TIDMGRA
RNS Number : 8406V
Grafenia plc
12 August 2020
12 August 2020
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the
publication of this announcement via a Regulatory Informa ti on
Service, this inside information is now considered to be in the
public domain.
Grafenia plc
("Grafenia", "the Group" or "the Company")
Preliminary Results for the period ended 31 March 2020
Grafenia plc (AIM: GRA) announces its full year audited results
for the year ended 31 March 2020.
Operational Highlights
- Subscription and licence income increased to GBP2.1m (2019: GBP2.0m)
- Nettl partner network now 239 locations around the world (2019: 228)
- Nettl company studios sales increased to GBP2.8m (2019: GBP2.6m)
- Launch of Nettl Works Maker platform to sell third-party products
Post Period end:
- GBP50m bond facility in place, with GBP3m nominal value issued
(raising c.GBP2.01m before expenses) to support buy, build and
licence strategy
- Completed refinancing of assets and GBP1m CBILS working capital loan granted
Financial Overview
Year ended Year ended
31 March 2020 31 March
2019
GBP'000 GBP'000
Total Revenue 15,604 15,962
Gross Profit 7,977 8,545
Earnings before interest, tax, depreciation
and amortisation (1,289) (1,112)
Operating Loss (3,314) (2,987)
Net finance expense (317) (179)
Tax Income 258 343
Loss for the Year (3,373) (2,823)
EPS - Continuing Operations (3.27)p (3.79)p
Investment in property plant and equipment GBP0.43m GBP2.47m
Acquisitions of subsidiaries Nil GBP0.27m
Net Debt (excluding right of use assets) GBP(1.42m) GBP(3.12m)
For further information:
Grafenia plc
Peter Gunning (CEO) 07973 191 632
Allenby Capital Limited (Nominated Adviser and Broker) 0203 328 5656
David Hart / Liz Kirchner (Corporate Finance)
Matt Butlin (Sales & Broking)
Chairman's Statement
In the last fiscal year we continued on our journey to build,
buy and licence Nettl. The results for this strategy became visible
in our numbers at the end of the fiscal year. Subsequently,
Covid-19 hit and shook our industry in an unprecedented way.
However, the crisis brought out the best in our team. I could not
be more proud of a management team that steered the ship in a calm
and decisive manner. We never forgot to be human.
It has become clear that partners and clients value being part
of a large network such as Nettl. In fact, having added products
beyond print to our offering a few years back, these provided our
partners with the opportunity to help their clients in the most
challenging of times.
On to our scorecard of the 2019/20 fiscal year:
Operational Performance
In the recent fiscal year, our turnover decreased by 2.2% to
GBP15.60m (2019: GBP15.96m) and gross profit decreased by 6.6% to
GBP7.98m (2019: GBP8.55m). The year showed a decrease in EBITDA,
which is operating loss before interest, tax, depreciation and
amortisation, to (GBP1.29m) (2019: loss GBP1.11m). Our loss for the
year came in at GBP3.37m versus GBP2.82m last year. We finished the
year with a cash position of GBP1.10m (2019: GBP1.35m) and net debt
(including deferred consideration, excluding 'right of use asset'
related liabilities) of GBP1.42m (2018: GBP3.12m). We invested
GBP0.43m on capex (2019: GBP2.47m), and capitalised GBP0.68m in
R&D (2019: GBP0.74m).
Importantly, these results include several cost items that are
either one-time in nature, or constitute up-front costs, rather
than ongoing operating costs. Such costs went down in the fiscal
year in comparison to the prior year. The finance function
restructuring has progressed well and the major operating cost
investment in the US is finished. However, we did incur substantial
restructuring costs in our UK business in the context of the
redesign of our production hub. In addition, we have taken an
increased charge against aged debtors at the year end to reflect
the uncertainties due to Covid-19 and the changed economic outlook
this presents.
Some firms decide to back-out many costs from their profit and
loss statement to arrive at some 'adjusted' figure. I find that a
slippery slope, as it opens the door to mark every cost as
'extraordinary' or 'non-recurring'. Such accounting doesn't help
with cost discipline internally. Also, communicating what ends up
being a 'profit before cost' doesn't help external readers
either.
I want to reiterate this approach and strongly believe that
Grafenia can and will become significantly free cash-flow
generative in the mid-term. The results in the last months of the
fiscal year are a cause for optimism and it is now of paramount
importance to emerge from the Covid-19 dislocation stronger.
In the past, I have called out our like-for-like (i.e. excluding
acquisitions) development of gross profit. In the last fiscal year,
that figure declined by more than we hoped. This decline has been
significantly more severe in the past. Nonetheless, growth is of
paramount importance. Peter and I will use our letters to explain
how we expect to get there.
People at Grafenia & Priorities in the last year
In past letters, I wrote that there were three areas where my
fellow non-executive directors and I can impact the Grafenia
organisation. Firstly, get governance right. Secondly, set the
right incentives. Thirdly, make rational capital allocation
decisions.
We were rather quiet on the capital allocation and M&A front
in the last fiscal year. By and large, we haven't found valuations
particularly attractive. Certainly, we got lucky not acting too
quickly as some areas of the sign industry (e.g. trade fair
related) have been hit dramatically in recent months. Nonetheless,
we have learned a lot about what we are looking for when acquiring
signage firms and have been seeing more and more opportunities.
Valuations went from rich to realistic. Peter does a great job
explaining our focus at the moment and I sincerely hope to report
value-accretive new additions to the Grafenia family next year.
In July 2020, we announced a bond issuance programme that allows
us to raise up to GBP 50m in capital.
As Chairman, I feel strongly about protecting value for
shareholders. The bond programme gives us the possibility to tap
capital markets without diluting our shareholders, which we find is
an important arrow in our quiver.
In fact, I'm frustrated to not report better progress in making
use of our public company listing. As a public company we keep on
having listing costs which are way too high and overhead relative
to the size of our operating business. More than ever, using the
utility of our public listing will be among my key priorities. With
our supportive shareholder base and optionality in our capital
structure, we are ready to act when opportunity emerges.
Last year I said:
"...from lots of work with numbers, we had some (quite
literally) heavy-lifting to do in our business."
The heavy lifting in 19/20 involved numbers! As described in the
letter last year, we have been tackling some important improvements
in our finance department. Some of them were outright necessities
of day-to-day finance operations. Others will enable us to be more
effective decision makers and to integrate acquisitions much more
efficiently. Our most recent addition to the executive team, Iain
Brown, has proven to be the very right person for the FD role. The
overhaul of our finance function has proven to be much more
complicated and took much longer than I expected. Iain however
achieved progress in months for which we needed years before. Thank
you Iain!
Outlook and Current Priorities
The core idea behind Nettl is to help our partners better serve
their clients. In the months after the fiscal year-end, Covid-19
has turned our industry on its head.
When the Nettl idea was conceived, the ability to create
websites for clients was an innovative and new tool to offer our
partners.
After Covid-19 hit, litho print volumes essentially went to
zero. Not only for us, but for the entire industry.
Not surprisingly, demand for websites and signs went through the
roof. The trend in website deployments has been upwards and grown
to a significant level over the last months - but materially
accelerated from March onwards.
Signage was a promising and growing category that our partners
started to offer over the last year. However, the board has always
had slightly higher expectations of sales traction. These hopes
materialised from March onwards with signage sold by partners
increasing more than eightfold. Arguably, some of that is one-time
protection equipment for stores and offices which will not recur.
Nonetheless, we are absolutely certain that every partner and
client now understands that Nettl is about more than print and
websites!
Apart from our direct trade sales and sales in our own stores,
we do track product revenue sold per partner quite closely.
Interestingly, this aggregated number has been fairly resilient
throughout the Covid-19 crisis. Clients ordered fewer business
cards but instead thought about websites, e-commerce solutions and
signs.
For Nettl to become a long-term success, we need to continue to
offer our partners new products to sell, while being the best
supplier to them for their existing range. We will be successful
when our partners are successful and the last few months arguably
improved our standing with our partners.
There is absolutely no reason to believe why our number of
partners cannot grow further - in the UK but also internationally -
and why we cannot sell significantly more products per partner.
With that being said, we reiterate our mid-term guidance of
10-15% EBITDA margin.
Unfortunately, we can only hold a virtual AGM this year due to
health and safety considerations. We have enjoyed the dialogue with
shareholders a lot and it's a bit sad to miss the event this year.
We'll try hard to make the virtual AGM this year worthwhile
participating in.
The AGM will take place at 9am on Tuesday 22nd September.
