NanoXplore Annual Report 2018

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FY2018 Annual Report · NanoXplore

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ANNUAL
REPORT
AND
ACCOUNTS
2018

CONTENTS

IN SUMMARY

03 CHAIRMAN’S STATEMENT

13 STRATEGIC REPORT – CHIEF EXECUTIVE’S STATEMENT

29 FINANCIAL REVIEW

33 DIRECTORS

35 DIRECTORS’ REPORT

38 STATEMENT OF DIRECTORS’ RESPONSIBILITIES

39 DIRECTORS’ REMUNERATION REPORT

INDEPENDENT AUDITORS’ REPORT

46 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

47 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

48 CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

49 CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS

50 NOTES (FORMING PART OF THE FINANCIAL REVIEW)

72 ADVISERS AND COMPANY INFORMATION

IN SUMMARY

Grafenia are the people behind the Nettl network of neighbourhood studios and the

printing.com brand. We licence our brands and systems in the UK and internationally.

At our production hubs, we manufacture print, display and signs. We sell those to

businesses of all sizes via our brand partner networks and company-owned Nettl stores.

We’re rolling up the signs sector, with the aim of creating a national installation network.

CONTINUING OPERATIONS

Year ended
31 March 2018

Year ended
31 March 2017

Subscription and Licence Fees

Company Studios

Signs

Brand Partners Print

Trade Clients Print

Total Revenue

Gross Profit

EBITDA

Amortisations and Depreciation

Operating (Loss)/Profit
Before Restructuring Costs

Restructuring Costs

Exceptional Gain

Operating Loss After Restructuring
Costs

Net Finance Expense

Tax Income

Loss for the Year

EPS – Continuing Operations

Total Dividend per Share

Capital Expenditure

Acquisition

£000

1,773

1,594

4,000

3,870

3,393

14,630

8,337

669

(1,874)

(1,185)

(20)

102

(1,103)

(137)

294

(946)

(2.07)p

Nil

£1.94m

£2.61m

Net (Debt) / Funds

£(3.04)m

£000

1,489

940

3,762

4,254

10,445

6,585

763

(1,746)

(926)

(57)

(983)

(4)

362

(625)

(1.37)p

Nil

£0.89m

£0.21m

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018At our Nettl of Liverpool Waters Business Superstore, we try to inspire

clients. It’s possible to brand their own environments in many different

ways – including functional spaces like toilets.

Jan-Hendrik Mohr
Chairman

CHAIRMAN’S
STATEMENT

Dear Shareholders,

The transition of Grafenia plc has progressed well since I last wrote to you.

The aim of this letter is to inform you about the decisions we made to develop the

Group and our reasoning. There is no way to know if the choices we made in the last

fiscal year will prove to be successful. However, we strive to be as open as possible

with you – the owners of the firm – so that you can make up your own mind.

Operational Performance

In the recent fiscal year, our turnover increased by 40% to £14.63m (2017: £10.45m)

and gross profit increased by 27% to £8.34m (2017: £6.59m). Our EBITDA reduced

by 12% to £0.67m (2017: £0.76m). Operating loss increased to £1.10m (2017: £0.98m)

while we achieved an effective Tax income of £0.29m (2017: £0.36m). As in the prior

year the Tax income was mainly due to the Group gaining Research & Development

Relief. We finished the year with a cash position of £0.17m (2017: £0.52m) net debt of

£3.04m (2017: net funds of £0.21m), after spending capital investment of a net £1.1m

(2017: £0.89m) plus consideration of £2.61m for the acquisition of Image Group

(2017: £0.05m for the acquisition of ADD Signs Limited).

These results are mainly impacted by the inclusion of newly acquired sign firms,

most notably Image Group (Image Everything Limited), into our reporting.

This causes the headline sales and gross margin to increase in comparison to last

fiscal year. Underlying, there have been three broad trends that warrant

further commentary:

1. Litho print revenues have been declining. This has mainly been due to

decreasing prices in the marketplace. Given that a significant part of our

production cost is fixed, any decrease in print revenues immediately causes our

contribution margin to decline. This has been the case for many years and we

do not expect this to change. It has been a significant drag on profitability in

the last year. The only good news is that our reliance on profits from litho print

are decreasing every day.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018Drive-in vehicle wrapping bay at Nettl of Liverpool Waters Business

Superstore. Inside we can wrap full vehicles or apply graphics.

2. Licence revenues have been increasing. First and foremost, you can thank

our Nettl team leaders Rob, Paul, Chris and Mat for relentlessly driving

partner acquisition and partner development. They’ve been doing a fine job

indeed and their contribution to the Group is remarkable. Only a few years

after launching, Nettl now helps more than 150 partners in the UK to offer

better design products to their clients. Nettl has also been showing quite

encouraging signs internationally, especially in the Netherlands. From an

accounting perspective, you should consider two aspects. Firstly, due to the

contracts in place, we recognise revenues from licence fees when the cash

is due, i.e. primarily monthly. When the number of partners grows quickly

(as it did at the end of this financial year) the recognised revenues for the

accounting period understate the “run-rate” – meaning number of partners

multiplied by monthly licence fees multiplied by 12 months. Secondly, the cost

to acquire these new partner contracts tends to be front-loaded. We lay out

capital to bring new partners on board – by paying our sales team, hosting

exhibitions, marketing and so on – which we think of a bit like an investment.

Due to accounting rules, we have to expense this cost in our profit and loss

statement. If we stopped selling (which we have no plans to – quite the

contrary!) our disclosed earnings would be significantly higher. This effect has

been particularly severe in new markets such as the Netherlands. Over there,

we essentially incur all the costs to set up shop in the very first trading period

with all the fruits coming in pro-rata over time.

3. Our company-owned stores are improving, but are still not where we would

like them to be. The good news is that our store performance has increased a

lot over the last fiscal year. The bad news is overall it’s still not where it needs

to be. Some stores are losing money, partly due to the terms of leases signed

many years back. I strongly believe that improving own studio performance is

the proverbial lowest hanging fruit.

I wish I could present a higher level of granularity in our reporting, to help you

better judge our performance. For a variety of reasons, changing our reporting to

a more granular level didn’t make great sense this reporting period.

Priority has been on integrating the reporting systems of Image Group and

figuring out how our financial controls change, with the change in our business

focus. In fact, we need to have an internal debate and discuss how our KPIs or

segments may change in light of the new focus on acquiring sign businesses. Rest

assured though, we will progress to an increased level of transparency, especially

around unit economics of the individual business lines.

The costs we incur by being public are still a major drag on our financial

performance. We’ve started to disclose our estimate of “plc overhead” to illustrate

the magnitude of the problem. This year EBITDA would have been £1.27m before

corporate costs of £0.60m (compared with £0.62m in the previous year).

