NanoXplore Annual Report 2019

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FY2019 Annual Report · NanoXplore

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ANNUAL
REPORT
AND
ACCOUNTS
2019

CONTENTS

IN SUMMARY

03 CHAIRMAN’S STATEMENT

11 CHIEF EXECUTIVE’S STATEMENT

27 FINANCIAL REVIEW

32 DIRECTORS

34 DIRECTORS’ REPORT

36 STATEMENT OF DIRECTORS’ RESPONSIBILITIES

37 CORPORATE GOVERNANCE STATEMENT

45 DIRECTORS’ REMUNERATION REPORT

INDEPENDENT AUDITORS’ REPORT

52 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

53 CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

54 CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN SHARHOLDERS' EQUITY

55 CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS

56 NOTES TO THE FINANCIAL STATEMENTS

80 ADVISERS AND COMPANY INFORMATION

IN SUMMARY

Grafenia are the people behind the Nettl network of neighbourhood studios, Image Group

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 2019

Year ended
31 March 2018

Subscription and Licence Fees

Company Studios

Signs

Brand Partner Print

Online and Trade

Revenue

Gross Profit

EBITDA

Amortisations and Depreciation

Operating Loss

Net Finance Expense

Tax Income

Loss for the Year

EPS – Continuing Operations

Total Dividend per Share

Investment in property
plant and equipment

Acquisition of subsidiaries

Net debt

£000

1,975

2,629

4,910

3,577

2,871

15,962

8,545

(1,112)

(1,875)

(2,987)

(179)

343

(2,823)

(3.79)p

Nil

£2.47m

£0.27m

£(3.12)m

£000

1,773

1,594

4,000

3,870

3,393

14,630

8,337

771

(1,874)

(1,103)

(137)

294

(946)

(2.07)p

Nil

£1.94m

£2.61m

£(3.04)m

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019Nettl of Edinburgh, our first partner-operated Business Store opened this year.

Jan-Hendrik Mohr
Chairman

CHAIRMAN’S
STATEMENT

I re-read my past Chairman’s statements when preparing this letter. Spoiler alert:

a lot of what you will be reading in this year’s statement is consistent with what I

talked about in the last two years. When we embarked on our journey two years

ago to build, buy and licence Nettl, we didn’t know whether we were on the

right path. Of course, certainty is an unrealistic state in any business, but we have

gained confidence over the last months and years that we are on the right path.

So how did we do?

Operational Performance

In the recent fiscal year, our turnover increased by 9% to £15.96m (2018: £14.63m)

and gross profit increased by 2.5% to £8.55m (2018: £8.34m). The year showed

a decrease in EBITDA, which is operating loss before interest, tax, depreciation

and amortisation, to (£1.11m) (2018: profit £0.75m). Our loss for the year came in

at £2.82m versus £0.95m last year. We finished the year with a cash position of

£1.35m (2018: £0.17m) and net debt (including deferred consideration) of £3.12m

(2018: £3.04m). We invested £2.46m on capex (2018: £1.09m) – mainly for our new

litho printing press strategy that Peter will discuss later – and capitalised £0.74m

in R&D (2018: £0.84m).

Importantly, these results include several cost items that are either one-time in

nature, or constitute up-front costs, rather than ongoing operating costs. An

example of a one-time costs is the improvement program in our finance function.

As we have discussed on previous occasions, we decided to improve our financial

capabilities to support our strategy. To that end, we have hired new team

members and have had to part with others. The entire process was overseen very

well by Simon, our Interim FD, and we are now seeing significant progress.

Such restructuring does increase costs in the short-term, but we strongly believe

it’s a worthwhile investment, given the planning and reporting requirements of

our journey.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019Connecting our clients together at Nettl of Deansgate Business Social in July 2019.

An example for an ‘up-front cost’ is our start-up US business. Here, we have

invested heavily in legal expenses, travel and salaries for the launch of Nettl

of America.

While it is not easy to put a precise number on both examples, it’s safe to

assume they each cost us substantial amounts in the last fiscal year.

Some firms decide to back-out many costs from their profit and loss statement to

arrive at some ‘adjusted’ figure. I find that a slippery slope, as it opens the door

to mark every cost as ‘extraordinary’ or ‘non-recurring’. Such accounting doesn’t

help with cost discipline internally. Also, communicating what ends up being a

‘profit before cost’ doesn’t help external readers either.

One pragmatic way to measure our progress is to consider our like-for-like (i.e.

excluding acquisitions) development of gross profit. In the last fiscal year, that

figure declined by 3.2%. This decline has been significantly more severe in the

past and we believe we are getting close to the point where declines from litho

print are offset by increases in our other product lines. We are determined to

grow our gross profit consistently and I encourage you to measure our progress

by how we drive gross profits in the future.

People at Grafenia & Priorities in the last year

This past year has been the year of getting processes right. Especially in finance,

we increased our capabilities in areas such as reporting speed, debtor collection,

planning and expense management. This is the boring part of the business, but

it can make a team’s life easy when these processes work well. Given that we are

looking to grow the Group significantly – in part by acquisitions which always

adds complexity – we had to get our finance foundation right before continuing

to build. I’d like to express my thanks to all the people at Grafenia who were

involved in the continuing improvement of our finance capabilities – your work

will pay off!

In past letters, I wrote that there were three areas where my fellow non-executive

director Conrad and I can impact the Grafenia organisation. Firstly, get

governance right. Secondly, set the right incentives. Thirdly, make rational capital

allocation decisions. The first we announced to be well on track last year.

I still believe this to be true but encourage feedback from shareholders if they

see ways where we can improve our governance. The second aspect, incentives,

I’ll discuss in the next paragraph, as this is a priority for the on-going fiscal year.

That leaves us with capital allocation – of which we had quite some news in the

recent past! During the last 18 months prior to publishing of this report, we

raised (or announced to raise) equity capital three times. We announced that we

had raised £3.5m at 12p per share in April 2018, £1.1m at 13.5p per share in March

2019 and £4.01m at 14p share in July 2019. Why did we do this and how did we

come up with valuation and amounts?

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019Image Group manufacture and install signage for clients of all shapes and sizes.

The core reason for raising capital has been that we see attractive capital

deployment opportunities within our business. Some are truly arising from day-

to-day business (including launching Nettl in the US, our new litho printing press

remodelling, combining Image Group’s production in Trafford Park and the like).

Other opportunities arise when we bring in other businesses into the Group; our

focus is on complementary sign businesses as Peter will explain later.

For each of these investments we prepare an investment case which sketches

out the expected cash-flows under different scenarios. When deciding, we

try not to lose ourselves in detail, but rather only pursue investments that are

clearly attractive.

We’ve made great strides over the last year to improve our budgeting and

forecasting. In fact, we now have a pretty decent idea of how many sign

businesses we can sensibly buy, what steps we need to take in our existing

business to improve performance and where that would bring us in terms of

revenue and profitability. I’d like to reaffirm our guidance from the July 3rd

trading update: our current business should be able to generate 10-15% EBITDA

margins in the mid-term and we think we can continue to bring complementary

sign businesses into the group at sub-5x EBIT multiples.

With the placing of £4.01m announced in July 2019, we should now have enough

funds to add a few more regional sign hubs to our network. Peter will elaborate

later on exactly how we plan to do this and why we think it’s attractive.

In terms of valuation, we have tried to strike a sensible balance between offering

an attractive investment to incoming shareholders, whilst not diluting existing

shareholders. In the context of our base case forecast, we derived an implicit

valuation of what Grafenia stock is worth if we achieve our plan. That value is

significantly above where the stock has been trading and the valuations at which

we raised funds seem to strike a balance between current trading and what we

think the shares are worth.

I’d like to note that we received a mix of astonishment and confusion when we

planned to raise new capital at a price above the prevailing current trading level.

Several observers found this to be very ‘unusual’, as most firms tend to raise new

capital at a discount to trading. However, given the magnitude of our equity

raises vs the existing share capital, this would have caused tremendous dilution

to shareholders who didn’t participate in the placings. This is frankly not the

way we treat our shareholder partners – many of whom are employees, family

of employees or local small investors – as most cannot pro-rata increase their

shareholdings.

The entire team would like to thank all shareholders who have participated in

our three placing rounds for their support of our funding strategy – even if it’s

slightly weirder than usual – we feel energised by the trust shareholders put in

our work!

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019We meet Nettl and printing.com partners to share ideas and new developments at

regional Pow Wows, like this one in Nettl of Liverpool Waters during January 2019.

Apart from lots of work with numbers, we had some (quite literally) heavy-lifting to

do in our business. Very notable was the complete overhaul of our production logic.

We replaced three old printing presses with one new press and have been moving

the operations of Image Group into our existing hub at Trafford Park. There were

potential risks involved in the entire operation and multiple different timelines had

to be managed in parallel. The mastermind and terrific manager of our production

overhaul is John Prior, Grafenia’s Production Director. I’d like to express my thanks to

him this year. We put a lot of trust in his managerial skills during the last year and he

truly delivered. Thanks again John and team!

Outlook and Current Priorities

Our clear priority for the ongoing fiscal year and beyond is to execute on the strategy

that we have previously communicated. Over the past year, a lot of energy has gone into

improving internal processes and it’s exciting to now focus on getting things done.

I still owe you the “setting incentives” item on Conrad and my score card! It is

important to remember, we do have several plans in place already. First and foremost,

our SAYE scheme is taken up by 41% of the team. This plan makes shareholders out

of employees and is structured in a tax-friendly way. Employees save a portion of

their monthly salary which they can convert into shares after three years at a pre-set

price. In past rounds, the subscription price was fixed at 7.8p and 11.5p per share. I’m

pleased to know that some employee-owners of Grafenia have nice paper increases in

their investment so far. Well deserved fruits for hard work indeed.

We have applied a similar logic to structure our new management incentive plan.

The idea is to give team members the option to buy shares at the price of the last

financing round (i.e. 14p) with their own money. Grafenia will then issue a number

of options for each share purchased which will vest after a period of time and upon

achieving key parts of the aforementioned business forecast. Indeed, if management

meets or exceeds targets, a nice payoff is due. But if targets are missed, their hard-

earned own money is at risk (like that of our shareholders). We think this is the way

incentives should be structured and have received positive feedback when sounding

this among key shareholders. Please review our AGM invitation for specifics of the

plan and do get back to me if you have input or questions.

On a final note, I announce the sad news that my predecessor as Chairman, Les

Wheatley, has recently passed after a long illness. Les has done great service to

Grafenia and chaired the board for many years. Our thoughts are with his family.

I look forward to seeing you at the Annual General Meeting on 25 September 2019 at

our Nettl of Birmingham Business Store.

Jan-Hendrik Mohr

Chairman

27 August 2019

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019
We print onto all sorts of material, like this outdoor grade tent fabric.

Peter Gunning
Chief Executive

STRATEGIC REPORT

CHIEF
EXECUTIVE’S
STATEMENT

Dear Shareholders,

Say it, then do it

Writing this annual letter is a natural reflection point on what’s gone well and

what hasn’t quite gone to plan.

We’ve made substantial progress in a number of important areas. Within our

company studios segment this year we’ve opened new Nettl Business Stores

and we’ve increased sales in our other company-owned stores. Our first Nettl

franchisees are operating in the United States and we’ve grown our Nettl partner

network in every country we operate. A modernisation programme is underway

at our production hub and we’ve relocated and further integrated Image

Group. We’ve also made a couple of small acquisitions and have an interesting

future pipeline.

However, the print industry is dealing with the perfect storm. Most businesses

are facing rising costs, shrinking volumes, falling demand and increased

competition. Capacity is coming out from our sector, but not quickly enough.

Every day we decrease our reliance on traditional print sales, but we need to

move faster.

This year we’ve continued to execute the plan as we said we would. Along the

way, we’ve made a few big decisions which I’d like to explain in more detail.

But first, it’s worth taking a moment to recap on our strategy.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019Our upside down room at a recent Expoganza event,

for graphic professionals to come and see what we do.

Build, buy, licence

Three words, each as important as the other.

We own five company stores. One is a ‘first generation’ Nettl web studio in

Dublin. We have two second generation Business Stores in Birmingham and in

Manchester and two Superstores in Liverpool and Exeter.

Stores sell websites, signage, print and display to local SMEs who need help

with creative services. We use our company stores to figure out best practice and

to test new things. They are also places we use to train new Nettl partners and

team members.

On 2 December 2017 we acquired Nettl of Exeter, one of our top performing

partners. Then on 5 July 2018, we acquired AG Signs which was located in an

industrial estate in Honiton, near Exeter. In March 2019, we relocated both

businesses to open our second Nettl Business Superstore near Exeter city

centre. This 7,500sq.ft location was formerly a car dealership. Inside, we have

display space, our studio team and three meeting rooms for hire. The sign

manufacturing and installation team is based here and we have ample room for

vehicle graphic application inside.

