2021
Contents
01
IN SUMMARY
STRATEGIC REPORT
03 CHAIRMAN’S STATEMENT
09 CHIEF EXECUTIVE’S STATEMENT
21 FINANCIAL REVIEW
CORPORATE GOVERNANCE
26 DIRECTORS
28 DIRECTORS’ REPORT
30 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
31 CORPORATE GOVERNANCE STATEMENT
40 AUDIT COMMITTEE REPORT
41 DIRECTORS’ REMUNERATION REPORT
43
INDEPENDENT AUDITORS’ REPORT
FINANCIAL STATEMENTS
49 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
50 CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
51 CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
52 CONSOLIDATED STATEMENT OF CASH FLOWS
53 NOTES TO THE FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
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 hub, we manufacture print, display
and signage products. We sell those to businesses of all sizes via our brand
partner networks and company-owned Nettl stores.
We buy, build and licence.
Continuing operations
Year ended
31 March 2021
Year ended
31 March 2020
£000
2,077
1,832
2,804
1,916
1,119
9,748
5,575
(160)
(1,705)
(1,865)
(461)
241
(2,085)
(1.83)p
Nil
£0.68m
£(4.34)m
£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
£0.67m
£(3.28)m
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
Development expenditure
Net debt
1
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 Welcoming customers back into our stores
2
Jan-Hendrik Mohr
Chairman
Chairman’s
Statement
I’d like to start this year’s Chairman’s Statement by thanking everyone at Grafenia
for their hard work during the year. During several lock-downs and re-openings
we brought Covid-19 protection equipment to market quickly, helped small
businesses build their on-line presence and engaged in our communities. It was
a challenging year but we are emerging as a more focussed and competitive
business. Thank you to everyone who helped achieve this.
On to our scorecard of the 2020/21 fiscal year:
Operational Performance
In the recent fiscal year, our turnover decreased by 37.5% to £9.75m (2020: £15.60m)
and gross profit decreased by 30.1% to £5.58m (2020: £7.98m). However, the gross
profit margin has increased from 51.1% to 57.2% thanks to cost management efforts
and a shift in product mix toward the more profitable licence and subscription fees.
The year showed a reduction in EBITDA loss, which is earnings before interest, tax,
depreciation and amortisation, to £0.16m (2020: loss £1.29m). Our loss for the year
came in at £2.09m versus £3.37m last year. We finished the year with a cash position
of £2.74m (2020: £1.10m) and net debt (including deferred consideration and lease
liabilities arising due to IFRS 16) of £4.34m (2020: £3.28m). We invested £0.18m
on capex (2020: £0.43m), and capitalised £0.68m in development expenditure
(2020: £0.67m).
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.
Some firms back-out many costs from their profit and loss statement to arrive at
some ‘adjusted’ figure. I find that a slippery slope. It opens the door to mark every
cost as ‘extraordinary’ or ‘non-recurring’. Such accounting doesn’t help with internal
cost discipline. Communicating what ends up being a ‘profit before cost’ doesn’t help
external readers either.
3
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 It would be an easy way out to disregard the Covid-19 impact on our business as
extraordinary and to not analyse last year’s figures in much detail. Clearly, the
pandemic was an extraordinary event and skewed everything – right?
I beg to disagree and find a few aspects in our financial performance absolutely
noteworthy and insightful:
Firstly, we managed to significantly reduce our losses, although our sales contracted
substantially. In particular, the largest driver has been an intense focus on reducing
operating cost in the business, making processes more efficient and reducing team
sizes. When we model out our cost base from last year it gives us confidence that,
with modest increases in revenue, profitability will continue to improve. That should
bring us closer to reaching the mid-term objective of 10-15% EBITDA we believe this
business can achieve in future years, once activity fully recovers post-Covid.
Secondly, our subscription and licence fees have proven to be incredibly resilient
and stable. Most of our subscriptions and licence agreements are billed monthly and
provide an essential and “infrastructure-like” service to partners and end-clients.
In particular, the pandemic has shown why it makes great sense to be a Nettl partner.
Nettl partners benefit from our community, our agile tools, access to new product
categories like protective equipment and our inspiration for selling tactics add real
value – in particular during times of crisis. Increasingly, I believe that the major
sources of value in our business are the products we sell on a recurring and
“software-like” basis. The great resilience of that part of the business motivates our
increased focus on building the business around software. A fantastic example is our
“Works Makers” initiative, allowing third party suppliers to easily list and sell their
products within our platform. We once believed that we had to make most products
ourselves. In fact, we spent a lot of time evaluating the roadmap to a UK-wide sign hub
network. While we still – strongly – believe signage is a very complementary product
category for our partners, Covid-19 has shown that we are much better at opening up
to third party suppliers than we previously thought. That every partner can now sell
signage to their clients doesn’t necessarily mean that we have to be the largest sign
maker ourselves.
People at Grafenia & Priorities in the last year
Our average number of employees went down to 159 in the year from 203 in the prior
year. We are a leaner organisation now - but parting with long-term team members is
never easy. Nevertheless, our actions were necessary to make it through the pandemic
and I’d like to thank every manager at Grafenia for your empathy and patience in
driving change. The Board is fully aware of the effects our decisions had on families
and communities. On behalf of the Board, I would like to sincerely thank every team
member of Grafenia – current and former – for their contributions. Last year wasn’t
easy. But as Peter says: “choose your hard” – and Grafenia decided to pick the road of
getting leaner and more agile to emerge from Covid as a better company.
4
In past Chairman’s statements, 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.
With the exception of adding two smaller (but very nice indeed!) sign firms, we
didn’t find valuations particularly attractive. Certainly, we expected to see more
opportunities during the crisis. It is not that we haven’t looked at any deals – we
couldn’t get close enough in terms of valuation or business quality or culture (or all of
the above!)
As discussed earlier, we have grown increasingly sceptical as to whether adding
manufacturing capacity is the right strategic choice. We can offer our partners
all kinds of capabilities by leveraging our software and systems. We are currently
evaluating our way forward but opening up our system to dozens of signage firms
seems like a really interesting option, whereas buying dozens of signage firms may be
less promising than we originally thought.
In the end, we believe Nettl will be the leading neighbourhood design studio. That
requires offering breadth of products and great capabilities. I strongly view adding
signage to the offering as the right strategic choice and we clearly benefited from that
last year. Nonetheless, we set out to make the group substantially larger by acquiring
signage firms in a financially accretive way. The latter hasn’t materialised which drove
us to reconsider our strategy.
Outlook and Current Priorities
We provided a strategy update on 16 April 2021 and set out how we will think about,
and report on, the business going forward. We will provide a more comprehensive
update in due course but felt it was the right thing to share our thinking early.
Most importantly, we now think about the business in two groups: Works Manchester
and Nettl Systems. Very broadly, that splits the business into “everything production”
and “everything software and licence”.
The core reason we’ve made that change in reporting is to create visibility and
transparency on where revenue is earned and costs are incurred. Historically, Grafenia
has been very much integrated. The problem with that has been that certain parts
of the business (mainly in production) have been essentially cost centres helping
customer facing parts (like Nettl) do business. There are clearly virtues in integrating
functions but what gets lost is accountability and profit focus for each part of the
value chain. For example, we have in the past declined production work because it
had nothing to do with our partner business and strategy. If you thought about Works
Manchester as a stand-alone profit centre within a larger group, additional production
work might be quite welcome indeed, regardless of whether it has anything to do with
other business of the group!
5
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 Expanding our offering with items made by third-party Works Makers
6
Once more, that change in perspective was motivated by our experiences during the
pandemic. Our systems proved capable of opening up and adding third party supply in ways
we’d not explored before. That traction inspired the insight to think about the business in a
less integrated fashion.
We strongly believe that additional transparency will empower both groups and release
entrepreneurial energy in our teams.
In the strategy update we also announced we’ll look for complementary software
acquisitions that help us broaden our offering in Nettl Systems. Today, we are already the
operating system for several hundred design studios across the world and are keen to keep
adding to our systems and capabilities.
We will keep you updated how our thinking evolves and how we develop both businesses
going forward.
Last year we held a closed meeting. This year’s AGM will be an ‘in person’ meeting. However,
we can’t be certain that travel will be allowed, so we strongly discourage any shareholders
from seeking to attend the AGM in person this year. Please submit your votes by way of proxy.
We received good feedback on our virtual post AGM presentation last year and will repeat
that format this year. We are quite keen to resume our usual ‘in person’ AGM again when it’s
practical: did anyone not miss the saxophone after all?
The AGM will take place at 10am on Wednesday 15 September 2021 and we’d be very happy
to have you join our on-line presentation afterwards where we’ll answer your questions.
Jan-Hendrik Mohr
Chairman
27 July 2021
7
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
We’ve added hundreds of new product categories this year, from niche print to promo items and packaging
8
Peter Gunning
Chief Executive
STRATEGIC REPORT
Chief
Executive’s
Statement
Dear Shareholders,
What for the love of
I mean, really. Another annual report and we’re still banging on about some novel
virus. Well, the novelty has well and truly worn off.
Our production hub and HQ is based in Manchester. Now, of course, Manchester is
famous for doing things differently. Like being under local lockdown restrictions for
longer than any other part of the country. It’s taken its toll.
Early on in this letter, I’d like to commend our teams on your behalf. They’ve worked
solidly throughout the pandemic. Adapting to relentless change. In times of anxiety,
they’ve kept going. We’ve remained open the whole time. Maybe not ‘there’, but
always there. It’s not been easy and we recognise and appreciate the efforts of each
and every team member. Thank you.