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018We’ve extended our range of outdoor display kit – from simple flags to

cantilever parasols and massive personalised gazebos.

Last year I wrote: “The success of my tenure should be measured by whether we

figure out a way to make better use of our public listing.” With our new focus

on rolling-up (i.e. finding, evaluating, buying and integrating) sign businesses, I

see a realistic chance to grow the group to a size that justifies a listing on a stock

exchange. To that end, we need a) to find enough sign businesses to acquire, b)

to pay prices that make financial sense and c) to integrate these sign businesses

appropriately into a growing organisation. None of this should be taken for

granted and will require great focus and flawless execution from the entire team.

more in 2018.

Our long-term partner in New Zealand extended their master licence agreement

in April 2018 for a further 18 years. We were delighted with this demonstration of

confidence in the Nettl business model. We are paid a share of initial and ongoing

licence fees, subject to monthly minimums.

At the same time, we also granted our New Zealand partner the rights to market Nettl

in Australia. The approach there is different to the UK. However, we have adapted

our platform for Australia and the search for founder partners has begun. It’s our job

to operate the platform and provide high level and strategic support. Our master

licence partner’s job is to find local Nettl partners, train and support them.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018We’ve trained our first beta group of Nettl partners how to sell and

support Search Engine Optimisation. We take care of the hard work

centrally, leaving them time to win new business.

Customer subscriptions

We used the phrase “rooted” in our vision. That choice of word was deliberate.

We believe we need to continue to do things which are fundamental to the

ongoing success of our partners. Since our systems help make their business

more efficient and our marketing helps them win orders, we try to make sure life

without us is unthinkable.

As we’ve developed Nettl, we’ve tailored our product range to sell things our

customers want. Customer priorities have changed over time and our offering

has had to change with it.

Just before the end of the financial year, we launched a new Search Engine

Optimisation (SEO) offering. Launching a customer’s website is just one part

of the story. They need to drive traffic to it. Some choose to do that with paid

search. Some with offline marketing. Others pay people to work on making their

site climb search engine rankings.

We’ve trained a beta group of Nettl partners how to sell and support SEO.

They sign customers up to a monthly subscription. We centrally take care of

optimisation, in exchange for a share of fees. We think our method is more cost

effective than our partner trying to do things themselves. That makes it better

value for customers. It’s early days for this new initiative, but we’re pleased with

the results so far. As customer subscription revenues become more meaningful,

we’ll share them with you.

Leadership values

Finally, I mentioned in the interim report that we’d made changes to our sales

and support team structures. We focused the leaders into more specialist roles,

to make them more accountable and less distracted in trying to do part of

everything.

I want to touch on a further cultural change we’ve made. As we’ve grown and

brought more people into the Grafenia family, it occurred to us that we’ve

never really written down how we expect our leaders to behave. Sure, we’ve got

disciplinary processes like everyone else. But we never told our people how we’d

like them to act. The stuff they do that gets them promoted. And the stuff that

makes us raise our eyebrows.

In the summer last year we published our first Leadership Values book. It’s

nineteen short paragraphs. Nineteen things we look for and measure people on.

And nineteen things we ask them hold others to account over. Their peers, their

colleagues and their leaders.

I hope we’ll see you at our AGM where you can have good look round the new

Nettl of Liverpool Waters Superstore. You might have already seen photos. But

they really don’t convey the feeling of being there.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018This year we published our Leadership Values book for the first time. Inside

are nineteen traits we look for and evaluate our teams on.

After the formalities, our team will share some more detail on things we’ve been

doing. And you’ll be able to take away some swag, including your own copy of

our Leadership Values book. Because there’s nothing like the smell of print in the

morning (well, apart from websites and signs of course).

Until then,

Peter Gunning

Chief Executive

8 June 2018

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018It’s now possible to brand just about every surface. We launched

printed suspended ceiling tiles this year, to complement printed

wall paper and changeable fabric printed wall boxes.

STRATEGIC REPORT

FINANCIAL
REVIEW

Alan Q Roberts
Finance Director

Revenue

The year under review showed welcome growth in revenue and gross profit,

driven through the acquisition of Image Group and increases in Subscriptions

and Licence Fees. Group Revenues increased by 40% to £14.63m

(2017: £10.45m). Revenues from the Eurozone were 3% of the total (2017: 4%)

as disclosed in the Segmental Analysis in note 3. However, overall our losses

increased for a number of reasons, which I will detail.

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 increased

by 27% to £8.34m (2017: £6.59m).

There has been a continued decline in traditional print volumes. Most of our raw

materials are sourced from Europe. Our biggest material cost is paper. As long-

term tenders ended, we were unable to avoid industry-wide cost increases.

Despite increasing pressure on our costs, we have been unable to increase

print prices. Competition remains fierce and market prices have actually fallen

further during the year. As a result, our gross margin percentage as a percentage

decreased from 63% to 57%. This change is also partly due to the acquisition

of sign businesses, which have different margin characteristics to our traditional

business.

We were also directly affected by the well-publicised cyber attack on TNT, our

main carrier at the time. Our contingency plans worked and we were able to

minimise disruption to our clients, by switching to an alternate courier for time-

sensitive consignments. However, as the event was classed as force majeure, we

were not able to recover the higher costs we incurred.

Other costs

We have invested in acquiring brand partners in the UK and Nettl in the

Netherlands. All of these costs are front-loaded and we incur them before we

see a return through subscription income. Resource was also put into improving

company owned studio performance.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018The acquisition of Image Group was achieved with debt finance, specifically

vendor loan notes, asset finance and invoice financing. The debt generated

additional finance interest costs. Post balance sheet, the share placing has

enabled the debt position to be addressed and resources to be put in place to

support the Group’s development and signs business roll up strategy.

Adjusted EBITDA before exceptional gain

The year showed a decrease in EBITDA, which is operating loss before interest,

tax, depreciation and amortisation and exceptional gain, to £0.67m

(2017: £0.76m) representing a margin of 5% (2017: 7%) to turnover. EBITDA

represents an indicator of the Group’s potential to generate cash.

Exceptional Gain

The gain realised on the sale and leaseback of certain assets to assist in the

financing of the Image acquisition is being released over the term of the lease

arrangements with £0.1m being released since July and a balance of £0.27m

being deferred.

Interest Received and Charged

Interest received in the period was negligible. Interest charged increased to

£0.14m (2017: £0.02m) from lease agreements and interest due on loan notes.

Pre-Tax Loss

The Group recorded a pre-tax loss of £1.24m (2017: £0.99m) being 8% (2017: 9%)

of Group revenue.