Jan-Hendrik Mohr
Chairman
Chief Executive's Statement
Dear Shareholders,
Oh boy
Since I last wrote to you in November's interim report, the
world is a very different place. We've had two Prime Ministers, the
briefest of 'Boris bounces' and then we've run face-mask-first into
the biggest economic crisis in generations.
We made good progress on our transformation plan during the
first half. As with many businesses, things got tougher in the
second half.
Before we get into the detail, it's worth recapping on our
strategy. That hasn't changed. Although how we get there, has
adapted.
Build, buy and licence
That's it. We build performance in our company-owned Nettl
locations, buy sign and graphic businesses and licence our know-how
and systems to others. I'll go into more detail on each of the
sections in turn.
Nettl company stores
In our Nettl company stores, we sell websites, ecommerce shops,
online booking systems, SEO, printing, displays, exhibition and
signage. We mostly sell to SME clients, who often don't have their
own in-house marketing department. Increasingly, we're selling to
larger businesses, where our relationship starts with signage.
We operate five company-owned Nettl locations. In Birmingham, a
2,000sq.ft. city-centre Nettl Business Store. In Liverpool and
Exeter, out-of-town Nettl Business Superstores, each 5,000 to 7,500
sqft. A first-generation small Nettl web studio in central Dublin
and a huge Nettl 'pop-up' Business Store in Manchester city
centre.
Sales in our company stores increased to GBP2.80m (2019:
GBP2.63m). In this revenue segment, we count all invoiced sales to
end clients of our company stores, whether they be print, display,
design, websites or search engine optimisation. Essentially,
everything we ring through the till in our own stores. In the first
half of the year, sales were up 20% compared to last year. In the
second half, sales were impacted by the lockdown in the UK and
Ireland.
We closed our company stores on 23 March 2020. Some team members
worked remotely and some were furloughed under the Government
scheme. We upgraded our Nettl.com site to make it easier for
clients to schedule video calls with us. We were still 'here', just
not 'there'. Some stores re-opened on 6 July 2020 and all were open
by 20 July 2020.
One method we use to grow sales in company stores is to
"acqui-hire" existing Nettl partners. Effectively we acquire their
client base and hire their sales and design team. We rolled in a
couple of businesses in the prior year, but didn't agree terms with
any new ones this year. However, we expect to find further roll-in
opportunities in the future. When we roll-in, we're able to strip
out overhead and have more people work from our locations. We aim
to keep client relationships intact. When we strip out these
roll-ins, like-for-like sales were up 3% in H1, but H2's
performance dropped and the year ended 6% down, like-for-like. We
like rolling in existing teams, since we've usually got a long
trading relationship and historical performance data. As studios
use our systems to manage their businesses, the data we harvest is
very rich indeed.
Buy sign and graphic businesses
We've talked many times about our acquisition strategy, to roll
up the signs sector. We still find this sector attractive, for a
variety of reasons. There's both investment and industrial logic.
Logic twins, as it were. Almost always, the businesses we target
are buying some of our product range from elsewhere. We don't
factor that into our valuations, but those are very real merger
benefits. Nothing tastes sweeter than deleting a competitor from
the supplier list of a business we acquire.
We're looking in two areas. With smaller businesses with
revenues up to GBP500k, we'd like to roll-in to one of our existing
locations. Some could be Nettl teams or individuals, where we've
got a long partnership history. Others could be clients - sign
businesses where we have a trading relationship. We've had plenty
of discussions with businesses like these, typically where the
owner is looking to retire. For us to consider these, location is
important. We'd rather not remotely manage a distant team, so some
of those discussions are parked, until we have a suitable location
to roll into. However, if the owner has already replaced themselves
with a capable manager, we'd take a look.
The other area is sign businesses with revenues above GBP2m or
so. That's where we're targeting our outreach activity.
If I asked you to think of a sign, chances are "No entry" or "No
shirt, no service" springs to mind. The signs sector is hugely
diverse. And the word "signs" covers anything from a small wall
poster to a building wrap. From a branded reception desk to a giant
flag. Vehicle livery to exhibition stands. Printed deckchairs and
gazebos. Banners, beanbags, bunting and billboards. In a visual
world, every surface can be a sign.
That means every sign business has a slightly different
expertise and exposure. Some mostly work with retailers, others
with construction. Some are geared towards events and exhibitions.
Others focus on fabrication of structural signage. Coronavirus has
impacted each business differently and luck has played a large part
in that.
Last year, we'd talked to plenty of these businesses. With some,
we weren't able to agree on valuations. With others, when we
started due diligence, we didn't like the smell or sustainability
of some of their revenue streams. We didn't rush to do deals, for
the sake of doing deals.
At the start of the crisis, we refreshed our marketing and
changed our deal structure approach. We figured some decent
businesses would face difficulties. The UK Government's response
package has definitely helped many businesses stay afloat,
particularly the furlough scheme. If you told us in February the
Government would pay 80% of salaries for six months, we'd
definitely have nodded very slowly whilst backing away. But they
have. And with deferred VAT, rent holidays, very low interest
loans, businesses have kept going for now. As these measures end,
the crunch starts.
We estimate there are a few hundred larger sign businesses in
the UK who could act as regional hubs for our network. We mailed a
prospectus-in-a-box to 200 targets in May. Why a box? Nothing beats
the 'thud factor'. You can filter an email. You can discard a
postcard. What kind of monster could toss a black box without
opening it? You can read the prospectus at
www.grafenia.com/acquisition. It explains our transparent approach.
We have ongoing discussions with potential vendors and hope to find
a way forward for some businesses, who value the safety of being
part of a larger group.
These larger businesses tend to have a locally-known brand,
which we keep. Existing clients will continue to deal with the name
they trust. They'd also become "Nettl Works". We think we need five
of these regional hubs. Our first is "Works Manchester", which I'll
talk a little more about later. We're looking for other businesses
primarily in The Midlands, South West England, Greater London and
Scotland or Northern England.
In our revenue segments, we show these in "Works sign
businesses". For now, Image Group is the only business in there.
Sales were GBP4.62m (2019: GBP4.91m), hampered by the cancellation
of multiple events and exhibitions at the start of 2020.
Licence our systems
We licence our software, brands and systems to design studios,
printers and sign companies around the world. Some use it under
white label, where the end client is unaware they're using our
software. However, in most cases, the end client interacts with one
of our Brand Partners. We call them brand partners, because they
present themselves as part of the Nettl or printing.com
network.
Our partners use content and marketing material, such as
e-shots, website landing pages, catalogues, brochures, direct mail,
point-of-sale and product samples that we create. They use that to
keep in touch with existing clients and attract new ones. It helps
them sell print, websites and signs. We release fresh content
multiple times a month, to stay in clients' front-of-mind.
Partners pay us a subscription fee, depending on the size of
their exclusive territory, ranging from GBP300 to GBP1,000 per
month. To grant them geographical exclusivity, they pay an initial
licence fee of around GBP2,000. Our standard licence agreement is
three or five years, sometimes with an option to break at 18 or 24
months.
Historically, after the initial term was completed, partners
rolled into monthly agreements, with three month's notice to
terminate. In January 2020, we introduced a new rolling three-year
extension and invited existing partners to extend their agreement.
As a thank you, we gave them product credits which could be used on
orders for new customers. We were pleased that more than 70
partners extended their contracts by three further years. More than
150 partners now have contracts where their next break option is
greater than a year from now.
But times are tough for resellers. Anyone who has been reliant
on selling print and print alone has had a rough year. Traditional
print is in decline and there is still too much overcapacity. The
pandemic will remove some capacity. We've had a higher-than-usual
churn in the second half, as some partners have closed or sought to
cut all investment.
Nonetheless, our Nettl partner network has grown to 239
locations around the world (2019: 228). At the date of our last
trading update, we had 183 active Nettl partners in the UK and
Ireland, 25 in Benelux, 9 in France, 15 in the USA, four in New
Zealand and three in Australia. We also currently have 59
printing.com locations (2019: 85). Upgrading from printing.com to
Nettl is a path well trodden and we anticipate further partners
will diversify their businesses away from simply selling print.
Subscription and Licence Fees increased to GBP2.08m (2019:
GBP1.97m). In this segment, we count initial licence fees, monthly
subscriptions, website deployment royalties, the wholesale price of
hosting, domain names, digital stock photography and search engine
optimisation sold via our brand partners.
Since the year end, and during the pandemic, we've supported our
partners in different ways. Every partner is different. For some,
we're their entire business. For others, we're just part of what
they do. As the crisis deepened, we put individual measures in
place. Those could be paused licence fees, while they hibernated
under lockdown, deferred fees for three months or by agreeing
extended payment terms. We genuinely consider ours a true
partnership and we wanted to provide assistance, to strengthen our
relationship, and ensure our partners get through this crisis.
