REG - Inspecs Group PLC - Preliminary Unaudited Results
27/04/2023 07:00
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RNS Number : 6186X Inspecs Group PLC 27 April 2023
27 April 2023
INSPECS Group plc
("INSPECS" or "the Group")
Preliminary unaudited results for the year ended 31 December 2022
INSPECS Group plc, a leading designer, manufacturer, and distributor of
eyewear (sunglasses, optical frames and lenses) today announces its unaudited
preliminary results for the year ended 31 December 2022.
Financial and Operational Highlights
● Group revenue of $248.6m (2021: $246.5m)
● Group revenue on a constant exchange rate basis(1) of $265.7m (2021: $246.5m)
● Gross profit up 5.6% to $122.3m (2021: $115.8m)
● Adjusted Underlying EBITDA(1) of $19.2m (2021: $27.6m)
● Loss before tax of $9.5m (2021: loss before tax $9.1m)
● 10.7m frames sold globally (2021: 10.4m)
● Increased sales of "Branded" frames worldwide including Superdry, Botaniq,
O'Neill and Saville Row Titanium
● Research and development department, Skunkworks, generated first commercial
revenues which will continue to grow in 2023 and beyond
● Implemented a number of cost reductions to improve operational efficiencies
● Environmental, Social and Governance ("ESG") Board committee established in
2022, with an aim to further integrate ESG throughout INSPECS' corporate
strategy
Current Trading & Outlook
● Q1 FY23 in line with our expectations, driven by a rebound in European markets
and continued growth in other markets
● Exciting opportunities ahead, including the launch of key brands Barbour and
Superdry in new markets including North America and Asia
● Continued focus and investment in new optical technology and innovation
● Well placed to capitalise on future growth as further work is undertaken to
synergise product design, manufacturing and distribution
● Expansion of Vietnam manufacturing facility expected to commence in H2 2023
1. Constant exchange rates and Adjusted Underlying EBITDA are non-statutory
measures. Please refer to note 4 for details.
Richard Peck, Chief Executive Officer of INSPECS Group plc, commented:
"I am pleased to report that the Group delivered record sales and increased
the number of frames sold in what can only be described as a year of two
halves. Whilst I assumed the role of CEO on 1 December, I have been on the
INSPECS Board since IPO and have experienced the progress the Group made
during the year in review. External headwinds, combined with the ongoing
efforts to enhance operations at Norville, meant the Board needed to implement
operational efficiencies and I am pleased to say that the initiatives put in
place are having a positive effect.
"Sales of our branded products including Botaniq, Superdry and Savile Row
Titanium, gained momentum during the year, and the expansion of branded
products is a core part of our growth strategy moving forward. Elsewhere,
Skunkworks delivered inaugural revenues and we look forward to growing this
revenue stream as the research and development team continue to deliver
innovative new eyewear solutions. Expansion of our manufacturing facility in
Vietnam remains on track, with construction expected to start in the second
half of 2023.
"Operating in a resilient growing market, I am confident that our product
offering, business model and strategy for growth will enable us to capitalise
on the significant opportunities that lie ahead. Our talented and dedicated
teams across all territories are also an integral part of our success and they
will enable us to drive performance. The first quarter of 2023 has delivered a
performance in line with our expectations and indicates that the European
markets are rebounding. There are a number of exciting opportunities on the
horizon for INSPECS."
For further information please contact:
INSPECS Group plc via FTI Consulting
Richard Peck (CEO) Tel: +44 (0) 20 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) Tel: +44 (0) 20 3727 1000
Alex Beagley
Harriet Jackson
Alice Newlyn
About INSPECS Group plc
INSPECS is a Bath-based designer, manufacturer and distributor of eyewear
frames and optically advanced spectacle lenses. The Group produces a broad
range of frames and lenses, covering optical, sunglasses and safety, which are
either "Branded" (either under licence or under the Group's own proprietary
brands), or "OEM" (including private label on behalf of retail customers, as
well as unbranded).
INSPECS aims to be the leader in eyewear solutions through its
vertically-integrated business model and has adopted a three-pillar growth
strategy to achieve this: (i) continue to grow organically; (ii) undertake
further acquisitions (and drive value through leveraging the Group's internal
capabilities); and (iii) extend the Group's manufacturing capacity.
INSPECS customers include global optical and non-optical retailers, global
distributors and independent opticians, with its distribution network covering
over 80 countries and reaching approximately 75,000 points of sale.
INSPECS has operations across the globe: with offices and subsidiaries in the
UK, Germany, Portugal, Scandinavia, the US and China (including Hong Kong,
Macau and Shenzhen), and manufacturing facilities in Vietnam, China, the UK
and Italy.
More information is available at: https://INSPECS.com (https://inspecs.com)
CHAIRMAN'S STATEMENT
2022 was, in many ways, another extraordinary year. We had to contend with the
well-documented challenging business environment and experienced supply chain
issues driven by ongoing COVID restrictions, rising energy prices and general
scarcity of raw materials. In addition, the macroeconomic outlook and consumer
confidence most notably deteriorated in Germany, a key territory for us, which
is reflected in the Group's order intake being down on the previous year.
However, I am pleased to say the Group was able to raise its Gross Profit
Margin from 47.0% in 2021 to 49.2% in 2022 due to increased pricing on new
products and continued focus on the control of its supply chain costs.
Our UK lens business, Norville, required more time to turn the business into a
solid performing addition to the Group. As a result, management has
implemented a cost saving programme at the factory that has helped to narrow
losses in Q4. We expect the losses at Norville to reduce significantly in
2023. However, its engineering excellence continues to assist our business as
a whole.
Board Changes
Lord Ian MacLaurin kindly extended his tenure as Chair with us from June until
1 December 2022, when Richard Peck replaced me as Chief Executive Officer, and
I assumed the role of Executive Chairman. Along with the rest of the Board, I
am deeply grateful for Ian's immeasurable contribution.
I am delighted that Richard Peck, an industry veteran who joined the INSPECS
Board as a Non-Executive Director following our IPO in February 2020, assumed
the role of CEO in December 2022. Richard's knowledge of the Group, along with
his deep understanding of the sector, has allowed him to hit the ground
running.
I am pleased that Hugo Adams and Shaun Smith joined as Non-Executive Directors
in December 2022. Hugo's significant experience in the retail sector and a
proven track record of delivering growth for purpose-led consumer brands,
paired with Shaun's extensive plc experience in finance with international
manufacturing and retail groups, will be invaluable through the next stage of
the Group's growth.
Investment progress
Construction of the Group's new factory in Vietnam will commence in the second
half of 2023. Planning and development remains on-going for the factory in
Portugal. We expect to see significant increases in our own factory-made
products in 2024, driving growth for the medium term.
INSPECS continues to develop cutting-edge products and technology with our
innovations arm, Skunkworks, driving growth throughout the Group, and we
expect to see ongoing positive results from the team's hard work. Our design
teams, situated in key locations across the globe, keep our offerings fresh
and diverse.
Outlook
Following a year of consolidation, we now have a solid platform on which to
build. The outlook for the Group and the eyewear sector remains positive
despite the many headwinds we have encountered throughout the last year. We
continue to be mindful of global economic forces, as well as uncertain
consumer demand, particularly in Europe, but feel well placed to provide
attractive products at competitive prices. The balance of our worldwide
presence, particularly our US operations, bolsters our positive outlook. We
continue to invest in the business to enable the Group to deliver further
growth.
Robin Totterman
Executive Chairman
CHIEF EXECUTIVE OFFICER'S REPORT
Having been on the Board of INSPECS as a Non-Executive Director since IPO, I
was delighted to assume the role of CEO on 1 December 2022. This was certainly
a year of two halves in which the Group delivered a strong first half followed
by a weaker second, owing to challenging market conditions.
Despite these challenges, we are pleased that we delivered total revenue of
$248.6 million and adjusted underlying EBITDA of $19.2 million.
During the first half of the year, we saw a good financial performance, with
increases in both revenue and profit as a result of the ongoing integration of
the Group's businesses and increased distribution reach around the globe.
However, the second half of the year was marked by a number of external
challenges, including weakened market confidence in one of our primary
markets, Germany, as a result of the conflict in Ukraine. We also faced
significant headwinds from exchange rate fluctuations, as well as increases in
raw materials, energy and shipping costs. In addition, the continuing COVID-19
restrictions mainly in China and Vietnam presented ongoing challenges to our
manufacturing operations.
Lenses
Our lens business suffered a decrease in external revenue from $7.5m in 2021
to $4.3m in 2022, a reduction of 43%. Towards the end of 2021, the Group
relocated its Norville lens manufacturing business from its old site at
Magdala Road to a new state-of-the-art facility in Quedgeley, Gloucester.
Whilst the construction of the new factory was completed on time and within
budget, the relocation of the sensitive equipment from the old factory to the
new one caused significant disruption in manufacturing capability, which in
turn caused operating losses in the lenses segment to increase significantly,
from $2.7m in 2021, to $5.0m in 2022. Our first priority was to calibrate the
machinery and ensure that the quality and lead time of the product came back
within industry standards, and this was achieved in the latter half of 2022.
During Q4 of 2022, our focus then turned to increasing our revenue and
operational efficiency. This resulted in reduced losses in Q4 of 2022 which
are expected to significantly reduce in 2023.
Frames and Optics
Our frames and optics distribution business increased its external revenue
from $211.5m in 2021 to $214.7m in 2022, growth of 1.5%.
UK: Our UK markets performed well in the second half of 2022. INSPECS'
strategy of replacing third-party distributors with own Group worldwide sales
offices accelerated during the year and we expect this to continue to improve
sales for the Group. The UK market remains positive so far in 2023 and we are
continuing to increase our product distribution.
Europe: Our European markets performed strongly in the first half of 2022.
Towards the end of June 2022, we suffered headwinds principally in relation to
a fall in consumer confidence which led to a reduction in our order intake in
the latter half of 2022. Our cost base in Europe was also materially affected
by the rapid decrease in the Euro against the Dollar which affected the
operational performance of the business.
North America: The US market remained stable in 2022. Our US companies are
well positioned to increase revenue of Group products throughout 2023 and the
eyewear market remains positive so far in 2023. Our US businesses are now
fully engaged in selling leading brands such as Superdry, Radley and O'Neill,
which were not available to them in earlier years.
Asia and Australia: In 2022, the Group continued to increase its distribution
in Asian markets from a relatively low level, which was supported by the
appointment of new agents for the Middle East. We saw increased growth in
Australia and New Zealand, the reopening of our South Africa markets, and
increased distribution in the Philippines. In 2023, the Group will continue to
actively target further growth opportunities in this expanding market.
