Annual Report
& Accounts
2020
Contents
01
IN SUMMARY
03 CHAIRMAN’S STATEMENT
09 CHIEF EXECUTIVE’S STATEMENT
21 FINANCIAL REVIEW
26 DIRECTORS
28 DIRECTORS’ REPORT
30 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
31 CORPORATE GOVERNANCE STATEMENT
40 AUDIT COMMITTEE EPORT
41 DIRECTORS’ REMUNERATION REPORT
43
INDEPENDENT AUDITORS’ REPORT
47 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
48 CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
49 CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN SHARHOLDERS' EQUITY
50 CONSOLIDATED STATEMENT OF CASH FLOWS
51 NOTES TO THE FINANCIAL STATEMENTS
76 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 2020
Year ended
31 March 2019
Subscription and Licence Fees
Company Stores
Works Sign Businesses
Brand Partner Print
Online and Trade
Revenue
Gross Profit
EBITDA
Amortisation 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 (excluding right of use assets)
£000
2,083
2,806
4,624
3,414
2,677
15,604
7,977
(1,289)
(2,025)
(3,314)
(317)
258
(3,373)
(3.27)p
Nil
£0.43m
Nil
£(1.42)m
£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
1
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 Top: Cone signs, a new social distancing product
Bottom: New social distancing products launched this year
2
Jan-Hendrik Mohr
Chairman
Chairman’s
Statement
In the last fiscal year we continued on our journey to build, buy and licence Nettl.
The results for this strategy became visible in our numbers at the end of the fiscal
year. Subsequently, Covid-19 hit and shook our industry in an unprecedented
way. However, the crisis brought out the best in our team. I could not be more
proud of a management team that steered the ship in a calm and decisive manner.
We never forgot to be human.
It has become clear that partners and clients value being part of a large network
such as Nettl. In fact, having added products beyond print to our offering a few
years back, these provided our partners with the opportunity to help their clients
in the most challenging of times.
On to our scorecard of the 2019/20 fiscal year:
Operational Performance
In the recent fiscal year, our turnover decreased by 2.2% to £15.60m (2019:
£15.96m) and gross profit decreased by 6.6% to £7.98m (2019: £8.55m). The
year showed a decrease in EBITDA, which is operating loss before interest, tax,
depreciation and amortisation, to (£1.29m) (2019: loss £1.11m). Our loss for the year
came in at £3.37m versus £2.82m last year. We finished the year with a cash position
of £1.10m (2019: £1.35m) and net debt (including deferred consideration, excluding
‘right of use asset’ related liabilities) of £1.42m (2018: £3.12m). We invested £0.43m
on capex (2019: £2.47m), and capitalised £0.68m in R&D (2019: £0.74m).
Importantly, these results include several cost items that are either one-time in
nature, or constitute up-front costs, rather than ongoing operating costs. Such costs
went down in the fiscal year in comparison to the prior year. The finance function
restructuring has progressed well and the major operating cost investment in the US
is finished. However, we did incur substantial restructuring costs in our UK business
in the context of the redesign of our production hub. In addition, we have taken an
increased charge against aged debtors at the year end to reflect the uncertainties due
to Covid-19 and the changed economic outlook this presents.
3
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 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.
I want to reiterate this approach and strongly believe that Grafenia can and will
become significantly free cash-flow generative in the mid-term. The results in the
last months of the fiscal year are a cause for optimism and it is now of paramount
importance to emerge from the Covid-19 dislocation stronger.
In the past, I have called out our like-for-like (i.e. excluding acquisitions) development
of gross profit. In the last fiscal year, that figure declined by more than we hoped.
This decline has been significantly more severe in the past. Nonetheless, growth is of
paramount importance. Peter and I will use our letters to explain how we expect to
get there.
People at Grafenia & Priorities in the last year
In past letters, I wrote that there were three areas where my fellow non-executive
directors and I can impact the Grafenia organisation. Firstly, get governance right.
Secondly, set the right incentives. Thirdly, make rational capital allocation decisions.
We were rather quiet on the capital allocation and
M&A front in the last fiscal year. By and large, we
haven’t found valuations particularly attractive.
Certainly, we got lucky not acting too quickly as some
areas of the sign industry (e.g. trade fair related) have
been hit dramatically in recent months. Nonetheless,
we have learned a lot about what we are looking for
when acquiring signage firms and have been seeing
more and more opportunities. Valuations went from
rich to realistic. Peter does a great job explaining our
focus at the moment and I sincerely hope to report
Events started to be
value-accretive new additions to the Grafenia family
cancelled in January
next year.
In July 2020, we announced a bond issuance programme that allows us to raise up to
GBP 50m in capital.
As Chairman, I feel strongly about protecting value for shareholders. The bond
programme gives us the possibility to tap capital markets without diluting our
shareholders, which we find is an important arrow in our quiver.
In fact, I’m frustrated to not report better progress in making use of our public
company listing. As a public company we keep on having listing costs which are
way too high and overhead relative to the size of our operating business. More than
ever, using the utility of our public listing will be among my key priorities. With our
4
supportive shareholder base and optionality in our capital structure, we are ready to
act when opportunity emerges.
Last year I said:
“…from lots of work with numbers, we had some (quite literally) heavy-lifting to do in
our business.”
The heavy lifting in 19/20 involved numbers! As
described in the letter last year, we have been
tackling some important improvements in our
finance department. Some of them were outright
necessities of day-to-day finance operations. Others
will enable us to be more effective decision makers
and to integrate acquisitions much more efficiently.
Our most recent addition to the executive team,
Iain Brown, has proven to be the very right person
for the FD role. The overhaul of our finance function
has proven to be much more complicated and took
much longer than I expected. Iain however achieved
Sharing ideas with partners at a Pow Wow
progress in months for which we needed years
before. Thank you Iain!
Outlook and Current Priorities
The core idea behind Nettl is to help our partners better serve their clients. On the
months after the fiscal year-end, Covid-19 has turned our industry on its head.
When the Nettl idea was conceived, the ability to create websites for clients was an
innovative and new tool to offer our partners.
After Covid-19 hit, litho print volumes essentially went to zero. Not only for us, but for
the entire industry.
Not surprisingly, demand for websites and signs went through the roof. The trend in
website deployments has been upwards and grown to a significant level over the last
months – but materially accelerated from March onwards.
Signage was a promising and growing category that our partners started to offer
over the last year. However, the board has always had slightly higher expectations of
sales traction. These hopes materialised from March onwards with signage sold by
partners increasing more than eightfold. Arguably, some of that is one-time protection
equipment for stores and offices which will not recur. Nonetheless, we are absolutely
certain that every partner and client now understands that Nettl is about more than
print and websites!
5
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 Nettl of Edinburgh Business Store
6
Apart from our direct trade sales and sales in our own stores, we do track product
revenue sold per partner quite closely. Interestingly, this aggregated number has been
fairly resilient throughout the Covid-19 crisis. Clients ordered fewer business cards but
instead thought about websites, e-commerce solutions and signs.
For Nettl to become a long-term success, we need to continue to offer our partners
new products to sell, while being the best supplier to them for their existing range. We
will be successful when our partners are successful and the last few months arguably
improved our standing with our partners.
There is absolutely no reason to believe why our number of partners cannot grow
further – in the UK but also internationally – and why we cannot sell significantly more
products per partner.
With that being said, we reiterate our mid-term guidance of 10-15% EBITDA margin.
Unfortunately, we can only hold a virtual AGM this year due to health and safety
considerations. We have enjoyed the dialogue with shareholders a lot and it’s a bit sad
to miss the event this year. We’ll try hard to make the virtual AGM this year worthwhile
participating in.
The AGM will take place at 9am on Tuesday 22nd September.
Jan-Hendrik Mohr
Chairman
11 August 2020
7
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
We print onto all sorts of material, like this outdoor grade tent fabric.
We make face covers in-house
8
Peter Gunning
Chief Executive
STRATEGIC REPORT
Chief
Executive’s
Statement
Dear Shareholders,
Oh boy
Since I last wrote to you in November’s interim report, the world is a very different
place. We’ve had two Prime Ministers, the briefest of ‘Boris bounces’ and then we’ve
run face-mask-first into the biggest economic crisis in generations.
We made good progress on our transformation plan during the first half. As with many
businesses, things got tougher in the second half.
Before we get into the detail, it’s worth recapping on our strategy. That hasn’t
changed. Although how we get there, has adapted.
Build, buy and licence
That’s it. We build performance in our company-owned Nettl locations, buy sign and
graphic businesses and licence our know-how and systems to others. I’ll go into more
detail on each of the sections in turn.
Nettl company stores
In our Nettl company stores, we sell websites, ecommerce shops, online booking
systems, SEO, printing, displays, exhibition and signage. We mostly sell to SME clients,
who often don’t have their own in-house marketing department. Increasingly, we’re
selling to larger businesses, where our relationship starts with signage.
We operate five company-owned Nettl locations. In Birmingham, a 2,000sq.ft.
city-centre Nettl Business Store. In Liverpool and Exeter, out-of-town Nettl Business
Superstores, each 5,000 to 7,500 sqft. A first-generation small Nettl web studio in
central Dublin and a huge Nettl ‘pop-up’ Business Store in Manchester city centre.
9
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 Sales in our company stores increased to £2.80m (2019: £2.63m). In this revenue
segment, we count all invoiced sales to end clients of our company stores, whether
they be print, display, design, websites or search engine optimisation. Essentially,
everything we ring through the till in our own stores. In the first half of the year, sales
were up 20% compared to last year. In the second half, sales were impacted by the
lockdown in the UK and Ireland.
We’re here, even
if we’re not there
We closed our company stores on 23 March
2020. Some team members worked remotely
Nettl of
United Kingdom
and some were furloughed under the
Book an
online video
meeting
see inside
DELIVERY INCLUDED
The small print: Prices shown include delivery to one UK
mainland address.
They exclude VAT and design. Unless stated, prices shown are
for standby service.
Faster turnaround upgrades are available – ask for a price.
See full product specifications online. Price point may not
represent products in photos.
Participating studios only. SAMPOOTM/PRG/CRH/03-20/R1
Orders must be approved by 6pm, Thursday 30/04/20
This is a 3 panel A5 folded leaflet
printed on 170gsm premium silk
call us FREE on
0800 999 8399
or order at
www.nettl.com
We might all have to live with travel restrictions, quarantine
or solitary confinement. Whatever happens, we’re always
happy to meet you online with a video chat.
• To arrange, visit www.nettl.com
• Hit Find a studio and choose us.
• Then press the big Call me button.
• Choose a phone call, video chat or email reply.
• Request a date and time, or as soon as we’re free.
We’ll phone or video call you back to talk through your ideas,
screen share or work out a proposal. Please wear clothes.
Online appointment booking
These are unusual times
Well, then. Who could have predicted a wet
Wigan in such a bewildering way?
market in Wuhan would impact workers of
‘there’. Some stores re-opened on 6 July 2020
Government scheme. We upgraded our Nettl.
com site to make it easier for clients to schedule
video calls with us. We were still ‘here’, just not
We are
all in this
together
Being in business is often about adapting
and all were open by 20 July 2020.
to adversity. Coping with the unexpected.
Responding to change.
Bold entrepreneurs do not lack spirit or
ingenuity. There will be disruption of course.
One method we use to grow sales in company
But when we pull together, we’ve shown we can
rise to the challenge.
Every business across the country has a role to
stores is to “acqui-hire” existing Nettl partners.
Steps you can take now
to protect your business
play. It’s business as unusual. But we need to
keep the wheels of commerce in motion and
Effectively we acquire their client base and hire
together we’ll get through this.
their sales and design team. We rolled in a couple
of businesses in the prior year, but didn’t agree
terms with any new ones this year. However, we
expect to find further roll-in opportunities in the
future. When we roll-in, we’re able to strip out overhead and have more people work
from our locations. We aim to keep client relationships intact. When we strip out these
roll-ins, like-for-like sales were up 3% in H1, but H2’s performance dropped and the
year ended 6% down, like-for-like. We like rolling in existing teams, since we’ve usually
got a long trading relationship and historical performance data. As studios use our
systems to manage their businesses, the data we harvest is very rich indeed.
