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 2018 and for the six months ended 30 June 2018 comprise Aduno Holding AG and its subsidiaries (together referred to as the Group).

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 2017. The condensed interim financial statements were approved on 15 August 2018.

Use of estimates and judgements

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 2017.

Foreign currency transactions

The following exchange rates were 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 2017.

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. This 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 sheet on 1 January 2018.

(i) Classification and measurement

The following table shows the adjustments recognised for each individual line item. The adjustments are explained in more detail below.

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

Receivables from business unit Payment, receivables from business unit Consumer Finance, cash and cash equivalents as well as 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 those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required.

(b) Financial instruments held at fair value

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

(c) Financial liabilities at amortised cost

All financial liabilites have been measured at amortised cost under IAS 39 and are still measured at amortised cost under IFRS 9. Therefore the application of IFRS 9 has no impact on the measurement.

(ii) Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. The Group measures loss allowances at an amount equal to lifetime ECL if credit risk has significantly increased (stage 2) or the financial asset is in default (stage 3), but the following are measured as 12-month ECL (stage 1): financial assets with counterparties that are determined to have low credit risk at the reporting date with an investment grade of BBB or better; and other financial assets for which credit risk has not increased significantly since initial recognition. Loss allowances for accounts receivables are always measured at an amount equal to lifetime ECL.

The Group has five groups of financial assets that are subject to IFRS 9’s new ECL model:

1. Receivables from Payment business (receivables from cardholders and receivables from debt collection)
2. Other receivables from business unit Payment
3. Receivables from Consumer Finance
4. Other receivables
5. Cash and cash equivalents

The Group was required to revise its impairment methodology under IFRS 9 for each of these classes of assets. The impact of the change in impairment methodology on the Group’s retained earnings and equity is disclosed in the table above.

1. Receivables from Payment business (receivables from cardholder and receivables from debt collection).

The ECL model for the Payment business (cardholder and debt collection) is based on a collective assessment and the relevant input factors are probability of default (PD), exposure at default (EAD) and loss given default (LGD) which are defined as follows:

• –The PD is derived from credit scoring models using survival analysis for private customers and logistic regression techniques for corporate customers. Due to the characteristics of the credit card business (revolving credit facilities) and based on the implemented credit risk mitigation processes, the period of exposure is determined to be four months.
• –EAD is based on the amounts the Group expects to be owed at the time of default. This includes the currently drawn balance as well as an expected amount resulting from the undrawn component.
• –The LGD represents expected losses on the exposure given the event of default by taking into account the time value of money. LGD varies by availability of collateral (bank guarantees) and – in case of stage 3 – by ageing of the exposure.

The assessment of whether credit risk has increased significantly is performed at each reporting period. The assessment considers both quantitative factors as well as qualitative factors. Unless identified at an earlier stage, a receivable from the Payment business is allocated to stage 2 when it is 60 days past due. Receivables are transferred out of stage 2 back to stage 1 if their credit risk is no longer considered to be significantly increased. The Group considers a customer to be in stage 3 when the debt management actions were unsuccessful and the customer has to be transferred to the pre-collection and legal collection processes. This transfer decision is made for each customer on a case-by-case basis and generally happens when payments are between 60 and 120 days past due. Contracts of customers in the collection process are terminated and hence a movement out of stage 3 is not possible.

2. Other receivables from business unit Payment

Other receivables comprise receivables from the rental guarantee business as well as from the software sales business and a standalone receivable from the Payment business towards Visa International Inc. due in less than 12 months. For these receivables the Group applies a loss rate approach to measuring expected credit losses to a lifetime expected credit loss as they are short term.

To measure the ECL, receivables from the rental guarantee business as well as from the software sales business have been grouped based on shared credit risk characteristics and the days past due. The standalone receivable towards Visa International Inc. was assessed on an individual basis.

