Notes to the consolidated financial statements
Principles
The consolidated financial statements of Zug Estates Holding AG were prepared in accordance with the Swiss GAAP FER Accounting and Reporting Regulations in their entirety as in force on December 31, 2015, and the special provisions for real estate companies (article 17 of the Directive on Financial Reporting) of the SIX Swiss Exchange and present a true and fair view of the financial position, the results of operations and the cash flows. The early application of Swiss GAAP FER 31 in the previous year led to additional disclosures under notes 14 and 23, but did not impact the results of operations and the cash flows. The business year covered by these consolidated financial statements is equivalent to the calendar year.
The board of directors approved the consolidated financial statements on March 3, 2016.
Scope of consolidation
Zug Estates Holding AG holds more than 50% of the votes and capital of all subsidiaries. The full consolidation method is therefore applied; i. e. assets and liabilities, expenses and revenue are consolidated at 100%. Any share of minority shareholders in net income and shareholders' equity is reported separately. Associated companies in which Zug Estates Holding AG holds direct or indirect participations of 20% to 50% are consolidated according to the equity accounting method. Participations below 20% are not consolidated. Real estate property is included in the consolidated financial statements on the basis of the applicable ownership share.
As at the time of acquisition, the assets and liabilities of the first-time consolidated companies or the acquired businesses are shown in the balance sheet in accordance with uniform principles. The excess of the acquisition price over the revalued net assets of the acquired company or the acquired business share is defined as goodwill. This goodwill is offset against retained earnings without affecting net income. The impact of a theoretical capitalization is presented in the notes to the consolidated financial statements. The useful life is determined at the time of the acquisition.
Changes to the scope of consolidation
Zug Estates Holding AG acquired all the shares in ZE Suurstoffi 1 AG (formerly Camenzind Grundstücke AG) effective July 1, 2015. The assets of the company essentially comprise the Birkenstrasse 6 development site in Risch Rotkreuz. ZE Suurstoffi 1 AG has been fully consolidated since July 1, 2015 and had the following assets and liabilities at the time of initial consolidation:
| in CHF thousands | |
|---|---|
| Cash and cash equivalents | 1 843 |
| Other current assets | 41 |
| Investment properties under construction | 10 581 |
| Current liabilities | 14 |
| Deferred tax liabilities | 562 |
| Assets (net) | 11 889 |
List of investments
| Company | Domicile | Business | Share capital in CHF | Share of capital and votes 31.12.2015 | Share of capital and votes 31.12.2014 |
|---|---|---|---|---|---|
| Hotelbusiness Zug AG | Zug, ZG | Hotel & catering | 1 000 000 | 100% | 100% |
| ZEW Immobilien AG | Oberentfelden, AG | Real estate company | 101 250 | 100% | 100% |
| ZE Suurstoffi 1 AG 1 | Zug, ZG | Real estate company | 50 000 | 100% | – |
| Zug Estates AG | Zug, ZG | Real estate company | 1 500 000 | 100% | 100% |
| 1 Acquisition as of July 1, 2015 | |||||
Principles of consolidation
Consolidation method
Capital consolidation is performed to show the equity of the entire Group. In this context, the purchase method is applied.
Intercompany transactions
Intercompany receivables, liabilities and transactions are eliminated for fully consolidated companies. Depreciation and value adjustments for receivables and participations in respect of subsidiaries are reversed. The individual subsidiaries' intercompany profits on inventories and tangible assets are assessed and also eliminated.
Significant accounting and valuation policies
Cash and cash equivalents
Cash and cash equivalents include cash, postal and bank account balances and short-term monetary investments. These are reported at their nominal value.
Trade receivables
Trade receivables include in particular rent receivables, receivables from the hotel & catering activities and receivables from external management mandates, and are reported at the nominal value less any value adjustments necessary for commercial reasons.
Other receivables
Other receivables are reported at their nominal value less any value adjustments necessary for commercial reasons.
Inventories
In the inventories for the hotel & catering business unit, goods purchased are carried at the lower of acquisition price or fair value. In addition to specific value adjustments, general value adjustments of up to 10% for general valuation risks are made according to past experience.
Properties for sale
Properties available for sale, which were formerly carried at fair value, are carried at fair value less the expected cost of sale. Other properties held for sale are carried at acquisition or production cost (including interest charges) or at fair value if lower. Properties for sale are classified as current assets.
