Final Results
26/07/2023 07:00
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RNS Number : 1737H Grafenia plc 26 July 2023
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the UK Market Abuse
Regulation. With the publication of this announcement via a Regulatory
Information Service, this inside information is now considered to be in the
public domain.
26 July 2023
Grafenia plc
("Grafenia", "the Group" or "the Company")
Preliminary Results for the year ended 31 March 2023
Grafenia plc (AIM: GRA) announces its full year audited results for the year
ended 31 March 2023.
Financial highlights
Year ended Year ended
31 March 31 March
2023 2022
Revenue £12.55m £12.36m
EBITDA* £0.46m £0.33m
EBITDA from continuing operations £0.41m £0.17m
Total Comprehensive Loss £(1.61)m £(1.84)m
EPS (1.41)p (1.60)p
Cash and cash equivalent** £1.99m £1.59m
Net debt** £(16.72)m £(5.25)m
*Earnings before interest, tax, depreciation and amortisation
**Including discontinued operations
Operational highlights
● Completed the sale and separation of Works Manchester
● Acquired four software companies
● Raised £9.52m through additional bond issue to fund
acquisitions
For further information:
Grafenia plc
Gavin Cockerill (CEO) +44 7968 510 662
Jan Mohr (Chairman) +49 175 734 2740
Iain Brown (Finance Director) +44 161 848 5713
Allenby Capital Limited (Nominated Adviser and broker) +44 203 328 5656
David Hart / Piers Shimwell (Corporate Finance)
Chairman's Statement
I started last year's Chairman' 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).
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!
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
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.
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
Initial Consideration Deferred Consideration Bond 1 (Cash) Bond 2 (Cash) Bond 3 (Cash) Total (Cash)
- - £4.25m £2.72m £2.55m £9.52m
Vertical Plus £1.25m £1.00m £1.25m - -
Watermark £1.50m £1.00m £1.50m - -
Care Docs £2.98m £0.52m - £2.98m -
Topfloor £3.42m* £0.85m* - - £3.42m*
Total Consideration £9.15m £3.37m £12.52m
Capital Deployed £2.75m £2.98m £3.42m £9.15m
Difference £1.5m -£0.26m -£0.87m £0.37m
*EUR to GBP conversion as at 17/02/23 = 0.89
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
(http://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.
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 14.
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 (Care Docs)
In January 2023, we acquired Care Management Systems t/a Care Docs, 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.
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 2020 2021 2022
Total Sales(**) £6.2m £7.1m £7.1m
Vertical Plus £1.8m £2.4m £2.0m
Watermark £1.2m £1.2m £1.2m
Care Docs £2.1m £2.3m £2.5m
Topfloor €1.2m €1.4m €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.
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 Sector Revenue Date Initial Deferred Group Sales
Unit
Category
Acquired
Consideration
2023
Consideration
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 Professional 07/12/22 £1.50m £1.00m £0.42m
Services
Care Docs Care Home Management Health and Care 18/01/23 £2.98m £0.52m £0.55m
Topfloor Property Management Property 17/02/23 £3.42m £0.85m £0.17m
Total £9.15m £3.37m £11.68m
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 Officer
Financial Review
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 Group Sales
2023
2022
Graphics & Ecommerce £10.54m £8.92m
Professional services £0.42m n/a
Healthcare £0.55m n/a
Property £0.17m n/a
Discontinued Operations £0.87m £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.
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.
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.
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 political factors beyond the Group's direct control A downturn in the macroeconomy may reduce consumer demand generally. To mitigate supply chain disruption across borders the majority of product
supply is now sourced from the jurisdictions the customer belongs to.
Costs may be increased by changes to government policy, including tax changes
or other legislation. Our platform has the capability 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 environment Some of the markets in which the Group operates are extremely competitive We work closely with suppliers to monitor input costs and competitor pricing,
posing a threat to profitability. ensuring we remain competitive.
