EX-99.3

EX-99.3 6 d643979dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

INDEX TO LINDE AG GROUP FINANCIAL STATEMENTS


Unaudited Linde AG Group Interim Financial Statements

Group Statement of Profit or Loss			2
Group Statement of Comprehensive Income			3
Group Statements of Financial Position			4
Group Statements of Cash Flows			6
Statement of Changes in Group Equity			8
Notes			11

Linde AG Group Financial Statements and Notes

Independent Auditors’ Report			1
Group Statements of Profit Or Loss			3
Group Statements of Comprehensive Income			4
Group Statement of Financial Position			5
Group Statements of Cash Flows			7
Statements of Changes in Group Equity			9
Notes			14

Unaudited Linde AG Group Interim Financial Statements

1 GROUP STATEMENT OF PROFIT OR LOSS


	2nd Quarter				January to June
in € million	2017 adjusted¹		2018		2017 adjusted¹		2018
Revenue		4,411		4,458		8,935		8,640
Cost of sales		2,900		2,861		5,889		5,536
GROSS PROFIT		1,511		1,597		3,046		3,104
Marketing and selling expenses		697		582		1,328		1,144
Impairment losses on receivables and contract assets		—		46		—		86
Research and development costs		28		27		53		52
Administration expenses		446		418		830		773
Other operating income		193		129		281		250
Other operating expenses		65		34		115		86
Share of profit or loss from associates and joint ventures (at equity)		6		4		8		9
NET PROFIT ON OPERATING ACTIVITIES		474		623		1,009		1,222
Financial income		8		22		23		29
Financial expenses		78		57		167		126
PROFIT BEFORE TAX		404		588		865		1,125
Taxes on income		89		123		206		242
PROFIT FOR THE PERIOD		315		465		659		883
attributable to Linde AG shareholders		281		429		592		811
attributable to non-controlling interests		34		36		67		72
EARNINGS PER SHARE
Earnings per share in € – undiluted		1.51		2.31		3.19		4.37
Earnings per share in € – diluted		1.51		2.31		3.19		4.37

In the six months to 30 June 2018, the business of logistics services provider Gist has once again been disclosed in continuing operations. The figures for the prior-year period have been adjusted accordingly. More detail on this subject is given in NOTE 6 of the Notes to the interim financial statements.

2 GROUP STATEMENT OF COMPREHENSIVE INCOME


	2nd Quarter				January to June
in € million	2017 adjusted¹		2018		2017 adjusted¹		2018
PROFIT FOR THE PERIOD		315		465		659		883
OTHER COMPREHENSIVE INCOME (NET OF TAX)		-824		377		-839		114
ITEMS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS		-949		306		-931		92
Unrealised gains/losses on available-for-sale financial assets		—		—		1		—
Unrealised gains/losses on hedging instruments		158		-65		209		5
Currency translation differences		-1,107		371		-1,141		87
ITEMS THAT WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS		125		71		92		22
Remeasurement of defined benefit plans		125		70		92		17
Fair value changes from equity instruments at FVOCI		—		1				5
TOTAL COMPREHENSIVE INCOME		-509		842		-180		997
attributable to Linde AG shareholders		-490		808		-206		928
attributable to non-controlling interests		-19		34		26		69

3 GROUP STATEMENT OF FINANCIAL POSITION


in € million	31.12.2017 adjusted¹		30.06.2018
*Assets*
Goodwill		10,895		10,997
Other intangible assets		2,091		1,973
Tangible assets		11,868		11,847
Investments in associates and joint ventures (at equity)		219		224
Other financial assets		84		108
Receivables from finance leases		70		61
Trade receivables		6		6
Other receivables and other assets		401		424
Income tax receivables		12		10
Deferred tax assets		416		403
NON-CURRENT ASSETS		26,062		26,053
Inventories		1,214		1,259
Receivables from finance leases		33		25
Trade receivables		2,775		2,763
Contract assets		—		170
Other receivables and other assets		698		755
Income tax receivables		228		185
Securities		623		17
Cash and cash equivalents		1,433		1,272
Non-current assets classified as held for sale and disposal groups		346		15
CURRENT ASSETS		7,350		6,461
TOTAL ASSETS		33,412		32,514

4 GROUP STATEMENT OF FINANCIAL POSITION


in € million	31.12.2017 adjusted¹		30.06.2018
*Equity and liabilities*
Capital subscribed		475		475
Capital reserve		6,730		6,730
Revenue reserves		8,217		7,751
Cumulative changes in equity not recognised in profit or loss		-1,258		-1,159
TOTAL EQUITY ATTRIBUTABLE TO LINDE AG SHAREHOLDERS		14,164		13,797
Non-controlling interests		877		875
TOTAL EQUITY		15,041		14,672
Provisions for pensions and similar obligations		1,304		1,226
Other non-current provisions		478		436
Deferred tax liabilities		1,252		1,291
Financial debt		6,082		5,458
Liabilities from finance leases		40		51
Trade payables		1		4
Contract liabilities		—		132
Other non-current liabilities		537		382
NON-CURRENT LIABILITIES		9,694		8,980
Current provisions		1,129		999
Financial debt		1,886		2,636
Liabilities from finance leases		14		15
Trade payables		3,851		2,803
Contract liabilities		—		1,355
Other current liabilities		1,182		616
Liabilities from income taxes		551		435
Liabilities related to non-current assets classified as held for sale and disposal groups		64		3
CURRENT LIABILITIES		8,677		8,862
TOTAL EQUITY AND LIABILITIES		33,412		32,514

5 GROUP STATEMENT OF CASH FLOWS


	January to June
in € million	2017 adjusted¹		2018
Profit before tax		865		1,125
*Adjustments to profit before tax to calculate cash flow from operating activities*
Amortisation of intangible assets and depreciation of tangible assets		966		916
Impairments of financial assets		1		—
Profit/loss on disposal of non-current assets		-19		-14
Net interest		133		100
Finance income arising from embedded finance leases in accordance with IFRIC 4/IAS 17		6		3
Share of profit or loss from associates and joint ventures (at equity)		-8		-9
Distributions/dividends received from associates and joint ventures		8		15
Income taxes paid		-268		-285
*Changes in assets and liabilities*
Change in inventories		-20		-48
Change in trade receivables		-112		-172
Change in contract assets				15
Change in provisions		-134		-198
Change in trade payables		-2		141
Change in contract liabilities				-139
Change in other assets and liabilities		-92		-175
CASH FLOW FROM OPERATING ACTIVITIES		1,324		1,275
Payments for tangible and intangible assets and plants held under finance leases in accordance with IFRIC 4/IAS 17		-828		-856
Payments for investments in consolidated companies		-33		-60
Payments for investments in financial assets		-29		-44
Payments for investments in securities		-1,155		-200
Proceeds on disposal of securities		961		806
Proceeds on disposal of tangible and intangible assets and amortisation of receivables from finance leases in accordance with IFRIC 4/IAS 17		63		135
Proceeds on disposal of consolidated companies and from purchase price repayment claims		122		123
Proceeds on disposal of financial assets		32		13
CASH FLOW FROM INVESTING ACTIVITIES		-867		-83

6 GROUP STATEMENT OF CASH FLOWS


	January to June
in € million	2017 adjusted¹		2018
Dividend payments to Linde AG and non-controlling interests		-733		-1,375
Cash inflows/outflows due to changes in non-controlling interests		3		13
Cash inflows from interest rate derivatives		60		50
Interest payments relating to financial debt and cash outflows for interest rate derivatives		-257		-169
Proceeds of loans and capital market debt		3,074		2,587
Cash outflows for the repayment of loans and capital market debt		-2,532		-2,441
Cash outflows for the repayment of liabilities from finance leases		-10		-9
CASH FLOW FROM FINANCING ACTIVITIES		-395		-1,344
CHANGE IN CASH AND CASH EQUIVALENTS		62		-152
OPENING BALANCE OF CASH AND CASH EQUIVALENTS		1,465		1,433
Effects of currency translation		-38		-5
Cash disclosed as non-current assets classified as held for sale and disposal groups		-3		-4
CLOSING BALANCE OF CASH AND CASH EQUIVALENTS		1,486		1,272

7 STATEMENT OF CHANGES IN GROUP EQUITY


					Revenue reserves				Cumulative changes in equity not recognised through the statement of profit or loss
in € million	Capital subscribed		Capital reserve		Remeasurement of defined pension plans		Retained earnings		Currency translation differences		Available-for- sale financial assets/equity instruments at FVOCI		Hedging instruments		Total equity attributable to Linde AG shareholders		Non- controlling interests		Total equity
AT 01.01.2017 ADJUSTED¹		475		6,745		-1,383		8,627		979		-1		-865		14,577		903		15,480
Profit for the period		—		—		—		592		—						592		67		659
Other comprehensive income (net of tax)		—		—		92				-1,100		2		208		-798		-41		-839
TOTAL COMPREHENSIVE INCOME		—		—		92		592		-1,100		2		208		-206		26		-180
Dividend payments		—				—		-687		—		—		—		-687		-46		-733
Changes as a result of share option schemes		—		-15		—		—		—		—		—		-15		—		-15
Capital increases/decreases		—		—		—		—		—		—		—		—		3		3
TOTAL CONTRIBUTIONS BY AND DISTRIBUTIONS TO OWNERS OF THE COMPANY		—		-15		—		-687		—		—		—		-702		-43		-745
Acquisition/disposal of non-controlling interests without a change of control		—		—		—		-1		—		—		—		-1		1		—
Acquisition/disposal of a subsidiary with non-controlling interests		—		—		—		—		—		—		—		—		13		13
CHANGES IN OWNERSHIP INTERESTS IN SUBSIDIARIES		—		—		—		-1		—		—		—		-1		14		13
AT 30.06.2017 ADJUSTED¹		475		6,730		-1,291		8,531		-121		1		-657		13,668		900		14,568
AT 01.01.2018 ADJUSTED¹		475		6,730		-1,137		9,363		-740		5		-523		14,173		877		15,050
Profit for the period		—		—		—		811		—		—		—		811		72		883
Other comprehensive income (net of tax)		—		—		18				88		6		5		117		-3		114
TOTAL COMPREHENSIVE INCOME		—		—		18		811		88		6		5		928		69		997
Dividend payments		—		—		—		-1,299		—		—		—		-1,299		-76		-1,375
Capital increases/decreases		—		—		—		—		—		—		—		—		13		13
TOTAL CONTRIBUTIONS BY AND DISTRIBUTIONS TO OWNERS OF THE COMPANY		—		—		—		-1,299		—		—		—		-1,299		-63		-1,362
Acquisition/disposal of a subsidiary with non-controlling interests		—		—		—		—		—		—		—		—		-8		-8
CHANGES IN OWNERSHIP INTERESTS IN SUBSIDIARIES		—		—		—		—		—		—		—		—		-8		-8
OTHER CHANGES		—		—		—		-5		—		—		—		-5		—		-5
AT 30.06.2018		475		6,730		-1,119		8,870		-652		11		-518		13,797		875		14,672

8 SEGMENT INFORMATION


	Segments				Segments								Reconciliation				Group
	Gases Division				Engineering Division				Other Activities
	January to June				January to June				January to June				January to June				January to June
in € million	2017		2018		2017		2018		2017 adjusted¹		2018		2017 adjusted¹		2018		2017 adjusted¹		2018
Revenue from third parties		7,567		7,176		1,086		1,185		282		279		—		—		8,935		8,640
Revenue from other segments		5		6		126		179		12		14		-143		-199		—		—
TOTAL REVENUE FROM THE REPORTABLE SEGMENTS		7,572		7,182		1,212		1,364		294		293		-143		-199		8,935		8,640
OPERATING PROFIT		2,166		2,184		97		137		13		15		-140		-126		2,136		2,210
Restructuring and merger costs (special items)		117		23		17				—		—		27		49		161		72
Amortisation of intangible assets		958		908		17		17		11		12		-20		-21		966		916
and depreciation of tangible assets
NET PROFIT ON OPERATING ACTIVITIES		1,091		1,253		63		120		2		3		-147		-154		1,009		1,222
Capital expenditure (excluding financial assets)		725		795		7		10		13		3		-46		-30		699		778


	Segments
	Gases Division
	EMEA				Asia/Pacific				Americas				Total Gases Division
	January to June				January to June				January to June				January to June
in € million	2017		2018		2017		2018		2017		2018		2017		2018
Revenue from third parties		2,939		2,946		2,159		2,069		2,469		2,161		7,567		7,176
Revenue from other segments		8		11		13		13		76		83		5		6
TOTAL REVENUE FROM THE REPORTABLE SEGMENTS		2,947		2,957		2,172		2,082		2,545		2,244		7,572		7,182
OPERATING PROFIT		924		968		615		600		627		616		2,166		2,184
Restructuring and merger costs (special items)		104		7		—		—		13		16		117		23
Amortisation of intangible assets and depreciation of tangible assets		358		356		281		270		319		282		958		908
NET PROFIT ON OPERATING ACTIVITIES		462		605		334		330		295		318		1,091		1,253
Capital expenditure (excluding financial assets)		311		262		178		275		236		258		725		795

9 SEGMENT INFORMATION


	Segments				Segments								Reconciliation
	Gases Division				Engineering Division				Other Activities								Group
	2nd quarter				2nd quarter				2nd quarter				2nd quarter				2nd quarter
in € million	2017		2018		2017		2018		2017 adjusted¹		2018		2017 adjusted¹		2018		2017 adjusted¹		2018
Revenue from third parties		3,771		3,668		497		649		143		142		—		—		4,411		4,459
Revenue from other segments		2		2		67		113		6		7		-75		-122		—		—
TOTAL REVENUE FROM
THE REPORTABLE SEGMENTS		3,773		3,670		564		762		149		149		-75		-122		4,411		4,459
OPERATING PROFIT		1,113		1,105		44		77		7		11		-75		-68		1,089		1,125
Restructuring and merger costs
(special items)		101		15		13		—		—		—		25		26		139		41
Amortisation of intangible assets and depreciation of tangible assets		472		458		9		9		5		6		-10		-12		476		461
NET PROFIT ON OPERATING
ACTIVITIES		540		632		22		68		2		5		-90		-82		474		623
Capital expenditure
(excluding financial assets)		363		449		4		7		6		1		-13		4		360		461


	Segments
	Gases Division
	EMEA				Asia/Pacific				Americas				Total Gases Division
	2nd quarter				2nd quarter				2nd quarter				2nd quarter
in € million	2017		2018		2017		2018		2017		2018		2017		2018
Revenue from third parties		1,466		1,484		1,093		1,068		1,212		1,116		3,771		3,668
Revenue from other segments		3		7		6		5		36		40		2		2
TOTAL REVENUE FROM THE REPORTABLE SEGMENTS		1,469		1,491		1,099		1,073		1,248		1,156		3,773		3,670
OPERATING PROFIT		462		450		347		317		304		338		1,113		1,105
Restructuring and merger costs (special items)		93		7		—		—		8		8		101		15
Amortisation of intangible assets and depreciation of tangible assets		179		177		136		138		157		143		472		458
NET PROFIT ON OPERATING ACTIVITIES		190		266		211		179		139		187		540		632
Capital expenditure (excluding financial assets)		181		151		84		147		98		151		363		449

ADDITIONAL COMMENTS

[1] Basis of preparation and accounting policies

The condensed Group interim financial statements of Linde AG at 30 June 2018 have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and comply with the requirements of IAS 34 Interim Financial Reporting. They do not include all the information required for a complete set of financial statements prepared in accordance with the IFRS issued by the IASB. However, selected explanatory notes are included to explain events and transactions that are significant to understand changes in the Group’s financial position and performance since the last annual reporting period of the Group ended December 31, 2017.

The reporting currency is the euro. All amounts are shown in millions of euro (EUR m), unless stated otherwise.

The accounting policies used in the condensed Group interim financial statements are the same as those used to prepare the Group financial statements for the year ended 31 December 2017, with the exception of accounting standards which have become effective from 1 January 2018. In the first half of 2018, there were no changes in the discretionary decisions and estimates compared with the information disclosed in the 2017 Financial Report.

In addition, IAS 34 Interim Financial Reporting has been applied. Since 1 January 2018, the following new standards issued by the IASB have become effective:

•

IFRS 15 Revenue from Contracts with Customers including Amendments to IFRS 15

•

Clarifications relating to IFRS 15 Revenue from Contracts with Customers

•

IFRS 9 Financial Instruments

•

Amendments to IFRS 2 Share-based Payment

•

Annual Improvements to the IFRSs (2014–2016)

•

IFRIC 22 Foreign Currency Transactions and Advance Consideration

The following standards were issued by the IASB, but have not yet been applied in the condensed Group interim financial statements of The Linde Group for the six months ended 30 June 2018:

•

Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (first-time application postponed indefinitely by IASB)

•

IFRS 16 Leases (first-time application according to IASB in financial years beginning on or after 1 January 2019)

•

IFRIC 23 Uncertainty over Income Tax Treatments (first-time application according to IASB in financial years beginning on or after 1 January 2019)

•

Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (first-time application according to IASB in financial years beginning on or after 1 January 2019)

•

Annual Improvements to the IFRSs (2015–2017) (first-time application according to IASB in financial years beginning on or after 1 January 2019)

•

Amendments to IAS 19 regarding plan amendments, curtailments and settlements (first-time application according to IASB in financial years beginning on or after 1 January 2019)

•

Amendments to IFRS 9: Prepayment Features with Negative Compensation (first-time application according to IASB in financial years beginning on or after 1 January 2019)

•

Amendments to the Conceptual Framework (first-time application according to IASB in financial years beginning on or after 1 January 2020)

[2] Changes in Group structure

The types of companies included in the consolidated interim financial statements of The Linde Group and changes in the structure of the Group are disclosed below.

10 STRUCTURE OF COMPANIES INCLUDED IN THE INTERIM FINANCIAL STATEMENTS


	As at 31.12.2017		Additions		Disposals		As at 30.06.2018
CONSOLIDATED SUBSIDIARIES		556		2		12		546
of which within Germany		20		—		2		18
of which outside Germany		536		2		10		528
COMPANIES ACCOUNTED FOR USING THE LINE-BY-LINE METHOD		7		—		—		7
of which within Germany		—		—		—		—
of which outside Germany		7		—		—		7
COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD		35		—		2		33
of which within Germany		2		—		—		2
of which outside Germany		33		—		2		31
NON-CONSOLIDATED SUBSIDIARIES		42		1		5		38
of which within Germany		2		—		—		2
of which outside Germany		40		1		5		36

Significant disposals during the reporting period are described in NOTE [6] non-current assets classified as held for sale and disposal groups. Additions during the reporting period are described in NOTE [3].

[3] Acquisitions

Linde did not make any significant acquisitions during the reporting period. Information about the acquisitions which did take place in the first half of 2018 is therefore provided below in aggregate rather than by individual company.

In the first six months of 2018, Linde made acquisitions to expand its industrial gases and Healthcare business in the Americas und Asia/Pacific segments. The total purchase price for these acquisitions was EUR 58 m, of which EUR 57 m was paid in cash. The total purchase price includes deferred payments of EUR 1 m. In the course of these purchases, Linde acquired non-current assets of EUR 36 m and liabilities of EUR 1 m. Total goodwill arising was EUR 23 m. The main components of the goodwill are synergies, especially distribution synergies, and the potential arising from the continuation of the companies’ business. Of the goodwill, EUR 22 m is tax-deductible.

Since the dates of their acquisition, the companies acquired have generated revenue of EUR 12 m and a contribution to the Group’s profit for the period of EUR 1 m. if the business acquired had been consolidated into The Linde Group from 1 January 2018, the contribution to revenue would have been EUR 28 m and the contribution to profit for the period would have been EUR 3 m.

11 IMPACT OF ACQUISITIONS ON THE NET ASSETS OF THE LINDE GROUP


Opening balance upon initial consolidation	Fair value
in € million
Non-current assets		36
Inventories		—
Other current assets		—
Cash and cash equivalents		—
Equity (attributable to Linde AG)		35
Non-controlling interests		—
Liabilities		1

[4] Foreign currency translation

Exchange rates for the major currencies used by Linde were as follows:


12 PRINCIPAL EXCHANGE RATES
			Spot rate on reporting date				Average rate January to June
Exchange rate €1 =	ISO code		31.12.2017		30.06.2018		2017		2018
Australia		AUD		1.53781		1.57912		1.43681		1.56885
China		CNY		7.80668		7.70892		7.44919		7.70751
South Africa		ZAR		14.84441		16.07018		14.31014		14.88630
UK		GBP		0.88779		0.88588		0.86026		0.87961
USA		USD		1.19980		1.16405		1.08363		1.20984

[5] Revenue

New accounting standard IFRS 15 Revenue from Contracts with Customers replaces the rules for revenue recognition set out in IAS 11 and IAS 18 and has been applied for the first time with effect from 1 January 2018. Linde is applying the modified retrospective method, whereby the cumulative effects of the first-time application of IFRS 15 are recognised as an adjustment to the opening balance of revenue reserves. The prior-year figures in the Group statement of financial position have not been adjusted. Moreover, IFRS 15 has only been applied retroactively to contracts which had not been fulfilled in full at 1 January 2018. A detailed description of the application of IFRS 15 at Linde was given on PAGES 120 AND 121 OF THE 2017 FINANCIAL REPORT.

The first-time application of the new accounting standard resulted in a change, in the case of certain contracts, in the treatment of amounts recharged in respect of customer-related goods and services, which are no longer permitted to be recognised as such, because Linde has no control (as defined in IFRS 15) over the goods and services purchased. Netting costs which have previously been recognised gross against the sales-related cost reimbursement by the customer has resulted in the first half of 2018 (when compared with the previous accounting treatment in accordance with IAS 11 and IAS 18) in a reduction in revenue of EUR 195 m and a reduction of an equal amount in cost of sales.

This related mainly to revenue in the on-site business of the Gases Division.

IFRS 15 also requires for the first time the disclosure of contract assets and contract liabilities in the Group statement of financial position. If IFRS 15 had not been applied, the contract assets of EUR 170 m reported at 30 June 2018 would have been disclosed as trade receivables. If IFRS 15 had not been applied, EUR 897 m of the current contract liabilities of EUR 1.355 bn reported at 30 June 2018 would have been disclosed as current trade payables, while EUR 458 m of that total would have been disclosed as other current liabilities. In addition, if IFRS 15 had not been applied, the non-current contract liabilities of EUR 132 m reported at 30 June 2018 would have been disclosed as other non-current liabilities.

Group revenue is generated principally from contracts with customers as defined in IFRS 15. Sundry revenue which does not fall within the scope of IFRS 15 is generated mainly from lease agreements with customers.

In the Gases Division, revenue is classified on the basis of the primary regional markets, the main product areas and the time over which or point in time at which the revenue is recognised in accordance with IFRS 15. Revenue in the Gases Division during the reporting period comprises performance obligations of EUR 3.646 bn fulfilled over a particular period of time and performance obligations of EUR 3.389 bn fulfilled at a particular point in time.

The following table includes only revenue in the Gases Division from third parties and no revenue from other segments. The revenue disclosed per product area reflects only revenue in accordance with IFRS 15 and can therefore not be reconciled with revenue by product area shown in the current Group interim management report.

13 REVENUE FROM THIRD PARTIES – GASES DIVISION


	Segments
January to June 2018, in € million	EMEA		Asia/Pacific		Americas		Gases Division
On-site		613		708		381		1,702
Liquefied gases		688		657		481		1,826
Cylinder gas		1,085		566		270		1,921
Healthcare		467		103		1,016		1,586
REVENUE IN ACCORDANCE WITH IFRS 15		2,853		2,034		2,148		7,035
Sundry revenue in accordance with other accounting standards		93		35		13		141
REVENUE FROM THIRD PARTIES		2,946		2,069		2,161		7,176

In the Engineering Division, revenue is classified on the basis of the main product areas and the time over which or point of time at which the revenue is recognised. Revenue in the Engineering Division during the reporting period comprises performance obligations of EUR 1.026 bn fulfilled over a particular period of time and performance obligations of EUR 159 m fulfilled at a particular point in time.

The following table includes only revenue in the Engineering Division from third parties and no revenue from other segments and can therefore not be reconciled with revenue by plant type shown in the current Group interim management report.

14 REVENUE FROM THIRD PARTIES – ENGINEERING DIVISION


in € million	January to June 2018
Olefin plants		291
Natural gas plants		558
Air separation plants		194
Hydrogen and synthesis gas plants		78
Other		64

REVENUE FROM THIRD PARTIES IN ACCORDANCE WITH IFRS 15		1,185

Revenue in the Other Activities segments of EUR 279 m derives from the activities of logistics services company Gist and was generated entirely from performance obligations fulfilled over a particular period of time.

[6] Non-current assets classified as held for sale and disposal groups

At 30 June 2018, assets of EUR 15 m and liabilities of EUR 3 m were disclosed as non-current assets classified as held for sale and disposal groups.

These relate mainly to vehicles in the Asia/Pacific segment, which were acquired in 2016 and are due for sale in accordance with an operating sale and leaseback agreement. In addition, the Remeo business in Germany has been disclosed as a disposal group. The sale is planned to take place in the second half of 2018.

The business of logistics services company Gist was classified as a discontinued operation in December 2016. As sales negotiations with potential buyers were abandoned in the second quarter of 2018 and a sale can no longer be deemed highly probable, this segment is again being disclosed in continuing operations. It has therefore been included again in the segment report. As the assets held for sale have not been depreciated since December 2016, an adjustment (of EUR 11 m in each case) has been made to reflect the depreciation not charged in the first half of 2017 and the first half of 2018. The prior-year figure was adjusted accordingly.

In the reporting period, the gases business in Pakistan and part of a production facility within the EMEA segment and the German subsidiary Tega – Technische Gase und Gasetechnik GmbH were sold as planned. The total profit on disposal was EUR 60 m.

[7] Financial instruments

New accounting standard IFRS 9 Financial Instruments replaces the existing rules set out in IAS 39 Financial Instruments: Recognition and Measurement and was applied for the first time with effect from 1 January 2018.

IFRS 9 introduces new rules on the classification and measurement of financial assets and contains new rules on impairment losses on financial instruments. A detailed description of the new impairment model was given on PAGES 122 AND 123 OF THE 2017 FINANCIAL REPORT.

