TIDMSPEC
RNS Number : 6186X
Inspecs Group PLC
27 April 2023
27 April 2023
INSPECS Group plc
("INSPECS" or "the Group")
Preliminary unaudited results for the year ended 31 December
2022
INSPECS Group plc, a leading designer, manufacturer, and
distributor of eyewear (sunglasses, optical frames and lenses)
today announces its unaudited preliminary results for the year
ended 31 December 2022.
Financial and Operational Highlights
-- Group revenue of $248.6m (2021: $246.5m)
-- Group revenue on a constant exchange rate basis(1) of
$265.7m (2021: $246.5m)
-- Gross profit up 5.6% to $122.3m (2021: $115.8m)
-- Adjusted Underlying EBITDA(1) of $19.2m (2021: $27.6m)
-- Loss before tax of $9.5m (2021: loss before tax $9.1m)
-- 10.7m frames sold globally (2021: 10.4m)
-- Increased sales of "Branded" frames worldwide including
Superdry, Botaniq, O'Neill and Saville Row Titanium
-- Research and development department, Skunkworks, generated
first commercial revenues which will continue to grow
in 2023 and beyond
-- Implemented a number of cost reductions to improve operational
efficiencies
-- Environmental, Social and Governance ("ESG") Board committee
established in 2022, with an aim to further integrate
ESG throughout INSPECS' corporate strategy
Current Trading & Outlook
-- Q1 FY23 in line with our expectations, driven by a rebound
in European markets and continued growth in other markets
-- Exciting opportunities ahead, including the launch of
key brands Barbour and Superdry in new markets including
North America and Asia
-- Continued focus and investment in new optical technology
and innovation
-- Well placed to capitalise on future growth as further
work is undertaken to synergise product design, manufacturing
and distribution
-- Expansion of Vietnam manufacturing facility expected to
commence in H2 2023
1. Constant exchange rates and Adjusted Underlying EBITDA are
non-statutory measures. Please refer to note 4 for details.
Richard Peck, Chief Executive Officer of INSPECS Group plc,
commented:
"I am pleased to report that the Group delivered record sales
and increased the number of frames sold in what can only be
described as a year of two halves. Whilst I assumed the role of CEO
on 1 December, I have been on the INSPECS Board since IPO and have
experienced the progress the Group made during the year in review.
External headwinds, combined with the ongoing efforts to enhance
operations at Norville, meant the Board needed to implement
operational efficiencies and I am pleased to say that the
initiatives put in place are having a positive effect.
"Sales of our branded products including Botaniq, Superdry and
Savile Row Titanium, gained momentum during the year, and the
expansion of branded products is a core part of our growth strategy
moving forward. Elsewhere, Skunkworks delivered inaugural revenues
and we look forward to growing this revenue stream as the research
and development team continue to deliver innovative new eyewear
solutions. Expansion of our manufacturing facility in Vietnam
remains on track, with construction expected to start in the second
half of 2023.
"Operating in a resilient growing market, I am confident that
our product offering, business model and strategy for growth will
enable us to capitalise on the significant opportunities that lie
ahead. Our talented and dedicated teams across all territories are
also an integral part of our success and they will enable us to
drive performance. The first quarter of 2023 has delivered a
performance in line with our expectations and indicates that the
European markets are rebounding. There are a number of exciting
opportunities on the horizon for INSPECS."
For further information please contact:
INSPECS Group plc via FTI Consulting
Richard Peck (CEO) Tel: +44 (0) 20
Chris Kay (CFO) 3727 1000
Peel Hunt (Nominated Adviser and Broker) Tel: +44 (0) 20
Adrian Trimmings 7418 8900
Andrew Clark
Lalit Bose
FTI Consulting (Financial PR) Tel: +44 (0) 20
Alex Beagley 3727 1000
Harriet Jackson
Alice Newlyn
About INSPECS Group plc
INSPECS is a Bath-based designer, manufacturer and distributor
of eyewear frames and optically advanced spectacle lenses. The
Group produces a broad range of frames and lenses, covering
optical, sunglasses and safety, which are either "Branded" (either
under licence or under the Group's own proprietary brands), or
"OEM" (including private label on behalf of retail customers, as
well as unbranded).
INSPECS aims to be the leader in eyewear solutions through its
vertically-integrated business model and has adopted a three-pillar
growth strategy to achieve this: (i) continue to grow organically;
(ii) undertake further acquisitions (and drive value through
leveraging the Group's internal capabilities); and (iii) extend the
Group's manufacturing capacity.
INSPECS customers include global optical and non-optical
retailers, global distributors and independent opticians, with its
distribution network covering over 80 countries and reaching
approximately 75,000 points of sale.
INSPECS has operations across the globe: with offices and
subsidiaries in the UK, Germany, Portugal, Scandinavia, the US and
China (including Hong Kong, Macau and Shenzhen), and manufacturing
facilities in Vietnam, China, the UK and Italy.
More information is available at: https://INSPECS.com
CHAIRMAN'S STATEMENT
2022 was, in many ways, another extraordinary year. We had to
contend with the well-documented challenging business environment
and experienced supply chain issues driven by ongoing COVID
restrictions, rising energy prices and general scarcity of raw
materials. In addition, the macroeconomic outlook and consumer
confidence most notably deteriorated in Germany, a key territory
for us, which is reflected in the Group's order intake being down
on the previous year.
However, I am pleased to say the Group was able to raise its
Gross Profit Margin from 47.0% in 2021 to 49.2% in 2022 due to
increased pricing on new products and continued focus on the
control of its supply chain costs.
Our UK lens business, Norville, required more time to turn the
business into a solid performing addition to the Group. As a
result, management has implemented a cost saving programme at the
factory that has helped to narrow losses in Q4. We expect the
losses at Norville to reduce significantly in 2023. However, its
engineering excellence continues to assist our business as a
whole.
Board Changes
Lord Ian MacLaurin kindly extended his tenure as Chair with us
from June until 1 December 2022, when Richard Peck replaced me as
Chief Executive Officer, and I assumed the role of Executive
Chairman. Along with the rest of the Board, I am deeply grateful
for Ian's immeasurable contribution.
I am delighted that Richard Peck, an industry veteran who joined
the INSPECS Board as a Non-Executive Director following our IPO in
February 2020, assumed the role of CEO in December 2022. Richard's
knowledge of the Group, along with his deep understanding of the
sector, has allowed him to hit the ground running.
I am pleased that Hugo Adams and Shaun Smith joined as
Non-Executive Directors in December 2022. Hugo's significant
experience in the retail sector and a proven track record of
delivering growth for purpose-led consumer brands, paired with
Shaun's extensive plc experience in finance with international
manufacturing and retail groups, will be invaluable through the
next stage of the Group's growth.
Investment progress
Construction of the Group's new factory in Vietnam will commence
in the second half of 2023. Planning and development remains
on-going for the factory in Portugal. We expect to see significant
increases in our own factory-made products in 2024, driving growth
for the medium term.
INSPECS continues to develop cutting-edge products and
technology with our innovations arm, Skunkworks, driving growth
throughout the Group, and we expect to see ongoing positive results
from the team's hard work. Our design teams, situated in key
locations across the globe, keep our offerings fresh and
diverse.
Outlook
Following a year of consolidation, we now have a solid platform
on which to build. The outlook for the Group and the eyewear sector
remains positive despite the many headwinds we have encountered
throughout the last year. We continue to be mindful of global
economic forces, as well as uncertain consumer demand, particularly
in Europe, but feel well placed to provide attractive products at
competitive prices. The balance of our worldwide presence,
particularly our US operations, bolsters our positive outlook. We
continue to invest in the business to enable the Group to deliver
further growth.
Robin Totterman
Executive Chairman
CHIEF EXECUTIVE OFFICER'S REPORT
Having been on the Board of INSPECS as a Non-Executive Director
since IPO, I was delighted to assume the role of CEO on 1 December
2022. This was certainly a year of two halves in which the Group
delivered a strong first half followed by a weaker second, owing to
challenging market conditions.
Despite these challenges, we are pleased that we delivered total
revenue of $248.6 million and adjusted underlying EBITDA of $19.2
million.
During the first half of the year, we saw a good financial
performance, with increases in both revenue and profit as a result
of the ongoing integration of the Group's businesses and increased
distribution reach around the globe. However, the second half of
the year was marked by a number of external challenges, including
weakened market confidence in one of our primary markets, Germany,
as a result of the conflict in Ukraine. We also faced significant
headwinds from exchange rate fluctuations, as well as increases in
raw materials, energy and shipping costs. In addition, the
continuing COVID-19 restrictions mainly in China and Vietnam
presented ongoing challenges to our manufacturing operations.
Lenses
Our lens business suffered a decrease in external revenue from
$7.5m in 2021 to $4.3m in 2022, a reduction of 43%. Towards the end
of 2021, the Group relocated its Norville lens manufacturing
business from its old site at Magdala Road to a new
state-of-the-art facility in Quedgeley, Gloucester. Whilst the
construction of the new factory was completed on time and within
budget, the relocation of the sensitive equipment from the old
factory to the new one caused significant disruption in
manufacturing capability, which in turn caused operating losses in
the lenses segment to increase significantly, from $2.7m in 2021,
to $5.0m in 2022. Our first priority was to calibrate the machinery
and ensure that the quality and lead time of the product came back
within industry standards, and this was achieved in the latter half
of 2022. During Q4 of 2022, our focus then turned to increasing our
revenue and operational efficiency. This resulted in reduced losses
in Q4 of 2022 which are expected to significantly reduce in
2023.
Frames and Optics
Our frames and optics distribution business increased its
external revenue from $211.5m in 2021 to $214.7m in 2022, growth of
1.5%.
UK: Our UK markets performed well in the second half of 2022.
INSPECS' strategy of replacing third-party distributors with own
Group worldwide sales offices accelerated during the year and we
expect this to continue to improve sales for the Group. The UK
market remains positive so far in 2023 and we are continuing to
increase our product distribution.
Europe: Our European markets performed strongly in the first
half of 2022. Towards the end of June 2022, we suffered headwinds
principally in relation to a fall in consumer confidence which led
to a reduction in our order intake in the latter half of 2022. Our
cost base in Europe was also materially affected by the rapid
decrease in the Euro against the Dollar which affected the
operational performance of the business.
North America: The US market remained stable in 2022. Our US
companies are well positioned to increase revenue of Group products
throughout 2023 and the eyewear market remains positive so far in
2023. Our US businesses are now fully engaged in selling leading
brands such as Superdry, Radley and O'Neill, which were not
available to them in earlier years.
Asia and Australia: In 2022, the Group continued to increase its
distribution in Asian markets from a relatively low level, which
was supported by the appointment of new agents for the Middle East.
We saw increased growth in Australia and New Zealand, the reopening
of our South Africa markets, and increased distribution in the
Philippines. In 2023, the Group will continue to actively target
further growth opportunities in this expanding market.
Wholesale
Our wholesale business which consists of our manufacturing
facilities in Vietnam, China and Italy has had a good performance
in 2022 with external revenue growth of 8%. We continue to invest
in our facilities and expect construction of our new manufacturing
facility in Vietnam to commence in the second half of 2023.
Planning and development remains on-going for the factory in
Portugal. These new facilities will allow us to increase production
capacity, improve efficiency and bring new products to market more
quickly. They will also be an important part of our efforts to
expand into new markets and meet the growing demand for our
products and services. The Board remains confident in the long-term
strategic importance of these new facilities to our future growth
and looks forward to works commencing.
Acquisitions
The Group made strong progress in integrating its most recent
acquisitions, EGO Eyewear and BoDe Design, into the Group and
putting our new brands to work across the organisation. In the
first half of 2022, the Group continued with its acquisition
strategy and identified further opportunities. This incurred
significant legal and due diligence costs, however, due to the
slowdown in our European markets and adverse currency exchange
movements, together with continued losses at Norville, the Board
took the decision to pause all acquisition processes in the second
half of 2022. The Board continues to assess acquisition targets
that would complement the Group's existing portfolio and further
enhance its proposition in the market.
