Accounting Policies

Goodwill

Goodwill from a company merger is recognised initially at the cost of acquisition, which is presented as the surplus of the cost of acquisition of the merged company over the share of net fair value of the identifiable assets, liabilities and contingent liabilities pursuant to IFRS 3. The goodwill identified in the context of a company merger is a payment that has been made in expectation of future economic benefit from assets that cannot be individually identified or separately assessed.

IFRS 3 stipulated that goodwill is not amortised. Instead it is tested for impairment annually pursuant to IAS 36.

Other Intangible Assets

Other intangible assets in the Bechtle Group include acquired customer bases, brands, customerservice contracts and acquired and proprietary software.

The value of the customer bases is assessed at cost of purchase. The value of the customer base acquired in the context of company acquisitions is assessed in accordance with the anticipated economic benefits. Customer bases are amortised on a straight-line basis over a period whose duration depends on the expected benefit for the company. In principle it is assumed that customer relationships are long-term. The expected period of benefit is between five and ten years.

The value of the brands acquired in the context of company acquisitions is assessed corresponding to the resulting economic benefits. Benefit in perpetuity is to be assumed, as in accordance with an analysis of all relevant factors there is no foreseeable limitation of the period in which these brand name rights can prospectively generate net cash flows for the Bechtle Group. Consequently, in accordance with IAS 38 the brand name rights may not be amortised, but are to be tested for impairment at least annually pursuant to IAS 36.

The value of the customer service contracts is assessed at cost of purchase. The value of the customer service contracts acquired in the context of the company acquisition is assessed corresponding to the economic benefits that accrue. Customer service contracts are amortised over their respective residual terms corresponding to the benefit resulting from them.

The value of software acquired is assessed at the cost of purchase and on a straight-line basis depreciated over a useful life of three to eight years.

Proprietary software is capitalised under the conditions of IAS 38 insofar as both the technical realisability and also the marketing of the newly developed products are assured, the Group receives an economic benefit therefrom and either internal use or marketing is foreseen. Capitalisation takes place at cost, which includes all directly attributable, individual costs and reasonable mark-ups for overheads and depreciation. The costs that accrue in the period prior to technical feasibility are recognised immediately as research costs under expenditure. The straight-line depreciation of these capitalised costs occurs from the date of the commercial use of the asset over a useful life of three to five years. The depreciations are recognised under revenue, sales & marketing and administrative costs depending on their origin.

Property, Plant and Equipment

Property, plant and equipment is measured at cost of purchase less scheduled depreciation. Where necessary, unscheduled impairments are also performed. Scheduled depreciation takes place on a pro rata temporis basis and mainly in accordance with a straight-line method on the basis of the prospective useful life of the asset.

The scheduled depreciation are based on the following assumed useful lives:

Office equipment:	3 – 5 years
Tools and equipment:	5 – 20 years
Vehicle fleet:	3 – 6 years
Buildings:	25 – 50 years

Low-value asset of property, plant and equipment are fully depreciated in the year of accrual and recognised as a disposal.

Maintenance costs are recognised on the date on which they are incurred. Interest payable for debt capital is posted under current expenses.

For financing leasing contracts the economic ownership is attributed to the lessee in cases in which the latter bears all risks and opportunities that are associated with the property (IAS 17). In these cases, the respective tangible assets will be capitalised at the cost of purchase or at the lower present value of the minimum lease payments and depreciated on a straight-line basis in accordance with the economic useful life or over the shorter term of the leasing contract.

With operating leasing relationships, the leasing rates or rental payments are recognized as directly expense in the income statement.

Impairment of Assets

For goodwill as well as other intangible assets with an unlimited useful life, an impairment test is performed at least once a year. In the case of intangible assets with limited useful lives and plant, property and equipment, an impairment test is performed, if events or changes occur that suggest an impairment of value. In the Bechtle Group, the value in use as derived using the discounted cash flow method is generally used to test for impairment. The basis for this is the current budget drawn up by the management for the next three fiscal years. The budget assumptions are respectively adjusted in the light of the latest information. In the process, appropriate assumptions on macroeconomic and historical trends are taken into account. The expected growth rates in the relevant markets are generally taken as the basis for the calculation of cash flows.

