Notes to the consolidated financial statements

The operating licence awarded by the Federal Government authorises and obliges the airport operator, Flughafen Zürich AG, to operate Zurich Airport until 2051. In addition to combining transport services by road, rail and air, Flughafen Zürich AG also operates Zurich Airport as a shopping, entertainment and services centre.

The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRSs) and comply with Swiss law. They have been prepared under the historical cost convention, with the exception of the financial assets of the Airport of Zurich Noise Fund, derivative financial instruments, associates and defined benefit obligations.

The single-entity financial statements of the groupʼs subsidiaries, which have been prepared in accordance with uniform accounting policies, have been used as the basis for consolidation. The reporting date for all subsidiaries is 31 December.

The preparation of financial statements in accordance with IFRSs requires the Management Board to make estimates and assumptions, as well as exercise its discretion, when applying the accounting policies. This may affect reported income, expenses, assets, liabilities and contingent liabilities at the time of preparation of the financial statements. In the event that such estimates and assumptions made in good faith by the Management Board at the time of preparation of the financial statements subsequently deviate from the actual circumstances, the estimates and assumptions originally made are adjusted prospectively in the financial year in which the circumstances changed.

Judgements made by the Management Board in its application of IFRSs that have a significant effect on the consolidated financial statements, and estimates and assumptions with a significant risk of adjustment in the following financial year, are discussed in “II. Judgements and significant estimates and assumptions in the application of accounting policies” and in the following notes in Notes to the consolidated financial statements:

CHANGES IN ACCOUNTING POLICIES

The company adopted the following relevant amendments to International Financial Reporting Standards which are mandatory for the first time for the financial year beginning 1 January 2020:

The above-mentioned amendments did not have a significant impact on the financial position, results of operations or cash flows of Flughafen Zürich AG for financial year 2020.

INTRODUCTION OF NEW STANDARDS IN 2021 AND LATER

The following new or amended standards and interpretations issued by the end of 2020 and relevant to the company are not yet effective and were not applied early in these consolidated financial statements.

In November 2019, in a public tender conducted by the Indian government, Flughafen Zürich AG was awarded the concession for the construction and operation of the new Noida International Airport. In early 2020, the wholly-owned subsidiary Yamuna International Airport Private Limited based in New Delhi (India) was established for this purpose (see note 24.7, Concessions for the operation of foreign airports).

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

SCOPE AND METHODS OF CONSOLIDATION

The consolidated financial statements comprise Flughafen Zürich AG and all companies in Switzerland and abroad that it directly or indirectly controls. Flughafen Zürich AG controls an entity if it is exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control begins until the date on which control ceases. All assets and liabilities are therefore included in the consolidated financial statements together with all income and expenses in accordance with the principles of full consolidation. All unrealised gains and losses on intra-group transactions and all intra-group balances are eliminated on consolidation.

Business combinations are accounted for using the acquisition method at the date of acquisition. Consideration transferred in a business combination includes the fair value of the assets transferred, liabilities assumed or incurred and equity instruments issued by the group. Transaction costs incurred in connection with a business combination are recognised in the income statement. Goodwill arising from a business combination is recognised as an asset. Goodwill represents the excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of any previously held equity interest in the acquiree over the fair value of the assets acquired and liabilities assumed. Two choices exist regarding the measurement of non-controlling interests. Non-controlling interests are measured at their fair value or at their proportionate share of the recognised amount of the identifiable net assets. When the excess is negative, a bargain purchase gain is recognised immediately in the income statement, after first reassessing the fair value of the net assets acquired.

FOREIGN CURRENCY TRANSLATION

For consolidation purposes, all assets and liabilities reported in the balance sheets of companies within the group are translated into Swiss francs (functional currency of Flughafen Zürich AG) at the closing rate. Income statements and cash flow statements are translated at the average exchange rate for the period. Foreign currency differences arising on the translation of balance sheets and income statements are credited/charged directly to the translation reserve in equity. Transactions in foreign currency are translated into Swiss francs at the exchange rate in effect on the day of the transaction.

Foreign currency monetary items are translated at the exchange rate at the reporting date. Foreign exchange gains/losses that arise from the settlement or remeasurement of foreign currency items at the reporting date are recognised in the income statement.

