Notes to the Financial Statements of Clariant Ltd

1. Accounting policies

Introduction. The statutory financial statements of Clariant Ltd comply with the regulations on financial accounting of the Swiss Code of Obligations.

Revenue recognition. Interest income is recognized on a time proportion basis, taking into account the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the company. Dividends are recognized when the right to receive payment is established

Exchange rate differences. Balance sheet items denominated in foreign currencies are converted at year-end exchange rates. Realized exchange gains and losses as well as unrealized exchange losses are recorded in the income statement.

Intangible assets. Patents are capitalized at cost and amortized on a straight-line basis to the income statement over their estimated useful lives with a maximum of 20 years. Capital increase costs are directly charged to the income statement.

The Board of Directors approved the stand-alone financial statements of Clariant Ltd for issue on 17 May 2022. They will be subject to approval by the Annual General Meeting of Shareholders scheduled for 24 June 2022.

2. Basis of preparation

The statutory financial statements of Clariant Ltd have been prepared according to the provisions of the Swiss Law on Accounting and Financial Reporting (32^nd title of the Swiss Code of Obligations).

Clariant Ltd has no employees, except the members of the Board of Directors of the Clariant Group.

3. Cash and cash equivalents and short-term deposits

Cash and cash equivalents amount to CHF 110 241 664 at the end of 2021, compared to CHF 352 170 332 at the end of 2020, and comprise cash in hand denominated mainly in US dollar, Swiss francs, Japanese yen, and, to a lesser extent, other currencies.

Short-term deposits amounted to CHF 0 at the end of 2021, compared to CHF 256 120 000 at the end of 2020, and include short-term deposits with an original maturity between 90 and 365 days.

4. Other short-term receivables

Other short-term receivables amounted to CHF 25 553 296 at the end of 2021, compared to CHF 32 266 139 at the end of 2020. They comprise third-party receivables for CHF 661 715 (compared to CHF 374 292 at the end of 2020) and intragroup receivables for CHF 24 891 581 (compared with CHF 31 891 847 at the end of 2020).

5. Shareholdings in Group companies

Shareholdings in Group companies are reviewed on a yearly basis to assess their cash-generating capabilities by applying either a mixed calculation method based on the equity value and the net result or, alternatively, the discounted cash flow model. In that review, the investments are classified and grouped in terms of sales and business areas.

The following shareholdings in Group companies were valued using the discounted cash flow method: Clariant S.A. (Brazil), Clariant Finance (Luxembourg) S.A. and Clariant (Japan) KK.

At the end of 2021, shareholdings in Group companies amount to CHF 1 668 704 484, compared to CHF 1 822 537 204 at the end of 2020. After this review, the following was recorded in the income statement: A reversal of devaluation of CHF  151 000 000 (2020: CHF 0) in »Reversal of devaluations on shareholdings and other income related to Group companies« and a devaluation of CHF 200 483 225 (2020: CHF 282 569 184) in »Devaluations of shareholdings and other expenses related to Group companies«.

In the year 2021, no hidden reserves were reversed (2020: CHF 0).

On 1 July 2020, Clariant Ltd sold its subsidiary Clariant Plastics & Coatings Ltd and that company’s subsidiaries to the US-based group Avient, as part of Clariant’s transactions to sell the MasterbatchesMasterbatchesThese are plastic additives in the form of granules with dyestuffs or other additives used to dye or alter the properties of natural plastic.View entire glossary business. Total consideration for the sale of the company amounted to CHF 736 million and resulted in a book gain of CHF 582 million. Additionally, loans extended to MasterbatchesMasterbatchesThese are plastic additives in the form of granules with dyestuffs or other additives used to dye or alter the properties of natural plastic.View entire glossary companies in the amount of CHF 430 million were transferred to the buyer at nominal value.

The table below shows the shareholdings directly held by Clariant Ltd.

For further details on shareholdings indirectly held by Clariant Ltd, see note 37, Important Subsidiaries of this report.

6. Other current non-interest-bearing liabilities

Other current non-interest-bearing liabilities amount to CHF 40 277 742 at the end of 2021, compared to CHF 182 953 864 at the end of 2020. They comprise third party liabilities of CHF 17 317 634 (compared to CHF 12 266 501 at the end of 2020) and intragroup liabilities of CHF 22 960 108 (compared to CHF 170 687 363 at the end of 2020).

Liabilities to other Group companies comprise shareholder costs payable to Clariant International Ltd. and to Colorants International Ltd.

7. Other current interest-bearing liabilities

Other current interest-bearing liabilities amount to CHF 638 157 043 at the end of 2021 (2020: CHF 620 205 551). They comprise third -party liabilities of CHF 322 115 893 (2020: CHF 329 130 020) and intragroup liabilities of CHF 316 041 150 (2020: CHF 291 075 531).

On 5 August 2021, certificates of indebtedness issued in 2016 in the amount of EUR 55 million (CHF 60 million) and USD 277 million (CHF 250 million) reached maturity and were repaid.

