Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information Hybrid Software Group PLC Annual Report 2022 100 101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 27. OTHER LIABILITIES (CONTINUED) Contingent consideration Certain assumptions about revenue growth were used when calculating the acquisition date fair value of contingent consideration for the acquisition of TTP Meteor Limited (now Meteor Inkjet Limited) in the year ending 31 December 2016. These assumptions were reviewed for the year ended 31 December 2022. Based on the revised forecasts, the review concluded that there was an increase in the present value of those payments, thus decreasing the liability on the balance sheet, of €4,000 (2021: decrease of €3,000). During the year, cash payments of €715,000 (2021: €492,000) were paid against the contingent consideration due for the acquisition of Meteor Inkjet Limited. The underlying liability is denominated in pounds sterling, thus there is a movement due to changes in exchange rates used to convert to Euros at the reporting date. Deferred consideration Deferred consideration primarily relates to the acquisition of ColorLogic GmbH (see Note 34 ‘Acquisitions’). During the year, cash payments of €310,000 were paid against the deferred consideration. Unsecured loan from related party An unsecured loan has been granted by Congra to HYBRID Software Development NV. (“HYBRID”). During the year, payments totalling €552,000 (2021: €2,986,000) have been made to Congra in respect of the loan. €307,000 (2021: €2,700,000) has been paid as a repayment against the principal and €245,000 (2021: €286,000) has been paid for interest. Interest is calculated and payable at a fixed rate of 3% per annum on the outstanding balance and, as per the loan agreement, capital repayments of €2,800,000 (2021: €2,800,000) are payable per annum. The balance of the loan outstanding at 31 December 2022 was €8,093,000 (2021: €8,400,000). On 16 February 2023, an addendum to the loan agreement was closed in which an adjustment to the repayment scheme has been agreed to. Subject to the amended repayment scheme, €93,000 is to be repaid in 2023 and the balance in 4 equal instalments of €1,000,000 each in the years ending 31 December 2025 and 2026. The loan is due to be fully repaid on 31 December 2026. 28. CONTRACT LIABILITIES In thousands of euros 2022 2021 Customer advances 1,015 1,617 Deferred revenue 2,864 1,975 Total contract liabilities 3,879 3,592 In thousands of euros 2022 2021 Current 3,835 3,165 Non-current 44 427 Total contract liabilities 3,879 3,592 The contract liabilities relate to consideration received in advance of the provision of goods and services. Customer advances relate to consideration received in advance of the provision of physical goods, engineering and consultancy services. Deferred revenue relates to the consideration received for support and maintenance performance obligations that will be recognised as revenue over a period of time. Movements in the balance are driven by individual contracts and are not expected to necessarily be consistent year on year. 29. EARNINGS PER SHARE The basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding those held in treasury. For diluted earnings per share, the weighted average number of ordinary shares in issue during the year, excluding those held in treasury, is adjusted to assume conversion of all dilutive potential ordinary shares. At the year end, those share options where the exercise price is less than the average market price of the Company’s ordinary shares were the only dilutive potential ordinary shares. In thousands of euros unless otherwise stated 2022 2021 Weighted average number of shares (basic), in thousands of shares 32,850 32,198 Profit from continuing operations 1,300 4,914 Basic earnings per share, in euros 0.04 0.15 Diluted earnings per share, in euros 0.04 0.15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 30. SHARE BASED PAYMENTS At 31 December 2022, the Group has the following shared based payment arrangements. Free shares On 24 April 2009 the Group established an HMRC approved Share Incentive Plan (“SIP”) in the UK and also operates an Enterprise Management Incentive Scheme (“EMI”) to enable its UK employees and Directors to participate in a tax efficient manner in the ownership of the Company’s shares. Under these schemes, free shares can be granted by the board to eligible employees and Directors. For non-UK employees and Directors, free shares can be granted directly to the employee. Free shares granted by the board to employees and Directors, either directly or through the SIP or EMI, have a 3 or 4 year vesting period and free shares granted outside of the SIP or EMI have vesting periods of either 12 or 24 months. Employees participating in the SIP are also granted free matching shares in proportion to the partnership shares that they purchased through a deduction from their gross pay before tax, subject to current HMRC limits. The matching shares have a vesting period of 3 years. The number of free shares granted, exercised, lapsed or withdrawn during the year was as follows: As at 31 December 2021 Number Granted Number Exercised Number Withdrawn Number Lapsed Number As at 31 December 2022 Number SIP matching shares 28,313 - (4,327) (620) - 23,366 Free shares granted 80,589 - (21,857) (620) - 58,112 108,902 - (26,184) (1,240) - 81,478 Measurement of fair value The fair value of free shares granted as matching shares under the SIP was assumed to be equal to the purchase price of corresponding partnership shares which were acquired by participants in the SIP. The fair value of free shares granted was assumed to be the closing price reported for the Company’s shares on the last trading day immediately preceding the date when the shares were granted. It was also considered that all of the grantees would be in employment at the date of vesting. During the year the Group recognised €nil (2021: €15,000) of share-based payment expense in these financial statements. 31. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market (notably foreign exchange risk), credit risk and liquidity risk. The Group’s overall financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Financial risk management is overseen by the Chief Financial Officer (CFO) under policies approved by the board which has overall responsibility for the establishment and oversight of the Group’s risk management framework The board provides principles for overall risk management, covering specific areas such as foreign exchange risk and the use of derivative financial instruments, whereas the CFO identifies, evaluates, and manages financial risks in close co-operation with the Group’s operating units. The Group does not permit the use of derivative financial instruments for speculative purposes. Market risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and the British pound. Foreign exchange risk arises from future commercial transactions, recognised assets (notably trade receivables) and liabilities, as well as net investments in foreign operations. The objective of market risk management is to manage and control market risk exposures within acceptable parameters. To help manage these foreign exchange risks the Group may utilise foreign currency option or forward contracts transacted with high-credit-quality financial institutions, after review and approval by the Group’s CFO. There were no such contracts outstanding as at 31 December 2022 (2021: none).
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