On applying IFRS 9 for the first time, Linde has elected to continue to account for hedging relationships in accordance with IAS 39 instead of IFRS 9.

A description of the effects of the first-time application of IFRS 9 was given in the INTERIM REPORT JANUARY TO MARCH 2018 ON PAGES 24 TO 26.


15 FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

	Level 1				Level 2				Level 3
in € million	31.12.2017		30.06.2018		31.12.2017		30.06.2018		31.12.2017		30.06.2018
Investments and securities		623		30		—		20		—		5
Of which in other comprehensive income (debt instruments)		—		5		—		—		—		—
Of which in other comprehensive income (equity instruments)		—		13		—		20		—		5
Of which through profit or loss		—		12		—		—		—		—
Derivatives with positive fair values		—		—		167		160		—		—
Derivatives with negative fair values		—		—		299		301		—		—
Cash and cash equivalents		—		—		—		—		—		—

For individual categories of financial assets and financial liabilities in The Linde Group, the carrying amount of the item is generally a reasonable approximation of the fair value of the item. This does not apply to receivables from finance leases or to financial debt. In the case of receivables from finance leases, the fair value is EUR 93 m, while the carrying amount is EUR 86 m. The fair value of the financial debt is EUR 8.388 bn, compared with its carrying amount of EUR 8.094 bn. The fair value of financial instruments is generally determined using quoted market prices. If no quoted market prices are available, the fair value is determined using measurement methods customary in the market, based on market parameters specific to the instrument. There is currently no intention to sell assets in the investments and securities category which are reported at fair value in other comprehensive income (equity).

For derivative financial instruments, the fair value is determined as follows. Options are measured using Black-Scholes pricing models. Futures are measured with recourse to the quoted market price in the relevant market.

All other derivative financial instruments are measured by discounting future cash flows using the present value method. The starting parameters for these models should, as far as possible, be the relevant observable market prices and interest rates at the reporting date.

At the reporting date, no significant assets or liabilities had been recognised for which the values had been determined by valuation techniques with principal inputs not derived from observable market data (Level 3). Of the equity instruments recognised in other comprehensive income at fair value, an amount of EUR 5 m was allocated to Level 3, as no observable market data was available for these investments. The nearest approximation to fair value for those investments was acquisition cost. During the reporting period, there were no transfers between Levels 1, 2 and 3 of the fair value hierarchy.

More information on Linde’s financial debt is given on PAGES 6 AND 7 OF THE GROUP INTERIM MANAGEMENT REPORT.

[8] Segment reporting

As a result of the reclassification of Gist in continuing operations, the segment report has been adjusted and now includes the Other Activities segment again.

To arrive at the figure for the Gases Division as a whole from the figures for the segments within the Gases Division, consolidation adjustments of EUR 101 m (2017: EUR 92 m) were deducted from revenue. Therefore, it is not possible to arrive at the figure for the Gases Division as a whole by merely adding together the segments in the Gases Division.

The reconciliation of segment revenue to Group revenue and of the operating profit of the segments to Group profit before tax is shown in the table below:

16 RECONCILIATION OF SEGMENT REVENUE AND OF THE SEGMENT RESULT


	January to June				2nd quarter
in € million	2017 adjusted¹		2018		2017 adjusted¹		2018
*Revenue*
Total segment revenue		9,078		8,839		4,486		4,581
Consolidation		-143		-199		-75		-122
GROUP REVENUE		8,935		8,640		4,411		4,459
*Operating profit*
Operating profit from segments		2,276		2,336		1,164		1,193
Operating profit from corporate activities		-140		-131		-78		-42
Consolidation		—		5		3		-26
OPERATING PROFIT		2,136		2,210		1,089		1,125
Restructuring and merger costs (special items)		161		72		139		41
Amortisation and depreciation		966		916		476		461
Financial income		23		29		8		22
Financial expenses		167		126		78		57
PROFIT BEFORE TAX		865		1,125		404		588

¹	In the six months to 30 June 2018, the business of logistics services provider Gist has been disclosed once again in continuing operations. The figures for the prior-year period have been adjusted accordingly. More detail is given in NOTE 6.

[9] Events after the reporting date

On 16 July 2018, Linde AG entered into an agreement with a consortium comprising companies belonging to the German industrial gas producer Messer Group and CVC Capital Partners Fund VII to sell the major part of Linde’s gases business in North America and various business operations in South America. In 2017, the business to be sold generated total revenue of around USD 1.7 bn and EBITDA of just over USD 360 m. The business to be sold comprises principally Linde’s entire US liquefied gases business and the Linde business in Brazil, Canada and Colombia. The purchase price of USD 3.3 bn is subject to the customary adjustment mechanisms when the purchase agreement is completed. The disposal is also subject to the completion of the proposed merger between Linde und Praxair and to regulatory approvals. It is therefore not deemed highly probable as defined by IFRS 5 and has therefore not been disclosed at the reporting date as non-current assets classified as held for sale or disposal groups.

No other significant events have occurred for The Linde Group since the end of the reporting period on 30 June 2018.

On 24 July 2018, the Executive Board of Linde AG authorised the condensed Group interim financial statements for issue.

Linde AG Group Financial Statements and Notes

Independent Auditor’s Report

The Board of Directors

Linde Aktiengesellschaft:

We have audited the accompanying consolidated financial statements of Linde Aktiengesellschaft and its subsidiaries, which comprise the consolidated group statements of financial position as of December 31, 2017 and 2016, and the related consolidated group statements of profit or loss, comprehensive income, cash flows and changes in group equity for each of the years in the three-year period ended December 31, 2017, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

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 statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Linde Aktiengesellschaft and its subsidiaries as of December 31, 2017 and 2016, and their consolidated financial performance and their consolidated cash flows for each of the years in the three-year period ended December 31, 2017 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ KPMG AG Wirtschaftsprüfungsgesellschaft

Munich, Germany

February 19, 2018

LINDE AG

GROUP STATEMENTS OF PROFIT OR LOSS


*in EUR m*	*Note*			*2015*		*2016*		2017
Revenue		[6	]		17,345		16,948		17,113
Cost of sales					11,166		10,847		11,274
GROSS PROFIT					6,179		6,101		5,839

Marketing and selling expenses					2,546		2,387		2,375
Research and development costs					131		121		112
Administration expenses					1,653		1,720		1,629
Other operating income		[7	]		419		467		418
Other operating expenses		[7	]		251		278		216
Share of profit or loss from associates and joint ventures (at equity)					12		13		19
NET PROFIT ON OPERATING ACTIVITIES FROM CONTINUING OPERATIONS					2,029		2,075		1,944

Financial income		[9	]		42		29		37
Financial expenses		[9	]		439		353		302
PROFIT BEFORE TAX FROM CONTINUING OPERATIONS					1,632		1,751		1,679

Income tax expense		[10	]		396		424		143
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS		[19	]		1,236		1,327		1,536

PROFIT FOR THE YEAR FROM DISCONTINUED OPERATIONS					16		-52		30

PROFIT FOR THE YEAR					1,252		1,275		1,566
attributable to Linde AG shareholders					1,149		1,154		1,434
attributable to non-controlling interests					103		121		132
EARNINGS PER SHARE – CONTINUING OPERATIONS		[11	]				—		—

Earnings per share in EUR - undiluted					6.10		6.50		7.56
Earnings per share in EUR - diluted					6.09		6.48		7.56
EARNINGS PER SHARE – DISCONTINUED OPERATIONS		[11	]				0 .00		0 .00

Earnings per share in EUR - undiluted					0.09		-0.28		0.16
Earnings per share in EUR - diluted					0.09		-0.28		0.16

LINDE AG

GROUP STATEMENTS OF COMPREHENSIVE INCOME

in EUR m

2015

2016

2017

PROFIT FOR THE YEAR

1,252

1,275

1,566

OTHER COMPREHENSIVE INCOME (NET OF TAX)

622

-509

-1,188

ITEMS THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS

609

- 91

-1,434

Unrealised gains/losses on available-for-sale financial assets

-7

Unrealised gains/losses on hedging instruments

-477

342

Currency translation differences

1,093

-132

-1,782

ITEMS THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS

-418

246

Remeasurement of defined benefit plans

-418

246

TOTAL COMPREHENSIVE INCOME

1,874

766

378

attributable to Linde AG shareholders

1,747

629

309

attributable to non-controlling interests

127

137

LINDE AG

GROUP STATEMENT OF FINANCIAL POSITION

in EUR m

Note

31.12.2016

31.12.2017

Assets

Goodwill

[12

]

11,405

10,681

Other intangible assets

[12

]

2,440

2,047

Tangible assets

[13

]

12,756

11,756

Investments in associates and joint ventures (at equity)

[14

]

239

219

Other financial assets

[14

]

Receivables from finance leases

[16

]

165

Trade receivables

[16

]

Other receivables and other assets

[16

]

378

381

Income tax receivables

[16

]

Deferred tax assets

[10

]

500

416

NON—CURRENT ASSETS

27,963

25,672

Inventories

[15

]

1,231

1,211

Receivables from finance leases

[16

]

Trade receivables

[16

]

2,755

2,668

Other receivables and other assets

[16

]

788

706

Income tax receivables

[16

]

199

227

Securities

[17

]

131

623

Cash and cash equivalents

[18

]

1,463

1,432

Non-current assets classified as held for sale and disposal groups

[19

]

610

941

CURRENT ASSETS

7,226

7,841

TOTAL ASSETS

35,189

33,513

LINDE AG

GROUP STATEMENT OF FINANCIAL POSITION (continued)

in EUR m

Note

31.12.2016

31.12.2017

Equity and liabilities

Capital subscribed

475

Conditionally authorised capital EUR 57 million (2015: EUR 57 million)

Capital reserve

6,745

6,730

Revenue reserves

7,244

8,235

Cumulative changes in equity not recognised through the statement of profit or loss

113

-1,258

TOTAL EQUITY ATTRIBUTABLE TO LINDE AG SHAREHOLDERS

[20

]

14,577

14,182

Non-controlling interests

[20

]

903

877

TOTAL EQUITY

15,480

15,059

Provisions for pensions and similar obligations

[21

]

1,564

1,280

Other non-current provisions

[22

]

526

477

Deferred tax liabilities

[10

]

1,683

1,243

Financial debt

[23

]

6,674

6,089

Liabilities from finance leases

[24

]

Trade payables

[25

]

Other non-current liabilities

[25

]

725

537

NON—CURRENT LIABILITIES

11,226

9,667

Current provisions

[22

]

1,140

1,110

Financial debt

[23

]

1,854

1,930

Liabilities from finance leases

[24

]

Trade payables

[25

]

3,570

3,814

Other current liabilities

[25

]

1,208

1,159

Income Tax Liabilities

[25

]

549

551

Liabilities in connection with non-current assets classified as held for sale and disposal groups

[19

]

141

209

CURRENT LIABILITIES

8,483

8,787

TOTAL EQUITY AND LIABILITIES

35,189

33,513

LINDE AG

GROUP STATEMENTS OF CASH FLOWS


*in EUR m*	*Note*		*2015*		*2016*		*2017*
Profit before tax from continuing operations				1,632		1,751		1,679
Adjustments to profit before tax to calculate cash flow from operating activities - continuing operations						—		—

Amortisation of intangible assets / depreciation of tangible assets		[12], [13]		1,866		1,897		1,896
Impairments of financial assets		[14]		16		8		1
Profit/loss on disposal of non-current assets				-18		-36		-47
Net interest		[9]		366		307		258
Finance Income arising from embedded finance leases in accordance with IFRIC 4/IAS 17		[9]		18		14		10
Share of profit or loss from associates and joint ventures (at equity)		[14]		-12		-13		-19
Distributions/dividends received from associates and joint ventures		[14]		22		22		29
Income taxes paid		[10]		-532		-446		-453
Changes in assets and liabilities						—		—

Change in inventories		[15]		-45		21		-75
Change in trade receivables		[16]		293		-91		20
Change in provisions		[21], [22]		-26		-64		-17
Change in trade payables		[25]		-189		349		271
Change in other assets and liabilities				192		-319		-75
CASH FLOW FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS				3,583		3,400		3,478

CASH FLOW FROM OPERATING ACTIVITIES - DISCONTINUED OPERATIONS				10		40		30

CASH FLOW FROM OPERATING ACTIVITIES - CONTINUING AND DISCONTINUED OPERATIONS				3,593		3,440		3,508

Payments for tangible and intangible assets and plants held under finance leases in accordance with IFRIC 4/IAS 17				-1,876		-1,761		-1,660
Payments for investments in consolidated companies		[2]		-113		-250		-40
Payments for investments in financial assets				-76		-75		-67
Payments for investments in securities		[17]		-953		-1,240		-1,655
Proceeds on disposal of securities		[17]		1,052		1,531		1,162
Proceeds on disposal of tangible and intangible assets and amortisation of receivables from finance leases in accordance with IFRIC 4/IAS 17				85		173		267
Proceeds on disposal of consolidated companies and from purchase price repayment claims				1		116		123
Proceeds on disposal of non-current assets held for sale and disposal groups		[19]		12		—		—
Proceeds on disposal of financial assets				88		34		52
CASH FLOW FROM INVESTING ACTIVITIES - CONTINUING OPERATIONS				-1,780		-1,472		-1,818

CASH FLOW FROM INVESTING ACTIVITIES - DISCONTINUED OPERATIONS				-15		-19		-28

CASH FLOW FROM INVESTING ACTIVITIES - CONTINUING AND DISCONTINUED OPERATIONS				-1,795		-1,491		-1,846

LINDE AG

GROUP STATEMENTS OF CASH FLOWS (continued)

in EUR m

Note

2015

2016

2017

Dividend payments to Linde AG shareholders and non-controlling interests

[31

]

-701

-765

-813

Cash inflows/outflows due to changes of non-controlling interests

—

Cash inflows from interest rate derivatives

]

182

149

Interest paid for debt and cash outflows for interest rate derivatives

]

-546

-496

-388

Proceeds of loans and capital market debt

[23

]

3,150

5,322

4,757

Cash outflows for the repayment of loans and capital market debt

[23

]

-3,584

-6,085

-5,273

Cash outflows for the repayment of liabilities from finance leases

[24

]

-24

-21

-17

CASH FLOW FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS

-1,523

-1,896

-1,621

CASH FLOW FROM FINANCING ACTIVITIES - DISCONTINUED OPERATIONS

-21

-2

CASH FLOW FROM FINANCING ACTIVITIES - CONTINUING AND DISCONTINUED OPERATIONS

-1,519

-1,917

-1,623

CHANGE IN CASH AND CASH EQUIVALENTS

279

OPENING BALANCE OF CASH AND CASH EQUIVALENTS

[18

]

1,137

1,417

1,463

Effects of currency translation

-67

Cash and cash equivalents reported as non-current assets classified as held for sale and disposal groups

[19

]

-2

-4

-3

CLOSING BALANCE OF CASH AND CASH EQUIVALENTS

[18

]

1,417

1,463

1,432

LINDE AG

STATEMENTS OF CHANGES IN GROUP EQUITY


					*Revenue reserves*				*Cumulative changes in equity not recognised* *through the statement of profit or loss*
*in EUR m*	*Capital* *subscribed*		*Capital reserve*		Remeasurement of defined *benefit plans*		Retained earnings		Currency translation differences		Available-for- sale financial assets		Hedging instruments		Total equity attributable to Linde AG shareholders		Non- controlling interests		Total equity
At 01.01.2015		475		6,730		-980		7,544		61		5		-429		13,406		861		14,267

Profit for the year		—		—		—		1,149		—		—		—		1,149		103		1,252
Other comprehensive income (net of tax)		—		—		14		—		1,066		-6		-476		598		24		622
TOTAL COMPREHENSIVE INCOME		—		—		14		1,149		1,066		-6		-476		1,747		127		1,874

Dividend payments		—		—		—		-585		—		—		—		-585		-116		-701
Changes as a result of share option schemes		—		6		—		—		—		—		—		6		—		6
TOTAL CONTRIBUTIONS BY AND DISTRIBUTIONS TO OWNERS OF THE COMPANY		—		6		—		-585		—		—		—		-579		-116		-695

Other changes		—		—		—		4		—		—		—		4		-1		3

At 31.12.2015 / 01.01.2016		475		6,736		-966		8,112		1,127		-1		-905		14,578		871		15,449

Profit for the year		—		—		—		1,154		—		—		—		1,154		121		1,275
Other comprehensive income (net of tax)		—		—		-417		—		-148		—		40		-525		16		-509
TOTAL COMPREHENSIVE INCOME		—		—		-417		1,154		-148		—		40		629		137		766

Dividend payments		—		—		—		-640		—		—		—		-640		-125		-765
Changes as a result of share option schemes		—		9		—		—		—		—		—		9		—		9
Repurchase of own shares		—		—		—		—		—		—		—		—		—		—
Capital increase		—		—		—		—		—		—		—		—		—		—
TOTAL CONTRIBUTIONS BY AND DISTRIBUTIONS TO OWNERS OF THE COMPANY		—		9		—		-640		—		—		—		-631		-125		-756

Acquisition/disposal of non-controlling interests without change in control		—		—		—		—		—		—		—		—		—		—
Acquisition/disposal of a subsidiary with non-controlling interests		—		—		—		—		—		—		—		—		23		23
CHANGES IN OWNERSHIP INTERESTS IN SUBSIDIARIES		—		—		—		—		—		—		—		—		23		23

OTHER CHANGES		—		—		—		1		—		—		—		1		-3		-2

At 31.12.2016 / 01.01.2017		475		6,745		-1,383		8,627		979		-1		-865		14,577		903		15,480

Profit for the year		—		—		—		1,434		—		—		—		1,434		132		1,566
Other comprehensive income (net of tax)		—		—		246		—		-1,719		6		342		-1,125		-63		-1,188
Total comprehensive income		—		—		246		1,434		-1,719		6		342		309		69		378

Dividend payments		—		—		—		-687		—		—		—		-687		-126		-813
Changes as a result of share option schemes		—		-15		—		—		—		—		—		-15		—		-15
Repurchase of own shares		—		—		—		—		—		—		—		—		—		—
Capital increase		—		—		—		—		—		—		—		—		11		11
TOTAL CONTRIBUTIONS BY AND DISTRIBUTIONS TO OWNERS OF THE COMPANY		—		-15		—		-687		—		—		—		-702		-115		-817

Acquisition/disposal of non-controlling interests without change in control		—		—		—		-2		—		—		—		-2		12		10
Acquisition/disposal of a subsidiary with non-controlling interests		—		—		—		—		—		—		—		—		8		8
CHANGES IN OWNERSHIP INTERESTS IN SUBSIDIARIES		—		—		—		-2		—		—		—		-2		20		18

OTHER CHANGES		—		—		—		—		—		—		—		—		—		—

At 31.12.2017		475		6,730		-1,137		9,372		-740		5		-523		14,182		877		15,059

LINDE AG

SEGMENT INFORMATION ¹

SEGMENT INFORMATION 1


	*Segments*
	*Gases Division*						*Engineering Division*						*Reconciliation*						Group (including continuing & discontinued operations)
*in EUR m*	*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*
Revenue from third parties		15,157		14,882		14,977		2,188		2,066		2,136		—		—		—		17,345		16,948		17,113
Revenue from other segments		11		10		11		406		285		252		-417		-295		-263		—		—		—
TOTAL REVENUE FROM THE REPORTABLE SEGMENTS		15,168		14,892		14,988		2,594		2,351		2,388		-417		-295		-263		17,345		16,948		17,113

OPERATING PROFIT		4,151		4,210		4,268		216		196		220		-280		-308		-275		4,087		4,098		4,213

Restructuring and merger costs (special items)		160		101		221		30		12		56		2		13		96		192		126		373
Amortisation of intangible assets/depreciation of tangible assets		1,863		1,893		1,900		41		44		34		-38		-40		-38		1,866		1,897		1,896
thereof write-downs and impairments		7		17		17		4		7		1		—		—		—		11		24		18
thereof write-downs and impairments in connection with non-current assets classified as held for sale and disposal groups		—		6		—		—		—		—		—		—		—		—		6		—
EBIT		2,128		2,216		2,147		145		140		130		-244		-281		-333		2,029		2,075		1,944

Capital expenditure (excluding financial assets)		1,881		1,660		1,752		32		30		30		3		22		-95		1,916		1,712		1,687

¹	Due to the plans to sell Gist, the segment reporting was changed in the 2017 financial year. Further information is available in NOTE [29] SEGMENT INFORMATION. The prior-year figures were adjusted accordingly.


	*Segments Gases Division*
	*EM EA*						*Asia/Pacific*						*Americas*						*Total Gases Division*
*in EUR m*	*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*
Revenue from third parties		5,984		5,721		5,862		4,130		4,084		4,354		5,043		5,077		4,761		15,157		14,882		14,977
Revenue from other segments		26		15		14		27		25		24		140		155		147		11		10		11
TOTAL REVENUE FROM THE REPORTABLE SEGMENTS		6,010		5,736		5,876		4,157		4,109		4,378		5,183		5,232		4,908		15,168		14,892		14,988

OPERATING PROFIT		1,790		1,807		1,874		1,063		1,084		1,202		1,298		1,319		1,192		4,151		4,210		4,268

Restructuring and merger costs (special items)		87		49		164		40		42		11		33		10		46		160		101		221
Amortisation of intangible assets/depreciation of tangible assets		688		703		713		584		569		579		591		621		608		1,863		1,893		1,900
thereof write-downs and impairments		2		4		1		4		10		16		1		3		—		7		17		17
thereof write-downs and impairments in connection with non-current assets classified as held for sale and disposal groups		—		6		—		—		—		—		—		—		—		—		6		—
EBIT		1,015		1,055		997		439		473		612		674		688		538		2,128		2,216		2,147

Capital expenditure (excluding financial assets)		895		753		698		386		375		465		600		532		589		1,881		1,660		1,752

LINDE AG

REVENUE BY LOCATION OF CUSTOMER

in EUR m

2015

2016

2017

Europe

5 .986

5.995

6.440

Germany

1.304

1.228

1.272

Russia

382

716

1.127

1.166

932

883

Asia/ Pacific

4.947

4.871

5.120

China

1.199

1.241

1.358

Australia

1.122

1.040

1.056

North America

5.212

5.050

4.455

USA

4.685

4.506

3.868

South America

662

572

590

Africa

538

460

508

GROUP REVENUE

17.345

16.948

17.113

LINDE AG

NON-CURRENT SEGMENT ASSETS BY LOCATION OF COMPANY


*in EUR m*	*2016*		*2017*
Europe		10,035		9,849

Germany		1,276		1,291
UK		1,177		1,098
Asia/ Pacific		7,958		7,063

China		1,421		1,381
Australia		1,192		1,046
North America		7,532		6,611

USA		2,858		2,472
South America		434		362

Africa		642		599

NON—CURRENT SEGMENT ASSETS		26,601		24,484

The information disclosed by country excludes goodwill.

LINDE AG

Notes to the Group Financial Statements

General principles

[1] Basis of preparation

The Linde Group is an international technology group which operates across the globe. The parent company of The Linde Group is Linde Aktiengesellschaft. The registered office of Linde AG is in Munich, Germany.

The consolidated financial statements of Linde Aktiengesellschaft (Linde) have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). We have applied all standards issued by the IASB and interpretations by the International Financial Reporting Committee (IFRIC) that were effective as of December 31, 2017.

The reporting currency is the euro. All amounts are shown in millions of euro (EUR m), unless stated otherwise. The Group statements of profit or loss has been prepared using the cost of sales method.

The annual financial statements of companies included in the consolidation are drawn up at the same reporting date as the annual financial statements of Linde Aktiengesellschaft.

[2] Acquisitions

There were no major acquisitions in 2017. Therefore, acquisitions made during the year are described below in aggregate rather than on an individual basis. In order to expand its business in the Industrial Gases and Healthcare product areas, Linde made acquisitions in the EMEA, Americas and Asia/Pacific segments in the year under review. The total purchase price for these acquisitions, including restated existing shares, was EUR 55 m, of which EUR 44 m was paid in cash. The total purchase price includes contingent consideration of EUR 1 m and deferred purchase price payments of EUR 2 m. In the course of a gradual acquisition, existing shares were restated at the fair value of EUR 8 m and the resulting positive impact on earnings in the amount of EUR 1 m was reported under operating profit. In the course of these corporate acquisitions, Linde has acquired non-current assets, inventories, liquid funds and other current assets. The acquired goodwill came to EUR 37 m in total. Key components relate to synergy potential, particularly sales synergies in the Healthcare area, and potential resulting from continuation as a going concern. The goodwill is tax-deductible in the amount of EUR 25 m. The shares of non-controlling shareholders were recognised based on the share of the restated net assets. The acquisitions resulted in the addition of receivables totalling EUR 9 m. The gross value of the receivables is EUR 9 m. Since the date of acquisition, the acquired companies have contributed EUR 23 m in revenue and EUR 0 m in profit for the year to the Group operating profit. If the business had already been consolidated within The Linde Group since 1 January 2017, then the revenue contribution would have been EUR 33 m and the contribution to profit for the year would have been EUR 1 m.

IMPACT OF ACQUISITIONS ON THE NET ASSETS OF THE LINDE GROUP


*Opening balance upon initial consolidation*
*in EUR m*	*Other*
Non-current assets		38
Inventories		1
Other current assets		10
Cash and cash equivalents		4
Equity (attributable to Linde AG)		18
Non-controlling interests		13
Liabilities		22

IMPACT OF ACQUISITIONS ON THE PROFIT FOR THE YEAR OF THE LINDE GROUP

IMPACT OF ACQUISITIONS ON THE PROFIT FOR THE YEAR OF THE LINDE GROUP


*in EUR m*	Profit for the year since the acquisition date		Profit for the year since the beginning of the financial year on 01.01.2017¹
Other		—		1

1	When these amounts were calculated, the fair value adjustments were assumed to be the same as those at the acquisition date.

