Grafenia cuts costs for new life post-Covid

Jo Francis
Wednesday, July 28, 2021

Grafenia has published a full year of pandemic-impacted results, with CEO Peter Gunning describing the firm as “the canary in the coronamine” in terms of the knock-on effects across its customer base.

Gunning: "With our new cost base, modest increases in revenue will improve profitability"
Gunning: "With our new cost base, modest increases in revenue will improve profitability"

The group posted sales down 37.5% at £9.75m for the year to 31 March, and reduced its operating loss from £3.31m to £1.87m. 

Net debt increased to £4.34m from £3.28m, including a £1m CBILS loan. Grafenia also refinanced its primary hire purchase facility through CBILS, “reducing our cash repayments for 12 months”.

Gross margin increased to 57.2% (2020: 51.1%) despite the Covid-19 impacts across its operations. 

The group reduced staff costs by 35% to £3.7m through a combination of redundancies in the prior financial year and in September 2020, and CJRS furlough scheme support of £790,000.

Overall employee numbers have reduced from 203 to 159. 

The group said EBITDA had been “around breakeven” in the second half of the year. 

Gunning pointed out that the firm’s production hub and HQ are based in Manchester “famous for doing things differently. Like being under local lockdown restrictions for longer than any other part of the country. It's taken its toll”, he said. 

Referencing the “canary in the coronamine” in terms of Grafenia’s operations acting as a business barometer, he noted: “We sell to clients of different shapes and sizes. From different sectors. In different parts of the country. Some are doing exceptionally well, despite the pandemic. And not just those in a Government minister's Whatsapp group,” he quipped.

“Others have kept going, pushing on. Reacting to an endlessly changing environment. Exhausted. And weary. And some poor souls still haven't been able to re-open. They're hurting.

“Our business relies on healthy business clients. When they're hurting, we hurt too. When doors reopen and punters return, we'll be there to help. As restrictions tightened, product sales slowed. As the taps of the economy turned on, orders flowed. Taps off, back to trickles.”

Sales at the five company-owned Nettl stores slipped from £2.81m to £1.83m. 

At the Works sign businesses (formerly Image Group), sales were hit by the cancellation of exhibitions and events, and were down 39% at £2.8m.

The pandemic crimped the group’s expansion plans in the US due to the travel ban, although it now has franchisees and partners in five states. 

Online and trade print wing Marqetspace was “hardest hit” with sales down 58% to £1.12m, while licence fee revenue was broadly in line with the prior year at £2.08m, despite some customers falling away, with 25 new W3shop subscribers signed up as printers without an online sales presence looked for a quick and easy way to add ecommerce facilities. 

Gunning had spoken earlier in the year about Brexit-related disruption and additional costs, and said that things “haven’t improved”, with what looks like a permanent loss of work to UK production as a result.

“Consignments are routinely delayed and customs charges incorrectly applied. We're now making the significant majority of products sold in mainland Europe with Works Makers on the mainland. We don't see that volume returning to the UK any time soon,” he said. 

“For materials we import, we're constantly having to work around supply issues. Items which were previously available in a few days can be out of stock for weeks or months. That's a combination of Brexit, the pandemic and a boat having a snooze in the Suez.”

He said the group’s strategy remained the same as “build, buy and license” and said trading had improved in Q1 of the group’s new financial year, and was ahead of the same period in 2020. 

Its new Plans offering, which involves licensing its software and systems to other sign businesses, will be rolled out in stages with upgrades available to Nettl partners in autumn.

“July started well and should be our best month since September 2020. The roads are busier. With our new cost base, modest increases in revenue will improve profitability.”

Gunning also said the business felt confident about  “getting closer” to reaching its mid-term objective of 10-15% EBITDA “on a monthly run-rate during the current financial year”.

“We really do start to see an improvement in business activity as restrictions are eased. We’re keeping our fingers, toes and eyes crossed that the recovery continues into the autumn.”

The firm remains on the lookout for potential acquisitions in the B2B software space. 

Grafenia’s share price fell by 9.62% on the news, to 5.88p (52-week high:11.5p, low: 3.5p).

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