TIDMGRA
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 GBP12.55m GBP12.36m
EBITDA* GBP0.46m GBP0.33m
EBITDA from continuing operations GBP0.41m GBP0.17m
Total Comprehensive Loss GBP(1.61)m GBP(1.84)m
EPS (1.41)p (1.60)p
Cash and cash equivalent** GBP1.99m GBP1.59m
Net debt** GBP(16.72)m GBP(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 GBP9.52m 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
GBP12.55m (2022: GBP12.36m). Of this, GBP11.68m (2022: GBP8.92m)
related to continuing operations with GBP2.15m coming from our new
acquisitions. Overall gross profit decreased by 4.6% to GBP6.39m
(2022: GBP6.70m) following the sale of Works Manchester and the
resulting reduction in product sales margin. On continuing
operations, gross profit increased 62.4% to GBP5.75m (2022:
GBP3.54m), 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 GBP0.46m (2022: GBP0.33m). Our
total comprehensive loss for the year reduced to GBP1.61m versus
GBP1.84m last year.
We finished the fiscal year with cash of GBP1.99m (2022:
GBP1.59m of which GBP0.13m related to discontinued operations) and
net debt of GBP16.72m (2022: net debt GBP5.25m). We invested
GBP8.37m, net of cash, on the acquisition of software companies,
and capitalised GBP0.39m in development expenditure (2022:
GBP0.55m).
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 GBP11.7m (2022: GBP8.9m). An addition
of GBP2.8m.
GBP0.6m (7%) came from organic growth of our Nettl Systems
business unit and GBP2.2m (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
GBP11.2m of bonds, at nominal value, raising GBP9.5m before
expenses. We deployed GBP9.6m of capital, including GBP0.3m of deal
costs.
Bond Utilisation
Initial Deferred Bond Bond Bond Total
Consideration Consideration 1 (Cash) 2 (Cash) 3 (Cash) (Cash)
- - GBP4.25m GBP2.72m GBP2.55m GBP9.52m
Vertical Plus GBP1.25m GBP1.00m GBP1.25m - -
Watermark GBP1.50m GBP1.00m GBP1.50m - -
Care Docs GBP2.98m GBP0.52m - GBP2.98m -
Topfloor GBP3.42m* GBP0.85m* - - GBP3.42m*
Total Consideration GBP9.15m GBP3.37m GBP12.52m
Capital Deployed GBP2.75m GBP2.98m GBP3.42m GBP9.15m
Difference GBP1.5m -GBP0.26m -GBP0.87m GBP0.37m
*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 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 GBP500k 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 GBP2.25m plus an earnout of up to GBP0.63m.
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
GBP2.5m. 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 GBP3.5m. 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
EUR4.8m plus an earnout of up to EUR1.4m. 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(**) GBP6.2m GBP7.1m GBP7.1m
Vertical Plus GBP1.8m GBP2.4m GBP2.0m
Watermark GBP1.2m GBP1.2m GBP1.2m
Care Docs GBP2.1m GBP2.3m GBP2.5m
Topfloor EUR1.2m EUR1.4m EUR1.6m
We have successfully onboarded our newly acquired businesses and
they are contributing to profitability.
Our five operating businesses generated a positive EBITDA of
GBP0.8m after Group central costs of GBP0.9m. 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
GBP0.3m involved in the acquisitions, the EBITDA for the year was
GBP0.5m (2022 GBP0.3m).
The four acquisitions have a combined annualised turnover of
over GBP7.0m. GBP2.2m 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 GBP4.5m of total sales (2022: GBP4.3m).
Overall, Nettl Systems generated GBP9.5m of sales (2022:
GBP8.9m). 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
Unit Category Acquired Consideration Consideration Sales
2023
Nettl Systems Graphics & Graphics n/a n/a n/a GBP9.53m
Ecommerce & Ecommerce
Vertical Ecommerce Graphics 01/10/22 GBP1.25m GBP1.00m GBP1.01m
Plus & Ecommerce
Watermark Document Management Professional 07/12/22 GBP1.50m GBP1.00m GBP0.42m
Services
Care Docs Care Home Health 18/01/23 GBP2.98m GBP0.52m GBP0.55m
Management and Care
Topfloor Property Management Property 17/02/23 GBP3.42m GBP0.85m GBP0.17m
Total GBP9.15m GBP3.37m GBP11.68m
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 GBP17m. 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 GBP12.55m, (2022: GBP12.36m), 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 GBP10.54m GBP8.92m
Professional services GBP0.42m n/a
Healthcare GBP0.55m n/a
Property GBP0.17m n/a
Discontinued Operations GBP0.87m GBP3.44m
GBP12.55m GBP12.36m
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 GBP9.53m (2022:
GBP8.92m), 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
GBP1.01m of revenue in the second half of the year.