Buy sign and graphic businesses
We’ve talked many times about our acquisition strategy, to roll up the signs sector.
We still find this sector attractive, for a variety of reasons. There’s both investment
and industrial logic. Logic twins, as it were. Almost always, the businesses we target
are buying some of our product range from elsewhere. We don’t factor that into our
valuations, but those are very real merger benefits. Nothing tastes sweeter than
deleting a competitor from the supplier list of a business we acquire.
We’re looking in two areas. With smaller businesses with revenues up to £500k, we’d
like to roll-in to one of our existing locations. Some could be Nettl teams or individuals,
where we’ve got a long partnership history. Others could be clients - sign businesses
where we have a trading relationship. We’ve had plenty of discussions with businesses
like these, typically where the owner is looking to retire. For us to consider these,
location is important. We’d rather not remotely manage a distant team, so some of
those discussions are parked, until we have a suitable location to roll into. However, if
the owner has already replaced themselves with a capable manager, we’d take a look.
10
The other area is sign businesses
with revenues above £2m or so.
That’s where we’re targeting our
outreach activity.
If I asked you to think of a sign,
chances are “No entry” or “No shirt,
no service” springs to mind. The signs
sector is hugely diverse. And the
word “signs” covers anything from a
small wall poster to a building wrap.
From a branded reception desk to a
giant flag. Vehicle livery to exhibition
stands. Printed deckchairs and
We’ve sold lots of sneeze guards
gazebos. Banners, beanbags, bunting and billboards. In a visual world, every surface
can be a sign.
That means every sign business has a slightly different expertise and exposure. Some
mostly work with retailers, others with construction. Some are geared towards events
and exhibitions. Others focus on fabrication of structural signage. Coronavirus has
impacted each business differently and luck has played a large part in that.
Last year, we’d talked to plenty of these businesses. With some, we weren’t able to
agree on valuations. With others, when we started due diligence, we didn’t like the
smell or sustainability of some of their revenue streams. We didn’t rush to do deals,
for the sake of doing deals.
At the start of the crisis, we refreshed our marketing and changed our deal structure
approach. We figured some decent businesses would face difficulties. The UK
Government’s response package has definitely helped many businesses stay afloat,
particularly the furlough scheme. If you told us in February the Government would pay
80% of salaries for six months, we’d definitely have nodded very slowly whilst backing
away. But they have. And with deferred VAT, rent holidays, very low interest loans,
businesses have kept going for now. As these measures end, the crunch starts.
We estimate there are a few hundred larger sign
businesses in the UK who could act as regional hubs
for our network. We mailed a prospectus-in-a-box
to 200 targets in May. Why a box? Nothing beats the
‘thud factor’. You can filter an email. You can discard
a postcard. What kind of monster could toss a black
box without opening it? You can read the prospectus
at www.grafenia.com/acquisition. It explains our
transparent approach. We have ongoing discussions
with potential vendors and hope to find a way
forward for some businesses, who value the safety of
being part of a larger group.
Sign business acquistion marketing
11
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 These larger businesses tend to have a locally-known brand, which we keep. Existing
clients will continue to deal with the name they trust. They’d also become “Nettl
Works”. We think we need five of these regional hubs. Our first is “Works Manchester”,
which I’ll talk a little more about later. We’re looking for other businesses primarily in
The Midlands, South West England, Greater London and Scotland or Northern England.
In our revenue segments, we show these in “Works sign businesses”. For now, Image
Group is the only business in there. Sales were £4.62m (2019: £4.91m), hampered by
the cancellation of multiple events and exhibitions at the start of 2020.
Licence our systems
We licence our software, brands and systems to design studios, printers and sign
companies around the world. Some use it under white label, where the end client is
unaware they’re using our software. However, in most cases, the end client interacts
with one of our Brand Partners. We call them brand partners, because they present
themselves as part of the Nettl or printing.com network.
Our partners use content and marketing material, such as e-shots, website landing
pages, catalogues, brochures, direct mail, point-of-sale and product samples that we
create. They use that to keep in touch with existing clients and attract new ones. It
helps them sell print, websites and signs. We release fresh content multiple times a
month, to stay in clients’ front-of-mind.
Partners pay us a subscription fee, depending on the size of their exclusive territory,
ranging from £300 to £1,000 per month. To grant them geographical exclusivity, they
pay an initial licence fee of around £2,000. Our standard licence agreement is three or
five years, sometimes with an option to break at 18 or 24 months.
Historically, after the initial term was completed,
partners rolled into monthly agreements, with three
month’s notice to terminate. In January 2020, we
introduced a new rolling three-year extension and
invited existing partners to extend their agreement.
As a thank you, we gave them product credits which
could be used on orders for new customers. We
were pleased that more than 70 partners extended
their contracts by three further years. More than 150
partners now have contracts where their next break
option is greater than a year from now.
Inviting partners to renew their vows
But times are tough for resellers. Anyone who has been reliant on selling print and print
alone has had a rough year. Traditional print is in decline and there is still too much
overcapacity. The pandemic will remove some capacity. We’ve had a higher-than-usual
churn in the second half, as some partners have closed or sought to cut all investment.
Nonetheless, our Nettl partner network has grown to 239 locations around the world
(2019: 228). At the date of our last trading update, we had 183 active Nettl partners in
12
the UK and Ireland, 25 in Benelux, 9 in France, 15 in the USA, four in New Zealand
and three in Australia. We also currently have 59 printing.com locations (2019: 85).
Upgrading from printing.com to Nettl is a path well trodden and we anticipate further
partners will diversify their businesses away from simply selling print.
Subscription and Licence Fees increased to £2.08m (2019: £1.97m). In this segment,
we count initial licence fees, monthly subscriptions, website deployment royalties,
the wholesale price of hosting, domain names, digital stock photography and search
engine optimisation sold via our brand partners.
Since the year end, and during the pandemic, we’ve supported our partners in
different ways. Every partner is different. For some, we’re their entire business. For
others, we’re just part of what they do. As the crisis deepened, we put individual
measures in place. Those could be paused licence fees, while they hibernated under
lockdown, deferred fees for three months or by agreeing extended payment terms. We
genuinely consider ours a true partnership and we wanted to provide assistance, to
strengthen our relationship, and ensure our partners get through this crisis.
As the world entered lockdown, our usual methods
of acquiring new partners were impacted. We
followed up our pipeline, but as you’d expect, many
businesses were nervous about the future and
cautious about entering into new contracts. So we
adapted our offering, to make it easier to join Nettl.
We set a shorter break of six or nine months and
deferred initial licence fee and grant of exclusive
territory until after the break was passed. In the
lockdown period, we added 14 new Nettl partners in
the UK, two in The Netherlands and two in America.
I’ll come back to America later.
Every new partner subscription includes classroom
training seats. As the lockdown prohibited non-
essential travel, this posed a problem. Figuring out
All our training is now online at Nettl Academy
how to build e-commerce sites may well be critical for a print business to learn, but
we’re sure the police would have taken a different view. So rather than risk partners
travelling from Durham or London, we’ve migrated all our training syllabuses online.
Now they’re a mix of pre-recorded content and live group video sessions in our virtual
Nettl Academy. When events are allowed, we’ll once again get together with partners
at regional “Pow Wows”, like we did in February just before lockdown. However, now it
will be more productive and cost-effective to deliver our training exclusively online.
We increased the frequency of our virtual group ‘do more together’ partner
sessions. These cover different topics, around marketing, technical application,
product development and sales opportunities. We’ve seen a significant increase in
engagement on our internal partner community forums and discussions, as partners
13
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 look to others for guidance. At times like this, the strength of being part of a network
is demonstrated very clearly. We recently interviewed partners from around the world
and shared the videos online. If you’d like to hear it from the zebras’ mouths, as it
were, take a look at www.nettl.com/action.
As well as licence fees, Nettl and printing.com partners are able to buy printing,
exhibition kit, displays and signs from our Works Manchester hub. They pay a
wholesale price and resell to end clients. Most Nettl and printing.com partners are
seasoned print buyers. They have alternative suppliers. In the second half, trade
prices continued to fall. Last year, I mentioned Personal Shopper - a way for partners
to get help with more complex projects or choosing the right options. We’re often
asked to match competitor pricing, even by less than a pound. So in August last
year we launched CrowdPrice. If one partner requests a price match, and it passes
our commercial rules, we make that price match available to all other partners
automatically. Our aim is to reduce the need for partners to shop around. Overall,
sales of product to Brand Partners was £3.41m (2019: £3.58m).
Marqetspace.com and online channels
We sell print and signs to professional buyers through Marqetspace.com and a few
other online channels. This space is super-competitive. Not only are there many trade-
only printers in the UK, but shipping from mainland Europe is currently cost-effective
for continental printers. Marqetspace is important to us for a number of reasons.
Firstly, it’s often where our relationships start. We get to know printers, graphic
designers and sign companies with a simple trading relationship. Then we build trust.
Then we figure out if any of our software tools or systems can help them achieve their
own objectives. And so Marqetspace is a fertile ground for cultivating Nettl partners.
Secondly, we use it to test and develop automation. It’s the first place we try new
features for online channels, before we roll them out. We had lower people costs in
this segment than last year.
Thirdly, it contributes to our print volumes. Prior to the events in March, sales were
broadly flat and ended at £2.68m (2019: £2.87m).
Nettl of America
We said in the interim report that we were seeing
slower traction in signing up partners in America.
We knew the 200 page franchise disclosure
document would slow things down, but not by as
much as it has. So we developed a second model
for the US.
We call it Nettl System. It’s essentially everything
that a Nettl Franchise gets, without access to the
brand or rights to use any marketing material.
Prospectus explaining Nettl of America packages
14
Now, given what we said about how our partners value marketing, you’d be forgiven
for thinking we’d drunk bleach. But Federal law is pretty strict about what constitutes
a franchise. As none of us look good in orange, we need to work within the law. So,
Nettl System is a licence agreement, like in the UK, without the rights to use the brand.
We can meet a partner, sign them up and they can get started immediately. It allows
them to learn-by-doing and hopefully answers most of the questions that they would
have had during the due diligence process.
Of course, we still want System users to upgrade to become Franchisees. And after
the year-end, the first did just that, signing a ten year Franchise agreement.
We’d planned to host an event in Fort Lauderdale, Florida during April 2020. With
the travel bans in place, that was subsequently cancelled. We replaced it with some
virtual sessions and we’re further testing different marketing until we find something
we can scale.
Secrets & Chandeliers
The system which drives our whole business
is called w3p. It’s used by every partner.
Clients order on websites powered by it.
Conveyors and belts and chutes in Works
Manchester are controlled by it.
It’s a big system. By its nature, there’s a lot
to learn. We wanted existing partners to
get a concise understanding of everything
it does and discover parts they weren’t
making the most of. So we wrote a book,
Printed copies were
mailed to 10,000 prospects
“Secrets & Chandeliers”. Partners got a printed copy as an early Christmas present.
But we didn’t want it to be a dry, user instruction manual. Instead, it starts with a true
story. And explains all of the things that had to come together to deliver a great client
experience. It tells the reason why each feature was built.
We thought other graphic professionals might enjoy it too. So we’re also using it as
part of our Nettl partner acquisition toolkit and have distributed 10,000 copies to
prospects in the UK and US.
If you’d like to read it, you can buy it on the Kindle store. But here’s a secret. You can
get a free printed copy at www.nettl.com/secrets.
