SoftwareONE Holding AG (“the Company” or “SoftwareONE Holding”) and its wholly-owned subsidiaries (together “the Group” or “SoftwareONE”) is a fast-growing, premier software and service provider and is an authorized large account reseller and enterprise software advisor mainly focused on software licensing and related services.

The Company is incorporated and domiciled in Stans, Switzerland. The address of its registered office is Riedenmatt 4, 6370 Stans. On 25 October 2019, SoftwareONE Holding AG started trading on the SIX Swiss Exchange. The shares trade under the ticker symbol "SWON".

The consolidated financial statements of SoftwareONE are presented in Swiss francs (CHF). Unless otherwise stated, all amounts are stated in thousands of Swiss francs (TCHF). All figures shown are rounded in accordance with standard business rounding principles.

These consolidated financial statements were authorized for issue by the Board of Directors on 30 March 2020 and are subject to approval by the Annual General Meeting to be held on 14 May 2020.

SoftwareONE Holding’s consolidated financial statements are prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.

Basis of presentation

New and amended standards and interpretations

The Group has initially adopted IFRS 16 “Leases” from 1 January 2019 without restating comparative information. Several other changes in IFRS are also effective from 1 January 2019 but they do not have a material effect on the Group’s consolidated financial statements. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

IFRS 16 “Leases”

IFRS 16 replaces IAS 17 “Leases” and related interpretations. The new standard requires lessees to recognize a lease liability reflecting future lease payments and a right-of-use asset for most lease contracts. The Group adopted IFRS 16 using the modified retrospective approach and has not restated comparative information. The Group elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (“short-term leases”) and lease contracts for which the underlying asset is of low value (“low-value assets”).

The Group has lease contracts for office locations, vehicles and other equipment. Before the adoption of IFRS 16, all leases of the Group were classified as operating leases. Upon adoption of IFRS 16, SoftwareONE recognized right-of-use assets and lease liabilities for its leases, except for short-term leases and leases of low-value assets. The right-of-use assets have been recognized at the same amount as the lease liabilities. Lease liabilities were determined based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.

The effect of adoption of IFRS 16 on the balance sheet as at 1 January 2019 is as follows:

• Right-of-use assets      TCHF 20,217
• Financial liabilities       TCHF 20,217

The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as at 31 December 2018, as follows:

New standards and interpretations not yet adopted

The IASB has issued a number of potentially relevant changes to IFRS that will be effective in future accounting periods. New standards that are expected to have only a minor impact on the Group and the effective date are described below:

• IFRS 3: Business Combinations: Definition of a Business – adoption by 1 January 2020
  
• IAS 1 and IAS 8: Presentation of Financial Statements and Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Material – adoption by 1 January 2020
• IFRS 9/IAS 39/IFRS 7: Interest Rate Benchmark Reform – adoption by 1 January 2020
• Amendments to References to the Conceptual Framework in IFRS Standards – adoption by 1 January 2020
• IAS 1: Presentation of Financial Statements: Classifications of Liabilities as Current or Non-Current – adoption by 1 January 2022

There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

Consolidation

Subsidiaries

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated in full.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method of accounting. The cost of a business combination is equal to the fair values at the date of acquisition of assets given, liabilities incurred or assumed, and equity instruments issued by SoftwareONE Group, in exchange for control over the acquired company. Any difference between the cost of the business combination and the net fair value of the identifiable assets, liabilities and contingent liabilities so recognized is treated as goodwill. Goodwill is not amortized but is assessed for impairment annually. Acquisition-related costs are expensed. For each business combination, the Group recognizes the non-controlling interests in the acquiree at the non-controlling interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets.

If a business combination is achieved in stages (control obtained over an associate or joint venture) the previously held equity interest in an associate or joint venture is remeasured to its acquisition-date fair value and any resulting gain or loss is recognized in “financial income/expenses” in the income statement.

Non-controlling interests

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder’s share of changes in equity since the date of the combination.

Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Swiss francs (CHF) which is the Group’s presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured.

Monetary assets and liabilities of Group companies which are denominated in foreign currencies are translated using closing exchange rates. Exchange rate differences are recorded as income or expense. Non-monetary assets and liabilities are translated at historical exchange rates. Translation differences on non-monetary financial assets and liabilities such as equity securities held at fair value through profit or loss are recognized in the income statement as part of the fair value gain or loss.

Foreign currency translation

When translating foreign currency financial statements into Swiss francs, year-end exchange rates are applied to assets and liabilities while average rates for the period are applied to income statement accounts. The resulting exchange differences are recognized in other comprehensive income.

Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at closing rate. The resulting exchange differences are recognized in other comprehensive income (OCI).

The following exchange rates were used:

Financial assets

Initial recognition and measurement

The Group classifies its financial assets at initial recognition in the following categories: subsequently measured at amortized cost, fair value through OCI and fair value through profit or loss. The classification depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus transaction costs in the case of a financial asset not at fair value through profit or loss. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.