The depreciation requirement corresponds to the amount by which the carrying amount of the assets exceeds the fair value. Assets that are no longer intended for use in business operations are assessed at their carrying amount or a lower assignable value less costs of disposal. For the purposes of impairment tests on goodwill, these assets must be assigned to their corresponding cashgenerating units. In the Bechtle Group, there are two cash generating units that coincide with the two segments “IT system house & managed services” and “IT e-commerce” from segment reporting.

Deferred Taxes

In accordance with IAS 12, deferred taxes are accumulated on all temporary differences between the carrying amounts in the consolidated balance sheet and the tax valuations of assets and liabilities (liability method) as well as for unused tax losses.

Deferred tax assets for accounting differences as well as for unused tax losses are only recognised insofar as it may be assumed with sufficient probability that these differences will in future lead to the realisation of the corresponding economic advantage. Deferred tax assets are offset against deferred tax liabilities provided that the tax creditor is identical in both cases. The assessment is based on the tax rates applicable in the year of reversal. Changes in the tax rates are taken into consideration, provided that they are adopted.

Inventories

Merchandise is measured at the average costs of purchase pursuant to IAS 2. Interest on borrowed capital is not capitalised. Where necessary, reductions have been made to the lower net realisable value. These reductions also take into account all remaining inventory risks in addition to loss-free valuation. Insofar as the reasons that led to a write-down of inventories no longer exist, the impairment loss is reversed.

Financial Instruments

Financial instruments are contracts that result simultaneously in a financial asset for one company and in a financial liability for another. This includes both primary financial instruments (e.g. trade receivables or payables) and derivative financial instruments (transactions to hedge against risks of change in value).

IAS 39 distinguishes between the following categories of financial instruments:

• Assets that are held for trading and recognised as expense at fair value
• Held to maturity investments
• Loans and receivables
• Available for sale financial assets
• Financial liabilities at amortised cost
• Financial assets and liabilities at fair value through profit or loss

Unless otherwise specified, financial instruments are recognised at fair value. The fair value of a primary financial instrument is generally the price obtainable on the market, i.e. the price at which the financial instrument can be traded freely between independent parties within a transaction. As a matter of principle, the purchase and sale of financial assets is recognised as of the settlement date. Loans and receivables are recognised at amortised cost.

Bechtle AG has so far not exercised the option to designate financial assets at their initial recognition as financial assets to be measured at fair value as affecting net income. The Group has thus far opted not to make use of the right of option of designating financial liabilities at their initial valuation as financial liabilities to be measured at fair value as affecting net income.

Derivate financial instruments are generally only used for hedging purposes at Bechtle. The company makes use of interest swaps in order to mitigate the interest rate change risk for financial liabilities resulting from future interest rate fluctuations. Forward exchange transactions are used in individual cases to hedge receivables and liabilities from commercial operations in foreign currencies against the risk of exchange rate fluctuations.

In accordance with IAS 39, all derivative financial instruments in the Bechtle Group are recognised at fair value as per the accounting policy on the settlement date. Fair values are determined with the aid of standardised mathematical models (mark-to-market method) or quoted prices. Gains and losses from the changes in the market values of derivative financial instruments that are not recognised within the framework of hedge accounting, as well as the change in the value of the item, are immediately taken into account in the income statement at their market value. Changes in the market value of the financial derivatives, insofar as they relate to the effective part, are recognised directly in equity in the company's interest swaps to be classified as cash flow hedges, taking account of the accruing deferred taxes. The market value of interest swaps is determined by discounting the anticipated future payment flows over the residual term of the contract on the basis of the current market interest rates and the yield curve. Ineffective changes in market value are recognised as income or expense in the income statement.

Forward exchange transactions for hedging receivables or payables (= underlying transaction) in a foreign currency are recognised as a fair value hedge. A fair value hedge hedges the fair value of book assets and liabilities. The underlying fair value of a forward exchange contract is determined by means of the market value. Any changes in the fair value of the forward exchange transaction and a change in the market value of the underlying transaction based on the hedged risk are simultaneously recognised at their fair value as affecting net income.

Derivatives used for hedging purposes that do not, however, meet the strict criteria of IAS 39 are recognised in the income statement as held for trading purposes and measured at fair value.