Staff costs increased in the year to £4.58m (2017: £3.71m), falling as a percentage

of revenue to 31% from 36%. The depreciation and amortisation charge for the

year was £1.87m (2017: £1.75m). The amortisation of software development was

73% of the total (2017: 76%) with write-off over 3 years.

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 £0.29m

(2017: £0.36m).

Earnings Per Share (EPS)

There is no dilution of continuing loss per share (EPS) in either year 2.07p

(2017: 1.37p), based on a weighted average number of shares in issue of

45,638,192 (2017: 45,500,884).

Cash Flow

At the year end the Group had cash balances of £0.17m (2017: £0.52m). Net Debt

was £3.04m with £1.27m of asset finance, £0.84m of vendor loan notes and

£0.93m of net borrowings (Net Funds 2017: £0.21m). Operational cash generated

after movements in working capital was £0.94m (2017: £0.84m).

Post Balance Sheet Event

As mentioned in our Chairman’s statement on 13 April 2018, the Company announced

it had conditionally raised approximately £3.5 million (before expenses) by way of a

placing of 29,258,331 New Ordinary Shares, at a price of 12.00 pence per ordinary

share, with certain new and existing investors. These funds were received on 3 May

and will enable the Company to fund growth through acquisition, to open further Nettl

Business Superstores and to repay and renegotiate existing debt arrangements.

Capital Expenditure

Capital expenditure excluding the Image Group acquisition was £1.09m (2017: £0.89m).

Capital expenditure reflected investment in the development of the Group’s systems

the major item being software for Nettl and the Group’s SaaS platforms totalling

£0.73m (2017: £0.77m).

Manufacturing capacity at the Manchester Hub has capacity to support growth without

any major expenditure. Systems and processes are continually improved incurring

ongoing investment on software development and enhancement to support our

Partners and business streams.

Treasury Shares

In February 2018 the Company sold the 2,150,000 shares it had held in Treasury,

to support our acquisition strategy. Shares had been repurchased over time, at an

average price of 12.10 pence. They were sold at 11.50 pence, raising £247,250 and

resulting in a loss of £13,000.

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.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018Treasury 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, see Note 16.

Alan Q. Roberts

Finance Director

8 June 2018

DIRECTORS

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

& Company. Jan graduated from Frankfurt School of

in 1998, he has been responsible for developing the

Finance and Management and earned a Master in Finance

Nettl and printing.com studio concepts, associated

at Stockholm School of Economics as a German National

marketing and operations infrastructure.

Merit Scholar.

Jan was appointed to the Board in March 2016. Age 29.

Peter was appointed to the Board in June 2001. Age 42.

Alan Q Roberts
Finance Director

Gavin Cockerill
Chief Operating Officer

Alan qualified as a Chartered Management Accountant

After graduating from Birmingham City University in 2000

in 1981 whilst company accountant of Moon Brothers

and following a short stint in advertising, Gavin helped

Engineering. He then moved to the Edward Billington

launch and grow the printing.com studio in Birmingham.

Group as divisional accountant and from there he

Since joining the Group he has been involved in

joined Dalgety as group accountant for the Merseyside

progressing the Nettl and printing.com business

production facilities. Moving to CQR in 1987 (acquired

models across the UK and it’s numerous master licenses

by Expamet International in 1988) as management

globally. Moving to Manchester in 2012 he launched and

accountant, he was subsequently appointed financial

developed the group’s TemplateCloud and Flyerzone

director & company secretary in 1991. The company was

offerings.

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 62.

Gavin joined the Group in 2000 and was appointed COO

in October 2015. Age 39.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018Conrad Bona
Non-Executive Director

Conrad is a business consultant, investor and

entrepreneur who started his career as a banking

and finance lawyer and has worked in Toronto,

London and Tokyo. He has a degree in economics

from the University of Western Ontario, law degrees

from the University of Edinburgh and the University

of New Brunswick and qualified to practice as a

lawyer in multiple jurisdictions. No longer practicing

law, Conrad now advises companies on a wide

range of commercial, financial and business matters.

He has both Canadian and British citizenship and is

based in London, England.

Conrad was appointed to the Board in October

2015. Age 49.

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 46.

DIRECTORS’ REPORT

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

ended 31 March 2018. The Directors have proposed that no final dividend will be paid (2017: 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 in the UK and worldwide. Once defined the tasks become Projects with the delivery

managed through third party programmers and the small team 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 revenue.

• 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.

FINANCIAL INSTRUMENTS

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. See Note 16.

DIRECTORS

The following Directors have held office since 1 April 2017:

J-H Mohr

C C Bona

Non-executive Chairman

Non-executive Director

P R Gunning

Chief Executive Officer

A Q Roberts

Finance Director

G G Cockerill

Chief Operating Officer – appointed 23 January 2018

R A Lightfoot

Director and Company Secretary – appointed 23 January 2018

P Begun

Non-executive Director – resigned 28 July 2017

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

G G Cockerill and R A Lightfoot retire by rotation in accordance with the Company’s Articles of Association both being eligible, offer

themselves 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 39 to 41.

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.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018EMPLOYEES

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

continually refined 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 8 June 2018:

Registered holding

Number of shares

% of issued share capital

Langfristige Investoren TGV

Frank Fischer

Scherzer & Co SA

Axion SA

Stefan Winterling

21,705,333

15,833,333

5,675,500

5,000,000

4,205,000

28.26%

20.61%

7.39%

6.51%

5.47%

ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held on Friday 27 July 2018 in Liverpool at the Company’s new Nettl of Liverpool

Waters Business Store, Canada Dock Exchange, 7 Junction Road, Liverpool L20 8AF. 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.

DISCLOSURE 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

RSM UK Audit LLP has indicated its willingness to continue in office and a resolution to reappoint it as Auditor will be proposed at the

next Annual General Meeting.

By order of the Board

A Q Roberts

Director

8 June 2018

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

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 Strategic Report and the Directors’ Report and the financial statements in

accordance with applicable law and regulations.

Company law requires the directors to prepare group and company financial statements for each financial year. The directors are

required by the AIM Rules of the London Stock Exchange to prepare group financial statements in accordance with International

Financial Reporting Standards ("IFRS") as adopted by the European Union (“EU”) and have elected under company law to prepare

the company financial statements in accordance with IFRS as adopted by the EU.

The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the group

and the company and the financial performance of the group. The Companies Act 2006 provides in relation to such financial

statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to

their achieving a fair presentation.

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 the company and of the profit or loss of the group for that period. In preparing each

of the group and company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with IFRSs 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

company will continue in business.

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

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

the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also

responsible for safeguarding the assets of the group and the company and hence for taking reasonable steps for the prevention

and detection of fraud and other irregularities.

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

Grafenia plc website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from

legislation in other jurisdictions.

A Q Roberts

Director

8 June 2018

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 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 2018.

