Note 2: Scope of consolidation

Material subsidiaries

The Consolidated financial statements comprise the assets, liabilities, income and expenses of approximately 283 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% of either revenue or operating income (before identified items) or based on qualitative aspects. Material subsidiaries included in the table below are 100% owned at year-end 2018.

Acquisitions

On October 1, 2018, we acquired Fabryo Corporation S.R.L. (Fabryo) in Romania. The transaction includes 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 around €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. In 2018, we performed a preliminary purchase price allocation. The goodwill is fully allocated to business unit Decorative Paints Europe, Middle East and Africa.

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

The aggregated outcome of the preliminary purchase price allocations performed in 2018 is represented in the table above.

In December 2018, we also acquired the non-controlling interests 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 shareholders’ equity.

In 2017, the acquisitions included Disa Technology (Disatech), Flexcrete Technologies Ltd and the business of V.Powdertech Co., Ltd.

Divestments

In April 2017, AkzoNobel 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 on November 30, 2017, the shareholders approved the proposed separation of the Specialty Chemicals business from AkzoNobel through a private sale or a legal demerger.

As from December 22, 2017, the Specialty Chemicals business is 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 Specialty Chemicals business presented as held for sale and discontinued operations consists of the former Business Area Specialty Chemicals and assets, liabilities, income and expenses which are directly attributed to the Specialty Chemicals business, previously included in Corporate and Other, which are not recognized on an ongoing basis by AkzoNobel. 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 difference of €8.3 billion with the consideration for the shares of €10.1 billion consists of settlement of net debt, provisions and working capital as included in the closing balance sheet. 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 net debt/working capital settlement that will be finalized in 2019.

In 2017 and 2018, otherwise no other significant divestments occurred.

Discontinued operations and held for sale

The results and cash flows from discontinued operations in 2017 as well as 2018 and the assets and liabilities held for sale at December 31, 2017 almost completely relate to the Specialty Chemicals business.

The income and expenses included in Held for sale effects and other mainly relate to the impact of ceasing of depreciation and amortization, partly offset by the related impact on inventory valuation, following IFRS 5 Assets held for sale accounting, as well as seperation costs.

Cash and cash equivalents as well as debt positions of Specialty Chemicals were excluded from held for sale classification unless such items were 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.

Employees

The average number of employees of the Specialty Chemicals business up to September 30, 2018 was 9,600 (full year 2017: 9,700). At September 30, 2018, the Specialty Chemicals business employed 9,900 people (December 31, 2017: 9,900).