We made two further small acquisitions of Nettl partners this year, both of which

rolled into our company stores: The client list of H & H Print Services Limited

trading as Nettl of Liverpool Limited in Liverpool and Artichoke Design Limited,

which was trading as Nettl of The Jewellery Quarter, in Birmingham.

Total sales in our company-owned stores grew 69% this year to £2.69m

(2018: £1.59m). Like-for-like sales were up 8% when we exclude acquisitions in

the period.

We closed a legacy store in central London after the year end. This store was loss

making and, given its small footprint, no longer fitted the profile we look for in

establishing Nettl Business Stores. As we’ve previously said, opening new small

stores was unlikely. This former printing.com location has seen its rent nearly

double in the last few years. As our lease came up for renewal, we made the

difficult decision to terminate and offered the team roles in other locations.

It’s always regrettable when we have to say goodbye and we thank the team for

their efforts.

In May 2019, also after the year-end, we opened “Nettl of Deansgate”, a

7,000sq.ft Business pop-up Store in Manchester city centre. We have an

opportunistic short-term lease on a prime retail location, which is earmarked

for redevelopment in the not too distant future. Our existing Manchester hub-

based Nettl team have relocated to Nettl of Deansgate until the redevelopment

begins. As this is a temporary pop-up store, we’ve made minimal investment in

fit-out. Instead we’re using the space to present our exhibition range – in fact, it’s

the only place we have in the UK big enough to display our full range.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019We wrap vehicles at our superstore locations, including

those used by our acquisition and install teams.

The mix of products we now sell through our Nettl company stores and partner

network has continued to evolve. Sales of ink-on-fabric soft signage has kept

growing and all our stores have now completed signage projects.

We’ve learnt from operating these stores ourselves. Our systems were originally

designed to deliver print and then web projects, so we’ve had to extend our

proprietary w3p back-office system to handle and invoice sign projects.

There’s still work needed to enable us to manage all aspects of sign manufacture

in our process; from survey, quoting and installation. Some things are made

in-store and some things they source centrally. Our central teams work to

productise and systemise new products, so that they can be sold and shipped all

over the country.

Buy more sign businesses

Despite our increase in size, we believe we are still too small to be a plc as we

currently stand. As well as building our company stores organically, we have an

acquisition strategy. This is centred around rolling up the signs sector. There

are lots of reasons why we think this makes sound industrial logic, and these

businesses are a natural extension of our product range. And we sell to the same

kind of clients.

So far, we’ve acquired a couple of smaller sign businesses. With both, we’ve

combined them with a Nettl studio team and relocated them to create new

Nettl Business Superstores. That’s likely to happen again. Other Nettl partners

have expressed an interest in joining Grafenia, as we roll-out future Superstores.

Their history and behaviour as licenced partners will be a helpful indicator as to

whether they are a suitable match.

However, opening new Nettl Business Superstores is capital intensive. As we are

currently loss-making, it would take some time to make a sufficient contribution

to profitability, with just the incremental acquisition and conversion of smaller

businesses alone.

That’s why we’re looking at acquisition opportunities in two size brackets. We’ll

continue to look for suitable Superstore targets – those typically have up to 10

employees and revenues of up to £500k.

We’re also looking at a second group of larger businesses. They tend to have

up to 100 employees and revenues of £3m to £5m. These would act as regional

hubs for our network.

After the year end, we raised £4.01m to support our execution of this strategy.

We are prioritising acquisitions of businesses in the second group. Once these

are in place, we should be able to acquire smaller businesses and convert them

to Nettl Business Superstores from cash-flow.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019Our “Goliath” giant deckchair has been a popular new product launched for summer 2019.

There are 50 towns and cities we’ve identified as potential targets for a Nettl

Business Store or Superstore and have an abundance of sign businesses for sale.

However, we are selective about which businesses to approach. Finding businesses

with a cultural fit and a team with the desire to rebrand as a Nettl Business

Superstore is our priority.

Signs and display graphics are a logical extension to the range of products both

our company-owned and partner-operated stores sell. However, there’s often a gap

in knowledge and sales competence levels that can lead to a lack of confidence,

both of which are an obstacle to sales.

We aim to help clients choose the right product, within their budget and without

confusing them with jargon. We’ve developed marketing tools, like our “Wall of

Wonder” and companion buying guide. It helps explain the options, with easy-to-

follow price brackets. As we launch new products, it’s important we develop design

templates, technical documentation and marketing collateral to support them.

In July 2017 we acquired Image Group (“Image”). They had sales of over £5m and at

the time, we believed they would act as our national sign hub. Since the acquisition,

we’ve rolled out a range of printed vinyl and rigid substrate products, which we sell

through our company stores and licenced Nettl and printing.com partner network.

Some items, like our giant deckchair, are hybrid products, with components made

by the Image team and finished by our fabric printing team. These have been

popular at events and venues who want to create “Instagrammable moments”.

These ‘products’ can be shipped by overnight carrier and flow through our supply

chain just like flyers and business cards.

However, we’ve still yet to crack the conundrum of national manufacture and

installation. Whilst we’ve won some national project work, we’ve found that the

distance from manufacture to installation directly affects competitiveness

and/or profitability.

We believe that regional hubs are part of the answer. We call them ‘Nettl Works’.

When the first Nettl Business Superstore opened in Liverpool, we just relocated all

the manufacturing equipment ADD Signs, which we purchased in 2018, was using.

In Exeter, AG Signs, acquired this year, was subcontracting more manufacturing

and so our Superstore has less equipment. Instead there’s more meeting and

display space.

We believe we need five Nettl Works in the UK to get sufficient geographic

coverage. These hubs will manufacture sign projects, leaving Superstores to focus

on sales, design and installation and printing of fast turnaround graphics.

Unlike a Superstore, these hubs will retain their existing identity and continue to

service their client base. We plan to implement our supply chain software and co-

brand them as ‘Nettl Works’. Image will be the first Nettl Works.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019Nettl and printing.com partners can ask Personal Shopper

for assistance with complex or large projects.

A licence to Nettl

The Nettl business model is licenced to third parties. Designers, printers and

sign businesses can access our training, systems and marketing to sell websites,

printing and displays to their own clients. We grant them an exclusive territory,

in exchange for a licence fee of up to £2,999. We call them “Brand Partners” and

they pay a monthly subscription of typically £399. They contract for a minimum of

three to five years.

Partners also have access to our supply chain and can buy print and display

at wholesale prices. They use w3p, our proprietary platform to manage client

relationships, print orders and web projects. This year we’ve overhauled big

parts of the interface, to simplify common tasks. We developed a Kanban card-

based, drag ‘n’ drop dashboard to re-imagine how partners juggle lots of jobs in

their studios. We also rolled out a new visual production workflow, optimised for

touch interface on tablets, to help manage their in-house production

Our Nettl partner network has grown to 228 locations around the world (2018:

192). At the date of our last trading update, we had 173 active Nettl partners in

the UK and Ireland, 27 in Benelux, 13 in France, eight in the USA, four in New

Zealand and three in Australia. During the year, we also added 44 new printing.

com partners and currently have 85 printing.com locations (2018: 108). Our total

subscription and licence fee income grew to approximately £1.98m for the year

ended 31 March 2019 (2018: £1.77m).

Sales of print and products to Brand Partners was £3.58m (2018: £3.87m). There’s

a couple of points to note here. Firstly, the product mix has changed. We sold

more ink on fabric, displays and signs than last year, but less litho print.

To address this, we’ve introduced Personal Shopper. Whilst the vast majority of

orders are placed by our partners without speaking to a human, they often need

help with more complex projects. Our product range has grown and with it, a

corresponding increase in product knowledge is required. Personal Shopper

routes queries to appropriate specialists, who can assist with product selection

or setting up projects correctly. As a result, we’re winning higher value orders

which, previously, partners might have lacked confidence to sell.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019We launched Nettl of America this year at an intimate

event for graphic professionals, in Orlando Florida.

Despite rising input costs, wholesale prices have continued to fall. There’s

always someone willing to fill some spare capacity at a discount. As we publish

transparent pricing, competitors might try to tempt people to stray with a few

pounds knocked off. Personal Shopper will price match genuine competitor

quotes on a like-for-like service. While we will never be a price leader, we will

match aggressive discounting, providing there is gross margin available. So far,

we’ve matched hundreds of quotes and have found this particularly successful

with multi-part orders, purchased as a group.

Last year we introduced a new Search Engine Optimisation (“SEO”) service for

clients. Designing and launching a website is one thing. Getting it found on

Google is quite another. SEO is a process which helps to improve a website’s

ranking. The higher up the results list, the more likely someone is to click. As you

can imagine, there’s a lot of competition to be on the first page. Getting there

requires skill, technical knowledge and ongoing commitment and investment.

Our programme trains our studio teams and Nettl partners how to sell SEO,

and then manage client relationships. Partners use our system to set objectives.

Clients subscribe for a minimum of six months and packages range from £100

per month to £1,000+. Then our central “SEO Geeks”, do the technical work. So

far, we’ve trained over 100 people how to sell SEO and certified over 50 partners.

We think revenue from SEO subscriptions will grow next year as we continue to

train more of our Nettl partners.

We expect to add more Nettl partners this year and anticipate more

printing.com locations will upgrade to Nettl, like many did in the current year.

The home of the brave

We launched Nettl of America on 7 March 2019. To comply with federal and

state laws, we positioned Nettl as a co-brand franchise model. The compliance

and registration process is now complete and we are able to grant franchises

in 37 of the 50 US states. We anticipated there would be a longer gestation

period to acquire franchise partners, partly down to local laws requiring cooling

off periods and the disclosure processes. This has turned out to be the case.

However, we are delighted to have granted nine franchises so far, in the states of

Florida, Ohio and Georgia. We expect to grant more in the coming months.

Clearly, the United States is a major market. When we research launching Nettl

into a new country, we estimate the number of potential locations, relative to the

density of the SME population. Using that rule of thumb, we believe the US could

support between 1,500 and 2,000 Nettl locations. When we launch, much of the

cost is front-loaded. Although we evaluate the project as if it were an investment,

we expense the costs as we incur them. This adversely affects our earnings and

inflates our short-term overheads, but we are confident the future upside is

worth the management time, opportunity cost and effort.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019Marqetspace, our trade channel was the first online printer in the world

to offer Klarna Bank’s buy now pay later service.

Sunsetting of white label platforms

As part of our licencing income strategy, we have during the last decade,

entered long-term agreements to master licence our w3p software platform as

‘white label’ in other countries. This year, three out of four of those agreements

came to the end of their term, including one terminated prematurely as result of

insolvency. We don’t anticipate that we’ll licence our software this way in future.

Instead, we’ll always welcome approaches from potential partners who’d like to

master licence Nettl in their country. Where possible we have migrated legacy

white label end users to become Nettl partners.

Online and trade channels

Product sales on our online and trade channels were £2.87m (2018: £3.39m).

Although volumes dropped, so did our overheads, as we redeployed people

and resource to support our brand partner network. We continue to test new

initiatives on these channels. After the year end, Marqestpace.com became

the world’s first online printer to offer “Pay later” credit facilities powered by

challenger bank, Klarna. This allows clients to apply for 30 or 60 days interest free

credit, with an instant decision during checkout. Klarna undertakes collection

and takes credit risk. We plan to roll this out across our channels.

Why buy a new printing press?

As I mentioned, our litho volumes have been declining over time. Most research

forecasts litho print will continue to decline. So why would we invest over £2m in

a new press? Last year we began a substantial evaluation exercise. We looked at

outsourcing our litho print function, in whole or in part. Finding a reliable local

source, with sufficient capacity and ability to meet our service level requirements

proved challenging. Since our review, two of the three final shortlisted

candidates have closed their plants.

As run lengths have got shorter, the key drivers are how long it takes to change

from one batch to another and how many sheets of paper are wasted while the

machine gets to ‘sellable’ print. During this evaluation, it became clear quite how

much technology has advanced since we last invested in presses. We found that

we’d be able to produce the same amount of work on a single press, with half

the press labour and power and reductions in consumable costs.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019We upgraded our press technology during early 2019.

So as previously announced, we made the decision to replace three ageing

presses with a single new high-specification machine. More importantly, it has

released space in our Manchester production hub. Since the year end, we’ve

installed a new mezzanine floor and have combined Image’s main factory

with our hub. As well as operational efficiencies, this combined hub will result

in savings on rent, rates and other occupation costs like power. Our analysis

indicated that a new press would be cash generative in year two and we believed

the investment was the right decision. We are forecasting that sales of litho print

will continue to decline and we will experience further margin pressure. However,

we are expecting further growth in the sales of signage, display and ink-on-fabric

digital textiles, all of which have grown this year.

Outlook

As a result of these changes to our cost base, we estimate we will be breakeven

on a monthly EBITDA run rate during the current financial year. As Jan said, we

are targeting an EBITDA margin of 10-15% in the medium term, although we

make decisions for the long-term sustainability of the business, rather than short-

term performance.

Meet you in Birmingham?