Wholesale
Our wholesale business which consists of our manufacturing facilities in
Vietnam, China and Italy has had a good performance in 2022 with external
revenue growth of 8%. We continue to invest in our facilities and expect
construction of our new manufacturing facility in Vietnam to commence in the
second half of 2023. Planning and development remains on-going for the factory
in Portugal. These new facilities will allow us to increase production
capacity, improve efficiency and bring new products to market more quickly.
They will also be an important part of our efforts to expand into new markets
and meet the growing demand for our products and services. The Board remains
confident in the long-term strategic importance of these new facilities to our
future growth and looks forward to works commencing.
Acquisitions
The Group made strong progress in integrating its most recent acquisitions,
EGO Eyewear and BoDe Design, into the Group and putting our new brands to work
across the organisation. In the first half of 2022, the Group continued with
its acquisition strategy and identified further opportunities. This incurred
significant legal and due diligence costs, however, due to the slowdown in our
European markets and adverse currency exchange movements, together with
continued losses at Norville, the Board took the decision to pause all
acquisition processes in the second half of 2022. The Board continues to
assess acquisition targets that would complement the Group's existing
portfolio and further enhance its proposition in the market.
Research and development
Skunkworks, our research and development department, continues to develop an
exciting and innovative business, supplying frames, lenses, and expertise to
leading global technology firms. As a result, the business generated its first
commercial revenues in 2022, with further growth expected in 2023. The team's
focus on cutting edge technologies and new materials has been particularly
successful and we are excited that several new product launches in frames and
packaging will take place later this year.
Skunkworks has always been a key driver of innovation and growth within the
business and we are confident that its continued success will play a
significant role in driving our overall performance in the coming year. We are
committed to investing in the development of new and innovative products and
technologies and we believe that Skunkworks will be an important part of this
effort.
Operational efficiencies
During the year, a number of cost reductions have been implemented to improve
operational efficiencies. These included reductions in office space in
Germany, the amalgamation of our two Hong Kong offices into one and the
integration of International Eyewear Limited's offices and warehouse
operations with INSPECS Limited.
The Group is also working on increased procurement efficiencies by
consolidating our supply base where possible. The integration of INSPECS
Limited and International Eyewear Limited has subsequently strengthened
INSPECS Limited's capabilities in the independent UK eyewear market.
Market opportunity
Operating in a resilient growing market, selling optical frames, we are
confident that our business model and strategy will enable us to capitalise on
this growth. The push for our own proprietary brand products made in Vietnam
and customers looking for new suppliers following consolidation of
competitors, all plays to our strengths. Our global teams continue to work
hard on synergising, from product design to manufacturing and ultimately
distribution, meaning the Group is well placed to capitalise on future growth.
Environmental, Social & Governance ("ESG")
Over the last 12 months our sustainability framework has been developed,
clearly demonstrating the roadmap to our commitment to addressing critical
environmental issues along with maintaining a positive environment for all our
employees around the globe. Our focus on sustainable product and packaging is
evident in the success of the Botaniq and O'Neill sustainable ranges. Our
Group vision of 'Always Looking Forward' embeds itself into our Environmental,
Social and Governance 'ESG', strategy and our purpose of innovation,
commitment and integrity are reflected throughout.
CEO onboarding
Since taking over as CEO, I have focused on getting to know our business even
better. I have met with many key customers and travelled to all of our major
locations, travel restrictions allowing, including our showrooms and
distribution centres in North America, our manufacturing factories in Vietnam
and the UK, our sales and distribution facilities in Nuremberg, Germany, and
our design centre in Lisbon, Portugal. My focus has been on building good
working relationships with the key people at these locations and focusing on
our revenues and costs to ensure a strong start to the new financial year.
A key strength of our Group has always been our people and I am very pleased
with the standard and commitment of our teams in all of our territories. Our
talented and dedicated employees are a key part of our success and I am
confident that they will continue to drive our growth performance in 2023.
Overall, I believe that our operations and management team are well positioned
to navigate the challenges and opportunities that lie ahead, and I am
committed to working closely with them to drive the continued growth and
success of our Group.
Current trading
I am pleased to report that we have had a good performance in Q1 2023 and are
ahead of the same period in 2022. This was driven in part by a rebound in our
European markets and continued growth in other markets.
Outlook
Looking ahead, we are optimistic about the future growth and success of the
Group. There are a number of exciting opportunities on the horizon, including
the opening up of China, the upcoming launch of key brands, Barbour and
Superdry in new markets like North America and Asia, and the strong
performance of our proprietary brands; Titanflex, Humphrey's, Botaniq, Savile
Row and Jos. In addition, we have a good order book in our factories and are
seeing synergies from making more of our own products in our own factories and
combining locations across the world.
We will maintain our focus on driving revenues and controlling costs as we
work to achieve our growth and profitability goals. We will also continue to
invest in new technologies and innovations, as well as expanding our product
offerings and services to meet the changing needs of our customers.
Overall, we are confident in our ability to navigate the challenges and
opportunities that lie ahead, and we believe that our talented team and
resilient business model will allow us to achieve continued success.
Richard Peck
Chief Executive Officer
CHIEF FINANCIAL OFFICER'S REVIEW
Whilst the Group had a positive H1 with sales of $138.4m and an Adjusted
Underlying EBITDA of $15.1m, the Group suffered from the continuing
uncertainty in Ukraine and a slowdown in our European markets in H2.
Combined with a rapidly decreasing Euro against the US Dollar, and continued
losses at Norville, this meant our H2 performance was not in line with our
expectations.
The Group has taken action to reduce non-operational costs and is working on
strategic efficiencies across the Group to increase our key performance
indicator of Adjusted Underlying EBITDA.
Our FY22 results showed an increase in sales from $246.5m to $248.6m. The
Group delivered Adjusted Underlying EBITDA of $19.2m (FY21: $27.6m).
On a constant currency basis our sales increased from $246.5m to $265.7m an
increase of 8%.
Reported loss before tax of $9.5m (FY21: loss before tax $9.1m) is after
incurring a purchase price allocation ("PPA") release on inventory ($0.2m)
(FY21: $6.0m), exchange adjustments on borrowings ($2.5m) (FY21: $5.4m) and
impairment of intangible assets ($0.0m) (FY21: $3.4m).
The Group along with its advisers, has discussed a change in the Group's
reporting currency for 2023. As such the Group will report its interim numbers
to 30 June 2023 in Pound Sterling, with a summary of the results in US Dollars
for comparative purposes. Appendix 1 includes 2022 and 2021 comparative
information stated in Pound Sterling.
FY22 FY21
$'000 $'000
Revenue 248,577 246,471
Gross profit 122,286 115,772
Underlying operating expenses (103,083) (88,216)
Adjusted Underlying EBITDA 19,203 27,556
Share-based payments (1,729) (1,484)
Depreciation, amortisation and impairment of intangible assets (16,868) (18,450)
Earnout on acquisitions (1,909) -
Loss on acquisitions in year - (90)
Purchase price adjustment (164) (5,991)
Operating (loss)/profit before non-underlying costs (1,467) 1,541
Reconciliation to reported results
Operating (loss)/profit before non-underlying costs (1,467) 1,541
Non-underlying costs (1,814) (2,588)
Exchange adjustments on borrowings (2,528) (5,418)
Share of associate profit/(loss) 23 (10)
Net finance costs (3,695) (2,657)
Loss before tax (9,481) (9,132)
Tax credit 1,665 3,697
Loss after tax (7,816) (5,435)
Revenue
Total revenue for the year was $248.6m, an increase of $2.1m from $246.5m in
2021. On a constant currency basis revenue increased from $246.5m to $265.7m,
an increase of 8%. Excluding the acquisitions of BoDe Designs and EGO Eyewear
in December 2021, revenue increased from $246.2m to $252.4m on a constant
currency basis, an increase of 2.5%.
Gross margin
The Group's gross margin overall was 49.2% compared to 47.0% in 2021, an
increase of 220 basis points from the previous year. This increase was partly
due to the mix of sales between independent opticians and our traditional
chain business. The Group has continued to be able to introduce price
increases on new products and has continued to control costs across its supply
chain where possible, resulting in an overall improvement in margins.
Adjusted Underlying EBITDA
The Group targets Adjusted Underlying EBITDA as its key operating performance
indicator. Our Adjusted Underlying EBITDA decreased by $8.4m, from $27.6m to
$19.2m, a decrease of 30% in 2022. The decrease was primarily caused by three
main factors. Firstly, the continued losses at Norville. Secondly, the effects
of the decrease in the value of the Euro against the Dollar, particularly in
the first ten months of the year. Thirdly, a slowdown in our European markets.
German consumer confidence fell to a 25 year low in October 2022, and this
impacted the order intake in Q3 and Q4 of 2022.
Operating expenses
Our headline operating expenses increased from $114.2m in 2021, to $123.8m in
2022. Excluding the acquisitions made in 2021, our total operating expenses
increased from $114.1m to $117.0m, an increase of $2.9m or 3%. Our
administrative expenses, excluding acquisitions, increased by 13%. This
reflects the reversal of reduced costs of the Group in Q1 and Q2 of 2021 due
to COVID restrictions.
The Group has implemented a cost reduction strategy on non-operational costs
in Q4 of 2022 to drive our Underlying EBITDA margin in the future.
Year Ended Acquisitions Adjusted Adjusted Year Ended Percentage change
Year Ended
31 December 2021 excluding EGO
31 December 2022 EGO & BoDe
& BoDe
31 December 2022
$'000 $'000
$'000
$'000
Revenue 248,577 12,842 235,735 246,233 -4%
Gross profit 122,286 3,734 118,552 115,744 2%
Distribution 7,783 62 7,721 7,792 -1%
Wages & salaries 61,552 2,318 59,234 62,111 -5%
Administrative 54,418 4,440 49,978 44,178 13%
Total operating expenses 123,753 6,820 116,993 114,081 3%
The table below sets out our operating costs, adjusted for the acquisitions of
BoDe Design and EGO Eyewear, as a percentage of revenue.
Adjusted Year Ended Percentage Adjusted Year Ended Percentage
31 December 2022 of revenue 31 December 2021 of revenue
$'000 $'000
Revenue 235,735 - 246,233 -
Gross profit 118,552 50% 115,744 47%
Distribution 7,721 3% 7,792 3%
Wages & salaries 59,234 25% 62,111 25%
Admin 49,978 21% 44,178 18%
Loss before tax
In 2022, the Group made a statutory loss before tax of $9.5m (FY21: loss
$9.1m), an increase of $0.4m. The Group made an Adjusted Underlying EBITDA of
$19.2m (FY21: $27.6m).
