I
N
S
P
E
C
S
G
r
o
u
p
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
2
0
LEADER IN
EYEWEAR
SOLUTIONS
ANNUAL REPORT & ACCOUNTS 2020
WELCOME
TO OUR
2020
ANNUAL
REPORT
INSPECS is a global provider of solutions to
the eyewear market from the largest optical
chains to individual consumers.
INSPECS has been transformed by two
acquisitions. The extended group has a robust
and resilient global platform for future growth.
Superdry Optical SS21
www.inspecs.com
> Strategic Report
FINANCIAL PERFORMANCE
REVENUE
UNDERLYING EBITDA
GROSS MARGIN
$47.4m
2020
2019
$47.42m
$61.25m
H1 2020
H2 2020
$16.73m
$30.69m
$4.5m
$4.51m
2020
2019
H1 2020
H2 2020
$0.68m
$3.83m
$20.5m
$12.99m
2020
2019
$20.52m
$27.54m
H1 2020
H2 2020
$7.44m
$13.08m
PROFIT & LOSS AFTER TAX
DILUTED EPS
FRAMES MANUFACTURED
$(8.9)m
$(0.13)c
2.9m
$(8.91)m
2020
2019
$6.44m
$(0.13)c
2020
2019
$0.11c
2020
2019
2.91m
4.55m
$(7.49)m
$(1.42)m
H1 2020
H2 2020
H1 2020
H2 2020
1.04m
1.87m
OPERATIONAL HIGHLIGHTS
NORVILLE
Acquisition of Norville giving further vertical
integration and access to the lens market.
MANUFACTURING CAPACITY
8.5m+
2020
2019
5.0m
8.5m+
7 NEW HOUSE-BRANDS ADDED
• Titanflex
• Humphrey’s
• TURA
• BOTANIQ™
• Jos. Eschenbach
• Freigeist
• Brendel
FIRST SUSTAINABLE EYEWEAR DESIGNED
AND PRODUCED BY THE GROUP
• BOTANIQ™
• O’Neill-Wove
ESCHENBACH
Acquisition of Eschenbach giving a strong
platform to the independent retail market in
Europe and the USA.
12 NEW BRANDED LICENCES ADDED
• Ted Baker
• Marc O’Polo
• Mini
• Geoffrey Beene
• L.A.M.B.
• Buffalo
• GX
• Zuma Rock
• Lulu Guinness
• Talbot Runhof
• Roald Dahl
• Free Country
CONTENTS
STRATEGIC REPORT
Group Overview
Chairman’s Statement
Chief Executive Officer’s Review
Our Business Model
Market Overview
Chief Financial Officer’s Review
Key Performance Indicators
Sustainability
Section 172 Statement
Principal Risks and Uncertainties
GOVERNANCE REPORT
Corporate Governance Statement
Board of Directors
Key Management
Audit and Risk Committee Report
Remuneration and Nomination
Committee Report
Directors’ Report
Statement of Directors’ Responsibilities
42
46
48
50
52
54
57
04
08
10
14
23
24
27
28
36
38
60
70
FINANCIAL STATEMENTS
Independent Auditor’s Report to
the Members of INSPECS Group plc
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
71
Consolidated Statement of Financial Position 72
Consolidated Statement of Changes in Equity 74
75
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial
Statements
Parent Company Financial Statements
Appendix 1 – Reconciliation
of underlying EBITDA
Company Information and Advisers
127
128
76
118
1
> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 BOTANIQ Optical
SS21 Campaign
2
STRATEGIC
REPORT
Group Overview
Chairman’s Statement
Chief Executive Officer’s Review
Our Business Model
Market Overview
Chief Financial Officer’s Review
Key Performance Indicators
Sustainability
Section 172 Statement
Principal Risks and Uncertainties
04
08
10
14
23
24
27
28
36
38
3
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020
Group Overview
BUILDING
A PLATFORM
FOR FUTURE
GROWTH
INSPECS is a truly global company.
Following our IPO on 27 February 2020,
the acquisitions of Norville and Eschenbach
Group have created a well-balanced
vertically integrated business serving the
global retail chains and the independent
optical market. The enlarged INSPECS
Group now has a worldwide distribution
network serving over 70,000 retail outlets
giving further growth opportunities.
As a result the enlarged group now has:
• Resilient and diverse channel distribution of eyewear
products in over 80 countries, with 14 sales offices
and a 270-strong sales team.
• A risk-managed customer base with not more than
7% of group revenue estimated for 2021 attributed to
any one customer.
• Industry benchmark manufacturing, from frames to
lenses including complete frames and lens packages
and low vision optical products.
• Price points and brands for all market opportunities,
from private label to premium.
• Award-winning design and marketing team based in
the UK, the USA, Portugal, Hong Kong and Germany.
GLOBAL TEAM1,800
Our balanced customer profile includes many of the
largest chain retailers in the world, with whom new long-
term strategic partnerships have been formed, including
the supply of private label and premium brands.
By integrating the product offer across our companies,
INSPECS Group can target new markets and maximise
existing ones. With Eschenbach, the group has acquired
a global sales force able to deliver to a large network
of independent opticians principally in the USA and
Europe which was largely untapped prior to acquisition.
The acquisition of Norville completes part of the vertical
integration and enhances our complete frame and lens
offering to the market.
A global team of designers, marketers, sales and in-
house manufacturing bring together a powerful mix of
capabilities that can help achieve the company’s future
goals including, vertically integrated and environmentally
sensitive production, sales and global distribution.
INSPECS Group plc is now well positioned to be a
leading name in eyewear solutions to customers globally.
From this robust platform, the group is already realising
plans to take market share in the globally expanding
eyewear market.
4
GLOBAL DISTRIBUTION
RESILIENT AND DIVERSE CHANNEL DISTRIBUTION
OF EYEWEAR PRODUCTS IN OVER
COUNTRIES80
SALES OFFICES14
DESIGN, BRANDS,
MARKETING,
DISTRIBUTION (UK)
AWARD-WINNING
DESIGN AND
MARKETING TEAM
BASED IN UK, USA,
LISBON, HONG KONG,
NEW YORK AND
GERMANY.
PRICE POINTS
AND BRANDS
FOR ALL MARKET
OPPORTUNITIES,
FROM PRIVATE LABEL
TO PREMIUM.
270
STRONG SALES TEAM
FRAME MANUFACTURE
INDUSTRY BENCHMARK
MANUFACTURING, FROM
FRAMES TO LENSES
INCLUDING COMPLETE
FRAMES AND LENS
PACKAGES.
LENS MANUFACTURE
OUR GEOGRAPHICAL FOOTPRINT
Scandinavia Sales
Poland Sales
Czech Republic Sales
Germany Nuremburg
Logistics, Sales & Distribution
Holland Sales
Birmingham, UK International
Eyewear – Sales, Design & Distribution
Bath, UK Global HQ Production Design,
Operations, Logistics, Sales, Finance, HR
France Sales
Spain Sales
New York USA
Logistics, Sales & Distribution
Florida USA Office
Logistics, Sales & Distribution
Lisbon, Portugal
Design & Customer Service
Switzerland Sales
Cadore, Italy
Manufacturing
Austria Sales
A RISK-MANAGED
CUSTOMER BASE
WITH NOT MORE
THAN
7%
OF EXPECTED GROUP
2021 REVENUE
ATTRIBUTED TO ANY
ONE CUSTOMER
Above:
Killine factory
technician preparing
frame hinges.
Below:
Sunglass lenses
colouration process.
Zhongshan Torkai Optical
Production & Engineering
Shenzhen China
Quality Control
Wenzhou Zouyou,
China Production
Japan Sales
Hong Kong
Logistics & Design
Macau China
Administration & Sales
Vietnam Neo Optical
Production, Logistics
5
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020
Group Overview
continued
LOOKING
FORWARD
We are among the top eyewear companies
in the world, providing a complete eyewear
solution to the market.
This journey began to accelerate in early 2017 with the
first part of our vertical integration strategy. Acquiring our
own manufacturing base has transformed the group from
an intermediary (subcontract) supplier using third party
manufacturers of branded eyewear to a self-sufficient supplier
of both branded and private label products with a fully
transparent supply chain.
Since IPO in February 2020, INSPECS has continued its vertical
integration, adding lens manufacturing capability through the
acquisition of Norville and widening its sales distribution in
Europe and the USA with the acquisition of Eschenbach.
Our management teams are now utilising the complete vertically
integrated platform to further develop opportunities for the group
in both existing and innovative products to enhance distribution to
existing and new customers. In addition the group will also:
• Continue to expand production capacity of our current Vietnam
manufacturing sites to over 7m frames per annum.
• Expand manufacturing plant capacity in Europe.
• Grow the B2B website, launched in 2020, where independent
opticians can shop online 24/7. As an example, 63% of our
independent customers in the UK are already registered, with
43% of UK independent orders now taking place without the
need for physical sales visits.
• Develop the direct-to-consumer market opportunity in the
premium end of the market, with a convenient frame-plus-lens
package utilising the capabilities of the new group.
• Continue to make strategic acquisitions that can be beneficial
utilising the enlarged group’s distribution and manufacturing
capabilities.
• Expand our range of frame and lens packages for our customers.
• Continue the development of our low vision products for
the market.
24/7 ONLINE SHOP
63%
INDEPENDENT CUSTOMERS
IN THE UK ARE ALREADY
REGISTERED
6
PRESCRIPTION EYEWEAR
Ophthalmic frames produced
under world-famous brand names
and private labels for some of the
biggest optical retailers in the world.
SUNGLASSES
Award-winning eyewear designs
for licence and in-house brands,
supplying high quality sunglasses
from the catwalk to the high street.
SAFETY EYEWEAR
A full PPE eyewear offer under the
Caterpillar brand.
AN ENHANCED PRODUCT OFFER
Our expanded INSPECS Group brand portfolio is more desirable
than ever. The acquisition of Eschenbach added over 11 brands
to our offer. New, relevant products and brands for the future
are already in development. The group’s design teams in the
UK, USA, Germany, Portugal and Hong Kong are working in
collaboration, targeting regional and global sales opportunities in
both the chain and independent markets.
Creating environmentally sustainable products will form part of
our future growth. Highlights include our new brand BOTANIQ™,
sustainable eyewear thoughtfully designed and made in-house
and our award-winning O’Neill ‘Wove’ frame made from recycled
and recyclable materials.
We are especially proud to have contributed to the national and
global COVID effort with our work on special PPE eyewear for the
NHS and other health providers around the globe.
Guided by a strong and experienced management team, our
global team of 1,800 people gives INSPECS Group a powerful
springboard for future growth.
OUTLOOK
Looking forward, the group is well-positioned in the global
eyewear marketplace, strengthening its reputation for quality,
design and delivery.
The group has had a successful start to 2021, with sales of $67m
in the first quarter. The group continues to win new customers
and in particular the new Vietnam facility is now completed and
operational. Our order books at the time of this report are higher
than at the same time in 2020 on a like-for-like basis.
We are pleased to report that Eschenbach has performed well
since its acquisition on 16 December 2020 and trading has been
positive in the first five months of the year.
Whilst COVID-19 will continue to cause disruption, all our
employees across the world have adapted successfully and
performed well in difficult circumstances. From this robust and
resilient position the group can continue to deliver in the coming
years for all stakeholders.
Robin Totterman
Chief Executive Officer
Christopher Kay
Chief Financial Officer
7
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Chairman’s Statement
LORD
IAN MACLAURIN
UNPRECEDENTED
CHALLENGES
Since the outbreak of the pandemic, our first priority has been
the safety and welfare of people both working and connected
to the group. In the first quarter of 2020, the pandemic affected
our production site in China, steps were taken by management in
China to keep production running on a reduced scale and ensure
through working with the authorities that the site complied with
fast-moving new legislation. Through regular inspection and
liaison with the authorities, we were able to continue production
in difficult circumstances.
Vietnam was then affected by the border closing with China,
and the supply chain of raw materials and parts from China to
Vietnam was severely disrupted. On a 12-month basis, shipments
from China were only reduced by 26% from 1.87m frames to
1.38m frames and in Vietnam by 40% from 3.39m frames to
2.04m frames.
As the virus spread, we were subsequently affected by the first
global lockdown when our customers were forced to close their
doors, although our online customers still remained open. This
meant that our factories could not deliver pre-ordered stock,
as the distribution depots were shut around the world, severely
impacting our business. Our executive and senior management
team set in motion a cost reduction plan, as well as implementing
a programme for people to work from home where practicable.
The net effect was borne out in our interim results, which showed
a reduction in turnover to $16.7m and an underlying EBITDA
of $0.7m. I am pleased to report that our second half was a
significant improvement on our first-half trading, with turnover
of $30.7m and an underlying EBITDA of $3.8m.
Overview
The group is publishing its
Annual Report and accounts for
the year ended 31 December
2020 following a time when our
people, customers and suppliers
faced unprecedented challenges
as a result of the COVID-19
pandemic and its effect on
our business.
8
Design offices at Eschenbach headquarters
Germany
TRANSFORMATION
As outlined in our IPO documentation it was a key part of
our growth strategy to use the IPO funds to make strategic
acquisitions in keeping with our vertically integrated model.
In July 2020, the group purchased the assets of Norville, a
well-established lens manufacturer with sites in Gloucester,
Livingstone, Bolton and Seaham. I would like to express my
gratitude to those employees at Norville who continued to keep
the business alive during administration in very uncertain times
and then, when INSPECS acquired the assets of the business,
continued to work and help grow the business. New senior
management was quickly recruited by our executive team.
I am pleased to report that the restructuring of the business
has already started, with the company achieving sales of $4.2m
since acquisition on the 14 July 2020. A new lease on a modern
manufacturing facility has been completed and the factory will
move in the autumn of 2021 to a new state-of-the-art facility,
allowing increased production efficiencies and also speed up
of turnaround time. It is exciting to see how many integration
possibilities there are with lens manufacturing and the rest of
the group.
Having successfully completed the Norville acquisition, the
executive team worked throughout the summer and autumn
on the purchase of Eschenbach Holdings Gmbh, which was
completed on 16 December 2020. Eschenbach again fits with
the group strategy for growth. It has a number of very successful
house brands and also some major licensed global brands. The
Eschenbach workforce is approximately 580 people and mainly
distributes to independent opticians around the globe with its
full-time sales workforce of over 250 people. This acquisition
now gives the group a strong European presence, and with the
addition of its subsidiary Tura Inc in the USA, the group now has
direct access to the important independent optical market in
those regions. The acquisition also included Eschenbach Optik, a
low vision manufacturing, research & development arm, offering
further optical expertise in this growing market.
I would like to thank both our CEO Robin Totterman and our
CFO Chris Kay, who led both acquisitions, for the work that
they did over many months in completing two ground-breaking
acquisitions in extremely difficult circumstances.
RESULTS
The group achieved a significant increase in revenue and
underlying EBITDA in the second half but overall turnover was
down 22.5% to $47.4m from $61.2m and underlying EBITDA was
down from $13.0m to $4.5m.
DIVIDENDS
Due to the acquisitions in 2020 and the economic landscape the
group will not pay a dividend at present, but this will be reviewed
on a regular basis by the Board.
OUTLOOK
The economic landscape has improved since late spring of 2020.
However, during 2020 and 2021 there have been continued
restrictions around the world as governments endeavour to
safeguard communities and ensure that their hospital services are
not overwhelmed. This has meant that we are still experiencing
continued headwinds in our business around the globe. However,
the group remains profitable and cash generative in the first six
months of 2021 with continuing debt reduction. I am sure that
over the next 12 months the executive team will continue to
deliver on its sustainable growth strategy for all our stakeholders.
The group has had a successful start to 2021, with sales of $67m
in the first quarter. The group continues to win new customers
and in particular the Vietnam new facility is now completed and
operational. Our order books at the time of this report are higher
than at the same time in 2020 on a like for like basis.
Lord MacLaurin
Chairman
June 2021
9
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Chief Executive Officer’s Review
ROBIN
TOTTERMAN
A YEAR TO
REMEMBER
2020 has been a year to remember!
Within a week of our IPO, the world
as we knew it had changed. We are
especially proud to have contributed PPE
eyewear to NHS trusts without profiting
while continuing to develop the business.
2020 was also the year of exceptional
recognition for INSPECS, which racked
up a slew of prestigious awards for
innovation and design.
10
It is over a year since the pandemic began to wreak havoc across
the globe, and only the countries and communities who have
managed to vaccinate a meaningful part of their population are
beginning to relax restraints.
I am greatly encouraged by the resilience and results our
customers and the group has shown during the past year. As a
group, our interaction with COVID-19 started in January 2020
when widespread lockdowns took hold in China and Vietnam. As
soon as our factories were able to open the rest of the world, and
crucially to us, the warehouse and distribution hubs closed. For
a time, our factories were unable to deliver ready goods on order.
The group is performing well, most notably our US colleagues
at Tura under the watchful eye of Scott Sennet. Norville under
Nevil Trotter is coming on in leaps and bounds. I am confident
that once the move to the new location happens and new more
scalable manufacturing methods are implemented, we will see
a significant increase in the business.
International Eyewear is being integrated into the UK
operation of INSPECS and Norville with the aim of selling
frame and lens packages.
Germany and much of Europe seem to go from lockdown to
lockdown, but despite this, the business is doing well. Tura
and Eschenbach Optik are solid businesses run by excellent
management who are keen to integrate with the rest of the group.
Tura is far advanced on bringing INSPECS brands and our new
BOTANIQ™ range to market. They are working with Killine to
vertically integrate the business.
NORVILLE BECOMES AN
INTEGRATED PART OF
THE INSPECS GROUP
INSPECS Showroom
UK
I’m delighted to report that INSPECS has won the coveted
Queen’s Award for International Trade for a second time – the
UK’s most prestigious business accolade. The group has also
won a number of green and design awards – the International
Green Award for our recycled and recyclable O’Neill sunglasses
‘Wove’ and four highly-coveted Red Dot Awards for Eschenbach’s
designs.
I would like to thank all our employees across the group
companies who, regardless of location or seniority, all responded
fantastically to the unprecedented events that started to roll out
in the early part of 2020. Special thanks go to Michael Zhang in
China and Ha Bui in Vietnam and their teams for their efforts in
what was unchartered territory.
As the first lockdown hit, our management took immediate steps
to protect our employees and ensure their health and safety while
ensuring that INSPECS could continue to deliver its products
to its customer base despite multiple disruptions. Many of our
staff took voluntary pay reductions and reduced their hours. Our
CFO, Chris Kay, and I took an immediate 60% pay reduction and
the Board a 20% pay reduction in line with the rest of the group.
Most appreciated, as this was despite the Board meeting more
frequently throughout the year to assist with acquisitions.
ACQUISITIONS
The optical market is particularly dominated by a few major
players, and the cost of entry into this market is substantial. The
administration of Norville gave an opportunity for the group
to enter this market at a considerably reduced cost. Once the
transaction was complete, the assets were purchased by Norville
(20/20) Limited, and the remaining 28 employees were transferred
to the new INSPECS subsidiary company. Since that date, we
have increased employment to 92 employees at Norville and
saw month by month growth from August onwards. The vertical
integration allows us to offer both high-quality lenses as well as a
frame and lens package to the opticians.
11
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Chief Executive Officer’s Review
continued
THE ACQUISITION
OF ESCHENBACH
GIVES A PLATFORM TO
THE INDEPENDENT RETAIL
MARKET IN THE USA
AND EUROPE
80+
COUNTRIES AROUND
THE WORLD BUY OUR
EYEWEAR PRODUCTS
Initial design sketches
12
ESCHENBACH
Eschenbach was founded in 1913 and has an enviable reputation
for supplying high-quality eyewear in Germany and across
the world, with a significant subsidiary in the United States
called Tura Inc, which supplies US independent opticians.
Eschenbach principally operates in the independent market,
whereas traditionally INSPECS has operated in the chain market.
Combining the two business will allow for multiple integration
opportunities across the business platform and reduces the
group’s risk, as we now supply both the high-volume chain and
independent optical markets around the globe. Eschenbach’s
house brands, TitanFlex and Humphrey’s, were rated No.1
in the German Market in 2019–20 and continue to show
significant growth.
MANAGEMENT
As a direct result of the acquisitions the group has made since
2017, I think it is important to stress that our business now has a
wealth of talent across the globe with many capable individuals
having both the experience and the capabilities to step into roles
across the group and help drive future growth.
MANUFACTURING INVESTMENT
I wrote last year that we were expanding our Vietnam operation
from 4,300m2 to 8,800m2, and I am pleased to report that this new
manufacturing facility was completed in 2020. We suffered delays
as a direct result of COVID-19 and the inability of our Chinese
technical experts to cross into Vietnam due to border control
restrictions. While it is disappointing that COVID-19 has directly
delayed the implementation of this plant, I am pleased to report
that manufacturing has now started with a large order to the USA.
Our new sustainable eco-friendly BOTANIQ™ range is being
produced in the new Vietnam facility.
Eschenbach reception area
Germany
COVID-19
COVID-19 undoubtedly disrupted our business during the last
part of Q1 2020 and through Q2 and partly into Q3 of 2020.
The optical industry has proven its resilience by continuing
to trade, albeit at a reduced level, by adopting strict PPE
requirements early. Although footfall is significantly reduced,
conversion rates continue to be exceptional. In addition,
shrinkage (theft) is practically non-existent due to the need to
pre-book optical appointments. Whilst difficulties persist, the
group has made significant adjustments to the new environment,
and our budgets and forecast for 2021 are based on continued
disruption within the market. As a true global distributor, the
pandemic will continue to have some effect on our normal
business activity for the foreseeable future. The group will
continue to ensure the safety of its 1,800 employees across the
globe and has new working practices in place that permit the
business to continue to operate.
OUTLOOK
2020 was the year of acquisitions. 2021 is the year of integrating
the new companies and developing synergies and strategies
across the group to generate future growth. I am pleased to
report that steady progress has been made, and as a result,
I am confident in the group’s ability to create and maximise
opportunities and to deliver to all stakeholders. Current trading
to date remains positive.
Robin Totterman
Chief Executive Officer
June 2021
13
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Our Business Model
OUR BUSINESS
MODEL
INSPECS continued growth has
further established its position
as one of the world’s leading
eyewear companies.
Our model to achieve sustained and
balanced growth for the benefit of all
stakeholders is based on four main
fundamental drivers.
STRATEGY FOR GROUP SUSTAINED GROWTH
GROW OUR IN-HOUSE
FRAMES MANUFACTURING
CAPACITY
EXPAND OUR CHAIN AND
INDEPENDENT OPTICAL
CUSTOMER BASE AROUND
THE GLOBE
During 2020 the group completed
its expansion of Vietnam by the
addition of an additional 4,000m2
of manufacturing base allowing
production capacity to rise from
3.5m frames per annum to 7m+
per annum.
INSPECS has continued despite
COVID-19 to increase its offering
of both branded and private label
frames to our global optical chains
and continues to grow the number
of independent opticians that
it supplies.
GROW OUR LENS
MANUFACTURING
CAPACITY AND EXPAND
GLOBALLY OUR HIGH
END PRODUCTS
The group has agreed terms
for a new manufacturing site in
Gloucester, UK raising expected lens
manufacturing capacity from 1,200
to 4,000 jobs per day. The new plant
is planned to be fully operational by
the end of 2021.
MAKE SELECTIVE
ACQUISITIONS TO
BOOST GROWTH AND
PROFITABILITY IN
FUTURE YEARS
The group made two major
acquisitions in 2020 and is
continuing to work on further
strategic acquisitions in 2021.
14
Superdry Optical
SS21 Adalina frame
15
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Our Business Model
continued
HOW OUR
MODEL WORKS
WE
DESIGN
Our design teams around the world
follow the latest trends in the market.
Our teams are looking for ideas not
only from the eyewear market but
also from both the consumer fashion
and parallel industries. Our design
teams are principally in the UK, USA,
Germany, Portugal and Hong Kong.
WE
MANUFACTURE
Our production teams work with
our in-house CAD design teams in
our facility to ensure either home
manufacture, if appropriate, or
engage with one or our tested
subcontracted factories.
BRANDS UNDER LICENCE:
Brands are selected with potential to
grow market share in a geographical
region, or for broader, global
distributions. We are specialists in
working with brand owners in
partnership, to help deliver growth
for both companies.
HOUSE BRANDS:
Targeting specific market segments
with our in-house brand offer, we
elevate group-owned patents and
manufacturing techniques by building
a brand around them, and successfully
taking them to market.
PRIVATE LABEL/OEM:
We’re helping some of the biggest
retailers in the world to grow, by
targeting specific consumer
opportunities in store. Our 360 degree
service delivers expertly-designed
private label eyewear, with the
reassurance of traceable industry
benchmark in-house manufacture.
16
WE
MARKET
WE
DISTRIBUTE
Our marketing teams constantly plan
work with the optical market to bring
our products to consumer attention
and work in partnership with the
brand owner.
Through our network of over 70,000
optical and retail outlets across 80
countries our products are sold both
in well-known high street chains and
to independent opticians globally.
WHAT SETS US APART
• Vertically integrated model providing
a complete eyewear solution.
• Innovative design and creativity.
• Global experienced manufacturing
teams.
• In-house design.
• Acquisition of lens manufacturers
allowing combination frame and lens
packages to be created.
• Trusted supplier to global retail chains
with full traceability.
• We operate as a fair organisation and all
our employees are key. We endeavour
to give the best industry working
environment for all our staff.
BRANDS
20+
DISTRIBUTED FRAMES
4.9m
17
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Our Business Model
continued
LICENSED BRANDS
Our teams around the globe
work with leading brands to
create award-winning eyewear
collections.
Hype provides inspiring designs and
concepts for the teens with trend
setting designs.
The epitome of individuality and
a tempting range of shades with
models to suit all ages.
Iconic British designed frames for
men and women with the spirit of
Japan.
Fashion eyewear creating updated
classics and trend-led design.
Eyewear for men and women
offering a striking assortment of
shades and styles to suit all ages and
tastes.
Finding solutions to help build
a better world. Cat engineering
DNA can be found throughout our
range of eyewear. Quality products
designed and built to last.
The Original California Surf, Snow
& Lifestyle Brand, since 1952. The
innovator of the wetsuit, and a
pioneer of protecting our oceans.
Eyewear for O’Neill has a strong
sustainable O’Neill Blue ethos.
Crafted in high-quality materials
with inspiration from vintage fashion
and Lulu’s iconic designs.
A glamorous high fashion collection.
A refined, classic look with two-
tone colours giving an updated
and contemporary feel.
Distinctively British, crafting
beautiful eyewear combining iconic
style with quality craftsmanship.
Fashion-forward yet timeless
eyewear, underlying the
wearers natural style.
18
HOUSE BRANDS
Combining old traditions and values
to the new, modern brand in subtle
Nordic colours and characterised by
natural earthy tones.
Combining wearing comfort with
resilience, low weight with modern
design with quality.
Luxury eyewear with attitude, by
Gwen Stefani. Her L.A.M.B. fashion
and accessories label mixes classic
Hollywood glamour with modern
streetwear influences.
The highest level of quality with
commitment to perfect design and
inspired by structural clarity and
architectural design.
The HUMPHREY’S DNA is
individual and authentic following
the fashion code with trendy and
energetic frames.
“Many wonderful surprises await
you…” with the splendiferous Roald
Dahl Eyewear collection. Designs
feature original Quentin Blake
illustrations from much loved tales
and spectacular hidden quotes for
the cheekiest of chiddlers eyes only!
Fashion inspired by the work of
renowned fashion designers,
stylists and make-up artists.
Elevating eyeglasses from
accessory to a work of art offering
both rimless and semi-rimless
frames with a contemporary look.
An iconic brand in the denim fashion
industry, Buffalo David Bitton is a
global lifestyle brand with a long-
standing tradition of quality.
British tailored eyewear finely
crafted from luxury material.
Timeless classic pieces made
from the name synonymous
with heritage, quality and style.
Trademarked, designed and
made in-house.
