Notes to the Consolidated Financial Statements

1.01 – General information

Clariant Ltd (the »Company«) and its consolidated subsidiaries (to- gether the »Group«) are a global leader in the field of specialty chemicals. The Group develops, manufactures, distributes, and sells a broad range of specialty chemicals, which play a key role in its customers’ manufacturing and treatment processes or add value to their end products. The Group has manufacturing plants around the world and sells mainly in countries within Europe, the Americas, and Asia.

Clariant Ltd is a limited liability company incorporated and domiciled in Switzerland. The address of its registered office is Rothausstrasse 61, CH-4132 Muttenz, Switzerland. The Company is listed on the SIX Swiss Exchange.

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

1.02 – Basis of preparation

The consolidated financial statements of the Clariant Group have been prepared in accordance with the International Financial Reporting Standards (IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary ) and the IFRIC interpretations applicable to companies reporting under IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary , and with the significant accounting policies set out below.

The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) at fair value through profit or loss and other comprehensive income.

The preparation of financial statements in conformity with the IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary requires the use of certain critical accounting estimates. It also requires Management to exercise its judgment in the process of applying the Group’s accounting policies.

These estimates and judgments affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.

Although these are based on Management’s best knowledge of current events and circumstances, actual outcomes may ultimately differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where estimates are significant to the consolidated financial statements, are disclosed under note 4.

1.03 – Restatements

Correction of errors

As a result of information received internally Clariant undertook an investigation which focused on the recognition and measurement of certain provisions and accruals, reviewing whether these were incorrectly recognized and/or measured with the potential aim of steering the Company’s results to meet internal and external targets. The investigation was performed by independent advisors and external counsel appointed by the Company.

As a result of this investigation Clariant is required to restate previously published financial statements, including the annual financial statements for the financial year ended 31 December 2020, the unaudited First Half Year financial statements for the periods ended 30 June 2020 and 30 June 2021 as well as the unaudited quarterly reporting during those years. Errors which relate back to periods before 1 January 2020 have been corrected in the opening balance sheet of the 2020 Annual Financial Statements.

The identified deviations from previously reported figures resulting from the restatement of the 2020 financial statements are mainly due to over- or understated provisions and accruals. The correction of errors was performed in accordance with IAS 8.

The restatement items reflect adjustments to correct errors on the balance sheet to adjust the related provisions and accruals, deferred tax assets and liabilities which were affected by the corrections and the corresponding increases/decreases of costs of goods sold and operating expenses in the income statement.

The errors corrected in the 2020 Annual Financial Statement resulted in an increase of net income of CHF 26 million, thereof CHF 14 million in continuing operations. The nature and impact of these adjustments are described in more detail below and also listed in the table below. The results of the investigation have no impact on the sales and cash and cash equivalent figures reported in 2020.

Overview of the recorded transactions requiring correction

The following types of transaction required a correction:

• Overstatement of restructuring provisions
• Overstatement of provisions for variable salaries
• Overstatement of a provision in connection with an investigation by the EU.
• Overstatement of provisions set up in connection with the disposal of business activities
• Overstatement of provisions and accruals for expenses of various types (e.g. legal obligations, plant maintenance)

IMPACT OF THE CORRECTIONS ON THE ELEMENTS OF THE FINANCIAL STATEMENTS

1.04 – Disclosure of business units as discontinued operations in accordance with IFRS 5, Noncurrent Assets Held for sale and Discontinued Operations

Following the decision of the Board of Directors to dispose of the Business Units 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 (including Business Line Healthcare Packaging) and 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 in June 2019, the two Business Units concerned were reclassified to discontinued operations in 2019 and therefore are presented separately in accordance with IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 5. Healthcare Packaging was sold in October 2019, and 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 in July 2020. See also note 25.

Assets and liabilities pertaining to the discontinued operations are presented as »assets held for sale, and as liabilities directly associated with assets held for sale respectively in the balance sheets of 2020 and 2019 as required by IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 5.

1.05 – Standards, interpretations, and amendments effective in 2021

The Group has applied the following standards and amendments for the first time:

• Amendments to IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 9, IAS 39, IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 7, IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 4 and IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 16 – Interest Rate Benchmark (IBOR) Reform

The amendments listed above did not have any impact on the amounts recognized in the reporting period and prior periods and are not expected to significantly affect future periods.

1.06 – Standards, interpretations, and amendments not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for the reporting period ending on 31 December 2021 and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods or on foreseeable future transactions.

1.07 – Scope of consolidation

• Subsidiaries: Subsidiaries are those entities over which the Group has control. This is the case when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and they are deconsolidated from the date control ceases.
• Associates: Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20 % and 50 % of the voting rights. Investments in associates are accounted for using the equity method.
• Joint arrangements: The Group applies IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 11, Joint Arrangements, to all joint arrangements. Under IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 11, investments in joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. Clariant has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.

All associates and joint ventures apply the same accounting principles as the Group.

1.08 – Principles and methods of consolidation

The annual closing date of the individual financial statements is 31 December. The consolidated financial statements are prepared applying uniform presentation and valuation principles. The results of noncontrolling interests are separately disclosed in the income statement and in the balance sheet.

1.09 – Recognition of revenue from contracts with customers

Sales of goods and services are recognized in line with the requirements of IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 15, Revenue from Contracts with Customers. Revenue is measured based on the consideration the Group expects to receive in exchange for the goods or services. Revenue from sales of goods is recognized in the income statement when control has been transferred to the buyer, which is usually upon delivery, at a fixed or determinable price, and when collectability is reasonably assured. Delivery is defined based on the terms of the sale contract.

Revenue from services is recognized when the respective services have been rendered.

Revenue is reported net of sales taxes, returns, discounts, and rebates. Rebates to customers are provided for in the same period that the related sales are recorded based on the contract terms.

Where third parties hold Clariant inventories on a consignment basis, revenue is recognized in the period when inventories are withdrawn from consignment and delivered to customers. Clariant periodically enters into prepayment contracts with customers whereby it receives contract liabilities for products to be delivered in a future period. These contract liabilities are recorded as liabilities and presented as part of other liabilities. Advance payment liabilities are released, and revenues associated with such advance payment transactions are recognized upon delivery and transfer of title, ownership, and risk of loss of the related products to the customer. Cash rebates and discounts granted to customers are classified as a reduction of revenue.