In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are “solely payments of principal and interest (SPPI)” on the principal amount outstanding. This assessment is performed at an instrument level.

SoftwareONE’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Financial assets are classified as current if payments are due within one year or less. If not, they are presented as non-current receivables.

Subsequent measurement

For purposes of subsequent measurement, SoftwareONE has financial assets at amortized cost (debt instruments), financial assets at fair value through profit or loss and derivatives designated as hedging instruments.

Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in the income statement when the asset is derecognized, modified or impaired.

The Group’s financial assets at amortized cost comprise trade and other receivables, loans and cash and cash equivalents.

Cash and cash equivalents

The position includes cash on hand, bank accounts and short-term bank deposits with original maturities of three months or less.

Trade receivables

Trade receivables are initially recorded at a transaction price determined in accordance with IFRS 15 less impairments.

Financial assets

The Group has listed equity instruments presented as short-term financial assets which are subsequently measured at fair value through profit or loss as it had not irrevocably elected to classify those at fair value through OCI at initial recognition. Financial assets at fair value through profit or loss are carried in the balance sheet at fair value with net changes in fair value recognized in the income statement. Dividends on equity investments are recognized as other income in the income statement when the right to payment has been established

Derecognition

The Group derecognizes financial assets when:

• The rights to receive cash flows from the asset have expired or
  
• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third-party under a ”pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.

Receivables subject to factoring arrangements may be derecognized on sale and these assets are not held to collect contractual cash flows and would be measured at fair value through profit or loss. However, due to their short-term nature, the difference between transaction price and fair value is not considered to be material. Where the factored receivables continue to be recognized in the balance sheet, they are treated as held to collect contractual cash flows and measured at amortized cost.

Impairment of financial assets

The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

For trade receivables and contract assets the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience and SoftwareONE’s business knowledge, adjusted for forward-looking factors specific to the debtors and the economic environment.

Derivative financial instruments and hedge accounting

The Group reviews the currency exposure regularly and covers its risks in two ways:

• The Group hedges the net exposure from foreign currency balance sheet positions with forward contracts. Such contracts, however, are not accounted for using hedge accounting.
• Highly probable future transactions are hedged with forward transactions (sales and purchase). Those contracts are designated as cash flow hedges. The transactions are expected to affect profit and loss within the next 24 months. At inception of a hedge relationship the Group designates and documents the hedge relationship to apply hedge accounting. The hedge relationship includes the hedging instrument, the hedged item and the nature of the risk being hedged. The hedges are expected to be highly effective.

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value through profit or loss except for the effective portion of cash flow hedges, which is recognized in OCI and later reclassified to the income statement when the hedged item affects profit or loss. The ineffective portion is recognized immediately in the income statement.

In case of a positive value, the derivative is recognized as an asset and in case of a negative value, as a liability (classified as non-current when the remaining maturity of the hedged item is more than 12 months and as current when the remaining maturity of the hedged item is less than 12 months).

Tangible assets

Tangible assets are stated at historical cost less depreciation and impairments. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Repair and maintenance costs are recognized in the income statement in the period in which they are incurred.

Depreciation is calculated using the straight-line method over the expected useful life as follows:

• Land and Buildings: max. 33 years
• Furniture, fittings and equipment: max. 5 years
• Leasehold improvements: max. 10 years or shorter duration lease contract
• Vehicles: max. 5 years
• IT equipment: max. 3 years
• Assets under construction: no depreciation
  

Intangible assets

Purchased intangible assets such as software and customer relationships are measured at cost less accumulated amortization (applying the straight-line method) and any impairment. The useful life is as follows:

• Software: 3–10 years
• Acquired customer relationships: max. 10 years
• Other intangible assets: 3–10 years

Internally generated intangible assets are capitalized only if the identifiable asset is commercially and technically feasible, can be completed, its costs can be measured reliably and will generate probable future economic benefits. In addition to the internal costs (including all attributable direct costs) total costs also include externally contracted development work. Such capitalized intangibles are recognized at cost less accumulated amortization over a useful life of three to ten years. In-process capitalized development costs are tested annually for impairment.

Acquired customer relationships are capitalized and amortized over their useful lives. They are assessed for impairment if events or changes in circumstances indicate that their value may be impaired. The significant assumptions are future cash flows and the discount rate.

Impairment test of goodwill and intangibles with indefinite useful life

With regard to impairment testing of goodwill and other intangible assets deemed to have indefinite lives, the Group determines the higher of value in use and fair value less costs of disposal of the respective cash generating units to which goodwill and intangibles have been allocated. The calculation of value in use is based on the current budget approved by the Board of Directors and the expectations regarding the future development of the respective markets, market shares and profitability. The planning period covers five years. Assumptions are made for the subsequent years taking into account macroeconomic trends and historical information adjusted for current developments.

The impairment test is performed at least once a year and additionally when there are indications of impairment in the cash-generating unit. Impairment losses for goodwill are never reversed.

