Final Results

RNS Number : 9523Z

Inspired Energy PLC

23 March 2012

 



23 March 2012

Inspired Energy Plc

("Inspired" or the "Group")

Final Results for the period ended 31 December 2011

Inspired Energy Plc (AIM: INSE), a leading UK energy procurement consultant to UK corporates, announces its final results for the period ended 31 December 2011.  Following the change of year end for Inspired from June to December, the results included within this announcement reflect the six months to 31 December 2011 and also include unaudited proforma results for the year ended 31 December 2011. 

Operational and Financial Highlights

§ Admission to AIM ("Admission") and reverse acquisition of Inspired Group Holdings Limited and its trading subsidiary Inspired Energy Solutions Limited on 28 November 2011, with associated equity raised of £3.78m (before expenses)

§ Financial performance in line with market expectations

§ Revenue in the six months to 31 December 2011 was £1.53m (12 months to 30 June 2011: £2.87m)

§ Earnings before deemed cost of listing, fees associated with listing and depreciation for the period was £0.91m (12 months to 30 June 2011: £1.26m)

§ Record quarter of new sales and retentions, continuing into the beginning of FY12

§ Continued acceleration of organic growth through recruitment of key staff

§ Order book of £4.3m as at 31 December 2011, increasing to £4.9m as at 31 January 2012

§ Secured certain exclusive contracts with chosen energy suppliers through to 2014

Commenting on the results, Janet Thornton, Managing Director of Inspired Energy said:  

"The business has made very good progress over the past few months.  With the talent we possess and the market knowledge that our analysts and risk managers provide, we have established a strong and exciting platform on which we can grow and prosper.  We will continue to win new customers, retain existing ones and focus on customer services whilst investing in our systems and processes to further improve efficiency.  Through focus on these core goals, we are confident that we can continue to produce results that will increase shareholder value as testified by our contracted order book which has increased from £4.1m at Admission in November 2011 to £4.9m as at 31 January 2012.  We approach our next phase of growth with confidence following a robust first quarter for the business."

For further information, please contact:   

Inspired Energy plc Janet Thornton, Managing Director David Foreman, Finance Director	[phone] [phone] www.inspiredenergy.co.uk
Shore Capital Bidhi Bhoma Edward Mansfield	[phone]
Gable Communications Justine James John Bick	[phone] [phone] [e-mail]

Chairman's Statement

We are pleased to present the Group's first results following the reverse acquisition of Inspired Group Holdings Limited and its trading subsidiary Inspired Energy Solutions Limited, Admission to AIM and our change of name to Inspired Energy Plc.  We are also pleased to welcome our new shareholders. Since the reverse acquisition at the end of November 2011, the business has made excellent progress. In particular, the Group has:

§ Performed in line with market expectations

§ Increased the order book to £4.3m as at 31 December 2011 (31 January 2012 £4.9m)

§ Achieved a record quarter of new sales and retentions to end January 2012

§ Increased the number of live contracts to 823 as at 31 January 2012

§ Attracted a number of high profile clients, in addition to continuing its high level of client retention rate of in excess of 70%

§ Recruited several high quality staff members with a proven track record and significant industry experience, increasing our technical expertise and enhancing our organic growth prospects

We believe that Inspired is now firmly established within the top tier of the energy consultancy market; a market that provides significant opportunities due to:

§ increasing market prices for underlying commodities which drive energy consumers to seek professional help to mitigate costs

§ The on-going volatility of energy prices and the associated uncertainty over energy costs making energy consumption and procurement an increasing issue for UK corporates

§ The introduction of the Carbon Reduction Commitment ("CRC"), which is making energy usage an issue for all major users of energy in the UK

§ The inability of many SMEs to finance expensive technologies to reduce energy usage or source alternative, renewable energy.

With the recruitment of several additional high quality analysts, the business is seeing increasing opportunities in the larger, higher value flexible and risk managed arena and I am pleased to report that we have added several such clients into our customer base since Admission.  We believe that the positive sales wins, allied to a keen focus on customer service and retentions, will serve Inspired well going forward.

Our results for the six months ended 31 December 2011 were in line with market expectations overall, although we experienced, as with many other companies operating in the energy sector, a slight softness in revenues due to the mild winter throughout the fourth quarter of 2011, affecting, primarily, heating gas consumption.  Our exposure to this systemic market risk is mitigated by our client mix which is predominantly focused on manufacturing and hence is less susceptible to heating requirement fluctuation. Indeed, this has not affected our positive outlook for 2012. Therefore, while Group revenues were below expectations for the period, earnings before deemed cost of listing, fees associated with listing and depreciation and adjusted earnings per share were ahead of expectations.