We’d like to invite you to our AGM. Last year, we had some shareholders want to

attend but couldn’t because it was in holiday season. So, we’ve decided to move

the AGM to a time when everyone is ‘back to school’. We like to hold the AGM in

a different location each year, so our shareholders can see different parts of the

business. This year it will be at our Nettl of Birmingham Business Store, a short

stroll from Birmingham Central New Street Station.

As with last year, once the formalities are over, we’ll share some more insights

about our plans. Different members of our team will talk about different topics

and be around to answer questions over a nibble.

Until then,

Peter Gunning

Chief Executive

27 August 2019

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019We opened Nettl of Exeter Business Superstore in March 2019 in a former car showroom.

STRATEGIC REPORT

FINANCIAL
REVIEW

Simon Barrell
Interim Finance Director

Revenue

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

the acquisition of Image Group which now includes a full year of revenue and

increases in Subscriptions and Licence Fees. Group Revenues increased by 9%

to £15.96m (2018: £14.63m). Revenues from the Eurozone were 3% of the total

(2018: 3%) as disclosed in the Segmental Analysis in note 3. However, overall our

losses increased for a number of reasons mentioned below.

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 2.5% to £8.55m (2018: £8.34m).

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

materials are sourced in the UK but originate from Europe. Our biggest material

cost is paper.

Despite increasing pressure on our costs, we have continued to find it difficult

to increase print prices. Competition remains fierce, as evidenced by recent

insolvencies in the market and market prices falling further during the year. As a

result, our gross margin percentage decreased from 57% to 54%. This change is

also partly due to the acquisition of sign businesses last year and this year, which

have different margin characteristics to our traditional business.

Other costs

We continue to invest in acquiring brand partners in the UK and Nettl in the

Netherlands and more recently in the US. All of these costs are front-loaded and

we incur them before we see a return through subscription income. Staff costs

increased significantly with new business coming on stream last year and during

the year. Staff costs increased in the year to £6.08m (2017: £4.56m).

EBITDA

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

tax, depreciation and amortisation, to (£1.11m) (2018: profit £0.75m). EBITDA

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

loss represents the continued price pressures experienced in the business.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019Interest Received and Charged

Interest received in the year was £7,000 (2018: £1,000). Interest charges increased

to £0.19m (2018: £0.14m) from lease agreements, interest due on vendor loan

notes and the utilisation of the invoice discounting facility.

Pre-Tax Loss

The Group recorded a pre-tax loss of £3.17m (2018: £1.24m). The depreciation

and amortisation charge for the year was £1.87m (2018: £1.87m).

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 £0.34m

(2018: £0.3m).

Earnings Per Share (EPS)

There is no dilution of continuing loss per share (EPS) in either year 3.79p

(2018: 2.07p), based on a weighted average number of shares in issue of

74,504,359 (2017: 45,638,192).

Cash Flow

At the year end, the Group had cash balances of £1.35m (2018: £0.17m). Net Debt

was £3.12m with £2.59m of asset finance, £0.81m of vendor loan notes and

deferred consideration, and £0.28m of net funds (Net borrowings 2018: £0.93m).

Operational cash utilised after movements in working capital was (£0.96m)

(2018: generated £1.23m).

Capital Expenditure

Capital investment on plant and equipment, excluding acquisitions, was £2.46m

(2018: £1.09m) financed in the main by new finance leases. This included the

investment in the new printing press, as discussed in the Chief Executive’s

statement, of £2.01m. This will enable the Group to reduce operating costs.

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 £0.74m (2018: £0.85m).

Share Capital

On 3 May 2018, the company completed a fundraise of approximately £3.5m

before expenses through a placing of 29,258,331 new ordinary shares of 1 pence

each at an issue price of 12 pence per share.

On 29 March 2019 the company raised approximately £1.1m, before expenses,

by way of a subscription for 7,868,517 new ordinary shares of 1 pence each at an

issue price of 13.5 pence per share from existing investors.

Acquisitions

During the year, the Group also spent £0.15m on the acquisitions of AG Sign and Print

Limited and Artichoke Design Limited (2018: £1.15m initial consideration on Image

Group acquisition). The Group also acquired the clients list of H&H Print Services

Limited trading as Nettl of Liverpool for non-cash consideration of £0.04m.

Also, the Group amended the purchase price agreement for Image Group during the

year. An Earn-out agreement totalling £0.6m was part of the acquisition agreement

for Image Group when acquired in July 2017. On 26 September 2018 it was agreed

with the vendors of Image Group that the potential earn-out be replaced with a

fixed additional deferred consideration of £0.55m, payable in cash. This deferred

consideration will be paid in 12 monthly instalments commencing 30 September 2019.

Under the original terms of the acquisition, the earn-out was to be fully paid

by September 2019. The agreement delayed the full payment of the lower amount

over the period to 31 August 2020 which is the final instalment date of the

Deferred Consideration.

It was agreed that the repayments to be made in respect of the vendor loan notes of

£1.25m issued in conjunction with the acquisition of Image will be reduced by £0.19m.

Following the variation of the terms of the acquisition, the total consideration for

Image is expected to be £2.76m, satisfied in cash of £1.15m on completion, secured

vendor loan notes of £1.06m repayable in monthly instalments over a period of

approximately two years from completion (final payment August 2019) and unsecured

deferred consideration of £0.55m, payable in monthly instalments over the following

12 month period (final payment August 2020).

Post Balance Sheet Events

On 1 April 2019, the business of ADD Signs Limited was hived up into Grafenia

Operations Limited.

On 2 July 2019, an agreement was reached in respect of a further variation to the

terms of its acquisition of Image Everything Limited (”Image”). This variation relates

to Neil Cousins, one of the vendors of Image, who will step down as an executive of

the Group on 30 August 2019.

Mr Cousins has entered a new consultancy agreement, together with a Nettl partner

licence agreement. Under the consultancy agreement, he will continue to provide

services to the Group for a minimum of 12 months. He will forgo his pro rata share of

the £0.55m Deferred Consideration due to the vendors of Image, being £0.22m.

On 24 July 2019, the Group announced that it had conditionally raised approximately

£4.01m before expenses through a placing and subscription of 28,653,569 new

ordinary shares of 1 penny each at an issue price of 14 pence per share. The placing

was approved at the General Meeting on 12 August 2019.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019Future developments

The future developments of the business are included in the Chairman’s

statement and the Chief Executive’s statement.

Brexit

The Group has reviewed its operations as a result of the UK’s referendum to leave

the European Union (“Brexit”). Whilst it is impossible to forecast what will happen,

it is not expected to have a material impact on the operations or financial results

of the Group. The Group will endeavour to pass on any additional costs to

customers. Strategic suppliers, particularly paper, are ensuring that supply is

not interrupted and as we get closer to 31 October 2019 the Group will consider

what levels of stock to hold. It is recognised that depending on the specific exit

arrangements that are agreed and how these are implemented, there could be an

impact on exchange rates, however this is not expected to impact significantly on

the Group as the majority of revenue is in sterling.

Principal Risks and Uncertainties

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

• uncertainty in the general economic environment, including Brexit, that may

impact upon revenues and profitability;

• markets in which the Group operates are extremely competitive posing a threat

to profitability;

• technological advances in manufacturing and or software may impact on

operational effectiveness and earnings potential;

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

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

short and medium term;

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

operational contingency is embedded for resilience in the event of a

catastrophe;

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

essential in maintaining and growing the business;

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

the necessary rights exist but there is no certainty that these rights will be

retained indefinitely.

Treasury Policies

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

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

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

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

forward. The Board has developed a model to establish a fair value for the

Company’s shares and will only purchase shares when the offer price is materially

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

financial derivatives for speculative or trading purposes, see Note 21.

Simon Barrell

Interim Finance Director

27 August 2019

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019DIRECTORS

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 30.

Peter was appointed to the Board in June 2001. Age 44.

Simon Barrell
Interim Finance Director

Gavin Cockerill
Chief Operating Officer

Simon qualified as a chartered accountant in 1983 and is a

After graduating from Birmingham City University in 2000

Fellow of the Institute of Chartered accountants in England

and following a short stint in advertising, Gavin helped

and Wales. He’s held various posts as Finance Director and

launch and grow the printing.com studio in Birmingham.

has experience across multiple industries working in both

Since joining the Group he has been involved in

the public and private sectors. He has also held numerous

progressing the Nettl and printing.com business

non-executive positions for a number of public companies

models across the UK and its numerous master licenses

and continues to act as an adviser to listed and non-listed

globally. Moving to Manchester in 2012 he launched and

companies. He is currently a non-executive director of

developed the group’s TemplateCloud and Flyerzone

Windar Photonics plc and SRT Marine Systems plc.

offerings.

Simon joined the Group in June 2018. Age 60.

Gavin joined the Group in 2000 and was appointed COO

in October 2015. Age 40.

Conrad 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 50.

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 47.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019DIRECTORS’ REPORT

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

ended 31 March 2019. The Directors have proposed that no final dividend will be paid (2018: nil).

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 21.

DIRECTORS

The following Directors have held office since 1 April 2018:

J-H Mohr

C C Bona

Non-executive Chairman

Non-executive Director

P R Gunning

Chief Executive Officer

A Q Roberts

Finance Director – Resigned 26 June 2018

S G Barrell

Interim Finance Director – Appointed 25 June 2018

G G Cockerill

Chief Operating Officer

R A Lightfoot

Director and Company Secretary

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

J-H Mohr and C C Bona 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 45 to 47.

The Company maintains cover for its Directors under a directors’ liability insurance policy, as permitted by the Companies Act 2006.

EMPLOYEES

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

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

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

assistance with retraining.

The Group keeps employees informed via its 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.

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 31 March 2019:

Registered holding

Number of shares

% of issued share capital

Langfristige Investoren TGV

Value Focus Beteiligungs GmbH

Scherzer & Co SA

Axion SA

Stefan Winterling

IPConcept (Luxembourg) S.A.

24,853,481

18,796,295

5,675,500

4,985,000

4,779,074

2,777,777

29.35%

22.20%

6.70%

5.89%

5.64%

3.28%

ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held on Wednesday 25 September 2019 in Birmingham. 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

Simon Barrell

Interim Finance Director

27 August 2019

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019STATEMENT 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 to 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;

• 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.

Simon Barrell

Interim Finance Director

27 August 2019

CORPORATE GOVERNANCE STATEMENT

FOR THE YEAR ENDED 31 MARCH 2019

AIM-quoted companies have been required to apply a recognised corporate governance code since 28 September 2018 as a result

of changes to AIM rules introduced on 30 March 2018. The information on Corporate Governance set out below is, in the opinion of

the Board, fully in accordance with the revised requirements of AIM Rule 26. The Board has determined that the Quoted Companies

Alliance’s (“QCA”) Corporate Governance Code for small and mid-size quoted companies (revised in April 2018 to meet the new

requirements of AIM Rule 26) would be the most appropriate for the Group to adhere to.

The QCA Code is constructed around ten broad principles and a set of disclosures. The QCA has stated what it considers to be

appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the

principles through the prescribed disclosures. We have considered how we apply each principle to the extent that the Board judges

these to be appropriate in the circumstances, and below we provide an explanation of the approach taken in relation to each. The

Board considers that it does not depart from any of the principles of the QCA Code during the period under review.

The following paragraphs set out the Group’s compliance with the ten principles of the QCA Code. Further details are available at

www.grafenia.com.

1. ESTABLISH A STRATEGY AND BUSINESS MODEL WHICH PROMOTE LONG TERM VALUE FOR SHAREHOLDERS

Our vision was first shared with our shareholders at our 2017 AGM. It puts customers and brand partners at the centre of our focus in a

relentless drive to exceed customer expectations, and is as follows:

“To be the world’s leading network of web, design, sign and print studios. Known as the local place for business, where business

happens. Where customer experience is our priority. Where we deliver compelling value and reliable service every time. So we are

rooted in every team member’s and partner’s success.”

Our strategy to achieve this is to, build our network of studios, buy businesses to accelerate our growth, and license our intellectual

property both in the UK and overseas.

Our strategy and business operations are set out more fully in the Strategic Report section of the Group’s Annual Report. Further

information in respect of our acquisition strategy can be found on the website and in our most recent Shareholder Circular.

The Group’s principle risks and uncertainties and the systems and internal controls developed to mitigate them are set out in the

disclosure to principle 4 of the code.

2. SEEK TO UNDERSTAND AND MEET SHAREHOLDER NEEDS AND EXPECTATIONS

The Company believes strongly in transparency and an open door policy towards shareholder communications. It aims to provide fair

and objective reporting and seeks to ensure its strategy, business model and performance are clearly communicated and understood

through its half year and full year reports. Past and present versions are published on the Company’s website.

Given the stage of the Company’s development its AGM provides the key opportunity for dialogue with shareholders. All members

of the Board attend the AGM. A Notice of AGM is circulated to all shareholders on the register at least 20 working days in advance of

the AGM. Our AGM format was significantly overhauled in 2017 to be more inclusive, informative and fun, the growth in numbers of

shareholders attending in the past couple of years is testament to the success of this initiative. This year the Company also

distributed an invite incorporating an agenda and laid on transport from the Company’s Manchester Hub and Manchester airport

to the AGM venue.