Free Country is one of the outdoor
industry’s most sought-after brands
offering superior style, functionality,
performance and value at a fraction
of the cost of their competitors.
19
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Our Business Model
continued
OUR PRINCIPAL MANUFACTURING SITES
TORKAI OPTICAL
FACTORY
China
500
WORKFORCE
Torkai Optical has built an industry
reputation as a high-class manufacturer
of quality eyewear, in particular titanium
frames. With a workforce of around
500 it is also able to support the group
as a whole with product design and
engineering solutions. It has its own
plating and mould production plant.
50+
ENGINEERS AND
TECHNICIANS
FULLY TRACEABLE
IN-HOUSE PLATING
AND MOULD SHOP
ADVANCED
TOOL MAKING
INNOVATIVE
ENGINEER
SOLUTIONS
20
OUR PRINCIPAL MANUFACTURING SITES
NEO
OPTICAL
Vietnam
NEO Optical is the largest optical frame
manufacturer in Vietnam. With the
addition of its new facility the site now
has the capacity to produce in excess of
7m frames annually, increasing from 3.5m
frames previously.
500+
STAFF
QUALITY
PRODUCTION
AT COMPETITIVE
PRICES
LARGEST LOCAL
EMPLOYER
FULLY TRACEABLE
ACETATE AND
INJECTED
MOULDING
PRODUCTION
21
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Our Business Model
continued
OUR PRINCIPAL MANUFACTURING SITES
NORVILLE-LENS
MANUFACTURERS
90+
STAFF
DELIVERING INDEPENDENT
LENS SUPPLY SOLUTIONS TO
THE OPHTHALMIC INDUSTRY
70+
YEARS
MANUFACTURING
HERITAGE
ANCILLARY SITES
IN SEAHAM AND
LIVINGSTONE
ABILITY TO OFFER
FRAME AND LENS
PACKAGE
UNIQUE LENS
MANUFACTURING
22
Market Overview
MARKET OVERVIEW
The eyewear market has been affected by COVID-19 during 2020 but has proved to
be resilient and, despite lockdowns around the globe, access to ophthalmic eyewear
has been deemed to be essential and much of the market has remained open.
The global eyewear market is
expected to grow from $139
billion in 2019 to $259 billion
in 2027 at a CAGR of 8.1%.
(Source: Statista 2021)
300
250
200
150
100
50
D
S
U
n
o
i
l
l
i
b
n
i
e
u
a
v
l
t
e
k
r
a
M
258.63
239.25
221.33
204.74
189.4
175.21
162.08
149.93
138.7
2019
2020
2021
2022
2023
2024
2025
2026
2027
DISTRIBUTION CHANNELS
SEGMENTAL ANALYSIS
79%
75%
The brick and mortar segment still
dominates the eyewear market in
2020, accounting for 79% of the
market, but the e-commerce market
continues to grow.
The ophthalmic spectacle segment
accounted for 75% of the total
market in 2020 with sunglasses and
then contact lenses as the next
largest market segments.
DRIVING FORCES
The key factors driving the
market growth are the number of
ophthalmic disorders, increased
awareness of eye examinations and
the perceptions of eyewear as a
fashion accessory.
INSPECS operates across all the
major parts of the market supplying
frames and lenses to the ophthalmic
eyewear market and sunglasses.
INSPECS continues to grow its
e-commerce presence.
23
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020
Chief Financial Officer’s Review
CHRIS KAY
DESPITE COVID-19 THE GROUP HAS
MAINTAINED POSITIVE MOMENTUM
IN 2020 CREATING A STRONG PLATFORM
FOR GROWTH IN 2021
Revenue
Gross profit
Operating expenses
Underlying EBITDA
Share-based payments
Depreciation and amortisation
Restructuring costs
Foreign exchange on funding for
acquisitions
Post acquisition insurance costs
Operating (loss)/profit before
non-underlying costs
(Loss)/profit before tax and
non-underlying costs
Reconciliation to reported results
Operating (loss)/profit before
non-underlying costs
Non-underlying costs
Negative goodwill on bargain purchase
Movement in fair value on derivative
Exchange adjustment on borrowings
Share of associate profit
Net finance costs
(Loss)/profit before tax
Tax credit/(charge)
(Loss)/profit after tax
FY20
47,415
20,522
(16,017)
4,505
(1,706)
(3,906)
(185)
(1,085)
(563)
FY19
61,247
27,536
(14,549)
12,987
(1,917)
(3,125)
–
–
–
(2,940)
7,946
(5,400)
10,174
(2,940)
(5,763)
506
(740)
(382)
–
(1,844)
(11,163)
2,250
(8,913)
7,946
(2,827)
–
2,865
715
14
(1,365)
7,347
(907)
6,440
Our results in H2 showed considerable
improvement as the group adjusted
to COVID-19 restrictions. Excluding
the Eschenbach acquisition our H2
underlying EBITDA increased from
$0.7m in H1 to $5.1m in H2. We have
also completed two acquisitions in
2020 and production has started in our
new Vietnamese factory. The group is
now well-positioned for the future as
economies around the globe expand
as lockdowns start to ease.
24
REVENUE
Revenue for the year ended 31 December 2020 was $47.4m, a
decrease of 22.5%. H2 group revenue was $30.7m including $7.1m
contribution from acquisitions. Growth in H2 over H1 excluding
acquisitions was 41.3%.
COVID-19
As a result of COVID-19, the Board implemented actions to
reduce costs whilst continuing to invest and improve both the
short and long-term prospects of the group. We continued to
invest in our brands and our manufacturing capacity, completing
our new Vietnam manufacturing facility.
OPERATING EXPENSES
Operating expenses increased by $1.5m. Excluding acquisitions,
operating expenses decreased $2.4m as the group reduced costs
to offset restrictions in trade caused by COVID-19.
GROSS MARGIN
The overall group gross margin decreased from 45.0% to 43.3%.
Excluding acquisitions, the gross margin decreased from 45.0%
to 43.5%.
CASH POSITION
The group ended the year with cash balances of $30.0m
compared to an opening position of $6.5m as a result of
share placing and the acquisitions in the period.
FINANCE INCOME AND EXPENSE
The group’s net finance costs increased from $1.37m to $1.84m.
Excluding loan arrangement fees written off on refinancing ahead
of IPO, net finance costs reduced by $0.5m.
DEPRECIATION AND AMORTISATION
Group depreciation and amortisation costs increased from
$3.1m to $3.9m, including $0.7m from acquisitions in the year.
UNDERLYING EBITDA
On 16 December 2020, the group acquired Eschenbach which
had limited sales from 17 to 31 December 2020. As a result,
Eschenbach had a technical accounting underlying EBITDA of
$(1.3)m for the year to 31 December 2020. The group targets
underlying EBITDA as a primary KPI and during the year,
excluding the Eschenbach acquisition, our underlying EBITDA
decreased from $13.0m to $5.8m, a decrease of 55%. I am pleased
to report that excluding Eschenbach, our H2 underlying EBITDA
was $5.1m against H1 of $0.7m.
NET DEBT
The group’s opening net debt was $13.7m ($12.5m excluding
leases) and the closing net debt following IPO and two
acquisitions in the year was $47.2m ($26.9m excluding leases).
EARNINGS PER SHARE
Earnings per share for the year to 31 December 2020 is
$(0.13)c (2019: $0.12c) with EPS on a fully diluted basis of
$(0.13)c (2019: $0.11c).
LEVERAGE
The group’s year-end leverage as a multiple of EBITDA,
increased from 0.8 in 2019 to 1.6 in 2020 as a result of funding the
acquisitions in the year. The leverage ratio has continued to drop
since the year-end against a required covenant level of 2.5 for the
12 months to 31 December 2021.
EQUITY PLACING
On 11 December 2020 the group issued 30.5 million shares at
£2.10 in order to fund the Eschenbach acquisition of $115.5m.
GOING CONCERN
Given the significant effects of COVID-19 encountered
during 2020 and into 2021, the Directors have undertaken a
comprehensive assessment of the group’s ability to trade out to
December 2022. Details of this review are shown in the Directors’
Report on pages 54 to 56. Taking the above into consideration
the Directors have a reasonable expectation that the group
and the company have adequate resources to continue to trade
throughout this review period. Therefore, the Directors continue
to adopt the going concern basis of accounting in preparing the
consolidated and Parent Company financial statements.
(LOSS)/PROFIT AFTER TAX
The group loss after tax for the year was $8.9m compared to a
profit of $6.4m in 2019. This loss includes $5.8m of non-underlying
costs borne by the group as a result of the IPO and acquisitions
made during the year as shown on page 24.
Chris Kay
Chief Financial Officer
June 2021
Design offices at
Eschenbach headquarters
Germany
25
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Radley Sunglasses
SS21 Campaign
26
Key Performance Indicators
Our business focusses on eight key performance indicators that are used
by the Board and Senior Management to review future outcomes and
the successful delivery of the group’s overall strategy.
TURNOVER
GROSS PROFIT
-23%
$47.42m
-26%
$20.52m
2019: $61.25m
2019: $27.54m
UNDERLYING EBITDA
GROSS PROFIT MARGIN
-65%
$4.51m
-1.7PTS
43.3%
2019: $12.99m
2019: 45.0%
FRAMES MANUFACTURED
NET CASH FROM OPERATING ACTIVITIES
-36%
2.91m
-107%
$(0.75)m
2019: 4.55m
2019: $10.59m
NET CURRENT ASSETS
+1,498%
$59.62m
2019: $3.73m
FULLY DILUTED EPS
-101%
$(0.13)c
2019: $0.11c
27
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Sustainability
A SUSTAINABILITY ACTION
PLAN FOR INSPECS
INSPECS is committed to ensuring that its business activities are conducted
with full consideration to their effect on the environment.
We are committed to reducing
our impact on the environment
and have set out the following
key pillars for the group for
the future.
We have created a department to assess
and monitor operations across the group,
building targeted action plans with KPIs
to improve INSPECS business operations
and make progress towards the UN’s
sustainable development goals.
Recruitment for this new department is
already underway with support from the
Board to implement the review during
2021. Whilst we await the outcome we
made good progress towards a more
sustainable business in 2020.
WORKING WITH
OUR EMPLOYEES
UTILITY CONSUMPTION
As a group we will endeavour to
learn from our employees who have
demonstrated ideas and plans
across the group to reduce waste.
As a manufacturing group we have
set up a group department that
will target continued reduction in
our energy and water consumption
across the group.
SUPPLY CHAIN
RECYCLING
The group will endeavour to
work with all our stakeholders
to ensure that our distribution
around the globe has a long-term
goal of reducing its effect on the
environment.
The group will continue to develop
its recycling efforts across the globe.
This will include lighting, heating,
electronics, paper, packaging and
supplies.
CHEMICAL WASTE
ACCOUNTABILITY
AND MEASUREMENT
The group will continue to use
environmentally friendly chemical
products and where these cannot
be used the group will ensure the
minimum use and correct disposal
of chemical products.
The group will continue to invest in
a sustainability department that will
be tasked with not only new ideas
but monitoring and tracking our
performance and reporting to all
our stakeholders.
28
ACHIEVEMENTS
FOR 2020
INSPECS made good progress in 2020 towards its five key sustainability goals.
Some of our key achievements are as follows:
USING SUSTAINABLE MATERIALS
BOTANIQ™ is a new sustainable
eyewear collection offering a truly
end-to-end solution for opticians
and the consumer. The frames are
manufactured from biodegradable
and recyclable materials and we
ensure that all packaging is fully
recyclable. We have a responsible
waste solution for the consumer
allowing them to recycle their
purchase. We also pledge to plant
one tree for every frame sold, with
the organisation One Tree Planted.
CARBON OFFSET
The group has engaged with
Wanderlands to offset its UK
business travel and energy
consumption, leading to an
estimated 2,500 trees being planted
in forests in the UK in 2021 and
more trees for 2022 to offset our
carbon footprint.
REDUCING CO2 EMISSIONS
In 2020, INSPECS purchased its first
electric vehicles as company cars,
with three more to be added in 2021.
The electric vehicles covered
85,000km and saved 11 tonnes of
CO2 emissions during the year. The
impact of this initiative is expected
to grow as national lockdown
restrictions are eased and normal
business operations can resume.
COVID-19 has reduced the amount
of air and rail travel in this financial
year and carbon emissions have
therefore reduced dramatically.
The group has taken the
opportunity to hold virtual
meetings via Zoom and Teams
during the pandemic and this
practice will continue to be
promoted as a way to reduce
travel in the future.
CUTTING CARBON FOOTPRINT
Many of the world’s volume glazing
labs are based in the Far East. We
established a smarter and more
environmentally responsible logistic
solution with one of our major retail
customers in the USA.
INSPECS now stores products at
the point of manufacture in China,
shipping straight to Thailand and on
behalf of the customer for glazing.
This avoids thousands of air miles
per frame. In 2020 we stored and
shipped over 37,000 frames in this way.
INSPECS will continue to promote
a more environmentally sustainable
distribution model to other key
chains around the globe.
INNOVATION GREEN
PRODUCT AWARD
In 2021, INSPECS was presented
this prestigious award for its
O’Neill Wove sunglasses. Over
1,400 Companies from 52 countries
entered the award. These sunglasses
and their packaging are made from
recycled and recyclable materials,
such as fishing nets, rubber tyres,
plastic bottles, stainless steel,
mineral glass or water soluble paper.
INSPECS Annual Report & Accounts 2020
29
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Sustainability
continued
MANAGING OUR ESG
RESPONSIBILITIES
DIVERSITY AND INCLUSION
INSPECS will not allow any discrimination in any of its business
operations nor engage with other organisations where such
activity is detected. This culture is paramount to how we operate
but INSPECS acknowledges that this is a continuing process in
which it will invest and ensure that our ambition is maintained.
PEOPLE
To sustain our long-term future INSPECS recognises that a key
risk is the ability of the group to continue to attract, recruit and
retain employees across the group. This will ensure going forward
our group will be able to achieve its long-term growth and meet
our customers’ needs. In order to achieve this INSPECS aims to
continue to be an ‘Employer of Choice’ in the communities we
operate. Our focus therefore to:
• Ensure we have a great workplace where employees feel
safe, supported and highly valued.
• Ensure that remuneration and benefits are attractive.
• Develop a sustained career path for employees.
• Ensure inclusivity and equal opportunity for all.
• Allow open debate and communication at all levels across
the group.
• Ensure that the group meets and exceeds all Employee
Legislation in whatever jurisdiction it operates.
DIVERSITY & INCLUSION
EMPLOYEE MIX BY GENDER
EMPLOYEE YEARS OF SERVICE
EMPLOYEE CATEGORY
35% Male
65% Female
18% < 2 years service
82% > 2 years service
55% Production
18% Administration
27% Sales
30
INSPECS GROUP PLC’S
EMPLOYEE BASE
AVERAGE NUMBER OF EMPLOYEES AS AT 31 DECEMBER
TOTAL
1750
1221
1138
952
HEALTH AND SAFETY
INSPECS as a manufacturer has Health and Safety as a standing
part of Board meetings. INSPECS will continue to improve Health
and Safety and has regular assessments and external reviews
and implements recommendations across the group. At each
quarterly Board meeting reports are received from each of our
key operations and this is monitored on a monthly basis by senior
management to ensure compliance with local legislation.
Male – 35%
Female – 65%
Male – 22%
Female – 78%
MODERN SLAVERY STATEMENT
612
269
2020
2019
2020
2019
2020
2019
Total
Female
Male
2020
2019
BOARD
6
4
5
4
Male – 83%
Female – 17%
Male – 100%
Female – 0%
1
0
2020
2019
2020
2019
2020
2019
Total
Female
Male
2020
2019
DIVERSITY AND INCLUSION
INSPECS Group is committed to equality of treatment for all
employees and for those seeking employment with the group
regardless of gender, marital status, race, ethnic origin, disability,
sexual orientation or social status. The group is committed to
complying with all current legislation pertaining to employment
in all areas where it operates. INSPECS Group is committed to
ensuring a good work/life balance for all employees and our
people are key to our continued sustained growth and their
wellbeing is a priority for the group.
Our Commitment
One of our key principles is ‘to treat everyone fairly and with
dignity and respect’. This includes those from within our business
and those within our supply chain.
Corporate Social Responsibility
Our corporate responsibility is to protect human rights and we
seek to ensure that our high-quality products are sourced and
manufactured in a fair, ethical, environmentally and socially
responsible way.
The business is responsible for the end-to-end processes and
procedures which are established to ensure traceable quality
control and transparency through the group’s operational
processes, from design to distribution.
The group’s approach to sustainability seeks to address both
environmental and social impacts, whilst meeting client demands.
We seek to ensure that our partners and affiliates have similarly
high standards, respect local laws and customs along with
meeting international laws and regulations, and we will never
knowingly deal with any organisation which is connected to
slavery or human trafficking.
COVID-19 Awareness
As part of our on-going analysis the senior team will continue
to monitor and mitigate actions as required. All key business
decisions are based on a risk analysis and we will continue to
make decisions by putting employee and supplier safety first.
With all our continuing operations this will be conducted in line
with local government COVID-19 guidelines.
31
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Sustainability
continued
80+
COUNTRIES OF
DISTRIBUTION
4
MANUFACTURING
SITES
70k
GLOBAL POINTS
OF SALE
1,800
GLOBAL
WORKFORCE
Global Distributor
Industry benchmark manufacturing, from frames to lenses to
complete frame-and-lens packages. Resilient eyewear products
in over 80 countries, with 14 sales offices and a 270-strong sales
team. Our balanced customer profile now includes many of the
largest chain retailers in the world, and a large global network of
independent opticians.
Governance, Operational Policies, Procedures
and Recruitment Practices
As part of our commitment to combating modern slavery, and
to conduct business in an ethical and transparent manner, along
with mitigating risk of non-compliance, we have the following
policies within our organisation:
Due Diligence
The group strives to maintain the highest standard of ethical
integrity and expects the same of its business partners,
employees and affiliated parties. As part of our new suppliers
and new product process, we assess suppliers to ensure they can
support the business and take steps to consider any areas of risk.
Owning our own manufacturing sites ensures the group has
high levels of traceability throughout the supply chains and can
maintain quality control to high standards. The group’s sites
are subject to regular independent audits by its global retail
customers and licensors. In addition to the company’s policies
and internal risk management activities, these independent
audits evidence that governance and industry standards are
being maintained and legal and regulatory requirements are met.
• Anti-Slavery and Human Trafficking.
• Whistleblowing.
• Safeguarding.
• Anti-Harassment and Bullying.
• Equal Opportunities.
Our policies also invite staff to contribute to the development
of policies and provide suggestions as to how the group may
improve its governance and risk management framework,
processes and controls.
Each of our business divisions have access to an externally
facilitated whistleblowing hotline that enables all employees to
raise any concerns that they might have without fear of reprisals.
We are pleased to confirm that no incidents have been raised or
reported to date.
Our recruitment practices are compliant with applicable
employment and health and safety legislation in the relevant
countries.
In order to minimise our exposure to risks that may arise in
relation to slavery and human trafficking, we always aim to recruit
staff directly and do not make frequent use of temporary workers
sourced through an intermediary or employment agency.
Management and Compliance
The group’s risk appetite is determined by the Board. Our
enhanced risk management framework provides that we will not
tolerate slavery or human trafficking within our supply chains.
While modern slavery can be found among any population, we
recognise that certain groups are particularly vulnerable to the
risks of modern slavery including:
• Domestic and foreign migrant workers.
• Contract, agency and temporary workers.
• Vulnerable populations (e.g. refugees).
• Young or student workers.
We actively manage our relationships with third-party agents
and service suppliers to mitigate any potential risk of modern
slavery. The company requires those who are charged with
providing services to conduct robust checks on any potential new
employee, including eligibility to work in the relevant country, to
safeguard against human trafficking or individuals being forced to
work against their will.
INSPECS Group is proud of the organisation’s culture and
corporate ethos, and the collaborative relationships our staff
actively maintain with customers and suppliers externally. Our
organisation’s culture and the approach we take when dealing
with clients, partners, advisers and other third parties has been
instrumental in ensuring that we have low levels of staff turnover
and few changes in the supply chain.
32
FUTURE GOALS
INSPECS plans are to improve its carbon footprint.
This includes steps to:
• Move our electric power consumption to green power
suppliers where possible thus reducing our carbon footprint.
• Continue to encourage our customers to use green routes
for shipping and reduce the transport miles of our products.
• Innovate and expand our range of sustainable products.
• Continue to reduce our water usage in production.
• Continue our policy of recycling across the group.
• Set up our internal sustainability department reporting to
the Board.
• Continue to use more biodegradable packaging where
possible.
• Continue to plant trees in the communities in which we
operate to offset carbon usage.
ENERGY AND CARBON REPORTING
Streamlined Energy Carbon reporting (SECR) was introduced
by the UK Government on 1 April 2019. The group sets out
its main power and water consumptions for 2020 for the
UK- based companies. For 2021 onwards we will continue
optimising our reduction in emissions and work in line with
current and future environmental legislation.
The group has used the following averages to estimate its
carbon emission.
Gas: 183 grams per kilowatt hour
Electricity: 233 grams per kilowatt hour
Electricity
Gas
Water
UK energy
usage in kWh
728,466
321,851
198,921
Business fuel
44,859 miles
Total for the
period in the UK
Intensity ratio in the
UK (per employee)
UK GHG
Emissions
in tCO2e
169.83
59.18
0.07
13.02
242.10
1.68
TARGETED REDUCTION
The group aims to reduce energy consumption on an intensity
ratio basis over the next five years and we will continue to
review performance against our goals.
The amount of both international and domestic travel across
the group was successfully reduced in 2020 due to COVID-19
restrictions. The group has relied increasingly on virtual face
to face meetings but we do expect to start to exhibit our
products at more international exhibitions in the later half of
2021. The group aims to maintain its business travel below pre-
pandemic levels in the future.
Training
The company’s formal training and induction processes for new
staff are firmly established across the group. The standard and
behaviours expected of our employees are detailed within a
number of policies and code of conduct, in addition to those
listed above. All new employees have access to the employee
policies required as part of an induction and training as required.
Management and support staff remain mindful of their duty
and legal obligation to escalate any matters of concern in
relation to human rights abuses, in line with company policies.
All our employees are encouraged to identify and report any
potential breaches of the organisation’s policies within the wider
understanding of whistleblowing.
Commitment
As a global supplier and brand partner with a world-wide
distribution network, we understand that there is a risk of modern
slavery taking place in supply chains. Having considered a range
of factors, including the nature of our products, the sector in
which we operate, the various group policies and procedures
in place and independent audits carried out across the globe,
we believe that the company is at low risk of exposure to slavery
and human trafficking. We are not aware of any areas of our
operations and supply chain where there has been a breach of the
Modern Slavery Act 2015. Recognising that the human rights risk
may change over time as the business enterprise’s operations
and operating context evolve, we will continue to:
• Re-evaluate the exposure to the risk of modern-slavery
occurring in our supply chain.
• Review and enhance our governance and risk management
frameworks.
• Monitor external adviser independent assessments, due
diligence and assurance work to ensure we comply with legal
and regulatory obligations. Apply appropriate risk-based due
diligence processes to mitigate risk of non-compliance with the
Act.
• Continually review our induction and training programmes to
support our zero-tolerance approach to human rights abuses.
• Continue training to our Board, executive leadership team
and key members of the global procurement and supply chain
teams to build on their understanding.
• Work with stakeholders across the group to develop key
performance indicator metrics as a tool to monitor compliance
with the group’s governance frameworks and policies.
INSPECS Annual Report & Accounts 2020
33
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Sustainability
continued
SKUNK WORKS
DREAM THE
IMPOSSIBLE
HAVE FUN
CRAZY IDEAS,
GO FOR IT
APPLY THE
RESOURCES OF
INSPECS TEAMS
AROUND THE
GLOBE
At INSPECS in 2020 we
started our own Skunk Works
department. This small but
growing team has a remit to
think outside the box and has
a high degree of autonomy,
is unhampered by normal
constraints and is tasked with
dreaming the impossible.
Already, its main focus has been to
improve the environment and has at
the date of this report filed six patent
applications for environmentally
sustainable products and devices that
we are working to bring to market. This
is a committed strategy and we hope to
produce a list of its achievements next
year. The team reports to the Executive
team once a month to test ideas and
update on projects.
34
‘Skunk Works’ was the name given to a
secret R&D team at Lockheed Aircraft
Corp. that was tasked with quickly
developing a jet fighter for the United
States during World War II.
The name is now used to describe a
small department that is allowed to
operate outside the normal procedures
and systems of a company, so that it
has the freedom to develop new ideas
and products.
BRING TO
MARKET
TEST
PROTOTYPES
AND TEST
MARKET
COLLABORATE
WITH WORLD
LEADING
UNIVERSITIES
UNIVERSITY COLLABORATION
During 2020, INSPECS partnered with a number of companies
and universities in the UK and Europe. On 12 May 2021 an
agreement was signed with 2-D Tech Limited, a subsidiary of
Versarien Plc to develop the first antibacterial frames and lenses
impregnated with graphene.
These new patented products will be available to the market in
2021 and other unique products are being worked on.
The Board will consider the creation of a design and innovation
scholarship at a leading UK university once income is generated
from Skunk Works, with other similar developments planned in
Europe and the USA.
INSPECS Annual Report & Accounts 2020
35
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 Section 172 Statement
36
The Board of INSPECS Group is proud of the
high standards of corporate governance that it has
established and continues to monitor and improve.
The Board continues to look at the expectations of all company stakeholders and
reflects on the choices the Board makes and their effects on all our stakeholders.
The Board considers the long-term effects of key decisions on stakeholders and this
helps INSPECS Group to maintain suitable and beneficial relationships for the future.
The main considerations likely to promote the success of the company for the benefit
of all stakeholders are set out below.
OUR EMPLOYEES
HOW WE ENGAGE
Training, development
and career prospects
Health and Safety
Diversity – fair and
equal pay
The employees of the group have annual appraisals
and the group operates an Employee Long-Term
Incentive plan for the future leadership. The
company actively encourages all employees to have
access to further training to enhance their skills and
develop their careers.
The group reviews heath and safety on a monthly
basis and it is reviewed by the Board on a quarterly
basis.
The group has the highest standards in relation to
diversity and fair pay to all employees regardless of
age, sex or ethnicity.
OUR INVESTORS
HOW WE ENGAGE
Demonstrate a clear
investment case and
strategy for continued
sustained growth
• Ensure good risk and
corporate governance.
• Demonstrate KPIs.
• Continue our ethical
behaviour in all business
matters.
Individual meetings with institutional shareholders
throughout the year including communication
during the interim, final and share placing that
occurred in 2020.
Reports and Accounts available at Companies
House and on the new company website.
Quarterly turnover numbers now released to the
market to continue relevant information flow to
all stakeholders including KPIs in the Annual Report.
Our website will continue to show how we improve
our ethical behaviour.
OUR CUSTOMERS
HOW WE ENGAGE
Continue to create new
well-designed products
The group design hubs in the UK, Lisbon, Germany,
Hong Kong and the USA regularly engage directly
with customers to create new and exciting ranges
each year.
Continue to deliver to our
customers on time
The group continues to invest in the latest
production machinery to ensure efficient supply.
Demonstrate to our
customers our fully
traceable supply
The group maintains independent audit facilities
available to our chains to monitor and audit our
factories.
Engage in customer
feedback to ensure continual
improvement of our supply
The group reviews its six-monthly or annual
feedback from our global chains and aims to
constantly improve our performance.
Develop more
sustainable products
for our customer base
The group has developed two new sustainable
eyewear ranges in 2020 and won multiple awards.
THE BOARD REVIEWED
AND CONSIDERED THE
ONGOING EFFECTS
OF COVID-19 ON THE
BUSINESS DURING 2020
AND CONTINUES TO
MONITOR ITS EFFECTS.
In accordance with Section 172 of the
Companies Act 2006 the table opposite
demonstrates how the Board has fulfilled
its duties.