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.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

ELEMENTS OF REMUNERATION

Year ended 31 March 2018:

J-H Mohr

C C Bona

P R Gunning

A Q Roberts

G G Cockerill (since appointment)

R A Lightfoot (since appointment)

P Begun (resigned 8th July 2017)

Year ended 31 March 2017:

J-H Mohr

P Begun

C C Bona

P R Gunning

A Q Roberts

L A Wheatley (resigned 15th August 2016)

Basic
salary

169,595

84,524

17,407

13,946

285,472

Basic
salary
£

170,905

85,178

256,083

14,942

4,903

34,787

Fees
£

20,077

18,692

78,923

Fees

Benefits

Bonuses

Pension

841

21,725

216

22,855

218

15,525

9,736

227

207

25,913

369,027

2018
Total

14,942

15,160

185,961

115,985

17,707

14,369

4,903

Benefits
£

Bonuses
£

Pension
£

745

21,202

20,000

200

15,525

9,336

188

2017
Total
£

20,077

20,277

207,175

115,716

18,880

21,947

20,000

25,249

402,202

DIRECTORS’ INTERESTS

At 31 March 2018, the Directors had the following beneficial interests in the Company’s shares.

Ordinary shares of 1p each

31 March 2018

31 March 2017

J-H Mohr

C C Bona

P R Gunning

A Q Roberts

G G Cockerill

R A Lightfoot

P Begun

540,000

1,250,000

500,000

4,874

75,000

N/A

450,000

1,000,000

500,000

2,740,000

On the 13 April 2018 the Company issued 29,258,331 ordinary shares, Conrad Bona participated and increased his holding to 865,000

shares Peter Gunning also increased his holding to 1,625,000 shares. No Directors, or other family members, had any interests in the

deferred share capital of the Company.

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 2018 was 12.00 pence (2017: 6.38 pence). The range during 2018 was 6.50 pence to 12.75 pence. At the close of

business on Friday 8th June, the price was 14.75 pence.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF GRAFENIA PLC

We have audited the financial statements of Grafenia Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31

March 2018 which comprise the consolidated statement of comprehensive income, consolidated and company statements of changes

in equity, consolidated and company statements of financial position, consolidated and company statements of cash flows and notes

to the financial statements, including a summary of significant accounting policies.

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

Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in

accordance with the provisions of the Companies Act 2006.

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 31 March

2018 and of the group’s loss for the year then ended;

•

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

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

Union and as applied in accordance with the Companies Act 2006; and

•

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

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our

responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements

section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are

relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities and

we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have

obtained is sufficient and appropriate to provide a basis for our opinion.

CONCLUSIONS RELATING TO GOING CONCERN

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

•

the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt

about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at

least twelve months from the date when the financial statements are authorised for issue.

KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial

statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)

we identified, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and

directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as

a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

ACQUISITION OF IMAGE EVERYTHING LIMITED
(Refer to the accounting policy on page 50 in respect of the basis of consolidation, the accounting policy on page 53 in respect of

business combinations and investments, note 2 in respect of acquisitions in the current period and note 10 in respect of intangible

assets and investments).

THE RISK

On 14 July 2017 the Group acquired Image Everything Limited. There is a risk that the business combination was incorrectly accounted

for due to the valuation and accounting treatment of the components of consideration and the valuation of the identifiable intangible

assets.

OUR RESPONSE

The calculation of the consideration was reviewed against the share purchase agreement, the cash payments, the issue of vendor loan

notes and management’s valuation of the deferred contingent consideration.

The valuation of separately identifiable intangible assets arising on the acquisition was tested through a review of management’s

calculations of the net present value of each intangible asset category. The projected cashflows were compared to approved budgets

to confirm they were consistent and to confirm they were in line with our understanding of the business. The discount factor used was

compared to the cost of debt and equity for the group to ensure it was reasonable. The models’ key inputs and assumptions were

reviewed by in-house valuation specialists and sensitised in order to assess the validity of the valuations.

RECOVERABILITY OF TRADE RECEIVABLES
(Refer to accounting policy on page 51 regarding calculation of recoverable amount, accounting policy on page 52 regarding trade

and other receivables, the accounting policy on page 53 regarding recoverability of receivables, note 10 regarding trade and other

receivables and the credit risk section of note 16 regarding financial instruments).

THE RISK

The group trades with a wide variety of customers in terms of their size and nature of trade. Management’s assessment of the

recoverability of debts with their customers is inherently judgemental. There is a risk that the impairment provision and trade

receivables are materially misstated.

OUR RESPONSE

The impairment provision was reviewed through a combination of substantive analytical review and tests of detail. The methodology

utilised by management to calculate the provision was reviewed and the cash received after the year end was checked. Management’s

judgements over the quantum of the impairment provision were then challenged.

VALUATION OF INTANGIBLE ASSETS
(Refer to the accounting policy on page 53 in respect of ‘Intangibles – capitalisation of software and development costs’, the

accounting policy on page 51 in respect of impairment of assets and note 9 in respect of intangible assets and investments).

THE RISK

The group holds significant intangible assets including domains and brand, software, development costs, customer lists and goodwill.

There is a risk that the amounts capitalised are materially misstated because the requirements for capitalisation have not been met, the

amounts capitalised are revenue in nature or they are impaired.

OUR APPROACH

Management’s methodology and controls over the capitalisation of software and development costs were reviewed. The capitalisation

criteria of IAS38 were considered against management documentation, our understanding of the business and discussions with

relevant key individuals.

Management’s impairment review of intangible assets was obtained and reviewed. The net present value calculations were sensitised

and the presumed cash flows compared to budget information to ensure this was consistent with our understanding of the business

and its strategic plans for the intangible assets under scrutiny.

OUR APPLICATION OF MATERIALITY
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our

audit procedures and to evaluate the effects of misstatements, both individually and on the financial statements as a whole. During

planning we determined a magnitude of uncorrected misstatements that we judge would be material for the financial statements

as a whole (FSM). During planning FSM was calculated as £147,500, which raised to £164,000 following amendment to the financial

statements. We agreed with the Audit Committee that we would report to them all unadjusted differences in excess of £3,000, as well

as differences below those thresholds that, in our view, warranted reporting on qualitative grounds.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Grafenia Plc, Grafenia Operations Limited and Image Everything Limited were subject of full scope audit procedures for group and

statutory purposes. The financial information of ADD Signs Limited and Grafenia France s.a.r.l. included in the consolidated financial

statements were subject to full scope audit procedures using component materiality. We did not rely on the work of any component

auditors. As part of our planning we assessed the risk of material misstatement including those that required significant auditor

consideration at the component and group level. Procedures were then performed to address the risk identified and for the most

significant assessed risks the procedures performed are outlined above in the key audit matters section of this report.

OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the annual report,

other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other

information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider

whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or

otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are

required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other

information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we

are required to report that fact. We have nothing to report in this regard.

OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements

are prepared is consistent with the financial statements; and

•

the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of

the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.

We have nothing to report in respect of the following matters in relation to which 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 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.

RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement set out on page 38, the directors are responsible for the preparation

of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors

determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to

fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of

accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic

alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a

high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material

misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial

statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s

website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

USE OF OUR REPORT
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.

JONATHAN LOWE (Senior Statutory Auditor)

For and on behalf of RSM UK Audit LLP, Statutory Auditor

Chartered Accountants

3 Hardman Street

Manchester

M3 3HF

8 June 2018

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2018

Note

Continuing Operations

Revenue

Raw materials and consumables used

Gross profit

Staff costs

Other operating charges

Restructuring costs

Adjusted EBITDA

Depreciation and amortisation

Exceptional gain

Operating loss

Financial income

Financial expenses

Net financing expense

Loss before tax

Tax income

Loss for the year

Other comprehensive income

Total comprehensive income for the year

2018

£000

14,630

(6,293)

8,337

(4,577)

(3,071)

(20)

669

(1,874)

102

2017

£000

10,445

(3,860)

6,585

(3,716)

(2,049)

(57)

763

(1,746)

(1,103)

(983)

(138)

(137)

(1,240)

294

(946)

(21)

(4)

(987)

362

(625)

EPS – Continuing Operations

(2.07)p

(1.37)p

(1) Earnings per share suffers no dilution

The notes on pages 50 to 72 form part of these financial statements.

CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY – CONSOLIDATED AND COMPANY

GROUP – YEAR ENDED 31 MARCH 2017

Balance at 31 March 2016

Loss and total comprehensive income for the year

Own shares acquired

Total movement in equity

Share
Capital
£000

475

Merger
reserve
£000

Treasury
Shares
£000

Retained
Earnings
£000

838

(237)

4,186

(24)

(625)

Total
£000

5,262

(625)

(24)

(649)

Balance at 31 March 2017

475

838

(261)

3,561

4,613

GROUP – YEAR ENDED 31 MARCH 2018

Loss and total comprehensive income for the year

Own shares sold

Exchange differences

Total movement in equity

261

(946)

(13)

(889)

(946)

248

(628)

Balance at 31 March 2018

475

838

2,672

3,985

COMPANY - YEAR ENDED 31 MARCH 2017

Balance 31 March 2016

Profit and total comprehensive income for the year

Own shares acquired

Total movement in equity

Share
Capital
£000

475

Merger
reserve
£000

Treasury
Shares
£000

Retained
Earnings
£000

627

(237)

4,670

(24)

Total
£000

5,535

(24)

Balance at 31 March 2017

475

627

(261)

4,724

5,565

COMPANY – YEAR ENDED 31 MARCH 2018

Loss and total comprehensive income for the year

Own shares acquired

Total movement in equity

261

(224)

(13)

(237)

(224)

248

Balance at 31 March 2018

475

627

4,487

5,589

The notes on pages 50 to 72 form part of these financial statements.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

CONSOLIDATED AND COMPANY
STATEMENT OF FINANCIAL POSITION

AT 31 MARCH 2018

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

Provisions

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

Note

Group

Company

2018
£000

2017
£000

2018
£000

Company
2017
£000

2,076

4,808

6,884

450

3,295

111

171

4,027

10,911

(2009)

(1,437)

(983)

(504)

(4,933)

(1,055)

(358)

(580)

(1,993)

(6,926)

3,985

475

838

2,672

3,985

1,333

2,305

3,688

369

2,386

138

524

3,417

7,105

(83)

(1,370)

(389)

(118)

(1,960)

(216)

(316)

(532)

(2,492)

4,613

475

838

(261)

3,561

4,613

3,242

3,628

6,870

(600)

(26)

(52)

(678)

(245)

(358)

(603)

(1,281)

5,589

475

627

4,487

5,589

637

4,983

4,984

5,621

(20)

(36)

(56)

5,565

475

627

(261)

4,724

5,565

The notes on pages 50 to 72 form part of these financial statements.

These financial statements were approved by the board of directors on 8 June 2018 and were signed on its behalf by:

A Q ROBERTS

Director

CONSOLIDATED AND COMPANY
STATEMENT OF CASH FLOWS

FOR YEAR ENDED 31 MARCH 2018

Note

Group

2018
£000

Group

Company

2017
£000

2018
£000

Company
2017
£000

Cash flows from operating activities

(Loss)/Profit for the year

Adjustments for:

Depreciation, amortisation and impairment (continuing operations)

(Surplus) on sale of plant and equipment

Net finance expense

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 from Operations

Interest paid

Income tax received /(paid)

Net cash inflow from operating activities

Cash flows from investing activities

Interest received

Proceeds from sale of plant and equipment

Acquisition of plant and equipment

Capitalised development expenditure

Acquisition of other intangible assets

Acquisition of Subsidiary net of cash

Overdraft purchased on acquisition

Net cash (used in) investing activities

Cash flows from financing activities

Funding from invoice finance

Payment of loan notes

Sale/(Purchase) of own shares

Payment of finance leases

Net cash generated from/(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

Cash and cash equivalents at 31 March 2018

The notes on pages 50 to 72 form part of these financial statements.

(946)

(625)

(224)

1,874

(102)

137

(294)

669

(882)

(81)

1,528

1,234

(138)

(3)

1,093

900

(1,136)

(424)

(430)

(1,000)

(38)

(2,128)

1,098

(258)

246

(404)

682

(353)

524

171

1,746

(362)

777

235

(45)

(361)

606

(21)

259

844

(119)

(442)

(327)

(26)

(911)

(24)

(69)

(93)

(160)

(2)

686

524

(4)

(192)

1,355

1,173

(1,420)

246

(1)

(11)

(63)

(24)

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

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”),

and are presented in sterling. 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 8 June 2018.

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 32. In addition, note 17 to the financial

statements includes details of the Group’s financial instruments and hedging activities; and its exposures to credit risk and

liquidity risk.

Following the acquisition of Image the Group put in place an Invoice Finance facility to fund working capital. Subsequently

and in light of the Group’s signs rollup strategy the Board decided to seek Shareholder support and raised £3.5m through

a placing in April following the yearend. Consequently the Group now has the focus and financial resources to grow. 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 invoice financing through it’s

bank. Accordingly the Directors continue to adopt the going concern basis in preparing the annual report and financial

statements.

1. 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.

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 £429,000 (2017: £366,000) and work in progress of £21,000 (2017: £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.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

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. Where a gain has been made on a sale and leaseback contract, the gain is deferred and released to the statement of

comprehensive income over the life of the lease.

