SoftwareONE Holding AG ('the company') and its wholly-owned subsidiaries (together ‘the group’ or ‘SoftwareONE’) is a leading global provider of end-to-end software and cloud technology solutions. With capabilities across the entire value chain, it helps companies design and implement their technology strategy, buy the right software and cloud solutions at the right price, and manage and optimize their software estate.

The company is incorporated and domiciled in Stans, Switzerland. The address of its registered office is Riedenmatt 4, 6370 Stans. SoftwareONE Holding AG is traded 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 24 March 2021 and are subject to approval by the Annual General Meeting to be held on 20 May 2021.

SoftwareONE Holding AG’s consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (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

As at 1 January 2020, the following amendments to IFRS entered into force:

• IFRS 3: Business Combinations: Definition of a Business
• IAS 1 and IAS 8: Presentation of Financial Statements and Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Material
• IFRS 9/IAS 39/IFRS 7: Interest Rate Benchmark Reform, Phase 1
  
• Amendments to References to the Conceptual Framework in IFRS Standards
• IFRS 16: Leases: COVID-19 Related Rent Concessions – early adopted by SoftwareONE

These amendments did not have a significant effect on the group’s consolidated financial statements. SoftwareONE has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

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 listed below:

• IFRS 9/IAS 39/IFRS 7/IFRS 4/IFRS 16: Interest Rate Benchmark Reform, Phase 2 – adoption by 1 January 2021
• IFRS 3: Business Combinations: References to the Conceptual Framework – adoption by 1 January 2022
• IAS 37: Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts, Costs of Fulfilling a Contract – adoption by 1 January 2022
• IAS 16: Property, Plant and Equipment: Proceeds before Intended Use – adoption by 1 January 2022
• Annual Improvements Project 2018-2020: Changes to IFRS 1, IFRS 9, IFRS 16, IAS 41 – adoption by 1 January 2022
• IAS 1: Presentation of Financial Statements: Classifications of Liabilities as Current or Non-Current – adoption by 1 January 2023

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.

Change in presentation

SoftwareONE reviews the presentation of financial reporting for comprehensibility and transparency on an ongoing basis. Management considers that the following changes lead to an improved presentation.

Compared to the previous year, trade receivables also include receivables with an unconditional right to payment, which were reported under contract assets in the previous year. The comparative figures for trade receivables were increased by TCHF 181,696 and contract assets were reduced by the same amount. In the consolidated statement of cash flows, the change in trade receivables has decreased by the amount, while change in other receivables, prepayments and contract assets has increased.

Additionally, trade payables also include liabilities to software vendors for incoming invoices not yet received, which were reported under accrued expenses in the previous year. The comparative figures for trade payables were increased by TCHF 477,863 and accrued expenses were reduced by the same amount. In the consolidated statement of cash flows the change in trade and other payables has increased by the amount, while change in accrued expenses and contract liabilities has decreased.

Compared to previous year, revenue from Software & Cloud include revenue from sale of hardware presented as other revenue in the previous year. The comparative figures for revenue from Software & Cloud were increased by TCHF 17,601.

Additionally, non-current trade payables for multiyear contracts, which were reported as long-term supplier liabilities under non-current financial liabilities in the previous year, are included in non-current other payables. The comparative figures for non-current other payables were increased by TCHF 19,184 and non-current financial liabilities were reduced by the same amount.

Furthermore, changes were made in the consolidated statement of cash flows for the presentation of foreign currency effects on changes in net working capital and changes in provisions. Foreign currency effects on changes in net working capital, which are directly allocated to the related net working capital item, are no longer presented in a separate line item. The comparative figures were adjusted for change in trade receivable (TCHF 27,326), change in other receivables, prepayments and contract assets (TCHF 5,095), change in trade and other payables (TCHF -16,554), change in accrued expenses and contract liabilities (TCHF -12,833) and foreign currency effects on changes in net working capital (TCHF -3,033). Changes in provisions are presented in a separate line item. The comparative figures were adjusted for change in provisions (TCHF -309) and other non-cash items (TCHF 309).

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 finance result 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.

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 36 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 10 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.

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 and business plan 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 are presented in personnel expenses. Interest costs and interest on plan assets are netted in finance costs.

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 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 cloud products as well as sale of solutions and services. Revenue from contracts with customers is recognized either when the performance obligation in the contract has been satisfied 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.

Revenue from Software & Cloud

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

SoftwareONE distinguishes between 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 the section ‘Significant judgements’. 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 & Services

SoftwareONE provides a wide range of technology consulting services but also delivers self-developed on-premise software.

Revenue from technology consulting 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.

Revenue from self-developed on-premise software is recognized at the point in time control of the license is transferred to the customer.