This provides a summary of the Board’s
strategic aims, decision-making process,
and the key stakeholders of the company
whom the Board considered and engaged
with. Stakeholder benefits arising from
the decisions are shown below. Further
information that demonstrates how the
directors have fulfilled their duties are
shown within the Strategic Report and
Directors’ Report.
The Board of INSPECS believes that it
has acted and made decisions in a way
considered most likely to promote the
success of the company for the benefit
of its members. In doing so we gave
regard to:
OUR COMMUNITIES
HOW WE ENGAGE
The group now operates
globally and we are
expected to operate in a
responsible way ensuring
consideration to those
around us and continuing to
minimise our effect on the
environment
During 2020 the group has developed and supplied
PPE to NHS Trusts and Healthcare Centres in the
USA. The group continues to design and develop
new PPE products.
Our new facility in Vietnam has been built to ensure
less water and electricity consumption.
We have developed a relationship with tree planting
companies so we can offset some of our carbon
emissions.
OUR SUPPLIERS
HOW WE ENGAGE
Fair trading and
payment terms
The group ensures that all suppliers are paid and
treated equally and the Board reviews average
supplier days.
Collaboration and
long-term partnerships
We engage with our key suppliers for the long term
and aim to create a partnership of supply.
Supplier engagement check
that they comply with
modern slavery laws
We monitor key suppliers to ensure compliance with
modern slavery laws.
ENVIRONMENT
HOW WE ENGAGE
Ensuring the group takes
into effect climate change
on both its business and its
supply chain and continues
to manage its pollution
and waste
The group continues to move to renewable energy
where possible and is establishing an annual review
of key operations and the effect of climate change
on those operations. The group has introduced new
efficient supply chain routes and developed a range
of new environmentally friendly products.
1
The likely long-term consequences of
any decision;
KEY DECISIONS
2
The interests of the company’s
employees;
3
The need to foster the company’s
business relationships with suppliers,
customers and others;
4
The impact of the company’s
operations on the community and
the environment;
5
The company’s desire to maintain
a reputation for business conduct
of the highest standard; and
6
The need to act fairly between
members of the company.
1 REDUCTION IN OPERATING EXPENSES OF THE BUSINESS
The group where appropriate moved to a 4-day week and cost reductions
were implemented. This allowed the group to reduce cash expenditure and
maintain profitability.
2 ENSURING PPE EQUIPMENT IS AVAILABLE TO ALL STAFF
The Board ensured relevant PPE equipment is available to all employees at all
company locations.
3 CANCELLATION OF FY 2020 DIVIDENDS
The Board agreed not to pay any dividends to preserve cash.
4 WORK FROM HOME INSTIGATED
The Board agreed working from home for employees and authorised the
company to invest where necessary to ensure that employees could work with
minimum disruption. This allowed the group to trade effectively despite the
COVID-19 disruptions.
5 BOARD SALARY REDUCTIONS
The Board took 20% pay reductions from April 2020 and the Executive team’s pay
was reduced by 60% from April 2020 to December 2020.
37
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020
Principal Risks and Uncertainties
ADDRESSING RISK AT INSPECS
Our risk management framework covers every part of our business.
The Board meets regularly to identify risks in
our operations as they arise. Having identified a
new risk, the Boards receives an assessment of
the risk and then reviews and approves plans to
mitigate it.
RISK RESPONSIBILITY
The Board of INSPECS has the overall responsibility for risk
management and ensuring mitigation and continual monitoring
of risk. Responsibility for reviewing risk is delegated to the Audit
Committee and the Executive team and operational heads are
responsible for implementing controls and processes across
our business.
The final step in the process is the continual
management by both the Board and the key
employees of the inherent risks in the business.
The Board has a zero tolerance in relation to health and safety
issues within our control in all jurisdictions within which we
operate.
1
IDENTIFY RISK
AS A CONTINUAL
ASSESSMENT
2
MITIGATE
RISK
3
MANAGE AND
MONITOR
RISK MANAGEMENT
The Board is responsible for reviewing risks to ensure that the business is not
exposed to unnecessary or poorly managed risks.
RISK
POTENTIAL IMPACT
MITIGATION
COVID-19
and potential
health risk
New risk
COVID-19 virus and public health issues
amongst our staff, our supply chain and
our distribution network and their impact
on the ability of the company to trade.
• Transition to remote working for many positions completed
and operated at short notice.
• Management direction and collaboration of all staff.
• Continued stress testing of finances to ensure robust stability.
• Cost reduction implemented quickly.
Disruption to
our supply chain
and distribution
network
Disruption to both our factory production
and our subcontracted production could
limit the ability of the group to supply its
customers.
• The group has continued to retain its relationship with key
subcontracted manufacturers, which allows a switch in
production if necessary from our own factories.
• Work undertaken with key customers to transfer supply from
air routes to sea when possible.
• Increased stock of key production materials.
Poor quality or inconsistent quality of the
group’s products could reduce future
demand for the group’s products.
• Dedicated in-house Quality Control (‘QC’) teams embedded
in production facilities in Vietnam and China.
• Secondary QC teams visits key subcontracted factories to
Misappropriation of cash or group assets
could impact the group’s ability to trade.
ensure quality control.
• Major chain QC teams embedded in factory production
facilities in China and Vietnam.
• Cash balances monitored daily.
• Multi-level authorisation required to transfer cash.
• HSBC banking platform in the process of being rolled out
across key parts of the group.
• Fixed asset register in place and reviewed.
• Group Insurance in place covering all major risks and assets.
Existing risk
Quality control
of products
supplied
Existing risk
Integrity of cash
and material
group assets
New risk
38
RISK
POTENTIAL IMPACT
MITIGATION
Data protection
and GDPR
New risk
Economic and
political risk
Loss of data used to conduct our
business and information on customers
received under GDPR could lead to both
reputational and Government penalties.
Recession or downturn in the global
economy may reduce consumer demand.
Cost may increase due to Government
policy and legislation.
The impact of Brexit could interrupt our
daily inflow and outflow of goods. Sudden
surge in exchange rates and import tariffs
could affect our business.
Loss of key management and senior
employees could impact the group’s
ability to continue to trade and affect the
intended growth of the group.
Existing risk
Brexit
New risk
Loss of staff
Existing risk
Rapid change
in size of
group and
complexity
New risk
• GDPR policies constantly updated in group’s operating
manuals.
• Training on GDPR in place across the group.
• New Head Office IT department created in 2020.
• The Board constantly monitors legislation changes that may
affect the group.
• Diversified regional supply chain established.
• Group operates in over 80 countries worldwide.
• Multi-channel revenue streams.
• Group operates in markets deemed by Governments as
essential allowing trade to continue during lockdowns at
present.
• The Board continues to monitor Brexit issues and the effects
on the group’s trading.
• The group has distribution and operational offices in both
Germany, Portugal and the UK, thus allowing the group to
operate throughout Europe.
• The group has the ability to divert if required products direct
to its German distribution hub.
• Each key trading subsidiary has highly experienced
management team in place.
• All key senior management are part of the group LTIP Scheme.
• Business plans and initiatives are documented and prepared with
cross-functional input to reduce reliance on single individuals.
• Remuneration Committee seeks to ensure rewards are
commensurate with performance and aides the retention of
key employees.
Key management time and resources
engaged in integration which may slow
the growth of the group.
• Additional accounting and IT Staff have been recruited to
ensure smooth integration.
• Additional senior management retained with the acquisition.
Treasury and
financial control
Inefficient use of cash resources with
potential increase in interest costs.
• New Chief Treasury Officer positioned to monitor treasury and
cash custody.
New risk
Product safety
Existing risk
Credit risk
Reduced risk
Risk of adverse reaction to one of our
products, constituting a safety risk for
our consumers
• Products are tested and certified by independent laboratories
as safe for use.
• Maintenance of regulatory approval for all our products in the
markets we trade in.
• Maintenance of public and product liability insurance to give
the company appropriate protection.
The group has managed its credit risk successfully during 2020 and following a review, the groups exposure to
bad debts and other credit risks has not been material. Though considered a low risk in 2019, it has now been
removed as a risk but is regularly monitored.
39
> Strategic Report> Corporate Governance> Financial StatementsINSPECS Annual Report & Accounts 2020 BOTANIQ Optical
SS21 Campaign
40
CORPORATE
GOVERNANCE
Corporate Governance Statement
Board of Directors
Key Management
Audit and Risk Committee Report
Remuneration and Nomination
Committee Report
Directors’ Report
Statement of Directors’ Responsibilities
42
46
48
50
52
54
57
41
> Financial StatementsINSPECS Annual Report & Accounts 2020> Strategic Report> Corporate Governance Corporate Governance Statement
INTRODUCTION
FROM THE
CHAIRMAN
Lord MacLaurin
Chairman
INSPECS Group plc
As INSPECS Group plc Chairman I lead the Board with overall
responsibility for corporate governance in promoting the values
of the group both internally to employees and externally to our
stakeholders. The Board recognises and values the importance of
good corporate governance and how an appropriate corporate
governance framework supports the operational, financial and
risk management of the group and this in turn effectively drives
performance and enables the achievement of strategic objectives
to be reached for the benefit of all stakeholders.
As part of our commitment to a high standard of governance
the Board recognises the importance of having suitably qualified
Non-Executive Directors who are independent in character and
are free from any relationship that could affect their judgement.
Our Non-Executive team consists of Richard Peck who has over
20 year’s industry experience with eyewear and supports the
Executive team together with Angela Farrugia who has a wealth
of experience in relation to brands and consumer products, and
finally Christopher Hancock who is a Chartered Accountant and
has been involved in multiple corporate transactions over the
years and is able to support our Executive team on acquisitions.
The Board firmly believes that driving our long-term goals should
not be at the expense or detriment to others with whom we
engage and also the environment in which we globally operate.
We are committed to generating our long-term goals for all our
stakeholders with as little impact on the environment as possible.
The Board complies with all the principles of the QCA Corporate
Governance Code. The Board recognises that it is accountable
to a wide variety of stakeholders including employees,
shareholders, customers, suppliers and the wider communities
in which we operate.
The corporate governance framework which is currently operated
is based on practices which the Board believes are proportionate
to the size and footprint of the company. This coming year
the Board will hold meetings when travel permits at principal
overseas subsidiaries allowing the Board to directly meet with
senior management and employees in these principal areas.
THE BOARD IS
RESPONSIBLE
FOR THE GROUP
STRATEGY AND
FOR ITS OVERALL
MANAGEMENT.
The Strategic Report on pages 4 to 39
summarises the approach by the Board
in promoting sustainable long-term
growth of our business.
42
BOARD DIVERSITY
BOARD COMPOSITION
1
2
Male
Female
5
Independent
Executive
4
HOW THE BOARD OPERATES
The Board is responsible for the group’s overall strategy and
for the overall management of the group. The Strategic Report
on pages 4 to 39 outlines the key approach of the Board to
ensuring and promoting the long-term sustainable growth
of the company for all shareholders.
The main matters for consideration by the Board include:
• Financial reporting and financial controls.
• Monitoring of health and safety across the group.
• Approval of material contracts and group expenditure.
• Communication with stakeholders.
• Financing and capital adequacy of the group.
• Agreeing budgets and forecasts.
• Reviewing acquisitions.
• Oversight of the Executive team.
BOARD MEETINGS
The Board was scheduled in 2020 to hold six meetings to review quarterly updates including the AGM and then two subsequent one-
day meetings to agree the interim and year-end financial accounts. However, due to COVID-19 and material acquisitions in the year it
was agreed that the whole Board would meet on a regular basis to review and question these material transactions. As such and due
to COVID-19 and subsequent acquisitions the Board met more frequently than was originally planned.
Scheduled Meetings
Board
Remuneration
Committee
Audit
Committee
Lord Ian MacLaurin
Angela Farrugia
Richard Peck
Christopher Hancock
Robin Totterman
Christopher Kay
*
In attendance.
20
14
19
22
22
22
2
–
2
2
–
2*
3
–
3
3
–
3*
Directors are expected to attend all meetings of the Board
and the Committees on which they sit. In the event of a Board
member not being able to attend their respective Committee or
the Board their comments are passed to the Chairman.
43
> Financial StatementsINSPECS Annual Report & Accounts 2020> Strategic Report> Corporate Governance Corporate Governance Statement
continued
BOARD COMMITTEES
The Board has delegated some specific responsibilities to the
Audit and Risk Committee and Remuneration and Nomination
Committee. The respective reports are shown on pages 50 to 53.
DEVELOPMENT
The company Secretary ensures that all Directors are kept up to
date with changes in relevant legislation. This includes liaising
with the group’s advisers, principally our Nomads, Peel Hunt
and our group corporate lawyers, Macfarlanes.
BOARD COMPOSITION
The Board consists of five male and one female Director. The
Board believes it has the right skill sets and knowledge and up to
date experience to discharge its duties responsibly and deliver on
the goals of the group’s strategy for the long-term growth of the
company for the benefit of all stakeholders.
The Board fully supports the Financial Conduct Council’s aim of
encouraging diversity. A full breakdown of gender representation
for directors is shown on page 43 of this report.
BOARD AND BOARD COMMITTEE EFFECTIVENESS REVIEW
The Board is undertaking a review of its effectiveness and this
review will include the following but not exclusively:
• Response to new events and unscheduled developments.
• COVID-19.
• Acquisitions.
• Conduct rigorous discussion and debate.
• Setting strategy.
• Composition of the Board and future development.
BOARD MEMBERS’ INDEPENDENCE
The Board considers and ensures that each of the Directors is
independent of management. The Board is led by the Chairman
who ensures fair and constructive debate where appropriate.
The founder and CEO has a substantial shareholding in the group
but this does not detract from the Board’s ability to exercise
independent judgement and enquiry.
CONFLICTS OF INTEREST
The Board ensures that each member of the Board declares
any interest in matters to be discussed and regularly reminds
Board members of their duty to disclose any potential conflicts
of interest.
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
The group has purchased Directors’ and Officers’ insurance
during the period and holds insurance to the benefit of the
Executive team.
SENIOR INDEPENDENT DIRECTOR
Christopher Hancock is the Senior Independent Director and is
also Deputy Chair-elect and will act as Lord MacLaurin’s alternate
when required.
ELECTION OF DIRECTORS
All Directors will offer themselves for re-election at the
forthcoming Annual General Meeting.
RELATIONSHIP WITH STAKEHOLDERS
Continuing engagement with shareholders and stakeholders
in the group is of prime importance to the Board. This
communication is both by the Annual Report and Accounts and
its interim accounts and RNS releases when appropriate. The
group communicates through its website www.inspecs.com and
investor information is available on the website.
The Non-Executive team is available to discuss matters that
stakeholders may wish to raise and the Executive team holds
meetings with investors on a timely basis. In the period under
review feedback from stakeholders did not give rise to a change
in the group strategy.
The group has regular reviews from material customers on
its performance and these are closely monitored, and the
group maintains regular communication with a wide range of
stakeholders.
ANNUAL GENERAL MEETING
The Annual General Meeting of the company will take place on
19 July 2021. The Notice of Annual General Meeting and the
Ordinary and Special Resolutions to be put before the meeting
are contained in the Notice of the Annual General Meeting
accompanying this Annual Report.
CORPORATE GOVERNANCE CODE
The Board recognises the corporate responsibility in the way
that INSPECS operates around the globe. In January 2020 the
Board approved the adoption of the Quoted Companies’ Alliance
Corporate Governance Code for small and mid-sized quoted
companies, known as the QCA Code.
The Board is accountable to a wide range of stakeholders and to
ensuring its primary goal of long-term sustained growth whilst
acting in a sustainable manner. Examples of our continued work
on sustainability are covered in pages 28 to 35 of this report.
The Board has ultimate responsibility for internal control and how
we manage this process is shown on pages 38 and 39.
Our gender diversity is shown on pages 30 and 31 of this report.
The principal elements of internal control are as follows:
44
THE QCA CORPORATE GOVERNANCE CODE
Governance Principles
Compliant Explanation
Further Reading
DELIVER GROWTH
1
2
3
4
Establish a strategy and
business model which
promotes long-term value for
shareholders.
Seek to understand and meet
shareholders’ needs and
expectations.
Take into account wider
stakeholders and social
responsibilities and their
implications for long-term
success.
Embedded effective risk
management, considering
both opportunities and threats
throughout the organisation.
The Board is responsible for group strategy and
its implementation. This strategy is debated and
tracked by the Board who monitor its progress.
See pages 6 to 23 to learn
more about our strategy
and business model.
Meetings are held with investors and analysts at
half-yearly interim and final accounts. The AGM
provides a forum for all shareholders to meet and
hear from the Directors, and shareholder comments
and suggestions are welcomed by the Board.
See page 36 to see how
we communicate. Further
information is available
on our on website
www.INSPECS.com.
The Board has identified the key stakeholders in
the business and discusses the impact of the long-
term growth strategy and how our business model
may affect these stakeholders.
See pages 36 and 37 to see
how we communicate and
deal with our stakeholders.
The Audit Committee and the Board review risks
to the group, both internal and external. Health
and Safety is of paramount importance and a
standard Board meeting agenda item.
See pages 38 and 39 for
further detailed information
on risk management.
MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK
5
6
7
8
9
Maintain the Board as a well-
functioning, balanced team led
by the Chairman.
Ensure that between them the
Directors have the necessary
up-to-date experience, skills
and capabilities.
Evaluate Board performance
based on clear and relevant
objectives, seeking continuous
improvement.
Promote a corporate culture
that is based on ethical values
and behaviours.
Maintain governance structure
and processes that are fit for
purpose and support good
decision-making by the Board.
BUILD TRUST
10
Communicate how the
company is governed and is
performing by maintaining
dialogue with shareholders and
other relevant stakeholders.
The Board consists of three experienced relevant
Non-Executive Directors and the CEO and CFO.
The Board has a wealth of experience on strategy,
operations and financial matters. The Chairman
engages in open debate and new goals are
challenged.
See Board Director
information pages 46 and
47 for further guidance.
The Board believes that it has the required skills
and correct balance of capabilities to manage the
group. Members of the Board keep their skill levels
up in a variety of ways throughout the year.
See pages 46 and 47 of our
Corporate Governance
Report.
During 2021 a Board evaluation will take place to
ensure the Board have the required necessary
collective skills. This review will take place on an
annual basis.
The criteria to be used to
evaluate the Board is set
out on page 52.
The Board promotes and encourages, across
the group, the core values of the group. The aim
is to deliver continual improvement in both the
economic performance of the group but also its
social responsibility to the wider community.
The Board’s governance model is widely known
as the unitary system. The Board is aided by
two subcommittees to undertake specific work.
The Board has regular information flows and has
regular meetings to ensure they have the ability to
review, debate and make well-informed decisions.
See pages 42 to 44 of the
Corporate Governance
Report.
See more information on
the Committee Reports on
pages 50 to 53.
INSPECS has open communication with a wide
range of stakeholders. This includes regular
updates with investors, yearly and half yearly
reports and regulatory news service releases on
key corporate matters.
See pages 36 and 37 of the
Strategic Report.
45
> Financial StatementsINSPECS Annual Report & Accounts 2020> Strategic Report> Corporate Governance Board of Directors
AN EXPERIENCED AND FOUNDER LED TEAM
Lord MacLaurin
Audit and Risk Committee
Member, Remuneration and
Nomination Committee Member
Angela Farrugia
Independent Director
Richard Peck
Audit and Risk Committee
Member, Remuneration and
Nomination Committee Member
TENURE
Lord MacLaurin has served
as Board Chairman since
8 March 2017.
Angela was appointed as a
member of the Board in
12 May 2020.
Richard has served as a
Board member since
10 January 2020.
SKILLS, COMPETENCE AND EXPERIENCE
Lord Ian MacLaurin is a well-
known figure in business
with a stellar track record
of successfully leading plc
companies through significant
change. Having served as a
Chairman of Tesco between
1985 and 1997, which he is
credited with building up into
the UK’s largest retailer, Lord
MacLaurin went on to serve
as the Chairman of Vodafone
between 1999 and 2006. His
tenure in the House of Lords
lasted over two decades. Lord
MacLaurin brings invaluable
insights and experience to the
group’s ambitious and global
growth plans.
Founder of one of the
most successful brand
management companies in
the world, Angela formed TLC
(The Licensing Company Ltd)
in London in 1996. Creating
a new breed of agency, the
business grew to encompass
24 offices in 16 countries and
amassed a roster of leading
brand representations in
various sectors, generating
over $12.4bn in retail sales
annually for its clients. In
addition to 22 years operating
experience gained within
a challenging international
business environment,
Angela’s appointment has
satisfied one of the Board’s
objectives, increased Board
diversity.
Richard Peck has over 37 years
of optical experience. Richard
brings a wealth of experience
from working in other leading
eyewear companies, such as
David Clulow and Luxottica,
where he held the position
of Managing Director Retail
Northern Europe between
2010 and 2018. Richard’s
retail background increases
the Board’s diversity of skills,
knowledge and experience.
COMMITTEE MEMBERSHIP KEY
Audit & Risk Committee
Remuneration & Nomination Committee
Group Projects & Acquisitions Committee
C
Chairman
46
EXECUTIVE TEAM
Christopher Hancock FCA
Audit and Risk Committee Chair
Remuneration and Nomination
Committee Chair
C
C
Robin Totterman
Group Chief Executive Officer
Chris Kay
Group Chief Financial Officer
Christopher has served as a
Board member for INSPECS
Holdings Limited since
8 March 2017.
Robin has been a Board
member since founding
INSPECS in 1988.
Christopher Hancock FCA
has 30 years experience
in business development,
restructuring and corporate
finance. Christopher qualified
as a chartered accountant
with Arthur Andersen before
entering investment banking,
where he spent 10 years with
JP Morgan. He established
his own consultancy practice
in 2009 and co founded an
FCA regulated corporate
finance and investment
management firm in 2012.
Christopher brings a broad
range of experience in
business development, M&A
and corporate finance across
several sectors.
Robin Totterman is
an entrepreneur and
forerunner in the branded
eyewear industry with over
30 years experience in
eyewear licensing, design,
manufacture and wholesale.
Robin’s passion for design
and fashion brought the
first branded eyewear to the
UK optical market (Jean-
Paul Gaultier). His ability
to recognise value and
seize opportunity saw him
complete the acquisition
of Killine in 2017, creating a
vertically integrated group
rivalled by only a small
number of eyewear firms.
Prior to INSPECS, Robin
worked at UBS Swiss Bank
and Banque Paribas.
Chris has been involved
with INSPECS since it was
founded in 1988 and has
served as a Board member
for INSPECS Holdings Limited
since 13 November 2013.
Chris Kay is a qualified
chartered accountant and
became a partner of Thorne
Lancaster Parker, a UK
accountancy and taxation
firm, in 1992. He became
Finance Director of INSPECS
in 2013 and works closely with
Robin Totterman on strategy
for the group. Chris’ business
development and M&A
experience was pivotal to the
execution and integration
of INSPECS’ Killine group
acquisition in 2017 and further
acquisitions of Norville and
Eschenbach in 2020.
Chairman
47
> Financial StatementsINSPECS Annual Report & Accounts 2020> Strategic Report> Corporate Governance Key Management
KILLINE GROUP
Marc Lefebvre
Ha Bui
Michael Zhang
ESCHENBACH GROUP
Jorg Zobel
Holger Mass
Matthias Anke
Scott Sennett
Ken Bradley
Jennifer Coppel
48
NORVILLE
Nevil Trotter
Sean Donnachie
Paul Jones
INSPECS UK
Steve Tulba
Clare Lovett
Jon Bloom
INSPECS USA
Vance Wright
Monika Hladik
Michael Dorling
49
> Financial StatementsINSPECS Annual Report & Accounts 2020> Strategic Report> Corporate Governance Audit and Risk Committee Report
COMMITTEE CHAIR
COMMITTEE MEMBERS
Christopher Hancock FCA
Audit and Risk Committee Chair
Lord MacLaurin
Richard Peck
The members of the Audit and Risk Committee are all
independent, Non-Executive Directors in compliance with
the QCA Code. The Audit and Risk Committee is chaired
by Christopher Hancock and is responsible for the following
main areas.
INTERNAL AUDIT
The group does not have an internal audit function. However,
due to the enlarged group size it is expected that this will be in
place by 2022.
• Reviewing and monitoring the financial performance of
the group.
• Reviewing the integrity of the financial statements.
• Reviewing the internal control and risk management systems.
RISK GOVERNANCE
The Committee meets at least twice a year to consider the
risks faced by the group and to ensure that policies are in place
to mitigate them. The results of this review are set out under
Principal Risks and Uncertainties on pages 38 and 39.
INTERNAL CONTROL ENVIRONMENT
The group uses both manual and automated systems to control,
monitor and report risk matters. The principal elements of the
group’s internal control are:
• Close management and monitoring of the group’s Executive
Directors.
• Monitoring the organisational structure and promoting risk
based decision-making.
• A comprehensive annual budgeting process producing
detailed profit and loss, balance sheets, and cash flows on
a rolling 12-month basis.
• Comprehensive monthly reporting of KPI control of risk
areas and capital expenditure and banking facilities.
• Advising on the suitability and independence of the
external auditors.
• Reviewing extent of non-audit services provided to the group.
• Engaging with the external audits and ensuring the scope of
the audit is acceptable.
• Monitoring the disclosures in the Annual Reports and Accounts.
• Reviewing changes in accounting policies.
EXTERNAL AUDIT
The external auditors EY were reappointed on 30 June 2020.
The fee for the audit to 31 December 2020 is $901,000 (2019:
$724,000). The Audit Committee undertakes a review of the
effectiveness and independence of the group auditors. The fee
increase incurred in 2020 was primarily as a result of the change
in complexity of the group following the acquisition that took
place in 2020 of the Norville and Eschenbach businesses.
MEETINGS, ATTENDANCE AND TIME COMMITMENT
The Audit and Risk Committee has unrestricted access to
the group’s auditors and is mandated to meet twice a year. In
addition the Committee has meetings with external auditors
without management present. The group CFO attends the
meetings of the Committee by invitation.
50
SIGNIFICANT FINANCIAL JUDGEMENTS
During the year the Audit Committee considered the following
significant issues regarding the financial statements and having
reviewed were satisfied that they were appropriately stated.
• COVID-19 and the effects on the group at both the
performance and also at the going concern level. The
Committee continues to monitor the effect of COVID-19 and
the impact on any assets as a result of the disruption to trade
caused by COVID-19.
• The Committee reviewed the acquisition of the Norville and
Eschenbach businesses and the fair value of intangible assets
and valuation of goodwill. For the acquisition of Eschenbach,
KPMG were appointed to carry out the conversion of the
principal statements from German GAAP to IFRS accounting
standards, as well as the identification and valuation of
intangible assets arising on the acquisition and the allocation
of goodwill.
• Goodwill and intangible assets are significant values in the
balance sheets and the Committee reviewed any potential
impairment that might be required and the cash flows of the
CGU (cash-generating units) and the discount rates applicable
to the CGU.
• The Committee reviewed revenue recognition and in particular
the right of return assessment impacting on new acquisitions
in 2020.
• The Committee reviewed the tax provisions recognised relating
to transfer pricing and permanent establishment risks.
MEETINGS AND ATTENDANCE
Member
Attendance
Christopher Hancock
Lord MacLaurin
Richard Peck
3/3
3/3
3/3
51
> Financial StatementsINSPECS Annual Report & Accounts 2020> Strategic Report> Corporate Governance
Remuneration and Nomination Committee Report
COMMITTEE CHAIR
COMMITTEE MEMBERS
Christopher Hancock FCA
Remuneration and Nomination Committee Chair
Lord MacLaurin
Richard Peck
The Remuneration and Nomination Committee is chaired by
Christopher Hancock and its members Lord MacLaurin and
Richard Peck are all independent Directors, in line with the
QCA code.
MANDATE
The Committee operates under the Board’s agreed terms of
reference and is responsible for:
• Considering and monitoring the group’s policy in relation to
employment terms and packages of the Executive Directors
and key employees in the group.
