Grafenia switches strategy after Covid rethink

Jo Francis
Friday, April 16, 2021

Grafenia is revamping its manufacturing strategy after sales across its operations nearly halved because of the Covid-19 pandemic, and the firm has also switched its acquisition focus to software businesses.

Grafenia aims to buy B2B software companies with sales of more than £250,000,
Grafenia aims to buy B2B software companies with sales of more than £250,000,

In a trading statement today (16 April) ahead of its year-end results, the Manchester-headquartered firm said it had simplified its group structure and will now report two key business areas: production hub Works Manchester and software and licensing through Nettl Systems. 

Sales at Works Manchester, which includes trade wing Marqetspace and Image Group, fell to around £3.9m in the year to 31 March 2021, down 46.6% on the prior year.

Grafenia said the business had been “fighting with one arm tied behind its back” because its main focus was production for Nettl and trade partners where demand for printed products had been hit by the pandemic. 

Works Manchester will now be “free to look for opportunities to fill capacity, from outside of our network”, such as through new strategic relationships “or just being more nimble and opportunistic”. 

Grafenia CEO Peter Gunning said: “We’ve split the reporting and now have a focused team to drive volume at the manufacturing part.

“We’re not about to start a channel war with our partners,” he added. 

Sales at Nettl Systems slumped by 48% to £5.6m, although Grafenia said that licence fee income had steadied in H2.

It said it planned to “double down” on its software know-how and would licence its software and systems to other sign businesses. 

The hiatus caused by Covid-19 has also resulted in a rethink about the group’s supply chain and its previous acquisition strategy, which was to roll up local signage businesses.

“After kissing a lot of frogs last year, we didn’t find sign businesses of the right quality, at the right price. We’ve spent the best part of eighteen months building a major new part to our platform. It handles quoting, online proposal, manufacture and installation of sign projects. It’s currently in private beta and we now think we can achieve our aim of national installation without necessarily buying more machines,” Gunning said. 

“The focus is now on growing Nettl and our software platform. We’ve got tens of thousands of business relationships in hundreds of towns and cities. We’re looking for clever ways to add more software solutions, to help businesses do more.”

The group is targeting B2B software companies with sales of more than £250,000, and that are profitable. 

“There might be some shareholders of software businesses who’re looking to exit. Maybe retirement or maybe it’s just time to move on. We could be a good home for those businesses. We’ll look at anything in the print and graphics space – workflow tools, software-as-a-service, MIS, as long as it meets our criteria,” Gunning added. 

He said the firm was still experiencing post-Brexit custom delays and disruption, and had switched production for continental customers to Works Makers partners located in the EU. 

Regarding current trading, Grafenia said that business had begun to pick up from last month.

“Trading in January and February this year was the most challenging. As winter turned to spring, revenue in March 2021 improved and was 80% of the same period last year. This April has started well, as businesses in England begin to pull up the shutters and prepare to re-open. Given that last April, the whole country was watching Tiger King in the first lockdown, it shouldn't be difficult to beat last year's performance,” the firm stated. 

Overall sales for the year are expected to be £9.5m compared to £15.6m the prior year, with gross profit of £5.6m (2020: £8m). It expects to reduce net losses, while the business had £2.7m in cash at 31 March compared to £1.1m the prior year. 

The business also made “significant and permanent reductions” to its overhead base during 2020, which has reduced its breakeven point. 

Grafenia is listed on the AIM market. Its shares fell by 2.44% to 5.49p on the news (52 week high: 11.10p, low: 3.50p).

 

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