The reported accounts are complicated by the accounting policies adopted in respect of the reverse acquisition of Inspired Group Holdings Limited and its trading subsidiary Inspired Energy Solutions Limited and these are detailed further in the financial review. However, despite this, we believe the results reflect an exciting period for Inspired, allied to solid financial progression.   

As stated in the Group's AIM Admission Document, the Board continues to work on identifying and appointing an additional Non-executive Director and hopes to be able to announce progress on this front in due course.

I would like to thank our customers and partners for their support over the last couple of months and our new shareholders for their support at the time of the Admission and since.  Finally, I would like to recognise and thank the Group's employees for their hard work and dedication.

Bob Holt

Chairman

23 March 2012

Business Review

Through optimising energy procurement strategies, Inspired enables it's clients to achieve greater certainty or cost efficiency in respect of their energy costs.

Inspired advises on and procures energy (gas and/or electricity) contracts for its customers with energy suppliers throughout the UK. Inspired generates commission based on the customer's energy consumption, subject to a minimum consumption level. Inspired's commissions are solely dependent on the client's overall energy consumption levels and as a result Inspired's revenue stream is not impacted by energy commodity price fluctuations.

Inspired's Service Offering

Inspired offers five main services to its customers:

§ Energy Review and Benchmarking - analysing the energy needs of the customer and tailoring a cost efficient energy procurement strategy

§ Energy Purchasing - developing individual buying strategies on fixed, flexible or risk managed basis along with negotiation and energy procurement from suppliers in line with client strategy

§ Bill Validation - a review of all invoices to ensure that correct charges have been made by the suppliers

§ Historical Audits - validation of historical billing rates to ensure compliance with the published tariffs and pass through charges throughout the supply periods

§ CRC Reporting - production of management information for customers to comply with Carbon Reduction Commitment (CRC) legislation

Inspired currently manages and negotiates approximately 820 gas and electricity supply agreements on behalf of approximately 460 customers.

Principal Accomplishments

The period has seen a significant transformation for Inspired.  In addition to the successful reverse acquisition and subsequent Admission to AIM, the business has developed strongly.  Significant achievements include:

§ Order book sales in the 12 months to 31 December 2011 in excess of £3.8 million, an improvement of 25% in comparison to the previous 12 months, with H2 2011 being 49% higher than the same period in 2010

§ Order book as at 31 December 2011 of £4.3 million - a record high and increased substantially further in January 2012 to £4.9m

§ Risk managed contract portfolio grew significantly, accounting for £1.3m of the order book - a testament to the highly talented and skilled risk management team that Inspired has put in place

§ Retention rate maintained at significantly greater than 70%

§ Recruitment and creation of a dedicated field sales team to improve our sales network and our reach to clients

§ Renewal of several exclusive products which we have developed directly with energy suppliers - allowing Inspired to offer truly innovative and differentiated products to our customers.

Strategy

The strategy identified at the time of Admission remains our focus for the development of Inspired as we move into the next phase of our growth.

Focus on customer service and savings

Inspired's primary goal is to provide a market leading service to our customers, both in terms of our interactions with our customers and with respect to the energy contracts we are able to offer. We focus on the quality of our team's communications and service levels through ongoing training and review processes. In addition, we continually look to work with our energy suppliers to create products which offer significant benefits to our customers.

Product innovation

We believe that continuing to offer innovative and commercial solutions to our customers will allow us to sustain our strong growth. We have recently renewed our exclusive arrangements, developed in conjunction with some of our suppliers, which allows us to continue to market innovative products that are exclusive to Inspired within the marketplace. In addition, our analyst team continues to look to develop new propositions, which should see further new products being added to our portfolio.

Customer diversification

The core customers of Inspired are energy-intensive SMEs, predominantly with a manufacturing and production focus.  Growth will come from continued excellence and penetration in our sector specialisms, in addition to diversifying our client base.  We are currently exploring and making progress within non-energy intensive corporates, typically with large estates and large usage on a consolidated basis, as well as in the public sector.

Investment in IT

It is our stated aim to ensure that Inspired operates with the most efficient and scalable platform within the energy consultancy market, whilst simultaneously ensuring that customer service and operational agility remain at market-leading levels.  In order to achieve this, we will continue to invest in software, IT and web based systems to streamline our processes and provide additional reporting capability.

Client reporting

We believe there is a significant opportunity to increase revenues through paid for reporting on CRC and energy usage. In addition, this service should increase customer retention rates by creating an increased client dependence on the data generated by Inspired on their behalf.  Whilst we are currently able to provide this service to our clients, we are actively looking at opportunities to increase this capability, either through acquisition or recruitment of skills and expertise.

