Notes

Total net sales in the year under review were CHF 228.7 million above prior year. This corresponds to an increase of 46.0% ( (or 50.4% at constant currency).

The other operating income of CHF 21.0 million (prior year: CHF 25.3 million) includes income from the sale of energy, recyclable materials and carbon credits, rental income, own work capitalized and various further operating income. Prior-year other operating income includes the carbon credits sold by the Paper Division in the amount of CHF 18.1 million which were allocated by the Swiss Federal Office for the Environment in 2018-2021 and which were recognized in the balance sheet at their zero acquisition cost. No carbon credits were sold in the year under review (see also Note 16, Intangible assets).

Personnel expense increased by CHF 9.3 million or 10.1% in the year under review. Total headcount increased by 77 full-time equivalents (+7.0%), driven by a satisfactory utilization rate and the capacity expansion in the Chemistry and Packaging divisions.

The other operating expense of CHF 33.8 million (prior year: CHF 24.9 million) includes sales and administrative costs and various other operating expenses. These include an increase in provisions for major repairs (see also Note 20, Provisions).

Interest expense in the year under review and in the prior year includes the CHF 2.0 million interest paid on the outstanding corporate bond (CHF 100 million 2% corporate bond, maturity 12 October 2023, see also Note 17, Financial liabilities).

The non-operating result consists of expenditure on and income from the disposal and rental of former production sites in Uetikon am See (Switzerland) and Full-Reuenthal (Switzerland) and of real estate in Buchrain (Switzerland). The non-operating expense includes an increase in environmental provisions (see also Note 20, Provisions).

The CPH Group’s expected income tax rate for the year under review amounted to 13.9% (prior year: 11.6%). This is the weighted average tax rate based on the results before taxes and individual tax rates for each Group company in the year under review. The change in the expected income tax rate is due to the profit/loss situation and to changes in the tax rates at the various Group companies.

The difference in the year under review between the expected income tax expense and the income tax expense disclosed in the income statement is attributable largely to the use of non-capitalized tax loss carry forwards (see also Note 15, Financial assets). In the prior year, the difference was primarily attributable to non-capitalized tax loss carry forwards.

The calculation of deferred income taxes was based on expected local tax rates at individual Group companies, which averaged 13.3% (prior year: 13.5%).

Non-capitalized tax loss carry forwards decreased in the year under review from CHF 20.8 million to CHF 13.3 million, primarily due to their use. Of these, CHF 1.4 million expire within a year (prior year: CHF 13.4 million) and CHF 0.1 million are of indefinite duration (prior year: CHF 3.3 million).

Earnings per share are calculated by dividing the net result for the year less the portion thereof attributable to minority shareholders by the average number of company shares held during the year (excluding treasury shares; see also Note 23, Treasury shares). The average number of such shares held in 2022 amounted to 5 999 868 (prior year: 5 999 812). On the basis of a net result attributable to shareholders of the company of CHF 101.0 million (prior year: CHF ‑151.6 million), this produces earnings per share of CHF 16.83 (prior year: CHF ‑25.26). Since the company has not issued any share options or convertible bonds, diluted earnings per share are identical to the earnings per share result.

Cash and cash equivalents increased by CHF 48.5 million to CHF 143.6 million in the year under review as a result of the free cash flow and following the repayment of financial liabilities and the dividend distribution.

Trade receivables increased substantially in the year under review as a result of strong net sales growth, although the increase of CHF 25.8 million (gross) was still disproportionately low compared to the rise in net sales. Value adjustments for doubtful receivables also saw a disproportionately low increase of CHF 1.1 million.

This position includes the current portion of the remaining receivable from Canton Zurich for the sale of the former production site in Uetikon am See (Switzerland) which the canton has retained as security in respect of the portion of the costs of cleaning up the adjacent bed of Lake Zurich that is to be borne by the CPH Group. This remaining receivable is reduced by the expenditure on the lake bed clean-up that is to be borne by the CPH Group, charged to the established provisions and paid by Canton Zurich (see also Note 15, Financial assets and Note 20, Provisions).

In the year under review, other receivables decreased CHF 6.8 million compared with prior year primarily as a result of the receipt of payments for property sold in the previous year.

