&
Contents
01
IN SUMMARY
STRATEGIC REPORT
03 CHAIRMAN’S STATEMENT
09 CHIEF EXECUTIVE’S STATEMENT
19 FINANCIAL REVIEW
25 S.172 COMPANIES ACT 2006 STATEMENT
CORPORATE GOVERNANCE
26 DIRECTORS
28 DIRECTORS’ REPORT
31 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
32 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
81 ADVISERS AND COMPANY INFORMATION
In summary
Grafenia is a serial acquirer of vertical market software (VMS) businesses. We help founders find
the right exit strategy, without fuss. Continuing operations in an independent, decentralised way.
Providing a permanent home for their teams, management talent and culture.
Grafenia has made four acquisitions in the financial year and is currently seeking software
businesses to add to the Group.
In May 2022, Grafenia agreed the sale of the manufacturing business, Works Manchester. This
business unit has been classified as a discontinued operation within these financial statements.
TOTAL REVENUE
EBITDA from Continuing Operations
Licence & Subscription Fees
Products & Services
Discontinued Operations
FY 2023
FY 2022
£0.41m
£0.17m
£12.55m
£4.11m
▲ £1.98m
£7.57m
▲ £0.79m
£0.87m
▼ £2.58m
EBITDA
EBITDA %
Net Debt*
EPS
FY 2023
£0.46m
4%
(£16.72m)
(£1.41)p
£12.36m
£2.13m
£6.78m
£3.45m
FY 2022
£0.33m
3%
(£5.25m)
(£1.60)p
* including debt of discontinued operation in the prior year
1
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 Grafenia has made four acquisitions in the financial year
2
Jan-Hendrik Mohr
Chairman
Chairman’s
Statement
I started last year’s Chairman’s Statement by saying: “Going forward, we will double
down on the software & systems part of our business.”
And double down we did!
Today, a total of five software businesses are part of the Group. Importantly, our
executive team built this from our nucleus: the Nettl Systems business. As explained
last year, the heritage of our firm is to use software and systems to help clients. That
DNA has provided the right base to welcome several VMS companies into the Grafenia
family over the course of the last fiscal year.
But first things first: here is our scorecard of the 2022/23 financial year:
Operational Performance
In the last financial year, our turnover increased by 1.5% to £12.55m (2022:
£12.36m). Of this, £11.68m (2022: £8.92m) related to continuing operations with
£2.15m coming from our new acquisitions. Overall gross profit decreased by 4.6%
to £6.39m (2022: £6.70m) following the sale of Works Manchester and the resulting
reduction in product sales margin. On continuing operations, gross profit increased
62.4% to £5.75m (2022: £3.54m), an improved margin of 49.2% (2022: 39.7%) from
the addition of high margin software licence fees from the acquired companies.
The year showed EBITDA, which is earnings before interest, tax, depreciation and
amortisation, of £0.46m (2022: £0.33m). Our total comprehensive loss for the year
reduced to £1.61m versus £1.84m last year.
We finished the fiscal year with cash of £1.99m (2022: £1.59m of which £0.13m
related to discontinued operations) and net debt of £16.72m (2022: net debt £5.25m).
We invested £8.37m, net of cash, on the acquisition of software companies, and
capitalised £0.39m in development expenditure (2022: £0.55m).
3
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 Our nucleus: the Nettl Systems business
4
These figures are still very much influenced by the transition that the business has
been undergoing. In the CEO’s report, we are going to provide some additional
colour on the underlying revenues and profits of the Group. I fully expect next year’s
Operational Performance section in the Chairman’s Statement to reflect the company
operating as a simpler and tidy software group.
People at Grafenia
During the last financial year under review, we welcomed the teams of Vertical Plus,
Watermark Technologies, Care Management Systems and Topfloor Systems to our
Group. 71 new team members joined us.
Sometimes you have to get smaller to grow bigger. At the beginning of the financial
year, our team drastically reduced after the sale of our former manufacturing
business. That has allowed us to focus and subsequently, scale again.
Many people deserve praise for this execution. In general, transformations are
never easy. Transformations in public companies - where each step needs to be
communicated and receives public scrutiny - can be particularly tough.
On behalf of my other non-executive Board members and all shareholders, I would
like to express my sincere appreciation for the hard work that our executive team has
put into this transformation.
We can be proud of the reliability and efficiency of our FD, Iain and our Company
Secretary, Richard. Large parts of the heavy lifting in the transformation have been
their workstreams. Both executed this very well.
Roman, our M&A director, has excelled at finding and analysing potential software
businesses to join our Group. The speed of acquisition while not compromising on
business and team quality has been a true success story. Thank you, Roman.
On 3 May, we named Gavin as CEO after a thorough evaluation process of the Board.
We are really proud of the work Gavin has done reshaping the organisation through
the last year. We are keen to see him lead the Group during the scale up over the
coming years!
5
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 Nettl Systems - The operating platform for the graphics sector
6
Outlook and Current Priorities
In the next few years, our priorities will be all about scaling our acquisition and
management processes to become the best owner for the right software companies,
their founders, teams and customers. The current focus is the UK and Ireland.
As announced in our Pre-Close Statement on 3 May, we are currently exploring
funding options to support our growth strategy, both in terms of new acquisitions and
funding existing obligations. We will update the market in due course on what course
of action we propose to that end.
In past Chairman’s Statements I repeatedly said: “The success of my tenure should be
measured by whether we figure out a way to make better use of our public listing.”
More than ever, I want to be held accountable to that statement and to the ambition
to use our public listing in a more sensible manner. Very clearly, I haven’t been
successful yet but feel more positive than ever that our strategy of acquiring software
companies is the best route forward to sustainable value creation. Several successful
public peers in VMS come to mind. If Grafenia only achieves a small share of their
success, shareholders will be greatly rewarded.
We have the right team, the right operating model and, hopefully soon, the right
funding strategy in place to win. I want to thank all of our shareholders for their
patience and support over the years and our transformative last financial year in
particular.
Our AGM will take place in September 2023. I hope to see you there and to get the
opportunity to discuss our strategy in more detail!
Jan-Hendrik Mohr
Chairman
25 July 2023
7
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
CareDocs, a care management and planning platform
8
Gavin Cockerill
Chief Executive
STRATEGIC REPORT
Chief
Executive’s
Statement
Dear Shareholders,
It has been a year of progress for the Company. Previously, we reported on the efforts
and energy that had gone into preparing the business for its transition. In order to
grow the size of our Group. To become a serial acquirer of VMS businesses.
As we’ve executed our plans, although it is early days, we’ve started to see those
efforts bear fruit. It’s important to say at the outset that our newly expanded portfolio
of companies not only represents a change in our operational approach, but also
fundamentally alters the way we understand our identity, communicate our progress,
and report our performance.
First of all, as always, we’d like to sincerely thank our teams for their hard work and
dedication throughout our evolution. We’ve welcomed a great number of new people
into the Group this year. We recognise and appreciate the efforts of each and every
partner and team member across all of our operating companies.
We’ve grown again this year, ending the full year with sales from continuing operations
of £11.7m (2022: £8.9m). An addition of £2.8m.
£0.6m (7%) came from organic growth of our Nettl Systems business unit and £2.2m
(25%) from the addition of four newly acquired business units.
Historically, Grafenia has been known predominantly within the graphics sector. As
the market changed, we changed with it. Over the years, moving from a franchise
model with printing.com to a software and brand licensing model with Nettl Systems.
In both cases, the ‘secret sauce’ was always the software. We’ve built software our
entire life. It runs our business and we licence it around the world.
9
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 Given the Company’s background in software, in 2021, we announced a change in our
acquisition plans. To focus on and invest in building the structure required to become
a serial acquirer of VMS businesses.
The first step in the transformation was the sale of our production facility Works
Manchester. That moved our business away from asset-heavy manufacturing,
enabling us to focus on software and systems.
This did not change the Nettl Systems offering to our partners. Works Manchester
became the largest Works Maker, supplying printed product via our platforms.
What it meant was, our Nettl Systems business became a software operation, with
a significantly reduced cost base. But as a group, we became smaller as a result of
the divestment, with the same central costs. Growing the size of the Group, faster,
became the priority.
The next step in the transformation was to ramp up our acquisition activity with
the aim of achieving that growth. We now have a well developed deal process and
acquisition ‘flywheel’ which has resulted in four new acquisitions during the previous
financial year and a healthy pipeline of deal flow. This will be the continuing focus of
the Group moving forward with the aim of driving long-term shareholder value.
To date we’ve funded the initial consideration of the acquisitions through the issue of
bonds. During the year we issued £11.2m of bonds, at nominal value, raising £9.5m
before expenses. We deployed £9.6m of capital, including £0.3m of deal costs.
Bond Utilisation
Vertical Plus
Watermark
CareDocs
Topfloor
Initial
Deferred
Consideration Consideration
Bond 1
(Cash)
Bond 2
(Cash)
Bond 3
(Cash)
Total
(Cash)
-
£4.25m
£2.72m
£2.55m
£9.52m
-
£1.25m
£1.50m
£2.98m
£1.00m
£1.25m
£1.00m
£1.50m
-
-
£0.52m
£2.98m
-
-
-
-
-
£3.42m*
£0.85m*
-
£3.42m*
Total Consideration
£9.15m
£3.37m
£12.52m
Capital Deployed
Difference
£2.75m
£2.98m
£3.42m
£9.15m
£1.5m
-£0.26m
-£0.87m
£0.37m
*EUR to GBP conversion as at 17/02/23 = 0.89
10
OUR METHOD
Software Circle is the name we give our specialist M&A team. Led by M&A Director, Roman
Rothenberg, we’re continually reaching out to and evaluating VMS business targets, as
owners look to retire, succession plan or be part of something bigger. We find potential
acquisitions through our outreach program, engaging with niche, business-to-business, and
mission-critical platforms.
We look for businesses where the majority of revenues are recurring in nature and logo churn
is low. The sustainability of our strategy is underpinned by the recurring revenue model. This
approach allows for a more reliable revenue stream, promoting long-term stability.
Take a look at www.grafenia.com/acquisition to see the full detail. The businesses we have
acquired – and our current targets – have been stable or shown growth over the past three
years.
We’ve invested in building our acquisition ‘flywheel’. A structured approach to drive leads
and identify potential acquisition targets.
To help us find and prioritise the right kind of deals, we have a framework, a set of what we
call ‘Guard Rails’. For example:
• Target is UK/IE based
• Has a clearly defined niche market
• Majority of revenues are recurring in nature, a minimum of £500k per annum
• Valuation Multiple within range (adj EBITDA)
• Logo Churn < 10%
• Customer Concentration as % of Recurring Revenue is low
• Number of Customers > 30
Once acquired, each business is run in a decentralised way by its own senior management
team, supported by the Grafenia Board. Including Nettl Systems, where Chris Lowe has been
promoted to become managing director, having led our Licensed Partner teams for over six
years.
When operating our business units, we actively avoid any centralisation where possible.
Keeping the entrepreneurial spirit and culture that exists in the businesses we acquire.
Avoiding the inherent risks associated with integration.
Our aim is to become the permanent home for those businesses and their management
talent. Depending on the reason for the sale, sometimes the owners remain. Sometimes
the owners leave as part of the deal but have an existing management team in place. Other
times, we’ll hire a managing director to replace the owners during a transition period.
Once there is mutual conviction that a target is right, we value a business based on a multiple
of its adjusted earnings. Our experience from the first four deals we’ve completed suggests
we are able to acquire VMS businesses within our targeted adjusted EBITDA range.
11
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 Watermark, a document management platform optimised for independent financial advisors
12
Our progress so far
Over the last 12 months, we set out to prove three things. That we can find and buy
businesses that meet our criteria within the valuation metrics that we set. That we can
complete those deals quickly and efficiently. And of course, that we can successfully
operate those businesses.
A year on, we’ve made four acquisitions and Grafenia is now home to five software
business units (including Nettl Systems) that match our criteria, across multiple
sectors. The Group looks a little different today. We no longer own the production
facility Works Manchester and Grafenia no longer exists solely in the graphics space.
Our portfolio of businesses now operate primarily within the following sectors:
Graphics and Ecommerce, Finance, Property and Care Management. Further
information on the acquisitions made during the year can be found in note 23.
Vertical Plus Limited (Vertical Plus)
In October 2022, we acquired Vertical Plus, an E-commerce storefront and Inventory
management platform operating in the UK, for a consideration of £2.25m plus an
earnout of up to £0.63m. Recurring revenues are generated through licence fees to
access the software and royalties from sales generated via the platform.
Two owner managers left the business, one remaining for a transition period as a
consultant and sales director, Justin Smith, formerly also an owner, was promoted to
managing director upon completion.
Watermark Technologies Limited (Watermark)
In December 2022, we acquired Watermark, a document management platform
optimised for independent financial advisors and other financial services operating
in the UK, for a consideration of £2.5m. Watermark provide services through both its
office-based ‘Volume’ system and its cloud-based ‘Papercloud’ platform. Recurring
revenues are generated through licence fees to access the software.
Two founder managers left the business, both remaining for a transition period as
consultants. James Hughes, involved during the acquisition process, moved from our
Software Circle team to become managing director and drive the business forward.
Care Management Systems Limited (CareDocs)
In January 2023, we acquired Care Management Systems t/a CareDocs, a care
home management platform operating in the UK, for a consideration of £3.5m.
Recurring revenues are generated through licence fees to access the software on
each device required.
Two founder managers left the business, one remaining for a transition period as
a consultant. A management team was already in place, Alan Pocock (General
Manager), Sarah Conn (Sales Director) and James Leyland (Customer Engagement
and Marketing Director). All remain post completion.
13
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 Topfloor’s Myblockman portal for lessees & unit owners
14
Topfloor Systems Limited (Topfloor)
In February 2023, we acquired Topfloor, a property management platform operating
in the UK and Ireland, for a consideration of €4.8m plus an earnout of up to €1.4m.
