1. Significant accounting policies

Aduno Holding AG (Aduno Holding or Company) is a company domiciled in Zurich (Switzerland). The consolidated financial statements of the Company for the year ended 31 December 2018 comprise Aduno Holding and its subsidiaries (together referred to as the Group).

Aduno Holding and its subsidiaries offer financial services in the business field of cashless payment solutions and consumer finance services.

The subsidiary Viseca Card Services SA (Viseca) operates services for cashless payments. Viseca issues credit cards (Issuing) under the brand of the card schemes (schemes) Mastercard and Visa to private and business consumers for Swiss retail banks, several co-branding partners and on its own account, and operates all relevant customer service activities. As at 1 October 2018 the Group increased its stake in Accarda AG (Accarda) to 100%. Accarda operates in the field of loyalty cards with payment function. The subsidiary cashgate AG (cashgate) offers consumer finance facilities to private and corporate customers in the Swiss marketplace. The subsidiary Aduno Finance AG (Aduno Finance) acts as centralised treasury operator. The subsidiaries Vibbek AG as well as Vibbek GmbH develope software solutions for card terminals. They were sold as per 5 December 2018. The subsidiary AdunoKaution AG (AdunoKaution) and the subsidiary SmartCaution SA (SmartCaution) offer rental guarantees to their customers. They were merged into cashgate as per 1 July 2018. The subsidiary Contovista AG (Contovista) developes software for Finance Management as well as Analystics and distributes it to banks.

Basis of preparation

The consolidated financial statements were approved by the Board of Directors on 11 April 2019 and will be submitted for final approval by the general meeting on 27 May 2019.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. The consolidated financial statements are presented in Swiss francs, which is the Company’s functional currency. All financial information presented in Swiss francs has been rounded to the nearest thousand, except when otherwise indicated. As a result, rounding differences may appear.

The consolidated financial statements are prepared on the historical cost basis, except for derivative financial instruments which are stated at their fair value. Methods to determine fair values are further discussed in note 33 “Financial risk management”.

Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests, even if the results in the non-controlling interests have a deficit balance.

Use of estimates and judgements

The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in the following notes:

  • Note 12 – Income tax expenses
  • Note 15 – Receivables from Payment business (e.g. expected credit loss and recoverability)

  • Note 16 – Receivables from Consumer Finance (e.g. expected credit loss and recoverability)
  • Note 18 – Other receivables (e.g. expected credit loss and recoverability) 
  • Note 21 – Goodwill and other intangible assets (e.g. measurement of recoverable amounts of CGUs)
  • Note 31 – Contingent liabilities (e.g. counterparty credit risk of internet transactions)

Consolidation of subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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. The financial statements of the subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

For each business combination, the Group elects to measure any non-controlling interests in the acquiree at acquisition date at their proportionate share of the acquiree’s identifiable net assets, which are generally at fair value.

Investments in associates

Associates are those entities, in which the Group has significant influence, but not control, over the financial and operating policies. Investments in associates are accounted for using the equity method and are recognised initially at fair value.

The Group’s share of the net income or loss of the associates is reflected in profit or loss.

Eliminations

Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency using the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency using the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation of monetary items are recognised in profit and loss. Foreign currency effects on non-monetary items are recognised according to the fair value changes.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into CHF using exchange rates at year end. The income and expenses of foreign operations are translated to CHF using average exchange rates.

The following significant exchange rates applied:

CHF

Average 2018

Average 2017

Year end 2018

Year end 2017

EUR 1

1.1619

1.1269

1.1373

1.1808

USD 1

0.9869

0.9926

0.9943

0.9883

GBP 1

1.3105

1.2884

1.2616

1.3298

Revenue

Revenue comprises commission income, annual fee income, interest income and other income. Commission income and other income are recognised transaction-based as they occur. Annual fees are recognised on a straight-line basis over the duration of the service commitment and deferred accordingly. The commission income consists of transaction-based charges billed to customers of all business segments. Interest income includes interest earned from short-term loans granted to credit cardholders, long-term consumer credit loans granted to private customers, and leasing facilities to private and corporate clients. Interest income is recognised using the effective interest method.

Processing and service expenses

Processing and service expenses comprise processing expenses to services partners, card schemes expenses for the usage of the worldwide card scheme environment, and other operational service expenses. Processing and service expenses are recognised as occurred.

Distribution, advertising and promotion expenses

The Group offers reward programmes to its customers in its Payment business. These programmes are partly run by third parties, in which case the incurred loyalty costs are directly accounted as expenses.

The Group offers a loyalty programme where customers collect points based on card spending, which are accounted in designated loyalty point accounts. Customers can spend their points by converting them into non-monetary bonus, annual fee rebates as well as rebate vouchers within the programme. The estimated upcoming expenses increase the accrued expenses. In addition, the Group offers a yearly fee rebate based on the volume of transactions of the customer. The estimated upcoming expenses are accounted as a reduction of the underlying income and increase the accrued expenses.

The amount allocated to the annual fee rebates is recognised when the rebates are redeemed in the following year and, thus, the Company has fulfilled its obligation.

Interest expense

Interest expenses consist of the refinancing expenses to finance the interest income-generating businesses as well as losses on derivative financial instruments that are recognised in profit or loss. Interest expenses are recognised using the effective interest method.

Impairment losses from the Payment business and from the Consumer Finance

Impairment losses from the Payment business contain losses arising from bad debts, from an increase of expected credit losses, fraud and chargebacks. Impairment losses from the Consumer Finance business contain losses arising from bad debts and from an increase of the expected credit losses.

Other expenses

Other expenses are recognised as they are incurred. The expenses are recognised on an accrual basis.

Depreciation and amortisation

Depreciation and amortisation comprises the depreciation of property and equipment and the amortisation of intangible assets. Depreciation and amortisation are recognised in profit or loss according to the depreciation and amortisation policy outlined in the respective section for property and equipment or other intangible assets. 

Income tax expenses

Income tax expenses comprise current and deferred income tax. Income tax expenses are recognised in profit or loss, except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet liability method, providing the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Earnings per share

The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to the equity holders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for treasury shares.

As there are neither convertible bonds nor options or other potential shares outstanding, there is no dilutive impact for the shares.

Segment reporting

An operating segment is a component of the Group that engages in business activities from which it earns revenues and incurs expenses. The results of the business activities are regularly reviewed by the Group’s chief operating decision maker to decide on resources to be allocated to the segments and assess their performance, for which separate financial information is available.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, postal and bank accounts, and fixed-term deposits with an original maturity of less than 90 days from the date of acquisition. They are stated at amortised cost, which equals the nominal value.

Derivative financial instruments, including hedge accounting

The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational and financing activities. In accordance with its treasury policy, the Group does hold or issue derivative financial instruments either for hedge accounting or for economic hedging without applying hedge accounting.  

Derivative financial instruments are recognised initially at fair value. Attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivative financial instruments are measured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss.

Currency swaps used by the Group do not qualify for hedge accounting; therefore they are accounted for as trading instruments.

The Group designates interest rate swaps as hedging instruments in a hedge of the variability in the interest payments related to variable interest-bearing financial liabilities (cash flow hedge).

The effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. The amount recognised in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss in the same line item as the underlying transaction.

If the hedging instrument no longer meets the criteria for hedge accounting, expires, is sold, terminated or exercised, or the designation is revoked, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income remains there until the forecast transaction affects profit or loss.

Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in-first-out principle. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and selling expenses.

Property and equipment

Items of property and equipment are stated at cost less accumulated depreciation and impairment losses.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. The estimated useful lives are as follows:

 

2018

2017

Furniture

5–10 years

5–10 years

IT & office equipment

3–5 years

3–5 years

Cars

4–5 years

4–5 years

Leasehold improvement

shorter of the useful life or the lease term

shorter of the useful life or the lease term

Buildings

25 years

25 years

Terminals

n/a

3 years

Useful lives and residual values are reviewed annually at the balance sheet date and any adjustments are recognised in profit or loss. Gains or losses arising from the disposal of items of property and equipment are recognised in profit or loss.

Goodwill

The Group measures goodwill at the acquisition date as the excess of the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed and the sum of the fair value of the consideration transferred plus the recognised amount of any non-controlling interests in the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is tested for impairment annually at the level of the cash-generating unit.

Other intangible assets

Intangible assets are stated at cost less accumulated amortisation and impairment losses.

Intangible assets consist of capitalised software costs, capitalised licences and client relationships, all of which have finite lives. The following intangible assets are amortised on a straight-line basis over their estimated useful lives:

 

2018

2017

Software

generally 5 years specific software 2 to 10 years according to the useful life

generally 5 years specific software 2 to 10 years according to the useful life

Licences

3 years

3 years

Client relationships are amortised according to an average customer lifetime depending on the underlying business. The current recognised client relationships are amortised for 7–15 years, in general using the digital digressive method according to their respective useful life.

Amortisation methods, useful lives and residual values are reassessed at the reporting date and adjusted if appropriate.

Capitalised software includes external costs incurred when externally developing or purchasing computer software for internal use. The expenditure capitalised includes mainly external development and consultancy costs that are directly attributable to the external development of implementing and customising software.

Impairment

The recoverable amounts of non-current assets are reviewed for impairment at least once a year. If there is any indication of impairment (triggering event), an impairment test is performed. Goodwill is tested for impairment on an annual basis. If the carrying amount of an asset or its cash-generating unit exceeds the recoverable amount, an impairment loss is recognised in profit or loss.

A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Leasehold restoration provisions

In accordance with the lease agreement and applicable constructive requirements / legal obligation, a provision for leasehold restoration in respect of reinstatement of the original condition of the premises is made when the Group enters into a contractual agreement. A related payment is recognised when the obligation event to restore the premises to the specified condition occurs. The expenses are recorded over the lifetime of the lease agreement.

Employee benefits

The post-employment plans qualify as defined benefit plans. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan asset is deducted.

The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the total of any unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in comprehensive income. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past services or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

When share capital recognised as equity is repurchased, the amount of the consideration paid (which includes directly attributable costs, net of any tax effects) is recognised as a ­deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When trea­sury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resul­ting surplus or deficit on the transaction is transferred to / from retained earnings.

Dividends are recognised as a liability at the date they are declared.

New and revised standards and interpretations newly adopted by the Group

The Group applied the following new and revised accounting standards and interpretations for the first time:

  • IFRS 9 Financial Instruments
  • IFRS 15 Revenue from Contracts with Customers

IFRS 9 Financial Instruments

IFRS 9 sets out requirements for recognising and measuring financial assets and financial liabilities. The standard replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 was adopted without restating comparative information. The reclassifications and adjustments arising from the new impairment rules are recognised in the opening balance as at 1 January 2018.

(i) Classification and measurement

The Aduno Group holds receivables that are expected to generate contractual cash flows and where the item will be held to term. If those receivables pass the Solely Payments of Principal and Interest (SPPI) test, as outlined below, they are measured at amortised cost (AC). They comprise receivables from the business units Payment and Consumer Finance.

When determining whether contractual cash flows solely comprise repayments of the principal and interest payments (SPPI), the Group considers the contractual terms for each instrument. The test looks at whether the contract provisions governing the financial assets could affect the timing or amount of the agreed cash flows. If the answer is affirmative, the asset may not meet the test criteria. When assessing the cash flows, the Group considers:

  • Conditions that could affect the timing or amount of the cash flow
  • Components with a leverage effect
  • Clauses on early repayment and extensions

In addition, the group holds financial instruments that are measured at fair value, such as derivatives, and equity shares that are classified as FVOCI, of which all associated gains and losses are recognised in “Other comprehensive income”. 

The following table shows the adjustments recognised for each individual line item. The adjustments are explained in more detail below. The difference between the adjustments on the asset side and the adjustment in the statement of changes in equity equals the income tax effect.

In 1,000 CHF

Measurement category IAS 39

Measurement category IFRS 9

Carrying amount 31.12.2017

Remeasure- ment IFRS 9

Reclassifi- cation IFRS 9

Carrying amount 01.01.2018

Cash and cash equivalents

LAR1)

AC1)

22,146

0

0

22,146

 

 

 

 

 

 

 

Payment business

 

 

 

 

 

 

Receivables from cardholders2)

LAR

AC

446,843

(236)

0

446,607

Receivables from debt collection

LAR

AC

2,812

(677)

0

2,135

Receivables from fraud and chargeback processes2)

LAR

AC

245

0

0

245

Other receivables from business unit Payment

LAR

AC

5,652

0

0

5,652

 

 

 

 

 

 

 

Consumer Finance

 

 

 

 

 

 

Short-term receivables from business unit Consumer Finance

LAR

AC

465,238

(636)

0

464,601

Long-term receivables from business unit Consumer Finance

LAR

AC

891,144

(1,506)

0

889,638

 

 

 

 

 

 

 

Other receivables

 

 

 

 

 

 

Other receivables

LAR

AC

14,015

0

0

14,015

Derivatives held for trading

Held for trading

Mandatorily at FVTPL

75

0

0

75

Financial investments available for sale

Available for sale

n/a

26,131

0

(26,131)

0

Financial assets at fair value through other comprehensive income (FVOCI)

n/a

FVOCI -equity instrument

0

0

26,131

26,131

 

 

 

 

 

 

 

Total assets

 

 

1,874,301

(3,055)

0

1,871,246

 

 

 

 

 

 

 

Total financial liabilities at amortised cost

AC

AC

1,211,789

0

0

1,211,789

 

 

 

 

 

 

 

Derivatives held for trading

Held for trading

Mandatorily at FVTPL

186

0

0

186

Derivatives used for hedging

FVTPL

FVTPL

57

0

0

57

 

 

 

 

 

 

 

Total liabilities

 

 

1,212,032

0

0

1,212,032

 

 

 

 

 

 

 

Retained earnings

 

 

677,092

(2,506)

 

674,586

Total equity

 

 

806,852

(2,506)

 

804,346

1)LAR: Loans and receivables; AC: Amortised cost

2)For better comparability receivables from the chargeback process have been grouped together with receivables for which fraud is assumed to the new single line item “Receivables from fraud and chargeback processes”.

