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.

24 November 2022

Grafenia plc

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

Unaudited Interim Results for the period ended 30 September 2022

Financial highlights

*Earnings before interest, tax, depreciation and amortisation

Operational highlights

●              Completed the sale and separation of Works Manchester

●              Revenue from continuing operations up by £0.58m, a 13% increase

●              Licence fees and subscriptions up by £0.04m, a 4% increase

●              Partner product spend saw 31% increase, up by £0.36m

●              Revenue from online and trade up by £0.25m, a 27% increase

●              Investment in Software Circle - our acquisition strategy, is bearing fruit

●              Raised £4.25m through additional bond issue to fund acquisitions

Interim Statement

Our team has spent the past six months laying the foundations for the next part of our journey.  In our Annual Report, we discussed the ongoing transition of our business and the sale of our manufacturing hub Works Manchester, announced on 19 May 2022. Our teams have worked hard to ensure that transition has been smooth. We'd like to thank everyone involved for successfully managing the process. Simplifying our business and completing the transition to one focussed on software and systems.

Previously we divided our reporting structure into two business units: everything software and licence (we call this business unit Nettl Systems); and everything production (we called that Works Manchester). Given the sale of Works Manchester on 31 May 2022, you'll see below that we are reporting results from "continuing" and "discontinued" operations, as we did in our full year results released in July. In plain English, "continuing" are the figures for the period as if we had sold Works Manchester at the beginning of the comparative periods. "Discontinued" is everything else.

Trading Results and Cash

Revenue from continuing operations rose to £4.97m (2021: £4.39m). Total revenue reduced to £5.84m (2021: £6.31m) following the disposal of Works Manchester at the end of May 2022, meaning discontinued operations only contributed revenue of £0.87m (2021: £1.92m).

Total gross profit fell to £2.66m (2021: £3.44m), again as a result of the sale of Works Manchester. Our overall Gross margin percentage fell to 45.5% (2021: 54.5%) as, following the sale, Works Manchester became our largest Works Maker and we entered into a five-year supply agreement to provide products through our platforms for 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. Gross Profit from continuing operations was £2.02m (2021: £1.83m). It fell slightly as a percentage of revenue, 40.6% (2021: 41.7%), as a greater proportion of revenue has been generated through our brand partners in the first six months of this financial year compared to last.

Total operating costs reduced in total following the Sale of Works Manchester, with total staff costs of £1.60m (2021: £1.91m) and total other operating charges of £1.00m (2021: £1.04m). Our continuing operations have however experienced increases. Covid related employee wage support schemes ended, and we invested in both people and professional fees in our pursuit of additional software companies to bring into the Grafenia group. Alongside this, as with most other businesses, we experienced inflationary pressures, particularly on wages with higher costs of living, and a higher rate of national insurance. As a result, staff costs for continuing operations increased to £1.18m (2021: £0.84m) and other operating charges increased to £0.85m (2021: £0.64m). This led to EBITDA from continuing operations falling to a loss of £0.05m (2021: profit £0.27m) and an operating loss from continuing operations of 0.49m (2021: loss of £0.23m). With the sale of Works Manchester, the overall operating loss reduced to £0.44m (2021: 0.53m).

At 30 September 2022, the Company had cash of £5.01m (2021: £2.67m) and debt of £8.29m (2021: £7.16m). An additional £4.25m of cash was raised from a bond issue on 27 September 2022 to fund the acquisition of Vertical Plus Limited in October 2022, along with further acquisitions that are expected to be announced in the near future.  Our operating activities utilised £0.29m of cash (2021: generated £0.43m) as we transitioned to our new operating model.

Capital expenditure was £0.18m (2021: £0.34m). Almost all of this amount was invested in the ongoing development of our platform which underpins our operations and is licensed to our partners.

Trading Review

We've improved the revenue performance of Nettl Systems. Our investment in Software Circle is beginning to bear fruit and we continue to make progress building the best operating model for our new focus.

Nettl Systems

Our Nettl Systems business operates within the Graphics sector. Licencing software and brands to graphic professionals. Designers, printers, signmakers, marketing agencies and other graphic professionals use our marketing tools, workflow management system and supply chain to deliver the best service to their clients. We also own five Nettl company stores in Birmingham, Dublin, Exeter, Liverpool and Manchester all utilising our software platform. We use these to train new people, refine new software initiatives and develop best practice.