Topfloor provide software services for property management through its ‘Blockman’
and ‘Letman’ platforms. Blockman – a web based application for apartment blocks
and estate managing agents and Letman – a web based application for lease
administration and client rent accounting of residential property units. Recurring
revenues are generated through licence fees to access the software.
One of three founder managers left upon completion. Two remain, the CEO Niall
Wrafter and CTO Cathal Browne.
Historic Performance - Sales in last 3 financial years* (unaudited):
*Respective financial year for each business
**EUR to GBP conversion as at 17/02/23 = 0.89
Financial year
Total Sales**
2020
£6.2m
2021
£7.1m
Vertical Plus
£1.8m
£2.4m
Watermark
£1.2m
£1.2m
CareDocs
Topfloor
£2.1m
£2.3m
€1.2m
€1.4m
2022
£7.1m
£2.0m
£1.2m
£2.5m
€1.6m
We have successfully onboarded our newly acquired businesses and they are
contributing to profitability.
Our five operating businesses generated a positive EBITDA of £0.8m after Group
central costs of £0.9m. Central costs include our Executive and Non-Executive teams,
Software Circle and other central salaries, audit fees, other advisor fees, bond fees
and AGM costs.
After deducting the associated non-recurring deal costs of £0.3m involved in the
acquisitions, the EBITDA for the year was £0.5m (2022 £0.3m).
The four acquisitions have a combined annualised turnover of over ~£7.0m. £2.2m
of total sales in the financial year were generated by these acquisitions, having been
acquired during the latter stages of the financial year.
We plan to drive organic growth across the Group by benchmarking key performance
metrics, providing focus, structure and know-how around operational best practice.
Ultimately, we acquire these businesses for what they can do for the Company i.e.
bring recurring revenues and profit.
15
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 Nettl Systems
Our Nettl Systems business today, is what you may have known the Grafenia Group to
be this time last year. Licencing software and brands to graphic professionals. Nettl
Systems licences printing.com and Nettl directly in the UK and Ireland. Also licencing
Nettl in Belgium, France, the Netherlands and in the USA. In Australia and New
Zealand, we master licence to our partner.
Operating Nettl company stores and online print stores also remains part of the Nettl
Systems business. Collectively contributing £4.5m of total sales (2022: £4.3m).
Overall, Nettl Systems generated £9.5m of sales (2022: £8.9m). A 7% year-on-year
increase. That’s a welcome result, but it was coming off a year still impacted by the
COVID pandemic. We expect Nettl Systems to grow organically, as we continually
develop the platform to future-proof our partners and increase the product range to
help them say yes to clients, more often. But that growth may be more modest, and
may not significantly ‘move the needle’ in terms of Group size. Our focus at Group
level, is therefore on scaling by way of acquisition.
Operating Business Unit Sales:
Below you’ll see a breakdown of the sales contribution of our five operating business
units for the period since acquisition.
Business
Unit
Sector
Revenue
Category
Initial
Date
Group
Acquired Consideration Consideration Sales
2023
Deferred
Nettl Systems Graphics &
Ecommerce
Graphics &
Ecommerce
n/a
n/a
n/a
£9.53m
Vertical Plus
Ecommerce
Graphics &
Ecommerce 01/10/22 £1.25m
£1.00m
£1.01m
Watermark
Document
Management Services
Professional
07/12/22 £1.50m
£1.00m
£0.42m
CareDocs
Health
Care Home
Management & Care
Topfloor
Property
Management
Property
18/01/23 £2.98m
£0.52m
£0.55m
17/02/23
£3.42m
£0.85m
£0.17m
Total
£9.15m
£3.37m
£11.68m
16
Current trading and outlook
Our new financial year started in April. We’re currently trading in line with our internal
forecasts and newly acquired business units are performing as expected. With the
acquisitions we’ve added to the Group, on a run-rate basis, annualised sales would
be approximately £17m. We’re therefore cautiously optimistic about the upcoming
year. With a full year’s trade from our newly acquired businesses, our goal of achieving
EBITDA at 10-15% of sales, after central costs, remains a realistic target.
As we further reposition our business, the search for VMS businesses continues
and our deal flow looks healthy. As previously announced, we are looking to raise
additional funds to continue the execution of our acquisition strategy, both in terms of
new acquisitions and funding existing obligations, and the growth of the Group.
Thank you for your continued support. I hope to see you in person at our AGM.
Gavin Cockerill
Chief Executive
25 July 2023
17
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
Vertical Plus, an ecommerce storefront and inventory management platform
18
STRATEGIC REPORT
Financial
Review
Iain Brown
Group Finance Director
Revenue
Group revenue for the year was £12.55m, (2022: £12.36m), an increase of 1.5%
year-on-year. That change is best visualised in the following table:
Business Unit
Group Sales
2023
Group Sales
2022
Graphics & Ecommerce
£10.54m
£8.92m
Professional services
Healthcare
Property
Discontinued Operations
£0.42m
£0.55m
£0.17m
£0.87m
n/a
n/a
n/a
£3.44m
£12.55m
£12.36m
Our Graphics and Ecommerce division contains the pre-existing Nettl Systems
business plus the newly acquired business of Vertical Plus. Like-for-like
Nettl Systems revenue grew to £9.53m (2022: £8.92m), a 7% increase as
product volumes continued to recover from the pandemic impacted years and
inflationary price increases were applied. The addition of Vertical Plus added an
additional £1.01m of revenue in the second half of the year.
Additional divisions have been created for the three other acquisitions, further
contributing a combined £1.14m of predominately recurring revenue. As a
result, licence and subscription revenue generated by the Group rose to £4.10m
(2022: 2.14m).
Gross profit
Gross profit of the Group decreased to £6.39m (2022: £6.70m). The fall results
from the sale of the discontinued operation, Works Manchester, on 31 May
2022 with gross profit from discontinued operations reducing to £0.64m (2022:
£3.16m). When we sold Works Manchester we entered into a 5 year supply
agreement to provide products to our Company stores and Partners. This
change in how we operate reduces the gross profit percentage of the Group, but
at the same time reduces staff costs and overheads.
19
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
Gross profit from continuing operations was £5.75m (2022: £3.54m) and a gross margin
percentage increase of 49.2% (2022: 39.7%) reflects the increase in recurring licence
fee based revenue. For the newly acquired businesses, the directly related costs of
providing the service tend to be a low percentage of revenue, mainly consisting of the
server costs required to run the different platforms. Like-for-like, the gross margin within
our Nettl Systems operations was 41.1% (2022: 39.7%) reflecting the impact in the year
of inflationary price rises made in both this and the prior financial year as production
costs have continued to rise. Unfortunately, costs continue to rise and we continue to
monitor our selling prices accordingly.
Other operating costs
Overall staff costs decreased by 8% to £3.89m (2022: £4.24m) whilst the average
number of persons employed fell by 37% to 92 (2022: 146). An element of this mis-
match relates to wage inflation, but the primary driver is due to the change in the make-
up of the staff base, with traditionally lower paid manufacturing roles leaving the Group
on the sale of Works Manchester and higher paid software engineering roles coming in.
Other operating charges were £1.96m (2022: £2.09m) with significant overheads
removed as a result of the sale of the primary production facility in Manchester. The
acquisitions are comparatively light in overheads, we have however incurred acquisition
related costs in the year, comprising legal and professional fees plus associated stamp
duty. Across the four acquisitions these totalled £0.35m in the year under review.
Profitability
This has been impacted in the year following a writedown of £0.81m against
consideration receivable following a missed instalment from Rymack Signs Solutions
limited on 31 May 2023. This, combined with the factors discussed above, resulted in
a pre-tax loss of £2.62m (2022: £1.71m) and a loss per share of 1.41p (2022: 1.60p).
Our earnings before interest, tax, depreciation and amortisation (EBITDA) was £0.46m
(2022: £0.33m). Excluding Works Manchester, EBITDA was £0.41m (2022: 0.17m).
Within this, the newly acquired subsidiaries, excluding the related costs of acquisition,
have contributed £0.72m. The Parent Company result for the year was a loss of £2.21m
(2022: loss £0.41m).
Operating Cash Flow
The Group generated £0.30m of cash through operating activities (2022: generated
£0.13m). The sale of Works Manchester has impacted working capital in the year as
more favourable terms with multiple suppliers could not be supported under one credit
arrangement when Works Manchester became the primary supplier to Nettl Systems.
20
Investment activity
We continued our investment in the Group’s software platforms, totalling £0.39m
(2022: £0.55m), with continued enhancements and new features to the Group’s
SaaS platforms. The primary investment activity in the year has been that of new
subsidiaries, with £8.37m deployed, net of cash acquired.
Financing activity
In order to finance the investment above, as well as the associated legal and
professional fees and stamp duty, we have issued £11.20m nominal value of bonds,
raising £9.52m before expenses. Interest payments on this facility do not commence
until August 2024.
Loan repayments related to our CBILS facility totalled £0.31m (2022: 0.20m). Monthly
payments on this facility continue until April 2025.
We finished the financial year with cash of £1.99m (2022: £1.59m of which £0.13m
related to discontinued operations). Net debt rose to £16.72m (2022: net debt of
£5.25m) on account of the additional bonds issued and future consideration payments
for the acquired businesses.
KPIs
Management monitors a number of KPIs, which underpin the performance of the
Group and its operating businesses. The financial KPIs are Revenue, Recurring
Revenue from licence and subscriptions, EBITDA and overall profit or loss for the
year. These metrics can be found in the Summary section at the front of this financial
report, and also within the Consolidated statement of comprehensive income.
There are also a number of non-financial KPIs which management monitors, that
ultimately drive the financial performance of our operating businesses. We use these
KPIs when assessing the suitability of acquisition targets as well as benchmarking
post acquisition performance. We track changes in monthly recurring revenues (MRR)
in order to measure Logo Churn percentage - the rate at which a SaaS or subscription
company is losing customers, on an ongoing basis. Although acquiring new customers
is a core goal of any SaaS company, ensuring the retention of subscribing customers is
just as important. We also measure a number of cost base categories as a percentage
of Annual Recurring Revenues (ARR) to benchmark operational efficiencies.
21
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 Outlook
Whilst this year has been very different from the last, next year we expect more of
the same. As the acquired businesses contribute a full financial year, we expect more
recurring revenue growth and more growth in EBITDA. With the acquisitions we’ve
added to the Group, on a run-rate basis annualised revenue would be approximately
£17m. Our stated goal for a number of years has to reach 10%-15% EBITDA in the
mid-term, we now believe this is a realistic target for the upcoming year. Our search
for software businesses continues, our deal flow looks healthy and we are currently
considering raising additional funds to continue the execution of our acquisition
strategy, and the growth of the Group.
Principal Risks and Uncertainties
The following are the principal risks relating to the Group’s operations:
Risk
Potential Impact
Mitigation
Economic and
A downturn in the
To mitigate supply chain disruption
political factors
macroeconomy may reduce
across borders the majority of
beyond the
consumer demand generally.
product supply is now sourced
Group’s direct
control
Costs may be increased by
changes to government policy,
from the jurisdictions the customer
belongs to.
including tax changes or other
Our platform has the capability
legislation.
to source product supply from
multiple suppliers, across multiple
regions should it be required.
Supply chains may be subject
to disruption, or inflationary
pressure.
Changes in interest rates could
impact the ability to raise
required capital to fund the
acquisition strategy.
Competitive
Some of the markets in which
We work closely with suppliers to
environment
the Group operates are
monitor input costs and competitor
extremely competitive posing a
pricing, ensuring we remain
threat to profitability.
competitive.
22
Risk
Potential Impact
Mitigation
Acquisition of
A poor performing acquisition
We operate a structured and
a sub-optimal
would consume management
rigorous due-diligence process when
business
time, focus and Group cash
assessing potential acquisitions
flows.
to ensure the target meets our
acquisition criteria and establish the
quality of its earnings.
We also model alternative scenarios
and build contingency plans for each.
Technological
Advances in software
We are constantly improving our
change
and advances in artificial
platforms and adding new features to
intelligence may impact on
ensure we remain at the forefront of
operational effectiveness and
technological advancement.
earnings potential.
Technological
The Group and its clients
All reasonable operational
failure
depend on the SaaS platform to
contingency is embedded for
operate their businesses.
resilience in the event of a
catastrophe.
Key management The loss of key personnel could
The Remuneration Committee seeks
impact the Group’s ability to
to ensure rewards are commensurate
implement strategy and the
with performance and aid retention.
intended pace of growth.
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
21 for further details about the Group’s objectives and policies on use of financial
instruments and exposure to credit, interest rate, foreign currency and liquidity risks.
Iain Brown
Group Finance Director
25 July 2023
23
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
Nettl partners buy print, signs and branded merchandise via our platform
24
S.172 Companies Act 2006 Statement
In addressing each of the ten points of the QCA code within the Corporate governance statement on pages 32
to 39, we provide examples of how the Company:
• takes into account the likely consequences of decisions in the long term;
• has regard for the interests of the Company’s shareholders, employees and other stakeholders;
• promotes openness amongst employees and endeavours to maintain a culture built on integrity;
• takes into account the desirability of the Company maintaining a reputation for high standards of
business conduct; and
• has regard for 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 strategic planning process involves gathering market and business information, scenario
planning and the application of experience and knowledge of current affairs by members of the Board.
Key Board Decisions
Considerations
Acquisition of software
All acquisition targets are assessed against a set of criteria to determine their suitability
businesses
to join the Group. Those acquired during the year met the requirements of having stable
customer bases with revenue of a recurring nature, are profitable and are cash generative.
Expansion of the Board
Adding an additional non-executive director to the Board who has a successful history
investing in public holding companies and who specialises in ‘value investing’ brought
additional expertise to support the Company’s acquisition strategy moving forward.
Issue of additional bonds
For the first phase of acquisitions, issuing additional bonds was considered the most
efficient option to finance the initial consideration payments required. Alternative methods
of funding may have taken an extended timeline to access, been time consuming to obtain,
expensive, unavailable or available in limited sums or, in the case of equity, too dilutive to
existing shareholders given the Company’s share price at the time.
