NanoXplore Annual Report 2017

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FY2017 Annual Report · NanoXplore

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ANNUAL
REPORT
AND
ACCOUNTS
2017

CONTENTS

IN SUMMARY

03 CHAIRMAN’S STATEMENT

13 STRATEGIC REPORT – CHIEF EXECUTIVE’S STATEMENT

29 FINANCIAL REVIEW

32 DIRECTORS

34 DIRECTORS’ REPORT

37 STATEMENT OF DIRECTORS’ RESPONSIBILITIES

38 DIRECTORS’ REMUNERATION REPORT

INDEPENDENT AUDITORS’ REPORT

43 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

44 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

45 CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

46 CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS

47 NOTES (FORMING PART OF THE FINANCIAL REVIEW)

72 ADVISERS AND COMPANY INFORMATION

IN SUMMARY

Grafenia creates software and systems which power the graphic arts industry.

We license our brands and know-how in the UK and internationally.

We operate complex logistics, a SaaS platform and brands

which sell print and web to business customers.

CONTINUING OPERATIONS

Year ended
31 March 2017

Year ended
31 March 2016

Licence Fees

Company Studios

Brand Partner Products

Online and Trade Products

Total Revenue

Gross Profit

EBITDA

Amortisations and Depreciation

Operating (Loss)/Profit
Before Restructuring Costs

Restructuring Costs

Operating (Loss)/Profit After
Restructuring Costs

Tax Income

Profit from Discontinued Operations

(Loss)/Profit for the Year

EPS – Continuing Operations

EPS – Discontinued Operations

EPS – Total

Total Dividend per share

£000

1,489

1,151

3,762

4,042

10,444

6,585

763

(1,746)

(926)

(57)

(983)

362

(625)

(1.37)p

Nil

Capital Expenditure

£0.89m

Net Funds

£0.21m

£000

1,403

1,425

3,893

4,045

10,766

7,135

1,213

(1,462)

(308)

(249)

270

0.02p

0.12p

0.14p

£1.82m

£0.36m

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017A Curve 24 ink-on-fabric display, inside Nettl of Birmingham Business

Store. Each display comes in two parts – a lightweight aluminium frame,

which clips together, and a fabric cover which stretches across the frame.

Jan-Hendrik Mohr
Chairman

CHAIRMAN’S
STATEMENT

Dear Shareholders,

Grafenia plc is in transition. I am taking this Chairman’s Statement as an

opportunity to update you on efforts in the past year and on what comes next.

The format and style of this year’s statement will differ from prior years, in that, I

offer more detail and explain more about why we did what we did.

Any transformation creates uncertainty. I strongly believe that transparency and

an open-door policy helps all shareholders apply better judgment about our

course of action. After all, it is your business we are running and you deserve fair

and objective reporting.

Operational performance

Grafenia makes money from different business sectors, which have delivered

varying performance over the last few years. Most importantly, our print

revenues have been declining for some years and much of the decline has been

driven by continued pricing pressure in the market.

In the recent fiscal year, this drove a decrease in turnover by 2.3% to £10.44m

(2016: £10.77m) and in EBITDA by 50.0% to £0.76m (2016: £1.52m). Operating loss

increased to £0.99m (2016: loss of £0.25m) while we achieved an effective tax

income of £0.36m (2016: income £0.27m). As in the prior year, the tax income was

mainly due to the Group gaining Research & Development Relief. After spending

capital investment of £0.89m (2016: £1.82m) plus £0.06m for the acquisition of

ADD Signs Limited, we finished the year with a net cash position of £0.52m

(2016: £0.69m).

Whilst the aggregated financial figures are incredibly frustrating, a higher

granularity regarding areas of performance is appropriate to consider. In contrast

to the decreasing profit contribution from print products, we have enjoyed a

strong increase in license revenues from our partners’ subscriptions, especially

from our new concept under the Nettl banner. Nettl has been very well received

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017These fabric booths are dual purpose. They’re great at exhibitions, since they

pop up in under ten minutes and can be carried by hand. They’re also perfect

as secluded meeting booths for making office meetings more inspiring.

and we continue to expect increasing license fee contribution as we add new

partners. To drive network growth, we have expanded our sales team to find

more Nettl partners. This has had a negative impact on our profitability in

the short term. However, we view this as an excellent investment as the cost

of acquisition, relative to the customer lifetime value of signing new partners,

have proven highly attractive. A similar logic applies to our continued spending

on software development which is not all directed at maintaining the system,

but rather considers adding new capabilities if our customers pay for them.

We curtailed software investment significantly (as evidenced by a much lower

current year capital expenditure in comparison to depreciation and amortization,

which relates to past capital expenditures). We will continue to make our capital

expenditure and sales investments according to the cash-on-cash return they

create.

We find print revenues hard to predict and face challenges every day, although it

remains an important part of the Group. Indeed, our team members are making

incredible efforts to lower the current reliance on print. To that end, we are trying

hard to enable our partners to offer a holistic suite of design and promotional

services to their end clients, extending beyond print. These includes signage,

ecommerce and expo display.

A main driver behind our weaker EBITDA and net loss figure is the impairment

we applied to our receivables position. This year the Audit Committee

insisted on management applying greater scrutiny to the age and profile of

our receivables. These debts are old legacy balances from partners where we

agreed payment schemes. For instance, partners would pay 20% on top of any

invoice to reduce their outstanding balance with us. For that limited group of

partners a more detailed estimation of collection time was carried out and our

impairment provision increased to reflect a lower present value of collections.

In plain English, we decided to value an estimated collection from a partner

a year from now lower than a collection next week. I’d like to thank KPMG for

their valuable input in assessing this exercise and the Audit Committee believes

that the current balance sheet number is a prudent estimate of our receivables

balance. In addition, this self-evaluation of collection practices has been used to

refine systems to improve collection of receivables and we expect improvements

in cash-conversion going forward.

Another important aspect of our financial reporting is the relatively high expense

we incur as a public company. Most of our systems are designed to run a much

larger operation and regulation requires us to retain a small army of advisers and

compliance processes. While we are happy with them individually and value their

advice, in aggregate they cause a perverse situation where most of our current

operational profit is consumed by the cost of being a public company. This is

clearly unacceptable and the core reason why I joined the board. The success of

my tenure should be measured by whether we figure out a way to make better

use of our public listing.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017Ink-on-fabric isn’t just for displays. We use it to make custom business

furniture. Here’s a foam cube. Every side can be customised and

branded and the fabric is durable enough to be used outdoors.

People at Grafenia, Board changes and priorities in the past year

As a non-executive director, there are only a few ways to influence the results

of a business. I’ll discuss below the measures we took during the last year and

provide an update on future priorities.

The real work at Grafenia, however, gets done by our operational team

members. I utterly believe that we have the right people at Grafenia to manage

this transition. First and foremost, Peter is a terrific leader that inspires, motivates

and creates what will be a transformed network of partners. We have a trusting

relationship and he has impressed me with his willingness to learn and strive to

achieve the best outcome for shareholders.

Any managerial effort is a team effort and, despite some less joyful moments

every now and then, I believe the entire Grafenia family has worked incredibly

hard in the last year. However, I’d like to specifically point out two individuals

who drove many initiatives and achieved high performance in their roles.

Firstly, I’d like to thank our COO Gavin Cockerill for his relentless effort in driving

sales performance. Gavin is a rare combination of a data-driven analytical mind

and a great marketer. A large part of the scaling of Nettl can be ascribed to him.

Make sure never to stand between him and a prospective Nettl partner!

Secondly, we can be lucky to have our Company Secretary Richard Lightfoot on

the team. Richard has served Grafenia for many years as a central coordinator for

everything legal and administration related. He is a thorough worker with a great

eye for detail. Importantly, he has been leading various M&A efforts during the

past year. You can rest assured that any sign business we might buy has been

scrutinized by Richard.

So, what value did the Non-Executive Directors create?

I would like to group our efforts into three distinct fields:

1. Finding the right governance structure

Over the course of the last year, we conducted a self-evaluation exercise to find

out what type of board we need to drive Grafenia forward. More specifically, we

took a hard look at how many non-executive board members we should have

and what their competencies need to be.

Given that Pavel and I have a high overlap in skills, Pavel decided to step

down from the board at the upcoming AGM. I would like to thank Pavel for his

contribution over time and his great help during the last year.

Conrad and I complement each other well. Together we are looking at various

options to make better use of our public listing. Quite frankly, the engagement

of non-executives has been intense during the last few months and we are

working hard with the executive team to evaluate the company’s opportunities

for capital deployment.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017Our new Nettl of Birmingham Business Store has different types of space.

Clients are free to use our informal areas for their own meetings, or they

can hire out a private boardroom for exclusive use.

2. Setting incentives right

We have started a long-overdue exercise to realign the compensation system

for our CEO with shareholders’ interests. Peter’s bonus scheme is now a direct

function of accumulated free cash-flow over rolling three year periods. We view

this as an appropriate incentive to drive sales performance and cash generation

and align management actions with shareholder interests. If the scheme proves

effective, we’ll expand the roll-out to a broader group of management.

Moreover, we have offered all our employees the opportunity to set aside part of

their salary to buy stock in a new Grafenia “save-as- you-earn” (SAYE) scheme.

49 employees (over 40%), chose to participate and save substantial sums of

money to become part-owners in Grafenia. I find this a very healthy indicator and

was proud to see such a high uptake.

Last, but not least, Conrad and I proposed a significant reduction in our non-

executive remuneration. Specifically, we are reducing non-executive director

annual pay by 25%, from £20k to £15k, whilst reducing the Chairperson pay by

50%, from £30k to £15k. Performance of Grafenia and the non-executives has not

been sufficient for some years now and we feel it is appropriate to first show we

are worth any money before thinking about raising our compensation!

3. Driving capital allocation

As Directors of your company, we are your agents. It is our role to efficiently

extract value from the capital we have a mandate to manage. Allocation

of capital works best when it is based on an accepted, simple and rational

framework. We have started to build such a framework to better allocate capital

between the different options open to the company.

Our analysis started earlier in the year with Gavin creating a concise analysis,

across our different channels, of customer acquisition cost versus customer

lifetime value. Later, Richard led efforts to add a framework to evaluate

acquisition opportunities in the sign space which was first applied to our

acquisition of ADD Signs. Lastly, Alan improved our financial planning to provide

better visibility in terms of valuation and when we should repurchase equity.

All of this structure is a good improvement and sets the standard for future

board work.

A result of our capital allocation framework and analysis is that we have less

desire to pay out dividends in the future. We find dividends to be a tax-inefficient

way to reward shareholders and currently see numerous accretive opportunities

for internal reinvestment. Furthermore, it does seem that Grafenia is better off

scaling up rather than reducing size by returning money to shareholders.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017Nettl marketing aims to inspire clients to talk to us about their ideas.

This Curve 30 display features a movie misquote and a stunning image,

which is more than six square meters in size.

Outlook & current priorities

The outlook for print products is uncertain and current trading has been tough.

Nevertheless, our efforts in scaling up Nettl bode well and we are increasingly

encountering potential partner opportunities to sell the concept in international

markets.

One of our past mistakes has been in providing overly optimistic guidance to

the market which was subsequently not met. Our quarter to quarter results are

incredibly hard to predict and we have decided to provide less frequent, but

more detailed, updates to the market as and when applicable. For example, in

the past we updated on trading in Mid-October and would then publish our

interim results in Mid-November. This seems like a lot of noise relative to the

pace of change in our business. This year, we’ll provide you with one informative

Interim Update on November 6th, notwithstanding ad hoc events or changes in

forecast trading.

