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GK Software SE Annual Report 2020

Apr 28, 2021

184_10-k_2021-04-28_1bb743c4-735c-4649-9fdc-547a028dc55c.pdf

Annual Report

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Annual Report 2020

Surplus

2,972

6,266

Summary of Consolidated Results

31.12.2020 31.12.2019 31.12.2018 2020/2019
changes
in %
Turnover EUR K 117,560 115,448 106,151 1.8
Operating performance EUR K 118,391 115,448 106,151 2.6
Total operating revenue EUR K 122,688 119,285 109,768 2.9
EBIT EUR K 10,535 3,430 1,595 207.1
EBIT margin (on turnover) % 9.0 3.0 1.5 0
EBIT margin (on total operating revenue) % 8.6 2.9 1.5 0
EBITDA EUR K 19,078 12,256 6,833 55.7
EBT EUR K 9,090 1,233 171 >250
Annual net profit/loss EUR K 6,266 (3,139) 923 0
Earnings per share (weighted) EUR 3.04 (1.60) 0.48 0
Earnings per share (diluted) EUR 3.00 (1.60) 0.48 0
Equity ratio % 44.0 37.1 36.2 0
Net debt EUR K 243 11,907 9,611 98.0
Employees 1,162 1,168 1,147 (0.5)

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Development by quarter (EUR K)

To the Shareholders

Consolidated Management Report

Consolidated Financial Statement

Rainer Gläss

Chief Executive Officer

To the Shareholders

Letter from the Management Board

Letter from the Management Board

Dear shareholders,

We would like to take this opportunity to present you with the 2020 annual report for GK Software1 . We are delighted to inform you that, even in this past year when the economic situation has been difficult for everyone due to the global pandemic, we were able to continue our growth and have, in particular, achieved significant success on the earnings side. We were able to increase the turnover to EUR 117.56 million , exceeding the previous year's results by EUR 2.11 million (up 1.8 percent). This growth was again attributable to our core business segment CLOUD4RETAIL2, which increased by around EUR 3.46 million compared to the previous year. Our EBITDA increase was even greater, reaching EUR 19.08 million and exceeding the previous year's figure (EUR 12.26 million ) by more than half. Earnings before interest and taxes (EBIT) amounted to EUR 10.54 million, tripling the previous year's figure (2019: EUR 3.43 million).

However, 2020 was an outstanding year for the company not only due to the excellent economic results. From our point of view it also marked an important milestone in the transformation of the company into a cloud company. On the one hand, this is underlined by the first purely SaaS transactions for our core solution CLOUD4RETAIL and, on the

other hand, by the large-scale expansion of our highperformance cloud platform, which Deutsche Fiskal is the first to use. This platform is able to exchange transactions in the high double-digit million range with a hundred thousand devices every day in real time. Within a short space of time, Fiskal Cloud transactions broke the one billion barrier. This is the tried and tested basis for the new solution GK SPOT, which we announced in March 2021. This will be a cloud-based big-data solution that uses state-of-the-art technology, reacts in real time, and – enhanced by artificial intelligence (AI) – creates new opportunities for active retailing.

2020 was a successful year in terms of acquiring new customers despite the limited sales opportunities due to Covid-19, although due to this unusual situation we were unable to make decisions about particular projects or even had to postpone them. The fact that we were able to make significant progress towards establishing ourselves as a cloud company – not only in the public eye, but also in terms of our product portfolio – deserves a special mention. As a result, four customers opted to use CLOUD4RETAIL as Softwareas-a-Service. This means that GK Software not only offers the solution, but also manages its operation in the cloud. This involves long-term contracts, which ensure that the proportion of recurring sales will increase over the next few years. A further ten customers opted for the conventional form of CLOUD4RETAIL. We will be working with existing customers on three of the overall 14 new projects

for our core solution. These are switching from an older solution to CLOUD4RETAIL. We were also able to successfully market our Mobile Consumer Assistant and Self Service (Bring your own Device) products, which will be used by several customers. In 2020, we proved once again that we were able to assert ourselves and our solutions on the international market. We have customers from South Africa, the US, Denmark, Egypt, Bulgaria, Canada, France, Germany and, for the first time, New Zealand. It is extraordinarily encouraging to see that our increased efforts to tap the French market have been successful. With the acquisition of a major French retailer, which ranks among the Global Top 50, we have made a first important breakthrough in penetrating this internationally significant market. If we succeed here, we expect this to open other doors for us in the future.

We are also proud of the fact that independent market studies have once again confirmed our international market leadership. In 2020, the Global POS Software study performed annually by the British advisory company rbr 3found that, between June 2019 and June 2020, GK rolled out more new POS installations around the world in its target market (retailers with more than one thousand systems, not including fuel stations and hospitality) than any other provider in the market. Even taking into account all segments (including fuel stations and hospitality), GK Software was the world's number 2 in terms of new installations during this

3 rbr: Global POS Software 2020

1 The name GK Software always refers to the corporate group in the following text. "The Company" is also used as a synonym. When GK Software SE is used, it exclusively refers to the individual company.

2 In the course of reorganising the solutions portfolio and its focus on cloud retail, the GK/Retail business segment was renamed CLOUD4RETAIL.

Letter from the Management Board

period. GK Software has now also advanced to 6th place in terms of overall worldwide POS installations. With a total share of 20 percent, GK Software was also responsible Europe-wide for more new installations than any other competitor. As far as overall installations are concerned, our company is the clear market leader in Central and Eastern Europe and number 2 in the whole of Europe.

As regards our major partnerships, the fact that SAP Industry Cloud incorporated practically all of our solutions was of tremendous importance for the retail industry as it shows that even SAP trusts in the quality of our cloud solutions. Parallel to this, our solutions were once again put through SAP's premium qualification process and are now offered by SAP throughout the world in their currently valid version.

A major event in the past year was the agreement of a partnership with Microsoft in the scope of which we will be introducing our CLOUD4RETAIL solution on the cloud platform Azure. As part of a global alliance, a co-selling agreement now exists that allows both sides to sell each other's solutions.

In the past fiscal year 2020, our research & development work continued to be dominated by the expansion of our cloud services as well as the industryspecific developments. GK Drive was rolled out in the US and the first customer in Germany introduced our Hospitality solution in all of its restaurants. Naturally, Deutsche Fiskal accounted for one of the main areas of development. This solution was completed and certified in 2020. As of today, most major customers

have rolled out and are using the Fiskal Cloud. The Fiskal Cloud Archiv, an extension product, was also further developed and is already being used by several customers since April 2021. In 2020, the retail7 solution was more or less ready for the market and was introduced into the first pilot installations. In the retail7 segment, we also developed the emailbon.de solution. The first customers have already placed orders for this as an SaaS product. In the AIR (Artificial Intelligence for Retail) segment, the core solutions were further developed, also taking our experiences with new customers into account, and a new module for image similarity was launched.

In the reporting period, we were able to expand our installation base for our core solutions by about another 22,000 units with the effect that some 346,000 systems (tills, mobile devices, servers) are now in productive use in 63 countries. Not included in these figures are the installations of our TransAction+ payment platform in the US and the AI solution Realtime Decisioning Engine for product recommendations, as these products are distributed in a technically different manner. With the launch of a number of major new customer loyalty programmes, and the relaunch of existing ones, by leading German retailers, the related apps based on our Mobile Consumer Assistant platform attracted many millions of downloads. As in previous years, we were able to strengthen our business relations with almost all our existing customers. These relationships are a reliable component in GK Software's business development as our customers are permanently adapting their solutions to new requirements in their business by

expanding into new countries, developing new sales concepts or introducing omni-channel standards.

This report includes a new medium-term forecast for the period up to the end of the 2023 fiscal year. This will only apply, however, if the ongoing vaccination campaigns are able to curb – and ultimately end – the pandemic by the end of the current fiscal year. Should this be the case and things return to a more normal pre-coronavirus state, we expect to be able to achieve a sales range in the region of EUR 160 million and EUR 175 million by the end of 2023. We are aware that launching GK SPOT, or tapping new geographical markets or further potential – particularly in the Deutsche Fiskal and prudsys segments – could result in additional organic growth, which could potentially be supported by further inorganic growth without there being any detailed plans for the latter at present. We assume that our SaaS business in the core segment (without Deutsche Fiskal) will continue to grow each year at more or less the same rate as in the past fiscal year. As regards the EBIT, our target figure remains the same 15 percent margin on revenue. Whether or not the pandemic can be controlled will have a major influence on when we can actually reach this target. After reaching the 15 percent mark, we intend to maintain and sustain this level.

Overall, we consider ourselves to be in a good position to continue our growth course and increase our profitability in 2021 and the coming years. The successful and substantially oversubscribed capital increase in March of this year has shown us that the capital market shares this opinion.

Letter from the Management Board

So we will continue to be optimistic about the years ahead and are delighted that you are supporting GK Software SE and its pathway of growth. We would also like to take this opportunity to thank you for placing your long-term trust in the company.

Schöneck, 28 April 2021

The Management Board

Rainer Gläss Chief Executive Officer

André Hergert Chief Financial Officer

Letter from the Management Board

Report of the Supervisory Board

Report of the Supervisory Board

Dear Shareholders,

We would like to take this opportunity to present you with the report of the Supervisory Board of GK Software SE for the 2020 fiscal year. This year continued to be dominated by the implementation of the efficiency programme, which was supported by the Supervisory Board. The results of the fiscal year confirmed to the Supervisory Board that the course adopted by the Company was the correct one.

Composition of the Supervisory Board

In accordance with the articles of association, the Supervisory Board consists of three members. During the 2020 fiscal year these were:

  • – Uwe Ludwig (Chair) until 13 March 2020
  • – Dr Philipp Reimann (Chair) since 27 March 2020
  • – Thomas Bleier (Deputy Chair) and
  • – Herbert Zinn

An unplanned change had to be made to the composition of the Supervisory Board this year. Mr Ludwig, who had been on the board since 2001, had to resign from his position for health reasons. In response to an application by the Company's Management Board, Chemnitz Local Court appointed Dr Philip Reimann as a member of the Supervisory Board and its Chair on 26 March. The 2020 ordinary shareholders' meeting confirmed Dr Reimann in this position until the shareholders' meeting in 2024.

Meetings

The Supervisory Board held its ordinary meetings on 17 February, 22 April, 3 June, 30 June, 26 August and 10 December 2020, whereby only the February, 30 June and August meetings were attended in person. Due to the Covid-19 situation, the April, 3 June and December meetings were held in the form of video conferences. Six Supervisory Board meetings were also held in 2020 on 15 April, 31 July, 15 September, 30 October, 26 November and 4 December in the form of telephone conferences. The board members also held separate preliminary meetings before each meeting of the Supervisory Board for the purpose of coordinating matters internally and met on the sidelines of the annual shareholders' meeting on 30 June 2020.

All members of the board attended all ordinary meetings and conferences. It is customary practice at GK Software to always involve the representatives of the Management Board in the meetings. Beyond these meetings, the members of the Supervisory Board were also regularly in contact with each other and – particularly through the Chair of the Supervisory Board – also with the Management Board and the members of the Group Management Board. Decisions were made during the meetings or by way of a circulation procedure. During its meetings, the Supervisory Board was briefed in detail about the Company's economic and financial situation and its fundamental corporate policy by way of verbal and written reports from the Management Board. At the request of the Supervisory Board, the Management Board also provided interim reports on the latest course of business and earnings at regular intervals between the meetings and promptly forwarded the minutes of each Group Management Board meeting.

Functions of the Supervisory Board

During the 2020 fiscal year, GK Software SE fulfilled the tasks incumbent upon it according to law, the articles of association, the recommendations of the government's "German Corporate Governance Code" commission and the Supervisory Board's latest rules of procedure, and monitored the Company's management continuously and carefully.

During the 2020 fiscal year, the Supervisory Board focused particularly on continuing to implement the efficiency programme; the board had played a key role in initiating and supporting this programme. It had reports drawn up at regular intervals about the status of the analysis and the implementation of the programme. It also supported the Group Management

Report of the Supervisory Board

Board in defining and implementing the targets for the fiscal year and beyond.

The ongoing development and adaptation of the risk management systems was a subject again urgently pursued by the Supervisory Board during the 2020 fiscal year. As a result, the Supervisory Board called for reports on the progress of the implementation of the security concept, which is being continually upgraded, and on the ongoing establishment of formalised administrative processes, the revision of fundamental procedures in the controlling department and the work of the data protection officer. The Supervisory Board welcomed the progress achieved in these fields and the implementation of the initial steps towards establishing a compliance management system within the GK Group, which is due to become an integral part of the Company's procedures as it becomes more advanced and is finally established.

The Supervisory Board also focused on the appropriateness of the remuneration paid to Management Board members, particularly in respect of the adjustments that have to be made to the existing employment contracts and pension agreements. As in previous years, we focused our attention on the relation of the remuneration payments to the economic situation of the Company and on the conditions prevalent at comparable companies, the soundness of the overall remuneration structure within GK Software and the composition of fixed and variable salary elements.

In order to monitor the Company's management, the Supervisory Board took account of the annual budget passed for 2020 and, because of the significant discrepancies already noticeable during the first half of the year, had reports prepared by the Management Board, particularly regarding the ongoing development of costs, profitability, specific characteristics of corporate policy, the reasons behind the corporate planning in all business segments, the further course of business and important measures adopted by the Company. Throughout the entire fiscal year and particularly during the second half of the year, the Supervisory Board also requested additional reports on business developments. Throughout the year, the Management Board also supplied the Supervisory Board with information, both during and outside the meetings, which was discussed and critically reviewed by the Supervisory Board.

Corporate Governance

The Supervisory Board and Management Board have been acting for many years in the knowledge that good corporate governance forms an important basis for the Company's success and is therefore in the best interests of shareholders and capital markets. In April 2021, the Management Board and the Supervisory Board issued their annual declaration of compliance in accordance with Section 161 AktG [German Stock Corporation Act]. The wording of this declaration is included in this annual report as part of the Corporate Governance Report. In this declaration, both the Management Board and the Supervisory Board have

pledged to follow the recommendations of the German Corporate Governance Code as far as possible. On 31 August 2015, a decision was made on the legal stipulation to have equal representation of women and men in management positions; this continues to apply. Again in 2020, no conflicts of interest arose for the members of the Supervisory Board.

Sustainability reporting

In line with the statutory provisions, an independent sustainability report is being published by GK Software SE together with this report for the third time. The Supervisory Board therefore requested an explanation of the principles of reporting and the content of the sustainability report from the Management Board at the same time as the annual accounts and consolidated accounts in accordance with requirements.

Audit of the annual accounts for2020

The GK Software SE annual accounts compiled by the Management Board in keeping with the guidelines set by the German Commercial Code, the IFRS consolidated accounts, and the respective management report were audited by the auditing firm PriceWaterhouseCoopers GmbH, Erfurt, and were given an unqualified audit certificate. Taking into account these audit reports, the Supervisory Board inspected the annual accounts compiled by the Management Board, the consolidated accounts,

Report of the Supervisory Board

the dependency report, the management report of GK Software SE and of the Group, and the Management Board's proposal for the appropriation of profits, for 2020. At its meeting on 27 April 2021, the Supervisory Board asked the Management Board to explain the 2020 annual and consolidated accounts and to report on the profitability, the Company's equity, the ongoing course of business and the Company's broader situation. All members of the Supervisory Board received the necessary paperwork and documents prior to this meeting.

During the meeting, the auditors commented on the Management Board's presentation and explained the audit findings on the basis of the audit reports and answered all the questions on these reports. The auditors were able to satisfactorily answer all issues raised. There are no concerns regarding the auditors' independence. At its meeting on 27 April 2021, the Supervisory Board approved the annual accounts of GK Software SE and endorsed the consolidated accounts of GK Software. The annual accounts have therefore been approved.

The Management Board also prepared a report on the relationships with associated companies in accordance with Section 312 AktG. The auditors examined this report and gave an oral account of the results of their examination at the meeting on 27 April 2021. The review by the Supervisory Board did not give rise to any grounds for objection. Accordingly, it had no objection to the Management Board's final statement in its report in accordance with Section 312 AktG and confirmed this by voting in favour of it at the meeting on 27 April 2021.

The Supervisory Board would like to thank the Management Board, the complete management team and all employees for their work in 2020.

Schöneck, 27 April 2021

Dr Philip Reimann Chair of the Supervisory Board

Corporate Governance Report

Corporate Governance Report

in accordance with Section 289a HGB [German Commercial Code]

GK Software considers responsible and transparent behaviour to be absolutely essential for its long-term economic value creation. Both the Management and the Supervisory Board have therefore issued the statutory declaration of compliance in accordance with Section 161 AktG. Accordingly, monitoring compliance with the declaration is considered an important task for the Management Board and Supervisory Board. The declaration is issued every year and is available to the public on the Internet at https://investor.gk-software. com in the "Corporate Governance" section.

Cooperation between the Management Board and the Supervisory Board

The Management Board and the Supervisory Board have been working together for many years on a basis of trust. The Management Board reports at regular intervals to the Supervisory Board on profitability and the Group's strategy and its implementation, and also on existing or potential risks. These reports are given during the scheduled Supervisory Board meetings, ten of which were held in the past fiscal year, and also directly through regular monthly meetings with the Chair of the Supervisory Board. Further information on this can be found in the Supervisory Board's report. Due to the fact that it has only three members, the Supervisory Board did not form any committees. All

issues are discussed and decided by the full board. The Chair of the Supervisory Board is solely authorised to conduct negotiations on personnel decisions that pertain to the Management Board, but these must be approved by the full board. No conflicts of interest arose for members of the Management Board or the Supervisory Board.

Transparency

GK Software deliberately chose to have its shares listed in the most stringently regulated sector at Deutsche Börse, the Prime Standard, for its flotation in the summer of 2008. The highest possible degree of transparency towards its investors and all the other participants in the capital markets has been one of the most important Company principles from the outset.

The Company will also appoint a voting proxy for the 2021 Annual General Meeting; this will allow shareholders to exercise their voting rights, even if they are unable to attend the meeting in person. All public information, such as ad-hoc announcements and press releases, financial reports or reports on the annual shareholders' meeting, can be viewed at any time on the Company's website.

Risk management

The risk-management system established by the Company is geared towards the needs of its business. It is designed to help identify risks at an early stage and to prevent or limit any risks that occur. Please see the Consolidated Report for details.

Statement of compliance

On 13 April 2021, the Management Board and the Supervisory Board of GK Software SE declared that, since issuing the last annual declaration of compliance in April 2020, the recommendations of the government's German Corporate Governance Code commission had been met, apart from the exceptions noted in the declaration of April 2020, and will continue to be met with the following exceptions. The Corporate Governance Code in its 16 December 2019 version, which was valid at the time this declaration was issued, forms the basis for this declaration.

Corporate Governance Report

A. Management and supervision

I. Business management tasks of the Management Board

Principle 3, Recommendation A.1 In the interests of the Company, the candidates for management positions will be selected by the Management Board mainly on the basis of their personal skills and abilities. Only then will other objective background circumstances of the candidates be taken into account so as not to generally restrict the interests of the Company. When setting the target rate for the proportion of women at the first management level below the Management Board, the Management Board will take into account that this consists of only three members.

Principle 5, Recommendation A.2 Work on

completing the compliance system is still in progress. The Management Board plans to disclose the main features of this once it is completed. Opportunities for employers and outside parties to securely provide information about legal infringements already exist.

III. Function of the annual shareholders' meeting

Principle 8, Recommendation A.5 The Company's articles of association do not provide any regulations for this case. The Management Board will comply with the statutory provisions envisaged for these cases and shall reserve the right to summon an extraordinary shareholders' meeting.

B. Composition of the Management Board

Principle 9, Recommendation B.1 When filling vacant positions on the Management Board, the Supervisory Board will mainly take into account the candidates' personal suitability, based on their individual skills and specialist expertise, so as not to generally restrict the interests of the Company. Only then will other criteria be considered. When setting the target rate for the proportion of women on the Management Board, the Supervisory Board will essentially take into account that this consists of only two members.

Principle 9, Recommendation B.2 The Supervisory Board and the Management Board will jointly ensure long-term planning with regard to successors. This method will be adapted to the relevant requirements of the specific situation in each individual case and will be described in the declaration on company management for 2021.

Principle 9, Recommendation B.5 There is no age limit for members of the Management Board; GK Software SE believes that the professional qualifications of the members of the Management Board are of greater significance.

C. Composition of the Supervisory Board

I. Composition of the Supervisory Board Principle 11, Recommendation C.1 The composition of the Supervisory Board of GK Software SE is not decided by the Supervisory Board, but by the

Company's Annual General Meeting. The Supervisory Board aims at successful cooperation between its members and constructive cooperation with the Management Board. The nominations submitted by the Supervisory Board at the annual shareholders' meeting will take into account the geographical distribution and the degree of complexity of the business activities of GK Software. Criteria such as age, origin or gender of the candidates are not primary factors in considerations. When setting the target rate for the proportion of women on the Supervisory Board, the Supervisory Board will essentially take into account that this consists of only three members.

Principle 11, Recommendation C.2 There is no obligatory age limit for the members of the Supervisory Board as particularly the older members of the Supervisory Board enrich the board with their wealth of experience and their professional qualifications are of greater significance.

II. Independence of the members of the Supervisory Board

Principle 12, Recommendation C.7 In special situations, such as proposals for the necessary appointment of members to the Supervisory Board by a court, the Management Board will, in the best interest of the Company, also propose candidates who do not meet the criteria of the Code as regards independence. The Company does not see any restrictions of independence for the Supervisory Board members who have served on this board for more than twelve years.

Corporate Governance Report

Principle 12, Recommendation C.10 In special situations, such as proposals for the necessary appointment of members to the Supervisory Board, who at the same time are to be appointed as Chairpersons of the Supervisory Board by a court, the Management Board will, in the best interest of the Company, also propose candidates who do not meet the criteria of the Code as regards independence.

D. How the Supervisory Board operates

I. Rules of procedure

Recommendation D.1 The rules of procedure for the Supervisory Board are not made public.

II. Cooperation within the Supervisory Board and with the Management Board

Principle 14, Recommendation D.2 The Supervisory Board of GK Software SE does not form any committees as, due to its size (the Supervisory Board consists of three members), meetings attended by all members of the Supervisory Board are the most efficient way to guarantee that consistent and extensive information is provided to all members of the Supervisory Board. All questions can be discussed and answered appropriately when the full board meets.

Principle 14, Recommendation D.3 See explanation for the deviation from Recommendation D.2.

Principle 14, Recommendation D.4 See explanation for the deviation from Recommendation D.2.

Principle 14, Recommendation D.5 See explanation for the deviation from Recommendation D.2.

Recommendation D.7 The Supervisory Board usually meets together with the members of the Management Board, as both boards believe that the flow of information and the discussion of subjects that concern the Company can be best handled this way.

Recommendation D.11 See explanation for the deviation from Recommendation D.2.

F. Transparency and external reporting

Recommendation F.2 The consolidated accounts will not be published within 90 days of the end of the fiscal year, but – in keeping with the current guidelines of Deutsche Börse AG – after four months. The interim reports will not be presented after 45 days, but – in keeping with the current guidelines of Deutsche Börse AG – after two months. GK Software SE believes that the periods of time stipulated by Deutsche Börse AG are sufficient to provide shareholders with detailed information.

G. Remuneration of the Management Board and the Supervisory Board

I. Remuneration of the Management Board Recommendation G.1

  • – It is not possible to precisely determine the relative share that the fixed remuneration on the one hand and short-term variable and long-term variable elements of remuneration on the other hand have in the overall target remuneration. Whereas the ratio of fixed remuneration and maximum shortterm variable remuneration has been clearly defined, the long-term variable remuneration is paid out solely in the form of share options; however, the value these shares will have on the date of issue cannot be determined at the time the option is exercised.
  • – The remuneration system stipulates the correlation between the achievement of the previously agreed performance criteria and the variable remuneration. However, the Supervisory Board reserves the right to consider the Company's overall situation when assessing the targets that have actually been achieved in terms of overall target achievement.

Recommendation G.6

The variable remuneration that results from achieving long-term targets does not exceed the proportion resulting from short-term targets pro forma. However,

Corporate Governance Report

it is deliberately assumed that a value lever, which cannot be precisely determined, is inherent in the instruments used to determine the remuneration for the long-term targets (share options) in the case of a growth stock as presented by the Company, which can and should result in a situation where the remuneration of the long-term targets significantly exceeds that of the short-term targets.

Recommendation G.10

The members of the Management Board are not expected to invest the variable remuneration granted to them mainly in Company shares, because the longterm remuneration is already paid out solely in the form of share options.

Recommendation G.11

In justified cases, there is no possibility for the Supervisory Board at GK Software to withhold or reclaim any variable remuneration earned. In such cases, mutual agreement will be sought with the members of the Management Board.

Recommendation G.13

The Supervisory Board will ensure in future contracts that payments to a member of the Management Board do not exceed the value of two annual salaries if they leave the Management Board prematurely.

Recommendation G.14

The Supervisory Board will ensure in future contracts that payment promises in the event that the employment contract is ended prematurely by the member of the Management Board due to a change of control are not agreed. As both members of the Management Board were appointed to their positions over a decade ago, the practice adopted for years has been applied to one of the current contracts.

Recommendation G.15

For those members of the Management Board, who hold supervisory board positions within the Group, the remuneration is not currently taken into account in their salaries as the decisions were made before the corresponding rules of the Code were adopted and the additional responsibility associated with this is compensated. When making future decisions, the Supervisory Board plans to ensure that the remuneration for supervisory board positions within the Group is taken into account in the salaries.

GK Software SE Shares

GK Software SE Shares

Basic data

T.01 Basic data
Securities Identification Number
(WKN)		 757142
ISIN DE0007571424
Trading symbol GKS
GK Software AG IPO 19 June 2008
Type of shares Ordinary stock in the name of the holder
without any nominal value (individual share
certificates)
Trading markets Frankfurt and XETRA
Market segment Regulated Market (Prime Standard)
Designated sponsor ICF Bank AG
Number of shares 2,051,100
Share capital EUR 2.051.100
Free float 45.15 %
Highest price in 2020 EUR 100.50 (4 December 2020)
Lowest price in 2020 EUR 35.00 (19 March 2020)

Summary/share performance

The price of GK Software shares, which are listed on the Prime Standard section of the Frankfurt Stock Exchange, soared in the last year. The share price sank briefly to EUR 35 following the initial reports on COVID-19, but was able to recover and, at the end of the reporting period, had reached EUR 100.50, significantly higher than at the start of the year. Market capitalisation lay at EUR 206 million at the end of the year.

Number of shares issued

On 31 December 2020, the total number of voting rights was 2,051,100 shares at the end of the reporting period.

On 31 March 2021, the total number of voting rights was 2,245,925 shares.

Shareholder structure

GK Software SE has an extremely stable shareholder base and this is enabling the Company to achieve longterm and sustained development. The shareholder structure on the reporting date (31 December 2020) was as follows: Rainer Gläss, company founder and Chair of the Management Board, directly held 3.31 percent and, indirectly through Rainer Gläss

GK Software SE Shares

Vermögensverwaltungs GmbH & Co. KG, 26.06 percent of the shares. Stephan Kronmüller, also a company founder and the former Head of Technology and Development, directly held 1.73 percent and, through Stephan Kronmüller Vermögensverwaltungs GmbH & Co. KG, 23.75 percent of shares. This meant that 45.15 percent of the shares were in free float on 31 December 2020.

The Company was informed about the following holdings in GK Software SE, which exceeded the 3 percent threshold:

T.02 Amounts exceeding/falling below the threshold value

Date Shareholder Proportion
in %
12.1.20211 Scherzer & Co. AG, Cologne 4.96
29.1.2021 Wilhelm K. T. Zours (of which, among others,
Deutsche Balaton Aktiengesellschaft, Heidelberg
with 3.18%) 6.22
Directors' dealings in 2020
T.03 Directors Dealings
Date Person
trading		 Position Activity Volume Quantity
EUR

12.6.2020 André Hergert Management Board Purchase 84,950.00 2,500

Investor relations

GK Software deliberately chose to have its shares listed in the most stringently regulated sector at Deutsche Börse, the Prime Standard, for its flotation in the summer of 2008. The highest possible degree of transparency towards its investors and all the other participants in the capital markets has been one of the most important Company principles from the outset.

André Hergert, the CFO, is responsible for investor relations, which has been assigned its own department. This guarantees that any enquiries from investors and potential investors are answered immediately.

GK Software SE also attaches great importance to providing a continual flow of information for the future. Among other things, this involves the completion of quarterly reports and extensive half-yearly and annual reports in German and English, a finance calendar, compulsory announcements, which have to be published immediately, and corporate news items. The accounting system has been adapted to the international IFRS accounting standards and also meets investors' requirements for information. As in previous years, GK Software will hold its analysts' conference during the Frankfurt Equity Capital Forum in 2020 again. Investor and press roadshows also take place at regular intervals, so that the Company remains in permanent contact with the capital markets.

1 Initial notification of 5.23% on 6 March 2012. Information on the current portfolio by the shareholder on 17 March 2016.

Products and Services

Products and Services

The CLOUD4RETAIL platform

The CLOUD4RETAIL platform is the technological basis for the major share of GK Software's solutions. All solutions based on this cloud platform adhere to identical development paradigms and a comprehensive framework. The purpose of this is to enable software components to be used multiple times and resources to be shifted quickly between the various modules based on the platform. CLOUD4RETAIL's main goal is to further reduce the complexity of the various retail processes by way of a suitable platform solution and create solutions that remain operable and manageable for the users despite growing demands, particularly from consumers. The Company's slogan "Simply Retail" takes this into account. This is why the Company has made such significant investments during the last few years in order to enable the process of digital transformation with specific solutions. This has meant that significant parts of the range of solutions have been newly developed in order to safeguard the future viability of the GK range of solutions for years to come and not just rely on the status quo. The results of this fundamental management decision were not as clearly evident at first glance as, for example, the switch from DOS to Java. However, if we consider the resulting effect, the expenditure associated with it and the dimension of this change in general terms, the step that has been taken in the field of software development is probably much bigger as it gives digitalisation a powerful boost and leads to large parts of the corporate IT being transformed into the cloud.

One unique feature of the CLOUD4RETAIL platform of solutions is the use of artificial intelligence to optimise decision processes involving large amounts of data. Using AIR (Artificial Intelligence for Retail), GK Software has developed the first specifically retail-oriented services based on artificial intelligence in order to optimise retail processes. This is based on a selfdeveloped AI solution, which uses processes such as machine learning and other AI methods to analyse even large amounts of data in real time and generate recommended courses of action.

The CLOUD4RETAIL platform is not geared to any individual retail segment, but is equally (not industry specific) suitable for all formats and segments in the retail sector, ranging from small shops to department stores, from food retailers to fashion and even specialist retailers.

The architecture of the platform has been designed to be used not only with a particular type or class of device (device independence). The underlying open client concept ensures that nearly all standard devices can be used on the basis of the same cloud-enabled services. They include mobile and stationary checkouts using very different hardware, scales, self-checkouts, self-scanning devices, mobile data logging devices for employees, tablets or, not least, the wide variety of consumer smartphones.

The CLOUD4RETAIL platform has been designed for use in very large and widespread branch networks. It is critical for the retail business to be able to ensure that the daily operations involving thousands of devices and the central services associated with these are not disrupted (scalable). Retailers operating internationally are faced with the additional challenge of meeting the legal and fiscal requirements that apply in each country (internationalised for more than 60 countries). Due to this complexity, only a few providers worldwide are able to implement large international investment projects.

Elements of the CLOUD4RETAIL platform

Three essential elements form the basis of the CLOUD4RETAIL platform. The first element is the GK/Retail range of solutions, which focuses on the retailers' processes ranging from the local branch to the headquarters and the extensive omni-channel features. The second element is the Mobile Consumer Cloud, which is geared towards processes performed and initiated by the customer. The third segment involves power apps, which can be made available to all retailers independent of the other elements and cover special requirements.

GK/Retail as a transaction processor for the retail industry

Starting in 2015, a fundamental new development in the range of GK solutions was launched. The first new solution that emerged from these investments was OmniPOS (POS = point of sale). The experience gained

Products and Services

from this and the basic groundwork carried out on it formed the basis for the CLOUD4RETAIL solution platform. At the time of its official launch in 2016, OmniPOS was therefore far better than the preceding solution GK/Retail POS (version 12), which was already being used by most customers at that time. The idea of the fundamental architecture behind OmniPOS was to enable all functions to be used in both a modular and distributed way, both with and without user interfaces. Each function must be usable as a central service, but also as a local instance and be secure across network boundaries. At the same time, the central services must be able to handle the simultaneous operation of very many clients at a data centre or in a (private) cloud. This is the only way of guaranteeing operations at thousands of checkouts, calculating prices at a web shop or safeguarding communications with a huge number of customer devices, all at the same time.

The CLOUD4RETAIL platform has not only made it possible for GK Software to provide the first major enterprise-store solution entirely in the cloud, but also allows it to continue to make customised adjustments to the software at the same time. These specific characteristics for each individual retail company are just part of the industry-specific necessities being called for.

The elements of the GK/Retail range of solutions include various components such as the comprehensive omni-channel solution package OmniPOS and the data supply/removal infrastructure for large branch networks associated with it. Also included are other device-specific components,

components that concentrate on certain functions such as OmniScale or Label&Poster Print, and special industry models, such as GK Drive and GK Hospitality.

With retail7, the Company offers a completely new cloud product for small retailers and restaurateurs; this can be purchased on app stores and is offered purely as an SaaS product.

The Mobile Consumer Cloud

The Mobile Consumer Cloud is another element of the CLOUD4RETAIL platform. This combines all of the solutions that think processes from the perspective of the (mobile) customers and place these at the head of the process chain. The Mobile Consumer Cloud was based on the Mobile Consumer Assistant (MCA), which is used modularly depending on the customer's needs. Over the past years, investments have been made in the further development of the solution, allowing us to offer an extensive range of self-scanning and buy online / pick-up in store (BOPIS) products as well as other mobile application scenarios. The Mobile Consumer Cloud follows a framework approach. Retailers can use the framework and other components and integrate them into their existing apps so that they can offer self-scanning and selfpayment options to consumers straight on their smartphones, for example. The Mobile Consumer Cloud works together seamlessly with the modules of the GK/Retail range of solutions, significantly increasing its added value and thus its competitive ability.

