Notes to the Financial Statements of Clariant Ltd

1. 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.

2. Accounting policies

Income 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 the 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.

Loans. Unrealized exchange gains were reversed on loans.

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 1 March 2023. They will be subject to approval by the Annual General Meeting of Shareholders scheduled for 4 April 2023. Clariant Ltd has no employees, except the members of the Board of Directors of the Clariant Group.

Hidden reserves. No hidden reserves were released in the year 2022 (2021: CHF nil).

3. Cash and cash equivalents and short-term deposits

Cash and cash equivalents amounted to CHF 137 million at the end of 2022, compared to CHF 110 million at the end of 2021, and comprise cash in hand denominated mainly in US-dollar and in euro and, to a lesser extent, other currencies.

Short-term deposits amounted to CHF 314 million at the end of 2022, compared to CHF nil at the end of 2021 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 23 million at the end of 2022 compared to CHF 26 million at the end of 2021. They comprise third-party receivables of CHF nil (compared to CHF 1 million at the end of 2021) and intragroup receivables of CHF 23 million (compared to CHF 25 million at the end of 2021).

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., Clariant (Japan) KK and Clariant Corporation.

At the end of 2022, shareholdings in Group companies amounted to CHF 1 390 million compared to CHF 1 669 million at the end of 2021. After this review no reversal of devaluation was recorded in 2022 (2021: CHF 151 million) in «Reversal of devaluations on shareholdings and other income related to Group Companies» and a devaluation of CHF 182 million (2021: CHF 200 million in «Devaluations of shareholdings and other expenses related to Group Companies» was recorded).

Loans to Group companies amounted to CHF 1 898 million as at 31 December 2022 (CHF 2 517 million as at 31 December 2021).

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

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

6. Investments in associates and joint venture

On 3 January 2022, Clariant completed the sale of its 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 business to a consortium of Heubach and SK Capital. On the same day, Clariant rolled over CHF 116 million to retain a 20 % stake in the new holding company, alongside Heubach and SK Capital. Taking into account the share of Clariant Ltd in the net result of 2022 of Heubach (CHF 25 million), the book value of this investment per end of December 2022 amounted to CHF 91 million.

On 1 December 2022, the final purchase price for the 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 business was agreed upon between Clariant and SK Capital/Heubach. Under this agreement, Clariant received a vendor loan note in the amount of CHF 55 million (discounted to CHF 39 million as at 31 December 2022), falling due on 3 January 2029 at the latest.

Investments in associates and joint ventures are accounted for using the equity method.

7. Other current non-interest-bearing liabilities

Other current non-interest-bearing liabilities amounted to CHF 22 million at the end of 2022 (2021: CHF 40 million). They comprise third-party liabilities of CHF 8 million (2021: CHF 17 million) and intragroup liabilities of CHF 14 million (2021: CHF 23 million).

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

8. Other current interest-bearing liabilities

Other current interest-bearing liabilities amounted to CHF 367 million at the end of 2022 (2021: CHF 638 million). They comprise third-party liabilities of CHF 278 million (2021: CHF 322 million) and intragroup liabilities of CHF 89 million (2021: CHF 316 million).

In 2022, five certificates of indebtedness in the amount of EUR 263 million with maturity in 2023 were reclassified to current financial debt.

Certificates of indebtedness issued in 2020 totaling EUR 115 million were repaid in 2022. On 28 April 2022, before its maturity, one certificate was partially repaid (EUR 13 million); the remaining part (EUR 15 million) was repaid at maturity on 23 May 2022. On that same date, another certificate of indebtedness with a nominal value of EUR 87 million reached maturity and was repaid.

On 26 September 2022, a bond issued in 2012 in the amount of CHF 175 million reached maturity and was repaid. On that same date, a new bond with a nominal value of CHF 175 million and maturity in 2027 was issued.

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).

Since 16 December 2016, Clariant Ltd has 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.

9. Share capital

10. 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.