1.10 – Recognition of revenues from interest and dividends

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 Group. Dividends are recognized when the right to receive the payment is established.

1.11 – Exchange rate differences

Exchange rate differences are recognized in line with the requirements of IAS 21, The Effect of Changes in Foreign Exchange Rates. The consolidated financial statements are presented in Swiss francs, which is the functional and presentation currency of the parent company.

Transactions and balances: Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the line Finance costs in the income statement, except when deferred in Other comprehensive income as qualifying cash flow hedges and net investment hedges.

Translation differences on debt securities and on other monetary financial assets measured at fair value are included in foreign exchange gains and losses in the line Finance costs in the income statement.

Group companies: Income statements and cash flow statements of foreign entities are translated into the Group’s presentation currency at sales-weighted average exchange rates for the year, and their balance sheets are translated at the exchange rates prevailing on 31 December.

All resulting exchange rate differences are recognized in other comprehensive income in the line Currency translation differences. Exchange rate differences arising from the translation of the net investment in foreign entities and from borrowings and other currency instruments designated as hedges of such investments are recognized in Other comprehensive income in the line Net investment hedge. Net investments also include loans for which the settlement is neither planned nor likely to occur in the foreseeable future.

When a foreign operation is disposed of and as a consequence control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as a part of the gain or loss on disposal.

When the Group’s interest in a subsidiary that includes a foreign operation changes, while retaining control in the subsidiary, a proportionate part of the cumulative amount of the translation difference that was recognized in other comprehensive income is reclassified to noncontrolling interests.

1.12 – Property, plant, and equipment

Property, plant, and equipment, except for the ones pertaining to mining activities, are valued at historical acquisition or production costs and depreciated on a straight-line basis to the income statement, using the following estimated useful lives in accordance with the Group guidelines:

• Buildings: 15 to 40 years
• Machinery and equipment: 10 to 16 years
• Furniture, vehicles, computer hardware: 3 to 13 years
• Land is not depreciated

Property, plant, and equipment pertaining to mining activities are valued at historical costs and depreciated over their useful lives to the income statement using the units of production method.

When the entity has a present legal or constructive obligation to dismantle an item of property, plant and equipment or restore a site, its initial costs include an estimate of the costs of dismantling and removing the item and restoring the site on which it is located. A corresponding provision is recorded for the amount of the asset component.

Financing costs directly associated with the acquisition, construction , or production of qualifying property, plant and equipment are capitalized as a part of the costs of these assets. Investment property is valued at cost less depreciation. As all investment property held by Clariant consists of industrial and administrative sites that have been in use for several decades, there is no active market that would give information on possible market prices. The fair values of the investment proper­ties are therefore determined by way of external appraisals and value-in-use calculations.

1.13 – Leases

Clariant accounts for lease contracts in accordance with IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 16, Leases.

At the inception of the lease, a right-of-use asset and a lease liability are recognized in the balance sheet. The asset is initially measured at the amount of the lease liability plus any initial direct costs incurred.

The lease liability is initially measured at the present value of the lease payments payable over the lease term, including variable lease payments, depending on an index at the commencement date, and the exercise price of purchase options, if it is reasonably certain that the option will be exercised. The lease liability is discounted at the rate implicit in the lease. If that rate cannot readily be determined, the incremental borrowing rate is used. Lease liabilities are subsequently remeasured to reflect possible changes in the lease terms.

Right-of-use assets are depreciated over the duration of the lease contract, including contractually agreed optional extension periods whose exercise is deemed to be reasonably certain. The depreciation is recognized in operating income.

The unwinding of the discounting effect is included in the financial expense. Lease payments are accounted for as a repayment of the lease liability.

Expenses for lease contracts for objects with a value of less than CHF 5 000 and lease contracts with a duration of up to twelve months are recognized directly in the income statement.

1.14 – Intangible assets

Goodwill is recognized in accordance with the requirements of IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 3, Business Combinations; IAS 38, Intangible Assets; and IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 11, Joint Arrangements. Goodwill is not amortized, but tested annually for impairment as required by IAS 36, Impairment of Assets.

Trademarks and licenses are capitalized at historical costs and amortized on a straight-line basis to the income statement over their estimated useful lives, with a maximum of ten years.

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. They are amortized on a straight-line basis to the income statement over their estimated useful lives (three to five years).

Costs directly associated with the production of identifiable and unique software and other intangible products controlled by the Group that will probably generate economic benefits beyond one year are recognized as intangible assets and depreciated over their useful life of three years. Direct costs include software development costs, personnel costs, and advisory costs directly related to the software or product development and an appropriate portion of the relevant overheads. Costs associated with developing and maintaining common software programs are recognized as an expense when incurred.

Intangibles acquired in a business combination, with the exception of mining rights, are amortized using a straight-line method over their remaining useful lives as follows:

• Technology: 3 to 15 years
• Customer relationships: 6 to 20 years
• Tradenames: 10 years
• Order backlog: 2 years

Mining rights are depreciated over their useful lives using the units of production method.

REACH costs were capitalized until the end of 2020 and are depreciated over a period of 12 years.

1.15 – Impairment of assets

Impairment of assets is recognized and disclosed as per the requirements of IAS 36, Impairment of Assets.

1.16 – Noncurrent assets and disposal groups held for sale

Non-current assets and disposal groups are classified as held for sale when their carrying amount is to be recovered through a sale transaction and a sale is considered highly probable. They are stated at the lower of the carrying amount and fair value less costs of disposal, as per the requirements of IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 5, Non-current Assets Held for Sale and Discontinued Operations.

1.17 – Inventories

Purchased goods are valued at acquisition costs, while self-manufactured products are valued at manufacturing costs, including related production overhead costs. Inventory held at the balance sheet date is primarily valued at standard costs, which approximate actual costs on a weighted-average basis. This valuation method is also used for valuing the costs of goods sold in the income statement. Adjustments are made for inventories with a lower net realizable value. Unsaleable inventories are fully written off. These adjustments are recorded as valuation allowances, which are deducted directly from the inventory value in the balance sheet. The allowances are reversed when the inventories concerned are either sold or destroyed and, as a consequence, are removed from the balance sheet.