Acquisition of a sub-optimal business A poor performing acquisition would consume management time, focus and Group We operate a structured and rigorous due-diligence process when assessing
cash flows potential acquisitions 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 change Advances in software and advances in artificial intelligence may impact on We are constantly improving our platforms and adding new features to ensure we
operational effectiveness and earnings potential. remain at the forefront of technological advancement.
Technological failure The Group and its clients depend on the SaaS platform to operate their All reasonable operational contingency is embedded for resilience in the event
businesses. of a catastrophe.
Key management The loss of key personnel could The Remuneration Committee seeks to ensure rewards are commensurate with
performance and aid retention.
impact the Group's ability to implement strategy and the 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.
Iain Brown
Group Finance Director
Consolidated statement of comprehensive income
FOR THE YEAR ENDED 31 MARCH 2023 Note 2023 2023 2023 2022 2022 2022
£000 £000 £000 £000 £000 £000
Continuing operation Discontinued operation Total Continuing operation Discontinued operation Total
Revenue 2 11,677 870 12,547 8,916 3,445 12,361
Cost of sales (5,927) (235) (6,162) (5,377) (286) (5,663)
Gross profit 5,750 635 6,385 3,539 3,159 6,698
Staff costs (3,471) (417) (3,888) (2,019) (2,221) (4,240)
Doubtful debt expense (68) (10) (78) (32) (11) (43)
Other operating charges (1,806) (155) (1,961) (1,322) (763) (2,085)
Earnings before interest, tax, depreciation and amortisation 405 53 458 166 164 330
Depreciation and amortisation 6&7 (1,556) - (1,556) (944) (569) (1,513)
Operating loss (1,151) 53 (1,098) (778) (405) (1,183)
Impairment of assets 15 (805) - (805) - - -
Financial income 135 - 135 6 - 6
Financial expenses (830) (21) (851) (346) (186) (532)
Net financing expense (695) (21) (716) (340) (186) (526)
Loss before tax (2,651) 32 (2,619) (1,118) (591) (1,709)
Tax income 3 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
13 - (235) (235) - (686) (686)
Loss and total comprehensive income for the year
(1,408) (203) (1,611) (559) (1,277) (1,836)
Loss per share attributable to the ordinary equity shareholders of Grafenia
plc Basic and diluted, pence per share
4 (1.23)p (0.18)p (1.41)p (0.49)p (1.12)p (1.60)p
Consolidated statement of financial position
AT 31 MARCH 2023 Note Group Group
2023 2022
£000 £000
Non-current assets
Property, plant and equipment 6 1,384 1,077
Intangible assets 7 16,266 1,391
Total non-current assets 17,650 2,468
Current assets
Inventories 31 29
Trade and other receivables 8 2,137 1,281
Consideration receivable 15 1,698 -
Prepayments 110 283
Cash and cash equivalents 1,994 1,462
Asset held for sale/disposal group 13 - 6,234
Total current assets 5,970 9,289
Total assets 23,620 11,757
Current liabilities
Other interest-bearing loans and borrowings 10 3,879 308
Trade and other payables 9 1,817 1,512
Deferred income 9 186 77
Liabilities relating to disposal group 13 - 3,530
Total current liabilities 5,882 5,427
Non-current liabilities
Other interest-bearing loans and borrowings 10 14,837 3,842
Deferred tax liabilities 5 1,973 -
Total non-current liabilities 16,810 3,842
Total liabilities 22,692 9,269
Net assets 928 2,488
Equity attributable to equity holders of the parent
Share capital 12 1,145 1,145
Merger reserve 838 838
Share premium 7,866 7,866
Share based payment reserve 88 88
Translation reserve 117 66
Retained earnings (9,126) (7,515)
Total equity 928 2,488
Consolidated statement of changes in shareholders' equity
YEAR ENDED 31 MARCH 2023
Share based payment reserve
Share Capital Merger reserve Share premium Translation reserve Retained earnings
Total
£000 £000 £000 £000 £000 £000 £000
Balance at 31 March 2021 1,145 838 7,866 84 - (5,679) 4,254
Loss and total comprehensive income for the year from continuing operation - - - - - (559) (559)
Loss and total comprehensive income for the year from discontinued operation - - - - - (1,277) (1,277)
Retranslation of net assets of overseas subsidiaries - - - - 66 - 66
