1 Summary of significant accounting policies

Transcription

1 Notes to the consolidated annual financial statements 1 Summary of significant accounting policies Introduction The consolidated financial statements of the SWX Group have been prepared in accordance with the Swiss Accounting and Reporting Recommendations FER/ARR (Swiss GAAP), and using historic acquisition costs. Scope of consolidation Companies in which the SWX Group holds a majority of the share capital and voting rights, or in which it holds 50% of the voting rights and exerts a significant influence, are fully consolidated. Companies included within the scope of consolidation are listed under note 2. Associated companies, i.e. those in which the SWX Swiss Exchange owns between 20% and 50% of the share capital, are accounted for using the equity method. Holdings of less than 20% are stated at acquisition cost less valuation adjustments. Principles of consolidation The consolidated financial statements are based on the financial statements of the individual companies, which are drawn up at 31 December using uniform accounting policies. Equity is consolidated using the purchase method. Intragroup expenses and income, intragroup accounts receivable and liabilities, as well as unrealized gains on intragroup transactions have been eliminated. The figure for revenues corresponds to billings for services and products provided to third parties, net of sales taxes and reductions in remuneration. Currency translation Balance sheets of Group companies that are drawn up in a foreign currency are translated using year-end exchange rates, while income statements are translated using average exchange rates for the year. Any translation difference is accounted for under equity as a separate item. Transactions in foreign currency are translated using daily exchange rates. Translation differences are recognized as income. The following exchange rates of the most important currencies were used for the consolidated financial statements: Currency Year-end rate Average rate EUR/CHF GBP/CHF USD/CHF Fixed assets Fixed assets are stated at acquisition or production cost less depreciation charged over the useful life of the assets, using the straight-line method. Purchases of fixed assets exceeding CHF are capitalized. The useful life is estimated to be as follows: IT hardware 3 years Equipment, fixtures and fittings 3 years Motor vehicles 3 years Leasehold improvements Duration of rental agreement Investments in subsidiaries and loans Associated companies are consolidated in proportion to the percentage of capital owned. Other minority holdings are stated at cost, and loans at their nominal value. In the event of non-temporary impairment of an investment, a valuation adjustment is made. The net result of this position is included in the income statement under net financial income. Intangible assets Software which is purchased from or developed by a third party and costs more than CHF is capitalized and depreciated over no more than three years. Software produced inhouse is capitalized at production cost and depreciated over an estimated useful life of 5 8 years. Goodwill is depreciated over five years using the straightline method, and its value is re-assessed each year. Other intangible assets such as patents, trademarks and other rights are capitalized at their historical cost and amortized over their estimated useful life (but not more than ten years) using the straight-line method. The amortization is charged to the income statement. hasli, Brienz; BBVA Privanza Bank (Suiza) SA, Zurich; BDL Banca di Lugano, Lugano; BEKB BCBE, Bern; Berenberg Bank (Schweiz) AG, Zurich; Bernerland Bank,

