Interim Results

Inspecs Group PLC

10 September 2024

 

10 September 2024

INSPECS Group plc

("INSPECS", "the Company" or "the Group")

Interim Results

Delivering operational efficiencies

INSPECS Group plc, a leading designer, manufacturer, and distributor of eyewear (sunglasses, optical frames, lenses and low vision products) presents its unaudited interim results for the six months ended 30 June 2024.

Financial review:

·	As previously guided, revenue in the first half was below last year, decreasing by 7.3% to £103.0m (H1 2023: £111.2m) due to the one-off elevated level of sales in Q1 2023
·	On a constant exchange rates basis1, revenue decreased by 5.2% to £105.4m (H1 2023: £111.2m)
·	Gross profit margin significantly improved by 100 basis points to 52.4% (H1 2023: 51.4%)
·	Operating expenses decreased by 3.6% to £50.7m (H1 2023: £52.6m) due to the delivery of operational efficiencies
·	As previously guided, Underlying EBITDA2 reduced to £10.1m (H1 2023: £12.1m) following a decrease in revenue in the period, partially offset by cost savings
·	Diluted Underlying EPS3 of 2.72p (H1 2023: 4.28p)
·	Strong cash generation, with cash generated from operations £12.0m (H1 2023: £11.5m)
·	Continued improvement in working capital, reduced by £2.4m (H1 2023: increased by £0.6m)
·	Net debt excluding leases4 reduced by £4.4m in the six months to 30 June 2024 to £19.8m (31 December 2023: £24.2m)
·	Whilst overall market conditions remain soft, H2 trading to date has exceeded the prior year, with the order book as at 31 August 2024 7% higher than 31 August 2023
·	The Board is confident in meeting market expectations for the full year

Operational review:

·	Successful launch of a key eyewear brand into all stores of a major global retailer
·	Two major retail chains in the United Stated distributing additional brands from Q4 2024
·	Leading optical retailer in Canada distributing a major brand in all stores from Q4 2024
·	Travel retail revenue increased 45% as a result of a continued push into key global outlets
·	Further operational efficiency gains through the successful integration of Inspecs USA, including consolidation of warehousing facilities
·	Construction of the new Vietnam manufacturing facility completed on time and on budget, with fit-out ongoing. The additional facility will enable us to increase manufacturing capacity and ensure better operational efficiencies from existing production
·	Lenses segment revenue has increased by 22% compared to H1 2023 with an additional key account signed. The new leadership team is now embedded within Norville

1       Constant currency exchange rates: figures at constant currency exchange rates have been calculated using the average exchange rates in effect for the relevant comparative period (H1 2023).

2         Refer to table 'Underlying EBITDA and Underlying PAT'

3         Refer to note 5

4         Refer to note 8

Richard Peck, CEO of INSPECS, said:

"The Group has made steady progress during the period, with significantly improved gross profit margins delivered across all divisions and strong cash generation. We have achieved sustainable cost savings through the ongoing implementation of operational efficiencies, particularly in the US, and we will continue to undertake further initiatives during the second half.

"We have made good progress against our global distribution strategic pillar, evidenced through the agreement of new distribution and the expansion of existing partnerships with global retailers, as well as achieving revenue growth in travel retail. Despite ongoing challenges relating to inflationary pressures and the market readjusting after competitor acquisitions, the optical market remains resilient.

"Trading in the second half to date has exceeded the prior year and our order books are ahead of last year as of the end of August. It is expected that the reduction in net debt will accelerate in the second half due to reduced capital expenditure, following a period of increased investment in the new Vietnam manufacturing facility. Whilst we remain cautious in relation to market conditions and focused on the delivery of our cost saving initiatives and planned shipments in Q4, the Board is confident in meeting market expectations for the full year."

For further information please contact:

INSPECS Group plc Richard Peck (CEO) Chris Kay (CFO)	via FTI Consulting Tel: [phone]
Peel Hunt (Nominated Adviser and Broker) George Sellar Andrew Clark	Tel: [phone]
FTI Consulting (Financial PR) Alex Beagley Harriet Jackson Amy Goldup	Tel: [phone]

About INSPECS Group plc

INSPECS is a leading provider of eyewear solutions to the global eyewear market. The Group produces a broad range of eyewear frames, low vision aids and lenses, covering optical, sunglasses and safety, which are either "Branded" (under licence or under the Group's own proprietary brands), or "OEM" (unbranded or private label on behalf of retail customers).

INSPECS is building a global eyewear business through its vertically integrated business model. Its continued growth is underpinned by six core pillars: increasing the penetration of its own-brand portfolio, increasing distribution, growing its travel retail markets, maximising group synergies, expanding its manufacturing capacity and scaling the research and development department as it develops new and innovative eyewear products. 

The Group has operations across the globe: with offices and subsidiaries in the UK, Europe, the US and China (including Hong Kong, Macau and Shenzhen), and manufacturing facilities in Vietnam, China, the UK and Italy.