Investment properties, investment properties under construction and undeveloped plots
Residential and commercial properties that already exist or are under construction (development properties) and undeveloped plots are used for long-term investment purposes and are carried at fair value in accordance with Swiss GAAP FER 18. This fair value is calculated and updated half-yearly by independent real estate valuers using the discounted cash flow (DCF) method. Pursuant to the provisions of Swiss GAAP FER, increases and decreases in fair value are recognized in profit or loss in the income statement, taking deferred taxes into account. The investment properties are not depreciated. Investment properties under construction (development properties) and undeveloped plots are recognized at fair value as of the date on which the fair value can be reliably calculated. Zug Estates has stipulated legally binding building permission and a concrete construction project for which costs and income can be reliably determined as mandatory conditions for a reliable fair market calculation. Where the conditions for making a reliable calculation of the fair value are not met, investment properties under construction and undeveloped plots are carried at amortized cost. Investments and major maintenance are recognized as expense in the period in which they are incurred, provided that they do not lead to a rise in fair value.
Operating properties and operating properties under construction
Operating properties and operating properties under construction comprise buildings used by the Group itself and in its hotel & catering activities. They are valued at acquisition or production cost less accumulated depreciation and accumulated impairment. The straight-line depreciation method is applied on the basis of a useful life of 33 to 50 years.
Other tangible assets
Other tangible assets, which are mainly utilized in the hotel & catering business unit, are valued at acquisition or production cost less accumulated depreciation. The straight-line depreciation method is applied on the basis of a useful life of three to eight years, and up to 30 years in the case of infrastructure investments.
Financial assets
Financial assets comprise non-consolidated participations used for long-term investment purposes and are reported at fair value.
Intangible assets
Acquired intangible assets are recognized in the balance sheet if they will bring measurable benefits to the company over several years. They comprise software and are valued at acquisition cost less straight-line amortization over an economic life of three years. Self-developed intangible assets are not recognized in the balance sheet.
Liabilities
Trade payables and other liabilities are reported at their nominal value.
Financial liabilities
Mortgages generally concluded for the long-term are recognized as long-term financial liabilities. Tranches due to mature within twelve months are reported as current financial liabilities.
Provisions
Provisions are obligations based on events in the past; their amount and/or due dates are uncertain but can be estimated. Provisions are reported as current or long-term according to their expected due dates.
Employee benefits
The Group has several employee benefit plans that are organized as independent foundations in conformity with the legal requirements in Switzerland. These plans cover the economic consequences of old age, death or disability. They are funded by employer and employee contributions. Contributions are calculated as a percentage of the insured salary. Changes in employer"s contribution reserves and any economic impact on the Group of overcoverage or undercoverage of pension schemes are recorded as personnel expenses.
Income taxes
Current income taxes are calculated at the prevailing tax rates on the basis of the expected fiscal annual income as per commercial law and according to the respective tax assessment rules. They are included in accrued expenses.
Deferred tax liabilities
In accordance with Swiss GAAP FER 11, the consolidated financial statements must take due account of current and future tax effects. A distinction must be made between the calculation of current income taxes and the accrual of deferred income taxes. The latter are caused primarily by valuation differences between the fair values calculated using the discounted cash flow (DCF) method and the taxable values.
If the fair values are higher than the taxable values, this leads to a deferred tax liability for which provision must be made. Deferred taxes are calculated separately for each business period and each taxable entity. The individual company's current or expected tax rates are applied to calculate deferred taxes. Changes in deferred taxes are recorded as tax expenditure. Tax loss carry forwards that can be used for tax purposes are neither capitalized nor offset against the provisions for deferred taxes.
Contingent liabilities
Contingent liabilities are assessed according to the probability and the scope of future unilateral performance and costs, and are disclosed in the notes.
Borrowing costs
Borrowing costs on loans taken out to fund construction projects are capitalized until completion. Other borrowing costs are charged to the income statement.
Expense reductions
Discounts on purchased goods and property production costs are recognized as reductions in the acquisition cost.
Estimates
The preparation of the financial statements requires a number of estimates and assumptions to be made. These relate to the assets, liabilities and contingent liabilities at the time the balance sheet is being prepared, as well as income and expenses during the reporting period. If such estimates and assumptions, which were made to the best of the Group's knowledge at the time the balance sheet was prepared, later turn out to differ from the actual figures, the original estimates and assumptions are adjusted in the reporting year in which the figures changed.