To our Shareholders
Management Report
Consolidated Financial Statements
C CONSOLIDATED FINANCIAL STATEMENTS 110 – 209 CONSO\fIDATED FINANCIA\f STATEMENTS 110 20161S06E RVICRH AOFLKRV11H6Y 6Y 112 CONSOLIDATED INCOME STATEMENT 113 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 114 CONSOLIDATED BALANCE SHEET 116 CONSOLIDATED STATEMENT OF CHAN\bES IN EQUITY 118 CONSOLIDATED CASH FLOW STATEMENT 119 NOTES 119 Key Financial Figures by Segment 120 Group Key Financial Figures 121 General Information 122 Consolidation Policies and Methods 134 Accounting and Measurement Policies 144 Consolidated Income Statement Disclosures 151 Consolidated Balance Sheet Disclosures 183 Consolidated Cash Flow Statement Disclosures 183 Segment Reporting 185 Other Financial Obligations and Contingent Liabilities 186 Legal Proceedings and Disputes 187 Reporting of Financial Instruments 196 Related Parties 197 Fees for the Auditors of the Consolidated Financial Statements 198 Exemptions Pursuant to Section 264, para. 3 / Section 264b of the German Commercial Code 198 Declaration of Conformity with the German Corporate Governance Code 198 Events after the End of the Reporting Period 199 RESPONSIBILITY STATEMENT 200 ANNEX 200 List of Shareholdings in Accordance with Section 313, para. 2 of the German Commercial Code as at December 31, 2016 CONSO\fIDATED FINANCIA\f STATEMENTS CONTENTS 111 L A LATINMT ERLCT20IECRLER0R1E06 4I0IM2MRI4 597O7H9O\f USD\bUP FÜBW KUS77POY OY CONSOLIDATED INCOME STATEMENT C.01 CONSOLIDATED INCOME STATEMENT in EUR mNote2016 2015 Sales 1.)10,49\f.4 10,346.1 Cost of sales 2.)– \f,129.1 – \f,0\f0.1 Gross profit 2,369.32,266.0 Selling expenses 3.)– 1,563.\f – 1,461.2 Administrative expenses 4.)– 175.9 – 166.5 Other operating income 5.)33.4 45.4 Other operating expenses 6.)– 1 5.7 – 21.9 Operating profit 6 4 7. 3661.8 Share of pro\bt or loss of equity-accounted investments 2.\f3.7 Interest income 7. )2.9 3.3 Interest expense \f.)– \f4.4 – 74.\f Change in liabilities relating to acquisition of noncontrolling interests recognized in pro\bt or loss 9.)– 2.6 – 24.9 Other net \bnance costs 10.)– 30.3 – 19.\f Net finance costs – 111.6 – 112.5 Profit before tax 535.7549.3 Income tax expense 11.)– 174.7 – 1\f1.2 Profit after tax 361.0368.1 Attributable to: Shareholders of Brenntag AG 360.3365.0 Non-controlling interests 0.73.1 Basic earnings per share in euro 13.)2.33 2.36 Diluted earnings per share in euro 13.)2.33 2.36 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT 112 CONSNLOSI DATEDM DANNMS S CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME C.02 CONSO\fIDATED STATEMENT OF COMPREHENSIVE INCOME in EUR m 20162015 Profit after tax \f61.0\f68.1 Remeasurements of defined benefit pension plans – 9.7 21.1 Deferred tax relating to remeasurements of defined benefit pension plans 3.9– 6.0 Items that will not be reclassified to profit or loss – 5.815.1 Change in exchange rate differences on translation of consolidated companies 60.158.6 Change in exchange rate differences on translation of equity-accounted investments 2.7– 3.2 Change in net investment hedge reserve 2.2– 2.2 Change in cash flow hedge reserve 0.7– 2.9 Deferred tax relating to change in cash flow hedge reserve – 0.31.2 Items that may be reclassified subsequently to profit or loss 65.451.5 Other comprehensive income, net of tax 59.666.6 Total comprehensive income 420.64\f4.7 Attributable to: Shareholders of Brenntag AG 421.3429.4 Non-controlling interests – 0.7 5.3 CONSO\fIDATED FINANCIA\f STATEMENTS CONSO\fIDATED STATEMENT OF COMPREHENSIVE INCOME 113 F I FINACLN REFPNOTARPEFRETEDRTV GATALOLEAG XSMKMYSK\f HfiB\bHW Q289 4HfiMMWK3 K3 CONSOLIDATED BALANCE SHEET ASSETS in EUR mNoteDec. \f1, 2016 Dec. 31, 2015 Current assets Cash and cash equivalents 14.)601.9 579.1 Trade receivables 15.)1,511.2 1,426.5 Other receivables 16.)145.4 1 3 7. 0 Other financial assets 17.)18.6 10.2 Current tax assets 41.84 7. 9 Inventories 18.)962.8 8 9 7. 1 Noncurrent assets held for sale –1.0 \f, 281.7 \f,098.8 Non-current assets Property, plant and equipment 19.)1,0 0 9.1 971.9 Intangible assets 20.)2,873.2 2,7 72.1 Equity-accounted investments 21.)25.6 22.5 Other receivables 16.)25.1 21.1 Other financial assets 17.)14.4 38.4 Deferred tax assets 11.)5 7. 9 51.4 4,005.\f \f , 8 7 7. 4 Total assets 7, 2 8 7. 06,976.2 CONSO\fIDATED FINANCIA\f STATEMENTS CONSO\fIDATED BA\fANCE SHEET 114 FINANCIAL REPORT DVGXSRENNTAM AM C.03 CONSO\fIDATED BA\fANCE SHEET \fIABI\fITIES AND EQ\bITY in EUR mNoteDec. \f1, 2016 Dec. 31, 2015 Current liabilities Trade payables 22.)1,119.4 1,055.5 Financial liabilities 2 3.)146.3 160.8 Other liabilities 24.)376.2 370.5 Other provisions 25.)36.2 42.1 Liabilities relating to acquisition of non-controlling interests 2 7. )–63.3 Current tax liabilities 36.54 6.7 1,714.6 1,7\f8.9 Non-current liabilities Financial liabilities 2 3.)2,137.5 2,094.4 Other liabilities 24.)2.02.6 Other provisions 25.)121.3 121.1 Prov isions for pensions and other postemployment benefits 26.)160.2 150.9 Liabilities relating to acquisition of non-controlling interests 2 7. )5.55.4 Deferred tax liabilities 11.)18 6.7 172.4 2,61\f.2 2,546.8 Equity 28.) Subscribed capital 154.5154.5 Additional paid-in capital 1,491.41,491.4 Retained earnings 1,168.5938.0 Accumulated other comprehensive income 135.162.5 Equity attributable to shareholders of Brenntag AG 2,949.52,646.4 Equity attributable to non-controlling interests 9.74 4.1 2,959.2 2,690.5 Total liabilities and equity 7, 2 8 7. 06,976.2 CONSO\fIDATED FINANCIA\f STATEMENTS CONSO\fIDATED BA\fANCE SHEET 115 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND CONSOLIDATED STATEMENT OF CHANGES IN EQ\fITY in EUR m Subscribed capital Additional paid–in capital Retained earningsExchange rate differences Net investment hedge reserve Cash flow hedge reserve Deferred taxes relating to cash flow hedge reserve Equity attribut able to share holders of Brenntag AG Non–controlling interests Equity Dec. \f1, 2014 154.51 , 4 5 7. 1 70 0.71 7. 1– 6.4 4.1– 1.62,\f25.5 \f1.42,\f56.9 Dividends ––– 139.1– –––– 139.1 – 0.1 – 139.2 Capital increase from warrants issued –34.3 –––––34.3 –34.3 Business combinations ––––––––7. 5 7. 5 Transactions with owners ––– 3.7– –––– 3.7 –– 3.7 Profit after tax ––365.0– –––365.0 3.1368.1 Other comprehensive income, net of tax ––15.153.2 – 2.2 – 2.9 1.264.4 2.266.6 Total comprehensive income for the period ––\f80.15\f.2 – 2.2 – 2.9 1.2429.4 5.\f4\f4.7 Dec. \f1, 2015 154.51,491.4 9\f8.070.\f– 8.6 1.2– 0.42,646.4 44.12,690.5 Dividends ––– 154.5– –––– 154.5 –– 154.5 Business combinations ––––––––2.6 2.6 Transactions with owners ––30.55.8 –––36.3 – 36.3 – Profit after tax –360.3––––360.3 0.7361.0 Other comprehensive income, net of tax –– 5.864.2 2.20.7– 0.3 61.0– 1.4 59.6 Total comprehensive income for the period –\f54.564.22.20.7– 0.\f 421.\f – 0.7 420.6 Dec. \f1, 2016 154.51,491.4 1,168.5140.\f– 6.4 1.9– 0.7 2,949.5 9.72,959.2 CONSO\fIDATED FINANCIA\f STATEMENTS C ONSO\fIDATED S TATEMENT OF CHANGES IN E Q\bITY 116 FINANCIAL REPORT DVGXSRENNTAM AM C.04 CONSO\fIDATED STATEMENT OF CHANGES IN EQ\bITY in EUR m Subscribed capital Additional paid–in capital Retained earningsExchange rate differences Net investment hedge reserve Cash flow hedge reserve Deferred taxes relating to cash flow hedge reserve Equity attribut able to share holders of Brenntag AG Non–controlling interests Equity Dec. \f1, 2014 154.51 , 4 5 7. 1 70 0.71 7. 1– 6.4 4.1– 1.62,\f25.5 \f1.42,\f56.9 Dividends ––– 139.1– –––– 139.1 – 0.1 – 139.2 Capital increase from warrants issued –34.3 –––––34.3 –34.3 Business combinations ––––––––7. 5 7. 5 Transactions with owners ––– 3.7– –––– 3.7 –– 3.7 Profit after tax ––365.0– –––365.0 3.1368.1 Other comprehensive income, net of tax ––15.153.2 – 2.2 – 2.9 1.264.4 2.266.6 Total comprehensive income for the period ––\f80.15\f.2 – 2.2 – 2.9 1.2429.4 5.\f4\f4.7 Dec. \f1, 2015 154.51,491.4 9\f8.070.\f– 8.6 1.2– 0.42,646.4 44.12,690.5 Dividends ––– 154.5– –––– 154.5 –– 154.5 Business combinations ––––––––2.6 2.6 Transactions with owners ––30.55.8 –––36.3 – 36.3 – Profit after tax –360.3––––360.3 0.7361.0 Other comprehensive income, net of tax –– 5.864.2 2.20.7– 0.3 61.0– 1.4 59.6 Total comprehensive income for the period –\f54.564.22.20.7– 0.