INSPECS customers are global optical and non-optical retailers, global distributors and independent opticians. Its distribution network covers over 80 countries and reaches approximately 75,000 points of sale.

More information is available at: www.INSPECS.com

CHIEF EXECUTIVE REVIEW

As previously communicated, revenue and EBITDA in the first half of 2024 were expected to be lower due to the one-off elevated level of sales in Q1 2023. The Group experienced a more normalised trading pattern in the period, the impact of which was compounded by the widely reported global inflationary pressures as well as the market readjusting to recent competitor acquisitions. As a result, the Group recorded revenue of £103.0m (H1 2023: £111.2m) and an Underlying EBITDA of £10.1m compared to £12.1m for the same period in 2023. Pleasingly, gross profit margin increased to 52.4% (H1 2023: 51.4%) as a result of improved operational efficiency and sales mix, with our continued focus on delivering operational efficiencies also reducing operating expenses by £1.9m to £50.7m from £52.6m.

Frames and Optics

Revenue within our Frames and Optics distribution business decreased 8.5% to £94.2m (H1 2023: £102.9m) however, gross profit margin improved by 150 basis points to 51.8% with increasing synergies being realised.

During the period the Group successfully launched a key brand into all stores of a major global retailer and agreed distribution with two major retail chains in the United States for additional brands from Q4 2024. The Group also agreed distribution with a leading optical retailer in Canada for a further major brand in all stores from Q4 2024.

There is also an opportunity to increase penetration globally though the worldwide distribution network that we are establishing. Notably our push into worldwide travel retail outlets is proving very successful as revenue from travel retail has increased 45% in the period and we will continue to expand our distribution into new global outlets in the second half.

The Group also successfully integrated Inspecs USA's sales and warehousing facilities during the period, streamlining operations within this region.

Manufacturing

Revenue from the manufacturing business for H1 2024 was £9.0m, compared to £9.9m in H1 2023 but we expect to see increased activity in the second half with order books at 31 August 2024 exceeding those at 31 August 2023. Gross profit margin increased by 400 basis points to 46.2% in H1 due to increased sales of patented concept frames and reduced material costs.

Construction of our new manufacturing facility in Vietnam has been completed on time and on budget, and the fit-out of the facility is currently ongoing. Once manufacturing fully commences, this will increase the manufacturing capacity of the Group to circa 12 million units per year in the medium term and enhance the operational efficiency of existing production.

Lenses

Revenue from our lens manufacturing business increased 21.6% to £2.5m (H1 2023: £2.1m) and gross profit margin increased by 220 basis points to 42.3%. The new leadership team is well embedded, and growth has been delivered in both key accounts and independent sales channels, with a significant new key account signed and further negotiations ongoing.

Research and development

Significant progress continues to be made in relation to our smart eyewear range, alongside the development of additional innovative eyewear channels, resulting in further consultancy revenues during H1 2024. A new low vision aid will also be launched in the second half of 2024.

ESG

During the period, we have launched several impactful community projects, including a food bank initiative in Nuremberg, Germany aiming to tackle food waste and food insecurity in the local area, underscoring our commitment to making a meaningful difference in the local communities in which we operate. We also continued to refine our climate approach, holding several Steering Group meetings to enhance our management and reporting of climate-related risks and opportunities. Looking ahead, we remain dedicated to driving progress across our Group ESG Roadmap and continuously improving our strategies to address climate-related challenges and opportunities.

Outlook

As of 31 August, trading in the second half to date has exceeded the prior year and our order books are also 7% ahead. Whilst we remain cautious in relation to market conditions and we remain focused on delivery of our cost saving initiatives, we are confident in delivering on market expectations for the full year.

I would like to thank all our teams across the globe for their continuing hard work and dedication in achieving our long-term goal of developing INSPECS Group into one of the world's leading eyewear companies.

Richard Peck

10 September 2024

FINANCIAL REVIEW

Revenue

Revenue was £103.0m in the half, down from £111.2m in H1 2023, a decrease of 7.3%. On a constant exchange rate basis revenues decreased 5.2% to £105.4m from £111.2m (H1 2023).

Gross Profit Margin

The Group's gross profit margin increased to 52.4% in H1 2024 from 51.4% in H1 2023, driven by margin improvement in each of the reporting segments. The Group continues to actively manage its gross profit margin and is targeting further efficiencies.

Operating Profit

The Group's operating profit decreased 27.2% to £3.3m (H1 2023: £4.6m).

Administrative expenses

Administrative costs decreased by £1.5m to £47.8m in H1 2024 from £49.3m in H1 2023, driven by the Group's focus on operational efficiency.

Underlying EBITDA

The Group's Underlying EBITDA decreased from £12.1m in H1 2023 to £10.1m in H1 2024. Underlying EBITDA margin decreased from 10.8% in H1 2023 to 9.8% in H1 2024.