IMPACT OF ACQUISITIONS ON THE REVENUE OF THE LINDE GROUP

IMPACT OF ACQUISITIONS ON THE REVENUE OF THE LINDE GROUP


*in EUR m*	Revenue since the acquisition date		Revenue since the beginning of the financial year on 01.01.2017
Other		23		33

[3] Scope of consolidation

STRUCTURE OF COMPANIES INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS


	*As at*						*As at*						*As at*
	31.12.2014/ 01.01.2015		*Additions*		*Disposals*		31.12.2015/ 01.01.2016		*Additions*		*Disposals*		*31.12.2016/* *01.01.2017*		*Additions*		*Disposals*		As at 31.12.2017
CONSOLIDATED SUBSIDIARIES		535		4		11		528		47		19		556		16		16		556
of which within Germany		18		1		1		18		2		—		20		—		—		20
of which outside Germany		517		3		10		510		45		19		536		16		16		536
COMPANIES ACCOUNTED FOR USING THE LINE-BY-LINE METHOD		5		—		—		5		—		—		5		2		—		7
of which within Germany		—		—		—		—		—		—		—		—		—		—
of which outside Germany		5		—		—		5		—		—		5		2		—		7
COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD		35		2		—		37		4		5		36		—		1		35
of which within Germany		3		2		—		5		1		4		2		—		—		2
of which outside Germany		32		—		—		32		3		1		34		—		1		33
NON-CONSOLIDATED SUBSIDIARIES		59		1		10		50		9		6		53		4		15		42
of which within Germany		1		—		1		—		4		—		4		—		2		2
of which outside Germany		58		1		9		50		5		6		49		4		13		40

Changes in the scope of the consolidation may arise as a result of acquisitions, sales, mergers or closures, or as a result of changes in the assessment as to whether Linde AG exercises control or joint control over a company.

The main disposals in the reporting period relate to the sale of the subsidiary Shenzhen South China Industrial Gases Co. Ltd. and of the Australian subsidiary Flexihire Pty. Ltd. The sales resulted, at the level of the Group as a whole, in a total net profit on deconsolidation of EUR 70 m, which is included in other operating income (EUR 76 m) and expenses (EUR 6 m).

The other main disposals in the financial year are shown in NOTE [19]. Most of the other disposals were mergers and liquidations.

[4] Foreign currency translation

Transactions in foreign currency are translated into the relevant functional currency of the individual entity on the transaction date. After initial recognition, foreign currency fluctuations relating to monetary items are recognised in profit or loss. For non-monetary items, historical translation rates continue to form the measurement basis.

Translation differences arising from the translation of items into the reporting currency continue to be recognised in other comprehensive income. The financial statements of foreign subsidiaries, including any fair value adjustments identified in the course of a purchase price allocation, are translated in accordance with the functional currency concept set out in IAS 21 The Effects of Changes in Foreign Exchange Rates.

Assets and liabilities, contingent liabilities and other financial commitments are translated at the mid-rate on the reporting date (closing rate method). Items in the Group statements of profit or loss and the reported profit for the year are translated at a rate which approximates to the translation rate on the date of the transaction (the average rate).

Differences arising from the translation of equity are recognised in other comprehensive income.

The financial statements of foreign companies accounted for using the equity method are translated using the same principles for the adjustment of equity as are applied to consolidated subsidiaries.

In general, the financial statements of subsidiaries outside Germany which report in a functional currency which is the currency of a hyperinflationary economy are adjusted for the change in purchasing power arising from the inflation in accordance with IAS 29 Financial Reporting in Hyperinflationary Economies.

PRINCIPAL EXCHANGE RATES


			*Exchange rates*				*Average rates*
			*on reporting date*				*for the year*
*Exchange rate EUR 1 =*	*ISO Code*		*31.12.2016*		*31.12.2017*		*2016*		*2017*
Australia		AUD		1.45732		1.53781		1.48859		1.47357
China		CNY		7.30336		7.80668		7.35307		7.63240
UK		GBP		0.85229		0.88779		0.81950		0.87656
South Africa		ZAR		14.44751		14.84441		16.26524		15.04332
USA		USD		1.05160		1.19980		1.10700		1.13023

[5] Accounting policies

The financial statements of companies included in the consolidated financial statements of The Linde Group have been prepared using uniform accounting policies in accordance with IFRS 10 Consolidated Financial Statements.

The preparation of the Group financial statements in accordance with IFRS requires management judgements and estimates for some items, which might have an effect on their recognition and measurement in the statement of financial position and statements of profit or loss. The actual amounts realised may differ from these estimates.

The main accounting and valuation policies, as well as the estimates and management judgements associated with them, are explained below:

Principles of consolidation

Consolidation

Companies are consolidated using the acquisition method. Where non-controlling interests are acquired, any remaining balance between the acquisition cost and the share of net assets acquired is offset directly in equity. Intra-Group sales, income and expenses and accounts receivable and payable are eliminated. Intra-Group profits and losses arising from intra-Group deliveries of non-current assets and inventories are also eliminated.

The cost of an acquisition is measured at the fair value of the assets acquired, and liabilities assumed, in order to gain control, on the date of acquisition. The identifiable assets, liabilities and contingent liabilities acquired as a result of a business combination are recognised for the first time at their fair values at the date of acquisition, irrespective of the scope of any non-controlling interests. Non-controlling interests are measured at the pro rata fair value of the assets acquired and the liabilities assumed (partial goodwill method).

Control

The Group financial statements comprise Linde and all the entities which Linde controls. In accordance with IFRS 10, Linde controls an entity when it has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity after considering all relevant facts and circumstances. When assessing whether to consolidate an entity, Linde evaluates a range of control factors, particularly:

•

the purpose and design of the entity,

•

the relevant activities and how these are determined,

•

whether Linde’s rights result in the ability to direct the relevant activities,

•

whether Linde has exposure or rights to variable returns, and

•

whether Linde has the ability to use its power to affect the amount of its returns.

If Linde holds more than 50% of the voting rights associated with its equity interests in an entity, this generally indicates that Linde has control over the entity unless there is evidence that another investor or other investors have the practical ability to direct the relevant activities.

If Linde does not own more than 50% of the voting rights associated with its equity interests, it controls an entity if it has the practical ability to direct the relevant activities of such entity on other contractual bases. Linde controls certain entities which were solely formed for the construction and operation of gas production plants. In these cases, Linde provides an investment in the form of equity and partially shareholder loans and continuously contributes the know-how to build, maintain and operate the gas production plants which constitute the relevant activities that significantly affect the amount of returns. These entities depend on Linde’s technology input.

Joint control

Companies over which Linde AG may exercise joint control, as defined by IFRS 11, are either included in the Group financial statements on the basis of the interest (line-by-line method) or using the equity method, depending on the characteristics of the company. If Linde AG holds the same number of voting rights as another company, this generally indicates joint control, unless other (contractual) rights result in control being exercised by one of the shareholders.

If joint control exists, Linde needs to distinguish whether the investment is a joint operation or a joint venture. This distinction is dependent on whether Linde has rights to the assets and obligations for the liabilities of the arrangement or whether it has rights to the net assets of the arrangement. To make the distinction, Linde must consider the structure and legal form of the company, any contractual agreements which might apply and any other relevant circumstances.

Joint ventures are accounted for under the equity method at cost at the date of acquisition. In subsequent periods, the carrying amount is adjusted up or down to reflect Linde’s share of the comprehensive income of the investee. Any distributions received from the investee and other changes in the investees’ equity reduce or increase the carrying amount of the investment. If the losses of an associate or joint venture attributable to The Linde Group equal or exceed the value of the interest held in this associate or joint venture, no further losses are recognised unless the Group incurs an obligation or makes payments on behalf of the associate or joint venture. The same principles apply to the consolidation of companies accounted for using the equity method as for the consolidation of subsidiaries.

Significant influence

Associates over which Linde AG can exercise significant influence as defined by IAS 28 are also accounted for using the equity method. Significant influence is presumed if Linde AG holds (directly or indirectly) 20 percent or more of the voting rights in an investee. The term “significant influence” refers to a scenario in which Linde can exert a significant influence via representation in the relevant management bodies, unless it can be clearly demonstrated that this is not the case.

Non-consolidated subsidiaries

Non-consolidated subsidiaries and other investments, when taken individually and together, are immaterial from the Group’s point of view in terms of total assets, revenue and profit or loss for the year and do not have a significant impact on the net assets, financial position and results of operations of the Group.

Management judgements

When assessing whether Linde exercises control, joint control or significant influence over companies in which it holds less than 100 percent of the voting rights, management judgements may be required. Above all in cases where Linde holds 50 percent of the voting rights, a decision has to be taken as to whether there are rights or circumstances which might mean that Linde has power over the potential subsidiary or that joint control exists.

Changes to contractual agreements or facts or circumstances are monitored on an ongoing basis and are evaluated to determine whether they have an impact on the assessment as to whether Linde is exercising control or joint control over its investment.

Business combinations require estimates to be made when determining fair values. When discounted cash flow methods are used, discretionary aspects include in particular the time period and amount of the cash flow and the determination of an appropriate discount rate.

Intangible assets

Purchased and internally generated intangible assets are stated at acquisition cost or manufacturing cost less accumulated amortisation and any impairment losses. An internally generated intangible asset is recognised if it can be identified as an asset, if it is probable that the future economic benefits that are attributable to the asset will flow to Linde, and if the cost of the asset can be measured reliably. It is important to determine whether the intangible assets have finite or indefinite useful lives. The estimated useful life of customer relationships purchased is calculated on the basis of the term of the contractual relationship underlying the customer relationship, or on the basis of expected customer behavior. Customer relationships are stated at acquisition cost and amortised on a straight-line basis over their estimated useful lives. Goodwill, intangible assets with indefinite useful lives and intangible assets not yet ready for use are not amortised, but are subject instead to an impairment test once a year, or more often if there is any indication that an asset may be impaired. The cash-generating unit (CGU) applied in impairment reviews of goodwill corresponds to the operating segments EMEA, Americas and Asia/Pacific, as well as the Engineering Division. The impairment test involves initially comparing the value in use of the cash-generating unit with its carrying amount. If the carrying amount of the cash-generating unit exceeds the value in use, a test is performed to determine whether the fair value of the asset less costs to sell is higher than the carrying amount. To calculate the value in use of the cash-generating units, post-tax future cash inflows and outflows are derived from corporate financial budgets approved by management which cover a detailed planning period of five years. The calculation of the terminal value is based on the future net cash flows from the latest available detailed planning period. The post-tax interest rates used to discount the cash flows take into account industry-specific and country-specific risks relating to the particular cash-generating unit. When the terminal value is discounted, declining growth rates are used, which are lower than the growth rates calculated in the detailed planning period and which serve mainly to compensate for a general inflation rate.

If the reason for an impairment loss recognised in prior years no longer exists, the carrying amount of the intangible asset is increased to a maximum figure of the carrying amount that would have been determined had no impairment loss been recognised. This does not apply to goodwill.

Costs incurred in connection with the purchase for consideration and in-house development of software used internally, including the costs of bringing this software to an operational state, are capitalised and amortised on a straight-line basis over an estimated useful life of three to eight years.

USEFUL LIVES OF INTANGIBLE ASSETS


Customer relationships			2-40 years
Brands			10 years-indefinite useful lives
Other intangible assets			3-14 years

Tangible assets

Tangible assets are reported at acquisition cost or manufacturing cost less accumulated depreciation based on the estimated useful life of the asset and any impairment losses. Tangible assets are depreciated using the straight-line method and the depreciation expense is disclosed in the statements of profit or loss under the heading which corresponds to the functional features of the underlying asset. The depreciation method and the estimated useful lives of the assets are reviewed on an annual basis and adapted to prevailing conditions.

The following useful lives apply to the different types of tangible assets:

USEFUL LIVES OF TANGIBLE ASSETS


Buildings & land rights		10–40 years
Technical equipment & machinery		6–15 years
Other equipment, furniture and fixtures		3–20 years

The useful lives are estimated based on past experience. Assumptions also need to be made when Linde assesses whether an asset may be capitalised and which components of the cost of the asset may be capitalised. Estimates need to be made here, for example, of the expected future economic benefits of an asset or the expected future costs of the dismantling of plants. In addition, the capitalisation of costs which are incurred during the operating phase of an asset, such as the costs of upgrades to plants or their complete overhaul, depends on whether these costs will lead to better or higher output or whether they extend the estimated useful life of the asset.

If significant events or market developments indicate an impairment in the value of the tangible asset, Linde reviews the recoverability of the carrying amount of the asset by testing for impairment. The scope of the cash-generating unit is determined by external, independent cash flows. Special local market-related circumstances determine the combination of cash flows from different product segments. To determine the recoverable amount on the basis of value in use, estimated future cash flows are discounted at a rate which reflects the risk specific to the asset. When estimating future cash flows, current and expected future inflows as well as segment-specific, technological, economic and general developments are taken into account. If the reason for an impairment loss recognised in prior years no longer exists, the carrying amount of the tangible asset is increased to a maximum figure of the carrying amount that would have been determined had no impairment loss been recognised.

Inventories

Inventories are reported at the lower of acquisition or manufacturing cost and net realisable value. Inventories are generally measured on a moving average basis or using the FIFO (first in, first out) method.

Non-current assets held for sale and disposal groups and discontinued operations

Non-current assets and disposal groups, as well as liabilities directly related to these, are classified separately in the Statement of Financial Position as held for sale if they are available for sale in their present condition and the sale within the next twelve months is highly probable.

Non-current assets classified as held for sale and disposal groups are measured at the lower of carrying amount and fair value less costs to sell. Amortisation and depreciation has been discontinued. The process involved in determining the fair value less costs to sell involves estimates and assumptions that are subject to uncertainty. Discontinued operations are reported as soon as a part of the business is classified as held for sale, or has already been disposed of, and the business area in question represents either a separate major line of business or a geographical area of operations and is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations. The profit/loss from discontinued operations is reported separately from the expenses and income from continuing operations in the Group statements of profit or loss; prior-year figures are shown on a like-for-like basis. In the Group statements of cash flows, the cash flows from discontinued operations are shown separately from the cash flows from continuing operations; prior-year figures are shown on a like-for- like basis. The information provided in the Notes to the Group financial statements – insofar as they relate to the Group statements of profit or loss and the Group statements of cash flows – relates to continuing operations. If the information relates exclusively to discontinued operations, this is highlighted accordingly.

Provisions for pensions and similar obligations

The valuation of pension provisions is based on the projected unit credit method set out in IAS 19 Employee Benefits for defined benefit obligations. This method takes into account not only vested future benefits and known pensions at the reporting date, but also expected future increases in salaries and pensions. The calculation of the provisions is determined using actuarial reports based on biometric assumptions.

The fair value of the plan assets (adjusted if necessary to comply with the rules relating to the asset ceiling set out in IAS 19.64) is deducted from the present value of the pension obligations (gross pension obligation) to give the net pension obligation or net pension asset in respect of defined benefit pension plans. According to IAS 19.64, a net pension asset may only be disclosed if The Linde Group, under its obligation as an employer, has the right to receive a refund of the surplus or to reduce future contributions.

The net interest expense for the financial year is calculated by multiplying the net pension obligation or net pension asset at the beginning of the period by the interest rate underlying the discounting of the gross defined benefit obligation at the beginning of the period.

The discount rate is calculated on the basis of the returns achieved on the relevant call date for high quality fixed-interest corporate bonds in the market. The currency and period to maturity of the underlying bonds correspond to the currency and probable period to maturity of the post-employment benefit obligations. If such returns are not available, the discount rates are based on market returns for government bonds.

Remeasurements comprise on the one hand the actuarial gains and losses on the remeasurement of the gross defined benefit obligation and on the other hand the difference between the return on plan assets actually realised and the return assumed at the beginning of the period, which is based on the discount rate of the corresponding gross defined benefit obligation. If a pension plan is overfunded and the asset ceiling applies, remeasurements also comprise the change in the net asset from the application of the asset ceiling rules to the extent that this has not been accounted for in net interest.

Actuarial gains and losses arise from changes in actuarial assumptions or from variations between earlier actuarial assumptions and actual events.

All remeasurements (i.e. actuarial gains and losses, the cumulative effect of an asset ceiling and the effects of an increase in the pension obligation in accordance with IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction) are offset immediately in other comprehensive income.

The expense arising from additions to the pension provisions is allocated to functional costs. The net interest expense or net interest income from defined benefit plans is disclosed in the financial result. For each pension plan, it is established whether the net figure is a net interest expense or net interest income and the amounts are disclosed accordingly in the financial result.

Miscellaneous provisions

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, miscellaneous provisions are recognised when a present obligation to a third party exists as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Miscellaneous provisions are recognised for all identifiable risks and liabilities of uncertain timing or amount. The amounts provided are the best estimate of the probable expenditure required to settle the obligation and are not offset against recourse claims. The settlement amount is calculated based on the assessment of the probability of an outflow of resources, and on past experience and the circumstances known at the reporting date. This also includes any cost increases which need to be taken into account at the reporting date. The actual outflow of resources at a future date may therefore vary from the figure included in other provisions. Provisions which relate to periods of more than twelve months are discounted.

Provisions for warranties and onerous contracts include provisions for warranties and provisions for litigation. Assumptions are made here about the probability of occurrence of the risk and the expected future outflow of resources. The uncertainty associated with the measurement of warranty provisions is relatively moderate, as Linde has recourse to historical warranty cost ratios when determining the amounts to be set aside.

Litigation is associated with great uncertainty. A degree of discretion is required to assess whether a present obligation to a third party exists at the reporting date as a result of a past event, whether it is probable that an outflow of resources will be required in future to settle the obligation and whether a reliable estimate can be made of the amount of the obligation. The current status of outstanding litigation is regularly reviewed and updated by the Group’s legal department and lawyers appointed by the Group. Changes to this status as a result of new information may result in adjustments being made to the provision.

Provisions for other obligations include provisions for costs which are expected to arise on the completion of major projects. There is an increased level of uncertainty associated with the measurement of these provisions. Provisions for warranty claims are recognised taking current or estimated future claims experience into account.

Dismantling provisions are capitalised when they arise, at the discounted value of the obligation, and a provision for the same amount is established at the same time. An estimate is made, based on past experience, of future costs expected to be incurred to dismantle plants and restore the land on which the plant was built to its original condition. The expected costs are reassessed on an annual basis and the amount of the provision is adjusted if required. The depreciation charged on the asset and the unwinding of interest applied to the provision are both allocated as an expense to the periods of use of the asset.

Provisions for restructuring are recognised if a formal, detailed restructuring plan has been drawn up and communicated to the relevant parties.

Income tax provisions are disclosed in income tax liabilities.

Revenue recognition

Revenue comprises sales of products and services as well as lease and rental income, less discounts and rebates.

In the on-site product area, revenue is recognised when the risks of ownership have been transferred to the customer, the consideration can be reliably determined and it is probable that the associated receivables will be collected. In the cylinder gas and liquefied gases business, revenue is recognised at the time of delivery of, and transfer of risk associated with, the gases to be supplied to the customer/when the related services on which the invoicing is based are performed. Revenue from healthcare services in the Healthcare product area is recognised in the amount of the agreed reimbursement rates when the agreed healthcare service is rendered.

Long-term construction contracts

Revenue from long-term customer-specific construction contracts is recognised, in accordance with IAS 11 Construction Contracts, based on the stage of completion of the contract (percentage of completion method, or PoC method). The stage of completion of each contract is determined by the ratio of the costs incurred to the expected total cost (cost-to-cost method). For major projects, the calculation and analysis of the stage of completion of the project takes into account in particular contract costs incurred by subcontractors. External experts are sometimes used to assist with the calculation of these costs. When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of the contract costs incurred which can probably be covered, and the contract costs in the period in which they are incurred are recognised as an expense (zero profit method). If the cumulative contract output (costs incurred plus profits disclosed) exceeds payments on account on an individual contract, the construction contract is disclosed under Trade receivables. If there is a negative balance after deducting payments on account, the amount is disclosed under Trade payables. Anticipated losses on contracts are recognised in full, based on an assessment of identifiable risks.

The financial income from long-term construction contracts is disclosed in other operating income as a result of its clear relationship with the Group’s operating business. The measurement of contract revenue is affected by uncertainties that depend on the outcome of future events. Underlying estimates are revised at the end of each reporting period based on the latest available information at that time. Changes to total estimated cost and anticipated losses, if any, are recognised in the period determined. A variation is an instruction by the customer for a change in the scope of the work to be performed under the contract. A variation may lead to an increase or a decrease in contract revenue. A variation is included in the contract revenue if it is probable that the customer will approve the variation and the amount of revenue arising from the variation, respectively, and the amount of revenue can be measured reliably. A claim is an amount that the contractor seeks to collect from the customer or another party as reimbursement for costs not included in the contract price. Claims are included in contract revenue only when negotiations have reached an advanced stage such that it is probable that the customer will accept the claim and the amount that is probable will be accepted by the customer can be measured reliably.

Cost of sales

Cost of sales comprises the cost of goods and services sold and the cost of merchandise sold. It includes not only the cost of direct materials and direct manufacturing expenses, but also overheads including depreciation of production plants, amortisation of certain intangible assets and inventory write-downs.

Research and development costs

Research costs and development costs which cannot be capitalised are recognised immediately in profit or loss

Financial result

The financial result includes:

•

interest expenses on liabilities,

•

dividends received,

•

interest income on receivables,

•

gains and losses on financial instruments recognised in profit or loss,

•

the net interest expense and net interest income from defined benefit plans,

•

interest expense and income from finance leases and

•

the expense and income relating to the measurement of certain embedded derivatives.

Interest income and interest expenses are recognised in profit or loss on the basis of the effective interest rate method.

Dividends are recognised in profit or loss when they have been declared. Dividend payments made by operating companies which are reported at cost or at fair value in which Linde holds more than 10 percent of the voting rights and which have a clear connection to Linde’s core operating business are recognised in other operating income. Core businesses are defined as those business areas which make a material contribution to the revenue of a division. A material contribution is deemed to be one of around 20 percent.

Financial instruments

Financial assets and liabilities are only recognised in the Group statement of financial position when Linde becomes a party to the contractual provisions of the financial instrument. In the normal course of events purchases and sales of financial assets are accounted for on settlement day. The same does not apply to derivatives, which are accounted for on the trading day.

According to IAS 39 Financial Instruments: Recognition and Measurement, financial instruments must be categorised as financial instruments held for trading or at fair value through profit or loss, available-for-sale financial assets, held-to-maturity financial investments, or loans and receivables. The Linde Group does not avail itself of the fair value option, whereby financial assets or financial liabilities are classified as at fair value through profit or loss when they are first recognised.

Available-for-sale financial assets include equity instruments and debt instruments. If equity instruments are not held for trading or measured at fair value through profit or loss, they are classified as available-for-sale financial assets. Debt instruments are included in this category if they are held for an unspecified period and can be sold depending on the market situation.

Financial instruments are initially recognised at fair value. Transaction expenses which are directly attributable to the acquisition or issue of financial instruments are only included in the determination of the carrying amount if the financial instruments are not recognised at fair value through profit or loss.

The subsequent measurement of available-for-sale financial assets is based on the separate recognition in equity as other comprehensive income of unrealised gains and losses, inclusive of deferred tax, until they are realised. Equity instruments for which no price is quoted in an active market and for which the fair value cannot be reliably determined are reported at cost. If the fair value of available-for-sale financial assets falls below cost and if there is objective evidence that the asset is impaired, the cumulative loss recognised directly in equity is transferred to profit or loss. Impairment reversals are recognised in equity for equity instruments and in profit or loss for debt instruments.

Loans and receivables and held-to-maturity financial investments are measured at amortised cost using the effective interest rate method. Where there is objective evidence that the asset is impaired, it is recognised at the present value of expected future cash flows if this is lower than amortised cost. The present value of expected future cash flows is calculated using the original effective interest rate of the financial asset.

The Linde Group conducts regular impairment reviews of the following categories of financial assets: loans and receivables, available-for-sale financial assets and held-to-maturity financial investments. The following criteria are applied:

[a] significant financial difficulty of the issuer or obligor,

[b] breach of contract, such as a default or delinquency in payments of interest or principal,

[c] the lender, for economic or legal reasons relating to the borrowers financial difficulty, granting to the borrower a concession that would not otherwise be considered,

[d] it becoming probable that the borrower will enter bankruptcy or other financial reorganisation,

[e] the disappearance of an active market for that asset because of financial difficulties,

[f] a recommendation made by capital market observers,

[g] information about significant changes with an adverse effect that have taken place in the technological, economic or legal environment of a contracting party,

[h] a significant or prolonged decline in the fair value of the financial instrument.

Impairments are recognised through profit or loss in impairment accounts. If the financial asset is not recoverable, it is written off.

A financial asset is eliminated if Linde loses its contractual entitlement to cash flows from such an asset or if it transfers virtually all the risks and opportunities associated with that financial asset. In the 2017 financial year, no financial assets that would qualify for elimination were transferred by Linde.

All derivative financial instruments are reported at fair value, irrespective of their purpose or the reason for which they were acquired.

Embedded derivatives (i.e. derivatives which are included in host contracts) are separated from the host contract and accounted for as derivative financial instruments, if certain requirements are met.

Receivables and liabilities from finance leases, trade receivables and trade payables, financial debt, as well as miscellaneous receivables and assets and miscellaneous liabilities, are reported at amortised cost as long as they are not derivative financial instruments. Differences between historical cost and the repayment amount are accounted for using the effective interest rate method. Appropriate impairment losses are recognised if specific risks are identified. Impairments of receivables are based to a large extent on making estimates and assessments about individual amounts receivable. These estimates and assessments are founded on the creditworthiness of that particular customer, prevailing economic trends and an analysis of historical bad debts on a portfolio basis. Individual impairments of receivables take account of both customer-specific and country-specific risks. The carrying amount of the financial debt which comprises the hedged item in a fair value hedge is adjusted for the corresponding gain or loss with respect to the hedged risk.

Financial instruments which contain both an equity portion and a liability portion are classified in accordance with IAS 32 Financial Instruments: Presentation. The financial instruments issued by The Linde Group are classified entirely as financial liabilities and reported at amortised cost. No part thereof is classified separately as an equity instrument.

