REG - Inspecs Group PLC - Final Results
29/06/2022 07:00
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RNS Number : 5487Q Inspecs Group PLC 29 June 2022
29 June 2022
INSPECS Group plc
("INSPECS" or "the Group")
Final Results
INSPECS Group plc, a leading designer, manufacturer and distributor of eyewear
frames, announces its Final Results for the year ended 31 December 2021.
Key Financials
• Group revenue increased 420% to $246.5m (2020: $47.4m)
• Adjusted Underlying EBITDA increased 376% to $27.6m (2020: $5.8m)
• Gross profit up 465% to $115.8m (2020: $20.5m)
• Loss after tax decreased 39% to $5.4m (2020: $8.9m)
• Diluted EPS of $(0.05)c (2020: $(0.13)c)
• Net current assets of $48.1m (2020: $56.2m)
• Net cash from operating activities up $20.8m to $20.0m (2020: $(0.8)m)
• Maiden dividend proposed of 1.25p per share (2020: Nil)
Operational Highlights
• Acquisition of EGO Eyewear Limited and its subsidiaries in December 2021 who
distributes brands to major optical chains known for its innovative and
creative designs
• Acquisition of BoDe Design Vertriebs GmbH in December 2021, who distributes
eyewear to chains and online retailers principally in the German and Austrian
markets
• Purchased the trademarks, rights and licences to Hardy Amies, a leading
British fashion brand in October 2021
• Successfully completed construction and fit out of Norville's new
state-of-the-art lens-making facility in Gloucester, now fully operational
• Number of eyewear units sold globally increased 112% to 10.4 million (2020:
4.9m)
• Enhanced Vietnam operations with a second plant, increasing total production
facility to 8,800 sqm2 and increasing supply by 72% from 2.18m to 3.75m units
• Manufacturing in China (Torkai) increased from 1.59m to 1.82m units
• Manufacturing in Vietnam (Neo) increased from 2.18m to 3.75m units
• Two new in-house brands added in 2021
• 11 new global branded licences added to the brand portfolio
• Awarded multiple Red Dot awards and the SILMO d'Or
Robin Totterman, CEO of INSPECS said:
"2021 marked another successful year for Inspecs as we continued to gain
momentum through our proven vertically-integrated business model. Whilst we
were not immune from the well-documented global supply chain challenges and
the regional lockdowns relating to COVID-19, we were able to navigate market
conditions and deliver an exceptional performance.
Our ability to more than double our revenue, EBITDA and gross profit in the
year is a reflection of our continued strategic investments in the period,
coupled with organic growth. The acquisitions of BoDe, EGO Eyewear and Hardy
Amies have diversified our brand portfolio and broadened the distribution of
our products around the world. In addition, we have invested in our
manufacturing facilities in order to enhance our production capabilities.
During the period, we opened Norville's new state-of-the-art lens
manufacturing facility on time and within budget, scaled-up our operations in
Vietnam, and looking ahead, we have advanced our plans to build a new factory
in Portugal.
Our commitment to sustainability has been integral to the business and this
can be reflected though the launch of the new sustainable, eco-friendly
BOTANIQ™ range, as well as our investment in cutting-edge technologies that
will enable us to explore and create sustainable products. I look forward to
rolling out further initiatives in the years to come.
Despite the current macro-environment, we are fortunate to be operating in a
resilient market and I am pleased to report that we experienced strong trading
in the first three months of the FY22 fiscal year. The significant progress we
are making proves that our growth strategy is the right one, and I am
confident that we will continue to deliver shareholder value in the long
term."
The Annual Report for the year ended 31 December 2021 will shortly be
available on the Group's website
(www.inspecs.com/investors-results-and-reports/
(http://www.inspecs.com/investors-results-and-reports/) ) and will be sent to
shareholders. The INSPECS Annual General Meeting will be held at 11am on 11
August 2022, at Kelso Place, Bath, UK.
For further information please contact:
INSPECS Group plc via FTI Consulting
Robin Totterman, CEO Tel: +44 (0) 20 3727 1000
Chris Kay, CFO
Peel Hunt (Nominated Adviser and Broker) Tel: +44 (0) 20 7418 8900
Adrian Trimmings
Andrew Clark
Lalit Bose
FTI Consulting (Financial PR)
Alex Beagley Tel: +44 (0) 20 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 and
un-branded).
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.
The Group has completed a number of significant acquisitions since its IPO in
February 2020. In December 2020, INSPECS acquired Eschenbach, a leading global
eyewear supplier, headquartered in Nuremberg, Germany, which includes the
American company Tura. This followed the acquisition of lens maker Norville in
July 2020, whereby INSPECS combined two heritage brands in British optical,
Savile Row frame maker, and Norville lens maker, further enhancing its
vertically integrated business model. In December 2021 the Group acquired Ego
Eyewear, a design and licensing company which uses third party eyewear
manufacturers to produce premium fashion brands, and BoDe, a distributor of
optical and sunglasses frames principally to the German market.
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 in the UK, Portugal,
Scandinavia, the US and China (Hong Kong, Macau and Shenzhen), and
manufacturing facilities in Vietnam, China, the UK and Italy. With the
acquisition of Eschenbach, the Group's international reach further extends
across Europe and the American markets.
More information is available at: https://inspecs.com (https://inspecs.com/)
CHAIRMAN'S STATEMENT
The Group has continued to deliver in what has been another challenging year
due to restrictions from COVID-19 and has produced a strong set of results
following on from the acquisition of Eschenbach in December of 2020. I would
like to thank all those across our various businesses who have worked
tremendously hard, in difficult circumstances, to deliver these results for
our stakeholders.
Gathering momentum
Although our results for the year to 31 December 2021 include a full year of
varying COVID-19 restrictions around the globe that affected our business, I
am pleased to report that our employees rose to the challenge and were able to
continue to deliver a strong performance for the year.
The acquisitions of Eschenbach and TURA have given the Group a better balance,
by expanding into the independent optical market where we had previously been
focused primarily on large global chains. The 12 months following the
acquisition have produced positive results and there is no doubt that we have
a robust platform for future growth.
As a result, our performance for the year has produced turnover of $246.5m and
an Adjusted Underlying EBITDA of $27.6m, compared to turnover of $47.4m and an
Adjusted Underlying EBITDA of $5.8m in 2020.
I am also particularly pleased that the Group has managed to obtain, despite
cost pressures, a gross margin increase from 43% in 2020, to 47% for the year
to 31 December 2021.
The Group has reduced its loss before tax position from $11.2m to $9.1m. This
performance was achieved despite incurring one-off costs of $17.4m (2020:
$6.1m). On the supply side, we suffered continual disruption in logistical
supply and production in our factories, but despite these issues, the teams in
Vietnam and China worked tirelessly to ensure that production disruption was
kept to a minimum.
The Group's plans for further expansion in Vietnam and a major new European
facility will ensure stability of the supply chain and increased capacity
overall, fuelling the Group's growth.
Continuing Investment
The acquisition of Norville in 2020 was part of the strategy to enter into the
lens market and in doing so be able to offer frame and lens packages.
I would like to thank the team at Norville who, in a very difficult year, have
managed to keep production going even while moving from their original plant
to a new state-of-the-art lens-making facility in Gloucester, UK. Moving a
production plant at any time is challenging, but this was achieved with great
efficiency. Although there was disruption to our trade, the long-term benefits
of an efficient and modern manufacturing plant will lay a solid foundation for
the future.
Two further acquisitions were made in 2021, and I'd like to welcome BoDe and
EGO Eyewear to the INSPECS Group family. I look forward to seeing the positive
impact these new members bring to the company. Additionally, developing the
Hardy Amies brand through licensing and eyewear will further add to our
premium offering.
Dividend
The Board intends to propose the Group's first dividend of 1.25p per share for
2021 and continue with a progressive dividend policy in future years.
Our people
I am always impressed by the dedication and enthusiasm of our global teams who
continue to make great strides in delivering the Group's strategy.
Our policy of sustainable expansion has proved to be successful despite the
continued pandemic disruption, global energy crisis and general turmoil.
Finally, I would like to thank all of our stakeholders, who have supported the
Group over the last few years.
Outlook
I know that both the management team and all our employees are excited about
the prospects for 2022 and beyond, and therefore I look with confidence over
the medium and long-term prospects for the Group as a whole and further
development of its strategy that is proving to be successful.