Finance Expenses

Net finance costs have risen marginally from £2.0m in H1 2023 to £2.1m in H1 2024 reflecting the increase in interest rates versus the prior period. Net finance costs include £0.1m (H1 2023: £0.1m) relating to the amortisation of capitalised loan arrangement fees.

Depreciation and amortisation

	Period ended 30 June 2024 £m	Period ended 30 June 2023 £m
Depreciation	3.0	3.4
Amortisation	3.2	3.3
Total	6.2	6.7

The decrease in depreciation is split between owned and right of use assets.

Profit Before Tax

Profit before tax for the period was £1.3m (H1 2023: £3.8m), after a lower £0.2m gain on exchange relating to borrowings, compared to a gain of £1.2m in H1 2023.

Tax charge

The tax charge for the period of £2.4m (H1 2023: £1.7m) is driven by a current tax charge of £2.2m (H1 2023: £2.2m) and a deferred tax charge of £0.1m (H1 2023: £0.5m credit). The credit in H1 2023 is driven by the unwinding of deferred tax balances arising on acquisitions.

Cash Generation

The Group generated cash from operations of £12.0m (H1 2023: £11.5m) reflecting continual improvements in working capital efficiency of the Group.

Net Debt

The Group has again delivered strong cash generation in the first half and as a result, net debt (excluding leases) reduced by £4.4m to £19.8m as at 30 June 2024 (31 December 2023: £24.2m). During the period, the Group invested £1.8m on the purchase of tangible and intangible owned assets, including fit out costs for the new Vietnam facility, and paid a further £1.9m of deferred and contingent consideration relating to the EGO and BoDe acquisitions. The reduction in net debt of the group is expected to accelerate in future periods as cash flows used in investing activities returns to usual levels.

Financing

The Group finances its operation through the following borrowings and facilities.

		Expires	Balance at 30 June 2024 £m	Balance at 31 December 2023 £m
Group revolving credit facility		October 2025	28.8	29.2
Term loans		October 2025	6.3	7.7
Revolving credit facility USA		1-year rolling	7.4	6.5
Invoice discounting		1-year rolling	1.8	0.9
Other			0.1	-
Total			44.4	44.3

Leverage (using debt to equity ratio)

The Group's leverage position is shown below:

	30 June 2024
Actual ratio	1.63
Required ratio	2.25

The Group remains within its banking covenants and forecasts that, subject to market conditions, it will continue to remain within banking covenants for the length of the arrangement.

Inventory

Our revenue to inventory ratio has remained consistent compared to 30 June 2023.

	Period ended 30 June 2024 £m	Period ended 30 June 2023 £m
Revenue	103.0	111.2
Inventory	39.7	42.3
Revenue to inventory ratio	2.6	2.6

Current asset ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations, or those due within one year. This has remained consistent on the comparative period.

	Period ended 30 June 2024 £m	Period ended 30 June 2023 £m
Current Assets	97.3	107.4
Current Liabilities	67.3	69.7
Ratio	1.4	1.5

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. This has remained consistent on the comparative period.

	Period ended 30 June 2024 £m	Period ended 30 June 2023 £m
Current Assets	97.3	107.4
Less Inventory	(39.7)	(42.3)
	57.6	65.1
Current Liabilities	67.3	69.7
Ratio	0.9	0.9

Net working capital

	Period ended 30 June 2024 £m	Period ended 30 June 2023 £m
Trade and other receivables	33.0	37.4
Inventory	39.7	42.3
Trade and other payables	(35.5)	(38.9)
Net working capital	37.2	40.8
Working capital as a percentage of revenue	36.1%	36.7%

Net working capital has reduced following a reduction of the inventory base and improved receivables collection.

Earnings per Share

The Group's Basic Underlying EPS for the 6 months to 30 June 2024 was 2.86p compared to 4.53p for the 6 months to 30 June 2023.

Dividend

The Group does not currently intend to pay a dividend in relation to 2024. The Board continues to review its dividend policy on a regular basis.

Underlying EBITDA and Underlying PAT

The below table shows how Underlying EBITDA and Underlying PAT are calculated:

				6 months ended 30 June 2024			6 months ended 30 June 2023				12 months ended 31 December 2023
				£'000			£'000				£'000
	Revenue			103,047			111,199				203,292
	Gross Profit			54,012			57,147				103,547
	Operating expenses			(50,696)			(52,592)				(100,659)
	Operating profit			3,316			4,555				2,888
	Add back: Amortisation			3,221			3,252				6,910
	Add back: Depreciation			2,969			3,361				6,129
	EBITDA			9,506			11,168				15,927
	Add back: Share based payment expense			206			526				972
	Add back: Earn out on acquisition			380			366				1,140
	Underlying EBITDA			10,092			12,060				18,039
	Less: Depreciation			(2,969)			(3,361)				(6,129)
	Less: Net interest (excluding amortisation of loan arrangement fees)			(1,987)			(1,846)				(3,774)
	Underlying Profit Before Tax (PBT)			5,136			6,853				8,136
	Current tax charge			(2,233)			(2,248)				(2,932)
	Underlying Profit After Tax (PAT)			2,903			4,605				5,204
	Underlying EPS			Pence			Pence				Pence
	Basic Underlying EPS for the period attributable to the equity holders of the parent			2.86			4.53				5.12
	Diluted Underlying EPS for the period attributable to the equity holders of the parent			2.72			4.28				4.85
Underlying EBITDA segmental information Underlying EBITDA by reportable segment (as defined in note 4) for the six months ended 30 June 2024 is as follows:    Frames & Manufacturing Lenses Total before Adjustments    Total   Optics adjustments & & elimination eliminations       £'000               £'000 £'000 £'000 £'000         £'000 Revenue 94,169 9,028 2,516 105,713 (2,666) 103,047 Operating profit/(loss) 5,586 1,222 (1,196) 5,612 (2,296) 3,316 Add back: Amortisation 2,897 43 9 2,949 272 3,221 Depreciation 2,374 250 262 2,886 83 2,969 Share based payments 39 90 - 129 77 206 Earn out on acquisitions 380 - - 380 - 380 Underlying EBITDA 11,276 1,605 (925) 11,956 (1,864) 10,092 Underlying EBITDA by reportable segment (as defined in note 4) for the six months ended 30 June 2023 is as follows:    Frames and Wholesale Lenses Total before Adjustments    Total   Optics adjustments & & elimination eliminations       £'000               £'000 £'000 £'000 £'000          £'000 Revenue 102,876 9,922 2,069 114,867 (3,668) 111,199 Operating profit/(loss) 7,272 887 (1,248) 6,911 (2,356) 4,555 Add back: Amortisation 2,809 433 10 3,252 - 3,252 Depreciation 2,663 347 336 3,346 15 3,361 Share based payments 198 161 - 359 167 526 Earn out on acquisitions 366 - - 366 - 366 Underlying EBITDA 13,308 1,828 (902) 14,234 (2,174) 12,060 INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the period ended 30 June 2024
		Notes			Unaudited 6 months ended 30 June 2024				Unaudited 6 months ended 30 June 2023
					£'000				£'000
REVENUE		4			103,047				111,199
Cost of sales					(49,035)				(54,052)
GROSS PROFIT					54,012				57,147
Distribution costs					(2,944)				(3,328)
Administrative expenses					(47,752)				(49,264)
OPERATING PROFIT					3,316				4,555
Non-underlying costs		9			(94)				-
Exchange adjustments on borrowings					155				1,210
Share of loss of associates					(2)				(4)
Finance costs					(2,146)				(2,103)
Finance income					94				145
PROFIT BEFORE INCOME TAX					1,323				3,803
Income tax					(2,350)				(1,720)
(LOSS)/PROFIT FOR THE PERIOD					(1,027)				2,083
OTHER COMPREHENSIVE LOSS:
Exchange adjustment on consolidation					(756)				(3,973)
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD					(1,783)				(1,890)
(Loss)/earnings per share					Pence				Pence
Basic EPS for the period attributable   to the equity holders of the parent		5			(1.01)				2.05
Diluted EPS for the period attributable   to the equity holders of the parent		5			(1.01)				1.94

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION    

As at 30 June 2024

			Note					Unaudited As at 30 June 2024 £'000							Unaudited As at 30 June 2023 Restated £'000								As at 31 December 2023 £'000
ASSETS
NON-CURRENT ASSETS
Goodwill								55,743							55,578								55,578
Intangible assets								26,930							32,248								29,813
Property Plant and equipment								34,718							33,840								35,600
Investment in associates								97							105								98
Deferred tax								2,576							2,103								2,826
								120,064							123,874								123,915
CURRENT ASSETS
Inventories								39,679							42,349								40,848
Trade and other receivables			6					32,974							37,432								35,855
Tax receivable								74							1,719								386
Cash and cash equivalents								24,616							25,862								20,070
								97,343							107,362								97,159
Assets held for sale								832							832								832
TOTAL ASSETS								218,239							232,068								221,906
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital								1,017							1,017								1,017
Share premium								89,508							89,508								89,508
Foreign currency translation reserve								4,679							5,461								5,435
Share option reserve								3,428							3,153								3,222
Merger reserve								5,340							5,340								5,340
Retained earnings								(2,032)							1,698								(1,005)
TOTAL EQUITY								101,940							106,177								103,517
LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities - borrowings
Interest bearing loans and borrowings								45,605							51,525								48,234
Deferred consideration								-							652								652
Deferred tax								3,427							3,969								3,647
								49,032							56,146								52,533
CURRENT LIABILITIES
Trade and other payables				7				35,463							38,921								36,375
Right of return liability								11,222							11,862								11,297
Financial liabilities - borrowings
Interest bearing loans and borrowings								14,276							13,140								13,000
Invoice discounting								1,804							2,089								887
Deferred and contingent consideration								1,231							1,333								2,111
Tax payable								3,271							2,400								2,186
								67,267							69,745								65,856
TOTAL LIABILITIES								116,299							125,891								118,389
TOTAL EQUITY AND LIABILITIES								218,239							232,068								221,906

