Hybrid Software Group PLC Annual Report 2022 26 27 CEO’S REVIEW Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information Hybrid Software Group entered 2022 with bullish growth projections as the pandemic receded as well as significant hiring plans to support that growth. In March, we completed the all-cash acquisition of iC3D, a long-standing partner of HYBRID Software with products for 3D modelling and photorealistic ray tracing of labels and packaging. We sold an old and unused intangible asset (a large block of IPv4 addresses) for net €3.3 million, which covered the cost of the iC3D purchase. The only headwind in early 2022 was the fact that the global shortage of semiconductor chips was beginning to affect the Meteor Inkjet business as a key chip supplier failed to meet their delivery commitments for longstanding orders. Meteor Inkjet had a stellar year in 2021, growing revenues 42% from the previous year with most of that growth coming from ceramics production in China. But Chinese market demand was much weaker in 2022 after two years of pandemic lockdowns, and the chip shortages widely affected Meteor as well as their customers. By the first half of 2022, Meteor’s revenue had fallen short of projections by more than £4 million. The team quickly redesigned a critical circuit board using a chip that was more widely available and continued to build inventory in anticipation of market demand, but the lost first-half revenue was not fully recovered in 2022 and Meteor’s results were well below expectations. On a more positive note, 2023 has started very strongly for Meteor, with revenues recovering to healthy levels and demand from China increasing rapidly. We see the chip shortage receding and expect good results from Meteor in 2023. HYBRID Software continues to perform well, delivering the bulk of our revenue and operating profit for 2022. Two smaller businesses also deserve special mention. ColorLogic GmbH was acquired in late 2021 to provide software for colour management and matching of custom brand colours with the fixed ink sets used in digital printing presses. ColorLogic delivered the highest profitability per employee in 2022, and their software is currently being integrated into all of Hybrid Software Group’s products. Also noteworthy is Xitron, which grew revenues by 17% over the previous year with strong demand for their software solutions for both digital and conventional printing. Mike Rottenborn, Chief Executive Officer CEO’s review continued... “There’s no doubt that Hybrid Software Group is a stronger company as we enter 2023. We have a strong cash position, a leaner and more well-organised R&D structure, and successful products that are helping our customers every day.”. Mike Rottenborn Chief Executive Officer With more than one hundred software and hardware engineers on board, all the operating divisions of Hybrid Software Group are continuously innovating to improve our products and develop new ones in response to market needs. We make a concerted effort to announce new products and patents through frequent press releases, and this letter is not the place for a comprehensive summary. However, I would like to highlight a few significant events here. In late 2021, Global Graphics Software was granted a US patent for compensating for printer density and stability, the basis of our award-winning PrintFlat™ software. This is a broad and important patent which was quickly challenged by a competitor. We responded to their claims and defended it successfully, with the final re-examination certificate issued in September. In the fourth quarter, Meteor Inkjet was awarded both US and UK patents for a very innovative invention to detect clogged nozzles and impending failures in inkjet printheads during normal print operation. This was the culmination of almost three years of R&D and has broad applications for Meteor Inkjet and their customers. One of our objectives in 2023 is to monetise our extensive patent portfolio for the benefit of our company and shareholders. On the product front, I’ll highlight one new product that pulls together the best technology from all our operating divisions: SmartDFE™. This product is an intelligent Digital Front End—software and hardware to translate graphic designs into droplets of ink on a substrate—which targets the challenging label and packaging segment. By integrating printhead drive electronics together with automated workflow software, fast rasterisation and dot generation, and precise colour management for critical brand colours, SmartDFE™ allows manufacturers of digital presses for labels, flexible packaging, folding cartons, and corrugated boxes to accelerate their time to market and provide greater functionality to their customers, especially in automated production environments. We made one more small acquisition in late 2022, purchasing the intellectual property of the French company Quadraxis. Their software for mapping graphics to thermoformed plastics and die-formed metal products nicely augments the iC3D products we acquired in March and will be integrated more deeply into our packaging software in 2023. I’d like to close with a statement on sustainability. We’ve been carbon neutral since 2021 by planting trees to offset our carbon footprint, and inkjet print manufacturing is itself a sustainable activity offering reduced waste, less pollution, and just-in-time manufacturing. But sustainability is much more than that. True sustainability begins with the sustainability of the overall business: our financial health as a going concern, our sales activities to increase market share, and most of all, our investments in R&D to make sure that Hybrid Software Group remains the technology leader and “go to” company in each of our operating segments. This commitment to investment and profitable growth has never wavered, even in the challenging conditions of 2022. There’s no doubt that Hybrid Software Group is a stronger company as we enter 2023. We have a strong cash position, a leaner and more well-organised R&D structure, and successful products that are helping our customers every day. I have deep confidence that our business plan is sound, that our technology is best-in-class, and that Hybrid Software Group is the only company that can deliver comprehensive software and electronics solutions for all digital inkjet applications. With 2022 in the rear-view mirror, I anticipate higher revenues, greater profitability, and increased market share for Hybrid Software Group in 2023 and for many years to come.
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