(a) Reclassification from “Loans and receivables” (LAR) to “Amortised cost” (AC)

Receivables from the business units Payment and Consumer Finance, cash and cash equivalents, and other receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of the instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9. Consequently the instruments do not need to be reclassified.

(b) Financial instruments held at fair value

The Group continues to measure all financial assets held at fair value under IAS 39 at fair value under IFRS 9. Equity shares held as available for sale with gains and losses recorded in “Other comprehensive income” (OCI) now appear in the new category “FVOCI – equity instrument”. Derivatives held for trading and used for hedging are measured at fair value. Consequently the application of IFRS 9 has no impact on the measurement.

(c) Financial liabilities at amortised cost

All financial liabilities measured at amortised cost under IAS 39 are also measured at amortised cost under IFRS 9. Consequently the implementation of IFRS 9 has no impact on the measurement.

(ii) Impairment of financial assets

Instead of the incurred loss model used in IAS 39, IFRS 9 uses an expected credit loss (ECL) model. The Group calculates loss allowances at an amount equal to lifetime ECL where the credit risk has increased significantly (stage 2) or the financial asset is in default (stage 3). However, the following are measured as 12-month ECL (stage 1): financial assets of counterparties with low credit risk – an investment rating BBB or above – as at the balance sheet date, and other financial assets where credit risk has not increased significantly since initial recognition. Loss allowances for trade receivables are always measured at an amount equal to lifetime ECL.

More detailed analysis for financial instruments materially impacted by the expected credit loss are further explained in the following notes:

  • Note 15 – Receivables from Payment business
  • Note 16 – Receivables from Consumer Finance
  • Note 18 – Other receivables

Although the impairment requirements of IFRS 9 also apply to cash and cash equivalents, no material impairment loss has been identified either for 1 January 2018 or for 31 December 2018. All cash and cash equivalents are held with banks with a credit rating of A or higher. Most cash and cash equivalents are deposited with a bank that has an AAA rating. All cash and cash equivalents can be withdrawn immediately – there is no notice period.

The Group has determined that applying the IFRS 9 impairment requirements as at 1 January 2018 generates an additional impairment allowance as shown below:

In 1,000 CHF

 

 

 

Loss allowance at 31 December 2017 under IAS 39

 

 

(28,953)

Loss allowance not within scope of IFRS 91)

 

 

115

Additional impairment recognised at 1 January 2018 on:

 

 

 

Receivables from business unit Payment

 

 

(913)

Other receivables from business unit Payment

 

 

0

Receivables from business unit Consumer Finance

 

 

(2,142)

Other receivables

 

 

0

Cash and cash equivalents

 

 

0

 

 

 

 

Loss allowance at 1 January 2018 under IFRS 9

 

 

(31,893)

1) Loss allowances for receivables from fraud and chargeback processes.

IFRS 15 Revenue from Contracts with Customers

In May 2014, the IASB issued a new standard which sets out how and when revenue is recognised. IFRS 15 replaces several other IFRS standards and interpretations that previously governed revenue recognition under IFRS. The new standard includes a single five-step model with principles that apply to all contracts with customers. The five steps comprise: identifying the contract(s) with a customer; identifying the performance obligations in the contract; determining the transaction price; allocating the transaction price to the performance obligations in the contract; and recognising revenue as and when the Group satisfies a performance obligation.

The new standard also provides more comprehensive guidance for certain transactions and clearer guidance on multiple-element arrangements. The standard also requires additional disclosures for revenue.

The new standard has no material impact on the Group’s financial statements. Commission income and other income are recognised transaction-based as they occur. Annual fees are recognised on a straight-line basis over the duration of the service commitment and deferred accordingly.

New and revised standards and interpretations

With effect from 1 January 2019, the Aduno Group consolidated financial statements will be produced in accordance with Swiss GAAP FER. New and revised standards and interpretations that have been issued but are not yet effective and have not been applied early in the consolidated financial statements have not been examined further.

2. Segment reporting

For reporting and managerial purposes, management has divided the Group’s business into four segments. The external segment reporting is based on the internal reporting to the chief operating decision maker, who is responsible for allocating resources, and assesses the financial performance of the business. The Executive Board has been identified as the chief operating decision maker, as it is responsible for the operational management of the entire Group and reviews the management reporting of each business segment on a monthly basis. The Executive Board consists of the Group’s Chief Executive Officer (CEO) as well as the Chief Officers for Finance (CFO), Sales (CSO), Marketing (CMO) and Operations (COO).

Payment

The business unit Payment provides services for cashless payments via credit, debit and customer cards to private and corporate customers, and also provides the associated transaction and customer services. The majority of the business is linked to the Mastercard and Visa brands.

The business unit Payment operates through Viseca, Accarda and Contovista, as well as Vibbek GmbH and Vibbek AG, which were sold off effective 5 December 2018. The business unit’s main revenue streams come from interchange fees and commission, annual fees for cards and services, income from card transactions in foreign currencies, and interest income. AdunoKaution and SmartCaution were merged into cashgate in 2018 and were subsequently transferred to the Consumer Finance segment. The 2017 segment figures have been restated for the purpose of better comparability. Aduno SA was also part of the business unit Payment until it was sold in 2017. The Acquiring and Terminal business is now classified as a discontinued operation.

Consumer Finance

The business unit Consumer Finance is operated by cashgate. The business unit Consumer Finance offers leasing contracts and loans for consumer goods to private and corporate customers. The business unit was expanded to include rental deposits following the merger of AdunoKaution and SmartCaution in 2018. The 2017 figures have been restated for the purpose of better comparability. The primary revenue streams are interest income, commission income and fees for chargeable services.

Internal Financing

As the central treasury centre of the Group (Aduno Finance), Internal Financing provides financial services to the other members of the Group. The treasury services include the treatment of payments, the handling of foreign exchange transactions as well as the management of the Group’s brand assets. The major income streams result from foreign currency transactions and interest income.

Corporate Functions

The business unit Corporate Functions contains intercompany con­solidation items as well as the financial result of Aduno Holding.

Information about major customers

There is no major customer in any of the business segments ­who­se revenues amount to 10% or more of the segment’s revenues (2017: none).

The following table presents certain information regarding the operating segments, based on management’s evaluation and internal reporting structure, as at 31 December 2018 and 2017 and for each of the years ended.

 

Payment

 

Consumer Finance

 

Internal Financing

 

Total operating segments

 

Corporate Functions/ Consolidation

Consolidated

In 1,000 CHF

2018

2017 restated1)

2018

2017 restated1)

2018

2017

 

2018

2017

 

2018

2017

2018

2017

Commission income

152,001

142,132

0

0

20,014

18,777

 

172,015

160,909

 

0

(0)

172,015

160,909

Annual fees

117,848

113,224

3,601

3,443

0

0

 

121,449

116,668

 

0

0

121,449

116,668

Interest income

20,388

12,125

86,964

85,830

19,919

26,500

 

127,270

124,455

 

(20,545)

(27,654)

106,725

96,802

Other income

73,569

41,934

9,336

9,300

51,271

59,598

 

134,176

110,832

 

(19,486)

(25,618)

114,690

85,214

Total revenue

363,806

309,415

99,901

98,573

91,203

104,875

 

554,910

512,864

 

(40,031)

(53,272)

514,879

459,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing and service expenses

60,902

53,966

2,817

2,730

0

0

 

63,719

56,696

 

0

0

63,719

56,696

Distribution, advertising and promotion expenses

101,693

89,003

18,786

19,009

0

1

 

120,479

108,012

 

(8,994)

(9,607)

111,484

98,405

Interest expenses

7,761

11,068

12,291

15,767

19,209

26,786

 

39,261

53,622

 

(27,393)

(34,191)

11,868

19,431

Expected credit losses for financial assets

4,113

0

10,852

0

0

0

 

14,965

0

 

0

0

14,965

0

Impairment losses from Payment and Consumer Finance

1,458

2,670

0

12,032

0

0

 

1,458

14,701

 

(0)

0

1,458

14,701

Personnel expenses

107,587

74,757

18,012

19,865

778

778

 

126,378

95,400

 

0

0

126,378

95,400

Other expenses

51,852

60,572

14,229

13,639

3,874

4,857

 

69,955

79,068

 

(6,845)

(22,776)

63,110

56,291

Depreciation

2,603

2,636

352

548

4

71

 

2,959

3,255

 

773

773

3,732

4,028

Amortisation

19,161

5,159

5,091

5,489

73

1,198

 

24,325

11,845

 

3

3

24,328

11,849

Total expenses

357,129

299,831

82,431

89,078

23,938

33,691

 

463,498

422,600

 

(42,456)

(65,799)

421,042

356,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Results from operating activities

6,677

9,584

17,470

9,496

67,265

71,185

 

91,412

90,265

 

2,425

12,527

93,837

102,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from associates

30,234

7,386

0

0

0

0

 

30,234

7,386

 

0

0

30,234

7,386

Profit from continuing operations, before income tax

36,911

16,970

17,470

9,496

67,265

71,185

 

121,646

97,650

 

2,425

12,527

124,071

110,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expenses

7,206

23,342

1,180

2,012

9,079

7,804

 

17,466

33,158

 

212

1,655

17,678

34,813

Profit from continuing operations

29,705

(6,372)

16,290

7,483

58,185

63,381

 

104,180

64,492

 

2,213

10,872

106,393

75,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/Loss from discontinued operations

 

120,482

0

0

0

0

 

0

120,482

 

0

(4,215)

0

116,267

Profit for the period

29,705

114,110

16,290

7,483

58,185

63,381

 

104,180

184,974

 

2,213

6,656

106,393

191,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1) The business of AdunoKaution and SmartCaution presented in the Payment business in 2017 has been reallocated to Consumer Finance to provide a better comparability.  

3. Change in scope of consolidation

Acquisition of Accarda AG

Effective 1 October 2018 Aduno Holding purchased an additional 70% of the shares of Accarda AG in Brütisellen, canton of Zurich. Together with the holding of 30%, Aduno Holding now has a stake of 100% in Accrda. The company operates in the field of loyalty cards with payment function. The purchase price for the 70% was CHF 195.5 million, which was paid in full in cash. The revaluation of the existing 30% resulted in a valuation gain of CHF 27.4 million. The revaluation gain is recorded in “Income from associates”.

The following purchase price allocation is final. Goodwill of CHF 58.7 million has been identified and is allocated to the cash-generating unit Issuing. The increased stake in Accarda enables future business models and synergies with the existing issuing business and increases revenue from exisiting Accarda customers.

In 1,000 CHF

 

 

Recognised values on acquisition fair value

Cash and cash equivalents

 

 

16,291

Receivables from Payment

 

 

275,956

Other receivables and other assets

 

 

12,920

Inventories

 

 

117

Prepaid expenses and accrued income

 

 

1,886

Property and equipment

 

 

3,343

Intangible assets

 

 

136,437

Deferred tax assets

 

 

400

 

 

 

 

Total assets

 

 

447,349

 

 

 

 

Payables to counterparties

 

 

38,220

Other trade payables

 

 

16,940

Short-term interest-bearing liabilities

 

 

39,197

Accrued expenses and deferred income

 

 

4,483

Long-term interest-bearing liabilities

 

 

100,000

Provisions

 

 

5,340

Employee benefit obligations

 

 

0

Deferred tax liabilities

 

 

34,330

 

 

 

 

Total liabilities

 

 

238,511

Net identifiable assets and liabilities

 

 

208,838

 

 

 

 

Fair value of the existing NCI (30%)

 

 

71,825

Considerations transferred

 

 

195,470

Non-controlling interest

 

 

284

Fair value of net assets

 

 

208,554

Goodwill arising from acquisition

 

 

58,741

 

 

 

 

Considerations paid in cash

 

 

195,470

Cash acquired

 

 

16,291

Net cash outflow

 

 

179,179

Included in the Group’s revenues for 2018 are CHF 21.1 million arising from the additional business from Accarda. A loss of CHF 10.7 million is included in the profit for the year. If the acquisition of Accarda had occurred on 1 January 2018, the Group’s consolidated revenue would have been CHF 564.2 million and its consolidated profit from continuing operations CHF 117.0 million. The acquisition incurred acquisition costs for the Group of CHF 2.8 million, which are included in the profit and loss statement under “Other expenses”.

Acquisition of Contovista AG (2017)

Effective 1 August 2017, Aduno Holding purchased an additional 55.7% of the shares of Contovista in Schlieren, canton of Zurich. Together with the holding of 14.3%, Aduno Holding now has a stake of 70% in Contovista. The company develops software for Finance Management as well as Analytics and distributes it to banks. The purchase price for the 55.7% was CHF 27.3 million, which was paid in full in cash. The revaluation of the existing 14.3% resulted in a valuation gain of CHF 4.0 million. The revaluation gain is recorded in “Income from associates”.

The following purchase price allocation is final. Goodwill of CHF 21.1 million has been identified and is allocated to the cash-generating unit Payment Issuing. The increased stake in Contovista strengthens the Group’s relationship to its shareholder banks, will pave the way for future business models within the Group, and will increase revenue from exisiting customers.

In 1,000 CHF

 

 

Recognised values on acquisition fair value

Cash and cash equivalents

 

 

4,269

Other receivables and other assets

 

 

560

Prepaid expenses and accrued income

 

 

7

Property and equipment

 

 

42

Intangible assets

 

 

20,278

 

 

 

 

Total assets

 

 

25,156

 

 

 

 

Other trade payables

 

 

128

Accrued expenses and deferred income

 

 

245

Provisions

 

 

1,618

Employee benefit obligations

 

 

66

Deferred tax liabilities

 

 

4,258

 

 

 

 

Total liabilities

 

 

6,315

Net identifiable assets and liabilities

 

 

18,841

 

 

 

 

Contribution for the existing 14.3% holding at fair value

 

 

7,009

Considerations transferred

 

 

27,300

Non-controlling interest

 

 

5,653

Goodwill arising from acquisition

 

 

21,120

 

 

 

 

Considerations paid in cash

 

 

27,300

Cash acquired

 

 

4,269

Net cash outflow

 

 

23,031

Included in the Group’s revenues for 2017 are CHF 1.9 million arising from the additional business from Contovista. A profit of CHF 0.1 million is included in the profit for the year. If the acquisition of Contovista had occurred on 1 January 2017, the Group’s consolidated revenue would have been CHF 460.9 million and its consolidated profit from continuing operations CHF 75.2 million. The acquisition incurred acquisition costs for the Group of CHF 0.1 million, which are included in the profit and loss statement under “Other expenses”.