A key focus area for the non-executive team is to continue improving our internal

controls, forecasting function and reporting. All of the above are necessary to

drive successful M&A as we strike out to acquire more sign businesses. In that

context, we decided to tender our audit mandate and find an auditor that is the

most effective business partner for our finance team. We have enjoyed working

with KPMG, but after engaging them for 10 years we felt it is the time to obtain

fresh eyes. They have been, quite literally, your eyes and ears into Grafenia and

I’d like to thank KPMG for their valuable contribution over those 10 years. Moving

ahead we are looking forward to working with the Manchester team of RSM, a

large UK auditor with more than 3,000 professionals.

We are hosting our AGM on Friday, July 28th and invite all our shareholders to

visit us. In addition to attending the formal meeting, you will get the opportunity

to meet more of our team members and see our production operations and

company owned Nettl store. We hope you come as a shareholder and leave as a

proud Nettl website owner!

Jan-Hendrik Mohr

Chairman

7 June 2017

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017
This year we relocated our Nettl of Birmingham company-owned studio to

a new part of town. The lobby glows from two enormous fabric lightboxes.

We make and sell a variety of flags, like the Empire flag shown here.

Peter Gunning
Chief Executive

STRATEGIC REPORT

CHIEF
EXECUTIVE’S
STATEMENT

Things have changed

This year we’ve continued to execute our transformation plan. Not everything

has gone the way we would have liked, but we have made progress.

I’ve altered the format of this year’s CEO report. We’ve made a lot of changes

since I permanently took over as CEO. One of those changes is the way we

communicate with our teams and our partners. Our style is open and inclusive.

We believe in keeping things to the point. We use clear and simple language.

We present information in a format that’s easy to understand.

We think it’s important to extend this to the way we communicate with our

shareholders.

In this report, I’d like to explain in more detail where we’ve come from and the

challenges we face. Then, I’ll share our vision of where we’re trying to get to.

You might know some of this stuff already, so apologies if you reach for the fast

forward button.

Let’s start from the top. We generate revenue from two main sources: licensing

brands and software, and manufacturing product.

We license our brands, software and technology to partners in the UK and

internationally. They pay us subscription fees in exchange. That bit is growing.

We’re putting our effort into scaling it more quickly. This is where we have the

strongest competitive advantage. We think this is where our future lies. I’ll talk

about why in more detail a little later on.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017MAKE
THEM
FEEL
IT

Every month we provide a new marketing campaign for our partners.

This is from a printing.com campaign, focusing on new soft-touch

business cards and flyers, which feel like suede.

We also directly manufacture a range of printing, signage, promotional items

and expo displays in the UK. Overall, this bit declined this year. But it’s a mixed

story. Some bits are growing, some are flat and some are contracting.

The majority of our printing is sold via resellers. We split those into two types:

Brand Partners and Trade Partners. With Brand Partners, our brands are exposed

to the end client. With Trade Partners, the end client is unaware that we are

manufacturing under ‘white-label’. Both are important to us and I’ll explain why

in this report.

We also sell directly to some end clients in our own stores. We think that’s really

important. We do this to learn first-hand what clients want and what our partners

need to deliver for their clients. We adapt and develop our offering, to ensure it

fits those needs.

Our products are used by all sizes of business - from startups to large

corporates. Our different channels tailor their message and service to address

different parts of the market. More on that later.

A time to listen

Let’s rewind. We grew up by franchising printing.com stores in the UK.

Over the past decade, as high street print began to decline, we tried many

things to reshape our business. Our DNA is to innovate, try new things, move

quickly and live test. Not everything we do works. Some things get killed before

release. Some things fail fast. In some things, we see potential, we refine and

iterate.

We’ve done things in the past which created conflict with our partners. That’s

an inevitable part of the change process and innovation cycle, but at times, our

relationship with the then franchisees was more fractious than it should have

been.

When I took over as CEO, we wanted to reset what it meant to be part of our

network.

Our team immediately embarked on a listening exercise. We asked our partners

what was grinding their gears. We encouraged them to be open and brutal. To

tell us the things we did which added friction to their lives. To share stories of

where we were unnecessarily difficult to do business with.

And they did. They shared. Lots. They made many suggestions. Their feedback

was frank and honest.

As the notes came in, we assigned and prioritised the comments. We made

some quick fixes and set to work on the larger problems. In particular one big,

hulking elephant in the room.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017We manufacture a wide range of printing products from our Manchester Hub.

Our economies of scale mean we can efficiently mass produce even fancy

finishes like Opuleaf gold foil (top) and Embossini embossed cards (bottom).

The elephant in the printer

Time and time again, the same issue arose.

Straight in at number one. Pricing. Over and over, they complained about

our product pricing. We were selling the same or similar products across our

different channels at different prices. Some channels had everyday low pricing,

others had deep, short-term vouchered discounts.

Some partners had the best of both worlds. Or so we thought. They could

choose which price to sell at – everyday low, or list price with discount vouchers.

Whilst this sounds fair in principle, the reality is different. It meant that partners

were forced, every time, to make a comparison, before they could even give the

client a price. That created noise and confusion.

There were also occasions where we were selling some products to end clients,

below the price that partners could buy at.

We were doing this to respond to competitor discounting. As these competitors

have sprung up, many from overseas, they’ve sought to grab market share

by selling well below our historic pricing. Tempted by the lure of cheap print,

partners were sometimes straying outside of our supply chain.

We had to fix this.

In April 2016, we embarked on Project OnePrice. This was a substantial and

comprehensive exercise to simplify our pricing. We had two objectives. The first,

to cut out the noise. Our Brand Partners should have a single, competitive price

to buy at. Secondly, we should reward our Brand Partners’ loyalty by ensuring

they always had access to our best prices.

The macro effect of this is that we produced more orders overall than the

previous year – over 120,000 individual jobs – but at a lower price.

The end of franchisees

As the suggestions piled in, something surprising happened. People started

sharing positive comments. They told us the things that we did that they valued.

They reminded us why they joined with us in the first place.

We wondered if there was a way to reboot printing.com. To refresh it and

reinvent it. So we simplified the model. We kept the bits which people valued

and discarded the constraints that were designed for a different time. And we

packaged it at £299 per month.

We set fire to the hundred page franchise agreement. We replaced it with a

simple one page software subscription and a brand licence.

And we changed the way we thought of printing.com owners. No longer would

we call them franchisees. We would not behave as franchisor/franchisee. We

didn’t want them to think of us as suppliers and we didn’t want to treat them as

customers. We are in business together. To achieve the same aim. To help local

businesses to promote themselves better.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017The
super
secret
cheat
guide

Our clients want help growing their businesses, so our marketing is

focused on helping them achieve that. This campaign from last year talked

about ways that end clients can attract more customers themselves.

HOW TOToday, they are our partners. This may seem like a small change, but culturally, it

is significant.

We tested the new model with a small presence at a private event. Imagine our

delight when we signed a new partner. And then another.

By the end of the year over 30 new partners had signed and there are currently

over 90 printing.com branded locations. We expect to add more new locations

this year.

Existing printing.com’s were invited to switch to the new subscription. So far over

80% have switched and we expect the remainder will make the transition in due

course.

The journey from printer to trusted adviser

We opened the first printing.com studio in Edinburgh in 1998. The world

was a very different place back then. In those days, the first thing a small

business startup wanted was business cards. We’d design and print for local

businesses, then we’d help them with marketing as they grew. Our efficient

central production meant we had a better product at a lower price than local

competitors.

Now, the first thing a small business wants is a website. The person who designs

the website, often gets to keep the whole creative relationship. Clients want the

same person to design their print, their signage, their exhibition displays as well

as their digital marketing.

We’ve sold websites via printing.com stores for over 10 years, and many of

our partners continue to offer them as part of their service. However, clients

sometimes struggle to reconcile the thought of buying web design, or an

ecommerce web shop, from their printer. They just print, don’t they?

That’s why we launched the Nettl formula back in September 2014. Nettl puts

web and ecommerce first, because that’s what clients are doing. Today, the

majority of revenue in most Nettl studios still comes from the sale of print and

display. However, to win new clients and retain existing ones, we’ve got to take

care of all their creative and marketing needs. Those needs now start with web.

So that’s where we start.

I’ll talk in a bit about the four studios we own. However, most Nettl locations are

independent. We partner with print shops, design agencies, web designers and

sign companies. They “bolt-on” Nettl to their business.

The Nettl solution is a suite of training, marketing and software which helps

a graphics business to deliver higher value web projects, with their existing

team’s skillset. We show them how. We train them in sales and tech. The Nettl

marketing collateral, updated monthly, gives them the tools to connect with

existing clients and win new ones.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017Ink-on-fabric production has opened up a whole new range for our partners

to sell. Printed gazebos are perfect for farmers’ markets and festivals.

Parasols provide branded shade in beer gardens and outdoor dining areas.

As we’ve developed the Nettl formula, we’ve designed nine distinct training

courses. These cover sales, graphics, tech and operations at levels from

beginner to expert. We’ve delivered over 2,000 individual classroom training

seats to partners and our own team members since Nettl started. More than

1,250 training days in the last year alone.

Nettl partners pay a monthly subscription of typically £399. That gives them

access to our systems and marketing. They also access our supply chain and can

buy printing and display products from our hub, as well as third party suppliers.

Last year, the Nettl network doubled in size. The year ended with 108 locations

(2016: 53) and we have continued to add partners since. Many Nettl partners

were previously printing.com partners. We’re grateful to have them add Nettl

capability and we expect a few more to switch over this year.

If our talent pool was restricted to former printing.coms, you’d be forgiven for

thinking the upside to Nettl was limited.

However, over one third of Nettl partners are either trade partners, or businesses

we had no previous trading relationship with.

Over the last year, we redeployed people into Nettl partner acquisition and now

have a scalable acquisition process. We expect the Nettl network to continue

growing and aim to scale beyond 300 locations in the UK.

Since most Nettl locations also sell the printing.com product range and are listed

on the website, we combine their sales. In the year product revenues produced

by our brand partners were £3.76m (2016: £3.89m). Our overall licence fee income

grew to £1.49m (2016: £1.40m) of which Nettl and printing.com subscriptions

grew to £0.80m (2016: £0.61m).

Our Company Studios

Back in 2014, over a series of weekends, we rebranded the printing.com studios

we own as Nettl. Whilst this was an essential step in our transformation, not all of

our people had the right skills to be effective ‘Nettlings’.

In a studio, revenues are made up from the sale of print and sale of web design,

ecommerce and hosting. Project OnePrice means we’re selling print at lower

prices than before.

We’ve changed the dynamic in our company studios to have more focus on

individual sales performance. That’s meant that in each studio, we’ve changed

team members and our performance management.

In the previous year, we closed an underperforming, company-owned studio. The

lease was ending, so we thought it made sense to migrate the client base to another

studio, less than 50 miles away. Despite regular contact, by the end of the following

year, almost all of the revenue from the closed studio’s client base was gone. Whilst

this was a hard lesson to learn, we believe this demonstrates the necessity for a

neighbourhood studio and that clients value a local creative relationship.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017Last year we brought people together at a series of Expoganza events around

the country. These events are for graphic professionals and our partners.

This one at our hub was in conjunction with the BPIF, an industry body.

The overall effect is that this year, revenues from our Company Studios dropped

to £1.15m (2016: £1.42m), although website sales increased to £0.15m

(2016: £0.14m).

Since our new teams have been assembled and structure has taken effect, early

results are positive and we anticipate stronger performance this year.

We had to relocate our Birmingham studio last year. It’s become our first Nettl

Business Store and we’re experimenting with meeting space rental and coffee

sales to drive footfall. We are refining the experience and are encouraged by the

team recently achieving their highest monthly sales and margin since 2006.

