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 for its own yield-producing properties (Real Estate division). The general contractor activities encompass the development, 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 12 February 2019, 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 12 April 2019.
1.2 Presentation of accounts
The consolidated financial statements were prepared as at 31 December 2018 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.
In the 2018 consolidated financial statements, Allreal applied the following new IFRS standards and interpretations for the first time:
Standard/Interpretation | Description | Entry into force | Application from | |||
IFRS 2 (Amendment) | Classification and Measurement of Share-based Payment Transactions | 1 January 2018 | 2018 | |||
IFRS 9 | Financial Instruments: Classification and Measurement | 1 January 2018 | 2018 | |||
IFRS 15 | Revenue from Contracts with Customers | 1 January 2018 | 2018 | |||
IAS 40 (Amendment) | Investment Property | 1 January 2018 | 2018 |
With the exception of the amendments to IFRS 9 and IFRS 15 explained below, the IFRS amendments have no significant impact on the consolidated financial statements.
IFRS 9
IFRS 9 sets out the classification and measurement of financial instruments and specifies the requirements for hedge accounting and the amortisation of financial assets. The amortisation of financial assets now takes into account not only effective losses, but also expected losses.
The impact of IFRS 9 on the relevant balance sheet items was analysed and also quantified in terms of the amortisation of financial assets. This analysis revealed no need for changes to the consolidated financial statements.
IFRS 15
The standard contains new principles for recognising revenue based on the transfer of control.
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. Effective 1 January 2018 in compliance with IFRS 15, Allreal recognises revenue and income by the percentage of completion (POC) method at the time the contract of sale of the development real estate unit is notarised. These units are offset against prepayments made by purchasers and reported under the balance sheet item contract assets or contract liabilities.
In accordance with the modified retrospective approach, 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 in the 2018 consolidated financial statements. This concerns twelve units in the Kirschblütenweg development in Basel and four units in the Guggach development in Zurich, resulting in earnings before tax of CHF 2.1 million, tax expenses of CHF 0.6 million and capitalised costs of CHF 17.8 million.
Income from realisation Projects & Development continues to be recognised by the percentage of completion (POC) method. Positive order balances for the Projects & Development division are now reported under the balance sheet item contract assets (within current assets) whereas negative order balances are shown as contract liabilities (within short-term liabilities).
These adjustments impacted the consolidated financial statements as follows:
Restatement IFRS 15 | 31.12.2018 | 01.01.2018 | Application of IFRS 15: | 31.12.2017 | ||||
Trade receivables | 45.8 | 31.8 | –46.8 | 78.6 | ||||
Contract assets | 48.3 | 43.9 | 43.9 | 0.0 | ||||
Current assets | 284.6 | 232.2 | –2.9 | 235.1 | ||||
Assets | 4 609.5 | 4 356.7 | –2.9 | 4 359.6 | ||||
Retained earnings | 1.5 | 1.5 | 1.5 | 0.0 | ||||
Equity | 2 218.8 | 2 152.2 | 1.5 | 2 150.7 | ||||
Provisions for deferred tax | 0.6 | 0.6 | 0.6 | 0.0 | ||||
Long-term liabilities | 1 791.1 | 1 560.2 | 0.6 | 1 559.6 | ||||
Contract liabilities | 31.5 | 20.7 | 20.7 | 0.0 | ||||
Trade payables | 23 | 33.5 | –20.7 | 54.2 | ||||
Prepayments for development real estate | 0.2 | 0.0 | –5.0 | 5.0 | ||||
Short-term liabilities | 599.6 | 644.3 | –5.0 | 649.3 | ||||
Equity and liabilities | 4 609.5 | 4 356.7 | –2.9 | 4 359.6 |
The cash flow statement reflected the impacts accordingly. The new positions resulted in shifts only within cash flow from operating activities.
With the exception of income from renting investment real estate and income from the sale of companies, income is presented in the consolidated financial statements in accordance with IFRS 15.
If IFRS 15 had not been applied, the net profit of CHF 1.5 million recognised through equity would have been reported in the income statement since ownership of all units whose sale had been notarised was transferred in the first half of 2018.
Moreover, due to notarisation of the sale of 56 units in the Solistrasse Bülach ZH and the Guggach Zurich project, reported income from sales Development of CHF 27.1 million plus CHF 2.5 million from the Guggach Zurich project would have been capitalised as part of buildings under construction, and earnings from sales Development of CHF 3.8 million would only have been recognised and accrued on transfer of ownership.