The canary in the coronamine
We’re like a business barometer. A metronome of markets. A trade thermometer,
taking the temperature from the throat of business sentiment.
We sell to clients of different shapes and sizes. From different sectors. In different
parts of the country. Some are doing exceptionally well, despite the pandemic. And
not just those in a Government minister’s Whatsapp group. Others have kept going,
pushing on. Reacting to an endlessly changing environment. Exhausted. And weary.
And some poor souls still haven’t been able to re-open. They’re hurting.
9
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 It’s been well over a year since events were banned. Exhibitions prohibited. Parties
outlawed. Gatherings forbidden. Weddings cancelled. Stores shuttered.
That’s our business. These are our clients, our friends, our families. We all know
people affected. We’re in hundreds of neighbourhoods and our relationships
transcend transactions.
Our business relies on healthy business clients. When they’re hurting, we hurt
too. When doors reopen and punters return, we’ll be there to help. As restrictions
tightened, product sales slowed. As the taps of the economy turned on, orders flowed.
Taps off, back to trickles.
But that’s it. We’re not going to use the c-word from here on in.
Build, buy and license
Our strategy is pretty simple. It’s worth repeating. Those three words. We build
performance in our company-owned Nettl locations. We buy businesses to extend our
capability and resilience. And we license our know-how and systems to others. I’ll go
into more detail on each of the sections in turn.
Nettl company stores
We have five company-owned Nettl locations. In these stores, we sell to local
businesses. The kind of things a business would want to promote themselves online
and offline. That’s websites, ecommerce shops, online booking systems, social media,
SEO, printing, displays, exhibition and signage. We mostly sell to SME clients, who
often don’t have their own in-house marketing department.
Our stores are in Manchester, Birmingham, Exeter, Liverpool and Dublin.
Sales in our company stores were £1.83m (2020: £2.81m). 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.
Except those tills stood silent for many months this past year. Lights remained off.
Unwashed mugs recorded vacant days. But our studios worked remotely. Helping
clients who were still trading, or preparing to re-open.
In the hazy warm days of summer 2020, we rolled a Nettl partner and small sign
business into the Dublin store. That brought us sign installation capability in Ireland
and we’ve serviced new and existing clients.
Buying businesses
We’ve talked about our acquisition strategy in our recent update on 16 April 2021. We
made two small roll-in deals last year. While we’re happy with how they integrated,
they didn’t really move the needle. Revenues are included in the Company Stores
segment, but bear in mind that they were affected by the lockdown like the rest.
10
You’ll recall we acquired Image Group back in 2017. That’s in the revenue segment,
“Works sign businesses”. Sales were £2.80m (2020: £4.62m). In the summer last year
we were able to sell and produce floor graphics, protective screens and other pandemic
paraphernalia. However, for the rest of the year, sales were impacted by the cancellation
of events and exhibitions. Those make up the biggest part of Image Group’s work and so
that sucked.
As Jan mentioned in the Chairman’s Statement, we spoke with a lot of other sign
businesses last year. We just didn’t find enough of the right deals at the right price.
However, we learned a lot about the systems and processes these businesses were
using. And it made us re-evaluate whether we could achieve our objective of national
graphics installation, without buying more sign businesses. I’ll come back to that.
We also discussed a change to our acquisition strategy. Take a look at
www.grafenia.com/acquisition to see the full detail. We’re refocusing our search
on software businesses to complement the Nettl offering.
License our systems
The system we use in our company stores is called w3p Flyerlink.
If you’re a long-time reader, you might recall we started public life as printing.com.
We developed a system to connect the central production hub with our local studio
‘spokes’. And then those studios with their clients.
In the olden days, when it was all just fields, we had one objective: to make sure the right
design was printed on the right rectangle of paper, the right way up, packed into the right
box, delivered to the right address, by the right date. Our software and systems made
it more likely. Over the years, we improved and tweaked and licensed that software to
third parties. To make their print businesses more efficient and iron out their creases.
Now think back to 2014. The Hunger Games was a movie, not a reality TV show.
Pharrell Williams was Happy. One balmy autumn day we opened our first Nettl store.
We’d taken our software platform, geared for print. And we’d extended it to manage
web projects too. Automating the little things that have to happen for every site launch.
Hiding a load of complex stuff behind a little simple ‘go live’ button.
It meant that printers and folk with a graphic design skill-set could build and
deploy websites. Nettl studios could do more for their clients, in less time, with the
same people.
As people get more expensive, a few minutes trimmed here, a couple of hours saved
there, soon start to matter. And now they matter a lot. The Nettl system helps a studio
to scale, without having to recruit a load more people.
We sometimes describe Nettl as a tool-kit. A Swiss army knife of modules to write
proposals, manage recurring payments, set up subscriptions and get wee stones out of
horse’s hooves.
11
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 New personalised electronic gifts to help clients stay front of mind
12
Now I’m going to ask you to think of a three-legged stool. And now your brain just said
stool-kit and I can’t help that.
As you’re sat on your Nettl stool, look down at the legs. One of them is the systems.
It’s got software written on it. Another says training. And, without straining your neck,
good, yes that last one says marketing.
We licence Nettl and our software to other folks. Sometimes under white label,
sometimes in conjunction with a brand.
A little context, if you’ll allow the meander.
The longer lockdown went on, the more people got used to online shopping. It takes
twenty one repetitions for a habit to form. Twenty one times of repeating something,
before it becomes instinctive. A lot of folk had been buying online, pre-pandemic.
But the vast majority had not. Yet, the more days that ‘normal’ retail was closed, the
more people tried online shopping for the first time. And they liked it. Oh boy, did they
like it. You’ve seen the stats. Once behaviours have formed, there’s no going back.
Now, of course, a lot of printers had transactional websites before the pandemic.
But for many, their website was somewhere to put pictures of their presses and their
plant list and…. oh sorry I nodded off were you saying something?
A better way to shop
As part of our platform, there’s a core ecommerce shopping cart. That’s the bit
that shows products and pricing, with checkout and payment gateway. It powers
Marqetspace, printing.com, nettl.com and hundreds of public and private web2print
websites. We call it w3shop by Nettl.
There’s lots of ways an entrepreneur could start selling online. But a lot of people
underestimate just how much effort there is in merchandising a product range for
sale. If all you do is sell Spanish brandy or strawberry shortcake vapes or oven chips,
then sure, you could be set up in a few days. But to merchandise the range of signage,
display, print and promo items that businesses want. Well that’s going to take, like,
forever. If we were at a BBQ and your cousin started talking about that as an idea for
a startup, we’d have to stage an intervention. Friends don’t let friends start down
that path.
Instead, our w3shop-keepers get an instant product range. In their own brand, on
their own domain. Sure, they can still set their own pricing, add other products and
connect their bank account. But in a few days they can be selling. Not blowing on
throbbing digits, weary from typing in prices. Monthly subscriptions start at £99 and
up. We’ve added more than 25 new w3shop subscribers during the pandemic.
Selling online has turned from nice-to-have into must-have-to-survive.
It’s a huge thing. But it’s not the whole thing.
13
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 The other thing
For many, an online shop is a gateway to the digital world. Clients want to do more
than just buy online. They’ve got their own agendas. Their own problems to solve.
Things they’re trying to do. Some, time-consuming. Some, technically challenging.
And so the Nettl system helps SME clients to do things online. Like add QR codes to
menus, for speedy table service. Or make reservations. Or fill out quote requests. Or
buy online. Or all the things you do every day. And the things you want to do, but tut
when you can’t and have to speak to someone.
One thing is certain. The thing that made a local print store successful a decade ago,
is long gone. Those that can adapt, that can learn. They’ll be the survivors.
Got a first class ticket to Zoom
When someone becomes a Nettl, it’s a commitment to learning. As a time-poor
business owner, doing these things is hard. Even for the tech-savvy, figuring out
how to do something the first time is always a leap into the unknown. Learning is
never complete.
By necessity we’ve moved all of our training online. Not going to lie, we always
wanted to do that. Travel bans forced it. And it’s never going back to the way it was.
It’s so much better to stick in your earpods and join a group from your desk, than
join a queue at Euston and stick your armpit in a stranger’s face. It makes refreshing
knowledge easier. Courses can be shorter. And if someone gets lost in the trainer’s
blue steel, then they can always watch again on catch-up.
Front of mind
That third leg of the stool was marketing. Our partners use content and promotional
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 beautifully crafted 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.
It’s been a tough time for the print industry. Litho print has been hit in particular and
hit hard. We’ve supported our partners through this. Not with mutual sobbing and
singing songs around a fading camp-fire. But by relentlessly marching forward with
new products. Working with them to bring new services to sell. And investing in our
platform and new technology to improve their productivity.
14
We’ve come out of the pandemic with a similar number of Nettl partners than we
went into it with. We lost some. Some new faces joined. A few after completing a
scholarship. We cheer those that made the brave choice to change. And we salute
the fallen.
As lockdown has eased, and people feel more confident about the future, we’re seeing
a shortening of the gestation period. For, becoming a Nettl is a commitment. Jan
mentioned “Choose your hard” in his statement. That message is simple. Nothing is
easy in life. There are no easy answers. Entrepreneurs can plough their own track. Or
they can ride the rails, as part of a proven system. Both options are valid. But we ask,
doesn’t it make sense to take the path that leads to the greater chance of success?