Share option reserve - - - 4 - - 4
Total movement in equity - - - 4 66 (1,836) (1,766)
Balance at 31 March 2022 1,145 838 7,866 88 66 (7,515) 2,488
Loss and total comprehensive income for the year from continuing operation - - - - - (1,408) (1,408)
Loss and total comprehensive income for the year from discontinued operation - - - - - (203) (203)
Retranslation of net assets of overseas subsidiaries - - - - 51 - 51
Share option reserve - - - - - - -
Total movement in equity - - - - 51 (1,611) (1,560)
Balance at 31 March 2023 1,145 838 7,866 88 117 (9,126) 928
Consolidated statement of cash flows
FOR YEAR ENDED 31 MARCH 2023 Note Group Group
2023 2022
£000 £000
Cash flows from operating activities
Loss for the year (1,408) (559)
Adjustments for:
Depreciation, amortisation and impairment 1,556 944
Loss on disposal of plant and equipment 4 -
Release of deferred profit on sale of plant and equipment - (9)
Share based payments - 4
Net finance expense 695 340
Bad debt expense 68 (54)
Foreign exchange loss 51 66
Tax income (1,243) (559)
Impairment of consideration receivable 15 805 -
Operating cash flow before changes in working capital and provisions 528 173
Change in trade and other receivables 19 (86)
Change in inventories (2) 2
Change in trade and other payables (413) 184
Cash generated from / (utilised by) operations 132 273
Interest received 5 -
R&D tax income received 67 -
Net cash inflow / (outflow) from operating activities from continuing 204 273
operation
Net cash inflow / (outflow) from operating activities from discontinued 104 (139)
operation
Net cash inflow / (outflow) from operating activities 308 134
Cash flows from investing activities
Acquisition of plant and equipment (60) (27)
Disposal of plant and equipment 1 -
Capitalised development expenditure 7 (390) (525)
Acquisition of other intangible assets 7 - (20)
Proceeds from disposal of subsidiary 100 -
Acquisition of subsidiaries net of cash (8,367) -
Net cash used in investing activities from continuing operation (8,716) (572)
Net cash used in investing activities from discontinued operation - (3)
Net cash used in investing activities (8,716) (575)
Cash flows from financing activities
Proceeds from loans 9,520 -
Repayment of loans 10 (305) (196)
Capital payment of lease liabilities (117) (115)
Interest payment of lease liabilities (63) (67)
Net cash generated from/(used in) financing activities from continuing 9,035 (378)
operation
Net cash used in financing activities from discontinued operation (95) (330)
Net cash generated from/(used in) financing activities 8,940 (708)
Net increase / (decrease) in cash and cash equivalents from continuing 523 (677)
operations
Net increase / (decrease) in cash and cash equivalent from discontinued 9 (472)
operations
Cash and cash equivalents at start of year 1,462 2,740
Cash and cash equivalents at 31 March 2023 1,994 1,591
Comprises of:
Cash and cash equivalent from continuing operation 1,994 1,462
Cash and cash equivalent from discontinued operation - 129
Notes to the financial statements
1 BASIS OF PREPARATION
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.
This financial information does not include all information required for full
annual financial statements and therefore does not constitute statutory
accounts within the meaning of section 435(1) and (2) of the Companies Act
2006 or contain sufficient information to comply with the disclosure
requirements of International Financial Reporting Standards. These should be
read in conjunction with the Financial Statements of the Group as at and for
the year ended 31 March 2022.
The comparative figures for the year ended 31 March 2022 are also not the
Company's statutory accounts for that financial year. Those accounts have been
reported on by the Company's auditors and delivered to the Registrar of
Companies. The report of the auditors was (i) unqualified, (ii) did not
include a reference to any matters to which the auditors drew attention by way
of emphasis without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
The preliminary financial information was approved by the Board of Directors
on 25 July 2023.
