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

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

These interim consolidated financial statements for the six months ended 30 June 2020 were authorized for issue by the Board of Directors on 15 September 2020.

Basis of presentation

The interim condensed consolidated financial statements for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 “Interim Financial Reporting”.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the group’s annual financial statements as at 31 December 2019 approved by the Board of Directors on 30 March 2020.

New standards, interpretations and amendments adopted by the group

The accounting policies applied in these interim condensed consolidated financial statements are the same as those applied in the group’s consolidated financial statements as at and for the year ended 31 December 2019 except for changes effective from 1 January 2020.

As at 1 January 2020, the following amendments to the International Financial Reporting Standards (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
• Amendments to References to the Conceptual Framework in IFRS Standards

These amendments do not have a significant impact on the group. SoftwareONE has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The IASB has issued amendments to IFRS 16: Leases related to Covid-19-Related Rent Concessions that will be adopted by 1 January 2021. The amendments are expected to have only a minor impact on the group.

Change in 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. 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. Management considers that this change leads to an improved presentation.

Accounting estimates and management judgements due to the COVID-19 pandemic

Accounting estimates and management judgements can affect the amounts and reporting of assets and liabilities and the amounts of income and expense reported for the period. Due to the currently unforeseeable global consequences of the COVID-19 pandemic, these accounting estimates and management judgements 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 30 June 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 consideration liabilities. SoftwareONE group has determined that no significant effects as a result of COVID-19 had to be recorded in these interim condensed consolidated financial statements.

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

Foreign currency translation

The following exchange rates were used:

Seasonality of operations

SoftwareONE group’s results are subject to significant seasonality effects. Total revenue peaks towards the end of the second quarter as a result of year-end campaigns by Microsoft, our most important software vendor, whose fiscal year ends on 30 June, and towards the end of the fourth quarter of the financial year, driven by the IT budget cycle of many of our customers.

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.

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

In connection with the acquisition, financial liabilities (TCHF 363) towards the old shareholders and others were assumed and paid by SoftwareONE.

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

As part of the purchase agreement, a contingent consideration arrangement was agreed that could result in additional cash payments to the previous owners of GorillaStack. The amount of the payments depends on the achievements of different development milestones within defined milestone periods from 2020 to 2022. The payments are contingent on continued employment and thus compensation for future service. They will therefore be accreted as personnel expenses during the period of service.

There were no significant transaction costs related to this acquisition.

From the date of acquisition, GorillaStack has contributed TCHF 24 to revenue and TCHF -32 to the profit for the year. If the acquisition would have taken place at the beginning of the year, total revenue of SoftwareONE group would have been TCHF 4,087,145 and the net profit for the period would have been TCHF 66,635 as at 30 June 2020.

Acquisitions in 2019

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. During the period to 30 June 2020, the group finalized the purchase accounting. 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 period to 30 June 2020, 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

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).

Reconciliation of carrying amount of goodwill

The change in carrying values for goodwill from 1 January 2020 to 30 June 2020 are set forth below:

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. Currency options are valued based on option pricing models using observable input data.

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

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

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

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

There have been no transfers between the different hierarchy levels between 1 January 2020 and 30 June 2020 nor between 1 January 2019 and 30 June 2019.

The following table discloses financial assets and liabilities measured at fair value:

Financial assets consist of an investment in listed equity instruments for which the group recognized a fair value gain of TCHF 13,314 in finance income in the period to 30 June 2020 (comparative period: TCHF 11,543).

The change in carrying values associated with “Level 3” contingent consideration liabilities from 31 December 2019 to 30 June 2020 are set forth below:

The most significant contingent consideration liabilities relate to the acquisition of the customer base of CompuCom in 2015 (fair value of TCHF 6,840). The purchase price is fully based on variable payments that depend on the future revenues generated from those customers over a period of 10 years. For the first half-year 2020, the group recognized a fair value gain of TCHF 6,929 in financial income (comparative period: TCHF 2,538). 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 liability is linear. Thus, a change of +/–10% in gross profit development leads to a change of cash outflow by +/– 10%.

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

For management purposes, SoftwareONE is organized by geographical areas. The below breakdown of revenue follows the regional clusters by the group’s operating segments (refer to Note 10). Revenue is broken down as follows:

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

Basic EPS is calculated by dividing the profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The dividend approved in 2020 was TCHF 32,460, or CHF 0.21 per share (prior year TCHF 25,300, or CHF 0.16 per share). The dividend was paid out of the capital contribution reserve of SoftwareONE Holding AG and thus deducted from share premium in these condensed interim consolidated financial statements.