Lord MacLaurin
Chairman
29 June 2022
CHIEF EXECUTIVE'S REPORT
In the past year, the Group has continued its program of integrating new
businesses into the Group and working on synergies to further build on its
strengths. Our results for the year show a turnover of $246.5m and an Adjusted
Underlying EBITDA of $27.6m compared to turnover in 2020 of $47.4m and an
Adjusted Underlying EBITDA of $5.8m. I am also particularly pleased that the
Group's margin, despite cost pressures in 2021, increased to 47.0% (43.3% in
2020).
I am delighted that the Group has once again won a number of prestigious
awards for innovation and design, including multiple Red Dot awards and the
SILMO d'Or, the industry's highest accolade.
The Group is performing well, notably our US businesses and our Vietnam based
factory, NEO, where both plants are now fully up and running. The move from
Norville's old premises to a state-of-the- art facility was successfully
completed in the year, and we expect to see improving results from the
increase in automation and upgrades through 2022. Eschenbach in Europe has had
another strong year, circumnavigating the various COVID-19 restrictions by
increasing its B2B online platform, coupled with in person meetings when
restrictions allowed.
Acquisitions
Adding to INSPECS Group's premium heritage eyewear offering, I am delighted
with our acquisition of iconic Savile Row couturier brand Hardy Amies, in
October 2021. Sir Hardy was official dressmaker to Queen Elizabeth ll for more
than 40 years, and one of the most innovative and influential British
designers of all time. We look forward to working with existing and new
licensees, as well as launching an eyewear collection.
At the end of 2021, we acquired our German distributors BoDe Design, who have
been our long-term partner in Germany, distributing to chains and online
retailers. This energetic team's focus complements the Eschenbach business,
which primarily sells to independent opticians.
In December 2021, the Group also acquired EGO Eyewear Limited and its
subsidiaries, who have the licences for Barbour Eyewear, Liberty London,
Viktor & Rolf and Lyle & Scott, among others. EGO mainly distributes
brands to major optical chains and is known for its innovative and creative
designs. EGO's design studio in Stockholm adds to our existing teams in the
UK, Portugal, Hong Kong, Germany and New York.
Skunk works
Perhaps the most exciting future development at INSPECS is the progress on our
cutting-edge technologies. The focus is on new material generation, smart
eyewear, lens technology and sustainability, with truly ground-breaking and
world-changing results. Agreements have been signed with Bosch for the
collaborative development of smart eyewear. The Group has also started to
supply lenses directly to Amazon.
Environmental, Social and 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 Group vision of 'Always Looking Forward'
embeds itself into our ESG strategy and our purpose of innovation, commitment
and integrity are reflected throughout. We consider ESG to be fundamental to
the Group and further details regarding our sustainability framework are
available on pages 40 to 53 within our 2021 Annual Report.
Manufacturing Investment
Our Vietnam operation is now enhanced with a second plant, and our total
production facility is now 8,800 square meters. The second factory came on
stream during 2021, and we were able to increase supply by 72%. Our new
sustainable, eco-friendly BOTANIQ™ range is being produced there.
We are actively engaged in the design and planning of a third facility to be
completed by the end of 2023, that will add a further 8,000 square meters and
increase our production capability in Vietnam from 7 million to over 12
million units.
We have also advanced our plans in building a factory in Portugal, close to
our existing Lisbon offices with a planned completion date of 2023. This
facility will give us an attractive major European manufacturing base.
Outlook
The economic landscape improved during 2021, but I would note that there was
increased disruption within our Group as we entered the late winter months of
2021. At present it would not seem reasonable to second guess what measures
Governments around the world may have to resort to should the pandemic
continue on in 2022, or further variants emerge.
However, the Group has a well-balanced platform and operates in a resilient
market and I am pleased to report that the first three months of trading were
ahead of our expectations. Our Q1 sales for 2022 amounted to $75.1m, compared
to $67.2m in 2021, an increase of 11.8%.
We will continue to pursue our strategy of organic and acquisitive growth. I
am confident we will be able to meet our targets and continue to grow in a
sustainable and manageable way despite continued supply chain challenges. We
will also continue to integrate the newly acquired companies across the Group,
generating further opportunities for growth.
I'm pleased to announce that the Group intends to pay its first dividend of
1.25p for the year and continue with a progressive dividend policy in future
years.
Robin Totterman
Chief Executive Officer
29 June 2022
FINANCIAL REVIEW
The Group has continued to build on its enlarged base in 2021 and has
delivered a good set of results overall in challenging circumstances. Our
order books for 2022 are positively placed, and together with our strategic
acquisitions in 2021, the Group is well positioned for further growth in 2022.
Our FY21 results showed an increase in sales of $199.1m to $246.5m. The Group
delivered Adjusted Underlying EBITDA of $27.6m (FY20: $5.8m). Reported loss
before tax of $9.1m (FY20: $11.2m) is after incurring a purchase price
adjustment ($6.0m), exchange adjustments on borrowings ($5.4m) and impairment
of intangible assets ($3.4m).
Revenue
Total revenue for the year was $246.5m, an increase of $199.1m from $47.4m in
2020. The increase in revenue was in part driven by the acquisition of
Eschenbach in late 2020, which contributed $186.7m of revenue in 2021.
Excluding the Eschenbach and Norville acquisitions, revenue grew from $40.3m
to $52.1m, an increase of $11.8m or 29%.
Gross margin
The Group's gross margin overall was 47.0% compared to 43.3% in 2020, an
increase of 3.7 points from the previous year. This increase was partly due to
the mix of sales between independent opticians and our traditional chain
business.
Adjusted Underlying EBITDA
The Group targets Adjusted Underlying EBITDA as its key operating performance
indicator. Our Adjusted Underlying EBITDA increased by $21.8m, from $5.8m to
$27.6m, an increase of 375% in 2021.
The below table shows how Underlying EBITDA is calculated:
2021 2020
$'000
$'000
Revenue 246,471 47,415
Gross profit 115,771 20,522
Operating and distribution expenses, net of other operating income (114,230) (23,462)
Operating profit/(loss) 1,541 (2,940)
Movement in fair value on derivative - (740)
Operating profit/(loss) after movement in fair value on derivative 1,541 (3,680)
Add back: Amortisation and impairment on intangible assets 11,020 1,607
Add back: Depreciation 7,430 2,299
EBITDA 19,991 226
Add back: Share-based payment expense 1,484 1,706
Add back: Restructuring costs - 185
Add back: Foreign exchange on funding for acquisitions - 1,085
Add back: Post-acquisition insurance costs - 563
Add back: Movement in fair value on derivative - 740
Underlying EBITDA 21,475 4,505
Operating profit/(loss) 1,541 (2,940)
Non-underlying costs (2,588) (5,763)
Negative goodwill on bargain purchase - 506
Movement in fair value on derivative - (740)
Exchange adjustment on borrowings (5,418) (382)
Less: Net finance costs (2,657) (1,844)
Add: Share of (loss)/profit of associate (10) -
Loss before income tax (9,132) (11,163)
Tax 3,697 2,250
(Loss)/profit for the year (5,435) (8,913)
Underlying EBITDA 21,475 4,505
Add back: Purchase Price Allocation ('PPA') release on Eschenbach inventory 5,991 -
through cost of sales
Add back: Underlying EBITDA (loss) for acquisitions in the period 90 1,295
Adjusted underlying EBITDA 27,556 5,800
Operating expenses
Our operating expenses increased from $23.5m in 2020 to $114.2m in 2021. The
increase was driven primarily by the additional operating expenses of
Eschenbach and Norville. A more detailed analysis of these expenses is shown
below:
Year Ended 31 December 2021 Acquisition Eschenbach & Norville Adjusted Year Ended Adjusted Year Ended Percentage Change
$'000 $'000 31 December 2021 31 December 2020 excluding Eschenbach & Norville
$'000 $'000
Revenue 246,471 194,290 52,181 40,298 29%
Gross Profit 115,771 91,940 23,831 17,532 36%
Distribution (7,795) (6,640) (1,155) (451) 156%
Wages&Salaries (62,160) (51,716) (10,444) (9,280) 13%
Admin (44,275) (31,035) (13,240) (9,080) 46%
Total Operating expenses (114,230) (89,391) (24,839) (18,811) 32%
The table below sets out our operating costs adjusted for the acquisition of
Eschenbach as a percentage of revenue driven in the year adjusted.