The Chairman and Company Secretary go to additional lengths to identify and communicate with major shareholders whose holding is

via nominee accounts and encourage both voting and attendance at the Company’s AGM.

The number of proxy votes received for each vote are announced at the AGM and the results of the AGM are announced and

published on website.

The Company does not presently have significant representation from traditional institutional investors. However, at an appropriate

juncture it will seek to develop this area with the support of its broker Allenby Capital.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 20193. TAKE INTO ACCOUNT WIDER STAKEHOLDER AND SOCIAL RESPONSIBILITIES AND THEIR IMPLICATIONS FOR LONG-

TERM SUCCESS

The Company actively seeks to engage with its wider stakeholder base in order to maximise decision making, ensure alignment of

interests and balance the needs of all stakeholders, whilst meeting its primary responsibility to promote the success of the Company

for the benefit of its members as a whole via the execution of its strategy and business model set in the disclosures to principle 1

of the code.

Employees

The Company regularly engages with its staff via a number of practices and procedures. Staff are able to give valued feedback on the

working environment and other stakeholder insights through, for example:

• the Company’s works council which meets quarterly and includes four production representatives and provides a forum for

production staff feedback.

• an annual two day conference bringing together our customer facing operational senior management and team leaders.

The Company believes the best way to achieve alignment with its staff and encourage them to think and act like owners is to help

them become owners. We are delighted that approximately half of our team, from production to studios, from designers to installers,

participate in the Company’s “Save As You Earn” Scheme which allows employees to save monthly and then purchase shares in the

Company at a pre-agreed price.

The Company is advocate of apprenticeships and goes beyond its legal obligations such as the payment of the apprentice levy in its

commitment to this stakeholder group. In addition to apprentice opportunities across the Group generally, the Nettl Academy was

established to offer a free programme of skills training and experience aimed at increasing a graduate’s employability. Graduates from

the Nettl Academy are promoted to Nettl partners globally, intern programs are also available, as well as help and support to fund a

start-up Nettl business.

Customers and Suppliers

The Company invests in customer service software and infrastructure to support feedback from theses stakeholder groups and

monitors and measures internal targets for response times and quality.

Our vision is to be rooted in every team member’s and partner’s success. To that end the Company regularly engages with its partner

network through roadshows, conferences, w3pin Discussion (the Group’s on-line message board and forum) and on-line polls and

votes, the responses to some of which have shaped key strategic and operational decisions around important aspects of our business,

ranging from pricing to environmental policies and considerations.

Environment

The Company is conscious of the environmental impact of the industry that it operates in. We seek to mitigate and minimise the

Company’s impact on the environment through practices and procedures including sourcing of sustainable paper supplies and supply

and promotion of biodegradable products. We recently switched all our matt and gloss laminated print to a new biodegradable film

and will continue to cut our use of single use plastics where we can.

The Company operates a comprehensive Environmental Management System (of which wider stakeholder feedback forms a part)

setting out processes, procedures and controls and objectives and targets in respect of the Company’s environmental footprint.

4. EMBED EFFECTIVE RISK MANAGEMENT, CONSIDERING BOTH OPPORTUNITIES AND THREATS, THROUGHOUT THE

ORGANISATION

Principal risks and uncertainties faced by the Group are set out in the Group’s Annual Report.

The Board is responsible for establishing and maintaining the Company’s system of internal control, which is designed to meet the

particular needs of the Company and mitigate the risks to which it is exposed. Such a system is designed to manage these risks, to

provide reasonable, but not absolute, assurance against material misstatement or loss, and to maintain proper accounting records to

ensure the integrity of the financial information used within the business and for external publication.

The Board reviews the effectiveness of the system of internal control and considers whether the Company’s internal controls

processes would be significantly enhanced by an internal audit function and has taken the view that at the Company’s current stage of

development, this is not required. The Board will continue to review this matter each year.

The Board considers that the internal controls in place are appropriate for its size and resources, its activities and the risk profile. The

key elements of the control system in operation are:

The Board meets regularly to consider matters reserved to it and has put in place an organisational structure with clear lines of defined

responsibility and with appropriate delegation of authority to manage risk.

The senior management team meets every Monday providing an opportunity to consider operational risks faced and provide

stakeholder feedback from across the Group’s operations.

An organisational structure exists with defined roles and accountability and a culture is fostered which encourages entrepreneurial

decision making while minimising risks. A key component of this is our Leadership Values book which sets out nineteen things we look

for and measure our people on ask them to hold their peers, colleagues and leaders to account over.

GrafOS, (hosted on w3p, the Platform that manages our entire organisation) provides mechanisms for peer-to-peer evaluation and

continuous 360 degree feedback, it’s essentially an early warning system for undesirable behaviour.

w3pedia (also hosted on w3p) sets out the written operating procedures for all aspects of our business together with our staff

handbook which contains policies providing guidance on things that could get our employees into trouble (including anti bribery, data

protection, use of mobile phones whilst driving and much more).

The Company has information systems for monitoring its financial performance against approved budgets and forecasts.

Documented quality systems include comprehensive health and safety policies and procedures which encompass all aspect of the

Group’s day-to-day operations. The Company’s Works Council monitors, reviews and make decisions concerning health and safety

matters. The Executive management team reports to the Board on any health and safety issues at every Board meeting.

The Audit Committee receives reports from the external auditors on a regular basis and from executive directors of the Company.

The Board receives periodic reports from all Committees.

The Group retains an insurance broker and maintains appropriate insurance cover in respect of actions taken against Directors and in

respect of materials loss or claims against the group and the risks it faces. The types of cover and insured values are reviewed annually.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 20195. MAINTAIN THE BOARD AS A WELL-FUNCTIONING, BALANCED TEAM LED BY THE CHAIR

In 2017 we conducted a self-evaluation exercise to find out what type of board we need to drive Grafenia forward. We took a long hard

look at how many Non-Executive board members we should have and what their competencies should be. The result of that exercise

was that the following the 2017 AGM the number of Non-Executive directors (including the Chairman) was reduced from three to two

and fees reduced by 25% and 50% respectively. The make-up of the Board is reviewed on an ongoing basis in light of the Company’s

development, requirements and resources.

The Board currently comprises two Non-Executive Directors (including the Chairman) and four Executive Directors. Last year the

Finance Director retired from full time work and was replaced by an Interim Finance Director.

All of the Directors are subject to election by shareholders at the first Annual General Meeting after their appointment and the article

32 of the Company’s articles of association requires anyone who has been in office for three years without re appointment to seek

re-election.

The Non-Executive Directors are considered by the Board to be independent under the QCA Code’s guidance for determining

such independence. All Non-Executives receive a fixed fee for their services and do not participate in any performance-related

remuneration schemes, or have any interest in a company share option scheme (including the Company’s Save As You Earn Scheme).

To enable the Board to discharge its duties, all Directors have full and timely access to all relevant information. Scheduled Board

meetings lasting at least half a day are held at least seven times a year together with adhoc meetings as the Company’s requirements

demand. The director’s attendance records over the past 12 months (excluding directors who have ceased to be directors in the

period), is as follows:

Board
meetings

Audit
committee
meetings

Remuneration
Committee
meetings

Number held

Jan-Hendrik Mohr (Chairman)

Conrad Bona (Non-Executive Director)

Peter Gunning (CEO)

Gavin Cockerill (COO)

Richard Lightfoot (Director & Company Secretary)

Simon Barrell (Interim Finance Director) –since election

Board meetings and the Company’s AGM are held at various Group premises giving, in particular the Non-Executive Directors, access

to different operations and the opportunity to develop a wide understanding of the Group’s activities.

The Company Secretary reports directly to the Chairman on governance matters. The Board believe that Richard Lightfoot’s

appointment as Director and Company Secretary is appropriate at this stage of the Company’s development and given its

requirements and resources. This arrangement is assessed on an ongoing basis and separation of duties will be implemented as

appropriate.

6. ENSURE THAT BETWEEN THEM THE DIRECTORS HAVE THE NECESSARY UP-TO-DATE EXPERIENCE, SKILLS AND

CAPABILITIES

The Board considers that all of its directors are of sufficient competence and calibre and between them provide an appropriate

and effective balance of skills and experience, including in the areas of retailing, wholesaling, marketing, print production, software

development, ecommerce, finance and mergers and acquisitions. Directors’ biographies are set out on the website.

The Directors all ensure that their skills are kept up to date by the attendance of courses, briefings from professional advisors and

reading relevent industry and professional publications.

The Board is supported where necessary by its external professional advisers. The Board continually reviews the performance of third

party advisers to ensure they are the most effective business partners for the Group. Our Auditors were last changed in July 2017.

Directors have access to advice and services of the Company Secretary and there is a procedure for all Directors, in furtherance of their

duties, to take independent professional advice, if necessary, at the expense of the Group.

Whilst the Board presently consists of one German national and one member with both Canadian and British citizenship we are

mindful of the absence of ethnic diversity and gender balance. The Board is committed to continual assessment of its composition as

the Company evolves.

The Company Secretary provides Directors with updates on key developments relating to the Company and legal and governance

matters including advice from the Company’s broker, lawyers and advisors.

7. EVALUATE BOARD PERFORMANCE BASED ON CLEAR AND RELEVANT OBJECTIVES, SEEKING CONTINUOUS

IMPROVEMENT

An evaluation of Board performance was conducted internally in 2017.

The Chairman assesses the individual contributions of each of the members of the team to ensure that:

• they are performing their roles and carrying out their responsibilities to the highest standards;

• their contribution is relevant and effective;

• where relevant, they have maintained their independence.

Appraisals are carried out each year for all Executive Directors and to assess overall Board composition. The appraisal process is an

ongoing consideration of the Board as a whole. The Board intends to implement other procedures for appraisal of Board performance,

that of each committee and each director in the coming year including where appropriate utilising the services of an independent third

party organisation, and will provide an update on these measures in next year’s Corporate Governance statement.

Presently no formal Nomination Committee exists in view of the stage of growth of the Company. Appointments to the Board and

succession planning are considered by the Board as a whole and are made on merit against objective criteria relating to the skills,

knowledge and expertise required, and with due regard for the benefits of diversity on the Board and requirements of the Company.

8. PROMOTE A CORPORATE CULTURE THAT IS BASED ON ETHICAL VALUES AND BEHAVIOURS

The Board firmly believes that culture is driven from the top and through sound Corporate governance, it takes ultimate responsibility

for the culture that is developed and evolves under its leadership and guidance. That’s why we developed our Leadership Values which

sit at the centre of GrafOS.

GrafOS is our operating system for people. Each role in our business is part of a career storyline with required “Intelligence” levels.

Team members collect badges as they acquire competences. We encourage team members to ‘catch colleagues doing things right’

and leave positive feedback against specific Leadership Values they’ve observed. Likewise, if they spot someone behaving contra to

our Leadership Values, they can share a private ImproveNote with the individual and their leader. It’s all designed to encourage and

deliver ethical and entrepreneurial behaviour.

The Company’s staff manual sets out whistleblowing policy and procedures.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 20199. MAINTAIN GOVERNANCE STRUCTURES AND PROCESSES THAT ARE FIT FOR PURPOSE AND SUPPORT GOOD DECISION-

MAKING BY THE BOARD

The Board

The Board is responsible to shareholders for the proper management of the Group. The Board is responsible for overall Group

strategy, approval of major capital expenditure projects and consideration of significant financing matters and approval of Annual and

Interim results and budgets.

The Executive Directors have responsibility for the day-to-day operational management of the Group’s activities. The Non-Executive

Directors are responsible for bringing independent objective judgement to board decisions.

All directors are supplied with the Company’s continuing Obligations memorandum which is reviewed and updated regularly. The

memorandum sets out and explains Directors responsibilities and obligations under the AIM Rules, the Market Abuse Regulation and

other wider applicable legislation.

A formal schedule of all matters reserved for Board decision is maintained and reviewed regularly (last update February 2017) covering:

• Setting and Review of Strategy and Performance;

• Structure and Capital;

• Maintenance of Financial Reporting and Controls;

• Maintenance of Internal Control and Risk Management systems;

• Material Contracts;

• Investor Relations and Regulatory communications;

• Constitution of Board Membership and other appointments;

• Setting of Directors and Senior Management Remuneration;

• Delegation of Authority amongst the Board and its Committees;

• Implementation of Corporate Governance;

• Approval of Policies.

The Board maintains a rolling scheduled programme of seven board meetings each year aligned with relevant events in the Company’s

financial and trading calendar. Additional meetings are held as and when required.

A formal agenda is prepared for each meeting, Board papers including a CEO’s report and KPIs, and FD’s report are circulated in

advance and minutes are circulated following each meeting recording actions arising and noting any unresolved matters.