Investments in joint ventures and associates

Companies in which SoftwareONE has joint control and associates in which the Group has significant influence are accounted for using the equity method. Under the equity method, the investment in a joint venture or associate is initially recognized at cost. The statement of profit or loss reflects SoftwareONE’s share of the results of the joint ventures and associates and SoftwareONE’s share of OCI of those investees is presented in OCI. The financial statements of the joint ventures and associates are prepared using uniform accounting policies as applied by SoftwareONE.

Financial liabilities

Initial recognition and measurement

SoftwareONE classifies financial liabilities at initial recognition as financial liabilities at fair value through profit or loss, financial liabilities subsequently measured at amortized cost or as derivatives designated as hedging instruments in an effective hedge as appropriate.

All financial liabilities are recognized initially at fair value and in the case of instruments not subsequently measured at fair value through profit or loss net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, accrued expenses, contingent consideration liabilities and other financial liabilities including bank overdrafts and derivative financial instruments.

Subsequent measurement

Contingent consideration liabilities are subsequently measured at fair value through profit or loss.

Derivatives are subsequently measured at fair value with fair value changes in the income statement, except for the effective portion of cash flow hedges that is initially recognized in other comprehensive income.

All other financial liabilities are subsequently measured at amortized cost using the effective interest method.

Trade payables and financial liabilities are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement except to the extent that it relates to items recognized in OCI or directly in equity. In this case the tax is also recognized in OCI or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Periodically, management evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries. They are only recognized to the extent that it is probable that the temporary difference will reverse in the future and there needs to be a sufficient taxable profit available against which the temporary difference can be utilized.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Employee benefits

The Group operates various post-employment schemes including both defined benefit and defined contribution pension plans.

Defined contribution plans

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset.

Defined benefit plans

A defined benefit plan is a pension plan that is not a defined contribution plan.

Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. Actuarial gains or losses are recognized in OCI. Service costs, interest costs and return on plan assets are netted in personnel expenses.

Other employee benefits

Obligations to employees not paid at the balance sheet date, such as bonuses, holiday entitlements or compensations are presented as accrued expenses.

Contingent consideration arrangements related to business acquisitions in which payments are contingent on continued employment and thus compensation for future service are presented as provisions.

Share-based payments

Certain management members and senior employees participate in equity compensation plans. The fair value of all equity-settled compensation awards granted to employees is determined at the grant date and recorded as an expense over the vesting period. The expense for equity compensation awards is part of personnel expense and a corresponding increase in equity is recorded.

Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. If the effect of the time value of money is material, provisions are discounted.

Share capital

Ordinary shares are classified as equity. Dividends on ordinary shares are recorded in equity in the period in which they are approved by the parent Company’s shareholders.

Where the Group purchases shares of the parent Company, the consideration paid (including any attributable transaction costs) is deducted from equity as treasury shares. Any consideration received from the sale of own shares is recognized in equity, net of any taxes.

Revenue recognition

Revenue from contracts with customers comprises revenue from sale of software and solutions and services. Revenue from contracts with customers is recognized either when the performance obligation in the contract has been performed either at the “point in time” or ”over time” as control of the promised good or service is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.

Sale of software

SoftwareONE enters into contracts with customers to sell software products of several third-party software providers. Revenue from the sale of software is recognized at the point in time control of the license is transferred to the customer, generally on delivery of the product key. The normal credit term is 30 to 90 days upon delivery.

SoftwareONE distinguishes two types of software selling arrangements:

• Direct business: As an approved channel partner, SoftwareONE sells software products provided by third parties to end customers in several areas worldwide. The Group’s obligation in these arrangements is only to arrange for another entity to provide the software license to the end customer. Hence, SoftwareONE acts as an agent and recognizes revenue at the net amount that it retains from its agency services.
• Indirect business: SoftwareONE acts as a value-added software reseller and provides consulting services in connection with the sale of the software licenses to its customers. These services include aspects of strategic and operational software procurement, complex technology advice or customized solutions. They are bundled with the sale of the software products and are regarded as an integral part of the performance obligation to the customer. The software licenses only deliver benefits together with the extensive consulting services that are not distinct from the services in the contractual context and constitute a bundled performance obligation. As the Group is primarily responsible for fulfilling this promise, SoftwareONE concluded that it acts as a principal in these arrangements. For further details on the principal vs. agent assessment please refer to section “Significant judgments”. SoftwareONE therefore recognizes revenue from such contracts gross in the consolidated financial statements. The purchase from the supplier is presented as cost of software purchased.
  

The Group also enters into non-cancellable multi-year licensing contracts with customers. In such contracts SoftwareONE transfers control of the software license at the beginning of the contract and collects the consideration over the contract duration. As the customer pays in arrears, SoftwareONE is effectively providing financing to the customer. Hence, there are two components in such arrangements: a revenue component (for the notional cash sales price); and a loan component (for the effect of the deferred payment terms). Interest income on the loan component is calculated based on the rate that would be reflected in a separate financing transaction between the Group and its customers at contract inception and is presented under finance income. SoftwareONE uses the practical expedient in IFRS 15 and does not adjust the promised amount of consideration for the effects of a significant financing component if it expects at contract inception that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service will be one year or less.