Pandemic Paraphernalia Pivot
March is historically a strong sales month, boosted by event season. Lots of
exhibitions take place in the Spring and our company stores, brand partners and
Image Group help clients with pop-up displays, exhibition stands and all the printed
collateral that gets distributed. We started to hear of events being cancelled at the
end of January. First it was those which had a strong presence from Asia, where
15
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 companies were prohibited from international travel. Then steadily, one after another,
event after event began to get cancelled, and with it, expected orders. Then lockdown
hit. The NEC, the UK’s biggest exhibition space, have now said they don’t expect to
hold any indoor events in 2020. At all.
We kept our Works Manchester production hub
open, with a limited number of people and social
distancing measures. As we began to imagine
what clients might need to re-open their
businesses, we started to launch new
social distancing products. Our product
engineering and production teams were
fantastically agile as we switched to
producing sneeze guards, custom
printed face masks, hand sanitiser
stands, crowd control material, social
distancing stencils and floor graphics.
Getting stock has been challenging and
Sneeze screens and masks
and social distancing
in-demand materials needed prepayment. For a couple of months, we suspended
postal mailings, as many businesses were either closed or working from home. So
each product was launched with digital marketing. As businesses started to reopen in
June, they were able to browse our 52 page Pandemic Paraphernalia buying guide.
When I look back at how many products we sold in June that didn’t exist in March, it’s
even more astonishing what our teams were able to achieve. More than half our sales
in June were for Covid-secure products. We’re grateful for their combined efforts in
invention, merchandising, prototyping, selling and manufacturing.
Doing the right things
At the start of the pandemic, we convened daily crisis meetings. We called them
“GRABRA”, as a nod to the Government’s COBRA meetings. Although, our executive
board and production management did actually turn up to each one. We would be
formulating our response to the daily Government Briefings, then keeping our teams
updated. It was a very stressful and upsetting time for many of our team members.
Some were impacted by the loss of family and friends.
At times of crisis, nobody wants to be sold to.
Research shows that advertising, which is heavily
price-led becomes less effective. So we initially
turned off product-led marketing messages.
Instead, we delivered content to reassure and
build trust. That included charity animal-face
masks, printed and stitched in-house, with
proceeds donated to NHS charities. So far, we’ve
donated over £10,000 to charities, from sales of
Animasks.co.uk, an ecommerce site our Nettl team developed.
16
We also created print-at-home colouring books to keep bored kids occupied. We
scheduled a weekly release of ‘Nettl Chaise Lounge’ playlists to work or relax to.
They’re all on Spotify and Youtube if you’d like to listen: www.nettl.com/uk/mixtape
And we made checklists, guides and
return-to-work guides available for
free download. Partners were able
to locally proliferate this stream of
content on a daily basis, keeping
front-of-mind and building positive
brand association.
We did this because we believe
businesses who did the right thing,
would be viewed favourably on
the other side. I’m sure we can all
think of examples of businesses
Listen to Nettl Chaise Lounge on Spotify
that acted in their own self-interest.
Those memories last.
Works Manchester
In July 2019 we completed the relocation of Image Group’s main factory into our
litho hub. There are multiple parts to integrate. Having enough toilets is the easiest
challenge to fix. Combining teams and systems is a little more tricky.
After some bedding in time, we started a restructuring in January 2020 to address
some duplication of roles. This restructuring completed at the end of February 2020
and resulted in annualised savings of around £0.5m.
We brought all our teams together in a series of town-hall meetings, to share our plans
for the road ahead and what part each individual must play.
We’ve been selling products produced by Image
Group through all our channels since they became
part of Grafenia in July 2017. Having two software
systems is never ideal. w3p was built to handle
thousands of set-specification orders each week.
The system Image Group uses caters for projects,
rather than products. So we’ve had to upgrade w3p.
As with all of our software development, we’ve
done this in stages. The final part is presently in
development and we aim to fully migrate to one
system by the end of the calendar year. Once this is
in place, future Nettl Works will share a combined
product catalogue and workflow.
Our blended Works Manchester production team
17
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 March of the Works Makers
Whatever an SME needs to promote their business, we want to be there to support.
Whether that’s online or offline, paper or board, vinyl or metal. Most of what we sell,
we make in our factories. We do sell some niche products, made by other third parties.
In the past, we’ve listed products like pens and bags on our websites for anyone to
buy. In other cases, weird products have been sourced ad-hoc.
As part of our upgrade to w3p, we’ve made
it easier to sell third party products. We’re
asking manufacturers of specialist, niche
items to become Works Makers. They use
w3p to upload their products for approval.
Once each goes through our verification
process, their products are listed on all
our websites, like printing.com, nettl.com
and marqetspace.com. They’re sold to our
brand partners at wholesale prices, and
they use the same tools to place orders,
just like print and signs. When orders are
placed, the Works Maker downloads an
order pack and produces the order and
Adding more products via Nettl Works Makers
ships directly to the client, using our carrier infrastructure.
The first products already for sale include printed socks, golf umbrellas, coasters,
bunting, wristbands and mugs. We’re currently working with the first Works Makers
and expect to significantly grow our product range during the coming months. We’re
inviting suppliers of other platforms to register at www.nettl.works.
We plan to use the same infrastructure to connect third party installers with clients
needing installation of window and wall graphics.
Share stake and save as you earn
As we announced on 28 April 2020, all the Executive Directors have elected to
receive between 20% and 30% of their monthly net remuneration in New Ordinary
Shares from 1 April 2020 for a period of seven months. Non Executive Directors have
elected to receive 100% of their fees in New Ordinary Shares for the same period. The
Company’s Chairman, Jan-Hendrik Mohr, has also donated his fee to “The Chairman’s
Seam Team Fund” for the same period. This initiative has donated sewing machines to
seamsters who’ve been made redundant or furloughed from other businesses, so they
can volunteer to make Animasks.
All New Ordinary Shares in respect of the Scheme will be issued in December
2020, at a price of 7.75p per share, which is above the market price on the date of
announcement and the same as the exercise price of share options, which matured
under the Company’s Save as You Earn share scheme on 1 March 2020. As the
share price was below the option price in the SAYE scheme, we invited eligible team
members to participate in the Share Stake scheme.
18
Outlook
In our Annual Report last year, we estimated we would be on a run-rate breakeven
during this financial year. With reductions in our cost base, partly due to our factory
merger and restructuring, we were breakeven at EBITDA level in the month of
February 2020. In normal years, February has lower sales seasonality than strong
months September, October, November, March and April. We were on track. However,
we updated the market on 25 March 2020, to say we’d take a little longer to reach
breakeven, given the lockdown. On 15 July 2020, our release said Coronavirus
impacted sales in March (65% of last year), April (30% of last year) and May (40%
of last year). In June 2020, sales were 90% of last year, and we achieved breakeven
at EBITDA level. In July, sales ended around 70% of last year. We still do not have
visibility on what will happen to our clients as economic stimulus ends. We have a
diverse product portfolio and it is likely that a significant number of our competitors
will be impacted by the economic climate, perhaps fatally.
Despite the haziness on the horizon, we will continue to be agile and adapt our
product offering and marketing emphasis to support our clients and our partners. Our
aim is to come out the other side of this crisis with more clients, more partners, more
products, more locations and more profit than we entered it with. We keep our eyes
firmly on a mid-term goal of 10-15% EBITDA.
Virtually meet you
Our annual meetings are usually a good time for
shareholders and our key team to meet face-to-
face. Last year, we met in our Nettl of Birmingham
Business Store, and shareholders asked questions
while our saxophonist-cum-designer played some
soothing jazz. This year, a masked-saxophonist feels
impossible.
With social distancing and transport restrictions,
we’re not sure whether we’ll be able to meet in
person. So this year, we’ll meet online.
Until then,
Our in-house saxophonist at last year’s AGM
Peter Gunning
Chief Executive
11 August 2020
19
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
A business social in Nettl of Exeter
20
STRATEGIC REPORT
Financial
Review
Iain Brown
Group Finance Director
Revenue
Group revenue this year finished at £15.60m, down from £15.96m in 2019. Despite
Brexit and election uncertainty impacting the business for the most part of the year,
going into March we were still expecting to report a growth in revenue. Then the
impact of Covid-19 first started to be felt in earnest and our revenue fell to 65% of the
prior year level for the month of March.
As you can see in our segmental disclosure (note 3) 95% of our business remains in
the UK & Ireland. Despite the overall fall in revenue, we have seen a marginal increase
in licence fee income, £2.08m (2019: £1.97m) thanks to growth in subscription
services. Our Company stores have returned a higher revenue, £2.81m (2019:
£2.63m), benefitting from a full year of contribution from prior year roll-ins. But these
results, along with our other channels, have been suppressed by the wider economic
factors already mentioned. Sales of print and other products through our Brand
Partner Network fell to £3.41m (2019: £3.58m), online and Trade sales fell to £2.68m
(2019: £2.87m) and Works Signs Businesses fell to £4.62m (2019: £4.91m).
Gross profit
Gross Profit, defined as revenue less direct materials (including the cost of distribution
when made direct to customers, fell to £7.98m (2019: £8.55m).
The reduced gross margin percentage of 51.1% (2019: 53.5%) comes during a year
full of uncertainty. Print margins continued to erode, as input costs have risen and
trade prices pursue their race to the bottom. Services, subscription and licence
income has increased year-on-year, and carries a higher margin than Print and
Signage, but has not been sufficient to offset the fall in other parts of the business.
Other operating costs
Staff costs reduced by 6.4% to £5.69m, as we have integrated our operations
following acquisitions and business roll-ins from previous years, whilst other operating
charges have been flat at £3.55m. This includes various costs incurred in the year
aimed at reducing our future cost base; redundancy payments to reduce our staff
costs, plus factory dilapidation and site move costs incurred relocating the Image
Group factory into our Trafford Park hub that totalled £0.20m.
21
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 In addition, with tougher trading conditions and then the impact of Covid-19, we have
reassessed our receivables and deemed it prudent to increase the bad debt provision
by £0.60m. We are working with our customers and Partners to try to come through
the current difficulties together, however we have to accept that some of those debts
may never be paid.
The other significant change from last year has been the impact of IFRS 16, which
has become effective for the first time for this financial year. Payments that would
previously have been treated as a cost within other operating costs of £0.36m have
been replaced with an increased depreciation charge of £0.30m and finance costs of
£0.13m.
Profitability
As a combination of the factors discussed above,
our pre tax loss has worsened to £3.63m (2019:
£3.17m). Despite this, the loss per share of 3.27p
improved against the loss of 3.79p in 2019 as a
result of increasing the number of shares in issue
during the year.
Operating Cash Flow
In the current year the Group used £1.16m of cash
through operating activities (2019: £0.96m), closely
reflecting the EBITDA loss in the respective years.
Investment activity
The current year has seen investment in plant and
equipment of £0.43m, primarily in our hub with the
construction of a new mezzanine level that gave us
the space to merge two factories into one, enabling
the group to reduce operating costs in the years to
come. We have also continued our investment in the
Group’s systems, totalling £0.63m (2019: £0.74m),
Nettl sell websites, signs and print
the major item being software for Nettl and the
Groups SaaS platforms.
Financing activity
On 24 July 2019, the Group announced that it had 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. Issue costs incurred
with the transaction were £0.06m.
We changed primary bankers during the year and as part of that move repaid our
invoice finance funding by £0.95m. We’ve also paid £0.44m in vendor loan notes
and deferred consideration related to the acquisitions in previous years, reducing the
outstanding payments to £0.15m.
22
KPIs
Management monitors a number of KPIs, which underpin the performance of the
business. The number of Nettl Network Partners has grown in the year, as discussed
by earlier. The average product price per partner has marginally reduced, reflecting
the pressure on gross margin. Website deployments and hosting fees per month
have continued to increase, along with the number and value of SEO subscriptions.