GOING CONCERN
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.
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.
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.
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 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 14 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 Europe Other Total
£000 £000 £000 £000
Year ended 31 March 2023 11,845 284 418 12,547
Year ended 31 March 2022 11,723 289 349 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
The disaggregation of revenue from contracts with customers is as follows:
Year ended 31 March 2023 Graphics & Ecommerce Professional services Healthcare Property Discontinued Operations Total
£000 £000 £000 £'000
Licence and subscription revenue 3,000 387 544 173 - 4,104
Product and service revenue 7,538 35 - - 870 8,443
Revenue 10,538 422 544 173 870 12,547
Divisional contribution 1,192 178 241 94 53 1,758
Central Overhead (947)
Acquisition related costs (353)
EBITDA 458
Year ended 31 March 2022 Graphics & Ecommerce Professional services Healthcare Property Discontinued Operations Total
£000 £000 £000 £'000
Licence and subscription revenue 2,135 - - - - 2,135
Product and service revenue 6,781 - - - 3,445 10,226
Revenue 8,916 - - - 3,445 12,361
Divisional contribution 742 - - - 164 906
Central Overhead (576)
EBITDA 330
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).
3 TAXATION
Recognised in the income statement 2023 2022
£000 £000
Current tax expense
Current year (93) (166)
Adjustments for prior years (18) (12)
Overseas corporation tax charge 2 -
(109) (178)
Deferred tax expense
Origination and reversal of temporary differences (170) (63)
Previously unrecognised deferred tax asset currently recognised (972) (318)
Effect of change in UK corporation tax rate 3 -
Adjustments in respect of prior periods 5 -
Total tax in income statement (1,243) (559)
RECONCILIATION OF EFFECTIVE TAX RATE
Factors affecting the tax charge for the current period:
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:
2023 2022
£000 £000
Loss before tax (2,619) (1,991)
Tax using the UK corporation tax rate of 19% (2022: 19%) (498) (378)
Effects of:
Other tax adjustments, reliefs and transfers 124 (530)
Adjustments in respect of prior periods - current tax (90) (11)
Adjustments in respect of prior periods - deferred tax 6 (1)
Deferred tax not recognised 216 584
Research and Development losses surrendered - 219
Research and Development super deduction (29) (124)
Previously unrecognised deferred tax asset currently recognised (see note 5) (972) (318)
Total tax credit (1,243) (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.
4 EARNINGS PER SHARE
The calculations of earnings per share are based on the following profits and
numbers of shares:
2023 2022
£000 £000
Loss after taxation for the financial year from continuing operations (1,408) (559)
Loss after taxation for the financial year from discontinued operations (203) (1,277)
Total loss after taxation for the financial year (1,611) (1,836)
Weighted average Weighted average
number of Shares
number of Shares
For basic earnings per ordinary share 114,490,828 114,490,828
For diluted earnings per ordinary share 114,490,828 114,490,828
Basic and diluted loss per share (1.41)p (1.60)p
Basic and diluted loss per share from continuing operation (1.23)p (0.49)p
Basic and diluted loss per share from discontinued operation (0.18)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.
5 DEFERRED TAX ASSETS AND LIABILITIES
Recognised deferred tax assets and liabilities
Assets Assets Liabilities Liabilities Total Total
2023 2022 2023 2022 2023 2022
£000 £000 £000 £000 £000 £000
Intangible assets - - (2,957) (318) (2,957) (318)
Trading losses 984 318 - - 984 318
Tax asset/(liabilities) 984 318 (2,957) (318) (1,973) -
Movement in deferred tax during the year. 1 April Recognised on acquisition of subsidiary Recognised in income Derecognised on disposal of subsidiary 31 March
2022 £000 £000 2023
£000
£000 £000
Intangible assets (318) (3,107) 170 298 (2,957)
Trading losses 318 - 666 - 984
- (3,107) 836 298 (1,973)
Movement in deferred tax during the year. 1 April Recognised on acquisition of subsidiary Recognised in income Removal of discontinued operation 31 March
2021 £000 £000 2022
£000
£000 £000
Intangible assets (389) - 63 8 (318)
Trading losses - - 318 - 318
(389) - 381 8 -
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).
