II. Summary of Key Principles of Accounting and Consolidations

Basis of preparation

As a listed company, the parent company Bechtle AG is required under Section 315e of the German Commercial Code (HGB) to prepare its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union, and the supplementary German generally accepted accounting principles applicable under Section 315e (1) HGB. All International Financial Reporting Standards mandatory for the 2025 fiscal year have been applied.

The consolidated financial statements were generally prepared on the basis of historical cost. Exceptions include certain financial instruments that were measured at fair value. The presentation in the balance sheet distinguishes between current and non-current assets and liabilities. Assets and liabilities with a maturity of up to one year are considered as current items. Deferred tax assets and liabilities and provisions for defined benefit plans are presented as non-current items. The income statement is prepared according to the function of expense method. The consolidated financial statements are presented in euros and rounded to the nearest thousand (€ thousand). Any deviations are explicitly indicated.

New accounting pronouncements

New/amended standards and interpretations adopted for the first time

In the reporting period, Bechtle applied the following new and revised standards and interpretations of the following new accounting pronouncements, which had been published by the IFRS IC and adopted by the EU.

New/amended standards and interpretations not yet adopted

IASB and IFRS IC have released further standards and interpretations whose adoption is not yet mandatory (“effective date”) or that have not yet been endorsed by the EU. Where the endorsement has yet to take place, the date for the mandatory adoption is derived from the respective pronouncements of IASB/IFRS IC. If endorsed later on, the EU directive may specify a different date for the mandatory adoption.

Currently, we do not expect these standards, with the exception of IFRS 18, to have any significant impact on the financial statements of the Bechtle Group.

IFRS 18 Presentation and Disclosures in Financial Statements

IFRS 18 replaces IAS 1, with many of the previous requirements in IAS 1 being adopted unchanged and supplemented by new requirements. In addition, some paragraphs from IAS 1 have been moved to IAS 8 and IFRS 7. In addition, the IASB has made minor amendments to IAS 7 and IAS 33.

With IFRS 18, the following new requirements in particular are being introduced, which will have a significant impact on the consolidated financial statements:

• Presentation of certain categories and defined subtotals in the income statement.

• Disclosure of key performance indicators defined by management (management performance measures or MPMs) in the notes to the financial statements.

• Observance of new guidelines on the grouping of information in IFRS financial statements (aggregation and disaggregation).

• IFRS 18 requires retrospective application with specific transitional provisions, which means that prior-year data must be adjusted. This can lead to significant changes in the comparative figures.

• The amendments to other standards take effect at the same time as IFRS 18 in and must also be taken into account.

Companies must apply IFRS 18 for the first time for fiscal years beginning on or after 1 January 2027, although earlier application is permitted. The amendments to IAS 7 and IAS 33, as well as the revised IAS 8 and IFRS 27, take effect when a company applies IFRS 18, meaning that all amendments must be applied for the first time at the same time.

The management assumes that the application of the new standard will have a material impact on the consolidated financial statements, particularly with regard to the presentation of the income statement and disclosures in the notes.

Consolidation principles

The Consolidated Financial Statements are based on the financial statements of Bechtle AG and its direct and indirect subsidiaries prepared using uniform group accounting policies. Subsidiaries are companies directly or indirectly controlled by Bechtle AG. Capital consolidation is carried out by offsetting the carrying amount of the shareholding against the pro-rata re-measured equity of the subsidiaries at the time of acquisition. Any positive differences are recognised as goodwill pursuant to IFRS 3.32. Any negative differences are to be recognised in the income statement through profit or loss pursuant to IFRS 3.34 ff. The consolidated income statement takes into account the earnings of the acquired companies from the acquisition date, i.e. from the date the group attains control. Inclusion in the consolidated financial statements ends as soon as the parent company relinquishes control.

If the investment company is not controlled and the investment company is an associate, it is included in the consolidated financial statements using the equity method.

All intra-group gains and losses, revenue, expenses, income, receivables and liabilities are eliminated. The required tax deferrals are applied to the consolidation processes.

Scope of Consolidation

The scope of consolidation comprises Bechtle AG in Neckarsulm and all subsidiaries in which it holds a controlling interest. Bechtle AG directly or indirectly holds all interests and voting rights in all consolidated companies (except for Planet AI GmbH). The sole exception is Bechtle Stiftung gGmbH, established on 24 June 2024 and headquartered in Neckarsulm, which operates independently by virtue of its charitable purpose as set out in its articles of association, and over which no control can be exercised within the meaning of IFRS 10.10. The company was therefore not included in the scope of consolidation.

The following companies were included in the scope of consolidation or deconsolidated for the first time in this reporting period:

Balancing of business combinations takes place according to the purchase method. E-Storage B.V. (together with its subsidiary E-Storage Solutions B.V.) and ITAM Solutions BV were merged into the Dutch company PQR B.V., Utrecht.

