Rymack Sign Solutions, which trades as PFI Group, acquired the Works Manchester business in May 2022, in a deal that was worth nearly £3.17m.

PFI made three small initial payments, but then failed to make the first of four large annual deferred consideration payments. The original amount due of £766,250 had been reduced to £514,223 following a review of the Works Manchester net asset position.

In its annual results released yesterday, Grafenia said that the £805,000 writedown related to the “missed payment” had impacted its profitability.

Grafenia stated: “The total outstanding consideration is £2,809,973. The carrying value of £1,698,000 is net of an impairment of £805,000 as a result of a missed instalment on 31st May 2023.

“The company remains in discussions with PFI to resolve the matter.”

Grafenia CEO Gavin Cockerill explained the situation further.

He said: “We have to cautiously reflect the risk of non payment in our accounts.

“However, the write down is not necessarily reflective of our ongoing conversations with PFI. Those are progressing well and we expect them to resolve things soon.”

PFI Group CEO Darren McMurray told Printweek that his group had a close working relationship with Grafenia “and they continue to be very supportive”.

“Our conversations regarding resolution are progressing well and we expect to resolve the situation in the very near future,” McMurray said.

Despite the resulting red ink, Grafenia still described the sale and separation of Works Manchester as an “operational highlight”.

Its Nettl Systems business, where sales were up 7%, remains a key customer of Works Manchester.

The group, now focused on software and acquisitions in that space, posted sales up 1.5% at £12.55m and EBITDA from continuing operations of £410,000 (2022: £170,000).

The bottom line loss would have been much reduced were it not for the impairment charge. The loss for the year to 31 March 2023 was £1.61m compared with a £1.84m loss the prior year.

Cockerill commented on the new financial year, and said: “We're currently trading in line with our internal forecasts and newly acquired business units are performing as expected.

“With the acquisitions we've added to the group, on a run-rate basis, annualised sales would be approximately £17m. We're therefore cautiously optimistic about the upcoming year. With a full year's trade from our newly acquired businesses, our goal of achieving EBITDA at 10-15% of sales, after central costs, remains a realistic target.”

Grafenia's share price has risen by nearly 61% since the start of the year. It was at 9.25p at the time of writing (52-week high: 11.00p, low: 5.00p).