Power apps

Power apps form the third segment of the CLOUD4RETAIL platform. They share the same technological basis as the GK/Retail range of solutions and the Mobile Consumer Cloud, but can be used completely as stand-alones. Each power app is geared towards a specific retail-related topic. The main solutions are currently being used in the Deutsche Fiskal and AIR segments. All power apps are usually available as cloud solutions only in a Software-as-a-Service form.

Deutsche Fiskal

GK Software has been developing a solution to meet the new tax requirements that can be summarised under the heading of "German fiscalisation of till systems" since the end of March 2019 and has put this successfully on the market through its subsidiary, DF Deutsche Fiskal GmbH. GK Software is not only providing a cloud solution for customers of the corporate group, but for all operators of till systems through Deutsche Fiskal. As the requirements in Germany in terms of cryptography and the security architecture are more complex than in any other EU member state, an exclusive partnership has been established with the Bundesdruckerei (Federal Printing Office). This cooperation resulted in the development of the cloud solution by Deutsche Fiskal, while Bundesdruckerei is making the certified technical security facilities available and is hosting them at its high-security data centre. GK Software has pooled its activities related to German fiscalisation in its subsidiary known as "DF Deutsche Fiskal GmbH".

Products and Services

As a result of the tight timetables and the pressure on the companies involved, an order was published, which instructed the tax authorities not to challenge any infringements against the law with regard to fiscalisation before 30 September 2020. 15 federal states decided to extend the non-application rule until 31 March 2021 under certain conditions. This solution was able to be provided in a fully functional form to customers for test purposes as early as 1 April 2020. The system has been in regular operation since the beginning of November 2020 and has been certified. Since 1 April 2021, most customers have activated their till and register systems. Transactions in the high double-digit million range are made every day in real time.

AIR – Artificial Intelligence for Retail

In the AIR – Artificial Intelligence for Retail segment, GK Software provides services based on artificial intelligence, each of which focuses on specific retail processes. Retailers can automatically introduce many processes by using AIR – ranging from dynamic pricing to personalisation and even fraud detection – on the basis of machine learning and other AI methods. The major solutions in this segment concentrate on dynamic pricing and personalisation/ recommendations.

The AIR | Dynamic Pricing module determines the fair market value for each product at any time. The AI service reduces the workload for management, optimises the price strategy and makes the best pricing decisions for the product range taking into account

the respective targets (for example, more revenue or a higher margin). A number of factors are included such as competition, costs, product relationships, relationships between the various price categories and price sensitivity.

The aim of the real-time solution AIR | Personalisation is to address customers' current needs at any time by offering intelligent recommendations. Personalisation can be offered at a different place each time – it may be on a website, a smartphone or a printed invoice in a parcel. The goal is to offer the customer a personal, relevant and positive shopping experience along each step of their customer journey,

eMailBon.de

Another power app has emerged in the retail7 segment. The slimline solution for all retailers makes it possible to issue completely digital receipts, saving cost and reducing environmental waste.

GK Software solutions under the SAP brand

SAP is also selling almost the entire portfolio related to the CLOUD4RETAIL platform with identical features using the SAP Omnichannel Point-of-Sale by GK, SAP Mobile Consumer Assistant by GK, SAP Store Inventory Management by GK, SAP Pricing by GK and SAP Frictionless Checkout by GK product names.

Ongoing product development

In 2020, investments were made in the further development of CLOUD4RETAIL and the associated services of the GK/Retail range of solutions as well as in the Mobile Consumer Cloud and the power apps. The solutions sold by SAP have once again successfully completed the premium qualification process. New products and functions are checked by SAP as part of this kind of product test and in each case the current version is approved for sale. GetMyGoods has also been developed as a BOPIS solution (buy online pick-up in store) and made available in the market. "emailbon" has given the market a slim solution to prevent the printing of paper receipts. In the Deutsche Fiskal segment, the Fiskal Cloud solution was adapted to meet the new changes in requirements dictated by the BSI (Federal Office for Information Security) and the Fiskal Cloud Archiv solution was developed.

Other solutions in the portfolio

Payment services

In the field of payment services, GK Software, in our view, offers a market-leading solution for handling payments in the USA in the form of TransAction+ and it is able to integrate a large number of point-of-sale systems and a large range of payment authorisation providers. It meets the highest data protection standards and supports credit and debit cards and gift vouchers, "electronic benefits" as well as handling cheque authorisation and accounting for payment providers in the USA. The software controls the payment devices in the branches and makes it possible

Products and Services

for retailers to significantly reduce their costs. The transition to cloud technology is currently in progress, meaning that this solution will become a power app in future.

The euroSUITE solution from AWEK

GK Software develops and markets a solution for medium-sized retailers known as euroSUITE through its subsidiary, AWEK microdata GmbH, for customers in German-speaking countries and it complements the GK Software range.

The SQRS software package

When acquiring the assets of the former company Solquest GmbH, its range of solutions, Solquest Retail Solutions (SQRS), was also taken over and is still being used by one customer.

Developing and adapting software

In addition to its products, GK Software also provides comprehensive software services. The most important component in this context involves customising and adapting software developments during the initial projects and subsequently introducing change requests, which are a permanent feature of most projects. They include, for example, adapting software that is already in productive use to broader customer requirements, such as integrating new bonus systems in the checkout environment. Classic issues like consulting, project management or training courses come under the heading of developing and adapting software too.

Maintenance and services

In addition to software maintenance that is subject to charges, where the aim is to eliminate errors and faults, GK Software offers other services to the retail trade. A customer care management department has been established as part of focusing the Company's software service portfolio; it supports existing customers in a wide variety of tasks related to operating and adapting the solutions that they use. A special services department has also been made available to customers to help them continually optimise their productive applications and the way that they interact.

Partner training

The GK Academy is responsible for qualifying implementation partners and customer employees as well as training GK Software workers. The Group is also training implementation partners in 2020, which can then introduce CLOUD4RETAIL on their own.

New customers acquired in 2020

New customers acquired in 2020

GK Software and its subsidiaries oversee a total of more than 440 customers. A distinction must be made between projects that apply the core solution, which run today under CLOUD4RETAIL, and were primarily sold under the name OmniPOS or GK 12 until 2019. This segment also includes projects that were sold by SAP under the SAP brand, but in most cases are still implemented and overseen by GK Software. The core solutions segment covers all major and longterm projects. Overall, i.e., not only directly, but also in cooperation with SAP, GK Software oversees in this segment 115 mainly large and medium-sized customers on all continents and in many different branches of industry. SAP also sells a central solution for pricing and promotion, which was developed by GK, directly and solely under its own brand. Taking into account this pricing engine, SAP and GK Software share more than 140 customers.

Other customers are being supported by prudsys, the US company, AWEK and Deutsche Fiskal. The AI solutions offered by prudsys and the US company's payment solution TransAction+ are each being used by more than 50 customers. Some of the solutions offered by Deutsche Fiskal are being used by the same customers that use the core solutions. Many other retailers and partners have opted to use them as well.

The majority of the Company's customers are retailers, with a focus on large, internationally leading companies. Of the Global TOP 50 retailers alone, GK Software counts 12 among its customers.

In the reporting period, the Group won 14 new projects for CLOUD4RETAIL (including three existing customers who are switching to the platform), and acquired four new customers for prudsys, two new customers for the euroSUITE solution and a high three-digit number of new customers for Deutsche Fiskal.

In most cases, the name of the customer is to be kept secret until the roll-out is completed. Below is a selection of the new projects won in 2020:

  • – hagebau / leading DIY chain (1,700 branches in eight countries)
  • – Leading supermarket operator (around 1,150 branches in France)
  • – Food discounter (around 700 branches in two countries)
  • – Canada's largest consumer electronics chain (around 390 branches in Canada)
  • – Leading South-African pharmaceutical company (more than 167 branches in three countries)
  • – Supermarket operator (around 290 branches in Germany)
  • – Pharmacy chain (220 branches in Bulgaria)

  • – New Zealand's largest DIY chain (125 branches in New Zealand)

  • – Supermarket operator (around 40 branches in Egypt)

  • – Fashion retailer (32 stores in the US)
  • – Food discounter (around 32 branches in Chile)
  • – DIY store/garden centre (AWEK euroSUITE around 70 branches in Germany)
  • – Shopping centre (AWEK euroSUITE 1 location in Germany)
  • – BADER / mail-order company (AIR | Personalisation)
  • – Bodyshop / cosmetics retailer (AIR | Personalisation)
  • – Brands4Friends / online fashion/lifestyle-club (AIR | Dynamic Pricing)
  • – Textile manufacturer (AIR | Personalisation)

Besides the new projects, revenue was generated in most of the ongoing projects through the platform or smart extensions.

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Forecast report

Consolidated Management Report

Consolidated Management Report

The Company's Business Model

Subject matter and purpose

GK Software SE1 is one of the world's leading technology companies for retail sector software with a special focus on solutions for large and very large retail companies with many local stores. GK Software SE and its predecessor company, G&K Datensysteme GmbH, which was founded in 1990 by Rainer Gläss and Stephan Kronmüller and changed its name to GK Software AG in 2001, have been successfully operating in the marketplace for over 30 years. The Company's flotation took place in the Prime Standard segment of the Frankfurt Stock Exchange in 2008. GK Software AG was transformed into GK Software SE on 19 January 2018.

Group structure and holdings

In principle, the Group companies can be divided into three groups. While some subsidiaries undertake sales services and support customers in the further development of the standard SW platforms used in various international regions, others are responsible

for the development and sale of special product components of the GK Software Group's overall offering, or undertake development work within the Group without having direct market relationships. All subsidiaries are wholly owned by GK Software SE. The sole exception is prudsys AG, in which GK Software SE holds more than 80 percent of the shares.

The Group's headquarters have been located in Schöneck/Vogtl. since it was founded. Alongside its administration department, the product development department, project management and third-level support facilities are all based at this site. GK Software SE also has a business site in Berlin which is primarily responsible for the marketing, sales and partner activities; parts of the software development work are also based there. The branch in Jena started operating in 2018 so that the Company can benefit from the excellent opportunities for gaining personnel in this high-tech region in the state of Thuringia. There are also other sites located in St. Ingbert, Cologne, Hamburg and Chemnitz.

GK Software's core solution is our CLOUD4RETAIL platform, which is marketed outside the European Union by three companies. The largest of these companies is GK Software USA, Inc., founded in December 2013, which takes charge of CLOUD4RETAIL sales in North and South America and at the same time is responsible for specific solutions for the US market such as our Payment solution or the US version for the standard supplementary solution GK Drive.

1 The expression GK Software always refers to the corporate Group in the following text. "The Company" is also used as a synonym for this. When GK Software SE is used, this exclusively refers to the individual company.

Consolidated Management Report

GK Software Africa (Pty) Ltd. in South Africa has been performing these activities for CLOUD4RETAIL since 2015. There is also a corresponding company in Russia, namely OOO GK Software RUS. GK Software SE has another wholly owned subsidiary in Dübendorf in Switzerland called StoreWeaver GmbH, which takes care of the Group's Swiss-based clients. StoreWeaver GmbH also has a German branch in St. Ingbert in the German state of Saarland. This branch supports the customers who use our SQRS solution (Solquest Retail Solutions) and who are to gradually be accompanied in CLOUD4RETAIL.

Supplementary solutions (so-called "power apps") to CLOUD4RETAIL are developed by prudsys AG, Chemnitz, and DF Deutsche Fiskal GmbH, Berlin. Prudsys AG, in which GK Software SE holds more than 80 percent of the shares, develops the Group's solutions, which are based on the application of artificial intelligence methods and are connected via the platform concept AIR (Artificial Intelligence for Retail), a so-called "power app", according to customer requirements. With the Fiskal Cloud, DF Deutsche Fiskal GmbH offers a cloud-based core solution to automatically satisfy the requirements of the legislation on so-called "German fiscalisation".

The subsidiaries that take care of software development and research and development exclusively on behalf of the Group form an essential part of the corporate Group. Plzen, Czech Republic, for example, has been the Group's second-largest location for more than 20 years. The subsidiary company Eurosoftware s.r.o., which is located there, carries out

the essential parts of the CLOUD4RETAIL product development, as well as research and development work. This is complemented by the development of enhancements to the platform (so-called extensions) for the Group's customers. Since the beginning of 2016, TOV Eurosoftware-UA in Lviv has also been working on developing platform extensions.

AWEK GmbH, which focuses on providing services, is also a wholly owned subsidiary. It has its headquarters in Hamburg. AWEK Microdata GmbH, which is also wholly-owned, is based in Hamburg and has a business site in Bielefeld, specialises in the ongoing development of the euroSUITE checkout software for smaller and medium-sized enterprises and it looks after the installations where this software is in use. AWEK GmbH and AWEK microdata GmbH together form the IT Services division within the Group.

Berlin is also home to the subsidiary retail7 GmbH, founded in 2020, which develops and sells a cloud solution for small retailers in a wide range of industries, the marketing of which is set to begin in 2021.

The Management Board of GK Software SE consists of the company founder Rainer Gläss (CEO, Strategy, Marketing & Sales) and André Hergert (Finances). The Management Board is supported by a Group Management Board, which consisted of the following members in 2020: Michael Jaszczyk (CEO of USA, with responsibility for North and South America), Harald Göbel (Senior Vice-President at GK Software SE, with responsibility for Europe, the Middle East and Africa) and Michael Scheibner (Chief Strategy Officer).

The three-member Supervisory Board at GK Software SE was led by the Chair, Uwe Ludwig, until 11 March 2020. He had been a member of the Supervisory Board since 2001 and had to retire from his position at this time for health reasons. In response to an application by the Company's Management Board, Chemnitz Local Court appointed Dr Philip Reimann as a member of the Supervisory Board and its Chair on 24 March. The 2020 ordinary shareholders' meeting confirmed Dr Reimann in this position until the shareholders' meeting in 2024. Thomas Bleier was elected to the Supervisory Board in 2003. His period in office was confirmed until the annual shareholders' meeting in 2022 at the annual shareholders' meeting in 2018. Herbert Zinn was first elected to the Supervisory Board at the annual shareholders' meeting in 2011. His current period in office ends with the annual shareholders' meeting in 2023.

Control parameters for the Group

Management of the Group is largely determined by two control parameters: turnover and revenue; two main elements are largely used to determine the latter: earnings before interest and taxes (EBIT) and earnings before interest taxes depreciation and amortisation (EBITDA) as well as the relationship between these two revenue factors and turnover (operating performance).

Alongside these two group control parameters, we continue to use the margin of gross profits on turnover. We view gross profits as the surplus achieved by turnover for services purchased from third parties,

Consolidated Management Report

semi-finished products and goods, which are used to directly provide this turnover, in order to be able to view the effect and degree of outside services on the turnover that is achieved.

This system of key performance indicators, which is geared towards earnings capacity, is accompanied by KPIs, which deal with the funding for the group. The issue here is the ability of the Group to be able to service its financial obligations at any time, both in the long and short term. The key performance indicators used here concern the equity ratio and the capitalisation ratio in different variants as a measure of matching the maturities of assets and the capital used to fund them. Another major aspect concerns the Group's ability to be able to make use of investment opportunities that arise at very short notice. A central KPI here is the surplus of cash and cash equivalents over interest-bearing liabilities. Depending on the goal of the approach, there are variants for this KPI too.

Personnel

1,162 people in all were employed within the Group on the reporting date of 31 December 2020 (excluding members of the Management Board and trainees). This means that six fewer people were employed than on the previous year's reporting date (1,168)1 and seven fewer than at the end of the first half of 2020. A large number of the Group's employees, 383, (400 in the previous year), continue to work at the business

1 Number of employees, not including trainees and students

site in Schöneck. The Berlin branch of GK Software SE currently has 66 employees working in the sales & marketing, project and partner management and development fields (the figure was 96 in the previous year). The number of people employed at the Czech subsidiary Eurosoftware s.r.o in Plzen dropped slightly to 244 (as against 245 in the previous year). 77 Group employees were employed in Hamburg at the end of the year (previous year: 80). The number of mobile service technicians, in particular, was reduced according to plan. 26 people were employed at the second IT Services site in Bielefeld (30 in the previous year) and they mainly work on software development. 111 people were working at the business site in St. Ingbert at the end of the year (previous year: 117). 4

people were working in Dübendorf at this time, one fewer than twelve months ago.

The number of employees working at the branch in Cologne on the reporting date was 16, as against 21 at the end of the 2019 financial year. 97 people were working for GK Software in the USA (2019: 86). The South African subsidiary employed 31 people on the reporting date (24 in 2019). The number of people employed at TOV

Eurosoftware UA in Lviv has risen from 18 to 28 since the end of 2019.

Prudsys AG in Chemnitz employed 45 people on the reporting date, compared to 51 at the same time in the previous year. The Group pools its expertise in the field of artificial intelligence at this business site.

Huge investments have been made in training and developing employees for years in order to be able to provide a foundation for and boost growth in turnover at GK Software from a human resources point of view too. Most of our employees for example attended training courses at the GK Academy in 2020 (some of them on more than one occasion). New employees

Consolidated Management Report

undergo extensive and standardised introductory courses, while a permanently adapted training programme is made available to all employees too. The range of online training courses has also been extended, and this increases the potential number of those attending them. The Company is also actively involved in training new or future employees. They include trainees on apprenticeship courses, students from universities of cooperative education or students on sandwich courses. These different measures are already providing the first success stories in attracting new employees and the aim is to further intensify them in future.

T.04 Change in employee structure

31.12.2020 31.12.2019 Change
in %
Schöneck 383 400 (4.3)
Berlin 66 96 (31.3)
Hamburg 77 89 (13.5)
St. Ingbert 111 117 (5.1)
Chemnitz 45 52 (13.5)
Cologne 16 21 (23.8)
Jena 23 18 27.8
Bielefeld 26 30 (13.3)
Czech Republic 244 245 (0.4)
Ukraine 28 18 55.6
Switzerland 4 5 (20.0)
Total 1162 1209 (3.9)
31.12.2020 31.12.2019 Change
in %
Russia 2 1 100.0
Other European countries 9 7 28.6
South Africa 31 24 29.2
USA 97 86 12.8
Total 1162 1209 (3.9)

The GK Software Business Model

GK Software essentially sells software and services to retail companies. A distinction must be made here between the CLOUD4RETAIL core business and the IT services, which are not counted as such. The CLOUD4RETAIL business can be further differentiated – according to the structure of this software platform – into the central process control GK/Retail world of solutions (includes all processes for controlling a retailer's branch processes as well as their integration with the retailer's e-commerce activities) and the power apps, which serve to automate the process landscape (of subordinate processes as well as for the automation and optimisation of central tasks, such as the pricing of the goods offered). These two blocks are complemented by a product that enables retailers to enter into direct contact with their customers, the end consumers, but also allowing the latter to influence the initiation, the process and the conclusion of trade transactions (Mobile Consumer Cloud).

Core business – CLOUD4RETAIL

In the CLOUD4RETAIL sector, sales are generated primarily by the transfer of use of standard software platforms, the special development of software enhancements at the customer's request (so-called "extensions") and services related to the introduction of the software platforms and their operation.

The solution is completely designed for operation in the cloud, but can be operated in a private, hybrid or public cloud at the customer's choice.

Revenue from software arises either from the collection of fees from the granting of licences for an unlimited period of time (so-called "perpetual licences") or from subscription agreements that limit the granting of use to a certain period of time. The fees for perpetual licences are paid in one lump sum. For the subscriptions, payments are usually agreed in equal amounts over the period of use, with a minimum payment agreed for the period following the introduction of the application. Where GK Software also takes over the operation of the applications, the entire solution is made available as software as a service (SaaS) and remunerated through a correspondingly increased subscription price.

CLOUD4RETAIL is a platform1 consisting of various solution components that customers select according to their needs and priorities. At the core of this

1 For components of the CLOUD4RETAIL platform see the Products and Services section above.

Consolidated Management Report

platform, which is geared towards the needs of medium and large retailers, is an application suite that brings together the retailer's processes. Examples of this platform core – the GK/Retail portfolio of solutions – are the processes for cash registers, scales, store merchandise management including the associated infrastructure, and the management and monitoring functions. Also part of the CLOUD4RETAIL sector is the Mobile Consumer Assistant (MCA) solution, which enables direct communication between the customer and the retailer, but also offers the customer the possibility, as required, to initiate (Click & Collect), continue and also complete (e.g. through offerings such as Scan & Co) the retail processes that are offered in the GK/RETAIL portfolio of solutions. Implementation takes place with apps branded to the retailer, which end consumers keep available on their mobile devices.

To accommodate the retailers' many ideas, CLOUD4RETAIL is designed as a standard platform that can be quickly adapted to new situations. This is all the more relevant when applications like CLOUD4RETAIL are used over longer periods of time. CLOUD4RETAIL has therefore been especially designed with this need in mind and allows for a quick enhancement of the solutions through extensions. It is necessary to distinguish between extensions that are relevant for the customer on a permanent basis, which as platform extensions are linked with maintenance contracts that guarantee the release capability of the extension even over long release cycles, and smart extensions that are only of temporary importance for the customer. In the past, we have observed that the sales for these services maintain a very constant level and represent

a reliable foundation for sales expectations in the coming years.

CLOUD4RETAIL contracts based on perpetual licences also generate a permanent revenue stream through maintenance services. These maintenance services result as a fraction of the remuneration for the right of use and are payable for the duration of the use of the respective platform. These maintenance services are included in the subscription payments in the SaaS contracts.

Due to the customary project size, implementation support is always necessary when implementing the project, generating consulting revenue. The normal course of the project therefore usually consists of an initial project, after the successful completion of which the customer can roll out the solution. Even during the initial project, but especially afterwards, additional or new requirements (smart or platform extensions) arise to extend the solution.

These main groups are complemented by the power apps. By these means, further process steps that do not belong to the immediate core of the branch processes can be presented, or main processes can be automated or optimised. The Deutsche Fiskal solutions constitute one block of these power apps. Deutsche Fiskal offers its services exclusively as software as a service. The Fiskal Cloud solution based on the CLOUD4RETAIL platform offers as a service the generation and storage of the legally required electronic signature as well as the associated storage of various receipt-related transactions.

Other management and monitoring functions are also available to the customers. Fiskal Cloud Archiv is likewise a pure SaaS offering, enabling the storage and provision of the data required by the tax authorities in the prescribed format. Another solution of this kind is the emailbon product, for example, which satisfies the obligation to provide a receipt entailed by the legal regulations. CLOUD4RETAIL provides AI solutions for the automation and optimisation of the main trading processes. These are developed by prudsys AG and are offered to brick-and-mortar retailers under the AIR (Artificial Intelligence for Retail) brand as part of the CLOUD4RETAIL platform. The prudsys brand continues to be used for pure e-commerce. The solutions from the AIR platform are also mostly positioned as SaaS offerings and flanked by advisory and introductory offers.

Transaction+

GK Software USA offers the Transaction+ solution exclusively in the USA. Up to now, this has been sold in the classic licensing business, for which maintenance is incurred accordingly. On top of this comes regular extension business that also requires maintenance as an extension of the licence. The USA organisation is currently working on converting the solution so that it can be offered as software as a service in the future, and thus be integrated as a power app in CLOUD4RETAIL.

Consolidated Management Report

retail7

retail7 GmbH has developed a completely new solution for small and micro retailers, with a market launch planned for 2021. It is expected to generate SaaS revenue only, as no individual changes to the solution are planned for individual customers. retail7 GmbH has also developed the emailbon.de solution, which is also sold by GK Software.

GK Academy

GK Academy generates sales through the sale of training and the provision of certification.

AWEK – IT Services

AWEK GmbH offers services for the trade sector primarily in the area of hardware and on-site maintenance. This business has been in decline for several years now and no new clients are being sought as this service is being discontinued. AWEK microdata GmbH develops and sells the euroSUITE branch solution for medium-sized retailers. Sales are generated here from licences, maintenance work, customisation and associated software-related services. AWEK and AWEK microdata together form the IT Services division.

Sales via partners

The most important partner generating sales for GK Software is SAP, which sells a significant part of the CLOUD4RETAIL platform under its own brand. A corresponding agreement on the sharing of licence and maintenance revenues exists in this connection. In addition, there are implementation partners who purchase services from GK Software that they cannot provide themselves.

Research and development

GK Software has always focused on the ongoing development of existing products and the development of new software solutions during the past financial years and they will be strategic competitive factors in the future too. This is also reflected in the significant number of employees working in this field.

GK Software is continually investing in research and development in order to maintain its leading technological position in the long term too. A distinction needs to be made here between applied research, which is handled by its own innovation and research teams, and application-oriented product development. The expenditure for research amounted to EUR 1.66 million in 2020. The research teams are based at several of the Group's business sites. Application-related "product development work" is primarily conducted in Germany and the Czech Republic. Overall, about EUR 15.95 million was spent on this work during the past year.

Overall, GK Software spent EUR 17.60 million on research and development work during the 2020 financial year, which corresponds to about 14% of the Group's sales.

Consolidated Management Report

Economic report

General economic and industry-related conditions

Business developments at GK Software are determined by several factors and their effects in different economic regions. The most important determining factors are the general economic conditions, the current situation and the expected business prospects for the retail sector.

With GK Software's business expansion into more and more economic areas, it goes without saying that the number of factors affecting its business have increased, as the situation in some individual markets may move in different directions in spite of global economic trends. However, this provides at least a partial detachment in the Company's general operations from the developments in its original core markets – primarily in Central Europe – without these markets losing their significance for GK Software. The Company is now in a position to be able to routinely compensate for low revenue or a total lack of revenue from licence agreements in Germany, Austria and Switzerland with revenue from other regions.

2020 has deviated from normal trends in many ways due to the global pandemic. It has become apparent that the company's business has been less affected than originally feared, because GK's customers are generally large to very large organisations that also pursue long-term plans regarding their IT. In addition, the large proportion of customers from the food and DIY sectors has provided stability. At the same time, GK Software was able to expand further into new geographical markets in the past financial year, with the result that dependencies on the original home market in the region of Germany, Austria and Switzerland have been further reduced.

Global economic output declined by a total of -3.5 percent in 2020. According to the IMF, emerging and developing countries were less affected (–2.4 percent) than the industrialised nations, which recorded a decline of -4.9 per cent. There were also considerable differences between the individual states. The US economy shrank by -3.4 percent in 2020, while the euro area economy was down by -7.2 percent. In Germany, the decline amounted to 5.4 percent1 .

In parallel with the basic economic trends in the markets served directly or through sales partners, the general trends in the retail sector are also an extremely important factor influencing the Company's business. The issue of omni-channel retailing continues to be a major area of focus, as it is exerting a huge influence on retailers' strategic decisions in all markets. Beyond this, the introduction of genuine cloud services based on enterprise POS solutions is becoming increasingly important for all sizes of retailers. Long-term issues like demographic developments, new ways of establishing customer loyalty or internationalisation also remain important driving forces and are becoming more

1 https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-worldeconomic-outlook-update (preliminary estimates)

and more connected to the mega-trend of omnichannel retailing. GK Software responded to these priorities in the retail sector at an early stage and made significant preparations for the future through OmniPOS. The CLOUD4RETAIL cloud platform and the Mobile Customer Assistant customer loyalty solution are further strengthening the Company's competitive position. We are also expecting the same effect from integrating solutions on the basis of artificial intelligence. We are also addressing the fuel station and smaller retailer market segments with our new solutions known as GK Drive and retail7.

Even though the licensing business in 2020 was again strongly powered by customers from outside the German-speaking countries, the developments in Germany, Austria and Switzerland continue to remain very significant for the direct business of GK Software, as this is an internationally leading market in the sector and many existing customers have their headquarters there. The German retail trade, Europe's largest single market, experienced very varied trends in 2020 depending on the sector. Overall, the retail sector (excluding motor vehicles, fuels stations, fuels and pharmacies) turned over around EUR 577.0 billion in 2020, an increase of 5.7 percent. While it was a good year for sectors such as online retail and food – and furniture and DIY stores did better than expected – others, such as clothing, footwear, textiles and leather goods, lost -23 percent of their sales compared with the previous year2. This will almost certainly also be

2 https://einzelhandel.de/presse/aktuellemeldungen/13150-einzelhandel-erlebt-2020-jahr-der-extreme-coronakrise-bringt-viele-haendler-an-den-rand-derinsolvenz – preliminary estimate

Consolidated Management Report

reflected in the willingness of these parts of the trade to invest. In a scenario for 2021 with trade opening up in May, the trade association expects -6 percent for the retail sector as a whole.1

After a sustained upward trend, a downturn could also be observed overall for the entire European retail sector in 2020.2 In the UK, however, sales continued to rise despite the weakness of the pound in connection with Brexit. In 2020, retail sales here reached GBP 402.5 billion, up 2.2 percent on the previous year.3 Similarly, in the USA, a continuous upward trend in retail sales has been observed in recent years, which has caused more movement in the world's largest retail market.4 At USD 4.1 trillion, retail sales there exceeded the previous year's high of USD 3.8 trillion.5

E-commerce is also continuing its lively development. This division again increased its sales by 14.6 percent to around EUR 83.3 billion. This trend is expected to continue in 2021. According to initial estimates, online purchases will surpass the EUR 100 billion mark for the first time this year.6 This trend is even clearer in other important, leading retail markets like the United Kingdom. However, it is not yet observable to the same degree everywhere. While the share of online retail trade amounts to 10.5 percent of total retail sales in

the USA7 , the figure was only 6.0 percent in Italy, for example.8It is generally assumed, however, that online retail sales will continue to grow in all developed retail markets.9

The omni-channel retailers continued to grow disproportionately in 2020, increasing their sales by 8.7 percent to around EUR 28.0 billion. This means that brick-and-mortar retailers, who have also mastered their e-commerce business, are increasingly able to leverage the advantages of combining a branch and web shop.10 GK Software has been preparing its solutions for this development by moving in the direction of successful omni-channel retailing for years and therefore believes that it is in an excellent position to meet the relevant demands. These unabated developments are triggering huge challenges for the in-store retail sector and the challenges are also being driven by other innovations.

General assessment of the course of business

For the 2020 financial year, the Management Board adjusted the long-term forecast, which was originally to apply until the end of the year due to the unclear situation owing to COVID-19, in the Annual Report. The new expectation for the 2020 financial year was that sales should be slightly expanded compared with the

previous year, but that EBIT should be significantly improved year on year. This adjusted forecast was fully met.

The 2020 financial year indeed saw lower growth compared with the previous year within the Group on account of various factors. However, the earnings situation improved significantly. Group sales increased by 1.8 percent, or EUR 2.1 million, in the consolidated accounts, with sales in our core segment of the "CLOUD4RETAIL" cloud offering for the retail sector rising by EUR 3.46 million, or just over 3 percent. With new customers around the globe, the undiminished attractiveness of our solution portfolio was once again proven. The development of our activities on the American continent also continued the positive trend that had begun in 2018. Here, sales rose disproportionately year on year by 19 percent to almost EUR 21 million. Even under 2020's more difficult conditions, this region was able to make a positive earnings contribution to the Group's business development.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) amounted to EUR 19.08 million, compared to EUR 12.26 million in the previous year, and were thus 55.7 percent higher year on year. Earnings before interest and taxes (EBIT) reached EUR 10.54 million and were EUR 7.10 million higher than the previous year's figure of EUR 3.43 million, thus almost tripling.

In summary, the 2020 targets were fully achieved.

1 https://einzelhandel.de/images/presse/Pressekonferenz/2021/JahresPK/Charts.pdf

2 http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=sts_trtu_a&lang=en

3 https://www.ons.gov.uk/businessindustryandtrade/retailindustry/datasets/ poundsdatatotalretailsales

4 http://ycharts.com/indicators/retail_sales

5 https://nrf.com/media-center/press-releases/nrf-says-consumers-continue-driveeconomy-forecasts-retail-sales-will

6 https://www.bevh.org/presse/pressemitteilungen/details/e-commercebeschleunigt-wachstum-deutlich-auf-mehr-als-83-mrd-euro-warenumsatz-in-2020-bevh-forde.html

7 https://www.emarketer.com/content/us-ecommerce-2020

8 https://www.retailresearch.org/online-retail.html (2020 estimated; figures for Germany vary according to source)

9 https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/ 10 https://www.bevh.org/fileadmin/content/05_presse/Auszuege_Studien_

Interaktiver_Handel/Inhaltsverzeichnis_fu__r_bevh_Gesamtbericht_Interaktiver_ Handel_in_Deutschland_2020.pdf, p.5

Consolidated Management Report

Developments in new and existing business

GK Software's customers come from almost all areas of the retail sector and are distributed around the globe. The important market sectors, where the Company is active, are primarily the food retail sector, pharmacy & household goods, fashion & lifestyle. DIY & furniture markets or technology & cars. The products and services are mainly geared towards large and medium-sized enterprises and are particularly suitable for customers with many stores in several countries. In total, GK Software supports several hundred customers of various sizes who either use or are preparing the use of solutions from the different sectors of the Group.

During the reporting period, the Group was able to acquire 11 new customers for the core solutions in the CLOUD4Retail sector, as well as others for the prudsys AI solutions and the AWEK Microdata euroSUITE solution. A new feature in 2020 was the acquisition of numerous customers for the Deutsche Fiskal solutions, most of whom, however, will only make a visible contribution to sales from 2021 onwards. In this area, only SaaS contracts were concluded. SaaS contracts were concluded for the first time in the CLOUD4RETAIL sector in 2020. Deutsche Fiskal was able to acquire well over 100 customers and by April 2021 had already launched cash register and recording systems in the six-figure range.

In the area of existing customers, 2020 was also characterised by extensive new orders, pilot starts and rollouts in several projects and an intensive change

request business. Our core solutions were successfully rolled out to additional customers from different trading segments and successfully went live in new countries. The first roll-out of our fuel station solution to the first customer in the USA was particularly important in this respect.

SAP and GK Software further intensified their partnership again in 2020, and some of the new customers in the CLOUD4RETAIL sector are joint customers with SAP.

Explanation of the business results and an analysis of the assets, financial and earnings situation

2020 saw a further expansion of GK Software's business. With sales of EUR 117.56 million, the previous year's figure of EUR 115.45 million was moderately exceeded, as had been projected. Our core business with the CLOUD4RETAIL cloud offering contributed disproportionately to this, increasing by EUR 3.46 million to EUR 110.53 million.

The IT Services business segment declined as expected and generated sales of EUR 7.02 million in 2020, EUR 1.28 million less than in the previous year. Sales of our euroSUITE solution for small and medium-sized retailers were habitually stable, once again reaching the previous year's level of EUR 4.00 million.