Deferred taxes

Deferred tax assets and liabilities are accounted for in accordance with IAS 12 Income Taxes under the liability method in respect of all temporary differences between the carrying amounts of the assets and liabilities under IFRS and the corresponding tax base used in the computation of taxable profit, and in respect of all consolidation adjustments affecting net income and unused tax loss carryforwards. Deferred tax assets are only recognised for unused tax losses to the extent that it is probable that taxable profits will be available in future years against which the tax losses can be utilised. Deferred taxes are calculated at the tax rates that apply to the period when the asset is realised or the liability is settled, using tax rates set out in laws that have been enacted or substantively enacted in the individual countries by the reporting date.

Accounting for leases

According to IFRIC 4 Determining whether an Arrangement contains a Lease, if specific criteria are met, certain arrangements should be accounted for as leases that do not take the legal form of a lease. In particular, in the Gases Division, certain gas supply contracts are classified as embedded leases if the fulfilment of the arrangement depends upon a specific asset and if customer’s revenue share accounts for an overwhelming proportion of the production capacity of the asset. If an embedded lease exists, the criteria set out in IAS 17 Leases are used to examine in each individual case whether, under the gas supply contract, substantially all the risks and rewards incidental to ownership of the plant have been transferred to the customer, meaning that this constitutes an embedded finance lease. This involves separating that portion of the gas supply contract which relates to the embedded lease from the rest of the contract. Then it is established whether the minimum lease payments thus identified amount to substantially all the fair value of the plant and whether the minimum lease term is for the major part of the plants economic life.

When classifying procurement lease agreements, Linde must also make assumptions: e. g. to determine the appropriate interest rate or the residual value or estimated useful lives of the underlying assets.

If Linde is the lessee under a finance lease agreement, the assets are disclosed at the beginning of the lease under tangible assets at the fair value of the leased asset or, if lower, at the present value of the future lease payments. Corresponding liabilities from finance leases are recognised.

Rental and lease payments under operating leases are recognised in functional costs in the statements of profit or loss on a straight-line basis over the lease term.

Recently issued accounting standards

The IASB and IFRIC have revised numerous standards and have issued many new ones in the course of their projects to develop IFRS and achieve convergence with US GAAP. Of these, the following standards are mandatory in the consolidated financial statements of The Linde Group for the year ended 31 December 2017:

•

Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses

•

Annual improvements to IFRS Standards 2014–2016 Cycle

•

Amendments to IAS 7: Disclosure Initiative

These changes have no significant impact on the net assets, financial position and results of operations of The Linde Group.

Recently issued accounting standards which have not yet been applied

The following standards have been issued by the IASB, but have not been applied in the consolidated financial statements of The Linde Group for the year ended 31 December 2017, as they are not yet effective:

•

IFRS 15 Revenue from Contracts with Customers including Amendments to IFRS 15 (first-time application according to IASB in financial years beginning on or after 1 January 2018)

•

Clarifications relating to IFRS 15 Revenue from Contracts with Customers (first-time application according to IASB in financial years beginning on or after 1 January 2018)

•

IFRS 9 Financial Instruments (first-time application according to IASB in financial years beginning on or after 1 January 2018)

•

Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (first-time application deferred indefinitely by the IASB)

•

IFRS 16 Leases (first-time application according to IASB in financial years beginning on or after 1 January 2019)

•

Amendments to IFRS 2 Share-based Payment (first-time application according to IASB in financial years beginning on or after 1 January 2018)

•

Annual improvements to IFRS Standards 2014–2016 Cycle, (first-time application according to IASB in financial years beginning on or after 1 January 2018)

•

IFRIC 22 Foreign Currency Transactions and Advance Consideration (first-time application according to IASB in financial years beginning on or after 1 January 2018)

•

IFRIC 23 Uncertainty over Income Tax Treatments (first-time application according to IASB in financial years beginning on or after 1 January 2019)

•

Amendments to IAS 28: Investments in Associates and Joint Ventures (first-time application according to IASB in financial years beginning on or after 1 January 2019)

•

Annual improvements to IFRS Standards 2015-2017 Cycle, (first-time application according to IASB in financial years beginning on or after 1 January 2019)

IFRS 15

The new standard on revenue recognition seeks to create a framework which brings together the multiplicity of rules which have until now been set out in a number of different standards and interpretations. According to IFRS 15 Revenue from Contracts with Customers, revenue is to be recognised when control over the goods or services in question has passed to the customer. This means that the principle of the transfer of control replaces the principle of the transfer of risks and rewards.

In future, companies preparing their financial statements in accordance with IFRS will determine when to recognise revenue (at what time or over which period) and how much revenue to recognise by applying five steps. The new requirements were endorsed by the European Union in 2017 and are mandatory for financial years beginning on or after 1 January 2018. Earlier application is permitted. IFRS 15 replaces IAS 11 Construction Contracts and IAS 18 Revenue, as well as the corresponding interpretations.

Linde will apply the standard for the first time for the 2018 financial year, applying the modified retrospective method. The modified retrospective method involves recognising the cumulative effects of the first-time application of the standard at 1 January 2018 as an adjustment to the value shown in the opening statement of financial position for revenue reserves. In addition, the standard will only be applied with retroactive effect to contracts that have not yet been fulfilled in full at 1 January 2018.

Linde has launched a Group-wide project on the introduction of IFRS 15 that comprises two phases (analysis and implementation phase). The analysis phase involved analysing the main types of contract in respect of the IFRS 15 requirements. This analysis had been completed on the reporting date. The next step, the implementation phase, will involve implementing the necessary adjustments that have been identified in the IT processes/systems, and training the Group companies on the IFRS 15 requirements and – where necessary – on the new processes.

Linde has identified the performance obligations for the Gases Division and the Engineering Division based on the five-step model pursuant to IFRS 15 and has assessed the impact of potential changes in revenue recognition for these activities in accordance with IFRS 15. All in all, the first-time application of the standard will not have any major impact on the value shown in the opening statement of financial position for revenue reserves at 1 January 2018.

In the on-site product area, revenue will be realised – as in the past – with the proportional fulfilment of the supply obligation/the fulfilment of the volume-based performance obligation. In the cylinder gas and liquefied gases business, revenue will continue to be recognised upon the delivery of the gas/fulfilment of the related services on which the invoicing is based. Revenue from healthcare services in the Healthcare product area is recognised in the amount of the agreed reimbursement rates when the agreed healthcare service is rendered. The long-term construction contracts in the Engineering Division that are measured using the PoC method still meet the requirements for the period-related recognition of revenue under IFRS 15.

In addition, the IFRS 15 analysis has shown that in the on-site business, certain customer-related deliveries and services that have been charged on and recognised as revenue to date can no longer be recognised as revenue from now on, because Linde does not have control over the purchased deliveries and services within the meaning of IFRS 15.

The offsetting of the costs previously recognised in gross terms against the cost reimbursement by the customer on the revenue side will result in a reduction in revenue in the 2018 financial year and – in the same amount – in a reduction in the cost of sales by around EUR 450 m. This will also have a positive effect on the operating margin, while the operating profit will remain unaffected.

The requirements set out in IFRS 15 will change the presentation in the annual financial statements with regard to items in the statement of financial position and the information provided in the Notes. In the future, quantitative and qualitative information will be provided on contractual assets and liabilities from contracts with customers, in particular. If one of the parties has fulfilled its contractual obligations, then the company has to report the contract as a contractual asset or contractual liability depending on whether the company has rendered its service or the customer has made payment. All unconditional entitlements to the receipt of a consideration are to be reported separately by a company as a receivable.

IFRS 9

IFRS 9 Financial Instruments, which was published in July 2014, replaces the existing guidelines in IAS 39 Financial Instruments: Recognition and Measurement. The new standard is mandatory for financial years beginning on or after 1 January 2018. IFRS 9 introduces new provisions on the classification and measurement of financial assets. The provisions for financial liabilities that apply to Linde were taken over from IAS 39. IFRS 9 contains new provisions on the impairment of financial instruments, which is now based on the expected credit losses, and

provisions on hedge accounting, which aim to bring accounting closer into line with risk management. IFRS 9 also introduces new, more extensive information to be provided in the Notes, in particular on the credit risk and expected credit losses, on the recognition of financial assets and on hedge accounting.

IFRS 9 will be applied for the first time in the 2018 financial year. Changes in accounting methods will be presented applying the retrospective method as a matter of principle.

The following exceptions apply in connection with the first-time application of IFRS 9:

•

No adjustment of comparative information for prior periods with regard to changes in classification and measurement (including impairments)

•

Changes in the values recognised for financial assets and liabilities due to the first-time application of IFRS 9 will be recognised under revenue reserves and cumulative changes in equity as at 1 January 2018.

Classification:

IFRS 9 contains new classification and measurement rules for financial instruments that are based on the business model on which the portfolio is based and the nature of the cash flows generated by the financial instrument. Under IFRS 9, all financial assets will be split into two classification categories — those that are measured at amortised cost (AC) and those that are measured at fair value (FV). If financial assets are measured at fair value, then expenses and income have to be recognised in full either through profit or loss (FVTPL) or in other comprehensive income (FVTOCI).

The Linde Group has taken a full inventory of its financial instruments, allocated them to the business models and set the measurement categories pursuant to IFRS 9. In cases involving equity instruments that are classed as available-for-sale (AfS) financial assets pursuant to IAS 39, Linde makes use of the option provided under IFRS 9 for classifying these as FVTOCI and recognising changes in fair value in other comprehensive income. Based on the analysis and the data available as at 31 December 2017, Linde does not expect the new classification and measurement regulations for financial assets to have any major impact.

IFRS 9 continues to apply the IAS 39 accounting model for financial liabilities. There are still two measurement categories: measurement at fair value and at amortised cost. Financial liabilities held for trading are measured at fair value. All other financial liabilities are measured at amortised cost, unless the company voluntarily designates them as measured at fair value through profit or loss” at the time of initial recognition (known as the “fair value option”).

Linde has not designated any financial liabilities as measured at fair value and does not intend to do so either. In this respect, the regulations governing the classification of financial liabilities set out in IFRS 9 do not have any major impact.

Impairment—financial assets:

The impairment model set out in IFRS 9 requires the reflection of expected losses and replaces the IAS 39 impairment model based on losses incurred. The new impairment model applies to financial assets that are measured at amortised cost or at fair value with changes in value recognised in other comprehensive income.

The impairment is to be determined either based on the “12-month expected credit losses” (present value of the expected payment defaults resulting from potential default events occurring within twelve months of the reporting date) or based on the full lifetime expected credit losses (present value of the expected credit losses that result from all possible default events over the life of the financial instrument).

A loss allowance for full lifetime expected credit losses is required for a financial instrument if the credit risk of that financial instrument has increased significantly since initial recognition. The same applies irrespective of an increase in the credit risk for trade receivables or contract assets that do not include a financing component in accordance with IFRS 15.

Additionally, entities can elect an accounting policy to always recognise full lifetime expected losses for all contract assets and trade receivables that include a financing component in accordance with IFRS 15. The same election is also permitted for lease receivables. Linde will be making use of this option for the items in question.

For all other financial instruments, the expected losses are to be included in the amount of the 12-month expected credit losses.

Trade receivables, contract assets and lease receivables:

In order to implement the new impairment rules, suitable models for calculating the default rates on trade receivables, contract assets and lease receivables were developed during the reporting year.

The new impairment model is based on an analysis of the actual historical default rates for each business and product area, taking regional circumstances into account. If necessary, these historical default rates are adjusted to reflect the impact of current changes in the macroeconomic environment using forward-looking information. The default rates are also critically evaluated based on the expectations of the responsible management team regarding the collectibility of the receivables.

Linde expects the initial application of the new impairment model to result in a reduction in risk provisions for trade receivables and contract assets amounting to around EUR 10 m to EUR 20 m.

Linde does not expect the initial application of the new impairment model to have any major impact as far as lease receivables are concerned.

Other financial assets:

Linde has taken the 12-month expected losses as a basis for determining the impairments on securities, cash and cash equivalents and on other receivables and assets.

Based on these analyses and the data available as at 31 December 2017, the first-time application of the new impairment model will not have any major impact on these items.

Hedge accounting:

in connection with the first-time application of IFRS 9, Linde will make use of the accounting option based on which its hedge accounting will continue to be based on IAS 39 as opposed to IFRS 9.

IFRS 16

IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases. The new standard now provides a single lessee accounting model requiring lessees to recognise assets and liabilities for all leases unless the lease term is twelve months or less or the underlying asset has a low value (option in each case). Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

Linde enters into lease agreements principally as the lessee. The number of operating leases is much higher than the number of finance leases. As a result, the application of IFRS 16 will result in an increase in both assets and financial liabilities at Linde. No significant impact on finance leases is expected. Linde is likely to make use of the options relating to short-term and low-value leases. As far as the transitional requirements are concerned, Linde is likely to apply the modified retrospective method. At the present time, the Group plans to apply IFRS 16 for the first time as at 1 January 2019. The quantitative impact of IFRS 16 is currently still being analysed.

The remaining standards have no significant impact on the net assets, financial position and results of operations of The Linde Group.

NOTES TO THE GROUP STATEMENTS OF PROFIT OR LOSS

[6] Revenue

Revenue is analysed by activity in the segment information in the Group financial statements. In 2017, there were no customers from whom the Group derived over 10 percent of its revenue.

REVENUE

in EUR m

2015

2016

2017

Revenue from sale of goods and services

15,519

15,260

15,304

Revenue from long-term construction contracts

1,826

1,688

1,809

TOTAL

17,345

16,948

17,113

[7] Other operating income and expenses

OTHER OPERATING INCOME


*in EUR m*	*2015*		*2016*		*2017*
Exchange gains		117		60		59
Profit on disposal of non-current assets		36		150		134
Compensation payments received		18		28		10
Income arising from changes to pension schemes		42		45		15
Ancillary revenues		13		15		14
Income from release of provisions		24		27		39
Financial income from long-term construction contracts		18		14		9
Income from free-standing foreign currency hedges		15		20		18
Miscellaneous operating income		136		108		120

TOTAL		419		467		418

2015 to 2016

The increase in other operating income of EUR 48 m was largely the result of the increase in the profit on disposal of non-current assets. This also includes the profit from the scheduled disposal of non-current assets classified as held for sale and disposal groups.

2016 to 2017

The change in other operating income is mainly due to the relatively substantial profit on disposal of non-current assets, and to the change in pension schemes in the previous year.

OTHER OPERATING EXPENSES


*in EUR m*	*2015*		*2016*		*2017*
Exchange losses		101		72		82
Expenses from free-standing foreign currency hedges		9		9		13
Loss on disposal of non-current assets		21		25		16
Expenes related to pre-retirement part-time work schemes		3		2		2
Taxes		23		27		24
Miscellaneous operating expenes		94		143		79

TOTAL		251		278		216

2015 to 2016

The increase in other operating expenses by EUR 27 m was primarily attributable to higher miscellaneous operating expenses.

2016 to 2017

The drop in other operating expenses of EUR 62 m was primarily attributable to the drop in miscellaneous operating expenses. The prior-year value was relatively high due to various one-off effects.

[8] Other information on the Group statements of profit or loss

During the 2017 financial year, personnel expenses from continuing operations of EUR 3.780 bn (2016: EUR 3.724 bn; 2015: EUR 3,829 m) were recognised in functional costs. The increase in the expenses was due mainly to the fact that restructuring costs were higher than in the previous year. Exchange rate effects had the opposite effect. The figures for amortisation and depreciation are given in the segment information.

The inventories recognised as an expense in the 2017 financial year came to EUR 9.738 bn (2016: 9,480 m; 2015: 9,612 m).

[9] Financial income and expenses

FINANCIAL INCOME


*in EUR m*	*2015*		*2016*		*2017*
Net interest income from defined benefit plans		7		7		6
Finance income from finance leases in accordance with IFRIC 4/IAS 17		19		15		10
Income from investments				1		1
Other interest and similar income		16		6		20

TOTAL		42		29		37

2015 to 2016

The drop in financial income is largely due to the reduction in other interest and similar income; because the interest rates to be applied in the 2016 financial year were lower than in the previous year.

2016 to 2017

The increase in financial income can be attributed mainly to the increase in other interest and similar income.

FINANCIAL EXPENSES


in EUR m	*2015*		*2016*		*2017*
Net interest expense from defined benefit plans		31		30		34
Impairment of financial assets		1		4		1
Other interest and similar charges		407		319		267

TOTAL		439		353		302

2015 to 2016

The drop in other interest and similar charges can be attributed primarily to the early redemption of two hybrid bonds in the amount of EUR 700 m and GBP 250 m, which bore interest at a rate of 7.375 percent and 8.125 percent respectively. In interest income and interest expenses, gains and losses from fair value hedge accounting are offset against each other, in order to give a fair presentation of the economic effect of the underlying hedging relationship. Interest income and interest expenses relating to derivatives were also disclosed net.

2016 to 2017

The drop in other interest and similar charges is due primarily to lower financing costs and the drop in gross financial debt. In interest income and interest expenses, gains and losses from fair value hedge accounting are offset against each other, in order to give a fair presentation of the economic effect of the underlying hedging relationship. Interest income and interest expenses relating to derivatives were also disclosed net.

[10] Taxes on income

INCOME TAX EXPENSE


in EUR m	*2015*		*2016*		*2017*
Current tax expene (+) and income (-)		464		499		481
Tax expense (+) and income (-) relating to prior periods		13		23		-18
Deferred tax expense (+) and deferred tax income (-)		-81		-98		-320

TOTAL		396		424		143

In the period under review, the tax expense and income relating to prior periods included current tax income of EUR 40 m (2016: current tax expense of EUR 15 m; 2015: current tax expense of EUR 43 m) and deferred tax expense of EUR 22 m (2016: deferred tax expense of EUR 8 m; 2015: deferred tax income of EUR 30 m). Included in tax income and expense relating to prior periods are the positive and negative effects of facts established by external tax audits in various countries. Of the total amount of deferred tax income, EUR 295 m (2016: EUR 75 m; 2015: EUR 76 m) relates to the change in temporary differences.

The income tax expense disclosed for the 2017 financial year of EUR 143 m is EUR 317 m lower than the expected income tax expense of EUR 460 m, a theoretical figure arrived at by applying the German tax rate of 27.4 percent (2016: 27.4 percent; 2015: 27.4 percent) to Group profit before tax. The difference between the expected income tax expense and the figure disclosed is explained below:

EXPECTED AND DISCLOSED TAX EXPENSE


in EUR m	2015		2016		2017
Profit before tax		1,632		1,751		1,679
Income tax rate of Linde AG (including trade tax, in %)		27.4		27.4		27.4
EXPECTED INCOME TAX EXPENSE		447		480		460

Foreign tax rate differential		-3		-54		-68
Effect of associates		-3		-4		-6
Reduction in tax due to tax-free income		-147		-96		-105
Increase in tax due to non-tax-deductible expenses		63		43		71
Tax expense and income relating to prior periods		13		23		-18
Effect of changes in tax rate		-7		-9		-260
Change in other permanent differences		-14		30		55
Other		47		11		14
INCOME TAX EXPENSE DISCLOSED		396		424		143

Effective tax rate (in %)		24.3		24.2		8.5

In the 2017 financial year, the corporate income tax rate in Germany was 15.0 percent (2016 and 2015: 15.0 percent). Taking into account an average rate for trade earnings tax of 11.6 percent (2016 and 2015: 11.6 percent) and the solidarity surcharge (0.8 percent in 2017 as well as in 2015 and 2016), this produces a tax rate for German companies of 27.4 percent (2016 and 2015: 27.4 percent). This tax rate is also used to calculate deferred tax at German companies. Income tax rates for companies outside Germany vary between 9.0 percent and 40.0 percent.

The effect of changes in tax rate is due primarily to the remeasurement of deferred taxes in the US due to the US tax reform (tax income of EUR 250 m). Temporary differences relating to investments in subsidiaries of EUR 259 m (2016: EUR 128 m; 2015: EUR 120 m) have not led to the recognition of deferred tax, either because the differences are not expected to reverse in the near future as a result of their realisation (due to distributions or the disposal of the company) or the profits are not subject to taxation.

In the reporting period, other changes consisted of an expense arising from a change in the valuation allowance of EUR 15 m (2016: income of EUR 3 m; 2015: expense of EUR 47 m). As in the previous year, the recognition of a deferred tax asset in respect of losses brought forward not previously recognised and temporary differences did not have any positive impact. The positive impact of the utilisation of loss carryforwards in respect of which no deferred tax asset had yet been recognised was EUR 13 m (2016 and 2015: EUR 4 m).

DEFERRED TAX ASSETS AND LIABILITIES


	*2016*				*2017*
in EUR m	Deferred tax assets		Deferred tax liabilities		Deferred tax assets		Deferred tax liabilities
Intangible assets		5		702		8		516
Tangible assets		153		1,156		153		974
Financial assets		121		152		116		113
Current assets		381		589		331		392
Provisions		447		205		371		143
Liabilities		1,076		674		1,001		801
Tax loss carryforwards and tax credits		112		—		132		—
Amounts offset		-1,795		-1,795		-1,696		-1,696

TOTAL		500		1,683		416		1,243

The tax credits in the 2017 financial year related mainly to investment incentives, as in the prior year. Movements in deferred tax assets and liabilities result from the following items:

CHANGE IN DEFERRED TAX ASSETS AND LIABILITIES


in EUR m	*2016*		*2017*
Deferred tax assets at 01.01.		327		500
Deferred tax liabilities at 01.01.		-1,750		-1,683
NET AMOUNT AT 01.01.		-1,423		-1,183

Deferred tax expenses (-)/income (+) through profit or loss		90		298
Change in deferred tax not affecting profit or loss		132		-59
of which in connection with provisions		133		-53
of which in connection with current assets		-1		-6
Exchange rate effects		-24		99
Other effects		42		18
NET AMOUNT AT 31.12.		-1,183		- 827

Deferred tax assets at 31.12.		500		416
Defferred tax liabilities at 31.12.		-1,683		-1,243

The exchange rate effects mainly result from changes in exchange rates on deferred tax assets and liabilities denominated in currencies other than the euro. Of this amount, the exchange rate effects recognised in other comprehensive income amounted to EUR -16 m in 2017 (2016: EUR -8 m).

The other effects in 2017 result from the reclassification of deferred taxes relating to the gases business in Pakistan and to Tega, Technische Gase und Gastechnik GmbH, which were reclassified to non-current assets classified as held for sale and disposal groups (mainly a reduction in deferred tax liabilities on intangible assets and tangible assets in the amount of EUR 5 m) and from the decrease of deferred tax assets on tangible assets within the context of disposals (EUR 1 m). Another key factor influencing the other effects related to the change in deferred tax assets on tax credits in the amount of EUR 16 m due to investment incentives and similar programmes.

In 2016, the other effects resulted mainly from the addition of deferred tax assets on loss carryforwards (EUR 18 m) and on liabilities (EUR 6 m) in connection with the acquisition of American Home Patient, Inc., as well as from the recognition of the Gist division as a discontinued operation and the associated separate recognition of deferred tax liabilities on intangible assets (EUR 11 m) and on tangible assets (EUR 5 m). Deferred tax disclosed in other comprehensive income not affecting profit or loss totalled EUR 411 m (2016: EUR 486 m; 2015: EUR 362 m). Of this amount, deferred tax assets of EUR 351 m (2016: EUR 419 m; 2015: EUR 294 m) were attributable to provisions and deferred tax assets of EUR 60 m (2016: EUR 67 m; 2015: EUR 68 m) were attributable to current assets.

Deferred tax assets are only recognised to the extent that it is probable that the deferred tax asset will be realised. As a result, deferred tax assets of EUR 191 m (2016: EUR 220 m) which relate to potential reductions in the tax base in the amount of EUR 1.037 bn (2016: EUR 993 m) were not recognised, as it is not probable that the underlying tax loss carryforwards and tax credits of EUR 924 m (2016: EUR 929 m) and deductible temporary differences of EUR 113 m (2016: EUR 64 m) will be utilised.

Of the total amount of tax loss carryforwards and tax credits that were not recognised in the amount of EUR 924 m (2016: EUR 929 m), EUR 296 m (2016: EUR 191 m) may be carried forward for up to ten years and EUR 628 m (2016: EUR 738 m) may be carried forward for longer than ten years. Deferred tax assets relating to tax loss carryforwards and tax credits of EUR 132 m (2016: EUR 112 m) were recognised on the basis of projections based largely on the management’s assessment, that it is sufficiently probable that the respective entities will generate a sufficiently positive tax result in the future against which the tax loss carryforwards and tax credits that have not yet been used can be offset in the eligible carryforward periods.

TAX LOSS CARRYFORWARDS NOT YET USED


in EUR m	*2016*		*2017*
May be carried forward for up to 10 years		282		261
May be carried forward for longer than 10 years		75		3
May be carried forward indefinitely		735		678

Total		1,092		942

The movement in tax loss carryforwards is mainly due to additions in Indonesia, Saudi Arabia and Thailand, as well as to reductions in China, Brazil and Finland. There were also tax loss carryforwards relating to US state tax of EUR 729 m (2016: EUR 782 m).

Distributions to Linde AG shareholders do not have any impact on taxes on income at the level of Linde AG.

[11] Earnings per share

EARNINGS PER SHARE


in EUR m	*2015*		*2016*		*2017*
Profit for the year form continuing operations — attributable to Linde AG shareholders		1,133		1,206		1,404
*Shares in thousand untis*
Weighted average number of shares outstanding		185,638		185,636		185,638
Dilution as a result of share option schemes		417		360		—
Weighted average number of shares outstanding — diluted		186,055		185,996		185,638
EARNINGS PER SHARE FROM CONTINUING OPERATIONS IN EUR — UNDILUTED		6.10		6.50		7.56

EARNINGS PER SHARE FROM CONTINUING OPERATIONS IN EUR — DILUTED		6.09		6.48		7.56

The LTIP 2012 share option scheme was modified in the the 2017 financial year: To date, whenever share options were exercised, compensation was provided in the form of either equity instruments or cash compensation.

Since the second quarter of 2017, cash compensation has been the only option. This means that the exercise of share option schemes no longer has any diluting effect on the number of shares in 2017.