• Evaluating the performance of the Executive Directors and
making recommendations to the Board relating to their
remuneration and terms of employment.
• Reviewing and approving the LTIP share option plan and
proposals for the issue of share options and pension
arrangements.
MEETINGS AND ATTENDANCE
Member
Attendance
Christopher Hancock
Lord MacLaurin
Richard Peck
2/2
2/2
2/2
Long-Term Incentive Plan: Following admission to AIM on
27 February 2020, options were granted at the mid-market
price to Executive Directors and key senior employees. On
22 December 2020 further options were granted following
the successful acquisition of Eschenbach.
Option
Granted
549,460
150,000
150,000
50,000
50,000
1,373,650
1,180,000
Date
27/02/2020
22/12/2020
22/12/2020
22/12/2020
22/12/2020
27/02/2020
22/12/2020
Price
£
1.95
2.10
2.10
2.10
2.10
1.95
2.10
Name
Christopher Kay
Robin Totterman
Angela Farrugia
Richard Peck
Senior employees
Senior employees
52
These options have a three year vesting period from the date
of grant. The total options outstanding as at 31 December 2020
were 4,327,307 and this represents 4.3% of the company’s issued
share capital as at 31 December 2020.
2020 ANNUAL BONUS
As the performance targets of the group were not met in the year
to 31 December 2020 no profit-related bonus is payable.
The Committee notes that the CEO, CFO and all the Non-
Executive Directors took immediate pay reductions in March
2020 as a result of the COVID-19 restrictions and these reductions
remained in place to the end of the financial year.
SERVICE CONTROLS
The Executive Directors signed new service contracts on
27 February 2020. They have no fixed duration. These service
contracts are terminable with six months’ notice.
The CEO and CFO are invited to attend the Remuneration and
Nomination Committee meetings as appropriate but will make
themselves absent as and when required.
DIRECTORS’ INTEREST IN SHARES
The interests of the Directors as at 31 December 2020, including
their family, in the Ordinary Shares of the company were.
Ordinary Shares of 1p each
Lord MacLaurin
Robin Totterman
Richard Peck
Angela Farrugia
Christopher Hancock
78,346
19,381,048
9,523
11,904
16,440
Christopher Kay
2,191,426
DIRECTORS’ EMPLOYMENT AND PENSION
CONTRIBUTIONS TO 31 DECEMBER 2020
DIRECTORS’ EMPLOYMENT AND PENSION
CONTRIBUTIONS TO 31 DECEMBER 2019
Remuneration and
Pension Contribution
of Individual Directors
USD
Salary
or Fees
Taxable
Benefits
Total
Remuneration
Lord MacLaurin
–
Robin Totterman
170,106
Richard Peck
Angela Farrugia
Christopher Hancock
–
–
–
–
–
–
–
–
–
170,106
–
–
–
Christopher Kay
93,449
14,996
108,445
TRANSACTION WITH DIRECTORS
The only material transaction between the Directors and the
company were as follows:
• Rent payable by INSPECS Limited on Kelso Place, the
headquarters of the company. This rent is reviewed to ensure
it is on a normal commercial basis and amounted to $113,000
in the year to 31 December 2020 (2019: $160,000). The building
is owned by Kelso Place LLP of which Robin Totterman is the
controlling partner.
• Christopher Hancock is a partner of Farm Street Partners which
charged the group fees of $13,000 (2019: $15,000) during the
year.
• Angela Farrugia is a Director of BXS Projects Limited which
charged the group $10,000 (2019: $nil) during the year.
The price movement of the shares in the company following
admission to the London AIM from the lowest to highest
is set out below:
27 February 2020
Highest market price
Lowest market price
£1.95
£3.30
£1.40
Remuneration and
Pension Contribution
of Individual Directors
Lord MacLaurin
Salary
or Fees
34,828
USD
Taxable
Benefits
Total
Remuneration
–
Robin Totterman
185,802
3,384
Richard Peck
Angela Farrugia
Christopher Hancock
42,102
27,726
42,102
–
–
–
34,828
189,185
42,102
27,726
42,102
Christopher Kay
137,345
14,838
152,184
53
> Financial StatementsINSPECS Annual Report & Accounts 2020> Strategic Report> Corporate Governance Directors’ Report
The Directors present their report together with the audited financial statements for the
period ended 31 December 2020. The Corporate Governance Statement on pages 42 to 45
also forms part of this Director’s Report.
REVIEW OF BUSINESS
The Chairman’s Statement on page 8 and the Strategic Report
on pages 4 to 39 provides a review of the business, the group’s
trading for the year ended 31 December 2020, key performance
indicators and an indication of future developments.
RESULT AND DIVIDEND
The group has reported its Consolidated Financial Statements in
accordance with International Financial Reporting Standards as
adopted by the European Union.
The group results for the year are set out in the Consolidated
Statement of Comprehensive Income on page 71. The company
financial statements have been prepared under FRS 101 for the
year ended 31 December 2020.
The group’s revenue of $47.4m (FY19: $61.2m), gross margin of
43% (FY19: 45%) and loss after tax of $8.9m (FY19: profit $6.4m)
represent an encouraging year for the business given the
challenging circumstances relating to COVID-19.
Period ended
Revenue ($m)
Gross Margin %
(Loss)/profit after tax ($m)
Reported IFRS
31 December 2020 31 December 2019
47.4
43.3
(8.9)
61.2
45.0
6.4
The Board is not recommending a final dividend.
DIRECTORS
The Directors of the group during the period were:
Executive
Robin Totterman
Christopher Kay
Non-Executive
Lord Ian MacLaurin
Angela Farrugia
Richard Peck
Christopher Hancock
The names of the Directors, along with their brief biographical
details are given on pages 46 and 47.
DIRECTOR’S INTEREST
The Directors’ interest in the share capital of the company at
31 December 2020 is shown below:
Robin Bjorn Christian Totterman
Christopher Kay
Lord Ian MacLaurin
Christopher Hancock
Angela Farrugia
Richard Peck
2020
19,381,048
2,191,426
78,346
16,440
11,904
9,523
POLITICAL DONATIONS
The group made no political donations in the financial period.
DISCLOSURE OF INFORMATION TO AUDITOR
As far as the Directors are aware, there is no relevant audit
information (that is, information needed by the group’s auditor
in connection with preparing their report) of which the group’s
auditor is unaware, and each Director has taken all reasonable
steps that he or she ought to have taken as a Director in
order to make himself or herself aware of any relevant audit
information and to establish that the group’s auditor is aware
of that information.
FINANCIAL RISKS
The financial risk management objectives of the group,
including credit risk, interest rate risk and foreign exchange
risk, are provided in note 34 to the Consolidated Financial
Statements on page 115.
SHARE CAPITAL STRUCTURE
At 31 December 2020, the company’s issued share capital was
£1,012,909 divided into 101,290,898 Ordinary Shares of 0.01p each.
The holders of Ordinary Shares are entitled to one vote per share
at the general meetings of the company.
54
SUBSTANTIAL SHAREHOLDERS
At 31 December 2020, the company had been notified of the
following substantial shareholders comprising of 4% or more of
the issued Ordinary Share capital:
% of issued share capital
Robin Bjorn Christian Totterman
Canaccord Genuity Group Inc
Amati Global Partners
Janus Henderson Group Plc
Aberdeen Standard Investments
Chelverton Asset Management Ltd
Royal London Asset Management
Tellworth Investments
BlackRock
19.1%
14.8%
6.1%
5.6%
4.8%
4.7%
4/6%
4.4%
4.0%
SHARE OPTION SCHEMES
Details of employee share scheme are set out in note 33 to the
Consolidated Financial Statements.
PURCHASE OF OWN SHARES
There was no purchase of our own shares in the period.
GOING CONCERN
The group continues to respond well to the challenges associated
with the COVID-19 pandemic which did cause disruption to the
business during 2020. This was predominantly experienced in
the first half of the year when major distribution hubs and the
optical retail markets were closed except for emergencies as
lockdowns were introduced around the globe in response to the
pandemic. During subsequent lockdowns later in the year, the
optical retail market was deemed essential which resulted in the
group gradually returning to normal trading levels. For the rest
of the year the group was therefore able to trade profitably and
generate cash with the supply chain unaffected.
Looking to the future, the group has performed a going concern
review, going out until December 2022, considering both a base
case and a downside case (described below). Having reviewed
this forecast and having applied a reverse stress test (also
described below), the possibility that financial headroom could be
exhausted and a covenant could be breached is considered to be
remote.
The base case assumes COVID-19 related restrictions consistent
with those in place in January 2021 remain for the duration of
2021 with normal trading resuming in 2022, results in a 10% year
on year increase to sales. The restrictions in place at this time
restricted a return to office working, reduced footfall on the high
streets and reductions in non-prescription sales as a result of the
continuing closure of airports and non-essential retail. The base
case also assumes no cash flow mitigations are actioned during
the period covered by the going concern review.
The downside case assumes the same restriction remain as in
the base case but with a 10% reduction in sales from April 2021
compared to the base case, and these same restrictions also
being in place during 2022. In this scenario we also assumed
some cost saving measures being implemented at a conservative
level. These measures are consistent with those which were
implemented in 2020 and which we therefore know the group
can achieve and relate to reductions in factory overheads.
The directors consider the main risks to going concern to be
liquidity and compliance with covenants, and so have performed
a reverse stress test which incorporates the breach of the
covenant. The group would breach a covenant before it runs
out of cash in any scenario.
The group’s borrowings with HSBC, amounting to $35.0m,
contains two covenants being one leverage ratio and one
interest cover ratio. Compliance with these covenants is based
on 12 month rolling EBITDA results and 12 month rolling
interest payments respectively. In addition, the newly acquired
Eschenbach Group has covenants relating to equity ration,
leverage ratio and EBITDA. These covenants are less sensitive
than the HSBC covenants and the group would be able to repay
these loans before a covenant breach using available cash. The
group has the ability to transfer cash across different group
entities as needed. In order for the business to breach one of
the HSBC covenants, the reverse stress test requires that, after
implementing all available mitigating scenarios, there is a 22%
reduction to the sales forecasted in the base case from April 2021
through to December 2022 along with a 4% drop in gross margin.
This scenario also factors in full repayment of all borrowings aside
from the HSBC facility and settlement of an uncertain tax position
at the highest possible range.
55
> Financial StatementsINSPECS Annual Report & Accounts 2020> Strategic Report> Corporate Governance AUDITOR
Ernst & Young has expressed its willingness to continue in office
as auditor and a resolution to reappoint them will be proposed at
the forthcoming Annual General Meeting.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 19 July 2020. The
ordinary business comprises receipt of the Directors’ Report and
audited financial statements for the year ended 31 December
2020, the re-election of directors, the reappointment of Ernst
Young as auditor and authorisation of the directors to determine
the auditor’s remuneration. Special resolutions are also proposed
to authorise the directors, to a limited extent consistent with
pre-emption group guidelines, to allot new shares, to disapply
statutory pre-emptions rights and to make market purchases of
the company’s shares. The Notice of Annual General Meeting sets
out the ordinary and special resolutions to be put to the meeting.
APPROVAL
This Directors’ Report was approved on behalf of the Board on
18 June 2021.
Christopher Kay
Chief Financial Officer
Director
18 June 2021
Directors’ Report continued
This scenario would see the group breach the leverage ratio
covenant test resulting in the total borrowed amount becoming
payable on demand. In this case, cash flow mitigations would be
implemented, mostly reductions in discretionary spending and
changes to supplier payment timings which are based on the
group’s previous ability to implement such steps. The directors
believe that this scenario is remote as a result of the historic
evidence gained from our performance during 2020, which was
a year impacted significantly by COVID-19. Throughout 2020
the group’s cash collections have remained strong, with bad
debt write off’s similar to a usual year. In the current year to
date the group is trading ahead of budget and cash collections
remain strong.
Therefore, the directors are confident in the ongoing resilience
of the group, and its ability to continue in operation and meet
its commitments as they fall due over the going concern period.
Accordingly, the directors adopt the going concern basis in
preparing the financial statements.
POST BALANCE SHEET EVENTS
The Board considers that no other material post balance sheet
events occurred between the end of the period and the date of
publication of this report.
FUTURE DEVELOPMENTS
The Board intends to continue to pursue the business strategy
as outlined in the Strategic Report on pages 6 and 7.
STAKEHOLDER INVOLVEMENT POLICIES
The directors believe that the involvement of employees,
customers and suppliers is an important part of the business
culture and contributes to the successes achieved to date (see
our Sustainability Report on pages 28 to 35).
EQUAL OPPORTUNITIES
The group is committed to eliminating discrimination and
encouraging diversity. Its aim is that its people will be truly
representative of all sections of society and that each person
feels respected and is able to perform to the best of their ability.
The group aims for its people to reflect the business diverse
customer base.
The group won’t make assumptions about a person’s ability to
carry out their work, for example based on their ethnic origin,
gender, sexual orientation, marital status, religion or other
philosophical beliefs, age or disability. Likewise, it won’t make
general assumptions about capabilities, characteristics and
interests of particular groups that may influence the treatment
of individuals, the assessment of their abilities and their access
to opportunities for training, development and promotion.
56
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
The directors as responsible for the maintenance and integrity
of the company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
DIRECTORS’ CONFIRMATION
The directors consider that the Annual Report and Accounts,
taken as a whole are fair, balanced and understandable. They
provide the information necessary for shareholders to assess the
group and parent company’s position and performance, business
model and strategy.
On behalf of the Board
Robin Totterman
Chief Executive Officer
18 June 2021
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
have prepared the group financial statements in accordance with
International Financial Reporting Standards (IFRSs), as adopted by
the European Union, the parent company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS
101 ‘Reduced Disclosure Framework’, and applicable law. Under
company law, directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the
state of affairs of the group and parent company, and of the profit
or loss of the group and the parent company for that period.
In preparing these financial statements, the directors are
required to:
• Select suitable accounting policies and then apply them
consistently;
• State whether applicable IFRSs, as adopted by the European
Union, have been followed for the group financial statements
and United Kingdom Accounting Standards, comprising FRS
101, have been followed for the parent company financial
statements, subject to any material departures disclosed and
explained in the financial statements;
• Make judgements and accounting estimates that are
reasonable and prudent; and
• Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the
parent company will continue in business.
The directors are also responsible for safeguarding the assets
of the group and the parent company, and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group and
the parent company’s transactions and disclose, with reasonable
accuracy at any time, the financial position of the group and the
parent company, and enable them to ensure that the financial
statements comply with the Companies Act 2006.
57
> Financial StatementsINSPECS Annual Report & Accounts 2020> Strategic Report> Corporate Governance Mini eyewear –
SS21 Campaign shoot
58
FINANCIAL
STATEMENTS
60
70
Independent Auditor’s Report to
the Members of INSPECS Group plc
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
71
Consolidated Statement of Financial Position 72
Consolidated Statement of Changes
in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial
Statements
Parent Company Financial Statements
Appendix 1 – Reconciliation
of underlying EBITDA
Company Information and Advisers
127
128
76
118
74
75
59
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report
Independent Auditor’s Report
to the Members of INSPECS Group plc
OPINION
In our opinion:
• INSPECS Group plc’s group financial statements and parent company financial statements (the “financial statements”) give a true
and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2020 and of the group’s profit for the
year then ended;
• the group financial statements have been properly prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of INSPECS Group Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year
ended 31 December 2020 which comprise:
Group
Parent company
Consolidated income statement for the year ended 31 December
2020
Consolidated statement of comprehensive income for the year
then ended
Company statement of financial position as at 31 December 2020
Company statement of changes in equity for the year then ended
Consolidated statement of financial position as at 31 December
2020
Related notes 1 to 8 to the financial statements including a
summary of significant accounting policies
Consolidated statement of changes in equity for the year ended
31 December 2020
Consolidated statement of cash flows for the year then ended
Related notes 1 to 35 to the financial statements, including a
summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and international accounting standards
in conformity with the requirements of the Companies Act 2006 and, as regards to the parent company financial statements, as applied
in accordance with section 408 of the Companies Act 2006. The financial reporting framework that has been applied in the preparation
of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced
Disclosure Framework.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s
ability to continue to adopt the going concern basis of accounting included:
• Obtaining management’s assessment and understanding the process undertaken by management to perform the going concern
assessment, including the evaluation of any operational and economic impacts of COVID-19 on the group.
• Testing the clerical accuracy of the model used to prepare the group’s going concern assessment, including the forecast
covenant compliance.
• Confirming the availability of debt facilities and review of underlying terms, including covenants up to December 2022 and
confirming that no payments are due within this period.
60
• Assessing the reliability of the cashflow forecast by analysing management’s historical forecasting accuracy. We understood key
inputs underpinning the group’s forecasts which includes sales receipts and cash payment schedules, and challenged these using
supporting evidence including debt agreements, existing facilities, our audited income statement, current period performance and
independent industry forecasts.
• Challenging, based on our own independent sensitivity testing, whether the downside case prepared by management could lead to
a covenant breach. Our assessment included consideration of the impact and likelihood of:
– The loss of major customers
– The loss of significant brand licences
– Ongoing COVID-19 restrictions
• Evaluating management’s key assumptions underpinning the group’s forecasts (such as revenue growth), by proposing alternatives
such as a lower growth rate reflecting the uncertainties arising from COVID-19, and challenging management’s assessment by
modelling our own stressed scenarios.
• Considering a “reverse stress test” scenario that would lead to a covenant breach and challenging management’s assessment as to
whether the scenario is remote by considering current year trading performance and external market data.
• Assessing whether the disclosures in the financial statements relating to going concern and COVID-19 reflected a fair and balanced
reflection of the assumptions and sensitivities considered by the directors.
Our key observations:
• We observed that the group experienced a high level of disruption from the impact of the pandemic from a revenue and profitability
perspective in the first half of 2020 – due to the closure of manufacturing facilities and retain outlets during this period. Subsequent
to this, the group has demonstrated its resilience as customers’ optical outlets in most territories were classified as essential and
remained open during further lockdowns or customers’ sales moved to the online channel.
• Whilst the group revenue for the year ended 31 December 2020 decreased by 23% compared to the prior year to $47.4m, the
group’s cash balance is $32.6m. The cash balance is driven by the recently acquired Eschenbach Group holding $19.3m at the time of
acquisition and the better performance of the group in the second half of the year. Therefore, management’s forecasts focused on
the compliance with the HSBC banking covenants as other liabilities could be repaid if required.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern for the
period to December 2022.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s
ability to continue as a going concern.
OVERVIEW OF OUR AUDIT APPROACH
Audit scope
• We performed an audit of the complete financial information of 5 components and audit procedures
on specific balances for a further 4 components.
• The components where we performed full or specific audit procedures accounted for 93% of Profit
before tax, 96% of Revenue and 100% of Total assets.
Key audit matters
• Acquisition accounting
• Inappropriate revenue recognition
• Valuation of goodwill
• Valuation of uncertain tax positions
• Accounting for IPO
Materiality
• Overall group materiality of $1,059,000 which represents 0.5% of total assets.
61
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Independent Auditor’s Report continued
to the Members of INSPECS Group plc
AN OVERVIEW OF THE SCOPE OF THE PARENT COMPANY AND GROUP AUDITS
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each company within the group. Taken together, this enables us to form an opinion on the consolidated financial statements.
We take into account size, risk profile, the organisation of the group and effectiveness of group wide controls, and changes in the
business environment when assessing the level of work to be performed at each company.
In assessing the risk of material misstatement to the group financial statements, and to ensure we had adequate quantitative coverage
of significant accounts in the financial statements, of the 32 reporting components of the group, we selected 11 components covering
entities within the UK, Hong Kong, Germany and the USA which represent the principal business units within the group.
Of the 11 components selected, we performed an audit of the complete financial information of 6 components (“full scope
components”) which were selected based on their size or risk characteristics. For the remaining 5 components (“specific scope
components”), we performed audit procedures on specific accounts within that component that we considered had the potential
for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their
risk profile.
The reporting components where we performed audit procedures accounted for 93% of the Group’s Profit before tax (2019: 100%), 96%
of the group’s Revenue (2019: 97%) and 100% of the group’s Total assets (2019: 98%). For the current year, the full scope components
contributed 86% of the group’s Profit before tax (2019: 100%), 80% of the group’s Revenue (2019: 97%) and 98% of the group’s Total
assets (2019: 98%). The specific scope components contributed 7% of the group’s Profit before tax (2019: 0%), 16% of the group’s
Revenue (2019: 0%) and 2% of the group’s Total assets (2019: 0%). The audit scope of these components may not have included testing
of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the group. We
also instructed 4 locations to perform specified procedures over cash which included obtaining bank confirmations.
Of the remaining 21 components that together represent 0% of the Group’s total assets. For these components, we performed other
procedures, including analytical review and testing of consolidation journals and intercompany eliminations to respond to any potential
risks of material misstatement to the group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
PROFIT BEFORE TAX
(or adjusted PBT measure used)
REVENUE
TOTAL ASSETS
86%
7%
7%
80%
4%
16%
98%
2%
Full scope components
Specific scope components
Other procedures
62
CHANGES FROM THE PRIOR YEAR
The acquisitions by the group of Eschenbach and Norville during the year has resulted in a significant change in scope.
New components are in scope as a result of the acquisitions and one component that was full scope in the prior year is now
specific scope as it is less material to the consolidated group.
IMPACT OF THE COVID 19 PANDEMIC – AUDIT LOGISTICS
The performance of the December 2020 audit has predominately been conducted remotely at both component and group locations.
We were able to conduct physical inventory counts at all in scope locations. We engaged with INSPECS throughout the audit, using
video calls and share screen functionality. Key meetings, such as closing meetings and Audit and Risk Committees were performed via
video conference calls.
INVOLVEMENT WITH COMPONENT TEAMS
In establishing our overall approach to the group audit, we determined the type of work that needed to be undertaken at each of the
components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating
under our instruction, or by component auditors from other firms operating under our instruction. Of the 6 full scope components,
audit procedures were performed on 3 of these directly by the primary audit team, 1 by an EY component audit team and the
remainder by other (non-EY) component auditors. For the 5 specific scope components, audit procedures were performed on 1 of
these directly by the primary audit team and the remainder by other (non-EY) component auditors. Where the work was performed by
component auditors (EY and non-EY), we determined the appropriate level of involvement to enable us to determine that sufficient
audit evidence had been obtained as a basis for our opinion on the group as a whole. In the current year this has involved using screen
sharing and having remote access to the component teams working papers which we have been able to do for both EY and non EY
component teams.
The Primary audit team intended to follow a programme of planned visits that has been designed to ensure that the Senior Statutory
Auditor visits all full scope locations every second year. However, during the current year’s audit cycle, visits were all replaced by virtual
meetings due to the travel restrictions imposed by the COVID-19 outbreak. Consequently, all full scope locations were visited virtually
by the Senior Statutory Auditor in the current year. Virtual meetings were held with all in scope components and involved meeting
with component teams to discuss and direct their audit approach, reviewing key working papers and understanding the significant
audit findings in response to the risk areas including revenue recognition and uncertain tax positions, holding meetings with local
management, and obtaining updates on local regulatory matters. The primary audit team interacted regularly with the component
teams where appropriate during various stages of the audit, reviewed key working papers and were responsible for the scope and
direction of the audit process. This, together with the additional procedures performed at group level, gave us appropriate evidence
for our opinion on the group financial statements.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
63
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Key observations communicated
to the Audit Committee
We have involved specialists to challenge
the estimates and judgements made by
management to calculate purchase price
adjustments and IFRS adjustments booked
upon acquisition. We have performed
substantive testing relating to manual
adjustments calculated and assessed the
appropriateness of disclosures in the financial
statements. We concluded the methodology
applied is appropriate but identified some
instances where estimates fell outside our
acceptable range.
Independent Auditor’s Report continued
to the Members of INSPECS Group plc
Risk
Our response to the risk
Acquisition Accounting 2020: $53.6m
goodwill (2019: $0m)
Refer to the Audit Committee Report
(page 50); Accounting policies (page 76);
and Note 2 of the Consolidated Financial
Statements (page 76)
The group has undertaken two
acquisitions in the year: the trade and
assets of Norville Group for £2.4m and
the Eschenbach Group for €94m. The
Eschenbach acquisition is a significant
and material acquisition for the group and
contains multiple global subsidiaries.
There have been estimates and
judgements required to calculate fair
values and IFRS conversion adjustments
required under IFRS 3 and these estimates
as subject to management bias. The
following estimates and judgements
have been determined to be the most
significant:
• Calculation of the negative goodwill
arising on the Norville acquisition
• Judgements relating to the cut off of
the opening balance sheet
• Calculation of IFRS 16 lease liabilities
• Calculation of the IFRS 15 returns
provision
• Fair value adjustments booked relating
to the intangible assets
There is also a further risk relating to
the accounting for these non-routine
transactions as they are booked as
manual topside journals. A small error in
accounting or booking of these journals
could lead to a material misstatement.
We obtained management’s calculation of the fair value
adjustments booked relating to Norville which give rise to the
negative goodwill calculation. We challenged management’s
calculation by performing independent calculations of the fair
value adjustments booked relating to inventory and PPE. We
considered contradictory evidence by obtaining market data for
key items.
We walked through the methodology applied by management to
calculate the roll back from the year-end to the opening balance
sheet position and understood the key judgements made.
We challenged these judgements by comparing them to our
understanding of the business. We instructed our component
teams to perform substantive testing relating to roll back
adjustments booked and reviewed in detail all work performed.
For IFRS 16 liabilities we corroborated the calculation inputs to
signed lease agreements for a sample of contracts. We involved
our valuations specialists to challenge the incremental borrowing
rate for the sample selected by calculating an independent range
for each lease.
For the IFRS 15 returns provision we walked through the
methodology applied by management to calculate the
adjustment. We critically assessed the judgements applied to the
provision and agreed a sample of items to source data.
To challenge the fair value adjustments booked relating to
inventory we selected a sample of items and compared the fair
values used in the calculation to recent market sales data for the
inventory item.
To challenge the fair value adjustments booked relating to the
intangible assets we involved our valuations specialists. They
assessed the methodology applied by management to calculate
the value of these assets. They challenged the estimates relating
to growth rates and discount rates used in the calculation by
determining an independent range for these estimates using
market data.
We examined the journals posted by management to account for
the acquisitions under IFRS 3. We obtained supporting evidence
for material amounts and critically assessed the accounting for
compliance with the accounting standards.
We validated that the journals that are booked into the
consolidation are in line with the supporting accounting records.
We assessed whether the disclosures in the financial statements
relating to the acquisitions are complete and meet the disclosure
requirements of IFRS 3.
We performed full scope audit procedures over this risk area in the
UK, which covered 100% of the risk amount. All procedures were
performed by the EY primary audit team.
64
Risk
Our response to the risk
Inappropriate revenue recognition
$47.4m, (2019: $61.2m)
Refer to the Audit Committee Report
(page 50); Accounting policies (page 76);
and Note 2 of the Consolidated Financial
Statements (page 76)
Revenue performance is a focus for
stakeholders who expect a year on
year growth in revenues. Most of the
group’s sales arrangements typically
require little judgement to be exercised,
with revenue being recognised on the
delivery of goods. However, there is
a risk that management may override
controls to intentionally misstate revenue
transactions by recording fictitious
manual journals to revenue (e.g by
inappropriate accounting relating to
rebates or returns or manual journals
around year-end.)
Valuation of Goodwill $68.1m,
(2019: $12.8m)
Refer to the Audit Committee Report
(page 50); Accounting policies (page 76);
and Note 2 of the Consolidated Financial
Statements (page 76)
There is a risk that goodwill arising from
past and recent acquisitions is impaired.
There is goodwill relating to legacy
acquisitions (predominately Killine) of
$3.3m and the current year acquisition
of Eschenbach of $54.8m included in the
balance sheet. Management is required
to carry out an annual impairment review
of goodwill under IFRS, which will involve
judgements and estimates regarding
the future cashflows and discount rates
applied to calculate the value in use.
We performed walkthroughs of the revenue recognition process
for all material revenue streams to assess the design and
implementation of key controls.