As the world entered lockdown, our usual methods of acquiring
new partners were impacted. We followed up our pipeline, but as
you'd expect, many businesses were nervous about the future and
cautious about entering into new contracts. So we adapted our
offering, to make it easier to join Nettl. We set a shorter break
of six or nine months and deferred initial licence fee and grant of
exclusive territory until after the break was passed. In the
lockdown period, we added 14 new Nettl partners in the UK, two in
The Netherlands and two in America. I'll come back to America
later.
Every new partner subscription includes classroom training
seats. As the lockdown prohibited non-essential travel, this posed
a problem. Figuring out how to build e-commerce sites may well be
critical for a print business to learn, but we're sure the police
would have taken a different view. So rather than risk partners
travelling from Durham or London, we've migrated all our training
syllabuses online. Now they're a mix of pre-recorded content and
live group video sessions in our virtual Nettl Academy. When events
are allowed, we'll once again get together with partners at
regional "Pow Wows", like we did in February just before lockdown.
However, now it will be more productive and cost-effective to
deliver our training exclusively online.
We increased the frequency of our virtual group 'do more
together' partner sessions. These cover different topics, around
marketing, technical application, product development and sales
opportunities. We've seen a significant increase in engagement on
our internal partner community forums and discussions, as partners
look to others for guidance. At times like this, the strength of
being part of a network is demonstrated very clearly. We recently
interviewed partners from around the world and shared the videos
online. If you'd like to hear it from the zebras' mouths, as it
were, take a look at www.nettl.com/action.
As well as licence fees, Nettl and printing.com partners are
able to buy printing, exhibition kit, displays and signs from our
Works Manchester hub. They pay a wholesale price and resell to end
clients. Most Nettl and printing.com partners are seasoned print
buyers. They have alternative suppliers. In the second half, trade
prices continued to fall. Last year, I mentioned Personal Shopper -
a way for partners to get help with more complex projects or
choosing the right options. We're often asked to match competitor
pricing, even by less than a pound. So in August last year we
launched CrowdPrice. If one partner requests a price match, and it
passes our commercial rules, we make that price match available to
all other partners automatically. Our aim is to reduce the need for
partners to shop around. Overall, sales of product to Brand
Partners was GBP3.41m (2019: GBP3.58m).
Marqetspace.com and online channels
We sell print and signs to professional buyers through
Marqetspace.com and a few other online channels. This space is
super-competitive. Not only are there many trade-only printers in
the UK, but shipping from mainland Europe is currently
cost-effective for continental printers. Marqetspace is important
to us for a number of reasons.
Firstly, it's often where our relationships start. We get to
know printers, graphic designers and sign companies with a simple
trading relationship. Then we build trust. Then we figure out if
any of our software tools or systems can help them achieve their
own objectives. And so Marqetspace is a fertile ground for
cultivating Nettl partners.
Secondly, we use it to test and develop automation. It's the
first place we try new features for online channels, before we roll
them out. We had lower people costs in this segment than last
year.
Thirdly, it contributes to our print volumes. Prior to the
events in March, sales were broadly flat and ended at GBP2.68m
(2019: GBP2.87m).
Nettl of America
We said in the interim report that we were seeing slower
traction in signing up partners in America. We knew the 200 page
franchise disclosure document would slow things down, but not by as
much as it has. So we developed a second model for the US.
We call it Nettl System. It's essentially everything that a
Nettl Franchise gets, without access to the brand or rights to use
any marketing material.
Now, given what we said about how our partners value marketing,
you'd be forgiven for thinking we'd drunk bleach. But Federal law
is pretty strict about what constitutes a franchise. As none of us
look good in orange, we need to work within the law. So, Nettl
System is a licence agreement, like in the UK, without the rights
to use the brand. We can meet a partner, sign them up and they can
get started immediately. It allows them to learn-by-doing and
hopefully answers most of the questions that they would have had
during the due diligence process.
Of course, we still want System users to upgrade to become
Franchisees. And after the year-end, the first did just that,
signing a ten year Franchise agreement.
We'd planned to host an event in Fort Lauderdale, Florida during
April 2020. With the travel bans in place, that was subsequently
cancelled. We replaced it with some virtual sessions and we're
further testing different marketing until we find something we can
scale.
Secrets & Chandeliers
The system which drives our whole business is called w3p. It's
used by every partner. Clients order on websites powered by it.
Conveyors and belts and chutes in Works Manchester are controlled
by it.
It's a big system. By its nature, there's a lot to learn. We
wanted existing partners to get a concise understanding of
everything it does and discover parts they weren't making the most
of. So we wrote a book, "Secrets & Chandeliers". Partners got a
printed copy as an early Christmas present. But we didn't want it
to be a dry, user instruction manual. Instead, it starts with a
true story. And explains all of the things that had to come
together to deliver a great client experience. It tells the reason
why each feature was built.
We thought other graphic professionals might enjoy it too. So
we're also using it as part of our Nettl partner acquisition
toolkit and have distributed 10,000 copies to prospects in the UK
and US.
If you'd like to read it, you can buy it on the Kindle store.
But here's a secret. You can get a free printed copy at
www.nettl.com/secrets
Pandemic Paraphernalia Pivot
March is historically a strong sales month, boosted by event
season. Lots of exhibitions take place in the Spring and our
company stores, brand partners and Image Group help clients with
pop-up displays, exhibition stands and all the printed collateral
that gets distributed. We started to hear of events being cancelled
at the end of January. First it was those which had a strong
presence from Asia, where companies were prohibited from
international travel. Then steadily, one after another, event after
event began to get cancelled, and with it, expected orders. Then
lockdown hit. The NEC, the UK's biggest exhibition space, have now
said they don't expect to hold any indoor events in 2020. At
all.
We kept our Works Manchester production hub open, with a limited
number of people and social distancing measures. As we began to
imagine what clients might need to re-open their businesses, we
started to launch new social distancing products. Our product
engineering and production teams were fantastically agile as we
switched to producing sneeze guards, custom printed face masks,
hand sanitiser stands, crowd control material, social distancing
stencils and floor graphics. Getting stock has been challenging and
in-demand materials needed prepayment. For a couple of months, we
suspended postal mailings, as many businesses were either closed or
working from home. So each product was launched with digital
marketing. As businesses started to reopen in June, they were able
to browse our 52 page Pandemic Paraphernalia buying guide.
When I look back at how many products we sold in June that
didn't exist in March, it's even more astonishing what our teams
were able to achieve. More than half our sales in June were for
covid-secure products. We're grateful for their combined efforts in
invention, merchandising, prototyping, selling and
manufacturing.
Doing the right things
At the start of the pandemic, we convened daily crisis meetings.
We called them "GRABRA", as a nod to the Government's COBRA
meetings. Although, our executive board and production management
did actually turn up to each one. We would be formulating our
response to the daily Government Briefings, then keeping our teams
updated. It was a very stressful and upsetting time for many of our
team members. Some were impacted by the loss of family and
friends.
At times of crisis, nobody wants to be sold to. Research shows
that advertising, which is heavily price-led becomes less
effective. So we initially turned off product-led marketing
messages. Instead, we delivered content to reassure and build
trust. That included charity animal-face masks, printed and
stitched in-house, with proceeds donated to NHS charities. So far,
we've donated over GBP10,000 to charities, from sales of
Animasks.co.uk, an ecommerce site our Nettl team developed.
We also created print-at-home colouring books to keep bored kids
occupied. We scheduled a weekly release of 'Nettl Chaise Lounge'
playlists to work or relax to. They're all on Spotify and Youtube
if you'd like to listen - www.nettl.com.uk.mixtape.
And we made checklists, guides and return-to-work guides
available for free download. Partners were able to locally
proliferate this stream of content on a daily basis, keeping
front-of-mind and building positive brand association.
We did this because we believe businesses who did the right
thing, would be viewed favourably on the other side. I'm sure we
can all think of examples of businesses that acted in their own
self-interest. Those memories last.
Works Manchester
In July 2019 we completed the relocation of Image Group's main
factory into our litho hub. There are multiple parts to integrate.
Having enough toilets is the easiest challenge to fix. Combining
teams and systems is a little more tricky.
After some bedding in time, we started a restructuring in
January 2020 to address some duplication of roles. This
restructuring completed at the end of February 2020 and resulted in
annualised savings of around GBP0.5m.