Seek additional equity
To continue the acquisition strategy additional funding is required. Raising equity from new
and existing shareholders would enable them to invest at an early stage in the journey, with
the strategy validated following a successful first phase. The Group would raise the funds
it requires without adding to the annual interest payment burden, increasing the amount of
cash flows available for re-investment.
The Directors continue to promote the success of the Company in accordance with section 172 of the Companies
Act 2006.
Approval of the strategic report on behalf of the board
Iain Brown
Group Finance Director
25 July 2023
25
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
Directors
Jan Mohr
Chairman
Gavin Cockerill
Chief Executive Officer
Jan is based in Hamburg, Germany and is Managing
After graduating from Birmingham City University in 2000 and
Director of the advisory firm JMX Capital GmbH and
following a short stint in advertising, Gavin helped launch and
CEO of MEDIQON Group AG. He previously worked with
grow printing.com studios in the UK. Since joining the Group
Investmentaktiengesellschaft fuer langfristige Investoren
he has been involved in progressing the Nettl and printing.com
TGV, Hauck & Aufhaeuser and McKinsey & Company.
software licencing business models and its numerous master
Jan graduated from Frankfurt School of Finance and
licences globally. In 2012 he launched and developed the
Management and earned a Master’s in Finance at Stockholm
Group’s online platforms.
School of Economics as a German National Merit Scholar.
Gavin was appointed Chief Operating Officer in October 2015.
Jan was appointed to the Board in March 2016. Age 34.
He has been a member of the Board since January 2018, was
appointed Acting CEO in May 2022 and CEO in May 2023. Age 44.
Iain Brown
Group Finance Director
After graduating from Leeds University with a
Bachelor of Arts degree in Accountancy and
Finance in 2008, Iain joined audit practice with
Baker Tilly UK LLP and subsequently qualified as a
chartered accountant with the Institute of Chartered
accountants in England and Wales. Prior to joining
Grafenia, he held a number of senior financial
positions with Myriad Group AG, a publicly listed
Swiss software business trading across the world
from multiple locations, before ultimately being
appointed as Group Financial Controller in 2016.
Iain joined the Group in October 2019 and was
appointed Group Finance Director in January 2020.
Age 36.
26
Richard Lightfoot
Director and Company Secretary
Richard graduated from Manchester Metropolitan
University in 1998 with a First Class honours degree
in Business Studies. He subsequently worked for a
Corporate Finance advisory firm assisting on mergers
& acquisitions and venture capital fund raisings. Since
joining the Group in 2004 he has performed a number
of roles supporting the Board in implementing
strategic initiatives.
Richard was appointed Company Secretary in
October 2015 and was appointed to the Board in
January 2018. Age 51.
Conrad Bona
Non-Executive Director
Conrad is a business consultant, investor and entrepreneur
who started his career as a banking and finance lawyer and
has worked in Toronto, London and Tokyo. He has a degree in
economics from the University of Western Ontario, law degrees
from the University of Edinburgh and the University of New
Brunswick and qualified to practice as a lawyer in multiple
jurisdictions. No longer practising law, Conrad now advises
companies on a wide range of commercial, financial and business
matters. He is currently a non-executive director of System1
Group Plc. He has both Canadian and British citizenship.
Conrad was appointed to the Board in October 2015. Age 54.
Simon Barrell
Non-Executive Director
Matthias Riechert
Non-Executive Director
Simon qualified as a chartered accountant in 1983 and is a
Matthias is a founder and Director of P&R Investment
Fellow of the Institute of Chartered accountants in England
Management Limited (“P&R”), an investment advisory
and Wales. He’s held various posts as Finance Director and has
firm. Previously, Matthias worked in sales and trading at
experience across multiple industries working in both the public
Citigroup Global Markets for nine years. He has an MBA
and private sectors. He has also held numerous non-executive
from London Business School and Columbia Business
positions for a number of public companies and continues to
School where he specialised in value investing.
act as an adviser to listed and non-listed companies. He is
currently a non-executive director of SRT Marine Systems plc
and Westminster Group 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 64.
Matthias was appointed to the Board as a Non-Executive
Director in October 2022. Age 50.
27
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 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
2023. The Directors have proposed that no final dividend will be paid (2022: nil).
PRINCIPAL ACTIVITIES
During the year we divested most of our manufacturing operations, Works Manchester. The principal activity of the Group is the delivery of
Software as a Service (SaaS) that solves clients’ problems. We buy and operate VMS businesses, licensing a suite of mission critical software to
predominantly SME customers across a variety of sectors.
DIRECTORS
The following Directors have held office since 1 April 2022:
J-H Mohr
C C Bona
S G Barrell
M Riechert
Non-executive Chairman
Non-executive Director
Non-executive Director
Non-executive Director – appointed 31 October 2022
G G Cockerill
Chief Executive Officer
R A Lightfoot
Director and Company Secretary
I S Brown
Group Finance Director
P R Gunning
Chief Executive Officer – resigned 18 May 2022
All the Directors are subject to re-election at intervals of no more than 3 years.
I S Brown who retires by rotation and M Riechert who was appointed during the year, both being eligible, offer themselves up for re-election in
accordance with the Company’s Articles of Association.
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 on-line message boards, by circulation of KPIs and provision of access to relevant operational results.
A regular schedule of staff meetings are held and relevant internal announcements made by email. The Company takes account of any comments
and feedback provided by employees in the formulation of its policies and procedures. In particular this year, regular communications were
made to employees on the transformation of the business, announcing and explaining the divestment of Works Manchester and completion of
acquisitions as they joined the Group.
We have previously run SAYE schemes with our employees and will be reviewing the future offering during the current year.
RESEARCH AND DEVELOPMENT
Developing the software platforms across our Group is an ongoing process. Each year we introduce new features and services with the aim of
increasing annual recurring revenues and reducing logo churn. In our newly acquired subsidiaries, management teams have developed clear
roadmaps for the necessary enhancements in the years ahead, which we continually review.
During 2023, highlights include:
• Nettl Systems – the addition of a new email builder for partners allowing them to easily build and edit email templates to market themselves
to clients. Utilising key data within the same system, to personalise messages and improve response rates. Along with the launch of SEO
Console, a low cost DIY Portal for customers to improve their SEO visibility.
• Vertical Plus – the development of Cleargro, an advanced inventory management system plugin extension for Wordpress websites,
extending the potential client base.
• Watermark – the addition of new features to PaperCloud allowing customers to migrate to a cloud-based solution.
• CareDocs – ongoing investment in the platform to meet NHS Assured Supplier requirements.
28
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 equipment 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 (2022: nil).
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 2023:
Registered holding
Number of shares
% of issued share capital
Langfristige Investoren TGV
Value Focus Beteiligungs GmbH
Stefan Winterling
Frankfurter Investmentgesellschaft
Scherzer & Co SA
Axxion SA
33,434,909
30,224,866
7,279,074
5,805,000
5,675,500
5,634,919
29.20%
26.40%
6.36%
5.07%
4.96%
4.92%
POST BALANCE SHEET EVENT
On 1 June 2023 Grafenia plc announced that a £514,223 instalment of deferred consideration from Rymack Sign Solutions Limited, a
privately owned company trading as PFI Group (“PFI”), due on 31 May 2023 was not made. The Company remains in discussions with PFI to
resolve the matter. The total outstanding consideration is £2,809,973. The carrying value in the financial statements is £1,698,000.
FUTURE DEVELOPMENTS
As we further reposition our business, the search for VMS businesses continues and our deal flow looks healthy. As previously announced,
we are looking to raise additional funds to continue the execution of our acquisition strategy, both in terms of new acquisitions and funding
existing obligations, and the growth of the Group.
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.
The base case forecast assumes steady revenues and increased cash contributions from the new operating divisions as we enter the first full
year of ownership. Allowances have been made for rising costs, particularly in employee costs and energy prices for our remaining stores.
The primary cash flow impact identified in the sensitivity analysis is a significant reduction in cash collections driven by lower customer
demand. The Directors recognise the need to raise additional funds in order to meet both liabilities for consideration payable in respect of
past acquisitions and ongoing working capital. Whilst this creates a material uncertainty we anticipate being able to raise such funds through
the issue of new share capital and/or by raising additional debt finance. The Directors have 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 and negotiating
the timing of future payment obligations.
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.
Accordingly, the Directors continue to adopt the going concern basis in preparing the annual report and financial statements.
29
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held in September 2023 and shareholders will receive a notice in due course. In addition
to the ordinary business, the Company will also propose a number of resolutions, which will be dealt with as special business. Details will be
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. As discussed more fully in the Audit Committee report, the Company has
determined that it is appropriate this year to re-tender the audit. The process is due to take place in August and a resolution to appoint the
successful audit firm will be proposed at the next Annual General Meeting.
A fair review of the business and its performance and the use of financial instruments are not shown in the directors’ report because they are
shown in the strategic report instead under s414C(11).
By order of the Board
Iain Brown
Group Finance Director
25 July 2023
30
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 are required by the AIM Rules of the London Stock Exchange to prepare the Group financial statements in accordance
with UK-adopted international accounting standards and have elected under company law to prepare the Company financial statements in
accordance with UK-adopted international accounting standards and applicable law.
The Group and Company financial statements are required by law and UK-adopted international accounting standards 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 UK-adopted international accounting standards;
• 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.
31
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 Corporate governance statement
FOR THE YEAR ENDED 31 MARCH 2023
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) is 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 did 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
In the summer and early autumn of 2022, the Board ran a strategy exercise to establish the right operating model and leadership structure
for the Group going forward. Our aim was first shared with our shareholders at the 2022 AGM. It puts our acquisition strategy at the centre
of our focus to drive long term shareholder value, and is as follows:
“To be a leading serial acquirer and operator of VMS businesses. A permanent home for software leaders, teams and customers.”
Our strategy to achieve this is to build our acquisition ‘flywheel’, deploying capital to buy VMS businesses that meet our criteria and to
operate those in a decentralised way to accelerate our growth.
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 – www.grafenia.com/acquisition.
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.
The Chairman and Company Secretary go to additional lengths to identify and communicate with major shareholders whose holding is via
nominee accounts and encourage attendance at the AGM, voting and shareholder feedback and engagement. Both the Chairman and CEO
also meet on an adhoc basis with significant and major shareholders and provide feedback to the Board.
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.
32
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 out in the disclosures to principle 1 of the code.
Employees
The Company regularly engages with its employees via a number of practices and procedures. Team members are able to give valued feedback
on the working environment and other stakeholder insights through, for example:
• on-line message boards and forums as well as third party applications and business communication platforms. Use of such platforms came
into sharp focus during the pandemic and now continue to support homeworking; and
• regular virtual meetings bringing together our customer facing operational senior management and team leaders.
Customers and Suppliers
The Group 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.
The Group’s business units operate in different sectors and are run in a decentralised way by their own senior management teams who are
responsible for engaging with customers and suppliers through events such as exhibitions, roadshows, conferences, on site visits and remote
sessions. Direct feedback and responses to initiatives such as on-line polls and votes have shaped key strategic and operational decisions around
important aspects of our businesses, ranging from pricing to environmental policies and considerations.
Environment
The Company is conscious of the environmental impact of the industries that its business units operate in. We seek to mitigate and minimise the
Company’s impact on the environment through practices and procedures appropriate to each business unit. Nettl Systems for example offers
biodegradable products and recycled options to its customers and previously invested in technologies to reduce its energy consumption such as
voltage optimisation equipment.
33
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 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 Financial Review.
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. Board papers include a comprehensive CEO’s report covering
a wide range of KPIs consistently applied across all business units, Red Amber Green (RAG) reporting against valuations models and pre
acquisition expectations and Return On Sales (ROS) benchmarking that dictates the operational focus for each business unit, that in turn
forms the basis of the operational focus set out in a ‘Playbook’ for each business units senior management team to then execute.
• The Executive Directors meet prior to each full Board to discuss risks and opportunities facing the Group’s various business units.
• The CEO meets regularly, sometimes daily and at least bi-weekly, with the senior management teams of each business unit 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 a comprehensive onboarding programme undertaken with the senior management
team of each business acquired which includes:
• the development of a 100 day plan to address, amongst other things, due diligence findings.
• preparation of a financial budget and the plumbing in of the business unit’s accounting platform to the Group’s central reporting
platform.
• building reporting processes, procedures and infrastructure for benchmarking KPI’s and Monthly Recurring Revenue (MRR) metrics
that the Group applies consistently across all business units to measure operational performance.
• development of a ‘Playbook’ based on a RASCI model (setting out who is Responsible, Accountable, Supporting, Consulted and
Informed for particular ‘Milestones/Tasks’) which sets Objectives and Key Results (OKRs) agreed with the Management teams to
measure the success of a financial year, align future objectives, identify operational efficiencies, evaluate pricing and determine where
organic investment should go.
• The Company has information systems for monitoring its financial performance against approved budgets and forecasts.
• Documented quality systems include relevant health and safety policies and procedures for each of the Group’s business units. A risk
register is maintained and the Executive Directors report 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.
34
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.
Matthias Riechert joined the Board during the year. The Board currently comprises four Non-Executive Directors (including the Chairman) and
three Executive Directors.
All of the Directors are subject to election by shareholders at the first Annual General Meeting after their appointment and 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.
During the year the Company raised bond funds of £4m (at face value) from Chapters Group AG of which the Company’s Chairman, Jan-Hendrik
Mohr, is also minority shareholder and CEO. In addition, Matthias Riechert was appointed to the Board. Matthias is founder owner and Managing
Director of P&R Investment Management Limited, which is a sub advisor to Axxion SA. Axxion is a significant shareholder in the Company with
4.29% / 5,634,919 shares and also a bond investor (having invested £4.25m / £5m face value). Given their respective positions with Chapters
Group and P&R Investment Management the Board does not consider Mr Mohr and Mr Riechert to be independent for the purposes of Principle 5
of the QCA Code.