In the first half-year 2020, SoftwareONE launched two new share-based payment programs in line with the long-term corporate strategy. These are the Free Share Grant and the Long-term Incentive Plan ("LTIP"). The objective of the programs is to support a business policy that is primarily oriented towards the interests of the shareholders by creating long-term increase in value through greater customer focus, employee satisfaction as well as enhanced passion, loyalty and retention of employees. In addition, arrangements that were launched in previous years, the Share-based Payment Plan and the Management Equity Plan ("MEP") exist.

Effective with the Annual General Meeting 2020, the remuneration of the Board of Directors is partially paid out in shares.

SoftwareONE recognized total share-based payment expenses of TCHF 12,534 for the six months to 30 June 2020. The following table discloses how the expenses are allocated to the existing share-based payment arrangements:

SoftwareONE has recognized an increase in equity in the balance sheet of TCHF 14,054 for share-based payment, of which TCHF 1,520 are related to tax effects.

Free Share Grant

The Free Share Grant provides all entitled SoftwareONE employees, except the Executive Board, the Executive Leadership Team and selected key employees, 100 bonus shares each and therefore represents a share-based remuneration with compensation through equity instruments. 

481,600 free shares were legally granted in July 2020 (refer to Note 11), however, employees started rendering services from 10 April 2020 in anticipation of the grant. 50% of the free shares granted vest over a service period of 16 months and the other 50% vest over a period of 28 months. There are no voting rights and no dividend claims until the end of the contractual vesting period.

Long-term Incentive Plan

The LTIP grants the Executive Board, the Executive Leadership Team and selected key employees so-called performance share unit (“PSU”) subscription rights.

The number of PSUs granted is determined by dividing the individual LTIP grant on the grant date by the fair value of one PSU, rounding up to the next whole PSU. Each PSU subscription right securitizes a right to receive shares depending on the development of the underlying vesting factor. The vesting factor depends 75% on a gross profit and 25% on a relative total shareholder return (“rTSR”). In both variables, the target factor is 1.00, while the minimum factor is 0.00 and the maximum factor is 2.00. The gross profit vesting factor depends on SoftwareONE’s gross profit during year three and is determined on a straight-line basis between the target ranges. The relative rTSR vesting factor depends on the TSR of the company and the TSR of the STOXX ® Global 1800 Industry Technology Index. A relative TSR of <= -33% leads to a vesting factor of 0 and a TSR >= 33% to a vesting factor of 2.0. The rTSR vesting factor distributes linearly between the target ranges. The award cycle (service period) is three years from the contractual grant date.

The PSUs granted under the LTIP were classified as an equity-settled share-based payment according to IFRS 2. The LTIP is valued using a Monte Carlo simulation.

SoftwareONE has taken into account the following parameters in the valuation:

The term of the PSUs granted in 2020 starts on 29 May 2020 (valuation date) and ends on 28 May 2023 (end of the vesting period). An average expected fluctuation of 0% p.a. for the Executive Board, 5.0% p.a. for the Executive Leadership Team including the regional leaders and 15% p.a. for the other beneficiaries has been applied as at 30 June 2020 based on historical fluctuation and management estimates.

Remuneration of Board of Directors partially paid in shares

Effective from the Annual General Meeting 2020, on 14 May 2020, the Board of Directors' fees are settled 60% in cash and 40% in SoftwareONE shares. The share part of the compensation is granted immediately after the Annual General Meeting and the election or re-election of the members of the Board of Directors. The Swiss franc amount is converted into shares at the closing price of the ex-date, the first date after the Annual General Meeting the shares are traded ex dividend (for 2020: 19 May 2020). The shares vest until the next Annual General Meeting and afterwards are subject to transfer restrictions of three years.

On 30 June 2020, 29,091 shares were granted at a fair value of CHF 19.66 per share.

As an internationally operating group, SoftwareONE is exposed to contingencies in respect of legal and tax claims in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities.

In 2016, the Federal Revenue Office in São José dos Campos (“DRF/SJC”) issued an Infraction Notice against SoftwareONE Brazil for the fiscal year 2012, levying alleged debts related to sales tax contributions (“PIS/COFINS”), charging the difference between the non-cumulative system (9.25%) and the cumulative system (3.65%). As expected, in July 2017, the administrative appeal against this Infraction Notice was rejected. Nevertheless, SoftwareONE Brazil and SoftwareONE group are still of the opinion that the cumulative system was and still is correctly applied, in line with industry standard and is defending its position with the support of third-party lawyers. Thus, SoftwareONE Brazil has filed a further appeal before the Administrative Tax Appeal Court (“CARF”). Neither the amount under dispute nor the probability of the outcome of the dispute can be reliably predicted at this stage.

