Notes to the consolidated financial statements
Capitalization and valuation principles
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 CPH 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 pharmaceutical packaging films are the Group’s main sales generators; sales from its services are negligible. Net sales are sales less such deductions as price reductions, rebates, discounts, special distribution charges, value-added tax and bad-debt losses.
Change in inventories
This item comprises the changes to the inventories of semi-finished and finished products.
Other operating income
The operating income shown under this item derives mainly from energy sales, from sales of carbon credits, from sales of reusable materials and from leases and rentals of business premises.
Cost of materials
This item comprises all the costs of raw, auxiliary and operating materials, the cost of merchandise and the expenses incurred through the external manufacture or processing of the Group’s own products (third-party services).
Cost of energy
Cost of energy includes the costs of electricity and steam obtained from external suppliers, heating oil, natural gas, water and fuelwood.
Personnel expense comprises all the amounts paid to employees employed under the labour law for the work they perform. It also includes all compulsory and voluntary social security contributions, including company pension scheme premiums and 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.
The CPH Group maintains various occupational pension schemes and plans which are each aligned to the local requirements and conditions in the countries concerned. These occupational pension schemes are legally autonomous, and are financed by contributions from employers and employees. The occupational pension benefit obligations of the Group companies in respect of old age, death or disability are aligned to the local provisions and practices in the countries concerned. The Group’s most significant companies are located in Switzerland, where occupational pension provision is grouped within an independent foundation.
The actual economic impact of these plans on the CPH Group is calculated as of the balance sheet date. The determination of any funding surplus or funding shortfall is based on annual financial statements compiled for each scheme in accordance with Swiss GAAP FER 26 for Swiss-domiciled companies, and on the corresponding local provisions for Group companies domiciled outside Switzerland. Economic benefit is capitalized – if such action is permissible and intended – for use in future pension scheme contributions from the CPH Group. Economic obligations are recognized as liabilities if the requirements for the creation of a provision are met. Freely disposable employer contribution reserves are capitalized.
Share-based compensation is valued at the share price applicable as at the date the shares are allocated and is recorded under both shareholders’ equity (deduction from own shares held) and personnel expense. The difference between the share price as at the date of allocation and the purchase price of the own shares is disclosed in the capital reserves.
Research and development
Research costs are recognized in the income statement as they occur. Development costs are capitalized as intangible assets only to the extent that the amount capitalized is covered by expected future income. All other development costs are recognized in the income statement as they occur.
Maintenance and repairs
This item comprises expenditure on maintenance, repairs and servicing (including the materials required) which are performed by third parties and not capitalized as value-adding fixed assets, together with the cost of materials used in maintenance and repairs performed by the Group’s own personnel.
Other operating expense
This item consists of sales and administration costs and other operating expenses.
The non-operating result includes any income or expenses deriving from sources that are clearly separate from operating activities.
The extraordinary result includes any income or expenses that arise from business transactions which clearly deviate from ordinary business operations.
Income tax expense comprises all the income taxes levied on the taxable profit of the CPH Group. Provisions are made for all current income tax liabilities under accrued liabilities. Deferred income taxes are recognized for differences in valuation between the assets and liabilities valued on the consolidated balance sheet using standard groupwide guidelines and the taxable values thereof. The deferred income taxes on these valuation differences are calculated at the local tax rates which are expected to apply. In the event of any change to these tax rates or to the valuation differences, these deferred tax amounts are adjusted accordingly via the income statement. Deferred tax liabilities are disclosed under provisions, while deferred tax assets are disclosed under financial assets. Any adjustments to deferred income taxes are booked to deferred income tax expense.
Provisions are only made for taxes (withholding taxes in particular) levied on distributions of retained earnings (primarily of Group companies) if the distribution of such retained earnings is considered likely.
Deferred income 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.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, postal and bank account balances and call and term deposits with a residual term to maturity of 90 days or less. They are measured at nominal value.
Trade receivables consist of amounts due for deliveries made and services rendered which have been invoiced but for which payment has not yet been received. They are stated at nominal value less any necessary individual value adjustments. Such value adjustments are determined on the basis of the maturity structure and identifiable credit risk.
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 necessary value adjustments.
Inventories are stated at the lower of their average purchase price or production cost, but at no higher than their net realizable value. Any discounts received on purchases are treated as purchase price reductions. In addition to their direct material and personnel costs, the production costs of semi-finished and finished inventories include a proportion of their production overheads. Appropriate value adjustments are effected for obsolete stock with due regard to identifiable risks.
Prepayments and accrued income
This item consists of expenses paid in the current accounting period that will be charged in a later accounting period, and of income earned in the period but not accounted for and collected until after the balance sheet date.
Tangible fixed assets
Tangible fixed assets (including those held solely for investment purposes) are capitalized at their purchase price less necessary depreciation and/or impairments. All depreciation is effected using the straight-line method over the asset’s useful life. Maintenance and repair expense is charged directly to the income statement. Extensive overhauls of fixed assets are only capitalized if they result in measurable added value in the form of higher performance or an extended useful life.
