Disposal of SME Division and Trading Update

RNS Number : 3042I

Inspired Energy PLC

11 December 2020

 

11 December 2020

Inspired Energy plc

("Inspired Energy" or the "Group")

Disposal of SME Division and Trading Update

Inspired Energy (AIM: INSE), the leading consultant for energy procurement, utility cost optimisation and legislative compliance in the UK and Ireland, announces that it has completed the disposal of the Group's SME division, consisting of subsidiaries, Energisave Online Limited, KwH Consulting Limited and Simply Business Energy Limited, ("SME Division") to its management team (the "Buyer"), by way of a management buyout ("MBO"), for a total consideration of up to £10.5 million, calculated on a cash free debt free basis (the "Disposal"). The Group also announces a trading update noting the effect on Q4 due to the ongoing COVID-19 related lockdown.

The Disposal has been undertaken to enable the Group to focus exclusively on its strategy of providing expert assurance and utility cost optimisation services to Corporate Energy Consumers, helping them manage energy costs effectively and delivering their Net Zero Carbon and ESG objectives. 

SME DIVISION

· The SME Division provides price comparison and contract arrangement services for SME consumers, which the Board considers to be a non-core activity, contributing 7% of Group revenues during H1 2020.

· For the year ending 31 December 2019, the SME Division generated revenues of £5.6m and adjusted EBITDA of £1.9m, with net assets of £7.9m.

· During 2020, the financial performance of the Group's SME Division has been significantly impacted by the on-going pandemic, with the SME Division experiencing a reduction in demand for energy supplier switching services.

· For the six-month period ending 30 June 2020, the SME Division generated revenues of £1.9m (H1 2019: £2.88m) and adjusted EBITDA of £0.5m (H1 2019: £0.97), after utilising the benefit of the Government Coronavirus Job Retention Scheme ("CJRS") extensively.

· The downturn in performance continued during H2 2020, with the SME Division being loss making in the period, despite the ongoing utilisation of the CJRS.

KEY TERMS

· Aggregate consideration of up to £10.5 million, is 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 recovered within three years of completion.

· The Buyer and Inspired Energy have entered into a transitional services agreement ("TSA") for a period of 36 months from completion.

· Working capital facility ("Facility") provided from Inspired Energy to the Buyer, of which £250,000 will be drawn at completion, with up to a further £500,000 available to be drawn in tranches across the six months from completion, subject to compliance with the terms of the facility. 

· The Facility carries an interest rate of 5% per annum above Bank of England base rate, with quarterly repayments commencing from month 18, with the Facility repaid in full three years from completion. The provision of the Facility has the benefit of ensuring efficiency in the transaction process, as well as facilitating the grant of security in favour of Inspired Energy.

· To maintain full market coverage, where the Group has a need to provide price comparison services to SME consumers, following the MBO the Buyer will become a supplier to the Group to enable a continuation of that service provision.

TRADING UPDATE

As set out the time of the interim results, announced on 9 September 2020, the Group reported that the SME division was materially impacted by COVID-19. The latest lockdown has continued to impact the performance of the SME Division, which has been loss making since Q2 as a result of the significant reduction in SME customer energy switching activity and consumption. Following the Disposal, the SME division will be reported as a discontinued operation in the Group's full year result. The anticipated recovery for the SME Division in the latter part of the period did not materialise as a result of the impacts of the continued lockdown, and as a consequence underlying EBITDA contribution from the SME Division is now anticipated to be c.£1.2m below current expectations for FY2020.

Within the Group's continuing operations of the Corporate Division, trading in the core Corporate Assurance Service business remains robust and ahead of management expectations for the full year, despite the disruption in Q4. The average energy consumption reduction by customers for the April to December period is expected to be c.18%, well ahead of the 25% reduction modelled in the Board's COVID downside case.

The Group's Optimisation Services businesses, which are project based and typically require access to customer sites, had been disrupted from April to September as a result of pandemic restrictions and some project deferrals. Whilst in October, the Optimisation Services businesses did experience a partial recovery, as expected, the lockdowns during November have again restricted site access and caused the deferral of some additional projects into FY2021. As a result of the short term disruption within Optimisation Services, in part offset by the continued resilient performance in Assurance Services, the Board now expects the Corporate division and consequently the Group's continuing operations to also report FY2020 underlying EBITDA approximately c.£1.2m below current expectations. Given the impact to Optimisation Services revenues are primarily deferrals in project delivery, the Board reiterates FY2021 EBITDA guidance for the Group (being the continuing operations, adjusted for the divested SME Division).

A further trading update will be announced in January 2021.

Related Party Transaction

Andrew Nuttall is the Managing Director of the SME Division and as a result the Disposal is classed as a related party transaction under Rule 13 of the AIM Rules for Companies. The directors of Inspired Energy, all of whom are deemed to be independent for the purposes of the transaction, having consulted with the Group's nominated adviser, Shore Capital & Corporate Limited, consider the terms of the Disposal, the Facility and the TSA to be fair and reasonable insofar as shareholders are concerned.

Commenting on the transaction,   Mark Dickinson, CEO of Inspired said: "The disposal of the SME Division represents an important milestone in the strategic direction of Inspired Energy.  Unlike the Corporate Division, where Assurance Services have performed better than our COVID Sensitised model, and Optimisation Services where FY2020 performance is impacted by deferrals to project delivery, but is expected to recover in FY2021, the SME Division has proved less resilient to the pandemic.  This transaction allows the Group to focus solely on our core service offering to Corporate Energy Consumers with a business that is more resilient to the COVID pandemic in FY2021.

"Having taken the decision to divest the SME Division we are delighted to have agreed the sale with Andrew Nuttall, who has driven the performance of the division since formation. The Board believes a sale of the SME Division by MBO is 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.  We wish the team every success for the future.

"Whilst the financial performance of the Group for FY2020 is disappointing, it is a consequence of factors outside of the Group's control. The Board is pleased with the continued outperformance of the Group's core Corporate Assurance Service lines and believes that Optimisation Services will regain strong momentum once restrictions on movement are lifted. The Board continues to believe there is a strong and growing demand for optimisation services as ESG becomes a higher priority for Corporates."

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) (" MAR ") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

Enquiries: 

Inspired Energy plc Mark Dickinson, (Chief Executive Officer) Paul Connor, (Chief Financial Officer)	[phone] www.inspiredenergy.co.uk
Shore Capital (Nomad Adviser and Joint Broker) Advisory Edward Mansfield / James Thomas / Michael McGloin Broking Malachy McEntyre	[phone]
Peel Hunt LLP (Joint Broker) Mike Bell/Ed Allsopp	[phone]
Alma PR Justine James / Josh Royston / David Ison / Molly Gretton	[phone] [phone] [e-mail]

Notes to editors

Inspired Energy plc is the leading consultant for energy procurement, utility cost optimisation and legislative compliance in the UK and Ireland .  Inspired Energy provides services to over 2,400 UK corporate business consumers, which represent c.6.7% of the UK's expenditure on electricity and over 400 in the ROI.

Inspired Energy is ranked as the UK's number one advisor in the most recent independent Cornwall Insight Report, which was achieved by addressing client needs and using that insight to shape the business strategy in addition to the acquisition and investment activity.

The Company provides expert assurance and optimisation services to Corporate Energy Consumers to help them manage energy costs effectively and deliver their Net Zero Carbon and ESG objectives. In November 2020, the Company received the London Stock Exchange's Green Economy Mark in recognition of its environmental and strategic advice, service and support to customers.  

 

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