To ensure transparency, disclosure, and independent oversight into matters relating to Chapters Group or Axxion’s investments in the Company,
a sub-committee of the Board, excluding Mr Mohr and Mr Riechert is formed to make decisions regarding the Company’s bonds and any other
relevant matters. All other Non-Executive Directors are considered independent on the basis that they receive a fixed fee for their services, do not
participate in any performance-related remuneration schemes, do not have any interest in a company share option scheme and have no material
financial relationships with the Company.
All Board members are required to review their affiliations, relationships, and business interests on an ongoing basis and report to the Board any
matter which may compromise their objectivity or impartiality in decision-making or affect their independence.
To enable the Board to discharge its duties, all Directors have full and timely access to all relevant information. A rolling programme of Board
meetings is maintained throughout the year together with adhoc meetings as the Company’s requirements demand. The director’s attendance
records in the year under review (excluding directors who have ceased to be directors in the period), is as follows:
Board
meetings
Audit
Committee
meetings
Remuneration
Committee
meetings
Investment
Committee
meetings
Number held
Jan-Hendrik Mohr (Chairman)
Conrad Bona (Non-Executive Director)
Simon Barrell (Non-Executive Director)
Matthias Riechert (Non-Executive Director) *
Gavin Cockerill (CEO)
Richard Lightfoot (Director & Company Secretary)
Iain Brown (Group Finance Director)
* appointed on 31 October 2022
9
9
9
9
3
9
9
8
3
3
3
3
2
-
-
3
2
2
2
2
2
-
-
-
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.
4
4
2
2
4
35
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
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 and the names, qualifications and backgrounds of each of
the directors are disclosed within the Directors section of this annual report.
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 two German nationals, 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 all new Directors with a comprehensive onboarding pack and on an ongoing basis Directors are provided 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; and
• 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 years’ evaluation was formal succession planning
and lack of diversity. The Company has made considerable progress on succession planning after going through the CEO transition in the last
financial year. To improve the diversity of the board is an ongoing review item in a review process led by a non-executive Board member who was
appointed by the Chairman.
36
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 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
The current makeup of the Board reflects a broad perspective of different skills.
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.
During the financial year, the Company has successfully managed through a CEO transition.
During the evaluation period, the relevant skill sets of both executive and non-executive
directors were thoroughly discussed in the board and with external advisers.
In addition, a non-executive Board member was tasked with a review of the overall Board
effectiveness and skill sets needed for the new strategy of the Company. That review was
ongoing at the time this report was published.
Strategy of the business
In 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. Ultimately
we took the decision to market our manufacturing business, Works Manchester, and that
culminated in its sale to PFI Group on 31 May 2022. The Board held a detailed strategic review
in early autumn 2022 and whilst our strategy remains to build, buy and license our acquisition
strategy has a renewed focus “To be a leading serial acquirer and operator of VMS businesses. A
permanent home for software leaders, teams and customers”.
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.
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. The Company has documented its Leadership Values which sit at the
centre of its operating values and ethics and are disseminated to all team members.
The Group’s individual business units have staff manuals which set out, amongst other things, policies and procedures for Equality & Diversity,
Modern Slavery, Anti Bribery, Anti Tax Evasion and Whistleblowing.
37
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
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 the Director’s 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; and
• 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 noting any unresolved matters from prior meetings, 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.
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, a Remuneration Committee and an Investment 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, Remuneration Committee and Investment Committee presently comprise the Company’s Chairman and all Non-executive
Directors, it is the Company’s present policy for any new Non-executive Directors to join all Committees. During the year Simon Barrell was
appointed Chairman of the Audit Committee and Matthias Riechert was appointed Chairman of the Remuneration Committee.
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 judgement 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.
38
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 meets at least once a year and is responsible for making recommendations to the Board on the Company’s
framework of Executive remuneration and its cost. The Committee determines the contract terms, remuneration and other benefits for each
of the Executive Directors, including performance related bonus schemes, pension rights and compensation payments. It also considers and
oversees the implementation of any share incentive schemes.
The Board itself determines the remuneration of the Non-Executive Directors.
A Directors’ Remuneration report is set out in the Group’s Annual Report.
The Investment Committee provides quality control, mentoring and leadership to the Executive Directors in relation to acquisition opportunities.
It is responsible for reviewing deal summaries and valuation models prepared by the Executive Directors and ensuring that investments fall within
pre-determined ‘Guardrails’.
The Investment Committee meets on an adhoc basis as the Company’s dealflow requires.
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 it attracts limited analyst attention and does not support having a dedicated investor relations
department, to that end Company announcements are the main source of information. 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.
Both the Chairman and CEO also communicate directly on an adhoc basis with major shareholders.
Internally the Company’s governance and performance is disseminated to business units through regular meetings between the CEO and senior
management of all business units.
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, Shareholder Circulars and Notices and all Company announcements.
The result of voting in the 2022 AGM is presented as follows:
Resolutions
1. To receive the Company’s Annual Accounts
2. To re-elect Jan-Hendrik Mohr as a Director
3. To re-elect Conrad Christian Bona as a Director
5. To re-appoint RSM UK Audit LLP as auditors of the Company
6. 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
7. To disapply statutory pre-emption rights
8. To authorise the Company to make market purchases of its own shares
* including any votes giving discretion to the Chair.
* For
46,361,494
46,358,266
46,358,266
46,408,266
46,358,266
45,589,633
46,408,266
Against
19,988
50,000
50,000
-
50,000
818,613
-
Withheld
26,784
-
-
-
-
-
-
39
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
Audit committee report
The Audit Committee comprises Simon Barrell as chairman, Jan-Hendrik Mohr, Conrad Bona and Matthias Riechert. 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 2022 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. Over the year the Committee 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 2022 audit. Feedback from the 2022 audit did inform the setting out of audit priorities with RSM in the current year’s audit process.
Regularly reviewing and assessing the effectiveness of the audit process is essential to maintaining the integrity and quality of financial
reporting. In line with best practices and regulatory requirements, the Audit Committee has determined that it is prudent to put the future audit
engagement out to tender for the upcoming year. This decision has been made after careful evaluation of various factors, including:
Independence and Objectivity:
To maintain objectivity, independence, and professional scepticism, it is important to periodically rotate the audit firm responsible for conducting
the audit. By putting the audit out to tender, we can invite fresh perspectives and ensure a thorough evaluation of audit firms, promoting
continued objectivity and independence.
Market Dynamics:
The audit industry is dynamic and subject to constant change. Regularly assessing the market for audit services helps us understand the range
of capabilities, expertise, and innovations available to us. By inviting proposals from different audit firms, we can gain insights into emerging best
practices, industry-specific expertise, and advancements in audit technologies.
Audit Quality and Value:
The Audit Committee’s primary concern is to ensure the highest level of audit quality. By inviting competitive bids from multiple firms, we can
evaluate the value proposition offered by each candidate, including their audit methodologies, experience, and industry specialisation. This
process will enable us to assess the quality and cost-effectiveness of audit services, ensuring that we receive the best possible value for our
shareholders.
Following the evaluation process, to be completed in August 2023, the Audit Committee will recommend the most suitable audit firm to the Board
of Directors. The Board will carefully consider the committee’s recommendation and make the final proposal for Shareholder approval in the
upcoming AGM.
40
Directors’ remuneration report
As a company quoted on AIM, the Company is exempt from the S420 obligation of the Companies Act 2006 to prepare a Directors’ Remuneration
Report and the S439A 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 UK Corporate
Governance Code. The members of the Committee are Jan-Hendrik Mohr, Matthias Riechert, Conrad Bona and Simon Barrell who are Non-
executive Directors. Matthias Riechert 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 are basic annual salary (including Directors’
fees) and benefits.
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
During the year the Executive Directors were each awarded a £10,000 cash bonus following the disposal of Works Manchester Limited. The
remuneration committee is currently developing a new incentive scheme that will be linked to the successful execution of the Company’s
acquisition strategy.
PENSION ARRANGEMENTS
The Company contributes the legally required pension contributions.
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 2023:
J-H Mohr
C C Bona
S G Barrell
M Riechert
P R Gunning
I S Brown
G G Cockerill
R A Lightfoot
Basic
salary
£
-
-
-
-
23,200
87,500
92,500
79,500
Fees
£
15,000
15,000
15,000
6,250
-
-
-
-
282,700
51,250
Benefits
£
Bonuses
£
Pension
£
-
-
-
-
179
638
714
1,556
3,087
-
-
-
-
50
10,050
10,050
10,050
30,200
2023
Total
£
15,000
15,450
15,000
6,363
26,017
101,115
106,341
93,793
-
450
-
113
2,588
2,927
3,077
2,687
11,842
379,079
41
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
Year ended 31 March 2022:
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
85,109
90,000
75,373
Fees
£
15,000
15,000
15,000
-
-
-
-
420,732
45,000
Benefits
£
Bonuses
£
Pension
£
2022
Total
£
15,000
15,450
15,000
-
450
-
15,525
186,882
2,555
2,702
2,268
88,332
93,226
79,175
-
-
-
50
50
50
50
200
23,500
493,065
-
-
-
1,057
618
474
1,484
3,633
DIRECTORS’ INTERESTS
At 31 March 2023, the Directors had the following beneficial interests in the Company’s shares:
J-H Mohr
C C Bona
S G Barrell
M Riechert
I S Brown
G G Cockerill
R A Lightfoot
Ordinary shares of 1p each
31 March 2023
31 March 2022
-
1,168,841
85,356
-
84,208
92,518
152,156
-
1,170,007
85,356
-
84,208
92,518
152,156
The market price of shares as at 31 March 2023 was 9.25 pence (2022: 5.35 pence). The range during the period under review was 5.00 pence to
11.00 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
2023 which comprise the consolidated statement of comprehensive income, consolidated and company statement of financial position,
consolidated and company statement of changes in Shareholders’ 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 UK-adopted International Accounting Standards. 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 2023 and of
the group’s loss for the year then ended;
• the group financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards;
• 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.
SUMMARY OF OUR AUDIT APPROACH
Key audit matters
Group
· Revenue recognition
· Going concern
· Business combinations
Parent Company
· Going concern
Materiality
Group
· Overall materiality: £273k (2022: £283k)
· Performance materiality: £204k (2022: £212k)
Parent Company
· Overall materiality: £556k (2022: £232k)
· Performance materiality: £417k (2022: £174k)
Scope
Our audit procedures covered 90% of revenue, 91% of total assets and 90% of EBITDA.
43
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, 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.
In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described
below to be the key audit matters to be communicated in our report.
REVENUE RECOGNITION
Key audit matter description
(Refer to pages 54 regarding the accounting policy in respect of revenue recognition and note 2 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. There is a fraud risk in respect
to revenue cut-off.
How the matter was addressed
The Group’s revenue recognition accounting policies were scrutinised against the requirements of
in the audit
IFRS 15. The existence and accuracy of revenue recognised was assessed via detailed testing by
reference to contracts with customers and invoices issued. The recognition of revenue around the
period end was tested on a sample basis to determine that it had been reported in the correct period.
BUSINESS COMBINATIONS
Key audit matter description
(Refer to pages 54 regarding the accounting policy in respect of business combinations and note 23 in
respect of acquisitions disclosure).
There have been four acquisitions within the period being audited. The fair values assigned to the
net assets at the acquisition date, particularly the fair values assigned to separately identifiable
intangibles, requires a significant degree of management estimation and judgement.
Furthermore, the acquisitions have elements of deferred consideration and contingent consideration.
The recognition of which requires significant estimations and assumptions from management.
How the matter was addressed
The opening balance sheet for acquisition has been agreed to completion accounts, with the
in the audit
reliability of the completion accounts tested.
Consideration paid and payable, including deferred and contingent consideration, has been
corroborated to supporting agreements.
Assumptions in relation to deferred consideration and contingent consideration recognised have
been assessed to confirm they have been reflected in the workings at an appropriate value within the
recognition of each acquisition.
The fair value assigned to net assets as at the acquisition date and the assumptions used within the
valuation of these assets have been scrutinised to confirm they are reasonable. Valuation techniques
used by management have been reviewed to confirm in line with IFRS 3.
Disclosures in relation to acquisitions have been reviewed to ensure appropriate disclosure for each
acquisition is reflected within the financial statements.
44
OUR APPLICATION OF MATERIALITY
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit
procedures. When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could
reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. Based on
our professional judgement, we determined materiality as follows:
Group
Parent company
Overall materiality
£273k (2022: £283k)
£556k (2022: £232k)
Basis for determining overall materiality
2.2% of revenue
1% of total assets
Performance materiality
£204k (2022: £212k)
£417k (2022: £174k)
Basis for determining performance materiality
75% of overall materiality
75% of overall materiality
Reporting of misstatements
Misstatements in excess of £13,600
Misstatements in excess of £27,800 and
to the Audit Committee
and misstatements below that threshold
misstatements below that threshold
that, in our view, warranted reporting on
that, in our view, warranted reporting on
qualitative grounds.
qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
The group consists of 7 components, 6 of which are based in the UK and 1 of which is based in the Republic of Ireland.
The coverage achieved by our audit procedures was:
10%
15%
9%
2%
10%
9%
Revenue
Total assets
EBITDA
Specific audit procedures
Analytical procedures
75%
89%
81%
Full scope
Full scope audits were performed for 2 components, specific audit procedures for 3 components and analytical procedures at group level for the
remaining 2 components.
Full scope audit
Specific audit procedures
Total
Number of components
Revenue
Total assets
EBITDA
2
3
5
75%
15%
90%
89%
2%
91%
81%
9%
90%
Of the above, no audits or procedures were undertaken by component auditors.
