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 basis1 of $265.7m (2021: $246.5m) |
| ● | Gross profit up 5.6% to $122.3m (2021: $115.8m) |
| ● | Adjusted Underlying EBITDA1 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 Richard Peck (CEO) Chris Kay (CFO)
| via FTI Consulting Tel: +44 (0) 20 3727 1000 |
| Peel Hunt (Nominated Adviser and Broker) Adrian Trimmings Andrew Clark Lalit Bose
| Tel: +44 (0) 20 7418 8900 |
| FTI Consulting (Financial PR) Alex Beagley Harriet Jackson Alice Newlyn
| Tel: +44 (0) 20 3727 1000 |
About INSPECS Group plc
INSPECS is a Bath-based designer, manufacturer and distributor of eyewear frames and optically advanced spectacle lenses. The Group produces a broad range of frames and lenses, covering optical, sunglasses and safety, which are either "Branded" (either under licence or under the Group's own proprietary brands), or "OEM" (including private label on behalf of retail customers, as well as unbranded).
INSPECS aims to be the leader in eyewear solutions through its vertically-integrated business model and has adopted a three-pillar growth strategy to achieve this: (i) continue to grow organically; (ii) undertake further acquisitions (and drive value through leveraging the Group's internal capabilities); and (iii) extend the Group's manufacturing capacity.
INSPECS customers include global optical and non-optical retailers, global distributors and independent opticians, with its distribution network covering over 80 countries and reaching approximately 75,000 points of sale.
INSPECS has operations across the globe: with offices and subsidiaries in the UK, Germany, Portugal, Scandinavia, the US and China (including Hong Kong, Macau and Shenzhen), and manufacturing facilities in Vietnam, China, the UK and Italy.
More information is available at: https://INSPECS.com
CHAIRMAN'S STATEMENT
2022 was, in many ways, another extraordinary year. We had to contend with the well-documented challenging business environment and experienced supply chain issues driven by ongoing COVID restrictions, rising energy prices and general scarcity of raw materials. In addition, the macroeconomic outlook and consumer confidence most notably deteriorated in Germany, a key territory for us, which is reflected in the Group's order intake being down on the previous year.
However, I am pleased to say the Group was able to raise its Gross Profit Margin from 47.0% in 2021 to 49.2% in 2022 due to increased pricing on new products and continued focus on the control of its supply chain costs.
Our UK lens business, Norville, required more time to turn the business into a solid performing addition to the Group. As a result, management has implemented a cost saving programme at the factory that has helped to narrow losses in Q4. We expect the losses at Norville to reduce significantly in 2023. However, its engineering excellence continues to assist our business as a whole.
Board Changes
Lord Ian MacLaurin kindly extended his tenure as Chair with us from June until 1 December 2022, when Richard Peck replaced me as Chief Executive Officer, and I assumed the role of Executive Chairman. Along with the rest of the Board, I am deeply grateful for Ian's immeasurable contribution.
I am delighted that Richard Peck, an industry veteran who joined the INSPECS Board as a Non-Executive Director following our IPO in February 2020, assumed the role of CEO in December 2022. Richard's knowledge of the Group, along with his deep understanding of the sector, has allowed him to hit the ground running.
I am pleased that Hugo Adams and Shaun Smith joined as Non-Executive Directors in December 2022. Hugo's significant experience in the retail sector and a proven track record of delivering growth for purpose-led consumer brands, paired with Shaun's extensive plc experience in finance with international manufacturing and retail groups, will be invaluable through the next stage of the Group's growth.
Investment progress
Construction of the Group's new factory in Vietnam will commence in the second half of 2023. Planning and development remains on-going for the factory in Portugal. We expect to see significant increases in our own factory-made products in 2024, driving growth for the medium term.
INSPECS continues to develop cutting-edge products and technology with our innovations arm, Skunkworks, driving growth throughout the Group, and we expect to see ongoing positive results from the team's hard work. Our design teams, situated in key locations across the globe, keep our offerings fresh and diverse.
