TIDMGRA
RNS Number : 9693T
Grafenia plc
27 July 2022
The following announcement replaces the announcement released on
27 July 2022 at 07.00 under RNS number 8386T. In the Consolidated
statement of cash flows for the year ended 31 March 2022, the
wording related to the composition of the cash and cash equivalents
at 31 March 2022 has been amended to clarify that which related to
the Group's continuing operation and that related to its
discontinued operation. A note reference in the consolidated
statement of financial position has also been corrected. The
corrected announcement is set out below and all other details
remain unchanged.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the UK Market Abuse Regulation. With the publication of this
announcement via a Regulatory Information 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 year ended 31 March 2022
Grafenia plc (AIM: GRA) announces its full year audited results
for the year ended 31 March 2022.
Financial highlights
Year ended Year ended
31 March 31 March
Continuing operations 2022 2021
Turnover GBP8.92m GBP6.94m
EBITDA* GBP0.17m GBP0.24m
Operating Loss GBP(0.78)m GBP(0.95)m
Loss before Tax GBP(1.12)m GBP(1.22)m
Tax GBP0.56m GBP0.25m
Total Comprehensive Loss GBP(0.56)m GBP(0.97)m
EPS (0.49)p (0.85)p
Development expenditure GBP0.55m GBP0.68m
Cash and cash equivalent** GBP1.59m GBP2.74m
Net debt** GBP(5.25)m GBP(4.34)m
*Earnings before interest, tax, depreciation and
amortisation
**Including discontinued operations
Operational highlights
-- Launched WorksThing at the Sign & Digital exhibition
-- Number of partners in America grows to 27
-- Revenue growth across all channels
-- Works Manchester sold to PFI Group post year end
For further information:
Grafenia plc
Gavin Cockerill (Acting CEO) + 44 7968 510 662
Jan Mohr (Chairman) +49 175 734 2740
Iain Brown (Finance Director) +44 161 848 5713
Allenby Capital Limited (Nominated
Adviser and broker) +44 203 328 5656
David Hart / Liz Kirchner
Chairman's Statement
Shortly before publishing this report, Grafenia announced an
important transaction. We decided to sell our manufacturing
business as we believe we are not the best owner to develop that
part of the business. Going forward, we will double down on the
software & systems part of our business.
Sometimes you have to get smaller to grow bigger.
Over the course of the last few years - and during Covid in
particular - we have learnt what Grafenia is really good at and,
importantly, what we are not. In this annual report, you will hear
from the leadership of Grafenia why we made the decisions we have
and what lies ahead.
But first things first: here is our scorecard of the 2021/22
fiscal year:
Operational Performance
In the last fiscal year, our turnover increased by 27% to
GBP12.36m (2021:GBP9.75m). Of this, GBP8.92m (2021: GBP6.94m)
related to continuing operations and GBP3.44m (2021: GBP2.81m)
related to discontinued operations. Gross profit increased by 20%
to GBP6.70m (2021: GBP5.58m), with GBP3.54m (2021: GBP3.38m) coming
from continuing operations and GBP3.16m (2021: GBP2.20m) from
discontinued operations. However, the overall gross profit margin
decreased to 54.2% (2021: 57.2%) as physical product volumes
returned, which provide a lower margin than our licence and
subscription revenue streams.
The year showed an improvement from a loss to a profit in
EBITDA, which is earnings before interest, tax, depreciation and
amortisation, of GBP0.33m (2021: loss GBP0.16m). GBP0.17m of this
(2021: profit GBP0.24m) related to continuing operations and
GBP0.16m (2021: loss GBP0.40m) related to discontinued operations.
Our total comprehensive loss for the year reduced to GBP1.84m
versus GBP2.09m last year. Of this, GBP0.56m (2021: GBP0.98m) was
from continuing operations and GBP1.28m (2021: GBP1.11m) from
discontinued operations.
We finished the fiscal year with cash of GBP1.59m (2021:
GBP2.74m) of which GBP0.13m relates to the discontinued operation
and net debt of GBP5.25m (2021: net debt GBP4.34m), GBP2.56m of
which relates to the discontinued operation. We invested GBP0.03m
on capex (2021: GBP0.18m), and capitalised GBP0.55m in development
expenditure (2021: GBP0.68m).
This year, we are reporting results from "continuing" and
"discontinued" operations. In plain English, "continuing" are the
figures for the fiscal year as if we had sold Works Manchester at
the beginning of the comparative year. "Discontinued" is ... well
... everything else! We are happy to announce that the businesses
that we are keeping - first and foremost Nettl Systems - are more
profitable and simpler than the operations we sold.
In fact, that is part of the reason we decided to put the
emphasis on Nettl Systems and to explore acquisitions of
complementary software businesses. In many ways, software is the
nervous system of many businesses. During Covid, we saw an
incredible stability and resilience in our software and licence
revenues. Nettl Systems (and any good software, really) is the last
thing people turn off during times of crisis. And rightly so!
Software makes businesses more efficient and allows people to spend
their time on more creative and interesting tasks. Grafenia sells a
special kind of software which is tied into an entire ecosystem of
how to run and operate a design business: Nettl. Importantly,
during Covid Nettl not only served as a smart solution to help
design studio owners work more efficiently - it was a source of
inspiration and stability for many small entrepreneurs to make it
through trying times.
Gladly, it looks like we turned the corner in operating
performance during the last fiscal year as you can see in the
results we are announcing in this report. We sincerely hope that
our renewed focus on our core competency - systems and software -
will help our partners to scale and thrive as exhibitions open up
and the world goes back to normal.
People at Grafenia
With our focus on systems and software, we inevitably had to
part with a large number of team members. Happily, they are now
part of a new organisation that is fully focussed on running many
different production sites. This will bring opportunities for
career growth to the people who have run our plants for many years.
We wish PFI (PFI Group is the trading name of Rymack Sign Solutions
Limited) as the new owners and everyone who leaves the Grafenia
organisation our very best.
We also said goodbye to Peter Gunning who stepped down as CEO.
I've very much enjoyed working with Peter for six years - he led
Grafenia through a large transformation and the pandemic. Peter
worked diligently to get us to where we are now and will stay
closely involved with helping us improve our tech at Nettl Systems.
In the name of all shareholders and the Board: Thank you,
Peter!
With Peter leaving, Gavin is stepping up and will lead the
fission of the organisation into two parts as Acting CEO. Over the
course of the summer and early autumn, the Board will run a
strategy exercise to explore the best operating model for our new
focus on systems and software. The Board is excited to have Gavin
in charge and we are keen to get to the drawing board very soon. In
fact, Gavin has been instrumental in making our Nettl System
available to many partners. Systems and software need to be sold,
taught and curated - and Gavin knows very well how to do just
that!
Outlook and Current Priorities
In the same place in last year's report, I explained our
decision to divide our reporting structure into "everything
production" and "everything software and licence". A year later,
that split in reporting has led to a split of the business and a
renewed focus on systems and software. Sometimes these things take
time! However, we are now ready to double-down. While the coming
weeks require some work on transitioning production to PFI, we will
then focus on growing our software nucleus. To that end, Gavin will
share a few initiatives in his report.
We will elaborate a bit more at the AGM and share a few more
tangible aspects on what we are working on. In any case, the future
of Grafenia will centre around what we are great at: making systems
and software available for businesses to run better.
The AGM will take place on Wednesday 14 September 2022 at our
Nettl of Birmingham Business, I hope to see you there!
Jan-Hendrik Mohr
Chairman
Chief Executive's Statement
Dear Shareholders,
Kind of a big deal
Our team has invested a great deal of energy and effort
transitioning the business. To be what we think it should be. We
continue to make progress. We've still work to do. But we've
completed another big step in that process. That's the sale of our
manufacturing business Works Manchester, detailed in our update of
19 May 2022.
That's kind of a big deal, so more on that later. It means we
can double-down on our software licensing business. And move to the
next part of the journey. With focus renewed. Objectives clear and
in sight. To build, buy and licence.
As part of the sale, Peter Gunning has stepped down and I'm
delighted the Board has appointed me Acting CEO. Peter will
continue to be involved with the Nettl Systems software stack as a
consultant. 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. I expect he'll swap his flowery
jackets for short-sleeved flowery shirts.
