The following announcement replaces the announcement released on 27 July 2022 at 07.00 under RNS number 8386T.  In the Consolidated statement of cash flows for the year ended 31 March 2022, the wording related to the composition of the cash and cash equivalents at 31 March 2022 has been amended to clarify that which related to the Group's continuing operation and that related to its discontinued operation. A note reference in the consolidated statement of financial position has also been corrected. The corrected announcement is set out below and all other details remain unchanged.

 

 

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.

 

Grafenia plc

("Grafenia", "the Group" or "the Company")

 

Preliminary Results for the year ended 31 March 2022

 

Grafenia plc (AIM: GRA) announces its full year audited results for the year ended 31 March 2022.

 

Financial highlights

Continuing operations		Year ended 31 March 2022	Year ended 31 March 2021
Turnover	£8.92m		£6.94m
EBITDA*	£0.17m		£0.24m
Operating Loss	£(0.78)m		£(0.95)m
Loss before Tax	£(1.12)m		£(1.22)m
Tax	£0.56m		£0.25m
Total Comprehensive Loss	£(0.56)m		£(0.97)m
EPS	(0.49)p		(0.85)p
Development expenditure	£0.55m		£0.68m
Cash and cash equivalent**	£1.59m		£2.74m
Net debt**	£(5.25)m		£(4.34)m

 

*Earnings before interest, tax, depreciation and amortisation

**Including discontinued operations

 

Operational highlights

●      Launched WorksThing at the Sign & Digital exhibition

●      Number of partners in America grows to 27

●      Revenue growth across all channels

●      Works Manchester sold to PFI Group post year end

 

 

For further information:

 

Grafenia plc
Gavin Cockerill (Acting 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 / Liz Kirchner

 

 

Chairman's Statement

Shortly before publishing this report, Grafenia announced an important transaction. We decided to sell our manufacturing business as we believe we are not the best owner to develop that part of the business. Going forward, we will double down on the software & systems part of our business.

 

Sometimes you have to get smaller to grow bigger.

 

Over the course of the last few years - and during Covid in particular - we have learnt what Grafenia is really good at and, importantly, what we are not. In this annual report, you will hear from the leadership of Grafenia why we made the decisions we have and what lies ahead.

 

But first things first: here is our scorecard of the 2021/22 fiscal year:

 

Operational Performance

In the last fiscal year, our turnover increased by 27% to £12.36m (2021:£9.75m). Of this, £8.92m (2021: £6.94m) related to continuing operations and £3.44m (2021: £2.81m) related to discontinued operations. Gross profit increased by 20% to £6.70m (2021: £5.58m), with £3.54m (2021: £3.38m) coming from continuing operations and £3.16m (2021: £2.20m) from discontinued operations. However, the overall gross profit margin decreased to 54.2% (2021: 57.2%) as physical product volumes returned, which provide a lower margin than our licence and subscription revenue streams.

 

The year showed an improvement from a loss to a profit in EBITDA, which is earnings before interest, tax, depreciation and amortisation, of £0.33m (2021: loss £0.16m). £0.17m of this (2021: profit £0.24m) related to continuing operations and £0.16m (2021: loss £0.40m) related to discontinued operations. Our total comprehensive loss for the year reduced to £1.84m versus £2.09m last year. Of this, £0.56m (2021: £0.98m) was from continuing operations and £1.28m (2021: £1.11m) from discontinued operations.

 

We finished the fiscal year with cash of £1.59m (2021: £2.74m) of which £0.13m relates to the discontinued operation and net debt of £5.25m (2021: net debt £4.34m), £2.56m of which relates to the discontinued operation. We invested £0.03m on capex (2021: £0.18m), and capitalised £0.55m in development expenditure (2021: £0.68m).

 

This year, we are reporting results from "continuing" and "discontinued" operations. In plain English, "continuing" are the figures for the fiscal year as if we had sold Works Manchester at the beginning of the comparative year. "Discontinued" is … well … everything else! We are happy to announce that the businesses that we are keeping - first and foremost Nettl Systems - are more profitable and simpler than the operations we sold.

 

In fact, that is part of the reason we decided to put the emphasis on Nettl Systems and to explore acquisitions of complementary software businesses. In many ways, software is the nervous system of many businesses. During Covid, we saw an incredible stability and resilience in our software and licence revenues. Nettl Systems (and any good software, really) is the last thing people turn off during times of crisis. And rightly so! Software makes businesses more efficient and allows people to spend their time on more creative and interesting tasks. Grafenia sells a special kind of software which is tied into an entire ecosystem of how to run and operate a design business: Nettl. Importantly, during Covid Nettl not only served as a smart solution to help design studio owners work more efficiently - it was a source of inspiration and stability for many small entrepreneurs to make it through trying times.

