COMPANY INFORMATION

OVERVIEW OF STRATEGY AND BUSINESS MODEL

We generate revenue from two main sources: licensing brands and software, and manufacturing product.

We license our brands, software and technology to partners in the UK and internationally. They pay us subscription fees in exchange. That bit is growing. We’re putting our effort into scaling it more quickly.

We also directly manufacture a range of printing, signage, promotional items and expo displays in the UK.

The majority of our printing is sold via resellers. We split those into two types: Brand Partners and Trade Partners. With Brand Partners, our brands are exposed to the end client. With Trade Partners, the end client is unaware that we are manufacturing under ‘white-label’.

We also sell directly to some end clients in our own stores. We think that’s really important. We do this to learn first-hand what clients want and what our partners need to deliver for their clients. We adapt and develop our offering, to ensure it fits those needs.

Our products are used by all sizes of business – from startups to large corporates. Our different channels tailor their message and service to address different parts of the market.

We launched Nettl in September 2014. Nettl system is for established graphic design or print businesses enabling the simplified delivery of websites, ecommerce shops and other web services. Today we have over 130 Nettl partners.

Nettl puts web and ecommerce first, because that’s what clients are doing. Today, the majority of revenue in most Nettl studios still comes from the sale of print and display. However, to win new clients and retain existing ones, we’ve got to take care of all their creative and marketing needs. Those needs now start with web. So that’s where we start.

Most Nettl locations are independent print shops, design agencies, web designers and sign companies. We partner with them and they “bolt-on” Nettl to their business.

The Nettl solution is a suite of training, marketing and software which helps a graphics business to deliver higher value web projects, with their existing team’s skillset. We show them how. We train them in sales and tech. The Nettl marketing collateral, updated monthly, gives them the tools to connect with existing clients and win new ones.

Printing.com supplies SMEs with graphic design and printing services via its partner network. Today we have over 90 printing.com partners.

W3P is a web-to-print SaaS solution utilised by other printers and graphic design agencies. Flyerzone is an online print businesses. BrandDemand provides print management services via online portals to franchise networks and other multisite businesses.

Marqetspace is a trade supplier that sells print and display to graphic professionals, it acts as our funnel for new brand partners. They try us. They buy stuff. We deliver on time. They like our quality. And we start a relationship. We ask them about their challenges. Then we try to help. It’s easier to have that conversation once we’ve got to know each other. Our aim is to turn Marqetspace clients into brand partners. So far nearly 40 have made the leap.

The above channels are not isolated developments, but utilise a common core SaaS ‘platform’ which is adapted for each activity.

We license our systems and brands internationally. Master Licensees typically have print hubs and reseller networks and use our software and, in some instances, marketing in their country. Each agreement is structured slightly differently, however we are either paid a share of local licence fees, transaction fees, or both.

We are currently experimenting with ways of launching Nettl in other countries. In June 2017, we signed four ‘founding’ partners in The Netherlands. They helped us to adapt the Nettl formula for the Dutch market. Today we have 19 Nettl Partners in the Netherlands.

Last year we diversified our product mix and invested in direct-to-textile printing kit. We call it ink-on-fabric. Because that’s what it is. We now sell a range of expo display and custom furniture through Marqetspace and other channels. And that’s growing well. Clients are choosing these next generation fabric displays because they’re lighter and look better than the alternatives. We expect this to grow and become a bigger share of our revenues.

In January 2017 we made our first small acquisition. ADD Signs in Liverpool. That started with a “100 day plan” for integration to bring our businesses together. We’re pleased with ADD’s performance so far. Now we’re looking for a second business with ADD to roll together and exploit economies of scale.

We look at the signs sector and we think, well, we already sell some signage to our clients. Sign companies already sell some print. The market has converged. It’s highly fragmented. We think there’s an opportunity to roll up sign businesses and create value.

In July 2017 we made our second acquisition in the signs arena, acquiring Image Group in Manchester. The acquisition of Image is a significant step in our sign roll-up strategy, and enables us to scale our business more quickly.