Additional divisions have been created for the three other
acquisitions, further contributing a combined GBP1.14m of
predominately recurring revenue. As a result, Licence and
subscription revenue generated by the Group rose to GBP4.10m (2022:
2.14m).
Gross profit
Gross profit of the Group decreased to GBP6.39m (2022:
GBP6.70m). The fall results from the sale of the discontinued
operation, Works Manchester, on 31 May 2022 with gross profit from
discontinued operations reducing to GBP0.64m (2022: GBP3.16m). 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 GBP5.75m (2022:
GBP3.54m) 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 GBP3.89m (2022: GBP4.24m)
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 GBP1.96m (2022: GBP2.09m) 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 GBP0.35m in the year under review.
Profitability
This has been impacted in the year following a writedown of
GBP0.81m 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 GBP2.62m (2022: GBP1.71m) and a loss per share of
1.41p (2022: 1.60p). Our earnings before interest, tax,
depreciation and amortisation (EBITDA) was GBP0.46m (2022:
GBP0.33m). Excluding Works Manchester, EBITDA was GBP0.41m (2022:
0.17m). Within this, the newly acquired subsidiaries, excluding the
related costs of acquisition, have contributed GBP0.72m. The Parent
Company result for the year was a loss of GBP2.21m (2022: loss
GBP0.41m).
Operating Cash Flow
The Group generated GBP0.30m of cash through operating
activities (2022: generated GBP0.13m). 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 GBP0.39m (2022: GBP0.55m), 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 GBP8.37m 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 GBP11.20m nominal value of bonds, raising GBP9.52m before
expenses. Interest payments on this facility do not commence until
August 2024.
Loan repayments related to our CBILS facility totalled GBP0.31m
(2022: 0.20m). Monthly payments on this facility continue until
April 2025.
We finished the financial year with cash of GBP1.99m (2022:
GBP1.59m of which GBP0.13m related to discontinued operations). Net
debt rose to GBP16.72m (2022: net debt of GBP5.25m) 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 GBP17m. 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 A downturn in the macroeconomy To mitigate supply chain
factors beyond may reduce consumer demand disruption across borders
the Group's direct generally. the majority of product
control supply is now sourced
Costs may be increased from the jurisdictions
by changes to government the customer belongs
policy, including tax to.
changes or other legislation.
Our platform has the
Supply chains may be capability to source
subject to disruption, product supply from multiple
or inflationary pressure. suppliers, across multiple
regions should it be
Changes in interest rates required.
could impact the ability
to raise required capital
to fund the acquisition
strategy
======================== =================================== =================================
Competitive environment Some of the markets in We work closely with
which the Group operates suppliers to monitor
are extremely competitive input costs and competitor
posing a threat to profitability. pricing, ensuring we
remain competitive.
======================== =================================== =================================
Acquisition of A poor performing acquisition We operate a structured
a sub-optimal business would consume management and rigorous due-diligence
time, focus and Group 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 We are constantly improving
and advances in artificial our platforms and adding
intelligence may impact new features to ensure
on operational effectiveness we remain at the forefront
and earnings potential. of technological advancement.
======================== =================================== =================================
Technological failure The Group and its clients All reasonable operational
depend on the SaaS platform contingency is embedded
to operate their businesses. for resilience in the
event of a catastrophe.
======================== =================================== =================================
Key management The loss of key personnel The Remuneration Committee
could seeks to ensure rewards
impact the Group's ability are commensurate with
to implement strategy performance and aid retention.