Outlook
Following a year of consolidation, we now have a solid platform on which to build. The outlook for the Group and the eyewear sector remains positive despite the many headwinds we have encountered throughout the last year. We continue to be mindful of global economic forces, as well as uncertain consumer demand, particularly in Europe, but feel well placed to provide attractive products at competitive prices. The balance of our worldwide presence, particularly our US operations, bolsters our positive outlook. We continue to invest in the business to enable the Group to deliver further growth.
Robin Totterman
Executive Chairman
CHIEF EXECUTIVE OFFICER'S REPORT
Having been on the Board of INSPECS as a Non-Executive Director since IPO, I was delighted to assume the role of CEO on 1 December 2022. This was certainly a year of two halves in which the Group delivered a strong first half followed by a weaker second, owing to challenging market conditions.
Despite these challenges, we are pleased that we delivered total revenue of $248.6 million and adjusted underlying EBITDA of $19.2 million.
During the first half of the year, we saw a good financial performance, with increases in both revenue and profit as a result of the ongoing integration of the Group's businesses and increased distribution reach around the globe. However, the second half of the year was marked by a number of external challenges, including weakened market confidence in one of our primary markets, Germany, as a result of the conflict in Ukraine. We also faced significant headwinds from exchange rate fluctuations, as well as increases in raw materials, energy and shipping costs. In addition, the continuing COVID-19 restrictions mainly in China and Vietnam presented ongoing challenges to our manufacturing operations.
Lenses
Our lens business suffered a decrease in external revenue from $7.5m in 2021 to $4.3m in 2022, a reduction of 43%. Towards the end of 2021, the Group relocated its Norville lens manufacturing business from its old site at Magdala Road to a new state-of-the-art facility in Quedgeley, Gloucester. Whilst the construction of the new factory was completed on time and within budget, the relocation of the sensitive equipment from the old factory to the new one caused significant disruption in manufacturing capability, which in turn caused operating losses in the lenses segment to increase significantly, from $2.7m in 2021, to $5.0m in 2022. Our first priority was to calibrate the machinery and ensure that the quality and lead time of the product came back within industry standards, and this was achieved in the latter half of 2022. During Q4 of 2022, our focus then turned to increasing our revenue and operational efficiency. This resulted in reduced losses in Q4 of 2022 which are expected to significantly reduce in 2023.
Frames and Optics
Our frames and optics distribution business increased its external revenue from $211.5m in 2021 to $214.7m in 2022, growth of 1.5%.
UK: Our UK markets performed well in the second half of 2022. INSPECS' strategy of replacing third-party distributors with own Group worldwide sales offices accelerated during the year and we expect this to continue to improve sales for the Group. The UK market remains positive so far in 2023 and we are continuing to increase our product distribution.
Europe: Our European markets performed strongly in the first half of 2022. Towards the end of June 2022, we suffered headwinds principally in relation to a fall in consumer confidence which led to a reduction in our order intake in the latter half of 2022. Our cost base in Europe was also materially affected by the rapid decrease in the Euro against the Dollar which affected the operational performance of the business.
North America: The US market remained stable in 2022. Our US companies are well positioned to increase revenue of Group products throughout 2023 and the eyewear market remains positive so far in 2023. Our US businesses are now fully engaged in selling leading brands such as Superdry, Radley and O'Neill, which were not available to them in earlier years.
Asia and Australia: In 2022, the Group continued to increase its distribution in Asian markets from a relatively low level, which was supported by the appointment of new agents for the Middle East. We saw increased growth in Australia and New Zealand, the reopening of our South Africa markets, and increased distribution in the Philippines. In 2023, the Group will continue to actively target further growth opportunities in this expanding market.
Wholesale
Our wholesale business which consists of our manufacturing facilities in Vietnam, China and Italy has had a good performance in 2022 with external revenue growth of 8%. We continue to invest in our facilities and expect construction of our new manufacturing facility in Vietnam to commence in the second half of 2023. Planning and development remains on-going for the factory in Portugal. These new facilities will allow us to increase production capacity, improve efficiency and bring new products to market more quickly. They will also be an important part of our efforts to expand into new markets and meet the growing demand for our products and services. The Board remains confident in the long-term strategic importance of these new facilities to our future growth and looks forward to works commencing.
