Annual Report 2021

2 Summary of significant accounting policies

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 2021, the following amendments to IFRS entered into force:

• IFRS 9/IAS 39/IFRS 7/IFRS 4/IFRS 16: Interest Rate Benchmark Reform, Phase 2
• IFRS 16: Leases: Leases: COVID-19 Related Rent Concessions beyond 30 June 2021 – 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 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 including Deferral of Effective Date – adoption by 1 January 2023
• IAS 1: Presentation of Financial Statements: Disclosure of Accounting Policies – adoption by 1 January 2023
• IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates – adoption by 1 January 2023
• IAS 12: Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction – 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 accounting policies

When another party is involved in providing goods or services to a customer, the group determines whether the nature of its promise is a performance obligation to provide the specified good or service itself (the group is a principal) or to arrange for another party to provide that good or service (the group acts as an agent). Principal vs. agent assessments depend on the specific facts and circumstances and can be very complex and judgmental. As an approved value-added software reseller the group provides consulting services to end customers and advises them on the selection of the suitable end-to-end software or cloud technology solutions (indirect business). In the past SoftwareONE recognized revenue from contracts in this indirect business as a principal on a gross basis as the software license was considered an input into a combined service controlled by the group. Consequently, the transaction price received from the customer was recognized as ‘Revenue from Software & Cloud’ and the corresponding expense as ‘Cost of software purchased’.

In November 2021, the IFRS Interpretations Committee (IFRS IC) discussed a staff paper and subsequently issued a tentative agenda decision in December 2021 on ‘Principal versus Agent: Software Reseller (IFRS 15)’. In the fact pattern submitted to the IFRS IC the software reseller provides pre-sales advice under a distribution agreement between the software manufacturer and the reseller to the end customer prior to the end customer purchasing standard software licenses. The IFRS IC clarified that such pre-sales advice is not an implicit promise in a contract with a customer. At the time of entering into a contract with the customer, the reseller has already provided the advice. There is no further advice to be provided by the reseller and the advice already provided will not be transferred to the customer after contract inception. Accordingly, the IFRS IC tentatively concluded that, in the fact pattern described in the request, the promised goods in the reseller’s contract with the customer are the standard software licenses. Consequently, the software licenses are the only promised goods in the contract and subject to the assessment whether the software reseller is principal or agent in this transaction.

The IFRS IC has only issued a tentative agenda decision and the wording of a final agenda decision may change as a result of feedback received following due process. The staff’s analysis regarding the identification of the specified goods or services was supported by the IFRS IC and confirmed in its tentative agenda decision. In view of these clarifications, management decided to reassess whether the group acts as a principal or an agent for transactions in the indirect business based on a control assessment of the standard software license as the promised goods rather than in combination with an implied promise of providing a service. Management concluded that SoftwareONE does not control the software licenses from the third-party software providers before they are transferred to the customer and therefore acts as an agent for transactions in the indirect business. Consequently, the group has revised its accounting policy for the indirect business. With respect to the direct business there is no change in accounting as these transactions have already been reported on a net basis. For more information on revenue recognition in the indirect and direct business, refer to the revised revenue recognition policy.

SoftwareONE is still assessing whether there are any other potential effects of the clarification by the IFRS IC on its revenue contracts. Given that the IFRS IC has not yet finalized the agenda decision, there may be further changes. In accordance with the IFRS Foundation’s Due Process Handbook an entity is allowed sufficient time to implement any necessary changes following an IFRS IC agenda decision.

As an agent, SoftwareONE recognizes revenue in the net amount that the group is entitled to retain in return for its agent services and end customer invoicing to the software provider, ie, the difference between the consideration received from the customer and cost of software purchased.

For further details on the principal vs. agent assessment, please refer to the section 5.2 Significant judgments.

The comparative period 2020, in which SoftwareONE reported revenue from Software & Cloud (indirect business only) as a principal and therefore as a gross amount in the consolidated income statement, is adjusted. The result of the change in accounting policies for the comparative period is shown in the following table:

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 consideration transferred in 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. Contingent considerations to selling shareholders who become employees and for which payments are automatically forfeited if employment terminates, are not part of the consideration transferred and are accounted as remuneration. 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 the 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 those 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). These 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 for the period in which they are incurred.

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

• Land is not depreciated. 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. If the reason for a previously recognized impairment loss no longer applies, the impairment loss is reversed to the recoverable amount.

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.

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, 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 expenses 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 recognized as remuneration and accrued amounts presented as earn-out 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 comprise revenue from the sale of Software & Cloud products as well as the sale of Solutions & Services. Revenue from contracts with customers is recognized 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. The normal credit term is 30 to 90 days upon delivery.

Revenue from Software & Cloud

SoftwareONE enters into contracts with end customers to sell Software & Cloud products of several third-party software providers. Below, software is used as a synonym for Software & Cloud. A distinction is made between two types of software selling arrangements:

• Direct business: As a ‘software advisor’, the group’s obligation in these arrangements is only to arrange for another entity to provide the software license to the end customer. Thus, the performance obligation consists of establishing the business relationship between the software provider and the end customer. When the software is provided to the end customer, SoftwareONE is entitled to receive an agency commission from the software provider and recognizes revenue at this point of time. Hence, SoftwareONE acts as an agent and recognizes revenue at the amount that it retains from its agency services.
• Indirect business: As a ‘value added reseller’, the group provides pre-sales consulting services to end customers and advises them on the selection of the appropriate end-to-end software or cloud technology solution. SoftwareONE is in the contractual relationship between the third-party software provider and the end customer and is commissioned to place orders and manage customer purchases on behalf of the end customer. Even if SoftwareONE provides pre-sales services in connection with the sale of the software licenses to its end customers, the group is not primarily responsible for fulfilling the promise to provide the software or cloud solution. Primary responsibility to provide the products lies with the third-party software provider, while SoftwareONE provides the access to the software license or manages cloud subscriptions. SoftwareONE invoices the end customer and receives the considerations from the end customer. SoftwareONE concluded that it does not control the software from the third-party software providers before they are transferred to the end customer and therefore acts as an agent in these arrangements. Revenue is recognized at the point in time when the access to the software license is transferred to the end customer, generally on delivery of the product key or with signing the contract in the volume license business. The group recognizes revenue in the net amount in the consolidated financial statements, ie, the difference between the consideration received from the end customer and cost of software purchased. For further details on the principal vs. agent assessment, please refer to the section 5.2 Significant judgements.

The group also enters into non-cancellable multi-year licensing contracts with customers. In such contracts, SoftwareONE recognizes revenue at the net amount when it provides access to the software license to the end customer 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 net of the related costs of purchasing the software); and a loan component (for the effect of the deferred payment terms). Interest income on the loan finance component is calculated based on the rate that would be reflected in a separate financing transaction between the group and the end 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 provision access to the software license to the customer and the receipt of the consideration from the end customer 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 generally recognized over time as the customer simultaneously receives and consumes the benefits provided. SoftwareONE uses an input method based on costs incurred to measure progress towards the stage of completion of the service. The group determined that the input method based on costs incurred in relation to total expected costs 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 the service to the customer. In addition, in cases where the group provides standardized services (ie managed services), revenue is recognized pro rata over the term of the contract. Payment is due 30 days after the solutions and services have been performed. As a rule, services are priced separately. If this is not the case, the transaction prices are allocated on the basis of the relative individual selling prices.

Revenue from self-developed on-premise software is recognized at the point in time when control of the license is transferred to the customer. Such contracts and related revenues exist only to a limited extent.

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 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 2021 and 2020 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 of obtaining 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 expenses 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 19 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 expenses on a straight-line basis over the lease term.