Adjusted Year Ended Adjusted Year Ended
31 December 2021 31 December 2020
$'000 Percentage of revenue $'000 Percentage of revenue Percentage change
Revenue 52,181 - 40,298 - -
Cost of Sales (23,831) 46% (17,532) 44% ↑2%
Distribution (1,155) 2% (451) 1% ↑1%
Wages& Salaries (10,444) 20% (9,280) 23% ↓3%
Admin (13,240) 25% (9,080) 23% ↑2%
Loss before tax
In 2021 the Group made a statutory loss before tax of $9.1m (FY20: loss
$11.2m), a reduction in loss of $2.1m. The Group made an Adjusted Underlying
EBITDA of $27.6m (FY20: $5.8m). The Group strategy is to grow the business by
making strategic earnings enhancing acquisitions, and also to improve the
performance of the organic businesses. Acquisitions affect the difference
between our Adjusted Underlying EBITDA and the loss before tax in the form of
one-off items which are included in the reconciliation below:
2021 2020
$m $m
Adjusted Underlying EBITDA 27.6 5.8
Non-cash adjustments
1. Depreciation and amortisation (15.0) (3.9)
2. Purchase pricing adjustments (6.0) -
3. Intangible asset impairment (3.4) -
4. Exchange adjustments on borrowings (5.4) (0.4)
5. Share based payment (1.5) (1.7)
6. Other (0.1) (3.4)
SUB TOTAL (3.8) (3.6)
Non-underlying costs (2.6) (5.8)
Net finance costs (2.7) (1.8)
Loss before tax (9.1) (11.2)
Key items impacting the current year's results are as follows:
Purchase pricing adjustment
On 16 December 2020 following the acquisition of the Eschenbach Group of
companies, finished goods acquired were revalued to their fair value in
accordance with IFRS3. This inventory has sold through in 2021 and has given
rise to an additional one-off charge of $5.99m.
Impairment of intangible assets
During the year, the Board reviewed Group activities in order to consider any
indicators of impairment which may affect the carrying value of intangible
assets. It was noted that an indicator of impairment arose relating to a
customer relationship with a carrying value of $3.7m as at 31 December 2021.
As a result, an impairment review was completed to compare the recoverable
amount of the asset against its carrying value. This review has given rise to
a non-cash impairment charge of $3.45m.
Exchange adjustments on borrowings
Following the acquisition of Eschenbach in December 2020, INSPECS Ltd acquired
the shareholder loans of Eschenbach which are denominated in Euros. The
functional currency of INSPECS Ltd is GBP giving rise to exchange adjustments
recognised in the year.
Tax
Following the acquisition of the Killine Group of companies in 2017, the Group
provided an uncertain tax reserve for potential challenges in relation to
transfer pricing. During 2021, a further transfer pricing review was
undertaken by our external advisors and following this review, part of the
uncertain tax provision amounting to $2.2m has been released. During 2022, a
further review of uncertain tax provisions is being carried out in relation to
the remaining balance of $0.6m.
Prior year adjustments
During the current period it was determined that certain balances reported as
cash balances in 2020 that pertained to Eschenbach, did not meet the
requirement that they are readily convertible into cash. A prior year
adjustment has therefore been made to reclassify $6.3m from cash and cash
equivalents to trade and other receivables in the comparative balance sheet.
During the year, a detailed review of TURA Inc., a subsidiary of the
Eschenbach Group that was acquired in December 2020, was undertaken.
Adjustments have been made to the acquisition balance sheet in 2020 following
this review. The net impact of these adjustments resulted in a increase to
goodwill of $744k (see note 2 of the financial statements for further
details).
Cash position
During the year the Group generated $25.2m in cash flows from operating
activities (2020: $403k). The Group has used the cash generated to continue to
invest in new plant and equipment, further acquisitions and enhancing 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 below.
31 December 31 December
2021 $'000 2020 $'000
Cash and cash equivalents at the beginning of year 23,776 6,502
Net cash from/used in operating activities 20,017 (748)
Net cash used in investing activities (15,661) (110,658)
Net cash from financing activities 1,704 128,712
Increase in cash and cash equivalent 6,060 17,306
Foreign exchange movements in the year (77) (32)
Cash and cash equivalents including overdrafts at the year end 29,759 23,776
The breakdown of net cash used in investing activities:
Purchase of intangible fixed assets (1,508) (167)
Purchase of property, plant and equipment (6,137) (2,452)
Acquisition of subsidiaries, net of cash acquired (8,134) (108,075)
Interest received 118 36
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. The Group's working capital
position is set out below.
Year Ended 31 December 2021 Year Ended 31 December 2020
Total >30 Days >60 Days >90 Days Total >30 Days >60 Days >90 Days
Debtors 29.4m 18.4m 6.6m 4.4m 25.1m 11.8m 6.9m 6.4m
Percentage 100% 63% 22% 15% 100% 47% 28% 25%
Inventory
Our sales to inventory ratio adjusted for the Eschenbach acquisition increased
from 3.8 to 4.4.
31 December 2021 31 December 2020 Less Eschenbach 31 December 2020
Turnover 246.5m 44.4m 47.4m
Inventory 55.7m 11.6m 55.5m
Sales to inventory ratio 4.4 3.8 0.9
Current asset ratio
The current ratio is a liquidity ratio that measures a company's ability to
pay short-term obligations, or those due within one year.
In December 2021 the Group acquired two entities and the worldwide trademarks,
rights and licences to the Hardy Amies brand, this resulted in an increase in
current liabilities. The acquisitions are for the ongoing benefit of the
Group, and not the short-term position.
Year Ended Year Ended
31 December 2021 31 December 2020
Current Assets 131.1m 124.7m
Current Liabilities 82.9m 68.4m
Ratio 1.6 1.8
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. The small reduction in the ratio is due to the
acquisitions made at the end of the year, as noted in the current asset ratio.
Year Ended Year Ended
31 December 2021 31 December 2020
Current Assets 131.1m 124.7m
Less Inventory (55.7)m (55.5)m
75.4m 69.2m
Current Liabilities 82.9m 68.4m
Ratio 0.9 1
Net debt
During the year the Group increased its $35.0m Revolving Credit Facility (RCF)
with HSBC by $1.5m, which was drawn down to $35.3m at 31 December 2021. A new
multi-currency term loan of $18.7m was agreed with HSBC. An additional $10.0m
RCF was agreed with HSBC, which was drawn down to $6.0m at 31 December 2021.
The additional financing received during the period allowed the consolidation
of loans from across the Group, this included the repayments of loans within
the Eschenbach Group, repayment of COVID-19 support loans, and the
acquisitions of BoDe and EGO Eyewear.
The Group has significant cash reserves, resulting in the net debt position as
set out below.
Year Ended Year Ended
31 December 2021 31 December 2020
Cash at Bank 29.8 26.4
Borrowings (62.5) (59.6)
Leasing (22.4) (20.3)
Net Debt (55.1) (53.5)
Net Debt (excluding leasing) (32.7) (33.2)
Depreciation and amortisation
The increase in depreciation and amortisation is driven by a full year of the
charge on the assets of the Eschenbach Group acquired on the 16 December 2020.
31 December 2021 31 December 2020
Depreciation 7.4m 2.3m
Amortisation 7.6m 1.6m
Total 15.0m 3.9m
Leverage (using debt to equity ratio)
The Group's leverage position is shown below including and excluding leasing
finance:
2021 2020
Including leasing finance 1.9 1.6
Excluding leasing finance 1.2 1.4
Required ratio 2.0 2.5
The Group's leverage is constantly updated, and a rolling projection for 12
months is reviewed to ensure compliance with the Group's covenants.
Earnings per share
The Group's loss per share decreased from $(0.13) in 2020, to $(0.05) in 2021,
a reduction of 62% per share. On an Adjusted Underlying EBITDA basis, earning
per share increased from $0.08 in 2020 to $0.27 in 2021, an increase of 225%
per share.
Dividend
The Group intends to propose a dividend of 1.25p per share.
Subject to approval by shareholders at the Annual General Meeting to be held
on 11 August 2022, the dividend will be paid on 6 October 2022. The
ex-dividend date is 1 September 2022 and the record date is 2 September 2022.