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 June 2024

		Called up share capital	Share premium	Foreign currency translation reserve	Share option reserve	Retained earnings	Merger reserve	Total equity
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
SIX MONTHS ENDED 30 JUNE 2024
Balance at 1 January 2024		1,017	89,508	5,435	3,222	(1,005)	5,340	103,517
Loss for the period		-	-	-	-	(1,027)	-	(1,027)
Other comprehensive loss		-	-	(756)	-	-	-	(756)
Total comprehensive loss		-	-	(756)	-	(1,027)	-	(1,783)
Share-based payment charge		-	-	-	206	-	-	206
Balance at 30 June 2024 (unaudited)		1,017	89,508	4,679	3,428	(2,032)	5,340	101,940
SIX MONTHS ENDED 30 JUNE 2023
Balance at 1 January 2023		1,017	89,508	9,434	2,703	(461)	5,340	107,541
Profit for the period		-	-	-	-	2,083	-	2,083
Other comprehensive loss		-	-	(3,973)	-	-	-	(3,973)
Total comprehensive loss		-	-	(3,973)	-	2,083	-	(1,890)
Share-based payment charge		-	-	-	526	-	-	526
Share options forfeited		-	-	-	(76)	76	-	-
Balance at 30 June 2023 (unaudited)		1,017	89,508	5,461	3,153	1,698	5,340	106,177

INTERIM CONSOLIDATED STATEMENT OF CASH FLOW                                                                                                                                                                        For the period ended 30 June 2024
		Unaudited 6 months ended 30 June 2024		Unaudited 6 months ended 30 June 2023
		£000		£000
Cash flows from operating activities
Profit before income tax		1,323		3,803
Depreciation charges		2,969		3,361
Amortisation charges		3,221		3,252
Share based payments		206		526
Earn out on acquisitions		-		366
Exchange adjustments on borrowings		(155)		(1,210)
Share of loss from associate		2		4
Finance costs		2,146		2,103
Finance income		(94)		(145)
		9,618		12,060
Decrease in inventories		1,202		5,809
Decrease/(increase) in trade and other receivables		2,921		(5,503)
Decrease in trade and other payables		(1,712)		(866)
Cash generated from operations		12,029		11,500
Interest paid		(2,081)		(1,831)
Tax paid		(783)		(1,248)
Net cash flow from operating activities		9,165		8,421
Cash flows used in investing activities
Purchase of intangible fixed assets		(631)		(124)
Purchase of property plant and equipment		(1,206)		(1,361)
Acquisition of subsidiary, net of cash acquired		(129)		-
Cash paid in relation to deferred consideration		(700)		-
Interest received		94		145
Net cash flows used in investing activities		(2,572)		(1,340)
Cash flow from financing activities
Bank loan principal repayments in period		(1,712)		(1,010)
Proceeds from borrowings		1,265		-
Movement in invoice discounting facility		917		599
Loan transaction costs		(224)		(70)
Principal payments on leases		(1,849)		(1,999)
Net cash flows used in financing  activities		(1,603)		(2,480)
Net increase in cash and cash  equivalents		4,990		4,601
Cash and cash equivalents at  beginning of the period		20,070		22,153
Net foreign currency movements		(444)		(892)
Cash and cash equivalents  at end of period		24,616		25,862

NOTES TO THE INTERIM CONSOLIDATED STATEMENTS For the period ended 30 June 2024

1.      GENERAL INFORMATION

INSPECS Group plc is a public company limited by shares and is incorporated in England and Wales. The address of the Company's principal place of business is Kelso Place, Upper Bristol Road, Bath BA1 3AU.

The principal activity of the Group in the period was that of design, production, sale, marketing and distribution of high fashion eyewear and OEM products worldwide.

2.      ACCOUNTING POLICIES

Going concern

Based on the Group's forecasts, the interim financial statements have been prepared on the going concern basis as the Directors have assessed that there is a reasonable expectation that the Group will be able to continue in operation and meet its commitments as they fall due over the going concern period to 30 September 2025.

The assessment has considered the Group's current financial position as follows:

•    The Group further improved its cash position during the period with net debt including leases decreasing to £37.1m from £42.1m at 31 December 2023.

•      Cash generated from operations in the period amounted to £12.0m (2023 H1: £11.5m).

•      The Group balance sheet has net assets of £101.9m and net current assets of £30.1m.