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 2020 and 2019 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. Lease liabilities are included in the financial liabilities (refer to Note 20 Financial liabilities).

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 2020

On 20 May 2020, the group acquired 100% of GorillaStack Pty Ltd., Australia (‘GorillaStack’), a provider of cloud cost management and real-time event monitoring software as a service (SaaS) platform for Amazon Web Services (AWS). This acquisition adds capabilities within automation and security for the cloud, thereby accelerating its roadmap towards an innovative cloud management platform.

On 10 July 2020, SoftwareONE acquired 100% of B-Lay B.V., Netherlands (‘B-Lay’), with subsidiaries in the US and Romania. B-Lay is a leading provider of Software Asset Management (SAM) advisory and managed services for SAP and Oracle solutions. The transaction will further strengthen SoftwareONE’s market-leading Software Lifecycle Management (SLM) and SAM practice in Europe, adding significant know-how and delivery capabilities.

On 9 November 2020, SoftwareONE exercised a call option to acquire the remaining 60% of IG Services SAS, Columbia (‘InterGrupo’), following its initial investment of 40% in 2019.

On 30 December 2020, the group acquired the activities and assets of Optimum Consulting LLC, US (‘Optimum’), by way of an asset deal. Optimum is a SAP-certified technology consulting company that provides solutions and managed services for customers seeking to migrate and efficiently run their SAP environment in the public cloud. With operations in India, Optimum provides comprehensive SAP-related services and solutions mainly to US customers, some of which with global operations.

On 31 December 2020, SoftwareONE acquired 100% of Intelligence Partner SL, Spain (‘Intelligence Partner’), with subsidiaries in Brazil and Dubai. Intelligence Partner offers the complete portfolio of Google Cloud products, along with related consulting, migration and managed services. The acquisition significantly expands SoftwareONE’s Google Cloud capabilities, strengthening its ability to serve customers with multi-cloud strategies in Europe and beyond.

The purchase price allocation for all business combinations is still provisional as at 31 December 2020.

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

Acquisition of InterGrupo

With the exercise of the call option to acquire the remaining 60% of the shares, SoftwareONE obtained control over InterGrupo. A fair value remeasurement of the shares acquired in 2019 was carried out, which resulted in a fair value of TCHF 13,428 immediately before the acquisition date. The purchase price of TCHF 20,142 for the acquisition of the remaining 60% was paid in January 2021.

The goodwill recognized is primarily attributed to the workforce and the expected synergies and other benefits from combining the activities of InterGrupo with those of the group. The goodwill is not deductible for income tax purposes. There were no significant transaction costs related to this acquisition.

From the date of acquisition, InterGrupo has contributed TCHF 5,459 of revenue and TCHF 301 to the profit for the year.

Acquisition of Intelligence Partner

The goodwill recognized is primarily attributed to the expected synergies and other benefits from combining the assets and activities of Intelligence Partner with those of the group. The goodwill is not deductible for income tax purposes. Transaction costs of TCHF 162 are related to this acquisition.

As part of the purchase agreement, a contingent consideration arrangement was agreed that could result in additional cash payments to the previous shareholders of Intelligence Partner. An expected earn-out amount of TCHF 4,177 is related to a continuing employment of the selling shareholders and is recognized as personnel expense over the service period of three years and thus not part of the purchase price. For details regarding such earn-out arrangements, refer to Note 19 Provisions. An expected earn-out amount of TCHF 3,417 payable to selling shareholders without continuing employment is part of the purchase price and recognized as a financial liability. For details refer to Note 4.3 Categories of financial instruments and fair value estimation.

Other acquisitions

The purchase price paid for the acquisition of Optimum (TCHF 2,648) mainly relates to the skilled workforce and, therefore, represents goodwill. Transaction costs of TCHF 248 are related to this acquisition. Transaction costs of TCHF 210 are related to the acquisition of B-Lay. For details regarding contingent consideration arrangements, refer to Note 19 Provisions.

If all acquisitions would have taken place at the beginning of the year, total revenue of SoftwareONE group would have been TCHF 7,957,141 and net profit for the period would have been TCHF 178,814.

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

Cash flows on acquisitions

In addition to the subsequent purchase price adjustment for BNW, the contingent consideration liability for the acquisition of
COMPAREX group in 2019 was paid in January 2020 (TCHF 32,601).

Acquisitions in 2019

On 31 January 2019, SoftwareONE 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. The contingent consideration liability of TCHF 32,601 was paid in January 2020.

