FINANCIAL REPORT. FINANCIAL REPORT of the ETH Board on the ETH Domain

Transcription

1 FINANCIAL REPORT 2016 FINANCIAL REPORT of the ETH Board on the ETH Domain

2 Contents REPORT ON THE FINANCIAL YEAR CONSOLIDATED FINANCIAL STATEMENTS 1 Financial figures in brief 1 8 Consolidated statement of financial performance 8 Consolidated balance sheet 9 Consolidated statement of changes in equity 10 Consolidated cash flow statement Notes to the consolidated financial statements 14 1 Business Activity 14 2 Basis of accounting 14 3 Accounting policies 16 4 Estimation uncertainty and management judgements 23 5 Comparison with the budget 25 6 Segment reporting 28 7 Total federal contribution 36 8 Tuition fees and other utilisation fees 38 9 Research contributions, mandates and scientific services Donations and bequests Other revenue Personnel expenses Other operating expenses Transfer expenses Finance result Cash and cash equivalents Receivables Inventories Prepaid expenses and accrued income Property, plant and equipment and intangible assets Financial assets Investments held Co-financing Current liabilities Financial liabilities Accrued expenses and deferred income Provisions Net defined benefit liabilities Dedicated third-party funds Contingent liabilities and contingent assets Financial commitments Operating lease Remuneration of key management personnel Events after the reporting date 63 AUDITORS REPORT Rounding differences: The figures presented in this document may not correspond precisely to the total amounts presented in the tables. Changes are calculated on unrounded amounts and may differ from a figure that is based on the rounded amounts presented in the tables.

3 REPORT ON THE 2016 FINANCIAL YEAR Report on the 2016 Financial Year The consolidated financial statements of the ETH Domain comprise the statement of financial performance, the balance sheet, the cash flow, the statement of changes in equity and the notes. Since 2015 they have been produced in accordance with the International Public Sector Accounting Standards (IPSAS) and the amounts for 2014 were restated retrospectively. Unlike the financing statement, which is based on the consumption of money on the basis of receipts and expenditures, the annual financial statements are based on the concept of the consumption of resources, i.e. the revenue and expenses are allocated to the period to which they belong. The annual financial statements are also more comprehensive. Together with the revenue situation, the asset and finance situation is also shown. There are two notable developments in the 2016 annual financial statements: In spite of the difficult political and economic environment, there was a rise in revenue from third-party funding (2016: +8%, 2015: 2%), and remuneration for personnel has flattened further (2016: +1%, 2015: +3%). The annual surplus amounted to CHF 289m, up CHF 75m on the previous year. Despite the good result, equity has been reduced to CHF 123m (2015: CHF 365m), due in particular to the further increase in negative reserves from the valuation of the net defined benefit liabilities (CHF 531m). Consolidated statement of financial performance CHF millions Operating revenue 3,450 3,475 3,598 Change to previous year n. a. 1% 4% Operating expenses 3,183 3,252 3,314 Change to previous year n. a. 2% 2% Finance result Surplus (+) or deficit (-) Third-party funds relative to operating revenue 28% 28% 29% Personnel expenses relative to operating revenue 58% 59% 58% Operating revenue During the year of the report, operating revenue rose by a total of CHF 123m or 4%. The total federal contribution, which accounted for 71% (2015: 72%) of operating revenue, consisted of the federal financial contribution of CHF 2,289m (2015: CHF 2,233m) and the federal contribution of CHF 277m towards accommodation (2015: CHF 273m). The latter matched the accommodation expenditure for the use of state-owned real estate, as shown in the operating expenses; therefore, the two items cancelled each other out in the annual financial statements. The federal financial contribution is largely used to achieve the key strategies in teaching and research as defined in the performance mandate for between the Federal Council and the ETH Domain (objectives 1 and 2). In 2016, the units of the ETH Domain were awarded a total of CHF 47m on a performance-related basis (2015: CHF 50m). This approach by the ETH Board towards the allocation of funds in 2016 is in line with objective 8 (sub-objective 3) of the performance mandate for concerning the use of performance-based criteria in the allocation of funds, by honouring the extraordinary achievements of the two Federal Institutes of Technology and the four research institutes to a greater extent than in previous years. Further information about the federal financial contribution and about the federal contribution to accommodation can be found in the notes to the consolidated financial statements. Financial Report 2016 on the ETH Domain 1