Further disclosures concerning the acquired or sold companies are presented in section VIII. Scope of consolidation and section IV. Further notes to the balance sheet, 8. Goodwill.

Currency translation

The subsidiaries of Bechtle keep their books in local currency. Transactions in foreign currencies are converted at the closing rate on the date of the transaction. On the closing date, monetary assets and liabilities are measured at the closing rate, while non-monetary balance sheet items are translated at the rate on the day of the transaction. Gains and losses resulting from exchange rate fluctuations in foreign currency transactions are recognised through profit or loss. By contrast, currency translation differences based on net investments in foreign operations of a subsidiary are recognised in equity through other comprehensive income.

Within the framework of the consolidation, assets and liabilities are translated into euros, the group’s presentation currency, at the closing rate. The revenue and expense accounts are translated at the average rate during the reporting period. Equity is determined on the basis of historical rates. Any resulting translation differences are recognised in a separate item in the equity.

Changes in exchange rates of currencies important to the Bechtle Group in relation to the euro:

Accounting policies

Revenue recognition. The gross revenue comprises all income resulting from Bechtle’s ordinary business activity from contracts with customers. Gross revenue is presented without value-added tax and other taxes collected from the customers and paid to the tax authorities.

Bechtle does not reduce its promised consideration by a financing component if the term of the receivable is no more than one year. Where the term of the receivable is more than one year, the revenue is discounted to the fair value.

Bechtle recognises revenue as follows: When selling hardware and software, the revenue is recognised when the performance obligation is satisfied. The performance obligation is satisfied when the customer obtains control of the good or service. In Bechtle’s business environment, the most significant indicators for the transfer of control are the purchase by the customer and the transfer of the ownership-related opportunities and risks of the asset. Depending on the underlying business transaction, the recognition of the revenue takes place in the amount of the consideration that Bechtle expects to receive for these goods (accounting as principal) or in the amount of the gross margin (accounting as agent).

Principal/agent. In its hardware selling business, Bechtle recognises the revenue as principal. Bechtle acts as the principal as it has the control over the determined claim to transfer of the goods before they are transferred to the customer. Bechtle obtains the control over the claim to transfer of the goods after concluding the contract with the customer but before the goods are transferred to the customer. The terms and conditions of the contract with the customer permit Bechtle to decide whether to ship directly from its own warehouse or via the vendor or distributor. If the shipment takes place directly via the manufacturer or distributor, the manufacturer or distributor acts on behalf of and for the account of Bechtle (drop shipping).

With regard to the sale of software licences, Bechtle distinguishes several types of software licence. These types reflect Bechtle’s business model and thus help to clarify this issue:

• Standard software without customising:
  In the field of sales of standard software without customising, Bechtle makes a distinction between two types:

  • Direct business: As an authorised sales partner, Bechtle places standard software products that are delivered by software vendors to end customers. Bechtle’s only obligation from these agreements consists of asking another company to grant the standard software licence to the end customer. Bechtle thus acts as an agent and recognises the income at the net amount it receives from the agency services.

  • Indirect business: Within the scope of the sale of customer-specific solutions on the basis of standard software licences, Bechtle acts as a value-added software reseller and performs pre-sales consulting services in connection with the sale. This especially includes aspects of strategic and operational software procurement and consulting services with respect to the contract and compliance. Under consideration of all relevant factors (see Discretionary decisions, estimates and assumptions), Bechtle is of the opinion that in the context of the pure sale of standard software, Bechtle acts as an agent. In the indirect business, Bechtle thus records the revenue in the amount of the gross margin. This assessment also applies to the sale of standard software licences with basic installation services. These installation services are generally not very extensive or complex, so the standard software or the interfaces do not need to be customised (no customisation of the existing interfaces and no new development). Based on this analysis, Bechtle is of the opinion that it transfers two separately specified goods or services to the customer. Under consideration of all factors, Bechtle is thus of the opinion that when selling standard software licences with basic installation services, it acts as an agent. The classification as principal or agent does not depend on the provisioning model, i.e. it applies both to on-premise models and to SaaS models from the cloud, which are sold in the context of the indirect business model.