Acquisitions
The Group made strong progress in integrating its most recent acquisitions, EGO Eyewear and BoDe Design, into the Group and putting our new brands to work across the organisation. In the first half of 2022, the Group continued with its acquisition strategy and identified further opportunities. This incurred significant legal and due diligence costs, however, due to the slowdown in our European markets and adverse currency exchange movements, together with continued losses at Norville, the Board took the decision to pause all acquisition processes in the second half of 2022. The Board continues to assess acquisition targets that would complement the Group's existing portfolio and further enhance its proposition in the market.
Research and development
Skunkworks, our research and development department, continues to develop an exciting and innovative business, supplying frames, lenses, and expertise to leading global technology firms. As a result, the business generated its first commercial revenues in 2022, with further growth expected in 2023. The team's focus on cutting edge technologies and new materials has been particularly successful and we are excited that several new product launches in frames and packaging will take place later this year.
Skunkworks has always been a key driver of innovation and growth within the business and we are confident that its continued success will play a significant role in driving our overall performance in the coming year. We are committed to investing in the development of new and innovative products and technologies and we believe that Skunkworks will be an important part of this effort.
Operational efficiencies
During the year, a number of cost reductions have been implemented to improve operational efficiencies. These included reductions in office space in Germany, the amalgamation of our two Hong Kong offices into one and the integration of International Eyewear Limited's offices and warehouse operations with INSPECS Limited.
The Group is also working on increased procurement efficiencies by consolidating our supply base where possible. The integration of INSPECS Limited and International Eyewear Limited has subsequently strengthened INSPECS Limited's capabilities in the independent UK eyewear market.
Market opportunity
Operating in a resilient growing market, selling optical frames, we are confident that our business model and strategy will enable us to capitalise on this growth. The push for our own proprietary brand products made in Vietnam and customers looking for new suppliers following consolidation of competitors, all plays to our strengths. Our global teams continue to work hard on synergising, from product design to manufacturing and ultimately distribution, meaning the Group is well placed to capitalise on future growth.
Environmental, Social & Governance ("ESG")
Over the last 12 months our sustainability framework has been developed, clearly demonstrating the roadmap to our commitment to addressing critical environmental issues along with maintaining a positive environment for all our employees around the globe. Our focus on sustainable product and packaging is evident in the success of the Botaniq and O'Neill sustainable ranges. Our Group vision of 'Always Looking Forward' embeds itself into our Environmental, Social and Governance 'ESG', strategy and our purpose of innovation, commitment and integrity are reflected throughout.
CEO onboarding
Since taking over as CEO, I have focused on getting to know our business even better. I have met with many key customers and travelled to all of our major locations, travel restrictions allowing, including our showrooms and distribution centres in North America, our manufacturing factories in Vietnam and the UK, our sales and distribution facilities in Nuremberg, Germany, and our design centre in Lisbon, Portugal. My focus has been on building good working relationships with the key people at these locations and focusing on our revenues and costs to ensure a strong start to the new financial year.
A key strength of our Group has always been our people and I am very pleased with the standard and commitment of our teams in all of our territories. Our talented and dedicated employees are a key part of our success and I am confident that they will continue to drive our growth performance in 2023. Overall, I believe that our operations and management team are well positioned to navigate the challenges and opportunities that lie ahead, and I am committed to working closely with them to drive the continued growth and success of our Group.
Current trading
I am pleased to report that we have had a good performance in Q1 2023 and are ahead of the same period in 2022. This was driven in part by a rebound in our European markets and continued growth in other markets.