4 FINANCIAL REPORT Report on the 2016 Financial Year During the reporting year, third-party funding accounted for 29% of the total operating revenue (2015: 28%). The rise in the proportion of third-party funding meets the objectives specified in the performance mandate between the Federal Council and the ETH Domain for (objective 8, sub-objective 1) and, in view of the prevailing conditions which in some cases are adverse (among other things, the strength of the Swiss franc, Switzerland s partial association status in the FP), is to be regarded as a success. In addition to the total federal contribution, the revenue from research contributions, mandates and scientific services of CHF 773m (2015: CHF 718m) is the most important component of the operating revenue. We were pleased to see that donations and bequests (2016: CHF 115m, 2015: CHF 115m) managed to keep up with the high figure from the previous year. The rise in tuition fees and other utilisation fees (2016: CHF 35m, 2015: CHF 34m) reflected the growth in the numbers of students and doctoral students. The other revenue was slightly up on the previous year s level (2016: CHF 110m, 2015: CHF 102m). Revenue from research contributions, mandates and scientific services is mostly recognised according to the stage of completion of the project in the accounting period based on the resources consumed. Revenue is therefore impacted significantly by both the composition of the underlying project portfolio and the phase the projects are in. For projects in the initial phase, for example, which generate comparatively little expense, a small amount of revenue is usually recognised. Following this initial phase, the expenses usually increase, leading to the recognition of a correspondingly higher amount of revenue. The categories within the research contributions have developed in different ways. The most marked change in revenue was achieved in special federal funding of applied research (up CHF 19m or +23%). This is primarily due to the financing of two professorships at ETH Zurich which was recognised in surplus or deficit in the full amount of CHF 18m in Up CHF 28m, this revenue was also well ahead of the expectations defined in the 2016 budget. The revenue from projects successfully tendered for, which are supported by the two major federal funding organisations, also both increased: Substantial progress was made in ongoing projects with the Swiss National Science Foundation (SNSF) (up CHF 15m or +6%). This was in connection with the National Research Programmes (NRPs) and the National Centres of Competence in Research (NCCR). There has been a decrease in recognised revenue from other research projects, such as SystemsX.ch or Nano-Tera.ch as they are drawing to a close. The budgeted revenue was exceeded by CHF 18m. The projects by the Commission for Technology and Innovation (CTI) increased in the reporting year by CHF 2m or 3% and met expectations (up CHF 5m on the 2016 budget). The increase was lower because some of the projects only started in the reporting year. They primarily entail the research projects undertaken by the Swiss Competence Centers for Energy Research (SCCERs) within the scope of the action plan on Coordinated Energy Research Switzerland. The ETH Domain is involved in all eight SCCERs projects, seven of which are being led by institutions of the ETH Domain. The project revenue of the EU Framework Programmes for Research and Innovation (FP) were CHF 7m or 5% up on the previous year and exceeded the expectations from the budget (CHF 17m higher). The increase is attributable to the progress or to the completion of projects from the 7 th FP, among other things to the Specific Grant Agreement (SGA 1) of the first phase of the Human Brain Project. Funding for these projects all the way through to their completion had been assured by the EU. The projects in the 8 th FP (Horizon 2020) were impacted by Switzerland s partly associated status, which meant that the projects could only be secured and started delayed. This suppressed the revenue growth in the reporting year. While the revenue from the cooperation with the private sector (industry-oriented research) was up CHF 5m or +4% on the previous year, it was below the budget (down CHF 15m). The contract volume increased across the entire ETH Domain as a result of new business acquisitions. Despite the difficult economic climate, cooperation with the private sector was intensified successfully. The remaining project-oriented third-party funding includes the contributions from the cooperation with cantons, universities and international organisations. Revenue was up CHF 8m or 9% on the previous year, exceeding the budget forecast by CHF 14m. Revenue in the reporting year included contributions for larger research projects, such as the NEST (Empa), SwissFEL (PSI) and EPFL Valais Wallis project. 2

5 REPORT ON THE 2016 FINANCIAL YEAR Operating expenses In view of the increased revenue (+4%), the busy research activities and the growth in the numbers of undergraduate and doctoral students, the growth in operating expenses has been advantageous by comparison, +2% (2016: CHF 3,314m, 2015: CHF 3,252m). There was only a modest rise in expenses due to collaboration and to the use of synergies. The services provided in research and teaching require a high level of personnel resources. Therefore, the personnel expenses accounted for the largest portion of the operating expenses; it was up 3% to CHF 2,101m (2015: CHF 2,048m) and was slightly over budget (CHF 2,084m). Other operating expenses this year amounted to CHF 964m (2015: CHF 937m). During the year of the report, two receivables from agreed donations had to be written off as the donors withdrew from the agreements. The loss of CHF 16m was recognised in the other operating expenses and was one of the main reasons for the 3% rise in those expenses. Had it not been for that unforeseen loss on receivables, the other operating expenses would have been below the budget (2016 budget: CHF 954m). The other operating expenses also include the accommodation expenditure for the use of state-owned real estate, which had been mentioned in the beginning. The transfer expenses are lower primarily due to the one-off transfer contributions paid in the previous year (2016: CHF 63m, 2015: CHF 74m). Given the fact that there had been a temporary reduction in IT infrastructure investments, the depreciations were down 4% (2016: CHF 185m, 2015: CHF 193m). While there was an absolute rise in personnel expenses, this has improved slightly in relation to operating revenue, i.e. down from 59% to 58%. The flattened growth in personnel costs was also reflected in a rise of FTEs in the numbers of year-end full-time equivalents (FTEs), up +1% (2016: 17,792.2 FTEs; 2015: 17,615.6 FTEs). The rise in personnel figures was well down on 2015 ( FTEs or +3%) and on previous years. A variety of factors impacted upon the change on the previous year in terms of personnel expenses: Salaries and wages rose by a total of CHF 26m or 1% and were CHF 12m over budget. The main causes of the rise were salary measures and employment-specific increases in expenses. In 2016, there was no compensation for inflation allowance; salaries and wages were adjusted depending on performance and individually in accordance with the Salary System (NSS). To that end, 1.2% of the total salary payments were at the disposal of employees under the NSS. In the reporting year, the number of professors rose by 16.3 FTEs or 2%, which was reflected accordingly in salaries and wages. In order to ensure the smooth operation of the more and more complex research facilities and high-tech equipment, well trained and, thus, increasingly expensive technical personnel are essential to support the achievement of high quality research results. Hence, full-time equivalents (2016: 5,934.5 FTEs; 2015: 5,850.6 FTEs) as well as salaries and wages for technical/administrative personnel had risen. In addition, the operation of the infrastructure plus the administration have to be provided irrespective of the project volume or numbers of students and doctoral students. The majority of the scientific personnel work on fixed-term contracts. These personnel costs are more variable because they are dependent on the project portfolio and, in particular, on how the research projects progress. In the reporting year, the salaries and wages paid to scientific personnel rose just slightly (up CHF 4m). At the same time, the year-end numbers of FTEs rose proportionally more at 1%, as a result of which the rise in FTEs was not fully reflected in the expenses (2016: 11,052.3 FTEs, 2015: 10,975.9 FTEs). Changes in expenses for social, accident and sickness insurance were consistent with salaries and wages. Net pension costs were once again measured in applying the IPSAS 25 valuation methodology. The rise was attributable to a lower discount rate, as well as to a low expected return on plan assets. In addition, purchases of additional pension benefit for professors were recognised as past service cotsts in In previous years, these figures were included on a period-specific basis and were shown under other employer contributions. Therefore, net pension costs rose by a net figure of CHF 25m. In accordance with the resolution by the ETH Board, an annual contribution in the amount of 3.5m CHF is to be paid to the coverage ratio of the ETH Domain pension fund at PUBLICA, starting from 2015 and continuing for five years. This contribution was posted in the annual financial statements of the ETH Board and was also included in the net pension costs. Financial Report 2016 on the ETH Domain 3