Inventories were CHF 25.6 million higher in the year under review than prior year, owing primarily to increases in the costs of materials.

The Chemistry Division invested in various expansion projects at its Rüti ZH (Switzerland), Zvornik (Bosnia and Herzegovina), Louisville (USA) and Lianyungang (China) operating sites in 2022. The Paper Division invested in maintaining and further improving the efficiency of its production facilities. In addition to various projects to raise efficiencies and modernize its infrastructure, the Packaging Division primarily made substantial investments in its new production facility in Anápolis (Brazil).

The carrying value of tangible fixed assets includes CHF 8.1 million of assets held solely for investment purposes (prior year: CHF 8.3 million) and land use rights of CHF 2.0 million (prior year: CHF 2.2 million). The carrying value of leased tangible fixed assets (finance leases) amounts to CHF 0.1 million (prior year: CHF 0.3 million). These consist in particular of company cars, forklifts and other fixed assets (see also Note 17, Financial liabilities).

An impairment of CHF 150.0 million was effected in 2021 on the Group’s paper production facilities in view of the persistent competition in the paper market and the steep increases in the prices of energy and raw materials. The European market for graphic printing paper has been undergoing structural transformation for over ten years now. Print newspapers are losing ground to digital channels as a news medium. At the same time, the media market is also seeing significant consolidation. Thus, not only have the sizes and the print runs of newspapers been shrinking: numerous titles have also been merged or simply discontinued. As a result, the demand for newsprint in Western Europe has been declining since 2008 by between 6% and 8% a year. This has required production capacities to be modified in response. But since such reductions take longer to effect than the declines in demand, structural overcapacities have emerged, and with them substantial pricing pressures. As a result, paper prices had halved by 2021 from their previous highs.

With significantly less paper both required and produced during the coronavirus pandemic, less waste paper has also been available for recycling processes. Consequently, too little recovered paper was available in 2022 to meet the growing renewed demand for paper products as the year progressed. The shortage was exacerbated by rising demand for the same raw material from the packaging industry, which used recovered paper alongside recovered cardboard to produce sufficient cardboard packaging for the booming online retail sector. As a result, recovered paper prices rose to historic new highs, and recovered paper supplies were severely strained. Parallel to these developments, steep rises were also seen in energy costs.

The present challenges in Europe’s paper and raw materials markets show no sign of easing in the medium term. Margins will remain under pressure, and such pressure will be accentuated by still-high raw materials and energy prices. That 2022 was a successful business year for the Paper Division – which benefited from the accelerated capacity adjustments realized in the previous two years – does little to change this. One competitor, for example, announced plans at the beginning of 2022 to withdraw from paper production and sell four of its five paper factories. The higher energy and raw materials prices also prompted some paper manufacturing facilities to temporarily halt production in the course of the year. The overall effect was a clear fall in paper production volumes. As production temporarily fell more sharply than the declining demand and, at the same time, production costs increased significantly and paper prices were raised in response, the Paper Division’s net sales increased accordingly. The division also benefited in cost terms from the fact that Perlen Papier had purchased its electricity in advance under a structured procurement process, and thus did not have to meet its energy needs on the spot markets with their higher electricity prices. Since no long-term changes were observed in the future factors considered when determining the recoverable amount of the division’s production assets, no adjustments were made in 2022 to the impairments previously effected to the assets concerned.

‘Minority interests in companies’ includes a 10% equity holding in Renergia Zentralschweiz AG, Root (Switzerland). The company operates a waste incineration facility on land purchased from the CPH Group and supplies the Paper Division with around 60% of its steam needs in the form of carbon-neutral low-pressure steam.

‘Deferred tax assets’ considers the impact in tax terms of valuation differences between the values stated on the consolidated balance sheet and the corresponding values applicable under fiscal law. These have largely arisen as a result of intragroup real estate transactions, for which use has been made of existing tax loss carry forwards (see also Note 8, Income taxes).