If you fancy a distraction, have a read www.nettl.com/uk/chooseyourhard/
Our Nettl partner network now stands at 232 locations around the world (2020: 239).
At the date of our last trading update, we had 174 active Nettl partners in the UK
and Ireland, 20 in Benelux, 12 in France, 20 in the USA, 4 in New Zealand and 2 in
Australia. We also currently have 46 printing.com locations (2020: 59). 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 held firm at £2.08m (2020: £2.08m). In this segment,
we count initial licence fees, monthly subscriptions, website deployment royalties,
the wholesale price of hosting, domain names, digital stock photography and search
engine optimisation sold via our brand partners.
As well as 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. With events mothballed and locations
closed, it’s not surprising that sales of product to Brand Partners was £1.92m
(2020: £3.41m).
Plans for plans
No, you’re thinking of an eighties pop band. Over the past two years we’ve been
building a whole new part of our platform. We call it “Plans”. And it’s the central
component which allowed us to migrate from the software system which Image Group
was using.
The first iteration of our platform was for print. The second, web and digital services.
This new layer is to enhance the whole process of quoting and managing sign and
display projects.
We’re big believers in self-service. Sure, people like personal service and a helping
hand from a human. Being able to complete a complex task yourself, whenever you
like, is the key to eternal happiness. And it’s at the heart of our continuous reinvention.
15
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 There are so many ways our clients can brand gifts and giveaways
16
With Plans, team members can build multi-part sign, display and print projects in a
simple interface. Customising options and materials. As well as an instant price,
a production route is automatically built. They’ll add to a proposal, share online with
the client and once the client has accepted, graphic files are checked and
fixed automatically.
Great people are hard to find. We’re grateful for the individual efforts our teams have
made. And particularly where they are multiplied. Where the systems they’ve built
enable hundreds of people to do tasks faster or even not at all.
We’re rolling out Plans in stages, with upgrades available to our Nettl network in the
autumn 2021.
Marqetspace.com and online channels
We sell print and signs to professional buyers through Marqetspace.com and a
few other online channels. This space remains super-competitive. Marqetspace is
important to us for a number of reasons. It’s often where our relationships start. We
get to know printers, graphic designers and sign companies with a simple trading
relationship. Then we build trust. Then we figure out if any of our software tools or
systems can help them achieve their own objectives. And so Marqetspace is a fertile
ground for cultivating Nettl partners.
Of all our channels, Marqetspace typically had the biggest percentage of litho print to
resellers. Unsurprisingly, it was hardest hit and sales were £1.12m (2020: £2.68m).
Nettl of America
Since the US travel ban in February 2020 we haven’t been able to set foot on
American soil. We’ve had to adapt how we acquire, launch and support our American
friends. It’s gone more slowly than we would have liked, but we’ve continued to add
new Nettl locations. It’s now a common path to start as a Nettl System user, get to
know the software, and then start the process of becoming a Nettl Franchise.
We now have franchisees and partners in the states of Florida, Georgia, Ohio,
New Jersey and Illinois.
Brexit
We mentioned in our most recent update that since leaving the customs union, we’d
experienced disruption in shipping to mainland Europe. Things haven’t improved.
Consignments are routinely delayed and customs charges incorrectly applied. We’re
now making the significant majority of products sold in mainland Europe with Works
Makers on the mainland. We don’t see that volume returning to the UK any time soon.
For materials we import, we’re constantly having to work around supply issues. Items
which were previously available in a few days can be out of stock for weeks or months.
That’s a combination of Brexit, the pandemic and a boat having a snooze in the Suez.
17
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 We install signs and graphics nationwide
18
Outlook
We made significant steps reducing our overheads last year. Despite spending more
of the second half of the year locked down than unlocked, we almost achieved
EBITDA breakeven.
Our new financial year started in April. Trading has improved and the first quarter
finished ahead of last year. July started well and should be our best month since
September 2020. The roads are busier. With our new cost base, modest increases
in revenue will improve profitability. And that gives us confidence of getting closer to
reaching our mid-term objective of 10-15% EBITDA on a monthly run-rate during the
current financial year.
But then. Will 2021 bring an alien invasion or solar flare or isn’t there supposed to be
an asteroid due about now or something?
See you for the presentation after the AGM*
Peter Gunning
Chief Executive
27 July 2021
*providing Godzilla doesn’t go rogue again
19
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
Fully managed signage projects
20
STRATEGIC REPORT
Financial
Review
Iain Brown
Group Finance Director
Revenue
Group revenue this year finished at £9.75m, down from £15.60m in 2020, a 38%
fall year-on-year. This reflects the significant impact caused by various degrees of
lockdown put in place since March 2020. Sales of products have been most severely
impacted, with exhibitions and events cancelled and demand for traditional print
reduced with customers unable to open or operating at reduced capacity themselves.
As highlighted in our segmental disclosure (note 3) the sales of physical products have
reduced across all channels. Our Company Stores saw a fall in revenue to £1.83m
(2020: £2.81m) despite the addition of Eggshell Solutions Limited during the year,
which contributed £0.11m since it was acquired in September 2020. Sales of print
and other products through our Brand Partner Network fell to £1.92m (2020: £3.41m),
Online and Trade sales fell to £1.12m (2020: £2.68m) and Works Signs Businesses fell
to £2.80m (2020: £4.62m). Despite the overall fall, Licence Fee revenue has remained
consistent year-on-year at £2.08m (2020: £2.08m) with further demand for our
subscription services compensating for reduced licence fee income from our Partners,
as they too felt the full impact of the pandemic. At 94% (2020: 95%), the majority of
our business remains in the UK & Ireland.
Gross profit
Gross Profit, defined as revenue less direct materials (including the cost of distribution
when made direct to customers) fell to £5.58m (2020: £7.98m).
The improved gross margin percentage of 57.2% (2020: 51.1%) reflects a shift in
the proportion of our revenue to higher margin Licence and Subscription income.
Margins continue to be pressed in traditional print and signage, with the pandemic and
other global supply chain issues causing scarcity of materials and increased costs of
shipping.
Other operating costs
Staff costs reduced by 35% to £3.70m (2020: £5.69m). This has been achieved
through a combination of permanent redundancies enacted in the prior year, £0.79m
claimed during the year from the Coronavirus Job Retention Scheme and further
permanent redundancy measures taken in September 2020. The average number of
persons employed fell to 159 (2020: 203), a reduction that would have been greater if
not for the government support received.
21
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 Other operating charges have been reduced to £2.04m (2020: £3.58m) with non-
essential spending curtailed and travel not possible. This includes restructuring costs
totalling £0.10m (2020: £0.20m).
Our bad debt charge has reduced to £0.20m in the year (2020: £0.60m) with
improvements in internal credit control processes and a significant impairment in the
prior year, when the impact of the pandemic on our customers first became apparent.
We continue to work with our customers and Partners to come through the current
difficulties together, however we have to accept that some of those debts may never
be paid.
Profitability
As a combination of the factors discussed above, our pre-tax loss has reduced to
£2.33m (2020: £3.63m) leading to a reduced loss per share of 1.83p (2020: 3.27p).
Our earnings before interest, tax, depreciation and amortisation (EBITDA) loss
reduced to £0.16m (2020: £1.29m). The parent company result for the year was a loss
of £0.33m (2020: £3.11m). The prior year included an impairment charge of £2.95m
on subsidiary investments which has not repeated.
22
Operating Cash Flow
This has led to the Group generating £0.21m of cash through operating activities
(2020: utilised £1.09m), reflecting the EBITDA in the respective years.
Investment activity
The current year has seen reduced investment in plant and equipment of £0.18m
(2020: £0.43m), following the completion of our factory merger in the prior year.
We have also continued our investment in the Group’s software platforms, totalling
£0.68m (2020: £0.67m), with continued enhancements and new features to the
Groups SaaS platforms.
In September 2020, the Group acquired Eggshell Solutions Limited, net of cash
received, for £0.08m and merged its operations with our Birmingham Store. This was
followed with the purchase of the trade and assets of Sign Right, a small sign business
in Dublin for £0.03m in November 2020.
Financing activity
On 15 July 2020 we announced the creation of a £50.00m perpetual bond facility
and the issue of £3.00m of the bearer bonds, at nominal value, to investors, raising
approximately £2.01m before expenses.
We also 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.
KPIs
Management monitors a number of KPIs, which underpin the performance of the
business. The number of Nettl Network Partners has been broadly flat, as discussed by
Peter earlier. The average product revenue per partner reduced, reflecting the impact
of the pandemic. Website deployments and hosting fees per month have continued to
increase, along with the number and value of SEO subscriptions.
Outlook
The future developments of the business are included in the Chairman’s statement and
Chief Executive’s statement. The future trading environment remains uncertain. We
can only guess the pace at which the economy at large, and by extension the printing
and promotional world, will recover from the COVID-19 pandemic. We have factored
the potential return of restrictions over the next winter period into our forecasting,
however, with the restructuring activity undertaken in this financial year and existing
cash reserves, we believe the financial future of the business is secure and we have the
resources to execute our expansion plans. Accordingly, the Directors continue to adopt
the going concern basis in preparing the annual report and financial statements.
23
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 We wrap vehicles at our Nettl Superstores
24
Principal Risks and Uncertainties
The following are the principal risks relating to the Group’s operations:
• uncertainty in the general economic environment 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 and fund future acquisitions. These funds are invested through the use
of short-term deposits and the policy is to maximise returns as well as provide the
flexibility required to fund ongoing operations. The Board has developed a model to
establish a fair value for the Company’s shares and will only purchase shares when
the offer price is materially below that value and funds are available. It is not the
Group’s policy to enter into financial derivatives for speculative or trading purposes,
see Note 22.