1.18 – Trade receivables

Trade receivables are amounts due from customers for goods sold or services rendered in the ordinary course of business and are recognized in accordance with IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 9, Financial Instruments. They are generally due within 40 days and therefore classified as current. Trade receivables are recognized initially at the amount of consideration that is unconditional. The Group holds trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortized cost. Details about the Group’s impairment policies and the calculation of the loss allowance are provided in note 12.

1.19 – Cash and cash equivalents, short-term deposits

Cash and cash equivalents comprise cash in hand, deposits, and calls with banks, as well as short-term investment instruments with an initial lifetime of 90 days or less. Bank overdrafts are reported within financial debt in current liabilities on the balance sheet.

Short-term deposits are disclosed separately in the balance sheet if they have an original maturity between 90 and 365 days. They are valued at their nominal value, which is close to their fair market value.

1.20 – Derivative financial instruments and hedging

Derivative financial instruments and hedges are recognized in accordance with IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 9, Financial Instruments. Qualifying hedge instruments are derivatives and nonderivative financial assets and liabilities that are fully measured at fair value through profit and loss. Hedged items are assets or liabilities, unrecognized firm commitments, forecast transactions, or net investments in foreign entities. They are reliably measurable, and, if not recognized, they are highly probable. The hedges are accounted for either as fair value hedges in the case of exposures in fair value of recognized assets and liabilities or unrecognized firm commitments, as cash flow hedges in the case of exposures in cash flows arising from recognized assets or liabilities or forecast transactions that could affect profit or loss, or as hedges of a net investment in a foreign entity.

1.21 – Current income tax

The taxable profits (losses) of Group companies are calculated in accordance with the rules established by the taxation authorities of the countries in which they operate. They are the basis for the de­ter­mination of income tax payments (reimbursements) for the reporting period in accordance with the prevailing local income tax rates. Current income tax is accounted for in accordance with the requirements of IAS 12, Income Taxes.

1.22 – Deferred income tax

Deferred income tax is calculated using the comprehensive liability method in accordance with the requirements of IAS 12, Income Taxes. No deferred income tax is calculated for the temporary differences on investments in Group companies, provided that the investor (parent company) is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognized on tax losses incurred if, based on the business plans of the respective subsidiaries, it is deemed probable that the tax losses are recoverable in the foreseeable future. The recoverability of these tax losses is assessed by Management on a regular basis.

1.23 – Employee benefits

Group companies operate various post-employment schemes, in-cluding both defined benefit and defined contribution pension plans, post-employment health care plans, and other benefits. Obligations for employee benefits are determined and recorded in line with the requirements of IAS 19, Employee Benefits.

Defined contribution plans: Contributions to defined contribution plans are recorded in the income statement in the period to which they relate.

Defined benefit plans: For defined benefit plans, the amount to be recognized in the provision is determined using the Projected Unit Credit method. Independent actuaries perform the actuarial valuations for the defined benefit plans on a regular basis. For the larger plans, these valuations take place annually. For the smaller ones, valuations are performed at least every three years, with systematic rollforwards in the years in between.

The retirement benefit obligations recognized in the balance sheet represent the present value of the obligations at the end of the reporting period less the fair value of the plan assets.

The prepaid pension assets recognized in the balance sheet are capitalized only to the extent of their recoverability, that is, when a cash refund or a reduction in the future payments is available. The return on plan assets, except for amounts reflected in net interest income, are reported under other comprehensive income.

Actuarial gains and losses are charged or credited to equity in other comprehensive income in the period in which they arise. Past service costs are recognized immediately in the income statement.

Some Group companies provide post-employment health care benefits to their retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting method similar to that for the defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.

The charges for defined benefit plans, defined contribution plans, and termination benefits are included in personnel expenses and reported in the income statement under the corresponding functions of the related employees.

Other long-term employee benefits are employee benefits (other than post-employment benefits and termination benefits) that do not fall wholly due within twelve months after the end of the period in which the employees render the related service.

These include long-term compensated absences, such as long-service or sabbatical leave, and jubilee or other long-service benefits. The accounting policy for other long-term employee benefits is equal to that for post-employment benefits, with the exception that actuarial gains and losses are recognized immediately in the income statement.

Short-term employee benefits are employee benefits (other than termination benefits) that fall due wholly within twelve months after the end of the period in which the employees render the related service.

1.24 – Provisions

Provisions are recognized in accordance with the requirements of IAS 37, Provisions, Contingent Liabilities, and Contingent Assets.

1.25 – Research and development

Development expenses are capitalized to the extent that the recognition criteria set up by IAS 38, Intangible Assets, are met.

Considering the uncertainties inherent to the development of new key products, Clariant does not capitalize the associated development costs. Experience has proven that the structure of research and development in the industries that Clariant engages in makes it difficult to demonstrate how single intangible assets (patents) will generate probable future economic benefits.

Laboratory buildings and equipment included in property, plant, and equipment are depreciated over their estimated useful lives in accordance with the Group guidelines of note note 1.12.

1.26 – Segment reporting

Segment information is presented in the same manner as in the internal reporting to the chief operating decision maker. The chief operating decision maker, responsible for strategic decisions, for the assessment of the segments’ performance and for the allocation of resources to the segments, is the Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary .

Clariant had seven business units (BUs), two of which were reclassified to discontinued operations on 30 June 2019, as a result of the Group’s decision to dispose of the Business Units 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 and 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 . The Business Unit 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 was sold on 1 July 2020. 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 was sold subsequent to the balance sheet date on 3 January 2022. See also note 38. For external reporting purposes the remaining five business units are grouped into three business areas (BA) (reportable segments), in accordance with IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 8, Operating Segments:

• Care Chemicals (BU ICS)
• Catalysis (BU Catalysts)
• Natural Resources (BU Oil & Mining Services, BU Functional Minerals, BU Additives)

The five business units were grouped into business areas so that they reflect, in Management’s opinion, the similar economic characteristics of certain BU’s and common traits regarding products, markets, technologies, and cyclicality. These business areas have full responsibility for their operating results.

The Business AreaBusiness AreaFor the financial reporting, Clariant grouped its businesses in three core Business Areas: Care Chemicals, Catalysis, and Natural Resources.View entire glossary Care Chemicals comprises the BU Industrial & Consumer Specialties (ICS), Food Additives as well as the future Industrial Biotechnology business. It demonstrates a clear focus on highly attractive, high-margin, and low-cyclicality segments. The BA is a pillar of Clariant’s efforts to be a supplier of green and sustainable products.

