Notes to the consolidated financial statements
The consolidated financial statements of the CPH Group are compiled in full accordance with the currently valid Swiss GAAP Accounting and Reporting Recommendations (ARRs). These consolidated financial statements give a true and fair view of the financial positions, earnings and cash flows, and are based on historical values.
The Swiss GAAP ARRs were unchanged in 2020, and the consolidated accounting principles below are also unchanged from the prior year. The capitalization and valuation principles were expanded with the addition of those for shared-based compensation.
Coranavirus crisis and significant management estimates
Coranavirus crisis and significant management estimates
For the compilation of the consolidated financial statements, estimates and assumptions must be made which may impact on the accounting principles to be used and on the amounts shown under assets, liabilities, income and expenditures and the presentation thereof. In view of the coronavirus crisis, further such possible ramifications have been studied in detail. On the basis of these studies, the Board of Directors and Group Executive Management have considered various scenarios, which offer no indication that business cannot continue as a going concern. The situation continues to be constantly monitored.
“Goodwill” is an intangible asset that arises when a company or part thereof is acquired.
In accordance with the Swiss GAAP ARRs, the cash flow statement shows as funds only cash and cash equivalents (excluding securities and fixed-term deposits of more than 90 days). Cash flow is calculated using the Indirect Method.
“Related parties” are regarded as any company or person that either exerts a substantial influence on the CPH Group or is controlled by the same, together with the occupational pension schemes of group member companies.
Alternative performance measures and indicators not defined in the Swiss GAAP ARRs
Alternative performance measures and indicators not defined in the Swiss GAAP ARRs
For the reader’s benefit, CPH has added certain specific intermediate totals which can be deduced from the tables concerned. An overview of the alternative performance measures currently used by CPH is available for download under “Investors/Alternative performance measures” on the CPH website (https://cph.ch/en/investors/Alternative performance measures).
Scope and method of consolidation
The consolidated financial statements consist of the annual financial statements of CPH Chemie + Papier Holding AG, Perlen, and of those group member companies in and outside Switzerland in which CPH Chemie + Papier Holding AG, Perlen directly or indirectly holds more than 50 % of voting rights. The balance sheet date for all CPH Group member companies is 31 December. In accordance with the Purchase Method used for fully consolidated companies, assets and liabilities and income and expenditures are incorporated in full. Intercompany balances and transactions have been eliminated. The shares of minority shareholders or minority partners in the equity and the results of consolidated companies are shown separately but also as part of the consolidated equity and result. Intermediate profits on stocks from deliveries within the Group have been eliminated.
Group member companies acquired in the course of the year are consolidated from the date of CPH’s assumption of control. Group member companies disposed of in the course of the year are deconsolidated from the date of CPH’s cession of control. When a company is acquired, its net assets are determined at their current value and integrated using the Purchase Method. The resulting goodwill is offset against equity. In the case of successive acquisitions of minorities, the goodwill is determined separately for each acquisition step. If the purchase price of an acquisition includes elements that are linked to future earnings, the value of these elements is estimated as accurately as possible at the time of acquisition for goodwill calculation purposes. Should there be deviations from these estimates when the final purchase price is determined, the goodwill offset against group equity is adjusted accordingly.
For the scope of consolidation and changes thereto in 2020, please see Note 28 in the “Additional information on the consolidated financial statements” and the “List of major shareholdings”.
Foreign currency translation
The consolidated financial statements are presented in Swiss francs (CHF). The financial statements of the Group’s constituent companies are presented in the local currency. The financial statements of subsidiaries which are in currencies other than the Swiss franc are translated into Swiss francs as follows:
All assets and liabilities on the balance sheets are translated into Swiss francs at the exchange rate ruling on the balance sheet date (the Effective Date Method). Any differences arising from the use of differing translation rates in the course of such translation are taken to equity. Foreign-currency income and expenditure in the income statements are translated at the average rates ruling for the year. Any translation differences resulting from the application of different exchange rates in the balance sheet (effective date) and the income statement (average rate) are taken to equity with no impact on the income statement. Any translation differences arising from long-term intragroup financing of an equity nature are also taken directly to equity. In the event of the disposal of a foreign subsidiary, the associated translation differences to date are taken straight to the income statement.
Positions held in foreign currencies are translated using the Effective Date Method. All assets and liabilities are translated at the exchange rate ruling on the balance sheet date. Transactions in foreign currencies are translated at the exchange rate ruling on the date of the transaction. The effects of these foreign currency adjustments are taken straight to the income statement.
For the most important foreign currencies, the following CHF translation rates were used:
Capitalization and valuation principles
Capitalization and valuation principles
Liquid funds consist of cash on hand, postal and bank account balances and fixed-term deposits originally maturing in 90 days or less.