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, which are charged to administration expenses in the income

statement.

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.

1. 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 Brand Partners Nettl and printing.com, Marqetspace, and Online initiatives. It is essential to continue investing in these

assets. Projects are agreed with user forums to improve functionality for partners. Separate projects are defined for international

expansion and for new initiatives as they are identified. Development costs are capitalised where a project has been defined, tested

and expected to realise future economic benefits. Programming is carried out by third parties 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. Acquired intangibles have been

identified as the customer base and brand, the valuation is based upon future discounted cash flows and expectations for the

business. Further, the Board will use estimates of future incremental cash flows 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 and introduces an expected credit loss model for impairment. The Group are considering the

implications of the new impairment model on the financial statements which may lead to a change in the level of provision for credit

losses.

•

IFRS 15 – Revenue from contracts with customers – effective for periods starting on or after 1 January 2018 will replace IAS 18

‘Revenue’ for accounting periods commencing on or after 1 January 2018. For the Group the effective date is the financial year

commencing 1 April 2018.

The core principle of the standard is that an entity will recognise revenue at an amount that reflects the consideration to which the

entity expects to be entitled in exchange for transferring promised goods or services to a customer.

To apply this principle, entities must follow the five-step model below:

1. Identify the contract(s) with a customer written, oral or implied by an entity’s customary business practices.

2. Identify the performance obligations in the contract(s) and evaluate the terms in the contract to identify all the promised goods

or services and then determine which of these will be treated as separate performance obligations.

3. Determine the transaction price – the amount that an entity expects to be entitled to in exchange for transferring goods or

services to a customer.

4. Allocate the transaction price to the performance obligations.

5. Recognise revenue when the entity satisfies each performance – when control of a promised good or service transfers to the customer.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

We are undertaking a review of the implications and impact of IFRS 15 ‘Revenue from Contracts with Customers’ through careful

consideration of each type of customer contract that occur across the Group. Licence income is expected be recognised over time,

with product supply recognised at the date of delivery. New contracts being entered into, particularly for new markets, may be more

complex and require careful consideration. The nature of contracts will be regularly reviewed in future periods. Full disclosure will be

reported in the September 2018 interim statement.

The Group are also considering IFRS 16 ‘Leases’ for the implications on the financial statements for periods starting on or after 1

January 2019, which will lead to operating leases being capitalised on the balance sheet with accumulated depreciation and finance

costs impacting the income statement rather than the current rental cost.

The Directors do not believe that the other standards above will have a material impact on the financial statements.

2. ACQUISITIONS OF SUBSIDIARIES

Acquisitions in the current period

On 14 July 2017, the Company acquired all of the ordinary shares in Image Everything Limited (Image Group) for a consideration

of £2.61m, satisfied in cash, vendor loan notes and deferred contingent consideration. The company is a leading large format sign

manufacturer and exhibition contractor.

The acquisition of Image, given its size, is a significant further step in our sign roll-up strategy. It enables us to scale our business more

quickly through extending the range of signage services we sell through our Nettl and printing.com networks. We want to help clients

fulfil more of their display, exhibition and signage needs.

In the nine months to the period end the subsidiary contributed an operating profit of £369,000 to the consolidated result for the year.

If the acquisition had occurred on 1st April 2017 Group revenue would have been £1,330,000 higher. 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

Intangibles
acquired

£000

Total assets
and liabilities
£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

Deferred tax

Net identifiable assets and liabilities

Goodwill

Consideration paid:

Initial cash price paid

Vendor Loan Notes

Deferred consideration at fair value

Total consideration

324

718

(38)

(289)

(779)

3,119

(530)

2,589

324

3,119

718

(38)

(289)

(779)

(530)

2,595

1,150

1,103

358

2,611

Intangibles acquired include the Customer Base and Brand Recognition arising on the acquisition and recognising the value placed

upon acquired customer revenues, those Intangibles result in a Deferred Tax charge.

The initial consideration, paid on completion, comprises cash of £1.15m, together with vendor loan notes of £1.17m (together the “Initial

Consideration”). Vendor loan notes were subject to warranty claims and are now valued at £1.10m. A maximum contingent amount

of £0.6m consideration is payable if certain targets are met relating to the future financial performance of Image (the “Earn-out”), of

which the full amount is expected to be payable. Of this, £0.36m has been treated as consideration.

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 and signage, 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.

• Revenue in respect of brand licence fees for printing.com and Nettl and other licence clients 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.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018ANALYSIS BY LOCATION OF SALES

UK & Ireland
£000

Europe
£000

Other
£000

Total
£000

Period ended 31 March 2018

Segment revenues

Period ended 31 March 2017

Segment revenues

13,791

489

350

14,630

9,634

430

380

10,444

Of the Group revenue of £14,630,000, £13,791,000 was generated in the UK (2017: £9,634,000). Revenue generated outside the UK is

primarily attributable to partners in France, New Zealand, Australia, Poland and the USA. No single customer provided the Group with

over 10% of its revenue.

In UK&IE Licence Fees BrandPartners, Nettl and printing.com, amounted to £1.07m (2017: £0.73m). Master Licensees were £0.56m

(2017: £0.53m). Company Studios achieved Website sales of £0.16m (2017: £0.15m).

Of the Group’s non-current assets (excluding deferred tax) of £6,884,000, £6,836,000 are located in the UK. Non-current assets located

outside the UK are in France £8,000 (2017: £12,000) and the Republic of Ireland £40,000 (2017: £49,000).

ANALYSIS BY TYPE

Period ended 31 March 2018

Licence
Fees

Company
Studios

£000

Brand
Partner
Print

£000

Signs

Online &
Trade

Total

£000

Segment revenues

1,773

1,594

3,870

4,000

3,393

14,630

Period ended 31 March 2017

Segment revenues

1,488

940

3,762

4,254

10,444

4. LOSS BEFORE TAXATION

Included in profit are the following:

Operating lease rentals

Amortisation of intangible assets

Depreciation

Gain on foreign currency transactions

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

2018
£000

463

1,486

388

2018
£000

2017
£000

256

1,409

336

(14)

2017
£000

The 2018 Auditors’ remuneration for statutory audit services are to be paid to RSM UK Audit LLP and non-audit services relate solely to

amounts paid to RSM UK Tax and Accounting Limited, in the prior year 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

2018

2017

2018

2017

179

120

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

5. STAFF NUMBERS AND COSTS (CONTINUED)

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 2018 £79,000 of contributions were charged to the

Consolidated Statement of Comprehensive Income (2017: £56,000). As at 31 March 2018 £5,000 (2017: £3,000) contributions were

outstanding on the balance sheet.

