Notes to the financial statements

The 2020 financial statements of Flughafen Zürich AG, based in Kloten, have been prepared in accordance with the accounting provisions of the Swiss Code of Obligations.

The significant valuation principles that have been applied but are not prescribed by law are described below. These single-entity financial statements also serve for tax purposes and form the basis for the statutory business of the General Meeting of Shareholders.

As Flughafen Zürich AG prepares consolidated financial statements in accordance with accepted financial reporting standards (IFRSs), it has omitted to present disclosures on interest-bearing liabilities, disclosures on auditorsʼ fees, a cash flow statement and a management report in these financial statements in accordance with the statutory provisions.

As in the previous year, the average number of full-time equivalents was over 250 in the reporting period.

Costs for formal expropriations qualify as an intangible asset under the accounting provisions of the Swiss Code of Obligations. They are recognised as assets at the latest on the date on which the counterparty has attained an assertable claim. Amortisation of capitalised costs for formal expropriations is based at a minimum on the consolidated financial statements. Adequate provisions are recognised for current liabilities arising from sound insulation and resident protection measures. Any balance of revenue from noise charges after deduction of noise-related costs (compensation for formal expropriations, sound insulation and resident protection measures, operating costs, financing costs and amortisation) is transferred to the provision for aircraft noise (see note 10, Provision for aircraft noise).

With respect to formal expropriations, the reporting of noise-related costs in the financial statements is a complex matter due to a multitude of relevant legal bases, unclear or pending case law and political debate. Especially in the case of formal expropriations, this financial reporting requires significant assumptions and estimates concerning the capitalisation of such costs and the obligation to recognise appropriate provisions.

Flughafen Zürich AG has received a total of around 20,000 noise-related claims for compensation, of which around 5,800 were still pending at the end of 2020. Almost 700 of these cases are currently being examined by the Swiss Federal Assessments Commission.

The rulings by the Swiss Federal Supreme Court in the first half of 2008 on fundamental issues related to formal expropriations enabled Flughafen Zürich AG to estimate the total cost of compensation for formal expropriations for the first time, in spite of the remaining uncertainties regarding the accuracy of this estimate. In further rulings in 2010, the Swiss Federal Supreme Court definitively set the cut-off date for the foreseeability of an eastern approach as 1 January 1961 and, in 2011, it ruled definitively on the method used to calculate a decline in the market value of investment property. In 2016, the Swiss Federal Supreme Court handed down two rulings in test cases regarding claims for compensation relating to eastern and southern approach routes and, in 2018, it handed down two rulings in test cases regarding cooperative ownership. Based on these Swiss Federal Supreme Court rulings and other fundamental issues that have been decided, the company undertook a reappraisal of costs for formal expropriations at these dates, which in each case led to an adjustment to both the provision for formal expropriations and the intangible asset from the right of formal expropriation. On 22 November 2019, the Swiss Federal Supreme Court handed down a ruling in test cases regarding the period of limitation on claims for compensation in Oberglatt. This Swiss Federal Supreme Court ruling and other fundamental issues that have been decided enabled Flughafen Zürich AG to undertake a reappraisal of the outstanding cost of compensation for formal expropriations as at 31 December 2019.

With respect to sound insulation and resident protection measures, Flughafen Zürich AG is required to implement sound insulation measures in the area where it claims exemptions from noise limits (emission limit). In this context, the Federal Office of Civil Aviation (FOCA) has initiated a night-time noise abatement procedure. The area with exemptions under the Sectoral Aviation Infrastructure Plan adopted by the Federal Council on 23 August 2017 is to be extended. In 2018, the Board of Directors approved further sound insulation measures in this context.

As at 31 December 2020, Flughafen Zürich AG has recognised an intangible asset from the right of formal expropriation of CHF 27.2 million (2019: CHF 26.8 million) and a provision for aircraft noise of CHF 460.5 million in total (2019: CHF 473.4 million) in the financial statements in accordance with the provisions of the Swiss Code of Obligations.