Chris Kay
Group Chief Financial Officer
29 June 2022
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2021
Notes 2021 2020
$'000
$'000
Revenue 4 246,471 47,415
Cost of sales 7,10 (130,699) (26,893)
Gross profit 115,772 20,522
Distribution costs (7,795) (787)
Administrative expenses 7,10 (106,436) (22,675)
Operating profit/(loss) 1,541 (2,940)
Non-underlying costs 8 (2,588) (5,763)
Negative goodwill on bargain purchase - 506
Movement in derivatives - (740)
Exchange adjustment on borrowings (5,418) (382)
Finance costs 9 (2,775) (1,880)
Finance income 9 118 36
Share of profit of associate (10) -
Loss before income tax (9,132) (11,163)
Income tax credit 11 3,697 2,250
Loss for the year (5,435) (8,913)
Attributable to: (5,435) (8,913)
Equity holders of the Parent
Earnings per share
Basic loss for the year attributable to the equity holders of the Parent 12 $(0.05) $(0.13)
Diluted loss for the year attributable to the equity holders of the Parent 12 $(0.05) $(0.13)
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
For the year ended 31 December 2021
2021 2020
$'000 $'000
Loss for the year (5,435) (8,913)
Other comprehensive income/(loss)
Exchange differences on translation of foreign operations 2,907 (194)
Other comprehensive income/(loss) for the year, net of income tax 2,907 (194)
Total comprehensive loss for the year (2,528) (9,107)
Attributable to: Equity holders of the Parent (2,528) (9,107)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
Notes 2021 2020
$'000 Restated
$'000
ASSETS
Non-current assets
Goodwill 81,359 72,708
Intangible assets 54,454 56,305
Property, plant and equipment 24,569 22,460
Right-of-use asset 22,269 20,379
Investment in associate 48 57
Deferred tax 12,540 12,771
195,239 184,680
Current assets
Inventories 55,664 55,495
Trade and other receivables 42,229 41,186
Tax receivables 3,468 1,556
Cash and cash equivalents 29,759 26,418
131,120 124,655
Total assets 326,359 309,335
EQUITY
Shareholders' equity
Called up share capital 1,389 1,384
Share premium 122,291 121,940
Foreign currency translation reserve 2,818 (89)
Share option reserve 2,001 867
Merger reserve 7,296 7,296
Retained earnings 9,429 14,429
Total equity 145,224 145,827
Notes 2021 2020
Restated
$'000
$'000
LIABILITIES
Non-current liabilities
Financial liabilities - borrowings
Interest-bearing loans and borrowings 69,194 70,391
Contingent and deferred consideration 14 8,505 -
Deferred tax 20,517 24,678
98,216 95,069
Current liabilities
Trade and other payables 53,317 42,902
Right of return liabilities 4 11,100 12,145
Financial liabilities - borrowings
Interest-bearing loans and borrowings 13,289 6,830
Bank overdrafts - 2,642
Invoice discounting 2,433 -
Tax payable 2,780 3,920
82,919 68,439
Total liabilities 181,135 163,508
Total equity and liabilities 326,359 309,335
The financial statements were approved by the Board of Directors on 29 June
2022.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Called up share capital Share premium Foreign currency translation reserve Share option reserve Retained earnings Merger reserve Total
$'000
$'000
$'000
$'000
$'000
$'000
equity
$'000
Balance at 1 January 2020 62 21,628 1,031 2,840 5,787 - 31,348
Changes in equity
Loss for the year - - - - (8,913) - (8,913)
Other comprehensive loss - - (194) - - - (194)
Total comprehensive loss - - (194) - (8,913) - (9,107)
Issue of share capital 603 119,215 - - - (22) 119,796
Exercise of share options 99 2,725 - (3,140) 2,973 - 2,657
Share-based payment - - - 1,133 - - 1,133
Share for share exchange and creation of merger reserve 620 (21,628) (926) 34 (46,902) 68,802 -
Capital reduction - - - - 61,484 (61,484) -
Balance at 31 December 2020 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 - - 2,907 - - - 2,907
Total comprehensive loss - - 2,907 - (5,435) - (2,528)
Exercise of share options 5 351 - (350) 435 - 441
Share-based payments - - - 1,484 - - 1,484
Balance at 31 December 2021 1,389 122,291 2,818 2,001 9,429 7,296 145,224
CONSOLIDATED STATEMENT OF CASHFLOWS
For the year ended 31 December 2021
Notes 2021 2020
Restated
$'000 $'000
Cash flows from operating activities 13 24,895 403
Interest paid (1,968) (1,144)
Tax paid (2,910) (7)
Net cash from/(used in) operating activities 20,017 (748)
Cash flows from investing activities
Purchase of intangible fixed assets (1,508) (167)
Purchase of property, plant and equipment (6,137) (2,452)
Acquisition of subsidiaries, net of cash acquired 6 (8,134) (108,075)
Interest received 9 118 36
Net cash used in investing activities (15,661) (110,658)
Cash flow from financing activities
Proceeds from the issue of shares - 115,761
Proceeds from the exercise of share options 355 -
New bank loans in the year 26,751 17,187
Bank loan principal repayments in year (22,873) (39)
Transaction costs on debt refinancing (782) (810)
Movement in invoice discounting facility 2,477 (2,577)
Principal payments on leases (4,224) (810)
Net cash from financing activities 1,704 128,712
Increase in cash and cash equivalents 6,060 17,306
Cash and cash equivalents including overdraft at beginning of the year 23,776 6,502
Effect of foreign exchange rate changes (77) (32)
Cash and cash equivalents including overdraft at end of year 29,759 23,776
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2021
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. The principal activity of the Company was that of
a holding company.
2. ACCOUNTING POLICIES
Basis of preparation
The Consolidated Financial Statements have been prepared in accordance with UK
adopted international accounting standards, and those parts of the Companies
Act 2006 applicable to companies reporting under International Financial
Reporting Standards ('IFRS').
The Consolidated Financial Statements have 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 Consolidated and Parent Company Financial
Statements is the United States Dollar (USD) rounded to the nearest thousand.
The consolidated Financial Statements provide comparative information in
respect of the year ended 31 December 2020.
Going concern
The financial statements have 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 31 December 2023.
The Board considered a base case, two downside scenarios and a reverse stress
test to assess the effect of further COVID-19 restrictions on the supply
chain, increased costs of living and reduced consumer demand, sales,
profitability, and cash generation. The scenarios were as follows:
· The base case is the board approved budget which has been updated to
April 2022. The budget was prepared assuming that some COVID-19 restrictions,
consistent with those in place in January 2021, are in place in 2022 and 2023.
The restrictions in place at this time resulted in reduced footfall on the
high streets and at airports resulting in reduced sales of non-prescription
items. Consideration has also been made of increased costs and challenges in
fulfilling orders because of the risk of disruptions in the supply chain.
· The budget does not assume any acquisition expenditure.
· The budget was prepared before the Ukrainian/Russian conflict.
However, the Group does not currently have any operations in Russia or Ukraine
or source materials from these locations. The main effect from the current
crisis is on raw material costs driven by the increase in the price of oil.
The Group expects to be able to maintain its budgeted margin throughout 2022
and 2023.
· A downside scenario updated the base case scenario with a further 10%
reduction in sales from October 2022 as the Group has certainty over its
customer orders up to this point. We have also assumed some cost saving at a
conservative level by reducing expected bonus payments to senior employees. A
second downside scenario was performed which used the same assumptions but
made consideration of the poor trading in April 2022 due to a lockdown in
Shanghai which resulted in a significant number of orders being held at the
port.
· A reverse stress test scenario updated our base case scenario with a
further 22% reduction in sales and 3% reduction in gross margin from October
2022 which results in a covenant breach in June 2023. We also assumed some
controllable cost saving by a reduction in employee expenses and removed
discretionary CAPEX spending.
The Group's borrowings with HSBC, amounting to $54.8m, contains three
covenants; leverage ratio, cashflow cover and interest cover. Compliance on
these covenants is based on 12 monthly rolling EBITDA results and 12 month
rolling interest payments respectively. In June 2022, the Group successfully
renegotiated an amendment to the covenants with HSBC whereby the required
leverage ratio was increased to December 2022 and the lease on the new
Norville factory is treated as a 10-year lease for the purposes of calculating
the net debt figure used in the leverage ratio. This increased the headroom
available to the business in response to adverse trading conditions in April
2022 as mentioned above that saw the headroom reduced. The cash available to
the business means that the covenants are more sensitive than liquidity.
The Group has considered the reasonably plausible downside scenarios which are
informed by the degree of headroom on covenants at December 2021 and March
2022 which were limited. These scenarios do not result in any covenant breach
throughout the going concern period. The group mitigates this risk by having
diverse delivery routes and has the ability to withstand further increases in
freight costs. Because of the aggregate improvement in the past 12 months
trading since COVID restrictions were lifted across the UK and Europe, we
forecast that headroom will increase to 27.9% at the next covenant test in
June 2022.
