Hybrid Software Group PLC Annual Report 2022 28 29 CFO’S REVIEW Financial highlights Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information customers for a significant portion of sales. In 2021, the top 10 customers generated 56.9% of revenue (2021: 76.7%), with the top customer generating 21.9% of revenue (2021: 48.2%). Enterprise Software segment Revenue for the Enterprise Software segment was €22.78 million for the year (2021: €20.74 million). Pre-tax result The consolidated pre-tax result for continuing operations was a profit of €1.84 million compared with a profit of €4.57 million in 2021. The decrease in profitability of €2.73 million is due to: • a decrease in revenue of €1.87 million; • a decrease in cost of sales of €1.09 million; • an increase in selling, general and administrative expenses of €4.38 million; • an increase in research and development expenses of €0.78 million; • a decrease in other operating expenses of €0.18 million; • an increase in other income of €3.27 million; • an increase in net finance expenses of €0.79 million; and • a decrease in foreign exchange losses of €0.55 million. Gross profit for the period increased to 84.2% of revenue (2021: 82.5%), primarily due to the higher mix of software related sales during the year, particularly higher margin sales to end users by HYBRID Software. Included in selling, general and administrative expenses is amortisation of €1.17 million (2021: €0.84 million) related to intangible assets recognised as a result of acquisitions. Research and development expenses includes the capitalisation and amortisation of internally generated intangible assets and the amortisation of certain intangible assets recognised as a result of acquisitions. During the period there was a net capitalisation of development expenditure of €2.00 million (2021: €2.39 million) and amortisation of acquired intangible assets of €5.10 million (2021: €3.93 million). The net capitalisation of development expenditure was comprised of €4.0 million (2021: €3.40 million) of capitalised expenditure less €2.0 million (2021: €1.01 million) of amortisation. The third quarter results were favourably impacted by the sale of an unused asset (approximately 69,000 IPv4 internet addresses) for a net amount of €3.3 million which closed in July. Given the nature of the sale this income is reported as “Other Income” and is not included in our revenue figures, but it is accretive to EBITDA. Total operating expenses increased by €4.98 million, or 14.1% compared to the same period in the prior year. The increase is mainly to due to higher sales & marketing related expenditures, increased amortization expenses and higher staff cost resulting from the acquisitions of ColorLogic and Hybrid Iberia in Q4 2021, and iC3D in Q1 2022. Foreign exchange gains and losses are primarily due to the revaluation of currency balances held at the balance sheet date and the change in exchange rates during the year. Cash Flow Cash flow was negative for the year with a net cash outflow of €2.74 million (2021: positive inflow of €1.91 million). Cash flow from operating activities was positive at €4.02 million (2021: €9.46 million). During the period, €3.43 million of cash was used to fund the acquisition of iC3D (see note 18) and inventory levels were increased by €1.61 million to mitigate any further electronic component supply issues. Loan repayments of €0.55 million were made to Congra Software SARL, consisting of €0.30 million in principal repayments and €0.25 million of interest (see note 27). The Group continues to generate sufficient cash to fund its day to day operational expenditure and capital expenditure on property, plant and equipment and has overdraft facilities available if required. During the year the Group made two acquisitions; the IC3D assets on 12 March 2022 and the Quadraxis intellectual property rights on 18 November 2022. See note 34 to the consolidated financial statements for more details. The following financial information relates to continuing operations. Revenue Revenue from continuing operations for the year was €46.69 million compared with €48.56 million in 2021, a decrease of €1.87 million (3.27%). Licence royalties accounted for 51.4% (2021: 49.6%) of revenue, driver electronics accounted for 15.9% (2021: 26.4%), maintenance and support accounted for 20.6% (2021: 15.1%), services accounted for 9.8% (2021: 7.2%), hardware and consumables accounted for 2.2% (2021: 1.2%) and other items accounted for 0.1% (2021: 0.5%). Customer concentration and the dependence on a limited number of customers improved this year. In 2022, the ten largest customers represented 29.9% (2021: 42.3%) of the Group’s revenue, the five largest customers represented 24.5% (2021: 35.1%) of the Group’s revenue and the single largest customer represented 9.8% (2021: 13.9%) of the Group’s revenue. There was no customer (2021: 1 customer totalling €6.74 million, in the Printhead Solutions segment) during the year that represented 10% or more of total revenue. The Group’s sales are made in several different currencies, thus fluctuations in exchange rates can affect the reported revenue. During the year 35.9% (2021: 36.7%) were in euros, 40.5% (2021: 31.2%) were in US dollars, 20.8% (2021: 30.1%) were in pounds sterling, 0.5% (2021: 1.3%) were in Japanese yen and 2.3% (2021: 0.7%) were in other currencies. Printing Software segment Revenue for the Printing Software was €15.26 million for the year (2021: €13.84 million). During 2022 a new contract was agreed with an existing customer which resulted in €1.6 million of revenue being recognised (in 2021 a new contract was agreed with an existing customer which resulted in €2.70 million of revenue being recognised in that year). Printhead Solutions segment Revenue for the Printhead Solutions segment was €8.66 million for the year (2021: €13.98 million). This segment has been severely impacted by the shortage of its most commonly used chip. Furthermore it is quite dependent on a limited number of * For the EBITDA calculation see page 31 For continuing operations: Revenue for the year was €46.69 million (2021: €48.56 million) Gross profit for the year was €39.31 million (2021: €40.09 million) Pre-tax profit for the year was €1.84 million (2021: €4.57 million) EBITDA* for the year was €10.90 million (2021: €12.21 million) Cash at 31st December was €6.32 million (2021: €9.23 million) Joachim Van Hemelen, Chief Financial Officer CFO’s review continued...
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