Melitta Group

Annual Report 2021

General Information on Accounting and Valuation

Certain items of the consolidated financial statements, drawn up in accordance with Sec. 13 German Company Disclosure Law (PublG) in conjunction with Sec. 294-314 German Commercial Code (HGB), have been combined for the publication of this Annual Report for fiscal 2021. The Melitta Group makes use of the exemption pursuant to Sec. 13 (3) Sentence 2 PublG regarding the publishing of income statements. The consolidated financial statements and Group management report, which were awarded an unqualified audit opinion by the independent auditors, and the disclosures pursuant to Sec. 5 (5) Sentence 3 PublG are published in the Federal Gazette.

Consolidated group

The consolidated financial statements include all domestic and foreign companies in which the parent company directly or indirectly holds the majority of the voting rights (Sec. 290 (2) No. 1 in conjunction with (3) HGB) and which are directly or indirectly under the common control of Melitta Unternehmensgruppe Bentz KG.

The consolidated group comprises 72 (prior year: 75) companies, of which 32 are based in Germany and 40 abroad.

The changes in the consolidated group in the fiscal year that have no material effect on comparability with the previous year relate to the following companies:

Melitta PCS Asia Pacific AG, Tokyo, Japan, was merged with Melitta Japan AG, Tokyo, Japan, as of July 1, 2021, and IMMOBILIERE DE LA MARLIERE S.A.S., Chézy-sur-Marne, France, was merged with Melitta France S.A. S, Chézy-sur-Marne, France, as of December 10, 2021. The shares in Cuki Alfatec Sp. z o.o., Wysogotowo, Poland, were sold and the company deconsolidated as of December 1, 2021.

Due to their minor importance for the financial position and performance of the Group, seven companies (prior year: three) were not included in the consolidated financial statements. The changes compared with the previous year relate to the following items:

As of July 1, 2021, the Melitta Group increased its shareholding in Roast Market GmbH, Frankfurt, Germany, from 25.5% to 72% by means of purchase. In November 2021, a 70% stake was acquired in Corsino Corsini S.r.l., Badia al Pino (Arezzo), Italy.

The company Melitta Professional Coffee Solutions Canada Inc, Toronto, Canada, was newly founded on April 28, 2021, as was the company Melitta Professional Coffee Solutions Poland Sp. z o.o., Warsaw, Poland, on October 13, 2021.

Despite a shareholding of over 20%, two other companies (prior year: three) were not included as associated companies since the Melitta Group exerts no significant influence on their business and financial policy.

In accordance with Secs. 311, 312 HGB, major participations are to be valued using the equity method if a significant influence can be exerted on their business and financial policy. This is the case with two companies (prior year: two).

The companies included in the consolidation have exercised their legal option to be exempted from an audit of their annual financial statements.

Consolidation methods

The consolidated financial statements were prepared as at December 31, 2021. This is the balance sheet date of the companies included in the consolidated accounts.

In the capital consolidation process, the acquisition cost or balance sheet valuation of the shareholding is offset against the proportional share of shareholders’ equity on the date of the initial consolidation. Goodwill is formed for any resulting differences – insofar as these cannot be directly attributed to, and depreciated with, individual asset items – and amortized through profit or loss using the straight-line method over the following years with a useful life of 5-15 years. The assessment of the amortization period is based on the future use of the goodwill.

Investments in associated companies are consolidated using the book value method. Inter-group trading profits from transactions with associated companies were not eliminated. Debt was consolidated according to Sec. 303 (1) HGB, while income and expenditure were consolidated pursuant to Sec. 305 (1) HGB and unrealized results eliminated in accordance with Sec. 304 (1) HGB.

Deferred taxes were formed for temporary differences with an effect on income from consolidation transactions using individual tax rates.

Accounting and valuation principles

Uniform valuation of assets throughout the Group is guaranteed by the application of corporate guidelines, valid for all members of the Melitta Group – with the exception of those companies consolidated using the equity method. These corporate guidelines correspond to commercial law regulations.

