Grafenia flags EBITDA hit alongside Nettl US growth opportunity
Wednesday, July 3, 2019
Grafenia expects to file a £1m-plus boost in sales for the financial year but has warned that it will post negative EBITDA for the period – although the firm said it had returned to breakeven based on monthly run rates for the current year.
In a pre-close trading statement ahead of its results, which will be announced at the end of August, the Aim-listed PLC said turnover in the year to 31 March was expected to be up around 7.7% to approximately £15.75m.
However, rising input costs “particularly paper” and an increase in overheads due to acquisitions, store openings, and the front-loading of costs related to its US expansion – where Grafenia said it believes there is an opportunity to grow Nettl to as many as 1,500-2,000 locations – has hit earnings.
“This will result in the Group generating negative EBITDA for the year ended 31 March 2019. It's important to note that this does not reflect our cost-base moving forward as we've taken significant steps to reduce our overheads,” the group stated.
These changes have included replacing three old presses with one new state-of-the-art model, and savings on rent and rates through the consolidation of Image Group into its Trafford Park production hub. The firm had previously said that it intended to reduce its exposure to the hugely-competitive litho trade printing market.
“We are forecasting that sales of litho print will continue to decline and we will experience further margin pressure. However, we are expecting further growth in the sales of signage, display and ink-on-fabric digital textiles, all of which have grown this year.
“As a result of these changes to our cost base, we estimate we will be breakeven on a monthly EBITDA run rate during the current financial year. We are targeting an EBITDA margin of 10-15% in the medium term, although we make decisions for the long-term sustainability of the business, rather than short-term performance,” the firm said in a statement.
Grafenia said current trading was in line with budgets, and it continued to look at potential acquisitions in the signage market.
At 31 March the group had cash and cash equivalents of £1.37m, compared with £170,000 the prior year.
Yesterday, Grafenia announced that one of its executives would be stepping down to set up a new Nettl store in Greater Manchester, forgoing a £220,000 earn-out payment as a result.