Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information Hybrid Software Group PLC Annual Report 2022 102 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 31. FINANCIAL RISK MANAGEMENT (CONTINUED) The Group had the following current assets and liabilities denominated in currencies: In thousands of euros Euros US dollars Pounds sterling Japanese yen Canadian dollars Chinese yuan Australian dollars At 31 December 2022 Trade and other receivables 3,923 4,305 1,333 853 57 329 93 Other current assets 208 2 168 13 - 34 - Trade and other payables (1,626) (614) (654) (10) - (13) (2) Accrued liabilities (1,072) (186) (1,015) (14) - - - Other liabilities (5,462) - (419) - - - - Net exposure (4,029) 3,507 (587) 842 57 350 91 At 31 December 2021 Trade and other receivables 4,729 3,278 1,378 1,481 15 5 29 Other current assets 89 - 177 11 - 20 - Trade and other payables (1,009) (409) (469) (11) - (33) - Accrued liabilities (1,870) (316) (2,064) (11) - - - Other liabilities (3,055) - (712) - - - - Net exposure (1,116) 2,553 (1,690) 1,470 15 (8) 29 The Group had the following non-current assets and liabilities denominated in currencies: In thousands of euros Euros US dollars Pounds sterling Japanese yen Canadian dollars Chinese yuan Australian dollars At 31 December 2022 Trade and other receivables 2,191 1,336 13 62 116 - - Accrued liabilities (821) (113) (213) - - - - Other liabilities (3,714) - (217) - - - - Net exposure (2,344) 1,223 (417) 62 116 - - At 31 December 2021 Trade and other receivables 2,694 404 14 527 43 - - Accrued liabilities (870) (168) (278) - - - - Other liabilities (6,734) - (673) - - - - Net exposure (4,910) 236 (937) 527 43 - - The average and year end exchange rates applied during the year to convert currencies to Euros are as follows: Average rate for Rate at 31 December 2022 2021 2022 2021 US dollar 0.9506 0.8454 0.9382 0.8789 Pound sterling 1.1734 1.1628 1.1303 1.1898 Japanese yen 0.0073 0.0077 0.0071 0.0077 Canadian dollar 0.7303 0.6757 0.6897 0.6935 Chinese yuan 0.1413 0.1362 0.1354 0.1386 Australian dollar 0.6595 0.6337 0.6348 0.6411 If sales and results for the year had been converted using the exchange rates prevailing in the prior year, the Group’s 2022 sales would have reduced by approximately €1.39 million and the operating profit for the year would have increased by approximately €0.04 million. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from sales to customers. It is Group policy to assess the credit risk of new customers before entering contracts and to have a frequent and proactive collections process. Historically, bad debts across the Group have been extremely low and full or part payment in advance by some customers helps to reduce the overall risk. Credit risk also arises from cash deposits held at banks. At the year-end, the Group’s cash deposits were held with major banks such as HSBC (UK and United States), Sumitomo Mitsui Banking Corporation (Japan), KBC Bank (Europe) and The PNC Financial Services Group (United States). The Group’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance sheet date. These are summarised within Note 22 ‘Trade and other receivables’ and Note 24 ‘Cash and cash equivalents’. The Group’s management considers that all the above financial assets that are not impaired at the balance sheet date under review are of good credit quality, including those that are past due. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 31. FINANCIAL RISK MANAGEMENT (CONTINUED) The exposure to credit risk for trade receivables by type of counterparty was as follows: In thousands of euros 2022 2021 Equipment manufacturers 4,063 4,895 Resellers and end users 6,830 6,020 Total trade receivables 10,893 10,915 At 31 December 2022, the ten largest accounts receivable represented 24.2% (2021: 26.7%) of the Group’s accounts receivables and the single largest accounts receivable represented 5.9% (2021: 5.3%) of the Group's accounts receivables. The Group measures the loss allowance for trade receivables at an amount equal to lifetime expected credit losses. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and adjusted for factors that are specific to the debtor and general economic conditions of the industry in which the Group operates. The Group has recognised a loss allowance of €336,000 (2021: €134,000) against trade receivables. The loss allowance applies to debt over 90 days and relates to a small number of customers where none of the debt is expected to be recovered through normal trading. A provision is made against trade receivables until such time as the Group believes the amount to be irrecoverable, after which the trade receivable balance is written off. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. Liquidity risk Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The board reviews an annual 12-month financial projection and the CFO and CEO review cash balances and cash flow forecasts regularly. At the balance sheet date liquidity risk was considered to be low, given the fact that the Group is expected to be cash generative and cash and cash equivalents are thought to be at acceptable levels. While the board considers there to be no current need for additional borrowing facilities, it continually monitors the Group’s cash requirements. The Group's financial liabilities have contractual maturities as summarised below: In thousands of euros Within 1 year Between 1 and 10 years Total At 31 December 2022 Trade payables 2,919 - 2,919 Accrued liabilities 2,287 1,147 3,434 Other liabilities 5,881 3,931 9,812 Total 11,087 5,078 16,165 At 31 December 2021 Trade payables 1,931 - 1,931 Accrued liabilities 4,261 1,316 5,577 Other liabilities 3,165 7,407 10,572 Total 9,357 8,723 18,080 Interest rate risk The Group has no variable interest rate debt, therefore the Group currently has no interest rate risk. Capital risk The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern to provide returns for shareholders, maintain investor, creditor and market confidence, and sustain future development of the business. There were no changes in the Group’s approach to capital risk management during the year ended 31 December 2022. In thousands of euros 2022 2021 Capital Total equity 110,933 109,951 Less cash and cash equivalents 6,317 9,234 104,616 100,717 Overall financing Total equity 110,933 109,951 Plus borrowings 8,093 8,400 119,026 118,351 Capital to overall financing ratio 1:1.14 1:1.18
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