The balance of the development of sales and operating costs (i.e. costs excluding depreciation and amortisation) of EUR 6.82 million led to an increase in EBITDA from EUR 12.26 million to EUR 19.08 million. At EUR 10.54 million, EBIT was EUR 7.10 million higher than in 2020. With the financial result remaining negative (EUR –1.44 million after EUR –2.20 million), earnings before taxes (EBT) were EUR 9.09 million (previous year EUR 1.23 million). Against this come tax expenses totalling EUR 2.82 million, resulting in annual net income of EUR 6.27 million.

Consolidated Management Report

T.05 Total operating revenues

31.12.2020 31.12.2019 Change
EUR K in % EUR K in % EUR K in %
Sales 117,560 95.8 115,448 96.8 2,112 1.8
Operating
revenues		 118,391 96.5 115,448 96.8 2,943 2.6
Other operating
revenues		 4,297 3.5 3,837 3.2 460 12.0
Total operating
revenues		 122,688 100.0 119,285 100.0 3,403 2.9

Earnings situation

  • – Sales at 117.56 million euros
  • – EBITDA at 19.08 million euros

Total Group sales rose by almost 1.83 percent from EUR 115.45 million to EUR 117.56 million.

The Group's cloud offering, combined in the CLOUD4RETAIL segment, reported an increase of 3.2 percent, with sales of EUR 110.53 million. If the EUR 6.73 million in non-period income included in the previous year is taken into account, the pro-forma increase is even slightly more than 10 percent.

For the IT Service business segment, the expected decline in sales generated within the area of Hardware Services materialised as a result of our intention to discontinue active operation of this business unit. As

planned, sales here fell further from EUR 8.37 million to EUR 7.02 million. This fall was exclusively due to the hardware services. Our euroSUITE software solution, which is operated in this segment, was able to keep its sales almost constant compared with the previous year at a total of EUR 4.00 million (2019 = EUR 4.03 million). In the case of the Hardware Services sub-segment, we expect this business to cease when the last customer contracts expire at the end of the first quarter of 2022.

This development has consequently led to a further shift in the relative significance of the two segments. As a result, over 94 percent of the Group sales are now generated with the cloud offering CLOUD4RETAIL, while the remaining just under 6 percent is attributable to IT Services.

Looking first at CLOUD4RETAIL, the first thing to note is that software-related sales rose from EUR 62.04 million to EUR 73.81 million, an increase of 19.0 percent, or almost one fifth. The shift towards SaaS demand that occurred in 2020 (three of the eleven new CLOUD4RETAIL customers and one existing customer directly concluded contracts for the

provision of software as a service [SaaS]) is not yet noticeable in the 2020 sales figures. These contracts have terms of three to ten years and a contract value (volume over the contract term, order value or TCV [total contract volume]) of

approximately EUR 13–15 million. This also applies to the contracts concluded with more than 100 customers during 2020 to meet the requirements of the German "Kassensicherungsverordnung" legislation on electronic recording and security systems ("fiscalisation"), the contract value of which amounts to approximately EUR 33–35 million, with an average contract term of three years.

In addition, under the more difficult sales conditions in 2020, perpetual licences (classic rights of use for an unlimited time) were placed for the standard software platforms, generating a revenue of EUR 9.89 million. Overall, this almost matched the figure for 2019, and represents an achievement that should be valued all the more highly in view of the significant move towards SaaS concepts. Of this sales amount, EUR 2.68 million constituted recurring sales (EUR 2.63 million in the previous year).

The standard platforms used by customers also generated further sales from software through the creation of specific extensions to the platforms amounting to EUR 63.91 million (after EUR 51.80 million

Consolidated Management Report

in the previous year). These extensions, commissioned with high reliability by the retailers, have also changed in importance for the Group's customers. At EUR 23.39 million, the extensions (extension licences), for which customers conclude maintenance contracts, now account for 36.6 percent of the extensions, as against just 19.2 percent the year before. The reliability of these sales is made clear by the development of the sales from the extensions that are not secured with maintenance contracts (smart extensions): At EUR 40.52 million, the sales value of the smart extensions almost corresponds to that of the previous year (EUR 41.86 million), although the extension licences increased disproportionately by EUR 13.49 million at the same time.

Revenue from software maintenance for CLOUD4RETAIL also developed favourably. At EUR 19.67 million, the current year's sales exceed the non-period corrected amounts in the previous year's figure by 56.1 percent pro forma (reported in 2019: EUR 19.98 million, of that amount as non-period: EUR 1.71 million).

In total, this results in recurring or repeat revenue of EUR 86.26 million after EUR 67.03 million, corresponding to a ratio of 79.8 percent of the total sales in the CLOUD4RETAIL segment (previous year: 62.6 percent).

However, this improvement in the ratio is partly due to the first-time application of the new sales classification. For sales from 2019 amounting to EUR 5.67 million (corresponding to 5.3 percent of the segment's total

sales in 2019), no clear classification could be made in retrospective allocation. The sales were therefore recognised as Other Sales for 2019.

Sales for implementation and operational consulting in the reporting year amounted to EUR 15.53 million and thus fell short of the previous year's figure of EUR 17.73 million. This can be attributed to the travel restrictions due to the pandemic, which hampered consulting business and sales activities, and led to delayed starts, especially for new projects.

For the IT Services segment, the development is satisfactory as a whole. Software-related sales were maintained at the previous year's level and now amount to EUR 1.66 million, after EUR 1.35 million in the previous year. Including the segment's software maintenance (EUR 1.73 million) and recurring operations support (EUR 1.69 million), recurring or repeat revenue amounts to EUR 5.07 million in total. In 2019, this figure was at EUR 6.64 million, which is EUR 1.57 million higher than the current figure.

In total, therefore, recurring and repeat revenue amounts to EUR 91.33 million (previous year EUR 73.67 million) and accounts for 77.7 percent (previous year 63.8 percent) of total sales.

Consolidated Management Report

T.06 Turnover according to segments

CLOUD4RETAIL IT Services Other business
activities1		 Consolidations Group
EUR K FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 FY 2019
Turnover with third parties 110,531 107,075 7,021 8,374 7 — — — 117,560 115,449
Licences and software2 73,806 62,036 2,158 2,196 — — — — 75,964 64,232
License Platform 9,892 10,232 502 849 — — — — 10,394 11,080
License Platform Extension 23,395 9,946 42 — — — — — 23,437 9,946
Smart Extension 40,519 41,857 1,614 1,347 — — — — 42,133 43,205
Maintenance 19,668 19,981 3,417 5,297 — — — — 23,085 25,278
Software Maintenance 19,668 19,981 3,417 5,297 — — — — 23,085 25,278
Retail Consulting 15,526 17,726 335 572 — — — — 15,861 18,298
Retail Consulting 10,530 12,692 (10) 410 — — — — 10,520 13,102
(Cloud) Operations Support 4,996 5,034 345 162 — — — — 5,341 5,196
Others 1,531 7,332 1,111 309 7 — — — 2,650 7,641
Turnover with other
segments		 — — 951 2,219 — — (951) (2,219) — —
Depreciation (7,732) (8,071) (543) (542) (268) (213) — — (8,543) (8,826)
EBIT segment 9,304 4,413 1,273 (1,054) (42) 72 — (1) 10,535 3,430
Assets3 102,562 104,996 7,757 8,144 6,825 7,187 (6,467) (6,138) 110,676 114,189
thereof long term4 50,559 52,222 2,093 2,383 6,765 6,349 (2,897) (1,097) 56,520 59,857
Debts 57,282 65,303 3,301 4,742 6,773 7,187 (5,377) (5,370) 61,979 71,862
Cash and cash equivalents 9,354 8,064 23 22 48 — — — 9,425 8,086

In-house services have been capitalised again for the first time in the operating performance. With the conclusion of the first customer contracts for our Deutsche Fiskal solution ("Fiskal Cloud"), the prerequisites for the mandatory activation of these

  • 2 Beginning with the 2020 financial year, further subdivisions into Licence Platform, Licence Platform Extension and Smart Extension were introduced.
  • 3 A breakdown of domestic and foreign non-current assets is not available or is too complicated to provide.
  • 4 Non-current assets, apart from financial instruments and deferred tax claims

development services were in place. A total amount of EUR 0.83 million was taken into account here.

Other operating revenues, at EUR 4.30 million, were above the level of the previous year (EUR 3.84 million) and have not changed significantly in their composition year on year. This results in total operating revenues of EUR 122.69 million for the financial year (after EUR 119.29 million in the previous year).

The cost of semi-finished products, goods and purchased services increased in the 2020 financial year compared with 2019. Consumption of semi-finished products increased by EUR 0.66 million, from EUR 0.49 million in 2019 to EUR 1.16 million. EUR 3.43 million). The reason for this lies in the decision of one of the fiscalisation solution's customers, who opted for a hybrid solution consisting of software and hardware. The increase is due to the cost of the corresponding hardware for this customer. The use of purchased services also increased, growing by EUR 2.54 million compared with the previous year (EUR 5.73 million) and amounting to EUR 8.28 million in the reporting year.

Human resources expenditure now amounted to EUR 75.64 million, after EUR 78.13 million in the previous year, and was thus EUR 2.49 million lower than in the previous year. The decline is mainly due to the carrying out of the planned reduction of capacities in various sectors. This was also expressed in the way that the number of employees developed. As of 31 December 2019, the Group had an annual average of 1,205 employees, compared with 1,140 as of 31 December 2020.

At EUR 18.54 million, other operating expenses were down EUR 4.13 million on the previous year's figure of EUR 22.67 million. On the one hand, this concerns the effects of the cost-saving component of the efficiency programme launched in 2019, reinforced by effects from the restriction of travel in connection with COVID-19. The main changes thus resulted from the EUR 3.03 million reduction in travel expenses, the

1 The segment "Others" contains "real estate held as a financial investment".

Consolidated Management Report

EUR 0.69 million reduction in sales expenditure and the EUR 0.23 million reduction in expenses for data traffic.

Further savings also closely connected with the impact of the pandemic relate to reduced costs for staff recruitment and retention (EUR -0.61 million) and voluntary social benefits (EUR -0.27 million). There was a significant increase in expenses for currency losses (EUR 0.72 million), which, however, were at least partially compensated for in Other Income by currency gains on corresponding hedging instruments (EUR +0.41 million). Legal and other consulting costs also increased by EUR 0.35 million due to the internationalisation of the business, the increased expenses for the preparation and implementation of the consolidated and annual accounts and, above all, German fiscalisation.

In summary, these developments led to EBITDA of EUR 19.08 million, following a figure of EUR 12.26 million in the previous year. Depreciation and amortisation decreased slightly by EUR 0.28 million from EUR 8.83 million to EUR 8.54 million. In total, this results in an EBIT of EUR 10.54 million, after EUR 3.43 million in the previous year.

The financial result was again negative in the 2020 financial year with a deficit of EUR 1.44 million. However, this was EUR 0.75 million lower than in the previous year (EUR 2.20 million). The reasons for this are mainly to be found in the lower interest expenditure, which was EUR 0.63 million down on the previous year due to the reduced interest-bearing

liabilities. In fact, interest of EUR 0.87 million was paid in the financial year.

This results in earnings before taxes (EBT) of EUR 9.09 million, after EUR 1.23 million in the previous year.

T.07 Earnings figures

31.12.2020 31.12.2019 Change
EUR K in %1 EUR K in %2 EUR K in %
EBITDA 19,078 16.2 12,256 10.6 6,822 55.7
EBIT 10,535 9.0 3,430 3.0 7,105 207.1
EBT 9,090 7.7 1,233 1.1 7,857 >250
Group result 6,266 5.3 (3,139) (2.7) 9,405 0

Income taxes of EUR 2.82 million (previous year EUR 4.37 million) were recorded for this pre-tax result. This results in a profit for the year of EUR 6.27 million.

Assets situation

The balance-sheet total amounted to EUR 110.68 million as of the reporting date and was thus EUR 3.51 million lower than the previous year's figure of EUR 114.19 million.

The development was mainly shaped by the capital side, which, due to the positive business development, mainly recorded an increase in equity with a simultaneous reduction in current liabilities.

In detail, the major blocks of the balance sheet changed as follows: Non-current assets amounted to EUR 56.52 million and were thus EUR 4.10 million lower than the value on the reporting date of the previous fiscal year. Current assets excluding cash and cash equivalents were down by EUR 0.75 million compared with the previous year, now amounting to EUR 44.73 million. At the same time, cash and cash equivalents increased by EUR 1.34 million to EUR 9.43 million.

The Group's equity amounted to EUR 48.70 million as of the reporting date, an increase of EUR 6.37 million year on year. Non-current liabilities amounted to EUR 32.44 million and were thus EUR 0.25 million down on the previous year. At the same time, current liabilities decreased significantly by EUR 9.63 million to EUR 29.54 million.

This resulted in an equity ratio of 44.0 percent (37.1 percent in the previous year).

1 Margin on turnover 2 Margin on turnover

Consolidated Management Report

T.08 Assets situation
31.12.2020 31.12.2019 Change
EUR K in % EUR K in % EUR K in %
Non-current assets 56,520 51.1 60,621 53.1 (4,101) (6.8)
Current assets
without cash and
cash equivalents		 44,730 40.4 45,482 39.8 (752) (1.7)
Cash and cash
equivalents		 9,425 8.5 8,086 7.1 1,339 16.6
Assets 110,676 100.0 114,190 100.0 (3,514) (3.1)
Equity 48,696 44.0 42,328 37.1 6,368 15.1
Non-current
liabilities		 32,438 29.3 32,688 28.6 (250) (0.8)
Current liabilities 29,541 26.7 39,174 34.3 (9,632) (24.6)
Liabilities 110,676 100.0 114,190 100.0 (3,514) (3.1)

The non-current assets decreased by EUR 4.10 million. Property, plant and equipment (EUR –2.31 million) and intangible assets (EUR –2.20 million) decreased primarily due to scheduled depreciation exceeding accruals.

The carrying amount of the real estate to be reported according to IAS 40, which is rented to a hotel and restaurant business, increased by another EUR 0.42 million due to further operating units being put into service. An unscheduled write-down was also made. Final completion will take place in the course of 2021.

Under current assets, trade accounts receivable from ongoing work decreased by EUR 0.69 million to a present EUR 13.59 million. Trade accounts receivable are EUR 0.60 million down on the previous year's figure, at EUR 23.38 million. The further improved claims management processes are having an effect here; in

addition, the month of December 2020 did not stand out in terms of its significance over the other months to the same extent as in previous years.

Cash and cash equivalents amount to EUR 9.43 million, which is EUR 1.34 million above the previous year's reporting date figure of EUR 8.09 million. We would refer you to the explanations on the development of the financial situation.

Non-current liabilities fell by EUR 0.25 million compared with the reporting date of the previous year, to EUR 32.44 million. The long-term leasing and rental liabilities to be reported according to IFRS 16 amount to EUR 6.73 million and are thus EUR 0.45 million above the previous year's level. There was a slight decline in provisions for pensions, which are reported at EUR 2.73 million and fall EUR 0.04 million short of the previous year's figure. The non-current bank liabilities were reduced by EUR 1.69 million with the scheduled repayment of those components reported as current liabilities, and still amount to EUR 4.45 million. Deferred tax liabilities decreased by EUR 0.67 million to EUR 3.55 million.

In the case of current liabilities, the development is primarily determined by the decrease in current bank liabilities, which were reduced by EUR 8.64 million to now EUR 5.22 million due to the repayment of utilised current account credit lines and scheduled repayments of loans. There was also a reduction in initial payments received, which were EUR 43,000 lower than in the previous year. At the end of the reporting year, initial payments received of EUR 3.59 million were still on

the books. Other liabilities were also reduced. After EUR 14.70 million in the previous year, the current year posts EUR 13.03 million. The main reasons for this are the reduced liabilities from other taxes such as wage tax and value added tax (EUR –1.51 million), the reduction in the amounts of outstanding invoices (EUR –0.36 million) and customer overpayments (EUR –0.39 million). Trade accounts payable increased by EUR 1.11 million from EUR 2.48 million to EUR 3.59 on account of the balance sheet date.

Financial situation

Cash and cash equivalents in the Group amounted to EUR 9.43 million on 31 December 2020, EUR 1.34 million higher than on the previous year's reporting date.

This resulted from the following developments: Cash flow in the narrower sense – i.e., without the change in working capital (net current assets) – increased by EUR 14.08 million compared with the previous year's figure to EUR 20.57 million. This increase is mainly due to the significant improvement in the Group's annual result, which alone contributed EUR 9.40 million to the change in this position.

In the reporting year, this cash flow is burdened by the change in working capital with only EUR 1.24 million. In the previous year, this burden amounted to EUR 5.72 million. In contrast to the previous year, trade accounts receivable and other accounts receivable decreased slightly by EUR –0.16 million, which results

Consolidated Management Report

from the similar timing over the year for the paymentrelevant sales in 2019 and 2020. The effect of these changes amounted to relieving the cash flow by EUR –0.16 million, while in 2019 the burden was still EUR 4.18 million. The change in liabilities/provisions in the previous reporting year burdened the cash flow with EUR 1.64 million. In the 2020 financial year, the burden on the operating cash flow from the change in liabilities/provisions still amounted to EUR 1.33 million.

Taking into account payments for interest and income taxes, the net cash inflow from operating activities amounted to EUR 17.71 million, EUR 17.93 million higher than in the previous year (EUR –0.21 million).

Investment activities resulted in disbursements of EUR 2.97 million. The outflow from investment activities was thus EUR 0.62 million lower than in the previous year. These changes are mainly attributable to lower investments in property, plant and equipment, which were EUR 1.79 million lower than in the previous year. On the other hand, payments of EUR 0.83 million were made for internally produced software intended for licensing for third-party use, resulting in the net effect described above.

Financing activities resulted in an outflow of funds of EUR 11.29 million. The reduction of EUR 10.32 million in liabilities to banks on the balance sheet results from the repayments of bank loans according to the cashflow statement (EUR 8.21 million) and the reduction of utilised current account credit lines (financial resources) in the amount of EUR 2.09 million. The repayment of leasing liabilities amounts to EUR 2.79

million. There were also inflows from the exercise of stock options of EUR 0.97 million and outflows from dividend payments to minority shareholders of the subsidiary company prudsys AG of EUR 0.40 million. Interest paid to lenders and for the granting of credit facilities totalled EUR 0.87 million.

Overall, cash and cash equivalents increased by EUR 1.34 million to EUR 9.43 million during the financial year. Financial resources (balance of cash and cash equivalents and utilisation of current account credit lines) increased by EUR 3.41 million to EUR 5.70 million. With current account and credit card lines of EUR 3.73 million being used, the Group had unused credit lines of EUR 13.92 million available on the balance sheet reporting date.

The Group's financial managers are seeking to meet the goal of guaranteeing that the company is able to service its loans and debts at all times and have adequate liquidity to secure investment projects; it therefore places the highest priority on maintaining capital.

EUR 29.54 million in current liabilities will have to be serviced during 2021. These liabilities are offset by cash and cash equivalents of EUR 9.43 million and current liquid assets of EUR 44.73 million. The company's scope was further increased by a capital increase in March 2021; the gross proceeds of this capital measure amounted to EUR 19.04 million.

The Management Board believes that it has established an adequate funding framework and funding

opportunities for the Group's current potential in normal circumstances. The general conditions for funding need to be constantly compared with investment opportunities and adjustments have to be made, if necessary.

Since spring 2020, the major issue has been the effects of the COVID-19 crisis on the corporate group's environment in general and its financial situation in particular. Contrary to expectations, this crisis has now lasted for more than twelve months, with no end in sight. The Management Board believes that the efficiency programme launched in 2019 has created a stable basis for the Group to cope with the situation. The simultaneous improvement of the controlling and budgeting processes should also have created a level of cost flexibility beyond the usual scope, enabling a fast and adequate response even to deep cuts. In the view of the Management Board, the 2020 financial year has proved this. Combined with the opportunities for GK Software that arise from this crisis and lie in the digitalisation of retail-store operations, which is increasingly being regarded as more of a necessity than an option, and in the transcendence of sales channels in terms of omni-channel retailing, the Management Board remains confident that GK Software is in a position to overcome this general crisis.

Despite this, commercial prudence is required to determine all the possible ways of achieving secure funding, even in the crisis, and, if possible, adopting these courses. The Management Board is therefore continuing to work on restructuring the capital side of

Consolidated Management Report

the balance sheet in order to continue to be able to respond appropriately to these situations.

Financial and non-financial performance indicators

Financial performance indicators. It should be noted that the key indicators, on which the financial data is based, are very much connected to each other. As a result, the development of these figures largely depends on the development of two key indicators. These are turnover and earnings. In order to normalise tax effects, GK Software uses earnings before income taxes and the financial results (EBIT) and the margin on operating performance derived from this and figures derived from these like earnings before interest taxes, depreciation and amortisation (EBITDA).

T.09 Financial performance indicators

31.12.2020 31.12.2019
% 96.3 97.9
% 64.3 67.7
% 16.2 10.6
% 9.0 2.9
% 44.0 37.1
% 51.1 53.1
EUR K (243) (11,907)

The net debt only refers to those liabilities that can be unequivocally assigned to debts. This is why the convertible bond worth EUR 15 million is not taken into account in the performance indicator. The key performance indicators listed above help to analyse developments and discrepancies from plans. For example, the personnel ratio is an important figure for analysing the development of the earnings situation. On the other hand, this largely depends on the "turnover" key performance indicator and any deterioration in its value may express both wrongly established production apparatus and missing the target figure for the "turnover" key performance indicator. However, this can be directly deduced. In this sense, these key indicators are important aids in analysing developments, but are not control parameters in themselves.

Non-financial performance indicators Management largely observes key figures in sales activities when it comes to non-financial performance indicators. There are two key values here: customer satisfaction and the number of customer contacts. They are not observed in a formalised manner, but are documented and assessed through regular reports about existing projects and sales activities with possible new customers and are presented to the responsible members of the Group Management Board and the Management Board and then assessed. Decisions about ongoing actions and procedures are made at an individual case level. Overall, we expect customer satisfaction to continue to improve.

Report on the Risks and Opportunities for the GK Software Group

Report on the Risks and Opportunities for the GK Software Group

Opportunities

The Group continues to have opportunities for growth available to it both at home and abroad; this remains unchanged in comparison to previous years. The topics addressed by GK Software's products are on many retailers' agendas for strategic IT projects. To ensure its success at the international level, the Group has references with leading retailers worldwide and is represented with a technically mature product on the market. GK Software has a number of major partners with good networks in the retail sector. In particular, its partnership with SAP is set to facilitate access to new customers in international markets such as the US and Africa. This partnership is complemented by the recently established co-selling partnership with Microsoft, which is expected to further expand the reach of GK Software's sales activities. In doing so, the Group can draw on the experiences it has gained with its German and international customers due to the fact that its solutions have already been successfully implemented in over 60 countries and can thus be rapidly transferred to further customers abroad.

Domestic prospects for growth are still far from being exhausted as well. In future, the Group is planning to focus first and foremost on new segments. In addition, small and medium-sized chains that have not been addressed as a matter of primary importance also offer great potential, particularly through the sale of standardised solutions. With the development of GK

SPOT, GK Software is currently making preparations for a cloud-based big data platform that is designed to open up new sales potential. The internationalisation of the activities of Deutsche Fiskal and the market entry of retail7 could also create new or expanded opportunities for acquiring customers.

Over the coming years, a key focal point of the retail trade will continue to be the integration of the stationary business with other channels, such as online shops or mobile apps in cloud environments. Additional factors include current trends, such as home delivery, mobile payment and social networks, that need to be integrated in a platform. Other long-term topics such as integrated and automated processes for inventory optimisation, scheduling and efficient customer management systems will continue to play a key role when it comes to reducing costs and enhancing customer loyalty. For these reasons, the retail trade is likely to step up its investments in solutions that integrate all business processes on the basis of modern cloud technology. Moreover, retailers will face greater pressure on their margins unless they standardise and simplify their processes. Given this, the homogenisation of in-store solutions and centralisation of data stream will be of key strategic importance for retailers in future. Generally speaking, new methods and procedures, such as the use of methods from the field of artificial intelligence, will also result in new approaches and even more extensive use of information technology.

We believe that the ongoing coronavirus/COVID-19 crisis will accelerate this trend and will enable GK Software to profit from the retail sector's investment behaviour. The range of solutions offered by GK Software – automation and optimisation through digitalisation – gives the traditional retail sector the opportunity to manage its network of branches on a centralised basis, provide them, for example, with data so more consumers can use self-service options, automate the handling of goods and money management and thereby make these processes contactless. The solutions create a truly seamless transition to retail processes that are initiated, handled and concluded from the consumer's viewpoint. With its omni-channel possibilities, CLOUD4RETAIL provides an outstanding basis for this. This is opening up numerous opportunities for GK Software.

The consolidation process in the software industry with industry solutions for the retail sector already began a number of years ago and is continuing to progress apace. Based on its attractive range of products and sound financial basis, GK Software is aiming to play an active role in this process.

T.10 Risk analysis

Report on the Risks and Opportunities for the GK Software Group

Risks

Risk management system

The risk management system focuses on recognising risks at an early stage.

GK Software has performed a stock take on the risks and classified them according to their type, the probability that they will occur and the consequences arising from them. Risk owners are assigned to the identified risks.

The process and methods of risk identification, evaluation and assessment are documented in a risk manual. This is regularly reviewed and developed.

The process initially involves recording all possible negative deviations from the specified company targets. In a further step, these deviations identified as risks are analysed in terms of their possible damage and probability that they will occur. The possible damage is determined by its negative impact on the company's development, assets, equity and liquidity. The effects of the risks are quantified as far as possible. However, risks that cannot be reasonably quantified are also considered. The risks are grouped into risk areas.

The risks are categorised as follows:

Probability of occurrence Amount of damage
in % EUR K
High >60 >750
Medium 20–60 150—750
Low <20 <150

The risk matrix derived from this results in the classification into risks that pose a threat to the company's existence, significant risks and irrelevant risks. Depending on this, the possibilities of countermeasures to reduce the amount of damage and/or the probability of occurrence or the bearing of risk are derived.

The Management Board has appointed a risk manager who is responsible for regularly updating the risk inventory on a quarterly basis and reporting the results to the Management Board. Firstly, the risk manager obtains the necessary information from the risk owners as part of a formalised process. Secondly, they conduct informal discussions and evaluate other documents (including internal and external reports and minutes).

In the event of significant risks and, in particular, risks that pose a threat to the company's existence, the risk owners and all management employees are obliged to inform the risk manager immediately and comprehensively. Flat hierarchies, short communication channels and an open communication culture ensure that important risk information also reaches the Management Board immediately. The

Supervisory Board is informed by the Management Board at least once a quarter, but usually more frequently, about important developments in the company.

Risks are recorded across the Group and therefore include all subsidiaries. Specific individual risks and general business risks are recorded and considered. Individual risks can together lead to cumulative risks. Changes to the measured values of accumulation risks are indicators of changes to individual risks.

The risk management scheme and early risk recognition do not consider positive opportunities separately. On the one hand, opportunities represent positive deviations from identified risks; on the other hand, opportunities are the subject of strategic corporate management.

Strategic risks

As a software vendor, GK Software operates in a very dynamic market that is subject to ongoing as well as abrupt changes, for example due to technological advances, changes in companies' IT landscapes, the consolidation of suppliers and buyers, new competitors, new strategies and patterns of behaviour on the part of players on the market. Given this situation, the Group is faced with various strategic risks; the potential for damage from all of these risks together is high.

Report on the Risks and Opportunities for the GK Software Group

Management reporting focuses on significant risks and those that could pose a threat to the company's existence.

Of the risks presented below, the most serious is the risk of damage to the Group's reputation due to a single project with a negative outcome. The risks affecting customer behaviour, such as the impact on demand-related behaviour due to business performance that is perceived as inadequate or slowdowns in investments as a result of new market conditions or regulatory influences are of secondary importance. There is certainly a possibility that feedback effects could develop between the two types of risks mentioned here: Changes in market conditions or regulatory requirements could make projects more complex and thus increase the likelihood of negative project outcomes.

GK Software tries to quantify the impact of the risks on the ongoing fiscal year to the greatest possible extent according to the amount of damage and likelihood of their occurring. In principle, the risks can also be classified in the context of the sequence of risks described above. Nonetheless, the immediate damage is typically comparatively inconsequential (amounting to several tens of thousands of euros) particularly in the case of the risks that could result in damage to the Group's reputation; however, they could cause indirect damage that is almost impossible to quantify and manage (e.g., negative market sentiment towards GK Software) and that cannot be assigned to a single case of risk that occurred. For this reason, the Group focuses a great deal of attention on adverse project

developments of this type in order to keep the risks within a manageable scope. This analysis applies equally to all business segments at GK Software in principle.

The risks presented in the following section can be summarised as follows:

The first risks to be summarised are those that could result from perceived performance or changes in requirements on the part of those interested in the products and services provided by the company group (product risks). On the one hand, customers might be of the opinion that changes in market requirements are not adequately represented in the portfolio of services offered by the company group. Alternatively, the products might not correspond to the performance requirements of the target market, or might no longer do so. In either case, this situation could result in lower demand for the products and services offered by GK Software. As things currently stand, we believe there is a low probability that this risk will materialise based on reviews conducted by external technical analysts; likewise, the analyses on customer satisfaction that we have carried out in-house, as well as the rating of our solutions by external analysts, point to a rather lower probability of this risk materialising.

However, changes in requirements could lead to longer sales cycles given that the requirements are generally increasing due to the described trends towards high integration, digitalisation and automation of business processes. These aspects mean that the investment

decisions made by customers are of greater relevance, and that they lead to more intensive and potentially longer decision-making processes and thus to extended sales cycles, which results in a reduced number of sales opportunities that can be realised in a given period (sales market risks). Experience shows that the investment cycles in the retail industry are stable in the long term, and investments not made are generally always made at a later date when investment backlogs have been cleared. Therefore the probability of the risk materialising is extremely low, particularly when considered over longer periods.

At the same time, the increased requirements that can actually be identified lead to greater project complexity, which increases the probability that project plans will be met with failure (production risks). GK Software counters this risk through the approach it applies when developing, employing, managing and retaining project capacities. In a tight job market (human-resources and procurement risks), developing and retaining employee capacities are particularly important aspects, which we seek to accommodate by creating an attractive working environment with competitive compensation and general measures aimed at retaining staff. The probability of these risks materialising is rather low as experience over the past years has shown.

One significant secondary risk consists of maintaining the functionality that is necessary to meet the complex requirements. These systems comprise all IT systems that can be grouped together as a dedicated risk group (IT risks). These risks increase the prospect that damage to the Group's reputation could occur because

Report on the Risks and Opportunities for the GK Software Group

the potential scarcity of sales opportunities means that individual projects are of greater significance for GK Software's reputation as a whole. The Group is making significant efforts in the area of IT-related risks, therefore the probability of these risks materialising is, so far, rather low.

A further group of risks involves environmental risks, such as the development of the economy as a whole, trends towards concentration in customer and competitive environments and the development of regulatory conditions (legal and compliance risks). These risks cannot be controlled by the Group and, in some cases, play a role in increasing the risks in the first group. That is why it is not possible to estimate the probability of the risk materialising in this segment either.

A significant risk – and one which cannot be influenced by the company – is how the businesses of GK Software's customers grow as a result of the development of the general economic situation and consumer sentiment (customer and market-related risks). In terms of actual developments, the year 2020, as well as previous years and the outlook for 2021 and years thereafter, have so far been expected to follow a rather even and consistent trend with respect to the economic and political situation in many parts of the world, apart from the impacts of the coronavirus crisis. We continue to believe that the length of this crisis will have a significant impact on the development of society as a whole as well as that of the economy, even if it appears that these will become evident less rapidly than we assumed they would last year.

Nevertheless, we suspect that serious consequences could occur which would permanently reduce the extent to which sections of GK Software's clientèle are prepared to invest. Regardless of this, it remains difficult to assess the direct and indirect impacts that crises – including ones that have already emerged and those on the horizon – will have on the markets in which GK Software operates. These complex situations continue to include the actual implementation of the UK's exit from the EU, the potential that government debts and the euro crisis could flare up again in the southern member states of the EU, as well as emerging foreign-policy conflicts revolving around and in connection with Russia or China. The way in which these situations actually develop, as well as their attendant uncertainties, could have an influence on the growth of our customers' businesses that is impossible to determine at this point. The Company has absolutely no control over these risks and therefore it is not possible to estimate the probability of these materialising.

Given this climate of general uncertainty, the Management Board is striving to maintain its scope for action by structuring costs as flexibly as possible and only incurring costs where intended.

Moreover, the continuing consolidation of the retail market can result in a reduction in the number of branch networks over the long term, which would mean that the retail sector would have greater purchase power. In general, the retail sector in Germany is subject to strong price competition. For this reason, retail companies are seeking to pass the price pressure caused by this situation on to their suppliers and contractual partners. This also carries over to investments in IT and can have an impact on manufacturers of retail software. However, these risks are likewise not classified as presenting a risk to the company's existence and there is a low probability of these materialising, given that GK software provides strategically significant solutions for retail companies.

The consolidation that is occurring on the customer side is continuing to progress in the same manner, including among competitors. This concentration is characterized by the acquisition of direct competitors of GK Software by globally significant manufacturers of hardware, which thus become universal suppliers for the retail market. This combination could prompt potential customers to obtain all the services they require from these competitors. While the Management Board believes that the previous trend on the market towards procuring hardware and software separately is set to continue, a reversal of this trend and consequent adverse effects on GK Software's sales opportunities cannot be ruled out. As things currently stand, however, there is no sign of any such trend so that the probability of any ensuing risks materialising is low.

The Group's planned expansion likewise involves certain financial risks. The company group primarily forms these relationships on the basis of preliminary work aimed at customer acquisition. This risk increases as a result of the extended sales cycles mentioned above. One of the factors in this is the increase in sales applications that is linked with longer sales cycles. One

Report on the Risks and Opportunities for the GK Software Group

aspect of particular significance, however, is the need to maintain delivery capabilities when contracts are concluded. This can lead to significant costs due to idle capacity. In addition to these general risks resulting from events on the market, there are also internal organisational risks that arise in relation to the aspect of internationalisation as a result of the operation of the Group's national and international subsidiaries. Adverse developments or threats to the existence of the Group's subsidiaries have direct (contracts to balance results) or indirect (evaluation of finance assets, recoverability of receivables, loss of business activities by the subsidiary) negative impacts on the development of the Group. The Group counters this risk by continually developing its investment controlling measures. In order to reduce the danger from such risks, the efficiency programme initiated by the Company in 2019 provided the basis for ensuring that the probability of such risks occurring is significantly reduced and now at a low level.

