Financial Summary. Key Figures

Transcription

1 Profitable Growth under Way Annual Report 2011

2 Profitable Growth under Way Annual Report 2011 CLA_GB11_Umschlag_E_jsc.indd :22 Financial Summary Key Figures CHF m CHF m Sales EBITDA before exceptionals EBITDA margin before exceptionals (%) Net income Basic earnings per share Operating cash flow Investment in property, plant and equipment Research & development costs Total assets Total equity Equity ratio (%) Net financial debt Gearing 1 ratio (%) 58 7 Employees Net financial debt to equity Sales by Business Unit Sales by Region CHF m Total 2011: Industrial & Consumer Specialties % Masterbatches % Pigments % Textile Chemicals % Oil & Mining Services % Leather Services % Performance Chemicals % Functional Materials % Catalysis & Energy % CHF m Total 2011: Europe % Middle East & Africa % North America % Latin America % Asia/Pacific % 1 Performance Chemicals includes the Business Units Additives, Detergents & Intermediates, Emulsions, Paper Specialties. 2 May December 2011 Clariant Annual Report 2011 Cover photo The cover photo was taken at St. Jakob-Park in Basel, home of the 14-time Swiss football champions, FC Basel. Stadium seats can be made with products from three of Clariant s Business Units: Additives, Masterbatches and Pigments. Their products provide, amongst other things, vibrant color; block light with their UV stabilizers; repel dust with their antistatics; and fight fire with their flame retardants.

3 Business Units in 2011 Additives Key Figures 2011 See Performance Chemicals. Emulsions Key Figures 2011 See Performance Chemicals. The Additives Business Unit is an important supplier of products with functional effects for plastics, coatings, and printing inks. The product range includes flame retardants, waxes, and polymer additives for effects in plastics, varnishes, and other applications. Catalysis & Energy Key Figures Sales (CHF m) 491 EBITDA before exceptional items (CHF m) 107 Employees Catalysis & Energy has been part of the Clariant Group since the acquisition of Süd-Chemie in This Business Unit holds a leading position as a producer of catalysts for the chemical, petrochemical, polymer, refinery, and auto motive industries. It also supplies products into environmental markets and sells energy storage materials such as for lithium-ion batteries. Detergents & Intermediates Key Figures 2011 See Performance Chemicals. Detergents & Intermediates is one of the most important producers of key raw materials for detergents and household cleaners. It is also an important supplier of chemical intermediates used specifically for producing agrochemicals and pharmaceuticals. The Emulsions Business Unit is one of the leading suppliers of latex/polymer dispersions for paints, coatings, adhesives, sealants, and for the textile, leather, and paper industries. These water-based and therefore environmentally compatible products give colors luminosity and durability. Functional Materials Key Figures Sales (CHF m) 456 EBITDA before exceptional items (CHF m) 59 Employees Functional Materials has been part of the Clariant Group since the acquisition of Süd-Chemie in This Business Unit is among the market leaders in specialty products and solutions for improving product and efficiency characteristics in various industries including adsorbents, solutions for protective packaging, and water treatment. Industrial & Consumer Specialties Key Figures 2011 Sales (CHF m) EBITDA before exceptional items (CHF m) 251 Employees The Industrial & Consumer Specialties Business Unit has the highest sales volume in the Clariant Group and is one of the largest providers of specialty chemicals and application solutions for consumer care and industrial markets such as the agricultural, metalworking, machine-building, and aircraft industries. Its EcoTain label exemplifies its uncompromising pursuit of the principle of environmental sustainability. 1 May December 2011

4 Leather Services Key Figures 2011 Sales (CHF m) 265 EBITDA before exceptional items (CHF m) 26 Employees 595 Leather Services is a leading producer of chemicals and services to the leather industry. The Business Unit offers chemical and technical solutions for the complete leather production process, from beamhouse to finishing. Masterbatches Key Figures 2011 Sales (CHF m) EBITDA before exceptional items (CHF m) 129 Employees Clariant Masterbatches is a leading manufacturer of dye and additive concentrates and technical composites for the plastics industry, and supplies the packaging, consumer goods, medical, textile, and automotive industries. Paper Specialties Key Figures 2011 See Performance Chemicals. Paper Specialties is one of the largest manufacturers of products for optical brightness, color, coating, and thickness of paper and thus helps improve the optical and functional properties of all types of papers and board with its focused product offering. Pigments Key Figures 2011 Sales (CHF m) 973 EBITDA before exceptional items (CHF m) 210 Employees The Pigments Business Unit is a leading global provider of organic pigments, pigment preparations, and dyes, which are used for coatings, printing, plastics, and other special applications. These include high-performance pigments and dyes for ink jet and laser printers. Oil & Mining Services Key Figures 2011 Sales (CHF m) 620 EBITDA before exceptional items (CHF m) 72 Employees The Oil & Mining Services Business Unit is one of the most significant providers of products and services to the oil, refinery, and mining industries. The broad and diverse product range includes chemical solutions for deep water exploration to refining which help to reduce costs and improve production efficiency. or Performance Chemicals Key Figures 2011 Sales (CHF m) EBITDA before exceptional items (CHF m) 177 Employees Textile Chemicals Key Figures 2011 Sales (CHF m) 675 EBITDA before exceptional items (CHF m) 34 Employees Clariant s Textile Chemicals Business Unit supplies specialty chemicals for the pretreatment, dyeing, printing, and finishing of textiles and improves the properties of garments and other textiles such as high fashion fabrics, home textiles, and special technical fabrics. Performance Chemicals includes the Business Units, Additives, Detergents & Intermediates, Emulsions, and Paper Specialties.

5 1 Index Letter to Shareholders Page 02 Profitable growth under way Page 08 Financial Review Page Results of operations, financial position, and net assets 19 Segment analysis 26 Extract of cash flow statement 31 Outlook 33 The Executive Committee Drivers for profitable growth Page Portfolio Management 42 Global Positioning 46 Innovation, Research & Development 52 Sustainability at Clariant 60 Clariant Excellence Corporate Governance Page 70 Compensation Report Page 86 Consolidated Financial Statements of the Clariant Group Page Consolidated balance sheets 100 Consolidated income statements 100 Consolidated statements of comprehensive income 101 Consolidated statements of changes in equity 102 Consolidated statements of cash flows 103 Notes to the consolidated financial statements 158 Report of the statutory auditor Financial Statements of Clariant Ltd, Muttenz 160 Clariant Ltd balance sheets 161 Clariant Ltd income statements 162 Notes to the financial statements of Clariant Ltd 170 Appropriation of available earnings 171 Report of the statutory auditor 172 Forward-looking statements Review of Trends 159 Five-year Group overview

6 2 Clariant Annual Report 2011 Letter to Shareholders Dear Shareholders, 2011 was an important year for Clariant in terms of our transformation from restructuring to sustainable profitable growth. Following the sometimes painful but necessary cutbacks in 2009 and 2010, when we were forced to overcome additional obstacles created by the financial crisis, we posted a successful performance in 2010, aided by a strong economic tailwind. We have made further progress in Despite the fact that the global financial crisis cooled industrial demand significantly in the second half of the year, Clariant reported another excellent year with sales increases of 16 percent in local currencies or 4 percent in Swiss francs and the best profitability in ten years. The strong growth was driven by price increases and by Süd-Chemie sales, which were consolidated for the eightmonth period following the acquisition of the company in April Overall group sales reached CHF 7.37 billion and EBITDA margin before exceptional items increased to 13.2 percent versus 12.7 percent in Profitable growth under way We will continue to gradually and systematically implement the efforts we began three years ago. We created the foundation for profitable growth in Phase 1 by executing the cash-generating, cost-cutting, and complexity-reducing measures as part of the Project Clariant program. At the end of 2009, Clariant entered Phase 2 with the launch of Clariant Excellence, the company-wide initiative that focuses on continuous improvement and value enhancement. We are now in the process of changing the philosophy that governs our day-to-day business activities and integrating a culture of continuous improvement into all business units based on Operational Excellence, Commercial Excellence, Innovation Excellence, and People Excellence. After benefits at a total of CHF 63 million in 2009 and 2010, the company has been able to achieve further benefits of more than CHF 100 million in 2011 through a large number of projects at all levels saw the focus shift for the first time to strengthening our Innovation Excellence and taking the first steps in People Excellence. We will continue these efforts in 2012 in order to achieve new savings of more than CHF 60 million each year through Clariant Excellence. Further cost reductions totaling CHF 60 million are expected by mid-2013 after completion of the production network optimization under the Global Asset Network Optimization (GANO) program as part of Project Clariant. We entered Phase 3 of our strategy plan in 2011: Its goal being to sustainably increase value based on long-term profitable growth. The emphasis is on continually improving profitability in all business units, focusing on innovation, expanding our already strong competitive position in the growth markets of Asia and Latin America, and optimizing our company portfolio.

7 Letter to Shareholders 3 Acquisition of Süd-Chemie a great opportunity for Clariant The takeover of Süd-Chemie in 2011 is of great significance in the transformation of the company. Through this transaction, we acquired two attractive high-margin businesses. Our newly acquired segments Functional Materials and Catalysis & Energy posted EBITDA returns of just under 13 and approximately 22 percent, respectively, in In view of the ongoing economically turbulent times, it is remarkable that Süd-Chemie was able to generate a very stable margin even during the last global recession of Süd-Chemie also has an excellent track record in future technologies and innovations. Overall, Clariant has increased Group sales and earnings by about one fifth through this acquisition. The integration of Süd-Chemie is progressing as planned. We project that integration-related synergies and Clariant Excellence initiatives from the integration will lead to an additional rise in EBITDA of CHF 90 to 115 million by Solid balance sheet structure Even after this major acquisition, Clariant has a solid balance sheet structure that will enable us, to effectively increase our own investments in the future of the company in the coming years. The willingness of the capital market to participate in the financing package that Clariant put together in the course of the takeover was crucial in this regard. This was not a foregone conclusion since the deal involved a total financing volume of about CHF 2.5 billion. We strengthened our equity base through a capital increase that raised the equity ratio to 33.3 percent, slightly above the previous year s 30.5 percent level. We also refinanced all our commitments with long-term financing at attractive conditions. We will work hard in 2012 and in subsequent years to reduce our net financial debt rapidly and substantially. Our vision for 2015 Clariant has set ambitious goals for the years through to 2015 in expectation of a moderate upward trend in the global economy and stable exchange rates. By implementing the measures from the strategy initiatives Project Clariant and Clariant Excellence, we aim to improve the profitability of the company and all business units. We will also increase investments in the Group s technology and innovation, as well as expand the innovation pipeline significantly by implementing Innovation Excellence. The focus will be on broader expansion into the fast-growing emerging market regions. The company will in particular increase its market share in China, India, and Brazil. The profitability of the current portfolio will be analyzed on a continuous basis. We will also make targeted acquisitions in the future to strengthen the product pipeline and the company s regional presence, but we will also consider divestments. By implementing these basic strategic goals for 2015, Clariant aims to increase Group sales to more than CHF 10 billion. The EBITDA margin before exceptional items is projected to rise to above 17 percent, and Return On Invested Capital (ROIC) is expected to be higher than the industry average.

8 4 Clariant Annual Report 2011 A challenging 2012 The fiscal year 2012 will play a major role in these developments. An accurate forecast for this year is difficult to make, given the high level of economic uncertainty. We will monitor the conditions very closely and respond rapidly, where necessary. Should the expectations of most economic experts prove correct namely, that the world economy, driven by impetus from the emerging markets, will return to solid growth in the course of the year then Clariant is also confident that it will be able to increase sales and earnings for We are confident we will improve the performance of the company after a slow start in 2012, given the current economic slowdown. The integration of Süd-Chemie has increased the percentage of the Group s less cyclical activities markedly to about 50 percent. This makes us stronger and more able to resist economic fluctuations. A bitter note in 2011 was the performance of the Clariant share price, which was disappointing for us. After a sharp rise in 2010, the stock market still categorizes us as a highly cyclical company. We must address this issue in proving the sustainability of our performance. We will continue focussing our efforts to increase the value of the Clariant Group. We would like to thank our shareholders for their trust, especially in these difficult times. We would also like to express our gratitude to all employees of the Clariant Group around the world for their excellent work and high level of commitment. They have played a key role in getting our company back on track to success will be another year full of challenges. We are well equipped and will step up our efforts to make Clariant a specialty chemicals company that is a global leader in innovation, productivity, and competitiveness. Yours sincerely, Jürg Witmer Chairman, Board of Directors Hariolf Kottmann Chief Executive Officer

9 Letter to Shareholders 5 Jürg Witmer Chairman, Board of Directors Hariolf Kottmann Chief Executive Officer

10 6 Clariant Annual Report 2011

11 7 Yolanda Garcia, R&D Department Special Dyes Using 92 percent less water and remarkably little energy to achieve a higher standard of quality in a vast array of colors. Environmentally minded and fashion aware: Thanks to Advanced Denim s Pad/ Sizing-Ox dyeing process, an innovative solution of the Textile Chemicals Business Unit, dyeing jeans has become far more environmentally compatible.

12 8 Clariant Annual Report 2011 Profitable growth under way Clariant was able to sustain the 2010 performance and to reap further rewards from the restructuring measures of recent years in However, increases in profitability and organic and external growth were slowed by a gloomy economic environment objectives achieved despite difficult environment Clariant has made significant progress in 2011 in consistently pursuing its strategic goal of sustainable profitable growth as it expanded its EBITDA margin before exceptional items from 12.7 percent in 2010 to 13.2 percent in After adjustment for negative currency effects, Group sales were up by 16 percent and EBITDA before exceptional items rose by 8 percent year on year. The significant cooling in industrial demand in the second half of the year due to the global financial crisis should, of course, be taken into account here. A crucial factor in this regard is that the company was able not only to safeguard the achievements of the tough restructuring process of 2009 to 2010 but also to expand them at almost all levels and in all Business Units. The efforts of the past few years have increasingly started to pay off. Savings resulting from optimization of the production network through Global Asset Network Optimization (GANO), for example, totaled about CHF 60 million up to Operating margin development since 2000 Disciplined and fast strategy execution is starting to be reflected in margin progress 1 % EBIT margin before exceptional items This shows that none of the companies in the Clariant Group is resting on its laurels; rather, all are working systematically to realize the long-term goal of sustainable profitable Group-wide growth. After all, the targets for the fiscal year 2015 are high: Group sales are expected to increase to more than CHF 10 billion, assuming moderate economic growth and stable currencies, while the EBITDA margin (before exceptional items) is projected to climb to above 17 percent.

13 Profitable growth under way 9 A positive factor in the year just ended was that Clariant was able to pass on significantly higher raw material costs in their entirety. Clariant also made good on its promise to strengthen its portfolio and future potential through external growth by acquiring Süd- Chemie in April. The key operating data for the Süd-Chemie transaction demonstrate that this acquisition will have a very positive effect on Clariant. The two newly acquired businesses, Functional Materials and Catalysis & Energy, posted in 2011 EBITDA returns of just under 13 and approximately 22 percent, respectively, which is already a very good sign. Clariant will benefit fully from this acquisition in 2012 since Süd-Chemie will then be consolidated for the first time on a full-year basis. Clariant also projects that integration-related synergies and Functional Excellence initiatives from integration will lead to additional growth in EBITDA of CHF 90 to 115 million by The first significant effects are expected to emerge as early as the new fiscal year. Focus on management of net working capital Clariant has also taken important steps in 2011 with regard to its balance sheet. It was possible to finance the Süd-Chemie takeover on the capital markets in a very short time, even given the total investment volume of about CHF 2.5 billion. This involved raising equity through a capital increase as well as bringing in outside capital. In this case, the maturity pattern of the loans was markedly improved by utilizing various financing instruments, such as issuing bonds or certificates of indebtedness, which also resulted in favorable conditions for Clariant in an extremely volatile environment. The investor confidence indicated by this underlines the fact that the capital markets have fully acknowledged the company s successes. Nonetheless, there is still work to be done. Although the equity ratio was solid at 33.3 percent at the end of 2011 and the gearing ratio of 58 percent was also respectable, Clariant will work hard in the coming years to reduce net financial debt, which has risen to CHF 1.7 billion as a result of the acquisition. Five-year comparison: Trend in ratio of net working capital to sales % Efforts to establish stable cash generation also focus on the area of working capital management. The 19.6 percent ratio of net working capital to sales as of 31 December 2011 met the Group s target of 20 percent. Return on invested capital (ROIC), another important Group indicator, was affected in 2011 by the consequences of the major acquisition of Süd-Chemie. The value at year-end of 13.1 percent was thus significantly below the previous record level of 18.1 percent from 2010, however still above long-term industry average. Strategic Review On a clearly defined growth path as planned The transformation process launched in 2008 is progressing as planned. This will take the Clariant Group from the restructuring initiatives of the past few years to a new level as a specialty chemicals company that is a global leader in innovation, productivity and competitiveness with sustainable profitable growth. The company is following a clearly defined three-phase strategy to this end.

14 10 Clariant Annual Report 2011 Restructuring phase largely completed Phase 1 of the strategic realignment of the Clariant Group was carried out primarily in 2009 and 2010 and involved implementing an extensive restructuring program. Under the Project Clariant heading, a large number of steps were taken, focusing on cash generation, cost cutting and making Group structures leaner. Solid success has been achieved, as indicated by the trend in the key company indicators: Cash generation: The ratio of net working capital to sales was reduced to 19.6 percent by the end of 2011, down from 23.8 percent at the end of The internal long-term group target for this value was set at below 20 percent. Cost cutting (excl. acquisition of Süd-Chemie): The total number of employees in the Clariant Group was reduced by about 20 percent. As part of Global Asset Network Optimization (GANO), the closure of 20 sites worldwide was announced and is scheduled to be fully implemented by mid Finalization of these measures will lead to further reductions in costs totaling CHF 60 million by mid Reduction of complexity: The number of Business Units was streamlined, and the global service organization was consolidated at eight locations. A decision was made to realign Research and Development (R&D) with new research headquarters in Frankfurt and branches in core regions. This has already been implemented for the most part. Clariant on the road to sustaining profitable growth Restructuring Cash generation Cost cutting Complexity reduction Complete Implementation of restructuring Result: Establish a solid base for profitable growth Continuous improvement Clariant Excellence program Operational Excellence Commercial Excellence People Excellence Innovation Excellence Continue program/ Sustain achievements Result: Sustainable productivity improvement Profitable growth Improve profitability of existing portfolio R&D and Innovation Growth in emerging markets Strengthen portfolio by selective acquisitions Result: Growth of profitable business portfolio Cost focus Portfolio focus

15 Profitable growth under way 11 The restructuring phase is largely complete, although some of the announced efficiency improvements will take until 2012 to implement. Clariant Excellence a culture of continuous improvement At the end of 2009, Clariant signaled the start of Phase 2 by launching the company-wide Clariant Excellence initiative. With LeanSigma processes at its core, Clariant Excellence is designed to enhance competitiveness by improving efficiency and creating value. The company is creating a culture of continuous improvement based on four pillars of Operational, Commercial, People, and Innovation Excellence. Clariant has also put in place internal control mechanisms to maintain what has already been achieved. More than employees were designated as belts, i.e., project managers or project staff, trained specifically for tasks in connection with the Excellence Program, and entrusted with its implementation within the Group. Süd-Chemie employees will also be included in this process from After saving a total of CHF 63 million in 2009 and 2010, the company has been able to achieve further benefits of more than CHF 100 million in 2011 through a large number of projects at all levels. In 2011, the focus was for the first time on strengthening our Innovation Excellence and taking the first steps in People Excellence. The stated goal is to make Clariant a global innovation leader and to be able to rely on a well trained and coordinated team of employees. to improve the operating margin by an additional one to two percentage points. Finally, Clariant also launched the Clariant Supply Chain System (CSS) initiative in early 2011 to enhance customer service, cash and working capital along the entire value chain. Clariant Excellence Innovation Excellence: Promoting new ideas and solutions for profitable growth Operational Excellence: Striving for optimum efficiency across all of our operating processes LeanSigma Commercial Excellence: Empowering sales and marketing to offer the best customer service and value People Excellence: Enabling our people to achieve a culture of continuous improvement The sustainable value enhancement phase has begun We entered Phase 3 of our strategy plan in 2011: sustainably increasing value based on long-term profitable growth. The focus is on four strategic pillars: Ongoing improvement in the profitability in all Business Units Focus on innovation Expansion and exploitation of Clariant s strong competitive position in the Asian and Latin American growth markets Optimization of the company portfolio. In 2012 and the coming years, we will continue these efforts in order to achieve new savings of more than CHF 60 million each year through Clariant Excellence. These figures are specifically supported by a number of initiatives that have already been launched: For example, the Clariant Production System (CPS) was introduced in 2010 to achieve optimum productivity and financial performance in the production units of all Business Units. The goal is to achieve productivity increases ranging between 8 and 10 percent. The Clariant Commercial System (CCS) was also established in This is an initiative to optimize sales and marketing processes and is designed

16 12 Clariant Annual Report 2011 Christian Steib, Technical Marketing Manager Soccer is one of the most beautiful games in the world. And for most boys probably the universe. In its Additives Business Unit, Clariant has developed licocene, a polymer that has revolutionized the manufacture of artificial turf. The turf is fully recyclable and extremely hard wearing. Clariant donated the first artificial pitch with this technology in Germany to the Feuerbach children s center in Stuttgart in 2011.

17 13

18 14 Clariant Annual Report 2011 Financial Review Given the challenging economic conditions the results achieved in 2011 are a good performance and reflect the sustainable profitability increase achieved by Clariant. Business performance review 2011 Summary statement for business year 2011 For Clariant 2011 was marked by the acquisition of Süd-Chemie AG, the slowdown in economic growth over the course of the year, and highly negative currency effects. Group sales totaled CHF million, slightly higher compared to After adjustment for acquisitions (particularly Süd-Chemie) and negative currency effects, the company has achieved an organic growth of 2 percent. Profitability as a percentage of the operating result (EBITDA) before exceptional items improved to 13.2 percent from 12.7 percent. These good results were achieved on the back of the success of the Project Clariant and Clariant Excellence initiatives that were launched in Clariant reached its goal of setting the company on a profitable growth path. It will continue to pursue this strategy systematically based on the sound operational and financial foundation already established in order to attain the ambitious objectives for 2015, which include increasing the EBITDA margin before exceptional items to about 17 percent, provided that there is a stable economic environment. Clariant will take further important steps in this direction in 2012, although there are still uncertainties regarding precise forecasts due to the effects of the global financial crisis on the world economy. General conditions Global economic growth slows significantly at end of 2011 According to data from the International Monetary Fund (IMF), the global economy grew 4 percent in 2011, but was unable to sustain the dynamic growth of Moreover, economic growth weakened significantly in the second half of the year. The development of the global economy was driven primarily by the emerging markets, while the industrial nations lost momentum. The gross domestic product of the emerging countries rose 6.4 percent in 2011, whereas the IMF reported growth of only 1.6 percent for the industrialized world. In the wake of the euro crisis, Europe (+ 1.6 percent) is wrestling with the unresolved problems of the debt-ridden southern European states. Impetus for growth was also lacking in the US economy (+ 1.5 percent) due to a high government deficit. The emerging markets were exposed to much lower economic risks. Although experiencing inflationary tendencies the emerging economies in Asia, in particular, continue to grow at a high rate. China s economy experienced 9.5 percent growth in 2011, according to IMF figures, while India advanced by 7.8 percent. The economies of the two other BRIC countries Russia (+ 4.3 percent) and Brazil (+ 3.8 percent) also posted robust expansion. The massive revaluation of the Swiss francs against major currencies was stopped with the intervention of the Swiss National Bank, which set a floor of the value of the Swiss franc at an exchange rate of at least CHF 1.20 per Euro. On a year on year comparison however the Swiss currency has appreciated significantly compared with most local currencies that are crucial for Clariant. Chemical industry in 2011: Positive year with weaker finish The chemical industry as a whole and specialty chemicals in particular also exhibited positive growth trends, driven by a still positive economic environment. Global chemical production increased by

19 Financial Review 15 Clariant was able to further improve its result and has established a sound financial foundation. Patrick Jany, Chief Financial Officer about the same magnitude, proportionately, as the global economy. Impetus for growth came primarily from the EMEA (Europe, Middle East & Africa) region, North America, and Asia. Growth was based in large part on the extremely dynamic development in some areas in the first six months of the year. In the second half of the year, however, the slowdown in industrial production across all regions triggered by economic conditions manifested itself in declining demand. Europe was affected and experienced stagnating growth as of the third quarter after a definite uptrend at the beginning of the year. Momentum in the emerging Asian markets also slowed. By the end of the year, Japan s chemical industry reported definite signs of recovery after the sharp downturn caused in the aftermath of the tsunami in March. The price levels for both raw materials and finished products also rose significantly, but stabilized after a peak in the mid of In the second half of 2011 a significant de-stocking could be observed in several industries (Leather, Plastics, Coatings). Because of the slowdown in industrial production, which was more pronounced toward year-end, the last six months of the year were characterized by stagnation in annualized chemical production. Changes in the reporting structure On 16 February 2011 Clariant AG announced a series of transactions, pursuant to which it acquired the specialty chemical company Süd-Chemie AG at an aggregate enterprise value of approximately CHF 2.5 billion. Süd-Chemie AG was acquired partially in exchange for cash and partially in exchange for newly issued Clariant shares. The last step in the acquisition of Süd-Chemie AG was concluded with the squeeze-out of the remaining Süd-Chemie AG minority shareholders, the successful completion of which was announced on 1 December Clariant now controls 100 percent of the shares in Süd-Chemie AG. Since 1 May 2011, the sales and results of Süd-Chemie s Catalyst business and its Adsorbent & Additive unit have been included in the Clariant Group s consolidated financial statements. On 1 July 2011 these businesses were renamed Catalysis & Energy (catalysts) and Functional Materials (adsorbents and additives). Clariant therefore has twelve instead of ten Business Units, and Clariant s external reporting structure now includes nine segments instead of the seven that existed in Results of operations, financial position, and net assets Analysis of sales, margins, and costs Key figures CHF m Change in % Sales Gross profit on sales EBITDA before exceptional items Margin (%) EBIT before exceptional items Margin (%) EBIT Financial result Income before taxes Net income Basic earnings per share Earnings situation shaped by organic and external growth, efficiency increases, and currency translation charges After the dynamic growth of 2010, Clariant was still able to post a solid performance in 2011 despite differing demand in the individual Business Units. It is important to emphasize that the less cyclical Business Units Catalysis & Energy, Functional Materials, Oil & Mining Services, Industrial & Consumer Specialties, and Additives reported much stronger growth than Masterbatches, Pigments, Textile Chemicals, Leather Services and Paper Specialties, areas in which business is cyclical in nature. The last three segments were also negatively impacted by structural

20 16 Clariant Annual Report 2011 problems. Due to the positive economic environment, especially in the first half of the year, the Clariant Group realized significant improvements in local currencies. In addition, the consolidation of the newly acquired businesses of Süd-Chemie translated into appreciable external growth. Thanks to their strong growth, the emerging markets generated additional momentum in the industrialized countries, although the latter grew at a significantly lower rate. Profitability was further improved by the efficiency improvements initiated in the previous periods. Sales in local currencies increased by 16 percent organic growth at 2 percent Group sales totaled CHF million in 2011, slightly above the figure reported for This represents a 4 percent increase over the previous year. In local currencies, much stronger Group sales growth of 16 percent has been achieved. The lower rise in sales in Swiss francs is the result of the substantial appreciation of the Swiss franc against the major world currencies. While sales volumes decreased below the prior-year level by the end of the year after a sharp rise in the first half, increases in selling prices had a positive effect on sales revenue. This made it possible to fully compensate the rise in raw material prices. External growth also played a very important role. It was driven primarily by the recently acquired activities of Süd-Chemie AG, which contributed CHF 948 million in sales during the eight months of consolidation. Adjusted for this factor and for negative currency effects, Clariant would have posted an organic sales increase of 2 percent in local currencies. The individual Business Units reported very different levels of demand for their products in The less cyclical Business Units Catalysis & Energy, Functional Materials, Oil & Mining Services, Industrial & Consumer Specialties, and Additives posted dynamic growth in local currencies in the low double-digit range. The more cyclical Business Units Masterbatches, Leather Services, Textile Chemicals, Paper Specialties, and Pigments experienced weaker year on year demand, even in local currencies. In Swiss francs there was a downward trend in all Business Units except for Oil & Mining Services. Group sales Five-year overview CHF m Sales by Reporting Segment CHF m Industrial & Consumer Specialties Masterbatches Pigments Textile Chemicals Oil & Mining Services Leather Services Performance Chemicals Functional Materials Catalysis & Energy May December

21 Financial Review Sales by Reporting Segment Local Currencies, Growth in % Industrial & Consumer Specialties 10 Masterbatches 2 Pigments 6 Textile Chemicals 6 Oil & Mining Services 17 Leather Services 6 Performance Chemicals 4 Functional Materials 1 7 Catalysis & Energy January December 2011 Clariant was able to increase sales in local currencies in all key regions in North America posted especially strong increases and reported 27 percent growth. The EMEA (Europe, Middle East & Africa) region also reported positive results, selling 16 percent more than in the previous year. Sales revenues in the Asia/Pacific region climbed 16 percent, whereas the Clariant subsidiaries in Latin America after significant growth the previous year saw a comparatively moderate 9 percent rise in Overall, around 46 percent of Group sales were generated in the emerging and developing markets, which are expected to have the strongest growth rates in the future. The regional sales distribution of businesses acquired from Süd-Chemie also had a positive impact in this regard. Sales by region CHF m Change in CHF in % Change in LC 2 in % EMEA North America Latin America Asia/Pacific Europe, Middle East & Africa 2 LC = Local Currencies 2011 sales structure by currency % Euro 44 US dollar 32 Japanese yen 4 Swiss franc 0 Emerging markets cost structure by currency % Euro 49 US dollar 25 Japanese yen 2 Swiss franc 7 Emerging markets 17

22 18 Clariant Annual Report 2011 Gross margin below prior year due to volume and currency effects The high level of demand in most industries brought about a capacity utilization of approximately 70 percent in 2011, as in Significant savings were realized as the result of the efficiency improvements successfully implemented in prior years Project Clariant and Clariant Excellence. In the case of Clariant Excellence the savings totaled more than CHF 100 million compared with CHF 50 million in Nonetheless, these positive factors were not sufficient to compensate for negative currency and volume effects. Gross margin therefore declined overall from 27.9 percent in 2010 to 26.7 percent in Due to sluggish global economic growth, raw material prices stabilized in the course of the year but were still 13 percent higher than in The higher raw material costs were completely absorbed, as planned, by an increase in sales prices. Price adjustments totaling 7.5 percent in local currencies were implemented in EBITDA before exceptional items Five-year overview CHF m Selling, general, and administrative expenses (SG&A costs) as a percentage of sales were lowered slightly to 15.9 percent (from 16.5 percent in 2010) as the result of high cost efficiency, despite increased project costs. In absolute figures, this corresponds to a change to CHF million from CHF million. This figure includes significant one-time project costs for the integration of acquired Business Units. The focus on innovations in conjunction with the Innovation Excellence initiative and the integration of Süd-Chemie led to a CHF 41 million increase in research and development costs to CHF 176 million. Given these changes and the impact of highly negative currency trends totaling CHF 41 million, the operating result (EBITDA) before exceptional items increased slightly by 8.2 percent to CHF 975 million, compared with CHF 901 million in The EBITDA margin before exceptional items increased to 13.2 percent compared to the prior-year figure of 12.7 percent. Restructuring costs and impairments were substantially reduced and amounted to CHF 161 million in 2011, down from CHF 331 million the year before. This reflects the sharply reduced costs for optimization of the global production network (Project GANO) and measures to integrate Süd-Chemie. EBITDA Margin before exceptional items Five-year overview % The financial result was adversely affected by the higher level of indebtedness resulting from the Süd-Chemie acquisition. On balance the result was a decrease in the net financial result to CHF 173 million from CHF 123 million. Operating income before exceptional items at CHF 717 million is above the previous year (CHF 696 million) but was reduced by currency effects totaling CHF 170 million. Clariant posted pretax profit of CHF 334 million, compared with CHF 243 million in The tax rate rose to 24.9 percent from 21.4 percent the previous year. Profit after taxes accordingly increased to CHF 251 million from CHF 191 million. This results in earnings per share of CHF 0.86 based on shares, compared with CHF 0.81 in Given the significant improvement of Clariant s performance and the sustainability of its earnings, the Board of Directors proposes to repay 0.30 CHF of the nominal value of each registered share, as a result of a reduction of the nominal value from 4.00 CHF to 3.70 CHF per registered share. In 2010 there was no distribution due to the high restructuring expenditures. The motion will be subject to approval by the 17th Annual General Meeting on 27 March 2012.

23 Financial Review 19 Segment analysis Performance of the Business Units Industrial & Consumer Specialties Key figures Industrial & Consumer Specialties CHF m Sales EBITDA before exceptional items Margin (%) EBIT before exceptional items Margin (%) No. of employees Sales increase in local currencies of 10 percent EBITDA margin further increased to 17 percent The Industrial & Consumer Specialties (ICS) Business Unit reported an increase of 10 percent in sales in local currencies in 2011, but a decrease of 3 percent in Swiss francs compared with the prioryear period. Total sales in this segment reached CHF million (2010: CHF million). There was particularly high demand for chemicals for the construction industry and industrial lubricants. Significant growth again resulted from business in China, where ICS further solidified its market position by opening a new ethoxylation plant in Daya Bay (south of Guangzhou, China). In the regional markets the Business Unit generated double-digit sales growth in Asia and North America as well as in Latin America, Middle East & Africa (MEA) region. Growth was somewhat weaker in Europe. EBITDA before exceptional items increased by 3.3 percent to CHF 251 million. The Business Unit therefore increased the EBITDA margin to 17 percent from the already high level of 15.9 percent a year earlier, despite negative currency effects. This rise was due to an improved product mix, an optimized cost structure, and higher selling prices, which fully compensated for the increased raw material costs. ICS will continue to focus on innovative solutions and businesses that create a high level of added value. Of special interest is the Personal Care business, in which Clariant has introduced numerous innovations. ICS will strengthen its position in this market through an exclusive long-term partnership with KitoZyme, a leading manufacturer of bio-polymers, which are tailored to the global needs of Personal Care customers requiring natural and sustainable skin and hair care substances. The takeover of Octagon Process LLC in mid- March 2011 significantly expanded ICS North American activities in the area of de-icing chemicals and generated additional growth potential. Masterbatches Key figures Masterbatches CHF m Sales EBITDA before exceptional items Margin (%) EBIT before exceptional items Margin (%) No. of employees Adversely affected by currencies and cost effects EBITDA margin of 11.5 percent nevertheless high Focus on growth opportunities in emerging markets Although the Business Unit was still able to achieve a sales increase at the beginning of the year, demand then weakened from Q2 onwards. As a result, sales in local currencies only grew by 2 percent while sales in Swiss francs fell significantly, by 11 percent to CHF million. The decline in demand, which was not noticeable until the second quarter, worsened steadily in the second half of the year as plastics processing companies responded to rising raw material costs and uncertain economic conditions by reducing or delaying orders.