Outlook
Looking ahead, we are optimistic about the future growth and success of the Group. There are a number of exciting opportunities on the horizon, including the opening up of China, the upcoming launch of key brands, Barbour and Superdry in new markets like North America and Asia, and the strong performance of our proprietary brands; Titanflex, Humphrey's, Botaniq, Savile Row and Jos. In addition, we have a good order book in our factories and are seeing synergies from making more of our own products in our own factories and combining locations across the world.
We will maintain our focus on driving revenues and controlling costs as we work to achieve our growth and profitability goals. We will also continue to invest in new technologies and innovations, as well as expanding our product offerings and services to meet the changing needs of our customers.
Overall, we are confident in our ability to navigate the challenges and opportunities that lie ahead, and we believe that our talented team and resilient business model will allow us to achieve continued success.
Richard Peck
Chief Executive Officer
CHIEF FINANCIAL OFFICER'S REVIEW
Whilst the Group had a positive H1 with sales of $138.4m and an Adjusted Underlying EBITDA of $15.1m, the Group suffered from the continuing uncertainty in Ukraine and a slowdown in our European markets in H2.
Combined with a rapidly decreasing Euro against the US Dollar, and continued losses at Norville, this meant our H2 performance was not in line with our expectations.
The Group has taken action to reduce non-operational costs and is working on strategic efficiencies across the Group to increase our key performance indicator of Adjusted Underlying EBITDA.
Our FY22 results showed an increase in sales from $246.5m to $248.6m. The Group delivered Adjusted Underlying EBITDA of $19.2m (FY21: $27.6m).
On a constant currency basis our sales increased from $246.5m to $265.7m an increase of 8%.
Reported loss before tax of $9.5m (FY21: loss before tax $9.1m) is after incurring a purchase price allocation ("PPA") release on inventory ($0.2m) (FY21: $6.0m), exchange adjustments on borrowings ($2.5m) (FY21: $5.4m) and impairment of intangible assets ($0.0m) (FY21: $3.4m).
The Group along with its advisers, has discussed a change in the Group's reporting currency for 2023. As such the Group will report its interim numbers to 30 June 2023 in Pound Sterling, with a summary of the results in US Dollars for comparative purposes. Appendix 1 includes 2022 and 2021 comparative information stated in Pound Sterling.
| | FY22 $'000 | FY21 $'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 31 December 2022 $'000 | Acquisitions EGO & BoDe $'000 | Adjusted 31 December 2022 $'000 | Adjusted Year Ended $'000 | Percentage change |
| Revenue | 248,577 | 12,842 | 235,735 | 246,233 | -4% |
| Gross profit | 122,286 | 3,734 | 118,552 | 115,744 | 2% |
| Distribution | 7,783 | 62 | 7,721 | 7,792 | -1% |
| Wages & salaries | 61,552 | 2,318 | 59,234 | 62,111 | -5% |
| Administrative | 54,418 | 4,440 | 49,978 | 44,178 | 13% |
| Total operating expenses | 123,753 | 6,820 | 116,993 | 114,081 | 3% |
The table below sets out our operating costs, adjusted for the acquisitions of BoDe Design and EGO Eyewear, as a percentage of revenue.
| | Adjusted Year Ended 31 December 2022 $'000 | Percentage of revenue | Adjusted Year Ended 31 December 2021 $'000 | Percentage of revenue |
| Revenue | 235,735 | - | 246,233 | - |
| Gross profit | 118,552 | 50% | 115,744 | 47% |
| Distribution | 7,721 | 3% | 7,792 | 3% |
| Wages & salaries | 59,234 | 25% | 62,111 | 25% |
| Admin | 49,978 | 21% | 44,178 | 18% |
Loss before tax
In 2022, the Group made a statutory loss before tax of $9.5m (FY21: loss $9.1m), an increase of $0.4m. The Group made an Adjusted Underlying EBITDA of $19.2m (FY21: $27.6m).