2022 2021
$m $m
Adjusted Underlying EBITDA 19.2 27.6
Non-cash adjustments
1. Depreciation and amortisation (16.9) (15.0)
2. Purchase Price Allocation ('PPA') release on inventory (0.2) (6.0)
3. Intangible asset impairment - (3.4)
4. Exchange adjustments on borrowings (2.5) (5.4)
5. Share-based payments (1.7) (1.5)
6. Earnout on acquisitions (1.9) -
7. Other - (0.1)
Sub-total (4.0) (3.8)
Non-underlying costs (1.8) (2.6)
Net finance costs (3.7) (2.7)
Loss before tax (9.5) (9.1)
Key items impacting the current year's results are as follows:
Depreciation and amortisation
The Group's depreciation and amortisation charge is set out below.
Amortisation costs principally arise on the capitalisation of customer
relationships and order books on acquisitions.
31 December 31 December
2022
2021
$m
$m
Depreciation 8.4 7.4
Amortisation 8.5 7.6
Total 16.9 15.0
Exchange adjustments on borrowings
The exchange adjustment on borrowings primarily relates to intergroup loans,
where the functional currency of the entities differs from the loan currency
and presentational currency. This exchange adjustment also relates to the
revolving credit facility held in Euros and USD. Historically the exchange
adjustments on borrowings primarily related to a shareholder loan on the
acquisition of Eschenbach, in December 2020. At the start of 2022, this loan
was converted to equity, therefore resulting in the lower exchange adjustment
in the current year.
Share-based payments
The Group has a LTIP scheme in place that vests over a period of three years
from the date of the grant of the option at market value, and is subject to
the continued employment of the individual over that period. The Group has
recognised a non-cash charge of $1.7m in 2022 (FY21: $1.5m). The scheme is
designed to give the equivalent of one year's salary to an individual over
that three year period. No nil-cost options have been granted to date. The
Remuneration and Nomination Committee is currently reviewing the option scheme
with outside advisers.
Earnout on acquisitions
The acquisitions of EGO Eyewear and BoDe Designs in December 2021, both
contain amounts due for contingent consideration, based on the performance of
those businesses. In the year 2022, the amounts payable under the agreements
amounted to $1.9m, and have been charged to the profit and loss in accordance
with IFRS 3. Further contingent consideration is expected to arise in 2023,
and 2024, and will be subject to the performance of those businesses.
Net Finance Costs
Bank loan interest increased by $0.4m primarily due to rising interest rates
during the year. The amortisation of loan transaction costs relates to the
refinancing charges that are amortised over the period of the financing
facilities available to the Group.
2022 ($m) 2021 ($m)
Bank Loan Interest 2.2 1.8
Invoice Discounting 0.1 0.1
IFRS 16 lease interest 0.6 0.5
Interest Receivable (0.1) (0.1)
Net Finance Cost 2.8 2.3
Amortisation of loan transaction costs 0.9 0.4
Total net finance costs 3.7 2.7
Non-underlying costs
The Group incurred $1.8m of non-underlying costs in 2022 (2021: $2.6m). During
the year the Group incurred fees relating to potential acquisitions amounting
to $1.1m. The Group also incurred restructuring costs of $0.5m which related
to the amalgamation of our Hong Kong offices and the rationalisation of our
warehousing facilities and offices in the UK following the integration of
International Eyewear with INSPECS.
Prior year adjustments
Following the acquisition of EGO eyewear and BoDe design, a deferred
consideration liability was created. Following a review in 2022 it has been
determined that the contingent part of the deferred consideration is to be
treated as remuneration. The deferred consideration creditor of $5.4m is no
longer required. We have therefore restated our 2021 statement of financial
position to reflect this. There is no profit or cash impact as a result of
this adjustment.
Cash position
During the year, the Group generated $12.4m in cash flows from operating
activities (2021: $24.9m). The cash generated from operating activities was
reduced by an increase in working capital of $5.8m in 2022 as opposed to a
reduction of $7.2m in 2021. The Group has used the cash generated to continue
to invest in new plant and equipment, and to enhance the Group's long-term
growth strategy. An analysis of how the Group has deployed its free cash flow
in the year is set out.
31 December 31 December 2021
2022 $'000
$'000
Cash and cash equivalents at the beginning of year 29,759 23,776
Net cash from operating activities 5,077 20,017
Net cash used in investing activities (4,189) (15,661)
Net cash (used in)/from financing activities (4,398) 1,704
(Decrease)/increase in cash and cash equivalents (3,510) 6,060
Foreign exchange movements in the year 550 (77)
Cash and cash equivalents including overdrafts at the year end 26,799 29,759
The breakdown of net cash used in investing activities is
Purchase of intangible fixed assets (1,042) (1,508)
Purchase of property, plant and equipment (3,193) (6,137)
Acquisition of subsidiaries, net of cash acquired - (8,134)
Purchase of shareholding in associate (88) -
Interest received 134 118
Net cash used in investing activities (4,189) (15,661)
Working capital
The Group closely monitors its working capital position to ensure that it has
sufficient resources to meet its day-to-day requirements and to fund further
investing activities to supply its customer base.
Debtors
Year ended 31 December 2022 Year ended 31 December 2021
Total 30 Days 60 Days 90 Days Total 30 Days 60 Days 90 Days
Debtors ($) 27.4m 18.5m 4.7m 4.2m 29.4m 18.4m 6.6m 4.4m
Percentage 100 68 17 15 100 63 22 15
Inventory
Our sales to inventory ratio decreased from 4.4 to 4.3. The Group constantly
monitors its working capital position, with a view to increase the sales to
inventory ratio where possible.
31 December 31 December 2021
$m
2022
$m
Turnover 248.6 246.5
Inventory 58.3 55.7
Sales to inventory ratio 4.3 4.4
Loan Reclassification
As at 31 December 2022, it was determined that INSPECS Limited, who holds the
revolving credit facility on behalf of the Group, was in technical breach of
its cashflow cover loan covenant. This has resulted in the reclassification of
the loan balance ($45.7m) to a current liability in line with IAS 1.
Subsequently, the bank has waived the cashflow cover and leverage covenants at
31 December 2022. The below ratios include an adjusted ratio to reflect this
loan reclassification.
Current asset ratio
The current asset ratio is a liquidity ratio that measures a company's ability
to pay its short term obligations, or those due within one year.
Year ended Year ended
31 December
31 December 2021
$m
2022
$m
Current assets 127.2 131.1
Current liabilities 129.4 82.9
Ratio 1.0 1.6
Year ended Year ended
31 December
31 December 2021
$m
2022
$m
Current assets 127.2 131.1
Current liabilities 129.4 82.9
Loan in technical breach 45.7 -
Adjusted current liabilities 83.7 82.9
Adjusted ratio 1.5 1.6
Quick ratio
The quick ratio is an indicator of a company's short-term liquidity position,
and measures a company's ability to meet its short-term obligations with its
most liquid assets.
Year ended Year ended
31 December 2022
31 December 2021
$m
$m
Current assets 127.2 131.1
Less inventory (58.3) (55.7)
68.9 75.4
Current liabilities 129.4 82.9
Ratio 0.5 0.9
As described above, the table below shows the effect of the movement of the
bank loans to current, from due after one year.
Year ended Year ended
31 December 2022
31 December 2021
$m
$m
Current assets 127.2 131.1
Less inventory (58.3) (55.7)
68.9 75.4
Adjusted current liabilities 83.7 82.9
Adjusted ratio 0.8 0.9
Net debt
The Group's opening net debt, including and excluding lease liabilities, is
shown below. During the year the Group increased its net debt excluding leases
from $32.7m to $33.4m.
The Group has significant cash reserves, resulting in the net debt position as
set out below.
Year ended Year ended
31 December
31 December 2021
2022
$m $m
Cash at bank 26.8 29.8
Borrowings (60.2) (62.5)
Lease liabilities (24.2) (22.4)
Net debt (57.6) (55.1)
Net debt (excluding lease liabilities) (33.4) (32.7)
Financing
The Group finances its operation through the following facilities.
Amount Expires Drawn at
$m
31 December
2022
$m
Group revolving credit facility 37.0 October 2024 36.4
Term loans 18.7 October 2024 13.3
Revolving credit facility USA 10.0 1-year rolling 8.7
Invoice discounting 3.0 1-year rolling 1.8
Total 68.7 60.2
Leverage (using debt to equity ratio)
The Group's leverage position is shown below including and excluding leasing
finance:
2022 2021*
Including leasing finance 2.24 1.51
Excluding leasing finance 2.07 1.34
Required ratio 2.25 2.0
* The Group's 2021 leverage ratios have been restated, to reflect the
agreement by HSBC that interest on property leases is excluded from the
leverage calculation as agreed in October 2022.
The Group's leverage is constantly updated, and a rolling projection for 12
months is reviewed to ensure compliance with the Group's covenants. In January
2023, the Group's bankers HSBC, waived its leverage ratio requirement at the
31 December 2022 and raised its leverage test to 3.0 for the three quarters to
30 September 2023. The maximum leverage ratio requirement will reduce to 2.25
at 31 December 2023 and for subsequent quarters until the facility matures in
October 2024.
Earnings per share
Year ended 31 December 2022 Basic weighted average number of Ordinary Shares ('000) Total Earnings Earnings per share
$'000 $
Basic EPS 101,672 (7,816) (0.08)
Diluted EPS 107,554 (7,816) (0.08)
Adjusted PBT basic EPS 101,672 8,139 0.08
Adjusted PBT diluted EPS 107,554 8,139 0.08
Dividend
The Group does not intend to pay a dividend for the year ended 31 December
2022. A dividend of $1.6m was paid during 2022 in respect of the year ended 31
December 2021.
Going concern
The Directors have undertaken a comprehensive assessment of the Group's
ability to trade out to 30 June 2024. Taking this into consideration, the
Directors have a reasonable expectation that the Group and the Company have
adequate resources to continue to trade throughout the review period.
Therefore, the Directors continue to adopt the going concern basis in
preparing the consolidated and Parent Company financial statements.