Post balance sheet events
Covid-19 has significantly impacted
the whole industry since March, and
Grafenia has not been immune. Revenue
in April was 30% of the previous year,
and May only 40% of the result 12
months prior. We have however seen
a stronger recovery in June to 90% of
prior year revenue, driven by our new
Covid related product ranges, and 70%
in July. In response to the pandemic, we
have updated our forecasts and applied
reasonable sensitivities to cover a range
New range of Covid-19 products
of operational scenarios. We have utilised
government support where available through the Coronavirus Job Retention Scheme,
local business grants, rates relief and Time-To-Pay arrangements for our PAYE and NI
liabilities, and renegotiated with suppliers and to reduce cash outflows through this
period.
To further ensure that the business has enough liquidity through this period, we
secured an additional term loan for £1.00m through the Coronavirus Business
Interruption Loan Scheme (CBILS) and refinanced our primary hire purchase facility
through CBILS, reducing our cash repayments for 12 months.
On 15th July we announced the creation of a £50.00m perpetual bond facility and
the issue of £3.00m of the bonds, at nominal value, to investors, raising approximately
£2.01m before expenses. This facility ensures that we have the capital available to
execute our acquisition strategy discussed by Peter earlier.
Outlook
The future developments of the business are included in the Chairman’s statement
and Chief Executive’s statement. With the restructuring activity undertaken in this
financial year, and the financial support secured through the bond issue and CBILS
loan, we believe we have secured the financial future of the business and have the
resources to execute our expansion plans. Accordingly, the Directors continue to
adopt the going concern basis in preparing the annual report and financial statements.
23
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 A business social in Nettl of Birmingham
24
Principal Risks and Uncertainties
The following are the principal risks relating to the Group’s operations:
• uncertainty in the general economic environment, including Brexit and Covid-19,
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;
• 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 anticipates 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.
Iain Brown
Group Finance Director
11 August 2020
25
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
DIRECTORS
Jan Mohr
Chairman
Peter Gunning
Chief Executive
Jan is based in Hamburg, Germany and is MD of the
After obtaining his Masters Degree in Accountancy and
advisory firm JMX Capital GmbH. He previously worked with
Finance from Heriot-Watt University in 1997, Peter
Investmentaktiengesellschaft fuer langfristige Investoren
established The Design Foundry Scotland Limited and
TGV, Hauck & Aufhaeuser and McKinsey & Company.
was a client of the business. Since joining the Group in
Jan graduated from Frankfurt School of Finance and
1998, he has been responsible for developing the Nettl
Management and earned a Master in Finance at Stockholm
and printing.com studio concepts, associated marketing
School of Economics as a German National Merit Scholar.
and operations infrastructure.
Jan was appointed to the Board in March 2016. Age 31.
Peter was appointed to the Board in June 2001. Age 45.
Iain Brown
Group Finance Director
Gavin Cockerill
Chief Operating Officer
After Graduating from Leeds University with a Bachelor of Arts
After graduating from Birmingham City University in
degree in Accountancy and Finance in 2008, Iain joined audit
2000 and following a short stint in advertising, Gavin
practice with Baker Tilly UK LLP and subsequently qualified as a
helped launch and grow the printing.com studio in
chartered accountant with the Institute of Chartered accountants
Birmingham. Since joining the Group he has been
in England and Wales. Prior to joining Grafenia, he has held a
involved in progressing the Nettl and printing.com
number of senior financial positions with Myriad Group AG, a
business models across the UK and its numerous
publicly listed Swiss software business trading across the world
master licenses globally. Moving to Manchester in 2012
from multiple locations, before ultimately being appointed as
he launched and developed the group’s TemplateCloud
Group Financial Controller in 2016.
and Flyerzone offerings.
Iain joined the Group in October 2019 and was appointed Group
Gavin joined the Group in 2000 and was appointed COO
Finance Director in January 2020. Age 33.
in October 2015. Age 41.
26
Conrad Bona
Non-Executive Director
Richard Lightfoot
Company Secretary
Conrad is a business consultant, investor and entrepreneur who
Richard graduated from Manchester Metropolitan
started his career as a banking and finance lawyer and has worked
University in 1998 with a First Class honours degree
in Toronto, London and Tokyo. He has a degree in economics from
in Business Studies. He subsequently worked for
the University of Western Ontario, law degrees from the University
a Corporate Finance advisory firm assisting on
of Edinburgh and the University of New Brunswick and qualified to
mergers & acquisitions and venture capital fund
practice as a lawyer in multiple jurisdictions. No longer practicing
raisings. Since joining the Group in 2004 he has
law, Conrad now advises companies on a wide range of commercial,
performed a number of roles supporting the board
financial and business matters. He has both Canadian and British
in implementing strategic initiatives.
citizenship and is based in London, England.
Richard was appointed Company Secretary in
Conrad was appointed to the Board in October 2015. Age 51.
October 2015. Age 48.
Simon Barrell
Non-Executive Director
Simon qualified as a chartered accountant in 1983 and is a
Fellow of the Institute of Chartered accountants in England
and Wales. He’s held various posts as Finance Director and has
experience across multiple industries working in both the public
and private sectors. He has also held numerous non-executive
positions for a number of public companies and continues to act
as an adviser to listed and non-listed companies. He is currently
a non-executive director of SRT Marine Systems plc.
Simon joined the Group in June 2018 as Interim Finance Director
and was appointed to the Board as a Non-Executive Director in
January 2020. Age 61.
27
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 Directors’ report
The Directors present their report and the financial statements of Grafenia plc and its subsidiary companies for the financial year ended 31 March
2020. The Directors have proposed that no final dividend will be paid (2019: nil).
PRINCIPAL ACTIVITIES
We generate revenue from two main sources: licensing brands and software, and manufacturing product. We license our brands, software and
technology to partners in the UK and internationally. We also directly manufacture a range of printing, signage, promotional items and expo
displays in the UK.
DIRECTORS
The following Directors have held office since 1 April 2019:
J-H Mohr
C C Bona
Non-executive Chairman
Non-executive Director
S G Barrell
Non-executive Director (formerly Interim Finance Director)
P R Gunning
Chief Executive Officer
G G Cockerill
Chief Operating Officer
R A Lightfoot
Director and Company Secretary
I S Brown
Group Finance Director – Appointed 9th January 2020
All the Directors are subject to re-election at intervals of no more than 3 years.
P R Gunning and I S Brown 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 41-42.
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.
28
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 2020:
Registered holding
Number of shares
% of issued share capital
Langfristige Investoren TGV
Value Focus Beteiligungs GmbH
Stefan Winterling
Scherzer & Co SA
IPConcept (Luxembourg) S.A.
Axion SA
ANNUAL GENERAL MEETING
33,434,909
30,224,866
7,279,074
5,675,500
5,634,919
4,985,000
29.45%
26.62%
6.41%
5.00%
4.96%
4.39%
The Annual General Meeting of the Company will be held on Tuesday 22 September 2020 via an online meeting. 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
Iain Brown
Group Finance Director
11 August 2020
29
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 Statement of directors’ responsibilities in respect of the annual report,
strategic report, the directors’ report and the financial statements
The directors are responsible for preparing the Strategic Report and the Directors’ Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare group and company financial statements for each financial year. The directors are required by the
AIM Rules of the London Stock Exchange to prepare group financial statements in accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union (“EU”) and 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.
30
Corporate governance statement
FOR THE YEAR ENDED 31 MARCH 2020
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 our website and in our most recent Shareholder Circular.
The Group’s principal 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 21 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. The forthcoming AGM necessarily takes on a virtual format in light of Covid-19.
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 our
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.
31
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 3. 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:
• w3pin the Company’s on-line message board and forum as well as third party applications such as business communication platform Slack.
Use of such platforms has come into sharp focus since the onset of Covid-19 and increased homeworking;
• 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. Approximately half of our team, from production to studios, from designers to installers, participated 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 an advocate of apprenticeships and goes beyond its legal obligations such as the payment of the apprentice levy in its
commitment to this stakeholder group.
Customers and Suppliers
The Company invests in customer service software and infrastructure to support feedback from these 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 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, supply and promotion of
biodegradable products and adoption of technologies to reduce the Company’s energy consumption. All of our matt and gloss laminated print for
example is produced using a biodegradable film and during the year we invested in voltage optimisation equipment.
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.
32
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.
Since the onset of Covid-19 towards the end of the year under review the executive members of the Board have met on a daily basis to consider
the opportunities and threats facing the Company.
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 and 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 aspects of the Group’s day-
to-day operations. The Company’s Works Council monitors, reviews and makes 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.
33
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 5. MAINTAIN THE BOARD AS A WELL-FUNCTIONING, BALANCED TEAM LED BY THE CHAIR
The make-up of the Board is reviewed on an ongoing basis in light of the Company’s development, requirements and resources.
During the year the Group appointed a permanent Finance Director (on 9 January 2020). At that time the Interim Finance Director became a Non
Executive Director in order to ensure a seamless transition and handover of the finance function.
The Board currently comprises three Non-Executive Directors (including the Chairman) and four Executive Directors.
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. A rolling programme of Board
meetings is maintained throughout the year together with adhoc meetings as the Company’s requirements demand. The director’s attendance
records in the year under review (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)
Simon Barrell (Non-Executive Director) – audit since becoming non-exec
Peter Gunning (CEO)
Gavin Cockerill (COO)
Richard Lightfoot (Director & Company Secretary)
Iain Brown (Group Finance Director) – since election
6
6
6
6
6
6
6
3
6
6
6
1
-
-
-
-
2
2
2
-
-
-
-
-
In the past Board meetings and the Company’s AGM have been 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. Since the onset of Covid-19 Board
meetings have necessarily been held remotely and, since the end of the financial year on a significantly more frequent basis.
The Company Secretary reports directly to the Chairman on governance matters. The Board believes 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.
34
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
relevant 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 nomad, lawyers and other advisors.
7. EVALUATE BOARD PERFORMANCE BASED ON CLEAR AND RELEVANT OBJECTIVES, SEEKING CONTINUOUS IMPROVEMENT
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 undertook a first annual review of its effectiveness, in accordance with Principle 7 of our Corporate Governance Statement regarding
board effectiveness, after the Company’s 2019/20 financial year. The process was led by the Chairman Jan Hendrik-Mohr. The Board will carry
out further reviews of its effectiveness on an annual basis and may use an external adviser. The objective of this evaluation process is to bring to
light possible changes which could make the Board’s activities and administration more effective and efficient.
The Board Evaluation covered the following areas:
• the manner in which the Board is run, and operates as a team;
• the skills, experience and independence of the Board;
• the strategy of the business;
• the risks of the business;
• the Company’s ethical values and behaviours; and
• engagement with shareholders and other stakeholders.
The exercise identified a number of positive areas particularly relating to the skills and experience and independence of the Board and the level of
engagement with shareholders. The main area for improvement identified in the previous evaluation was formal succession planning and lack of
diversity, and a process to address this in more detail will start during the 2020/21 financial year.
35
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 BOARD REVIEW
Manner in which the Board is run
The level of engagement between NEDs and executives is high. The Board decided to
drastically increase the cadence of meetings during the Covid pandemic to weekly which
has proven to be informative and allow for quick decision making. Before Covid, the
Board changed the cadence to fewer-but-more-in-depth sessions to allow for complex
discussions.
Skills, independence and experience
We have enlarged the Board over recent years and find the current set-up to reflect a
broad perspective of different skills. Especially the appointment of Simon Barrell as NED
significantly increased the financial and audit acumen of the Board.
A core area of improvement in the Board is diversity. The current Board doesn’t
appropriately reflect the level of diversity we have in our organisation and future
recruiting decisions should clearly take diversity into consideration.
There is no formal succession policy which is a deficiency that is being addressed in the
current fiscal year.
Strategy of the business
The Board has engaged in periodic planning and review processes for the “buy, build
and license” strategy. During August 2020, the Board started a dedicated “Post-Covid”
evaluation of strategy to ensure viability of the business model even in significantly
reduced sales environments.
Risk of the business
Risk of the business is evaluated in-lieu of strategy as the Board perceives risk to be a
core influence on strategy. When setting strategy, we reflect on the interdependencies
for our risk appetite.