We'd like to sincerely thank our teams for their hard work and
dedication throughout. For their efforts in bringing the business
to this transitional point. We've made it through some tough times
recently. It's not been easy and we recognise and appreciate the
efforts of each and every partner and team member. Thank you.
This year was better, for sure. Slowly moving from lockdowns and
restrictions to busy events and exhibitions has helped. Each of our
business units improved performance compared to last year.
We said in our trading update on 6 April 2022 that we had faced
cost rises across the board. Paper has increased by 30-50%, due to
increased distribution costs, shortages and rising energy prices.
We have increased our prices three times in 2022 to reflect this.
Fuel and energy prices remain at high levels and are not helped by
global events. We don't expect this to change anytime soon.
Build, buy and license
Our strategy remains the same. Build, buy and license. We build
performance in our company-owned Nettl locations. We buy businesses
to extend our scale, capability and resilience. And we license our
know-how and systems to others. I'll go into more detail on each of
the sections in turn.
The key difference? We no longer believe we need to own a
production facility to provide an integrated supply chain via our
platform. We can do so utilising our Works Maker partners. Works
Manchester now being the largest. Seamlessly hooked into our
platforms.
Nettl company-owned stored
We have five company-owned Nettl locations. In these stores, we
sell to local businesses. The kind of things a business would want
to promote themselves online and offline. That's websites,
ecommerce shops, online booking systems, social media, SEO,
printing, displays, exhibition and signage. We mostly sell to SME
clients, who often don't have their own in-house marketing
department.
Our stores are in Manchester, Birmingham, Exeter, Liverpool and
Dublin. They're important because it's where we refine new
initiatives. Develop and deploy best practice. Then we roll that
out across our partner network.
The pandemic and all the restrictions brought about uncertainty.
Uncertainty dents business confidence. But as restrictions were
lifted, events returned. Business opened up again. Slowly, but
surely, sales in our company stores returned. Not to pre-pandemic
levels. But they're getting there. Revenues from our stores were up
34% to GBP2.46m (2021: GBP1.83m). In the second half of 2020, we
rolled three businesses into our Birmingham and Dublin company
stores. If we exclude them this year, like-for-like sales would be
up 20%.
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.
Software Circle
We buy businesses to extend our scale, capability and
resilience. Our acquisition strategy is a little different today.
We're refocusing our search on software businesses. Take a look at
www.grafenia.com/acquisition to see the full detail. Our Software
Circle team actively search for businesses that either complement
our core offering or are complementary to the skillsets we have as
a business. Those skillsets being sales, marketing, design and
software development and licensing. We have a number of ongoing
discussions with owners of businesses that meet our criteria.
Things are progressing. This will be a large part of our focus for
the upcoming year.
You might think that this is a pivot. And you'd be right. Our
previous aim was to roll-in signage businesses. You'll recall we
acquired Image Group back in 2017. Sales were GBP3.45m (2021:
GBP2.80m). Owning Image Group helped us integrate the supply of
signage and large format solutions into our systems. We're hoping
to expand those offerings through Works Manchester and new owner
PFI Group's wider network.
We believe we can achieve our aim of an integrated supply chain
and nationwide installation network for our partners without owning
sign companies.
Nettl Systems
If I think back to my first days with this business. A long,
long time ago. In what feels like a galaxy far, far away.
Birmingham, to be precise. It was all about print. A lot has
changed since then. Print is a huge part of our legacy. It's where
everything started. Back then, we published prices in a buying
guide, we faxed order forms, manually checked graphic files and
sent them to production using a Jaz drive. Yes, Jaz and Fax were
things.
Since then, the Nettl System has grown up. Developed over
decades. Once our blue screened, MS-DOS child. Now the jewel in our
crown. A complete cloud-based operating system for the graphics
sector.
Our software platform, once geared just for print, now manages
everything a diverse graphics studio needs to thrive. From print
orders and web projects to signage surveys and installations, SEO
and Social Media. Automating the little things that have to happen
along the way.
Nettl studios can do more for their clients, in less time, with
the same people. To rely less on just reselling print. We've added
new modules too. Improving the CRM and pipeline capabilities. We
think this could widen the target market for our subscriptions in
the future.
Today we licence our software and brands to graphic
professionals. Designers, printers, signmakers, marketing agencies
and other graphic professionals use our marketing tools, workflow
management system and integrated supply chain to deliver better
service to their local clients.
Partners pay us a monthly subscription which gives them access
to our systems, brand, training and support. Using the Nettl
System, they're able to buy factory-direct print and display
seamlessly integrated from multiple suppliers. We call them Works
Makers. Partners resell to clients along with centralised digital
marketing services like SEO, Social Media and Paid Search.
Our 'brand partners' use the Nettl or printing.com brand in
conjunction with their own. They're our exclusive partner in their
neighbourhood. We licence printing.com and Nettl directly in the UK
and Ireland. We also licence Nettl in Belgium, France, the
Netherlands and in the USA. In Australia and New Zealand, we master
licence to our partner.
In the UK we have waiting lists for the larger city areas. But
the provincial towns are where we've seen some churn. Partners who
found it difficult to diversify from selling just print, have had a
tough time. Although Covid restrictions ended, for those still
reliant on small format print, recovery was slower than hoped. It's
always sad to lose partners, but compared to the sector at large,
our network has proved resilient. Our brand, marketing and clever
systems kept some going when otherwise, they may not have. We have
continued to add new Nettl partners in the UK and US.
Our Nettl partner network now stands at 210 locations around the
world (2021: 232), 159 active Nettl partners in the UK and Ireland,
18 in Benelux, 27 in the USA, 4 in New Zealand and 2 in Australia.
In France we saw an influx of new partners during the pandemic and
our partner count last year stood at 12. But France has been hit
the hardest and those businesses never got going.
We also currently have 38 printing.com locations (2021: 46). We
are still seeing printing.com partners upgrade to Nettl in the UK
and Ireland. We anticipate that will continue as partners diversify
their businesses from a reliance on print alone.
Despite a reduction in brand partner count, Subscription and
Licence Fees overall improved slightly at GBP2.14m (2021:
GBP2.08m). An increase in search engine optimisation subscriptions
and website deployments helped drive this. 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.
As well as paying for licence fees and subscription-based
services, Nettl and printing.com partners buy printing, exhibition
kit, displays and signs and other branded merchandise from our
integrated supply chain. They pay a wholesale price and resell to
end clients. Last year product sales were hit hard. As businesses
opened, events returned. Business confidence bounced around, but
certainly improved on last year. Similar to our company-owned
stores, this meant sales of products to Brand Partners increased to
GBP2.44m (2021: GBP1.92m), driven largely by large format graphics
and signage.
WorksThing
Leveraging what we learned from owning our own signage business,
we developed and implemented a digital transformation programme to
improve the sign and install industry. The first iteration of our
platform was for print. The second, web and digital services. This
new layer enhances the whole process of quoting and managing sign
and display projects.
We launched "WorksThing" at the Sign & Digital exhibition in
March 2022. Optimised for the signage sector, WorksThing.com is a
complete workflow tool for managing signage installations, from
start to finish. It's an extension to the Nettl system - another
Software-as-a-Service. Sign businesses pay a monthly subscription,
from GBP49 per user per month. Their installers can build online
surveys and collaborate online. Connecting their calendars to
provide online booking, like reserving a table at a restaurant.
Each install is mapped on a live timeline, so everyone can keep
track of progress. A modern chat messaging system connects clients
with studios, production and install crews. It's early days, but
multiple businesses have signed up for a free trial and we're
pleased with the reaction we received at the event.
We expect to see some existing partners upgrade and that some
WorksThing clients will become Nettl partners. To get more from
every client relationship with the Nettl toolkit.
Marqetspace.com and online channels
We sell print and signs to professional buyers through
Marqetspace.com and a few other online channels. This space remains
super-competitive.
It may then seem weird that we retain our Marqetspace channel
despite the sale of Works Manchester. But it is important to us for
a number of reasons. 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.