We increasingly involve non board members in relevant Board discussions and will extend this in the future.

Chairman and Chief Executive Officer

The differing roles of Chairman and Chief Executive are acknowledged and there is a clear division of responsibility at the head of

the Company.

The key functions of the Chairman are, to oversee the adoption, delivery and communication of the Company’s Corporate Governance

model, the effective conduct of Board Meetings and meetings of shareholders, to ensure that all Directors are properly briefed in

order to take a full and constructive part in Board discussions, and to ensure the Group has appropriate strategic focus

and direction.

The Chief Executive has responsibility for leading the implementation of agreed strategy and managing the day-to-day operations of

the Group.

Committees

The Board has established an Audit Committee and a Remuneration Committee. In view of the stage of growth of the Company there

are no formal Nomination Committee or Corporate Governance Committees, however these arrangements will remain under review.

The Audit Committee and Remuneration Committee presently comprise of Jan-Hendrik Mohr (Chairman) and Conrad Bona (Non-

Executive Director), the Company’s present policy is for any new Non-executive Directors to join both Committees.

The Audit Committee’s principal tasks are to review the scope of external audit, to receive regular reports from the auditors, and to

review the half-yearly and annual accounts before they are presented to the Board, focusing in particular on legal requirements and

accounting standards as well as areas of management judgment and estimation.

The Audit Committee is responsible for monitoring the controls which are in force to ensure the integrity of the information reported

to the shareholders. The Audit Committee acts as a forum for discussion of internal control issues and contributes to the Board’s

review of the effectiveness of the Group’s internal control and risk management systems and processes.

The Audit Committee meets at least twice a year including immediately before the submission of the Annual and Interim Financial

Statements to the Board.

The Audit Committee also undertakes a formal assessment of the auditors’ independence each year which includes:

• a review of the non-audit services provided to the Company and related fees;

• discussion with the auditors of a written report detailing all relationships with the Company and any other parties that could affect

independence or the perception of independence;

• A review of the auditors’ own procedures for ensuring the independence of the audit firm and partners and staff involved in the

audit, including the regular rotation of the audit partner;

• Obtaining written confirmation from the auditors that, in their professional judgement, they are independent.

An analysis of the fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out in the

Group’s Annual Report.

The Audit Committee advises the Board on the appointment of external auditors and on their remuneration for both audit and non-

audit work.

Ultimate responsibility for reviewing and approving the Annual and Interim financial statements remains with the board and a

statement of directors’ responsibilities in respect of the accounts is set out in the Group’s Annual Report.

The Remuneration Committee is responsible for making recommendations to the Board on the Company’s framework of Executive

remuneration and its cost. The Committee determines the contract terms, remuneration and other benefits for each of the Executive

Directors, including performance related bonus schemes, pension rights and compensation payments. It also considers and oversees

the implementation of any share incentive schemes, the Company’s Save As You Earn scheme being the only such scheme at present.

The Board itself determines the remuneration of the Non-Executive Directors.

The Remuneration Committee meets at least once a year.

A Directors’ Remuneration report is set out in the Group’s Annual Report.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 201910. COMMUNICATE HOW THE COMPANY IS GOVERNED AND IS PERFORMING BY MAINTAINING A DIALOGUE WITH

SHAREHOLDERS AND OTHER RELEVANT STAKEHOLDERS

The Board places a high priority on clear, fair and objective reporting with its various stakeholder groups.

The Company is presently of a size that doesn’t support having a dedicated investor relations department, however the CEO’s

mobile phone number is provided on all announcements and the Company Secretary’s contact details are set out on the website for

shareholder enquiries. The Chairman also talks on and adhoc basis with major shareholders and provides feedback to the Board.

We are conscious that, given its present size, the Company attracts limited analyst attention. To that end the CEO maintains strong

links with relevant industry media and seeks to articulate Company strategy consistently through them. Calls with journalists are also

held to coincide with the release of the Group’s Annual Report.

The Group’s website is regularly updated and in addition to the Corporate Governance Statement sets out past and present Annual

and Interim Reports and Accounts and all Announcements.

The result of voting in the 2018 AGM is presented as follows:

Resolutions

1. To receive the Company’s Annual Accounts

2. To re-elect Richard Alan Lightfoot as a Director

3. To re-elect Gavin Graham Cockerill as a Director

4. To re-elect Simon Gregory Barrell as a Director

5. To re-elect RSM UK Audit LLP as auditors of the Company

6. To authorise the Company to allot shares and to grant rights

to subscribe for or convert any security into such shares

7. To disapply statutory pre-emption rights

8. To authorise the Company to make market purchases of

* For

Against

Withheld

26,015,693

25,242,060

25,247,060

25,176,496

26,070,693

26,938,929

25,934,929

768,633

839,197

5,000

75,764

5,000

its own shares

25,931,688

84,005

* including any votes giving discretion to the Chair.

AUDIT COMMITTEE REPORT

The Audit Committee comprises Jan Mohr as chairman and Conrad Bona. The Audit Committee meets at least twice a year and is

responsible for reviewing the annual and half-yearly financial statements, the system of internal controls and risk management, and the

terms of appointment and remuneration of the auditor. It is also the forum through which the auditor reports to the Board. The Audit

Committee is also responsible for reviewing the objectivity of the external auditor and the terms under which the external auditor is

appointed to perform non-audit services.

During the year the Audit Committee worked with the Group auditors, on the findings of the 2018 audit as well as reviewing the

company’s full year and half year results on behalf of the Board. It considered significant accounting policies, ensured compliance

with accounting standards and considered reports from the external auditor on accounting topics of a judgemental nature requiring

attention. The Committee over the year, had separate discussions with the auditor without management being present on the

adequacy of controls and any judgemental areas, as well as feedback on the 2018 audit.

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 2019.

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 2019

ELEMENTS OF REMUNERATION

Year ended 31 March 2019:

J-H Mohr

C C Bona

P R Gunning

A Q Roberts (resigned 25 June 2018)

Basic
salary

170,749

65,475

15,044

S G Barrell (since appointment) *

80,500*

G G Cockerill

R A Lightfoot

90,264

75,792

402,280

110,588

Fees

Benefits

Bonuses

Pension

841

6,793

390

1,161

9,185

300

15,525

2,513

1,800

1,540

21,678

543,731

*S G Barrell offers consultancy services to Grafenia Operations Limited through SGB Consulting and the amounts shown are fees paid

2019
Total

15,044

15,344

187,115

74,781

80,500

92,454

78,493

2018
Total

14,942

15,160

185,961

115,985

17,707

14,369

4,903

Fees

Benefits

Bonuses

Pension

14,942

4,903

34,787

841

21,725

216

22,855

218

15,525

9,736

227

207

25,913

369,027

via Grafenia Operations Limited.

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)

Basic
salary

169,595

84,524

17,407

13,946

285,472

DIRECTORS’ INTERESTS

At 31 March 2019, the Directors had the following beneficial interests in the Company’s shares.

Ordinary shares of 1p each

31 March 2019

31 March 2018

J-H Mohr

C C Bona

P R Gunning

G G Cockerill

R A Lightfoot

S G Barrell

1,087,222

1,625,000

4,874

75,000

540,000

1,250,000

4,874

75,000

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.

On the 28 March 2019 the company issued 7,868,517 ordinary shares, Conrad Bona participated and increased his holding by 222,222.

No Directors, or other family members, had any interests in the deferred share capital of the Company.

The market price of shares as at 31 March 2019 was 11.50 pence (2018: 12.00 pence). The range during 2018 was 9.20 pence to

16.50 pence. At the close of business Friday 16 August 2019, the price was 11.50pence.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF GRAFENIA PLC

OPINION

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

31 March 2019 which comprise Consolidated Statement of Comprehensive Income, Consolidated and Company Statement of

Changes in Equity, Consolidated and Company Statement of Financial Position, Consolidated and Company Statement of Cashflows

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

2019 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 the 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 group 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 group financial

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

GROUP KEY AUDIT MATTERS

RECOVERABILITY OF TRADE RECEIVABLES

(Refer to accounting policy on page 56 regarding calculation of recoverable amount, accounting policy on page 58 regarding trade

and other receivables, the accounting policy on page 62 regarding recoverability of receivables, note 14 regarding trade and other

receivables and the credit risk section of note 21 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.

This is also the first year the group has applied IFRS 9 Financial Instruments. There is a risk that the standard has not been

applied appropriately.

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.

Management’s assessment of the impact of IFRS 9 was reviewed. The underlying data tested for reliability and key judgements

challenged and sensitised.

VALUATION OF INTANGIBLE ASSETS AND INVESTMENTS

(Refer to the accounting policy on page 60 in respect of impairment of assets and note 11 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.

The parent company holds significant investments in its subsidiaries. There is a risk that the amounts held on the balance sheet are no

longer reflective of the true value in use of the underlying assets and trade.

OUR APPROACH

Management’s impairment review of intangible assets was obtained and reviewed. We challenged the assumptions used by

management and sensitised the net present value calculations and compared cash flows to budget information to ensure this was

consistent with our understanding of the business and its strategic plans for the intangible assets under scrutiny.

SALE AND LEASEBACK TRANSACTIONS

(Refer to accounting policy on page 59 in respect of tangible fixed assets and sale and leaseback arrangement, note 4 in respect of

operating losses and underlying costs, note 10 in respect of tangible fixed assets and note 16 in respect of deferred income.)

THE RISK

The group entered into a sale and leaseback transaction for a new piece of plant and machinery during the year. This transaction

incorporated assets which had already been sold and leased back, assets which were not new to the business but had not previously

been financed, and new assets. The values involved in this transaction are significant. There is a risk that the transaction is not

appropriately reflected in the financial statements.

OUR APPROACH

A detailed step by step analysis of the transaction was obtained from management. The accounting treatment was reviewed against

supporting lease and fixed asset documentation. The disclosure of the transaction in the financial statements was reviewed.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019REVENUE RECOGNITION

(Refer to pages 56 and 58 regarding the accounting policy in respect of revenue recognition and note 3 in respect of revenue and

operating segments).

THE RISK

This is the first annual report in which the group has adopted IFRS 15 Revenue Recognition. There is a risk that management’s accounting

policies are not appropriate because the performance obligations within the contracts with customers have not been correctly identified

and that for each, revenue has not been recognised as those obligations are satisfied. In addition, there is a risk that revenue is not

recognised in line with the accounting policies adopted.

OUR RESPONSE

We tested revenue by performing substantive analytical review procedures. In addition, the accuracy of revenue recognised was assessed

via the detailed review of specific contracts with customers and invoices issued to customers. In reviewing sales and contracts, we

considered the application of the group’s accounting policies and requirements of IFRS 15.

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. When evaluating whether misstatements, both individually and on the financial statements as a whole, could reasonably

influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements.

During planning materiality for the group financial statements as a whole was calculated as £229,500, which was not significantly changed

during the course of our audit. Materiality for the parent company financial statements as a whole was calculated as £96,000, which was not

significantly changed during the course of our audit. We agreed with the Audit Committee that we would report to them all unadjusted

differences in excess of £1,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

AN 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, AG Signs and Print Limited, Artichoke Designs Limited and Grafenia

France S.à.r.l. included in the consolidated financial statements were subject to full scope audit procedures using group 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 36, 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 amaterial

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

27 August 2019

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2019

Note

Continuing Operations

Revenue

Raw materials and consumables used

Gross profit

Staff costs

Other operating charges

Share based payments

Earnings before interest, tax, depreciation and amortisation

Depreciation and amortisation

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

2019

£000

15,962

(7,417)

8,545

(6,077)

(3,533)

(47)

(1,112)

(1,875)

(2,987)

(186)

(179)

2018

£000

14,630

(6,293)

8,337

(4,577)

(2,989)

771

(1,874)

(1,103)

(138)

(137)

(3,166)

(1,240)

343

(2,823)

294

(946)

Loss per share attributable to the ordinary equity shareholders of Grafenia plc

Basic and diluted, pence per share

(3.79)p

(2.07)p

(1) Earnings per share suffers no dilution

The notes on pages 56 to 79 form part of these financial statements.

CONSOLIDATED AND COMPANY
STATEMENT OF FINANCIAL POSITION

AT 31 MARCH 2019

Non-current assets

Property, plant and equipment

Intangible assets

Investments in subsidiaries

Deferred tax assets

Total non-current assets

Current assets

Inventories

Trade receivables

Other receivables

Prepayments

Current tax receivable

Cash and cash equivalents

Total current assets

Total assets

Current liabilities

Other interest-bearing loans and borrowings

Deferred consideration

Trade payables

Other payables and accruals

Deferred income

Total current liabilities

Non-current liabilities

Other interest-bearing loans and borrowings

Deferred consideration

Deferred income

Deferred tax liabilities

Total non-current liabilities

Total liabilities

Net assets

Equity attributable to equity holders of the parent

Share capital

Merger reserve

Share premium

Share based payment reserve

Retained earnings

Total equity

Note

Group

Group
2018
£000

Company

2019
£000

Company
2018
£000

3,457

3,467

3,242

5,788

3,628

2019
£000

4,060

4,371

2,076

4,808

8,441

6,884

455

2,573

154

548

281

1,354

5,365

13,806

1,695

366

1,488

1,344

256

5,149

2,180

229

576

3,021

8,170

5,636

847

838

4,125

(221)

5,636

450

2,765

482

111

171

4,027

10,911

2,009

1,437

1,207

280

4,933

1,055

358

580

1,993

6,926

3,985

475

838

2,672

3,985

101

965

6,856

10,323

211

366

604

229

833

9,490

847

627

4,125

3,844

9,490

3,628

6,870

600

678

245

358

603

1,281

5,589

475

627

4,487

5,589

The notes on pages 56 to 79 form part of these financial statements.