2 Consolidated annual financial statements for Accounts receivable The figure for accounts receivable corresponds to billings less necessary valuation adjustments. Cash and marketable securities The cash position comprises liquid assets, credit balances with banks and the post office, and fixed-term deposits up to 90 days. Cash is carried at its nominal value. Securities with a market value are carried at market value and those with no market value are shown at their net investment value or at cost, less the necessary depreciation. Revenue from this item is included in the income statement under net financial income. Valuation adjustments and provisions Appropriate valuation adjustments are made for identifiable individual risks. Provisions serve to cover risks of loss and performance commitments. They are calculated on the basis of uniform and invariable business management principles. 2 Scope of consolidation The following companies are fully consolidated: SWX Group, Zurich (formerly SWX Holding AG; parent company; share capital CHF ). SWX Swiss Exchange, Zurich (wholly owned; share capital CHF ; securities exchange and securities exchange services). virt-x Ltd., London (formerly virt-x plc; wholly owned; share capital GBP ; holding company of virt-x group). virt-x Exchange Ltd., London (wholly owned; share capital GBP 100; securities exchange). EXFEED AG, Zurich (wholly owned; share capital CHF ; financial information distributor). New Soffex AG, Zurich (wholly owned; share capital CHF ; dormant). SWX Swiss Exchange (UK) Ltd., London (wholly owned; share capital GBP 1; dormant). Holdings in the following companies are accounted for using the equity method: Eurex Zürich AG, Zurich (50% stake; share capital CHF ; European derivatives exchange). On 13 December 2004, the Articles of Association of Eurex Zürich AG were amended to incorporate new provisions governing dividend and liquidation entitlements in respect of the existing participation certificates. Consequently, the share in net income is now calculated at 15 % (2003: 20%). Eurex Zürich AG directly or indirectly controls the following substantive companies: Eurex Frankfurt AG, Frankfurt (share capital EUR 6 million; operation of exchanges, in particular securities exchanges, including electronic platforms for derivatives trading). Eurex Clearing AG, Frankfurt (share capital EUR 5.1 million; clearing house and operator of the clearing system for exchange transactions). Eurex Bonds GmbH, Frankfurt (share capital EUR 3.6 million; electronic trading platform for German government bonds, Jumbo-Pfandbriefe [mortgage bonds] and other debt securities, as well as underlying instruments combining a future and a government bond). U.S. Exchange Holding Inc., USA (share capital USD 1 million; parent company of the U.S. Futures Exchange L.L.C., USA). U.S. Futures Exchange L.L.C., USA (share capital USD 44.5 million; fully automated trading in US fixed-income and share-index derivatives). STOXX Limited, Zurich (33.3% stake; share capital CHF ; marketing of European index families). Börsen-Informations AG, Basel (33.3% stake; share capital CHF ; general promotional activities for the Basel financial marketplace, operates Financial Meeting Point in Basel). 3 Changes in scope of consolidation There were no changes in the scope of consolidation in Sumiswald; Bezirkssparkasse Dielsdorf, Dielsdorf; Bezirkssparkasse Uster, Uster; BGG Banque Genevoise de Gestion, Genève; BGP Banca di Gestione Patrimo-

3 Notes to the consolidated annual financial statements 4 Cash and marketable securities Credit balances with banks Call and time deposits Total cash Money market funds Hedge fund Bonds Other marketable securities Total marketable securities TOTAL CASH AND MARKETABLE SECURITIES The position in the hedge fund is carried at the net investment value, as no market value is available. Because of the uncertainty concerning the valuations of such investments and the fact that not all markets are liquid, these book values may diverge substantially from the realizable values. 5 Accounts receivable Accounts receivable for goods and services to third parties to related parties Total accounts receivable for goods and services Other accounts receivable from third parties from related parties Total other accounts receivable TOTAL ACCOUNTS RECEIVABLE The item Other accounts receivable from related parties includes an interest-free loan of CHF 3.2 million granted to Eurex Frankfurt for an indefinite period. The loan is carried at its nominal value, as it can be recalled within one week at any time. In 2004, the Swiss Exchange granted U.S. Futures Exchange L.L.C, a company of the Eurex Group, a subordinated loan of CHF 2.7 million. This loan was fully written off on the basis of an impairment review (see note 8). niale SA, Lugano; BHF-Bank (Schweiz) AG, Zurich; Biene - Bank im Rheintal, Altstätten; BIPIELLE Bank (Suisse), Lugano; BLP Banque de Portefeuilles, Lausanne;

4 Consolidated annual financial statements for Prepaid expenses and accrued income Exchange fees and other revenues Accrued interest on securities Other prepaid expenses and accrued income TOTAL PREPAID EXPENSES AND ACCRUED INCOME Summary of fixed assets in CHF IT hardware Leasehold Other Total 2004 Total 2003 investments Acquisition costs at Additions Changes in scope of consolidation Acquisition costs at Accumulated depreciation at 1.1. (99 709) (13 673) (16 057) ( ) ( ) Additions (13 641) (859) (2 627) (17 127) (22 875) Changes in scope of consolidation (325) Accumulated depreciation at ( ) (14 532) (18 684) ( ) ( ) NET BOOK VALUE AT NET BOOK VALUE AT Fire insurance values in CHF IT hardware Other fixed assets BNP Paribas (Suisse) S.A., Genève; Bondpartners S.A., Lausanne; Bordier & Cie, Banquiers privés, Genève; Bovay & Partenaires SA, Lausanne; BPT Trading SA,