ALTERNATIVE PERFORMANCE INDICATORS

Earnings before interest, tax, depreciation and amortisation (EBITDA)

EBITDA comprises earnings before tax, the finance result, the share of profit/loss of associates plus depreciation and amortisation.

Earnings before interest and tax (EBIT)

EBIT comprises earnings before tax, the finance result and the share of profit/loss of associates.

Revenue recognition

Revenue is recognised by Flughafen Zürich AG when the customer obtains control of a service.

Revenue in the “Aviation” segment primarily comprises passenger and landing charges. Charges for providing assistance to passengers with reduced mobility are received by the “PRM” segment, while the “User fees” segment primarily receives fees for the use of the central infrastructure. Revenue in the “Air security” segment mainly includes security charges, and in the “Noise” segment it mainly contains noise charges. Revenue is recognised immediately on rendering the service in question. Landing charges are billed per landing according to the weight of the aircraft. Passenger charges, fees for the use of the baggage sorting and handling system and security charges are based on the number of departing passengers. Noise charges are based, in turn, on the number of departing passengers and on an emissions-based charge according to the aircraft type.

The main components in the “Non-regulated business” segment are revenue from the marketing and rental of the commercial infrastructure at the airport (retail, tax & duty free, food & beverage operations, advertising media, parking, rental and leasing agreements, and energy and utility cost allocation). The service is rendered as soon as the commercial space is made available and the revenue recognised accordingly. For fixed-rent tenancy agreements classified as operating leases, the rents are recognised on a straight-line basis over the term of the tenancy agreement. Conditional rental payments (e.g. from 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-free periods or other rent concessions), the equivalent value of the incentive is recognised on a straight-line basis over the original or remaining lease term as an adjustment to the rental income. Any lease credit losses suffered as a consequence of lockdowns in connection with the coronavirus crisis are recognised in profit or loss when incurred. The company does not currently have any tenancy agreements classified as finance leases.

Finance result

The finance result comprises interest payments on borrowings calculated using the effective interest method (excluding borrowing costs relating to buildings under construction), interest expense as a result of adjusting the present value of provisions and non-current liabilities, interest and dividend income, foreign currency gains and losses, and gains and losses on financial assets.

Interest income is recognised in the income statement using the effective interest method. Dividend income is recognised in the financial statements at the due date.

Borrowing costs arising during the construction stage for movables, buildings and engineering structures are capitalised up until the date the asset is taken into use or at the date of completion, if earlier.

Property, plant and equipment

Property, plant and equipment is stated at acquisition or construction cost, less accumulated depreciation and accumulated impairment losses. The construction cost of buildings includes direct costs for labour (third-party services and internal personnel), materials and overheads, plus the borrowing costs arising during the construction stage, which are capitalised up until the date the asset is taken into use or at the date of completion, if earlier. Borrowing costs and expenditure relating to significant assets under construction are capitalised.

Components of an item of property, plant and equipment with a different useful life are reported individually and depreciated separately. Expansion and replacement expenditure is capitalised only if it is probable that future economic benefits will flow to Flughafen Zürich AG. Maintenance and renovation expenditure is charged to the income statement when incurred.

The assets (with the exception of land, which is not depreciated) are depreciated using the straight-line method over the estimated useful life or over the term of the lease, whichever is shorter. The useful life for each category of property, plant and equipment is as follows:

PROJECTS IN PROGRESS

Projects in progress are stated at acquisition or production cost and include investments in projects that have not yet been billed. These mainly comprise assets under construction. Once a project has been put into operation and billed, the related asset is transferred to the relevant category of property, plant and equipment and segment and depreciated over its useful life. From the date the asset is taken into use, or from the date of completion, no further borrowing costs are capitalised.

GOVERNMENT SUBSIDIES AND GRANTS

Government subsidies and grants related to investments are deducted from the carrying amount in the relevant balance sheet items and recognised in profit or loss over the useful life of the related asset. They are reported in the income statement as an adjustment to the depreciation of the related asset. All government subsidies take the form of “a fonds perdu” grants and do not have to be repaid.