In the course of the ongoing expansion, the project business must also be scaled to an increasing extent, which is to be accomplished through the involvement of partners. Nonetheless, there are other risks, and particularly quality risks, that arise due to the limited ability to control work in conjunction with partners. To this end, GK Software operates a partner programme with the certification of integration partners. This programme aims to guarantee the quality of project management and is developed on an ongoing basis.

Customer projects at home and abroad, which were described in the analysis of the market and competitive environment and are becoming increasing complex, also present risks to the further development of GK Software that could lead to higher warranty and goodwill provisions – not just for individual projects, but for all projects. However, the Management Board is confident that we have taken the development of the software in a direction that guarantees existing quality standards can be maintained in general. This quality risk in relation to individual projects is managed by means of regular reporting by the responsible project managers to the relevant members of the Group Management Board. A summarised report of the known risks is presented to the Management Board in its meetings, which are typically held monthly. To date, the results of the organisational measures adopted here show that there are only minor risks for the Company in this segment.

GK Software will also continue to expand its products and sales base through activities including targeted acquisitions of companies in view of its planned expansion of its business activities in the coming years. In doing so, the company group will prepare for and examine acquisitions with the utmost possible diligence. Nonetheless, the risk that an acquisition could have negative impacts on the earnings of GK Software cannot be ruled out.

On the whole, GK Software assesses these risks as strategic risks that could have significant impacts on the company's financial and earnings situation over the long term. At the moment, however, we are not seeing any or only weak indicators that suggest these risks could materialise.

Operational and financial risks

Third parties could accuse GK Software of infringements against intellectual property rights, such as patents or copyrights, and make claims for damages or seek to limit the sale of GK Software solutions. This is seen as a significant risk. In order to limit this risk, GK Software reviews whether third-party licensing terms are complied with, starting in the development process.

Given the structure of its customer base and that of its target market, the Group's business is continually characterised by large individual projects with a relatively small number of customers, which means that these business relationships contribute significantly to our turnover and earnings within the course of a given fiscal year. The Management Board foresees that this will continue to be the case in future as well. If a business partner cancels a project or experiences financial difficulties, this can also have financial impacts for GK Software. However, this risk can be limited by regular payment plans or by agreeing on payments after so-called "project milestones". Therefore, the probability of risks materialising in this segment is low.

Specialised and standardised contracts are given preference for the sale of GK Software products. As a rule, these contract templates are deviated from at the request of customers and on the basis of the respective individual circumstances. In these cases, there is a risk that the contractual arrangement is to the disadvantage of GK Software (contract risk).

Report on the Risks and Opportunities for the GK Software Group

This risk is seen as a significant one that is addressed through legal examination on the part of our in-house legal experts.

Trade accounts receivable are owed by customers of

the Group. The maximum credit risk corresponds to the carrying amount of the trade accounts receivable. All of the Group's customers are companies. GK Software has set up a receivables-management system in order to address the risk of customers defaulting on payments. Customers' payment behaviour is monitored at short intervals. If there is reason to assume that individual customers' economic situations have changed, further measures are taken in coordination with Management in order to limit any potential loss. A general allowance is made for all open receivables in order to determine the general risk of defaults for trade accounts receivables.

GK Software manages the general liquidity risk (cumulative risk from other individual upstream risks) by maintaining appropriate liquid assets and credit lines as well as a rolling weekly liquidity forecast along with assessing forecast and actual payment flows.

By obtaining loans from credit institutes, the company enters into covenants with regard to maintaining certain financial figures. Failure to meet these additional conditions normally entitles the bank concerned to make the loans in question due for payment in full immediately, regardless of whether the main loan contract obligations are being met and probably can continue to be met or not. The Group handles this risk by monitoring the covenants

and communicating with the banks concerned in an appropriate manner.

We refer to the special section of the report with respect to the risk involved in the use of financial instruments.

On the whole, GK Software assesses these financial risks as operational risks that could have significant impacts on the company's financial and earnings situation. At the moment, however, we are not seeing any or only weak indicators that suggest these risks could materialise.

Overall risk position

The overall risk position means all individual risks to which GK Software is exposed in its entirety. There are no discernible risks that could pose a threat to the company's existence. The overall risk position of the Group continued to improve in the 2020 fiscal year in keeping with the trend seen in the second half of 2019, and has now improved considerably.

COVID-19

The renewed review of the recorded risks did not result in any significant changes to the risk structure for the "normal" circumstances of the forecast report. The exceptional circumstances caused by the COVID-19 pandemic which, contrary to expectations, has now lasted for more than a year, remain essentially unchanged since the Group's last forecast report. It remains difficult to assess the impacts of these circumstances. We continue to expect that the affected economies and companies will experience significant "downstream damage", which will be correspondingly higher the longer the current situation persists.

The issue raised by this concerns the effects of this crisis on GK Software's general business environment and particularly its financial situation.

The crisis is having effects on the operating business of our customers and therefore, e.g. on their investment and demand behaviour as well as their asset, financial and revenue situation. It is also having effects on

Report on the Risks and Opportunities for the GK Software Group

various company departments at GK Software. We are trying to meet the risks that result from these by adopting very different sets of measures. Hygiene measures have been intensified to protect our employees and work from home has been almost exclusively introduced on a temporary basis. At the same time, control and budgeting processes for turnover, costs and liquidity have been adapted to the situation.

The Management Board believes that it has created a stable basis for the Group to cope with the current situation and future risks through its current, normal cost flexibility and its efficiency programme that it launched last year.

Among other measures, we increased capital in March 2021 to secure our financial situation and are aiming to establish a more long-term basis for our borrowing. We are moving ahead with this initiative as planned.

However, it also appears necessary to note the opportunities that the crisis is presenting to GK Software, which were also particularly evident in 2020 and the fact that it was a successful year for GK Software.

Internal monitoring and risk management systems with regard to the Group's accounting process

The internal monitoring system of the GK Software SE and of the entire corporate Group comprises the principles, procedures and measures introduced by the Management Board for the organizational implementation of its decisions to ensure the effectiveness, efficiency and correctness of the accounting as well as the compliance with the legal provisions relevant for the company. GK Software SE (as well as the Group) is structured according to the responsibilities of the Management Board, whose different departments report to the responsible Management Board. The departments are subdivided into different cost centres, which each have a responsible head of department. The heads of department are either responsible for turnover and costs or only for costs.

The business release rules (requirement requests, purchase orders, invoice release, labour law agreements, submission of offers, customer contracts) are regulated by signature authorisations with value limits, which are regularly checked and adjusted as required. In addition to the release rules, GK Software SE has other guidelines for different areas of application (travel policy, anti-corruption guideline, procurement directive, company car guideline), which are also regularly checked and adjusted if necessary. Appropriate local regulations have been established in the Group companies.

The Group accounts and the accounts of the individual companies are organised and handled in-house, as is the financial accounting of GK Software and all the individual companies. GK Software completes the accounts for the German subsidiaries or branches of subsidiaries as part of agency agreements, with the exception of AWEK GmbH, AWEK Microdata GmbH and prudsys AG. The foreign Group companies each have their own accounting departments, which are responsible for the local accounts of the companies. The wage and salary administration for the German companies is carried out by GK Software as part of agency agreements.

The financial accounting of GK Software SE and some of its subsidiaries is carried out directly in the accounting software Microsoft Dynamics NAV (NAV). The individual accounts according to the local accounting standards of the other subsidiaries are imported in detail into NAV. The information necessary to consolidate or prepare a complete Annual Report is provided by the local units on the basis of instructions issued by the Group. During the preparation of both the individual accounts and consolidated accounts, internal checks are in place under the "four eyes" principle to ensure the reliability of the individual and consolidated accounts.

The Controlling department, which is centrally located in Schöneck but has a Group-wide focus, prepares detailed monthly evaluations to show the development of the Group and the cost centres. The reports are made available to the cost centre managers with

Report on the Risks and Opportunities for the GK Software Group

specific inquiries about conspicuous developments. The Management Board receives an overall report.

Risk reporting in relation to the use of financial instruments

Financial market risks The Group is exposed to risks associated with exchange and interest rates as a result of its business activities. The exchange rate risks result from the business sites maintained in different currency areas and increasingly from customer relations that go beyond the euro zone. The interest risks are the result of selected types of financing to enhance the Group's financial leeway.

Exchange rate risks arise from the Group's exposure to Czech crowns, Swiss francs, Russian roubles, South African rand, US dollars as well as Canadian dollars and Ukrainian hryvnia. The Group therefore accepts payment obligations arising from work, renting and leasing contracts in all these currencies. GK Software with its companies therefore not only issued invoices for sales and services in euros on the balance sheet reporting date, but also in Swiss francs, US dollars, Canadian dollars and South African rand. In order to be able to handle the Group's currency risks in a standard manner, GK Software SE tries to combine the currency risks internally. The Group carried out a sensitivity analysis to determine its risk of exposure to foreign currencies.

We normally handle business transactions in the operational currency of the Group firm concerned. Operational business transactions are not handled in the operational currency in individual cases so that there is a currency risk for monetary financial instruments. As of 31 December 2020, the Group had foreign currency receivables of approximately EUR 1,485 thousand that differed from local currencies. Currency rate fluctuations in conjunction with our original monetary financial instruments do not have any major effects on our profits. The Group's exchange rate risk sensitivity mainly increased due to the increased business activities in the US dollar region and in South Africa.

In the view of the Management Board, the sensitivity analysis, however, only reflects one part of the exchange rate risk, as the risk at the end of the reporting period only reflects the risk during the year to a certain extent. Risks exist in possible changes to exchange rates for services, which the Group companies provide to the parent company to settle in local currencies every month. In the first half of 2020, services totalling EUR 15.49 million were purchased which were paid in a currency other than euros. These service invoices were settled mainly by Group companies in Czech crowns, Russian roubles, Ukrainian hryvnia, Swiss francs or US dollars.

Interest risks result from taking out interest-bearing borrowings and from balance sheet items that contain an interest component.

When borrowing, the cash outflow resulting from the interest payments becomes the object of possible hedging measures. The risk is controlled by the Group by maintaining an appropriate ratio because it takes out a mixture of fixed and variable interest rates on funds. As a rule, long-term borrowings are made at fixed interest rates, while short-term borrowings are subject to variable interest rates or fixed interest rates with short fixed-interest periods.

The currency and interest rate risk is presented in the Notes on the Consolidated Accounts.

Forecast report

Forecast report

Market environment

The German Retail Federation (HDE: Handelsverband Deutschland) is expecting nominal growth of -6 percent1 to EUR 577.4 billion for the entire retail sector in 2021.2 While market research firm GfK believes there is hope that the measures will be lifted soon in light of vaccination campaigns, consumers' propensity to buy – and therefore the consumer climate – can only be expected to recover on a lasting basis once the lockdown has been lifted.3 In addition, predicted events vary significantly across the entire European Union depending on the member state and how vaccinations are progressing.4 The EHI Retail Institute has noted that "apart from the wide variation in the extent to which companies in different sectors are economically affected, IT decision-makers are in overwhelming agreement regarding the significance that technology has for a successful future – and this significance has increased massively once again."5 As expected, the COVID-19 crisis has accelerated this trend, although we are currently unable to predict the precise extent with any degree of confidence.

4 https://ec.europa.eu/commission/presscorner/detail/en/ip_21_504

Overall, the need for investments by the retail trade was believed to be high before the outbreak of the pandemic, as the study published by the EHI Retail Institute entitled "IT Trends in the Retail Sector in 2021" indicates. 41 percent of those questioned believe that analytics / artificial intelligence and 39 percent believe that connected retail will be the most important IT projects during the next two years.6 The respondents see customer centricity and self-checkout/scanning as further key trends.7 In the light of the lockout that is lasting for weeks and the closure of many shops in Germany, we will have to wait and see what this means for the retail sector's readiness to invest, as in-store turnover will collapse significantly in some sectors, while others, particularly the food or pharmacy retailers, will experience an exceptional boom.8

Cloud and dynamic pricing are other areas that are predicted to grow significantly. The "Sustainable Smart Stores" white paper published by EHI and Microsoft demonstrates, for example, that cloud-based applications are of great or significantly increasing important to 79 percent of the interviewed retailers, and 96 percent are already using electronic price labelling or planning projects to implement this.9The RIS News "Store Experience Study 2021" shows that the retailers questioned want to increase their IT expenditure by 5.0 percent annually on average in

order to, for example, personalise the customer experience, make stocks more visible or strengthen store employees in order to improve customers' experiences in stores.10 There is much ground to be made up in Germany in fields like home delivery, for example. This is demonstrated by the fact that online business occupied a share of just 1.4 percent of the entire food market prior to the pandemic; however, its significance is currently growing rapidly and is also expected to continue growing in future11. Different concepts are increasingly being tested in Germany at the moment like store-based deliveries, click-andcollect or central warehouse-based deliveries. These positive market trends have also been significantly reflected in the discussions that GK Software is holding with existing customers and potential interested parties. The IT departments at retailers are also focusing on other issues related to technologies and processes, for which GK Software is in an ideal position with its new GK/Retail OmniPOS solution.

9 https://www.ehi.org/de/pressemitteilungen/digitalisierung-pusht-nachhaltigkeit/

10 https://risnews.com/store-experience-study-2021, Major Findings

11 HDE: Handelsreport Lebensmittel 2020, p. 14

1 https://einzelhandel.de/images/presse/Pressekonferenz/2021/JahresPK/Charts. pdf, p. 6

2 https://einzelhandel.de/presse/aktuellemeldungen/13150-einzelhandel-erlebt-2020-jahr-der-extreme-coronakrise-bringt-viele-haendler-an-den-rand-derinsolvenz

3 https://www.gfk.com/de/presse/Konsumklima-leichte-Erholung-vom-Lockdown-Schock

5 EHI Retail Institute, Technologie-Trends im Handel (Technology Trends in Retail) 2021, p3

6 Ibid. p17

7 Ibid. p14

8 Ibid. p39

Forecast report

Company outlook

Despite the global pandemic, the Group saw continued growth in 2020, with earnings in particular improving significantly. In 2021, we will also continue to move forward with key measures that are part of the efficiency-improvement programme started in 2019. We are also expecting to see further progress in both North and South America that is likely to deliver higher positive earnings contributions in future. The fact that Deutsche Fiskal will be working at full capacity from April 2021 will result in increases in the share of SaaS sales in the 2021 fiscal year, along with the SaaS projects we acquired in the core solutions segment in fiscal year 2020. The first few months of 2021 suggest that positive trends are continuing to consolidate, and the financial indicators are likewise positive.

Vaccination campaigns have started in many countries, fuelling hopes that we will be clearly moving towards overcoming the pandemic by the summer. A slow return to normal conditions, including potential recovery effects, can therefore be expected to the extent that the retail sector as a whole is able to open its businesses again. Provided that conditions do develop in this manner, a forecast can once again be provided for society over the medium term. However, this is subject first and foremost to whether we actually succeed in overcoming the pandemic to a large extent by the third quarter of 2021.

Assuming the mentioned conditions, the Management Board feels it is in a position to make a medium-term forecast extending to the end of fiscal year 2023. We

expect turnover to continue to grow significantly, ranging between EUR 160 million and EUR 175 million by the end of the forecast period. We expect this growth to primarily occur on the basis of the solutions and products we are currently offering on the market. Further potential could develop as a result of new solutions or the geographical expansion of our sales regions. This forecast is based on organic growth and could be enhanced by inorganic growth, although a more detailed plan for this is not available at present.

We are expecting annual gains for the SaaS business in our core business (without Deutsche Fiskal) to reach the level seen in 2020, with the share of subscriptions growing continuously but not at a rapid rate. Further potential could open up for Deutsche Fiskal if fiscal legislation is extended to other sectors, or branches that were initially equipped with hardware are converted. An expansion to other geographical markets is plausible as well.

In terms of EBIT, we are continuing to aim for a target figure of 15 percent, in relation to turnover. This will likely be based on the prerequisite that the pandemic has been overcome in the markets we have developed, and segments that have been affected by closures are on the path to recovery. For this reason, we are unable to set a specific date for this target figure. Once we have reached this mark, however, we are in any case aiming to keep the EBIT at this level and consolidate it.

This forecast is based on our existing customer relations, the current position our solutions occupy on the market as well as planned and current demand for these solutions. GK Software is currently in an excellent position in many ongoing tender procedures in different regions of the world and has important advantages over its competitors with its innovative, broad portfolio of products, the internationality of its solutions and its proven ability to introduce projects quickly. This makes us optimistic about increasing the number of customer contacts in the following business year. We are also expecting to see positive effects from partnership agreements with so-called "hyperscalers",1 such as Microsoft, who are hopeful that large numbers of terminals and transactions in the retail sector will yield potential for their cloud offers.

On the whole, we believe that we are in a good position to continue keep the Group on a growth trajectory in the coming years while also tapping into new opportunities alongside those currently available to us. One helpful factor is that we have only felt the impacts of the existing pandemic slowdown to a minor extent and primarily in relation to our new business. However, we expect to see catch-up effects in the coming years as a result of delayed investments if the pandemic can be largely overcome this year.

1 Hyperscalers are large cloud providers. In some cases, this term is used to refer exclusively to the three largest providers (Amazon, Microsoft and Google). However, it is used somewhat more broadly here in reference to the retail sector.

Forecast report

General statement for 2021

Based on the assumptions and influencing factors already outlined, we are expecting a slight increase in turnover revenues and a further slight improvement in EBIT for the GK Software Group. Given that the pandemic remains a key factor in 2021, however, we are currently unable to support these assumptions with concrete or approximate figures as we believe we could do for the medium-term forecast.

These statements continue to be subject to the considerable reservation that it is difficult to estimate the duration and depth of the Corona crisis and its consequences in the various regional markets in which the Group operates, so that actual developments may differ considerably from this assessment.

50 Annual Report 2020 | GK Software SE

Remuneration report

Remuneration report

Remuneration of the Management Board

In addition to fixed remuneration, the members of the Management Board of GK Software SE receive a results-dependent component that is linked to qualitative targets and is primarily related to the company's development. The Supervisory Board evaluates these qualitative targets annually for the members of the Management Board.

In addition to their fixed compensation, the members of the Management Board are granted remuneration in kind. This includes the provision of company cars for personal use as well. In addition, members of the Management Board are remunerated for costs involved in maintaining residences at various Group locations. The tax bases are decisive for this.

The members of the Management Board are still provided retirement insurance based on seniority. The pension benefit plans have been organised so that they form a life-long, fixed retirement pension, which is to be paid once employees reach the age of 65 or 68 or 67. As this involves fixed pension sums, no adjustments are made in line with the final salary paid or the preceding salaries or the length of services or revenues in the fund. No fixed pension adjustment has been agreed. There are also entitlements in case somebody suffers invalidity or a widow's pension is necessary if somebody dies. In the financial year EUR 645 K was paid into the pension plan assets and expenditure of EUR 548 K (2019: EUR 435 K) recognised. The cash value of the provisions for the members of the

Management Board amounts to EUR 4,404 K (2019: EUR 3,810 K).

The members of the Management Board are entitled to take part in the Group's share option scheme in line with the general rules established for this scheme. The stock options are allocated to the Management Board by the Supervisory Board depending on the extent to which the members of the Management Board have achieved their targets. The share options granted in the financial year can only be exercised under certain conditions: the option can be exercised within half a year of expiry of a four-year retention period, no earlier than 3 August 2024, at a price of EUR 68.00 per share, provided that the Xetra closing price of the GK Software SE share is at least EUR 85.00. In 2020, the members of the Management Board were granted 10,000 share options at a fair value of EUR 19.17 per option. The share option programme resulted in an overall expenditure for the Company of EUR 159 K in the financial year, distributed equally to both members of the Management Board. In total, the members of the Management Board could have 40,000 options as of the reporting date.

In fiscal year 2020, the total compensation received by the Management Board for its activities amounted to EUR 1,350,000 (2019: EUR 880,000); of this amount, EUR 930,000 (2019: EUR 880,000) was attributed to fixed compensation and EUR 420,000 (2019: EUR 0) to the variable components. The payment of the variable remuneration components depends on the achievement of specific targets,

agreed by the Supervisory Board with the members of the Management Board. Whereas strategic and quantitative goals in terms of the EBIT were agreed for the Chair of the Management Board, the variable remuneration component for the CFO is tied to the achievement of individual project targets.

Providing that the defined targets are fully achieved, the intention is to split the total compensation for the board as a whole at a share of 65 percent for fixed compensation and a share of 35 percent for the variable compensation. Over the course of 2020, 71 percent of the compensation was disbursed without contingents and 29 percent on the basis of variable compensation determinations (compensation basis: 2019). Severance payments may be made to outgoing members of the Management Board in the case of exceptional performance. The compensation is granted by the Supervisory Board.

Remuneration report

T. 11 Remuneration for members of the Management Board

Management
Board		 Fixed
remuneration
and fringe
benefits		 short-term
variable
remuneration		 Share options Overall
remuneration
EUR K FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 FY 2019
Rainer Gläss 716 600 300 0 67,792 52,792 1,016 600
André Hergert 289 280 120 0 8,181 500 409 280
Total 1,006 880 420 0 75,973 53,292 1,426 880

There are also pension commitments for two former members of the Management Board. In the financial year, payments of EUR 195 were made to the pension plan assets and expenditure of EUR 241 K (2019: EUR 199 K) recognised for the former members of the Management Board. The provisions amount to EUR 839 K (2019: EUR 554 K) for this group of people.

Compensation of the Supervisory Board

In 2020, the members of the Supervisory Board received fixed remuneration amounting to EUR 83,000 (2019: EUR 80,000) in keeping with the articles of association. There was no entitlement to performancebased compensation in 2020 and 2019, and there are no plans to introduce this in keeping with the articles of association.

T. 12 Entitlement to remuneration: members of the Supervisory
Board
Fixed
remuneration
EUR K FY 2020 FY 2019
Uwe Ludwig (until 13 March 2020) 10 40
Dr Philipp Reimann (from 27 March 2020) 33 0
Herbert Zinn 20 20
Thomas Bleier 20 20
Total 83 80

Information pursuant to Section 315a HGB [German Commercial Code]

  • 1. Capital structure. The nominal share capital of GK Software SE as of 31 December 2020 was EUR 2,051,100.00 and is broken down into 2,051,100 no-par ordinary bearer shares with a pro-rated share in the share capital of EUR 1.00 each. Each individual share entitles the holder to one vote in accordance with Section 4 of the articles of association. Due to the issue of employee shares from the conditional capital, the number of shares increased to a total of 27,800 shares in the course of 2020.
  • 2. Shareholders' rights and duties. The same rights and duties are attached to each share, with the shareholder entitled to property and administration rights. The property rights include the right to a share in profits as well as the right to subscribe to shares in the event of capital increases. Shareholders' proportionate share in the Group's profits is determined by their proportionate share in the share capital. The administration rights include the right to participate in the annual shareholders' meeting of the Group, to speak at the meeting, pose questions and make proposals, as well as exercise the right to vote.

  • 3. Capital investments. As of the reporting date, the following 10 percent direct or indirect shareholdings had been identified in excess:

  • a. As of 31 December 2020, Mr Rainer Gläss held 602,292 shares (29.77 percent) either directly or indirectly, of which 534,500 shares were held indirectly via Gläss Vermögensverwaltung GmbH & Co KG.

  • b. Mr Stephan Kronmüller held 522,700 shares (25.83 percent) either directly or indirectly, of which 487,200 shares were held indirectly via Kronmüller Vermögensverwaltung GmbH & Co KG.
  • 4. Composition of the Management Board and modification of the articles of association. The appointment and dismissal of members of the Management Board are regulated in Sections 84 and 85 Aktiengesetz [German Stock Corporation Act]. Members of the Management Board are appointed by the Supervisory Board for a term of five years at most, and extensions of five years each are permitted – potentially multiple times. According to the articles of association, the number of members on the Management Board is determined by the Supervisory Board; however, the Management Board must have at least two members. The Management Board of GK Software SE currently has two members. The articles of association can only be modified by the annual shareholders' meeting in accordance with the provisions of the Aktiengesetz. Amendments to the articles of association – that is, verbal changes to the articles of association only – can

be determined by the Supervisory Board in accordance with Section 10(8) of the articles of association. Resolutions of the annual shareholders' meeting require a simple majority of votes cast in accordance with Section 15(2) of the articles of association, unless otherwise stipulated by law.

5. Powers of the Management Board to issue and repurchase shares. Share repurchase programme. Contingent capital (contingent capital II EUR 50,000; contingent capital III EUR 75,000; contingent capital IV EUR 250,000; contingent capital V EUR 83,500) exists. These contingent increases in capital are only performed if the owners or creditors of convertible bonds or share options make use of their conversion or subscription rights. According to Section 4a Para. 1, 3 and 6 of the articles of association, the Management Board was entitled to grant subscription rights to individual share certificates as part of the share option programme on one or more occasions, provided that the Supervisory Board approves these measures. The share options are exclusively for subscription by members of the GK Software SE Management Board, selected managers and other senior employees at GK Software SE and for subscription by members of the management team and selected managers and other leading employees in companies, which are independently associated firms in a relationship with GK Software SE within the meaning of Sections 15 and 17 AktG. The decisions taken at the annual shareholders'

Takeover-relevant information in accordance with Section 315a HGB

meeting on 28 June 2012 (contingent capital II), 29 June 2015 (contingent capital III) and 29 June 2018 (contingent capital V) empowered the Management Board to issue subscription rights to GK Software SE shares with a term of up to five years provided that each share option grants the right to subscribe to one GK Software SE share. A decision taken at the annual shareholders' meeting on 16 June 2016 empowered the Management Board to issue on one or several occasions option and/or convertible bonds, profit participation certificates or participating bonds made out to the holder or name or a combination of these financial instruments and exclude the subscription rights to these instruments or their combination until 15 June 2021, provided that the Supervisory Board agrees.

6. Share repurchase programme. The 2018 annual shareholders' meeting on 21 June 2018 authorised the Management Board to acquire its own shares in the Group until 20 June 2023 up to a total of 10 percent of the Group's share capital existing at the point at which the resolution was passed in the amount of EUR 1,919,875.00, provided that the Supervisory Board agrees. Together with other own shares that are the property of the Group or can be allocated to the Group in accordance with Sections 71a ff AktG, the acquired shares may not amount to more than 10 percent of the share capital at any given time. The authorisation may not be given for the purpose of trading in the Group's own shares. The Management Board may use the shares acquired within the scope of the authorisation for

any legal purpose, provided that the Supervisory Board agrees.

  • 7. Compensation agreements. There are no compensation agreements for the case of a takeover offer.
  • 8. Shares with special rights. There are no owners of shares with special rights that grant controlling powers, as this type of share class does not exist at GK Software SE. Likewise, there is no control of voting rights for shares held by employees for which the employees do not exercise their rights of control directly.
  • 9. Change-of-control clause: The "Software License and Reseller Agreement" between SAP and GK Software can be terminated by SAP for an important reason, if the majority of shares in GK Software are sold to an entity that is a close competitor of SAP. Members of the Management Board are granted a special right of termination in the event of a fundamental change to the composition of the shareholder structure of GK Software SE.

T 13 Share options

Date of issue Issue
options		 of which
forfeited of which lapsed		 of which
redeemed		 Options remaining Exercise price Exercise period End of exercise
period
Number Number Number Number EUR Years
20.6.2017 8,500 1,250 0 0 7,250 92.10 4 1/4 21.6.2021
Contingency capital II 7,250
1.11.2015 5,000 2,500 0 2,500 0 28.62 4 1/4 1.11.2019
30.11.2015 25,625 1,975 4,500 19,150 0 33.98 4 1/4 30.11.2019
29.8.2016 32,025 1,600 0 8,650 21,775 45.98 4 1/4 29.8.2020
4.12.2017 16,500 0 0 0 16,500 116.69 4 1/4 3.12.2021
Contingency capital
III		 38,275
26.11.2018 37,000 6,450 0 0 30,550 75.16 4 1/4 28.11.2022
3.8.2020 20,525 0 0 0 20,525 68.00 4 1/4 3.8.2024
Contingency capital V 51,075
Total amount 96,600

54 Annual Report 2020 | GK Software SE

Corporate Governance Report

Corporate Governance Report

Information on separate non-financial report

Corporate governance statement (Section 289f, Section 315d HGB)

Non-financial report

The non-financial report is submitted separately and, after being reviewed by the Supervisory Board, will be published on the Group's website at: https://investor. gk-software.com/de/veroeffentlichungen/csr-bericht.

Information on female quota and diversity concept

The Management Board of GK Software SE consists of two members and the Supervisory Board has three members. Therefore, there is no target figure for a female quota. GK Software employs staff from more than 52 countries. It welcomes all qualified job applicants, regardless of gender, nationality or skin colour, and also fills its management positions within the company according to this principle.

Explanation in accordance with Section 161 AktG [German Stock Corporation Act]

The annual German Corporate Governance code Statement in line with Section 161 AktG was submitted and has been published on the Company's homepage at

https://investor.gk-software.com/de/corporategovernance/entsprechenserklaerung.

Relevant information regarding corporate governance practices

The Group does not have any relevant corporate government practices extending beyond the legal requirements and the requirements we comply with in the German Corporate Governance Code.

Description of the working methods of the Management Board and Supervisory Board

A regular Supervisory Board meeting is held at least once every quarter. However, the members of the Supervisory Board also maintain close contact with

one another outside of the meetings and stay informed about the Group's development and events that could influence this development. In addition to the official, mandatory provision of information to the Supervisory Board, the Supervisory Board and Management Board also take part in informal meetings between their members. The Management Board takes care of the Group's business on a cooperative basis; however, the members of the Management Board are assigned dedicated business areas. The members of the Management Board report on developments in their business areas at the Management Board meetings, which are typically held monthly. In addition to the meetings, the members of the Management Board maintain ongoing contact with one another.

Due to their size, neither of the bodies forms any committees. All matters are dealt with jointly.

The Management Board

Rainer Gläss Chief Executive Officer

André Hergert Chief Financial Officer

Consolidated Financial

Consolidated Balance Sheet

Consolidated Balance Sheet

on 31 December 2020

T.14 Assets
EUR K Notes on the
Consolidated
Accounts No.		 31.12.2020 31.12.2019
Property, plant and equipment 2.1.; 3.1. 14,675 16,988
Right of use assets IFRS16 2.3.; 4.2.2. 9,246 8,914
Property held as a financial investment 4.2.3.; 6,765 6,349
Intangible assets 2.4.; 3.2.; 4.2.4. 25,412 27,607
Financial assets 2.7.; 4.1. 6 49
Active deferred taxes 2.11.2.; 4.2.7. 416 714
Total non-current assets 56,520 60,621
Goods 2.5.; 4.2.5.; 5.3. 6 35
Auxiliary materials and supplies 2.5.; 4.2.5.; 5.3. 167 382
Initial payments made 2.5.; 4.2.5.; 5.3. 4 8
Trade accounts receivable 2.7.; 2.12.5. ; 4.1.1. 23,382 23,982
Trade accounts receivable from ongoing work 2.12.5.; 3.6. 13,587 14,278
Income tax claims 4.1.2. 941 820
Other accounts receivable and assets 4.1.2. 6,643 5,978
Liquid assets 6. 9,425 8,086
Total current assets 54,156 53,569
Balance sheet total 110,676 114,190
Balance sheet total 110,676 114,190
Total current liabilities 29,541 39,174
Other current liabilities 4.1.8. 13,025 14,701
Income tax liabilities 4.1.9. 784 428
Initial payments received 2.12.5. 3,589 3,547
Liabilities from trade payables 2.7.; 4.1.6. 3,591 2,484
Current leasehold liabilities 2.3.; 4.1.4.; 4.2.2. 2,580 2,735
Current bank liabilities 2. 5,223 13,861
Current provisions 2.10.; 4.2.10. 750 1,418
Total non-current liabilities 32,438 32,688
Deferred tax liabilities 2.11.2.; 4.2.7. 3,546 2,872
Deferred government grants 2.9.; 4.2.9. 764 812
Convertible bond 4.1.5. 14,222 13,826
Non-current leasehold liabilities 2.3.; 4.1.4.; 4.2.2. 6,731 6,279
Non-current bank liabilities 4.1.3., 4,446 6,132
Provisions for pensions 2.10.1.; 4.2.8. 2,730 2,765
Total equity 48,696 42,328
Equity attributable to non-controlling interest 726 1,068
Equity attributable to GK Software SE
stockholders		 47,971 41,260
Shortfall for period minorities interests 5. 6,210 (3,138)
Profit brought forward 5. 13,545 16,682
Other reserves 2.6.; 4.3. (2,534) (1,670)
Retained earnings 2.6.; 4.3. 31 31
Capital reserves 2.6.; 4.3. 28,667 27,332
Subscribed capital 2.6.; 4.3. 2,051 2,023
EUR K Accounts No. 31.12.2020 31.12.2019
Notes on the
Consolidated

Consolidated Statement of Income and Accumulated Earnings

Consolidated Statement of Income and Accumulated Earnings

for the financial year from 1 January to 31 December 2020

T.16 Consolidated statement of income and accumulated earnings EUR K Notes on the Consolidated Accounts No. FY 2020 FY 2019 Ongoing business operations Turnover revenues 2.12.; 5.1. 117,560 115,448 Own work capitalised 3.4. 831 0 Other operating revenues 5.2. 3,842 3,837 Earnings from appreciation in value on financial assets1 228 0 Turnover and other revenues 122,460 119,285 Materials expenditure 5.3. (9,436) (6,229) Personnel expenditure 5.4. (75,640) (78,134) Depreciation and amortisation 5.5. (8,543) (8,826) Losses from derecognition of financial assets2 3.11. (612) (695) Other operating expenditure 5.6. (17,695) (21,970) Total operating expenses (111,925) (115,855) Operating results 10,535 3,430 Financial income 5.7. 192 75 Financial expenditure 5.7. (1,637) (2,271) Financial results (1,445) (2,197) Income tax results 9,090 1,233 Income taxes 2.11.; 5.8. (2,824) (4,372) Consolidated surplus/shortfall for the period 6,266 (3,139) of which attributable to non-controlling interest 55 (2) of which attributable to GK Software SE stockholders 6,210 (3,138)

Notes on the
Consolidated
EUR K Accounts No. FY 2020 FY 2019
Other results after income taxes
Items, which will be reclassified in the
consolidated profit and loss statement in
future under certain conditions
Differences in exchange rates from recalculating
foreign business operations		 1.5. -546 118
Deferred taxes from differences in the conversion
rates for foreign business operations3		 (258) (28)
Items, which will not be reclassified in the
consolidated profit and loss statement in
future
Actuarial gains/ losses from defined benefit
pension plans		 2.10.; 4.2.7. (35) (1,086)
Deferred taxes on actuarial gains/losses from
defined benefit pension plans4		 (25) 206
Overall results 5,402 (3,928)
of which attributable to non-controlling interest 55 (2)
of which attributable to GK Software SE
stockholders		 5,347 (3,926)
Earnings per share (EUR/share) from the
consolidated surplus/shortfall – undiluted		 8.2. 3.04 (1.60)
Earnings per share (EUR/share) from the
consolidated surplus/shortfall – diluted		 8.2. 3.00 (1.60)

1 Position shown separately. The previous year's net figure was not adjusted and is entered partly under "Other operating expenditure" and "Other operating revenues". (see table T.56)

2 Losses from derecognition of financial assets shown separately, adjusted for previous year (see 3.11).

4 Deferred taxes in accordance with IAS 19 shown separately, adjusted for previous year.

3 Deferred taxes in accordance with IAS 21 shown separately, adjusted for previous year.

Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity

for the financial year from 1 January to 31 December 2020

T.17 Consolidated Statement of Changes in Equity

Earnings
attributable to Equity attributable Equity attributable
EUR K Notes on the Consolidated
Accounts No.		 Subscribed capital Capital reserves Retained earnings Other reserves GK Software SE
stockholders		 to GK Software SE
stockholders		 to non-controlling
interest		 Total
Figures on 1 January 2019 1,926 21,429 31 (882) 16,682 39,187 1,069 40,256
Share option scheme 4.3.; 8.1.1. 17 1,042 0 0 0 1,059 0 1,059
Convertible bond 80 4,861 0 0 0 4,941 0 4,941
Allocation based on IAS 19 2.10.1.; 4.2.8. 0 0 0 (879) 0 (879) 0 (879)
Allocation based on IAS 21 1.5. 0 0 0 91 0 91 0 91
Consolidated surplus/shortfall for the period 5. 0 0 0 0 (3,138) (3,138) (2) (3,139)
Figures on 31 December 2019 2,023 27,332 31 (1,670) 13,545 41,260 1,068 42,328
Share option scheme 4.3.; 8.1.1. 28 1,336 0 0 0 1,364 0 1,364
Allocation based on IAS 19 2.10.1.; 4.2.8. 0 0 0 (59) 0 (59) 0 (59)
Allocation based on IAS 21 1.5. 0 0 0 (804) 0 (804) 0 (804)
Distribution of profits to non-controlling
interests		 0 0 0 0 0 0 (398) (398)
Consolidated surplus/shortfall for the period 5. 0 0 0 0 6,210 6,210 55 6,266
Figures on 31 December 2020 2,051 28,667 31 (2,534) 19,755 47,971 726 48,696

The book value of the item "Allocation based on IAS 19" is entered on 31.12.2020 as EUR -1,508 K (31.12.2019: EUR -1,448 K; 1.1.2019: EUR -570 K) and the item "Allocation based on IAS 21" as EUR -1,026 K (31.12.2019: EUR -222 K; 1.1.2019: EUR -312 K).

