Note 2: Scope of consolidation

Material subsidiaries

The Consolidated financial statements comprise the assets, liabilities, income and expenses of approximately 360 legal entities (including the entities reported as held for sale). We consider legal entities material when they represent, for at least two subsequent years, more than 5 percent of either revenue or operating income (before identified items) or based on qualitative aspects. Material subsidiaries included in the table are 100 percent owned, except for Akzo Nobel Swire Paints (Shanghai) Ltd., and meet these criteria.

Acquisition of BASF’s Industrial Coatings business

On December 14, 2016, we acquired BASF’s Industrial Coatings business. The transaction included two manufacturing plants, technologies, patents and trademarks, as well as securing supply to customers worldwide. The business supplies products for a number of end uses, including coil, furniture foil and panel coatings, wind energy and general industry, and commercial transport. The acquisition strengthened our position in the important coil coatings market and fits well with our existing business, allowing us to offer essential solutions to our customers. In 2017, we finalized the purchase price allocation. The outcome thereof is reflected in the table below. The goodwill is fully allocated to the respective business unit in Performance Coatings.

Other acquisitions

Other acquisitions are deemed to be individually immaterial in respect to IFRS 3 disclosure requirements. In 2017, the other acquisitions include the acquisition of Disa Technology (Disatech), Flexcrete Technologies Ltd and the business of V.Powdertech Co., Ltd.

In 2016, Other acquisitions include the acquisition of the remaining 50 percent stake in EkO Peroxide LLC.

Divestments

In 2016 and 2017, no significant divestments occurred.

Discontinued operations and held for sale

The results and cash flows from discontinued operations in 2016 as well as 2017 and the assets and liabilities held for sale at December 31, 2017 almost completely relate to the Specialty Chemicals business.

In April 2017, AkzoNobel officially announced its decision to separate the Specialty Chemicals business, thereby creating two focused, high performing businesses - Paints and Coatings, and Specialty Chemicals. At the Extraordinary General Meeting of November 30, 2017, the shareholders approved the proposed separation of the Specialty Chemicals business from AkzoNobel through a private sale or a legal demerger. In the course of December non-binding offers were received in the private track.

As from December 22, 2017, the Specialty Chemicals business is classified as held for sale/held for distribution and discontinued operations, therefore the Consolidated Statement of Income shows the results of the Specialty Chemicals business as discontinued. The Specialty Chemicals business presented as held for sale and discontinued operations consists of the Business Area Specialty Chemicals and income and expenses which are directly attributed to the Specialty Chemicals business from Corporate and Other which will not be recognized on an ongoing basis by AkzoNobel.

The income and expenses from Corporate and Other included in discontinued operations mainly consist of:

• Employee benefit expenses related to employees who were identified to be employees of the Specialty Chemicals business starting in 2018 as part of the legal reorganization.
• Information management costs such as application services or infrastructure costs that relate directly to the Specialty Chemicals business.
• Other contract costs that relate directly to the Specialty chemicals business.

The assets and liabilities held for sale include the assets and liabilities previously reported as part of Specialty Chemicals combined with assets and liabilities of Corporate and Other that have directly been attributed to the Specialty Chemicals business and are expected to be part of the disposal, consisting mainly of:

• Post-retirement provisions were allocated between the Specialty Chemicals business and the Paints and Coatings business based on headcount for obligations in relation to active employees and post-separation retention of liabilities and obligations to finance the post-retirement plans for inactive employees.
• Environmental and sundry provisions if related to historical Specialty Chemicals sites and activities and intended to be included in the disposal.
• Provisions for restructuring that relate to Specialty Chemicals employees.

Cash and cash equivalents as well as debt positions of Specialty Chemicals are excluded from held for sale classification unless such items have been specifically designated as held for sale, e.g. in the case of specific local financing and debt related to finance leases held in relation to the Specialty Chemicals assets.

The assets and liabilities of the Specialty Chemicals business are recognized at their carrying value.

Separation costs

The costs related to the separation of Specialty Chemicals were reported as identified items in Corporate and other of discontinued operations and amounted to €67 million.

Employees

The average number of employees of the Specialty Chemicals business during the year was 9,700 of which 9,100 employees in Business Area Specialty Chemicals (2016: 9,000). At year-end 2017, Specialty Chemicals business employed 9,700 people of which 9,000 employees in Business Area Specialty Chemicals (2016: 9,000).