Spreading Nettl around the world

We license our systems and brands internationally. Master Licensees typically

have print hubs and reseller networks and use our software and, in some

instances, marketing in their country. Each agreement is structured slightly

differently, however we are either paid a share of local licence fees, transaction

fees, or both. Master licence fees increased slightly to £0.53m (2016: £0.51m).

We are currently experimenting with ways of launching Nettl in other countries.

In June 2017, we signed four ‘founding’ partners in The Netherlands. They’ll help

us to adapt the Nettl formula for the Dutch market. We’ll talk about those in

more detail when they move into roll-out. If you spot a Nettl abroad, pop in for a

brew.

Building out our partner funnel

As volumes from our printing.com business reduced, we looked for other ways

to utilise capacity at our Manchester production hub. We tried a few different

channels before launching and scaling Marqetspace.com.

Marqetspace sells print and display to graphic professionals. To date, we’ve

sold to 3,000 resellers. Our scalable marketing activity is attracting new trade

partners each month. The sale of printing via Marqetspace.com and other online

channels was £4.04m (2016: £4.05m).

More important than the volume, Marqetspace acts as our funnel for new brand

partners. They try us. They buy stuff. We deliver on time. They like our quality.

And we start a relationship. We ask them about their challenges. Then we try

to help. It’s easier to have that conversation once we’ve got to know each other.

Our aim is to turn Marqetspace clients into brand partners. So far over 20 have

made the leap.

As well as providing some printing on a white label basis, we also license

specialist ecommerce and web design software on a white label basis too.

Licence fees were £0.3m (2016: £0.42m).

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017We wrapped one of ADD Signs’ vans to promote our new Nettl Now same

day printing service, launched in Manchester this year. Clients can order a

range of print online and get it delivered in as little as four hours.

Whilst volumes in the traditional print market have been in steady decline,

automation has increased overall capacity in the market. Add an influx of

overseas capacity and the result is a market driven by price wars and over supply.

We are forecasting further margin erosion on the sale of trade print and do not

expect prices to increase in the short term. However, we’re seeing a growing

trend across Europe of “offline” print migrating online and our focus is on

delivering a reliable service to capture our share.

Last year we diversified our product mix and invested in direct-to-textile printing

kit. We call it ink-on-fabric. Because that’s what it is. We now sell a range of expo

display and custom furniture through Marqetspace and other channels. And

that’s growing well. Clients are choosing these next generation fabric displays

because they’re lighter and look better than the alternatives. Across all channels,

May 2017’s annualised monthly run rate (“AMRR”) for ink-on-fabric was £0.86m.

We expect this to grow and become a bigger share of our revenues.

Outlook

Our market is tough. We have many much larger competitors attacking us in

different areas.

Except one.

Nettl.

Sure, there are independent web designers. Of course there are online web

design tools. And yes, there are print shop chains who advertise websites in their

windows. But there isn’t a direct competitor to Nettl. Yet.

We believe we have a moment to grow Nettl into the world’s largest network of

web and design studios. A place where business can do business. A place where

entrepreneurs can come for help with tricky things like e-commerce, online

bookings and websites. Where they can see expo displays and signage in action.

Merchandised to inspire them. Where they can talk about marketing. Print and

digital. That’s Nettl.

We’ll work with partners to scale organically, in this country and others. But we

want to grow faster.

In January 2017 we made our first small acquisition. ADD Signs in Liverpool. That

started with a “100 day plan” for integration to bring our businesses together.

We’re pleased with ADD’s performance so far. Now we’re looking for a second

business to roll together and exploit economies of scale.

We look at the signs sector and we think, well, we already sell some signage to

our clients. Sign companies already sell some print. The market has converged.

It’s highly fragmented. We think there’s an opportunity to roll up sign businesses

and create value.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017One of the networking events we held at a Nettl Business Store this year.

Our aim is to be a place where business does business. The studio team are

located near the front and help clients with design, tech and marketing.

We’re evaluating businesses for sale in other cities. These could be smaller

or larger. Each is a different shape and size. Perhaps there could be a future

national sign hub to support our brand partner network, in the same way we

centrally supply print.

We figure that together, we can achieve more. By putting Nettl’s marketing and

systems together with an established client base and local manufacturing and

installation teams.

This year, we aim to organically grow the Nettl network, both here and overseas.

And we aim to make further acquisitions in the signs sector.

We’re determined to make this happen.

Peter Gunning

Chief Executive

7 June 2017

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017An oversize outdoor beanbag, printed onto waterproof tent fabric.

Customised entirely in a client’s brand and perfect for chill-out

areas and lazy summer days.

STRATEGIC REPORT

FINANCIAL
REVIEW

Alan Q Roberts
Finance Director

Revenue

Group Revenues decreased by 3.0% to £10.44m (2016: £10.77m). Revenues from

the Eurozone were 4.1% of the total (2016: 5.02%), as disclosed in the Segmental

Analysis note.

Gross Profit

The Group’s definition of Gross Profit is revenue less direct materials (including

the cost of distribution when made direct to customers). Gross Profit decreased

as a percentage from 66.3% to 63.1%, reducing in monetary terms to £6.59m

(2016: £7.14m) as margins on the sale of printing were eroded.

EBITDA / Operating Profit

The year showed a decrease in EBITDA, which is operating (loss)/profit before

interest, tax, depreciation and amortisation, to £0.76m representing a margin

of 7.3% (2016: £1.52m, 14.1%) to turnover. EBITDA represents an indicator of the

Group’s potential to generate cash. There was an Operating Loss for the year of

£983k (2016: £249k).

Pre-Tax Loss

The Group recorded a pre-tax loss of £0.99m (2016: £0.26m) being 9.5%

(2016: 2.3%) of Group revenue.

Staff costs reduced in the year to £3.72m (2016: £3.78m), although rose as a

percentage of revenue to 35.6% from 35.1%. Other operating charges included

a receivables impairment of £0.21m. The depreciation and amortisation

charge from continuing operations for the year was £1.75m (2016: £1.46m). The

amortisation of software development was 76.0% of the total (2016: 69.2%) as we

increased the speed of write-off from 5 years to 3 years

Interest Received and Charged

Interest received and charged in the period were negligible.

Taxation

As in the prior year the Group gained Research & Development Relief and have

accrued for the current year claim which contributed to a Tax income of £0.36m

(2016: £0.27m).

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017Earnings Per Share (EPS)

There is no dilution of continuing EPS in either year 1.37p (2016: 0.14p), based on

a weighted average number of shares in issue of 45,500,884 (2016: 46,369,156).

Cash Flow

At the year end the Group had cash balances of £0.52m (2016: £0.69m). Net

Funds were £0.21m (2016: £0.36m). Operational cash generated was £0.84m

(2016 outflow: £0.1m). Working Capital movement included a reduction in Trade

Creditors of £0.36m.

Capital Expenditure

The total capital expenditure for the year was £0.89m (2016: £1.82m) plus

£0.06m for the acquisition of ADD Signs Limited. Capital expenditure reflected

investment in the development of the Group’s systems the major item being

Software Development for Nettl and the Group’s SaaS platforms totalling £0.77m

(2016: £1.01m).

Manufacturing capacity at the Manchester Hub has capacity for growth

however, expenditure will continue to be incurred on software development and

enhancement to support our Partners and business streams.

Share-based Save as You Earn (SAYE) Scheme

The Company launched a SAYE Scheme commencing 1 March 2017. The Scheme

offered all employees the opportunity to participate in the future growth of

the Company through the granting of share options. The scheme requires

employees to commit to making a monthly payment of between £5 and £500 for

36 months. These instalments are paid into a savings account, operated by Royal

Bank of Scotland plc, held independently from the Company.

Employees were invited to subscribe for options over ordinary shares of 1 penny

each in the Company (“Ordinary Shares”) with an exercise price of 7.75 pence

per share, representing the closing mid-market price of the Ordinary Shares on

the day prior to the invitation to participate. The options are exercisable if all 36

payments have been made, between 1 March 2020 and 31 August 2020.

A total of 49 employees elected to participate in the SAYE Scheme and were

granted options over 4,359,460 Ordinary Shares on 23 February 2017, equating to

9.6 per cent of the current total voting rights in the Company.

During the year the Company purchased 240,000 of its own shares at an average

price of 9.99p.

Principal Risks and Uncertainties

The following are some of the principal risks relating to the Group’s operations:

• uncertainty in the general economic environment may impact upon revenues

and profitability;

• markets operated in are extremely competitive posing a threat to profitability;

• technological advances in manufacturing and or software may impact on

operational effectiveness and earnings potential;

• a major catastrophe could impact the UK Production Hub. A disaster plan

exists and losses are insured against but there could be a significant impact in

the short and medium term;

• the Group and its clients depend on the W3P SaaS platform and all reasonable

operational contingency is embedded for resilience in the event of a

catastrophe;

• the ability to retain and recruit key people, across a multitude of disciplines, is

essential in maintaining and growing the business;

• Group SaaS platforms are developed in-house but use third party

components, the necessary rights exist but there is no certainty that these

rights will be retained indefinitely.

Treasury Policies

Surplus funds are intended to support the Group’s short term working capital

requirements. These funds are invested through the use of short term deposits

and the policy is to maximise returns as well as provide the flexibility required to

fund ongoing operations. The Board anticipate cash balances will rise moving

forward.

The Board has developed a model to establish a fair value for the Company’s

shares and will only purchase shares when the offer price is materially below that

value and funds are available. It is not the Group’s policy to enter into financial

derivatives for speculative or trading purposes.

Alan Q. Roberts

Finance Director

7 June 2017

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017DIRECTORS AND SENIOR MANAGERS

Jan Mohr
Chairman

Peter Gunning
Chief Executive

Jan is based in Hamburg, Germany and is MD of the

After obtaining his Masters Degree in Accountancy

advisory firm JMX Capital GmbH. He previously worked

and Finance from Heriot-Watt University in 1997, Peter

with Investmentaktiengesellschaft fuer langfristige

established The Design Foundry Scotland Limited and

Investoren TGV, Hauck & Aufhaeuser and McKinsey &

was a client of the business. Since joining the Group in

Company. Jan graduated from Frankfurt School of Finance

1998, he has been responsible for developing the Nettl

and Management and earned a Master in Finance at

and printing.com studio concepts, associated marketing

Stockholm School of Economics as a German National

and operations infrastructure.

Merit Scholar.

Jan was appointed to the Board in March 2016. Age 28.

Peter was appointed to the Board in June 2001. Age 41.

Alan Q Roberts
Finance Director

Alan qualified as a Chartered Management Accountant in 1981

whilst company accountant of Moon Brothers Engineering.

He then moved to the Edward Billington Group as divisional

accountant and from there he joined Dalgety as group

accountant for the Merseyside production facilities. Moving

to CQR in 1987 (acquired by Expamet International in 1988)

as management accountant, he was subsequently appointed

financial director & company secretary in 1991. The company

was sold to Channel Holdings in 1995 and in 1997 he was

appointed operations director by which time the company

had turnover of c£20m per annum.

Alan joined the Group in June 1999. Age 61.

Richard Lightfoot
Company Secretary

Richard graduated from Manchester

Metropolitan University in 1998 with a First

Class honours degree in Business Studies.

He subsequently worked for a Corporate

Finance advisory firm assisting on mergers &

acquisitions and venture capital fund raisings.

Since joining the Group in 2004 he has

performed a number of roles supporting the

board in implementing strategic initiatives.

Richard was appointed Company Secretary in

October 2015. Age 45.