These financial statements were approved by the board of directors on 27 August 2019 and were signed on its behalf by:

S G BARRELL

Director

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

CONSOLIDATED AND COMPANY STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY

GROUP – YEAR ENDED 31 MARCH 2018

Balance at 31 March 2017

Share
Capital
£000

475

Merger
reserve
£000

Treasury
Shares
£000

838

(261)

Loss and total comprehensive

income for the year

Own shares sold

Exchange differences

Total movement in equity

Balance at 31 March 2018

475

838

GROUP – YEAR ENDED 31 MARCH 2019

Loss and total comprehensive

income for the year

Shares issued in the period

Costs associated with share issue

Share option reserve

Exchange differences

372

Total movement in equity

372

Balance at 31 March 2019

847

838

261

COMPANY – YEAR ENDED 31 MARCH 2018

Balance 31 March 2017

Loss and total comprehensive

income for the year

Own shares sold

Total movement in equity

Share
Capital
£000

475

Merger
reserve
£000

Treasury
Shares
£000

627

(261)

261

Balance at 31 March 2018

475

627

COMPANY – YEAR ENDED 31 MARCH 2019

Loss and total comprehensive

income for the year

Shares issued in the period

Costs associated with share issue

Share based payments

372

Total movement in equity

372

Balance at 31 March 2019

847

627

The notes on pages 56 to 79 form part of these financial statements.

Share
Premium
£000

Share Based
Payment
Reserve
£100

4,202

(77)

4,125

Share
Premium
£000

Share Based
Payment
Reserve
£100

4,202

(77)

4,125

Retained
Earnings
£100

3,561

(946)

(13)

(889)

Total
£000

4,613

(946)

248

(628)

2,672

3,985

(2,823)

(70)

(2,893)

(2,823)

4,574

(77)

(70)

1,651

(221)

5,636

Retained
Earnings
£100

4,724

(224)

(13)

(237)

Total
£000

5,565

(224)

248

4,487

5,589

(643)

4,574

(77)

3,901

3,844

9,490

Note

Group

2019
£000

Group

Company

2018
£000

2019
£000

Company
2018
£000

(2,823)

(946)

(643)

(224)

CONSOLIDATED AND COMPANY
STATEMENT OF CASH FLOWS

FOR YEAR ENDED 31 MARCH 2019

Cash flows from operating activities

Loss for the year

Adjustments for:

Depreciation, amortisation and impairment

Profit on sale of plant and equipment

Release of deferred profit on sale of plant and equipment

Share based payments

Net finance expense

Foreign exchange loss

Tax income

1,876

(105)

(218)

179

(70)

(343)

Operating cash flow before changes in working capital and provisions

(1,457)

Change in trade and other receivables

Change in inventories

Change in trade and other payables

Cash (utilised by)/generated from Operations

Interest paid

Income tax received /(paid)

Net cash (outflow)/ inflow from operating activities

Cash flows from investing activities

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 (group)

Overdraft purchased on acquisition

Net cash used in investing activities

Cash flows from financing activities

Funding from invoice finance

Payment of loan notes

Sale of own shares

Payment of finance leases

Payment of deferred consideration

Issue of shares (net of costs)

Net cash generated from financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at start of year

Cash and cash equivalents at 31 March 2019

The notes on pages 56 to 79 form part of these financial statements.

(154)

439

214

(958)

(179)

(1,040)

265

(480)

(375)

(325)

(134)

(1,049)

(1)

(634)

(561)

(29)

4,497

3,272

1,183

171

1,354

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

292

(10)

(296)

(2,350)

(52)

(4)

(192)

1,355

(2,698)

1,173

(18)

(2,716)

1,173

(153)

(634)

(29)

4,497

3,834

965

(1.420)

(1,420)

246

(1)

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

NOTES TO THE THE FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

GENERAL INFORMATION

Grafenia plc (the “Company”) is a public limited company incorporated and domiciled in the UK. The company’s registered

office is Third Avenue, The Village, Trafford Park, Manchester M17 1FG.

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.

ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

The new standards, interpretations and amendments have not had a material effect on the financial statements:

•

IFRS 9 Financial Instruments

IFRS 15 Revenue Recognition

IFRS 9 FINANCIAL INSTRUMENTS

The Group has adopted the new IFRS 9 standard on 1 April 2018. The adoption of IFRS 9 has had no impact on the financial

statements and the prior year has not been restated. The standard looks at how an entity should classify and measure

financial assets, financial liabilities, and contracts to buy or sell non-financial items.

The Group has reviewed its classification and measurement of financial assets and liabilities as from the implementation of IFRS

9 and considered the effects of transitioning to the new standard. The classification of financial assets and liabilities has changed

however, they are still carried at amortised cost and there has been no impact on the result for the current or prior year.

Trade and other receivables represent financial assets and are considered for impairment on an expected credit loss model,

The Group continues to trade with the similar customers in the same market sectors and therefore the future expected credit

losses have been considered in line with the past performance of the customers in the recovery of their receivables. The

implementation of IFRS 9 has therefore not resulted in a change to the impairment provision in the current or prior year.

Intercompany debtors represent financial assets and are also considered for impairment on an expected credit loss model,

the implementation of IFRS 9 on intercompany debtors has resulted in an impairment provision in the current year, but no

impairment in the prior year.

IFRS 15 REVENUE RECOGNITION

The Group has adopted the new revenue recognition standard, IFRS 15, from 1 April 2018. The standard looks at the timing

of revenue recognition on contracts with customers. The new standard has had no impact on the Group result in 2019 as the

revenue was previously recognised when the risk and rewards of the product or service were transferred to the customer.

Assessing the performance obligations of customer contracts for the sale of products and services the Group has assessed

that control passes to the customers at the same time the risk and rewards transfer under IAS 18, and thus there is no

change in the revenue recognition for the Group. The Group considered this for all outstanding obligations in respect of the

transition to IFRS 15 at 31 March 2019 and found that there was no transition impact of the adoption of the standard.

The amendments and interpretations to published standards that have an effective date on or after 1 January 2019 or later

periods have not been adopted early by the Group.

IFRS 16 LEASES

IFRS 16 will become effective for accounting periods commencing on 1 January 2019. The Group has undertaken an

evaluation of the potential impact of IFRS 16 in respect of leases. IFRS 16 requires the Group to account for the lease liability

of the asset and the right of use asset at cost. This will mainly affect the treatment of operating leases which were previously

recorded as an annual cost to the Group. The Group has determined to use the cumulative catch up approach for the

valuation of leases, rather than the full transition method due to the current leases held.

1. ACCOUNTING POLICIES (CONTINUED)

The Group currently leases land and building and motor vehicles that has been historically recorded as operating leases. These leases

have been assessed under IFRS 16 and there will be a material effect on the financial statements as follows:

EBITDA

Loss before tax

Property Plant and equipment

Net Debt

BASIS OF PREPARATION

As per financial statements
At 31 March 2109
£000

Adjusted for IFRS 16
At 31 March 2109
£000

(1,112)

(3,166)

4,060

(3,116)

(590)

(3,228)

6,732

(5,753)

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.

The consolidated financial statements are prepared under the historic cost convention.

The principal accounting policies adopted in the preparation of the financial information are set out below. The policies have been

consistently applied to all the periods presented except for the adoption of IFRS 15 and 9 as discussed above.

The financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting

Standards and Interpretations (collectively “IFRSs”) issued by the International Accounting Standards Board (IASB) as adopted by the

European Union (“adopted IFRSs”).

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 Chairman’s and Chief Executive’s Statement on pages 3 to 25. The financial position of the Group, its

cash flows, liquidity position and borrowing facilities are described on pages 27 to 31. In addition, note 21 to the financial statements

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

After the year end and in light of the Group’s signs rollup strategy the Board decided to seek Shareholder support and raised £4.01m

through a placing in August. 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 and reviewing forecasts, 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.

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.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

1. ACCOUNTING POLICIES (CONTINUED)

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 less provision for any permanent diminution in value. 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’.

REVENUE

IFRS 15 in respect of the recognition of Revenue from Contracts with customers required the Group to recognise revenue with respect

to various components of the contractual arrangements with the customer. The Group contracts with its customers on two main bases:

• Production of product. The revenue is recognised when the product is delivered and where required, installed.

•

Licence fees, including franchise fees, for SaaS products are recognised as supplied or milestones met. Any initial fees are spread

over the period of the agreement.

No adjustment is made to the revenue recognised in respect of any financing component of the contract.

SEGMENT REPORTING

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.

The chief operating decision maker has been identified as the board of directors.

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.

FINANCIAL ASSETS AND LIABILITIES

FINANCIAL ASSETS

The Group classifies all its financial assets into the amortised cost category. The Group's accounting policy for each category is as follows:

• Trade and loan receivables: Trade receivables are initially recognised by the Group and carried at original invoice amount less an

allowance for any uncollectible or impaired amounts. An impairment provision is calculated by considering the trade receivables

and expected credit losses. The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime

expected credit loss provision for trade receivables. The expected loss rates are based on the Group’s historical credit losses

experienced over the three-year period prior to the period end. The historical loss rates are then adjusted for current and forward-

looking information on factors affecting the Group’s customers.

• An estimate for doubtful debts is also made when collection of the full amount is no longer probable. Debts are written off when

they are identified as being uncollectible. Trade receivables and other receivables are recognised at fair value.

•

Loan receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

They arise principally through the intercompany loans; Impairment of loan receivables is calculation utilising the lifetime expected

credit losses of these loans and the changes in the credit risk of the counterparty.

• Cash and cash equivalents in the statement of financial position comprise cash at bank and cash in hand.

FINANCIAL LIABILITIES

The Group treats its financial liabilities in accordance with the following accounting policies:

• Trade payables and other short-term monetary liabilities are recognised at fair value and subsequently at amortised cost.

•

Invoice discounting and loans are initially recognised at fair value net of any transaction costs directly attributable to the issue

of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate

method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability

carried in the statement of financial position. “Interest expense” in this context includes initial transaction costs and premiums

payable on redemption, as well as any interest payable while the liability is outstanding.

1. ACCOUNTING POLICIES (CONTINUED)

SHARE CAPITAL

Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a

financial liability.

The Company’s ordinary shares are classified as equity instruments.

BORROWING COSTS

Borrowing costs are recognised in the Statement of Profit or Loss and Other Comprehensive Income in the period in which they are

incurred.

CURRENT TAXATION

The current tax is based upon the taxable profit for the period together with adjustments, where necessary, in respect of prior periods.

The Group’s asset or liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the

financial period end date.

Current tax is recognised in the Statement of Profit or Loss and Other Comprehensive Income, except to the extent that it relates to

items recognised in other comprehensive income or directly in equity.

DEFERRED TAXATION

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the Statement of Financial

Position differs from its tax base.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which

the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting

date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost less accumulated depreciation and impairments. Where parts of an item of property,

plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

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

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

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

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

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:

Fixtures and fittings

Plant and equipment

Motor Vehicles

- 20% - 33% straight line

- 7% - 30% straight line

- 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.

The Company has no Premises, Plant or Equipment.

SALE AND LEASEBACK

The Group has sold and leased back various assets. Where these assets are still held and the leases have not yet been fully repaid,

any profit or loss on the sale and leaseback of these assets are released over the period of the lease, the amount not released held as

deferred income.

Where the leased assets have been disposed of the full profit or loss on the sale is realised to the profit and loss account.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

1. ACCOUNTING POLICIES (CONTINUED)

INTANGIBLE ASSETS

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

Domain names

Capitalised development costs

Customer Lists

- 20 years

- 5% straight line

- 3 years

- 5 to 10 years

Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and

accumulated impairment losses.

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 years.

CUSTOMER LISTS

Customer lists arise on purchased on the buy-back of Studios and on the acquisition of subsidiary companies. 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.

IMPAIRMENT OF NON FINANCIAL ASSETS

The carrying amounts of the Group’s non financial 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.

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.

1. ACCOUNTING POLICIES (CONTINUED)

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. In future

these will be treated under IFRS16 see above.

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 benefit is released to the profit and loss pro-rata to

the interest charged.

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.