6 FINANCIAL REPORT Report on the 2016 Financial Year Consolidated balance sheet CHF millions Current assets 1,937 1,994 2,149 Non-current assets 2,611 2,693 2,892 Total assets 4,547 4,686 5,041 Liabilities 3,710 4,321 4,918 Valuation reserves 501 1,186 1,717 Dedicated reserves Free reserves Other equity Equity Liabilities and equity 4,547 4,686 5,041 The balance sheet total for the ETH Domain was up CHF 355m or 8% on the previous year. The most important components affected by the changes are shown below. Receivables and dedicated third-party funds (in context) Receivables and dedicated third-party funds accounted for a good quarter of the balance sheet total, as had been the case in the previous year. At the end of 2016, receivables amounted to CHF 1,299m (2015: CHF 1,212m), irrespective of time patterns. The largest items by some distance were receivables from non-exchange transactions from SNSF, from FP projects and from other donors. At the time of recognition, the receivables are generally in line with the agreed contract totals. The unsettled receivables at the end of 2016, amounting to CHF 1,264m (2015: CHF 1,175m) reflected the outstanding financing of the ongoing research projects or of guaranteed donations. These outstanding receivables from project transactions compared with dedicated third-party funds amounting to CHF 1,333m (2015: CHF 1,293m). They represent the performance obligations from current research projects and mandates from contracts with non-exchange transactions. During the reporting year, progress in projects leads to decreases; newly received research contracts lead to an increase. The rise of CHF 41m or 3% shows that there was a higher volume of projects or research available, for which services still have to be provided in the years ahead, at the end of 2016 than had been the case in Property, plant and equipment The balance sheet value of property, plant and equipment stood at CHF 1,585m at the end of 2016, up CHF 92m on the figure at the end of With the exception of a finance lease of CHF 17m, the property, plant and equipment were paid from the ETH Domain s own resources, i.e. from federal funding and from third-party funding. The property, plant and equipment account for almost one third of the balance sheet total. Net defined benefit liabilities The net defined benefit liabilities are up CHF 473m on the previous year at CHF 2,572m. The increase is attributable, most notably, to the fact that the obligations have been valued at a lower discount rate, as well as to the change in demographic assumptions (generation tables). The rise in obligations was compensated for in part by a higher than expected return on plan assets. For further explanations, refer to Appendix 28, Net defined benefit liabilities. 4

