1. Significant accounting policies
Aduno Holding AG (Aduno Holding or Company) is a company domiciled in Zurich (Switzerland). The condensed consolidated interim financial statements of the Company as at 30 June 2017 and for the six months ended 30 June 2017 comprise Aduno Holding AG and its subsidiaries (together referred to as the Group). The Group provides financial services in the fields of cashless payment solutions and consumer finance services.
Statement of compliance
These unaudited condensed consolidated interim financial statements were prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2016. The condensed interim financial statements were approved on 27 July 2017.
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
In preparation of these condensed consolidated interim financial statements, the significant judgements made by management in application of the Group’s accounting policies and the key sources of estimation were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2016.
Foreign currency transactions
The following exchange rates applied for significant currency exposures:
Significant accounting policies
Except as described below, the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2016.
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:
- –Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)
- –Disclosure Initiative (Amendments to IAS 7)
The above standards had no significant impact on the consolidated interim financial statements.
New and revised standards and interpretations
The following new and revised standards and interpretations have been issued, but are not yet effective and have not been applied early in these condensed consolidated interim financial statements. Their impact on the consolidated financial statements of the Group has not yet been systematically analysed. The table reflects a first assessment conducted by the Group’s management and the expected effects.
IFRS 9 Financial Instruments (effective 1 January 2018)
IFRS 9 introduces new classification and measurement requirements for financial assets and financial liabilities, replaces the current rules for impairment of financial assets with the expected credit loss impairment model and amends the requirements for hedge accounting.
On the basis of the implementation work currently being carried out, the Group expects no changes in the classification of financial assets and financial liabilities except for additional disclosures.
The new rules for impairment of financial assets – the expected credit loss model – require that expected credit loss is recognised when consumer loan is granted, lease receivables are established or credit card purchases are made, and that this expected credit loss is updated on each reporting date to reflect the change in credit risks for the financial asset.
The Group is currently defining the specific components and inputs for the new impairment model. The expected credit loss models for the credit card, consumer loans and leasing portfolios are generally based on probability of default, exposure at default and loss given default. For other financial assets (e.g. other current receivables) a simplified approach is used.
The individual inputs will be determined on the basis both of empirical data and of forward-looking information. In general, comparable models will be used for the credit card, consumer loan and leasing portfolios, while taking into account the different features and characteristics of the individual portfolios.
Modelling expected credit loss requires extensive data analysis using a number of data sources. For that reason, it is not currently possible to determine a quantitative impact on the current need for impairment.
The amended requirements for hedge accounting will not have an impact on the Group’s financial statements except for additional disclosures.
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)
In May 2014, the IASB issued the new standard which specifies how and when revenue is recognised. IFRS 15 replaces several other IFRS standards and interpretations that currently govern revenue recognition under IFRS and provides a single, principles-based five-step model to be applied to all contracts with customers.
The five steps cover: 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 when (or as) the Group satisfies a performance obligation. The standard also requires entities to provide users of financial statements with more informative and relevant disclosures.
The implementation of the new standard is currently ongoing. Based on our assessment, no material impact is expected except for additional disclosures.
IFRS 16 Leases (effective 1 January 2019)
The new standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.
A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. A lessee measures right-of-use assets similarly to other non-financial assets (such as property, plant and equipment) and lease liabilities similarly to other financial liabilities. As a consequence, a lessee recognises depreciation of the right-of-use asset and interest on the lease liability.
The impact of the new standard on the Group’s financial statements is currently assessed.
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 Chief Officers for Finance (CFO), Sales (CSO), Marketing and Product Management (CMO) and Operations (COO).
The business unit Payment provides services for cashless payments via credit, debit and customer cards to private and corporate customers and runs the relevant transaction and customer services relating to the business. The major part of the business is run through the brands of Mastercard and Visa.
The business unit Payment is operated through Viseca Card Services SA and its subsidiary Aduno SA, as well as through Vibbek AG, Vibbek GmbH, AdunoKaution AG and SmartCaution SA. The major revenue streams in the business result from interchange fees and commissions, annual fees for cards and services, income from card transactions in foreign currency and interest income.
The business unit Consumer Finance sells and operates leasing contracts and credit facilities for consumer goods to private and corporate clients. The business unit Consumer Finance is operated by cashgate AG. The major income streams are interest income, commission income and fees for chargeable services.
As the central treasury centre of the Group, 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.
The business unit Corporate Functions contains intercompany consolidation items as well as the financial results of Aduno Holding.
Segments’ assets and liabilities
Assets and liabilities, revenue and expenses are measured in accordance with the relevant IFRS standards.
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 (30 June 2016: none).