The Business AreaBusiness AreaFor the financial reporting, Clariant grouped its businesses in three core Business Areas: Care Chemicals, Catalysis, and Natural Resources.View entire glossary Catalysis develops, manufactures, and sells a wide range of catalyst products for the chemical, fuel, and automotive industries, as well for the biofuel business. This BA is highly profitable with a cyclicality in line with the investment cycle of the petrochemical industry.

The Business AreaBusiness AreaFor the financial reporting, Clariant grouped its businesses in three core Business Areas: Care Chemicals, Catalysis, and Natural Resources.View entire glossary Natural Resources, comprising the BUs Oil & Mining Services, Functional Minerals, and Additives, is characterized by high growth and a low cyclicality. Main drivers are the rising demand for high-value-added specialty chemicals used in the oil, mining, food and packaging industries; the increased consumption of oil, gas, and base metals, and the increasing use of plastics with tailor-made properties in applications such as mobile phones, cars and construction, driven by the fast-growing economies.

Discontinued operations comprise Business Units 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 for the first six months of 2020 and 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 for 2020 and 2021.

Corporate: Income and expenses relating to Corporate include the costs of the Corporate headquarters and some of the corporate coor­dination functions in major countries. In addition, Corporate includes certain items of income and expense, that are not directly attributable to specific Business Areas, like central R&D costs.

The Group’s business areas are segments offering a large variety of products. The segments are managed separately because they manufacture, distribute, and sell distinct products, that require differ­ing technologies and marketing strategies. These products are also subject to risks and returns that are different from those of other segments.

Segment sales are sales reported in the Group’s income statement directly attributable to a segment, as well as the relevant portion of the company income that can be allocated on a reasonable basis to a segment, whether from sales to external customers or from transactions with other segments.

Segment operating expenses are expenses resulting from the operating activities of a segment directly attributable to the segment and the relevant portion of an expense that can be allocated on a reasonable basis, including expenses relating to sales to external cus­tomers and expenses relating to transactions with other segments. Inter-segment transactions are entered into under the normal circumstances and terms and conditions that would also be available to unrelated third parties.

The segment net assets consist of segment assets - primarily property, plant, and equipment, intangible assets, inventories and receivables, - less segment liabilities. Usually no allocation of Corporate items is made to the segments. Corporate assets and liabilities principally consist of net liquidity (cash, cash equivalents, and other current financial assets less financial debts) and deferred and current income taxes.

The Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary assesses the performance of the operating segments based on income statement parameters like third-party sales, EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary , operating result, and cash flow. Interest income, interest expense, and taxes are not allocated to the segments. The return on the capital invested in each segment is measured by the Return on Net Assets (RONA).

1.27 – Share capital and other reserves

All issued shares are ordinary shares and, as such, are classified as equity. Incremental costs, directly attributable to the issue of new shares or options, are shown in equity as a deduction, net of tax, from the proceeds.

Written put options, where Clariant Ltd shares are the underlying, are reported as obligations to purchase Clariant Ltd shares if the number of shares is fixed and physical settlement for a fixed amount of cash is required in case the option is exercised.

At inception, the obligation is recorded at the present value of the settlement amount of the option, and the corresponding effect is recognized in shareholders’ equity.

The liability is measured subsequently at amortized costs using the effective interest method. Upon settlement of such written put options, the liability is extinguished, and the charge to equity is reclassified to the treasury shares.

Clariant Ltd shares, subject to such put options, are not considered to be outstanding for the purpose of basic earnings per share calculations, but are considered for the dilutive earnings per share calculations to the extent that they are dilutive.

Other reserves comprise the following items:

• Share premium: The share premium comprises the excess price paid over the par value of the share at the time of issuance of the share capital.
• Cumulative translation reserves: The translation reserves comprise the foreign exchange differences arising from the translation of the financial statements of the foreign subsidiaries stated in a currency other than the Group’s functional currency. In addition, the cumulative translation reserves comprise the foreign exchange differences arising on the translation of financial liabilities denominated in a currency other than the functional currency of the parent company, Clariant Ltd, that are at the same time designated as a hedge of a net investment in a foreign entity.

1.28 – Treasury shares

Treasury shares are deducted from equity at their par value of CHF 3.00 per share (2020: CHF 3.70). Differences between this amount and the amount paid for acquiring, or received for disposing of, treasury shares are recorded in retained earnings.

1.29 – Financial debt

Financial debt is recognized based on the requirements of IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 9, Financial Instruments: Recognition and Measurement.

All financial liabilities are valued at amortized cost.

1.30 – Financial assets

Financial assets are classified, recognized, measured, and, if necessary, impaired based on the requirements of IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 9, Financial Instruments.

Financial assets are valued at amortized cost if there is the intention to hold them in order to collect the contractual cash flow, and this cash flow is only for the principal and interest.

Financial assets are valued at fair value through other comprehensive income when they are held with the intention of getting the contractual cash flow, but also with the intention of eventually selling the asset.

Equity investments are measured at fair value through other comprehensive income based on the Group’s irrevocable election at initial recognition.

There are currently no financial assets at fair value though profit and loss.

Loss allowances are recognized for expected credit losses, in line with the requirements of IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 9, Financial Instruments. Changes in the measurement of the loss allowance are recognized in profit and loss.

Purchases and sales of financial assets are recognized on the settlement date, which is the date on which the Group receives or delivers the assets

1.31 – Business combinations

The Group applies the acquisition method to account for business combinations in accordance with IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 3, Business Combinations, and recognizes any noncontrolling interests in the acquiree at fair value (full goodwill method).

Acquisition-related costs are expensed as incurred.

1.32 – COVID-19

The outbreak of the COVID-19 pandemic has affected the world-economy deeply and, as a consequence also the environment of Clariant and the company itself. Clariant has taken early measures to minimize the COVID-19 impact by assuring people safety first while supporting its communities and concurrently running business continuity, cash, and cost programs.

Business continuity was able to be preserved by stringent safety and contingency measures mitigated disruptions caused by temporary production site closures while cooperating closely with customers and suppliers along the value chains.

Management, together with the business units is continuously modeling and assessing the situation and executing stringent cash and cost programs.