The useful lives assumed for depreciation purposes are as follows:
- Land: not depreciated
- Land use rights: duration of right of use
- Residential property: 50-100 years
- Office buildings: 33-66 years
- Industrial buildings and infrastructure: 25-50 years
- Installations in rented premises: length of rental agreement
- Installations, production plant and machinery: 5-30 years
- IT hardware: 3-8 years
- Other tangible fixed assets: 5-15 years.
Financial assets may consist of minority shareholdings, employer’s contribution reserves for occupational pension schemes, economic benefit from occupational pension schemes, deferred income tax assets and/or interest-bearing or non-interest-bearing non-current receivables.
Minority shareholdings in companies over which the CPH Group does not exercise substantial influence (which is generally the case with a voting share of less than 20%) are capitalized at their purchase price less any necessary value adjustments.
Employer’s contribution reserves without waiver of use are capitalized at their nominal value. Any changes in them are recognized in the income statement as personnel expense.
Economic interests in occupational pension schemes are capitalized to the extent that these may be used for the company’s future occupational pension scheme payment obligations. Any changes in them are recognized in the income statement as personnel expense.
Interest-bearing and non-interest-bearing non-current financial receivables are recorded at their nominal value less any necessary individual value adjustments.
Intangible assets include software, capitalized development costs, licences, patents and brands. These are valued at their purchase price or manufacturing cost less any amortization required. Amortization is effected on a straight-line basis over the item’s useful life, up to a maximum five-year period.
Intangible assets also include the carbon credits issued free of charge by the Swiss Federal Office for the Environment, which are initially capitalized at their zero acquisition price. Carbon credits are derecognized upon their use or sale. Any income from such sales is disclosed under other operating income.
Impairment of assets
All assets are assessed for any impairment in value as at the balance sheet date. This assessment is based on any events and/or indications which suggest that an asset may have been impaired.
If the asset’s book value exceeds its realizable value (i.e. the higher of its net market value and its value in use), a corresponding impairment will be effected, with the impairment loss recognized in 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 accounting period will subsequently be partially or wholly reversed.
Financial liabilities consist of interest-bearing liabilities, particularly due to banks, bondholders and lessors (via financial leases). They are stated at their nominal value. Financial liabilities maturing in one year or less are recognized as current financial liabilities; financial liabilities maturing in more than one year are recognized as non-current financial liabilities.
Trade payables include all non-interest-bearing current liabilities resulting from ordinary business activities. They are recorded at their nominal value.
Other payables are liabilities that are not classified as trade payables or as financial liabilities. They are measured at their nominal value. Other payables are presented under current or non-current liabilities, depending on their maturity.
Provisions are effected for future liabilities that are likely to arise from an event in the past (i.e. before the balance sheet date) whose amount and/or due date is uncertain but may be estimated. All provisions made are reappraised on every balance sheet date. Any release of provisions is effected via the same position on the income statement through which the provision was originally effected. A distinction is made between current provisions (for liabilities likely to be incurred in up to one year) and non-current provisions (for liabilities likely to be incurred later than this).
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 as well as income accrued before the balance sheet date for a product or service to be provided in a later accounting period.
Shareholders’ equity consists of share capital, capital reserves, own shares, retained earnings and minorities. The nominal value of the company’s share capital is disclosed as share capital.
The net result is credited to retained earnings. Dividend payments are deducted from retained earnings. The differences deriving from currency translations for Group companies are credited to or debited from retained earnings. The goodwill deriving from acquisitions is offset against retained earnings at the time of acquisition, while any negative goodwill is credited to retained earnings.
All other changes in capital are offset against capital reserves.
Treasury shares are shown at their original purchase price. Treasury shares held are presented as a negative item in shareholders’ equity. Treasury shares are not revalued following their initial valuation. If they are later sold, the resulting profit or loss is credited to or debited from the capital reserves.
Goodwill deriving from acquisitions is offset against retained earnings at the time of acquisition. In the event of the subsequent disposal or closure of a part of the business concerned, any associated goodwill previously offset against shareholders’ equity is derecognized and is disclosed in the income statement as part of the profit or loss from the sale.
The impact of any theoretical capitalization and amortization is shown in the notes. For theoretical accounting purposes, goodwill is generally written down over its useful economic life (typically five years). Impairments are effected if required.
A finance lease is deemed to exist if the lessor transfers the benefit of ownership of the leased item and the key risks associated with it to the lessee. The leased item is capitalized at the start of the leasing period as both a fixed asset and a liability, at the lower of its current market value or the net cash value of the future leasing instalments. Each leasing instalment is divided into a financing expense and a repayment amount to produce a constant interest rate for the resulting financial liability. Financing costs are recognized directly in the income statement, where they are shown as interest expense in the financial result. Capitalized leasing items are depreciated over the shorter of their estimated service life or the lease’s duration.
An operating lease is deemed to exist if a large part of the risks associated with ownership of the leased item remains with the lessor. Operating lease payments are recognized in the income statement as a constant other operating expense over the lease’s duration.
Derivative financial instruments
Derivative financial instruments intended as hedges of future cash flows are not capitalized, but are disclosed in the notes to the consolidated financial statements. Derivative financial instruments intended as hedges of balance sheet items are subject to the same valuation principles as the underlying hedged item. Changes in their value since the previous valuation are recorded in the result for the period. Derivative financial instruments intended for trading purposes are recorded at their market value. Changes in such market value since the previous valuation are recorded in the financial result.