It also gives us insight into where the gaps in our product
range are. We use that to find new Works Makers that can provide
that supply.
The pandemic was tough for Marqetspace because it typically had
the highest percentage of litho print to resellers. However, we saw
a recovery last year. Sales were GBP1.88m (2021: GBP1.12m).
Nettl of America
In truth, our American dream remains just that. We've been
hindered by the pandemic and the US travel ban didn't help. But
we've used that time to evaluate and refine what we've been doing
and how we've been doing it. Our new process has generated leads
and brought new partners into the family.
We've had to adapt how we acquire, launch and support our
American friends. We're not deterred. Now that it's possible again,
we'll be at exhibitions and events. Face-to-face. Meeting with
potential partners. We expect that to help increase conversion.
We now have 27 Nettl locations in America. There are franchisees
and partners in the states of Florida, Georgia, Ohio, New Jersey,
Pennsylvania and Illinois.
Works Manchester becomes a Works Maker
The Board took the decision to sell Works Manchester, so the two
businesses can focus on their strengths. Nettl Systems will be
focused on growing our software and licensing.
Works Manchester has plenty of capacity. It will benefit from
ingesting more external volume. New owner PFI Group is a natural
fit and can use the spare capacity. It also gives Works Manchester
other opportunities to grow and prosper.
Based less than a mile from the Manchester hub, PFI have been
Nettl partners for several years and operate a dozen factories
around the country.
Providing products for partners to resell through our system
remains an important part of the offering. Works Manchester becomes
our largest Works Maker. Maintaining an integrated supply chain
through our platform, for our partners. With increased
capabilities. They will continue to use our software platform with
a five year licence agreement. It controls the movement of orders
through each production step and seamlessly connects our
partners.
Which means partners continue to buy print, display and signage
products from Nettl Systems. With all the tracking, visibility and
service guarantees they've come to expect. We charge a small fee to
process each order through our platform.
The sale of Works Manchester is an important pivot for the
Group. It will see Grafenia transition to a software licensing
business. Focused on developing our platforms, growing our partner
network and company owned channels. And adding further software
businesses to the Group by way of M&A.
Outlook
Our new financial year started in April. Trading has continued
to improve, compared to last year. We're currently trading slightly
ahead of our internal forecasts. Given the sale of Works Manchester
Ltd, we will benefit from lower fixed overheads, depreciation
charges and costs of borrowing. Modest increases in revenue will
improve profitability. And that gives us confidence of reaching our
mid-term objective of 10-15% EBITDA on a monthly run-rate.
For the first time in a while, I hope to see you in person for
the presentation after the AGM.
Gavin Cockerill
Acting Chief Executive
Financial Review
Revenue
Group revenue for the year, excluding discontinued operations,
was GBP8.91m, (2021: GBP6.94m), an increase of 26% year-on-year.
Whilst a clear improvement, COVID-19 uncertainty and lockdowns
continued to impact revenue. Licence revenues, as with the prior
year, remained consistent. Sales of products increased as volumes
improved and price rises in response to rising costs were enacted
in the second half of the year, but were still lower than usual.
Exhibitions and events were cancelled for a second year and many
customers were still unable to open or otherwise forced to operate
at reduced capacity for significant periods during the year.
In terms of product sales, our Company Stores saw an increase in
revenue to GBP2.46m (2021: GBP1.83m), sales of print and other
products through our Brand Partner Network increased to GBP2.44m
(2021: GBP1.92m), Online and Trade sales increased to GBP1.88m
(2021: GBP1.12m). Revenues from Works Signs Businesses, our now
discontinued operation, increased to GBP3.45m (2021: GBP2.80m). The
reason for the increases is consistent over each of these channels
- more customers open for more days during the year. Licence and
Subscription Fee revenue has increased year-on-year to GBP2.14m
(2021: GBP2.08m) despite a slight reduction in our partner count.
At 95% by revenue (2021: 94%), the majority of our business remains
in the UK & Ireland.
Gross profit
Gross Profit, defined as revenue less direct materials
(including the cost of distribution when made direct to customers)
increased to GBP6.70m (2021: GBP5.58m). Of this, GBP3.54m related
to continuing operations (2021: 3.38m) and GBP3.16m related to
discontinued operations (2021: GBP2.20m). As part of the sale of
Works Manchester, we entered into a 5 year supply agreement to
provide products to our Company stores and Partners. This change
reduces the gross profit percentage of the Group, but at the same
time reduces staff costs and overheads. To accurately reflect the
performance of continuing operations, the financials have been
presented to show the results had the disposal and new supply
agreement been in effect for both the current and the comparative
financial years.
The gross margin percentage of 54.2% (2021: 57.2%) reflects a
shift in the proportion of our revenue away from the higher margin
Licence and Subscription income as product volumes have returned.
Margins continue to be under pressure in traditional print and
signage, with the pandemic and other global supply chain issues
causing scarcity of materials and increased costs. The entire
industry has been affected, leaving us with no viable option but to
increase prices across our range of physical products. During the
year we enacted three price increases across our range of printed
products, with prices rising on average by 4% each time.
Other operating costs
With our team members returning to work as revenues have
improved, the amount claimed through the Coronavirus Job Retention
Scheme fell to GBP0.14m (2021: GBP0.79m), causing our overall staff
costs to increase by 15% to GBP4.24m (2021: GBP3.70m). The average
number of persons employed fell to 146 (2021: 159), reflecting the
full year impact of the restructuring programme undertaken in the
prior year.
Other operating charges have increased to GBP2.09m (2021:
GBP1.88m) as reductions in the cost base achieved during the prior
year have been mostly preserved.
Our bad debt charge reduced to GBP0.04m in the year (2021:
GBP0.20m) reflecting the high provisions required during the first
year of the covid-19 pandemic and the continued improvements in
credit control since then. We continue to work with our customers
and Partners however our provision for debt is still significant
and we have to accept that some of those debts may never be
paid.
Profitability
As a combination of the factors discussed above, our pre-tax
loss reduced to GBP1.71m (2021: GBP2.33m) leading to a reduced loss
per share of 1.60p (2021: 1.83p). Of this, a loss of GBP1.28m
(2021: GBP1.11m) is attributed to the now sold production operation
of Works Manchester. Our earnings before interest, tax,
depreciation and amortisation (EBITDA) improved to a profit of
GBP0.33m (2021: loss of GBP0.16m). Excluding Works Manchester,
EBITDA was GBP0.17m (2021: 0.24m). The parent company result for
the year was a loss of GBP0.41m (2021: loss GBP0.33m).
Operating Cash Flow
This has led to the Group generating GBP0.13m of cash through
operating activities (2021: generated GBP0.22m), reflecting the
EBITDA in the respective years. Excluding Works Manchester, the
Group generated GBP0.27m (2021: 0.59m).
Investment activity
The current year has seen reduced investment in plant and
equipment of GBP0.03m (2021: GBP0.18m), following the decision to
divest our production operations. We continued our investment in
the Group's software platforms, totalling GBP0.55m (2021:
GBP0.68m), with continued enhancements and new features to the
Groups SaaS platforms.
Financing activity
Compared to previous years, it has been a quiet year for
financing activity, with no additional facilities taken out, and no
further drawdowns on the GBP50m bond facility that was put in place
in the 2020.
Repayments of lease liabilities totalled GBP0.82m (2021:
GBP0.67m), of which, GBP0.63m related to Works Manchester (2021:
GBP0.44m).
We finished the fiscal year with cash of GBP1.59m (2021:
GBP2.74m) of which GBP0.13m relates to the discontinued operation
and net debt of GBP5.25m (2021: net debt GBP4.34m), GBP2.56m of
which relates to the discontinued operation.
KPIs
Management monitors a number of KPIs, which underpin the
performance of the business. The financial KPIs are Revenue, EBITDA
and overall profit of loss for the year. These metrics can be found
in the Summary section at the front of this financial report, and
also within the Consolidated statement of comprehensive income.
Another key financial metric is the average product revenue per
partner, which has increased as the severity of the pandemic has
eased.