45
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
MATERIAL UNCERTAINTY RELATING TO GOING CONCERN
We draw attention to Note 1 in the financial statements. As stated in that note, the directors have prepared forecasts to assess the group and
parent company’s ability to continue as going concern for a period of at least 12 months from the approval of the financial statements. Having
considered a range of forecast scenarios the directors have concluded there is a material uncertainty in relation to having sufficient cash available
to meet their liabilities as they fall due throughout the period. In reaching their conclusion the directors recognise the need to raise additional
funds in order to meet liabilities for consideration payable in respect of past acquisitions and meet working capital requirements. The directors
anticipate being able to raise such funds through the issue of new shares and/or by raising additional debt finance through the parent company’s
existing bond facility. At this time the parent company’s ability to successfully raise such funding is uncertain. These circumstances, which are
more fully explained in Note 1, indicate that material uncertainty exists that cast significant doubt on the group and parent company’s ability to
continue as a going concern. Our opinion is not modified in respect of these circumstances.
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 and parent company’s ability to continue to adopt the
going concern basis of accounting included:
• considering the accuracy of historic forecasts
• challenging the key assumptions in the forecasts prepared including the timing of cash inflows and outflows
• considering the mitigating actions management have identified to reduce costs in the event that actual revenue performance was less
than forecast
• reviewing performance since the year end date and how this compares to the forecasts
• reviewing the appropriateness of disclosures in relation to going concern
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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.
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.
46
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement set out on page 31, 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 2023 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
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
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:
Revenue recognition
The Group’s revenue recognition accounting policies were scrutinised against the requirements of
IFRS 15.
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.
Reviewing the cut-off treatment of a sample of sales recorded around the year end. We have tested
licence income to ensure this has been correctly recognised in line with policy.
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: 25 July 2023
48
Consolidated statement of comprehensive income
FOR THE YEAR ENDED
31 MARCH 2023
Note
Revenue
Cost of sales
Gross profit
Staff costs
Doubtful debt expense
Other operating charges
Earnings before interest, tax,
depreciation and amortisation
2
4
3
Depreciation and amortisation
9 & 10
Operating loss
Impairment of assets
Financial income
Financial expenses
Net financing expense
3
25
5
2023
£000
2023
£000
Continuing Discontinued
operation
operation
2023
£000
Total
2022
£000
Continuing
operation
2022
£000
Discontinued
operation
2022
£000
Total
11,677
(5,927)
870
(235)
12,547
(6,162)
8,916
(5,377)
3,445
(286)
12,361
(5,663)
5,750
635
6,385
3,539
3,159
6,698
(3,471)
(68)
(1,806)
405
(1,556)
(1,151)
(805)
135
(830)
(695)
(417)
(10)
(155)
53
-
53
-
-
(21)
(21)
(3,888)
(78)
(2,019)
(2,221)
(4,240)
(1,961)
(1,322)
(32)
(11)
(763)
(43)
(2,085)
458
166
164
330
(1,556)
(1,098)
(805)
135
(851)
(716)
(944)
(778)
-
6
(346)
(340)
(569)
(405)
(1,513)
(1,183)
-
-
(186)
(186)
-
6
(532)
(526)
Loss before tax
(2,651)
32
(2,619)
(1,118)
(591)
(1,709)
Tax income
6
1,243
-
1,243
559
-
559
Loss for the year
(1,408)
32
(1,376)
(559)
(591)
(1,150)
Re-measurement to fair value
on discontinued operations
Loss and total comprehensive
income for the year
Loss per share attributable to the
ordinary equity shareholders of
Grafenia plc Basic and diluted1,
pence per share
22
-
(235)
(235)
-
(686)
(686)
(1,408)
(203)
(1,611)
(559)
(1,277)
(1,836)
7
(1.23)p
(0.18)p
(1.41)p
(0.49)p
(1.12)p
(1.60)p
(1) Earnings per share suffers no dilution
The notes on pages 53-81 form part of these financial statements.
49
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
Consolidated and company statement of financial position
AT 31 MARCH 2023
Note
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Other receivables
Total non-current assets
Current assets
Inventories
Trade and other receivables
Consideration receivable
Prepayments
Cash and cash equivalents
Asset held for sale/disposal group
Total current assets
Total assets
Current liabilities
Other interest-bearing loans and borrowings
Trade and other payables
Deferred income
Liabilities relating to disposal group
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
Translation reserve
Retained earnings
Total equity
9
10
11
13
12
13
25
14
11 & 22
16
15
15
22
16
8
19
20
Company
2023
£000
Company
2022
£000
Group
2023
£000
1,384
16,266
-
-
Group
2022
£000
1,077
1,391
-
-
17,650
2,468
-
-
15,665
8,268
23,933
-
541
1,698
26
210
-
2,475
26,408
3,759
1,248
-
-
5,007
29
1,281
-
283
1,462
6,234
9,289
11,757
308
1,512
77
3,530
5,427
3,842
13,886
-
3,842
9,269
2,488
1,145
838
7,866
88
66
(7,515)
2,488
-
13,886
18,893
7,515
1,145
627
7,866
88
-
(2,211)
7,515
-
-
986
-
986
-
8,331
-
36
984
2,592
11,943
12,929
172
83
-
-
255
2,953
-
2,953
3,208
9,721
1,145
627
7,866
88
-
(5)
9,721
31
2,137
1,698
110
1,994
-
5,970
23,620
3,879
1,817
186
-
5,882
14,837
1,973
16,810
22,692
928
1,145
838
7,866
88
117
(9,126)
928
The Parent Company result for the year was a loss of £2,206,000 (2022: loss £413,000).
The notes on pages 53-81 form part of these financial statements.
The financial statements of Grafenia plc, registered number 03983312, were approved by the Board of directors on 25 July 2023 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 2023
Balance at 31 March 2021
Loss and total comprehensive
income for the year from
continuing operation
Loss and total comprehensive
income for the year from
discontinued operation
Retranslation of net assets
of overseas subsidiaries
Share option reserve
Total movement in equity
Share
Capital
£000
1,145
-
-
-
-
-
Merger
reserve
£000
Share
Premium
£000
Share Based
Payment
Reserve
£000
Tranlsation
Reserve
£000
838
7,866
84
-
-
-
-
-
-
-
-
-
-
-
-
-
4
4
Balance at 31 March 2022
1,145
838
7,866
88
Loss and total comprehensive
income for the year from
continuing operation
Loss and total comprehensive
income for the year from
discontinued operation
Retranslation of net assets
of overseas subsidiaries
Share option reserve
Total movement in equity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Retained
Earnings
£000
(5,679)
Total
£000
4,254
(559)
(559)
(1,277)
(1,277)
-
-
66
4
(1,836)
(1,766)
(7,515)
2,488
(1,408)
(1,408)
(203)
(203)
-
-
51
-
(1,611)
(1,560)
-
-
-
66
-
66
66
-
-
51
-
51
Balance at 31 March 2023
1,145
838
7,866
88
117
(9,126)
928
COMPANY – YEAR ENDED 31 MARCH 2023
Share
Capital
£000
1,145
-
-
-
Merger
reserve
£000
Share
Premium
£000
Share Based
Payment
Reserve
£000
627
7,866
84
-
-
-
-
-
-
-
4
4
Balance at 31 March 2021
Loss and total comprehensive
income for the year
Share based payments
Total movement in equity
Balance at 31 March 2022
1,145
627
7,866
88
Loss and total comprehensive
income for the year
Total movement in equity
-
-
-
-
-
-
-
-
Balance at 31 March 2023
1,145
627
7,866
88
The notes on pages 53-81 form part of these financial statements.
Tranlsation
Reserve
£000
Retained
Earnings
£000
Total
£000
-
-
-
-
-
-
-
-
408
10,130
(413)
-
(413)
(413)
4
(409)
(5)
9,721
(2,206)
(2,206)
(2,206)
(2,206)
(2,211)
7,515
51
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
Consolidated statement of cash flows
FOR YEAR ENDED 31 MARCH 2023
Cash flows from operating activities
Loss for the year
Adjustments for:
Depreciation, amortisation and impairment
Loss on disposal of plant and equipment
Release of deferred profit on sale of plant and equipment
Share based payments
Net finance expense
Bad debt expense
Foreign exchange loss
Tax income
Impairment of consideration receivable
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 received
R&D tax income received
Net cash inflow / (outflow) from operating activities from continuing operation
Net cash inflow / (outflow) from operating activities from discontinued operation
Net cash inflow / (outflow) from operating activities
Cash flows from investing activities
Acquisition of plant and equipment
Disposal of plant and equipment
Capitalised development expenditure
Acquisition of other intangible assets
Proceeds from disposal of subsidiary
Acquisition of subsidiaries net of cash
Net cash used in investing activities from continuing operation
Net cash used in investing activities from discontinued operation
Net cash used in investing activities
Cash flows from financing activities
Proceeds from loans
Repayment of loans
Capital payment of lease liabilities
Interest payment of lease liabilities
Net cash generated from/(used in) financing activities from continuing operation
Net cash used in financing activities from discontinued operation
Net cash generated from/(used in) financing activities
Net increase / (decrease) in cash and cash equivalents from continuing operations
Net increase / (decrease) in cash and cash equivalent from discontinued operations
Cash and cash equivalents at start of year
Cash and cash equivalents at 31 March 2023
Comprises of:
Cash and cash equivalent from continuing operation
Cash and cash equivalent from discontinued operation
Note
Group
2023
£000
Group
2022
£000
(1,408)
(559)
3
25
10
10
16
24
14
1,556
4
-
- 4
695
68
51
(1,243)
805
528
19
(2)
(413)
132
5
67
204
104
308
(60)
1
(390)
-
100
(8,367)
(8,716)
-
(8,716)
9,520
(305)
(117)
(63)
9,035
(95)
8,940
523
9
1,462
1,994
1,994
-
944
-
(9)
340
(54)
66
(559)
-
173
(86)
2
184
273
-
-
273
(139)
134
(27)
-
(525)
(20)
-
-
(572)
(3)
(575)
-
(196)
(115)
(67)
(378)
(330)
(708)
(677)
(472)
2,740
1,591
1,462
129
52
The notes on pages 53-81 form part of these financial statements.
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. Amendments to IAS
1 Presentation of Financial Statements in respect of Non-current Liabilities with Covenants and IFRS 16 Leases in respect of Sale and Leaseback
Transactions are due to come into effect for accounting periods beginning on or after 1 January 2024 and have not been adopted early. These
amendments are not expected to have a significant impact on the Group.
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 UK-adopted International Accounting Standards and as regards the parent
company financial statements, as applied in accordance with the provisions of the Companies Act 2006. On publishing the parent company
financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the
Companies Act 2006 not to present its individual Statement of Comprehensive Income and related notes that form a part of these approved
financial statements.
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 3-17. The financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described on pages 19-23. In addition, note 21 to the financial statements includes details of the Group’s financial
instruments 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. The primary cash flow impact identified in the sensitivity analysis is a significant reduction in cash collections
driven by lower customer demand. The Directors recognise the need to raise additional funds in order to meet both liabilities for consideration
payable in respect of past acquisitions and ongoing working capital. Whilst this creates a material uncertainty, we anticipate being able to raise
such funds through the issue of new share capital and/or by raising additional debt finance. The Directors have 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 and
negotiating the timing of future payment obligations.
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. Accordingly, the Directors continue
to adopt the going concern basis in preparing the annual report and financial statements.
53
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 ACCOUNTING POLICIES (CONTINUED)
BUSINESS COMBINATIONS
In accordance with IFRS 3 “Business Combinations”, when accounting 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.
To the extent that deferred consideration is payable as part of the acquisition cost, the deferred consideration is discounted at an appropriate
interest rate and, accordingly, carried at net present value in the consolidated statement of financial position. The discount component is then
unwound as an interest charge in the consolidated statement of comprehensive income over the life of the obligation.
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.
Transaction costs are expenses to the statement of comprehensive income as incurred.
On 19 May 2022, the Group announced the sale of its manufacturing operation based in Manchester. The manufacturing operation, referred to
as ‘Works Manchester’ consisted of the legal entity, Works Manchester Limited, along with the Manchester based production assets, related
leases and staff contracts of Grafenia Operations Limited. Accordingly, these assets and liabilities were designated as held for sale and separately
disclosed in the statement of financial position and the financial impact of the discontinued operation was separately disclosed in the Statement
of comprehensive income.
Following the disposal, Grafenia entered into a 5 year supply agreement with Works Manchester Limited to provide products to our Company
stores and Partners. This change reduces the gross profit percentage of the Group, but at the same time reduces staff costs and overheads.
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’. Where surplus cash at the date of acquisition is subsequently withdrawn post-acquisition this is treated as a return of
investment, reducing the carrying value of the investment in the subsidiary.
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 four main bases:
• Supply 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.
• Provision of professional services. The Group considers the performance obligation to have been met when the service has been provided.
• Rental of equipment. There is considered to be a single performance obligation for the provision of the IT equipment and the related
software installed. Revenue is recognised over the life 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.
54
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.
• 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.
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.
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. Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from proceeds within share premium.
BORROWING COSTS
Borrowing costs are recognised in the Statement of 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 Comprehensive Income, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity.
55
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 ACCOUNTING POLICIES (CONTINUED)
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 or 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
- 20% straight line
Leasehold improvements
- over the life of the lease, 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.
INTANGIBLE ASSETS
RESEARCH AND DEVELOPMENT COSTS
Research costs are expenses as incurred. Development costs are charged to the profit or 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 or 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
Acquired Technology
Customer Lists
- 3 to 6 years
- 3 to 10 years
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated
impairment losses.
SOFTWARE
External expenditure on computer systems and software is stated at cost less accumulated amortisation and impairment losses. Amortisation is
on a straight-line basis over the useful economic life of the asset set at three years.
CUSTOMER LISTS
Customer lists arise on the buy-back of Studios and on the acquisition of subsidiary VMS companies. Customer lists are being amortised over
three to ten years and are individually tested bi-annually for indications of impairment.
56
TECHNOLOGY
Technology assets arise on the acquisition of subsidiary VMS companies by assessing the value-in-use of the software acquired. The technology
assets are being amortised over three to six years and are tested bi-annually for indication of impairment.