We used data analytics and correlation techniques to assess
whether revenue followed the expected flow of correlation of
revenue to debtors to cash for INSPECS UK interrogating 100%
of revenue transactions. Any postings falling outside of the
expected correlations were tested by the audit team to confirm
that the treatment was appropriate.
For other in scope components we performed appropriate
alternative procedures. Our procedures applicable to all in scope
components included the following:
• Detailed, disaggregated analytical review to identify unusual
trends
• Inquiries of management outside of finance, to identify
instances of late or unusual requests for shipments or
extension of credit terms
• Cut off testing for a sample of revenue transactions near
the period end to check that they were recognised in the
appropriate period
• Targeted manual journal entry testing in response to the risk
of fraud; and
• Review of disclosures against the requirements of IFRS 15
We made enquiries of management as to the existence of
rebate or return arrangements with key customers. We obtained
the listing of all credit notes raised in the year to assess the
completeness of the provision booked.
We selected a sample of rebate and returns provisions. We
validated the inputs for these calculations and for returns
provisions challenged the assumptions and estimations used
by performing hindsight analysis over changes to prior period
estimates and assessed the estimates for management bias. For
rebate provisions we agreed calculations to customer contracts
or agreements.
We performed full and specific scope audit procedures over this
risk area in 6 locations, which covered 96% of the risk amount.
We understood the methodology applied in management’s
impairment testing and walked through the controls over the
process.
We validated that the CGUs identified are the lowest level at
which management monitors goodwill.
We tested the methodology applied in the VIU models,
as compared to the requirements of IAS 36, including the
mathematical accuracy of management’s models.
We validated that the cash flow forecasts used in the valuation are
consistent with information reviewed by the Board. We reviewed
the historical accuracy of management’s forecasts to evaluate
whether forecast cashflows are reliable based on experience.
In conjunction with our valuation specialists, we challenged the
discount rate used by benchmarking it against market data and
comparable organisations.
For all relevant CGUs, we performed sensitivity analyses by stress
testing key assumptions in the model to evaluate the parameters
that, should they arise, would cause an impairment of goodwill or
indicate additional disclosures were appropriate.
We also assessed the adequacy of disclosures in note 14 of the
consolidated financial statements including the disclosure of
sensitivity analysis.
We performed full scope audit procedures over this risk area in
the UK, which covered 100% of the risk amount. All procedures
were performed by the primary team.
Key observations communicated
to the Audit Committee
Based upon the procedures performed,
including those in respect of manual
adjustments to revenue and cut off, we did not
identify any evidence of material misstatement
in the revenue recognised during the year.
Based on the procedures performed, we are
satisfied that the carrying value of goodwill is
materially correct. We consider the disclosure in
the annual report is appropriate, including the
disclosures relating to sensitivity analysis.
65
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Independent Auditor’s Report continued
to the Members of INSPECS Group plc
Risk
Our response to the risk
Valuation of uncertain tax positions
2020: $2.8m (2019: $2.2m)
Refer to the Audit Committee Report
(page 50); Accounting policies (page 76);
and Note 2 of the Consolidated Financial
Statements (page 76)
There are existing transfer pricing and
permanent establishment provisions
recognised in relation to the Killine
Group totalling $2.8m at 31 December
2020. Given the level of judgement and
estimation involved, there is a risk that this
has been valued inappropriately.
In addition, the material acquisitions
in the year mean that there is a risk
that management has not identified all
uncertain tax positions
Accounting for the IPO 2020: $1.3m
share capital raised (2019: $0m)
Refer to the Audit Committee Report
(page 50); Accounting policies (page 76);
and Note 2 of the Consolidated Financial
Statements (page 76)
Upon the IPO taking place in February
2020 the historic C- class shares
and related derivative liability were
extinguished and a share for share
exchange took place between INSPECS
Holdings and INSPECS Group plc There
were also costs that were associated
with the equity listing that were one off
in nature. There is a risk that these non-
routine transactions are not appropriately
accounted for and appropriately
disclosed in the financial statements.
We involved our tax specialists to understand the group’s
process for determining the completeness and measurement of
provisions for tax.
Our tax specialists walked through calculations prepared by
management and validated them for clerical accuracy and
consistency with the requirements of IFRIC 23.
We challenged the assumptions made to calculate the existing
provisions by comparing them to prior year and noting that there
have been no changes in the fact pattern or risk profile.
We had discussions with management’s specialists to understand
their assessment of the tax risks related to the acquisitions.
We considered contradictory evidence by reading reports
prepared as part of the acquisition process and formed our own
view relating to the transfer pricing risk of the acquired group.
We assessed the disclosures made in note 29 of the financial
statements.
We performed full scope audit procedures over this risk area in
the UK, which covered 100% of the risk amount. All procedures
were performed by the primary team
We understood the process undertaken by management to
calculate the accounting entries to be booked in relation to:
• The revaluation of the C- class shares
• The extinguishment of the derivative liability
• The share for share exchange between INSPECS Holdings
and INSPECS Group plc
• The one off costs relating to the equity listing
We critically assessed the accounting treatment followed by
management against the relevant accounting standards and
legislation.
We validated the accounting entries booked to source
documentation including legal documents and bank statements.
We challenged the disclosures in both the group and company
accounts by considering whether they were complete and there
was sufficient disaggregation in the equity notes and company
accounts regarding the transactions taking place in the period.
We performed full scope audit procedures over this risk area in
the UK, which covered 100% of the risk amount. All procedures
were performed by the primary team.
Key observations communicated
to the Audit Committee
Based on the procedures performed, we
consider the amounts provided relating to
uncertain tax positions are reasonable and
complete. We consider the group’s disclosures
are also appropriate.
Based on the procedures performed the
accounting for the IPO is in line with relevant
accounting standards and legislation. We
consider the disclosure of these transactions
in the group and company accounts are also
appropriate.
In the prior year, our auditor’s report included a key audit matter in relation to the valuation of C-class shares. In the current year,
these shares have ceased to exist following the IPO and therefore this is no longer a key audit matter.
66
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the group to be $1,059,000 (2019: $509,000), which is 0.3% of total assets (2019: 5% of profit before tax
and IPO costs.). We believe that total assets provides us with the most appropriate basis for the current year as the focus of the group
has been on using the cash generated from the IPO to fund the acquisitions made in the year. Therefore, the users of the financial
statements are more focused on the balance sheet measure at the year-end, especially given the proximity of the Eschenbach
acquisition to the year-end date. This is a change from the previous year which was based on profit before tax and we expect to
return to a profit based measure for materiality in future years.
We determined materiality for the parent company to be $952,000 (2019: $250,000), which is 0.5% (2019: 1%) of total assets. In the prior
year the parent company of the group was INSPECS Holdings Limited and the comparative amounts relate to that entity. In the current
year the parent company is INSPECS Group plc.
During the course of our audit, we reassessed initial materiality and no changes were made to the basis of materiality.
For components which had been a part of the INSPECS group before the Eschenbach acquisition we calculated a lower materiality
level based upon normalised earnings. This materiality is $509,000 which is based upon the prior year materiality given that 2019 is
determined to be an appropriate representation of normalised earnings for this part of the INSPECS group.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement was that
performance materiality was 50% (2019: 50%) of our planning materiality, namely $530,000 (2019: $257,000). We have set performance
materiality at this percentage due to a high number of corrected and uncorrected misstatements identified in the prior year and the
significant change in the business during the year as a result of the acquisitions.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based
on the relative scale and risk of the component to the group as a whole and our assessment of the risk of misstatement at that
component. In the current year, the range of performance materiality allocated to components was $64,000 to $397,000 (2019:
$102,000 to $229,000).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $53,000 (2019:
$26,000), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting
on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
67
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Independent Auditor’s Report continued
to the Members of INSPECS Group plc
OTHER INFORMATION
The other information comprises the information included in the annual report set out on pages 1 to 57, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a
material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is
a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the strategic report and directors’ report have been prepared in accordance with applicable legal requirements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement set out on page 57, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to
do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
68
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the
company and management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the
most frameworks which are directly relevant to specific assertions in the financial statements are those that relate to the reporting
framework (IFRSs as adopted by the EU, United Kingdom Generally Accepted Accounting Practice and the Companies Act 2006) and
the relevant tax laws and regulations in the jurisdictions in which the group operates.
• We understood how INSPECS Group plc is complying with those frameworks by making enquiries of management, the directors and
those responsible for legal and compliance procedures. We corroborated our inquiries through our review of board minutes, papers
provided to the Audit Committee and attendance at meetings of the Audit Committee as well as consideration of the results of our
audit procedures across the group.
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by
meeting with management from various parts of the business to understand where it is considered there was susceptibility to fraud.
We also considered performance targets and their influence on efforts made by management to manage earnings of influence the
perceptions of investors. We considered the programmes and controls that the group has established to address risks identified,
or that otherwise prevent, deter and detect fraud; and how senior management monitors those programs and controls. Where the
risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included
testing manual journals and were designed to provide reasonable assurance that the financial statements were free from fraud
or error.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our
procedures involved : enquiries of group management and those charged with governance; journal entry testing, with a focus on
manual consolidation journals and journals indicating large or unusual transactions based on our understanding of the business; and
challenging the assumptions and judgements made by management in respect of significant one-off transactions in the financial
year and significant accounting estimates as referred to in the key audit matters section above. At a component level, our full and
specific scope component audit team’s procedures included enquiries of component management; journal entry testing; and
focused testing, including in respect of the key audit matter of revenue recognition. We also leveraged our data analytics platform
in performing our work on the order to cash process to assist in identifying higher risk transactions for testing.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
USE OF OUR REPORT
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
John Howarth (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Bristol
18 June 2021
69
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Consolidated Income Statement
for the year ended 31 December 2020
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Operating (loss)/profit
Non-underlying costs
Negative goodwill on bargain purchase
Movement in derivatives
Exchange adjustment on borrowings
Finance costs
Finance income
Share of profit of associate
(Loss)/profit before income tax
Income tax credit/(charge)
(Loss)/profit for the year
Attributable to:
Equity holders of the Parent
Earnings per share
Basic profit for the year attributable to the equity holders of the Parent
Diluted profit for the year attributable to the equity holders of the Parent
Notes
4
8,11
5
2020
$’000
47,415
(26,893)
2019
$’000
61,247
(33,711)
20,522
27,536
–
(787)
133
(635)
8,11
(22,675)
(19,089)
9
7
30
10
10
17
12
13
13
(2,940)
(5,763)
506
(740)
(382)
(1,880)
36
–
(11,163)
2,250
(8,913)
7,945
(2,827)
–
2,865
715
(1,380)
15
14
7,347
(907)
6,440
(8,913)
6,440
$(0.13)
$(0.13)
$0.12
$0.11
70
Consolidated Statement of Other Comprehensive Income
for the year ended 31 December 2020
(Loss)/profit for the year
Other comprehensive income
Exchange differences on translation of foreign operations
Other comprehensive (loss)/income for the year, net of income tax
Total comprehensive (loss)/income for the year
Attributable to: Equity holders of the parent
The notes on pages 76 to 117 form part of these financial statements.
2020|
$’000
(8,913)
(204)
(204)
(9,117)
(9,117)
2019
$’000
6,440
1
1
6,441
6,441
71
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Consolidated Statement of Financial Position
as at 31 December 2020
ASSETS
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Right-of-use-asset
Investment in associate
Deferred tax
Current assets
Inventories
Trade and other receivables
Tax receivables
Cash and cash equivalents
Total assets
EQUITY
Shareholders’ equity
Called up share capital
Share premium
Foreign currency translation reserve
Share option reserve
Merger reserve
Retained earnings
Total equity
The notes on pages 76 to 117 form part of these financial statements.
Notes
2020
$’000
2019
$’000
14
15
16
25
17
28
18
19
20
21
22
22
22
22
69,087
56,305
22,460
20,379
57
12,995
181,283
59,294
35,648
1,556
32,672
129,170
310,453
1,384
121,940
(99)
867
7,296
14,429
145,817
12,798
17,482
10,320
1,317
53
1,221
43,191
8,715
12,875
–
6,595
28,185
71,376
62
21,628
1,031
2,840
–
5,787
31,348
72
LIABILITIES
Non-current liabilities
Financial liabilities – borrowings
Interest bearing loans and borrowings
Deferred tax
Current liabilities
Trade and other payables
Right of return liabilities
Financial liabilities – borrowings
Interest bearing loans and borrowings
Bank overdrafts
Invoice discounting
Derivatives
Tax payable
Total liabilities
Total equity and liabilities
Notes
2020
$’000
2019
$’000
24
28
23
4
24
24
24
30
29
70,391
24,694
95,085
42,895
12,824
6,830
2,642
–
–
4,360
69,551
164,636
310,453
12,651
2,917
15,568
10,192
476
4,974
93
2,577
3,536
2,612
24,460
40,028
71,376
The notes on pages 76 to 117 form part of these financial statements.
The financial statements were approved by the Board of Directors on 18 June 2021 and were signed on its behalf by:
R B C Totterman
Director
C D Kay
Director
73
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report
Consolidated Statement of Changes in Equity
for the year ended 31 December 2020
Balance at 31 December 2019
21,22
62
21,628
1,031
Notes
21,22
Balance at 1 January 2019
Changes in equity
Profit for the year
Other comprehensive income
Total comprehensive income
Share-based payment
Changes in equity
Loss for the year
Other comprehensive loss
Total comprehensive loss
Issue of share capital
Exercise of share options
Share-based payment
Share for share exchange and creation of
merger reserve
Capital reduction
Balance at 31 December 2020
22
21,22
21,22
22
21,22
22
Called up
share
capital
$’000
Share
premium
$’000
Foreign
currency
translation
reserve
$’000
Share
option
reserve
$’000
Retained
earnings
$’000
Merger
reserve
$’000
62
21,628
1,030
647
(653)
Total
equity
$’000
22,714
6,440
1
6,441
2,193
31,348
(8,913)
(204)
(9,117)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
1
–
–
–
–
–
–
–
603
119,215
99
–
2,725
–
–
(204)
(204)
–
–
–
6,440
–
6,440
–
5,787
(8,913)
–
(8,913)
–
–
–
2,193
2,840
–
–
–
–
–
(22)
119,796
(3,140)
2,973
1,133
–
–
–
2,657
1,133
620
(21,628)
(926)
-
-
1,384
121,940
–
(99)
34
–
(46,902)
68,802
61,484
(61,484)
–
–
867
14,429
7,296
145,817
The notes on pages 76 to 117 form part of these financial statements.
74
Consolidated Statement of Cash Flows
for the year ended 31 December 2020
Cash flows from operating activities
Interest paid
Tax paid
Net cash (used in)/from operating activities
Cash flows from investing activities
Purchase of intangible fixed assets
Purchase of property plant and equipment
Acquisition of subsidiaries, net of cash acquired
Interest received
Net cash used in investing activities
Cash flow from financing activities
Proceeds from the issue of shares
New bank loans in the year
Bank loan principal repayments in year
Repayment of other loans
Transaction costs on debt refinancing
Movement in invoice discounting facility
Principal payments on leases
Net cash (used in)/from financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
The notes on pages 76 to 117 form part of these financial statements.
Notes
27
15
16
7
10
21
24,26
26
26
26
26
20
2020
$’000
403
(1,144)
(7)
(748)
(167)
(2,452)
(101,821)
36
2019
$’000
12,224
(1,609)
(22)
10,593
(161)
(2,763)
–
15
(104,404)
(2,909)
115,761
17,187
(39)
–
(810)
(2,577)
(810)
128,712
23,560
6,502
(32)
30,030
–
628
(4,733)
(72)
–
975
(836)
(4,038)
3,646
2,834
22
6,502
75
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements
for the year ended 31 December 2020
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. On 10 January 2020,
the reporting company incorporated in 2019 acquired the pre-existing INSPECS Holdings Limited in a ‘share for share exchange’
with no change in ultimate ownership. This has been accounted for under the basis of merger accounting given that the ultimate
ownership before and after the transaction remained the same. Merged subsidiaries undertakings are treated as if they had always
been a member of the group. Subsequently, on 27 February 2020 INSPECS Group Limited was re-registered from a private to a public
company with its shares admitted to the AIM of the London Stock Exchange.
The principal activity of the group in the year was that of design, production, sale, marketing and distribution of high fashion eyewear,
lenses and OEM products worldwide. The principal activity of the company was that of a holding company.
2. ACCOUNTING POLICIES
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by
the European Union, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared on a historical cost basis, except for share-based payments that have been
measured at fair value in accordance with IFRS 2 Share-based payments.
The presentational currency for the consolidated and parent company financial statements is the United States Dollar (US$) rounded
to the nearest thousand. The consolidated financial statements provide comparative information in respect of the year ended
31 December 2019.
Going concern
The financial statements have been prepared on the going concern basis as the directors have assessed that there is a reasonable
expectation that the group will be able to continue in operation and meet its commitments as they fall due over the going
concern period.
The group continues to respond well to the challenges associated with the COVID-19 pandemic which did cause disruption to the
business during 2020. This was predominantly experienced in the first half of the year when major distribution hubs and the optical
retail markets were closed except for emergencies as lockdowns were introduced around the globe in response to the pandemic.
During subsequent lockdowns later in the year, the optical retail market was deemed essential which resulted in the group gradually
returning to normal trading levels. For the rest of the year the group was therefore able to trade profitably and generate cash with the
supply chain unaffected.
Looking to the future, the group has performed a going concern review, going out until December 2022, considering both a base case
and a downside case (described below). Having reviewed this forecast and having applied a reverse stress test (also described below),
the possibility that financial headroom could be exhausted, and a covenant could be breached is considered to be remote.
The base case assumes COVID-19 related restrictions consistent with those in place in January 2021 remain for the duration of 2021
with normal trading resuming in 2022, results in a 10% year on year increase to sales. The restrictions in place at this time restricted
a return to office working, reduced footfall on the high streets and reductions in non-prescription sales as a result of the continuing
closure of airports and non-essential retail. The base case also assumes no cash flow mitigations are actioned during the period
covered by the going concern review.
The downside case assumes the same restriction remain as in the base case but with a 10% reduction in sales from April 2021
compared to the base case, and these same restrictions also being in place during 2022. In this scenario we also assumed some cost
saving measures being implemented at a conservative level. These measures are consistent with those which were implemented in
2020 and which we therefore know the group can achieve and relate to reductions in factory overheads.
The directors consider the main risks to going concern to be liquidity and compliance with covenants, and so have performed a
reverse stress test which incorporates the breach of the covenant. The group would breach a covenant before it runs out of cash
in any scenario.
The group’s borrowings with HSBC, amounting to $35.0m, contains two covenants being one leverage ratio and one interest
cover ratio. Compliance with these covenants is based on 12 month rolling EBITDA results and 12 month rolling interest payments
respectively. In addition, the newly acquired Eschenbach group has covenants relating to equity ration, leverage ratio and EBITDA.
These covenants are less sensitive than the HSBC covenants and the group would be able to repay these loans before a covenant
breach using available cash. The group has the ability to transfer cash across different group entities as needed.
76
In order for the business to breach one of the HSBC covenants, the reverse stress test requires that, after implementing all available
mitigating scenarios, there is a 22% reduction to the sales forecasted in the base case from April 2021 through to December 2022
along with a 4% drop in gross margin. This scenario also factors in full repayment of all borrowings aside from the HSBC facility and
settlement of an uncertain tax position at the highest possible range.
This scenario would see the group breach the leverage ratio covenant test resulting in the total borrowed amount becoming payable
on demand. In this case, cash flow mitigations would be implemented, mostly reductions in discretionary spending and changes
to supplier payment timings which are based on the group’s previous ability to implement such steps. The directors believe that
this scenario is remote as a result of the historic evidence gained from our performance during 2020, which was a year impacted
significantly by COVID-19. Throughout 2020 the group’s cash collections have remained strong, with bad debt write offs similar to a
usual year. In the current year to date the group is trading ahead of budget and cash collections remain strong.
Therefore, the directors are confident in the ongoing resilience of the group, and its ability to continue in operation and meet its
commitments as they fall due over the going concern period. Accordingly, the directors adopt the going concern basis in preparing
the financial statements.
Basis of consolidation
The consolidated financial information incorporates the financial statements of the group and all of its subsidiary undertakings.
The financial statements of all group companies are adjusted, where necessary, to ensure the use of consistent accounting policies.
Acquisitions are accounted for under the acquisition method from the date control passes to the group. On acquisition, the assets and
liabilities of a subsidiary are measured at their fair values. Any excess of the cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill.
Business combination and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the
acquiree. Acquisition-related costs are expensed as incurred.
When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised
for non-controlling interests and any previous interest held 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. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group’s cash-generating units
that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to
those units.
Investment in associated undertaking
An associate is an entity over which the group has significant influence. Significant influence is the power to participate in the financial
and operating policy decisions of the investee but is not in control or joint control over those policies.
The considerations made in determining significant influence or joint controls are similar to those necessary to determine control over
subsidiaries. The group’s investment in its associate is accounted for using the equity method.
Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is
adjusted to recognise changes in the group’s share of net assets of the associate since the acquisition date.
The income statement reflects the group’s share of the results of operations of the associate. Any change in OCI of those investees is
presented as part of the group’s OCI.
The aggregate of the group’s share of profit or loss of an associate is shown on the face of the income statement outside operating
profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate.
The financial statement of the associate is prepared for the same reporting period as the group. When necessary, adjustments are
made to bring the accounting policies in line with those of the group.
77
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
2. ACCOUNTING POLICIES CONTINUED
Investment in associated undertaking continued
After application of the equity method, the group determines whether it is necessary to recognise an impairment loss on its investment
in its associate. At each reporting date, the group determines whether there is objective evidence that the investment in the associate
is impaired. If there is such evidence, the group calculates the amount of impairment as the difference between the recoverable
amount of the associate and its carrying value, and then recognises the loss within ‘Share of profit of an associate’ in the income
statement.
Upon loss of significant influence over the associate, the group measures and recognises any retained investment at its fair value. Any
difference between the carrying amount of the associate upon loss of significant influence or joint control and the fair value of the
retained investment and proceeds from disposal is recognised in profit or loss.
Current and non-current classifications
The group presents assets and liabilities in the statement of financial position based on current/non-current classification.
An asset is considered current when it is:
• Expected to be realised or intended to be sold or consumed within the usual parameters of trading activity and as a minimum
within 12 months after the reporting period;
Or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the
reporting period.
The group classifies all other assets as non-current.
A liability is current when:
• It is expected to be settled in the normal parameters of trading activity and as a minimum is due to be settled within 12 months
after the reporting period;
Or
• There is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period.
The group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
Revenue recognition
Revenue from the sales of goods is recognised at the point in time when control of the asset is transferred to the customer, generally
on delivery of the goods. Revenue is recognised at the fair value of the consideration received or receivable for sale of goods to
external customers in the ordinary nature of the business. The fair value of the consideration takes into account trade discounts,
settlement discounts, volume rebates and the right of return.
Rights of return
Under IFRS 15 a sale with right of return is recognised if the customer receives any combination of the following:
• A full or partial refund of any consideration paid;
• A credit that can be applied against amounts owed, or that will be owed, to the entity; and
• Another product in exchange.
The group includes within the liability arrangements where the group has historically accepted a right to return with the combination
of a credit being applied against amounts owed or where another product is offered in exchange. This includes returns that are as a
result of quality issues, whereby a replacement is provided to the customer free of charge. 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.
78
Intangible assets (other than goodwill)
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortisation and accumulated impairment losses. Internally generated intangibles are not capitalised and the related
expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with
a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern
of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is
recognised in the profit or loss in the expense category that is consistent with the function of the intangible assets.
An intangible asset is derecognised upon disposal (i.e. at the date the recipient obtains control) or when no future economic benefits
are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss.
Amortisation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
Patents and licences
1–4 years
Computer software
Trademarks
3 years
5 years
Customer relationships
10–20 years
Customer order book
6 months
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of
property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working
condition and location for its intended use.
Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is
charged to profit or loss in the period in which it is incurred. In situations when it is probable that future economic benefits associated
with the item will flow to the group and the cost can be measured reliably then the expenditure for a major inspection is capitalised
in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be
replaced at intervals, the group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
Freehold Property
over 33 years
Leasehold Improvements over the lease term
Fixtures and Fittings
over 5 years
Computer Equipment
over 3–5 years
Plant and Machinery
over 3–7 years
Construction in Progress is not depreciated
The carrying values of property plant and equipment are reviewed for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable.
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable
basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed,
and adjusted if appropriate, at least at each financial year-end.
An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in profit or loss in
the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.
79
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report
Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
2. ACCOUNTING POLICIES CONTINUED
Leases
The group applied a single recognition and measurement approach for all leases for which it is the lessee, except for short-term leases
and leases of low-value assets. The group recognises right-of-use assets representing the right to use the underlying assets and lease
liabilities to make lease payments.
Right-of-use asset
The group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for
use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of
the lease term and the estimated useful lives of the assets, as follows:
Leasehold Property
over 2–5 years
Plant and Machinery
over 3 years
Motor vehicles
over 3 years
Lease liabilities
At the commencement date of the lease, the group recognises lease liabilities measured at the present value of lease payments to be
made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives
receivable. They also include any amounts expected to be paid under residual value guarantees.
In calculating the present value of lease payments, the group uses its incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities
is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments or a change in the
assessment of an option to purchase the underlying asset.
The group’s lease liabilities are included in interest-bearing loans and borrowings.
The group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e. those leases
that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the
lease of low-value assets recognition exemption to leases of office equipment that is considered to be low value. Lease payments on
short-term leases and leases of low-value assets are recognised as expenses on a straight-line basis over the lease term.
Inventories
Inventories are stated at the lower of cost and estimated selling price less costs to sell after making due allowance for obsolete and
slow-moving items. Inventories are recognised as an expense in the period in which the related revenue is generated.
Cost is determined on an average cost basis. Cost includes the purchase price and other directly attributable costs to bring the
inventory to its present location and condition.
At the end of each period, inventories are assessed for impairment. If an item of inventory is impaired, the identified inventory is
reduced to its selling price less costs to complete and sell and an impairment charge is recognised in the income statement.
Royalties
Royalties payable reflect balances owed to brand owners for the right to use the brand name. The royalty is payable based on a pre-
agreed percentage of sales volumes, with some arrangements also having minimum royalty payments for specific periods. Royalties
payable are recognised on delivery of the products covered by such arrangements, with an additional accrual made where it is
considered that the sales level required to meet the minimum payment will not be met.
80
Financial instruments – initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of
another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified at initial recognition and subsequently measured at amortised cost.
Subsequent measurement
For purposes of subsequent measurement, the financial assets of the group are classified as financial assets at amortised cost (debt
instruments).
Financial assets at amortised cost (debt instruments)
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment.
Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The group’s financial assets at amortised cost includes trade receivables, other receivables and loans to group undertakings.
The group does not have any financial assets at fair value through OCI or financial assets at fair value through profit or loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily
derecognised (i.e. removed from the group’s consolidated statement of financial position) when the rights to receive cash
flows from the asset have expired.
When the group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it
evaluates if, and to what extent, it has retained the risks and rewards of ownership.
When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the
asset, the group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the group also
recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights
and obligations that the group has retained.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings
or payables, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly
attributable transaction costs.
The group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
• Financial liabilities at fair value through profit or loss.
• Financial liabilities at amortised cost (loans and borrowings).
As at 31 December 2020, the group has not designated any financial liability as at fair value through profit or loss. As at 31 December
2019, options to subscribe for C equity shares were held as derivatives with the movement in fair value passing through profit or loss,
with this liability being settled during the current year.
Financial liabilities at amortised cost (loans and borrowings)
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method.
Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included as finance costs in the income statement. This category generally applies to interest-
bearing loans and borrowings.
81
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
2. ACCOUNTING POLICIES CONTINUED
Financial instruments – initial recognition and subsequent measurement continued
Financial liabilities continued
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing
financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition
of a new liability. The difference in the respective carrying amounts is recognised in the income statement.