• Standard software, including customising and/or customer-specific integration of the standard software:
  On the one hand, Bechtle performs basic adjustments to the function scope of the standard software in order to meet the individual requirements of an end customer in connection with the sale of the standard software. In this connection, Bechtle has noticed that the customising for customer-specific requirements is so extensive that the standard software is changed or adapted significantly by means of this customising. On the other hand, Bechtle also performs integration services that are aligned with the needs of the end customer in order to integrate the standard software licence in the existing system of the end customer. Bechtle thus uses the standard software licence and the customer-specific integration service for the purpose of achieving the combined end result (= functional and integrated software system) as defined in the contract with the end customer. Accordingly, Bechtle comes to the conclusion that the services cannot be separated from each other, and a single performance obligation is owed to the customer. As Bechtle is responsible for fulfilling this promise, Bechtle acts as the principal in these agreements. This is backed by the fact that Bechtle can freely determine its selling prices. In this business, Bechtle thus recognises the revenue in the amount of the consideration that Bechtle expects to receive for these goods and services.

At Bechtle, warranty obligations usually do not meet the requirements for a separate performance obligation, as they do not exceed the statutory scope. They are presented as provisions.

However, if third-party warranty obligations are sold, Bechtle sees itself as an agent and recognises the resulting revenue in the amount of the gross margin.

Revenue from the performance of IT services is recognised over time, as the units rendered by Bechtle cannot be used otherwise and Bechtle is entitled to payment for the services already performed. The revenue is recognised on the basis of input-based methods to measure the progress of the performance. Until the invoice is issued to the customer, the revenue is presented in the contract assets.

Bechtle recognises the revenue from the performance of IT services as principal, as the group transfers the control over the service directly to its customers or makes it available directly to its customers.

Multiple-element contracts for the shipment of several products or the performance of several services need to be separated into individual performance obligations, for each of which a separate income is to be determined and recognised upon fulfilment of the obligation towards the customer. In addition to the combination of various hardware and software products, this especially concerns Bechtle’s managed service contracts. The total transaction price of the combined contract is divided into the individual performance obligations on the basis of the pro-rata individual selling prices, i.e. the individual selling price of each element is put in relation to the total of the individual selling prices of the contractual performance obligations.

The evaluation of whether the revenue needs to be recognised over time or on a point-in-time basis is performed separately for each performance obligation.

Pursuant to IFRS 15, contract costs that arise in connection with the fulfilment of managed service contracts need to be capitalised and amortised over the contract term – provided they are directly connected to the contract, result in enhanced use of resources, and are recoverable. As in the previous year, these costs played only a minor role in the reporting period.

Pursuant to IFRS 15.91, sales commissions in connection with long-term managed service contracts need to be capitalised if the time of accrual does not coincide with recognition of the revenue. This would be the case if the sales commission were to be due upon conclusion of the contract. Bechtle recognises sales commissions on trading transactions and services as expenses at the time of delivery or performance, i.e. at the same time as the revenue recognition.

Research and development costs. Apart from the development costs incurred in connection with the production of software designated for internal use or for sale, no significant research and development costs were incurred. Please refer to our statement on internally developed software.

Leases. Bechtle as lessee. Accordingly, all contracts in the Bechtle Group that constitute a lease or leases that are included in another contract must be measured as a lease liability at the present value of the lease payments when they are first recognised at the time of provision. This includes variable lease payments that are linked to an index or (interest) rate and whose initial measurement is made using the index or (interest) rate valid on the provision date. The discounting takes place on the basis of Bechtle’s incremental borrowing rate of interest at the same time and in the same currency. On the assets side, a right-of-use asset is recognised for the underlying asset under property, plant and equipment as of the time of initial accounting. This right-of-use asset is depreciated according to schedule over the lease term. If no term is determined in an agreement or the agreement can be terminated on a monthly basis, a term of five years is used. Furthermore, extension and termination options contained in rental agreements and leases are taken into consideration in the measurement of the lease liability and thus included in the evaluation of the right-of-use asset, provided that the exercise of these options is reasonably certain. Bechtle does not account for a right-of-use asset and the corresponding lease liability for leases that are classified as short-term leases with a term of up to 12 months or as leases for low-value assets (up to €5 thousand maximum).

At Bechtle, the application of IFRS 16 resulted in the capitalisation of right-of-use assets, especially for rental property and leased company vehicles. Additionally, there are leases for office equipment, furniture, fixtures and fittings, job bicycles and customer equipment, which, however, are of minor significance.

With the application of IFRS 16, the expenses for leases do not affect EBIT in the full amount in the income statement. Rather, only the expense from the depreciation of the capitalised right-of-use asset is recognised in EBIT; the interest costs for the lease liability are posted to the financial earnings.

In the cash flow statement, the lease payments in the amount of the interest and repayment share are included in the cash flow from financing activities.

Leases. Bechtle as lessor. Bechtle also acts as a lessor. From this perspective, leases are classified as operating leases and finance leases. Payments from operating leases are recognised as income over the lease term through profit and loss. Assets in operating leases are carried at amortised cost in property, plant and equipment.