11. Treasury shares

Each registered share has a par value of CHF 2.60 (2021: CHF 3.00)

The average price of shares bought in 2022 was CHF 17.22. In 2021, the average price of shares bought was CHF 19.03.

In 2022 and 2021 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».

12. Reconciliation of equity

13. Financial liabilities

In 2022, five certificates of indebtedness in the amount of EUR 263 million with maturity in 2023 were reclassified to current financial debt.

Certificates of indebtedness issued in 2020 totaling EUR 115 million were repaid in 2022. On 28 April 2022, before its maturity, one certificate was partially repaid (EUR 13 million); the remaining part (EUR 15 million) was repaid at maturity on 23 May 2022. On that same date, another certificate of indebtedness with a nominal value of EUR 87 million reached maturity and was repaid.

On 26 September 2022, a bond issued in 2012 in the amount of CHF 175 million reached maturity and was repaid and on that same date, a new green bond with a nominal value of CHF 175 million and maturity in 2027 was issued.

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).

14. 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.

15. Shareholdings of members of the Board of Directors and the Executive Steering Committee

1. Board of Directors

Shares held

No options were granted to members of the Board of Directors for the years 2022 and 2021, 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 CommitteeUntil 30 June 2022, the Executive Committee was mainly responsible for implementing and monitoring the Group strategy, for the financial and operational management of the Group, and for the efficiency of the Group’s structure and organization. Effective 1 July 2022, the Executive Committee was replaced by the Executive Steering Committee (ESC).View entire glossary /Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents.View entire glossary , please refer to the Compensation Report.

2. Executive Steering Committee / Executive Committee

Shares held

No options were granted to members of the Executive CommitteeExecutive CommitteeUntil 30 June 2022, the Executive Committee was mainly responsible for implementing and monitoring the Group strategy, for the financial and operational management of the Group, and for the efficiency of the Group’s structure and organization. Effective 1 July 2022, the Executive Committee was replaced by the Executive Steering Committee (ESC).View entire glossary /Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents.View entire glossary for the years 2022 and 2021, nor did any member of the Executive CommitteeExecutive CommitteeUntil 30 June 2022, the Executive Committee was mainly responsible for implementing and monitoring the Group strategy, for the financial and operational management of the Group, and for the efficiency of the Group’s structure and organization. Effective 1 July 2022, the Executive Committee was replaced by the Executive Steering Committee (ESC).View entire glossary /Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents.View entire glossary hold any options in those years.

For detailed information regarding emoluments of the Board of Directors and the Executive CommitteeExecutive CommitteeUntil 30 June 2022, the Executive Committee was mainly responsible for implementing and monitoring the Group strategy, for the financial and operational management of the Group, and for the efficiency of the Group’s structure and organization. Effective 1 July 2022, the Executive Committee was replaced by the Executive Steering Committee (ESC).View entire glossary /Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents.View entire glossary , please refer to the Compensation Report.

16. 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.

17. 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 2022, the following shareholders held more than 3 % of voting rights in Clariant Ltd:

Disclosure notifications during the financial year 2022 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 2021, 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: 32.35 %; BlackRock Inc., New York, United States: 3.8 %; Blue Beteiligungsgesellschaft mbH, Am Holzmaierfeld, 82064 Strasslach-Dingharting (Germany), and Maple Beteiligungsgesellschaft mbH, 82057 Icking (Germany): 3.49 %; PSquared Master SICAV Ltd, on behalf of its subfund Valetta, Malta Leveraged Event Fund LP, Grand Cayman, Cayman Islands, controlled by Patrick Schmitz-Morkramer, Zurich, Switzerland, and Patrick Bierbaum, Zurich, Switzerland: 3.035 %.

At 31 December 2022, Clariant AG itself held 2 922 398 shares in treasury, corresponding to 0.88 % of the share capital.

18. Events subsequent to the balance sheet date

There were no major events subsequent to the balance sheet date.