 

Gladly, it looks like we turned the corner in operating performance during the last fiscal year as you can see in the results we are announcing in this report. We sincerely hope that our renewed focus on our core competency - systems and software - will help our partners to scale and thrive as exhibitions open up and the world goes back to normal.

 

 

People at Grafenia

With our focus on systems and software, we inevitably had to part with a large number of team members. Happily, they are now part of a new organisation that is fully focussed on running many different production sites. This will bring opportunities for career growth to the people who have run our plants for many years.  We wish PFI (PFI Group is the trading name of Rymack Sign Solutions Limited) as the new owners and everyone who leaves the Grafenia organisation our very best.

 

We also said goodbye to Peter Gunning who stepped down as CEO. I've very much enjoyed working with Peter for six years - he led Grafenia through a large transformation and the pandemic. Peter worked diligently to get us to where we are now and will stay closely involved with helping us improve our tech at Nettl Systems. In the name of all shareholders and the Board: Thank you, Peter!

 

With Peter leaving, Gavin is stepping up and will lead the fission of the organisation into two parts as Acting CEO. Over the course of the summer and early autumn, the Board will run a strategy exercise to explore the best operating model for our new focus on systems and software. The Board is excited to have Gavin in charge and we are keen to get to the drawing board very soon. In fact, Gavin has been instrumental in making our Nettl System available to many partners. Systems and software need to be sold, taught and curated - and Gavin knows very well how to do just that!

 

 

Outlook and Current Priorities

In the same place in last year's report, I explained our decision to divide our reporting structure into "everything production" and "everything software and licence". A year later, that split in reporting has led to a split of the business and a renewed focus on systems and software. Sometimes these things take time! However, we are now ready to double-down. While the coming weeks require some work on transitioning production to PFI, we will then focus on growing our software nucleus. To that end, Gavin will share a few initiatives in his report.

 

We will elaborate a bit more at the AGM and share a few more tangible aspects on what we are working on. In any case, the future of Grafenia will centre around what we are great at: making systems and software available for businesses to run better.

 

The AGM will take place on Wednesday 14 September 2022 at our Nettl of Birmingham Business, I hope to see you there!

 

 

Jan-Hendrik Mohr

Chairman

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chief Executive's Statement

 

Dear Shareholders,

 

Kind of a big deal

Our team has invested a great deal of energy and effort transitioning the business. To be what we think it should be. We continue to make progress. We've still work to do. But we've completed another big step in that process. That's the sale of our manufacturing business Works Manchester, detailed in our update of 19 May 2022.

 

That's kind of a big deal, so more on that later. It means we can double-down on our software licensing business. And move to the next part of the journey. With focus renewed. Objectives clear and in sight. To build, buy and licence.

 

As part of the sale, Peter Gunning has stepped down and I'm delighted the Board has appointed me Acting CEO. Peter will continue to be involved with the Nettl Systems software stack as a consultant. Moving forward, the Company and Peter intend to enter into an agreement whereby Peter will take on a master licence for WorksThing and Nettl in Spain. I expect he'll swap his flowery jackets for short-sleeved flowery shirts.

 

We'd like to sincerely thank our teams for their hard work and dedication throughout. For their efforts in bringing the business to this transitional point. We've made it through some tough times recently. It's not been easy and we recognise and appreciate the efforts of each and every partner and team member. Thank you.

 

This year was better, for sure. Slowly moving from lockdowns and restrictions to busy events and exhibitions has helped. Each of our business units improved performance compared to last year. 

 

We said in our trading update on 6 April 2022 that we had faced cost rises across the board. Paper has increased by 30-50%, due to increased distribution costs, shortages and rising energy prices. We have increased our prices three times in 2022 to reflect this. Fuel and energy prices remain at high levels and are not helped by global events. We don't expect this to change anytime soon.

 

Build, buy and license

Our strategy remains the same. Build, buy and license. We build performance in our company-owned Nettl locations. We buy businesses to extend our scale, capability and resilience. And we license our know-how and systems to others. I'll go into more detail on each of the sections in turn.

 

The key difference? We no longer believe we need to own a production facility to provide an integrated supply chain via our platform. We can do so utilising our Works Maker partners. Works Manchester now being the largest. Seamlessly hooked into our platforms. 

