17 April 2015

Inspired Capital plc

("Inspired" or the "Company")

Preliminary Results for the year ended 31 December 2014

Inspired Capital plc, a leading provider of customer focused financial solutions to SMEs, is pleased to announce its preliminary results for the year ended 31 December 2014.

Summary Financials

·      Number of clients up 36.3% to 1,323 (2013: 971)

·      Loan book¹ increased by 60.8% to £66.9 million (2013: £41.6 million)

·      Loan book funded by Group cash £25.8 million (2013: £8.2 million) and borrowing facilities £43.5 million (2013: £33.0 million)

·      Back to back funding facility increased to £50 million during 2014

·      Further increase in back to back funding facility to £75 million following agreement with the British Business Bank in March 2015 enabling significant growth in invoice factoring and discounting.

·      Revenue up by 21.8% to £16.2 million (2013: £13.3 million²)

·      Gross profit up by 26.1% to £11.6 million (2013: £9.2 million²)

·      Trading profit up to £3.3 million³ (2013: £0.7 million²)

·      Loss before tax of £0.5 million (2013: £0.8 million⁴)

The Group has identified an accounting error in its recently acquired business, Ultimate Finance Group and has now quantified the error. Consequently the Group accounts for the period ended 31 December 2013 have been restated to reflect previously unrecorded liabilities.  The majority of the restatement relates to the pre-acquisition period and accordingly goodwill has increased by £1.1m with £0.4m being recorded in the prior period loss. A further adjustment of £0.4m is reflected in the results for 2014 and the total recorded provision for this liability at 31 December 2014 is £1.9m.

1         Loan book comprises gross receivables before bad debt provision and is stated inclusive of credit balances.

2         2013 comparatives are those of Ultimate Finance Group although this period includes a period prior to its acquisition by the Group and remains unaudited.  They are included to enable a better understanding of the Group's performance during the period.

3         Before Group costs, reorganisation costs, amortisation and tax.

4         As restated - see Note 6.

Business highlights

·      Key senior management appointments made including CEO, COO, Group Head of Marketing and Head of Sales

·      Increased marketing investment and tripled sales force supporting existing products

·      Continued testing new unsecured product (www.ultimatebusinesscash.co.uk) with late 2015 launch targeted

·      Entered Collaborative Agreement (February 2015) with Proactis which provides exclusive access to market  spot/single invoice finance product to captive distribution channel; targeting H2 2015 launch

·      Banking licence application initiated

Matt Cooper, Chairman of Inspired, commented: "We acquired Ultimate Finance Group ("UFG" or "Ultimate") in September 2013 with a clear long term strategy to be the leading supplier of a broad range of financial products catering specifically to the SME market. We're pleased with the results we've achieved this year, which prove that significant growth can be achieved in the acquired business, but recognise that they are just the start of our journey. We expect this growth to accelerate in the future. Simultaneously, we will continue to lay the foundation for growth in new product ranges and distribution channels, as well as focus on the development of our long-term brand.

There continues to be clear demand for a provider of innovative, flexible financial services for SMEs and the Board is confident that we are well positioned to continue to grow significantly."

Brian Cole, Chief Executive Officer of Inspired, commented: "I am delighted to have joined a company with such an ambitious vision in the SME lending market.  Our strategy is to transform that market, where currently only one in five (of the 4 million) SMEs borrow. We will do this by innovating product, leveraging expanded marketing channels and sophisticated credit techniques, wrapped with a mass customer-focused brand, in order to reach new customer segments with a more appropriate financing solution for their many and varied needs.  We began this journey last year by rapidly scaling the UFG platform which we acquired for its range of products, deep secured lending credit history and fit-for-purpose technology infrastructure.  In addition to growing the loan book by 60.8%, we laid the foundations for our first and second expansions along the product and marketing channel dimensions with the on-going testing of Ultimate Business Cash, a direct marketed and digitally served unsecured working capital line, and the collaboration agreement we reached with Proactis, as previously announced.