Revenue from solutions and services

SoftwareONE also provides a wide range of technology consulting services. Revenue from solutions and services is recognized over time using an input method based on labor hours to measure progress towards complete satisfaction of the service because the customer simultaneously receives and consumes the benefits provided by SoftwareONE. The Group determined that the input method based on labor hours incurred in relation to total expected hours is the best method in measuring progress of the consulting services because there is a direct relationship between SoftwareONE’s effort and the transfer of service to the customer. Payment is due 30 days after the solutions and services have been performed.

Contract balances

• Contract assets
  A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration that is conditional.
• Trade receivables
  A trade receivable represents the Group’s right to an amount of consideration that is unconditional (in other words only the passage of time is required before payment of the consideration is due).
  
• Contract liabilities
  A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognized as revenue when the Group performs under the contract.
  

Transaction price of unsatisfied performance obligations

SoftwareONE uses the practical expedient in IFRS 15.121 and does not disclose information about the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied when the original expected duration of the underlying contract is one year or less. After applying this practical expedient, the remaining performance obligations to be disclosed 31 December 2019 and 2018 are not material.

Leases

Right-of-use assets

The Group recognizes right-of-use assets at the commencement date of the lease (that is the date the underlying asset is available for use). Right-of-use assets are measured at cost less any accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. For leased vehicles, SoftwareONE makes use of the option not to separate lease and non-lease components and ancillary costs are therefore included in the calculation of the entire lease component.

Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of their estimated useful life and the lease term. The useful life is as follows:

• Buildings: max. 10 years
• Vehicles: max. 5 years
• Other equipment: max. 5 years

Right-of-use assets are subject to impairment.

Lease liabilities

At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease if the lease term reflects the Group exercising the option to terminate.

The variable lease payments that do not depend on an index or a rate are recognized as expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date, if the interest rate implicit in the lease is not readily determinable. After the commencement date the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases of other machinery and equipment (these are those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (in other words below CHF 5,000). Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.

Acquisitions in 2019

On 31 January 2019, SoftwareONE Holding AG acquired 100% of COMPAREX AG, Germany (“COMPAREX”). As a global IT company with thirty years of experience, COMPAREX is one of the world’s leading IT service providers in the EMEA markets. COMPAREX develops services that support management and leverage software products. COMPAREX serves corporate customers spanning from small businesses to large international corporations as well as public institutions – supporting customers during their digital journey towards productivity optimization.

On 19 November 2019, the Group acquired 100% of BNW Consulting Pty Ltd., Australia (“BNW”) with a subsidiary in the US. BNW is a long-standing and growing technology and cloud consulting company specializing in services around SAP platform transformation and migration from on-premises to public cloud hyperscale platforms such as Microsoft Azure, Amazon Web Services (AWS), Google Cloud Platform and Ali Cloud. In addition, BNW offers organizations its proprietary SAP-certified tool “PowerConnect” that provides analytical insights into SAP performance data across on-premise & cloud infrastructures as well as security and business process data.

Furthermore, the Group made the following other acquisitions in 2019:

On 30 April 2019, the Group acquired 100% of RightCloud Pte. Ltd., Singapore (“RightCloud”). RightCloud is a market-leading cloud-based service provider delivering cloud solutions and an overall digital transformation to enterprises. RightCloud specializes in Amazon Web Services, creating multi-cloud strategy, managed services, cloud security, big data, business analytics, DevOps, application development and SAP on Cloud.

On 31 October 2019, the Group acquired all customer contracts and the workforce of MassiveR&D K.K., Japan (“MassiveR&D”) by way of an asset deal. MassiveR&D is a Tokyo-based Amazon Web Services (AWS) specialist. This acquisition adds AWS managed and professional services to SoftwareONE’s local offering in Japan.

The fair values of the identifiable assets and liabilities as at the date of acquisition were:

Details of the purchase considerations recognized at acquisition and the derivation of goodwill are as follows:

Analysis of the cash flows on acquisitions:

Acquisition of COMPAREX

The Group finalized the purchase accounting in the second half of 2019 and recognized the changes retrospectively as of the acquisition date. The fair value of trade receivables amounts to TCHF 558,227. The gross amount of trade receivables is TCHF 563,185 of which TCHF 4,958 is expected to be uncollectible. The goodwill recognized is primarily attributed to the expected synergies and other benefits from combining the assets and activities of COMPAREX with those of the Group. The goodwill is not deductible for income tax purposes.

For the purpose of the purchase price allocation, the fair value of the newly issued ordinary shares was determined by way of an EBITDA multiple, based on a comparable group of companies, and other factors, at the date of acquisition. This resulted in a fair value of CHF 114.46 per share (after split: CHF 11.45 per share), totaling TCHF 265,000. There were no significant transaction costs related to the capital increase.