Refinancing
Where a loan arrangement is replaced with a subsequent facility which is materially different in relation to repayment structure or
interest rate, any capitalised loan arrangement fees in respect of the previous loan are expensed, with transaction costs relating to the
new loan capitalised and held against the value of the related liability.
Impairment of financial assets
The group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or
loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows
that the group expects to receive.
For trade receivables and contract assets, the group applies a simplified approach in calculating ECLs. Therefore, the group does not
track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date.
The group considers a financial asset in default when internal or external information indicates that the group is unlikely to receive the
outstanding contractual amounts in full before taking into account any credit enhancements held by the group. A financial asset is
written off when there is no reasonable expectation of recovering the contractual cash flows.
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits,
and short-term highly liquid investments that are readily convertible into known amounts of cash, that are subject to an insignificant
risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are
repayable on demand and form an integral part of the group’s cash management.
For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks,
including term deposits, and assets similar in nature to cash, which are not restricted as to use.
Classification of shares as debt or equity instruments
Financial instruments issued by the group are classified as equity only to the extent that they do not meet the definition of a financial
liability. An equity instrument is a contract that evidences a residual interest in assets or an entity after deducting all its liabilities.
Accordingly, a financial instrument is treated as equity if:
• there is no contractual obligation to delivery cash or other financial assets or to exchange financial assets or liabilities on terms that
may be unfavourable; and
• the instrument is a non-derivative that contains no contractual obligation to deliver a variable number of shares or is a derivative
that will be settled only by the company exchanging a fixed amount of cash or other assets for a fixed number of the company’s own
equity instruments.
Costs associated with the issue or sale of equity instruments are allocated against equity to the extent that the issue is a new issue, or
expensed to the profit and loss for existing equity instruments.
Share-based payments
Employees (including senior executives) of the group receive remuneration in the form of share-based payments, whereby employees
render services as consideration for equity instruments (equity-settled transactions).
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate
valuation model, further details of which are given in the detailed notes to the accounts. That cost is recognised in employee benefits
expense together with a corresponding increase in share option reserve, over the period in which the service and, where applicable,
the performance conditions are fulfilled (the vesting period).
82
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent
to which the vesting period has expired and the group’s best estimate of the number of equity instruments that will ultimately vest.
The expense or credit in the income statement for a period represents the movement in cumulative expense recognised as at the
beginning and end of that period.
Service performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood
of the conditions being met is assessed as part of the group’s best estimate of the number of equity instruments that will ultimately
vest. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting
conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless
there are also service and/or performance conditions.
No expense is recognised for awards that do not ultimately vest because service conditions have not been met. Where awards include
a non-vesting condition, the transactions are treated as vested irrespective of whether the non-vesting condition is satisfied, provided
that all other performance and/or service conditions are satisfied.
If the terms of an equity-settled award are modified, the minimum expense recognised is the grant date fair value of the unmodified
award provided the original vesting terms of the award are met. An additional expense, measured as at the date of modification, is
recognised for any modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to
the employee. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is
expensed immediately through profit or loss. The dilutive effect of outstanding options is reflected as additional share dilution in the
computation of diluted earnings per share, to the extent that they are dilutive.
Taxation
Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside
profit or loss, either in other comprehensive income or directly in equity.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities,
based on the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into
consideration interpretations and practices prevailing in the countries in which the group operates.
Tax liabilities are recognised when it is considered probable that there will be a future outflow of funds to a taxing authority.
Uncertainties regarding availability of tax losses, in respect of enquiries raised and additional tax measurements issued, may be
measured using the expected value method or single best estimate approach, depending on the nature of the uncertainty. Tax
provisions are based on management’s interpretation of country-specific tax law and the likelihood of settlement. Management uses
professional firms and previous experience when assessing tax risks.
Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all
taxable temporary differences, except:
• when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused
tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences, the carryover of unused tax credits and unused tax losses can be utilised, except:
• when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
• in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised
to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be
available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable
that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.
83
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
2. ACCOUNTING POLICIES CONTINUED
Taxation continued
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if and only if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to income taxes levied by the same taxation authority on either the same
taxable entity and the same taxation authority or different taxable entities which intend either to settle current tax liabilities and assets
on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of
deferred tax liabilities or assets are expected to be settled or recovered.
Foreign currencies
These financial statements are presented in US$, 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 US$ for presentation, the assets and liabilities of the consolidated entity
are translated into US$ at the exchange rates prevailing at the end of the reporting period and the income statement is translated
into US$ 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 exchange
rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the period
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.
84
Non-underlying items
Non-underlying items are those that in the directors’ view should be separately disclosed due to their nature to enable a full
understanding of the group’s financial performance.
New and amended standards and interpretations
Amendments to IFRS 16 COVID-19-Related Rent Concessions
On 28 May 2020, the IASB issued COVID-19-Related Rent Concessions - amendment to IFRS 16 Leases. The amendments provide relief
to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of
the COVID-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a COVID-19 related rent concession from a
lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the COVID-19
related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification. The
amendment applies to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted. This amendment
had no impact on the consolidated financial statements of the group.
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 2020 was $68,088,000 (2019: $12,798,000). No provision for
impairment of goodwill was made as at the end of the reporting period. See note 14 for further details.
Impairment of intangible assets
The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the
carrying amount may not be recoverable in accordance with the accounting policies as disclosed in the financial statements. The
recoverable amount is the higher of its fair value less costs of disposal and its value in use, the calculations of which involve the use of
estimates about the future cash flows generated by each asset or the relevant cash-generating units to which the asset belongs. When
value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating
unit and choose a suitable discount rate in order to calculate the present value of those cash flows. Further details in relation to
impairment tests completed in the current year are given in note 15.
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. Further details
are given in note 29.
85
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY CONTINUED
Judgements made by management which are considered to have a material impact on the financial statements are as follows:
Recognition of intangible assets
In recognising the intangible assets arising on acquisition of subsidiary entities, the intangible assets must first be identified. This
requires management judgement as to the value drivers of the acquired business and its interaction with the marketplace and
stakeholders. In calculating the fair value of the identified assets, management must use judgement to identify an appropriate
calculation technique and use estimates in deriving appropriate forecasts and discount rates as required. Management have used
external experts to mitigate the risk of these judgements and estimates on the intangible assets identified and valued.
Deferred tax
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against
which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that
can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies.
See note 29 for further details.
4. REVENUE
The revenue of the group is attributable to the one principal activity of the group.
a) Geographical analysis
The group’s revenue by destination is split in the following geographic areas:
United Kingdom
Europe (excluding UK)
North America
South America
Asia
Australia
2020
$’000
14,014
14,097
12,040
450
4,032
2,782
47,415
2019
$’000
15,242
18,657
16,038
975
6,187
4,148
61,247
In the year ended 31 December 2020, the group had one customer which accounted for more than 10% of the group’s revenues.
The revenue generated from this customer was $9,483,000 (2019: $11,289,000). The revenue from this customer is generated across
all segments as identified in note 6.
b) Right of return assets and liabilities
Right of return asset
Right of return liability
2020
$’000
1,967
(12,824)
2019
$’000
96
(476)
The right of return asset is presented as a component of inventory (note 18) and the right of return liability is presented separately on
the face of the balance sheet.
86
5. OTHER INCOME
Royalty income
Sundry income
2020
$’000
–
–
–
2019
$’000
62
71
133
Royalty income relates to remuneration received from customers for the design of concept frames. Sundry income in 2019 relates to
income from an insurance claim.
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 (previously Branded) product distribution.
• Wholesale – being OEM and manufacturing distribution.
• Lenses – being manufacturing and distribution of lenses.
The acquisition of Norville (20/20) Limited during 2020 (see note 7) has led to an additional operating and reporting segment
of ‘Lenses’ in 2020. In addition, the acquisition of Eschenbach Holdings GmbH (see note 7) has resulted in a change to the
‘Branded’ reporting segment, to form the ‘Frames and Optics’ reporting segment of which Eschenbach is a part during the year
to 31 December 2020.
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.
87
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
6. SEGMENT INFORMATION CONTINUED
The reportable segments subject to disclosure are consistent with the organisational model adopted by the group during the financial
year ended 31 December 2020 and are as follows:
Frames and
Optics
$’000
Wholesale
$’000
Lenses
$’000
Total before
adjustments
& eliminations
$’000
Adjustments
& eliminations
$’000
Total
$’000
21,259
2,204
23,463
21,979
2,381
24,360
4,177
59
4,236
47,415
4,644
52,059
–
47,415
(4,644)
(4,644)
–
47,415
(14,987)
(13,678)
(2,203)
(30,868)
3,975
(26,893)
8,476
10,682
2,033
21,191
(669)
20,522
(12,898)
(636)
(514)
(5,572)
(5,594)
(1,422)
(1,093)
2,573
(1,634)
(20,126)
570
(19,556)
(241)
–
158
(2,299)
(1,607)
(2,841)
–
–
(99)
(2,299)
(1,607)
(2,940)
(382)
(740)
(5,763)
506
(1,880)
36
–
2,250
(8,913)
401,874
(304,479)
72,021
(6,809)
7,409
481,304
(183,846)
297,458
(6,185)
(317,473)
259,112
(58,361)
12,995
(4,360)
(24,694)
(77,221)
145,817
203
1,864
736
2,803
–
2,803
Revenue
External
Internal
Cost of sales
Gross profit
Expenses
Depreciation
Amortisation
Operating (loss)/profit
Exchange adjustment on borrowings
Movement in derivatives
Non-underlying costs
Negative goodwill on bargain purchase
Finance costs
Finance income
Share of profit of associate
Taxation
Loss for the year
Total assets
Total liabilities
Deferred tax asset
Current tax liability
Deferred tax liability
Borrowings
Group net assets
Other disclosures
Capital additions
88
The reportable segments subject to disclosure are consistent with the organisational model adopted by the group during the financial
year ended 31 December 2019 and are as follows:
Revenue
External
Internal
Cost of sales
Gross profit
Expenses
Other income
Depreciation
Amortisation
Operating profit
Exchange adjustment on borrowings
Movement in derivatives
Non-underlying costs – Initial public offering
Finance costs
Finance income
Share of profit of associate
Taxation
Profit for the year
Total assets
Total liabilities
Deferred tax asset
Current tax liability
Deferred tax liability
Derivative liability
Borrowings
Group net assets
Other disclosures
Capital additions
Branded
$’000
Wholesale
$’000
Total before
adjustments &
eliminations
$’000
Adjustments &
eliminations
$’000
27,729
2,175
29,905
(18,723)
33,518
3,256
36,773
(20,194)
61,247
5,431
66,678
(38,917)
11,182
16,579
27,761
(9,772)
35
(417)
(18)
1,010
(6,743)
98
(1,620)
(1,070)
7,244
(16,515)
133
(2,037)
(1,088)
8,254
–
(5,431)
(5,431)
5,206
(225)
(84)
–
–
–
(309)
56,815
(42,618)
14,197
66,018
(4,676)
61,342
122,833
(47,294)
75,539
(52,678)
33,956
(18,722)
Total
$’000
61,247
–
61,247
(33,711)
27,536
(16,599)
133
(2,037)
(1,088)
7,945
715
2,865
(2,827)
(1,380)
15
14
(907)
6,440
70,155
(13,338)
56,817
1,221
(2,612)
(2,917)
(3,536)
(17,625)
31,348
143
2,782
2,924
–
2,924
Total assets are the group’s gross assets excluding deferred tax asset. Total liabilities are the group’s gross liabilities excluding loans
and borrowings, current and deferred tax liabilities and derivative liabilities.
Non-underlying costs, as well as net finance costs and taxation are not allocated to individual segments as they relate to group-wide
activities as opposed to individual reporting segments.
89
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report
Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
6. SEGMENT INFORMATION CONTINUED
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
United Kingdom
Europe
North America
Asia
2020
$’000
3,256
112,848
10,686
41,441
168,231
2019
$’000
5,410
183
150
36,175
41,918
Non-current assets for this purpose consist of property, plant and equipment, right-of-use assets, goodwill and intangible assets.
7. BUSINESS COMBINATIONS
Acquisition of Norville (20/20) Limited
Norville (20/20) Limited was incorporated on 10 July 2020 with INSPECS Limited as its immediate parent. On 13 July 2020 this entity
acquired assets of The Norville Group Ltd (in administration) for a cash consideration of $3,027,000 from the Administrators. As the
total fair value of the net assets acquired of $3,523,000 exceeds the initial consideration of $3,027,000 the gain on the bargain purchase
of $506,000 has been recognised in profit and loss at the acquisition date.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Norville (20/20) Limited as at the date of acquisitions were:
Assets
Property, plant and equipment
Inventories
Total identifiable assets at fair value
Liabilities
Deferred tax liability
Total identifiable liabilities at fair value
Total identifiable net assets at fair value
Negative goodwill arising on acquisition
Foreign exchange on consolidation
Purchase consideration transferred
90
Fair value recognised
on acquisition
$000
1,931
2,070
4,001
(478)
(478)
3,523
(506)
10
3,027
Under UK tax legislation, a gain on bargain purchase is taxable to the extent that it relates to the bargain purchase of intangible fixed
assets. After review there was no fair value assigned to the intangible assets acquired, therefore none of the goodwill arising from the
bargain purchase is expected to be taxable for income tax purposes.
From the date of acquisition, Norville (20/20) Limited contributed $4,236,000 of revenue and a profit of $664,000 to the group loss
before tax from continuing operations. Norville (20/20) Limited was not trading prior to its acquisition by the group.
Transaction costs of $123,000 were expensed and are included within ‘Non-underlying costs – Acquisitions’.
Acquisition of Eschenbach Holdings GmbH
On 16 December 2020, INSPECS Limited acquired the entire share capital of Eschenbach Holdings GmbH and its subsidiaries,
for a cash consideration of $115,496,000. Eschenbach held shareholder loans which were purchased at fair value, with the residual
consideration for the remaining net assets of Eschenbach.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Eschenbach Holdings GmbH as at the date of acquisitions were:
Assets
Property, plant and equipment
Intangible assets
Right-of-use asset
Cash and cash equivalents
Trade and other receivables
Tax receivable
Inventories
Deferred tax assets
Total identifiable assets at fair value
Liabilities
Trade and other payables
Interest bearing loans and borrowings
Overdraft
Lease liability
Income tax payable
Deferred tax liability
Total identifiable liabilities at fair value
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase consideration transferred
Fair value recognised
on acquisition
$000
8,466
39,407
19,552
19,322
24,477
2,452
48,343
9,174
171,193
44,623
21,462
2,620
19,552
1,341
21,199
110,797
60,396
55,100
115,496
From the date of acquisition, Eschenbach Holdings GmbH contributed $2,881,000 of revenue and $(1,999,000) to loss before tax from
continuing operations. If the combination had taken place at the beginning of the year, revenue from continuing operations for the
group would have been $186,817,000 and loss before tax from continuing operations for the group would have been $(7,424,000).
Transaction costs of $2,931,000 were expensed and are included within ‘Non-underlying costs – Acquisitions’.
91
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report
Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
7. BUSINESS COMBINATIONS CONTINUED
Analysis of cash flows on acquisitions
The combined impact on cash flow of the two acquisitions made during the year was as follows:
Consideration for Norville (20/20) Limited
Consideration for Eschenbach Holdings GmbH
Acquired with Eschenbach Holdings GmbH:
Cash and cash equivalents
Overdraft
Net cash flow on acquisition
8. EMPLOYEES AND DIRECTORS
Included in cost of sales
Wages and salaries
Social security costs
Pension costs
Included in administration costs
Wages and salaries
Social security costs
Pension costs
Share-based payment expense
The average number of employees during the year was as follows:
Administration
Selling and operations
Production
92
$’000
(3,027)
(115,496)
19,322
(2,620)
(101,821)
2019
$’000
4,329
96
8
4,434
9,268
580
162
1,917
11,926
2020
$’000
4,899
102
39
5,040
8,238
955
360
1,706
11,259
16,299
16,360
2020
153
72
873
1,098
2019
176
54
992
1,222
Directors’ remuneration during the year was as follows:
Directors’ salaries
Directors’ pension contributions
Share options
Information regarding the highest paid director is as follows:
Total remuneration
2020
$’000
455
33
159
647
2020
$’000
311
2019
$’000
1,148
3
539
1,690
2019
$’000
792
The number of directors to whom employer pension contributions were made by the group during year is 2 (2019: 2). This was in the
form of a defined contribution pension scheme.
Further information about the remuneration of individual directors is provided in the Remuneration and Nomination Committee
Report on pages 52 and 53.
9. NON-UNDERLYING COSTS
Non-underlying items are those that in the directors’ view should be separately disclosed by virtue of their size, nature or incidence
to enable a full understanding of the group’s financial performance in the year and business trends over time. Non-underlying costs
incurred during the year are as follows:
Initial public offering
Acquisitions
2020
$’000
2,709
3,054
5,763
2019
$’000
2,827
–
2,827
On 27 February 2020, INSPECS Group plc was admitted to the AIM of the London Stock Exchange. In relation to this, costs of
$2,709,000 (2019: $2,827,000) were incurred through the Income Statement in relation to the listing of existing shares.
Acquisition costs of $123,000 and $2,931,000 were incurred during the period relating to the purchase of Norville (20/20) Limited
and Eschenbach Holdings GmbH respectively (see note 7).
93
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
10. FINANCE COSTS AND FINANCE INCOME
Finance costs
Bank loan interest
Other loan interest
Invoice discounting interest and charges
Loan transaction costs
Lease interest
Total finance costs
Finance income
Interest receivable
11. PROFIT BEFORE INCOME TAX
The profit before income tax is stated after charging/(crediting):
Cost of inventories recognised as expense
Short term leases
Depreciation own assets (note 16)
Depreciation – Right-of-use assets (note 25)
Amortisation – Intangibles (note 15)
Restructuring costs
Post acquisition insurance costs
Foreign exchange on funding for acquisitions
Other foreign exchange differences
Fees payable to the company’s auditor for audit services:
Audit of the company and group accounts
Audit of the subsidiaries
Fees payable to the company’s auditor for non-audit services:
Costs associated with IPO
IFRS conversion costs
Tax services
94
2020
$’000
516
39
50
1,249
26
1,880
2019
$’000
930
92
41
286
31
1,380
36
15
2020
$’000
21,045
83
1,539
760
1,607
185
563
1,085
305
2020
$’000
26
1,213
285
–
–
2019
$’000
21,579
200
1,301
736
1,088
–
–
–
(623)
2019
$’000
20
644
1,229
232
33
12. INCOME TAX
Analysis of tax expense
Current tax:
Current tax on profits for the year
Overseas current tax expense
Adjustment re prior years
Total current tax
Deferred tax: (see note 28)
Deferred tax income relating to the origination and reversal of timing differences
Effect of changes in tax rates
Total deferred tax
Total tax expense reported in the consolidated income statement
2020
$’000
2019
$’000
24
208
–
232
(2,478)
(4)
(2,482)
(2,250)
485
453
12
950
(43)
–
(43)
907
Factors affecting the tax expense
The tax assessed for the year is (higher)/lower than the standard rate of corporation tax in the UK. The difference is explained below:
(Loss)/profit before income tax
(Loss)/profit multiplied by standard rate of corporation tax in the UK of 19.00% (2019: 19.00%)
Effects of:
Non-deductible expenses – Amortisation of intangible assets
Non-deductible expenses – Other expenses
Increase in provision for uncertain tax liabilities
Income taxed in nil rate regime
Share-based payment
Different tax rate for overseas subsidiaries
Transfer pricing adjustments
Tax rate changes
Income not taxable
Effects of group relief
Amounts not recognised on deferred tax
Adjustments in respect of prior year
Tax expense
2020
$’000
(11,163)
(2,121)
184
1,622
381
(404)
(1,924)
(84)
51
(4)
(176)
70
155
–
(2,250)
2019
$’000
7,347
1,396
183
(42)
463
(1,222)
42
59
6
(54)
–
–
–
76
907
Income not taxable for tax purposes relates to income generated in jurisdictions within which there is a nil taxation rate. Movements in
other comprehensive relating to foreign exchange on consolidation are not taxable.
95
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
13. 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 2020. In accordance with IAS33, 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. The comparative figure has been adjusted for the
impact of the subdivision of shares and the share for share exchange as discussed in note 21, as if these shares had always been in issue
to allow comparability. Basic earnings per share is therefore $(0.13) loss (2019: $0.12 profit), with diluted earnings per share $(0.13) loss
(2019: $0.11 profit).
The following table reflects the income and share data used in the basic and diluted EPS calculations:
ORDINARY SHARES
Loss attributable to the ordinary equity
holders of the Parent for basic earnings
Weighted average number of Ordinary Shares for basic EPS
Effect of dilution from:
Share options
Weighted average number of Ordinary Shares adjusted
for the effect of dilution where appropriate
B ORDINARY SHARES
Profit attributable to the ordinary equity holders of the Parent for basic earnings
Weighted average number of Ordinary Shares for basic EPS
Effect of dilution from:
Share options
Weighted average number of Ordinary Shares adjusted
for the effect of dilution where appropriate
C ORDINARY SHARES
Profit attributable to the ordinary equity holders of the Parent for basic earnings
Weighted average number of Ordinary Shares for basic EPS
Effect of dilution from:
Share options
Weighted average number of Ordinary Shares adjusted
for the effect of dilution where appropriate
2020
$’000
(8,913)
2019
$’000
–
Number of shares
Number of shares
69,227,355
31,301,362
–
5,771,538
69,227,355
37,072,900
2020
$’000
–
2019
$’000
6,440
Number of shares
Number of shares
–
–
–
2020
$’000
–
18,597,160
–
18,597,160
2019
$’000
–
Number of shares
Number of shares
–
–
–
4,120,950
–
4,120,950
Refer to note 21 for details in relation to the shares in issue and their rights, and changes in the equity structure during the year.
96
14. GOODWILL
Group
COST
At 1 January 2020
Additions
Exchange adjustment
At 31 December 2020
NET BOOK VALUE
At 31 December 2020
COST
At 1 January 2019
Exchange adjustment
At 31 December 2019
NET BOOK VALUE
At 31 December 2019
$’000
12,798
55,100
1,189
69,087
69,087
12,394
404
12,798
12,798
Impairment testing of goodwill
Goodwill acquired through business combinations has been allocated to the Cash-generating Unit of Twenty20 Limited ($13,002,000
as at 31 December 2020), Eschenbach Group GmbH ($55,825,000 as at 31 December 2020) and INSPECS Limited ($237,000 as at
31 December 2020) for impairment testing.
Twenty20 Limited
The recoverable amount of the cash-generating unit has been determined based on a value in use calculation using cash flow
projections based on financial budgets covering a five-year period approved by senior management.
The discount rate applied to the cash flow projections was 8.9% plus a 5.0% company specific risk premium and cash flows beyond
the five-year period were extrapolated using a growth rate of 2% in perpetuity. Based on management’s assessment there is no
impairment adjustment required on goodwill.
To recognise an impairment provision, the discount rate would have to exceed 27.0%.
To recognise an impairment provision the cash flow into perpetuity would need to be discounted by 49% with the applicable discount
rate for the five-year period to 2025 remaining at 13.9%
INSPECS Limited
The recoverable amount of the cash-generating unit has been determined based on a value in use calculation using cash flow
projections based on financial budgets covering a five-year period approved by senior management.
The discount rate applied to the cash flow projections was 7.5% and cash flows beyond the five-year period were extrapolated using
a growth rate of 2% in perpetuity. Based on management’s assessment there is no impairment adjustment required on goodwill.
To recognise an impairment provision, the company would have cash flows only for a three-year period and have a discount rate
at 12.4%.
To recognise an impairment provision the CGU’s revenue would have no growth for the five-year period with the applicable discount
rate at 73.3%.
To recognise an impairment on discount rate alone, the rate would need to increase to 78.7%.
97
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
14. GOODWILL CONTINUED
Impairment testing of goodwill continued
Eschenbach Holdings GmbH
The recoverable amount of the cash-generating unit has been determined based on a value in use calculation using cash flow
projections based on financial budgets covering a five-year period approved by senior management.
The discount rate applied to the cash flow projections was 14.7% and cash flows beyond the five-year period were extrapolated using a
growth rate of 2% in perpetuity. Based on management’s assessment there is no impairment adjustment required on goodwill.
To recognise an impairment provision the CGU’s revenue would have no growth for the five-year period with the applicable discount
rate at 11.6%.
To recognise an impairment on discount rate alone, the rate would need to increase to 16.9%.
Assumptions were used in the value in use calculation of the cash-generating unit for the year ended 31 December 2020. These are
detailed as follows:
Forecasted revenue and results of operations
The forecasts for 2021 have been prepared assuming the COVID-19 restrictions that were in place in January 2021 continue through
2021 with a resumption to normal trading in 2022. The COVID-19 restrictions in place at the time led to a reduced footfall on the high
street and non-prescription eyewear sales were reduced by continuing closure of airports and non-essential retail. Financial years
2023 to 2025 were forecasted assuming a 7% increase in turnover based on synergies within the expanding Group of companies.
Management have assumed a constant gross profit margin and increased administration expenses by 5% per annum (3% above the
expected rate of inflation). From 2025 onwards we have assumed a 2% terminal growth rate.
Discount rate
The discount rate used is before tax and reflects specific risks relating to the cash-generating unit.
Business environment
No major changes have occurred in the existing political, legal and economic conditions in those locations in which the cash-
generating unit operates.
15. INTANGIBLE ASSETS
Group
COST
At 1 January 2020
Acquisition of a subsidiary
Additions
Disposals
Exchange differences
At 31 December 2020
AMORTISATION
At 1 January 2020
Amortisation for the year
Disposals
Exchange differences
At 31 December 2020
NET BOOK VALUE
Patents and
licences
$’000
Customer
relationships
$’000
Trademarks
$’000
Customer
order book
$’000
Computer
software
$’000
233
11
92
–
(14)
322
128
59
–
(7)
180
19,909
18,849
–
–
2,516
41,274
2,904
1,127
–
1,818
5,849
–
18,637
–
–
151
18,788
–
291
–
19
310
1,582
68
–
(1,640)
58
68
1,582
5
(1,640)
58
5
63
Totals
$’000
22,429
39,407
167
(1,640)
2,739
63,102
4,947
1,607
(1,640)
1,883
6,797
705
1,842
75
–
28
2,650
333
125
–
(5)
453
At 31 December 2020
142
35,425
18,478
98
2,197
56,305
COST
At 1 January 2019
Additions
Exchange differences
At 31 December 2019
AMORTISATION
At 1 January 2019
Amortisation for the year
Exchange differences
At 31 December 2019
NET BOOK VALUE
At 31 December 2019
Patents and
licences
$’000
Customer
relationships
$’000
Customer
order book
$’000
Computer
software
$’000
163
67
3
233
78
48
2
128
19,268
–
641
19,909
1,847
964
93
2,904
1,531
–
51
1,582
1,531
–
51
1,582
605
94
6
705
252
76
5
333
Total
$’000
21,567
161
701
22,429
3,708
1,088
151
4,947
105
17,005
–
372
17,482
The individual intangible assets, excluding goodwill, which are material to the financial statements are:
Intangible asset
Customer relationships
2020
$’000
35,425
Remaining amortisation
period (years)
Between 10 and 16
2019
$’000
17,005
Remaining amortisation
period (years)
17
Impairment review of individual customer relationship
During the period, an indicator of impairment was noted relating to a customer relationship with a carrying value of $3,946,000 as at 31
December 2020. As a result, an impairment review was completed to compare the recoverable amount of the asset against its carrying
value. Following this review, the directors consider that no impairment was considered necessary.
The discount rate applied to the cash flow projections was 13.9% and cash flows beyond a three-year period were extrapolated using a
growth rate of 2% in perpetuity. Based on management’s assessment there is no impairment adjustment required on goodwill.
To recognise an impairment on discount rate alone, the rate would need to increase to 15.4%.