24 20 Clariant Annual Report 2011 Sales growth was strongest in the Middle East region, especially in Saudi Arabia and Turkey. China and Indonesia also contributed positively to growth in Asia. Sales only grew moderately in North America and Latin America, and in Europe they fell below the year-earlier level, primarily due to weak economic growth in southern Europe. The EBITDA margin in 2011 fell to 11.5 percent, down from 12 percent in 2010, since the increases in selling prices and productivity were not sufficient to absorb the negative currency effects and rising costs of underutilized capacities. The Business Unit s raw material costs remained high but were fully compensated by higher selling prices. EBITDA before exceptional items totaled CHF 129 million and was below the high CHF 151 million level of the previous year. The Business Unit is focusing on growth opportunities in emerging markets. It will benefit from expansion in the Middle East region with new production facilities in Turkey, for example, as well as from expansion of existing sites in Saudi Arabia and Pakistan. Additional capacities have also been created in China and Brazil in order to serve customers in the Asia/Pacific and Latin American regions. The Business Unit s focus in Europe is on expansion in Eastern Europe and optimization of the existing production network in Western Europe. In North America two plants were combined in order to create a new state-of-the-art production facility in Chicago that produces both liquid and granular masterbatches. Pigments After a strong post-recession upsurge in demand was being felt in 2010, sales of the Pigments Business Unit declined 6 percent in local currencies in In Swiss francs the decrease was 17 percent, to CHF 973 million. There are three major reasons for this: Increased purchases in Q1 before price increases. De-stocking given the slowdown in the economy. Volumes were also reduced by the stronger focus on areas with high added value. The lower demand was felt in most business sectors. The effects were especially pronounced in the printing industry, where the Business Unit increasingly refocused efforts away from low-margin products. In markets with high added value such as the non-impact printing market, customers reduced their inventories. Sales in markets with high added value such as non-impact printing inks, paints, and coatings fell from a high level in 2010 as the result of customers re-adjusting their inventories. Despite the significant market headwinds, EBITDA margin reached 21.6 percent, up from prior-year value of 20.2 percent thanks to the significantly improved cost structure resulting from the restructuring and efficiency improvement actions taken over the course of the previous two years. EBITDA in absolute terms declined CHF 26 million from previous year due to lower sales volumes and unfavorable rate of exchange. It is expected that the benefits from the realized efficiency gains will continue in 2012 as the exits from the plants closed in 2010 and 2011 are largely completed, supported by ongoing efficiency and competitiveness improvements derived by implementing measures under the Clariant Excellence initiative. Key figures Pigments CHF m Sales EBITDA before exceptional items Margin (%) EBIT before exceptional items Margin (%) No. of employees The integration of the Italtinto business, specialized in supplying integrated tinting systems to the paint industry, is progressing according to plan, enabling Business Unit Pigments to execute its strategy of capturing value further down the value chain. Initial market responses and new orders were very promising, and customers are showing considerable interest in our tinting system technology. Significant downturn in demand in second half of the year EBITDA margin at 21.6 percent thanks to high cost efficiency

25 Financial Review 21 Textile Chemicals Key figures Textile Chemicals CHF m Sales EBITDA before exceptional items Margin (%) EBIT before exceptional items Margin (%) No. of employees Massive currency effects depress performance Accelerated relocation of production to Asia Performance in the Textile Chemicals Business Unit differed greatly from one key region to the next in Sales growth in local currencies reached a healthy level in North America and remained unchanged in Europe since there was still strong demand for technical textiles. In Latin America and China, on the other hand, sales experienced a double-digit drop as demand continued to be weakened by strong fluctuations in cotton prices and flagging demand in the clothing sector. Overall, the Business Unit reported a decrease of sales in local currencies in 2011 of 6 percent. In Swiss francs, however, sales declined 18 percent. In the second half of the year the losses turned to the double-digit range. Textile Chemicals, which still has an extensive production operation in Muttenz, Switzerland, was heavily impacted by the stronger Swiss franc. It therefore accelerated relocation of production to Asia. The headquarters of the Business Unit was moved to Singapore in August Production will now be transferred to China and India in early 2012, much earlier than originally planned, and this change will significantly increase the Business Unit s competitiveness. EBITDA before exceptional items dropped significantly by 51 percent to CHF 34 million since it was not possible to fully compensate for the massive currency effects and decline in volume through cost reductions. Higher raw material costs, however, were balanced out by higher selling prices. Corresponding the EBITDA margin fell considerably from 8.4 percent to 5.0 percent. The Textile Chemicals Business Unit will continue to focus on products that create added value for its customers. More than 25 product, process, and effect innovations were recently presented at the industry s leading trade show, ITMA 2011, in Barcelona. These included a new durable and more environmentally compatible flameresistant finish for technical textiles and innovative acid dyes that do not contain heavy metals and have high light resistance, even in dark colors. Oil & Mining Services Key figures Oil & Mining Services CHF m Sales EBITDA before exceptional items Margin (%) EBIT before exceptional items Margin (%) No. of employees Growing demand for oil services High level of investment to ensure future growth Buoyed by the rise in global oil production in line with general economic trends, sales in the Oil & Mining Services (OMS) Business Unit soared, increasing by 17 percent in local currencies and continuing to grow throughout the entire year. In Swiss francs, OMS posted 3 percent growth to CHF 620 million. Sales growth was strongest in the Middle East and in North America, where the acquisition of Prairie Petro-Chem had a positive impact. The rise in sales was also in the double-digit range in all other regions except Europe. The increase was especially strong in Latin America, where Brazil recovered from a weak phase in the second quarter. Sales growth was driven by the Oil Services business, which accounts for about two-thirds of total sales. It experienced strong growth in most regions. In North America, Oil Services benefited from continuing investments in non-conventional oil and gas devel-

26 22 Clariant Annual Report 2011 opment projects. In LATAM, for example, the Business Unit signed an extensive new agreement, which will help it to expand its excellent market position in Brazil. The Mining Services segment suffered from the weakening global demand for minerals. The Business Unit counteracted this effect by introducing new products and technologies in cooperation with mining companies. The EBITDA margin before exceptional items was adversely affected by unfavorable currency effects and lies with 11.6 percent below the prior-year level of 12.6 percent. This was due primarily to the higher sales and administrative costs associated with massive investments in the oil and mining businesses in an effort to promote future growth in these areas. The effects of higher raw material costs, on the other hand, were minimized by higher selling prices. EBITDA before exceptional items was accordingly CHF 72 million (2010: CHF 76 million). Leather Services Key figures Leather Services CHF m Sales EBITDA before exceptional items Margin (%) EBIT before exceptional items Margin (%) No. of employees High leather prices lead to decline in sales Stronger focus on innovative, more environmentally friendly products Despite continuing strong demand from the automotive and luxury goods industries, sales in the Leather Services Business Unit decreased by 6 percent in local currencies compared with Segment sales in Swiss francs totaled CHF 265 million ( 19 percent). The upholstery segment was largely responsible for the weak demand. The trend toward the use of alternative materials in place of leather grew in that segment since prices for rawhide remained high in From a regional perspective, sales growth in local currencies was slightly negative in Europe, while growth in the Americas slackened slightly despite the strong growth in Brazil, the main market. Sales in Asia declined since they continued to be affected by high prices for rawhide. In Japan, sales to tanneries that supply the automotive industry recovered in the second half of the year to almost the same level as before the earthquake. Leather Services raised its selling prices and was thus able to compensate for higher raw material prices. However, the Business Unit also suffered from negative currency effects in addition to volume decreases due to high prices for rawhide. The EBITDA margin therefore decreased to 9.8 percent from the prior-year level of 13.2 percent. In absolute figures, this is reflected in a 40 percent decline in EBITDA before exceptional items to CHF 26 million. The Business Unit will continue to focus on segments with high added value and on the introduction of new services and products that create added value such as the new chromium-free tanning technology (EasyWhite Tan). It will place special emphasis on innovation activities and expand its future product portfolio, especially in its line of more environmentally friendly products. Performance Chemicals Key figures Performance Chemicals CHF m Sales EBITDA before exceptional items Margin (%) EBIT before exceptional items Margin (%) No. of employees High growth momentum in Additives EBITDA margin almost maintained at high level of 13.7 percent Performance Chemicals comprises four smaller Business Units in the Clariant Group in terms of sales: Additives, Detergents & Intermediates, Emulsions, and Paper Specialties. Driven by a significant boost

27 Financial Review 23 in demand in the Additives business, sales of Performance Chemicals in local currencies rose in 2011 by 4 percent. In Swiss francs, however, it posted a 9 percent decline to CHF million. The local currencies growth momentum in Additives, which was in a doubledigit percentage range, was based on the strong demand for non-halogenated flame retardants and waxes. Detergents & Intermediates and Emulsions saw single-digit sales growth, while sales in Paper Specialties were below the 2010 level. The Additives, Detergents & Intermediates, and Emulsions Business Units were able to raise their prices and fully compensate for higher raw material costs. The strong appreciation of the Swiss franc had a negative impact on the profitability of all four Business Units. Additives posted good operating performance in all key regions, with especially strong growth in the Asia/Pacific region and in North America. Future demand will be met by a new plant that will go into operation in mid The Detergents & Intermediates Business Unit reported healthy demand for intermediates used in agrochemical and pharmaceutical products, which balanced out the slight decrease in demand for household and cleaning products. Demand in Paper Specialties began to decline in the second quarter after customers curbed their production output due to lower paper consumption. Profitability was also reduced by the strong Swiss franc and the high cost basis in Switzerland. Relocation of production from Switzerland to Spain and the United States was therefore accelerated so that it could be completed by the end of The Emulsions Business Unit was able to compensate for high commodity prices. Latin America posted significant sales growth due to recovery in demand in Brazil, whereas demand in the Middle East weakened. The Performance Chemicals EBITDA margin was slightly below the previous year at 13.7 percent due to negative currency effects. EBITDA before exceptional items was relatively stable at CHF 177 million. Functional Materials Key figures Functional Materials 1 CHF m 2011 Sales 456 EBITDA before exceptional items 59 Margin (%) 12.9 EBIT before exceptional items 32 Margin (%) 7.0 No. of employees May December Reorganization completed by 1 July 2011 High level of sales growth and performance Sales and results for the Functional Materials Business Unit have been included in the Clariant Group s consolidated figures for eight months of Functional Materials formerly the Adsorbents & Additives division of Süd-Chemie initially included the following business lines: Adsorbents & Additives, Foundry Products & Special Resins, Protective Packaging, and Water Treatment. From 1 July 2011 the Functional Materials Business Unit was reorganized so that it now includes three business lines: Adsorbents, Performance Packaging, and Water Treatment. Comparison with 2010 figures is therefore only possible up to a point due to the reorganization of activities. The Functional Materials Business Unit succeeded in improving sales in local currencies by 7.4 percent over the prior-year. In Swiss francs, sales amounted to CHF 456 million. The EBITDA margin before exceptional items was 12.9 percent, maintaining the high level of the previous year. EBITDA before exceptional items grew to CHF 59 million in Analysis of the individual businesses reveals differing growth trends. The Performance Packaging business line saw a rise in both sales and EBITDA, driven by the strong demand for packaging used

28 24 Clariant Annual Report 2011 for diagnostic and pharmaceutical products. The EBITDA margin in the Adsorbents business declined since it was not possible to compensate fully for the higher raw material prices and transport costs through higher selling prices. EBITDA also fell in the Water Treatment line due to the unfavorable business mix and the increase in the cost of raw materials. The Functional Materials Business Unit will focus to raise prices further, especially in the Adsorbents and Water Treatment segments, in order to absorb price-increase trends in raw materials and transport costs, and improve margins. Catalysis & Energy Key figures Catalysis & Energy 1 CHF m 2011 Sales 491 EBITDA before exceptional items 107 Margin (%) 21.8 EBIT before exceptional items 67 Margin (%) 13.6 No. of employees May December The Catalysis & Energy Business Unit has been able to maintain the positive operating performance of 2010 without interruption. Sales in local currencies terms in 2011 increased by 17 percent compared to After conversion to Swiss francs, sales totaled CHF 491 million. As the result of stronger business activities, EBITDA in Swiss francs amounted to CHF 107 million. The start-up losses in the new Battery Materials business continued to have a negative effect on performance. The EBITDA margin was high at 21.8 percent. After a mixed start in early 2011, the business in catalysts for the chemical and petrochemical industries picked up in the second quarter and improved continuously. The fourth quarter, as usual, was the year s strongest in this segment. The Catalyst business benefited from continuing strong momentum in the sales of catalysts for air purification and for hydrogen production. Battery Materials also contributed to this healthy business growth. Four sub-licensing agreements for the highly innovative cathode material LFP (Lithium iron phosphate) were signed in order to bring more rapid market penetration. Preparations at the new LFP plant in Candiac, Canada, were already underway for the start of production, scheduled for 1 January Sales growth in all four operating areas EBITDA margin significantly above 2010 margin Sales and results for the Catalysis & Energy Business Unit have been included in the Clariant Group s consolidated figures for the last eight months of the year under review. Catalysis & Energy the former Catalyst division of Süd-Chemie initially comprised the Catalyst Technology and Energy & Environment business lines. From 1 July 2011, Catalysis & Energy was reorganized into a primarily functional organization that comprises the business line Battery Materials and the three functional areas: Sales & Key Account Management; Operations, and Research & Development.

29 Financial Review 25 Condensed consolidated balance sheet CHF m Change in % Assets Non-current assets Intangible assets Property, plant, and equipment Financial assets Other non-current assets Deferred income tax assets Current assets Inventories Trade receivables Other assets and receivables Cash and cash equivalents Non-current assets held for sale Total asset Equity and liabilities Equity Shareholders equity Non-controlling interests Total equity Liabilities Non-current liabilities Financial debts Retirement benefit obligations Deferred income tax liabilities Provision for non-current liabilities Current liabilities Financial debts Provision for current liabilities Trade and other payables Current income tax liabilities Total equity and liabilities

30 26 Clariant Annual Report 2011 Balance sheet structure changed significantly due to expansion As of 31 December 2011, the Clariant Group s total assets of CHF billion were significantly higher than the value a year earlier of CHF billion. The increase was based on first-time consolidation of the assets and goodwill of the companies acquired in 2011, namely Süd-Chemie, Prairie Petro-Chem, Octagon Process, and Italtinto. Exchange rate effects also resulted in significant changes in various balance sheet items. Cash and cash equivalents totaled CHF billion at the end of 2011, compared with CHF 716 million twelve months earlier. The change within the reporting period is based on the issue of two bonds totaling CHF 300 million in May and July 2011, the issue of two certificates of indebtedness totaling EUR 365 million and CHF 400 million from an acquisition bridge facility, as well as outflows of liquidity associated with the acquisitions mentioned above. By contrast, the total cash position including near cash assets decreased to CHF billion year on year, from CHF billion, due to acquisitions. The Süd-Chemie transaction was also responsible for most of the increase in net financial debt from CHF 126 million at the end of 2010 to CHF million as of 31 December This item includes current and non-current liabilities, cash and cash equivalents, and near cash assets. The gearing ratio, which compares the level of net financial debt to equity, therefore rose to 58 percent from 7 percent as of 31 December Broadly based financing Clariant also had a very sound financial basis as of the end of The company relies on different types of financing instruments. In May the company issued two bonds in the Swiss franc domestic bond market: one with a nominal value of CHF 150 million that was increased by CHF 50 million in July, with a coupon of 2.75 percent and a four-and-a-half-year maturity (2015); and the other with a nominal value of CHF 100 million, a coupon of percent and a six-year maturity (2017). By issuing two certificates of indebtedness in October 2011 totaling EUR 365 million with maturities ranging between three and four-and-a-half years, Clariant continued to improve the maturity profile of its borrowed funds. Clariant Group's total equity increased to CHF million at the end of 2011 mainly due to the capital increase totaling CHF million required for the Süd-Chemie acquisition. The equity ratio of 33.3 percent was above the prior-year level of 30.5 percent. Extract of cash flow statement CHF m Net income Reversals of non-cash items Cash flow before changes in net working capital and provisions Operating cash flow Cash flow from investing activities Cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

31 Financial Review 27 Strong operating cash flow Despite the Group s solid operational performance, cash flow from operating activities decreased in 2011 to CHF 206 million from CHF 642 million because of the pronounced increase in net working capital. The ratio of net working capital to sales therefore increased to 19.6 percent from 15.9 percent, significantly undercutting the key target value of 20 percent. Investments in property, plant, and equipment rose markedly to CHF 370 million from CHF 224 million as investments were increased and included the new Süd-Chemie Business Units. The cash flow from investments totaling CHF 741 million was influenced by CHF million spent on acquisitions of Süd-Chemie, Prairie Petro-Chem, Octagon Process, and Italtinto, while the cash flow from financing activities of CHF million reflects the financing occured during Given these effects, the total cash balance (including near cash assets) of the Clariant Group on 31 December 2011 stood at CHF million (2010: CHF million). Research & Development A guarantor for profitable growth Clariant has defined global technology and innovation leadership as an important strategic goal in its core activities. Research and development (R&D) is therefore a high priority in the Group. The development of a large number of new and advanced technologies puts Clariant in a position to find chemical solutions for many of their industrial customers problems quickly and efficiently and to increase added value for the business partners and for Clariant. Through the realignment and concentration of R&D in 2010 and 2011, the company has created the foundation for sustainable, profitable growth and for consolidating its technology leadership in important areas. Around employees were working in this area in 2011, twice as many as in the previous year. The acquisition of Süd-Chemie was a crucial factor in this substantial increase. Consolidation of the Süd-Chemie activities also resulted in an increase in R&D expenditures in 2011 to CHF 176 million, up from CHF 135 million in The 2011 R&D expenditures represent 2.4 percent of Group sales, compared with 1.9 percent in Innovation Excellence was launched in 2011 as part of the Clariant Excellence initiative. The first phase involves implementation of efficient processes for quickly transforming ideas into innovative products. Strategic innovation management will help Clariant enhance its position as an innovative solution provider and an attractive development partner. The company will benefit from the new structure of R&D activities. Clariant s global R&D network includes the following sites: Frankfurt (Germany), Gendorf (Germany), Lamotte (France), Reinach (Switzerland), and Suzano (Brazil). The importance of Frankfurt as a global R&D site is underscored by construction of the Clariant Innovation Center, which is scheduled to be completed in The Business Units also maintain around 40 technical centers in Asia, Europe, Latin America, and North America so that the regions can be offered technical service and technical customer projects can be supported. Süd-Chemie conducts R&D activities at 26 sites around the world. Innovation focus on megatrends Clariant s ability to align its businesses to even more rapidly changing economic conditions and market requirements is crucial for its success, and this includes recognizing social and industrial developments. By gearing development of new products to megatrends, Clariant focuses on the issues of sustainability and advanced materials, with an emphasis on energy and water efficiency, renewable raw materials, and nutrition. Newly launched products that contribute to energy and resource conservation and brands such as EcoTain underline Clariant s orientation to sustainable markets of the future.

32 28 Clariant Annual Report 2011 Employees Key success factor Motivated and well trained employees are a key success factor in the Clariant Group s prosperity. The qualifications, commitment and motivation of its staff are essential to the company s competitiveness going forward. Human resources management plays a key role in recruiting, promoting, and retaining the best employees for every position. To achieve these aims, Clariant pays performance-related compensation, provides ongoing training and pays due attention to helping its employees achieve their personal career goals. The nature of demand has made it necessary for the Group to increase its global focus, with production sites on all continents. Clariant therefore has a broad, culturally diverse staff with a precise understanding of the different customer needs in the various regions. These needs are met consistently. The biggest challenge for human resources management in 2011 was to integrate Süd-Chemie employees. As a result of the acquisition, headcount of the Clariant Group increased by more than or about 40 percent. Processes have to be aligned and adjusted, sites integrated, and functions harmonized. As a result of integrationbased synergies and Clariant Excellence initiatives, Clariant plans to cut about 700 jobs at Süd-Chemie in the coming years, mainly administrative positions. Another focus for the Group in 2011 as in prior years, although to a lesser extent was on further implementation of efficiency improvements introduced as part of the Project Clariant strategy initiative. Trend in FTEs 1 (on 31 December) Five-year overview FTE = Full-time employee Slight decrease in headcount after adjustment for expansion Although the total number of employees has declined significantly in the last few years, it increased markedly by from in 2010 to in While the increase was mainly driven by acquisitions which added more than employees, the remaining Business Units reduced personnel in their ongoing efforts for productivity increases. This was associated with the implementation of measures of the remaining restructuring initiatives and natural fluctuation. The adjustments in headcount were made in close cooperation with local employee representatives and authorities. In contrast to past years, when situations such as these made it necessary to institute shorter working hours, this option no longer had to be used in Emerging markets in Asia are becoming increasingly important In regional terms, the European workforce continued to be the largest at 45 percent of Group headcount. The second largest region based on number of employees is Asia with 25 percent, followed by Latin America with 14 percent, and North America with 9 percent. The increasing importance of the East Asia region is indicated by China, where the number of employees rose to Clariant had 15 production sites there as of the end of 2011.

33 Financial Review 29 Employees by region 2011 in percentage of total employees (including Süd-Chemie) % Among the Business Units, Masterbatches had the highest headcount with 14 percent of the Group s total workforce. Other highheadcount Business Units included Pigments (9 percent), Textile Chemicals (9 percent), and Industrial & Consumer Specialties (8 percent). The two new Business Units that were added as a result of the Süd-Chemie acquisition Functional Materials and Catalysis & Energy accounted for 13 and 12 percent, respectively. In 2011 the Clariant Group spent CHF million on salaries, social welfare contributions, and exceptional personnel costs for its own employees. When costs for external or temporary personnel are included, personnel expenses in 2011 totaled CHF million. The corresponding figure for 2010 was CHF million (excluding Süd-Chemie). Clariant stock Europe 45 Asia/Pacific 25 North America 9 Latin America 14 Middle East & Africa 7 Year shaped by global financial crisis The trend on the world s stock markets in 2011 was shaped by the global financial crisis and the performance of the global economy. In view of positive economic data, the markets exhibited stable lateral movement into June, with relatively moderate fluctuations in the major indexes. In March the tsunami in Japan caused sharper price fluctuations for a brief period. By shortly before mid-year, the markets had calmed again. Thereafter, the dimensions of financial difficulties especially in the southern European EU countries became more and more apparent, and led to discussions and speculation about the potential insolvency of some countries, or even the collapse of the European Monetary Union. This in turn led to massive unease in the financial markets due to the uncertainties about the future impact on the actual economy. By the end of June, this resulted in profit-taking and the first price declines, which in August became a massive stock market crash with key indexes plummeting more than 20 percent. Although the markets were somewhat calmer by the end of the year, the leading European markets lost value, e.g. the Euro STOXX 50 lost 17 percent of its value over the entire year. Clariant shares under pressure due to economic uncertainties The recent performance of Clariant stock reflects this general market trend. Clariant shares had also shown stable growth up to June based on positive operating figures. However, the acquisition of Süd-Chemie and the associated financing requirements, including a capital increase, caused the price to drop in the interim from more than CHF 18 at the beginning of the year to just over CHF 14. Following a rally, the price rose to its high for the year of nearly CHF 20 at the beginning of June. The subsequent slump on world markets also resulted in a significant plunge in the price of Clariant stock. Since, however, cyclical share values in particular were impacted by selling pressure due to economic uncertainties, the price decline in the second half of the year was therefore much more pronounced than that of the SMI, the leading Swiss index, which is comprised predominately of non-cyclical stocks. Compared to its European peers Clariant s financial figures were impacted by an unprecedented appreciation of the Swiss franc that impacted both sales and operational margin. As a consequence the company had to adjust its full year guidance

34 30 Clariant Annual Report 2011 at the beginning of September which impacted the share price that hit its annual low of CHF 6.88 at this time. The general market recovery and the solid operating figures caused the price to rise again after that. However, at the end of the year on 31 December 2011, Clariant shares were quoted at a price of CHF 9.27, which represents a 51 percent year-on-year decline. In 2010 the securities had posted a clearly above-average performance by increasing 55 percent in value. Key figures for the Clariant share Closing rate (31 December) (CHF) Peak price (CHF) Lowest price (CHF) Number of shares on 31 December (million shares) In free float (%) Average trading volume per day (SIX) Market capitalization on 31 December (CHF m) Earnings per share (CHF) Dividend per share (CHF) Risk management For financial risks refer to page 109 and following pages of the Financial Report. Enterprise Risk Management (ERM). Identification, Assessment and Management. For detailed information please refer to pages 82 to 83 of the Corporate Governance section. Events subsequent to the balance sheet date On 17 January 2012, Clariant Finance (Luxembourg) S.A. issued an Eurobond in the amount of EUR 500 million, guaranteed by Clariant Ltd. The fixed rate notes with a minimum denomination of EUR and a final coupon of percent per annum will mature on 24 January The proceeds are to be used for general corporate purposes optimizing Clariant s debt maturity profile. With value date January 30, 2012, the last drawn part of the syndicated bridge loan facility to acquire Süd Chemie (CHF 400 million as of 31 December 2011) has been repaid in full. All commitments under the facility have been cancelled by then. The facility therefore ceases to exist. 1 Payout by reduction of nominal value, subject to approval by the AGM. You find more detailed information about Clariant on the company website at Investor Relations Hardstrasse 61 CH-4133 Pratteln Switzerland Tel.: Fax:

35 Financial Review 31 Outlook Economic environment Global growth in 2012 with increasing risks Since mid-2011, economic experts have become much more cautious in their forecasts for the global economy in According to the Organisation for Economic Cooperation and Development (OECD), the uncertainties resulting from the global financial crisis have had a huge impact on the real economy. The OECD is therefore only forecasting growth of 1.6 percent for the more than 30 OECD member states. The developing and emerging markets are again the driving force behind this growth. The experts are forecasting growth of 8.5 percent for China. By contrast, the industrial nations are clearly suffering the effects of the financial crisis. The eurozone economy is likely to post only marginal growth of 0.2 percent. A number of member states are even expected to see a fall in Gross Domestic Product. The United States is set to generate growth of 2.0 percent thanks to fiscal policy support in what is an election year. Following the collapse in its economy triggered by the disaster in 2011, Japan is also likely to post 2.0 percent growth in However, the OECD warns that the forecasts are subject to considerable uncertainty due to the numerous open issues relating to the euro crisis; it therefore does not rule out the possibility of a global recession if the economic environment worsens. Cautious forecast for the chemical industry in 2012 The performance of the chemical industry in 2012 will be closely tied to global economic growth. Economic experts are accordingly cautious in their forecasts. The upturn recorded in the chemical industry in 2011 is expected to slow considerably in The German Chemical Industry Association (VCI) has significantly lowered its estimates and expects only a slight increase in chemical production. Entrepreneurs and consumers appear increasingly unsettled by the unresolved issues of the global debt crisis, and their ordering practices have become correspondingly more conservative. Experts are therefore predicting no significant potential for price rises in The industry will, however, benefit on the cost side from more stable raw material prices. The moderate growth in the industry will be largely driven by continuing rising demand in the growth regions of Asia, Latin America, and Eastern Europe. Outlook for 2012 involves major uncertainties After completion of restructuring in 2010, Clariant s strategic focus in 2011 shifted to continuous improvement and profitable growth. In 2012, Clariant will continue to systematically implement the next steps in its transformational process with a focus on the integration of Süd-Chemie, on completing measures from restructuring initiated in 2009/10 and on portfolio management. In this context, Clariant is considering several strategic options for the Business Units Textile Chemicals, Paper Specialties, Emulsions, and Detergents & Intermediates, with the goal to be realized in the mid- to long-term. An accurate forecast for 2012 is difficult given the high level of economic uncertainty. Clariant will monitor the developments closely and respond rapidly, where necessary. Raw material costs are expected to rise in the low single-digit range while exchange rates should remain stable compared to the beginning of the year. In its base case scenario, Clariant expects that after a weak start into 2012, the global economy will progressively strengthen in the course of the year. Therefore, results for the first half-year are expected to be lower compared to the high base of the first half of 2011, with an improvement in the second half-year For the full-year 2012, Clariant expects further sales growth in local currencies and a sustained profitability.

36 32 Clariant Annual Report 2011 Further cost reductions through completion of Project Clariant Further progress in sustaining the improved returns already realized in the Group will be achieved by systematically continuing to implement the measures launched as part of Project Clariant. For example, additional cost savings totaling CHF 60 million are expected by mid after implementation of improvements in the production network under the Global Asset Network Optimization program (GANO) is completed in mid The smaller businesses acquired in 2011 have been successfully integrated and will continue to make a full contribution at operating level as of Integration of Süd-Chemie is proceeding according to plan The integration of Süd-Chemie is progressing as planned, and all project teams are working hard to deliver to promise. Current knowledge and experience confirms the forecast that integration by 2013 will result in a rise in EBITDA of CHF 90 to 115 million. Because of integration-related synergies and Clariant Excellence initiatives, around 700 jobs will probably be cut worldwide, especially administrative positions. Production improvement measures should also contribute to these savings. Those measures are planned to be implemented from 2012 to Foundation for sustainable, long-term profitable growth through 2015 Clariant has set ambitious goals for the years through 2015 in expectation of a moderate upward trend in the global economy and stable exchange rates. By continuing to systematically implement the strategy initiatives Project Clariant and Clariant Excellence, we intend to improve the profitability of the company and all Business Units. We will also increase investments in the Group s research and development, and expand the innovation pipeline significantly by implementing Innovation Excellence. The focus, furthermore, will be on broader expansion into the fast-growing emerging market regions. The company will increase its market share particularly in China, India, and Brazil. The profitability of the current portfolio will be analyzed on a continuous basis. We will also make targeted acquisitions in the future to strengthen the product pipeline and the company s regional presence, but will also consider divestments, if necessary. By implementing these basic strategic goals for 2015, Clariant intends to increase Group sales to more than CHF 10 billion and EBITDA before exceptional items to over CHF 1.7 billion, with an EBITDA margin before exceptional items of more than 17 percent a further target. ROIC should continue to be above the industry average, based on these objectives.

37 Financial Review 33 The Executive Committee Christian Kohlpaintner Hans-Joachim Müller Patrick Jany, CFO Hariolf Kottmann, CEO Mathias Lütgendorf Responsibilities: Pigments, Masterbatches, Paper Specialties, Detergents & Intermediates, Additives and Emulsions Business Units, Group Technology, and ESHA. Responsibilities: Catalysis & Energy, Functional Materials Business Units. Responsibilities: Group Finance, Group IR and Group IT. Responsibilities: Clariant Excellence, Group Legal & Compliance, Group HR, Group Communications and Corporate Development. Responsibilities: Industrial & Consumer Specialties, Textile Chemicals, Oil & Mining Services and Leather Services Business Units, Group Procurement, and Supply Chain Management.

38 34 Clariant Annual Report 2011

39 35 Muriel Rakotomalala, Flame Retardants With the Exolit product range Clariant is setting new benchmarks for flame retardants. Exolit is used in cases requiring environmentally compatible and highly effective fire protection, such as smartphones, notebooks and other high-tech devices, or textiles.

40 36 Clariant Annual Report 2011 Portfolio Management Clariant is a world leader in the field of specialty chemicals and supplies a broad range of products to many different industries. After undergoing major restructuring through 2010, Clariant experienced an active phase of external growth in This is reflected both in the takeover of the Süd-Chemie operations and in the acquisitions of several smaller and medium-sized companies in order to strengthen existing business operations. In this regard, active portfolio management also involves strategic exploitation of opportunities for expanding into future-oriented technologies, products, and regions with strong growth potential. The brief history of Clariant, which first went public under this name in 1995, has been characterized by a number of restructuring phases, which have had varying degrees of success. They involved extensive reorganization and changes in the business portfolio. Despite all these portfolio adjustment and restructuring initiatives, many performance indicators lost ground against our competition for many years because of the strong squeeze on margins. These problems were exacerbated, moreover, by the recent financial crisis. The current Executive Committee has responded to this situation and has taken a number of measures since the end of 2008 to advance the restructuring and reorganization of the Clariant Group at all levels. By clearly focusing on the core themes of cash generation, cost savings, and the reduction of complexity, decisive steps have been taken to restore Clariant s profitability and position it on a course toward profitable growth. The positive results of these efforts were already apparent in 2010 and were also acknowledged by the capital market. Portfolio management until end of 2010 characterized by restructuring phases The first important milestone related to changes in the company portfolio was the purchase of the specialty chemicals business of Hoechst AG in In 2000 Clariant took over the activities of British company BTP, a specialist in life science chemicals. At that time Clariant had around employees almost twice as many as it had prior to the acquisition of Süd-Chemie. The Group s complexity quickly became problematic. High structural costs, Business Units that were not very profitable, and changing global operating conditions led the company into a severe crisis in The strategic focus during the period from 2001 to 2005 was on separation from numerous business sectors, as well as the creation of a comprehensive program aimed at cutting costs, increasing efficiency, and the associated

41 Drivers for profitable growth Portfolio management 37 Active portfolio management is a key success factor in our profitable growth strategy. Hariolf Kottmann, Chief Executive Officer Clariant s History to 2010 Divestment of Electronic Materials Acquisition of Rite Systems and Ricon Colors Divestment of Cellulose Ethers Acquisition of CIBA Masterbatches Divestment of Pharmaceutical Fine Chemicals Sandoz established Clariant spin-off and IPO Acquisition of Hoechst Specialty Chemicals Acquisition of BTP Divestment of European Emulsion Business and Hydrosulfite North America Divestment of Acetyl Building Blocks Divestment of Custom Manufacturing Restructuring Overview of Business Units at the end of 2011 Additives: The Additives Business Unit is a leading provider of flame retardants, waxes, and polymer additives for effects in plastics, coatings, and other applications. Catalysis & Energy: This segment is a market leader in catalysts for the chemical, petrochemical, polymer, refinery, and automotive industries. Detergents & Intermediates: Detergents & Intermediates is one of the most important producers of key raw materials for detergents and household cleaners as well as chemical intermediates. Emulsions: The Emulsions Business Unit is one of the most important suppliers of latex/ polymer dispersions for paints, coatings, adhesives, sealants, and for the textile, leather, and paper industries. Functional Materials: Functional Materials is a leading manufacturer of specialty products and solutions for improving product and efficiency characteristics in various industries. Industrial & Consumer Specialties: Industrial & Consumer Specialties is one of the most important providers of specialty chemicals and application solutions for consumer care and industrial markets. Leather Services: Leather Services is a market leader in chemicals and services for the leather industry. Masterbatches: Clariant Masterbatches is the world s leading manufacturer of dye and additive concentrates and technical composites for the plastics industry. Oil & Mining Services: This Business Unit is a market leader in products and services for the oil, refinery, and mining industries. Paper Specialties: Paper Specialties is among the largest providers of products for optical brightness, color, coating, and thickness of paper. Pigments: This Business Unit is a global leader in organic pigments, pigment preparations, and dyes, which are used for coatings, printing, plastics, and other special applications. Textile Chemicals: Clariant s Textile Chemicals Business Unit is a market leader and supplies specialty chemicals for the pretreatment, dyeing, printing, and finishing of textiles.

42 38 Clariant Annual Report 2011 > 20 % The acquisition of Süd-Chemie will increase Group sales by about 20 percent. A comparable improvement in earnings is also expected based on Süd-Chemie s high level of profitability. The operating EBITDA marwas the percentage of Clariant Group sales generated by activities newly acquired in 2011 (basis: 12-month consolidation) sharp reductions in headcount. The primary purpose of these transactions was to create more financial room to maneuver. However, costs could not be sufficiently reduced to compensate for the constant decline in profitability that the businesses were experiencing at the time. As a result of the recent financial crisis in 2008, two initiatives were launched in 2008 and 2009 Project Clariant and Clariant Excellence that were designed to limit the impact of the crisis and optimize cost structures. This has been very successful, as indicated by the significant improvement in profitability in By the end of 2010 Clariant Group had a total of around employees working in more than 100 companies worldwide, with Group headquarters located in Muttenz, Switzerland. Clariant then comprised ten Business Units: Additives, Detergents & Intermediates, Emulsions, Industrial & Consumer Specialties, Leather Services, Masterbatches, Oil & Mining Services, Paper Specialties, Pigments, and Textile Chemicals. strategic expansion of its portfolio. The following criteria are paramount and must be met by any acquisition candidates: 1. Sizeable future potential through expansion of activities and/or the value chain of existing Business Units 2. Focus on innovative products with considerable potential in growth markets and industries, such as those with a strong orientation to future megatrends 3. Regional strengthening of the portfolio, especially in fast-growing emerging markets 4. Improvement of profitability through already proven margin strength and additional potential through synergies based on combination with existing activities and quickly realizable turnaround potential. Each takeover target undergoes a very detailed analysis process (due diligence) based on these criteria, followed by a company evaluation. The primary focus in the Clariant Group is on complementary acquisitions but can also lead to a major transformational acquisition, as in the case of Süd-Chemie. Süd-Chemie satisfies all of Clariant s success criteria The acquisition of Süd-Chemie AG, Clariant Group s biggest takeover transaction in its recent history, was also completed on the basis of these criteria. With a total of around employees, Süd-Chemie operates two stable and profitably growing Business Units that are among the global leaders in the areas of process catalysts and adsorbents. In addition, the company has a strong research and development pipeline for new business areas with significant growth potential. These involve innovative materials for key megatrends such as environmental protection, energy efficiency, energy storage, and renewable energies. Examples include lithium-ion batteries and biotechnologies used to produce secondgeneration bioethanol. Two additional Business Units were added in 2011 as the result of the acquisition of Süd-Chemie: Functional Materials and Catalysis & Energy. Süd-Chemie: acquisition criteria fully met Growth potential strong growth in sales in both business areas; little cyclical variation Strong external growth in 2011 Once the restructuring phase was virtually completed in late 2010 and the company had a healthy balance sheet and solid financing structure, Clariant again began in 2011 to concentrate much more heavily on Innovation Regional expansion Profitability ratio of R&D to sales > 5 percent; full innovation pipeline in megatrends high proportion of sales in fast-growing emerging markets EBITDA margin before exceptional items of 17.1 percent in 2011; improved return despite slowdown

43 Drivers for profitable growth Portfolio management 39 The return is above-average. Given the high level already achieved, how do you aim to add to this in the future? Hans-Joachim Müller: This is for sure a challenge, but we have always focused to a great degree on the future orientation of our products and applications. The high 5.4 percent ratio of R&D expenditure to sales in 2011 is impressive proof of this approach. We have a large number of innovations for what are called the megatrends of the future: environmental protection, energy efficiency, renewable energies to name just a few. What does that mean for your product portfolio in concrete terms? Interview with Hans-Joachim Müller, Member of the Executive Committee, responsible for the Catalysis & Energy and till Dec Functional Materials Business Units as a member of the Clariant Executive Committee, you are responsible for the activities acquired from Süd-Chemie. What are the strengths of these Business Units? Hans-Joachim Müller: Functional Materials and Catalysis & Energy fit Clariant s product portfolio perfectly. Both Business Units have highly innovative products with great growth potential. The return is clearly above-average and will remain very stable, even in the event of a new economic crisis. Hans-Joachim Müller: A look at our clean tech products shows how well we are positioned. Our catalysts prevent emissions and are often the factors that make efficient utilization of alternative energy and raw material sources possible at all. Our adsorbents and additives help improve production processes: They clean food, treat water, protect pharmaceutical products, replace heavy metals, and so forth. And by supporting the growing lithium-ion technology, we are playing an important role in future energy storage. and what does that mean with regard to your margins? Hans-Joachim Müller: On this point we are confident that we can both maintain high profitability and expand it. For one thing, we have a successful track record in this area. Süd-Chemie, for example, was able to increase the EBITDA return steadily, even during the last financial and economic crisis, from 13.9 percent in 2008 to over 16 percent in In addition, we see potential based on our innovative products and on integration into the Clariant Group. Integration is proceeding very smoothly and we expect an additional rise in EBITDA of CHF 90 to 115 million by 2013 as the result of integrationrelated synergies and Clariant Excellence initiatives.

44 40 Clariant Annual Report 2011 The purchase of Italtinto strengthens our product portfolio through forward integration in applications with high profitable growth potential. Marco Cenisio, Head of the Pigments Business Unit gin of the Functional Materials segment, for example, is just under 13 percent and that of Catalysis & Energy approximately 24 percent. It should also be emphasized that the Süd-Chemie activities are much less cyclical than most of Clariant s other activities. They increase Clariant s percentage of less cyclical business to significantly above 50 percent. During the last major recession of 2008 and 2009, Süd-Chemie was even able to achieve returns of 13.9 and 14.7 percent, respectively, and to increase its margin further to 16.8 percent by 2010, despite the crisis. You can find additional information on Süd- Chemie at: Several strategic expansion acquisitions in 2011 In addition to the major acquisition of Süd- Chemie, which certainly outshone everything else in 2011, Clariant again also concluded several smaller but very attractive and future-oriented takeover transactions. By acquiring the US company Octagon Process LLC in mid-march, Clariant significantly expanded its North American activities in the area of de-icing chemicals in the Industrial & Consumer Specialties Business Unit. Clariant is already a world leader in this sector, and Octagon strengthens its position further in the North American region. It can now guarantee its customers there an even expansion acquisitions in 2011 Acquisition of Octagon Process LLC (USA) Acquisition of Prairie Petro-Chem (Canada) Takeover of Süd-Chemie AG (Germany) Acquisition of Italtinto S.r.l. (Italy) higher level of delivery reliability. This acquisition also generates additional growth potential since the company brings to the Group its innovative product range, particularly in the area of more environmentally friendly de-icing chemicals. The Canadian company Prairie Petro-Chem was purchased in April as part of the Oil & Mining Services Business Unit. The company, which is active in the petrochemical sector, is among the leading suppliers of specialty chemicals for oil and gas production in the Bakken Shale region of Canada, which is viewed by industry experts as one of the most promising regions in North America. Additional information on the Oil & Mining Services Business Unit is available at: under the Businesses heading. Takeover of all minority shares in Colex Spolka (Poland) Purchase of Oberhausen Technology Center (Germany) March April May June July August September October Clariant also strengthened its Pigments Business Unit in April by acquiring the Italian company Italtinto. This takeover makes a lot of sense strategically for two reasons. It allows Clariant to extend its value chain in the attractive market for color mixing systems and is the ideal complement to the Business Unit s existing product range in a very healthy market with above-average growth rates. The integration of Italtinto also yields big synergy effects on the cost and customer side. Lastly, Clariant took over Oberhausen Technology Center GmbH (OTC) in October. This again strengthens Industrial & Consumer Specialties, specifically the Consumer Care area. OTC has unique formulation expertise that enables it to transform new sustainable and innovative technologies into lowcost consumer products. The transaction is therefore a perfect fit for Clariant s strategy of establishing strong positions in new fastgrowing areas.