7 REPORT ON THE 2016 FINANCIAL YEAR Equity During the reporting year, the total equity fell from CHF 365m to CHF 123m. The reduction of CHF 242m was due to the change defined benefit liabilities (CHF 531m). The reserves contain the cumulative losses from the valuation of the net defined benefit liabilities according to IPSAS 25. The surplus for 2016 compensated for that in part (CHF +289m). The dedicated reserves increased by CHF 67m to CHF 812m and the free reserves by CHF 35m to CHF 886m. Within equity, the dedicated reserves and the free reserves each contain a corresponding share of the volume of existing reserves which had originally been accumulated from federal financing. Pursuant to article 2 of the treasury agreement, these existing reserves must be invested in the federal treasury, bearing no interest, and must be shown separately. The following verification serves this purpose. Development of the volume of existing reserves (originally from total federal contribution) The ETH Domain has the possibility of accumulating reserves from the federal financial contribution and using this at a later date in accordance with the strategic objectives of the performance mandate. Allocation of surplus or deficit takes place at the time of preparing the annual financial statements. The ETH Board reserves the funds for strategic projects being undertaken by the two Federal Institutes of Technology within the scope of the performance mandate and of the target agreements with the two Federal Institutes of Technology and the four research institutes. The change in reserve is posted against the surplus or deficit for the period within the equity. The existing volume of reserves, which originally come from the total federal contribution, is divided between the following three items: free reserves, dedicated reserves for teaching and research, as well as dedicated reserves for infrastructure and administration within the equity items. The reserves from the federal financial contribution rose at the end of 2016 by a total of CHF 1m and stand at a total of CHF 170m. CHF 48m of this (2015: CHF 47m) are posted to dedicated reserves and CHF 122m (2015: CHF 122m) are posted to free reserves. The changes in the volume of reserves compared to 2015 in respect of funds that originally come from federal financing were comprised as follows: ETH Board: Reduction by CHF 10m to CHF 41m. Part of the existing reserves (CHF 7m) is dedicated for financing the dismantling of the accelerator facilities at the PSI. The remaining part is used for strategic projects in the ETH Domain. PSI: Reduction of the dedicated reserve (CHF 6m). Appropriation in the year of the report, 2016, for carrying out a commissioned research project in cooperation with the General Secretariat of the Federal Department of Economic Affairs, Education and Research (EAER). WSL: Reduction in reserves by CHF 2m. The total at the end of 2016 amounted to CHF 31m. The reserves are used, among other things, to finance the takeover and modification of the isotope laboratory at the PSI. Furthermore, a considerable portion of the funds have been reserved in connection with the upgrading and restoration of three buildings in Birmensdorf, as well as for renovations in Davos. Some of the funds are going into participation in WSL programmes in the areas of teaching and research. Empa: Increase in reserves by CHF 12m to CHF 57m. The reserves have been accumulated for the planned implementation of constructions projects and for the upgrading of infrastructure (energy supply to the site, refurbishment of a laboratory and construction of a new laboratory, NEST platform, Coating Competence Center, financing of the leasehold improvements at Empa Thun and expansion of the Research and Technology Transfer Platform, RTTP). Eawag: Increase by CHF 6m to CHF 41m. The funds are reserved for a large Eawag building project. The timber pavilion at the Eawag site is to be torn down, and a new building will be erected. Construction work is likely to get under way in Financial Report 2016 on the ETH Domain 5

8 FINANCIAL REPORT Report on the 2016 Financial Year Consolidated cash flow statement CHF millions Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities 1 1 Total cash flow The cash flow statement shows the cash flows from operating activities and from investing and financing activities. The figures are shown according to the indirect method. Cash flows from operating activities The total cash flows from operating activities (CHF 452m) is composed of the surplus of CHF 289m adjusted for the effects from expenses and revenues of a non-cash nature. Cash flows from investing activities The cash flows from investing activities in 2016 amounted to CHF 354m (2015: CHF 602m). The change year on year is primarily due to the previous year s reclassification of cash equivalents to current financial assets in the amount of CHF 232m. The cash outflow of CHF 354m results to a large extent from additions in property, plant and equipment. The total additions in property, plant and equipment and in intangible assets of CHF 276m (2015: CHF 270m) include the user-specific leasehold improvements and the expenditures for the operating facilities (building costs plan BKP 3/BKP 9). These investments greatly increased in the past few years because of the brisk building activities of the ETH Domain and the upgrading of the infrastructure. In the year of the report alone, some CHF 79m of the total federal contribution was used in relation to building cost plans BKP 3/BKP 9, which are owned by the ETH Domain. The largest investments in property, plants and equipment and in intangible assets in 2016 include the following, not yet conclusive, set of properties. ETH Zurich: a test frame for experimental research (CHF 2m), a microscope in the area of molecular biology & biophysics (CHF 1m), one spectrometer for molecular system biology (CHF 1m) and for the Functional Genomics Center (CHF 1m), as well as an MRI in the area of neurotechnology (CHF 1m). CHF 40m was invested in the upgrade of the Piz Daint server for high-performance computing at the CSCS. For the purposes of high-performance computing, CHF 2m was also invested in the upgrade of the Euler Cluster (Euler III) and CHF 1m in a storage system. There were further larger information technology investments concerning the IT services of ETH Zurich (storage systems) over CHF 3m. In the area of user-specific fixtures and equipment, as well as leasehold improvements, ETH Zurich s investments included the renovation of the HPM frontage, in fixtures for the BSD, in fixtures for WRO 1055, in a laboratory in the ETL, as well as in fixtures for the LEE Star Node. EPFL: in terms of technical facilities, CHF 2m was invested in equipment for the Plateformes technologiques (PTECH) of the SV faculty, CHF 1m in the Laboratoire de résonance magnétique (LRM) of the SB-ISIC institute, CHF 1m in the Tokamak (TCV) of the Swiss Plasma Center (SPC), CHF 1m in the Laboratoire des matériaux semiconducteurs (LMS) of the STI-IMX and CHF 1m in real estate for the Laboratoire de virologie et génétique (LVG) of the SV-GHI. EPFL made the following investments in particular for information technology procurement: in SI-Ingénierie IDEVING (CHF 2m) and in SI-SCITAS (CHF 1m). 6