Further, the Group has considered the reverse stress test scenario, which
models a breach in the leverage ratio covenant test in June 2023. In this
case, the Directors have available the cost saving strategies that were
implemented in 2020 that could be reintroduced with no support from the
Government. However, such a scenario would see 2023 underlying EBITDA being
less than half of that achieved in 2021, a year that was impacted by COVID-19
and when the Group had fewer revenue and profit generating entities. As a
result, the directors consider that this scenario is a remote possibility.
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 31 December 2023.
Basis of consolidation
The consolidated financial information incorporates the Financial Statements
of the Group and all of its material subsidiary undertakings. 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.
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.
Investment in associate
An associate is an entity over which the Group has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not in control or joint
control over those policies.
The considerations made in determining significant influence or joint controls
are similar to those necessary to determine control over subsidiaries. The
Group's investment in its associate is accounted for using the equity method.
Under the equity method, the investment in an associate is initially
recognised at cost. The carrying amount of the investment is adjusted to
recognise changes in the Group's share of net assets of the associate since
the acquisition date.
The income statement reflects the Group's share of the results of operations
of the associate. Any change in OCI of those investees is presented as part of
the Group's OCI.
Current and non-current classifications
The Group presents assets and liabilities in the statement of financial
position based on current/non-current classification.
An asset is considered current when it is:
· Expected to be realised or intended to be sold or consumed within the
usual parameters of trading activity and as a minimum within 12 months after
the reporting period;
Or
· Cash or cash equivalent unless restricted from being exchanged or
used to settle a liability for at least 12 months after the reporting period.
The Group classifies all other assets as non-current.
A liability is current when:
· It is expected to be settled in the normal parameters of trading
activity and as a minimum is due to be settled within 12 months after the
reporting period;
Or
· There is no unconditional right to defer the settlement of the
liability for at least 12 months after the reporting period.
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and
liabilities.
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, generally on delivery of
the goods. 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.
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 includes within the liability arrangements where the Group 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.
Intangible assets (other than goodwill)
Intangible assets acquired separately are measured on initial recognition at
cost. The cost of intangible assets acquired in a business combination is
their fair value at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and
accumulated impairment losses. Internally generated intangibles are not
capitalised and the related expenditure is reflected in profit or loss in the
period in which the expenditure is incurred.
Intangible assets with finite lives are amortised over the useful economic
life and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortisation period and the amortisation
method for an intangible asset with a finite useful life are reviewed at least
at the end of each reporting period. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in
the asset are considered to modify the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates. The
amortisation expense on intangible assets with finite lives is recognised in
the profit or loss in the expense category that is consistent with the
function of the intangible assets.
An intangible asset is derecognised upon disposal (i.e. at the date the
recipient obtains control) or when no future economic benefits are expected
from its use or disposal. Any gain or loss arising upon derecognition of the
asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the profit or loss.
Amortisation is calculated on a straight-line basis over the estimated useful
lives of the assets as follows:
Patents and licences 1-4 years
Computer software 3 years
Trademarks 5-10 years
Customer relationships 8-20 years
Customer order book 6 months
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any impairment losses. The cost of an item of property, plant and
equipment comprises its purchase price and any directly attributable costs of
bringing the asset to its working condition and location for its intended use.
Expenditure incurred after items of property, plant and equipment have been
put into operation, such as repairs and maintenance, is charged to profit or
loss in the period in which it is incurred. In situations when it is probable
that future economic benefits associated with the item will flow to the Group
and the cost can be measured reliably then the expenditure for a major
inspection is capitalised in the carrying amount of the asset as a
replacement. Where significant parts of property, plant and equipment are
required to be replaced at intervals, the Group recognises such parts as
individual assets with specific useful lives and depreciates them accordingly.
Depreciation is calculated on a straight-line basis over the estimated useful
lives of the assets as follows:
Freehold Property 33 years
Leasehold Improvements over the lease term
Fixtures and Fittings 5 years
Computer Equipment 3-5 years
Plant and Machinery 3-7 years
Construction in Progress is not depreciated
The carrying values of property, plant and equipment are reviewed for
impairment when events or changes in circumstances indicate the carrying value
may not be recoverable.
Where parts of an item of property, plant and equipment have different useful
lives, the cost of that item is allocated on a reasonable basis among the
parts and each part is depreciated separately. Residual values, useful lives
and the depreciation method are reviewed, and adjusted if appropriate, at
least at each financial year-end.
An item of property, plant and equipment including any significant part
initially recognised is derecognised upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss on disposal
or retirement recognised in profit or loss in the year the asset is
derecognised is the difference between the net sales proceeds and the carrying
amount of the relevant asset.
Leases
The Group applied a single recognition and measurement approach for all leases
for which it is the lessee, except for short-term leases and leases of
low-value assets. The Group recognises right-of-use assets representing the
right to use the underlying assets and lease liabilities to make lease
payments.
Right-of-use asset
The Group recognises right-of-use assets at the commencement date of the lease
(i.e., the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and impairment
losses. The cost of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred, and lease payments made
at or before the commencement date less any lease incentives received.
Right-of-use assets are depreciated on a straight-line basis over the shorter
of the lease term and the estimated useful lives of the assets, as follows:
Leasehold Property 2-5 years
Plant and Machinery 3 years
Motor Vehicles 3 years
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in substance fixed
payments) less any lease incentives receivable. They also include any amounts
expected to be paid under residual value guarantees.
In calculating the present value of lease payments, the Group uses its
incremental borrowing rate at the lease commencement date because the interest
rate implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification, a change
in the lease term, a change in the lease payments or a change in the
assessment of an option to purchase the underlying asset.
The Group's lease liabilities are included in interest-bearing loans and
borrowings.
The Group applies the short-term lease recognition exemption to its short-term
leases of machinery and equipment (i.e. those leases that have a lease term of
12 months or less from the commencement date and do not contain a purchase
option). It also applies the lease of low-value assets recognition exemption
to leases of office equipment that are considered to be low value. Lease
payments on short-term leases and leases of low-value assets are recognised as
expenses on a straight-line basis over the lease term.
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.
Financial instruments - initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of
one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified at initial recognition and subsequently
measured at amortised cost.
Subsequent measurement
For purposes of subsequent measurement, the financial assets of the Group are
classified as financial assets at amortised cost (debt instruments).
Financial assets at amortised cost (debt instruments)
Financial assets at amortised cost are subsequently measured using the
effective interest ('EIR') method and are subject to impairment. Gains and
losses are recognised in profit or loss when the asset is derecognised,
modified or impaired.
The Group's financial assets at amortised cost include trade receivables,
other receivables and loans to Group undertakings.
The Group does not have any financial assets at fair value through OCI or
financial assets at fair value through profit or loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part
of a Group of similar financial assets) is primarily derecognised (i.e.
removed from the Group's consolidated statement of financial position) when
the rights to receive cash flows from the asset have expired.
When the Group has transferred its rights to receive cash flows from an asset
or has entered into a pass-through arrangement, it evaluates if, and to what
extent, it has retained the risks and rewards of ownership.
When it has neither transferred nor retained substantially all of the risks
and rewards of the asset, nor transferred control of the asset, the Group
continues to recognise the transferred asset to the extent of its continuing
involvement. In that case, the Group also recognises an associated liability.
The transferred asset and the associated liability are measured on a basis
that reflects the rights and obligations that the Group has retained.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial
liabilities at fair value through profit or loss, loans and borrowings or
payables, as appropriate.
All financial liabilities are recognised initially at fair value and, in the
case of loans and borrowings and payables, net of directly attributable
transaction costs.
The Group's financial liabilities include trade and other payables, loans and
borrowings including bank overdrafts.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified
in two categories:
· Financial liabilities at fair value through profit or loss.
· Financial liabilities at amortised cost (loans and borrowings).
As at 31 December 2021 and 31 December 2020, the Group has not designated any
financial liability as at fair value through profit or loss.
Financial liabilities at amortised cost (loans and borrowings)
After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the EIR method. Gains and losses
are recognised in profit or loss when the liabilities are derecognised as well
as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR. The EIR
amortisation is included as finance costs in the income statement. This
category generally applies to interest-bearing loans and borrowings.
Derecognition
A financial liability is derecognised when the obligation under the liability
is discharged or cancelled or expires. When an existing financial liability is
replaced by another from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such an
exchange or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in the
respective carrying amounts is recognised in the income statement.
Refinancing
Where a loan arrangement is replaced with a subsequent facility which is
materially different in relation to repayment structure or interest rate, any
capitalised loan arrangement fees in respect of the previous loan are
expensed, with transaction costs relating to the new loan capitalised and held
against the value of the related liability.
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.