Chris Kay
Chief Financial Officer
Consolidated Income Statement
for the year ended 31 December 2022
Notes 2022 2021
$'000
$'000
Revenue 5 248,577 246,471
Cost of sales 7, 10 (126,291) (130,699)
Gross profit 122,286 115,772
Distribution costs (7,783) (7,795)
Administrative expenses 7, 10 (115,970) (106,436)
Operating (loss)/profit (1,467) 1,541
Non-underlying costs 8 (1,814) (2,588)
Exchange adjustment on borrowings (2,528) (5,418)
Finance costs 9 (3,829) (2,775)
Finance income 9 134 118
Share of profit/(loss) of associate 23 (10)
Loss before income tax (9,481) (9,132)
Income tax credit 11 1,665 3,697
Loss for the year (7,816) (5,435)
Attributable to: (7,816) (5,435)
Equity holders of the Parent
Earnings per share
Basic loss for the year attributable to the equity holders of the Parent 12 $(0.08) $(0.05)
Diluted loss for the year attributable to the equity holders of the Parent 12 $(0.08) $(0.05)
Consolidated Statement of Other Comprehensive Income
for the year ended 31 December 2022
2022 2021
$'000
Restated
$'000
Loss for the year (7,816) (5,435)
Other comprehensive (loss)/income
Exchange differences on translation of foreign operations (7,459) 2,891
Other comprehensive (loss)/income for the year, net of income tax (7,459) 2,891
Total comprehensive loss for the year (15,275) (2,544)
Attributable to: Equity holders of the Parent (15,275) (2,544)
Consolidated Statement of Financial Position
as at 31 December 2022
Notes 2022 2021
$'000
Restated
$'000
ASSETS
Non-current assets
Goodwill 67,234 75,945
Intangible assets 43,756 54,454
Property, plant and equipment 21,078 24,569
Right-of-use assets 23,810 22,269
Investment in associates 135 48
Deferred tax assets 8,476 12,540
164,489 189,825
Current assets
Inventories 58,257 55,664
Trade and other receivables 37,676 42,229
Tax receivables 4,453 3,468
Cash and cash equivalents 26,799 29,759
127,185 131,120
Assets held for sale 1,006 -
Total assets 292,680 320,945
EQUITY
Shareholders' equity
Called up share capital 1,389 1,389
Share premium 15 122,291 122,291
Foreign currency translation reserve 15 (4,657) 2,802
Share option reserve 15 3,548 2,001
Merger reserve 15 7,296 7,296
Retained earnings 15 223 9,429
Total equity 130,090 145,208
LIABILITIES
Non-current liabilities
Financial liabilities - borrowings
Interest-bearing loans and borrowings 16 20,018 69,194
Deferred consideration 14 1,634 3,107
Deferred tax liabilities 11,553 20,517
33,205 92,818
Current liabilities
Trade and other payables 47,363 53,317
Right of return liabilities 5 12,838 11,100
Financial liabilities - borrowings
Interest-bearing loans and borrowings 16 62,600 13,289
Invoice discounting 16 1,803 2,433
Deferred consideration 3,046 -
Tax payable 1,735 2,780
129,385 82,919
Total liabilities 162,590 175,737
Total equity and liabilities 292,680 320,945
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
Called up share capital $'000 Share premium $'000 Foreign currency translation reserve $'000 Share option reserve $'000 Retained earnings $'000 Merger reserve $'000 Total equity $'000
Balance at 1 January 2021 1,384 121,940 (89) 867 14,429 7,296 145,827
Changes in equity
Loss for the year - - - - (5,435) - (5,435)
Other comprehensive income - - 2,891 - - - 2,891
Total comprehensive loss - - 2,891 - (5,435) - (2,544)
Exercise of share options 5 351 - (350) 435 - 441
Share-based payments - - - 1,484 - - 1,484
Balance at 31 December 2021 (Restated) 1,389 122,291 2,802 2,001 9,429 7,296 145,208
Changes in equity
Loss for the year - - - - (7,816) - (7,816)
Other comprehensive loss - - (7,459) - - - (7,459)
Total comprehensive loss - - (7,459) - (7,816) - (15,275)
Share-based payments - - - 1,729 - - 1,729
Share options cancelled - - - (182) 182 - -
Cash Dividends - - - - (1,572) - (1,572)
Balance at 31 December 2022 1,389 122,291 (4,657) 3,548 223 7,296 130,090
Consolidated Statement of Cash Flows
for the year ended 31 December 2022
Notes 2022 2021
$'000
$'000
Cash flows from operating activities 13 12,358 24,895
Interest paid (3,652) (1,968)
Tax paid (3,629) (2,910)
Net cash from operating activities 5,077 20,017
Cash flows from investing activities
Purchase of intangible fixed assets (1,042) (1,508)
Purchase of property, plant and equipment (3,193) (6,137)
Acquisition of subsidiaries, net of cash acquired - (8,134)
Purchase of shareholding in associate (88) -
Interest received 134 118
Net cash used in investing activities (4,189) (15,661)
Cash flow from financing activities
Proceeds from the exercise of share options - 355
New bank loans in the year 12,783 26,751
Bank loan principal repayments in year (10,381) (22,873)
Transaction costs on debt refinancing (99) (782)
Movement in invoice discounting facility (384) 2,477
Dividends paid to equity holders of the parent (1,572) -
Principal payments on leases (4,745) (4,224)
Net cash (used in)/from financing activities (4,398) 1,704
(Decrease)/increase in cash and cash equivalents (3,510) 6,060
Cash and cash equivalents at beginning of the year 29,759 23,776
Effect of foreign exchange rate changes 550 (77)
Cash and cash equivalents at end of the year 26,799 29,759
Notes
1. General information
INSPECS Group plc is a public company limited by shares and is incorporated in
England and Wales (Company number 11963910). The address of the Company's
principal place of business is 7-10 Kelso Place, Upper Bristol Road, Bath BA1
3AU.
The principal activity of the Group in the year was that of design,
production, sale, marketing and distribution of high fashion eyewear, lenses
and OEM products worldwide.
2. Accounting policies
Basis of preparation
This financial information has been prepared in accordance with UK adopted
international accounting standards, and those parts of the Companies Act 2006
applicable to companies reporting under UK adopted International Financial
Reporting Standards ('IFRS').
The financial information has been prepared on a historical cost basis, except
where fair value measurement is required under IFRS as described below in the
accounting policies.
The presentational currency for the financial information is the United States
Dollar (USD) rounded to the nearest thousand. The functional currency of both
the Group and Parent Company is Pound Sterling (GBP), however a presentational
currency of USD is used to be consistent with many other entities within the
industry. The Consolidated Financial Statements provide comparative
information in respect of the year ended 31 December 2021. For periods
commencing from 1 January 2023, the reporting currency of the Consolidated and
Parent Company Financial Statements will change to GBP. Comparative
information is therefore included within Appendix 1 in GBP.
Going concern
This financial information has been prepared on the going concern basis as the
Directors have assessed that there is a reasonable expectation that the Group
will be able to continue in operation and meet its commitments as they fall
due over the going concern period to 30 June 2024.
The Board considered a base case, a downside scenario, and a reverse stress
test to assess the effect of potential disruption to the supply chain,
reducing consumer confidence due to rising interest rates and high global
inflation, cost increases and pressure on rising employee costs due to the
cost-of-living increases facing many individuals. The scenarios are as
follows:
Base case
● The base case is the Board approved budget which has been updated with the
Group's trading results for Q1 2023 and our expectation of trading to 30(th)
April. The budget was prepared assuming a continuation of the current
political situation in Ukraine together with inflationary pressures across the
World. The Group had seen a downturn in consumer confidence, especially in
Europe due to the above factors.
● The revenue reduction in Europe towards the end of 2022 was a temporary
slowdown and the Group has seen a strong rebound in our early 2023 trading in
Germany and the rest of Europe.
● The budget does not assume any acquisition expenditure.
● Our US and other markets remain resilient and are trading in line with
expectations.
● The Group expects to be able to maintain its budgeted margin throughout 2023.
● The base case includes Capital Expenditure through 2023 and 2024 for the new
third plant in Vietnam and initial construction costs of the first European
factory in Portugal.
● In this base case scenario, no covenant breaches or liquidity challenges are
expected.
Downside scenario
● The Group has known forward orders for circa two months through to the middle
of June 2023, therefore our downside scenario updates the base case with a
5.6% reduction in revenue from June 2023. The Directors believe that a 5.6%
reduction from the base case is appropriately conservative based on the
current trading position, the improved business through Norville, expected
falling global inflation and increasing consumer confidence. A 5% reduction in
Employee expenses takes affect from September 2023, reflecting a reduction of
the expected senior management bonuses together with a reduction in marketing,
advertising, entertaining, office expenses and other discretionary expenditure
that would not affect operational performance in the medium term.
● In this downside scenario, no covenant breaches or liquidity challenges are
expected.
The Group has considered the reasonably plausible downside scenario. The Group
mitigates the risk of a long-term drop in revenue by having a diverse business
that trades globally so that it is not reliant on any one region.
Reverse stress test
● The reverse stress test updated our base case with a 24.2% drop in forecast
revenue, whilst maintaining gross margin. The drop of 24.2% represents a
significant reduction against actual trading in 2022 and is a reduction in
revenue not previously experienced by the Group. This results in a breach in
interest ratio covenant in March 2024 that is recovered in June 2024. No other
covenants were forecast to be breached in this period. The reverse stress test
assumes some controllable costs saving by a reduction in employee expenses,
reduction in headcount, a reduction in discretionary administration costs and
removal of discretionary CAPEX spending, including a delay of the new
manufacturing facility in Vietnam and construction costs for a factory in
Portugal, and some repayment of the Rolling Credit Facility to reduce
interest charges through the year.
The Group has considered the reverse stress test, which models a breach in the
interest ratio covenant in March 2024. In this case the Directors have
available further levers within its control to save costs and generate income.
The Group also has the ability to discuss amending or waiving covenants with
the bank should an unprecedented drop in revenue occur. Current trading is
ahead of budget and there has been no erosion of margin. As a result, the
directors consider that the reverse stress test is a remote possibility.
The Group's borrowings with HSBC, amounting to $58.3m, contains three
covenants; Leverage, Cashflow Cover and Interest Cover ratios. Compliance on
these covenants is based on 12-month rolling periods for each Relevant Period.
The facilities are due for renewal in October 2024 and discussions for renewal
have already taken place. Formal work on the renewal is expected to take place
in Q3 2023 with a view to extending the terms for a further 3 years from
October 2024, it is not expected that any bullet payment will become due in
October 2024 and the Directors are confident of a successful renewal of the
facilities.
Prior to a technical breach of one of the covenants in December 2022 the Group
was in discussion to amend the facilities agreement with HSBC. Following the
breach in cashflow cover in December 2022 HSBC subsequently waived the
cashflow cover and leverage covenants for the relevant period ending 31
December 2022. The covenant tests for 2023 have been amended by HSBC to
increase the leverage cover for the March and June relevant periods; waive
cashflow cover until the March 2024 relevant period; and decrease interest
cover for the March and June relevant periods. There were no covenant breaches
in any prior relevant period in 2022.
On this basis, and as outlined in the Director's report, the Board has
reasonable expectations that the Group and Company has adequate resources to
continue as a Going Concern to 30 June 2024.