On 23 August 2021, two certificates of indebtedness issued in 2020 were repaid early (CHF 37 million, original maturity 2022; CHF 25 million, original maturity 2025).

On 22 November 2021, the certificate of indebtedness issued in 2020 with a notional amount of EUR 83 million (CHF 87 million) was repaid early (original maturity 2025).

On 17 April 2020, the certificates of indebtedness issued in 2015 in the amount of EUR 150 million (CHF 162 million) reached maturity and were repaid.

On 26 October 2020, the certificates of indebtness issued in 2015 in the amount of EUR 212 million (CHF 229 million) reached maturity and were repaid.

A bond issued in 2012 with a nominal value of CHF 175 million and two certificates of indebtness issued in 2020 with a nominal value of EUR 115 million (CHF 118 million) will mature in 2022 and were therefore reclassified to current interest-bearing liabilities.

Since 16 December 2016, Clariant Ltd had an agreement for a CHF 445 million five-year multicurrency revolving credit facility (RCF) with two one-year extension options. The RCF is structured as a club deal with ten key relationship banks with equal stakes and contains an accordion option for an increase up to CHF 600 million. The RCF is structured as a »backstop« facility for rating purposes to maintain Clariant’s liquidity headroom. It contains customary covenants such as negative pledge, cross default, ownership change, and restriction on disposals, mergers, and subsidiary debt. The Group is required to maintain one financial covenant (debt leverage) that is tested at the end of each financial half year. The RCF has been extended until 16 December 2023.

The intragroup liabilities comprise the cash pool accounts and current accounts between Group companies.

8. Share capital

9. Reserves

General reserves must be at least 20 % of the share capital of Clariant Ltd, as this is the minimum amount required by the Swiss Code of Obligations.

As of 2011, if certain conditions are met, qualifying capital contributions made to Clariant Ltd by its shareholders since 1997 can be distributed without being subject to Swiss withholding tax. Qualifying capital contribution reserves of approximately CHF 1.7 billion are confirmed by the Swiss Federal Tax Administration (SFTA).

The SFTA is of the opinion that capital contribution reserves that were formerly offset with losses of CHF 1.26 billion will not qualify as capital contribution reserves anymore (even if compensated with newly generated retained earnings). The Swiss Administrative Court confirmed the SFTA’s view in a particular case (decision of 4 June 2015, A-6072/2013), while the Swiss Supreme Court (as the highest Swiss court level) has up to now not dealt with this question. Clariant Ltd does not unconditionally share the above mentioned opinion. This is why potential capital contribution reserves are also documented as capital contribution reserves in the balance sheet.

10. Treasury shares

Each registered share has a par value of CHF 3.00 (2020: CHF 3.70)

The average price of shares bought in 2021 was CHF 19.03. In 2020, the average price of shares bought was CHF 17.02.

In 2021 and 2020 no shares were sold.

The profit or loss from the sale of own shares is recorded in the income statement as “other finance income” or “other expenses”.

11. Reconciliation of equity

12. Financial liabilities

On 23 August 2021, two certificates of indebtedness issued in 2020 were repaid early (CHF 37 million original maturity 2022; CHF 25 million original maturity 2025).

On 22 November 2021, the certificate of indebtedness issued in 2020 with a notional amount of EUR 83 million was repaid early (original maturity 2025).

On 22 May 2020, Clariant issued five certificates of indebtedness with the total amount of EUR 197.5 million and CHF 62.5 million. These certificates have terms of 2 years, expiring on 23 May 2022 (EUR 114.5 million and CHF 37.5 million), and 5 years, expiring on 22 May 2025 (EUR 83 million and CHF 25 million). While a tranche of CHF 62.5 million has a variable interest of 3 months CHF LIBOR plus spread that ranges between 1.50 % and 1.80 %, and a tranche in the amount of EUR 110.5 million with a variable interest rate of 6 months EURIBOR plus spread that ranges between 1.45 % and 1.90 %, the fixed interest rate is 1.45 % for a tranche in the amount of EUR 87 million.

13. Contingent liabilities

Clariant Ltd belongs to the Swiss value-added tax (VAT) group of Clariant and thus carries joint liability to the Swiss federal tax authority for value-added tax of the Swiss entities of that group.

A Clariant subsidiary in the United States has been named along with many other defendants in lawsuits involving per- and polyfluoroalkyl substances (PFAS). Clariant is monitoring the development of these cases, which relate to a line of business divested in 2013, and is defending all litigation matters related to PFAS. The initial trial on one of the PFAS litigation matters may occur no earlier than early 2023. As of this point in time, Clariant cannot assess if these litigation matters will have a material impact on Clariant’s financial results.

After an internal complaint concerning misstatements relating to provision bookings, Clariant engaged external counsel to investigate the matter. The investigation found that the 2020 financial statements required restatement and the quarterly reporting of key financial data for 2020 and 2021 required correction, as announced by the Company on 27 April 2022. Clariant has made the required restatement and correction and is confident that the matter has been resolved. Nevertheless, uncertainties around the existence, timing and amount of possible financial obligations of the Company may exist. It cannot be ruled out that this matter could result in Clariant becoming subject to formal investigations, proceedings or claims, and any fine or other sanction imposed or other possible financial obligations arising in connection with the restatement or correction or the underlying behavior could adversely affect the Company.