[12] Goodwill/other intangible assets

MOVEMENT SCHEDULE INTANGIBLE ASSETS - ACQUISITION COST


*in EUR m*	*Goodwill*		Customer relationships		*Brands*		Other intangible assets		*Total*
At 01.01.2015		11,062		3,607		516		1,354		16,539

Currency adjustments		506		119		17		34		676
Additions due to acquisitions		45		7		2		—		54
Additions		—		1		—		46		47
Disposals		—		61		—		18		79
Reclassifications		—		2		—		14		16
Reclassification as assets held for sale		-2		—		—		—		-2

At 31.12.2015/ 01.01.2016		11,611		3,675		535		1,430		17,251

Currency adjustments		-7		-63		-2		1		-71
Additions due to acquisitions		146		29		7		—		182
Additions		—		—		—		52		52
Disposals		2		—		28		94		124
Reclassifications		—		—		—		29		29
Reclassification as assets held for sale		-336		-146		-2		-21		-505

At 31.12.2016/ 01.01.2017		11,412		3,495		510		1,397		16,814

Currency adjustments		-723		-233		-39		-71		-1,066
Additions due to acquisitions		37		—		—		—		37
Additions		—		—		—		18		18
Disposals		2		1		—		18		21
Reclassifications		-7		7		—		5		5
Reclassification as assets held for sale		-30		-11		-1		-1		-43

At 31.12.2017		10,687		3,257		470		1,330		15,744

SCHEDULE OF INTANGIBLE ASSETS - CUMULATIVE AMORTISATION


in EUR m	*Goodwill*		Customer relationships		*Brands*		Other intangible assets		*Total*
At 01.01.2015		7		1,444		202		909		2,562

Currency adjustments		—		51		6		21		78
Additions due to acquisitions		—		—		—		—		—
Amortisation		—		182		26		109		317
Impairments		—		—		—		2		2
Reversal of impairments		—		—		—		—		—
Disposals		—		54		—		18		72
Reclassifications		—		2		—		-2		—
Reclassification as assets held for sale		—		—		—		—		—

At 31.12.2015/ 01.01.2016		7		1,625		234		1,021		2,887

Currency adjustments		1		-13		-1		—		-13
Additions due to acquisitions		—		—		—		—		—
Amortisation		—		162		20		116		298
Impairments		—		—		—		7		7
Reversal of impairments		—		—		—		—		—
Disposals		1		—		28		80		109
Reclassifications		—		—		—		11		11
Reclassification as assets held for sale		—		-94		—		-18		-112

At 31.12.2016/01.01.2017		7		1,680		225		1,057		2,969

Currency adjustments		-1		-124		-17		-59		-201
Additions due to acquisitions		—		—		—		—		—
Amortisation		—		143		19		102		264
Impairments		—		—		—		1		1
Reversal of impairments		—		—		—		—		—
Disposals		—		1		—		15		16
Reclassifications		—		—		—		—		—
Reclassification as assets held for sale		—		—		—		-1		-1

At 31.12.2017		6		1,698		227		1,085		3,016

Net carrying amount at 31.12.2015		11,604		2,050		301		409		14,364

Net carrying amount at 31.12.2016		11,405		1,815		285		340		13,845

Net carrying amount at 31.12.2017		10,681		1,559		243		245		12,728

In the statement of financial position at 31 December 2017, the total figure for goodwill is EUR 10.681 bn (2016: EUR 11.405 bn). Goodwill arising on acquisitions made in the 2017 financial year was EUR 37 m (2016: EUR 146 m). The total net carrying amount of trademarks acquired in the course of acquisitions was EUR 243 m (2016: EUR 285 m) at the reporting date.

The brand names acquired in the course of the BOC acquisition and other acquisitions have been classified as intangible assets with finite useful lives since the 2011 financial year as a long-term rebranding programme for the relevant brands has begun. These brand names are amortised on a straight-line basis over a period of ten to twelve years. At 31 December 2017, their net carrying amount was EUR 141 m (2016: EUR 169 m). The brand names acquired in the course of the Lincare acquisition have indefinite useful lives. These were the subject of an impairment test at the level of Lincare in 2017.

The recoverable amount of goodwill was determined on the basis of its value in use. A discounted cash flow method was used for this purpose. The detailed planning period was five years. The growth rates assumed for the detailed planning period were based on the growth potential and market estimates for the forms of treatment and applications offered by Lincare. The operating margin was assumed to remain largely stable at the level seen in 2016 throughout the detailed planning period. A pre-tax interest rate of 10.9 percent and growth in the terminal value of 1 percent were used. The carrying amount at 31 December 2017 was EUR 102 m (2016: EUR 116 m).

The amortisation expense for intangible assets with finite useful lives of EUR 264 m (2016: EUR 298 m; 2015: EUR 317 m) was disclosed in functional costs, principally in marketing and selling expenses. Software solutions are the main component of other intangible assets.

An impairment test of goodwill was carried out at 30 September 2017. No impairment losses were recognised as a result. The recoverable amount of goodwill was determined as its value in use, as in the previous year. To calculate its value in use, a discounted cash flow method was used. A detailed five-year plan was used as the basis for the calculation of cash flows.

The economic growth rates and overall conditions assumed for the detailed planning period were based on the latest estimates from international economic research institute Oxford Economics. The operating margin in the individual segments was assumed to remain largely stable at the level seen in 2017 throughout the detailed planning period. The inflation assumption for the period extending beyond the planning period is 1.0 percent for all cash-generating units. A change in the valuation assumptions that the management considers possible does not result in the carrying amount exceeding the recoverable amount.

ASSUMPTIONS FOR THE IMPAIRMENT TEST OF GOODWILL


	Carrying amount of allocated goodwill *in EUR m*				Pre-tax WACC based on region-specific premiums and discounts at impairment test date *in percent*				Post-tax WACC based on region-specific premiums and discounts at impairment test date *in percent*				Average annual growth rate in gross domestic product in planning period *in percent*				Average annual growth rate in industrial production in planning period *in percent*				Long-term growth rate in percent
	*31.12.2016*		*31.12.2017*		*30.09.2016*		*30.09.2017*		*30.09.2016*		*30.09.2017*		*2016*		*2017*		*2016*		*2017*		*2016*		*2017*
EMEA		4,986		4,874		6.9		8.3		5.6		6.7		1.9		2.1		1.6		3.2		0.5		1.0
Asia/Pacific		1,992		1,874		7.0		8.4		5.5		6.6		4.2		4.4		3.7		5.4		0.8		1.0
Americas		4,150		3,661		8.0		9.5		5.4		6.6		2.0		2.1		1.8		3.4		0.8		1.0
Engineering Division		277		272		7.6		6.5		5.7		5.3		3.2		4.1		2.7		3.1		0.8		1.0

GROUP		11,405		10,681

[13] Tangible assets

SCHEDULE OF TANGIBLE ASSETS - ACQUISITION COST


in EUR m	Land, land rights and buildings		Technical equipment and machinery		Other equipment, furniture and fixtures		Plants under construction		*Total*
AS AT 01.01.2015		3,017		23,125		1,567		2,087		29,796

Currency adjustments		47		674		-7		-4		710
Additions due to acquisitions		6		29		—		5		40
Additions		38		538		95		1,218		1,889
Disposals		24		288		71		2		385
Reclassifications		42		1,333		30		-1,380		25
Reclassification as assets held for sale		-2		-4		—		—		-6

AS AT 31.12.2015/01.01.2016		3,124		25,407		1,614		1,924		32,069

Currency adjustments		-37		110		12		22		107
Additions due to acquisitions		5		80		6		1		92
Additions		29		902		96		650		1,677
Disposals		62		451		64		115		692
Reclassifications		61		1,096		38		-1,194		1
Reclassification as assets held for sale		-160		-207		-26		-1		-394

AS AT 31.12.2016/01.01.2017		2,960		26,937		1,676		1,287		32,860

Currency adjustments		-128		-1,747		-69		-54		-1,998
Additions due to acquisitions		15		18		4		1		38
Additions		18		546		79		1,024		1,667
Disposals		30		274		66		5		375
Reclassifications		77		1,264		68		-1,289		120
Reclassification as assets held for sale		-7		-299		-3		-3		-312

AS AT 31.12.2017		2,905		26,445		1,689		961		32,000

SCHEDULE OF TANGIBLE ASSETS - CUMULATIVE DEPRECIATION


in EUR m	Land, land rights and buildings		Technical equipment and machinery		Other equipment, furniture and fixtures		Plants under construction		*Total*
AS AT 01.01.2015		1,406		14,980		1,125		134		17,645

Currency adjustments		27		378		-6		8		407
Additions due to acquisitions		—		—		—		—		—
Depreciation		92		1,365		111		—		1,568
Impairments		1		6		1		1		9
Reversal of impairments		—		—		—		—		—
Disposals		20		276		70		1		367
Reclassifications		—		64		-14		-21		29
Reclassification as assets held for sale		-1		-3		—		—		-4

AS AT 31.12.2015/ 01.01.2016		1,505		16,514		1,147		121		19,287

Currency adjustments		-26		26		8		-2		6
Additions due to acquisitions		—		—		—		—		—
Depreciation		89		1,383		121		—		1,593
Impairments		—		17		—		—		17
Reversal of impairments		—		—		—		—		—
Disposals		33		372		58		114		577
Reclassifications		1		26		-14		—		13
Reclassification as assets held for sale		-91		-125		-19		—		-235

AS AT 31.12.2016/ 01.01.2017		1,445		17,469		1,185		5		20,104

Currency adjustments		-57		-1,072		-47		2		-1,174
Additions due to acquisitions		—		—		—		—		—
Depreciation		88		1,401		125		—		1,614
Impairments		—		17		—		—		17
Reversal of impairments		—		—		—		—		—
Disposals		18		265		55		—		338
Reclassifications		-1		62		—		7		68
Reclassification as assets held for sale		-4		-41		-2		—		-47

AS AT 31.12.2017		1,453		17,571		1,206		14		20,244

NET CARRYING AMOUNT AT 31.12.2015		1,619		8,893		467		1,803		12,782

NET CARRYING AMOUNT AT 31.12.2016		1,515		9,468		491		1,282		12,756

NET CARRYING AMOUNT AT 31.12.2017		1,452		8,874		483		947		11,756

Tangible assets include leased buildings, technical equipment and machinery, and fixtures, with a carrying amount totalling EUR 76 m (2016: EUR 77 m). Due to the form of the underlying finance leases, these tangible assets are attributable to The Linde Group in its capacity as the economic owner of the assets. Of the total of EUR 76 m, EUR 20 m (2016: EUR 22 m) relates to land and buildings, EUR 5 m (2016: EUR 12 m) to technical equipment and machinery and EUR 51 m (2016: EUR 42 m) to vehicles.

Also included in tangible assets is technical equipment held under embedded operating leases on the sales side. Of the total minimum lease payments due in future from the customer from such embedded operating leases, EUR 71 m is due within one year (2016: EUR 75 m). EUR 286 m is due within one to five years (2016: EUR 309 m) and EUR 620 m is due in more than five years (2016: EUR 741 m).

Impairment tests were based on the recoverable amount of the assets examined, whereby generally the value in use was applied. The discount rates used (WACC) were based on those used in the impairment test for goodwill. Impairment losses of EUR 17 m were recognised in 2017 (2016: EUR 17 m; 2015: EUR 9 m). The impairment losses related mainly to production plants and were allocated to the following segments: EMEA EUR 1 m (2016: EUR 4 m; 2015: EUR 2 m), Asia/Pacific EUR 16 m (2016: EUR 9 m; 2015: EUR 4 m) and Americas EUR 0 m (2016: EUR 3 m; 2015: EUR 1 m). No impairments were recognised in the Engineering Division (2016: EUR 1 m; 2015: EUR 2 m). The impairment losses relating to tangible assets are largely included in cost of sales and in research and development costs.

There were no reversals of impairment losses in 2017, 2016 or in 2015. Borrowing costs during the construction phase of EUR 11 m (2016: EUR 24 m; 2015: EUR 52 m) were capitalised, based on a pre-tax interest rate of 2.5 to 3.1 percent (2016: 3.1 to 3.8 percent; 2015: 3.6 to 3.8 percent).

The cost of tangible assets was reduced in the 2017 financial year by government grants of EUR 2 m (2016: EUR 3m).

Tangible assets of EUR 47 m (2016: EUR 48 m) were pledged as security.

[14] Investments in associates and joint ventures/other financial assets

SCHEDULE OF FINANCIAL INVESTMENTS - ACQUISITION COST


in EUR m	Investments in associates and joint ventures (at equity)		*Other investments*		*Non-current loans 1*		*TOTAL*
AS AT 01.01.2015		251		73		30		354

Currency adjustments		8		4		1		13
Additions		16		7		2		25
Disposals		22		29		2		53
Reclassifications		—		6		-1		5

AS AT 31.12.2015/ 01.01.2016		253		61		30		344

Currency adjustments		-1		—		-2		-3
Additions		19		21		11		51
Disposals		21		1		—		22
Reclassifications		—		-10		-2		-12

AS AT 31.12.2016/ 01.01.2017		250		71		37		358

Currency adjustments		-19		-3		-4		-26
Additions		27		15		22		64
Disposals		28		4		1		33
Reclassifications		—		-13		-2		-15
Reclassification as assets held for sale		—		—		-1		-1

AS AT 31.12.2017		230		66		51		347

1	EUR 35 m(2016: EUR 18 m; 2015: EUR 12 m) of the non-current loans relates to loans to associates and joint ventures.

SCHEDULE OF FINANCIAL ASSETS – CUMULATIVE AMORTISATION


in EUR m	Investments in associates and joint *ventures (at equity)*		*Other investments*		*Non-current loans*		*TOTAL*
AS AT 01.01.2015		11		12		6		29

Impairments		—		12		4		16

AS AT 31.12.2015/ 01.01.2016		11		24		10		45

Impairments		—		6		2		8

AS AT 31.12.2016/ 01.01.2017		11		26		11		48

Currency adjustments		—		-3		-1		-4
Impairments		—		1		—		1
Reclassifications		—		—		—		—
Reclassification as assets held for sale		—		—		-1		-1

AS AT 31.12.2017		11		24		9		44

NET CARRYING AMOUNT AT 31.12.2015		242		37		20		299

NET CARRYING AMOUNT AT 31.12.2016		239		45		26		310

NET CARRYING AMOUNT AT 31.12.2017		219		42		42		303

The share of profit or loss from associates and joint ventures in the 2017 financial year was EUR 19 m (2016: EUR 13 m; 2015: EUR 12 m). Within the Gases Division, EUR 4 m of the total figure related to EMEA (2016: EUR 4 m; 2015: EUR 3 m), EUR 15 m to the Asia/Pacific segment (2016: EUR 9 m; 2015: EUR 11 m) and EUR 2 m to the Americas segment (2016 and 2015: EUR 0 m).

Of the profit or loss from associates and joint ventures, there were unrecognised losses of EUR 2 m (2016: EUR 1 m; 2015: EUR 0 m) as at 31 December 2017.

On the reporting date, there were no contingent liabilities relating to shares in associates or joint ventures (2016: EUR 0 m). There were no payment obligations relating to joint ventures and associates that had not been recognised in the statement of financial position (2016: EUR 1 m) at 31 December 2017.

As in the previous year, there were no significant restrictions on the ability of the associates and joint ventures to transfer dividends or funds to Linde or to repay loans to Linde.

AGGREGATE FINANCIAL INFORMATION ABOUT JOINT VENTURES (AT EQUITY)


in EUR m	*2015*		*2016*		2017
Profit for the year		14		14		21
Other comprehensive income (net of tax)		5		-2		-11

TOTAL COMPREHENSIVE INCOME		19		12		10

[15] Inventories

INVENTORIES


in EUR m	*31.12.2016*		31.12.2017
Raw materials, consumables and supplies		106		102
Unfinished goods and services in progress		192		239
Finished goods		601		561
Merchandise		223		200
Prepayments		109		109

TOTAL		1,231		1,211

At 31 December 2017, the total inventory allowance was EUR 129 m (2016: EUR 138 m). The inventories recognised as an expense in the 2017 financial year came to EUR 9.738 bn (2016: EUR 9.480 bn).

[16] Receivables from finance leases, trade receivables, miscellaneous receivables and assets and income tax receivables

RECEIVABLES AND OTHER ASSETS


	*Current*				*Non-current*				*Total*
in EUR m	*31.12.2016*		31.12.2017		*31.12.2016*		31.12.2017		*31.12.2016*		31.12.2017
RECEIVABLES FROM FINANCE LEASES		49		33		165		70		214		103

Receivables from percentage of completion contracts		160		188		—		—		160		188
Miscellaneous trade receivables		2,595		2,480		2		6		2,597		2,486

TRADE RECEIVABLES		2,755		2,668		2		6		2,757		2,674

Other tax receivables		198		185		21		13		219		198
Derivatives with positive fair values		119		75		95		92		214		167
Prepaid pension costs		—		—		115		139		115		139
Other receivables and assets		471		446		147		137		618		583

MISCELLANEOUS RECEIVABLES AND OTHER ASSETS		788		706		378		381		1,166		1,087

INCOME TAX RECEIVABLES		199		227		7		12		206		239

Receivables from finance leases

Almost all the receivables from finance leases relate to agreements which are classified as embedded finance leases according to IFRIC 4/IAS 17.

The counterparty risk arising from receivables from finance leases is covered by the air separation plants and other plants underlying the contracts.

The EUR 111 m drop in receivables from finance leases is attributable largely to the amendment of an on-site agreement and the resulting reclassification.

RECEIVABLES FROM FINANCE LEASES


in EUR m	*31.12.2016*		31.12.2017
TOTAL FUTURE MINIMUM LEASE PAYMENTS (GROSS INVESTMENT)		252		116

due within one year		61		38
due in one to five years		161		72
due in more than five years		30		6

PRESENT VALUE OF MINIMUM LEASE PAYMENTS		214		103

due within one year		49		33
due within one to five years		138		66
due in more than five years		27		4

UNEARNED FINANCE INCOME INCLUDED IN THE MINIMUM LEASE PAYMENT		38		13

Receivables from percentage of completion contracts

Receivables from percentage of completion (PoC) contracts comprise the aggregate amount of costs incurred and recognised profits, less advance payments received.

At the reporting date, costs incurred and profits recognised on long-term construction contracts amounted to EUR 4.937 bn (2016: EUR 5.035 bn), offset against advance payments of EUR 5.808 bn (2016: EUR 5.846 bn). This gave rise to receivables of EUR 188 m (2016: EUR 160 m) and liabilities of EUR 1.060 bn (2016: EUR 971 m).

Miscellaneous trade receivables

Miscellaneous trade receivables are due from a large number of customers in a wide variety of industry sectors and many different regions. To assess the recoverability of accounts receivable, the creditworthiness of customers is subject to constant review. Credit loss insurance is taken out if required.

FINANCIAL ASSETS PAST DUE BUT NOT IMPAIRED


*2016, in EUR m*	*< 30 days*		*30-60 days*		*60-90 days*		*90-180 days*		*>180 days*
Trade receivables		353		48		29		18		—
Other receivables and assets		1		—		—		1		1


*2017, in EUR m*	*< 30 days*		*30-60 days*		*60-90 days*		*90-180 days*		*>180 days*
Trade receivables		236		52		27		2		8
Other receivables and assets		3		—		—		—		—

In the case of financial assets which are neither past due nor impaired, there were no indications at the reporting date of any potential impairment.

[17] Securities

Short-term securities increased during the 2017 financial year, namely by EUR 492 m from EUR 131 m to EUR 623 m, mainly as a result of purchases.

There were held-to-maturity securities at 31 December 2017 of EUR 12 m (2016: EUR 13 m).

[18] Cash and cash equivalents

Cash and cash equivalents of EUR 1.432 bn (2016: EUR 1.463 bn) comprised mainly cash at banks and money market funds which have maturities of three months or less.

CASH AND CASH EQUIVALENTS


in EUR m	*31.12.2016*		31.12.2017
Bank balances		884		985
Money market funds		99		239
Cheques		4		3
Cash		3		2
Cash equivalents		473		203

TOTAL		1,463		1,432

The cash equivalents include an amount of EUR 193 m (2016: EUR 464 m) for bilateral Credit Support Annexes which are deposited as collateral under agreements with banks.

[19] Non-current assets classified as held for sale and disposal groups

On 31 December 2017, assets in the amount of EUR 941 m and liabilities in the amount of EUR 209 m were reported as non-current assets classified as held for sale and disposal groups.

These mainly relate to the logistics company Gist. Since December 2016, Gist’s business has been held for sale and reported as a discontinued operation. This means that assets with a carrying amount of EUR 595 m and liabilities with a carrying amount of EUR 145 m were reclassified within the Group statement of financial position. These mainly relate to goodwill (EUR 214 m), tangible assets (EUR 112 m) and trade receivables (EUR 113 m).

The cash flow from investing activities from discontinued operations in the amount of EUR-28 m largely includes cash outflows for investments in tangible assets. Due to the size and complexity of the business to be sold, the negotiations are taking longer than planned. Nevertheless, the sale is still considered to be extremely probable, and the transaction is expected to be completed within the next twelve months.

Furthermore, assets in the amount of EUR 61 m and liabilities in the amount of EUR 29 m were reported as non-current disposal groups held for sale. These relate to the gases business in Pakistan. The sale agreement was signed in the second quarter. The sale was completed in mid-January of this year.

In July 2017, the management decided to sell part of a production site within the EMEA segment. This means that assets worth EUR 219 m where reclassified to assets held for sale and disposal groups. The sale has already been concluded and will be executed in the course of the first quarter of 2018.

The German subsidiary Tega—Technische Gase und Gasetechnik GmbH is also to be sold in the first quarter of 2018. Assets with a carrying amount of EUR 60 m and liabilities in the amount of EUR 35 m were reclassified.

A further EUR 6 m relates to the planned sale of vehicles in the Asia/Pacific segment. The vehicles were purchased in the previous year and are to be sold again as part of a sale and operating lease-back agreement. The gases business in Slovenia, Bosnia and Croatia (assets worth around EUR 20 m and liabilities totaling EUR 4 m) was sold as planned in 2017. The proceeds from the disposal amounted to less than EUR 1 m (rounded to EUR 0 m).

The cumulative changes in equity not recognised in profit or loss contain expenses relating to the foreign currency valuation of the assets and liabilities reported as held for sale amounting to EUR 122 m on the reporting date.

PROFIT FROM DISCONTINUED OPERATIONS


in EUR m	2015		2016		2017
Revenue		607		602		591
Expenses		593		582		561
Loss resulting from valuation at fair value		—		75		—
PROFIT BEFORE TAX INCOME FROM DISCONTINUED OPERATIONS		14		-55		30
Income tax income from ordinary activities		-2		-3		—
PROFIT FOR THE YEAR FROM DISCONTINUED OPERATIONS		16		-52		30
attributable to Linde AG shareholders		16		-52		30

[20] Equity

EQUITY


in EUR m	*31.12.2016*		31.12.2017
SHARE CAPITAL		475,476,940.80		475,476,940.80
Nominal value of own shares		243,479.04		243,479.04
ISSUED SHARE CAPITAL		475,233,461.76		475,233,461.76
AUTHORISIED CAPITAL (TOTAL)		94,000,000.00		94,000,000.00
Authorised Capital I		47,000,000.00		47,000,000.00
Authorised Capital II		47,000,000.00		47,000,000.00
CONDITIONALLY AUTHORISED CAPITAL (TOTAL)		57,240,000.00		57,240,000.00
2012 Conditionally Authorised Capital		10,240,000.00		10,240,000.00
2013 Conditionally Authorised Capital		47,000,000.00		47,000,000.00

Share capital

The company’s share capital at the reporting date amounts to EUR 475,476,940.80 and is fully paid up. It is divided into 185,733,180 shares at a notional par value of EUR 2.56 per share. The shares are no-par value bearer shares. Each share confers a voting right and is entitled to dividend. In accordance with § 71b of the German Stock Corporation Act (AktG), the company is not entitled to dividends or to voting rights in respect of the 95,109 own shares it holds at 31 December 2017. No new no-par value shares were issued in the 2017 financial year. This means that the company’s share capital did not change year-on-year.

NUMBER OF SHARES


	2016		2017
NUMBERS OF SHARES AT 01.01.		185,733,180		185,733,180
Number of shares at 31.12.		185,733,180		185,733,180
Own shares		95,109		95,109
NUMBERS OF SHARES OUTSTANDING AT 31.12.		185,638,071		185,638,071
Number of Shares Authorised Capital I		18,359,375		18,359,375
Number of Shares Authorised Capital II		18,359,375		18,359,375

Capital reserve

The capital reserve comprises, among other things, the accumulated premiums arising on the issue of shares and the expenses relating to the issue of option rights to employees in accordance with IFRS 2 Share-based Payments. The LTIP 2012 share option scheme was modified in the 2017 financial year. The options are now settled in cash, as opposed to in the form of equity instruments.

Revenue reserves

Included under this heading are the past earnings of the companies included in the Group financial statements, to the extent that these have not been distributed. In addition, the effects of the remeasurement of defined benefit plans and the effects of the limit on a defined benefit asset (asset ceiling as set out in IAS 19.64) have been recognised in revenue reserves. This makes it quite clear that these amounts will not be transferred to profit or loss in future periods. A deferred tax effect of EUR -67 m was recognised in the movement in revenue reserves as a result of actuarial gains and losses (2016: EUR 125 m).

Cumulative changes in equity not recognised through the statements of profit or loss

Disclosed under this heading are the differences arising on the translation of the financial statements of foreign subsidiaries and gains or losses on the remeasurement of securities and hedging instruments, accounted for in equity rather than being recognised in the statements of profit or loss. In the 2017 financial year, the depreciation of the US dollar and the British pound against the euro, in particular, resulted in a high exchange rate effect compared with the previous year.

