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  

 

1


Unaudited Linde AG Group Interim Financial Statements

1 GROUP STATEMENT OF PROFIT OR LOSS

 

     2nd Quarter      January to June  

in € million

   2017
adjusted
     2018      2017
adjusted
     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  

 

1

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


2 GROUP STATEMENT OF COMPREHENSIVE INCOME

 

     2nd Quarter      January to June  

in € million

   2017
adjusted
     2018      2017
adjusted
     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  

 

1

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.

 

3


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  

 

1 

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.

 

4


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  

 

1 

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.

 

5


5 GROUP STATEMENT OF CASH FLOWS

 

     January to June  

in € million

   2017
adjusted
     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  

 

1 

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.

 

6


6 GROUP STATEMENT OF CASH FLOWS

 

     January to June  

in € million

   2017
adjusted
     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  

 

1 

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.

 

7


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  

 

1 

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.

 

8


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 adjusted      2018      2017 adjusted      2018      2017 adjusted      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  

 

1

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.

 

9


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 adjusted      2018      2017
adjusted
     2018      2017
adjusted
     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  

 

1 

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.

 

10


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)

 

11


[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  

 

12


[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  

 

13


[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  

 

14


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.

 

15


[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.

 

16


[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.

 

17


[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.

 

18


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.

 

1


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

 

2


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  
    

 

 

    

 

 

    

 

 

 

 

3


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        1        6  

Unrealised gains/losses on hedging instruments

     -477        40        342  

Currency translation differences

     1,093        -132        -1,782  

ITEMS THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS

     13        -418        246  
  

 

 

    

 

 

    

 

 

 

Remeasurement of defined benefit plans

     13        -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        69  
  

 

 

    

 

 

    

 

 

 

 

4


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     71        84  

Receivables from finance leases

     [16     165        70  

Trade receivables

     [16     2        6  

Other receivables and other assets

     [16     378        381  

Income tax receivables

     [16     7        12  

Deferred tax assets

     [10     500        416  
    

 

 

    

 

 

 

NON—CURRENT ASSETS

       27,963        25,672  
    

 

 

    

 

 

 

Inventories

     [15     1,231        1,211  

Receivables from finance leases

     [16     49        33  

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  
    

 

 

    

 

 

 

 

5


LINDE AG

GROUP STATEMENT OF FINANCIAL POSITION (continued)

 

in EUR m

   Note     31.12.2016      31.12.2017  

Equity and liabilities

       

Capital subscribed

       475        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     53        40  

Trade payables

     [25     1        1  

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     21        14  

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  
    

 

 

    

 

 

 

 

6


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  
     

 

 

    

 

 

    

 

 

 

 

7


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

       —          —          25  

Cash inflows from interest rate derivatives

     [9     182        149        88  

Interest paid for debt and cash outflows for interest rate derivatives

     [9     -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

       4        -21        -2  
    

 

 

    

 

 

    

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES - CONTINUING AND DISCONTINUED OPERATIONS

       -1,519        -1,917        -1,623  
    

 

 

    

 

 

    

 

 

 

CHANGE IN CASH AND CASH EQUIVALENTS

       279        32        39  

OPENING BALANCE OF CASH AND CASH EQUIVALENTS

     [18     1,137        1,417        1,463  

Effects of currency translation

       3        18        -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  
    

 

 

    

 

 

    

 

 

 

 

8


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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

9


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.

 

10


     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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

11


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  

UK

     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  
  

 

 

    

 

 

    

 

 

 

 

12


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.

 

13


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  

 

14


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  
  

 

 

    

 

 

 

 

15


[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.

 

16


[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.

 

17


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.

 

18


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.

 

19


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.

 

20


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.

 

21


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.

 

22


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.

 

23


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.

 

24


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.

 

25


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.

 

26


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

 

27


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.

 

28


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.

 

29


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.

 

30


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.

 

31


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:

 

32


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).

 

33


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.

 

34


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.

 

35


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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

36


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

     —          —          —          —          —