Acquisitions

We continue to see that there may be opportunities for Inspired to participate in industry consolidation. We have investigated a number of opportunities that have arisen since Admission and we continue to do so. In order to create an enlarged and improved business, we believe that potential targets should offer one or more of the following criteria:

§ Additional technical and/or service capability

§ Sector specialism and diversification

§ Increased geographic footprint

Talent Acquisition and Retention

Over the course of the last six months, we have been able to recruit several high quality, industry experienced employees to the team.  The new recruits bring new capabilities, experiences and operational expertise to Inspired.  It is important for our continued growth that we retain and recruit, where appropriate, the best talent available to us.

Markets

Inspired focuses on mid-sized companies which have a proportionally large energy usage relative to their size. Typically, customers of Inspired have the following characteristics:

§ 50 to 250 employees

§ Use half hourly meters

§ Sufficient energy usage (above 2,000 MWh) and complexity to warrant third party intermediary involvement

§ Do not their have their own in-house energy procurement teams

Inspired's customers are typically in the manufacturing sector, with particular specialisms within food manufacturing, foundries and heavy engineering sectors.  In addition to continuing to grow in our current markets, we are actively seeking to enter or increase our presence in complementary niche markets, such as multi-site operations with increased energy reporting complexity.

Outlook

As we begin the new financial year, I am confident of our prospects.  The talent we possess and the market knowledge of our analysts and risk managers provides a strong and exciting platform on which we can grow and prosper.  We will continue to win new customers, retain existing ones and focus on customer services whilst investing in our systems and processes to further improve efficiency.  Through focus on these core goals, we are confident that we can continue to produce results that will increase shareholder value as testified by our order book which has increased from £4.1m at Admission to £4.9m as at 31 January 2012.

Janet Thornton

Managing Director

23 March 2012

Financial Review

Effect of Reverse Acquisition Accounting Treatment

On 28 November 2011, the Group purchased Inspired Group Holdings Limited and its subsidiary undertaking, Inspired Energy Solutions Limited, by the issue of 163,700,179 ordinary shares of 0.0125 pence at a value of 3.0 pence in exchange for 200 shares in Inspired Group Holdings Limited and the payment of cash consideration of £7.38 million.

From an accounting perspective, instead of treating the transaction as an acquisition of Inspired Group Holdings Limited by Inspired Energy Plc, the transaction has been treated as a deemed acquisition of Inspired Energy Plc by the trading subsidiary, Inspired Energy Solutions Limited, to reflect the substance of the transaction. In the financial information presented herein, this treatment has the effect of:

§ showing the financial results of the trading subsidiary in the Group Income Statement throughout the period as if no transaction had occurred

§ treating the cash consideration paid of £7.38 million as return of equity to the shareholders of Inspired Energy Solutions Limited in the Group's Statement of Financial Position

§ applying a deemed cost of listing to the Group Income Statement which is calculated as the difference between the value of the consideration shares issued (£4.9 million) and the net assets of Inspired Energy Plc immediately prior to the acquisition (£4.0 million)

§ allocating the costs of the acquisition and the listing as follows:

-  share issue costs - £430k, charged to the merger relief reserve

-  listing costs - £578k, charged to the Group Income Statement

-  debt issue costs - £140k, amortised over the term of the loan

Statutory Results

Revenue in the six months to 31 December 2011 was £1.53m (Year ended 30 June 2011: £2.87m). Operating loss for the period was £0.59m (Year ended 30 June 2011: profit £1.25m).  Earnings before deemed cost of listing, fees associated with listing and depreciation for the period, was £0.91m (Year ended 30 June 2011: £1.26m). Loss per share for the period was 0.26 pence (Year ended 30 June 2011: earnings per share 0.28 pence). Adjusted earnings per share (excluding the deemed cost of listing and fees associated with listing) was 0.20 pence (Year ended 30 June 2011: 0.28 pence).

Administrative expenses (excluding deemed cost of listing, fees associated with listing) in the financial period were £0.5m (Year ended 30 June 2011: £1.35m). Finance expenditure for the period was £0.01m (Year ended 30 June 2011: income £0.02m) relating to the period post Admission and the drawdown of the £3.5m senior debt facility.

Loss before tax for the period was £0.60m (Year ended 30 June 2011: profit £1.27m).

Cash generated from operations during the financial year was £0.04m (Year ended June 2011:  £1.40m)

Group cash balances at the year-end amounted to £1.26m, with a net debt position of £2.16m (30 June 2011: net funds £1.03m). This reflects:

•    A new £3.50m facility taken on to part fund the reverse acquisition and its return on equity to the original shareholders;

•    An equity placing at the time of the reverse acquisition of £3.78 million, in addition to £0.22m raised prior to Admission;

•   £5.49m net cash expended to part fund the reverse acquisition (including the repayment of directors loans of £1.89m); and

•   Fees and associated deal costs (including debt issue costs) of £1.15m in relation to the acquisition and Admission to AIM.