LEASES AS LESSEE

At inception of a contract, Flughafen Zürich AG assesses whether the contract is, or contains, a lease. This is the case if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This assessment requires a certain amount of judgement.

Flughafen Zürich AG recognises the right-of-use asset and the lease liability at the commencement date of the lease. The right-of-use asset is presented in “Right-of-use assets” and the lease liability as a current or non-current financial liability, depending on its maturity. The initial measurement of the right-of-use asset is based on the present value of the lease payments, plus any initial direct costs and costs for the obligation to dismantle and remove the asset and restore the site, less any incentives received. When calculating the present value of the lease payments, the company uses its incremental borrowing rate at the commencement date, as the interest rate implicit in the lease cannot be readily determined. The right-of-use asset is depreciated over the shorter of the lease term and the useful life of the underlying asset. The right-of-use asset is tested for impairment if there are indicators of impairment. If the lease contains an extension or purchase option that the company believes it is reasonably certain to exercise, the costs related to the option are included in the lease payments.

Flughafen Zürich AG has decided not to recognise the right-of-use asset and the lease liability if the lease term is twelve months or less or if the lease relates to IT equipment of low value (less than CHF 5,000). Payments for such leases are recognised on a straight-line basis over the term of the contract.

Investment property

Investment property (in accordance with IAS 40) is property held for the long term to earn rentals or for capital appreciation. It is measured at initial recognition at its cost and subsequently at cost less straight-line depreciation and any impairment losses in accordance with IAS 36.

In the case of projects, the costs incurred are billed and allocated to the relevant categories of investment property at the date when the related assets are brought into use. The assets are then depreciated over their useful lives.

The useful life for each category of investment property is as follows:

JOINT ARRANGEMENTS

A joint arrangement (in accordance with IFRS 11) is a contractual arrangement between two or more parties which gives those parties joint control of an activity. Each joint arrangement must be classified as either a joint operation or a joint venture. In a joint operation, the parties that have joint control have rights to the assets and obligations for the liabilities of the joint arrangement and account for them in relation to their interest. In a joint venture, the parties that have joint control merely have rights to the net assets of the joint arrangement (the investment is accounted for using the equity method).

Intangible assets

Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses. Intangible assets are amortised using the straight-line method.

With the award of the operating licence, Flughafen Zürich AG was also granted a right of formal expropriation in respect of property owners exposed to aircraft noise. This right of formal expropriation was granted on condition that the airport operator bears the costs associated with compensation payments and is recognised as an intangible asset at the date when the probable total cost can be estimated based on final-instance court rulings, so that the cost can be reliably estimated in accordance with IAS 38.21. The timing of recognition may differ depending on the airport region. At the same time as an intangible asset is recognised at the present value of the expected future payments, an equal amount is recognised as a provision. Any future adjustments to the probable total cost already recognised as assets and liabilities will be reflected on both sides of the balance sheet. The intangible asset is amortised using the straight-line method over the remaining duration of the operating licence (i.e. until May 2051).

In the case of clearly defined projects, external and internal costs directly attributable to the development of computer software are capitalised if they will be exceeded by the future economic benefits. The useful life of software is three to five years.

Investments in airport operator projects

The concession agreements for the operation of foreign airports fall within the scope of IFRIC 12 and are generally accounted for under the intangible asset model (IFRIC 12.17), as the company as operator receives the right to charge for usage as consideration for the obligation to pay concession fees and provide upgrade services. The obligations under the concession agreements to pay fixed concession fees are recognised as financial liabilities. They are initially measured at the fair value of the liabilities using a discount rate appropriate to the risk. The rights to operate the airports that are received as consideration are recognised as intangible assets in the same amount and presented as investments in airport operator projects. The rights received as consideration for the upgrade services provided are recognised as an intangible asset on an accrual basis at the cost of construction. Revenues and costs relating to upgrade services are generally recognised in accordance with IFRIC 12.14. The financial liabilities recognised are subsequently measured at amortised cost using the effective interest method. The rights recognised as assets are subsequently measured at cost less accumulated amortisation over the term of the concessions. In accordance with IFRIC 12.18, any minimum revenue guaranteed by the grantor is deducted from the intangible asset and accounted for as a financial asset.