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 YEARED 31 MARCH
2023 Note 2023 2023 2023 2022 2022 2022
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Continuing Discontinued Total Continuing Discontinued Total
operation operation operation operation
------------------------------------- ----- ---------- ------------ --------- ---------- ------------ ---------
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
GBP000 GBP000
-------------------------------------------- ---- ------- -------
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
YEARED 31 MARCH 2023
Share
based
Share Merger Share payment Translation Retained
Capital reserve premium reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- --------- --------- --------- -------- ------------- ---------- -------
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 YEARED 31 MARCH 2023 Note Group Group
2023 2022
GBP000 GBP000
--------------------------------------------------------- ---- ------- -------
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 operation 204 273
Net cash inflow / (outflow) from operating activities
from discontinued operation 104 (139)
--------------------------------------------------------- ---- ------- -------
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 operation 9,035 (378)
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 operations 523 (677)
Net increase / (decrease) in cash and cash equivalent
from discontinued operations 9 (472)
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
GBP000 GBP000 GBP000 GBP000
------------------------------ ------------ ------ ------ --------
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 Graphics Professional Healthcare Property Discontinued Total
2023 & Ecommerce services Operations
--------------------------
GBP000 GBP000 GBP000 GBP'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 Graphics Professional Healthcare Property Discontinued Total
2022 & Ecommerce services Operations
--------------------------
GBP000 GBP000 GBP000 GBP'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
GBP17,650,000 (2022: GBP2,468,000), GBP12,907,000 (2022:
GBP2,475,000) are located in the UK. Non-current assets located
outside the UK are in Ireland GBP5,802,000 (2022: GBP11,000).
3 TAXATION
Recognised in the income statement 2023 2022
GBP000 GBP000
-------------------------------------------------- ------- ------
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
GBP000 GBP000
--------------------------------------------------- --------- ---------
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 GBP155,000 (2022 Debtor:
GBP167,000). 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
GBP000 GBP000
------------------------------------------------------------- ------------- -------------
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 number
average 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
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ------ --------- ---------------- ------------ ----------------- ----------
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 1 April Recognised Recognised Derecognised 31 March
tax during the year. 2022 on acquisition in income on disposal 2023
of subsidiary of subsidiary
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ------ --------- ---------------- ------------ ----------------- ----------
Intangible assets (318) (3,107) 170 298 (2,957)
Trading losses 318 - 666 - 984
---------------------------- ------ --------- ---------------- ------------ ----------------- ----------
- (3,107) 836 298 (1,973)
---------------------------- ------ --------- ---------------- ------------ ----------------- ----------
Movement in deferred 1 April Recognised Recognised Removal 31 March
tax during the year. 2021 on acquisition in income of discontinued 2022
of subsidiary operation
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ------ --------- ---------------- ------------ ----------------- ----------
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 GBPnil (2022:
GBP1,526,000).
6 PROPERTY, PLANT AND EQUIPMENT
Leasehold Plant Motor Fixtures Total
Improvements and Vehicles and
Equipment Fittings
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------------- -------------- ----------- ---------- ---------- --------
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 GBP982,000 (2022: GBP3,453,000). Right-of-use of assets from
discontinued operation is GBPnil (2022: GBP2,540,000). 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
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- --------- --------- ------------ ---------- ----------- --------- ------- --------------
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 GBP1,321,000 (2022: GBP936,000) is
recognised in profit or loss within depreciation and amortisation
expenses. GBPnil (2022: GBP225,000) from discontinued operation,
GBP1,321,000 (2022: GBP711,000) from continuing operation. An
impairment charge of nil (2022: GBPnil) was recognised during the
year.
8 TRADE AND OTHER RECEIVABLES
At 31 March 2023 trade receivables are shown net of an
impairment allowance of GBP1,153,000 (2022: GBP1,089,000).
Trade and other receivables denominated in currencies other than
sterling comprise GBP899,000 (2022: GBP114,000) of trade
receivables.
2023 2022
--------------------------------------------------------------
GBP000 GBP000
-------------------------------------------------------------- ------- -------
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 amortised cost 1,646 2,201
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
------------------------
GBP000 GBP000 GBP000
------------------------ -------------- ------------- -------
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 As at 31
March 2023 March 2022
GBP000 GBP000
------------------------------------------------------------ ------------ ------------
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 allowance 87 43
------------------------------------------------------------ ------------ ------------
Balance at 31 March 1,153 1,089
------------------------------------------------------------ ------------ ------------
Of the total impairment provision GBP115,000 (2022: GBP36,000)
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 GBPnil (2022: GBP512,000) 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
GBP000 GBP000
Total Total
----------------------------------------------------------- -------------- --------------
Trade payables 700 1,445
Accruals 428 373
Other liabilities 689 529
----------------------------------------------------------- -------------- --------------
Total financial liabilities, excluding borrowings
classified as financial liabilities measured at amortised
cost 1,817 2,347
----------------------------------------------------------- -------------- --------------
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 GBP87,000 (2022: GBP72,000) 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
GBP000 GBP000
------------------------------- ------ ------
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 GBP50,000,000 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
GBP11,200,000, raising a net GBP9,520,000.