Depending on future and final-instance legal judgements, especially with respect to the southern approaches, noise-related liabilities may in future be subject to substantial adjustments, which would also require adjustments to the noise-related costs recognised in the balance sheet. At the present time, it is not possible to reliably estimate the total costs to capitalise as an intangible asset from the right of formal expropriation, the resulting amortisation or the corresponding provision.

REVENUE RECOGNITION

Revenue is recognised by Flughafen Zürich AG when the service has been rendered, it is probable that the economic benefits will flow to the company and it can be measured reliably. In addition, the significant risks and rewards of ownership have to be transferred to the recipient of the service. Revenue from fixed-rent tenancy agreements is recognised on a straight-line basis over the term of the agreement. Conditional rental payments (including turnover-based tenancy agreements) are recognised on an accrual basis based on the turnover generated by the lessee, in which case a minimum rent may be applied. If lessees are granted significant lease incentives (e.g. rent concessions), the equivalent value of the incentive is recognised on a straight-line basis over the original or remaining lease term.

Inventories

Inventories mainly comprise operating supplies and consumables necessary for the maintenance and repair of property, plant and equipment and are stated at cost or, if lower, at net realisable value. The first-in, first-out method is applied when calculating the cost.

Financial assets of Airport of Zurich Noise Fund

The financial assets of the Airport of Zurich Noise Fund comprise quoted securities held for the short or long term. They are initially recognised at cost (fair value plus directly attributable transaction costs). The securities are subsequently measured at amortised cost (bonds) or at fair value (other financial assets), with gains and losses recognised in profit or loss. A fluctuation reserve is not recognised.

Property, Plant anD Equipment

Property, plant and equipment is stated at acquisition or production cost less accumulated depreciation and impairment. With the exception of land, which is not depreciated, items are depreciated over their estimated useful life using the straight-line method. If there are indications that they are impaired, the carrying amounts are reviewed and, if necessary, adjusted.

LEASES

Leases are accounted for by applying the concept of control. In doing so, a lease contract is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the leased item to Flughafen Zürich AG as lessee. All other leases are operating leases. At the commencement date of a finance lease, the value of the leased item is recognised as a right-of-use asset and as a lease liability in the same amount. The right-of-use asset is depreciated and the lease liability amortised over the lease term. In the case of an operating lease, the lease payments are recognised directly in profit or loss at maturity.

Intangible assets

Intangible assets are stated at cost less amortisation. They are amortised over their estimated useful life using the straight-line method. If there are indications that they are impaired, the carrying amounts are reviewed and, if necessary, adjusted.

Treasury Shares

At the date of acquisition, treasury shares are recognised at cost as a deduction from equity. In the event of their sale at a later date, the gain or loss is credited or charged directly to voluntary retained earnings.

Extraordinary expenses included a valuation allowance of CHF 75.0 million on loans to subsidiaries that relates primarily to unfavourable exchange rate movements in Brazil (see note 4, Investments and loans). Both in the reporting period and in the previous year, project costs derecognised, losses on asset disposals and losses on receivables were also recognised in this line item.

Investments comprised the following as at the reporting date:

The equity interests stated are also the share of the voting power in the investees listed.

As a precautionary measure in connection with the coronavirus crisis, Flughafen Zürich AG established Airport Ground Services AG based in Kloten in financial year 2020. In an emergency, this wholly-owned subsidiary could take over services related to airport operations. The company was inactive at the reporting date.

Zurich Airport International AG, the wholly-owned subsidiary responsible for advising, operating and/or owning airports and airport-related companies throughout the world, holds all the investees existing in this context (with the exception of those in Venezuela).

In 2010, Flughafen Zürich AG and its consortium partner Unique IDC turned to the International Centre for Settlement of Investment Disputes (ICSID) in Washington D.C. in the matter of the airport expropriated in Venezuela (Isla de Margarita). This step is in compliance with the investment protection treaty between Venezuela, Switzerland and Chile. The ICSID reached its decision in November 2014, requiring the Bolivarian Republic of Venezuela to reimburse the consortium the costs incurred for the proceedings and project plus a compensation payment of around USD 19.5 million as well as interest incurred up until receipt of payment. Flughafen Zürich AG is entitled to 50% of this sum. After rejection of the application for annulment, the tribunalʼs decision is definitive and final. The value of this holding has been fully impaired.