Trade Receivables and other Assets

Trade receivables and other assets are measured at amortised costs taking into account appropriate reduction for all identifiable individual risks. Non-current liabilities with a residual term of more than one year are discounted on the basis of the corresponding interest rates on the balance sheet date. The general credit risk is, where documentable, also taken into consideration in appropriate valuation allowances.

Impairments of trade receivables are in principle performed via valuation allowance accounts. The decision as to whether a credit risk is taken into consideration through a valuation allowance account or through a direct impairment of the receivable depends on how reliable the assessment of the risk situation as well as the various, possibly country-specific framework conditions. This assessment is the responsibility of the individuals responsible for the portfolio.

Trade receivables in the Bechtle Group consist exclusively of financial instruments. The other assets also include non-financial assets.

Securities

Securities are generally classified as available for sale and measured at fair value. Changes in the fair value are adjusted directly in equity and only recognised as expense in the event of sale or significant impairment. The fair value is determined on the basis of the market value.

Treasury Shares

The total costs of the treasury shares acquired are reported openly under a separate item as a reduction in equity. The number of company shares outstanding, i.e. in circulation, is reduced in accordance with the number of treasury shares. The number of floating, i.e. issued shares remains unchanged. In the event of the resale of treasury shares, resulting profits or losses are offset against the capital reserves and recognised directly in equity in compliance with IAS 32.33.

Cash and Cash Equivalents

Cash and cash equivalents are measured as financial assets at amortised cost. They include the current bank balances and cash on hand as well as short-term financial investments with initial maturities of less than three months from the date of acquisition.

Pension Provisions

Provisions for pensions are shown in the balance sheet and valued in accordance with IAS 19. Here a distinction is to be made between contribution and defined benefit pension plans.

In the case of defined contribution plans, Bechtle has no obligations over and above the regular payment of defined contributions. No actuarial assumptions are therefore required to measure the obligation or expense and no actuarial gains or losses can arise.

In contrast, the obligations arising from the defined benefit plans are to be measured on the basis of actuarial assumptions and calculations taking into account biometric assumptions. Here actuarial gains or losses may arise.

Pursuant to IAS 19.93A, Bechtle consistently recognises all actuarial gains or losses of all defined benefit plans directly in equity, taking into account deferred taxes directly in equity (retained earnings). These actuarial gains or losses are reported in the “Statement of recognised income and expense”.

Other Provisions

Other provisions are created where there is a current obligation to third parties arising from a past event. It must be possible to estimate the amount reliably and the balance of probabilities must be that it will result in an outflow of future resources. Provisions are only created for legal and substantive obligations with respect to third parties.

Long-term provisions with a residual term of more than one year are discounted on the basis of the relevant interest rates on the balance sheet date, where the interest rate effect was significant.

Trade Payables and other Liabilities

Liabilities are reported under liabilities at amortised cost. Long-term liabilities with a residual term of more than one year are discounted on the basis of the relevant interest rates on the balance sheet date.

Liabilities from financial leasing are reported under liabilities at the present value from the future minimum leasing rates.

In the Bechtle Group, trade payables exclusively consist of financial instruments. The other liabilities also contain non-financial assets.

Accruals and Deferrals

At Bechtle accruals and deferrals include all revenue and income accruals. These include in particular payments and deferred income on maintenance contracts and warranty services. These are valued in accordance with the services still to be rendered.

Revenue Recognition

Revenues are realised in the IT system house & managed services and IT e-commerce segments, whereby a distinction is made between services and merchandise.

Revenues are recognised in accordance with IAS 18 after the provision of the service and acceptance by the customer, taking into account sales deductions. Sales deductions, contractual penalties and trade discounts are deducted. At this point, the volume of sales can be reliably measured and there is sufficient probability that the transaction will be of economic benefit.

Revenues and the associated expense are recognised independently of the underlying payment flows.

Maintenance contracts and other deliveries and services billed in advance are adjusted taking into account services already provided over the term.

Research and Development Costs

With the exception of development costs accruing in connection with the production of software designated for internal use or for sale, there are no significant research and development costs. Please refer to our statement on proprietary software.

Earnings per Share

Earnings per Share or EPS are calculated in accordance with IAS 33. IAS 33 prescribes the reporting of earnings per share for all companies that have issued ordinary shares. The earnings per share are the earnings accruing to the shareholders of Bechtle AG after tax, divided by the weighted average of the ordinary shares outstanding.