As part of the purchase agreement, a contingent consideration arrangement (maximum amount TEUR 30,000) was agreed that would result in an additional cash payment to the previous owners of COMPAREX and be payable in the event of an exit event. The EBITDA multiple reached upon such an exit event determines the amount of the payout to be made. At the time of acquisition, the Group assessed the estimated timing and result of such an exit event and determined that the fair value of the contingent consideration liability amounted to TCHF 34,209, ie the maximum amount. As a result of the IPO in October 2019 the contingent consideration was fixed and an amount of TCHF 32,601 was paid in January 2020.

Most of the transaction costs were incurred prior to 2019. In total, transaction costs of TCHF 8,905 have been expensed. Of these TCHF 1,386 are reflected in the period to 31 December 2019 in other operating expenses (prior period: TCHF 4,667).

From the date of acquisition COMPAREX has contributed TCHF 3,090,361 of revenue and TCHF 88,096 to the profit for the year.

Acquisition of BNW

The goodwill recognized is primarily attributed to the expected synergies and other benefits from combining the assets and activities of BNW with those of the Group. The goodwill is not deductible for income tax purposes.

As part of the purchase agreement, a contingent consideration arrangement was agreed that could result in additional cash payments to the previous owners of BNW. The amount of the payments depends on EBITDA development for 2021 and 2023 and a multiplier derived from other variables. The payments are contingent on continued employment and thus compensation for future service. They will therefore be accreted as personnel expenses during the period of service.

There were no significant transaction costs related to this acquisition.

From the date of acquisition BNW has contributed TCHF 257 of revenue and TCHF 74 to the profit for the year.

Other acquisitions

The purchase price allocations for RightCloud, MassiveR&D and BNW are still provisional as at 31 December 2019. For details regarding contingent consideration arrangements, refer to Note 19.

If all acquisitions would have taken place at the beginning of the year total revenue of SoftwareONE Group would have been TCHF 7,866,346 and net profit for the period would have been TCHF 130,723 (on a pro forma basis).

Acquisitions in 2018

On 3 October 2018, the Group acquired 100% of the shares of ISI Expert SAS, a managed services and infrastructure provider based in France. During the business year, the Group finalized the purchase accounting and there were no changes in the final fair values of acquired assets and liabilities compared to the provisional amounts disclosed in the Annual Report 2018.

Acquisition of non-controlling interests

On 29 August 2019, SoftwareONE Switzerland AG acquired the remaining 50% ownership interest of SoftwareONE LATAM Holding SL located in Spain with subsidiaries in Mexico, Columbia, Dominican Republic, Ecuador and Peru. These interests were subject to a put option (to be settled in a variable number of SoftwareONE Holding AG shares) for which a financial liability had been recognized (refer to Note 20) at the present value of the redemption amount. The related non-controlling interest was derecognized at each reporting date as if the put option had been exercised, with any difference between the put option liability and the carrying amount of non-controlling interest recognized in shareholders’ equity. The consideration for the 50% ownership interests was fully paid in cash (TCHF 7,967).

4.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk, equity price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. The financial derivatives are measured with the aid of standardized mathematical models. The counterparty risk related to those derivatives is considered to be immaterial for the Group.

Risk management is carried out by Group Treasury under policies approved by the Board of Directors. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

Market risk

Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

Group Treasury has set up a policy to manage its foreign exchange risk. The Group hedges its foreign exchange risk exposure of future cash-flows, future commercial transactions and recognized assets and liabilities by derivative contracts.

The Group has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk which, as per Group policy, is not hedged. These differences are recognized in other comprehensive income and accumulated in equity. Translation risk is not considered in the below analysis.

The following table details the Group’s sensitivity in the major currencies with all the other variables held constant.

A part of the below sensitivity impacts on profit and loss are related to a minor time lag between the end of December and the starting date of the hedging contracts in the following year. In addition, Group internal sale of participations in subsidiaries (CPX integration) were also hedged with a certain time lag mainly impacting EUR exposure.

Interest rate risk

The Group’s interest-bearing instruments with variable interest are cash, bank overdrafts, bank loans and a multiple currency revolving credit facility (currently undrawn). Currently there is no material exposure to interest rate risk. Also refer to Note 20 financial liabilities.

Equity price risk

The Group holds a short-term investment in listed shares. The asset is subject to fluctuation in share price. Changes in fair value are recognized in profit and loss as they arise.  A sensitivity analysis was performed. A 10% fluctuation in share price leads to fluctuations in earnings of TCHF +/– 5,761 (prior year: +/– 1,267).

Credit risk

Group Treasury is responsible for managing and analyzing the credit risk for all new clients before standard payment and delivery terms and conditions are offered. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and contract assets. Risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. No collateral is required. Individual risk limits are set based on internal or external ratings in accordance with guidelines set by the Board. The utilization of credit limits is regularly monitored.

There is no concentration of credit risk with respect to trade receivables as the Group has a large number of customers that are internationally diversified. 39% of trade receivables are covered through credit insurance (prior year: 37%).