There are also a number of non-financial KPIs which management
monitors, that ultimately drive the financial performance. The
number of Nettl Network Partners, the main driver of our Licence
and subscription fee revenue, has reduced, as discussed by Gavin
earlier within the Chief Executives Statement. Website deployments
and SEO subscriptions, the other drivers of Licence and
subscription revenue, have levelled off, following a surge in the
previous financial year as our customers looked for alternative
ways to promote their businesses during the height of the
pandemic.
Outlook
The major development for the group is the sale of Works
Manchester which completed on 31 May 2022, for cash consideration
of GBP3,165,000. Of this consideration, GBP100,000 is payable over
the first 3 months and then GBP766,250 on the first four
anniversaries of the sale. In recent years this part of our
operation has not been profitable. The total loss from the
discontinued operation was GBP1.28m (2021: GBP1.11m) and the cash
outflow attributable was GBP0.47m (GBP0.79m).
Looking forward, we expect to see revenues from the ongoing
operations continue to recover and hope to experience no further
coronavirus restrictions. Events returned in the Spring as
expected, bringing an upturn in revenue, particularly within our
range of ink-on-fabric display products. Group revenues in the
first quarter of the current year were up 24% on the previous
financial year.
With the changed business model, the gross margin of the Nettl
operation will look very different. Our margin on product sales
will drop significantly, but so will our underlying cost base.
Finance repayments have been significantly reduced and we will
receive payments over the next four years in relation to the sale
of Works Manchester. Based on a forecast including a moderate
increase in revenue, we expect profitability to improve. We believe
the financial future of the business is secure and we 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:
Risk Potential Impact Mitigation
------------------------ ----------------------------------- --------------------------------
Global or regional The COVID-19 virus, and Our product range has
pandemic public health mitigations been diversified to rely
may lead to the closure less on physical promotional
of end customer and company items.
owned premises, impacting
the ability to trade, Production of physical
reducing demand and disrupting products has been outsourced,
the supply of goods. lowering the risk should
product volumes fall.
Home working arrangements
are in place enabling
team members to work
remotely if required.
======================== =================================== ================================
Economic and political A downturn in the macroeconomy To mitigate supply chain
factors beyond may reduce consumer demand disruption across borders
the Group's direct generally. the majority of product
control supply is now sourced
Costs may be increased from the jurisdictions
by changes to government the customer belongs
policy, including tax to.
changes or other legislation.
Our platform has the
Supply chains may be capability to source
subject to disruption, product supply from multiple
or inflationary pressure. suppliers, across multiple
regions should it be
required.
======================== =================================== ================================
Competitive environment The markets in which We work closely with
the Group operates are suppliers to monitor
extremely competitive input costs and competitor
posing a threat to profitability. pricing, ensuring we
remain competitive.
======================== =================================== ================================
Technological change Advances in software We are constantly improving
may impact on operational our platform and adding
effectiveness and earnings new features to ensure
potential. we remain at the forefront
of the technological
advancement.
======================== =================================== ================================
Technological failure The Group and its clients All reasonable operational
depend on the W3P SaaS contingency is embedded
platform to operate their for resilience in the
businesses. event of a catastrophe.
======================== =================================== ================================
Key management The loss of key personnel The Remuneration Committee
could seeks to ensure rewards
impact the Group's ability are commensurate with
to implement strategy performance and aid retention.
and the intended pace
of growth.
------------------------ ----------------------------------- --------------------------------
Treasury Policies
Surplus funds are intended to support the Group's short-term
working capital requirements and fund future acquisitions. 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 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 YEARED 31 MARCH
2022 Note 2022 2022 2022 2021 2021 2021
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Continuing Discontinued Total Continuing Discontinued Total
operation operation operation operation
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Revenue 2 8,916 3,445 12,361 6,944 2,804 9,748
Raw materials and consumables
used (5,377) (286) (5,663) (3,568) (605) (4,173)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Gross profit 3,539 3,159 6,698 3,376 2,199 5,575
Staff costs (2,019) (2,221) (4,240) (1,808) (1,892) (3,700)
Doubtful debt expense (32) (11) (43) (155) (5) (160)
Other operating charges (1,322) (763) (2,085) (1,178) (697) (1,875)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Earnings before interest,
tax, depreciation and amortisation 166 164 330 235 (395) (160)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
6 &
Depreciation and amortisation 7 (944) (569) (1,513) (1,184) (521) (1,705)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Operating loss (778) (405) (1,183) (949) (916) (1,865)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Financial income 6 - 6 16 - 16
Financial expenses (346) (186) (532) (290) (187) (477)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Net financing expense (340) (186) (526) (274) (187) (461)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Loss before tax (1,118) (591) (1,709) (1,223) (1,103) (2,326)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Tax income 3 559 - 559 249 (8) 241
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Loss for the year (559) (591) (1,150) (974) (1,111) (2,085)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Re-measurement to fair value
on discontinued operations 13 - (686) (686) - - -
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Loss and total comprehensive
income for the year (559) (1,277) (1,836) (974) (1,111) (2,085)
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Loss per share attributable
to the ordinary equity shareholders
of Grafenia plc Basic and
diluted, pence per share 4 (0.49)p (1.12)p (1.60)p (0.85)p (0.98)p (1.83)p
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
Consolidated statement of financial position
AT 31 MARCH 2022 Note Group Group
2022 2021
GBP000 GBP000
--------------------------------- ---- ------- -------
Non-current assets
Property, plant and equipment 6 1,077 5,065
Intangible assets 7 1,391 3,510
Total non-current assets 2,468 8,575
--------------------------------- ---- ------- -------
Current assets
Inventories 29 444
Trade and other receivables 8 1,281 1,545
Prepayments 283 278
Cash and cash equivalents 1,462 2,740
Asset held for sale/disposal
group 13 6,234 -
--------------------------------- ---- ------- -------
Total current assets 9,289 5,007
--------------------------------- ---- ------- -------
Total assets 11,757 13,582
--------------------------------- ---- ------- -------
Current liabilities
Other interest-bearing loans
and borrowings 10 308 931
Trade and other payables 9 1,512 1,799
Deferred income 9 77 60
Liabilities relating to disposal
group 13 3,530 -
--------------------------------- ---- ------- -------
Total current liabilities 5,427 2,790
--------------------------------- ---- ------- -------
Non-current liabilities
Other interest-bearing loans
and borrowings 10 3,842 6,149
Deferred tax liabilities 5 - 389
--------------------------------- ---- ------- -------
Total non-current liabilities 3,842 6,538
--------------------------------- ---- ------- -------
Total liabilities 9,269 9,328
--------------------------------- ---- ------- -------
Net assets 2,488 4,254
--------------------------------- ---- ------- -------
Equity attributable to equity
holders of the parent
Share capital 12 1,145 1,145
Merger reserve 838 838
Share premium 7,866 7,866
Share based payment reserve 88 84
Translation reserve 66 -
Retained earnings (7,515) (5,679)
--------------------------------- ---- ------- -------
Total equity 2,488 4,254
--------------------------------- ---- ------- -------
Consolidated statement of changes in shareholders' equity
YEARED 31 MARCH 2022
Share
Share Merger Share Based Translation Retained
Payment
Capital reserve Premium Reserve Reserve Earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ------- -------- ------- -------- ------------- ---------- -------
Balance at 31 March 2020 1,135 838 7,801 74 - (3,594) 6,254
Loss and total comprehensive
income for the year from
continuing operation - - - - - (974) (974)
Loss and total comprehensive
income for the year from
discontinued operation - - - - - (1,111) (1,111)
Shares issued in the period 10 - 65 - - - 75
Share option reserve - - - 10 - - 10
----------------------------- ------- -------- ------- -------- ------------- ---------- -------
Total movement in equity 10 - 65 10 - (2,085) (2,000)
----------------------------- ------- -------- ------- -------- ------------- ---------- -------
Balance at 31 March 2021 1,145 838 7,866 84 - (5,679) 4,254
----------------------------- ------- -------- ------- -------- ------------- ---------- -------
Loss and total comprehensive
income for the year from
continuing operation - - - - - (559) (559)
Loss and total comprehensive
income for the year from