SHARE BASED PAYMENTS

The Group operates an equity-settled share-based compensation plan through a SAYE scheme, under which the entity receives

services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in

exchange for the grant of the equity instruments is recognised as an expense. The total amount to be expensed is determined by

reference to the fair value of the instruments granted. At the end of each reporting period, the Group revises its estimates of the

number of instruments that are expected to vest based on the non-market vesting conditions and service conditions. It recognises the

impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

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.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the

application of the accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ

from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the

period in which the estimate is revised and in any future periods affected.

Significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect

on the amounts recognised in the financial statements are described below:

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 20191. ACCOUNTING POLICIES (CONTINUED)

INTANGIBLES – CAPITALISATION AND VALUATION OF SOFTWARE AND DEVELOPMENT COSTS AND ACQUIRED INTANGIBLES

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

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

are agreed with user forums to improve functionality for Partners. Separate projects are defined for international expansion and for

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

realise future economic benefits. Programming is carried out by third parties working to a detailed specification and schedule. The

Board exercises judgement in determining the costs to be capitalised and determine the useful economic life to be applied typically

3 years or whilst the asset in question remains in use. Acquired intangibles have been identified as the customer base and brand, the

valuation is based upon future discounted cash flows and expectations for the business. Further, the Board will use estimates of future

incremental cash flows to periodically assess the carrying value of intangible assets.

IMPAIRMENT OF INTANGIBLE ASSETS AND INVESTMENT IN SUBSIDIARIES.

In assessing impairment, Management estimates the recoverable amount of cash generating units based on expected future cash

flows and uses the weighted average cost of capital to discount them. At the end of each reporting period the Management reviews

a four year forward looking financial projection including a terminal value for the Group. The Management has further evaluated the

terminal growth expectations and the applied discount rate applicable to derive a Net Present Valuation (NPV) of the Group. If the

NPV of the Group shows a lower valuation than the net assets or the company cost of investment in subsidiary an impairment will be

made. Based on this evaluation including management estimates and assumption no impairment was made during the reporting

period. Estimation uncertainty relates to assumptions about future operating results in particular sales volumes and the determination

of a suitable discount rate.

ESTIMATION OF THE EXPECTED CREDIT LOSSES ON TRADE RECEIVABLES

In assessing the expected credit losses, in respect of the trade receivables under IFRS9, the Group considers the past performance of

the receivable book along with future factors, that may affect the credit worthiness of the entire trade receivables. Estimations have

therefore been made within these assumptions which could affect the carrying value of the trade receivables.

2. ACQUISITIONS OF SUBSIDIARIES

ACQUISITIONS IN THE CURRENT PERIOD

On 30 September 2018, the company acquired all of the ordinary shares of AG Signs and Print Limited for an initial consideration

of £0.102m, satisfied in cash and £0.45m in vendor loan notes repayable over 12 months. The company is a leading signage business.

On 1 October 2019, the company was hived up into Grafenia Operations Limited as part of the new Exeter superstore.

In the six months of ownership, the subsidiary contributed sales of £0.39m. If the acquisition had occurred on 1 April 2018, Group

revenue would have increased by £0.51m and generated an estimated net profit of £0.05m.

On 25 March 2019, the Group acquired all of the ordinary shares of Artichoke Design Limited Print for a consideration of £0.053m,

satisfied in cash and £0.027m vendor loan notes repayable over 12 months. The company is a leading design business and was hived up

into Grafenia Operations Limited on the date of acquisition and now operates as part of our existing Birmingham business store.

The period of less than one week is immaterial to the period, however we expect the full year sales to contribute circa £0.1m sales and

an estimated net profit of £0.02m in future years.

On 1 September 2019, Grafenia Operations Limited acquired the client list of H&H Print Service Limited trading as Nettl of Liverpool in

exchange for the debt owed to the business of £0.043m.

These acquisitions further complement our strategy of rolling up signage businesses alongside our existing print businesses.

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.

2. ACQUISITIONS OF SUBSIDIARIES (CONTINUED)

EFFECT OF ACQUISITIONS

The acquisitions 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

Non cash consideration

Deferred consideration at fair value

Total consideration

(23)

(99)

196

(29)

167

196

(23)

(99)

(29)

210

155

270

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.

3. REVENUE AND SEGMENTAL INFORMATION

The Group’s operating and reporting segments are geographic being UK & Ireland, Europe and others. The segmental analysis by

nature of service includes Licence Fees, Company owned Studio revenue, Brand Partner print and Online sales plus Trade print. This

disclosure correlates with the information which is presented to the Board, which reviews revenue (which is considered to be the

primary growth indicator) by segment. The Group’s costs, finance income, tax charges, non-current liabilities, net assets and capital

expenditure are only reviewed by the CEO at a consolidated level and therefore have not been allocated between segments in the

analysis below.

ANALYSIS BY LOCATION OF SALES

Year ended 31 March 2019

Segment revenues

Year ended 31 March 2018

Segment revenues

UK & Ireland
£000

Europe
£000

Other
£000

Total
£000

15,163

447

352

15,962

13,791

489

350

14,630

Revenue generated outside the UK is attributable to partners in France, New Zealand, Australia, Poland and the USA.

No single customer provided the Group with over 6% of its revenue.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

3. REVENUE AND SEGMENTAL INFORMATION (CONTINUED)

DISAGGREGATION OF REVENUE

The disaggregation of revenue from contracts with customers is as follows:

Licence
Fees
£000

Company

Brand
Studios Partner Print
£000

£000

Signs
£000

Online &
Trade
£000

Total
£000

Year ended 31 March 2019

1,975

2,629

3,577

4,910

2,871

15,962

Year ended 31 March 2018

1,773

1,594

3,870

4,000

3,393

14,630

Of the Group’s non-current assets (excluding deferred tax) of £8,276,000, £8,242,000 are located in the UK. Non-current assets located

outside the UK are in France £7,000 (2018: £8,000) and the Republic of Ireland £33,000 (2018: £40,000).

4. LOSS BEFORE TAXATION

Included in profit are the following:

Operating lease rentals

Amortisation of intangible assets

Depreciation

Profit on sale of plant and equipment

Profit on sale and leaseback recognised in the year

Restructuring costs

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

2019
£000

613

1,393

482

105

218

(75)

2019
£000

2018
£000

463

1,486

388

102

(20)

2018
£000

The 2019 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 RSM UK were also auditors to Grafenia plc.

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

Defined contribution plan

Group

Group Company

Company

2019

2018

2019

2018

188

165

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 2019 £111,000 of contributions were charged to the

Consolidated Statement of Comprehensive Income (2018: £79,000). As at 31 March 2019 £26,000 (2018: £5,000) contributions were

outstanding on the balance sheet.

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

Group
2019
£000

Group
2018
£000

Company
2017
£000

Company
2018
£000

Wages and salaries

Social security costs

Other pension costs

5,395

571

111

6,077

3,992

506

4,577

KEY MANAGEMENT COMPENSATION:

Key managements’ emoluments

Company contributions to money purchase pension plans

2019
£000

491

512

2018
£000

308

334

The Group considers the key management to be the Executive 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 45 where details of fees and

benefits can be found.

The aggregate of emoluments for the highest paid Director was £171,000 (2018: £170,000), and Company pension contributions of

£16,000 (2018: £16,000) were made to a money purchase scheme on their behalf.

Directors for whom retirement benefits are accruing under money purchase schemes 4 (2018: 2).

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

6. FINANCE INCOME AND EXPENSE

Finance expense

Lease interest

Invoice finance

Loan note interest

Interest payable

7. TAXATION

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)

Adjustment in respect of prior year

Total tax in income statement

2019
£000

139

186

2019
£000

(201)

(86)

(281)

(213)

151

(343)

2018
£000

137

2018
£000

(40)

(32)

(264)

(294)

7. TAXATION (CONTINUED)

RECONCILIATION OF EFFECTIVE TAX RATE

Factors affecting the tax charge for the current period:

The current tax charge for the period is lower (2018: lower) than the standard rate of corporation tax in the UK of 18% (2018: 20%).

The differences are explained below:

Loss for the period

Tax using the UK corporation tax rate of 18% (2018:20%)

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

Deferred tax not recognised

Withholding tax

Research and Development losses surrendered

Research and Development super deduction

Movement due to the change in the tax rate

Total tax credit

2019
£000

(3,166)

(570)

(87)

151

174

(128)

(343)

2018
£000

(1,240)

(247)

(6)

(40)

(117)

(294)

The Group tax debtor amounts to £253,000 (2018 Debtor: £111,000). 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 18% from 1 April 2020.

8. 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

For basic earnings per ordinary share

Exercise of share options

2019
£000

(2,823)

Number of
Shares

74,504,359

2018
£000

(946)

Number of
Shares

45,638,192

For diluted earnings per ordinary share

74,504,359

45,638,192

Basic loss and diluted, pence per share

(3.79)p

(2.07)p

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at

meetings of the Company.

The holders of deferred shares shall not be entitled to any participation in the profits or the assets of the Company and the deferred

shares do not carry any voting rights.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

9. DEFERRED TAX ASSETS AND LIABILITIES – GROUP

Recognised deferred tax assets and liabilities

Property, plant and equipment

Intangible assets

Tax liabilities

Movement in deferred tax during the year.

Assets
2019
£000

Assets
2018
£000

Liabilities
2019
£000

Liabilities
2018
£000

519

531

580

2018

1 April Adjustment Recognised Recognised
in income
due to tax
rate change
£000

for prior
years

in income

£000

Property, plant and equipment

Intangible assets

531

580

133

151

(182)

(30)

(212)

Movement in deferred tax during the year.

Property, plant and equipment

Intangible assets

Company

1 April
2017

Adjustment
for prior
years

Recognised
in income

£000

Recognised
in income
due to tax
rate change
£000

313

316

530

(264)

(2)

(266)

The Company had £10,000 of deferred tax assets as at 31 March 2019 (2018: £nil).

31 March
2019

£000

519

31 March
2018

£000

531

580

10. PROPERTY, PLANT AND EQUIPMENT – GROUP

Land and
buildings
£000

Plant and Assets held
for resale
£000

equipment
£000

Motor Fixtures and
Fittings
£000

Vehicles
£000

Cost

Balance at 31 March 2017

Additions

Acquisition of subsidiary

Revaluation of sale and leaseback assets in the year

576

6,801

282

(3,412)

Balance at 31 March 2018

576

3,698

Balance at 31 March 2018

576

Additions

Acquisition of subsidiary

Revaluation of sale and leaseback assets in the year

Disposals

Transfer asset to held for resale

Revaluation of assets held for resale

3,698

2,261

(150)

(230)

(250)

250

(29)

Total

£000

8,316

236

324

(3,412)

853

209

1,102

5,464

1,102

206

5,464

2,467

(150)

(259)

Balance at 31 March 2019

576

5,383

265

1,324

7,631

Depreciation and impairment

Balance at 31 March 2017

Depreciation charge for the year

Acquisition of subsidiary

Revaluation of sale and leaseback assets in the year

Balance at 31 March 2018

Balance 31 March 2018

Depreciation charge for the year

Acquisition of subsidiary

Revaluation of sale and leaseback assets in the year

Disposals

Transfer asset to held for resale

Revaluation of assets held for resale

573

574

5,860

206

(3,983)

2,083

327

(163)

(75)

(85)

Balance at 31 March 2019

576

2,116

Net book value

At 31 March 2017

At 31 March 2018

At 31 March 2019

941

1,615

(85)

(24)

485

171

6,983

388

(3,983)

656

3,388

656

142

3,388

483

(163)

(99)

(85)

810

3,571

368

1,333

446

2,076

3,267

265

514

4,060

LEASED PLANT, MACHINERY AND FIXTURE & FITTINGS

At 31 March 2019, the Group had leased assets with a carrying value of £2,589,000 (2018: £1,272,000).

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

11. INTANGIBLE ASSETS AND INVESTMENTS

Research and development costs

Group

Cost

Domains
& brand
£000

Software Development
costs
£000

£000

Customer
Lists
£000

Goodwill

Other

£000

Balance at 31 March 2017

356

3,340

Additions – internally developed

Additions – purchased

Acquisitions of subsidiary

549

307

2,890

424

279

120

2,570

Balance at 31 March 2018

905

3,647

3,314

2,969

Balance at 31 March 2018

905

3,647

Additions

Additions – internally developed

Additions – purchased

Acquisition of subsidiary

318

3,314

372

2,969

153

Total

£000

7,081

424

430

3,135

154

157

11,070

157

11,070

372

368

213

Balance at 31 March 2019

912

3,965

3,686

3,165

141

157

12,026

Amortisation and impairment

Balance at 31 March 2017

Amortisation for the year

Balance at 31 March 2018

Amortisation for the year

289

321

2,517

580

1,607

676

3,097

2,283

3,097

396

2,283

589

268

179

447

357

102

4,776

1,486

6,262

1,393

Balance at 31 March 2019

366

3,493

2,872

804

108

7,655

Net book value

At 31 March 2017

At 31 March 2018

584

823

1,283

550

1,031

2,522

2,305

4,808

At 31 March 2019

546

472

814

2,361

129

4,371

11. 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 all key revenue streams of the business.