Movements in cumulative changes in equity not recognised in profit or loss were as follows:

MOVEMENT IN CUMULATIVE CHANGES IN EQUITY NOT RECOGNISED THROUGH THE STATEMENTS OF PROFIT OR LOSS


	2015						2016						2017
in EUR m	Before tax		Tax effect		*Net*		Before tax		Tax effect		*Net*		Before tax		Tax effect		Net
MOVEMENT IN CURRENCY TRANSLATION DIFFERENCES		1,093		—		1,093		-132		—		-132		-1,782		—		-1,782
MOVEMENT IN UNREALISED
GAINS/LOSSES ON AVAILABLE-FOR-SALE FINANCIAL ASSETS		-9		2		-7		1		—		1		8		-2		6
Movement in accumulated unrealised gains/losses		-8		2		-6		1		—		1		8		-2		6
MOVEMENT IN UNREALISED GAINS/LOSSES ON HEDGING INSTRUMENTS		-484		7		-477		40		—		40		348		-6		342
Movement in accumulated unrealised gains/losses		-466		2		-464		64		-7		57		367		-11		356
Realised gains/losses		-18		5		-13		-24		7		-17		-19		5		-14

NON-CONTROLLING INTERESTS


*in EUR m*	*31.12.2016*		31.12.2017
LINDE LIENHWA INDUSTRIAL GASES CO. LTD., Taiwan		272		274
African Oxygen Limited, South Africa		94		97
BOC-TISCO GASES CO., Ltd., China		61		52
Ma’anshan BOC-M a Steel Gases Company Limited, China		47		46
Shanghai HuaLin Industrial Gases Co. Ltd., China		47		44
LINDE INDIA LIMITED, India		46		43
Linde Gas Algerie S.p.A., Algeria		34		31
MIG Production Company Limited, Thailand		35		29
Saudi Industrial Gas Company, Saudi Arabia		32		27
Linde Engineering (Dalian) Co. Ltd., China		23		25
Various other companies		212		209

TOTAL		903		877

The voting rights of non-controlling shareholders correspond to their share of the equity in the companies concerned in each case. Detailed information about individual subsidiaries which have non-controlling shareholders is not disclosed due to the individual figures not being material.

Capital structure management

Linde’s capital structure management is based on various financial performance indicators such as the equity ratio and the dynamic indebtedness factor. Linde aims to achieve an upper threshold for the dynamic indebtedness factor of 2.5. The aim of the capital structure management is to obtain unrestricted access to the capital market and to achieve a strong investment grade rating. Linde has a EUR 2.5 bn syndicated revolving credit line at its disposal, which is available until 2020. At 31 December 2017, financial debt came to EUR 8.019 bn (31 December 2016: EUR 8.528 bn) and the equity ratio came to 44.9 percent (31 December 2016: 44.0 percent).

Financing principles and objectives

The aim of external financing and liquidity management is to ensure that the Group has adequate liquidity at all times.

For Linde, external financial headroom is maintained primarily by the capital markets and a major international banking group. Within the Group, the principle of internal financing applies, i.e. the financing requirements of subsidiaries are covered wherever possible, and by intra-Group loans wherever it makes financial sense.

Group companies are financed either by the cash surpluses of other business units in cash pools, or by Group loans from Linde Finance B.V. and/or Linde AG, taking into consideration any risks specific to that particular country.

Group Treasury also negotiates credit facilities with local banks to take account of legal, fiscal or other requirements. Especially in countries with currency restrictions, local financing is used to finance small amounts or for projects that involve specific local circumstances.

Linde maintained an adequate liquidity position again in 2017. In addition to cash and cash equivalents of EUR 1.432 bn, Linde also holds securities totalling EUR 623 m. These securities are mainly German government bonds with maturities of less than one year.

[21] Provisions for pensions and similar obligations

PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS


in EUR m	*31.12.2016*		31.12.2017
Provisions for pension plans		1,552		1,273
Provisions for similar obligations		12		7
TOTAL PROVISIONS		1,564		1,280

Prepaid pension costs		115		139

Different countries have different pension systems, due to the variety of legal, economic and fiscal conditions applicable in each country. These are generally based on the remuneration and length of service of the employees.

The provisions for similar obligations include bridging allowances in Germany as well as other obligations. Occupational pension schemes can be either defined contribution or defined benefit schemes. In the case of defined benefit plans, the company’s obligation is to meet the defined benefit commitments to current and former employees. Two different methods can be distinguished: the recognition of provisions for pensions and the use of externally financed pension schemes. The Linde Group’s main defined benefit plans are described below.

The defined benefit commitments in Germany relate to old age pensions, invalidity pensions and surviving dependants pensions. These commitments are based principally on defined contribution pension rules, whereby vested rights for periods of service prior to 1 January 2002 based on earlier final-salary pension scheme rules have to be taken into account. In addition, there are direct commitments in respect of the salary conversion scheme in the form of cash balance plans. The resulting pension payments are calculated on the basis of an interest guarantee and the performance of the corresponding investment. There are no minimum funding requirements. The pension obligations in Germany are partly funded by a Contractual Trust Arrangement (CTA).

Defined benefit commitments in the UK agreed prior to 1 July 2003 are earnings-related and dependent on the period of service, and relate to old age pensions, invalidity pensions and surviving dependants pensions. With effect from 1 April 2011, the amount of future increases in inflation-linked pensions and of increases in pensionable emoluments was restricted.

Legal, regulatory and contractual minimum funding requirements are in place. Regulatory funding obligations to resolve a deficit, based on the local valuation, mainly relate to the UK. Negotiations on a multi-year funding plan are currently being conducted with the trustees. The annual payments are expected to come to around GBP 40 m. In addition, there are a small number of such obligations in Ireland and Canada as well. Pension obligations in the UK are to a great extent funded. Defined benefit pension plans were closed to new entrants from 1 July 2003.

Defined benefit commitments in the United States relate to old age pensions, invalidity pensions and surviving dependants pensions. The commitments are based on pension regulations which are dependent on the period of service and salary of the employee. Most of the pension plans take the form of cash balance plans. The plan participants have the option to take a lumpsum payment or annual pension payments. The cash balance plan was closed to new entrants with effect from 1 July 2016. For existing plan participants, the cash balance plan will come to an end in 2021. Legal and regulatory minimum funding requirements are in place.

The amount of the pension obligation (actuarial present value of the defined benefit obligation, or DBO) was calculated using actuarial valuation methods, which require the use of estimates. In addition to assumptions about mortality and disability, the following assumptions, which depend on the economic situation in that particular country, are also relevant; for countries classed as “Other Europe” and “Other countries”, weighted average figures based on the obligation are given:

ASSUMPTIONS USED TO CALCULATE THE PROVISIONS FOR PENSIONS


	*Germany*				UK				*Other Europe*				*USA*				*Other countries*
*in percent*	*2016*		2017		*2016*		2017		*2016*		2017		*2016*		2017		*2016*		2017
Discount rate		1.90		1.90		2.70		2.50		1.55		1.63		3.40		3.10		4.40		3.73
Growth in future benefits		2.53		2.50		2.50		2.50		1.64		2.04		—		—		3.71		3.66
Growth in pensions		1.65		1.62		3.40		3.30		1.09		1.23		1.88		1.78		1.51		1.19

The growth in future benefits comprises expected future increases in salaries, which are estimated annually, taking inflation and the economic situation into account.

The growth in pensions represents the expected pension payment trend for pension payments to former employees, which is estimated annually considering the underlying pension scheme rules, inflation and the economic situation.

The sensitivity analysis below demonstrates the extent to which the present value of the defined benefit obligation changes when, in each case, just one of the actuarial assumptions changes while the other actuarial assumptions remain the same.

For the pension plans in Germany, an increase of one year in life expectancy would result in an increase in the defined benefit obligation of 5.4 percent. The sensitivity analysis of life expectancy in Germany is based on pension funds held at 31 December 2016.

For the pension plans in the UK, an increase of one year in life expectancy would result in an increase in the DBO of 4.0 percent (2016: 4.0 percent). For the pension plans in the United States, no sensitivity analysis of life expectancy was prepared, as the plan participants generally avail themselves of the option to be paid a lump sum.

In Germany, life expectancy is calculated on the basis of the “2005 G mortality tables” produced by Professor Dr Klaus Heubeck. Pension plans in the UK use their own mortality tables and biometric assumptions. These are determined on the basis of actual experience in a pool of comparable pension plans. At the reporting date, the average life expectancy applicable to pension plans in the UK is 22.4 years for a male pensioner aged 65 (2016:

22.0 years) and 24.3 years for a female pensioner aged 65 (2016: 23.6 years), while the future average life expectancy at the pensionable age of 65 for active members of the pension plans is currently 24.8 years for men aged 45 (2016: 23.9 years) and 27.1 years for women aged 45 (2016: 26.2 years).

The weighted average duration of the defined benefit obligations in The Linde Group at 31 December 2017 is 17.1 years (2016: 17.8 years).

SENSITIVITY ANALYSIS


			*Discount rate*				*Growth in future benefits*				*Growth in pensions*
*in EUR m*	*Change*		*+50 bp*		*- 50 bp*		*+50 bp*		*- 50 bp*		*+50 bp*		*- 50 bp*
Germany		31.12.2016		-133		151		12		-13		72		-66
Germany		31.12.2017		-130		147		11		-11		68		-63
UK		31.12.2016		-396		437		15		-15		353		-326
UK		31.12.2017		-340		390		17		-17		318		-283
Other Europe		31.12.2016		-48		54		6		-5		32		-28
Other Europe		31.12.2017		-41		46		5		-5		28		-25
USA		31.12.2016		-27		28		—		—		—		—
USA		31.12.2017		-19		20		—		—		—		—
Other countries		31.12.2016		-12		13		3		-7		3		-3
Other countries		31.12.2017		-10		12		3		-6		2		-2
TOTAL		31.12.2016		-616		683		36		-40		460		-423
TOTAL		31.12.2017		-540		615		36		-39		416		-373

RECONCILIATION OF THE DBO AND OF THE PLAN ASSETS


	*Germany*				UK				*Other Europe*				*USA*				*Other countries*				*Total*
*in EUR m*	Defined Benefit Obligation		*Plan assets*		Defined Benefit Obligation		*Plan assets*		Defined Benefit Obligation		*Plan assets*		Defined Benefit Obligation		Plan assets		Defined Benefit Obligation		Plan assets		Defined Benefit Obligation		*Plan assets*
AS AT 01.01.2016		1.391		-807		4.030		-3.957		590		-353		597		-562		270		-261		6.878		-5.940
Service cost		34		—		13		—		-11		—		1		—		11		—		48		—
Current service cost		34		—		24		—		17		—		19		—		11		—		105		—
Past service cost		—		—		-11		—		-20		—		—		—		—		—		-31		—
Effects from plan curtailments		—		—		—		—		-1		—		-18		—		—		—		-19		—
Effects from plan settlements		—		—		—		—		-7		—		—		—		—		—		-7		—
Interest expense (+)/interest income (-)		34		-21		138		-133		11		-6		21		-20		12		-13		216		-193
Remeasurements		139		-50		905		-401		25		-8		—		-15		-6		1		1.063		-473
Return on plan assets (excluding amounts included in interest expenses and income)		—		-50		—		-401		—		-8		—		-15		—		1		—		-473
Actuarial gains (-)/losses (+)		139		—		905		—		25		—		—		—		-6		—		1.063		—
Effects from changes in demographic assumptions		—		—		—		—		2		—		-7		—		1		—		-4		—
Effects from changes in financial assumptions		151		—		936		—		24		—		7		—		-2		—		1.116		—
Effects from changes in experience assumptions		-12		—		-31		—		-1		—		—		—		-5		—		-49		—
Employers´ contributions		—		—		—		-54		—		-12		—		—		—		-9		—		-75
Employees´ contributions		13		-13		1		-1		3		-3		—		—		1		-1		18		-18
Pensions payments made		-51		1		-160		160		-21		14		-33		29		-29		26		-294		230
Settlement payments		—		—		—		—		-18		18		—		—		-2		2		-20		20
Effects of changes in exchange rates		—		—		-569		541		1		-6		19		-18		14		-16		-535		501
Changes in Group structure/other changes		—		—		-82		85		3		-3		—		—		-5		13		-84		95
AS AT 31.12.2016/01.01.2017		1.560		-890		4.276		-3.760		583		-359		605		-586		266		-258		7.290		-5.853

Service cost		41		—		25		—		-9		—		7		—		10		—		74		—
Current service cost		41		—		25		—		15		—		19		—		10		—		110		—
Past service cost		—		—		—		—		1		—		—		—		—		—		1		—
Effects from plan curtailments		—		—		—		—		-13		—		—		—		—		—		-13		—
Effects from plan settlements		—		—		—		—		-12		—		-12		—		—		—		-24		—
Interest expense (+)/interest income (-)		30		-17		106		-96		8		-4		18		-17		11		-11		173		-145
Remeasurements		-8		-8		-89		-135		-5		-11		14		-20		11		-9		-77		-183
Return on plan assets (excluding amounts included in interest expenses and income)		—		-8		—		-135		—		-11		—		-20		—		-9		—		-183
Actuarial gains (-)/losses (+)		-8		—		-89		—		-5		—		14		—		11		—		-77		—
Effects from changes in demographic assumptions		—		—		-45		—		—		—		5		—		—		—		-40		—
Effects from changes in financial assumptions		2		—		54		—		1		—		13		—		6		—		76		—
Effects from changes in experience assumptions		-10		—		-98		—		-6		—		-4		—		5		—		-113		—
Effect due to asset ceiling		—		—		—		—		—		—		—		—		—		—		—		—
Employers´ contributions		—		-1		—		-32		—		1		—		—		—		-9		—		-41
Employees´ contributions		13		-13		—		—		4		-4		—		—		1		-1		18		-18
Pensions payments made		-51		2		-167		167		-23		15		-33		29		-27		25		-301		238
Settlement payments		—		—		—		—		-26		26		-104		104		—		—		-130		130
Effects of changes in exchange rates		—		—		-169		151		-24		17		-70		66		-20		15		-283		249
Changes in Group structure/other changes		-12		1		—		3		2		-2		—		—		-1		2		-11		4
AS AT 31.12.2017		1.573		-926		3.982		-3.702		510		-321		437		-424		251		-246		6.753		-5.619

In 2017, the restructuring and (in some cases) settlement of pension plans in the Netherlands, Spain, Finland and the US had a positive impact on operating profit in the amount of EUR 36 min total. In the previous year, such measures had had a positive impact on operating profit in the amount of EUR 57 m. Actual income from plan assets in external pension funds in 2017 was EUR 328 m (2016: EUR 666 m). This was higher than the interest income from plan assets of EUR 145 m (2016: EUR 193 m) calculated at the corresponding DBO interest rate. Employer’s contributions in the 2017 financial year totalled EUR 41 m (2016: EUR 75 m). Payments of employer’s contributions to increase plan assets in external pension funds in the 2018 financial year are expected to amount to EUR 83 m. The drop in the expected contributions as against the previous year (2016: EUR 123 m) is mainly due to the lower expected special payments in the UK to close the ongoing shortfall in the UK pension plans in accordance with local valuation rules. The expense for newly acquired pension entitlements in the financial year and the net interest cost for each respective financial year are determined each year on the basis of the prior year’s net obligation at the reporting date.

PENSION EXPENSE RELATING TO DEFINED BENEFIT PLANS RECOGNISED IN THE INCOME STATEMENT


	*Germany*						UK						*Other Europe*						*USA*						*Other countries*						*Total*
*in EUR m*	*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*
Service cost		42		34		41		52		13		25		-37		-11		-9		19		1		7		10		11		10		86		48		74
Current service cost		42		34		41		52		24		25		21		17		15		19		19		19		11		11		10		145		105		110
Past service cost		—		—		—		—		-11		—		-4		-20		1		—		—		—		—		—		—		-4		-31		1
Gains (-)/ losses (+) from plan curtailments		—		—		—		—		—		—		-24		-1		-13		—		-18		—		-1		—		—		-25		-19		-13
Gains (-)/ losses (+) from plan settlements		—		—		—		—		—		—		-30		-7		-12		—		—		-12		—		—		—		-30		-7		-24
Net interest expense (+) / income (-)		14		13		13		5		5		10		7		5		4		-1		1		1		-1		-1		—		24		23		28
Interest expense from DBO		31		34		30		152		138		106		14		11		8		20		21		18		13		12		11		230		216		173
Interest income from plan asset		-17		-21		-17		-147		-133		-96		-7		-6		-4		-21		-20		-17		-14		-13		-11		-206		-193		-145
Other effects recognised in the statement of profit or loss		—		—		—		3		3		2		—		1		—		—		—		—		1		1		—		4		5		2

Total net pension cost		56		47		54		60		21		37		-30		-5		-5		18		2		8		10		11		10		114		76		104

For the external financing of defined benefit obligations, The Linde Group uses standard international models for the transfer of pension assets (e. g. pension funds and Contractual Trust Arrangements). Pension plans financed via external pension funds exist principally in Australia, Canada, Germany, Ireland, South Africa, Switzerland, the UK and the US. In some countries, Linde is obliged to make contributions on plan assets as a result of legal requirements or contractual agreements. In certain countries, however, these increases in plan assets will not lead to the recognition of an asset because of the asset ceiling described in IAS 19.64 (IFRIC 14). In 2017, as in the previous year, there was no asset ceiling.

FUNDING STATUS OF THE DEFINED BENEFIT OBLIGATION


	*Germany*				UK				*Other Europe*				*USA*				*Other countries*				*Total*
*in EUR m*	*2016*		*2017*		*2016*		*2017*		*2016*		*2017*		*2016*		*2017*		*2016*		*2017*		*2016*		*2017*
Actuarial present value of pension obligations (defined benefit obligation)		1,560		1,573		4,276		3,982		583		510		605		437		266		251		7,290		6,753
of which unfunded pension obligations		74		61		—		—		141		132		81		77		42		22		338		292
of which funded pension obligations		1,486		1,512		4,276		3,982		442		378		524		360		224		229		6,952		6,461
Fair value of plan assets		-890		-926		-3,760		-3,702		-359		-321		-586		-424		-258		-246		-5,853		-5,619
NET OBLIGATION		670		647		516		280		224		189		19		13		8		5		1,437		1,134
AMOUNT AT 31.12 .		670		647		516		280		224		189		19		13		8		5		1,437		1,134
of which pension provision (+)		670		647		522		305		224		189		83		78		53		54		1,552		1,273
of which pension asset (-)		—		—		-6		-25		—		—		-64		-65		-45		-49		-115		-139

The Linde Group is exposed to various risks in relation to defined benefit pension schemes. In addition to general actuarial risks, the Group is exposed to currency risk and investment risk in respect of the plan assets. Plan assets and the defined benefit obligation may fluctuate over time. To compensate for such fluctuations, potential fluctuations

in the defined benefit obligation are taken into account in the course of the investment management of the plan assets. In ideal circumstances, plan assets and pension obligations are influenced in the same way by external factors, which provides a natural protection against such factors (liability-driven investment). Moreover, the broadly-based portfolio structure of plan assets in The Linde Group results in diversification of capital market risk.

PORTFOLIO STRUCTURE OF PENSION ASSETS


	*Germany*				UK				*Other Europe*				*USA*				*Other countries*				*Total*
in EUR m	*2016*		*2017*		*2016*		*2017*		*2016*		*2017*		*2016*		*2017*		*2016*		*2017*		*2016*		*in %*		*2017*		*in %*
Shares		221		250		630		694		91		82		98		49		81		74		1,121		19.2		1,149		20.4
Fixed-interest securities		449		459		2,438		2,292		125		136		388		290		105		98		3,505		59.9		3,275		58.3
Property		49		38		88		24		45		44		—		—		10		9		192		3.3		115		2.0
Insurance		—		—		—		—		72		33		—		—		17		16		89		1.5		49		0.9
Other		171		179		604		692		26		26		100		85		45		49		946		16.1		1,031		18.4

TOTAL		890		926		3,760		3,702		359		321		586		424		258		246		5,853		100.0		5,619		100.0

Plan assets comprise mainly shares and fixed-interest securities. Prices quoted in an active market are not available in the case of property and insurance. Around half of the fixed-interest securities relate to government bonds issued by first-rate debtors (the UK, the US and Germany) as part of the “liability-driven investment” strategies pursued by the corresponding pension plans, while the rest relate to broadly diversified portfolios of bonds issued by companies and emerging markets, as well as loans to finance companies and property. Financial instruments issued by companies in The Linde Group are not included in plan assets to any significant extent. The plan assets do not include any real estate used by Group companies.

Defined contribution plans

The total of all pension costs relating to defined contribution plans was EUR 202 m (2016: EUR 200 m). Of this amount, contributions to state pension schemes in 2017 totalled EUR 122 m (2016: EUR 124 m).

[22] Miscellaneous provisions

MISCELLANEOUS PROVISIONS


	*Current*				*Non-current*				*TOTAL*
in EUR m	*2016*		2017		*2016*		2017		*2016*		2017
PROVISIONS FOR TAXES		27		27		—		—		27		27
Obligations from delivery transactions		123		70		61		14		184		84
Warranty obligations and risks from transactions in course of completion		79		62		23		24		102		86
Provisions for legal disputes		45		40		60		38		105		78
Obligations relating to personnel		546		514		63		83		609		597
Dismantling obligations		6		8		259		252		265		260
Restructuring provisions		94		201		3		36		97		237
Provisions for follow-up costs		88		85		—		—		88		85
Other obligations		132		102		57		31		189		133
OTHER PROVISIONS		1,113		1,082		526		478		1,639		1,560

TOTAL		1,140		1,109		526		478		1,666		1,587

Provisions for taxes include only other taxes.

The provisions for warranties and onerous contracts consist principally of provisions for onerous contracts, guarantees and warranties. The provisions for warranties relate mainly to the Engineering Division and are generally utilised within three years.

The provisions for obligations relating to personnel comprise mainly provisions for profit-sharing.

The provisions for dismantling obligations are stated at the discounted settlement amount on the date the plant comes on stream. A corresponding item is recognised in tangible assets and is subject to depreciation. The provision is compounded over the duration of the underlying contracts. Due to the wide range of residual terms of the contracts, the residual term of the provision falls mainly in a range of between one and twenty years.

Changes in estimates, where these involve a change in assumptions about future cost trends or changes in interest rates are adjusted for in the carrying amount of the relevant plant without affecting profit or loss.

As in the previous year, the restructuring provisions include provisions for the Focus and LIFT efficiency programmes.

The other obligations consist largely of environmental provisions in the amount of EUR 28 m (2016: EUR 48 m). The unwinding of interest applied to miscellaneous long-term provisions amounted to EUR 8 m (2016: EUR 4 m).

MOVEMENTS IN MISCELLANEOUS PROVISIONS


*in EUR m*	Opening balance at 01.01.2017		Changes in scope of consolidation¹		*Utilisation*		*Release*		*Addition*		*Transfer*		Closing balance at 31.12.2017
PROVISIONS FOR TAXES		27		-1		4		1		6		—		27
Obligations from delivery transactions		184		-61		28		38		27		—		84
Warranty obligations and risks from transactions in course of completion		102		-6		29		39		57		—		85
Provisions for legal disputes		105		-6		23		13		16		—		79
Obligations relating to personnel		609		-9		321		20		340		-2		597
Dismantling obligations		265		-19		4		1		19		—		260
Restructuring provisions		97		2		60		3		199		2		237
Provisions for follow-up costs		88		-5		16		36		69		-15		85
Other obligations		189		-12		38		47		26		15		133
OTHER PROVISIONS		1,639		-116		519		197		753		—		1,560

TOTAL		1,666		-117		523		198		759		—		1,587

¹	Including currency adjustments

[23] Financial debt

Financial debt comprises interest-bearing obligations of The Linde Group:

FINANCIAL LIABILITIES


	*Current*				*Non-current*								*Total*
	*Due within* *one year*				Due in one to five years				Due in more than five years
in EUR m	*2016*		2017		*2016*		2017		*2016*		2017		*2016*		2017
Other bonds		1,242		1,224		3,852		3,508		2,397		2,353		7,491		7,085
Commercial papers (CP)		111		82		—		—		—		—		111		82
Bank loans and overdrafts		455		515		246		198		10		—		711		713
Other financial liabilities		46		109		131		27		38		3		215		139

FINANCIAL LIABILITIES		1,854		1,930		4,229		3,733		2,445		2,356		8,528		8,019

Of the other bonds, EUR 2.407 bn was in a fair value hedging relationship at 31 December 2017 (2016: EUR 2.825 bn). If there had been no adjustment to the carrying amount as a result of fair value hedging relationships, which had been agreed and were outstanding at the end of the year, the other bonds would be EUR 8 m (2016: EUR 37 m) lower.

Of the other bonds, EUR 232 m was in a cash flow hedging relationship at 31 December 2017 (2016: EUR 641 m).

The bank loans and overdrafts include an amount of EUR 41 m (2016: EUR 41 m) for bilateral Credit Support Annexes (CSAs). In the 2017 and 2016 financial years, there were no defaults or breaches of loans payable.

FIXED-INTEREST BONDS


*Issuer*	Nominal volume in relevant currency (ISO code)		*EUR m¹*		Weighted average residual term (in years)		Weighted average effective interest rate (in percent)²
Linde Finance B .V., Amsterdam/Linde AG, Munich		EUR 5,780 m		5,754		4.4		1.8
Linde Finance B .V., Amsterdam/Linde AG, Munich		USD 700 m		582		2.7		2.1
Linde Finance B .V., Amsterdam		GBP 300 m		342		5.3		5.9
Linde Finance B .V., Amsterdam		AUD 100 m		65		1.5		4.3
TOTAL				6,743

¹	Includes adjustments relating to hedging transactions.

²	Effective interest rate in the relevant currency.

VARIABLE-INTEREST BONDS

Isuuer

Nominal volume in
relevant currency
(ISO code)

EUR m

Weighted average
residual term
(in years)

Weighted average
coupon
(in percent)¹

Linde Finance B .V., Amsterdam

USD 350 m

292

1.5

2.0

Linde Finance B .V., Amsterdam

EUR 50 m

0.4

0.3

TOTAL

342

¹	Current coupon in the relevant currency.

Financial covenants

No financial covenants are contained in the agreement relating to the EUR 2.5 bn syndicated credit facility. The bank loans and overdrafts of African Oxygen Limited include various financial covenants relating to key financial figures in African Oxygen Limited. All the financial covenants relating to African Oxygen Limited were fulfilled in the 2017 and 2016 financial years.