discontinued operation - - - - - (1,277) (1,277)
Retranslation of net assets
of overseas subsidiaries - - - - 66 - 66
Share option reserve - - - 4 - - 4
----------------------------- ------- -------- ------- -------- ------------- ---------- -------
Total movement in equity - - - 4 66 (1,836) (1,766)
----------------------------- ------- -------- ------- -------- ------------- ---------- -------
Balance at 31 March 2022 1,145 838 7,866 88 66 (7,515) 2,488
----------------------------- ------- -------- ------- -------- ------------- ---------- -------
Consolidated statement of cash flows
FOR YEARED 31 MARCH 2022 Note Group Group
2022 2021
GBP000 GBP000
--------------------------------------------------------- ---- ------- -------
Cash flows from operating activities
Loss for the year (559) (974)
Adjustments for:
Depreciation, amortisation and impairment 944 1,184
Loss / (profit) on sale of plant and equipment - 5
Release of deferred profit on sale of plant and
equipment (9) (14)
Share based payments 4 10
Net finance expense 340 274
Bad debt expense (54) 174
Foreign exchange loss 66 -
Tax income (559) (249)
--------------------------------------------------------- ---- ------- -------
Operating cash flow before changes in working
capital and provisions 173 410
Change in trade and other receivables (86) 222
Change in inventories 2 -
Change in trade and other payables 184 (229)
--------------------------------------------------------- ---- ------- -------
Cash generated from / (utilised by) operations 273 403
Interest received - 7
R&D tax income received - 172
--------------------------------------------------------- ---- ------- -------
Net cash inflow / (outflow) from operating activities
from continuing operation 273 582
--------------------------------------------------------- ---- ------- -------
Net cash inflow / (outflow) from operating activities
from discontinued operation (139) (370)
--------------------------------------------------------- ---- ------- -------
Net cash inflow / (outflow) from operating activities 134 212
--------------------------------------------------------- ---- ------- -------
Cash flows from investing activities
Proceeds from sale of plant and equipment - 10
Acquisition of plant and equipment (27) (90)
Capitalised development expenditure 7 (525) (370)
Acquisition of other intangible assets 7 (20) (259)
Acquisition of Subsidiary net of cash (group) - (84)
--------------------------------------------------------- ---- ------- -------
Net cash used in investing activities from continuing
operation (572) (793)
--------------------------------------------------------- ---- ------- -------
Net cash used in investing activities from discontinued
operation (3) (49)
--------------------------------------------------------- ---- ------- -------
Net cash used in investing activities (575) (842)
--------------------------------------------------------- ---- ------- -------
Cash flows from financing activities
Proceeds from share issue - 75
Proceeds / (repayment) of funding from invoice
finance - 10
Proceeds from loans - 3,010
Repayment of loans 10 (196) (81)
Capital payment of lease liabilities (115) (164)
Interest payment of lease liabilities (67) (72)
Payment of deferred consideration - (148)
--------------------------------------------------------- ---- ------- -------
Net cash generated from financing activities from
continuing operation (378) 2,630
--------------------------------------------------------- ---- ------- -------
Net cash generated from financing activities from
discontinued operation (330) (364)
--------------------------------------------------------- ---- ------- -------
Net cash generated from financing activities (708) 2,266
--------------------------------------------------------- ---- ------- -------
Net increase / (decrease) in cash and cash equivalents
from continuing operations (677) 2,419
Net increase / (decrease) in cash and cash equivalent
from discontinued operations (472) (783)
Cash and cash equivalents at start of year 2,740 1,104
--------------------------------------------------------- ---- ------- -------
Cash and cash equivalents at 31 March 2022 1,591 2,740
--------------------------------------------------------- ---- ------- -------
Comprises of:
--------------------------------------------------------- ---- ------- -------
Cash and cash equivalent from continuing operation 1,462 2,714
Cash and cash equivalent from discontinued operation 129 26
--------------------------------------------------------- ---- ------- -------
Notes to the financial statements
1 BASIS OF PREPARATION
GENERAL INFORMATION
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 2021.
The comparative figures for the year ended 31 March 2021 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 26 July 2022.
GOING CONCERN
As part of the consideration of the appropriateness of adopting
the going concern basis of accounting, the Directors have prepared
a forecast and applied reasonable sensitivities. The primary cash
flow impact identified in the sensitivity analysis is a significant
reduction in cash collections driven by lower customer demand. The
Directors also considered the potential levers at their discretion
to improve the cash position, including a number of further
reductions in operating expenditure across the group, primarily
related to workforce cost reductions. Having considered these
scenarios, the Group continues to have sufficient cash
headroom.
Based on the above the Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future and is well
placed to manage its business risks successfully despite the
continued uncertain economic outlook caused by Covid-19.
Accordingly, the Directors continue to adopt the going concern
basis in preparing the annual report and financial statements.
BUSINESS COMBINATIONS
On 19th May 2022, the group announced the sale of its
manufacturing operation based in Manchester. The manufacturing
operation, referred to as 'Works Manchester' consists of the legal
entity, Works Manchester Limited, along with the Manchester based
production assets, related leases and staff contracts of Grafenia
Operations Limited. Accordingly, these assets and liabilities have
been designated as held for sale and separately disclosed in the
statement of financial position and the financial impact of the
discontinued operation is separately disclosed in the Statement of
comprehensive income.
Following the disposal, Grafenia entered into a 5 year supply
agreement with Works Manchester Limited to provide products to our
Company stores and Partners. This change reduces the gross profit
percentage of the group, but at the same time reduces staff costs
and overheads. To accurately reflect the performance of continuing
operations, the Statement of comprehensive income has been
presented to show the results had the disposal and new supply
agreement been in effect for both the current and the comparative
financial years.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of the accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any future periods
affected.
Significant areas of estimation uncertainty and critical
judgements in applying accounting policies that have the most
significant effect on the amounts recognised in the financial
statements are described below:
INTANGIBLES - CAPITALISATION AND VALUATION OF SOFTWARE AND
DEVELOPMENT COSTS AND ACQUIRED INTANGIBLES
The Board considers that the Group's key differentiators stem
from its proprietary software, operationally w3p, developed to
support Brand Partners Nettl and printing.com, Marqetspace and
online initiatives. It is essential to continue investing in these
assets. Projects are agreed with user forums to improve
functionality for Partners. Separate projects are defined for
international expansion and for new initiatives as they are
identified. Development costs are capitalised where a project has
been defined, tested and expected to realise future economic
benefits. Programming is carried out by third parties working to a
detailed specification and schedule. The Board exercises judgement
in determining the costs to be capitalised and determine the useful
economic life to be applied typically 3 years or whilst the asset
in question remains in use. Acquired intangibles have been
identified as the customer base and brand, the valuation is based
upon future discounted cash flows and expectations for the
business. Further, the Board will use estimates of future
incremental cash flows to periodically assess the carrying value of
intangible assets.
IMPAIRMENT OF INTANGIBLE ASSETS AND INVESTMENT IN
SUBSIDIARIES.
In assessing impairment, Management estimates the recoverable
amount of cash generating units based on expected future cash flows
and uses the weighted average cost of capital to discount them. At
the end of each reporting period the Management reviews a five year
forward looking financial projection including a terminal value for
the Group. The Management has further evaluated the terminal growth
expectations and the applied discount rate applicable to derive a
Net Present Valuation (NPV) of the Group. If the NPV of the Group
shows a lower valuation than the net assets or the company cost of
investment in subsidiaries plus intercompany balances due, an
impairment will be made. Based on this evaluation, including
management estimates and assumptions, no impairment was made during
the reporting period. Estimation uncertainty relates to assumptions
about future operating results in particular sales volumes and the
determination of a suitable discount rate.
ESTIMATION OF THE EXPECTED CREDIT LOSSES ON TRADE AND
INTERCOMPANY RECEIVABLES
In assessing the expected credit losses, in respect of the trade
and intercompany receivables under IFRS 9, the Group considers the
past performance of the receivable book along with future factors
that may affect the credit worthiness of the receivables.
Estimations have therefore been made within these assumptions which
could affect the carrying value of the trade and intercompany
receivables.
BEARER BONDS
The bearer bonds issued by the Company have no fixed maturity.