Ethical values and behaviours
Critical developments are monitored in the risk awareness section of every Board
meeting. The Company maintains a peer review mechanism for all employees (GrafOS)
that allows for flagging of misconduct and feedback mechanism.
Engagement with shareholders
The Board keeps an open and constructive dialogue with its shareholders. In
particular, the largest 5-6 shareholders engage in fairly frequent discussions after
RNS announcements. We have used our AGM as a platform to communicate strategy
and invite shareholders to ask questions in a friendly, constructive and inclusive
environment.
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.
36
9. 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 as required. 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 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.
Non Board members are also invited to attend on occasion to participate in relevant Board discussions.
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), Conrad Bona (Non- Executive Director)
and Simon Barrell (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.
37
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 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 such as the Company’s Save As You Earn scheme and Share Stake scheme launched following the onset of Covid-19
whereby members forgo a proportion of their remuneration in return for ordinary shares in the Company.
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.
10. 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 an 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.
38
The result of voting in the 2019 AGM is presented as follows:
Resolutions
* For
Against
Withheld
1. To receive the Company’s Annual Accounts
2. To re-elect RSM UK Audit LLP as auditors of the Company
3. To re-elect Jan-Hendrik Mohr as a Director
4. To re-elect Conrad Bona as a Director
5. To authorise the Company to replace the existing authority to allot shares
and to grant rights to subscribe for or convert any security into such shares
6. To disapply statutory pre-emption rights
7. To authorise the Company to make market purchases of its own shares
9,805,956
9,805,956
9,805,956
9,805,956
9,785,956
9,012,323
9,780,956
0
0
0
0
20,000
793,633
25,000
0
0
0
0
0
0
0
* including any votes giving discretion to the Chair.
S.172 COMPANIES ACT 2006 STATEMENT
In addressing each of the ten points of the QCA code above, we provide examples of how the Company:
• takes into account the likely consequences of decisions in the long term;
• have regard to the interests of the Company’s shareholders, employees and other stakeholders;
• promotes openness amongst employees and endeavours to maintain a culture built on integrity;
• take into account the desirability of the Company maintaining a reputation for high standards of business conduct, and;
• have regard to the need to act fairly.
The Directors assess and take into account what is most likely to promote the success of the Company for its members in the long term as part of
their decision-making process, and make this assessment fairly and in good faith. The Directors continue to promote the success of the Company
in accordance with section 172 of the Companies Act 2006.
39
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 Audit committee report
The Audit Committee comprises Jan-Hendrik Mohr as chairman, Conrad Bona and Simon Barrell. 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 2019 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 2019 audit.
40
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-Hendrik Mohr, Conrad Bona and Simon Barrell who are Non-executive Directors. Jan-Hendrik 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.
The main elements of the remuneration packages for Executive Directors and senior management is Basic annual salary (including Directors’ fees)
and benefits. The Chief Executive receives pension payments over and above the statutory minimums.
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 private medical insurance.
ANNUAL CASH BONUS
No incentive payments have been made for the financial year ended 31 March 2020.
PENSION ARRANGEMENTS
The Company contributes to individual money purchase schemes for the Chief Executive.
DIRECTORS’ CONTRACTS
It is the Company’s policy that Executive Directors should have contracts with an indefinite term providing for a maximum of six months’ notice,
except for the Chief Executive who has a twelve month notice period. There are no specific provisions for compensation in the event of loss of office.
The Remuneration Committee would consider the circumstances of any early termination and determine compensation payments accordingly.
NON-EXECUTIVE DIRECTORS
The fees of each Non-executive Director are determined by the Board as a whole, excluding the Non-executive being reviewed, having regard to the
commitment of time required and the level of fees in similar companies. Non-executive Directors’ contracts are subject to three months written notice.
ELEMENTS OF REMUNERATION
Year ended 31 March 2020:
J-H Mohr
C C Bona
S G Barrell *
P R Gunning
I S Brown (since appointment)
G G Cockerill
R A Lightfoot
Basic
salary
£
-
-
-
170,250
22,256
90,000
77,000
Fees
£
15,000
15,000
64,047*
-
-
-
-
359,506
94,047
Benefits
£
Bonuses
£
Pension
£
-
-
-
968
-
442
1,367
2,777
-
-
-
-
-
-
-
-
2020
Total
£
15,000
15,455
64,047
-
455
-
15,525
186,743
589
2,700
2,310
22,845
93,142
80,677
21,579
477,909
*Includes £61,600 of consultancy services provided through SGB Consulting Limited whilst acting as Interim Finance Director to Grafenia
Operations Limited.
Post the year-end all of the Executive Directors elected to receive between 20% and 30% of their monthly net remuneration in new ordinary shares
from 1 April 2020 for a period of seven months. Non-Executive Directors elected to receive 100% of their fees in new ordinary shares for the same
period. The Chairman donated his fee to “The Chairman’s Seam Team Fund” for the same period.
41
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
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
Fees
£
15,044
15,044
-
-
S G Barrell (since appointment) *
-
80,500*
G G Cockerill
R A Lightfoot
90,264
75,792
-
-
402,280
110,588
Benefits
£
Bonuses
£
-
-
841
6,793
-
390
1,161
9,185
-
-
-
-
-
-
-
-
Pension
£
-
300
15,525
2,513
-
1,800
1,540
2019
Total
£
15,044
15,344
187,115
74,781
80,500
92,454
78,493
21,678
543,731
*S G Barrell provided consultancy services to Grafenia Operations Limited through SGB Consulting and the amounts shown are fees paid via
Grafenia Operations Limited.
DIRECTORS’ INTERESTS
At 31 March 2020, the Directors had the following beneficial interests in the Company’s shares.
Ordinary shares of 1p each
31 March 2020
31 March 2019
J-H Mohr
C C Bona
P R Gunning
G G Cockerill
R A Lightfoot
I S Brown
S G Barrell
-
1,086,427
1,725,000
4,874
75,000
-
-
-
1,087,222
1,625,000
4,874
75,000
-
-
On 5 April 2019 Conrad Bona transferred 149,545 ordinary shares from his personal holding to his individual savings account and 71,882
Ordinary Shares from his personal holding to his self-invested personal pension. These transactions resulted in a disposal of 795 Ordinary Shares.
On 27 November 2019 Peter Gunning purchased 100,000 Ordinary Shares increasing his holding to 1,725,000.
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 2020 was 6.25 pence (2019: 11.50 pence). The range during the period under review was 3.75 pence
to 13.50 pence.
42
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
2020 which comprise the consolidated statement of comprehensive income, consolidated and company statements of financial position,
consolidated and company statements of changes in shareholders’ equity, consolidated statement of cash flows and notes to the financial
statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation
of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and
United Kingdom Accounting Standards, including Financial Reporting Standard 101 “Reduced Disclosure Framework” (United Kingdom Generally
Accepted Accounting Practice).
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 2020 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 United Kingdom Generally Accepted Accounting
Practice; 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.
SUMMARY OF AUDIT APPROACH
Key audit matters
Group
· Revenue recognition
· Recoverability of trade receivables
Parent Company
· Valuation of investments and intercompany balances
Materiality
Group
· Overall materiality: £361k (2019: £230k)
· Performance materiality: £270k (2019: £115k)
Parent Company
· Overall materiality: £295k (2019: £96k)
· Performance materiality: £221k (2019: £48k)
Scope
Our audit procedures covered 98% of revenue, 100% of net assets and 99% of loss before tax.
43
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group and parent company
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 and parent company financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
REVENUE RECOGNITION
Key audit matter description
(Refer to page 53 regarding the accounting policy in respect of revenue recognition and note 3 in
respect of revenue and operating segments).
There are numerous revenue streams within the business. There is a risk that revenue is not
accurately captured within the financial statements or that the established revenue recognition
policy is not appropriately applied given the various types of revenue earned.
How the matter was addressed
The existence and accuracy of revenue recognised was assessed via detailed testing by reference to
in the audit
contracts with customers and invoices issued. The recognition of revenue around the period end was
reviewed to determine that it had been captured in the correct period. The completeness of revenue
was reviewed by reference to evidence of delivery and performance.
RECOVERABILITY OF TRADE RECEIVABLES
Key audit matter description
(Refer to accounting policy on page 53 regarding calculation of recoverable amount, accounting
policy on page 53 regarding trade and other receivables, the accounting policy on page 53 regarding
recoverability of receivables, note 14 regarding trade and other receivables and the credit risk
section of note 21 regarding financial instruments)
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 provision for bad and doubtful debts is not calculated on an
appropriate basis or is not calculated in line with IFRS 9 Financial Instruments.
How the matter was addressed
The methodology utilised by management to calculate the provision was reviewed and the cash
in the audit
received after the year end was checked. Management’s judgements over the quantum of the
impairment provision were then challenged. The underlying data was tested for reliability and key
judgements challenged and sensitised.
VALUATION OF INVESTMENTS AND INTERCOMPANY BALANCES
Key audit matter description
(Refer to the accounting policy on page 55 in respect of impairment of assets and note 11 in respect
of intangible assets and investments)
The parent company holds significant investments and intercompany balances with its subsidiary
companies. 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 trade or balances.
How the matter was addressed
Management’s impairment review of investments and intercompany accounts was obtained and
in the audit
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 group.
44
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 the effects of 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. Based on
our professional judgement, we determined materiality as follows:
Group
Parent company
Overall materiality
£361k (2019: £230k)
£295K (2019: £96k)
Basis for determining overall materiality
5% of gross profit
10% of total assets
Rationale for benchmark applied
Profitable growth is considered the key
The parent company’s key function is as a
benchmark for the group
holding company with investments in its
subsidiary entities
Performance materiality
£270k (2019: £115k)
£221k (2019: £48k)
Basis for determining performance materiality
75% of overall materiality
75% of overall materiality
Reporting of misstatements to the Audit Committee Misstatements in excess of £18k and
Misstatements in excess of £15k and
misstatements below that threshold
misstatements below that threshold
that, in our view, warranted reporting on
that, in our view, warranted reporting on
qualitative grounds.
qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
The group consists of 5 components, all of which are based in the UK with the exception of Grafenia France Sarl which is based in France and
Nettl of America LLP which is based in the US. Full scope audit procedures were performed for all entities aside from Grafenia France Sarl and
Nettl of America LLP for which specific procedures were performed.
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.
45
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
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 THE DIRECTORS
As explained more fully in the directors’ responsibilities statement set out on page 30, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
USE OF OUR REPORT
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company
and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
ALASTAIR JOHN RICHARD NUTTALL (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
3 Hardman Street
Manchester
M3 3HF
11 August 2020
46
Consolidated statement of comprehensive income
FOR THE YEAR ENDED 31 MARCH 2020
Note
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
3
5
4
4
6
7
2020
£000
15,604
(7,627)
7,977
(5,686)
(3,553)
(27)
(1,289)
(2,025)
(3,314)
25
(342)
(317)
2019
£000
15,962
(7,417)
8,545
(6,077)
(3,533)
(47)
(1,112)
(1,875)
(2,987)
7
(186)
(179)
(3,631)
(3,166)
258
(3,373)
-
(3,373)
343
(2,823)
-
(2,823)
Loss per share attributable to the ordinary equity shareholders of Grafenia plc
Basic and diluted1, pence per share
8
(3.27)p
(3.79)p
(1) Earnings per share suffers no dilution
The notes on pages 51-75 form part of these financial statements.