3. Receivables from Consumer Finance

The ECL model for Consumer Finance is based on a collective assessment and the relevant input factors are probability of default (PD), exposure at default (EAD) and loss given default (LGD) which are defined as follows:

• –The PD is derived from historical default rate analysis and measured either over the next 12 months or over the remaining lifetime of the obligation. Lifetime is defined as the observed effective duration of a contract.
• –EAD is based on the amounts the Group expects to be owed at the time of default. This includes expected future amortization payments until the time of default and – in case of leasing contracts – proceeds from the sale of the leasing object.
• –The LGD represents expected losses on the exposure given the event of default by taking into account the time value of money. LGD varies by product and – in case of stage 3 – by ageing of the exposure.

The future ECL is discounted back from the expected point of default to the reporting date.

The assessment of whether credit risk has increased significantly considers both quantitative factors as well as qualitative factors. Unless identified at an earlier stage, a consumer loan or a leasing contract is allocated to stage 2 when it is 60 days past due. Receivables are transferred out of stage 2 back to stage 1 if their credit risk is no longer considered to be significantly increased. The Group considers a contract to be in stage 3 when the debt management actions were unsuccessful and the contract has to be transferred to the pre-collection and legal collection processes. This transfer decision is made for each contract on a case-by-case basis and generally happens when payments are between 90 and 150 days past due. Contracts of customers in the collection process are terminated and hence a movement out of stage 3 is not possible.

4. Other receivables

Other receivables consists of ECL relevant positions, such as other accounts receivables, other receivables from partners (schemes) and deposits as well as position out of scope of ECL measurement such as derivative financial instruments, prepayments and other receivables from VAT, withholding tax and salary benefits . The Group applies a loss rate approach to measuring expected credit losses to a lifetime expected credit loss as they are short term for all accounts receivables.

5. Cash and cash equivalents

While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial: all cash and cash equivalents are deposited with banks with a credit rating of at least A, while most of the cash and cash equivalents are deposited with a bank with a credit rating of AAA. All cash and cash equivalent can be withdrawn immediately without any pre-notice period.  

For all assets within the scope of the IFRS 9 impairment model, impairment losses are generally expected to increase and become more volatile. The Group has determined that the application of IFRS 9's impairment requirements as at 1 January 2018 results in an additional impairment allowance as follows:

IFRS 15 Revenue from Contracts with Customers

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-step model covers: 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 recognizing revenue when (or as) the Group satisfies a performance obligation.

The new standard also provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. In addition, enhanced disclosures about revenue are required.

The impact of the new standard on the Group’s financial statements is not material.

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 16 Leases (effective 1 January 2019)

IFRS 16 was issued in January 2016 and replaces IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of “low-value” assets (e.g. personal computers) and short-term leases (i.e. leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting of IFRS 16 is expected to be unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs.

The Group is still assessing the potential effect of IFRS 16 on its consolidated financial statements.

 

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 assessing 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).

Payment

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, as well as through Accarda AG, Vibbek AG, Vibbek GmbH, AdunoKaution AG, SmartCaution SA and Contovista AG. 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. Until its sale in the second half of 2017, Aduno SA was part of the business unit Payment. The Acquiring and Terminal business is therefore classified as discontinued operations and the prior-year figures have been restated accordingly.

Consumer Finance

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.

Internal Financing

As the central treasury centre of the Group (Aduno Finance AG), 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 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 2017: none).

The following table presents certain information regarding the operating segments, based on management’s evaluation and the internal reporting structure, on 30 June 2018 and 30 June 2017 for the first half year (unaudited).

3. Commission income

4. Interest income and interest expenses

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 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.

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).

The increase of other income compared to the first half year 2017 is mainly due to income on services rendered based on a transitional service agreement in connection with the sale of the acquiring business.

 

6. Expected credit loss and impairments Payment and Consumer Finance

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 have been 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.

