Half-Year Report 2021

4 Financial instruments and fair values

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 2021 and 30 June 2021, nor between 1 January 2020 and 30 June 2020.

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 420 in finance income in the period to 30 June 2021 (comparative period: TCHF 13,314).

The change in carrying values associated with ‘Level 3’ contingent consideration liabilities from 31 December 2020 to 30 June 2021 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 30 June 2021: TCHF 5,892; comparative period: TCHF 6,266)

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. 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%.

Intelligence Partner (fair value as at 30 June 2021: TCHF 3,455; comparative period: TCHF 3,417)

The contingent consideration liability of Intelligence Partner depends on the future EBITDA over 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.