Hybrid Software Group PLC Annual Report 2022 32 33 Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information PRINCIPAL RISKS AND UNCERTAINTIES The Group does not have a dedicated risk management or internal audit function, consequently the risk management review is carried out by the executive management team. The risks and uncertainties described below are not necessarily set out in order of priority or potential impact on the Group’s financial statements. Global economic conditions 2022 was characterized by a persistent surge in inflation and the prolonged disruption in global supply chains due to multiple economic factors playing out at the same time: continued stimulative monetary policies by the world’s major central banks at the start of the year in combination with the war in Ukraine and the COVID-19 pandemic still affecting mainly Asian countries. In the course of the year the United States Federal Reserve reversed course imposing historically large and rapid rise in interest rates, of which the speed and magnitude in monetary tightening were among the most aggressive in history. 2023 likely will see the impact of these higher interest rates as tightening flows through to economic conditions. The effects presumably are coming, and if they don’t, expectedly more tightening will be required until there is a sufficient loosening of labour markets to bring wage inflation down to a level that is consistent with sustainably achieving inflation targets. The effect of all this tightening expectedly results in a decrease in aggregate demand and credit availability, both of which would be unfavourable to overall business conditions. Europe and the UK face similar circumstances to the US, with the added complexity of the war in Ukraine and its effects on energy markets and the knock-on effects on its fiscal balances. This has led to higher inflation and weaker economies. To date, the European Central Bank and the Bank of England are lagging behind the Federal Reserve in the tightening cycle and are beginning to recognize this. Expectedly the tightening pace will be increased negatively affecting aggregate demand and credit availability after the typical time lag of about 9 to 18 months. Russia’s invasion of Ukraine The Group does not have any operations in Ukraine and does not generate any significant revenue from either Russia or Ukraine, thus is not directly affected by the current situation. In the year since the invasion, the Board remains concerned about the economic and political uncertainty across the world. If the situation were to worsen and spread to other countries, there could be a negative impact on the demand for the Group’s products and services, which could impact the Group’s revenue and profitability. The COVID-19 pandemic & disruptions in the supply chain Since December 2019 the pandemic of the 2019 novel coronavirus (COVID-19) has affected countries globally and has had significant consequential effects on the global supply chain. Albeit as of the date of this report not a single country continues to impose strict lockdowns on its population and the disruptions in global supply chains have abated, another surge in both the pandemic as disruptions in global supply chains can’t be fully ruled out. Another surge in the pandemic, for which the likelihood based on current tendencies seem low, may have a significant negative impact on the business of the Group. The severity of any new government-imposed lockdowns and their duration in different countries might have an impact on the demand for products in those countries. The Group is a software and hardware supplier and depends on the demand from customers for its products and services to generate revenue. Any resulting reduction in demand from those customers will adversely affect the Group’s revenue and profitability. In the medium to long-term, the Group would be able to restructure its cost base to mitigate an ongoing drop in demand. Risks related to the Groups’s financial situation (a) The Group’s business, results of operations and financial condition could be materially affected by global economic and political conditions The Group sells its products and services throughout the world and economic conditions that affect the global economy or regional economies may significantly impact the demand for printing technology and therefore for the Group’s products and services. The current uncertainty around the global economy, international trade and the pace of growth in the countries and industries in which the Group’s existing and prospective customers and suppliers operate may negatively affect the level of demand for the Group’s products and services. A reduced demand for the Group’s products and services will reduce the Group’s revenue and profitability. (b) A significant portion of the Group’s revenue comes from a small number of large customers The Group is dependent on a relatively small number of large customers for a significant portion of its revenue. For the year ended 31 December 2022, the Group’s ten largest customers represented 29.9% (2021: 42.3%) of the Group’s revenue, with the single largest customer representing 9.8% (2021: 13.9%) of the Group’s revenue. If one or more of these customers choose to source the products or services supplied by the Group from an alternative vendor the effect on revenue, and therefore profitability, could be material. (c) Source dependency might lead to higher prices to be paid to suppliers or disruption in the production of certain of the Groups’ products and therefore impacts the Group’s business activities and profitability On 5 December 2016, the Company announced that it had acquired the entire issued share capital of TTP Meteor Limited (“Meteor”), specialists in printhead driver systems, from TTP Group plc (“TTP”) based near Cambridge, UK. Following the acquisition of Meteor in 2016, the Group supplies electronic controls to device manufacturers. These products include some key electronic components which are subject to shortage of supply from time to time. There is a risk that some of the Group’s products could not be manufactured if there is a disruption to that supply, therefore customer orders could be delayed or cancelled, which could result in a reduction in revenue and profits in the Group. Revenue for these products is reported in the Group’s Printhead Solutions segment and for the year ended 31 December 2022, revenue from external customers for that segment was €8.66 million (2021: €13.98 million), which is equal to 18.55% (2021: 28.8%) of the Group’s total revenue. Principal risks and uncertainties continued... The impact of global supply chain disruptions on manufacturing, supply and distribution arrangements, including those of third parties as a result of resource shortages and reduced supply capacity, may adversely impact the Group’s operations. Such disruptions and any delay in the fulfilment of orders could delay or reduce revenue to the Group. Refer to note 2 to the consolidated financial statements for further details about going concern.
RkJQdWJsaXNoZXIy NTI5NzM=