9 REPORT ON THE 2016 FINANCIAL YEAR In the area of the user-specific fixtures and equipment, as well as leasehold improvements, EPFL invested around CHF 7m (BKP 3) in the MED building, Batochime-UNIL and Industry 17 (Energypolis) of DII-C, as well as in the Batochime-UNIL building of DII-E and in the ArtLab ( Under One Roof project). PSI: The major portion was the investments in technical facilities for the construction in the field of technology and measurements for SwissFEL, as well as in the Gantry 3 unit at the Center for Proton Therapy (around CHF 47m). CHF 1m was invested in the user-specific fixtures (BKP 3) in each of Technology and Measurements for the ATHOS and RESCAN beamlines. Empa: the largest investments concerned the transmission electron microscope (CHF 2m) of the Centre for Electron Microscopy and two procurements in connection with NEST (CHF 3m). Empa also invested in user-specific fixtures for NEST (BKP 3: around CHF 1m). Cash flows from financing activities No significant amounts flowed to or out of financing activities. The balance of CHF +96m from the cash flows results from the change in the balance sheet item Cash and cash equivalents. Financial Report 2016 on the ETH Domain 7

10 ANNUAL FINANCIAL STATEMENTS Consolidated financial statements Consolidated statement of financial performance Table 1: Statement of financial performance of the ETH Domain (consolidated) Change to Actual CHF millions Notes Actual 2015 Budget 2016 Actual 2016 absolute % Operating result Federal financial contribution 7 2,233 2,289 2, Federal contribution to accommodation Total federal contribution 2,506 2,565 2, Tuition fees and other utilisation fees Swiss National Science Foundation (SNSF) Commission for Technology and Innovation (CTI) Special federal funding of applied research EU Framework Programmes for Research and Innovation (FP) Industry oriented research (private sector) Other project-oriented third-party funding (incl. cantons, municipalities, international organisations) Research contributions, mandates and scientific services Donations and bequests Other revenue Operating revenue 3,475 3,459 3, Personnel expenses 12, 28 2,048 2,084 2, Other operating expenses Depreciation Transfer expenses Operating expenses 3,252 3,370 3, Operating result Finance result Finance income Finance expense Finance result Surplus (+) or deficit (-) Attributable annual result to: Confederation s share Minority interests 0 8

11 ANNUAL FINANCIAL STATEMENTS Consolidated balance sheet Table 2: Balance sheet of the ETH Domain (consolidated) Change CHF millions Notes absolute % Current assets Cash and cash equivalents Current receivables from non-exchange transactions Current receivables from exchange transactions Current financial assets 21 1,235 1, Inventories Prepaid expenses and accrued income Total current assets 1,994 2, Non-current assets Property, plant and equipment 20 1,493 1, Intangible assets Non-current receivables from non-exchange transactions 17 1,040 1, Non-current receivables from exchange transactions Investments held Non-current financial assets Co-financing Total non-current assets 2,693 2, Total assets 4,686 5, Liabilities Current liabilities Current financial liabilities Accrued expenses and deferred income Short-term provisions Short-term liabilities Dedicated third-party funds 29 1,293 1, Non-current financial liabilities Net defined benefit liabilities 28 2,099 2, Long-term provisions Long-term liabilities 3,929 4, Total liabilities 4,321 4, Equity Valuation reserves 1,186 1, Dedicated reserves Free reserves Co-financing of state-owned real estate Accumulated surplus (+)/deficit (-) Confederation s share of equity Minority interests Total equity Total liabilities and equity 4,686 5, From 2016 onwards, receivables from non-exchange transactions and those from exchange transactions are to be listed separately on the balance sheet. Previously they were only shown separately in the notes. The values for the previous year, 2015, have been adjusted accordingly for reporting on the balance sheet. Financial Report 2016 on the ETH Domain 9

12 ANNUAL FINANCIAL STATEMENTS Consolidated statement of changes in equity Table 3: Statement of changes in equity for the ETH Domain (consolidated) CHF millions Revaluation reserves for financial assets Accumulated actuarial gains (+)/ losses (-) from defined benefit pension plans Reserves from hedging transactions Valuation reserves Dedicated donations and bequests 2015 As of Surplus (+) or deficit (-) Items directly recognised in equity: Revaluation of financial assets 2 2 Change from defined benefit liability Hedging transactions Total items directly recognised in equity Reclassifications in equity Currency translations 36 Total changes in equity As of ,188 1, As of ,188 1, Surplus (+) or deficit (-) Items directly recognised in equity: Revaluation of financial assets Change from defined benefit liability Hedging transactions Total items directly recognised in equity Reclassifications in equity Currency translations 23 Total changes in equity As of ,720 1, During the reporting year, the total equity fell from CHF 365m to CHF 123m. The entire equity is attributed to the owner. The reduction of CHF 242m was due to the change in defined benefit liability (CHF 531m), which was only compensated for in part by the surplus or deficit for 2016 (CHF +289m). Valuation reserves The main components of negative valuation reserves comprise the accumulated actuarial losses on defined benefit pension plans (CHF 1,720m). These reserves contain the accumulated amount of losses, recognised directly in equity, from the valuation of the net defined benefit liabilities in accordance with IPSAS 25 (see Note 28 Net defined benefit liabilities). The sharp negative trend (CHF 531m) in the reporting period was due mainly to the valuation at a lower discount rate, as well as to the change in demographic assumptions (generation tables). As hedge accounting is not applied in the ETH Domain, there are also no items recognised under the reserves from hedging transactions. 10