Iain Brown
Group Finance Director
27 July 2021
25
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
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 32.
Peter was appointed to the Board in June 2001. Age 46.
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 34.
in October 2015. Age 42.
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 52.
October 2015. Age 49.
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 62.
27
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 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
2021. The Directors have proposed that no final dividend will be paid (2020: 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 2020:
J-H Mohr
Non-executive Chairman
C C Bona
Non-executive Director
S G Barrell
Non-executive 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
All the Directors are subject to re-election at intervals of no more than 3 years.
R A Lightfoot, G G Cockerill and S G Barrell retire by rotation in accordance with the Company’s Articles of Association and all 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 complies with environmental laws and regulations and works with suppliers and customers to improve the effectiveness of environmental
management. The Group has made no contribution to political parties during the year (2020: nil).
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 2021:
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
33,434,909
30,224,866
7,279,074
5,675,500
5,634,919
4,985,000
29.20%
26.40%
6.36%
4.96%
4.92%
4.35%
GOING CONCERN
As part of the consideration of the appropriateness of adopting the going concern basis of accounting, the Directors have prepared a base case
forecast and then applied reasonable sensitivities, covering the cash flow impact associated with a further year of COVID-19 disruption. The
primary cash flow impact identified in the sensitivity analysis is a significant reduction in cash collections driven by lower customer demand.
The Directors also considered the potential levers at their discretion to improve the cash position, including a number of further reductions in
operating expenditure across the group, primarily related to workforce cost reductions. Having considered these scenarios, the Group continues
to have sufficient cash headroom.
Based on the above the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future and is well placed to manage its business risks successfully despite the continued uncertain
economic outlook caused by COVID-19.
Accordingly, the Directors continue to adopt the going concern basis in preparing the annual report and financial statements.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held on Wednesday 15 September 2021. Whilst this will be an ‘in person’ meeting given the
continuing general uncertainty with travel and restrictions we strongly encourage members not to attend in person and to exercise their right to
cast their vote by proxy. 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.
Certain information, such as the fair review of the business and its performance, is not shown in the directors’ report because it is shown in the
strategic report instead under s414C(11).
By order of the Board
Iain Brown
Group Finance Director
27 July 2021
29
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 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, 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 have elected
under company law and the AIM Rules of the London Stock Exchange to prepare the group financial statements in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006 and to prepare the company financial statements in
accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and applicable law.
The group and company financial statements are required by law and international accounting standards in conformity with the requirements of
the Companies Act 2006 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 international accounting standards in conformity with the requirements of the
Companies Act 2006;
• 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 requirements of 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 2021
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 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 information on Corporate Governance is set out below.
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 Pre-close Trading and Strategy Update announcement.
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 is testament to the
success of this initiative. The post AGM presentation necessarily takes on a virtual format again this year.
The Chairman and Company Secretary go to additional lengths to identify and communicate with major shareholders whose holding is via
nominee accounts and encourage voting and shareholder feedback and engagement.
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 2021 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;
• regular virtual meetings (in place of the Company’s annual two day conference, which it has not been possible to hold during the pandemic)
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. The Company established a “Save As You Earn” Scheme in 2017 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 events such as the Company’s Grapalooza and other virtual events (held in in place of roadshows and conferences during the pandemic),
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 more recycled options were added during the year. The Company also previously 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 the executive members of the Board have met on a weekly and, at key times, 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, reviewed and updated on an ongoing basis by
the Company’s Health & Safety Officer, which encompass all aspects of the Group’s day-to-day operations. 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 2021 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.
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:
Number held
Jan-Hendrik Mohr (Chairman)
Conrad Bona (Non-Executive Director)
Simon Barrell (Non-Executive Director)
Peter Gunning (CEO)
Gavin Cockerill (COO)
Richard Lightfoot (Director & Company Secretary)
Iain Brown (Group Finance Director)
Board
meetings
Audit
committee
meetings
Remuneration
Committee
meetings
24
23
24
24
24
24
22
24
3
3
3
3
-
-
-
-
3
3
3
3
-
-
-
-
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, during the last 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 Chairman Jan Hendrik Mohr conducts an annual review of the Board’s effectiveness, in accordance with Principle 7 of our Corporate
Governance Statement. 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.
Board Evaluation covers 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. A process to address this in more detail has started during the 2020/21 financial year and will resume during the 2021/22 fiscal year.
35
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 BOARD REVIEW
Manner in which the Board is run
The level of engagement between NEDs and executives is high. The Board drastically
increased the cadence of meetings during the months following the onset of the Covid
pandemic to a weekly schedule which proved to be informative and allow for quick
decision making. More recently Board cadence has reverted 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
2021/22 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. In addition, a strategy review has been going on since the
end of the 2020/21 fiscal year which has, amongst other aspects, resulted in separating
the reporting lines of the business into two major segments.
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 contrary 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 2021 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 forwent 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 2020 AGM is presented as follows:
Resolutions
1. To receive the Company’s Annual Accounts
2. To re-elect Peter Gunning as a Director
3. To re-elect Iain Brown as a Director
4. To re-appoint RSM UK Audit LLP as auditors of the Company
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
* including any votes giving discretion to the Chair.
* For
Against
Withheld
52,348,138
49,059,119
49,061,710
52,345,547
49,056,444
48,287,811
49,056,710
0
3,289,019
3,286,428
2,591
3,286,694
4,055,327
3,286,428
1,000
1,000
1,000
1,000
6,000
6,000
6,000
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 2021 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 2020 audit as well as reviewing the company’s full
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 2020 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 2021.
PENSION ARRANGEMENTS
The Company contributes to an individual money purchase scheme 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 2021:
J-H Mohr
C C Bona
S G Barrell
P R Gunning
I S Brown
G G Cockerill
R A Lightfoot
Basic
salary
£
-
-
-
170,250
85,000
90,000
77,000
Fees
£
15,000
15,000
15,000
-
-
-
-
422,250
45,000
Benefits
£
Bonuses
£
Pension
£
-
-
-
1,012
305
457
1,430
3,204
-
-
-
-
-
-
-
-
2021
Total
£
15,000
15,464
15,000
-
464
-
15,525
186,787
2,577
2,774
2,326
87,882
93,231
80,756
23,666
494,120
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 2021
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.
DIRECTORS’ INTERESTS
At 31 March 2021, the Directors had the following beneficial interests in the Company’s shares.
Ordinary shares of 1p each
31 March 2021
31 March 2020
J-H Mohr
C C Bona
P R Gunning
G G Cockerill
R A Lightfoot
I S Brown
S G Barrell
-
1,170,007
1,956,352
92,518
152,156
84,208
85,356
-
1,086,427
1,725,000
4,874
75,000
-
-
On 28 April 2020 the Company announced the launch of the Share Stake Scheme (the “Scheme”) which allowed team members to elect to
forgo a proportion of their remuneration receivable from the Company, in return for the receipt of new ordinary shares of one penny each in the
Company (“New Ordinary Shares”) to be issued at a price of 7.75p. Details of the number of new Ordinary Shares issued to each Director under
the scheme are disclosed in note 24.
The market price of shares as at 31 March 2021 was 5.63 pence (2020: 6.25 pence). The range during the period under review was 3.50 pence to
11.10 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 2021
which comprise the consolidated statement of comprehensive income, consolidated and company statement of financial position, consolidated
and company statements of changes in equity, consolidated statement of cash flows and notes to the financial statements, including significant
accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable
law and International Accounting Standards in conformity with the requirements of the Companies Act 2006. 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 2021 and of the
group’s loss for the year then ended;
• the group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the
requirements of the Companies Act 2006;
• 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 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
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt
the going concern basis of accounting included consideration of the cash flow forecasts and scenario analysis present and headroom provided by
existing funding facilities.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group’s or the parent company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
43
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 SUMMARY OF AUDIT APPROACH
Key audit matters
Group
· Revenue recognition
· Bond accounting treatment
· Impairment of intangible assets
Parent Company
· Impairment of investments and intercompany receivables
Materiality
Group
· Overall materiality: £283k (2020: £361k)
· Performance materiality: £212k (2020: £270k)
Parent Company
· Overall materiality: £247k (2020: £240k)
· Performance materiality: £185k (2020: £180k)
Scope
Our audit procedures covered 98% of revenue, 97% of net assets and 96% of loss before tax.
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 54 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 journal entries to revenue during the period.
44
BOND ACCOUNTING TREATMENT
Key audit matter description
(Refer to page 55 regarding the accounting policy in respect of financial liabilities, note 17 in respect
of borrowings and note 24 in respect of related party transactions).
Bonds were issued in the period which are listed on the Frankfurt Main market. The bonds were
issued at a discount to par, attract no interest for the first 3 years, and include an exclusive one-way
call option to repay the bonds at the discretion of the business after the interest-free period. The
bonds were purchased by a related party. There is a risk that the various terms of the bonds are not
appropriately accounted for in line with IFRS 9 Financial Instruments.
How the matter was addressed
The accounting treatment of the bonds was reviewed and considered against the detailed terms of
in the audit
the bonds and the requirements of IFRS 9. The fair value of the liability at inception was compared
to the transaction price and funds received by the group. The effective interest rate was scrutinised
based on the expected cash flows relating to the bond and the expected timing of repayment. The
fair value of the exclusive one-way call option was assessed based on the likelihood of the group
calling upon this option.