For further details, we would refer you to Section 4.3 'Equity'.

Consolidated Cash Flow Statement

Consolidated Cash Flow Statement

for the financial year from 1 January to 31 December 2020

T.18 Cash flows from operating business
EUR K Notes on the Consoli
dated Accounts No.		 FY 2020 FY 2019 EUR K
Cash flows from operating business
Surplus/ shortfall for period 6,266 (3,139)
Share option scheme (non-cash expenditure) 389 446
Income taxes affecting results 5.8. 2,824 4,372
Interest expenditure affecting results 1,637 2,271
Interest income/ expenses affecting results (192) (75)
Profit/ loss from the sale or disposal of property, plant and
equipment (23) 6
Reversals of deferred public sector subsidies (49) (49)
Write-downs recognised for receivables
(including losses from receivables)		 1,715 1,043
Write-ups recognised for receivables (564) (392)
Depreciation 4.2. 8,543 8,826
Net profits from financial tools assessed at their fair value 77 251
Other non-cash revenues and expenditure (47) (7,068)
Cash flow from operating business before the change in
working capital 20,575 6,493
Changes in net current assets
Changes in trade accounts receivable and other receivables (157) (4,177)
Changes in inventories 247 97
Changes in trade accounts payable and other liabilities (705) (4,269)
Changes in initial payments received 43 2,038
Changes in provisions (671) 591
Income taxes paid (1,618) (987)
Cash flow from operating business 17,714 (214)
T.19 Cash flows from investment and financing activities, loans and cash and cash equivalents
-- -----------------------------------------------------------------------------------------------
Notes on the Consoli
EUR K dated Accounts No. FY 2020 FY 2019
Cash flow from operating business 17,714 (214)
Cash flow from investment activities
Payments for property, plant and equipment and non-current assets (1,850) (3,643)
Proceeds from disposals of fixed assets 23 (6)
Payments for software development costs 3.4. (831) —
Disbursement as part of a company acquisition (357) —
Interest payments received 41 58
Net cash outflow for investment activities (2,973) (3,591)
Cash flow from financing activities
Distribution to non-controlling interests (398) —
Taking out equity 4.3. 974 5,553
Taking out loans — 1,500
Interest paid (868) (1,143)
Repayment of loans (8,209) (3,120)
Issue of convertible bond 2.3. (2,786) (2,908)
Net inflow (previous year: net outflow) in cash from financing
activities (11,286) (118)
Net cash inflow 3,454 (3,923)
Cash at the beginning of the financial year 2,291 6,151
Cash at the end of the financial year 5,696 2,291
Impact of changes in exchange rates on cash (49) 63

T.20 Summary of cash and cash equivalents

Cash at the end of the financial year 5,696 2,291
card and exchange rate effects (3,729) (5,795)
Utilisation of current account credit / credit 4.1.3.
Liquid assets 9,425 8,086
EUR K idated Accounts No. FY 2020 FY 2019
Notes on the Consol

Notes on the Consolidated Accounts

for the 2020 financial year

1 Principles of Reporting

1.1 General information

GK Software SE is a public limited company based in Schöneck, Germany. The address of the registered headquarters and head office for business operations is Waldstrasse 7, 08261 Schöneck.

GK Software SE is registered in the Commercial Register at Chemnitz Local Court under reference number HRB 31501.

The promised change in legal form for GK Software from a public limited company (AG) to a European share company (Societas Europaea/SE) was formally completed through the entry in the Commercial Register on 19 January 2018. The annual shareholders' meeting had adopted this change on 22 June 2017 in line with a draft resolution suggested by the Management Board and the Supervisory Board.

The Group's business involves developing, manufacturing, selling and trading software and hardware for POS solutions.

1.2 Compliance with IFRS

The consolidated accounts for GK Software on 31 December 2020 were prepared in line with the accounting standards of the International Accounting Standards Board (IASB) – the International Financial Reporting Standards (IFRS) – to the extent that these have been adopted by the European Union, and the provisions to be applied in line with Section 315e(1) HGB [German Commercial Code]. The Company's consolidated accounts were also prepared, taking into account the Interpretations (IFRIC, SIC) of the International Financial Reporting Standards Interpretations Committee (IFRS IC).

The reporting procedures for the 2020 financial year took place exclusively in line with the standards and interpretations that have to be applied and they provide a picture of the Group's assets, financial and earnings situation, which matches the actual circumstances.

The following accounting standards and interpretations were obligatory for the first time for the 2020 financial year:

T.21 Newly applied IFRS standards

IFRS Amendment Amendment for
the financial year
from
IFRS 9, IFRS 7 and
IAS 39		 Amendments to IFRS 9, IFRS 7 and IAS
39: Reform of reference interest rates		 1.1.2020
IAS 1, IAS 8 Amendments to IAS 1 and IAS 8,
definition of materiality		 1.1.2020
IFRS 3 Amendments to IFRS 3: Definition of a
business operation		 1.1.2020
IFRS Conceptual
Framework		 Revised Conceptual Framework for IFRS 1.1.2020

The changes listed above had no effect on the amounts entered for earlier periods, nor did they have any significant influence on the current period nor are they likely to have any influence on future periods.

The International Accounting Standards Board (IASB) has also issued the following standards, interpretations and amendments to existing standards; it is not yet compulsory to apply these on 31 December 2020, nor has their adoption into European law yet been fully completed by the European Union. These standards have not been used in advance and no premature usage is planned in future either. The Group believes that the effects of these new rules on the current or future reporting periods or on foreseeable future transactions will not be significant.

Amendment for the financial year from

Notes on the Consolidated Accounts

T.22 IFRS standards not applied IFRS Amendment

IFRS 9, IFRS 7, IAS 39,
IFRS 16, IFRS 4		 Amendments to IFRS 9, IFRS 7, IAS
39, IFRS 16 and IFRS 4: Reform of
reference interest rates (phase 2)		 1.1.2021
IFRS 4 Amendments to IFRS 4 1.1.2021
IFRS 16 Amendments to IFRS 16: COVID-19-
related rental concessions		 1.1.2021
IFRS 3, IAS 16, IAS 37 Amendments to IFRS 3, IAS 16, IAS 37 1.1.2022
Annual IFRS
improvements		 Improvements to IFRS 9, IFRS 16, IFRS
1, IFRS 41
(2018–2020) 1.1.2022
IAS 1 Amendment to IAS 1: Classification of
liabilities as current or non-current		 1.1.2023
IAS 8 Amendments to IAS 8: Definition of
assessment uncertainties		 1.1.2023
IFRS 17 Insurance Contracts 1.1.2023

The consolidated accounts have been presented in euros. If not indicated otherwise, all the amounts are specified in EUR K. Normal commercial practices of rounding figures up or down have been used. As a result, there may be differences caused by rounding.

The financial year for GK Software SE and all the subsidiaries included in the consolidated accounts corresponds to the calendar year. The consolidated accounts are prepared on the basis of the standard balance sheet and assessment methods used within the Group. The profit and loss statement has been prepared using the total cost method. The balance sheet structure follows the maturity of the assets and debts. Assets and debts are viewed as current, if they are due or are to be sold within one year.

1.3 Consolidated companies and consolidation principles

1.3.1 Consolidated companies

The consolidated companies not only include the parent company, but also 5 German companies and 6 foreign firms.

T.23 Subsidiaries of GK Software SE

Name and headquarters of a subsidiary Capital
share		 Equity1 Annual
results2
% EUR K EUR K
Eurosoftware s.r.o. Plzen/Czech Republic 100.0 3,172 1,326
Storeweaver GmbH Dübendorf/Switzerland 100.0 562 169
DF Deutsche Fiskal GmbH Berlin 100.0 (178) (207)
OOO GK Software RUS Moscow/Russian
Federation		 100.0 107 44
AWEK GmbH Hamburg 100.0 1,673 552
AWEK microdata GmbH Hamburg 100.0 2,329 489
GK Software USA Inc. Raleigh/USA 100.0 912 162
GK Software Africa (Pty) Ltd Bryanston /
South Africa Bryanston / South Africa		 100.0 1,474 1,037
TOV Eurosoftware-UA Lviv/Ukraine 100.0 229 90
prudsys AG Chemnitz 80.12 1,995 621
retail7 GmbH Berlin 100.0 28 3

All the companies named here are fully consolidated in these consolidated accounts. Retail7 GmbH, Berlin, was established in the year under review.

GK Software SE also has a 50 percent holding in Unified Experience UG (limited liability), Lindlar. GK Software SE does not exercise any control here, which is why it has not been included in the consolidated companies. The entry is made under "Non-current financial assets". The company does not engage in any business operations. The company's own nursery school, PIXEL gUG (limited liability), is not consolidated and was also entered under the non-current financial assets because of its negligible effect on the consolidated accounts.

The consolidated accounts include the accounts of the parent company and the companies that it controls. The subsidiaries included are controlled by GK Software SE because it owns the majority of voting rights. GK Software SE can influence the amount of profits at the subsidiaries because of its power of control and is subject to fluctuating profits from its holdings.

A subsidiary is included in the consolidated accounts from the time that the Company obtains control over the subsidiary until the time when control by the Company ends or it is wound up.

1 Equity on 31 December 2020, converted at exchange rates that applied on the reporting date

2 Annual results of the individual companies according to local accounting regulations for the 2020 financial year, converted at average annual exchange rates

1.3.2 Accruals through corporate mergers

Capital consolidation for acquired companies takes place at the time of acquisition according to the purchase method. The acquired assets and liabilities are recognised at their fair value. Any remaining positive balance from the purchase price and determined fair values is capitalised as goodwill. A negative balance is immediately entered to affect the results. Ancillary purchase costs are entered as expenditure.

During following consolidation, the hidden reserves and hidden liabilities disclosed during initial consolidation are continued, amortised or cancelled in line with the way that the corresponding assets are treated. The goodwill is checked at least once a year to determine its intrinsic value during the following periods and if any impairment of value has taken place, it is amortised to the lower achievable figure outside the normal schedule.

Expenditure and earnings as well as accounts receivable and debits between consolidated companies are eliminated.

1.4 Segment reporting

There were no changes to the organisational structure of the composition of the segments that have to report during the past financial year. The composition of the "Other business activities" segment was changed due to the assignment of the newly founded company Retail7 GmbH.

The "property held as financial investments" is shown as "Other business activities" and does not represent an independent segment needing to be reported. No special reporting was passed on to the decision committee in this matter. For information on rental and leasing income, we refer you to Section 4.2.3. "Property held as a financial investment".

The key components needing to be checked include the segment sales with third parties and the total operating performance of a segment and its earning power, which is determined on the basis of earnings before income taxes (EBIT).

The Group sells its products in the CLOUD4RETAIL1 segment in the form of licences and provides introductory and adjustment services in this regard as well as services related to the maintenance of these products. In terms of regions, a distinction is made between the "Americas" (North, Central and South America) and "EMEA" (Europe, Middle East, Africa and Asia). The Group also sells hardware for store IT

solutions to a limited degree, but this is manufactured by third parties. The subdivision of turnover according to fields of work is part of the reporting process.

The IT Services segment offers services for operating IT systems at store-based retailers. The software services include user support and monitoring and maintaining hardware and software.

The distribution of turnover according to products and business activity areas can be summarised as follows:

1 Prior to this Annual Report, this segment was known as GK/Retail. It was renamed CLOUD4RETAIL in the course of the reorganisation of the cloud solution.

T.24 Turnover according to segments The accounting principles for the figures specified in
CLOUD4RETAIL IT Services Other business
activities		 Consolidations Group
EUR K FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 FY 2019
Turnover with third
parties		 110,531 107,075 7,021 8,374 7 — — — 117,560 115,449
Licenses1 73,806 62,036 2,158 2,196 — — — — 75,964 64,232
License Platform 9,892 10,232 502 849 — — — — 10,394 11,080
License Platform Extension 23,395 9,946 42 — — — — — 23,437 9,946
Smart Extension 40,519 41,857 1,614 1,347 — — — — 42,133 43,205
Maintenance 19,668 19,981 3,417 5,297 — — — — 23,085 25,278
Software Maintenance 19,668 19,981 3,417 5,297 — — — — 23,085 25,278
Retail Consulting 15,526 17,726 335 572 — — — — 15,861 18,298
Retail Consulting 10,530 12,692 (10) 410 — — — — 10,520 13,102
(Cloud) Operations Support 4,996 5,034 345 162 — — — — 5,341 5,196
Others 1,531 7,332 1,111 309 7 — — — 2,650 7,641
Turnover with other
segments		 — — 951 2,219 — — (951) (2,219) — —
Depreciation (7,732) (8,071) (543) (542) (268) (213) — — (8,543) (8,826)
EBIT segment 9,304 4,413 1,273 (1,054) (42) 72 — (1) 10,535 3,430
Assets2 102,562 104,996 7,757 8,144 6,825 7,187 (6,467) (6,138) 110,676 114,189
thereof long term3 50,559 52,222 2,093 2,383 6,765 6,349 (2,897) (1,097) 56,520 59,857
Debts 57,282 65,303 3,301 4,742 6,773 7,187 (5,377) (5,370) 61,979 71,862
Cash and cash
equivalents		 9,354 8,064 23 22 48 — — — 9,425 8,086

Work based on software servicing contracts, which imitate the normal segment revenues in their outside markets, is charged between the segments. Administrative work is accounted for on the basis of general service contracts. The amount cross-charged corresponds to the original costs of providing the administrative work based on our experience of estimating the time involved.

Turnover amounting to EUR 58,033 K (previous year: EUR 55,146 K) was generated with customers that have their administrative headquarters located outside Germany. This refers solely to the CLOUD4RETAIL business segment. EUR 52,498 K (previous year: EUR 51,929 K) was the figure for turnover revenue in Germany.

In 2020, turnover amounting to EUR 12,259 K (previous year: EUR 19,300 K) or 10.4 percent (previous year: 16.7 percent) of the overall revenue was generated with a customer whose share of turnover is more than 10 percent.

1.5 Currency conversions

When preparing the local accounts of each individual consolidated company, any business transactions, which are made in other currencies than the Group's functional currency (foreign currencies), were converted using the exchange rates valid on the day of the transaction. Monetary items in a foreign currency are converted using the valid exchange rate on the reporting date for the accounts. The currency

Reconciliation (consolidations) eliminates turnover with other segments.

  • 1 Beginning with the 2020 financial year, further subdivisions into Licence Platform, Licence Platform Extensions and Smart Extension were introduced.
  • 2 A breakdown of domestic and foreign non-current assets is not available or is too complicated to provide.
  • 3 Non-current assets, apart from financial instruments, deferred tax claims, benefits after the end of the working relationship and rights arising from insurance contracts

the segment information correspond to those that are used for the consolidated accounts.

The consolidation of the assets and liabilities largely complies with the accounts receivable and payable arising from internal Group funding.

conversion differences were entered to affect the results. Non-monetary items were converted using the exchange rate at the time when they were first entered on the balance sheet.

The subsidiaries' functional currency is the local currency in the country where the subsidiary is based. As the subsidiaries perform their business independently from a financial, economic and organisational point of view, the functional currency is identical with the national currency in the firm's country. The functional currency for GK Software SE is the euro.

Converting the accounts of subsidiaries located outside the euro zone, which have been prepared in a foreign currency, takes place according to the modified exchange rate method on the reporting date. The assets and liabilities are converted using the exchange rate on the reporting date, but the revenues and expenditure by means of the average annual exchange rate. The conversion difference, which results from this currency conversion, is entered so as not to affect the results and is shown under "Other reserves" as a separate item in equity (as accumulated exchange rate differences according to IAS 21). At the time when a subsidiary is removed from the consolidated companies, the conversion differences are reversed to affect the results.

2 Accounting Methods

The consolidated accounts have been prepared on the basis of historical purchase and production costs:

wherever IFRS prescribes different assessment concepts, they are used. Special reference is made to them in the following statements on the accounting methods.

Historical purchasing or production costs are generally based on the fair value of the equivalent paid in exchange for the asset. The fair value also represents an upper value limit for any valuation adjustments needing to be made, if regular intrinsic value tests have to be made or they are made because of the points mentioned above.

The fair value is the price, which would be acquired for the sale of an asset between the market participants or paid for the transfer of a debt in an orderly business transaction on the assessment date. This is valid, regardless of whether the price was directly observable or was estimated using an assessment method.

We would refer you to Section 3 regarding the assessment uncertainties when determining fair value. Significant Assessment Uncertainties and Discretionary Decisions

The main balance sheet and assessment principles are explained below in relation to individual items in the financial statements.

2.1 Property, plant and equipment

Property, plant and equipment is assessed at its historical purchase costs or production costs, reduced by the accumulated scheduled depreciation and accumulated impairment in value, taking into account any possible appreciation in value (if there was any previous impairment in value), These assets are depreciated in a linear and pro rata fashion in line with their economic serviceable life.

The depreciation on buildings is made in a linear fashion over a period of use of 15 – 40 years. Movable fixed assets depreciate in a linear fashion; the period of use varies between three and fourteen years.

The estimated periods of use, the carrying amounts and the depreciation methods are checked on each balance sheet date and, if necessary, the effect of possible changes to the means of assessment is entered prospectively. GK Software also assesses on each reporting date whether there are any indications suggesting that the value of an asset could be impaired.

Fully depreciated property, plant and equipment assets are shown with historical purchasing and production costs and accumulated depreciation until the assets in question are removed from operation.

The purchase and production costs as well as the cumulated depreciation is removed from the accounts in the case of asset disposals and the results from the asset disposals (disposal revenues minus the remaining carrying amount) are entered on the profit and loss statement under "Other revenues" or "Other expenditure".

2.2 Property held as a financial investment

Property held as a financial investment was entered on the balance sheet at ongoing purchase costs according to the purchase cost method, in a manner similar to tangible fixed assets.

Property held as financial investments was entered on the balance sheet according to the rules for the purchase cost model.

GK Software generated lease revenue from the property taken into account and for this reason had to enter this as "property held as a financial investment" according to IAS 40.

GK Software determined the fair value of the properties as the cash value of future lease payments for the reporting dates of 31 December 2019 and 31 December 2020, as there is no functioning market for these properties. Capitalisation interest rates between 4.5% and 5.0% were applied in a variant calculation.

For the year under review, this assessment determined that a write-down of EUR 312 K (previous year: EUR 0 K) was necessary.

2.3 Leases

2.3.1 GK as the lessee

The Group rents various office buildings and premises as well as vehicles to a significant extent. The rental contracts normally involve set periods of three to five years, but may also contain extension options.

IFRS 16 replaces the previous differentiation of operating and financial leases by a unified lessee balancing model, according to which lessees are obliged to report all leases on the balance sheet in the form of usage rights and a corresponding leasing liability. Assets and debts from leases are entered at their cash value on the first occasion when they are used. Leasing payments are subject to interest at the implicit interest rate that forms the basis for the lease, if this can be determined. Otherwise, discounting takes place using the lessee's incremental borrowing rate. An incremental average borrowing rate of 1.20% was used to discount leasing payments for rented office premises and a rate of 2.20% for leased vehicles.

The weighted average incremental borrowing rate, which the lessee would have to pay if it had to provide funds, in order to acquire an asset in a comparable economic setting with a comparable value for a comparable term with comparable security in comparable conditions. In order to determine this

interest rate, GK Software had relevant quotations sent by banks.

The leasing liabilities include the cash value of the lease payments, exclusively as set payments.

When valuing the leasing liability, leasing payments must also be considered to ensure that any use of extension options is sufficiently certain.

The usage rights are amortised in a linear fashion along the shorter of the two periods consisting of the usage time and term of the underlying leasing contract. If exercising a purchase option is sufficiently certain from the Group's point of view, the amortisation takes place along the usage period of the underlying asset.

2.3.2 GK as the lessor

The revenue from operating leases for the rented property that is held as financial investments (see Section 2.2 'Property held as a financial investment') is entered after contractual payment in a linear fashion in line with the term of the leasing contract. The expenditure attributed to these buildings was entered in the profit and loss statement during the period when it was incurred.

2.4 Intangible assets

2.4.1 Intangible assets acquired in return for payment Intangible assets that have been acquired in return for payment are entered with their ongoing purchasing

Notes on the Consolidated Accounts

costs, i.e., minus any accumulated amortisation and impairment of value. The scheduled amortisation expenditure is entered as expenditure in a linear fashion to cover the expected useful serviceable life of between three and seven years.

2.4.2 Capitalised development costs

Costs for research activities are entered as expenditure during the period, in which they are incurred.

An intangible asset that has been developed in-house, which is the result of development work (or the development phase of an internal project), is capitalised if the following evidence can be provided accumulatively:

  • – The technical feasibility of the completion of the intangible asset exists in order to make it available for use or for sale
  • – The company intends to complete the intangible asset and use it or sell it
  • – There is a capability for using or selling the intangible asset
  • – The method by which the intangible asset is expected to achieve some economic benefits in future is known. GK Software may be able to provide evidence of the existence of a market for the intangible asset products or the intangible

asset in itself or, if it is to be used internally, the usage of the intangible asset.

  • – Adequate technical, financial or other resources are available to complete the development and be able to use or sell the intangible asset and
  • – It is possible to reliably determine the expenditure that can be allocated within the framework of developing the intangible asset.

The amount used to capitalise this kind of intangible asset, which has been developed in-house, is the total amount of expenditure that was incurred from the day when the intangible asset cumulatively met the conditions outlined above for the first time. The costs directly attributable to a software product cover the personnel costs for the employees involved in the development work and appropriate parts of the relevant overheads.

If the capitalisation conditions are not met, the development costs are entered to effect net income in the period, in which they are incurred. Any development costs already entered as expenditure are not capitalised during the following period.

Intangible assets that have been created in-house are entered with their ongoing production costs, i.e., minus any accumulated amortisation and impairment of value. Scheduled amortisation starts in the year of capitalisation with the pro rata amount and it uses the linear method over a period of five years as a matter of principle.

2.4.3 Intangible assets acquired as part of a corporate merger

Intangible assets, which have been acquired as part of a company merger, are entered separately from the goodwill and are assessed with their fair value at the time of the acquisition.

During the following periods, intangible assets, which were acquired as part of a company merger, are assessed in the same way as individually acquired intangible assets using their procurement costs minus any accumulated amortisation and any accumulated write-downs.

Customer base

Customer bases were identified and entered in each case in association with the acquisition of AWEK GmbH, DBS, prudsys AG and valuephone GmbH.

The amortisation is entered according to schedule as expenditure in a linear fashion for the expected period of use.

We normally estimated the period of use of existing customer relationships at between 7 and 10 years. The estimate is derived from the average period of use of the solutions sold by the Group – i.e., 7–15 years, the introductory expenditure for these systems and their flexible extension, but considerable expertise

is required to use them. The high reputation of the unit taken over also allows customer relations to be serviced for a longer period, particularly as the employees permanently work with the requests for expansion and changes from these existing customers.

Technology

The acquisition of prudsys AG and valuephone GmbH also involved the purchase of technology, which primarily consists of the in-house developed software. This has been assigned to stocks of industrial property rights and similar rights and is subject to amortisation related to the period of use.

2.5 Stocks

The following assets are entered as assets, if they are:

  • – set to be used as ancillary or working materials or purchased goods for consumption when producing something or providing a service,
  • – being produced for this kind of sale or
  • – kept for sale in normal business procedures.

The ancillary and working materials comprise installation items and other components for checkout systems.

The inventories are assessed based on their purchase or production costs or a lower net sales value. The purchase or production costs contain all the costs of purchase, processing and workmanship and any other costs that occur in order to transport the inventories to their current location in their current state (IAS 2.10). As a result, the inventories embrace both the individual costs and the attributable overheads (mainly depreciation).

2.6 Equity

The subscribed capital includes the nominal number of ordinary shares issued and made out to the holder (without any nominal amount with a proportional amount of EUR 1 each in the share capital). The firm has not issued any other types of shares.

Any additional costs incurred, which are directly attributable to the issue of new shares or share options, are entered on the balance sheet under equity as a deduction in the issue proceeds, minus taxes.

Any buy-backs of equity instruments are directly deducted from the equity capital. No purchases or sales, issues or withdrawals of equity instruments are entered in the profit and loss statement.

The capital reserves contain the expenditure arising from share options from previous years, the equity share of the convertible bond that was issued in 2017 and the amounts generated beyond the nominal value when issuing shares, minus the transaction costs for capital increases.

The revenue reserves item not only contains the adjustment to the statutory reserve funds, but also differences in amounts due to the initial switch to IFRS.

Currency exchange differences arising from the conversion of foreign subsidiaries and the actuarial profits/losses from defined benefit schemes are entered under "Other reserves".

2.7 Financial liabilities and financial assets

Financial liabilities and financial assets are entered if a Group company becomes a contract party to a financial instrument.

The classification and assessment of the financial liabilities and assets is determined using the business model already used and the structure of the cash flows. A financial liability/financial asset is classified as an "ongoing purchase cost" the first time when it is used, as "fair value with a neutral entry on changes in value under other earnings" or as "fair value with an entry of changes in value on the profit and loss statement".

GK Software did not hold any financial instruments on the balance sheet reporting date, which are classified at their fair value according to IFRS 9 with a neutral entry under changes in value in "Other income".

Financial assets valued as ongoing purchase costs, trade accounts receivable, cash and cash equivalents and other assets all existed at GK Software at this time. Liabilities towards banks existed as interest-bearing bank loans, trade accounts payable, leasing liabilities and other current liabilities all existed as ongoing purchase costs. The convertible bond that was issued was assessed at ongoing purchase costs according to the effective interest method. This is a method for calculating the ongoing purchase costs of financial instruments and allocating the interest expenditure/ earnings to the relevant periods. The effective interest method is the rate of interest, with which the estimated future outgoing/incoming payments – including all the fees and paid or received charges, which are an integral part of the effective interest rate, transactions and premiums or discounts – are discounted from the net carrying amount of their initial entry over the expected term of the financial instrument or over a shorter period.

Financial assets, with the exception of financial assets assessed at their fair value and affecting the results, are checked to see whether they have any possible write-down indications on the balance sheet date. Noncurrent due dates (longer than 1 year) were taken into account using normal market discount rates.

Consideration is given to any recognisable default risks by making an appropriate devaluation. We would refer you to Section 3.1 'Impairment of value for assets'.

We would refer you to the explanations in Section 3.6 'Intrinsic value of contract assets' with regard to the contract assets.

The interest and currency swap (we would refer you to Section 4.1.10 'Further details on financial assets and financial liabilities') was entered at its fair value with an effect on the changes in value in the profit and loss statement. All the profits or losses resulting from the assessment are credited to net income here. The net profits entered in the Group's profit and loss statement included the interest paid/received for the financial liability and were entered under "Other earnings/other expenditure".

The Group removes a financial liabilities and financial assets from the accounts if the relevant obligation has been settled, cancelled or has lapsed, or the inflow of cash and cash equivalents meets the account receivable, or cannot be recovered.

2.8 Loan capital

General and specific loan capital costs, which accrue directly in conjunction with the acquisition, construction or production of a qualified asset, are capitalised during the period that is necessary to make the asset and prepare for its intended usage or sale. Qualified assets are assets, for which a considerable period of necessary until they have been made for their intended usage or sale.

Earnings generated from the temporary formation of specially received loan capital until its expenditure for qualified assets are deducted from the loan capital costs that could be capitalised.

No loan capital costs were capitalised in 2020. The non-capitalised loan capital costs were entered as interest expenditure during the period, in which they were incurred.

2.9 Public sector subsidies

Public sector subsidies are not included in the figures until appropriate collateral exists for them that

the Group will meet the conditions attached to the subsidies and the subsidies are also actually granted.

Public sector subsidies must be entered as expenditure according to schedule in the Group's profit and loss statement, particularly during the course of the periods when the Group values the corresponding expenditure, which the public sector subsidies are supposed to compensate for. Public sector subsidies, the most important condition for which is the sale, construction or other kind of purchase of non-current assets, are entered on the balance sheet as accruals and deferrals and are entered on a systematic and reasonable basis so that they affect the results over the term of the relevant asset.

Public sector subsidies, which are granted in order to compensate expenditure or losses that have already been incurred or for the purpose of providing immediate financial support to the Group, for which there will not be any corresponding costs in the future, are entered to affect the net income during the period in which the claim for their entitlement arose.

2.10 Provisions

Provisions are formed if the Group has a current obligation (of a legal or factual nature) from a past event and it is likely that the meeting of the obligation is related to an outflow of resources and a reliable estimate of the amount of the provision is possible.

The assessed amount of the provision is the best estimated value, which is the result of the remuneration required to settle the current obligation on the reporting date of the accounts. Inherent risks in the obligation and uncertainties must be taken into consideration here. If a provision is assessed on the basis of the flows of funds estimated to meet the obligation, these flows of funds must be discounted if the interest effect plays a major role.

If it can be assumed that parts of or the complete economic benefit required to meet the provision will be repaid by an outside third party, this claim shall be capitalised as an asset if the repayment is as good as certain and its amount can be reliably estimated.

2.10.1 Statutory provisions for pensions

The costs for providing benefits in the case of defined benefit pension plans are determined using the projected unit credit method, where an actuarial assessment is conducted on each balance sheet date. Any new assessments, consisting of actuarial gains and losses, changes, which are the result of the use of the upper asset threshold and the revenues from the plan assets (without any interest on the net debt), are entered directly under "Other income" and directly as "Other reserves" in equity (accumulated actuarial gains and losses according to IAS 19 'Employee benefits'). They are no longer reclassified in the profit and loss statement. Any past service costs are entered as expenditure when the change of plan comes into effect.

The net interest is the result of multiplying the discount rate with the net debt (pension obligation minus the plan assets) or with the net asset value, which occurs at the start of the financial year, if the plan assets exceed the pension obligation. The defined benefit costs contain the following elements:

  • – Past service costs (including current service costs, past service costs to be calculated subsequently and any gains or losses from the change to or reduction of the plan),
  • – Net interest expenditure or revenues on the net debt or the net asset value,
  • – A new assessment of the net debt or the net asset value.

The Group reports the first two elements in the profit and loss statement under "Personnel expenditure" and "Financial expenditure" or "Financial revenues". Any gains or losses from plan reductions are entered on the balance sheet as "Past service costs" to be calculated subsequently.

The defined benefit obligation entered in the consolidated accounts represents the current shortfall or excess in cover for the Group's defined benefit pension plans. Any excess cover, which accrues as a result of this calculation, is restricted to the cash value of any future economic benefit, which is available in the

form of repayments from the plans or reduced future contributions to the plans.

Payments for defined benefit pension plans are entered as expenditure if the employees have performed the work, which entitles them to the contributions.

2.10.2 Legal disputes

Provisions for legal disputes are entered, as soon as the event forming the basis for the dispute creates a payment obligation with adequate certainty and the amount can already be reliably assessed.

2.10.3 Onerous contracts

Current obligations, which arise in conjunction with onerous contracts, are entered as a provision. The existence of an onerous contract is assumed if the Group is a contract partner in an agreement, from which there is an expectation that the unavoidable costs (direct costs) of meeting the agreement will exceed the economic benefits accruing from this contract.

2.10.4 Warranties

Provisions for the expected expenditure arising from warranty obligations according to national purchase contract law shall be assessed at the sale time for the products concerned according to the best estimate of management with regard to the necessary expenditure to meet the Group's obligation.

2.10.5 Severance payments

A debt for benefits arising from the ending of an employment relationship shall be entered if the Group can no longer withdraw the offer of these kinds of benefits or, if earlier, the Group has entered associated costs for restructuring in the sense of IAS 37.10.

2.11 Income taxes

The expenditure/earnings on income tax represent the account balance for current tax expenditure and deferred taxes.