PRINCIPLES OF CORPORATE GOVERNANCE

The Company’s Board of Directors appreciates the value of good corporate governance not only in the areas of accountability and risk management but also as a positive contribution to business prosperity. It believes that corporate governance involves more than a simple ‘box ticking’ approach to establish whether a company has met the requirements of a number of specific rules and regulations. Rather the issue is one of applying corporate governance principles in a sensible and pragmatic fashion having regard to the individual circumstances of the Company’s business. The key objective is to enhance and protect shareholder value.

BOARD STRUCTURE

The Board comprises Chairman J-H Mohr (Non-Executive Director), C C Bona (Non-Executive Director), P R Gunning (Chief Executive), S G Barrell (Interim Finance Director), G G Cockerill (Chief Operating Officer) and R A Lightfoot (Director and Company Secretary).

The Board is responsible to shareholders for the proper management of the Group. A statement of directors’€™ responsibilities in respect of the accounts are set out in each Annual Report. The Non-executive Directors have a particular responsibility to ensure that the strategies proposed by the Executive Directors are fully considered. The Non-executive Directors are considered by the Board to be independent of management and free of any relationship, which could materially interfere with the exercise of their independent judgement. All Non-executives receive a fixed fee for their services.

To enable the Board to discharge its duties, all Directors have full and timely access to all relevant information and there is a procedure for all Directors, in furtherance of their duties, to take independent professional advice, if necessary, at the expense of the Group. The Board has a formal schedule of matters reserved to it and normally meets 10 times a year. It is responsible for overall Group strategy, approval of major capital expenditure projects and consideration of significant financing matters.

The differing roles of Chairman and Chief Executive are acknowledged and defined in separate statements approved by the Board. The key functions of the Chairman are to conduct Board Meetings and meetings of shareholders and to ensure that all Directors are properly briefed in order to take a full and constructive part in Board discussions. The Chief Executive is required to develop and lead business strategies and processes to enable the Company’s business to meet the requirements of its shareholders.

BOARD COMMITTEES

The following Committees, which have written terms of reference, deal with specific aspects of the Group’€™s affairs:

• The Remuneration Committee is responsible for making recommendations to the Board on the Company’s framework of Executive remuneration and its cost. The Committee determines the contract terms, remuneration and other benefits for each of the Executive Directors, including performance related bonus schemes, pension rights and compensation payments. The Board itself determines the remuneration of the Non-Executive Directors. The Committee comprises J-H Mohr and C C Bona. It meets at least once a year. The Report on the Directors’ Remuneration is set out each year in the Annual Report.
• The Audit Committee comprises J-H Mohr and C C Bona. Its prime tasks are to review the scope of external audit, to receive regular reports from the auditors, and to review the half-yearly and annual accounts before they are presented to the Board, focusing in particular on accounting policies and areas of management judgment and estimation. The Committee is responsible for monitoring the controls which are in force to ensure the integrity of the information reported to the shareholders. The Committee acts as a forum for discussion of internal control issues and contributes to the Board’€™s review of the effectiveness of the Group’€™s internal control and risk management systems and processes. It meets at least twice a year including immediately before the submission of the Annual and Interim Financial Statements to the Board.

The Audit Committee also undertakes a formal assessment of the auditors’€™ independence each year which includes:

• A review of the non-audit services provided to the Company and related fees;
• Discussion with the auditors of a written report detailing all relationships with the Company and any other parties that could affect independence or the perception of independence;
• A review of the auditors’€™ own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner; and
• Obtaining written confirmation from the auditors that, in their professional judgement, they are independent.

An analysis of the fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out in Note 3 to the financial statements.

The Audit Committee advises the Board on the appointment of external auditors and on their remuneration for both audit and non-audit work, and discusses the nature and scope of the audit with the external auditors. It reviews and monitors the independence of the auditors especially with regard to non audit work.

Any new Non-executive Directors will be asked to join both Committees.