Rates have been determined based on the experience to date of operating these sales channels and previous experience of launching websites.

A pre-tax discount factor of 12.5% (2018: 12.5%) was applied.

If the growth rate were not achieved and was reduced 1% and the discount factor was increased to 15% there would be no impairment

in the carrying value.

Amortisation and impairment charge

The amortisation charge of £1,393,000 (2018: £1,486,000) is recognised in profit and loss within depreciation and amortisation

expenses. An impairment charge of nil (2018: £nil) was recognised during the year.

12. Investments – Company

Cost

Balance at 31 March 2017

Balance at 31 March 2018

Acquisitions in the year

Balance at 31 March 2019

Shares in
Subsidiary undertakings
£000

637

3,242

215

3,457

Total
£000

637

3,242

215

3,457

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*

Artichoke Designs Limited*

AG Signs and Print Limited*

Nettl of America LLP^

Grafenia France S.à.r.l.

* - Owned directly by Grafenia PLC

Sign Design, Manufacture and Installation – trading

Printing – trading

Partner contracts – dormant

Licence agreements – dormant

Enterprise Support – dormant

Template Provision – dormant

Software – dormant

Licence agreements – dormant

Printing and design – trading

Sign Design, Manufacture and Installation – trading

Franchising – trading

Partner contracts – trading

^ - Owned by indirectly through ownership of the company’s 100% subsidiary Grafenia Operations Limited

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

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

13. INVENTORY

Raw Materials

Work in progress

Group
2019
£000

Group
2018
£000

Company
2019
£000

Company
2018
£000

452

455

429

450

14. TRADE AND OTHER RECEIVABLES

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

At 31 March 2019 trade receivables are shown net of an impairment allowance of £412,000 (2018: £339,000).

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 £149,000 (2018: £133,000) of trade receivables.

Group
2019

£000

2,985

(412)

2,573

Group
2018

£000

3,104

(339)

2,765

Company
2019

£000

Company
2018

£00

6,078

(292)

3,615

Trade receivables

Less provision for trade receivables

Trade receivables net

Other receivables due from subsidiary companies

Less provision for subsidiary companies

Total financial assets other than cash and cash

equivalents classified at amortised cost

2,573

2,765

5,786

3,615

Corporation tax

Other taxes

Other receivables

Total Other receivables

Total trade and other receivables

281

154

435

3,008

111

159

2,924

5,790

3,628

14. TRADE AND OTHER RECEIVABLES (CONTINUED)

The carrying value of trade and other receivables classified at amortised cost approximates fair value

Gross carrying amount

Loss provision

Net carrying amount

Under 6 months
£000

Over 6 months
£000

2,242

(112)

2,130

743

(300)

443

Total
£000

2,985

(412)

2,573

Trade and other receivables represent financial assets and are considered for impairment on an expected credit loss model. The

Group continues to trade with the same customers and in the same market place and therefore the future expected credit losses have

been considered in line with the past performance of the customers in the recovery of their receivables. The implementation of IFRS 9

has therefore not resulted in a change to the impairment provision in the current or prior year.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision

for trade receivables. The expected loss rates are based on the Group’s historical credit losses experienced over the three year period

prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on factors affecting the

Group’s customers including the area of operations of those debtors and the market for the Group’s products. The assessment of the

expected credit risk for the year has not increased, when looking at the factors affecting the risk noted above.

Movements in the impairment allowance for trade receivables are as follows:

Impairment

Group

Balance at 31 March 2018 under IAS 39

Restated through opening reserves

Receivable written off during the year as uncollectible

Increase in impairment allowance

Balance at 31 March 2019

As at 31 March 2019
£000

As at 31 March 2018
£000

339

(136)

209

412

414

(107)

339

Of the total impairment provision £110,000 (2018: £136,000) relates to Partners that have ceased trading.

There is no material difference between the net book value and the fair values of trade and other receivables due to their short-term

nature.

Other classes of financial assets included within trade and other receivables do not contain impaired assets.

Of the net trade receivables £1,075,000 (2018: £1,076,000) was pledged as security for the invoice discounting facility. The Group is

committed to underwrite any of the debts transferred and therefore continues to recognise the debts sold within trade receivables

until the debtors repay or default. Since the trade receivables continue to be recognised, the business model of the Group is not

affected. The proceeds from transferring the debts of are included in other financial liabilities until the debts are collected or the

Group makes good any losses incurred by the service provider.

Company

The Company did not have trade receivables at the year end. The intercompany receivables have been considered for impairment on

an expected credit loss model and this has resulted in a provision of £292,000 in the year (2018: £nil).

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

15. CASH AND CASH EQUIVALENTS

Cash and cash equivalents

Group
2019
£000

1,354

Group
2018
£000

Company
2019
£000

Company
2018
£000

171

965

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

investments. All cash is held in Sterling other than Euro of £52,000 (2018: £78,000).

16. TRADE AND OTHER PAYABLES

Current Liabilities

Trade payables

Accruals

Other liabilities

Group
2019
£000

1,488

925

419

1,437

703

504

Total financial liabilities, excluding ‘non-current’ loans and

borrowings classified as financial liabilities

measured at amortised cost

2,832

2,644

Deferred income

Total trade and other payables

256

3,088

280

2,924

Group
2018
£000

Company
2019
£000

Company
2018
£000

Non-current Liabilities

Deferred income

Total non-current liabilities

Group
2019
£000

Group
2018
£000

Company
2019
£000

Company
2018
£000

Other trade payables denominated in currencies other than Sterling comprise £42,000 (2018: £67,000) denominated in Euro.

The invoice discounting arrangement is secured upon the trade debtors to which the arrangement relates see note 14.

There is no material difference between the net book value and the fair values of current trade and other payables due to their short-

term nature.

17. BORROWINGS

For more information on the Group and Company’s exposure to interest rate, foreign currency risk and finance leases, see note 16.

Current Liabilities

Invoice Financing

Finance Lease

Vendor Loan Notes

Deferred consideration

Non-Current Liabilities

Finance Lease

Vendor Loan Notes

Deferred consideration

Group
2019
£000

1,075

409

211

1,695

366

2,180

229

Group
2018
£000

Company
2019
£000

Company
2018
£000

1,076

333

600

2,009

810

245

1,055

358

211

366

229

600

245

358

18. 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.

A second round of invitations to participate were made on 20 July 2018 for options with a savings contract start date of 1 September

2018 and an exercise price of 11.5 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 September 2021 and 28

February 2022.

A total of 52 employees elected to participate in the second SAYE Scheme offer and were granted options over of 1,505,719 Ordinary

Shares on 14 August 2018, equating to 1.96 per cent of the then current total voting rights in the Company.

In the financial year to 31 March 2019, 7 employees with options granted in the first SAYE Scheme offer left the Scheme and 7

employees with options granted in the second SAYE Scheme offer left the Scheme.

At the year end 40 employees with options granted in the first SAYE Scheme offer held options over 3,769,548 Ordinary Shares and 45

employees with options granted in the second SAYE Scheme offer held options over 1,319,478.

The total number of shares now under option is 5,089,026 equating to 6.01% per cent of the current total voting rights in the Company.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

19. SHARE CAPITAL

SHARE CAPITAL – GROUP AND COMPANY

In thousands of shares

In issue at 31 March 2018

Issued by the Company

Shares on the market at 31 March 2019 – fully paid

Allotted, called up and fully paid

84,684,683 (2018: 47,557,835) ordinary shares of £0.01 each

63 deferred shares of £0.10 each

Ordinary shares

2019

47,558

37,127

84,685

£000

847

2018

47,558

£000

475

On 24 July 2019, the Group announced that it had conditionally raised approximately £4.01 million before expenses through a placing

and subscription of 28,653,569 new ordinary shares of 1 penny each (“Placing Shares”) at an issue price of 14 pence per share (the

“Placing”). The placing was approved at the General Meeting on 12 August 2019.

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 (2018: £nil).

20. SHARE PREMIUM

At 31 March 2018

Premium on shares issued by the Company in the year

Share issue costs

At 31 March 2019

Group and company

2019
£000

4,202

(77)

4,125

2018
£000

21. FINANCIAL INSTRUMENTS

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

found on page 8. 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 2019 and 31 March 2018 was to place the majority of its cash on short term

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

CREDIT RISK

Group

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

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

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

other receivables due from Partners as shown below.

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

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

customer base. Repayment plans have been entered into separately for certain PAYG debtors and make up £478,000 (2018: £509,000)

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.

Interest rate risk

The Group and the Company do not have a material exposure to interest rates as most borrowings are at fixed 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 2019

Carrying Contractual
cash flows
£000

amount
£000

6 months
or less
£000

6-12
months
£000

1-2 years

£000

2-5 years More than
5 years
£000

£000

Trade and other payables

Finance lease liability

Loan Notes and

deferred consideration

Invoice financing

3,088

2,589

807

1,075

7,559

3,088

3,304

807

1,075

8,274

3,088

288

246

1,075

4,697

306

333

639

558

228

786

1,456

696

1,456

696

31 March 2018

Carrying
amount
£000

Contractual
cash flows
£000

6 months
or less
£000

6-12
months
£000

1-2 years

2-5 years

£000

More than
5 years
£000

Trade and other payables

Finance lease liability

Loan Notes and

deferred consideration

Invoice financing

2,924

1,272

1,203

1,076

6,475

2,924

1,272

1,203

1,076

6,475

2,924

106

300

1,076

4,406

105

300

405

374

452

826

728

All trade receivables are contractually due within 6 months.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019

21. FINANCIAL INSTRUMENTS (CONTINUED)

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 2019
Euro
£000

31 March 2019
GBP
£000

31 March 2018
Euro
£000

31 March 2018
GBP
£000

189

283

3,289

1,320

(1,043)

3,566

178

322

3,408

(1,005)

(1,504)

899

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, Ireland and The Netherlands. In managing 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 2019, it is estimated

that a general increase of 25% in the value of the Euro would increase the Group’s profit before tax by approximately £4,000 (2018:

£4,000) with an equal adjustment to equity.

The Groups activities in the USA only commence towards the end of the year and therefore no sensitivity analysis is shown.

FAIR VALUES

There is a difference of £985,000 (2018: £309,000) between fair and carrying values of the finance leases and loan notes on the balance sheet.

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.

22. OPERATING LEASES

Non-cancellable operating lease rentals are payable as follows:

Plant and machinery

Less than one year

Between one and five years

Land and buildings

Less than one year

Between one and five years

Group
2019
£000

Group
2018
£000

Company
2019
£000

Company
2018
£000

383

411

915

276

318

674

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

Group

During the year £421,000 (2018: £463,000) was recognised as an expense in profit and loss in respect of operating leases.

23. CAPITAL COMMITMENTS

The Group and Company have no commitments to incur capital expenditure at the yearend (2018: £nil).

24. CONTINGENCIES

Neither the Group nor the Company had contingencies at the year end (2018: £nil).

25. RELATED PARTIES

The Company provides cross company guarantees in respect of the invoice discounting from the Group’s bankers for £1.08m.

In the year ended 31 March 2019 no dividends were received (2018: nil).

Transactions with key management personnel

At the year end the Directors of the Company controlled 3.27 per cent of the voting shares of the Group.

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.

On the 28 March 2019 the company issued 7,868,517 ordinary shares, Conrad Bona participated and increased his holding by 222,222.

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

26. POST BALANCE SHEET EVENTS

On 1 April 2019, the business of ADD Signs Limited was hived up into Grafenia Operations Limited.

On 2 April 2019, the relocation of Image Group from its current location to Trafford Park Hub was confirmed. This will leverage culture

and capabilities of the two businesses and help provide financial synergies across the two groups. The major works have been

completed along with relocation of Image Group. The expected savings from this project are circa £0.25m annually.

On 2 July 2019, an agreement in respect of a further variation to the terms of its acquisition of Image Everything Limited (”Image”). This

variation relates to Neil Cousins, one of the vendors of Image, who will step down as an executive of the Group on 30 August 2019.

Mr Cousins has entered a new consultancy agreement, together with a Nettl partner licence agreement. Under the consultancy

agreement, he will continue to provide services to the Group for a minimum of 12 months. He will forgo his pro rata share of the

£550,000 Deferred Consideration due to the vendors of Image, being £220,000.

On 24 July 2019, the Group announced that it had conditionally raised approximately £4.01 million before expenses through a placing

and subscription of 28,653,569 new ordinary shares of 1 penny each (”Placing Shares”) at an issue price of 14 pence per share

(the ”Placing”). The placing was approved at the General Meeting on 12 August 2019.

GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2019ADVISERS 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

Financial Adviser,
Nominated Adviser
and Broker
to the Company

Solicitors
to the Company

Allenby Capital Limited
5 St. Helen’s 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

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/PRG/CRH/09-19/R1