1  Basic principles

1.1  Business activities

Allreal Group is a real estate company which operates exclusively in Switzerland with the main focus on the Zurich business region. It is involved in the development and management of its portfolio of residential and commercial real estate and engages in management activities both for its own yield-producing properties and on behalf of third parties (Real Estate division). The general contractor activities encompass project development and the realisation, purchase and sale of properties (Projects & Development division).

Allreal Holding AG (parent company) has its registered office in Baar, Switzerland, and is listed on SIX Swiss Exchange.

On 7 February 2017, the Board of Directors of Allreal Holding AG approved the consolidated financial statements for publication. They are also subject to the approval of the annual general meeting of Allreal Holding AG of 21 April 2017.

1.2  Presentation of accounts

The consolidated annual accounts are based on the individual company accounts, which were prepared in accordance with uniform Group accounting standards as at 31 December. The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) and conform to the Listing Rules as well as Article 17 of the Financial Reporting Directive (DFR) of SIX Swiss Exchange and with Swiss law.

With the exception of the change described under note 1.3, the same principles of accounting apply as for the 2015 consolidated financial statements. See 2.29 in connection with the valuation uncertainties.

Following the acquisition of Bülachguss AG, Bülach, as at 28 July 2016, the scope of consolidation increased by the acquired company from the date of acquisition; see 4.5. Changes also arose as a result of intra-Group mergers; see 1.5.

In the 2016 consolidated financial statements, Allreal applied the following new IFRS standards and interpretations for the first time:

These IFRS changes have no significant impact on the consolidated financial statements.

Some new or amended IFRS standards and interpretations have been adopted by the IASB, but will only enter into force in a subsequent accounting period. The new developments or amendments are listed in the following table, specifying the financial year in which the adjustment enters into force at Allreal.

IFRS 15

The standard contains new principles for recognising revenue. Of particular significance for Allreal is at what point in time revenue and income on development property held for sales are recognised. In accordance with IAS 18 and IFRIC 15, revenue and income are currently recognised on transfer of ownership of individual development real estate units (see 2.6). Under certain circumstances, the new standard IFRS 15 provides that revenue and income are recognised by the percentage of completion method (POC) over the life of a project.

IFRS 16

The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. Long-term leases for properties fall under the scope of IFRS 16 and are to be recognised for the lessee’s right to use the asset.

A detailed analysis of the impact of IFRS 15 and IFRS 16 on the consolidated financial statements has not yet been made; it is not planned to apply the standard early. Apart from additional disclosure requirements, the remaining IFRS amendments are not expected to result in any material adjustments.

1.3  Change in the calculation of diluted earnings per share

The method hitherto employed by Allreal to calculate diluted earnings per share was to adjust undiluted earnings for the amount of personnel expenses deferred for share-based reimbursements, which is not in compliance with IAS 33.

The method of calculation has therefore been adjusted accordingly, resulting in diluted earnings per share of CHF 7.65 for the previous financial year (figure published in 2015: CHF 7.67).

The method of calculating undiluted earnings per share is not affected by this change.

1.4  Method of consolidation

Subsidiaries are fully consolidated with effect from the date of their acquisition, i.e. from the date on which Allreal gains control. Allreal will be deemed to have gained control if, on the basis of existing rights, it is able to direct those activities of the subsidiaries that significantly affect their returns and also if Allreal is exposed, or has rights, to variable returns from its involvement with the subsidiary and is able to affect those returns through its power over the subsidiary.

Subsidiaries are deconsolidated with effect from the date on which control ends.

Capital is consolidated at the time of purchase using the acquisition method. The purchase price for a corporate acquisition is determined as the total of the market value of the assets transferred, the liabilities contracted or taken over and the equity financial instruments issued by Allreal. Transaction costs in connection with a corporate acquisition will be charged to the income statement. The goodwill arising from a corporate acquisition is reported as an asset on the balance sheet and corresponds to the surplus of the purchase price, the contribution of minority interests in the companies taken over and the market value of the share of equity held previously over the balance of the assets, liabilities and contingent liabilities valued at market values. If the difference is negative, the surplus is immediately charged to the income statement after renewed assessment of the market value of the net assets taken over.

All intra-Group balances, income and expenses, as well as unrealised gains and losses from intra-Group transactions are fully eliminated.

1.5  Scope of consolidation

In the period under review, Hammertor AG was merged into Hammer Retex AG. Since both companies were directly or indirectly wholly owned by Allreal Holding AG, the merger had no financial impact on the 2016 consolidated financial statements.

With effect from 28 July 2016, the scope of consolidation increased by acquired company Bülachguss AG, Bülach; see 4.5.

1.6  Segment reporting

Allreal Group is subdivided into the two divisions Real Estate and Projects & Development, which constitute segments in their own right. This presentation is in line with the management approach under which Group Management as the decision-making body monitors the results of the two divisions on the level of net profit on a quarterly basis. For the transfer of segment reporting to the consolidated statement of comprehensive income see 2.7.

The Real Estate division comprises the companies Allreal Home AG (residential properties), Allreal Office AG (commercial properties), Allreal Toni AG (Toni site in Zurich-West), Allreal Vulkan AG (commercial properties in Zurich Altstetten), Allreal West AG (Escher-Wyss site in Zurich-West), Apalux AG (commercial and residential properties) and the property management operations of Hammer Retex.

The Projects & Development division consists largely of Allreal Generalunternehmung AG and Bülachguss AG plus Hammer Retex’s activities as a general contractor.

The activities of Allreal Holding AG (parent company) and Allreal Finanz AG (intra-Group financing) are not assigned to segments as their business activities do not generate any operating income. In the segment information they are listed under Holding company/eliminations.