IMPAIRMENT OF INVESTMENTS, INTERCOMPANY RECEIVABLES AND INTANGIBLE ASSETS
Key audit matter description
(Refer to the accounting policy on page 56 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. At a group level there are significant intangible assets pertaining to the trade and
activities of the 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.
45
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 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
£283k (2020: £361k)
£247k (2020: £240k)
Basis for determining overall materiality
5% of gross profit
1% of net 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
£212k (2020: £270k)
£185k (2020: £180k)
Basis for determining performance materiality
75% of overall materiality
75% of overall materiality
Reporting of misstatements
to the Audit Committee
Misstatements in excess of £14,100
Misstatements in excess of £12,300
and misstatements below that threshold
and 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, 3 of which are based in the UK, one of which is based in France and one of which is based in the US.
The coverage achieved by our audit procedures was:
2%
3%
Revenue
Net assets
4%
Profit
before
tax
98%
97%
96%
Of the above, no audits or procedures were undertaken by component auditors.
Full scope
Analytical procedures
OTHER INFORMATION
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information contained within the annual report. 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.
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 course of 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 this gives rise to a material misstatement in
the financial statements themselves. 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.
46
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year
for which the financial statements are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement set out on page 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.
THE EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD
Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufficient appropriate audit
evidence regarding compliance with laws and regulations that have a direct effect on the determination of material amounts and disclosures in
the financial statements, to perform audit procedures to help identify instances of non-compliance with other laws and regulations that may have
a material effect on the financial statements, and to respond appropriately to identified or suspected non-compliance with laws and regulations
identified during the audit.
In relation to fraud, the objectives of our audit are to identify and assess the risk of material misstatement of the financial statements due to
fraud, to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud through designing and
implementing appropriate responses and to respond appropriately to fraud or suspected fraud identified during the audit.
However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure that the entity’s
operations are conducted in accordance with the provisions of laws and regulations and for the prevention and detection of fraud.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud, the group audit engagement team:
• obtained an understanding of the nature of the industry and sector, including the legal and regulatory frameworks that the group and parent
company operate in and how the group and parent company are complying with the legal and regulatory frameworks;
•
inquired of management, and those charged with governance, about their own identification and assessment of the risks of irregularities,
including any known actual, suspected or alleged instances of fraud;
• discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment of how and where the
financial statements may be susceptible to fraud.
47
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
The most significant laws and regulations were determined as follows:
Legislation / Regulation
Additional audit procedures performed by
the audit engagement team included:
IFRS/UK-adopted IAS, FRS101
Review of the financial statement disclosures and testing to supporting documentation;
and Companies Act 2006
Completion of disclosure checklists to identify areas of non-compliance
CJRS claim compliance
Consultation with our internal specialists who have reviewed a sample of entries within the claim
Consideration of accounting treatment and associated disclosures
The areas that we identified as being susceptible to material misstatement due to fraud were:
Risk
Additional audit procedures performed by
the audit engagement team included:
Revenue recognition
Substantive tests of detail over a sample of sales recognised in the year including agreement of the
sales value to underlying sales documentation and the occurrence to evidence of delivery
Consideration of the completeness of sales by reference to journal entries posted to revenue in
the year
Reviewing the cut-off treatment of a sample of sales recorded around the year end
Management override of controls
Testing the appropriateness of journal entries and other adjustments;
Assessing whether the judgements made in making accounting estimates are indicative of a potential
bias; and
Evaluating the business rationale of any significant transactions that are unusual or outside the
normal course of business.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
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
Date: 27 July 2021
48
Consolidated statement of comprehensive income
FOR THE YEAR ENDED 31 MARCH 2021
Note
Revenue
Raw materials and consumables used
Gross profit
Staff costs
Other operating charges
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
10 & 11
4
6
7
2021
£000
9,748
(4,173)
5,575
(3,700)
(2,035)
(160)
(1,705)
(1,865)
16
(477)
(461)
2020
£000
15,604
(7,627)
7,977
(5,686)
(3,580)
(1,289)
(2,025)
(3,314)
25
(342)
(317)
(2,326)
(3,631)
241
(2,085)
-
(2,085)
258
(3,373)
-
(3,373)
Loss per share attributable to the ordinary equity shareholders of Grafenia plc
Basic and diluted1, pence per share
8
(1.83)p
(3.27)p
(1) Earnings per share suffers no dilution
The notes on pages 53-75 form part of these financial statements.
49
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
Consolidated and company
statement of financial position
AT 31 MARCH 2021
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
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 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
13,582
13,388
13,298
Note
Group
2021
£000
Company
2021
£000
Company
2020
£000
10
11
12
13
14
15
17
17
16
16
17
9
20
21
Group
2020
£000
5,483
3,858
-
9,341
346
2,150
447
1,104
4,047
5,065
3,510
-
8,575
444
1,545
278
2,740
5,007
931
-
1,799
60
2,790
6,149
389
6,538
9,328
4,254
1,145
838
7,866
84
(5,679)
4,254
753
147
2,160
143
3,203
3,483
448
3,931
7,134
6,254
1,135
838
7,801
74
(3,594)
6,254
-
-
3,578
3,578
-
7,445
9
2,266
9,720
120
-
84
-
204
2,964
-
2,964
3,168
10,130
1,145
627
7,866
84
408
-
-
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
10,130
10,370
The Parent Company result for the year was a loss of £325,000 (2020: £3,111,000).
The notes on pages 53-75 form part of these financial statements.
The financial statements of Grafenia plc, registered number 03983312, were approved by the board of directors on 27 July 2021 and were
signed on its behalf by:
I S BROWN
Director
50
Consolidated and company statement of
changes in shareholders' equity
GROUP – YEAR ENDED 31 MARCH 2021
Balance at 31 March 2019
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
Share
Capital
£000
847
-
288
-
-
288
Merger
reserve
£000
Share
Premium
£000
Share Based
Payment
Reserve
£000
Retained
Earnings
£000
838
4,125
47
(221)
-
-
-
-
-
-
3,738
(62)
-
3,676
Balance at 31 March 2020
1,135
838
7,801
GROUP – YEAR ENDED 31 MARCH 2021
Loss and total comprehensive income for the year
Shares issued in the period
Share option reserve
Total movement in equity
-
10
-
10
-
-
-
-
-
65
-
65
Balance at 31 March 2021
1,145
838
7,866
COMPANY – YEAR ENDED 31 MARCH 2020
Balance at 31 March 2019
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
Share
Capital
£000
847
-
288
-
-
288
Share Based
Merger
reserve
£000
627
-
-
-
-
-
Share
Premium
£000
Payment
Reserve
£000
4,125
-
3,738
(62)
-
3,676
Balance at 31 March 2020
1,135
627
7,801
COMPANY – YEAR ENDED 31 MARCH 2021
Loss and total comprehensive income for the year
Shares issued in the period
Share based payments
Total movement in equity
-
10
-
10
-
-
-
-
-
65
-
65
Balance at 31 March 2021
1,145
627
7,866
The notes on pages 53-75 form part of these financial statements.
-
-
-
27
27
74
-
-
10
10
84
47
-
-
-
27
27
74
-
-
10
10
84
Total
£000
5,636
(3,373)
4,026
(62)
27
618
(3,373)
-
-
-
(3,373)
(3,594)
6,254
(2,085)
(2,085)
-
-
75
10
(2,085)
(2,000)
(5,679)
4,254
Retained
Earnings
£000
3,844
(3,111)
-
-
-
(3,111)
Total
£000
9,490
(3,111)
4,026
(62)
27
880
733
10,370
(325)
(325)
-
-
75
10
(325)
(240)
408
10,130
51
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
Consolidated statement of cash flows
FOR YEAR ENDED 31 MARCH 2021
Cash flows from operating activities
Loss for the year
Adjustments for:
Depreciation, amortisation and impairment
Loss / (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
Tax income
Operating cash flow before changes in working capital and provisions
Change in trade and other receivables
Change in inventories
Change in trade and other payables
Cash generated from / (utilised by) operations
Interest paid
Interest received
R&D tax income received
Net cash inflow / (outflow) from operating activities
Cash flows from investing activities
Proceeds from sale of plant and equipment
Acquisition of plant and equipment
Capitalised development expenditure
Acquisition of other intangible assets
Acquisition of Subsidiary net of cash (group)
Net cash used in investing activities
Cash flows from financing activities
Proceeds / (repayment) of funding from invoice finance
Proceeds from loans
Repayment of loans
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 increase / (decrease) 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 53-75 form part of these financial statements.
52
Note
Group
2021
£000
Group
2020
£000
(2,085)
(3,373)
1,705
5
-
(14)
10
461
169
(241)
10
465
(96)
(338)
41
(9)
7
172
211
10
(90)
(419)
(259)
(84)
(842)
81
3,010
(81)
(411)
(260)
(147)
75
2,267
1,636
1,104
2,740
2,025
(99)
(220)
(12)
27
317
588
(258)
(1,005)
444
109
(708)
(1,160)
-
-
67
(1,093)
265
(383)
(373)
(305)
-
(796)
(947)
-
(211)
(622)
(317)
(228)
3,964
1,639
(250)
1,354
1,104
4
4
11
11
17
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
There have been no significant new or revised International Financial Reporting Standards adopted by the Group in the year.
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.
The financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting
Standards and Interpretations (collectively “IFRSs”) issued by the International Accounting Standards Board (IASB) as adopted by the European
Union (“adopted IFRSs”).