Investments in associates

Associates are companies where the group is able to exercise significant influence, but not control, over the financial and operating policies (where the group holds between 20% and 50% of the voting rights). Associates are included in the consolidated financial statements by applying the equity method. Any difference between the cost of the investment and the fair value of the share of net assets acquired is determined at the time of acquisition and recognised as goodwill and included in the carrying amount of the investment. In subsequent reporting periods, the carrying amount is adjusted to recognise the share of Flughafen Zürich AG of any profit or loss and changes recognised in other comprehensive income of the investee and any dividends received.

Investments in associates where the group holds less than 20% of the voting rights, but where it nonetheless is able to exercise significant influence, are also included in the consolidated financial statements by applying the equity method.

FINANCIAL ASSETS OF THE AIRPORT OF ZURICH NOISE FUND

In accordance with the principles in IFRS 9, the financial assets of the Airport of Zurich Noise Fund are classified as at amortised cost (bonds) or at fair value through profit or loss (other financial assets).

Derivative financial instruments

Derivative financial instruments are used exclusively for the purpose of hedging interest rate and currency risks, and are recognised as other receivables or other current liabilities at fair value. Changes in fair value are recognised in the income statement.

Inventories

Inventories mainly comprise operating supplies and consumables used 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.

Receivables

Receivables are measured initially at fair value and subsequently at amortised cost, which is usually their nominal value, minus individual allowances for doubtful accounts. As soon as there is sufficient evidence that a receivable will not be recoverable, it is directly written off or offset against the corresponding allowances.

Flughafen Zürich AG uses a simplified method to calculate expected credit losses on trade receivables. Changes in credit risk are not tracked; instead, a loss allowance is recognised at each reporting date on the basis of the lifetime expected credit losses. In addition to forward-looking factors specific to the borrowers and general economic conditions, credit loss experience to date is also taken into account.

The recoverable amount of receivables is the present value of the estimated future cash flows. Impairment losses on receivables are reversed if the amount of the impairment loss decreases and the decrease is related to an event that occurred in a period after the impairment loss was recognised.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, in postal accounts and at banks and short-term investments with a maturity of 90 days or less from the date of acquisition.

IMPAIRMENT OF ASSETS

The carrying amounts of non-financial assets (excluding deferred taxes) are assessed once a year for indications of impairment. If such indications exist, impairment tests are performed for cash-generating units (CGU) and non-financial assets in accordance with IAS 36.

An impairment exists if the carrying amount of a CGU or a non-financial asset exceeds its recoverable amount (higher of fair value less costs of disposal and value in use).

Value in use is calculated using the discounted cash flow method, where the discount rate applied is a post-tax rate that reflects the risks associated with the relevant asset. If an asset does not generate cash inflows that are largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Impairment losses are recognised in profit or loss. They may be reversed if there are indications that the impairment loss has decreased or no longer exists and if there has been a change in the estimates used to determine recoverable amount. The increased carrying amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years.

Equity

Share capital

Shares are classified as equity since they are non-redeemable and dividend payments are at the discretion of the company.

Treasury shares

The cost (purchase price and directly attributable transaction costs) of treasury shares is deducted from equity.

Dividends

Dividends are recognised as a liability as soon as they have been approved at the General Meeting of Shareholders.

Financial liabilities

Financial liabilities are initially recognised at fair value less transaction costs. The difference between the carrying amount and the redemption amount is amortised over the term of the liability using the effective interest method.

Provisions

Provisions are recognised when the entity has a present obligation as a result of a past event that occurred prior to the reporting date, if an outflow of resources is probable and the amount of the outflow can be estimated reliably. If the effect is significant, provisions are reported in the balance sheet at their present value.

Provisions for legal and constructive obligations for sound insulation and resident protection measures are recognised on the basis of the Environmental Protection Act as soon as they can be estimated reliably.

Provisions for formal expropriations are recognised for compensation payments as soon as the probable total cost can be estimated reliably based on final-instance court rulings (see Intangible assets).