Intangible assets are valued at cost, while property, plant and equipment are valued at acquisition or production cost; they are written down using the straight-line method. In addition to direct costs, production costs also include a proportionate amount of overhead costs and depreciation. Investment subsidies reduce the cost of acquisition or production.

Financial assets are valued no higher than at acquisition cost, or the lower fair value. In the case of permanent impairment, non-scheduled impairment charges are recognized.

Inventories are valued at acquisition or production cost. Raw materials, supplies and merchandise are valued at the lower of average purchase prices and current values. Unfinished and finished goods are valued at production cost, which also includes a reasonable amount of necessary overhead cost and depreciation. Production costs are lowered accordingly, should this be necessary to avoid valuation losses. Suitable allowances are made to cover the risk from holding inventories.

Advance payments on inventories, accounts receivable, other assets and cash and cash equivalents are carried at their nominal values or the lower rate for foreign currencies and where applicable the lower fair value. Lump-sum allowances have been made to cover general credit risks.

Prepaid expenses and deferred charges are formed in accordance with the provisions of Sec. 250 HGB.

Pursuant to Sec. 306 HGB, deferred tax assets and liabilities are formed for consolidation entries with an effect on income. In addition, deferred tax assets were formed for tax loss carryforwards for which it can be assumed with adequate probability that they will be used in future, as well as for temporary differences between the commercial and tax balance sheet (in the items non-current assets, current assets, accruals and liabilities), after netting with deferred tax liabilities. For the measurement of deferred taxes, the individual tax rates of the affiliated companies included in consolidation were considered (12-34%).

Pursuant to Sec. 246 (2) HGB, assets (plan assets) measured at fair value were netted with accruals for pension obligations. Any resulting positive balance from netting is disclosed in the balance sheet as an asset-side difference from asset allocation.

Limited partnership shares are measured at nominal value.

Accruals for pensions are calculated using the projected unit credit method. Pension accruals are measured with an interest rate of 1.87% as at December 31, 2021 (prior year: 2.31%). In accordance with the simplifying provision of Sec. 253 (2) Sentence 2 HGB, a standard remaining term of 15 years was assumed for the obligations. Future pay increases were taken into account at a rate of 2.0% p.a. and pension increases at a rate of 1.5%. Standard consideration throughout the consolidated German companies was also given to the relevant biometric calculation basis (including the RT 2018 G mortality chart) and other calculation principles for the settlement amount to be used. Accruals for pensions of foreign companies were calculated as of December 31, 2021 using the projected unit credit method with an interest rate of 1.87% and individual assumptions as to pay and pension increases, as well as biometric assumptions.

Other accruals cover all recognizable risks and uncertain commitments in the amount of the respective settlement amount. Accruals with maturities of over one year were measured in accordance with Sec. 253 (2) HGB.

Subject to the fulfillment of the corresponding prerequisites, transactions expected with a high level of probability (hedged items) are placed together with derivative financial instruments in hedging relationships in order to balance contrasting value changes or cash flows from the acceptance of comparable risks. Such hedging relationships are presented in the financial statements using the net hedge presentation method.

Financial instruments are measured using generally accepted valuation models and mathematical procedures based on current market data.

Liabilities are carried at their respective settlement amounts.

Grants are recognized in profit or loss in accordance with the allocation of the expense that the grant is intended to cover.

Currency translation

The annual financial statements of consolidated subsidiaries prepared in foreign currencies are translated using the modified closing-date method. This means that balance sheet items in foreign currencies are converted at the closing-date rate and income statement items at average rates of 2021. Shares in affiliated companies, subscribed capital and reserves are translated at historic rates and any resulting differences in values are netted in equity.

Assets and liabilities denominated in foreign currencies are translated at the spot rate as of the balance sheet date, providing there are no hedging transactions.

The average rates are determined by simple averaging on the basis of the daily ECB fixing rates. Currency translation differences from debt consolidation are recognized in the income statement under other operating expenses or other operating income. Currency translation differences from the elimination of intercompany profits are recognized in the income statement under changes in inventories.

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