5 Notes to the consolidated annual financial statements 8 Investments in subsidiaries Eurex Zürich AG, Zurich STOXX Limited, Zurich TOTAL INVESTMENTS IN SUBSIDIARIES On 13 December 2004, the Articles of Association of Eurex Zürich AG were amended to incorporate new provisions governing dividend and liquidation entitlements in respect of the existing participation certificates. Consequently, the share in net income is now calculated at 15% (2003: 20%) and the value of the equity investment has fallen by CHF 3.5 million. In December 2004, Eurex Zürich AG received a capital contribution of CHF 2.1 million. The investment in Eurex Zürich AG, valued using the equity method, amounted to CHF 10.6 million at 31 December This represents a decline of CHF 0.2 million. Against a background of difficult market conditions, the prospects for Eurex s US companies are viewed with restraint. Overall, these companies are operating at a considerable loss. An impairment review was conducted on 31 December 2004, following which an adjustment of CHF 7.1 million was made to the book value of the holding in Eurex Zürich AG. The investment in STOXX Limited, valued using the equity method, amounted to CHF 5.3 million at 31 December This represents a decline of CHF 0.1 million. Lausanne; BPVi (Suisse) Bank SA, Lugano; Bridport & Cie SA, Genève; BS Bank Schaffhausen, Hallau; BW Vermögens-Management (Schweiz) AG, Zurich; C.I.M.

6 Consolidated annual financial statements for Summary of intangible assets in CHF Goodwill Software Externally Internally Total 2004 Total 2003 licences developed developed software software Acquisition costs at Additions Disposals (0) (0) (0) (447) (447) (0) Acquisition costs at Accumulated amortization at 1.1. (38 367) (11 473) (28 532) (5 134) (83 506) (30 788) Additions (320) (866) (7 176) (4 678) (13 040) (52 718) Special amortization (1 064) (1 064) 0 Accumulated amortization at (38 687) (12 339) (35 708) (10 876) (97 610) (83 506) NET BOOK VALUE AT NET BOOK VALUE AT The Group began capitalizing software licences in Externally developed software consists of extended functionalities designed by third parties for the Eurex system. The figure for internally developed software refers to development costs for extending the SWX platform, which have been capitalized since the 2001 financial year. In accordance with inhouse regulations on the capitalization of internally developed software, expenditure incurred in each financial year is capitalized at year-end and written off over an estimated useful life of 5 8 years. In 2004, development costs of CHF 1.1 million were capitalized in connection with the EM7 release. Work was then halted on the basis of current project assessment procedures. The newly launched Quotematch project replaced the EM7 release. The capitalized costs were therefore fully written down. Banque, Genève; Caisse d Epargne d Aubonne, Aubonne; Caisse d Epargne de la Ville de Fribourg, Fribourg; Caisse d Epargne de Nyon, PSA/sgu, Nyon; Caisse

7 Notes to the consolidated annual financial statements 10 Other liabilities Due for goods and services to third parties to related parties 747 Total due for goods and services Miscellaneous liabilities to third parties to related parties Total miscellaneous liabilities TOTAL OTHER LIABILITIES In 2004, the current account debt of CHF 10.3 million to the SWX Swiss Exchange Association resulting from the transfer of the solidarity fund at 31 December 2003 was settled by means of a cash remittance. 11 Accrued expenses and deferred income Employee benefits Swiss Federal Banking Commission Other accruals and deferrals TOTAL ACCRUED EXPENSES AND DEFERRED INCOME Pursuant to the ordinance of 2 December 1996 (as amended on 21 October 2003) concerning fees of the Swiss Federal Banking Commission, part of the Commission s costs are covered by a turnover fee levied by the SWX Swiss Exchange on securities trading. The estimated amount payable to the Commission for the 2004 financial year is CHF 9.9 million. d Epargne de Prez, Corserey et Noréaz, Prez-vers-Noréaz; Caisse d Epargne de Siviriez, Siviriez; Caisse d Epargne du District de Cossonay, Cossonay;

8 Consolidated annual financial statements for Provisions in CHF Taxes Repair work Other Total 2004 Total 2003 on rented buildings Book value at Additions Use (13 185) 0 0 (13 185) (7 774) Reclassification (15 854) 0 (892) (16 746) 0 Reversal (19) 0 (1 248) (1 267) (13 511) Foreign currency earnings 26 (1) BOOK VALUE AT The reduction of CHF 0.9 million in other provisions in 2004 is due to the reclassification of accruals for exchange fees. These are now accounted for under Accrued expenses and deferred income. Provisions for taxes are now carried under Miscellaneous liabilities. These provisions are for short-term tax liabilities. 13 Changes in equity in CHF Company Capital Retained Cumulative Total capital reserve earnings translation (premium) difference Equity at Payment of premium ( ) 0 Profit for the year Translation differences (459) (459) Equity at (459) Translation differences Profit for the year Equity at (255) The share capital amounts to CHF 10 million, divided into registered shares of CHF each. On 13 August 2003, the share capital of the SWX Group was raised by CHF 9.9 million to CHF 10 million by means of a non-cash contribution from the SWX Swiss Exchange. The difference between this amount and the acquisition price was recorded as a premium (general legal reserve). The foreign currency difference results from the translation of individual accounts of foreign subsidiaries. Caisse d Epargne du District de Courtelary, Courtelary; Caisse d Epargne du District de Vevey, Vevey; Caisse d Epargne et de Prévoyance d Yverdon-les-

9 Notes to the consolidated annual financial statements 14 Segment data Spot securities trading Derivatives trading (Eurex Group) Information services Admission fees Revenue from service level agreements Miscellaneous revenue TOTAL REVENUE Revenue from spot securities trading is shown after deduction of a rebate of CHF 20 million (2003: CHF 15 million). Miscellaneous revenue relates primarily to IT services provided for participants, investment protection fees and stamp taxes on the issuance of securities. 15 Personnel expense Compensation (60 893) (59 448) Social security payments (20 881) (19 537) Other personnel costs (10 630) (10 005) TOTAL PERSONNEL EXPENSE (92 404) (88 990) In 2004, an average of 478 people were on the permanent staff (454 in the previous year). There were 467 full-time positions occupied at 31 December 2004, compared with 447 in Bains S.A., Yverdon-les-Bains; Caixa Bank Banque Privée (Suisse) SA, Genève; CAT Finance AG, Zurich; CBG Banca Privata Lugano SA, Lugano; CBG Compagnie

10 Consolidated annual financial statements for Other operating expenses Repairs and maintenance (17 215) (17 915) Public relations and marketing (5 871) (5 652) Telecommunications (15 972) (19 648) Rental expense (9 431) (8 637) Turnover fee payments to the Swiss Federal Banking Commission (9 407) (8 386) Agency agreement with Eurex (55 290) (42 735) Consultancy and services (24 911) (23 955) Miscellaneous operating expenses (20 072) (18 062) TOTAL OTHER OPERATING EXPENSES ( ) ( ) The increase in expenses for the agency agreement with Eurex is mostly due to costs incurred in connection with the latter s US business, and higher taxes which cannot be reclaimed. Bancaire Genève, Genève; Citation SA, Zurich; Citibank (Switzerland), Zurich; Clariden Bank, Zurich; Commerzbank (Schweiz) AG, Zurich; Compagnie Bancaire

11 Notes to the consolidated annual financial statements 17 Net financial income Interest income Dividend income Other income Financial income Interest expense (185) (279) Bad debt expense (33) (72) Other financial expense (777) (372) Financial expense (995) (723) Impact of new arrangement for participation certificates of Eurex Zürich AG (3 544) Income from equity stake in Eurex Zürich AG (186) 509 Income from equity stake in STOXX Limited (109) 378 Impairment, Eurex Zürich AG (7 130) Income from non-consolidated holdings (10 969) 887 Securities earnings (1 284) (325) Foreign currency earnings (1 276) 348 Valuation and exchange differences (13 529) 910 TOTAL NET FINANCIAL INCOME (6 608) Dividend income for 2004 includes a dividend payment of CHF 4.0 million by STOXX Limited for the 2003 financial year. More details of income from non-consolidated holdings are provided in note 8. Espirito Santo SA, Lausanne; cosba private banking ag, Zurich; Credit du Lac S.A., Lugano; Crédit Mutuel de la Vallée SA, Le Sentier; Credit Suisse Fides,

12 Consolidated annual financial statements for Other expense/revenue Miscellaneous expenses (3 061) (2 764) Other expense (3 061) (2 764) Reversals of provisions Other prior period adjustments Other revenue TOTAL OTHER EXPENSE/REVENUE (2 694) Taxes Capital and income taxes (15 416) (9 300) Deferred income taxes 953 (5 182) TOTAL TAX EXPENSE (14 463) (14 482) Deferred income taxes are calculated on the differences between the book values of individual company accounts and the values used for consolidation purposes. A tax rate of 25% was applied for the calculation of deferred income taxes. Zurich; Credit Suisse First Boston, Zurich; Credito Privato Commerciale SA, Lugano 4 Caselle; Daiwa Securities SMBC Europe Limited, London, Geneva Branch,