47
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
Consolidated and company
statement of financial position
AT 31 MARCH 2020
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Other interest-bearing loans and borrowings
Deferred consideration
Trade and other payables
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
2020
£000
Group
2019
£000
Company
2020
£000
Company
2019
£000
10
11
12
13
14
15
17
17
16
16
17
17
16
9
19
20
5,483
3,858
-
-
4,060
4,371
-
10
9,341
8,441
346
2,150
447
1,104
4,047
455
3,008
548
1,354
5,365
13,388
13,806
753
147
2,160
143
3,203
1,695
366
2,832
256
5,149
3,483
2,180
-
-
448
3,931
7,134
6,254
1,135
838
7,801
74
(3,594)
6,254
229
36
576
3,021
8,170
5,636
847
838
4,125
47
(221)
5,636
-
-
3,457
-
3,457
-
6,738
21
387
7,146
10,603
-
147
86
-
233
-
-
-
-
-
233
10,370
1,135
627
7,801
74
733
10,370
-
-
3,457
10
3,467
-
5,790
101
965
6,856
10,323
211
366
27
-
604
-
229
-
-
229
833
9,490
847
627
4,125
47
3,844
9,490
The Parent Company result for the year was a loss of £3,111,000 (2019: £643,000).
The notes on pages 51-75 form part of these financial statements.
These financial statements were approved by the board of directors on 11 August 2020 and were signed on its behalf by:
I S BROWN
Director
48
Consolidated and company statement of
changes in shareholders' equity
GROUP – YEAR ENDED 31 MARCH 2019
Share
Capital
£000
475
Merger
reserve
£000
838
Share
Premium
£000
Share Based
Payment
Reserve
£000
Balance at 31 March 2018
Loss and total comprehensive
income for the year
Shares issued in the period
Costs associated with share issue
Share option reserve
Exchange differences
Total movement in equity
Balance at 31 March 2019
GROUP – YEAR ENDED 31 MARCH 2020
Loss and total comprehensive income for the year
Shares issued in the period
Costs associated with share issue
Share option reserve
Total movement in equity
Balance at 31 March 2018
Loss and total comprehensive
income for the year
Shares issued in the period
Costs associated with share issue
Share based payments
Total movement in equity
Balance at 31 March 2019
COMPANY – YEAR ENDED 31 MARCH 2020
Loss and total comprehensive income for the year
Shares issued in the period
Costs associated with share issue
Share based payments
Total movement in equity
-
372
-
-
-
372
847
-
288
-
-
288
-
372
-
-
372
847
-
288
-
-
288
838
4,125
-
-
-
-
-
-
3,738
(62)
-
3,676
-
-
4,202
(77)
-
-
4,125
-
-
4,202
(77)
-
4,125
-
-
-
-
-
-
-
-
-
-
-
627
4,125
-
-
-
-
-
-
3,738
(62)
-
3,676
Balance at 31 March 2020
1,135
838
7,801
COMPANY – YEAR ENDED 31 MARCH 2019
Share
Capital
£000
475
Merger
reserve
£000
627
Share
Premium
£000
Share Based
Payment
Reserve
£000
Balance at 31 March 2020
1,135
627
7,801
The notes on pages 51-75 form part of these financial statements.
-
-
-
-
47
-
47
47
-
-
-
27
27
74
-
-
-
-
47
47
47
-
-
-
27
27
74
Retained
Earnings
£000
2,672
Total
£000
3,985
(2,823)
(2,823)
-
-
-
(70)
(2,893)
4,574
(77)
47
(70)
1,651
(221)
5,636
(3,373)
-
-
-
(3,373)
(3,373)
4,026
(62)
27
618
(3,594)
6,254
Retained
Earnings
£000
4,487
(643)
-
-
-
(643)
Total
£000
5,589
(643)
4,574
(77)
47
3,901
3,844
9,490
(3,111)
-
-
-
(3,111)
(3,111)
4,026
(62)
27
880
733
10,370
49
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
Consolidated statement of cash flows
FOR YEAR ENDED 31 MARCH 2020
Cash flows from operating activities
Loss for the year
Adjustments for:
Depreciation, amortisation and impairment
Profit on sale of plant and equipment
Reduction in deferred consideration
Release of deferred profit on sale of plant and equipment
Share based payments
Net finance expense
Bad debt expense
Foreign exchange loss
Tax income
Operating cash flow before changes in working capital and provisions
Change in trade and other receivables
Change in inventories
Change in trade and other payables
Cash (utilised by)/generated from Operations
Interest paid
Income tax received /(paid)
Note
Group
2020
£000
Group
2019
£000
(3,373)
(2,823)
4
2,025
(99)
(220)
(12)
27
317
588
-
(258)
(1,005)
444
109
(708)
(1,160)
-
67
1,876
(105)
-
(218)
47
179
-
(70)
(343)
(1,457)
(154)
439
214
(958)
(179)
97
Net cash (outflow)/ inflow from operating activities
(1,093)
(1,040)
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)
Net cash used in investing activities
Cash flows from financing activities
Repayment of funding from invoice finance
Payment of loan notes
Payment of finance leases (under IAS 17)
Capital payment of lease liabilities
Interest payment of lease liabilities
Payment of deferred consideration
Issue of shares (net of costs)
Net cash generated from financing activities
Net (decrease) /increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at 31 March 2020
The notes on pages 51-75 form part of these financial statements.
50
265
(383)
(373)
(305)
-
(796)
(947)
(211)
-
(622)
(317)
(228)
3,964
1,639
(250)
1,354
1,104
265
(480)
(375)
(325)
(134)
(1,049)
(1)
(634)
(561)
-
-
(29)
4,497
3,272
1,183
171
1,354
11
11
15
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
IFRS 16 LEASES
In the current year, the Group has applied IFRS 16 Leases (as issued by the IASB in January 2016) that is effective for annual periods that begin
on or after 1 January 2019.
IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting
by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at
commencement for all leases, except for short-term leases and leases of low value assets when such recognition exemptions are adopted. The
impact of the adoption of IFRS 16 on the Group’s consolidated financial statements is described below.
The date of initial application of IFRS 16 for the Group is 1 April 2019.
The Group has applied IFRS 16 using the cumulative catch-up approach which:
• Requires the Group to recognise the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of retained
earnings at the date of initial application;
• Does not permit restatement of comparatives, which continue to be presented under IAS 17 and IFRIC 4.
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off balance sheet.
Applying IFRS 16, for all leases (except as noted below), the Group:
• Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value
of the future lease payments, with the right-of-use asset adjusted by the amount of any prepaid or accrued lease payments in accordance with
IFRS 16:C8(b)(ii);
• Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss;
• Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within financing
activities) in the consolidated statement of cash flows.
Lease incentives (e.g. rent free period) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under
IAS 17 they resulted in the recognition of a lease incentive, amortised as a reduction of rental expenses on a straight line basis.
Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36.
For short-term leases (lease term of 12 months or less) and leases of low-value assets (which includes tablets and personal computers, small
items of office furniture and telephones with a value of less than £3,000), the Group has opted to recognise a lease expense on a straight-line
basis as permitted by IFRS 16. This expense is presented within ‘other expenses’ in profit or loss.
The Group has used the following practical expedients when applying the cumulative catch-up approach to leases previously classified as
operating leases applying IAS 17:
• The Group has applied a single discount rate to its portfolio of leases;
• The Group has elected not to recognise right-of-use assets and lease liabilities to leases for which the lease term ends within 12 months of the
date of initial application;
• The Group has excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application;
• The Group has used hindsight when determining the lease term when the contract contains options to extend or terminate the lease.
51
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 1. ACCOUNTING POLICIES (CONTINUED)
For leases that were classified as finance leases applying IAS 17, the carrying amount of the leased assets and obligations under finance leases
measured applying IAS 17 immediately before the date of initial application is reclassified to right-of-use assets and lease liabilities respectively
without any adjustments, except in cases where the Group has elected to apply the low-value lease recognition exemption.
The right-of-use asset and the lease liability are accounted for applying IFRS 16 from 1 April 2019.
The impact on the financial statements on 1 April 2019 has been to recognise a right of use asset within property, plant and equipment
and equivalent lease liability of £2,092,000. These leases were previously reported as operating leases within administrative expenses.
Interest charged on the lease liability for the period ended 31 March 2020 amounted to £125,000 and is included within finance expenditure.
Depreciation charged on the right of use assets amounted to £296,000 for the period.
BASIS OF PREPARATION
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 16 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.
The company has transitioned between frameworks from IFRS (as adopted by the EU) to FRS 101 during the period. The impact of this transition
has been to remove the company statement of cash flows for which the exemption has been taken.
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 3-19. The financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described on pages 21-25. 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.
From March 2020 onwards, our business, like many others, has been impacted by the Covid-19 pandemic. These impacts are discussed in
detail within the strategic review. In response we have updated our forecasts and applied reasonable sensitivities to cover a range of operational
scenarios. We have utilised government support where available through the Coronavirus Job Retention Scheme, local business grants, rates
relief and Time-To-Pay arrangements for our PAYE and NI liabilities, and renegotiated with suppliers and existing providers of finance to reduce
cash outflows through this period.
After the year-end and in light of the Group’s signs rollup strategy the Board decided to offer a corporate bond facility and successfully raised
£2.1m on 15th July. A further £1.0m term loan has been secured through the Coronavirus Business Interruption Loan Scheme (CBILS) to provide
additional working capital to the Group. With funding secured, the Directors believe that the Group is well placed to manage its business risks
successfully despite the current uncertain economic outlook caused by Covid-19 and have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the
going concern basis in preparing the annual report and financial statements.
52
1. ACCOUNTING POLICIES (CONTINUED)
BUSINESS COMBINATIONS
For acquisitions the Group measures goodwill at the acquisition date as the:
• fair value of the consideration transferred; plus
• recognised amount of any non-controlling interests in the acquiree; plus
• fair value of the existing equity interest in the acquiree; less
• net recognised amount (fair value) of the identifiable assets acquired and liabilities assumed.
• Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is
not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration
are recognised in profit or loss.
INVESTMENTS
Investments in subsidiaries are stated at cost 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 and Company classify all its financial assets into the amortised cost category. The accounting policies for each category is as follows:
• Trade and loan receivables: Trade receivables are initially recognised 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 calculated 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.
53
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 1. ACCOUNTING POLICIES (CONTINUED)
FINANCIAL LIABILITIES
The Group and Company treat 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.
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.
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
- 20% to 33% straight line
Plant and equipment
- 7% to 30% straight line
Motor Vehicles
- 25% straight line
Leasehold improvements
- over remaining lease life
Where assets have been depreciated down to their estimated residual value they are no longer depreciated, a number of assets were subject to
this in the year.
The Company has no Premises, Plant or Equipment.
54
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
- 20 years
Domain names
- 5% straight line
Capitalised development costs
- 3 years
Customer Lists
- 3 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 ten 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.
55
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 1. ACCOUNTING POLICIES (CONTINUED)
LEASES
Policies applicable from 1 April 2019
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases
with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture
and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of
the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are
consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by
using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the lease payments made.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated
depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of
the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use
asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate category within Property, Plant and Equipment.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in
the ‘Property, Plant and Equipment’ policy.
Policies applicable prior to 1 April 2019
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease
payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position
as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another
more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit
of incentives is recognised as a reduction of rental expense on a straight-line basis over the lease term, except where another systematic basis is
more representative of the time pattern in which economic benefits from the leased asset are consumed.
Where a gain has been made on 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.
56
1. ACCOUNTING POLICIES (CONTINUED)
SHARE BASED PAYMENTS
The Group operates an equity-settled share-based compensation plan through a SAYE scheme, under which the Company 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:
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.
57
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 1. ACCOUNTING POLICIES (CONTINUED)
ESTIMATION OF THE EXPECTED CREDIT LOSSES ON TRADE RECEIVABLES
In assessing the expected credit losses, in respect of the trade receivables under IFRS 9, the Group considers the past performance of the
receivable book along with future factors, that may affect the credit worthiness of the 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
The Group made no acquisitions in the current period. Details of acquisitions in the prior year are available in previous years financial statements.
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
UK & Ireland
£000
Europe
£000
Other
£000
Total
£000
Year ended 31 March 2020
Segment revenues
Year ended 31 March 2019
Segment revenues
14,791
384
429
15,604
15,163
447
352
15,962
Revenue generated outside the UK is attributable to partners in Australia, Belgium, France, New Zealand, The Netherlands and the USA.