We brought all our teams together in a series of town-hall
meetings, to share our plans for the road ahead and what part each
individual must play.
We've been selling products produced by Image Group through all
our channels since they became part of Grafenia in July 2017.
Having two software systems is never ideal. w3p was built to handle
thousands of set-specification orders each week. The system Image
Group uses caters for projects, rather than products. So we've had
to upgrade w3p. As with all of our software development, we've done
this in stages. The final part is presently in development and we
aim to fully migrate to one system by the end of the calendar year.
Once this is in place, future Nettl Works will share a combined
product catalogue and workflow.
March of the Works Makers
Whatever an SME needs to promote their business, we want to be
there to support. Whether that's online or offline, paper or board,
vinyl or metal. Most of what we sell, we make in our factories. We
do sell some niche products, made by other third parties. In the
past, we've listed products like pens and bags on our websites for
anyone to buy. In other cases, weird products have been sourced
ad-hoc.
As part of our upgrade to w3p, we've made it easier to sell
third party products. We're asking manufacturers of specialist,
niche items to become Works Makers. They use w3p to upload their
products for approval. Once each goes through our verification
process, their products are listed on all our websites, like
printing.com, nettl.com and marqetspace.com. They're sold to our
brand partners at wholesale prices, and they use the same tools to
place orders, just like print and signs. When orders are placed,
the Works Maker downloads an order pack and produces the order and
ships directly to the client, using our carrier infrastructure.
The first products already for sale include printed socks, golf
umbrellas, coasters, bunting, wristbands and mugs. We're currently
working with the first Works Makers and expect to significantly
grow our product range during the coming months. We're inviting
suppliers of other platforms to register at www.nettl.works.
We plan to use the same infrastructure to connect third party
installers with clients needing installation of window and wall
graphics.
Share stake and save as you earn
As we announced on 28 April 2020, all the Executive Directors
have elected to receive between 20% and 30% of their monthly net
remuneration in New Ordinary Shares from 1 April 2020 for a period
of seven months. Non Executive Directors have elected to receive
100% of their fees in New Ordinary Shares for the same period. The
Company's Chairman, Jan-Hendrik Mohr, has also donated his fee to
"The Chairman's Seam Team Fund" for the same period. This
initiative has donated sewing machines to seamsters who've been
made redundant or furloughed from other businesses, so they can
volunteer to make Animasks.
All New Ordinary Shares in respect of the Scheme will be issued
in December 2020, at a price of 7.75p per share, which is above the
market price on the date of announcement and the same as the
exercise price of share options, which matured under the Company's
Save as You Earn share scheme on 1 March 2020. As the share price
was below the option price in the SAYE scheme, we invited eligible
team members to participate in the Share Stake scheme.
Outlook
In our Annual Report last year, we estimated we would be on a
run-rate breakeven during this financial year. With reductions in
our cost base, partly due to our factory merger and restructuring,
we were breakeven at EBITDA level in the month of February 2020. In
normal years, February has lower sales seasonality than strong
months September, October, November, March and April. We were on
track. However, we updated the market on 25 March 2020, to say we'd
take a little longer to reach breakeven, given the lockdown. On 15
July 2020, our release said Coronavirus impacted sales in March
(65% of last year), April (30% of last year) and May (40% of last
year). In June 2020, sales were 90% of last year, and we achieved
breakeven at EBITDA level. In July, sales ended around 70% of last
year. We still do not have visibility on what will happen to our
clients as economic stimulus ends. We have a diverse product
portfolio and it is likely that a significant number of our
competitors will be impacted by the economic climate, perhaps
fatally.
Despite the haziness on the horizon, we will continue to be
agile and adapt our product offering and marketing emphasis to
support our clients and our partners. Our aim is to come out the
other side of this crisis with more clients, more partners, more
products, more locations and more profit than we entered it with.
We keep our eyes firmly on a mid-term goal of 10-15% EBITDA.
Virtually meet you
Our annual meetings are usually a good time for shareholders and
our key team to meet face-to-face. Last year, we met in our Nettl
of Birmingham Business Store, and shareholders asked questions
while our saxophonist-cum-designer played some soothing jazz. This
year, a masked-saxophonist feels impossible.
With social distancing and transport restrictions, we're not
sure whether we'll be able to meet in person. So this year, we'll
meet online.
Until then,
Peter Gunning
Chief Executive
Financial Review
Revenue
Group revenue this year finished at GBP15.60m, down from
GBP15.96m in 2019. Despite Brexit and election uncertainty
impacting the business for the most part of the year, going into
March we were still expecting to report a growth in revenue. Then
the impact of COVID-19 first started to be felt in earnest and our
revenue fell to 65% of the prior year level for the month of
March.
As you can see in our segmental disclosure (note 2) 95% of our
business remains in the UK & Ireland. Despite the overall fall
in revenue, we have seen a marginal increase in licence fee income,
GBP2.08m (2019: GBP1.97m) thanks to growth in subscription
services. Our Company stores have returned a higher revenue,
GBP2.81m (2019: GBP2.63m), benefitting from a full year of
contribution from prior year roll-ins. But these results, along
with our other channels, have been suppressed by the wider economic
factors already mentioned. Sales of print and other products
through our Brand Partner Network fell to GBP3.41m (2019:
GBP3.58m), online and Trade sales fell to GBP2.68m (2019: GBP2.87m)
and Works Signs Businesses fell to GBP4.62m (2019: GBP4.91m).
Gross profit
Gross Profit, defined as revenue less direct materials
(including the cost of distribution when made direct to customers,
fell to GBP7.98m (2019: GBP8.55m).
The reduced gross margin percentage of 51.1% (2019: 53.5%) comes
during a year full of uncertainty. Print margins continued to
erode, as input costs have risen and trade prices pursue their race
to the bottom. Services, subscription and licence income has
increased year-on-year, and carries a higher margin than Print and
Signage, but has not been sufficient to offset the fall in other
parts of the business.
Other operating costs
Staff costs reduced by 6.4% to GBP5.69m, as we have integrated
our operations following acquisitions and business roll-ins from
previous years, whilst other operating charges have been flat at
GBP3.55m. This includes various costs incurred in the year aimed at
reducing our future cost base; redundancy payments to reduce our
staff costs, plus factory dilapidation and site move costs incurred
relocating the Image Group factory into our Trafford Park hub that
totalled GBP0.20m.
In addition, with tougher trading conditions and then the impact
of COVID-19, we have reassessed our receivables and deemed it
prudent to increase the bad debt provision by GBP0.60m. We are
working with our customers and Partners to try to come through the
current difficulties together, however we have to accept that some
of those debts may never be paid.
The other significant change from last year has been the impact
of IFRS 16, which has become effective for the first time for this
financial year. Payments that would previously have been treated as
a cost within other operating costs of GBP0.36m have been replaced
with an increased depreciation charge of GBP0.30m and finance costs
of GBP0.13m.
Profitability
As a combination of the factors discussed above, our pre tax
loss has worsened to GBP3.63m (2019: GBP3.17m). Despite this, the
loss per share of 3.27p improved against the loss of 3.79p in 2019
as a result of increasing the number of shares in issue during the
year.
Operating Cash Flow
In the current year the Group used GBP1.16m of cash through
operating activities (2019: GBP0.96m), closely reflecting the
EBITDA loss in the respective years.
Investment activity
The current year has seen investment in plant and equipment of
GBP0.43m, primarily in our hub with the construction of a new
mezzanine level that gave us the space to merge two factories into
one, enabling the group to reduce operating costs in the years to
come. We have also continued our investment in the Group's systems,
totalling GBP0.63m (2019: GBP0.74m), the major item being software
for Nettl and the Groups SaaS platforms.
Financing activity
On 24 July 2019, the Group announced that it had raised
approximately GBP4.01m before expenses through a placing and
subscription of 28,653,569 new ordinary shares of 1 penny each at
an issue price of 14 pence per share. Issue costs incurred with the
transaction were GBP0.06m.
We changed primary bankers during the year and as part of that
move repaid our invoice finance funding by GBP0.95m. We've also
paid GBP0.44m in vendor loan notes and deferred consideration
related to the acquisitions in previous years, reducing the
outstanding payments to GBP0.15m.
KPIs
Management monitors a number of KPIs, which underpin the
performance of the business. The number of Nettl Network Partners
has grown in the year, as discussed by earlier. The average product
price per partner has marginally reduced, reflecting the pressure
on gross margin. Website deployments and hosting fees per month
have continued to increase, along with the number and value of SEO
subscriptions.