Securities are readily marketable financial and capital investments managed internally or externally. They are stated at their current market value.
Trade accounts receivable
Trade accounts receivable consist of amounts due for deliveries made and services rendered that have been invoiced but not yet paid. Their values are generally adjusted individually. Such individual adjustments include any amounts overdue for at least 120 days. Blanket adjustments are also made, based on past experience.
Other receivables consist of short-term claims that are not based on deliveries made and/or services rendered. Other receivables are stated at their nominal value, less any value adjustments.
Prepaid expenses and accrued income
This item consists of expenses paid in the current accounting period that will be incurred in a later accounting period, and of income not accounted until after the balance sheet date.
Inventories are stated at their average purchase price or production cost, but at no higher than their realizable liquidation value. Any discounts received on purchases are treated as purchase price reductions. The Lower of Cost or Market Value Principle is applied. The values of semi-finished and finished inventories include an appropriate proportion of their production overheads. Value adjustments are effected for obsolete stock.
Short-term financial receivables
These include interest-bearing receivables with a maturity of up to one year, and are reported at nominal value less any value adjustments.
Intangible assets include licences, patents, brands and software acquired from third parties. These are valued at their purchase price or manufacturing cost less any depreciation required. Depreciation is effected on a straight-line basis over the item’s useful life, up to a maximum five-year period.
The goodwill deriving from acquisitions is offset against retained earnings at the time of acquisition. In the event of the disposal of a part of the business, any associated goodwill previously offset against equity is taken to the income statement. The impact of any theoretical capitalization and amortization is shown in the notes. For theoretical accounting purposes, goodwill is basically written down over its useful economic life, and generally over five years.
Tangible fixed assets
Land is capitalized at its purchase price less any devaluation. Other tangible fixed assets (buildings, structures, plant, machinery, installa- tions, vehicles, movable property, other equipment and production and business facilities) are capitalized at a maximum of their purchase price or manufacturing cost less any depreciation required under normal business practice. The useful lives assumed for depreciation purposes are as follows:
All depreciation is effected using the straight-line method.
Long-term financial assets
This item comprises all holdings of 20% or less in the capital of other organizations. These are shown at their purchase price less any value adjustments required.
Long-term financial receivables
This item comprises all long-term interest-bearing loans with a maturity of more than one year, which are shown at their (undiscounted) nominal value less any value adjustments.
Assets from employer contribution reserves
In accordance with Swiss GAAP ARR 16, employer contribution reserves or comparable positions are listed as assets. Any differences from the corresponding value in the prior accounting period are taken to the income statement as personnel expense.
Pension scheme assets
Any economic benefits deriving from occupational pension schemes are capitalized here. Such economic benefits will be capitalized if the benefit concerned can be used for the company’s future pension scheme obligations. Any differences from the corresponding value in the prior accounting period are taken to the income statement as personnel expense.
All assets are assessed for any impairment in value on the balance sheet date. This assessment is based on any developments and/or indications which suggest that an asset may have been overvalued in its book value. If the asset’s book value exceeds its realizable value (i.e. the higher of its net market value and its value in use), the resulting impairment will be taken to the income statement. If the factors previously considered in the calculations of an asset’s realizable value have significantly improved, an impairment effected in an earlier period will subsequently be wholly or partially reversed via the income statement.
Other long-term receivables
This item includes all other non-interest-bearing long-term receivables due for payment more than one year after the balance sheet date.
Trade accounts payable
Trade accounts payable include all non-interest-bearing short-term liabilities resulting from ordinary business activities. They are stated at their nominal value.
Other payables are short-term liabilities that are not classified as financial liabilities but derive from business activities. They are reported at their nominal value.
Accrued liabilities and deferred income
This item consists of liabilities incurred before the balance sheet date that will not be due for payment until a later accounting period, and of income accrued before the balance sheet date for a product or service to be provided in a later accounting period.
Short-term financial liabilities
This item consists of interest-bearing liabilities maturing in up to one year. These are stated at their nominal value.
(Short-term and long-term) provisions
Provisions are effected for likely liabilities arising from an event in the past (i.e. before the balance sheet date) whose extent and/or incurrence is uncertain but may be estimated. All provisions made are regularly reappraised (at least every year). Any release of provisions is effected via the same position through which the provision was originally effected. A distinction is made between short-term pro- visions (for liabilities likely to be incurred in up to one year) and long-term provisions (for liabilities likely to be incurred later than this). The changes in provisions are listed in the notes to the consolidated financial statements.
Long-term financial liabilities
This item consists of interest-bearing financial liabilities (bank loans and bonds) with a contractually agreed maturity of more than one year. They are shown at nominal value.
Corporate bonds are shown at nominal value.