13 Notes to the consolidated annual financial statements 20 Off-balance sheet transactions Contingent liabilities The SWX Swiss Exchange has committed itself in a comfort letter to providing Eurex Clearing AG, Frankfurt, with 20% of the financial resources it needs to fulfil its obligations as a clearing house. The terms of this undertaking were revised with effect from 1 January The commitment is now 15% and limited to a maximum amount of EUR 105 million. This new arrangement replaces the comfort letter of 8 November The commitment is 20% for events prior to 1 January The SWX Swiss Exchange has issued a legally non-binding declaration to the Financial Services Authority (FSA) in favour of the U.S. Futures Exchange L.L.C., a company of the Eurex Group, under which it recognizes its moral obligation to provide financial support as an indirect shareholder and within the context of the joint venture with Deutsche Börse AG. In compliance with regulatory requirements of the FSA, the SWX Swiss Exchange has committted itself to providing virt-x Ltd. with sufficient financial resources at any time. virt-x Exchange Ltd. has undertaken to make compensation payments to London Clearing House Limited (LCH) if the services provided in connection with the central counterparty for securities trading at virt-x are terminated before 4 May Such compensation would be equivalent to the daily turnover which LCH would have to forfeit if the services were discontinued, less all expenses which LCH would no longer incur as a result of their termination. It is not possible to quantify this commitment. Any compensation payment that might be made is limited to a maximum of GBP 2 million. virt-x Exchange Ltd. has undertaken to make compensation payments to SIS x-clear AG (x-clear) if the agreement in connection with the central counterparty is terminated before 4 May Such compensation would be equivalent to the daily turnover which x-clear would have to forfeit, less all expenses which x-clear would no longer incur as a result of the termination of its service. It is not possible to quantify this commitment. Any compensation payment that might be made is limited to a maximum of GBP 1 million. In a letter to London Clearing House Limited (LCH) dated 14 November 2002, the SWX Swiss Exchange confirmed that in the event of a resumption of trading in SMI stocks by SWX, LCH would be able to continue providing settlement services for these stocks on the same terms as agreed with virt-x and that the SWX Swiss Exchange would compensate LCH for any additional expenses incurred. Long-term contracts Rental contract with the Canton of Zurich for the stock exchange building at Selnaustrasse (expiry 2012) Rental contract with Canary Wharf Management Ltd., Canary Wharf, London (expiry 2005) Cooperation agreement with Deutsche Börse concerning Eurex Zürich AG (expiry 2014) 21 Pending transactions The risks inherent in pending transactions are covered by Other provisions. Genève; DC Bank Deposito-Cassa der Stadt Bern, Bern; Decova S.A., Genève; Deka (Swiss) Privatbank AG, Zurich; Delen (Suisse) SA, Genève; Dexia Privatbank

14 Consolidated annual financial statements for Post-balance-sheet events No events occurred after the balance sheet date which would have a material impact on the consolidated financial statements for the year ended 31 December Related parties In the course of normal business operations, the SWX Group provides services for the following related parties: SWX Swiss Exchange Association Eurex Zürich AG, Zurich, and the subsidiaries held by it either directly or indirectly, essentially: Eurex Frankfurt AG, Frankfurt, Eurex Clearing AG, Frankfurt, Eurex Bonds AG, Frankfurt, U.S. Exchange Holding Inc., U.S. Futures Exchange L.L.C. STOXX Limited, Zurich Derivatives trading, Eurex Group Service level agreements, Eurex Zürich AG Service level agreements, STOXX Limited Agency agreement, Eurex Zürich AG (55 290) (42 735) TOTAL RELATED PARTIES Services are billed on an arm s-length basis. 24 Staff pension fund There is an affiliation with a collective insurance foundation that insures the employees of the SWX Swiss Exchange, STOXX Limited and Eurex Zürich AG. In order to show pension fund liabilities as required by Swiss GAAP (FER/ARR 16), this affiliation is treated as a defined contributions plan, i.e. its assets and liabilities are not carried in the balance sheet, and the portion of personnel expense accounted for by the employer s contributions CHF 6.7 million, against CHF 7.4 million in 2003 equals the booked expense. Reserves for the employer s contributions amounted to CHF 3.4 million at 31 December 2004 (CHF 3.4 million in 2003). The SWX Group has set up a welfare foundation for discretionary payments and the financing of retirement benefits, in order that employees of companies with which it has close business or financial ties are insured against the economic consequences of old age, disability and death. Since the foundation was established, the SWX Swiss Exchange has paid in an amount of CHF 18 million (CHF 5 million in 2004 and CHF 5 million in 2003). (Schweiz) AG, Zurich; Dominick Company AG, Privatbank, Zurich; Dresdner Bank (Schweiz) AG, Zurich; DRYDEN BANK SA, Genève; EB Entlebucher Bank, Schüpfheim;