Sale of Vibbek AG

As per 5 December 2018 the Group sold its 67% stake in Vibbek AG for CHF 3.3 million, resulting in a gain of CHF 0.4 million, which is recorded in other income.

4. Commission income

In 1,000 CHF

2018

2017

Interchange revenue

79,195

77,002

Currency exchange commissions

65,514

59,849

Other commission revenue

27,306

24,058

 

 

 

Commission income

172,015

160,909

5. Interest income and interest expenses

In 1,000 CHF

2018

2017

Interest income from amortised cost

106,725

96,802

Interest expenses from amortised cost

(11,868)

(19,431)

 

 

 

Interest income, net

94,857

77,370

The increase in net interest income is on one hande due to the acquisition of Accarda (CHF 7.4 million) and on the other due to the still very low refinancing costs.

Interest income contains income from the Group’s Consumer Finance activities and also from credit lines granted to clients in the Payment business.

In the Payment business, credit cardholders are eligible to convert their debit on the credit card or on the other payment card into a consumer credit, for which the Group then charges interest for the period of the short-term loan.

Interest expenses are the refinancing expenses to finance the open credit lines of the Payment and Consumer Finance businesses.

6. Other income

In 1,000 CHF

2018

2017

Foreign exchange gains or losses, net

53,283

48,805

Income from services

39,684

26,549

Other income

21,723

9,860

 

 

 

Other income

114,690

85,214

Foreign exchange gains and losses arise on transactions which are not settled in Swiss francs. Customers in the Group’s Payment business are billed based on a typical exchange rate close to spot rates, whereas the Group is billed near the interbank rate (interbank rate plus Group’s credit spread).

The increase of income from services is mainly due the acquistion of Accarda (CHF 10.6 million).

Other income increased compared to 2017 due to a transitional service agreement in connection with the sale of the acquiring business.

7. Processing and service expenses

In 1,000 CHF

2018

2017

Cards processing expenses

36,249

32,462

Service expenses

27,305

24,227

Material expenses

165

7

 

 

 

Processing and service expenses

63,719

56,696

Card processing expenses are volume based and have increased in accordance with the transaction volume and card portfolio. The increase in service expenses is due to the purchase of Accarda (CHF 2.4 million).

8. Distribution, advertising and promotion expenses

In 1,000 CHF

2018

2017

Distribution channel compensation

83,738

73,556

Rewards and redemption expenses

8,924

7,150

Advertising and promotion expenses

18,670

17,571

Costs for distribution

152

128

 

 

 

Distribution, advertising and promotion expenses

111,484

98,405

9. Personnel expenses

In 1,000 CHF

2018

2017

Wages and salaries

87,816

73,700

Social security contributions

9,131

7,810

Expenses related to defined benefit plans

19,446

3,556

Other personnel expenses

9,984

10,333

 

 

 

Personnel expenses

126,378

95,400

The increase in personnel expenses is mainly due the purchase of Accarda (CHF 18.3 million); of this figure, CHF 10.8 million is due to past service costs, refer to note 30 “Employee benefits obligation”.

10. Other expenses

In 1,000 CHF

2018

2017

Audit and professional services

20,921

20,689

IT expenses

23,518

16,650

Telephone and postage

2,219

1,551

Premises expenses

8,662

7,339

Travel and representation

833

746

Loss on sale of property and equipment and intangible assets

386

1,441

Other administration expenses

6,571

7,876

 

 

 

Other expenses

63,110

56,291

11. Impairment losses from Payment and Consumer Finance

In 1,000 CHF

2018

2017

Expected credit loss for Payment business, credit cards

975

0

Expected credit loss for Payment business, other payment cards (Accarda)

3,138

0

Expected credit loss for Consumer Finance

10,852

0

Total expected credit losses for Payment and Consumer Finance

14,965

0

Impairment losses on commission income

1,458

2,702

Impairment losses on interest income

0

11,999

Total impairment losses for Payment and Consumer Finance

1,458

14,701

In 2017, the impairment losses for both the business unit Payment as well as the business unit Consumer Finance were calculated using the old incurred loss model, whereas in 2018 the impairment losses were calculated based on the expected credit loss model. The impairment losses on commission income in 2018 comprise impairment losses for fraudulent and chargeback transactions, which are not credit losses.

12. Income tax expenses

Expenses recognised in the consolidated income statement 

In 1,000 CHF

2018

2017

Current income tax expenses

22,695

33,358

Deferred tax expenses (+) / income (–)

(5,018)

1,456

 

 

 

Total income tax expenses

17,678

34,813

Average applicable tax rate

The Group calculated an average applicable income tax rate of 17.0% in 2018 and 14.9% in 2017, which represents the weighted average income tax rate calculated on the basis of the Group’s operating subsidiaries in Switzerland.

Reconciliation of effective tax rate

The average effective income tax rate for 2018 was 14.3%; for 2017, it was 31.6%. It was derived as shown in the following table.

In 1,000 CHF

2018

2017

Profit before income tax

124,071

110,177

Income tax expenses at the average applicable tax rate

21,152

16,416

Changes in estimates related to prior years

0

23,734

Income tax expenses related to transfer price adjustements

0

7,330

Effect from non-taxable income

(234)

(285)

Tax effect on income at different rates

(3,241)

(12,382)

 

 

 

Effective income tax expenses

17,678

34,813

In 2011, the Aduno Group transferred the areas of cash management, payment transactions, financing, foreign currency management and brand management to the newly incorporated Aduno Finance AG, which is headquartered in Nidwalden, with offices in Freienbach (Schwyz).

During the ordinary tax inspections for 2011 and 2012, the cantonal tax authorities in Zurich questioned the transfer prices applied. An intended agreement with the Zurich tax authorities proved to be unrealistic. Following this, in March 2018, the Aduno Group lodged an appeal with the Zurich tax appeals court.

Due to the reassessment, in 2017 the Aduno Group recognised additional tax provisions amounting to CHF 23.7 million for the financial years 2011 to 2016, and CHF 7.3 million for 2017. There was no change to the assessment concerning this case in 2018. These tax provisions are part of the current tax payable of CHF 90.0 million.

Deferred tax assets and liabilities

The following table shows in which lines of the Group’s balance sheet tax assets and liabilities were recognised on temporary differences between the tax base and IFRS carrying amounts.

 

 

 

2018

 

 

2017

In 1,000 CHF

Assets

Liabilities

Net

Assets

Liabilities

Net

Receivables

976

(9,972)

(8,996)

2,180

(6,422)

(4,242)

Inventories

0

(257)

(257)

0

0

0

Prepaid expenses

(935)

(2,525)

(3,460)

305

(2,135)

(1,830)

Property and equipment

0

(308)

(308)

0

(344)

(344)

Intangible assets

3,172

(31,141)

(27,969)

1,790

(6,920)

(5,130)

Financial investments

0

(3,057)

(3,057)

0

(2,390)

(2,390)

Interest-bearing liabilities

(6)

(23)

(29)

148

(8)

140

Accrued expenses and deferred income

9,183

0

9,183

7,306

(1,312)

5,994

Provisions

30

(64)

(34)

63

(83)

(20)

Employee benefit obligations

8,934

0

8,934

10,163

0

10,163

Tax value of loss carry-forwards recognised

0

0

0

3,686

0

3,686

Tax assets / (liabilities)

21,355

(47,348)

(25,993)

25,641

(19,614)

6,026

Set-off of tax

(9,554)

9,554

0

(11,704)

11,704

0

Net tax assets / (liabilities)

11,801

(37,794)

(25,993)

13,937

(7,911)

6,026

Temporary differences of associates, on which no deferred income taxes were recognised as at 31 December 2018, amounted to CHF 0.0 million (2017: CHF 22.7 million).

Tax loss carry-forwards

The Group had total tax loss carry-forwards of CHF 0.0 million as at 31 December 2018 (2017: CHF 15.8 million). There are no unrecognised tax loss carry-forwards.

Movement in deferred tax assets and liabilities during the year

In 1,000 CHF

Balance at 01.01.2018

Recognised in income statement

Recognised in other comprehensive income

Change in scope of consolidation

Balance at 31.12.2018

Receivables

(3,693)

1,817

(7)

(7,113)

(8,996)

Inventories

0

0

0

(257)

(257)

Prepaid expenses

(1,830)

(1,631)

0

0

(3,460)

Property and equipment

(344)

36

0

0

(308)

Intangible assets

(5,130)

3,774

0

(26,613)

(27,969)

Financial assets at fair value through other comprehensive income (FVOCI)

(2,390)

232

(899)

0

(3,057)

Interest-bearing liabilities

140

(168)

0

0

(29)

Accrued expenses and deferred income

5,994

3,278

0

(88)

9,183

Provisions

(20)

(15)

0

0

(34)

Employee benefit obligations

10,163

78

(1,306)

0

8,934

Tax value of loss carry-forwards recognised

3,686

(2,383)

0

(1,302)

0

Tax assets / (liabilities)

6,575

5,018

(2,212)

(35,374)

(25,993)

In 1,000 CHF

Balance at 01.01.2017

Recognised in income statement

Recognised in other comprehensive income

Change in scope of consolidation

Balance at 31.12.2017

Receivables

(4,124)

(130)

(27)

39

(4,242)

Prepaid expenses

(2,601)

771

0

0

(1,830)

Property and equipment

(370)

23

0

2

(344)

Intangible assets

(20,702)

549

0

15,023

(5,130)

Financial investments available for sale

(295)

0

(1,333)

(763)

(2,390)

Interest-bearing liabilities

(3)

142

0

0

140

Accrued expenses and deferred income

11,741

(5,794)

0

47

5,994

Provisions

(39)

37

0

(17)

(20)

Employee benefit obligations

8,867

2,224

(511)

(418)

10,163

Tax value of loss carry-forwards recognised

2,964

721

0

0

3,686

Tax assets / (liabilities)

(4,560)

(1,456)

(1,871)

13,914

6,026

13. Earnings per share

In 1,000 CHF

2018

2017

Profit attributable to owners of the company

106,689

191,684

Profit from continuing operations attributable to owners of the company

106,689

75,417

Profit from discontinued operations attributable to owners of the company

0

116,267

 

 

 

Issued ordinary shares at 1 January

25,000

25,000

Weighted average number of ordinary shares at 31 December

25,000

25,000

 

 

 

Earnings per share in CHF

4,267.54

7,667.37

Earnings per share in CHF, from continuing operations

4,267.54

3,016.69

Earnings per share in CHF, from discontinued operations

0.00

4,650.68

Diluted earnings per share

There are neither convertible bonds nor options or other potential shares outstanding, and therefore there is no dilutive impact on earnings.

14. Cash and cash equivalents

In 1,000 CHF

2018

2017

Cash

43

16

Post bank

29,210

11,428

Bank

38,006

10,702

 

 

 

Cash and cash equivalents

67,258

22,146

Cash and cash equivalents are mainly held in CHF, EUR and USD. The percentage of these currencies of the total cash and cash equivalents held is shown in the table below.

In 1,000 CHF

2018

2017

CHF

98.6%

93.2%

EUR

1.3%

3.8%

USD

0.2%

2.9%

Other

0.0%

0.1%

 

 

 

Total

100.0%

100.0%

15. Receivables from the business unit Payment

In 1,000 CHF

2018

2017

Receivable within scope of ECL calculation

 

 

Receivables from cardholders, credit cards*

424,280

446,843

Receivables from debt collection, credit cards

3,483

3,744

Other receivables from Payment business, credit cards

4,960

5,801

 

 

 

Receivables from cardholders, other payment cards

239,913

0

Receivables from debt collection, other payment cards

7,636

0

Other receivables from Payment business, other payment cards

8,783

0

 

 

 

Loss allowance

(8,498)

(1,080)

 

 

 

Receivables out of scope of ECL calculation

 

 

Receivables from fraud and chargeback processes*

419

360

Valuation allowance *

(86)

(115)

 

 

 

Total receivables from business unit Payment

680,889

455,552

*For a better comparability “Receivables from chargeback process” have been grouped together with “Receivables for which fraud is assumed” to the new single line item “Receivables from fraud and chargeback processes”.

Receivables from the business unit Payment – credit cards

Receivables from credit cardholders comprise open balances on credit card accounts. Open cardholder balances that have been past due for more than 90–120 days are transferred to a dedicated collection portfolio, which is actively monitored. As at 31 December 2018, the collection portfolio stood at CHF 3.5 million (31 December 2017: CHF 3.7 million). The portfolio is reported under “Receivables from debt collection – credit cards”.

Other receivables from the Payment business, credit cards comprise receivables totalling CHF 0.4 million from the software sales business (31 December 2017: CHF 1.1 million) plus a CHF 4.5 million standalone receivable linked to the Visa International Inc. card business (2017: CHF 4.7 million, long-term receivable).

Receivables from the Payment business – other payment cards

Receivables from cardholders consists of open balances on other payment card accounts. The vast majority of these other payment cards (receivables in the amount of CHF 220.4 million) is a homogenous retail card portfolio with a long tracking history. A small part of the other payment card accounts (receivables in the amount of CHF 19.5 million) comprises a heterogenous corporate portfolio and a retailcard portfolio with a short tracking history. Open cardholder balances that fulfil the transfer criteria are transferred to a dedicated collection portfolio, which is actively monitored. As at 31 December 2018, the collection portfolio stood at CHF 7.6 million. As the business was acquired on 1 October 2018, there are no figures for 2017. The portfolio is reported under “Receivables from debt collection, other payment cards”.