Pavel Begun
Non-Executive Director

Conrad Bona
Non-Executive Director

Pavel is based in Toronto, Canada and has global financial and

Conrad is a business consultant, investor and

operational expertise having worked in equity research for

entrepreneur who started his career as a banking

Fiduciary Asset Management and A.G. Edwards & Sons. He

and finance lawyer and has worked in Toronto,

graduated with Honours from the University of Chicago with

London and Tokyo. He has a degree in economics

an M.B.A. in Accounting and Finance and is also a Chartered

from the University of Western Ontario, law degrees

Financial Analyst and a member of the Toronto Society of

from the University of Edinburgh and the University

Financial Analysts. Pavel is currently a managing partner of 3G

of New Brunswick and qualified to practice as a

Capital Management LLC, a global value-oriented investment

lawyer in multiple jurisdictions. No longer practicing

vehicle which he co-founded operating from Toronto and

law, Conrad now advises companies on a wide

Chicago. Pavel is also a Non-Executive Director of AlarmForce

range of commercial, financial and business matters.

Industries Inc. (TSX: AF), a leading North American residential

He has both Canadian and British citizenship and is

alarm monitoring company.

based in London, England.

Pavel was appointed to the Board in November 2012. Age 38.

Conrad was appointed to the Board in October

2015. Age 48.

Gavin Cockerill
Chief Operating Officer

After graduating from Birmingham City University in

2000 and following a short stint in advertising, Gavin

helped launch and grow the printing.com studio in

Birmingham. Since joining the Group he has been

involved in progressing the Nettl and printing.com

business models across the UK and it’s numerous

master licenses globally. Moving to Manchester in 2012

he launched and developed the group’s TemplateCloud

and Flyerzone offerings.

Gavin joined the Group in 2000 and was appointed

COO in October 2015. Age 38.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017DIRECTORS’ REPORT

The Directors present their report and the financial statements of Grafenia plc and its subsidiary companies for the financial year

ended 31 March 2017. The Directors have proposed that no final dividend will be paid (2016: nil).

RESEARCH AND DEVELOPMENT

All research costs are written off as incurred.

To maintain and improve our systems the Group undertake continual development of the suite of software modules and tools used by

Grafenia owned operations and our Partners worldwide. This work is broken down into Projects with the delivery managed with third

party programmers and those employed by the Group.

Individual projects have to satisfy the following criteria:

• The project is clearly defined and related expenditure is separately identifiable;

• The project is technically feasible and commercially viable;

• Current and future costs will be exceeded by future sales;

• Adequate resources exist for the project to be completed.

In such circumstances the costs are carried forward and amortised over time in all cases over a period not exceeding three years

commencing in the year when the Group begins to benefit from the expenditure.

DIRECTORS

The following Directors have held office since 1 April 2016:

J-H Mohr

P Begun

C C Bona

Non-executive Chairman

Non-executive Director

P R Gunning

Chief Executive

A Q Roberts

Finance Director

L A Wheatley

Non-executive Director – Resigned 15 August 2016

All the Directors are subject to re-election at intervals of no more than 3 years.

P R Gunning retires by rotation in accordance with the Company’s Articles of Association. P R Gunning being eligible, offers himself up

for re-election.

Details of Directors’ interests in the share capital of the Company as shown in the register, together with details of share options

granted and awards made to the Directors, are included in the Report on Directors’ Remuneration on pages 38 to 40.

From 3 April 2008 the Company has maintained cover for its Directors under a directors’ liability insurance policy, as permitted by the

Companies Act 2006.

EMPLOYEES

The employment policies of the Group embody the principles of equal opportunity and the Group does not discriminate against

anyone on any grounds. The Group ensures that every consideration is given to applications of employment from disabled persons. If

an employee became disabled, every effort would be made to offer suitable alternative employment within the Group and assistance

with retraining.

The Group keeps employees informed via it’s Intranet and by periodic staff meetings and internal announcements and takes account

of any comments and feedback provided by employees in the formulation of its policies and procedures.

HEALTH AND SAFETY

Emphasis is placed upon providing a safe and healthy working environment for employees, customers and suppliers. The Group

ensures that regular risk assessments are carried out and that plant and machinery is properly maintained. Working practices

are developed to embody safe systems of work and the Group ensures that employees receive ongoing instruction, training and

supervision for working and health and safety issues.

SOCIAL, ENVIRONMENTAL AND ETHICAL ISSUES

The Board considers social, environmental and ethical matters in all aspects of the business of the Group. They and senior

management review and assess the significant risks to the Group’s short and long term value as impacted upon by social,

environmental and ethical issues. The Group comply with environmental laws and regulations and work with suppliers and customers

to improve the effectiveness of environmental management.

Through the period the Group maintained its ISO14001 environmental accreditation.

PRINCIPLES OF CORPORATE GOVERNANCE

As the Group is AIM listed it is not required to comply with the Combined Code. However, the Directors’ Statement of Corporate

Governance can be viewed on the Company’s web site at www.grafenia.com.

SUBSTANTIAL SHAREHOLDERS

In addition to the Directors’ interests noted in the Directors’ Remuneration Report, the Directors are aware of the following who were

interested in 3% or more of the Company’s equity as at 7 June 2017:

Registered holding

Number of shares

% of issued share capital

Langfristige Investoren TGV

Axion SA

3G Capital

Scherzer & Co SA

R G Hardie

Executors of P Gordon

ANNUAL GENERAL MEETING

10,872,001

3,500,000

2,740,000

3,280,000

1,674,574

1,546,050

22.86%

7.36%

5.76%

6.90%

3.52%

3.25%

The Annual General Meeting of the Company will be held on 28 July 2017 at the Company’s offices Focal Point, Third Avenue,

The Village, Trafford Park, Manchester M17 1FG. In addition to the ordinary business, the Company will also propose a number of

resolutions, which will be dealt with as special business. Details are contained in the Notice of the Annual General Meeting.

In the opinion of the Directors, the passing of these resolutions is in the best interests of the shareholders.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017DISCLOSURE OF INFORMATION TO THE AUDITOR

The Directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware, there is no

relevant audit information of which the Group’s auditor are unaware; and each Director has taken all the steps that he ought to have

taken as a director to make himself aware of any relevant audit information and to establish that the Group’s Auditor is aware of that

information.

AUDITOR

Following a tender conducted during the year, RSM UK Group LLP were selected as Auditor of the Group. Accordingly, a resolution

will be proposed at the AGM on 28 July 2017 for appointment as Auditor of Grafenia plc. KPMG LLP’s appointment will end at the

conclusion of that AGM.

By order of the Board

A Q Roberts

Director

7 June 2017

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF
THE ANNUAL REPORT, STRATEGIC REPORT, THE DIRECTORS’
REPORT AND THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report, Strategic Report, the Directors’ Report and the Financial Statements in

accordance with applicable law and regulations.

Company law requires the directors to prepare group and parent company financial statements for each financial year. As required by

the AIM Rules of the London Stock Exchange they are required to prepare the group financial statements in accordance with IFRSs as

adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view

of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and

parent company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with IFRSs as adopted by the EU; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent

company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent

company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and

enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for

taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other

irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors’ Report, and

Directors’ Remuneration Report that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the

company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from

legislation in other jurisdictions.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

DIRECTORS’ REMUNERATION REPORT

As a company listed on AIM the Company is exempt from the S420 obligation of the Companies Act 2006 to prepare a Directors’

Remuneration Report and the S439 obligation to put a written remuneration policy to a shareholder vote once every three years.

REMUNERATION COMMITTEE

The Company has an established Remuneration Committee which is constituted in accordance with the recommendations of the

Combined Code. The members of the Committee are Jan Mohr, Pavel Begun and Conrad Bona who are Non-executive Directors, Jan

Mohr chairs the Committee.

In determining the Directors’ remuneration for the year, the Committee consulted the Chief Executive about its proposals. The

Committee also sources reports from the Company’s various advisers.

REMUNERATION POLICY

The policy of the Committee is to reward Executive Directors in line with the current remuneration of directors in comparable

businesses taking into consideration the advice of independent bodies, in order to recruit, motivate and retain high quality executives

within a competitive market place.

There are four main elements of the remuneration packages for Executive Directors and senior management:

• Basic annual salary (including Directors’ fees) and benefits;

• Annual cash bonus payments which cannot exceed 30% of basic salary, with the exception of the Chief Executive who has a long

term scheme tied to the growth in free cash flow;

• Pension arrangements.

BASIC ANNUAL SALARY

Basic pensionable salary is reviewed annually in March with increases, if awarded, taking effect from 1 April. In addition to basic salary,

the Executive Directors also receive certain benefits in kind, principally a car and private medical insurance.

ANNUAL CASH BONUS

The Committee establishes the objectives which must be met for each financial year if a cash bonus is to be paid. The purpose of the

bonus is to reward Executive Directors and other senior employees for achieving above average performance which also benefits

shareholders. The maximum performance related bonus that can be paid is 30% of basic salary. No incentive payments have been

made for the financial year ended 31 March 2017.

PENSION ARRANGEMENTS

The Company contributes to individual money purchase schemes for the Executive Directors.

DIRECTORS’ CONTRACTS

It is the Company’s policy that Executive Directors should have contracts with an indefinite term providing for a maximum of

six months’ notice, except for the Chief Executive who has a twelve month notice period. There are no specific provisions for

compensation in the event of loss of office. The Remuneration Committee would consider the circumstances of any early termination

and determine compensation payments accordingly.

NON-EXECUTIVE DIRECTORS

The fees of each Non-executive Director are determined by the Board as a whole, excluding the Non-executive being reviewed, having

regard to the commitment of time required and the level of fees in similar companies. Non-executive Directors’ contracts are subject

to three months written notice.

ELEMENTS OF REMUNERATION

Year ended 31 March 2017 (audited):

J-H Mohr

P Begun

C C Bona

P R Gunning

A Q Roberts

L A Wheatley

Year ended 31 March 2016 (audited):

L A Wheatley

P Begun

C C Bona

J- Mohr

A Rafferty

P R Gunning

A Q Roberts

Basic
salary
£

170,905

85,178

256,083

Basic
salary
£

281,374

171,559

85,503

538,436

Fees
£

20,077

18,692

78,923

Fees
£

30,231

20,154

9,846

1,000

61,231

Benefits
£

Bonuses
£

2017
Total
£

200

745

20,000

15,525

21,202

9,336

188

2017
Pension
£

20,077

20,277

207,175

115,716

18,880

21,947

20,000

25,249

402,202

Benefits
£

Bonuses
£

1,290

867

20,756

22,913

2016
Total
£

302

11,362

15,525

9,338

36,575

2016
Pension
£

30,533

20,154

9,894

1,000

294,026

187,951

115,597

659,155

DIRECTORS’ INTERESTS

At 31 March 2017, the Directors had the following beneficial interests in the Company’s shares.

Ordinary shares of 1p each

31 March 2017

31 March 2016

J-H Mohr

P Begun

C C Bona

P R Gunning

A Q Roberts

L A Wheatley

2,740,000

540,000

1,250,000

500,000

N/A

2,740,000

450,000

1,000,000

500,000

From the end of the year until 7 June 2017 there have been no changes in the above interests. No Directors, or other family members,

had any interests in the deferred share capital of the Company.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

DIRECTORS’ REMUNERATION REPORT (CONTINUED)

The Group’s share price performance for the period under review charted with the AIM all share is shown below. The market price of

shares as at 31 March 2017 was 6.38pence (2016: 10.75pence). The range during 2017 was 6.25pence to 16.50pence. At 31 May 2017, the

price was 9.78pence.

INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF GRAFENIA PLC

We have audited the financial statements of Grafenia plc for the year ended 31st March 2017, set out on pages 34 to 71. The financial

reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards

(IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of

the Companies Act 2006.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.

Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them

in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to

anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have

formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

As explained more fully in the Directors’ Responsibilities Statement set out on page 37, the directors are responsible for the

preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and

express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and

Ireland). Those standards require us to comply with the UK Ethical Standards for Auditors.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at

www.frc.org.uk/auditscopeukprivate.

OPINION ON FINANCIAL STATEMENTS

In our opinion:

• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31st March

2016 and of the group’s profit for the year then ended;

• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;

• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as

applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year is consistent with the

financial statements.

Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the

Strategic report and the Directors’ report:

• we have not identified material misstatements in those reports; and

• in our opinion, those reports have been prepared in accordance with the Companies Act 2006.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our

opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been

received from branches not visited by us; or

• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement

with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

WILL BAKER (SENIOR STATUTORY AUDITOR)

FOR AND ON BEHALF OF KPMG LLP, STATUTORY AUDITOR

KPMG LLP

7 June 2017

Chartered Accountants

1 St Peter’s Square

Manchester

M2 3AE

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2017

Note

Continuing Operations

Revenue

Raw materials and consumables used

Gross profit

Staff costs

Other operating charges

Depreciation and amortisation

Restructuring costs

Total expenses

Operating loss

Operating (loss)/profit analysed as:

Operating (loss)/profit before restructuring costs

Restructuring costs

Operating loss

Financial income

Financial expenses

Net financing expense

Loss before tax

Tax income

(Loss)/profit from continuing operations after tax

Profit from discontinued operations after tax

(Loss)/Profit for the year

Other comprehensive income

Total comprehensive income for the year

EPS – Continuing Operations

EPS – Discontinued Operations

EPS – Total (1)

(1) Earnings per share suffers no dilution

The notes on pages 47 to 71 form part of these financial statements.

2017

£000

10,445

(3,860)

6,585

(3,716)

(2,049)

(1,746)

(57)

(7,568)

(983)

(926)

(57)

(983)

(21)

(4)

(987)

362

(625)

(1.37)p

2016

£000

10,766

(3,631)

7,135

(3,776)

(1,838)

(1,462)

(308)

(7,384)

(249)

(308)

(249)

(16)

(11)

(260)

270

0.02p

0.12p

0.14p

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY –
CONSOLIDATED AND COMPANY

GROUP – YEAR ENDED 31 MARCH 2016

Balance at 31 March 2015

Share
Capital

475

Profit and total comprehensive income for the year

Own shares acquired

Dividends paid

Total movement in equity

Balance at 31 March 2016

475

GROUP – YEAR ENDED 31 MARCH 2017

Loss and total comprehensive income for the year

Own shares acquired

Total movement in equity

Balance at 31 March 2017

475

COMPANY – YEAR ENDED 31 MARCH 2016

Balance 31 March 2015

Share
Capital

475

Profit and total comprehensive income for the year

Own shares acquired

Dividends paid

Total movement in equity

Balance at 31 March 2016

475

COMPANY – YEAR ENDED 31 MARCH 2017

Loss and total comprehensive income for the year

Own shares acquired

Total movement in equity

Balance at 31 March 2017

475

Total
£000

5,952

(168)

(586)

(690)

Total
£000

5,498

791

(168)

(586)

Share
premium
£000

Merger
reserve
£000

Treasury
Shares
£000

Retained
Earnings
£000

838

(69)

4708

(168)

(586)

(522)

838

(237)

4,186

5,262

(24)

(625)

(24)

(649)

838

(261)

3,561

4,613

Share
premium
£000

Merger
reserve
£000

Treasury
Shares
£000

Retained
Earnings
£000

627

(69)

4,465

(168)

791

(586)

205

627

(237)

4,670

5,535

(24)

627

(261)

4,724

5,565

The notes on pages 47 to 71 form part of these financial statements.

CONSOLIDATED AND COMPANY
STATEMENT OF FINANCIAL POSITION

Note

Group

2017
£000

Group

Company

2016
£000

2017
£000

Company
2016
£000

AT 31 MARCH 2017

Non-current assets

Property, plant and equipment

Investments in subsidiaries

Intangible assets

Other receivables

Total non-current assets

Current assets

Inventories

Trade and other receivables

Current tax repayable

Cash and cash equivalents

Total current assets

Total assets

Current liabilities

Other borrowings

Trade and other payables

Accruals and deferred income

Other liabilities

Total current liabilities

Non-current liabilities

Other borrowings

Deferred tax liabilities

Total non-current liabilities

Total liabilities

Net assets

Equity attributable to equity holders of the parent

Share capital

Merger reserve

Treasury shares

Retained earnings

Total equity

1,333

2,305

3,688

369

2,386

138

524

3,417

7,105

(83)

(1,370)

(389)

(118)

1,513

2,893

4,433

316

2,608

231

686

3,841

8,274

(66)

(1,363)

(699)

(108)

(1,960)

(2,236)

(216)

(316)

(532)

(2,492)

4,613

475

838

(261)

3,561

4,613

(264)

(512)

(776)

(3,012)

5,262

475

838

(237)

4,186

5,262

637

4,983

4,984

5,621

(20)

(36)

(56)

5,565

475

627

(261)

4,724

5,565

The notes on pages 47 to 71 form part of these financial statements.

These financial statements were approved by the board of directors on 7 June 2017 and were signed on its behalf by:

A Q ROBERTS

Director

574

4,996

5,570

(6)

(29)

(35)

5,535

475

627

(237)

4,670

5,535

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

Note

Group

2017

£000

Group

Company

2016

£000

2017

£000

Company
2016

£000

Depreciation, amortisation and impairment (continuing operations)

1,746

CONSOLIDATED AND COMPANY
STATEMENT OF CASH FLOWS

FOR YEAR ENDED 31 MARCH 2017

Cash flows from operating activities

(Loss)/Profit for the year

Adjustments for:

(Surplus)/Loss on sale of subsidiary

Net finance expense/(income)

Foreign exchange gains/(loss)

Tax income

Operating cash flow before changes in working capital and provisions

Change in trade and other receivables

Change in inventories

Change in trade and other payables

Cash generated/(used) from Operations

Interest paid

Income tax received/(paid)

Net cash inflow/(outflow) from operating activities

Cash flows from investing activities

Proceeds from sale of subsidiary

Interest received

Acquisition of plant and equipment

Capitalised development expenditure

Acquisition of other intangible assets

Acquisition of Subsidiary net of cash

Dividends received

Net cash (used in)/generated by investing activities

Cash flows from financing activities

Proceeds from the issue of share capital

Purchase of own shares

Payment of finance leases

Dividends paid

Net cash used in financing activities

Net decrease in cash and cash equivalents

Exchange loss on cash and cash equivalents

Cash and cash equivalents at start of year

(625)

1,462

(279)

(362)

(223)

777

235

(45)

(361)

606

(21)

259

844

(119)

(442)

(327)

(26)

(911)

(24)

(69)

(93)

(160)

(2)

686

1,035

(322)

(114)

(632)

(33)

(16)

(20)

(69)

1,728

(438)

(513)

(500)

282

(168)

(40)

(586)

(794)

(581)

(10)

1,277

(11)

(63)

(24)

791

114

(902)

(8)

(5)

(1,884)

(1,885)

1,728

910

2,638

(168)

(586)

(754)

(1)

Cash and cash equivalents at 31 March 2017

524

686

The notes on pages 47 to 71 form part of these financial statements.

NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)

1. ACCOUNTING POLICIES

BASIS OF PREPARATION

Grafenia plc (the “Company”) is a public company incorporated and domiciled in the UK.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The

parent company financial statements present information about the Company as a separate entity and not about its Group.

STATEMENT OF COMPLIANCE

Both the parent company financial statements and the Group financial statements have been prepared by the Directors in accordance

with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”) and under the historical cost convention.

On publishing the parent company financial statements here together with the Group financial statements, the Company is taking

advantage of the exemption in s408 of the Companies Act 2006 not to present its individual Statement of Comprehensive Income

statement and related notes that form a part of these approved financial statements.

The financial statements were approved by the Board of Directors on 7 June 2017.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these

consolidated financial statements. To improve the clarity of the financial statements a number of policies are presented alongside the

relevant accounting note.

BASIS OF CONSOLIDATION

The Group financial statements comprise the financial statements of the Company and all of its subsidiaries made up to the financial

year end. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable

returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing

control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to

the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control

commences until the date that control ceases.

Accounting policies are consistently applied throughout the Group. Intercompany balances and transactions have been eliminated.

Profits from intercompany sales, to the extent that they are not yet realised outside the Group, have also been eliminated.

GOING CONCERN

Information regarding the Group’s business activities together with the factors likely to affect its future development, performance

and position is set out in the Chief Executive’s Statement on pages 13 to 27. The financial position of the Group, its cash flows, liquidity

position and borrowing facilities are described on pages 29 to 31. In addition, note 16 to the financial statements includes details of the

Group’s financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

The Group has the financial resources and opportunities to grow. As a consequence, the Directors believe that the Group is well

placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries, including a

consideration of reasonable sensitivities, the Directors have a reasonable expectation that the Company and the Group have adequate

resources to continue in operational existence for the foreseeable future. Cash flow forecasts indicate cash inflows to ensure that

sufficient cash is available for future trading and investment. The Group’s external funding is made up of finance leases and a small

loan totalling £299,000 against cash balances of £524,000 at the year end and the Company’s bank provides a £250,000 overdraft

facility. Accordingly they continue to adopt the going concern basis in preparing the annual report and financial statements.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 20171. ACCOUNTING POLICIES (CONTINUED)

BUSINESS COMBINATIONS

For acquisitions the Group measures goodwill at the acquisition date as the:

• fair value of the consideration transferred; plus

• recognised amount of any non-controlling interests in the acquiree; plus

• fair value of the existing equity interest in the acquiree; less

• net recognised amount (fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified

as equity, it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the

contingent consideration are recognised in profit or loss.

INVESTMENTS

Investments in subsidiaries are stated at cost. Where in the opinion of the Directors an impairment of the investment has arisen, the

value of the investment will be written down to the recoverable amount in accordance with IAS 36 ‘Impairment of Assets’.

INVENTORIES

Inventories are valued at the lower of cost and net realisable value. Cost is based on the first-in first-out principle and is valued at

purchased cost. Net realisable value is based on estimated selling price less additional costs to completion and necessary costs to

make the sale. Inventories are made up of raw materials of £366,000 (2016: £311,000) and work in progress of £3,000 (2016: £3,000).

INTEREST BEARING BORROWINGS

Interest bearing borrowings are recognised initially at fair value less any attributable transaction costs. Subsequent to initial

recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being

recognised in the income statement over the period of the borrowings on an effective interest basis.

IMPAIRMENT OF ASSETS

The carrying amounts of the Group’s assets, other than inventories and deferred tax assets, are reviewed at each balance sheet date to

determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

For assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is

estimated at each balance sheet date.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable

amount. Impairment losses are recognised in profit and loss.

CALCULATION OF RECOVERABLE AMOUNT

The recoverable amount of the Group’s receivables carried at amortised cost is calculated as the present value of estimated future

cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these

financial assets). Receivables with a short duration are not discounted.

The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the

estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments

of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the

recoverable amount is determined for the cash generating unit to which the asset belongs.

OPERATING LEASE PAYMENTS

Payments made under operating leases are recognised in profit and loss on a straight-line basis over the term of the lease. Lease

incentives received are recognised in profit and loss as an integral part of the total lease expense over the term of the lease.

FINANCE LEASE PAYMENTS

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance

charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance

of the liability.

FINANCING COSTS

Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend income

is recognised in profit and loss on the date the entity’s right to receive payments is established.