13 ANNUAL FINANCIAL STATEMENTS Teaching and research reserves Infrastructure and administration reserves Dedicated reserves Free reserves Co-financing of state-owned real estate Accumulated surplus (+)/ deficit (-) Confederation s share of equity Minority interests Total equity Dedicated reserves The dedicated reserves for teaching and research include electoral and appointment commitments amounting to CHF 139m (2015: CHF 132m). Free reserves Free reserves were up around CHF 35m on the previous year at CHF 886m. They come from revenue surpluses, among other things. Each unit within the ETH Domain, i.e. the two ETH Institutes of Technology and the four research institutions, has discretion as to how to use the free reserves. The funds are used to benefit future teaching and research projects or are used among other things to smooth losses in revenue. Co-financing The institutions of the ETH Domain use co-financing as a means of becoming involved in construction projects for state-owned real estate through the provision of third-party funding. The CHF 9m rise compared to 2015 is the residual value from the additions in 2016, reduced by the annual depreciation on the co-financing recognised under non-current assets. Financial Report 2016 on the ETH Domain 11

14 ANNUAL FINANCIAL STATEMENTS Accumulated surplus/deficit The accumulated surplus of CHF 9m as of 31 December 2016 is the residual amount of total equity less the reserve items shown separately. It shows the status of the accumulated results on the reporting date and includes the surplus/deficit carried forward, the surplus/deficit for the period and the reclassifications in equity. Reclassifications in equity represent the surplus/deficit achieved in the year of the report, 2016 (CHF +289m), and allocated to the reserves (CHF 111m). The reclassification of surplus/deficit during the accounting year, to be more precise at the time of preparing the annual financial statements, is a specific accounting procedure which is applied in the ETH Domain. Consequently, the allocation to the reserve items in equity does not take place via the surplus/deficit carried forward on 1 January of the next year, but rather is part of the items recognised in the annual financial statements within the reporting year as of 31 December. The accumulated deficit of CHF 169m as of 1 January 2016 became a surplus of CHF 9m as of 31 December 2016 due to the ETH Domain s higher consolidated surplus/deficit for 2016 and the lower reclassifications in equity. Minority interests In accordance with Section 40 of the Ordinance on Finance and Accounting of the ETH Domain (SR ), transitional provisions apply for the 2015 and 2016 accounting years. These transitional provisions apply, among other things, for the application of IPSAS

15 ANNUAL FINANCIAL STATEMENTS Consolidated cash flow statement Table 4: Cash flow statement of the ETH Domain (consolidated) Change CHF millions Notes absolute % Cash flows from operating activities Surplus (+) or deficit (-) Depreciation Finance result (non-cash) Increase/decrease in net working capital Increase/decrease in net defined benefit liabilities Increase/decrease in provisions Increase/decrease in non-current receivables Increase/decrease in dedicated third-party funds Reclassification and other (non-cash) income Cash flows from operating activities Cash flows from investing activities Investments Purchase of property, plant and equipment Purchase of intangible assets Increase in co-financing Increase in loans Increase in investments held 22 4 Increase in current and non-current financial assets Total investments Divestments Disposal of property, plant and equipment Disposal of intangible assets 20 0 Decrease in co-financing 23 0 Decrease in loans Decrease in investments held Decrease in current and non-current financial assets Total divestments Cash flows from investing activities Cash flows from financing activities Increase in short-term and long-term financial liabilities 25 n. a. Decrease in short-term and long-term financial liabilities Cash flows from financing activities Total cash flow Cash and cash equivalents at the beginning of the period Total cash flow Cash and cash equivalents at the end of the period Net effect of currency translation on cash and cash equivalents Contained in the cash flows from operating activities are: Dividends received Interest received Interest paid Financial Report 2016 on the ETH Domain 13

16 ANNUAL FINANCIAL STATEMENTS Notes Notes to the consolidated financial statements 1 Business Activity The ETH Domain includes the two Federal Institutes of Technology ETH Zurich and EPFL, and the four research institutes Paul Scherrer Institute (PSI), Swiss Federal Institute for Forest, Snow and Landscape Research (WSL), Swiss Federal Laboratories for Materials Testing and Research (Empa), and the Swiss Federal Institute of Aquatic Science and Technology (Eawag). The six institutions are public law organisations of the Swiss Confederation with a legal personality. The ETH Domain also includes the Board of the Swiss Federal Institutes of Technology (ETH Board) as the strategic governing and regulatory body, and the Internal Appeals Commission of the ETH as an independent appeals instance. Detailed information on the business activity, management and reporting of the ETH Domain is provided in the chapter Governance (page 26 ff.). 2 Basis of accounting These financial statements are consolidated financial statements covering the reporting period from 1 January 2016 to 31 December The reporting date is 31 December Legal Principles The accounting system for the ETH Domain is based on the following legal foundations (incl. directives and regulations): Federal Act on the Federal Institutes of Technology of 4 October 1991 (ETH Act; SR ) Ordinance concerning the Domain of the Swiss Federal Institutes of Technology of 19 November 2003 (Ordinance on the ETH Domain; SR ) Ordinance on Finance and Accounting of the ETH Domain of 5 December 2014 (SR ) Accounting Manual for the ETH Domain (version 5.2) Accounting standards Since 1 January 2015 the consolidated financial statements of the ETH Domain have been produced in accordance with the International Public Sector Accounting Standards (IPSAS): The underlying accounting provisions are set out in the Directive Accounting Manual for the ETH Domain (Art. 34 of the Directives, Ordinance on Finance and Accounting of the ETH Domain, SR ). Application of transitional provisions of the new IPSAS For the accounting years 2015 and 2016, there are transitional periods for the implementation of IPSAS in the following areas, which lead to deviations from IPSAS: Deviation 1: For investments held of 20% or more, IPSAS 6-8 are not applied (consolidated and separate financial statements, investments in associates, interests in joint ventures). Instead, these will be treated in a similar way to the former accounting method (based on the manual for accounting in the ETH Domain). Reason: Under IPSAS 6-8 the accounting must be assessed at institutions outside the core ETH Domain. This assessment is time-consuming and resource-intensive. Deviation 2: Based on the contractual provisions the receivables from non-exchange transactions (IPSAS 23) are not completely divided into a current and non-current portion. Reason: Numerous contracts had to be evaluated for the 2014 restatement. To check the contractual terms of payment would require a considerable amount of additional work. As the corresponding performance obligations are presented within non-current liabilities, the overall presentation of the balance sheet is not materially distorted. 14