In 2019, the National Tax Administration Superintendence (SUNAT) in Lima issued an Infraction Notice against SoftwareONE Peru for the fiscal year 2016, levying alleged debts related to withholding taxes (“Impuesto a la Renta de no Domiciliados” – IRND), charging the not contributed withholding taxes related to Software Assurance for payments made abroad. According to Resolution 042-2014-SUNAT/5D0000 from 2014, licensing purchased abroad are not subject to withholding taxes whereas services are subject to withholding tax contribution. As expected, in June 2020, the administrative tax appeal (2nd SUNAT instance) against this Infraction Notice was rejected. Nevertheless, SoftwareONE Peru and the group are still of the opinion that the non-contribution of withholding taxes was and still is correctly applied as Software Assurance is defined as licensing and not services in line with the industry standard and is defending its position with the support of third-party lawyers. Thus, SoftwareONE Peru filed a further appeal before the Administrative Tax Appeal Court in July 2020. The probability of the outcome of the dispute cannot be reliably predicted at this stage.

For management purposes, the group is organized by geographical areas. The following regional clusters are the group’s operating segments:

• EMEA (Europe and South Africa)
• NORAM (USA, Canada)
• LATAM (Latin America)
• APAC (Asia Pacific, including India and Dubai)

No operating segments have been aggregated to reportable segments.

The Executive Board (CEO, CFO, COO and President of Sales) is the Chief Operating Decision Maker (CODM) and assesses each of the reported segments separately for the purpose of evaluating performance and allocating resources. Gross profit and EBITDA are the key performance indicators used for internal management and monitoring purposes of the group and are reported as segment results. The group allocates revenue and expenses to regions based on its customers’ head quarter domicile since this region is responsible for the global client relationship with a particular customer. There are no intersegment revenues. Different average exchange rates are used in management reporting than for group consolidation purposes.

The group’s financing (including finance income and finance costs) and income taxes are managed on a group basis and are not allocated to the operating segments.

The segment totals are reconciled to the figures reported in the interim condensed consolidated income statement (column “Total”) as follows:

The column “Corporate” includes the group cost centers such as management and shared services costs. The column “FX” eliminates the effect of using differing average foreign exchange rates in the segment reporting and the column “Other” includes other reconciling items that are not allocated to the segments and corporate in internal reporting.

For the six months ended 30 June 2020

For the six months ended 30 June 2019

For the six-month period 2020, the most relevant reconciliation items in the column “Other” were reclassifications of revenue for indirect rebates (TCHF 33,980), which are presented within cost of software purchased in the internal reporting, and costs in relation to bad debt provisions (TCHF 5,966), which are presented within gross profit in the internal reporting. Additional reconciliation items were costs for share-based payments (TCHF 12,534) and positive effects from the application of IFRS 16 (TCHF 8,481), which are not considered in the internal reporting. All other reconciliation items were minor.

Switzerland, the US, Germany and the Netherlands are the main geographical markets for SoftwareONE and represent approximately 55% of total revenue:

Additional geographical information

No transactions with one single external customer exceed 10% of consolidated revenue of the group.

From the balance sheet date until the interim consolidated financial statements were approved by the Board of Directors on 15 September 2020, the following significant events occurred:

Acquisitions

On 10 July 2020, the group acquired 100% of the shares of B-Lay B.V., the Netherlands (“B-Lay”), a leading provider of software asset management advisory and managed services for SAP and Oracle solutions with subsidiaries in the US and Romania. An amount of TCHF 2,140 was paid in cash. As part of the purchase agreement, a contingent consideration arrangement was agreed that could result in additional cash payments to the previous owners of B-Lay. The amount of the payments depends on EBITDA development for 2021 to 2023 and a multiplier derived from other variables. SoftwareONE did not finalize the provisional purchase price allocation at the time of preparing the interim condensed consolidated financial statements.

Free Share Grant

On 31 July 2020, 481,600 free shares were granted at a fair value of CHF 23.40 per share.

Employee Share Purchase Plan

The program allows eligible SoftwareONE employees to participate in a sponsored ESPP. All permanent SoftwareONE employees, including part-time employees, are entitled to participate. Participants are able to make periodic contributions to acquire investment shares at the respective market price over a purchase period, which will generally be one year. At the end of the purchase period, participants receive free matching shares based on the number of investment shares bought during the purchase period and held until the end of the purchase period. For every four investment shares acquired, SoftwareONE grants each employee one matching share free of charge. The matching shares granted represent an equity-settled share-based payment and are recognized over a service period ending 12 months after the purchase period.

On 7 August 2020, 19,201 matching shares were granted at a fair value of CHF 23.85 per share.