Features

Inspecs faces challenging headwinds

Record sales for Inspecs but instability in Europe hurts the bottom line. Simon Jones reports

Bath-based Inspecs has reported another set of record sales figures, but its financial report for the year ending December 31, 2022 highlighted several challenging areas that affected underlying EBITDA (earnings before interest, taxes, depreciation, and amortisation). 

For the 12 months to December 2022, the company, which reports in US dollars, recorded a modest increase in revenue $248m compared to $246m in 2021.  

Adjusted underlying EBITDA fell from $27.6m to $19.2m, which the company said had been caused primarily by three main factors: the effects of the decrease in the value of the euro against the dollar, a slowdown in European markets and continued losses at its new Norville lens manufacturing facility.  

Pre-tax losses grew slightly from $9.13m to $9.48m, but more positively, the group was able to raise gross profit margin from 47% in 2021 to 49.2% in 2022. 

  

Relocation, relocation, relocation 

The company’s lens business’ external revenue fell by 43% in 2022, dropping from $7.5m in 2021 to $4.3m in 2022. The significant task for relocating Norville from its antiquated central Gloucester facility to a new purpose-built facility on the city’s outskirts began in late 2021.  

Although construction of the new factory was completed on time, disruption to manufacturing capability was reported to have cost the company $2.8m in lost operating revenue. The precision lens manufacturing equipment needed to be recalibrated after transit along with a gradual process of ensuring quality of product and lead time were in line with industry standards.  

This was achieved in the second half of 2022 but focus then turned to increasing revenue and operational efficiency, which the company said had reduced losses in the last quarter of 2022 and were predicted to reduce further in 2023. 

  

Global view 

A modest 1.5% increase ($211.5m in 2021 to $214.7m in 2022) in external revenue from the company’s frames and optics distribution business would perhaps have been higher had it not been for a challenging last six months in 2022.  

Despite strong performance in the first half of the year, sales in mainland Europe fell quickly, caused by what the company said was a fall in consumer confidence in the wake of the start of the war in Ukraine, spiralling inflation, and rising energy costs. 

‘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,’ said Inspecs CEO Richard Peck. 

In contrast, UK markets were said to have performed well in the second half of 2022, with the company continuing its strategy of replacing third-party distributors with its own sales offices. ‘The UK market remains positive so far in 2023 and we are continuing to increase our product distribution,’ said Peck. 

In North America, performance was described as stable, with the company looking to capitalise on the recent availability of brands such as Superdry, Radley and O’Neill. Asian markets experience growth from what Peck said was ‘a relatively low level’.  

This was put down to the appointment of new agents in the Middle East. ‘In 2023, the group will continue to actively target further growth opportunities in this expanding market,’ added Peck. 

  

Sustainability 

The company’s sustainability framework was fully implemented with data reporting during 2022, setting a roadmap to show its commitment to addressing critical environmental issues and providing a positive working environment for its employees.  

‘Our environmental, social, governance (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,’ said the company in its annual report. 

Through renewable energy projects and tree planting initiatives, Inspecs reported it had offset 4,539 tonnes of carbon throughout its global sites, with 2.59 tonnes of carbon produced per full time employee. This figure was calculated using the Greenhouse Gas Protocol and factored in direct emission figures using actual consumption data from smart meters, accurate meter readings and invoicing information. 

More than half (55%) of the company’s total global emissions were generated from factories in China and Vietnam. The company said the factories had worked hard to identify opportunities to improve energy consumption, with inefficient machinery updates at the site in China and the installation of LED lighting in the Vietnam facility.  

The company said this strategy of upgrading equipment and lighting would be continued throughout the group’s global sites.