Notes to the Consolidated Financial Statements (IFRS)
The presentation of group accounting principles, key estimations and judgements has been made more informative by moving accounting principles to be part of the notes.
Basic information of the Group
Basware is a leading supplier of e-Invoicing and Purchase-to-pay solutions. Parent company Basware Oyj is a public Finnish company founded under Finnish law. Business ID of Basware Oyj is 0592542-4 and company's domicile is Espoo, Finland. The shares of the parent company Basware Corporation have been listed on NASDAQ Helsinki Ltd. since 2000.
The consolidated financial statements for the year ended 31 December 2018 were authorized for issue in accordance with a resolution of the Board of directors on January 30th, 2019. Shareholders may adopt or reject the financial statements at the Annual General Meeting. Basware’s financial statements, Board of Directors’ report as well as the Auditor’s report are available on the Internet at www.basware.com/investors or parent company's head office at Linnoitustie 2, 02601 Espoo.
1. Accounting principles
Basis of preparation
Basware Corporation’s consolidated financial statements have been prepared according to the International Financial Reporting Standards (IFRS), approved for use in EU countries, in accordance with the IAS and IFRS standards, as well as IAS and IFRIC interpretations valid on December 31, 2017. The Group’s Financial Statements are presented in euros, which is the primary and reporting currency of the Group's parent company, and they are based on acquisition costs unless otherwise stated in the accounting principles.
The amounts presented in the financial statements are rounded, so the sum of individual figures may differ from the sum reported.
Basware has adopted IFRS 15 Revenue from Contracts with Customers as of January 1, 2018 (mandatory application), with full retrospective application. In connection with the IFRS 15 application, the Group has also made certain changes to revenue allocation between Cloud and Non-cloud. Comparatives for 2017 presented in the financial statements have been updated to include IFRS 15 restatements and revenue reallocations. The effects of IFRS15 are described in more detail below in section 'New and revised standards and interpretations.' Due to retrospective application of IFRS 15 the Group has presented a third balance sheet 1.1.2017.
During 2018, Basware has made certain changes in the presentation of its financial information. The company has adopted a functional income statement showing the company’s cost of sales, gross profit and operating expenses by function.
In February 2018 Basware completed the divestment of Financial Performance Solutions and Banking businesses. Divestments decrease both revenues and profitability, and it is important to take into account the effects of divestments when comparing 2018 financials to 2017 financials. In 2017, the combined net sales of Financial Performance Solutions and Banking businesses were approximately EUR 15 million and combined direct costs approximately EUR 7 million.
New and revised standards and interpretations
As of January 1, 2018, the Group has applied the following new and revised standards and interpretations with the following impacts to Group financial statements:
- Basware has adopted IFRS 15 Revenue from Contracts with Customers (mandatory application), with full retrospective application. Revenue for different revenue types are recognized over time except for licenses which is recognized at a point in time. As the new standard affected only a minority of the Group’s customer contracts, the impact of the standard on the Group’s 2017 restated total revenue is not material, being EUR -74 thousand in total. However, as a result of the application of the standard, part of Cloud revenue will be recognized later and part of Non-cloud revenue earlier compared to the previous revenue recognition standard. Due to this, 2017 restated IFRS 15 Cloud revenue is EUR 1 667 thousand lower and Non-cloud revenue EUR 1 596 thousand higher compared to the reported revenue.
In connection with the IFRS 15 application, the Group has made certain changes in the revenue allocation between Cloud and Non-cloud. Revenues related to dedicated customer services as part of SaaS subscriptions will now be allocated as Cloud revenues. This reallocation does not impact total Group revenue. However, for 2017 a total of EUR 2 830 thousand of revenues reported as part of Non-cloud is now recorded as Cloud revenue.
The total net impact of IFRS 15 restatements and the changes in revenue allocation between Cloud and Non-cloud for full year 2017 is EUR -74 thousand on Group level, with Cloud revenue increasing EUR 1 163 thousand and Non-cloud revenue decreasing EUR 1 236 thousand. As a result, the share of Cloud revenue of the Group’s total 2017 revenue has increased slightly.
IFRS 15 restatements increased the Group’s non-current assets on December 31, 2017 by EUR 2 082 thousand, current assets by EUR 1 181 thousand, non-current liabilities by EUR 2 374 thousand, current liabilities by EUR 3 525 thousand, and decreased equity by EUR 2 636 thousand. IFRS 15 restatements had no material impact on basic or diluted EPS, and no impact on cash flows.