The assessment has considered the current measures being put in place by the Group to preserve cash and ensure continuity of operations through:

•      Ensuring continuation of its supply chain, building on the benefit of having its own manufacturing sites and by securing alternative third-party supply lines.

•      Maintaining geographical sales diversification, focusing sales to online customers and seeking new revenue streams around the globe.

•     Ability to service both the major global retail chains and significant distribution to the independent eyewear market following the acquisitions completed over recent periods.

Banking facilities

The Group's banking facilities are due for renewal in October 2025. The Group is currently discussing with its lender to renew the facilities to mature no earlier than October 2028, with an expectation that the new facility will be agreed by the end of December 2024.

Basis of preparation

The interim consolidated financial statements for the six months ended 30 June 2024 have been prepared in accordance with IAS 34 Interim Financial Reporting and with accounting policies that are consistent with the Group's Annual Report and Financial Statements for the period ended 31 December 2023. Accounting policies are included in detail within the latest Annual Report.

The financial information for the period ended 30 June 2024 and the comparative financial information for the period ended 30 June 2023 in this interim report does not constitute statutory accounts for either period under section 434 of the Companies Act 2006 and are unaudited.

NOTES TO THE INTERIM CONSOLIDATED STATEMENTS (continued) For the period ended 30 June 2024

3.     CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of the Group's historical information 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 in the future.

Estimation uncertainty

In addition to the going concern section of note 2, 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 period, are described below.

Right of return liability

Management applies assumptions in determining the right of return liability and the associated right of return asset. These assumptions are based on analysis of historical data trends but require estimation of appropriate time periods and expected return rates. The right of return liability at the period end is £11,222,000 (31 December 2023: £11,297,000) in line with the calculation methodology used as at 31 December 2023.

4.      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.

• Manufacturing (previously 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.

NOTES TO THE INTERIM CONSOLIDATED STATEMENTS (continued) For the period ended 30 June 2024

4.      SEGMENT INFORMATION (CONTINUED)

The reportable segments subject to disclosure are consistent with the organisation model adopted by the Group during the six months ended 30 June 2024 are as below:

	Frames and		Manufacturing		Lenses			Total before				Adjustments				Total
	Optics							adjustments &				& elimination
								eliminations
	£'000		£'000		£'000			£'000				£'000				£'000
Revenue
External	92,009		8,453		2,441			102,903				144				103,047
Internal	2,160		575		75			2,810				(2,810)				-
	94,169		9,028		2,516			105,713				(2,666)				103,047
Cost of sales	(45,379)		(4,859)		(1,451)			(51,689)				2,654				(49,035)
Gross profit/(loss)	48,790		4,169		1,065			54,024				(12)				54,012
Expenses	(43,204)		(2,947)		(2,261)			(48,412)				(2,284)				(50,696)
Operating profit/(loss)	5,586		1,222		(1,196)			5,612				(2,296)				3,316
Non-underlying costs															(94)
Exchange adjustment   on borrowings															155
Share of loss of associates															(2)
Finance costs															(2,146)
Finance income															94
Taxation															(2,350)
Loss for the period															(1,027)

Reported segments relating to the balance sheet as at 30 June 2024 are as follows:

	Frames and		Manufacturing		Lenses			Total before			Adjustments			Total
	Optics							adjustments &			& elimination
								eliminations
	£'000		£'000		£'000			£'000			£'000			£'000
Total assets	325,169		59,578		10,329			395,076			(179,413)			215,663
Total liabilities	(183,004)		(5,107)		(16,395)			(204,506)			156,590			(47,916)
	142,165		54,471		(6,066)			190,570			(22,823)			167,747
Deferred tax asset														2,576
Deferred tax liability													(3,427)
Current tax liability													(3,271)
Borrowings													(61,685)
Group net assets													101,940

Total assets are the Group's gross assets excluding deferred tax asset. Total liabilities are the Group's gross liabilities excluding loans and borrowings, deferred and current tax liabilities.

NOTES TO THE INTERIM CONSOLIDATED STATEMENTS (continued) For the period ended 30 June 2024

4.      SEGMENT INFORMATION (CONTINUED)

The reportable segments subject to disclosure are consistent with the organisation model adopted by the Group during the six months ended 30 June 2023 are as below:

	Frames and		Manufacturing		Lenses			Total before				Adjustments				Total
	Optics							adjustments &				& elimination
								eliminations
	£'000		£'000		£'000			£'000				£'000				£'000
Revenue
External	100,220		9,016		1,963			111,199				-				111,199
Internal	2,656		906		106			3,668				(3,668)				-
	102,876		9,922		2,069			114,867				(3,668)				111,199
Cost of sales	(51,174)		(5,731)		(1,240)			(58,145)				4,093				(54,052)
Gross profit	51,702		4,191		829			56,722				425				57,147
Expenses	(44,430)		(3,304)		(2,077)			(49,811)				(2,781)				(52,592)
Operating profit/(loss)	7,272		887		(1,248)			6,911				(2,356)				4,555
Exchange adjustment   on borrowings															1,210
Share of loss of associates															(4)
Finance costs															(2,103)
Finance income															145
Taxation															(1,720)
Profit for the period															2,083