The following table presents certain information regarding the operating segments, based on management’s evaluation and the internal reporting structure, on 30 June 2017 and 30 June 2016 for the first half year (unaudited).
3. Commission income
4. Interest income and interest expenses
The interest income contains income from the Group’s Consumer Finance activities and also from credit lines arising out of the Payment business.
In the Payment business, creditcardholders are eligible to convert their debit on the credit card into a consumer credit for which the Group then charges interest for the period of the short-term loan.
The interest expenses are the refinancing expenses to finance the open credit lines of the Payment and Consumer Finance businesses.
5. Other income
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).
As a former member of Visa Europe Ltd., the business unit Payment benefited from selling Visa Europe Ltd. to Visa Inc. in the first half year 2016. The Group received contributions at a total value of CHF 71.7 million, including preferential Visa Inc. shares at a value of CHF 17.3 million as per date of transaction as well as an entitlement to a deferred cash payment of CHF 4.3 million. The contribution of CHF 71.7 million has been recorded as other income.
6. Impairment losses from Payment and Consumer Finance
The impairment losses on commission income are attributable to losses arising from bad debts, fraud and charge back in the Payment business, whereas the impairment losses on interest income mainly represent incurred but not reported losses in the Consumer Finance business.
7. Other expenses
The item “Other administration expenses” includes a deferral relating to the outsourcing of business activities between the business units Payment and Internal Financing in the amount of CHF 0.1 million (first half year 2016: CHF 18.0 million).
8. Receivables from Payment and Consumer Finance
The ageing of the receivables contained in the statement of financial position that are not individually impaired at the reporting date are as follows:
Receivables from Payment business
Receivables from cardholders consist of regular open balances on the credit card account of credit cardholders. Open balances from cardholders due more than 90 days are transferred into a dedicated and monitored collection portfolio. The balance of the collection portfolio amounts to CHF 3.8 million as at 30 June 2017 (31 December 2016: CHF 3.6 million) and is shown under receivables from debt collection.
If a cardholder transaction tends to be fraudulent, the respective balance is transferred into a dedicated fraud portfolio until the case is settled – CHF 0.1 million as at 30 June 2017 (31 December 2016: CHF 0.2 million). An adequate allowance is set up for all receivables for which fraud is assumed. The respective balance of all fraudulent transactions under clarification is shown under receivables for which fraud is assumed.
The open settlement balance to the card schemes of CHF 84.8 million as at 30 June 2017 (31 December 2016: CHF 85.4 million) reflects the transmitted merchant transactions of the last days before closing. The open settlement balances to the card schemes are settled daily. In the history of the Company all daily balances to the schemes have been settled as announced by the card schemes. Therefore, no allowances for doubtful debts were built.
Receivables from terminal sales are open balances to customers totalling CHF 0.9 million as at 30 June 2017 (31 December 2016: CHF 1.7 million) and are contained in the other receivables from Payment business. This is 0.2% (31 December 2016: 0.3%) of the total receivables of the Payment business. Allowances for doubtful debts are built according to the ageing of the overdue receivables and for receivables overdue for more than 12 months are provided for 100%.
Other receivables from Payment business also contain receivables related to the currency conversion amounting to CHF 1.3 million (31 December 2016: CHF 1.9 million). Such receivables are usually settled within less than one week.
Receivables from Consumer Finance activities
These receivables consist of consumer loans and finance lease receivables out of the car leasing business. Finance lease receivables are collateralised by the financed cars, while consumer loans are not collateralised.
Open balances from the business unit Consumer Finance due for more than 90 days are transferred into a dedicated and monitored collection portfolio. Allowances for doubtful debts are built using sophisticated analytical and statistical methods as described below. The total balance is shown under the position ”Allowance for doubtful debts”.
Receivables from finance lease
Allowance for doubtful debts
Recognised allowances for doubtful debts for the business units at the reporting date are shown in the following tables.
The allowance for doubtful debts on receivables from cardholders is composed of impairment on receivables due to late payment, fraudulent payments and non-recoverable chargeback at both the specific and collective level. All individually significant receivables from cardholders are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. The allowance for all three categories is determined according to historical data based on sophisticated analytical methods and evaluation models. The allowance is adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than those suggested by historical trends. Management qualifies the allowance for doubtful debts in the Payment business as adequate.
The allowance for doubtful debts on receivables from Consumer Finance is composed of impairment on receivables due to late payment and also comprises a portion for those found not to be specifically impaired but which are then collectively assessed for any impairment that will be incurred but not yet identified. The Group recognises for the allowance in its Consumer Finance business at the time the credit facility or the leasing contract is paid out to the customer.