The remaining part is not insured either as:

• From customers with top rating (based on internal and credit insurance assessment): 35% (prior year: 38%)
• Too small to be insured: 1% (prior year: 1%)
• No insurance available: 25% (prior year: 24%)

Refer to Note 13 trade receivables for information about the credit risk exposure on the Group’s trade receivables and contract assets using a provision matrix.

Liquidity risk

Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group Treasury. Group Treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn borrowing facilities (for details see further below) at all times so that the Group does not breach borrowing limits on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets (refer to Note 4.2 capital risk management) and, if applicable, external regulatory or legal requirements.

The table below analyzes the Group’s non-derivative financial liabilities and derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, ie undiscounted interest and principal payments:

The interest payments on the variable interest rate loans issued as part of the revolving credit facility in the table above reflect market forward interest rates at the reporting date and these amounts may change as market interest rates change.

The Group maintains a CHF 400 million multiple currency revolving credit facility which was signed in 2019. Interest would be payable at the rate of LIBOR plus a margin of 50 respectively 60 basis points initially, depending on the currency, and thereafter adjusted for changes in the leverage ratio of the Group. As at 31 December 2019, nothing was drawn down. Each drawdown within the facility would have a tenor ranging from one week up to the maturity of the credit facility. The facility has a tenor up to 30 September 2022 with two extension options, each for twelve months. Those options have not yet been used. The facility is subject to loan covenants (leverage ratio: net debt/earnings before net financial items, taxes, depreciation and amortization). A future breach of covenant may require the Group to immediately repay the loan or earlier than the end of the commitment period. Under the agreement, the covenants are monitored on a regular basis by the treasury department and regularly reported to management to ensure compliance with the agreement. Transaction costs of TCHF 1,330 were capitalized and amortized pro rata over the commitment period.

The carrying amount of financial liabilities of the prior year included liabilities of TCHF 8,003 related to put options held by non-controlling interest holders that based on the contractual terms would have been settled in SoftwareONE Holding shares. Refer to Note 20.

At 31 December 2019, the Group had total committed and uncommitted credit lines (including factoring) of TCHF 985,089 (prior year: TCHF 280,204) available, of which 22% (prior year: 12.7%) drawn. From the drawn amount TCHF 74,457 are covered by a covenant which is completely fulfilled as at 31 December 2019.

4.2 Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

Surplus cash held by the operating entities over and above working capital requirements are transferred to Group Treasury whenever the legal environment permits. Group Treasury invests surplus cash in interest-bearing current accounts or short-term time deposits to provide sufficient headroom as determined by the above-mentioned forecasts.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.

Capital is measured based on the Group’s consolidated financial statements and monitored closely on an ongoing basis. Management's target for the period under review was to strengthen the capital base to sustain and support further development of the business. This goal was achieved through the positive operating results of the Group and the increase in equity.

The equity ratio for the period ended 31 December 2019 and the prior year were as follows:

The equity ratio for 2019 remained stable compared to the previous year. Both equity and assets have increased due to the acquisition of COMPAREX Group (refer to Note 3).

4.3 Categories of financial instruments and fair value estimation

Categories of financial instruments

The following table discloses the carrying amounts and fair values, as required, of the Group’s financial instruments by class and category:

Financial assets consist of an investment in listed equity instruments for which the Group recognized a fair value gain of TCHF 38,946 in finance income in 2019 (prior year: TCHF 848).

Fair value estimation

The carrying amounts of cash and cash equivalents, trade and other receivables and trade and other payables with a remaining term of up to twelve months, as well as other current financial assets and liabilities represent a reasonable approximation of their fair values, due to the short-term maturities of these instruments.

The fair value of financial assets (equity instruments) is based on observable price quotations at the reporting date. The fair value of derivatives is determined on the base of input factors observed directly or indirectly on the market. The fair value of foreign exchange forward contracts is based on forward exchange rates. Currency options are valued based on option pricing models using observable input data.

Financial instruments carried at fair value are analyzed by valuation method. The fair value hierarchy has been defined as follows:

Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices for identical assets or liabilities at the balance sheet date.

Level 2: The fair value measurements are those derived from valuation techniques using inputs for the asset or liability that are observable market data, either directly or indirectly. Such valuation techniques include the discounted cash flow method and option pricing models. For example, the fair value of interest rate and currency swaps is determined by discounting estimated future cash flows, and the fair value of forward foreign exchange contracts is determined using the forward exchange market at the end of the reporting period.

Level 3: The fair value measurements are those derived from valuation techniques using significant inputs for the asset or liability that are not based on observable market data.

The following table discloses valuation classes for financial instruments measured at fair value:

Other than disclosed in the table below, there have been no transfers between the different hierarchy levels in 2019 and 2018.

The change in carrying values associated with “Level 3” contingent consideration liabilities are set forth below:

The most significant contingent consideration liabilities relate to the acquisition of COMPAREX and the acquisition of the customer base of CompuCom.