Unaudited Proforma Results

Following the change of year end for Inspired Energy Solutions Limited from June to December, the results included within this report and accounts reflect the 6 months to 31 December 2011.  Accordingly, we believe that it is appropriate to present unaudited proforma results for the 12 months ended 31 December 2011.  These are set out below:

		Unaudited proforma 12 months ended 31 December 2011
		£'000
Revenue		3,010
Gross Profit		2,744
Administrative Expenses (excluding deemed cost of listing and fees associated with listing and other professional fees)		894
Earnings before deemed cost of listing, fees associated with listing, other professional fees and depreciation		1,850

David Foreman

Finance Director

23 March 2012

Group Income Statement for the six months ended 31 December 2011

				Six months ended 31 December 2011	Year ended 30 June 2011
				£	£
Revenue				1,527,623	2,865,977
Cost of sales				(125,876)	(264,102)
Gross profit				1,401,747	2,601,875
Administrative expenses				(1,993,797)	(1,353,536)
Operating (loss)/profit				(592,050)	1,248,339
Analysed as:
Earnings before deemed cost of listing, fees associated with listing and depreciation				907,756	1,263,526
Deemed cost of listing				(911,005)	-
Fees associated with listing				(578,460)	-
Depreciation				(10,341)	(15,187)
				(592,050)	1,248,339
Finance (expenditure)/income				(14,584)	20,550
(Loss)/profit before income tax				(606,634)	1,268,889
Income tax expense				(240,247)	(358,812)
(Loss)/profit for the period and total comprehensive income				(846,881)	910,077
Attributable to:			Note
Equity holders of the company				(846,881)	910,077
Basic (loss)/earnings per share attributable to the equity holders of the company (pence)			3	(0.26)	0.28

The loss for the period per the income statement is also the total comprehensive loss for the period and consequently no separate statement of comprehensive income is presented.

All revenue and costs originate from continuing activities.

Group Statement of Financial Position at 31 December 2011

		31 December 2011	30 June 2011
		£	£
ASSETS
Non-current assets
Property, plant and equipment		112,045	74,299
		112,045	74,299
Current assets
Trade and other receivables		922,210	1,268,267
Cash and cash equivalents		1,258,403	1,034,418
		2,180,613	2,302,685
Total assets		2,292,658	2,376,984
LIABILITIES
Current liabilities
Trade and other payables		404,200	314,807
Bank borrowings		507,000	-
Current tax liability		634,700	420,059
		1,545,900	734,866
Non-current liabilities
Bank borrowings		2,852,976	-
Trade and other payables		11,239	15,379
Deferred tax liability		17,292	12,355
		2,881,507	27,734
Total liabilities		4,427,407	762,600
Net (liabilities)/assets		(2,134,749)	1,614,384
EQUITY
Share capital		442,690	142
Share premium account		137,950	-
Merger relief reserve		7,900,023	-
Retained earnings		767,361	1,614,242
Reverse acquisition reserve		(11,382,773)	-
Total (deficit)/equity		(2,134,749)	1,614,384

Group Statement of Cash Flows for the six months ended 31 December 2011

		Six months ended 31 December 2011	Year ended 30 June 2011
		£	£
Cashflows from operating activities
(Loss)/profit before income tax		(606,634)	1,268,889
Non-cash adjustments
Depreciation		10,341	15,187
Deemed cost of listing		911,005	-
Loss on disposal of property, plant and equipment		4,563	2,834
Cash flows before changes in working capital		319,275	1,286,910
Movement in working capital
Increase in trade and other receivables		(296,284)	(232,809)
Increase in trade and other payables		19,412	352,244
Cash generated from operations		42,403	1,406,345
Income taxes paid		(20,669)	(354,505)
Net cashflows from operating activities		21,734	1,051,840
Cashflows from investing activities
Proceeds from equity fundraising		4,000,001	-
Return on equity to original shareholders		(7,382,915)	-
Increase in directors' loan accounts		(1,246,798)	-
Repayment of directors' loan accounts		1,889,139	-
Payments to acquire property, plant and equipment		(52,651)	(76,420)
Proceeds from disposal of property, plant and equipment		-	43,000
		(2,793,224)	(33,420)
Cashflows from financing activities
New bank loans (net of debt issue costs)		3,429,958	-
Fees charged to merger reserve		(430,343)	-
Receipts from new hire purchase agreements		-	24,840
Dividends paid		-	(58,500)
Repayment of hire purchase agreements		(4,140)	(46,092)
		2,995,475	(79,752)
Net increase in cash and cash equivalents		223,985	938,668
Cash and cash equivalents brought forward		1,034,418	95,750
Cash and cash equivalents carried forward		1,258,403	1,034,418