45 Drivers for profitable growth Portfolio management 41 In Prairie Petro-Chem we have acquired a real asset. what is special about Prairie Petro-Chem from Clariant s perspective? Christopher Oversby: In Prairie Petro-Chem we have acquired a truly valuable asset. The company already supplies more than oil and gas production sites and is established as a leader in the fast developing Saskatchewan region of Canada. The region, which includes the Bakken Shale formation, has some of the biggest hydrocarbon reserves in North America positioning Prairie Petro- Chem for continued success for many years to come. But with sales of about CAD 30 million, the company is quite small. Interview with Christopher Oversby, Head of the Oil & Mining Services Business Unit Christopher Oversby: It might look like that at first glance, however the company has a strong record of significant growth and is highly profitable. In addition to the immediate potential of the region, which is very impressive, we will use this acquisition as a spring board to accelerate the development of our shale business in other regions, both within North America and globally. Portfolio optimization also includes the sale of some operations At Clariant, portfolio management also means reviewing all existing activities with regard to profitability and future orientation within the Group. The analysis shows that peripheral activities that are no longer part of the Business Units core areas would be in better hands in other companies. Clariant therefore sold several smaller operations in the course of 2011 such as its polysilazane coatings business and Licomer brand floor polishes. These transactions highlight Clariant s continuous efforts to make the Group a world leader in the field of specialty chemicals with above-average profitable growth through strategic portfolio optimization.

46 42 Clariant Annual Report 2011 Global positioning The ongoing process of globalization is forcing globally active companies to adapt their structures and strategies to ever more rapidly changing conditions. As a global leader in specialty chemicals, Clariant has done its homework over recent years and consistently aligned its production structures with global economic trends. The company has production facilities on all continents and 152 production sites in 44 countries. The focus for the future, which is also reflected in the Clariant Group s growth strategy, is on expanding market share in high-growth emerging countries in Asia and Latin America. The Clariant Group has seen a clear shift in regional sales shares in recent years. Dynamic economic growth in the emerging markets has driven a significant rise in the sales shares of these regions when measured against Group sales. This increase was especially pronounced in the sales shares of Latin America and Asia/Pacific. Whereas Latin America generated only 13.0 percent and Asia/Pacific 17.1 percent of sales in 2005, by 2011 these figures had risen to 15.5 percent and 21.7 percent respectively. A particular highlight has been the dynamic growth in China s sales share in proportion to Group sales. Six years ago this stood at a relatively low 3.4 percent, but by 2011 it had risen to 6 percent. A corresponding decline occurred in sales from the traditional industrial nations of North America and Europe. Having accounted for a total of 63.4 percent in 2005, they had fallen to 54.1 percent by It is important to note that some of these sales had been exported to the emerging nations mentioned above. The integration of Süd-Chemie will provide a significant boost to Clariant s growth. In 2011, Süd-Chemie generated more than 30 percent of its sales in Asia and the Middle East (EUR 433 million). Location strategy follows global requirements The structural changes in global trade have also had a lasting effect on Clariant s location strategy. 13 and 3 percent respectively of the company s 152 production sites, are currently located in the emerging countries of Asia and Latin America. The measures taken to optimize the production network as part of the Global Asset Network Optimization (GANO) program also contributed to this shift in the regional balance of power at Clariant. By the time the measures are completed at the end of 2013, 20 Clariant locations will have undergone restructuring. Fourteen are being or have already been closed completely, while a further six will see significant cost improvements as a result of GANO. Clariant expects these measures to generate some CHF 60 million in cost savings by mid-2013.

47 Drivers for profitable growth Global Positioning 43 Companies which are too slow to adapt their structures to the challenges of globalization will stand very little chance in the future competitive business environment. Mathias Lütgendorf, Member of the Executive Committee sales share by region Comparison 2005 and 2011 % Europe North America : : : : 41.1 whereof China : : 6.0 Asia/Pacific Latin America : : : : 15.5 Middle East & Africa : : without Süd-Chemie Total Sales by Regions % North America 13 Latin America 15 Europe 41 Employees by region 2011 in percentage of total employees (including Süd-Chemie) % Europe 45 Asia/Pacific 25 Middle East & Africa 9 Asia/Pacific 22 whereof China 6 North America 9 Latin America 14 Middle East & Africa 7

48 44 Clariant Annual Report % of the Clariant Group s workforce is already employed in the emerging nations of Asia and Latin America. Clariant worldwide Countries where Clariant is represented Textile chemicals closer to markets When it opened the new headquarters for the South East Asia & Pacific region, Clariant also relocated the headquarters of the Textile Chemicals Business Unit from Europe to Asia, thereby underlining the key role of the textiles sector in Asia. More than 60 percent of global textiles production is based in the Asia/Pacific region, and Clariant already generates 43 percent of its textile chemicals sales in Asia. With the relocation from Switzerland now complete, the new headquarters will accommodate the entire senior management of Textile Chemicals. The Business Unit has also set up a global textile application team and opened a state-of-the-art laboratory at the new location. Clariant expertise for the Chinese market In May 2011, Clariant commenced production at a new ethoxylation plant in China, which means it now has a global presence in this segment. The plant marks another important investment in the country by the Industrial & Consumer Specialties (ICS) Business Unit. The new square meter Dayabay plant situated in the South East of Guangdong Province is the unit s largest plant in Asia/Pacific. The plant will have an initial production capacity of some tons of surfactants per year. It is also equipped with an autoclave laboratory to allow fast product development and customization in accordance with local demands.

49 Drivers for profitable growth Global Positioning 45 Clariant s expansion in the fast-growing Asian region is a key pillar of our profitable growth strategy. It is also evidence of our considerable commitment to our customers and markets. Hariolf Kottmann, Chief Executive Officer Clariant s sales in China CHF m 2016 /17 ~ The integration of Süd-Chemie will bring with it a further 51 new production sites, of which around 16 percent are situated in China, India and Brazil. The growing share of sales and locations accounted for by emerging nations also affects the staff members employed there. At the end of 2011, some 39 percent of full-time employees at Clariant worked in Asia/Pacific and Latin America. The comparable figures were on a similar scale at Süd-Chemie, with a third of the workforce being employed in the Asia/Pacific region. Clariant strengthens presence in Asia in 2011 Clariant continued to strengthen its presence in Asia in the year under review, among other things by opening new headquarters for the South East Asia & Pacific region in November. The new regional headquarters in Singapore are the first that Clariant has used together with Süd-Chemie. The Singapore location currently has 200 employees, who are responsible for supporting customers in the South East Asia & Pacific region This strengthening of Clariant s presence shows that the company is systematically pursuing its expansion strategy in the region. Considerable growth potential in China and India Clariant has invested over CHF 200 million in China alone over the past five years, and had 15 production sites there at the end of From a historical perspective, production relocations to China primarily affected the mature Business Units Textile Chemicals, Leather Services and Pigments, as the majority of global production in these areas stemmed from Asia owing to the low personnel costs there. In recent years, however, improving standards of living and the rising demand for industrial and consumer goods in the region have led to a marked increase in activity and dynamic growth in Clariant s other Business Units, in particular in the Industrial & Consumer Specialties, Masterbatches and Additives segments. The goal is to more than double the Clariant Group s sales in China from CHF 424 million in 2010 to around CHF 1 billion by 2016/17. This will be achieved by targeted expansion of production capacities and a move into high-growth sectors in the region such as pigments and coatings for China s automobile industry. Clariant forecasts similarly large potential for the Indian market. The Group has maintained a presence in the country for some 40 years and, with four production sites at present, has a well established and efficient organizational structure. Until now, around 70 percent of sales have been generated by the Textile Chemicals, Pigments and Leather Services segments. Improving living standards and dynamic economic growth have benefited the company in India, too. As is the case in China, Clariant is focusing on supplying the Indian automotive sector as well as the biotechnology industry, which both are expanding rapidly in the region. The aim is to triple Clariant s 2010 sales in India of approximately CHF 205 million by 2016/17. In addition to organic growth and the introduction of new, innovative products, the company is also examining selective acquisitions in India.

50 46 Clariant Annual Report 2011 Innovation, Research & Development Innovation is a key driver of progress on the path to profitable growth at Clariant. In the face of stiff international competition, it is impossible to achieve lasting sales growth and generate added value without new, attractive products. A high level of commitment to Research & Development (R&D) is essential for a specialty chemicals company to position itself successfully in the global market on a long-term basis. Only through creativity and a continuously high capacity for innovation can a company react quickly to customers changing requirements. Thanks to a large number of innovations, Clariant has continued to be able to rise to the demands of the market and secure sustained development of both products and production processes. Innovations also ensure that the company establishes a presence at an early stage in attractive market sectors and lucrative niches. Increasing globalization and the ever more rapidly changing conditions mean that companies must have the ability to react quickly to the requirements of the market and customers. In addition to ensuring lean and efficient structures and the optimum use of resources, Clariant also concentrates on recognizing future requirements within the context of megatrends and developing its products accordingly. For this reason, one focus of the company s R&D activities is on innovation in the future growth areas of en- ergy efficiency, resource management, and alternative energies as well as renewable raw materials. Clariant publishes current examples of these innovations on a quarterly basis in a number of forms, including animations about innovative products and their applications, on the company website under the title Innovation Spotlight. The acquisition of Süd-Chemie in the year under review led to another significant expansion of Clariant s technology platforms, which now include chemical technologies, biotechnology, catalysis, and process technology. By doing this, the company is generating further potential for the future so that it can continue pursuing its strategic goal of sustainable profitable growth, even in difficult economic conditions. From idea to market: Clariant s innovation process Innovation comprises the entire complex process from the development of an idea through to the successful market launch of a new product. In order to implement this process effectively, Clariant has set up an innovation management system which is firmly established throughout the entire Group and aligned the organizational structure of R&D accordingly. On this basis, efficient and targeted use is made of the available

51 Drivers for profitable growth 47 Innovation, Research & Development Global Innovation Network of Clariant Australia Lara Belgium Louvain Brazil Jacarei Sao Paulo Resende Suzano Canada St. Bruno Chile Maipú Central functions: China Jinshan Tianjin Shanghai Taoyuan Guangzhou France Cergy Choisy-le-Roi Lamotte Germany Ahrensburg Knapsack Oberhausen Wiesbaden Leinfelden Gersthofen R&D Center Chemistry and Process Technologies R&D Center Biotechnology R&D Center Catalysis & Energy Business Unit functions: Bendorf Hilden Moosburg Unterneunkirchen Frankfurt-Höchst Gendorf Munich Heufeld Lahnstein India Cochin Pune Baroda Kolshet Roha Indonesia Cileungsi Tangerang Italy Lomagna Palazzolo Pogliano Novara Merate Japan Shizuoka Toyama Malaysia Port Klang Shah Alam Mexico Puebla St. Clara New Zealand Albany Pakistan Karachi Korangi Peru Lima Russia St. Petersburg Saudi Arabia Riyadh Singapore Singapore South Africa Chloorkop Johannesburg Randburg South Korea Pohang Spain El Prat Castellbisbal St. Andreu Yuncos Switzerland Muttenz Reinach Thailand Phan Tong Bangpoo Turkey Gebze United Kingdom Aberdeen USA Little Ferry Needham Palo Alto Belen Alfred Station Minneapolis Holden Chicago Winchester Houston Charlotte Louisville Mount Holly Technical Centers (Application Development)

52 48 Clariant Annual Report 2011 CHF 176 m This led to an increase in R&D expenditure from CHF 135 million in 2010 to CHF 176 million in the year under review. As a proportion of Group sales, this correwas the amount spent by the Clariant Group in researching and developing innovative products in Excellence in Innovation: The Clariant innovation process From idea to market SCOUT SCOPE EXECUTE Commercialize Ideation Scouting Evaluation Deep Dive Proof of Concept Development Pilot Launch Monitor Close resources for developing new products and applications with great potential for the future. Realignment of the R&D organization to increase efficiency The R&D organization, which was already restructured in 2010 and consists of the Group Research & Development Centers for Colorants, Surfactants and Alkoxylates, Effect Chemicals and Intermediates, Specialty Polymers, and Formulation Technology, has combined know-how and strengthened technology platforms. The work of the R&D Centers includes not only developing new molecules and polymers but also optimizing formulations. The Intellectual Property Management Department develops patent strategies together with the Business Units and thus secures Clariant s know-how. These new solutions are then tested in the application development laboratories of the Business Units in order to assess their viability in practice. Before an R&D project is approved, the cost effectiveness of innovations is assessed by comparing the expenditure on research, production, and marketing with the expected returns. The company s research strengths at Clariant mainly chemicals, and at the new subsidiary Süd-Chemie Catalysis and Biotechnology will generate significant synergy effects. The combination of Süd- Chemie s experience in catalysis, enzyme technologies, fermentation and materials separation with Clariant s expertise in chemical modification of renewable raw materials and in polymer technology opens the way for the development of, for example, new surfactants, which have considerable growth potential. In addition to Group R&D, the Group Technology Services function includes the organizational units Group Process Development, Group Engineering, New Business Development, and Intellectual Property Management. Using innovative process technology, Group Process Development brings chemical processes to production scale and increases the efficiency of existing chemical processes. New Business Development is responsible for developing new business outside of existing business activities. Innovation Excellence launched in 2011 To make R&D even more efficient and effective, Clariant has launched a new idea-tomarket process within the Group in the form of the Clariant Innovation Excellence (CIX) initiative. CIX is the fourth pillar of Clariant Excellence and was introduced in July The idea-to-market process is implemented consistently throughout the Group and is designed to scout, scope, develop, and commercialize innovation ideas within the shortest possible time frame. Between the individual steps, the achievements are compared with the original goals and market requirements (stage gate) before the green light is given for the next stage. R&D workforce moved to As a result of the consolidation of Süd-Chemie, Clariant s R&D workforce increased to as of the end of 2011 twice as many as in the previous year.

53 Drivers for profitable growth Innovation, Research & Development 49 Innovation is the basis of our business success. Interview with Martin Vollmer, Chief Technology Officer What is the importance of innovation for Clariant? Martin Vollmer: Innovation is the basis of our business success and enables us to achieve profitable growth. Innovation also means delivering new products and services to the market which are of value for our customers. Starting point is to understand the unmet needs of our customers and to translate these needs into the right product or service offering. Moreover, innovation is directly linked to sustainability. Clariant responds with the development of safe, resource efficient and environmentally compatible chemical processes providing the basis for innovative performance products. You are investing considerable amounts in building a global Research & Development center. Why in Frankfurt? Martin Vollmer: During a classical evaluation of various locations, Industry Park Höchst in Frankfurt emerged on top of the list. There are several reasons for this: Firstly, we already have a critical mass in Frankfurt. All of our Group R&D Centers run chemical laboratories in Frankfurt. In addition, our Group Process Development team operates Clariant s most versatile pilot plant there to speed up the development from lab to production. Many of our Business Units operate application development, testing and analytical laboratories in Frankfurt. Bundling of expertise under one roof in the new Innovation Center will foster collaboration and communication across organizational boundaries and this will certainly be a source for innovation. We will even integrate our New Business Development team and our Patent Department in the new center. Secondly, there are several universities and research institutions in the Rhine-Main region offering collaboration opportunities for Clariant. And thirdly, Frankfurt as the global hub of Clariant s R&D has an excellent infrastructure considering the proximity of the industry park to the international airport and the excellent train network. How do you see the importance of collaboration with external partners such as universities and research institutions? Martin Vollmer: This is of great importance for us. It can be considered as technology push and will be beneficial to fill the research pipeline. Open Innovation in particular is becoming more and more important. Combining knowledge and capabilities from various partners leads to new ideas and creative product concepts. The role of the industry partner is to build the bridge to the market. Clariant is currently involved in more than 140 research projects with external partners world-wide. For example, in Germany, we intensively work with the Technical University of Munich in the field of catalysis. In Switzerland, we work with the ETH Zurich and sponsor a fellowship program for Ph.D. students. This gives us access to young talents who might join Clariant after finishing their education.

54 50 Clariant Annual Report 2011 Clariant Innovation Center in Frankfurt Completion scheduled for 2013 Investment: CHF 125 million Workforce of 500 Coordination of Clariant s global R&D activities sponds to an increase from 1.9 percent in 2010 to 2.4 percent. The main driver of this increase was Süd-Chemie s traditionally high R&D expenditure. In the two new Clariant businesses, Functional Materials and Catalysis & Energy, which were added as part of the acquisition, R&D expenditure was well over 5 percent (in terms of sales). The R&D activities at the five R&D Centers mentioned above are located in Frankfurt/ Höchst and Gendorf (Germany), Reinach (Switzerland), Lamotte (France), and Suzano (Brazil). Another Research & Development Center is planned in Asia in the foreseeable future. After the completion of the Clariant Innovation Center in 2013, Clariant will have one of the most cuttingedge research centers in the world in Frankfurt/Höchst. All global R&D activities will be coordinated from this center. The Business Units also maintain around 65 technical centers in Asia, Europe, Latin America, and North America so that the regions can be offered technical service and technical customer projects can be supported. The development of new and the optimization of existing production processes mainly takes place in three process development centers in Frankfurt/Höchst, Gendorf, and Lamotte. Süd-Chemie s major R&D sites are in Germany (Munich, Heufeld, and Moosburg), USA (Louisville, Palo Alto), and Japan (Toyama). Together with Süd-Chemie, Clariant holds over patents and is involved in more than 140 scientific projects with external research partners. The Group s research and development activities are thus complemented by an international network of universities, public research institutions, and partner companies, which strengthens its own R&D. Clariant sponsors young scientists by awarding scholarships to worldrenowned universities, such as ETH Zurich. The Project Center for Renewable Raw Materials coordinates all of Clariant s international research and development activities in this area as well as appropriate external collaborations. Clariant is investing at least CHF 10 million in this interdisciplinary research program initially scheduled to last three years. Key objective is the replacement of petrochemical raw materials with renewable ones. At the Advanced Materials Project Center, new materials such as ceramic fibers and composites are developed.

55 Drivers for profitable growth 51 Innovation, Research & Development Examples of recent R&D projects and product innovations Sunliquid is an integrated process being developed by Clariant for manufacturing bioethanol from cellulose obtained from the leftover straw waste from food production. With this second generation bio fuel process applying enzyme technologies, Clariant is avoiding the conflict between food and fuel. Vitipure TM, Zenvivo TM, Velsan a unique range of chitosan-based biopolymers developed in collaboration with the company KitoZyme. It is used to make hair and skin cleansing products more moisturizing, gentle and protective. Clariant is already a global leader in nonhalogenated flame retardants thanks to Exolit. Exolit is used in particular in the electrical and electronics industries as well as in construction. A new concept has also been developed to improve fire protection of printed circuit boards in the electronics industry. Under the name Synergen, Clariant is developing new crop protection products based on renewable raw materials. The special feature of the Synergen concept is that the raw material is taken from the plant species for which the crop protection product has been formulated. This enables an increase in crop yields without damaging the plants with artificial substances. As a consequence, this bio-based surfactant product meets the market demand for green crop protection. Süd-Chemie s selective hydrogenation expertise was highlighted when the latest addition to the OleMax series was shortlisted for the ICIS Innovation Award in OleMax 207 offers a 35 percent selectivity improvement in converting acetylene to ethylene in petrochemical operations of customers. The high conversion catalyst runs at lower temperatures and for longer cycles than competing materials, translating to EUR 1 million in annual savings for a midsized ethylene unit, and correspondingly less impact on the environment. Süd-Chemie began commercial production of its new battery material Life Power P2 in December The new unit in Candiac, Canada, uses a proprietary wet process to make a high-performance cathode material based on lithium iron phosphate. Life Power P2 delivers high power, superior safety, and long cycle life to applications such as electric and hybrid vehicles and home energy storage systems.

56 52 Clariant Annual Report 2011 Sustainability at Clariant In addition to further strengthening its operational and technological basis for profitable growth in business year 2011, Clariant also focused this base rigorously on sustainability aspects, thereby taking into account both its corporate and social responsibility. From the business point of view, this is critically important in two ways. First, particularly in challenging times, companies that are sustainably managed and act responsibly are proven to be more successful in the long term. In addition, the wide range of innovations developed on the basis of sustainability generates added sales and earnings potential. Global population growth, increasing standards of living, and globalization have opened up many possibilities but at the same time, have brought many challenges: Ever scarcer raw materials and energy sources have to be spread over more and more people. Responsible and efficient use of the available resources is imperative for us, and all the more so for future generations. Sustainability-based management significantly increases the Group s competitiveness, generating value, which also addresses the capital markets requirements. This is a further reason why sustainability is firmly anchored in Clariant s corporate strategy. Long-term planning, not short-term thinking Clariant believes it has a duty to use resources sparingly and respect the environment, from a pure business point of view apart from anything else. This also includes ensuring a sound and performance-enhancing working environment, guaranteeing mutual respect, and where appropriate participating in campaigns to improve the social climate. Clariant has set itself the specific objectives of steadily reducing its relative consumption of water and energy, and generating less waste and pollutant emissions. In addition, plant safety is to be increased still further and products improved through ongoing research. By implementing its sustainability objectives, Clariant is assuming responsibility for the environment, its employees, its customers, and society, particularly through intensive and transparent communication with the relevant stakeholders. Clariant s focus on innovation also strengthens the company s future economic viability. The company s main opportunities here lie in the development of innovative prod-

57 Drivers for profitable growth Sustainability at Clariant 53 Clariant Sustainability Policy Commitment & Clariant Excellence Clariant commits itself to ethical and sustainable operation and development in all business activities according to Responsible Care and Clariant s own Code of Conduct. Clariant strives for a business culture of continuous improvement as well as for sustainable competitiveness and top performance in consideration of Clariant s ethical standards. Responsibility Clariant bears an ethical responsibility for sustainable, economic and ecological, as well as fair, business practices. Corporate Social Responsibility is therefore an integral component of our company's philosophy. All Clariant employees are educated and trained to assume responsibility in line with their function, level of authority, and qualification. Clariant s Management System Clariant s certified Management System adheres to all internal and external standards to which Clariant subscribes and forms the company s documented structural framework as the basis for objectives and pro- grams. The system complies with ISO 9001, ISO 14001, OHSAS 18001, and Responsible Care. Achieving and maintaining a high level of quality across all aspects of our businesses, our ESH related activities, Social Responsibility and Responsible Care, is our understanding of Corporate Sustainability. Compliance Compliance with laws, international standards, internal regulations, and Clariant s Code of Conduct is a basic requirement for all our activities. Clariant appreciates voluntary initiatives and provides adequate support to develop effective and efficient safety, health and environmental regulations. Safety and Environment One of Clariant s most important objectives is the safety of its worldwide activities and the protection of people and environment. We set protection goals which are valid throughout the entire group and monitor and evaluate all aspects of our activities. Risk and Emergency Management Comprehensive assessment of risks related to our operations and products are prerequisite to our business processes. Local and global emergency organization is in place to ensure comprehensive emergency management and response. Innovation and Product Stewardship We are convinced that it will be essential to understand our customers needs. Innovation and customer focus is the key to our business. We permanently develop better and new products and services to add value to our customers and to our environment. Concurrently we secure that our products can be used over their entire life cycle in a safe manner for employees, customers, the public and the environment. Sustainable Operation and Processes We take initiatives to reduce environmental, safety and health risks in production, storage, distribution and usage of our products and the disposal of waste. This includes the efficient use of energy and resources and the continuous improvement of our processes to minimize the impact of our activities on the environment. continued on page 54

58 54 Clariant Annual Report 2011 continued from page 53 Third Party Management Our aim is to establish mutually beneficial relationships with our third party suppliers and contractors in order to support our services on the basis of our internal ESHQ standards, which include Corporate Social Responsibility and Responsible Care. We encourage our suppliers and service providers to adopt standards comparable to Clariant s policies. Communication Clariant fosters a culture of proactive and transparent communication as key to trusting and reliable relationships. All stakeholders are regularly informed about our activities, our targets and our ESHQ performance. We identify the concerns and expectations of our stakeholders systematically. Monitoring and Review We monitor and review all business aspects and processes including Responsible Care issues at regular intervals. Observing our quality and performance is an integral component of our business processes, our top priorities and our strategic planning. Life Cycle Thinking on Product Level Sustainable Design already reflects the idea for more sustainability during the development phase of a new product. Goal is to invent safer products that are inspired by bio-based raw materials and designed to replace critical materials. Responsible Production focuses on sustainability initiatives during the manufacturing. Goal is to make chemical reactions happen more efficiently, thus conserving energy and water and reducing greenhouse gases, effluents, and waste Ecological Integration refers to the environmental fate of a product after its use. It concentrates on the product s environmental compatibility and ecological friendliness. Safe & Efficient Use highlights the product benefits during handling, formulation, and application. It takes into account favorable product properties and performance benefits while assuring peoples safety.

59 Drivers for profitable growth Sustainability at Clariant 55 A focus on sustainable management is firmly anchored in Clariant s business strategy. Christian Kohlpaintner, member of the Executive Committee The six megatrends: Challenge and opportunity Society Technology Consumption Globalization Competitive situation Environment Urbanization and social change New mobility concepts Convergence of technologies Increasing importance of bionics New consumer behavior Thriving health sector Growth of trade flows Change in economic structures ucts, including those based on renewable raw materials. Innovative products should, furthermore, minimize risks and waste in production. The optimization of internal processes is also in the interest of our customers, who benefit from tailored solutions. Sustainability is very important at Clariant. This is demonstrated by the publication of the company s detailed Sustainability Report, which received the GRI Level A for standards of reporting on sustainability from the Global Reporting Initiative (GRI) in Through its product innovations Knowledge-based economy New needs in the modern world of employment New thinking in use of energy and resources Climate change Environmental impacts and commitment to sustainability, Clariant is also making a contribution to mastering the global challenges of our time in process management. These challenges include sufficient food, water, and energy; effective climate protection; and securing quality of life for an ever increasing global population. Newly launched products which help to save energy and resources, such as brands like EcoTain, or the products made under the CleanTech label by Süd-Chemie, highlight Clariant s orientation toward sustainable markets of the future. You can find more detailed information on Sustainability made systematic, with detailed rules Over the past years, Clariant has made considerable efforts to structure operational processes even more rigorously in line with sustainable management, align them with ambitious goals, and continuously optimize them. This is also reflected in the ESHA management system (Environmental, Safety, and Health Affairs), which forms part of our Group-wide process and strategy planning. The management system includes a periodic compliance test of actual business performance and ongoing goal reviews. Clariant has a global and local emergency management system and can react to incidents immediately and with a high degree of effectiveness. The Sustainability Council was implemented in business year It consists of representatives of the Business Units, Group functions, and business regions. The Council develops mid- to long-term goals and standards and evaluates the global challenges of sustainable development, in accordance with Clariant s activities and product portfolio. This ensures that sustainability at Clariant is assessed and managed holistically.

60 56 Clariant Annual Report 2011 underpins our constant efforts to ensure sustainable chemicals production. What areas does cover? Joachim Krüger: All the relevant ones. That means we are not only dealing with environmental issues, but also with safety in the production, transportation, and use of the products. We are also overseeing aspects of health protection in both the production process and the handling by our customers. So also covers the area of product responsibility? Interview with Joachim Krüger, Vice President Corporate ESHA Clariant pursues a strategy called Sustainability@clariant. What goals are you aiming for with this strategy? Joachim Krüger: Sustainability@Clariant underpins our constant efforts to ensure sustainable chemicals production. Our aim is to produce chemicals by minimizing undesirable effects on the environment. And we want to use as few materials and as little energy as possible in their production. Our main priority in doing so is finding the optimum balance in the triple-bottom-line approach for people, planet, and profitability, and to satisfy the customer needs. Joachim Krüger: I would go so far as to say it is a specific focus. We want to handle chemicals and our products responsibly, on all levels: together with our suppliers, in our own production facilities, and with our customers. An intensive exchange of ideas and opinions takes place here regarding applications and possible risks; we will keep on reducing the latter. Does every department or production facility implement this program itself? Joachim Krüger: Naturally, our employees on site have to implement Sustainability@Clariant under their own authority. However, the guidelines and requirements, as well as the application rules, are standardized and trained throughout the Group. Our Sustainability Council sets rigorous specifications here and strictly monitors compliance. The Council works in this process with coordinators in the regions and countries, in the Business Units, and the various corporate functions. After all, Sustainability@Clariant is part of the global Clariant management system and the way we work.

61 Drivers for profitable growth Sustainability at Clariant % was the reduction of relative carbon dioxide emissions within the Clariant Group over the last six years. Increased sustainability through international standards As a leader in the specialty chemical industry, Clariant goes beyond legal requirements and participates in several voluntary sustainability programs, including voluntary commitments as part of Responsible Care under the Global Responsible Care Charter and Global Product Strategy. CARBON DIOXIDE EMISSIONS IN RELATION TO PRODUCTION VOLUME kg/ t < The guiding principle of these programs is continuous improvement of health, safety, and environmental protection as well as product quality from the point of view of sustainability. Accordingly, Clariant is certified to ISO 9001, ISO 14001, and OHSAS all over the world. All production facilities have to adhere rigorously to the applicable rules on environmentally friendly and safe operations. Life cycle thinking delivers far-reaching sustainability To ensure sustainability from the initial product idea through production to the product s application by the customer, Clariant has extended the life cycle concept to the entire process chain. At Clariant, environmental protection begins in product design and development. Taking both ecological and economic aspects into account, we examine raw materials and the manufacture, distribution, usage, and disposal of products, and take into account potential 1 Preliminary criteria for eco-efficiency. This aims to make the manufacture and application of products safer from the point of view of health and the environment particularly by replacing scarce resources with bio-based, renewable raw materials. Clariant also pursues a clearly defined philosophy in resource management. In a subsequent stage, the energy required for production is determined by means of a detailed input-output analysis. In accordance with that analysis, operational excellence criteria, and optimization potential in the process or product itself, are established. The same procedure is applied to air emissions and water contamination. Production does not start until the optimum balance of requirements feasible according to the state of the art is found. This approach has helped Clariant make measurable improvements in virtually all environmental areas in past years. Risks inherent in production facilities are systematically ascertained and analyzed in order to determine and realize potential for improvement. Clariant works very closely with its customers to ensure safe and efficient product handling. Optimum applications and processes are discussed. Possible interactions with other chemicals used must be taken into account since life cycle thinking also includes dealing with the environmental impact of a product manufactured by Clariant after it is used. To this end, environmental compatibility and recyclability of residual materials are investigated; the aim is to eliminate negative effects or at least reduce them to the greatest extent possible. Respectable performance on environmental issues Clariant has made improvements according to key environmental indicators in the last few years, with the absolute consumption

62 58 Clariant Annual Report 2011 of energy, resources and emissions falling considerably in some areas. This can be attributed to Clariant s deploying increasingly efficient production processes, but also to the fact that sales and therefore production fell sharply in 2008 and The recovery of the global economy in 2010 and the first half of 2011 has seen Clariant s manufacturing output rise substantially again, a fact inevitably reflected in absolute terms in the relevant environmental indicators. However, relative consumption and relative pollution continued to fall. For example, carbon dioxide emissions per tonne of volume produced have fallen substantially by approximately 50 percent since 2005, to less than 120 kilograms in All these efforts are aimed at enabling Clariant to pay shareholders a reasonable return on their invested capital over the long term. The Sustainability Report 2011 contains a detailed overview with many facts, figures, and product examples. Additional sales and earnings potential from sustainability focus The strong commitment of everyone in the Clariant Group to manage sustainability and at the same time respond to customer needs generates a high level of additional sales and earnings potential. Many of the innovations the Group develops on the basis of sustainability address future megatrends such as environmental protection, energy efficiency, resource management and renewable energy sources. Exolit Exolit OP is an innovative, patented organo-phosphorus (OP) flame retardant. It was developed by Clariant specifically for technical plastics in the electrical and electronics sector. It contains no halogen compounds, which have come under attack because of potential damage to the environment and health. In the event of a fire, Exolit OP suppresses the chemical reactions in the flame and forms a stable protective coating of carbonized material which keeps out oxygen and insulates against heat. All products in the Exolit OP line have an excellent environmental and health profile. Global market for flame retardants (FR) by value Latest market trends indicate a change of thinking in favor of non-halogenated products Halogenated FR Non-halogenated FR High-performance FR > 8 USD/kg Technical FR 4 8 USD/kg Standard FR > 4 USD/kg The triangle area represents the market share value. All values are in USD billion.

63 Drivers for profitable growth Sustainability at Clariant 59 Advanced Denim Traditionally, denim is dyed with indigo in huge production lines that not only require vast quantities of water for the rinsing and purification processes but also consume large amounts of electricity. Apart from this, many conventional processes generate massive volumes of cotton waste and involve the use of chemicals such as hydrosulfites during dyeing and hypochlorite in the post-treatment and wash-down stages. Now the new Diresul Indicolor dyes from Clariant set a new benchmark in denim production that unites technological and ecological advantages. Environmental Benefits 92 % less water 30 % less energy Up to 87 % less waste cotton EasyWhite Tan process with Granofin Easy F-90 Apart from Granofin Easy F-90, no other tanning agents are needed. One third fewer chemicals are therefore used, and the environmental impact caused by the production and transportation of these chemicals is reduced accordingly. The volume of effluents is halved even more water can be saved by optimization measures, and the remaining effluents are less polluted because chrome is completely eliminated. Salt pollution drops by 80 percent, which also benefits the environment. Environmental and production Benefits Environment 100 % chrome 80 % salt pollution 50 % effluents Production Process simplification Cost reduction User friendliness Less susceptible to faults

64 60 Clariant Annual Report 2011 Clariant Excellence Continuous improvement coupled with cultural change characterizes the Clariant Excellence (CLNX) initiative launched in Based on the well-known Lean- Sigma approach, this holistic method involves all Business Units and is primarily designed to improve competitiveness by increasing efficiency and generating added value for Clariant customers. After just three years, Clariant Excellence has already become a successful model, and its implementation across all departments and functions has produced significant results. For example, by the end of 2011, more than CHF 140 million in financial benefits had been achieved through more than CLNX projects. The objective is to continue to expand this success story in the years to come. As a holistic initiative, Clariant Excellence changes and improves the business culture and internal procedures for the long term in an ever-changing complex world and thus brings about regular annual benefits. CLNX is a combination of basic system approaches tailored to specific areas and LeanSigma, a method for improving individual business processes. The LeanSigma approach was conceived at the beginning of the 21st century and combines Six Sigma and Lean Management. Six Sigma was developed in the late 1980s and is established worldwide as a method for increasing efficiency and managing quality based on the core elements of description, measurement, analysis, improvement, and monitoring of business processes using statistical methods. Lean Management helps develop principles, methods, and procedures for efficiently structuring the entire industrial product value chain. Clariant Excellence is based on four pillars: Operational Excellence, Commercial Excellence, People Excellence, and Innovation Excellence. Since the beginning of 2009, a total of more than CLNX projects have been launched, including around 500 in Improvements worth more than CHF 160 million have been realized through these projects. The goal is to bring about further improvements totaling CHF 60 million per year in 2012 and subsequent years through the Clariant Excellence initiative. After all four pillars have been introduced in the form of individual improvement initiatives, the defined objective is to achieve even more efficient value creation for the Clariant Group and its customers by networking the four areas of excellence with one another. More than employees are already directly involved in Clariant Excellence Clariant Excellence is being implemented by specially trained staff. The concept is based on defined roles modeled on rank designations in the form of belt colors as used in Asian martial arts. Within three years,

65 Drivers for profitable growth Clariant Excellence 61 the initiative Clariant Excellence brings about a cultural change at Clariant. What has actually changed at Clariant since 2009? Michael Riedel: We have successfully established the Clariant Excellence approach in the minds and conduct of our employees through more than projects to date. More than staff members have been trained as belts, who then manage or help implement the projects. And what has this produced in concrete terms? Interview with Bernd Högemann and Michael Riedel. Michael Riedel was appointed Head of Integration Süd- Chemie, effective 1 January He successfully led and developed the Clariant Excellence Initiative since its start in 2009 till the end of Bernd Högemann took over responsibility for Clariant Excellence in January why does Clariant need an excellence initiative? Michael Riedel: Clariant Excellence is a key building block for implementing our Group-wide strategy concept for generating sustainable profitable growth. The initiative brings about a cultural change at Clariant. It puts us in a position to be able to respond flexibly to the dynamic changes in the globalized world. This helps us improve our competitiveness and generate added value for our customers. Michael Riedel: The improvements are quite impressive. In just three years, the financial benefits attributed directly and indirectly to Clariant Excellence projects totaled more than CHF 160 million. And this is by no means the end of our initiative. What are your plans for the next few years? Bernd Högemann: In the future we want to achieve additional average improvements of CHF 60 million per year through projects already introduced and projects still to be launched. And this does not even include the additional potential that we want to achieve by consequently implementing Clariant Excellence at Süd-Chemie as of 2012.

66 62 Clariant Annual Report 2011 > 160 million Swiss francs is the value of financial improvements attributable to Clariant Excellence projects. The four Pillars of LeanSigma Innovation Excellence: Enabling new ideas and solutions for profitable growth more than of all Clariant employees have been specifically trained as belts, i.e. project managers or project staff, for tasks in connection with the Excellence Program, and entrusted with its implementation within the Group. Süd-Chemie employees will also be included in this process from Regular surveys are carried out in order to monitor the successes and to identify potential improvements while introducing CLNX. The four pillars of Clariant Excellence Commercial Excellence: Empowering sales and marketing to offer the best customer service and value Operational Excellence focus on efficiency and productivity In 2009 and 2010 the emphasis of Clariant Excellence was on Operational Excellence and Commercial Excellence, and in 2011 attention was turned to Innovation Excellence and People Excellence. In 2010 the Clariant Production System (CPS) initiative was introduced as part of Operational Excellence, which focuses on efficiency improvements in all operating processes. The goal of the CPS program is to achieve optimum productivity and financial performance in the production units of all Business Units. Once LeanSigma Operational Excellence: Striving for optimum efficiency across all of our operating processes People Excellence: Enabling our people to achieve a culture of continuous improvement the foundation had been laid in 2010 by introducing CPS at pilot locations, the focus in 2011 was on company-wide implementation. This will also be the main objective in The goal is to increase productivity by 3 5 percent per year by standardizing and continually improving processes. Clariant also launched the Clariant Supply Chain System (CSS) initiative in early Under the initiative, the entire value chain from suppliers to customers is analyzed and scrutinized for optimization potential. This will result in further improvements in net working capital, cash management, and service quality. CSS plays a crucial role in meeting Group-wide targets. For Clariant Supply Chain Systems, the specific targets are: improvement in the punctuality of deliveries to significantly above 90 percent, reduction in the ratio of net working capital to sales to less than 20 percent, and a 10 to 15 percent reduction in supply chain-related costs. As part of Operational Excellence, Clariant will use CSS to develop a best in class supply chain. Commercial Excellence focus on sales and marketing The kick-off for Clariant Commercial Excellence took place in Implementation of the Clariant Commercial System (CCS) laid important foundations within the Group for optimizing sales and marketing processes. This will allow Clariant to offer its customers the best service and the most attractive price-performance ratio in the future. In this context, Clariant launched initial basic modules in the Business Units focusing on improving margins and operational efficiency, among other aims. In 2011 the CCS team concentrated primarily on the area of transactional pricing. By 2013 the focus will switch to customer and sales management, and value-oriented pricing and sales volume. These efforts will be closely networked with the other Clariant Excellence pillars for example, through intensified innovation management via Innovation Excellence. The three modules will place Benefits already realized through Clariant Excellence CHF m >

67 Drivers for profitable growth 63 Clariant Excellence Master Black Belt In addition to the yellow, green, and black belts, there are currently also 10 individuals called master black belts who are driving the execution of LeanSigma projects in their respective regions. Sunil Joshi, Master Black Belt in the Asia/Pacific region, describes his job as follows: As master black belts, we primarily support our black and green belts in executing their improvement projects which is quite a challenge considering the size of the territory as well as the wide variety of different cultures. A key task for the MBB s is to identify and drive the implementation of Best Practices across the world. It is important to utilize Asia s potential for Clariant as efficiently as possible and to have the right products available locally at the right time and in the highest quality for our customers benefit. All employees in my region must be made aware of this objective and be trained accordingly to achieve sustainable improvements. Percentages of employees trained for Clariant Excellence (excluding Süd-Chemie) 1 NOA EUR GCN JAP FTEs FTEs FTEs 165 FTEs 5 BBs 48 BBs 6 BBs 1 BBs 88 (7.3 %) GBs 243 (2.9 %) GBs 37 (1.8 %) GBs 15 (4.4 %) GBs 436 (36.3 %) YBs 693 (7.1 %) YBs 46 (2.2 %) YBs 49 (14.5 %) YBs World LAT MEA IND SEA FTEs FTEs 920 FTEs 869 FTEs FTEs 78 BBs 11 BBs 1 BBs 4 BBs 2 BBs 563 (3.5 %) GBs 99 (3.6 %) GBs 17 (1.8 %) GBs 29 (4.5 %) GBs 35 (2.0 %) GBs (15.0%) YBs 932 (33.6 %) YBs 26 (2.8 %) YBs 106 (12.1 %) YBs 147 (8.3 %) YBs Full-time Employees (FTE) Black Belt (BB): full-time lead project manager Green Belt (GB): project team member or head of smaller projects Yellow Belt (YB): member of team headed by Green Belt; no project management duties 1 Süd-Chemie has started to implement this initiative.