Employee benefits

For defined benefit plans, the benefit cost and the defined benefit obligation are determined on the basis of various economic and demographic assumptions using the projected unit credit method and taking into account the past years of insurance up until the measurement date. The assumptions required to be made by Flughafen Zürich AG include, among others, expectations about future salary increases, the long-term return on retirement savings accounts, employee turnover and life expectancy. The calculations are performed annually by independent actuaries. The plan assets are measured annually at fair value and deducted from the defined benefit obligation.

The defined benefit cost consists of three components:

Service cost comprises current service cost, past service cost and gains and losses on settlement. Gains and losses resulting from curtailments are regarded as past service cost. Employee contributions and contributions from third parties reduce service cost and are deducted from it if they are set out in the formal terms of the plan or arise from a constructive obligation.

The net interest expense is the amount calculated by multiplying the net defined benefit obligation (or asset) by the discount rate, both as at the beginning of the financial year, including any changes during the period as a result of contributions and benefit payments. Cash flows and changes during the year are factored in pro rata.

Remeasurement components comprise actuarial gains and losses resulting from changes in the present value of the defined benefit obligations due to changes in assumptions and experience adjustments, the return on plan assets less amounts included in net interest expense, and changes in unrecognised assets less effects included in net interest expense. Remeasurement components are recognised in other comprehensive income and cannot be recycled.

The amount recognised in the consolidated financial statements is the surplus or deficit of the defined benefit plans (net defined benefit obligation or asset). However, the asset recognised as a result of any surplus is limited to the present value of economic benefits to the group available in the form of reductions in future contributions.

Employer contributions to defined contribution plans are recognised in the income statement as personnel expenses when the employee earns the benefit entitlement. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss.

For other long-term employee benefits, the present value of the obligation is recognised at the end of the reporting period. Changes in the present value are recognised in the income statement as personnel expenses.

Share-based payment

Flughafen Zürich AGʼs annual bonus programme provides for one-third of the allocated bonus to be paid out to members of the Management Board and eligible members of management in the form of shares. The share-based payment is recognised as an expense with a corresponding increase in equity.

Income taxes

Income taxes comprise current and deferred taxes. They are recognised in the income statement unless relating to transactions recognised in other comprehensive income or directly in equity. In these cases, taxes are also recognised in other comprehensive income or directly in equity.

Current taxes comprise the taxes expected to be payable on the taxable result, calculated using tax rates enacted or substantively enacted at the reporting date.

Deferred taxes are recognised for temporary differences between the carrying amount of assets and liabilities in the consolidated financial statements and their tax base using the balance sheet liability method. No deferred taxes are recognised for temporary differences in the following cases: the initial recognition of goodwill, the initial recognition of an asset or a liability in a transaction that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Measurement of deferred taxes takes into account the expected timing and manner of realisation or settlement of the assets and liabilities concerned using tax rates that are enacted or substantively enacted at the reporting date.

Deferred tax assets are only recognised if it is probable that the deductible temporary differences can be offset against future taxable profits.

Segment reporting

Reporting of operating segments is carried out in accordance with IFRS 8 in line with the internal reporting to the companyʼs chief operating decision-maker. The Board of Directors has been identified as chief operating decision-maker of Flughafen Zürich AG responsible for major decisions concerning the allocation of resources and the assessment of the operating segmentsʼ performance.

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. In 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. Based on these Swiss Federal Supreme Court rulings and other fundamental issues that have been decided, the company undertook a reappraisal of the costs for formal expropriations at these dates, which in each case led to an adjustment to both the provision for formal expropriations (see note 19, Provision for formal expropriations plus sound insulation and resident protection) and the intangible asset from the right of formal expropriation (see note 11, Intangible assets).

As at the reporting date, the estimated costs for formal expropriations remained unchanged at CHF 330.0 million, of which CHF 84.5 million had already been paid out at that date. As at 31 December 2020, a provision was recognised for the outstanding costs of CHF 245.5 million (see note 19, Provision for formal expropriations plus sound insulation and resident protection).

Depending on future legal judgements, including 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 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.