- Amendments to IFRS 2 share-based payment (effective date January 1, 2018). The amendment concerns incentive schemes with “net settlement” features to cover withholding tax obligations and where the employer has an obligation to withhold tax from the received benefit of the share-based payment in the country in question. From 2018 onwards, a compensation cost pursuant to IFRS 2 will be recognized for such payments, based on the entire scheme being an equity-settled payment. The impact of implementation has been presented in the statement of changes in equity and in note 5 of Group financial statements.
- IFRS 9 Financial Instruments (effective date January 1, 2018), which replaced the previous IAS 39 Financial Instruments: Recognition and Measurement. The main impact of IFRS 9 concerns the timing of recording expected credit losses. IFRS 9 includes new guidance on financial instruments classification, measurement, impairment and hedging. Group has updated the classification of financial assets and liabilities accordingly. Reclassifications did not impact carrying values. Below table illustrates classifications of financial assets and liabilities under IFRS 9 and IAS 39. IFRS 9 has not been applied retrospectively. The impact of implementation has been presented in the statement of changes in equity.
IFRS 9 measurement category
|IAS 39 measurement category||EUR thousand||IFRS 9: Fair value through profit or loss||IFRS 9: Amortized costs||IFRS 9: Fair value through OCI|
|Loans and other receivables||1,582||-||1,582||-|
|Trade receivables *||24,534||-||24,406||-|
* The change in carrying amount is a result of additional impairment allowance.
As of January 1, 2018, the Group has applied the following new and revised standards and interpretations which did not materially impact Group reporting:
- Interpretation: IFRIC 22 Foreign Currency Transactions and Advance Consideration (effective date January 1, 2018). The interpretation clarifies the exchange rate to be used in receipt or in payment of advance consideration and in recognizing equivalent non-monetary asset or non-monetary liability arising from the receipt or payment of advance consideration. The non-monetary asset or liability is valued by using the exchange rate when the non-monetary balance sheet item is recognized.
- Annual Improvements to IFRS 2014-2016. Minor, non-urgent amendments to standards are collected and adopted in the annual improvement procedure once a year. The effects of the changes vary by standard. The amendments concern the following standards: IFRS 1, IAS 28 and IFRS 12.
Amendments that will enter into force during the financial year 2019 or later
In addition to the standards and interpretations presented in the financial statements for 2018, the Group will adopt the following standards, interpretations and amendments to standards published by the IASB during financial periods beginning on or after January 1, 2019. The Group will adopt each standard on the effective date, or if the effective date is not the first day of a reporting period, as of the beginning of the following reporting period, provided that they are approved by the EU.
- IFRS 16 Leases (estimated effective date January 1, 2019). The EU has approved the standard. IFRS 16 specifies the requirements for recognition, measurement, presentation and disclosure of leases. The standard provides a single lessee accounting model. IFRS 16’s approach to lessor accounting is substantially unchanged from current standards. As a general rule, all leases with a term of over 12 months are recognized in the balance sheet unless the underlying asset has a low value. 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).
- The Group has elected to use modified retrospective approach in implementing IFRS16, and accordingly will not restate comparative figures. Instead, the Group will recognize the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of retained earnings and other related balance sheet items. The Group will elect to use the exemptions applicable to the standard on short-term lease contracts (lease period less than 12 months), and for lease contracts for which the underlying asset is of low value.
- During 2018 the Group has performed detailed impact assessment. In summary, the estimated impact of IFRS 16 adoption to 2019 financials will be:
- Opening balance sheet for 2019 will increase by estimated EUR 17,5 - 19,5 million due to increase in lease liabilities and right-of-use assets.
- Operating profit will increase due to increase in interest expenses
- Depreciation will increase significantly and correspondingly rent expenses will decrease significantly
- Reclassifications within cash flow statement as the principal payments of lease liabilities is presented in the cash flow from financing activities
- Annual improvements to IFRS 2015-2017 (estimated effective date January 1, 2019). The EU has not yet approved the changes. The Minor, non-urgent amendments to standards are collected and adopted in the annual improvement procedure once a year. The effects of the changes vary by standard. The amendments concern the following standards: IFRS 3, IFRS 11, IAS 12 and IAS 23. According to the Group's current estimate, the amendments will have no impact on the Group's future financial statements, and it is continuing its assessment of the impact of the amendments.