Acquisition of a subsidiary
For each acquisition, an exercise to value the net assets and apportion the consideration paid has taken place, with the determined
balances recognised within these financial statements. We engaged external consultants to assist in the valuation of the intangible
assets, which have been valued using the income method. Adjustments to provisional fair values are made up to 12 months from the
original acquisition date with any revisions asset or liability values being adjusted through goodwill. Goodwill represents the value of
the accumulated workforces and synergies expected to be realised following the acquisition.
99
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
16. PROPERTY PLANT AND EQUIPMENT
Some of the group’s property, plant and equipment are subject to a charge to secure against the group’s bank loans.
Freehold
property
Leasehold
improvement
$’000
$’000
Plant &
machinery
$’000
Fixtures &
fittings
$’000
Computer
equipment
Construction
in progress
$’000
$’000
6,484
3,695
39
–
372
10,590
348
209
–
12
569
398
523
6
(82)
17
862
210
68
(82)
4
200
6,433
3,040
1,186
(187)
357
278
2,989
8
(40)
34
745
150
182
(14)
39
163
–
1,046
–
73
10,829
3,269
1,102
1,282
27,934
2,870
1,131
(187)
33
3,847
217
32
(40)
10
219
536
99
(14)
18
639
–
–
–
–
–
4,181
1,539
(323)
77
5,474
Total
$’000
14,501
10,397
2,467
(323)
892
10,021
662
6,982
3,050
463
1,282
22,460
Freehold
property
Leasehold
improvement
$’000
$’000
Plant &
machinery
$’000
Fixtures &
fittings
$’000
Computer
equipment
Construction
in progress
$’000
$’000
5,444
1,242
(58)
(144)
6,484
304
196
–
(152)
348
282
116
–
–
5,521
1,144
(12)
(220)
262
8
–
8
398
6,433
278
147
63
–
–
2,122
942
–
(194)
210
2,870
184
26
–
7
217
645
90
–
10
745
453
74
–
9
536
Total
$’000
12,154
2,763
(70)
(346)
–
163
–
–
163
14,501
–
–
–
–
–
3,210
1,301
–
(330)
4,181
6,136
188
3,563
61
209
163
10,320
Group
COST
At 1 January 2020
Acquisition of a subsidiary
Additions
Disposals
Exchange differences
At 31 December 2020
DEPRECIATION
At 1 January 2020
Charge for the year
Eliminated on disposals
Exchange differences
At 31 December 2020
NET BOOK VALUE
At 31 December 2020
COST
At 1 January 2019
Additions
Disposals
Exchange differences
At 31 December 2019
DEPRECIATION
At 1 January 2019
Charge for the year
Eliminated on disposals
Exchange differences
At 31 December 2019
NET BOOK VALUE
At 31 December 2019
100
17. INVESTMENTS IN ASSOCIATE
Group
Share of net assets of associate
COST
At 1 January 2020
Share of profit
Exchange difference
At 31 December 2020
NET BOOK VALUE
At 31 December 2020
Revenue
Expenses
Profit before tax
Income tax
Share of profit of associate for the year ended 31 December 2020
Interest in
associate
$’000
53
–
4
57
57
$’000
154
(154)
–
–
–
The group’s associated undertaking is Ruain Zuoyou Glasses Co Ltd, a company registered in China. 25% of the share capital of Ruain
Zuoyou is owned by the group, with Zhongshan Torkai Optical Co Limited being the direct owner of these shares.
18. INVENTORIES
Raw materials
Work in progress
Finished goods
The above includes amounts in respect of right of return assets and the amount for each year is as below;
Finished goods – Right of return asset
Inventories are stated after provisions for impairment of $2,249,000 (2019: $1,841,000).
2020
$’000
5,102
2,646
51,546
59,294
2020
$’000
1,967
2019
$’000
1,409
2,725
4,581
8,715
2019
$’000
96
101
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
19. TRADE AND OTHER RECEIVABLES
Current:
Trade receivables
Amounts owed by related parties
Prepayments
Other receivables
Group
2020
$’000
25,149
–
6,419
4,080
35,648
2019
$’000
9,815
34
2,288
738
12,875
Other receivables includes $1,955,000 (2019: $nil) relating to an invoice factoring receivable.
An ageing analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of loss allowance,
is as follows:
Invoiced in last month
1–2 months
2–3 months
Over 3 months
Set out below is the movement in the allowance for expected credit losses of trade receivables.
At 1 January
Acquired with acquisition of subsidiary
Movement in the year
Exchange adjustment
At 31 December
2020
$’000
11,787
6,948
4,069
2,345
25,149
2020
$’000
19
520
20
(3)
556
2019
$’000
8,846
437
395
137
9,815
2019
$’000
29
–
(10)
–
19
Amounts owed by related undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
The group’s trading terms with its customers are mainly on credit. The credit period is generally 30 to 90 days. Each customer has a
maximum credit limit. The group seeks to maintain strict control over its outstanding receivables and has a credit control department
to minimise credit risk. Overdue balances are reviewed regularly by senior management. The group’s large retail chain customers
order on purchase orders which are paid within 30 to 60 days and the remaining customer base is well diversified and hence there
is considered to be no significant credit risk. Acquisitions during the year have further diversified the reliance on major customers
and therefore have further mitigated credit risk. The group does not hold any collateral or other credit enhancements over its trade
receivable balances. Trade receivables are non-interest-bearing and are stated net of loss allowance.
Impairment under IFRS 9
An impairment analysis is performed at each reporting date to measure expected credit losses. The provision rates are based on days
past due for groupings of customer segments with similar loss patterns (i.e. by customer type and rating). The calculation reflects the
probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting
date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written off if
past due for more than one year and are not subject to enforcement activity.
102
20. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
2020
$’000
32,672
32,672
2019
$’000
6,595
6,595
At the end of the reporting period, the cash and cash equivalents of the group denominated in Renminbi (‘RMB’) amounted to
$2,879,000 (2019: $458,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign
Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the group is
permitted to exchange RMB for other currencies through a bank authorised to conduct foreign exchange business.
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term time deposits are made for varying
periods of between one day and three months depending on the immediate cash requirements of the group and earn interest at the
respective short-term time deposit rates. The bank balances and time deposits are deposited with creditworthy banks with no recent
history of default.
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following at 31 December:
Cash at bank and in hand
Bank overdrafts
21. CALLED UP SHARE CAPITAL
Authorised and issued share capital:
Number:
101,290,898 (2019: nil)
Nil (2019: 227,870)
Nil (2019: 135,385)
2020
$’000
32,672
(2,642)
30,030
2020
$’000
1,384
–
–
1,384
2019
$’000
6,595
(93)
6,502
2019
$’000
–
44
18
62
Class:
Nominal value
Ordinary
Ordinary
B Ordinary
£0.01
£0.10
£0.10
Each Ordinary Share carries the right to participate in distributions, as respects dividends and as respects capital on winding up.
On 10 January 2020, all B Ordinary Shares of INSPECS Holdings Limited were converted into Ordinary Shares of INSPECS Group
Limited and a subdivision of INSPECS Holdings Limited shares was enacted, with 363,255 shares with a nominal value of £0.10 each
converted into 3,632,550 share with a nominal value of £0.01 each. Also on 10 January 2020, a share for share exchange occurred
between INSPECS Holdings Limited and INSPECS Group Limited, subsequently INSPECS Group plc. As part of this share for share
exchange, all Ordinary Shares in INSPECS Holdings were exchanged for Ordinary Shares of INSPECS Group. Share options in INSPECS
Holdings were also exchange for share options in INSPECS Group, including the options over C Ordinary Shares, which were converted
to options over Ordinary Shares in INSPECS Group. Lastly, as part of the share for share exchange on 10 January 2020, one share in
INSPECS Holdings Limited after the subdivision was exchanged for 13.7 shares in INSPECS Group Limited, leaving 49,898,522 Ordinary
Shares as the entire share capital of INSPECS Group Limited.
On 27 February 2020, as part of the initial public offering of shares of INSPECS Group plc, 12,051,282 new shares were issued to the
London AIM at £1.95 generating a cash inflow of $30,313,000 (£23,500,000).
On 11 December 2020 a further 30,476,191 shares were issued to the London AIM at a share price of £2.10, generating a cash inflow of
$85,448,000 (£64,000,000).
A further 8,864,903 shares have been created during the year as a result of the exercise of share options.
103
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
22. RESERVES
Share premium
This reserve records the amount above the nominal value of the sums received for shares issued, less transaction costs.
At 1 January
Share for share exchange
Issue of shares to third parties on initial public offering
Issue of shares to PE investors on initial public offering (note 30)
Issue of shares on secondary placing
Exercise of share options
At 31 December
2020
$’000
21,628
(21,628)
30,659
4,452
84,104
2,725
121,940
2019
$’000
21,628
–
–
–
–
–
21,628
The share premium reserve was not novated from INSPECS Holdings Limited to INSPECS Group plc as part of the share for share
exchange and therefore the share premium reserve as at 31 December 2020 includes only the reserve generated during the year since
the share for share exchange.
Foreign currency translation reserve
This reserve records the foreign currency translation adjustment on consolidation.
At 1 January
Share for share exchange
Other comprehensive income
At 31 December
2020
$’000
1,031
(926)
(204)
(99)
2019
$’000
1,030
–
1
1,031
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.
At 1 January
Share for share exchange
Share-based payment charge
Exercise of share options
At 31 December
2020
$’000
2,840
34
1,133
(3,140)
867
2019
$’000
647
–
2,193
–
2,840
As part of the share for share exchange with INSPECS Holdings Limited on 10 January 2020, the share option reserve was novated
into INSPECS Group plc. The share-based payment charge for the year is recognised against the reserve as per IFRS 2 Share-Based
Payments. As options have been exercised during the year, the reserve relating to these options has been released to retained
earnings, with a further $167,000 released against the deferred tax asset held in relation to the options exercised (see note 28).
104
Merger reserve
This reserve arose on the share for share exchange between INSPECS Holdings Limited and INSPECS Group plc.
At 1 January
Issue of share capital
Share for share exchange and creation of merger reserve
Capital reduction
At 31 December
2020
$’000
–
(22)
68,802
(61,484)
7,296
2019
$’000
–
–
–
–
–
On 27 February 2020 immediately prior to IPO, options over Ordinary Shares held by PE investors were exercised (see note 30), with the
nominal value of the share capital issued via a reduction of the merger reserve of $22,000.
As discussed in note 21, in relation to the share for share exchange, INSPECS Group plc issued 49,898,522 shares for an aggregate value
of $69,484,000 (£50,856,000). This gives rise to share capital of $682,000 (£499,000) and a merger reserve in accordance with section
612 Companies Act 2006 of $68,802,000 (£50,357,000). The company’s merger reserve was subsequently reduced by $61,484,000
(£45,000,000) and the amount so reduced was credited to retained earnings and treated as realised profits.
23. TRADE AND OTHER PAYABLES
Group
Current:
Trade payables
Amounts owed to related parties
Other payables
Social security and other taxes
Royalties
Accruals
2020
$’000
2019
$’000
22,404
5,193
169
1,435
5,422
5,911
7,554
42,895
258
280
132
852
3,477
10,192
The trade payables are non-interest-bearing and are normally settled on cash-on-delivery or 90-day terms.
Amounts owed to related parties are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
Accruals include $1,999,000 (2019: $nil) relating to acquisition costs.
105
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
24 . FINANCIAL LIABILITIES – BORROWINGS
Current:
Bank overdraft
Invoice discounting
Bank loans
Lease liabilities
Non-current:
Bank loans
Lease liabilities
2020
$’000
2,642
–
3,855
2,975
6,830
2020
$’000
53,092
17,299
70,391
2019
$’000
93
2,577
4,228
746
4,974
2019
$’000
12,168
483
12,651
At the balance sheet date, the available invoice discounting facility was $3,000,000 (2019: $3,000,000).
The invoice discounting facility bears interest at 1.85% over base rate throughout 2020 (2019: 1.85%). 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.
On 27 February 2020, the group entered into a new multi-currency RCF facility with HSBC allowing it to draw down up to $25,000,000,
an increase of $7,187,000 on the previous facility. This facility was subsequently increased to the current $35,000,000 on 18 November
2020, with this facility being fully drawn down as at 31 December 2020, giving a total cash inflow to the group as a result of this new
financing of $17,187,000. An arrangement fee of $810,000 was payable on the new and subsequently amended agreement. Only interest
and charges are repayable during the length of this arrangement, with no capital requiring repayment. The loan runs until January
2023. 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 is stated net of transaction costs amounting to $653,000 (2019:
$1,082,000). The loan is US Dollar denominated and sits within the books of INSPECS Limited. It is therefore translated from US Dollars
into the functional currency of that entity (being GBP), therefore leading to an exchange adjustment of $382,000 loss (2019: $715,000
gain) for the year to 31 December 2020. See note 34 for further information in relation to foreign currency risk.
A further $12,278,000 of the loans held by the group are held at a fixed interest rate of 2.0%, repayable in June 2026. Remaining loans in
the group of $9,669,000 are at LIBOR plus 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.
106
25. RIGHT-OF-USE ASSETS AND LEASES
The group has lease contracts for various items of plant, machinery, vehicles and other equipment used in its operations. Leases of
plant and machinery, motor vehicles and leasehold properties generally have lease terms between three and five years. The group’s
obligations under its leases are secured by the lessor’s title to the leased assets. The group’s right-of-use assets are as follows:
COST
At 1 January 2020
Acquisition of a subsidiary
Additions
End of lease
Exchange differences
At 31 December 2020
DEPRECIATION
At 1 January 2020
Charge for the year
Eliminated on end of lease
Exchange differences
At 31 December 2020
NET BOOK VALUE
At 31 December 2020
Leasehold
properties
$’000
Plant &
machinery
$’000
Motor
vehicles
$’000
2,953
17,550
114
(1,251)
190
19,556
1,839
664
(1,251)
79
1,331
38
674
–
–
6
718
25
5
–
1
31
222
1,328
28
(84)
23
1,517
32
91
(84)
11
50
Total
$’000
3,213
19,552
142
(1,335)
219
21,791
1,896
760
(1,335)
91
1,412
18,225
687
1,467
20,379
107
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
25. RIGHT-OF-USE ASSETS AND LEASES CONTINUED
COST
At 1 January 2019
Additions
End of lease
Exchange differences
At 31 December 2019
DEPRECIATION
At 1 January 2019
Charge for the year
Eliminated on end of lease
Exchange differences
At 31 December 2019
NET BOOK VALUE
At 31 December 2019
Leasehold
properties
$’000
Plant &
machinery
$’000
Motor
vehicles
$’000
2,425
472
–
57
2,953
1,125
667
–
47
1,839
1,114
49
–
(12)
1
38
26
9
(12)
1
25
14
199
131
(112)
4
222
82
59
(112)
4
32
189
Total
$’000
2,673
603
(124)
61
3,213
1,233
736
(124)
51
1,896
1,317
Set out below are the carrying amounts of lease liabilities (included under interest bearing loans and borrowings) and the movements
during the period:
2020
$’000
1,229
19,552
142
26
(810)
(44)
179
20,274
2,975
17,299
2019
$’000
1,401
–
678
31
(867)
–
(14)
1,229
746
483
At 1 January
Acquisition of a subsidiary
Additions
Interest charge
Payments
Reduction in lease terms
Exchange adjustment
As at 31 December
Current
Non-current
108
26. CHANGES IN LIABILITIES FROM FINANCING ACTIVITIES
1 January
2020
$’000
New
loans
$’000
Reclassification
between
current and
non-current
Repayments
$’000
$’000
Transaction
costs on debt
refinancing
$’000
New
leases
$’000
Acquired on
acquisition of
subsidiary
Foreign
exchange on
consolidation
$’000
$’000
31 December
2020
$’000
Due in one year
Bank loans
Lease liabilities
(4,228)
(746)
Invoice discounting
facility
(2,577)
Due after one year
-
–
–
39
810
5,357
(257)
2,577
–
Bank loans
(12,168)
(17,187)
Lease liabilities
(483)
–
-
–
(5,357)
257
(1,249)
–
–
-
–
–
–
–
-
(3,771)
(2,714)
–
(17,691)
(98)
(16,838)
(3)
(68)
–
(3,855)
(2,975)
–
(689)
(137)
(53,092)
(17,299)
Total liabilities
from financing
activities
(20,202) (17,187)
3,426
–
(1,249)
(98)
(41,014)
(897)
(77,221)
Balances at the end of each reporting period are summarised in note 24, with balances above being shown under interest bearing
loans and borrowings on the balance sheet.
1 January
2019
$’000
New
loans
$’000
Repayments
$’000
Reclassification
between
current and
non-current
Transaction
costs on debt
refinancing
$’000
$’000
New
leases
$’000
Foreign
exchange on
consolidation
$’000
31 December
2019
$’000
(42)
(4,337)
(685)
–
(33)
–
72
4,733
836
(1,602)
(975)
(29)
(15,932)
(716)
–
(595)
–
–
–
–
–
(29)
(4,358)
(911)
–
29
4,358
911
–
(286)
–
–
–
–
–
–
–
–
–
–
–
(678)
–
53
13
–
–
–
–
–
(4,228)
(746)
(2,577)
–
(12,168)
(483)
(23,343)
(1,603)
5,641
–
(286)
(678)
66
(20,202)
Due in one year
Other loans
Bank loans
Lease liabilities
Invoice discounting
facility
Due after one year
Other loans
Bank loans
Lease liabilities
Total liabilities
from financing
activities
Balances at the end of each reporting period are summarised in note 24, with balances above being shown under interest bearing
loans and borrowings on the balance sheet.
109
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
27. 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:
(Loss)/profit before income tax
Adjustments for:
Depreciation charges
Amortisation charges
Share of profit of associate
Gain on bargain purchase
Share-based payment
Movement in fair value of derivatives
Exchange adjustment on borrowings
Finance costs
Finance income
Changes in working capital
Decrease in inventories
Decrease in trade and other receivables
Decrease in trade and other payables
Cash flows from operating activities
28. DEFERRED TAX
On 1 January 2020
Acquired on acquisition of subsidiary
Credit/(charge) for the year:
Losses in the year
Temporary timing differences
Gain on bargain purchase
Other
Deferred tax credit to profit and loss
Deferred tax charge to share option reserve
Exchange adjustment
On 31 December 2020
110
Notes
16,25
15
17
7
33
24
10
10
18
19
23
2020
$’000
(11,163)
2,299
1,607
–
(506)
1,706
740
382
1,880
(36)
648
3,005
(159)
403
Deferred
tax asset
Deferred
tax liability
$’000
1,221
9,174
3,043
(551)
–
(3)
2,489
(167)
278
12,995
$’000
(2,917)
(21,198)
–
–
(486)
265
(221)
–
(358)
(24,694)
2019
$’000
7,347
2,037
1,088
(14)
–
1,917
(2,875)
(715)
1,380
(15)
2,074
912
(912)
12,224
Total
$’000
(1,696)
(12,024)
3,043
(551)
(486)
262
2,268
(167)
(80)
(11,699)
On 1 January 2019
Credit/(charge) for the year:
Share-based payment
Utilisation of losses
Other
Deferred tax credit to profit and loss
Deferred tax credit to share option reserve
Exchange adjustment
On 31 December 2019
The deferred tax balances consist of the tax effect of timing differences in respect of:
Unused trade losses
Right of return liability
Lease liability
Other short-term differences
Total deferred tax asset
Right of use asset
Right of return asset
Intangible assets
Inventory
Property, plant and equipment
Other short-term differences
Total deferred tax liability
Deferred
tax asset
$’000
1,025
Deferred
tax liability
$’000
(2,886)
536
(523)
–
13
158
25
1,221
–
–
30
30
–
(62)
(2,917)
2020
$’000
3,448
2,254
6,349
944
12,995
2020
$’000
(6,032)
(524)
(12,991)
(2,438)
(1,882)
(827)
(24,694)
Total
$’000
(1,861)
536
(523)
30
43
158
(37)
(1,696)
2019
$’000
323
27
3
868
1,221
2019
$’000
(21)
–
(1,921)
–
(975)
–
(2,917)
In addition to the deferred tax assets and liabilities recognised, the group has tax losses that arose in a subsidiary of $1,150,000
(2019: $1,145,000) that are available indefinitely for offsetting against future taxable profits of the company in which the losses arose.
A deferred tax asset has not been recognised in respect of these losses as these losses may not be used to offset against taxable
profits elsewhere in the group and there is no evidence of these losses being utilised by the subsidiary in the future.
If the group were able to recognise all unrecognised deferred tax assets, the profit would increase by $219,000 (2019: $187,000).
111
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
29. TAX PAYABLE
Corporation tax payable
Uncertain tax liabilities
2020
$’000
1,521
2,839
4,360
2019
$’000
377
2,235
2,612
The group has identified it is exposed to uncertain tax positions in relation to tax authorities challenging that local subsidiaries are not
being remunerated under historical transfer pricing arrangements or that the group has created a taxable presence and asset taxing
rights over profits they consider to be allocable in the given territory. The group considers that it is possible that these uncertain tax
positions will result in a future outflow of funds to one or more local tax authorities and has recognised current tax liabilities for these
uncertainties.
Due to the range of potential outcomes that the directors have identified, these liabilities have been measured using an expected
value methodology. Key assumptions underpinning the expected value calculations, in addition to relative probabilities of such tax
liabilities crystallising in one or more of the jurisdictions in which the group operates, are (i) the tax periods over which tax authorities
would seek to challenge the group’s transfer pricing or tax domicile arrangements; and (ii) the quantum of interest and penalties that
would be applicable in the event that the group was found to be liable for tax amounts by one or more tax authorities.
It is reasonably possible, on the basis of the directors’ existing knowledge, that different outcomes to the assumptions set out above,
within the next financial year, could require a material adjustment to the carrying amount of the uncertain tax liabilities.
The group plans to perform a more detailed review of its international tax arrangements, both historically and prospectively, with
COVID-19 having impacted on the planned work during 2020. It is expected to conclude in 2021. However, the directors, on the basis of
their existing knowledge, do not expect the outcome of this exercise to be materially different to the liability recognised, except for an
incremental increase in the uncertain tax liability solely due to the passage of time. In the eventuality that any outcome is concluded at
the higher end of the outflow range, then the group would implement mitigating actions.
30. DERIVATIVES
On 9 February 2017, options over C Ordinary Shares in INSPECS Holdings Limited were issued to private equity investors. These
options were exercisable upon (i) the completion of a relevant exit event, including an initial public offering; and (ii) cumulative returns
to the private equity investors on their B Ordinary Shares being below a minimum return amount prescribed in the option agreement.
These options were considered to meet the definition of a derivative over the group’s own equity instruments and were recognised as
a financial liability measured at fair value through profit or loss due to the variable number of C Ordinary Shares that could be issued.
As part of the share for share exchange on 10 January 2020, these options were exchanged for options over Ordinary Shares in
INSPECS Group plc, with the corresponding derivative liability held over these options novated to INSPECS Group plc. On 27 February
2020, these options were exercised with the derivative being revalued at this date to reflect the fair value of options being exercised
before the derivative itself was then utilised. This revaluation gave rise to the $740,000 charge recognised through the Income
Statement during the year ended 31 December 2020.
Movements in the derivative during the current and comparative year are shown below:
Novated to INSPECS Group plc on 10 January 2020
Revaluation of derivative on 27 February 2020
Foreign exchange movement
Derivative utilised on exercise of options
Derivative held as at 31 December 2020
112
$’000
(3,536)
(740)
(176)
4,452
–
31. ULTIMATE CONTROLLING PARTY
On 27 February 2020 INSPECS Group Limited was re-registered to form INSPECS Group plc following admission of its shares on
to the London AIM. As a result, the directors believe that there is no ultimate controlling party of the group.
32. RELATED PARTY DISCLOSURES
The group has taken advantage of the exemption, not to disclose related party transactions with wholly owned subsidiaries within
the group. Note 18 provides information about the group’s structure, including details of the subsidiaries. Below are transactions
and balances with related parties that are not owned.
a) Kelso Place LLP
Mr R Totterman is a designated member and controlling owner of Kelso Place LLP. During the year Kelso Place LLP leased the Bath
head office building to INSPECS Limited. As at 31 December 2020, a right-of-use asset with net book value of $127,000 (2019: $323,000)
and lease liability of $124,000 (2019: $322,000) related to this lease, with depreciation of $152,000 (2019: $152,000) and interest of $6,000
(2019: $6,000) charged to the income statement. At the year-end, the group owed Kelso Place LLP $169,000 (2019: $247,000) in respect
of the above.
b) Thorne Lancaster Parker
Mr C D Kay, a director of the company is also a partner in Thorne Lancaster Parker. During the year the partnership charged INSPECS
Limited $65,000 (2019: $201,000) in respect of professional services provided. On 31 December 2020, INSPECS Limited owed Thorne
Lancaster Parker $nil (2019: $11,000) in respect of the above, with this balance included within trade payables. During the year the
partnership charged Norville (20/20) Limited $7,000 (2019: $nil) in respect of professional services provided, with nil being owed at
the end of the year (2019: $nil).
c) Farm Street Partners
C M J Hancock is a partner of Farm Street Partners which charged the group monitoring fees of $13,000 (2019: $15,000) during the
year. No balance was outstanding at 31 December 2020 (2019:$nil).
d) BXS Projects Limited
A Farrugia is a Director of BXS Projects Limited which charged the group $10,000 (2019: $Nil). No balance was outstanding at 31
December 2020 (2019: $Nil).
e) Key management personnel
The key management personnel of INSPECS Group plc at 31 December 2020 are R B C Totterman, M R A L Lefebvre and C D Kay.
The total employee benefits payable in the period were $189,000 (2019: $217,000), $766,000 (2019: $792,000) and $152,000 (2019:
$138,000) respectively. In addition, share based payments totalled $508,000 (2019: $539,000) in relation to these individuals.
33. SHARE-BASED PAYMENTS
Certain employees of the group have been granted options over the shares in INSPECS Group plc. The options are granted with a
fixed exercise price and are exercisable between one and ten years after the date of grant.
The company 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 company 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 previously held within INSPECS Holdings Limited were converted to share options within INSPECS Group plc
as part of the share for share exchange on 10 January 2020 with one option in INSPECS Holdings being exchanged for 137 options
in INSPECS Group plc. Share options outstanding at the end of the year have the following expiry date and exercise prices:
Grant date
11 October 2019
27 February 2020
22 December 2020
Expiry date
Between 1 July 2021 and 1 July 2022
27 February 2025
22 December 2025
Exercise price
per option
$
1.27
2.52
2.87
Number of share
options
824,197
1,923,110
1,580,000
The option weighted average exercise price is $2.41 per share. Options were valued at the date of grant.
113
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
33. SHARE-BASED PAYMENTS CONTINUED
The expense recognised for employee services received during the year is shown in the following table:
Expense arising from equity-settled share-based payment transactions
Taxes charged to the group in respect of options exercised
Total expenses arising from share-based payment transactions
2020
$’000
1,133
573
1,706
2019
$’000
1,917
–
1,917
Movements during the year
The following tables illustrates the number and weighted average exercise price (‘WAEP’) of and movements in share options during
the year:
At 1 January
Granted as part of share for share exchange
Granted during the year
Exercised during the year
Forfeited during the year
As at 31 December
WAEP
At 1 January
Share for share exchange
Granted during the year
Exercised during the year
Forfeited during the year
As at 31 December
Number
2020
58,965
8,054,558
3,503,110
(7,275,589)
(13,737)
4,327,307
2020
$
67.46
(66.07)
1.44
(0.39)
(0.03)
2.41
Number
2019
36,855
–
22,570
–
(460)
58,965
2019
$
2.94
–
65.88
–
(1.37)
67.46
The following table lists the inputs to the models used for the valuation of the options issued during the year.