The collective allowance is determined for clusters of customers by combining historical data based on sophisticated analytical methods and evaluation models that consider the particular risks of each cluster. The allowance is adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than those suggested by historical trends. Currently, no specific allowances that are individually significant are recognised on receivables in the Consumer Finance business unit. Management qualifies the allowance for doubtful debts in the Consumer Finance business unit as adequate.
Except for allowances for fraudulent transactions in the Payment business, all impairments of receivables are due to late payment of customers or those that have been incurred but not yet identified. Based on the Group’s experience, impairments are calculated as a percentage of the overdue balance by customers, including the estimated amount of receivables becoming overdue in the near future.
In the Payment business and Consumer Finance, on average about 98% (31 December 2016: 98%) of the receivables outstanding are not past due. Based on past experience, the Group includes the impairment allowance for these receivables in the allowance calculated on the basis of the default risk of the total debts.
In the first six months of 2017, costs of CHF 3.3 million were recognised as an expense (first six months of 2016: CHF 3.8 million). Write-downs of less than CHF 0.1 million were recognised on inventories to net realisable value (first six months of 2016: CHF 0.5 million).
10. Interest-bearing liabilities
Terms and debt repayment schedule
As at 30 June 2017, the Group has a syndicated loan facility of CHF 1,050 million headed by Zürcher Kantonalbank (ZKB) (31 December 2016: CHF 1,050 million) at its disposal. The interest conditions of the facility are quoted by ZKB at market conditions at the fixing date according to the maturity plus a margin, depending on the Company’s credit rating.
As at 30 June 2017, the syndicated loan amounts to CHF 390 million nominal (31 December 2016: CHF 390 million).
Since 27 October 2011, Aduno Holding has an outstanding fixed-rate bond of CHF 250 million with a maturity in 2017. The nominal interest rate is set at 2.25% and is paid yearly to the bondholders. The effective interest rate, including all fees paid for this bond, amounts to 2.44%.
Two new bonds have been issued in 2017 with maturity in 2018 and 2019 respectively, replacing the two bonds issued in 2015. A fixed-rate bond of CHF 100 million with its maturity in 2018 and with a coupon of 0.00% with an effective interest rate of -0.3%, and a bond of CHF 100 million disposes of a floating rate based on Libor interest rate with a floor at 0% and a cap at 0.05% expiring in 2019.
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%.
As at 30 June 2017, the Group has access to bilateral credit facilities with ZKB of CHF 700 million (31 December 2016: CHF 700 million). The interest rate for these facilities is set at the market interest rate according to the maturity plus a margin, depending on the Company’s credit rating.
As at 30 June 2017, the total of the other bank liabilities amounts to CHF 2.9 million (31 December 2016: CHF 8.6 million).
11. Share capital and reserves
The following dividends were declared and paid by the Group.
12. Financial risk management
The fair values of financial assets and liabilities together with the carrying amounts shown in the statement of financial position are as follows:
Basis for the determination of fair value
The following summarises the significant methods and assumptions used in estimating the fair value of financial instruments reflected in the table above.
Receivables and payables
Trade accounts receivable and payable are stated in the statement of financial position at their carrying value less impairment allowance. Due to their short-term nature, receivables from card activities are assumed to approximate their fair value.
The fair value of long-term financial instruments with a maturity or a refinancing profile of more than one year and for which observable market transactions are not available, the fair value is estimated using valuation models such as discounted cash flow techniques. Input parameters into the valuation include expected lifetime credit losses, interest rates, prepayment rates and primary origination or secondary market spreads.
The fair value of financial instruments for disclosure purposes is calculated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.
The difference between the carrying amount and the fair value in the interest-bearing liabilities (short-term as well as long-term) is caused by the unsecured bond issues and amounted to a total of CHF 15.9 million as per half year 2017 (at year end 2016: CHF 17.3 million). These unsecured bonds are categorised in level 1 of the fair value hierarchy.
Financial instruments carried at fair value, fair value hierarchy
The table below analyses recurring fair value measurements for financial assets and financial liabilities. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows.
- –Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date
- –Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
- –Level 3: unobservable inputs for the asset or liability
Input for Level 2 valuation
Level 2 fair values for simple over-the-counter derivative financial instruments are based on broker quotes. Those quotes are tested for reasonableness by discounting expected future cash flows using market rates for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take account of the non-performance risk when appropriate. Level 2 fair values for available for sale financial instruments are based on market prices multiples without any unobservable input.
13. Group companies
* Associates, the Group has significant influence
** Vibbek GmbH is fully owned by Vibbek AG.
14. Subsequent events
There are no subsequent events to be reported.
Zurich, 27 July 2017
Chairman of the Board of Directors
Chief Executive Officer
Chief Financial Officer