These cash programs are centrally run and focus on optimizing net working capital efficiency, spend avoidance, cost cuts, and operational flexibilization. Supply and production plans have been adjusted to assure efficient levels of inventories. The recoverability of inventories is also assessed to be unchanged compared to the time prior to the COVID-19 crisis due to tight inventory management. Debtors are prudently managed, and so far, no increase in overdues or defaults was recorded.

The economic development is continuously monitored together with the Business Units and assessed for the need to adjust the business plans.

2.1 – Regulation & Compliance

Clariant is subject to many rules and regulations as well as compliance standards. These include chemical industry, country, government, and customer requirements as well as the European Union’s (EU) Regulation on the Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) or similar regulations in other countries.

The function Global Product Stewardship is responsible for ensuring that all relevant legal requirements are met. Certain specific matters are delegated to other functions.

2.2 – Sites and locations

This includes manufacturing plants and equipment important for the production of Clariant products for sale to customers.

Also addressed are country and culture issues that could create threats to business objectives. The aim is to maintain high-quality and safe production facilities. ESHA and Regional Services are responsible for the management of the associated risks.

Examples of emerging risks included in the risk register:

2.3 – Supply chain reliability

The achievement of targets depends on the reliability of the supply chain. The purchasing of raw materials may be impaired due to the unavailability of respective products, required energy, or corresponding means of transportation. Similarly, our customers may be affected by the unavailability of certain input materials outside the range of chemical products, limiting their production and thus Clariant’s sales opportunities. Clariant responds to these challenges with market intelligence to identify potential constraints in an early stage and in close cooperation with our business partners.

2.4 – Sustainability transformation

Demand for sustainable products is clearly increasing, which opens up business opportunities. Nonavailability of sustainable offerings represents a market disadvantage. Clariant is responding with the new organizational unit Group Innovation & Sustainability, which combines various resources to accelerate the sustainability transformation.

2.5 – Digital interconnection

Successful performance of the Clariant Group depends on properly working information systems. Cyberattacks may result in the loss of business and personal data, knowledge, facilities, or money, leading to interruptions in manufacturing and product deliveries. Such attacks might cause significant economic damages as well as loss of trust. Clariant is responding to the increased cyber risk with a reinforced security operations center, state-of-the-art software, and frequent awareness campaigns.

3.1 – Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk, liquidity risk, counterparty risk, (re)financing and funding risk, and also settlement risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to reduce potential adverse effects on the Group’s financial performance at reasonable hedging costs. The Group uses derivative financial instruments, nonderivative financial instruments, and operating strategies to hedge certain risks.

Financial risk management is carried out by the central treasury department (Corporate Treasury) under policies approved by the Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary and the Board of Directors. Corporate Treasury identifies, evaluates, and hedges financial risks in close cooperation with the Group’s operating units and functions. Written principles for the management of overall foreign exchange risk and credit risk for the use of derivative financial instruments, nonderivative financial instruments and investing excess liquidity (counterparty risk) are in place.

3.1.1 – Market risk

3.1.1.1 – Foreign exchange risk

• Exposure to foreign exchange risk: The Group operates internationally and is exposed to foreign exchange risks arising from various currency exposures, primarily with respect to the euro, the US dollar and, to some extent, the currencies of emerg­ing countries. Foreign exchange risks arise from future commercial transactions, recognized assets and liabilities, and net investments in foreign operations when they are denominated in a currency that is not the respective subsidiary’s functional currency.
• Foreign exchange risk management: To manage the foreign ex­change risk arising from future commercial transactions and recognized assets and liabilities, entities in the Group use spot transactions, FX forward contracts, FX options, and FX swaps according to the Group’s foreign exchange risk policy. Corporate Treasury is responsible, in close coordination with the Group’s operating units, for managing the net position in each foreign currency and for putting in place the appropriate hedging actions. The Group’s foreign exchange risk management policy is to selectively hedge net transaction exposures in major foreign currencies. Currency exposures arising from the net assets of the Group’s foreign operations are managed primarily through borrowings denominated in the relevant foreign currency. Detailed information regarding foreign exchange management is provided in note 31.
• Foreign exchange risk sensitivity: The estimated percentage change of the following foreign exchange rates used in this calculation is based on the historical foreign exchange rate volatility for a term of 360 days. At 31 December 2021, if the euro had strengthened/weakened by 4 % (2020: 5 %) against the Swiss franc with all other variables held constant, pretax profit for the year would have been CHF 22 million higher/lower (2020: CHF 25 million higher/lower), mainly as a result of foreign exchange gains/losses on the translation of the euro-denominated financing, cash and cash equivalents, intragroup financing, and third-party trade receivables and payables. Equity would have been CHF 42 million lower/higher (2020: CHF 54 million lower/higher), arising mainly from foreign exchange gains/losses of the exposure of the foreign currency participations and the hedge instruments in the hedge of net investments, which partially offset this effect. At 31 December 2021, if the US dollar had strengthened/weakened by 6 % (2020: 8 %) against the Swiss franc with all other variables held constant, pretax profit for the year would have been CHF 13 million higher/lower (2020: CHF 34 million higher/lower), mainly as a result of foreign exchange gains/losses on the translation of US dollar-denominated cash and cash equivalents, intragroup financing, and trade receivables. Equity would have been CHF 60 million lower/higher (2020: CHF 30 million lower/higher), arising mainly from foreign exchange gains/ losses of the exposure of the foreign currency participations and the hedge instruments in the hedge of net investments, which partially offset this effect.

3.1.1.2 – Interest rate risk

• Exposure to interest rate risk: Financial debt issued at variable rates and cash and cash equivalents expose the Group to cashflow interest rate risk; the net exposure as of 31 December 2021 was not significant. Financial debt issued at fixed rates does not expose the Group to fair value interest rate risk because it is recorded at amortized costs. At the end of 2021 and 2020, 100 % of the net financial debt was at fixed rates.
• Interest rate risk management: It is the Group’s policy to manage the costs of interest using fixed- and variable-rate debt and interest-related derivatives. Corporate Treasury monitors the net debt fix-to-float mix on an ongoing basis.
• Interest rate risk sensitivity: To calculate the impact of a potential interest rate shift on profit and loss, the net debt exposure is taken into consideration for cash and debt maturing within the next 12 months. The variable Certificates of Indebtedness maturing after 12 months are also taken into consideration (interest rates comparison between the end of 2021 and end of 2020). At 31 December 2021, if the CHF interest rates on net current financial debt including Certificates of Indebtedness with variable interest rates after 12 months, had been 1 basis point higher/lower with all other variables held constant, pretax profit for the year would have been CHF 0.00 million higher/lower (2020: CHF 0.16 million higher/lower for a CHF interest rate shift of 1 basis point).