If, however, all material opportunities and risks associated with the ownership have passed to the lessee, the lease shall be recognised as a finance lease. In this context, a receivable is accounted for from the finance lease in the amount of the net investment in the lease. In this connection, Bechtle regularly engages in vendor leasing on the market and recognises revenue in the amount of the present value of future lease payments. On the other hand, expenses associated with the lease are recognised in the income statement, and the amount of the present value of future payments is accounted for as a lease liability.

Goodwill from a business combination is initially recognised at acquisition costs in the form of the surplus of the acquisition costs of the business combination over the share of net fair value of the identifiable assets, liabilities and contingent liabilities recognised by the buyer pursuant to IFRS 3. The goodwill identified in the context of a business combination corresponds to the expectation of future economic benefit from assets that cannot be individually identified or presented separately.

Pursuant to IFRS 3, goodwill is not amortised. Instead, it is tested for impairment at least once a year pursuant to IAS 36.

Other intangible assets in the Bechtle Group include brands, customer bases, purchased software, internally developed software and customer service agreements. Depreciation and amortisation of other intangible assets is allocated to the respective functional areas.

Brands acquired in the context of company acquisitions are measured at the fair value of the brand right. All brands are amortised on a straight-line basis over a period determined by their expected useful life to the company under IAS 38, with the exception of the Modus brand. Following an analysis of all relevant factors, no foreseeable limit has been identified on the period over which the Modus brand name rights are expected to generate net cash flows for the Bechtle Group; accordingly, these rights are not amortised but tested for impairment at least annually under IAS 36. The expected useful life of these brands is between three and ten years.

Customer relationships acquired in the context of company acquisitions are measured in accordance with the economic benefit resulting from the customer relationships. Customer relationships are amortised on a straight-line basis over a period that depends on the expected benefit for the company. As a matter of principle, it is assumed that customer relationships are of a long-term nature. The expected useful life is five to ten years.

Purchased software is measured at cost of purchase and amortised on a straight-line basis over a useful life of one to ten years.

Internally developed software is capitalised under the conditions of IAS 38, provided that both the technical feasibility and the marketability of the newly developed products are ensured, the group derives an economic benefit, and internal use or sale is planned. Capitalisation takes place at cost, including all attributable costs. Costs incurred in the period prior to the technical feasibility are immediately recognised as research costs. Straight-line depreciation of the capitalised costs takes place from the date of commercial use of the asset over a useful life of three to five years.

For goodwill and other intangible assets with an unlimited useful life, an impairment test is performed at least once a year for the cash-generating unit that these assets are allocated to. In the case of intangible assets with limited useful lives and property, plant and equipment, an impairment test is performed if events or changes occur that suggest impairment. In the Bechtle Group, impairment tests are always conducted on the basis of the value in use determined by means of the discounted cash flow method. The basis for this is the current plan drawn up by the management for the next three fiscal years. The planning assumptions are duly adjusted to the current state of knowledge based on internal and external information available. In the process, appropriate assumptions on macroeconomic trends and historical developments are taken into account. As a matter of principle, the expected growth rates in the relevant markets are used as the basis for the calculation of cash flows.

The need for depreciation and amortisation corresponds to the amount by which the carrying amount of the cash-generating unit exceeds the value in use. For the goodwill impairment test, the goodwill is allocated to its corresponding cash-generating units. Assets that are no longer intended for use in business operations are classified as available for sale and are measured at the lower of the carrying amount and the fair value less costs to sell.

Property, plant and equipment. Property, plant and equipment are measured at acquisition cost less scheduled amortisation. Most of the property, plant and equipment consists of land and buildings. These assets are held by a limited number of companies. Within the scope of the preparation of the annual financial statements of these companies, the existence of any indications or changed circumstances which might render it impossible to recover the carrying amount of an asset is checked. Scheduled amortisation takes place on a pro rata temporis basis, and mainly on a straight-line basis according to the expected useful life. Scheduled amortisation is based on the following useful lives:

Low-value assets of property, plant and equipment are measured at cost of purchase and depreciated on a straight-line basis over a useful life of three to eight years. Maintenance costs are recognised through profit or loss when incurred.

A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets of the arrangement. Joint management is the contractually agreed, jointly exercised management of an agreement. This is only the case if decisions on the relevant activities require the unanimous consent of the parties involved in the joint management.

According to the equity method, interests in joint ventures are to be included in the consolidated balance sheet at cost of purchase and subsequently adjusted by changes in the group’s interest in the profit or loss and in the other comprehensive income of the joint venture after the acquisition date. Losses of a joint venture that exceed the group’s share in the joint venture are not recorded. They are recorded only if the group has assumed legal or constructive obligations to take over the loss or makes payments on behalf of the joint venture.

