Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information Hybrid Software Group PLC Annual Report 2022 94 95 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. GOODWILL (CONTINUED) ColorLogic CGU • The pre-tax discount rate used was 14.30% (2021: 14.38%); • 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 83% compared to recent actual gross margins (2021: 86.1%); • The staff costs growth rate used was 5% (2021: 5%); and • The terminal growth rate used was 0% (2021: 0%). Sensitivity to changes in assumptions Global Graphics Software CGU For the Global Graphics Software CGU management has identified that a reasonably possible change in key assumptions could cause the carrying amount to match the recoverable amount. The following table shows the amount by which these assumptions would need to change individually for the estimated recoverable amount to be equal to the carrying amount. The Directors believe there were no reasonably possible changes in the other key assumptions that could cause impairment. Change required for carrying amount to equal recoverable 2022 Revenue growth rate (94bps) Discount rate 356bps HYBRID Software CGU For the HYBRID Software CGU management has identified that a reasonably possible change in key assumptions could cause the carrying amount to match the recoverable amount. The following table shows the amount by which these assumptions would need to change individually for the estimated recoverable amount to be equal to the carrying amount. The Directors believe there were no reasonably possible changes in the other key assumptions that could cause impairment. Change required for carrying amount to equal recoverable 2022 Revenue growth rate (61bps) EBITDA margin (230bps) Discount rate 201bps ColorLogic CGU For the ColorLogic CGU management has identified that a reasonably possible change in key assumptions could cause the carrying amount to match the recoverable amount. The following table shows the amount by which these assumptions would need to change individually for the estimated recoverable amount to be equal to the carrying amount. The Directors believe there were no reasonably possible changes in the other key assumptions that could cause impairment. Change required for carrying amount to equal recoverable 2022 Revenue growth rate (232bps) Discount rate 831bps Meteor Inkjet and Xitron CGU’s For the Meteor Inkjet and Xitron CGUs, no reasonable change in assumptions would cause a material impairment and therefore no sensitivity analysis has been disclosed. As a result of these projections, no impairment was required for goodwill for the year ended 31 December 2022 (2021: €nil). 18. FINANCIAL ASSETS Financial assets measured at amortised cost. In thousands of euros 2022 2021 Rent and other deposits 49 50 Financial assets not classified as cash or cash equivalent 726 863 Non-current finance lease receivables (see note 26) 180 22 Total financial assets 955 935 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. TAX Corporation tax Analysis of the tax (charge) / credit in the year: In thousands of euros 2022 2021 Current tax Current year charge (1,579) (657) Withholding tax (8) - Total current tax (1,587) (657) Deferred tax Arising from the capitalisation and amortisation of development expenses (269) (264) Impact of rate change - (107) Recognition of previously unrecognised tax losses 199 970 Origination and reversal of temporary differences 1,122 407 Total deferred tax 1,052 1,006 Total tax (charge) / credit (535) 349 The tax (charge) / credit for the year differs from that calculated by applying the standard rate of corporation tax of the Company to profit or loss before taxation. The differences are as follows: In thousands of euros 2022 2021 Profit before tax 1,835 4,565 Expected tax expense at the Company's tax rate of 19% (2021: 19%) (349) (867) Effect of differences in tax rates in foreign jurisdictions (527) (373) Effect of share-based payments - (3) Effect of expenses not deductible and items not taxable 8 327 Deferred tax not recognised (984) (509) Impact of rate change - 204 Effect of R&D enhanced expenditure 674 605 Effect of withholding tax (8) (5) Recognition of previously unrecognised tax asset 651 970 Total tax (charge) / credit recognised (535) 349 An increase in the UK corporation tax rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. Deferred tax The Group had recognised deferred tax as follows: In thousands of euros 2022 2021 Deferred tax assets Capital allowances 1,677 1,529 Unused tax losses 1,109 1,227 Total recognised deferred tax assets before set-off 2,786 2,756 Deferred tax set-off (717) (520) Net deferred tax assets 2,069 2,236 Deferred tax liabilities Capitalised development expenses 834 571 As a result of business combinations 8,547 9,595 Total recognised deferred tax liabilities before set-off 9,381 10,166 Deferred tax set-off (717) (520) Net deferred tax liabilities 8,664 9,646 Deferred tax assets are recognised for tax losses available for carrying forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. Deferred tax is measured at the tax rates that are expected to apply to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. On 24 May 2021 the UK tax rate increase from 19% to 25% from 1 April 2023 was substantively enacted. This will have a consequential effect on the group’s future tax charge, but no estimates of the potential effect have been made.
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