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

On 19 November 2019, the group acquired 100% of the shares of BNW Consulting Pty Ltd., Australia ('BNW'), a growing technology and cloud consulting company based in Australia and the US, specializing in services around SAP platform transformation. In January 2020, a subsequent purchase price adjustment of TCHF 124 was made, which led to an increase in goodwill of TCHF 124 to TCHF 6,113. There were no other changes in the final fair values of acquired assets and liabilities compared to the provisional amounts disclosed in the Annual Report 2019.

On 30 April 2019, the group acquired 100% of the shares of RightCloud Pte. Ltd., a cloud-based service provider based in Singapore. On
31 October 2019, the group acquired all customer contracts and the workforce of MassiveR&D K.K., a Tokyo-based Amazon Web Services (AWS) specialist. 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 2019.

Cash flows on acquisitions 2019

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 a policy approved by the Board of Directors. Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the group’s operating entities. 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 recognized assets and liabilities and future commercial transactions 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.

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 pre-tax earnings of TCHF +/– 14,194 (prior year: TCHF +/– 5,761).

Credit risk

Group Treasury and the group Credit & Collection Department are 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. 47% of trade receivables are covered through credit insurance (prior year: 39%).

The remaining part is not insured as one of the following:

• From customers with top rating (based on internal and credit insurance assessment): 20% (prior year: 35%)
• Too small to be insured: 3% (prior year: 1%)
• No insurance available: 30% (prior year: 25%)

Refer to Note 12 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.

The table below analyzes the group’s non-derivative financial liabilities and derivative financial liabilities according to 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 group maintains a CHF 470 million multiple currency revolving credit facility. The agreement was signed in 2019. In 2020, SoftwareONE exercised the option to increase the initial facility (CHF 400 million) by CHF 70 million. Additionally, the tenor of the facility was extended from 30 September 2022 to 30 September 2023. The facility contains one remaining extension option (which can be exercised with consent of the lending banks in September 2021), which could extend the maturity of the credit facility by another year to 30 September 2024. 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 2020, 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 is subject to loan covenants (leverage ratio: net debt/earnings before net financial items, taxes, depreciation and amortization). A potential breach of covenant triggers measures which are standard in such circumstances. Under the agreement, the covenants are monitored on a regular basis by the treasury department and half yearly reported to management and lending banks to ensure compliance with the agreement. Transaction costs of TCHF 1,330 were capitalized in 2019 and amortized pro rata over the commitment period.

As at 31 December 2020, the group had total committed and uncommitted credit lines (including factoring) of TCHF 998,062 (prior year: TCHF 985,089) available, of which 21% (prior year: 22%) drawn. From the drawn amount, TCHF 47,737 are covered by financial covenants, which are completely fulfilled as at 31 December 2020 (prior year: TCHF 74,457).

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 abovementioned 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 2020 and the prior year were as follows:

The equity ratio for 2020 increased slightly compared to the previous year, which is mainly due to the net income for the period.

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 84,197 in finance income in 2020 (prior year: gain of TCHF 38,946).

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 12 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 basis of input factors observed directly or indirectly on the market. The fair value of foreign exchange forward contracts is based on forward exchange rates.

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 2020 and 2019.

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 the customer base of CompuCom and the acquisition of Intelligence Partner.

CompuCom (fair value as at 31 December 2020: TCHF 6,266; prior year: 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 2020, the group recognized an unrealized fair value gain of TCHF 5,904 (prior year: TCHF 3,300 gain). Consequently, an impairment of the customer base of TCHF 4,655 was recognized. 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 0,627 (prior year: TCHF +/– 1,495).

Intelligence Partner (fair value as at 31 December 2020: TCHF 3,417)
The contingent consideration liability of Intelligance Partner depends on the future EBITDAs about the next three years and an additional 'catch-up' year if necessary. The development of the future EBITDAs and the contingent consideration is not linear and capped at a maximum of TEUR 3,150. SoftwareONE estimates that the maximum amount will be paid.

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 presented in the section 'Significant accounting policies’.

The amount of the receivables sold as at 31 December 2020 is TCHF 151,619 (prior year: TCHF 135,668). This amount is fully derecognized from the balance sheet. Moreover, liabilities to factoring partners for forwarding incoming payments from customers of TCHF 5,210 (previous year: TCHF 0) are recognized under financial liabilities.

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 the group expects not 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 4.3, 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 Defined benefit liabilities.

Contingent liabilities and indemnification assets related to purchase price allocations (Note 13 and 19)

COMPAREX, acquired in 2019, has several ongoing dispute cases which could lead to future cash outflows. Occasional dispute cases also exist for InterGrupo and Intelligence Partner acquired in 2020. 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

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.