Research and development
Skunkworks, our research and development department, continues
to develop an exciting and innovative business, supplying frames,
lenses, and expertise to leading global technology firms. As a
result, the business generated its first commercial revenues in
2022, with further growth expected in 2023. The team's focus on
cutting edge technologies and new materials has been particularly
successful and we are excited that several new product launches in
frames and packaging will take place later this year.
Skunkworks has always been a key driver of innovation and growth
within the business and we are confident that its continued success
will play a significant role in driving our overall performance in
the coming year. We are committed to investing in the development
of new and innovative products and technologies and we believe that
Skunkworks will be an important part of this effort.
Operational efficiencies
During the year, a number of cost reductions have been
implemented to improve operational efficiencies. These included
reductions in office space in Germany, the amalgamation of our two
Hong Kong offices into one and the integration of International
Eyewear Limited's offices and warehouse operations with INSPECS
Limited.
The Group is also working on increased procurement efficiencies
by consolidating our supply base where possible. The integration of
INSPECS Limited and International Eyewear Limited has subsequently
strengthened INSPECS Limited's capabilities in the independent UK
eyewear market.
Market opportunity
Operating in a resilient growing market, selling optical frames,
we are confident that our business model and strategy will enable
us to capitalise on this growth. The push for our own proprietary
brand products made in Vietnam and customers looking for new
suppliers following consolidation of competitors, all plays to our
strengths. Our global teams continue to work hard on synergising,
from product design to manufacturing and ultimately distribution,
meaning the Group is well placed to capitalise on future
growth.
Environmental, Social & Governance ("ESG")
Over the last 12 months our sustainability framework has been
developed, clearly demonstrating the roadmap to our commitment to
addressing critical environmental issues along with maintaining a
positive environment for all our employees around the globe. Our
focus on sustainable product and packaging is evident in the
success of the Botaniq and O'Neill sustainable ranges. Our Group
vision of 'Always Looking Forward' embeds itself into our
Environmental, Social and Governance 'ESG', strategy and our
purpose of innovation, commitment and integrity are reflected
throughout.
CEO onboarding
Since taking over as CEO, I have focused on getting to know our
business even better. I have met with many key customers and
travelled to all of our major locations, travel restrictions
allowing, including our showrooms and distribution centres in North
America, our manufacturing factories in Vietnam and the UK, our
sales and distribution facilities in Nuremberg, Germany, and our
design centre in Lisbon, Portugal. My focus has been on building
good working relationships with the key people at these locations
and focusing on our revenues and costs to ensure a strong start to
the new financial year.
A key strength of our Group has always been our people and I am
very pleased with the standard and commitment of our teams in all
of our territories. Our talented and dedicated employees are a key
part of our success and I am confident that they will continue to
drive our growth performance in 2023. Overall, I believe that our
operations and management team are well positioned to navigate the
challenges and opportunities that lie ahead, and I am committed to
working closely with them to drive the continued growth and success
of our Group.
Current trading
I am pleased to report that we have had a good performance in Q1
2023 and are ahead of the same period in 2022. This was driven in
part by a rebound in our European markets and continued growth in
other markets.
Outlook
Looking ahead, we are optimistic about the future growth and
success of the Group. There are a number of exciting opportunities
on the horizon, including the opening up of China, the upcoming
launch of key brands, Barbour and Superdry in new markets like
North America and Asia, and the strong performance of our
proprietary brands; Titanflex, Humphrey's, Botaniq, Savile Row and
Jos. In addition, we have a good order book in our factories and
are seeing synergies from making more of our own products in our
own factories and combining locations across the world.
We will maintain our focus on driving revenues and controlling
costs as we work to achieve our growth and profitability goals. We
will also continue to invest in new technologies and innovations,
as well as expanding our product offerings and services to meet the
changing needs of our customers.
Overall, we are confident in our ability to navigate the
challenges and opportunities that lie ahead, and we believe that
our talented team and resilient business model will allow us to
achieve continued success.
Richard Peck
Chief Executive Officer
CHIEF FINANCIAL OFFICER'S REVIEW
Whilst the Group had a positive H1 with sales of $138.4m and an
Adjusted Underlying EBITDA of $15.1m, the Group suffered from the
continuing uncertainty in Ukraine and a slowdown in our European
markets in H2.
Combined with a rapidly decreasing Euro against the US Dollar,
and continued losses at Norville, this meant our H2 performance was
not in line with our expectations.
The Group has taken action to reduce non-operational costs and
is working on strategic efficiencies across the Group to increase
our key performance indicator of Adjusted Underlying EBITDA.
Our FY22 results showed an increase in sales from $246.5m to
$248.6m. The Group delivered Adjusted Underlying EBITDA of $19.2m
(FY21: $27.6m).
On a constant currency basis our sales increased from $246.5m to
$265.7m an increase of 8%.
Reported loss before tax of $9.5m (FY21: loss before tax $9.1m)
is after incurring a purchase price allocation ("PPA") release on
inventory ($0.2m) (FY21: $6.0m), exchange adjustments on borrowings
($2.5m) (FY21: $5.4m) and impairment of intangible assets ($0.0m)
(FY21: $3.4m).
The Group along with its advisers, has discussed a change in the
Group's reporting currency for 2023. As such the Group will report
its interim numbers to 30 June 2023 in Pound Sterling, with a
summary of the results in US Dollars for comparative purposes.
Appendix 1 includes 2022 and 2021 comparative information stated in
Pound Sterling.
FY22 FY21
$'000 $'000
---------------------------------------------- --------- --------
Revenue 248,577 246,471
Gross profit 122,286 115,772
Underlying operating expenses (103,083) (88,216)
---------------------------------------------- --------- --------
Adjusted Underlying EBITDA 19,203 27,556
Share-based payments (1,729) (1,484)
Depreciation, amortisation and impairment of
intangible assets (16,868) (18,450)
Earnout on acquisitions (1,909) -
Loss on acquisitions in year - (90)
Purchase price adjustment (164) (5,991)
---------------------------------------------- --------- --------
Operating (loss)/profit before non-underlying
costs (1,467) 1,541
---------------------------------------------- --------- --------
Reconciliation to reported results
Operating (loss)/profit before non-underlying
costs (1,467) 1,541
Non-underlying costs (1,814) (2,588)
Exchange adjustments on borrowings (2,528) (5,418)
Share of associate profit/(loss) 23 (10)
Net finance costs (3,695) (2,657)
---------------------------------------------- --------- --------
Loss before tax (9,481) (9,132)
Tax credit 1,665 3,697
---------------------------------------------- --------- --------
Loss after tax (7,816) (5,435)
---------------------------------------------- --------- --------
Revenue
Total revenue for the year was $248.6m, an increase of $2.1m
from $246.5m in 2021. On a constant currency basis revenue
increased from $246.5m to $265.7m, an increase of 8%. Excluding the
acquisitions of BoDe Designs and EGO Eyewear in December 2021,
revenue increased from $246.2m to $252.4m on a constant currency
basis, an increase of 2.5%.
Gross margin
The Group's gross margin overall was 49.2% compared to 47.0% in
2021, an increase of 220 basis points from the previous year. This
increase was partly due to the mix of sales between independent
opticians and our traditional chain business. The Group has
continued to be able to introduce price increases on new products
and has continued to control costs across its supply chain where
possible, resulting in an overall improvement in margins.
Adjusted Underlying EBITDA
The Group targets Adjusted Underlying EBITDA as its key
operating performance indicator. Our Adjusted Underlying EBITDA
decreased by $8.4m, from $27.6m to $19.2m, a decrease of 30% in
2022. The decrease was primarily caused by three main factors.
Firstly, the continued losses at Norville. Secondly, the effects of
the decrease in the value of the Euro against the Dollar,
particularly in the first ten months of the year. Thirdly, a
slowdown in our European markets. German consumer confidence fell
to a 25 year low in October 2022, and this impacted the order
intake in Q3 and Q4 of 2022.
Operating expenses
Our headline operating expenses increased from $114.2m in 2021,
to $123.8m in 2022. Excluding the acquisitions made in 2021, our
total operating expenses increased from $114.1m to $117.0m, an
increase of $2.9m or 3%. Our administrative expenses, excluding
acquisitions, increased by 13%. This reflects the reversal of
reduced costs of the Group in Q1 and Q2 of 2021 due to COVID
restrictions.
The Group has implemented a cost reduction strategy on
non-operational costs in Q4 of 2022 to drive our Underlying EBITDA
margin in the future.
Adjusted Year
Adjusted Ended
31 December
2021 excluding
Year Ended Acquisitions Year Ended EGO
31 December 31 December
2022 EGO & BoDe 2022 & BoDe
Percentage
$'000 $'000 $'000 $'000 change
----------------- ------------- ------------ ------------- ---------------- ----------
Revenue 248,577 12,842 235,735 246,233 -4%
----------------- ------------- ------------ ------------- ---------------- ----------
Gross profit 122,286 3,734 118,552 115,744 2%
Distribution 7,783 62 7,721 7,792 -1%
Wages & salaries 61,552 2,318 59,234 62,111 -5%
Administrative 54,418 4,440 49,978 44,178 13%
----------------- ------------- ------------ ------------- ---------------- ----------
Total operating
expenses 123,753 6,820 116,993 114,081 3%
----------------- ------------- ------------ ------------- ---------------- ----------
The table below sets out our operating costs, adjusted for the
acquisitions of BoDe Design and EGO Eyewear, as a percentage of
revenue.
Adjusted Year
Ended Adjusted Year Ended
31 December 2022 Percentage 31 December 2021 Percentage
$'000 of revenue $'000 of revenue
----------------- ------------------ ----------- ------------------- -----------
Revenue 235,735 - 246,233 -
Gross profit 118,552 50% 115,744 47%
Distribution 7,721 3% 7,792 3%
Wages & salaries 59,234 25% 62,111 25%
Admin 49,978 21% 44,178 18%
----------------- ------------------ ----------- ------------------- -----------
Loss before tax
In 2022, the Group made a statutory loss before tax of $9.5m
(FY21: loss $9.1m), an increase of $0.4m. The Group made an
Adjusted Underlying EBITDA of $19.2m (FY21: $27.6m).
2022 2021
$m $m
---------------------------------------------------------- ------ ------
Adjusted Underlying EBITDA 19.2 27.6
Non-cash adjustments
1. Depreciation and amortisation (16.9) (15.0)
2. Purchase Price Allocation ('PPA') release on inventory (0.2) (6.0)
3. Intangible asset impairment - (3.4)
4. Exchange adjustments on borrowings (2.5) (5.4)
5. Share-based payments (1.7) (1.5)
6. Earnout on acquisitions (1.9) -
7. Other - (0.1)
---------------------------------------------------------- ------ ------
Sub-total (4.0) (3.8)
---------------------------------------------------------- ------ ------
Non-underlying costs (1.8) (2.6)
Net finance costs (3.7) (2.7)
---------------------------------------------------------- ------ ------
Loss before tax (9.5) (9.1)
---------------------------------------------------------- ------ ------
Key items impacting the current year's results are as
follows:
Depreciation and amortisation
The Group's depreciation and amortisation charge is set out
below. Amortisation costs principally arise on the capitalisation
of customer relationships and order books on acquisitions.
31 December 31 December
2022 2021
$m $m
------------- ------------ -----------
Depreciation 8.4 7.4
Amortisation 8.5 7.6
------------- ------------ -----------
Total 16.9 15.0
------------- ------------ -----------
Exchange adjustments on borrowings
The exchange adjustment on borrowings primarily relates to
intergroup loans, where the functional currency of the entities
differs from the loan currency and presentational currency. This
exchange adjustment also relates to the revolving credit facility
held in Euros and USD. Historically the exchange adjustments on
borrowings primarily related to a shareholder loan on the
acquisition of Eschenbach, in December 2020. At the start of 2022,
this loan was converted to equity, therefore resulting in the lower
exchange adjustment in the current year.