Other receivables from the Payment business, other payment cards comprise receivables from the payment solution “purchase on account” in e-commerce.  

Management of credit risk in the Payment business

It is in the nature of the credit card business that customers get temporarily into debt with the credit card company. This explains the considerably high volumes of receivables.

The credit counterparty in the issuing business is a private or corporate consumer using a credit card for purchases or cash transactions. All credit card customers, when applying for a credit card, are assigned an individual credit rating before a credit card is issued. If a client does not meet the stringent customer credit rating criteria, no credit card is issued.

Risk and credit management is a core process in the credit card business and the Group therefore runs sophisticated risk assessment tools and delinquency reports to monitor and assess risk exposure. All incoming payments of customers are closely monitored.

The Group issues credit cards on behalf of various distribution partners. The Group has entered into agreements with some of its partners, so that the partner bears the risk of default for any receivable outstanding from cardholders. If a cardholder becomes delinquent, the outstanding amount is paid in full by the partner.

If a cardholder has a direct relationship with the Group and not via a partner, the Group bears the default risk. In individual cases the outstanding receivable is collateralised by bank guarantees. The underlying receivables amounted to CHF 10.7 million as at 31 December 2018 (2017: CHF 9.4 million). These receivables are fully covered by the bank guarantees.

Residual amounts overdue for more than 90 days may occur outside the debt collection portfolio when the assessment has not been completed. The total of these residual amounts stood at CHF 0.2 million as at 31 December 2018 (2017: CHF 0.06 million).

To avoid a total loss of the receivable, the Group renegotiates the terms of payment for customers who are not able to redeem the receivable in total. The renegotiated amounts are contained in “Receivables from debt collection”. Conditions for renegotiated amounts are individually fixed depending on the individual situation of the debtor. The total portfolio with renegotiated payment terms comprises CHF 1.5 million (2017: CHF 1.6 million).

Loss allowances for the business unit Payment – credit cards

The loss allowance for cardholders is composed of the ECL for receivables from the business unit Payment. The actual impairment is calculated for all significant receivables from individual cardholders. Any individual receivables that do not qualify as impaired are then assessed in terms of the expected credit loss. The loss allowance for all three categories is determined using historical data in conjunction with sophisticated analytical methods and valuation models.

Input factors for the calculation of the loss allowance

The input factors used to calculate expected credit loss (ECL = PD x EAD x LGD) for receivables that are assessed collectively are described below (PD: probability of default, EAD: exposure at default, LGD: loss given default):

  • The PD is derived from credit scoring models using survival analysis for private clients and logistic regression techniques for corporate clients. The scoring model is based on customer attributes such as card limits, income and age, plus behavioural attributes including payment history, card usage and risk-related transactions. Given the revolving credit facilities associated with the credit card business and the credit risk mitigation processes in place, the period of exposure is determined to be four months.
  • The EAD component consists of the current balance and an expected amount resulting from the unused card limit. The expected amount of the unused limit is calculated by analysing past defaults where the customer’s average default amount was 15–30% higher than their ordinary card usage. Being in stage 1 or stage 2 has no bearing on the extent of future usage in the event of a customer default.
  • The ECL model uses an LGD value that measures recoveries and losses up to 24 months from default. Stage 1 and stage 2 receivables are measured using the same LGD, as they are not yet in default. Receivables in stage 3 are assigned an individual LGD depending on their age and status within our debt collection process.

At each reporting date, credit risk is assessed to see whether it has increased significantly. The assessment considers both quantitative and qualitative factors. Where the impairment has not already been identified, a receivable from the Payment business is allocated to stage 2 when it is 60 days past due. Stage 2 receivables can be moved back to stage 1 as and when the credit risk no longer qualifies as significantly increased. The Group allocates a customer to stage 3 after debt management reminders have proved unsuccessful and the customer has had to be transferred to the pre-collection and legal collection processes. The transfer decision is made on a case-by-case basis for each customer and generally occurs when payments are 60–120 days past due. Contracts with customers in the collection process are terminated, which means contracts cannot be downgraded from stage 3. Stage 3 receivables are written off after two years. Based on past experience, the Group assumes that the receivables will not generate any further significant cash flow.

Forward-looking statements

Under IFRS 9, ECL calculations are required to incorporate forward-looking information: the period of exposure has been defined as four months for the Payment business. Over a four-month period, the macroeconomic conditions in Switzerland do not vary sufficiently to create a significant risk of loss. Consequently we have chosen not to consider forward-looking information for the Payment business.

The loss allowance is adjusted based on management’s judgement as to whether actual losses are likely to fall above or below historical trends given current economic and loan conditions. Management deems the loss allowance for doubtful debts for the business unit Payment to be adequate.

Within the Payment business, an average of 99% (31 December 2017: 99%) of outstanding receivables are not past due. Based on past experience, the Group therefore calculates the impairment allowance on the basis of the default risk for the entire portfolio.

Expected credit loss in the Payement business, credit cards as per 31 December 2018

 

Gross amount

ECL allowance

In 1,000 CHF

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Payment business, credit cards

 

 

 

 

 

 

 

 

Receivables from cardholders, credit cards

421,742

2,537

-

424,280

(141)

(46)

-

(187)

Receivables from debt collection, credit cards

-

-

3,483

3,483

-

-

(1,939)

(1,939)

In 2018, the Group completely wrote off impaired receivables totalling CHF 1.4 million. Loss certificates with a value of CHF 1.0 million have been issued for the receivables.

Changes in ECL allowance

The table below shows the changes for each stage over the reporting period.

 

ECL allowance

In 1,000 CHF

Stage 1

Stage 2

Stage 3

Total

Balance at 31 December 2018 under IAS 39

-

-

-

(932)

Adjusmtents on initial application of IFRS 9

-

-

-

(913)

Balance at 1 January 2018 under IFRS 9

(220)

(16)

(1,609)

(1,845)

Transfer from stage 2 to stage 1

(9)

9

0

0

Transfer from stage 1 to stage 2

0

(0)

0

(1)

Transfer from stage 1 + 2 to stage 3

1

6

(7)

0

New business and revaluations *

87

(45)

(1,768)

(1,725)

Write-offs

0

0

1,444

1,444

Balance at 31 December 2018

(141)

(46)

(1,939)

(2,126)

*Includes changes in the credit risk due to a stage transfer, an increase of the credit risk within the same stage without a transfer, changes in the used and unused credit limits, foreign currency effects as well as discounting effects.

Loss allowances for the business unit Payment, other payment cards - homogeneous retail card portfolio

Any individual significant receivables are assessed in terms of loss allowance. The loss allowance is calculated using historical data in conjunction with sophisticated analytical methods and valuation models.

Input factors for the calculation of the loss allowance

The input factors used to calculate expected credit loss (ECL = PD x EAD x LGD) for receivables that are assessed collectively are described below:

  • PD is estimated based on historical default rates: the number of transfers to debt collection during the period of exposure divided by the number of receivables at the start of the period. In light of the revolving credit facilities associated with the credit card business and the capital adequacy requirements defined by the Basel Committee on Banking Supervision, the expected period of exposure is set at 12 months.
  • EAD is estimated based on historical default rates: total value of transfers to debt collection in CHF during the period of exposure divided by the number of transfers to debt collection during the period. In the collective assessment, the calculated EAD is weighted with the number of customers of a stage. In addition to the current drawn balance, EAD therefore also implicitly includes an estimated amount for the unused limit.
  • The ECL model applies an LGD value that measures recoveries and losses up to 24 months from default.

The stage transfer assessment, management’s judgement and derecognition criteria are applied essentially identically to the previous descriptions of the credit card business.

Within the Payment business, an average of 96% of outstanding receivables are not past due. There are no 2017 figures for comparison because the business was acquired on 1 October 2018. Based on past experience, the impairment allowance is calculated using the default risk for the entire portfolio.

Expected credit loss in the business unit Payment, other payment cards - homogeneous retail card portfolio

 

Gross amount

ECL allowance

In 1,000 CHF

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Payment business, other payment cards

 

 

 

 

 

 

 

 

Receivables from cardholders, other payment cards

218,424

1,940

-

220,364

(4,044)

(368)

-

(4,412)

Receivables from debt collection, other payment cards

-

-

3,595

3,595

-

-

(918)

(918)

Change in ECL allowance

The ECL allowance has not changed significantly since the acquistion of Accarda.

In 2018, the Group completely wrote off receivables totalling CHF 4.0 million. Loss certificates with a value of CHF 2.7 million have been issued for the receivables.

Loss allowances for the business unit Payment, other payment cards – remaining portfolio

The expected credit loss and the corresponding loss allowance for a small portion of the Payment business portfolio (receivables from cardholders, other payment cards and other receivables from the business unit Payment, other payment cards) are based on a loss rate approach, whereby a combination of probability of default and loss given default is applied.

The loss allowance is adjusted based on management’s judgement as to whether actual losses are likely to fall above or below historical trends given current economic and loan conditions. Management deems the loss allowance for doubtful debts for the business unit Payment to be adequate.

In 1,000 CHF

Past due in 30 days

Debt collection

Total

31.12.2018

 

 

 

 

 

 

 

Expected loss rate

3.0%

5.5%

 

Other receivables from cardholders, other payment cards

19,549

3,295

22,844

Loss allowance

(596)

(5)

(601)

Net

18,953

3,290

22,243

The debt collection is net of receivables impaired at acquistion date in the amout of CHF 3.9 million.

Loss allowance on other receivables from the business unit Payment, credit cards

For other receivables from the business unit Payment, the Group uses a loss rate approach to measure lifetime expected credit loss.

The loss allowance on receivables from software sales in the amount of CHF 0.4 million and on a standalone receivable linked to Visa International Inc. in the amount of CHF 4.5 million is deemed not significant.

Loss allowances on other receivables from the business unit Payment, other payment cards

The Group uses a loss rate approach to measure lifetime expected credit losses for receivables from the payment solution “purchase on account” in e-commerce. They are disclosed in the following table.

In 1,000 CHF

Past due in 30 days

Debt collection

Total

31.12.2018

 

 

 

 

 

 

 

Expected loss rate

3.4%

44.8%

 

Other receivables from Payment business, other payment cards

8,783

746

9,528

Loss allowance

(295)

(138)

(433)

Net

8,488

608

9,096

The debt collection is net of receivables impaired at acquistion date in the amount of CHF 0.4 million.

Disclosure of the comparable figures for receivables from the Payment business as at 31 December 2017 in line with IAS 39

The following table shows the aging of the receivables contained in the balance sheet that are not individually impaired as at the reporting date:

 

 

 

Gross amount

Allowance

In 1,000 CHF

 

 

2017

2017

Receivables from cardholders and from debt collection

 

 

 

 

Not past due

 

 

443,927

0

Past due 1–30 days

 

 

2,017

0

Past due 31–60 days

 

 

723

0

Past due 61–90 days

 

 

260

0

Past due for more than 90 days

 

 

3,661

(932)

Total

 

 

450,587

(932)

 

 

 

 

 

Receivables from fraud and chargeback processes

 

 

 

 

Past due 1–30 days

 

 

330

(85)

Past due 31–60 days

 

 

25

(25)

Past due 61–90 days

 

 

5

(5)

Past due for more than 90 days

 

 

0

0

Total

 

 

360

(115)

 

 

 

 

 

Receivables from card schemes and others

 

 

 

 

Past due

 

 

199

(68)

Due on sight

 

 

826

(81)

Due within 1–3 years

 

 

4,775

0

Total

 

 

5,801

(148)

Receivables from fraud and chargeback processes

If a cardholder is suspected of making a fraudulent transaction or claims a chargeback, the balance is transferred to a dedicated portfolio until the case is settled. As at 31 December 2018, the value of the dedicated portfolio was CHF 0.4 million (31 December 2017: CHF 0.4 million). Suitable valuation allowances are set aside for all receivables in the portfolio. The total of all fraudulent and chargeback transactions currently under investigation is reported under “Receivables from fraud and chargeback processes”.

16. Receivables from Consumer Finance

In 1,000 CHF

2018

2017

Short-term receivables from Consumer Finance

477,430

474,714

Short-term loss allowance

(9,605)

(9,477)

Short-term receivables from Consumer Finance

467,826

465,238

 

 

 

Long-term receivables from Consumer Finance

1,012,389

909,425

Long-term loss allowance

(20,280)

(18,281)

Long-term receivables from Consumer Finance

992,108

891,144

 

 

 

Total receivables from Consumer Finance

1,459,934

1,356,382

Receivables from Consumer Finance and management of credit risk

In the Consumer Finance business, the Group grants cash credits or finances cars in a financial lease to its customers. The credit counterparty is a private consumer in the cash credit business and a private or corporate customer in the leasing business. The receivables are generally due on a monthly basis, which means that the credit risk steadily decreases over the life of the contract.

In compliance with the Swiss consumer credit regulations, a solvency check is carried out for all customers on an individual basis to assess the related credit risk when they apply for a cash credit or a leasing facility. The solvency check is based on the customer’s historical track record with the Group and requires the customer to deliver personal data on their financial situation such as employment, family situation and personal debt situation. Additionally, a database for private consumer loans, maintained by Swiss banks, is consulted to confirm that no negative records have been recognised for the future customer. If a client does not meet the stringent customer credit rating criteria, no credit facility will be approved.

The receivables from consumer loans are not collateralised. The finance lease receivables are collateralised by the financed cars.

Open balances from the Consumer Finance segment that have been past due for more than 90–150 days are transferred to a dedicated collection portfolio, which is actively monitored.