Group Statement of Changes in Equity for the six months ended 31 December 2011

	Share Capital	Share Premium Account	Merger Relief Reserve	Retained Earnings	Reverse Acquisition Reserve	Total Shareholders Equity/ (Deficit)
	£	£	£	£	£	£
Balance at 1 July 2010 as restated	142	-	-	762,665	-	762,807
Profit and total comprehensive income for the year	-	-	-	910,077	-	910,077
Transaction with owners:
- equity dividends	-	-	-	(58,500)	-	(58,500)
Balance at 30 June 2011 as restated	142	-	-	1,614,242	-	1,614,384
Loss and total comprehensive loss for six months ended 31 December 2011	-	-	-	(846,881)	-	(846,881)
Shares issued by legal parent prior to reverse acquisition	1,610	216,840	-	-	-	218,450
Bonus issue by legal parent prior to reverse acquisition (7 November 2011)	78,890	(78,890)	-	-	-	-
Deemed cost of listing	-	-	-	-	911,005	911,005
Return on equity to original shareholders (28 November 2011)	-	-	-	-	(7,382,915)	(7,382,915)
Shares issued by legal parent on reverse acquisition (28 November 2011)	362,190	-	8,330,366	-	-	8,692,556
Share issue expenses	-	-	(430,343)	-	-	(430,343)
Reverse acquisition adjustment	(142)	-	-	-	(4,910,863)	(4,911,005)
Transactions with owners	442,548	137,950	7,900,023	-	(11,382,773)	(2,902,252)
Balance at 31 December 2011	442,690	137,950	7,900,023	767,361	(11,382,773)	(2,134,749)

Merger relief reserve

Merger relief reserve represents the premium on the shares issued to acquire Inspired Group Holdings Limited in accordance with the provisions of s612 of the Companies Act 2006.

Reverse acquisition reserve

As disclosed in Note 1, the reverse acquisition reserve relates to the reverse acquisition between Inspired Energy Solutions Limited and Inspired Energy plc on 28 November 2011.

1.   Accounting Policies

Basis of Preparation

During the period, the Group has adopted for the first time International Financial Reporting Standards as adopted by the European Union.

The Group financial statements have been prepared under the measurement and recognition criteria of IFRS as adopted by the European Union and in accordance with IFRS1 "First-time Adoption of International Financial Reporting Standards". The date of transition to IFRS was 1 July 2010. The disclosure required by IFRS 1 concerning the transition from United Kingdom Generally Accepted Accounting Practice to International Financial Reporting Standards is included in note 4.

While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS. 

The preliminary results for the six months ended 31 December 2011 were approved by the board of directors on 23 March 2012.

The financial information set out in this preliminary announcement does not constitute the Group's financial statement for the six months ended 31 December 2011 and the twelve months ended 30 June 2011.  The financial information for the year ended 30 June 2011 has been extracted from the statutory accounts for that year, as amended for IFRS transition. 

The financial information set out in this announcement for the six months ended 31 December 2011 has been extracted from the statutory accounts for that period.  The auditors reported on those accounts; their report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.  The statutory accounts for the period ended 31 December 2011 will be delivered to the Registrar of Companies following the Company's annual general meeting.

Going Concern

The Group, together with its ultimate parent company, has sufficient financial resources to continue to operate for the foreseeable future. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

The Group's forecasts, which have been prepared for the period to 31 December 2014 after taking account of the contracted orders book, future sales performance, expected overheads, capital expenditure and debt service costs, show that the Group should be able to operate profitably and within the current financial resources available to the Group.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group Financial Statements.

Critical accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Group financial statements are disclosed below. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the present circumstances.

Critical judgement

Reverse acquisition of Inspired Group Holdings Limited and its subsidiary undertaking Inspired Energy Solutions Limited

The directors consider that the share for share exchange and payment of cash consideration between Inspired Energy plc and Inspired Energy Group Holdings Limited and its subsidiary undertaking (Inspired Energy Solutions Limited) to be a reverse acquisition, as Inspired Energy Solutions Limited is considered the acquirer.  Further details of the basis of consolidation and how the directors developed the most appropriate accounting policy is outlined below.

The difference between the consideration shares transferred in the business combination ("Consideration Shares") and the fair value of the net assets acquired has been charged to the Group Income Statement as a deemed cost of listing.

Further details of the basis of consolidation and accounting policy are outlined below.

Critical estimate

Admission and issue costs

Management have reviewed the expenditure related to its admission to AIM and, where appropriate, made judgements as to how much of the expenditure related to the admission of existing shares, and should therefore be charged to the Group Income Statement, and how much related to the issue costs and admission of new shares, and should therefore be charged against the merger relief reserve.

Basis of consolidation

Initial Public Offering and Reverse acquisition

On 24 November 2011, the company, Finemore Energy Limited, re-registered as a public limited company and consequently changed its name to Inspired Energy plc.   On 28 November 2011, the Company became the legal holding company of Inspired Group Holdings Limited and its trading subsidiary undertaking Inspired Energy Solutions Limited via a share for share exchange and the payment of cash consideration of £7,382,915 (Initial Public Offering and reverse acquisition). 