An investment in a joint venture is accounted for as of the date on which the conditions for joint ventures are on hand. Any excess of the cost of purchase of the purchased interest over the interest gained in the fair value of identifiable assets, liabilities and contingent liabilities is recognised as goodwill. According to the equity method, the goodwill is part of the carrying amount of the investment and is not separately tested for impairment.

At re-measurement, any excess interest of the group in the carrying fair value of the identifiable assets, liabilities, and contingent liabilities over the cost of purchase of the acquired interest (negative difference) is immediately recognised through profit or loss.

To determine whether the interests in joint ventures are subject to any impairment, the regulations of IAS 36 are applied. If an impairment test needs to be conducted, this is done for the carrying amount of the investment (including goodwill) according to the regulations of IAS 36. For this, the recoverable amount – i.e. the higher of the value in use and the fair value less costs to sell the investment – is compared with its carrying amount. The determined impairment loss on the assets included in the carrying amount of the interest including goodwill is not performed. If the recoverable amount increases in subsequent years, the impairment loss is reversed in accordance with IAS 36.

The group stops using the equity method from the date on which its investment no longer represents a joint venture.

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

Deferred tax assets for accounting and valuation differences and for unused tax losses are only recognised to the extent that it is probable that these differences will lead to taxable profit in future. As of the balance sheet date, the value of the deferred tax assets recognised in previous periods is reviewed as to whether it is still sufficiently probable that a future benefit can be realised. Deferred tax assets are offset against deferred tax liabilities, provided that a legally enforceable right of offsetting exists and the deferred tax assets and tax liabilities are raised by the same tax authority for the same taxable entity. The assessment is based on the tax rates applicable in the year of reversal. Changes in tax rates are taken into consideration if these have been adopted. Pursuant to the temporary exception to the requirements regarding deferred taxes in IAS 12 as published by the IASB in May 2023, tax effects that could result from the future application of the regulations on global minimum taxation (Pillar II) are not taken into consideration when determining deferred tax assets and liabilities.

Inventories. Commodities are measured at average cost of purchase pursuant to IAS 2 (weighted average cost method). If necessary, the commodities are written down to the net realisable value. Besides the loss-free measurement, these write-downs take all other inventory risks into consideration. If the reasons that led to a write-down of inventories no longer exist, the impairment loss is reversed.

Contract assets are claims to consideration for goods or services that Bechtle transferred to a customer before the customer made a payment or before the conditions for issuing an invoice and recognising a receivable were in place. With respect to possible impairment, contract assets – like trade receivables – are subject to the expected credit loss (ECL) model introduced pursuant to IFRS 9.

A contract liability is the obligation to transfer goods or services to a customer for which the group has already received consideration from the customer (or an amount of the consideration is due). A contract liability is recognised when a customer pays the consideration before Bechtle fulfils its performance obligation by transferring goods or services to the customer. Contract liabilities are recognised as revenue when the performance is rendered under the contract. This especially applies to services invoiced in advance, maintenance agreements, warranty extensions and expansions and down payments received from third parties.

Trade receivables and other financial assets are measured at amortised cost, net of any loss allowance recognised in accordance with IFRS 9 Appendix A. Non-current receivables with a residual term of more than one year are discounted on the basis of the relevant interest rates on the balance sheet date. The general credit risk is, where verifiable, also taken into consideration by means of appropriate impairments. By way of exception, the derivative financial instruments contained in the other assets are accounted for at fair value.

As a matter of principle, impairments of trade receivables are performed by means of allowance accounts. The decision as to whether a credit risk is to be taken into consideration through an allowance account or through a direct impairment of the receivable depends on the degree of reliability of the assessment of the risk situation. The portfolio managers are responsible for this assessment. Moreover, the general credit risk is accommodated under consideration of Euler Hermes ratings and corresponding probabilities of default in the scope of the ECL model introduced pursuant to IFRS 9. For trade receivables, lease receivables, contract assets and receivables from suppliers, the simplified approach under IFRS 9 is applied to measure the loss allowance on the basis of lifetime expected losses.

In the Bechtle Group, trade receivables exclusively comprise financial instruments. The other assets also include non-financial assets. For these, no measurement at amortised cost is performed pursuant to IFRS 9.

Time deposits and securities. Time deposits are measured as financial assets at amortised cost. They comprise time deposits and similar investments with banks and other financial service institutions, as well as investments in insurance policies with original maturities of more than three months from the date of purchase.

Cash and cash equivalents. Cash and cash equivalents are measured as financial assets at amortised cost. They include current bank balances and cash in hand as well as short-term time deposits with initial maturities of less than three months from the acquisition date. Bechtle regularly assesses expected credit losses (ECL) on cash and cash equivalents by reference to current bank ratings and an assessment of the associated default risk probabilities. As of the balance sheet date, the expected credit losses on cash and cash equivalents were immaterial, and no loss allowance was therefore recognised.