- Interpretation: IFRIC 23 Uncertainty over Income Tax Treatments (estimated effective date January 1, 2019). The interpretation clarifies the requirements of IAS 12 Income Taxes in situations, where there is uncertainty over income tax treatments under IAS 12. The interpretation addresses the following issues:
- Whether the entity should consider each tax treatment independently or whether tax treatments should be considered collectively
- The entity’s assumptions for taxation authorities’ actions and information concerning uncertain tax positions
- How the entity considers uncertain tax positions when determining taxable profit (or loss), tax bases, unused tax losses and credits and tax rates
- How the entity accounts for changes in facts and circumstances
According to the Group's current estimate, the interpretation will have no impact on the Group's future financial statements, and it is continuing its assessment of the impact of the interpretation.
- Amendments to IAS 19: Plan Amendment, Curtailment or Settlement (estimated effective date January 1,2019). The EU has not yet approved the amendments. The amendments address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. According to the Group's current estimate, the amendments will have no material impact on the Group's future financial statements, and it is continuing its assessment of the impact of the amendments.
- Amendments to IFRS 9: Prepayment Features with Negative Compensation (effective date January 1,2019). The amendments address accounting treatment for debt instruments in financial assets in cases of early termination of the contract. According to the Group's current estimate, the amendments will have no material impact on the Group's future financial statements, and it is continuing its assessment of the impact of the amendments.
Basis of consolidation
The consolidated financial statements comprise the parent company Basware Corporation and the subsidiaries controlled by it at the end of reporting period. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Being in control means the power to govern the financial and operating policies of the company to obtain benefits from its activities. The subsidiaries have been included in the Group financial statements as of the acquisition date. Intra-group holding is eliminated using the acquisition cost method. Acquired companies are accounted for using the purchase method according to which the assets and liabilities of the acquired company are measured at their fair value when it has been possible to determine the value reliably. Deferred taxes of the acquisition cost adjustments are recognized according to the valid tax rate and the remainder is recognized as goodwill on the balance sheet. When circumstances indicate that there are changes in elements of control the consolidation is re-assessed.
Intra-group business transactions, internal liabilities and receivables, and internal profit distribution are eliminated in the Group financial statements.
Basware has a 50 percent interest in a joint venture which was established with Arrowgrass Capital Partners LLP in the UK. Basware has determined its interest in the joint venture to be accounted for using the equity method. Basware’s share of results of the joint venture is presented as a separate line item in the financial items of the consolidated statement of comprehensive income and in investments in the consolidated statement of financial position. The Group does not have interests in other joint ventures or associates.
Transactions in foreign currencies
Transactions in foreign currencies are recorded in the operating currency at the approximate exchange rates prevailing at the transaction dates. Monetary items in foreign currencies have been translated into the operating currency using the exchange rates at the end of the reporting period. Non-monetary items denominated in foreign currencies are carried at the exchange rate at the date of the transaction.
In the Group financial statements, the income statements of foreign subsidiaries are translated into euros at the average rate for the financial period and balance sheets at the exchange rate of the balance sheet date. Average rate difference due to different exchange rates on the statement of comprehensive income and balance sheet are entered in other comprehensive income. Translation differences arising from the elimination of foreign subsidiaries and translation of equity items accumulated after the acquisition are entered in other comprehensive income. Foreign currency gains and losses from monetary items part of the net investment in a foreign unit are recognized in other comprehensive income and entered on the statement of comprehensive income when the foreign unit is divested.
Basware reports one operating segment. The reported segment is comprised of the entire Group, and the segment figures are consistent with the Group figures. Entity-wide disclosures are presented in Note 2 and Note 12.
Government grants are recognized when there is reasonable assurance that the grant will be received. The grants received are recognized as offsetting items of the expenses incurred. When the grant relates to capitalized R&D projects it will reduce the carrying amount of the asset, and they are recognized in profit and loss by way of lower depreciation charge over the useful life of the intangible asset.