7. Other expenses

8. Receivables from business unit Payment

Receivables from business unit Payment

Receivables from cardholders consist of regular open balances on the credit card account of credit cardholders. Open balances from cardholders due more than 90 – 120 days are transferred to a dedicated and monitored collection portfolio. The balance of the collection portfolio amounted to CHF 3.5 million as at 30 June 2018 (31 December 2017: CHF 3.7 million) and is shown under “Receivables from debt collection”.

Other receivables from business unit Payment consists of the rental guarantee business as well as the software sales business totalling CHF 0.7 million (year-end 2017: total of CHF 1.1 million) and also a standalone receivable from the business unit Payment of CHF 4.6 million (2017: a long-term receivable of CHF 4.7 million).

If a cardholder transaction tends to be fraudulent or if a cardholder claims a chargeback, the respective balance is transferred to a dedicated portfolio until the case is settled. This portfolio amounted to CHF 0.3 million as at 30 June 2018 (31 December 2017: CHF 0.4 million). An adequate allowance is set up for this portfolio. The respective balance of all fraudulent and chargeback transactions under clarification is shown under “Receivables from fraud and chargeback processes”.

Allowances for doubtful debts are built based on a expected credit loss (ECL) method, described in further detail below.

Allowance for doubtful debts business unit Payment

The allowance for doubtful debts on receivables from cardholders is composed of expected credit loss on receivables from the Payment business as well as impairment on 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 expected credit loss. The allowance for all three categories is determined according to historical data based on sophisticated analytical methods and evaluation models.

For receivables that are collectively assessed, the relevant input factors of the expected credit loss model (ECL = PD x EAD x LGD) are described as follows:

• –As explained in the significant accounting policies, the PD is derived from credit scoring models using survival analysis and logistic regression techniques. The scoring model is based on customer-related attributes like card limit, customer income or customer age as well as behavior-related attributes like payment history, card usage or risk related transactions. PD is measured at the customer level.
• –The EAD component consists of the currently drawn balance and an expected amount resulting from the undrawn part of the card limit. The expected exposure from the undrawn amount is derived from the analysis of past defaults which show that the default amount of a customer is – on average – between 15-30% higher than their ordinary card usage prior to default. The extent of future draw-downs in the event that the customer defaults is the same regardless of whether customer is allocated to stage 1 or stage 2.
• –The ECL model uses an LGD that measures recoveries and losses up to 24 months after default. Receivables in stage 1 and stage 2 are measured with the same LGD as they have not yet defaulted. Receivables in stage 3 are assigned an individual LGD depending on their age and their status within our debt collection process. Receivables that are not fully recovered after 24 months will be written off.

The allowance is adjusted based on 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.

In the Payment business an average of about 99% (31 December 2017: 99%) 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.

Expected credit losses for Payment business as at 30 June 2018

Expected credit losses for Payment business as at 01 January 2018

Allowance for doubtful debts other receivables from the Payment business

The Group applies a loss rate approach to measuring expected credit losses which uses a lifetime expected loss allowance for the other receivables from the Payment business.

Disclosure of the comparabale 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:

9. Receivables from Consumer Finance

Receivables from Consumer Finance activities

These receivables consist of consumer loans and finance lease receivables from 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 90-150 days are transferred to a dedicated and monitored collection portfolio. Allowances for doubtful debts are built based on an expected credit loss (ECL) method, as described in more detail below.

Receivables from finance leases

Allowance for doubtful debts Consumer Finance

The allowance for doubtful debts on receivables from Consumer Finance is composed of impairments on receivables due to late payment and also comprises a portion of those found not to be specifically impaired but which are then collectively assessed for any impairment that will be incurred but is not yet identified.

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. For receivables that are collectively assessed, the relevant input factors of the expected credit loss model  (ECL = PD x EAD x LGD) are described as follows:

• –For the measurement of the PD for consumer loans the portfolio is segmented into different sub-portfolios according to pricing criteria. PD for the leasing business is measured at portfolio level. The expected credit loss model uses a PD based on a moving average with a time period of 12 months.
• –For receivables that have a significant increase in credit risk their respective lifetime is defined as the observed effective duration of a contract. For consumer loans this lifetime is on average 19 months and for leasing business 32 months.
• –Receivables in stage 1 and stage 2 are measured with the same LGD as they have not yet defaulted. Receivables in stage 3 are assigned an individual LGD depending on their age and their status within our debt collection process. Receivables will be written off when the debt collection procedures have not led to a full recovery of the outstanding amount. The majority of the receivables are written off within the first three years after default.