No formal Nomination Committee exists in view of the stage of growth of the Company. Instead, appointments to the Board are considered by the Chief Executive and other Executive Directors, and discussed with the Non- executive Directors. Appointments are made after an evaluation of the skills, knowledge and expertise required to ensure that the Board as a whole has the ability to ensure that the Company can continue to compete effectively in its market place.

RISK MANAGEMENT AND INTERNAL CONTROL

The Board is responsible for establishing and maintaining the Company’s system of internal control, which is designed to meet the particular needs of the Company and the risks to which it is exposed. Such a system is designed to manage these risks, to provide reasonable but not absolute assurance against material misstatement or loss and to maintain proper accounting records to ensure the integrity of the financial information used within the business and for external publication.

The Board reviews the effectiveness of the system of internal control and considers whether the Company’s internal controls processes would be significantly enhanced by an internal audit function and has taken the view that at the Company’s current stage of development, this is not required. The Board will continue to review this matter each year. The key elements of the control system in operation are:

• The Board meets regularly with a formal schedule of matters reserved to it for decision and has put in place an organisational structure with clear lines of responsibility defined and with appropriate delegation of authority;
• The Company has an Operations Manual containing written procedures for approval, managing and monitoring of sales, purchases, payroll and capital expenditure.
• The Company also has information systems for monitoring its financial performance against approved budgets and forecasts.

The Audit Committee receives reports from the external auditors on a regular basis and from executive directors of the Company. The Board receives periodic reports from all Committees.

There are no significant issues disclosed in the report and financial statements for the financial year ended 31 March 2017 and up to the date of approval of the report and financial statements that have required the Board to deal with any related material internal control issues.

RELATIONS WITH SHAREHOLDERS

The Board recognises the importance of dialogue with both institutional and private investors. Effective two-way communication with fund managers, institutional investors and analysts is actively pursued and this encompasses issues such as performance, policy and strategy. During the year the Directors have had meetings with analysts and institutions and will continue to do so.

There is also an opportunity, at the Company’s Annual General Meeting for individual shareholders to raise general business matters with the full Board and notice of the Company’€™s Annual General Meeting is circulated to all shareholders at least 20 working days before such meeting. The Chairmen of the Audit and Remuneration Committees will be available at the Annual General Meeting to answer questions.

The Annual Report is to be published on the Company’€™s website, www.grafenia.com which also includes previous financial reports and other announcements made during the year.

COMPANY & COMPANY ADVISERS

INCORPORATION & OPERATION

1. Grafenia plc incorporated in England & Wales Reg. No.3983312.
2. Principle countries of operation are currently UK, Ireland, France and the Netherlands.
3. Company Number: 03983312 (England and Wales)

Registered Office

Third Avenue
The Village
Trafford Park
MANCHESTER
M17 1FG

Company Secretary
Richard A. Lightfoot, BSc (Hons)
richard.lightfoot@grafenia.com

NOMINATED ADVISERS AND OTHER KEY ADVISERS TO THE COMPANY

FINANCIAL ADVISER, NOMINATED ADVISER & BROKER

Allenby Capital Limited
5 St Helen’s Place
London
EC3A 6AB

SOLICITORS

Gateley LLP
Ship Canal House
98 King Street
M2 4WU

AUDITORS

RSM UK Audit LLP
3 Hardman Street
MANCHESTER
M3 3HF

REGISTRARS AND RECEIVING AGENTS

Link Asset Services
Northern House
Woodsome Park
Fenay Bridge
HUDDERSFIELD
HD8 0LA

BANKERS TO THE GROUP

The Royal Bank of Scotland plc
1 Spinningfields Square,
Manchester
M3 3AP

CONSITUTIONAL DOCUMENTS OF THE COMPANY

Memorandum of Association
Articles of Association

TRADING PLATFORMS

• The Company’€™s securities are only traded on AIM.
• Grafenia is subject to the UK City Code on Takeovers and Mergers.
• There are no restrictions on the transfer of the Company’s AIM Securities.

AIM SECURITIES

AIM Securities in issue as at 3^rd May 2018, totalled 76,816,166 (No shares are held in treasury).

Of these securities 52.86% are not held in public hands.