Share-based payments
The Group has a LTIP scheme in place that vests over a period of
three years from the date of the grant of the option at market
value, and is subject to the continued employment of the individual
over that period. The Group has recognised a non-cash charge of
$1.7m in 2022 (FY21: $1.5m). The scheme is designed to give the
equivalent of one year's salary to an individual over that three
year period. No nil-cost options have been granted to date. The
Remuneration and Nomination Committee is currently reviewing the
option scheme with outside advisers.
Earnout on acquisitions
The acquisitions of EGO Eyewear and BoDe Designs in December
2021, both contain amounts due for contingent consideration, based
on the performance of those businesses. In the year 2022, the
amounts payable under the agreements amounted to $1.9m, and have
been charged to the profit and loss in accordance with IFRS 3.
Further contingent consideration is expected to arise in 2023, and
2024, and will be subject to the performance of those
businesses.
Net Finance Costs
Bank loan interest increased by $0.4m primarily due to rising
interest rates during the year. The amortisation of loan
transaction costs relates to the refinancing charges that are
amortised over the period of the financing facilities available to
the Group.
2022 ($m) 2021 ($m)
--------------------------------------- --------- ---------
Bank Loan Interest 2.2 1.8
Invoice Discounting 0.1 0.1
IFRS 16 lease interest 0.6 0.5
Interest Receivable (0.1) (0.1)
--------------------------------------- --------- ---------
Net Finance Cost 2.8 2.3
--------------------------------------- --------- ---------
Amortisation of loan transaction costs 0.9 0.4
--------------------------------------- --------- ---------
Total net finance costs 3.7 2.7
--------------------------------------- --------- ---------
Non-underlying costs
The Group incurred $1.8m of non-underlying costs in 2022 (2021:
$2.6m). During the year the Group incurred fees relating to
potential acquisitions amounting to $1.1m. The Group also incurred
restructuring costs of $0.5m which related to the amalgamation of
our Hong Kong offices and the rationalisation of our warehousing
facilities and offices in the UK following the integration of
International Eyewear with INSPECS.
Prior year adjustments
Following the acquisition of EGO eyewear and BoDe design, a
deferred consideration liability was created. Following a review in
2022 it has been determined that the contingent part of the
deferred consideration is to be treated as remuneration. The
deferred consideration creditor of $5.4m is no longer required. We
have therefore restated our 2021 statement of financial position to
reflect this. There is no profit or cash impact as a result of this
adjustment.
Cash position
During the year, the Group generated $12.4m in cash flows from
operating activities (2021: $24.9m). The cash generated from
operating activities was reduced by an increase in working capital
of $5.8m in 2022 as opposed to a reduction of $7.2m in 2021. The
Group has used the cash generated to continue to invest in new
plant and equipment, and to enhance the Group's long-term growth
strategy. An analysis of how the Group has deployed its free cash
flow in the year is set out.
31 December
31 December
2022 2021
$'000 $'000
-------------------------------------------------- ------------ -----------
Cash and cash equivalents at the beginning
of year 29,759 23,776
Net cash from operating activities 5,077 20,017
Net cash used in investing activities (4,189) (15,661)
Net cash (used in)/from financing activities (4,398) 1,704
(Decrease)/increase in cash and cash equivalents (3,510) 6,060
Foreign exchange movements in the year 550 (77)
Cash and cash equivalents including overdrafts
at the year end 26,799 29,759
-------------------------------------------------- ------------ -----------
The breakdown of net cash used in investing
activities is
Purchase of intangible fixed assets (1,042) (1,508)
Purchase of property, plant and equipment (3,193) (6,137)
Acquisition of subsidiaries, net of cash acquired - (8,134)
Purchase of shareholding in associate (88) -
Interest received 134 118
-------------------------------------------------- ------------ -----------
Net cash used in investing activities (4,189) (15,661)
-------------------------------------------------- ------------ -----------
Working capital
The Group closely monitors its working capital position to
ensure that it has sufficient resources to meet its day-to-day
requirements and to fund further investing activities to supply its
customer base.
Debtors
Year ended 31 December 2022 Year ended 31 December 2021
------------ --------------------------------- ---------------------------------
Total 30 Days 60 Days 90 Days Total 30 Days 60 Days 90 Days
------------ ------ ------- ------- ------- ------ ------- ------- -------
Debtors ($) 27.4m 18.5m 4.7m 4.2m 29.4m 18.4m 6.6m 4.4m
Percentage 100 68 17 15 100 63 22 15
------------ ------ ------- ------- ------- ------ ------- ------- -------
Inventory
Our sales to inventory ratio decreased from 4.4 to 4.3. The
Group constantly monitors its working capital position, with a view
to increase the sales to inventory ratio where possible.
31 December
31 December
2022 2021
$m $m
------------------------- ------------ -----------
Turnover 248.6 246.5
Inventory 58.3 55.7
Sales to inventory ratio 4.3 4.4
------------------------- ------------ -----------
Loan Reclassification
As at 31 December 2022, it was determined that INSPECS Limited,
who holds the revolving credit facility on behalf of the Group, was
in technical breach of its cashflow cover loan covenant. This has
resulted in the reclassification of the loan balance ($45.7m) to a
current liability in line with IAS 1. Subsequently, the bank has
waived the cashflow cover and leverage covenants at 31 December
2022. The below ratios include an adjusted ratio to reflect this
loan reclassification.
Current asset ratio
The current asset ratio is a liquidity ratio that measures a
company's ability to pay its short term obligations, or those due
within one year.
Year ended
31 December Year ended
31 December
2022 2021
$m $m
-------------------- ------------- -------------
Current assets 127.2 131.1
Current liabilities 129.4 82.9
Ratio 1.0 1.6
-------------------- ------------- -------------
Year ended
31 December Year ended
31 December
2022 2021
$m $m
----------------------------- ------------- -------------
Current assets 127.2 131.1
Current liabilities 129.4 82.9
Loan in technical breach 45.7 -
Adjusted current liabilities 83.7 82.9
Adjusted ratio 1.5 1.6
----------------------------- ------------- -------------
Quick ratio
The quick ratio is an indicator of a company's short-term
liquidity position, and measures a company's ability to meet its
short-term obligations with its most liquid assets.
Year ended Year ended
31 December 31 December
2022 2021
$m $m
-------------------- ------------- -------------
Current assets 127.2 131.1
Less inventory (58.3) (55.7)
-------------------- ------------- -------------
68.9 75.4
-------------------- ------------- -------------
Current liabilities 129.4 82.9
Ratio 0.5 0.9
-------------------- ------------- -------------
As described above, the table below shows the effect of the
movement of the bank loans to current, from due after one year.
Year ended Year ended
31 December 31 December
2022 2021
$m $m
----------------------------- ------------- -------------
Current assets 127.2 131.1
Less inventory (58.3) (55.7)
----------------------------- ------------- -------------
68.9 75.4
----------------------------- ------------- -------------
Adjusted current liabilities 83.7 82.9
Adjusted ratio 0.8 0.9
----------------------------- ------------- -------------
Net debt
The Group's opening net debt, including and excluding lease
liabilities, is shown below. During the year the Group increased
its net debt excluding leases from $32.7m to $33.4m.
The Group has significant cash reserves, resulting in the net
debt position as set out below.
Year ended Year ended
31 December 31 December
2022 2021
$m $m
--------------------------------------- ------------ ------------
Cash at bank 26.8 29.8
Borrowings (60.2) (62.5)
Lease liabilities (24.2) (22.4)
Net debt (57.6) (55.1)
Net debt (excluding lease liabilities) (33.4) (32.7)
--------------------------------------- ------------ ------------
Financing
The Group finances its operation through the following
facilities.
Drawn at
31 December
Amount 2022
$m Expires $m
-------------------------------- ------ -------------- -------------
Group revolving credit facility 37.0 October 2024 36.4
Term loans 18.7 October 2024 13.3
Revolving credit facility USA 10.0 1-year rolling 8.7
Invoice discounting 3.0 1-year rolling 1.8
-------------------------------- ------ -------------- -------------
Total 68.7 60.2
-------------------------------- ------ -------------- -------------
Leverage (using debt to equity ratio)
The Group's leverage position is shown below including and
excluding leasing finance:
2022 2021*
-------------------------- ---- -----
Including leasing finance 2.24 1.51
Excluding leasing finance 2.07 1.34
Required ratio 2.25 2.0
-------------------------- ---- -----
* The Group's 2021 leverage ratios have been restated, to
reflect the agreement by HSBC that interest on property leases is
excluded from the leverage calculation as agreed in October
2022.
The Group's leverage is constantly updated, and a rolling
projection for 12 months is reviewed to ensure compliance with the
Group's covenants. In January 2023, the Group's bankers HSBC,
waived its leverage ratio requirement at the 31 December 2022 and
raised its leverage test to 3.0 for the three quarters to 30
September 2023. The maximum leverage ratio requirement will reduce
to 2.25 at 31 December 2023 and for subsequent quarters until the
facility matures in October 2024.
Earnings per share
Basic weighted
average number
of Ordinary Shares Total Earnings Earnings per share
Year ended 31 December 2022 ('000) $'000 $
---------------------------- ------------------- -------------- ------------------
Basic EPS 101,672 (7,816) (0.08)
Diluted EPS 107,554 (7,816) (0.08)
Adjusted PBT basic EPS 101,672 8,139 0.08
Adjusted PBT diluted EPS 107,554 8,139 0.08
---------------------------- ------------------- -------------- ------------------
Dividend
The Group does not intend to pay a dividend for the year ended
31 December 2022. A dividend of $1.6m was paid during 2022 in
respect of the year ended 31 December 2021.
Going concern
The Directors have undertaken a comprehensive assessment of the
Group's ability to trade out to 30 June 2024. Taking this into
consideration, the Directors have a reasonable expectation that the
Group and the Company have adequate resources to continue to trade
throughout the review period. Therefore, the Directors continue to
adopt the going concern basis in preparing the consolidated and
Parent Company financial statements.