5.3 Impact of the COVID-19 pandemic

Due to the currently unforeseeable global consequences of the COVID-19 pandemic, accounting estimates and management judgments are subject to increased uncertainty. On the basis of the information available in the reporting period, an analysis of the effects on the accounting of SoftwareONE group was carried out as at 31 December 2020, in particular with respect to expected credit losses on trade receivables and contract assets, impairment indicators for tangible and intangible assets and fair values of contingent consideration liabilities. SoftwareONE group has determined that no significant effects as a result of COVID-19 had to be recorded in these consolidated financial statements.

SoftwareONE group will continuously review the possible effects on accounting with respect to further developments of the COVID-19 pandemic.

SoftwareONE generates its revenue from contracts with customers through the sale of software & Cloud (point in time), the delivery over time of Solutions & Services as well as revenue related to the resale of sale or self-developed on-premise software (point in time, presented in Solutions & Services).

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 29 Segment reporting.

Revenue is broken down as follows:

SoftwareONE group splits its revenue from Software & Cloud between Microsoft indirect, Multivendor indirect and Microsoft direct. Multivendor represents all license transactions excluding Microsoft. Microsoft indirect and Multivendor indirect includes revenue from indirect business in which SoftwareONE acts as a principal, whereas Microsoft direct includes revenue from direct business in which SoftwareONE acts as an agent.

Other personnel expenses include expenses for the Management Equity Plan in an amount of TCHF 19,964 (prior year: TCHF 21,375) and other share-based payment programs in an amount of TCHF 5,302 (prior year: TCHF 445), refer to Note 26 Share-based payments.

The decrease in other operating expenses of TCHF 28,704 is related to a reduction in travel expenses (TCHF 16,442) due to the impact of COVID-19. In 2019, one-time costs related to the IPO (TCHF 10,506) were included in other operating expenses.

Other finance income includes TCHF 84,197 from the valuation of equity instruments (prior year: TCHF 38,946) and TCHF 2,136 income from significant finance components (prior year: TCHF 2,510).

Other finance expenses include TCHF 2,658 factoring expenses (prior year: TCHF 3,222).

The foreign exchange differences, net result 2020 excludes unrealized losses on derivatives designated as instruments to hedge foreign currency risks in the amount of TCHF 41 (prior year: unrealized gains of TCHF 780) recognized in OCI and to be reclassified in future periods. In 2020, losses of TCHF 971 (prior year: gains of TCHF 684) have been reclassified to profit and loss, refer to Note 14 Derivative financial instruments. In addition, the cumulative foreign exchange losses recognized in other comprehensive income of TCHF 1,168 for the investment in joint venture InterGrupo were recycled to foreign exchange differences when the call option to acquire the remaining 60% was exercised.

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 21.3% (prior year: 24.6%).

The group has not recognized deferred tax assets of TCHF 1,887 (prior year: TCHF 2,143) in respect of losses for the period ended 31 December 2020 amounting to TCHF 9,466 (prior year: TCHF 13,067).

The impact from tax rate changes compared to 2019 is mainly related to tax rate change in Switzerland and Colombia.

Other effects in 2020 are mainly related to withholding taxes on intercompany transactions. Other effects in 2019 are mainly related to tax benefits on the taxable impairment on investments in subsidiaries which was partially offset by the write-off on withholding tax receivables on group internal transactions. 

Deferred income tax

Deferred tax income of TCHF 705 (prior year: expense TCHF 214) is recorded in other comprehensive income on actuarial losses on defined benefit liabilities and on hedge accounting, refer to Note 21 and 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 46,357 (prior year: TCHF 37,083).

The movement of available tax loss carryforwards is as follows:

Tax losses carried forward as of 31 December 2020 include tax losses in the amount of TCHF 92,161 (no expiry date) originating from the Austrian permanent establishment of COMPAREX AG in Germany. In 2019, the Austrian permanent establishment of COMPAREX AG was dissolved. It is legally uncertain if these tax losses carried forward were transferred to the head office and therefore no deferred tax asset was recognized.

Deferred tax assets of TCHF 8,987 (prior year: TCHF 12,368) were recorded in respect of available tax loss carryforwards of TCHF 37,494 (prior year: TCHF 49,651).

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 aging of the receivables for the year 2020 and 2019 are as follows:

Movements on the group’s provision for impairment of trade receivables are as follows:

Contract assets are initially recognized 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 in the amount of TCHF 5,591 (prior year: TCHF 12,446) and Intelligence Partner (TCHF 469). In 2020, the group received payments in an amount of TCHF 4,724 from the previous shareholder of COMPAREX group. The underlying risks that have been classified as contingent liabilities are recorded as provisions, refer to Note 19 Provisions.

In other current receivables an impairment of TCHF 577 is considered (prior year: TCHF 670).

In 2020 and 2019, no ineffectiveness was recognized in the income statement.

As at 31 December 2020, there were no contractual commitments for the purchase of tangible assets and no impairment was required.

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