FOREIGN CURRENCIES

Foreign currency transactions are recorded at the exchange rate prevailing at the date of the transaction. At each Balance Sheet date,

monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at the Balance Sheet

date. Translation differences on monetary items are taken to profit and loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in foreign currency are translated using the exchange

rate at the date of transaction.

The financial statements of overseas subsidiaries are translated into sterling at the exchange rate ruling at the Balance Sheet date;

income and expenses are translated at exchange rates at the date of transaction. The resulting surpluses and deficits are taken directly

to profit and loss.

On disposal of a foreign subsidiary any cumulative exchange differences held in shareholders’ equity are transferred to the

Consolidated Statement of Comprehensive Income.

TRADE AND OTHER RECEIVABLES

Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost

using the effective interest method, less any impairment losses.

TRADE AND OTHER PAYABLES

Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost

using the effective interest method.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 20171. ACCOUNTING POLICIES (CONTINUED)

USE OF 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 of software and development costs

The Board consider that the Group’s key differentiators stem from its proprietary software, operationally W3P and that developed

to support Nettl, Marqetspace, BrandDemand, Templating 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 who work to a detailed specification

and schedule. The Board exercises judgement in determining the costs to be capitalised and will use estimates to determine

the useful economic life to be applied typically 3 years or whilst the asset in question remains in use. Further, the Board will use

estimates of future incremental cash flows in assessing the carrying value of intangible assets.

• Recoverability of receivables

The Group reviews outstanding loan balances and overdue trade debtors on a regular basis and makes provisions against those

balances considered most at risk. In estimating the bad debt provision management will consider the level of debt over 90 days

overdue, agreement and compliance with payment plans and the ability to offset the risk against related payables.

STANDARDS, AMENDMENTS AND INTERPRETATIONS THAT HAVE BEEN ENDORSED, BUT WHICH ARE NOT YET EFFECTIVE

AND HAVE NOT BEEN EARLY ADOPTED BY THE GROUP:

•

IFRS 9 Financial Instruments – effective for periods starting on or after 1 January 2018 – Deals with the classification and

measurement of financial assets.

•

IFRS 15 – Revenue from contracts with customers – effective for periods starting on or after 1 January 2018 – Established a single

comprehensive model to use in the accounting of revenue arising from customers.

•

IFRS 16 – Leases – effective for periods starting on or after 1 January 2019 – Introduces a single lessee accounting model. The

standard has not yet been endorsed by the EU.

These new standards, amendments to standards and interpretations have been issued but are not yet effective, and therefore have not

yet been adopted by the Group. These are not expected to have a material impact on the Group’s accounts when adopted.

2. ACQUISITIONS OF SUBSIDIARIES

Acquisitions in the current period

On 16 January 2017, the Company acquired all of the ordinary shares in Arthur Diamond Design Limited (ADD) for £63,000, satisfied

in cash. The company designs, manufactures and installs building signage and vehicle graphics. This signage service is a logical

extension of Grafenia’s Brand Partners offering. In the three months to the period end the subsidiary contributed a loss of £327 to the

consolidated result for the year. If the acquisition had occurred on 1st April 2016 Group revenue would have been £307,000 higher and

an estimated net profit of £5,000 would have been added to Group results. In determining these amounts, management has assumed

that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on the first

day of accounting period.

Effect of acquisition

The acquisition had the following effect on the Group’s assets and liabilities.

Book and Fair values
on acquisition

£000

Acquiree’s net assets at the acquisition date:

Property, plant and equipment

Intangible assets

Inventories

Trade and other receivables

Cash and cash equivalents

Interest-bearing loans and borrowings

Trade and other payables

Net identifiable assets and liabilities

Consideration paid:

Initial cash price paid

Equity instruments issued

Contingent consideration at fair value

Deferred consideration at fair value

Total consideration

(38)

(68)

Nil

Goodwill of £51,000 arose on the acquisition and recognises the value placed upon acquired customer revenues.

No equity instruments were used in the transaction.

The Company has agreed to pay the vendor an additional consideration if EBIT for the 12 months ended 31 December 2017 exceeds

£30,000, capped at EBIT £200,000 this would potentially earn the vendor an additional £90,000. As any additional consideration is

contingent on the vendor continuing to be employed by the Group it will be treated as remuneration when earned.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

3. REVENUE AND SEGMENTAL INFORMATION

Revenue represents the invoiced amount, net of Value Added Tax, of goods sold and services provided to customers outside the

Group and is recognised as follows:-

• For printing services revenue is recognised on completion of the print run at the fair value of the consideration receivable net of any

discounts as the risks and rewards of the inventory pass to the Customer upon completion of printing. Revenue recognised relates

only to amounts invoiced to Customers rather than the full amount paid by the end client. Where production is undertaken by a

supplier, revenue is recognised when the supplier dispatches the goods.

• Print partners may use the Group’s Brambl web design tool paying a monthly fee plus charges when websites are deployed and

hosted.

• Revenue in respect of brand licence fees for printing.com and Nettl are spread evenly over the period to which the rights are made

available. An initial fee is charged in relation to training and set-up which is recognised based on the fair value of these services at

the time they are delivered.

• Nettl partners monthly fees, and therefore revenue, is recognised in the month of supply.

• The Group owns and operates a number of Nettl Studios which design, deploy and host websites. Revenue is recognised against

milestones agreed with Clients whilst being designed. Ongoing services are then supplied, charged and recognised on a monthly

basis.

• Master Licensees have agreements based on the use of the Group’s Brands and platforms. Fees are agreed at a minimum monthly

rate which rises when minimum activity rates are exceeded. Charges and therefore revenues are recognised on a monthly basis.

As in the prior year the Group’s operating and reporting segments are geographic being UK & Ireland, Europe and others. The

segmental analysis by nature of service now states Licence Fees, Company owned Studio revenue, Brand Partner print and Online

sales plus Trade print. This disclosure correlates with the information which is presented to the Chief Operating Decision Maker, the

Chief Executive (CEO), who reviews revenue (which is considered to be the primary growth indicator) by segment. The Group’s costs,

finance income, tax charges, non-current liabilities, net assets and capital expenditure are only reviewed by the CEO at a consolidated

level and therefore have not been allocated between segments in the analysis below.

Of the Group revenue of £10,444,000, £9,342,000 was generated in the UK (2016: £9,551,000). Revenue generated outside the UK

is primarily attributable to France £385,000 (2016: £427,000) and Republic of Ireland £292,000 (2016: £306,000). No single customer

provided the Group with over 10% of its revenue.

In Licence Fees BrandPartners, Nettl and printing.com, amounted to £0.80m (2016: £0.61m). White label fees reduced to £0.3m (2016:

£0.42m). Master Licensees increased to £0.53m (2016: £0.51m). Company Studios achieved Website sales of £0.15m (2016: £0.14m).

Of the Group’s non-current assets (excluding deferred tax) of £3,688,000, £3,626,000 are located in the UK. Non-current assets

located outside the UK are in France £12,000 (2016: 12,000) and the Republic of Ireland £49,000 (2016: £27,000).

ANALYSIS BY LOCATION OF SALES

UK & Ireland

£000

Europe

£000

Other

£000

Total

£000

Period ended 31 March 2017

Segment revenues

Operating Expenses

EBITDA

Results from operating activities

Net finance expense

Loss before tax

Tax Income

Loss for the period

Unallocated net assets

Period ended 31 March 2016

Segment revenues

Operating Expenses

EBITDA

Results from operating activities

Exceptional restructuring costs

Net finance income

Loss before tax

Tax Income

Profit from continuing operations after tax

Profit from discontinued operations after tax

Profit for the period

Unallocated net assets

9,634

430

380

10,444

(11,427)

763

(983)

(4)

(987)

329

(658)

4,613

Total

£000

Europe

£000

Other

£000

540

369

10,766

UK & Ireland

£000

9,857

(10,707)

1,213

(308)

(11)

(260)

270

5,262

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

Licence
Fees

Company
Studios

£000

Brand
Partner
Print
£000

Online &
Trade

Total

£000

1,489

1,151

3,762

4,042

10,444

(11,427)

763

(983)

(4)

(987)

329

(658)

4,613

Licence
Fees

Company
Studios

£000

Brand
Partner
Print

£000

Online &
Trade

Total

£000

1,403

1,425

3,893

4,045

10,766

(10,707)

1,213

(308)

(11)

(260)

270

5,262

ANALYSIS BY TYPE

Period ended 31 March 2017

Segment revenues

Operating Expenses

EBITDA

Results from operating activities

Net finance expense

Loss before tax

Tax Income

Loss for the period

Unallocated net assets

Period ended 31 March 2016

Segment revenues

Operating Expenses

EBITDA

Results from operating activities

Exceptional restructuring costs

Net finance income

Loss before tax

Tax Income

Profit for the period for continuing operations

Profit from discontinued operations

Profit for the period

Unallocated net assets

4. (LOSS)/PROFIT BEFORE TAXATION

Included in profit are the following:

Operating lease rentals

Amortisation of intangible assets

Depreciation

(Gain)/Loss on foreign currency transactions

Restructuring costs

There were restructuring costs of £57,000 in the financial year (2016: £308,000).

Auditors’ remuneration:

Audit of these financial statements

Amounts receivable by auditors and their associates in respect of:

Audit of financial statements of subsidiaries of the company

Tax compliance services

Other tax advisory services

Review of interim financial statements

Other assurance services

2017
£000

256

1,409

336

(14)

2017
£000

2016
£000

306

1,139

379

(39)

2016
£000

The 2017 Auditors’ remuneration for statutory audit services and non-audit services relate solely to amounts paid to KPMG LLP.

Amounts paid to the Group’s Auditor in respect of services to the Company, other than the audit of the Company’s financial

statements, have not been disclosed as the information is required instead to be disclosed on a consolidated basis.

5. STAFF NUMBERS AND COSTS

The average number of persons employed by the Group (including Directors) during the year analysed by category, were as follows:

Number of employees

Administration

Sales and distribution

Production

Group

Group Company

Company

2017

2016

2017

2016

120

124

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

5. STAFF NUMBERS AND COSTS (CONTINUED)

The aggregate payroll costs of all employees, including Directors, were as follows:

Group
2017
£000

3,275

385

3,716

Group Discontinued Discontinued
2017
2016
£000
£000

2016
£000

Company
2017
£000

Company
2016
£000

3,358

356

3,776

353

432

Wages and salaries

Social security costs

Other pension costs

Defined contribution plan

The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those

of the Group. The amounts charged to the Consolidated Statement of Comprehensive Income represent the contributions payable

to the scheme in respect of the accounting period. In the year ended 31 March 2017 £56,000 of contributions were charged to the

Consolidated Statement of Comprehensive Income (2016: £62,000). As at 31 March 2017 £3,000 (2016: £3,000) contributions were

outstanding on the balance sheet.

KEY MANAGEMENT REMUNERATION:

Key managements’ emoluments

Company contributions to money purchase pension plans

2017
£000

278

303

2016
£000

562

598

The Group considers the key management to be the Directors of the Group. Information covering Directors’ remuneration is set out in

full in the ‘Elements of remuneration’ section of the Directors Remuneration Report on page 38.

The aggregate of emoluments for the highest paid Director was £192,000 (2016: £283,000), and Company pension contributions of

£16,000 (2016: £11,000) were made to a money purchase scheme on their behalf.

Directors for whom retirement benefits are accruing under money purchase schemes 2 (2016: 3).