Basis of consolidation
The consolidated financial information incorporates the Financial Statements
of the Group and all of its material subsidiary undertakings. A subsidiary is
defined as an entity over which the Group has control. Control exists when the
Company has power over the investee, the company is exposed, or has rights to
variable returns from its involvement with the subsidiary and the company has
the ability to use its power of the investee to affect the amount of
investor's returns. The Financial Statements of all Group companies are
adjusted, where necessary, to ensure the use of consistent accounting
policies.
Acquisitions are accounted for under the acquisition method from the date
control passes to the Group. On acquisition, the assets and liabilities of a
subsidiary are measured at their fair values. Any excess of the cost of
acquisition over the fair values of the identifiable net assets acquired is
recorded as goodwill.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost
of an acquisition is measured as the aggregate of the consideration
transferred, which is measured at acquisition date fair value, and the amount
of any non-controlling interests in the acquiree. Acquisition-related costs
are expensed as incurred and classified as non-underlying costs.
When the Group acquires a business, it assesses the financial assets and
liabilities assumed for appropriate classification and designation in
accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date.
Goodwill is initially measured at cost (being the excess of the aggregate of
the consideration transferred over the net identifiable assets acquired and
liabilities assumed). If the fair value of the net assets acquired is in
excess of the aggregate consideration transferred, the Group reassesses
whether it has correctly identified all of the assets acquired and all of the
liabilities assumed and reviews the procedures used to measure the amounts to
be recognised at the acquisition date. If the reassessment still results in an
excess of the fair value of net assets acquired over the aggregate
consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill is tested annually for impairment. For the purpose
of impairment testing, goodwill acquired in a business combination is, from
the acquisition date, allocated to each of the Group's cash-generating units
that are expected to benefit from the combination, irrespective of whether
other assets or liabilities of the acquiree are assigned to those units.
Revenue recognition
Revenue from the sales of goods is recognised at the point in time when
control of the asset is transferred to the customer in line with agreed
incoterms. Revenue is recognised at the fair value of the consideration
received or receivable for sale of goods to external customers in the ordinary
nature of the business. The fair value of the consideration takes into account
trade discounts, settlement discounts, volume rebates and the right of return.
Revenue in relation to royalty income is recognised over the period to which
the royalty term relates. Revenue in relation to design income is recognised
as the work is performed.
Rights of return
Under IFRS 15 a sale with right of return is recognised if the customer
receives any combination of the following:
· A full or partial refund of any consideration paid
· A credit that can be applied against amounts owed, or that will be
owed, to the entity; and
· Another product in exchange
The Group recognised a liability where it has historically accepted a right to
return with the combination of a credit being applied against amounts owed or
where another product is offered in exchange. The Group estimates the impact
of potential returns from customers based on historical data on returns. A
refund liability is recognised for the goods that are expected to be returned
(i.e. the amount not included in the transaction price). A right of return
asset (and corresponding adjustment to cost of sales) is also recognised for
the right to recover the goods from the customer, to the extent that these
goods are not considered impaired.
Inventories
Inventories are stated at the lower of cost and estimated selling price less
costs to sell after making due allowance for obsolete and slow-moving items.
Inventories are recognised as an expense in the period in which the related
revenue is generated.
Cost is determined on an average cost basis. Cost includes the purchase price
and other directly attributable costs to bring the inventory to its present
location and condition.
At the end of each period, inventories are assessed for impairment. If an item
of inventory is impaired, the identified inventory is reduced to its selling
price less costs to complete and sell and an impairment charge is recognised
in the income statement.
Royalties
Royalties payable reflect balances owed to brand owners for the right to use
the brand name. The royalty is payable based on a pre-agreed percentage of
sales volumes, with some arrangements also having minimum royalty payments for
specific periods. Royalties payable are recognised on delivery of the products
covered by such arrangements, with an additional accrual made where it is
considered that the sales level required to meet the minimum payment will not
be met.
Impairment of financial assets
The Group recognises an allowance for expected credit losses ('ECLs') for all
debt instruments not held at fair value through profit or loss. ECLs are based
on the difference between the contractual cash flows due in accordance with
the contract and all the cash flows that the Group expects to receive.
For trade receivables and contract assets, the Group applies a simplified
approach in calculating ECLs. Therefore, the Group does not track changes in
credit risk, but instead recognises a loss allowance based on lifetime ECLs at
each reporting date.
The Group considers a financial asset in default when internal or external
information indicates that the Group is unlikely to receive the outstanding
contractual amounts in full before taking into account any credit enhancements
held by the Group. A financial asset is written off when there is no
reasonable expectation of recovering the contractual cash flows.
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash
equivalents comprise cash on hand and demand deposits, and short-term highly
liquid investments that are readily convertible into known amounts of cash,
that are subject to an insignificant risk of changes in value, and have a
short maturity of generally within three months when acquired, less bank
overdrafts which are repayable on demand and form an integral part of the
Group's cash management.
For the purpose of the consolidated statement of financial position, cash and
cash equivalents comprise cash on hand and at banks, including term deposits,
and assets similar in nature to cash, which are not restricted as to use.
Share-based payments
Employees (including senior executives) of the Group receive remuneration in
the form of share-based payments, whereby employees render services as
consideration for equity instruments (equity-settled transactions).
The cost of equity-settled transactions is determined by the fair value at the
date when the grant is made using an appropriate valuation model, further
details of which are given in the detailed notes to the accounts. That cost is
recognised in employee benefits expense together with a corresponding increase
in share option reserve, over the period in which the service and, where
applicable, the performance conditions are fulfilled (the vesting period).
The cumulative expense recognised for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting
period has expired and the Group's best estimate of the number of equity
instruments that will ultimately vest. The expense or credit in the income
statement for a period represents the movement in cumulative expense
recognised as at the beginning and end of that period.
Service performance conditions are not taken into account when determining the
grant date fair value of awards, but the likelihood of the conditions being
met is assessed as part of the Group's best estimate of the number of equity
instruments that will ultimately vest. Any other conditions attached to an
award, but without an associated service requirement, are considered to be
non-vesting conditions. Non-vesting conditions are reflected in the fair value
of an award and lead to an immediate expensing of an award unless there are
also service and/or performance conditions.
No expense is recognised for awards that do not ultimately vest because
service conditions have not been met. Where awards include a non-vesting
condition, the transactions are treated as vested irrespective of whether the
non-vesting condition is satisfied, provided that all other performance and/or
service conditions are satisfied.
If the terms of an equity-settled award are modified, the minimum expense
recognised is the grant date fair value of the unmodified award provided the
original vesting terms of the award are met. An additional expense, measured
as at the date of modification, is recognised for any modification that
increases the total fair value of the share-based payment transaction or is
otherwise beneficial to the employee. Where an award is cancelled by the
entity or by the counterparty, any remaining element of the fair value of the
award is expensed immediately through profit or loss. The dilutive effect of
outstanding options is reflected as additional share dilution in the
computation of diluted earnings per share, to the extent that they are
dilutive.
Dividend
Final dividend distribution to the Group's shareholders is recognised as a
liability in the Group's financial statements in the period in which the
dividends are approved by the Group's shareholders.
Deferred and contingent consideration in relation to acquisitions
Deferred consideration to the previous owners arising on acquisitions are
treated as part of the consideration for the acquisition, with the liability
recognised on the statement of financial position at the date of the
acquisition.
Where the consideration is contingent on continuing employment within the
Group, the charge is recognised through the Income Statement over the period
to which it relates.
Taxation
Income tax comprises current and deferred tax. Income tax relating to items
recognised outside profit or loss is recognised outside profit or loss, either
in other comprehensive income or directly in equity.
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities, based on the tax rates
(and tax laws) that have been enacted or substantively enacted by the end of
the reporting period, taking into consideration interpretations and practices
prevailing in the countries in which the Group operates.
Tax liabilities are recognised when it is considered probable that there will
be a future outflow of funds to a taxing authority. Uncertainties regarding
availability of tax losses, in respect of enquiries raised and additional tax
measurements issued, may be measured using the expected value method or single
best estimate approach, depending on the nature of the uncertainty. Tax
provisions are based on management's interpretation of country-specific tax
law and the likelihood of settlement. Management uses professional firms and
previous experience when assessing tax risks.
Deferred tax is provided, using the liability method, on all temporary
differences at the end of the reporting period between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences,
except:
· when the deferred tax liability arises from the initial recognition
of goodwill or an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss; and
· in respect of taxable temporary differences associated with
investments in subsidiaries, when the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences,
the carry forward of unused tax credits and any unused tax losses. Deferred
tax assets are recognised to the extent that it is probable that taxable
profit will be available against which the deductible temporary differences,
the carryover of unused tax credits and unused tax losses can be utilised,
except:
· when the deferred tax asset relating to the deductible temporary
differences arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss;
and
· in respect of deductible temporary differences associated with
investments in subsidiaries, deferred tax assets are only recognised to the
extent that it is probable that the temporary differences will reverse in the
foreseeable future and taxable profit will be available against which the
temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each
reporting period and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the
deferred tax asset to be utilised. Unrecognised deferred
tax assets are reassessed at the end of each reporting period and are
recognised to the extent that it has become probable that sufficient taxable
profit will be available to allow all or part of the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply to the period when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if and only if a
legally enforceable right exists to set off current tax assets against current
tax liabilities and the deferred taxes relate to income taxes levied by the
same taxation authority on either the same taxable entity and the same
taxation authority or different taxable entities which intend either to settle
current tax liabilities and assets on a net basis, or to realise the assets
and settle the liabilities simultaneously, in each future period in which
significant amounts of deferred tax liabilities or assets are expected to be
settled or recovered.
Foreign currencies
This financial information is presented in USD, which is the Group's
presentational currency. Each entity in the Group determines its own
functional currency and items included in the Financial Statements of each
entity are measured using that functional currency. Foreign currency
transactions recorded by the entities in the Group are initially recorded
using their respective functional currency rates prevailing at the dates of
the transactions.
Monetary assets and liabilities denominated in foreign currencies are
translated at the functional currency rates of exchange ruling at the end of
the reporting period. Differences arising on settlement or translation of
monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was
measured.
The gain or loss arising on translation of a non-monetary item measured at
fair value is treated in line with the recognition of the gain or loss on
change in fair value of the item (i.e. translation difference on the item
whose fair value gain or loss is recognised in other comprehensive income or
profit or loss is also recognised in other comprehensive income or profit or
loss, respectively).
The functional currency of INSPECS Group plc is GBP. The functional currencies
of certain overseas subsidiaries are currencies other than the GBP. At the end
of the reporting period, the assets and liabilities of these entities are
translated into GBP at the exchange rates prevailing at the end of the
reporting period and their income statements are translated into GBP at the
average exchange rates for the year.