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

Wages and salaries

Social security costs

Other pension costs

KEY MANAGEMENT COMPENSATION:

Key managements’ emoluments

Company contributions to money purchase pension plans

Group
2018
£000

3,992

506

4,577

Group
2017
£000

Company
2018
£000

Company
2017
£000

3,275

385

3,716

2018
£000

285

311

2017
£000

278

303

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 40 where details of fees and benefits can

be found. National Insurance contributions of £36,000 were paid on Directors remuneration.

The aggregate of emoluments for the highest paid Director was £170,000 (2017: £192,000), and Company pension contributions of

£16,000 (2017: £16,000) were made to a money purchase scheme on their behalf.

Directors for whom retirement benefits are accruing under money purchase schemes 5 (2017: 2).

6. 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 in income statement

2018
£000

(40)

(32)

(264)

(294)

2017
£000

(123)

(50)

(166)

(132)

(26)

(38)

(362)

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

6. 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 (2017: lower) than the standard rate of corporation tax in the UK of 20% (2017: 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 19% (2017:19%)

Effects of:

Permanent differences

Other tax adjustments, reliefs and transfers

Adjustments in respect of prior periods – current tax

Adjustments in respect of prior periods – deferred tax

Withholding tax

R&D losses surrendered

R&D super deduction

Movement due to the change in the tax rate

Total tax repayment

2018
£000

(1,240)

(247)

(6)

(40)

(117)

(294)

2017
£000

(987)

(197)

(50)

(38)

(143)

(9)

(362)

The Group Tax Debtor amounts to £101,000 (2017 Debtor: £138,000). The deferred tax liabilities as at 31 March 2018 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.

7. 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 liabilities

Movement in deferred tax during the year.

Assets
2018
£000

Assets
2017
£000

Liabilities
2018
£000

Liabilities
2017
£000

531

580

2017

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

313

316

530

(264)

(2)

(266)

Movement in deferred tax during the year.

Property, plant and equipment

Intangible assets

1 April
2016

Adjustment
for prior
years

Recognised
in income

£000

Recognised
in income
due to tax
rate change
£000

507

512

(38)

(130)

(2)

(132)

(26)

Company

The Company had no deferred tax assets or liabilities as at 31 March 2018 (2017: £nil).

313

316

31 March
2018

£000

531

580

31 March
2017

£000

313

316

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

8. 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.

Cost

Balance at 31 March 2016

Additions

Acquisition of subsidiary

Disposals

Effect of movements in foreign exchange

Balance at 31 March 2017

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

6,714

576

6,801

927

282

(4,312)

798

(46)

853

209

Total

£000

8,147

119

(46)

8,316

1,136

324

(4,312)

Balance at 31 March 2018

576

3,698

1,102

5,464

Depreciation and impairment

Balance at 31 March 2016

Depreciation charge for the year

Acquisition of subsidiary

Disposals

Effect of movements in foreign exchange

Balance at 31 March 2017

Balance 31 March 2017

Depreciation charge for the year

Disposals

571

573

5,624

191

5,860

206

(3,983)

385

143

(46)

485

171

6,634

336

(46)

6,983

388

(3,983)

Balance at 31 March 2018

574

2,083

656

3,388

Net book value

At 31 March 2016

At 31 March 2017

At 31 March 2018

1,090

941

1,615

413

1,513

368

1,333

446

2,076

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

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 –

7%-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.

LEASED PLANT, MACHINERY AND FIXTURE & FITTINGS

At 31 March 2018 Group had leased assets with a carrying value of £1,272,000 (2017: £275,000). The Image acquisition was part financed

by a sale and leaseback of assets giving rise to a gain of £102,000 in the period.

9. INTANGIBLE ASSETS AND INVESTMENTS

RESEARCH AND DEVELOPMENT COSTS

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

• Customer Lists –

5 – 10 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 may arise on acquisitions, where this occurs the valuation will be supported by a fair value assessment of the revenues

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

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

9. 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% (2017: 12.5%) was applied.

Group

Cost

Domains
& brand
£000

Software Development
costs
£000

£000

Customer
Lists
£000

Goodwill

Other

£000

Total

£000

Balance at 31 March 2016

356

Acquisitions – internally developed

Acquisitions – purchased

Acquisitions of subsidiary

Disposals

3,011

329

2,608

442

563

(160)

(284)

Balance at 31 March 2017

356

3,340

2,890

Balance at 31 March 2017

Acquisitions – internally developed

Acquisitions – purchased

Acquisitions of subsidiary

Disposals

356

549

3,340

307

2,890

424

279

120

2,570

154

6,705

154

442

329

(444)

7,081

424

430

3,135

Balance at 31 March 2018

905

3,647

3,314

2,969

157

11,070

Amortisation and impairment

Balance at 31 March 2016

Amortisation for the year

Disposals

Foreign exchange movement

Balance at 31 March 2017

Amortisation for the year

Disposals

Foreign exchange movement

271

289

1,816

701

1,142

627

(162)

2,517

1,607

2,517

580

1,607

676

507

(285)

268

179

3,812

1,409

(447)

4,776

1,486

Balance at 31 March 2018

321

3,097

2,283

447

102

6,262

Total

£000

2,893

2,305

Group

Net book value

At 31 March 2016

At 31 March 2017

9. INTANGIBLE ASSETS AND INVESTMENTS (CONTINUED)

Domains
& brand
£000

Software Development
costs
£000

£000

Customer
Lists
£000

Goodwill

Other

£000

1,195

1,466

823

1,283

At 31 March 2018

584

550

1,031

2,522

4,808

Amortisation and impairment charge

The amortisation charge of £1,486,000 (2017: £1,409,000) is recognised in profit and loss within depreciation and amortisation

expenses. An impairment charge of nil (2017: £nil) was recognised during the year.

Investments - Company

Cost

Balance at 31 March 2016

Balance at 31 March 2017

Acquisitions in the year

Balance at 31 March 2018

Shares in
Subsidiary undertakings
£000

574

637

2,605

3,242

Total
£000

574

637

2,605

3,242

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

Image Everything 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

Printing – trading

Sign Design, Manufacture and Installation

Partner contracts – dormant

Licence agreements – dormant

Enterprise Support – dormant

Template Provision – dormant

Software – dormant

Licence agreements – dormant

Registered address for all UK business is Focal Point, Third Avenue, Trafford Park, Manchester M17 1FG

France incorporated Subsidiary undertaking – wholly owned

Nature of business/status

Grafenia France sarl

Partner contracts – trading

Address 12 Rue de Chaussee, d'Antin 75009 Paris

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

10. TRADE AND OTHER RECEIVABLES

Other receivables due from subsidiary companies

Trade receivables

Prepayments

Corporation tax

Other receivables

Group
2018
£000

Group
2017
£000

Company
2018
£000

Company
2017
£000

2,765

482

111

3,406

1,854

469

138

2,524

3,615

4,977

3,628

4,983

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

At 31 March 2018 trade receivables are shown net of an impairment allowance for doubtful debts of £339,000 (2017: £415,000).