6. DISCONTINUED OPERATIONS

The disposal of Grafenia BV was completed on 6 October 2015. The results for discontinued operations for the period and previous

year were as follows:

Revenue

Expenses

Operating (Loss)/Profit

Finance revenue

Finance expense

Surplus on disposal of discontinued operations

Profit before tax

Taxation

Profit for the period from discontinued operations

Year ended
31 March
2017
£000

Year ended
31 March
2016
£000

2,551

(2,729)

(178)

279

101

(47)

The above profit on disposal of business of £0.28m is calculated as proceeds of £1.73m less costs of disposal of £0.07m less net assets

disposed of £1.38m. In addition to the disposal of Grafenia BV, other discontinued operations include the wind up of PDC SA and

Grafenia France SA being reorganised into Grafenia France sarl, which have been included in the expenses of discontinued operations.

The net cash flows attributable to discontinued operations for the period and previous year were as follows:

Year ended
31 March
2017
£000

Year ended
31 March
2016
£000

Operating cash flows

Investing cash flows

Financing cash flows

Net cash outflow

Exchange loss on cash and cash equivalents

329

(15)

(386)

(72)

(1)

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

7. TAXATION

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in profit and loss except to the extent that it

relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the

balance sheet date, and any adjustment to tax payable in respect of previous years.

The adjustment in the tax expense for prior years is primarily due to R&D tax reclaims. These amounts are recognised by the Group

when the claims have been drafted. The amounts reclaimed differ from the development costs capitalised under IAS and therefore the

difference is not recognised as part of the tax base of these assets.

Recognised in the income statement

Current tax expense

Current year

Foreign tax

Adjustments for prior years

Deferred tax expense

Origination and reversal of temporary differences (see note 8)

Movement due to change in rate of tax

Adjustment in respect of prior year

Total tax on continuing and discontinuing operations

The tax (credit)/expense in the income statement is disclosed as follows:

Total tax in income statement on continuing operations

Total tax in income statement on discontinued operations

Total tax in income statement

2017
£000

(123)

(50)

(166)

(132)

(26)

(38)

(362)

2016
£000

(219)

(167)

(332)

(56)

113

(223)

(270)

(223)

7. TAXATION (CONTINUED)

Reconciliation of effective tax rate

Factors affecting the tax charge for the current period:

The current tax charge for the period is lower (2016: lower) than the standard rate of corporation tax in the UK of 20% (2016: 20%). The

differences are explained below:

Loss on continuing operations

Profit on discontinued operations

Loss for the period

Tax using the UK corporation tax rate of 20% (2015:21%)

Effects of:

Permanent differences

Overseas tax losses not recognised

Difference in overseas tax rate

Adjustments in respect of prior periods – current tax

Adjustments in respect of prior periods – deferred tax

Unrelieved losses carried into following year

Withholding tax

R&D losses surrendered

R&D super deduction

Movement due to the change in the tax rate

Total tax repayment

2017
£000

(987)

(197)

(50)

(38)

(143)

(9)

(362)

2016
£000

(260)

101

(159)

(32)

(87)

(167)

113

(171)

(57)

(223)

The Group Tax Debtor amounts to £138,000 (2016 Debtor: £231,000). The deferred tax liabilities as at 31 March 2017 have been

calculated using the tax rate of 17% which was substantively enacted at the balance sheet date.

The UK corporation tax rate has been progressively reduced over the last 4 years. The October 2015 statement announced that the

rate will further reduce to 19% from 1 April 2017 and 18% from 1 April 2020.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

8. DEFERRED TAX ASSETS AND LIABILITIES – GROUP

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition

of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business

combination; differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable

future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying value

amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the

asset can be utilised.

Recognised deferred tax assets and liabilities

Property, plant and equipment

Intangible assets

Tax (assets)/liabilities

Movement in deferred tax during the year.

Assets
2017
£000

Assets
2016
£000

Liabilities
2017
£000

Liabilities
2016
£000

313

316

2016

31 March Adjustment Recognised Recognised
in income
due to tax
rate change
£000

for prior
years

in income

£000

Property, plant and equipment

Intangible assets

507

512

(38)

(130)

(2)

(132)

(26)

Movement in deferred tax during the year.

Property, plant and equipment

Intangible assets

1 April
2015

Adjustment
for prior
years

Recognised
in income

£000

Recognised
in income
due to tax
rate change
£000

394

403

113

(3)

(55)

(1)

(56)

COMPANY

The Company had no deferred tax assets or liabilities as at 31 March 2017 (2016: £nil).

507

512

31 March
2017

£000

313

316

31 March
2016

£000

507

512

9. PROPERTY, PLANT AND EQUIPMENT – GROUP

Property, plant and equipment is stated at cost less accumulated depreciation and impairments.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of

property, plant and equipment.

Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance

leases. Where land and buildings are held under finance leases the accounting treatment of the land is considered separately from

that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and

the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.

Lease payments are accounted for as described below.

Depreciation is charged to profit and loss on a straight-line basis over the estimated useful lives of each part of an item of property,

plant and equipment. Land is not depreciated. The estimated useful lives are as follows:

Depreciation

Fixtures and fittings –

20%-33% straight line

Plant and equipment –

10%-30% straight line

Motor Vehicles –

25% straight line

Leasehold improvements – over remaining lease life

Where assets have been depreciated down to their estimated residual value they are no longer depreciated, a number of assets were

subject to this in the year.

Cost

Balance at 31 March 2015

Additions

Disposals

Effect of movements in foreign exchange

Balance at 31 March 2016

Additions

Acquisition of subsidiary

Disposals

Effect of movements in foreign exchange

Land and
buildings
£000

Plant and
equipment
£000

Motor Fixtures and
Fittings
£000

Vehicles
£000

576

6,888

556

(730)

6,714

781

252

(255)

798

(46)

Total

£000

8,302

808

(985)

8,147

119

(46)

Balance at 31 March 2017

576

6,801

853

8,316

Depreciation and impairment

Balance at 31 March 2015

Depreciation charge for the year

Disposals

Effect of movements in foreign exchange

Balance at 31 March 2016

Balance 31 March 2016

Depreciation charge for the year

Acquisition of subsidiary

Disposals

Effect of movements in foreign exchange

569

571

6,136

218

(730)

5,624

191

439

151

(212)

7,188

379

(942)

385

6,634

385

143

(46)

6,634

336

(46)

Balance at 31 March 2017

573

5,860

485

6,983

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

9. PROPERTY, PLANT AND EQUIPMENT – GROUP (CONTINUED)

Land and
buildings
£000

Plant and
equipment
£000

Motor Fixtures and
Fittings
£000

Vehicles
£000

Net book value

At 31 March 2015

At 31 March 2016

At 31 March 2017

752

1,090

941

LEASED PLANT, MACHINERY AND FIXTURE & FITTINGS

At 31 March 2017 Group had leased assets with a carrying value of £275,000 (2016: £350,000).

Total

£000

1,114

1,513

342

413

368

1,333

10. INTANGIBLE ASSETS AND INVESTMENTS

RESEARCH AND DEVELOPMENT COSTS

All research costs, which do not proceed to development, are written off as incurred, in the year £nil was written off (2016: nil).

Development costs are also charged to the profit and loss account in the year of expenditure, except when individual projects satisfy

the following criteria: the project is clearly defined and related expenditure is separately identifiable; the project is technically feasible

and commercially viable; current and future costs will be exceeded by future sales; and adequate resources exist for the project to be

completed. In such circumstances the costs are carried forward and amortised over three years. Impairment risk is reviewed by the

Board.

Amortisation on patents, trademarks and development costs is charged to profit and loss on a straight-line basis over the useful

economic life of the asset.

• Patents and trademarks –

20 years

• Domain names –

5% straight line

• Capitalised development costs –

3 years

Reviews of impairment indicators in relation to the carrying value of development expenditure are undertaken annually.

SOFTWARE

External expenditure on computer systems and software is stated at cost less accumulated amortisation and impairment losses.

Amortisation is on a straight-line basis over the useful economic life of the asset set at three year.

CUSTOMER LISTS

Intangible assets include customer lists purchased on the buy-back of Studios acquired. Applying IAS36 Stores customer lists are

being amortised over three to five years and are individually tested bi-annually for indications of impairment.

GOODWILL

Goodwill arose on the acquisition of ADD Signs Limited in the period. The valuation is supported by a fair value assessment of the

revenues expected to flow from customer relationships allowing for an appropriate level of attrition.

10. INTANGIBLE ASSETS AND INVESTMENTS (CONTINUED)

IMPAIRMENT TESTING – Goodwill

The recoverable amount of goodwill is determined from value in use calculations.

The Group prepares cash flow forecasts derived from budgets and two year business plans. For the purposes of impairment testing

inflationary growth of 3% is assumed beyond this period. The sales growth relates to Nettl, printing.com and Marqetspace the

key revenue streams principally in the UK and Ireland. The growth rates have been determined based on the experience to date of

operating these sales channels and previous experience of launching websites.

A pre-tax discount factor of 12.5% (2016: 10%) was applied.

Group

Cost

Domain
name
£000

Software Development
costs
£000

£000

Customer
Lists
£000

Goodwill

Other

£000

Balance at 31 March 2015

464

2,827

2,163

698

1,272

151

Acquisitions – internally developed

Acquisitions – purchased

Disposals

Foreign exchange movement

Balance at 31 March 2016

Acquisitions – internally developed

Acquisitions - purchased

Acquisitions of subsidiary

Disposals

(108)

356

498

(320)

513

(68)

3,011

2,608

3,011

329

2,608

442

(135)

563

(1,253)

(6)

154

(160)

(284)

Total

£000

7,575

513

500

(1,884)

6,705

442

329

(444)

Balance at 31 March 2017

356

3,340

2,890

279

154

7,081

Amortisation and impairment

Balance at 31 March 2015

Amortisation for the year

Disposals

Foreign exchange movement

Balance at 31 March 2016

Amortisation for the year

Disposals

Foreign exchange movement

341

(98)

271

1,465

597

(249)

793

417

(68)

564

(135)

1,816

1,142

507

1,816

701

1,142

627

(162)

507

(285)

(12)

(8)

3,203

1,139

(534)

3,812

1,409

(447)

Balance at 31 March 2017

289

2,517

1,607

268

4,776

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

10. INTANGIBLE ASSETS AND INVESTMENTS (CONTINUED)

Group

Net book value

At 31 March 2015

At 31 March 2016

At 31 March 2017

Domain
name
£000

Software Development
costs
£000

£000

Customer
Lists
£000

Goodwill

Other

£000

123

1,362

1,370

134

1,284

1,195

1,466

823

1,283

Total

£000

4,372

2,893

2,305

Amortisation and impairment charge

The amortisation charge of £1,409,000 (2016: £1,139,000) is recognised in profit and loss within depreciation and amortisation expenses.

An impairment charge of nil (2016: £nil) was recognised during the year.

Investments - Company

Cost

Balance at 31 March 2015

Balance at 31 March 2016

Balance at 31 March 2017

Shares in
Subsidiary undertakings
£000

2,416

574

637

Total
£000

2,416

574

637

The Company owns the whole of the issued ordinary share capital of the following undertakings:

UK incorporated Subsidiary undertakings – wholly owned

Nature of business/status

Grafenia Operations Limited

ADD Signs Limited

Printing.com (UK Franchise) Limited

Printing.com Franchise Limited

Nettl UK Limited

Grafenia Systems Limited

Grafenia Technology Limited

Creative Enterprise Support Limited

TemplateCloud Limited

W3P Limited

W3P Platforms Limited

Sign Design, Manufacture and Installation – trading

Printing – trading

Franchise contracts – dormant

Partner contracts – dormant

Licence agreements – dormant

Enterprise Support – dormant

Template Provision – dormant

Software – dormant

Licence agreements - dormant

France incorporated Subsidiary undertaking – wholly owned

Nature of business/status

Grafenia France sarl

Franchise contracts - trading

11. TRADE AND OTHER RECEIVABLES

Other receivables due from subsidiary companies

Trade receivables

Prepayments

Corporation tax

Other receivables

Group
2017
£000

Group
2016
£000

Company
2017
£000

Company
2016
£000

1,854

469

138

2,524

2,051

477

231

2,839

4,678

4,989

4,684

4,996

Other receivables due from subsidiary companies do not have fixed repayment terms.