Chris Kay
Chief Financial Officer
Consolidated Income Statement
for the year ended 31 December 2022
2022 2021
Notes $'000 $'000
----------------------------------------- ----- ----------- -----------
Revenue 5 248,577 246,471
Cost of sales 7, 10 (126,291) (130,699)
----------------------------------------- ----- ----------- -----------
Gross profit 122,286 115,772
Distribution costs (7,783) (7,795)
Administrative expenses 7, 10 (115,970) (106,436)
----------------------------------------- ----- ----------- -----------
Operating (loss)/profit (1,467) 1,541
Non-underlying costs 8 (1,814) (2,588)
Exchange adjustment on borrowings (2,528) (5,418)
Finance costs 9 (3,829) (2,775)
Finance income 9 134 118
Share of profit/(loss) of associate 23 (10)
----------------------------------------- ----- ----------- -----------
Loss before income tax (9,481) (9,132)
Income tax credit 11 1,665 3,697
----------------------------------------- ----- ----------- -----------
Loss for the year (7,816) (5,435)
----------------------------------------- ----- ----------- -----------
Attributable to:
Equity holders of the Parent (7,816) (5,435)
----------------------------------------- ----- ----------- -----------
Earnings per share
Basic loss for the year attributable
to the equity holders of the Parent 12 $(0.08) $(0.05)
----------------------------------------- ----- ----------- -----------
Diluted loss for the year attributable
to the equity holders of the Parent 12 $(0.08) $(0.05)
----------------------------------------- ----- ----------- -----------
Consolidated Statement of Other Comprehensive Income
for the year ended 31 December 2022
2021
2022 Restated
$'000 $'000
------------------------------------------------- -------- ---------
Loss for the year (7,816) (5,435)
Other comprehensive (loss)/income
Exchange differences on translation of foreign
operations (7,459) 2,891
------------------------------------------------- -------- ---------
Other comprehensive (loss)/income for the
year, net of income tax (7,459) 2,891
------------------------------------------------- -------- ---------
Total comprehensive loss for the year (15,275) (2,544)
------------------------------------------------- -------- ---------
Attributable to: Equity holders of the Parent (15,275) (2,544)
------------------------------------------------- -------- ---------
Consolidated Statement of Financial Position
as at 31 December 2022
2021
2022 Restated
Notes $'000 $'000
--------------------------------------- ----- ------- ---------
ASSETS
Non-current assets
Goodwill 67,234 75,945
Intangible assets 43,756 54,454
Property, plant and equipment 21,078 24,569
Right-of-use assets 23,810 22,269
Investment in associates 135 48
Deferred tax assets 8,476 12,540
--------------------------------------- ----- ------- ---------
164,489 189,825
--------------------------------------- ----- ------- ---------
Current assets
Inventories 58,257 55,664
Trade and other receivables 37,676 42,229
Tax receivables 4,453 3,468
Cash and cash equivalents 26,799 29,759
--------------------------------------- ----- ------- ---------
127,185 131,120
--------------------------------------- ----- ------- ---------
Assets held for sale 1,006 -
--------------------------------------- ----- ------- ---------
Total assets 292,680 320,945
--------------------------------------- ----- ------- ---------
EQUITY
Shareholders' equity
Called up share capital 1,389 1,389
Share premium 15 122,291 122,291
Foreign currency translation reserve 15 (4,657) 2,802
Share option reserve 15 3,548 2,001
Merger reserve 15 7,296 7,296
Retained earnings 15 223 9,429
--------------------------------------- ----- ------- ---------
Total equity 130,090 145,208
--------------------------------------- ----- ------- ---------
LIABILITIES
Non-current liabilities
Financial liabilities - borrowings
Interest-bearing loans and borrowings 16 20,018 69,194
Deferred consideration 14 1,634 3,107
Deferred tax liabilities 11,553 20,517
-------------------------------------------------- ------- -------
33,205 92,818
-------------------------------------------------- ------- -------
Current liabilities
Trade and other payables 47,363 53,317
Right of return liabilities 5 12,838 11,100
Financial liabilities - borrowings
Interest-bearing loans and borrowings 16 62,600 13,289
Invoice discounting 16 1,803 2,433
Deferred consideration 3,046 -
Tax payable 1,735 2,780
-------------------------------------------------- ------- -------
129,385 82,919
-------------------------------------------------- ------- -------
Total liabilities 162,590 175,737
-------------------------------------------------- ------- -------
Total equity and liabilities 292,680 320,945
-------------------------------------------------- ------- -------
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
Foreign
Called currency Share
up share Share translation option Retained Merger Total
capital premium reserve reserve earnings reserve equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------------- --------- -------- ------------ -------- --------- -------- --------
Balance at 1 January
2021 1,384 121,940 (89) 867 14,429 7,296 145,827
Changes in equity
Loss for the year - - - - (5,435) - (5,435)
Other comprehensive
income - - 2,891 - - - 2,891
-------------------------- --------- -------- ------------ -------- --------- -------- --------
Total comprehensive
loss - - 2,891 - (5,435) - (2,544)
Exercise of share
options 5 351 - (350) 435 - 441
Share-based payments - - - 1,484 - - 1,484
Balance at 31 December
2021 (Restated) 1,389 122,291 2,802 2,001 9,429 7,296 145,208
-------------------------- --------- -------- ------------ -------- --------- -------- --------
Changes in equity
Loss for the year - - - - (7,816) - (7,816)
Other comprehensive
loss - - (7,459) - - - (7,459)
-------------------------- --------- -------- ------------ -------- --------- -------- --------
Total comprehensive
loss - - (7,459) - (7,816) - (15,275)
Share-based payments - - - 1,729 - - 1,729
Share options cancelled - - - (182) 182 - -
Cash Dividends - - - - (1,572) - (1,572)
-------------------------- --------- -------- ------------ -------- --------- -------- --------
Balance at 31 December
2022 1,389 122,291 (4,657) 3,548 223 7,296 130,090
-------------------------- --------- -------- ------------ -------- --------- -------- --------
Consolidated Statement of Cash Flows
for the year ended 31 December 2022
2022 2021
Notes $'000 $'000
-------------------------------------------- ----- -------- --------
Cash flows from operating activities 13 12,358 24,895
Interest paid (3,652) (1,968)
Tax paid (3,629) (2,910)
-------------------------------------------- ----- -------- --------
Net cash from operating activities 5,077 20,017
-------------------------------------------- ----- -------- --------
Cash flows from investing activities
Purchase of intangible fixed assets (1,042) (1,508)
Purchase of property, plant and equipment (3,193) (6,137)
Acquisition of subsidiaries, net of
cash acquired - (8,134)
Purchase of shareholding in associate (88) -
Interest received 134 118
-------------------------------------------- ----- -------- --------
Net cash used in investing activities (4,189) (15,661)
-------------------------------------------- ----- -------- --------
Cash flow from financing activities
Proceeds from the exercise of share
options - 355
New bank loans in the year 12,783 26,751
Bank loan principal repayments in year (10,381) (22,873)
Transaction costs on debt refinancing (99) (782)
Movement in invoice discounting facility (384) 2,477
Dividends paid to equity holders of
the parent (1,572) -
Principal payments on leases (4,745) (4,224)
-------------------------------------------- ----- -------- --------
Net cash (used in)/from financing
activities (4,398) 1,704
-------------------------------------------- ----- -------- --------
(Decrease)/increase in cash and cash
equivalents (3,510) 6,060
Cash and cash equivalents at beginning
of the year 29,759 23,776
Effect of foreign exchange rate changes 550 (77)
Cash and cash equivalents at end of
the year 26,799 29,759
-------------------------------------------- ----- -------- --------
Notes
1. General information
INSPECS Group plc is a public company limited by shares and is
incorporated in England and Wales (Company number 11963910). The
address of the Company's principal place of business is 7-10 Kelso
Place, Upper Bristol Road, Bath BA1 3AU.
The principal activity of the Group in the year was that of
design, production, sale, marketing and distribution of high
fashion eyewear, lenses and OEM products worldwide.
2. Accounting policies
Basis of preparation
This financial information has been prepared in accordance with
UK adopted international accounting standards, and those parts of
the Companies Act 2006 applicable to companies reporting under UK
adopted International Financial Reporting Standards ('IFRS').
The financial information has been prepared on a historical cost
basis, except where fair value measurement is required under IFRS
as described below in the accounting policies.
The presentational currency for the financial information is the
United States Dollar (USD) rounded to the nearest thousand. The
functional currency of both the Group and Parent Company is Pound
Sterling (GBP), however a presentational currency of USD is used to
be consistent with many other entities within the industry. The
Consolidated Financial Statements provide comparative information
in respect of the year ended 31 December 2021. For periods
commencing from 1 January 2023, the reporting currency of the
Consolidated and Parent Company Financial Statements will change to
GBP. Comparative information is therefore included within Appendix
1 in GBP.
Going concern
This financial information has been prepared on the going
concern basis as the Directors have assessed that there is a
reasonable expectation that the Group will be able to continue in
operation and meet its commitments as they fall due over the going
concern period to 30 June 2024.
The Board considered a base case, a downside scenario, and a
reverse stress test to assess the effect of potential disruption to
the supply chain, reducing consumer confidence due to rising
interest rates and high global inflation, cost increases and
pressure on rising employee costs due to the cost-of-living
increases facing many individuals. The scenarios are as
follows:
Base case
-- The base case is the Board approved budget which has been
updated with the Group's trading results for Q1 2023 and
our expectation of trading to 30(th) April. The budget
was prepared assuming a continuation of the current political
situation in Ukraine together with inflationary pressures
across the World. The Group had seen a downturn in consumer
confidence, especially in Europe due to the above factors.
-- The revenue reduction in Europe towards the end of 2022
was a temporary slowdown and the Group has seen a strong
rebound in our early 2023 trading in Germany and the rest
of Europe.
-- The budget does not assume any acquisition expenditure.
-- Our US and other markets remain resilient and are trading
in line with expectations.
-- The Group expects to be able to maintain its budgeted
margin throughout 2023.
-- The base case includes Capital Expenditure through 2023
and 2024 for the new third plant in Vietnam and initial
construction costs of the first European factory in Portugal.
-- In this base case scenario, no covenant breaches or liquidity
challenges are expected.
Downside scenario
-- The Group has known forward orders for circa two months
through to the middle of June 2023, therefore our downside
scenario updates the base case with a 5.6% reduction in
revenue from June 2023. The Directors believe that a 5.6%
reduction from the base case is appropriately conservative
based on the current trading position, the improved business
through Norville, expected falling global inflation and
increasing consumer confidence. A 5% reduction in Employee
expenses takes affect from September 2023, reflecting
a reduction of the expected senior management bonuses
together with a reduction in marketing, advertising, entertaining,
office expenses and other discretionary expenditure that
would not affect operational performance in the medium
term.
-- In this downside scenario, no covenant breaches or liquidity
challenges are expected.
The Group has considered the reasonably plausible downside
scenario. The Group mitigates the risk of a long-term drop in
revenue by having a diverse business that trades globally so that
it is not reliant on any one region.
Reverse stress test
-- The reverse stress test updated our base case with a 24.2%
drop in forecast revenue, whilst maintaining gross margin.
The drop of 24.2% represents a significant reduction against
actual trading in 2022 and is a reduction in revenue not
previously experienced by the Group. This results in a
breach in interest ratio covenant in March 2024 that is
recovered in June 2024. No other covenants were forecast
to be breached in this period. The reverse stress test
assumes some controllable costs saving by a reduction
in employee expenses, reduction in headcount, a reduction
in discretionary administration costs and removal of discretionary
CAPEX spending, including a delay of the new manufacturing
facility in Vietnam and construction costs for a factory
in Portugal, and some repayment of the Rolling Credit
Facility to reduce interest charges through the year.
The Group has considered the reverse stress test, which models a
breach in the interest ratio covenant in March 2024. In this case
the Directors have available further levers within its control to
save costs and generate income. The Group also has the ability to
discuss amending or waiving covenants with the bank should an
unprecedented drop in revenue occur. Current trading is ahead of
budget and there has been no erosion of margin. As a result, the
directors consider that the reverse stress test is a remote
possibility.
The Group's borrowings with HSBC, amounting to $58.3m, contains
three covenants; Leverage, Cashflow Cover and Interest Cover
ratios. Compliance on these covenants is based on 12-month rolling
periods for each Relevant Period. The facilities are due for
renewal in October 2024 and discussions for renewal have already
taken place. Formal work on the renewal is expected to take place
in Q3 2023 with a view to extending the terms for a further 3 years
from October 2024, it is not expected that any bullet payment will
become due in October 2024 and the Directors are confident of a
successful renewal of the facilities.
Prior to a technical breach of one of the covenants in December
2022 the Group was in discussion to amend the facilities agreement
with HSBC. Following the breach in cashflow cover in December 2022
HSBC subsequently waived the cashflow cover and leverage covenants
for the relevant period ending 31 December 2022. The covenant tests
for 2023 have been amended by HSBC to increase the leverage cover
for the March and June relevant periods; waive cashflow cover until
the March 2024 relevant period; and decrease interest cover for the
March and June relevant periods. There were no covenant breaches in
any prior relevant period in 2022.
On this basis, and as outlined in the Director's report, the
Board has reasonable expectations that the Group and Company has
adequate resources to continue as a Going Concern to 30 June
2024.