| | 2022 $m | 2021 $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 |
| 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 2022 $'000 | 31 December 2021 $'000 |
| Cash and cash equivalents at the beginning of year | 29,759 | 23,776 |
| Net cash from operating activities | 5,077 | 20,017 |
| Net cash used in investing activities | (4,189) | (15,661) |
| Net cash (used in)/from financing activities | (4,398) | 1,704 |
| (Decrease)/increase in cash and cash equivalents | (3,510) | 6,060 |
| Foreign exchange movements in the year | 550 | (77) |
| Cash and cash equivalents including overdrafts at the year end | 26,799 | 29,759 |
| |
| |
| The breakdown of net cash used in investing activities is |
| |
| Purchase of intangible fixed assets | (1,042) | (1,508) |
| Purchase of property, plant and equipment | (3,193) | (6,137) |
| Acquisition of subsidiaries, net of cash acquired | - | (8,134) |
| Purchase of shareholding in associate | (88) | - |
| Interest received | 134 | 118 |
| Net cash used in investing activities | (4,189) | (15,661) |
Working capital
The Group closely monitors its working capital position to ensure that it has sufficient resources to meet its day-to-day requirements and to fund further investing activities to supply its customer base.
Debtors
| | Year ended 31 December 2022 | Year ended 31 December 2021 | ||||||
| | Total | 30 Days | 60 Days | 90 Days | Total | 30 Days | 60 Days | 90 Days |
| Debtors ($) | 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 2022 | 31 December 2021 |
| 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 2022 | Year ended |
| Current assets | 127.2 | 131.1 |
| Current liabilities | 129.4 | 82.9 |
| Ratio | 1.0 | 1.6 |
| | Year ended 2022 | Year ended |
| 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 |
| 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 |
| 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 2022 | Year ended |
| | $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 |
| 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 $'000 | Earnings per share $ |
| 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 |
| 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) |
| 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 Restated |
| 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 Restated |
| 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 |
| 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 30th 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 |
| Operating (loss)/profit | (1,467) | 1,541 |
| Add back: Amortisation and impairment on intangible assets | 8,526 | 11,020 |
| Add back: Depreciation | 8,342 | 7,430 |
| EBITDA | 15,401 | 19,991 |
| Add back: Share-based payment expense | 1,729 | 1,484 |
| Add back: Earnout on acquisition | 1,909 | - |
| Underlying EBITDA | 19,039 | 21,475 |
| Add back: Purchase Price Allocation ('PPA') release on inventory through cost of sales | 164 | 5,991 |
| Add back: Underlying EBITDA (loss) for acquisitions in the period | - | 90 |
| Adjusted Underlying EBITDA | 19,203 | 27,556 |
| Less: Depreciation | (8,342) | (7,430) |
| Less: Interest (excluding amortisation of loan arrangement fees) | (2,722) | (2,268) |
| Adjusted Profit Before Tax (PBT) | 8,139 | 17,858 |
In addition, the Directors consider the revenue of the Group on a constant exchange rate basis calculated using the average exchange rates in effect for the corresponding comparative period.
Due to the technical breach of a bank covenant, the adjusted net current assets position has been calculated to allow comparison year on year as follows:
| | 2022 | 2021 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| Current tax: |
| |
| Current tax on profits for the year | 2,036 | 1,618 |
| Overseas current tax expense | 322 | 469 |
| Foreign tax suffered | 4 | - |
| Adjustment in respect of prior years | (948) | (128) |
| Total current tax | 1,414 | 1,959 |
| Deferred tax: |
| |
| Deferred tax income relating to the origination and reversal of timing differences | (2,964) | (4,430) |
| Effect of changes in tax rates | (108) | (1,122) |
| Adjustment in respect of prior years | (7) | (104) |
| Total deferred tax | (3,079) | (5,656) |
| Total tax credit reported in the consolidated income statement | (1,665) | (3,697) |
Factors affecting the tax credit
The tax credit assessed for the year is lower than the standard rate of corporation tax in the UK. The difference is explained below:
| | 2022 | 2021 |
| Loss before income tax | (9,481) | (9,132) |
| Loss multiplied by standard rate of corporation tax in the UK of 19% (2021: 19%) | (1,801) | (1,735) |
| |
| |
| Effects of: |
| |
| Non-deductible expenses - amortisation of intangible assets | 185 | 853 |
| Non-deductible expenses - other expenses | 907 | 517 |
| Increase/(decrease) in provision for uncertain tax liabilities | 152 | (2,224) |
| Capital allowances super deduction | (2) | - |
| Share-based payment | 459 | (136) |
| Different tax rate for overseas subsidiaries | (3,065) | (1,311) |
| Transfer pricing adjustments | 81 | 1,017 |
| Tax rate changes | (108) | (1,122) |
| Effects of Group relief | - | 156 |
| Amounts not recognised for deferred tax | 2,482 | 520 |
| Adjustments in respect of prior year | (955) | (232) |
| Tax credit | (1,665) | (3,697) |
Movements in other comprehensive income relating to foreign exchange on consolidation are not taxable.