This transaction is deemed outside the scope of IFRS 3 (Revised 2008) and not considered a business combination because the directors have made a judgement that prior to the transaction, Finemore Energy Limited was not considered a business under the definition of IFRS 3 Appendix A and the application guidance in IFRS 3.B7-B12 due to Finemore Energy Limited being a shell company that had no processes or capability for outputs (IFRS 3.B7). 

On this basis, the directors have developed an accounting policy for this transaction, applying the principles set out in IAS 8.10-12, in that the policy adopted is:

·     relevant to the users of the financial information

·     more representative of the financial position, performance and cash flows of the Group

·     reflects the economic substance of the transaction, not merely the legal form

·     free from bias, prudent and complete in all material aspects

The accounting policy adopted by the directors applies the principles of IFRS 3 in identifying the accounting acquirer and the presentation of the consolidated financial statements of the legal parent (Inspired Energy plc) as a continuation of the accounting acquirer's financial statements (Inspired Energy Solutions Limited).  This policy reflects the commercial substance of this transaction as follows:

·     the creation of  Inspired Energy plc was to enable the initial public offering.  In substance, Inspired Energy plc was not deemed to be the acquiring entity

·     the original shareholders of the subsidiary undertakings are the most significant shareholders post initial public offering, owning 46.2% of the issued share capital

·     the cash consideration paid as part of the initial public offering returned equity to the original shareholders of the subsidiary undertaking and as a consequence diluted their shareholding to 46.2%

Accordingly, the following accounting treatment and terminology has been applied in respect of the reverse acquisition:

·     the asset and liabilities of the legal subsidiary Inspired Energy Solutions Limited are recognised and measured in the Group financial statements at the precombination carrying amounts, without reinstatement to fair value

·     the retained earnings and other equity balances recognised in the Group financial statements reflect the retained earnings and other equity balances of Inspired Energy Solutions Limited immediately before the business combination, and the results of the period from 1 July 2011 to the date of the business combination are those of Inspired Energy Solutions Limited. However, the equity structure appearing in the Group financial statements reflects the equity structure of the legal parent, including the equity instruments issued under the share for share exchange to effect the business combination

·     comparative numbers presented in the Group financial statements are those reported in the financial statements of the legal subsidiary for Inspired Energy Solutions Limited the year ended 30 June 2011

·    

·     the cost of the combination has been determined from the perspective of Inspired Energy Solutions Limited. The fair value of the shares in Inspired Energy Solutions Limited has been determined from the issue of Inspired Energy Plc shares on initial public offering for 3 pence per share. The difference between the value of the consideration shares of £4,911,005 and the fair value of the Inspired Energy Plc net assets acquired of £4,000,000 has been charged to the Group Income Statement as a deemed cost of listing amounting to £911,005 with a corresponding entry to the reverse acquisition reserve

·     the cash consideration of £7,382,915 paid as a result of the transaction has been debited to a reverse acquisition reserve as in substance, this represents a "return of equity to the original shareholders" in relation to the reverse acquisition as opposed to consideration for the combination or an equity dividend

Inspired Energy plc had no significant assets, other than cash and a bank loan, nor other liabilities or contingent liabilities of its own at the time that the share for share exchange took effect. 

Transaction costs of equity transactions relating to the issue and listing of the Company's shares are accounted for as a deduction from equity where they relate to the issue of new shares and listing costs are charged to the Group Income Statement as an exceptional item within administrative expenses.

Consolidation model

The Group financial statements also incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Inter-company

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting policies of the subsidiaries have been established to ensure consistency with the policies adopted by the Group.

Revenue Recognition

Revenue comprises of commissions received from energy suppliers, net of value added tax, for the procurement as an agent of fixed, flexible or risk managed energy contracts with end customers in accordance with IAS 18.8.  Commission has been recognised as follows:

Direct billing contracts between energy supplier and end customers:

Commission is recognised in line with actual energy usage.  Commission is invoiced to Energy suppliers in arrears following consumption of energy by end customers.  Commission rates per Kwh are derived from agreed contractual rates with Energy suppliers.

Up front payment contracts between energy supplier and end customers:

Commission is recognised in line with estimated energy usage as agreed with the end customer based on historic usage data.  Revenue is recognised on straight line basis over the life of the contract when it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Contractual commissions that cannot be reliably measured until final usage reconciliations are performed with the energy suppliers are only recognised on completion of the usage reconciliation. 

Commission rates per Kwh are derived from agreed contractual rates with Energy suppliers.

Cost of sales

Cost of sales represents internal or external commissions paid in respect of sales made plus the cost of obtaining sales leads, including the purchase of telesales data.  Commissions paid in respect of sales made are recognised on a straight line basis over the life of the contract.  The cost of obtaining sales leads is expensed as incurred.  