[24] Liabilities from finance leases

Liabilities from finance leases are repaid over the lease term. They have the following residual lease terms at the reporting date:

LIABILITIES FROM FINANCE LEASES


*in EUR m*	*31.12.2016*		31.12.2017
TOTAL FUTURE MINIMUM LEASE PAYMENTS (GROSS INVESTMENT)		114		86

due within one year		22		14
due in one to five years		40		27
due in more than five years		52		45
PRESENT VALUE OF MINIMUM LEASE PAYMENTS		74		54

due within one year		21		14
due in one to five years		33		21
due in more than five years		20		19
FINANCE CHARGE INCLUDED IN THE MINIMUM LEASE PAYMENTS		40		32

The carrying amounts of assets held under finance leases are disclosed principally under tangible assets. These assets comprise distribution equipment, vehicles and other fixtures and fittings. Buildings are also included here. Some of the lease agreements contain extension clauses, purchase options or price adjustment clauses customary in the market.

[25] Trade payables, miscellaneous liabilities, liabilities from income taxes

TRADE PAYABLES AND OTHER LIABILITIES


	*Current*				*Non-current*				*Total*
in EUR m	*2016*		2017		*2016*		2017		*2016*		2017
Percentage of completion (PoC)		971		1,060		—		—		971		1,060
Other		2,599		2,754		1		1		2,600		2,755
TRADE PAYABLES		3,570		3,814		1		1		3,571		3,815

Payments received on account of orders		150		186		4		4		154		190
Other taxes		176		216		6		7		182		223
Social security		60		53		2		2		62		55
Derivatives with negative fair values		239		64		403		235		642		299
Other liabilities		583		640		310		289		893		929
MISCELLANEOUS LIABILITIES		1,208		1,159		725		537		1,933		1,696

INCOME TAX LIABILITIES		549		551		—		—		549		551

TOTAL		5,327		5,524		726		538		6,053		6,062

Percentage of completion trade payables of EUR 1.060 m (2016: EUR 971 m) relate to advance payments received on construction contracts, where these exceed the state of completion of the contract.

Income tax liabilities are disclosed as current in accordance with IAS 1.69 (d) as they are due with immediate effect and generally Linde has no option to defer them. Included in the income tax liabilities disclosed are amounts which may not fall due until more than twelve months after the reporting date.

Also included in income tax liabilities are liabilities relating to prior periods arising from external tax audits in various countries.

OTHER INFORMATION

[26] Share option schemes

Linde Performance Share Programme 2012

It was resolved at the Annual General Meeting of Linde AG held on May 4 2012 to introduce a performance share programme for management (Long Term Incentive Plan 2012—LTIP 2012), under which up to four million options can be issued over a total period of five years. For this purpose, the issued share capital can be increased by up to EUR 10,240,000 by the issue of up to four million bearer shares with a notional par value of EUR 2.56 if certain conditions are met (2012 conditionally authorised capital).

The options may be issued in annual tranches during the authorised period. Each option confers the right to purchase one share in Linde AG at the exercise price, which is equivalent in each case to the lowest issue price, currently EUR 2.56 per share. Linde AG may decide, at its own discretion, at any time until the beginning of the exercise period that the option entitlements of the option holders may be met by providing own shares or making a payment in cash instead of issuing new shares out of the share capital conditionally authorised for this purpose. The Linde Performance Share Programme 2012 is designed as share-based payment with compensation provided in the form of equity instruments. Each individual tranche may be issued within a period of 16 weeks after the Annual General Meeting of Linde AG. The options may not be exercised until a qualifying period has expired. The qualifying period begins on the issue date which has been determined and ends on the fourth anniversary of the issue date. If options are to be exercised, this must take place during a period of twelve months from the end of the relevant qualifying period (the exercise period).

LTIP 2012 modification

In the second quarter of 2017, a resolution passed by the Executive Board and the Supervisory Board modified the regulations of the Linde LTIP in respect of the subscription rights granted. In future, options are only to allow for cash settlement. It is still the case that options may only be exercised if and to the extent that performance targets are reached.

Performance targets

The performance targets for each individual tranche of options are based on movements in (i) earnings per share and (ii) relative total shareholder return. Within each individual tranche of options, equal weighting is given to the “earnings per share” performance target and the “relative total shareholder return” performance target. Within each of these performance targets, a minimum target must be reached if the options are to become exercisable, and there is also a stretch target. If the stretch target for one of these performance targets is reached, all the options relating to that performance target become exercisable.

“Earnings per share” performance target

The minimum target for the “earnings per share” performance target is reached if the diluted earnings per share of the company adjusted for special items for the financial year ending before the expiry of the qualifying period achieves a compound average growth rate (CAGR) of 6 percent when compared with the diluted earnings per share of the company adjusted for special items for the financial year ending before the issue of the options. The stretch target for the “earnings per share” performance target is reached if the diluted earnings per share of the company adjusted for special items for the financial year ending before the expiry of the qualifying period achieves a CAGR of at least 11 percent when compared with the diluted earnings per share of the company adjusted for special items for the financial year ending before the issue of the options. The calculation of the “earnings per share” performance target is derived from the diluted earnings per share of the company adjusted for special items disclosed in the audited Group financial statements of The Linde Group for the appropriate financial year. If no adjustment for special items has been made in that financial year, the relevant figure is the diluted earnings per share disclosed in the Group financial statements. Special items are items which, due to their nature, frequency and/or scope, might have an adverse impact on the extent to which the diluted earnings per share figure provides an informative picture of the ability of The Linde Group to sustain its profitability in the capital market. Adjusting diluted earnings per share for special items is designed to increase transparency in

respect of the Group’s ability to sustain profitability. If the minimum target is reached, 12.5 percent of all the options in the relevant tranche may be exercised. If the stretch target is reached, 50 percent of all the options in the relevant tranche may be exercised: i.e. all the options dependent on this performance target. If the minimum target is exceeded, but the stretch target is not reached, the number of options that may be exercised is determined on a straight-line basis and will lie between 12.5 percent and 50 percent of all options issued on the same issue date, depending on the extent by which the minimum target is exceeded and the proximity of the figure to the stretch target. If this calculation does not result in a round figure, the percentage should be rounded to one decimal point.

The “earnings per share” performance target is regarded as a non-market performance condition as defined by IFRS 2.

“Relative total shareholder return” performance target

The minimum target for the “relative total shareholder return” performance target is reached if the total shareholder return of the Linde AG share exceeds the median of the values for total shareholder return in the control group (described below) in the period between the issue date and the beginning of the exercise period. If the control group contains an even number of values, the average of the two values lying in the middle is deemed to be the median. The stretch target for the “relative total shareholder return” performance target is reached if the total shareholder return of the Linde AG share is in the upper quartile (third quartile) of the values for total shareholder return in the control group in the period between the issue date and the beginning of the exercise period. The total shareholder return of the Linde AG share comprises (i) the absolute increase or decrease in the price of a Linde AG share when compared to its initial value and (ii) the dividend per share paid plus the value of any statutory subscription rights attributable to one Linde AG share (as a result of capital increases). In each case, the calculation relates to the period between (and inclusive of) the issue date and the third last stock exchange trading day in the Xetra trading system (or in a comparable successor system) of the Frankfurt Stock Exchange before the exercise period. The absolute increase or decrease in price of the Linde AG share corresponds to the difference between the average of the closing prices (or of equivalent successor prices) of Linde shares in the Xetra trading system (or in a comparable successor system) of the Frankfurt Stock Exchange over the period between (and inclusive of) the 62nd stock exchange trading day to the third last stock exchange trading day before the exercise period (the final value) and the initial value. The initial value of the share for the determination of the total shareholder return is the average of the closing prices (or of equivalent successor prices) of Linde shares on the last 60 stock exchange trading days in the Xetra trading system (or in a comparable successor system) of the Frankfurt Stock Exchange before the issue date of the subscription rights. For the purposes of the LTIP 2012, the value of one statutory subscription right is the volume-weighted average of the closing prices in that period in which the subscription rights are traded in the Xetra trading system (or a comparable successor system) of the Frankfurt Stock Exchange. The control group comprises companies in the DAX 30 at that time, with the exception of Linde itself. Companies which are either excluded from or included in the DAX 30 during the period on which the calculation of the total shareholder return is based are ignored for the purposes of the calculation. When determining the total shareholder return for shares in the control group, Linde may have recourse to data supplied by a recognised independent provider of financial data. If a company in the control group trades different classes of share or shares with differing profit entitlements on the stock exchange, only the shares which form the basis for the determination of the DAX 30 value are taken into consideration. If the minimum target is reached, 12.5 percent of all the options in the relevant tranche may be exercised. If the stretch target is reached, 50 percent of all the options in the relevant tranche may be exercised: i.e. all the options dependent on this performance target. If the minimum target is exceeded, but the stretch target is not reached, the number of options that may be exercised is determined on a straight-line basis and will lie between 12.5 percent and 50 percent of all options issued on the same issue date, depending on the extent by which the minimum target is exceeded and the proximity of the figure to the stretch target. If this calculation does not result in a round figure, the percentage should be rounded to one decimal point. The “relative total shareholder return” target is regarded as a market-based performance condition as defined by IFRS 2 and is included in the measurement of the option price. The total value calculated of the share options at the issue date is allocated as a personnel expense over the period in which the company receives service in return from the employee. This period is generally the same as the agreed qualifying period. The counter entry is made directly in liabilities.

OPTIONS – LONG TERM INCENTIVE PLAN 2012


	LTIP – Number of options
AT 01.01.2015		*1,003,836*

granted		322,456
forfeited		49,470
AT 31.12.2015 / 01.01.2016		1,276,822

of which exercisable at 31.12.2015		—

granted		349,874
forfeited		446,047
AT 31.12.2016 / 01.01.2017		1,180,649

of which exercisable at 31.12.2016		—

granted		234,740
forfeited		418,758
AT 31.12.2017		996,631

of which exercisable at 31.12.2017		—

The average remaining period in the LTIP 2012 is 23 months (2016: 25 months). The exercise price for all the tranches in the LTIP 2012 is EUR 2.56.

As of the time of modification, the expenses were calculated taking into account the updated number of outstanding options on the reporting date, the price of the shares in Linde AG on the reporting date, less the issue price of EUR 2.56 per share, the expected target achievement level and the pro rata service rendered by the employee in question on the reporting date.

Personal investment, matching shares

A pre-condition of participation in the LTIP 2012 for plan participants in certain top management levels in Linde’s internal management structure is compulsory personal investment in shares of the company at the beginning of each tranche of the scheme. In the case of members of the Executive Board, the number of shares that each individual Board member must purchase as a personal investment is determined by the Supervisory Board. For other Linde executives in certain top management levels, it is the Executive Board which determines the number of shares that must be purchased by each individual. For each share acquired by a scheme participant as a personal investment and held by the participant in respect of each tranche throughout the qualifying period for the options, one matching share in Linde AG will be granted at the end of the qualifying period at no cost to the participant. However, Linde is permitted to pay an amount in cash to those entitled to options instead of granting them matching shares. Conditions which apply to the granting of matching shares include: a personal investment in Linde AG shares by the scheme participant at the appropriate time, the unrestricted holding of such shares during the qualifying period of the corresponding tranche and, except in the event of the termination of the service or employment contract of the scheme participant before the end of the qualifying period (special cases) when different rules shall apply, the existence of a service or employment contract with the scheme participant at the end of the qualifying period in respect of which no notice has been given. Plan participants in certain top management level of Linde’s internal management structure may make a voluntary personal investment in Linde AG shares and will be granted matching shares accordingly, subject to the aforementioned conditions.

MATCHING SHARES—LONG TERM INCENTIVE PLAN 2012


	LTIP – Number of matching Shares
AT 01.01.2016		*119,176*

granted		38,950
forfeited		14,954
allocated		32,330
AT 31.12.2016/ 01.01.2017		110,842

granted		27,722
forfeited		18,224
allocated		25,938
AT 31.12.2017		94,402

Modification—personal investment, matching shares

In the second quarter of 2017, a resolution passed by the Executive Board and the Supervisory Board also modified the regulations of the Linde LTIP in respect of the personal investment, matching shares. In future, these are only to allow for settlement in the form of a cash payment. The cash settlement is calculated based on the price of Linde’s shares on the last 60 stock exchange trading days in the qualifying period.

Due to the modification and changeover to a cash settlement for subscription rights granted and the personal investment, matching shares, a net total of EUR 15 m was reclassified from the capital reserve in the 2017 financial year. In addition, the matching shares relating to the 2013 tranche were allocated in the form of a cash payment. The resulting liability of EUR 4 m had been settled by the reporting date.

The effect on earnings of the recognition of the expense in the statements of profit or loss of The Linde Group is shown in the table below. The same amount was recognised in liabilities (in the previous years in the capital reserve):

PERSONNEL EXPENSES—LONG TERM INCENTIVE PLAN 2012

in EUR m

2015

2016

2017

TOTAL

The liability amounted to EUR 41 m on the reporting date.

[27] Financial instruments

FINANCIAL ASSETS


	*Fair Value*				*Carrying Amount*				*Statement of financial position figures*
									Financial instruments outside scope of IAS 39				*Total*
*in EUR m*	*2016*		2017		*2016*		2017		*2016*		2017		*2016*		2017
AVAILABLE-FOR-SALE FINANCIAL ASSETS
Investments and securities		138		640		138		640		—		—		138		640
LOANS AND RECEIVABLES
Investments and securities		6		5		6		5		—		—		6		5
Trade receivables		2,597		2,486		2,597		2,486		—		—		2,597		2,486
Receivables from percentage of completion contracts		160		188		160		188		—		—		160		188
Other receivables and assets		733		722		394		372		339		350		733		722
HELD-TO-MATURITY FINANCIAL ASSETS
Investments and securities		15		14		15		14		—		—		15		14
DERIVATIVES WITH POSITIVE FAIR VALUES
Freestanding derivatives		82		34		82		34		—		—		82		34
Derivatives designated as hedging instruments		132		133		132		133		—		—		132		133
CASH AND CASH EQUIVALENTS		1,463		1,432		1,463		1,432		—		—		1,463		1,432

RECEIVABLES FROM FINANCE LEASES		242		123		—		—		214		103		214		103

TOTAL		5,568		5,777		4,987		5,304		553		453		5,540		5,757

FINANCIAL LIABILITIES


	*Fair value*				*Carring amount*				*Statement of financial position figures*
									Financial instruments outside scope of IAS 39				*Total*
*in EUR m*	*2016*		2017		*2016*		2017		*2016*		2017		*2016*		2017
FINANCIAL LIABILITIES AT AMORTISED COST
Financial liabilities		9,059		8,397		8,528		8,019		—		—		8,528		8,019
Trade payables (excluding PoC)		2,601		2,755		2,600		2,755		—		—		2,600		2,755
Miscellaneous liabilities		893		929		542		549		351		380		893		929
DERIVATIVES WITH NEGATIVE FAIR VALUES
Freestanding derivatives		42		49		42		49		—		—		42		49
Derivatives designated as hedging instruments		600		250		600		250		—		—		600		250
LIABILITIES FROM FINANCIAL LEASES		67		55		—		—		74		54		74		54

TOTAL		13,262		12,435		12,312		11,622		425		434		12,737		12,056

The fair value of financial instruments is generally determined using stock exchange prices. If stock exchange prices are not available, the fair value is determined using measurement methods customary in the market, based on market parameters specific to the instrument. The fair value of derivative financial instruments is determined as follows: Options are valued using an option pricing model. Futures are measured with recourse to the quoted market price in the relevant market. All other derivative financial instruments are measured by discounting expected future cash flows using the net present value method. As far as possible the entry parameters used in these models are relevant observable market prices and interest rates at the reporting date.

The following table shows the financial instruments in The Linde Group which are measured at fair value. Linde uses the following hierarchy to determine and disclose fair values based on the method used to ascertain their fair values:

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.

Level 2: Inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Inputs for the assets or liabilities that are not based on observable market data.

FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE


*in EUR m*	*Level 1*				*Level 2*				*Level 3*
	*31.12.2016*		*31.12.2017*		*31.12.2016*		*31.12.2017*		*31.12.2016*		*31.12.2017*
Investments and securities		121		623		—		—		—		—
Freestanding derivatives with positive fair values		—		—		82		34		—		—
Derivatives designated as hedging instruments with positive fair values		—		—		132		133		—		—
Freestanding derivatives with negative fair values		—		—		42		49		—		—
Derivatives designated as hedging instruments with negative fair values		—		—		600		250		—		—

During the reporting year, there were no transfers between Levels 1, 2 and 3 of the fair value hierarchy. The investments and securities category also included financial assets (available-for-sale financial assets) of EUR 17 m (2016: EUR 17 m) for which a fair value cannot be reliably determined. There is currently no intention to sell these assets.

The fair value of financial instruments in the “loans and receivables”, “held-to-maturity financial assets” and “financial liabilities at amortised cost” categories is determined by discounting the expected cash flows. The interest rates applied are the same as those that would apply to new financial instruments with a similar risk structure, currency and maturity. Fair value is determined using the discounted cash flow method, taking into account individual credit ratings and other market circumstances in the form of credit and liquidity spreads generally applied in the market (Level 2). The exception to this is bonds issued by Linde AG and Linde Finance B.V., which are traded in the capital market (Level 1). The fair value of these instruments is determined using the current stock exchange price. In cases involving short-term financial instruments in the “loans and receivables”, “held-to-maturity financial assets” and “financial liabilities at amortised cost” categories, it is assumed that the fair value corresponds to the carrying amount.

In the 2017 financial year, there were no differences between the fair value of a financial instrument when it was first recognised and the amount which would have been recognised at that time had the valuation methods described above been used.

NET FINANCIAL GAINS AND LOSSES


*in EUR m*	*2015*		*2016*		*2017*
From freestanding derivatives		180		-111		-147
From held-to-maturity financial assets		—		—		—
From loans and receivables		93		-248		-271
From available-for-sale financial assets		-8		—		8
of which reported in the income statement		1		—		—
of which reported in cumulative changes in equity not recognised in the income statement		-9		—		8
From financial liabilities at amortised cost		-414		177		266
TOTAL		-149		-182		-144
of which recognised in net financial result		-13		-14		-4

2015 to 2016

The net financial gains and losses on financial instruments arise from changes in fair value, the recognition and reversal of impairment losses, eliminations and exchange rate fluctuations. In the financial year under review, there was an increase in the impairment losses for trade receivables.

The net financial gains and losses correspond to the valuation gains and losses of the financial instruments, but exclude interest and dividends.

Free-standing derivatives comprise all those derivatives which are not designated as hedging instruments. They include those derivatives in economic hedging relationships not designated as hedges in respect of which gains and losses arising from the underlying transaction and the hedged item are recognised at the same time in the Group statements of profit or loss.

The financial result includes fees and other costs of capital of EUR 17 m (2015: EUR 15 m) relating to financial instruments not at fair value through profit or loss.

No interest income has been accrued which relates to impaired financial instruments, especially receivables.

2016 to 2017

The net financial gains and losses on financial instruments arise from changes in fair value, the recognition and reversal of impairment losses, eliminations and exchange rate fluctuations.

The net financial gains and losses correspond to the valuation gains and losses of the financial instruments, but exclude interest and dividends.

The financial result includes fees and other costs of capital of EUR 19 m (2016: EUR 17 m) relating to financial instruments not at fair value through profit or loss. No interest income has been accrued which relates to impaired financial instruments, especially receivables.

IMPAIRMENT LOSS AT 31.12. ¹


	2016								2017
in EUR m	Carrying amount before impairment		Cumulative impairment loss		Carrying amount after impairment		Of which impairment loss for 2015 financial year		Carrying amount before impairment		Cumulative impairment loss		Carrying amount after impairment		Of which impairment loss for 2016 financial year
Investments and securities at fair value		157		19		138		7		658		18		640		1
Investments and securities at amortised cost		26		5		21		—		23		4		19		—
Receivables from finance leases		214		—		214		—		103		—		103		—
Trade receivables		2.968		371		2.597		163		2.835		349		2.486		133
Receivables from percentage of completion contracts		160		—		160		—		188		—		188		—
Derivatives with positive fair values		214		—		214		—		167		—		167		—
Other receivables and assets		737		4		733		1		723		1		722		—
Cash and cash equivalents		1.463		—		1.463		—		1.432		—		1.432		—

¹	In 2017, the impairment loss recognised in the financial result came to EUR 1m (2016: EUR 4 m)

IMPAIRMENT LOSS ON TRADE RECEIVABLES


	Cumulative impairment loss
*in EUR m*	*2016*		*2017*
AT 01.01.		326		371
Currency adjustments		10		-36
Increase in impairment losses recorded in the statement of		163		133
Write-offs charged against cumulative impairment losses		-128		-119
AT 31.12.		371		349

The carrying amounts of the financial assets recognised take into account the highest possible risk of default.

INTEREST INCOME/EXPENSE FROM FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE


*in EUR m*	*2015*		*2016*		*2017*
Interest income		40		30		27
Interest expense		350		245		192
TOTAL		-310		-215		-165
of which recognised in net financial result		-328		-229		-174

¹	Income and expenses are shown as positive figures where the line item designation is clear. In the “ total” line item, net expenses are shown as negative figures.

Not included here are the interest income and interest expense from derivatives or the interest income and interest expense from assets and liabilities outside the scope of IFRS 7.

Risk positions and risk management

The Linde Group is exposed to a variety of financial risks. These include in particular: counterparty risk, liquidity risk, interest rate risk, exchange rate risk and other market price risks. These are described below.

Counterparty risk

Counterparty risk is the risk that a counterparty does not meet his or her contractual payment obligations and that this leads to a loss for The Linde Group.

In order to counteract this risk, regular reviews are performed on the creditworthiness of major counter- parties, in particular, and clearly defined limits have been set. Experience during the economic crisis has shown that credit standings can change very quickly. It is therefore possible that, despite the Group’s monitoring process, counterparties might delay payments or fail to make them at all. The Linde Group does not believe that it has any significant exposure to default risk arising from any individual counterparty. The concentration of the counterparty risk is limited due to the Group’s broad and uncorrelated customer base. With the exception of Medicare, the federal health insurance programme within the US health system, the single largest debtor constitutes less than 1 percent of the total figure for trade receivables in The Linde Group. Medicare constitutes 7 percent of the Group’s trade receivables.

The risk positions outstanding are subject to strict limits and are continually monitored. The carrying amounts of financial assets reported in the Statement of Financial Position, taking into account impairment losses, represent the highest possible default risk, without including the value of any collateral.

A significant criterion for managing counterparty risk relating to financing and capital market transactions and setting corresponding limits is the credit rating of the relevant counterparty. Regular reviews are performed by a supervisory unit which is independent of the trading department to ensure compliance with all the limits set. The Linde Group has concluded bilateral Credit Support Annexes (CSAs) with the majority of the banks with which financial instruments are traded. On the basis of such agreements, the positive and negative fair values of derivatives held by Linde AG and Linde Finance B. V. for the purpose of interest rate and currency management are collateralised with cash on a regular basis. In this way, the default risk arising from these instruments is minimised. These transactions are subject to the rules of the framework agreement for financial derivative transactions, whereby the rights and obligations associated with the exchange of collateral do not qualify for netting in the Group statement of financial position.

A willingness to enter into CSAs with Linde AG and Linde Finance B. V. is an essential prerequisite to being accepted as a counterparty by Linde. In this connection, The Linde Group issued EUR 193 m (2016: EUR 464 m) as collateral for derivatives with negative fair values and received EUR 41 m (2016: EUR 41 m) as collateral for derivatives with positive fair values. In addition, a unilateral CSA was concluded for commodities derivatives and EUR 7 m (2016: EUR 7 m) was issued as collateral, while EUR 3 m (2016: EUR 0 m) was received as collateral. The Linde Group also has financial assets with a carrying amount of EUR 1 m (2016: EUR 6 m) which are pledged as collateral for liabilities or contingent liabilities. In the 2017 and 2016 financial years, no additional significant collateral was held by The Linde Group apart from the CSAs described above.

FINANCIAL ASSETS/LIABILITIES SUBJECT TO OFFSETTING OR ENFORCEABLE MASTER AGREEMENTS FOR FINANCIAL DERIVATIVE TRANSACTIONS


*in EUR m*	Gross amount of recognised financial assets / liabilities		Gross amount of recognised financial assets/liabilities set off in the balance sheet		Net amount of financial assets / liabilities presented in the balance sheet		Financial instruments that qualify for netting		Net amount before collateral		Cash collateral received¹		Cash collateral pledged¹		Net amount
31.12.2016
Derivatives with positive fair values		214		—		214		-143		71		-25		34		80
Derivatives with negative fair values		-642		—		-642		143		-499		-16		437		-78
Trade receivables		10		-4		6		—		6		—		—		6
Trade payables		-6		4		-2		—		-2		—		—		-2
TOTAL		-424		—		-424		—		-424		-41		471		6

31.12.2017		—		—		—		—		—		—		—		—
Derivatives with positive fair values		167		—		167		-87		80		-34		24		70
Derivatives with negative fair values		-299		—		-299		87		-212		-10		169		-53
Trade receivables		3		-1		2		—		2		—		—		2
Trade payables		-2		1		-1		—		-1		—		—		-1
TOTAL		-131		—		-131		—		-131		-44		193		18

¹	The terms governing CSAs may result in the net fair value position per counterparty being over-secured.

Liquidity risks

Liquidity risk is the risk that the Group will no longer be able to meet its financial payment obligations. Contractual undiscounted expected future cash flows from financial liabilities are shown in the table below:

FUTURE CASH FLOWS FROM FINANCIAL LIABILITIES


in EUR m	*Due within one year*				*Due in one to five years*				*Due in more* *than five years*
	*2016*		*2017*		*2016*		*2017*		*2016*		*2017*
Cash outflows from non-derivative financial liabilities		5,244		5,414		5,035		4,439		2,718		2,567
Cash outflows from derivative financial liabilities		855		416		1,065		621		1,009		794

Within this context, it is important to note that the cash outflows from derivative financial liabilities in the amount of EUR 1.831 bn (2016: EUR 2.929 bn) are offset by cash inflows from derivatives with gross settlement in the amount of EUR 1.363 bn (2016: EUR 2.116 bn).