An analysis of impairment losses recognised in the year is given in note 16.

Trade and other receivables denominated in currencies other than sterling comprise £133,000 (2017: £192,000) of trade receivables.

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

Group
2018
£000

Group
2017
£000

Company
2018
£000

Company
2017
£000

Other receivables

11. CASH AND CASH EQUIVALENTS

Group
2018
£000

Group
2017
£000

Company
2018
£000

Company
2017
£000

Cash and cash equivalents

171

524

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

cash Sterling other than Euro of £78,000 (2017: £58,000).

12. OTHER INTEREST-BEARING LIABILITIES

The Company had £600,000 of current liabilities and £245,000 of non current liabilities from interest bearing loan notes. The Group had

interest-bearing liabilities from Finance Leases and loans amounting to £2,009,000 (2017: £83,000) as a current liability and £1,055,000

(2017: £216,000) and £358,000 in deferred consideration 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 16.

13. TRADE AND OTHER PAYABLES

Other trade payables

Accruals

Deferred income

Other liabilities

Group
2018
£000

1,437

703

280

504

2,924

Group
2017
£000

Company
2018
£000

Company
2017
£000

1,370

375

118

1,877

Other trade payables denominated in currencies other than Sterling comprise £67,000 (2017: £15,000) denominated in Euro.

14. 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. Two employees left during the year so the

option total is now for 47 employees over 4,266,558 Ordinary Shares.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

15. SHARE CAPITAL

SHARE CAPITAL - GROUP AND COMPANY

In thousands of shares

On issue at 31 March 2017

Purchased by the Company and held in Treasury

Shares on the market at 31 March 2018 – fully paid

All treasury shares held by the Company were sold on 20 February (2017: 2,150,000)

Allotted, called up and fully paid

47,557,835 (2017: 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 after taxation for the financial year from continuing operations

Weighted average number of shares

For basic earnings per ordinary share

Exercise of share options

Ordinary shares

2018

47,558

£000

475

2018
£000

(946)

2017

47,558

(2,150)

45,408

£000

475

2017
£000

(625)

Number of
Shares

45,638,192

Number of
Shares

45,500,884

For diluted earnings per ordinary share

45,638,192

45,500,884

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

During the year and prior year no dividends were proposed or paid. After the balance sheet date the Board proposed no final dividend

would be made (2017: £nil).

16. 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 pages 29-32. 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 2018 and 31 March 2017 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.

After the balance sheet date the Board proposed no final dividend would be made (2017: £nil).

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 £509,000 (2017: £550,000)

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 2018
Total
£000

31 March 2018
Impairment
£000

31 March 2017
Total
£000

31 March 2017
Impairment
£000

1,409

625

456

662

3,152

(339)

1,171

241

348

622

2,382

Not past due

Past due 0 – 30 days

Past due 31 – 90 days

Past due 90 days and over

IMPAIRMENT

Balance at 31 March 2016

Impairment loss recognised

Increase in impairment allowance

Balance at 31 March 2017

Impairment loss recognised

Increase in impairment allowance

Balance at 31 March 2018

Of the total impairment provision £136,000 (2017: £118,000) relates to Partners that have ceased trading.

(415)

£000

212

(52)

255

415

(107)

339

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

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 2018

Carrying Contractual
cash flows
£000

amount
£000

6 months
or less
£000

6-12
months
£000

1-2 years

2-5 years

£000

Trade and other payables

2,924

Bank Loans

Finance lease liability

Loan Notes + deferred consideration

Invoice financing

1,272

1,203

1,076

6,324

1,272

1,203

1,076

6,324

106

300

1,076

4,406

105

300

405

374

452

826

728

31 March 2017

Trade and other payables

Bank Loans

Finance lease liability

Carrying
amount
£000

Contractual
cash flows
£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

1,877

1,928

125

141

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:-

31 March 2018
Euro
£000

31 March 2018
GBP
£000

31 March 2017
Euro
£000

31 March 2017
GBP
£000

178

322

3,408

(1,005)

(1,504)

899

167

(15)

210

2,567

467

(1,356)

1,678

Trade receivables

Cash and cash equivalents

Trade payables

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 2018, 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

£41,000 (2017: £2,000) with an equal adjustment to equity.

FAIR VALUES

There is a difference of £309,000 (2017: £20,000) between fair and carrying values on the balance sheet in respect of finance leases and

loan notes.

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.

17. OPERATING LEASES

Non-cancellable operating lease rentals are payable as follows:

Group
2018
£000

Group
2017
£000

Company
2018
£000

Company
2017
£000

Plant and machinery

Less than one year

Between one and five years

Land and buildings

Less than one year

Between one and five years

276

318

674

259

426

708

The most significant lease in land and buildings is that of the Manchester Production Hub and Head Office.

GROUP

During the year £463,000 (2017: £256,000) was recognised as an expense in profit and loss in respect of operating leases.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2018

18. CAPITAL COMMITMENTS

The Group and Company have no commitments to incur capital expenditure at the yearend (2017: £nil).

19. CONTINGENCIES

Neither the Group nor the Company had contingencies at the yearend (2017: £nil).

20. RELATED PARTIES

The Company provides cross company guarantees to the Group’s bankers. In the year ended 31 March 2018 no dividends were

received (2017: nil).

Transactions with key management personnel

Directors of the Company control 4.98 per cent of the voting shares of the Group.

The compensation of the Directors, who are the key management personnel, is disclosed in note 5.

21. POST BALANCE SHEET EVENT

On 13 April 2018, the Company announced it had conditionally raised approximately £3.5 million (before expenses) by way of a placing

of 29,258,331 new Ordinary Shares, at a price of 12 pence per ordinary share, with certain new and existing investors. The net proceeds

are intended to be used in the near term primarily to fund growth through acquisition, to open further Nettl Business Superstores and

to repay and renegotiate existing debt arrangements.

ADVISERS 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

RSM UK Audit LLP
3 Hardman Street

MANCHESTER

M3 3HF

Registrars
and Receiving Agents
to the Company

Link Asset Services
6th Floor

65 Gresham Street

LONDON

EC2V 7NQ

Allenby Capital Limited
5 St. Helens Place

Bankers
to the Group

The Royal Bank of Scotland plc
1 Spinningfields Square

MANCHESTER

M3 3AP

LONDON

EC3A 6AB

Gateley plc
Ship Canal House

98 Kings Street

MANCHESTER

M2 4WU

Financial Adviser,
Nominated Adviser
and Broker
to the Company

Solicitors
to the Company

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