COMPAREX (fair value as at 31 December 2019: TCHF 32,601)
The fair value of the COMPAREX consideration liability is dependent on the valuation of the Group upon an exit event and is linked to the EBITDA multiple achieved upon such an exit event. At acquisition date, the maximum amount payable (TEUR 30,000) and a fair value of TCHF 34,209 were recognized. In the course of the IPO, the cash payment was fixed to TEUR 30,000 and, therefore, the liability was transferred from "Level 3" to "Level 2" in the fair value hierarchy.

With the acquisition of COMPAREX, the Group also acquired contingent consideration liabilities of TCHF 6,610. These were partially settled in cash (TCHF 4,140) and partially reversed and recognized as finance income (TCHF 2,131) in 2019. TCHF 339 are still included in the accounts as at 31 December 2019.

CompuCom (fair value as at 31 December 2019: TCHF 14,949)
The purchase price for the customer base of CompuCom acquired in 2015 is fully based on variable payments that depend on the future revenues generated from those customers over a period of 10 years. During 2019, the Group recognized a fair value gain of TCHF 3,300 (prior year: TCHF 2,281 gain). The most significant unobservable input used to determine the fair value of the CompuCom contingent consideration is the cash flow forecast, which is mainly based on future gross profit. The development of the future gross profit and the contingent consideration is linear. Thus, a change of +/– 10% in gross profit development leads to a change of cash outflow by +/– 10%, eg TCHF 1,495.

4.4 Transfer of financial assets

The Group enters into transactions in which it transfers trade receivables under factoring agreements and as a result may either be eligible to derecognize the transferred receivables in their entirety or must continue to recognize the transferred receivables to the extent of any continuing involvement, depending on certain criteria. These criteria are discussed in the section” Significant accounting policies”.

The amount of the receivables sold as at 31 December 2019 is TCHF 135,668 (prior year: TCHF 22,853). This amount is fully derecognized from the balance sheet.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates may differ from the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

5.1 Significant estimates

Income taxes (Note 10)

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes.

In particular, the deferred tax assets on unused tax losses require estimates of the amount and dates of future taxable income as well as the future tax planning strategies. If there is doubt that it will be possible to realize the unused tax losses, these are not recognized or impaired.

Contingent consideration liabilities related to business acquisitions and the acquisition of customer relationships (Note 16 and 20)

Contingent consideration liabilities reflect potential future payments following the acquisition of customer relationships and businesses. The calculation of the future payments is based on future cash flows. These future cash flows were estimated at initial recognition. These assumptions are reviewed at each reporting date and changes impact profit and loss.

Defined benefit obligations (Note 21)

The present value of the defined benefit obligations depends on actuarial assumptions including the discount rate. Any changes in these assumptions will impact the carrying amount of defined benefit obligations. Additional information is disclosed in Note 21.

Contingent liabilities and indemnification assets related to purchase price allocation of COMPAREX (Note 13 and 19)

COMPAREX has several ongoing dispute cases which could lead to future cash outflows. In the course of the purchase price allocation, those contingent liabilities were measured at fair value on the acquisition date and presented as provision. On each reporting date, such contingent liabilities are valued at the higher amount that would result in accordance with IAS 37 or the amount initially recognized. Part of the risks are covered through indemnity clauses. The resulting indemnification assets are measured at fair value on the acquisition date on the same basis as the indemnified liability.

5.2 Significant judgments

Investment in joint ventures (Note 17)

In 2019, SoftwareONE acquired 40% of IG Services SAS. Approval of the annual budget requires the unanimous consent of both shareholders and SoftwareONE has concluded that it has joint control over IG Services. The shareholders’ agreement includes a call option that can be exercised each year for a very limited period of time. The call option is not considered to be currently exercisable and therefore not to give control.

Revenue recognition – principal versus agent assessment in indirect business (Note 6)

For software license reselling arrangements bundled with consulting services (indirect business), the assessment whether the Group acts as a principal or an agent is judgmental and requires a weighting of the individual factors in reaching a conclusion. Management concluded that SoftwareONE is the principal with respect to such arrangements. Based on the assessment in accordance with IFRS 15, the specified service provided to the customer is the consulting service to which the software product is an input and, therefore, is not distinct within the context of the contract. Management concluded that SoftwareONE controls the specified service before it is transferred to the customer. This is evidenced by the fact that SoftwareONE is primarily responsible for fulfilling the promise to the customer as it ensures compatibility of software and customer requirements. Furthermore, the Group has discretion in establishing the price for the specified software license. To support this assessment, management has verified that its conclusion is in line with the Group’s peers in the software reseller sector. By contrast, in arrangements where SoftwareONE does not have control over the traded software license and does not perform any consulting services for the customer (ie direct business), it qualifies as an agent.

SoftwareONE generates its revenue from contracts with customers through the transfer of software (point in time), the delivery over time of solutions and services as well as other revenue (point in time).