Intercompany balances and transactions have been eliminated. Profits from intercompany sales, to the extent that they are not yet realised
outside the Group, have also been eliminated.
GOING CONCERN
Information regarding the Group’s business activities together with the factors likely to affect its future development, performance and position
is set out in the Chairman’s and Chief Executive’s Statement on pages 3-23. The financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described on pages 21-25. In addition, note 22 to the financial statements includes details of the Group’s financial
instruments and hedging activities; and its exposures to credit risk and liquidity risk.
As part of the consideration of the appropriateness of adopting the going concern basis of accounting, the Directors have prepared a forecast
and applied reasonable sensitivities, covering the cash flow impact associated with a further year of COVID-19 disruption. The primary cash flow
impact identified in the sensitivity analysis is a significant reduction in cash collections driven by lower customer demand. The Directors also
considered the potential levers at their discretion to improve the cash position, including a number of further reductions in operating expenditure
across the group, primarily related to workforce cost reductions. Having considered these scenarios, the Group continues to have sufficient cash
headroom.
Based on the above the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future and is well placed to manage its business risks successfully despite the continued uncertain
economic outlook caused by Covid-19.
Accordingly, the Directors continue to adopt the going concern basis in preparing the annual report and financial statements.
53
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 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, requires the Group to separately recognise revenue with
respect to the various components of the contractual arrangements. Where contracts have separately identifiable components with distinct
patterns of delivery and customer acceptance, revenue is accounted for separately once the performance obligation is satisfied.
The Group contracts with its customers on two main bases:
• Production of product. The group considers the performance obligation to have been met when the product is delivered and, where required,
installed.
• Licence fees, including franchise fees, for SaaS products are for a set period of time as specified with the customer. There is considered to be a
single performance obligation for delivering a managed software service which is satisfied over the length of the contract. Revenue is therefore
recognised over the life of the contract.
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.
54
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. “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.
• Bearer Bonds are initially recognised at fair value net of any discount or transaction costs directly attributable to the issue of the instrument.
They are subsequently measured at amortised cost using the effective interest rate method. “Interest expense” in this context includes initial
transaction costs and the initial discount to the nominal value on inception, 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, straight line
Right of use assets
- over the life of the lease, straight line
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.
55
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
RESEARCH AND DEVELOPMENT COSTS
Development costs are 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 is charged to profit and loss on a straight-line basis over the useful economic life of the asset as follows:
Domains & brand
Software
- 20 years
- 3 years
Capitalised development costs
- 3 years
Customer Lists
Other
- 3 to 10 years
- 20 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 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.
56
LEASES
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 of 6.9%.
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 within Property, Plant and Equipment and disclosed separately in note 18.
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.
FINANCING COSTS
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is
recognised in profit and loss on the date the entity’s right to receive payments is established.
SHARE BASED PAYMENTS
The Group operates an equity-settled share-based compensation plan through a SAYE scheme, under which the 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, calculated using the Black Scholes model. 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.
57
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021 1. ACCOUNTING POLICIES (CONTINUED)
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 subsidiaries plus intercompany balances due, an impairment will be made. Based on
this evaluation, including management estimates and assumptions, no impairment was made during the reporting period. Estimation uncertainty
relates to assumptions about future operating results in particular sales volumes and the determination of a suitable discount rate.
ESTIMATION OF THE EXPECTED CREDIT LOSSES ON TRADE 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.
BEARER BONDS
The bearer bonds issued by the Company have no fixed maturity. In order to establish an effective interest rate, management is required to
determine the expected life of the bonds and has estimated this to be 20 years from the date of issue. In assessing the fair value of the
embedded derivative relating to the exclusive one way call option, judgement is required in order to assess the likelihood of the business
exercising this option.
58
2.ACQUISITIONS OF SUBSIDIARIES
On 25 September 2020, the company acquired all of the ordinary shares of Eggshell Solutions Limited for an initial consideration of £0.12m,
satisfied in cash, of which £0.08m was deferred over 5 months. On 28 September 2020, the company was hived up into Grafenia Operations
Limited as part of the Birmingham superstore. In the six months of ownership, the subsidiary contributed sales of £0.11m. If the acquisition had
occurred on 1 April 2020, Group revenue would have increased by £0.10m and generated an estimated net profit of £0.03m.
In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been
the same if the acquisition occurred on the first day of the accounting period.
EFFECT OF ACQUISITION
The acquisition had the following effect on the Group’s assets and liabilities.
Book and fair values
on acquisition
£000
Intangibles
acquired
£000
Total assets
and liabilities
£000
Acquiree’s net assets at the acquisition date:
Property, plant and equipment
Intangible assets
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax
Net identifiable assets and liabilities
Goodwill
Net assets acquired
Consideration paid:
Initial cash price
Deferred consideration at fair value
Total consideration
1
-
44
37
(41)
-
41
-
41
-
80
-
-
-
(15)
65
15
80
1
80
44
37
(41)
(15)
106
15
121
41
80
121
Intangibles acquired include the customer base arising on the acquisition and recognising the value placed upon acquired customer revenues.
Those intangibles result in a deferred tax charge.
In addition to the acquisition of Eggshell Solutions Limited, the Group also acquired the trade and assets of Sign Right, a signage business based
in Dublin, for £0.03m on 4 November 2020.
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
Year ended 31 March 2021 Segment revenues
Year ended 31 March 2020 Segment revenues
9,117
14,791
242
384
Other
£000
389
429
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.
Total
£000
9,748
15,604
59
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
3. REVENUE AND SEGMENTAL INFORMATION (CONTINUED)
DISAGGREGATION OF REVENUE
The disaggregation of revenue from contracts with customers is as follows:
Nettl Systems
Works Manchester
Total
Licence
Fees
£000
Company
Stores
£000
Brand
Partner
Print
£000
Works Sign
Businesses
£000
Online &
Trade
£000
£’000
£’000
£000
Year ended 31 March 2021
2,077
1,832
1,916
5,825
2,804
1,119
3,923
9,748
Year ended 31 March 2020
2,083
2,806
3,414
8,303
4,624
2,677
7,301
15,604
Of the Group’s non-current assets (excluding deferred tax) of £8,575,000, £8,545,000 are located in the UK. Non-current assets located outside
the UK are in France £5,000 (2020: £6,000) and Ireland £25,000 (2020: nil).
4. LOSS BEFORE TAXATION
Included in profit are the following:
Amortisation of intangible assets
Depreciation
Doubtful debt expense
Loss / (profit) on sale of plant and equipment
Profit on sale and leaseback recognised in the year
Coronavirus job retention scheme income
Gain on variation of prior acquisition*
Restructuring costs
2021
£000
1,121
584
160
(5)
14
(729)
-
97
2020
£000
1,192
834
588
101
12
-
159
244
*On 30 August 2019, one of the vendors of Works Manchester Limited (formerly 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
Review of interim financial statements
60
2021
£000
40
33
- 5
2020
£000
40
33
5. STAFF NUMBERS AND COSTS
The average number of persons employed by the Group (including Directors) during the year analysed by category, were as follows:
Number of employees
Administration
Sales and distribution
Production
Defined contribution plan
Group
2021
Group
2020
Company
2021
Company
2020
31
59
69
159
34
70
99
203
3
-
-
3
2
-
-
2
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 2021 £117,000 of contributions were charged to the Consolidated Statement of
Comprehensive Income (2020: £120,000). As at 31 March 2021 £34,000 (2020: £78,000) 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
Group
2021
£000
3,170
413
117
3,700
Group
2020
£000
Company
2021
£000
Company
2020
£000
5,062
504
120
5,686
45
2
-
47
32
1
-
33
Wages and salaries in 2021 are net of £729,000 income from the Coronavirus job retention scheme.
KEY MANAGEMENT COMPENSATION:
Key managements’ emoluments
Company contributions to money purchase pension plans
2021
£000
2020
£000
422
24
446
424
21
445
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 (2020: £171,000), and Company pension contributions of £16,000
(2020: £16,000) were made to a money purchase scheme on their behalf.
Directors for whom retirement benefits are accruing under money purchase schemes 5 (2020: 5).
61
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
6. FINANCE INCOME AND EXPENSE
Finance expense
Lease interest
Invoice finance
Bearer Bond interest
Loan interest
Foreign exchange losses
Total finance expense
7. TAXATION
Recognised in the income statement
Current tax expense
Current year
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:
2021
£000
260
9
100
55
53
477
2021
£000
(166)
(1)
(167)
(74)
-
(241)
2020
£000
330
10
-
2
-
342
2020
£000
(146)
6
(140)
(128)
10
(258)
The current tax charge for the period is lower (2020: lower) than the standard rate of corporation tax in the UK of 19% (2020: 19%).
The differences are explained below:
Loss before tax
Tax using the UK corporation tax rate of 19% (2020:19%)
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
Research and Development losses surrendered
Research and Development super deduction
Total tax credit
2021
£000
2020
£000
(2,326)
(3,631)
(442)
(99)
(1)
-
248
223
(170)
(241)
(690)
(40)
6
10
403
227
(174)
(258)
The Group tax debtor amounts to £163,000 (2020 Debtor: £354,000). The deferred tax liabilities as at 31 March 2021 have been calculated using
the tax rate of 19% which was substantively enacted at the balance sheet date.
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%.