No single customer provided the Group with over 6% of its revenue.
DISAGGREGATION OF REVENUE
The disaggregation of revenue from contracts with customers is as follows:
Licence
Fees
£000
Company
Stores Partner Print
£000
£000
Brand Works Sign
Businesses
£000
Online &
Trade
£000
Total
£000
Year ended 31 March 2020
2,083
2,806
3,414
4,624
2,677
15,604
Year ended 31 March 2019
1,975
2,629
3,577
4,910
2,871
15,962
Of the Group’s non-current assets (excluding deferred tax) of £9,341,000, £9,335,000 are located in the UK. Non-current assets located outside
the UK are in France £6,000 (2019: £7,000).
58
4. LOSS BEFORE TAXATION
Included in profit are the following:
Operating lease rentals
Amortisation of intangible assets
Depreciation
Doubtful debt expense
Profit on sale of plant and equipment
Profit on sale and leaseback recognised in the year
Gain on variation of prior acquisition*
Restructuring costs
2020
£000
217
1,192
834
588
101
12
159
244
2019
£000
613
1,393
482
171
105
218
-
(75)
*On 30 August 2019, one of the vendors of Image Everything Limited stepped down as an executive, forgoing £220,000 of deferred
consideration. £61,000 of deemed salary cost deferred from the initial consideration was released to the income statement at the same time.
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
2020
£000
2019
£000
40
33
-
-
5
-
39
34
8
4
6
2
The 2020 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 Audit LLP 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
Group
2020
Group
2019
Company
2020
Company
2019
34
70
99
203
35
67
86
188
2
-
-
2
2
-
-
2
In 2020 we have included an average of 17 temporary workers in the number of employees figures above. If the same approach had been applied
in 2019, the average number of employees would have been 201.
59
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
Defined contribution plan
The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the
Group. The amounts charged to the Consolidated Statement of Comprehensive Income represent the contributions payable to the scheme in
respect of the accounting period. In the year ended 31 March 2020 £120,000 of contributions were charged to the Consolidated Statement of
Comprehensive Income (2019: £111,000). As at 31 March 2020 £78,000 (2019: £26,000) contributions were outstanding on the balance sheet.
The aggregate payroll costs of all employees, including Directors, were as follows:
Wages and salaries
Social security costs
Other pension costs
KEY MANAGEMENT COMPENSATION:
Key managements’ emoluments
Company contributions to money purchase pension plans
Group
2020
£000
5,062
504
120
5,686
Group
2019
£000
Company
2020
£000
Company
2019
£000
5,395
571
111
6,077
32
1
-
33
30
1
-
31
2020
£000
2019
£000
424
21
445
491
21
512
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 pages 41-42 where details of fees and benefits can be found.
The aggregate of emoluments for the highest paid Director was £171,000 (2019: £171,000), and Company pension contributions of £16,000
(2019: £16,000) were made to a money purchase scheme on their behalf.
Directors for whom retirement benefits are accruing under money purchase schemes 5 (2019: 4).
6. FINANCE INCOME AND EXPENSE
Finance expense
Lease interest
Invoice finance
Loan note interest
Interest payable
2020
£000
330
10
2
342
2019
£000
139
24
23
186
Lease interest in 2020 includes £125,000 in relation to right of use assets recognised on 1 April 2019 following the adoption of IFRS 16. As the
Group has applied IFRS 16 using the cumulative catch-up approach, the comparative figure for 2019 has not been restated.
60
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 9)
Adjustment in respect of prior year
Total tax in income statement
RECONCILIATION OF EFFECTIVE TAX RATE
Factors affecting the tax charge for the current period:
2020
£000
(146)
-
6
(140)
(128)
10
(258)
2019
£000
(201)
6
(86)
(281)
(213)
151
(343)
The current tax charge for the period is lower (2019: lower) than the standard rate of corporation tax in the UK of 19% (2019: 18%).
The differences are explained below:
2020
£000
2019
£000
Loss for the period
(3,631)
(3,166)
Tax using the UK corporation tax rate of 19% (2019:18%)
Effects of:
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
(690)
(40)
6
10
403
-
227
(174)
-
(258)
(570)
3
(87)
151
174
7
54
(128)
53
(343)
The Group tax debtor amounts to £354,000 (2019 Debtor: £281,000). The deferred tax liabilities as at 31 March 2020 have been calculated using
the tax rate of 19% 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. At Budget 2020, the government announced that the Corporation Tax main rate (for all profits except
ring fence profits) for the years starting 1 April 2020 and 2021 would remain at 19%.
61
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
8. EARNINGS PER SHARE
The calculations of earnings per share are based on the following profits and numbers of shares:
2020
£000
2019
£000
Loss after taxation for the financial year from continuing operations
(3,373)
(2,823)
For basic earnings per ordinary share
Exercise of share options
Weighted average
number of Shares
Weighted average
number of Shares
102,993,216
74,504,359
-
-
For diluted earnings per ordinary share
102,993,216
74,504,359
Basic and diluted loss per share
(3.27)p
(3.79)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.
9. DEFERRED TAX ASSETS AND LIABILITIES – GROUP
Recognised deferred tax assets and liabilities
Intangible assets
Tax liabilities
Movement in deferred tax during the year.
Property, plant and equipment
Intangible assets
Movement in deferred tax during the year.
Property, plant and equipment
Intangible assets
Company
Assets
2020
£000
Assets
2019
£000
Liabilities
2020
£000
Liabilities
2019
£000
-
-
10
10
448
448
1 April
2019
Adjustment
for prior
years
Recognised
in income
£000
£000
£000
Recognised
in income
due to tax
rate change
£000
-
576
576
-
-
-
-
(128)
(128)
-
-
-
1 April
2018
Adjustment
for prior
years
Recognised
in income
£000
£000
£000
Recognised
in income
due to tax
rate change
£000
49
531
580
133
18
151
(182)
(30)
(212)
-
57
57
576
576
31 March
2020
£000
-
448
448
31 March
2019
£000
-
576
576
The Company had no recognised deferred tax assets as at 31 March 2020 (2019: £10,000).
62
10. PROPERTY, PLANT AND EQUIPMENT – GROUP
Land and
buildings
£000
Plant and
equipment
£000
Assets held
for resale
£000
Motor
Vehicles
£000
Fixtures and Rights of use
assets
£000
Fittings
£000
Cost
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
54
(150)
(230)
(250)
-
Balance at 31 March 2019
576
5,383
Balance at 31 March 2019
576
5,383
IFRS 16 adoption
Additions
Disposals
-
-
-
-
173
(2)
Balance at 31 March 2020
576
5,554
Depreciation and impairment
Balance at 31 March 2018
574
2,083
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
2
-
-
-
-
-
327
29
(163)
(75)
(85)
-
Balance at 31 March 2019
576
2,116
Balance 31 March 2019
576
2,116
Depreciation charge for the year
Disposals
-
-
369
-
Balance at 31 March 2020
576
2,485
-
-
-
-
-
250
15
265
265
-
-
(265)
-
-
-
-
-
-
85
(85)
-
-
-
-
-
-
Net book value
At 31 March 2018
At 31 March 2019
At 31 March 2020
2
-
-
1,615
3,267
265
3,069
-
LEASED PLANT, MACHINERY AND FIXTURE & FITTINGS
At 31 March 2020, the Group had leased assets with a carrying value of £2,443,000 (2019: £2,589,000).
Total
£000
5,464
2,467
94
(150)
(259)
-
15
7,631
7,631
2,092
432
(267)
88
-
24
-
(29)
-
-
83
83
-
-
-
1,102
206
16
-
-
-
-
1,324
1,324
-
259
-
-
-
-
-
-
-
-
-
-
2,092
-
-
83
1,583
2,092
9,888
75
12
6
-
(24)
-
-
69
69
5
-
74
13
14
9
656
142
12
-
-
-
-
810
810
164
-
974
446
514
-
-
-
-
-
-
-
-
-
296
-
3,388
483
47
(163)
(99)
-
(85)
3,571
3,571
834
-
296
4,405
-
-
2,076
4,060
609
1,796
5,483
63
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
11. INTANGIBLE ASSETS AND INVESTMENTS
Group
Domains
& brand
£000
Software Development
costs
£000
£000
Customer
Lists
£000
Goodwill
Other
£000
£000
Total
£000
Balance at 31 March 2018
905
3,647
3,314
2,969
Additions
Additions – internally developed
Additions – purchased
Acquisition of subsidiary
-
-
7
-
-
-
318
-
-
372
-
-
-
-
43
153
Balance at 31 March 2019
912
3,965
3,686
3,165
Balance at 31 March 2019
Additions – internally developed
Additions – purchased
912
-
-
3,965
-
300
3,686
3,165
373
-
-
-
78
3
-
-
60
141
141
-
-
157
11,070
-
-
-
-
3
372
368
213
157
12,026
157
12,026
-
5
373
305
Balance at 31 March 2020
912
4,265
4,059
3,165
141
162
12,704
Amortisation and impairment
Balance at 31 March 2018
Amortisation for the year
321
45
3,097
396
2,283
589
Balance at 31 March 2019
366
3,493
2,872
Balance at 31 March 2019
Amortisation for the year
366
46
3,493
312
2,872
426
447
357
804
804
401
Balance at 31 March 2020
412
3,805
3,298
1,205
12
-
12
12
-
12
Net book value
At 31 March 2018
At 31 March 2019
584
546
550
1,031
2,522
66
472
814
2,361
129
102
6
6,262
1,393
108
7,655
108
6
7,655
1,191
114
8,846
55
49
4,808
4,371
At 31 March 2020
500
460
761
1,960
129
48
3,858
64
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 five-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 6.8% (2019: 6.2%) was applied.
If the growth rate were not achieved and was reduced 0% and the discount factor was increased to 15% there would be no impairment in the
carrying value.
Other intangible assets have also been considered for impairment due to indicators of impairment being present in the form of losses and wider
economic conditions. These assets are not considered to be impaired.
Amortisation and impairment charge
The amortisation charge of £1,191,000 (2019: £1,393,000) is recognised in profit and loss within depreciation and amortisation expenses. An
impairment charge of nil (2019: £nil) was recognised during the year.
12. Investments – Company
Cost
Balance at 31 March 2018
Acquisitions in the year
Balance at 31 March 2019
Balance at 31 March 2020
Shares in
Subsidiary undertakings
£000
3,242
215
3,457
3,457
Total
£000
3,242
215
3,457
3,457
The Company owns the whole of the issued ordinary share capital of the following undertakings:
Subsidiary undertakings – wholly owned
Country of incorporation
Grafenia Operations Limited*
Image Everything Limited*
ADD Signs Limited*
Printing.com (UK Franchise) Limited*
Grafenia Platforms Limited*
Nettl UK Limited*
Grafenia Systems Limited*
Grafenia Technology Limited*
Grafenia Solutions Limited*
Creative Enterprise Support Limited*
TemplateCloud Limited*
W3P Limited*
W3P Platforms Limited*
Nettl of America LLP^
Grafenia France S.à.r.l.^
* - Owned directly by Grafenia PLC
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
US
France
Nature of business/status
Printing – trading
Sign Design, Manufacture and Installation – trading
Sign Design, Manufacture and Installation – dormant
Partner contracts – dormant
Partner contracts – dormant
Partner contracts – dormant
Licence agreements – dormant
Licence agreements – dormant
Licence agreements – dormant
Enterprise Support – dormant
Template Provision – dormant
Software – dormant
Licence agreements – dormant
Franchising - trading
Partner contracts – trading
^ - Owned by indirectly through ownership of the company’s 100% subsidiary Grafenia Operations Limited
The registered address for all UK businesses is Focal Point, Third Avenue, Trafford Park, Manchester M17 1FG
65
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
13. INVENTORY
Raw Materials
Work in progress
Group
2020
£000
Group
2019
£000
Company
2020
£000
Company
2019
£000
346
-
346
452
3
455
-
-
-
-
-
-
14. TRADE AND OTHER RECEIVABLES
Other receivables due from subsidiary companies do not have fixed repayment terms.