For management purposes, SoftwareONE is organized by geographical areas. The below breakdown of revenue follows the regional clusters by the Group’s operating segments (refer to Note 30):

Revenue is broken down as follows:

SoftwareONE Group splits its software revenue between Microsoft indirect, Multivendor indirect and Microsoft direct. Multivendor represents all license transactions excluding Microsoft. Microsoft direct includes revenue from direct business in which SoftwareONE acts as an agent and recognizes revenue at the net amount.

Other personnel expenses include expenses for the MEP in an amount of TCHF 21,375 (prior year: TCHF 208), refer to Note 26.

Administrative expenses include TCHF 13,169 costs for the acquisition and integration of COMPAREX Group and TCHF 10,506 costs related to the IPO.

Due to the first-time adoption of IFRS 16, fixed leasing costs for non-current lease contracts were capitalized as right-of-use assets. Remaining costs for cars and offices relate to incidental costs (eg fuel, insurance, utilities) and costs for short-term leases.

Other finance income includes TCHF 38,946 from the valuation of an equity instrument (prior year: TCHF 848) and TCHF 2,510 income from the recharge of factoring costs to the customer (prior year: TCHF 10).  

Other finance expenses include TCHF 3,222 factoring expenses (prior year: TCHF 305).

The foreign exchange differences, net result 2019 excludes unrealized gains on derivatives designated as instruments to hedge foreign currency risks in the amount of TCHF 780 (prior year: TCHF 212) recognized in OCI and to be reclassified in future periods. In 2019, TCHF 684 (prior year: TCHF 1,340) have been reclassified to profit and loss (refer to Note 14).

Tax expenses comprise the following positions:

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

The Group’s expected average tax rate is the aggregate obtained by applying the expected tax rate for each individual jurisdiction to its respective result before taxes. The weighted average expected tax rate was 24.6% (prior year: 27.7%).

The position “capitalization of tax losses previously not recognized” includes TCHF 8,285 of previously not recognized tax losses carried forward from the COMPAREX acquisition.

The Group has not recognized deferred tax assets of TCHF 2,143 (prior year: TCHF 390) in respect of losses for the period ended 31 December 2019 amounting to TCHF 13,067 (prior year: TCHF 1,722).

The impact from tax rate changes is mainly related to tax rate change in Columbia.

Other effects in 2019 are mainly related to tax benefits on the taxable impairment on investments in subsidiaries which is partially offset by the write off on withholding tax receivables on Group internal transactions.

Deferred income tax

Deferred tax expense of TCHF 214 (prior year: TCHF 609) is recorded in other comprehensive income on actuarial losses on post-employment benefit obligations (Note 21) and on hedge accounting (Note 14).

Deferred tax assets and liabilities are based on the temporary differences between Group valuation and tax valuation:

For some Group companies, dividend payments are subject to a withholding tax which cannot be fully recovered in Switzerland. The Company has not recognized deferred tax liabilities associated with investments in subsidiaries where the Group can control the reversal of the temporary differences and where it is not probable that the temporary differences will reverse in the foreseeable future.

The aggregate amount of temporary differences associated with investments in subsidiaries for which no deferred tax liabilities have been recognized amounts to TCHF 37,083 (prior year: TCHF 26,519).

The movement of available tax loss carryforwards is as following:

Deferred tax assets of TCHF 12,368 (prior year: TCHF 2,742) were recorded in respect of available tax loss carryforwards of TCHF 49,651 (prior year: TCHF 9,493).

Tax losses, for which no deferred tax asset was recognized will expire as follows:

Trade receivables are non-interest-bearing and are generally on terms of 30 to 90 days.

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (ie, geographical region and customer rating, and coverage by letters of credit or other forms of credit insurance). The calculation reflects the probability-weighted outcome and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

The provision matrix is initially based on the Group’s historical observed default rates. The Group calibrates the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions (ie, gross domestic product) are expected to deteriorate over the next year which can lead to an increased number of defaults, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed.

The Group applies the expected credit loss model under IFRS 9 and reviews its receivables periodically to determine an adequate impairment provision. Loss allowances are recognized based on lifetime ECLs at the reporting date. The ageing of the receivables for the year 2019 and 2018 are as follows:

Movements on the Group provision for impairment of trade receivables are as follows:

Contract assets are initially recognized for revenue earned from multi-year contracts for which control of the software license was transferred upon commencement of the contract, but payment is not due and for services as receipt of consideration is conditional on successful completion of the service. Upon completion of the service and acceptance by the customer, the amounts recognized as contract assets are reclassified to trade receivables.

Other receivables mainly include VAT and other sales tax receivables.

Indemnification assets are related to the acquisition of COMPAREX Group. The underlying risks that have been classified as contingent liabilities are recorded as provisions (refer to Note 19).

In other current receivables an impairment of TCHF 670 is considered.

In 2019 and 2018 no ineffectiveness was recognized in the income statement.

As at 31 December 2019, there were no contractual commitments for the purchase of tangible assets and no impairment was required.

As at 31 December 2018, there were no contractual commitments for the purchase of tangible assets and no impairment was required.