The resulting exchange differences are recognised in other comprehensive
income and accumulated in the foreign currency translation reserve. On
disposal of a foreign operation, the component of other comprehensive income
relating to that particular foreign operation is recognised in profit or loss.
On translation to USD for presentation, the assets and liabilities of the
consolidated entity are translated into USD at the exchange rates prevailing
at the end of the reporting period, equity balances are translated at historic
exchange rates and the income statement is translated into USD at the average
exchange rates for the year.
Any goodwill arising on the acquisition of a foreign operation and any fair
value adjustments to the carrying amounts of assets and liabilities arising on
acquisition are treated as assets and liabilities of the foreign operation and
translated at the closing rate at the period end.
For the purpose of the consolidated statement of cash flows, the cash flows of
overseas subsidiaries are translated at the average exchange rates for the
year.
Pensions and other post-employment benefits
The Group operates defined contribution pension schemes, where the amounts
charged to the statement of comprehensive income are the contributions payable
in the year. Differences between contributions payable in the year and the
contributions actually paid are shown as either accruals or prepayments.
Non-underlying costs
Non-underlying costs are those that in the Directors' view should be
separately disclosed due to their nature to enable a full understanding of the
Group's financial performance. These include income and expenditure that is
considered outside of the usual course of business and therefore is separately
identified to allow the users of the Financial Statements comparability versus
prior periods. The main categories of costs disclosed as non-underlying are
acquisition costs, restructuring costs and other professional service costs
relating to the accounting integration of acquisitions.
Prior year adjustments
Material prior period errors are corrected retrospectively in the first set of
Financial Statements authorised for issue after their discovery by restating
the comparative amounts for the prior periods presented. A reconciliation
between the corrected figures and those reported for key statements is
provided in note 17. During the year, a prior year error has been identified
in relation to the treatment of contingent consideration.
New and amended standards and interpretations
The following standards have been published and are mandatory for accounting
periods beginning after 1 January 2022:
· Amendments to IFRS 3: Business Combinations - Reference to the
Conceptual Framework - effective 1 January 2022.
· Amendments to IAS 16: Property, Plant and Equipment - effective 1
January 2022.
· Amendments to IAS 37: Provisions, Contingent Liabilities and
Contingent Assets - effective 1 January 2022.
· Annual Improvements to IFRS Standards 2018-2020 Cycle - 1 January
2022.
None of the above standards have given rise to a significant change in the
reported results or financial position of the Group or Company.
3. Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Group's Financial Statements requires management to
make judgements, estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities, and their accompanying
disclosures, and the disclosure of contingent liabilities. Uncertainty about
these assumptions and estimates could result in outcomes that could require a
material adjustment to the carrying amounts of the assets or liabilities
affected in the future.
Estimates involve the determination of the quantum of accounting balances to
be recognised. Judgements typically involve decisions such as whether to
recognise an asset or liability.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the end of the reporting period, that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year,
are described below:
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis.
This requires an estimation of the value in use of the cash-generating units
to which the goodwill is allocated. Estimating the value in use requires the
Group to make an estimate of the expected future cash flows from the
cash-generating units and also to choose a suitable discount rate in order to
calculate the present value of those cash flows. The carrying amount of
goodwill at 31 December 2022 was $67,234,000 (2021 restated: $75,945,000).
No provision for impairment of goodwill was made as at the end of the
reporting period.
Right of return liability
Management apply assumptions in determining the right of return liability and
the associated right of return asset. These assumptions are based on analysis
of historical data trends, but require estimation of appropriate time periods
and expected return rates. The right of return liability at the period end is
$12,838,000 (2021: $11,100,000) with an offsetting right of return asset (held
within inventory) of $1,931,000 (2021: $1,581,000). If the provision were to
increase by 5%, this would lead to an additional charge to the profit and loss
of $545,000, with it being considered that a movement in the right of return
liability having an offsetting impact on the right of return asset.
Uncertain tax positions
Tax authorities could challenge and investigate the Group's transfer pricing
or tax domicile arrangements. As a growing, international business, there is
an inherent risk that local tax authorities around the world could challenge
either historical transfer pricing arrangements between other entities within
the Group and subsidiaries or branches in those local jurisdictions, or the
tax domicile of subsidiaries or branches that operate in those local
jurisdictions.
As a result, the Group has identified that it is exposed to uncertain tax
positions, which it has measured using an expected value methodology. Such
methodologies require estimates to be made by management including the
relative likelihood of each of the possible outcomes occurring, the periods
over which the tax authorities may raise a challenge to the Group's transfer
pricing or tax domicile arrangements; and the quantum of interest and
penalties payable in additions to the underlying tax liability. The provision
held in relation to uncertain tax liabilities as at 31 December 2022 is
$706,000 (2021: $623,000).
Judgements made by management which are considered to have a material impact
on this financial information are as follows:
Recognition of intangible assets
In recognising the intangible assets arising on acquisition of subsidiary
entities, the intangible assets must first be identified. This requires
management judgement as to the value drivers of the acquired business and its
interaction with the marketplace and stakeholders. In calculating the fair
value of the identified assets, management must use judgement to identify an
appropriate calculation technique and use estimates in deriving appropriate
forecasts and discount rates as required. Management has used external experts
to mitigate the risk of these judgements and estimates on the intangible
assets identified and valued.
Deferred tax
Deferred tax assets are recognised for unused tax losses to the extent that it
is probable that taxable profit will be available against which the losses can
be utilised. Significant management judgement is required to determine the
amount of deferred tax assets that can be recognised, based upon the likely
timing and the level of future taxable profits, together with future tax
planning strategies.
4. Non-statutory measures
When reviewing profitability, the Directors use adjusted profit metrics in
order to give meaningful year on year comparison. These adjusted profit
metrics are EBITDA, Adjusted Underlying EBITDA and Adjusted Profit Before Tax.
Whilst we recognise that the measures used are alternative (non-Generally
Accepted Accounting Principles) performance measures which are not defined
within IFRS, these measures are important and should be considered alongside
the IFRS measures. A reconciliation to these non-GAAP performance measures is
shown below:
2022 2021
$'000
$'000
Operating (loss)/profit (1,467) 1,541
Add back: Amortisation and impairment on intangible assets 8,526 11,020
Add back: Depreciation 8,342 7,430
EBITDA 15,401 19,991
Add back: Share-based payment expense 1,729 1,484
Add back: Earnout on acquisition 1,909 -
Underlying EBITDA 19,039 21,475
Add back: Purchase Price Allocation ('PPA') release on inventory through cost 164 5,991
of sales
Add back: Underlying EBITDA (loss) for acquisitions in the period - 90
Adjusted Underlying EBITDA 19,203 27,556
Less: Depreciation (8,342) (7,430)
Less: Interest (excluding amortisation of loan arrangement fees) (2,722) (2,268)
Adjusted Profit Before Tax (PBT) 8,139 17,858
In addition, the Directors consider the revenue of the Group on a constant
exchange rate basis calculated using the average exchange rates in effect for
the corresponding comparative period.
Due to the technical breach of a bank covenant, the adjusted net current
assets position has been calculated to allow comparison year on year as
follows:
2022 2021
$m
$m
Current assets 127.2 131.1
Current liabilities (129.4) (82.9)
Loan in technical breach (45.7) -
Adjusted current liabilities (83.7) (82.9)
Adjusted net current assets 43.5 48.2
5. Revenue
The revenue of the Group is attributable to the one principal activity of the
Group.
a) Geographical analysis
The Group's revenue by destination is split in the following geographic areas:
2022 2021
$'000
$'000
United Kingdom 26,271 30,248
Europe (excluding UK) 115,241 121,930
North America 86,189 82,114
South America 1,391 517
Asia 7,983 3,281
Africa 546 3,034
Australia 10,956 5,347
248,577 246,471
For the years ended 31 December 2022 and 31 December 2021 the Group had
individual no customer which accounted for more than 10% of the Group's
revenue.
b) Right of return assets and liabilities
2022 2021
$'000
$'000
Right of return asset 1,931 1,581
Right of return liability (12,838) (11,100)
The right of return asset is presented as a component of inventory and the
right of return liability is presented separately on the face of the balance
sheet.
6. Segment information
The Group operates in three operating segments, which upon application of the
aggregation criteria set out in IFRS 8 Operating Segments results in three
reporting segments:
· Frames and Optics product distribution.
· Wholesale - being OEM and manufacturing distribution.
· Lenses - being manufacturing and distribution of lenses.
The criteria applied to identify the operating segments are consistent with
the way the Group is managed. In particular, the disclosures are consistent
with the information regularly reviewed by the CEO and the CFO in their role
as Chief Operating Decision Makers, to make decisions about resources to be
allocated to the segments and to assess their performance.
The reportable segments subject to disclosure are consistent with the
organisational model adopted by the Group during the financial year ended 31
December 2022 and are as follows:
Frames and Optics Wholesale $'000 Lenses Total before adjustments & eliminations $'000 Adjustments & Total
$'000
$'000
eliminations $'000
$'000
Revenue
External 214,661 29,572 4,344 248,577 - 248,577
Internal 6,408 5,047 218 11,673 (11,673) -
221,069 34,619 4,562 260,250 (11,673) 248,577
Cost of sales (113,851) (18,911) (3,500) (136,262) 9,971 (126,291)
Gross profit 107,218 15,708 1,062 123,988 (1,702) 122,286
Expenses (91,564) (6,228) (5,245) (103,037) (3,848) (106,885)
Depreciation (6,530) (992) (808) (8,330) (12) (8,342)
Amortisation (7,411) (1,091) (24) (8,526) - (8,526)
Operating profit/(loss) 1,713 7,397 (5,015) 4,095 (5,562) (1,467)
Exchange adjustment on borrowings (2,528)
Non-underlying costs (1,814)
Finance costs (3,829)
Finance income 134
Share of profit of associate 23
Taxation 1,665
Loss for the year (7,816)
Total assets 396,297 84,919 12,665 493,881 (209,677) 284,204
Total liabilities (217,238) (15,149) (15,589) (247,976) 183,095 (64,881)
Deferred tax asset 8,476
Current tax liability (1,735)
Deferred tax liability (11,553)
Borrowings (84,421)
Group net assets 130,090
Other disclosures
Capital additions 2,765 547 923 4,235 - 4,235
The reportable segments subject to disclosure are consistent with the
organisational model adopted by the Group during the financial year ended 31
December 2021 and are as follows:
Frames and Optics Wholesale $'000 Lenses Total before adjustments & eliminations $'000 Adjustments & eliminations $'000 Total
$'000
$'000
$'000
Revenue
External 211,527 27,437 7,507 246,471 - 246,471
Internal 3,438 4,664 90 8,192 (8,192) -
214,965 32,101 7,597 254,663 (8,192) 246,471
Cost of sales (115,964) (16,922) (4,977) (137,863) 7,164 (130,699)
Gross profit 99,001 15,179 2,620 116,800 (1,028) 115,772
Expenses (84,672) (6,857) (4,797) (96,326) 545 (95,781)
Depreciation (5,669) (1,209) (552) (7,430) - (7,430)
Amortisation and impairment (6,386) (4,632) (2) (11,020) - (11,020)
Operating (loss)/profit 2,274 2,481 (2,731) 2,024 (483) 1,541
Exchange adjustment on borrowings (5,418)
Non-underlying costs (2,588)
Finance costs (2,775)
Finance income 118
Share of loss of associate (10)
Taxation 3,697
Loss for the year (5,435)
Total assets 426,449 75,568 13,986 516,003 (207,598) 308,405
Total liabilities (321,905) (7,444) (10,813) (340,162) 270,205 (69,957)
Deferred tax asset 12,540
Current tax liability (2,780)
Deferred tax liability (20,517)
Borrowings (82,483)
Group net assets 145,208
Other disclosures
Capital additions 2,471 1,300 3,874 7,645 - 7,645
Total assets are the Group's gross assets excluding deferred tax asset. Total
liabilities are the Group's gross liabilities excluding loans and borrowings,
current and deferred tax liabilities.