Still, 2014 marked only the beginning steps of our journey to disrupt the SME lending market and we are on our way to becoming a multi-billion pound market leader."

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About Inspired Capital plc

Inspired Capital is building by organic growth and acquisition a new customer-friendly force in SME lending by deploying long term capital. There is an opportunity to grow considerably in an underserved sector, with SMEs traditionally finding credit difficult to access from the major clearing banks that often focus on the security and stability of retail and larger corporate lending.

Chairman's statement

The year ended 31 December 2014 has been a successful year for the Group, the business has grown strongly and great progress has been made in laying the foundations for further sustainable growth in the future. We've made significant strides in strengthening our management team, improving our customer service, and growing our sales force. Client numbers and amounts lent to SMEs have grown to a record level for the Group, and we believe that much more significant growth lies ahead. I look forward to the opportunities and challenges that lie ahead of us.

Financial performance

The Group's trading profit for the year increased from £0.7 million² to £3.3 million³ reflecting significant growth in revenues, investment in the infrastructure and people required for future growth and restatement of the prior year figures.  Profit before tax, amortisation and share based payment charge was £0.4 million (2013: restated loss £0.4 million). We intend to continue to reinvest profit before non-cash items into the future of the business in order to maximise our success. During the year ended 31 December 2014, the Group's loss before tax from continuing activities was £0.5 million (2013: restated £0.8 million). 

Strong growth has been achieved in all of the Group's products during the year and the Group's funding base has been strengthened by increasing facilities available to the Group.

In line with our policy of investing in the future of the business we maintain our policy of not paying a dividend for this year.

Review of operations

The first step-change phase of growth has begun and is yielding results.  With the additional resources available through the acquisition of UFG, the invoice finance sales force has tripled, enabling rapid scaling of Ultimate's core products. Further increases to the sales force supporting the asset, trade and construction products will boost these rapidly growing product lines. With a proven range of products and a scaled up, experienced and geographically distributed sales force in place, the Group will begin to increase marketing spend in the next period.

With several senior appointments, including Brian Cole as CEO, the retention of Ultimate co-founder, Jeremy Coombes as COO, Pierre Decote as Group Head of Marketing, and Nick Smith, formerly Regional Managing Director at Northern Region of Aldermore, as Head of Sales, Inspired Capital is already executing on its intention to establish a management team unlike that of any competitors in the SME lending space.  We expect to add several more key members to our management team over the next year, who will continue to represent the best talent from inside and outside the sector.

We continue to be committed to building a branded, large-scale, customer focussed SME lender. During the period, the team has moved forward with plans regarding future branding, marketing and funding strategies. We've begun to increase focus on marketing and PR, to develop a more sophisticated credit policy and launched early tests of unsecured product offerings. Going forward, these will all be key areas of focus. We have also made considerable progress toward broadening our funding base to support our growing business.

An independent assessment of the technology platform was conducted to determine the scalability of the existing infrastructure.  It was verified that the current platform could scale up to eight times the business size at the time of the review (circa £400 million loan book) in the same products and segments Inspired currently offers through its Ultimate brand.

As the UFG operation in Bristol shifts toward much greater ambitions, investment in various elements of infrastructure will be required. Investment plans include strengthening the overall governance and risk management processes in the business, automation of various manual processes and hiring across compliance and credit-oriented roles, to ensure application underwriting and service quality remain robust in support of much more significant client and loan volumes.

Corporate governance

Although full compliance with the UK Corporate Governance Code issued by the Financial Reporting Council in September 2012 is not compulsory for AIM companies, the Board has chosen to apply those principals considered appropriate, taking into consideration the Group's size and the recommendations contained in the QCA guidelines.  We intend to move towards full compliance over time and as the business grows and matures.

Board changes

Brian Cole joined the Board upon his appointment as CEO in May 2014. This has been a major step for the Group.  He is responsible for driving the business and implementing the strategy and is already achieving results.

Staff

Our employees remain our key asset to deliver the growth we envisage and the Board is very grateful for the hard work and dedication of all our staff.