12. Earnings per share ('EPS')
Basic EPS is calculated by dividing the profit or loss for the year attributable to ordinary equity holders of the Parent by the weighted average number of Ordinary Shares outstanding during the year.
Diluted EPS is calculated by dividing the profit or loss attributable to ordinary equity holders of the Parent by the weighted average number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that would be issued on conversion of all the dilutive potential Ordinary Shares into Ordinary Shares, to the extent that the inclusion of such shares is not anti-dilutive. A loss has been made in the year to 31 December 2022 and the comparative period. In accordance with IAS 33, potential Ordinary Shares shall be treated as dilutive when, and only when, their conversion to Ordinary Shares would decrease earnings per share, or increase loss per share from continuing operations. As a loss is made, including the dilution of potential Ordinary Shares reduces the loss per share and therefore the outstanding options should not be treated as dilutive when calculating EPS.
Adjusted PBT earnings per share figures are calculated by dividing adjusted PBT for the year by the weighted average number of Ordinary Shares outstanding during the year. Adjusted PBT diluted earnings per share figures are calculated by dividing Adjusted PBT for the year by the weighted average number of Ordinary Shares plus the weighted average number of Ordinary Shares that would be issued on the conversion of all dilutive potential Ordinary Shares into Ordinary Shares. A reconciliation to Adjusted PBT can be found in note 4.
The following table reflects the income and share data used in the basic and diluted EPS calculations:
| Year ended 31 December 2022 | Basic weighted average number of Ordinary Shares ('000) |
| Total earnings ($'000) | Earnings per share ($) |
| Basic EPS | 101,672 | | (7,816) | (0.08) |
| Diluted EPS | 107,554 | | (7,816) | (0.08) |
| Adjusted PBT basic EPS | 101,672 | | 8,139 | 0.08 |
| Adjusted PBT diluted EPS | 107,554 | | 8,139 | 0.08 |
| Year ended 31 December 2021 | Basic weighted average number of Ordinary Shares ('000) | Total earnings ($'000) | Earnings per share ($) |
| 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 |
| 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 Restated |
| BoDe Design GmbH | - | 371 |
| EGO Eyewear Limited | 1,634 | 2,736 |
| Total non-current deferred consideration | 1,634 | 3,107 |
| | 2022 | 2021 $'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 |
| 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 Restated |
| 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 |
| 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 |
| 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 |
| At 1 January | 7,296 | 7,296 |
| At 31 December | 7,296 | 7,296 |
16. Financial liabilities - borrowings
| | 2022 | 2021 |
| 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 |
| 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 | |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| Underlying EBITDA | 15,393 | 15,608 |
| Add back: Purchase Price Allocation ('PPA') release on inventory through cost of sales | 132 | 4,355 |
| Add back: Underlying EBITDA (loss) for acquisitions in the period | - | 66 |
| Adjusted Underlying EBITDA | 15,525 | 20,029 |
| Less: Depreciation | (6,744) | (5,401) |
| Less: Interest (excluding amortisation of loan arrangement fees) | (1,979) | (1,649) |
| Adjusted Profit Before Tax (PBT) | 6,802 | 12,979 |
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.