Classification of shares as debt or equity instruments
Financial instruments issued by the Group are classified as equity only to the
extent that they do not meet the definition of a financial liability. An
equity instrument is a contract that evidences a residual interest in assets
or an entity after deducting all its liabilities. Accordingly, a financial
instrument is treated as equity if:
· there is no contractual obligation to delivery cash or other
financial assets or to exchange financial assets or liabilities on terms that
may be unfavourable; and
· the instrument is a non-derivative that contains no contractual
obligation to deliver a variable number of shares or is a derivative that will
be settled only by the Company exchanging a fixed amount of cash or other
assets for a fixed number of the Company's own equity instruments.
Costs associated with the issue or sale of equity instruments are allocated
against equity to the extent that the issue is a new issue, or expensed to the
profit and loss for existing equity instruments.
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.
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
These Financial Statements are 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.
Provisions
A provision is required when a present obligation (legal or constructive) has
arisen as a result of a past event and it is probably that a future outflow of
resources will be required to settle the obligation, provided that a reliable
estimate can be made of the amount of the obligation. When the effect of
discounting is material, the amount recognised for a provision is the present
value at the end of the reporting period. Warranty provisions are held in
relation to returns that are as a result of quality issues, whereby a
replacement is provided to the customer free of charge.
Non-underlying items
Non-underlying items 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.
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 also
provided. During the year, prior year errors have been identified in relation
to the Eschenbach Group acquired in December 2020. These errors and the
required adjustments are detailed below:
A: Prior year adjustment - Classification of cash and cash equivalents
Under IAS 7, cash and cash equivalents must be readily convertible to known
amounts of cash. During the current period it has been determined that certain
balances receivable under debt factoring arrangements within the Eschenbach
Group are not readily convertible as at the year-end date. A prior year
adjustment has therefore been made to reclassify $6,254,000 from cash and cash
equivalents to trade and other receivables.
B: Prior year adjustment - Tura Inc. Prepayments and accruals
Under IAS 1 the Group accounts are prepared on an accruals basis. During 2021
it was identified that there were items held as prepayments which related to
expenses incurred in the previous period. This resulted in trade and other
receivables being overstated by $716,000, trade and other payables being
understated by $7,000, goodwill being understated by $552,000 and tax payable
being overstated by $171,000.
C: Prior year adjustment - Tura Inc. Right of return
Under IFRS 15 a right of return liability is recognised for the goods that are
expected to be returned for a refund. This was incorrectly calculated
excluding discounts and rebates, however the liability should reflect the
amount to be refunded. A prior year adjustment has therefore been made to
reduce the liability by $945,000 and reducing the corresponding right of
return asset by $66,000. Deferred tax has been overstated by $208,000, with
goodwill overstated by $671,000.
D: Prior year adjustment - Tura Inc. Inventory
In accordance with IAS 2 inventories should comprise all costs of purchase and
other costs incurred in bringing inventories to their present location and
condition. During the year errors were identified in relation to the treatment
of freight costs and scrappage adjustments within inventory. A detailed review
of inventory reconciliations was performed resulting in a reduction in
inventory of $1,132,000, an increase in goodwill of $864,000 and a reduction
in tax payable of $268,000.
The above adjustments B to D all relate to before the acquisition date of Tura
Inc. as part of the Eschenbach Group on 16 December 2020 and therefore there
is no impact on the Consolidated Income Statement for the year ended 31
December 2020. These adjustments arose due to a lack of review processes in
place at Tura Inc. prior to the acquisition, which have since been rectified.
These prior year restatements have the following impact on the key Financial
Statements as at 31 December 2020:
31 December 2020 after PPA adjustments Prior year Restated
adjustments 31 December 2020
$'000 $'000 $'000
BALANCE SHEET
Non-current assets
Goodwill 71,964 744 72,708
Deferred tax 12,995 (224) 12,771
Current assets
Inventories 56,693 (1,198) 55,495
Trade and other receivables 35,648 5,538 41,186
Cash and cash equivalents 32,672 (6,254) 26,418
Non-current liabilities
Deferred tax 24,694 (16) 24,678
Current liabilities
Trade and other payables 42,895 7 42,902
Right of return liabilities 13,090 (945) 12,145
Tax payable 4,360 (440) 3,920
TOTAL NET ASSETS 145,827 - 145,827
STATEMENT OF CASH FLOWS
Acquisition of subsidiaries, net of cash acquired (101,821) (6,254) (108,075)
Increase in cash and cash equivalents 23,560 (6,254) 17,306
Cash and cash equivalents including overdraft at end of year 30,030 (6,254) 23,776
New and amended standards and interpretations
The following standards have been published and are mandatory for accounting
periods beginning after 1 January 2022 but have not been early adopted by the
Group or Company and could have an impact on the Group and Company Financial
Statements:
· Amendments to IAS 1: Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current and Amendments to IAS
1: Classification of Liabilities as Current or Non-current - Deferral of
Effective Date - effective 1 January 2023
· 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 new standards not yet in issue are expected, once adopted, to give
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 2021 was $81,359,000 (2020 restated: $72,708,000). No
provision for impairment of goodwill was made as at the end of the reporting
period.
Impairment of intangible assets
The carrying values of intangible assets are reviewed for impairment when
events or changes in circumstances indicate that the carrying amount may not
be recoverable in accordance with the accounting policies as disclosed in the
Financial Statements. The recoverable amount is the higher of its fair value
less costs of disposal and its value in use, the calculations of which involve
the use of estimates about the future cash flows generated by each asset or
the relevant cash-generating units to which the asset belongs. When value in
use calculations are undertaken, management must estimate the expected future
cash flows from the asset or cash-generating unit and choose a suitable
discount rate in order to calculate the present value of those cash flows.
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
$11,100,000 (2020 restated: $12,145,000) with an offsetting right of return
asset of $1,581,000 (2020 restated: $1,493,000). If the provision were to
increase by 5%, this would lead to an additional charge to the income
statement of $476,000, 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 2021 is
$623,000 (2020: $2,839,000).
Judgements made by management which are considered to have a material impact
on the Financial Statements 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 have 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. 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:
2021 2020
$'000
$'000
United Kingdom 30,248 14,014
Europe (excluding UK) 121,930 14,097
North America 82,114 12,040
South America 517 450
Asia 3,281 4,032
Africa 3,034 -
Australia 5,347 2,782
246,471 47,415
For the year ended 31 December 2021 the Group had no customers which accounted
for more than 10% of the Group's revenue. For the year ended 31 December 2020
the Group had one customer which accounted for more than 10% of the Group's
revenues, with the revenue generated from this customer amounting to
$9,483,000.
b) Right of return assets and liabilities
2021 2020
$'000
Restated
$'000
Right of return asset 1,581 1,493
Right of return liability (11,100) (12,145)
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.
5. 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 2021 and are as follows:
Frames and Optics Wholesale Lenses Total before adjustments & eliminations Adjustments & 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 profit/(loss) 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 436,102 75,568 13,986 525,656 (211,837) 313,819
Total liabilities (327,303) (7,444) (10,813) (345,560) 270,205 (75,355)
Deferred tax asset 12,540
Current tax liability (2,780)
Deferred tax liability (20,517)
Borrowings (82,483)
Group net assets 145,224
Other disclosures
Capital additions 2,471 1,300 3,874 7,645 - 7,645
The reportable segments subject to disclosure are consistent with the
organisational model adopted by the Group during the financial year ended 31
December 2020 and are as follows (restated):
Frames and Optics Wholesale Lenses Total before adjustments & eliminations Adjustments & eliminations Total
$'000
$'000
$'000
$'000
$'000
$'000
Revenue
External 21,259 21,979 4,177 47,415 - 47,415
Internal 2,204 2,381 59 4,644 (4,644) -
23,463 24,360 4,236 52,059 (4,644) 47,415
Cost of sales (14,987) (13,678) (2,203) (30,868) 3,975 (26,893)
Gross profit 8,476 10,682 2,033 21,191 (669) 20,522
Expenses (12,898) (5,594) (1,634) (20,126) 570 (19,556)
Depreciation (636) (1,422) (241) (2,299) - (2,299)
Amortisation (514) (1,093) - (1,607) - (1,607)
Operating (loss)/profit (5,572) 2,573 158 (2,841) (99) (2,940)
Exchange adjustment on borrowings (382)
Movement in derivatives (740)
Non-underlying costs (5,763)
Negative goodwill on bargain purchase 506
Finance costs (1,880)
Finance income 36
Share of profit of associate -
Taxation 2,250
Loss for the year (8,913)
Total assets 400,982 72,021 7,409 480,412 (183,848) 296,564
Total liabilities (303,805) (6,809) (6,185) (316,799) 259,110 (57,689)
Deferred tax asset 12,771
Current tax liability (3,920)
Deferred tax liability (24,678)
Borrowings (77,221)
Group net assets 145,827
Other disclosures
Capital additions 203 1,864 736 2,803 - 2,803
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 and derivative 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
2021 2020
$'000 Restated
$'000
United Kingdom 9,795 3,256
Europe 129,441 116,472
North America 4,589 10,686
Asia 36,580 41,441
180,405 171,855
Non-current assets for this purpose consist of property, plant and equipment,
right-of-use assets, goodwill and intangible assets.