GOODWILL
Goodwill may arise on acquisitions. Where this occurs the valuation will be supported by a fair value assessment of the expected future cash
flows from the related cash generating unit.
IMPAIRMENT OF NON FINANCIAL ASSETS
The carrying amounts of the Group’s non-financial assets are reviewed at each reporting 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 or loss.
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.
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.
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 17.
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.
For leases of assets granted by the Group, those leases are assessed in line with IFRS 16 to determine whether the lease should be classified as
a finance lease or an operating lease. Following that assessment, the Group classifies any such leases as operating leases. The associated assets
are capitalised as fixed assets and depreciated over their expected useful economic life. Revenue generated from those assets is recognised in
line with IFRS 15.
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 or loss on the date the entities within the Group’s right to receive payments is established.
57
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023 1. ACCOUNTING POLICIES (CONTINUED)
SHARE BASED PAYMENTS
The Group operates an equity-settled share-based compensation plan through a SAYE scheme, under which the Company receives services from
employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant of the
equity instruments is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the instruments
granted, 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 or 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 an average exchange rate. The resulting surpluses and deficits are taken directly to profit or loss.
On disposal of a foreign subsidiary any cumulative exchange differences held in shareholders’ equity are transferred to the Consolidated
Statement of Comprehensive Income.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of
the accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised and in any future periods affected.
Significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the
amounts recognised in the financial statements are described below:
INTANGIBLES – CAPITALISATION AND VALUATION OF SOFTWARE AND DEVELOPMENT COSTS AND ACQUIRED INTANGIBLES
The Board considers that the Group’s key differentiators stem from its proprietary software. It is essential to continue investing in these assets.
Separate projects are defined 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 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 technology. The valuation is based upon future discounted cash flows and
expectations for the business. For VMS businesses acquired in line with the Group’s stated strategy, the expected useful lives of the customer
base has been determined by reviewing the existing Logo churn at the time of acquisition whilst the Technology’s expected useful life is estimated
based on the expected requirement for ongoing development. See note 23.
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 five 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 AND INTERCOMPANY RECEIVABLES
In assessing the expected credit losses, in respect of the trade and intercompany 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 receivables. Estimations have therefore
been made within these assumptions which could affect the carrying value of the trade and intercompany receivables.
58
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 does this for each tranche of bond issued. The expected life of bond tranches issued to date ranges
from 9 months to 20 years. 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.
2. REVENUE AND SEGMENTAL INFORMATION
Following the change in strategy of the Group, as discussed within the Strategic Report, the format of the segmental reporting has been updated.
The Group’s operating and reporting segments in the current year corresponds with the acquisition activity, see note 23 for further details on
acquisitions made during the year. This disclosure correlates with the information which is presented to the Board, which reviews revenue and
EBITDA by segment. The Group’s costs, finance income, tax charges, non-current liabilities, net assets and capital expenditure are only reviewed
by the Board 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 2023
Year ended 31 March 2022
11,845
11,723
284
289
Other
£000
418
349
Total
£000
12,547
12,361
Revenue generated outside the UK is attributable to partners in Belgium, France, New Zealand, The Netherlands and the USA within the Nettl
Systems business segment.
No single customer provided the Group with over 3% of its revenue.
DISAGGREGATION OF REVENUE AND EBITDA
The disaggregation of revenue from contracts with customers is as follows:
Year ended 31 March 2023
Licence and subscription revenue
Product and service revenue
Revenue
Divisional contribution
Central Overhead
Acquisition related costs
EBITDA
Year ended 31 March 2022
Licence and subscription revenue
Product and service revenue
Revenue
Divisional contribution
Central Overhead
EBITDA
Graphics &
Ecommerce
£000
Professional
services
£000
Healthcare
£000
Property
£’000
Discontinued
Operations
£000
3,000
7,538
10,538
1,192
387
35
422
178
544
-
544
241
173
-
173
94
-
870
870
53
1,758
Graphics &
Ecommerce
£000
Professional
services
£000
Healthcare
£000
Property
£’000
Discontinued
Operations
£000
2,135
6,781
8,916
742
-
-
-
-
-
-
-
-
-
-
-
-
-
3,445
3,445
164
Total
£000
4,104
8,443
12,547
(947)
(353)
458
Total
£000
2,135
10,226
12,361
906
(576)
330
59
Of the Group’s non-current assets (excluding deferred tax) of £17,650,000 (2022: £2,468,000), £12,907,000 (2022: £2,475,000)
are located in the UK. Non-current assets located outside the UK are in Ireland £5,802,000 (2022: £11,000).
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
3. OPERATING LOSS
Included in operating loss are the following:
Amortisation of intangible assets
Depreciation
Loss / (profit) on sale of plant and equipment
(Profit) / loss on sale and leaseback recognised in the year
Coronavirus job retention scheme income
Acquisition related costs
Research and development cost
Cost attributable to continuing operation
Cost attributable to discontinued operation
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
Fees payable to the auditor attributable to continuing operation
Fees payable to the auditor attributable to discontinued operation
2023
£000
1,321
235
82
(33)
-
353
404
2,362
2,313
49
2023
£000
140
69
209
-
2022
£000
936
577
-
9
(140)
-
291
1,673
1,096
577
2022
£000
44
40
74
10
4. 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
Group
2023
Group
2022
Company
2023
Company
2022
Administration
Sales and distribution
Production
R&D
Support
20
8
10
14
40
92
25
8
59
7
47
146
9 3
-
-
-
-
9 3
-
-
-
-
60
Defined contribution plan
The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the
Group. The amounts charged to the Consolidated Statement of Comprehensive Income represent the contributions payable to the scheme in
respect of the accounting period. In the year ended 31 March 2023 £77,000 of contributions were charged to the Consolidated Statement of
Comprehensive Income (2022: £121,000). Charges relating to the discontinued operation were £3,800 (2022: £54,000). As at 31 March 2023
£7,100 (2022: £25,000) of 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
Cost attributable to continued operation
Cost attributable to discontinued operation
Group
2023
£000
3,481
317
90
3,888
3,471
417
Group
2022
£000
Company
2023
£000
Company
2022
£000
3,696
423
121
4,240
2,019
2,221
528
-
77
605
-
-
45
2
-
47
-
-
Wages and salaries in 2023 are net of £nil (2022: £140,000) income from the Coronavirus job retention scheme.
KEY MANAGEMENT COMPENSATION:
Executive directors
Emoluments
Company contributions to money purchase pension plans
Non-executive directors
Emoluments
Company contributions to money purchase pension plans
Total directors remuneration
Employers national insurance contributions
Total
2023
£000
2022
£000
316
11
327
51
1
52
379
42
421
424
24
448
45
-
45
493
55
548
The Group considers the key management to be the Directors of the Group. Information covering Directors’ remuneration is set out in full in the
‘Elements of remuneration’ section of the Directors Remuneration Report on pages 41-42 where details of fees and benefits can be found.
The aggregate of emoluments for the highest paid Director was £103,000 (2022: £171,000), and Company pension contributions of £3,000
(2022: £16,000) were made to a money purchase scheme on their behalf. Directors for whom retirement benefits are accruing under money
purchase schemes 5 (2022: 5).
61
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
5. FINANCE EXPENSE
Lease interest
Invoice finance
Bearer bond interest
Loan interest
Foreign exchange losses
Unwinding of discount on deferred consideration
Total finance expense
Total finance expense attributable to continuing operation
Total finance expense attributable to discontinued operation
6. TAXATION
Recognised in the income statement
Current tax expense
Current year
Adjustments for prior years
Overseas corporation tax charge
Deferred tax expense
Origination and reversal of temporary differences (see note 8)
Previously unrecognised deferred tax asset currently recognised (see note 8)
Effect of change in UK corporation tax rate
Adjustments in respect of prior periods
Total tax in income statement
RECONCILIATION OF EFFECTIVE TAX RATE
Factors affecting the tax charge for the current period:
2023
£000
83
-
644
6
13 5
105
851
830
21
2023
£000
(93)
(18)
2
(109)
(170)
(972)
3
5
(1,243)
The current tax charge for the period is lower (2022: lower) than the standard rate of corporation tax in the UK of 19% (2022: 19%).
The differences are explained below:
Loss before tax
Tax using the UK corporation tax rate of 19% (2022:19%)
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
Previously unrecognised deferred tax asset currently recognised (see note 8)
Total tax credit
2023
£000
(2,619)
(498)
124
(90)
6
216
-
(29)
(972)
(1,243)
2022
£000
234
21
237
35
-
532
346
186
2022
£000
(166)
(12)
-
(178)
(63)
(318)
-
-
(559)
2022
£000
(1,991)
(378)
(530)
(11)
(1)
584
219
(124)
(318)
(559)
The Group tax debtor amounts to £155,000 (2022 Debtor: £167,000). The deferred tax liabilities as at 31 March 2023 have been calculated using
the tax rate of 25% which was substantively enacted at the balance sheet date.
In the budget on 3 March 2021, the UK Government announced an increase in the main UK corporation tax rate from 19% to 25% with effect
from 1 April 2023. The change in rate was substantively enacted on 24 May 2021.
62
7. EARNINGS PER SHARE
The calculations of earnings per share are based on the following profits and numbers of shares:
Loss after taxation for the financial year from continuing operations
Loss after taxation for the financial year from discontinued operations
Total loss after taxation for the financial year
For basic earnings per ordinary share
For diluted earnings per ordinary share
Basic and diluted loss per share
Basic and diluted loss per share from continuing operation
Basic and diluted loss per share from discontinued operation
2023
£000
(1,408)
(203)
(1,611)
2022
£000
(559)
(1,277)
(1,836)
Weighted average
number of Shares
Weighted average
number of Shares
114,490,828
114,490,828
114,490,828
114,490,828
(1.41)p
(1.23)p
(0.18)p
(1.60)p
(0.49)p
(1.12)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.
Total
2022
£000
(318)
318
8. DEFERRED TAX ASSETS AND LIABILITIES – GROUP
Recognised deferred tax assets and liabilities
Assets
2023
£000
Assets
2022
£000
Liabilities
2023
£000
Liabilities
2022
£000
Total
2023
£000
Intangible assets
Trading losses
Tax asset/(liabilities)
-
984
984
Movement in deferred tax during the year.
-
318
(2,957)
-
(318)
-
(2,957)
984
318
(2,957)
(318)
(1,973)
-
1 April
Recognised
2022 acquisition of
subsidiary
£000
£000
Recognised
Removal of
in income discontinued
operation
£000
£000
31 March
2023
£000
Intangible assets
Trading losses
Movement in deferred tax during the year.
Intangible assets
Trading losses
(318)
318
-
(3,107)
-
(3,107)
170
666
836
298
-
298
(2,957)
984
(1,973)
1 April
2021
£000
Recognised
acquisition of
subsidiary
£000
(389)
-
(389)
-
-
-
Recognised
in income
£000
63
318
381
Removal of
discontinued
operation
£000
31 March
2022
£000
8
-
8
(318)
318
-
The Group has recognised a deferred tax asset in respect of carried forward trading losses up to the value of the deferred tax liability, to the
extent that there are available tax losses within the same UK tax group. The Group has unrecognised deferred tax assets in respect of carried
forward losses of £nil (2022: £1,526,000).
Company
The Company had no recognised deferred tax assets as at 31 March 2023 (2022: nil).
63
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
9. PROPERTY, PLANT AND EQUIPMENT – GROUP
Cost
Balance at 31 March 2021
Additions
Transferred to assets held within disposal group (note 22)
Balance at 31 March 2022
Additions
Addition through subsidiary acquisition
Disposals
Balance at 31 March 2023
Depreciation and impairment
Balance at 31 March 2021
Depreciation charge for the year
Transferred to assets held within disposal group (note 22)
Balance at 31 March 2022
Depreciation charge for the year
Disposals
Balance at 31 March 2023
Net book value
At 31 March 2021
At 31 March 2022
At 31 March 2023
Leasehold
Improvements
£000
Plant and
equipment
£000
Motor
Vehicles
£000
Fixtures and
Fittings
£000
Total
£000
9,518
31
(6,439)
3,110
60
487
(23)
119
-
(28)
91
-
40
-
1,587
-
(763)
824
-
7
(5)
131
826
3,634
100
10
(25)
85
5
-
90
19
6
41
1,131
118
(533)
716
67
(4)
779
456
108
47
4,453
577
(2,997)
2,033
235
(18)
2,250
5,065
1,077
1,384
2,575
-
(735)
1,840
-
186
-
2,026
1,096
213
(382)
927
127
-
1,054
5,237
31
(4,913)
355
60
254
(18)
651
2,126
236
(2,057)
305
36
(14)
327
1,479
3,111
913
972
50
324
Right-of-use assets are included within the same asset categories as they would have been if they were owned. As of 31 March 2023 the Group
has right-of-use assets with a carrying value of £982,000 (2022: £3,453,000). Right-of-use of assets from discontinued operation is £nil (2022:
£2,540,000). A table showing the net book value of right-of-use assets within property, plant and equipment at 31 March 2023 and 31 March
2022, split by category, is disclosed in note 17.