Reported segments relating to the balance sheet as at 31 December 2023 are as follows:

	Frames and		Manufacturing		Lenses			Total before				Adjustments				Total
	Optics							adjustments &				& elimination
								eliminations
	£'000		£'000		£'000			£'000				£'000				£'000
Total assets	320,836		64,585		9,672			395,093				(176,013)				219,080
Total liabilities	(182,225)		(5,543)		(14,408)			(202,176)				151,741				(50,435)
	138,611		59,042		(4,736)			192,917				(24,272)				168,645
Deferred tax asset																2,826
Deferred tax liability															(3,647)
Current tax liability															(2,186)
Borrowings															(62,121)
Group net assets															103,517

Total assets are the Group's gross assets excluding deferred tax asset. Total liabilities are the Group's gross liabilities excluding loans and borrowings, deferred and current tax liabilities.

NOTES TO THE INTERIM CONSOLIDATED STATEMENTS (continued) For the period ended 30 June 2024

4.      SEGMENT INFORMATION (CONTINUED)

Acquisition costs, finance costs and income, and taxation are not allocated to individual segments as the underlying instruments are managed on a Group basis.

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 revenues 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.

The revenue of the Group is attributable to the one principal activity of the Group.

Geographical analysis

The Group's revenue by destination is split in the following geographic areas:

			Unaudited 6 months ended 30 June 2024		Unaudited 6 months ended 30 June 2023
			£'000		£'000
United Kingdom			12,971		13,621
Europe (excluding UK)			48,527		52,161
North America			35,398		37,428
South America			822		1,315
Asia			1,830		2,993
Australia			3,342		3,515
Other			157		166
			103,047		111,199
5.      EARNINGS PER SHARE Basic Earnings per Share ("EPS") is calculated by dividing the profit or loss for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. 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 period 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. During the period to 30 June 2024 the Group made a reported loss after tax; therefore, diluted EPS is not applicable as the impact of potential ordinary shares is anti-dilutive. NOTES TO THE INTERIM CONSOLIDATED STATEMENTS (continued) For the period ended 30 June 2024

5.      EARNINGS PER SHARE (continued)

Reported Basic earnings per share is (1.01)p (30 June 2023: 2.05p), with reporting diluted earnings per share of (1.01)p (30 June 2023: 1.94p). The below table reflects the income and share data used in the basic and diluted EPS calculations. Earnings for the Underlying EPS are the 'Underlying Profit After Tax' as shown in the table 'Underlying EBITDA and Underlying PAT'.

6 months ended 30 June 2024	Basic weighted average number of Ordinary Shares ('000)		Total earnings (£'000)	Earnings per share (pence)
Basic EPS	101,672		(1,027)	(1.01)
Diluted EPS	106,824		(1,027)	(1.01)
Basic Underlying EPS	101,672		2,903	2.86
Diluted Underlying EPS	106,824		2,903	2.72
6 months ended 30 June 2023 Basic weighted average number of Ordinary Shares ('000) Total earnings (£'000) Earnings per share (pence) Basic EPS 101,672 2,083 2.05 Diluted EPS 107,492 2,083 1.94 Basic Underlying EPS 101,672 4,605 4.53 Diluted Underlying EPS 107,492 4,605 4.28 12 months ended 31 December 2023 Basic weighted average number of Ordinary Shares ('000) Total earnings (£'000) Earnings per share (pence) Basic EPS 101,672 (997) (0.98) Diluted EPS 107,246 (997) (0.98) Basic Underlying EPS 101,672 5,207 5.12 Diluted Underlying EPS 107,246 5,207 4.85 Within INSPECS Group plc, each Ordinary share carries the right to participate in distributions, as respects dividends and as respects capital on winding up.
NOTES TO THE INTERIM CONSOLIDATED STATEMENTS (continued) For the period ended 30 June 2024

6.     TRADE AND OTHER RECEIVABLES

			Unaudited As at 30 June 2024		Unaudited As at 30 June 2023 Restated		As at 31 December 2023
			£'000		£'000		£'000
Trade receivables			24,717		26,298		24,168
Prepayments			1,984		3,381		2,193
Other receivables			6,273		7,753		9,494
			32,974		37,432		35,855

7.    TRADE AND OTHER PAYABLES

	Unaudited			Unaudited		As at     31 December 2023
	As at			As at
	30 June 2024			30 June 2023
	£'000			£'000		£'000
Trade payables	22,901		23,715				21,368
Social security and other taxes	3,143		4,723				3,379
Royalties	2,669		3,216				4,255
Accruals	6,750		7,267				7,373
	35,463			38,921		36,375