We have hundreds of partners who utilise this best practice and licence our systems. Partners pay us a monthly subscription which gives them access to our systems, training and support. Using the Nettl system, they're able to buy factory-direct print and display that is seamlessly integrated from multiple suppliers. We call them Works Makers. Partners resell these products to clients.

Increasingly, partners are also reselling recurring subscriptions for centralised digital marketing services like SEO, Social Media and Paid Search. We expect to extend these centralised service offerings to help partners increase the recurring revenues they generate.

An example of this is the launch of SEO Console. A platform for clients available through the Nettl system, to help get found in online searches. Clients have access to a portal that enables them to optimise their website and manage listings and reviews. Working alongside our current SEO service offering, our partners can resell SEO Console as recurring subscriptions to their clients.

Partners that use the Nettl or printing.com brand in conjunction with their own, we call 'brand partners'. 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 have a master licence agreement.

In the interim period, revenue from Nettl Systems increased by 13% to £4.97m (2021: £4.39m). Within this segment, company stores decreased by 5% to £1.18m (2021: £1.24m). This decrease was due to team transitions in two store locations. Licence fee and subscription income increased to £1.07m (2021: £1.04m). We continue to listen to feedback from our partners and extend the capabilities of our platform. This has helped us improve partner retention rates during the period. Most recently we've improved enquiry management with 'The Pipeline' and made it easier for partners to build proposals, estimates, jobs and orders using their own Standard Price List items. We're currently working on improving the User Interface of key order screens. Our aim is to equip our partners with the tools they'll need in the studio of tomorrow.

Along with the successful transition of Works Manchester to new owners PFI, we've continued to add new Works Makers to widen the product range available to our partners. The products our partners buy from us at wholesale prices - like signage, printing and promo goods - has increased by 31% to £1.53m (2021: £1.17m).

We also sell print and signs to professional buyers through Marqetspace and a few other online channels. We utilise our w3shop software module, available as part of the Nettl System. It is a fertile ground for cultivating Nettl partners and gives us insight into where gaps in our product range are. That knowledge has been used to find new Works Makers to improve the product range available throughout our software systems. We continue to see an increase in Marqetspace revenues to £1.19m (2021: £0.94m)

Software Circle

With our renewed focus on Software & Systems, as detailed in our Annual Report, our acquisition strategy is now aimed at software businesses. To extend our scale, capability and resilience. We have continued to invest in building the structure required for us to be a serial acquirer and permanent home for software businesses and management talent.

Our team of analysts and searchers actively look for software businesses that match our criteria, for us to acquire and become part of the Group. We've made progress in building a scalable, acquisition flywheel.

We're particularly interested in Vertical Market Software (VMS) businesses. Niche, mission critical platforms, where revenues are recurring in nature. The kind of software that is the glue holding a business together. Keeping clients using it, year after year. Perhaps where the owner is thinking about retirement planning or a change of pace. Often looking for a commercial partner to take care of their IP, team and client base for the long term. We're an ideal permanent home. Providing continuity of support and helping maintain relationships.

We'll retain their brands but we're not planning to integrate or migrate them to our platform. They'll keep their technology stack and be run in a decentralised way.

The investment in our Software Circle team and progressing ongoing potential deals, has impacted the EBITDA for this period. However, that investment is starting to bear fruit with the acquisition of Vertical Plus Ltd detailed in our announcement on 22 September 2022. Having raised funds for other acquisitions in the pipeline, detailed in our update of 27 September 2022 we're hopeful of adding other businesses to the Group. We will provide further updates as things come to fruition.

If you own a vertical market software business or get talking with someone who does, please hop to www.grafenia.com/acquisition or email letmein@grafenia.com.

Outlook

Trading continues to outperform the same period last year. November looks set to continue that trend. It is difficult to foresee how business confidence will be impacted by the economic climate. However, sales are in line with current internal forecasts.

Our attention is focussed on building our recurring revenue streams. That's by a mix of buying and successfully running software companies through Software Circle. And by building tools to licence to professionals in the graphic arts, print and sign sectors with Nettl Systems.

In the last few announcements, we've discussed our goal of achieving 10-15% EBITDA. With reducing the size of the group in May 2022 following the disposal of Works Manchester, whilst retaining the central costs of operating a publicly listed business and investing in our acquisition strategy, these levels of return have not yet been possible. However, given our improved trading to date, alongside the acquisition of Vertical Plus, and other acquisitions expected to follow, we firmly believe that this goal remains achievable in the mid-term.

Jan Mohr                                               Gavin Cockerill

Chairman                                              Acting Chief Executive Officer

23 November 2022