62
8. EARNINGS PER SHARE
The calculations of earnings per share are based on the following profits and numbers of shares:
2021
£000
2020
£000
Loss after taxation for the financial year from continuing operations
(2,085)
(3,373)
For basic earnings per ordinary share
Exercise of share options
Weighted average
number of Shares
Weighted average
number of Shares
113,831,139
102,993,216
-
-
For diluted earnings per ordinary share
113,831,139
102,993,216
Basic and diluted loss per share
(1.83)p
(3.27)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
Assets
2021
£000
Assets
2020
£000
Liabilities
2021
£000
Liabilities
2020
£000
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
-
-
-
-
389
389
1 April
2020
Adjustment
for prior
years
Recognised
in income
£000
£000
£000
Recognised
in income
due to tax
rate change
£000
-
448
448
-
15
15
-
(74)
(74)
-
-
-
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)
-
-
-
The Group has unrecognised deferred tax assets in respect of carried forward losses of £1,255,000 (2020: £995,000).
Company
The Company had no recognised deferred tax assets as at 31 March 2021 (2020: nil).
448
448
31 March
2021
£000
-
389
389
31 March
2020
£000
-
448
448
63
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
10. PROPERTY, PLANT AND EQUIPMENT – GROUP
Land and
buildings
£000
Plant and
equipment
£000
Assets held
for resale
£000
Motor
Vehicles
£000
Fixtures and
Fittings
£000
Cost
Balance at 31 March 2019
576
5,383
Right-of-use assets recognised on IFRS 16 adoption 1,999
Additions
Disposals
-
-
37
173
(2)
Balance at 31 March 2020
2,575
5,591
Additions
Acquisition of subsidiary
Disposals
-
-
-
Balance at 31 March 2021
2,575
Depreciation and impairment
Balance at 31 March 2019
Depreciation charge for the year
Balance at 31 March 2020
Depreciation charge for the year
Disposals
Balance at 31 March 2021
Net book value
At 31 March 2019
At 31 March 2020
At 31 March 2021
576
260
836
260
-
1,096
-
1,739
1,479
168
1
(523)
5,237
2,116
378
2,494
140
(508)
2,126
3,267
3,097
3,111
265
-
-
(265)
-
-
-
-
-
-
-
-
-
-
-
265
-
-
Total
£000
7,631
2,092
432
(267)
9,888
180
1
(551)
9,518
3,571
834
4,405
584
(536)
83
56
-
-
1,324
-
259
-
139
1,583
4
-
-
1,587
810
164
974
157
-
8
-
(28)
119
69
32
101
27
(28)
100
14
38
19
1,131
4,453
514
609
456
4,060
5,483
5,065
Depreciation is charged in the statement of comprehensive income to other operating charges.
Right-of-use assets are included within the same asset categories as they would have been if they were owned. As of 31 March 2021 the Group
has right-of-use assets with a carrying value of £3,806,000 (2020: £4,116,000). A table showing the net book value of right-of-use assets within
property, plant and equipment at 31 March 2021 and 31 March 2020, split by category, is disclosed in note 18.
64
11. INTANGIBLE ASSETS
Group
Cost
Domains
& brand
£000
Software Development
costs
£000
£000
Customer
Lists
£000
Goodwill
Other
£000
£000
Total
£000
3,686
3,165
141
157
12,026
Balance at 31 March 2019
Additions – internally developed
Additions – purchased
Balance at 31 March 2020
Additions – internally developed
Additions – purchased
Acquisition of subsidiary
912
-
-
912
-
-
-
3,965
-
300
4,265
-
259
-
373
-
4,059
419
-
-
-
-
3,165
-
-
80
Balance at 31 March 2021
912
4,524
4,478
3,245
Amortisation and impairment
Balance at 31 March 2019
Amortisation for the year
Balance at 31 March 2020
Amortisation for the year
Balance at 31 March 2021
Net book value
At 31 March 2019
At 31 March 2020
At 31 March 2021
366
46
412
30
442
546
500
470
3,493
312
3,805
297
4,102
472
460
422
2,872
426
3,298
389
3,687
814
761
791
804
401
1,205
399
1,604
2,361
1,960
1,641
-
-
141
-
-
15
156
12
-
12
-
12
129
129
144
-
5
373
305
162
12,704
-
-
-
419
259
95
162
13,477
108
6
114
6
120
49
48
42
7,655
1,191
8,846
1,121
9,967
4,371
3,858
3,510
IMPAIRMENT TESTING
The recoverable amount of goodwill and intangible assets is determined from value in use calculations.
The Group prepares cash flow forecasts derived from budgets and five-year business plans. For the purposes of impairment testing inflationary
growth of 0% 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 7.4% (2020: 6.8%) was applied.
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.
Increasing the pre-tax discount factor to 8.0% would result in an impairment charge against intangible assets of £169,000.
Amortisation and impairment charge
The amortisation charge of £1,121,000 (2020: £1,191,000) is recognised in profit and loss within depreciation and amortisation expenses.
An impairment charge of nil (2020: £nil) was recognised during the year.
65
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
12. Investments – Company
Cost
Balance at 31 March 2019 and 31 March 2020
Acquisitions in the year
Balance at 31 March 2021
Shares in
Subsidiary undertakings
£000
3,457
121
3,578
Total
£000
3,457
121
3,578
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*
Works Manchester Limited*
ADD Signs Limited*
Eggshell Solutions Limited*
Printing.com (UK Franchise) Limited*
Nettl UK Limited*
Grafenia Systems Limited*
Grafenia Technology Limited*
Creative Enterprise Support Limited*
TemplateCloud Limited*
W3P Limited*
Nettl of America LLC^
Grafenia France S.à.r.l.^
* - Owned directly by Grafenia PLC
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
Printing and Design - dormant
Partner contracts – dormant
Partner contracts – dormant
Licence agreements – dormant
Licence agreements – dormant
Enterprise Support – dormant
Template Provision – dormant
Software – 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
13. INVENTORY
Group
2021
£000
Group
2020
£000
Company
2021
£000
Company
2020
£000
Raw Materials
Total inventory
444
444
346
346
-
-
-
-
66
14. TRADE AND OTHER RECEIVABLES
Other receivables due from subsidiary companies do not have fixed repayment terms.
At 31 March 2021 trade receivables are shown net of an impairment allowance of £1,090,000 (2020: £1,000,000).
Trade and other receivables denominated in currencies other than sterling comprise £136,000 (2020: £112,000) of trade receivables.
Group
2021
£000
Group
2020
£000
Company
2021
£000
Company
2020
£000
Trade receivables
Less provision for trade receivables
Trade receivables net
Other receivables due from subsidiary companies
Less provision for subsidiary companies
2,408
(1,090)
1,318
-
-
2,743
(1,000)
1,743
-
-
Total financial assets other than cash and
1,318
1,743
cash equivalents classified at amortised cost
Corporation tax
Other receivables
Total other receivables
163
64
227
354
53
407
-
-
-
10,688
(3,243)
7,445
-
-
-
-
-
-
9,981
(3,243)
6,738
-
-
-
Total trade and other receivables
1,545
2,150
7,445
6,738
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
966
(90)
876
1,442
(1,000)
442
Total
£000
2,408
(1,090)
1,318
Trade and other receivables represent financial assets and are considered for impairment on an expected credit loss model. The Group continues
to trade with the same customers and in the same marketplace and therefore the future expected credit losses have been considered in line with
the past performance of the customers in the recovery of their receivables.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade
receivables. The expected loss rates are based on the Group’s historical credit losses experienced over the three-year period prior to the period
end. The historical loss rates are then adjusted for current and forward-looking information on factors affecting the Group’s customers including
the area of operations of those debtors and the market for the Group’s products. The assessment of the expected credit risk for the year has
not increased, when looking at the factors affecting the risk noted above. There are no trade receivables outside of credit terms without an
impairment provision.
67
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
14. TRADE AND OTHER RECEIVABLES (CONTINUED)
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 2021
£000
As at 31 March 2020
£000
1,000
(70)
160
1,090
412
-
588
1,000
Of the total impairment provision £79,000 (2020: £72,000) 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 £209,000 (2020: £128,000) 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 no additional provision in the year (2020: £3,243,000).
15. CASH AND CASH EQUIVALENTS
Group
2021
£000
Group
2020
£000
Company
2021
£000
Company
2020
£000
Cash and cash equivalents
2,740
1,104
2,266
387
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 £117,000 (2020: £138,000) and USD of £30,000 (2020: nil).
68
16. TRADE AND OTHER PAYABLES
Current Liabilities
Trade payables
Accruals
Other liabilities
Total financial liabilities, excluding ‘non-current’ loans and
borrows classified as financial liabilities
measured at amortised cost
Group
2021
£000
689
358
752
1,799
Group
2020
£000
Company
2021
£000
Company
2020
£000
1,326
472
362
2,160
1 7
83
-
84
-
84
79
-
86
-
86
Deferred income
60
143
Total trade and other payables
1,859
2,303
Trade payables denominated in currencies other than Sterling comprise £43,000 (2020: £28,000) denominated in Euro.
There is no material difference between the net book value and the fair values of current trade and other payables due to their short-term nature.
17. BORROWINGS
For more information on the Group and Company’s exposure to interest rate, foreign currency risk and lease liabilities, see note 22.
Current Liabilities
Invoice Financing
Lease liabilities
Loans
Deferred consideration
Non-Current Liabilities
Lease liabilities
Loans
Bearer Bonds
Group
2021
£000
209
602
120
931
-
3,185
854
2,110
6,149
Group
2020
£000
Company
2021
£000
Company
2020
£000
128
625
-
753
147
3,483
-
-
3,483
-
-
120
120
-
-
854
2,110
2,964
-
-
-
-
147
-
-
-
-
The invoice discounting arrangement is secured upon the trade debtors to which the arrangement relates see note 14.