At 31 March 2020 trade receivables are shown net of an impairment allowance of £1,000,000 (2019: £412,000).
An analysis of impairment losses recognised in the year is given in note 21.
Trade and other receivables denominated in currencies other than sterling comprise £112,000 (2019: £149,000) of trade receivables.
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
Corporation tax
Other taxes
Other receivables
Total Other receivables
Group
2020
£000
Group
2019
£000
Company
2020
£000
Company
2019
£000
2,743
(1,000)
1,743
-
-
1,743
354
-
53
407
2,985
(412)
2,573
-
-
-
-
-
9,981
(3,243)
-
-
-
6,078
(292)
2,573
6,738
5,786
281
154
-
435
-
-
-
-
2
-
2
4
Total trade and other receivables
2,150
3,008
6,738
5,790
66
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
1,353
(115)
1,238
1,390
(885)
505
Total
£000
2,743
(1,000)
1,743
Trade and other receivables represent financial assets and are considered for impairment on an expected credit loss model. The Group continues
to trade with the same customers and in the same marketplace and therefore the future expected credit losses have been considered in line with
the past performance of the customers in the recovery of their receivables. The 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 1 April
Receivable written off during the year as uncollectible
Increase in impairment allowance
Balance at 31 March
As at 31 March 2020
£000
As at 31 March 2019
£000
412
-
588
1,000
339
(136)
209
412
Of the total impairment provision £72,000 (2019: £110,000) 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 £128,000 (2019: £1,075,000) was pledged as security for the invoice discounting facility. The Group is committed
to underwrite any of the debts transferred and therefore continues to recognise the debts sold within trade receivables until the debtors repay or
default. Since the trade receivables continue to be recognised, the business model of the Group is not affected. The proceeds from transferring
the debts are included in other financial liabilities until the debts are collected or the Group makes good any losses incurred by the service
provider.
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 £3,243,000 in the year (2019: £292,000).
67
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
15. CASH AND CASH EQUIVALENTS
Group
2020
£000
Group
2019
£000
Company
2020
£000
Company
2019
£000
Cash and cash equivalents
1,104
1,354
387
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 £138,000 (2019: £52,000).
16. TRADE AND OTHER PAYABLES
Current Liabilities
Trade payables
Accruals
Other liabilities
Group
2020
£000
1,326
472
362
1,488
925
419
Total financial liabilities, excluding ‘non-current’ loans and
borrowings classified as financial liabilities
measured at amortised cost
2,160
2,832
Deferred income
143
256
Total trade and other payables
2,303
3,088
Group
2019
£000
Company
2020
£000
Company
2019
£000
7
79
-
86
-
86
2
25
-
27
-
27
Non-current Liabilities
Deferred income
Total non-current liabilities
Group
2020
£000
Group
2019
£000
Company
2020
£000
Company
2019
£000
-
-
36
36
-
-
-
-
Trade payables denominated in currencies other than Sterling comprise £28,000 (2019: £42,000) 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.
68
17. BORROWINGS
For more information on the Group and Company’s exposure to interest rate, foreign currency risk and lease liabilities, see note 21.
Current Liabilities
Invoice Financing
Lease liabilities
Vendor Loan Notes
Deferred consideration
Non-Current Liabilities
Lease liabilities
Group
2020
£000
128
625
-
753
147
3,483
3,483
Group
2019
£000
Company
2020
£000
Company
2019
£000
1,075
409
211
1,695
-
-
-
-
366
147
2,180
2,180
-
-
-
-
-
211
211
366
-
-
229
Deferred consideration
-
229
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 remain in employment of the business and 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 then current total voting rights in the Company.
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.
As at 31 March 2019, 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.
In the financial year to 31 March 2020 5 employees with options granted in the first SAYE Scheme offer left the Scheme and 11 employees with
options granted in the second SAYE Scheme offer left the Scheme.
The inputs used to value the options were:
2017 Options
2018 Options
Expected life of options
Volatility
Dividend yield
Risk free interest rate
3 years
40%
0%
1.0%
3 Years
40%
0%
1.1%
The total number of shares now under option is 4,058,464 equating to 3.57% per cent of the current total voting rights in the Company.
69
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
19. SHARE CAPITAL
SHARE CAPITAL – GROUP AND COMPANY
In thousands of shares
In issue at 31 March 2019
Issued by the Company
Ordinary shares
2020
Ordinary shares
2019
84,685
28,840
47,558
37,127
Shares on the market at 31 March 2020 – fully paid
113,525
84,685
Allotted, called up and fully paid
113,525,346 (2019: 84,684,683) ordinary shares of £0.01 each
63 deferred shares of £0.10 each
£000
1,135
-
1,135
£000
847
-
847
On 24 July 2019, the Group announced that it had 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. During the year 187,094 employee options over shares with a nominal value of 1p each were
exercised at an issue price of £0.0775.
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 (2019: £nil).
20. SHARE PREMIUM
At 31 March 2019
Premium on shares issued by the Company in the year
Share issue costs
At 31 March 2020
Group and company
2020
£000
4,125
3,738
(62)
7,801
2019
£000
-
4,202
(77)
4,125
70
21. 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 lease liabilities.
The Group’s policy during the financial year ended 31 March 2020 and 31 March 2019 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 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 year-end 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 £272,000 (2019: £478,000) 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 2020
Trade and other payables
Lease liabilities
Loan Notes and
deferred consideration
Invoice financing
31 March 2019
Carrying
amount
£000
Contractual
cash flows
£000
6 months
or less
£000
6-12
months
£000
1-2 years
2-5 years
£000
£000
More than
5 years
£000
2,160
4,108
147
128
6,543
2,160
5,532
147
128
7,967
2,160
441
102
128
2,831
-
447
45
-
492
-
865
-
-
-
-
2,410
1,369
-
-
-
-
865
2,410
1,369
Carrying
amount
£000
Contractual
cash flows
£000
6 months
or less
£000
6-12
months
£000
1-2 years
2-5 years
£000
£000
More than
5 years
£000
Trade and other payables
Lease liabilities
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
-
-
1,456
All trade receivables are contractually due within 6 months.
-
696
-
-
696
71
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
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 2020
Euro
£000
31 March 2020
GBP
£000
31 March 2019
Euro
£000
31 March 2019
GBP
£000
144
138
(125)
157
2,453
966
(2,035)
1,384
189
52
42
283
3,289
1,320
(1,043)
3,566
Trade receivables
Cash and cash equivalents
Trade payables
SENSITIVITY ANALYSIS
Where the Group operates in Europe both revenues and costs are in the local currency therefore the level of exchange risk is low. In the Eurozone
the Group has 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 2020, 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 £6,000 (2019: £4,000) with an equal adjustment to equity. A general
increase of 25% in the value of the US Dollar would increase the Group’s profit before tax by approximately £2,000 (2019: N/A) with an equal
adjustment to equity.
LEASE LIABILITIES / 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 lease liabilities is determined by reference to similar
lease agreements.
22. CHANGES IN ACCOUNTING POLICIES
As a result of the changes in the Group’s accounting policies for the adoption of IFRS 16, the opening statement of financial position has been
restated. The tables below show the adjustments recognised in the consolidated statement of financial position as at 1 April 2019.
The weighted average incremental borrowing rate applied to lease liabilities recognised in the statement of financial position on 1 April 2019
is 6.4%. The following table shows the operating lease commitments disclosed applying IAS 17 at 31 March 2019, discounted using the
incremental borrowing rate at the date of initial application and the lease liabilities recognised in the statement of financial position at the date of
initial application.
Operating lease commitments at 31 March 2019
Present value of the lease payments due in period covered by extension options that
are included in the lease term and not previously included in operating lease commitments
Short-term leases and leases of low-value assets
Effect of discount the above amounts
Finance lease liabilities recognised under IAS 17 at 31 March 2019
Lease liabilities recognised at 1 April 2019
72
£000
915
1,869
(66)
2,718
(626)
2,589
4,681
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Group
31 March 2019
£000
Impact of
IFRS 16
£000
Group
1 April 2019
£000
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
4,060
4,371
-
10
8,441
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
36
576
3,021
8,170
5,636
847
838
4,125
47
(221)
5,636
2,092
-
-
-
2,092
-
-
-
-
-
-
-
2,092
232
-
-
-
-
232
1,860
-
-
-
1,860
2,092
-
-
-
-
-
-
-
6,152
4,371
-
10
10,533
455
2,573
154
548
281
1,354
5,365
15,898
1,927
366
1,488
1,344
256
5,381
4,040
229
36
576
4,881
10,262
5,636
847
838
4,125
47
(221)
5,636
73
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020
23. 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
2020
£000
Group
2019
£000
Company
2020
£000
Company
2019
£000
1
-
6
-
7
56
65 -
383 -
411
915
-
-
-
-
-
-
-
The adoption of IFRS 16 has changed the way in which leases are treated, resulting in a significant reduction in the value of operating lease
commitments. The details of the changes in policy and its impact on the financial statements are discussed within the accounting policies and
note 22.
Group
During 2019 £421,000 was recognised as an expense in profit and loss in respect of operating leases.
24. CAPITAL COMMITMENTS
The Group and Company have no commitments to incur capital expenditure at the year end (2019: £nil).
25. RELATED PARTIES
The Company provides cross company guarantees in respect of the invoice discounting for £0.13m. In the year ended 31 March 2020 no
dividends were received (2019: nil).
Transactions with key management personnel
At the year end the Directors of the Company controlled 2.55 per cent of the voting shares of the Group.
On 5 April 2019 Conrad Bona transferred 149,545 ordinary shares from his personal holding to his individual savings account and 71,882
Ordinary Shares from his personal holding to his self-invested personal pension. These transactions resulted in a disposal of 795 Ordinary Shares.
On 27 November 2019 Peter Gunning purchased 100,000 Ordinary Shares increasing his holding to 1,725,000.
The compensation of the Directors, who are the key management personnel, is disclosed in note 5 and within the Directors Remuneration Report
on pages 41-42.
74
26. POST BALANCE SHEET EVENTS
Covid-19 has significantly impacted the whole industry since March, and Grafenia has not been immune. Revenue in April was 30% of the
previous year, and May only 40% of the result 12 months prior. We have however seen a stronger recovery in June to 90% of prior year revenue,
driven by our new Covid related product ranges. In response to the pandemic, we have utilised government support where available through the
Coronavirus Job Retention Scheme, local business grants and rates relief and Time-To-Pay arrangements for our PAYE and NI liabilities.
To further ensure that the business has enough liquidity through this period, we have secured an additional term loan for £1.00m through the
Coronavirus Business Interruption Loan Scheme (CBILS). Further, we have also refinanced our primary hire purchase facility through CBILS,
thereby reducing our cash repayments for 12 months.
On 15th July we announced the creation of a £50.00m perpetual bond facility and had issued £3.00m of the bonds, at nominal value, to investors,
raising approximately £2.01m before expenses.
75
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2020 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
Yorkshire Bank
48-50 Market Street
MANCHESTER
M1 1PW
Advisers and company information
Registered Office
Third Avenue
The Village
Trafford Park
MANCHESTER
M17 1FG
Company Number
03983312 (England and Wales)
Website Address
www.grafenia.com
Company Secretary
Richard A Lightfoot
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
LONDON
EC3A 6AB
Gateley plc
Ship Canal House
98 Kings Street
MANCHESTER
M2 4WU
76
Third Avenue / The Village / Trafford Park / Manchester / M17 1FG
t: +44 (0)161 848 5700 / e: investors@grafenia.com
WWW.GRAFENIA.COM
Registered office: Third Avenue, The Village, Trafford Park, Manchester M17 1FG. VAT Registration No. GB 764 5390 08
Grafenia plc is registered in England and Wales under number 03983312
XIR/PRG/CRH/08-20/R1