In 1,000 CHF

2018

2017

Receivables from consumer loans

782,445

738,885

Receivables from finance leases

707,374

645,255

 

 

 

Total receivables from business unit Consumer Finance

1,489,819

1,384,139

Receivables from finance leases

In 1,000 CHF

2018

2017

Current receivables from finance leases

 

 

Gross investment in finance leases

251,981

289,728

Unearned finance income

24,786

66,458

 

 

 

Present value of minimum lease payments

227,195

223,270

 

 

 

Non-current receivables from finance leases

 

 

Gross investment in finance leases

511,612

464,227

Unearned finance income

31,434

42,243

 

 

 

Present value of minimum lease payments

480,179

421,984

 

 

 

Gross receivables from finance leases

 

 

Due within up to 1 year

251,981

289,728

Due within 1–5 years

511,612

464,227

Unearned finance income

56,220

108,701

 

 

 

Present value of minimum lease payments

707,374

645,255

Loss allowances for receivables from Consumer Finance

The loss allowance for the business unit Consumer Finance is composed of impairments on receivables that are already past due plus a group of receivables that are not yet past due, but which have been collectively assessed and are expected to generate an impairment.

Input factors for the calculation of loss allowances

The collective loss allowance is calculated for clusters of customers using historical data in conjunction with sophisticated analytical methods and valuation models, whereby the specific risks for each cluster are taken into account. The input factors used to calculate expected credit loss (ECL = PD x EAD x LGD) for receivables that are assessed collectively are described below:

  • PD for consumer loans is measured by dividing the portfolio into sub-portfolios by interest rate type. PD for the leasing business is measured at portfolio level. The expected credit loss model uses a PD value based on a rolling 12-month average. For receivables where the credit risk has increased significantly, the total lifetime is defined as the effective contract duration. The average duration is 19 months for consumer loans and 32 months for leasing business.
  • EAD is based on the amount that the Group expects to be owed at the time of default. The amount includes expected future amortisation payments up to the time of default. In the case of leasing contracts, the amount also includes proceeds from the sale of the leased item.
  • Stage 1 and stage 2 receivables are measured using the same LGD, as they are not yet in default. Receivables in stage 3 are assigned an individual LGD depending on their age and status within our debt collection process.

At each reporting date, credit risk is assessed to see whether it has increased significantly. The assessment considers both quantitative and qualitative factors. Where the impairment has not already been identified, a receivable from the Consumer Finance is allocated to stage 2 when it is 60 days past due. Stage 2 receivables can be moved back to stage 1 as and when the credit risk no longer qualifies as significantly increased. The Group allocates a customer to stage 3 after debt management reminders have proved unsuccessful and the customer has had to be transferred to the pre-collection and legal collection processes. The transfer decision is made on a case-by-case basis for each customer and generally occurs when payments are 90–150 days past due. Contracts with customers in the collection process are terminated, which means contracts cannot be downgraded from stage 3. Stage 3 receivables are written off after two years. Based on past experience, the Group assumes that the receivables will not generate any further significant cash flow.

Forward-looking statements

Under IFRS 9, ECL calculations are required to incorporate forward-looking information: there is no significant statistical correlation between default risk and external macroeconomic factors in relation to consumer loans and the leasing business. Projections are used by experts when calculating the expected credit loss. Any anticipated effect from macroeconomic indicators is factored directly into the expected credit loss. The ECL calculation is reviewed on the reporting date to determine whether any current or forward-looking information needs to be adjusted.

The loss allowance is adjusted based on management’s judgement as to whether actual losses are likely to fall above or below historical trends given current economic and loan conditions. There are no specific significant loss allowances for receivables for the business unit Consumer Finance at present. Management deems the loss allowance for doubtful debts from Consumer Finance to be adequate.

Within Consumer Finance, an average of 98% (31 December 2017: 98%) of outstanding receivables are not past due. Based on past experience, the Group therefore calculates the impairment allowance on the basis of the default risk for the entire portfolio.

Expected credit losses in Consumer Finance as per 31 December 2018

 

Gross amount

ECL allowance

In 1,000 CHF

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Consumer Finance

 

 

 

 

 

 

 

 

Receivables from finance leases

692,283

11,708

3,383

707,374

(1,286)

(3,557)

(2,701)

(7,544)

Receivables from consumer loans

745,201

17,882

19,362

782,445

(4,009)

(5,177)

(13,155)

(22,341)

In 2018, the Group completely wrote off receivables totalling CHF 11.5 million. Loss certificates with a value of CHF 8.9 million have been issued for the receivables.

Changes in ECL allowance

The table below shows the changes for each stage over the reporting period.

 

ECL allowance

In 1,000 CHF

Stage 1

Stage 2

Stage 3

Total

 

 

 

 

 

Consumer loans

 

 

 

 

Balance at 1 January 2018 under IAS 39

-

-

-

(22,802)

Adjusmtents on initial application of IFRS 9

-

-

-

(636)

Balance at 1 January 2018 under IFRS 9

(4,381)

(4,646)

(14,411)

(23,438)

Transfer from stage 2 to stage 1

(994)

994

-

0

Transfer from stage 1 to stage 2

92

(92)

-

0

Transfer from stage 1 and 2 to stage 3

35

1,569

(1,604)

0

Changes due to carrying amount

(219)

(394)

135

(478)

New business and revaluations *

1,457

(2,607)

(4,925)

(6,075)

Write-offs

0

0

7,650

7,650

Balance as per 31 December 2018

(4,009)

(5,177)

(13,155)

(22,341)

 

 

 

 

 

 

 

 

 

 

Finance lease

 

 

 

 

Balance at 1 January 2018 under IAS 39

-

-

-

(4,956)

Adjusmtents on initial application of IFRS 9

-

-

-

(1,506)

Balance at 1 January 2018 under IFRS 9

(568)

(2,316)

(3,578)

(6,462)

Transfer from stage 2 to stage 1

(405)

405

-

0

Transfer from stage 1 to stage 2

6

(6)

-

0

Transfer from stage 1 and 2 to stage 3

0

306

(307)

0

Changes due to carrying amount

(48)

(113)

153

(7)

New business and revaluations *

(271)

(1,835)

(2,811)

(4,916)

Write-offs

0

0

3,841

3,841

Balance as per 31 December 2018

(1,286)

(3,557)

(2,701)

(7,544)

*Includes changes in the credit risk due to a stage transfer, an increase of the credit risk within the same stage without a transfer, foreign currency effects as well as discounting effects.

Disclosure of the comparable figures as at 31 December 2017 in line with IAS 39

The following table shows the aging of the receivables contained in the balance sheet that are not individually impaired as at the reporting date:

 

 

 

Gross amount

Allowance

In 1,000 CHF

 

 

2017

2017

Receivables from business unit Consumer Finance

 

 

 

 

Past due

 

 

35,086

(974)

Due on sight

 

 

13,725

(390)

Due within up to 3 months

 

 

135,901

(2,350)

Due within 4–12 months

 

 

290,003

(5,763)

Total current receivables

 

 

474,714

(9,477)

 

 

 

 

 

Due within 1–3 years

 

 

634,681

(12,939)

Due after more than 3 years

 

 

274,744

(5,342)

Total non-current receivables

 

 

909,425

(18,281)

 

 

 

 

 

Total

 

 

1,384,139

(27,758)

17. Inventories

In 1,000 CHF

2018

2017

Raw materials

2,344

2,540

Work in progress

20

0

 

 

 

Total inventories

2,364

2,540

In 2018, inventory costs of CHF 4.7 million were recognised as an expense (2017: CHF 5.6 million). No write-downs were recognised on inventories to net realisable value in 2018 (2017: none).

18. Other receivables

In 1,000 CHF

2018

2017

Receivables within scope of ECL calculation

 

 

Other accounts receivables

7,978

8,113

Other receivables from partners

225

140

Deposits

131

188

Receivables from rental guarantee business

769

0

Loss allowance

(60)

0

Total

9,044

8,441

 

 

 

Receivables out of scope of ECL calculation

 

 

Other receivables from VAT, withholding tax and salary benefits

2,069

1,515

Prepayments

3,400

4,058

Derivative financial instruments, held for trading

93

75

Total

5,562

5,649

 

 

 

Total other receivables

14,606

14,090

Other receivables consists of credit risk-related positions, such as other accounts receivables, other receivables from partners (schemes), deposits and receivables from rental guarantee business as well as positions not within the scope of ECL measurement such as derivative financial instruments, prepayments and other receivables from VAT, withholding tax and salary benefits.

To measure the expected credit loss, the receivables within the scope of ECL calculation have been grouped together in a loss rate approach based on shared credit risk characteristics and the days past due.

In 1,000 CHF

Current

Due in 1–4 years

Past due 1–30 days

Past due more than 30 days

Individiual value adjustment

Total

31.12.2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected loss rate

0.0%

0.0%

10.0%

20.0%

100.0%

 

Other receivables within scope of ECL calculation

8,171

131

-

-

33

8,335

Loss allowance

-

-

-

-

(33)

(33)

Net

8,171

131

-

-

-

8,302

Other receivables within the scope of ECL calculation consists mainly of very short-term receivables from a counterparty with a credit rating of AA-. The high rating, the short term and past experience (no default at all) result in a very low expected loss rate. The receivables due in 1-4 years consist of rental deposits at Zürcher Kantonalbank and Credit Suisse, both with a very high credit rating, and therefore a very low ECL is expected.

Receivables from the rental guarantee business

In 1,000 CHF

Current

Due less than 1 year

Past due 1–10 days

Past due 11–24 days

Past due over 24 days

Total

31.12.2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected loss rate

0.0%

0.0%

15.0%

20.0%

40.0%

 

Receivables from rental guarantee business within scope of ECL calculation

672

0

0

59

38

769

Loss allowance

0

0

0

(12)

(15)

(27)

Net

672

0

0

47

23

742

Derivatives – trading

In 1,000 CHF

2018

2017

Notional amount

118,746

27,356

Positive fair value

93

75

Negative fair value

(495)

(186)

Interest rate swaps – cash flow hedges

In 1,000 CHF

2018

2017

Notional amount

0

6,000

Positive fair value

0

0

Negative fair value

0

(57)

Derivative financial instruments

The Group uses derivatives to hedge foreign exchange risk and interest rate swaps to hedge against interest rate changes. As the Group does not meet all the documentation requirements under IFRS 9, the derivatives do not qualify for hedge accounting and are reported as “held for trading”.

Cash flow hedges (until 2017)

The Group also used interest rate swaps to hedge its exposure to interest changes arising from the Payment and Consumer Finance businesses. These instruments qualify for hedge accounting (until 2017).

The Group has a permanent requirement to refinance outstanding receivables due from cardholders and consumer finance customers.­ The refinancing need is fulfilled with bank loans with durations from one to 90 days and is aligned to Libor conditions. The Group enters into interest rate swaps to hedge its exposure to fluctuating interest rates on its refinancing. It swaps Libor interest payments into fixed interest payments. The total underlying amount of the contracted swaps as at 31 December 2017 amounted to CHF 6.0 million.

All cash flow hedges of the IRS were assessed to be highly effective as at 31 December 2017. A net unrealised gain of CHF 0.3 million with a related deferred tax liability of less than CHF 0.1 million was included in other comprehensive income in respect of these contracts.

19. Prepaid expenses

In 1,000 CHF

2018

2017

Prepaid expenses to partners

30,884

22,750

Other

33,493

29,380

 

 

 

Total prepaid expenses

64,378

52,129

In the Payment segment, the Group pays commissions to its distribution partners (mainly the shareholder banks). The commission contains a reimbursement for annual charges for credit cards. The share paid to the partner but not yet consumed is recognised as a prepaid expense to partners.

Concerning the Consumer Finance activities, the Group recog­nises commissions paid to its sellers and distribution partners. The commission is periodically allocated to the expected duration of the contract.

20. Property and equipment

In 1,000 CHF

Furniture

IT & office equipment

Cars

Leasehold improvement

Buildings

Terminals

Total

Costs

 

 

 

 

 

 

 

Balance at 1 January 2018

3,328

10,820

892

9,072

1,939

0

26,052

Acquisitions through business combinations (see note 3)

195

1,677

1

1,471

0

0

3,344

Disposals due to sale of major business line

(14)

(39)

(14)

0

0

0

(66)

Acquisitions

839

1,017

389

176

0

0

2,421

Disposals and other changes

(555)

(1,256)

(352)

(478)

0

0

(2,641)

Effect of movements in foreign exchange

0

(1)

0

0

0

0

(1)

Balance at 31 December 2018

3,793

12,219

916

10,241

1,939

0

29,108

 

 

 

 

 

 

 

 

Depreciation and impairment losses

 

 

 

 

 

 

 

Balance at 1 January 2018

(1,922)

(7,395)

(449)

(4,700)

(384)

0

(14,850)

Disposals due to sale of major business line

6

25

14

0

0

0

45

Depreciation charge for the year

(298)

(2,176)

(165)

(1,029)

(64)

0

(3,732)

Disposals and other changes

555

952

228

369

0

0

2,104

Effect of movements in exchange rates

0

1

0

0

0

0

1

Balance at 31 December 2018

(1,659)

(8,595)

(372)

(5,360)

(448)

0

(16,433)

 

 

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

 

 

At 1 January 2018

1,407

3,425

444

4,372

1,555

0

11,202

At 31 December 2018

2,134

3,624

544

4,881

1,492

0

12,675

In 1,000 CHF

Furniture

IT & office equipment

Cars

Leasehold improvement

Buildings

Terminals

Total

Costs

 

 

 

 

 

 

 

Balance at 1 January 2017

2,740

19,806

1,096

13,266

1,939

6,075

44,919

Acquisitions through business combinations (see note 3)

9

33

0

0

0

0

42

Disposals due to sale of major business line

(909)

(3,549)

0

(4,188)

0

(6,075)

(14,720)

Acquisitions

1,492

3,357

168

140

0

0

5,157

Disposals and other changes

(3)

(8,830)

(371)

(146)

0

0

(9,350)

Effect of movements in foreign exchange

0

2

0

0

0

0

2

Balance at 31 December 2017

3,328

10,820

892

9,072

1,939

0

26,052

 

 

 

 

 

 

 

 

Depreciation and impairment losses

 

 

 

 

 

 

 

Balance at 1 January 2017

(1,639)

(5,702)

(526)

(5,897)

(321)

(3,937)

(18,022)

Disposals due to sale of major business line

8

407

0

2,035

0

3,937

6,386

Depreciation charge for the year

(322)

(2,513)

(171)

(959)

(64)

0

(4,028)

Disposals and other changes

32

415

247

122

0

0

815

Effect of movements in exchange rates

0

(2)

0

0

0

0

(2)

Balance at 31 December 2017

(1,922)

(7,395)

(449)

(4,700)

(384)

0

(14,850)

 

 

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

 

 

At 1 January 2017

1,101

14,104

570

7,369

1,618

2,138

26,897

At 31 December 2017

1,407

3,425

444

4,372

1,555

0

11,202

Non-cancellable operating lease rentals are payable as follows:

In 1,000 CHF

2018

2017

Less than one year

10,680

7,055

Between one and five years

15,271

11,542

 

 

 

Total

25,950

18,597

Operating leases include the Group’s offices in the cantons of Zurich, St. Gallen, Ticino, Bern, Vaud, Neuchâtel and Geneva.