17 NOTES Deviation 3: The provisions stated in the accounting manual in the ETH Domain for holiday and overtime provisions including already earned long service awards are not fully implemented. Reason: The manual prescribes that provisions for holiday and overtime are to be calculated using the effectively recorded holiday and overtime credit. These data are managed in a decentralised manner, and the procedural adjustments needed to procure the data are time-consuming. During the transitional period they will be processed using estimates as before. Deviation 4: The provisions concerning disclosure of financial instruments (IPSAS 30) are not fully implemented. Reason: The implementation of IPSAS 30 requires extensive adjustments to the processes and workflows. The implementation and the retroactive procurement of relevant data is time-consuming and resource-intensive. Deviation 5: The provisions on finance leases (IPSAS 13) are not applied for EPFL. Instead, the previous accounting method applies (based on the manual for accounting in the ETH Domain), and any commitments made are disclosed in the Notes. Reason: No IPSAS accounting provisions were in force at the time of signing the contract. Furthermore, individual finance leases already come under the transitional provisions because of the transitional regulations in the area of simple partnerships/consolidation. This ensures equal treatment. Deviation 6: The provisions of IPSAS ff. concerning the transfer of services in-kind and goods in-kind are not applied. Reason: The complex issue must be assessed in detail in all the institutions and requires procedural adjustments, among other things. This assessment and the procedural adjustments are timeconsuming and labour-intensive. IPSAS standards published but not yet applied The following IPSAS had been published up to the reporting date. These only become effective later, and have not been applied, or early applied, in the present consolidated financial statements. IPSAS 33 First-time adoption of accrual basis IPSAS IPSAS 34 Separate financial statements IPSAS 35 Consolidated financial statements IPSAS 36 Investments in associates and joint ventures IPSAS 37 Joint arrangements IPSAS 38 Disclosure of interests in other entities IPSAS 39 Employee benefits (supersedes IPSAS 25) The standards listed previously come into effect on 1 January 2017, apart from IPSAS 39, which will become effective on 1 January Their impact on the consolidated financial statements will be analysed systematically and their implementation is planned for 1 January There are no further changes or interpretations which would not have to be applied and which would have a significant impact on the ETH Domain. Financial Report 2016 on the ETH Domain 15

18 ANNUAL FINANCIAL STATEMENTS Notes 3 Accounting policies The accounting policies are derived from the basis of accounting. The consolidated financial statements present a true and fair view of ETH Domain s financial position, financial performance and cash flows, presenting revenue and expenses in the period in which they occur (accrual accounting). For the finances of the ETH Domain the ETH Board produces the annual financial statements with balance sheet, statement of financial performance, cash flow statement, statement of changes in equity, and notes, as well as the annual budget. The consolidated financial statements are based on historical cost. Exceptions to this rule are described in the following presentation of the accounting principles. Scope of consolidation The scope of consolidation of the ETH Domain includes the following entities: Board of the Federal Institutes of Technology (ETH Board), Zurich and Bern ETH Zurich, Zurich ETH Lausanne (EPFL), Lausanne Paul Scherrer Institute (PSI), Villigen Swiss Federal Institute for Forest, Snow and Landscape Research (WSL), Birmensdorf and Davos Swiss Federal Laboratories for Materials Testing and Research (Empa), Dübendorf, St Gallen and Thun Swiss Federal Institute of Aquatic Science and Technology (Eawag), Dübendorf and Kastanienbaum Currency translation The reporting is prepared in Swiss francs (CHF). All figures are shown in millions of Swiss francs (CHFm/ CHF million) unless indicated otherwise. Transactions in foreign currencies are translated using the exchange rate valid at the time of the transaction. The date on which the transaction is first recognised is to be used for the transaction date. For each reporting date, monetary items in foreign currencies are translated using the closing rate. Resulting currency-translation differences are recognised under finance income or finance expense. Non-monetary items are translated using the exchange rate on the day of the transaction. The main currencies and their exchange rates are: Table 5: Main currencies Closing rate as of Currency Unit EUR USD GBP JPY 1, Revenue recognition Each inflow of funds into a unit is to be examined to see whether it is revenue from exchange transactions (IPSAS 9) or revenue from non-exchange transactions (IPSAS 23). If there is a revenue from exchange transactions (IPSAS 9), the revenue will always be recognised at the time the goods and services are delivered. In the case of project contracts, the performance obligation which has not yet been provided is allocated to liabilities. The revenue is billed and itemised to reflect the progress of the project, based on the costs incurred in the reporting period. 16