Interest rate risks

Interest rate risks arise from market fluctuations in interest rates. As a result of its financing activities, The Linde Group is exposed to a risk from interest rate changes. At 31 December 2017, The Linde Group held interest-bearing instruments (net, including interest rate derivatives/hedges) totalling EUR 5.967 bn (2016: EUR 7.190 bn). Of these, EUR 1.525 bn (2016: EUR 2.618bn) related to instruments bearing interest at variable interest rates and EUR 4.442 bn (2016: EUR 4.572 bn) to instruments bearing interest at fixed rates. This is equivalent to a Group-wide fixed-rate ratio of 74 percent (2016: 64 percent).

Linde has used forward payer swaps to provide an element of hedging against exposure to rising interest rates with regard to future bond issues.

Based on instruments bearing interest at variable rates and financial instruments hedging interest rate risks which The Linde Group holds or has issued, a hypothetical change in the interest rates applicable to the respective instruments would have had the following effects (if exchange rates remained constant):

EFFECT OF CHANGES IN INTEREST RATES


in EUR m	*Change*		*Recognised in profit or loss*						*Directly in equity*
			*2015*		*2016*		*2017*		*2015*		*2016*		*2017*
Currency
EUR		+ 100 bp		-22		-38		-38		89		82		77
EUR		-100 bp		22		38		38		-95		-87		-81
GBP		+ 100 bp		1		12		13		-6		-3		-1
GBP		-100 bp		-1		-12		-13		6		3		1
USD		+ 100 bp		-2		-3		3		68		52		35
USD		-100 bp		2		3		-3		-69		-53		-35
AUD		+ 100 bp		-3		—		-2		8		11		6
AUD		-100 bp		3		—		2		-8		-11		-6
Ohter currencies		+ 100 bp		1		3		8		7		7		14
Ohter currencies		-100 bp		-1		-3		-8		-7		-7		-14

Exchange rate risks

Due to its activities as an international group, The Linde Group is exposed to exchange rate risks. Its broad spread of activities over many different currency areas and its local business model result in a low concentration of risk for the Group.

The Linde Group monitors and manages its exchange rate risk, a risk which has an impact on its operations. The gross exchange rate risk encompasses all the operating activities of the Group. This gross exchange rate risk is reduced by around 82 percent (2016: 78 percent). Therefore, The Linde Group is exposed at the reporting date to a net exchange rate risk from operating activities involving foreign currency corresponding to 18 percent (2016: 22 percent) of the original unsecured risk.

The risk of exchange rate movements is monitored for internal management purposes on the basis of a value-at-risk, which relates to positions in currencies other than the relevant functional currency. The value-at-risk is calculated on the basis of historical data (250 working days) in accordance with international banking standards. The value-at-risk presents the maximum potential loss based on a probability of 97.5 percent for a holding period of twelve months. The calculation takes into account correlations between the transactions being considered; the risk of a port-folio is generally lower than the total of the respective individual risks. At December 31, 2017, the value-at-risk was EUR 19 m (2016: EUR 31 m).

Other market price risks

As a result of its energy purchases, The Linde Group is exposed to risks arising from changes in commodity prices. The Linde Group monitors and manages these commodity price risks arising from the purchase of electricity, natural gas and propane for use in production. These hedging operations are governed by strict risk management guidelines, compliance with which is constantly being monitored. Commodity price risks are hedged in the main by long-term supply contracts or limited by the form and structure of sales contracts. Derivatives are also used to a much lesser extent to hedge against the exposure to changes in the price of electricity, natural gas and propane gas. The commodity price risk from financial instruments is therefore not material.

Hedge Accounting

Cash flow hedges

The Linde Group hedges cash flows at both Group and company levels, based on agreed minimum hedging rates. At the company level, future transactions which are highly probable are hedged against foreign exchange risks. A rolling 15-month budget or the budgets for individual customer-specific projects are used for this purpose.

In general, these hedges are accounted for as cash flow hedges in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The effective portion of the gain or loss on the hedging instruments is recognised directly in equity and released to the Group statements of profit or loss when the hedged cash flows are also recognised in the Group statements of profit or loss or if a hedged future transaction is no longer expected to occur. In addition, the risks associated with changes in interest rates relating to certain financial liabilities or future financing measures are hedged by derivative financial instruments and accounted for as cash flow hedges.

The Linde Group also hedges the exposure to commodity price risks which arise in the normal course of business from its procurement transactions and result in open risk positions. To reduce the extent of the risk, The Linde Group enters into a small number of electricity, natural gas and propane gas derivatives.

Usually, hedging relationships of this type are also designated as cash flow hedging relationships, if this accords with the facts.

If the hedged future transactions (forecast transactions as defined by IAS 39) result in the recognition of a non-financial asset or liability, the initial carrying amounts of these are adjusted for the amount recorded in equity. This is usually the case for non-current assets and inventories.

The following table presents a reconciliation of the reserve for cash flow hedges:

RESERVE FOR CASH FLOW HEDGES


in EUR m	*2015*		*2016*		*2017*
OPENING BALANCE AT 01.01		-259		-270		-305

Additions		7		-59		-4
Transfers to the statement of profit or loss¹		-18		24		19
of which relating to revenue		-12		4		5
of which relating to cost of sales		-11		14		-4
of which relating to financial income and expenses		5		6		18
CLOSING BALANCE AT 31.12		-270		-305		-290

¹	Transfers to the statement of profit or loss are shown as negative figures if they relate to income and positive figures if they relate to a loss.

In the 2017 financial year, EUR 1 m (2016: EUR 0 m) was recognised in the financial result as a result of ineffectiveness in cash flow hedges.

CASH FLOWS, GAINS AND LOSSES FROM CASH FLOW HEDGES


in EUR m	*Within one year*						*in one* *to five years*						*in more than five years*						*Total*
	*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*		*2015*		*2016*		*2017*
Cash flows from hedging instruments		4		-51		-68		-454		-323		-281		-199		-201		-157		-649		-575		-515
Gain/loss		-4		1		-17		-134		-134		-117		-132		-172		-156		-270		-305		-290

Fair value hedges

The Linde Group uses interest rate swaps to hedge the exposure to changes in the fair value of financial assets and financial liabilities as a result of interest rate changes. If the hedge is deemed to be effective, the carrying amount of the hedged item is adjusted for changes in the fair value attributable to the hedged risk.

The following table shows the changes in underlying transactions and hedging instruments in fair value hedging relationships recognised in the profit or loss.

FAIR VALUE HEDGES


*in EUR m*	*2015*		*2016*		*2017*
From hedged transactions		35		21		14
From hedging instruments		-34		-20		-16
INEFFECTIVENESS		1		1		- 2

¹	Income is shown in the form of positive figures and expenses in the form of negative figures

Hedges of a net investment in a foreign operation

The Linde Group hedges its exposure to translation risk by taking out loans in foreign currency and by entering into forward exchange contracts and cross-currency interest rate swaps. These hedges generally qualify as hedges of a net investment in a foreign operation (referred to below as net investment hedges) in accordance with IAS 39 Financial Instruments: Recognition and Measurement, and hence the effective portion of the hedge is transferred to equity. If the foreign operation is subsequently sold or relinquished, the amount recognised in equity is released to the Group statements of profit or loss.

FAIR VALUE OF FINANCIAL INSTRUMENTS DESIGNATED AS HEDGES


*in EUR m*	*2015*		*2016*		*2017*
Cash flow hedges
Forward exchange transactions		12		—		—
Interest rate/cross-currency interest rate swaps		-234		-329		-164
Commodities		-22		6		13
Financial liabilities		240		244		216
Fair value hedges				—		—

Interest rate swaps		90		12		-6
Net investment hedges				—		—

Forward exchange transactions		-60		-45		44
Cross-currency interest rate swaps		-99		-112		-4
Financial liabilities in foreign currencies		1,435		1,017		875

The following table shows the composition of net financial gains and losses.

RECONCILIATION TO NET FINANCIAL GAINS AND LOSSES [NOTE 9]


*in EUR m*	*2015*		*2016*		*2017*
Net financial income and expenses		-13		-14		-4
thereof releases form cash flow hedges		-5		-6		-18
Net interest expense		-328		-229		-174
ineffectiveness from cashflow hedges		—		—		-1
ineffectiveness from fair value hedge		1		1		-2
Fees and other costs of capital		-15		-17		-19
Net interest expense/income from defined benefit plans		-24		-23		-28
Income from long-term equity investments		—		1		1
Net interest expense/income from interest rate swaps		-1		-25		-31
Miscellaneous expenses and income from other assets and liabilities as financial instruments		-17		-18		-7
Net financial result		-397		-324		-265

[28] Group statements of cash flows

The statements of cash flows shows the source and application of funds. In accordance with IAS 7 Cash Flow Statements, cash flows from operating activities are distinguished from cash flows from investing and financing activities.

The cash and cash equivalents disclosed in the statements of cash flows comprise all cash and cash equivalents disclosed in the statement of financial position: i.e. cash in hand, bank balances and money market funds with a maturity of three months or less. Cash and cash equivalents of EUR 5 m (2016: EUR 5 m) are subject to drawing restrictions as a result of currency export restrictions. These relate to cash holdings of the subsidiaries in Argentina and Venezuela. Although transfer restrictions apply in other countries, too, The Linde Group is able to access the cash holdings in these countries via dividend payments. In addition, these cash holdings are available to the Group on location and are required and used for local operational business purposes there.

The cash flows from investing and financing activities are calculated on the basis of payments, while the cash flow from operating activities is derived indirectly from profit before tax.

When the cash flow from operating activities is calculated, the changes in assets and liabilities are adjusted for the effects of currency translation and changes in Group structure. As a result, it is not possible to reconcile the figures to the differences between the headings in the published Group statement of financial position.

Distributions received and income taxes paid included in cash inflow from operating activities are disclosed separately. Cash inflows from associates and joint ventures are disclosed in cash inflow from operating activities. Finance income from embedded finance leases (IFRIC 4/IAS 17) has been included in cash inflow from operating activities, due to the fact that such income is clearly related to the operating business of The Linde Group, while capitalised borrowing costs of EUR 11 m (2016: EUR 24 m) are disclosed in cash flow from investing activities. All other interest payments are disclosed in cash flow from financing activities.

For cash outflows relating to newly consolidated companies, please refer to the Group statements of cash flows. In the Group statement of financial position, EUR 3 m (2016: EUR 2 m) has been recognised as liabilities which are not included in the cash outflows for consolidated companies. The total increase in cash and cash equivalents as a result of acquisitions was EUR 4 m (2016: EUR 12 m).

Investing activities comprise additions to and disposals of tangible assets, financial assets, intangible assets and consolidated companies. Additions and disposals in foreign currency have been translated at average rates.

Reconciliation of liabilities arising from financing activities


					Non-cash changes
*in EUR m*	Opening balance at 01.01.2017		*Cash flows*		Changes in the consolidated *group*		Exchange rate effects ¹		Changes in fair *value*		Other changes ²		Closing balance at 31.12.2017
Non-current financial debt		6,674		-43		14		-29		—		-527		6,089
Current financial debt		1,854		-269		39		-221		—		527		1,930
Derivate financial
instruments		180		-204		—		—		16		—		-8
Liabilities from finance
leases		74		-17		—		-6		—		3		54

LIABILITIES FROM FINANCING ACTIVITIES		8,782		-533		53		-256		16		3		8,065

¹	For financial debt, incl. adjustments due to hedging transactions.

²	Under financial debt, reclassification from non-current to current financial debt; under liabilities from finance leases, addition of new leases.

[29] Segment information

IFRS 8 Operating Segments requires information to be provided for each operating segment. The definition of operating segments and the scope of the information prepared for segment reporting is based, among other things, on the information made available on a regular basis to the full Executive Board and, as a result, on the internal management within the organisation.

Changes in segment structure

Other Activities comprises Gist, a leading supplier of logistics and supply chain solutions with business operations mainly in England. As this business area is to be sold, it has been reported as a discontinued operation in this Annual Report. Since 2017, this business area has no longer formed part of the reports submitted to the Executive Board, meaning that it no longer forms part of the segment report either.

The full Executive Board is regularly provided with key profitability and revenue figures that are relevant from a decision-making perspective for the following areas:

•

EMEA (Europe, Middle East and Africa)

•

Asia/Pacific

•

Americas

•

Engineering Division

In accordance with IFRS 8, The Linde Group therefore reports in four segments. The “Reconciliation” column comprises corporate activities and consolidation adjustments.

Core financial performance indicators

One of the key elements of Linde’s corporate strategy is the pursuit of sustainable earnings-based growth, with the aim of achieving a steady increase in corporate value. To measure the medium-term and long-term financial success of this value-based management strategy, the Group uses the following core performance indicators:

•

Group revenue and the revenue of the Gases Division and the Engineering Division,

•

Segment group operating profit (Earnings before Interest, Tax, Depreciation and Amortisation, EBITDA) and the operating profit of the Gases Division and the Engineering Division.

These performance indicators are submitted on a regular basis to the entire Executive Board and are used for internal management purposes. The variable remuneration of the Executive Board is also based on these performance indicators.

Calculation of the core financial performance indicators

Operating profit is calculated by adjusting the Net profit on operating activities for the amortisation of intangible assets and depreciation of tangible assets. The amortisation of intangible assets and depreciation of tangible assets are included in functional costs.

In addition, the Net profit on operating activities is also adjusted for special items (i.e cost reduction programs and merger costs).

A brief description of the segments is given below:

Gases Division (EMEA, Asia/Pacific and Americas):

The activities of the Gases Division comprise the production, sale and distribution of gases for applications in industry, medicine, environmental protection and in research and development. In addition, this division offers technical application know-how, specialised services and the necessary hardware to use the gases. The business model in the three segments within the Gases Division (EMEA, Asia/Pacific and Americas) is largely identical in each segment.

Engineering Division:

The activities of the Engineering Division comprise the design and realisation of turnkey olefin plants, plants for the production of hydrogen and synthesis gases and the processing of natural gas, and air separation plants. This division also develops and manufactures plant components and offers specialised services.

Segment accounting policies

The same accounting policies as those set out in NOTE [5] apply to the segments. Exceptions apply to Group financing, which is allocated to Corporate. Pension obligations are allocated to the segment in which the relevant employees work. The provision for existing pension obligations arising from the BOC pension plan in respect of the legal entities in the UK is allocated to the EMEA segment. The service cost was charged to the EMEA and Corporate segments. Transactions between the reportable segments described above are conducted under the same conditions as for non-related third parties.

To arrive at the figure for the Gases Division as a whole from the figures for the three segments within the Gases Division, consolidation adjustments of EUR 174 m (2016: EUR 185 m) have been applied to revenue. This means that it is not possible to arrive at the figure for the Gases Division as a whole by merely adding together the segments in the Gases Division. Segment profit is calculated on the basis of operating profit.

Capital expenditure per segment represents the amounts invested during the financial year from the point of view of the subsidiary. Included in the “Reconciliation” column are not only consolidation adjustments required from the Group’s point of view, but also adjustments as a result of variances in Group acquisition and manufacturing cost as a result of supplies made by the Engineering Division to the Gases Division.

RECONCILIATIONS OF SEGMENT REVENUE AND OF THE SEGMENT RESULT


*in EUR m*	*2015*		*2016*		*2017*
Revenue
Total revenue from the segments		17,762		17,243		17,376
Consolidation		-417		-295		-263
GROUP REVENUE FROM CONTINUING OPERATIONS		17,345		16,948		17,113

Operating profit
Operating profit from segments		4,367		4,406		4,488
Operating profit from corporate activities		-288		-338		-273
Consolidation		8		30		-2
Restructuring and merger costs (special items)		192		126		373
Amortisation		1,866		1,897		1,896
Financial income		42		29		37
Financial expenses		439		353		302
PROFIT BEFORE TAX FROM CONTINUING OPERATIONS		1,632		1,751		1,679

REVENUE BY PRODUCT AREA



in EUR m	2016		2017
GASES DIVISION		14,892		14988

On-Site		3,757		3,994
Healthcare		3,740		3,361
Liquefied gases		3,575		3,767
Cylinder gases		3,820		3,866
ENGINEERING DIVISION		2,351		2,388

Olefin plants		819		848
Natural gas plants		448		639
Air separation plants		419		494
Hydrogen and synthesis gas plants		485		236
Other		180		171
CONSOLIDATION		-295		-263

GROUP REVENUE FROM CONTINUING OPERATION		16,948		17,113

[30] Recommendation for the approval of the annual financial statements and appropriation of profit of Linde AG

The unappropriated profit of Linde AG at 31 December 2017 was EUR 1,299,466,497.00 (2016: EUR 686,860,862.70). The annual financial statements of Linde AG prepared in accordance with the German Commercial Code

(HGB) and the German Stock Corporation Act (AktG) are published and filed in the German Federal Gazette (Bundesanzeiger).

The Executive Board recommends that, when the annual financial statements of Linde AG are approved at the meeting of the Supervisory Board on 7 March 2018, the Supervisory Board proposes that the appropriation of profit of EUR 1,299,466,497.00 (2016: EUR 686,860,862.70) be voted on at the Annual General Meeting on 3 May 2018:

•

payment of a dividend of EUR 7.00 (2016: EUR 3.70) per no-par value share entitled to dividend. The total dividend payout for 185,638,071 (2016: 185,638,071) no-par value shares entitled to dividend therefore amounts to EUR 1,299,466,497.00 (2016: EUR 686,860,862.70).

The 95,109 treasury shares held by the company without any dividend entitlement at the time of the proposal are not included in the calculation of the amount to be distributed.

[31] Related party transactions

In addition to the subsidiaries included in the Group financial statements, Linde AG is related, directly or indirectly, while carrying out its normal business activities, to non-consolidated subsidiaries, joint ventures and associates. The business relationships with these companies are generally conducted under the same conditions as for non-related third parties. Related companies which are controlled by The Linde Group or over which The Linde Group may exercise significant influence are disclosed in the list of shareholdings, arranged by division.

REVENUE WITH RELATED PARTIES


	*2015*								*2016*								*2017*
in EUR m	Non- consolidated subsidiaries		Associates or joint ventures		Other related parties		*Total*		Non- consolidated subsidiaries		Associates and joint ventures		Other related parties		*Total*		Non- consolidated subsidiaries		Associate and joints ventures		Other related parties		*Total*
Sales of goods		—		14		—		14		—		18		—		18		—		23		—		23
Revenue based on PoC		—		7		—		7		—		40		—		40		—		59		—		59
Other revenue		—		—		—		—		—		2		—		2		—		2		—		2

PURCHASED GOODS AND SERVICES FROM RELATED PARTIES


	*2015*								*2016*								*2017*
*in EUR m*	Non- consolidated subsidiaries		Associates and joint ventures		Other related parties		*Total*		Non- consolidated subsidiaries		Associates and joint ventures		Other related parties		*Total*		*Non-* consolidated subsidiaries		Associates and joint ventures		Other related parties		*Total*
Goods and services purchased from related parties		4		110		—		114		2		88		—		90		3		112		—		115

Related persons are mainly the members of the Executive Board and Supervisory Board. In 2017, there were no significant transactions (2016: none; 2015: none) between The Linde Group and members of the Executive Board and Supervisory Board or their family members which were outside the bounds of existing employment, service or appointment agreements or remuneration contracts.

Some members of Linde’s Executive Board and Supervisory Board hold similar positions in other companies. Linde has normal business relationships with virtually all these companies. The sale and purchase of goods and services to and from these companies take place under the usual market conditions.

RECEIVABLES FROM AND LIABILITIES TO RELATED PARTIES


	*31.12.2016*								*31.12.2017*
in EUR m	Non- consolidated subsidiaries		Associates or joint ventures		Other related parties		*Total*		Non- consolidated subsidiaries		Associates or joint ventures		Other related parties		*Total*
Receivables from related parties		—		46		—		46		1		67		—		68
Liabilities to related parties		—		63		—		63		2		45		—		47

There were no charge-free guarantee agreements in place for associates or joint ventures on the reporting date (2016 and 2015: EUR 0 m), nor any open purchase orders relating to joint ventures (2016: EUR 1 m).

[32] Additional information about the Supervisory Board and Executive Board

Supervisory Board

The total emoluments of the Supervisory Board shown in the table below are based on the cost incurred in the financial year in accordance with IAS 24.17. In the 2017 financial year, there were no advances or loans to members of the Supervisory Board.

EMOLUMENTS OF THE SUPERVISORY BOARD (INCL. VAT)

in EUR m

2015

2016

2017

Fixed emoluments

2,891,700

2,886,433

2,892,433

Attendance fees

97,580

133,280

149,940

TOTAL EMOLUMENTS

2,989,280

3,019,713

3,042,373

Executive Board

SHARES GRANTED FROM SHARE-BASED PAYMENTS


	*2015*				*2016*				*2017*
	*units*		Value per unit when granted in EUR		*units*		Value per unit when granted in EUR		*units*		Value per unit when granted in EUR
Options (LTIP 2012)		40,231		67.11		41,196		55.83		29,840		78.42
Matching shares (LTIP 2012)		4,275		157.91		4,737		121.40		3,672		159.31

In the reporting year as well as the in the year before, there were no advances or loans to members of the Executive Board.

Total remuneration paid to former members of the Executive Board and their surviving dependants amounted to EUR 2,944,748 (2016: EUR 10,202,212). A provision of EUR 58,364,954 (2016: EUR 59,710,818) has been made in The Linde Group for current pensions and future pension benefits in respect of former members of the Executive Board and their surviving dependants. Within Linde AG, the corresponding provision was EUR 47,625,733 (2016: EUR 46,747,736).

The emoluments of the Executive Board in accordance with IAS 24.17, based on the cost incurred in the financial year, were as follows:

EMOLUMENTS OF THE EXECUTIVE BOARD IN ACCORDANCE WITH IFRS


in EUR	*2015*		*2016*		*2017*
Short-term cash emoluments		8,665,205		7,551,570		7,017,232
Long-term cash emoluments		2,912,840		2,519,268		2,358,568
TOTAL CASH EMOLUMENTS		11,578,045		10,070,838		9,375,800

Change in value of virtual shares		65,644		-133,253		41,526
Cost Long Term Incentive Plan		1,122,133		-161,942		1,397,378
Service cost for pension obligation		2,105,419		953,525		1,112,822
TOTAL EMOLUMENTS (IFRS)		14,871,241		10,729,168		11,927,526

No post-employment benefits arose in the 2017 financial year (2016: EUR 6,565,134).

The remuneration report presents the basic features and structure of the remuneration of the Executive Board.

[33] Contingent liabilities and other financial commitments

CONTINGENT LIABILITIES


*in EUR m*	*31.12.2016*		*31.12.2017*
Guarantees		1		2
Warranties		—		—
Other contingent liabilities		73		69
TOTAL		74		71

Warranties and guarantee agreements

Contingent liabilities arise at Linde from guarantees and warranties, among other things. In exceptional cases, Linde enters into warranties with banks to secure loans of non-consolidated companies. Other contingent liabilities mainly include penalties and interest for a potential subsequent tax payment in Brazil. Judicial proceedings have been ongoing in this matter for some years now. It is not possible to reliably pinpoint the timing of potential cash outflows. There is no entitlement to reimbursement.

In the 2017 financial year, contingent assets of EUR 2 m were also recognised. These relate, among other things, to potential reimbursements of litigation expenses if a judgment is passed in Linde’s favour.

Other contingencies

The Engineering Division regularly enters into contracts with consortium partners to build turnkey industrial plants, under which the consortium partners assume joint and several liability to the customer for the total volume of the contract. There are clear internal rules here as to how the liability should be split between the partners. At present, there are plant construction orders with one of our consortium partners totaling EUR 7 m (2016: EUR 732 m). Linde currently anticipates that there will be no joint and several liability claim and has therefore not disclosed any contingent liability in respect of these contracts.

Other financial commitments

Other financial commitments include lease commitments relating to operating leases and commitments relating to orders. Commitments relating to orders are in respect of open orders for which a contractual payment obligation has already been agreed.

OTHER FINANCIAL COMMITMENTS


*in EUR m*	*31.12.2016*		*31.12.2017*
Obligations under non-cancellable operating leases		538		485
Capital expenditure commitment (tangible fixed assets)		247		360
Capital expenditure commitment (intangible assets)		3		1
TOTAL		788		846

PROCUREMENT LEASES


*in EUR m*	*31.12.2016*		*31.12.2017*
Total future minimum lease payments (gross investment)
due within one year		131		119
due in one to five years		262		246
due in more than five years		145		120
Total		538		485

The minimum lease payments relate to leased buildings, technical equipment, fixtures, furniture and equipment (procurement leases). They are in respect of a large number of individual contracts. In the 2017 financial year, costs arising from operating leases of EUR 296 m (2016: EUR 297 m) were recognised.

Litigation

The Linde Group or one of its Group companies are involved in current or foreseeable legal or arbitration proceedings in the normal course of business.

In 2010, the Brazilian competition authority CADE imposed fines on a number of gases companies, including Linde’s Brazilian subsidiary, on the grounds of alleged anti-competitive business conduct in the years 1998 to 2004. An amount of around BRL 188 m is attributable to The Linde Group in this respect. Based on the exchange rate on the reporting date, this equates to around EUR 47 m. Seen from today’s perspective and as a result of positive judgments in the first and second instance, Linde assumes that this decision will not stand up to judicial review in the third instance either, and deems the possibility of cash outflows to be extremely unlikely. As a result, no provision has been set up as a liability, and the matter is not reflected in the contingent liabilities either.

Linde is also party to various current or foreseeable legal or arbitration proceedings in respect of which the probability of a claim is unlikely or the impact on the economic situation of The Linde Group will be immaterial.

Appropriate provisions for potential financial liabilities have been made in the relevant Group company for all other proceedings in which Linde is involved.

[34] Events after the reporting date

No significant events occurred for The Linde Group between the reporting date and 19 February 2018. On 19 February 2018, the Executive Board of Linde AG released the consolidated financial statements for submission to the Supervisory Board. It is the responsibility of the Supervisory Board to examine the consolidated financial statements and to state whether it approves them. The Group financial statements, the statutory financial statements of Linde AG and the annual report are published on 8 March 2018 after they have been approved at the Supervisory Board meeting on 7 March 2018.