\f 421.\f – 0.7 420.6 Dec. \f1, 2016 154.51,491.4 1,168.5140.\f– 6.4 1.9– 0.7 2,949.5 9.72,959.2 CONSO\fIDATED FINANCIA\f STATEMENTS C ONSO\fIDATED S TATEMENT OF CHANGES IN E Q\bITY 117 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND CONSOLIDATED CASH FLOW STATEMENT C.05 CONSO\fIDATED CASH F\fOw STATEMENT in EUR m Note20162015 30.) Profit after tax \f61.0\f68.1 Depreciation and amortization 19.) / 20.) 162.7 145.6 Income tax expense 11.) 174.7 181.2 Income taxes paid – 170.6 – 174. 2 Net interest expense 7.) / 8.) 81.5 71.5 Interest paid (netted against interest received) – 6 7. 0 – 6 7. 2 Dividends received 2.53.1 Changes in provisions – 1 3.7 – 5.9 Changes in current assets and liabilities Inventories – 20.064.2 Receivables – 4 4.310 9.2 Liabilities 36.7– 112.8 Noncash change in liabilities relating to acquisition of noncontrolling interests 9.)2.624.9 Other non-cash items and reclassifications 33.8– 14.0 Net cash provided by operating activities 5\f9.959\f.7 Proceeds from the disposal of consolidated subsidiar ies and other business units 3.7– Proceeds from the disposal of other financial assets 0.3– Proceeds from the disposal of intangible assets and proper ty, plant and equipment 5.26.0 Payments to acquire consolidated subsidiar ies and other business units – 139.6 – 500.8 Payments to acquire other financial assets – 0.2– 0.1 Payments to acquire intangible assets and proper ty, plant and equipment – 138.8– 1 26.7 Net cash used in investing activities – 269.4 – 621.6 Proceeds from warrants issued –34.3 Dividends paid to Brenntag shareholders – 154.5– 139.1 Profits distributed to non-controlling interests – 1.6 – 1.9 Repayments of liabilities relating to acquisition of noncontrolling interests – 62.2 – Proceeds from borrowings 33.3524.7 Repayments of borrowings – 6 4.1 – 306.0 Net cash used in / provided by financing activities – 249.1 112.0 Change in cash and cash equivalents 21.484.1 Effect of exchange rate changes on cash and cash equivalents 1.43.1 Cash and cash equivalents at beginning of per iod 14.) 579.1 491.9 Cash and cash equivalents at end of period 14.) 601.9 579.1 CONSO\fIDATED FINANCIA\f STATEMENTS C ONSO\fIDATED CASH F\fO w STATEMENT 118 FINANCIAL REPORT DVGXSRENNTAM AM NOTES KEY FINANCIA\f FIG\bRES BY SEGMENT for the period from January 1 to December 31C.06 SEGMENT REPORTING IN ACCORDANCE wITH IFRS 8 1) in EUR m EMEA 5) Nor th America Latin America Asia Pacific All other segments Consoli dation Group External sales 2016 4,586.1\f,828.8 780.91,010.7 291.9 –10,498.4 2015 4,654.43,60 0.6 925.8834.1 331.2 –10,346.1 Change in % – 1.56.3– 1 5.7 21.2– 11.9 –1.5 fx adjusted change in % 0.66.4– 14.0 24.6– 11.9 –2.9 Inter-segment sales 2016 8.812.5 1.50.2 0.\f– 2\f.\f – 2015 9.96.2 1.3 –0.7– 18.1 – Operating gross profit 2) 2016 1,064.69 9 7. 5170.9182.\f 1\f.4 –2,428.7 2015 1,024.2942.6201.2 140.0 1 3.7 –2,321.7 Change in % 3.95.8– 15.1 30.2– 2.2 –4.6 fx adjusted change in % 6.45.9– 13.4 33.7– 2.2 –6.1 Gross profit 2016 ––––––2,\f69.\f 2015 ––––––2,266.0 Change in % ––––––4.6 fx adjusted change in % ––––––6.0 Operating EBITDA 3) (segment result) 2016 \f62.\f\f 5 7. \f 45.966.7– 22.2 –810.0 2015 353.0365.6 6 4.750.3– 26.2 –8 0 7. 4 Change in % 2.6– 2.3 – 29.1 32.6– 15.3 –0.3 fx adjusted change in % 5.6– 2.2 – 2 7. 6 35.8– 15.3 –1.9 Operating EBITDA 3) / operating gross profit 2)2016 in % \f4.0\f5.826.9 \f6.6– 165.7 –\f\f.4 2015 in % 34.538.8 32.2 35.9– 191.2 –34.8 Investments in noncurrent assets (capex) 4) 2016 75.045.512.\f 8.10.2 –141.1 2015 59.052.012.3 6.10.7 –130.1 1) For further information on segment reporting in accordance with IFRS 8, see Note 30).2) External sales less cost of materials.3) Segment operating EBITDA is calculated as segment EBITDA adjusted for holding charges. These are certain costs charged between holding companies and operating companies. At Group level they net to zero. Operating EBITDA therefore corresponds to EBITDA at Group level. 4) Investments in non-current assets are the other additions to property, plant and equipment and intangible assets.5) Europe, Middle East & Africa. CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 119 F I FINACLN REFPNOTARPEFRETEDRTV GATALOLEAG XSMKMYSK\f HfiB\bHW Q289 4HfiMMWK3 K3 GRO\bP KEY FINANCIA\f FIG\bRES C.07 FREE CASH F\fOw C.08 RECONCI\fIATION OF OPERATING EBITDA TO PROFIT BEFORE TAX in EUR m 20162015 Operating EBITDA 810.0807.4 Investments in noncurrent assets (capex) 1)– 141.1 – 130.1 Change in working capital 2) 3)– 2 7. 5 8 7. 0 Free cash flow 641.4764.\f 1) Investments in non-current assets are the other additions to property, plant and equipment and intangible assets.2) Definition of working capital: trade receivables plus inventories less trade payables.3) Adjusted for exchange rate effects and acquisitions. in EUR m 20162015 Operating EBITDA (segment result) 1) 2)810.0 807.4 Depreciation of property, plant and equipment – 114.5 – 10 8.7 Impairment of property, plant and equipment – 1.0– E B I TA 694.5698.7 Amortization of intangible assets 3)– 4 7. 2 – 36.9 Impairment of intangible assets –– EBIT 6 4 7. \f661.8 Net finance costs – 111.6 – 112.5 Profit before tax 5\f5.7549.\f 1) At Group level, operating EBITDA corresponds to EBITDA.2) Operating EBITDA of the reportable segments (EMEA, North America, Latin America and Asia Pacific) amounts to EUR 832.2 million (2015: EUR 833.6 million) and operating EBITDA of all other segments to EUR – 22.2 million (2015: EUR – 26.2 million). 3) For the period from January 1 to December 31, 2016, this figure includes amortization of customer relationships in the amount of EUR 35.9 million (2015: EUR 27.7 million). CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 120 140602465 789fi73 TEXAS780036P 6P C.09 DETERMINATION OF ROCE C.10 RECONCI\fIATION OF OPERATING GROSS PROFIT TO GROSS PROFIT 1) ROCE stands for return on capital employed and is defined as EBITA / (the average carrying amount of equity plus the average carrying amount of financial liabilities less the average carrying amount of cash and cash equivalents). The average carrying amounts in the denominator are defined for a particular year as the arithmetic average of the amounts at each of the following five dates: the beginning of the year, the end of each of the first, second and third quarters, and the end of the year. GENERA\f INFORMATION As one of the world’s leading chemical distributors with more than 550 locations, Brenntag 1) offers its customers and suppliers an extensive range of services, global supply chain management and a highly developed chemical distribution network in EMEA, North and Latin America as well as in the Asia Pacific region. These consolidated financial statements of Brenntag AG were prepared by the Board of Management of Brenntag AG on February 28, 2017, authorized for publication and submitted to the Supervisory Board for approval at its meeting on March 3, 2017. The consolidated financial statements of Brenntag AG are denominated in euros (EUR). Unless stated otherwise, the amounts are in millions of euros (EUR million). For arithmetic reasons, rounding differences of ± one unit after the decimal point (EUR, % etc.) may occur. 1) Brenntag AG, Stinnes-Platz 1, 45472 Mülheim an der Ruhr in EUR m 20162015 EB I TA 694.569 8.7 Average carry ing amount of equity 2,753.82,534.6 Average carrying amount of financial liabilities 2,238.31,961.8 Average carry ing amount of cash and cash equivalents – 566.3– 460.9 ROCE 1)15.7% 1 7. \f % in EUR m 20162015 Operating gross profit 2,428.72, \f21.7 Production / mixing & blending costs – 59.4 – 55.7 Gross profit 2,\f69.