Options granted
11 October 2019
Options granted
27 February 2020
Options granted
22 December 2020
Number of options in issue as at 31 December 2020
Dividend yield (%)
Expected volatility
Risk-free interest rate
Exercise price
Ordinary share price at grant date
824,197
1.0%
25.8%-29.8%
1.58%-1.66%
$175.00
$310.00
1,923,110
1,580,000
1.0%
28.2%
0.33%
$2.52
$2.52
1.0%
30.4%
(0.12)%
$2.87
$3.63
5 years
Expected life of share options/SARs (years)
1–3 years
5 years
Model used
Black Scholes option analysis
The determination of the risk-free interest rate has been based on the UK Sovereign Curve for each grant made during 2020.
114
34. FINANCIAL RISK MANAGEMENT
The financial assets of the group comprise trade receivables, deposits and other receivables, and cash and cash equivalents which
are categorised as financial assets at amortised cost. The carrying amounts of these financial assets are the amounts shown on the
consolidated statement of financial position or in the corresponding notes to the financial statements.
The financial liabilities of the group comprise trade payables, bank loans, other loans, financial liabilities included in other payables
and accruals, and lease liabilities which are categorised as financial liabilities at amortised cost. The carrying amounts of these
financial liabilities are the amounts shown on the consolidated statement of financial position or in the corresponding notes to
financial statements.
The fair values of the financial assets and liabilities are included at the amounts at which the instruments could be exchanged in current
transactions between willing parties, other than in forced or liquidation sale transactions. At the end of the reporting period, the
carrying amounts of the financial assets and financial liabilities of the group approximated to their fair values.
The group’s principal financial instruments comprise cash and cash equivalents, bank loans and other loans. The main purpose of these
financial instruments is to raise finance for the group’s operations. The group has various other financial assets and liabilities such as
trade receivables and trade payables, which arise directly from its operations.
The main risks arising from the group’s financial instruments are foreign currency risk, credit risk and liquidity risk which arise in the
normal course of its business. The Board of Directors reviews and agrees policies to analyse and formulate measures to manage each
of these risks which are summarised below.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. The group’s exposure to the risk of changes in market interest rates relate primarily to the group’s long-term debt
obligations with floating interest rates.
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonable possible change in interest rates on that proportion of loans and
borrowings affected. With all other variables held constant, the group’s loss/profit before tax is affected through the impact on floating
rate borrowings as follows, based on the outstanding loan to the bank as at 31 December 2020:
2020
2019
Loan balance
$’000
Increase/decrease
in basis points
56,947
16,875
50 BP
50 BP
Effect on profit
before tax
$’000
285
102
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign
exchange rates. The group’s exposure to the risk of changes in foreign exchange rates relates to both the group’s operating activities
(when revenue or expense is denominated in a foreign currency) and the group’s borrowing when held in a different currency to the
functional currency of the company in which they are held.
The group manages its foreign currency risk by selling and buying in the same currencies where possible but does not enter into any
material hedging transactions or derivatives. The ability of the group to organise its sales and purchases in similar currencies allows a
natural hedge in some circumstances against currency fluctuations.
115
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2020
34. FINANCIAL RISK MANAGEMENT CONTINUED
Foreign currency risk continued
The following table demonstrates the sensitivity at the end of the reporting period to a reasonable possible change in the Pound
Sterling (GBP), Chinese Renminbi (RMB) and Macau Pataca (MOP) exchange rates, with all other variables held constant, of the group’s
profit before tax (due to changes in the fair value of monetary assets and liabilities). These currencies have been selected for sensitivity
analysis as they represent the local currencies covering the majority of the trading locations of the group. Moving into 2021, movement
in the Euro will have an impact following the acquisition of Eschenbach Holdings GmbH, however due to the acquisition occurring late
in the year the impact on 2020 is not considered material. There is no impact on the group’s equity except on the retained profits.
2020
If the US$ weakens against the GBP
If the US$ strengthens against the GBP
If the US$ weakens against the RMB
If the US$ strengthens against the RMB
If the US$ weakens against the MOP
If the US$ strengthens against the MOP
Increase/(decrease) in
exchange rate
%
5
(5)
5
(5)
5
(5)
Increase/(decrease) in
profit before tax
$
2,372,000
(2,372,000)
–
–
(229,000)
229,000
Credit risk
The group trades only with related companies and third parties who have been assessed via a Dunn and Bradstreet credit check.
Receivables balances are monitored on an ongoing basis and the group’s history of credit losses of trade receivables is not significant.
The credit risk of the group’s other financial assets arises from default of the counterparty, with a maximum exposure
equal to the carrying amounts of these financial assets.
The group maintains regular control over its trade receivables and normal terms are between 30 and 60 days across the group.
The percentage of debtors outside of these terms is shown in the analysis below.
Trade receivables
Current
Past due 1–30 days
Past due 31–60 days
Past due 61+ days
Total
Percentage over terms
2020
$’000
16,584
3,904
3,330
1,331
25,149
33%
2019
$’000
Increase/(decrease)
$’000
8,115
1,254
158
288
9,815
17%
8,469
2,650
3,172
1,043
15,334
Raw material costs
The group subcontracts with third party suppliers on fixed terms and thus any immediate commodity risk is mitigated in the short
term on these transactions. On the group’s own manufactured products, raw materials in 2020 accounted for 32% of cost of sales
(2019: 43%). This risk is mitigated by the use of different suppliers and the diversification of production locations across the group.
Over the long term, the group can also mitigate the loss of any margins through an increase in its selling price.
Cash deposits
The group invests its excess cash in either weekly or monthly deposits with either HSBC or OCBC. The group considers these
deposits to carry a very low risk and typically return an interest rate of around 0.5%.
116
Liquidity risk
For the management of the liquidity risk, the group monitors and maintains a sufficient level of cash and bank balances deemed
adequate by management, along with utilising an invoice discounting facility, to finance the group’s operations and mitigate the
effects of fluctuation in cash flows. Management reviews and monitors its working capital requirements regularly.
The group reviews on a monthly basis the cash generation and the requirement for capital repayments on the bank loan in its detailed
working capital model to ensure sufficient liquidity for operating purposes across the group.
The table below summarises the gross undiscounted cash flows of the group’s non-derivative financial liabilities:
Less than 1 year
$’000
1 to 2 years
2 to 5 years
Over 5 years
$’000
$’000
$’000
Total
$’000
Bank overdrafts (including invoice
discounting facility)
Interest bearing loans and borrowings
(excluding items below)
Lease liabilities
Other financial liabilities – right of return
Trade and other payables
2,642
4,354
3,522
12,824
42,895
Capital risk management
The group’s capital management objectives are:
–
1,011
2,935
–
–
–
–
2,642
54,736
6,345
–
–
138
9,427
–
–
60,239
22,229
12,824
42,895
• to ensure the group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and
benefits for other stakeholders; and
• to provide an adequate return to shareholders by pricing products and services commensurate with the level of risk.
To meet these objectives, the group reviews the budgets and forecasts on a regular basis to ensure there is sufficient capital to
meet the needs of the group.
The capital structure of the group consists of shareholders’ equity as set out in the consolidated statement of changes in equity.
All working capital requirements are financed from existing cash resources and borrowing.
The loan covenant ratios achieved by the group, and required by the bank, as at the end of each year were as follows:
Leverage
Debt service cover
Interest cover
2020
2019
Actual
Required
Actual
Required
1.6
N/A
17.1
Below 2.5
N/A
Above 4.0
0.8
2.1
12.1
Below 2.0
Above 1.1
Above 5.0
In February 2020 ahead of the initial public offering, the group entered into a new loan arrangement increasing the available facility.
The debt service cover covenant was not included within this new facility. This facility was amended to further increase available funds
in November 2020 in advance of the acquisition of Eschenbach Group GmbH. As part of this amendment, the leverage covenant was
increased to 2.5 times for the next four quarters, after which it will drop back down to 2.0 times.
35. POST BALANCE SHEET EVENTS
Since the balance sheet date, but before these financial statements were approved, there were no material events that the directors
consider material to the users of these financial statements.
117
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Company Statement of Financial Position
as at 31 December 2020
ASSETS
Non-current assets
Investments
Current assets
Loans to group undertakings
Total assets
EQUITY
Shareholders’ equity
Called up share capital
Share premium
Foreign currency translation reserve
Share option reserve
Merger reserve
Retained earnings
Total equity
LIABILITIES
Total liabilities
Total equity and liabilities
Notes
2020
$’000
2019
$’000
3
4
5
6
6
6
6
76,147
117,202
193,349
1,384
121,940
(157)
867
7,296
62,019
193,349
–
193,349
–
–
–
–
–
–
–
–
–
–
–
–
The notes on pages 120 to 126 form part of these financial statements
As permitted by section 408(3) of the Companies Act 2006, a separate Income Statement dealing with the results of the Parent
Company, has not been presented. The Parent Company loss for the period ended 31 December 2020 was $2,438,000 (2019: $nil).
The financial statements were approved by the Board of Directors on 18 June 2021 and were signed on its behalf by:
R B C Totterman
Director
C D Kay
Director
118
Company Statement of Changes in Equity
for the year ended 31 December 2020
Called up
share capital
$’000
Share
premium
$’000
Notes
Foreign
currency
translation
reserve
$’000
Share option
reserve
$’000
Retained
earnings
$’000
Merger
reserve
$’000
Total
equity
$’000
Balance at
incorporation
Balance at 31
December 2019
Changes in equity
Loss for the year
Other comprehensive
income
Total comprehensive
income
Issue of share capital
Exercise of share options
Share-based payments
Share for share exchange
and creation of merger
reserve
Capital reduction
Balance at 31
December 2020
6
5,6
5,6
6
5,6
6
–
–
–
–
–
603
99
–
682
–
–
–
–
–
–
119,215
2,725
–
–
–
–
–
–
(157)
(157)
–
–
–
–
–
–
–
–
–
–
–
(3,140)
1,133
2,874
–
–
(2,438)
–
(2,438)
–
2,973
–
–
–
–
–
–
–
–
–
(2,438)
(157)
(2,595)
(22)
119,796
–
–
2,657
1,133
68,802
72,358
–
61,484
(61,484)
–
1,384
121,940
(157)
867
62,019
7,296
193,349
The notes on pages 120 to 126 form part of these financial statements.
119
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Company Financial Statements
for the year ended 31 December 2020
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 7–10 Kelso Place, Upper Bristol Road, Bath BA1 3AU.
On 10 January 2020 a share for share exchange occurred between INSPECS Group Limited and INSPECS Holdings Limited, resulting
in INSPECS Group Limited being the ultimate parent company of the group. Refer to note 22 of the consolidated group accounts for
more information. Subsequently, on 27 February 2020 INSPECS Group plc was admitted to the AIM of the London Stock Exchange.
The principal activity of the company was that of a holding company.
2. ACCOUNTING POLICIES
These financial statements were prepared in accordance with the Companies Act 2006 as applicable to Financial Reporting Standard
101 Reduced Disclosure Framework (FRS 101), FRS 101 and applicable accounting standards. The financial statements have been
prepared on the historical cost basis, and as a going concern. Historical cost is generally based on the fair value of the consideration
given in exchange for the assets.
As permitted by section 408(3) of the Companies Act 2006, no separate profit and loss account has been presented for the company.
As permitted by FRS 101, the company has taken advantage of the disclosure exemptions available in the preparation of the financial
statements in relation to the presentation of a statement of cash flows.
Investments
Investments held as fixed assets comprise the company’s investment in subsidiaries and are shown at fair value on the date of
acquisition, less any provision for impairment. In the case of the share for share exchange which occurred in the period, the number
and aggregate value of the shares issued was specified in the share for share exchange agreement.
An annual review of investments is performed for indicators of impairment. If indicators of impairment are identified investments are
tested for impairment to ensure that the carrying value of the investment is supported by their recoverable amount.
Current and non-current classifications
The group presents assets and liabilities in the statement of financial position based on current/non-current classification.
An asset is considered current when it is:
• Expected to be realised or intended to be sold or consumed within the usual parameters of trading activity and as a minimum
within 12 months after the reporting period;
Or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the
reporting period.
The group classifies all other assets as non-current.
Financial instruments – initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of
another entity.
Financial assets
Initial recognition and subsequent measurement
Financial assets are classified, at initial recognition and subsequently measured at amortised cost, and are subject to impairment.
Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The company’s financial assets at amortised cost include loans to group undertakings.
The company does not have any financial assets at fair value through OCI or financial assets at fair value through profit or loss.
Derecognition
A financial asset is primarily derecognised when the rights to receive cash flows from the asset have expired.
120
Impairment of financial assets
The company 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.
The company considers a financial asset in default when internal or external information indicates that the company is unlikely to
receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the company. A
financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
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 consolidated accounts. That cost is recognised
in employee benefits expense in the company within which the relevant employee is employed, 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 company’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.
Details of the group’s share option scheme are provided in note 33 of the consolidated financial statements.
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.
Foreign currencies
These financial statements are presented in US$, which is the company’s presentational currency. The functional currency of the
company is GBP. 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 resulting exchange differences are recognised in other
comprehensive income and accumulated in the foreign currency translation reserve.
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.
121
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Company Financial Statements continued
for the year ended 31 December 2020
2. ACCOUNTING POLICIES CONTINUED
Critical accounting judgements and key sources of estimation uncertainty continued
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:
Expected credit loss
In accordance with IFRS 9, the expected credit loss model is used to determine an expectation of an economic loss of an asset.
Application of this model to the loans to group undertakings within the company requires estimation by management. No provisions
have been recognised in relation to the loans to group undertakings shown in note 4 as they are considered to be fully recoverable.
Carrying value of investments
An annual review of investments is performed to identify any indicators of impairment which, if found, would result in an impairment
review being performed. Judgement is required by management in performing this review, including in the identification and
interpretation of any indicators.
3. INVESTMENTS
COST AND NET BOOK VALUE
At 1 January 2020
Share for share exchange
Additions for share based payments in subsidiaries
At 31 December 2020
Shares in
subsidiaries
$’000
–
69,484
6,663
76,147
Investments held are shown below. Investments held directly by the company are marked *. The remaining investments are held
indirectly by the company.
Subsidiaries
Registered office
Nature of business
INSPECS Holdings Limited*
7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK
Holding company
INSPECS Limited8
INSPECS USA LC8
7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK
Eyewear trading
18401 US Highway 19N, Clearwater,
Florida 33764, USA
Eyewear trading
Class
of shares
Ordinary
Ordinary
Ordinary
Algha Group Limited8
7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK
Eyewear manufacturing Ordinary
INSPECS Scandinavia AB8
184 40 Akersberga, Stockholm, Sweden
Eyewear trading
Maronglow Limited1
7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK
Dormant
UK Optical Limited8
7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK
Dormant
American Optical UK Limited8
7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK
Dormant
Holding company
% holding
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Twenty20 Limited2
Bandoma Limited3
Ice Foster Limited3
Killine Group Limited4
Elian Fiduciary Services (Cayman) Limited, 89
Nexus Way, Camana Bay, Grand Cayman
KY1-9007, Cayman Islands
Suite 6, Watergardens 4, Gibraltar
Nemours Chambers, Road Town, Tortola,
British Virgin Islands
Elian Fiduciary Services (Cayman) Limited,
89 Nexus Way, Camana Bay, Grand Cayman
KY1-9007, Cayman Islands
122
Holding company
Holding company
Ordinary
Ordinary
100.00
100.00
Holding company
Ordinary
100.00
Subsidiaries
Registered office
Nature of business
Class
of shares
% holding
Killine Optical Limited3
Alameda Dr. Carlos D’Assumpcao, nos 335–341,
Edificio Centro Hotline, 21 andar A, em Macau
Eyewear trading
Ordinary
100.00
Neo Optical Company Limited5 Neo Town Industrial Zone, Yen Dung District,
Eyewear manufacturing Ordinary
100.00
Bac Giang Province, Vietnam
On Sight Services-Sociedade
Unipessoa, Lda3
O.W. Ventures Limited3
Rua Soares de Passos, 10A/10B
Eyewear design
Ordinary
100.00
Unit 305–7, 3/F, Laford Centre, 838 Lai Chi Kok
Road, Cheung Sha Wan, Kowloon, Hong Kong
Corporate management Ordinary
100.00
Zhongshan Torkai Optical Co
Limited6
Shagou Industrial Park, Banfu County,
Zhongshan, Guangdong, China
Eyewear manufacturing Ordinary
100.00
Neway (Macao Commercial
Offshore) Limited9
Alameda Dr. Carlos D’Assumpcao, nos 335–341
Edificio Hot line, 21 andar D, em Macau
Eyewear trading
Ordinary
100.00
Kudos S.R.L.1
Primoptic Limited7
Yardine Limited3
INSPECS Asia Limited8
Via Noai 5, Domeggi Di Cadore, CAP 32040, Italy
Eyewear manufacture
Ordinary
Alameda Dr. Carlos D’Assumpcao, nos 335–341,
Edificio Centro hotline, 21 andar A, em Macau
Eyewear trading
Ordinary
100.00
100.00
Nemours Chambers Limited, Road Town,
Tortola, British Virgin Islands
10F Sing Ho Finance Building, 166–168
Gloucester Road, Hong Kong
Holding company
Ordinary
100.00
Quality Control Services Ordinary
100.00
Duval Company Group Limited3 Nemours Chambers, Road Town, Tortola,
Holding company
Ordinary
100.00
British Virgin Islands
Norville (20/20) Limited 2
7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK
Lens manufacturer
Ordinary
Eschenbach Holding GmbH 2
Fürther Straße 252, 90429, Nuremberg, Germany Holding company
Eschenbach Beteiligungs
GmbH10
Fürther Straße 252, 90429, Nuremberg, Germany Holding company
Eschenbach Optik GmbH14
Althardstraße 70, Regensdorf, Switzerland
Eyeware trading
Eschenbach Optik B.V.14
Osloweg 134, Groningen, Netherlands
Eschenbach Optik spol s. r.o.14
K Fialce 35, Prague, Czech Republic
Eschenbach Optik sp. z o.o.14
ul. Biedronki 60, Warsaw, Poland
Eschenbach Optik GmbH14
Brunnenfeldstraße 14, Linz, Austria
Eschenbach Optik s.a.r.l14
64 rue Claude Chappe, Plaisir, France
Eschenbach Optik s.r.l.14
Via C.Colombo 10, Torino, Italy
Eschenbach Optik of America,
Inc.14
22 Shelter Rock Lange, Danbury, USA
Eyeware trading
Eyeware trading
Eyeware trading
Eyeware trading
Eyeware trading
Eyeware trading
Eyeware trading
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Eschenbach Optik of Japan
Co.Ltd.14
2-15-4 Kanda-Tsukasamachi, Chiyoda-ku,
Tokyo, Japan
Eyeware trading
Ordinary
100.00
Eschenbach Optik S.L.14
Consell de Cent 106-108, Barcelona, Spain
Eyeware trading
Eschenbach Optik GmbH11
Fürther Straße 252, 90429, Nuremberg, Germany
Eyeware trading
Eschenbach Optik (Shenzhen)14 Block A, Tian An Cyber Times Che Gong Miao,
Eyeware trading
Ordinary
Ordinary
Ordinary
100.00
100.00
100.00
Futian District, Shenzhen, China
123
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Company Financial Statements continued
for the year ended 31 December 2020
3. INVESTMENTS CONTINUED
Subsidiaries
Registered office
Nature of business
Class
of shares
% holding
Josef Eschenbach
GmbH'+ Co.14
Josef Eschenbach
Verwaltung GmbH15
Eschenbach International
GmbH11
Fürther Straße 252, 90429, Nuremberg, Germany
Eyeware trading
Ordinary
100.00
Fürther Straße 252, 90429, Nuremberg, Germany
Eyeware trading
Ordinary
100.00
Fürther Straße 252, 90429, Nuremberg, Germany Holding company
Ordinary
100.00
Eschenbach UK Holdings Ltd12
27 Blackberry Lane, Halesowen¸ B63 4NX, UK
Holding company
Ordinary
International Eyewear Ltd13
27 Blackberry Lane, Halesowen¸ B63 4NX, UK
Eyeware trading
TURA, Inc.12
123 Girton Drive, Muncy, USA
Eschenbach Optik A/S11
Boskærvej 18, Vejle, Denmark
Eyeware trading
Eyeware trading
Ordinary
Ordinary
Ordinary
100.00
100.00
100.00
100.00
1 The shares are held by Algha Group Limited
9 The shares are held by Yardine Limited
2 The shares are held by INSPECS Limited
10 The shares are held by Eschenbach Holding GmbH
3 The shares are held by Killine Group Limited
11 The shares are held by Eschenbach Beteiligungs GmbH
4 The shares are held by Twenty20 Limited
12 The shares are held by Eschenbach International GmbH
5 The shares are held by Killine Optical Limited
13 The shares are held by Eschenbach UK Holdings Ltd
6 The shares are held by Bandoma Limited
14 The shares are held by Eschenbach Optik GmbH
7 The shares are held by Duval Company Group Limited
15 The shares are held by Josef Eschenbach GmbH
8 The shares are held by INSPECS Holdings Limited
4. LOANS TO GROUP UNDERTAKINGS
At 31 December 2019
Additions during the year
Interest during the year
Foreign exchange
At 31 December 2020
Loans to Group
undertakings
$’000
–
116,303
845
54
117,202
Amounts owed by group undertakings are unsecured, with interest charged at a market rate and have no set repayment date. Due to
the amounts having no set repayment date they have been classified as current assets.
124
5. CALLED UP SHARE CAPITAL
Authorised and issued share capital:
Number:
101,290,898 (2019: 100)
Class:
Ordinary
Nominal value
£0.01
2020
$’000
1,384
1,384
2019
$’000
–
–
On 10 January 2020, a share for share exchange occurred between INSPECS Holdings Limited and INSPECS Group Limited
(subsequently plc). As part of this share for share exchange, all Ordinary Shares in INSPECS Holdings were exchanged for Ordinary
Shares of INSPECS Group. Share options in INSPECS Holdings were also exchanged for share options in INSPECS Group, including
the options over C Ordinary Shares, which were converted to options over Ordinary Shares in INSPECS Group. On the admission of
shares to the AIM of the London Stock Exchange on 27 February 2020, these options previously over C Ordinary Shares were exercised
and the related derivative liability was revalued at that date before being extinguished, giving rise to a $740,000 charge to the income
statement in the period.
As part of the initial public offering of shares of INSPECS Group plc, 12,051,000 new shares were issued to the market, with a further
8,796,000 shares being created following the exercise of options. On 11 December 2020 a further share placing occurred, creating an
additional 30,476,000 shares.
6. RESERVES
Share premium
This reserve records the amount above the nominal value of the sums received for shares issued, less transaction costs.
At 1 January
Issue of share capital
Exercise of share options
At 31 December
2020
$’000
–
119,215
2,725
121,940
2019
$’000
–
–
–
–
Foreign currency translation reserve
With regards to the foreign currency translation reserve in the company, this is in relation to translating the parent company’s accounts
into the presentation currency of US$.
At 1 January
Other comprehensive income
At 31 December
2020
$’000
–
(157)
(157)
2019
$’000
–
–
–
125
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Notes to the Company Financial Statements continued
for the year ended 31 December 2020
6. RESERVES CONTINUED
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.
At 1 January
Share for share exchange
Share-based payment charge
Exercise of share options
At 31 December
2020
$’000
–
2,874
1,133
(3,140)
867
2019
$’000
–
–
–
–
–
As part of the share for share exchange with INSPECS Holdings Limited on 10 January 2020, the share option reserve was novated
into INSPECS Group plc. The share-based payment charge for the year is recognised against the reserve as per IFRS 2 Share-Based
Payments. As options have been exercised during the year, the reserve relating to these options has been released to retained
earnings, with a further $167,000 released against the deferred tax asset held in relation to the options exercised.
Merger reserve
This reserve arose on the share for share exchange between INSPECS Holdings Limited and INSPECS Group plc.
At 1 January
Issue of share capital
Share for share exchange and merger reserve
Capital reduction
At 31 December
2020
$’000
–
(22)
68,802
(61,484)
7,296
2019
$’000
–
–
–
–
–
On 27 February 2020 immediately prior to IPO, options over Ordinary Shares held by PE investors were exercised (see note 30), with the
nominal value of the share capital satisfied by capitalisation of the merger reserve of $22,000.
In relation to the share for share exchange, INSPECS Group plc issued 49,898,522 shares for an aggregate value of $69,484,000
(£50,856,000). This gives rise to share capital of $682,000 (£499,000) and a merger reserve in accordance with section 612 of the
Companies Act 2006 of $68,802,000 (£50,357,000). The company’s merger reserve was subsequently reduced by $61,484,000
(£45,000,000) and the amount so reduced was credited to retained earnings and treated as realised profits.
7. CONTINGENT LIABILITIES
The company’s UK subsidiary Algha Group Limited (registered number 03240950) has taken advantage of the audit exemption
under Section 479A of the Companies Act 2006 for the year ended 31 December 2020. Consequently, the company has provided the
statutory guarantee in relation to the subsidiary’s liabilities. The third-party liabilities of the subsidiary at 31 December 2020 amounted
to $63,000 (2019: $295,000).
8. POST BALANCE SHEET EVENTS
Since the balance sheet date, but before these financial statements were approved, there were no material events that the directors
consider material to the users of these financial statements.
126
Appendix 1
RECONCILIATION OF UNDERLYING EBITDA (UNAUDITED)
for the year ended 31 December 2020
Revenue
Gross profit
Operating and distribution expenses, net of other operating income
Operating (loss)/profit
Movement in fair value on derivative
2020
$’000
2019
$’000
47,415
61,247
20,522
(23,462)
(2,940)
(740)
27,536
(19,591)
7,945
2,865
Operating (loss)/profit after movement in fair value on derivative
(3,680)
10,810
Add back: Amortisation
Add back: Depreciation
EBITDA
Add back: Share-based payment expense
Add back: Restructuring costs
Add back: Foreign exchange on funding for acquisitions
Add back: Post acquisition insurance costs
(Less)/add back: Movement in fair value on derivative
Underlying EBITDA
Operating (loss)/profit
Non-underlying costs
Negative goodwill on bargain purchase
Movement in fair value on derivative
Exchange adjustment on borrowings
Less: Net finance costs
Add: Share of profit of associate
(Loss)/profit before income tax
Tax
(Loss)/profit for the year
Underlying EBITDA
Add back Eschenbach underlying EBITDA loss
Underlying EBITDA excluding Eschenbach
1,607
2,299
226
1,706
185
1,085
563
740
1,088
2,037
13,935
1,917
–
–
–
(2,865)
4,505
12,987
(2,940)
(5,763)
506
(740)
(382)
(1,844)
–
(11,163)
2,250
(8,913)
2020
$’000
4,505
1,295
5,800
7,945
(2,827)
–
2,865
715
(1,365)
14
7,347
(907)
6,440
2019
$’000
12,987
–
12,987
127
> Corporate GovernanceINSPECS Annual Report & Accounts 2020> Financial Statements> Strategic Report Company Information and Advisers
REGISTRARS
Equiniti,
Aspect House,
Spencer Road,
Lancing BN99 6DA
FOR INVESTOR RELATIONS ENQUIRIES
PLEASE CONTACT:
investor.relations@inspecs.com
FOR ENQUIRIES PLEASE
CONTACT FTI CONSULTING:
Alex Beagley, James Styles, Fern Duncan
on 0203 727 1000 or
inspecs@fticonsulting.com
REGISTERED OFFICE
INSPECS Group plc,
7–10 Kelso Place
Upper Bristol Road,
Bath BA1 3AU
NOMINATED ADVISER AND
BROKER TO THE COMPANY
Peel Hunt LLP,
120 London Wall,
London EC2Y 5ET
LEGAL ADVISERS TO
THE COMPANY
Macfarlanes LLP,
20 Cursitor Street,
London EC4 1LT
AUDITORS
Ernst & Young LLP,
The Paragon Counterslip,
Bristol BS1 6BX
Annual Report 2020
inspecs.com/investors-results-and-reports/
128
REGISTERED OFFICE
INSPECS Group plc
7–10 Kelso Place
Upper Bristol Road,
Bath, BA1 3AU
www.inspecs.com