Post balance sheet events
COVID-19 has significantly impacted the whole industry since
March, and Grafenia has not been immune. Revenue in April was 30%
of the previous year, and May only 40% of the result 12 months
prior. We have however seen a stronger recovery in June to 90% of
prior year revenue, driven by our new COVID related product ranges,
and 70% in July. In response to the pandemic, we have updated our
forecasts and applied reasonable sensitivities to cover a range of
operational scenarios. We have utilised government support where
available through the Coronavirus Job Retention Scheme, local
business grants, rates relief and Time-To-Pay arrangements for our
PAYE and NI liabilities, and renegotiated with suppliers and to
reduce cash outflows through this period.
To further ensure that the business has enough liquidity through
this period, we secured an additional term loan for GBP1.00m
through the Coronavirus Business Interruption Loan Scheme (CBILS)
and refinanced our primary hire purchase facility through CBILS,
reducing our cash repayments for 12 months.
On 15th July we announced the creation of a GBP50.00m perpetual
bond facility and the issue of GBP3.00m of the bonds, at nominal
value, to investors, raising approximately GBP2.01m before
expenses. This facility ensures that we have the capital available
to execute our acquisition strategy discussed by Peter earlier.
Outlook
The future developments of the business are included in the
Chairman's statement and Chief Executive's statement. With the
restructuring activity undertaken in this financial year, and the
financial support secured through the bond issue and CBILS loan, we
believe we have secured the financial future of the business and
have the resources to execute our expansion plans. Accordingly, the
Directors continue to adopt the going concern basis in preparing
the annual report and financial statements.
Principal Risks and Uncertainties
The following are the principal risks relating to the Group's
operations:
- uncertainty in the general economic environment, including
Brexit and COVID-19, that may impact upon revenues and
profitability;
- markets in which the Group operates are extremely competitive
posing a threat to profitability;
- technological advances in manufacturing and or software may
impact on operational effectiveness and earnings potential;
- the Group and its clients depend on the W3P SaaS platform and
all reasonable operational contingency is embedded for resilience
in the event of a catastrophe;
- the ability to retain and recruit key people, across a
multitude of disciplines, is essential in maintaining and growing
the business;
- Group SaaS platforms are developed in-house but use third
party components, the necessary rights exist but there is no
certainty that these rights will be retained indefinitely.
Treasury Policies
Surplus funds are intended to support the Group's short-term
working capital requirements. These funds are invested through the
use of short-term deposits and the policy is to maximise returns as
well as provide the flexibility required to fund ongoing
operations. The Board anticipates cash balances will rise moving
forward. The Board has developed a model to establish a fair value
for the Company's shares and will only purchase shares when the
offer price is materially below that value and funds are available.
It is not the Group's policy to enter into financial derivatives
for speculative or trading purposes.
Iain Brown
Group Finance Director
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2020
Note 2020 2019
GBP000 GBP000
Revenue 2 15,604 15,962
Raw materials and consumables used (7,627) (7,417)
----------------------------------------------- ----- ---------- ----------
Gross profit 7,977 8,545
----------------------------------------------- ----- ---------- ----------
Staff costs (5,686) (6,077)
Other operating charges (3,553) (3,533)
Share based payments (27) (47)
----------------------------------------------- ----- ---------- ----------
Earnings before interest, tax, depreciation
and amortisation (1,289) (1,112)
----------------------------------------------- ----- ---------- ----------
Depreciation and amortisation (2,025) (1,875)
Operating loss (3,314) (2,833)
----------------------------------------------- ----- ---------- ----------
Financial income 25 7
Financial expenses 3 (342) (186)
----------------------------------------------- ----- ---------- ----------
Net financing expense (317) (179)
----------------------------------------------- ----- ---------- ----------
Loss before tax (3,631) (3,166)
Tax income 4 258 343
----------------------------------------------- ----- ---------- ----------
Loss for the year (3,373) (2,823)
Other comprehensive income - -
----------------------------------------------- ----- ---------- ----------
Total comprehensive income for the year (3,373) (2,823)
=============================================== ===== ========== ==========
Loss per share attributable to the ordinary
equity shareholders of Grafenia plc
Basic and diluted, pence per share 5 (3.27)p (3.79)p
=============================================== ===== ========== ==========
Consolidated Statement of Financial Position
At 31 March 2020
Note 2020 2019
GBP000 GBP000
Non-current assets
Property, plant and equipment 6 5,483 4,060
Intangible assets 7 3,858 4,371
Deferred tax assets - 10
----------------------------------------------- ------- ---------- ---------
Total non-current assets 9,341 8,441
----------------------------------------------- ------- ---------- ---------
Current assets
Inventories 8 346 455
Trade and other receivables 9 2,150 3,008
Prepayments 447 548
Cash and cash equivalents 10 1,104 1,354
----------------------------------------------- ------- ---------- ---------
Total current assets 4,047 5,365
----------------------------------------------- ------- ---------- ---------
Total assets 13,388 13,806
=============================================== ======= ========== =========
Current liabilities
Other interest-bearing loans and borrowings 12 753 1,695
Deferred consideration 12 147 366
Trade and other payables 11 2,160 2,832
Deferred income 11 143 256
Total current liabilities 3,203 5,149
----------------------------------------------- ------- ---------- ---------
Non-current liabilities
Other interest-bearing loans and borrowings 12 3,483 2,180
Deferred consideration 12 - 229
Deferred income 11 - 36
Deferred tax liabilities 448 576
----------------------------------------------- ------- ---------- ---------
Total non-current liabilities 3,931 3,021
----------------------------------------------- ------- ---------- ---------
Total liabilities 7,134 8,170
----------------------------------------------- ------- ---------- ---------
Net assets 6,254 5,636
=============================================== ======= ========== =========
Equity attributable to equity holders of
the parent
Share capital 13 1,135 847
Merger reserve 838 838
Share premium 14 7,801 4,125
Share based payment reserve 74 47
Retained earnings (3,594) (221)
----------------------------------------------- ------- ---------- ---------
Total equity 6,254 5,636
=============================================== ======= ========== =========
Consolidated Statement of Changes in Shareholders' Equity
Group - year ended 31 March 2019
Share Capital Merger Share Premium Share Based Retained Total
reserve Payment Earnings
Reserve
GBP000 GBP000 GBP000 GBP 0 GBP000 GBP000
00
------------------------------- ------------- -------- ------------- ----------- --------- -------
Balance at 31 March
2018 475 838 - - 2,672 3,985
Loss and total comprehensive
income for the year - - - - (2,823) (2,823)
Shares issued in the
period 372 - 4,202 - - 4,574
Costs associated with
share issue - - (77) - - (77)
Share option reserve - - - 47 - 47
Exchange differences - - - - (70) (70)
------------------------------- ------------- -------- ------------- ----------- --------- -------
Total movement in
equity 372 - 4,125 47 (2,893) 1,651
------------------------------- ------------- -------- ------------- ----------- --------- -------
Balance at 31 March
2019 847 838 4,125 47 (221) 5,636
------------------------------- ------------- -------- ------------- ----------- --------- -------
Group - year ended 31 March 2020
Loss and total comprehensive
(3 ,373
income for the year - - - - (3,373) )
Shares issued in the
period 288 - 3,738 - - 4,026
Costs associated with
share issue - - (62) - - (62)
Share option reserve - - - 27 - 27
------------------------------- ------------- -------- ------------- ----------- --------- -------
Total movement in
equity 288 - 3,676 27 (3,373) 618
------------------------------- ------------- -------- ------------- ----------- --------- -------
Balance at 31 March
2020 1,135 838 7,801 74 (3,594) 6,254
------------------------------- ------------- -------- ------------- ----------- --------- -------
Consolidated Statement of Cash Flows
for year ended 31 March 2020
Note Group Group
2020 2019
GBP000 GBP000
Cash flows from operating activities
Loss for the year (3,373) (2,823)
Adjustments for:
Depreciation, amortisation and impairment 2,025 1,876
Profit on sale of plant and equipment (99) (105)
Reduction in deferred consideration (220) -
Release of deferred profit on sale of plant
and equipment (12) (218)
Share based payments 27 47
Net finance expense 317 179
Bad debt expense 588 -
Foreign exchange loss - (70)
Tax income (258) (343)
------------------------------------------------- ------- ---------- ----------
Operating cash flow before changes in working
capital and provisions (1,005) (1,457)
Change in trade and other receivables 444 (154)
Change in inventories 109 439
Change in trade and other payables (708) 214
------------------------------------------------- ------- ---------- ----------
Cash (utilised by)/generated from Operations (1,160) (958)
Interest paid - (179)
Income tax received /(paid) 67 97
------------------------------------------------- ------- ---------- ----------
Net cash (outflow)/ inflow from operating
activities (1,093) (1,040)
------------------------------------------------- ------- ---------- ----------
Cash flows from investing activities
Proceeds from sale of plant and equipment 265 265
Acquisition of plant and equipment (383) (480)
Capitalised development expenditure 7 (373) (375)
Acquisition of other intangible assets 7 (305) (325)
Acquisition of Subsidiary net of cash (group) - (134)
------------------------------------------------- ------- ---------- ----------
Net cash used in investing activities (796) (1,049)
------------------------------------------------- ------- ---------- ----------
Cash flows from financing activities
Funding from invoice finance (947) (1)
Payment of loan notes (211) (634)
Payment of finance leases (under IAS 17) - (561)
Capital payment of lease liabilities (622) -
Interest payment of lease liabilities (317) -
Payment of deferred consideration (228) (29)
Issue of shares (net of costs) 3,964 4,497
Net cash generated from financing activities 1,639 3,272
------------------------------------------------- ------- ---------- ----------
Net increase/(decrease) in cash and cash
equivalents (250) 1,183
Cash and cash equivalents at start of year 1,354 171
------------------------------------------------- ------- ---------- ----------
Cash and cash equivalents at 31 March 2020 10 1,104 1,354
================================================= ======= ========== ==========
Notes to the preliminary statement
1. Basis of preparation
Grafenia plc (the "Company") is a public limited company
incorporated and domiciled in the UK. The company's registered
office is Third Avenue, The Village, Trafford Park, Manchester M17
1FG.