Basis of consolidation
The consolidated financial information incorporates the
Financial Statements of the Group and all of its material
subsidiary undertakings. A subsidiary is defined as an entity over
which the Group has control. Control exists when the Company has
power over the investee, the company is exposed, or has rights to
variable returns from its involvement with the subsidiary and the
company has the ability to use its power of the investee to affect
the amount of investor's returns. The Financial Statements of all
Group companies are adjusted, where necessary, to ensure the use of
consistent accounting policies.
Acquisitions are accounted for under the acquisition method from
the date control passes to the Group. On acquisition, the assets
and liabilities of a subsidiary are measured at their fair values.
Any excess of the cost of acquisition over the fair values of the
identifiable net assets acquired is recorded as goodwill.
Business combinations and goodwill
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition
date fair value, and the amount of any non-controlling interests in
the acquiree. Acquisition-related costs are expensed as incurred
and classified as non-underlying costs.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition
date.
Goodwill is initially measured at cost (being the excess of the
aggregate of the consideration transferred over the net
identifiable assets acquired and liabilities assumed). If the fair
value of the net assets acquired is in excess of the aggregate
consideration transferred, the Group reassesses whether it has
correctly identified all of the assets acquired and all of the
liabilities assumed and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If the
reassessment still results in an excess of the fair value of net
assets acquired over the aggregate consideration transferred, then
the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill is tested annually for
impairment. For the purpose of impairment testing, goodwill
acquired in a business combination is, from the acquisition date,
allocated to each of the Group's cash-generating units that are
expected to benefit from the combination, irrespective of whether
other assets or liabilities of the acquiree are assigned to those
units.
Revenue recognition
Revenue from the sales of goods is recognised at the point in
time when control of the asset is transferred to the customer in
line with agreed incoterms. Revenue is recognised at the fair value
of the consideration received or receivable for sale of goods to
external customers in the ordinary nature of the business. The fair
value of the consideration takes into account trade discounts,
settlement discounts, volume rebates and the right of return.
Revenue in relation to royalty income is recognised over the
period to which the royalty term relates. Revenue in relation to
design income is recognised as the work is performed.
Rights of return
Under IFRS 15 a sale with right of return is recognised if the
customer receives any combination of the following:
-- A full or partial refund of any consideration paid
-- A credit that can be applied against amounts owed, or that will be owed, to the entity; and
-- Another product in exchange
The Group recognised a liability where it has historically
accepted a right to return with the combination of a credit being
applied against amounts owed or where another product is offered in
exchange. The Group estimates the impact of potential returns from
customers based on historical data on returns. A refund liability
is recognised for the goods that are expected to be returned (i.e.
the amount not included in the transaction price). A right of
return asset (and corresponding adjustment to cost of sales) is
also recognised for the right to recover the goods from the
customer, to the extent that these goods are not considered
impaired.
Inventories
Inventories are stated at the lower of cost and estimated
selling price less costs to sell after making due allowance for
obsolete and slow-moving items. Inventories are recognised as an
expense in the period in which the related revenue is
generated.
Cost is determined on an average cost basis. Cost includes the
purchase price and other directly attributable costs to bring the
inventory to its present location and condition.
At the end of each period, inventories are assessed for
impairment. If an item of inventory is impaired, the identified
inventory is reduced to its selling price less costs to complete
and sell and an impairment charge is recognised in the income
statement.
Royalties
Royalties payable reflect balances owed to brand owners for the
right to use the brand name. The royalty is payable based on a
pre-agreed percentage of sales volumes, with some arrangements also
having minimum royalty payments for specific periods. Royalties
payable are recognised on delivery of the products covered by such
arrangements, with an additional accrual made where it is
considered that the sales level required to meet the minimum
payment will not be met.
Impairment of financial assets
The Group recognises an allowance for expected credit losses
('ECLs') for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive.
For trade receivables and contract assets, the Group applies a
simplified approach in calculating ECLs. Therefore, the Group does
not track changes in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each reporting date.
The Group considers a financial asset in default when internal
or external information indicates that the Group is unlikely to
receive the outstanding contractual amounts in full before taking
into account any credit enhancements held by the Group. A financial
asset is written off when there is no reasonable expectation of
recovering the contractual cash flows.
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows,
cash and cash equivalents comprise cash on hand and demand
deposits, and short-term highly liquid investments that are readily
convertible into known amounts of cash, that are subject to an
insignificant risk of changes in value, and have a short maturity
of generally within three months when acquired, less bank
overdrafts which are repayable on demand and form an integral part
of the Group's cash management.
For the purpose of the consolidated statement of financial
position, cash and cash equivalents comprise cash on hand and at
banks, including term deposits, and assets similar in nature to
cash, which are not restricted as to use.
Share-based payments
Employees (including senior executives) of the Group receive
remuneration in the form of share-based payments, whereby employees
render services as consideration for equity instruments
(equity-settled transactions).
The cost of equity-settled transactions is determined by the
fair value at the date when the grant is made using an appropriate
valuation model, further details of which are given in the detailed
notes to the accounts. That cost is recognised in employee benefits
expense together with a corresponding increase in share option
reserve, over the period in which the service and, where
applicable, the performance conditions are fulfilled (the vesting
period).
The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects
the extent to which the vesting period has expired and the Group's
best estimate of the number of equity instruments that will
ultimately vest. The expense or credit in the income statement for
a period represents the movement in cumulative expense recognised
as at the beginning and end of that period.
Service performance conditions are not taken into account when
determining the grant date fair value of awards, but the likelihood
of the conditions being met is assessed as part of the Group's best
estimate of the number of equity instruments that will ultimately
vest. Any other conditions attached to an award, but without an
associated service requirement, are considered to be non-vesting
conditions. Non-vesting conditions are reflected in the fair value
of an award and lead to an immediate expensing of an award unless
there are also service and/or performance conditions.
No expense is recognised for awards that do not ultimately vest
because service conditions have not been met. Where awards include
a non-vesting condition, the transactions are treated as vested
irrespective of whether the non-vesting condition is satisfied,
provided that all other performance and/or service conditions are
satisfied.
If the terms of an equity-settled award are modified, the
minimum expense recognised is the grant date fair value of the
unmodified award provided the original vesting terms of the award
are met. An additional expense, measured as at the date of
modification, is recognised for any modification that increases the
total fair value of the share-based payment transaction or is
otherwise beneficial to the employee. Where an award is cancelled
by the entity or by the counterparty, any remaining element of the
fair value of the award is expensed immediately through profit or
loss. The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of diluted earnings
per share, to the extent that they are dilutive.
Dividend
Final dividend distribution to the Group's shareholders is
recognised as a liability in the Group's financial statements in
the period in which the dividends are approved by the Group's
shareholders.
Deferred and contingent consideration in relation to
acquisitions
Deferred consideration to the previous owners arising on
acquisitions are treated as part of the consideration for the
acquisition, with the liability recognised on the statement of
financial position at the date of the acquisition.
Where the consideration is contingent on continuing employment
within the Group, the charge is recognised through the Income
Statement over the period to which it relates.
Taxation
Income tax comprises current and deferred tax. Income tax
relating to items recognised outside profit or loss is recognised
outside profit or loss, either in other comprehensive income or
directly in equity.
Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities,
based on the tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period, taking
into consideration interpretations and practices prevailing in the
countries in which the Group operates.
Tax liabilities are recognised when it is considered probable
that there will be a future outflow of funds to a taxing authority.
Uncertainties regarding availability of tax losses, in respect of
enquiries raised and additional tax measurements issued, may be
measured using the expected value method or single best estimate
approach, depending on the nature of the uncertainty. Tax
provisions are based on management's interpretation of
country-specific tax law and the likelihood of settlement.
Management uses professional firms and previous experience when
assessing tax risks.
Deferred tax is provided, using the liability method, on all
temporary differences at the end of the reporting period between
the tax bases of assets and liabilities and their carrying amounts
for financial reporting purposes. Deferred tax liabilities are
recognised for all taxable temporary differences, except:
-- when the deferred tax liability arises from the initial
recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss; and
-- in respect of taxable temporary differences associated with
investments in subsidiaries, when the timing of the reversal of the
temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognised for all deductible temporary
differences, the carry forward of unused tax credits and any unused
tax losses. Deferred tax assets are recognised to the extent that
it is probable that taxable profit will be available against which
the deductible temporary differences, the carryover of unused tax
credits and unused tax losses can be utilised, except:
-- when the deferred tax asset relating to the deductible
temporary differences arises from the initial recognition of an
asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss; and
-- in respect of deductible temporary differences associated
with investments in subsidiaries, deferred tax assets are only
recognised to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable
profit will be available against which the temporary differences
can be utilised.
The carrying amount of deferred tax assets is reviewed at the
end of each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable profit will be available
to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred
tax assets are reassessed at the end of each reporting period
and are recognised to the extent that it has become probable that
sufficient taxable profit will be available to allow all or part of
the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the period when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted by the end of
the reporting period.
Deferred tax assets and deferred tax liabilities are offset if
and only if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred taxes
relate to income taxes levied by the same taxation authority on
either the same taxable entity and the same taxation authority or
different taxable entities which intend either to settle current
tax liabilities and assets on a net basis, or to realise the assets
and settle the liabilities simultaneously, in each future period in
which significant amounts of deferred tax liabilities or assets are
expected to be settled or recovered.
Foreign currencies
This financial information is presented in USD, which is the
Group's presentational currency. Each entity in the Group
determines its own functional currency and items included in the
Financial Statements of each entity are measured using that
functional currency. Foreign currency transactions recorded by the
entities in the Group are initially recorded using their respective
functional currency rates prevailing at the dates of the
transactions.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency rates of
exchange ruling at the end of the reporting period. Differences
arising on settlement or translation of monetary items are
recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the dates of the initial transactions. Non-monetary items measured
at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was measured.
The gain or loss arising on translation of a non-monetary item
measured at fair value is treated in line with the recognition of
the gain or loss on change in fair value of the item (i.e.
translation difference on the item whose fair value gain or loss is
recognised in other comprehensive income or profit or loss is also
recognised in other comprehensive income or profit or loss,
respectively).
The functional currency of INSPECS Group plc is GBP. The
functional currencies of certain overseas subsidiaries are
currencies other than the GBP. At the end of the reporting period,
the assets and liabilities of these entities are translated into
GBP at the exchange rates prevailing at the end of the reporting
period and their income statements are translated into GBP at the
average exchange rates for the year.
The resulting exchange differences are recognised in other
comprehensive income and accumulated in the foreign currency
translation reserve. On disposal of a foreign operation, the
component of other comprehensive income relating to that particular
foreign operation is recognised in profit or loss. On translation
to USD for presentation, the assets and liabilities of the
consolidated entity are translated into USD at the exchange rates
prevailing at the end of the reporting period, equity balances are
translated at historic exchange rates and the income statement is
translated into USD at the average exchange rates for the year.
Any goodwill arising on the acquisition of a foreign operation
and any fair value adjustments to the carrying amounts of assets
and liabilities arising on acquisition are treated as assets and
liabilities of the foreign operation and translated at the closing
rate at the period end.
For the purpose of the consolidated statement of cash flows, the
cash flows of overseas subsidiaries are translated at the average
exchange rates for the year.
Pensions and other post-employment benefits
The Group operates defined contribution pension schemes, where
the amounts charged to the statement of comprehensive income are
the contributions payable in the year. Differences between
contributions payable in the year and the contributions actually
paid are shown as either accruals or prepayments.
Non-underlying costs
Non-underlying costs are those that in the Directors' view
should be separately disclosed due to their nature to enable a full
understanding of the Group's financial performance. These include
income and expenditure that is considered outside of the usual
course of business and therefore is separately identified to allow
the users of the Financial Statements comparability versus prior
periods. The main categories of costs disclosed as non-underlying
are acquisition costs, restructuring costs and other professional
service costs relating to the accounting integration of
acquisitions.