Non-underlying costs, as well as net finance costs and taxation are not
allocated to individual segments as they relate to Group-wide activities as
opposed to individual reporting segments.
Deferred tax and borrowings are not allocated to individual segments as they
are managed on a Group basis.
Adjusted items relate to elimination of all intra-group items including any
profit adjustments on intra-group sales that are eliminated on consolidation,
along with the profit and loss items of the Parent Company.
Adjusted items in relation to segmental assets and liabilities relate to the
elimination of all intra-group balances and investments in subsidiaries, and
assets and liabilities of the Parent Company.
Non-current operating assets
2022 2021
$'000
$'000
United Kingdom 9,820 9,795
Europe 110,339 129,441
North America 4,863 4,589
Asia 30,856 36,580
155,878 180,405
Non-current assets for this purpose consist of property, plant and equipment,
right-of-use assets, goodwill and intangible assets.
7. Employees and Directors
2022 2021
$'000
$'000
Wages and salaries 56,436 57,714
Social security costs 9,624 10,002
Pension costs 713 566
Share-based payment expense 1,729 1,484
68,502 69,766
The average number of employees during the year by operating segment was as
follows:
2022 2021
Frames and Optics 679 621
Wholesale 961 964
Lenses 102 87
1,742 1,672
Directors' remuneration during the year was as follows:
2022 2021
$'000
$'000
Directors' salaries 909 811
Directors' pension contributions 16 35
Share options - 373
925 1,219
Information regarding the highest paid Director is as follows:
2022 2021
$'000
$'000
Total remuneration 318 523
The number of Directors to whom employer pension contributions were made by
the Group during year is three (2021: two). This was in the form of a defined
contribution pension scheme.
8. Non-underlying costs
Non-underlying costs are those that in the Directors' view should be
separately disclosed by virtue of their size, nature or incidence to enable a
full understanding of the Group's financial performance in the year and
business trends over time. Non-underlying costs incurred during the year are
as follows:
2022 2021
$'000
$'000
Acquisition costs 1,101 1,352
Other professional service costs 201 1,236
Restructuring costs 512 -
1,814 2,588
Acquisition costs of $1,101,000 were incurred during the period relating to
prospective acquisition targets. The Board decided to pause the acquisition
process in the second half of 2022 due to market conditions. Other
professional service costs of $201,000 relate to accounting transition and
valuation following the acquisition of BoDe Design GmbH and EGO Eyewear
Limited in December 2021. Restructuring costs of $512,000 were incurred in the
period in relation to the closure of International Eyewear Limited and INSPECS
Asia Limited. The closure of these entities is as a result of recent
acquisitions and is therefore considered one-off in nature.
9. Finance costs and finance income
2022 2021
$'000
$'000
Finance costs
Bank loan interest 2,206 1,785
Invoice discounting interest and charges 94 57
Loan transaction costs 974 477
Lease interest 555 456
Total finance costs 3,829 2,775
Finance income
Interest receivable 134 118
10. Loss before income tax
The loss before income tax is stated after charging:
2022 2021
$'000
$'000
Cost of inventories recognised as expense 92,049 95,628
Short-term leases 486 486
Depreciation - owned assets 3,841 3,423
Depreciation - right-of-use assets 4,501 4,007
Amortisation - intangibles 8,526 7,567
Impairment - intangibles - 3,453
2022 2021
$'000
$'000
Fees payable to the Company's auditor for audit services:
Audit of the Company and Group accounts 592 574
Audit of the subsidiaries 1,142 830
No fees have been charged by the Company's auditor for non-audit services in
the current or prior periods.
11. Income tax
Analysis of tax expense:
2022 2021
$'000
$'000
Current tax:
Current tax on profits for the year 2,036 1,618
Overseas current tax expense 322 469
Foreign tax suffered 4 -
Adjustment in respect of prior years (948) (128)
Total current tax 1,414 1,959
Deferred tax:
Deferred tax income relating to the origination and reversal of timing (2,964) (4,430)
differences
Effect of changes in tax rates (108) (1,122)
Adjustment in respect of prior years (7) (104)
Total deferred tax (3,079) (5,656)
Total tax credit reported in the consolidated income statement (1,665) (3,697)
Factors affecting the tax credit
The tax credit assessed for the year is lower than the standard rate of
corporation tax in the UK. The difference is explained below:
2022 2021
$'000
$'000
Loss before income tax (9,481) (9,132)
Loss multiplied by standard rate of corporation tax in the UK of 19% (2021: (1,801) (1,735)
19%)
Effects of:
Non-deductible expenses - amortisation of intangible assets 185 853
Non-deductible expenses - other expenses 907 517
Increase/(decrease) in provision for uncertain tax liabilities 152 (2,224)
Capital allowances super deduction (2) -
Share-based payment 459 (136)
Different tax rate for overseas subsidiaries (3,065) (1,311)
Transfer pricing adjustments 81 1,017
Tax rate changes (108) (1,122)
Effects of Group relief - 156
Amounts not recognised for deferred tax 2,482 520
Adjustments in respect of prior year (955) (232)
Tax credit (1,665) (3,697)
Movements in other comprehensive income relating to foreign exchange on
consolidation are not taxable.
12. Earnings per share ('EPS')
Basic EPS is calculated by dividing the profit or loss for the year
attributable to ordinary equity holders of the Parent by the weighted average
number of Ordinary Shares outstanding during the year.
Diluted EPS is calculated by dividing the profit or loss attributable to
ordinary equity holders of the Parent by the weighted average number of
Ordinary Shares outstanding during the year plus the weighted average number
of Ordinary Shares that would be issued on conversion of all the dilutive
potential Ordinary Shares into Ordinary Shares, to the extent that the
inclusion of such shares is not anti-dilutive. A loss has been made in the
year to 31 December 2022 and the comparative period. In accordance with IAS
33, potential Ordinary Shares shall be treated as dilutive when, and only
when, their conversion to Ordinary Shares would decrease earnings per share,
or increase loss per share from continuing operations. As a loss is made,
including the dilution of potential Ordinary Shares reduces the loss per share
and therefore the outstanding options should not be treated as dilutive when
calculating EPS.
Adjusted PBT earnings per share figures are calculated by dividing adjusted
PBT for the year by the weighted average number of Ordinary Shares outstanding
during the year. Adjusted PBT diluted earnings per share figures are
calculated by dividing Adjusted PBT for the year by the weighted average
number of Ordinary Shares plus the weighted average number of Ordinary Shares
that would be issued on the conversion of all dilutive potential Ordinary
Shares into Ordinary Shares. A reconciliation to Adjusted PBT can be found in
note 4.
The following table reflects the income and share data used in the basic and
diluted EPS calculations:
Year ended 31 December 2022 Basic weighted Total Earnings per share ($)
average number earnings ($'000)
of Ordinary
Shares ('000)
Basic EPS 101,672 (7,816) (0.08)
Diluted EPS 107,554 (7,816) (0.08)
Adjusted PBT basic EPS 101,672 8,139 0.08
Adjusted PBT diluted EPS 107,554 8,139 0.08
Year ended 31 December 2021 Basic weighted Total Earnings per share ($)
average number earnings
of Ordinary ($'000)
Shares ('000)
Basic EPS 101,310 (5,435) (0.05)
Diluted EPS 106,336 (5,435) (0.05)
Adjusted PBT basic EPS 101,310 17,858 0.18
Adjusted PBT diluted EPS 106,336 17,858 0.17
13. Analysis of cash flows given in the statement of cash flows
A reconciliation of profit for the year to cash generated from operations is
shown below:
2022 2021
$'000
$'000
Loss before income tax (9,481) (9,132)
Adjustments for:
Depreciation 8,342 7,430
Amortisation and impairment of intangible assets 8,526 11,020
Share of (profit)/loss of associate (23) 10
Share-based payment 1,729 1,484
Earnout on acquisitions 1,909 -
Exchange adjustment on borrowings 2,528 5,418
Cases valuation adjustment against goodwill 776 -
Loss on disposal of non-current assets 129 -
Exchange adjustment on trading - (1,171)
Finance costs 3,829 2,775
Finance income (134) (118)
Changes in working capital
(Increase)/decrease in inventories (8,418) 149
Decrease in trade and other receivables 117 1,923
Increase in trade and other payables 2,529 5,107
Cash flows from operating activities 12,358 24,895
14. Deferred consideration
Deferred considerations payable relate to the acquisitions of BoDe Design GmbH
and EGO Eyewear Limited. In relation to BoDe Design GmbH, the full balance of
$685,000 is based on the performance of the entity during 2022. In relation to
EGO Eyewear Limited, $2,451,000 is deferred consideration payable in equal
instalments in 2023, 2024 and 2025. The remaining balance is based on the
performance of the entity during 2022. 2021 deferred consideration has been
restated, as detailed in note 17. The split of the deferred consideration
between each entity is as follows:
2022 2021
$'000
Restated
$'000
BoDe Design GmbH - 371
EGO Eyewear Limited 1,634 2,736
Total non-current deferred consideration 1,634 3,107
2022 2021
$'000
$'000
BoDe Design GmbH 685 -
EGO Eyewear Limited 2,361 -
Total current deferred consideration 3,046 -
The previous owners of BoDe Design and EGO Eyewear are entitled to earnout
payments based on the performance of each entity to 31 December 2025. A charge
has been recognised in the Income Statement of $1,909,000 in relation to the
earnout payable as a result of performance for the year to 31 December 2022.
