By Rhys Handley, Tuesday 12 June 2018
Grafenia has reported rising operating losses of £1.1m, despite sales jumping 40% to £14.63m in its 2017/18 results, but remains focused on the expansion of its Nettl brand.
In the year to 31 March 2018, the group’s turnover rose by more than £4m, in line with targets set out in March, with a gross profit of £8.34m – building on last year’s £6.59m. However, adjusted EBITDA came in at £670,000, a fall from the previous year, and pre-tax losses increased from £990,000 to £1.24m.
The PLC, which owns the Nettl, Printing.com and Marqetspace brands, attributed its increase in operating losses, which were 11% greater than last year's £980,000 loss at £1.1m, to a decline in demand for litho print and transitionary turbulence as Grafenia made efforts to focus on growth areas such as soft signage.
“Two main reasons contributed to our reported loss,” said chief executive Peter Gunning. “One is that litho print volumes continue to decline as the costs of paper and plates increase simultaneously. This is the first time we have faced a double increase, though we were unable to raise our prices due to the competitive market.
“We were also directly affected by the cyber-attack in June last year on our main carrier at the time, TNT, and though we offset the impact to clients, we were unable to recover the money lost or the higher costs due to the event being force majeure.”
Boosts in sales were attributed to the recent acquisitions of Manchester-based Image Group and the Nettl of Exeter store. Expansion of Grafenia’s Nettl web design and signage brand was the key focus of its results, reporting a growth in the UK and Ireland of 45% to 157 total locations, while 25 Nettl partners were established in the Netherlands and a further five in France.
Gunning attributed part of the group’s reported loss to the start-up costs among international partners, as they were “front-loaded before we can earn a single euro”.
Moving forward, Gunning wrote to shareholders about his company’s 'build, buy and license' model for Nettl’s continued growth. This involves a combination of opening new Nettl stores, acquiring signage businesses across the country, and licensing out the brand to partners. The promise of this model saw Grafenia raise a further £3.5m from shareholders in April by placing 29,258,331 shares at 12p on the AIM market.
PLC operation costs were a further contributing factor to the red ink, with Gunning referring to its “PLC overhead” of £600,000 impacting on financial performance.
Gunning said: “We are currently too small to be a PLC, and we know we need to be a multiple of our current size to justify that status. The way to do that is to scale in a controlled way – the aim is to have a full national network of signage shops.
“As our business has matured over 20 years it has become saggy and slow, so our focus is on simplifying it down to a single message, and that is ‘all roads lead to Nettl’.”
In his plan, Nettl branches, superstores and partners will establish “geographical exclusivity” across the UK, which will allow the brand to “put the customers first and be rooted in our partners’ success”.
Grafenia's share price was down 2.5p, or 17%, to 12p at the time of writing (52-week high: 20.7p, low: 7p).