An antitrust investigation initiated by the European Commission in 2017 against Clariant and some of its competitors was closed and settled with a payment of CHF 156 million in December 2020. A provision of CHF 50 million was reversed at the same time.

14. Shareholdings of members of the Board of Directors and the Executive Committee

1. Board of Directors

Shares held

No options were granted to members of the Board of Directors for the years 2021 and 2020, nor did any member of the Board of Directors hold any options in those years.

For detailed information regarding emoluments of the Board of Directors and the Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary , please refer to the Compensation Report.

2. Executive Committee

Shares held

No options were granted to members of the Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary for the years 2021 and 2020, nor did any member of the Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary hold any options in those years.

For detailed information regarding emoluments of the Board of Directors and the Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary , please refer to the Compensation Report.

15. Voting and legal registration limitations

In accordance with Article 5 of the Articles of Incorporation, no limitations exist with regard to registration of shares which are acquired in one’s own name and on one’s own account. Special rules exist for nominees.

In accordance with Article 13 of the Articles of Incorporation, each share has the right to one vote.

16. Significant shareholdings of 3 % or more of total share capital

Based on the notifications received by Clariant and published by SIX Exchange Regulation, as at 31 December 2021, the following shareholders held more than 3 % of voting rights in Clariant Ltd:

Disclosure notifications during the financial year 2021 reported to the Stock Exchange Disclosure Office pursuant to Art. 120 of the Financial Markets Infrastructure Act (FMIA) as well as further information in relation to disclosure notifications can be found on the SIX Swiss Exchange reporting platform: www.six-exchange-regulation.com/en/home/publications/significant-shareholders.html

On 31 December 2020, the following shareholders held a participation of 3 % or more of the total share capital: SABIC International Holdings B.V., Sittard, The Netherlands, controlled by the Public Investment Fund of Saudi Arabia (PIF), Riyadh, Kingdom of Saudi Arabia: 32.22 %; APG Asset Management N.V., Amsterdam, Netherlands: 5.01 %; BlackRock Inc., New York, United States: 3.8 %; Blue Beteiligungsgesellschaft mbH, Am Holzmaierfeld, 82064 Grossdingharting (Germany), and Maple Beteiligungsgesellschaft mbH, Am Holzmaierfeld, 82064 Gross­dingharting (Germany): 3.49 %.

At 31 December 2021, Clariant AG itself held 2 822 712 shares in treasury, corresponding to 0.85 % of the share capital.

17. Events subsequent to the balance sheet date

On 3 January 2022 Clariant sold the business unit PigmentsPigmentsPigments are substances used for coloring; they are used in a technical manner, for example in the manufacture of dyes, varnishes, and plastics. In 2020, Clariant launched the divestment process of its Pigments business, which was completed on 3 January 2022.View entire glossary to US-based SK Capital Partners and the German-based Heubach group. The total consideration of the sale net of cash transferred amounted to CHF 614 million, a 20 % stake in the combined group newly created from the former Clariant and Heubach pigment activities, plus an earn-out of CHF 50 million in case certain numbers of operating profit (EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary ) were achieved in 2021.

On 17 May 2022, Clariant announced that the Board of Directors recommends to the shareholders of the Company a regular distribution by way of capital reduction of CHF 0.40 per share.

All holders of Certificates of Indebtedness (CoI) in a total amount of EUR 544 million and the banks extending a Revolving Credit Facility (RCF) in the amount of CHF 445 million are entitled to be presented the audited consolidated financial statement of the Clariant Group by 30 April and 31 March, respectively, of the following year. In the case of a delay CoI holders can extraordinarily terminate their investment and require an early repayment. RCF banks, subject to a majority vote of all RCF banks are entitled to a cancellation of their commitment and, as the case may be, a repayment of any funds drawn under the RCF. Due to the investigation on Clariant’ financial reporting (see Note 1.03 of consolidated financial statements) and the ensuing delay of the publication of the Annual Report the original deadlines could not be kept by Clariant. This led to negotiations with the holders of these financial instruments to extend the deadline for the presentation of the audited Financial Report 2021 until 30 June 2022. As of 17 May 2022 all 10 banks extending the RCF have consented to extend the deadline for the presentation of the audited Financial Report 2021, including the restatement for 2020 until 30 June 2022. Of the 101 holders of CoIs as of 17 May 2022 three holders announced not to consent to an extension of the deadline for the presentation of the audited Financial Report 2021, and thereof one demanded an early payment of EUR 13 million which was repaid on 28 April 2022.

On 5 August 2021 Clariant obtained a bridging loan from Commerzbank in Germany in the amount of EUR 250 million at 0 %. The loan was incurred by Clariant Produkte GmbH and availed to Clariant Ltd in the form of an intragroup loan. On 3 January 2022 Clariant Ltd paid back this intragroup loan to Clariant Produkte GmbH who in turn repaid the loan to Commerzbank.