68 64 Clariant Annual Report 2011 Example of Operational Excellence: The first successes at Latin American plants after just a short time The Clariant Production System (CPS) was introduced in Latin America in June 2010 at the Masterbatches plant in Cota, Colombia. This was followed in January 2011 at the Business Unit s Brazilian sites. The first step in implementation of CPS is a detailed analysis. Bernd Hirschberg, Head of CPS for chemical sites, describes this process as follows: The roll-out of CPS at every site follows a standardized process. First we analyze all areas and identify together with the employees the opportunities for productivity improvements. These ideas are then worked out in detail and implemented under the direction of local management and with the support of the CPS team. For the Brazilian site in Suzano, for example, this means standardizing processes. In concrete terms, this is manifested in a significant reduction in maintenance costs and increases in productivity. The decisive success factor is that people experience the improvements and that they take ownership for the continuous improvement of any implemented solution, says Chris Hansen, Head of CPS for Masterbatches. Example of Commercial Excellence: What does transactional pricing involve? Transactional pricing is simply the basic module for Clariant Commercial Excellence. It involves, first of all, definition of customer groups, price-performance management, and a link-up with the pricing mechanisms already used in the operating areas. Specifically this means that internal price guidelines must be defined for each group of similar customers and previous prices adjusted accordingly. A second objective is to pass on raw material price changes to the customers. This requires raw material price planning that in turn defines future sales prices. And finally, other cost outflows must be reviewed and analyzed from a cost avoidance perspective. Price adjustment processes and tools that are clearly defined and include deadlines are then developed on this basis. They are supported by key performance targets as part of a separate performance management process, and these targets are also reviewed regularly. The process of transactional pricing is rounded out by regular training sessions for sales personnel where negotiating strategy is practiced, thus fixing the Clariant Commercial Excellence philosophy firmly in the minds of the staff.

69 Drivers for profitable growth Clariant Excellence % was the amount by which productivity in individual plants was increased through systematic use of the Clariant Production System. Clariant in a position to structure an integrated price adjustment process, improve the sales team s effectiveness and focus more strongly on customer needs. Innovation Excellence focus on growth through innovations A further strategic focus for 2011 was Innovation Excellence, with the objective of establishing Clariant as a global innovation leader in the area of specialty chemicals in the coming years. The focus is on developing new products and services, finding and establishing new applications for existing products. Clariant will concentrate its research and development activities on future global megatrends such as environmental protection, raw material and energy efficiency or alternative energies as well as food availability. Sustainability is an important part of Group strategy, with the focus on technologies for instance for the development of products based on renewable raw materials. At the same time, Clariant will work intensively on resource-conserving processes. Innovation Excellence, which was officially launched in July 2011, will be introduced in a multi-stage process: 1. Definition of an innovation strategy: the entire organization will be informed as to the strategic goals and the core areas that will be emphasized. 2. Establishment of innovation processes: with a focus on process management and guaranteeing efficient development of advancements that fit the innovation strategy. 3. Creation of an innovation culture: raising awareness among all employees about the need to look beyond the current product portfolio and to focus on continuous development of sales potential through development and promotion of new product ideas and technologies. 4. Training of relevant staff: systematic training and empowering of employees to recognize the needs of rapidly changing market environments, and to implement the necessary processes of improvement through innovation. The implementation process across all Business Units is slated to begin in Once the four stages have been successfully implemented, Clariant will be able to advance the process of profitable growth by 1 2 percentage points per year solely through Innovation Excellence. Clariant has also introduced the new idea to market concept throughout the Group; it is designed to discover, develop, implement, and commercialize innovation ideas within the shortest possible time frame. In organizational terms, the realignment of R&D and the innovation chain in 2010 has already laid important foundations for leveraging considerable additional synergy potential while also increasing efficiency. Further information on this topic can also be found in the separate section of this Annual Report entitled Innovation and Research & Development. People Excellence focus on continuing development of all employees The introduction of People Excellence will increasingly become the new focus of Clariant Excellence after A basic requirement for making Clariant a global leader in specialty chemicals is to be able to rely on a well trained and motivated team of employees. Clariant is therefore building on a strong organization that is oriented to the core elements of strategy, structures and processes, as well as values and conduct. The company dedicated itself to the first two elements primarily in 2009 and One of the first implementation steps of People Excellence was to define new corporate values consisting of six basic principles: Drive for Excellence Disciplined Performance Management Deliver to Promise Courageous and decisive leadership Lived appreciation Corporate Responsibility Sustainable value creation within the entire Clariant Group is not possible unless these values are implemented in everyday operations.

70 66 Clariant Annual Report 2011 all team leaders will complete the leadership training. What are the next steps in introducing People Excellence? Interview with Klementina Pejic, Head of Senior Management Development Who will go through leadership training? Klementina Pejic: All team leaders will complete the leadership training to increase proficiency in daily people management and to coach the organization for high performance. The regional and local leadership trainings will deepen the reflection of what Clariant s new corporate values will require of Clariant leaders. This initiative is the key milestone to achieve People Excellence in Clariant. How was the roll-out organized? Klementina Pejic: BU and Functional senior managers from all regions have participated with much passion and enthusiasm in different pilot training programs and have supported the core team to elaborate the final training content. We started the roll-out on regional level in May 2011 and on Country level in October We aim to implement the trainings throughout the entire Clariant organization in The leadership trainings will be an ongoing curriculum on Clariant s training landscape. Klementina Pejic: We laid the foundations by defining, communicating and training all employees on Clariant s new corporate values. We explained and trained the application of corporate values in our leadership trainings. To ensure that our people live our corporate values in their daily work and interaction with their colleagues we have introduced the 360 degrees feedback for our senior executives. All managers at the top four management levels will get general feedback from their superiors, their colleagues and their teams on how they live corporate values. In addition, the evaluation of corporate values will be part of our annual performance dialogues throughout the organization. What is the 360 degree feedback about? Klementina Pejic: A 360 degree feedback provides each Management Level 1 4 position holder the opportunity to receive feedback from his or her supervisor, peers and subordinates. The focus-person does also a self-assessment. The 360 degree feedback allows each individual to understand how they are perceived living up to the Clariant Corporate Values and in particular to understand their strengths as well as potential development areas. We aim to encourage our people to openly and constructively share their observations and to support each other in personal development and growth through sincere feedback as well as recommendations for improvement. After all, living our values will help us to create and sustain a high performing organization.

71 Drivers for profitable growth Clariant Excellence 67 Innovation Excellence plays a key role in ensuring that our R&D expenditures of CHF 176 million are invested in the right projects and that these projects are implemented as quickly as possible. Christian Kohlpaintner, Member of the Executive Committee Clariant s corporate values CORPORATE RESPONSIBILITY LIVED APPRECe- ATION COURAGEOUS AND DECISIVE LEADERSHIP SUSTAINABLE VALUE CREATION DELIVER TO PROMISE DRIVE FOR EXCELLENCE DISCIPLINED PERFORMANCE MANAGEMENT Summary and Outlook The results of Clariant Excellence after three years are as follows: We have succeeded in improving Clariant s performance sustainably; this is reflected in the improvements already achieved, which represent financial benefits of more than CHF 160 million. Clariant has created a solid platform for additional significant improvements by implementing a large number of projects and launching further initiatives. Clariant has redefined its corporate philosophy and reestablished employee focus on sustainable value creation. By doing so, Clariant has changed the way and culture of working in the Group. Everyone must uphold corporate values The corporate values have been supported in all Business Units of the Clariant Group since mid-2011 through regional workshops and executive training programs. The background and consequences for daily operations and the specific distinguishing characteristics of certain regions and activities are integrated into the process and developed further. A People Performance Cycle will be introduced in It will consist of system- atic performance and talent management and application of a 360 degree feedback process leading to qualification and permanent development monitoring of all regional and local managers. The pilot phase for the new Local Leadership Training program was launched in October in Frankfurt; between November and the end of 2012, it will be expanded to cover the entire Group. All Business Units and Services are wholeheartedly committed to establish and expand the four pillars of Clariant Excellence and LeanSigma in their local and regional organizations. Based on the processes already launched and the upcoming initiatives, Clariant firmly believes that it can achieve additional sustainable improvements totaling more than CHF 60 million per year. This number is backed up by the following targets: productivity in the Clariant Group as well as the operationg margin relative to EBIT will be increased significantly through the disciplined implementation of Clariant Production System as well as through the Clariant Commercial System. In addition, net working capital, service quality and supply chain costs will be significantly improved by implementing and applying the Clariant Supply Chain System.

72 68 Clariant Annual Report 2011

73 69 Helmut Müller, Project Manager Clariant Innovation Center The new Clariant Innovation Center at Frankfurt-Höchst will be completed by From here, all of the Group s Research & Development activities will be managed in future. In 2011 Clariant invested CHF 176 million in developing innovations, the driving force for future growth.

74 70 Clariant Annual Report 2011 Corporate Governance Clariant is committed to international compliance standards, in order to ensure checks and balances between the Board and Management as well as a sustainable approach to value creation. Principles of Corporate Governance In defining the management structure, organization, and processes of the Clariant Group, the corporate governance principles aim to provide stakeholder value and transparency to promote sustainable long-term success. The Group is committed to Swiss and international standards of corporate governance and follows the rules set out in the Swiss Code of Best Practice for Corporate Governance and by the SIX Swiss Exchange. The principles and regulations on corporate governance are described in the Swiss Code of Obligations, the Articles of Association of Clariant Ltd, the Organizational Group Regulations of the Clariant Group, and the Clariant Code of Conduct. The Board of Directors adapts these documents regularly. The Articles of Association, Organizational Group Regulations of the Board of Directors, and Clariant Code of Conduct can be viewed on the Internet at Group structure and shareholders Group structure The registered address of Clariant Ltd is Rothausstrasse 61, CH Muttenz, Switzerland. The company s business operations are conducted through Clariant Group companies. Clariant Ltd, a holding company organized under Swiss law, directly or indirectly owns all Clariant Group companies worldwide. Except as described below, these companies shares are not publicly traded. The important subsidiaries of Clariant Ltd are listed in Note 34 of the Notes to the consolidated financial statements of the Clariant Group (pages 154 to 157). The Group conducts its business through twelve Business Units: Additives, Catalysis & Energy, Detergents & Intermediates, Emulsions, Functional Materials, Industrial & Consumer Specialties, Leather Services, Masterbatches, Oil & Mining Services, Paper Specialties, Pigments, and Textile Chemicals. Clariant owns 63.4 percent of the publicly traded company Clariant Chemicals (India) Ltd, based in Thane, India, and listed on the Bombay Stock Exchange (ISIN INE492A01029, symbol: CLARICHEM) and the National Stock Exchange of India (symbol: CLNINDIA). The company also owns 75 percent of Clariant (Pakistan) Ltd, based in Karachi, Pakistan, and listed on the Karachi Stock Exchange (ISIN PK ). In addition, since the entry made on 1 December 2011 of the squeeze out accepted at the extraordinary general meeting of Süd-Chemie AG held on 22 November 2011, Clariant Ltd owns 100 percent of Süd- Chemie AG, which was acquired on 21 April 2011 and is based in Munich, Germany. Significant shareholdings of 3 percent or more of total share capital At 31 December 2011 former shareholders of Süd-Chemie AG, who had swapped their shares against Clariant shares, were holding in total percent of the share capital of Clariant. These shareholders are affiliated with each other because of family or other reasons (especially the Wamsler, Winterstein, Schweighart, and Stockhausen families). In addition, the following shareholders held a participation of 3 percent or more of the total share capital: Fidelity Management & Research, Boston (United States), 5.23 percent (2010: 5.23 percent); Teachers Insurance and Annuity Association of America College Retirement Equity Fund (TIAA-CREF), New York (United States), percent (2010: < 3 percent); CS Asset Management Funds AG, Zürich (Switzerland), percent (2010: 3.04 percent). No other shareholder was registered as holding 3 percent or more of the total share capital. At 31 December 2010 the following shareholders held a participation of 3 percent or more of the total share capital: AXA, Paris (France), 5.09 percent; Amundi, Paris (France), 3.07 percent. No other shareholder was registered as holding 3 percent or more of the total share capital.

75 Corporate Governance 71 These percentage figures are based on information received from the respective shareholders. Transactions notified to the Stock Exchange Disclosure Office pursuant to Art. 20 of the Stock Exchange Act can be seen on the SIX Swiss Exchange reporting platform: Cross-shareholdings There are no cross-shareholdings. Capital structure Capital As of 31 December 2011, the fully paid nominal share capital of Clariant Ltd totaled CHF and was divided into registered shares, each with a par value of CHF Clariant shares have been listed on the SIX Swiss Exchange since 1995 (symbol CLN, ISIN no. CH ). Clariant Ltd does not issue non-voting equity securities (Genussscheine). Based on the closing price of the Clariant share of CHF 9.27 on 31 December 2011, the company s market capitalization at year end amounted to CHF million. Conditional capital The company s share capital may be increased by a maximum of CHF by issue of a corresponding maximum of registered shares with a par value of CHF 4.00 each. These shares must be paid up in cash, by the exercise of conversion or warrant rights granted to their holders in connection with bonds of the company or one of its subsidiaries. The details are set out in Article 5b of the Articles of Association. You can find the Articles of Association on our website at On 31 December 2011, of these shares, are allocated to a CHF 300 million senior unsecured convertible bond issued on 2 July 2009, of which shares were issued during 2011 upon a single exercise of the conversion right. The convertible bond maturing on 7 July 2014 has a conversion price of CHF 8.55 and a coupon of 3 percent per annum payable semi-annually in arrears. Changes in capital In calendar year 2011 the share capital was increased by CHF through a capital increase approved on 31 March A total of new registered shares with a par value of CHF 4.00 each were issued, and a further shares were created by a single exercise of the conversion right of the CHF 300 million convertible bond. A table with additional information on changes to the share capital can be found on page 126 (Note 15) of this Annual Report. Transferability of shares Transfer of registered shares requires the approval of the Board of Directors, which may delegate this function. Approval is granted if the acquirer discloses his/her identity and confirms that the shares have been acquired in his/her own name and for his/her own account. Nominee registration and voting rights Each registered share entitles the holder to one vote at Annual General Meetings. Voting rights at Clariant are limited to 10 percent of the share capital in accordance with Article 12, paragraph 1 of the Articles of Association. Special rules apply to nominees who fail to disclose the identity of the persons they represent and whose shareholding exceeds 2 percent. Convertible bonds and options In 2009, Clariant issued a convertible bond with a principal amount of CHF 300 million. After the Clariant option program for employees was discontinued for financial reasons in 2009, options were once again issued in 2010 and Details of the option program can be found on page 149 (Note 29, Employee Participation Plans ). Further information on the Clariant share can be found on page 29 of this Annual Report. The Board of Directors The Board of Directors of Clariant Ltd comprises at least six and no more than twelve members. At the 16th Annual General Meeting held in Basel on 27 March 2011, the following individuals were

76 72 Clariant Annual Report 2011 Members of the Board of Directors: Jürg Witmer (Chairman) Hariolf Kottmann (CEO) reelected to the Board of Directors: Peter Isler, Rudolf Wehrli, Jürg Witmer, Hariolf Kottmann, Dominik Koechlin, and Carlo G. Soave. Dolf Stockhausen, Konstantin Winterstein, and Günter von Au were elected as new members of the Board of Directors. The term of office of each member elected is three years. Members of the Board of Directors Jürg Witmer, Swiss citizen Function at Clariant: Chairman, non-executive member of the Board of Directors. Professional career: Jürg Witmer currently serves as Chairman of the Board of Directors of Givaudan S.A. and Vice Chairman of the Board of Directors of Syngenta AG. From 1999 to 2005 he was CEO of the Givaudan Group. Prior to that, he held various senior management positions at Roche from 1978 to 1999, including General Manager of Roche Austria, Head of Corporate Communications and Public Affairs at Roche headquarters in Basel, Regional General Manager of Roche Far East in Hong Kong, and Assistant to the Chairman of the Board of Directors and CEO of the Roche Group. He has been Chairman of Clariant Ltd since Jürg Witmer has a doctorate in law from the University of Zurich and a degree in international studies from the University of Geneva. Other activities: Board of Directors/Supervisory Board mandates: Givaudan S.A., Vernier/Geneva (Chairman); Syngenta AG, Basel (Vice Chairman). Activities on behalf of companies and representative functions: None. Rudolf Wehrli, Swiss citizen Function at Clariant: Vice Chairman, non-executive member of the Board of Directors. Professional career: Following studies at the Universities of Zurich and Basel, where he earned doctorates in theology, philosophy, and German literature, Rudolf Wehrli began his career at McKinsey & Co in In 1984 he joined the Schweizerische Kreditanstalt (now Credit Suisse) as a member of the company s Senior Management. In 1986 he became Marketing Manager and member of the Executive Committee of the Silent Gliss Group. Five years later he took over the management of the Group s German subsidiary. In 1995 he transferred to the Gurit-Heberlein Group as a member of the Executive Committee and was promoted to Chief Operating Officer in 1998 and Chief Executive Officer in He remained in this position until the company split up in He has been Vice Chairman of Clariant Ltd since Other activities: Board of Directors/Supervisory Board mandates: Berner Kantonalbank, Precious Woods AG; Kambly AG; Rheinische Kunststoff-Werke SE; Chairman of the Board of Directors of Sefar Holding AG. Activities on behalf of companies and representative functions: Member of the Executive Committee of economic umbrella organization economiesuisse; member of the Board of Trustees of Avenir Suisse. Hariolf Kottmann, German citizen Function at Clariant: Chief Executive Officer (CEO) and executive member of the Board of Directors. Professional career: Hariolf Kottmann earned his PhD in organic chemistry at the University of Stuttgart in In 1985 he launched his career at the former Hoechst AG in Frankfurt, where he held several key management positions across the company s chemical divisions and functions. In 1996 he was appointed Deputy Head of the Basic Chemicals Division at Hoechst AG and took over responsibility for the Inorganic Chemicals BU. In 1998 he joined Celanese Ltd in New Jersey (United States) as a member of the Executive Committee and Head of the Organic Chemicals BU. In April 2001 he was appointed as a member of the Executive Committee of SGL Carbon AG, where he was responsible for the Advanced Materials Division and the Eastern Europe and Asia regions until 30 September He was also in charge of the SGL Excellence and Technology & Innovation corporate functions. He became CEO of Clariant on 1 October Other activities: Board of Directors/Supervisory Board mandates: Plansee AG. Activities on behalf of companies and representative functions: Member of the Executive Committee of scienceindustries. Since 30 September 2011, member of the Board of CEFIC (European Chemical Industry Council).

77 Corporate Governance 73 Rudolf Wehrli (Vice Chairman) Peter Chen Peter R. Isler Klaus Jenny Prof. Peter Chen, US citizen Function at Clariant: Non-executive member of the Board of Directors. Professional career: Peter Chen studied chemistry at the University of Chicago and in 1987 received a doctorate from Yale University in New Haven, Connecticut. He then served as an assistant professor (1988 to 1991) and as an associate professor (1991 to 1994) at Harvard University in Cambridge, Massachusetts. Since September 1994 he has been a full Professor of Physical-Organic Chemistry at ETH Zurich. From 2007 to 2009 he was Vice President of Research at ETH Zurich. Other activities: Board of Directors/Supervisory Board mandates: None. Activities on behalf of companies and representative functions: Consultant at Givaudan; Gesellschaft zur Förderung von For schung und Ausbildung im Bereich der Chemie (Zurich); Member of the National Research Council of the Swiss National Science Foundation; Director of The Branco Weiss Fellowship. Peter R. Isler, Swiss citizen Function at Clariant: Non-executive member of the Board of Directors. Professional career: Peter R. Isler studied law at the University of Zurich, completing his studies with a doctorate. He then attended a masters program at Harvard Law School. From 1974 onward he worked for two Swiss law firms and in 1981 became a partner at the Zurich law firm Niederer Kraft & Frey AG. He has been a lecturer in corporate and commercial law at the University of Zurich since 1978 and a member of the Anwaltsprüfungskommission (bar examination commission) of the Canton of Zurich since Other activities: Board of Directors mandates: Clariden Leu AG, Zurich; Clariden Leu Holding AG, Zurich; Schulthess Group AG, Bubikon; and other smaller companies. Activities on behalf of companies and representative functions: Anwaltsprüfungskommission (bar examination commission) of the Canton of Zurich. Klaus Jenny, Swiss citizen Function at Clariant: Non-executive member of the Board of Directors. Professional career: Klaus Jenny studied economics at the University of St. Gallen, where he earned a doctorate. He went on to study law at the University of Zurich and later attended the Massachusetts Institute of Technology (MIT). In 1972 Klaus Jenny joined the Schweizerische Kreditanstalt (now Credit Suisse), where he held various management positions. He was appointed a member of its Executive Board in 1987, and later a member of the Executive Committee, CEO of Credit Suisse Private Banking, and finally a member of the Executive Board of the Credit Suisse Group. Since 1999 Klaus Jenny has been an independent financial consultant for companies and private individuals. Other activities: Board of Directors/Supervisory Board mandates: Bâloise Holding; Edmond de Rothschild Holding S.A.; Banque Privée Edmond de Rothschild S.A.; Maus Frères S.A.; Téléverbier S.A.; and various foundations and smaller companies. Activities on behalf of companies and representative functions: None. Dominik Koechlin, Swiss citizen Function at Clariant: Non-executive member of the Board of Directors. Professional career: Dominik Koechlin earned his doctorate in law from the University of Berne and holds an MBA from INSEAD in Fontainebleau, France. He started his career in 1986 as a financial analyst at Bank Sarasin. In 1990 he founded Ellipson, a management consultancy firm. From 1996 to 2000 he was a member of the Executive Committee of Telecom PTT, which later became Swisscom, where he was responsible for corporate strategy and international operations. Since 2001 he has served as a board member of the listed companies EGL AG, Swissmetal AG, and Plant Health Care. He is Chairman of the Board of Sunrise AG as well as member of the boards of several privately held companies. In addition, he is a member of the University Council of the University of Basel.

78 74 Clariant Annual Report 2011 Dominik Koechlin Carlo G. Soave Dolf Stockhausen Günter von Au Other activities: Board of Directors/Supervisory Board mandates: Member of the Board of Trustees of LGT; member of the Board of Directors of EGL AG and Plant Health Care; Chairman of the Board of Sunrise AG; member of the boards of several privately held companies. Activities on behalf of companies and representative functions: Member of the University Council of the University of Basel. Carlo G. Soave, British citizen Function at Clariant: Non-executive member of the Board of Directors. Professional career: Carlo G. Soave studied languages and economics at Heriot-Watt University in Edinburgh, Scotland. He launched his career in 1982 at Oerlikon-Bührle in Switzerland, moving to Procter & Gamble in There he held various senior management positions, including Vice President of Global Purchasing for the Fabric and Home Care Division. In 2004 he founded Soave & Associates, a consulting company based in Brussels, Belgium. He is a board member of MonoSol LLC, a company incorporated in Delaware (United States) and operating in the state of Indiana (United States). Other activities: Board of Directors/Supervisory Board mandates: MonoSol LLC, United States. Activities on behalf of companies and representative functions: None. Dolf Stockhausen, Austrian citizen Function at Clariant: Non-executive member of the Board of Directors. Professional career: Dolf Stockhausen studied business, economics, and law at the Universities of Freiburg and Münster, before gaining his doctorate in economics from the University of Münster. He began his career at Bayer AG and a number of its foreign subsidiaries. He then held various positions at Chemische Fabrik Stockhausen GmbH in Krefeld, Germany, where he was ultimately Managing Director and CEO. From 1996 to 2011 he was member of the Supervisory Board of Süd-Chemie and most recently Vice Chairman of the Supervisory Board. He is also Chairman of the Management Committee of EAT GmbH and until mid-february 2012 he was CEO of Dr. Dolf Stockhausen Beteiligungsgesellschaft mbh (as of 22 December 2011 Dr. Dolf Stockhausen Beteiligungs s.à.r.l. ). Other activities: Board of Directors/Supervisory Board mandates: None. Günter von Au 1, German citizen Function at Clariant: Non-executive member of the Board of Directors. After studying textile and polymer chemistry at Reutlingen University and chemistry at the University of Tübingen, where he obtained a doctorate, Günter von Au began his career in 1980 in Burghausen at Wacker-Chemie AG. He held a number of different management positions at the company through 2001 in Germany, Brazil, and the United States most recently as Head of Wacker s division for polymers, specialty chemistry, and basic chemistry in Munich. He was also CEO of Wacker Polymer Systems GmbH & Co. KG in Burghausen, Germany. He joined Süd-Chemie in 2001 as President and CEO of Süd-Chemie Inc. In early 2004 Günter von Au was appointed member of the Management Board of Süd-Chemie AG in Munich, and in 2004 he became CEO, a position he will be holding until 31 March Other activities: member of the Supervisory Board of E.ON Bayern AG; member of the Advisory Committee of Gebr. Röchling KG; Chairman of the Board of Directors of the local Bavarian section of the German Chemical Industry Association, Munich; member of the Senate of the Fraunhofer Society, Munich; member of the Board of Directors and Vice-President of the Cologne Institute of Economic Research. 1 Günter von Au was elected to the Board of Directors at the 16th Annual General Meeting of Clariant Ltd. Assumption of his position as Director was subject to the condition that he resign as CEO of Süd-Chemie AG. Mr. von Au will resign from his position at Süd-Chemie AG on 31 March 2012 and take his seat on the Board of Directors of Clariant Ltd on 1 April 2012.

79 Corporate Governance 75 Konstantin Winterstein Konstantin Winterstein, German citizen Function at Clariant: Non-executive member of the Board of Directors. Professional career: Konstantin Winterstein studied at the Technical Universities in Darmstadt and Berlin, where he completed a degree in production engineering. Since 1997 he has held various positions with the BMW Group, where he is currently Project Manager in the Supply Chain Division. In 2004 he received his MBA from INSEAD in Fontainebleau and Singapore. From 2006 to 2011 he served on the Supervisory Board of Süd-Chemie AG. Other activities: Board of Directors/Supervisory Board mandates: None. Cross-involvement There are no cross-involvements. Elections and terms of office The members of the Board of Directors are elected for terms of three years maximum. There are no Board members standing for reelection at the Annual General Meeting on 27 March Board of Directors Year of birth First elected Elected until Peter R. Isler Klaus Jenny Peter Chen Rudolf Wehrli Jürg Witmer Hariolf Kottmann Dominik Koechlin Carlo G. Soave Dolf Stockhausen Konstantin Winterstein Günter von Au Internal organizational structure The Board of Directors and its committees The Board of Directors consists of the Chairman, one or more Vice Chairmen, and the other members. No non-executive member of the Board of Directors held a senior management position at Clariant Ltd or any Clariant Group company between 2008 and 2011 or has any significant business relationship with Clariant Ltd or any other Clariant Group company. In accordance with the Articles of Association, the number of members must be at least six and no more than twelve. The members of the Board of Directors constitute the following committees: Chairman s Committee Compensation Committee Audit Committee Technology and Innovation Committee BOARD OF DIRECTORS COMMITTEE RESPONSIBILITIEs Director Chairman s Committee Audit Committee Compensation Committee Jürg Witmer Rudolf Wehrli Peter Chen Peter R. Isler Klaus Jenny Dominik Koechlin Hariolf Kottmann Carlo G. Soave Dolf Stockhausen Konstantin Winterstein Chairman Member Technology and Innovation Committee 1 Günter von Au was elected to the Board of Directors at the 16th Annual General Meeting of Clariant Ltd. Assumption of his position as Director was subject to the condition that he resign as CEO of Süd-Chemie AG. Mr. von Au will resign from his position at Süd-Chemie AG on 31 March 2012 and take his seat on the Board of Directors of Clariant Ltd on 1 April 2012.

80 76 Clariant Annual Report 2011 BOARD OF DIRECTORS COMMITTEES Number of meetings Duration/h CEO/CFO Other attendees Board of Directors yes Executive Committee Chairman s Committee yes Audit Committee CFO Auditors, Risk Management, and General Counsel Compensation Committee no Head of Group Human Resources Technology and Innovation Committee 2 3 CEO Head of Technology The Board of Directors appoints the Chairman, Vice Chairman/ Chairmen, and members of the committees. The Board of Directors meets at least once a quarter. At the invitation of the Chairman, the CEO, CFO, and other members of the Executive Committee and/or other employees and third parties regularly attend the meetings of the Board of Directors for the purpose of reporting or imparting information. Each committee has a written charter outlining its duties and responsibilities. The committees charters are published on Clariant s website ( The committees report on their activities and results to the Board of Directors. They prepare the business of the Board of Directors in their respective areas. The Chairman s Committee (CC) comprises the Chairman, the Vice Chairman, and a third member of the Board of Directors. The Committee prepares the meetings of the Board of Directors. The CC meets as needed and generally before each meeting of the Board of Directors. It makes decisions on financial and other matters delegated by the Board of Directors in accordance with the Bylaws of the Board of Directors. In addition, the CC passes resolutions for which the Board of Directors is responsible when matters cannot be postponed. The CC draws up principles for the selection of candidates for election and reelection to the Board of Directors and for the office of CEO, and prepares the corresponding recommendations. Further, the CC considers and submits to the Board of Directors the CEO s proposals concerning candidates for Executive Committee positions. The Compensation Committee (CoC) comprises three members of the Board of Directors. Its Chairman must be an independent, nonexecutive member of the Board of Directors. The CoC meets at least twice a year. It draws up the principles for compensation of members of the Board of Directors and submits them to the Board of Directors for approval. It also approves the employment contracts for the CEO and members of the Executive Committee. The CoC reviews bonus and share plans. Furthermore, the Committee reviews fringe benefit regulations, dismissal regulations, and contractual severance compensation packages with the CEO, members of the Executive Committee, Heads of Global Functions, and Regional Presidents. The Audit Committee (AC) comprises four members of the Board of Directors. The Chairman must be an independent, non-executive member of the Board of Directors. A majority of the members of the AC must have financial and accounting experience. The AC reviews the activities of the external auditors, their collaboration with the internal auditors, and their organizational adequacy. It also reviews the performance, compensation, and independence of the external auditors as well as the performance of the internal auditors and reports back to the Board of Directors. Furthermore, the AC reviews the company s internal control and risk management systems and reviews compliance with the law and internal regulations in particular, with the Code of Conduct. In collaboration with the Group s external and internal auditors and financial and accounting management, the AC reviews the appropriateness, effectiveness, and the compliance of accounting policies and financial controls with applicable accounting standards. The AC meets at least six times a year. The Committee reviews and recommends the Group s financial statements for the first three quarters of each year and the release of the annual financial results to the Board of Directors for approval.

81 Corporate Governance 77 The Technology and Innovation Committee (TIC) comprises four members of the Board of Directors with experience in research, innovation management, and technology. The TIC usually meets at least twice a year. The tasks of the TIC include assessing the company s innovative activities on behalf of the Board of Directors. The TIC also reviews measures to stimulate research and development and optimize innovative potential, and submits appropriate recommendations to the Board of Directors. Definition of areas of responsibility In accordance with the law and the Articles of Association, the Board of Directors is the ultimate decision-making authority for Clariant Ltd in all matters except those decisions reserved by law or the Articles of Association for the shareholders. The Board of Directors has sole authority, in particular for the following, in accordance with and supplementary to Article 716a of the Swiss Code of Obligations (non-transferable and inalienable duties of the Board of Directors) and Article 23 of the Articles of Association ( clariant.com): Providing the strategic direction of the Group; Approving the basic outline of the Group s organization and its corporate governance; Supervising the overall business operations; Evaluating the performance of the CEO and members of the Executive Committee; Appointing and dismissing the CEO and members of the Executive Committee, the Head of Internal Audit, and other key executives; Approving the basic accounting system and financial planning and control; Approving the Group s annual budget; Reviewing and approving the quarterly financial statements and results release for Clariant Ltd and the Group; Approving the Group s consolidated financial statements for issue at the end of the fiscal year; Approving major M&A transactions and financial transactions of considerable scope or those involving special risks, in particular capital market transactions and other financing transactions (e.g. large loans) as well as changes in conditions associated therewith; Ensuring a management and corporate culture that is appropriate for the company s objectives; Ensuring an internal control system and adequate risk and compliance management, in particular on financial, corporate governance and citizenship, personnel, and environmental protection matters; Ensuring succession planning and management development; Convening the Annual General Meeting (AGM), determining the items on the agenda and the proposals to be made to the AGM, and approving the Annual Report including the annual financial statements of Clariant Ltd and the consolidated financial statements of the Group. Working methods In 2011 the Board of Directors held seven meetings in person at the Corporate Center in Pratteln or at other locations, mainly in Switzerland. It also held four meetings by phone. The company s strategy is reviewed and further developed once a year during a two-day meeting. Members of the Executive Committee are invited to attend the meetings of the Board of Directors. For the October meeting, the Board of Directors visited the Gebze site in Istanbul, Turkey. On this occasion the Board also met with the local management team. The views of external and internal consultants are heard, if necessary, in the case of projects of considerable scope. Management of the Group The Board of Directors has delegated the executive management of the Clariant Group to the CEO and the other members of the Executive Committee. The Executive Committee is mainly responsible for implementing and monitoring Group strategy, for the financial and operational management of the Group, and for the efficiency of the Group s structure and organization. The members of the Executive Committee are appointed by the Board of Directors on the recommendation of the Chairman s Committee. Subject to the responsibility of the Board of Directors and the Annual General Meeting, the CEO and, under his supervision, the Executive Committee is responsible for:

82 78 Clariant Annual Report 2011 Drawing up strategic plans and policies for approval by the Board of Directors; Implementing Group strategies and policies as well as strategies and action programs for individual Business Units and subsidiaries; Managing the Business Units and functions to ensure efficient operations including regularly assessing the achievement of goals; Regularly informing the Board of Directors and its committees of all matters of fundamental significance to the Group and its businesses; Ensuring compliance with legal requirements and internal regulations; Establishing a management and corporate culture in line with the company s objectives; Promoting an active internal and external communications policy; Appointing and dismissing senior management, including appropriate succession planning. The Executive Committee is supported by a Corporate Center that defines Group-wide policies and guidelines. The twelve Business Units are the highest-level operating units within the Group. They have global responsibility for the activities assigned to them, in particular, sales, marketing, product management, and production. The Business Units also have global responsibility for short- and long-term revenue and earnings generated from the operations and assets assigned to them. This includes fully exploiting existing business potential, identifying new business opportunities, and pursuing the active management of their products and services portfolio. The Business Units activities are complemented and supported by global Group functions (e.g., Procurement, Finance, Information Technology, Legal, Human Resources, and Group Technology Services), which are organized as service centers. Information and control instruments vis-à-vis the Executive Committee The Board of Directors ensures that it receives sufficient information from the Executive Committee to perform its supervisory duties and make decisions that are reserved for the Board of Directors. The Board of Directors obtains the information required to perform its duties in various ways: The CEO and the CFO inform all directors regularly about current developments, including via the regular submission of written reports such as key performance indicators for each business; The minutes of committee meetings are made available to the directors; Informal meetings and teleconferences are held as required between the CEO and the members of the Chairman s Committee; The members of the Executive Committee are invited to attend meetings of the Board of Directors to report on areas of business under their responsibility; Directors are entitled to request information from members of the Executive Committee or any other Clariant senior manager. Board committees The Chairman s Committee meets regularly with members of the Executive Committee and other members of senior management to review the business, better understand applicable laws and policies affecting the Group, and support the Executive Committee in meeting the requirements and expectations of stakeholders. The Technology and Innovation Committee invites members of the Executive Committee and members of senior management as necessary to discuss selected aspects of innovative activities. The CFO and representatives of the external auditor are invited to Audit Committee meetings. Furthermore, the Heads of Internal Audit and Risk Management and Clariant s General Counsel report on a regular basis to the Audit Committee. The Audit Committee reviews the financial reporting processes on behalf of the Board of Directors. For each quarterly and annual release of financial information, an internal team reviews the release for accuracy and completeness of disclosures and reports to the Audit Committee before publication. The Compensation Committee generally meets three times per year to adjust the development of the compensation structures to changing

83 Corporate Governance 79 conditions, as necessary. In this context, the long-term incentive program for the Executive Committee and the senior management team is also aligned with current market and business developments and corresponding adjustments made, as required. Internal audit Internal Audit carries out operational and system audits in accordance with an audit plan adopted by the Audit Committee and assists organizational units in the accomplishment of objectives by providing an independent approach to the evaluation, improvement, and effectiveness of the internal control framework. Internal Audit also prepares reports on the audits it has performed and reports actual or suspected irregularities to the Audit Committee and the Chairman of the Board of Directors. The Audit Committee regularly reviews the scope, plans, and results of Internal Audit. The Group pursues a risk-oriented approach to auditing and coordinates internal audit activities with the external auditors on a regular basis. Detailed information on Clariant s risk management system can be found on page 82 of this report. The Executive Committee The Executive Committee consists of the CEO, the CFO, and three members. The Executive Committee regularly holds meetings at the Corporate Center in Pratteln or at other Clariant sites worldwide. It uses such external meetings to discuss business performance with the management of the local companies in person. Members of the Executive Committee At the end of 2011 the Executive Committee comprised the following members: Hariolf Kottmann, German citizen Chief Executive Officer (CEO) Hariolf Kottmann earned his PhD in organic chemistry at the University of Stuttgart in In 1985 he launched his career at the former Hoechst AG in Frankfurt, where he held several key management positions across the company s chemical divisions and functions. In 1996 he was appointed Deputy Head of the Basic Chemicals Division at Hoechst AG and took responsibility for the Inorganic Chemicals BU. In 1998 he joined Celanese Ltd in New Jersey (United States) as a member of the Executive Committee and Head of the Organic Chemicals BU. In April 2001 he was appointed as a member of the Executive Committee of SGL Carbon AG, where he was responsible for the Advanced Materials Division and the Eastern Europe and Asia regions until 30 September He was also in charge of the SGL Excellence and Technology & Innovation corporate functions. He became CEO of Clariant on 1 October Patrick Jany, German citizen Chief Financial Officer (CFO) Patrick Jany is an economist and has been Chief Financial Officer at Clariant since 1 January In 1990 he joined Sandoz, one of Clariant s predecessor companies. He held various positions in financial and controlling at Sandoz and Clariant, including Chief Financial Officer for the ASEAN region and Head of Controlling for the Pigments & Additives Division. From 2003 to 2004 he was Head of Country Organization for Clariant in Mexico. Prior to his appointment as CFO, he was Clariant s Head of Corporate Development with responsibility for Group strategy and mergers and acquisitions. Christian Kohlpaintner, German citizen Christian Kohlpaintner studied chemistry at the Technical University of Munich and completed his PhD in Between 1993 and 1997 he worked in various research departments of Hoechst AG in Germany and the United States. In 1997 he joined Celanese Ltd and

84 80 Clariant Annual Report 2011 held a number of leadership roles at Celanese Chemicals Corporation. In 2002 he became Vice President Innovation of Celanese Ltd and Executive Director of Celanese Ventures Corporation. From 2003 he was a member of the Executive Committee of Chemische Fabrik Budenheim. In 2005 he became CEO. On 1 October 2009, he was appointed a member of the Executive Committee of Clariant. Mathias Lütgendorf, German citizen Mathias Lütgendorf studied chemistry at RWTH in Aachen, Germany, and earned his doctorate in In the same year, he joined the Research and Development department of the Fine Chemicals and Dyes Division of Hoechst AG. From 1990 he was responsible for various, mainly operational fields at Hoechst AG. From 1995 until 2008 he worked at DyStar, the textile dyes joint venture of Bayer and Hoechst. BASF also integrated its textile dyes business into Dystar in 2000, becoming the third equal partner in the venture. Mathias Lütgendorf led the global operations of the Disperse Dyes Business Unit and later also the Special Dyes Business Unit. From 2000 he was responsible for purchasing, production, and supply chain management at the company as Head of Global Operations. In 2004 he was appointed member of the management board. On 1 April 2009, he was appointed a member of the Executive Committee of Clariant. Hans-Joachim Müller, German citizen After studying chemistry and obtaining his doctorate from the Ludwig-Maximilians-University, Munich, and holding a research fellowship at the University of California in Los Angeles (UCLA), Hans-Joachim Müller began his professional career at BASF AG in Ludwigshafen, Germany, as team leader research in product and catalyst development. After development of the hydrogenation technologies area, he transferred in 1996 to Hong Kong, where he took over responsibility for the catalyst business for the Asia/Pacific region. In 2001 he joined Süd-Chemie AG in Munich, where he headed up the Global Business Unit Catalytic Technologies, and in 2007 he was appointed to that company s management board. In mid-2011 he also took over the international adsorbents business (Functional Materials BU) in addition to the catalytic technologies business (Catalysis & Energy BU) and was thus in charge of all operations of the Süd-Chemie Group. He has been a member of Clariant s Executive Committee since 1 July Other activities and functions The members of the Executive Committee neither undertake other activities nor hold consultancy functions or other offices. Management contracts with third parties There are no management contracts with third parties. Contractual arrangements for members of the Executive Committee All members of the Executive Committee hold employment contracts with Clariant International Ltd, the Clariant Group s management company. The contractual provisions are governed exclusively by Swiss law. Contracts of the members of the Executive Committee are subject to a standard notice period of 12 months. This notice period is part of a detailed and exhaustive list of requirements associated with severance. Specific change of control agreements are in place with the CEO and with members of the Executive Committee. If Clariant were to serve notice on the CEO or a member of the Executive Committee under a change of ownership, the contractually extended notice period would be 18 months. Compensation, shareholdings, and loans Please refer to the Compensation Report and Note 11 to the Financial Statements of Clariant Ltd. Shareholders participation rights Each registered share entitles the holder to one vote at the Annual General Meeting. Shareholders have the right to receive dividends and such other rights as are granted by the Swiss Code of Obligations. However, only shareholders entered in the Clariant share register may exercise their voting rights.