Prior year adjustments
Material prior period errors are corrected retrospectively in
the first set of Financial Statements authorised for issue after
their discovery by restating the comparative amounts for the prior
periods presented. A reconciliation between the corrected figures
and those reported for key statements is provided in note 17.
During the year, a prior year error has been identified in relation
to the treatment of contingent consideration.
New and amended standards and interpretations
The following standards have been published and are mandatory
for accounting periods beginning after 1 January 2022:
-- Amendments to IFRS 3: Business Combinations - Reference to
the Conceptual Framework - effective 1 January 2022.
-- Amendments to IAS 16: Property, Plant and Equipment - effective 1 January 2022.
-- Amendments to IAS 37: Provisions, Contingent Liabilities and
Contingent Assets - effective 1 January 2022.
-- Annual Improvements to IFRS Standards 2018-2020 Cycle - 1 January 2022.
None of the above standards have given rise to a significant
change in the reported results or financial position of the Group
or Company.
3. Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the Group's Financial Statements requires
management to make judgements, estimates and assumptions that
affect the reported amounts of revenues, expenses, assets and
liabilities, and their accompanying disclosures, and the disclosure
of contingent liabilities. Uncertainty about these assumptions and
estimates could result in outcomes that could require a material
adjustment to the carrying amounts of the assets or liabilities
affected in the future.
Estimates involve the determination of the quantum of accounting
balances to be recognised. Judgements typically involve decisions
such as whether to recognise an asset or liability.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the end of the reporting period, that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year,
are described below:
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an
annual basis. This requires an estimation of the value in use of
the cash-generating units to which the goodwill is allocated.
Estimating the value in use requires the Group to make an estimate
of the expected future cash flows from the cash-generating units
and also to choose a suitable discount rate in order to calculate
the present value of those cash flows. The carrying amount of
goodwill at 31 December 2022 was $67,234,000 (2021 restated:
$75,945,000). No provision for impairment of goodwill was made as
at the end of the reporting period.
Right of return liability
Management apply assumptions in determining the right of return
liability and the associated right of return asset. These
assumptions are based on analysis of historical data trends, but
require estimation of appropriate time periods and expected return
rates. The right of return liability at the period end is
$12,838,000 (2021: $11,100,000) with an offsetting right of return
asset (held within inventory) of $1,931,000 (2021: $1,581,000). If
the provision were to increase by 5%, this would lead to an
additional charge to the profit and loss of $545,000, with it being
considered that a movement in the right of return liability having
an offsetting impact on the right of return asset.
Uncertain tax positions
Tax authorities could challenge and investigate the Group's
transfer pricing or tax domicile arrangements. As a growing,
international business, there is an inherent risk that local tax
authorities around the world could challenge either historical
transfer pricing arrangements between other entities within the
Group and subsidiaries or branches in those local jurisdictions, or
the tax domicile of subsidiaries or branches that operate in those
local jurisdictions.
As a result, the Group has identified that it is exposed to
uncertain tax positions, which it has measured using an expected
value methodology. Such methodologies require estimates to be made
by management including the relative likelihood of each of the
possible outcomes occurring, the periods over which the tax
authorities may raise a challenge to the Group's transfer pricing
or tax domicile arrangements; and the quantum of interest and
penalties payable in additions to the underlying tax liability. The
provision held in relation to uncertain tax liabilities as at 31
December 2022 is $706,000 (2021: $623,000).
Judgements made by management which are considered to have a
material impact on this financial information are as follows:
Recognition of intangible assets
In recognising the intangible assets arising on acquisition of
subsidiary entities, the intangible assets must first be
identified. This requires management judgement as to the value
drivers of the acquired business and its interaction with the
marketplace and stakeholders. In calculating the fair value of the
identified assets, management must use judgement to identify an
appropriate calculation technique and use estimates in deriving
appropriate forecasts and discount rates as required. Management
has used external experts to mitigate the risk of these judgements
and estimates on the intangible assets identified and valued.
Deferred tax
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that taxable profit will be available
against which the losses can be utilised. Significant management
judgement is required to determine the amount of deferred tax
assets that can be recognised, based upon the likely timing and the
level of future taxable profits, together with future tax planning
strategies.
4. Non-statutory measures
When reviewing profitability, the Directors use adjusted profit
metrics in order to give meaningful year on year comparison. These
adjusted profit metrics are EBITDA, Adjusted Underlying EBITDA and
Adjusted Profit Before Tax. Whilst we recognise that the measures
used are alternative (non-Generally Accepted Accounting Principles)
performance measures which are not defined within IFRS, these
measures are important and should be considered alongside the IFRS
measures. A reconciliation to these non-GAAP performance measures
is shown below:
2022 2021
$'000 $'000
------------------------------------------------------ ------- -------
Operating (loss)/profit (1,467) 1,541
Add back: Amortisation and impairment on
intangible assets 8,526 11,020
Add back: Depreciation 8,342 7,430
------------------------------------------------------ ------- -------
EBITDA 15,401 19,991
Add back: Share-based payment expense 1,729 1,484
Add back: Earnout on acquisition 1,909 -
Underlying EBITDA 19,039 21,475
-------
Add back: Purchase Price Allocation ('PPA')
release on inventory through cost of sales 164 5,991
Add back: Underlying EBITDA (loss) for acquisitions
in the period - 90
------------------------------------------------------ ------- -------
Adjusted Underlying EBITDA 19,203 27,556
------------------------------------------------------ ------- -------
Less: Depreciation (8,342) (7,430)
Less: Interest (excluding amortisation of
loan arrangement fees) (2,722) (2,268)
------------------------------------------------------ ------- -------
Adjusted Profit Before Tax (PBT) 8,139 17,858
------------------------------------------------------ ------- -------
In addition, the Directors consider the revenue of the Group on
a constant exchange rate basis calculated using the average
exchange rates in effect for the corresponding comparative
period.
Due to the technical breach of a bank covenant, the adjusted net
current assets position has been calculated to allow comparison
year on year as follows:
2022 2021
$m $m
------------------------------- ------- ------
Current assets 127.2 131.1
Current liabilities (129.4) (82.9)
Loan in technical breach (45.7) -
Adjusted current liabilities (83.7) (82.9)
------------------------------- ------- ------
Adjusted net current assets 43.5 48.2
------------------------------- ------- ------
5. Revenue
The revenue of the Group is attributable to the one principal
activity of the Group.
a) Geographical analysis
The Group's revenue by destination is split in the following
geographic areas:
2022 2021
$'000 $'000
------------------------ ------- -------
United Kingdom 26,271 30,248
Europe (excluding UK) 115,241 121,930
North America 86,189 82,114
South America 1,391 517
Asia 7,983 3,281
Africa 546 3,034
Australia 10,956 5,347
------------------------ ------- -------
248,577 246,471
------------------------ ------- -------
For the years ended 31 December 2022 and 31 December 2021 the
Group had individual no customer which accounted for more than 10%
of the Group's revenue.
b) Right of return assets and liabilities
2022 2021
$'000 $'000
---------------------------- -------- --------
Right of return asset 1,931 1,581
---------------------------- -------- --------
Right of return liability (12,838) (11,100)
---------------------------- -------- --------
The right of return asset is presented as a component of
inventory and the right of return liability is presented separately
on the face of the balance sheet.
6. Segment information
The Group operates in three operating segments, which upon
application of the aggregation criteria set out in IFRS 8 Operating
Segments results in three reporting segments:
-- Frames and Optics product distribution.
-- Wholesale - being OEM and manufacturing distribution.
-- Lenses - being manufacturing and distribution of lenses.
The criteria applied to identify the operating segments are
consistent with the way the Group is managed. In particular, the
disclosures are consistent with the information regularly reviewed
by the CEO and the CFO in their role as Chief Operating Decision
Makers, to make decisions about resources to be allocated to the
segments and to assess their performance.
The reportable segments subject to disclosure are consistent
with the organisational model adopted by the Group during the
financial year ended 31 December 2022 and are as follows:
Total before Adjustments
Frames and adjustments &
Optics Wholesale Lenses & eliminations eliminations Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Revenue
External 214,661 29,572 4,344 248,577 - 248,577
Internal 6,408 5,047 218 11,673 (11,673) -
------------------------------ ---------- --------- -------- --------------- ------------- ---------
221,069 34,619 4,562 260,250 (11,673) 248,577
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Cost of sales (113,851) (18,911) (3,500) (136,262) 9,971 (126,291)
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Gross profit 107,218 15,708 1,062 123,988 (1,702) 122,286
Expenses (91,564) (6,228) (5,245) (103,037) (3,848) (106,885)
Depreciation (6,530) (992) (808) (8,330) (12) (8,342)
Amortisation (7,411) (1,091) (24) (8,526) - (8,526)
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Operating profit/(loss) 1,713 7,397 (5,015) 4,095 (5,562) (1,467)
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Exchange adjustment
on borrowings (2,528)
Non-underlying costs (1,814)
Finance costs (3,829)
Finance income 134
Share of profit of
associate 23
Taxation 1,665
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Loss for the year (7,816)
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Total assets 396,297 84,919 12,665 493,881 (209,677) 284,204
Total liabilities (217,238) (15,149) (15,589) (247,976) 183,095 (64,881)
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Deferred tax asset 8,476
Current tax liability (1,735)
Deferred tax liability (11,553)
Borrowings (84,421)
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Group net assets 130,090
------------------------------ ---------- --------- -------- --------------- ------------- ---------
Other disclosures
Capital additions 2,765 547 923 4,235 - 4,235
------------------------------ ---------- --------- -------- --------------- ------------- ---------
The reportable segments subject to disclosure are consistent
with the organisational model adopted by the Group during the
financial year ended 31 December 2021 and are as follows:
Total
before
Frames adjustments Adjustments
and Optics Wholesale Lenses & eliminations & eliminations Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Revenue
External 211,527 27,437 7,507 246,471 - 246,471
Internal 3,438 4,664 90 8,192 (8,192) -
------------------------------ ----------- --------- -------- --------------- --------------- ---------
214,965 32,101 7,597 254,663 (8,192) 246,471
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Cost of sales (115,964) (16,922) (4,977) (137,863) 7,164 (130,699)
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Gross profit 99,001 15,179 2,620 116,800 (1,028) 115,772
Expenses (84,672) (6,857) (4,797) (96,326) 545 (95,781)
Depreciation (5,669) (1,209) (552) (7,430) - (7,430)
Amortisation and impairment (6,386) (4,632) (2) (11,020) - (11,020)
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Operating (loss)/profit 2,274 2,481 (2,731) 2,024 (483) 1,541
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Exchange adjustment
on borrowings (5,418)
Non-underlying costs (2,588)
Finance costs (2,775)
Finance income 118
Share of loss of associate (10)
Taxation 3,697
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Loss for the year (5,435)
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Total assets 426,449 75,568 13,986 516,003 (207,598) 308,405
Total liabilities (321,905) (7,444) (10,813) (340,162) 270,205 (69,957)
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Deferred tax asset 12,540
Current tax liability (2,780)
Deferred tax liability (20,517)
Borrowings (82,483)
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Group net assets 145,208
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Other disclosures
Capital additions 2,471 1,300 3,874 7,645 - 7,645
------------------------------ ----------- --------- -------- --------------- --------------- ---------
Total assets are the Group's gross assets excluding deferred tax
asset. Total liabilities are the Group's gross liabilities
excluding loans and borrowings, current and deferred tax
liabilities.
Non-underlying costs, as well as net finance costs and taxation
are not allocated to individual segments as they relate to
Group-wide activities as opposed to individual reporting
segments.
Deferred tax and borrowings are not allocated to individual
segments as they are managed on a Group basis.
Adjusted items relate to elimination of all intra-group items
including any profit adjustments on intra-group sales that are
eliminated on consolidation, along with the profit and loss items
of the Parent Company.