6 PROPERTY, PLANT AND EQUIPMENT
Leasehold Improvements Plant and Motor Fixtures and Total
Equipment Vehicles Fittings
£000 £000 £000 £000 £000
Cost
Balance at 31 March 2021 2,575 5,237 119 1,587 9,518
Additions - 31 - - 31
Transferred to assets held within disposal group (note 13) (735) (4,913) (28) (763) (6,439)
Balance at 31 March 2022 1,840 355 91 824 3,110
Additions - 60 - - 60
Addition through subsidiary acquisition 186 254 40 7 487
Disposals - (18) - (5) (23)
Balance at 31 March 2023 2,026 651 131 826 3,634
Depreciation and impairment
Balance at 31 March 2021 1,096 2,126 100 1,131 4,453
Depreciation charge for the year 213 236 10 118 577
Transferred to assets held within disposal group (note 13) (382) (2,057) (25) (533) (2,997)
Balance at 31 March 2022 927 305 85 716 2,033
Depreciation charge for the year 127 36 5 67 235
Disposals - (14) - (4) (18)
Balance at 31 March 2023 1,054 327 90 779 2,250
Net book value
At 31 March 2021 1,479 3,111 19 456 5,065
At 31 March 2022 913 50 6 108 1,077
At 31 March 2023 972 324 41 47 1,384
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 11.
7 INTANGIBLE ASSETS
Group Domains Software Development Customer Technology Goodwill Other Total
& brand costs Lists
£000 £000 £000 £000 £000 £000 £000 £000
Cost
Balance at 31 March 2021
912 4,524 4,478 3,245 - 156 162 13,477
Additions - internally developed - - 525 - - - - 525
Additions - purchased - 20 - - - - - 20
Transferred to assets held within disposal group (note 13)
(549) - - (2,570) - (18) - (3,137)
Balance at 31 March 2022 363 4,544 5,003 675 - 138 162 10,885
Additions - internally developed - - 390 - - - - 390
Addition through subsidiary acquisition (note 14) - - - 4,517 10,792 497 - 15,806
Balance at 31 March 2023 363 4,544 5,393 5,192 10,792 635 162 27,081
Amortisation and impairment
Balance at 31 March 2021
442 4,102 3,687 1,604 - 12 120 9,967
Amortisation for the year 20 232 387 286 - - 11 936
Transferred to assets held within disposal group (note 13)
(115) - - (1,294) - - - (1,409)
Balance at 31 March 2022 347 4,334 4,074 596 - 12 131 9,494
Amortisation for the year 1 149 439 149 583 - - 1,321
Balance at 31 March 2023 348 4,483 4,513 745 583 12 131 10,815
Net book value
At 31 March 2021 470 422 791 1,641 - 144 42 3,510
At 31 March 2022 16 210 929 79 - 126 31 1,391
At 31 March 2023 15 61 880 4,447 10,209 623 31 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.
8 TRADE AND OTHER RECEIVABLES
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.
2023 2022
£000 £000
Trade receivables 2,799 3,290
Less provision for trade receivables (1,153) (1,089)
Trade receivables net 1,646 2,201
Total financial assets other than cash and cash equivalents classified at 1,646 2,201
amortised cost
Corporation tax 155 167
Other receivables 336 70
Total Other receivables 491 237
Total trade and other receivables 2,137 2,438
Total relating to discontinued operation - 1,157
Total relating to continuing operation 2,137 1,281
The carrying value of trade and other receivables classified at amortised cost
approximates fair value.
Under 6 months Over 6 months Total
£000 £000 £000
Gross carrying amount 1,350 1,449 2,799
Loss provision (82) (1,071) (1,153)
Net carrying amount 1,268 378 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.