64
10. INTANGIBLE ASSETS
Group
Cost
Domains
& brand
£000
Software Development
costs
£000
£000
Customer
Lists
£000
Technology Goodwill
Other
Total
£000
£000
£000
£000
Balance at 31 March 2021
912
4,524
Additions – internally developed
Additions – purchased
Transferred to assets held
within disposal group (note 22)
Balance at 31 March 2022
Additions – internally developed
Addition through subsidiary
acquisition (note 23)
-
-
(549)
363
-
-
-
20
-
4,544
-
-
4,478
525
-
-
5,003
390
-
Balance at 31 March 2023
363
4,544
5,393
3,245
-
-
(2,570)
675
-
4,517
5,192
Amortisation and impairment
Balance at 31 March 2021
Amortisation for the year
Transferred to assets held
within disposal group (note 22)
Balance at 31 March 2022
Amortisation for the year
Balance at 31 March 2023
Net book value
At 31 March 2021
At 31 March 2022
At 31 March 2023
442
20
(115)
347
1
348
470
16
15
4,102
232
-
4,334
149
4,483
422
210
61
3,687
387
1,604
286
-
(1,294)
4,074
439
4,513
596
149
745
791
929
880
1,641
79
4,447
-
-
10,209
-
-
-
-
-
-
10,792
10,792
-
-
-
-
583
583
156
162
13,477
-
-
(18)
138
-
497
635
12
-
-
12
-
12
144
126
623
-
-
-
525
20
(3,137)
162
10,885
-
-
390
15,806
162
27,081
120
11
9,967
936
-
(1,409)
131
-
9,494
1,321
131
10,815
42
31
31
3,510
1,391
16,266
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. The sales growth relates to all key revenue streams
of the business and have been determined based on the experience to date of operating these sales channels and ranges from 0% to 9%. Costs
have been assumed to increase in line with an inflationary rate of 5%.
For the purposes of impairment testing inflationary growth of 0.5% is assumed beyond this period. A pre-tax discount factor of 8.59% (2022:
6.8%) was applied.
Following the impairment review, the intangible assets are not considered to be impaired. Increasing the pre-tax discount factor to 12.0% would
not result in an impairment charge against intangible assets.
Amortisation and impairment charge
The amortisation charge of £1,321,000 (2022: £936,000) is recognised in profit or loss within depreciation and amortisation expenses. £nil
(2022: £225,000) from discontinued operation, £1,321,000 (2022: £711,000) from continuing operation. An impairment charge of nil (2022: £nil)
was recognised during the year.
65
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
11. INVESTMENTS - COMPANY
Cost
Balance at 31 March 2021
Transferred to assets held for sale
Balance at 31 March 2022
Additions
Return of investment
Balance at 31 March 2023
Shares in
Subsidiary undertakings
£000
3,578
(2,592)
986
15,681
(1,002)
15,665
Total
£000
3,578
(2,592)
986
15,681
(1,002)
15,665
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*
Printing.com (UK Franchise) Limited*
Nettl UK Limited*
Grafenia Systems Limited*
Grafenia Technology Limited*
Creative Enterprise Support Limited*
TemplateCloud Limited*
W3P Limited*
Vertical Plus Limited*
Care Management Systems Limited*
Watermark Technologies Limited*
Topfloor Systems 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
Republic of Ireland
US
France
^ – Owned 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.
Nature of business/status
Printing – trading
Partner contracts – dormant
Partner contracts – dormant
Licence agreements – dormant
Licence agreements – dormant
Enterprise Support – dormant
Template Provision – dormant
Software – dormant
Software and solutions - Trading
Software and solutions - Trading
Software and solutions - Trading
Software and solutions - Trading
Franchising - trading
Partner contracts – trading
12. INVENTORY
Group
2023
£000
Group
2022
£000
Company
2023
£000
Company
2022
£000
Raw Materials
Total inventory
Total inventory relating to discontinued operation
Total inventory relating to continuing operation
31
31
-
31
493
493
464
29
-
-
-
-
-
-
-
-
66
13. TRADE AND OTHER RECEIVABLES
Other receivables due from subsidiary companies do not have fixed repayment terms.
At 31 March 2023 trade receivables are shown net of an impairment allowance of £1,153,000 (2022: £1,089,000).
Trade and other receivables denominated in currencies other than sterling comprise £899,000 (2022: £114,000) of trade receivables.
Group
2022
£000
Company
2023
£000
Company
2022
£000
Trade receivables
Less provision for trade receivables
Trade receivables net
Other receivables due from subsidiary companies within one year
Less provision for subsidiary companies within one year
Total financial assets other than cash and
Group
2023
£000
2,799
(1,153)
1,646
-
-
3,290
(1,089)
2,201
-
-
cash equivalents classified at amortised cost
1,646
2,201
Corporation tax
Other receivables
Total Other receivables
Total trade and other receivables
Total relating to discontinued operation
Total relating to continuing operation
Non-current other receivables
Other receivables due from subsidiary companies after one year
Less provision for subsidiary companies after one year
Total other receivables
155
336
491
2,137
-
2,137
-
-
-
167
70
237
2,438
1,157
1,281
-
-
-
The carrying value of trade and other receivables classified at amortised cost approximates fair value.
-
-
-
541
-
541
-
-
-
541
-
-
10,512
(2,244)
8,268
Gross carrying amount
Loss provision
Net carrying amount
Under 6 months
£000
Over 6 months
£000
1,350
(82)
1,268
1,449
(1,071)
378
-
-
-
11,575
(3,244)
8,331
-
-
-
8,331
-
-
-
-
-
Total
£000
2,799
(1,153)
1,646
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 2023
13. 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
Provision arising on acquisition of subsidiaries
Increase in impairment allowance
Balance at 31 March
As at 31 March 2023
£000
As at 31 March 2022
£000
1,089
(83)
60
87
1,153
1,090
(44)
-
43
1,089
Of the total impairment provision £115,000 (2022: £36,000) 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 £nil (2022: £512,000) 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 an impairment reversal of £1,000,000 (2022: no reversal or additional impairment).
14. CASH AND CASH EQUIVALENTS
Cash and cash equivalents
Total relating to discontinued operation
Total relating to continuing operation
Group
2023
£000
1,994
-
1,994
Group
2022
£000
1,591
129
1,462
Company
2023
£000
210
-
-
Company
2022
£000
984
-
-
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 £137,000 (2022: £71,000) and USD of £27,000 (2022: £26,000).
68
15. TRADE AND OTHER PAYABLES
Current Liabilities
Trade payables
Accruals
Other liabilities
Total financial liabilities, excluding borrowings classified
as financial liabilities measured at amortised cost
Total relating to discontinued operation
Total relating to continuing operation
Deferred income
Total relating to discontinued operation
Total relating to continuing operation
Group
2023
£000
700
428
689
1,817
-
1,817
186
-
186
Group
2022
£000
1,445
373
529
2,347
835
1,512
77
-
77
Company
2023
£000
71 5
187
990
1,248
-
-
-
-
-
Company
2022
£000
78
-
83
-
-
-
-
-
Total trade and other payables
2,003
2,424
1,248
83
Trade payables denominated in currencies other than Sterling comprise £87,000 (2022: £72,000) 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.
16. BORROWINGS
For more information on the Group and Company’s exposure to interest rate, foreign currency risk and lease liabilities, see note 21.
Current Liabilities
Invoice financing
Lease liabilities
Loans
Deferred consideration
Total relating to discontinued operation
Total relating to continuing operation
Non-Current Liabilities
Lease liabilities
Loans
Bearer bonds
Deferred consideration
Total relating to discontinued operation
Total relating to continuing operation
Group
2023
£000
-
120
279
3,480
3,879
-
3,879
951
324
12,381
1,181
14,837
-
14,837
Group
2022
£000
512
683
172
-
1,367
1,059
308
2,517
683
2,270
-
5,470
1,628
3,842
Company
2023
£000
-
-
279
3,480
3,759
-
-
-
324
12,381
1,181
13,886
-
-
Company
2022
£000
-
-
172
-
172
-
-
-
683
2,270
-
2,953
-
-
The invoice financing arrangement in the prior year was secured upon the trade debtors to which the arrangement related, see note 13. Following
the disposal of Works Manchester Limited in May 2022, the Group has no invoice financing facility or related security.
In July 2020 the Company created a bond facility which could issue up to a maximum of £50,000,000 nominal value. Any bonds issued are
interest-free within the first three years of the facilities existence and thereafter pay 6% of the nominal value, annually in arrears, until the
Company exercises its call option. The bonds are initially 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. During the year the
Company has issued additional bonds with a total nominal value of £11,200,000, raising a net £9,520,000.
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 2023 the liability was £602,000 (2022: £855,000).
69
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
17. LEASES
Lessee Accounting
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.
AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
RIGHT OF USE ASSETS
Balance at 1 April 2021
Depreciation
Transferred to assets relating to disposal group
Balance at 31 March 2022
Depreciation
Addition through subsidiary acquisition
Balance at 31 March 2023
LEASE LIABILITIES
Balance at 1 April 2021
Interest expense
Lease payments
Transferred to liabilities relating to disposal group (note 22)
Balance at 31 March 2022
Interest expense
Lease payments
Disposal of subsidiary
Addition through subsidiary acquisition
Balance at 31 March 2023
Land and
buildings
£000
Plant and
equipment
£000
Motor
Vehicles
£000
1,479
(213)
(353)
913
(117)
186
982
2,321
(134)
(2,187)
-
-
-
-
6
(6)
-
-
-
-
-
Land and
buildings
£000
Plant and
equipment
£000
Motor
Vehicles
£000
1,569
92
(340)
(319)
1,002
62
(179)
-
186
1,071
2,212
136
(469)
(1,856)
23
-
-
(23)
-
-
6
-
(6)
-
-
-
-
-
-
-
Total
£000
3,806
(353)
(2,540)
913
(117)
186
982
Total
£000
3,787
228
(815)
(2,175)
1,025
62
(179)
(23)
186
1,071
AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2023
2022
Land and
Plant and
buildings equipment
£000
£000
Motor
Vehicles
£000
Total
£000
Land and
Plant and
buildings equipment
£000
£000
Motor
Vehicles
£000
Total
£000
Continuing Operation
Depreciation charge
on right of use assets
Interest on lease liabilities
Expenses related to low value
and short-term leases
Discontinued Operation
Depreciation charge
on right of use assets
Interest on lease liabilities
Expenses related to low value
and short-term leases
70
117
62
35
214
-
-
-
-
-
-
-
-
-
21
-
21
-
-
-
-
-
-
-
-
117
62
35
214
-
21
-
21
122
67
18
207
91
25
-
116
3
-
-
3
131
136
-
267
6
-
-
6
-
-
-
-
131
67
18
216
222
161
-
383
LEASE LIABILITIES - MATURITY ANALYSIS OF CONTRACTUAL UNDISCOUNTED CASH FLOWS
Carrying
amount
£000
Contractual
cash flows
£000
6 months
or less
£000
6-12
months
£000
1-2
years
£000
2-5
years
£000
More than
5 years
£000
31 March 2023
1,071
1,348
31 March 2022
Total relating to
3,200
3,740
discontinued operation
2,175
2,462
Total relating to
continuing operation
1,025
1,278
99
439
352
87
99
198
531
426
340
812
1,623
639
1,131
421
440
-
86
173
492
440
Lessor Accounting
The Group leases certain assets to customers with preloaded software. It is not practical to split the revenue from the lease of the physical asset
and that of the preloaded software. The revenue associated with leased assets during the year was £217,000 (2022: Nil).
Future contracted lease income
Year 1
£000
147
Year 2
£000
104
Year 3
£000
66
Year 4
£000
11
Year 5
£000
3
18. EMPLOYEE BENEFITS
Share-based Save as You Earn (SAYE) Scheme
The Company launched a SAYE Scheme commencing 1 March 2017. The Scheme offered all employees the opportunity to participate in the
future growth of the Company through the granting of share options.
The scheme required 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 were 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”).
All options issued under the scheme have now lapsed, with none exercised in the latest financial year. The total number of shares under option at
the year end was nil (2022: nil).
71
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
19. SHARE CAPITAL
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 (2022: 114,490,828) ordinary shares of £0.01 each
63 deferred shares of £0.10 each
Ordinary shares
2023
Ordinary shares
2022
114,491
-
114,491
£000
1,145
-
1,145
114,491
-
114,491
£000
1,145
-
1,145
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 (2022: £nil).
20. SHARE PREMIUM AND OTHER RESERVES
The share premium represents the amounts subscribed for share capital in excess of the nominal value of shares.
At 1 April
Premium on shares issued by the Company in the year
At 31 March
Group and company
2023
£000
7,866
-
7,866
2022
£000
7,866
-
7,866
The Merger reserve arose when the Company undertook a share for share exchange with the companies listed in Note 11.
The share based payment reserve represents the recognised cost of past SAYE schemes that have not been converted into share capital.
The translation reserve represents cumulative foreign exchange differences arising from the translation of the financial statements of foreign
subsidiaries and is not distributable by way of dividends.
72
21. FINANCIAL INSTRUMENTS
It is not the Group’s policy to enter into financial derivatives for speculative or trading purposes. The financial instruments employed by the Group
other than short term debtors and creditors are used to fund its operations and comprise cash, short term deposits and lease liabilities.
The Group’s policy during the financial year ended 31 March 2023 and 31 March 2022 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 and the deferred consideration receivable following the sale of Works Manchester limited (see note 25).
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 £119,000 (2022: £242,000) of total gross debtors.
The Group retains the right to charge interest on overdue balances and recall 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 2023
Carrying
amount
£000
Contractual
cash flows
£000
6 months
or less
£000
6-12
months
£000
Trade and other payables
Lease liabilities
Bearer Bonds*
Loans
Deferred and contingent
consideration payable
1,817
1,071
1,817
1,348
12,382
22,360
602
648
4,661
20,533
5,084
31,257
1,817
99
-
155
182
2,253
31 March 2022
Carrying
amount
£000
Contractual
cash flows
£000
6 months
or less
£000
Trade and other payables
Lease liabilities
Bearer Bonds*
Loans
Invoice financing
Balance relating to
discontinued operation
Balance relating to
continuing operation
2,347
3,200
2,270
855
512
2,347
3,740
5,880
1,020
512
2,347
439
-
118
512
9,184
13,499
3,416
3,522
3,809
1,699
5,662
9,690
1,717
-
99
-
155
3,584
3,838
6-12
months
£000
-
426
-
118
-
544
340
204
1-2
years
£000
-
198
510
311
472
1,491
1-2
years
£000
-
812
-
235
-
2-5
years
£000
More than
5 years
£000
-
531
-
421
1,530
20,320
27
846
2,934
2-5
years
£000
-
1,623
540
549
-
-
-
20,741
More than
5 years
£000
-
440
5,340
-
-
1,047
2,712
5,780
639
408
1,131
-
1,581
5,780
*Based on the expected cash flows used to calculate the effective interest rate for amortised cost. Whilst not a contractual commitment, should
the company be successful in raising equity in the current financial year, it expects to use some of the funds to buy back some of the issued
bearer bonds.