6. BUSINESS COMBINATIONS
Acquisition of BoDe Design GmbH
BoDe Design GmbH was incorporated on 14 October 2021 with INSPECS Limited as
its immediate parent. On 6 December 2021 this entity acquired the partnership
assets of BoDe Design Vertriebs GmbH & Co. KG, a limited partnership under
German law for an initial cash consideration of $1,987,000 with a further
contingent consideration based on financial performance over the next three
years.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of BoDe Design GmbH
as at the date of acquisition were:
Fair value recognised on acquisition
$000
Assets
Property, plant and equipment 24
Intangible assets 1,813
Right-of-use asset 269
Cash and cash equivalents 33
Trade and other receivables 178
Inventories 919
Total identifiable assets at fair value 3,236
Liabilities
Trade and other payables 1,010
Interest-bearing loans and borrowings 170
Overdraft 39
Lease liability 269
Income tax payable 109
Deferred tax liability 353
Total identifiable liabilities at fair value 1,950
Total identifiable net assets at fair value 1,286
Goodwill arising on acquisition 2,221
Purchase consideration transferred
Initial purchase price 1,987
Contingent deferred consideration 1,520
Total consideration 3,507
From the date of acquisition, BoDe Design GmbH contributed $75,000 of revenue
and a loss of $106,000 to the Group loss before tax from continuing
operations. If the partnership assets of BoDe Design Vertriebs GmbH & Co.
KG were acquired at the beginning of the year, revenue from continuing
operations for the Group would have been $250,216,000 and loss before tax from
continuing operations for the Group would have been $8,637,000.
Transaction costs of $395,000 were expensed and are included within
'Non-underlying costs - Acquisitions'.
Acquisition of EGO Eyewear Limited
On 22 December 2021, INSPECS Limited acquired the entire share capital of EGO
Eyewear Limited and its subsidiaries, for an initial cash consideration of
$8,251,000 with a further deferred consideration partly based on performance
over the next three years.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of EGO Eyewear as
at the date of acquisitions were:
Fair value recognised on acquisition
$000
Assets
Property, plant and equipment 1
Intangible assets 8,605
Right-of-use asset 142
Cash and cash equivalents 2,110
Trade and other receivables 3,213
Total identifiable assets at fair value 14,071
Liabilities
Trade and other payables 3,824
Lease liability 135
Deferred tax liability 2,070
Total identifiable liabilities at fair value 6,029
Total identifiable net assets at fair value 8,042
Goodwill arising on acquisition 7,122
Purchase consideration transferred
Initial purchase price 8,251
Deferred consideration 2,712
Contingent deferred consideration 4,201
Total consideration 15,164
From the date of acquisition, EGO Eyewear contributed $163,000 of revenue and
a loss of $15,000 to loss before tax from continuing operations. If the
combination had taken place at the beginning of the year, revenue from
continuing operations for the Group would have been $256,084,000 and loss
before tax from continuing operations for the Group would have been
$7,234,000.
Transaction costs of $881,000 were expensed and are included within
'Non-underlying costs - Acquisitions'.
Analysis of cash flows on acquisitions
The combined impact on cash flow of the two acquisitions made during the year
was as follows:
$'000
Initial purchase price for BoDe Design GmbH (1,987)
Initial purchase price for EGO Eyewear Limited (8,251)
Acquired with BoDe Design GmbH:
Cash and cash equivalents 33
Overdraft (39)
Acquired with EGO Eyewear Limited:
Cash and cash equivalents 2,110
Net cash flow on acquisition (8,134)
Prior period business combinations
Acquisition of Eschenbach Holdings GmbH
On 16 December 2020, INSPECS Limited acquired the entire share capital of
Eschenbach Holdings GmbH and its subsidiaries, for a cash consideration of
$115,496,000. Eschenbach held shareholder loans which were purchased at fair
value, with the residual consideration for the remaining net assets of
Eschenbach.
The initial accounting for the acquisition of Eschenbach Holdings GmbH had
previously been provisionally determined and were based on a provisional
assessment of the fair value of the assets and liabilities acquired. The
information needed to assess the provision required against certain inventory
categories was not available by the date the Financial Statements for 31
December 2020 were approved for issue by the Board of Directors. During 2021,
the information needed to determine an appropriate estimate for this inventory
provision was made available and an increase in the inventory provision was
deemed required, therefore decreasing the fair value of inventory. The
comparative statements as at 31 December 2020 were adjusted to reflect the new
available information on the provisional amounts (see note 15). As a result,
there was a decrease in inventories of $2,258,000.
Information needed to assess the right of return liability and associated
right of return asset for certain sales entities within the Eschenbach Group
was not available by the date of approval of the Financial Statements for 31
December 2020. Further analysis has enabled this information to be obtained
during 2021, with the resultant adjustments increasing the warranty provision
by $495,000, decreasing the right of return liability by $229,000 and
decreasing the right of return asset by $344,000.
In addition, prior period adjustments have been identified relating to the
acquisition balance sheet of Eschenbach Holdings GmbH, as discussed in note 2.
These adjustments led to an increase in goodwill on acquisition to
$58,677,000, with the impact of these adjustments to the balance sheet as at
31 December 2020 shown in note 15 and the restated acquisition balance sheet
shown below.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Eschenbach
Holdings GmbH as at the date of acquisition is as follows:
Fair value
$000
Assets
Property, plant and equipment 8,466
Intangible assets 39,407
Right-of-use asset 19,552
Cash and cash equivalents 13,118
Trade and other receivables 29,970
Tax receivable 2,452
Inventories 44,578
Deferred tax assets 8,952
Total identifiable assets at fair value 166,495
Liabilities
Trade and other payables including right of return liability 43,954
Interest bearing loans and borrowings 21,462
Overdraft 2,620
Lease liability 19,552
Income tax payable 905
Deferred tax liability 21,183
Total identifiable liabilities at fair value 109,676
Total identifiable net assets at fair value 56,819
Goodwill arising on acquisition 58,677
Purchase consideration transferred 115,496
7. EMPLOYEES AND DIRECTORS
2021 2020
$'000
$'000
Included in cost of sales
Wages and salaries 7,178 4,899
Social security costs 376 102
Pension costs 51 39
7,605 5,040
Included in administration costs
Wages and salaries 50,536 8,238
Social security costs 9,626 955
Pension costs 515 360
Share-based payment expense 1,484 1,706
62,161 11,259
69,766 16,299
The average number of employees during the year was as follows:
2021 2020
Administration 348 153
Selling and operations 411 72
Production 913 873
1,672 1,098
Directors' remuneration during the year was as follows:
2021 2020
$'000
$'000
Directors' salaries 811 455
Directors' pension contributions 35 33
Share options 373 159
1,219 647
Information regarding the highest paid Director is as follows:
2021 2020
$'000
$'000
Total remuneration 523 311
The number of Directors to whom employer pension contributions were made by
the Group during year is 2 (2020: 2). This was in the form of a defined
contribution pension scheme.
8. NON-UNDERLYING COSTS
Non-underlying items 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:
2021 2020
$'000 $'000
Initial public offering - 2,709
Acquisition costs 1,352 3,054
Other professional service costs 1,236 -
2,588 5,763
Acquisition costs of $395,000 and $881,000 were incurred during the period
relating to the purchase of BoDe Design GmbH and EGO Eyewear Limited
respectively (see note 6). A further $76,000 was incurred in relation to the
acquisition of assets of Hardy Amies. Other professional service costs of
$1,236,000 relate to accounting transition and valuation following the
acquisition of Eschenbach Holdings GmbH at the end of the prior year.
Non-underlying costs incurred in the year to 31 December 2020 include
$2,709,000 relating to the listing of existing shares on to the AIM of the
London Stock Exchange. An additional $3,054,000 were incurred in relation to
the acquisitions of Eschenbach Holdings GmbH and Norville (20/20) Limited.