\f2,266.0 CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 121 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND CONSO\fIDATION PO\fICIES AND METHODS STANDARDS APPLIED The consolidated financial statements have been prepared in accordance with IFRSs (International Financial Reporting Standards), as adopted in the EU. The IFRSs comprise the standards (International Financial Reporting Standards and International Accounting Standards) issued by the International Accounting Standards Board (IASB) and the interpretations by the IFRS Interpretations Committee (IFRS IC) and the former Standing Interpretations Committee (SIC). The accounting methods applied comply with all the standards and interpretations existing and adopted by the EU as at December 31, 2016 whose application is mandatory. In addition, the German commercial law provisions to be applied in accordance with Section 315a, para. 1 of the German Commercial Code were taken into account. The following revised and new standards issued by the International Accounting Standards Board (IASB) have been applied by the Brenntag Group for the first time: |Amendments to IAS 19 (Employee Benefits) regarding employee contributions to defined benefit plans |Amendments to IFRS 11 (Joint Arrangements) regarding the acquisition of an interest in a joint operation |Amendments to IAS 16 (Property, Plant and Equipment) and IAS 38 (Intangible Assets) regarding acceptable methods of depreciation and amortization |Amendments to IAS 1 (Presentation of Financial Statements) in connection with the Disclosure Initiative |Annual Improvements to IFRSs (2010–2012 Cycle) |Annual Improvements to IFRSs (2012–2014 Cycle) |Amendments to IFRS 10 (Consolidated Financial Statements), IFRS 12 (Disclosure of Interests in Other Entities) and IAS 28 (Investments in Associates and Joint Ventures (revised 2011)) regarding the application of the consolidation exception for investment entities – not relevant to Brenntag |Amendments to IAS 27 (Separate Financial Statements) regarding the use of the equity method in separate financial statements – not relevant to Brenntag |Amendments to IAS 16 (Property, Plant and Equipment) and IAS 41 (Agriculture) regarding accounting for bearer plants – not relevant to Brenntag The amendments to IAS 19 (Employee Benefits) provide for the sharing of risks between employees and employer to be taken into account when employees make their own contributions on the basis of the formal terms of a plan. This may lead to a reduction in the present value of the benefit obligation. Provided that the contributions are independent of the number of years of service, the amendment to IAS 19 leads to an option permitting the full amount of such contributions paid by employees to be taken into account in the present value of the defined benefit obligation. The amendments to IFRS 11 (Joint Arrangements) regarding the acquisition of an interest in a joint operation clarify that the acquisition of an interest, or of an additional interest, in a joint operation that constitutes a business is a business combination in accordance with IFRS 3 and therefore the rules set out in IFRS 3 are required to be applied to the extent that they do not conflict with IFRS 11. In cases where additional interests are acquired and joint control is retained, previously held interests in the same joint operation are not remeasured. CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 122 140602465 789fi73 TEXAS780036P 6P The amendments to IAS 16 (Property, Plant and Equipment) and IAS 38 (Intangible Assets) regarding acceptable methods of depreciation and amortization clarify that depreciation of items of property, plant and equipment may not be calculated on the basis of revenues from the sale of goods manufac tured using those assets. Revenue is presumed to be an inappropriate basis for amortizing an intangible asset, except in circumstances where the rights embodied in that intangible asset are expressed directly as a measure of revenue (as is the case for rights to a product which end when a specific revenue threshold is achieved) or when revenue and the consumption of the economic benefits of the intangi ble asset are highly correlated. It is also clarified that a fall in the sales price of goods manufactured and services provided using property, plant and equipment and intangible assets may be an indica tion that those items of property, plant and equipment and intangible assets are impaired. The amendments to IAS 1 (Presentation of Financial Statements) made in connection with the Disclo sure Initiative are intended to ensure that much more emphasis is placed on the materiality concept. The objective of the clarifications is to free the IFRS financial statements from immaterial information and to give more prominence to relevant information. The annual improvements to IFRSs contain a number of minor amendments to various standards that are intended to clarify the content of the standards and eliminate any existing inconsistencies. The aforementioned revised standards and annual improvements to IFRSs do not have a material effect on the presentation of the Group’s net assets, financial position and results of operations. The following (in some cases revised) standards and interpretations had been published by the end of 2016, but their adoption is not yet mandatory. They will probably only be applied in Brenntag’s consolidated financial statements when their adoption is mandatory and if they are endorsed by the European Union. Probable first-time adoption in 2017: |Amendments to IAS 12 (Income Taxes) regarding the recognition of deferred tax assets for unrealized losses |Amendments to IAS 7 (Statement of Cash Flows) regarding disclosures about changes in liabilities arising from financing activities |Annual Improvements (2014–2016 Cycle) amending IFRS 12 (Disclosure of Interests in Other Entities) The amendments to IAS 12 (Income Taxes) regarding the recognition of deferred tax assets for unrealized losses clarify that decreases in an IFRS carrying amount resulting from fair value measurement where the tax base remains the same always give rise to a temporary difference and deferred tax assets are generally required to be recognized. The amendments to IAS 7 (Statement of Cash Flows) regarding disclosures about changes in liabilities arising from financing activities require extended disclosures about changes in those liabilities in the reporting period. From a present perspective, the two aforementioned revised standards and annual improvements will not have a material effect on the presentation of the Group’s net assets, financial position and results of operations. CONSO\fIDATED FINANCIA\f STATEMENTSNOTES 123 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND Probable first-time adoption in 2018: |IFRS 15 (Revenue from Contracts with Customers) |Clarifications to IFRS 15 (Revenue from Contracts with Customers) |IFRS 9 (Financial Instruments) |Amendments to IFRS 2 (Share-based Payment) regarding the classification and measurement of share-based payment transactions |Annual Improvements (2014–2016 Cycle) amending IAS 28 (Investments in Associates and Joint Ventures) |Amendments to IAS 40 (Investment Property) regarding transfers of investment property – not relevant to Brenntag |IFRIC 22 (Foreign Currency Transactions and Advance Consideration) |Amendments to IFRS 4 (Insurance Contracts) – not relevant to Brenntag The new IFRS 15 (Revenue from Contracts with Customers) provides new rules on accounting for revenue and replaces IAS 18 (Revenue) and IAS 11 (Construction Contracts). Revenue is measured at the amount of consideration the entity expects to receive in exchange for the goods or services provided. The transfer of risks and rewards is no longer the sole deciding factor for recognizing revenue. Revenue is required to be recognized when the customer obtains control of the agreed goods or services and can obtain benefits from them. The new IFRS 15 provides a five-step model for recognizing revenue: 1. Identify the contract(s) with a customer 2. Identify the separate performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the separate performance obligations 5. Recognize revenue when (or as) the entity satisfies a performance obligation The clarifications to IFRS 15 (Revenue from Contracts with Customers) contain clarifying guidance in particular on the identification of performance obligations and assessment