Current or deferred taxes are entered as expenditure or earnings in the Group's profit and loss statement, unless they relate to items that were directly entered under "Other income" or under "Equity". In this case, the current or deferred tax is also entered under "Other income" or directly under "Equity". If current or deferred taxes result from the first time that a corporate merger is entered on the balance sheet, the tax effects shall be included in the balance sheet entries of the corporate merger.

2.11.1 Current taxes

The current tax expenditure is determined on the basis of the income that is subject to tax during the year. The income, on which tax is to be paid, is different from the consolidated net income from the Group profit and loss statement, as it excludes expenditure and revenues that will not attract tax in later years or at any time or can be offset against tax. The Group's liability

for current taxes will be calculated on the basis of current tax rates that apply or those that will apply at the expected time of taxation from the point of view of the balance sheet date.

2.11.2 Deferred taxes

Deferred taxes are entered to cover the temporary differences between the carrying amount of assets and liabilities in the consolidated accounts and the relevant tax valuation rates as part of calculating the taxable income and they are entered on the balance sheet according to the balance sheet liability method (balance sheet-oriented method). Deferred tax debts are entered on the balance sheet for all temporary differences in taxes and deferred claims for taxes are entered if it is probable that taxable profits will be available, for which these temporary differences can be used to offset tax payments. These assets and liabilities are not entered if the temporary differences result from goodwill or from the initial entry of other assets and liabilities (except in the case of company mergers), which result from events that do not affect the taxable income or the consolidated net income.

Deferred tax liabilities are formed for temporary differences in tax payments, which arise from shareholdings in subsidiaries, unless the Group can manage the reversal of the temporary differences and it is probable that the temporary difference will not reverse within the foreseeable future.

The carrying amount of the deferred tax claims is checked every year on the balance sheet date and

is reduced, if it is no longer probable that sufficient taxable income will be available in order to realise the claim completely or in part. A deferred tax asset is entered for the amount of unused tax losses and unused tax credits, which have been carried forward, if it is probable that a future taxable profit will be available, which can be used against the tax losses and the unused tax credits not yet used.

Deferred tax claims and tax liabilities are determined on the basis of the expected tax rates (and tax laws), which will probably apply at the time when the debt has to be paid or when the asset value is realised. The valuation of deferred tax claims and tax liabilities reflects the tax consequences, which would arise from the manner that the Group is expecting on the balance sheet date in order to settle the liability or realise the asset value.

Deferred tax claims and tax liabilities are balanced out if there is an enforceable right to offset current tax claims with current tax liabilities and if they are related to income taxes that are collected by the same tax office and if the Group intends to settle its current tax claims and tax liabilities on a net basis.

2.12 Revenue from contracts with customers

2.12.1 Recognising turnover

Turnover revenue is recognised if the power of disposition over definable goods and services passes to the customer, that is to say, if the customer has the ability to largely make use of the benefits arising from the transferred goods or services.

The condition for this is that a contract exists with enforceable rights and obligations and, among other things, the receipt of the counter-performance is probable – taking into consideration the customer's creditworthiness.

The turnover revenue corresponds to the transaction price, which is likely to attribute to GK Software.

If the period between the transfer of the goods or services and the payment time exceeds twelve months and significant benefits have resulted for the customer or for GK Software from the funding, the counterperformance is adjusted by the current value of the money.

If individual sales prices cannot be directly observed, GK Software assesses them appropriately.

Turnover revenue is recognised for each performance obligations, either at a particular time or over a particular period.

2.12.2 Revenue from licences

Turnover recognition takes place at the time the licence is transferred, i.e., at the time the licence is issued, if the promised licence grants the customer the right to use the intellectual property. This takes place at the time when a functioning software solution is handed over to a customer.

The payment of the transaction price is normally due within 30 days. In rare cases, postponed payments may be agreed, but they may not exceed 12 months. No significant funding component is therefore taken into consideration in the transaction price.

2.12.3 Providing software services

The software service agreements contain both earnings from licence agreements, which are calculated according to time and the consumption of materials, and earnings from contracts, where an agreed item of work is due (fixed price contracts).

The turnover recognition always takes place at the time when the power of disposition passes to the customers. This is normally the time when the agreed service is handed over or when the agreed service is accepted by the customer (confirmation of the working hours provided or acceptance of the item of work).

If the contract contains a fixed hourly rate (calculation according to time and consumption of materials, turnover realised at a specific time), the amount of revenue was entered to reflect the claim that GK Software SE has arising from the service that has been provided. Invoices are generated every

month and the payment in return is normally due for settlement 30 days after the receipt of the invoice.

In the case of fixed price contracts, the revenue is entered over a particularly period according to the percentage of completion method based on the actual work that has been performed at the end of the reporting period in relation to the work that needs to be provided overall. This takes place on the basis of the actual working hours in relation to the total number of expected hours.

Estimates about the revenue, costs or the progress made in the order are corrected if the circumstances change. Any increases or reductions in the estimated revenue or costs arising from this are entered under profits or losses in the period when the company managers learnt about the circumstances that provided the reason for the correction. (cf. Section 3.6 'Intrinsic value of contract assets').

In the case of fixed price contracts, the customer pays a set amount according to a payment plan. If the services provided by GK Software SE exceed the payment amount, a contract asset is entered. If the payments are higher than the services provided, a contract liability is entered.

2.12.4 Revenue from maintenance work:

Revenue from maintenance work is charged at the contractually agreed rates or the number of hours that have been agreed in the contract and any costs that have been directly incurred on a monthly basis. The

agreed rates are either charged monthly or charged to subsequent periods in the case of advanced payments (contract liabilities according to IFRS 15) and are recognised monthly along the appropriate period.

2.12.5 Contract assets, contract liabilities and trade accounts receivable

If one of the parties to the contract meets its contract obligations with customers, regardless of the relationship between the performance of the work by GK Software and the customer's payment, a contract asset, a contract liability or an account receivable is entered. Trade accounts receivable are entered if the claim for receipt of the counter-performance is no longer subject to any condition.

If the order costs related to an order and incurred by the reporting date plus published gains and minus published losses exceed the partial payments, the excess is entered as a manufacturing order with a credit balance due from the customer (contract asset). In the case of contracts in which the milestone invoices exceed the order costs incurred plus accrued gains and less recognised losses, the excess is entered as a manufacturing order with a debit balance (contract liabilities) in relation to the customer.

Amounts received before the work has been performed are entered as debts in the contract liabilities on the consolidated balance sheet.

We would refer you to the information in the notes on the consolidated account, Section 3.1 'Impairment of

value for assets' and Section 4.1.10 'Further details on financial assets and financial liabilities'.

3 Significant Assessment Uncertainties and Discretionary Decisions

Assumptions have to be made to a certain degree when preparing the consolidated accounts and estimates are made, which have an effect on the amount and entry of the assets and liabilities on the balance sheet and the earnings and expenditure. The assumptions and estimations largely relate to an assessment of the intrinsic value of intangible assets (including goodwill), the standard definition of the economic serviceable life of property, plant and equipment and intangible assets, the valuation of inventories and accounts receivable related to the intrinsic value of capitalised deferred taxes and the balance sheet entries and assessment of provisions. The assumptions and estimations are based on premises, which in turn are founded on the level of awareness that is available at the current time. Particularly with regard to the expected future development of business, the circumstances, which exist at the time when the net income for the period is prepared, and a realistic assessment of the future development of the global and sector-based business environment form the basis of the estimations. The amounts that have been entered may deviate from the originally expected estimated values as a result of developments in these general conditions, which differ from the assumptions and lie beyond the sphere

of influence of management. If actual developments differ from those that are expected, the premises and, if necessary, the carrying amounts of the assets and liabilities that are affected are adjusted accordingly. At the time when the consolidated annual statements were prepared, the assumptions and estimations, on which they were based, were not subject to any major risks; so that it is assumed that no major adjustments of the carrying amounts of the assets and liabilities indicated on the balance sheet will be necessary in the following financial year from a current point of view. In consideration of the business model and customer structure of GK Software, this assessment continues to apply, even taking into account the effects of the coronavirus pandemic.

The following indicates the most important assumptions made about the future and the other major sources of estimation uncertainties on the balance sheet date. A major risk may arise as a result of these and mean that a major adjustment to the assets and liabilities recorded here becomes necessary within the next financial year.

The use of the Group's accounting methods is also subject to various discretionary decisions by management. Significant discretionary decisions are exercised when entering leases on the balance sheet and when impairing the value of financial assets. More detailed information about discretionary decisions can be found in the following paragraphs in the notes on the accounts.

3.1 Impairment of value for assets

On each reporting date, the Group checks the carrying amounts for property, plant and equipment, property held as a financial investment, usage rights, and intangible assets in order to determine whether there are any indications of the need to write down these assets. If these indications can be recognised, the achievable value of the asset is assessed in order to determine the scope of any possible write-down expenditure.

The achievable amount is the higher amount arising from the fair value minus any sales costs and the value in use of an asset. The amount involving the fair value minus any sales costs describes what could have been generated by selling an asset in a transaction at market conditions between parties willing to reach agreement. When determining the value in use, the estimated future flows of cash are discounted by a normal market interest rate.

If the estimated achievable amount of an asset (or a unit generating cash and cash equivalents) is less than the carrying amount, the carrying amount of the asset (or unit generating cash and cash equivalents) is reduced to the recoverable amount. The expenditure for the write-down is entered immediately in the accounts.

If the circumstances that led to the impairment of value disappear completely or partly, the carrying amount of the asset (or unit generating cash and cash equivalents) is increased to the latest estimate of the recoverable amount. The increase in the carrying amount is restricted to the value, which would have occurred if no write-down expenditure had been entered for the asset (unit generating cash and cash equivalents) in previous years. Any write-up is directly entered in the accounts to affect net income.

Consideration is given to any recognisable default risks in accounts receivable and other assets by making an appropriate devaluation. Individual value corrections are formed, if the incoming payment for individual accounts receivable items is in doubt. In the case of trade accounts receivable, which are not examined individually, value corrections are formed to a different extent, depending how old the account receivable is. When setting these percentage figures, GK Software takes into account its experience with collecting funds in the past and the current tendencies in the economy (cf. also Section 4.1.10 'Further details on financial assets and financial liabilities'.

3.2 Intrinsic value of goodwill

The goodwill amounts are checked for their intrinsic value at least once a year or if there are specific reasons for impairment in their value. Checking the intrinsic value of goodwill amounts is conducted at the level of the units generating cash and cash equivalents, to which the goodwill figures are attributed.

The carrying amount of the unit generating cash and cash equivalents is compared with the achievable amount in the first step on the balance sheet reporting date. The achievable amount is defined as the higher amount of the usage value and (if it can be determined reliably) the sale value minus the selling costs. If this amount falls below the carrying amount of the unit, including the assigned goodwill, impairment expenditure for the goodwill is determined in a second step.

When determining the usage value, cash values of the estimated future incoming funds on the basis of a discount interest rate after tax (WACC) are calculated as the pre-tax WACC cannot be directly determined or observed. The pre-tax WACC is derived iteratively from the WACC after tax. The estimates take place within the planning horizon for Group planning for two years in detail and for the subsequent years 3 to 5 in the form of a trend projection and consideration of known specific individual circumstances. As the use of goodwill beyond planning year 5 appears possible and probable, the subsequent period is taken into account in the form of a perpetual annuity when determining the value. For this purpose, uniform growth rates oriented to inflation developments in the relevant currency areas are applied. Planned balance sheets and planned profit and loss statements are prepared for the individual unit generating the cash and cash equivalents and cash flow plans are derived from them.

The series of payments determined in this way are discounted with an interest rate that represents the weighted capital costs before income taxes. Capital

market data from a group of comparable companies is used in order to determine the weighted capital costs. Key assumptions for determining the series of payments are the assumptions contained in the corporate planning for the development of turnover revenues and the necessary expenditure. These consist mainly of assumptions for the planned license revenues, product life cycles, growth rates and the target margin on the EBITDA for the revenue side. On the expense side, assumptions about personnel expenses and financing costs are priority applied. Because of the specific business model for the respective unit generating the cash and cash equivalents, specific parameters were used for this unit, which are based on the experience and the analysis of the actual development of the unit generating the cash and cash equivalents in the past. The planning conventions always include planning the balance sheet and the profit and loss statement and, derived from these, planning for the expected flows of cash and cash equivalents.

Any write-down expenditure is directly entered in the profit and loss statement and may not be reversed in the following reporting periods. Regular checks are made on 31 December each year.

We would refer you to Section 4.2.4 'Intangible assets' regarding the individual details on the balance sheet on 31 December 2020.

3.3 Intrinsic value of customer bases

GK Software acquired customer bases as part of the purchase price allocation when acquiring various subsidiaries. We would refer you to Section 4.2.4 'Intangible assets' with regard to the individual details on values.

The intrinsic value of customer relationships is the result of a comparison drawn from the past of the underlying turnover from existing customer relationships with the turnover actually achieved and the revenues generated from them on the basis of the business planning underlying the procurement costs that have been entered as part of allocating the purchase price and the expectations for the further development of these key figures.

The expected period of use (7 or 10 years) and the amortisation method are checked on each reporting date and all the changes to estimates are taken into consideration prospectively. As soon as there are some signs that the carrying amount of the customer base exceeds the expected influx of funds, the customer base is revalued with this lower figure. Impairment charges, if any, are entered under the item "Depreciation and amortisation". The achievable amount is the higher amount of the fair value minus any sales costs and the value in use. The value in use

is the cash flow reduced to its cash value minus any interest for the unit, which could generate cash and cash equivalents and to which the customer base is assigned.

3.4 Intrinsic value of software and capitalised development costs

Software that is acquired is amortised in a linear fashion over a period of 3 to 7 years. The software acquired through the purchased holdings (prudsys AG and valuephone GmbH) is being amortised in a linear fashion over a period of 7 years. There was no suggestion of any impairment of value.

The capitalised development costs are amortised in a linear fashion over a period of 5 years. Based on the business planning, there were no suggestion of any impairment of value on the reporting date.

The accrual of self-generated intangible assets in the amount of EUR 831 K in 2020 was attributable to the capitalisation of development costs for the Fiskal Cloud product after the solution was successfully certified.

3.5 Intrinsic value of property held as a financial investment

No specific market price could be determined for property held as a financial investment and no comparable transactions on the property market could be observed either. The recoverable amount is therefore estimated on the basis of the value in use, i.e., as a capitalisation of the lease revenue by the operator (Hotel Tannenhaus UG, Schöneck) within a particular range. The range resulted from using different capitalisation interest rates (5.00%, 4.75% and 4.50%). The initial lease revenue amounted to EUR 360 K and will increase by 5% after 5 years.

A reassessment of the cash flow on the balance sheet date determined the need for a write-down on 31 December 2020.

3.6 Intrinsic value of contract assets

The intrinsic value of the assets entered on the balance sheet are checked by ongoing project monitoring.

If the outcome of a manufacturing order can be reliably assessed, the revenues and the order costs, which arise in connection with this manufacturing order, are entered according to the percentage of completion of work on the balance sheet date and are shown as a contract asset. The contract asset is determined on the basis of the work actually performed at the end of the reporting period in relation to the total contract asset. This takes place on the basis of the actual working hours in relation to the total number of expected hours. Changes in the contracted work, claims and performance bonuses are included to the extent that their amount can be reliably determined and it is deemed that they will probably be received.

If the outcome of a manufacturing order cannot be reliably assessed, the revenues are only entered according to the amount of order costs that have already been incurred and can probably be recovered. Costs for orders are entered as expenditure during the period, in which they are incurred.

Estimates about the costs of the progress made in the order are corrected if the circumstances change. If it is likely that the total costs for orders will exceed the total revenues from orders, the expected loss is immediately entered as expenditure.

3.7 Uncertainty regarding the income tax items

The estimation and assessment of deferred taxes assets from any losses carried forward assumes that the Group companies concerned will in future once again generate profits which allow for the utilisation of the tax losses carried forward. This is done by planning the economic development of the individual companies in the Group. Deferred tax assets from losses carried forward were entered on the balance sheet in these consolidated accounts at the amounts estimated as recoverable.This decision takes into consideration the increased requirements for substantial information about the recognisability of these deferred tax assets with a loss history in the relevant individual accounts.

The tax audit for GK Software SE started for the period 2015-2017 during the reporting year and had not been completed during the auditing period. The back taxes

that are more likely than not due as a result of the audit have been taken into account in these accounts.

3.8 Recognition and measurement of provisions

By its very nature, the recognition and measurement of provisions involves assessment uncertainties. We refer you to the summarised details in Section 4.2.8. "Provisions for pensions" with regard to the particular estimate risks for pension provisions.

3.9 Assessments of fair value and assessment procedures

When determining the fair value of an asset or a debt, the Group takes into account particular features of the asset or the debt (for example, the condition and location of the asset or sales and usage restrictions), if market participants would also take into account these features when setting the price for the acquisition of the particular asset or when transferring the debt on the assessment date. The fair value for assessment purposes and/or the obligation to specify details is determined on this basis in these consolidated accounts as a matter of principle. The following are excluded from this process:

  • – Share-based payments covered by IFRS 2 Share-Based Payments,
  • – Assessment standards, which are similar to fair value, but do not correspond to it, e.g. the net sales value in IAS 2 Inventories or the value in use in IAS 36 Impairment of Assets.

The fair value is not always available as a market price. If often has to be determined on the basis of different assessment parameters. Depending on the availability of observable parameters and the significance of these parameters for determining the fair value overall, the fair value is assigned to the stages 1, 2 or 3. The subdivision takes place according to the following proviso:

  • – The input parameters in stage 1 are listed prices (unadjusted) in active markets for identical assets or debts, which the Company can access on the assessment reporting date.
  • – The input parameters in stage 2 are different input parameters to the prices listed in stage 1, which are either directly observable for the asset or the debt or can be indirectly derived from other prices.
  • – The input parameters in stage 3 are parameters that are not observable for the asset or the debt.

3.10 Other assessment uncertainties

Other sources of uncertainty regarding estimates exist with regard to the useful serviceable life of assets, the assessment of the intrinsic value of trade accounts receivable, the valuation of stocks and entering leases according to IFRS 16. A term of 5 years is assumed for all the unlimited contracts for rented property in the sense of IFRS 16. This corresponds to the experience that rented buildings are used on a long-term basis. As no interest rates were communicated by the lessor for the lease contracts, the incremental borrowing rate was determined by comparing outside examples. It was assumed for this purpose that the two investment classes (vehicles and property) could be entirely funded by loans from our local bank.

We also assume that options from the share option programmes will be exercised when the conditions have been met.

3.11 Balance sheet reclassifications and correction of errors in these consolidated accounts

Value adjustments and appreciation in value on financial assets, and losses from the derecognition of financial assets, are shown separately in the total income statement. The change in the way these figures are shown provides the reader with much more information and has no major effect on the assets, financial and earnings situation (see footnotes 31 and 32 in the total income statement). The previous year's figure of EUR 695 K for losses from the derecognition of financial assets was likewise reclassified; this was entered in the previous year under "Other operating expenditure". There were no major effects on significant performance indicators in the Company's management system and it is assumed that this will not have any significant relevance for the circumstances.

4 Notes on the Consolidated Balance Sheet

4.1 Financial assets and financial liabilities

The financial instruments include original and derivative financial instruments.

The original financial instruments largely comprise trade accounts receivable on the assets side, other financial assets as well as other liabilities. On the liabilities side, the original financial instruments largely comprise the convertible bond, bank liabilities, trade accounts payable as well as other liabilities. The portfolio of original financial instruments is shown on the balance sheet. The Company is subject to a possible default risk, mainly with trade accounts receivable.

Firstly, please find below general information about the financial assets and financial liabilities and then more details about the resulting risk items according to IFRS 9.

4.1.1 Trade accounts receivable

The trade accounts receivable have a term of less than one year. Because of the short term involved and the low interest level at the moment, it is assumed that the fair value in each case will match the carrying amount.

The trade accounts receivable are all due for payment within one year.

4.1.2 Other accounts receivable and assets

T.25 Other accounts receivable, assets and income tax claims

Intermediate total 3,012 3,081
Others 119 285
Accounts receivable from members of the
Management Board		 37 42
Accounts from interest/currency hedging
business		 398 142
Loans paid to third parties 138 254
Suppliers with debit balances 74 834
Accounts receivable with associated firms 2,247 1,524
Financial assets
EUR K 31.12.2020 31.12.2019

Non-financial assets

Total 6,643 5,978
Intermediate total 3,631 2,897
Receivables from capital gains tax payments 328 —
Accounts from value-added tax 480 608
Accounts from asset deferrals 2,823 2,289

In the case of accounts receivable from associated firms and persons, we would refer you to Section 8.4 'Details of Associated Persons and Corporations'. A loan was also granted to an associated company. This was entered under loans to third parties.

The receivables from income-tax claims (non-financial assets) in the amount of EUR 941 K (previous year: EUR 820 K) mainly consisted of receivables from corporation tax, plus the solidarity surcharge and business tax advance payments.

4.1.3 Non-current and current bank liabilities

The non-current and current bank liabilities involved all the loans exclusively taken out by GK Software SE.

T.26 Loans
31.12.2020 31.12.2019
EUR K Balance Thereof
short term		 Balance Thereof
short term
Loan Commerzbank 2,375 300 2,844 323
Loan Sparkasse 2,799 616 3,415 616
Loan IKB 813 625 2,938 2,125
Loan DZ-Bank (variable)1 — — 5,000 5,000
Current account credit and
credit card		 3,682 3,682 5,797 5,797
Account balance 9,669 5,223 19,994 13,861

The debts existing on the balance sheet reporting date has been divided into current and non-current debts in the consolidated accounts (cf. T.34 'Schedule of liabilities' in Section 4.1.10 'Further details on financial assets and financial liabilities'. The current shares therefore match the repayments that are due within one year.

Repayment shares of up to one year for non-current bank liabilities were entered under current bank liabilities.

In addition to this, the current bank liabilities also include utilised credit card limits amounting to EUR 1 K (previous year: EUR 25 K) and a current account credit

1 Loans DZ-Bank from 2020 Reported under current account credit and credit card

lines that were used. Details on the latter are made available in the Table T.26 'Loans'.

Of the loans cited here, EUR 4,424 K have been secured by real property liens. The current account lines are secured by a collateral trust agreement, which is subject to a blanket assignment.

4.1.4 Liabilities arising from leases

We would refer you to the summary in Section 4.2.2 'Usage rights and expenditure on leases' with regard to the ongoing details about leases.

4.1.5 Convertible bond

With the agreement of the Supervisory Board, the Management Board at GK Software SE decided on 18 October 2017 to issue secondary, unsecured convertible bonds with a total nominal value of up to EUR 15,000,000 and with a term that runs until 26 October 2022.

The convertible bonds have a term of 5 years and were issued at 100 percent of their nominal value of EUR 1,000,000 per convertible bond. If they were not converted into ordinary shares by a decision of the holder in advance or repurchased by GK Software SE and retracted, they will be repaid at the nominal amount when they are finally due.

The bonds accrue interest of 3 p.a. on the nominal amount. The interest must be paid annually in arrears on the relevant interest payment date. The initial fair

value of the outside capital share of the bond was determined with a market interest rate for a bond of the same value without any conversion option on the issue date. The liability is then entered on the basis of the depreciated purchase costs until it has lapsed by the conversion or the due date of the convertible bond. The remaining revenues are assigned to the conversion option and entered under "Equity" and then not reassessed at a later date.

4.1.6 Liabilities from trade payables

Trade accounts payable are still due for settlement within one year.

4.1.7 Initial payments received

Contract liabilities include liabilities from advance payments on manufacturing contracts (advance payments received) of EUR 1,489 K (previous year: EUR 1,097 K) and advance payments on revenues to be received periodically at later periods (deferred revenue) of EUR 2,100 K (previous year: EUR 2,451 K).

The transaction price that was attributed to performance obligations from manufacturing orders on 31 December 2020 amounted to EUR 5,436 K on the reporting date (previous year: EUR 7,894 K). Management expects that EUR 4,568 K (previous year: EUR 7,383 K) of the transaction price that was attributed to service obligations, which had not been provided on 31 December 2020, will be entered as revenue in the next reporting period. The remaining EUR 869 K (previous year: EUR 511 K) will be recognised

in later financial years. The amount entered above did not contain any variable service in return that is restricted.

The remaining terms of the deferred liabilities are less than one year.

4.1.8 Other current liabilities

The tax liabilities cover outstanding income tax and value-added tax payments.

Total 13,025 14,700
Intermediate total 1,921 3,434
Liabilities from other taxes 1,921 3,434
Non-financial liabilities
Intermediate total 11,104 11,266
Others 1,600 1,372
of which an overpayment by customers 25 412
Other liabilities towards members of staff 8 471
Outstanding invoices 933 1,296
Liabilities from wages and salaries 8,539 7,715
Financial liabilities
EUR K 31.12.2020 31.12.2019
T.27 Other current liabilities

4.1.9 Income tax liabilities

T.28 Income tax liabilities
EUR K 31.12.2020 31.12.2019
Income tax liabilities 784 428
thereof in Germany 591 343
thereof in Czech Republic 119 75
thereof in Switzerland 13 —
thereof in USA 38 —
thereof in South Africa 12 —
thereof in Ukraine 11 10
thereof in Russia — —

4.1.10 Further details on financial assets and financial liabilities

T.29 Carrying amounts and the fair value of financial instruments

Recognised at amortised Recognised at fair value:
On the basis of publicly
listed market prices (stage		 Recognised at fair value:
On the basis of observable
market data (stage 2) –		 Recognised at fair value:
On the basis of non
observable input factors		 Non-financial assets/
EUR K cost 1) – FVTPL category FVTPL category (stage 3) – FVTPL category liabilities Carrying amount Fair value
31 December 2020 (IFRS 9) (IFRS 9) (IFRS 9) (IFRS 9)
Accounts receivable 23,382 0 0 0 0 23,382 -
Other financial assets 2,614 0 398 0 3,631 6,643 6,643
Liquid assets 9,425 0 0 0 0 9,425 -
Total financial assets 35,422 0 398 0 3,631 39,450 6,643
Convertible bond 14,222 0 0 0 0 14,222 14,222
Bank liabilities 9,669 0 0 0 0 9,669 9,669
Leasehold liabilities 0 0 0 0 9,310 9,310 9,310
Trade accounts payable 3,591 0 0 0 0 3,591 -
Other financial liabilities 2,565 0 0 0 10,460 13,025 -
Total financial liabilities 30,047 - 0 - 19,770 49,817 33,201
31 December 2019 (IFRS 9) (IFRS 9) (IFRS 9) (IFRS 9) 0
Accounts receivable 23,982 0 0 0 0 23,982 -
Other financial assets 5,228 0 142 0 608 5,978 5,978
Liquid assets 8,086 0 0 0 0 8,086 -
Total financial assets 37,296 0 142 0 608 38,046 5,978
Convertible bond 13,826 0 0 0 0 13,826 13,826
Bank liabilities 19,994 0 0 0 0 19,994 19,994
Leasehold liabilities 0 0 0 0 9,015 9,015 9,015
Trade accounts payable 2,484 0 0 0 0 2,484 -
Other financial liabilities 4,869 0 0 0 9,831 14,700 -
Total financial liabilities 41,173 - 0 - 18,846 60,019 42,835

No regrouping between the categories took place during the year under review.

As the financial assets are normally not covered by securities, the maximum default risk corresponds to their gross carrying amount minus value adjustments, therefore leaving the net carrying amount that is shown. As a result, the circumstances at GK Software

correspond to securities that the IASB assumes to be the normal case (IFRS 7.B9) and other risk-minimising arrangements do not normally need to be taken into account at this point.

The cap premiums were reported under "Other assets" with figures of EUR 4 K (previous year: EUR 8 K) and were reversed on a pro rata basis and entered as interest expenditure. For this reason, these cap premiums were not classified under the "Financial assets assessed at their fair value in terms of affecting the net income" category. The market value of these interest capping mechanisms on a nominal volume of EUR 146 K (derived from the mid-market price through

bank assessments) amounted to a total figure of EUR 0 K on the balance sheet date (previous year: EUR 0 K).

An interest exchange rate swap was taken out to secure the cash flow arising from the acquisition of the Retail & Programming division of DBS Inc. in the USA for repaying the investment loan at IKB. The interest and currency swap started on 31 December 2015 and ends on 31 March 2021. Quarterly repayments plus interest amounting to USD 529 K have had to be paid to IKB from the first half of 2016 onwards. Bank assessments were used to determine the fair value on the balance sheet reporting date. The market value of this interest and currency swap covering a nominal volume of USD 10,595 K (EUR 10,000 K) at the time of the acquisition and amounting to EUR 529 K on the balance sheet reporting date afterwards amounted to EUR 66 K in all (previous year EUR 142 K) on the balance-sheet reporting date – derived from the midmarket price. This amount was entered on the balance sheet under "Other liabilities" ("Other assets" in the previous year). No valuation unit was formed. A loss was entered in the total income statement, as a result.

Currency option transactions amounting to a total nominal value of CZK 24,000 K were reported on 31 December 2020. The purpose of these transactions is to secure payment obligations within the Group until 31 December 2021. No valuation unit was formed. The option premium of EUR 226 K paid is capitalised under "Other assets". The current market value according to the bank assessment is EUR 357 K.

Another currency option of ZAR 10,000 K will secure expected incoming funds within the Group until 15 February 2021. No valuation unit was formed in this case either. The option premium paid amounted to EUR 35 K. On the balance sheet date, the option had a current market value of EUR 0 K according to the bank assessment.

The Group still has only financial instruments that are valued at amortised cost.

A simplified approach using industry-specific risks was used to value the accounts receivables. In addition to default rates calculated for the individual maturity bands based on historical experience, forward looking elements based on country-specific default rates (credit default swaps) are also used. The value adjustments relate exclusively to trade accounts receivable and, in addition to the expected loss ratios determined according to IFRS 9, also include value adjustments on individual items within the due dates, which are based on individualised valuation information. If there was no longer any expectation that they could be realised, the financial asset was removed from the accounts.

T.30 Default risk for trade accounts receivable and contract assets

Not overdue 1 to 30 days
overdue		 31 to 60 days
overdue		 61 to 90 days
overdue		 More than 90
days overdue		 Total
31 December 2020
Expected loss ratio % 0.2 0.9 1.5 2.2 3.0
Trade accounts receivable EUR K 21,868 1,291 95 37 572 23,864
Trade accounts receivable from ongoing work EUR K 13,587 — — — — 13,587
Value adjustments EUR K 234 — 10 37 200 482
31 December 2019
Expected loss ratio % 0.6 1.3 1.7 2.6 4.2
Trade accounts receivable EUR K 22,343 1,563 457 77 254 24,694
Trade accounts receivable from ongoing work EUR K 14,278 — — — — 14,278
Value adjustments EUR K 132 18 233 75 254 712

go beyond the euro zone. The interest rates are the result of selected types of funding to enhance the Group's financial latitude. The Group typically accepts additional conditions (so-called "covenants") in addition to the general loan conditions when funding projects with loans that are provided by banks and they relate to general financial figures or other conditions. Failure to meet these additional conditions normally entitles the bank concerned to make the loans in question due for payment in full immediately, regardless of whether the main loan contract obligations are being met and probably can continue to be met or not. The Group handles this risk by monitoring the covenants

The value adjustments developed as follows during 2020:

T.31 Changes in impairments on trade accounts receivable
EUR K 2020 2019
Situation at the start of the year 712 630
Value adjustments on accounts
receivable		 59 512
Liquidation (289) (429)
Situation at the end of the year 482 713

Value adjustments amounting to EUR 482 K, which relate in total to trade receivables, were made at the end of the year.

T.32 Net profits and losses per category of financial instrument

31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2019 31.12.2020 31.12.2019
EUR K Interest revenues
(-expenditure / + earnings)		 gains (+) / losses (-)
from derecognition		 others gains / losses Total
Financial assets recognised at
amortised cost		 (84) 161 (695) (612) — — (780) (452)
Fair value through profit and loss
(FVPL)		 — — — — — (263) — (263)
Financial liabilities recognised at
amortised cost		 (2,032) (1,610) — — — — (2,032) (1,610)
Total (2,117) (1,449) (695) (612) — (263) (2,812) (2,325)

Impairments/appreciations in value on financial assets are no longer part of the net income and are shown separately in the total income statement.

Market risks: The Group is exposed to risks associated with exchange and interest rates as a result of its business activities. The exchange rate risks result from the business sites maintained in different currency areas and increasingly from customer relations that

and communicating with the banks concerned in an appropriate manner.

In order to have some protection against these market risks, the Group uses derivative financial instruments like interest rate caps to provide certain security against increases in the interest rate that is charged. As the Group's exposure to currency risks has increased

considerably in absolute terms, larger items of business are being secured by exchange rate hedging mechanisms like currency options to safeguard the value of payments made in the non-functional currency in proportion to the functional currency.

Exchange rate risks: We normally handle business transactions in the operational currency of the Group firm concerned. Operational business transactions are not handled in the operational currency in individual cases so that there is a currency risk for monetary financial instruments. There are also internal service relationships within the Group and currency risks from the resulting cash flows.

The following accounts receivable existed with exchange rate risks on 31 December 2020:

T.33 Accounts receivable with exchange rate risks
EUR K 31.12.2020 31.12.2019
CHF 751 561
GBP 143 118
CAD 609 2
AUD 384 4

Currency rate fluctuations in conjunction with our original monetary financial instruments did not have any major effects on our annual profits.

Interest risks: The Group is exposed to interest risks, as the Group's companies take out financial resources at fixed and variable interest rates. The risk is controlled

by the Group by maintaining an appropriate ratio because it takes out a mixture of fixed and variable interest rates on funds. This takes place by using interest rate caps.

The interest risk on the Group's financial assets and financial liabilities is fully described in the section on managing the liquidity risk.

The interest risks are the result of interest payments agreed within the loan contracts. There is no link with the exchange rate risk here, because all the loans are nominated in euros or the interest rates and exchange rates were agreed at a fixed rate for the term of the loans. During the current year, interest payments of EUR 751 K were made and interest expenditure of EUR 1,519 K was recognised on the income statement. The interest rate on the loan with the DZ Bank is fixed for the complete term, so that no interest risks arise from this contract. The same applies to the loan of EUR 10,000 K with the IKB denominated in euros; the interest rate was fixed for the complete term for this. The interest risk has been restricted by an interest rate cap of 0.0 percent p.a. If there were an extreme change in the three-month EURIBOR rate by one percentage point, this would have triggered a change in the interest expenses amounting to EUR 37 K during 2020 (determined using the actual interest expenses during 2020 with a changed interest rate). Other interest risks affecting the results would result from the interest effects related to pension provisions. There are no risks related to interest on deposits because of the current low interest rates for deposits. Despite this, the company is keeping a close eye on the development of

interest on deposits. The investment strategy can be quickly adapted because only short-term investments are used.

Credit default risks: We understand a credit default risk to be the risk of a loss for the Group if one contractual party does not meet its contractual obligations. In principle, the Group only maintains business relations with those contractual parties where any deviation from the contractual obligations does not appear to be probable.

The maximum credit risk corresponds to the carrying amount of the trade accounts receivable and other accounts receivable. The default risk regarding trade accounts receivable is limited by the fact that the Company has a broadly spread customer structure. The Company does not generally demand any collateral security for its accounts receivable. Close monitoring takes place by observing the customer's payment behaviour, the market environment and drawing on external sources such as reports from the relevant specialist press. If this monitoring process gives rise to an assumption that the general economic situation for individual customers has changed, further measures are adopted in agreement with the management team in order to restrict any possible losses. Value adjustments may also occur if customers believe that work has not been completed or is inadequate. In these cases, the Group basically carries out individual value adjustments for precautionary reasons, if there is some expectation that settlements on a goodwill basis – without any recognition of legal grounds – might be necessary. Consideration is given to the general default

risk by making an appropriate general value adjustment (cf. Section 3.1 'Impairment of value for assets').

The default risk on liquid funds is slight, as the banks managing the accounts are all members of the German deposit protection scheme or they have an outstanding reputation with corresponding credit ratings.

Overall, the Management Board believes that the value adjustments currently performed have taken into account all the probable risks for the Group to an appropriate degree.

Liquidity risks and due dates for financial obligations:

The Group controls the liquidity risks by having available appropriate reserves and credit lines and by monitoring the deviations between forecast and actual cash flows.

The following table shows the remaining contract terms for the Group's financial liabilities. The tables are founded on non-discounted cash flows for financial liabilities (interest and repayments) based on the earliest date on which the Group can be obligated to make payment.

T.34 Schedule of liabilities EUR K Weighted average interest rate Less than 1 month 1 to 5 years More than 5 years Total 31 December 2019 Interest-free — 17,209.00 — — 17,209.00 Variable interest rate1 1.56 5,982.00 838.00 1,357.00 8,177.00 Fixed interest rate2 1.97 10,589.00 22,868.00 1,175.0034,632.00

31 December 2020

Interest-free — 16,617 — — 16,617
Variable interest
rate3		 2.66 1,918 2,123 — 4,041
Fixed interest rate4 2.36 6,073 26,448 — 32,521

T.35 Credit lines

EUR K 31.12.2020 31.12.2019
Non-collateralised current account lines 0 0
of which: taken up 0 0
of which: not taken up 0 0
Collateralised current account lines 17,600 17,600
of which: taken up 3,681 10,772
of which: not taken up 13,919 6,828

We also refer you to the explanations on leasing liabilities in Section 4.2.2. Usage rights and expenditure on leases

The Group safeguards part of its variable interest obligations by interest rate caps. This business relates precisely to the financial instrument that is being secured in each case.

The Group can make use of credit lines amounting to EUR 17,600 K. In greater detail, this involves the following:

1 The figures for 2019 do not include the expected interest. This amounted to: up to 1 year EUR 93 K, 1 to 5 years EUR 167 K and more than 5 years EUR 132 K.

  • 2 The figures for 2019 do not include the expected interest. This amounted to: up
  • to 1 year EUR 209 K, 1 to 5 years EUR 2,034 K and more than 5 years EUR 146 K.
  • 3 The expected interest is now included in the items from 2020 onwards.
  • 4 The expected interest is now included in the items from 2020 onwards.

T.37 Property, plant and equipment in 2020

Notes on the Consolidated Accounts

4.2 Non-financial assets and liabilities

4.2.1 Property, plant and equipment

T.36 Property, plant and equipment in 2019

Technical facilities Operating Real
equipment under and estate
and construc business and
Total machines tion equipment buildings EUR K
Purchasing or
production costs
Figures on
28,736 0 3,935 15,080 9,721 1 January 2019
2,736 0 163 1,661 912 Accruals
0 0 (3,927) 497 3,431 Transfers
(243) 0 (25) (218) 0 Disposals
As of
31,229 0 146 17,019 14,063 31 December 2019
Accumulated
depreciation
11,668 0 0 9,779 1,890 Figures on
1 January 2019
2,906 0 0 2,505 401 Accruals
0 0 0 0 0 Transfers
(334) 0 0 (334) 0 Disposals
As of
14,241 0 0 11,950 2,291 31 December 2019

31 December 2019 11,773 5,069 146 0 16,988

Real
estate
and		 Operating
and
business		 facilities
under
construc		 Technical
equipment
and
EUR K buildings equipment tion machines Total
Purchasing or
production costs
Figures on
1 January 2020		 14,063 17,019 146 0 31,229
Accruals 191 684 52 0 927
Changes caused by
exchange rates		 0 1 0 0 1
Transfers (626) (24) (15) 0 (664)
Disposals 0 (1.839) 0 0 (1.839)
As of
31 December 2020		 13,629 15,842 183 0 29,653
0
(6)
(1,786)
12,222		 0
0
0
0		 0
0		 0
(25)
0 (1,786)
0 14,979
2,065 0 0 2,549
11,950 0 0 14,241

Some of the plots of land serve as security for liabilities through real property liens; for more details, we refer you to Section 4.1.3 'Usage rights and expenditure on leases'.

4.2.2 Usage rights and expenditure on leases

This following information on leases refer to transactions where the Group is the lessee. Information about leases, where the Group is the lessor, is explained in Section 4.2.3. 'Property held as a financial investment'.

T.38 Usage rights in accordance with IFRS 16 in 2019

Operating
EUR K
Purchasing or production costs
2,106 8,446 Figures on 1 January 2019
1,372 0 Accruals
0 19 Changes caused by exchange rates
(49) 0 Disposals
3,429 8,465 Figures on 31 December 2019
Accumulated depreciation
— — Figures on 1 January 2019
1,355 1,654 Accruals
(29) 0 Disposals
1,327 1,654 Figures on 31 December 2019
Carrying amounts on
31 December 2019
equipment
2,103		 Real estate
and business
and buildings
6,811

T.39 Usage rights in accordance with IFRS 16 in 2020

31 December 2020 7,430 1,816 9,246
Carrying amounts on
Figures on 31 December 2020 3,291 2,584 5,875
Disposals 0 (12) (12)
Accruals 1,637 1,269 2,906
Figures on 1 January 2020 1,654 1,327 2,981
Accumulated depreciation
Figures on 31 December 2020 10,721 4,400 15,121
Disposals 160 (15) 146
Changes caused by exchange rates (112) (6) (118)
Accruals 2,207 992 3,199
Figures on 1 January 2020 8,465 3,429 11,895
Purchasing or production costs
Real estate
EUR K
and buildings		 Operating
and business
equipment		 Total

T.40 Expenditure on leases

Total payments 3,100 3,199
Expenditures for short term and low value
contracts not entered on the balance sheet		 76 54
Interest expenditures 117 136
Thereof vehicles 1,269 1,355
Thereof buildings 1,637 1,654
Depreciation and amortisation 2,906 3,009
EUR K 31.12.2020 31.12.2019

Financial debts arising from leases amounting to EUR 2,786 K (previous year: EUR 2,908 K) were repaid during the financial year and EUR 117 K (previous year: EUR 136 K) in interest was paid for leasing.

Payments for leasing liabilities on 31 December 2020 amounting to EUR 2,580 K (previous year: EUR 2,735 K) are expected within one year. For the rest of the liabilities of EUR 6,731 K (previous year: EUR 6,279 K), future payments amounting to EUR 10,078 K (previous year: EUR 10,393 K) with due dates of up to 5 years are expected with a declining trend.

During the financial year, the residual terms for the buildings entered in the balance sheet in accordance with IFRS 16 were reviewed. As the intention to continue using these buildings remains unchanged, usage rights and the corresponding expenditure were again assigned a full residual term of 5 years. This did not apply to contracts for longer periods of use.

4.2.3 Property held as a financial investment

The property held as a financial investment involves the "Tannenhaus" hotel complex. The land on which the hotel properties are located has been made available to GK Software SE for 25 years through a leasehold agreement. The leaseholder is the Chair of the Management Board of GK Software SE. The leasehold was paid in a lump sum payment at the beginning of the contractual relationship and capitalised under property held as a financial investment (discounted cash value). Upon expiration of the leasehold agreement, the contract provides for a compensation claim of GK Software SE against the property owner.

The property is handed over to the operator of the hotel as property that is leased. The hotel is operated by another associated firm (see Section 8.4.3 'Associated firms'). Under the existing allotment agreement, GK Software SE will be provided with approximately 50% of the hotel's capacity for use for operational purposes. The development of property held as a financial investment is evident from the assets analysis. The property has been valued at its ongoing purchase costs. Amortisation takes place in a linear fashion over the assumed usage period. The assumed usage period of the building is 33 years and 7–15 years have been assumed for the fittings.

Further property belonging to the GK Software SE portfolio also continued to be rented in 2020. These properties are also being rented to a different associated company by means of a rental contract. Any developments resulting from this relating to the "property held as a financial investment" can be seen in

the summary of fixed assets. The assessment methods remain unchanged. For this reason, the amounts of EUR 664 K from purchase costs and EUR 25 K from the depreciation on property, plant and equipment were transferred to "property held as a financial investment". As a result, these figures increased by EUR 639 K.

We would refer you to Section 8.4.3 'Associated firms'.

T.41 Property held as a financial investment in 2019
EUR K Real estate and buildings
Purchasing or production costs
Figures on 1 January 2019 5,900
Accruals 752
Figures on 31 December 2019 6,652
Accumulated depreciation
Figures on 1 January 2019 90
Accruals 213
Figures on 31 December 2019 302
Carrying amounts on 31 December 2019 6,349

T.42 Property held as a financial investment in 2020 EUR K Real estate and buildings Purchasing or production costs Figures on 1 January 2020 6,652 Accruals 346 Transfers 664 Disposals 0 Figures on 31 December 2020 7,662

312
897
0
25
257
302

In the profit and loss statement, rental and leasing income as well as charges passed on from agency services amounting to EUR 394 K (previous year: EUR 520 K) and direct operating expenses amounting to EUR 839 K (previous year: EUR 456 K) including amortisation are attributable to these properties. The annually agreed lease payments amount to EUR 360 K. We would refer you to Section 8.4.3 'Associated firms'.

The calculated fair value of the property (average value in the range) amounted to EUR 6,798 K on 31 December 2020 (EUR 6,043 K on 31 December 2019). In 2020, further investments in the property lead to an increase of the book value with the result that, despite a higher recoverable amount, the figure had to be adjusted. We would refer you to Section 3.5 'Intrinsic

value of property held as a financial investment' with regard to the method of determination.

4.2.4 Intangible assets

T.43 Intangible assets in 2019 EUR K Capitalised development costs Industrial property rights and similar rights and values Goodwill Customer base Orders on hand Total Purchasing or production costs Figures on 1 January 2019 7,988 10,301 18,721 9,582 1,585 48,177 Accruals 0 303 0 0 0 303 Changes caused by exchange rates 0 (29) 179 63 0 214 Transfers 0 0 0 0 0 0 Disposals 0 (20) 0 0 (1,585) (1,604) As of 31 December 2019 7,988 10,555 18,900 9,645 0 47,089 Accumulated depreciation Figures on 1 January 2019 7,722 4,913 870 3,327 1,585 18,416 Accruals 190 1,551 0 956 0 2,697 Disposals 0 (48) 0 0 (1,585) (1,632) As of 31 December 2019 7,912 6,417 870 4,283 0 19,481 Carrying amounts on 31 December 2019 76 4,138 18,030 5,363 0 27,607

T.44 Intangible assets in 2020
EUR K Capitalised
development
costs		 Industrial
property
rights and
similar rights
and values		 Goodwill Customer
base		 Orders on
hand		 Total
Purchasing or
production costs
Figures on 1 January 2020 7,988 10,555 18,900 9,645 0 47,089
Accruals 831 514 0 0 0 1,346
Changes caused by
exchange rates		 0 (26) (804) (194) 0 (1,024)
Transfers 0 0 0 0 0 0
Disposals 0 0 0 (403) 0 (403)
As of 31 December 2020 8,819 11,043 18,097 9,048 0 47,007
Accumulated
depreciation
Figures on 1 January 2020 7,912 6,417 870 4,283 0 19,481
Accruals 76 1,494 0 946 0 2,517
Disposals 0 0 0 (403) 0 (403)
As of 31 December 2020 7,988 7,911 870 4,826 0 21,595
Carrying amounts on
31 December 2020		 831 3,132 17,227 4,222 0 25,412

The capitalised development costs (preliminary versions of GK/Retail software) are amortised according to schedule in a linear fashion over an estimated serviceable life of five years.

The accrual of self-generated intangible assets in the amount of EUR 831 K was attributable to the capitalisation of development costs for the Fiskal Cloud product after the solution was successfully certified.

The following goodwill was entered on the balance sheet in the consolidated accounts of GK Software SE:

$$
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$$

T.45 Goodwill

Notes on the Consolidated Accounts

T.46 Customer bases

Year of acquisition Segment allocation Initial recognition
value		 Interest rate
(before and after
tax)		 Growth rate 31.12.2020 31.12.2019
Company EUR K in % in % EUR K EUR K
Solquest GmbH / SQ
IT-Services GmbH		 2009 CLOUD4RETAIL 6,403 9.18/6.32 1 5,533 5,533
IT Services (AWEK GmbH) 2012 IT Services 244 9.18/6.32 1 244 244
TransAction+ Products
and Services / DBS		 2015 CLOUD4RETAIL 9,838 9.59/7.07 2 8,706 9,510
prudsys AG 2017 CLOUD4RETAIL 122 9.18/6.32 1 122 122
valuephone GmbH (MCA) 2018 CLOUD4RETAIL 2,622 9.18/6.32 1 2,622 2,622
Total 19,229 17,227 18,031
Year
acquisi
tion		 Service
life		 Book
value
31.12.2019		 Deprecia
tion		 Cur
rency
conver
sions		 Book
value
31.12.2020
Company Years EUR K EUR K EUR K EUR K
AWEK GmbH 2012 10 134 (46) — 88
DBS Data
Business
Systems Inc.		 2015 10 2,733 (513) (194) 2,026
prudsys AG 2017 10 1,287 (164) — 1,122
valuephone
GmbH		 2018 7 1,209 (223) — 986
Total 5,363 (946) (194) 4,222

The goodwill 'TransAction+ Products and Services' from the takeover of the business segment from DBS Data Business Systems Inc. by GK Software USA is balanced in the individual accounts of GK Software USA. Currency-related changes in value have an effect on its valuation on the balance sheet date. The intrinsic value test is performed in the functional currency of the unit generating the cash and cash equivalents, in USD.

The debts acquired exceeded the identified assets by EUR 2,662 K in association with the acquisition of valuephone, so that goodwill amounting to this sum was entered on the balance sheet on 31 December 2018 for the first time.

The assumptions on which the planning is based (see 3.2. "Intrinsic value of goodwill") are, by their very nature, subject to risk. For the goodwill SOLQUEST/ SQ-IT, an increase to the discount interest rate by one percentage point or a reduction in the cash flow by up to 50% would not have any effects on the results of the tests. For the goodwill TAPS, an increase to the pretax discount interest rate by one percentage point or a reduction in the cash flow by up to 30% compared to plans would not have any effects on the results of the tests. Realistic changes to the parameters would not result in an impairment.

The following customer bases were identified and capitalised as part of the takeovers of companies or parts of firms and within the purchase price allocations that took place:

The business unit at DBS Data Business Systems was acquired by GK Software USA and is being continued there under the heading of TAPS (Transaction Payment Systems). valuephone GmbH was merged with GK Software SE on 1 January 2019.

4.2.5 Stocks

EUR K 31.12.2020 31.12.2019
Goods 6 35
Auxiliary materials and supplies 167 382
Advance payments on inventories 4 8
Total 177 424

We would refer you to Section 5.3 Material expenditure with regard to the expenditure that was incurred in 2020.

4.2.6 Other accounts receivable, assets and income tax claims

We refer you to Section 4.1.2. Other accounts receivable and assets

4.2.7 Deferred taxes

We refer you to Section 5.8 'Income taxes'.

4.2.8 Statutory provisions for pensions

GK Software and the subsidiaries, AWEK GmbH and AWEK microdata GmbH, have issued pension benefit plans for members of the Management Board and managing directors in the form of defined benefit plans.

The pension benefit plans have been organised so that they form a life-long, fixed retirement pension, which is to be paid once employees reach the age of 65 or 68 or 67. As this involves fixed pension sums, no adjustments are made in line with the final salary paid or the preceding salaries or the length of services or revenues in the fund. No fixed pension adjustment has been agreed. There are also individual entitlements in case somebody suffers invalidity or a widow's pension is necessary if somebody dies.

The Group is exposed to the following risks through its commitments to pension payments:

Investment risks. The cash value of the defined benefit obligation in the plan is determined by using a discount rate. This is determined on the basis of the profits of high-grade corporate loans with a fixed interest rate. The Group is allocating funds to the different plan assets to cover future payment obligations. As soon as the yields from the plan asset fall below this interest rate, this creates a shortfall in the cash value of the obligation created by the plan.

Risks associated with changes in interest rates. A

reduction in the loan interest rate will lead to an increase in the plan liability.

Risks arising from longevity. The cash value of the defined benefit obligation from the plan is determined on the basis of the best possible estimate of the probability of death for the employees benefiting from the scheme, both during their working relationship and also after this ends. Any increase in life expectancy on the part of the employees benefiting from the scheme leads to an increase in the plan's liability.

The cash value of the defined benefit obligation and the associated current service costs are determined using the projected unit credit method.

The calculations are based on the following assumptions:

T.48 Assumptions for calculating cash values

FY 2020 FY 2019
Pensionable age (m/f) 65-68 65-68
Discount factor(s) on 1 January % p.a. 1.00 2.05
Discount factor(s) on 31 December % p.a. 1.00 1.00
Rate of pension increase % p.a. 1.50 1.50

The calculations are based on the "2018G Guideline Tables" by Klaus Heubeck.

The assets of the associated plan assets are pension fund special assets amounting to EUR 1,702 K, asset values from contributions to provident funds amounting to EUR 1,525 K and pension plan reinsurances amounting to EUR 512 K. In this respect, it is not possible to provide any other information on investment categories.

A reconciled financial statement of the opening and final balances of the cash value of the defined benefit obligations with the reasons for changes provides the following picture:

T.49 Reconciliation account to determine the cash values

Figures on 31 December 6,469 5,742
– Liquidation 0 (327)
of which changes in financial assumptions 0 980
of which adjustments based on experience (3) 29
+ Actuarial losses (+)/ gains (-) (3) 1,009
− Benefits paid out (61) (60)
+ Working period costs to be additionally
calculated		 (53) 442
+ Working period costs 788 634
+ Interest expenditure 57 84
Figures on 1 January: 5,741 3,960
EUR K FY 2020 FY 2019

The development of the plan assets is shown as follows:

T.50 Development of the plan assets

Figures on 31 December 3,739 2,976
– Effect of the asset ceiling (86) 0
– Benefits paid out (54) (53)
+ Contributions by employer 873 782
+ Expected yields from plan assets 31 159
– Remeasurement 0 (314)
Figures on 1 January 2,976 2,402
EUR K FY 2020 FY 2019

This therefore gave rise to a plan deficit of EUR 2,730 K (previous year: EUR 2,766 K), which was entered as a pensions provision.

The following amounts were entered in the overall results with regard to the defined benefit plans:

T.51 Impact on earnings from pension payment obligations EUR K 2020 2019 Current service costs 788 634 Past service costs (53) 442 Net interest expenditure 26 239 Liquidation 0 (327) Components of the defined benefit costs entered in the profit and loss statement 761 988 Reassessment of net debt from the defined benefit plan Gains from plan assets (with the exception of the amounts contained in the net interest) 0 0 Actuarial gains and losses from the change in financial assumptions (3) 1,009 of which adjustments based on experience (3) 29 of which changes in financial assumptions 0 980 Effect of the asset ceiling (86) 0 Components in the defined benefit costs entered under "Other income" (89) 1,009 Total 672 1,997

In terms of the ongoing annual expenditure amounting to EUR 761 K (previous year: EUR 988 K), interest revenues amounting to EUR 63 K (previous year: EUR 9 K) and interest expenditure amounting to EUR 89 K (previous year: EUR 249 K) were entered under "Interest results" and the remaining expenditure amounting to EUR 735 K (previous year: EUR 749 K) was entered as "Expenditure for old-age pensions".

The reassessment of net debt from a defined benefit plan was entered under "Other income".

The cash value of the defined benefit obligation and the fair value of the plan assets developed as follows:

T.52 Development of the cash values of defined benefit obligations and plan assets

EUR K Cash value of the
defined benefit
obligation		 Fair value of the plan
assets		 Shortfall (−) surplus
(+)
FY 2020 6,469 3,739 (2,730)
FY 2019 5,742 2,976 (2,766)

T.53 Development of the plan liabilities and plan assets based on past experience

EUR K Liabilities in the plan Assets in the plan
FY 2020 20 (23)
FY 2019 29 (404)

We assume that contributions amounting to EUR 782 K (previous year: EUR 760 K) will be paid into the plan during 2021.

The crucial actuarial assumptions, which are used to determine the defined benefit obligation, are the actuarial interest rate and the pension trend. The sensitivity analyses shown below were carried out on the basis of the possible changes to each assumption on the balance sheet date determined by prudent judgement, although the remaining assumptions remained unchanged in each case.

  • – If the actuarial interest rate increases [falls] by 0.5 percent, the defined benefit obligation would be increased by EUR 705 K [reduced by EUR 849 K] (2019: reduced by EUR 1,013 K [increased by EUR 1,333 K]).
  • – If the pension trend increases [falls] by 0.5%, the defined benefit obligation would be reduced by EUR 554 K [increased by EUR 423 K]) (2019: increased by EUR 881 K [reduced by EUR 650 K]).

The aforementioned sensitivity analysis should not represent the actual change in the defined benefit obligation, as it is improbable that any deviations from the assumptions made will occur in isolation, as some of the assumptions are connected to each other.

The cash value of the defined benefit obligation in the aforementioned sensitivity analysis was also determined using the current single premium method on the balance sheet reporting date, i.e., the same method as that used to calculate the defined benefit obligation entered on the consolidated balance sheet.

The promised benefits from the defined benefit pension plans have the following effects on the flows of payments (expected pension payments) for the balance sheet years following the reporting date:

T.54 Benefits from the plan in the following years
Value Previous year
62 61
63 64
64 65
146 67
182 147
1,535 1,372

On the reporting date, the average weighted term (duration) of the defined benefit payment obligation was between 19.54 years and 30.71 years (previous year: 20.77 and 32.25) at GK Software or 3.98 years (previous year: 4.50) at AWEK GmbH and 8.90 years (previous year: 9.29) at AWEK Microdata GmbH.

4.2.9 Deferred government grants

This item concerns investment subsidies subject to tax from the Free State of Saxony (provided by the Sächsische AufbauBank) as part of its regional business stimulus programme and investment grants that are not subject to tax.

The reversal of the subsidies and grants takes place in a linear fashion over the serviceable life of the assets that have been supported by public funds.

Additional funds 250 51
386 687
Liquidation 23 668 14 705
Amounts used 260 — 390 650
As of 1 January 283 690 445 1,418
EUR K Personnel
department		 Production
department		 Other
depart
ments		 Total

The provisions in the production department exclusively cover warranties for individual items. Differing from the previous year, the warranty provisions were not formed this time on the basis of a general valuation. Instead, the individual risks were analysed and a provision was formed on the basis of this individual analysis. Due to lack of use, the provision amounting to EUR 666 K was reversed. The balance from the other areas includes EUR 373 K from auditor costs for the annual accounts and EUR 50 K from archiving costs. With the exception of the warranty provision and the archiving costs, a complete outflow of funds is expected in 2021.

We refer you to Section 3.10. "Other assessment uncertainties" with regard to the assessment uncertainty.

4.3 Equity

We would refer you to the 'Statement of changes in the Group's equity' if you wish to gain information on changes to the equity at GK Software until the 2020 balance sheet reporting date.

The Company's share capital amounted to EUR 2,051,100.00 on 31 December 2020 (2,023,300.00 on 31 December 2019) and was divided into 2,051,100 par value, individual share certificates each worth EUR 1. All the shares issued had been fully paid for by the reporting date. The amendment of EUR 27,800.00 resulted from exercising the share option scheme.

No shares were owned by GK Software on the balance sheet date.

Authorised capital. On 30 June 2020, the annual shareholders' meeting passed a resolution authorising the Management Board to increase the Company's share capital, with the Supervisory Board's approval, against cash contributions or assets in kind by up to a total of EUR 1,011,650.00 on one or more occasions until 29 June 2025, whereby shareholders' subscription rights can be excluded.

Contingent capital Contingent capital (contingent capital II EUR 50,000; contingent capital III EUR 75,000; contingent capital IV EUR 250,000; contingent capital V EUR 83,500) exists. These contingent increases in capital are only performed if the owners or creditors of convertible bonds or share options make use of their conversion or subscription rights.

With regard to the issue of share options and the amount of contingent capital, we refer you to Section 8.1.1. "Share option programme" in the notes on the consolidated accounts.

The revenue reserves item not only contains the adjustment to the statutory reserve funds, but also differences in amounts due to the initial switch to IFRS.

Extra charges arising from the issue of shares minus the additional costs for the capital increase are shown in the capital reserves.

Accumulated other earnings from currency exchange differences arising from the conversion of foreign business operations and the actuarial profits/losses from defined benefit schemes are entered under "Other reserves".

5 Notes on the Consolidated Profit and Loss Statement

5.1 Turnover revenues

The turnover revenues are exclusively the result of the sale of hardware and software and the provision of services for international and national customers. We would refer you to Section 1.4. 'Segment reporting'.

Contract assets amounted to EUR 13,587 K (previous year: EUR 14,278 K) on the balance sheet reporting date.

In the year under review, the amount of EUR 3,547 K entered as contract liability on 31 December 2019 was recognised as sales revenue. In the previous year, the amount of EUR 3,903 K entered as contract liability 31 December 2018 was recognised as revenue.

5.2 Other operating revenues

T.56 Other operating revenues

EUR K FY 2020 FY 2019
Offset benefits in kind 1,461 1,543
Deferred government grants 817 699
Rent/leases with associated firms 360 360
Earnings from currency differences 623 218
Reductions in valuation adjustments 0 1621
Other Onward charges with associated firms 134 115
Revenue from other periods and insurance
policies 124 95
Others 323 646
Total 3,842 3,837

The "Reductions in valuation adjustments" refers to the reversal of individual valuation adjustments that are no longer required and the revaluation of derivatives.

5.3 Materials expenditure

5.4 Personnel expenditure

T.58 Personnel expenditure

Total 75,640 78,134
benefits 1,211 1,479
of which expenditure on retirement
Social security contributions 12,742 12,959
Wages and salaries 62,897 65,175
EUR K FY 2020 FY 2019

On average, 1,140 people were employed during the 2020 financial year (1,205 in the previous year). On the reporting date of 31 December 2020, 1,162 people, not including the Management Board, were employed (1,168 in the previous year).

With 644 staff members (previous year: 628), a large proportion of the Group's employees were employed at GK Software SE on the reporting date of 31 December 2020. The number of people employed at Eurosoftware s.r.o. in Plzen dropped to 244 (previous year: 245). 29 employees were employed at AWEK GmbH (previous year: 80). AWEK microdata GmbH employed 41 people (previous year: 30). 2 people were employed at OOO GK Software RUS (1 in the previous year). 97 people were employed at GK Software USA Inc. (previous year: 86). GK Software Africa Ltd had 31 employees (previous year: 24). TOV Eurosoftware-UA employed 28 people (previous year: 18). 4 people were employed at the Swiss subsidiary, StoreWeaver GmbH (previous

year: 5). There were 42 people employed at prudsys AG (previous year: 51).

5.5 Depreciation

Apart from the scheduled depreciation of property, plant and equipment, and amortisation of usage rights from leasing contracts and intangible assets, this item also includes a write-down resulting from an intrinsic value test carried out on property held as a financial investment. With regard to the assessment method used, we refer you to Section 3.5. "Intrinsic value of property held as a financial investment"

1 Position shown separately in the total income statement. The previous year's net figure of EUR 83 K was not adjusted and is entered partly under "Other operating expenditure" and "Other operating revenues".

5.6 Other expenditure

T.59 Other operating expenditure

EUR K FY 2020 FY 2019
Travel expenses 3,977 7,009
Legal and consultancy costs 3,065 2,579
Other operating requirements 1,252 2,385
Impairment of value on derivatives 263 0
Value adjustment on receivables 1,103 1,183
Sales expenditure 1,164 1,853
Maintenance costs for software 2,348 1,544
Attracting and tying employees 654 1,262
Ancillary costs for business premises 1,138 1,182
Data traffic 688 919
Voluntary social benefits 373 643
Insurance policies and fees 631 543
Currency losses 816 96
Rent for business premises 96 81
Others 126 691
Total 17,695 21,970

The lower travel expenses are also the result of the decrease in business trips due to the pandemic.

5.7 Financial results

Balance (1,445) (2,197)
Financial expenditure (1,637) (2,271)
Financial income 192 75
EUR K FY 2020 FY 2019
T.60 Financial results

5.8 Income taxes

T.61 Income taxes

Balance 2,824 4,372
Deferred tax expenditure 1,255 3,001
Current tax liabilities 1,569 1,371
EUR K FY 2020 FY 2019

Deferred taxes on existing losses carried forward (provided that they cannot be balanced out with existing deferred tax assets) were not entered because of the uncertainty regarding the use of these losses carried forward in the next five years. Losses carried forward amounting to EUR 7,714 K (corporation tax) and EUR 4,537 K (trade tax) were not included in the calculation of deferred taxes. The losses carried forward have an indefinite term.

T.62 Income tax rates
Percent 31.12.2020 31.12.2019
Group tax rate (parent company) 29.8 29.1
thereof in Germany 28.4–31.6 28.4–31.6
thereof in Czech Republic 19.0 19.0
thereof in Switzerland 25.8 25.8
thereof in USA 25.0 25.0
thereof in South Africa 28.0 28.0
thereof in Ukraine 18.0 18.0
thereof in Russia 20.0 20.0

The deferred taxes are included in the following balance sheet items:

T.63 Deferred taxes

31.12.2020 31.12.2019
EUR K Assets Liabilities Assets Liabilities
Intangible assets 104 3,798 381 3,859
Other assets 37 130 44 36
Usage rights in the sense of
IFRS 16		 — 2,571 — 2,325
Trade accounts receivable
from ongoing work		 — 1,883 — 2,397
Receivables and other assets 929 — 524 31
Pension provisions 1,084 181 1,478 223
Changes in exchange rates 283 6 180 191
Provisions 12 — — —
Liabilities 185 3,196 109 —
Leasing liabilities in the sense
of IFRS 16		 2,590 — 2,352 —
Losses carried forward 3,411 — 1,835 —
Balancing (8,220) (8,220) (6,190) (6,190)
Total according to the
balance sheet		 416 3,546 713 2,872

Deferred tax claims/liabilities developed as follows:

T.64 Deferred tax claims/liabilities

31.12.2020 31.12.2019
EUR K Initial
balance		 Changes
related to
the income
statement		 Changes not
related to
the income
statement		 Final balance Initial balance Changes related
to the income
statement		 Changes not
related to
the income
statement		 Final balance
Intangible assets (3,794) 100 0 (3,694) (3,722) (72) 0 (3,794)
other assets 8 (102) 0 (94) 42 (34) 0 8
Right of use assets IFRS16 (2,325) (246) 0 (2,571) (2,753) 428 0 (2,325)
Trade accounts receivable from
ongoing work		 (2,398) 515 0 (1,883) (1,642) (757) 0 (2,398)
Receivables and other assets 494 465 (29) 929 204 297 (8) 494
Pension provisions 1,298 (419) 25 903 771 319 207 1,298
Changes in exchange rates
IAS 21		 (10) 0 287 277 10 0 (20) (10)
Provisions 0 12 0 12 11 (11) 0 0
Leasing liabilities in the sense
of IFRS 16		 2,352 238 0 2,590 2,753 (401) 0 2,352
Liabilities 66 (3,077) 0 (3,011) 29 37 0 66
Losses carried forward 2,151 1,260 0 3,411 4,959 (2,808) 0 2,151
Total (2,159) (1,255) 283 (3,131) 664 (3,002) 180 (2,159)

Tax expenditure for the financial year can be transferred to the profits for the period in the following way:

T.65 Transfer of tax expenditure

Actual tax expenditure 2,824 4,372
Other tax effects (28) 488
Permanent differences (1,260) —
Tax effects from other periods 1,407 —
Use of losses carried forward for which no deferred
taxes were previously recognised.		 (488) —
Not entered losses carried forward 63 1,027
Impairment on deferred tax assets from losses carried
forward		 — 3,012
Tax impact on trade tax reductions (7) (8)
Tax impact on trade tax additions 85 68
Tax impact on tax-free income (1) (324)
Tax impact on non-deductible company spending 415 109
Tax-rate deviations (72) —
Anticipated tax expenditure 29.825% (previous year:
26.3%)		 2,711 324
Pre-tax earnings 9,090 1,233
EUR K 2020 2,019

Due to the temporary differences between the assets for the subsidiaries entered on the consolidated accounts and the tax balance figure for the shares held by the parent company in the subsidiaries, no deferred taxes were entered on the balance sheet as no reversal of these temporary differences (e.g. through the sale of these shares) is expected in the foreseeable future. The temporary differences subject to taxation for which no deferred taxes were entered on the balance sheet amount to EUR 374 K.

5.9 Expenditure and earnings from currency conversions

Profits and losses from currency differences were present in the following items in the profit and loss statement:

Balance 194 (122)
Other operating revenues (623) (218)
Other expenses 816 96
EUR K 2020 2019
T.66 Currency conversions

6 Notes on the Cash Flow Statement

We recognise all paid taxes in the cash flow from operating activities. Any interest received is shown in the cash flow from investment activities. Any dividends and interest paid are considered in the cash flow from financial activities.

Other non-cash earnings and expenditure main involved writing off other liabilities to affect the income.

The change on the balance sheet to liabilities arising from funding activities resulted from the following circumstances, which affected both cash and non-cash items:

T.67 Explanation of cash and non-cash changes in 2019

1.1.2019 Changes to cash Changes related to
non-cash		 31.12.2019
EUR K Repayments Taking out
funds		 Others
Non-current liabilities with banks 9,141 — — — (3,008) 6,132
Non-current leasehold liabilities 7,868 — — — (1,589) 6,279
Convertible bond 13,418 — — — 408 13,826
Total 30,427 — — — (4,189) 26,237
Current liabilities with banks 12,260 (2,133) 1,869 (1,143) 3,008 13,861
Current leasehold liabilities 2,684 (2,908) — — 2,960 2,736
Total 14,944 (5,041) 1,869 (1,143) 5,968 16,597
Liabilities from funding activities 45,371 (5,041) 1,869 (1,143) 1,779 42,834

T.68 Explanation of cash and non-cash changes in 2020

1.1.2020 Changes to cash Changes related to non-cash 31.12.2020
EUR K Repayments Taking out
funds		 Others
Non-current liabilities with banks 6,132 (1,508) — (178) — 4,446
Non-current leasehold liabilities 6,279 — — — 452 6,731
Convertible bond 13,826 — — 395 14,222
Total 26,238 (1,508) — (178) 847 25,398
Current liabilities with banks 13,861 (5,832) — (690) (2,116) 5,223
Current leasehold liabilities 2,735 (2,786) — — 2,630 2,580
Total 16,596 (8,618) — (690) 514 7,803
Liabilities from funding activities 42,834 (10,127) — (868) 1,361 33,201

7 Items Not Entered

7.1 Contingent liabilities

Contingent liabilities cover possible obligations, but their existence is only confirmed if one or several uncertain future events actually take place and there is no possibility of exercising complete control over these factors. However, this term also covers existing obligations, which will probably create no outflow of assets. According to IAS 37, contingent liabilities are not entered on the balance sheet. Guarantee loans amounting to EUR 232 K (previous year:

EUR 232 K) existed for contingent liabilities and they were granted by Volksbank Vogtland e.G. (EUR 23 K), Commerzbank (EUR 190 K) and the DZ Bank (EUR 8 K). The securities act as normal coverage for renting the business premises in Berlin, Cologne and St. Ingbert. The rental guarantee from the Volksbank is secured by pledging bank credit balances amounting to EUR 11 K (previous year: EUR 11 K). The Management Board does not expect it to be necessary to make use of the guarantee.

7.2 Financial obligations

GK Software SE and its Group companies did not enter any relevant purchase obligations during the year ending 31 December 2020. The obligations arising from leases and rental contracts were recognised on the balance sheet in line with IFRS 16.

7.3 Results after the reporting period

In March 2021, GK Software SE increased its capital by 180,000 new shares. The gross proceeds from the issue amounted to EUR 19,035 K.

8 Other Information

8.1 Share-based remuneration

Share-based payments with compensation through equity instruments to employees and others, who provide comparable services, are assessed at the fair value of the equity instrument on the day that it is granted.

The fair value determined when granting the sharebased payments with compensation through equity instruments is entered in linear fashion as expenditure with a corresponding increase in equity over the period until the start of the exercise time (provision for benefits to employees provided in equity) and is based on the Group's expectations with regard to the equity instruments, which will probably be exercisable. The Group must check its estimates regarding the number of equity instruments, which are ready to be exercised, on each reporting date for the accounts. The effects of the changes to the original estimates must be entered to affect the net income, if they exist. The entry takes place in such a way that the total expenditure reflects the change in estimate and leads to a relevant adaptation of the reserve for benefits to employees with compensation through equity instruments.

Share-based payments with compensation through equity instruments to employees and different parties are assessed at the fair value of the goods or services received, unless the fair value cannot be reliably determined. In this case, they are assessed at the fair value of the equity instruments granted at the time

when the Company receives the goods or the opposing party provides the services. In the case of share-based payments with cash compensation, a liability is entered for the goods or services obtained and is assessed at the fair value when they accrue. Until the debt is settled, the fair value of the debt is newly determined on each reporting date for the accounts and on the settlement date and all the changes to the fair value are entered to affect the net income.

8.1.1 Share option scheme

Share option programmes were introduced to supplement the normal remuneration to improve the loyalty and motivation of leading employees and those who provide special services.

According to Section 4a Para. 1, 3 and 6 of the articles of association, the Management Board was entitled to grant subscription rights to individual share certificates as part of the share option programme on one or more occasions, provided that the Supervisory Board approves these measures. The share options are exclusively for subscription by members of the GK Software SE Management Board, selected managers and other senior employees at GK Software SE and for subscription by members of the management team and selected managers and other leading employees in companies, which are independently associated firms in a relationship with GK Software SE in the sense of Sections 15 and 17 of the German Companies Act. The decisions taken at the annual shareholders' meeting on 28 June 2012 (contingent capital II), 29 June 2015 (contingent capital III) and 29 June 2018 (contingent

capital V) empowered the Management Board to issue subscription rights to GK Software SE shares with a term of up to five years provided that each share option grants the right to subscribe to one GK Software SE share.

A decision taken at the annual shareholders' meeting on 16 June 2016 empowered the Management Board to issue on one or several occasions option and/or convertible bonds, profit participation certificates or participating bonds made out to the holder or name or a combination of these financial instruments and exclude the subscription rights to these instruments or their combination until 15 June 2021, provided that the Supervisory Board agrees.

The individual conditions are recorded in the following tables.

The options exercised during the reporting period involved an average share price of EUR 66.86 (previous year: EUR 71.92).

T.69 Development of outstanding options that have been exercised and lapsed or forfeited

Number of options
Options outstanding on 1 January 2019 137,825
Options granted during the course of the 2019 financial
year		 0
Options lost during the reporting period (5,375)
Options redeemed during the reporting period (16,825)
Options expiring during the reporting period (3,500)
Options outstanding on 31 December 2019 112,125
Exercisable options on 31 December 2019 23,650
Corrected item for 29.8.2016 issue1 125
Options outstanding on 1 January 2020 112,250
Options granted during the course of the 2020 financial
year 20,525
Options lost during the reporting period (3,875)
Options redeemed during the reporting period (27,800)
Options expiring during the reporting period (4,500)
Options outstanding on 31 December 2020 96,600
Exercisable options on 31 December 2020 21,650
Weighted average of options exercised in 2020 EUR 66.86

We would refer you to the following summaries to provide an overview of the individual share option programmes.

1 Number of issue options adjusted from 31,900 to 32,025

Exercise period

End of exercise period

Notes on the Consolidated Accounts

T.70 Options granted and obstacles to exercising them

Issue options

of which forfeited

Total amount 96,600

of which lapsed

of which redeemed

Number Number Number Number EUR Years

Options remaining

Exercise price

Date of issue

The non-risk interest rate for the SOP programme released on 03.08.2020 was calculated using the average cost method.

T.72 Distribution of expenditure entered

20.6.2017 8,500 1,250 0 0 7,250 92.10 4 1/4 21.6.2021 Probable average
Contingency capital II 7,250 Fair value/ exercise period on
the balance sheet		 Assumed annual
dividend per		 Expenditure of which
Management
Date of issue option reporting date share entered Board
1.11.2015 5,000 2,500 0 2,500 0 28.62 4 1/4 1.11.2019 EUR Months EUR EUR K EUR K
30.11.2015 25,625 1,975 4,500 19,150 0 33.98 4 1/4 30.11.2019
29.8.2016 32,0251 1,600 0 8,650 21,775 45.98 4 1/4 29.8.2020 20.6.2017 22.934 5 0.50 45 0
4.12.2017 16,500 0 0 0 16,500 116.69 4 1/4 3.12.2021
Contingency capital III 38,275 29.8.2016 9.202 0 0.50 46 21
4.12.2017 28.370 11 0.50 161 72
26.11.2018 37,000 6,450 0 0 30,550 75.16 4 1/4 28.11.2022
3.8.2020 20,525 0 0 0 20,525 68.00 4 1/4
3.8.2024		 26.11.2018 17.100 22 0.50 145 47
Contingency capital V 51,075 3.8.2020 19.170 43 0.50 37 18
Total amount 434 159

T.71 Currency rates, interest rates and volatility

Date of issue Term from
issue date		 Stock exchange
price on
assessment date		 Retention
period		 Risk-free
interest
rate		 Volatility Shares for
Manage
ment Board Total value
Years EUR Years % % Number EUR K
20.6.2017 4 1/2 93.00 4 (0.52) 31.97 0 195
1.11.2015 4 1/2 30.50 4 (0.17) 29.37 0 16
30.11.2015 4 1/2 37.80 4 (0.29) 27.70 5,000 203
29.8.2016 5 44.20 4 (0.60) 31.64 10,000 294
4.12.2017 4 1/2 116.30 4 (0.47) 32.01 10,000 468
26.11.2018 4 1/2 76.20 4 (0.36) 29.08 10,0002 633
3.8.2020 4 1/2 70.00 4 (0.73) 34.71 10,000 363

The process of determining the fair values per option took place on the basis of 10,000,000 simulations using the Monte Carlo procedure. The total value per share option scheme was determined by taking into account each option. This figure must be entered as personnel expenditure on a pro-rata basis for the elapsed qualifying period and assigned to the capital reserves. The exercise price, the exercise hurdle and the exercise period were taken into consideration in the underlying observation.

The volatility was calculated according to IFRS 2 B25(b) in line with an estimated average term of the option rights of 4 ¼ years based on the company's historical share price during the last four years on the relevant granting date.

The average weighted residual term for the options is 1.35 years.

1 Number of issue options adjusted from 31,900 to 32,025

2 Number of shares held by the Management Board adjusted from 8,000 to 10,000

8.2 Earnings per share

The earnings per share are determined as a quotient of the total results and the weighted average of the number of shares in circulation during the financial year. The Group's annual profits amounted to EUR 6,266 K in 2020 (Group's losses in the previous year: EUR 3,139 K). As a result, the earnings per share in 2020 amounted to, diluted, EUR 3.00 and, undiluted, EUR 3.04 (previous year: EUR (1.60) diluted and undiluted).

T.73 Reconciliation of the results used to determine the earnings per share.

EUR K FY 2020 FY 2019
Annual results 6,266 (3,139)
Minus number of non-controlling interests (55) 2
Group result (numerator for the undiluted
earnings per share) 6,210 (3.138)
Annual results 6,266 (3,139)
Plus interest saved on convertible bonds 450 450
Minus tax drawback due to conversion (131) (131)
Minus number of non-controlling interests (55) 2
Adjusted Group result (numerator for the
diluted earnings per share) 6,529 (2,819)

T.74 Weighted average of shares used as denominator Number FY 2020 FY 2019 Weighted average of shares used as the denominator to determine the undiluted earnings per share 2,040,376 1,962,214 Options 73,725 55,500 Convertible bond 96,774 96,774 Adjustment by fictitious bonus shares due to exchange rate differences (32,101) (88,833)

Weighted average of the shares and potential shares used as the denominator to determine the diluted earnings per share 2,178,774 2,025,655

When calculating the diluted earnings per share, the total number of shares, the number of existing and possible new shares from the share option schemes and the convertible bond were all taken into consideration. The earnings from the period were also increased by the interest-rate advantage from the convertible bond and reduced by the resulting tax effect.

8.3 Details of capital management

The Group manages its capital – which not only includes equity, but all accounts receivable and accounts payable – with the aim of guaranteeing the Group's ability to service its loans and debts and provide sufficient liquidity to maintain collateral for investment projects at all times.

These goals are monitored by tracking financial indicators (e.g. the equity ratio, capitalisation ratio, surplus of liquid funds over interest-bearing liabilities) for the target corridors. The aim of maintaining adequate capital is supported by investing cash and cash equivalents in a non-risk manner. Derivative financial instruments are only used to the extent that they are needed to hedge actual business deals.

8.4 Details of associated persons and firms

There was no need for any expenditure on valuation adjustments or irrecoverable accounts receivable with associated persons or these items did not exist at all.

Any business transactions between GK Software and its consolidated subsidiaries were illuminated as part of the consolidation process.

8.4.1 Management Board

The following people are members of the Management Board:

  • – Mr Rainer Gläss, Schöneck, CEO, engineering graduate
  • – Mr André Hergert, Hamburg, CFO, business graduate

The members of the Management Board at GK Software SE receive not only a fixed salary, but also a salary component that is dependent on results and is linked to qualitative targets and mainly relates to the

development of the business. These qualitative targets are set by the Supervisory Board for the members of the Management Board each year.

The members of the Management Board are granted benefits in kind in addition to fixed remuneration. This includes the provision of company cars, also for private use. In addition, the members of the Management Board are reimbursed for the costs of maintaining residences at the company's various locations. The members of the Management Board are granted pension packages according to their level of seniority.

The total amount of remuneration paid to the members of the Management Board for their work in the 2020 financial year was EUR 1,426 K (2019: EUR 880 K, of which EUR 1,006 K (2019: EUR 880 K) accounted for the fixed salary and EUR 420 K (2019: EUR 0 K) for the variable components. No variable components were paid out in 2019.

In addition, payments of EUR 628 K for active members of the Management Board and EUR 205 K for two former members of the Management Board were made to retirement pension institutions. These were a reinsured provident fund, a pension fund and a direct insurance.

Forfeitable share provisions (share options) are granted as long-term share-based remuneration. If they are exercised, the options are serviced by the issue of new non-par value company shares made out to the holder with a calculated share in the nominal capital of EUR 1 from the authorised capital without

any additional payment. In terms of the organisation of the stock awards, the same general conditions apply to the Management Board as to leading members of staff. We refer you to Section 8.1.1. 'Share option scheme'.

As of 31 December 2020, 40,000 share options were held by the members of the Management Board and 6,000 by two former members of the same body. In the year under review, the members of the Management Board were each granted 5,000 shares. The expenditure from the share-based remuneration for the members of the Management Board entered on the basis of the assessment was EUR 159 K (previous year: EUR 139 K).

T.75 Pension provisions for members of the Management Board

EUR K 31.12.2020 31.12.2019
Pension provisions 2,730 2,564
thereof for board members 1,891 2,010
thereof for former board members 839 554
Settlement amount of the provision 6,469 4,828
thereof for board members 4,404 3,810
thereof for former board members 2,065 1,018
Fair value of net contribution margin 3,739 2,264
thereof for board members 2,514 1,800
thereof for former board members 1,226 464
Working period costs 788 634
thereof for board members 548 435
thereof for former board members 241 199

Regarding the form of the pension commitments, we refer you to 4.2.8. "Provisions for pensions".

Those who are or were members of the Company's Management Board or Supervisory Board during the 2020 financial year, directly held the following shareholdings in GK Software on 31 December 2020:

T.76 Shareholdings held by members of the Management Board and the Supervisory Board

Name Number of shares in %
Rainer Gläss 67,792 3.31
Herbert Zinn 2,000 0.10
André Hergert 8,181 0.40

Mr Gläss indirectly held a further 534,500 shares through Gläss Vermögenverwaltungs GmbH & Co KG on 31 December 2020.

Other accounts receivable with members of the Management Board amounting to EUR 38 K involved various advance payments for purchases, travel expenses and similar items and they were therefore not subject to any interest. These accounts receivable can be recovered at any time.

8.4.2 Supervisory Board

The following people are members of the Supervisory Board:

– Mr Uwe Ludwig, Neumorschen, Management Consultant, Chairman of the Supervisory Board (until 13 March 2020)

103 Annual Report 2020 | GK Software SE

  • – Dr Philip Reimann, Hamburg, Solicitor and Tax Consultant, Dierkes & Partner, Chair of the Supervisory Board (since 27 March 2020)
  • – Mr Herbert Zinn, Ebersburg, managing partner at SÜBET RHEIN-MAIN Handels- und Beteiligungsgesellschaft mbH und Co.KG and HBZ Immobilien-Verwaltungs-GmbH
  • – Mr Thomas Bleier, Oelsnitz, managing director of the Beteiligungsgesellschaft der Sparkasse Vogtland mbH, Deputy Chair

No agreements exist between members of the Supervisory Board and the parent company, which envisage severance payments or other benefits for the members of the Supervisory Board when they finish their membership of this body. There are no conflicts of interest between their obligations towards the Company and their private interests or other obligations at the moment.

There were no agreements with the Company regarding pensions for the members of the Supervisory Board.

For the 2020 financial year, the members of the Supervisory Board are entitled to a fixed remuneration of EUR 83 K (2019: EUR 80 K) according to the articles of association. This is entered under the current liabilities. There was no entitlement to any performance-related remuneration in 2020 or 2019

and there are no provisions for such in the articles of association.

8.4.3 Associated firms

Accounts receivable with associated firms are those that are not included in the consolidated companies. All the business transactions with associated firms involved other related companies in line with the categorisation in IAS 24.19.

T.77 Accounts receivable with associated firms
EUR K 31.12.2020 31.12.2019
Suppliers with debit balances 79 603
Other claims 2,168 1,061
Accounts receivable 220 975
Total receivables 2,466 2,639
Accounts payables 20 8
Total liabilities 20 8

The balance of creditors with a debit account resulted from credits issued after the balance sheet reporting date in conjunction with purchased services from associated firms.

The other receivables include loan receivables from Tannenhaus UG, Schöneck, in the amount of EUR 1.603 million and advance payments made on the contingent purchase price from the acquisition of valuephone GmbH, Schöneck, amounting to EUR 565 million.

The trade accounts receivable largely consisted of service relationships with 'Hotel Tannenhaus UG', Schöneck. They involved outstanding lease payments and charges passed on from payments already incurred (cf. Section 4.2.3 'Real estate held as a financial investment').

T.78 Expenditure and earnings with associated firms and persons

EUR K 31.12.2020 31.12.2019
Expenses with related companies 1,641 1,506
thereof external services 1,589 1,458
thereof rents/leases 53 48
Earnings with related companies 495 641
thereof provided cars and services 82 98
thereof rents/leases 376 360
thereof internal charging 35 183
thereof from loan interest 3 0

The other purchased services were largely travel and hotel services, as well as caretaker and canteen services.

8.5 Auditor's fees

The auditor and companies attributable to it received the following fees in 2020:

T.79 Auditor's fees

Total 335 14 9
Other services 1 0 0
Auditing the annual
accounts		 333 14 9
EUR K GK Software SE GK Software Africa prudsys AG

8.6 Declaration of compliance

The German corporate governance code statement in line with section 161 of the Public Limited Companies Act was submitted and has been published on the homepage of GK Software SE in the "Corporate Governance" section at https://investor.gk-software. com.

8.7 Details of Group affiliation

GK Software SE, and therefore the GK Software Group, are subject to the direct control of GK Software Holding GmbH (HRB 24111 Chemnitz), which has its headquarters in Schöneck and is the senior parent company.

8.8 Day when the accounts were approved for publication

The Management Board cleared these consolidated accounts to be forwarded to the Supervisory Board on 27 April 2021. The Supervisory Board has the job of checking the consolidated accounts and stating whether it endorses them or not.

105 Annual Report 2020 | GK Software SE

Guarantee by the Legal Representatives

Guarantee by the Legal Representatives

We guarantee to the best of our knowledge that the consolidated accounts present a realistic view of the actual circumstances in the assets, financial and earnings situation at GK Software SE in line with the relevant accounting principles and that the consolidated annual report reveals the course of business including the business results and the situation within the Group in such a way that it communicates a view, which reflects the actual circumstances, and describes the main opportunities and risks for probable developments at the Company.

Schöneck, 28 April 2021

The Management Board

Rainer Gläss Chief Executive Officer

André Hergert Chief Financial Officer

The auditor's report reproduced below also includes a "Report on the audit of the electronic reproductions of the financial statements and management report prepared for disclosure purposes following Section 317 (3b) HGB" ("ESEF Report"). The subject matter underlying the ESEF Note (ESEF documents to be audited) is not attached. The audited ESEF documents can be viewed in or downloaded from the Federal Gazette.

Independent Auditor's Report

To GK Software SE, Schöneck / Vogtland

Report on the Audit of the Consolidated Financial Statements and of the Group Management Report

Audit Opinions

We have audited the consolidated financial statements of GK Software SE (formerly GK Software AG), Schöneck / Vogtland, and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2020, the total income statement, the consolidated statement of changes in equity and the consolidated statement of cash flows for the financial year from January 1 to December 31, 2020, and notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the group management report of GK Software SE for the financial year from January 1 to December 31, 2020. We have not audited the Corporate Governance Statement according to Section 289f HGB and Section 315d HGB in accordance with the German legal requirements.

In our opinion, on the basis of the knowledge obtained in the audit,

– the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e, Paragraph 1 HGB and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at December 31, 2020, and of

its financial performance for the financial year from January 1 to December 31, 2020, and

  • – the accompanying group management report as a whole provides an appropriate view of the Group's position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our audit opinion on the group management report does not cover to the content of the above-mentioned corporate governance statement.
  • – Pursuant to Section 322, Paragraph 3, Sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the group management report.

Basis for the Audit Opinions

We conducted our audit of the consolidated financial statements and of the group management report in accordance with Section 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subsequently as "EU Audit Regulation") and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further described in the "Auditor's Responsibilities for the Audit of the Annual Financial Statements and of the Management Report" section of our

auditor's report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the group management report.

Key Audit Matters in the Audit of the Consolidated Financial Statements

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the financial year from January 1 to December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.

In our view, the matters of most significance in our audit were as follows:

❶ Recoverability of goodwill

❷ Revenue recognition and allocation of revenue to correct periods

Our presentation of these key audit matters has been structured in each case as follows:

① Matter and issue

② Audit approach and findings

② Reference to further information

Hereinafter we present the key audit matters:

❶ Recoverability of goodwill

① Goodwill amounting in total to EUR 17,227 K (representing 16 % of total assets and 35 % of equity) is reported under the "Intangible assets" balance sheet item in GK Software SE (formerly GK Software AG)'s consolidated financial statements. Goodwill is tested for impairment by the Company once a year or when there are indications of impairment to determine any possible need for write-downs. Impairment testing is carried out at the level of the cash-generating units to which the relevant goodwill has been allocated. The carrying amount of the cash-generating unit, including goodwill, is compared with the corresponding recoverable amount in the context of the impairment test. The calculation of the recoverable amount generally employs the value in use. The present value of the future cash flows from the cash-generating unit normally serves as the basis of valuation. The present values are calculated using discounted cash flow models. For this purpose, the medium-term business plan adopted by the Group forms the starting point for future projections. Expectations relating to future market developments and assumptions about the development of macroeconomic factors are also taken into account. The discount rate used is the weighted average cost of capital for the cashgenerating unit. The impairment test determined that no write-downs were necessary. The outcome of this valuation exercise is dependent to a large extent on the estimates made by the executive directors with respect to the future cash inflows from the cash-generating unit, the discount rate used, and other assumptions, and is therefore subject to considerable uncertainty. Against this background and due to the complex nature of the valuation, this matter was of particular significance in the context of our audit.

  • ② As part of our audit, we reviewed the methodology employed for the purposes of performing the impairment test, among other things. After matching the future cash inflows used for the calculation against the medium-term business plan adopted by the Group, we assessed the appropriateness of the calculation, in particular by reconciling it with general and sector-specific market expectations. In the knowledge that even relatively small changes in the discount rate applied can have a material impact on the value of the entity calculated using this method, we focused our testing on the parameters used to determine the discount rate applied, and verified the calculation procedure. We reproduced the sensitivity analyses performed by the Company, in order to reflect the uncertainty inherent in the projections. Taking into account the information available, we determined that the carrying amount of the cash-generating unit, including the allocated goodwill, were adequately covered by the discounted future net cash inflows. Overall, the measurement inputs and assumptions used by the executive directors are in line with our expectations and are also within the ranges considered by us to be reasonable.
  • ③ The Company's disclosures regarding the impairment test and the balance sheet item "Intangible Assets" are included in the sections "Goodwill Impairment" and 4.2.4 "Intangible Assets" in the notes to the consolidated financial statements.

❷ Revenue recognition and allocation of revenue to correct periods

① Revenue amounting to EUR 117,560 K is reported in the Consolidated Profit and Loss Statement of GK Software SE. The company recognizes revenue from the sale and temporary granting of licenses, the provision of installation services and advice, maintenance and other services. The recognition of revenue from the sale of licenses depends on the existence of a binding contractual arrangement, the transfer of material rights to the buyer and the ability to reliably determine the consideration paid. Proceeds from services are realized as at the date the services are rendered, while maintenance revenue and

proceeds from the temporary granting of licenses is realized over the performance period. These various services rendered by the company can be the object of agreements with customers, either individually or in various constellations. In this connection, the company must also identify contracts relating to multiple components and account for agreed individual services individually. In light of the complexity of the customer agreements underpinning revenue recognition, these significant items are subject to particular risk. Against this background, the correct application and deferral of revenues under the Groupwide application of the accounting standard IFRS 15 is considered to be complex and is based in some respects on estimates, assumptions and discretion used by the executive directors, with the result that this matter was of particular importance for our audit.

② As part of our audit, we assessed, among other things, the correct presentation of revenue in the consolidated financial statements on the basis of the accounting policies applied by GK Software SE (formerly GK Software AG) in relation to the recognition of software revenue in accordance with the relevant IFRSs, in particular IFRS 15. To do so, we particularly first identified the material controls implemented by the Group to ensure the correct identification of contracts and performance obligations and the subsequent recognition of revenue, assessed their appropriateness and tested their effectiveness in preventing and detecting errors. In addition, we particularly have performed detailed revenue recognition reviews of individual significant transactions and other transactions on a test basis, including, inter alia, reviewing customer contracts, identifying performance obligations and assessing whether these services were rendered over a specified period or at a specified time and what transaction prices were received. Based on our audit procedures, we satisfied ourselves that the estimates and assumptions relating to revenue recognition made by the executive directors were adequately documented and justified.

③ The Company's disclosures on revenue recognition are contained in sections "Accounting and measurement methods" and "2.12 Income from contracts with customers" of the notes to the consolidated financial statements.

Other Information

The executive directors are responsible for the other information. The other information comprises the statement on corporate governance pursuant to Section 289f HGB and Section 315d HGB.

The other information comprises further the remaining parts of the annual report – excluding cross-references to external information – with the exception of the audited consolidated financial statements, the audited group management report as well as our auditor's report and the separate non-financial report pursuant to Section 289b, Paragraph 3 HGB and Section 315b, Paragraph 3 HGB.

Our audit opinions on the consolidated financial statements and on the group management report do not cover the other information, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information

  • – is materially inconsistent with the consolidated financial statements, with the group management report or our knowledge obtained in the audit, or
  • – otherwise appears to be materially misstated.

Responsibilities of the Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the Group Management Report

The executive directors are responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e, Paragraph 1 HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the executive directors are responsible for assessing the Group's ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.

Furthermore, the executive directors are responsible for the preparation of the group management report that, as a whole, provides an appropriate view of the Group's position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report.

The supervisory board is responsible for overseeing the Group's financial reporting process for the preparation of the consolidated financial statements and of the group management report.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the Group's position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor's report that includes our audit opinions on the consolidated financial statements and on the group management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report.

We exercise professional judgment and maintain professional skepticism during the audit. We also:

– Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  • – Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems.
  • – Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness of estimates made by the executive directors and related disclosures.
  • – Conclude on the appropriateness of the executive directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor's report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.
  • – Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e, Paragraph 1 HGB.
  • – Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express audit opinions on the consolidated financial statements and on the group management report.

We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions.

  • – Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with German law, and the view of the Group's position it provides.
  • – Perform audit procedures on the prospective information presented by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter.

Other Legal and Regulatory Requirements

Report on the Audit of Electronic Reproductions of the Consolidated Financial Statements and of the Group Management Report Prepared for the Purpose of Disclosure Pursuant to Section 317, Paragraph 3b HGB

Audit Opinion

Pursuant to Section 317, Paragraph 3b HGB, we have performed an audit with reasonable assurance to determine whether the reproductions of the consolidated financial statements and the group management report (hereinafter also referred to as the "ESEF documents") contained in the attached file GK Software_SE_ KA+KLB_ESEF-2020-12-31.zip and prepared for the purpose of disclosure comply in all material respects with the requirements of Section 328, Paragraph 1 HGB regarding the electronic reporting format ("ESEF format"). In accordance with German legal requirements, this audit only covers the conversion of the information in the consolidated financial statements and the group management report into the ESEF format and therefore covers neither the information contained in these reproductions nor any other information contained in the aforementioned file.

In our opinion, the reproductions of the consolidated financial statements and the group management report contained in the aforementioned attached file and prepared for the purpose of disclosure comply in all material respects with the requirements of Section 328, Paragraph 1 HGB regarding the electronic reporting format. Beyond this audit opinion and our audit opinions on the accompanying consolidated financial statements and the accompanying group management report for the financial year from 1 January to 31 December 2020 contained in the preceding "Report on the Audit of the Consolidated Financial Statements and of the Group Management Report", we do not express any audit opinion on the information contained in these reproductions or on the other information contained in the aforementioned file.

Basis for the Audit Opinion

We conducted our audit of the reproductions of the consolidated financial statements and the group management report contained in the aforementioned attached file in accordance with Section 317, Paragraph 3b HGB, taking into account the draft IDW Auditing Standard: The audit of electronic reproductions of financial statements and management reports prepared for the purposes of disclosure was carried out pursuant to Section 317, Paragraph 3b HGB (IDW EPS 410) and the International Standard on Assurance Engagements 3000 (Revised). Our responsibilities thereafter are further described in the "Group Auditor's Responsibility for the Audit of the ESEF Documents" section. Our auditing practice has applied the quality assurance system requirements of the IDW Quality Assurance Standard: Requirements for Quality Assurance in the Auditing Practice (IDW QS 1).

Responsibilities of the Executive Directors and the Supervisory Board for the ESEF Documents

The executive directors of the company are responsible for the preparation of the ESEF documents with the electronic reproductions of the consolidated financial statements and the group management report in accordance with Section 328, Paragraph 1, Sentence 4, No. 1 HGB and for the mark-up of the consolidated financial statements in accordance with Section 328, Paragraph 1, Sentence 4, No. 2 HGB.

In addition, the company's executive directors are responsible for the internal controls as they deem necessary to enable the preparation of the ESEF documents that are free from material non-compliance, whether due to fraud or error, with the electronic reporting format requirements of Section 328, Paragraph 1 HGB.

The company's executive directors are also responsible for submitting the ESEF documents together with the auditor's report and the attached audited consolidated financial statements and audited group management report as well as other documents to be disclosed to the operator of the Federal Gazette.

The supervisory board is responsible for overseeing the preparation of the ESEF documents as part of the financial reporting process.

Group Auditor's Responsibilities for the Audit of the ESEF Documents

Our objective is to obtain reasonable assurance about whether the ESEF documents are free from material non-compliance, whether due to fraud or error, with the requirements of Section 328, Paragraph 1 HGB. We exercise professional judgment and maintain professional skepticism during the audit. We also:

  • – Identify and assess the risks of material non-compliance with the requirements of Section 328, Paragraph 1 HGB, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinion.
  • – Obtain an understanding of internal controls relevant to the audit of the ESEF documents in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of those controls.
  • – Assess the technical validity of the ESEF documents, i.e. whether the file containing the ESEF documents meets the requirements of Delegated Regulation (EU) 2019/815, as amended at the reporting date, for the technical specification for that file.
  • – Assess whether the ESEF documents provide a consistent XHTML reproduction of the audited consolidated financial statements and the audited group management report.
  • – Assess whether the mark-up of the ESEF documents with inline XBRL technology (iXBRL) provides an adequate and complete machine-readable XBRL copy of the XHTML rendering.

Further Information pursuant to Article 10 of the EU Audit Regulation

We were elected as group auditor by the annual general meeting on June 30, 2020. We were engaged by the supervisory board on December 5, 2020. We have been the group auditor of GK Software SE (formerly GK Software AG), Schöneck / Vogtland, without interruption since financial year 2017.

We declare that the audit opinions expressed in this auditor's report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report).

German Public Auditor Responsible for the Engagement

The German Public Auditor responsible for the engagement is Carl Erik Daum.

Erfurt, 27 April 2021

PricewaterhouseCoopers GmbH Auditing company

Carl Eric Daum Auditor

Marcus Engelmann ppa. Auditor

Financial Calendar

Financial Calendar

17 June 2021 Annual Shareholders' Meeting 2021

26 August 2021 Interim Report as of 30 June 2021

22 – 24 November 2021 Equity Quality Forum in Frankfurt/M.

25 November 2021 Quarterly Report as of 30 September 2021

28 April 2022 Annual Report as of 31 December 2021

27 May 2022 Quarterly Report as of 31 March 2022

17 June 2022 Annual Shareholders' Meeting 2022

26 August 2022 Interim Report as of 30 June 2022 November 2022 Equity Quality Forum in Frankfurt/M.

24 November 2022 Quarterly Report as of 30 September 2022

Legal Notice

Publisher

GK Software SE Waldstr. 7 08621 Schöneck Germany T: +49 37464 84-0 F: +49 37464 84-15

www.gk-software.com [email protected]

Chair of the Supervisory Board Dr Philip Reimann

Management Board

Dipl.-Ing. Rainer Gläß, CEO Dipl.-Kfm. André Hergert, CFO

Commercial Register Chemnitz HRB 31501

VAT ID. DE 141 093 347

Photos Image Archive GK Software SE, Title: istockphoto

Contact Investor Relations

GK Software SE Dr. René Schiller Friedrichstr. 204 10117 Berlin

T: +49 37464 84-264 F: +49 37464 84-15

[email protected]

Notes

Note on the Annual Report

The Annual Report is also available as a translation into English. In the event of deviations, the German version shall apply. The Annual Report is available for download in both languages on the Internet at https://investor.gk-software.com.

Note on Rounding

When using rounded amounts and percentages, minor deviations may occur due to commercial rounding.

Forward-Looking Statements

This Annual Report contains forward-looking statements that are subject to risks and uncertainties. They are estimates of the Executive Board of GK Software SE and reflect its current views with respect to future events. Such forward-looking statements can be identified by terms such as "expect", "estimate", "intend", "may", "will" and similar expressions with reference to the company. Factors that may cause or influence a deviation include, without claim to completeness: the development of the retail and IT markets, competitive influences, including price changes, regulatory measures, risks in the integration of newly acquired companies and participations. If these or other risks and uncertainties materialise, or if the assumptions underlying any of the statements prove incorrect, GK Software SE's actual results may be materially different from those expressed or implied by such statements. The company assumes no obligation to update such forward-looking statements.

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