At 31 December 2021, if the USD interest rates on net current financial debt issued, including Certificates of Indebtedness with variable interest rates after 12 months, had been 1 basis point higher/lower with all other variables held constant, pretax profit for the year would have been CHF 0.15 million higher/lower (2020: CHF 0.65 million higher/lower for a USD interest rate shift of 1 basis point).

At 31 December 2021, if the EUR interest rates on net current financial debt issued, including Certificates of Indebtedness with variable interest rates after 12 months had been 1 basis point higher/lower with all other variables held constant, pretax profit for the year would have been CHF 5.09 million higher/lower (2020: CHF 2.38 million higher/lower for a euro interest rate shift of 1 basis point).

3.1.2 – Other price risks

With regard to the financial statements as per 31 December 2021 and 2020, the Group was not exposed to other price risks in the sense of IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 7, Financial Instruments: Disclosures.

3.1.2.1 – Credit risk

• Exposures to credit risk: Credit risk arises from deposits of cash and cash equivalents, from entering into derivative financial instruments, and from deposits with banks and financial institutions, as well as from credit exposures to wholesale and retail customers, including outstanding re­ceiv­ables and committed transactions with suppli­ers. Customer credit risk exposure is triggered by customer default risk and country risk. As of 31 December 2021, the Group had a diversified portfolio with more than 16 000 active credit accounts (2020: more than 19 000), with no significant concentration either due to size of customers or due to country risk. Of the accounts receivable, 50 % are distributed among 244 corporate groups with moderate customer default risk.
• Credit risk management: Clariant has a Group credit risk policy in place to ensure that sales are made to customers only after an appropriate credit assessment. Procedures are standardized within a corporate customer credit risk policy and supported by the IT system with respective credit management tools. Credit lines are partially backed by credit risk insurance.

Ageing balance of trade receivables

Net trade receivables per Group internal risk category

Financial instruments contain an element of risk that the coun­ter­party may be unable to either issue securities or to fulfill the settlement terms of a contract. Clariant therefore – whenever possible – only cooperates with counterparties or issuers that are at least rated »BB-« when it comes to entering into deposits with such counterparties. The cumulative exposure to these counterparties is constantly monitored by Corporate Treasury. There is no expec­tation of a material loss due to counterparty risk.

The Group maintains a large EUR cash pooling structure with a leading European bank, over which most European subsidiaries execute their cash transactions denominated in euro. A USD cash pooling structure with a leading US bank was introduced in 2020. As a result of this cash pool, the Group at certain times has substantial current financial assets and at other times substantial current financial liabilities with the corresponding banks.

In view of the European bank being rated »A-« (2020: BBB+) and the US bank being rated »A+« by the most important rating agencies, Clariant does not consider this to pose any particular counterparty risk.

At the balance sheet date, 71 % (2020: 63 %) of the total cash and cash equivalents and short-term deposits were held with five banks (2020: five banks), each with a position between CHF 21 million and CHF 132 million (2020: between CHF 89 million and CHF 154 million). All of these banks are rated »A-« (2020: »A« ) and better.

The table below shows in percentage of total cash and cash equivalents the share deposited with each of the three major counter­parties at the balance sheet date (excluding the banks managing the EUR and USD cash pools):

3.1.3 – Liquidity risk

• Liquidity risk management: Cash flowCash flowEconomic indicator representing the operational net inflow of cash and cash equivalents during a given period.View entire glossary forecasting is performed in the subsidiaries of the Group and in aggregate by Corporate Treasury. Corporate Treasury monitors the forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet its operational needs while maintaining sufficient headroom on its undrawn borrowing facilities. At all times, the Group aims to meet the requirements set by the covenants of any of its borrowing facilities. Corporate Management therefore takes into consider­ation the Group’s debt financing plans and financing options.

Cash that is not needed in the operating activities of the Group is invested in short-term money market deposits or marketable securities if an interest income higher than the one on a regular bank deposit can be achieved. At 31 December 2021, the Group held money market funds of CHF 29 million (2020: CHF 485 million), of which CHF 12 million have an initial tenor of more than 90 days (2020: CHF 267 million).

The following table analyzes the maturity profile of the Group’s financial liabilities. The amounts disclosed are the contractual undiscounted cash flows and therefore do not reconcile with the financial liabilities presented in the consolidated balance sheets.

The Group covers its liabilities out of generated operating cash flow, liquidity reserves in form of cash and cash equivalents including money market deposits (31 December 2021: CHF 427 million vs. 31 December 2020: CHF 1004 million), out of uncommitted open cash pool limits and bank credit lines (31 December 2021: CHF 117 million vs. 31 December 2020: CHF 117 million), as well as out of additional uncommitted net working capital facilities and through issuance of capital market instruments.

Since 16 December 2016, Clariant Ltd had an agreement for a CHF 445 million (2020: 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.

3.2 – Fair value measurement

IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 13, Fair Value Measurement, requires the disclosure of fair value measurements for financial instruments measured at fair value in the balance sheet in accordance with the fair value measurement hierarchy.

The fair value hierarchies are defined as follows:

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
• Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

3.2.1 – Valuation methods

As of 31 December 2021, the open derivative financial instruments held were valued using the following valuation methods:

Forward exchange rate contracts: The valuations of forward exchange rate contracts are based on the discounted cash flow model, using observable inputs such as interest curves and spot rates.

Exchange rate options: FX options are valued based on a Black-Scholes model, using major observable inputs such as volatility and exercise prices.

Equity investments valued at fair value through OCI: These are usually classified at Level 3. Their valuation is based on multiples of projected earnings and discounted cash flows.

The financial instruments measured at fair value through profit or loss were all classified as Level 2 (see note 31). There were no transfers between the levels in 2021 and 2020.

3.3 – Hedge accounting

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:

• Hedges of a particular risk associated with the cash flows of recognized assets and liabilities and highly probable forecast transactions (cash flow hedges)
• Hedges of a net investment in a foreign operation (net investment hedges).