85 Corporate Governance 81 Voting rights and representation A registered shareholder may be represented at the Annual General Meeting by another shareholder with the right to vote, a legal representative, a representative of one of Clariant s governing bodies (Organvertreter), an independent proxy (unabhängiger Stimmrechtsvertreter), or a custodian (Depotvertreter). The shares held by any one shareholder may be represented by only one representative. Voting rights at Clariant are limited to 10 percent of the share capital in accordance with Article 12, paragraph 1 of the Articles of Association ( There are no special rules for waiving any voting rights restrictions laid down in the Articles of Association. The Articles of Association do not contain any rules on participation in the Annual General Meeting that differ from the standard terms proposed by law. Statutory quorums The quorums laid down in the Articles of Association correspond to Article 704 of the Swiss Code of Obligations. Convocation of the Annual General Meeting The Articles of Association do not contain any rules that differ from the standard terms proposed by law. Proposal of agenda items for the 2013 Annual General Meeting The Articles of Association do not contain any rules that differ from the standard terms proposed by law. Shareholders representing shares with a total par value of CHF 1 million have the right to submit requests that an item be included on the agenda, in writing, at least 45 days prior to the Annual General Meeting. With regard to the business year 2012, items to be included on the agenda for the 18th Annual General Meeting on 26 March 2013 must be submitted not later than 9 February Such requests must specify the item(s) to be included on the agenda and must contain a proposal on which the shareholder requests a vote. Entries in the share register There are no statutory rules concerning deadlines for entry in the share register. However, for practical reasons, the share register will be closed to entries several days before a shareholder meeting. With regard to the business year 2012, this applies as of Thursday, 21 March Shareholders who have been entered in the share register by Wednesday, 20 March 2013, may exercise their right to vote at the Annual General Meeting on Tuesday, 26 March There are no voting rights restrictions except those mentioned above. Change of control and defense measures The limit, beyond which the duty to make an offer applies, is the same as the statutory minimum, 33 percent. There are no clauses on changes of control (except for the specific agreements for the CEO and the members of the Executive Committee, see page 80). Information policy Notice are published in accordance with Article 29 of the Articles of Association, in the Swiss Official Gazette of Commerce, and in daily newspapers specified by the Board of Directors (Basler Zeitung, Neue Zürcher Zeitung). Clariant releases its annual financial results in the form of an annual report. In addition, detailed business figures for the first, second, and third quarters are published in April/May, July/August, and October/November, respectively. The Annual Report and quarterly results are published in printed and electronic form and announced in a media conference. Current publication dates can be found online in English on our website (www. clariant.com/media). All information and documents pertaining to media conferences, investor updates, and presentations at analyst and investor conferences can be obtained online ( or from the following contact address: Clariant International Ltd, Investor Relations, Hardstrasse 61, CH-4133 Pratteln, [email protected], tel , fax Weblinks: Clariant website: distribution list (push system):

86 82 Clariant Annual Report 2011 Ad-hoc messages (pull system): Financial reports: Corporate calendar: Auditors Duration of the mandate and term of office of the lead auditor PricewaterhouseCoopers (PwC) has held the mandate since Clariant Ltd was established in The principle of rotation applies to the lead auditor, Dr. Daniel Suter, who was appointed in March The Audit Committee ensures that the position of lead auditor is changed at least every seven years. Auditing fees PwC received a fee of CHF 5.1 million for auditing the 2011 financial statements (2010: CHF 5.9 million). Additional fees PwC received a total fee of CHF 4.2 million for additional services (2010: CHF 3.7 million). These services comprise audit-related services mainly with respect to accounting advice in the amount of CHF 0.6 million, tax services of CHF 2.9 million, and other services of CHF 0.7 million. Supervisory and control instruments vis-à-vis the auditors The Audit Committee of the Board of Directors is responsible for overseeing and evaluating the performance of the external auditors on behalf of the Board of Directors and recommends to the Board of Directors whether PwC should be proposed to the Annual General Meeting for reelection. Criteria applied for the performance assessment of PwC include technical and operational competence, independent and objective view, employment of sufficient resources, focus on areas of significant risk to Clariant, ability to provide effective and practical recommendations, and open and effective communication and coordination with the Audit Committee, Corporate Auditing, and management. In 2011 seven joint meetings were held with the external auditor s representatives. These meetings lasted three to four hours on average and were in general attended by all members of the Audit Committee, the partner and senior manager of the audit firm, Clariant s CFO and one additional member of the Executive Committee, the Group Accountant, the Head of Internal Audit, and the General Counsel. Depending on the topics to be discussed, the meetings were also attended by the Group Risk Manager. The auditors communicate audit plans and findings to the Audit Committee and issue reports to the Board of Directors in accordance with Article 728b of the Swiss Code of Obligations. The Audit Committee s approval is required for all services provided by PwC exceeding a fee volume of CHF 0.2 million. These services may include audit and audit-related services as well as tax and other services. PwC and the Executive Committee report to the Audit Committee on a regular basis regarding the extent of services provided in conjunction with this approval. Enterprise Risk Management (ERM). Identification, assessment and management. Under the Group Risk Management Policy, based on the risk management standard of the Institute of Risk Managers, a tool is used to prepare risk assessments every year with quarterly updates by Business Units, Business Services and Regions by assessing threats and opportunities that will impact the objectives set for Clariant overall. These objectives are a result of the overall strategy of the company as set by the Board of Directors (BoD) and implemented by the Executive Committee (EC). The Investment Sub-Committee of the Executive Committee is responsible for monitoring the risk management assessments for relevance and consistency.

87 Corporate Governance 83 Objective setting is finalized during the last quarter of the year. These objectives together with the threats and opportunities to these objectives are subject to scrutiny by the Executive Committee (EC) during meetings with each Business Unit (BU). Also reviewed and discussed are the measures proposed to maximize opportunities and reduce or contain threats. The Group and the regions are also required to make risk assessments on the same criteria. All BU s, functions, and business services are required to report significant changes to existing identified risks and new threats and opportunities as they arise. Risk Registers are maintained using financial, operational, reputational, and likelihood assessments to score and rank all identified risks. The assessment also addresses the measures in place to manage the risk identified with dates for completion of the measures. Effectiveness of the measures is also assessed. Threats and opportunities have been identified, quantified, and delegated to responsible named individuals being required to deliver effective risk management. The nature of the risk classification requires different skills to be applied to risk management. The assessments are shared between the different BU s, services, and individuals and subject to reassessment on a quarterly basis. Consolidated risk assessment is presented to the Audit Committee and Board of Directors. There is a process for accelerated reporting of new or changed risks. Summaries of Business Units, regions and services risk assessments are shared within Clariant to deliver the group summary to all key senior managers. The consolidated risk assessment is benchmarked against published surveys dealing with risk management. Surveys that are industry specific, business wide, and with broad economic coverage are also included in the benchmarking process. Examples of identified risks included in the Risk Register: 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 Community s (EU) Regulations on Registration, Evaluation, Authorisation and Restriction of Chemical substances (REACH) being a significant component. Group Responsible Care is responsible for this risk and certain specific tasks are delegated to HR, Legal, ESHA and Logistics functions. Sites & Locations: This includes sites, plants, and equipment that are important for the production of Clariant products for sale to customers. Also addressed are country and culture issues that could create threats and opportunities to business objectives. The objective is to maintain high quality production facilities in key locations. Risk management is delegated to ESHA and Regional Services. Competitor Activity: A number of identified risks including evaluating the merger and acquisition activity that could affect the nature and extent of competition. Clariant is a leading participant in its industrial sectors and each sector is monitored to identify changes and consider and plan to deal the consequences of changes to customers and competitors. To support functional responsibility, certain functions have access to risk assessments to support them in their roles. Examples are Environmental Safety & Health Affairs (ESHA) to identify key sites for their property risk survey programme, Internal Audit and Group Procurement.

88 84 Clariant Annual Report 2011 Anaïs Bialy, Technical Marketing Decorative Coatings Innovative, easily dispersible pigments developed by the Pigments Business Unit make it possible to produce colors of greater intensity and brilliance than ever before like the ones here in the stairwell of the Museum of Modern Art in Frankfurt.

89 85

90 86 Clariant Annual Report 2011 Compensation Report The compensation philosophy of Clariant aims at promoting and reinforcing the quality and commitment of the employees. Compensation framework The purpose of this Compensation Report is to provide a holistic overview of Clariant s Compensation Concept and Programs in general. In addition it includes the compensation levels of the Board of Directors and the Executive Committee, therefore some information from the Note 11, pages 165 to 168 of the Financial Statements of Clariant Ltd is repeated here. 1. Members and responsibilities of the Compensation Committee of the Board of Directors The Compensation Committee (CoC) is currently made up of three non-executive members of the Board of Directors: Rudolf Wehrli (Chairman), Jürg Witmer and Klaus Jenny. The Secretary to the CoC is the Head of Corporate Human Resources. The Chair of the CoC may invite the CEO to discussions on individual agenda items, taking into account potential conflicts of interest which would oblige him to abstain. The CoC establishes principles for compensation of members of the Board of Directors and submits them to the Board of Directors for approval. The Committee approves the employment contracts with the CEO and members of the Executive Committee (EC). Also, the Committee takes note of employment contracts for Heads of Global Functions, Global Business Units and Regional Presidents, including the corresponding compensations. All appointments and dismissals that fall within the remit of the Board of Directors are submitted in advance to the CoC which makes, with regard to compensation aspects, a recommendation to the Board of Directors. The CoC reviews the global bonus, option and share plans, and makes recommendations to the Board of Directors. Furthermore, the Committee reviews fringe benefit regulations, dismissal regulations, and contractual severance compensation with the CEO, members of the EC, Heads of Global Functions, Global Business Units and Regional Presidents. As a rule the CoC holds at least three meetings per year: a) Spring: Discussion regarding the executive bonus plan allocation, determination of bonus payments for members of the EC. b) Summer: Fundamental matters concerning the Group s HR priorities. c) Autumn: Preparation of the Annual Report and planning of compensation changes in the following year. The CoC also meets as needed. In 2011, the CoC met three times and held several bilateral discussions and telephone conferences.

91 Compensation Report Compensation concept Clariant wishes to be an appealing employer with the ability to attract and retain qualified employees and experts throughout the world. In particular, Clariant s compensation policy for management is based on the following main principles: a) The level of the total compensation should be competitive and in line with market conditions and enable Clariant to recruit international, experienced managers and experts, and secure their longstanding commitment to the Group. Our understanding of competitiveness is defined in our Positioning Statement. We are aiming for a corridor between median and upper quartile of Total Compensation in the relevant local markets. Through this ongoing benchmarking, we are able to define local compensation structures e.g. annual paybands, which will be applied as an important factor in all salary decisions. For the update and accuracy of market conditions we are participating in all major countries in local compensation benchmarks and align all activities through global contracts with Global Compensation Consultants Hay Group and Mercer. Mercer have in addition different other mandates for Clariant, e.g. in the Benefits area. In addition we encourage local HR Managers to participate in local compensation networks and Club Benchmarks inside the chemical industry, to ensure the access to relevant market information. b) The structure of the total remuneration should be highly performance- and success-oriented in order to ensure that shareholder and management interests are aligned. Success in terms of bonus payouts will be measured in general only in relevant financial Group Performance Indicators. Only if Clariant is successful we will share the profit with our employees. Details will be disclosed in chapter 3. Individual Performance will be reflected in the career development and the annual salary reviews. Thus each manager's or employee's performance will be reflected in the yearly discussions and will lead in accordance with other factors like e.g. internal and external market conditions to transparent and consistent salary decisions. In general we apply a four-eyes-principles, e.g. line manager and next level supervisor as well as guidance through global or local HR processes. c) The compensation components should be straightforward, transparent and focused, so as to guarantee all participants (shareholders, members of the Board of Directors, the CEO, members of the EC and all global Management Levels (MLs)) the highest degree of clarity and objectives orientation. In order to uphold these principles, the CoC analyzes and discusses market developments at regular intervals and considers the implications of these developments for Clariant. Positioning Statement Benefits The benefits are aligned with local practices and present market practice. Long-Term Incentives (LTI) (only ML 1 4) Short-Term Incentives (STI) Base Salary (BS) Investment reflects long-term-commitment and supports our strong dedication to sustainable performance orientation. The annual cash bonus targets aim to be more aggressive than the markets. In general, we aim to be at median level in our respective markets and use different sources of compensation surveys (country-oriented, conducted by external consultants, including the relevant peercompanies of the chemical and/or industry area). Global Pay-Mix (relative Structure) % of total compensation ML4 ML3 ML2 ML1 EC 24 CEO Base Salary Short-term Incentives Long-term Incentives

92 88 Clariant Annual Report Overview of existing bonus plans In the last two years all relevant bonus plans for Short-Term Incentives (STI) and Long-Term Incentives (LTI) have been reviewed and redesigned to ensure the transition of Project Clariant and to align with the new business model. The key principles have been to reduce complexity, increase transparency and ensure an aligned and unified One Clariant approach through all employee groups and countries. Bonus Landscape GMBP ~ 100 positions 1 ~ 200 positions 1 ~ 600 positions 1 STI EC ML ML 2 4 ML 2 5 Matching Share LTI Clariant The Performance Cycle of Clariant is based on a 12-month revolving cycle process which starts in November each year with objective discussions focusing on the next business year. Group Performance Indicators (GPI), Top Priorities and related projects are included and will focus the organization. In January, alignment meetings take place with key leaders of the company to cascade GPI objectives and priorities of the new year. Generic Performance Cycle of Clariant Objective Discussion Business Review Strategy Discussion Oct Sep Nov Dec Jan Feb Mar Apr Alignment Meeting Business Review GEBP & G-SIP ~ positions 1 Local Managers, Professionals, Employees Business Review Aug Jul Jun May Strategy Review 1 Number of positions without Süd-Chemie 2 ML: Management-Level The following variable programs are currently in place for Clariant: 3.1. STI: Short-Term-Incentive Plans (Cash bonus) a) Group Management Bonus Plan (GMBP) started in 2010 b) Group Employee Bonus Plan (GEBP) started in 2010/2011 c) Global Sales Incentive Program (G-SIP) started in LTI: Long-Term-Incentive Plans (Equity-Linked Bonus) a) Tradable Option Plan (TOP@Clariant) started in 2008 b) Group Senior Management Long-Term-Incentive Plan (GSM- LTIP or Matching Share Plan) started in Short-Term Incentive Plans (Cash bonus) a) The Group Management Bonus Plan (GMBP) is embedded into the overall performance cycle of Clariant. This cycle ensures through intensive discussions and systematic alignment meetings, a business specific but challenging target agreement for each Business Unit (BU). The individual amount of bonus payments generated in a year is determined by the achieved result of the Clariant Group against clear objectives. The achievement is measured by three elements: financial result of Group, financial results of Business Units and defined Top Priorities (Group Performance Indicators and strategic projects).

93 Compensation Report 89 GMBP 2011 Three Pillars to balance Bonus Plan Group Achievement How do we as a company perform with regard to our targets? + Business Achievement What are the business results/contributions of my unit? As Clariant Performance Cycle agreements with each BU lead to business-specific but challenging target settings, and in order to exclude any windfall profiting or hidden buffers, the maximum bonus payout is explicitly capped at 100 percent (= target). As outlined in our compensation concept, we aim for a more aggressive pay-mix than the international markets, therefore this 100 percent will ensure an adequate positioning against our competitors. As a consequence of this fixed cap at 100 percent, we increased where necessary the cash bonus element in the countries. The bonus-relevant achievement for 2011: Group Achievement: 60 percent BU Achievements: 14 percent to 100 percent Top Priorities: 60 percent to 100 percent The corresponding bonus payout ranges between 44 percent and 90 percent. + TOP Priorities Have we acted focused and aligned on our unit priorities? ROIC 50 % EBIT BEI ROS% 50 % Mandatory Part: 1) Improve Gross Margin 2) Improve Productivity 3) Improve NWC Performance Operating Cash flow 50 % BUs: 25 % EC/Services: 60 % Measurement Percentage * Example: EC Glossary: ROIC = Return on invested capital EBIT = Earning before interest and tax BEI = Before exceptional items ROS % = Return on Sales in % NWC = Net working capital EHS = Environment, Health, Safety Cash flow BU 50 % BUs/Services Part*: 4) Foster Clariant Excellence 5) Performance towards customer 6) Enhance EHS system BUs: 35 % EC/BUs/Services: 40 % As a principle only collective/management team-related target achievements can serve as the basis for individual bonus payouts. An employee s individual performance will be honored in the annual review of total compensation and his/her career development. The annual evaluation of the achievement of objectives and allocation of funds for the GMBP are conducted by the CoC in February following the financial year in question, and approved by the Board of Directors. This system ensures that the bonus payments made to em ployees are closely aligned with the Group s overall result. b) The cash bonus for non-management-levels: The Group Employee Bonus Plan (GEBP) ensures further alignment and standardization to all local bonus plans of legal entities around the world. In general (where legally possible and compliant) all legal entities will apply the global Group Achievement or a combination of Group result (75 percent) and local Top Priorities (25 percent) as the bonus payout. c) For the Sales Force: The Global Sales Incentive Plan (G-SIP) is aiming to establish dedicated and globally aligned local Sales Incentive Plans (SIPs) for all Sales Representatives, Sales Managers and Key Account Managers with clearly allocated annual sales budget and commercial responsibilities (ML 1 4 excluded). The G-SIP focus on the individual sales performance and underlying Key Performance Indicators are in the areas of Sales (40 percent), Margin (40 percent) and Trade Receivables (20 percent). As an example a Sales Representative will receive tailor-made individual objectives for his allocated set of clients, which means a concrete Sales target in local currencies, a Deal Score target as an important indicator to measure the margin, and Overdues and Receivables as an indicator for Trade Receivables. Each objective has a weighting and can be monitored out of the existing reporting systems. Therefore the direct impact of individual success and payout can be calculated easily. In 2011 the global roll-out was started with approximately 800 employees; Japan and LATAM will follow in Employees can participate only in one bonus plan (G-SIP or GMBP/GEBP).

94 90 Clariant Annual Report Long-Term Incentive Plans (Equity-Linked Bonus) Clariant uses equity-based income components for approximately 300 of its senior managers worldwide (EC and ML 1 4). a) The Tradable Option Plan ( TOP@Clariant ) was introduced in 2008 for all senior managers, to ensure a stronger focus on creating additional shareholder value. The term of Clariant s Stock Option Plan is five years and membership is limited to the Executive Committee and selected senior managers of ML 1 4 (approximately 1.8 percent of employees). The Board of Directors will be included for the last time in The option term of five years is divided into a Vesting Period (first two years) and an Exercise Period (last three years). Eligible participants will receive a fixed number of options in accordance with an expected value point set by the Board of Directors. As a principle the strike price for the options is established by the Board of Directors at a level that is substantially higher than the market value of the Clariant shares at grant ( out of the money options ). Eligibility and endowment will be reviewed each year that the scheme is in operation. For 2011 it was decided in February to grant options for The strike price was settled at CHF 18 and with a fair value of CHF The grant was endorsed on 31 March If an employee should voluntarily leave Clariant before the waiting period (2 years) expires, all rights to shares and stock options which have not yet been transferred at this point in time become invalid. In case of retirement, employees will receive an immediate vesting according to the published regulations. b) Group Senior Management Long-Term Incentive Plan (GSM-LTIP) = Matching Share Plan The Matching Share Plan requires a personal investment decision and fosters the commitment of key managers (approximately 100 positions; EC and ML 1 3) for the long-term success of Clariant. Under this plan key managers can invest significant amounts of their compensation into Clariant shares. Thus this plan supports senior managers in meeting their requirement to permanently hold at minimum up to shares (as of the end of calendar year 2013) depending on their management level. To support the investment into Clariant shares 50 percent of their variable pay (out of the GMBP) is guaranteed as long as they invest into Clariant shares according to the requirements of the Matching Share Plan. Under the plan eligible senior managers are entitled to receive a certain minimum percentage (minimum investment quota of 20 percent) of their annual cash bonus for the respective bonus year in the form of investment shares. They are additionally entitled to voluntarily increase the percentage to be paid in shares to a maximum of 40 percent (maximum investment quote). Title and ownership in the shares are transferred at allocation of the investment shares. These investment shares will then be blocked and held in a custody account for a period of three years. At the end of the blocking period, the participant is entitled to obtain for each investment share an additional share free of charge (Matching Share). This matching is subject to the condition of a continued employment with Clariant throughout the blocking period. In case of termination of employment before the

95 Compensation Report 91 end of the blocking period, the right for Matching Shares lapses and a cash amount will be paid instead equal to the pro rata temporis portion (considering employment during the blocking period). The senior managers who do not participate in this plan or do not invest according the plan regulations, will forfeit 50 percent of their annual cash bonus and the eligibility to participate in any Long-Term- Incentive-Programs (including TOP@Clariant). The decision to implement this plan was made to create a strong and sustainable link between the Clariant business cycle and the value development of the company. Senior managers therefore strengthen the entrepreneurial and value-creating spirit of the Clariant Group. 4. Structure of compensation for members of the Board of Directors The compensation structure for members of the Board of Directors is following the outlined compensation concept and is decided for the performance year According to the aforementioned Guidelines the remuneration of members of the Board of Directors is made up of the following components: a) Annual basic fee b) Committee membership fees c) Option based remuneration For the Performance Year 2012 the Board of Directors has decided to abandon option based compensation for directors. It will be replaced by the grant of restricted stock to enable the board to participate in the long term value creation of the company. The following graph illustrates the relative structure of the three components for 2011: Relative structure of Total Compensation (Board of directors) % of total compensation Member of the Board of Directors Member of the Chairman s Committee Chairman of the Board Honorarium Committee Fee (activity based minimum of CHF used) Option (value at grant) Annual Compensation of the Board of Directors CHF Chairman of the Board Member of the Chairman's Committee Member of the Board of Directors Total 2011 Total 2010 Cash Compensation: Honorarium* Committee fee* Chair: /Member: Social Contribution: According individual situation Options: Number of options Value (at grant) * The fees are paid in cash in equal parts in March and September, due to new members starting mid of May 2011, there are pro rata temporis payments included.

96 92 Clariant Annual Report 2011 Annual Compensation Emoluments to members of the Board of Directors (IFRS) CHF Jürg Rudolf Peter Peter Klaus Dominik Carlo G. Hariolf Dolf Konstantin Total Total Witmer Wehrli Isler Chen Jenny Koechlin Soave Kottmann Stock- Winter hausen 2 stein Cash Compensation Honorarium Committee fee Social Contribution Options Number of options Fair value (IFRS) Total 2011 (Fair value allocation to 2011 accor. IFRS) Total 2010 (Fair value allocation to 2010 accor. IFRS) na na In order to generate a transparent overview for the performance year, beside the usual IFRS view (allocation of expenses through the vesting period), the full fair values of shares and options granted are also disclosed in the following table. Annual Compensation Emoluments to members of the Board of Directors (Total fair Value at Grant) CHF Jürg Rudolf Peter Peter Klaus Dominik Carlo G. Hariolf Dolf Konstantin Total Witmer Wehrli Isler Chen Jenny Koechlin Soave Kottmann Stockhausen Winterstein 2011 Total 2011 (Total fair value at grant date in 2011) Total 2010 Total 2010 (Total fair value at grant date in 2010) na na After taking over the function as CEO, no further Board of Directors compensations are extended. Please refer to the Executive Committee table. 2 Due to contractual agreement payout will take place in 2012.

97 Compensation Report 93 Please find below the information about the actual share and option ownership of the Board of Directors. Shares held by members of the Board of Directors Number of shares granted for 2011 Number of shares granted for 2010 Number of shares within vesting period for 2011 Number of shares within vesting period for 2010 Number of privately held shares for 2011 Number of privately held shares for 2010 Jürg Witmer Rudolf Wehrli Peter Isler Peter Chen Klaus Jenny Dominik Koechlin Carlo G. Soave Hariolf Kottmann Dolf Stockhausen 0 na 0 na na Konstantin Winterstein 0 na 0 na na Total Options held by members of the Board of Directors Number of options granted for 2011 Number of options granted for 2010 Number of options within vesting period for 2011 Number of options within vesting period for 2010 Number of privately held options for 2011 Number of privately held options for 2010 Jürg Witmer Rudolf Wehrli Peter Isler Peter Chen Klaus Jenny Dominik Koechlin Carlo G. Soave Hariolf Kottmann Dolf Stockhausen 0 na 0 na 0 2 na Konstantin Winterstein 0 na 0 na 0 na Total See EC overview on page Ownership of options to sell. The compensation for members of the Board of Directors is subject to the Swiss taxation and social security laws, with Clariant paying the employer contributions which are required. The members of the Board of Directors do not receive any lump-sum reimbursement of entertainment expenses above and beyond actual expenditure on business trips. For detailed information on the compensation for the Board of Directors refer to Note 11 of the Notes to the Financial Report of Clariant Ltd on pages 165 to 168.

98 94 Clariant Annual Report Compensation of Members of the Executive Committee The CoC regularly reviews the level and structure of the compensation packages for members of the EC. In 2010/2011 we conducted selected market benchmarks regarding the chemical peers for the EC and the Board and enlarged our survey activities for all global positions around the world. In our Individualized Chemical Benchmark analysis we focused on companies, which are comparable in size and complexity (Global Scope; average turnover: CHF million (ranges between CHF million); average number of employees: (ranges between and employees)). Key focus elements are: a) Comparison of management remuneration packages of European chemical companies with global scope b) Comparison of management remuneration of Swiss-based multinational companies The bonus amounts of the total compensation packages are paid out in relation to the achieved results for a particular financial year. The actual bonus amounts may vary between zero and target values in the financial year in question. Base salary & variable remuneration It is important to highlight, that the Executive Committee participates in the same bonus programs as the senior managers. Therefore they participate in the GMBP, TOP@Clariant and the GSM-LTIP. As an outcome of the benchmarking exercise, the remuneration structure of the EC was adjusted to the following general structure: the CEO receives a Base Salary of CHF and a Target Cash Bonus of CHF A member of the Executive Committee receives a Base Salary of CHF and a Target Cash Bonus of CHF These terms have been fixed for 2011 and Annual Compensation to the Members of the Executive Committee Hariolf Kottmann Others 5 Total 2011 (CHF) (fair value allocation to 2011 accor. IFRS2) Total 2010 (CHF) (fair value allocation to 2010 accor. IFRS2) Total 2011 (CHF) (Total fair value at grant date in 2011) Total 2010 (CHF) (Total fair value at grant date in 2010) Base salary Cash bonus Share-based bonus 1 Number of investment shares ( ) Number of matching shares ( ) Number of additional shares ( ) Total number of shares ( ) (correction of ) 4 ( ) (correction of ) Fair value (correction of ) 4 Options Number of options ( ) ( ) Fair value Other benefits Total (correction of ) (correc- tion of ) 4 1 Obligation to invest between % of Cash bonus into shares. Assumptions: Share price at grant = 10 CHF (not fixed yet, final share price will be fixed in April 2012 and therefore the numbers of shares can change.); Cash bonus payout = 68 % 2 Special management grant provided to one EC-Member already in 2008 and one EC-Member in 2011 with a deferred grant of shares. 3 Other benefits include contributions to pension funds and accrued pension benefits (73 %), social security (26 %) and other allowances (1 %). 4 Correction needed due to adjustments of Final share price at grant: Allocation of shares with CHF IFRS booking done with CHF (investment shares) and CHF (matching shares), therefore the numbers of shares and IFRS cost allocation are slightly different. 5 Further details for new Executive Committee members are displayed in Note 11 on pages

99 Compensation Report 95 Other benefits The members of the EC participate in the pension plans of the Clariant Group, notably the Clariant pension fund with an insured income of up to CHF per annum, and the management pension fund with an insured income of up to a further CHF per annum. The maximum insured income under the pension plans therefore stands at CHF per annum. The CEO participates in Clariant s pension and insurance plans. Additional pension provisions must be accrued over time, in order to match contractual granted retirement plans. Clariant s pension plans conform with the legal framework of the occupational pension scheme (BVG). In future, the maximum contribution will be dynamically aligned with Art. 79c BVG. For members of the EC and all other Clariant employees, the insured income is defined as the basic salary plus the 50 percent of cash bonus. Equity-linked income components are not subject to pensionable income. The usual term insurance policies for death and disability form part of Clariant s pension plans. The total employer contribution is approximately 11 percent of the insured income in the case of the Clariant pension fund, and 22 percent of the insured income in the case of the Clariant management pension fund. These contributions cover both the contributions to the formation of retirement capital, and the risk components. Both plans are contribution-based; the management pension fund solely provides the members with retirement capital upon retirement, and does not incorporate pension payments Shares held by the Members of the Executive Committee Number of shares granted for 2011 Number of shares granted for 2010 Number of shares within vesting period for 2011 Number of shares within vesting period for 2010 Number of privately held shares for 2011 Number of privately held shares for 2010 Hariolf Kottmann (correction of ) 2 Patrick Jany (correction of ) 2 Christian Kohlpaintner (correction of ) 2 Mathias Lütgendorf (correction of ) 2 Hans-Joachim Müller na na 0 na Total (correction of ) Options held by the Members of the Executive Committee Number of options granted for 2011 Number of options granted for 2010 Number of options within vesting period for 2011 Number of options within vesting period for 2010 Number of privately held options for 2011 Number of privately held options for 2010 Hariolf Kottmann Patrick Jany Christian Kohlpaintner Mathias Lütgendorf Hans-Joachim Müller 0 na 0 na 0 na Total Including options granted 2008 in his role as a member of the Board of Directors. 2 Correction needed due to adjustments of Final share price at grant: Allocation of shares with CHF IFRS booking done with CHF (investment shares) and CHF (matching shares), therefore the numbers of shares and IFRS cost allocation are slightly different.

100 96 Clariant Annual Report 2011

101 97 Javorka Tovey, Commercial Black Belt Specially trained project managers known as Black Belts steer the Clariant Excellence continuous improvement process. A number of different Clariant Excellence projects have already led to benefits of more than CHF 160 million between 2009 and 2011.

102 98 Clariant Annual Report 2011 Index Consolidated Financial Statements of the Clariant Group Page Consolidated balance sheets 100 Consolidated income statements 100 Consolidated statements of comprehensive income 101 Consolidated statements of changes in equity 102 Consolidated statements of cash flows 103 Notes to the consolidated financial statements 158 Report of the statutory auditor Review of Trends Page Five-year Group overview Financial Statements of Clariant Ltd, Muttenz Page Clariant Ltd balance sheets 161 Clariant Ltd income statements 162 Notes to the financial statements of Clariant Ltd 170 Appropriation of available earnings 171 Report of the statutory auditor 172 Forward-looking statements

103 FINANCIAL REPORT 99 CONSOLIDATED FINANCIAL STATEMENTS OF THE CLARIANT GROUP Consolidated financial statements of the Clariant Group Consolidated balance sheets at 31 December 2011 and ASSETS Notes 1 CHF mn % CHF mn % Non-current assets Property, plant and equipment Intangible assets Investments in associates and joint ventures Financial assets Prepaid pension assets Deferred income tax assets Total non-current assets Current assets Inventories Trade receivables Other current assets Current income tax receivables Near cash assets Cash and cash equivalents Total current assets Non-current assets held for sale Total assets EQUITY AND LIABILITIES Notes 1 CHF mn % CHF mn % Equity Share capital Treasury shares (par value) Other reserves Retained earnings Total capital and reserves attributable to Clariant shareholders Non-controlling interests Total equity Liabilities Non-current liabilities Financial debts Deferred income tax liabilities Retirement benefit obligations Provision for non-current liabilities Total non-current liabilities Current liabilities Trade and other payables Financial debts Current income tax liabilities Provision for current liabilities Total current liabilities Total liabilities Total equity and liabilities The notes form an integral part of the consolidated financial statements.

104 100 Clariant Annual Report 2011 Consolidated income statements for the years ended 31 December 2011 and 2010 Notes 1 CHF mn % CHF mn % Sales Costs of goods sold Gross profit Selling, general and administrative costs Research and development Income from associates and joint ventures Gain from the disposal of activities not qualifying as discontinued operations Restructuring and impairment Operating income Finance income Finance costs Income before taxes Taxes Net income Attributable to: Shareholders of Clariant Ltd Non-controlling interests Net income Basic earnings per share attributable to the shareholders of Clariant Ltd (CHF/share) Diluted earnings per share attributable to the shareholders of Clariant Ltd (CHF/share) The notes form an integral part of the consolidated financial statements. Consolidated statements of comprehensive income for the years ended 31 December 2011 and 2010 Notes 1 CHF mn CHF mn Net income Other comprehensive income: Net investment hedge Currency translation differences Other comprehensive income for the period, net of tax Total comprehensive income for the period Attributable to: Shareholders of Clariant Ltd Non-controlling interests The notes form an integral part of the consolidated financial statements. Changes in fair value of financial assets classified as available for sale amount to less than CHF 1 million in 2011 and 2010.

105 FINANCIAL REPORT 101 CONSOLIDATED FINANCIAL STATEMENTS OF THE CLARIANT GROUP Consolidated statements of changes in equity at 31 December 2011 and 2010 CHF mn Other reserves Total share Treasury shares Share premium Cumulative translation Total other Retained earnings Total attributable Noncontrolling Total equity capital (par value) reserves reserves reserves to equity holders interests Balance 31 December Net income Net investment hedge Currency translation differences Total comprehensive income for the period Dividends to non-controlling interests Obligation to purchase Clariant Ltd shares classified as equity (see note 1.23 and note 20) Employee share and option scheme: Effect of employee services Treasury share transactions Balance 31 December Net income Net investment hedge Currency translation differences Total comprehensive income for the period Issuance of share capital (see note 15) Dividends to non-controlling interests Non-controlling interest arising on business combination (see note 24) Acquisition of non-controlling interests (see note 15) Employee share & option scheme: Effect of employee services Treasury share transactions Balance 31 December

106 102 Clariant Annual Report 2011 Consolidated statements of cash flows for the years ended 31 December 2011 and 2010 Notes 1 CHF mn CHF mn Net income Adjustment for: Depreciation of property, plant and equipment (PPE) Impairment and reversal of impairment Amortization of intangible assets Impairment of working capital Income from associates and joint ventures Tax expense Net financial income and costs Gain from the disposal of activities not qualifying as discontinued operations Other non-cash items Total reversal of non-cash items Dividends received from associates Interest paid Interest received Income taxes paid Payments for restructuring Cash flow before changes in net working capital and provisions Changes in inventories Changes in trade receivables 13 1 Changes in trade payables Changes in other current assets and liabilities Changes in provisions (excluding payments for restructuring) Cash flow from operating activities Investments in PPE Investments in financial assets, associates and joint ventures 15 3 Investments in intangible assets Changes in current financial assets and near cash assets Sale of PPE and intangible assets Acquisition of companies, businesses and participations Proceeds from the disposal of subsidiaries, associates and joint ventures Cash flow from investing activities Proceeds from the issuance of share capital 356 Acquisition of non-controlling-interest 83 Purchase of treasury shares Sale of treasury shares 1 Proceeds from financial debts Repayments of financial debts Dividends paid to non-controlling interests Cash flow from financing activities Currency translation effect on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period The notes form an integral part of the consolidated financial statements.