This financial information does not include all information
required for full annual financial statements and therefore does
not constitute statutory accounts within the meaning of section
435(1) and (2) of the Companies Act 2006 or contain sufficient
information to comply with the disclosure requirements of
International Financial Reporting Standards. These should be read
in conjunction with the Financial Statements of the Group as at and
for the year ended 31 March 2019.
The comparative figures for the year ended 31 March 2019 are
also not the Company's statutory accounts for that financial year.
Those accounts have been reported on by the Company's auditors and
delivered to the Registrar of Companies. The report of the auditors
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
The preliminary financial information was approved by the Board
of Directors on 11 August 2020.
Adoption of new and revised international financial reporting
standards
IFRS 16 Leases
In the current year, the Group has applied IFRS 16 Leases (as
issued by the IASB in January 2016) that is effective for annual
periods that begin on or after 1 January 2019.
IFRS 16 introduces new or amended requirements with respect to
lease accounting. It introduces significant changes to lessee
accounting by removing the distinction between operating and
finance lease and requiring the recognition of a right-of-use asset
and a lease liability at commencement for all leases, except for
short-term leases and leases of low value assets when such
recognition exemptions are adopted. The impact of the adoption of
IFRS 16 on the Group's consolidated financial statements is
described below.
The date of initial application of IFRS 16 for the Group is 1
April 2019.
The Group has applied IFRS 16 using the cumulative catch-up
approach which:
- Requires the Group to recognise the cumulative effect of
initially applying IFRS 16 as an adjustment to the opening balance
of retained earnings at the date of initial application;
- Does not permit restatement of comparatives, which continue to
be presented under IAS 17 and IFRIC 4.
IFRS 16 changes how the Group accounts for leases previously
classified as operating leases under IAS 17, which were off balance
sheet.
Applying IFRS 16, for all leases (except as noted below), the
Group:
- Recognises right-of-use assets and lease liabilities in the
consolidated statement of financial position, initially measured at
the present value of the future lease payments, with the
right-of-use asset adjusted by the amount of any prepaid or accrued
lease payments in accordance with IFRS 16:C8(b)(ii);
- Recognises depreciation of right-of-use assets and interest on
lease liabilities in the consolidated statement of profit or
loss;
- Separates the total amount of cash paid into a principal
portion (presented within financing activities) and interest
(presented within financing activities) in the consolidated
statement of cash flows.
Lease incentives (e.g. rent free period) are recognised as part
of the measurement of the right-of-use assets and lease liabilities
whereas under IAS 17 they resulted in the recognition of a lease
incentive, amortised as a reduction of rental expenses on a
straight line basis.
Under IFRS 16, right-of-use assets are tested for impairment in
accordance with IAS 36.
For short-term leases (lease term of 12 months or less) and
leases of low-value assets (which includes tablets and personal
computers, small items of office furniture and telephones with a
value of less than GBP3,000), the Group has opted to recognise a
lease expense on a straight-line basis as permitted by IFRS 16.
This expense is presented within 'other expenses' in profit or
loss.
The Group has used the following practical expedients when
applying the cumulative catch-up approach to leases previously
classified as operating leases applying IAS 17:
- The Group has applied a single discount rate to its portfolio of leases;
- The Group has elected not to recognise right-of-use assets and
lease liabilities to leases for which the lease term ends within 12
months of the date of initial application;
- The Group has excluded initial direct costs from the
measurement of the right-of-use asset at the date of initial
application;
- The Group has used hindsight when determining the lease term
when the contract contains options to extend or terminate the
lease.
For leases that were classified as finance leases applying IAS
17, the carrying amount of the leased assets and obligations under
finance leases measured applying IAS 17 immediately before the date
of initial application is reclassified to right-of-use assets and
lease liabilities respectively without any adjustments, except in
cases where the Group has elected to apply the low-value lease
recognition exemption.
The right-of-use asset and the lease liability are accounted for
applying IFRS 16 from 1 April 2019.
The impact on the financial statements on 1 April 2019 has been
to recognise a right of use asset within property, plant and
equipment and equivalent lease liability of GBP2,092,000. These
leases were previously reported as operating leases within
administrative expenses. Interest charged on the lease liability
for the period ended 31 March 2020 amounted to GBP125,000 and is
included within finance expenditure. Depreciation charged on the
right of use assets amounted to GBP296,000 for the period.
Going Concern
From March 2020 onwards, our business, like many others, has
been impacted by the COVID-19 pandemic. These impacts are discussed
in detail within the strategic review. In response we have updated
our forecasts and applied reasonable sensitivities to cover a range
of operational scenarios. We have utilised government support where
available through the Coronavirus Job Retention Scheme, local
business grants, rates relief and Time-To-Pay arrangements for our
PAYE and NI liabilities, and renegotiated with suppliers and
existing providers of finance to reduce cash outflows through this
period.
After the year-end and in light of the Group's signs rollup
strategy the Board decided to offer a corporate bond facility and
successfully raised GBP2.1m on 15th July. A further GBP1.0m term
loan has been secured through the Coronavirus Business Interruption
Loan Scheme (CBILS) to provide additional working capital to the
Group. With funding secured, the Directors believe that the Group
is well placed to manage its business risks successfully despite
the current uncertain economic outlook caused by COVID-19 and have
a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, the Directors continue to adopt
the going concern basis in preparing the annual report and
financial statements.
2. Revenue and Segmental information
The Group's operating and reporting segments are geographic
being UK & Ireland, Europe and others. The segmental analysis
by nature of service includes Licence Fees, Company owned Studio
revenue, Brand Partner print and Online sales plus Trade print.
This disclosure correlates with the information which is presented
to the Board, which reviews revenue (which is considered to be the
primary growth indicator) by segment. The Group's costs, finance
income, tax charges, non-current liabilities, net assets and
capital expenditure are only reviewed by the CEO at a consolidated
level and therefore have not been allocated between segments in the
analysis below.
Analysis by location of sales
UK & Ireland Europe Other Total
GBP000 GBP000 GBP000 GBP000
Year ended 31 March 2020 14,791 384 429 15,604
---------------------------- ------------- --------- ------- ---------
Year ended 31 March 2019 15,163 447 352 15,962
---------------------------- ------------- --------- ------- ---------
Revenue generated outside the UK is attributable to partners in
Australia, Belgium, France, New Zealand, The Netherlands and the
USA.
No single customer provided the Group with over 6% of its
revenue.
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is
as follows:
Licence Company Brand Partner Works Signs Online Total
Fees Stores Print Businesses & Trade
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Year ended 31
March 2020 2,083 2,806 3,414 4,624 2,677 15,604
================= ======== ======== ============== ============ ========== =========
Year ended 31
March 2019 1,975 2,629 3,577 4,910 2,871 15,962
================= ======== ======== ============== ============ ========== =========
Of the Group's non-current assets (excluding deferred tax) of
GBP9,341,000, GBP9,335,000 are located in the UK. Non-current
assets located outside the UK are in France GBP6,000 (2019:
GBP7,000).