Research and development costs
Research expenses are booked as an expense as they are incurred. Development expenditures on an individual project are recognized as an intangible asset when the Group can demonstrate:
- the technical feasibility of completing the intangible asset so that the asset will be available for use or sale
- its intention to complete and its ability and intention to use or sell the asset
- how the asset will generate future economic benefits
- the availability of resources to complete the asset
- the ability to measure reliably the expenditure during development.
Costs related to the adoption of new technology or development of a new generation of products are capitalized and recognized and amortized over the useful life of 3–5 years. In determining the useful life, the obsolescence of technology and the typical life cycle of products in the industry are taken into consideration. Amortization begins when development is complete, the asset is available for use and the product is ready for commercial utilization. Maintenance of existing products and minor enhancements are expensed when they are incurred. Government grants related to research and development are recognized through profit or loss in the periods during which the corresponding costs are recognized as expenses.
Leases on property, plant and equipment are classified as finance leases if they transfer substantially the risks and rewards incidental to ownership to the Group. Finance leases are capitalized at the beginning of the lease as assets and liabilities at the lower of the fair value of the leased asset and the present value of the minimum lease payments. A leased asset is depreciated over the useful life of the asset. Lease payments are apportioned between finance charges and reduction of the lease liability to achieve a constant rate of interest on the remaining balance of the liability. Finance lease liability is presented in current and non-current interest-bearing financial liabilities.
An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.
The incremental costs of obtaining a contract with a customer including significant sales commissions related to long-term service contracts are capitalized if the recognition criteria are satisfied and the entity expects to recover those costs. The capitalized costs are amortized on a straight-line basis over the contract term in which the services are transferred and the revenue is recognized.
Accounting principles requiring management’s judgement and key uncertainties relating to the use of estimates
Preparation of financial statements in accordance with the IFRS standards requires Basware's management to make estimates and assumptions that have an effect on the amount of assets and liabilities on the balance sheet at the closing date as well as the amounts of income and expenses for the financial period. In addition, the management must exercise its judgment regarding the application of accounting policies. Since the estimates and assumptions are based on the views at the date of the Financial Statements, they include risks and uncertainties. The actual results may differ from the estimates and assumptions. More information on the most significant items requiring management’s judgement:
- Goodwill, note 3
- Development expenses, note 10
- Trade receivables, note 15
- Deferred tax assets, note 8
- Share-based payments, note 5
- Financial risk management, note 18
Alternative performance measures
Basware presents the following financial measures to supplement its Consolidated Financial Statements which are prepared in accordance with IFRS. These measures are designed to measure growth and provide insight into the company’s underlying operational performance. The Group has applied the recent guidance from ESMA (the European Securities and Markets Authority) on Alternative Performance Measures which is applicable as of July 3, 2016 and defined alternative performance measures as follows.
Cloud revenue includes net sales from SaaS and other subscription revenues, transactions services and financing services excluding alliance fees. Non-cloud revenue includes net sales from licences, maintenance and consulting, as well as alliance fees.
Organic revenue growth is calculated by comparing net sales between comparison periods in constant currencies excluding alliance fees as well as net sales from acquisitions and disposals that have taken place in the past 12 months.
Net sales in constant currencies is calculated by eliminating the impact of exchange rate fluctuations by calculating the net sales for the comparable period by using the current period’s exchange rates.
Gross investments are total investments made to non-current assets including acquisitions and capitalized research and development costs.
Other capitalized expenditure consists of investments in property, plant & equipment and intangible assets excluding acquisitions and capitalized research and development costs.
EBITDA is calculated as operating result plus depreciation and amortization.
Adjusted EBITDA is calculated from EBITDA excluding any adjustments related to alliance fees, acquisitions and disposals, restructuring and efficiency measures, impairment losses and litigation fees and settlements.
Adjusted operating result (Adjusted EBIT) is calculated from operating result excluding any adjustments related to alliance fees, acquisitions and disposals, restructuring and efficiency measures, impairment losses and litigation fees and settlements.
Adjusted earnings per share (Adjusted EPS) is calculated by excluding from the result any adjustments related to alliance fees, acquisitions and disposals, restructuring and efficiency measures, impairment losses and litigation fees and settlements.
Subscription annual recurring revenue gross order intake is calculated by summing the total order intake in the period expressed as an annual contract value. This includes SaaS and other subscription types. Transaction revenue is not included. Gross new order intake covers new cloud customers, add-ons and renewal uplifts but excludes churn. There will be a time lag before this order intake is visible in net sales.