107 FINANCIAL REPORT 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 1. Accounting policies 1.01 General information Clariant Ltd (the Company ) and its consolidated subsidiaries (together 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. The Company 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 13 February They will be subject to approval by the Annual General Meeting of Shareholders scheduled for 27 March Basis of preparation The consolidated financial statements of the Clariant Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) and with the following significant accounting policies. 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). The preparation of financial statements in conformity with the IFRS requires the use of estimates and assumptions. These affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management s best knowledge of current events and circumstances, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed under note International Financial Reporting Standards effective in 2011 There are no IFRSs or IFRIC interpretations that are effective for the first time for the annual periods beginning on or after 1 January 2011 that have a material impact on the Group International Financial Reporting Standards not yet effective The other standards, interpretations and amendments already issued by IASB but not yet effective have not been early adopted by the Group. IAS 19, Employee benefits was revised in June This revised standard is effective for accounting periods beginning on or after 1 January For the Group, this revised standard will entail the elimination of the corridor approach and recognition of all actuarial gains and losses in other comprehensive income as they occur. The Group will also be required to immediately recognize all past service costs and to replace interest costs and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability or asset. When this revised standard becomes effective, it is expected to reduce equity by CHF 235 million and net income by CHF 11 million. For the other standards, interpretations and amendments that are already issued but not yet effective the Group is still assessing their full impact. They will be adopted as they become effective Scope of consolidation Subsidiaries: Subsidiaries are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has the power to govern the financial and operating policies. These entities are fully consolidated as per the requirements of IAS 27, Consolidated and Separate Financial Statements. Investments in associates: Associates are entities in which the Group holds between 20 percent and 50 percent of the voting rights, or over which the Group has a significant influence, but which it does not control. Investments in associates are accounted for by using the equity method as per IAS 28, Investments in Associates.

108 104 Clariant Annual Report 2011 Investments in joint ventures: Joint ventures are contractual arrangements wherby two or more parties undertake an economic activity that is subject to joint control. Investments in associates are accounted for by using the equity method as per IAS 31, Interests in Joint Ventures. All joint ventures apply the same accounting principles as the Group Principles and methods of consolidation The annual closing date of the individual financial statements is 31 December. The consolidated financial statements are prepared by applying uniform presentation and valuation principles. The results of non-controlling interests are separately disclosed in the income statement and balance sheet Revenue recognition Sales of goods, interest income and dividends are recognized in line with the requirements of IAS 18, Revenue Exchange rate differences Exchange 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. 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 Property, plant and equipment Property, plant and equipment are valued at historical acquisition or production costs and depreciated on a straight-line basis to the income statement, using the following maximum 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 10 years Land is not depreciated Financing costs that are directly associated with the acquisition, construction or production of qualifying property, plant and equipment for which the commencement date for the capitalization is after 1 January 2009 are capitalized as a part of the costs of these assets Intangible assets Goodwill is recognized as per the requirements of IFRS 3, Business combinations, IAS 38, Intangible assets and IAS 28, Investment in associates. Goodwill is 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 associated with developing and maintaining software programs are recognized as an expense when incurred. Costs directly associated with the production of identifiable and unique software products controlled by the Group, that will probably generate economic benefits beyond one year, are recognized as intangible assets. Direct costs include software development personnel costs directly related to the software development and an appropriate portion of relevant overheads. Intangible assets acquired in a business combination are amortized using straight line method over their remaining useful lives of the following periods: Technology 3 to 15 years Customer relationships 13 to 20 years Trade name 10 years Mining rights 19 years Order backlog 2 years On 1 June 2007 a European Union regulation on chemicals and their safe use came into effect. It deals with the Registration, Evaluation, Authorization and Restriction of Chemical substances (REACH). REACH applies to all substances manufactured, placed on the market and used in the European Union, either on their own, in mixtures or in products. REACH requires the registration of certain substances, i.e. with volumes equal to or exceeding metric tons, by 2010 and various other substances depending on their category by As a company active in the chemical industry, Clariant has incurred costs in connection with REACH. Due to their nature, these costs are considered within the context of IAS 38, Intangible Assets and those qualifying for capitalization are reported as intangible assets. As the initial phase of the registration covering volumes equal to or exceeding metric tons is completed, the

109 FINANCIAL REPORT 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS corresponding costs capitalized as intangible assets are amortized starting from 2011 on a straight-line basis to the income statement over their estimated useful lives of twelve years Impairment of assets Impairment of assets are recognized and disclosed as per the requirements of IAS 36, Impairment of assets 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 cost, which approximates actual costs on a weighted average basis. This valuation method is also used for valuing the cost 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 Trade receivables Trade receivables are recognized in accordance with IAS 39, Financial Instruments: Recognition and Measurement Cash and cash equivalents 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 shown within financial debt in current liabilities on the balance sheet Derivative financial instruments and hedging Derivative financial instruments and hedges are recognized in accordance with IAS 39, Financial Instruments: Recognition and Measurement Leases The Group classifies leases into finance and operating leases and recognizes them based on the requirements of IAS 17, Leases 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 national income tax rates. Current income tax is accounted for in accordance with the requirements of IAS 12, Income tax Deferred income tax Deferred income tax is calculated using the comprehensive liability method as per the requirements of IAS 12, Income Taxes. No deferred income tax is calculated for the temporary differences in investments in Group companies, provided that the investor (parent company) is able to control the timing of the reversal of the temporary difference and it is probable that the temporary differences will not reverse in the foreseeable future Obligations for pensions and similar employee benefits Group companies operate various pension schemes. The Group has both, defined benefit and defined contribution plans. 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, at least every three years. The Group applies the corridor method. This means, that the portion of the actuarial gains and losses to be recognized as income or expense is the excess of the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting year over the greater of 10 percent of the present value of the defined benefit obligation at that date and 10 percent of the fair value of the plan assets at that date, divided by the expected average remaining working lives of the employees participating in the plan.

110 106 Clariant Annual Report 2011 Some Group companies provide post-retirement 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 methodology 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 the income statement over the expected average remaining working lives of the related employees. These obligations are valued annually by independent qualified actuaries. 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 or in expenses for restructuring and impairment. Other long-term employee benefits are employee benefits (other than post-employment benefits and termination benefits) which do not fall wholly due within twelve months after the end of the period in which the employees render the related services. 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 and past service costs are recognized immediately in the income statement. Short-term employee benefits are employee benefits (other than termination benefits) which fall due wholly within twelve months after the end of the period in which the employees render the related service Provisions Provisions are recognized as per the requirements of IAS 37, Provisions, Contingent Liabilities and Contingent assets Research and development Development expenses are capitalized to the extent that the recognition criteria according to IAS 38, Intangible assets are met. The Group considers that uncertainties inherent in the development of key new products preclude it from capitalizing the development costs. At the balance sheet date, no research and development projects met the recognition criteria. Laboratory buildings and equipment included in property, plant and equipment are depreciated over their estimated useful lives. 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 will generate probable future economic benefits Segment reporting Segment information is presented in the same manner as in the internal reporting on behalf of 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 Committee. With effect from 1 January 2010, Clariant changed its operating structure from formerly four divisions to ten business units, which have full responsibility for their operating results. Further, following the acquisition of the Süd-Chemie Group in April 2011, Clariant added the business units Catalysis & Energy and Functional Materials as two new segments. In accordance with IFRS 8, Operating segments, these twelve business units qualify to be reported in the following eight reportable segments: Industrial & Consumer Specialties Masterbatches Pigments Functional Materials Textile Chemicals Catalysis & Energy Oil & Mining Services Leather Services

111 FINANCIAL REPORT 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS All other business units, namely Additives, Detergents & Intermediates, Emulsions, and Paper Specialties, are combined in Performance Chemicals. These business units can be described as follows: The business unit Industrial & Consumer Specialties supplies speciality chemicals and application solutions for the personal care, industrial & home care, crop protection, paints and coatings to construction chemicals, industrial lubricants and engineering and aviation. The business unit Masterbatches provides color, additive concentrates and performance solutions for plastics. The products of this business range from being used in medical devices such as inhalers, to drink bottles made from recycled materials and car components. The business unit Pigments provides organic pigments, pigments preparations and dyes used in coatings, printing, plastics, consumer products and other special applications. The portfolio of this business includes high-performance pigments to meet demands of automotive, architectural and plastic industries as well as colorants used in traditional printing, ink jet and laser printers. The business unit Functional Materials comprises the activities of the former adsorbents division of Süd-Chemie. This business unit provides speciality products and solutions to markets of edible oil, the foundry, the pharmaceuticals and the logistics industries, as well as the water treatment industry. The business unit Textile Chemicals produces dyes and chemicals for the textile industry including apparel, upholstery, fabrics and carpets. The business provides special chemicals for pre-treatment, dyeing, printing and finishing of textiles; optical brighteners and chemicals for the functional treatment of technical textiles; and dyes, such as dispersion reactive, acid and sulphur dyes. The business unit Oil & Mining Services provides customdesigned and engineering solutions to the oil, refinery and mining industry. Oil Services operates in the area from drilling and exploration to production, transportation and refining in the oil and gas market. Mining Services supplies chemicals and integrated services to the mining, explosives and fertilizer industries. The business unit Leather Services produces chemicals and services for the global shoe, automotive and garment segments. Chemical and technical solutions for the complete leather manufacturing process are offered, from the beamhouse to finishing. The business unit Additives provides flame retardants, waxes and polymer additives for effects in plastics, coating and other applications. This business enhances and protects to make products safer, look better and last longer. The business unit Detergents & Intermediates provides key raw material for laundry detergents and cleaning products. It also supplies chemical intermediates, especially for the manufacture of agrochemicals and pharmaceuticals. The business unit Emulsions provides water based emulsions and polymers dispersions for paints, coatings, adhesives, construction, sealants and for the textile, leather and paper industries. The business unit Paper Specialties is a provider of expertise in management of whiteness, coloration, special coatings and strength for all kinds of paper. Corporate: Income and expenses relating to Corporate include the costs of the Corporate headquarters and those of corporate coordination functions in major countries. In addition, Corporate includes certain items of income and expense, which are not directly attributable to specific business units. The business unit Catalysis & Energy comprises the activities of former catalyst division of Süd-Chemie. The business unit provides catalysts which improve the energy efficiency of processes in petrochemical, polymer, refinery industries, the environmental impact of the automotive industry and inorganic materials to allow for an efficient energy storage.

112 108 Clariant Annual Report 2011 The Group s business units are operating segments that offer different products. These operating segments are managed separately because they manufacture, distribute and sell distinct products, which require differing technologies and marketing strategies. These products are also subject to risks and returns that are different from those of other business segments. Segment revenue is revenue reported in the Group s income statement that is directly attributable to a segment and 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 expense is an expense resulting from the operating activities of a segment that is 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 primarily of 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 taxes. The Executive Committee assesses the performance of the operating segments based on income statement parameters like third party sales, EBITDA, and operating income. Interest income, expenditure and taxes are not allocated to the segments. The return on the capital invested in each segment is measured by the Return on Invested Capital (ROIC) 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. A corresponding effect is recognized in shareholders equity and reported as equity classified as an obligation to purchase Clariant Ltd shares. The liability is measured subsequently at amortized cost using 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. It also includes the equity component of the convertible debts issued in Cumulative translation reserve: The translation reserve comprises the foreign exchange differences arising on the translation of the financial statements of the foreign subsidiaries stated in a currency other than the Group s functional currency. In addition 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 and which are at the same time designated as a hedge of a net investment in a foreign entity, are also reported here.

113 FINANCIAL REPORT 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1.24 Treasury shares Treasury shares are deducted from equity at their par value of CHF 4.00 per share. Differences between this amount and the amount paid for acquiring, or received for disposing of treasury shares are recorded in retained earnings Financial debt Financial debt is recognized as per the requirements of IAS 39, Financial Instruments: Recognition and Measurement Investments Investments are classified, recognized, measured and impaired based on the requirements of IAS 39, Financial Instruments: Recognition and Measurement. Purchases and sales of investments are recognized on settlement date, which is the date on which the Group receives or delivers the asset. 2. Enterprise Risk Management Identification, Assessment and Management Under the Group Risk Management Policy, based on the risk management standard of the Institute of Risk Managers, a tool is used to prepare risk assessments every year with quarterly updates by Business Units, Business Services and Regions by assessing threats and opportunities that will impact the objectives set for Clariant overall. These objectives are a result of the overall strategy of the company as set by the Board of Directors (BoD) and implemented by the Executive Committee (EC). The Investment Sub-Committee of the Executive Committee is responsible for monitoring the risk management assessments for relevance and consistency. Objective setting is finalized during the last quarter of the year. These objectives together with the threats and opportunities to these objectives are subject to scrutiny by the Executive Committee (EC) during meetings with each Business Unit (BU). Also reviewed and discussed are the measures proposed to maximise opportunities and reduce or contain threats. The Group and the regions are also required to make risk assessments on the same criteria. All BU s, functions and business services are required to report significant changes to existing identified risks and new threats and opportunities as they arise. Risk Registers are maintained using financial, operational, reputational and likelihood assessments to score and rank all identified risks. The assessment also addresses the measures in place to manage the risk identified with dates for completion of the measures. Effectiveness of the measures is also assessed. Threats and opportunities have been identified, quantified and delegated to responsible named individuals being required to deliver effective risk management. The nature of the risk classification requires different skills to be applied to risk management. The assessments are shared between the different BU s, services and individuals and subject to reassessment on a quarterly basis.

114 110 Clariant Annual Report 2011 Consolidated risk assessment is presented to the Audit Committee and Board of Directors. There is a process for accelerated reporting of new or changed risks. Summaries of BU s, Regions and Services risk assessments are shared within Clariant to deliver the group summary to all key senior managers. To support functional responsibility, certain functions have access to risk assessments to support them in their roles. Examples are Environmental Safety & Health Affairs (ESHA) to identify key sites for their property risk survey programme, internal audit and group procurement. The consolidated risk assessment is benchmarked against published surveys dealing with risk management. Surveys that are industry specific, business wide and with broad economic coverage are also included in the benchmarking process. Examples of identified risks included in the Risk Register: 2.1 Regulation & Compliance: Environmental and product risks 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 Community s (EU) Regulations on Registration, Evaluation, Authorization and Restriction of Chemical substances (REACH) being a significant component. Group Responsible Care is responsible for this risk and certain specific tasks are delegated to HR, Legal, ESHA and Logistics functions. 2.2 Site & Location: This includes sites, plant and equipment that are important for the production of Clariant products for sale to customers. Also addressed are country and culture issues that could create threats and opportunities to business objectives. The objective is to maintaining high quality production facilities in key locations. Risk management is delegated to ESHA and Regional Services. 2.3 Competitor Activity: A number of identified risks include evaluating the merger and acquisition activity that could affect the nature and extent of competition. Clariant is a leading participant in its industrial sectors and each sector is monitored to identify changes and consider and plan to deal with the consequences of changes to customers and competitors. 3. Financial risk management 3.1 Financial risk factors The Group s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk, liquidity risk and 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 to hedge certain risk exposures. Financial risk management is carried out by a central treasury department (Corporate Treasury) under policies approved by the Excecutive Committee and the Board of Directors. Corporate Treasury identifies, evaluates and hedges financial risks in close cooperation with the Group s operating units. Written principles for overall foreign exchange risk, credit risk, use of derivative financial instruments, non-derivative financial instruments and investing excess liquidity (counterparty risk) are in place. Market risk 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 and the US dollar and increasingly 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 co-ordination with the Group s operating units, for managing the net position in each foreign currency by performing appropriate hedging actions. The Group s foreign exchange risk management policy is to selectively hedge net transaction foreign exchange exposures in each major currency according to defined hedging ratios.

115 FINANCIAL REPORT 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 28. Foreign exchange risk sensitivity: The estimated percentage change of the following foreign exchange rates used in this calculation is based on the foreign exchange rate volatility for a term of 360 days in the future observed at 31 December At 31 December 2011, if the euro had strengthened/weakened by 10 percent (2010: 10 percent) against the Swiss franc with all other variables held constant, pre-tax profit for the year would have been CHF 72 million higher/lower (2010: CHF 15 million), mainly as a result of foreign exchange gains/losses on translation of the euro-denominated cash and cash equivalents, intragroup financing and trade receivables. Equity would have been CHF 85 million lower/higher (2010: CHF 65 million), arising mainly from foreign exchange gains/losses on translation of the eurodenominated hedging instruments. At 31 December 2011, if the US dollar had strengthened/weakened by 16 percent (2010: 11 percent) against the Swiss franc with all other variables held constant, pre-tax profit for the year would have been CHF 37 million higher/lower (2010: CHF 21 million) mainly as a result of foreign exchange gains/losses on translation of US dollar denominated trade receivables. Interest rate risk Exposure to interest rate risk: Financial debt issued at variable rates and cash and cash equivalents expose the Group to cash flow interest rate risk; the net exposure as per 31 December 2011 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 2011, 100 percent of the net financial debt was at fixed rates (2010: 100 percent). Interest rate risk management: It is the Group s policy to manage the cost 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, a weighted average interest rate change was determined, based on the terms of the financial debt issued at variable rates, cash and cash equivalents and the movements of the corresponding interest rates (interest rates comparison between the end of 2011 and end of 2010). At 31 December 2011, if the Swiss franc interest rates on net current financial debt issued at variable interest rates had been 71 basis points higher/lower with all other variables held constant, pre-tax profit for the year would have been CHF 2.0 million lower/ higher (2010: CHF 0.5 million for a Swiss franc interest rate shift of 7 basis points). At 31 December 2011, if the US dollar interest rates on net current financial debt issued at variable interest rates had been 3 basis points higher/lower with all other variables held constant, pretax profit for the year would have been not lower/higher (2010: CHF 0.01 million for a US dollar interest rate shift of 3 basis points). At 31 December 2011, if the euro interest rates on net current financial debt issued at variable interest rates had been 12 basis points higher/lower with all other variables held constant, pre-tax profit for the year would have been CHF 0.2 million lower/ higher (2010: CHF 0.1 million for a euro interest rate shift of 23 basis points). Other price risk With regard to the financial statements as per 31 December 2011 the Group was not exposed to other price risks in the sense of IFRS 7, Financial Instruments: Disclosures. Credit risk Exposures to credit risk: Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding re ceiv ables and committed transactions. Customer credit risk exposure is triggered by customer default risk and country risk. As per 31 December 2011 and 31 December 2010, the Group has a very diversified portfolio with more than (excl. Süd-Chemie) active credit accounts (2010: ), with no significant concentration neither due to size of customers nor due to country risk.

116 112 Clariant Annual Report 2011 Credit risk management: The Group has a Group credit risk policy in place to ensure that sales are made to customers only after an appropriate credit risk rating, credit line allocation process as well as recovery. 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. Süd-Chemie has a credit policy in place, credit risk management actively supported by IT in some affiliates. Credit Ratings and procedures will be harmonized. The table below shows in percent of total cash and cash equivalents the share deposited with each of the three major counterparties at the balance sheet date (excluding the bank managing the euro cash pool): Counterparty Rating Bank 1 AA 12% Bank 2 A 11% Bank 3 A- 11% Counterparty Rating Ageing balance of trade receivables Not due yet 88% 92% Total overdue 12% 8% less than 30 days 10% 7% more than 30 days 2% 1% Net trade receivables per group internal risk category A low credit risk 29% 23% B low to medium credit risk 38% 38% C medium to above average risk 25% 28% D high credit risk 8% 9% N new customer awaiting rating 0% 2% Financial instruments contain an element of risk that the counter party may be unable to either issue securities or to fulfil the settlement terms of a contract. Clariant therefore only cooperates with counterparties or issuers that are at least A-rated. The cumulative exposure to these counterparties is constantly monitored by the Corporate management, therefore there is no expectation of a material loss due to counterparty risk in the future. Bank A AA+ 0% Bank B AA 15% Bank C A+ 17% Bank D A 12% Liquidity risk Liquidity risk management: Cash flow 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 committed and uncommitted 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 which is not needed in the operating activities of the Group is invested in short-term money market deposits or marketable securities. At 31 December 2011, the Group held money market funds of CHF 724 million (2010: CHF 836 million), thereof money market funds of CHF 35 million with initial tenor more than 90 days (2010: 703). The Group maintains a cash pooling structure with a leading European bank, over which most European subsidiaries execute their cash transactions denominated in Euro. 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. In view of the bank being rated AA- (2010: AA rated) by the most important rating agencies, Clariant does not consider this to pose any particular counterparty risk. The following table analyzes the maturity profile of the Groups financial liabilities. The amounts disclosed are the contractual undiscounted cash flows and do therefore not reconcile with the financial liabilities disclosed in the consolidated balance sheet.

117 FINANCIAL REPORT 113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As per 31 December 2011 Less than Between Between Over CHF mn 1 year 1 and 2 years 2 and 5 years 5 years Borrowings Interest on borrowings Finance lease liabilities Trade and other payables Derivative financial instruments As per 31 December 2010 Less than Between Between Over CHF mn 1 year 1 and 2 years 2 and 5 years 5 years Borrowings Interest on borrowings Finance lease liabilities Trade and other payables 809 Derivative financial instruments The Group covers its liabilities out of operating cash flow generated, liquidity reserves in form of cash and cash equivalents including time deposits and money market deposits (31 December 2011: CHF million vs. 31 December 2010: CHF million), uncommitted open cash pool limits (31 December 2011: CHF 219 million vs. 31 December 2010: CHF 175 million), uncommitted net working capital facilities and through the selected issuance of capital market instruments. 3.2 Fair value estimation IFRS 7 requires the disclosure of fair value measurements in accordance with the fair value measurement hierarchy for financial instruments that are measured at fair value in the balance sheet: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. The following tables present the Group s assets and liabilities that are measured at fair value at 31 December 2011 and at 31 December 2010 respectively: 31 December 2011 CHF mn Assets Available-for-sale financialassets Level 1 Level 2 Level 3 Total Financial instruments* ** Total assets Liabilities Forward foreign exchange rate contracts* ** 46 Total liabilities December 2010 CHF mn Assets Available-for-sale financialassets Level 1 Level 2 Level 3 Total Financial instruments* ** Total assets Liabilities Forward foreign exchange rate contracts* ** Total liabilities ** The fair value of forward foreign exchange rate contracts is determined using forward exchange market rates at the balance sheet date. ** For details, see note 28 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).

118 114 Clariant Annual Report Capital risk management The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern in order to provide returns for the shareholders and benefits for other stakeholders and to maintain an optimal capital structure to minimize the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of pay-outs 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 non-current financial liabilities as reported in the consolidated balance sheet plus estimated liabilities from operating leases, less cash and cash equivalents and near cash assets not needed for operating purposes, less net assets held for sale as reported in the consolidated balance sheet. The Group always complied with the externally imposed capital re quire ments related to leverage and gearing requirements pertaining to the acquisition term loan facility which is cancelled and terminated as of 30 January Invested capital was as follows on 31 December 2011 and 2010 respectively: CHF mn Total equity Total current and non-current financial liabilities Estimated operating lease liabilities Less cash and cash equivalents and near cash assets * Cash needed for operating purposes Invested capital * Near cash assets represent deposits over 90 days At the end of 2011, Clariant considers the invested capital to be adequate. 4. Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and takes assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and as sumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. 4.1 Estimated impairment of goodwill 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 except for the CGUs Functional Material and Catalysis & Energy, for which the recoverable amount is determined using fair value less cost to sell. In the same procedure, the recoverable value of property, plant and equipment is also assessed according to the same rules. 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 (see notes 5 and 6). 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 that were previously recorded, such differences will impact the income statement in the period in which such determination was made (see notes 18 and 32).

119 FINANCIAL REPORT 115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4.3 Income and other taxes The Group is subject to income and other taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income 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 that were initially recorded, such differences impact the income tax and deferred tax provisions in the period in which such determination is made. 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 case that a tax loss is deemed to be recoverable, the capitalization of a deferred tax asset for such tax losses is then decided. The time horizon for such a calculation is in line with the mid-term planning scope of the Group. 4.5 Acquisition accounting Due to the acquisition of the Süd-Chemie Group during 2011, the use of the acquisition method of accounting has had a significant impact on the Group s consolidated financial statements. The Group s consolidated financial statements reflect the acquired business from the date the acquisition has been completed. Using the acquisition method of accounting requires the acquired assets and assumed liabilities to be recorded as of the acquisition date at their respective fair values. Any excess of the purchase consideration over the estimated fair values of acquired net identified assets is recorded as goodwill in the balance sheet and is allocated to an appropriate cash-generating unit. The fair value of acquired assets and assumed liabilities is determined using valuation techniques. Estimating the fair value assigned to each class of acquired assets and assumed liabilities is based on expectations and assumptions, in particular in relation to the expected growth rate, the discount rate and the remaining useful life, that have been deemed reasonable by the Corporate management. 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 inflation rates, long-term increase in health care costs, employee turnover, expected return on plan assets and discount rates. Substantial changes in the assumed development of any one of these variables may significantly change the Group s retirement benefit obligation and pension assets (see note 17).

120 116 Clariant Annual Report Property, plant and equipment CHF mn Land Buildings Machinery and equipment Furniture, vehicles, computer hardware Plant under construction Total Insured value at 31 December At 1 January 2010 Cost Accumulated depreciation and impairment Net book value Additions Reclassifications Reclassified to held for sale Disposals Depreciation Impairment Exchange rate differences At 31 December Cost Accumulated depreciation and impairment Net book value Additions Acquired in business combinations (see note 24) Reclassifications Reclassified to held for sale Disposals Depreciation Impairment Reversal of impairment Exchange rate differences At 31 December Cost Accumulated depreciation and impairment Net book value Impairments recognized in 2011 and 2010 arose as a result of the restructuring measures and the entailing site closures (see also note 25). The reversal of impairment in 2011 pertains to recov eries from sale. As at 31 December 2011, commitments for the purchase of PPE totalled CHF 58 million (2010: CHF 53 million).

121 FINANCIAL REPORT 117 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Land, buildings, furniture and machinery and equipment include the following amounts where the Group is a lessee under a finance lease: CHF mn Cost capitalized finance leases Accumulated depreciation Net book value 18 9 Finance lease liability minimum lease payments: CHF mn Not later than one year 4 2 Later than one year but not later than five years 9 6 Later than five years Total minimum lease payments Future finance charge on finance leases Present value of finance lease liabilities The present value of finance lease liabilities is as follows: CHF mn Not later than one year 4 1 Later than one year but not later than five years 6 4 Later than five years 5 5 Present value of finance lease liabilities The non-current portion of the corresponding liability related to finance lease contracts is disclosed in note 16.

122 118 Clariant Annual Report Intangible assets CHF mn Goodwill Technology Customer relationships Trade names Other Total At 1 January 2010 Cost Accumulated amortization and impairment Net book value Additions Disposals 3 3 Amortization Impairment 8 8 Exchange rate differences At 31 December Cost Accumulated amortization and impairment Net book value Additions Acquired in business combinations (see note 24) Reclassifications 3 3 Amortization Impairment 5 5 Exchange rate differences At 31 December Cost Accumulated amortization and impairment Net book value Amortization is allocated to the line in the income statement, which represents the function to which the intangible asset pertains. Intangibles reported under Acquisitions in 2011 arose on the acquisitions of Süd-Chemie, Prairie Petro-Chem, Octagon Process and Italtinto S.r.l. Impairment test for goodwill. Goodwill is allocated to the Group s cash generating units (CGU). Cash generating units consist of business segments in accordance with the Group s segment reporting. As of end 2011, other intangible assets include costs in the amount of CHF 41 million (2010: CHF 34 million) capitalized in connection with the REACH regulation.

123 FINANCIAL REPORT 119 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Goodwill is allocated to the following CGUs: CHF mn Industrial & Consumer Specialties 34 1 Masterbatches Pigments Functional Materials Catalysis & Energy Oil & Mining Services 19 5 Leather Services Net book value The CGUs Functional Materials and Catalysis & Energy are added following the acquisition of Süd-Chemie. The recoverable amount of all the CGUs except Functional Materials and Catalysis & Energy is determined based on value-in-use calculations. The value in use calculations use cash flow projections based on financial budgets approved by the Board of Directors covering a five-year period. No growth is assumed beyond this five-year period. The main assumptions used for cash flow projections were EBITDA 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 pre-tax discount rates used are based on the Group s weighted average cost of capital adjusted for specific country risks associated with the cash flow projections. The assumed pre-tax discount rate was percent for all cash generating units (2010: percent). For all CGUs it was assumed that they achieve sales growth in line with or higher than market growth based on the specific strateg ic plans for those CGUs. It was also assumed that the EBITDA in percent of sales will improve over present performance as a result of the restructuring measures implemented. For all these CGUs it was determined that the net present value of their expected cash flows exceeds the carrying amount of the net assets allocated on a value in use basis. The estimated recoverable amount of the CGU Leather Services on a value in use basis exceeds its carrying amount including goodwill. The recoverable amount would be equal to the carrying amount if the assumed annual sales growth rate were reduced by 2.9 percent, or alternatively, if the operating margin were reduced by 5.2 percent of sales. If the assumed annual growth rate were reduced by one percentage point the recoverable amount of the CGU would exceed the net asset value of the CGU s net assets by CHF 104 million. If raw material costs were assumed to be one percentage point of sales higher, the recoverable amount of the net assets would exceed the carrying amount by CHF 132 million. The recoverable amount for the CGUs Functional Materials and Catalysis & Energy which were joined to the Group with the acquisition of Süd-Chemie, is determined based on fair value less cost to sell. Fair value of these CGUs is calculated using discounted cash flows. The cash flows are projected for a ten-year period. The cash flow projections beyond this period are extrapolated using a growth rate of 2.8 percent. The assumptions used in this calculation are based on past experience and future expectations of business performance. The cash flows are discounted using a pre-tax discount rate of percent. Cost to sell are estimated and are deducted in determining the recoverable amount. The recoverable amount of the CGUs Functional Materials and Catalysis & Energy exceeds the carrying amount of the net assets allocated to these CGUs. The estimated recoverable amount of the CGU Functional Materials on a fair value less cost to sell basis exceeds its carrying amount including goodwill. The recoverable amount would be equal to the carrying amount if the assumed annual sales growth rate were reduced by 1.1 percent, or alternatively, if the operating margin were reduced by 8.5 percent of sales. If the assumed annual growth rate were reduced by one percentage point the recoverable amount would exceed the carrying amount of the CGU s net assets by CHF 103 million. If raw material costs were assumed to be one percentage point of sales higher, the recoverable amount would exceed the carrying amount of the net assets by CHF 729 million.

124 120 Clariant Annual Report Investments in associates and joint ventures CHF mn Beginning of the year Acquired in business combinations (see note 24) 334 Additions 8 1 Share of profit Dividends received Exchange rate differences End of the year The key financial data of the Group s principal associates and joint ventures are as follows: CHF mn Country of incorporation Assets Liabilities Revenue Profit/(Loss) Interest held % 2010 Associates: Infraserv GmbH & Co. Höchst KG Germany Infraserv GmbH & Co. Gendorf KG Germany Infraserv GmbH & Co. Knapsack KG Germany Others Germany Total Associates: Infraserv GmbH & Co. Höchst KG Germany Infraserv GmbH & Co. Gendorf KG Germany Infraserv GmbH & Co. Knapsack KG Germany Others Joint ventures: ASK Group Germany Scientific Design Company Inc. USA Süd-Chemie India Pvt Ltd. India Total In the year 2011, accumulated unrecognized losses as at the balance sheet date amounted to less than CHF 1 million (2010: CHF 0 million). The Infraserv companies were set up by the former Hoechst group to cater to the infrastructure needs of its subsidiaries prior to The shareholdings in associates summarized under Other concern mainly companies specializing in selling Clariant products. Due to the specialized nature of these companies, there is no active market in which these shareholdings could be traded, hence no fair value is indicated. However, there is no evidence that the recoverable amount would be lower than the carrying amount. The joint ventures with ASK Group, Scientific Design Company Inc. and Süd-Chemie India Private Limited were acquired as a part of the acquisition of Süd-Chemie Group (see note 24). Clariant owns a 50 percent stake in these joint ventures, which are consolidated using the equity method.

125 FINANCIAL REPORT 121 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. Financial assets 9. Taxes CHF mn Beginning of the year Exchange rate differences 1 3 Additions 13 2 Impairment 2 Reversal of impairment 23 Repayments and disposals 23 End of the year CHF mn Current income taxes Deferred income taxes Total The main elements contributing to the difference between the Group s overall expected tax expense/rate and the effective tax expense/rate are: Financial assets are measured at cost as these include a number of small scale participations in companies, mostly in Germany, which are engaged in activities closely related to the ones of Clariant. Due to the specialized nature of these companies, there is no active market in which these shareholdings could be traded, hence no fair value is indicated. However, there is no evidence that the recoverable amount would be lower than the carrying amount. Financial assets also include those derivative financial instruments with positive fair value for which the remaining lifetime exceeds twelve months. Financial assets are denominated in the following currencies: CHF mn EUR CHF 1 3 Total CHF mn % 2010 CHF mn % Income before tax Expected tax expense/rate Effect of taxes on items not tax-deductible Effect of utilization and changes in recognition of tax losses and tax credits Effect of tax losses and tax credits of current year not recognized Effect of adjustments to current taxes of prior periods Effect of tax exempt income Effect of other items Effective tax expense/rate Calculated based on the income before tax of each subsidiary (weighted average). The carrying amounts of the above assets are entirely classified as available for sale. A loan in the amount of CHF 23 million, which was impaired in full in 2009, was fully repaid in 2011 resulting in a reversal of the impairment loss. The reversal of impairment was recognised in Restructuring and impairment in the income statement and allocated to Corporate, consistent with the impairment charge in 2009.

126 122 Clariant Annual Report 2011 Taxes (continued) The movement of the net deferred tax balance is as follows: CHF mn PPE and intangible assets Retirement benefit obligations Tax losses and tax credits Other accruals and provisions Total Thereof offset with deferred tax assets within the same jurisdiction Total Deferred tax assets at 1 January Deferred tax liabilities at 1 January Net deferred tax balance at 1 January Charged/credited to income Exchange rate differences Net deferred tax balance at 31 December Deferred tax assets at 31 December Deferred tax liabilities at 31 December Net deferred tax balance at 31 December At January Charged/credited to income Effect of business combinations (see note 24) Exchange rate differences Net deferred tax balance at 31 December Deferred tax assets at 31 December Deferred tax liabilities at 31 December Net deferred tax balance at 31 December Of the deferred tax assets capitalized on tax losses, CHF 9 million refer to tax losses of the French subsidiaries (2010: CHF 22 million), CHF 10 million to tax losses of the Italian subsidiaries (2010: CHF 16 million), CHF 77 million to tax losses of the US subsidiaries (2010: CHF 26 million) and CHF 57 million to the tax losses of the Süd- Chemie Group acquired in Clariant considers it highly probable that these tax losses can be recovered. The total of temporary differences on investments in subsidiaries, for which no deferred taxes were calculated, was CHF million at 31 December 2011 (CHF 390 million at 31 December 2010). Deferred income tax liabilities have not been established for the withholding tax and other taxes that would be payable on the unremitted earnings of certain foreign subsidiaries, as such amounts are currently regarded as permanently reinvested. These unremitted earnings totalled CHF million at the end of 2011 (2010: CHF million). The tax losses on which no deferred tax assets are recognized are reviewed for recoverability at each balance sheet date. The largest part of these tax losses arose in Switzerland (with a weighted average tax rate of 14.6 percent) and in the United States (with a tax rate of 39.9 percent). At present their recoverability cannot be reliably assessed.

127 FINANCIAL REPORT 123 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Tax losses on which no deferred tax assets were recognized are as follows: CHF mn Expiry by: After 2015 (2010: after 2014) Total Trade receivables CHF mn Gross accounts receivable trade Gross accounts receivable associates and joint ventures Less: provision for impairment of accounts receivable Total trade receivables net The following summarizes the movement in the provision for doubtful accounts receivable: CHF mn Unrecognized tax credits The tax credits in the amount of CHF 2 million expire between 2012 and 2015 (2010: the tax credits in the amount of CHF 12 million expire between 2011 and 2014). The remaining tax credits of CHF 18 million expire in and after 2016 (2010: the remaining tax credits of CHF 35 million expire in and after 2015). CHF mn At 1 January Charged to the income statement Amounts used 6 11 Acquired in business combinations 3 Unused amounts reversed 6 12 Exchange rate differences 3 6 At 31 December Inventories Of the provision for impairment the following amounts concerned trade receivables that were individually impaired: CHF mn Raw material, consumables, work in progress Finished products Total CHF mn Trade receivables aged up 3 7 to six months Trade receivables aged over six months Total trade receivables net CHF mn Movements in write-downs of inventories Beginning of the year Additions Reversals Exchange rate differences 2 5 End of the year As at 31 December 2011, inventories in the amount of CHF 15 million were pledged as collateral for liabilities (2010: CHF 15 million). There is no concentration of credit risk with respect to trade receivables, as the Group has a large number of internationally dispersed customers. The Group recognizes the impairment of trade receivables in Selling, general and administrative costs in the income statement. The amount recognized in the books for trade receivables is equal to their fair value. Collaterals are only required in rare cases (2011: 5 Mio. CHF, 2010: 6 Mio. CHF). The cost for raw materials and consumables recognized as an expense and included in costs of goods sold amounted to CHF million (2010: CHF million).