15. Reserves
Share premium
This reserve records the amount above the nominal value of the sums received
for shares issued, less transaction costs.
2022 2021
$'000
$'000
At 1 January 122,291 121,940
Exercise of share options - 351
At 31 December 122,291 122,291
Foreign currency translation reserve
This reserve records the foreign currency translation adjustment on
consolidation.
2022 2021
$'000
Restated
$'000
At 1 January 2,802 (89)
Other comprehensive income (7,459) 2,891
At 31 December (4,657) 2,802
Share option reserve
The share option reserve is used to recognise the value of equity-settled
share-based payments provided to employees, including key management
personnel, as part of their remuneration.
2022 2021
$'000
$'000
At 1 January 2,001 867
Share-based payment charge 1,729 1,484
Exercise of share options - (437)
Share options cancelled (182) -
Deferred tax on share options - 87
At 31 December 3,548 2,001
The share-based payment charge for the year is recognised against the reserve
as per IFRS 2 Share-Based Payments. 150,000 share options have been cancelled
during the period. Upon cancellation of share options, the remaining element
of fair value of the option is expensed immediately through the income
statement. The related share option reserve is then recycled into retained
earnings, resulting in the movement of $182,000 from the share option reserve
to retained earnings.
Retained earnings
2022 2021
$'000
$'000
At 1 January 9,429 14,429
Loss for the year (7,816) (5,435)
Exercise of share options - 435
Share options cancelled 182 -
Cash dividends (1,572) -
At 31 December 223 9,429
During the period, the final dividend in relation to 2021 was paid, amounting
to 1.25 pence per share.
Merger reserve
This reserve arose on the share for share exchange between INSPECS Holdings
Limited and INSPECS Group plc on 10 January 2020.
2022 2021
$'000
$'000
At 1 January 7,296 7,296
At 31 December 7,296 7,296
16. Financial liabilities - borrowings
2022 2021
$'000
$'000
Current:
Invoice discounting 1,803 2,433
Bank loans 58,204 9,979
Lease liabilities 4,396 3,310
62,600 13,289
2022 2021
$'000
$'000
Non-current:
Bank loans 225 50,113
Lease liabilities 19,793 19,081
20,018 69,194
At the balance sheet date, the available invoice discounting facility was
$1,827,000 (2021: $1,621,000). The invoice discounting facility bears interest
at 2.25% over base rate (2021: 2.00%). The invoice discounting facility is
secured by way of fixed and floating charges over the trade receivables of
INSPECS Limited. The facility has no fixed end date, with a notice period of
three months.
As at 31 December 2022, it was determined the Group was in technical breach of
its debt service cover loan covenants, which has resulted in the
re-classification of the loan balance ($45.7m) to a current liability in line
with IAS 1. Subsequently, HSBC has waived the cashflow cover and leverage
covenants at 31 December 2022.
On 27 October 2021, the Group entered a new multi-currency term loan with HSBC
for $18,700,000. Repayments under this loan are $900,000 per quarter plus
interest. Interest is payable at the applicable Margin Rate plus LIBOR
calculated daily on a 360-day year basis. The Margin Rate is 1.90%, 2.15% or
2.40% dependent upon the Group's leverage ratio. The loan matures in October
2024.
The Group also hold a multi-currency revolving credit facility, from which an
additional $4,000,000 was drawn down in September 2022, increasing this loan
to $36,385,000 as at 31 December 2022. Interest is payable at
LIBOR/EURIBOR/SONIA (depending on the currency in which funds are drawn down)
plus 2.4% calculated daily on a 360-day year basis. The credit facility
matures in October 2024.
Loans amounting to $8,700,000 were refinanced during the year, bringing these
balances to the same lender as the rest of the Group. This new loan holds an
interest rate of LIBOR plus 2.25%.
Remaining loans in the Group are at a fixed interest rate of 2.0% and are
repayable in between one and five years.
The Group's bank loans and overdrafts are secured against the business assets
of the Group. The Group's lease liabilities are secured against the assets
concerned.
17. Prior year adjustment - contingent consideration
Under IFRS 3: Business Combinations, contingent consideration payable
dependent on continuing employment of the previous owners should be accounted
for as remuneration for continuing services over the period to which it
relates. Within the 2021 Annual Report, these earnout payments were included
within the total consideration for both the BoDe Design GmbH and EGO Eyewear
Limited acquisitions. A prior year adjustment is therefore required to reduce
the deferred consideration liability by $5,398,000, reduce goodwill by
$5,414,000 and reduce the foreign currency translation reserve by $16,000.
There is no impact on the prior year Income Statement as no earnout payments
related to 2021, with the acquisitions both made in December 2021.
The reconciliation of the restated Statement of Financial Position as at 31
December 2021 is shown below:
31 December 2021 Prior year adjustment Restated
$'000
$'000
31 December 2021
$'000
ASSETS
Non-current assets
Goodwill 81,359 (5,414) 75,945
Intangible assets 54,454 - 54,454
Property, plant and equipment 24,569 - 24,569
Right-of-use asset 22,269 - 22,269
Investment in associates 48 - 48
Deferred tax 12,540 - 12,540
195,239 (5,414) 189,825
Current assets
Inventories 55,664 - 55,664
Trade and other receivables 42,229 - 42,229
Tax receivable 3,468 - 3,468
Cash and cash equivalents 29,759 - 29,759
131,120 - 131,120
Total assets 326,359 (5,414) 320,945
EQUITY
Called up share capital 1,389 - 1,389
Share premium 122,291 - 122,291
Foreign currency translation reserve 2,818 (16) 2,802
Share option reserve 2,001 - 2,001
Merger reserve 7,296 - 7,296
Retained earnings 9,429 - 9,429
Total equity 145,224 (16) 145,208
LIABILITIES
Non-current liabilities
Financial liabilities - borrowings 69,194 - 69,194
Contingent and deferred consideration 8,505 (5,398) 3,107
Deferred tax 20,517 - 20,517
98,216 (5,398) 92,818
Current liabilities
Trade and other payables 53,317 - 53,317
Right of return liabilities 11,100 - 11,100
Financial liabilities - borrowings
Interest-bearing loans and borrowings 13,289 - 13,289
Invoice discounting 2,433 - 2,433
Tax payable 2,780 - 2,780
82,919 - 82,919
Total liabilities 181,135 (5,398) 175,737
Total equity and liabilities 326,359 (5,414) 320,945
18. Post balance sheet events
Since the balance sheet date, but before this financial information was
approved, there were no events that the Directors consider material to the
users of this financial information.
The financial information set out above is unaudited and does not constitute
the Company's statutory accounts for the year ended 31 December 2022.
Statutory accounts for 2022 will be delivered in due course.
Cautionary Statement
This announcement contains forward looking statements which are made in good
faith based on the information available at the time of its approval. It is
believed that the expectations reflected in these statements are reasonable
but they may be affected by a number of risks and uncertainties that are
inherent in any forward looking statement which could cause actual results to
differ materially from those currently anticipated. Nothing in this document
should be regarded as a profits forecast.
Appendix 1
Comparative information in GBP
Consolidated Income Statement in GBP
for the year ended 31 December 2022
2022 2021
£'000
£'000
Revenue 200,957 179,165
Cost of sales (102,097) (95,010)
Gross profit 98,860 84,155
Distribution costs (6,292) (5,667)
Administrative expenses (93,754) (77,371)
Operating (loss)/profit (1,186) 1,117
Non-underlying costs (1,466) (1,881)
Exchange adjustment on borrowings (2,044) (3,938)
Finance costs (3,095) (2,017)
Finance income 108 86
Share of profit of associate 19 (7)
Loss before income tax (7,664) (6,640)
Income tax credit 1,345 2,689
Loss for the year (6,319) (3,951)
Consolidated Statement of Financial Position in GBP
as at 31 December 2022
2022 2021
£'000
£'000
ASSETS
Non-current assets
Goodwill 55,578 56,206
Intangible assets 36,170 40,298
Property, plant and equipment 17,424 18,182
Right-of-use asset 19,683 16,482
Investment in associates 112 36
Deferred tax 7,007 9,281
135,974 140,485
Current assets
Inventories 48,158 41,199
Trade and other receivables 31,144 31,242
Tax receivables 3,681 2,566
Cash and cash equivalents 22,153 22,024
105,136 97,031
Assets held for sale 832 -
Total assets 241,942 237,516
EQUITY
Shareholders' equity
Called up share capital 1,017 1,017
Share premium 89,508 89,508
Foreign currency translation reserve 9,434 3,206
Share option reserve 2,703 1,454
Merger reserve 5,340 5,340
Retained earnings (461) 6,931
Total equity 107,541 107,456
2022 2021
£'000
£'000
LIABILITIES
Non-current liabilities
Financial liabilities - borrowings
Interest-bearing loans and borrowings 16,548 51,210
Deferred consideration 1,350 2,300
Deferred tax 9,548 15,184
27,446 68,694
Current liabilities
Trade and other payables 39,153 39,459
Right of return liabilities 10,613 8,215
Financial liabilities - borrowings
Interest-bearing loans and borrowings 51,746 9,835
Invoice discounting 1,490 1,800
Deferred consideration 2,518 -
Tax payable 1,435 2,057
106,955 61,366
Total liabilities 134,401 130,060
Total equity and liabilities 241,942 237,516
Reconciliation of Adjusted Underlying EBITDA and Adjusted PBT in GBP
for the year ended 31 December 2022
2022 2021
£'000
£'000
Revenue 200,957 179,165
Gross profit 98,860 84,155
Operating and distribution expenses, net of other operating income (100,046) (83,038)
Operating (loss)/profit (1,186) 1,117
Add back: Amortisation and impairment on intangible assets 6,893 8,011
Add back: Depreciation 6,744 5,401
EBITDA 12,451 14,529
Add back: Share-based payment expense 1,398 1,079
Add back: Earnout on acquisition 1,544 -
Underlying EBITDA 15,393 15,608
2022 2021
£'000
£'000
Underlying EBITDA 15,393 15,608
Add back: Purchase Price Allocation ('PPA') release on inventory through cost 132 4,355
of sales
Add back: Underlying EBITDA (loss) for acquisitions in the period - 66
Adjusted Underlying EBITDA 15,525 20,029
Less: Depreciation (6,744) (5,401)
Less: Interest (excluding amortisation of loan arrangement fees) (1,979) (1,649)
Adjusted Profit Before Tax (PBT) 6,802 12,979
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