In order to establish an effective interest rate, management is
required to determine the expected life of the bonds and has
estimated this to be 20 years from the date of issue. In assessing
the fair value of the embedded derivative relating to the exclusive
one way call option, judgement is required in order to assess the
likelihood of the business exercising this option.
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, Online sales plus Trade print and
Works signs businesses. 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 Board 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 2022 Segment
revenues 11,723 289 349 12,361
----------------------------------- ------------ ------ ------ --------
Year ended 31 March 2021 Segment
revenues 9,117 242 389 9,748
----------------------------------- ------------ ------ ------ --------
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 9% of its
revenue.
DISAGGREGATION OF REVENUE
The disaggregation of revenue from contracts with customers is
as follows:
Continuing Operations Discontinued Total
Operation
Licence Company Brand Online Works Sign
Fees Stores Partner & Businesses
Print Trade
----------------------
GBP000 GBP000 GBP000 GBP000 GBP'000 GBP'000 GBP000
---------------------- ------- ------- -------- ------- ------- ------------ --------
Year ended 31 March
2022 2,135 2,462 2,439 1,880 8,916 3,445 12,361
---------------------- ------- ------- -------- ------- ------- ------------ --------
Year ended 31 March
2021 2,077 1,832 1,916 1,119 6,944 2,804 9,748
---------------------- ------- ------- -------- ------- ------- ------------ --------
Of the Group's non-current assets (excluding deferred tax) of
GBP2,486,000 (2021: GBP8,575,000), GBP2,475,000 (2021:
GBP8,545,000) are located in the UK. Non-current assets located
outside the UK are in France GBPnil (2021: GBP5,000) and Ireland
GBP11,000 (2021: GBP25,000).
3 TAXATION
Recognised in the income statement 2022 2021
GBP000 GBP000
-------------------------------------------------- ------ ------
Current tax expense
Current year (166) (166)
Adjustments for prior years (12) (1)
-------------------------------------------------- ------ ------
(178) (167)
Deferred tax expense
Origination and reversal of temporary differences (63) (74)
Previously unrecognised deferred tax asset
currently recognised (318) -
-------------------------------------------------- ------ ------
Total tax in income statement (559) (241)
-------------------------------------------------- ------ ------
RECONCILIATION OF EFFECTIVE TAX RATE
Factors affecting the tax charge for the current period:
The current tax charge for the period is lower (2021: lower)
than the standard rate of corporation tax in the UK of 19% (2021:
19%).
The differences are explained below:
2022 2021
GBP000 GBP000
--------------------------------------------------- --------- ---------
Loss before tax (1,991) (2,326)
--------------------------------------------------- --------- ---------
Tax using the UK corporation tax rate of 19%
(2021:19%) (378) (442)
Effects of:
Other tax adjustments, reliefs and transfers (530) (99)
Adjustments in respect of prior periods - current
tax (11) (1)
Adjustments in respect of prior periods - deferred
tax (1) -
Deferred tax not recognised 584 248
Research and Development losses surrendered 219 223
Research and Development super deduction (124) (170)
Previously unrecognised deferred tax asset
currently recognised (see note 5) (318) -
--------------------------------------------------- --------- ---------
Total tax credit (559) (241)
--------------------------------------------------- --------- ---------
The Group tax debtor amounts to GBP167,000 (2021 Debtor:
GBP163,000). The deferred tax liabilities as at 31 March 2022 have
been calculated using the tax rate of 25% which was substantively
enacted at the balance sheet date.
In the budget on 3 March 2021, the UK Government announced an
increase in the main UK corporation tax rate from 19% to 25% with
effect from 1 April 2023. The change in rate was substantively
enacted on 24 May 2021.
4 EARNINGS PER SHARE
The calculations of earnings per share are based on
the following profits and numbers of shares:
2022 2021
GBP000 GBP000
------------------------------------------------------------- ------------- -------------
Loss after taxation for the financial year from continuing
operations (559) (974)
Loss after taxation for the financial year from discontinued
operations (1,277) (1,111)
------------------------------------------------------------- ------------- -------------
Total loss after taxation for the financial year (1,836) (2,085)
------------------------------------------------------------- ------------- -------------
Weighted
average
-------------
Weighted number
average of Shares
number of
Shares
------------------------------------------------------------- ------------- -------------
For basic earnings per ordinary share 114,490,828 113,831,139
For diluted earnings per ordinary share 114,490,828 113,831,139
------------------------------------------------------------- ------------- -------------
Basic and diluted loss per share (1.60)p (1.83)p
------------------------------------------------------------- ------------- -------------
Basic and diluted loss per share from continuing operation (0.49)p (0.85)p
------------------------------------------------------------- ------------- -------------
Basic and diluted loss per share from discontinued
operation (1.12)p (0.98)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.
5 DEFERRED TAX ASSETS AND LIABILITIES
Recognised deferred
tax assets and liabilities
Assets Assets Liabilities Liabilities Total Total
2022 2021 2022 2021 2022 2021
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- --------- ---------------- ------------ ----------------- ------------- ----------
Intangible assets - - (318) (389) (318) (389)
Trading losses 318 - - - 318 -
---------------------------- --------- ---------------- ------------ ----------------- ------------- ----------
Tax asset/(liabilities) 318 - (318) (389) - (389)
---------------------------- --------- ---------------- ------------ ----------------- ------------- ----------
Movement in deferred 1 April Recognised Recognised Removal Deferred 31 March
tax during the year. 2021 on acquisition in income of discontinued tax asset 2022
of subsidiary operation utilisation
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- --------- ---------------- ------------ ----------------- ------------- ----------
Intangible assets (389) - 63 8 - (318)
Trading losses - - - - 318 318
---------------------------- --------- ---------------- ------------ ----------------- ------------- ----------
(389) - 63 8 318 -
---------------------------- --------- ---------------- ------------ ----------------- ------------- ----------
Movement in deferred 1 April Recognised Recognised Removal Deferred 31 March
tax during the year. 2020 on acquisition in income of discontinued tax asset 2021
of subsidiary operation utilisation
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- --------- ---------------- ------------ ----------------- ------------- ----------
Intangible assets (448) (15) 74 - - (389)
---------------------------- --------- ---------------- ------------ ----------------- ------------- ----------
(448) (15) 74 - - (389)
---------------------------- --------- ---------------- ------------ ----------------- ------------- ----------
The Group has unrecognised deferred tax assets in respect of
carried forward losses of GBP1,526,000 (2021: GBP1,255,000).
6 PROPERTY, PLANT AND EQUIPMENT
Land and Plant and Motor Fixtures Total
buildings equipment Vehicles and
Fittings
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ---------- --------- --------- -------
Cost
Balance at 31 March 2020 2,575 5,591 139 1,583 9,888
Right-of-use assets recognised
on IFRS 16 adoption - 168 8 4 180
Additions - 1 - - 1
Disposals - (523) (28) - (551)
---------------------------------- ---------- ---------- --------- --------- -------
Balance at 31 March 2021 2,575 5,237 119 1,587 9,518
Additions - 31 - - 31
Transferred to assets held within
disposal group (note 13) (735) (4,913) (28) (763) (6,439)
---------------------------------- ---------- ---------- --------- --------- -------
Balance at 31 March 2022 1,840 355 91 824 3,110
---------------------------------- ---------- ---------- --------- --------- -------
Depreciation and impairment
Balance at 31 March 2020 836 2,494 101 974 4,405
Depreciation charge for the year 260 140 27 157 584
Disposals - (508) (28) - (536)
---------------------------------- ---------- ---------- --------- --------- -------
Balance at 31 March 2021 1,096 2,126 100 1,131 4,453
Depreciation charge for the year 213 236 10 118 577
Transferred to assets held within
disposal group (note 13) (382) (2,057) (25) (533) (2,997)
---------------------------------- ---------- ---------- --------- --------- -------
Balance at 31 March 2022 927 305 85 716 2,033
---------------------------------- ---------- ---------- --------- --------- -------
Net book value
At 31 March 2020 1,739 3,097 38 609 5,483
---------------------------------- ---------- ---------- --------- --------- -------
At 31 March 2021 1,479 3,111 19 456 5,065
---------------------------------- ---------- ---------- --------- --------- -------
At 31 March 2022 913 50 6 108 1,077
---------------------------------- ---------- ---------- --------- --------- -------
Right-of-use assets are included within the same asset
categories as they would have been if they were owned. As of 31
March 2022 the Group has right-of-use assets with a carrying value
of GBP3,453,000 (2021: GBP3,806,000). Right-of-use of assets from
discontinued operation is GBP2,540,000 (2021: GBP2,762,000). A
table showing the net book value of right-of-use assets within
property, plant and equipment at 31 March 2022 and 31 March 2021,
split by category, is disclosed in note 11.