Movements in the impairment allowance for trade receivables are as follows:
Impairment
As at 31 March 2023 As at 31 March 2022
£000 £000
Balance at 1 April 1,089 1,090
Receivable written off during the year as uncollectible (83) (44)
Provision arising on acquisition of subsidiaries 60 -
Increase in impairment 87 43
allowance
Balance at 31 1,153 1,089
March
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.
9 TRADE AND OTHER PAYABLES
Current Liabilities
2023 2022
£000 £000
Total Total
Trade payables 700 1,445
Accruals 428 373
Other liabilities 689 529
Total financial liabilities, excluding borrowings classified as financial 1,817 2,347
liabilities measured at amortised cost
Total relating to discontinued operation - 835
Total relating to continuing operation 1,817 1,512
Deferred income 186 77
Total relating to discontinued operation - -
Total relating to continuing operation 186 77
Total trade and other payables 2,003 2,424
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.
10 BORROWINGS
Current Liabilities
2023 2022
Total Total
£000 £000
Invoice financing - 512
Lease liabilities 120 683
Loans 279 172
Deferred consideration 3,480 -
3,879 1,367
Total relating to discontinued operation - 1,059
Total relating to continuing operation 3,879 308
Non-Current Liabilities
Lease liabilities 951 2,517
Loans 324 683
Bearer bonds 12,381 2,270
Deferred consideration 1,181 -
14,837 5,470
Total relating to discontinued operation - 1,628
Total relating to continuing operation 14,837 3,842
The invoice financing arrangement in the prior year was secured upon the trade
debtors to which the arrangement related, see note 8. 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).
11 LEASES
All leases where the Group is a lessee are accounted for by recognising a
right of use asset and a lease liability except for:
● Leases of low value assets
● Leases with a term of 12 months or less.
AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Land and buildings Plant and Motor Total
equipment Vehicles
RIGHT OF USE ASSETS £000 £000 £000 £000
Balance at 1 April 2021 1,479 2,321 6 3,806
Depreciation (213) (134) (6) (353)
Transferred to assets relating to disposal group (353) (2,187) - (2,540)
Balance at 31 March 2022 913 - - 913
Depreciation (117) - - (117)
Addition through subsidiary acquisition 186 - - 186
Balance at 31 March 2023 982 - - 982
Land and buildings Plant and Motor Total
equipment Vehicles
LEASE LIABILITIES £000 £000 £000 £000
Balance at 1 April 2021 1,569 2,212 6 3,787
Interest expense 92 136 - 228
Lease payments (340) (469) (6) (815)
Transferred to liabilities relating to disposal group (319) (1,856) - (2,175)
Balance at 31 March 2022 1,002 23 - 1,025
Interest expense 62 - - 62
Lease payments (179) - - (179)
Disposal of subsidiary - (23) - (23)
Addition through subsidiary acquisition 186 - - 186
Balance at 31 March 2023 1,071 - - 1,071
AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2023 2022
Land and buildings Plant and Motor Total Land and buildings Plant and Motor Total
equipment Vehicles equipment Vehicles
£000 £000 £000 £000 £000 £000 £000 £000
Continuing Operation
Depreciation charge on right of use assets 117 - - 117 122 3 6 131
Interest on lease liabilities 62 - - 62 67 - - 67
Expenses related to low value and short-term leases 35 - - 35 18 - - 18
214 - - 214 207 3 6 216
Discontinued Operation
Depreciation charge on right of use assets - - - - 91 131 - 222
Interest on lease liabilities - 21 - 21 25 136 - 161
Expenses related to low value and short-term leases - - - - - - - -
- 21 - 21 116 267 - 383
LEASE LIABILITIES - MATURITY ANALYSIS OF CONTRACTUAL UNDISCOUNTED CASH FLOWS
Carrying amount Contractual cash flows 6 months or less 6-12 1-2 years 2-5 years More than 5 years
months
£000 £000 £000 £000 £000 £000 £000
31 March 2023 1,071 1,348 99 99 198 531 421
31 March 2022 3,200 3,740 439 426 812 1,623 440
Total relating to discontinued operation 2,175 2,462 352 340 639 1,131 -
Total relating to continuing operation 1,025 1,278 87 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).