In July 2020 the Company issued bonds with a nominal value of £3,000,000, raising a net £2,010,000. The bonds are interest-free for three
years and thereafter pay 6% of the nominal value, annually in arrears, until the company exercises its call option. The bond has initially been
measured at fair value, which is considered to be the transaction price. Subsequently the liability is measured at amortised cost based on the
expected cash flows over the expected life of the instrument.
In August 2020 an additional term loan for £1,000,000, repayable over six years, was secured through the Coronavirus Business Interruption
Loan Scheme at an effective annual interest rate of 8.6%. At 31 March 2021 the liability was £974,000.
69
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
18. LEASES
All leases where the Group is a lessee are accounted for by recognising a right of use asset and a lease liability except for:
• Leases of low value assets;
• Leases with a term of 12 months or less.
IFRS 16 ‘Leases’ was adopted on 1 April 2019 without restatement of comparative figures.
AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
RIGHT OF USE ASSETS
Balance at 1 April 2019
Additions to right of use assets
Depreciation
Balance at 31 March 2020
Additions to right of use assets
Depreciation
Balance at 31 March 2021
LEASE LIABILITIES
Balance at 1 April 2019
Additions to lease liabilities
Interest expense
Lease payments
Balance at 31 March 2020
Additions to lease liabilities
Interest expense
Lease payments
Balance at 31 March 2021
Land and
buildings
£000
Plant and
equipment
£000
Motor
Vehicles
£000
1,999
-
(260)
1,739
-
(260)
1,479
2,503
49
(204)
2,348
95
(122)
2,321
56
-
(27)
29
-
(23)
6
Land and
buildings
£000
Plant and
equipment
£000
Motor
Vehicles
£000
1,999
-
120
(317)
1,802
-
107
(340)
1,569
2,621
49
193
(589)
2,274
90
152
(304)
2,212
61
-
4
(33)
32
-
1
(27)
6
AMOUNTS RECOGNISED IN THE CONSOLIDATED INCOME STATEMENT
2021
Land and
Plant and
buildings equipment
£000
£000
Motor
Vehicles
£000
Depreciation charge
on right of use assets
Interest on lease liabilities
Expenses related to low value
and short-term leases
260
107
20
387
122
152
3
277
23
1
-
24
2020
Land and
Plant and
buildings equipment
£000
£000
Motor
Vehicles
£000
260
120
45
425
204
193
5
402
27
4
-
31
Total
£000
405
260
23
688
LEASE LIABILITIES - MATURITY ANALYSIS OF CONTRACTUAL UNDISCOUNTED CASH FLOWS
Total
£000
4,558
49
(491)
4,116
95
(405)
3,806
Total
£000
4,681
49
317
(939)
4,108
90
260
(671)
3,787
Total
£000
491
317
50
858
Carrying
amount
£000
Contractual
cash flows
£000
6 months
or less
£000
3,787
4,108
4,643
5,532
390
441
6-12
months
£000
441
447
1-2
years
£000
865
865
2-5
years
£000
2,216
2,410
More than
5 years
£000
731
1,369
31 March 2021
31 March 2020
70
19. 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”). A first round of
options, exercisable when all 36 payments had been made (between 1 March 2020 and 31 August 2020) have now lapsed.
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 2020, 34 employees with options granted in the second SAYE Scheme offer held options over 585,383 Ordinary Shares.
In the financial year to 31 March 2021 5 employees with options granted in the second SAYE Scheme offer left the Scheme, leaving 29 employees
as at 31 March 2021 remaining.
The inputs used to value the options were:
2018 Options
Expected life of options
3 Years
Volatility
Dividend yield
Risk free interest rate
40%
0%
1.1%
The total number of shares under option at the year end was 450,776 equating to 0.39% per cent of the current total voting rights in the Company.
71
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
20. SHARE CAPITAL AND RESERVES
SHARE CAPITAL – GROUP AND COMPANY
In thousands of shares
In issue at 1 April
Issued by the Company
Shares on the market at 31 March – fully paid
Allotted, called up and fully paid
114,490,828 (2020: 113,525,346) ordinary shares of £0.01 each
63 deferred shares of £0.10 each
Ordinary shares
2021
Ordinary shares
2020
113,525
966
114,491
£000
1,145
-
1,145
84,685
28,840
113,525
£000
1,135
-
1,135
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.
On 26 September 2019 an employee, who was a good leaver, exercised options over 187,094 ordinary shares of £0.01 each at an issue price of
£0.0775. The difference between the issue price and the nominal value being taken to the share premium account.
On 3 September 2020 the company announced the exercise of 46,450 options over ordinary shares of £0.01 each at an issue price of £0.0775.
The difference between the issue price and the nominal value being taken into the share premium account.
On 14 December 2020 the company announced that employees who had elected to forgo a proportion of their remuneration in favour of the
equivalent value in shares, based on a purchase price of £0.0775 each, were issued 919,032 ordinary shares of £0.01.
Dividends
During the year and prior year no dividends were proposed or paid. After the balance sheet date, the Board proposed no final dividend would be
made (2020: £nil).
21. SHARE PREMIUM
At 1 April
Premium on shares issued by the Company in the year
Share issue costs
At 31 March
Group and company
2021
£000
7,801
65
-
7,866
2020
£000
4,125
3,738
(62)
7,801
72
22. 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 2021 and 31 March 2020 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 £304,000 (2020: £272,000) 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 2021
Trade and other payables
Lease liabilities
Bearer Bonds*
Loans
Invoice financing
31 March 2020
Carrying
amount
£000
Contractual
cash flows
£000
6 months
or less
£000
6-12
months
£000
1,799
3,787
2,110
974
209
1,799
4,643
5,880
1,216
209
8,879
13,747
1,799
390
-
79
209
2,477
-
441
-
118
-
559
Carrying
amount
£000
Contractual
cash flows
£000
6 months
or less
£000
6-12
months
£000
Trade and other payables
Lease liabilities
Loan Notes and
deferred consideration
Invoice financing
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
*Based on the expected cash flows used to calculate the effective interest rate for amortised cost
All trade receivables are contractually due within 6 months.
1-2
years
£000
-
865
-
235
-
2-5
years
£000
-
2,216
360
706
-
More than
5 years
£000
-
731
5,520
78
-
1,100
3,282
6,329
1-2
years
£000
-
865
-
-
2-5
years
£000
-
2,410
-
-
More than
5 years
£000
-
1,369
-
-
865
2,410
1,369
73
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
22. FINANCIAL INSTRUMENTS (CONTINUED)
FOREIGN CURRENCY RISK
Group
The Group transacts with 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 2021
Euro
£000
31 March 2021
GBP
£000
31 March 2020
Euro
£000
31 March 2020
GBP
£000
160
117
(186)
91
1,734
2,623
(1,471)
2,886
144
138
(125)
157
2,453
966
(2,035)
1,384
Trade and other receivables
Cash and cash equivalents
Trade other 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 2021, 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 (2020: £6,000) 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 £1,000 (2020: £2,000) 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.
23. CAPITAL COMMITMENTS
The Group and Company have no commitments to incur capital expenditure at the year end (2020: £nil).
74
24. RELATED PARTIES
The Company provides cross company guarantees in respect of the invoice discounting for £0.21m. In the year ended 31 March 2021 no
dividends were received (2020: nil).
Transactions with key management personnel
At the year end the Directors of the Company controlled 3.10 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.
On 28 April 2020 the Company announced the launch of the Share Stake Scheme (the “Scheme”) which allowed team members to elect to
forgo a proportion of their remuneration receivable from the Company, in return for the receipt of new ordinary shares of one penny each in the
Company (“New Ordinary Shares”) to be issued at a price of 7.75p.
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. On
14 December 2020 the Company issued the following number of New Ordinary Shares to the Directors pursuant to the Scheme:
Conrad Bona
Simon Barrell
Non-Executive Director
Non-Executive Director
Peter Gunning
Chief Executive Officer
Iain Brown
Group Finance Director
Gavin Cockerill
Chief Operating Officer
Richard Lightfoot
Director & Company Secretary
New Ordinary
Shares issued
Resulting
shareholding
% holding
upon Admission
83,580
85,356
231,352
84,208
87,644
77,156
1,170,007
85,356
1,965,352
84,208
92,518
152,156
1.02%
0.07%
1.71%
0.07%
0.08%
0.13%
On 15 July 2020 the Company put in place a facility (the “Perpetual Bond Facility”) to issue up to £50 million of perpetual bonds (the “Bearer
bonds”) and issued £3.0 million of the Bearer bonds, at nominal value, to investors, raising approximately £2.01 million before expenses. TGV
Truffle Fund, an investment fund managed by Investmentaktiengesellschaft für langfristige Investoren TGV (“Langfrist”), subscribed for Bearer
bonds to the value of £2.8 million at nominal value (the “Related Party Transaction”). The TGV Truffle Fund is a related party of the Company for
the purposes of the AIM Rules as Langfrist holds more than 10 per cent. of the ordinary shares of the Company.
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.
75
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2021
Auditors
to the Company
RSM UK Audit LLP
3 Hardman Street
MANCHESTER
M3 3HF
Registrars
and Receiving Agents
to the Company
Link Asset Services
10th Floor, Central Square
29 Wellington Street
LEEDS
LS1 4DL
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