‘Non-interest bearing receivables’ includes the non-current portion of the remaining receivable from Canton Zurich for the sale of the former production site in Uetikon am See (Switzerland) which the canton has retained as security in respect of the portion of the costs of cleaning up the adjacent bed of Lake Zurich that is to be borne by the CPH Group. This remaining receivable is reduced by the expenditure on the lake bed clean-up that is to be borne by the CPH Group from the established provisions and paid by Canton Zurich (see also Note 12, Other receivables and Note 20, Provisions).

‘Additions’ consist primarily of investments in software systems used in business operations.

Other intangible assets include 98 000 carbon credits (prior year: 2 000 credits) intended for sale. Their estimated fair value as at the balance sheet date is approximately CHF 7.4 million. 96 000 such credits for 2021 were issued free of charge by the Swiss Federal Office for the Environment to the Paper Division in 2022. They are therefore capitalized at their zero acquisition price. Income deriving from the sale of such credits is shown under other operating income. No such income was earned in 2022 (prior year: CHF 18.1 million; see also Note 3, Other operating income).

Goodwill deriving from acquisitions is offset directly against retained earnings in shareholders’ equity (see also Note 24, Retained earnings).

The ‘Bond’ line item comprises the unsecured 2% CHF 100 million corporate bond maturing on 12 October 2023. As part of the Group’s cash management, CHF 1.3 million thereof was repurchased via the stock exchange in 2022, resulting in an outstanding bond liability of CHF 98.7 million on 31 December 2022 (prior year: CHF 100.0 million).

‘Other financial liabilities’ for 2021 include a bank loan which was prematurely repaid under the Group’s cash management in 2022. The corresponding loan agreement contained financial covenants and further conditions under which the lending bank could also serve short-term notice to terminate long-term financial liabilities. These financial covenants were based on key indicators derived from EBITDA, shareholders’ equity and net debt. The terms of such financial covenants were observed in full.

Trade payables increased by CHF 8.2 million in 2022, owing largely to the substantial rises in materials and energy prices.

Other payables increased by CHF 2.6 million.

Environmental provisions relate to the environmental protection measures required at former Chemistry Division production sites. These include the lake bed clean-up in Uetikon am See (Switzerland), the former production site in Full-Reuenthal (Switzerland) and obligations associated with various waste disposal sites. The lake bed clean-up began in 2022 and should be completed in two to three years. It is being conducted in close collaboration with Canton Zurich, which is serving as the project leader with the CPH Group represented in the project management group. 80% of the costs of the clean-up are to be borne by the CPH Group and 20% by Canton Zurich. The work is being financed with the funds generated by the sale of the Uetikon site to Canton Zurich in 2016. The costs involved are not cash-relevant, and reduce both the provisions effected for the work and the remaining receivable from Canton Zurich (see also Note 12, Other receivables and Note 15, Financial assets).

The provisions for major repairs relate to the renovation work needed on the weir in Perlen (Switzerland) under the concession requirements of Canton Lucerne. The related project planning is well advanced, and the work should be performed in the next few years.

For the provisions for deferred income taxes, please see Note 8, Income taxes. Other provisions include claims for customer complaints in the Paper and Packaging divisions.

The provision amounts were reviewed as of the balance sheet date and adjusted in line with the latest estimates and assessments. New findings on the scope and the costs of the actions needed – in the light of the requirements of the authorities, work progress to date and inflation-based increases in construction costs – entailed an increase in the provision amounts (see also Note 5, Other operating expense and Note 7, Non-operating result).

The share capital of CHF 1.2 million consists of 6 000 000 registered shares of CHF 0.20 nominal value (unchanged from the prior year).

A total of 3 345 treasury shares (prior year: 5 593) were purchased in 2022 at an average purchase price of CHF 63.62 per share (prior year: CHF 70.45). No such shares were sold in 2022 (prior year: 3 287 treasury shares sold at an average sale price of CHF 71.49). A total of 3 345 shares (prior year: 2 682 shares) with a vesting period of three years (with no further performance, profit or other vesting conditions) were definitively awarded in the form of share-based remuneration. The resulting personnel expense at a share price on assignment of CHF 62.78 per share (prior year: CHF 66.80 per share) amounted to CHF 0.2 million (prior year: CHF 0.2 million).

