Inspecs Group PLC
Annual Report 2022

Plain-text annual report

Always looking forward 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 1 2 3 5 4 6 Cover 1. L.A.M.B. 2. CAT 3. BOTANIQ® 4. O’Neill 5. Titanflex 6. Barbour Business overview p05 Titanflex Our strategy p10 Savile Row Titanium Environmental, Social and Governance p24 Barbour Innovation p32 Liberty w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Company Overview 01 Highlights Strategic Report 03 Chairman’s review 05 Business overview 07 Our business model 10 Our strategy 11 Chief Executive Officer’s review 15 Market overview 16 Chief Financial Officer’s review 23 Key performance indicators 24 Environmental, Social and Governance 32 Innovation 35 Section 172 statement 37 Risk management Governance 42 Corporate Governance statement 43 How the Board operates 49 Senior Management 50 Audit and Risk Committee Report 53 Remuneration and Nomination Committee Report 57 Environmental, Social and Governance Committee Report 58 Directors’ Report 62 Statement of Directors’ Responsibilities Financial Statements 64 Independent Auditor’s Report to the Members of INSPECS Group plc 73 Consolidated Income Statement 73 Consolidated Statement of Other Comprehensive Income 74 Consolidated Statement of Financial Position 75 Consolidated Statement of Changes in Equity 75 Consolidated Statement of Cash Flows 76 Notes to the Consolidated Financial Statements 114 Company Balance Sheet 115 Company Statement of Changes in Equity 116 Notes to the Company Financial Statements 126 Appendix 1 – Comparative information in GBP 129 Company Information and Advisers H I G H L I G H T S INSPECS is a leading provider of eyewear solutions to the global eyewear market. From the largest optical chains to individual consumers we offer eyewear, lenses, combined packages and low vision optical aids. The Group has continued to expand, and our work in 2022 is already creating new opportunities in distribution and growth prospects for 2023. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 01 Revenue $248.6m Adjusted Underlying EBITDA $19.2m 2022 2021 2020 $248.6m $246.5m $47.4m 2022 2021 2020 Gross margin 49.2% 2022 2021 2020 Eyewear units sold 10.7m 2022 2021 2020 Loss after tax $(7.8)m 49.2% 47.0% 43.3% 2022 2021 2020 Cash flows from operating activities $12.4m 10.7m 10.4m 4.9m 2022 2021 2020 Basic and diluted loss per share Adjusted PBT diluted EPS $(0.08) $0.08 2022 2021 2020 $(0.08) $(0.05) $(0.13) 2022 2021 2020 BOTANIQ® w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F $19.2m $27.6m $5.8m $(7.8)m $(5.4)m $(8.9)m $12.4m $24.9m $0.4m $0.08 $0.17 $0.04 Contents Generation – PageContents Generation – Sub PageContents Generation – Section Our Strategy p10 Day Environmental, Social and Governance p24 Radley 03 Chairman’s review 05 Business overview 07 Our business model 10 Our strategy 11 Chief Executive Officer’s review 15 Market overview 16 Chief Financial Officer’s review 23 Key performance indicators 24 Environmental, Social and Governance 32 Innovation 35 Section 172 statement 37 Risk management Strategic Report 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 02 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C H A I R M A N ’ S R E V I E W In my first review as Chairman, I would like to start by thanking Lord Ian MacLaurin for his help and support during his tenure as INSPECS Group’s Chairman. Ian’s long career and extensive experience of the business world supported us through our IPO and helped us navigate the turbulent COVID waters. Robin Totterman, Chairman 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 03 Ian kindly extended his tenure with us from June until 1 December 2022, when Richard Peck replaced me as Chief Executive Officer, and I assumed the role of Executive Chairman. Along with the rest of the Board, I am deeply grateful for Ian’s immeasurable contribution. Board changes I am delighted that Richard Peck, an industry veteran who joined the INSPECS Board as a Non-Executive Director following our IPO in February 2020, assumed the role of CEO in December 2022. Richard’s knowledge of the Group, along with his deep understanding of the sector, has allowed him to hit the ground running. I am pleased that Hugo Adams and Shaun Smith joined as Non-Executive Directors in December 2022. Hugo’s significant experience in the retail sector and a proven track record of delivering growth for purpose-led consumer brands, paired with Shaun’s extensive plc experience in finance with international manufacturing and retail groups, will be invaluable through the next stage of the Group’s growth. Navigating challenging market conditions 2022 was, in many ways, another extraordinary year. We had to contend with the well-documented challenging business environment and experienced supply chain issues driven by ongoing COVID restrictions, rising energy prices and general scarcity of raw materials. In addition, the macroeconomic outlook and consumer confidence most notably deteriorated in Germany, a key territory for us, which is reflected in the Group’s order intake being down on the previous year. However, I am pleased to say the Group was able to raise its Gross Profit Margin from 47.0% in 2021 to 49.2% in 2022 due to increased pricing on new product and continued focus on the control of its supply chain costs. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C H A I R M A N ’ S R E V I E W CONTINUED Our UK lens business, Norville, required more time to turn the business into a solid performing addition to the Group. As a result, management has implemented a cost saving programme at the factory that helped to narrow losses in Q4. We expect the losses at Norville to reduce significantly in 2023, but its engineering excellence continues to assist our business as a whole. Investment progress Construction of the Group’s new factory in Vietnam will commence in the second half of 2023. Planning and development remains on-going for the factory in Portugal. We expect to see significant increases in our own factory-made products in 2024, driving growth for the medium term. INSPECS continues to develop cutting- edge products and technology with our innovations arm, Skunkworks, driving growth throughout the Group, and we expect to see ongoing positive results from the team’s hard work. Our design teams, situated in key locations across the globe, keep our offerings fresh and diverse. Outlook Following a year of consolidation, we now have a solid platform on which to build. The outlook for the Group and the eyewear sector remains positive despite the many headwinds we have encountered throughout the year. We continue to be mindful of global economic forces, as well as uncertain consumer demand, particularly in Europe, but feel well placed to provide attractive products at competitive prices. The balance of our worldwide presence, particularly our US operations, bolsters our positive outlook. We continue to invest in the business to enable the Group to deliver further growth. Robin Totterman Chairman 03 May 2023 +1% Revenue growth Top right: Brendel Bottom right: Tura Product Development 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 04 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F +6% Gross profit growth Contents Generation – PageContents Generation – Sub PageContents Generation – Section B U S I N E S S O V E R V I E W M I S S I O N Our strategic aim is to build a highly respected global eyewear company that delivers long‑term value for our stakeholders. To deliver a highly profitable and globally aligned eyewear group that creates a dynamic platform for growth, through our commitment to product, innovation, people and planet to 2030 and beyond. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 05 BOTANIQ® To offer the best affordable, desirable and innovative eyewear. Achieved through our core values Purpose We aspire to be a first class provider of global vision related solutions Growth We will underpin our growth by expanding the capability and synergies of our core business units Professionalism We will act with professionalism and Integrity in all our business activities Customer Focus We expect to meet all our customers’ eyewear needs Excellence We will continue to evaluate how we can improve on what we do Community We will support our environment and the communities where we operate Leadership We endeavour to inspire our colleagues and ensure there are opportunities for our employees to thrive w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section W H O W E A R E We are vertically integrated from design, to frame and lens manufacturing, sales, marketing and distribution. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 06 Design, Brands, Sales, Marketing and Distribution Eyewear and Lens manufacturing U S A CAT C O M P E T I T I V E E D G E • Strong key account customer base • Range of ‘low vision aid’ products • Strong independent • Patented intellectual customer base property (IP) • Manufacturing capabilities of lenses and frames • Robust network of talented employees • 28 licensed brands and 18 proprietary brands • Worldwide distribution • Dedicated research and development team w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section O U R B U S I N E S S M O D E L – W H AT W E D O Design Our design teams around the world follow the latest trends in the market and get inspiration from a variety of industries, including consumer fashion and beyond. Our design teams are principally in the UK, USA, Germany, Portugal and Sweden. Our drivers of success Robust network of talented employees Dedicated research and development team Manufacture Our product development teams work with our in-house design teams before passing designs on to our production teams. The Group now has manufacturing plants in Vietnam, China, UK and Italy. Our drivers of success Manufacturing capabilities of lenses and frames Market Distribute Our marketing teams work in tandem with brand owners and brand managers to bring products to the market. Through our network of 75,000 optical and retail outlets across 80 countries our products are sold both in well-known high street chains and independent opticians globally. Our drivers of success Blend of proprietary brands and licensed brands Patented intellectual property (IP) Range of ‘low vision aid products’ Our drivers of success Strong key account customer base Strong independent customer base 5 35 5.3m 28 Design studios Designers Frames supplied by Group factories Licensed Brands 18 Proprietary Brands 10.7m Distributed eyewear units Our growth opportunities Maximising Group resources and expertise Research and development department developing innovative new eyewear channels such as gaming and specialist lenses Our growth opportunities Further expansion of our manufacturing capabilities Our growth opportunities Travel retail markets around the globe and smart eyewear Our growth opportunities Use our worldwide distribution platform to increase penetration of our brand portfolio Increased distribution in Asian Pacific markets Savile Row Gold Eschenbach Lab Mini Eschenbach Warehouse 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 07 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section L I C E N S E D B R A N D P O R T F O L I O Targeted consumer 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 parties. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 08 O’Neill w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section P R O P R I E TA R Y B R A N D S Targeting specific market segments with our proprietary brand offer, we elevate group-owned patents and manufacturing techniques by building a brand around them and successfully taking them to market. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 09 Titanflex w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section O U R S T R AT E G Y Growth opportunities INSPECS’ continued growth confirms 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 six main drivers. Eschenbach Product Development 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 10 1. Use our worldwide distribution platform to increase penetration of our brand portfolio • The Group has successfully taken Superdry, Botaniq, O’Neill and Savile Row Titanium onto our worldwide distribution network • Further cross brand integration planned 2. Increase distribution in Asian Pacific markets 3. Travel retail markets around the world • 142% increase in sales across Asia to $8.0m in 2022 from $3.3m in 2021 • Targeted increases and development planned • Significant growth opportunities have been identified and pursued post COVID around the globe Humphrey’s 4. Maximising Group synergies, resources and expertise 5. Further expansion of our manufacturing capacities • Consolidation of offices and warehouses in Asia and the UK completed in FY22 • Further targeted consolidation synergies • Third Vietnam facility to begin construction in the second half of 2023, increasing frame capacity in Vietnam to 12 million 6. Research and development department developing innovative new eyewear channels • First commercial revenues generated FY22 • Targeting significant growth • Production targeted for major retailers and eyewear distributors • Portugal plant under negotiation w e i v r e v O y n a p m o C t t r r o o p p e e R R c c g g e e t t a a r r t t S S i i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C H I E F E X E C U T I V E O F F I C E R ’ S R E V I E W Having been on the Board of INSPECS as a Non‑Executive Director since IPO, I was delighted to assume the role of CEO on 1 December 2022. This was certainly a year of two halves in which the Group delivered a strong first half followed by a weaker second, owing to challenging market conditions. Richard Peck, CEO 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 11 Despite these challenges, we are pleased that we delivered total revenue of $248.6 million and adjusted underlying EBITDA of $19.2 million. During the first half of the year, we saw a good financial performance, with increases in both revenue and profit as a result of the ongoing integration of the Group’s businesses and increased distribution reach around the globe. However, the second half of the year was marked by a number of external challenges, including weakened market confidence in one of our primary markets, Germany, as a result of the conflict in Ukraine. We also faced significant headwinds from exchange rate fluctuations, as well as increases in raw materials, energy and shipping costs. In addition, the continuing COVID-19 restrictions mainly in China and Vietnam presented ongoing challenges to our manufacturing operations. Lenses Our lens business suffered a decrease in external revenue from $7.5m in 2021 to $4.3m in 2022, a reduction of 43%. Towards the end of 2021, the Group relocated its Norville lens manufacturing business from its old site at Magdala Road to a new state-of-the-art facility in Quedgeley, Gloucester. Whilst the construction of the new factory was completed on time and within budget, the relocation of the sensitive equipment from the old factory to the new one caused significant disruption in manufacturing capability, which in turn caused operating losses in the lenses segment to increase significantly, from $2.7m in 2021, to $5.0m in 2022. Our first priority was to calibrate the machinery and ensure that the quality and lead time of the product came back within industry standards, and this was achieved in the latter half of 2022. During Q4 of 2022, our focus then turned to increasing our revenue and operational efficiency. This resulted in reduced losses in Q4 of 2022 which are expected to significantly reduce in 2023. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C E O ’ S R E V I E W CONTINUED Frames and Optics Our frames and optics distribution business increased its external revenue from $211.5m in 2021 to $214.7m in 2022, growth of 1.5%. of our South Africa markets, and increased distribution in the Philippines. In 2023, the Group will continue to actively target further growth opportunities in this expanding market. UK: Our UK markets performed well in the second half of 2022. INSPECS’ strategy of replacing third-party distributors with own Group worldwide sales offices accelerated during the year and we expect this to continue to improve sales for the Group. The UK market remains positive so far in 2023 and we are continuing to increase our product distribution. Europe: Our European markets performed strongly in the first half of 2022. Towards the end of June 2022, we suffered headwinds principally in relation to a fall in consumer confidence which led to a reduction in our order intake in the latter half of 2022. Our cost base in Europe was also materially affected by the rapid decrease in the Euro against the Dollar which affected the operational performance of the business. North America: The US market remained stable in 2022. Our US companies are well positioned to increase revenue of Group products throughout 2023 and the eyewear market remains positive so far in 2023. Our US businesses are now fully engaged in selling leading brands such as Superdry, Radley and O’Neill, which were not available to them in earlier years. Asia and Australia: In 2022, the Group continued to increase its distribution in Asian markets from a relatively low level, which was supported by the appointment of new agents for the Middle East. We saw increased growth in Australia and New Zealand, the reopening Wholesale Our wholesale business which consists of our manufacturing facilities in Vietnam, China and Italy has had a good performance in 2022 with external revenue growth of 8%. We continue to invest in our facilities and expect construction of our new manufacturing facility in Vietnam to commence in the second half of 2023. Planning and development remains on-going for the factory in Portugal. These new facilities will allow us to increase production capacity, improve efficiency and bring new products to market more quickly. They will also be an important part of our efforts to expand into new markets and meet the growing demand for our products and services. The Board remains confident in the long-term strategic importance of these new facilities to our future growth and looks forward to works commencing. Acquisitions The Group made strong progress in integrating its most recent acquisitions, EGO Eyewear and BoDe Design, into the Group and putting our new brands to work across the organisation. In the first half of 2022, the Group continued with its acquisition strategy and identified further opportunities. This incurred significant legal and due diligence costs, however, due to the slowdown in our European markets and adverse currency exchange movements, together with continued losses at Norville, the Board took the decision to pause all acquisition processes in the second half of 2022. The Board continues 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 12 +3% Eyewear units sales growth to assess acquisition targets that would complement the Group’s existing portfolio and further enhance its proposition in the market. Top: Caterpillar Middle left: Glemaud Bottom left: Brendel Bottom right: BOTANIQ® +2.2pts Gross profit margin growth w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C E O ’ S R E V I E W CONTINUED Research and development Skunkworks, our research and development department, continues to develop an exciting and innovative business, supplying frames, lenses, and expertise to leading global technology firms. As a result, the business generated its first commercial revenues in 2022, with further growth expected in 2023. The team’s focus on cutting edge technologies and new materials has been particularly successful and we are excited that several new product launches in frames and packaging will take place later this year. Skunkworks has always been a key driver of innovation and growth within the business and we are confident that its continued success will play a significant role in driving our overall performance in the coming year. We are committed to investing in the development of new and innovative products and technologies and we believe that Skunkworks will be an important part of this effort. Operational efficiencies During the year, a number of cost reductions have been implemented to improve operational efficiencies. These included reductions in office space in Germany, the amalgamation of our two Hong Kong offices into one and the integration of International Eyewear Limited’s offices and warehouse operations with INSPECS Limited. The Group is also working on increased procurement efficiencies by consolidating our supply base where possible. The integration of INSPECS Limited and International Eyewear Limited has subsequently strengthened INSPECS Limited’s capabilities in the independent UK eyewear market. Market opportunity Operating in a resilient growing market, selling optical frames, we are confident that our business model and strategy will enable us to capitalise on this growth. The push for proprietary brand products made in Vietnam and customers looking for new suppliers following consolidation of competitors, all plays to our strengths. Our global teams continue to work hard on synergising, from product design to manufacturing and ultimately distribution, meaning the Group is well placed to capitalise on future growth. Environmental, Social & Governance Over the last 12 months our sustainability framework has been developed, clearly demonstrating the roadmap to our commitment to addressing critical environmental issues along with maintaining a positive environment for all our employees around the globe. Our focus on sustainable product and packaging is evident in the success of the Botaniq and O’Neill sustainable ranges. Our Group vision of ‘Always Looking Forward’ embeds itself into our Environmental, Social and Governance ‘ESG’, strategy and our purpose of innovation, commitment and integrity are reflected throughout. We consider ESG to be fundamental to the Group and further details regarding our sustainability framework are available on pages 24 to 31. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Top left: Savile Row Gold Bottom right: Jos 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 13 Contents Generation – PageContents Generation – Sub PageContents Generation – Section C E O ’ S R E V I E W CONTINUED CEO onboarding Since taking over as CEO, I have focused on getting to know our business even better. I have met with many key customers and travelled to all of our major locations, travel restrictions allowing, including our showrooms and distribution centres in North America, our manufacturing factories in Vietnam and the UK, our sales and distribution facilities in Nuremberg, Germany, and our design centre in Lisbon, Portugal. My focus has been on building good working relationships with the key people at these locations and focusing on our revenues and costs to ensure a strong start to the new financial year. A key strength of our Group has always been our people and I am very pleased with the standard and commitment of our teams in all of our territories. Our talented and dedicated employees are a key part of our success and I am confident that they will continue to drive our growth performance in 2023. Overall, I believe that our operations and management team are well positioned to navigate the challenges and opportunities that lie ahead, and I am committed to working closely with them to drive the continued growth and success of our Group. Current trading I am pleased to report that we have had good performance in Q1 2023 and are ahead of the same period in 2022. This was driven in part by a rebound in our European markets and continued growth in other markets. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 14 Outlook Looking ahead, we are optimistic about the future growth and success of the Group. There are a number of exciting opportunities on the horizon, including the opening up of China, the upcoming launch of key brands, Barbour and Superdry in new markets like North America and Asia, and the strong performance of our proprietary brands; Titanflex, Humphrey’s, Botaniq, Savile Row and Jos. In addition, we have a good order book in our factories and are seeing synergies from making more of our own products in our own factories and combining locations across the world. We will maintain our focus on driving revenues and controlling costs as we work to achieve our growth and profitability goals. We will also continue to invest in new technologies and innovations, as well as expanding our product offerings and services to meet the changing needs of our customers. Overall, we are confident in our ability to navigate the challenges and opportunities that lie ahead, and we believe that our talented team and resilient business model will allow us to achieve continued success. Richard Peck Chief Executive Officer 03 May 2023 Top left: BOTANIQ® Top right: Titanflex Middle top left: Humphrey’s Middle top right: Caterpillar Middle bottom left: Division Meeting at INSPECS HQ Middle bottom right: Viktor and Rolf Bottom right: Savile Row Titanium w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section M A R K E T O V E R V I E W During 2022, the eyewear market has not been immune to movements in the global economy. These movements include volatility in exchange rates, continued lockdowns and inflated prices. Cost inflation of raw materials, shipping, distribution and operating costs continued to impact the eyewear industry. Adverse exchange movements have impacted several countries. Despite these impacts, the market remains resilient with strong growth forecast. The eyewear market is made up of spectacle lenses, eyewear frames, contact lenses and sunglasses. Caterpillar By 2027 the global eyewear market is expected to grow to $168bn 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 15 Highlights • Revenue in the Eyewear market amounted to US$122.0bn in 2022 and is forecast to grow to US$141.5bn in 2023. Following this, the market is expected to grow annually by 4.4% (CAGR 2023-2027). • The market’s largest segment is the Spectacle Lenses segment, followed by the Eyewear Frames segment, with market volumes of US$59.0bn and US$39.6bn respectively forecast in 2023. • • • In the global comparison, most revenue is generated in the United States (US$33.8bn), followed by China (US $15.1bn) and Germany (US $8.5bn) forecast for 2023. In relation to total population figures, per person revenues of US$18.43 are forecast to be generated in 2023 compared to US$16.02 generated in 2022. In the Eyewear market, volume is expected to amount to 10.7bn pieces by 2027 from 8.5bn in 2022. • The average volume per person in the Eyewear market is expected to amount to 1.3 pieces in 2023. • By 2023, 85% of sales in the Eyewear market will be attributable to non-luxury goods. (Source: Statista) Global eyewear market value in US Dollars 2027 2026 2025 2024 2023 $168bn $161bn $154bn $148bn $142bn Global Eyewear market Market share by product (US$bn) Contact Lenses £15.73bn Eyewear Frames £34.31bn Spectacle lenses £50.87bn Sunglasses £21.07bn Source: Statista – Nov 2022 4.4% Compound annual growth expected from 2023 – 2027 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C H I E F F I N A N C I A L O F F I C E R ’ S R E V I E W Whilst the Group had a positive H1 with sales of $138.4m and an Adjusted Underlying EBITDA of $15.1m, the Group suffered from the continuing uncertainty in Ukraine and a slowdown in our European markets in H2. Chris Kay, CFO 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 16 Combined with a rapidly decreasing Euro against the US Dollar, and continued losses at Norville, this meant our H2 performance was not in line with our expectations. The Group has taken action to reduce non-operational costs, and is working on strategic efficiencies across the Group to increase our key performance indicator of Adjusted Underlying EBITDA. Our FY22 results showed an increase in sales from $246.5m to $248.6m. The Group delivered Adjusted Underlying EBITDA of $19.2m (FY21: $27.6m). On a constant currency basis* our sales increased from $246.5m to $265.7m an increase of 8%. Reported loss before tax of $9.5m (FY21: $9.1m) is after incurring a PPA release on inventory ($0.2m) (FY21: $6.0m), exchange adjustments on borrowings ($2.5m) (FY21: $5.4m) and impairment of intangible assets ($0.0m) (FY21: $3.4m). The Group along with its advisers, has discussed a change in the Group’s reporting currency for 2023. As such the Group will report its interim numbers to 30 June 2023 in Pounds Sterling, with a summary of the results in US Dollars for comparative purposes. The Group delivered Adjusted Underlying EBITDA of $19.2m (FY21: $27.6m). * Constant exchange rates: figures at constant exchange rates have been calculated using the average exchange rates in effect for the corresponding period in the relevant comparative year. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C F O ’ S R E V I E W CONTINUED Revenue Gross profit Underlying operating expenses Adjusted Underlying EBITDA Share based payment expense FY22 $’000 248,577 122,286 FY21 $’000 246,471 115,772 (103,083) (88,216) 19,203 (1,729) 27,556 (1,484) Depreciation, amortisation and impairment of intangible assets (16,868) (18,450) Earnout on acquisitions Loss on acquisitions in year Purchase price adjustment Operating (loss)/profit before non-underlying costs Reconciliation to reported results Operating (loss)/profit before non-underlying costs Non-underlying costs Exchange adjustments on borrowings Share of associate profit/(loss) Net finance costs Loss before tax Tax credit Loss after tax (1,909) – (164) (1,467) (1,467) (1,814) (2,528) 23 (3,695) (9,481) 1,665 (7,816) – (90) (5,991) 1,541 1,541 (2,588) (5,418) (10) (2,657) (9,132) 3,697 (5,435) Revenue Total revenue for the year was $248.6m, an increase of $2.1m from $246.5m in 2021. On a constant currency basis revenue increased from $246.5m to $265.7m, an increase of 8%. Excluding the acquisitions of BoDe Designs and EGO Eyewear in December 2021, revenue increased from $246.2m to $252.4m on a constant currency basis, an increase of 3%. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 17 Gross margin The Group’s gross margin overall was 49.2% compared to 47.0% in 2021, an increase of 220 basis points from the previous year. This increase was partly due to the mix of sales between independent opticians and our traditional chain business. The Group has continued to be able to introduce price increases on new products and has continued to control costs across its supply chain where possible, resulting in an overall improvement in margins. Adjusted Underlying EBITDA The Group targets Adjusted Underlying EBITDA as its key operating performance indicator. Our Adjusted Underlying EBITDA decreased by $8.4m, from $27.6m to $19.2m, a decrease of 30% in 2022. The decrease was primarily caused by three main factors. Firstly, the continued losses at Norville. Secondly, the effects of the decrease in the value of the Euro against the Dollar, particularly in the first ten months of the year. Thirdly, a slowdown in our European markets. German consumer confidence fell to a 25 year low in October 2022, and this impacted the order intake in Q3 and Q4 of 2022. Operating expenses Our operating expenses increased from $114.2m in 2021, to $123.8m in 2022. Excluding the acquisitions made in 2021, our total operating expenses increased from $114.1m to $117.0m, an increase of $2.9m or 3%. Our administrative expenses, excluding acquisitions, increased by 13%. This reflects the reversal of the reduced costs of the group in Q1 and Q2 of 2021 due to COVID restrictions. The Group has implemented a cost reduction strategy on non-operational costs in Q4 of 2022 to drive our Underlying EBITDA margin in the future. Year Ended 31 December 2022 $’000 Acquisitions EGO & BoDe $’000 Year Ended 31 December 2022 $’000 Adjusted 248,577 122,286 7,783 61,552 54,418 12,842 3,734 62 2,318 4,440 235,735 118,552 7,721 59,234 49,978 Adjusted Year Ended 31 December 2021 excluding EGO & BoDe $’000 Percentage change 246,233 115,744 7,792 62,111 -4% 2% -1% -5% 44,178 13% 123,753 6,820 116,993 114,081 3% Revenue Gross profit Distribution Wages & salaries Administrative Total operating expenses w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C F O ’ S R E V I E W CONTINUED The table below sets out our operating costs, adjusted for the acquisitions of BoDe Design and EGO Eyewear, as a percentage of revenue. Adjusted Year Ended 31 December 2022 $’000 Percentage of revenue Adjusted Year Ended 31 December 2021 $’000 Percentage of revenue 235,735 118,552 7,721 59,234 49,978 – 50% 3% 25% 21% 246,233 115,744 7,792 62,111 44,178 – 47% 3% 25% 18% Revenue Gross profit Distribution Wages & salaries Admin Loss before tax In 2022, the Group made a statutory loss before tax of $9.5m (FY21: loss $9.1m), an increase of $0.4m. The Group made an Adjusted Underlying EBITDA of $19.2m (FY21: $27.6m). Key items impacting the current year’s results are as follows: Depreciation and amortisation The Group’s depreciation and amortisation charge is set out below. Amortisation costs principally arise on the capitalisation of customer relationships and order books on acquisitions. 31 December 2022 $m 31 December 2021 $m Depreciation Amortisation Total 8.4 8.5 16.9 7.4 7.6 15.0 Exchange adjustments on borrowings The exchange adjustment on borrowings primarily relates to intragroup loans, where the functional currency of the entities differs from the loan currency and presentational currency. This exchange adjustment also relates to the revolving credit facility held in Euros and USD. Share based payment expense The Group has a LTIP scheme in place that vests over a period of three years from the date of the grant of the option at market value, and is subject to the continued employment of the individual over that period. The Group has recognised a non-cash charge of $1.7m in 2022 (FY21: $1.5m). The scheme is designed to give the equivalent of one year’s salary to an individual over that three year period. Details of all options granted are shown in note 32 to the accounts. No nil-cost options have been granted to date. The Remuneration and Nomination Committee is currently reviewing the option scheme with outside advisers. Adjusted Underlying EBITDA Non-cash adjustments 1. Depreciation and amortisation 2. Purchase Price Allocation (‘PPA’) release on inventory 3. Intangible asset impairment 4. Exchange adjustments on borrowings 5. Share based payment expense 6. Earnout on acquisitions 7. Other Sub-total Non-underlying costs Net finance costs Loss before tax 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 18 2022 $m 19.2 (16.9) (0.2) – (2.5) (1.7) (1.9) – (4.0) (1.8) (3.7) (9.5) 2021 $m 27.6 (15.0) (6.0) (3.4) (5.4) (1.5) – (0.1) (3.8) (2.6) (2.7) (9.1) +8% Revenue increase on a constant currency basis L.A.M.B. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C F O ’ S R E V I E W CONTINUED Earnout on acquisitions Non-underlying costs The acquisitions of EGO Eyewear and BoDe Designs in December 2021, both contain amounts due for contingent consideration, based on the performance of those businesses. In the year 2022, the amounts payable under the agreements amounted to $1.9m, and have been charged to the profit and loss account in accordance with IFRS 3. Further contingent consideration is expected to arise in 2023, and 2024, and will be subject to the performance of those businesses. Net Finance Costs Bank loan interest increased by $0.4m primarily due to rising interest rates during the year. The amortisation of loan transaction costs relates to the refinancing charges that are amortised over the period of the financing facilities available to the Group. The Group incurred $1.8m of non-underlying costs in 2022 (2021: $2.6m). During the year the Group incurred fees relating to potential acquisitions amounting to $1.1m. The Group also incurred restructuring costs of $0.5m which related to the amalgamation of our Hong Kong offices and the rationalisation of our warehousing facilities and offices in the UK following the integration of International Eyewear with INSPECS. Prior year adjustment Following the acquisition of EGO eyewear and BoDe design, a deferred consideration liability was created. Following a review in 2022 it has been determined that the contingent part of the deferred consideration is to be treated as remuneration. The deferred consideration creditor of $5.4m is no longer required. We have therefore restated our 2021 statement of financial position to reflect this. There is no profit or cash impact as a result of this adjustment. Bank Loan Interest Invoice Discounting IFRS 16 lease interest Interest Receivable Net Finance Cost Amortisation of loan transaction costs Total net finance costs 2022 $m 2021 $m 2.2 0.1 0.6 (0.1) 2.8 0.9 3.7 1.8 0.1 0.5 (0.1) 2.3 0.4 2.7 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 19 Cash position During the year, the Group generated $12.4m in cash flows from operating activities (2021: $24.9m). The cash generated from operating activities was reduced by an increase in working capital of $5.8m in 2022 as opposed to a reduction of $7.2m in 2021. The Group has used the cash generated to continue to invest in new plant and equipment, and to enhance the Group’s long-term growth strategy. An analysis of how the Group has deployed its free cash flow in the year is set out below. Cash and cash equivalents at the beginning of year Net cash from operating activities Net cash used in investing activities Net cash (used in)/from financing activities (Decrease)/increase in cash and cash equivalents Foreign exchange movements in the year 31 December 2022 $’000 31 December 2021 $’000 29,759 5,077 (4,189) (4,398) (3,510) 550 23,776 20,017 (15,661) 1,704 6,060 (77) Cash and cash equivalents including overdrafts at the year end 26,799 29,759 The breakdown of net cash used in investing activities is Purchase of intangible fixed assets Purchase of property, plant and equipment Acquisition of subsidiaries, net of cash acquired Purchase of shareholding in associate Interest received (1,042) (3,193) – (88) 134 (1,508) (6,137) (8,134) – 118 Net cash used in investing activities (4,189) (15,661) w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Current asset ratio The current asset ratio is a liquidity ratio that measures a company’s ability to pay its short- term obligations, or those due within one year. C F O ’ S R E V I E W CONTINUED Working capital The Group closely monitors its working capital position to ensure that it has sufficient resources to meet its day-to-day requirements and to fund further investing activities to supply its customer base. Debtors Year ended 31 December 2022 Year ended 31 December 2021 Total 30 Days 60 Days 90 Days Total 30 Days 60 Days 90 Days Debtors ($) 27.4m 18.5m 4.7m 4.2m 29.4m 18.4m 6.6m 4.4m Percentage 100 68 17 15 100 63 22 15 Inventory Our sales to inventory ratio decreased from 4.4 to 4.3. The Group constantly monitors its working capital position, with a view to increase the sales to inventory ratio where possible. Turnover Inventory Sales to inventory ratio Loan Reclassification 31 December 2022 $m 31 December 2021 $m 248.6 58.3 4.3 246.5 55.7 4.4 Current assets Current liabilities Ratio Current assets Current liabilities Loan in technical breach Adjusted current liabilities Adjusted ratio As at 31 December 2022, it was determined that INSPECS Limited, who holds the revolving credit facility on behalf of the Group, was in technical breach of its cashflow cover loan covenant. This has resulted in the reclassification of the loan balance ($45.7m) to a current liability in line with IAS 1. Subsequently, the bank has waived the cashflow cover and leverage covenants at 31 December 2022. The following ratios include an adjusted ratio to show the effect of this loan reclassification. On page 23 we include a KPI of adjusted net current assets. This reflects the Group’s current assets minus the adjusted current liabilities calculated to the right. 1.5 Adjusted current asset ratio 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 20 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Year ended 31 December 2022 $m Year ended 31 December 2021 $m 127.2 129.4 1.0 131.1 82.9 1.6 Year ended 31 December 2022 $m Year ended 31 December 2021 $m 127.2 129.4 45.7 83.7 1.5 131.1 82.9 – 82.9 1.6 Barbour Contents Generation – PageContents Generation – Sub PageContents Generation – Section C F O ’ S R E V I E W CONTINUED Quick ratio Net debt The quick ratio is an indicator of a company’s short-term liquidity position, and measures a company’s ability to meet its short-term obligations with its most liquid assets. The Group’s opening net debt, including and excluding lease liabilities, is shown below. During the year the Group increased its net debt excluding leases from $32.7m to $33.4m. Current assets Less inventory Current liabilities Ratio Year ended 31 December 2022 $m Year ended 31 December 2021 $m 127.2 (58.3) 68.9 129.4 0.5 131.1 (55.7) 75.4 82.9 0.9 As described above, the table below shows the effect of the movement of the bank loans to current, from due after one year. The Group has significant cash reserves, resulting in the net debt position as set out below. Cash at bank Borrowings Lease liabilities Net debt Net debt (excluding lease liabilities) Year ended 31 December 2022 $m Year ended 31 December 2021 $m 26.8 (60.2) (24.2) (57.6) (33.4) 29.8 (62.5) (22.4) (55.1) (32.7) Year ended 31 December 2022 $m Year ended 31 December 2021 $m 127.2 (58.3) 68.9 83.7 0.8 131.1 (55.7) 75.4 82.9 0.9 Current assets Less inventory Adjusted current liabilities Adjusted ratio 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 21 $26.8m Cash at bank Viktor & Rolf w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C F O ’ S R E V I E W CONTINUED Financing The Group finances its operation through the following facilities. Group revolving credit facility Term loans Revolving credit facility USA Invoice discounting Total Amount $m 37.0 18.7 10.0 3.0 68.7 Expires October 2024 October 2024 1-year rolling 1-year rolling Drawn at 31 December 2022 $m 36.4 13.3 8.7 1.8 60.2 Leverage (using debt to equity ratio) The Group’s leverage position is shown below including and excluding leasing finance: Including leasing finance Excluding leasing finance Required ratio 2022 2.24 2.07 2.25 2021* 1.51 1.34 2.0 * The Group’s 2021 leverage ratios have been restated, to reflect the agreement by HSBC that interest on property leases is excluded from the leverage calculation as agreed in October 2022. The Group’s leverage is constantly updated, and a rolling projection for 12 months is reviewed to ensure compliance with the Group’s covenants. In January 2023, the Group’s bankers HSBC, waived its leverage ratio requirement at the 31 December 2022 and raised its leverage test to 3.0 for the three quarters to 30 September 2023. The maximum leverage ratio requirement will reduce to 2.25 at 31 December 2023 and for subsequent quarters until the facility matures in October 2024. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 22 Earnings per share Year ended 31 December 2022 Basic loss per share Diluted loss per share Adjusted PBT basic EPS Adjusted PBT diluted EPS Basic weighted average number of Ordinary Shares (‘000) Total earnings/ (loss) $’000 Earnings/(loss) per share $ 101,672 107,554 101,672 107,554 (7,816) (7,816) 8,139 8,139 (0.08) (0.08) 0.08 0.08 Dividend The Group does not intend to pay a dividend for the year ended 31 December 2022. A dividend of $1.6m was paid during 2022 in respect of the year ended 31 December 2021. Going concern The Directors have undertaken a comprehensive assessment of the Group’s ability to trade out to 30 June 2024. Details of this are given in the Directors’ report on pages 60 and 61. Taking this into consideration, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue to trade throughout the review period. Therefore, the Directors continue to adopt the going concern basis in preparing the consolidated and Parent Company financial statements. Chris Kay Chief Financial Officer 03 May 2023 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section K E Y P E R F O R M A N C E I N D I C AT O R S Our business focuses 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. Revenue $248.6m Adjusted net current assets $43.5m Gross profit $122.3m Adjusted Underlying EBITDA $19.2m 2022 2021 2020 +1% $248.6m $246.5m $47.4m 2022 2021 2020 ‑10% $43.5m $48.2m $56.2m 2022 2021 2020 +6% $122.3m $115.8m $20.5m 2022 2021 2020 ‑30% Gross profit margin 49.2% 2022 2021 2020 49.2% 47.0% 43.3% +220 Basis points Eyewear units sold 10.7m 2022 2021 2020 +3% Adjusted PBT diluted EPS Net cash from operating activities $0.08 $5.0m 10.7m 10.4m 4.9m 2022 2021 2020 ‑53% $0.08 $0.17 $0.04 2022 2021 2020 ‑75% 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 23 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F $19.2m $27.6m $5.8m $5.0m $20.0m $(0.75)m Contents Generation – PageContents Generation – Sub PageContents Generation – Section E N V I R O N M E N TA L , S O C I A L A N D G O V E R N A N C E As detailed in our 2021 Annual Report, we have set out our goals to ensure we are doing the best we can for the planet, our customers, our employees and all our stakeholders. Planet As a Group, our global offices to be carbon neutral by 2030 (Scope 1 & Scope 2). People Each of our major operations to engage with local community projects each year. Packaging 100% recyclable by 2025. Product Innovative development projects to increase our sustainable product offering. Procurement Collaborate with our key suppliers to integrate ESG best practice and enhance supply chain sustainability. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Environmental What we can do, what we will do and what we are doing to make INSPECS Group a leading environmentally responsible eyewear company. For more on Environmental see pages 25 to 27 Social We are committed to the continued building of our positive and inclusive culture. For more on Social see pages 28 to 30 Governance We want to make sure we always act in the best interests of our stakeholders in the business, improve our performance and unlock new opportunities. For more on Governance see page 31 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 24 BOTANIQ® Contents Generation – PageContents Generation – Sub PageContents Generation – Section We have continued our tree planting initiative by working with Ecologi and their planting partners. Over 2,500 trees were planted in the UK in early 2023. Over time these trees will help to remove carbon from the atmosphere and contribute towards enhancing air quality. Environmental We have set clear priorities for our business and continue to look for ways to improve as we evolve. We have worked with Ecologi and First Climate on renewable energy projects in Sri Lanka and Vietnam to help towards offsetting our Group’s carbon emissions. The purpose of the projects is to generate clean electricity through the utilisation of wind energy and hydropower. Over and above the direct environmental benefits, the projects also create employment opportunities. 2022 has been a year where we have been able to embrace our ESG roadmap by building on our reporting data with Diginex and the entities across the group, taking steps to reduce our environmental impact and introducing new emission offsetting projects with Ecologi and First Climate. Our ESG best practice is to integrate sustainability, so it becomes a seamless consideration in all that we do. With strong social and governance frameworks, we have the ability to offer sustainable solutions with packaging and product. With our collaboration throughout the Group, we are able to bring innovative environmental solutions to our customers to firmly cement our place in the future of sustainable eyewear. Its been really positive to be a part of adding back to the community and the world around us. The focus for our community projects for 2022/2023 has been the environment and eye health (detailed on pages 28 and 29). As the world of ESG grows so does the understanding of our teams around the globe. We held our first ESG Committee meeting with two members of the Board, the Group ESG, Compliance and Risk Officer, and the Head of Innovations. Being able to work together to improve what we do and how we do it is a positive change for all our futures. We aim to support our employees, our customers and our key stakeholders to a world of always looking forward and building better. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 25 The collation of our Group emission data commenced in a year where we were hit by the pandemic. Whilst the pandemic has changed the way we operate with more working from home options and fewer face-to-face meetings, we recognise the importance of travel. During 2023, we will continue to work with all our manufacturing and office sites to review how we can minimise emissions and costs to include recycling more, conscious travelling, targeted procurement and waste control. Our ESG framework is based on the core elements of the Global Reporting Initiative (GRI), the emissions data as per Streamlined Energy and Carbon Reporting (SECR), and in-line with the UN’s Sustainability goals. As we move into 2023 our focus will be building on our current framework for the Task Force for Climate-related Financial Disclosure (TCFD) reporting. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section E N V I R O N M E N TA L CONTINUED Streamlined Energy and Carbon Reporting (SECR) Greenhouse Gas emissions (tCO2e) and Consumption (kWh) Totals: The total consumption (kWh) figures for energy supplies reportable are as follows: Global GHG emissions data Scope 1 Combustion of fuel (stationary and mobile), process emissions and refrigerants Scope 2 Electricity purchased and heat and steam generated for own use: Unit 2022 2021 (Restated) Utility and Scope tCO2e 1,361.37 1,197.80 Fleet Transportation (Scope 1)** Grid-Supplied Electricity (Scope 2) Gaseous and other fuels (Scope 1)* Business Transportation (Scope 3)** Leased assets (Scope 3)*** Location based Market based Scope 3 tCO2e tCO2e 3,154.93 3,186.69 Total 2,812.14 2,736.25 Excludes refrigerants as the data cannot be converted to kWh. * ** Excludes non-car business travel as the data cannot be converted to kWh. *** Excludes water as the data cannot be converted to kWh. 2022 Consumption (kWh) 2021 Consumption (kWh) (Restated) 6,160,806 1,277,010 4,600,440 255,842 1,307,846 6,068,841 1,262,675 3,970,786 173,525 1,348,909 13,601,944 12,824,736 Business travel, water supply and treatment, transmission and distribution losses from purchased electricity, upstream leased assets Total GHG emissions – location based Total GHG emissions – market based tCO2e tCO2e tCO2e 728.35 579.97 5,244.65 4,964.46 4,901.85 4,514.02 2021 scope 1 and scope 3 data has been re-stated to account for a reporting discrepancy which overstated fleet vehicle mileage for one of our sites along with their district heat and steam consumption figures for a leased building. The location-based method reflects the average emissions intensity of grids on which energy consumption occurs (using mostly grid average emission factor data). The market-based method reflects emissions from electricity that companies have purposefully chosen, using source or supplier-specific emission factor where available. The emissions stated are for our global operations that span the UK, Europe, United States of America and Asia. Our UK and offshore GHG emissions (location-based) for 2022 is 608.51 tCO2e. Our emissions data covers our subsidiaries where we have operational control. Unless otherwise stated, all figures cover the period from 1 January to 31 December 2022. The data in 2021 does not include EGO Eyewear and BoDe Design due to the timing of the acquisitions. Scope 1, 2 and 3 emissions (tCO2e): This reporting period vs previous reporting period 1,361.4 1,197.8 Scope 1 2022 2021 Scope 2 2022 2021 Scope 3 2022 2021 728.4 579.97 3,154.9 3,186.7 BOTANIQ® 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 26 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section E N V I R O N M E N TA L CONTINUED Methodology We have calculated our 2022 carbon footprint using the fundamental principles of the GHG Protocol, which is the internationally recognised standard for corporate carbon reporting. We have used a bottom-up consumption/activity-based approach to calculate emissions across all our sites globally. We calculate our direct emission figures using actual consumption data from smart meters, accurate meter readings and invoicing, access to this type of data is not always possible. Where data was not available, electricity and water consumption were estimated using a kWh or cubic meter per full time employee factor, 0.38% of total emissions reported is from estimated source data. SECR Commitment In 2022, over 55% of our total global emissions were generated by our factories in Vietnam and China. Our factories have worked hard to identify opportunities to improve energy efficiency throughout 2022. Our factory in China upgraded less efficient machinery and equipment with new efficient models to reduce electricity consumption. Our factory in Vietnam installed LED lighting in their production area and installed electricity meters in each department to more accurately measure energy consumption. The energy consumption of each department will be closely monitored during 2023 and beyond, and improvement plans will be implemented where possible. As a Group we have continued with our focus on regular servicing and maintenance of equipment, installing LED lighting where possible and encouraging our teams to switch off lights and equipment when not in use. We are exploring other ways to improve the efficiency of the buildings we own and reduce energy loss. Building efficiency will remain a consideration for the Group when purchasing or leasing a space for the first time and when renewing any existing lease arrangements. We will continue to review our sites, particularly our factories, to ensure we are improving the efficiency of our processes. Intensity Ratio Scope 1 and Scope 2 Emissions per $1m turnover (tCO2e) Scope 1 and Scope 2 Emissions per full time equivalent employees (tCO2e) 2022 2021 (Restated) 18.17 2.59 17.79 2.62 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 27 4,539 tCO2e offset through renewable energy projects O’Neill Over 28,600 frames distributed to charities in 2022 BOTANIQ® BOTANIQ® O’Neill 2022 Carbon Emissions by Region Europe UK China Vietnam Japan USA 2.59 Emissions per full time equivalent employees (tCO2e) w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Social We are committed to building a positive and inclusive culture. Community Our role in the community is very important to us. Our local community is a source of recruitment, supports our infrastructure, and being part of local projects helps us feel part of the community around us. Across the Group we have embarked on various projects in 2022/2023 to be able to give a little back. Here are a few examples. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 28 Norville VCHP Partnership Our manufacturing site in Gloucester works closely with Vision Care for Homeless People (VCHP), a UK-wide charity. Norville provides glazing for VCHP Gloucester Clinic and assists in pop-up clinics in surrounding areas. Norville supplies the lenses and glazes the frames to support people in the local community. The team at Norville are committed to assisting the charity in meeting the visual needs of homeless and vulnerable people in the community. Norville Lens Factory INSPECS Ltd – The Conservation Volunteers (TCV) INSPECS collaborated with The Conservation Volunteers (TCV) to provide the team with the opportunity to volunteer in projects that benefit the local community. The INSPECS Limited team spent the day outdoors planting raised flower beds and preparing ground for a wildflower meadow at a community sports centre in Bristol, where they are currently implementing a green space for the local community to use and enjoy. Each of the team enjoyed giving back to the community whilst engaging with colleagues and being more connected with nature. Tura – Donation projects In 2022, Tura worked with Canadian Vision Care (CVC) and donated 4,600 frames. CVC work with various projects in developing countries providing primary eye care to individuals around the world. This year Tura have also worked with ‘Bags of Love’ who have been established for 15 years helping children in crisis. Bags of Love provide children with essentials and toys and Tura are proud to be able to donate sunglasses for teens. Eschenbach Optik Eschenbach Optik is supporting the aid organisation BRILLEN-ohne-GRENZEN who distribute frames and sunglasses to help projects in developing countries across Africa, Asia and South America. At the end of 2022, Eschenbach delivered 24,000 frames, which included a wide range of children’s and adult’s eyewear, with an average retail value of over €1.4 million. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section S O C I A L CONTINUED Collaboration Great people, innovation and a hunger for excellence is at the heart of what we do. We already run a successful intern programme with Eschenbach at our Nuremberg offices. We seized the opportunity to expand on great people and new ideas and started work with the University of Bath in the UK this year. In our Group Skunkworks team, we have a Mechanical Engineering student. This placement is helping the team explore new product materials across their innovative project work, CAD modelling of new technologies, and sustainable packaging replacement concepts. At our Norville site in Gloucester, we have a Chemical Engineering student who is working in the testing and coating labs and investigating new technologies and methods of application. This research and development work is proving to be extremely beneficial to the current processes. Building knowledge with the new manufacturing machinery is opening new opportunities within our Group. We want to develop our inclusive culture and provide opportunities and accessible training where students can be themselves and bring new ideas to an environment where they feel supported. We look forward to exploring other opportunities in the future. INSPECS & Eschenbach Co-Working 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 29 INSPECS Finance Team Co-Working Health & Safety We all want to keep our employees and visitors safe. Running any business leads to an element of Health & Safety reporting and actions. At INSPECS we have four manufacturing sites and many distribution centres, so we work hard to keep all our sites safe. Health & Safety remains on the standing agenda for our Board meetings, and we continue our regular assessments and external reviews to ensure we comply with legislation and maintain a safe working environment. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Focus groups We have already made significant steps forward with the team’s involvement in collecting emissions and social data for the Group’s ESG reporting. To continue with our collaboration for 2023, we will be setting up ‘focus’ groups. This will provide the opportunity for our teams to have a greater voice and grow our ideas to truly engage in a better environment for us all. Not only will the focus groups look at environmental projects, they will also review the social aspect of working for the Group and the possible new opportunities ahead. We continue to track all accidents internally and discuss these at Board level. For the purposes of our external reporting, we will continue to report using the RIDDOR classification standard across the Group. For 2022, we had no significant incidents at any of our sites. All accidents are investigated, and refresher training provided as necessary along with any updates to our safety procedures. Contents Generation – PageContents Generation – Sub PageContents Generation – Section S O C I A L CONTINUED Diversity, Equity and Inclusion Our employees represent different nationalities, cultures, backgrounds, gender and sexual orientations. We are determined to foster a culture of equity and mutual respect where all our employees feel valued and their contributions recognised. As a group we have a diverse workforce, and the Board will continue to engage in discussion for a greater balance in gender and ethnic diversity within our leadership teams. We have further enhanced our efforts to ensure an inclusive culture and have worked hard on our Code of Conduct to ensure a united policy where everyone is treated fairly and with respect. We will continue to listen to our employees and respond to employee needs on an ongoing and real-time basis. The Group is an equal opportunity employer and follows all applicable laws. We value the contributions, perspectives, and talents of all the individuals in our global workforce. The Group will not allow any discrimination in any of its business operations nor engage with other organisations where such activity is detected. Retention and a balanced workforce is really important to us. Reviewing the employee mix indicators helps us asses our people management practices. Board Total 2022 2021 Female 2022 2021 1 1 Male 2022 2021 7 6 6 5 Total employees Total 2022 2021 Female 2022 2021 Male 2022 2021 1,732 1,672 1,160 1,187 572 485 INSPECS Development Team Employee mix Board Diversity 2022 Board Diversity 2021 Employee Diversity 2022 Employee Diversity 2021 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 30 Male Female Length of service 38% < 2 years’ service 62% > 2 years’ service Category Age 60% Production 25% Operational sales 15% Administration 9% < 30 years 67% 30-50 years 24% > 50 years w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Governance The Board plays a key role in developing the direction of ESG within the Group. BOTANIQ® 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 31 ESG has been on the Board standing agenda since 2021. The ESG Committee has now been formed, with its first formal meeting in November 2022. The ESG Committee comprises of three Non-Executive Directors, Angela Farrugia (Chair), Hugo Adams and Christopher Hancock, along with the Group ESG, Compliance and Risk Officer, Angela Eman, and the Head of Innovations, Nick Youle. The committee will meet at least twice a year and draws on the expertise around the business as required. Key areas that the Committee will be focusing on: • Approach, development, strategy and implementation for ESG initiatives. • Review reporting and governance performance and execution. • Advise on appropriate, relevant and effective polices and legislative requirements. • Approve projects and investment in line with the ESG roadmap. In 2022, the Group completed a review of its Anti-bribery and corruption (ABC) policy and associated processes. The Group takes a zero-tolerance approach to bribery and corruption. We circulated our ABC questionnaire to the Board, executive team, senior teams and all those deemed necessary based on customer, supplier and third-party contact. A review of the data has been completed and targeted training will be provided during 2023 to continue our full compliance with the ABC policy. In line with governance controls and environmental reporting we are launching a trial in our UK head office and with INSPECS Ltd to use an app to record and report on expenses. With less paperwork and reduced manual data entry it will be a time efficient process for finance and will add greater control with clear authority checkpoints. It will also accurately capture the data for our emissions calculation, such as business travel data for scope 3 emissions reporting. If successful, we will be able to roll this app out to other parts of the Group. We have developed our Group Code of Conduct and its associated polices. As the Group continues to evolve our commitment to upholding the highest ethical and legal standards remains paramount. Our Code of Conduct is designed to give guidance on our polices. We have a wide and diverse footprint, so the document is not set to cover everything but to give a Group guide and set out our principles. We expect everyone to promote a culture of transparency and an environment where we all feel comfortable raising questions and reporting concerns. BOTANIQ® w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Skunkworks INNOVATION 02 New Material Generation 03 Smart Eyewear Development Continued investigations to develop new polymers for the eyewear industry and new packaging solutions Further exploring opportunities within this arena, working in collaboration with multiple providers to gain a foothold within the field of technology 01 Innovative Eyewear Collections Totally unique Gaming range consisting of original design work, technical features, highly specialised gaming lenses and packaging, all presented as a complete solution 04 Lens Technology Utilising the knowledge and expertise at Norville to develop new concepts 05 ESG Support Environmental, Social and Governance support regarding packaging solutions and community projects We at INSPECS pride ourselves on our innovative approach. Creative evolution is at the forefront of everything we do. Unafraid to break the traditional status quo within the eyewear industry, INSPECS challenges both material and technological barriers, eliminating them through forward thinking design and radical cutting- edge ideation. With the confidence to take on ambitious goals, coupled with the motivation to identify where things can be improved upon. INSPECS is an industry leading disruptor, focussed on ingenuity and originality. Our Skunkworks department has been focusing on five key categories this year. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 32 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Continuous innovation 02 01 Innovative Eyewear Collections New Material Generation We have focused this year on a new packaging solution, developing a clear plastic substitute bag in response to the challenges surrounding our industry. We are very excited to continue the development of our eco packaging further, through user testing and certification. We have continued to develop our graphene innovation with prototypes developed in 2022 which are currently being tested by the eyewear market. During the year Skunkworks has been developing a unique range of computer gaming frames with solutions to technical issues, utilising cutting-edge industrial design and material realisation. This range is totally original and packed full of innovation, using techniques rarely seen in the eyewear world. The revolutionary design features are packaged as a complete solution, including packaging and a range of high- tech bespoke lenses specific to the gamer. Emerging opportunities have led us into many new and interesting markets including dentistry. The dentistry brief required a complex chassis design and a new combination of material selection to realise the collection. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 33 03 Smart Eyewear development During the year Skunkworks has been working with various smart eyewear technology companies, each with a unique approach to electronic frames. These include laser alignment modules, projection systems and waveguide technologies as well as, personal smart systems, collecting data of all kinds, from geo location to CO2 levels and eye tracking. On 29 April 2022, INSPECS signed a memorandum of understanding (MOU) with Bosch Sensortec GmbH for the development of smart eyewear for a potential launch in 2024. During 2022, Skunkworks delivered its first commercial revenues for its continual smart eyewear development. 04 05 Lens Technology ESG Support Continuous development, validation, certification and implementation of an industry leading packaging solution. We have begun community projects overseas, building relations between our factories and the local residents. We have employed students from the local Bath University to work in both our expanding Skunkworks department and at our UK Lens facility, Norville. Realising the requirement for smart lens solutions, coupled with the skillset of our Norville technicians, we are developing multiple smart lenses. We are developing the technicalities of co-polymerisation via the mediums of glass, resins, and injection moulding materials. Our first innovative designed lenses achieved commercial sales in Q4 of 2022 with continual growth expected in 2023. Exploring combinations of filters, processes and encapsulation techniques throughout 2022 led to new innovative methods and further understanding the limitations of material boundaries. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Collaboration Our Skunkworks department is also firmly rooted within the internal design labs of multinationals, working alongside R+D teams developing highly complex frame concepts. Collaboration with major global brands in developing frame concept models, lens material choices, sampling and production techniques is part of our day-to-day workstream. Skunkworks projects are evaluated employing these four measures of understanding: Desirability Are people waiting for/do people need this? Does it add value to the lives of our customers? U M A N ) BILIT Y ( H A SIR E D Viability Is the supporting business model sustainable and can it be scaled? VIA BILIT Y ( B U S I N E S S ) Our goal is to implement our developments into our mainstream eyewear production. INNOVATION 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 34 Looking forward • Integrate materials into the brands within the Group • Implement our bespoke eco packaging solution into full production • Gain industry recognition for our work via competition entry • Collaborate further with university programmes and design briefs • Continue the development of further smart eyewear designs and technology I N T E G R I T Y (I M P A CT) Integrity How does our innovation impact society and the planet as a whole? ) Y G O L O N H Y (T E C B I L I T F E A S I Feasibility Will we be able to deliver our concept both technologically and operationally? w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section S E C T I O N 1 7 2 S TAT E M E N T The Board of INSPECS Group continues to uphold and develop the high standards of corporate governance already established. The Directors believe they have acted at all times to promote the success of the Group for the benefit of its members as a whole. In doing so, the Board has considered the interests of a range of stakeholders impacted by the business, as well as having regard for the matters set out in s.172(1) of the Companies Act 2006. In line with the Section 172 statement the Board considers the long-term effects of key decisions on all of our stakeholders. The Board’s commitment is to work in conjunction with the INSPECS Group strategy and understand the importance of governance. The Board recognises that effective engagement with a broad range of our stakeholders is essential for the long-term success of the business. The Board regularly considers the likely consequences of our strategy and long-term decision making, taking into account our suppliers, communities, employees, customers and the environment in which we operate. The Board engages with all areas of the business to gather data that is relevant to the decisions being made. Members of the Board also take part in Investor days, allowing them to communicate and promote the vision of the Group. In 2022, travel for the non-executive Directors was at a minimum due to COVID but in 2023 the Board will be visiting Germany and Portugal along with the UK sites to further engage with the Group. The Board has actively engaged in ensuring the Group takes into account climate change and the effect our operations have on the community and environment. Stakeholders considered 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 35 Our Employees The Board recognises that it is our people that ensure we fulfil our potential and execute our strategy. Over the course of 2022, the Board received regular updates on topics of interest from the Group’s ESG and Risk Officer, CEO and CFO. The Board also visited Norville to meet with the team and have a guided tour of the new facility. At all times the Board members engage with employees across the Group and welcome open discussions. Training and career prospects The Board encourages engagement with our teams so that effective communication continues to build and maintains trust. The Board ensures our team have open and transparent communication lines to influence change in relation to matters that affect them. The Group operates a Long-Term Incentive Plan for the senior management to maximise retention and secure the future leadership team. The Group actively encourages all employees to have access to further training to enhance their skills and develop their careers. Health & Safety Individual entities review Health & Safety monthly and report findings to the Group ESG, Compliance and Risk Officer. These findings are reviewed at each Board meeting and form part of the standing agenda. Diversity and fair pay The Group has high standards in relation to diversity and fair pay for all employees regardless of their age, disability, sex or ethnicity. Diversity, Equity and Inclusion will be included in the ESG focus groups for 2023 to ensure our team have an opportunity to discuss anything we can do differently. Our Investors The Chair and members of the Board make themselves available to meet with investors and seek to understand and prioritise the issues that matter most. These include operational and financial performance, liquidity and dividend policies, risk management and ESG matters. The Executive Directors hold regular meetings with major shareholders, four being held in 2022, along with the Annual General Meeting. Demonstrate a clear investment case and strategy for continued sustained growth The Group communicates through RNS releases, publication of the interim and annual accounts, and the website. Ensure good risk management and corporate governance All Directors and senior executives have a shared governance and risk understanding. Our Audit and Risk Committee is in place with continual Board involvement in governance of key elements. Reports and Accounts are available at Companies House and on the Group’s website. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section S E C T I O N 1 7 2 S TAT E M E N T CONTINUED Communicate KPIs Quarterly revenue numbers are released to the market via RNS, maintaining a relevant information flow to all stakeholders. Continue our ethical behaviour in all business matters We are committed to working with our suppliers, business partners and key stakeholders to ensure their business is ethical and responsible. Honesty and transparency are integral to our business operation. Our Customers The Board regularly receives operational updates, including customer metrics and feedback, from each of the businesses. Continue to create new well- designed products The Group design hubs are in the UK, Portugal, Germany, Hong Kong and the USA. They regularly engage directly with customers to create new and exciting ranges. Deliver to our customers on time Our communication with our customers and suppliers is key, especially while we navigate through turbulent political and economic unrest. Demonstrate to our customers our traceable supply chain The Group maintains independent audit facilities that are available to our chains to monitor and audit our factories at their request. Engage in customer feedback to ensure continual improvement of our supply chain The Group reviews its six-monthly or annual feedback reports from our global accounts and utilises these to help in constantly improving our performance. Develop more sustainable products and packaging for our customer base We continue to develop sustainable eyewear ranges which have won multiple awards. During 2022, the Group has continued to research and develop sustainable packaging solutions as detailed on page 33. Our Communities The Group operates globally and we operate in a responsible way, ensuring consideration to those around us and continuing to minimise our effect on the environment. How we engage The Group continues to design and develop products using recycled materials. We continue to develop our projects to offset our carbon footprint along with engaging in local community projects, as detailed within the ESG section on pages 24 to 31. 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 checks We monitor key suppliers to ensure compliance with modern slavery laws. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 36 Other Stakeholders The Group operates in many jurisdictions throughout the world and at all times complies with regulation and legal requirements, engaging with both governmental, tax, and planning authorities. In accordance with Section 172 of the Companies Act 2006 the items listed demonstrate how the Board has fulfilled its duties. This provides a summary of the key stakeholders of the Group whom the Board considered and engaged with. Further information that demonstrates how the Directors have fulfilled their duties is shown within the Strategic Report and Directors’ Report. Any new member to the Board, as part of their induction, will receive training on the Section 172 statement and the Group’s risk framework along with all other aspects of the business. The Board of INSPECS believes that it has acted and made decisions in a way considered most likely to promote the success of the Group for the benefits of its members by following the key priorities stated right: Key priorities for stakeholders: • Clear strategy and reporting of performance against plan. • Strong governance and controls to mitigate risk. • Positive impact and responsible behaviour in the communities where we operate whilst minimising environmental impacts. • Responsible employer, including pay and benefits, health and safety and the workplace environment. • Consider the environment across the business, minimise pollution and waste and provide sustainable solutions. Key considerations: 1. The likely long-term consequences of any decision. 2. The interests of the Group’s employees. 3. The need to foster the Group’s business relationships with suppliers, customers and others. 4. The impact of the Group’s operations on the community and the environment. 5. The Group’s desire to maintain a reputation for business conduct of the highest standard. Zuma Rock 6. The need to act fairly between members of the Group. Zuma Rock w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section S E C T I O N 1 7 2 S TAT E M E N T CONTINUED R I S K M A N A G E M E N T Key decisions Considerations 01 Board structure To strengthen the Board and assist in the delivery of the Group’s strategic goals the Board recruited two additional Non-Executive Directors with strong finance and global consumer brand experience. The Board has been further enhanced with Richard Peck moving from a Non-Executive role to become CEO of the Group whilst retaining the experience of Robin Totterman who moves to the Executive Chair role. 02 Acquisitions The Board reviewed the potential acquisitions that were underway in 2022 and, as a result of the slowdown of the European markets, continued losses at Norville and adverse exchange movements, it was considered prudent, despite costs incurred, to suspend acquisition activity. 03 Expansion of manufacturing capability The Board reviewed the working capital and cash flow implications of the timing of construction of new plant capacity. The Board decided that it was prudent to delay such investment in 2022. 04 Dividend policy The Board considered the required structure of the Board to meet investor expectations for the business and ensure appropriate corporate governance can be implemented at the Board level for the long-term benefit of the Group. The Board considered the liquidity of the Group and potential impacts on suppliers, customers and employees of the Group in continuing with these activities at the current time. The Board considered the views of investors on the current focus of the Group and determined it would be appropriate to delay these activities. The Board has reviewed the dividend policy of the Group and as the Group intends to continue with capital investment projects in Q3 of 2023 it does not expect to pay further dividends in the short term. The Board considered the current macroeconomic environment along with the future cash flow impact when making these decisions, along with the long-term consequences on the Group. 05 ESG Committee The Board established the Environmental, Social and Governance Committee in 2022. The Board recognised the importance of establishing a committee in order to be able to effectively set objectives, monitor performance and advise on appropriate policies. The Board considered the impact the Group’s operations were having on the community, and the environment, and how best to improve this. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 37 The Board of INSPECS has overall responsibility for risk management. Our Audit and Risk Committee reviews and identifies risks in our operations and ensures we are not exposed to unnecessary or poorly managed risks. Our Audit and Risk Committee, up until the 1 of December 2022 was made up of three Non-Executive Directors, Christopher Hancock, Chair, Lord MacLaurin and Richard Peck, along with support from our Chief Treasury Officer and our Group ESG, Compliance and Risk Officer. From the 1 of December 2022, with Richard Peck moving to CEO and the departure of Lord MacLaurin, we have two new Board members, Shaun Smith and Hugo Adams, appointed to the Committee, with Christopher Hancock remaining as Chair. Through our framework we identify material risks that may lead to a threat to our business. Each Group division has an Operational Risk Management Committee (OMC) formed with senior members of the entity and led by the MD/CEO. The OMC is responsible for identifying new risks and implementing controls and processes across their area of the business. The OMC reviews the risk framework at least twice a year and reports into the Group’s Risk Management Committee (GRMC), which is headed by the Chief Treasury Officer and the Group ESG, Compliance and Risk Officer and calls on both internal and external experts. The GRMC then reports to the Audit and Risk Committee and feeds back to the OMCs. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section R I S K M A N A G E M E N T CONTINUED We have detailed below the principal risks that the Group is exposed to. The risks detailed could have a material impact on the Group operationally and/or financially. Our internal Risk Framework covers production, sales, environmental and social risks, plus governance, finance, IT and political issues. The residual risk highlights the outlook for the year ahead. PRINCIPAL RISK PROBABILITY OF RISK OCCURRING ESTIMATED IMPACT OF RISK EVENT OCCURRING RESIDUAL RISK Underperforming entities MEDIUM HIGH REDUCING Principal Risk Potential consequences of risk event Mitigation Underperforming entities Market forces, or failure of internal trading strategies, may lead to either loss of revenue, increased costs, or failure to achieve budget in one or more entities. This could lead to reduced EBITDA, cash flow loss, reputational damage, covenant breach and a reduction in share price. Macroeconomic risk of increasing inflation and interest rates. Integrity of cash and material Group assets Failure of mergers and/ or acquisitions MEDIUM MEDIUM STABLE MEDIUM MEDIUM STABLE MEDIUM HIGH REDUCING Event Occurrence Type Internal & External risk Climate change HIGH MEDIUM INCREASING/ EMERGING Ability to attract and retain key management and senior employees MEDIUM MEDIUM INCREASING Cyber threat MEDIUM HIGH STABLE Changes in geopolitical environment HIGH MEDIUM INCREASING 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 38 Macroeconomic risk of increasing inflation and interest rates High rates of inflation and increasing interest rates may lead to the Group having insufficient liquidity, not having appropriate access to funds or being unable to meet our obligations as they fall due. Event Occurrence Type External – outside of our control In the fourth quarter of 2022, there was increased focus on underperforming entities which has led to tightened controls and actions to reduce overheads. The outlook for 2023 is to increase sales and further stabilise the controls in place. We remain competitive by identifying new markets and reviewing competitor offerings. The Board reviews monthly management accounts and discusses any entities that are falling behind the agreed budget. The OMCs communicate regularly to the CEO and senior team to ensure changes in trading or failure to achieve the strategic goals are highlighted. These measures will allow early intervention to enable decisions to be made that can help improve performance. Bank covenant tests are monitored by the Board monthly and reported to the bank on a quarterly basis. Regular budgeting and forecasting ensures working capital is sufficient for business requirements and rapid reaction to adverse business performance. We prepare a rolling strategic plan and cash flow. A number of different scenarios have been modelled to ensure we continue to be viable. The Group trades in multiple currencies thereby offsetting some of the effects of movement in currency. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section R I S K M A N A G E M E N T CONTINUED Principal Risk Potential consequences of risk event Mitigation Principal Risk Potential consequences of risk event Mitigation Integrity of cash and material Group assets Due to the size of the organisation, and the multiple entities within the Group it is possible that there will be misappropriation of cash or group assets. In a worst-case scenario this could impact the Group’s ability to trade and impact the Group’s ability to meet forecasts. This could also lead to reputational damage and legal costs. Climate change The Group is introducing an internal audit function in 2023 to strengthen and test the controls already in place. These include multi-level authentication, banking through HSBCnet, where practical, to allow visibility of transactions and balances and full reviews of payments and expenses. Event Occurrence Type Internal – within our control Climate change is an emerging risk and has increased importance for all our stakeholders. There are increased physical risks around the globe, with increased rainfall leading to floods, heatwaves, storms and wildfires potentially affecting our sites and supply chains. Alongside the physical risk, customer behaviour changes may result in reduced sales of our existing eyewear products as consumers look for more sustainable choices. New sustainable product options may result in increased costs leading to reduced margins. Diversification of suppliers allows us to respond quickly to limit the impact should a climate event occur. With innovation and development from the Skunkworks team and the design teams around the business we are able to develop sustainable options for the future. Our pricing can be structured to mitigate most increased cost of materials because external studies have shown consumers will accept a small premium for sustainable products. Each year we review energy efficiencies and ways to reduce our carbon footprint. The landscape in this area continues to evolve and ESG issues will continue to be kept under review as part of our risk management processes. Event Occurrence Type External – outside of our control Ability to attract and retain key management and senior employees An inability to attract and retain skills required to effectively operate could threaten the delivery of our strategy and may impact our intended growth. A lack of diversity, equity and inclusion across our workforce could lead to our culture not being representative of the wider community in which we operate. We review succession planning with the OMCs and with the Board. The senior team are part of a long-term incentive scheme to maximise retention and our Remuneration and Nomination Committee seeks to ensure rewards are commensurate with performance. We continue to create an inclusive workplace that attracts talent from diverse backgrounds. University placements have opened up new perspectives and the focus groups in 2023 will provide an opportunity for a greater voice to grow ideas, engage employees and ensure our recruitment and strategies maintain a fair and equal workplace. Event Occurrence Type Internal – within our control w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Failure of mergers and acquisitions We may fail to complete or properly integrate an acquisition or merger which could lead to high fees and governance may be negatively affected. An acquisition could cause covenant breach due to increased borrowing and insufficient EBITDA. There is a risk of failure to maximise potential synergies, resulting in unnecessary Group costs. For future acquisitions, improved initial planning and stringent review, prior to signing of engagement letters, will take place. The Board will follow a template to ensure due diligence covers the required areas, including ESG, financial reporting and controls, contracts and licence agreements, budget planning and legal documentation. The experience we have gained following our previous acquisitions has strengthened our comprehensive internal reviews and communication. These include working capital scenarios and strategy plans, agreed at Board level, to maximise potential integration. Event Occurrence Type Internal – within our control 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 39 Contents Generation – PageContents Generation – Sub PageContents Generation – Section R I S K M A N A G E M E N T CONTINUED Principal Risk Potential consequences of risk event Mitigation Principal Risk Potential consequences of risk event Mitigation Cyber threat Harm could be brought to the Group via an unauthorised access, corruption or destruction of data and/or ransomware causing inability to access systems, loss of data leading to a potential loss of revenue. We are continually reviewing and assessing our cyber security protocols and tool sets across the Group to ensure we stay up to date with the evolving global threat to the landscape. Cyber risk insurance is kept up to date in all our Group entities and investment into new technologies and multiple cyber security accreditations is ongoing. All employees in our office sites receive regular security awareness training and testing. Event Occurrence Type Internal & External risk Changes in geopolitical environment We have operational and manufacturing presence in multiple global locations to improve resilience in product manufacturing and logistics. The expansion of our Vietnam manufacturing site and the planned Portugal manufacturing facility help to de-risk the impact of disruption. We regularly review supplier strategy and sourcing. We hold sufficient stock based on forecast sales and customer demands. We continue to plan and practice IT disaster recovery and business continuity. We undertake supplier diligence, and we take out relevant and appropriate insurance. Disruption of the Group’s operations could cause failure to meet agreed customer commitments and damage our prospects of gaining future orders. Disruption could be caused by a range of events, for example: extreme weather or earthquakes which could increase in severity or frequency, given the impact of climate change; political events; geopolitical factors that lead to an unfavorable business climate; legislative changes; financial insolvency of a critical supplier; scarcity of materials; loss of data; fire; or infectious diseases or future pandemics. The consequences of these events could have an adverse impact on our employees, our operations or our external supply chain. Event Occurrence Type External – outside of our control 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 40 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Corporate Governance statement p42 Barbour O'Neill How the Board operates p43 Senior management p49 Directors report p58 Barbour 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 41 Governance 42 Corporate Governance statement 43 How the Board operates 49 Senior Management 50 Audit and Risk Committee Report 53 Remuneration and Nomination Committee Report 57 Environmental, Social and Governance Committee Report 58 Directors’ Report 62 Statement of Directors’ Responsibilities w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C O R P O R AT E G O V E R N A N C E S TAT E M E N T Corporate governance is important 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 it drives operational, financial practices and risk management. Robin Totterman, Chairman Dear stakeholder, I am pleased to present the Corporate Governance Report for 2022. This report should be read in conjunction with the report on page 47, in which we have set out how we have complied with the QCA Corporate Governance Code. As I have outlined in my report on pages 3 and 4, 2022 has been a difficult year for the Group with revenue marginally up on the previous year due to a slowdown in some of our key markets in the last few months of 2022. Despite this, the Group has continued developing its strategy to grow the business in a sustainable manner. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 42 Governance The Board believes that effective delivery of the Group strategy requires strong corporate governance supported by a robust structure that allows the Board to engage in constructive debate and be challenged by its members. This allows the Directors to make strategic decisions. The Board recognises the importance of having suitably qualified Non-Executive Directors who are independent in character and free from any relationship that could affect their judgement. Our Non-Executive team has been strengthened during the year with the addition of Shaun Smith, who has a strong background in finance, and Hugo Adams, who has extensive experience in operational matters. Richard Peck, who joined the Board as a Non-Executive Director in January 2020, stepped up to take the position of Group CEO from 1 December 2022. Richard has over 38 years of industry experience within eyewear. Angela Farrugia, who has a wealth of experience in relation to brands and consumer products, and Christopher Hancock who is a chartered accountant and has been involved in many 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 of others with whom we engage or the environment in which we operate. We are committed to delivering our long-term goals for all stakeholders with as little impact as possible on the planet. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C O R P O R AT E G O V E R N A N C E S TAT E M E N T CONTINUED H O W T H E B O A R D O P E R AT E S The Board is responsible for the Group’s overall strategy and for the overall management of the Group. The Strategic Report outlines the key approach of the Board to ensuring and promoting the long-term sustainable growth of the Group for all shareholders. See Pages 2 – 40 Engagement with our stakeholders The Board is conscious that there are a number of stakeholders within our business and considers the interest of each of these stakeholder groups in its discussions. During the year we have had a comprehensive investor relation programme in place with the Executive Team carrying out a number of meetings with our shareholders during the year. Our Non-Executive Directors engage with our shareholders as appropriate and also with our auditors, nomad, and our corporate advisers. The Board continues to consider the likely impact of its strategy and long- term decision making on its customers, suppliers, employees and communities. The culture of the business is a key part of our growth strategy and the Non-Executive Directors have visited the Group’s operations where possible. Due to COVID restrictions they have not travelled overseas in 2022, however, significant travel to visit overseas operations is planned for 2023. Looking ahead Following our performance in the year to 31 December 2022, the Board is now focused on improving the business performance in 2023. Given the difficulties of managing the business during the uncertainty caused by the COVID pandemic and regretfully, the turmoil in Ukraine that happened in the Spring of 2022, the Board continually discusses our risk management structures as it is clear the Group needs to be prepared for uncertain times ahead. We have placed a significant emphasis during the year on the safety of our employees with further additional investments for COVID compliance, especially in our Asia facilities, communication training and employee welfare programmes. We have made significant progress in relation to our ESG reporting. The Group is actively engaged in reducing our carbon footprint and is now looking in some detail at our supply chain. We will continue to focus on delivering attractive long-term returns for shareholders, behaving responsibly to all of our stakeholders, employees, suppliers and customers and, importantly, the community in which our business operates. Robin Totterman Chairman 03 May 2023 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 43 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section H O W T H E B O A R D O P E R AT E S CONTINUED 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 Committee Overview of governance structures The Board structure is designed to ensure that it focuses on the Group strategy whilst at the same time monitoring its performance and reviewing the controls and risk of the Group. The Board considers that the governance structures allow for the operation of the Group in an open and straightforward culture without over- delegation of responsibilities. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 44 Stakeholders Board The Board of Directors are responsible for overviewing the Group’s strategy and ensuring that it delivers long-term growth in a sustainable manner for the benefit of the Group’s shareholders and stakeholders. Board Committees Each Board Committee has documented terms of reference agreed by the Board. These are regularly reviewed and are available on the Group's corporate governance website. Audit and Risk Committee The Committee is responsible for: • Overseeing the Group’s financial reporting • Overseeing the Group’s internal control framework and risk management process • Overseeing the relationship with the external auditors and monitoring their independence Remuneration and Nomination Committee The Remuneration and Nomination Committee is responsible for: • Reviewing the structure, size, and composition of the Board • Succession planning for Directors and other senior executives Environmental, Social and Governance Committee This Committee was established in 2022. The Environmental, Social and Governance Committee is responsible for: • Overseeing the Group’s sustainability • Promoting diversity, equity and inclusivity framework, focus and strategy • Setting, reviewing, and recommending the policy on the remuneration of the Executive Directors • Overseeing the senior management team and general workforce remuneration approach • Monitoring the implementation of the remuneration policy • Overseeing the alignment of the reward, incentives and culture • Monitoring the Group’s sustainability impact and performance • Providing guidance for the developing environmental challenges, which includes environmental risk and the impact this will have on the Group • Overseeing the Group’s ESG reporting, including external audit and assurance requirements Executive committee The executive team is responsible for the day-to-day running of the Group’s business, improving its performance and ensuring future long-term growth and development. Senior management The Group has a wealth of experienced senior managers across the globe, all of whom have high levels of industry experience. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section H O W T H E B O A R D O P E R AT E S CONTINUED Board meetings Six Board meetings were scheduled in 2022, four to review quarterly updates, and two one- day meetings to agree the interim and year-end financial accounts. During 2022, the Board met more frequently than was planned, for a total of ten meetings, specifically to review the performance issues arising in the year and the deterioration in some of the Group's key trading markets noted in October 2022. Scheduled meetings Lord Ian MacLaurin Robin Totterman Christopher Kay Christopher Hancock Richard Peck* Angela Farrugia Board 8/10 10/10 10/10 10/10 9/10 10/10 Remuneration and Nomination Committee Audit and Risk Committee ESG Committee 1/2 – – 2/2 2/2 – 2/2 – – 2/2 2/2 – – – – – 1/1 1/1 * Attendance at the committee meetings was prior to becoming CEO. Board composition The Board believes it has the right skill sets, knowledge and up-to-date experience to perform its duties responsibly. This allows the Board to deliver on the Group’s strategy of long-term growth of the Group 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 30. Shaun Smith and Hugo Adams joined the board on 1 December 2022. There were no board meetings between their date of joining and 31 December 2022 and therefore, they have not been included in the above table. 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 Board meeting, their comments are passed to the Chairman. Board Committees The Board has delegated some specific responsibilities to the Audit and Risk Committee, Remuneration and Nomination Committee and ESG Committee. The respective reports are shown on pages 50 to 57. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 45 Board and Board Committee effectiveness review In 2022 the Board carried out an internal review of its effectiveness and its performance in 2021. This review included: • Response to new events and unscheduled developments • Review of financial information and performance of the business • Acquisitions • Conduct rigorous discussion and debate • Setting strategy • Composition of the Board and future development • Training and development • Operational effectiveness The outcome of this review was a need to strengthen the financial and operational skills of the board. To respond to this outcome, the Board recruited two new non- executive Directors; Shaun Smith and Hugo Adams. Please refer to page 48 for their respective biographies. Board members’ independence The Board considers and ensures that each of the Non-Executive Directors are independent of management. Richard Peck who became CEO on the 1 December 2022 remained independent in his role as a Non-Executive Director up to this date. The Board is led by the Chairman who ensures fair and constructive debate where appropriate. The founder and Executive Chairman has a substantial shareholding in the Group, but this does not detract from the Board’s ability to exercise independent judgement and enquiry. All Non-Executive Directors are considered to be independent in both their character and judgement and confirm that they are free of relationships or other circumstances that could impact on their independence. The Board delegates specific matters to three sub-committees with the ESG Committee being the most recent committee. The Audit and Risk Committee is responsible for overseeing the Group’s financial reporting, risk management, and internal controls, and liaises closely with the Group’s external auditors. Full details of this Committee’s work is set out on pages 50 to 52 of this report. The Remuneration and Nomination Committee is responsible for establishing procedures for setting executive remuneration policy and executive pay. The Committee met during the year and full details of its work during the year is given on pages 53 to 56 of this report. The Committee is also responsible for leading Board appointments. The ESG Committee is responsible for overseeing and reporting to the Board on a six-monthly basis the environmental, social and governance matters across the Group. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section H O W T H E B O A R D O P E R AT E S CONTINUED 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 Directors. Senior Independent Director Christopher Hancock is the Senior Independent Director and is also Deputy Chair-elect, and will act as the Chairman’s alternate when required. Development The Board engages with the Group's external advisors, principally our nomad, Peel Hunt and our Group corporate lawyers Macfarlanes, to keep up to date with changes to relevant legislation. 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 includes both the Annual Report and Accounts and 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 Directors are available to discuss matters that stakeholders may wish to raise and the Executive team holds meetings with investors on a timely basis. 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 Group will take place on the 15th of June 2023. 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. The AGM is an opportunity for shareholders to ask questions relating to the Group. It will be held at the Group's office in Bath and will also be available on Zoom with details of how to join given in the Notice of Meeting. Corporate Governance Code The Board recognises the corporate responsibility in the way that INSPECS operates around the globe. The Board has adopted the Quoted Companies’ Alliance Corporate Governance Code for small and mid-sized quoted companies, known as the QCA Code. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F M a r c O P o o ' l 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 46 Contents Generation – PageContents Generation – Sub PageContents Generation – Section H O W T H E B O A R D O P E R AT E S CONTINUED 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 24 to 31 of this report. The Board has ultimate responsibility for internal control and how we manage this process is shown on page 51. Our gender diversity is shown on page 30 of this report. Our compliance with the QCA Corporate Governance Code principles is reported on below: The QCA Corporate Governance Code Governance Principles Compliant Explanation Further Reading The Board is responsible for Group strategy and its implementation. This strategy is debated and tracked by the Board who monitors its progress. Meetings are held with investors and analysts after the release of half-yearly interim and final accounts. The AGM provides a forum for all shareholders to meet and hear from the Directors. Shareholder comments and suggestions are welcomed by the Board. See pages 5 to 10 to learn more about our strategy and business model. See pages 35 to 37 to see how we communicate. Further information is available on our 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 35 to 37 to see how we communicate and deal with our stakeholders. The Audit and Risk Committee regularly reviews risks to the Group, both internal and external. Health and Safety is of paramount importance and is a standing Board meeting agenda item. See pages 37 to 40 for further detailed information on risk management. 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. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 47 Governance Principles Compliant Explanation Further Reading Maintain a dynamic management framework 5 Maintain the Board as a well-functioning, balanced team led by the Chairman. 6 7 8 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. 9 Maintain a 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 four Non-Executive Directors with relevant experience, an Executive Chairman, and the CEO and CFO. The Board has a wealth of experience on strategy, operations and financial matters. The Executive Chairman engages in open debate and new strategies are challenged. See Board Director information on page 48 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. During 2022, the Board undertook an evaluation of its 2021 performance. To ensure it had the required necessary collective skills. This review will continue to take place on an annual basis. 