With respect to sound insulation and resident protection measures, the Federal Office of Civil Aviation (FOCA) required Flughafen Zürich AG, in connection with its 2014 operating regulations application, to submit an extended sound insulation programme. In June 2015, based on the sound insulation programme submitted, the Board of Directors approved a further CHF 100.0 million of measures in addition to the CHF 240.0 million of costs previously estimated for sound insulation and resident protection. The company is also required to implement sound insulation measures in the area where it claims exemptions from noise limits (emission limit). In this context, the FOCA 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 was extended. In this context in mid-2018, Flughafen Zürich AG recognised a provision for further costs of CHF 60.0 million, in addition to the costs previously estimated for sound insulation and resident protection.

As at the reporting date, the estimated costs for sound insulation and resident protection measures remained unchanged at CHF 400.0 million, of which CHF 274.8 million had already been paid out at that date. As at 31 December 2020, a provision was recognised for the outstanding costs of CHF 125.2 million (see note 19, Provision for formal expropriations plus sound insulation and resident protection).

The coronavirus crisis brought air traffic almost completely to a standstill in some cases. This and the related reduction in commercial activities resulted in lower demand at airports around the globe and also affected Flughafen Zürich AG. As these circumstances indicate that the carrying amount of assets could be impaired, the company performed an impairment test for its cash-generating units (CGU) and non-financial assets in accordance with IAS 36.

An impairment exists if the carrying amount of a CGU or a non-financial asset exceeds its recoverable amount (higher of fair value less costs of disposal and value in use).

Value in use is calculated using the discounted cash flow (DCF) method. In doing so, cash flows are derived for the CGU Zurich Airport site from the long-term budget approved for the period to 2040 and in the case of investments in airport operator projects from the budget over the remaining terms (5–29 years) of the concession agreements. These budgets and forecasts are based on past experience and expected market trends and take into account the effects of the COVID-19 pandemic. The key assumptions used to determine recoverable amount for the different CGUs and non-financial assets are disclosed and explained in further detail below:

Zurich Airport site

Recoverable amount was determined for the CGU Zurich Airport site as at 31 December 2020 based on a value in use calculation using cash flow forecasts derived from the long-term budget approved for the period to 2040. The post-tax discount rate (WACC) applied to the cash flow forecasts was 5.5% and the cash flows were extrapolated beyond the forecast period using a real growth rate of 0.5%.

Investments in airport operator projects

Recoverable amount was determined for investments in airport operator projects as at 31 December 2020 based on value in use calculations using cash flow forecasts from the financial budgets for the remaining terms of the contractually agreed concessions (five to 29 years). The country-specific WACC applied to the cash flow forecasts ranged from 7.9% to 10.3%.

Result

As at 31 December 2020, no impairment losses were required to be recognised for the assets concerned as a result of the impairment test on the CGUs and non-financial assets.

The following table shows the reportable segments in the current financial year:

The following table shows the reportable segments in the previous year:

Internal reporting of operating segments to the chief operating decision-maker is carried out in accordance with the Ordinance on Airport Charges (OAC), more specifically with regard to the regulated charges and fees affected by the Ordinance. The following segments are presented for the regulated business and submitted to the chief operating decision-maker as the basis for his significant judgements and decisions:

The “Regulated business” column presented in the segment reporting tables is not a separate segment in accordance with IFRS 8; for presentation reasons, it merely combines the reportable segments in which charges and fees are regulated by the OAC (excluding the “Noise” segment).

All regulated revenue related to aircraft noise and the corresponding expenses are reported separately in the “Noise” segment so as to ensure transparency in presenting the performance and balance of the Airport of Zurich Noise Fund in particular (note 20, Airport of Zurich Noise Fund).

In all, Flughafen Zürich AG therefore has the following reportable segments:

→ Aviation

The “Aviation” segment comprises the original infrastructure and services related to flight operations. It incorporates all the core services provided to airlines and passengers by Flughafen Zürich AG in its capacity as operator of Zurich Airport. These services include the runway system, most apron zones (including control activities), passenger zones in the terminals, freight operations, passenger handling and services, and safety. The main sources of revenue for the “Aviation” segment are passenger and landing charges. Revenue from third parties is determined by passenger volumes, flight volumes and the trend with respect to aircraft take-off weights.