Conclusion

We acquired UFG in September 2013 with a clear long term strategy to be the leading supplier of a broad range of financial products catering specifically to the SME market. We're pleased with the results we've achieved this year, but recognise that they are just the start of our journey, and prove that significant growth can be achieved in our core business. Simultaneously, we will continue to lay the foundation for growth in new product ranges and distribution channels, as well as focus on the development of our long-term brand.

There continues to be clear demand for a provider of innovative, flexible financial services for SMEs and the Board is confident that we are well positioned to continue to grow significantly.

MATT COOPER

Chairman

17 April 2015

Chief Executive Officer's statement

I am delighted to present my first statement as CEO.  I have joined a very ambitious company at a very exciting time and I look forward to driving it towards fulfilling its potential.  I am impressed by the team and the products that we have and we will be developing the team further and introducing exciting new products to the SME market place.

We have a highly experienced management team and we are targeting rapid growth in our loan book over the next few years. This growth will be driven by an array of innovative new products, a trusted mass-market brand and an offering across the SME spectrum via direct and intermediary channels. This scalable, customer focused offering seeks to be a disruptive force in what is a huge addressable market, which high street lenders have been largely withdrawing from.

UK SME lending is a vast market (circa £75 billion, excluding commercial mortgages for which we do not compete) currently being underserved by high street lenders constrained by capital adequacy rules and more risk-averse criteria. This has left an equity gap of £25-60 billion, which we are seeking to address. Only approximately 15% of SMEs have sought debt finance in the last six months, leaving an enormous unbanked population beyond this.

We believe we are set to rapidly grow our book, targeting a broader, range of SMEs supported by an enhanced, nationwide sales team and funding from a range of sources including banks, institutions and government sponsored organisations. A successful application for a UK banking licence (from 2016 onwards) would allow cheaper customer deposit funding to be held.   

We are executing on a three stage strategy to offer a flexible, more upmarket offering to profitable long term customers on a timely, recurring basis, developed through exceptional customer service and well designed, innovative and appropriately priced products.

Profits generated by the business in the coming years will be reinvested in order to scale the business. Investment will be in, inter alia, sales and marketing, infrastructure and IT.

Financial and business review

During the year ended 31 December 2014 the Group has made significant progress in all areas of its business strategy, increasing business volumes, successful recruitment, branding and IT strategy. Activity across all products has increased with strong lending growth achieved in the second half of the year. 

The unaudited restated comparative figures for the period ended 31 December 2013 include the results of UFG from the date of acquisition, 10 September 2013.

The following proforma financial information is provided to enable review of the Group's financial performance by including unaudited results of UFG for the year ended 31 December 2013 including pre-acquisition results of UFG.

Financial Review

Profit before tax, amortisation and share based payment charge was £0.4 million (2013: restated loss £0.4 million). We intend to continue to reinvest profit before non-cash items into the future of the business in order to maximise our success.  The profit for the year ended 31 December 2014 was £0.0 million (2013 15 months - loss £0.5 million). The Group acquired UFG in September 2013 and, as a result of a review of the accounting treatment of the subsidiaries, Group management has identified a systematic accounting error in the subsidiary Group which has led to unrecorded liabilities.  Accordingly the results for the year ended 31 December 2013 have been restated.

The adjusted operating profit from trading activities increased to £3.3 million (2013: £0.7 million as a result of growth in revenues following the injection of Group cash into operations enabling loan book growth, a tripling of the invoice finance sales force and the restatement of prior year results.  Client numbers increased by 36.3% to 1,323 (2013: 971) and the loan book increased 60.8% to £66.9 million (2013: 41.6 million). Gross profit percentage improved to 72% (2013: 69%).

Trading administrative costs have remained largely static at £8.3 million (2013: £8.5 million). primarily due increases in 2014 due to higher trading activity and investment in sales force or operational and credit staff being offset by the restatement of 2013 results. Group administrative expenses have increased by £1.3 million as a result of the investment in new senior staff, including myself, recruitment costs, share based payment charge and arrangement fees plus interest on the funding from Henderson.