7 INTANGIBLE ASSETS
Domains Software Development Customer Goodwill Other Total
& brand costs Lists
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
Cost
Balance at 31 March
2020 912 4,265 4,059 3,165 141 162 12,704
Additions - internally
developed - - 419 - - - 419
Additions - purchased - 259 - - - - 259
Acquisition of subsidiary - - - 80 15 - 95
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
Balance at 31 March
2021 912 4,524 4,478 3,245 156 162 13,477
Additions - internally
developed - - 525 - - - 525
Additions - purchased - 20 - - - - 20
Transferred to assets
held within disposal
group (note 13) (549) - - (2,570) (18) - (3,137)
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
Balance at 31 March
2022 363 4,544 5,003 675 138 162 10,885
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
Amortisation and
impairment
Balance at 31 March
2020 412 3,805 3,298 1,205 12 114 8,846
Amortisation for the
year 30 297 389 399 - 6 1,121
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
Balance at 31 March
2021 442 4,102 3,687 1,604 12 120 9,967
Amortisation for the
year 20 232 387 286 - 11 936
Transferred to assets
held within disposal
group (note 13) (115) - - (1,294) - - (1,409)
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
Balance at 31 March
2022 347 4,334 4,074 596 12 131 9,494
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
Net book value
At 31 March 2020 500 460 761 1,960 129 48 3,858
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
At 31 March 2021 470 422 791 1,641 144 42 3,510
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
At 31 March 2022 16 210 929 79 126 31 1,391
-------------------------- -------- -------- ----------- --------- -------- ------ ------------
IMPAIRMENT TESTING
The recoverable amount of goodwill and intangible assets is
determined from value in use calculations.
The Group prepares cash flow forecasts derived from budgets and
five-year business plans. The sales growth relates to all key
revenue streams of the business and have been determined based on
the experience to date of operating these sales channels, with 5%
per annum for Licence fees, 2% for services and 1% for product
sales.
For the purposes of impairment testing inflationary growth of
0.5% is assumed beyond this period. A pre-tax discount factor of
6.8% (2021: 7.4%) was applied.
Following the impairment review, the intangible assets are not
considered to be impaired.
Increasing the pre-tax discount factor to 10.0% would not result
in an impairment charge against intangible assets.
Amortisation and impairment charge
The amortisation charge of GBP936,000 (2021: GBP1,121,000) is
recognised in profit or loss within depreciation and amortisation
expenses. GBP225,000 (2021: GBP338,000) from discontinued
operation, GBP711,000 (2021: GBP783,000) from continuing operation.
An impairment charge of nil (2021: GBPnil) was recognised during
the year.
8 TRADE AND OTHER RECEIVABLES
At 31 March 2022 trade receivables are shown net of an
impairment allowance of GBP1,089,000 (2021: GBP1,090,000).
Trade and other receivables denominated in currencies other than
sterling comprise GBP114,000 (2021: GBP136,000) of trade
receivables.
2022 2021
--------------------------------------------------------------
GBP000 GBP000
-------------------------------------------------------------- ------- -------
Trade receivables 3,290 2,408
Less provision for trade receivables (1,089) (1,090)
-------------------------------------------------------------- ------- -------
Trade receivables net 2,201 1,318
Total financial assets other than cash and cash equivalents
classified at amortised cost 2,201 1,318
Corporation tax 167 163
Other receivables 70 64
-------------------------------------------------------------- ------- -------
Total Other receivables 237 227
-------------------------------------------------------------- ------- -------
Total trade and other receivables 2,438 1,545
-------------------------------------------------------------- ------- -------
Total relating to discontinued operation 1,157 545
Total relating to continuing operation 1,281 1,000
-------------------------------------------------------------- ------- -------
The carrying value of trade and other receivables classified at
amortised cost approximates fair value.
Under 6 months Over 6 months Total
------------------------
GBP000 GBP000 GBP000
------------------------ -------------- ------------- -------
Gross carrying amount 1,615 1,675 3,290
Loss provision (83) (1,006) (1,089)
------------------------ -------------- ------------- -------
Net carrying amount 1,532 669 2,201
------------------------ -------------- ------------- -------
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 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. There are no trade receivables outside of credit terms
without an impairment provision.
Movements in the impairment allowance for trade receivables
are as follows:
Impairment
As at 31 As at 31
March 2022 March 2021
GBP000 GBP000
------------------------------------------------------------ ------------ ------------
Balance at 1 April 1,090 1,000
Receivable written off during the year as uncollectible (44) (70)
Increase in impairment allowance 43 160
------------------------------------------------------------ ------------ ------------
Balance at 31 March 1,089 1,090
------------------------------------------------------------ ------------ ------------
Of the total impairment provision GBP36,000 (2021: GBP79,000)
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 GBP512,000 (2021: GBP209,000) 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.
9 TRADE AND OTHER PAYABLES
Current Liabilities
2022 2021
GBP000 GBP000
Total Total
----------------------------------------------------------- -------------- ------
Trade payables 1,445 689
Accruals 373 358
Other liabilities 529 752
----------------------------------------------------------- -------------- ------
Total financial liabilities, excluding borrowings
classified as financial liabilities measured at amortised
cost 2,347 1,799
----------------------------------------------------------- -------------- ------
Total relating to discontinued operation 835 448
Total relating to continuing operation 1,512 1,351
----------------------------------------------------------- -------------- ------
Deferred income 77 60
----------------------------------------------------------- -------------- ------
Total relating to discontinued operation - -
Total relating to continuing operation 77 60
----------------------------------------------------------- -------------- ------
Total trade and other payables 2,424 1,859
----------------------------------------------------------- -------------- ------
Trade payables denominated in currencies other than Sterling
comprise GBP72,000 (2021: GBP43,000) denominated in Euro.
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.
10 BORROWINGS
Current Liabilities Group Group
2022 2021
Total Total
GBP000 GBP000
------------------------------- ------ --------
Invoice Financing 512 209
Lease liabilities 683 602
Loans 172 120
------------------------------- ------ --------
1,367 931
------------------------------- ------ --------
Total relating to discontinued
operation 1,059 664
Total relating to continuing
operation 308 267
------------------------------- ------ --------
Non-Current Liabilities
------------------------------- ------ --------
Lease liabilities 2,517 3,185
Loans 683 854
Bearer Bonds 2,270 2,110
------------------------------- ------ --------
5,470 6,149
------------------------------- ------ --------
Total relating to discontinued
operation 1,628 (2,650)
Total relating to continuing
operation 3,842 (3,499)
------------------------------- ------ --------
The invoice discounting arrangement is secured upon the trade
debtors to which the arrangement relates see note 8.
In July 2020 the Company issued bonds with a nominal value of
GBP3,000,000, raising a net GBP2,010,000. The bonds are
interest-free for three years and thereafter pay 6% of the nominal
value, annually in arrears, until the company exercises its call
option. The bond has initially been measured at fair value, which
is considered to be the transaction price. Subsequently the
liability is measured at amortised cost based on the expected cash
flows over the expected life of the instrument.
In August 2020 an additional term loan for GBP1,000,000,
repayable over six years, was secured through the Coronavirus
Business Interruption Loan Scheme at an effective annual interest
rate of 8.6%. At 31 March 2022 the liability was GBP855,000 (2021:
GBP974,000).
11 LEASES
All leases where the Group is a lessee are accounted for by
recognising a right of use asset and a lease liability except
for:
-- Leases of low value assets
-- Leases with a term of 12 months or less.
