10 September 2024

INSPECS Group plc

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

 

Interim Results

Delivering operational efficiencies

 

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

Financial review:

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

 

Operational review:

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

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

2         Refer to table 'Underlying EBITDA and Underlying PAT'

3         Refer to note 5

4         Refer to note 8

 

 

 

Richard Peck, CEO of INSPECS, said:

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

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

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

 

 

 

For further information please contact:

INSPECS Group plc Richard Peck (CEO) Chris Kay (CFO)	via FTI Consulting Tel: +44 (0) 20 3727 1000
Peel Hunt (Nominated Adviser and Broker) George Sellar Andrew Clark	Tel: +44 (0) 20 7418 8900
FTI Consulting (Financial PR) Alex Beagley Harriet Jackson Amy Goldup	Tel: +44 (0) 20 3727 1000

 

About INSPECS Group plc

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

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

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

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

More information is available at: www.INSPECS.com

 

 

 

 

 

CHIEF EXECUTIVE REVIEW

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

Frames and Optics

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

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

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

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

Manufacturing

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

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

Lenses

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

Research and development

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

ESG

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

Outlook

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

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

Richard Peck

10 September 2024

 

 

FINANCIAL REVIEW

Revenue

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

 

Gross Profit Margin

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

 

Operating Profit

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

 

Administrative expenses

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

 

Underlying EBITDA

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

 

Finance Expenses

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

 

Depreciation and amortisation

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

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

 

Profit Before Tax

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

Tax charge

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

 

Cash Generation

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

 

Net Debt

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

 

Financing

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

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

 

Leverage (using debt to equity ratio)

The Group's leverage position is shown below:

	30 June 2024
Actual ratio	1.63
Required ratio	2.25

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

 

Inventory

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

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

 

Current asset ratio

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

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

 

Quick ratio

The quick ratio is an indicator of a company's short-term liquidity position and measures a company's ability to meet its short-term obligations with its most liquid assets. This has remained consistent on the comparative period.

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

 

Net working capital

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

 

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

 

Earnings per Share

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

 

Dividend

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

  

 

 

 

 

Underlying EBITDA and Underlying PAT

 

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

 

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

 

 

 

 

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION    

As at 30 June 2024

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