Profit on initial investment in UFG in 2013

The profit on the initial investment in UFG represents the difference between the price paid in December 2012 to acquire 9.1 million ordinary shares in UFG at a cost of £1.7 million and the value of those shares at the date of acquisition of UFG.

Acquisition costs

Acquisition costs are written off in full at the time of incurring the cost and in 2013 these costs related to the acquisition of UFG.

Amortisation

Amortisation reflects the write down of the fair value attributed to the assets of UFG at the date of acquisition.

Finance income

Interest receivable on bank deposits was £0.1 million (2013: £0.3 million), reflecting lower deposit balances and the lower rates of interest achieved.

Dividends received

Dividends received are dividends received from UFG on the Company's investment in UFG prior to completing the full acquisition of UFG during 2013.

Outlook

The Board remains confident about the outlook for the business and its ambition to be a major player in the SME finance arena.  This will be achieved by reinvesting profits generated by the business into strategic expenditure in the areas of technology, marketing and management, in order to achieve significant future growth.

Business review

The Inspired product range

The Group's loan book is made up of the following products, with core invoice finance (discounting and factoring) complimented by a host of newer products launched over the last two years.

Going forward, Inspired is seeking to further add to the current suite with innovative new products, aimed at niche sectors, broadening the Group's footprint over the SME community. Products will be tested in advance of full release to help ensure commercial success.

Invoice Discounting

Offers immediate cash advances of up to 88% on approved unpaid invoices, usually within 24 hours. This is suitable for cases where SMEs wish to retain control and responsibility for credit control and collections. Both "confidential" and "disclosed" methods are offered, depending on whether the SME wishes to inform its client of the discounting.

Factoring

Offers immediate cash advances of up to 85% of approved unpaid invoices. Factoring differs from invoice discounting in that the Group assumes responsibility for credit control and collections from clients. This may be advantageous for some SMEs who feel the factor would better managing their credit control.

Asset Finance (launched 2010)

Helps SMEs spread the cost of buying business assets through hire purchase, typically over a 2-5 year period. Suitable assets to finance with hire purchase include cars, vans, coaches, HGVs, machinery, equipment and construction materials. By the end of the agreement, the asset is wholly owned by the SME in return for a regular, predictable cash payment over the set period.

Trade Finance (launched 2012)

A funding solution helping SMEs bridge the gap in payment for the import and export of goods. Customers typically trade in toys, clothing, gifts, accessories, sporting goods, jewellery, non-perishable goods or any other finished consumer products.

Construction Finance (launched 2013)

An adaption of invoiced discounting specifically tailored to the needs of the construction industry. Advances are generally 40% of unpaid invoices, providing a valuable funding facility for SMEs in the construction industry.

Ultimate Business Cash (launching 2015)

As part of the strategy to add to the product suite, Inspired are developing their first unsecured lending product via the Ultimate brand. UBC provides fast, easy to use and flexible short-term loans via a 24/7 online portal, with lending decisions and release of funds made the same day.

The product intends to be a fast and convenient way to arrange affordable short-term finance intended to help provide working capital for growth or to fill a temporary cash flow shortfall. UBC can advance between £1k - £50k for up to 52 weeks at a cost of 0.35% per week, without any hidden or arrangement fees, a competitive offering compared to the market.

Collaboration with PROACTIS

The Group has signed an exclusive collaboration agreement with PROACTIS Holdings PLC ("Proactis"), a global spend control and eProcurement solution provider to develop an accelerated payment facility ("APF") for UK SMEs (the "Collaboration Agreement").

The Proactis eProcurement Platform, a Global Trading Network ("GTN") that enables collaborative electronic trading between buyers and suppliers, will underpin the newly developed APF and Inspired Capital will accelerate the settlement of suppliers' pre-qualified invoices. Proactis estimates that £60-80 billion per annum is invoiced across its network, made up of circa 500 blue-chip buying organisations and circa 1million SME suppliers, thus representing a significant market opportunity.

Research conducted by the Federation of Small Businesses (FSB Dec 2014) suggests that almost one in five UK SMEs are affected by a "serious deterioration of payment practices".  The research suggests that buying organisations are increasingly exerting power on their supply chain with SMEs experiencing the adverse effects of extended terms of trade. This trend presents a significant opportunity for the provision of supply chain finance for SMEs, whilst allowing buyers to maintain their working capital position. The APF is an effective counter to this growing pressure on SMEs and will offer a solution to cash-pressurised companies at an affordable price. As a result, Proactis and Inspired Capital believe that the APF will have a high level of take-up within UK SMEs.

The collaboration with Proactis represents a commitment to a significant product innovation in line with Inspired's intent to offer a complete and diverse portfolio of financial services to SMEs. Whilst adding a route to the rapidly growing Single Invoice Finance market, the collaboration will also reduce Inspired's reliance on a traditionally broker dominated distribution model for its finance products.

The APF is expected to be launched to potential customers later this year. In the meantime, a commercial agreement, with a minimum term of 12 months, will be finalised ahead of market launch.

Review of Funding

The Group continues to have strong relationships with its key funding providers and is looking to increase the levels of funding available to it as well as diversify its funding partners in order to support future growth. The primary facility used by the Group is with Lloyds and this was increased to £50 million in October 2014.  In addition, loan facilities of £7 million were agreed with Henderson Global Investors, the Group's largest shareholder, during October 2014 of which £3.5 million has been drawn down and a further £3.5m is being drawn down.

During March 2015, the Group finalised a £25 million back to back facility with the British Business Bank Ltd ("BBB") as part of the government's initiative to support lending to UK small businesses.  This facility will be utilised for the Group's factoring business.

The Group has also initiated the banking license application process which, subject to regulatory approval, would enable it access additional and very affordable funding. It is anticipated that this process will be completed from 2016 onwards.

Conclusion

I am delighted to have joined a company with such an ambitious vision in the SME lending market.  Our strategy is to transform the SME lending market, where currently only one in five (of the 4 million) SMEs borrow.  We will do this by innovating product and leveraging expanded marketing channels and sophisticated credit techniques, wrapped with a mass, customer-focused brand, in order to reach new customer segments with a more appropriate financing solution for their many and varied needs. 

We began this journey last year, by rapidly scaling the UFG platform we acquired for its range of products, deep secured lending credit history, and fit-for-purpose technology infrastructure.  In addition to growing the loan book by 60.8%, we laid the foundations for our first and second expansions along the product and marketing channel dimensions with the on-going testing of Ultimate Business Cash, a direct marketed and digitally served unsecured working capital line, and the collaboration agreement we reached with Proactis, owners of a proprietary spend control platform through which we, exclusively, intend to serve single invoice products to its circa 1 million SME suppliers.

Still, 2014 marked only the beginning steps of our journey to disrupt the SME lending market and we are on our way to becoming a multi-billion pound market leader.

BRIAN COLE

Chief Executive Officer

17 April 2015

Condensed Consolidated Group income statement

for the year ended 31 December 2014

Condensed Consolidated Group statement of financial position

as at 31 December 2014

Condensed Consolidated Group statement of changes in equity

for the year ended 31 December 2014

Condensed Consolidated Group cash flow statement

for the year ended 31 December 2014

Notes to the Condensed Consolidated Group financial statements

for the year ended 31 December 2014

1.      Presentation of financial information

The financial information set out above does not constitute the company's statutory accounts for the year ended 31 December 2014 or for the period ended 31 December 2013, but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

The statutory accounts for 2014 will be delivered following the Company's annual general meeting.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), as adopted for use in the EU, this announcement does not itself contain sufficient information to comply with IFRSs. The same accounting policies have been applied to the production of the financial information contain herein as were used in the preparation of the last statutory accounts.