The non-distributable retained earnings of the CPH Group amounted to CHF 17.2 million at the end of 2022 (prior year: CHF 17.2 million).

Goodwill arising from acquisitions is offset against retained earnings in shareholders’ equity at the time of the acquisition. The impact of a theoretical capitalization of goodwill, applying a five-year useful life, on the consolidated balance sheet and income statement is shown below:

The CPH Group has various pension schemes in place, which are each aligned to local conditions and requirements in the countries concerned. The table below offers an overview of the funding surplus or deficit and the economic shares attributable to the employer:

‘Pension plans with surplus’ refers to the CPH Group Pension Scheme, which is domiciled in Root (Switzerland). This is a legally autonomous foundation with a board of trustees on which employer and employees are equally represented. The CPH Group Pension Scheme meets the occupational pension provision needs of the Group’s Swiss-based companies under its own responsibility on a defined contribution basis. The benefits are determined on the basis of the existing retirement assets. They therefore depend on the contributions paid, the vested benefits contributed and the purchases, in each case including interest. The scheme is funded by statutorily prescribed employer’s and employees’ contributions. The existence of any funding surplus or deficit is determined on the basis of the scheme’s annual financial statements (after deduction of fluctuation reserves), which are compiled in accordance with Swiss GAAP FER 26. At the end of 2022 the scheme showed a funding surplus of CHF 0.2 million (prior year: CHF 14.7 million). This surplus is available in full to the scheme’s beneficiaries, which is why no economic share is capitalized.

The ‘Patronage fund’ refers to the Perlen Group Assistance Fund, which is domiciled in Buchrain (Switzerland). The fund provides pension benefits for employees and financial assistance for employees and their families in hardship situations. The fund can also be used to finance the employer’s contributions to the occupational pension schemes of the Group’s Swiss-based companies. The existence of any funding surplus or deficit is determined on the basis of the fund’s annual financial statements (after deduction of fluctuation reserves), which are compiled in accordance with Swiss GAAP FER 26. At the end of 2022 the fund showed a funding surplus of CHF 13.2 million (prior year: CHF 12.9 million). This surplus is available in full to the employer, which is why the corresponding amount is capitalized as an economic share under the financial assets.

‘Pension plans with deficit’ refers to the defined-benefits pension scheme in the USA which has been frozen since the end of 2015. The associated pension obligations have not increased since 2015, and no new beneficiaries are being admitted to the scheme. The funding deficit of CHF 1.6 million (prior year: CHF 1.4 million), determined using the current liability method, is an economic liability of the CPH Group, and is recognized under accrued expenses and deferred income.

‘Pension plans without surplus/deficit’ includes a defined-contribution 401(k) pension plan in the USA and other non-material pension plans in other countries. Such plans have neither a funding surplus nor a funding deficit, so no economic shares are recognized on the balance sheet.

The CPH Group had accumulated an employer contribution reserve in previous years. This developed as follows in 2022:

The open forward foreign exchange contracts are hedges on future cash flows, primarily in EUR and, to a lesser extent, in USD. No derivative financial instruments held to hedge balance sheet items or for trading purposes are recognized.

The non-capitalized operating lease liabilities relate primarily to premises rentals and vehicles.

As in the prior year, there were no off-balance-sheet sureties or guarantee obligations towards third parties at the end of the year under review.

Off-balance-sheet purchase obligations not terminable within one year for the acquisition of fixed assets, materials and energy totalled CHF 113.6 million at the end of the year under review (prior year: CHF 98.0 million).

The following transactions were effected for services rendered with related companies of the CPH Group and members of its Board of Directors:

As in the prior year, no loans or credits were granted to related parties in the year under review.

The CPH Group sold a large tract of industrial land on the former Chemie Uetikon operating site in Full-Reuenthal (Switzerland) in January 2023. The sale will generate non-operating income in the low double-digit millions in the 2023 financial year. Apart from this, no events occurred between the balance sheet date and 10 February 2023, the date of the approval and release for publication of these annual consolidated financial statements by the Board of Directors, which would require adjustments to the Group’s assets, equity and liabilities or would need to be disclosed here. These consolidated financial statements are also subject to the approval of the Annual General Meeting of 14 March 2023.