Pension scheme liabilities
Any economic liabilities deriving from pension schemes are capitalized here. Such liabilities will be capitalized if the criteria for making appropriate provisions are met. Any differences from the corresponding value in the prior accounting period are taken to the income statement as personnel expense. The Group’s Swiss-based subsidiaries maintain legally autonomous occupational pension schemes that are financed by employer’s and employees’ contributions. The economic impact on the Group through such schemes’ overfunding or underfunding is determined on the basis of the schemes’ annual financial statements and Swiss GAAP ARR 26. Any economic liabilities deriving from pension schemes outside Switzerland that meet the criteria for making appropriate provisions are capitalized.
Other long-term liabilities
This item consists of non-interest-bearing liabilities with a maturity of more than one year. They are shown at nominal value.
Finance lease agreements are shown in tangible fixed assets and other financial liabilities if the associated risks and benefits are largely transferred to the CPH group member company concerned upon the lease’s signing. Investment properties are shown at the lower of the cash value of the minimum leasing instalments or the current market value. The corresponding finance lease obligations are shown under liabilities. Leasing instalments are divided into interest expense and repayment amounts using the Annuity Method. The item leased is depreciated over the shorter of its estimated service life or the lease’s duration. Operating lease payments are taken to the income statement as other operating expense over the lease’s duration.
Derivative financial instruments
Derivative financial instruments are treated according to their underlying motives. Hedges intended to offset currency movements are shown at their market value on the balance sheet date, with the resulting differences in value taken straight to the income statement. Hedges of future cash flows are not capitalized, but are shown in the notes to the consolidated financial statements (under Note 31.4).
Share-based compensation is valued at the share price applicable on the shares’ assignment, and is shown under both equity and personnel expense. The definitively assigned shares are subject to a three-year vesting period, during which the number of shares assigned is not contingent on any further performance, results or other vesting conditions. The difference between the share price on assignment and the purchase price of the treasury shares concerned is shown under capital reserves.
Treasury shares are shown at their original purchase price. The treasury shares held are shown as a negative item in equity. If they are later sold, the resulting profit or loss is taken directly to capital reserves.
Net sales and recording of sales
Net sales comprise the sales of products and services resulting from ordinary business activities. A sale is recorded when it is likely that its economic benefit will accrue to the Group and its amount can be reliably calculated. The sale is regarded as realized with the transfer to the customer of the benefit and the risks concerned. Silicate chemistry products, newsprint, magazine paper and coated films are the Group’s main sales generators: sales from its services are of negligible im- portance. Net sales are sales less price reductions, rebates, discounts, special distribution charges and value-added tax.
Changes to semi-finished and finished inventories
This item contains the changes to semi-finished inventories, to work in progress and to finished inventories.
Other operating income
The operating income shown here derives mainly from energy and water sales and from leases on and rentals of business premises.
Cost of materials
This item contains all the costs of raw, auxiliary and operating materials, the cost of merchandise and expenses incurred through the outside manufacture or processing of the company’s own products (third-party services).
Personnel expense comprises all the amounts paid to employees who are members of the group workforce under employment law for the work they provide. It also includes all compulsory and voluntary social security contributions. It further includes other personnel expense such as the costs of temporary personnel, recruitment, initial and further training and the reimbursement of expenses incurred in connection with professional training.
Energy costs include the costs of electricity and steam obtained from outside suppliers, heating oil, natural gas, water and fuel wood.
This item contains the costs of repairs and maintenance performed by third parties (including the materials used) which are not capitalized, plus the materials used for the Group’s own maintenance and repair activities.
Research and development
Research costs are taken straight to the income statement. Development costs are only capitalized if a future economic benefit can be demonstrated. If not, these are also taken straight to the income statement.
Other operating expense
This item contains sales and administration costs and further operating expenses.
The non-operating result contains any income or expenses deriving from business or events that are clearly separate from operating activities.
The extraordinary result contains any income or expenses which derive extremely rarely from ordinary business activities and cannot be foreseen.
Provisions are made for all tax liabilities, regardless of when they are due for payment. Deferred income tax amounts are calculated for all temporary differences using the Balance Sheet Liability Method. Such temporary differences arise from deviations between the Swiss GAAP ARR values and the taxable values of assets and liabilities. If the taxable result differs from the consolidated profit for the year based on uniform valuation principles, the anticipated additional taxes are deferred. These differences result from the use of fiscally approved degressive depreciation methods and value adjustments.
The deferred taxes due on these deviation amounts are calculated using the local tax rates that are expected to apply. In the event of any changes to such rates or deviations therefrom, the deferred tax amounts are adjusted accordingly. Any change in provisions for deferred tax amounts is taken straight to the income statement.
Deferred taxes on temporary differences may only be recognized if they are likely to be fiscally offset through future profits. Deferred taxes on losses carried forward are not capitalized, in accordance with the consolidated accounting principles.