TIDMGRA
RNS Number : 0256M
Grafenia plc
19 May 2022
19 May 2022
Prior to publication, the information contained within this
announcement was deemed by the Company to constitute inside
information as stipulated under the UK Market Abuse Regulation.
With the publication of this announcement, this information is now
considered to be in the public domain.
Grafenia plc
("Grafenia" or "the Company" or the "Group")
Sale of Subsidiary and Board Changes
Grafenia plc (AIM: GRA), announces that it has agreed to sell
its wholly-owned subsidiary Works Manchester Limited ("Works
Manchester"), formerly Image Everything Limited, and certain
business and assets of its wholly-owned subsidiary Grafenia
Operations Limited ("Grafenia Operations") (together, the
"Disposal") to Rymack Sign Solutions Limited, a privately owned
company trading as PFI Group ("PFI").
Sale of Works Manchester
Subject to the completion mechanics set out below, Grafenia will
receive a cash consideration of GBP3,165,000 for the Disposal.
The consideration is payable in the following installments:
- GBP30,000 on Completion
- GBP35,000 one month following Completion;
- GBP35,000 two months following Completion;
- Four installments of GBP766,250 on the first, second, third
and fourth anniversary of Completion.
Grafenia has entered into a sale and purchase agreement ("SPA")
in respect of the sale of Works Manchester. Completion of the SPA
and accordingly, the Disposal, is conditional on Grafenia
Operations and Works Manchester completing a business purchase
agreement ("BPA") in respect of the sale of certain business and
assets to Works Manchester. The BPA will be entered into upon the
completion of a consultation by Grafenia Operations with certain
employees in respect of their transfer to Works Manchester pursuant
to TUPE (Transfer of Undertakings (Protection of Employment)
Regulations 2006). Completion of the Disposal is expected to be
finalised within three to four weeks.
Grafenia is essentially two businesses: the manufacturing
business and our Software-as-a-Service ("SaaS") business we call
Nettl Systems. They have different needs and require different
strategies to help each grow and thrive.
In recent years, the manufacturing operations have faced a
challenging trading environment due to the impacts of both Brexit
and the Covid-19 pandemic. Things have been improving gradually,
but this part of our business has been operating below capacity.
PFI is a natural fit for our manufacturing operations and can use
this spare capacity. It also gives Works Manchester other
opportunities to grow and prosper.
The Group will enter into a five-year supply agreement under
which Works Manchester will continue to manufacture and supply
products to our partners, via our platform. It will become our
biggest Works Maker partner.
Works Manchester will enter into a five-year software licence
for the right to use w3p, the Company's production platform, at a
fee of GBP10,000 per month.
Over the last year, we have been consolidating manufacturing
operations. Works Manchester now incorporates the combined
manufacturing facilities located in Trafford Park, Manchester and
Eccles, Salford. The online channels Flyerzone and Marqetspace do
not form part of the transaction and will be retained by the
Group.
The Board has taken the decision to sell Works Manchester so
that the two businesses can each focus on their strengths. Nettl
Systems will be focused on growing our software and licensing.
Driving sales of products and services through that. Extending the
functionality to create added value for our partners and widen the
target market for our subscription-based offering.
The first phase of this is our new software platform and app
WorksThing. We successfully launched WorksThing at the Sign &
Digital exhibition in March. Optimised for the signage sector,
WorksThing is a complete workflow tool for managing signage
installations, from start to finish. It's early days, but multiple
businesses have signed up for a free trial and we're pleased with
the reaction at the event. We want to make better use of PFI's
nationwide manufacturing and installation network. They have
installers from London to Aberdeen. We plan to hook those into
WorksThing and license this to other sign businesses.
Works Manchester, with the new capabilities that PFI brings, can
focus on optimising operations and improving the product range
available to our network to build volume.
The transaction will also enable additional focus on the Group's
stated aim to acquire other software businesses. The sale proceeds
will be applied to potential acquisitions and supporting the
Group's partner networks. Our outreach and direct approach
programme, Software Circle, is starting to bear fruit. We have a
number of ongoing discussions with owners of software
businesses.
Based on audited accounts for Works Manchester and Grafenia
Operations, the Board has assessed that in the year ended 31 March
2021, the combined manufacturing business being sold generated
revenues of approximately GBP6.6m and a loss before tax of GBP0.3m.
On 30 September 2021, the combined manufacturing business being
sold had gross assets of approximately GBP6.8m. The Disposal will
also see equipment finance lease liabilities leave the Group, which
on 30 September 2021 totalled approximately GBP2.1m. The results
for the combined manufacturing business being sold for the
financial year ended 31 March 2022 will be disclosed separately as
a discontinued operation in the upcoming financial statements.