128 124 Clariant Annual Report 2011 Trade receivables (continued) The maximum credit risk on trade receivables is equal to their fair value. Collaterals are only taken in rare cases (2011: CHF 5 million, 2010: CHF 6 million). The carrying amounts of the Group s trade receivables are denominated in the following currencies: CHF mn Currency CHF 14 5 EUR USD JPY BRL CNY INR 1 22 Other Total trade receivables net As of 31 December 2011, trade receivables in the amount of CHF 135 million (2010: CHF 83 million) were past due, but not impaired. These relate to a number of customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: 12. Other current assets Other current assets include the following: CHF mn Other receivables Current financial assets Prepaid expenses and accrued income Total Other receivables include staff loans, advances, advance payments, VAT and sales tax receivables. Current financial assets include securities and loans to third parties which are classified as available for sale. The amount recognized in the books for other current assets is equal to their fair value. The maximum exposure to credit risk of other current assets at the reporting date is their fair value. There was no impairment of current financial assets in 2011 and Other receivables are denominated in the following currencies: CHF mn Up to three months past due, but not impaired Three to six months past due, 8 2 but not impaired More than six months past due, but not impaired 4 3 Total trade receivables net CHF mn CHF 8 4 EUR USD JPY BRL CNY 20 8 INR 7 8 Other Total Current financial assets are denominated in the following currencies: CHF mn CHF 4 4 EUR BRL 1 INR 2 JPY 1 USD 1 Other 5 28 Total 32 46

129 FINANCIAL REPORT 125 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. Near cash assets Near cash assets include the short term deposits with an original maturity between 90 and 365 days. Near cash assets are denominated in the following currencies: 14. Cash and cash equivalents CHF mn Cash at bank and on hand Short-term bank deposits Total CHF mn CHF 640 EUR 63 GBP 34 Other 1 Total There were no near cash assets as of 1 January The effective interest rate on short-term bank deposits in Swiss francs was 0.31 percent (2010: 0.22 percent); these deposits have an average maturity of 44 days (2010: 45 days). The effective interest rate on short-term bank deposits in euro was 1.09 percent (2010: 0.59 percent); these deposits have an average maturity of 30 days (2010: 79 days). There were no material short-term bank deposits denominated in currencies other than the Swiss franc and the Euro. The maximum exposure to credit risk on cash and cash equivalents is equal to their book value. Cash and cash equivalents are denominated in the following currencies: CHF mn CHF EUR USD JPY 6 5 BRL CNY INR Other Total

130 126 Clariant Annual Report Changes in share capital and treasury shares Registered shares each with a par value of CHF 4.00 (2010: CHF 4.00) Number of shares 2011 Par value 2011 CHF mn Number of shares 2010 Par value 2010 CHF mn At 1 January Capital increase At 31 December Treasury shares Outstanding capital at 31 December Treasury shares (number of shares) Holdings at 1 January Shares purchased at fair market value Shares purchased on exercise of put options Shares sold at fair market value Shares transferred to employees Holdings at 31 December All shares are duly authorized and fully paid in. Dividends are paid out when declared and are paid out equally on all shares, excluding treasury shares. In accordance with article 5 of the company s Articles of Incorporation, no limitations exist with regard to the 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 12 of the company s Articles of Incorporation, each share has the right to one vote. A shareholder can only vote for his own shares and for represented shares, up to a maximum of 10 percent of the total share capital. These percentage figures are based on information received from the respective shareholders. At 31 December 2011 former shareholders of Süd-Chemie AG, who had exchanged their shares against Clariant shares, were holding in total percent of the share capital of Clariant. These shareholders are affiliated with each other for family or other reasons. In addition, the following shareholders held a participation of 3 percent or more of the total share capital: Fidelity Management & Research, Boston (United States), 5.23 percent (2010: 5.23 percent); Teachers Insurance and Annuity Association of America College Retirement Equity Fund (TIAA-CREF), New York (United States), percent (2010: < 3 percent); CS Asset Management Funds AG, Zürich (Switzerland), percent (2010: 3.04 percent). No other shareholder was registered as holding 3 percent or more of the total share capital. At 31 December 2010 the following shareholders held a participation of 3 percent or more of the total share capital: AXA, Paris (France), 5.09 percent; Amundi, Paris (France), 3.07 percent. No other shareholder was registered as holding 3 percent or more of the total share capital. Increase in share capital On 31 March 2011, the Annual General Meeting of Clariant AG approved a capital increase, as a result of which in April 2011 Clariant AG issued newly registered shares with a nominal value of CHF 4.00 each (the new shares). The purpose of this share capital increase was to finance the acquisition of Süd-Chemie.

131 FINANCIAL REPORT 127 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The new shares result from a two-tranche capital increase out of existing authorized capital of the Company. The first tranche consists of new shares (the exchange shares) issued in connection with the completion of the acquisition of Süd-Chemie in consideration for the contribution in kind of bearer shares in Süd-Chemie AG (see note 24). The second tranche consists of new shares (the rights issue) issued at a subscription price of CHF per share. This issuance of the new shares increased the share capital of Clariant AG by CHF 262 million. The share premium reserve increased by CHF 849 million, net of costs of CHF 13 million incurred in connection with the capital increase. In addition to the above mentioned increase in the share capital, in July 2011, Clariant AG issued 1169 newly registered shares for the conversion of two convertible bonds. Non-controlling interest. In 2011, the Group increased its stake in Masterbatches producer Colex Spolka z o.o in Poland to 100 percent by purchasing the remaining non-controlling interests with the carrying amount of less than CHF 1 million, at a purchase consideration of CHF 11 million. Also, the Group purchased an additional 3.85 percent stake in the Süd-Chemie Group subsequent to the business combination, with the carrying amount of CHF 31 million, for a purchase consideration of CHF 72 million (see note 24). The excess consideration paid to acquire the non-controlling interest over its carrying amount is recognized directly in equity.

132 128 Clariant Annual Report Non-current financial debts CHF mn Interest rate in % Term Notional amount Net amount Net amount Straight bond CHF mn Straight bond EUR mn Certificate of indebtedness mixed EUR mn 125 Convertible bond CHF mn Straight bonds CHF mn 199 Straight bond CHF mn 99 Certificate of indebtedness mixed EUR mn 294 Certificate of indebtedness mixed EUR mn 150 Total straight bonds and certificates of indebtedness Liabilities to banks and other financial institutions Obligations under finance leases 11 9 Subtotal Less: current portion Total The value of the liability part of the convertible bond recognized in the balance sheet is calculated as follows: Face value Equity component Liability component on initial recognition on 2 July Transaction cost 4 5 Interest expense Interest paid 18 9 Total Breakdown by maturity after 2016 (2010: after 2014) Total Breakdown by currency CHF EUR Other 44 4 Total Fair value comparison (including current portion) Straight bonds Certificates of indebtedness Convertible bond Others Total Total net book value of assets pledged as collateral for financial debts Total collateralized financial debts Thereof non interest bearing foreign exchange contracts with negative fair value of CHF 41 million (2010: CHF 37 million). Average interest rate on the interest bearing part of the liabilities in 2011: 1.72 percent (Japan, Pakistan, Turkey) (2010: 8.73 percent Pakistan, GB and Germany).

133 FINANCIAL REPORT 129 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In March 2011, Clariant signed an acquisition term loan facility with a group of seven banks amounting to CHF million. The initial term of the facility is one year from 21 April 2011 with an extension option of another year. Any drawdowns from this facility were intended to be utilized for the partial financing of the acquisition of Süd-Chemie (see note 24). In 2011, CHF 120 million and CHF 400 million were withdrawn under this facility, of which CHF 120 million was repaid subsequently during the year. CHF 400 million were still outstanding at the year-end and are classified as current financial debts (see note 20). Certain financial covenants tested semi-annually were applicable for this acquisition term loan facility. The facility is repaid and terminated as of 30 January In May and June 2011, the Group launched two new bonds in the amount of CHF 200 million and CHF 100 million with a term of 4.5 years and 6 years respectively. In June 2011, after the acquisition of Süd-Chemie, Clariant repaid a bond (US dollar private placement) worth CHF 117 million in full. Clariant also settled the accrued interest, cross currency swaps and interest payment swaps in connection with this bond. Onetime costs pertaining to this repayment amounting to CHF 16 million are recognized in finance costs in the second quarter of This amount includes a make-whole payment and costs incurred to terminate early the overlaying derivatives pertaining to this placement. In October 2011, a certificate of indebtedness with a nominal amount of EUR 100 million was paid back. Including accrued interest the repayment amounted to CHF 124 million. In October 2011, the Group issued two certificates of indebtedness in the German market amounting to EUR 365 million. The two certificates have a term of three years (EUR 242 million) and 4.5 years (EUR 123 million) each with fix and float coupons. The interest to be paid for the certificates of indebtedness is based on six months Euribor (variable tranche) or mid-swap (fixed tranche), respectively, plus a credit margin premium (spread). In December 2011, Clariant cancelled Süd-Chemie s syndicated multicurrency revolving credit facility after repayment of the amount of EUR 183 million (including accrued interests) drawn under this facility. Valuation. Non-current financial debt is recognized initially at fair value, net of transaction costs incurred. Financial debt is subsequently stated at amortized cost. There are no long-term financial liabilities valued at fair value through profit and loss. The value of the liability component and the equity component of the convertible bond was determined at the issuance of the bond. The fair value of the liability component, included in the non-current borrowings, was calculated using a market rate of interest for an equivalent bond without conversion rights. The residual amount, representing the value of the equity conversion option, is included in shareholder s equity in share premium reserve. The fair values for the bonds and convertible bond are quoted market prices as of the balance sheet date. The fair values of the other non-current financial debts, which are equal to their book value, are determined on a discounted cash flow basis. Covenants. There are no financial covenants for non-current financial debts as of end of Exposure of the Group s borrowings to interest rate changes Bonds: the interest rates of all bonds, including the convertible bond, are fixed. Liabilities to banks and other financial institutions: mostly consisting of syndicated bank loans with variable interest rates (LIBOR plus applicable margin according to a defined pricing grid based on the Group s performance). Other financial debts: mostly current debt at variable interest rates. Certificate of Indebtedness of EUR 242 million with a fixed interest rate of percent and a floating interest rate of percent. Using interest rate swaps, the floating interest rate was swapped to a fixed rate. Certificate of Indebtedness of EUR 123 million with a fixed interest rate of 4.24 percent and a floating interest rate of percent. Using interest rate swaps, the floating interest rate was swapped to a fixed rate. Collateral. Certain Asian subsidiaries pledge trade receivables and inventories as a security for bank overdraft facilities. In case the subsidiaries default on their obligations, the borrowers have the right to take possession of these assets and receive the cash flows resulting from them. The assets are pledged at the usual market conditions.

134 130 Clariant Annual Report Retirement benefit obligations Apart from the legally required social security schemes, the Group has numerous independent pension plans. The assets are principally held externally. For certain Group companies however, no independent assets exist for the pension and other non-current employee benefit obligations. In these cases the related liability is included in the balance sheet as part of the non-current liabilities. Defined benefit post-employment plans. Defined benefit pensions and termination plans cover the majority of the Group s employees. Future obligations and the corresponding assets of those plans considered as defined benefit plans under IAS 19 are reappraised annually and reassessed at least every three years by independent actuaries. Assets are valued at fair value. US employees transferred to Clariant with the Hoechst Specialty Chemicals business remain insured with Hoechst for their pension claims incurred prior to 30 June The largest defined benefit plans are operated in Switzerland, UK, US and Germany. These plans make up more than 90 percent of the total defined benefit obligation. The German plan is unfunded and covers the supplementary pension liabilities for plan members whose salaries exceed the level of the German mandatory social security coverage. All other pension liabilities regarding German staff members are covered by a funded multi-employer plan which is accounted for as a defined contribution plan. The defined benefit obligation in UK is a funded plan covering the pension liabilities of UK employees who joined the company before 31 December Staff members who joined after this date are covered by a defined contribution plan. In the US Clariant operates a defined benefit pension plan that is a funded plan covering the pension liabilities of employees who joined the company before 31 December Staff members who joined after this date are covered by a defined contribution plan. For members of management whose annual salaries exceed the amount of USD an additional pension scheme is in place in the form of an unfunded defined benefit obligation, which covers the part exceeding this amount. In Switzerland Clariant operates a funded defined benefit pension plan that covers the pension liabilities of all employees of the Swiss Clariant companies up to a salary level of CHF For members of management whose annual salaries exceed this amount, an additional pension scheme is in place in the form of a funded defined benefit obligation. Any shortfalls in funded provisions for pension commitments to members of the Executive Committee are accounted for as an unfunded defined benefit obligation. In addition, in 2011, Clariant acquired the Süd-Chemie group (see note 24) with the most important pension plans in Germany and the US. Post-employment medical benefits. The Group operates a number of post-employment medical benefit schemes in the USA, Canada 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.

135 FINANCIAL REPORT 131 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Changes in the present value of defined benefit obligations: CHF mn Pension plans (funded and unfunded) Post-employment medical benefits (unfunded) Beginning of the year Current service costs Interest costs on obligation Contributions to plan by employees Benefits paid out to personnel in reporting period Actuarial losses/gains of reporting period Past service costs of reporting period 1 2 Liabilities acquired in a business combination (see note 24) Termination benefits 2 Effect of curtailments 1 Effect of settlements 5 1 Exchange rate differences End of the year Changes in the fair value of plan assets: CHF mn Beginning of the year Assets acquired in business combinations (see note 24) 60 Expected return on plan assets Contributions to plan by employees Contributions to plan by employer Benefits paid out to personnel in reporting period Actuarial gain/loss of the reporting period Effect of settlements 3 Exchange rate differences 6 71 End of the year The Group expects to contribute CHF 95 million to its defined benefit pension plans in As at 31 December 2011 and 2010, the pension plan assets included no directly held registered shares or bonds issued by the Company.

136 132 Clariant Annual Report 2011 Retirement benefit obligations (continued) The amounts recognized in the balance sheet: CHF mn Defined benefit pension plans Post-employment medical benefits Total Present value of funded obligations Fair value of plan assets Deficit/surplus Present value of unfunded obligations Unrecognized actuarial losses (gains) Unrecognized past service costs (gains) 1 1 Net liabilities in the balance sheet Thereof recognized in: CHF mn Retirement benefit obligation Prepaid pension assets Net liabilities in the balance sheet for defined benefit plans The amounts recognized in the income statement are as follows: CHF mn Current service costs Interest costs Expected return on plan assets Net actuarial gains/losses recognized in the current year Past service costs recognized in the current year Termination benefits 2 2 Effect of curtailments 1 1 Effect of settlements Total expenses CHF mn Actual return on plan assets

137 FINANCIAL REPORT 133 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reconciliation to prepaid pension asset and retirement benefit obligations reported in the balance sheet: CHF mn Defined benefit obligation Defined contribution obligation Retirement benefit obligation Prepaid pension plan asset Net retirement benefit obligation recognized The major categories of plan assets as a percentage of total plan assets: % % Equities Bonds Cash 6 6 Property Alternative investments 8 13 The principal actuarial assumptions at balance sheet date in percent: % % Group Most important countries Group Most important countries Weighted average United Kingdom United States Germany Weighted average Switzerland Switzerland United Kingdom United States Germany Discount rate Expected return on plan assets Expected inflation rate Future salary increases Long-term increase in health care costs Current average life expectancy for a 65 year old male in years Current average life expectancy for a 65 year old female in years

138 134 Clariant Annual Report 2011 Retirement benefit obligations (continued) cal actual returns on the Group s plan assets. Using this reference information, the Group develops for each pension plan a weighted average expected long-term rate of return. A one percentage point change in health care cost trend rates would have the following effects on the obligation for postemployment medical benefits: CHF mn One percentage point increase One percentage point decrease Effect on the aggregate of the service cost and interest costs 1 1 Effect on defined benefit obligation 7 6 Amounts for current and previous periods: Defined benefit pension plans CHF mn Defined benefit obligation for pension plans, funded and unfunded Fair value of plan assets Deficit Experience adjustments on plan liabilities Experience adjustments on plan assets Post-employment medical benefits CHF mn Defined benefit obligation for post-employment medical plans Experience adjustments on plan liabilities Defined contribution post-employment plans. In 2011, CHF 27 million were charged to the income statements of the Group companies as contributions to defined contribution plans (2010: CHF 28 million). In Germany, approximately Clariant employees are insured in a defined benefit plan which is a multi-employer plan and as such is accounted for as a defined contribution plan. The reason for this accounting practice is that the plan exposes the participating Clariant companies to actuarial risks associated with the current The weighted average expected long-term rate of return on plan assets represents the average rate of return expected to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid. In developing the expected rate of return, the Group considers long-term compound annualized returns of historical market data for each asset category, as well as historiand former employees of other companies which are members of the same pension plan. There is no consistent or reliable basis for allocating the obligation, plan assets and cost to individual companies participating in the plan. Based on the statutory actuarial calculation of 2010, the pension fund s obligations are fully funded. Also for 2011 it is anticipated that the pension plan liabilities are covered by the respective assets.

139 FINANCIAL REPORT 135 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In case the multi-employer plan faces a situation where the pension plan liabilities exceed the assets, this can be remedied either by increasing the employer s contributions to the pension plan or by reducing the benefits which are paid out to the entitled parties. In the case of a reduction of the benefits it has to be verified whether this triggers the requirement for additional funding by the employer. The decision is at the discretion of the board of the pension fund, which is constituted by representatives of the companies participating in the multi-employer plan and their employee representatives. Clariant contributions to this pension plan amounted to CHF 12 million in 2011 (CHF 15 million in 2010). The multi-employer plan originates in the pension plan scheme of the German companies of the former Hoechst Group, to which a part of the activities of Clariant pertained until Several of the companies which were formerly part of the Hoechst Group continue to participate in this multi-employer plan. 18. Movements in provisions CHF mn Environmental provisions Personnel provisions Restructuring provisions Other provisions Total provisions 2011 Total provisions 2010 At 1 January Additions Effect of business combinations (see note 24) Amounts used Unused amounts reversed Changes due to the passage of time and changes in discount rates Exchange rate differences At 31 December Of which Current portion Non-current portion Total provision Expected outflow of resources Within one year Between one and three years Between three and five years Over five years Total provision Environmental provisions. Provisions for environmental li a bil i- ties are made when there is a legal or constructive obligation for the Group which will result in an outflow of economic resources. It is difficult to estimate the action required by Clariant in the future to correct the effects on the environment of prior disposal or release of chemical substances by Clariant or other parties and the associated costs, pursuant to environmental laws and regulations. The material components of the environmental provisions consist of the costs to fully clean and refurbish contaminated sites and to treat and contain contamination at sites where the environmental exposure is less severe. The Group s future remediation expenses are affected by a number of uncertainties which include, but are not limited to, the method and extent of remediation and the percentage of material attributable to Clariant at the remediation sites relative to that attributable to other parties.

140 136 Clariant Annual Report 2011 Movements in provisions (continued) The environmental provisions reported in the balance sheet concern a number of different obligations, mainly in Switzerland, the United States, Germany, Brazil and Italy. Provisions are made for remedial work where there is an obligation to remedy environmental damage, as well as for containment work where required by environmental regulations. All provisions relate to environmental liabilities arising in connection with activities that occurred prior to the date when Clariant took control of the relevant site. At each balance sheet date, Clariant critically reviews all provisions and makes adjustments where required. Personnel provisions. Personnel provisions include holiday en titlements, compensated absences such as sabbatical leave, jubilee, annual leave or other long-service benefits, profit sharing and bonuses. Such provisions are established in proportion to the services rendered by the employee concerned. restructuring provisions newly added in 2011 concern site closures and headcount reductions in various countries with the largest amounts incurred in Germany, Switzerland, France and the United States. For more information regarding the restructuring measures see also note 25. Other provisions. Other provisions include provisions for obligations relating to tax and legal cases and other items in various countries and/or for which the amount can only be reliably estimated. All non-current provisions are discounted to reflect the time value of money where material. Discount rates reflect current market assessments of the time value of money and the risk specific to the provisions in the respective countries. Restructuring provisions. Restructuring provisions are established where there is a legal or constructive obligation for the Group that will result in the outflow of economic resources. The term restructuring refers to the activities that have as a consequence staff redundancies and the shutdown of production lines or entire sites. When the Group has approved a formal plan and has either started to implement the plan or announced its main features to the public, a restructuring provision is created. The

141 FINANCIAL REPORT 137 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. Trade and other payables CHF mn Trade payables Payables to associates and joint ventures Accruals Other payables Total The amount recognized for trade payables is equal to their fair value. 20. Current financial debts CHF mn Banks and other financial institutions Obligation to purchase Clariant Ltd shares 8 Current portion of non-current financial debts Total Breakdown by maturity: CHF mn Up to three months after the balance sheet date Three to six months after the balance sheet date Six to twelve months after the balance sheet date Total Current financial debt is recognized initially at fair value, net of transaction costs incurred. Financial debt is subsequently stated at amortized cost. There are no current financial liabilities valued at fair value through profit and loss. In 2011, CHF 120 milllion and CHF 400 million have been drawn under the acquisition term loan facility, of which CHF 120 million was repaid subsequently during the year (see Note 16). CHF 400 million, which was outstanding at the year-end, is included in the current debts from bank and other financial institutions. Certain financial covenants tested semi-annually were applicable for this acquisition term loan facility. The facility is canceled and terminated as of 30 January In 2010, an obligation to purchase Clariant Ltd shares arose on written put options that cover shares of Clariant Ltd with a strike price of CHF A corresponding effect of these options was recognised in shareholders equity (see note 1.23) in the year The fair value of current financial debt other than the current portion of non-current financial debt approximates its carrying amount due to the short-term nature of these instruments.

142 138 Clariant Annual Report Segment information Intersegment transactions are entered into under the normal circumstances and terms and conditions that would also be available to unrelated third parties. Segment assets consist of property, plant and equipment, goodwill, intangible assets, inventories, receivables and investments in associates. They exclude deferred tax assets, financial assets and operating cash. Segment liabilities comprise trade payables. They exclude items such as tax liabilities, provisions, pension SEGMENTS CHF mn Industrial & Consumer Specialities Masterbatches Pigments Functional Materials Segment sales Sales to other segments Total sales Operating expenses Income from associates and joint ventures Gain from the disposal of subsidiaries and associates 1 Restructuring and impairment Operating income Finance income Finance costs Income before taxes Taxes Net income Segment assets Segment liabilities Net operating assets Corporate assets without cash Corporate liabilities without financial liabilities Net debts 4 Total net assets Thereof: Investments in PPE and intangibles for the period Investments in associates and joint ventures Operating income Add: systematic depreciation of PPE Add: impairment Add: amortization of intangible assets EBITDA Add: restructuring and impairment Less: impairment (Reported under restructuring and impairment) Less: gain from the disposal of subsidiaries and associates 1 Add: Additional charge to COGS as a result of the sale of Süd-Chemie inventories revalued to fair value less cost to sell EBITDA before restructuring and disposals Operating income Add: restructuring and impairment Less: gain from the disposal of subsidiaries and associates 1 Add: Additional charge to COGS as a result of the sale of Süd-Chemie inventories revalued to fair value less cost to sell Operating income before restructuring, impairment and disposals The segments Catalysis & Energy and Functional Materials represent the activities of Süd-Chemie, consolidated for May to December Performance Chemicals includes all other business units namely, Additives, Detergents & Intermediates, Emulsions and Paper Specialties. 3 EBITDA is earning before interest, tax, depreciation and amortization. 4 Calculation of net debt CHF mn Non-current financial debt Add: current financial debt Less: cash and cash equivalents Less: Near cash assets Net debt

143 FINANCIAL REPORT 139 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS liabilities and corporate borrowings. Capital expenditure comprises additions to property, plant and equipment and intangibles. Textile Chemicals Catalysis & Energy 1 Oil & Mining Sevices Leather Services Performance Chemicals 2 Total segments continuing operations Corporate Total Group Reconciliation segment assets to total assets CHF mn Segment assets Corporate assets without cash Cash Near cash assets Total assets The Group does not have sales in excess of 10 percent of the total sales to any single external customer.

144 140 Clariant Annual Report 2011 Segment information (continued) Geographic information CHF mn Sales 1 Non-current assets EMEA of which Germany of which Switzerland of which MEA North America of which USA Latin America of which Brazil Asia / Pacific of which China of which India Total Allocated by region of third-party sale's destination. 2 Non-current assets exclude deferred tax assets and pension plan assets. All of the Group s segments generate their revenues to the largest extent from the sale of products. These come in such a great variety that a meaningful grouping below the segment information is not possible. 22. Discontinued operations and assets held for sale During the years 2011 and 2010 there were no discontinued operations. Other Disposals: On 10 June 2011, the Group sold a building in Tsuen Wan, Hong Kong, for a sale consideration of CHF 17.4 million. The sale transaction resulted in a gain of CHF 16.9 million, recognized in Selling, general and administrative costs in Corporate in the income statement in On 9 December 2011, Clariant sold land and building in Onsan, South Korea, for a sale consideration of CHF 24 million. The sales transaction resulted in a gain of CHF 17 million, recognized in Selling, general and administrative costs in Pigments in the income statement in Assets held for sale in the amount of CHF 2 million as at 31 December 2011 refer to land in the US pertaining to Corporate. The sale transaction for the land in the United States is expected to be completed in Assets held for sale in the amount of CHF 11 million as at 31 December 2010 refer to land in India and land in the US pertaining to Corporate. The land in India was sold on 1 February 2011 for a sale consideration of CHF 51 million. This sale transaction resulted in a gain of CHF 43 million, which is recognized in Selling, general and administrative costs in the income statement in 2011.

145 FINANCIAL REPORT 141 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. Disposal of activities not qualifying as discontinued operations In this section, disposals of subsidiaries, associates and activities are reported that do not qualify as discontinued operations in the sense of IFRS 5. The following disposals took place in 2011 and 2010: On 4 October 2011 Clariant sold its Polysilazane coatings business pertaining to the segment Performance Chemicals. On 11 November 2011, Clariant disposed its product range of Licomer wax emulsions and acrylic polymer dispersions for floor-care applications pertaining to business unit Additives. On 4 January 2010 Clariant India sold the business of diketene and downstream intermediate products at Balkum site pertaining to the business unit Pigments. The net cash flow of 2010 reported in this note also includes the remaining proceeds received from the buyer of the industrial park services in Griesheim in Germany, which were sold in Net income and cash flow from the disposal of activities CHF mn Consideration for sale received 7 3 Total consideration for sale 7 3 Net assets sold including disposal-related expenses: PPE and intangibles 1 2 Inventories 1 Net assets disposed of 2 2 Disposal related costs Total net assets sold including disposal-related expenses 2 2 Gain on disposals 5 1 Net cash flow Business combinations Acquisition Süd-Chemie. On 21 April 2011, Clariant acquired a percent stake in the German-based, specialty chemicals company Süd-Chemie for an overall purchase consideration of CHF million. The transaction was officially announced on 16 February Clariant acquired shares in Süd-Chemie directly and indirectly by way of a cash payment of CHF million and by exchanging the newly issued shares of Clariant AG for those of Süd-Chemie in the ratio of 1:8.84, resulting in an amount of CHF 756 million (see note 15). With this acquisition Clariant aims to complement its portfolio with high growth businesses, less cyclicality and to gain access to new attractive market segments. Since the acquisition date, Süd-Chemie is fully consolidated in Clariant s financial statements. The summary of the financial impact of consolidating Süd-Chemie in the accounts at the acquisition date, using the provisional fair values of identified assets and liabilities is as follows. As some of the allocated values are still under assessment, this overview should be considered as provisional.

146 142 Clariant Annual Report 2011 Business combinations (continued) CHF mn 2011 Total cash outflow for the acquisition 1034 Purchase of shares in Süd-Chemie from the Family Shareholders against Exchange Shares (see note 15) 756 Total consideration for purchase of percent of shares in Süd-Chemie Recognised amounts of identifiable assets and liabilities assumed: Property plant and equipment 785 Intangible assets 482 Shareholdings in associated companies and joint ventures 334 Inventories 301 Receivables 228 Cash and cash equivalents 25 Financial debt 646 Pension plan liabilities 104 Other assets and liabilities 345 Deferred tax liabilities 227 Provisional fair value of net assets acquired 833 Non-controlling interests (including reported non-controlling interest) 70 Goodwill The goodwill arising from the acquisition of Süd-Chemie is attributable to a number of factors such as future growth potential, cost synergies and the acquired workforce. The tax deductibility of goodwill is still to be assessed. The non-controlling interest is allocated proportionately and has no goodwill allocated to it. For this purchase, acquisition costs of CHF 26 million, comprising M&A and legal costs and tax advisory and consulting charges, are recognized in Selling, general and administrative costs in the year From the acquisition date up to the end of the year 2011, Süd- Chemie reported net sales of CHF 948 million and a net loss of CHF 75 million. This result includes a significant number of items of a one time nature which were incurred in connection with the takeover by Clariant. The operating result was in line with the expectations. If the acquisition had occurred on 1 January 2011, group sales would have been CHF 404 million higher and the net result would have been CHF 2 million lower. The activities of Süd-Chemie are represented by the two new Business Units Catalysis & Energy and Functional Materials, which are included from the acquisition date onwards. Subsequent to the acquisition of the percent stake in Süd- Chemie, Clariant initiated a public takeover offer to acquire the remaining shares representing a 3.85 percent non-controlling interest in Süd-Chemie. By the end of 2011 Clariant has acquired all of these shares for a total consideration of CHF 72 million. The excess consideration paid to acquire the non-controlling interest over its carrying amount is recognized directly in equity.

147 FINANCIAL REPORT 143 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Acquisition Prairie Petro-Chem. On 1 April 2011, Clariant acquired the assets of the Canadian partnership entity Prairie Petro- Chem, a leading supplier of specialty oil and gas production, drilling and industrial chemicals. With this acquisition, Clariant aims to enhance its presence in Bakken Shale, positioned to be one of North America s leading oil and gas producing regions. The purchase consideration for this acquisition amounts to CHF 35 million. The net identified assets amount to CHF 20 million and goodwill to CHF 15 million. Net sales and net profit from the acquisition date up to the end of the year 2011 by Prairie Petro-Chem amounted to CHF 25 million and CHF 4 million respectively. If the acquisition had occurred on 1 January 2011, group sales would have been CHF 8 million higher and the net profit would have been CHF 2 million higher. Acquisition Octagon Process. On 19 March 2011, Clariant acquired 100% of the equity interests in US-based privately-held Octagon Process L.L.C. and its service company Katapullt L.L.C., for a total purchase consideration of CHF 75 million in cash. Octagon Process L.L.C. is a specialty manufacturer and distributor of aircraft wing de-icing and runway de-icing fluids to the airline industry. With this acquisition, Clariant is expanding its capacities in the North American de-icing market. The purchase price allocation of the transaction is still preliminary. The provisional net identified assets are estimated to amount to CHF 41 million and goodwill to CHF 34 million. Net sales and net loss from the acquisition date up to the end of the year 2011 amounted to CHF 27 million and CHF 3 million respectively. If the acquisition had occurred on 1 January 2011, group sales would have been CHF 54 million higher and net profit would have been around CHF 1 million higher. Acquisition Italtinto S.r.l. On 15 April 2011, Clariant acquired 100 percent of the corporate capital of Italtinto S.r.l., an Italian company, for a total purchase consideration of CHF 22 million in cash. Italtinto S.r.l. produces and sells integrated tinted systems for paints, colorants, automatic dispensing machines, color matching software and paint mixers. With this acquisition, Clariant gains access to attractive markets for color management systems. The net identified assets are estimated to amount to CHF 14 million and goodwill to CHF 8 million. Net sales from the acquisition date up to the end of the year 2011 by Italtinto S.r.l. amounted to CHF 5 million. The net loss during this period was less than CHF 1 million. If the acquisition had occurred on 1 January 2011, the Group s net sales would have been CHF 2 million higher and the net profit would have been higher by less than CHF 1 million. The summary of the impact of consolidating Prairie Petro-Chem, Octagon Process and Italtinto S.r.l. on the consolidated accounts at their respective acquisition dates, using the provisional fair values of identified assets and liabilities is as follows: CHF mn 2011 Cash outflow for the acquisition 132 Total purchase consideration 132 Recognised provisional amounts of identifiable assets and liabilities assumed: Property plant and equipment 4 Intangible assets 47 Inventories 19 Receivables 24 Cash and cash equivalents 4 Pension plan liabilities 1 Other assets and liabilities 19 Deferred tax liabilities 3 Provisional fair value of net assets acquired 75 Goodwill 57 There were no business combinations in 2010.

148 144 Clariant Annual Report Restructuring and impairment Restructuring and impairment expenses for the years ended 31 December 2011 and 2010: CHF mn Restructuring expenses (CHF mn) Payments for restructuring Impairment loss (CHF mn) thereof charged to PPE (see note 5) thereof charged to intangible assets (see note 6) 5 8 thereof charged to financial assets (see note 8) 21 0 Total Restructuring and impairment In order to increase profitability over a sustained period, Clariant implements far-reaching measures designed to improve the Group s performance. The aim of these efforts is to increase the Group s operating result and reduce net working capital. The changes that are being made to the processes and structures in order to achieve these goals in a substantial loss of jobs across the Group. Restructuring. In 2011, Clariant recorded expenses for restructuring in the amount of CHF 140 million. This concerned not only site closures, but also restructuring measures regarding the subsidiaries in Germany and the United States, which were acquired with Süd-Chemie. In 2010, Clariant recorded expenses for restructuring in the amount of CHF 256 million mainly in Switzerland, France, Korea, China, the United States and Spain where sites are closed and headcount is being further reduced. In February 2010, Clariant announced the closure of production facilities in Muttenz, Switzerland, and Thane, India, pertaining to the Business Units Textile Chemicals, Paper Specialties and Pigments. The closures will lead to a reduction of approximately 500 positions and to restructuring and impairment expenses of up to CHF 150 million. In the year 2010, CHF 104 million were incurred for these closures. In June 2010, Clariant further announced the closure of its production facilities at Onsan, Korea, pertaining to the Business Unit Pigments. This closure will lead to a reduction of approximately 130 positions and to restructuring and impairment expenses of up to CHF 50 million. In the year 2010, CHF 17 million were incurred for the closure of this facility. In October 2010, Clariant announced the closure of sites and activities mainly in Switzerland, France and the United States. The resulting restructuring and impairment costs are posted in accordance with IFRS requirements over the period to the finalization of these measures in Impairment. Impairment expenses recognized in 2011 and 2010 arose as a result of restructuring measures and the entailing site closures. These impairment expenses were partly offset by the repayment of an impaired loan in the amount of CHF 23 million in 2011 (see note 8).

149 FINANCIAL REPORT 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26. Finance income and costs Finance income CHF mn Interest income thereof interest on loans and receivables 6 7 thereof income from financial assets held to maturity 7 5 Other financial income 5 3 Total finance income Finance costs CHF mn Interest expense thereof effect of discounting of non-current provisions 6 8 Other financial expenses Currency result, net Total finance costs Other financial expenses include losses on the sale of securities, bank charges and miscellaneous finance expenses. In the year 2011 foreign exchange gains of CHF 6 million pertaining to the ineffective part of hedges on net investment were recognized in the income statement (2010: CHF 7 million). Interest costs capitalised on qualifying assets for 2011 is CHF 4 million (2010: CHF 1 million). Interest income on impaired financial assets amounted to less than CHF 1 million in 2011 (2010: less than CHF 1 million). Interest expense, other than the effect of discounting of non-current provisions, pertains to financial debts measured at amortised costs. Interest expenses in 2011 also include expenses for the acquisition loan facility to acquire Süd-Chemie in the amount of CHF 12 million and the one time effect of the repayment of the US Private Placement of Süd-Chemie in June 2011 in the amount of CHF 16 million.

150 146 Clariant Annual Report Earnings per share (EPS) Earnings per share are calculated by dividing the Group net income by the average number of outstanding shares (issued shares less treasury shares) Net income attributable to shareholders of Clariant Ltd (CHF mn) Diluted net income attributable to shareholders of Clariant Ltd (CHF mn) Net income attributable to shareholders of Clariant Ltd Impact of assumed conversion of convertible bond on net income Total Shares Holdings on 1 January Effect of the issuance of share capital and transactions with treasury shares on weighted average number of shares outstanding Weighted average number of shares outstanding Adjustment for granted Clariant shares Adjustment for dilutive share options Adjustment for assumed conversion of the convertible bond, where dilutive Weighted average diluted number of shares outstanding Basic earnings per share attributable to shareholders of Clariant Ltd (CHF/share) Diluted earnings per share attributable to shareholders of Clariant Ltd (CHF/share) The dilution effect is triggered by various different items. One is the effect of Clariant shares granted as part of the share based payment plan, which have not yet vested. To calculate this dilutive potential it is assumed that they had vested on 1 January of the respective period. The other item is the effect of options granted as part of the share based payment plan, which have not yet vested. To calculate this dilutive potential, it is assumed that all options which were in the money at the end of the respective period had been exercised on 1 January of the same period. The effect of the services still to be rendered during the vesting period were taken into consideration. The third dilution effect arises from the convertible bond issued in In calculation of dilutive earnings per share, the convertible bond is assumed to have been converted into ordinary shares at the beginning of the reporting period, and the net income is adjusted for the impact of the assumed conversion. Diluted earnings per share are calculated adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. No dividends were paid out to shareholders in 2011 and 2010.