The Group has £10.4 million in cash and cash equivalents as at 31 December 2014 on which it relies to meet its pending commitments. Having considered reasonably possible variations to the Group's forecasts over a minimum period of twelve months the Directors confirm that they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the condensed group financial statements. 

2.      Revenue

All revenue is derived in the United Kingdom and relates to fees and discount income generated since the acquisition of Ultimate Finance Group plc and its subsidiaries.

3.      Segmental analysis

All of the Group's turnover and operating results arose in the UK from the principal activity of Ultimate Finance Group Limited and its subsidiaries(UFG) and the results are reviewed by the Board as a whole. All net assets are in one geographical area, being the UK. Inspired Capital plc provides a central administration function.

4.      Taxation

The charge for the period can be reconciled to the loss per the income statement as follows:

No deferred tax asset has been recognised in respect of excess tax losses of £63.2 million (2013: £62.0 million) on the basis that it is not anticipated that these losses will be utilised in the foreseeable future as they arose primarily from discontinued operations.

5.      Earnings per share

Basic and diluted

Basic earnings per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding any held in the Employee Benefit Trust (EBT) and shares held in Treasury, which are treated as cancelled:

The denominators used are the same as those detailed above.

6.      Restatement of prior year results

a) Hindsight review of goodwill at acquisition of Ultimate Finance Group plc

As a result of the hindsight review of the assets and liabilities acquired on the acquisition, goodwill on acquisition has been increased by £849,000, debtors reduced by £512,000 and creditors increased by £337,000.

b) Adjustment resulting from a systematic accounting error identified in the acquired Group.

The Group acquired Ultimate Finance Group in September 2013 and, as a result of a review of the accounting treatment of the subsidiaries, Group management has identified and has now quantified a systematic accounting error in the subsidiary Group which led to unrecorded liabilities.  Accordingly, the results for the period ended 31 December 2013 have been restated.

Effect on consolidated statement of comprehensive income for the period ended 31 December 2013

Restatement of consolidated statement of financial position

Current estimates of useful economic lives of intangible assets are as follows:

·      Goodwill - indefinite

·      Customer relationships - three years

·      Product development - five years after product is ready for launch

8.      Property, plant and equipment

9.      Loans and other receivables

A summary of the customer loans and receivables is shown below:

Provision for impairment

10.    Trade and other payables

11.    Share capital

The deferred shares are non-convertible and do not entitle the holders thereof to participate in dividends or in the capital of the Company.

12.    Share premium

13.    Own shares

Following the successful completion of the Capital Reduction Scheme on 14 December 2011, the Company commenced the Share Buy-Back scheme. By 31 December 2014, the Company had acquired 44,951,580 of the total permitted 48,637,392 ordinary shares and these shares are held in Treasury.

14.    Notes to the Condensed Group cash flow statement

15.    Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.

Trading transactions

Amounts outstanding at the balance sheet date relate primarily to the movement of cash and cash equivalents:

The above companies are related parties of the Group because Inspired Capital plc owns either directly, or indirectly, the entire issued share capital of those companies.

The amounts outstanding are unsecured and will be settled in cash. Inspired Capital plc has confirmed its continuing support to Renovo Limited for the foreseeable future.

Remuneration of key personnel

The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.

Directors' transactions

There were no transactions with key management personnel requiring to be disclosed under Schedule 6 of the Companies Act 2006 or IAS 24.

The Henderson facility

The Henderson Facility is unsecured and will charge a rate of 0.7% per calendar month or part thereof, compounded, on any balances drawn down. The Group will also be charged an arrangement fee of 3.5% on any balance drawn down from the Facility, as well as a 3.5% fee on any balances repaid after 31 January 2015. The Henderson Facility will be repayable over a one year period or following an equity fundraising on AIM raising a minimum of £10 million net of fees. As a result of The Alphagen Volantis Fund Limited, managed by Henderson, and Jamie Brooke being related parties under the AIM Rules for Companies, the directors excluding Jamie Brooke, having consulted with the Group's nominated adviser, consider the terms of the Henderson Facility to be fair and reasonable insofar as the Group's shareholders are concerned.