At 31 March 2017 trade receivables are shown net of an allowance for doubtful debts of £415,000 (2016: £212,000).

An analysis of impairment losses recognised in the year is given in note 17.

Trade and other receivables denominated in currencies other than sterling comprise £167,000 (2016: £192,000) of trade receivables and

£nil (2016: £nil) of other receivables denominated in Euro.

Non-current assets included the following amounts falling due after more than one year:

Group
2017
£000

Company
2016
£000

Company
2017
£000

Company
2016
£000

Other receivables

12. CASH AND CASH EQUIVALENTS

Group
2017
£000

Company
2016
£000

Company
2017
£000

Company
2016
£000

Cash and cash equivalents

524

686

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short term highly liquid investments. Cash

denominated in currencies other than Sterling comprise £58,000 (2016: £31,000) all in Euro.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

13. OTHER INTEREST-BEARING LIABILITIES

The Company had no interest bearing liabilities. The Group had interest-bearing liabilities from Finance Leases and loans amounting

to £83,000 (2016: £66,000) as a current liability and £216,000 (2016: £264,000) as a non-current liability. For more information on the

Group and Company’s exposure to interest rate, foreign currency risk and finance leases, see note 17.

14. TRADE AND OTHER PAYABLES

Other trade payables

Accruals

Deferred income

Other liabilities

Group
2017
£000

Company
2016
£000

Company
2017
£000

Company
2016
£000

1,370

375

118

1,877

1,363

653

108

2,170

Other trade payables denominated in currencies other than Sterling comprise £15,000 (2016: £18,000) denominated in Euro.

15. EMPLOYEE BENEFITS

Share-based Save as You Earn (SAYE) Scheme

The Company launched a SAYE Scheme commencing 1 March 2017. The Scheme offered all employees the opportunity to participate

in the future growth of the Company through the granting of share options.

The scheme requires employees to commit to making a monthly payment of between £5 and £500 for 36 months. These instalments

are paid into a savings account, operated by Royal Bank of Scotland plc, held independently from the Company.

Employees were invited to subscribe for options over ordinary shares of 1 penny each in the Company (“Ordinary Shares”) with an

exercise price of 7.75 pence per share, representing the closing mid-market price of the Ordinary Shares on the day prior to the

invitation to participate. The options are exercisable when all 36 payments have been made, between 1 March 2020 and 31 August

2020.

A total of 49 employees elected to participate in the SAYE Scheme and were granted options over 4,359,460 Ordinary Shares on

23 February 2017, equating to 9.6 per cent of the current total voting rights in the Company.

16. SHARE CAPITAL

SHARE CAPITAL - GROUP AND COMPANY

In thousands of shares

On issue at 31 March 2016

Purchased by the Company and held in Treasury

Ordinary shares

2017

47,558

(2,150)

2016

47,558

(1,910)

Shares on the market at 31 March 2017 – fully paid

45,408

45,648

Total treasury shares purchased and held by the Company are 2,150,000 (2016: 1,910,000)

Allotted, called up and fully paid

47,557,835 (2016: 47,557,835) ordinary shares of £0.01 each

63 deferred shares of £0.10 each

EARNINGS PER SHARE

The calculations of earnings per share are based on the following profits and numbers of shares:

(Loss)/Profit after taxation for the financial year from continuing operations

Profit after taxation on discontinued operations

Weighted average number of shares

For basic earnings per ordinary share

Exercise of share options

£000

475

2017
£000

(625)

£000

475

2016
£000

Number of
Shares

45,500,884

46,639,156

For diluted earnings per ordinary share

45,500,884

46,639,156

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.

Dividends

Final dividends paid in respect of prior year but not recognised as liabilities in that year

Interim dividends paid in respect of the current year

Total dividend paid in the year

After the balance sheet date the Board proposed no final dividend would be made (2016: £nil)

2017
£000

2016
£000

471

115

586

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

17. FINANCIAL INSTRUMENTS

An explanation of the Group’s objectives, policies and strategies for the role of derivatives and other financial instruments can be

found on page 29. It is not the Group’s policy to enter into financial derivatives for speculative or trading purposes. The financial

instruments employed by the Group other than short term debtors and creditors are used to fund its operations and comprise cash,

short term deposits and finance leases.

The Group’s policy during the financial year ended 31 March 2017 and 31 March 2016 was to place the majority of its cash on short term

deposit with its bankers and to finance the purchase of significant fixed assets through finance leases.

CREDIT RISK

Group

The Group’s credit risk is primarily attributable to trade and other receivables both current and non-current. Trade receivables are

included in the balance sheet net of doubtful receivables, estimated by the Group’s management. The maximum credit risk in respect

of the Group’s and Company’s financial assets at the yearend is represented by the balance outstanding on trade receivables and

other receivables due from Partners as shown below.

During the year the Group has continued to use the Pay As You Go (PAYG) model to manage debtors and mitigate the credit risk

through structured payments. This model ensures that in most instances total debts do not increase while continuing to serve the

customer base. Repayment plans have been entered into separately for certain PAYG debtors and make up £550,000 (2016: £512,000)

of total gross debtors. The Group retains the right to charge interest on overdue balances and re-call debts ahead of the payment

plans agreed.

The ageing of trade receivables and other receivables (not including prepayments) due from Partners at the reporting date was:

31 March 2017
Total
£000

31 March 2017
Impairment
£000

31 March 2016
Total
£000

31 March 2016
Impairment
£000

Not past due

Past due 0 – 30 days

Past due 31 – 90 days

Past due 90 days and over

IMPAIRMENT

Balance at 31 March 2015

Impairment loss recognised

Increase in impairment allowance

Balance at 31 March 2016

Impairment loss recognised

Increase in impairment allowance

Balance at 31 March 2017

1,171

241

348

622

2,382

(415)

1,106

326

363

555

2,350

(212)

£000

216

(48)

212

(52)

255

415

Of the total impairment provision £118,000 (2016: £90,000) relates to Partners that have ceased trading.

COMPANY

The Company did not have trade receivables at the year end.

INTEREST RATE RISK

The Group and the Company do not have a material exposure to interest rates.

LIQUIDITY RISK

The following are the contractual maturities of financial liabilities including estimated interest payments and excluding the impact of

netting agreements:

31 March 2017

Trade and other payables

Bank Loans

Finance lease liability

31 March 2016

Trade and other payables

Bank Loans

Finance lease liability

Carrying Contractual
cash flows
£000

amount
£000

6 months
or less
£000

6-12
months
£000

1-2 years

2-5 years

£000

1,877

275

2,176

1,877

310

2,218

1,928

125

141

Carrying
amount
£000

Contractual
cash flows
£000

6 months
or less
£000

6-12
months
£000

1-2 years

2-5 years

£000

2,170

330

2,500

2,170

386

2,556

2,170

2,214

211

All trade receivables are contractually due within 6 months.

FOREIGN CURRENCY RISK

GROUP

The Group transacts some business in foreign currency, principally Euro, and therefore incurs some transaction risk. The risk does not

warrant hedging activity by the Group to defend against the impact of exchange rate movements.

The Group’s exposure to foreign currency risk denominated in GBP was as follows:

Trade receivables

Cash and cash equivalents

Trade payables

31 March 2017
Euro
£000

31 March 2017
GBP
£000

31 March 2016
Euro
£000

31 March 2016
GBP
£000

167

(15)

210

2,567

467

(1,356)

1,678

192

241

2,544

655

(1,381)

1,818

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017

SENSITIVITY ANALYSIS

Where the Group operate in Europe both revenues and costs are in the local currency therefore the level of exchange risk is low. In the

Eurozone the Group have a presence in France, and Ireland. In managing interest rate and currency risks the Company and Group aims

to reduce the impact of short-term fluctuations on the Company and Group’s earnings.

At 31 March 2017, it is estimated that a general increase of one percentage point in the value of the Euro would increase the Group’s

profit before tax by approximately £2,000 (2016: £3,000) with an equal adjustment to equity.

FAIR VALUES

There is a difference of £20,000 (2016: £14,000) between fair and carrying values on the balance sheet.

TRADE AND OTHER RECEIVABLES

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of

interest at the reporting date.

TRADE PAYABLES

The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of

interest at the reporting date.

FINANCE LEASE LIABILITY / BANK LOANS

The fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest

cash flows, discounted at the market rate of interest at the reporting date. The market rate of interest for finance leases is determined

by reference to similar lease agreements.

18. OPERATING LEASES

Non-cancellable operating lease rentals are payable as follows:

Plant and machinery

Less than one year

Between one and five years

Land and buildings

Less than one year

Between one and five years

Group
2017
£000

Group
2016
£000

Company
2017
£000

Company
2016
£000

259

426

708

213

511

761

The most significant lease in land and buildings is that of the Manchester Production Hub and Head Office.

GROUP

During the year £256,000 (2016: £306,000) was recognised as an expense in profit and loss in respect of operating leases.

19. CAPITAL COMMITMENTS

The Group and Company have no commitments to incur capital expenditure at the yearend (2016: £nil).

20. CONTINGENCIES

Neither the Group nor the Company had contingencies at the yearend (2016: £nil).

21. RELATED PARTIES

The Company provides cross company guarantees to the Group’s bankers in respect of the overdraft facility. The Company receives

dividends from its subsidiaries Grafenia Operations Limited and Grafenia BV prior to its disposal. In the year ended 31 March 2017 no

dividends were received (2016: £910,000). Total sales to subsidiary undertakings were nil (2016: £nil) and total expenses incurred from

subsidiary undertakings were nil (2016: £nil). The amounts outstanding at the year-end from subsidiary undertakings are shown in

note 11.

Transactions with key management personnel

Directors of the Company control 11.08 per cent of the voting shares of the Group.

The compensation of the Directors, who are the key management personnel, is disclosed in the Directors Remuneration Report see

pages 38 to 39.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2017ADVISERS AND COMPANY INFORMATION

Registered Office

Third Avenue

The Village

Trafford Park

MANCHESTER

M17 1FG

Company Number

03983312 (England and Wales)

Website Address

www.grafenia.com

Company Secretary

Richard A Lightfoot

Auditors
to the Company

Registrars
and Receiving Agents
to the Company

KPMG LLP
1 St Peter’s Square

MANCHESTER

M2 3AE

Capita Registrars
Northern House

Woodsome Park

Fenay Bridge

HUDDERSFIELD

HD8 0LA

Bankers
to the Group

The Royal Bank of Scotland plc
1 Spinningfields Square

MANCHESTER

M3 3AP

Financial Adviser,
Nominated Adviser
and Broker
to the Company

Solicitors
to the Company

N+1 Singer
West One

114 Wellington Street

LEEDS
LS1 1BA

Gateley plc
Ship Canal House

98 Kings Street

MANCHESTER

M2 4WU

Third Avenue > The Village > Trafford Park > Manchester > M17 1FG

t: +44 (0)161 848 5700 > e: investors@grafenia.com

WWW.GRAFENIA.COM

Grafenia plc is registered in England and Wales under number 03983312

Registered office: Third Avenue, The Village, Trafford Park, Manchester M17 1FG. VAT Registration No. GB 764 5390 08

XIR/AQR/CRH/06-17/R1