9. FINANCE COSTS AND FINANCE INCOME
2021 2020
$'000
$'000
Finance costs
Bank loan interest 1,785 516
Other loan interest - 39
Invoice discounting interest and charges 57 50
Loan transaction costs 477 1,249
Lease interest 456 26
Total finance costs 2,775 1,880
Finance income
Interest receivable 118 36
10. LOSS BEFORE INCOME TAX
The loss before income tax is stated after charging/(crediting):
2021 2020
$'000
$'000
Cost of inventories recognised as expense 95,628 21,045
Short-term leases 486 83
Depreciation own assets 3,423 1,539
Depreciation - Right-of-use assets 4,007 760
Amortisation and impairment - Intangibles 11,020 1,607
Restructuring costs - 185
Post-acquisition insurance costs - 563
Foreign exchange on funding for acquisitions - 1,085
Other foreign exchange differences (gain)/loss (1,171) 305
2021 2020
$'000
$'000
Fees payable to the Company's auditor for audit services:
Audit of the Company and Group accounts 574 929
Audit of the subsidiaries 830 310
Fees payable to the Company's auditor for non-audit services:
Costs associated with IPO - 285
The disclosure of the 2020 fees payable to the Company's auditor for audit
services has been reapportioned.
11. INCOME TAX
Analysis of tax expense
2021 2020
$'000
$'000
Current tax:
Current tax on profits for the year 1,618 24
Overseas current tax expense 469 208
Adjustment in respect of prior years (128) -
Total current tax 1,959 232
Deferred tax:
Deferred tax income relating to the origination and reversal of timing (4,430) (2,478)
differences
Effect of changes in tax rates (1,122) (4)
Adjustment in respect of prior years (104) -
Total deferred tax (5,656) (2,482)
Total tax credit reported in the consolidated income statement (3,697) (2,250)
Factors affecting the tax expense
The tax assessed for the year is (higher)/lower than the standard rate of
corporation tax in the UK. The difference is explained below:
2021 2020
$'000
$'000
Loss before income tax (9,132) (11,163)
Loss multiplied by standard rate of corporation tax in the UK of 19.00% (2020: (1,735) (2,121)
19.00%)
Effects of:
Non-deductible expenses - Amortisation of intangible assets 853 184
Non-deductible expenses - Other expenses 517 1,622
(Decrease)/increase in provision for uncertain tax liabilities (2,224) 381
Income taxed in nil rate regime - (404)
Share-based payment (136) (1,924)
Different tax rate for overseas subsidiaries (1,313) (84)
Transfer pricing adjustments 1,017 51
Tax rate changes (1,122) (4)
Income not taxable - (176)
Effects of Group relief 156 70
Amounts not recognised on deferred tax 520 155
Adjustments in respect of prior year (230) -
Tax credit (3,697) (2,250)
Income not taxable for tax purposes relates to income generated in
jurisdictions within which there is a nil taxation rate. 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 2021 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. Basic earnings per share is therefore $(0.05) loss (2020:
$(0.13) loss), with diluted earnings per share $(0.05) loss (2020: $(0.13)
loss).
The following table reflects the income and share data used in the basic and
diluted EPS calculations:
ORDINARY SHARES 2021 2020
$'000
$'000
Loss attributable to the ordinary equity (5,435) (8,913)
holders of the Parent for basic earnings
Number of shares Number of shares
Weighted average number of Ordinary Shares for basic EPS 101,309,670 69,227,355
Effect of dilution from:
Share options 5,025,903 3.624.059
Weighted average number of Ordinary Shares adjusted 106,335,573 72,851,414
for the effect of dilution where appropriate
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:
2021 2020
$'000 $'000
(Loss)/profit before income tax (9,132) (11,163)
Adjustments for:
Depreciation 7,430 2,299
Amortisation and impairment of intangible assets 11,020 1,607
Share of loss of associate 10 -
Gain on bargain purchase - (506)
Share-based payment 1,484 1,706
Movement in fair value of derivatives - 740
Exchange adjustment on borrowings 5,418 382
Exchange adjustment on trading (1,171) -
Finance costs 2,775 1,880
Finance income (118) (36)
Changes in working capital
(Increase)/decrease in inventories 149 648
Decrease in trade and other receivables 1,923 3,005
Increase/(decrease) in trade and other payables 5,107 (159)
Cash flows from operating activities 24,895 403
14. CONTINGENT AND DEFERRED CONSIDERATION
Contingent and deferred considerations payable relate to the acquisitions of
BoDe Design GmbH and EGO Eyewear Limited (see note 6). In relation to BoDe
Design GmbH, the full balance of $1,529,000 is contingent based on the
performance of the entity each year until the end of 2025. In relation to EGO
Eyewear Limited, $2,747,000 is deferred consideration payable in equal
instalments in 2023, 2024 and 2025. The remaining balance is contingent based
on the performance of the entity each year until the end of 2024. The split of
the contingent and deferred consideration between each entity is as follows:
2021 2020
$'000 $'000
BoDe Design GmbH 1,529 -
EGO Eyewear Limited 6,976 -
8,505 -
15. PRIOR YEAR ADJUSTMENT AND PURCHASE PRICE ALLOCATION ADJUSTMENT
Prior year adjustments were required as discussed in note 2. In addition, the
balance sheet as at 31 December 2020 has been restated to include the impact
of adjustments to the acquisition balance sheet of Eschenbach Group GmbH, as
discussed in note 6. The Group reconciliation of equity as at 31 December 2020
is shown below:
31 December 2020 Eschenbach acquisition balance Note Adjusted Prior year Note Restated
sheet adjustments 31 December
adjustment 2020
$'000 $'000 $'000 $'000 $'000
ASSETS
Non-current
assets
Goodwill 69,087 2,877 A 71,964 744 B 72,708
Intangible assets 56,305 - 56,305 - 56,305
Property, plant and equipment 22,460 - 22,460 - 22,460
Right-of-use asset 20,379 - 20,379 - 20,379
Investment in associate 57 - 57 - 57
Deferred tax 12,995 - 12,995 (224) B 12,771
181,283 2,877 184,160 520 184,680
Current
assets
Inventories 59,294 (2,601) A 56,693 (1,198) B 55,495
Trade and other receivables 35,648 - 35,648 5,538 B 41,186
Tax receivable 1,556 - 1,556 - 1,556
Cash and cash equivalents 32,672 - 32,672 (6,254) B 26,418
129,170 (2,601) 126,569 (1,914) 124,655
Total assets 310,453 276 310,729 (1,394) 309,335
EQUITY
Called up share capital 1,384 - 1,384 - 1,384
Share premium 121,940 - 121,940 - 121,940
Foreign currency translation reserve 10 A (89) - (89)
(99)
Share option reserve - 867 - 867
867
Merger reserve 7,296 - 7,296 - 7,296
Retained earnings 14,429 - 14,429 - 14,429
Total equity 145,817 10 145,827 - 145,827
LIABILITIES
Non-current liabilities
Financial liabilities - borrowings 70,391 - 70,391 - 70,391
Deferred tax 24,694 - 24,694 (16) B 24,678
95,085 - 95,085 (16) 95,069
Current liabilities
Trade and other payables 42,895 - 42,895 7 B 42,902
Right of return liabilities 12,824 266 A 13,090 (945) B 12,145
Financial liabilities - borrowings 6,830 - 6,830 - 6,830
Overdraft 2,642 - 2,642 - 2,642
Tax payable 4,360 - 4,360 (440) B 3,920
69,551 266 69,817 (1,378) 68,439
Total liabilities 164,636 266 164,902 (1,394) 163,508
310,453 276 310,729 309,335
Total equity and (1,394)
liabilities
A: Eschenbach acquisition balance sheet adjustment
Following the acquisition of Eschenbach Holdings GmbH, the assets and
liabilities acquired and the goodwill arising were provisionally determined
for the Financial Statements as of 31 December 2020. During the year, this has
been finalised (see note 6) with the impact of the required adjustment on the
balance sheet as at 31 December 2020 shown above. This results in an increase
in goodwill of $2,877,000, a decrease in inventories (following an increase in
inventory provisioning) of $2,601,000 and an increase in right of return
liabilities of $266,000 with the movement in foreign exchange rates between
the date of acquisition and the year-end resulting in a movement through the
foreign currency translation reserve of $10,000.
B: Prior year adjustments
Refer to note 2.
16. POST BALANCE SHEET EVENTS
Since the balance sheet date, but before these Financial Statements were
approved, there were no material events that the Directors consider material
to the users of these Financial Statements.
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