of whether they are separately identifiable, the classification of the entity as a principal or an agent and revenue from licences. They also provide practical expedients for entities on initial application. IFRS 9 (Financial Instruments) sets out new rules on the accounting for and measurement of financial assets in particular. This includes the requirement to recognize both incurred losses (incurred loss model) and expected losses (expected loss model) in future when accounting for impairments of financial assets accounted for at amortized cost. In addition, the rules governing hedge accounting have been completely revised. The aim of the new rules is to ensure that hedge accounting more closely reflects the entity’s economic risk management. Brenntag is currently examining the effects of IFRS 15 (Revenue from Contracts with Customers) and IFRS 9 (Financial Instruments) and will complete this examination in the course of financial year 2017. In examining the effects of IFRS 15, the subsidiaries’ different revenue streams are being identified and analyzed using a questionnaire spanning the five-step model. Due to our business model (chemical distribution), most of our performance obligations are satisfied at a point in time. In particular, this gives rise to questions regarding the timing of recognition of revenue from services upstream and downstream of chemical distribution. At present, however, it is not yet possible to make a sufficiently reliable assessment of the effects of the new standard on the presentation of the Group’s net assets, CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 124 140602465 789fi73 TEXAS780036P 6P financial position and results of operations. As the quantitative effects are still being investigated, it is also not yet possible to comment on the nature of the retrospective disclosures for financial year 2017 on initial application in financial year 2018. Provided that the initial application of IFRS 15 has only an insignificant effect, Brenntag will probably apply the modified retrospective method, under which prior-year figures are not adjusted. Any effects after the reporting date will be recognized directly in equity at January 1, 2018. In examining the effects of IFRS 9, the new rules on the recognition of impairment losses on trade receivables are being given particular attention. At present, however, it is not yet possible to comment on the quantitative effects. The amendments to IFRS 2 (Share-based Payment) regarding the classification and measurement of share-based payment transactions contain clarifying guidance on the measurement of cash-settled share-based payments, the classification of share-based payments where amounts are withheld for tax obligations and the recognition of a modification that changes a share-based payment’s classification from cash-settled to equity-settled. IFRIC 22 (Foreign Currency Transactions and Advance Consideration) clarifies which exchange rate to use for foreign currency transactions when payment is made or received in advance. From a present perspective, the amendments to IFRS 2, IFRIC 22 and the annual improvements will not have a material effect on the presentation of the Group’s net assets, financial position and results of operations. The amendments to IFRS 10 (Consolidated Financial Statements) and IAS 28 (Investments in Associates and Joint Ventures) regarding an inconsistency between the standards have been postponed for an indefinite period. Probable first-time adoption in 2019: |IFRS 16 (Leases) Under the new rules, lessees will be required to recognize generally all leases in the balance sheet in the form of a rightof-use asset and a corresponding lease liability. In the income statement, leases will in all cases be presented as a financing transaction, i.e. the rightof-use asset will usually have to be depreciated on a straight-line basis and the lease liability adjusted using the effective interest method. Only leases with a total term of up to twelve months and leases of low-value assets are exempt from recognition in the balance sheet. Lessees may elect to account for these in a similar way to the former operating leases. In financial year 2016, rental and lease expenses for operating leases amounted to a total of EUR 128.9 million. Application of the new IFRS 16 will result in an improvement in operating EBITDA and also in an increase in depreciation and interest expense. The rightof-use assets and lease liabilities required to be recognized in the balance sheet result in an increase in total assets and liabilities. However, the effects of the new rules on the presentation of the Group’s net assets, financial position and results of operations cannot yet be quantified exactly. CONSO\fIDATED FINANCIA\f STATEMENTSNOTES 125 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND The additions relate to entities acquired in business combinations under IFRS 3 and the establishment of one entity. The disposals result from mergers and from the liquidation of companies no longer operating. Five (Dec. 31, 2015: five) associates are accounted for using the equity method. A full list of shareholdings for the Brenntag Group in accordance with Section 313, para. 2 of the German Commercial Code (HGB) can be found in the annex to the notes. Existing regulatory restrictions in Venezuela limit the ability of our Venezuelan subsidiary to distribute dividends and to make certain other payments to Brenntag Group companies. These currency transfer restrictions affected net assets totalling approximately EUR 4 million as at December 31, 2016 (Dec. 31, 2015: approximately EUR 31 million), of which EUR 1.3 million as at December 31, 2016 related to cash and cash equivalents (Dec. 31, 2015: EUR 14.1 million). In the case of five (Dec. 31, 2015: three) subsidiaries where Brenntag does not hold the majority of the voting rights, it nevertheless exercises its power to direct the relevant activities. The structured entities individually listed in the List of Shareholdings in accordance with Section 313, para. 2 of the German Commercial Code (HGB) are a leasing company, a logistics company and three sales companies. SCOPE OF CONSOLIDATION As at December 31, 2016, the consolidated financial statements include Brenntag AG and in addition 31 (Dec. 31, 2015: 27) domestic and 191 (Dec. 31, 2015: 194) foreign consolidated subsidiaries including structured entities. The table below shows the changes in the number of consolidated companies including structured entities:C.11 CHANGES IN SCOPE OF CONSO\fIDATION Dec. 31, 2015 AdditionsDisposalsDec. \f1, 2016 Domestic consolidated companies 284–32 Foreign consolidated companies 19469191 Total consolidated companies 22210922\f CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 126 140602465 789fi73 TEXAS780036P 6P BUSINESS COMBINATIONS IN ACCORDANCE WITH IFRS 3 In early February 2016, Brenntag fully acquired Leis Polytechnik – polymere Werkstoffe GmbH based in Ramstein-Miesenbach, Germany, which specializes in the development, production and distribution of high-performance polymer compounds. This acquisition strengthens Brenntag’s market presence in Germany and expands its portfolio in the specialty polymers industry. At the end of February 2016, Brenntag fully acquired ACU PHARMA und CHEMIE Group (ACU) based in Apolda, Germany. Brenntag is thus continuing to systematically expand its portfolio of value-added services, particularly for customers in the life science segment. In March 2016, Brenntag additionally acquired 100% of the shares in specialty chemical distributor Plastichem Pty. Ltd. based in Kempton Park, South Africa. Plastichem Pty. Ltd. distributes highperformance polymers for plastics and rubber. With a larger range of specialty chemicals, Brenntag is diversifying its current product portfolio in South Africa. In mid-June 2016, Brenntag acquired all shares in South Korean specialty chemical distributor Whanee Corporation. Based in Gyeonggi-do near Seoul, the company mainly serves the South Korean food and beverages industry. The acquisition gives Brenntag