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 and in its ability to meet its social responsibility to the wider community. The Board’s governance model is widely known as the unitary system. The Board is aided by three subcommittees to undertake specific work. The Board has regular information flows and has regular meetings to ensure it has the ability to review, debate and make well-informed decisions. See page 48 for further guidance. The criteria to be used to evaluate the Board is set out on page 45. See pages 42 and 43 of the Corporate Governance Report. See more information on the Committee Reports on pages 50 to 57. 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 35 to 37 of the Strategic Report. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section H O W T H E B O A R D O P E R AT E S CONTINUED Board of Directors (executive team) Committee Membership Key Audit & Risk Committee Remuneration & Nomination Committee Environmental, Social and Governance Committee C Chairman Robin Totterman Chairman Richard Peck Group Chief Executive Officer Chris Kay Group Chief Financial Officer Christopher Hancock FCA Independent Non-Executive Director Angela Farrugia Independent Non-Executive Director Shaun Smith Independent Non-Executive Director Hugo Adams Independent Non-Executive Director Tenure Robin has been a Board member since founding INSPECS in 1988. Richard has served as a Board member since 10 January 2020. Skills, competence and experience Richard Peck has over 38 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. Robin Totterman is an entrepreneur and forerunner in the branded eyewear industry with over 31 years of 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 and Banque Paribas. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 48 Chris has been involved with INSPECS since it was founded in 1988 and has served as a Board member 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 Richard Peck and Robin Totterman on strategy for the Group. Chris’s 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. C C C Christopher has served as a Board member since 8 March 2017. Angela was appointed as a member of the Board on 12 May 2020. Shaun was appointed as a member of the Board on 1 December 2022. Hugo was appointed as a member of the Board on 1 December 2022. Christopher Hancock FCA has 31 years of 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 in public markets. 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, she has 22 years of operating experience gained within a challenging international business environment. Shaun is a qualified treasurer and has extensive plc experience having previously held CFO roles with Norcros plc and Aga Rangemaster Group plc. In his role at Aga Rangemaster Group plc, Shaun helped oversee the transformation of the business into an international brand-led manufacturer and retail group. Shaun has served as a Non- Executive Director on public company boards since 2016, including terms as Audit and Nomination Committee chair. He is currently the Non-Executive Chairman of Driver Group plc and a Non- Executive Director of Epwin Group plc. Hugo has more than 25 years’ experience working for some of the biggest and best-known global consumer brands including The Body Shop, and running marketing and international expansion at Dyson. During nine years at Marks and Spencer Group PLC he managed businesses across Europe and the Middle East, as well as being Chief of Staff to the CEO and subsequently Property Director. Hugo served on the Executive Board at Superdry Plc, responsible for marketing and business development, and most recently as CEO of Start-Rite Shoes. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section S E N I O R M A N A G E M E N T Group’s senior team The Group’s senior team plays an integral part in ensuring the strategic plans are managed throughout the business and works closely with each subsidiary senior team to oversee finance, risk and all ESG areas. The Group’s senior team reports to the Board and the Board Committees on all matters. Jorg Zobel Peter Braunhofer Matthias Anke Ronald Gezang Johanna Gezang Marc Lefebvre Ha Bui Michael Zhang Stefan Bopp Matthias Deter Steve Tulba Clare Lovett Adam Loewy Elliott Smith Angela Eman Scott Sennett Ken Bradley Jennifer Coppel Jon Bloom Matthew Loran Vance Wright Cheryl Mathavious Matt Dorling Nevil Trotter Sean Donnachie Sophie Cork 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 49 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section A U D I T A N D R I S K C O M M I T T E E R E P O R T Christopher Hancock FCA Chair of the Audit and Risk Committee 2Meetings during 2022 Meetings during 2022 Attendance Christopher Hancock (Chair) Lord MacLaurin Richard Peck 2 2 2 3Committee members Christopher Hancock Lord MacLaurin (to 1 December, 2022) Richard Peck (to 1 December, 2022) Hugo Adams (from 1 December, 2022) Shaun Smith (from 1 December, 2022) 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 50 The Audit and Risk Committee is responsible for the following main areas. • Ensuring compliance with rules, legislation and best practice for reporting on the financial and other affairs of the Group • Reviewing the internal control and risk management systems • Advising on the suitability, effectiveness and independence of the external audit process • Reviewing the extent of, and policy for, non-audit services provided to the Group by the external auditors • Engaging with the external auditors and ensuring the scope of the audit is acceptable • Monitoring the disclosures in the Annual Report and Accounts • Reviewing changes in accounting policies • Review of the Annual Report and Accounts to ensure its completeness and fairness and understandability • Review of interim announcements • Review of going concern, key judgements and significant accounting policies • Reviewing the carrying values of intangible assets Membership The members of the Committee are all independent Non-Executive Directors in compliance with the QCA Code. The Committee is chaired by Christopher Hancock and, until 30 November 2022, the other members of the Committee were Lord MacLaurin and Richard Peck, who up until that date, were both Non-Executive Directors. On 1 December Richard Peck was appointed Chief Executive Officer of the Group and Lord MacLaurin retired. They were replaced on the Committee by two new independent Non-Executive Directors, Hugo Adams and Shaun Smith, both of whom bring extensive public company experience to their roles. See Director biographies on page 48 for further details. Meetings and attendance The Audit and Risk Committee is mandated to meet at least three times a year. In 2022, the issues arising from the 2021 audit were sufficiently material that they were considered by the Group Board at four Board meetings called specifically to deal with these matters. The Committee met separately on two other occasions to consider its other business. The Committee has unrestricted access to the Group’s external auditors and has meetings with external auditors without management present. The Group CFO attends the meetings of the Committee by invitation. The Group Company Secretary serves as secretary of the Committee and ensures that the Committee receives information and papers in a timely manner. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section A U D I T A N D R I S K C O M M I T T E E R E P O R T CONTINUED Independent External audit The external auditors EY were reappointed on 11 August 2022. Fees, effectiveness and independence The Audit and Risk Committee undertakes a review of the effectiveness and independence of the Group's auditors. Following the acquisition of Eschenbach, in the interests of quality and efficiency, it was determined that audit work should be consolidated with EY. The fee increase for the 2022 audit is primarily due to additional scope coverage of new ISA 315 and 240 as well as inflationary pressure. The Committee reviews the level of non- audit work performed by the Group’s auditors to ensure that there is not a risk to their independence. The fee for the audit to 31 December 2022 is $1,734,000 (2021: $1,404,000). The non-audit fees paid to EY were nil (2021: Nil). EY has served as the Group’s auditors since 2020. The Committee’s terms of reference call for consideration of a tender of the audit service every three years. In light of the additional work required for the 2021 audit which resulted in a delay to the issue of the 2021 accounts, it was determined best not to tender the audit this year. Change of Audit Partner due to rotation requirements The Group’s Audit Engagement Partner at EY was obliged to retire by rotation having served five years in role. The Committee, having met with the new partner prior to appointment, satisfied itself that the new partner had the requisite skills and experience to take over the audit. The Committee also consider that the appointed auditor's capabilities and global reach are appropriate in comparison to the scale of the Group. Internal audit The Committee reviewed whether there was a need for the Group to have an internal audit function and recommended to the Board that one be established. The inception of an internal audit function was agreed by the Board in principle and was expected to be put in effect in 2022 but, following a series of changes in the finance team, this was delayed. The internal audit department is now expected to be established in 2023. Risk governance The Audit and Risk Committee met twice in the year with the Group ESG, Compliance and Risk Officer to consider the Group’s risk register comprising the risks faced by the Group and the adequacy of the controls and policies in place to mitigate them. The results of this review are set out under Risk Management on pages 37 to 40. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 51 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: • Cash management monitored by the Group treasury function • A comprehensive annual budgeting process producing detailed profit and loss, balance sheets, and cash flows, updated on a rolling 12-month basis • Comprehensive monthly reporting of KPIs, key risk areas, capital expenditure and compliance with covenants on banking facilities • Open and transparent communication between senior executive management and the Board ensures issues are raised on a timely basis • Key risks, including reasonableness of market forecasts, covenant compliance and Health and Safety issues, are standing Board agenda items Significant financial judgements During the year the Audit and Risk Committee considered the following significant issues regarding the financial statements and having reviewed them were satisfied that they were appropriately stated. • The Committee has reviewed the going concern forecast for the period to 30 June 2024. This review focused in particular on the headroom on the covenants and considered management’s response to potential disruption of supply chains, cost increases and geopolitical instability • Goodwill and intangible assets are significant values in the balance sheets and the Committee reviewed any potential impairment that might be required, the cash flows of the CGU (cash-generating units) and the discount rates applicable to the CGU along with sensitivity analysis • The Committee reviewed the tax provisions recognised relating to permanent establishment risks and the position taken as at 31 December 2022 • The Committee reviewed the prior period adjustment recorded in relation to contingent consideration arising on acquisitions. See pages 112 and 113 for the prior period adjustment noted. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section A U D I T A N D R I S K C O M M I T T E E R E P O R T CONTINUED • The Committee has reviewed the adjustment in relation to the valuation of case inventory in accordance with IAS2. It has considered the treatment of the adjustment against goodwill in relation to cases acquired as part of the Eschenbach acquisition • The Committee reviewed the impact of the technical covenant breach as at the year end date, and the impact on the classification of loans to current liabilities Recommendations arising out of the audit Following the issues arising in the 2021 audit, the Committee recommended a strengthening of the finance team both at Group and subsidiary level. An additional position was created in the finance team and Matthew Loran was appointed as Head of Group Management Reporting in November 2022. The Audit Committee also recommended strengthening the financial reporting process around inventory across the Group, this has been actioned by the Senior Management team during 2022. Whistleblowing, Fraud and Bribery Acts The Group has in place a whistleblowing policy which is given to all employees on joining and updated yearly. All findings are reviewed by the Group ESG, Compliance and Risk Officer and reported to the Board. The policy sets out a formal process by which employees may, in confidence, raise concerns in respect of the Group’s activities. These include any financial improprieties, in reporting or in other matters. The Group is committed in all respects to a zero- tolerance attitude with regards to bribery. During the year the Group completed an anti-bribery and corruption questionnaire. It was distributed to the Board, senior teams, relevant customer and supplier facing positions. The results of this questionnaire will be reviewed and training will be directed to specific learning objectives within the Group, along with a general training update. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 52 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section R E M U N E R AT I O N A N D N O M I N AT I O N C O M M I T T E E R E P O R T Christopher Hancock FCA Chair of the Remuneration and Nomination Committee 2Meetings during 2022 Meetings during 2022 Attendance Christopher Hancock (Chair) Lord MacLaurin Richard Peck 2 1 2 3Committee members Christopher Hancock Lord MacLaurin (to 1 December, 2022) Richard Peck (to 1 December, 2022) Hugo Adams (from 1 December, 2022) Shaun Smith (from 1 December, 2022) 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 53 The Remuneration and Nomination Committee is responsible for making recommendations to the Board on all elements of the remuneration, terms of service or employment, reward structure and fringe benefits for Executive Directors, Non-Executive Directors and senior management with the aim of attracting, retaining and motivating individuals of the highest quality. The Committee is responsible for ensuring the appropriate Board balance and size, and that the Board members have the required mix of skills, experience and other core competencies. Membership The members of the Committee are all independent Non-Executive Directors in compliance with the QCA Code. The Committee is chaired by Christopher Hancock and until 1 December, 2022 the other members of the Committee were Lord MacLaurin and Richard Peck, who at that time, were both independent Non-Executive Directors. On 1 December Richard Peck was appointed Chief Executive Officer of the Group and Lord MacLaurin retired. They were replaced on the Committee by two new independent Non-Executive Directors, Hugo Adams and Shaun Smith, both of whom bring extensive public company experience to their roles. See Director biographies on page 48 for further details. Meetings and attendance The Committee is mandated to meet at least twice per year. Non-committee members may be invited to attend meetings from time to time to provide additional expertise and assistance. The Committee is in particular supported by the Group ESG, Compliance and Risk Officer, Angela Eman. The Company Secretary serves as secretary of the Committee and ensures that the Committee receives information and papers in a timely manner. Remuneration Remuneration policy The Committee’s aim is to set a remuneration policy to attract and motivate high calibre Directors and senior management within the Group and to focus them on delivery of the Group’s strategic and business objectives. In 2022, the remuneration of Directors and senior executives of the Group comprised the following elements: • Contracted base salary • Performance-based annual bonus • Long-term share incentives • Pension and other contracted benefits During the year, the Group commissioned a leading accountancy firm to perform a review of Director and senior executive remuneration and to benchmark current levels against the market. This survey demonstrated that the pay of Board Directors was below that of comparable companies while the structure of both short-term and long-term incentives was inadequate to properly align the objectives of executives with the Group’s strategic objectives. The Committee has therefore recommended that a review of executive pay, including the structure of short- and long-term incentives, be undertaken in 2023. This review will look to embed in the proposed structure the principles of clarity, simplicity, risk, predictability, proportionality and alignment to culture. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section R E M U N E R AT I O N A N D N O M I N AT I O N C O M M I T T E E R E P O R T CONTINUED Executive Director service contracts The Chairman, Robin Totterman, and CFO, Chris Kay, signed service contracts on admission of the Group to AIM on 27 February 2020. Richard Peck entered into a new contract on becoming CEO on 1 December 2022. Richard Peck’s salary as CEO is £265,000 per annum which is in line with the parameters provided in the benchmarking survey referenced above, having consideration for the size and complexity of the Group. Robin Totterman also entered into a new contract on becoming Chairman. Directors’ contracts have no fixed duration and are terminable with six months’ notice. Where possible, the Committee Chairs and members of the Committees should be rotated on a regular basis, and all Directors are subject to re-election at each AGM. of share capital of the Group in any 10- year period. Short-term incentive – 2022 annual bonus Due to the disappointing outcome of the Group’s key performance indicator of adjusted underlying EBITDA which reduced from $27.6m to $19.2m, no bonuses will be paid to the Executive Directors in relation to 2022. Long-term incentive plan (LTIP) The Prospectus issued on admission of the Group to AIM on 27 February 2020 included the details of a Long-Term Incentive Plan to issue options on an annual basis at the mid-market price to Executive Directors and key senior employees up to a maximum aggregate of 10% of the issued Options have been issued each year since admission in accordance to this plan. During the year further options were granted under the LTIP to both the Executive Directors and senior employees. The total amount of options granted to them and the respective issue prices are set out below. These options have a three-year vesting period from the date of grant. The total LTIP options outstanding as at 31 December 2022 were 5,435,181 and this represents 5.3% of the Group's issued share capital as at 31 December 2022 amounting to 101,671,525 shares of 0.01p each. Changes in 2023 Following feedback from shareholders and informed by a review of remuneration commissioned by the Group from a leading accountancy firm, the remuneration package of each of the Executive Directors in 2023 will be redesigned to include a performance-related short-term incentive (bonus) and performance-related long- term incentives to be provided by way of share options. Non-Executive Directors Non-Executive Directors are paid a base fee for serving as a Director with an additional fee for serving on each Committee. NEDs receive no bonus or LTIP. Name Robin Totterman Christopher Kay Senior employees Option granted Date 150,000 22/12/2020 50,000 23/12/2021 549,460 27/02/2020 150,000 22/12/2020 183,153 26/02/2021 50,000 23/12/2021 183,153 28/02/2022 2,483,650 31/12/2020 1,177,882 31/12/2021 457,883 28/02/2022 Price £ 2.10 3.70 1.95 2.10 3.25 3.70 3.75 2.07* 3.61* 3.75 Directors’ interest in shares The interests of the Directors as at 31 December 2022, including their spouses, dependents and close family members, in the Ordinary Shares of the Group were: Robin Totterman Christopher Kay Christopher Hancock Richard Peck Angela Farrugia Shaun Smith (appointed 01/12/2022) Hugo Adams (appointed 01/12/2022) 2022 2021 18,625,005 2,178,730 19,861,213 2,200,000 18,940 9,523 31,904 – 16,500 16,440 9,523 11,904 – – Note: Options originally granted to Lord MacLaurin lapsed on his retirement. Options granted to Christopher Hancock and Angela Farrugia to reflect their work on the Eschenbach acquisition on 16 December 2020 were cancelled during the year in order to align the NEDs remuneration with best practice. No further share options have been granted to Non-Executive Directors. * Weighted Average 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 54 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section R E M U N E R AT I O N A N D N O M I N AT I O N C O M M I T T E E R E P O R T CONTINUED Directors’ employment and pension contributions to 31 December 2022 Lord MacLaurin Robin Totterman Chris Kay Christopher Hancock Richard Peck Angela Farrugia Shaun Smith Hugo Adams USD Salary/Fees Taxable benefits Total remuneration 49,891 316,200 281,617 59,375 124,944 61,539 5,154 5,669 – 49,891 1,370 317,570 19,260 300,877 – – – – – – – – – – Transactions with Directors The only transactions between the Directors and the Group were as follows: Kelso Place LLP Rent is payable by INSPECS Limited to Kelso Place LLP on Kelso Place, the headquarters of the Group. This rent is reviewed to ensure it is on a normal commercial basis and amounted to $163,898 in the year to 31 December 2022 (2021: $182,275). The building is owned by Kelso Place LLP, of which Robin Totterman is the controlling partner. Thorne Lancaster Parker Chris Kay, a Director of the company is also a partner in Thorne Lancaster Parker. During the year the partnership charged INSPECS Limited $10,000 (2021: $53,000) in respect of professional services provided. On 31 December 2022, INSPECS Limited owed Thorne Lancaster Parker $4,000 (2021: $nil) in respect of the above, with this balance included within trade payables. During the year the partnership charged Norville (20/20) Limited $9,000 (2021: $14,000) in respect of professional services provided, with $2,000 being owed at the end of the year (2021: $4,000 ). Consultancy Costs In addition to a Non-Executive Director salary, A Farrugia, a Non-Executive Director of the Group, was paid $17,000 (2021: $nil) during the year in respect of brand consultancy services. Directors’ employment and pension contributions to 31 December 2021 Share price movement The price movement of the shares in the Group from the lowest to highest in the year is set out below: Highest market price in the year Lowest market price in the year £4.08 £0.38 USD Salary/Fees Taxable benefits Total remuneration 56,494 328,095 291,640 61,630 61,630 46,222 – 1,524 28,129 – – – 56,494 329,619 319,769 61,630 61,630 46,222 Lord MacLaurin Robin Totterman Chris Kay Christopher Hancock Richard Peck Angela Farrugia 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 55 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section R E M U N E R AT I O N A N D N O M I N AT I O N C O M M I T T E E R E P O R T CONTINUED Other work of the Committee in the year Appointment of new NEDs and CEO Following the decision that Robin Totterman would become Chairman and Richard Peck would become Chief Executive Officer on the retirement of Lord MacLaurin, effective 1 December 2022, the Committee helped to set the parameters for the recruitment and appointment of two replacement Non- Executive Directors, both of whom were expected to have experience of working in larger, international listed companies and who, between them, should have recent experience of sitting on both Audit and Risk and Remuneration and Nomination committees. As Richard himself was previously a member of the Remuneration and Nomination Committee the selection of the new CEO and their remuneration was determined by the executives at the Board level, rather than by the Remuneration and Nomination committee. Following his appointment as CEO, Richard resigned from the Remuneration and Nomination Committee. NED remuneration In order to ensure that the remuneration being offered would be sufficient to attract new Non-Executive Director candidates of the right calibre, the Committee commissioned a leading accountancy firm to benchmark current Non-Executive Director remuneration against the market. As a result of this review, the Committee recommended that adjustments were made to the pay of Non-Executive Directors in December 2022. Following the review, NEDs will receive £40,000 per annum as a base fee and £5,000 for each Committee on which they serve. Board effectiveness review The Committee commissioned a self-review of Board effectiveness during the year which found that of 192 areas examined, 120 were good or outstanding, 70 required some improvement and in 11, significant improvement was required. These areas have begun to be addressed as a priority and included • Engagement with and reporting on ESG • Recruitment of NEDs with plc experience • Review of functions of Board Committees • Independent review of Board remuneration • Greater involvement of Board in setting goals and decision-making • Improved communication with Board members Diversity, equity and inclusion The Committee specifically looked to hire new Non-Executive Directors who would bring greater diversity to the Board. Unfortunately, it was unable to secure any of the candidates who would have increased the diversity of the Board. The Board remains committed to this objective. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 56 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section E N V I R O N M E N TA L , S O C I A L A N D G O V E R N A N C E C O M M I T T E E R E P O R T Angela Farrugia Chair of Environmental, Social and Governance Committee 1Meetings during 2022 3Committee members Meetings during 2022 Attendance Richard Peck Angela Farrugia 1 1 Angela Farrugia (from 1 November 2022) Richard Peck (to 1 December 2022) Hugo Adams (from 1 December 2022) Christopher Hancock (from 1 December 2022) 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 57 The Environmental, Social and Governance Committee is responsible for the following areas: • To support the Board in fulfilling its • obligations to the Group and comply with all statutory, legal and regulatory requirements and standards in relation to all ESG matters. Independently review actions to ensure the Group’s consideration with environmental, social and governance matters and report to the Board and shareholders, as appropriate. • Define and further develop ESG goals and objectives and key metrics are monitored and fairly reported. • Monitor the Group's ESG performance and execution, ensuring that it addresses matters of material impact. • Provide oversight and approval of key policies and projects required to implement the ESG strategy and roadmap. • Review current and emerging ESG trends, relevant international standards and legislative requirements. • Review the effectiveness and performance of ESG projects and initiatives. • Offer recommendations to the Board on any of the matters listed above that the Committee considers appropriate. Membership The members of the Committee are all independent Non-Executive Directors in compliance with the QCA Code. The Committee is chaired by Angela Farrugia and until 30 November 2022 the other member of the Committee was Richard Peck, who at the time was an independent Non-Executive Director. On 1 December 2022, Richard Peck was appointed Chief Executive Officer of the Group. He was replaced on the Committee by two independent Non-Executive Directors, Hugo Adams and Christopher Hancock, their biographies are on page 48. Meetings and attendance The Committee will meet at least twice per year. Non-committee members may be invited to attend meetings from time to time to provide additional expertise and assistance. The Committee is in particular supported by the Group ESG, Compliance and Risk Officer, Angela Eman and the Head of Innovations, Nick Youle. The Committee ensures that all minutes are taken and that the Committee receives information and papers in a timely manner. The ESG Committee's first meeting was held in November 2022. The meeting focused on the Group's overall approach to ESG and our ESG roadmap to include: • Review of community partnerships and charity support throughout the Group. • Parameters for Group sustainability reporting. • Social initiatives, including student placements, focus groups and global opportunities to expand initiatives to continue to inspire and learn at all levels throughout the Group. • Overview of sustainable product and packaging concepts and updates on ongoing innovation projects. • Progress of governance activities undertaken during 2022 including, but not limited to, Anti-Bribery and Corruption (ABC) risk assessment questionnaires and the development of our Group Code of Conduct and Risk Framework. The Committee's 2023 focus will continue to evaluate our ESG Roadmap. The Committee recognises the importance of Group collaboration for data recording, knowledge sharing and will continue to promote a sustainable outlook across the Group. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section D I R E C T O R S ’ R E P O R T Chris Kay CFO, Director The Directors present their report together with the audited financial statements for the year ended 31 December 2022. The Corporate Governance Statement on pages 42 and 43 also forms part of this Directors’ Report. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 58 Review of business The Chairman’s Statement on pages 3 and 4, and the Strategic Report on pages 3 to 40 provides a review of the business, the Group’s trading for the year ended 31 December 2022, key performance indicators and an indication of future developments. Principal activity 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. Result and dividend The Group has reported its Consolidated Financial Statements in accordance with International Financial Report Standards (IFRS). The Group results for the year are set out in the Consolidated Statement of Comprehensive Income on page 73. The Company financial statements have been prepared under FRS 101 for the year ended 31 December 2022. The Group’s revenue of $248.6m (FY21: $246.5m), gross margin of 49.2% (FY21: 47%) and loss after tax of $7.8m (FY21: loss $5.4m) represent the effects of a turn down in our European business following uncertainty in relation to consumer confidence, principally caused by the political situation in Ukraine. Our results were also depressed due to adverse exchange movements in the second half of 2022, in particular the decrease in the Euro against the USD. Period ended Revenue ($m) Gross margin % Loss after tax ($m) Reported IFRS 31 December 2022 31 December 2021 248.6 49.2 (7.8) 246.5 47.0 (5.4) The Board is not recommending a dividend (FY21: 1.25p). THE GROUP’S REVENUE OF $248.6m LOSS AFTER TAX OF $7.8m (FY21: $246.5m). (FY21: loss $5.4m). w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section D I R E C T O R S ’ R E P O R T CONTINUED Directors The Directors of the Group during the year were: Executive Non-Executive Robin Totterman (Chairman, CEO to 1 Dec 2022) Lord Ian MacLaurin (Retired 1 Dec 2022) Richard Peck (CEO, NED to 1 Dec 2022) Christopher Hancock Christopher Kay (CFO) Angela Farrugia Shaun Smith (Appointed 1 Dec 2022) Hugo Adams (Appointed 1 Dec 2022) The names of the Directors, along with their brief biographical details, are given on page 48. 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 auditors in connection with preparing their report) of which the Group’s auditors are 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 auditors are 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 33 to the Consolidated Financial Statements on pages 110 to 112. Share capital structure At 31 December 2022, the Group's issued share capital was £1,016,715 divided into 101,671,525 Ordinary Shares of 0.01p each. The holders of Ordinary Shares are entitled to one vote per share at the general meetings of the Group. Directors’ interests Substantial shareholdings The Directors’ interests in the share capital of the Group at 31 December 2022 and 2021 is shown below: At 31 December 2022, the Group had been notified of the following substantial shareholdings comprising of 3% or more of the issued Ordinary Share capital: Robin Totterman Christopher Kay Lord Ian MacLaurin (retired 01/12/2022) Christopher Hancock Angela Farrugia Richard Peck Shaun Smith (appointed 01/12/2022) Hugo Adams (appointed 01/12/2022) 2022 2021 18,625,005 19,861,213 2,178,730 2,200,000 71,428 18,940 31,904 9,523 – 16,500 78,346 16,440 11,904 9,523 – – Robin Totterman Canaccord Genuity Group Inc Amati Global Partners Liontrust Asset Management Hargreaves Lansdown Royal London Asset Management GIS Ltd Invesco Asset Management Limited Stonehage Fleming % of issued share capital 18.3% 17.6% 5.6% 5.6% 4.7% 3.9% 3.7% 3.1% 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 59 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section D I R E C T O R S ’ R E P O R T CONTINUED Share option schemes Details of employee share scheme, are set out in note 32 to the Consolidated Financial Statements. Purchase of own shares There was no purchase of our own shares in the period. Going concern As a result of the political situation in Ukraine the Group saw some disruption in 2022. The disruption was mainly caused by global inflationary pressures, the continuing impact of COVID in Asia, cost of living rises, exchange rate turbulence with a strengthening USD and loss of consumer confidence. The Group also suffered from a decrease in external revenue in our Lens business, Norville. As discussed in the CEO’s review, Norville’s relocation from its old site to a new state-of-the-art facility caused significant disruption which caused operating losses in the lenses segment to increase significantly from $2.7m in 2021 to $5.0m in 2022. Despite a positive first half to 2022, the Group suffered a downturn in business in the second half of the year, resulting in a trading update RNS announcement in October 2022. The Group traded above expectations in December 2022 and as a result the outturn is ahead of the October 2022 reforecast. The Directors have considered the Group’s financial forecasts, borrowing levels, leverage, and capital expenditure to the end of June 2024 (‘the going concern period’) as part of their comprehensive review. As of 31 December 2022, it was determined the Group was in technical breach of its cashflow cover loan covenant, 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 60 which has resulted in the re-classification of the loan balance ($45.7m) to a current liability in line with IAS 1. Subsequently, HSBC has waived the cashflow cover and leverage covenants on 31 December 2022. The Board considered a base case, a downside scenario, and a reverse stress test to assess the effect of potential disruption to the supply chain, reducing consumer confidence due to rising interest rates and high global inflation, cost increases and pressure on rising employee costs due to the cost-of-living increases facing many individuals. The scenarios are as follows: Base Case • The base case is the Board approved budget which has been updated with the Group’s trading results for Q1 2023 and our estimate of trading to 30 April. The budget was prepared assuming a continuation of the current political situation in Ukraine together with inflationary pressures across the World. The Group had seen a downturn in consumer confidence, especially in Europe due to the above factors. • The revenue reduction in Europe towards the end of 2022 was a temporary slowdown and the Group has seen a strong rebound in our early 2023 trading in Germany and the rest of Europe. • The budget does not assume any acquisition expenditure. • Our US and other markets remain resilient and are trading in line with expectations. • The Group expects to be able to maintain its budgeted margin throughout 2023. • The base case includes Capital Reverse stress test Expenditure through 2023 and 2024 for the new third plant in Vietnam and initial construction costs of the first European factory in Portugal. • In this base case scenario, no covenant breaches or liquidity challenges are expected. Downside scenario • The Group has known forward orders for circa two months through to the middle of June 2023, therefore our downside scenario updates the base case with a 5.6% reduction in revenue from June 2023. The Directors believe that a 5.6% reduction from the base case is appropriately conservative based on the current trading position, the improved business through Norville, expected falling global inflation and increasing consumer confidence. A 5% reduction in Employee expenses takes affect from September 2023, reflecting a reduction of the expected senior management bonuses together with a reduction in marketing, advertising, entertaining, office expenses and other discretionary expenditure that would not affect operational performance in the medium term. • In this downside scenario, no covenant breaches or liquidity challenges are expected. The Group has considered the reasonably plausible downside scenario. The Group mitigates the risk of a long-term drop in revenue by having a diverse business that trades globally so that it is not reliant on any one region. • The reverse stress test updated our base case with a 24.2% drop in forecast revenue, whilst maintaining gross margin. The drop of 24.2% represents a significant reduction against actual trading in 2022 and is a reduction in revenue not previously experienced by the Group. This results in a breach in interest ratio covenant in March 2024 that is recovered in June 2024. No other covenants were forecast to be breached in this period. The reverse stress test assumes some controllable costs saving by a reduction in employee expenses, reduction in headcount, a reduction in discretionary administration costs and removal of discretionary CAPEX spending, including a delay of the new manufacturing facility in Vietnam and construction costs for a factory in Portugal, and some repayment of the Rolling Credit Facility to reduce interest charges through the year. The Group has considered the reverse stress test, which models a breach in the interest ratio covenant in March 2024. In this case the Directors have available further levers within its control to save costs and generate income. The Group also has the ability to discuss amending or waiving covenants with the bank should an unprecedented drop in revenue occur. Current trading is ahead of budget and there has been no erosion of margin. As a result, the directors consider that the reverse stress test is a remote possibility. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section D I R E C T O R S ’ R E P O R T CONTINUED The Group’s borrowings with HSBC, amounting to $58.3m, contains three covenants; Leverage, Cashflow Cover and Interest Cover ratios. Compliance on these covenants is based on 12-month rolling periods for each Relevant Period. The facilities are due for renewal in October 2024 and discussions for renewal have already taken place. Formal work on the renewal is expected to take place in Q3 2023 with a view to extending the terms for a further 3 years from October 2024, it is not expected that any bullet payment will become due in October 2024 and the Directors are confident of a successful renewal to the facilities. Prior to a technical breach of one of the covenants in December 2022 the Group was in discussion to amend the facilities agreement with HSBC. Following the breach in cashflow cover in December 2022 HSBC subsequently waived the cashflow cover and leverage covenants for the relevant period ending 31 December 2022. The covenant tests for 2023 have been amended by HSBC to increase the leverage cover for the March and June relevant periods; waive cashflow cover until the March 2024 relevant period; and decrease interest cover for the March and June relevant periods. There were no covenant breaches in any prior relevant period in 2022. On this basis the Board has reasonable expectations that the Group and Company has adequate resources to continue as a Going Concern to 30 June 2024. 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 page 10. 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 ESG Report on pages 24 to 31). 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’s diverse customer base. The Group will not 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 will not 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. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 61 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 Group'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 03 May 2023. Chris Kay Chief Financial Officer 03 May 2023 Ethical business practices The Group has a zero tolerance to bribery and corruption and is committed to ensure that it has appropriate procedures in place to counter this risk. A formal policy is in place and continual training is undertaken. The anti- bribery and whistleblowing policy is reviewed annually by the Audit and Risk Committee. SECR Our Streamlined Energy and Carbon Reporting (SECR) framework can be found on pages 26 and 27. Auditor reappointment The auditor, EY LLP, has indicated its willingness to be reappointed and, in accordance with section 489 of the Companies Act 2006, a resolution for reappointment will be proposed at the AGM. Annual General Meeting The Annual General Meeting will be held on 15 June 2023. The ordinary business comprises receipt of the Directors’ Report and audited financial statements for the year ended 31 December 2022, the re-election of Directors, the reappointment of EY as auditor and authorisation of the Directors to determine the auditor’s remuneration. O'Neill O'Neill Team Rider – Corey Lopez w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section S TAT E M E N T O F D I R E C T O R S ’ R E S P O N S I B I L I T I E S The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. 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 UK adopted Accounting Standards, and 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 UK adopted Accounting Standards 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 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 62 • 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 the maintenance of 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. The Directors are responsible for the maintenance and integrity of the Group'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 Richard Peck Chief Executive Officer 03 May 2023 GX BY Lamb Humphrey’s Ted Baker O'Neill Team Rider – Corey Lopez w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Financial Statements 64 Independent Auditor’s Report to the Members of INSPECS Group plc 73 Consolidated Income Statement 73 Consolidated Statement of Other Comprehensive Income 74 Consolidated Statement of Financial Position 75 Consolidated Statement of Changes in Equity 75 Consolidated Statement of Cash Flows 76 Notes to the Consolidated Financial Statements 114 Company Balance Sheet 115 Company Statement of Changes in Equity 116 Notes to the Company Financial Statements 126 Appendix 1 – Comparative information in GBP 129 Company Information and Advisers Mini Valerie 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 63 Barbour Marc O’Polo w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section I N D E P E N D E N T A U D I T O R ’ S R E P O R T 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 2022 and of the Group’s loss for the year then ended; • • • the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards; 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 2022 which comprise: Group Parent Company Consolidated income statement for the year ended 31 December 2022 Company balance sheet as at 31 December 2022 Consolidated statement of comprehensive income for the year then ended Statement of changes in equity for the year then ended Consolidated statement of financial position as at 31 December 2022 Related notes 1 to 14 to the financial statements including a summary of significant accounting policies Statement of cash flows for the year then ended Consolidated statement of changes in equity for the year then ended Consolidated statement of cash flows for the year then ended Related notes 1 to 36 to the financial statements, including a summary of significant accounting policies 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 64 The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted international accounting standards. 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’ (United Kingdom Generally Accepted Accounting Practice). 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 and Parent Company 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 Going concern has been determined to be a key audit matter. 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: • Understanding the process undertaken by management to perform the going concern assessment covering the going concern period to 30 June 2024; including details of available facilities, forecast covenant calculations, the results of management’s downside sensitivity and reverse stress testing analysis and their evaluation of the ongoing impact of COVID-19 and other macro-economic pressures including, but not limited to, inflationary increases related to the cost of living, the risk of reduced demands for products due to recession and the Group’s access to available sources of liquidity; w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section I N D E P E N D E N T A U D I T O R ’ S R E P O R T CONTINUED to the members of INSPECS Group plc • Confirming the availability of debt facilities and review of underlying terms, including covenants to 30 June 2024, and confirming the repayments due within this period are accurately included; • Considering events occurring immediately outside of the going concern period, including the maturity of the debt facilities in October 2024, and whether these could lead to the identification of a material uncertainty related to going concern; • Reading the covenant waiver confirmation letter received from the Bank in March 23 which • Testing the clerical accuracy of the model used to prepare the Group’s going concern confirmed that the covenant testing period at 31 December 2022 had been waived; assessment to 30 June 2024, including the forecast covenant compliance; and • Holding a discussion with the Bank to confirm the contents of their correspondence with the Group and consider any contra indicators to the assumptions and conclusions within management’s going concern assessment; • As the covenant waiver confirmation was not received until after the Balance Sheet date, we ensured the borrowing facilities with the Bank were appropriately classified within current liabilities; • 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 schedule, and challenged these using supporting evidence including debt agreements, existing facilities, and FY23 period performance to date; • Evaluating management’s key assumptions underpinning the Group’s forecasts (such as revenue growth, gross margins and cost reductions as well as the impact of climate change), by comparing to externally produced market analyses, including information from competitors; • Challenging, based on our own independent sensitivity testing and specialist input, whether the downside case prepared by management could lead to a covenant breach. Our assessment considered the impact and likelihood of: – Current macro-economic conditions on ability to meet revenue forecasts • Assessing the appropriateness of the going concern disclosure on pages 76 and 77. Our key observations • At 31 December 2022 the Group has committed facilities of $18.7m term loan and a Revolving Credit Facility of $37m to October 2024. The Group has utilised $36.4m of the Revolving Credit Facility at 31 December 2022. The Group also had a cash balance of $26.8m at 31 December 2022. • Management consider the reverse stress test scenario whereby a decline in performance is severe enough to cause a liquidity issue and covenant breach to be remote. 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 30 June 2024. 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. – Loss of major customers – Loss of significant brand licences – Increases in costs that are unable to be passed on to customers Overview of our audit approach Audit scope • We performed an audit of the complete financial information of 5 • Challenging the controllable mitigating actions such as implementing reduced working weeks, pay reductions and reduced capital expenditure that management could take in the event of a decline in trading; • Performing 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, external market data and controllable mitigating actions; Key audit matters components and audit procedures on specific balances for a further 1 component. • The components where we performed full or specific audit procedures accounted for 94% of loss before tax, 86% of Revenue and 91% of Total assets. • Inappropriate revenue recognition • Valuation of goodwill • Inventory valuation • Going concern Materiality • Overall Group materiality of $1,242,000 which represents 0.5% of revenue. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 65 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section I N D E P E N D E N T A U D I T O R ’ S R E P O R T CONTINUED to the members of INSPECS Group plc An overview of the scope of the Parent Company and Group audits The table below illustrates the coverage obtained from the work performed by our audit teams. 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, the potential impact of climate change 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 30 reporting components of the Group, we selected 6 components covering entities within the UK, Hong Kong (including sub-components based in China and Vietnam), Germany and the USA, which represent the principal business units within the Group. Of the 6 components selected, we performed an audit of the complete financial information of 5 components (‘full scope components’) which were selected based on their size or risk characteristics. For the remaining component (‘specific scope component’), 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. In addition, we conducted specified procedures over a number of account balances relating to 4 reporting units, representing 27% of the Group’s loss before tax, 10% of the Group’s revenue and 5% of the Group’s total assets. For all these components we performed procedures related to revenue and cash and then performed other procedures determined upon size and risk. Of the remaining 20 components that together represent 14% of the Group’s revenue none are individually greater than 3% of the Revenue. For these components, we performed other procedures including: analytical reviews, testing of consolidation journals and intercompany eliminations and foreign currency translation recalculations to respond to any potential risks of material misstatement to the Group financial statements. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 66 Full scope Specific scope Specified procedures Full, specific, and specified procedures coverage Remaining components Total reporting components 2022 2021 % of Group loss before tax (on absolute basis)1 % of Group Revenue % of Group Assets Number Reporting components Number 5 1 4 66% 72% 84% 2% 5% 2% 27% 10% 5% 5 3 2 % of Group loss before tax (on absolute basis)1 66% 17% % of Group Revenue 74% 13% % of Group Assets 85% 5% 1% 0% 6% 10 94% 86% 91% 10 84% 90% 96% 20 6% 14% 9% 23 16% 10% 4% 30 100% 100% 100% 33 100% 100% 100% 1. Coverage of loss before tax measured on an absolute basis for each component (components with a profit would be added to both the numerator and denominator). The audit scope of the specific scope components included in the table above may not have included testing all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group. Changes from the prior year The approach to scoping is similar to the prior year audit. Our scoping changes from the prior year are due to change in either risk assigned to the component or contribution by the component. In particular, we challenged the procedures that we undertook on specific scope components and moved these to specified procedures where appropriate. This meant that we were able to direct our procedures to focus on the risks relevant to these components. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section I N D E P E N D E N T A U D I T O R ’ S R E P O R T CONTINUED to the members of INSPECS Group plc 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. Of the 5 full scope components, audit procedures were performed on 2 of these directly by the primary audit team. For the specific scope component, where the work was performed by component auditors, 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. The primary team undertook the audit procedures on all of the specified procedures components. The Group audit team continued to follow a programme of planned visits that has been designed to ensure that the Senior Statutory Auditor visits full scope overseas entities every second year on a planned rotation policy where this is possible. During the current year’s audit cycle, visits were undertaken by the Senior Statutory Auditor to meet with component teams from the following locations: USA (Tura) and Hong Kong (Killine.) Other senior primary audit team members visited Germany (Eschenbach Optik). These visits involved discussing the audit approach with the component team and any issues arising from their work, meeting with local management, attending closing meetings, and reviewing relevant audit working papers on risk areas. The primary team, including the Senior Statutory Auditor, interacted regularly with the component teams where appropriate during various stages of the audit, reviewed relevant 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. Climate change Stakeholders are increasingly interested in how climate change will impact INSPECS Group plc. The Group has determined that the most significant future impacts from climate change on their operations will be from supply chain disruption and possible cost increases to improve product sustainability in response to changing customer preferences. These are explained on page 39 in the risk management section of the strategic report. They have also explained their climate commitments on pages 27 to 29. All of these disclosures form part of the ‘Other information’, rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially consistent with the financial statements, our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on ‘Other information’. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 67 In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any consequential material impact on its financial statements. The Group has explained in note 13 their articulation of how climate change has been reflected in the financial statements. Significant judgements and estimates relating to climate change are included in note 3 and these relate to the impact of climate change on cashflow assessments used as part of the goodwill impairment assessment. These disclosures also explain where governmental and societal responses to climate change risks are still developing, and where the degree of certainty of these changes means that the Group continues to monitor the future economic impact on their business model as part of the goodwill impairment assessment. As set out on page 39 and note 13, the potential future impacts are currently determined to be low risk in the financial statements for the current year. Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating management’s assessment of the impact of climate risk, physical and transition, their climate commitments, the effects of material climate risks disclosed on page 39 and whether these have been appropriately reflected in judgements and estimates following the requirements of UK adopted international accounting standards. As part of this evaluation, we performed our own risk assessment, to determine the risks of material misstatement in the financial statements from climate change which needed to be considered in our audit. We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and associated disclosures. Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to impact a key audit matter. 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. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section I N D E P E N D E N T A U D I T O R ’ S R E P O R T CONTINUED to the members of INSPECS Group plc Risk Our response to the risk Risk of manual override through inappropriate manual journals to revenue or inappropriate calculation of right of return provision (2022 $248.6m, 2021 $246.5m) In order to address this risk we Conducted targeted transaction testing to respond to the risk of fraud in particular focused on manual journal entries including top side adjustments posted to revenue using lower testing thresholds. Refer to Accounting policies (page 78); and Note 5 of the Consolidated Financial Statements (page 86) Used a data driven approach to obtain appropriate assurance over the full revenue data set through correlation analysis over sales and cash receipts to test the existence and occurrence of revenue being recognised in the correct period. 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 inappropriate manual topside journals to revenue. There are key judgements and estimates undertaken by management in calculating the right of return or rebate provisions. As such there is a heightened risk that management could manipulate these judgemental areas to understate the year end provisions and, in doing so, misstate revenue. The level of risk associated to this key audit matter is unchanged from the prior year. Used a detailed analytical review to compare year on year revenue balances to our expectations, management’s forecasts and, where possible, publicly available information. Enquired of management as to the existence of rebate or return arrangements with key customers. Checked the arithmetical accuracy of rebate and return calculations by performing our own recalculation. Identified new agreements that have been agreed within the current financial period as well as new agreements entered into post year end to challenge accounting treatment applied. To ensure completeness, we compared current year agreements with those existing in prior year as well as reviewing any return transactions post year end. A sample of rebate and returns provisions was selected with inputs to these calculations validated through challenge of the assumptions and estimations made which included preparing our own point estimate. Agreed calculations to customer contracts or agreements where available or payments subsequent to year-end. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 68 Key observations communicated to the Audit Committee Our audit procedures did not identify evidence of material misstatements related to revenue recognition and we found no evidence of management bias. The procedures we performed did not identify any material unsupported manual adjustments to revenue or any unexplained anomalies from our revenue analytics. We concluded that the right of return and rebates provisions are appropriately stated at year-end. Risk Our response to the risk Key observations communicated to the Audit Committee We performed full and specific scope audit procedures over this risk area in 6 locations, which covered 72% of the risk amount. We also performed specified procedures in 3 locations, which covered 10% of the risk amount. Procedures to respond to this risk were performed by both the primary audit team and component teams. In order to address this risk we: Understood the methodology applied by management in identifying CGUs and assessed this against the requirements of IAS 36 impairment of assets. Validated that the cash flow forecasts used in the valuation were consistent with information approved by the Board and reviewed the historical accuracy of management’s forecasts. Evaluated the implied growth rates beyond FY22 by considering evidence available to support these assumptions, their consistency with findings from other areas of our audit and by performing sensitivity analyses. Involved EY valuation specialists to independently construct our own expectation of the discount rates for a market participant from first principles. Challenged the long-term growth rates applied within the models including comparison to economic and industry forecasts. Impairment of goodwill (2022 $67.2m, 2021 $75.9m) Refer to the Audit and Risk Committee Report (page 51); Accounting policies (page 77); and Note 13 of the Consolidated Financial Statements (pages 93 and 94) There is a risk that, as a result of challenging macro-economic conditions, Cash Generating Units (‘CGUs’) may not achieve the cash flow to support the carrying value of goodwill leading to an impairment charge. There is a significant amount of goodwill relating to legacy acquisitions of $67m included in the balance sheet. Management are required to carry out an impairment review of goodwill under IFRS which will involve judgement and estimates regarding the future results of the business, likely growth rates and discount rates used. Our year end audit procedures did not identify evidence of material misstatement regarding the carrying value of goodwill in the Group. Management has disclosed the sensitivities related to reasonable possible change in key assumptions in note 13 in accordance with the requirements of IAS 36. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section I N D E P E N D E N T A U D I T O R ’ S R E P O R T CONTINUED to the members of INSPECS Group plc Risk Our response to the risk A relatively small change in these key assumptions could give rise to a material change in the estimated recoverable amount of goodwill. Performed sensitivity analyses at a CGU level by stress testing key assumptions in the model to consider the degree to which these assumptions would need to change before an impairment charge is triggered. The level of risk associated to this key audit matter is unchanged from the prior year. Analysed available information to identify any contrary evidence, including consideration of competitor performance. Assessed the disclosures in the financial statements against the requirements of IAS 36, in particular in respect of the requirements to disclose further sensitivities for CGUs where a reasonably possible change in key assumptions would cause impairment. The primary audit team performed all audit procedures over this risk area which covered 100% of the value of goodwill. In order to respond to this risk we: Obtained aged inventory listings and assessed whether older inventory has been appropriately provided for. Obtained management’s inventory provision calculations and understood the methodology applied in calculating the provision and tested inputs into the calculation and clerical accuracy. Challenged management’s approach on inventory obsolescence and compared key assumptions against historical and post year-end sales data, industry forecasts, customer orders and expected consumer demand. After considering adjustments made to the financial statements as a result of our audit procedures, we did not identify evidence of further misstatements related to inventory valuation as a result of inappropriate inventory provisioning policies. Our targeted procedures at the two components where issues related to inventory existence had been found in the prior year did not identify any audit differences in the current year. Inventory valuation (2022 $58.3m, 2021 $55.7m) Refer to the Audit and Risk Committee Report (page 52); Accounting policies (page 80); and Note 17 of the Consolidated Financial Statements (page 97) The valuation of inventory across the Group is dependent on establishing appropriate valuation processes. The assessment of how much excess and obsolete inventory exists at year end requires judgement to be applied in determining the inventory valuation and level of provisioning required. If these judgements are not appropriate then there is a risk that inventory is incorrectly valued. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 69 Key observations communicated to the Audit Committee Risk Our response to the risk Key observations communicated to the Audit Committee Existence of inventory at two components has also been identified as an area of heightened risk due to control failures in the prior year resulting in errors in inventory balances at both of these locations. This is a new key audit matter in the current year. Performed physical inventory stocktakes at in-scope locations at or near to the year-end date. Special considerations were made for 2 components with lower testing thresholds applied due to prior year issues identified. Using a lower testing threshold, we tested reconciling items on the year-end inventory sub- ledger reconciliations at the two components where control issues were identified in the prior year. We performed full and specific scope audit procedures over this risk area in 6 locations, which covered 90% of the risk amount. We also performed specified procedures in 3 locations, which covered 8% of the risk amount. Procedures to respond to this risk were performed by both the primary and component audit teams. As a result of the control failures in the prior year related to inventory and the effort required to audit the inventory provisions, we have identified a new key audit matter related to inventory valuation. In the prior year, our auditor’s report included key audit matters in relation to acquisition accounting and uncertain tax positions. In the current year, no acquisitions took place and the release of the transfer pricing provision in the prior year meant that the value and associated judgement related to uncertain tax positions was not considered to be a key audit matter in the current year. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section I N D E P E N D E N T A U D I T O R ’ S R E P O R T CONTINUED to the members of INSPECS Group plc 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 $1,242 thousand (2021: $824 thousand), which is 0.5% of revenue (2021: 3% of adjusted EBITDA.) We believe that revenue is the metric which is used most prevalently by Group management in their internal and external reporting. Therefore, given this focus, we consider this is the most appropriate basis to use for calculating materiality. This is a change from the prior year basis of using an adjusted EBIDTA measure as the basis for calculating materiality. We consider revenue to be more appropriate given the prominence of this measure in reporting during a period of ongoing integration of previously acquired businesses into the Group and volatility in earnings due to macro-economic factors. Additionally, the use of an adjusted measure meant there was judgement in determining which items should be adjusted and this judgement has now been removed. We determined materiality for the Parent Company to be $709 thousand (2021: $963 thousand), which is 0.5% (2021: 0.5%) of total assets. During the course of our audit, we reassessed our planning materiality and noted no need to change to the basis that materiality was initially based on. We updated our planning materiality to reflect actual results being different to the forecast used to calculate planning materiality and performed our testing at this level. 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% (2021: 50%) of our planning materiality, namely $621 thousand (2021: $411 thousand). We have set performance materiality at this percentage due to the high level of corrected and uncorrected misstatements identified in the prior financial period. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 70 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 $61 thousand to $359 thousand (2021: $44 thousand to $300 thousand). 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 $62 thousand (2021: $41 thousand), 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. Other information The other information comprises the information included in the annual report set out on pages 1 to 62, 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 this gives rise to 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. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section I N D E P E N D E N T A U D I T O R ’ S R E P O R T CONTINUED to the members of INSPECS Group plc 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 62, 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. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 71 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. 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 significant are those that relate to the reporting framework (UK adopted international accounting standards, United Kingdom Generally Accepted Accounting Practice, the Companies Act 2006 and the UK Corporate Governance Code) 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. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section 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. Helen McLeod-Jones (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Bristol 03 May 2023 I N D E P E N D E N T A U D I T O R ’ S R E P O R T CONTINUED to the members of INSPECS Group plc • 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 considered there was susceptibility to fraud. We also considered performance targets and their influence on efforts made by management to manage earnings or 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, and legal counsel, as well as journal entry testing, with a focus on manual consolidation journals and journals indicating significant or unusual transactions based on our understanding of the business. Through our testing we challenged 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 and purchase to pay processes to assist in identifying higher risk transactions for testing. • Where we identified potential non-compliance with laws and regulations, we developed an appropriate audit response and communicated directly with components impacted. Our procedures involved: understanding the process and controls to identify non-compliance, inquiring of key stakeholders, understanding the fact patterns in each case, reading the output from management’s own investigation and using specialists including our forensics team to support us in concluding on the matters identified as applicable. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 72 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C O N S O L I D AT E D I N C O M E S TAT E M E N T for the year ended 31 December 2022 C O N S O L I D AT E D S TAT E M E N T O F O T H E R C O M P R E H E N S I V E I N C O M E for the year ended 31 December 2022 Notes 2022 $’000 2021 $’000 5 248,577 246,471 7, 10 (126,291) (130,699) 122,286 115,772 (7,783) (7,795) Loss for the year Other comprehensive (loss)/income 2022 $’000 (7,816) 2021 Restated $’000 (5,435) Exchange differences on translation of foreign operations (7,459) 2,891 (7,459) (15,275) (15,275) 2,891 (2,544) (2,544) 7, 10 (115,970) (106,436) Other comprehensive (loss)/income for the year, net of income tax Total comprehensive loss for the year Attributable to: Equity holders of the Parent The notes on pages 76 to 113 form part of these Financial Statements. (1,467) (1,814) (2,528) (3,829) 134 23 (9,481) 1,665 (7,816) 1,541 (2,588) (5,418) (2,775) 118 (10) (9,132) 3,697 (5,435) (7,816) (5,435) $(0.08) $(0.05) $(0.08) $(0.05) 8 33 9 9 16 11 12 12 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating (loss)/profit Non-underlying costs Exchange adjustment on borrowings Finance costs Finance income Share of profit/(loss) of associate Loss before income tax Income tax credit Loss for the year Attributable to: Equity holders of the Parent Earnings per share Basic loss for the year attributable to the equity holders of the Parent Diluted loss for the year attributable to the equity holders of the Parent 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 73 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N as at 31 December 2022 ASSETS Non-current assets Goodwill Intangible assets Property, plant and equipment Right-of-use assets Investment in associates Deferred tax assets Current assets Inventories Trade and other receivables Tax receivables Cash and cash equivalents Assets held for sale Total assets EQUITY Shareholders’ equity Called up share capital Share premium Foreign currency translation reserve Share option reserve Merger reserve Retained earnings Total equity 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 74 Notes 2022 $’000 2021 Restated $’000 Notes 2022 $’000 2021 Restated $’000 13 14 15 25 16 29 17 18 19 20 21 22 22 22 22 22 67,234 43,756 21,078 23,810 135 8,476 164,489 58,257 37,676 4,453 26,799 127,185 1,006 292,680 1,389 122,291 (4,657) 3,548 7,296 223 75,945 54,454 24,569 22,269 48 12,540 189,825 55,664 42,229 3,468 29,759 131,120 – 320,945 1,389 122,291 2,802 2,001 7,296 9,429 130,090 145,208 LIABILITIES Non-current liabilities Financial liabilities – borrowings Interest-bearing loans and borrowings Deferred consideration Deferred tax liabilities Current liabilities Trade and other payables Right of return liabilities Financial liabilities – borrowings Interest-bearing loans and borrowings Invoice discounting Deferred consideration Tax payable Total liabilities Total equity and liabilities 24 28 29 23 5 24 24 28 30 20,018 1,634 11,553 33,205 47,363 12,838 62,600 1,803 3,046 1,735 129,385 162,590 292,680 69,194 3,107 20,517 92,818 53,317 11,100 13,289 2,433 – 2,780 82,919 175,737 320,945 The notes on pages 76 to 113 form part of these Financial Statements. Registered Company number: 11963910. The Financial Statements were approved by the Board of Directors on 03 May 2023 and were signed on its behalf by: R Peck Director C Kay Director w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y for the year ended 31 December 2022 C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S for the year ended 31 December 2022 Called up share capital $’000 Share premium $’000 Foreign currency translation reserve $’000 Share option reserve $’000 Notes Retained earnings $’000 Merger reserve $’000 Total equity $’000 1,384 121,940 (89) 867 14,429 7,296 145,827 Cash flows from operating activities Interest paid Tax paid Net cash from operating activities Cash flows from investing activities (5,435) Purchase of intangible fixed assets – – – 5 – – – – 351 – – 2,891 2,891 – – – (5,435) – (5,435) – – (350) 435 1,484 – – – – – – 2,891 (2,544) 441 1,484 1,389 122,291 2,802 2,001 9,429 7,296 145,208 – – – – – – 22 22 22 22 – – – – – – – – (7,816) (7,459) – – – – (7,816) (7,459) (7,459) – (7,816) – (15,275) – – – 1,729 – (182) 182 – (1,572) – – – 1,729 – (1,572) Purchase of property, plant and equipment Acquisition of subsidiaries, net of cash acquired Purchase of shareholding in associate Interest received Net cash used in investing activities Cash flow from financing activities Proceeds from the exercise of share options New bank loans in the year Bank loan principal repayments in year Transaction costs on debt refinancing Movement in invoice discounting facility Dividends paid to equity holders of the Parent Principal payments on leases Net cash (used in)/from financing activities (Decrease)/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 the of year Notes 27 14 15 16 9 22 26 26 26 22 26 19 2022 $’000 12,358 (3,652) (3,629) 5,077 (1,042) (3,193) – (88) 134 2021 $’000 24,895 (1,968) (2,910) 20,017 (1,508) (6,137) (8,134) – 118 (4,189) (15,661) – 12,783 (10,381) (99) (384) (1,572) (4,745) (4,398) (3,510) 29,759 550 26,799 355 26,751 (22,873) (782) 2,477 – (4,224) 1,704 6,060 23,776 (77) 29,759 Balance at 1 January 2021 Changes in equity Loss for the year Other comprehensive income (restated) 22 Total comprehensive loss (restated) Exercise of share options 21, 22 Share-based payments 22 Balance at 31 December 2021 (Restated) Changes in equity Loss for the year Other comprehensive loss Total comprehensive loss Share-based payments Share options cancelled Cash dividends Balance at 31 December 2022 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 75 1,389 122,291 (4,657) 3,548 223 7,296 130,090 The notes on pages 76 to 113 form part of these Financial Statements. The notes on pages 76 to 113 form part of these Financial Statements. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S for the year ended 31 December 2022 1. General information INSPECS Group plc is a public company limited by shares and is incorporated in England and Wales (company number 11963910). The address of the Company’s principal place of business is 7-10 Kelso Place, Upper Bristol Road, Bath BA1 3AU. The Board considered a base case, a downside scenario, and a reverse stress test to assess the effect of potential disruption to the supply chain, reducing consumer confidence due to rising interest rates and high global inflation, cost increases and pressure on rising employee costs due to the cost-of-living increases facing many individuals. The scenarios are as follows: 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 parent company providing services that support the Group. From the start of the period the Company has incurred costs to support the Group which have been re- charged to subsidiary entities where appropriate. 2. Accounting policies Base Case • The base case is the Board approved budget which has been updated with the Group’s trading results for Q1 2023 and our estimate of trading to 30 April. The budget was prepared assuming a continuation of the current political situation in Ukraine together with inflationary pressures across the World. The Group had seen a downturn in consumer confidence, especially in Europe due to the above factors. • The revenue reduction in Europe towards the end of 2022 was a temporary slowdown and the Group has seen a strong rebound in our early 2023 trading in Germany and the rest of Europe. Basis of preparation The Consolidated Financial Statements have been prepared in accordance with UK adopted international accounting standards, and those parts of the Companies Act 2006 applicable to companies reporting under UK adopted International Financial Reporting Standards (‘IFRS’). • The budget does not assume any acquisition expenditure. • Our US and other markets remain resilient and are trading in line with expectations. • The Group expects to be able to maintain its budgeted margin throughout 2023. The Consolidated Financial Statements have been prepared on a historical cost basis, except where fair value measurement is required under IFRS as described below in the accounting policies. The presentational currency for the Consolidated and Parent Company Financial Statements is the United States Dollar (USD) rounded to the nearest thousand. The functional currency of both the Group and Parent Company is Pound Sterling (GBP), however a presentational currency of USD is used to be consistent with many other entities within the industry. The Consolidated Financial Statements provide comparative information in respect of the year ended 31 December 2021. For periods commencing from 1 January 2023, the reporting currency of the Consolidated and Parent Company Financial Statements will change to GBP. Comparative information is therefore included within Appendix 1 in GBP. Going concern The financial statements have been prepared on the going concern basis as the Directors have assessed that there is a reasonable expectation that the Group will be able to continue in operation and meet its commitments as they fall due over the going concern period to 30 June 2024. • The base case includes Capital Expenditure through 2023 and 2024 for the new third plant in Vietnam and initial construction costs of the first European factory in Portugal. • In this base case scenario, no covenant breaches or liquidity challenges are expected. Downside scenario • The Group has known forward orders for circa two months through to the middle of June 2023, therefore our downside scenario updates the base case with a 5.6% reduction in revenue from June 2023. The Directors believe that a 5.6% reduction from the base case is appropriately conservative based on the current trading position, the improved business through Norville, expected falling global inflation and increasing consumer confidence. A 5% reduction in Employee expenses takes affect from September 2023, reflecting a reduction of the expected senior management bonuses together with a reduction in marketing, advertising, entertaining, office expenses and other discretionary expenditure that would not affect operational performance in the medium term. • In this downside scenario, no covenant breaches or liquidity challenges are expected. The Group has considered the reasonably plausible downside scenario. The Group mitigates the risk of a long-term drop in revenue by having a diverse business that trades globally so that it is not reliant on any one region. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 76 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued Reverse stress test • The reverse stress test updated our base case with a 24.2% drop in forecast revenue, whilst maintaining gross margin. The drop of 24.2% represents a significant reduction against actual trading in 2022 and is a reduction in revenue not previously experienced by the Group. This results in a breach in interest ratio covenant in March 2024 that is recovered in June 2024. No other covenants were forecast to be breached in this period. The reverse stress test assumes some controllable costs saving by a reduction in employee expenses, reduction in headcount, a reduction in discretionary administration costs and removal of discretionary CAPEX spending, including a delay of the new manufacturing facility in Vietnam and construction costs for a factory in Portugal, and some repayment of the Rolling Credit Facility to reduce interest charges through the year. The Group has considered the reverse stress test, which models a breach in the interest ratio covenant in March 2024. In this case the Directors have available further levers within its control to save costs and generate income. The Group also has the ability to discuss amending or waiving covenants with the bank should an unprecedented drop in revenue occur. Current trading is ahead of budget and there has been no erosion of margin. As a result, the directors consider that the reverse stress test is a remote possibility. The Group’s borrowings with HSBC, amounting to $58.3m, contains three covenants; Leverage, Cashflow Cover and Interest Cover ratios. Compliance on these covenants is based on 12-month rolling periods for each Relevant Period. The facilities are due for renewal in October 2024 and discussions for renewal have already taken place. Formal work on the renewal is expected to take place in Q3 2023 with a view to extending the terms for a further 3 years from October 2024, it is not expected that any bullet payment will become due in October 2024 and the Directors are confident of a successful renewal to the facilities. Prior to a technical breach of one of the covenants in December 2022 the Group was in discussion to amend the facilities agreement with HSBC. Following the breach in cashflow cover in December 2022 HSBC subsequently waived the cashflow cover and leverage covenants for the relevant period ending 31 December 2022. The covenant tests for 2023 have been amended by HSBC to increase the leverage cover for the March and June relevant periods; waive cashflow cover until the March 2024 relevant period; and decrease interest cover for the March and June relevant periods. There were no covenant breaches in any prior relevant period in 2022. On this basis, and as outlined in the Director’s report, the Board has reasonable expectations that the Group and Company has adequate resources to continue as a Going Concern to 30 June 2024. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 77 Basis of consolidation The consolidated financial information incorporates the Financial Statements of the Group and all of its subsidiary undertakings. A subsidiary is defined as an entity over which the Group has control. Control exists when the Company has power over the investee, the company is exposed, or has rights to variable returns from its involvement with the subsidiary and the company has the ability to use its power of the investee to affect the amount of investor’s returns. The Financial Statements of all Group companies are adjusted, where necessary, to ensure the use of consistent accounting policies. Acquisitions are accounted for under the acquisition method from the date control passes to the Group. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recorded as goodwill. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. Acquisition- related costs are expensed as incurred and classified as non-underlying costs. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested annually for impairment. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued Investment in associates 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. Revenue recognition Revenue from the sales of goods is recognised at the point in time when control of the asset is transferred to the customer, in line with agreed incoterms. Revenue is recognised at the fair value of the consideration received or receivable for sale of goods to external customers in the ordinary nature of the business. The fair value of the consideration takes into account trade discounts, settlement discounts, volume rebates and the right of return. Revenue in relation to royalty income is recognised over the period to which the royalty term relates. Revenue in relation to design income is recognised as the work is performed. Rights of return Under IFRS 15 a sale with right of return is recognised if the customer receives any combination of the following: • A full or partial refund of any consideration paid • A credit that can be applied against amounts owed, or that will be owed, to the entity; and 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. • Another product in exchange. 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. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 78 The Group recognised a liability where it has historically accepted a right to return with the combination of a credit being applied against amounts owed or where another product is offered in exchange. The Group estimates the impact of potential returns from customers based on historical data on returns. A refund liability is recognised for the goods that are expected to be returned (i.e. the amount not included in the transaction price). A right of return asset (and corresponding adjustment to cost of sales) is also recognised for the right to recover the goods from the customer, to the extent that these goods are not considered impaired. 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. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued Intangible assets with finite lives are amortised over their useful economic life and are 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 Computer software Trademarks Customer relationships Customer order book Over the period of the patent or license 3 years 5–10 years 8–20 years 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. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 79 Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows: Freehold property Leasehold improvements Fixtures and fittings Computer equipment Plant and machinery 33 years over the lease term 5 years 3–5 years 3–7 years Construction in progress is not depreciated. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end. An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset. Leases The Group applied a single recognition and measurement approach for all leases for which it is the lessee, except for short-term leases and leases of low-value assets. The Group recognises right-of-use assets representing the right to use the underlying assets and lease liabilities to make lease payments. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued 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 Plant and machinery Motor vehicles 2–5 years 3 years 3 years Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable. They also include any amounts expected to be paid under residual value guarantees. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments or a change in the assessment of an option to purchase the underlying asset. The Group’s lease liabilities are included in interest-bearing loans and borrowings. The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expenses on a straight-line basis over the lease term. Inventories Inventories are stated at the lower of cost and estimated selling price less costs to sell after making due allowance for obsolete and slow-moving items. Inventories are recognised as an expense in the period in which the related revenue is generated. Cost is determined on an average cost basis. Cost includes the purchase price and other directly attributable costs to bring the inventory to its present location and condition. At the end of each period, inventories are assessed for impairment. If an item of inventory is impaired, the identified inventory is reduced to its selling price less costs to complete and sell and an impairment charge is recognised in the income statement. Royalties Royalties payable reflect balances owed to brand owners for the right to use the brand name. The royalty is payable based on a pre-agreed percentage of sales volumes, with some arrangements also having minimum royalty payments for specific periods. Royalties payable are recognised on delivery of the products covered by such arrangements, with an additional accrual made where it is considered that the sales level required to meet the minimum payment will not be met. Financial instruments – initial recognition and subsequent measurement A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Initial recognition and measurement Financial assets are classified at initial recognition and subsequently measured at amortised cost. Subsequent measurement For purposes of subsequent measurement, the financial assets of the Group are classified as financial assets at amortised cost (debt instruments). Financial assets at amortised cost (debt instruments) Financial assets at amortised cost are subsequently measured using the effective interest (‘EIR’) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost include trade receivables, other receivables and loans to Group undertakings. The Group does not have any financial assets at fair value through OCI or financial assets at fair value through profit or loss. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 80 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued 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; and • Financial liabilities at amortised cost (loans and borrowings) As at 31 December 2022 and 31 December 2021, the Group has not designated any financial liability as at fair value through profit or loss. Financial liabilities at amortised cost (loans and borrowings) After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the income statement. This category generally applies to interest-bearing loans and borrowings. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement. Refinancing Where a loan arrangement is replaced with a subsequent facility which is materially different in relation to repayment structure or interest rate, any capitalised loan arrangement fees in respect of the previous loan are expensed, with transaction costs relating to the new loan capitalised and held against the value of the related liability. Impairment of financial assets The Group recognises an allowance for expected credit losses (‘ECLs’) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group considers a financial asset in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 81 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued 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 deliver cash or other financial assets or to exchange financial assets or liabilities on terms that may be unfavourable; and • The instrument is a non-derivative that contains no contractual obligation to deliver a variable number of shares or is a derivative that will be settled only by the Company exchanging a fixed amount of cash or other assets for a fixed number of the Company’s own equity instruments Costs associated with the issue or sale of equity instruments are allocated against equity to the extent that the issue is a new issue, or expensed to the profit and loss for existing equity instruments. Share-based payments Employees (including senior executives) of the Group receive remuneration in the form of share- based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model, further details of which are given in the detailed notes to the accounts. That cost is recognised in employee benefits expense together with a corresponding increase in share option reserve, over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the income statement for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. Service performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Any other conditions attached to an award, but without an associated service requirement, are considered to be non- vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognised for awards that do not ultimately vest because service conditions have not been met. Where awards include a non-vesting condition, the transactions are treated as vested irrespective of whether the non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. If the terms of an equity-settled award are modified, the minimum expense recognised is the grant date fair value of the unmodified award provided the original vesting terms of the award are met. An additional expense, measured as at the date of modification, is recognised for any modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to the employee. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share, to the extent that they are dilutive. Dividend Final dividend distribution to the Group’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Group’s shareholders. Deferred and contingent consideration in relation to acquisitions Deferred consideration to the previous owners arising on acquisitions are treated as part of the consideration for the acquisition, with the liability recognised on the statement of financial position at the date of the acquisition. Where the consideration is contingent on continuing employment within the Group, the charge is recognised through the Income Statement over the period to which it relates. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 82 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued 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. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 83 The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and deferred tax liabilities are offset if and only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to income taxes levied by the same taxation authority on either the same taxable entity and the same taxation authority or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Foreign currencies These Financial Statements are presented in USD, which is the Group’s presentational currency. Each entity in the Group determines its own functional currency and items included in the Financial Statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e. translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively). The functional currency of INSPECS Group plc is GBP. The functional currencies of certain overseas subsidiaries are currencies other than the GBP. At the end of the reporting period, the assets and liabilities of these entities are translated into GBP at the exchange rates prevailing at the end of the reporting period and their income statements are translated into GBP at the average exchange rates for the year. The resulting exchange differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss. On translation to USD for presentation, the assets and liabilities of the consolidated entity are translated into USD at the exchange rates prevailing at the end of the reporting period, equity balances are translated at historic exchange rates and the income statement is translated into USD at the average exchange rates for the year. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate at the period end. For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are translated at the average exchange rates for the year. Pensions and other post-employment benefits The Group operates defined contribution pension schemes, where the amounts charged to the statement of comprehensive income are the contributions payable in the year. Differences between contributions payable in the year and the contributions actually paid are shown as either accruals or prepayments. Provisions A provision is required when a present obligation (legal or constructive) has arisen as a result of a past event and it is probably that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period. Non-underlying costs Non-underlying costs are those that in the Directors’ view should be separately disclosed due to their nature to enable a full understanding of the Group’s financial performance. These include income and expenditure that is considered outside of the usual course of business and therefore is separately identified to allow the users of the Financial Statements comparability versus prior periods. The main categories of costs disclosed as non-underlying are acquisition costs, restructuring costs and other professional service costs relating to the accounting integration of acquisitions. Prior year adjustments Material prior period errors are corrected retrospectively in the first set of Financial Statements authorised for issue after their discovery by restating the comparative amounts for the prior periods presented. A reconciliation between the corrected figures and those reported for key statements is provided in note 35. During the year, a prior year error has been identified in relation to the treatment of contingent consideration. New and amended standards and interpretations The following standards have been published and are mandatory for accounting periods beginning after 1 January 2022: • Amendments to IFRS 3: Business Combinations – Reference to the Conceptual Framework – effective 1 January 2022 • Amendments to IAS 16: Property, Plant and Equipment – effective 1 January 2022 • Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets – effective 1 January 2022 • Annual Improvements to IFRS Standards 2018-2020 Cycle – 1 January 2022 None of the above standards have given rise to a significant change in the reported results or financial position of the Group or Company. The following standards have been published and are mandatory for accounting periods beginning after 1 January 2023. • New Standard IFRS 17: Insurance Contracts • Amendments to IAS 1: Presentation of Financial Statements: Classification of Liabilities as Current or Non-current • Amendments to IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors • Amendments to IAS 12: Income Taxes None of the new standards not yet in issue are expected, once adopted, to give rise to a significant change in the reported results or financial position of the Group or Company. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 84 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 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. 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. 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: As a result, the Group has identified that it is exposed to uncertain tax positions, which it has measured using an expected value methodology. Such methodologies require estimates to be made by management including the relative likelihood of each of the possible outcomes occurring, the periods over which the tax authorities may raise a challenge to the Group’s transfer pricing or tax domicile arrangements; and the quantum of interest and penalties payable in additions to the underlying tax liability. The provision held in relation to uncertain tax liabilities as at 31 December 2022 is $706,000 (2021: $623,000). Further details are given in note 30. 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 Group has considered the impact of climate risk on these cash flow assessments as detailed in note 13, however this is considered to be a prudent view, with mitigations such as price structuring detailed on page 39. The carrying amount of goodwill at 31 December 2022 was $67,234,000 (2021 restated: $75,945,000). No provision for impairment of goodwill was made as at the end of the reporting period. See note 13 for further details. Right of return liability Management applies assumptions in determining the right of return liability and the associated right of return asset. These assumptions are based on analysis of historical data trends, but require estimation of appropriate time periods and expected return rates. The right of return liability at the period end is $12,838,000 (2021: $11,100,000) with an offsetting right of return asset (held within inventory) of $1,931,000 (2021: $1,581,000). If the provision were to increase by 5%, this would lead to an additional charge to the profit and loss of $545,000, with it being considered that a movement in the right of return liability will have an offsetting impact on the right of return asset. 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 has used external experts to mitigate the risk of these judgements and estimates on the intangible assets identified and valued. Deferred tax Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. See note 29 for further details. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 85 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 4. Non statutory measures When reviewing profitability, the Directors use adjusted profit metrics in order to give meaningful year on year comparison. These adjusted profit metrics are: • EBITDA • Adjusted Underlying EBITDA • Adjusted Profit Before Tax • Underlying operating expenses • Revenue on a constant exchange rate basis Whilst we recognise that the measures used are alternative (non-Generally Accepted Accounting Principles) performance measures which are not defined within IFRS, these measures are important and should be considered alongside the IFRS measures. A reconciliation to these non-GAAP performance measures is shown below: Less: Amortisation of loan arrangement fees Less: Amortisation and impairment on intangible assets Less: Share-based payment expense Less: Earnout on acquisition Less: Purchase Price Allocation (‘PPA’) release on inventory through cost of sales Less: Underlying EBITDA (loss) for acquisitions in the period Less: Non-underlying costs Less: Exchange adjustment on borrowings Less: Share of profit/(loss) of associate Loss before income tax (973) (8,526) (1,729) (1,909) (164) – (1,814) (2,528) 23 (9,481) (389) (11,020) (1,484) – (5,991) (90) (2,588) (5,418) (10) (9,132) Adjusted Profit Before Tax is used to calculate Adjusted PBT basic and diluted EPS as per note 12. In the prior period, Underlying EBITDA was used to determine Adjusted Underlying EBITDA EPS, however it is considered that Adjusted PBT EPS provides a more appropriate metric of performance to the users of the Annual Report. Underlying operating expenses, as referenced on page 17, is calculated as the difference between gross profit and Adjusted Underlying EBITDA. 2022 $’000 (1,467) 8,526 8,342 15,401 1,729 1,909 2021 $’000 1,541 11,020 7,430 19,991 1,484 – 19,039 21,475 In addition, the Directors consider the revenue of the Group on a constant exchange rate basis, which is calculated using the average exchange rates in effect for the corresponding comparative period. 164 – 19,203 (8,342) (2,722) 8,139 5,991 90 27,556 (7,430) (2,268) 17,858 Operating (loss)/profit Add back: Amortisation and impairment on intangible assets Add back: Depreciation EBITDA Add back: Share-based payment expense Add back: Earnout on acquisition Underlying EBITDA Add back: Purchase Price Allocation (‘PPA’) release on inventory through cost of sales Add back: Underlying EBITDA (loss) for acquisitions in the period Adjusted Underlying EBITDA Less: Depreciation Less: Interest (excluding amortisation of loan arrangement fees) Adjusted Profit Before Tax 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 86 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 4. Non statutory measures continued Due to the technical breach of a bank covenant discussed in note 24, the adjusted net current assets position has been calculated to allow comparison year on year as follows: For the years ended 31 December 2022 and 31 December 2021 the Group had no individual customer which accounted for more than 10% of the Group’s revenue. b) Right of return assets and liabilities Current assets Current liabilities Loan in technical breach Adjusted current liabilities Adjusted net current assets 2022 $m 127.2 (129.4) (45.7) (83.7) 43.5 2021 $m 131.1 (82.9) – (82.9) 48.2 Right of return asset Right of return liability 2022 $’000 1,931 2021 $’000 1,581 (12,838) (11,100) The right of return asset is presented as a component of inventory (note 17) and the right of return liability is presented separately on the face of the balance sheet. 5. Revenue The revenue of the Group is attributable to the one principal activity of the Group. 6. Segment information The Group operates in three operating segments, which upon application of the aggregation criteria set out in IFRS 8 Operating Segments results in three reporting segments: • Frames and Optics product distribution a) Geographical analysis The Group’s revenue by destination is split in the following geographic areas: • Wholesale – being OEM and manufacturing distribution • Lenses – being manufacturing and distribution of lenses United Kingdom Europe (excluding UK) North America South America Asia Africa Australia 2022 $’000 26,271 115,241 86,189 1,391 7,983 546 10,956 2021 $’000 30,248 121,930 82,114 517 3,281 3,034 5,347 248,577 246,471 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. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 87 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 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 2022 and are as follows: Frames and Optics $’000 Wholesale $’000 Lenses $’000 Total before adjustments & eliminations $’000 Adjustments & eliminations $’000 Total $’000 Total assets Total liabilities Deferred tax asset Current tax liability 214,661 29,572 4,344 248,577 – 248,577 Deferred tax liability 6,408 5,047 218 11,673 (11,673) – Borrowings 221,069 34,619 4,562 260,250 (11,673) 248,577 Group net assets (113,851) (18,911) (3,500) (136,262) 9,971 (126,291) Other disclosures Frames and Optics $’000 Wholesale $’000 Lenses $’000 Total before adjustments & eliminations $’000 Adjustments & eliminations $’000 Total $’000 396,297 84,919 12,665 493,881 (209,677) 284,204 (217,238) (15,149) (15,589) (247,976) 183,095 (64,881) 8,476 (1,735) (11,553) (84,421) 130,090 107,218 15,708 1,062 123,988 (1,702) 122,286 Capital additions 2,765 547 923 4,235 – 4,235 (91,564) (6,228) (5,245) (103,037) (3,848) (106,885) (6,530) (992) (808) (8,330) (12) (8,342) (7,411) (1,091) (24) (8,526) – (8,526) Revenue External Internal Cost of sales Gross profit Expenses Depreciation Amortisation 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 88 Operating profit/(loss) 1,713 7,397 (5,015) 4,095 (5,562) (1,467) Exchange adjustment on borrowings Non-underlying costs Finance costs Finance income Share of profit of associate Taxation Loss for the year (2,528) (1,814) (3,829) 134 23 1,665 (7,816) w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 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 2021 and are as follows: Frames and Optics $’000 Wholesale $’000 Lenses $’000 Total before adjustments & eliminations $’000 Adjustments & eliminations $’000 Total $’000 Frames and Optics $’000 Wholesale $’000 Lenses $’000 Total before adjustments & eliminations $’000 Adjustments & eliminations $’000 Total $’000 Total assets 426,449 75,568 13,986 516,003 (207,598) 308,405 Total liabilities (321,905) (7,444) (10,813) (340,162) 270,205 (69,957) Revenue External Internal Cost of sales Gross profit Expenses Depreciation Deferred tax asset Current tax liability 211,527 27,437 7,507 246,471 – 246,471 Deferred tax liability 3,438 4,664 90 8,192 (8,192) – Borrowings 214,965 32,101 7,597 254,663 (8,192) 246,471 (115,964) (16,922) (4,977) (137,863) 7,164 (130,699) Group net assets Other disclosures 12,540 (2,780) (20,517) (82,483) 145,208 99,001 15,179 2,620 116,800 (1,028) 115,772 Capital additions 2,471 1,300 3,874 7,645 – 7,645 (84,672) (6,857) (4,797) (96,326) 545 (95,781) (5,669) (1,209) (552) (7,430) (7,430) 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. – – (11,020) Amortisation and impairment (6,386) (4,632) (2) (11,020) Operating (loss)/profit 2,274 2,481 (2,731) 2,024 (483) 1,541 Exchange adjustment on borrowings Non-underlying costs Finance costs Finance income Share of loss of associate Taxation Loss for the year (5,418) (2,588) (2,775) 118 (10) 3,697 (5,435) 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 89 Non-underlying costs, as well as net finance costs and taxation are not allocated to individual segments as they relate to Group-wide activities as opposed to individual reporting segments. Deferred tax and borrowings are not allocated to individual segments as they are managed on a Group basis. Adjusted items relate to elimination of all intra-group items including any profit adjustments on intra-group sales that are eliminated on consolidation, along with the profit and loss items of the Parent Company. Adjusted items in relation to segmental assets and liabilities relate to the elimination of all intra- group balances and investments in subsidiaries, and assets and liabilities of the Parent Company. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 6. Segment information continued Non-current operating assets United Kingdom Europe North America Asia Directors’ remuneration during the year was as follows: 2022 $’000 9,820 110,339 4,863 30,856 155,878 2021 $’000 9,795 Directors’ salaries Directors’ pension contributions Share options 129,441 4,589 36,580 180,405 Non-current assets for this purpose consist of property, plant and equipment, right-of-use assets, goodwill and intangible assets. Information regarding the highest paid Director is as follows: Total remuneration The number of Directors to whom employer pension contributions were made by the Group during year is three (2021: two). This was in the form of a defined contribution pension scheme. Remuneration of key management personnel has been disclosed in note 31. For more information on Director pay, please refer to the Remuneration and Nomination Committee Report on pages 53 to 56. 7. Employees and Directors Wages and salaries Social security costs Pension costs Share-based payment expense 2022 $’000 56,436 9,624 713 1,729 68,502 The average number of employees during the year by operating segment was as follows: Frames and Optics Wholesale Lenses 2022 669 961 102 2021 $’000 57,714 10,002 566 1,484 69,766 2021 621 964 87 1,732 1,672 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 90 2022 $’000 909 16 – 925 2022 $’000 318 2021 $’000 811 35 373 1,219 2021 $’000 523 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 8. Non-underlying costs Non-underlying costs are those that in the Directors’ view should be separately disclosed by virtue of their size, nature or incidence to enable a full understanding of the Group’s financial performance in the year and business trends over time. Non-underlying costs incurred during the year are as follows: 10. Loss before income tax The loss before income tax is stated after charging: Acquisition costs Other professional service costs Restructuring costs 2022 $’000 1,101 201 512 1,814 2021 $’000 1,352 1,236 – 2,588 Acquisition costs of $1,101,000 were incurred during the period relating to prospective acquisition targets. The Board decided to pause the acquisition process in the second half of 2022 due to market conditions. Other professional service costs of $201,000 relate to accounting transition and valuation following the acquisition of BoDe Design GmbH and EGO Eyewear Limited in December 2021. Restructuring costs of $512,000 were incurred in the period in relation to the closure of International Eyewear Limited and INSPECS Asia Limited. The closure of these entities is as a result of recent acquisitions and is therefore considered one-off in nature. Cost of inventories recognised as expense Short-term leases Depreciation – owned assets (note 15) Depreciation – right-of-use assets (note 25) Amortisation – intangibles (note 14) Impairment – intangibles (note 14) Trading foreign exchange loss/(gain) Fees payable to the Company’s auditor for audit services: Audit of the Company and Group accounts Audit of the subsidiaries 2022 $’000 2021 $’000 92,049 95,628 486 3,841 4,501 8,526 – 2,150 2022 $’000 592 1,142 486 3,423 4,007 7,567 3,453 (1,171) 2021 $’000 574 830 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 91 9. Finance costs and finance income Finance costs Bank loan interest Invoice discounting interest and charges Loan transaction costs Lease interest Total finance costs Finance income Interest receivable 2022 $’000 2021 $’000 No fees have been charged by the Company’s auditor for non-audit services in the current or prior periods. 2,206 1,785 94 974 555 57 477 456 3,829 2,775 134 118 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 11. Income tax Analysis of tax expense: Current tax: Current tax on profits for the year Overseas current tax expense Foreign tax suffered Adjustment in respect of prior years Total current tax Deferred tax: (see note 29) Deferred tax income relating to the origination and reversal of timing differences Effect of changes in tax rates Adjustment in respect of prior years Total deferred tax Total tax credit reported in the consolidated income statement 2022 $’000 2021 $’000 2,036 322 4 (948) 1,414 (2,964) (108) (7) (3,079) (1,665) 1,618 469 – (128) 1,959 (4,430) (1,122) (104) (5,656) (3,697) Factors affecting the tax credit The tax credit assessed for the year is lower than the standard rate of corporation tax in the UK. The difference is explained below: Loss before income tax Loss multiplied by standard rate of corporation tax in the UK of 19% (2021: 19%) Effects of: Non-deductible expenses – amortisation of intangible assets Non-deductible expenses – other expenses Increase/(decrease) in provision for uncertain tax liabilities Capital allowances super deduction Share-based payment Different tax rate for overseas subsidiaries Transfer pricing adjustments Tax rate changes Effects of Group relief Amounts not recognised for deferred tax Adjustments in respect of prior year Tax credit 2022 $’000 (9,481) 2021 $’000 (9,132) (1,801) (1,735) 185 907 152 (2) 459 (3,065) 81 (108) – 2,482 (955) (1,665) 853 517 (2,224) – (136) (1,311) 1,017 (1,122) 156 520 (232) (3,697) Movements in other comprehensive income relating to foreign exchange on consolidation are not taxable. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 92 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Year ended 31 December 2021 Basic EPS Diluted EPS Adjusted PBT basic EPS Adjusted PBT diluted EPS Basic weighted average number of Ordinary Shares (‘000) 101,310 106,336 101,310 106,336 Total (loss)/earnings ($‘000) (Loss)/ earnings per share ($) (5,435) (5,435) 17,858 17,858 (0.05) (0.05) 0.18 0.17 Refer to note 21 for details in relation to the shares in issue and their rights. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 12. Earnings per share (‘EPS’) Basic EPS is calculated by dividing the profit or loss for the year attributable to ordinary equity holders of the Parent by the weighted average number of Ordinary Shares outstanding during the year. Diluted EPS is calculated by dividing the profit or loss attributable to ordinary equity holders of the Parent by the weighted average number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that would be issued on conversion of all the dilutive potential Ordinary Shares into Ordinary Shares, to the extent that the inclusion of such shares is not anti-dilutive. A loss has been made in the year to 31 December 2022 and the comparative period. In accordance with IAS 33, potential Ordinary Shares shall be treated as dilutive when, and only when, their conversion to Ordinary Shares would decrease earnings per share, or increase loss per share from continuing operations. As a loss is made, including the dilution of potential Ordinary Shares reduces the loss per share and therefore the outstanding options should not be treated as dilutive when calculating EPS. Adjusted PBT earnings per share figures are calculated by dividing adjusted PBT for the year by the weighted average number of Ordinary Shares outstanding during the year. Adjusted PBT diluted earnings per share figures are calculated by dividing Adjusted PBT for the year by the weighted average number of Ordinary Shares plus the weighted average number of Ordinary Shares that would be issued on the conversion of all dilutive potential Ordinary Shares into Ordinary Shares. A reconciliation to Adjusted PBT can be found in note 4. The following table reflects the income and share data used in the basic and diluted EPS calculations: 13. Goodwill COST At 1 January 2022 Adjustment in respect of cases valuation Exchange adjustment At 31 December 2022 NET BOOK VALUE At 31 December 2022 Year ended 31 December 2022 Basic loss per share Diluted loss per share Adjusted PBT basic EPS Adjusted PBT diluted EPS Basic weighted average number of Ordinary Shares (‘000) Total (loss)/earnings ($‘000) (Loss)/ earnings per share ($) COST At 1 January 2021 (restated) 101,672 (7,816) 107,554 (7,816) 101,672 107,554 8,139 8,139 (0.08) (0.08) 0.08 0.08 Additions Exchange adjustment At 31 December 2021 (restated) NET BOOK VALUE At 31 December 2021 (restated) 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 93 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F $’000 75,945 (776) (7,935) 67,234 67,234 $’000 72,708 3,990 (753) 75,945 75,945 Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 13. Goodwill continued During the period, management have re-assessed the valuation of case inventory in line with IAS 2. It is determined that cases should be held at the lower of cost or net realisable value, whereas previously case inventory has been held at nil value in Eschenbach. Whilst the impact of this adjustment in prior periods is not considered material to require restatement of prior year comparatives, an adjustment has been made to the carrying value of goodwill in relation to case inventory held by Eschenbach at the time of its acquisition in December 2020. Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to the cash-generating unit of Twenty20 Limited ($11,512,000 as at 31 December 2022), Eschenbach Group GmbH ($51,878,000 as at 31 December 2022), INSPECS Limited ($210,000 as at 31 December 2022), BoDe Design GmbH ($976,000 as at 31 December 2022), EGO Eyewear Limited ($2,639,000 as at 31 December 2022) and INSPECS USA LC ($20,000 as at 31 December 2022) for impairment testing. The recoverable amount of each cash-generating unit has been determined based on individual value in use calculations using cash flow projections covering a five-year period approved by senior management. The forecasts for 2023 have been prepared based on Board approved budgets for 2023. Financial years 2024 to 2027 were forecasted assuming a 5% increase in turnover based on synergies within the expanding Group of companies. Management has assumed a decrease in gross profit margin of 0.5% as a prudent estimation of the impact of climate change and our response to it and an increase in administration expenses of 5% per annum. From 2028 onwards we have assumed a 2% terminal growth rate. These assumptions have been used across all CGUs, with management considering that each CGU has similar potential for growth in the market in which it operates. In addition, no major changes have occurred in the existing political, legal and economic conditions in those locations in which each cash-generating unit operates. The impact of climate change has been considered as part of our goodwill impairment review. If climate change has a negative impact on the operating costs of the Group there could be a potential impact on the discounted cash flow growth rates used in the models. Sensitivity analysis performed and set out below for each CGU demonstrates that the discount rates can increase considerably before an impairment is triggered. Therefore, at present, management has concluded that the impact of climate change would not be expected to trigger an impairment. The discount rates used are before tax and reflect specific risks where required relating to the cash-generating unit. Discount rates used for each value in use calculation, along with relevant sensitivity analysis is detailed by CGU as follows: Twenty20 Limited The discount rate applied to the cash flow projections was 10.8%. In 2021 a company specific risk premium of 2.5% was included, however with Killine continuing to perform in line with budget expectations, it is not considered a company specific risk premium is required for 2022. 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 13.4%. To recognise an impairment provision the cash flow into perpetuity would need to be discounted by 13.7% with the applicable discount rate for the five-year period to 2027 remaining at 10.8%. If the terminal growth rate was decreased to 1%, the discount rate applied to the cash flow projections would need to exceed 12.7% before an impairment would be recognised. Eschenbach Holdings GmbH The discount rate applied to the cash flow projections was 9.4%. Based on management’s assessment there is no impairment adjustment required on goodwill. To recognise an impairment provision the cash flow into perpetuity would need to be discounted by 12.5% with the applicable discount rate for the five-year period to 2027 remaining at 9.4%. To recognise an impairment on discount rate alone, the rate would need to increase to 12.2%. If the terminal growth rate was decreased to 1%, the discount rate applied to the cash flow projections would need to exceed 11.5% before an impairment would be recognised. BoDe Design GmbH The discount rate applied to the cash flow projections was 11.2%. Based on management’s assessment there is no impairment adjustment required on goodwill. To recognise an impairment on discount rate alone, the total discount rate would have to exceed 29.8%. EGO Eyewear Limited The discount rate applied to the cash flow projections was 8.3%. Based on management’s assessment there is no impairment adjustment required on goodwill. To recognise an impairment provision the cash flow into perpetuity would need to be discounted by 16.5% with the applicable discount rate for the five-year period to 2027 remaining at 8.3%. To recognise an impairment on discount rate alone, the total discount rate would have to exceed 15.1%. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 94 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 14. Intangible assets COST At 1 January 2022 Additions Disposals Exchange differences At 31 December 2022 AMORTISATION At 1 January 2022 Patents and licences $’000 Customer relationships $’000 Trademarks $’000 Customer order book $’000 Computer software $’000 Totals $’000 COST Patents and licences $’000 Customer relationships $’000 Trademarks $’000 Customer order book $’000 Computer software $’000 Totals $’000 At 1 January 2021 322 41,274 18,788 368 48,801 18,457 776 3,373 71,775 Acquisition of a subsidiary 92 – 8 – – – – – 950 1,042 Additions (786) – (786) Disposals (3,370) (1,069) 10 (135) (4,556) Exchange differences 1 45 – – 9,212 – – 406 704 – (1,685) (1,441) 68 794 – (65) (21) 2,650 63,102 7 10,420 759 1,508 – (65) (43) (3,190) 4,188 67,475 At 31 December 2021 368 48,801 18,457 776 3,373 71,775 468 45,431 17,388 258 11,954 3,761 – – AMORTISATION 1,348 17,321 At 1 January 2021 Amortisation for the year 94 3,707 3,589 776 360 8,526 Amortisation for the year – 7 – – (786) – (786) Impairment (1,156) (168) 10 (35) (1,342) Disposals 1,673 23,719 Exchange differences 359 14,505 7,182 109 30,926 10,206 – – At 31 December 2021 258 11,954 3,761 – 1,348 17,321 2,515 43,756 NET BOOK VALUE At 31 December 2021 110 36,847 14,696 776 2,025 54,454 180 77 – – 1 5,849 310 2,883 3,626 3,453 – – – (231) (175) 5 80 – (65) (20) 453 901 – – (6) 6,797 7,567 3,453 (65) (431) Disposals Exchange differences At 31 December 2022 NET BOOK VALUE At 31 December 2022 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 95 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 14. Intangible assets continued The individual intangible assets, excluding goodwill, which exceed 10% of the net book value of intangible assets, excluding goodwill, are: 15. 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. Intangible asset $’000 Eschenbach customer relationship with independents EGO customer relationship with a single customer 13,111 6,009 2022 2021 Remaining amortisation period (years) 8 7 $’000 15,646 6,868 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 96 Remaining amortisation period (years) COST Freehold property $’000 Leasehold improvement $’000 Plant & machinery $’000 Fixtures & fittings $’000 Computer equipment $’000 Construction in progress $’000 Total $’000 At 1 January 2022 12,285 864 11,418 3,719 9 8 Additions Disposals Assets held for sale (note 20) Transfers 575 – (1,089) 1,343 – 521 1,382 978 332 3,618 32,882 383 3,193 (24) (73) (248) (77) – (422) – – – 1,535 – – – – (1,089) 136 (3,014) – Exchange differences (827) (62) (615) 123 (86) (357) (1,824) At 31 December 2022 12,287 778 12,786 4,976 1,283 630 32,740 1,067 319 5,432 909 62 1,559 1,400 (24) (32) (171) (66) DEPRECIATION At 1 January 2022 Charge for the year Disposals Assets held for sale (note 20) Exchange differences 615 – (83) (33) – – – (21) (227) 220 At 31 December 2022 1,566 336 6,732 2,358 NET BOOK VALUE 586 205 – (55) 670 – – – – – 8,313 3,841 (293) (83) (116) – 11,662 At 31 December 2022 10,721 442 6,054 2,618 613 630 21,078 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 15. Property, plant and equipment continued 16. Investment in associates Freehold property $’000 Leasehold improvement $’000 Plant & machinery $’000 Fixtures & fittings $’000 Computer equipment $’000 Construction in progress $’000 Total $’000 Share of net assets of associate COST COST At 1 January 2021 10,590 862 10,829 3,269 1,102 1,282 27,934 At 1 January 2022 Acquisition of a subsidiary Additions Disposals Transfers Exchange differences – 550 – 1,416 (271) – 21 – – 4 957 (289) – 20 647 – – (19) (83) (217) 1 153 (275) – (3) – 25 Additions 3,809 6,137 Share of profit – (564) Exchange difference (1,416) – At 31 December 2022 (57) (650) NET BOOK VALUE At 31 December 2021 12,285 864 11,418 3,719 978 3,618 32,882 At 31 December 2022 DEPRECIATION At 1 January 2021 Charge for the year Eliminated on disposals Exchange differences 569 511 – (13) 200 3,847 118 1,856 219 719 – – 1 (289) 18 (29) At 31 December 2021 1,067 319 5,432 909 NET BOOK VALUE 639 219 (275) 3 586 – – – – – 5,474 3,423 (564) (20) 8,313 Revenue Expenses Profit before tax Income tax Share of profit of associate for the year ended 31 December 2022 At 31 December 2021 11,218 545 5,986 2,810 392 3,618 24,569 As at 31 December 2022 the Group had capital commitments of $249,000 in respect of property, plant and equipment (2021: $nil). 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 97 Interest in associate $’000 48 88 23 (24) 135 135 $’000 100 (77) 23 – 23 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 16. Investment in associates continued The Group’s associated undertakings are: • Ruain Zuoyou Glasses Co Ltd, a company registered in China. 25% of the share capital of 18. Trade and other receivables Ruain Zuoyou is owned by the Group, with Zhongshan Torkai Optical Co Limited being the direct owner of these shares. Current: • BeeQuick Logistics Lda, a company registered in Portugal. 40% of the share capital of Trade receivables BeeQuick is owned by the Group, with On Sight Services Lda being the direct owner of these shares. These shares were acquired during the year, being the addition identified above. Prepayments Other receivables 2022 $’000 2021 $’000 27,424 29,362 2,742 7,510 3,396 9,471 37,676 42,229 17. Inventories Raw materials Work in progress Finished goods 2022 $’000 4,360 2,006 51,891 58,257 2021 $’000 4,068 3,812 47,784 55,664 Part of the Group uses an invoice factoring facility to prefinance certain trade receivables and assist with trade receivables collection. Other receivables include $5,361,787 (2021: $7,097,000) relating to retentions held by the factorer at the period end until rebate arrangements relating to the preceding period are finalised, at which point they are paid to the Group. 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: The above includes amounts in respect of right of return assets and the amount for each year is as below: Invoiced in last month Finished goods – Right of return asset 2022 $’000 1,931 2021 $’000 1,581 1–2 months 2–3 months Over 3 months Inventories are stated after provisions for impairment of $8,548,000 (2021: $9,646,000). 2022 $’000 2021 $’000 18,465 18,404 4,745 2,358 1,856 6,616 2,113 2,229 27,424 29,362 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 98 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 18. Trade and other receivables continued Set out below is the movement in the allowance for expected credit losses of trade receivables. 19. Cash and cash equivalents At 1 January Movement in the year Exchange adjustment At 31 December 2022 $’000 555 251 (31) 775 2021 $’000 556 36 (37) 555 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 comparative year have further diversified the reliance on major customers and therefore have further mitigated credit risk. 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. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 99 Cash at bank and in hand 2022 $’000 26,799 26,799 2021 $’000 29,759 29,759 At the end of the reporting period, the cash and cash equivalents of the Group denominated in Renminbi (‘RMB’) amounted to $3,163,000 (2021: $2,738,000). 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 2022 $’000 26,799 26,799 2021 $’000 29,759 29,759 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 20. Assets held for sale The carrying amount of assets classified as held for sale at 31 December 2022 is $1,006,000 (2021: $nil). Assets held for sale relate to the Magdala Road property previously used as the manufacturing facility by Norville. The sales process began on 1 September 2022 and a sale is expected within 12 months. This asset is part of the lenses reporting segment (note 6). 21. Called up share capital Authorised and issued share capital: Number Class Nominal value 101,671,525 (2021: 101,671,525) Ordinary £0.01 2022 $’000 1,389 1,389 2021 $’000 1,389 1,389 Each Ordinary Share carries the right to participate in distributions, as respects dividends and as respects capital on winding up. 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 Exercise of share options At 31 December 2022 $’000 2021 $’000 122,291 121,940 – 351 122,291 122,291 Foreign currency translation reserve This reserve records the foreign currency translation adjustment on consolidation. At 1 January Other comprehensive income At 31 December 2022 $’000 2,802 (7,459) (4,657) 2021 Restated $’000 (89) 2,891 2,802 Share option reserve The share option reserve is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. At 1 January Share-based payment charge Exercise of share options Share options cancelled Deferred tax on share options (note 29) At 31 December 2022 $’000 2,001 1,729 – (182) – 2021 $’000 867 1,484 (437) – 87 3,548 2,001 The share-based payment charge for the year is recognised against the reserve as per IFRS 2 Share-Based Payments. 150,000 share options have been cancelled during the period. Upon cancellation of share options, the remaining element of fair value of the option is expensed immediately through the income statement. The related share option reserve is then recycled into retained earnings, resulting in the movement of $182,000 from the share option reserve to retained earnings. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 100 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 22. Reserves continued Retained earnings At 1 January Loss for the year Exercise of share options Share options cancelled Cash dividends At 31 December 23. Trade and other payables 2022 $’000 9,429 (7,816) – 182 (1,572) 223 2021 $’000 14,429 (5,435) 435 – – 9,429 Current: Trade payables Amounts owed to related parties Other payables Social security and other taxes Royalties Accruals During the period, the final dividend in relation to 2021 was paid, amounting to 1.25 pence per share. Merger reserve This reserve arose on the share for share exchange between INSPECS Holdings Limited and INSPECS Group plc on 10 January 2020. 2022 $’000 7,296 7,296 2021 $’000 7,296 7,296 At 1 January At 31 December 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 101 The trade payables are non-interest-bearing and are normally settled on credit terms of 30–90 days. Amounts owed to related parties are unsecured, interest free, have no fixed date of repayment and are repayable on demand. 2022 $’000 2021 $’000 26,784 32,801 239 562 5,119 4,927 9,732 196 934 5,776 4,435 9,175 47,363 53,317 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 24. Financial liabilities – borrowings Current: Invoice discounting Bank loans Lease liabilities Non-current: Bank loans Lease liabilities On 27 October 2021, the Group entered a new multi-currency term loan with HSBC for $18,700,000. Repayments under this loan are $900,000 per quarter plus interest. Interest is payable at the applicable Margin Rate plus LIBOR calculated daily on a 360-day year basis. The Margin Rate is 1.90%, 2.15% or 2.40% dependent upon the Group’s leverage ratio. The loan matures in October 2024. The Group also holds a multi-currency revolving credit facility, from which an additional $4,000,000 was drawn down in September 2022, increasing this loan to $36,385,000 as at 31 December 2022. Interest is payable at LIBOR/EURIBOR/SONIA (depending on the currency in which funds are drawn down) plus 2.4% calculated daily on a 360-day year basis. The credit facility matures in October 2024. Loans amounting to $8,700,000 were refinanced during the year, bringing these balances to the same lender as the rest of the Group. This new loan holds an interest rate of LIBOR plus 2.25%. Remaining loans in the Group are at a fixed interest rate of 2.0% and are repayable in between one and five years. The Group’s bank loans and overdrafts are secured against the business assets of the Group. The Group’s lease liabilities are secured against the assets concerned. 2022 $’000 2021 $’000 1,803 58,204 4,396 62,600 2,433 9,979 3,310 13,289 2022 $’000 2021 $’000 225 19,793 20,018 50,113 19,081 69,194 At the balance sheet date, the available invoice discounting facility was $1,827,000 (2021: $1,621,000). The invoice discounting facility bears interest at 2.25% over base rate (2021: 2.00%). The invoice discounting facility is secured by way of fixed and floating charges over the trade receivables of INSPECS Limited. The facility has no fixed end date, with a notice period of three months. As at 31st December 2022, it was determined the Group was in technical breach of its cashflow cover loan covenant, which has resulted in the re-classification of the loan balance ($45.7m) to a current liability in line with IAS 1. Subsequently, HSBC has waived the cashflow cover and leverage covenants at 31 December 2022. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 102 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 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 two 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: Leasehold properties $’000 Plant & machinery $’000 Motor vehicles $’000 COST At 1 January 2021 Acquisition of a subsidiary Total $’000 Additions End of lease 24,147 5,310 (1,614) (1,669) 26,174 3,843 2,944 (1,621) (251) 4,915 669 339 (321) (31) 656 277 258 (306) (8) 221 2,334 2,050 27,150 7,699 (681) (2,616) (89) (1,789) 3,614 30,444 761 1,299 4,881 4,501 (576) (2,503) 14 (245) 1,498 6,634 21,259 435 2,116 23,810 Exchange differences At 31 December 2021 DEPRECIATION At 1 January 2021 Charge for the year Eliminated on end of lease Exchange differences At 31 December 2021 NET BOOK VALUE At 31 December 2021 COST At 1 January 2022 Additions Disposals Exchange differences At 31 December 2022 DEPRECIATION At 1 January 2022 Charge for the year Eliminated on end of lease Exchange differences At 31 December 2022 NET BOOK VALUE At 31 December 2022 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 103 Leasehold properties $’000 Plant & machinery $’000 Motor vehicles $’000 Total $’000 19,556 273 5,973 (315) (1,340) 24,147 1,331 2,920 (315) (93) 3,843 718 – 16 (24) (41) 669 31 279 (24) (9) 277 1,517 21,791 138 834 (69) (86) 411 6,823 (408) (1,467) 2,334 27,150 50 808 (69) (28) 761 1,412 4,007 (408) (130) 4,881 20,304 392 1,573 22,269 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 25. Right-of-use assets and leases continued Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements during the period: 2022 $’000 2021 $’000 22,391 20,274 – 7,699 541 411 6,822 456 (4,745) (4,224) (74) – (1,623) (1,348) 24,189 4,396 19,793 22,391 3,310 19,081 At 1 January Acquisition of a subsidiary Additions Interest charge Payments Reduction in lease terms Exchange adjustment As at 31 December Current Non-current 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 104 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 26. Changes in liabilities from financing activities 1 January 2022 $’000 New loans $’000 Repayments $’000 Reclassification between current and non-current $’000 Transaction costs on debt refinancing $’000 New leases $’000 Foreign exchange on consolidation $’000 31 December 2022 $’000 Due in one year Bank loans Lease liabilities Invoice discounting facility Due after one year Bank loans Lease liabilities (9,979) (8,783) (3,310) (2,433) – – 6,801 4,745 384 (50,113) (4,000) 3,580 (19,081) – – Total liabilities from financing activities (84,916) (12,783) 15,510 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. (50,341) (5,995) – 50,341 5,995 – (974) – – – – (974) – – – – (7,703) (7,703) 5,072 (58,204) 164 246 (33) 996 6,445 (4,396) (1,803) (225) (19,793) (84,421) 1 January 2021 $’000 New loans $’000 Repayments $’000 Reclassification between current and non-current $’000 Transaction costs on debt refinancing $’000 New leases $’000 Acquired on acquisition of subsidiary $’000 Foreign exchange on consolidation $’000 31 December 2021 $’000 Due in one year Bank loans Lease liabilities (3,855) (6,028) 4,092 (2,975) – 4,224 Invoice discounting facility – (2,477) – Due after one year Bank loans Lease liabilities (53,092) (20,723) 18,781 (17,299) – – Total liabilities from financing activities (77,221) (29,228) 27,097 (3,946) (4,691) – 3,946 4,691 – 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. (478) – – – – (478) – – – – (6,822) (6,822) (176) – – – (411) (587) 412 132 44 975 760 2,323 (9,979) (3,310) (2,433) (50,113) (19,081) (84,916) 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 105 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 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 before income tax Adjustments for: Depreciation Amortisation and impairment of intangible assets Share of (profit)/loss of associate Share-based payment Earnout on acquisitions Exchange adjustment on borrowings Cases valuation adjustment against goodwill Notes 15, 25 14 16 32 28 33 13 Loss on disposal of non-current assets 14, 15 Exchange adjustment on trading Finance costs Finance income Changes in working capital (Increase)/decrease in inventories Decrease in trade and other receivables Increase in trade and other payables 9 9 17 18 23 2022 $’000 (9,481) 8,342 8,526 (23) 1,729 1,909 2,528 776 129 – 3,829 (134) (8,418) 117 2,529 2021 $’000 (9,132) 7,430 11,020 10 1,484 – 5,418 – – (1,171) 2,775 (118) 149 1,923 5,107 Cash flows from operating activities 12,358 24,895 28. Deferred consideration Deferred considerations payable relate to the acquisitions of BoDe Design GmbH and EGO Eyewear Limited. In relation to BoDe Design GmbH, the full balance of $685,000 is based on the performance of the entity during 2022. In relation to EGO Eyewear Limited, $2,451,000 is deferred consideration payable in equal instalments in 2023, 2024 and 2025. The remaining balance is based on the performance of the entity during 2022. 2021 deferred consideration has been restated, as detailed in note 35. The split of the deferred consideration between each entity is as follows: BoDe Design GmbH EGO Eyewear Limited Total non-current deferred consideration BoDe Design GmbH EGO Eyewear Limited Total current deferred consideration 2022 $’000 – 1,634 1,634 2022 $’000 685 2,361 3,046 2021 Restated $’000 371 2,736 3,107 2021 Restated $’000 – – – The previous owners of BoDe design and EGO eyewear are entitled to earnout payments based on the performance of each entity to 31 December 2025. A charge has been recognised in the Income Statement of $1,909,000 (2021: $nil) in relation to the earnout payable as a result of performance for the year to 31 December 2022. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 106 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 29. Deferred tax The deferred tax balances consist of the tax effect of timing differences in respect of: On 1 January 2022 Credit/(charge) for the year: Temporary timing differences Deferred tax (charge)/credit to profit and loss Exchange adjustment On 31 December 2022 Deferred tax asset $’000 Deferred tax liability $’000 Total $’000 12,540 (20,517) (7,977) Unused trade losses (2,813) (2,813) (1,251) 6,971 6,971 1,993 4,158 4,158 742 8,476 (11,553) (3,077) Right of return liability Lease liability Other short-term differences Total deferred tax asset Deferred tax asset $’000 Deferred tax liability $’000 Total $’000 Right of use asset On 1 January 2021 12,771 (24,678) (11,907) Right of return asset Acquired on acquisition of subsidiary – (2,423) (2,423) Intangible assets Credit/(charge) for the year: Derecognition of losses brought forward Losses in the year Temporary timing differences Deferred tax credit to profit and loss Deferred tax credit to share option reserve Exchange adjustment On 31 December 2021 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 107 Inventory (422) Property, plant and equipment Other short-term differences Total deferred tax liability (422) 1,012 (186) 404 87 – – 5,124 5,124 – (722) 1,460 1,012 4,938 5,528 87 738 12,540 (20,517) (7,977) In addition to the deferred tax assets and liabilities recognised, the Group has tax losses that arose in subsidiary entities of $3,336,000 (2021: $1,692,000) that are available indefinitely for offsetting against future taxable profits of the entities 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. 2022 $’000 4,680 1,978 137 1,681 8,476 2022 $’000 (18) – 2021 $’000 4,144 1,178 5,106 2,112 12,540 2021 $’000 (5,056) (362) (9,641) (11,937) – (1,414) (480) (1,324) (1,586) (252) (11,553) (20,517) w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 30. Tax payable Corporation tax payable Uncertain tax liabilities 2022 $’000 1,029 706 1,735 2021 $’000 2,157 623 2,780 The Group has previously identified it is potentially exposed to uncertain tax positions in relation to tax authorities challenging 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 may result in a future outflow of funds to one or more local tax authorities and has recognised current tax liabilities for these uncertainties. As referenced last year, during 2022 we expected a further review of uncertain tax provisions to be completed in relation to this perceived risk. This review has been delayed until 2023 now that regular travel has been renewed after COVID restrictions. Management have taken a view to continue to recognise a liability as at 31 December 2022 following the same approach to the liability calculated at 31 December 2021. 