8.    NET DEBT

	Unaudited			Unaudited		As at     31 December 2023
	As at			As at
	30 June 2024			30 June 2023
	£'000			£'000		£'000
Cash and cash equivalents	24,616		25,862			20,070
Interest bearing borrowings excl. leases	(42,628)		(46,449)			(43,383)
Invoice discounting	(1,804)		(2,089)			(887)
Net debt excluding leases	(19,816)		(22,676)			(24,200)
Lease liability	(17,253)		(18,216)			(17,851)
Net debt including leases	(37,069)			(40,892)		(42,051)
NOTES TO THE INTERIM CONSOLIDATED STATEMENTS (continued) For the period ended 30 June 2024

9.    NON-UNDERLYING COSTS

Non-underlying costs during the six months to 30 June 2024 relate to costs associated with the acquisition of A-Optikk AS during the period (£22,000) and restructuring costs in relation to the integration of Inspecs USA with Tura (£72,000).

10.    SHARE-BASED PAYMENTS

Certain employees of the Group are granted options over the shares in INSPECS Group. The options are granted with a fixed exercise price and have a vesting date three years after date of grant.

The Group recognises a share-based payment expense based on the fair value of the awards granted, and an equivalent credit directly in equity to share option reserve. On exercise of the shares by the employees, the Group is charged the intrinsic value of the shares by INSPECS Group plc and this amount is treated as a reduction of the capital contribution, and it is recognised directly in equity.

Share options outstanding at the end of the period have the following expected lives and exercise prices:

Grant date

Expected life of options

Exercise price per option £

Number of share options

11 October 2019		3-5 years	1.01	412,102
27 February 2020		3-5 years	1.95	1,923,110
22 December 2020		3-5 years	2.10	890,000
26 February 2021		3-5 years	3.25	641,036
21 June 2021		3-5 years	3.51	90,000
31 August 2021		3-5 years	3.70	275,000
23 December 2021		3-5 years	3.70	279,999
28 February 2022		3-5 years	3.75	641,036

11.    RESTATED STATEMENT OF FINANCIAL POSITION

The 2023 Annual Report and Accounts included a restated Statement of Financial Position for the year to 31 December 2022 relating to a prior year adjustment concerning the offsetting of deferred tax assets and liabilities (see note 35 of the 2023 Annual Report and Accounts). The 30 June 2023 comparative Statement of Financial Position has therefore also been restated within these interims, as below. In addition, the treatment of a receivable associated with a sublease has been restated below, such that it aligns with the treatment within the 2023 Annual Report and Accounts.

NOTES TO THE INTERIM CONSOLIDATED STATEMENTS (continued) For the period ended 30 June 2024

			As Reported as at 30 June 2023 £'000								Adjustments £'000							As at 30 June 2023 Restated £'000
ASSETS
NON-CURRENT ASSETS
Goodwill			55,578								-							55,578
Intangible assets			32,248								-							32,248
Property Plant and equipment			33,840								-							33,840
Investment in associates			105								-							105
Net investment - sublease			675								(675)							-
Deferred tax			6,337								(4,234)							2,103
			128,783								(4,909)							123,874
CURRENT ASSETS
Inventories			42,349								-							42,349
Trade and other receivables			36,647								785							37,432
Net investment - sublease			110								(110)							-
Tax receivable			1,719								-							1,719
Cash and cash equivalents			25,862								-							25,862
			106,687								675							107,362
Assets held for sale			832								-							832
TOTAL ASSETS			236,302								(4,234)							232,068
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital			1,017								-							1,017
Share premium			89,508								-							89,508
Foreign currency translation reserve			5,461								-							5,461
Share option reserve			3,153								-							3,153
Merger reserve			5,340								-							5,340
Retained earnings			1,698								-							1,698
TOTAL EQUITY			106,177								-							106,177
LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities - borrowings
Interest bearing loans and borrowings				51,525								-						51,525
Deferred consideration				652								-						652
Deferred tax				8,203								(4,234)						3,969
				60,380								(4,234)						56,146
CURRENT LIABILITIES
Trade and other payables				38,921								-						38,921
Right of return liability				11,862								-						11,862
Financial liabilities - borrowings
Interest bearing loans and borrowings				13,140								-						13,140
Invoice discounting				2,089								-						2,089
Deferred and contingent consideration				1,333								-						1,333
Tax payable				2,400								-						2,400
				69,745								-						69,745
TOTAL LIABILITIES				130,125								-						125,891
TOTAL EQUITY AND LIABILITIES				236,302								(4,234)						232,068

NOTES TO THE INTERIM CONSOLIDATED STATEMENTS (continued) For the period ended 30 June 2024

12.    POST BALANCE SHEET EVENTS

Since the end of the interim period on 30 June 2024 there were no material events that the directors consider material to the users of these interim statements.

 

END