 

Nettl company-owned stored

We have five company-owned Nettl locations. In these stores, we sell to local businesses. The kind of things a business would want to promote themselves online and offline. That's websites, ecommerce shops, online booking systems, social media, SEO, printing, displays, exhibition and signage. We mostly sell to SME clients, who often don't have their own in-house marketing department.

 

Our stores are in Manchester, Birmingham, Exeter, Liverpool and Dublin. They're important because it's where we refine new initiatives. Develop and deploy best practice. Then we roll that out across our partner network.

 

The pandemic and all the restrictions brought about uncertainty. Uncertainty dents business confidence. But as restrictions were lifted, events returned. Business opened up again. Slowly, but surely, sales in our company stores returned. Not to pre-pandemic levels. But they're getting there. Revenues from our stores were up 34% to £2.46m (2021: £1.83m). In the second half of 2020, we rolled three businesses into our Birmingham and Dublin company stores. If we exclude them this year, like-for-like sales would be up 20%.

 

In this revenue segment, we count all invoiced sales to end clients of our company stores, whether they be print, display, design, websites or search engine optimisation. Essentially, everything we ring through the till in our own stores.

 

Software Circle

We buy businesses to extend our scale, capability and resilience. Our acquisition strategy is a little different today. We're refocusing our search on software businesses. Take a look at www.grafenia.com/acquisition to see the full detail. Our Software Circle team actively search for businesses that either complement our core offering or are complementary to the skillsets we have as a business. Those skillsets being sales, marketing, design and software development and licensing. We have a number of ongoing discussions with owners of businesses that meet our criteria. Things are progressing. This will be a large part of our focus for the upcoming year.

 

You might think that this is a pivot. And you'd be right. Our previous aim was to roll-in signage businesses. You'll recall we acquired Image Group back in 2017.  Sales were £3.45m (2021: £2.80m).  Owning Image Group helped us integrate the supply of signage and large format solutions into our systems. We're hoping to expand those offerings through Works Manchester and new owner PFI Group's wider network.

 

We believe we can achieve our aim of an integrated supply chain and nationwide installation network for our partners without owning sign companies.

 

Nettl Systems

If I think back to my first days with this business. A long, long time ago. In what feels like a galaxy far, far away. Birmingham, to be precise. It was all about print. A lot has changed since then. Print is a huge part of our legacy. It's where everything started. Back then, we published prices in a buying guide, we faxed order forms, manually checked graphic files and sent them to production using a Jaz drive. Yes, Jaz and Fax were things.

 

Since then, the Nettl System has grown up. Developed over decades. Once our blue screened, MS-DOS child. Now the jewel in our crown. A complete cloud-based operating system for the graphics sector.

 

Our software platform, once geared just for print, now manages everything a diverse graphics studio needs to thrive. From print orders and web projects to signage surveys and installations, SEO and Social Media. Automating the little things that have to happen along the way.

 

Nettl studios can do more for their clients, in less time, with the same people. To rely less on just reselling print. We've added new modules too. Improving the CRM and pipeline capabilities. We think this could widen the target market for our subscriptions in the future.

 

Today we licence our software and brands to graphic professionals. Designers, printers, signmakers, marketing agencies and other graphic professionals use our marketing tools, workflow management system and integrated supply chain to deliver better service to their local clients.

 

Partners pay us a monthly subscription which gives them access to our systems, brand, training and support. Using the Nettl System, they're able to buy factory-direct print and display seamlessly integrated from multiple suppliers. We call them Works Makers. Partners resell to clients along with centralised digital marketing services like SEO, Social Media and Paid Search.

 

Our 'brand partners' use the Nettl or printing.com brand in conjunction with their own. They're our exclusive partner in their neighbourhood. We licence printing.com and Nettl directly in the UK and Ireland. We also licence Nettl in Belgium, France, the Netherlands and in the USA. In Australia and New Zealand, we master licence to our partner.

 

In the UK we have waiting lists for the larger city areas. But the provincial towns are where we've seen some churn. Partners who found it difficult to diversify from selling just print, have had a tough time. Although Covid restrictions ended, for those still reliant on small format print, recovery was slower than hoped. It's always sad to lose partners, but compared to the sector at large, our network has proved resilient. Our brand, marketing and clever systems kept some going when otherwise, they may not have. We have continued to add new Nettl partners in the UK and US.