Adjusted items in relation to segmental assets and liabilities
relate to the elimination of all intra-group balances and
investments in subsidiaries, and assets and liabilities of the
Parent Company.
Non-current operating assets
2022 2021
$'000 $'000
----------------- ------- -------
United Kingdom 9,820 9,795
Europe 110,339 129,441
North America 4,863 4,589
Asia 30,856 36,580
----------------- ------- -------
155,878 180,405
----------------- ------- -------
Non-current assets for this purpose consist of property, plant
and equipment, right-of-use assets, goodwill and intangible
assets.
7. Employees and Directors
2022 2021
$'000 $'000
------------------------------ ------- -------
Wages and salaries 56,436 57,714
Social security costs 9,624 10,002
Pension costs 713 566
Share-based payment expense 1,729 1,484
------------------------------ ------- -------
68,502 69,766
------------------------------ ------- -------
The average number of employees during the year by operating
segment was as follows:
2022 2021
-------------------- ----- -----
Frames and Optics 679 621
Wholesale 961 964
Lenses 102 87
-------------------- ----- -----
1,742 1,672
-------------------- ----- -----
Directors' remuneration during the year was as follows:
2022 2021
$'000 $'000
----------------------------------- ------- -------
Directors' salaries 909 811
Directors' pension contributions 16 35
Share options - 373
----------------------------------- ------- -------
925 1,219
----------------------------------- ------- -------
Information regarding the highest paid Director is as
follows:
2022 2021
$'000 $'000
--------------------- ------- -------
Total remuneration 318 523
--------------------- ------- -------
The number of Directors to whom employer pension contributions
were made by the Group during year is three (2021: two). This was
in the form of a defined contribution pension scheme.
8. Non-underlying costs
Non-underlying costs are those that in the Directors' view
should be separately disclosed by virtue of their size, nature or
incidence to enable a full understanding of the Group's financial
performance in the year and business trends over time.
Non-underlying costs incurred during the year are as follows:
2022 2021
$'000 $'000
----------------------------------- ------- -------
Acquisition costs 1,101 1,352
Other professional service costs 201 1,236
Restructuring costs 512 -
----------------------------------- ------- -------
1,814 2,588
----------------------------------- ------- -------
Acquisition costs of $1,101,000 were incurred during the period
relating to prospective acquisition targets. The Board decided to
pause the acquisition process in the second half of 2022 due to
market conditions. Other professional service costs of $201,000
relate to accounting transition and valuation following the
acquisition of BoDe Design GmbH and EGO Eyewear Limited in December
2021. Restructuring costs of $512,000 were incurred in the period
in relation to the closure of International Eyewear Limited and
INSPECS Asia Limited. The closure of these entities is as a result
of recent acquisitions and is therefore considered one-off in
nature.
9. Finance costs and finance income
2022 2021
$'000 $'000
------------------------------------------- ------- -------
Finance costs
Bank loan interest 2,206 1,785
Invoice discounting interest and charges 94 57
Loan transaction costs 974 477
Lease interest 555 456
------------------------------------------- ------- -------
Total finance costs 3,829 2,775
------------------------------------------- ------- -------
Finance income
------------------------------------------- ------- -------
Interest receivable 134 118
------------------------------------------- ------- -------
10. Loss before income tax
The loss before income tax is stated after charging:
2022 2021
$'000 $'000
-------------------------------------------- ------- -------
Cost of inventories recognised as expense 92,049 95,628
Short-term leases 486 486
Depreciation - owned assets 3,841 3,423
Depreciation - right-of-use assets 4,501 4,007
Amortisation - intangibles 8,526 7,567
Impairment - intangibles - 3,453
-------------------------------------------- ------- -------
2022 2021
$'000 $'000
-------------------------------------------- ------- -------
Fees payable to the Company's auditor for
audit services:
Audit of the Company and Group accounts 592 574
Audit of the subsidiaries 1,142 830
-------------------------------------------- ------- -------
No fees have been charged by the Company's auditor for non-audit
services in the current or prior periods.
11. Income tax
Analysis of tax expense:
2022 2021
$'000 $'000
-------------------------------------------------- ------- -------
Current tax:
Current tax on profits for the year 2,036 1,618
Overseas current tax expense 322 469
Foreign tax suffered 4 -
Adjustment in respect of prior years (948) (128)
-------------------------------------------------- ------- -------
Total current tax 1,414 1,959
-------------------------------------------------- ------- -------
Deferred tax:
Deferred tax income relating to the origination
and reversal of timing differences (2,964) (4,430)
Effect of changes in tax rates (108) (1,122)
Adjustment in respect of prior years (7) (104)
-------------------------------------------------- ------- -------
Total deferred tax (3,079) (5,656)
-------------------------------------------------- ------- -------
Total tax credit reported in the consolidated
income statement (1,665) (3,697)
-------------------------------------------------- ------- -------
Factors affecting the tax credit
The tax credit assessed for the year is lower than the standard
rate of corporation tax in the UK. The difference is explained
below:
2022 2021
$'000 $'000
-------------------------------------------------- ------- -------
Loss before income tax (9,481) (9,132)
-------------------------------------------------- ------- -------
Loss multiplied by standard rate of corporation
tax in the UK of 19% (2021: 19%) (1,801) (1,735)
Effects of:
Non-deductible expenses - amortisation of
intangible assets 185 853
Non-deductible expenses - other expenses 907 517
Increase/(decrease) in provision for uncertain
tax liabilities 152 (2,224)
Capital allowances super deduction (2) -
Share-based payment 459 (136)
Different tax rate for overseas subsidiaries (3,065) (1,311)
Transfer pricing adjustments 81 1,017
Tax rate changes (108) (1,122)
Effects of Group relief - 156
Amounts not recognised for deferred tax 2,482 520
Adjustments in respect of prior year (955) (232)
-------------------------------------------------- ------- -------
Tax credit (1,665) (3,697)
-------------------------------------------------- ------- -------
Movements in other comprehensive income relating to foreign
exchange on consolidation are not taxable.
12. Earnings per share ('EPS')
Basic EPS is calculated by dividing the profit or loss for the
year attributable to ordinary equity holders of the Parent by the
weighted average number of Ordinary Shares outstanding during the
year.
Diluted EPS is calculated by dividing the profit or loss
attributable to ordinary equity holders of the Parent by the
weighted average number of Ordinary Shares outstanding during the
year plus the weighted average number of Ordinary Shares that would
be issued on conversion of all the dilutive potential Ordinary
Shares into Ordinary Shares, to the extent that the inclusion of
such shares is not anti-dilutive. A loss has been made in the year
to 31 December 2022 and the comparative period. In accordance with
IAS 33, potential Ordinary Shares shall be treated as dilutive
when, and only when, their conversion to Ordinary Shares would
decrease earnings per share, or increase loss per share from
continuing operations. As a loss is made, including the dilution of
potential Ordinary Shares reduces the loss per share and therefore
the outstanding options should not be treated as dilutive when
calculating EPS.
Adjusted PBT earnings per share figures are calculated by
dividing adjusted PBT for the year by the weighted average number
of Ordinary Shares outstanding during the year. Adjusted PBT
diluted earnings per share figures are calculated by dividing
Adjusted PBT for the year by the weighted average number of
Ordinary Shares plus the weighted average number of Ordinary Shares
that would be issued on the conversion of all dilutive potential
Ordinary Shares into Ordinary Shares. A reconciliation to Adjusted
PBT can be found in note 4.
The following table reflects the income and share data used in
the basic and diluted EPS calculations:
Basic weighted
average number Total Earnings
Year ended 31 December of Ordinary earnings per share
2022 Shares ('000) ($'000) ($)
------------------------- --------------- --------- ----------
Basic EPS 101,672 (7,816) (0.08)
Diluted EPS 107,554 (7,816) (0.08)
Adjusted PBT basic EPS 101,672 8,139 0.08
Adjusted PBT diluted
EPS 107,554 8,139 0.08
------------------------- --------------- --------- ----------
Basic weighted
average number Total Earnings
Year ended 31 December of Ordinary earnings per share
2021 Shares ('000) ($'000) ($)
------------------------- --------------- --------- ----------
Basic EPS 101,310 (5,435) (0.05)
Diluted EPS 106,336 (5,435) (0.05)
Adjusted PBT basic EPS 101,310 17,858 0.18
Adjusted PBT diluted
EPS 106,336 17,858 0.17
------------------------- --------------- --------- ----------
13. Analysis of cash flows given in the statement of cash
flows
A reconciliation of profit for the year to cash generated from
operations is shown below:
2022 2021
$'000 $'000
-------------------------------------------- ------- -------
Loss before income tax (9,481) (9,132)
Adjustments for:
Depreciation 8,342 7,430
Amortisation and impairment of intangible
assets 8,526 11,020
Share of (profit)/loss of associate (23) 10
Share-based payment 1,729 1,484
Earnout on acquisitions 1,909 -
Exchange adjustment on borrowings 2,528 5,418
Cases valuation adjustment against
goodwill 776 -
Loss on disposal of non-current assets 129 -
Exchange adjustment on trading - (1,171)
Finance costs 3,829 2,775
Finance income (134) (118)
Changes in working capital
(Increase)/decrease in inventories (8,418) 149
Decrease in trade and other receivables 117 1,923
Increase in trade and other payables 2,529 5,107
------------------------------------------------ ------- -------
Cash flows from operating activities 12,358 24,895
------------------------------------------------ ------- -------
14. Deferred consideration
Deferred considerations payable relate to the acquisitions of
BoDe Design GmbH and EGO Eyewear Limited. In relation to BoDe
Design GmbH, the full balance of $685,000 is based on the
performance of the entity during 2022. In relation to EGO Eyewear
Limited, $2,451,000 is deferred consideration payable in equal
instalments in 2023, 2024 and 2025. The remaining balance is based
on the performance of the entity during 2022. 2021 deferred
consideration has been restated, as detailed in note 17. The split
of the deferred consideration between each entity is as
follows:
2021
2022 Restated
$'000 $'000
------------------------------------------- ------- ---------
BoDe Design GmbH - 371
EGO Eyewear Limited 1,634 2,736
------------------------------------------- ------- ---------
Total non-current deferred consideration 1,634 3,107
------------------------------------------- ------- ---------
2022 2021
$'000 $'000
--------------------------------------- ------- ------
BoDe Design GmbH 685 -
EGO Eyewear Limited 2,361 -
--------------------------------------- ------- ------
Total current deferred consideration 3,046 -
--------------------------------------- ------- ------
The previous owners of BoDe Design and EGO Eyewear are entitled
to earnout payments based on the performance of each entity to 31
December 2025. A charge has been recognised in the Income Statement
of $1,909,000 in relation to the earnout payable as a result of
performance for the year to 31 December 2022.
15. Reserves
Share premium
This reserve records the amount above the nominal value of the
sums received for shares issued, less transaction costs.
2022 2021
$'000 $'000
---------------------------- ------- -------
At 1 January 122,291 121,940
Exercise of share options - 351
---------------------------- ------- -------
At 31 December 122,291 122,291
---------------------------- ------- -------
Foreign currency translation reserve
This reserve records the foreign currency translation adjustment
on consolidation.
2021
2022 Restated
$'000 $'000
----------------------------- ------- ---------
At 1 January 2,802 (89)
Other comprehensive income (7,459) 2,891
----------------------------- ------- ---------
At 31 December (4,657) 2,802
----------------------------- ------- ---------
Share option reserve
The share option reserve is used to recognise the value of
equity-settled share-based payments provided to employees,
including key management personnel, as part of their
remuneration.
2022 2021
$'000 $'000
-------------------------------- ------- -------
At 1 January 2,001 867
Share-based payment charge 1,729 1,484
Exercise of share options - (437)
Share options cancelled (182) -
Deferred tax on share options - 87
-------------------------------- ------- -------
At 31 December 3,548 2,001
-------------------------------- ------- -------
The share-based payment charge for the year is recognised
against the reserve as per IFRS 2 Share-Based Payments. 150,000
share options have been cancelled during the period. Upon
cancellation of share options, the remaining element of fair value
of the option is expensed immediately through the income statement.
