Hybrid Software Group PLC Annual Report 2022 64 65 Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information 1. Our opinion is unmodified We have audited the financial statements of Hybrid Software Group plc (“the Company”) for the year ended 31 December 2022 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position and the Company Balance Sheet, Consolidated and Company Statement of Changes in Equity, Consolidated Statement of Cash Flows and the related notes, including the accounting policies in note 3. In our opinion: — the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2022 and of the Group’s profit for the year then ended; — the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; — the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and — the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Additional opinion in relation to IFRSs as adopted by the EU As explained in note 2 to the Group Financial Statements, the Group, in addition to complying with its legal obligation to apply UK-adopted international accounting standards, has also applied International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (“IFRSs as adopted by the EU”). In our opinion, the Group Financial Statements have been properly prepared in accordance with IFRSs as adopted by the EU. Independent auditor’s report to the members of Hybrid Software Group plc Overview Materiality: group financial statements as a whole €410,000 (2021: €372,000 ) 0.87% (2021: 0.77%) of group revenue Coverage 93% (2021: 100%) of total profits and losses that made up group profit before tax Key audit matters vs 2021 Recurring risk Recoverability of goodwill in the Hybrid Software CGU and of the parent Company’s investment in Hybrid Software Group SARL (2021: Recoverability of goodwill in the Global Graphics Software CGU and of the parent Company’s investment in Global Graphics UK Limited) ◄► Recurring risk Capitalisation of development costs in FY22 in the Hybrid Software CGU ▼ Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law and the terms of our engagement by the Company. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. 2. Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and our findings ("our results") from those procedures in order that the Company's members, as a body, may better understand the process by which we arrived at our audit opinion. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters. [We continue to perform procedures over [identify key audit matter]. However, following [explain why risk is less significant this year], we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.] The risk Our response Recoverability of goodwill in the Hybrid Software CGU and of the parent Company’s investment in Hybrid Software Group SARL Group: Goodwill of €53,952,000 (2021: €52,374,000): Parent: included within parent Company’s investments of €101,121,000 (2021: €101,121,000) Refer to pages 79 and 80 (accounting policies), page 84 (critical accounting estimates and judgements) and pages 92, 93 and 94 (financial disclosures) Forecast-based assessment Goodwill in the group’s Hybrid Software CGU and the parent Company’s investment in Hybrid Software Group SARL are significant and at risk of irrecoverability due to recent financial performance. The estimated recoverable amount of these balances is subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows. The effect of these matters is that, as part of our risk assessment, we determined that the value in use of goodwill in the Hybrid Software CGU and the recoverable amount of the cost of investment in Hybrid Software Group SARL has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. The financial statements (note 17) disclose the sensitivity estimated by the Group. We performed the detailed tests below rather than seeking to rely on any of the Group’s controls because our knowledge of the design of these controls indicated that we would not be able to obtain the required evidence to support reliance on controls. Our procedures included: • Historical comparisons: We assessed the reasonableness of the forecasts used by considering the historical accuracy of previous budgets. • Benchmarking assumptions: We compared the Group’s assumptions to externally derived data in relation to key inputs, such as discount rates and long-term growth rates. • Our experience: We evaluated the revenue growth rate and EBITDA margin assumptions used in the forecasts by management. We challenged management as to the achievability of their forecasts, taking into account historical financial performance and other specific evidence to support the assumptions. • Sensitivity analysis: We performed our own sensitivity analysis on the key assumptions within the cash flow forecasts. This included sensitising the discount rate applied to the future cash flows, revenue growth rates and EBITDA margins in the forecast period, and the long-term growth rate. We critically assessed the extent to which a change in these assumptions, both individually or in aggregate, would result in an impairment and considered the likelihood of such events occurring. • Comparing valuations: We compared the sum of the discounted cash flows to the Group’s market capitalisation to assess the reasonableness of those cash flows. • Assessing transparency: We assessed whether the Group’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the recoverable amount. Our results We found the goodwill balance in the Hybrid Software CGU and the parent Company’s investment in Hybrid Software Group SARL to be acceptable (2021: acceptable).
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