19 NOTES For revenue from non-exchange transactions (IPSAS 23), a distinction is to be made between whether or not there is an obligation to pay/repay. Should any such obligation apply, the relevant amount will be recognised as borrowed capital when the contract is concluded and will be released to income in step with the progress of the project. If there is neither a corresponding exchange nor an obligation to pay or repay as stipulated in IPSAS 23, as is frequently the case with donations, a revenue that affects net income is to be booked in the reporting year which increases the net assets/equity of the unit accordingly. The revenue is structured as follows: Total federal contribution The grants by the Federal Government or Parliament to the ETH Domain include the federal financial contribution (in the narrower sense) and the federal contribution to accommodation. Both these types of revenue are classed as revenue from non-exchange transactions (IPSAS 23). The contributions by the Federal Government are recognised in the year in which they are paid. Unused funds from federal financial contributions result in reserves under equity. The contribution towards accommodation corresponds to the accommodation expenses, equating to a rent calculated for the state-owned buildings used by the institutions of the ETH Domain. The accommodation expense is recognised as part of the other operating expense. Tuition fees and other utilisation fees Revenue from tuition fees and other utilisation fees are to be classed as revenue from exchange transactions (IPSAS 9). In principle, the revenue is recognised at the time the goods or services are delivered. If significant services are provided beyond the reporting date, an accrued income is recognised. Research contributions, mandates and scientific services Project-related contributions are given to the institutions of the ETH Domain by various donors, with the aim of promoting teaching and research. Project financing largely involves multi-year projects. Depending on the characteristics of the contributions, they are classed as revenue from exchange transactions or revenue from non-exchange transactions. The type of revenue recognised depends on whether there is a performance or repayment obligation. Revenue from non-exchange transactions (IPSAS 23) is recognised if there is a receivable that is legally binding, the inflow of funds is probable, and there is no further performance obligation. Usually, a performance obligation exists and revenue is recognised as the project progresses in the accounting period based on the resources consumed. Donations and bequests Revenue from donations and bequests is to be classed as a revenue from non-exchange transactions (IPSAS 23). Donations without any conditional risk of repayment are generally recognised in full as revenue when the contract is signed. Other revenue Other service revenue and revenue from real estate, inter alia, is counted as other revenue. This revenue is classed as revenue from exchange transactions (IPSAS 9). In principle, the revenue is recognised at the time the goods or services are delivered. If the service is provided beyond the reporting date, an accrued income is recognised. Cash and cash equivalents Cash and cash equivalents include cash on hand, demand and term deposits with financial institutions, as well as funds that are invested with the Federal Government, with a maximum term of 90 days. Cash and cash equivalents are valued at nominal value. Financial Report 2016 on the ETH Domain 17

20 ANNUAL FINANCIAL STATEMENTS Notes Receivables Receivables from exchange transactions (from goods and services) and from non-exchange transactions are presented separately in the balance sheet. For receivables from non-exchange transactions (IPSAS 23), such as from SNSF and EU projects and from other donors, an inflow of funds in relation to the total contractual project volume is probable. Therefore, the total amount of the project is usually recognised as a receivable at inception of the agreement if the actual amount can be measured reliably. If the recognition criteria cannot be met, information is disclosed under contingent assets. Non-current receivables of over CHF 10m are stated at amortised cost using the effective interest method. Current receivables from exchange transactions are stated at cost when the revenue is realised. Global value adjustments are usually recognised on receivables based on their age structure. In rare cases, specific value adjustments are also recognised if there are concrete indications that a default will occur. Inventories Inventories are to be valued at the lower of cost and net realisable value. Costs are calculated using the weighted average method. For inventories that are difficult to sell, appropriate value adjustments are to be made. Property, plant and equipment Property, plant and equipment items are recognised in the balance sheet at cost less accumulated depreciation. Depreciation is applied linearly, according to the estimated period of useful life. The estimated periods of useful life are: Table 6: Useful life of the asset categories Asset category Immovable assets Useful life ETH Zurich/EPFL Useful life Research Institutes Property unrestricted unrestricted Leasehold improvements <= CHF 1 million 10 years 10 years Leasehold improvements > CHF 1 million according to components 1 according to components 1 Buildings and structures according to components 2 according to components 2 Biotopes and geotopes unrestricted unrestricted Movable assets Machinery, equipment, tools, devices 5 years 5 10 years Passenger vehicles, delivery vehicles, trucks, aircraft, ships, etc. 5 years 4 7 years Furnishings 5 years 5 10 years IT and communication 3 years 3 7 years Large scale research plants and equipment years 1 In the case of items of property, plant and equipment with a value of CHF 1 million or above, it is checked whether components (with a value that is significant in relation to the total value) need to be recognised and depreciated separately because they have a different useful life (components approach). 2 Useful life depends on the type of building, its purpose and the fabric of the building ( years). Assets under construction are not yet depreciated. Capitalised leasehold improvements and installations in rented premises are depreciated over the estimated useful life or the shorter period of the lease. For incoming property, plant and equipment, it is checked whether components that represent a significant portion of the total value should be capitalised and depreciated separately because of their different periods of useful life (component approach). Major renovations and value-enhancing investments that increase the economic benefit of a property, plant and equipment item or extend its useful life are to be capitalised and depreciated over the estimated useful life. Costs merely for repairs and maintenance are recognised as an expense. Borrowing costs for assets under construction are capitalised. 18