At the inception of the hedge relationship, the Group documents the economic relationship between hedging instruments and hedged items, including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Group documents its risk management objective and strategy for undertaking its hedge transactions.

The fair values of derivative financial instruments designated in hedge relationships are disclosed in note 31. Movements in the hedging reserve in shareholders’ equity are shown in note 31. The full fair value of a hedging derivative is classified as a noncurrent asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

• Cash flowCash flowEconomic indicator representing the operational net inflow of cash and cash equivalents during a given period.View entire glossary hedges: The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized within equity. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss. As long as the hedged cash flow item is probable, the cumulative gain or loss on the respective hedge remains in equity and does not get recycled.

Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss, as follows:

• The gain or loss relating to the effective portion of the interest rate/cross currency swaps hedging variable rate or fixed rate borrowings is recognized in profit or loss within finance cost at the same time as the interest expense on the hedged borrowings.

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss.

• Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income and accumulated within equity. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.

Gains and losses accumulated in equity are reclassified to profit or loss when the foreign operation is partially disposed of or sold.

3.4 – Capital risk management

The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for the shareholders and benefits for other stakeholders and to maintain a capital structure suitable to optimize the cost of capital. This includes aspects of the credit rating.

In order to maintain or adjust the capital structure, the Group may adjust the amount of payouts to the shareholders, return capital to the shareholders, issue new shares, or sell assets to reduce debt.

The Group monitors capital on the basis of invested capital as part of the return on invested capital concept. Invested capital is calculated as the sum of total equity as reported in the consolidated balance sheet plus current and noncurrent financial liabilities as reported in the consolidated balance sheet, including lease liabilities, plus estimated cash needed for operating purposes, less cash and cash equivalents and near cash assets not needed for operating purposes.

Invested capital for the Group was as follows on 31 December 2021 and 2020 respectively:

At the end of 2021, Clariant considers the invested capital to be adequate.

3.5 – IBOR Reform

On 31 December 2021 LIBOR rates for all major currencies except for the US dollar were abandoned and replaced by alternative risk-free rates (ARFRs, e.g., SARON for CHF, SONIA for GBP, TONAR for JPY). ARFRs are transaction based on overnight rates (secured or unsecured). The loan documentation of Clariant’s revolving credit facility (RCF) has been amended for the switch from LIBOR to ARFR for the relevant currencies. No other financial liabilities or derivatives were affected by the discontinuation of LIBOR. All of Clariant’s floating Certificates of Indebtedness are denominated in EUR and therefore subject to EURIBOR, which continues to be used.

4.1 – Estimated impairment of goodwill, intangibles, and property, plant, and equipment

The Group tests annually whether goodwill has suffered any impairment in accordance with the requirements of IAS 36, Impairment of Assets. The recoverable amounts of all cash-generating units have been determined based on value-in-use calculations reported in continuing operations. The recoverable amounts of all cash-generating units classified as discontinued operations have been valued at fair value less cost to sell.

The recoverable value of intangibles and property, plant, and equipment is also assessed applying value-in-use calculations. These calculations require the use of estimates, in particular in relation to the expected growth of sales, the discount rates, the development of raw material prices, and the success of restructuring measures implemented.

4.2 – Environmental liabilities

The Group is exposed to environmental regulations in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for environmental remediation. The Group constantly monitors its sites to ensure compliance with legislative requirements and to assess the liability arising from the need to adapt to changing legal demands. The Group recognizes liabilities for environmental remediation based on the latest assessment of the environmental situation of the individual sites and the most recent requirements of the respective legislation. Where the final remediation results in expenses that differ from the amounts previously recorded, such differences impact the income statement in the period in which such determination is made.

4.3 – Income tax and other taxes

The Group is subject to income tax and other taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income tax and other taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain at the time a liability must be recorded.

The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts initially recorded, such differences impact the income tax and deferred tax provisions in the period in which such deter­mination is made (see note 10). As a substantial part of Clariant’s activities are based in Germany, this is where the largest tax risks arise. Some subsidiaries generate tax losses. Often these can be used to offset taxable gains of subsequent periods. The Group constantly monitors the development of such tax loss situations. Based on the business plans for the subsidiaries concerned, the recoverability of such tax losses is determined. In the event that a tax loss is deemed to be recoverable, the capitalization of a deferred tax asset for such a tax loss is then decided.

4.4 – Estimates for the accounting for employee benefits

IAS 19, Employee Benefits, requires that certain assumptions are made in order to determine the amount to be recorded for retirement benefit obligations and pension plan assets, in particular for defined benefit plans. These are mainly actuarial assumptions such as expected future salary increases, long-term increase in health care costs, average life expectancy, and discount rates. Substantial changes in the assumed development of any of these variables may significantly change the Group’s retirement benefit obligation and pension assets (see note 20).

4.5 – Provisions and Contingencies

Clariant is regularly confronted with situations where possible obligations arising from past events will only be confirmed by the occurrence or nonoccurrence of future events not wholly within the control of the Group or where the amount of the obligation cannot be reliably estimated. Clariant reviews such situations at each balance sheet date and makes judgments based on all information available to determine if an outflow of resources can be reliably estimated or not. If this is not possible, a contingency is reported for each material case.

4.6 – Assets held for sale and liabilities directly associated with assets held for sale

As a result of the decision to divest two of its Business Units, Clariant reclassified the assets and liabilities pertaining to those activities to »held for sale« in accordance with IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards.View entire glossary 5 (see note 1.04). In distinguishing between the assets and liabilities pertaining to continuing operations and those pertaining to discontinued operations, judgment had to be applied, as a part of those assets and liabilities is used by both types of activities.

All assets and liabilities exclusively pertaining to one Business Unit were allocated to that Business Unit. In all other cases a critical assessment was conducted as to whether it could be reasonably expected that the asset or liability concerned would be transferred in a disposal. This assessment was made based on past experience and most recent market developments. The allocation made may have to be adjusted when the disposal is actually consummated.

Investment properties (Clariant as a lessor in operating leases)

As a result of the continuous efforts to increase efficiency and to optimize the structure of its facilities, sometimes production or adminstrative sites are vacated. In order to minimize expenses, Clariant seeks to find tenants for these facilities.