→ PRM

The “PRM” (People with Reduced Mobility) segment combines the infrastructure and services related to implementing the regulation regarding the provision of support for passengers with reduced mobility. Revenue consists exclusively of the PRM charge.

→ User fees

The “User fees" segment comprises the central infrastructure, in particular the check-in areas and facilities, baggage sorting and handling system, aircraft power supply system, handling apron areas and the related services and fees.

→ Air security

The “Air security” segment comprises the equipment and services that Flughafen Zürich AG is responsible for providing for air security (passenger and aircraft security measures). This includes all systems and their operation and maintenance designed to prevent actions of any kind that affect the security of commercial civil aviation, in particular facilities for checks on passengers, hand luggage, checked baggage and freight. The security charges levied per passenger are the main source of revenue for covering the costs of the “Air security” segment.

→ Access fees

The “Access fees” segment comprises the air security-related equipment and services that have to be provided in order to allow all persons other than passengers to access the airside areas. This includes all relevant systems and their operation and maintenance. It also includes airport policing duties such as surveillance patrols and other security-related duties. Revenue in the “Access fees” segment comes mainly from the fees for issuing airport badges.

→ Noise

All revenue and expenses related to aircraft noise are reported separately in the “Noise” segment. A liquidity-based statement of noise-related data is presented in the notes to the consolidated financial statements (note 20, Airport of Zurich Noise Fund). This statement presents the accumulated surplus or shortfall as at the reporting date arising from noise charges determined on a costs-by-cause basis, less expenses for formal expropriations, sound insulation and resident protection measures, and operating costs.

→ Non-regulated business

The “Non-regulated business” segment encompasses all activities relating to the development, marketing and operation of the commercial infrastructure at Zurich Airport. This includes all retail and restaurant/catering operations at the airport, revenue from rented premises and supplementary costs (energy supply, etc.), parking charges plus a broad range of commercial services provided by Flughafen Zürich AG. This segment also includes income and expenses from international business.

Principles of segment reporting

For internal reporting purposes, each profit centre has been allocated to a segment. Any internal supplies and services that have been provided to other segments have been booked as inter-segment revenue or offset against costs. For example, the “Supplementary costs” profit centre is allocated to Non-regulated business and proportionate costs are charged to the Regulated business segments on a costs-by-cause basis. Support functions are also allocated to Non-regulated business and charged on accordingly.

Invested capital is allocated to the respective operating segments based, firstly, on the allocation of the individual assets in the fixed-asset ledger and, secondly, on the pro rata allocation of the remaining assets (buildings, engineering structures and net working capital) to the respective segments. Until projects in progress have been completed, they are allocated to the segment with the largest share of the project measured by value. The definitive allocation to segments takes place after the projects have been classified into the relevant asset categories.

The identified operating segments have not been aggregated.

ADDITIONAL DISCLOSURES IN ACCORDANCE WITH THE SWISS ORDINANCE ON AIRPORT CHARGES (OAC)

In accordance with Art. 34 OAC, 30% of the economic added value in the airside area of the airport not relevant to flight operations and in road vehicle parking is to be used in the form of a transfer payment to finance the costs in the “Aviation” segment. Pursuant to this rule, in financial year 2020, an amount of CHF 0.0 million (2019: CHF 12.7 million) was allocated to the “Aviation” segment and is reflected in the reported return on operating assets. Moreover, in accordance with Art. 45 OAC, the shortfall in the “Access fees” segment can be charged to the “Air security” segment.

Revenue from security charges is allocated in full to the “Security” segment and revenue from PRM charges to the “PRM” segment. All other flight operations charges (with the exception of aircraft noise charges) are allocated to the “Aviation” segment. A breakdown of revenue by charge type can be found in note 2, Revenue.

Additional disclosures

Flughafen Zürich AG primarily provides services within Switzerland. In financial year 2020, external consulting services totalling CHF 4.8 million (2019: CHF 6.6 million) were provided in Brazil and Chile. Flughafen Zürich AGʼs revenue with Lufthansa Group in the reportable segments amounted to CHF 145.7 million in the past financial year (2019: CHF 445.3 million).