Property, plant and equipment

Plant and equipment is stated at historical cost less depreciation plus and any provision for impairment. Depreciation of assets is calculated using either the straight line or the reducing balance method to allocate their cost over their estimated useful lives as follows:

§ Fixtures and fittings: 20% reducing balance

§ Motor vehicles: 25% reducing balance

§ Plant and equipment: 25% reducing balance

§ Computer software: 5 years straight line

§ Leasehold improvements: 10 years straight line

Material residual value estimates are updated as required, but at least annually. Gains and losses on disposal are determined by comparing net proceeds with carrying amount and are included in the Group Income Statement.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash in hand and demand deposits together with other short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Short term deposits are defined as deposits with an initial maturity of three months or less.

Trade Payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Current Tax

The tax currently payable is based on the taxable profit for the period. Taxable profit differs from profit as reported in the Group Income Statement because it excludes items of income and expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred Tax

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. Deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Temporary differences include those associated with shares in subsidiaries, if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward are assessed for recognition based on their recoverability.

Deferred tax liabilities that are recognised are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Group Income Statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

Share Based Payments

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example profitability and sales growth targets).

Share options are valued at the date of grant using the Black-Scholes option pricing model and are charged to operating profit over the vesting period of the award with a corresponding credit to the 'other reserves'. During the period, 18,592,970 share options were granted on 28 November 2011 and not exercisable until the date that the Group publishes its audited accounts for the year ended 31 December 2012 and therefore, the current year charge has not been recognised on grounds of materiality.

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to share capital and where appropriate share premium account.

Impairment

The carrying values of assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. 

The recoverable amount of an asset is the higher of its fair value less costs to sell, and its value in use.  Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.

An impairment loss is recognised in the Group Income Statement whenever the carrying amount of an asset or cash-generating unit exceeds its recoverable amount.

Operating Lease Commitments

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profit on a straight line basis over the period of the lease.

EFRBS

In 2010, the Group established an employer financed retirement benefit scheme for the benefit of its officers, employees and their wider families, The Inspired Energy Solutions Limited Employer Financed Retirement Benefit Scheme ("the Scheme").

Contributions to the scheme are recognised as an expense in the income statement as incurred.

The Group does not include the assets and liabilities of the Scheme on its balance sheet to the extent that it considers that it will not retain any future economic benefit from the assets of the Scheme and will not have control of the rights or other access to those future economic benefits.

Financial assets

The Group currently has only loans and receivables recognised within the financial information.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.

Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group.

Financial liabilities

The Group's financial liabilities comprise bank loans, and trade and other payables. Financial liabilities are obligations to pay cash or other financial assets are recognised when the Group becomes a party to the contractual provisions of the instruments.

Hire purchase leases

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Dividends

Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.

2.   Segmental Information

The Group's Board of Directors is considered to be the Chief Operating Decision Maker (CODM) and the Board of Directors review the business based on the nature of the service provided. There is only one service sold being the supply of energy procurement advice, within the United Kingdom. The financial information provided to the CODM is under the same measurement basis as the group financial statements. Consequently, management have identified one segment, energy procurement advice, and so no further segmental information is required.

3.   (Loss)/Earnings Per Share

The (loss)/earnings per share is based on the net (loss)/profit for the period attributable to ordinary equity holders divided by the weighted average number of ordinary shares outstanding during the period.

The weighted average number of ordinary shares for the period ended 31 December 2011 assumes that the 190,451,666 ordinary shares issued in relation to the reverse acquisition of Inspired Energy Solutions Limited existed for the entire period. The consideration shares have been included since 28 November 2011, the date of the reverse acquisition, and all shares have been included in the computation based on the weighted average number of days since issue.

				Six months ended 31 December 2011	Year ended 30 June 2011
				£	£
(Loss)/profit attributable to equity holders of the Group				(846,881)	910,077
Deemed cost of listing				911,005	-
Fees associated with listing				578,460	-
Adjusted profit attributable to equity holders of the Group				642,584	910,077
Weighted average number of ordinary shares in issue				326,868,482	326,868,482
Diluted weighted average number of ordinary shares in issue				342,362,623	326,868,482
Basic (loss)/earnings per share (pence)				(0.26)	0.28
Diluted (loss)/earnings per share (pence)				(0.26)	0.27
Adjusted basic (loss)/earnings per share (pence)				0.20	0.28
Adjusted diluted (loss)/earnings per share (pence)				0.19	0.27

               
The weighted average number of shares in issue for the adjusted diluted earnings per share include the dilutive effect of the 18,592,970 share options in issue to senior staff of Inspired Energy Plc.

The share options in issue are anti-dilutive in respect of the basic loss per share.