During the year ended 31 December 2018, CHF 5.2 million was recognised as an expense in the consolidated income statement in respect of operating leases (2017: CHF 4.9 million).

21. Goodwill and other intangible assets

In 1,000 CHF

Goodwill

Software

Licences

Client relationships

Total other intangible assets

Costs

 

 

 

 

 

Balance at 1 January 2018

128,434

102,238

2,992

40,941

146,171

Acquisitions through business combinations (see note 3)

58,741

1,939

9,181

125,316

136,437

Disposals due to sale of major business line

0

(1,912)

0

0

(1,912)

Acquisitions

0

14,874

0

0

14,874

Disposals and other changes

0

(9,212)

(2,848)

(7,664)

(19,724)

Balance at 31 December 2018

187,175

107,928

9,325

158,592

275,846

 

 

 

 

 

 

Amortisation and impairment losses

 

 

 

 

 

Balance at 1 January 2018

0

(30,721)

(1,587)

(28,522)

(60,830)

Disposals due to sale of major business line

0

25

0

0

25

Amortisation charges for the period

0

(13,976)

(1,708)

(8,644)

(24,328)

Disposals and other changes

0

8,754

2,848

7,664

19,266

Balance at 31 December 2018

0

(35,919)

(446)

(29,502)

(65,867)

 

 

 

 

 

 

Carrying amounts

 

 

 

 

 

At 1 January 2018

128,434

71,516

1,405

12,418

85,341

At 31 December 2018

187,175

72,008

8,879

129,091

209,978

In 1,000 CHF

Goodwill

Software

Licences

Client relationships

Total other intangible assets

Costs

 

 

 

 

 

Balance at 1 January 2017

136,043

70,923

2,992

136,200

210,115

Acquisitions through business combinations (see note 3)

21,120

19,298

0

980

20,278

Disposals due to sale of major business line

(28,729)

(18,690)

0

(96,239)

(114,929)

Acquisitions

0

22,249

0

0

22,249

Disposals and other changes

0

8,458

0

0

8,458

Balance at 31 December 2017

128,434

102,238

2,992

40,941

146,171

 

 

 

 

 

 

Amortisation and impairment losses

 

 

 

 

 

Balance at 1 January 2017

0

(29,091)

(1,081)

(115,180)

(145,352)

Disposals due to sale of major business line

0

5,591

0

90,802

96,393

Amortisation charges for the period

0

(7,199)

(505)

(4,144)

(11,849)

Disposals and other changes

0

(22)

0

0

(22)

Balance at 31 December 2017

0

(30,721)

(1,587)

(28,522)

(60,830)

 

 

 

 

 

 

Carrying amounts

 

 

 

 

 

At 1 January 2017

136,043

41,831

1,911

21,020

64,762

At 31 December 2017

128,434

71,516

1,405

12,418

85,341

Client relationships

The acquisitions of the BCV portfolio and Raiffeisen Finanzierungs AG in 2008 resulted in a further increase in the client relationships recognised in the Group’s balance sheet, which is depreciated using the digital degressive method over 7–10 years, ending in 2018.

In 2012 the Group acquired client relationships amounting to CHF 9.0 million for its Consumer Finance business to strengthen its presence in the French-speaking part of Switzerland. Also in 2012 the Group acquired Revi-Lease and recognised the client relationship. These relationships are depreciated using the digital degressive method through their estimated useful life over ten years until 2022.

The acquisition of AdunoKaution in 2014 resulted in a further increase in client relationships by CHF 0.7 million. Also in 2014 the Group acquired the client relationship of Banque Cantonale Neuchâteloise amounting to CHF 2.3 million. These are depreciated using the digital degressive method over their estimated useful life until 2024.

The acquisition of SmartCaution in 2016 resulted in an increase in client relationships by CHF 7.7 million. This is depreciated using the digital degressive method over its estimated useful life until 2031.

The acquisition of Contovista in 2017 resulted in an increase in client relationships by CHF 1.0 million. This is depreciated using the digital degressive method over its estimated useful life until 2032.

In 2017 Aduno SA was sold and the related client relationships in the amount of CHF 5.4 million were derecognised.

The acquisition of Accarda in 2018 added CHF 125.3 million to customer relationships. Customer relationships are divided into two sub-portfolios: one portfolio has a value of CHF 42.1 million, which is depreciated arithmetically over a seven-year period; the second portfolio has a value of CHF 83.2 million and is subject to straight line depreciation over a seven-year period. The portfolios are different in the composition of the customer base. Based on analyses we expect the value in use of one of the portfolio will decrease faster than the other. This expectation is reflected in a different amortization method.

Impairment tests for cash-generating units containing goodwill

The Group performed impairment tests on goodwill as at 30 November 2018. For the purpose of impairment testing, goodwill is allocated to a cash-generating unit that is expected to benefit from the synergies of the corresponding business combination.

For the impairment test, the recoverable amount of a cash-generating unit (the higher of the cash-generating unit’s fair value less costs to sell and its value in use) is compared to the carrying amount of the corresponding cash-generating unit.

Future cash flows are discounted using a pre-tax rate that reflects current market assessments based on the Weighted Average Cost of Capital (WACC) and the Capital Asset Pricing Model (CAPM). The WACC is calculated based on an average of available market betas of a group of companies operating in the same businesses as the respective cash-generating unit as well as the risk-free interest rate.

Fair value less costs to sell is normally assumed to be higher than the value in use; therefore, fair value less costs to sell is only investigated when value-in-use is lower than the carrying amount of the cash-generating unit.

The cash flow projections are based on three-year period plan. Cash flows beyond this period are extrapolated using the long-term estimated growth rates stated below.

Key assumptions used for value-in-use calculations of goodwill amounts per cash-generating unit were as follows:

2018 In 1,000 CHF

Carrying amount of goodwill

Currency

Discount rate

Projection period

Long-term growth rate

Payment business - Issuing

96,321

CHF

10.3%

2019–2021

1%

Consumer Finance

33,663

CHF

10.6%

2019–2021

1%

Internal Financing

57,190

CHF

9.2%

2019–2021

1%

2017 In 1,000 CHF

Carrying amount of goodwill

Currency

Discount rate

Projection period

Long-term growth rate

Payment business - Issuing

43,428

CHF

10.9%

2018–2020

1%

Consumer Finance

27,816

CHF

8.6%

2018–2020

1%

Internal Financing

57,190

CHF

8.4%

2018–2020

1%

The estimated recoverable amount for the three cash-generating units exceeds the carrying amount of the cash-generating units. No reasonably possible change in the key assumptions would cause the carrying amount of the cash-generating units to exceed the recoverable amount.

The composition of goodwill altered in 2018. Goodwill from the issuing business was increased by CHF 58.7 million following the acquisition of Accarda (see note 3). In addition, SmartCaution and AdunoKaution – the two legal entities that manage the rental guarantee business – merged into cashgate in 2018. The associated goodwill of CHF 1.9 million and CHF 3.9 million was therefore transferred from Payment business - Issuing to Consumer Finance.

22. Investments in associates

Since 2007 the Group has owned a 30% stake in Accarda. Accarda has its principal place of business in Wangen‑Brüttisellen (ZH) and issues, processes and operates store cards and gift cards on behalf of corporate retail customers. Effective 1 October 2018 Aduno Holding holds 100% in Accarda, and Accarda is now consequently fully consolidated, see also note 3 “Change in scope of consolidation”. The revaluation of the existing 30% resulted in a valuation gain of CHF 27.4 million. The revaluation gain is recorded in “Income from associates”.

The following table shows a summary of the full-year financial information for 2017 for the associate Accarda, not adjusted for the percentage ownership held by the Group:

In 1,000 CHF

2018

2017

Total assets

n/a

323,322

Total liabilities

n/a

229,910

Net assets

n/a

93,412

 

 

 

Revenue

n/a

47,446

Profit for the period

n/a

11,323

The Group’s share of the profit of Accarda for the period from 1 January to 30 September 2018 amounted to CHF 2.9 million and is accounted in the consolidated profits of the Group. In 2018 Aduno Holding received a dividend payment of CHF 1.5 million from Accarda (2017: CHF 1.5 million). The revenue not adjusted for the percentage ownership held by the Group for the first 9 months of Accarda amounted to CHF 54.4 million, and the gain to CHF 9.7 million.

In March 2016 Aduno Holding acquired a 14.3% stake in Contovista. Contovista develops software for Finance Management as well as Analytics and distributes it to banks. The Group is represented in the Board of Directors of Contovista. In 2017 the Aduno Holding acquired an additional 55.7% and increased its stake to 70%. Consequently Contovista is now fully consolidated. Refer to note 3 “Change in scope of consolidation”. Due to the revaluation of the current 14.3%, the group recorded a fair value gain of CHF 4.0 million in income from associates.  

Since 2015 the Group has owned a 33.3% stake in SwissWallet AG, founded in 2015. SwissWallet AG has its principal place of business in Zurich. SwissWallet is a digital payment solution from the Swiss credit card industry.

 

SwissWallet AG

In 1,000 CHF

2018

2017

Total assets

3,403

2,292

Total liabilities

169

68

Net assets

3,233

2,224

 

 

 

Revenue

1,364

1,023

Profit / (loss) for the period

(491)

(25)

The Group’s share of the loss of SwissWallet AG for the period from 1 January to 31 December 2018 amounted to CHF 0.2 million and is accounted for in the consolidated profits of the Group (2017: loss of less than CHF 0.1 million).

23. Financial investments available for sale 

The group holds preferential Visa Inc. shares. These shares are classified as financial investments FVOCI, due to strategic reasons. In 2018, the fair value increased by CHF 4.3 million (2017: 7.4 million), which was recorded as an unrealised gain on financial investments FVOCI (2017: financial investment – available for sale) in other comprehensive income. The disposed portion of preferential Visa Inc. shares relating to Aduno SA was reacquired by Viseca subsequent to the sale of Aduno SA.

In 1,000 CHF

2018

2017

Financial assets

 

 

Balance at 1 January

26,131

18,732

Acquisition

0

6,428

Disposal

0

(6,428)

Unrealised gains

4,282

7,399

 

 

 

Balance at 31 December

30,413

26,131

From the preferential Visa Inc. shares the Group received dividends in the amount of CHF 0.1 million (2017: CHF 0.1 million), which are recorded in other income.

24. Payables to counterparties

In 1,000 CHF

2018

2017

Advances received

115,117

102,393

Payables to merchants

59,617

0

Payables to schemes

66,765

61,509

 

 

 

Payables to counterparties

241,498

163,901

The Group receives advance payments from customers with issued prepaid credit cards as well as for downpayments for leasing contracts.

The significant increase compared to 2017 is due to the acquisition of Accarda. Accarda operates also in the acquiring business and pays its merchants once a month. Balances not yet paid are disclosed as payable to the merchants.

25. Other trade payables

“Other trade payables” contain unpaid invoices, which were received before the end of the year, but for which the time limit for payment has not yet been reached. They amounted to CHF 13.3 milion as per the end of the reporting period (end of 2017: CHF 7.1 million).

26. Other payables

In 1,000 CHF

2018

2017

Payables related to employees

17,056

14,679

VAT liabilities

1,352

1,297

Derivatives used for hedging

0

57

Derivative financial instruments

495

186

Other

378

65

 

 

 

Other payables

19,280

16,285

Details of derivative financial instruments are shown in note 18 “Other receivables”.

27. Accrued expenses and deferred income

In 1,000 CHF

2018

2017

Deferred annual fees

36,774

35,624

Commission payable to partners

39,446

28,006

Deferred revenues arising from loyalty programs

19,597

21,002

Accrued interest expenses

1,552

1,431

Other

24,157

29,673

 

 

 

Accrued expenses and deferred income

121,526

115,736

28. Interest-bearing liabilities

In 1,000 CHF

2018

2017

Other bank liabilities

202,652

102,181

Current portion of syndicated loan

390,000

390,000

Current portion of unsecured bond issues

525,269

100,094

Short-term interest-bearing liabilities

1,117,921

592,275

 

 

 

Unsecured bond issues

274,299

374,024

Other long-term liabilities

468

590

Long-term interest-bearing liabilities

274,767

374,614

 

 

 

Total interest-bearing liabilities

1,392,688

966,889

Changes arising from financing liabilities are mainly due to changes from financing cash flows and are disclosed in the statement of cash flows.