access to the attractive national specialty chemical market. In North America, we expanded our lubricants business by acquiring the business of Mayes County Petroleum Products, Inc. (MCP) in October 2016 and the business of NOCO Inc. in November 2016. These acquisitions are a valuable addition to J.A.M. and G.H. Berlin-Windward, which we acquired in 2015. In November 2016, Brenntag acquired w ARREN CHEM SPECIA\fITIES (PTY) \fTD based in Cape Town, South Africa. Specialty chemical distributor Warren Chem focuses on the pharmaceuticals and food industries in South Africa. In December 2016, Brenntag acquired the distribution business of EPChem Group in Singapore. Focusing on wax and wax products, EPChem distributes specialty chemicals for various sectors of industry and applications, primarily in the Asia Pacific region. CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 127 L A LATINMT ERLCT20IECRLER0R1E06 4I0IM2MRI4 597O7H9O\f USD\bUP FÜBW KUS77POY OY Assets acquired and liabilities assumed in business combinations are normally recognized at their fair value at the date of acquisition. The multi-period excess earnings method was used to measure customer relationships. Measurement of the assets acquired and liabilities assumed (among others customer relationships, trademarks and deferred taxes) has not yet been completed for reasons of time. There are no material differences between the gross amount and carrying amount of the receivables. The main factors determining the goodwill are the above-mentioned reasons for the acquisitions where not included in other assets (e.g. customer relationships and similar rights). Acquisition-related costs in the amount of EUR 2.3 million were recognized under other operating expenses. Purchase prices, net assets and goodwill relating to the acquisitions carried out in 2016 break down as follows:C.12 NET ASSETS ACQ\bIRED IN 2016 in EUR m Provisional fair value Purchase price 15\f.\f of which consideration contingent on earnings targets 8.7 Assets Cash and cash equivalents 5.3 Trade receivables, other financial assets and other receivables 38.0 Other current assets 39.7 Noncurrent assets 44.2 Liabilities Current liabilities 23.3 Noncurrent liabilities 7. 1 Net assets 96.8 of which Brenntag’s share 96.8 Goodwill 56.5 of which deductible for tax purposes 14.7 CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 128 140602465 789fi73 TEXAS780036P 6P Carrying amounts and annual amortization of the intangible assets contained in non-current assets, in each case at the exchange rate at the acquisition date, break down as follows:C.13 INTANGIB\fE ASSETS ACQ\bIRED Since their acquisition by Brenntag, the business units acquired in 2016 have generated the following sales and the following profit after tax: C.14 SA\fES AND PROFIT AFTER TAX OF THE B\bSINESSES ACQ\bIRED SINCE ACQ\bISITION in EUR m Provisional fair value Customer relationships and similar rights Carrying amount 33.7 Annual amortization 8.9 Software, licences and similar rights Carrying amount 0.4 Annual amortization 0.1 in EUR m2016 Sales 85.3 Profit after tax 5.1 If the above-mentioned business combinations had taken place with effect from January 1, 2016, sales of about EUR 10,795 million would have been reported for the Brenntag Group in the reporting period. Profit after tax would have been about EUR 368 million. The measurement of the assets and liabilities of J.A.M. Parent Company, LLC and related entities (J.A.M.), based in Houston, Texas, USA, BWE, LLC and related entities (G.H. Berlin-Windward) based in East Hartford, Connecticut, USA, TAT Petroleum Pte Ltd and related entities (TAT Group), based in Singapore, Republic of Singapore, and the other entities acquired in 2015 has been completed. CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 129 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND The purchase prices, net assets acquired and goodwill were adjusted as follows in the measurement period:C.15 NET ASSETS ACQ\bIRED IN 2015 (J.A.M. AND G.H. BER\fIN-wINDw ARD) Business combinationJ.A.M.G.H. Berlin-Windward in EUR m Provisional fair value Adjust ments Final fair value Provisional fair value Adjust ments Final fair value Purchase price 228.4– 0.2228.2 166.1 4.6170.7 of which consideration contin gent on earnings targets – ––––– Assets Cash and cash equivalents 5.1 3.88.9 2.7 –2.7 Trade receivables, other financial assets and other receivables 25.51.92 7. 4 11.4 0.812.2 Other current assets 1 7. 0– 1.4 15.613.5 0.514.0 Noncurrent assets 5 7. 46.063.4 2 7. 1 6.333.4 Liabilities Current liabilities 14.66.421.0 34.2– 2.9 31.3 Noncurrent liabilities 10.11.311.4 2.8– 2.1 0.7 Contingent liabilities –––––– Net assets 80.\f2.682.9 1 7. 712.6 \f0.\f of which Brenntag’s share 7 3.70.574. 2 1 7. 712.6 30.3 Goodwill 15 4.7– 0.7 154.0 148.4 – 8.0140.4 of which deductible for tax purposes – ––148.4 – 8.0140.4 CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 130 140602465 789fi73 TEXAS780036P 6P C.16 NET ASSETS ACQ\bIRED IN 2015 (TAT GRO\bP AND OTHER B\bSINESS COMBINATIONS) Business combination TAT G ro u pOther in EUR m Provisional fair value Adjust ments Final fair value Provisional fair value Adjust ments Final fair value Purchase price 65.45.170.5 72.4 –72.4 of which consideration contin gent on earnings targets – ––1.2 –1.2 Assets Cash and cash equivalents 20.8 0.221.0 11.4 –11.4 Trade receivables, other financial assets and other receivables 29.0– 2.2 26.8 2 7. 3 –2 7. 3 Other current assets 1 7. 71.619.3 15.6– 0.3 15.3 Noncurrent assets 18.83.121.9 22.8 0.223.0 Liabilities Current liabilities 49.60.349.9 26.4 –26.4 Noncurrent liabilities 2.5– 0.2 2.38.5 0.18.6 Contingent liabilities 0.6–0.6 ––– Net assets \f\f.62.6\f6.2 42.2– 0.2 42.0 of which Brenntag’s share 33.62.135.7 41.3– 0.2 41.1 Goodwill \f1.8\f.0\f4.8 \f1.1 0.2\f1.\f of which deductible for tax purposes – ––––– in EUR m J.A.M.G.H. Berlin– Windward TAT G ro u p OtherGoodwill Dec. \f1, 2015 155.6149.1 \f1.819.4\f55.9 Exchange rate differences 5.04.6 0.4 0.310.3 Business combinations in 2016 –––56.5 56.5 Adjustments in the measurement period – 0.7 – 8.0 3.00.2– 5.5 Dec. \f1, 2016 159.9145.7 \f5.276.44 1 7. 2 Goodwill from the business combinations carried out in 2015 and 2016 therefore changed as follows overall: C.17 CHANGES IN GOODwI\f\f CONSO\fIDATED FINANCIA\f STATEMENTSNOTES 131 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND The net cash outflow in 2016 resulting from business combinations has been determined as follows:C.18 RECONCI\fIATION OF ACQ\bISITION COSTS TO PAYMENTS TO ACQ\bIRE CONSO\fIDATED S\bBSIDIARIES AND OTHER B\bSINESS \bNITS in EUR m Purchase price 15\f.\f Less purchase pr ice components not yet paid 19.2 Less cash and cash equivalents acquired 5.3 Plus subsequent purchase price payments for business combinations from prior years 10.8 Payments to acquire consolidated subsidiaries and other business units 1\f9.6 CONSOLIDATION METHODS The consolidated financial statements include the financial statements – prepared according to uniform accounting policies – of Brenntag AG and all entities controlled by Brenntag. This is the case when the following conditions are met: |Brenntag has decision-making power over the relevant activities of the other entity. |Brenntag has exposure, or rights, to variable returns from its involvement with the other entity. |Brenntag has the ability to use its decision-making power over the relevant activities of the other entity to affect the amount of the variable returns of the other entity. Control may be based on voting rights or arise from other contractual arrangements. Accordingly, the scope of consolidation includes, in addition to entities in which Brenntag AG directly or indirectly controls the majority of voting rights, structured entities which are controlled as a result of contrac tual arrangements. Inclusion in the consolidated financial statements commences at the date on which control is obtained and ends when control is lost. Acquisitions are accounted for using the acquisition method in accordance with IFRS 3. The cost of an acquired business unit