Pension provisions. Pension liabilities are accounted for and measured pursuant to IAS 19. In this context, a distinction is made between defined contribution plans and defined benefit plans.

In the case of defined contribution plans, the employer has no obligations apart from the regular payment of defined contributions. No actuarial assumptions are required for the measurement of obligations or expenses. Therefore, there are no actuarial gains or losses. Bechtle does not have any significant number of defined contribution plans.

In contrast, the obligations arising from defined benefit plans are to be measured on the basis of actuarial assumptions and calculations taking into account biometric assumptions. In this connection, actuarial gains or losses may occur, which must be recognised directly in equity, taking into account deferred taxes.

Other provisions are formed where there is a current obligation to third parties arising from a past event. It must be possible to estimate the amount reliably, and it must be more likely than unlikely that an outflow of future resources will take place. Provisions are only formed for legal and constructive obligations to third parties. Provisions are recognised at the amount that, on the balance sheet date, represents the best possible estimate of the expense that will probably be necessary to fulfil the current obligation.

Other provisions for warranties are formed for prospective claims on the basis of company-specific experience and the revenue. Non-current provisions with a term of more than one year are discounted on the basis of the relevant interest rates on the balance sheet date, provided that the interest effect is material.

Deferred income includes all deferred other operating earnings, as in the prior year. This especially affected marketing grants from suppliers as well as rental income.

Financial liabilities are recognised as expenses at amortised cost. Financial liabilities of the Bechtle Group include financial instruments. The convertible bond is recognised as a financial liability and an equity instrument in accordance with its economic substance. The fair value of the liability component is determined as of the date of issue on the basis of the market interest applicable to comparable non-convertible instruments. This amount is accounted for as a financial liability at amortised cost, applying the effective interest method until the fulfilment or maturity of the instrument. The conversion right classified as equity is determined by deducting the liability component from the fair value of the entire instrument. The resulting value – less income tax effects and associated transaction costs – is recognised as part of the equity and is thus not subject to measurement. The conversion right classified as equity remains in the equity until the conversion right is exercised.

Other liabilities contain both financial and non-financial liabilities and are recognised as expenses at amortised cost. Non-current liabilities with a term of more than one year are discounted on the basis of the relevant interest rates on the balance sheet date.

By way of exception, liabilities from acquisitions are measured at fair value (IFRS 3.39). Liabilities from acquisitions always represent debt capital, as these liabilities always entail, or could entail, a payment obligation.

Trade payables are recognised as expenses at amortised cost. They contain financial instruments. Non-current liabilities with a term of more than one year are discounted on the basis of the relevant interest rates on the balance sheet date.

Financial instruments are contracts that result simultaneously in a financial asset for one company and in a financial liability or equity instrument for another. This includes both primary financial instruments (e.g. trade receivables or trade payables) and derivative financial instruments (transactions to hedge risks of change in value). Pursuant to IAS 32.11, an equity instrument is a contract that substantiates a residual interest in the assets of a company after deduction of all of its liabilities. If the financial instrument results in payment obligations (even if only conditional), this represents debt capital, not equity.

The initial recognition of financial instruments takes place on the trade date at fair value, if necessary adjusted by transaction costs that are directly attributable to the purchase or issue of the financial instrument. This does not apply to trade receivables without significant financing components; these are measured at the transaction price. There are no day-one transactions where the transaction price at initial recognition differs from fair value. There are no day‑1 transactions in which the transaction price does not correspond to its fair value at initial recognition. The subsequent measurement takes place according to their measurement category pursuant to IFRS 9:

Subsequent measurement of financial assets:

• Pursuant to IFRS 9 in, financial assets are allocated to the classification categories at amortised cost or fair value and measured accordingly. Where financial assets are measured at fair value, the expenses and income can either be recognised through profit or loss or through other comprehensive income.

Subsequent measurement of financial liabilities:

• Pursuant to IFRS 9, financial liabilities are measured either at amortised cost or at the fair value. The change in value is recognised at fair value through profit or loss.

Equity instruments:

• All equity instruments pursuant to IFRS 9 are to be measured at fair value in the balance sheet. Value changes are to be recognised in profit or loss. In the case of an equity instrument not held for trading, the company may at initial recognition irrevocably decide to measure it at fair value through other comprehensive income. In this case, reclassification of the amounts in other comprehensive income, e.g. upon sale of the instrument, is no longer possible.