Terms and debt repayment schedule

In 1,000 CHF

Currency

Nominal interest rate

Year of maturity

2018 Nominal value

2018 Carrying amount

2017 Nominal value

2017 Carrying amount

Syndicated loan

CHF

0.68%

2019

300,000

300,000

300,000

300,000

Syndicated loan

CHF

0.68%

2019

90,000

90,000

90,000

90,000

 

 

 

 

 

 

 

 

Unsecured bond issue

CHF

0.00%

2018

0

0

100,000

100,094

Unsecured bond issue

CHF

3 M Libor1)

2019

100,000

100,022

0

0

Unsecured bond issue

CHF

3 M Libor1)

2019

100,000

100,000

100,000

100,000

Unsecured bond issue

CHF

0.00%

2019

150,000

150,165

0

0

Unsecured bond issue

CHF

0.00%

2019

175,000

175,082

0

0

Unsecured bond issue

CHF

1.125%

2021

275,000

274,299

275,000

274,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other bank liabilities

CHF

0.78%

2019

7,170

7,170

101,820

101,820

Other bank liabilities

CHF

0.20%

2019

195,469

195,469

0

0

Other bank liabilities

CHF

0.78%

current account

13

13

301

301

Other bank liabilities

various

0.78%

current account

0

0

60

60

Other long-term liabilities

CHF

0.00%

2021

468

468

590

590

 

 

 

 

 

 

 

 

Total

 

 

 

1,393,120

1,392,688

967,771

966,889

1)Floor at 0.0% and cap at 0.05%

Syndicated loan

As at 31 December 2018, the Group has a syndicated loan facility of CHF 600 million headed by Zürcher Kantonalbank (ZKB) (31 December 2017: CHF 600 million) at its disposal. The interest conditions of the facility are quoted by ZKB at market conditions as at the fixing date according to the maturity plus a margin depending on the Company’s credit rating.

As at 31 December 2018, the syndicated loan amounted to CHF 390 million nominal (31 December 2017: CHF 390 million).

Unsecured bond issues

Two bonds were issued in the first half of 2018. A CHF 100 million floating rate bond based on the Libor interest rate with a floor of 0.0%, a cap of 0.05% and an effective interest rate of -0.38%. Also a CHF 150 million fixed rate bond that matures in 2019 with a nominal interest rate of 0.00% and an effective interest rate of -0.26%.

Another bond was issued in the second half of 2018: a CHF 175 million fixed rate bond that matures in 2019 with a coupon of 0.0% and an effective interest rate after fees of -0.05%.

Two bonds were issued in 2017. These included a bond of CHF 100 million featuring a floating rate based on the Libor interest rate with a floor at 0.0% and a cap at 0.05% expiring in 2019, and a fixed rate bond of CHF 100 million maturing in 2018 with a coupon of 0.00% and an effective interest rate of –0.3% which expired in April 2018.

A fixed rate bond of CHF 275 million issued in 2014 with its maturity in 2021 disposes of a nominal interest rate of 1.125%. Including fees, the effective interest rate amounts to 1.241%.

Other bank liabilities

As at 31 December 2018, the Group has access to a bilateral credit facility with ZKB of CHF 800 million (31 December 2017: CHF 700 million). The interest rate for this facility is set at the market interest rate based on the maturity plus a fixed credit margin. Of this, CHF 7.6 million had been used as at 31 December 2018 (31 December 2017: CHF 102.2 million).

In addition to a credit facility with ZKB, the Group has two short-term credit facilities with Commerzbank. One facility has a limit of CHF 195 million and was fully drawn as at 31 December 2018; no drawings had been made on the second CHF 160 million facility as at 31 December 2018. The interest rate for the credit facilities is set at the market interest rate plus a fixed credit margin.

Pledged assets

No assets were pledged as at 31 December 2018 (31 December 2017: none).


29. Provisions

In 1,000 CHF

Legal

Other

Total

Balance at 1 January 2018

126

9,659

9,785

Provisions made during the period

455

2,550

3,004

Provisions used during the period

0

(3,581)

(3,581)

Increase due to purchase of business unit

0

5,340

5,340

Disposals due to sale of major business line

0

0

0

Provisions reversed during the period

(6)

0

(6)

Balance at 31 December 2018

575

13,967

14,542

 

 

 

 

Maturity of provisions

 

 

 

Current

278

6,897

7,175

Non-current

297

7,070

7,367

Total

575

13,967

14,542

In 1,000 CHF

Legal

Other

Total

Balance at 1 January 2017

265

1,593

1,858

Provisions made during the period

6

8,066

8,072

Disposals due to sale of major business line

(95)

0

(95)

Provisions reversed during the period

(50)

0

(50)

Balance at 31 December 2017

126

9,659

9,785

 

 

 

 

Maturity of provisions

 

 

 

Current

126

0

126

Non-current

0

9,659

9,659

Total

126

9,659

9,785

The Group may be involved in legal proceedings in the course of normal business operations. The Group establishes provisions for pending legal cases where management believes that the Group is likely to be required to make payments and where the payment amounts can be reasonably estimated.

Other provisions include long-term dismantling obligations linked to tenant improvements to the business premises rented by the Group (2018: CHF 1.7 million; 2017: CHF 1.6 million). The Group does not have any plans to move out of the business premises at present. Provisions have also been set aside for onerous contracts (2018: CHF 2.4 million; 2017: CHF 5.4 million). As part of the sale of Aduno SA, the Aduno Group undertook to provide transitional services to the buyers with an agreed upper limit for the associated fees. The cost of providing the services, which includes rental costs, has exceeded the expected income.

Acquisitions through business combinations represents provisions for distributions from the Accarda debt collection business to payment card customers. The provision has been created because the exact amount and timing of the payments are unknown.

In 2018, the Group set up a provision in the amount of CHF 2.5 million for expected additional payments for social security on service agreements.

30. Employee benefit obligations

The pension plan of the Group is a defined benefit plan. Disability and death benefits are defined as a percentage of the insured salary.

It provides benefits in excess of the LPP/BVG law, which stipulates the minimum requirement of the mandatory employer’s sponsored pension plan in Switzerland. In particular, annual salaries up to CHF 84,600 (2017: CHF 84,600) must be insured. Financing is age-related, with contribution rates calculated as a percentage of the pensionable salary increasing with age from 7% to 18%. The conversion rate to calculate the annuity based on the accrued savings capital is 6.8% at normal retirement age (65 for men and 64 for women). The calculations are based on the BVG Generation Table 2015.

The plan must be fully funded under LPP/BVG law on a static basis at all times. In case of underfunding, recovery measures must be taken, such as additional financing from the employer or from the employer and employees, or a reduction in benefits or a combination of both.

The Group is affiliated to the collective foundations Swisscanto Sammelstiftung der Kantonalbanken, CIEPP - Caisse Inter-Entreprises de prévoyance professionnelle and PKG Pensionskasse (PKG). The collective foundations are separate legal entities. The foundations are responsible for governance of the plans; their boards are composed of an equal number of representatives from the employers and the employees chosen from all affiliated companies.

The foundation has set up investment guidelines, defining in particular the strategic allocation with margins.

Additionally, there is a pension committee composed of an equal number of representatives from the Group and the employees of the Group. The pension committee is responsible for the setting up the plan benefits.

This defined benefit plan exposes the Group to actuarial risks, such as longevity risk, currency risk, interest rate risk and market (investment) risk.

In 1,000 CHF

2018

2017

Fair value of funded obligations

218,344

155,053

Fair value of plan assets

(175,991)

(117,402)

 

 

 

Recognised liability for defined benefit obligations

42,353

37,651

Movements of fair value of defined benefit obligations

In 1,000 CHF

2018

2017

Liability for defined benefit obligations at 1 January

155,053

167,684

Current service cost

8,443

8,892

Past service cost

10,786

(5,550)

Interest expenses

1,231

945

Benefit payments

(6,348)

(1,637)

Settlement payments from plan assets

0

(18,498)

Employee contributions

4,753

4,383

Insurance premiums

(1,489)

(1,477)

Liabilities assumed through business combinations

49,438

310

Effect of changes in demographic assumptions

0

0

Effect of changes in financial assumptions

(4,714)

(3,431)

Effect of experience adjustments

1,191

3,432

 

 

 

Liability for defined benefit obligations at 31 December

218,344

155,053

Movements of fair value of plan assets

In 1,000 CHF

2018

2017

Fair value of plan assets at 1 January

(117,402)

(125,136)

Interest income

(1,014)

(731)

Return on plan assets (excluding interest income)

(2,894)

(2,382)

Employer contributions

(6,630)

(6,131)

Employee contributions

(4,753)

(4,383)

Benefit payments

6,348

1,637

Settlement payments from plan assets

0

18,498

Insurance premiums

1,489

1,477

Assets acquired through business combinations

(51,135)

(251)

 

 

 

Fair value of plan assets at 31 December

(175,991)

(117,402)

The plan assets are invested to ensure that the return on plan assets together with the contributions should cover the long-term benefit obligations. In the short-term, however, the pension fund could suffer a shortfall as defined by Swiss law, which would eventually trigger restructuring contributions.

Expenses recognised in the statement of comprehensive income

In 1,000 CHF

2018

2017

Current service cost

8,443

8,892

Past service cost

10,786

(5,550)

Interest on employee benefit obligations

1,231

945

Interest on plan assets

(1,014)

(731)

 

 

 

Total, included in “Personnel expenses”

19,446

3,556

 

 

 

Effect of changes in demographic assumptions

0

0

Effect of changes in financial assumptions

(4,714)

(3,431)

Effect of experience adjustments

1,191

3,432

Return on plan assets (excluding interest income)

(2,894)

(2,382)

 

 

 

Total, included in other comprehensive income

(6,417)

(2,381)

Plan amendments derived subsequently to the purchase of Accarda resulted in past service costs in the amount of CHF 10.8 million, which have been recorded in personnel expenses.

Actuarial assumptions

Significant actuarial assumptions at the reporting dates were as follows (expressed as weighted averages):

In 1,000 CHF

2018

2017

Discount rate at 31 December

1.00%

0.70%

Interest rate for the projection of savings capital

1.25%

1.25%

Future salary increases

1.50%

1.50%

Future pension increases

0.00%

0.00%

Life expectancy at age 65, insured for a now 45-year-old active member

 

 

Males

24.40

24.33

Females

26.44

26.37

Life expectancy at age 65 years

 

 

Males

22.61

22.50

Females

24.65

24.54

Sensitivity analysis  

The sensitivity analysis below has been determined based on reasonably possible changes of the respective actuarial assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

  • If the discount rate is 25 basis points higher (lower), the defined benefit obligations would decrease by CHF 6.4 million (increase by CHF 7.0 million). 2017, a decrease by CHF 5.3 million and an increase by CHF 4.9 million. 
  • If the expected salary growth rate increases (decreases) by 0.5%, the defined benefit obligations would increase by CHF 0.9 million (decrease by CHF 1.1 million). In 2017, an increase by CHF 0.9 million and a decrease by CHF 1.0 million.
  • If the expected pension growth rate increases by 0.25%, the defined benefit obligations would increase by CHF 5.6 million (2017: CHF 4.1 million).
  • If the life expectancy increases by one year for both men and women, the defined benefit obligations would increase by CHF 2.9 million (2017: CHF 2.1 million).

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit as it is unlikely that a change in assumptions would occur in isolation as some of the assumptions may be correlated.

Future contributions

The Group expects to pay CHF 7.9 million in contributions to defined benefit plans in 2019. As at 31 December 2017, the Group expected to pay CHF 5.8 million in 2018.

Plan assets

In 1,000 CHF

2018

2017

Asset categories

 

 

Cash

0.0%

2.7%

Mortgages

5.2%

5.4%

Domestic bonds

21.2%

23.0%

Foreign bonds in other currencies

5.2%

5.1%

Swiss shares

10.3%

9.1%

Foreign shares

22.9%

24.2%

Real estate

15.1%

13.2%

Alternative investments

20.1%

17.3%

 

 

 

Total

100.0%

100.0%

The bonds held are predominantly rated A or better.

Cash as well as most of the investments in bonds and shares have a quoted market price in an active market. Investments in real estate and alternative investments do not typically have a quoted market price in an active market.

The investment strategy has been defined based on an asset-liabilities matching strategy. However, matching between assets and liabilities is only possible to a certain degree as the duration of the liabilities is relatively long compared to the available assets. Furthermore, available bonds with long durations do not generate a yield high enough to reach the necessary returns on the plan assets. Therefore, the pension fund also needs to invest in property and alternative investments.

As at 31 December 2018, the weighted-average duration of the defined benefit obligations was 17.5 years (2017: 18.3 years).

31. Contingent liabilities

In the normal course of business, the Group enters into agreements pursuant to which the Group may be obliged under specified circumstances to indemnify the counterparties with respect to certain matters.

In some leasing contracts in the Consumer Finance business, the Group confirms to the customer a minimum residual value of the leased item to the leasing partner. This means that if the leasing customer returns the leased item to the leasing partner after the leasing period with a lower value than the minimum residual value, the Group is obliged to refund the leasing partner the difference in value.

32. Share capital and reserves

Share capital

As at 31 December 2018 the share capital of the parent company Aduno Holding consisted of 25,000 shares with a nominal value of CHF 1,000 each (2017: 25,000 shares). The holders of the shares are entitled to receive dividends as declared and are entitled to one vote per share at the general meeting of the Company.

In 1,000 CHF

2018

2017

Number of issued shares 1 January

25,000

25,000

Number of issued shares 31 December

25,000

25,000

 

 

 

Nominal value in CHF

1,000

1,000

Dividends

The following dividends were declared and paid by the Group:

In 1,000 CHF

Paid in 2018

Paid in 2017

Total dividend

150,000

40,000

Dividend per share in CHF

6,000

1,600

After 31 December 2018 the Board of Directors proposed a dividend of CHF 1,600 per share totalling CHF 40 million for 2018. The dividend proposal will be forwarded for approval by the Annual General Meeting in May 2019.

Hedging reserve

As described in note 18, the Group uses interest rate swaps to hedge its exposure to interest rate changes. The effective portion of these hedges, net of taxes, is accounted in the hedging reserve. As per 31 December 2018 the Group did not apply any hedge accounting.

In 1,000 CHF

2018

2017

Negative fair value of cash flow hedges (see note 25)

0

(57)

Terminated forward-starting cash flow hedges

0

0

Tax effect

0

7

 

 

 

Total hedging reserve

0

(51)

Capital management

The Board’s policy is to maintain an adequate equity base so as to maintain the confidence of investors, creditors and the market and to sustain the future development of the business. The Board of Directors monitors the return on capital, which the Group defines as the total shareholders’ equity and the development of dividends paid to shareholders.