Adjusted (loss)/earnings per share represents the (loss)/earnings per share, as adjusted to remove the effect of the deemed cost of listing and the fees associated with listing which have been expensed to the income statement in the period.

4.   IFRS Transition

As stated in basis of preparation, this is the Group's first financial information prepared in accordance with IFRS as adopted by the European Union.

As stated in note 1, the Company became the legal holding company of Inspired Energy Solutions Limited via a share for share exchange and equity distribution.

The share for share exchange has been accounted for as a reverse acquisition. On this basis, the Group financial statements have been issued in the name of the legal parent Inspired Energy plc (formerly Finemore Energy plc). However the company it represents in substance is a continuation of the financial information of the legal subsidiary, because after the transaction the former Inspired Energy Solutions Limited shareholders hold 46.2% of the share capital of the legal parent which at that time had no business as defined under reverse acquisition methodology. As a consequence, the comparative numbers represented in the Group financial statements are those reported in the financial statements of the legal subsidiary Inspired Energy Solutions Limited for the year ended 30 June 2011.

An explanation on how the transition from UK GAAP to IFRS has affected the Group's financial position, financial performance and cash flows is set out below for Inspired Energy Solutions Limited:

The adoption of IFRS in relation to Inspired Energy plc's legal subsidiary Inspired Energy Solutions Limited has resulted in some reordering of the presentation of certain balances within both the Group Income Statement, Group Statement of Financial Position and Group Statement of Cash Flows .

However, as part of the procedures to review IFRS transition, the directors identified a prior year adjustment for revenue and commission costs recognition resulting in an increase to reported revenues for the year ended 30 June 2011 of £4,630 and a decrease to profit for the year ended 30 June 2011 of £31,652. 

The following tables set out a reconciliation of the Group Income Statement for the year ended 30 June 2011 and the Summary of Financial Position and equity of the Group as at 30 June 2011 and 1 July 2010 from UK GAAP as previously reported to IFRS as described in the statement of accounting policies:

Group Income Statement for the year ended 30 June 2011

	UK GAAP	Revenue and Commission  Recognition Adjustment	IFRS
	£	£	£
Revenue	2,861,347	4,630	2,865,977
Cost of sales	(92,717)	(171,385)	(264,102)
Gross profit	2,768,630	(166,755)	2,601,875
Administrative expenses	(1,488,639)	135,103	(1,353,536)
Operating profit	1,279,991	(31,652)	1,248,339
Finance income	20,550	-	20,550
Profit before income tax	1,300,541	(31,652)	1,268,889
Income tax expense	(358,812)	-	(358,812)
Profit for the year	941,729	(31,652)	910,077

Summary of Financial Position at 30 June 2011

	UK GAAP	Revenue and Commission  Recognition Adjustment	IFRS
	£	£	£
ASSETS
Non-current assets
Property, plant and equipment	74,299	-	74,299
Current assets
Trade and other receivables	1,030,937	237,330	1,268,267
Cash and cash equivalents	1,034,418	-	1,034,418
	2,065,355	237,330	2,302,685
Total assets	2,139,654	237,330	2,376,984
LIABILITIES
Current liabilities
Trade and other payables	(289,099)	(25,708)	(314,807)
Current tax liability	(379,732)	(40,327)	(420,059)
	(668,831)	(66,035)	(734,866)
Non-current liabilities
Trade and other payables	(15,379)	-	(15,379)
Deferred tax liability	(12,355)	-	(12,355)
	(27,734)	-	(27,734)
Total liabilities	(696,565)	(66,035)	(762,600)
Net assets	1,443,089	171,295	1,614,384
EQUITY
Share capital	142	-	142
Retained earnings	1,442,947	171,295	1,614,242
Total equity	1,443,089	171,295	1,614,384

Summary of Financial Position at 1 July 2010

	UK GAAP	Revenue and Commission  Recognition Adjustment	IFRS
	£	£	£
ASSETS
Non-current assets
Property, plant and equipment	58,900	-	58,900
Current assets
Trade and other receivables	798,128	243,275	1,041,403
Cash and cash equivalents	93,120	-	93,120
	891,248	243,275	1,134,523
Total assets	950,148	243,275	1,193,423
LIABILITIES
Current liabilities
Trade and other payables	(171,232)	-	(171,232)
Current tax liability	(182,294)	(40,327)	(222,621)
	(353,526)	(40,327)	(393,853)
Non-current liabilities
Trade and other payables	(36,013)	-	(36,013)
Deferred tax liability	(750)	-	(750)
	(36,763)	-	(36,763)
Total liabilities	(390,289)	(40,327)	(430,616)
Net assets	559,859	202,948	762,807
EQUITY
Share capital	142	-	142
Retained earnings	559,717	202,948	762,655
Total equity	559,859	202,948	762,807

-Ends-

 

END

 

 

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