The related share option reserve is then recycled into retained
earnings, resulting in the movement of $182,000 from the share
option reserve to retained earnings.
Retained earnings
2022 2021
$'000 $'000
---------------------------- ------- -------
At 1 January 9,429 14,429
Loss for the year (7,816) (5,435)
Exercise of share options - 435
Share options cancelled 182 -
Cash dividends (1,572) -
---------------------------- ------- -------
At 31 December 223 9,429
---------------------------- ------- -------
During the period, the final dividend in relation to 2021 was
paid, amounting to 1.25 pence per share.
Merger reserve
This reserve arose on the share for share exchange between
INSPECS Holdings Limited and INSPECS Group plc on 10 January
2020.
2022 2021
$'000 $'000
----------------- ------- -------
At 1 January 7,296 7,296
At 31 December 7,296 7,296
----------------- ------- -------
16. Financial liabilities - borrowings
2022 2021
$'000 $'000
---------------------- ------- -------
Current:
Invoice discounting 1,803 2,433
Bank loans 58,204 9,979
Lease liabilities 4,396 3,310
---------------------- ------- -------
62,600 13,289
---------------------- ------- -------
2022 2021
$'000 $'000
-------------------- ------- -------
Non-current:
Bank loans 225 50,113
Lease liabilities 19,793 19,081
-------------------- ------- -------
20,018 69,194
-------------------- ------- -------
At the balance sheet date, the available invoice discounting
facility was $1,827,000 (2021: $1,621,000). The invoice discounting
facility bears interest at 2.25% over base rate (2021: 2.00%). The
invoice discounting facility is secured by way of fixed and
floating charges over the trade receivables of INSPECS Limited. The
facility has no fixed end date, with a notice period of three
months.
As at 31 December 2022, it was determined the Group was in
technical breach of its debt service cover loan covenants, which
has resulted in the re-classification of the loan balance ($45.7m)
to a current liability in line with IAS 1. Subsequently, HSBC has
waived the cashflow cover and leverage covenants at 31 December
2022.
On 27 October 2021, the Group entered a new multi-currency term
loan with HSBC for $18,700,000. Repayments under this loan are
$900,000 per quarter plus interest. Interest is payable at the
applicable Margin Rate plus LIBOR calculated daily on a 360-day
year basis. The Margin Rate is 1.90%, 2.15% or 2.40% dependent upon
the Group's leverage ratio. The loan matures in October 2024.
The Group also hold a multi-currency revolving credit facility,
from which an additional $4,000,000 was drawn down in September
2022, increasing this loan to $36,385,000 as at 31 December 2022.
Interest is payable at LIBOR/EURIBOR/SONIA (depending on the
currency in which funds are drawn down) plus 2.4% calculated daily
on a 360-day year basis. The credit facility matures in October
2024.
Loans amounting to $8,700,000 were refinanced during the year,
bringing these balances to the same lender as the rest of the
Group. This new loan holds an interest rate of LIBOR plus
2.25%.
Remaining loans in the Group are at a fixed interest rate of
2.0% and are repayable in between one and five years.
The Group's bank loans and overdrafts are secured against the
business assets of the Group. The Group's lease liabilities are
secured against the assets concerned.
17. Prior year adjustment - contingent consideration
Under IFRS 3: Business Combinations, contingent consideration
payable dependent on continuing employment of the previous owners
should be accounted for as remuneration for continuing services
over the period to which it relates. Within the 2021 Annual Report,
these earnout payments were included within the total consideration
for both the BoDe Design GmbH and EGO Eyewear Limited acquisitions.
A prior year adjustment is therefore required to reduce the
deferred consideration liability by $5,398,000, reduce goodwill by
$5,414,000 and reduce the foreign currency translation reserve by
$16,000. There is no impact on the prior year Income Statement as
no earnout payments related to 2021, with the acquisitions both
made in December 2021.
The reconciliation of the restated Statement of Financial
Position as at 31 December 2021 is shown below:
Restated
Prior year
31 December 2021 adjustment 31 December 2021
$'000 $'000 $'000
------------------- ----------------------------- ----------- ------------------
ASSETS
Non-current assets
Goodwill 81,359 (5,414) 75,945
Intangible assets 54,454 - 54,454
Property, plant and equipment 24,569 - 24,569
Right-of-use asset 22,269 - 22,269
Investment in associates 48 - 48
Deferred tax 12,540 - 12,540
------------------------------------ ------------ ----------- ------------------
195,239 (5,414) 189,825
------------------------------------ ------------ ----------- ------------------
Current assets
Inventories 55,664 - 55,664
Trade and other receivables 42,229 - 42,229
Tax receivable 3,468 - 3,468
Cash and cash equivalents 29,759 - 29,759
------------------------------------ ------------ ----------- ------------------
131,120 - 131,120
------------------------------------ ------------ ----------- ------------------
Total assets 326,359 (5,414) 320,945
------------------------------------ ------------ ----------- ------------------
EQUITY
Called up share capital 1,389 - 1,389
Share premium 122,291 - 122,291
Foreign currency translation
reserve 2,818 (16) 2,802
Share option reserve 2,001 - 2,001
Merger reserve 7,296 - 7,296
Retained earnings 9,429 - 9,429
------------------------------------ ------------ ----------- ------------------
Total equity 145,224 (16) 145,208
------------------------------------ ------------ ----------- ------------------
LIABILITIES
Non-current liabilities
Financial liabilities
- borrowings 69,194 - 69,194
Contingent and deferred
consideration 8,505 (5,398) 3,107
Deferred tax 20,517 - 20,517
------------------------------------ ------------ ----------- ------------------
98,216 (5,398) 92,818
------------------------------------ ------------ ----------- ------------------
Current liabilities
Trade and other payables 53,317 - 53,317
Right of return liabilities 11,100 - 11,100
Financial liabilities
- borrowings
Interest-bearing loans
and borrowings 13,289 - 13,289
Invoice discounting 2,433 - 2,433
Tax payable 2,780 - 2,780
------------------------------------ ------------ ----------- ------------------
82,919 - 82,919
------------------------------------ ------------ ----------- ------------------
Total liabilities 181,135 (5,398) 175,737
------------------------------------ ------------ ----------- ------------------
Total equity and liabilities 326,359 (5,414) 320,945
------------------------------------ ------------ ----------- ------------------
18. Post balance sheet events
Since the balance sheet date, but before this financial
information was approved, there were no events that the Directors
consider material to the users of this financial information.
The financial information set out above is unaudited and does
not constitute the Company's statutory accounts for the year ended
31 December 2022. Statutory accounts for 2022 will be delivered in
due course.
Cautionary Statement
This announcement contains forward looking statements which are
made in good faith based on the information available at the time
of its approval. It is believed that the expectations reflected in
these statements are reasonable but they may be affected by a
number of risks and uncertainties that are inherent in any forward
looking statement which could cause actual results to differ
materially from those currently anticipated. Nothing in this
document should be regarded as a profits forecast.
Appendix 1
Comparative information in GBP
Consolidated Income Statement in GBP
for the year ended 31 December 2022
2022 2021
GBP'000 GBP'000
------------------------------------ ----------- ----------
Revenue 200,957 179,165
Cost of sales (102,097) (95,010)
------------------------------------ ----------- ----------
Gross profit 98,860 84,155
Distribution costs (6,292) (5,667)
Administrative expenses (93,754) (77,371)
------------------------------------ ----------- ----------
Operating (loss)/profit (1,186) 1,117
Non-underlying costs (1,466) (1,881)
Exchange adjustment on borrowings (2,044) (3,938)
Finance costs (3,095) (2,017)
Finance income 108 86
Share of profit of associate 19 (7)
------------------------------------ ----------- ----------
Loss before income tax (7,664) (6,640)
Income tax credit 1,345 2,689
------------------------------------ ----------- ----------
Loss for the year (6,319) (3,951)
------------------------------------ ----------- ----------
Consolidated Statement of Financial Position in GBP
as at 31 December 2022
2022 2021
GBP'000 GBP'000
--------------------------------------- -------- --------
ASSETS
Non-current assets
Goodwill 55,578 56,206
Intangible assets 36,170 40,298
Property, plant and equipment 17,424 18,182
Right-of-use asset 19,683 16,482
Investment in associates 112 36
Deferred tax 7,007 9,281
--------------------------------------- -------- --------
135,974 140,485
--------------------------------------- -------- --------
Current assets
Inventories 48,158 41,199
Trade and other receivables 31,144 31,242
Tax receivables 3,681 2,566
Cash and cash equivalents 22,153 22,024
--------------------------------------- -------- --------
105,136 97,031
--------------------------------------- -------- --------
Assets held for sale 832 -
--------------------------------------- -------- --------
Total assets 241,942 237,516
--------------------------------------- -------- --------
EQUITY
Shareholders' equity
Called up share capital 1,017 1,017
Share premium 89,508 89,508
Foreign currency translation reserve 9,434 3,206
Share option reserve 2,703 1,454
Merger reserve 5,340 5,340
Retained earnings (461) 6,931
--------------------------------------- -------- --------
Total equity 107,541 107,456
--------------------------------------- -------- --------
2022 2021
GBP'000 GBP'000
-------------------------------------------------- -------- --------
LIABILITIES
Non-current liabilities
Financial liabilities - borrowings
Interest-bearing loans and borrowings 16,548 51,210
Deferred consideration 1,350 2,300
Deferred tax 9,548 15,184
-------------------------------------------------- -------- --------
27,446 68,694
-------------------------------------------------- -------- --------
Current liabilities
Trade and other payables 39,153 39,459
Right of return liabilities 10,613 8,215
Financial liabilities - borrowings
Interest-bearing loans and borrowings 51,746 9,835
Invoice discounting 1,490 1,800
Deferred consideration 2,518 -
Tax payable 1,435 2,057
-------------------------------------------------- -------- --------
106,955 61,366
-------------------------------------------------- -------- --------
Total liabilities 134,401 130,060
-------------------------------------------------- -------- --------
Total equity and liabilities 241,942 237,516
-------------------------------------------------- -------- --------
Reconciliation of Adjusted Underlying EBITDA and Adjusted PBT in
GBP
for the year ended 31 December 2022
2022 2021
GBP'000 GBP'000
------------------------------------------------------ ----------------------- --------
Revenue 200,957 179,165
------------------------------------------------------ ----------------------- --------
Gross profit 98,860 84,155
Operating and distribution expenses, net
of other operating income (100,046) (83,038)
------------------------------------------------------ ----------------------- --------
Operating (loss)/profit (1,186) 1,117
Add back: Amortisation and impairment on
intangible assets 6,893 8,011
Add back: Depreciation 6,744 5,401
------------------------------------------------------ ----------------------- --------
EBITDA 12,451 14,529
Add back: Share-based payment expense 1,398 1,079
Add back: Earnout on acquisition 1,544 -
Underlying EBITDA 15,393 15,608
-----------------------
2022 2021
GBP'000 GBP'000
------------------------------------------------------ ----------------------- --------
Underlying EBITDA 15,393 15,608
Add back: Purchase Price Allocation ('PPA')
release on inventory through cost of sales 132 4,355
Add back: Underlying EBITDA (loss) for acquisitions
in the period - 66
------------------------------------------------------ ----------------------- --------
Adjusted Underlying EBITDA 15,525 20,029
Less: Depreciation (6,744) (5,401)
Less: Interest (excluding amortisation of
loan arrangement fees) (1,979) (1,649)
------------------------------------------------------ ----------------------- --------
Adjusted Profit Before Tax (PBT) 6,802 12,979
------------------------------------------------------ ----------------------- --------
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