Loans comprised the following as at the reporting date:

In the reporting period, an impairment allowance of CHF 75.0 million was recognised for loans to the subsidiary Zurich Airport International AG. This allowance relates in particular to unfavourable exchange rate movements in Brazil (see note 1, Extraordinary result).

As at the reporting date, loans to Zurich Airport International AG in the amount of CHF 150 million were subject to terms of subordination (2019: CHF 0.0 million).

On 5 February 2015, Flughafen Zürich AG and Swiss Life AG notarised the purchase agreement for the share of land for the real estate project the Circle and registered it for entry in the Land Register, thereby establishing the co-ownership structure between the two parties provided for in the financing agreements, in which Flughafen Zürich AG has a 51% interest and Swiss Life AG a 49% interest.

The co-ownership structure for the Circle is responsible for the implementation and operation of the real estate project.

The cost of the right-of-use assets recognised and the accumulated depreciation are shown below:

The corresponding lease liabilities have the following maturity structure:

At the reporting date, other current liabilities to employee pension funds comprised outstanding liabilities to the BVK Employee Pension Fund of the Canton of Zurich.

External financing is subject to standard guarantees and covenants, which were complied with as at the reporting date. In addition, unused credit facilities at the reporting date amounted to a total of CHF 87.9 million (2019: CHF 224.1 million).

For information on the reporting of noise-related data in the financial statements in accordance with the Swiss Code of Obligations, see also Reporting of noise-related costs in the financial statements in the notes to the financial statements.

The share capital of Flughafen Zürich AG amounting to CHF 307,018,750 is composed of 30,701,875 fully paid-up registered shares with a par value of CHF 10.

At the reporting date, the capital contribution reserves remained unchanged from the 2019 figure of CHF 117.0 million.

In the reporting period, 9,568 registered shares were purchased at the market price (2019: 8,290 registered shares). Treasury shares are distributed to members of the Management Board and other members of management under the bonus programme. They are used primarily for this participation programme. In addition, Flughafen Zürich AG gives those employees who have completed their first year of service a one-off gift in the form of one share free of charge.

A number of legal proceedings and claims against Flughafen Zürich AG in the context of its normal business activities are still pending. The company does not expect the amounts required to settle these lawsuits and claims to have a significantly negative impact on the financial statements and cash flow of Flughafen Zürich AG.

Depending on future and final-instance legal judgements, especially with respect to the southern approaches, in particular the new noise-related liabilities, but also the old ones, may in future be subject to substantial adjustments, which would also require adjustments to the noise-related costs recognised as assets and liabilities in the balance sheet. At the present time, it is not possible to reliably estimate the total costs to capitalise as an intangible asset from the right of formal expropriation, the resulting amortisation or the corresponding provision.

Flughafen Zürich AG and Swiss Life AG are jointly and severally liable to third parties for the liabilities of the co-ownership structure the Circle and the ordinary partnership the Circle.

As in the previous year, no hidden reserves were reversed in financial year 2020.

As at the reporting date, the following shareholders or groups of shareholders held at least 5% of the voting rights:

As at the reporting date, members of the Board of Directors and related parties held the following number of shares:

As part of the performance-related remuneration awarded to members of the Management Board and other members of management, 2,885 shares (2019: 2,245 shares) worth CHF 332,641 (2019: CHF 389,508) were distributed to members of the Management Board and 5,618 shares (2019: 4,429 shares) worth CHF 647,755 (2019: CHF 768,432) to other members of management in the reporting period.

As at the reporting date, members of the Management Board and related parties held the following number of shares:

In addition, Flughafen Zürich AG gives those employees who have completed their first year of service a one-off gift in the form of one share free of charge. In the reporting period, 147 shares (2019: 138 shares) worth CHF 19,232 (2019: CHF 24,356) were handed out in this context.

The Board of Directors authorised the 2020 financial statements in accordance with the provisions of the Swiss Code of Obligations (CO) for issue on 11 March 2021. These also have to be approved by the General Meeting of Shareholders.