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 are (i) relative probabilities of such tax liabilities crystallising in one or more of the jurisdictions in which the Group operates, (ii) the tax periods over which tax authorities would seek to challenge the Group’s tax domicile arrangements; and (iii) 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. If the probability of tax liabilities crystallising is increased by 5%, the provision against uncertain tax liabilities increases to $842,000. If the probability of tax liabilities crystallising is decreased by 5%, the provision against uncertain tax liabilities decreases to $571,000. 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. 31. Related party disclosures The Group has taken advantage of the exemption not to disclose related party transactions with wholly owned subsidiaries within the Group. 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 2022, a right-of-use asset with net book value of $130,000 (2021: $319,000) and lease liability of $132,000 (2021: $320,000) related to this lease, with depreciation of $159,000 (2021: $174,000) and interest of $6,000 (2021: $10,000) charged to the income statement. At the year end, the Group owed Kelso Place LLP $233,000 (2021: $205,000) in respect of the above. b) Thorne Lancaster Parker Mr C Kay, a Director of the Company is also a Partner in Thorne Lancaster Parker. During the year the partnership charged INSPECS Limited $10,000 (2021: $53,000) in respect of professional services provided. At 31 December 2022, INSPECS Limited owed Thorne Lancaster Parker $4,000 (2021: $nil) in respect of the above. During the year the partnership charged Norville (20/20) Limited $9,000 (2021: $14,000) in respect of professional services provided, with $2,000 being owed at the end of the year (2021: $4,000). This balance is included within trade payables. c) Key management personnel The key management personnel of INSPECS Group plc at 31 December 2022 are R Totterman, R Peck, C Kay, M Lefebvre and J Zobel. In respect of these individuals, the total short-term employee benefits payable in the period were $2,068,000 (2021: $1,706,000) and post- employment benefits were $16,000 (2021: $35,000). In addition, share-based payments totalled $918,000 (2021: $733,000) in relation to these individuals. d) Minima SAS During the year M Lefebvre, who is identified as a part of the key management personnel of INSPECS Group plc, acquired a controlling share ownership of Minima SAS. During 2022, INSPECS Group plc charged $269,000 in respect of goods provided, with a balance of $125,000 being owed to the Group at 31 December 2022. d) Consultancy costs In addition to a Non-Executive Director salary, A Farrugia, a Non-Executive Director of the Group, was paid $17,000 (2021: $nil) during the year in respect of brand consultancy services. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 108 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section 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: N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 32. Share-based payments Certain employees of the Group have been granted options over shares in INSPECS Group plc. The options are granted with a fixed exercise price and are exercisable between three 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 the 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 recognised directly in equity. Share options outstanding at the end of the year have the following expiry date and exercise prices: Grant date Expiry date 11 October 2019 1 July 2022 27 February 2020 27 February 2025 22 December 2020 22 December 2025 26 February 2021 26 February 2026 21 June 2021 21 June 2026 31 August 2021 31 August 2026 23 December 2021 23 December 2026 28 February 2022 28 February 2027 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 109 The option weighted average exercise price is $3.36 per share. Options were valued at the date of grant. 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 2022 $’000 1,729 – Total expenses arising from share-based payment transactions 1,729 2021 $’000 1,484 – 1,484 At 1 January Granted during the year Exercised during the year Cancelled during the year Exercise price per option $ Number of share options 1.27 412,102 As at 31 December 2.52 1,923,110 2.87 1,410,000 4.53 4.87 5.09 4.95 5.02 641,036 90,000 275,000 454,999 641,036 WAEP At 1 January Granted during the year Exercised during the year Cancelled during the year As at 31 December Number 2022 Number 2021 5,356,247 4,327,307 641,036 1,561,035 – (532,095) (150,000) – 5,847,283 5,356,247 2022 $ 3.14 0.29 – (0.07) 3.36 2021 $ 2.41 4.67 (3.94) – 3.14 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 32. Share-based payments continued The following table lists the inputs to the models used for the valuation of the options issued during the year. 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. Number of options in issue as at 31 December 2022 Dividend yield (%) Expected volatility Risk-free interest rate Exercise price Ordinary Share price at grant date Expected life of share options/SARs (years) Options granted 28 February 2022 641,036 0% 27.4% 1.08% $5.02 $4.92 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 2022. 33. 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. 2022 2021 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 relates primarily to the Group’s 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 before tax is affected through the impact on floating rate borrowings as follows, based on the outstanding loans from the bank as at 31 December 2022: Loan balance $’000 Increase/ decrease in basis points Effect on loss before tax $’000 58,429 60,092 50 BP 50 BP 292 300 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 110 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 33. Financial risk management continued 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 (both internal and external) 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. Exchange adjustments on borrowings has resulted in a charge to the profit and loss account of $2,528,000 (2021: $5,418,000). This arises from loans with banks denominated in foreign currencies ($722,000) and intercompany loans ($1,806,000). The following table demonstrates the sensitivity at the end of the reporting period to a reasonable possible change in the United States Dollar (USD), Euro (EUR) 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, and are compared against the Pound Sterling (GBP) as this is the functional currency of the Group. There is no impact on the Group’s equity except on the retained profits. 2022 If the GBP weakens against the USD If the GBP strengthens against the USD If the GBP weakens against the EUR If the GBP strengthens against the EUR If the GBP weakens against the MOP If the GBP strengthens against the MOP Increase/(decrease) in exchange rate % Increase/(decrease) in loss before tax $ 5 (5) 5 (5) 5 (5) (16,282) 16,282 (50,267) 50,267 (338,825) 338,825 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 111 Credit risk The Group trades only with parties who have been assessed via a 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 2022 $’000 2021 $’000 Increase/ (decrease) $’000 20,507 21,822 (1,315) 3,796 442 2,679 27,424 25% 4,225 1,186 2,129 (429) (744) 550 29,362 (1,938) 26% Raw material costs and inflation 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 2022 accounted for 15% of cost of sales (2021: 9%). This risk is mitigated by the use of different suppliers and the diversification of production locations across the Group. The risk of inflation has led to cost increases for goods and services, including shipping costs. The eyewear market continues to grow and over the long term, the Group can mitigate the loss of margin through an increase in its selling price. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 33. Financial risk management continued 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 they typically return an interest rate of around 0.5%. 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 financial liabilities: Less than 1 year $’000 1 to 2 years $’000 2 to 5 years $’000 Over 5 years $’000 Total $’000 Bank overdrafts (including invoice discounting facility) 1,803 – Interest-bearing loans and borrowings (excluding items below) 58,204 307 – – – – 1,803 58,511 Lease liabilities 4,396 7,441 7,092 5,617 24,546 Other financial liabilities – right of return 12,838 Trade and other payables 47,363 – – – – – – 12,838 47,363 Capital risk management The Group’s capital management objectives are: • 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 Interest cover Cash flow cover 2022 2021 Actual Required Actual Required Waived Waived 1.9 Below 2.0 5.0 Above 4.0 12.3 Above 4.0 Waived Waived 1.6 Above 1.2 34. Guarantees 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 2022. Consequently, the Company has provided the statutory guarantee in relation to the subsidiary’s liabilities. The third-party liabilities of the subsidiary as of 31 December 2022 amounted to $nil (2020: $1,000). 35. Prior year adjustment – contingent consideration Under IFRS 3: Business Combinations, contingent consideration payable dependent on continuing employment of the previous owners should be accounted for as remuneration for continuing services over the period to which it relates. Within the 2021 Annual Report, these earnout payments were included within the total consideration for both the BoDe Design GmbH and EGO Eyewear Limited acquisitions. A prior year adjustment is therefore required to reduce the deferred consideration liability by $5,398,000, reduce goodwill by $5,414,000 and reduce the foreign currency translation reserve by $16,000. There is no impact on the prior year Income Statement as no earnout payments related to 2021, with the acquisitions both made in December 2021. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 112 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 35. Prior year adjustment – contingent consideration continued The reconciliation of the restated Statement of Financial Position as at 31 December 2021 is shown below: 31 December 2021 $’000 Prior year adjustment $’000 Restated 31 December 2021 $’000 ASSETS Non-current assets Goodwill Intangible assets Property, plant and equipment Right-of-use asset Investment in associates Deferred tax Current assets Inventories Trade and other receivables Tax receivable Cash and cash equivalents Total assets EQUITY Called up share capital Share premium Foreign currency translation reserve Share option reserve Merger reserve Retained earnings 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 81,359 54,454 24,569 22,269 48 12,540 195,239 55,664 42,229 3,468 29,759 131,120 326,359 1,389 122,291 2,818 2,001 7,296 9,429 Total equity 113 145,224 (16) 145,208 LIABILITIES Non-current liabilities Financial liabilities – borrowings Contingent and deferred consideration Deferred tax Current liabilities Trade and other payables Right of return liabilities (5,414) – – – – – 75,945 54,454 24,569 22,269 48 12,540 (5,414) 189,825 Financial liabilities – borrowings Interest-bearing loans and borrowings Invoice discounting Tax payable 55,664 42,229 3,468 29,759 131,120 Total liabilities – – – – – (5,414) 320,945 Total equity and liabilities 31 December 2021 $’000 Prior year adjustment $’000 Restated 31 December 2021 $’000 69,194 8,505 20,517 98,216 53,317 11,100 13,289 2,433 2,780 82,919 – 69,194 (5,398) 3,107 – 20,517 (5,398) 92,818 – – – – – – 53,317 11,100 13,289 2,433 2,780 82,919 181,135 (5,398) 175,737 326,359 (5,414) 320,945 36. Post balance sheet events Since the balance sheet date, but before these Financial Statements were approved, there were no events that the Directors consider material to the users of these Financial Statements. – – (16) – – – 1,389 122,291 2,802 2,001 7,296 9,429 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C O M PA N Y B A L A N C E S H E E T as at 31 December 2022 ASSETS Fixed assets Investments Right of use assets Current assets Trade and other debtors – falling due after more than one year Trade and other debtors – falling due within one year 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 LIABILITIES Non-current liabilities Interest-bearing loans and borrowings Current liabilities Trade and other creditors Interest-bearing loans and borrowings Total liabilities 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I Total equity and liabilities 114 Notes 2022 $’000 2021 $’000 The notes on pages 116 to 125 form part of these Financial Statements. Registered Company number: 11963910. 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 2022 was $1,326,000 (2021: $1,043,000 loss). The Financial Statements were approved by the Board of Directors on 03 May 2023 and were signed on its behalf by: R Peck Director C Kay Director 3 4 5 6 7 8 9 9 9 9 9 69,828 124 76,762 – 99,962 1,487 44 115,331 – – 171,445 192,093 1,389 122,291 (22,390) 3,548 7,296 58,695 170,829 1,389 122,291 (2,295) 2,001 7,296 61,411 192,093 4, 10 11 4, 10 89 491 36 616 – – – – 171,445 192,093 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section C O M PA N Y S TAT E M E N T O F C H A N G E S I N E Q U I T Y for the year ended 31 December 2022 Called up share capital $’000 Share premium $’000 Foreign currency translation reserve $’000 Share option reserve $’000 Notes Retained earnings $’000 Merger reserve $’000 Total equity $’000 Balance at 1 January 2021 Changes in equity Loss for the year Other comprehensive loss 9 Total comprehensive loss Share-based payments Exercise of share options 9 9 Balance at 31 December 2021 Changes in equity Loss for the year Other comprehensive loss 9 Total comprehensive loss Share-based payments Share options cancelled Cash dividends Balance at 31 December 2022 9 9 9 1,384 121,940 (157) 867 62,019 7,296 193,349 – – – – 5 – – – – 351 – (2,138) (2,138) – – – (1,043) – (1,043) – – 1,484 – (350) 435 – – – – – (1,043) (2,138) (3,181) 1,484 441 1,389 122,291 (2,295) 2,001 61,411 7,296 192,093 – – – – – – – – – (20,095) – – (1,326) – (1,326) – – (20,095) – (20,095) – (1,326) – (21,421) – – – – – – 1,729 – (182) 182 – (1,572) – – – 1,729 – (1,572) 1,389 122,291 (22,390) 3,548 58,695 7,296 170,829 The notes on pages 116 to 125 form part of these Financial Statements. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 115 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S for the year ended 31 December 2022 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. The principal activity of the Company was that of a parent company providing services that support the Group. From the start of the period the Company has incurred costs to support the Group which have been re-charged to subsidiary entities where appropriate. 2. Accounting policies These Financial Statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’), the Companies Act 2006 as applicable to companies using 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 non-current 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 prior 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 investments is supported by their recoverable amount. Current and non-current classifications The Company presents assets and liabilities in the balance sheet based on fixed or 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, 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 Company 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 Company classifies all other liabilities as non-current. Leases The Company 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 Company recognises right-of-use assets representing the right to use the underlying assets and lease liabilities to make lease payments. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 116 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued Right-of-use asset The Company 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: Plant and machinery Motor vehicles 3 years 3 years Lease liabilities At the commencement date of the lease, the Company 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 Company 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 Company’s lease liabilities are included in interest-bearing loans and borrowings. The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expenses on a straight-line basis over the lease term. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 117 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. 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 Company 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. w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued 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 Company’s cash management. 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 Company operates. 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. Tax liabilities are recognised when it is considered probable that there will be a future outflow of funds to a taxing authority. Share-based payments Employees (including senior executives) of the Company 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). Foreign currencies These Financial Statements are presented in USD, 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. 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. Pensions and other post-employment benefits The Company 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. Details of the Group’s share option scheme are provided in note 31 of the Consolidated Financial Statements. Dividend Final dividend distribution to the Group’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Group’s shareholders. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 118 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 2. Accounting policies continued Critical accounting judgements and key sources of estimation uncertainty The preparation of the Company’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: 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. An expected credit loss calculation has been performed by management, which has deemed that the required provision is considered immaterial and no provision has been recognised against the Group undertakings shown in notes 5 and 6 due to the recovery risk being deemed immaterial. 3. Investments COST AND NET BOOK VALUE At 1 January 2022 Additions for share-based payments in subsidiaries Foreign exchange At 31 December 2022 Shares in subsidiaries $’000 76,762 1,729 (8,663) 69,828 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 Class of shares % holding INSPECS Holdings Limited* 7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK Holding company Ordinary 100.00 INSPECS Limited8 7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK Eyewear trading Eyewear trading Ordinary 100.00 Ordinary 100.00 Judgements made by management which are considered to have a material impact on the Financial Statements are as follows: INSPECS USA LC8 18401 US Highway 19N, Clearwater, Florida 33764, USA 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. Algha Group Limited8 7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK Eyewear manufacturing Ordinary 100.00 INSPECS Scandinavia AB8 184 40 Akersberga, Stockholm, Sweden Eyewear trading Ordinary 100.00 Maronglow Limited1 UK Optical Limited8 7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK 7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK Dormant Ordinary 100.00 Dormant Ordinary 100.00 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 119 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 3. Investments continued Subsidiaries Registered office American Optical UK Limited8 7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK Twenty20 Limited2 Elian Fiduciary Services (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman KY1-9007, Cayman Islands Bandoma Limited3 Suite 6, Watergardens 4, Gibraltar Ice Foster Limited3 Killine Group Limited4 Nemours Chambers, Road Town, Tortola, British Virgin Islands Elian Fiduciary Services (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman KY1-9007, Cayman Islands Nature of business Class of shares % holding Dormant Ordinary 100.00 Holding company Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Holding company Holding company Holding company 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, Bac Giang Province, Vietnam Eyewear manufacturing Ordinary 100.00 Subsidiaries Registered office Zhongshan Torkai Optical Co Limited6 Shagou Industrial Park, Banfu County, Zhongshan, Guangdong, China Nature of business Class of shares % holding Eyewear manufacturing Ordinary 100.00 Neway (Macao Commercial Offshore) Limited9 Kudos S.R.L.1 Primoptic Limited7 Alameda Dr. Carlos D’Assumpcao, nos 335–341 Edificio Hot line, 21 andar D, em Macau Eyewear trading Ordinary 100.00 Via Noai 5, Domeggi Di Cadore, CAP 32040, Italy Eyewear manufacture Ordinary 100.00 Alameda Dr. Carlos D’Assumpcao, nos 335–341, Edificio Centro, 21 andar A, em Macau Nemours Chambers Limited, Road Town, Tortola, British Virgin Islands Eyewear trading Holding company Ordinary 100.00 Ordinary 100.00 INSPECS Asia Limited8 10F Sing Ho Finance Building, 166–168 Gloucester Road, Hong Kong Quality control services Ordinary 100.00 Duval Company Group Limited3 Nemours Chambers, Road Town, Tortola, British Virgin Islands Holding company Ordinary 100.00 Norville (20/20) Limited2 7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK Lens manufacturer Ordinary 100.00 Ordinary 100.00 Yardine Limited3 On Sight Services- Sociedade Unipessoa, Lda3 Rua Soares de Passos, 10A/10B, Portugal Eyewear design Ordinary 100.00 Hardy Amies Limited2 7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK Dormant Ordinary 100.00 BoDe Design GmbH2 Hofweg 20, 97737 Gemunder am Main, Germany Eyeware trading Ordinary 100.00 O.W. Ventures Limited3 Unit 305–7, 3/F, Laford Centre, 838 Lai Chi Kok Road, Cheung Sha Wan, Kowloon, Hong Kong Corporate management Ordinary 100.00 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 120 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 3. Investments continued Subsidiaries Registered office EGO Eyewear Limited2 7–10 Kelso Place, Bath, Somerset, BA1 3AU, UK EGOptiska AB15 Johannesgränd 1, Stockholm, Sweden EGOptiska International AB15 Johannesgränd 1, Stockholm, Sweden EGO Eyewear (HK) Limited15 EGO Eyewear AB15 Greights AB17 Yau Tsim Mong, Hong Kong Johannesgränd 1, Stockholm, Sweden Johannesgränd 1, Stockholm, Sweden Eschenbach Holding GmbH2 Fürther Straße 252, 90429, Nuremberg, Germany Eschenbach Beteiligungs GmbH10 Fürther Straße 252, 90429, Nuremberg, Germany Eschenbach Optik GmbH14 Althardstraße 70, Regensdorf, Switzerland 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 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 121 Nature of business Class of shares % holding Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 50.00 Ordinary 100.00 Ordinary 100.00 Subsidiaries Registered office 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 Eschenbach Optik of Japan Co.Ltd.14 2-15-4 Kanda-Tsukasamachi, Chiyoda-ku, Tokyo, Japan Eschenbach Optik S.L.14 Consell de Cent 106-108, Barcelona, Spain Eschenbach Optik GmbH11 Fürther Straße 252, 90429, Nuremberg, Germany Eschenbach Optik (Shenzhen)14 Block A, Tian An Cyber Times Che Gong Miao, Futian District, Shenzhen, China Ordinary 100.00 Eschenbach International GmbH11 Fürther Straße 252, 90429, Nuremberg, Germany Ordinary 100.00 Eschenbach UK Holdings Ltd12 27 Blackberry Lane, Halesowen¸ B63 4NX, UK Ordinary 100.00 International Eyewear Ltd13 27 Blackberry Lane, Halesowen¸ B63 4NX, UK Ordinary 100.00 Eyeware trading Eyeware trading Eyeware trading Eyeware trading Eyeware trading Eyeware trading Holding company Holding company Eyeware trading Eyeware trading Eyeware trading Eyeware trading Nature of business Class of shares % holding Eyeware trading Eyeware trading Eyeware trading Eyeware trading Eyeware trading Eyeware trading Eyeware trading Eyeware trading Holding company Holding company Eyeware trading Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 Ordinary 100.00 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 3. Investments continued Subsidiaries Registered office TURA, Inc.12 123 Girton Drive, Muncy, USA Eschenbach Optik A/S11 Boskærvej 18, Vejle, Denmark Ruain Zuoyou Glasses Co Ltd16 Building 35, Shidai industrial zone, Mayu, Ruian, Zhejiang, P. R. China Nature of business Class of shares % holding Eyeware trading Eyeware trading Eyeware trading Ordinary 100.00 Ordinary 100.00 Ordinary 25.00 COST At 1 January 2022 BeeQuick Logistics Lda18 24 Praca Sa Da Bandeira, Santarem, Portugal Logistics company Ordinary 40.00 Additions At 31 December 2022 DEPRECIATION At 1 January 2022 Charge for the year At 31 December 2022 NET BOOK VALUE At 31 December 2022 1 The shares are held by Algha Group Limited 2 The shares are held by INSPECS Limited 3 The shares are held by Killine Group Limited 4 The shares are held by Twenty20 Limited 5 The shares are held by Killine Optical Limited 6 The shares are held by Bandoma Limited 7 The shares are held by Duval Company Group Limited 8 The shares are held by INSPECS Holdings Limited 9 The shares are held by Yardine Limited 10 The shares are held by Eschenbach Holding GmbH 11 The shares are held by Eschenbach Beteiligungs GmbH 12 The shares are held by Eschenbach International GmbH 13 The shares are held by Eschenbach UK Holdings Ltd 14 The shares are held by Eschenbach Optik GmbH 15 The shares are held by EGO Eyewear Limited 16 The shares are held by Zhongshan Torkai Optical Co Limited 17 The shares are held by EGO Eyewear AB 18 The shares are held by On Sight Services-Sociedade Unipessoa Lda 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 122 4. Right-of-use assets and leases The Company has lease contracts for various items of plant, machinery, vehicles and other equipment used in its operations. Leases of plant, machinery and motor vehicles generally have lease terms between three and five years. The Company’s obligations under its leases are secured by the lessor’s title to the leased assets. The Company’s right-of-use assets are as follows: Plant & machinery $’000 Motor vehicles $’000 Total $’000 – 85 85 – 8 8 – 50 50 – 3 3 – 135 135 – 11 11 77 47 124 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 4. Right-of-use assets and leases continued Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements during the period: 6. Trade and other debtors – falling due within one year 2021 $’000 Current: Prepayments Amounts owed by Group undertakings 2022 $’000 2021 $’000 108 1,379 1,487 – – – Amounts owed by Group undertakings are unsecured, with no interest charged, and have no set repayment date. These amounts are expected to be received within 12 months of the reporting period and have therefore been classified as falling due within one year. 7. Cash and cash equivalents Cash at bank and in hand 2022 $’000 44 44 2021 $’000 – – At 1 January Additions Interest charge Payments Exchange adjustment As at 31 December Current Non-current 2022 $’000 – 135 2 (12) – 125 36 89 – – – – – – – – 5. Trade and other debtors – falling due after more than one year Current: Amounts owed by Group undertakings 2022 $’000 2021 $’000 99,962 99,962 115,331 115,331 Amounts owed by Group undertakings are unsecured, with no interest charged, and have no set repayment date. These amounts are not expected to be received within 12 months of the reporting period and have therefore been classified as falling due after more than one year. As the substance of the loan arrangement has not changed since 1 January 2022, the comparative figure has been re-presented as due after more than one year. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 123 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 8. Called up share capital Authorised and issued share capital: 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. Number Class Nominal value 101,671,525 (2021: 101,671,525) Ordinary £0.01 2022 $’000 1,389 2021 $’000 1,389 Each Ordinary Share carries the right to participate in distributions, as respects dividends and as respects capital on winding up. 9. 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-based payment charge Share options cancelled Exercise of share options Deferred tax on share options At 31 December 2022 $’000 2,001 1,729 (182) – – 2021 $’000 867 1,484 – (437) 87 3,548 2,001 At 1 January Exercise of share options At 31 December 2022 $’000 2021 $’000 122,291 121,940 – 351 The share-based payment charge for the year is recognised against the reserve as per IFRS 2: Share-Based Payments. 150,000 share options have been cancelled during the period. Upon cancellation of share options, the remaining element of fair value of the option is expensed immediately through the income statement. The related share option reserve is then recycled into retained earnings, resulting in the movement of $182,000 from the share option reserve to retained earnings. 122,291 122,291 Retained earnings 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 USD. At 1 January Other comprehensive loss At 31 December 2022 $’000 (2,295) (20,095) (22,390) 2021 $’000 (157) (2,138) (2,295) At 1 January Loss for the year Exercise of share options Share options cancelled Cash dividends At 31 December 2022 $’000 61,411 (1,326) – 182 (1,572) 58,695 2021 $’000 62,019 (1,043) 435 – – 61,411 During the period, the final dividend in relation to 2021 was paid, amounting to 1.25 pence per share. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 124 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section N O T E S T O T H E C O M PA N Y F I N A N C I A L S TAT E M E N T S CONTINUED for the year ended 31 December 2022 9. Reserves continued Merger reserve This reserve arose on the share for share exchange between INSPECS Holdings Limited and INSPECS Group plc on 10 January 2020. The trade payables are non-interest-bearing and are normally settled on credit terms of 30-90 days. 12. Employees At 1 January At 31 December 2022 $’000 7,296 7,296 2021 $’000 7,296 7,296 Wages and salaries Social security costs Pension costs 10. Interest-bearing loans and borrowings Share-based payment expense 2022 $’000 903 667 82 598 2,250 2021 $’000 – – – – – 2022 7 2021 – 2022 $’000 2021 $’000 36 36 – – 2022 $’000 2021 $’000 89 89 – – Total average number of employees during the year was as follows: 13. Guarantees 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 2021. Consequently, the Company has provided the statutory guarantee in relation to the subsidiary’s liabilities. The third-party liabilities of the subsidiary as of 31 December 2021 amounted to $nil (2021: $1,000). 2022 $’000 2021 $’000 14. Post balance sheet events Since the balance sheet date, but before these Financial Statements were approved, there were no events that the Directors consider material to the users of these Financial Statements. 262 7 72 150 491 – – – – – Current: Lease liabilities Non-current: Lease liabilities 11. Trade and other creditors Current: Trade creditors Other creditors Social security and other taxes Accruals 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 125 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section A P P E N D I X 1 Comparative information in GBP Consolidated Income Statement in GBP for the year ended 31 December 2022 Consolidated Statement of Financial Position in GBP As at 31 December 2022 2022 £’000 200,957 (102,097) 2021 £’000 179,165 (95,010) ASSETS Non-current assets 98,860 (6,292) (93,754) (1,186) (1,466) (2,044) (3,095) 108 19 (7,664) 1,345 (6,319) 84,155 Goodwill (5,667) Intangible assets (77,371) Property, plant and equipment 1,117 Right-of-use assets (1,881) Investment in associates (3,938) Deferred tax assets (2,017) 86 (7) Current assets Inventories (6,640) Trade and other receivables 2,689 Tax receivables (3,951) Cash and cash equivalents Assets held for sale Total assets Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating (loss)/profit Non-underlying costs Exchange adjustment on borrowings Finance costs Finance income Share of profit of associate Loss before income tax Income tax (credit)/charge Loss for the year 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 126 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F 2022 £’000 2021 £’000 55,578 36,170 17,424 19,683 112 7,007 56,206 40,298 18,182 16,482 36 9,281 135,974 140,485 48,158 31,144 3,681 22,153 105,136 832 41,199 31,242 2,566 22,024 97,031 – 241,942 237,516 Contents Generation – PageContents Generation – Sub PageContents Generation – Section A P P E N D I X 1 CONTINUED Comparative information in GBP Consolidated Statement of Financial Position in GBP continued As at 31 December 2022 EQUITY Shareholders’ equity Called up share capital Share premium Foreign currency translation reserve Share option reserve Merger reserve Retained earnings Total equity 2022 £’000 2021 £’000 Non-current liabilities LIABILITIES Financial liabilities – borrowings Interest-bearing loans and borrowings 1,017 89,508 9,434 2,703 5,340 (461) 1,017 89,508 3,206 1,454 5,340 6,931 Deferred consideration Deferred tax liabilities Current liabilities Trade and other payables Right of return liabilities 107,541 107,456 Financial liabilities – borrowings Interest-bearing loans and borrowings Invoice discounting Deferred consideration Tax payable Total liabilities Total equity and liabilities 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 127 2022 £’000 2021 £’000 16,548 1,350 9,548 27,446 39,153 10,613 51,746 1,490 2,518 1,435 106,955 134,401 241,942 51,210 2,300 15,184 68,694 39,459 8,215 9,835 1,800 – 2,057 61,366 130,060 237,516 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section 2021 £’000 179,165 Underlying EBITDA 84,155 Add back: Purchase Price Allocation (‘PPA’) release on inventory through cost of sales Add back: Underlying EBITDA (loss) for acquisitions in the period Adjusted Underlying EBITDA Less: Depreciation Less: Interest (excluding amortisation of loan arrangement fees) Adjusted Profit Before Tax (PBT) A P P E N D I X 1 CONTINUED Comparative information in GBP Reconciliation of Adjusted Underlying EBITDA and Adjusted PBT in GBP for the year ended 31 December 2022 Revenue Gross profit 2022 £’000 200,957 98,860 Operating and distribution expenses, net of other operating income (100,046) (83,038) Operating (loss)/profit Add back: Amortisation and impairment on intangible assets Add back: Depreciation EBITDA Add back: Share-based payment expense Add back: Earnout on acquisition (1,186) 6,893 6,744 12,451 1,398 1,544 1,117 8,011 5,401 14,529 1,079 – Underlying EBITDA 15,393 15,608 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 128 2022 £’000 2021 £’000 15,393 15,608 132 – 15,525 (6,744) (1,979) 6,802 4,355 66 20,029 (5,401) (1,649) 12,979 w e i v r e v O y n a p m o C t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l a i c n a n i F Contents Generation – PageContents Generation – Sub PageContents Generation – Section Annual Report 2022 inspecs.com/investors/results-and-reports C O M PA N Y I N F O R M AT I O N A N D A D V I S E R S 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, Harriet Jackson, Alice Newlyn 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 Printed by a CarbonNeutral® Company certified to ISO 14001 environmental management system. This product is made using recycled materials limiting the impact on our precious forest resources, helping reduce the need to harvest more trees. 100% of the inks used are HP Indigo ElectroInk which complies with RoHS legislation and meets the chemical requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset carbon emissions through the purchase and preservation of high conservation value land. Through protecting standing forests, under threat of clearance, carbon is locked-in, that would otherwise be released. 2 2 0 2 s t n u o c c A & t r o p e R l a u n n A | c l p p u o r G S C E P S N I 129 Registered Office INSPECS Group plc, 7–10 Kelso Place Upper Bristol Road, Bath BA1 3A www.INSPECS.com 

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