3. Finance income and expense
Finance expense
2020 2019
GBP000 GBP000
Lease interest 330 139
Invoice finance 10 24
Loan note interest 2 23
-------------------- -------- --------
Interest payable 342 186
==================== ======== ========
Lease interest in 2020 includes GBP125,000 in relation to right
of use assets recognised on 1 April 2019 following the adoption of
IFRS 16. As the Group has applied IFRS 16 using the cumulative
catch-up approach, the comparative figure for 2019 has not been
restated.
4. Taxation
Recognised in the income statement 2020 2019
GBP000 GBP000
Current tax expense
Current year (146) (201)
Foreign tax - 6
Adjustments for prior years 6 (86)
-------------------------------------------------- --------- ----------
(140) (281)
Deferred tax expense
Origination and reversal of temporary differences (128) (213)
Adjustment in respect of prior year 10 151
-------------------------------------------------- --------- ----------
Total tax in income statement (258) (343)
================================================== ========= ==========
Reconciliation of effective tax rate
Factors affecting the tax charge for the current period:
The current tax charge for the period is lower (2019: lower)
than the standard rate of corporation tax in the UK of 19% (2019:
18%). The differences are explained below:
2020 2019
GBP000 GBP000
Loss for the period (3,631) (3,166)
---------------------------------------------- -------- --------
Tax using the UK corporation tax rate of 19%
(2019: 18%) (690) (570)
Effects of:
Permanent differences - -
Other tax adjustments, reliefs and transfers (40) 3
Adjustments in respect of prior periods -
current tax 6 (87)
Adjustments in respect of prior periods -
deferred tax 10 151
Deferred tax not recognised 403 174
Withholding tax - 7
Research and Development losses surrendered 227 54
Research and Development super deduction (174) (128)
Movement due to the change in the tax rate - 53
---------------------------------------------- -------- --------
Total tax credit (258) (343)
============================================== ======== ========
The Group tax debtor amounts to GBP354,000 (2019 Debtor:
GBP281,000). The deferred tax liabilities as at 31 March 2020 have
been calculated using the tax rate of 19% which was substantively
enacted at the balance sheet date.
The UK corporation tax rate has been progressively reduced over
the last 4 years. The October 2015 statement announced that the
rate will further reduce to 18% from 1 April 2020. At Budget 2020,
the government announced that the Corporation Tax main rate (for
all profits except ring fence profits) for the years starting 1
April 2020 and 2021 would remain at 19%.
5. Earnings per share
The calculations of earnings per share are based on the
following profits and numbers of shares:
2020 2019
GBP000 GBP000
Loss after taxation for the financial year
from continuing operations (3,373) (2,823)
=========================================== =========== ==========
Number of Number of
Shares Shares
For basic earnings per ordinary share 102,993,216 74,504,359
Exercise of share options - -
------------------------------------------- ----------- ----------
For diluted earnings per ordinary share 102,993,216 74,504,359
=========================================== =========== ==========
Basic loss and diluted, pence per share (3.27)p (3.79)p
=========================================== =========== ==========
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company.
The holders of deferred shares shall not be entitled to any
participation in the profits or the assets of the Company and the
deferred shares do not carry any voting rights.
6. Property, plant and equipment
Land and Plant Assets Motor Fixtures Right
buildings and held for Vehicles and of use Total
equipment resale Fittings assets
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
Balance at 31 March
2018 576 3,698 - 88 1,102 - 5,464
Additions - 2,261 - - 206 - 2,467
Acquisition of subsidiary - 54 - 24 16 - 94
Revaluation of sale
and leaseback assets
in the year - (150) - - - - (150)
Disposals - (230) - (29) - - (259)
Transfer asset to
held for resale - (250) 250 - - - -
Revaluation of assets
held for resale - - 15 - - - 15
----------------------------- ----------- ----------- ------------ ------------ ---------- -------- --------
Balance at 31 March
2019 576 5,383 265 83 1,324 - 7,631
============================= =========== =========== ============ ============ ========== ======== ========
Balance at 31 March
2019 576 5,383 265 83 1,324 - 7,631
IFRS 16 adoption - - - - - 2,092 2,092
Additions - 173 - - 259 - 432
Disposals - (2) (265) - - - (267)
----------------------------- ----------- ----------- ------------ ------------ ---------- -------- --------
Balance at 31 March
2020 576 5,554 - 83 1,583 2,092 9,888
============================= =========== =========== ============ ============ ========== ======== ========
Depreciation and impairment
Balance 31 March 2018 574 2,083 - 75 656 - 3,388
Depreciation charge
for the year 2 327 - 12 142 - 483
Acquisition of subsidiary - 29 - 6 12 - 47
Revaluation of sale
and leaseback assets
in the year - (163) - - - - (163)
Disposals - (75) - (24) - - (99)
Transfer asset to
held for resale - (85) 85 - - - -
Revaluation of assets
held for resale - - (85) - - - (85)
----------------------------- ----------- ----------- ------------ ------------ ---------- -------- --------
Balance at 31 March
2019 576 2,116 - 69 810 - 3,571
============================= =========== =========== ============ ============ ========== ======== ========
Balance 31 March 2019 576 2,116 - 69 810 - 3,571
Depreciation charge
for the year - 369 - 5 164 296 834
Disposals - - - - - - -
----------------------------- ----------- ----------- ------------ ------------ ---------- -------- --------
Balance at 31 March
2020 576 2,485 - 74 974 296 4,405
============================= =========== =========== ============ ============ ========== ======== ========
Net book value
At 31 March 2018 2 1,615 - 13 446 - 2,076
============================= =========== =========== ============ ============ ========== ======== ========
At 31 March 2019 - 3,267 265 14 514 - 4,060
============================= =========== =========== ============ ============ ========== ======== ========
At 31 March 2020 - 3069 - 9 609 1,796 4,060
Leased plant, machinery and fixtures and fittings
At 31 March 2020, the Group had leased assets with a carrying
value of GBP2,443,000 (2019: GBP2,589,000).
7. Intangible assets and investments
Domains Software Development Customer Goodwill
& Brand costs Lists Other Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
Balance at 31 March
2018 905 3,647 3,314 2,969 78 157 11,070
Additions - - - - 3 - 3
Additions - internally
developed - - 372 - - - 372
Additions - purchased 7 318 - 43 - - 368
Acquisition of subsidiary - - - 153 60 - 213
Balance at 31 March
2019 912 3,965 3,686 3,165 141 157 12,026
============================ ========= =========== =========== ========= ======== ========= =======
Balance at 31 March
2019 912 3,965 3,686 3,165 141 157 12,026
Additions - internally
developed - - 373 - - - 373
Additions - purchased - 300 - - - 5 305
Balance at 31 March
2020 912 4,265 4,059 3,165 141 162 12,704
============================ ========= =========== =========== ========= ======== ========= =======
Amortisation and impairment
Balance at 31 March
2018 321 3,097 2,283 447 12 102 6,262
Amortisation for the
year 45 396 589 357 - 6 1,393
Balance at 31 March
2019 366 3,493 2,872 804 12 108 7,655
============================ ========= =========== =========== ========= ======== ========= =======
Balance at 31 March
2019 366 3,493 2,872 804 12 108 7,655
Amortisation for the
year 45 312 426 401 - 6 1,191
---------------------------- --------- ----------- ----------- --------- -------- --------- -------
Balance at 31 March
2020 412 3,805 3,298 1,205 12 114 8,846
============================ ========= =========== =========== ========= ======== ========= =======
Net book value
At 31 March 2018 584 550 1,031 2,522 66 55 4,808
================= === === ===== ======== === =====
At 31 March 2019 546 472 814 2,361 129 49 4,371
================= === === ===== ======== === =====
At 31 March 2020 500 460 761 1,960 129 48 3,858
================= === === ===== ======== === =====
Impairment Testing
Goodwill
The recoverable amount of goodwill is determined from value in
use calculations.
The Group prepares cash flow forecasts derived from budgets and
five-year business plans. For the purposes of impairment testing
inflationary growth of 3% is assumed beyond this period. The sales
growth relates to all key revenue streams of the business.
Rates have been determined based on the experience to date of
operating these sales channels and previous experience of launching
websites. A pre-tax discount factor of 6.8% (2019: 6.2%) was
applied.
If the growth rate were not achieved and was reduced 0% and the
discount factor was increased to 15% there would be no impairment
in the carrying value.
Other intangible assets have also been considered for impairment
due to indicators of impairment being present in the form of losses
and wider economic conditions. These assets are not considered to
be impaired.