In August 2020 an additional term loan for GBP1,000,000,
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 GBP602,000 (2022:
GBP855,000).
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 Plant Motor Total
buildings and Vehicles
equipment
RIGHT OF USE ASSETS GBP000 GBP000 GBP000 GBP000
-------------------------------- ----------- ----------- ---------- --------
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 Plant Motor Total
buildings and Vehicles
equipment
LEASE LIABILITIES GBP000 GBP000 GBP000 GBP000
----------------------------------------- ----------- ----------- ---------- --------
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 Plant Motor Total Land Plant Motor Total
and buildings and Vehicles and and Vehicles
equipment buildings equipment
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- --------------- ----------- ---------- ------- ----------- ----------- ---------- -------
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 Contractual 6 months 6-12 1-2 years 2-5 years More
amount cash or less months than
flows 5 years
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ----------- -------------- ----------- --------- ------------ ------------ ----------
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
GBP217,000 (2022: Nil).
Year Year Year Year Year
1 2 3 4 5
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ------- ------- ------- ------- -------
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 GBP000 GBP000
114,490,828 (2022: 114,490,828) ordinary
shares of GBP0.01 each 1,145 1,145
63 deferred shares of GBP0.10 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: GBPnil).
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 Held for
to fair value disposal FY22
FY22
GBP000 GBP000 GBP000
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 GBP2.7m (GBP3.165m gross consideration) which was
greater than the carrying value of the discontinued operations
recognised. The subsequent impairment of GBP686,000 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 GBP235,000 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 GBP3,512,000.
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 GBP1,011,000 and a profit before
tax of GBP194,000. Had it been owned by the group for the full
year, it would have contributed revenue of GBP1,867,000 and a
profit before tax of GBP227,000, which included one-off costs.
Net assets of Vertical Plus on acquisition:
Book Value Adjustments Fair value
GBP000 GBP000 GBP000
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 GBP115,000 of which GBP9,000 was expected to be
uncollectible at the date of acquisition.
Contingent consideration of up to GBP630,000 will be satisfied
in cash dependent on Vertical Plus achieving certain earnings
targets in each of the first three annual periods following
acquisition, with GBP210,000 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, GBP215,000 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 GBP3,134,000.
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 GBP422,000 and a
profit before tax of GBP179,000. Had it been owned by the group for
the full year, it would have contributed revenue of GBP1,300,000
and a profit before tax of GBP495,000.
Net assets of Watermark on acquisition:
Book Value Adjustments Fair value
GBP000 GBP000 GBP000
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 GBP112,000 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 GBP3,871,000.
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 GBP544,000 and a
profit before tax of GBP186,000. Had it been owned by the group for
the full year, it would have contributed revenue of GBP2,751,000
and a profit before tax of GBP87,000, which included one-off
costs.
Net assets of Care Docs on acquisition:
Book Value Adjustments Fair value
GBP000 GBP000 GBP000
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 GBP402,000 of which GBP123,000 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 GBP5,164,000.
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 GBP173,000 and a
profit before tax of GBP94,000. Had it been owned by the group for
the full year, it would have contributed revenue of GBP1,445,000
and a loss before tax of GBP703,000, which included one-off
costs.
Net assets of Topfloor on acquisition:
Book Value Adjustments Fair value
GBP000 GBP000 GBP000
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 GBP963,000 of which GBP5,000 was expected to be
uncollectible at the date of acquisition.
Contingent consideration of up to EUR1,400,000 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 EUR1,248,000. Should
revenue growth be 5% per annum, the contingent consideration
payment would be EUR558,000. The expected contingent consideration
has been discounted to present value using a WACC of 8.6%.
15 CONSIDERATION RECEIVABLE
2023 2022
GBP000 GBP000
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 GBP2,809,973. The carrying
value of GBP1,698,000 is net of an impairment of GBP805,000 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 GBP514,223
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 GBP2,809,973. The carrying value in the financial statements is
GBP1,698,000.
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 from that date.
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END
FR VELFLXDLLBBK
(END) Dow Jones Newswires
July 26, 2023 02:00 ET (06:00 GMT)
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