Looking to the future, Nettl Systems will benefit from lower
fixed overheads, depreciation charges and costs of borrowing as we
strive to improve profitability and deliver on our stated mid-term
goal of 10-15% EBITDA.
Board Changes
Divesting Works Manchester is an important pivot for the Group.
The Disposal will see Grafenia transition to a software licensing
business. So it's an appropriate time to make some other changes.
With immediate effect, Peter Gunning has stepped down as CEO. Peter
will continue to be involved with the Nettl Systems software stack
as a consultant of Nettl Systems. Moving forward, the Company and
Peter intend to enter into an agreement whereby Peter will take on
a master licence for WorksThing and Nettl in Spain. The Board has
appointed Gavin Cockerill, previously Group COO, as Acting CEO.
Over the next few months the Board will lead a strategy exercise
to design and implement the future organisational and leadership
structure of the Group. In particular, the aim is to build a
platform that efficiently leads the existing software products of
the Group, but is also open for the addition of new, complementary
software firms to join the Group by way of M&A.
Related Party Transaction
The Company has entered into an agreement with Peter Gunning,
via his consulting company Perpetual Cielo Azul SL. Peter will
provide services to Nettl Systems, with focus on developing and
assisting the operation of Grafenia's proprietary platforms, as
well as advising on the technology integration of any acquisitions
made by the Company. Peter's company will be paid a fee of
GBP15,565 (excluding VAT, as applicable) per month for the first 12
months of the agreement. Thereafter, additional work will be
charged at GBP750 per day, with a minimum commitment of three days
per month. After the initial period, the agreement may be
terminated by either party by giving not less than 6 months'
notice.
This agreement with Peter Gunning's company is a related party
transaction pursuant to rule 13 of the AIM Rules for Companies. The
independent directors, being all of the Company's directors other
than Peter Gunning consider, having consulted with the Company's
Nominated Adviser, that the terms of the transaction are fair and
reasonable insofar as the Company's shareholders are concerned.
Jan Mohr commented "I'm very happy that we can announce an
important transition in the business today. The future of Grafenia
is in software. For many years, the software part of Grafenia has
been consistently cash-flow generative and loved by our partners.
Our DNA is to build scalable systems that make partners more
effective. We want to double-down on that mindset and also expand
the scope of software that the Group offers.
Peter has done a tremendous job leading the Group through the
Covid-19 pandemic. We enter our new chapter as a better and leaner
business. I would like to personally thank Peter for his hard work,
passion and friendship.
We have been really impressed with Gavin's performance since he
joined the Board in 2018. He's the key leader in engaging our
partner network, helping develop a sales and onboarding structure
for several hundred independent entrepreneurs. That skill is
essential when leading Grafenia's future as a home for different
software companies. I'm excited to collaborate with Gavin and his
team in designing the right operating system for us to scale in
software."
Peter Gunning said "Nearly a quarter of a century ago we opened
our first store in Edinburgh. It's been a great privilege to build
and develop a business in such a time of intense change. And now
it's time for me to start something new. To bring Nettl and
WorksThing to the businesses of Spain. For the last decade, I've
worked flowery-jacket to complicated-gilet with Gavin. I wish him
and the team every success. I'd also like to thank our teams for
their energy, good humour and attitude, particularly through dark
days. I've worked with so many wonderful people along the way.
Thank you all. Please make the most of the new opportunities that
today brings. Hasta siempre."
Gavin Cockerill commented : "We're really excited about the
opportunities linking up with PFI presents for our network. PFI has
been growing rapidly in recent years and now has operations all
over the UK. It is a natural fit for Works Manchester. The scale of
PFI's operations presents career advancement opportunities for team
members joining the PFI family. The transaction also secures the
supply chain for the products we sell to our Nettl and printing.com
partners. I'd like to thank Peter for his mentorship over the
years, notwithstanding the flowery jackets. I am looking forward to
working with the Board and our teams on the next part of Grafenia's
journey.
Darren McMurray (CEO of PFI Group) commented: "We're delighted
to bring Works Manchester into our group. Our ongoing partnership
with Grafenia has many opportunities. Our scale and capability can
help grow the range of products offered to Nettl and printing.com
partners. Works Manchester is an impressive operation. We're
excited about what we can do together. We can't wait to get started
with the team to build a successful future."
For further information:
Grafenia plc
Gavin Cockerill (Acting CEO) 07968 510 662
Allenby Capital Limited (Nominated Adviser and Broker)
David Hart / Liz Kirchner (Corporate Finance) 0203 328 5656
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END
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