According to the Swiss consumer finance regulations, certain consumer finance credit balances to private customers have to be underlined with 8% of equity. For the subsidiary cashgate, the Company’s target is therefore to always maintain an equity base fulfilling these legally required obligations. The level of equity is reviewed by the management of cashgate on a quarterly basis. Since the acquisition of the Consumer Finance business, this obligation was fulfilled at the end of each month, including on 31 December 2018.

33. Risk management 

Through its business activities, the Aduno Group is subjected to constant changes and thus also confronted with opportunities and risks that can substantially affect the achievement of its strategic goals and objectives. These opportunities and risks can arise from events, conditions and actions to which the Group is exposed and which it therefore needs to understand and actively manage.

In recent years, the Group has further enhanced its risk management programme (framework), expanding it to take into account the complexity of its business divisions and major changes in the business environment.

Risk

The Group defines risk as the uncertainties inherent in the achievement of strategic and operational objectives that are associated with all business activities. These uncertainties could result in a shortfall in meeting objectives or the risk of financial losses.

Risk management

As a financial services company, the Aduno Group is exposed to various types of risk that are managed actively and systematically.

The Aduno Group’s risk management approach follows a standardised model that starts with the definition of the risk policy, continues with the identification, management and monitoring of the risks associated with its business activities, and culminates in risk reporting.

Internal control system

The Internal Control System (ICS) of the Group covers all control structures (including roles and responsibilities) and processes that form the basis for achieving the business objectives and ensuring appropriate business operations across all levels of the Company. The integrated ICS consists of ex-post oversight as well as planning and management activities.

Principles of risk management

Risk policy

The risk policy specifies the framework for the risk management and risk profile of the Group. This in particular includes the definition of risk capacity, risk appetite, limits, suitable stress tests as well as quantification and aggregation methodologies to monitor the risk profile.

The risk policy sets out the objectives of risk management. It involves taking risks in a controlled and deliberate manner to achieve an optimal risk-return ratio. The framework conditions are determined by the Company’s business strategy and risk capacity. To this end, the Group aligns the strategic planning process with capital planning and risk budgeting.

Risk culture

A risk culture geared towards responsible risk-taking to ensure a deliberate approach to risks is fostered throughout the Group. The management of the Group is expected to set an example and influence its employees only to take on risks that are compatible with the specified risk appetite. The promotion and compensation of employees also takes their compliance with the risk culture and risk policies into account.

As the Group’s business operations involve inherent risks that require active management, the Group aims for a high degree of risk awareness.

The Group consciously enters into risk transactions within its defined risk appetite. To this end, new business activities or changes to existing business activities are systematically evaluated with regard to their risk profile and the risk portfolio is constantly monitored. The Group avoids extreme risks that jeopardise its solvency or its very existence.

Segregation of duties

Risk management operates along the “Three Lines of Defence Model”. The first line of defence refers to the functions that own and manage risks consisting of the managers, experts and staff within the business divisions and ensures that the actual risk profile adheres to the approved risk appetite.

The second line of defence comprises centralised risk control that not only defines the directives that apply to all business divisions when dealing with specified risks, but also monitors compliance with these requirements. The second line of defence also provides an aggregated portfolio view to support management in the implementation of effective risk management practices for the Group and ensures regular risk reporting.

The third line of defence provides independent assurance on the effectiveness of governance, risk management and internal controls, including the manner in which the first and second lines of defence meet risk management and control objectives. The internal and external auditors are responsible for the third line of defence.

Standardised risk management process

The risk management process of the Aduno Group contains the following elements: risk identification, risk assessment, risk steering and risk monitoring. All new business activities and changes to existing business activities follow the risk management process. The materiality of changes to the business model is a relevant benchmark in this process.

Central risk control ensures that the risk management process is carried out effectively.

Standardised valuation method

Standardised methods appropriate to the type and scope of business activity are defined for determining the risk profile and risk capacity. Risk assessments are made at risk category, business division and Group level.

Scenario-based risk assessments are performed to gauge the impact of environmental, business and operational risks on key objectives, whereby the realistic scenarios are based on the time horizon and objectives of the strategic business plan. The robustness of the business model is tested under various stress scenarios.

Transparency

Risk Control regularly informs the Board of Directors and Executive Board of the Group about the overall risk situation, any developments in the risk profile and important findings gained through its risk oversight role. In addition, an annual activity report is prepared that provides information about the maturity level of and developments in the risk management system.

Various reports are prepared for each risk category, whereby format, frequency and recipients are tailored to the individual risk to ensure a comprehensive, objective and transparent foundation for decision-makers and oversight committees.

Risk governance

Board of Directors

Overall responsibility for risk management lies with the Board of Directors, which approves the principles for risk management. The Board of Directors receives regular reports about the risk situation of the Group and the status of measures implemented. The Board of Directors monitors the effective implementation of the risk policy and risk strategies as well as the adopted measures.

The Audit and Risk Committee and the internal auditors support the Board of Directors in the execution of its responsibilities.

Executive Board

The Executive Board (ExB) is responsible for the implementation of the risk management standards defined in the risk management regulations and the design, implementation and continuous review of the Internal Control System (ICS).

A risk board has been set up at the ExB level that meets quarterly to discuss the structure and effectiveness of the risk management system, the design and monitoring of the risk policy and the management of the Group’s risks.

Expert committees have been set up to prepare requests for approval for transactions, proposals and recommendations as a decision-making basis for the ExB.

Risk control

A central risk control function is responsible for identifying and monitoring risks at an aggregated portfolio level, monitoring compliance with the risk policy and ensuring integrated risk reporting to the Board of Directors and the ExB. Risk control is responsible for risk measurement methodologies, risk-based approval processes for new business activities, model validation and quality assurance of the implemented risk measurement processes.

If required, risk control can propose directives for approval by the ExB. Central risk control is responsible for monitoring compliance with the policies and their supporting directives and providing reports or information as requested.

Control of material risks

The Group distinguishes the following six risk categories for its business activities:

Overall risks:

  • External/environmental risk
  • Business risk
  • Operational risk

Financial risks:

  • Credit risk
  • Liquidity risk
  • Market risk (currency risk, interest risk and equity price risk)

Reputational damage is not listed as a separate risk category as it generally only arises as a consequence of one of the aforementioned risks. Reputational damage is therefore considered to be consequential damage.

Environmental, business and operational risks are systematically assessed and either deemed acceptable and within the risk appetite or undesirable and to be reduced with appropriate measures. The measures that are implemented to mitigate risks are monitored through the ICS of the Group.

External/environmental risk

The Group defines external/environmental risk as risk arising from the external business environment of the Group that could challenge the business model of the Group or the individual companies.

Business risk

The Group defines business risk as the possibility of lower than anticipated profits due to uncertainties arising from the following aspects: management and the quality of information used for taking decisions or deriving strategies.

Operational risk

Operational risk refers to the risk of monetary losses resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes information technology risks and all legal and regulatory risks.

Credit risk

The key credit risk for the Group is the risk of financial loss that arises if a customer or counterparty to a financial transaction fails to meet its contractual obligations and results primarily from the Group’s receivables from customers.

The Group’s exposure to credit risk primarily originates from the creditworthiness and credit capacity of each customer and is comprised of receivables which remain unpaid or which are paid later than at their due date.

Geographically, credit risk is concentrated in Switzerland where the Group mainly operates. The Payment business as well as Consumer Finance are primarily focused on retail customers. As such, the receivables are highly diversivied and there is no concentration risk in relation to client segments, branches or similar.

Explanation to credit risk is reflected in the corresponding notes 15, 16 and 18 together with an explanation of the expected credit loss.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum credit risk, to which the Group is theoretically exposed at 31 December 2018 and 2017 respectively, is represented by the carrying amounts stated for financial assets in the balance sheet.

The maximum exposure to credit risk for receivables from cardholders and from Consumer Finance at the reporting date by type of customer is shown in the following tables. Additionally, credit risk can occur from debt collection and from fraud in the Payment business as shown in note 15.

In 1,000 CHF

2018

2017

Receivables from card holders, credit cards*

 

 

Default risk borne by partners

267,646

243,410

Default risk borne by the Group, secured by bank guarantees

10,718

9,448

Default risk borne by the Group

145,916

193,985

 

 

 

Total

424,280

446,843

*For a better comparability “Receivables from chargeback process” have been grouped together with “Receivables for which fraud is assumed” to the new single line item “Receivables from fraud and chargeback processes”.

The collateralisation by partners and bank guarantees is borne by those counterparties in the amount of the receivable. The estimated fair value of the collateral is estimated to be the same as the nominal value.

In 1,000 CHF

2018

2017

Receivables from business unit Consumer Finance

 

 

Individuals – Consumer loans

760,104

716,083

Individuals – Financial leases

488,269

433,886

Corporate clients – Financial leases

211,561

206,413

 

 

 

Total

1,459,934

1,356,382

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Liquidity risk arises if the Group is unable to obtain under economic conditions the funds needed to carry out its operations. Group closely monitors its liquidity needs and also maintains liquidity forecasts.

Management ensures that cash funds and credit lines currently available (total credit line limit of CHF 1,755 million, 2017: CHF 1,300 million) and funds that will be generated from operating activities (in the last 12 months a monthly average of CHF 900 million, 2017: CHF 820 million) enable the Group to satisfy its requirements resulting from its operating activities and to fulfil its obligations to repay its debts at their natural due date.

Maturity of financial liabilities

2018 In 1,000 CHF

Carrying amount

Contractual cash flows

1 month or less

2–3 months

4–12 months

13–24 months

25–72 months

Non-derivative liabilities

 

 

 

 

 

 

 

Payables to counterparties

241,498

241,498

126,382

115,117

0

0

0

Other trade payables

13,290

13,290

13,290

0

0

0

0

Short-term interest-bearing liabilities

1,117,921

1,118,251

597,390

0

520,861

0

0

Other payables

378

378

378

0

0

0

0

Accrued expenses

65,155

65,155

65,155

0

0

0

0

Total current liabilities

1,438,242

1,438,572

802,594

115,117

520,861

0

0

 

 

 

 

 

 

 

 

Long-term interest-bearing liabilities

274,767

287,375

0

0

3,094

3,094

281,188

Total non-current liabilities

274,767

287,375

0

0

3,094

3,094

281,188

 

 

 

 

 

 

 

 

Cash inflow from derivatives

-

(118,746)

(118,746)

0

0

0

0

Cash outflow from derivatives

-

119,241

119,241

0

0

0

0

Total derivatives held for trading

495

495

495

0

0

0

0

 

 

 

 

 

 

 

 

Cash inflow from IRS

-

0

0

0

0

0

0

Cash outflow from IRS

-

0

0

0

0

0

0

Total derivatives used for hedging

0

0

0

0

0

0

0

Total estimated cash flow

1,713,504

1,726,441

803,088

115,117

523,955

3,094

281,188

 

 

2017 In 1,000 CHF

Carrying amount

Contractual cash flows

1 month or less

2–3 months

4–12 months

13–24 months

25–72 months

Non-derivative liabilities

 

 

 

 

 

 

 

Payables to counterparties

163,901

163,901

61,509

102,393

0

0

0

Other trade payables

7,144

7,144

7,144

0

0

0

0

Short-term interest-bearing liabilities

592,275

592,354

402,000

0

190,354

0

0

Other payables

14,744

14,744

3,802

0

10,942

0

0

Accrued expenses

59,110

59,110

59,110

0

0

0

0

Total current liabilities

837,175

837,254

533,565

102,393

201,296

0

0

 

 

 

 

 

 

 

 

Long-term interest-bearing liabilities

374,614

387,375

0

0

3,094

103,094

281,188

Total non-current liabilities

374,614

387,375

0

0

3,094

103,094

281,188

 

 

 

 

 

 

 

 

Cash inflow from derivatives

-

(27,356)

(27,356)

0

0

0

0

Cash outflow from derivatives

-

27,467

27,467

0

0

0

0

Total derivatives held for trading

111

111

111

0

0

0

0

 

 

 

 

 

 

 

 

Cash inflow from IRS

-

0

0

0

0

0

0

Cash outflow from IRS

-

33

0

11

21

0

0

Total derivatives used for hedging

57

33

0

11

21

0

0

Total estimated cash flow

1,211,958

1,224,773

533,676

102,404

204,411

103,094

281,188

Market risk

Market risk is the risk of losses arising from movements in market prices in on-balance and off-balance sheet items. Three of the standard market risk factors cover the risk of price movements in foreign currency, interest rates and equity price risk.

Foreign currency risk

The Group’s exposure to foreign currency risk is as follows based on notional amounts. There is no currency risk on Swiss francs (CHF) as it is the functional currency of the Company.

 

Foreign currencies

2018 In 1,000 CHF

CHF/EUR

CHF/USD

CHF/Other

Cash and cash equivalents

812

120

0

Receivables from business unit Payment

18,947

6,904

0

Receivables from business unit Consumer Finance

0

0

0

Other trade receivables and accrued income

7,951

0

0

 

 

 

 

Payables to counterparties

4,409

8,618

0

Other trade payables

99

53

0

Short-term interest-bearing liabilities

0

0

0

Other payables

0

0

0

Accrued expenses

129

0

0

Long-term interest-bearing liabilities

0

0

0

 

 

 

 

Gross balance sheet exposure

23,073

(1,647)

0

 

 

 

 

Derivatives held for trading

(50,856)

(17,890)

0

Derivatives used for hedging

0

0

0

 

 

 

 

Net exposure

(27,783)

(19,537)

0

 

Foreign currencies

2017 In 1,000 CHF

CHF/EUR

CHF/USD

CHF/Other

Cash and cash equivalents

678

639

12

Receivables from business unit Payment

21,041

8,143

1

Receivables from business unit Consumer Finance

0

0

0

Other trade receivables and accrued income

12,515

0

7

 

 

 

 

Payables to counterparties

7,252

8,778

0

Other trade payables

132

4

0

Short-term interest-bearing liabilities

48

12

0

Other payables

0

0

0

Accrued expenses

9

0

0

Long-term interest-bearing liabilities

0