 

Our Nettl partner network now stands at 210 locations around the world (2021: 232), 159 active Nettl partners in the UK and Ireland, 18 in Benelux, 27 in the USA, 4 in New Zealand and 2 in Australia. In France we saw an influx of new partners during the pandemic and our partner count last year stood at 12. But France has been hit the hardest and those businesses never got going.

 

We also currently have 38 printing.com locations (2021: 46). We are still seeing printing.com partners upgrade to Nettl in the UK and Ireland. We anticipate that will continue as partners diversify their businesses from a reliance on print alone.

 

Despite a reduction in brand partner count, Subscription and Licence Fees overall improved slightly at £2.14m (2021: £2.08m). An increase in search engine optimisation subscriptions and website deployments helped drive this. In this segment, we count initial licence fees, monthly subscriptions, website deployment royalties, the wholesale price of hosting, domain names, digital stock photography and search engine optimisation sold via our brand partners.

 

As well as paying for licence fees and subscription-based services, Nettl and printing.com partners buy printing, exhibition kit, displays and signs and other branded merchandise from our integrated supply chain. They pay a wholesale price and resell to end clients. Last year product sales were hit hard. As businesses opened, events returned. Business confidence bounced around, but certainly improved on last year. Similar to our company-owned stores, this meant sales of products to Brand Partners increased to £2.44m (2021: £1.92m), driven largely by large format graphics and signage.

 

WorksThing

Leveraging what we learned from owning our own signage business, we developed and implemented a digital transformation programme to improve the sign and install industry. The first iteration of our platform was for print. The second, web and digital services. This new layer enhances the whole process of quoting and managing sign and display projects.

 

We launched "WorksThing" at the Sign & Digital exhibition in March 2022. Optimised for the signage sector, WorksThing.com is a complete workflow tool for managing signage installations, from start to finish. It's an extension to the Nettl system - another Software-as-a-Service. Sign businesses pay a monthly subscription, from £49 per user per month. Their installers can build online surveys and collaborate online. Connecting their calendars to provide online booking, like reserving a table at a restaurant.

 

Each install is mapped on a live timeline, so everyone can keep track of progress. A modern chat messaging system connects clients with studios, production and install crews. It's early days, but multiple businesses have signed up for a free trial and we're pleased with the reaction we received at the event.

 

We expect to see some existing partners upgrade and that some WorksThing clients will become Nettl partners. To get more from every client relationship with the Nettl toolkit.

 

Marqetspace.com and online channels

 

We sell print and signs to professional buyers through Marqetspace.com and a few other online channels. This space remains super-competitive.

 

It may then seem weird that we retain our Marqetspace channel despite the sale of Works Manchester. But it is important to us for a number of reasons. It's often where our relationships start. We get to know printers, graphic designers and sign companies with a simple trading relationship. Then we build trust. Then we figure out if any of our software tools or systems can help them achieve their own objectives. And so Marqetspace is a fertile ground for cultivating Nettl partners.

 

It also gives us insight into where the gaps in our product range are. We use that to find new Works Makers that can provide that supply.

 

The pandemic was tough for Marqetspace because it typically had the highest percentage of litho print to resellers. However, we saw a recovery last year. Sales were £1.88m (2021: £1.12m).

 

Nettl of America

In truth, our American dream remains just that. We've been hindered by the pandemic and the US travel ban didn't help. But we've used that time to evaluate and refine what we've been doing and how we've been doing it. Our new process has generated leads and brought new partners into the family.

We've had to adapt how we acquire, launch and support our American friends. We're not deterred. Now that it's possible again, we'll be at exhibitions and events. Face-to-face. Meeting with potential partners. We expect that to help increase conversion.

 

We now have 27 Nettl locations in America. There are franchisees and partners in the states of Florida, Georgia, Ohio, New Jersey, Pennsylvania and Illinois.

 

Works Manchester becomes a Works Maker

The Board took the decision to sell Works Manchester, so the two businesses can focus on their strengths. Nettl Systems will be focused on growing our software and licensing.

 

Works Manchester has plenty of capacity. It will benefit from ingesting more external volume. New owner PFI Group is a natural fit and can use the spare capacity. It also gives Works Manchester other opportunities to grow and prosper.

 

Based less than a mile from the Manchester hub, PFI have been Nettl partners for several years and operate a dozen factories around the country.

 

Providing products for partners to resell through our system remains an important part of the offering. Works Manchester becomes our largest Works Maker. Maintaining an integrated supply chain through our platform, for our partners. With increased capabilities. They will continue to use our software platform with a five year licence agreement. It controls the movement of orders through each production step and seamlessly connects our partners.

