Note 2: Scope of consolidation

Material subsidiaries

The Consolidated financial statements comprise the assets, liabilities, income and expenses of 283 legal entities. We consider legal entities material when they represent, for at least two subsequent years, more than 5% of either revenue or or based on qualitative aspects. Material subsidiaries included in the following table are fully owned at year-end 2019.

Material subsidiaries related to continuing operations

Legal entity

Principal place of business/country of corporation

Akzo Nobel Coatings Inc.

US

Akzo Nobel Paints (Shanghai) Co Ltd.

China

Imperial Chemical Industries Limited

UK

International Paint LLC

US

Akzo Nobel Coatings SPA

Italy

Acquisitions

On November 8, 2019, we acquired Mapaero in France to further strengthen our global position in the steadily growing aerospace and coatings industry. Specializing in sustainable water-based and advanced eco-friendly products and a global player in the structural and cabin coating sub-segments, Mapaero operates a production facility in France and has 140 employees. The business generated revenue of €34* million in 2018. In 2019, we performed a preliminary purchase price allocation, resulting in €83 million of goodwill, that has been fully allocated to business unit Automotive and Specialty Coatings.

On October 1, 2018, we acquired Fabryo Corporation S.R.L. (Fabryo) in Romania. The transaction included two production facilities and six distribution centers for decorative paints, adhesives and mortars, including one of the largest decorative paints factories in the region, with capacity for further expansion. The business generated revenue of €45* million in 2017 and is the only player with both a leading product portfolio for consumers as well as professional segments in the Romanian market, including brands Savana, APLA and InnenWeiss.

* Revenue figures are unaudited.

In 2018, we performed a preliminary purchase price allocation, which was completed in 2019. This resulted in higher goodwill and lower intangibles for an amount of €13 million. The goodwill was fully allocated to business unit Decorative Paints Europe, Middle East and Africa.

Recognized fair values at acquisition

In € millions

Mapaero Aerospace Coatings

Other*

Total 2019

*

Mainly related to finalizing the purchase accounting for Fabryo.

Other intangibles

155

(13)

142

Property, plant and equipment

13

(1)

12

Inventories

4

4

Trade and other receivables

19

19

Cash and cash equivalents

17

17

Investments in short-term investments

16

16

Long-term debt

(3)

1

(2)

Deferred tax assets/(liabilities)

(43)

2

(41)

Trade and other payables

(8)

(8)

Net identifiable assets and liabilities

170

(11)

159

Goodwill

83

18

101

Purchase consideration

253

7

260

Cash and cash equivalents acquired

(17)

(17)

To be paid in 2020 and later years

(14)

(5)

(19)

Net cash outflow

222

2

224

In 2018, other smaller acquisitions included Doves Decorating Supplies in the UK, Xylazel S.A. in Spain and Colourland Paints Sdn Bhd and Colourland Paints (Marketing) Sdn Bhd in Malaysia.

In December 2018, we also acquired the non-controlling interest from Swire Industrial Limited in several Akzo Nobel Swire Paints subsidiaries for €407 million. The goodwill on this transaction of €208 million was charged directly to shareholder’s equity.

Divestments

In 2018, the Specialty Chemicals business was classified as held for sale and discontinued operations, therefore the Consolidated statement of income and the Consolidated statement of cash flows show the results of the Specialty Chemicals business as discontinued.

The sale of the Specialty Chemicals business to the Carlyle Group and GIC for an enterprise value of €10.1 billion was completed on October 1, 2018. The Specialty Chemicals business is now called Nouryon.

At year end 2018, AkzoNobel made a best estimate of the expected deal proceeds for the sale of the Specialty Chemicals business, including the /working capital settlement.

In 2018, the divestment of the Specialty Chemicals business resulted in a net gain of €5,811 million and a net cash inflow of €9,321 million.

In 2019, the profit from discontinued operations includes the final purchase price settlement of the sale of the Specialty Chemicals business, as well as a true up of related tax positions, which resulted in an after-tax gain of €22 million.

In 2018 and 2019, otherwise no other significant divestments occurred.

Discontinued operations and held for sale

The results and cash flows from discontinued operations in 2018, as well as 2019, almost completely related to the Specialty Chemicals business.

Discontinued operations

In € millions

2018

2019

Revenue

3,791

Expenses

(3,158)

Profit before tax

633

Income tax

(168)

Profit for the period after tax

465

Results related to discontinued operations in previous years

(2)

Tax related to discontinued operations in previous years

Profit for the period

463

Gain on the sale of the Specialty Chemicals business

6,074

21

Income tax on the sale

(263)

1

Total profit for the period from discontinued operations

6,274

22

Deal result

In € millions

2018

2019

*

Excluding deal cost incurred in 2017.

Consideration received for shares sold

8,284

17

Net assets and liabilities

(2,112)

5

Liabilities assumed and cost* allocated to the deal, realization of cumulative translation and cash flow hedge reserves

(98)

(1)

Income tax on sale

(263)

1

Deal result after tax

5,811

22

Cash flows from discontinued operations

In € millions

2018

2019

*

Including the cash inflow from the divestment of €9,321 million.

Net cash from operating activities

351

(10)

Net cash from investing activities*

8,723

Results from financing activities

(116)

Cashflows from discontinued operations

8,958

(10)

Adjusted operating income

Operating income excluding identified items.

Net debt

Defined as long-term borrowings plus short-term borrowings less cash and cash equivalents and short-term investments.