At each balance sheet date, the existence of impairment is determined for financial assets that are measured at amortised cost as well as for assets that are measured at fair value and whose change in value is recognised in other comprehensive income. Pursuant to IFRS 9, a risk provision is recognised for this purpose on the basis of the expected credit losses (ECL model). The assessment of whether future losses are expected is performed on the basis of a creditworthiness analysis of the accounts receivable with the help of Euler Hermes ratings. Accordingly, expected valuation losses will henceforth be taken into consideration in addition to the losses that have already occurred. Once the reasons for the posted impairments no longer exist, the respective write-ups are applied. As a general rule, trade receivables are classified in Stage 2 of the ECL model; upon occurrence of a default event, they are reclassified to Stage 3.

The categorisation of the individual financial instruments within balance sheet items is presented in chapter VI. Further Disclosures on Financial Instruments in Accordance with IFRS 7.

Derivative financial instruments are accounted for as assets or liabilities. All derivative financial instruments are recognised at fair value according to the accounting policy on the settlement date. Fair values are determined with the aid of standardised mathematical models (mark-to-model method). The fair value is determined taking into account future cash flows over the residual term of the contract on the basis of current market data (interest rates, yield curve, forward prices). The creditworthiness of the debtor is determined taking into account the amount, the probability of default and the recovery rate in the event of insolvency.

The Bechtle Group uses foreign exchange forward contracts to hedge the currency risk arising from future exchange rate fluctuations on receivables and payables, firm commitments and highly probable transactions. For transactions to be classified as effective cash flow hedges, the changes of fair value are posted outside profit or loss, taking into account the applicable deferred taxes. Changes of the fair value that are attributable to the ineffective hedging instrument are recognised through profit or loss.

Hedges of net investments in group companies abroad hedge the foreign currency risk from subsidiaries using functional currencies other than the group currency, namely the euro. Gains or losses from the hedging transaction that are attributable to the effective part of the hedging transactions are recognised outside profit or loss. Gains or losses attributable to the ineffective part of the hedging instrument are recognised in the income statement.

Gains and losses from the change of the fair value of derivative financial instruments that are not accounted for within the scope of the hedge accounting pursuant to IFRS 9 are immediately recognised at their fair value in the income statement.

Share-based compensation programmes, which provide for settlement in Bechtle shares, are measured at fair value on the grant date, recognised in personnel expenses over the vesting period, and offset against the capital reserve.

Discretionary decisions, estimates and assumptions

The preparation of the consolidated financial statements requires estimates and assumptions on the part of the Executive Board that affect the reported amount of assets, liabilities, income and expenses in the consolidated financial statements, as well as the disclosure of other financial liabilities and contingent liabilities. The uncertainty associated with these assumptions and estimates may yield results that necessitate substantial adjustments of the carrying amount of the affected assets and liabilities in future periods. All estimates and assumptions are based on the current knowledge and are made in good faith in order to provide a true and fair picture of the group’s earnings, assets and financial position.

Due to Russia’s ongoing war of aggression on Ukraine, the conflict that has again flared up in the Middle East, and high inflation, estimates and discretionary decision-making remain subject to greater uncertainty. The actual amounts can differ from the estimates and discretionary decisions. Any available information about the prospective economic development was taken into consideration in the update of the estimates and discretionary decisions.

The most important issues that are affected are as follows:

The impairment test for goodwill, other intangible assets and property, plant and equipment requires estimates of future cash flows from assets or from the cash-generating unit to determine its value in use as well as the selection of an appropriate discount rate to determine the present value of these cash flows. For estimates of future cash flows, long-term revenue forecasts have to be made in the context of the economic framework conditions and the development of the industry.

The measurement for the initial recognition of customer relationships, customer service contracts, order backlogs and brands acquired within the scope of acquisitions also involves estimates for the determination of the fair value.

The scheduled amortisation of intangible assets and property, plant and equipment requires estimates and assumptions for determination of the standardised useful life of assets for the group as a whole.

The financial instruments recognised at fair value are allocated to a fair value hierarchy as per IFRS 13. Allocation to the various levels is based on the market proximity of the valuation parameters used to determine the fair values. To the greatest extent possible, the relevant market data observable on the reporting date (e.g. exchange rates or interest rates) as obtained from recognised external market data providers (Level 2) were used as valuation parameters. Additionally, an internally determined credit value adjustment was used for receivables and liabilities (Level 3). For the convertible bond, the fair value is calculated as the present value of the future cash flows, taking into account yield curves and the respective credit risk premium (credit spread) depending on the credit rating (stage 2).

Material assessments are required to measure the deferred tax assets and liabilities of the group. In particular, the deferred tax assets on unused tax losses require estimates of the amount and dates of future taxable income as well as the future tax planning strategies. Uncertainties also exist with respect to future changes in tax law. If there is doubt that it will be possible to realise the unused tax losses, these are not recognised or impaired.

The inventories contain impairments to the lower net realisable value. The amount of the impairments requires estimates and assumptions concerning the prospective realisable sales revenue.