All trade receivables are contractually due within 6 months.
73
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
21. FINANCIAL INSTRUMENTS (CONTINUED)
Capital risk management
The Group’s capital management objective is to ensure the Group’s ability to continue as a going concern so that it can in future provide returns
for shareholders and benefits for other stakeholders.
To meet this objective, the Group reviews the budgets and forecasts on a regular basis to ensure there is sufficient capital to meet the needs of
the Group. The capital structure of the Group consists of shareholders’ equity as set out in the Consolidated Statement of Changes in Equity. All
working capital requirements are financed from existing cash resources and borrowings.
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 2023
Euro
£000
31 March 2023
GBP
£000
31 March 2022
Euro
£000
31 March 2022
GBP
£000
262
137
(145)
254
1,875
1,857
(1,672)
2,060
117
70
(72)
115
2,321
1,521
(2,275)
1,567
Trade and other receivables
Cash and cash equivalents
Trade and 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 2023, it is estimated that a general increase of 25% in the value
of the Euro would decrease the Group’s profit before tax by approximately £17,000 (2022: £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 £162 (2022: £4,000) 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.
74
22. DISCONTINUED OPERATION
On 19 May 2022, the Group announced the sale of its manufacturing operation based in Manchester. The manufacturing operation, referred to as
‘Works Manchester’ consists of the legal entity, Works Manchester Limited, along with the Manchester based production assets, related leases
and staff contracts of Grafenia Operations Limited. Accordingly, these assets and liabilities have been designated as held for sale and separately
disclosed in the statement of financial position and the financial impact of the discontinued operation is separately disclosed in the Statement of
comprehensive income.
Following the disposal, Grafenia entered into a 5 year supply agreement with Works Manchester Limited to provide products to our Company
stores and Partners. This change reduces the gross profit percentage of the Group, but at the same time reduces staff costs and overheads. To
accurately reflect the performance of continuing operations, the Statement of comprehensive income has been presented to show the results had
the disposal and new supply agreement been in effect for both the current and the comparative financial years.
EFFECT ON GROUP STATEMENT OF FINANCIAL POSITION IN FY22
Property plant and equipment
Intangible assets
Inventories
Trade and other receivables
Cash and cash equivalent
Asset relating to disposal group
Invoice finance
Lease liabilities
Trade and other payables
Deferred tax liabilities
Liabilities relating to disposal group
Net asset and liabilities of discontinued operations
Initial
recognition
£000
Re-measurement
to fair value FY22
£000
Held for disposal
FY22
£000
3,442
1,728
464
1,157
129
6,920
(512)
(2,175)
(835)
(8)
(3,530)
3,390
(457)
(229)
-
-
-
(686)
-
-
-
-
-
2,985
1,499
464
1,157
129
6,234
(512)
(2,175)
(835)
(8)
(3,530)
(686)
2,704
The total discounted cash consideration to be received for this disposal was £2.7m (£3.165m gross consideration) which was greater than
the carrying value of the discontinued operations recognised. The subsequent impairment of £686,000 was separately disclosed under re-
measurement to fair value on discontinued operations in the Consolidated statement of comprehensive income in the prior year.
Following the preparation of the completion accounts, the final net assets of Works Manchester Limited was £235,000 less than the agreed
target net assets. The consideration has been adjusted accordingly with the difference recognised as a re-measurement to fair value in the
Consolidated statement of comprehensive income in this financial year.
75
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
23. ACQUISITIONS
Acquisition of Vertical Plus Limited (Vertical Plus)
The entire issued share capital of Vertical Plus, an ecommerce software business, was acquired on 1 October 2022 for the total consideration of
£3,512,000.
Vertical Plus met the criteria set out in our acquisition strategy (see www.grafenia.com/acquisition). It also complements our core offering and
provides cross-selling opportunities across our Nettl network.
In the six-month period that Vertical Plus was owned by the Group, it contributed revenue of £1,011,000 and a profit before tax of £194,000. Had
it been owned by the group for the full year, it would have contributed revenue of £1,867,000 and a profit before tax of £227,000, which included
one-off costs.
Net assets of Vertical Plus on acquisition:
Customer base
Technology
Property, plant and equipment
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Deferred tax
Net assets acquired
Consideration
Goodwill
Consideration satisfied by:
Cash
Deferred consideration payable
Contingent consideration payable
Book Value
£000
-
-
18
1,078
237
(161)
-
1,172
Adjustments
£000
953
1,527
-
-
-
-
(620)
1,860
Fair value
£000
953
1,527
18
1,078
237
(161)
(620)
3,032
3,512
480
2,320
921
271
3,512
An income approach was used to value contractual customer lists and relationships, using a discount factor of 8.6%. The useful life has been
estimated at 10 years.
The technology was valued by using a relief from royalty approach, based on a royalty rate of 30% and using a discount factor of 8.6%. The useful
life has been estimated at 3 years.
Trade and other receivables include gross contractual amounts due of £115,000 of which £9,000 was expected to be uncollectible at the date of
acquisition.
Contingent consideration of up to £630,000 will be satisfied in cash dependent on Vertical Plus achieving certain earnings targets in each of
the first three annual periods following acquisition, with £210,000 payable for each of those annual periods. The likelihood of achieving these
targets has been estimated at between 75% - 80%. Should the targets not be achieved, the payout for that period would be nil. Of the total
potential contingent consideration, £215,000 relates to remaining employees and, if paid, will be recognised in the consolidated statement of
comprehensive income. The expected contingent consideration has been discounted to present value using a WACC of 8.6%.
76
Acquisition of Watermark Technologies Limited (Watermark)
The entire issued share capital of Watermark, a provider of document management software and systems, was acquired on 7 December 2022 for
the total consideration of £3,134,000.
Watermark met Grafenia’s acquisition criteria of providing vertical market software with revenues of a recurring nature. We believe it can be sold
to SMEs operating in vertical markets beyond the financial, healthcare and insurance sectors.
In the period during the current financial year that Watermark was owned by the Group, it contributed revenue of £422,000 and a profit before
tax of £179,000. Had it been owned by the group for the full year, it would have contributed revenue of £1,300,000 and a profit before tax of
£495,000.
Net assets of Watermark on acquisition:
Customer base
Technology
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Deferred tax
Net assets acquired
Consideration
Goodwill
Consideration satisfied by:
Cash
Deferred consideration payable
Book Value
£000
Adjustments
£000
Fair value
£000
-
-
812
127
(239)
-
700
912
2,334
-
-
-
(812)
2,434
912
2,334
812
127
(239)
(812)
3,134
3,134
-
2,213
921
3,134
An income approach was used to value contractual customer lists and relationships, using a discount factor of 8.6%. The useful life has been
estimated at 10 years.
The technology was valued by using a relief from royalty approach, based on a royalty rate of 50% and using a discount factor of 8.6%. The useful
life has been estimated at 6 years.
Trade and other receivables include gross contractual amounts due of £112,000 of which nil was expected to be uncollectible at the date of
acquisition.
77
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
23. ACQUISITIONS (CONTINUED)
Acquisition of Care Management Systems Limited (CareDocs)
The entire issued share capital of CareDocs, a provider of care home management software and systems, was acquired on 18 January 2023 for
the total consideration of £3,871,000.
CareDocs met Grafenia’s acquisition criteria by being a software business and having a prominent position in its vertical market. Delivering
solutions that generate revenues of a recurring nature.
In the period during the current financial year that CareDocs was owned by the Group, it contributed revenue of £544,000 and a profit before
tax of £186,000. Had it been owned by the group for the full year, it would have contributed revenue of £2,751,000 and a profit before tax of
£87,000, which included one-off costs.
Net assets of CareDocs on acquisition:
Customer base
Technology
Property, plant and equipment
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Deferred tax
Net assets acquired
Consideration
Goodwill
Consideration satisfied by:
Cash
Deferred consideration payable
Book Value
£000
-
-
270
698
329
(283)
-
1,014
Adjustments
£000
1,262
2,524
-
-
-
-
(946)
2,840
Fair value
£000
1,262
2,524
270
698
329
(283)
(946)
3,854
3,871
17
3,387
484
3,871
An income approach was used to value contractual customer lists and relationships, using a discount factor of 8.6%. The useful life has been
estimated at 10 years.
The technology was valued by using a relief from royalty approach, based on a royalty rate of 30% and using a discount factor of 8.6%. The useful
life has been estimated at 4 years.
Trade and other receivables include gross contractual amounts due of £402,000 of which £123,000 was expected to be uncollectible at the date
of acquisition.
78
Acquisition of Topfloor Systems Limited (Topfloor)
The entire issued share capital of Topfloor, a provider of property management software services, was acquired on 17 February 2023 for the total
consideration of £5,164,000.
Topfloor further extended Grafenia’s range of niche VMS companies that generate revenue of a recurring nature.
In the period during the current financial year that Topfloor was owned by the Group, it contributed revenue of £173,000 and a profit before tax
of £94,000. Had it been owned by the group for the full year, it would have contributed revenue of £1,445,000 and a loss before tax of £703,000,
which included one-off costs.
Net assets of Topfloor on acquisition:
Customer base
Technology
Property, plant and equipment
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Deferred tax
Net assets acquired
Consideration
Goodwill
Consideration satisfied by:
Cash
Deferred consideration payable
Contingent consideration payable
Book Value
£000
-
-
10
171
31
(120)
-
92
Adjustments
£000
1,390
4,407
-
-
-
-
(725)
5,072
Fair value
£000
1,390
4,407
10
171
31
(120)
(725)
5,164
5,164
-
3,370
889
905
5,164
An income approach was used to value contractual customer lists and relationships, using a discount factor of 8.6%. The useful life has been
estimated at 10 years.
The technology was valued by using a relief from royalty approach, based on a royalty rate of 50% and using a discount factor of 8.6%. The useful
life has been estimated at 6 years.
Trade and other receivables include gross contractual amounts due of £963,000 of which £5,000 was expected to be uncollectible at the date of
acquisition.
Contingent consideration of up to €1,400,000 will be satisfied in cash dependent on Topfloor achieving certain earnings targets each of the first
three annual periods following acquisition. Based on management’s estimation of future revenue growth of 10% per annum, expected contingent
consideration is €1,248,000. Should revenue growth be 5% per annum, the contingent consideration payment would be €558,000. The expected
contingent consideration has been discounted to present value using a WACC of 8.6%.
79
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
24. CHANGES IN LIABILITY ARISING FROM FINANCING ACTIVITIES
Invoice finance
£000
209
-
303
-
-
512
-
-
-
-
(512)
-
-
Balance at 1 April 2021
Cash flows
Repayment of borrowings
Proceeds of invoice finance
Lease payments
Non cash changes
Interest
Balance at 31 March 2022
Cash flows
Repayment of borrowings
Proceeds of new loans
Lease payments
Non cash changes
Interest
Disposal of subsidiary
New finance lease
Balance at 31 March 2023
25. CONSIDERATION RECEIVABLE
Receivable within one year
Receivable after one year
Total consideration receivable
Lease liabilities
£000
3,787
-
-
(815)
228
3,200
-
-
(180)
63
(2,198)
186
1,071
2023
£000
1,698
-
1,698
Loans
£000
3,084
(196)
-
-
237
3,125
(305)
9,520
-
644
-
-
12,984
2022
£000
-
-
-
Consideration is receivable from Rymack Sign Solutions Limited following the sale of Works Manchester Limited on 31st May 2022. The
total outstanding consideration is £2,809,973. The carrying value of £1,698,000 is net of an impairment of £805,000 as a result of a missed
instalment on 31st May 2023, see note 28 for further details.
26. CAPITAL COMMITMENTS
The Group and Company have no commitments to incur capital expenditure at the year end (2022: £nil).
80
27. RELATED PARTIES
In the year ended 31 March 2023 no dividends were paid (2022: nil).
On 19 May 2022, the Company entered into an consulting agreement (the “Agreement”) with Peter Gunning (former CEO), via his consulting
company Perpetual Cielo Azul SL, to provide services to Nettl Systems, with focus on developing and assisting the operation of Grafenia’s
proprietary platforms, as well as advising on the technology integration of any acquisitions made by the Company. Pursuant to the terms of the
Agreement, Peter’s company has been paid a fee of £15,565 (excluding VAT, as applicable) per month for the first 12 months of the Agreement.
Thereafter, additional work will be charged at £750 per day, with a minimum commitment of three days per month. After the initial period, the
agreement may be terminated by either party by giving not less than 6 months’ notice.
As announced on 19 May 2022, the Agreement with Peter Gunning’s company is a related party transaction pursuant to rule 13 of the AIM Rules
for Companies. The independent directors, being all of the Company’s directors other than Peter Gunning, considered, having consulted with the
Company’s Nominated Adviser, that the terms of the transaction are fair and reasonable insofar as the Company’s shareholders are concerned.
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.
The compensation of the Directors, who are the key management personnel, is disclosed in note 4 and within the Directors Remuneration Report
on pages 41-42.
28. POST BALANCE SHEET EVENTS
On 1 June 2023 Grafenia plc announced that a £514,223 instalment of deferred consideration from Rymack Sign Solutions Limited, a privately
owned company trading as PFI Group (“PFI”), due on 31 May 2023 was not made. The Company remains in discussions with PFI to resolve the
matter. The total outstanding consideration is £2,809,973. The carrying value in the financial statements is £1,698,000.
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
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
Virgin Money
48-50 Market Street
MANCHESTER
M1 1PW
81
GRAFENIA PLC ANNUAL REPORT & ACCOUNTS 2023
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
08/23