The allowance is adjusted based on 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 business unit Consumer Finance. Management qualifies the allowance for doubtful debts in the business unit Consumer Finance as adequate.

In the Consumer Finance an average of about 98% (31 December 2017: 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.

Expected credit losses for Consumer Finance as at 30 June 2018

Expected credit losses for Consumer Finance as at 01 January 2018

Disclosure of the comparabale 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:

10. Inventories

In the first six months of 2018 inventory costs of CHF 1.7 million were recognised as an expense (first six months of 2017: CHF 1.9 million).

11. Other receivables

Other receivables consists of credit risk-related positions, such as other accounts receivables, other receivables from partners (schemes) and deposits 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 based on shared credit risk characteristics and the days past due.

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.

12. Interest-bearing liabilities

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

Syndicated loan

As at 30 June 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 at the fixing date according to the maturity plus a margin, depending on the Company’s credit rating.

As at 30 June 2018 the syndicated loan amounted to CHF 390 million nominal (31 December 2017: CHF 390 million).

Unsecured bond issues

In 2018 two bonds were issued. These include a bond of CHF 100 million featuring of a floating rate based on the Libor interest rate with a floor at 0.0% and a cap at 0.05% with an effecftive interest rate of -0.38% expiring in 2019, as well as a fixed-rate bond of CHF 150 million with its maturity in 2019 and with a coupon of 0.00% with an effective interest rate of -0.26%.

Two bonds were issued in 2017. These included a bond of CHF 100 million featuring of 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 maturing in 2021 featuring a nominal interest rate of 1.125%. Including fees, the effective interest rate amounts to 1.241%.

Other bank liabilities

As at 30 June 2018 the Group has access to bilateral credit facility with ZKB of CHF 700 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. Thereof the Group used an overnight tranche of CHF 37 million (31 December 2017: 101.8 million) and current accounts of CHF 0.1 thousands (31 December 2017: CHF 0.36 million).

13. Share capital and reserves

Dividends

The following dividends were declared by the Group.

14. Financial risk management

Fair values

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.

In the case 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.

Non-derivative financial liabilities
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 of 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 10.6 million as at end-June 2018 (end-June 2017: CHF 13.1 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 “Financial assets at FVOCI” (2017: “Financial investments available-for-sale”) are based on market price multiples without any unobservable input.

15. Income taxe expenses

As published in the annual report 2017, 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). The cantonal tax authorities in Zurich question the transfer prices applied. After being confident to find an agreement with the Zurich tax authorities, the group had to reassess this case at the end of 2017 and the Group recognised additional tax provisions amounting to CHF 23.7 million for financial years 2011 to 2016, and CHF 7.3 million for the 2017 financial year. For the first six months 2018 the Group had to recognise additional provisions for current income tax in the amount of CHF 3.6 million.

16. Group companies

17. Discontinued operations

In August 2017 the Group sold its Acquiring and Terminal business, following a strategic decision within the Payment business to strengthen its competence in the issuing business.

The Acquiring business was not previousely classified as held-for-sale or as discontinued operations. The comparative consolidated statement of profit or loss and OCI has been restated to show the discontinued operations separately form continuing operations.

Intra-group transactions have been fully eliminated in the consolidated financial results; the eliminated intra-group transactions have not been reversed for the discontinued operations, as management does not believe that going forward the Aduno Group will enter into significant transactions with the acquirer of Aduno SA.

Result from discontinued operations for the period ended 30 June

18. Subsequent events

There are no subsequent events to be reported.

Zurich, 15 August 2018