Year 1 Year 2 Year 3 Year 4 Year 5
£000 £000 £000 £000 £000
Future contracted lease income 147 104 66 11 3
12 SHARE CAPITAL
Ordinary shares Ordinary shares
In thousands of shares 2023 2022
In issue at 1 April 114,491 114,491
Issued by the Company - -
Shares on the market at 31 March - fully paid 114,491 114,491
Allotted, called up and fully paid £000 £000
114,490,828 (2022: 114,490,828) ordinary shares of £0.01 each 1,145 1,145
63 deferred shares of £0.10 each - -
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).
13 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
Initial recognition Re-measurement to fair value FY22 Held for disposal FY22
£000 £000 £000
Property plant and equipment 3,442 (457) 2,985
Intangible assets 1,728 (229) 1,499
Inventories 464 - 464
Trade and other receivables 1,157 - 1,157
Cash and cash equivalent 129 129
Asset relating to disposal group 6,920 (686) 6,234
Invoice finance (512) - (512)
Lease liabilities (2,175) - (2,175)
Trade and other payables (835) - (835)
Deferred tax liabilities (8) - (8)
Liabilities relating to disposal group (3,530) - (3,530)
Net asset and liabilities of discontinued operations 3,390 (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.
14 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:
Book Value Adjustments Fair value
£000 £000 £000
Customer base - 953 953
Technology - 1,527 1,527
Property, plant and equipment 18 - 18
Cash and cash equivalents 1,078 - 1,078
Trade and other receivables 237 - 237
Trade and other payables (161) - (161)
Deferred tax - (620) (620)
Net assets acquired 1,172 1,860 3,032
Consideration 3,512
Goodwill 480
Consideration satisfied by:
Cash 2,320
Deferred consideration payable 921
Contingent consideration payable 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%.
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:
Book Value Adjustments Fair value
£000 £000 £000
Customer base - 912 912
Technology - 2,334 2,334
Cash and cash equivalents 812 - 812
Trade and other receivables 127 - 127
Trade and other payables (239) - (239)
Deferred tax - (812) (812)
Net assets acquired 700 2,434 3,134
Consideration 3,134
Goodwill -
Consideration satisfied by:
Cash 2,213
Deferred consideration payable 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.
Acquisition of Care Management Systems Limited (Care Docs)
The entire issued share capital of Care Docs, a provider of care home
management software and systems, was acquired on 18 January 2023 for the total
consideration of £3,871,000.
Care Docs 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 Care Docs 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 Care Docs on acquisition:
Book Value Adjustments Fair value
£000 £000 £000
Customer base - 1,262 1,262
Technology - 2,524 2,524
Property, plant and equipment 270 - 270
Cash and cash equivalents 698 - 698
Trade and other receivables 329 - 329
Trade and other payables (283) - (283)
Deferred tax - (946) (946)
Net assets acquired 1,014 2,840 3,854
Consideration 3,871
Goodwill 17
Consideration satisfied by:
Cash 3,387
Deferred consideration payable 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.
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:
Book Value Adjustments Fair value
£000 £000 £000
Customer base - 1,390 1,390
Technology - 4,407 4,407
Property, plant and equipment 10 - 10
Cash and cash equivalents 171 - 171
Trade and other receivables 31 - 31
Trade and other payables (120) - (120)
Deferred tax - (725) (725)
Net assets acquired 92 5,072 5,164
Consideration 5,164
Goodwill -
Consideration satisfied by:
Cash 3,370
Deferred consideration payable 889
Contingent consideration payable 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%.
15 CONSIDERATION RECEIVABLE
2023 2022
£000 £000
Receivable within one year 1,698 -
Receivable after one year - -
Total consideration receivable 1,698 -
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 16 for further details.
16 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.
17 ANNUAL REPORT
The Annual Report and Notice of AGM will be sent to shareholders on or around
17 August 2023 and will be available on the Company's website www.grafenia.com
(http://www.grafenia.com) from that date.
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