is considered to be the fair value of the assets given. The acquisition-related costs are recognized as an expense. Contingent consideration is recognized as a liability at the acquisition-date fair value when determining the cost. If Brenntag gains control but does not acquire 100% of the shares, the corresponding non-controlling interest is recognized. Identifiable assets, liabilities and contingent liabilities of an acquiree that are eligible for recognition are generally measured at their fair value at the transaction date, irrespective of the share of any non-controlling interests. Any remaining differences between cost and the share of the net assets acquired are recognized as goodwill. In the event of an acquisition in stages which leads to control of a company being obtained, or in the event of a share sale involving a loss of control, the shares already held in the first case or the remaining shares in the second case are measured at fair value through profit or loss. Acquisitions or disposals of shares which have no effect on existing control are recognized in equity. CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 132 140602465 789fi73 TEXAS780036P 6P Receivables, liabilities, expenses, income and intercompany profits or losses within the Brenntag Group are eliminated. Associates and joint ventures of the Brenntag Group where Brenntag has significant influence or joint control are accounted for using the equity method. Significant influence is generally consid ered to exist when Brenntag AG holds between 20% and 50% of the voting rights either directly or indirectly. The same consolidation policies apply to companies accounted for using the equity method as to consolidated companies, whereby recognized goodwill is contained in the carrying amount of investments accounted for using the equity method. Brenntag’s share of the profit / loss after tax of the companies accounted for using the equity method is recognized in the income statement. The accounting policies of the companies accounted for using the equity method were, as far as necessary, adjusted in line with the accounting policies of Brenntag. CURRENCY TRANSLATION Foreign currency receivables and liabilities in the singleentity financial statements are stated on initial recognition at the spot exchange rate at the date of the transaction. At the reporting or settlement date, foreign currency receivables and liabilities are translated at the closing rate. The resulting differences are recognized in profit or loss. The items contained in the financial statements of a Group company are measured on the basis of the currency of the relevant primary economic environment in which the company operates (functional currency). The presentation currency of the Brenntag Group is the euro. The singleentity financial statements of the companies whose functional currency is not the euro are translated into euros as follows: Assets and liabilities are translated at the closing rate, income and expense at the annual average rate. Any differences resulting from currency translation are recognized in other comprehensive income. Goodwill and fair value adjustments resulting from the acquisition of foreign companies are assigned to the foreign company and also translated at the closing rate. For some companies in Latin America and in the Asia Pacific region, the functional currency is the US dollar and not the local currency. Non-monetary items, primarily property, plant and equipment, goodwill and other intangible assets as well as environmental provisions, are translated from the local currency into US dollars using the exchange rate at the transaction date. Monetary items are translated at the closing rate. All income and expenses are translated at the average exchange rate for the reporting period with the exception of depreciation and amortization, impairment losses and reversals of impairment losses as well as income and expenses incurred in connection with environmental provisions. These are translated at the same exchange rates as the underlying assets and liabilities. The resulting foreign currency differences are recognized in profit or loss. After translation of the items in the singleentity financial statements into the functional currency, the US dollar, the same method is used for translation from US dollars into the Group currency, the euro, as for companies whose functional currency is the local currency. CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 133 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND The singleentity financial statements of foreign companies accounted for using the equity method are translated using the same principles. The euro exchange rates of major currencies changed as follows:C.19 EXCHANGE RATES OF MAJOR C\bRRENCIES EUR 1 = currencies Closing rate Average rate Dec. 31, 2016 Dec. 31, 2015 20162015 Canadian dollar (CAD) 1.418 81.51161.4659 1.418 6 Swiss franc (CHF) 1.07391.08351.0902 1.0679 Chinese yuan renminbi (CNY) 7. 3 2 0 27. 0 6 0 8 7. 3 5 2 26.9733 Danish krone (DKK) 7. 4 3 4 47. 4 6 2 67. 4 4 5 2 7. 4 5 8 7 Pound sterling (GBP) 0.85620.7 3 4 0 0.81950.7 2 5 8 Polish zloty (PLN) 4.41034.2639 4.3632 4.18 41 Swedish krona (SEK) 9.55259.18959.46 89 9.3535 US dollar (USD) 1.05 411.0887 1.10691.1095 ACCO\bNTING AND MEAS\bREMENT PO\fICIES REVENUE RECO\bNITION Revenue from the sale of goods is only recognized net of value-added tax, cash discounts, discounts and rebates – if the following conditions are met: |The significant risks and rewards of ownership of the goods have been transferred to the buyer. |Brenntag retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. |The amount of revenue can be measured reliably. |It is probable that the economic benefits associated with the transaction will flow to Brenntag. |The costs incurred or to be incurred in respect of the transaction can be measured reliably. This is generally the case when the goods have been collected by the customer or have been dispatched by Brenntag or by a third party. Revenue arising from service business is recognized by reference to the stage of completion of the transaction at the reporting date, provided that the following criteria are met: |The amount of revenue can be measured reliably. |It is sufficiently probable that the economic benefits associated with the transaction will flow to Brenntag. |The stage of completion of the transaction at the reporting date can be measured reliably. |The costs incurred for the transaction and the cost to complete the transaction can be measured reliably. CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 134 140602465 789fi73 TEXAS780036P 6P If the above-mentioned criteria are not met, revenue from service business is only recognized to the extent of the expenses recognized that are recoverable. Interest income is recognized as the interest accrues using the effective interest method. Dividend income is recognized when the right to receive payment is established. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, cheques and deposits held with banks with an original term of three months or less. TRADE RECEIVABLES, OTHER RECEIVABLES AND OTHER FINANCIAL ASSETS Financial assets are divided into the following categories in line with the categories stipulated in IAS 39: |Loans and receivables |Available-for-sale financial assets |Financial assets at fair value through profit and loss The financial assets are subsequently measured at amortized cost or at fair value 2) depending on which of the above categories they are allocated to. In determining the fair value, IFRS 13 provides for a three-level hierarchy which reflects the extent to which the inputs used to determine fair value are market-based: |Level 1: Fair value determined using quoted or market prices in an active market |Level 2: Fair value determined using quoted or market prices in an active market for similar financial assets or liabilities, or other measurement methods for which significant inputs used are based on observable market data |Level 3: Fair value determined using measurement methods for which significant inputs used are not based on observable market data Cash and cash equivalents, trade receivables, other receivables and receivables included in other financial assets are classified into the loans and receivables category. They are measured at fair value plus transaction costs on initial recognition and carried at amortized cost in subsequent periods. If there are objective indications that financial assets classified as loans and receivables are not fully collectible, a specific valuation allowance reflecting the credit risk is recognized in profit or loss. Furthermore, country-specific collective valuation allowances are recognized for receivables in the same credit risk classes. Credit risk is based primarily on the extent to which the receivables are past due. The impairment losses are always posted to an allowance account in the balance sheet. If a receivable is uncollectible, the gross amount and the impairment loss are both derecognized. 2) Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent market participants at the measurement date. CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 135 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND Securities and shares in companies where Brenntag does not have at least significant influence presented as other financial assets are classified as available-for-sale financial assets. They are measured on initial recognition at fair value plus transaction costs and subsequently at fair value. Changes in fair value are recognized directly in equity in the revaluation reserve. Derivative financial instruments presented as other financial assets which are not included in cash flow hedge accounting are classified as financial assets at fair value through profit or loss. They are measured at fair value on initial recognition and in subsequent periods. Changes in fair value are recognized directly in profit or loss. No use is made of the option to designate non-derivative financial assets and liabilities as at fair value through profit or loss on their initial recognition. Non-derivative financial assets are initially recognized at the respective settlement date. Derivative financial instruments are recognized in the balance sheet when Brenntag becomes a party to the contractual provisions of that instrument. Financial assets are derecognized if the contractual rights to the cash flows from the financial asset have expired or have been transferred and Brenntag has transferred substantially all the risks and rewards of ownership. INVENTORIES Inventories mainly comprise merchandise. They are initially recognized at cost. Production costs for the inventories produced through further processing are also capitalized. Inventories are subsequently measured in accordance with IAS 2 at the lower of cost (on the basis of the average cost formula) and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Net realizable value also reflects effects of obsolescence or reduced marketability. Earlier valuation allowances on inventories are reversed if the net realizable value of the inventories increases again. CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 136 140602465 789fi73 TEXAS780036P 6P PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost of acquisition or construction and, except for land, depreciated over its estimated useful life on a straight-line basis. If major components of an item of property, plant and equipment have different useful lives, these components are accounted for separately and depreciated over their respective useful lives. Acquisition costs include all expenditure directly attributable to the acquisition. In accordance with IAS 16, future costs for any restoration obligation are recognized as an increase in the cost of acquisition or construction of the respective asset and a corresponding provision is established at the time of acquisition or construction of the item of property, plant and equipment. Leased assets classified as finance leases in accordance with IAS 17 are measured at the lower of their fair value and the present value of the minimum lease payments at the inception of the lease. They are depreciated over their estimated useful lives or – provided the transfer of ownership is not probable – the contract term, whichever is shorter. The present values of future lease payments for assets recognized as finance leases are recognized as financial liabilities. In accordance with IAS 20, government grants and assistance for investments are deducted from the related asset. Depreciation charges on property, plant and equipment are allocated to the relevant function in the income statement. When items of property, plant and equipment are sold, the difference between the net proceeds and the carrying amount of the respective asset is recognized as a gain or loss in other operating income or expenses. Assets are depreciated over the following useful lives:C.20 \bSEF\b\f \fIVES OF PROPERTY, P\fANT AND EQ\bIPMENT Useful life Land use r ights 40 to 50 years Buildings 15 to 50 years Installations and building improvements 8 to 20 years Technical equipment and machinery 3 to 20 years Vehicles 5 to 8 years Other equipment, operating and office equipment 2 to 10 years CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 137 L A LATINMT ERLCT20IECRLER0R1E06 4I0IM2MRI4 597O7H9O\f USD\bUP FÜBW KUS77POY OY INTAN\bIBLE ASSETS Intangible assets include customer relationships and similar rights purchased, the “Brenntag” trademark, other trademarks, software, concessions and similar rights as well as goodwill from the acquisition of consolidated subsidiaries and other business units. Intangible assets acquired through business combinations are measured on initial recognition at their acquisition-date fair value. Separately acquired intangible assets are carried at cost. Acquired software licences are recognized at cost plus directly attributable costs incurred to acquire and bring to use the specific software. In addition to goodwill, the “Brenntag” trademark has an indefinite useful life as no assumption can be made about its durability or the sustainability of its economic use. The other intangible assets are amortized on a straight-line basis over their estimated useful lives. The following useful lives are assumed:C.21 \bSEF\b\f \fIVES OF INTANGIB\fE ASSETS Amortization charges on intangible assets are allocated to the relevant function in the income statement. IMPAIRMENT TESTIN\b OF NON-CURRENT NON-FINANCIAL ASSETS In accordance with IAS 36, non-current non-financial assets are tested for impairment whenever there is an objective indication that the carrying amount may not be recoverable. Assets that have an indefinite useful life and are, therefore, not subject to amortization are also tested for impairment at least annually. Impairment exists when the carrying amount of an asset exceeds the estimated recoverable amount. Recoverable amount is the higher of fair value less costs of disposal and value in use. Value in use is the present value of the future cash flows expected to be derived from an asset. If the carrying amount is higher than the recoverable amount, the asset is written down to the recoverable amount. If the recoverable amount of an individual asset cannot be determined, the recoverable amount of the cash-generating unit (CGU) to which this asset belongs is determined and compared with the carrying amount of the CGU. Useful life Concessions, industr ial and similar r ights as well as software and trademarks with definite useful lives 3 to 10 years Customer relationships and similar rights 3 to 15 years CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 138 LATITNAIM ERC2E0 16459ERTT0I7 I7 Impairments, except for impairments of goodwill, are reversed as soon as the reasons for the impairment no longer exist. Goodwill is tested for impairment regularly, at least annually, after completion of the annual budget process by comparing the carrying amount of the relevant cash-generating unit with its recoverable amount. For the goodwill impairment test, the operating segments