Provisions are formed for bad debts in order to account for expected losses resulting from customers’ inability to pay. The structure of the maturity of receivables, experience in connection with the probability of default of external customer ratings, an estimate of the customer’s creditworthiness and changes in payment performance form the basis for the assessment of the appropriateness of the provisions for bad debts.

The measurement of pension provisions is based on assumptions about the future development of certain factors. These factors include, among other things, actuarial assumptions such as the discount rate, expected increases in the value of plan assets, expected salary and pension increases, mortality rates and the earliest retirement age. Due to the long-term nature of such plans, such estimates are subject to considerable uncertainties.

The recognition and measurement of provisions rely heavily on estimates. The assessment of the quantification of the possible amount of payment obligations is based on the respective situation and circumstances. Provisions are recognised for obligations where there is a risk of losses, these losses are probable, and their amount can be reliably estimated.

The inclusion of hedging instruments in the hedge accounting requires assumptions and estimates with respect to the underlying probability of occurrence of future transactions with hedged currencies and interest rates.

To determine whether an agreement constitutes a lease, it is necessary to assess whether the fulfilment of the contractual agreement depends on the use of a certain asset or certain assets and on whether the agreement grants the right to use the asset. Bechtle determines the lease term under consideration of the basic lease term that cannot be terminated as well as extension and termination options, provided it is reasonably certain that these options will be exercised in the future. In the case of an unlimited lease term in real-estate rental agreements, a useful life of five years is assumed.

The assessment of leases on the lessor side largely takes place on the basis of the criteria of the useful life as specified in the standard as well as the present value of the lease payments at the beginning of the lease.

In the context of the revenue recognition and the assessment whether Bechtle is the principal or agent when selling standard software licences without customising in the indirect business, Bechtle has applied the following accounting methods.

Pre-sales consulting services. In keeping with the agenda decision of the IFRS IC, Bechtle is of the opinion that pre-sales consulting is more in the nature of a sales service, and therefore no separate performance obligation can be identified. This is justified for various reasons, including by the fact that at the time of conclusion of the contract, the value-added reseller has already performed the consulting services. Though the consulting could have influenced the customer’s decision to order a certain type and number of software licences, no effective contract between the value-added reseller and the customer is in place prior to an order. If no software licences are purchased, Bechtle will, therefore, not be entitled to any compensation for the consulting services.

Furthermore, this estimation is supported by the following aspects:

• Compared to the value of the standard software licence, the pre-sales consulting overhead usually accounts for a minor share.

• A customer who knows which contract model would be suitable and exactly how many standard software licences he or she needs would not gain any added value from the pre-sales consulting.

Differentiation between installation and integration services. With the sale of standard software, including customising and/or customer-specific integration of standard software, substantial discretionary leeway remains, especially with regard to the question of whether the mere installation of a software or complex customising and/or a customer-specific integration is involved.

Following an evaluation under consideration of the additional insight derived from the agenda decision of the IFRS IC, Bechtle came to the conclusion that stricter criteria must be applied for customising and integration services. Substantial customising and/or customer-specific integration must thus either

• involve significant customisation of the software (modification of the source code) or

• the function scope of the standard software licence must have been modified significantly, e.g. through

  • creation of new interfaces or

  • expansion/customisation of the existing interfaces.

If the installation or integration service does not include this scope, it will be classified as (basic) installation and does not meet the criteria for qualification as principal.

Estimates and assumptions

Gross versus net presentation. The evaluation as to whether Bechtle should recognise revenue either in the amount of the consideration that Bechtle expects to receive for these goods and services (accounting as principal) or in the amount of the gross margin (accounting as agent) requires an analysis both of the legal form and of the economic content of contracts. After consideration of all the relevant facts and circumstances of the individual case, the decision often involves a certain measure of discretion, even if a uniform review pattern is applied throughout the group.

Revenue from standard software licences without customising and/or customer-specific integration of the standard software continue to be generally accounted for, given the qualification as agent, and is presented in the amount of the gross margin. On the other hand, the evaluation of a significant integration service in connection with the sale of software licences is a complex issue, for which the above-mentioned criteria need to be used in order to establish a qualification as principal. Basically, Bechtle assumes a qualification as agent. If, however, there is proof of customising and or customer-specific integration, or the performance took place by specialised Bechtle system houses, Bechtle will account for this sale as principal, presenting the gross revenue.

Depending on the evaluation, significant differences may arise with regard to the amount of the revenue and expenses of the respective periods. However, operating incomes are not affected.

Effects of climate change

In the areas of climate change and shortage of resources, Bechtle has not identified any material risks to its business model. Therefore, Bechtle does not currently expect any significant effects of such risks on its business model or on the presentation of its earnings, assets and financial position.