 100% of the issued share capital and voting rights of IU.
The provisional fair value of identifiable net assets was carried out and no adjustment is to be made following the completion of the twelve-month hindsight period.
14. Post-balance sheet events
On 3 March 2021 the Group acquired 100% of the issued share capital and voting rights of BWS Holdco Limited, and its trading subsidiary Businesswise, and 100% of the issued share capital and voting rights of GEM. Businesswise is an energy consultant providing assurance services and incremental optimisation services to corporate customers. GEM provides energy assurance services to corporate customers.
The Group is paying an initial consideration of £6.0 million to acquire Businesswise on a debt free cash free basis, to be satisfied in cash at completion. In order to incentivise the vendors, further contingent consideration of up to £23.5 million may become payable in cash, subject to the achievement of challenging EBITDA and Order Book growth targets for the years ending 31 December 2021, 2022 and 2023. To achieve the earn out in full, Businesswise would be required to generate EBITDA of £5.0 million for the year ending 31 December 2023 and have a closing order book in excess of £19.0 million.
In regard to the acquisition of GEM, consideration will be satisfied by an initial cash payment of £1.5 million to the shareholders of GEM, with deferred consideration of £250,000 payable at 31 December 2021, and a potential further contingent cash consideration of up to £250,000 payable based on achieving a target level of contracted future revenues.
The Group has not given full disclosure of the fair value at acquisition as it was considered impractical to do so within the reporting timeframe.
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