The effects of these adjustments on the consolidated financial statements would have been as follows:
Consolidated statement of comprehensive income
CHF million | 2018 | Adjustments | 2018 shown without applying IFRS 15 | |||
Income from sales Development | 55.2 | –10.1 | 45.1 | |||
Operating income | 546.2 | –10.1 | 536.1 | |||
Direct expenses from sales Development | –49.7 | 8.4 | –41.3 | |||
Direct operating expenses | –324.8 | 8.4 | –316.4 | |||
Earnings before tax | 206.9 | –1.7 | 205.2 | |||
Tax expense | –45.9 | 0.5 | –45.4 | |||
Net profit | 161.0 | –1.2 | 159.8 |
Consolidated balance sheet
CHF million | 31.12.2018 | Amendments | 2018 shown without applying IFRS 15 | |||
Development real estate | 147.6 | 27.8 | 175.4 | |||
Contract assets | 48.3 | –48.3 | 0.0 | |||
Trade receivables | 45.8 | 26.9 | 72.7 | |||
Current assets | 284.6 | 6.4 | 291.0 | |||
Assets | 4 609.5 | 6.4 | 4 615.9 | |||
Retained earnings | 1 480.5 | –1.2 | 1 479.3 | |||
Equity | 2 218.8 | –1.2 | 2 217.6 | |||
Provisions for deferred tax | 237.2 | –0.5 | 236.7 | |||
Long-term liabilities | 1 791.1 | –0.5 | 1 790.6 | |||
Contract liabilities | 31.5 | –31.5 | 0.0 | |||
Trade payables | 23.0 | 31.5 | 54.5 | |||
Prepayments for development real estate | 0.2 | 8.1 | 8.3 | |||
Short-term liabilities | 599.6 | 8.1 | 607.7 | |||
Equity and liabilities | 4 609.5 | 6.4 | 4 615.9 |
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.
Standard/Interpretation | Description | Entry into force | Application from | |||
IFRS 16 | Leases | 1 January 2019 | 2019 | |||
IFRIC 23 | Uncertainty over Income Tax | 1 January 2019 | 2019 | |||
IFRS 9 | Amendments to IFRS 9 – Prepayment Features with Negative Compensation | 1 January 2019 | 2019 |
IFRS 16
The standard sets out the principles for the recognition, measurement and presentation of leases. Lessees are now also strictly required to recognise operating leases as assets and liabilities in the balance sheet. This has no material impact on the lessor.
Since Allreal predominantly acts as lessor, these conditions will not necessitate any significant adjustments. As lessee, the company is affected by the changes in its capacity as ground lessee and with regard to long-term rental agreements. These obligations are capitalised and recognised as a right-of-use asset of CHF 48.8 million and a corresponding lease liability. The right of use is depreciated over the term of the rental agreements. Accordingly, the change primarily impacts the balance sheet and the income statement, but has no material effect on net profit.
Apart from additional disclosure requirements, the remaining IFRS amendments are not expected to result in any significant 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.
Capital is consolidated at the time of purchase using the acquisition method. Transaction costs in connection with a corporate acquisition will be charged to the income statement.
Subsidiaries are deconsolidated with effect from the date on which control ends.
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
Company | Registered | Share capital CHF million | Shareholding | Shareholding | ||||
Allreal Holding AG | Baar | 15.9 | – | – | ||||
Allreal Finanz AG | Baar | 100.5 | 100% | 100% | ||||
Allreal Generalunternehmung AG | Zurich | 10.0 | 100% | 100% | ||||
Allreal Home AG | Zurich | 26.5 | 100% | 100% | ||||
Allreal Office AG | Zurich | 150.0 | 100% | 100% | ||||
Allreal Toni AG | Zurich | 90.0 | 100% | 100% | ||||
Allreal Vulkan AG | Zurich | 50.0 | 100% | 100% | ||||
Allreal West AG | Zurich | 20.0 | 100% | 100% | ||||
Apalux AG | Zurich | 0.9 | 100% | 100% | ||||
Hammer Retex AG | Cham | 0.5 | – | 100% | ||||
Bülachguss AG | Bülach | 0.1 | 100% | 100% |
Hammer Retex AG, together with its facility management service operation for third parties, was divested and deconsolidated on 28 March 2018. In all other respects, the scope of consolidation remained unchanged from 31 December 2017.
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. Since the Group operates in Switzerland only, a geographical breakdown is not required.
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) and Apalux AG (commercial and residential properties).
The Projects & Development division consists largely of Allreal Generalunternehmung AG and Bülachguss AG.
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.