 

Which means partners continue to buy print, display and signage products from Nettl Systems. With all the tracking, visibility and service guarantees they've come to expect. We charge a small fee to process each order through our platform.

 

The sale of Works Manchester is an important pivot for the Group. It will see Grafenia transition to a software licensing business. Focused on developing our platforms, growing our partner network and company owned channels. And adding further software businesses to the Group by way of M&A.

 

Outlook

Our new financial year started in April. Trading has continued to improve, compared to last year. We're currently trading slightly ahead of our internal forecasts. Given the sale of Works Manchester Ltd, we will benefit from lower fixed overheads, depreciation charges and costs of borrowing. Modest increases in revenue will improve profitability. And that gives us confidence of reaching our mid-term objective of 10-15% EBITDA on a monthly run-rate.

 

For the first time in a while, I hope to see you in person for the presentation after the AGM.

 

 

Gavin Cockerill

Acting Chief Executive

 

 

 

Financial Review

 

Revenue

Group revenue for the year, excluding discontinued operations, was £8.91m, (2021: £6.94m), an increase of 26% year-on-year. Whilst a clear improvement, COVID-19 uncertainty and lockdowns continued to impact revenue. Licence revenues, as with the prior year, remained consistent. Sales of products increased as volumes improved and price rises in response to rising costs were enacted in the second half of the year, but were still lower than usual. Exhibitions and events were cancelled for a second year and many customers were still unable to open or otherwise forced to operate at reduced capacity for significant periods during the year.

 

In terms of product sales, our Company Stores saw an increase in revenue to £2.46m (2021: £1.83m), sales of print and other products through our Brand Partner Network increased to £2.44m (2021: £1.92m), Online and Trade sales increased to £1.88m (2021: £1.12m). Revenues from Works Signs Businesses, our now discontinued operation, increased to £3.45m (2021: £2.80m). The reason for the increases is consistent over each of these channels - more customers open for more days during the year. Licence and Subscription Fee revenue has increased year-on-year to £2.14m (2021: £2.08m) despite a slight reduction in our partner count. At 95% by revenue (2021: 94%), the majority of our business remains in the UK & Ireland.

 

Gross profit

Gross Profit, defined as revenue less direct materials (including the cost of distribution when made direct to customers) increased to £6.70m (2021: £5.58m). Of this, £3.54m related to continuing operations (2021: 3.38m) and £3.16m related to discontinued operations (2021: £2.20m). As part of the sale of Works Manchester, we entered into a 5 year supply agreement 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 financials have 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.

 

The gross margin percentage of 54.2% (2021: 57.2%) reflects a shift in the proportion of our revenue away from the higher margin Licence and Subscription income as product volumes have returned. Margins continue to be under pressure in traditional print and signage, with the pandemic and other global supply chain issues causing scarcity of materials and increased costs. The entire industry has been affected, leaving us with no viable option but to increase prices across our range of physical products. During the year we enacted three price increases across our range of printed products, with prices rising on average by 4% each time.

 

Other operating costs

With our team members returning to work as revenues have improved, the amount claimed through the Coronavirus Job Retention Scheme fell to £0.14m (2021: £0.79m), causing our overall staff costs to increase by 15% to £4.24m (2021: £3.70m). The average number of persons employed fell to 146 (2021: 159), reflecting the full year impact of the restructuring programme undertaken in the prior year. 

 

Other operating charges have increased to £2.09m (2021: £1.88m) as reductions in the cost base achieved during the prior year have been mostly preserved.

 

Our bad debt charge reduced to £0.04m in the year (2021: £0.20m) reflecting the high provisions required during the first year of the covid-19 pandemic and the continued improvements in credit control since then. We continue to work with our customers and Partners however our provision for debt is still significant and we have to accept that some of those debts may never be paid.

 

Profitability

As a combination of the factors discussed above, our pre-tax loss reduced to £1.71m (2021: £2.33m) leading to a reduced loss per share of 1.60p (2021: 1.83p). Of this, a loss of £1.28m (2021: £1.11m) is attributed to the now sold production operation of Works Manchester. Our earnings before interest, tax, depreciation and amortisation (EBITDA) improved to a profit of £0.33m (2021: loss of £0.16m). Excluding Works Manchester, EBITDA was £0.17m (2021: 0.24m). The parent company result for the year was a loss of £0.41m (2021: loss £0.33m).