of the segment reporting were identified as relevant CGUs. If the carrying amount of a segment exceeds the recoverable amount, an impairment exists in the amount of the difference. In this case, the goodwill of the relevant segment would first be written down. Any remaining impairment would be allocated to the segment assets in proportion to the net carrying amounts of the assets at the reporting date. The carrying amount of an individual asset must not be less than the highest of fair value less costs of disposal, value in use (in each case in as far as they can be determined) and zero. OTHER PROVISIONS In accordance with IAS 37, other provisions are recognized when the Group has a present legal or constructive obligation towards third parties as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Non-current provisions are recognized at the present value of the expected outflow and their dis counting is unwound over the period until their expected utilization. If the projected obligation declines as a result of a change in an estimate, the provision is reversed by the corresponding amount and the resulting income is usually recognized in the function in which the original charge was recognized. Provisions are recognized for cash-settled share-based payments in accordance with IFRS 2. The new Long-Term Incentive Programme introduced in 2015 and the expiring long-term, virtual share-based remuneration programme for the members of the Board of Management and the Long-Term Incentive Plan for Executives and Senior Managers are classified as cash-settled share-based payments. Provi sions are established for the resulting obligations. The obligations are measured at fair value. They are recognized as personnel expenses over the vesting period during which the beneficiaries acquire a vested right (unconditional right). The fair value is remeasured at each reporting date and at the settlement date. CONSO\fIDATED FINANCIA\f STATEMENTSNOTES 139 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND PROVISIONS FOR PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS The Group’s pension obligations comprise both defined contribution and defined benefit pension plans. The contributions to be paid into defined contribution pension plans are recognized directly as expense. Provisions for pension obligations are not established as, in these cases, Brenntag has no additional obligation apart from the obligation to pay the premiums. In accordance with IAS 19, provisions are established for defined benefit plans, unless the plans are multiemployer pension funds for which insufficient information is available. The obligations arising from these defined benefit plans are determined using the projected unit credit method, under which the expected benefits to be paid after retirement are determined taking dynamic measurement parameters into account and spread over the entire length of service of the employees participating in the plan. For this purpose, an actuarial valuation is obtained every year. The actuarial assumptions for the discount rate, salary increase rate, pension trend, life expectancy and cost increases for medi cal care used to calculate the defined benefit obligation are established on the basis of the respective economic circumstances. The plan assets measured at fair value are deducted from the present value of the defined benefit obligation (gross pension obligation). Plan assets are assets where the claim to said assets has, in principle, been assigned to the beneficiaries. This results in the net liability required to be recognized or the net asset required to be recognized. The discount rate is determined by reference to market yields at the end of the reporting period on fixed-rate senior corporate bonds. The currency and term of the corporate bonds taken as a basis are consistent with the currency and estimated term of the postemployment benefit obligations. Life expectancy is determined using the latest mortality tables. The pension costs are made up of the three components: C.22 PENSION COST COMPONENTS ComponentConstituents Recognized in Serv ice cost Current serv ice cost Past serv ice cost incl. gains and losses from plan cur tailments Gains and losses from plan settlements Personnel expenses Net interest expense Unwinding of discounting of defined pension obligation (DBO) Interest income from plan assets Interest expense Remeasurements Actuar ial gains and losses on DBO (from exper ience adjustments and from changes in measurement parameters) Changes in value of plan assets not already contained in net interest expense Other comprehensive income, net of tax CONSO\fIDATED FINANCIA\f STATEMENTS NOTES 140 LATITNAIM ERC2E0 16459ERTT0I7 I7 As a result of the inclusion of the remeasurement components in other comprehensive income, net of tax, the balance sheet shows the full extent of the net obligation avoiding volatility in profit or loss that may result in particular from changes in the measurement parameters. Multiemployer defined benefit plans are treated as defined contribution plans when insufficient information is available. TRADE PAYABLES, FINANCIAL LIABILITIES AND OTHER LIABILITIES Based on the categories under IAS 39, non-derivative liabilities reported as trade payables, financial liabilities and other liabilities are classified as financial liabilities measured at amortized cost. They are initially recognized at their fair value net of transaction costs incurred. They are subsequently carried at amortized cost using the effective interest method. Derivative financial instruments with negative fair values reported within financial liabilities are accounted for and measured in the same way as derivative financial instruments with positive fair values reported within other financial assets. Finance lease liabilities are stated at their amortized cost. DEFERRED TAXES AND CURRENT INCOME TAXES Current income taxes for current and prior periods are recognized at the amount expected to be paid to or recovered from the tax authorities. Deferred taxes are determined in accordance with IAS 12 (Income Taxes). They arise from temporary differences between the carrying amounts of assets and liabilities in the IFRS balance sheet and their tax base, from consolidation adjustments and from tax loss carryforwards that are expected to be utilized. Deferred tax assets are recognized to the extent that it is likely that future taxable profit will be available against which the temporary differences and unutilized loss carryforwards can be utilized. No deferred taxes are recognized for the difference between the net assets and the tax base of subsidiaries (outside basis differences) provided Brenntag is able to control the timing of the reversal of the temporary difference and it is unlikely that the temporary difference will reverse in the foresee able future. Deferred taxes for domestic companies are calculated on the basis of the combined income tax rate of the German consolidated tax group of Brenntag AG of 32% (2015: 32%) for corporate income tax, solidarity surcharge and trade income tax, and for foreign companies, at local tax rates. These are tax rates which can be expected to apply on the basis of laws in the different countries that have been enacted or substantially enacted at the reporting date. Deferred tax assets and liabilities are netted against each other if they relate to the same tax author ity, the company has a legally enforceable right to set them off against each other and they mature in the same period. CONSO\fIDATED FINANCIA\f STATEMENTSNOTES 141 1 4 1406250 78190fi3679817838T73E X6365fi586X ASPNPYSN\f VIR\bVB COFG MVIPPBND ND BOND WITH WARRANT UNITS The bond with warrant units consists of the bond (Bond (with Warrants) 2022) and the warrant compo nents. Upon issue, these components were recognized separately at fair value, including transaction costs. The Bond (with Warrants) 2022 is classified as financial liabilities measured at amortized cost and in subsequent periods will be measured at amortized cost using the effective interest method. The warrants