Amortisation and impairment charge
The amortisation charge of GBP1,191,000 (2019: GBP1,393,000) is
recognised in profit and loss within depreciation and amortisation
expenses. An impairment charge of nil (2019: GBPnil) was recognised
during the year.
8. Inventory
2020 2019
GBP000 GBP000
Raw Materials 346 452
Work in progress - 3
----------------- ------ ------
346 455
================= ====== ======
9. Trade and other receivables
At 31 March 2020 trade receivables are shown net of an
impairment allowance of GBP1,000,000 (2019: GBP412,000).
Trade and other receivables denominated in currencies other than
sterling comprise GBP112,000 (2019: GBP149,000) of trade
receivables.
2020 2019
GBP000 GBP000
Trade receivables 2,743 2,985
Less provision for trade receivables (1,000) (412)
------------------------------------------------ ------- -------
Trade receivables net 1,743 2,573
Total financial assets other than cash and
cash equivalents classified at amortised
cost 1,743 2,573
------------------------------------------------ ------- -------
Corporation tax 354 281
Other taxes - 154
Other receivables 53 -
------------------------------------------------ ------- -------
Total Other receivables 407 435
------------------------------------------------ ------- -------
Total trade and other receivables 2,150 3,008
================================================ ======= =======
The carrying value of trade and other receivables classified at
amortised cost approximates fair value
Under 6 Over 6
months months Total
GBP000 GBP000 GBP000
Gross carrying amount 1,353 1,390 2,743
Loss provision (115) (885) (1,000)
------------------------- -------- -------- --------
Net carrying amount 1,238 505 1,743
========================= ======== ======== ========
Trade and other receivables represent financial assets and are
considered for impairment on an expected credit loss model. The
Group continues to trade with the same customers and in the same
marketplace and therefore the future expected credit losses have
been considered in line with the past performance of the customers
in the recovery of their receivables. The implementation of IFRS 9
has therefore not resulted in a change to the impairment provision
in the current or prior year.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for trade receivables. The expected loss rates are based
on the Group's historical credit losses experienced over the
three-year period prior to the period end. The historical loss
rates are then adjusted for current and forward-looking information
on factors affecting the Group's customers including the area of
operations of those debtors and the market for the Group's
products. The assessment of the expected credit risk for the year
has not increased, when looking at the factors affecting the risk
noted above.
Movements in the impairment allowance for trade receivables are
as follows:
Impairment
As at 31 March As at 31 March
Group 2020 2019
GBP000 GBP000
Balance at 1 April 412 339
Receivable written off during the year
as uncollectible - (136)
Increase in impairment allowance 588 208
---------------------------------------- --------------- ---------------
Balance at 31 March 1,000 412
======================================== =============== ===============
Of the total impairment provision GBP72,000 (2019: GBP110,000)
relates to Partners that have ceased trading.
There is no material difference between the net book value and
the fair values of trade and other receivables due to their
short-term nature.
Other classes of financial assets included within trade and
other receivables do not contain impaired assets.
Of the net trade receivables GBP128,000 (2019: GBP1,075,000) was
pledged as security for the invoice discounting facility. The Group
is committed to underwrite any of the debts transferred and
therefore continues to recognise the debts sold within trade
receivables until the debtors repay or default. Since the trade
receivables continue to be recognised, the business model of the
Group is not affected. The proceeds from transferring the debts are
included in other financial liabilities until the debts are
collected or the Group makes good any losses incurred by the
service provider.
.
10. Cash and cash equivalents
2020 2019
GBP000 GBP000
Cash and cash equivalents 1,104 1,354
========================== ======== ========
Cash and cash equivalents include cash in hand, deposits held at
call with banks, cash in transit and other short term highly liquid
investments. All cash is held in Sterling other than Euro of
GBP138,000 (2019: GBP52,000).
11. Trade and other payables
Current Liabilities 2020 2019
GBP000 GBP000
Trade payables 1,326 1,488
Accruals 472 830
Other liabilities 362 514
-------------------------------------------------------- ------- -------
Total financial liabilities, excluding 'non-current'
loans and borrowings classified as financial
liabilities measured at amortised cost 2,160 2,832
Deferred income 143 256
-------------------------------------------------------- ------- -------
Total trade and other payables 2,303 3,088
======================================================== ======= =======
Non-current Liabilities 2020 2019
GBP000 GBP000
Deferred income - 36
-------------------------------------------------------- ------- ---------
Total non-current liabilities - 36
======================================================== ======= =========
Trade payables denominated in currencies other than Sterling
comprise GBP28,000 (2019: GBP42,000) denominated in Euro. The
invoice discounting arrangement is secured upon the trade debtors
to which the arrangement relates see note 9.
There is no material difference between the net book value and
the fair values of current trade and other payables due to their
short- term nature.
12. Borrowings
Current Liabilities 2020 2019
GBP000 GBP000
Invoice Financing 128 1,075
Lease Liabilities 625 409
Vendor Loan Notes - 211
--------------------------- --------- ---------
753 1,695
--------------------------- --------- ---------
Deferred consideration 147 366
--------------------------- --------- ---------
Non-Current Liabilities
Lease Liabilities 3,483 2,180
--------------------------- --------- ---------
3,483 2,180
--------------------------- --------- ---------
Deferred consideration - 229
--------------------------- --------- ---------
13. Share Capital
Ordinary shares
In thousands of shares 2020 2019
In issue at 31 March 2019 84,685 47,558
Issued by the Company 28,840 37,127
----------------------------------------------- ------------- -------------
Shares on the market at 31 March 2020 - fully
paid 113,525 84,685
=============================================== ============= =============
Allotted, called up and fully paid GBP000 GBP000
113,525,346 (2019: 84,684,683) ordinary shares
of GBP0.01 each 1,135 847
63 deferred shares of GBP0.10 each - -
----------------------------------------------- ------------- -------------
1,135 847
=============================================== ============= =============
On 24 July 2019, the Group announced that it had raised
approximately GBP4.01 million before expenses through a placing and
subscription of 28,653,569 new ordinary shares of 1 penny each
("Placing Shares") at an issue price of 14 pence per share (the
"Placing"). The placing was approved at the General Meeting on 12
August 2019. During the year 187,094 employee options over shares
with a nominal value of 1p each were exercised at an issue price of
GBP0.0775.
Dividends
During the year and prior year no dividends were proposed or
paid. After the balance sheet date, the Board proposed no final
dividend would be made (2019: GBPnil).
14. Share premium
2020 2019
GBP000 GBP000
In issue at 31 March 2019 4,125 -
Premium on shares issued by the Company in
the year 3,738 4,202
Share issue costs (62) (77)
---------------------------------------------- ------ ------
At 31 March 2020 7,801 4,125
============================================== ====== ======
15. Related parties
The Company provides cross company guarantees in respect of the
invoice discounting for GBP0.13m. In the year ended 31 March 2020
no dividends were received (2019: nil).
Transactions with key management personnel
At the year end the Directors of the Company controlled 2.55 per
cent of the voting shares of the Group.
On 5 April 2019 Conrad Bona transferred 149,545 ordinary shares
from his personal holding to his individual savings account and
71,882 Ordinary Shares from his personal holding to his
self-invested personal pension. These transactions resulted in a
disposal of 795 Ordinary Shares.
On 27 November 2019 Peter Gunning purchased 100,000 Ordinary
Shares increasing his holding to 1,725,000.
The compensation of the Directors, who are the key management
personnel, is disclosed in the full Annual Report, see note 17.
16. Post balance sheet events
COVID-19 has significantly impacted the whole industry since
March, and Grafenia has not been immune. Revenue in April was 30%
of the previous year, and May only 40% of the result 12 months
prior. We have however seen a stronger recovery in June to 90% of
prior year revenue, driven by our new COVID related product ranges.
In response to the pandemic, we have utilised government support
where available through the Coronavirus Job Retention Scheme, local
business grants and rates relief and Time-To-Pay arrangements for
our PAYE and NI liabilities.
To further ensure that the business has enough liquidity through
this period, we have secured an additional term loan for GBP1.00m
through the Coronavirus Business Interruption Loan Scheme (CBILS).
Further, we have also refinanced our primary hire purchase facility
through CBILS, thereby reducing our cash repayments for 12
months.
On 15th July we announced the creation of a GBP50.00m perpetual
bond facility and had issued GBP3.00m of the bonds, at nominal
value, to investors, raising approximately GBP2.01m before
expenses.
17. Annual report
The Annual Report and Notice of AGM will be sent to shareholders
on or around 26 August 2020 and will be available on the Company's
website www.grafenia.com from that date.
Copies of this announcement are available on the Company's
website www.grafenia.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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