IFRS 16 'Leases' was adopted on 1 April 2019 without restatement
of comparative figures.
AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
Land and Plant and Motor Total
buildings equipment Vehicles
RIGHT OF USE ASSETS GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- --------- -------
Balance at 1 April 2020 1,739 2,348 29 4,116
Additions to right of use
assets - 95 - 95
Depreciation (260) (122) (23) (405)
---------------------------------- ---------- ---------- --------- -------
Balance at 31 March 2021 1,479 2,321 6 3,806
Depreciation (213) (134) (6) (353)
Transferred to assets relating
to disposal group (353) (2,187) - (2,540)
---------------------------------- ---------- ---------- --------- -------
Balance at 31 March 2022 913 - - 913
---------------------------------- ---------- ---------- --------- -------
Land and Plant and Motor Total
buildings equipment Vehicles
LEASE LIABILITIES GBP000 GBP000 GBP000 GBP000
------------------------------------ ---------- ---------- --------- -------
Balance at 1 April 2020 1,802 2,274 32 4,108
Additions to lease liabilities - 90 - 90
Interest expense 107 152 1 260
Lease payments (340) (304) (27) (671)
--------------------------------------- ---------- ---------- --------- -------
Balance at 31 March 2021 1,569 2,212 6 3,787
Interest expense 92 136 - 228
Lease payments (340) (469) (6) (815)
Transferred to liabilities relating
to disposal group (319) (1,856) - (2,175)
--------------------------------------- ---------- ---------- --------- -------
Balance at 31 March 2022 1,002 23 - 1,025
--------------------------------------- ---------- ---------- --------- -------
AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
2022 2021
Land Plant Motor Total Land and Plant Motor Total
and buildings and Vehicles buildings and Vehicles
equipment equipment
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- -------------- ---------- --------- ------ ---------- ---------- --------- ------
Continuing Operation
Depreciation charge
on right of use assets 122 3 6 131 123 3 23 149
Interest on lease
liabilities 67 - - 67 73 - 1 74
Expenses related to
low value and short-term
leases 18 - - 18 20 3 - 23
---------------------------- -------------- ---------- --------- ------ ---------- ---------- --------- ------
207 3 6 216 216 6 24 246
---------------------------- -------------- ---------- --------- ------ ---------- ---------- --------- ------
Discontinued Operation
Depreciation charge
on right of use assets 91 131 - 222 137 119 - 256
Interest on lease
liabilities 25 136 - 161 34 152 - 186
Expenses related to - - - - - - - -
low value and short-term
leases
---------------------------- -------------- ---------- --------- ------ ---------- ---------- --------- ------
116 267 - 383 171 271 - 442
---------------------------- -------------- ---------- --------- ------ ---------- ---------- --------- ------
LEASE LIABILITIES - MATURITY ANALYSIS OF CONTRACTUAL
UNDISCOUNTED CASH FLOWS
Carrying Contractual 6 months 6-12 1-2 years 2-5 years More than
amount cash flows or less months 5 years
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ ---------- ------------- ---------- -------- ----------- ----------- -----------
31 March 2022 3,200 3,740 439 426 812 1,623 440
------------------------------ ---------- ------------- ---------- -------- ----------- ----------- -----------
Total relating to discontinued
operation 2,175 2,462 352 340 639 1,131 -
Total relating to continuing
operation 1,025 1,278 87 86 173 492 440
------------------------------ ---------- ------------- ---------- -------- ----------- ----------- -----------
31 March 2021 3,787 4,643 390 441 865 2,216 731
------------------------------ ---------- ------------- ---------- -------- ----------- ----------- -----------
Total relating to discontinued
operation 2,650 3,098 291 344 692 1,771 -
Total relating to continuing
operation 1,137 1,545 99 97 173 445 731
------------------------------ ---------- ------------- ---------- -------- ----------- ----------- -----------
12 SHARE CAPITAL
Ordinary shares Ordinary shares
In thousands of shares 2022 2021
----------------------------------------- --------------- ---------------
In issue at 1 April 114,491 113,525
Issued by the Company - 966
----------------------------------------- --------------- ---------------
Shares on the market at 31 March - fully
paid 114,491 114,491
----------------------------------------- --------------- ---------------
Allotted, called up and fully paid GBP000 GBP000
----------------------------------------- --------------- ---------------
114,490,828 (2021: 114,490,828) ordinary
shares of GBP0.01 each 1,145 1,145
63 deferred shares of GBP0.10 each - -
----------------------------------------- --------------- ---------------
1,145 1,145
----------------------------------------- --------------- ---------------
On 3 September 2020 the company announced the exercise of 46,450
options over ordinary shares of GBP0.01 each at an issue price of
GBP0.0775. The difference between the issue price and the nominal
value being taken into the share premium account.
On 14 December 2020 the company announced that employees who had
elected to forgo a proportion of their remuneration in favour of
the equivalent value in shares, based on a purchase price of
GBP0.0775 each, were issued 919,032 ordinary shares of GBP0.01.
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 (2021: GBPnil).
13 DISCONTINUED OPERATION
On 19 May 2022, the group announced the sale of its
manufacturing operation based in Manchester. The manufacturing
operation, referred to as 'Works Manchester' consists of the legal
entity, Works Manchester Limited, along with the Manchester based
production assets, related leases and staff contracts of Grafenia
Operations Limited. Accordingly, these assets and liabilities have
been designated as held for sale and separately disclosed in the
statement of financial position and the financial impact of the
discontinued operation is separately disclosed in the Statement of
comprehensive income.
Following the disposal, Grafenia entered into a 5 year supply
agreement with Works Manchester Limited to provide products to our
Company stores and Partners. This change reduces the gross profit
percentage of the group, but at the same time reduces staff costs
and overheads. To accurately reflect the performance of continuing
operations, the Statement of comprehensive income has been
presented to show the results had the disposal and new supply
agreement been in effect for both the current and the comparative
financial years.
Effect on group statement of financial position
Initial recognition Re-measurement Held for
to fair value disposal
GBP000 GBP000 GBP000
------------------------------------------ ------------------- -------------- ---------
Property plant and equipment 3,442 (457) 2,985
Intangible assets 1,728 (229) 1,499
Inventories 464 - 464
Trade and other receivables 1,157 - 1,157
Cash and cash equivalent 129 129
------------------------------------------ ------------------- -------------- ---------
Asset relating to disposal group 6,920 (686) 6,234
------------------------------------------ ------------------- -------------- ---------
Invoice finance (512) - (512)
Lease liabilities (2,175) - (2,175)
Trade and other payables (835) - (835)
Deferred tax liabilities (8) - (8)
------------------------------------------ ------------------- -------------- ---------
Liabilities relating to disposal group (3,530) - (3,530)
------------------------------------------ ------------------- -------------- ---------
Net asset and liabilities of discontinued
operations 3,390 (686) 2,704
------------------------------------------ ------------------- -------------- ---------
Total discounted cash consideration will be received for this
disposal is GBP2.7m (GBP3.165m gross consideration) which is
greater than the carrying value of the discontinued operations
recognised. The subsequent impairment of GBP686,000 has been
separately disclosed under re-measurement to fair value on
discontinued operations in the Consolidated statement of
comprehensive income.
14 POST BALANCE SHEET EVENTS
On 19 May 2022, Grafenia plc announced that it had agreed to
sell its wholly-owned subsidiary Works Manchester Limited, formerly
Image Everything Limited, and certain business and assets of its
wholly owned subsidiary Grafenia Operations Limited to Rymack Sign
Solutions Limited, a privately owned company trading as PFI Group,
for cash consideration of GBP3,165,000. Of this consideration,
GBP100,000 is payable over the first 3 months and then GBP766,250
on the first four anniversaries of the sale. The transaction was
subsequently completed on 31 May 2022. The financial impact of this
disposal is shown in the primary financial statements and is
discussed further in note 13.
15 ANNUAL REPORT
The Annual Report and Notice of AGM will be sent to shareholders
on or around 17 August 2022 and will be available on the Company's
website www.grafenia.com from that date.
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END
FR PPUUGMUPPGCM
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