As a consequence, such facilities, which generate income exclusively from rental contracts, are considered as investment property in line with the requirements of IAS 40, Investment Property. All investment property is valued at cost less depreciation.

Investment property in Clariant is almost entirely located in Switzerland and Germany. The gross book value of investment property amounted to CHF 304 million on 31 December 2021 (CHF 524 million on 31 December 2020).

Accumulated depreciation on investment property amounted to CHF 186 million on 31 December 2021 (CHF 382 million on 31 December 2020).

The net book value amounted to CHF 118 million on 31 December 2021 (CHF 142 million on 31 December 2020).

Depreciation amounted to CHF 1 million in 2021 (CHF 1 million in 2020).

Income from investment properties amounted to CHF 6 million in 2021 (CHF 6 million in 2020) and is recorded in SG&A in the segment »Corporate«.

Expected minimum lease income varies between CHF 5 million and CHF 6 million (2020: CHF 5 million and CHF 6 million) per annum for the next five years and amounts to CHF 199 million for later periods (2020: CHF 193 million).

Since all investment property consists of industrial and administrative sites that have been in use for several decades, there is no active market that would give information on possible market prices. The fair values of the investment properties were therefore determined by way of external appraisals and value-in-use calculations. As of 31 December 2021, the estimated fair value of investment property amounted to CHF 171 million (CHF 186 million on 31 December 2020).

Continuing operations

The recoverable amount for CGUs reported as continuing operations is determined based on their value-in-use. The value-in-use calculations use cash flow projections based on the strategic plans up to 2025 as approved by the Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary . For the terminal value, a market growth of 2.25 % is assumed. The main assumptions used for cash flow projections are EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary in percent of sales and sales growth. The assumptions regarding these two variables are based on Management’s past experience and future expectations of business performance. The pretax discount rates used are based on the Group’s weighted average cost of capital. The assumed pre-tax discount rate was 10.70 % for all cash-generating units (2020: 10.68 %). As all CGUs operate in similar geographic areas, have the same source of funds and a similar risk pattern a uniform discount rate is applied to all of them.

For all CGUs, it was assumed that they achieve sales growth in line with or higher than market growth, based on the specific strategic plans for the respective CGUs. It was also assumed that the EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary in percent of sales will improve over present performance as a result of the continuous improvement measures implemented. The conclusion was that the net present value of the expected cash flows exceeds the carrying amount of the net assets allocated on a value-in-use basis of all CGU’s.

Discontinued operations

The estimated recoverable amount of the CGU and BU 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 , which is classified as a discontinued operation, was determined based on the signed sales contract. Based on this, the fair value less cost to sell of the CGU exceeds its book value. For further details on discontinued operations, see note 25.

Distribution from share capital to shareholders

On 7 April 2021 the Annual General Meeting of Clariant AG approved a distribution through capital reduction by way of a par value reduction of the par value from CHF 3.70 to CHF 3.00 per registered share. The payout reduced the share capital by CHF 232 million.

Significant shareholders 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 %.

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

Noncontrolling interests

At 31 December 2021, noncontrolling interests reported are primarily made up of those of the five following companies. They amount to more than 94.4 % of the minority shares reported:

Clariant Huajin Catalysts (Panjin) Ltd, reported sales in the amount of CHF 28 million in the reporting period and total assets in the amount of CHF 52 million as per 31 December 2021. The noncontrolling interests of 40 % of the shares outstanding are held by Northern Huajin Chemical Industry Group Co. Ltd.

Clariant Chemicals (India) Ltd reported sales in the amount of CHF 101 million in the reporting period and CHF 86 million of total assets as per 31 December 2021. The noncontrolling interests of 49 % of the shares outstanding are traded on the Bombay Stock Exchange (BSE) in Mumbai.

Clariant Catalysts (Japan) K.K. reported sales in the amount of CHF 157 million in the reporting period and CHF 84 million of total assets as per 31 December 2021. The noncontrolling interests of 38.6 % of the shares outstanding are held by Nissan Chemicals Industries Ltd.

Süd-Chemie India Ltd (SCIL) reported sales in the amount of CHF 208 million in the reporting period and total assets of CHF 219 million as per 31 December 2021, thereof current assets of CHF 137 million and noncurrent assets of CHF 82 million. Total liabilities amounted to CHF 32 million, thereof current liabilities of CHF 29 million and noncurrent liabilities of CHF 3 million. As per 31 December 2021, total equity of Süd-Chemie India Ltd (SCIL) amounted to CHF 187 million. The noncontrolling interests of 50 % of the shares outstanding are owned by private shareholders in India.

Clariant IGL Specialty Chemicals, acquired on 1 July 2021, reported sales in the amount of CHF 71 million in the reporting period since the time of the acquisition and total assets of CHF 156 million as per 31 December 2021, thereof current assets of CHF 51 million and noncurrents assets of CHF 105 million. Total liabilities amounted to CHF 70 million, thereof current liabilities of CHF 45 million and noncurrent liabilities of CHF 25 million. The noncontrolling interests of 49 % of the shares outstanding are owned by the India-based IGL group.

Exposure of the Group’s borrowings to interest rate changes

• Bonds: the interest rates of all bonds are fixed.
• Certificates of indebtedness: the major part of the existing certificates of indebtedness has a fixed coupon.
• Liabilities to banks and other financial institutions, mostly consisting of bank loans with fixed interest rates mainly.

Collateral. In 2021, no assets were pledged as collateral (2020: no assets were pledged as collateral).

Mortality tables

The following mortality tables were used to determine the defined pension obligation of the most important pension plans:

• Switzerland: BVG 2020 generation table
• Germany: Richttafeln 2018G by Prof. Dr. Klaus Heubeck
• UK: SAPS S2 series amount tables (base table), CMI Model (2019) (future improvements)
• USA: Pri 2012 mortality table with projection scale, MP-2020

Post-employment medical benefits. The Group operates a number of post-employment medical benefit schemes in the United States and France. The method of accounting for the liabilities associated with these plans is largely equal to the one used for defined benefit pension schemes. These plans are not externally funded, but are recognized as provisions in the balance sheets of the Group companies concerned.

Expenses for net benefits are recorded in the same line and function in which the personnel costs are recorded.

Changes in the present value of defined benefit obligations are as follows: