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 13 February 2018, 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 20 April 2018.

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 2017. 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.

The same principles of accounting apply as for the 2016 consolidated financial statements. See 2.29. in connection with the valuation uncertainties.

The scope of consolidation of Allreal Group remained unchanged in the 2017 financial year.

In the 2017 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. To date, revenue and income on the sale of development property have been recognised on transfer of ownership of the respective development real estate unit. With effect from 1 January 2018, Allreal will recognise revenue and income by the percentage of completion (POC) method as of the time the contract of sale of the development real estate unit is notarised.

In cases where the contract of sale had been notarised but ownership had not been transferred as at 31 December 2017, gains on the sale of development real estate are taken to equity with no impact in income. This concerns twelve units in the Kirschblütenweg development in Basel and four units in the Guggach development in an amount of CHF 2.1 million (before deferred taxes).

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 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  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.

1.4  Scope of consolidation

The scope of consolidation of Allreal Group remained unchanged in the 2017 financial year.

1.5  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 (residential and commercial properties 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.