 

Operating Cash Flow

This has led to the Group generating £0.13m of cash through operating activities (2021: generated £0.22m), reflecting the EBITDA in the respective years. Excluding Works Manchester, the Group generated £0.27m (2021: 0.59m).

 

Investment activity

The current year has seen reduced investment in plant and equipment of £0.03m (2021: £0.18m), following the decision to divest our production operations. We continued our investment in the Group's software platforms, totalling £0.55m (2021: £0.68m), with continued enhancements and new features to the Groups SaaS platforms.

 

Financing activity

Compared to previous years, it has been a quiet year for financing activity, with no additional facilities taken out, and no further drawdowns on the £50m bond facility that was put in place in the 2020.

 

Repayments of lease liabilities totalled £0.82m (2021: £0.67m), of which, £0.63m related to Works Manchester (2021: £0.44m).

 

We finished the fiscal year with cash of £1.59m (2021: £2.74m) of which £0.13m relates to the discontinued operation and net debt of £5.25m (2021: net debt £4.34m), £2.56m of which relates to the discontinued operation.

 

KPIs

Management monitors a number of KPIs, which underpin the performance of the business. The financial KPIs are Revenue, EBITDA and overall profit of 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. Another key financial metric is the average product revenue per partner, which has increased as the severity of the pandemic has eased.

 

There are also a number of non-financial KPIs which management monitors, that ultimately drive the financial performance. The number of Nettl Network Partners, the main driver of our Licence and subscription fee revenue, has reduced, as discussed by Gavin earlier within the Chief Executives Statement. Website deployments and SEO subscriptions, the other drivers of Licence and subscription revenue, have levelled off, following a surge in the previous financial year as our customers looked for alternative ways to promote their businesses during the height of the pandemic.

 

Outlook

The major development for the group is the sale of Works Manchester which completed on 31 May 2022, for cash consideration of £3,165,000. Of this consideration, £100,000 is payable over the first 3 months and then £766,250 on the first four anniversaries of the sale. In recent years this part of our operation has not been profitable. The total loss from the discontinued operation was £1.28m (2021: £1.11m) and the cash outflow attributable was £0.47m (£0.79m).

 

Looking forward, we expect to see revenues from the ongoing operations continue to recover and hope to experience no further coronavirus restrictions. Events returned in the Spring as expected, bringing an upturn in revenue, particularly within our range of ink-on-fabric display products. Group revenues in the first quarter of the current year were up 24% on the previous financial year.

 

With the changed business model, the gross margin of the Nettl operation will look very different. Our margin on product sales will drop significantly, but so will our underlying cost base. Finance repayments have been significantly reduced and we will receive payments over the next four years in relation to the sale of Works Manchester. Based on a forecast including a moderate increase in revenue, we expect profitability to improve. We believe the financial future of the business is secure and we have the resources to execute our expansion plans. Accordingly, the Directors continue to adopt the going concern basis in preparing the annual report and financial statements.

 

Principal Risks and Uncertainties

The following are the principal risks relating to the Group's operations:

 

Risk	Potential Impact	Mitigation
Global or regional pandemic	The COVID-19 virus, and public health mitigations may lead to the closure of end customer and company owned premises, impacting the ability to trade, reducing demand and disrupting the supply of goods.	Our product range has been diversified to rely less on physical promotional items.   Production of physical products has been outsourced, lowering the risk should product volumes fall.   Home working arrangements are in place enabling team members to work remotely if required.
Economic and political factors beyond the Group's direct control	A downturn in the macroeconomy may reduce consumer demand generally.   Costs may be increased by changes to government policy, including tax changes or other legislation.   Supply chains may be subject to disruption, or inflationary pressure.	To mitigate supply chain disruption across borders the majority of product supply is now sourced from the jurisdictions the customer belongs to.   Our platform has the capability to source product supply from multiple suppliers, across multiple regions should it be required.
Competitive environment	The markets in which the Group operates are extremely competitive posing a threat to profitability.	We work closely with suppliers to monitor input costs and competitor pricing, ensuring we remain competitive.
Technological change	Advances in software may impact on operational effectiveness and earnings potential.	We are constantly improving our platform and adding new features to ensure we remain at the forefront of the technological advancement.
Technological failure	The Group and its clients depend on the W3P SaaS platform to operate their businesses.	All reasonable operational contingency is embedded for resilience in the event of a catastrophe.
Key management	The loss of key personnel could impact the Group's ability to implement strategy and the intended pace of growth.	The Remuneration Committee seeks to ensure rewards are commensurate with performance and aid retention.

 

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