Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information Hybrid Software Group PLC Annual Report 2022 92 93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. OTHER INTANGIBLE ASSETS (CONTINUED) For individual intangible assets material to the financial statements, the following table shows the remaining amortisation periods and the carrying amounts: In thousands of euros Remaining amortisation period 2022 2021 Cloudflow 10 years 17,480 18,555 ColorLogic 2.0 to 8.8 years 2,647 2,909 EDL 1.4 years 418 483 Harlequin RIP 1.7 years 1,649 1,304 iC3D 9.3 years 1,385 - Other software 0.8 to 7 years 125 166 Packz 10 years 12,652 13,412 Xitron 1.0 to 2.8 years 1,390 1,542 Total software technology 37,746 38,371 Customer relationships 1.8 to 8.8 years 5,246 6,143 Patents 12 years 127 144 Know-how 0.3 years 95 34 175 Driver electronics 1.2 to 4.8 years 745 372 17. GOODWILL In thousands of euros Total Goodwill Cost At 31 December 2020 15,978 Additions – business combinations (see note 34) 53,576 Effect of movement in exchange rates 1,175 At 31 December 2021 70,729 Additions – business combinations (see note 34) 1,578 Effect of movement in exchange rates (630) At 31 December 2022 71,677 Amortisation or impairment At 31 December 2020 5,638 Effect of movement in exchange rates 413 At 31 December 2021 6,051 Effect of movement in exchange rates (301) At 31 December 2022 5,750 Net book value At 31 December 2021 64,678 At 31 December 2022 65,927 The Group is required to test annually whether goodwill and other intangible assets with indefinite useful lives have suffered any impairment during the year in accordance with the policy set out in Note 3 ‘Significant accounting policies’. Goodwill is allocated to cash-generating units (CGUs) for the purposes of impairment testing. The CGUs identified were Global Graphics Software, Meteor Inkjet, Xitron, HYBRID Software and ColorLogic. HYBRID Software and ColorLogic were new in the year ended 31 December 2021 due to the acquisitions of HYBRID Software Group S.à r.l. and ColorLogic GmbH. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. GOODWILL (CONTINUED) The table below shows the allocation of goodwill to the CGUs. In thousands of euros 2022 2021 Global Graphics Software 6,721 7,052 Meteor Inkjet 2,195 2,310 Xitron 1,857 1,740 HYBRID Software 53,952 52,374 ColorLogic 1,202 1,202 Total goodwill 65,927 64,678 The recoverable amount of the CGUs has been determined using an estimate of their value in use as at 31 December 2022. These calculations employed cash flow projections based on financial forecasts approved by management covering a five-year period ending 31 December 2027 and then into perpetuity using a terminal growth rate. The financial forecasts are most sensitive to changes in the customer base and associated revenues and to changes in staff costs. Revenues were forecasted based on historical trends and anticipated growth. Staffing levels were reviewed against the additional revenue and an average increase in staff costs was applied to account for future potential pay increases that could be awarded to employees. Projected cash flows were converted into euros based on the rates used for preparing the Group’s budget for the year ending 31 December 2022. The exchange rates were determined with reference to market forecasts and were 1.1764 euros for 1 pound sterling, 1.0000 US dollars for 1 euro, and 140 Japanese yen for 1 euro. Management considers that the use of a five-year forecast and then into perpetuity is justified because the core of the products and technology that make up the CGUs have been generating revenue for between 10 and 25 years. The Group’s technology has evolved to meet the changing requirements of the industries in which it operates, and it continues to do so. Combining acquisitions with the continual shift to digital printing and manufacturers looking to differentiate their products, new opportunities continue to be created for the Group and its products. Key assumptions The following key assumptions have been adopted in the calculations. Global Graphics Software CGU • The pre-tax discount rate used was 14.83% (2021: 14.11%); • Revenue growth rates used in the estimation process are consistent with the approved budget for 2023, outlook for periods between 2024 to 2027 was projected at 5.0%; • Gross margin was reduced to 89% compared to recent actual gross margins (2021: 98%), mainly due to increased intercompany sourcing of software components; • The staff costs growth rate used was 1% (2021: 5%); and • The terminal growth rate used was 2% (2021: 0%). Meteor Inkjet CGU • The pre-tax discount rate used was 15.06% (2021: 14.11%); • Revenue growth rates used in the estimation process are consistent with the approved budget for 2023, outlook for periods between 2024 to 2027 was projected at 6.2%; • Gross margin was aligned to recent actual gross margins of 58% (2021: 58%); • The staff costs growth rate used was 4.5% (2021: 5%); and • The terminal growth rate used was 0% (2021: 0%). Xitron CGU • The pre-tax discount rate used was 15.45% (2021: 15.66%); • Revenue growth rates used in the estimation process are consistent with the approved budget for 2023, outlook for periods between 2024 to 2027 was projected at 5.0%; • Gross margin was reduced to 63% compared to recent actual gross margins (2021: 66.9%); • The staff costs growth rate used was 5.3% (2021: 5%); and • The terminal growth rate used was 0% (2021: 0%). HYBRID Software CGU • The pre-tax discount rate used was 15.46% (2021: 15.24%); • Revenue growth rates used in the estimation process are consistent with the approved budget for 2023, outlook for periods between 2024 to 2027 was projected at 8.1%; • Gross margin was increased to 97.6% compared to recent actual gross margins (2021: 96.9%); • The staff costs growth rate used was 7.5% (2021: 7.5%); and • The terminal growth rate used was 3% (2021: 0%). HYBRID Software enjoys significant competitive advantages in the markets it is active providing for above average pricing power hence the ability to grow its income more than the long term growth rates of the countries in which it is active.
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