151 FINANCIAL REPORT 147 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28. Financial instruments Risk management (hedging) instruments and off-balance sheet risks. Clariant uses forward foreign exchange rate and option contracts, interest rate and currency swaps, commodity contracts and other financial instruments to hedge the Group s risk exposure to volatility in interest rates, currencies and prices and to manage the return on cash and cash equivalents. Risk exposures from existing assets and liabilities as well as anticipated transactions are managed centrally. Interest rate management. It is the Group s policy to manage the cost of interest using fixed and variable rate debt and interestrelated derivatives. Foreign exchange management. To manage the exposure to the fluctuations in foreign currency exchange rates, the Group follows a strategy of hedging both balance sheet and revenue risk, partially through the use of forward contracts and currency swaps in various currencies. In order to minimize financial expenses, the Group does not hedge the entire exposure. The following tables show the contract or underlying principal amounts and the respective fair value of financial instruments by type at year-end. The contract or underlying principal amounts indicate the volume of business outstanding at the balance sheet date and do not represent the amount at risk. Financial instruments CHF mn Contract or underlying principal amount Positive fair values Negative fair values Commodity related instruments Commodity contracts Interest rate related instruments Interest swaps Currency related instruments Forward foreign exchange rate contracts Total financial instruments The fair value of these financial instruments is recorded in Other current assets in the balance sheet in the case of a positive value or as an accrual in Trade and other payables in the case of a negative value and if the instruments expire within the next twelve months. If the remaining lifetime exceeds twelve months, the value is recorded in financial assets in case it is positive and in non-current financial debt in case it is negative. Commodity related instruments refer to raw material price risks hedged by subsidiaries of Süd-Chemie. They are scheduled to be discontinued in the course of Financial instruments by maturity CHF mn Due dates: Up to one month after the balance sheet date 9 8 More than one and up to three months after the balance sheet date More than three and up to twelve months after the balance sheet date More than one and up to five years after the balance sheet date Total financial instruments

152 148 Clariant Annual Report 2011 Financial instruments (continued) Financial instruments by currency CHF mn USD EUR JPY 1 Total financial instruments Financial instruments effective for hedge-accounting purposes CHF mn Notional amount of hedges of net investments in foreign entities: Contracts with positive values 61 Contracts with negative values Borrowings denominated in foreign currencies On 6 April 2006, Clariant issued a bond in the amount of EUR 600 million, denominated in euros (see note 16). The bond was designated as a hedge of a net investment in some of Clariant s European subsidiaries. The unrealized foreign exchange gain as at 31 December 2011 in the amount of CHF 22 million (2010: CHF 140 million gain) resulting from the translation of the bond into Swiss francs was recognized in the cumulative translation reserves in shareholders equity. In 2011, forward contracts in the amount of EUR 225 million (2010: EUR 150 million) and repurchased EUR-bond tranches in the amount of EUR 11 million (2010: EUR 11 million), were also designated as hedging instruments as a part of the hedge of net investments. A foreign exchange loss of CHF 5 million (2010: 24 million loss) was recognized in the cumulative translation reserves in the shareholders equity. On 17 July 2008 Clariant issued a certificate of indebtedness in the amount of EUR 100 million, denominated in euros (see note 16). The certificate of indebtedness was designated as a hedge of a net investment in some of Clariant s European subsidiaries. The realized foreign exchange gain as at 31 December 2011 in the amount of CHF 1 million (2010: 23 million unrealized gain) resulting from the translation of the Certificate of Indebtedness into Swiss francs was recognized in the cumulative translation reserves in shareholders equity. In 2011, no unrealized foreign exchange result pertaining to the ineffective portion of the hedge of net investment has been recognized in the income statement (2010: 7 million gain). the amount of CHF 7 million resulting from the translation of the certificates of indebtedness into Swiss francs was recognized in the cumulative translation reserves in shareholders equity. In 2010 Clariant did not engage in any cash flow hedges. In 2011, certain cash flow hedges were taken over through the acquisition of the Süd-Chemie group which were terminated before the end of Securitization. During 2011 Süd-Chemie entered into factoring arrangements. The volume of the factoring is disclosed in the table below. Volumes of securitization of trade receivables CHF mn Trade receivables denominated in euros 18 Trade receivables denominated in US dollars 8 Others 13 Total 39 Related liability in the balance sheet denominated 7 in euros Total 7 On 21 October 2011, Clariant issued two certificates of indebtedness amounting to EUR 365 million, denominated in euros (see note 16). The certificate of indebtedness were designated as a hedge of a net investment in some of Clariant s European subsidiaries. The unrealized foreign exchange gain as at 31 December 2011 in

153 FINANCIAL REPORT 149 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29. Employee participation plans In 2010, the former Clariant Executive Bonus Plan (CEBP) was replaced with the Group Senior Management Long Term Incentive Plan (GSM-LTIP). Under this new plan, a certain percentage of the actual bonus is granted to the plan participants in form of registered shares of Clariant Ltd (investment shares). These shares vest immediately upon grant, but are subject to a 3-year blocking period. The plan participants receive an additional share free of cost (matching share) for each investment share held at the end of the blocking period. These shares were granted for the first time in 2011, based on the performance achieved in the base year The number of shares not yet vested and thus disclosed for this period are the matching shares. The CEBP plan established in 2005 continues to exist until all granted shares have vested. Under this plan the granted registered shares of Clariant Ltd become vested and are exercisable after three years. No options are granted under the CEBP. The options granted under the CESOP established in 1999 entitle the holder to acquire registered shares in Clariant Ltd (one share per option) at a predetermined strike price. They become vested and are exercisable after three years and expire after ten years. In April 2008, Clariant established a new stock option plan for members of management and the Board of Directors. Options granted under this plan in 2011, 2010 and 2008, entitle the holder to acquire registered shares of Clariant Ltd (one share per option) at a predetermined strike price. The plan is set up in a way that Clariant contracted a third party bank to issue tradable options to the plan participants in accordance with the rules of the plan. The plan participants can sell the options back to this bank after they have vested. The bank in return has the right to claim a share from Clariant at the pre-determined strike price for each option that is sold to it by plan participants. The options become vested and are exercisable after two years and expire after five years. The fair value of the stock options granted in 2011 at grant date was CHF 4.15 (2010: CHF 3.15) determined using a share price of CHF (2010: CHF 12.74) and an exercise price of CHF (2010: CHF 15.50). The expected volatility was determined at 32.0 percent (2010: 35.5 percent), based on market assumptions. Assumed dividends range between CHF 0.10 and CHF 0.30 (2010: between CHF 0.10 and CHF 0.30) for later periods. The risk-free interest rate was determined at 1.69 percent (2010: 1.85 percent). The Black-Scholes valuation Model was used to determine the fair values. The expense recorded in the income statement spreads the costs of each grant equally over the measurement period of one year and the vesting period of three years for shares and the vesting period of two years for options. Assumptions are made concerning the forfeiture rate which is adjusted during the vesting period so that at the end of the vesting period there is only a charge for the vested amounts. During 2011, CHF 22 million (2010: CHF 21 million) for equitysettled share based payments and less than CHF 1 million (2010: CHF 1 million) for cash-settled share based payments were charged to the income statement. As of 31 December 2011 the total carrying value of liabilities arising from share-based payments is CHF 41 million (2010: CHF 26 million). Thereof CHF 39 million (2010: CHF 24 million) was recognized in equity for equity-settled share-based payments and CHF 2 million (2010: CHF 2 million) in non-current liabilities for cashsettled share-based payments. Options for Board of Directors (non-executive members) 1 Base year Granted Exercisable from Expiry date Exercise price Share price at grant date Number Number Total Past and current members.

154 150 Clariant Annual Report 2011 Employee participation plans (continued) Options for senior members of Management and Executive Committee 1 Base year Granted Exercisable from Expiry date Exercise price Share price at grant date Number Number Total Options for members of Management and Executive Committee 1 Base year Granted Exercisable from Expiry date Exercise price Share price at grant date Number Number Total Past and current members. As per 31 December 2011, the weighted average remaining contractual life of all share options was 2.86 years (2010: 3.28 years). Shares for Board of Directors (non-executive members) Base year Granted Vesting in Share price at grant date Number Number Total Shares for members of Management and Executive Committee Base year Granted Vesting in Share price at grant date Number Number Total

155 FINANCIAL REPORT 151 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Weighted average exercise price Options 2011 Shares 2011 Weighted average exercise price Options 2010 Shares 2010 Shares/options outstanding at 1 January Granted Exercised/distributed* Cancelled/forfeited Outstanding at 31 December Exercisable at 31 December Fair value of shares/options outstanding in CHF * Options exercised/distributed include options (2010: ) pertaining to the 2008 and 2010 Option plan, which were sold by the plan participants in the market and are currently held by third parties. Total options of these plans sold in the market at 31 December 2011 are (31 December 2010: ) with a fair value at grant date of CHF (31 December 2010: CHF ). The fair value of shares granted during 2011 is CHF 16 million (2010: CHF 12 million) calculated based on market value of shares at grant date. The fair value of options granted in 2011 was CHF 11 million (2010: CHF 20 million) calculated based on the Black-Scholes valuation model. 30. Personnel expenses CHF mn Wages and salaries Social welfare costs Shares and options granted to directors and employees Pension costs defined contribution plans Pension costs defined benefit plans Other post-employment benefits 6 2 Total

156 152 Clariant Annual Report Related party transactions Clariant maintains business relationships with related parties. One group consists of the associates and joint ventures, where the most important ones are described in note 7. The most important business with these companies is the purchase of services by Clariant (e.g. energy and rental of land and buildings) in Germany. The second group of related parties is key management comprising the Board of Directors and the Executive Committee. The information required by Art. 663b bis of the Swiss Code of Obligations regarding the emoluments for the members of the Board of Directors and the Executive Committee is disclosed in the Statutory Accounts of Clariant Ltd on pages 165 to 169 of this report. More information on the relationship with the Board of Directors is given in the chapter Corporate governance (non-audited). Payables and receivables with related parties CHF mn Receivables from related parties Payables to related parties Loans to related parties 3 Loans from related parties 31 Guarantees to third parties on behalf of related parties 46 Transactions with Key Management CHF mn Salaries and other short-term benefits 9 9 Post-employment benefits 3 3 Share-based payments 5 4 Total The third group of related parties are the pension plans of major subsidiaries. Clariant provides services to its pension plans in Switzerland, the United Kingdom and the United States. These services comprise mainly administrative and trustee services. The total cost of these services is CHF 1 million (2010: CHF 1 million), of which approximately half is charged back to the pension plans. The number of full-time employees corresponding to these is approximately eight (2010: five). Transactions with related parties CHF mn Income from the sale of goods to related parties Income from the rendering of services to related parties Expenses from the purchase of goods to related parties Expenses from services rendered by related parties There are no outstanding loans by the Group to any members of the Board of Directors or Executive Committee. 32. Commitments and contingencies Leasing commitments. The Group leases various land, buildings, machinery and equipment, furniture and vehicles under fixed-term agreements. The leases have varying terms, escalation clauses and renewal rights. Commitments arising from fixed-term operating leases mainly concern buildings in Switzerland and Germany. The most important partners for operating leases of buildings in Germany are the Infraserv companies. There exist no particular renewal options other than annual prolongations in case there is no explicit termination of the lease contract.

157 FINANCIAL REPORT 153 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CHF mn Thereafter Total Guarantees in favor of third parties Expenses for operating leases were CHF 74 million in 2011 (2010: CHF 79 million). Purchase commitments. In the regular course of business, Clariant enters into relationships with suppliers whereby the Group commits itself to purchase certain minimum quantities of materials in order to benefit from better pricing conditions. These commitments are not in excess of current market prices and reflect normal business operations. At present, the purchase commitments on such contracts amount to about CHF 210 million (2010: CHF 200 million). that there are no such matters pending which would be likely to have any material adverse effect in relation to its business, financial position, or results of operations. Environmental risks. Clariant is exposed to environmental liabilities and risks relating to its past operations, principally in respect of remediation costs. Provisions for non-recurring remediation costs are made when there is a legal or constructive obligation and the cost can be reliably estimated. It is difficult to estimate the action required by Clariant in the future to correct the effects on the environment of prior disposal or release of chemical substances by Clariant or other parties, and the associated costs, pursuant to environmental laws and regulations. The material components of the environmental provisions consist of costs to fully clean and refurbish contaminated sites and to treat and contain contamination at sites where the environmental exposure is less severe. 33. Exchange rates of principal currencies Rates used to translate the consolidated balance sheets (closing rate): Contingencies. Clariant operates in countries where political, economic, social, legal and regulatory developments can have an impact on the operational activities. The effects of such risks on the company s results, which arise during the normal course of business, are not foreseeable and are therefore not included in the accompanying financial statements. In the aftermath to the procedure to acquire subsequent to the acquisition of Süd-Chemie the 1.36 percent of shares still in possession of third parties (squeeze-out) a law office initiated appraisal proceedings to reassess the adequacy of the cash compensation paid to the minority shareholders. Clariant opines that the cash compensation agreed is fair and complies with all legal and economic requirements. At this time it cannot be determined if and to what extent these proceedings will lead to additional financial liabilities. In the ordinary course of business, Clariant is involved in lawsuits, claims, investigations and proceedings, including product liability, intellectual property, commercial, environmental and health and safety matters. Although the outcome of any legal proceedings cannot be predicted with certainty, management is of the opinion USD EUR BRL CNY INR JPY Average sales-weighted rates used to translate the consolidated income statements and consolidated statements of cash flows: USD EUR BRL CNY INR JPY

158 154 Clariant Annual Report Important subsidiaries Country Company name Participation % Holding/ Finance/Service Sales Production Research Argentina Clariant (Argentina) SA, Lomas de Zamora, Buenos Aires Australia Clariant (Australia) Pty. Ltd, Glen Waverley Süd-Chemie Australia Pty Ltd, Penrith Austria Clariant (Österreich) GmbH, Vienna Belgium Clariant Masterbatches Benelux SA, Louvain-La-Neuve Bermuda Clariant Reinsurance Ltd, Hamilton Brazil Clariant S.A., São Paulo Clariant Administração de Bens Ltda., São Paulo Süd-Chemie do Brasil Ltda, Jacarei British Virgin Islands Clariant Finance (BVI) Ltd, Tortola Clearwater Technologies Ltd, Tortola Canada Clariant (Canada) Inc., Toronto Phostech Lithium Inc., St. Bruno de Montarville Chile Clariant Colorquímica (Chile) Ltda., Maipú-Santiago de Chile China Baotou Süd-Chemie Chemical Materials Co., Ltd, Baotou Clariant (China) Ltd, Hong Kong Clariant (Tianjin) Ltd, Tianjin 94.8 Clariant Bohai Pigments Preparations (Tianjin) Ltd 90.0 Clariant Chemicals (China) Ltd, Shanghai Clariant Chemicals (Guangzhou) Ltd, Guangzhou Clariant Chemicals (Huizhou) Ltd, Daya Bay, Huizhou Clariant Masterbatches (Beijing) Ltd, Beijing Clariant Masterbatches (Shanghai) Ltd, Shanghai Clariant Pigments (Tianjin) Ltd, Tianjin 60.0 Clariant Specialty Chemicals (Zhenjiang) Co., Ltd, Zhenjiang Jiangsu Süd-Chemie Chemical Materials Co., Ltd, Zhenjiang Jiangsu Süd-Chemie Performance Packaging Material Co., Ltd, Changshu Panjin Süd-Chemie Liaohe Catalyst Co., Ltd, Panjin City 60.0 Shanghai Süd-Chemie Catalysts Co., Ltd, Shanghai Süd-Chemie Catalysts (Nanjing) Co., Ltd, Nanjing Süd-Chemie China Holding Limited, Hong Kong Süd-Chemie Investment Management (Shanghai) Co., Ltd, Shanghai Süd-Chemie Redhill Bentonite (Liaoning) Co., Ltd, Jianping Colombia Clariant (Colombia) SA, Cota-Cundinamarca Egypt The Egyptian German Company for Dyes & Resins SAE, Cairo Finland Clariant Masterbatches (Finland) Oy, Vantaa France Airsec S.A.S., Choisy Le Roi Bentofrance S.A.S., Portes-les-Valence Clariant Masterbatches (France), Trosly Breuil Clariant Production (France), Trosly Breuil Clariant Services (France), Trosly Breuil Clariant Specialty Fine Chemicals (France), Trosly Breuil K.J. Quinn, Graulhet Société Française des Bentonites et Dérivés S.A.S., Le Tréport Süd-Chemie France S.A.S., Choisy Le Roi 100.0

159 FINANCIAL REPORT 155 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Country Company name Participation % Holding/ Finance / Service Sales Production Research Germany Clariant Advanced Materials GmbH, Frankfurt-Höchst Clariant Beteiligungs GmbH, Frankfurt-Höchst Clariant Masterbatches (Deutschland) GmbH, Lahnstein Clariant Produkte (Deutschland) GmbH, Frankfurt-Höchst Clariant Vertrieb (Deutschland) GmbH und Co. KG, Frankfurt-Höchst Clariant Verwaltungsgesellschaft mbh, Frankfurt-Höchst Clariant SE, Frankfurt-Höchst Phostech Lithium GmbH, Munich SC Beteiligungsgesellschaft mbh, Bensheim Süd-Chemie AG, Munich Süd-Chemie Alvigo Catalysts GmbH, Munich 60.0 Süd-Chemie Finance GmbH, Munich Süd-Chemie Zeolites GmbH, Bitterfeld-Wolfen Süd-Chemie IP GmbH & Co KG, Munich Süd-Chemie Verwaltungs GmbH, Munich Great Britain Clariant Distribution UK Limited, Yeadon, Leeds Clariant Horsforth Limited, Yeadon, Leeds Clariant Masterbatches UK Ltd, Yeadon, Leeds Clariant Oil Services UK Ltd, Yeadon, Leeds Clariant Production UK Ltd, Yeadon, Leeds Clariant Services UK Ltd, Yeadon, Leeds Süd-Chemie (UK) Limited, Northwich Greece Süd-Chemie Hellas Monoprosopi E.P.E., Adamas, Milos Guatemala Clariant (Guatemala) SA, Guatemala City Clariant Trading (Guatemala) SA, Guatemala City Honduras Clariant Honduras S.A. de C.V., San Pedro Sula India Clariant Chemicals (India) Ltd, Thane 63.4 Italtinto India Private Limited, Mahape Navi Mumbai Süd-Chemie Adsorbents Pvt. Ltd, New Delhi Indonesia PT Clariant Indonesia, Tangerang P.T. Süd-Chemie Indonesia, Cileungsi, Bogor West Java Ireland Clariant Masterbatches Ireland Limited, Naas Italy Clariant (Italia) S.p.A., Milan Clariant Masterbatches (Italia) S.p.A., Milan Clariant Prodotti (Italia) S.p.A., Milan Italtinto S.r.l., Carasco Società Sarda di Bentonite S.r.l., Santa Giusta Süd Chemie Catalysts Italia S.r.l., Novara Süd-Chemie Imic Italia S.r.l., Silvano Pietra 75.0 Japan Clariant (Japan) K.K., Tokyo San-Ai Co., Ltd, Osaka Süd-Chemie Catalysts Japan, Inc., Tokyo 61.4 Korea Clariant (Korea) Ltd, Seoul Süd-Chemie Korea Co., Ltd, Pohang, Gyeongbuk 94.8 Liechtenstein Clariant Insurance AG, Triesen Luxemburg Clariant Finance (Luxembourg) S.A., Luxemburg Malawi Süd-Chemie Water and Process Technologies (Malawi) (Pty) Ltd, Blantyre 100.0

160 156 Clariant Annual Report 2011 Country Company name Participation % Holding/ Finance / Service Sales Production Research Malaysia Chemindus Sdn. Bhd., Kuala Lumpur 55.0 Clariant (Malaysia) Sdn. Bhd., Petaling Jaya Clariant Masterbatches (Malaysia) Sdn Bhd, Petaling Jaya 60.0 Mexico Clariant (Mexico) S.A. de C.V., Ecatepec de Morelos Clariant Productos Químicos S.A. de C.V., Ecatepec de Morelos Minera Sumex, S.A. de C.V., Mexico-City, DF Süd-Chemie de México, S.A. de C.V., Puebla Morocco Clariant (Maroc) S.A., Casablanca Netherlands Clariant Participations (The Netherlands) B.V., Maastricht New Zealand Clariant (New Zealand) Ltd, Albany-Auckland Norway Clariant Oil Services Scandinavia AS, Bergen Pakistan Clariant Pakistan Ltd, Karachi-Korangi 75.0 Peru Clariant (Perú) SA, Lima 90.8 Minera Doña Herminia S.A., Callao Süd-Chemie Perú S.A., Callao Poland COLEX Spolka z o.o., Zgierz Süd-Chemie Polska Sp. z o.o., Gdansk Qatar Süd-Chemie Qatar W.L.L., Mesaieed 65.0 Russia Süd-Chemie Alvigo Catalysts LLC, Moscow 60.0 Süd-Chemie CIS LLC, Moscow Saudi Arabia Clariant Masterbatches (Saudi Arabia) Ltd, Riyadh 93.0 Singapore Clariant (Singapore) Pte. Ltd, Singapore Süd-Chemie South East Asia Pte. Ltd, Singapore South Africa Clariant Southern Africa (Pty) Ltd, Weltevreden Park, Johannesburg Süd-Chemie SA (Proprietary) Limited, Chloorkop, Gauteng Süd-Chemie-Sasol Catalysts (Proprietary) Limited, Chloorkop, Gauteng 80.0 Spain Clariant Ibérica Producción S.A., El Prat de Llobregat, Barcelona Clariant Ibérica Servicios S.L., El Prat de Llobregat, Barcelona Clariant Masterbatch Ibérica S.A., Sant Andreu de la Barca Süd-Chemie España, S.L., Yuncos-Toledo Sweden Clariant (Sverige) Holding AB, Gothenburg Clariant Masterbatches Norden AB, Malmö Switzerland Clariant Beteiligungen AG, Muttenz Clariant Chemiebeteiligungen AG, Muttenz Clariant Consulting AG, Muttenz Clariant International AG, Muttenz Clariant Produkte (Schweiz) AG, Muttenz EBITO Chemiebeteiligungen AG, Muttenz LiFePO4+C Licensing AG, Muttenz Taiwan Clariant Chemicals (Taiwan) Co., Ltd, Taipei Thailand Clariant (Thailand) Ltd, Klongton, Bangkok Clariant Masterbatches (Thailand) Ltd, Chonburi Süd-Chemie (Thai) Co., Ltd, Bangkok Turkey Clariant (Türkiye) A.S., Gebze Süd-Chemie (TR) Madencilik Sanayi ve Ticaret A.S., Balikesir UAE Clariant (Gulf) FZE, Jebel Ali, Dubai 100.0

161 FINANCIAL REPORT 157 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Country Company name Participation % Holding/ Finance / Service Sales Production Research Ukraine Süd-Chemie Alvigo Catalysts Ukraine LLC, Severodonetsk 60.0 Uruguay Clariant (Uruguay) SA, Montevideo USA Clariant Corporation, Charlotte, NC Katapullt LLC, Albany, NY Octagon Process, L.L.C., Las Vegas, NV Süd-Chemie & Co. Limited Partnership, Wilmington, DE Süd-Chemie Corporation of America, Wilmington, DE Süd-Chemie Inc., Wilmington, DE 98.8 Süd-Chemie North America Inc., Wilmington, DE Tecpro Holding Corporation Inc., Wilmington, DE Venezuela Clariant Venezuela S.A., Maracay Events subsequent to the balance sheet date On 17 January 2012, Clariant Finance (Luxembourg) S.A. issued an Eurobond in the amount of EUR 500 million, guaranteed by Clariant Ltd. The fixed rate notes with a minimum denomination of EUR and a final coupon of percent per annum will mature on 24 January The proceeds are to be used for general corporate purposes optimizing Clariant s debt maturity profile. With value date January 30, 2012, the last drawn part of the syndicated bridge loan facility to acquire Süd Chemie (CHF 400 million as of 31 December 2011) has been repaid in full. All commitments under the facility have been cancelled by then. The facility therefore ceases to exist.

162 158 Clariant Annual Report 2011 Report of the statutory auditor to the general meeting of Clariant Ltd, Muttenz Report of the statutory auditor on the consolidated financial statements As statutory auditor, we have audited the consolidated financial statements of Clariant Ltd, which comprise the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and notes (pages 99 to 157, for the year ended 31 December Board of Directors Responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2011 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers Ltd Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Dr. Daniel Suter Audit expert Auditor in charge Ruth Sigel Audit expert An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial state-ments, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reason-ableness of accounting estimates made, as well as evaluating the overall presentation of the consoli-dated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basel, 13 February 2012

163 FINANCIAL REPORT REVIEW OF TRENDS 159 Review of trends Five-year Group overview Five-year Group overview Segment sales CHF mn Change relative to preceding year in Swiss francs % in local currency % Group sales 1 CHF mn Change relative to preceding year in Swiss francs % in local currency % Operating income before exceptionals CHF mn Change relative to preceding year % as a % of sales Operating loss/income CHF mn Change relative to preceding year % as a % of sales EBITDA CHF mn Change relative to preceding year % as a % of sales Net loss/income CHF mn Change relative to preceding year % as a % of sales Investment in property, plant and equipment CHF mn Change relative to preceding year % as a % of sales Personnel costs CHF mn Change relative to preceding year % as a % of sales Employees at year-end number Change relative to preceding year % Including trading.

164 160 Clariant Annual Report 2011 Financial statements of Clariant Ltd, Muttenz Clariant Ltd balance sheets at 31 December 2011 and 2010 ASSETS CHF % CHF % Non-current assets Shareholdings in Group companies Loans to Group companies Intangible assets Total non-current assets Current assets Receivables from Group companies Other receivables Accrued income Marketable securities Short term deposits Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES CHF % CHF % Total share capital Reserves General reserve thereof reserves from capital contributions thereof from retained earnings Reserve for treasury shares thereof reserves from capital contributions thereof from retained earnings Free reserves Total reserves Accumulated gains Gain for the financial year Total accumulated gains Total equity Liabilities Non-current liabilities Bonds Straight bonds Convertible bond Certificate of indebtedness Loans from Group companies Total non-current liabilities Current liabilities Straight bonds Provisions Liabilities to Group companies Other liabilities Accrued expenses Total current liabilities Total liabilities Total equity and liabilities This amount of capital contribution reserves is subject to the approval of the Swiss Federal Tax Administration. Until now, the Swiss Federal Tax Administration provisionally confirmed qualifying capital contributions of approximately CHF 1.6 billion. For further information see also note 8 to the financial statements of Clariant Ltd. 2 This amount corresponds to capital contribution reserves formerly offset with losses. For further information see also note 8 to the financial statements of Clariant Ltd.

165 FINANCIAL REPORT 161 FINANCIAL STATEMENTS OF CLARIANT LTD, MUTTENZ Clariant Ltd income statements for the years ended 31 December 2011 and CHF CHF. Income Income from participation and interests on loans Income from cash and cash equivalents, marketable securities and short-term deposits Exchange rate gains realized Reversal of depreciation of financial assets Other income Total income Expenses Financial expenses Administrative expenses Depreciation of financial assets Other expenses (including taxes) Exceptional expense Total expenses Gain for the financial year

166 162 Clariant Annual Report 2011 Notes to the financial statements of Clariant Ltd 1. Accounting policies Introduction. The statutory financial statements of Clariant Ltd comply with the requirements of the Swiss company law. 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 all unrealized exchange losses are recorded in the income statement. Financial assets. These are valued at acquisition cost less adjustments for impairment of value. Provisions. Provisions are made to cover existing liabilities. 2. Financial assets After a regular review of the cash generating capabilities of all subsidiaries of Clariant Ltd, write-downs of previous periods amounting to CHF 156 million on the investments (including non-current loans) in some of these companies were reversed (2010: reversal of a write-down of investments of CHF 210 million and write-down of loans of CHF 53 million) The principal direct and indirect affiliated companies and other holdings of Clariant Ltd are shown on pages 154 to 157 of the Financial Report of the Clariant Group. 3. Cash, marketable securities and current financial assets Securities include treasury shares valued at fair market value in the amount of CHF 117 million (prior year CHF 171 million) (see also note 5). Because of the decreasing share price a depreciation about CHF 111 million was recorded. 4. Share capital Capital issued Number of registered shares each with a par value of CHF 4.00 (2010: CHF 4.00) In CHF Conditional capital Number of registered shares each with a par value of CHF 4.00* (2010: CHF 4.00) In CHF *Thereof shares with a par value of CHF were already converted. At the Annual General Meeting 2011, a capital increase in the amount of CHF 262 million was approved. It was executed in two steps. The first tranche consisted of new shares issued at a subscription price of 16 CHF. The second tranche consisted of shares extended to shareholders of the Süd-Chemie AG in exchange for Süd-Chemie shares. The calculated exchange price amounted to CHF CHF 864 million were recorded as an agio into the general reserves. In July, Clariant AG issued newly registered shares for the conversion of convertible bonds.

167 FINANCIAL REPORT 163 NOTES TO THE FINANCIAL STATEMENTS OF CLARIANT LTD 5. Treasury shares (number with a par value of CHF 4.00 each (2010: CHF 4.00) Holdings on 1 January Shares bought at market value Shares purchased on exercise of put options Shares sold at market value Shares to employees Holdings on 31 December The average price of shares bought in 2011 was CHF (2010: CHF 15.05). The average price of shares sold in 2011 was CHF 9.31 (2010: 7.82 CHF). 6. Reconciliation of equity CHF Share capital General reserve Reserve for treasury shares Free reserves Net income Total from capital contribution 1 from retained earnings 2 from capital contribution 1 from retained earnings Balance 31 December Treasury share transactions Appropriation of profit/loss carried forward to reserves Reclassified Capital contribution reserve Capital contribution Profit of the financial year Balance 31 December This amount of capital contribution reserves is subject to the approval of the Swiss Federal Tax Administration. Until now, the Swiss Federal Tax Administration provisionally confirmed qualifying capital contributions of approximately CHF 1.6 billion. For further information see also note 8 to the financial statements of Clariant Ltd. 2 This amount corresponds to capital contribution reserves formerly offset with losses. For further information see also note 8 to the financial statements of Clariant Ltd.

168 164 Clariant Annual Report Bonds and certificates of indebtedness CHF thousand Interest rate Term Amount Amount Straight bond Convertible bond Certificate of indebtedness Certificate of indebtedness Certificate of indebtedness Certificate of indebtedness Straight bond Straight bond Total The bond issued in 2007 of CHF 250 million was reclassified from non-current to current liabilities. In May and June 2011, Clariant Ltd launched two new bonds in the amount of CHF 200 million and CHF 100 million with a term of 4.5 years and 6 years respectively. In October 2011, a certificate of indebtedness with a nominal amount of EUR 100 million was paid back. Including accrued interest the repayment amounted to CHF 124 million. In October 2011, Clariant Ltd issued two certificates of indebtedness in the German market amounting to EUR 365 million. The two certificates have a term of 3 years (EUR 242 million) and 4.5 years (EUR 123 million) each with fix and float coupons. The interest to be paid for the certificates of indebtedness is based on six months Euribor (variable tranche) or mid-swap (fixed tranche), respectively, plus a credit margin premium (spread). 8. General reserves The general reserve must be at least 20 percent of the share capital of Clariant Ltd as this is the minimum amount required by the Swiss Code of Obligations. Under Swiss tax law, qualifying capital contributions contributed to the company Clariant Ltd by its shareholders since 1997 may be distributed without being subject to Swiss withholding tax effective 1 January 2011, if certain conditions are met. The balance sheet 2011 of Clariant Ltd was adapted in order to document the potential capital contribution reserves in the relevant sub-accounts (General reserves from capital contributions and treasury reserves from capital contributions) of the General reserve as requested by the Swiss Federal Tax Administration (SFTA). Until now, the SFTA provisionally confirmed capital contribution reserves of approximately CHF 1.6 billion. Due to a remaining Swiss withholding tax exposure, these provisionally confirmed capital contribution reserves cannot be distributed until the SFTA has explicitly allowed such distributions (request currently pending as per 13 February 2012). At this stage, the SFTA is of the opinion that capital contribution reserves which were formerly offset with losses (CHF 1.26 billion) will not qualify as capital contribution reserves anymore (even if compensated with newly generated retained earnings). Clariant Ltd does not unconditionally share this opinion, why such potential capital contribution reserves are also documented as capital contribution reserves in the balance sheet Reserve for treasury shares Clariant Ltd has met the legal requirements for treasury shares required by the Swiss Code of Obligations. 10. Contingent liabilities CHF mn Outstanding liabilities Outstanding liabilities Outstanding liabilities as guarantees in favor of Group companies Outstanding liabilities as guarantees in favor of third parties 184

169 FINANCIAL REPORT 165 NOTES TO THE FINANCIAL STATEMENTS OF CLARIANT LTD 11. Emoluments to members of the Board of Directors and the Executive Committee 1. Board of Directors Emoluments to members of the Board of Directors Name Member of the Board of Directors Membership in 2011 Cash compensation Social contribution Cash amount 2011 Honorarium in CHF Committee fee in CHF Cash amount 2010 in CHF in CHF in CHF Jürg Witmer full year Rudolf Wehrli full year Peter Isler full year Peter Chen full year Klaus Jenny full year Dominik Koechlin full year Carlo G. Soave full year Hariolf Kottmann 1 full year Dolf Stockhausen 2 since NA Konstantin Winterstein since NA Total After taking over the function as CEO, no further Board of Directors compensations are extended. 2 Due to contractual agreement payout will take place in Name Share based compensation in Share based compensation in Jürg Witmer Rudolf Wehrli Peter Isler Peter Chen Klaus Jenny Dominik Koechlin Carlo G. Soave Hariolf Kottmann 7733 Dolf Stockhausen NA Konstantin Winterstein NA Total The values above are in accordance with IFRS principles.

170 166 Clariant Annual Report 2011 Emoluments to members of the Board of Directors and the Executive Committee (continued) Shares held Name Number of shares granted Number of shares granted Number of shares within vesting period Number of shares within vesting period Number of privately held shares Number of privately held shares Jürg Witmer Rudolf Wehrli Peter Isler Peter Chen Klaus Jenny Dominik Koechlin Carlo G. Soave Hariolf Kottmann 1 See EC Overview Dolf Stockhausen NA NA NA Konstantin Winterstein NA NA 5000 NA Total Options held Name Number of options granted Number of options granted Number of options within vesting period Number of options within vesting period Number of excercisable options Number of excercisable options Jürg Witmer Rudolf Wehrli Peter Isler Peter Chen Klaus Jenny Dominik Koechlin Carlo G. Soave Hariolf Kottmann 1 See EC Overview Dolf Stockhausen 2 NA NA NA Konstantin Winterstein NA NA NA Total After taking over the function as CEO, no further Board of Directors compensations are extended. Please refer to the Executive Management table. 2 Additionally holding: options to sell

171 FINANCIAL REPORT 167 NOTES TO THE FINANCIAL STATEMENTS OF CLARIANT LTD 2. Executive Committee Hariolf Kottmann Others Total 2011 Total 2010 Annual compensation Base salary Cash bonus Share-based bonus: Value Options: Value Other payments Total annual compensation Total compensation On 1 July 2011 Dr. Hans-Joachim Müller joined the Executive Committee as a member. Due to his contractual relationship with Süd- Chemie, he received an additional payment from Süd-Chemie for his responsibilities, that is not included in the Executive Committee Remuneration in the table above. This payment includes royalty payments for 2010 (EUR ), eligibility for royalty for 2011, and cash payments for Long-Term-Incentives in the amount of EUR (Payments in 2011 and 2012). The values above are in accordance with IFRS. Other benefits include contributions to pension funds (73 percent), social security (26 percent) and other allowances (1 percent). The totals of the table above together with the totals of the remuneration for the Board of Directors add up to the total reported in note 31. Related parties of the consolidated financial statements for the transaction with Key Management.

172 168 Clariant Annual Report 2011 Emoluments to members of the Board of Directors and the Executive Committee (continued) Shares held Name Number of shares granted 2 Number of shares granted 2 Number of shares within vesting period Number of shares within vesting period Number of privately held shares Number of privately held shares for 2011 for Hariolf Kottmann Patrick Jany Christian Kohlpaintner Mathias Lütgendorf Hans-Joachim Müller NA NA NA Total Options held Name Number of options granted Number of options granted Number of options within vesting period Number of options within vesting period Number of excercisable options Number of excercisable options Hariolf Kottmann Patrick Jany Christian Kohlpaintner Mathias Lütgendorf Hans-Joachim Müller 3 NA NA NA Total Including shares immediately vested. 2 The number of shares granted as part of the matching share program will be determined after the balance sheet date. The number disclosed is based on the target achievement, the amount of variable estimated remuneration accrued and an estimated fair value of the shares at the grant date. Therefore correction of the 2010 figures were made. 3 Member of the Executive Committee since

173 FINANCIAL REPORT 169 NOTES TO THE FINANCIAL STATEMENTS OF CLARIANT LTD 12. 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 12 of the Articles of Incorporation, each share has the right to one vote. A shareholder can only vote for his own shares and for represented shares up to a maximum of 10 percent of total share capital. 14. Risk management The Board of Directors and Group Management annually engage in a comprehensive risk assessment procedure, which includes the risks arising on the activities of Clariant Ltd. In the process, the enterprise risks and their developments are analyzed and it is ensured that measures to the effect of their containment are implemented. Particular attention is paid to the risks of financial reporting. A more detailed description of the risk assessment can be found in the notes of the consolidated financial statements in note 2, Enterprise risk management on page Shareholders holding three percent or more of total capital These percentage figures are based on information received from the respective shareholders. At 31 December 2011 former shareholders of Süd-Chemie AG, who had exchanged their shares against Clariant shares, were holding in total percent of the share capital of Clariant. These shareholders are affiliated with each other of family or other reasons. In addition, the following shareholders held a participation of 3 percent or more of the total share capital: Fidelity Management & Research, Boston (United States), 5.23 percent (2010: 5.23 percent); Teachers Insurance and Annuity Association of America College Retirement Equity Fund (TIAA-CREF), New York (United States), percent (2010: < 3 percent); CS Asset Management Funds AG, Zürich (Switzerland), percent (2010: 3.04 percent). No other shareholder was registered as holding 3 percent or more of the total share capital. At 31 December 2010 the following shareholders held a participation of 3 percent or more of the total share capital: AXA, Paris (France), 5.09 percent; Amundi, Paris (France), 3.07 percent. No other shareholder was registered as holding 3 percent or more of the total share capital.

174 170 Clariant Annual Report 2011 Appropriation of available earnings The Board of Directors proposes to transfer the gains for the financial year in the amount of CHF to free reserves. Available unappropriated earnings CHF Balance from prior year Gain for the financial year Total available unappropriated earnings Appropriation CHF Transfer to free reserves Balance to be carried forward Proposed payout of nominal value reduction The Board of Directors proposes to repay CHF 0.30 of the nominal value of each registered share, as a result of a reduction of the nominal value from CHF 4.00 to CHF 3.70 per registered share. The proposed payout would reduce the share capital by CHF The proposed payout of the nominal value reduction of CHF 0.30 each is expected at the end of June 2012, subject to approval by the ordinary General Meeting of shareholders and subject to the fulfillment of the necessary requirements and the entry of the share capital reduction in the Commercial Register of the Canton of Baselland.

175 FINANCIAL REPORT 171 NOTES TO THE FINANCIAL STATEMENTS OF CLARIANT LTD Report of the statutory auditor to the general meeting of Clariant Ltd, Muttenz Report of the statutory auditor on the financial statements As statutory auditor, we have audited the financial statements of Clariant Ltd, which comprise the balance sheet, income statement and notes (pages 160 to 169), for the year ended 31 December Board of Directors Responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the prepa-ration of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We con-ducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity s preparation of the financial statements in order to design audit procedures that are appro-priate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended 31 December 2011 comply with Swiss law and the company s articles of incorporation. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial state-ments according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company s articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers Ltd Dr. Daniel Suter Audit expert Auditor in charge Basel, 13 February 2012 Ruth Sigel Audit expert

176 172 Clariant Annual Report 2011 Forward-looking statements Forward-looking statements contained herein are qualified in their entirety as there are certain factors that could cause results to differ materially from those anticipated. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed above, among the factors that could cause actual results to differ materially are the following: the timing and strength of new product offerings; pricing strategies of competitors; the company s ability to continue to receive adequate products from its vendors on acceptable terms, or at all, and to continue to obtain sufficient financing to meet its liquidity needs; and changes in the political, social and regulatory framework in which the company operates or in economic or technological trends or conditions, including currency fluctuations, inflation and consumer confidence, on a global, regional or national basis.

177 financial report 173

178 174 Clariant Annual Report 2011 Publication details Publisher Clariant International Ltd, Muttenz Financial Editor Philipp Baberschke Contact Head of Group Communications & Investor Relations Ulrich Steiner Tel Fax Head of Corporate Communications Ulrich Nies Tel Fax Website Ordering address Orders may be placed on the Clariant website: or sent in writing to the following address: Clariant International Ltd Investor Relations Rothausstrasse Muttenz Switzerland Content and editorial office GFD Finanzkommunikation, Frankfurt Design, graphics and layout Kuhn, Kammann & Kuhn GmbH, Cologne Photography Jo Röttger, Hamburg Printing Neidhart + Schön, Zurich Note about forward-looking statements This report contains forward-looking statements based on current assumptions and projections made by management. Such statements are subject to known and unknown risks, uncertainties and other factors which may cause the actual results and performance of Clariant International Ltd to differ from those expressed in, implied or projected by the forward-looking information and statements. The information published in this report is provided by Clariant International Ltd and corresponds to the status as of the date of publication of this report. Disclaimer Clariant International Ltd published Annual Reports in English and German. The English version is legally binding. Product and service marks protected by Clariant in many countries * Product and service marks licensed to Clariant in many countries 2011 Clariant International Ltd, Rothausstrasse 61, 4132 Muttenz, Switzerland printed carbon neutral Energy efficient and CO2 compensated print SC swissclimate.ch

179 5-year group overview CHF m Group sales Change relative to preceding year in Swiss francs (%) in local currencies (%) Operating income before exceptionals Operating income EBITDA before exceptionals EBITDA Net income/loss Earnings per share EBITDA margin before exceptionals (%) , Operating cash flow Investment in property, plant and equipment R&D expenditures Return on Invested Capital (ROIC) (%) Depreciation and amortization Net working capital in % of sales Total assets Equity (including non-controlling interests) Equity ratio (%) Net debt Gearing (%) Number of employees Based on annualized sales of the new Business Units

180 Clariant International Ltd Rothausstrasse Muttenz Switzerland Clariant International Ltd, 2012 SAP-Nr