Commercial partners in retail, tax & duty free and food & beverage operations have seen sales revenues fall significantly as a result of the coronavirus crisis. The legal assessment is that the minimum annual rent agreed is not payable by lessees affected by the closures ordered by the authorities. Accordingly, Flughafen Zürich AG did not recognise the minimum rental income of CHF 18.9 million for the period of the lockdown from 17 March to 10 May 2020 and for the further closures ordered by the authorities in December 2020.

In addition, further rent concessions for the post-lockdown period have been discussed with the commercial partners concerned and solutions already found with most lessees. The rent concessions granted in this context (rent waivers and contractual amendments such as staggered rents or lease term extensions) were recognised as assets (CHF 32.6 million) in accordance with IFRS 16 and will be amortised on a straight-line basis over the term of the relevant contracts.

Presentation of revenue from contracts with customers (IFRS 15):

In financial year 2020, short-time working compensation of CHF 34.0 million was offset against personnel expenses (wages and salaries).

Staff participation programme

Flughafen Zürich AG gives those employees who have completed their first year of service one share free of charge as a one-off payment in kind. In financial year 2020, 147 shares (2019: 138 shares) worth CHF 19,232 (2019: CHF 24,356) were handed out.

VARIABLE REMUNERATION FOR MEMBERS OF THE MANAGEMENT BOARD AND OTHER MEMBERS OF MANAGEMENT

The total annual remuneration awarded to members of the Management Board and other members of management comprises a fixed salary and a variable remuneration component, which is based on the consolidated result. EBIT according to the budget (excluding the influence of aircraft noise) has been adopted as the target. The decision relating to the degree of achievement of the relevant target is taken in the following financial year (grant date). Two thirds of the variable remuneration is paid out in cash and one third in shares.

As set out in the Articles of Incorporation and the relevant regulatory provisions, the Board of Directors used its discretion in setting the variable remuneration for financial year 2020. Based on that, the equity-settled portion for the reporting period was calculated and accounted for on an accrual basis. The number of shares to be granted cannot yet be established precisely at the reporting date, as that number is determined based on the quoted price as at the payment date (mid-April 2021). If the shares had been granted as at year-end, a total of 4,610 shares would have been distributed.

REMUNERATION OF THE BOARD OF DIRECTORS

The remuneration awarded to the Board of Directors comprises an annual lump sum plus payments for attending meetings.

Option programme

No option programme exists at Flughafen Zürich AG.

Capitalised expenditure of CHF 14.2 million (2019: CHF 15.3 million) primarily comprises fees for the companyʼs architects and engineers as well as for project managers representing the client.

The expenses of CHF –27.1 million (2019: CHF –83.4 million) for construction projects as part of concession agreements are the result of investments in airport infrastructure in Brazil and Chile.The corresponding counter-item can be found under note 2, Revenue.

In the reporting period, other expenses included project costs derecognised in the amount of CHF 10.1 million. As in the previous year, losses on asset disposals and losses on receivables were also among the items recognised in other expenses.

Interest expenses on debentures and non-current loans were down slightly on the prior-year figure to CHF –9.7 million for the reporting period. As liabilities rose overall, the decrease is due to average interest rates being lower. Other interest expenses rose to CHF –8.2 million for financial year 2020 due in particular to an increase in the foreign concessionsʼ liabilities to banks.

While the expense for the present value adjustment on the provision for formal expropriations plus sound insulation and resident protection came to CHF –5.4 million in the previous year, no expense was incurred in the past financial year, as the applicable interest rate remained unchanged at 0.0%. The expense for the present value adjustment on liabilities from concession agreements was virtually unchanged year on year at CHF –2.7 million.

Other finance costs for the reporting period included an impairment loss of CHF 3.8 million on a financial interest in Curaçao airport held through the subsidiary A-Port S.A.

Positive changes in value amounting to CHF 1.8 million were achieved on the financial assets of the Airport of Zurich Noise Fund (AZNF) held at fair value in the reporting period (2019: CHF 9.1 million). Interest income on the other financial assets of the AZNF declined from CHF 0.8 million to CHF 0.4 million.

Income tax can be analysed as follows: