Report of the Supervisory Board

Dear shareholders (Handwriting)

Our company performed well once again during the 2014 financial year.

The Supervisory Board would like to thank the Executive Board and all Linde employees for their sense of responsibility and hard work during the past year. Our particular thanks and respect go to our Chief Executive Officer, Professor Dr Wolfgang Reitzle, and Executive Board member Professor Dr Aldo Belloni, who both stepped down from the Executive Board in 2014 after many years’ service having reached the prescribed age limit. Through their strong personal commitment and vision they shaped Linde’s development during their time with the company.

Overview

Dr Manfred Schneider (Photo)

During the reporting year, the Supervisory Board conducted detailed reviews of succession planning for the Executive Board, the Group’s situation, its prospects and its strategic development, as well as the future long-term positioning of The Linde Group and key individual initiatives. We monitored and advised the Executive Board in the running of its business operations in accordance with the duties assigned to us by law, the articles of association and the Supervisory Board’s procedural rules. Through verbal updates at our meetings and in the form of written reports, the Executive Board regularly provided us with timely and comprehensive updates on company performance, the economic situation, profitability and plans for the company and its subsidiaries, as well as briefing us on all issues relevant to the strategy being pursued by the company and its subsidiaries, planning, business development, the risk situation, risk management and compliance. We assessed the plausibility of all documents presented to us and regularly consulted the Executive Board on significant issues. The Supervisory Board was involved in all major decisions made by the company. This includes Executive Board transactions and measures requiring the approval of the Supervisory Board, in particular the annual capital expenditure programme, major acquisitions, divestments, and defined capital and financial measures. In our committees and at meetings of the full Supervisory Board, we carried out critical reviews of the reports and proposed resolutions submitted by the Executive Boards and put forward our suggestions. The Chairman of the Supervisory Board also ensured that he remained up to date on the current business situation, significant business transactions and decisions taken by the Executive Board, doing so through various channels including the minutes of Executive Board meetings. He maintained close contact with the Executive Board and with the Chief Executive Officer in particular, sharing information and ideas, and held regular consultations with the CEO on the Group’s strategy, planning, business development, risk situation, risk management and compliance. On the basis of the reports submitted by the Executive Board and the auditors’ report, the Supervisory Board was able to satisfy itself as to the effectiveness of the risk monitoring system set up in accordance with § 91(2) of the German Stock Corporation Law (AktG). At no time during the year did the Supervisory Board raise any objections in relation to the sound and efficient management of the Group.

Meetings and resolutions of the Supervisory Board

Four Supervisory Board meetings were held in the 2014 financial year. All members of the Supervisory Board attended all of these meetings. The members of the Executive Board regularly attended the Supervisory Board meetings. Where necessary, the Supervisory Board met without any Executive Board members being present. This is regularly the case at the beginning of meetings when the items on the agenda relate to the Executive Board itself.

In addition to reviewing current business developments, our meetings also addressed Linde’s financial and risk situation, strategy, compliance with legal regulations and with internal guidelines, and key individual business transactions requiring Supervisory Board approval. After a thorough review of the documents submitted and detailed discussions on the proposals of the Executive Board, the Supervisory Board granted all the necessary approvals. In 2014, all of the resolutions adopted by the Supervisory Board were adopted at meetings.

Once again during the reporting year, the Supervisory Board’s advisory and monitoring activities focused on the Group’s growth prospects, its individual lines of business and its reportable segments. We regularly discussed the potential impact of the global economic situation with the Executive Board, alongside issues relating to the development of individual markets, while also discussing how to plan for the future and considering the stability of future developments.

At the Supervisory Board meeting to approve the financial statements on 14 March 2014, we discussed in detail and approved the annual financial statements of Linde AG and the Group financial statements for the year ended 31 December 2013 and agreed the proposed appropriation of earnings. We discussed issues relating to succession planning for the Executive Board and, on the basis of a proposal from the Standing Committee, agreed on the targets reached in relation to the variable cash emoluments and total emoluments earned by the individual Executive Board members for 2013. Following a review of the Executive Board’s remuneration system by an independent external remuneration consultant, we made adjustments to bring the system into line with the latest recommendations contained in the German Corporate Governance Code. Taking into account the recommendations of the Standing Committee, we agreed on the remuneration for the new Chief Executive Officer, approved his mandates and additional functions, and carried out the regular review of the remuneration paid to the Executive Board members. As recommended by the Standing Committee, we agreed on adjustments to the Executive Board’s remuneration. Using vertical and horizontal comparisons, we were able to review and confirm the appropriateness of the remuneration system. In line with a new recommendation included in the German Corporate Governance Code, we defined the comparison groups “Senior management” and “Relevant staff” for the purposes of the vertical comparison. In addition, we issued the declaration of compliance with the German Corporate Governance Code and adopted the Report of the Supervisory Board and the Corporate Governance Report for 2013, as well as the agenda for the Annual General Meeting, including the proposed resolutions. In light of the changes to the composition of the Supervisory Board following the election of members in 2013, we confirmed the targets adopted in 2011 as regards composition and noted that, based on our assessment, the Supervisory Board is exclusively composed of individuals who are sufficiently independent. In addition to its regular reports on business performance and the general position of The Linde Group, the Executive Board also presented us with an updated plan for the 2014 financial year and the updated medium-term business plan. This included information on variances from the prior-year budget. The Executive Board dealt in detail with selected key performance indicators and briefed us on their financial and operational impact on Linde.

Immediately before the Annual General Meeting on 20 May 2014, the Executive Board reported on business performance in the first quarter of 2014, as well as on current business development and Linde’s economic situation. The Executive Board went on to brief us on the successful placement of a EUR 300 m bond. This will be used to provide additional funding for the defined benefit pension plans in Germany. We also approved the appointment of an Executive Board member to an advisory board. Additionally, the meeting was used to prepare for the subsequent shareholder meeting.

At our meeting on 29 September 2014, the Executive Board outlined in detail the economic situation facing The Linde Group and its divisions and described the outlook for the full 2014 financial year. The new Chief Executive Officer set out his view of the company after his first 100 days in the position. The meeting also focused on progress made in implementing the strategies highlighted in earlier years, strategic development and the Group’s competitive environment. The latest developments in relation to strategy and the competitive position of The Linde Group and its divisions were covered in detail. Key questions discussed included the strategic positioning and direction of Linde and its divisions, and projects considered or launched in this regard, as well as the impact of such projects on The Linde Group’s financial position, net assets and results of operations. Taking into account the current general economic climate, the Executive Board outlined the opportunities and risks in an internationally competitive environment, as well as the significance and further development of the process optimisation and efficiency gains programme. Based on verbal reports from the Executive Board, the Supervisory Board is satisfied that the Group’s structure and processes are being continually assessed and streamlined in order to increase and consolidate long-term competitiveness across all lines of business. The Supervisory Board was also presented with transactions requiring its approval in the form of internal structural and financing measures. These were duly approved. The decision was made to extend Thomas Blades’ appointment to the Executive Board, following his first term of office, by five years to 7 March 2020. There was also discussion regarding the further development of the management organisation and Board matters.

At the final meeting of the year on 5 December 2014, we looked at current business developments and the performance of the Group in comparison with its main competitors. The Executive Board reported on the current business and financial position up to the end of the third quarter. On the basis of comprehensive documentation, we also dealt with the preview of the 2014 financial statements, the budget for the 2015 financial year and the medium-term business plan for the years 2016 to 2018, including financial, capital expenditure and human resources plans. Each of these was considered in detail. We carried out an extensive review of the assumptions made by the Executive Board, particularly with regard to the risks for the Group associated with the general economic environment. The Executive Board explained any variances between the plans and targets and the actual results. We also dealt at length with the motion from the Executive Board relating to the 2015 investment programme, as well as considering a request from an Executive Board member regarding the acceptance of a supervisory board position with another company. After careful examination, we granted our approval in both cases. The Chief Executive Officer provided a progress report on the development of the management organisation and on strategic considerations. Also on the agenda were issues relating to succession planning for the Executive Board and the emoluments paid to the Executive Board. We decided to expand the Executive Board by appointing two internationally experienced Linde managers. With effect from 1 January 2015 in each case, it was decided to appoint Dr Christian Bruch and Bernd Eulitz to the Executive Board for a three-year term, in other words until 31 December 2017. The matter of their remuneration was also covered. The two new members will succeed Professor Dr Aldo Belloni. Both new members have more than ten years’ experience working in managerial positions at home and abroad in The Linde Group. As a result of these appointments, the Executive Board will comprise six members as of 1 January 2015.

Committees and committee meetings

The Supervisory Board continues to have four committees: the Mediation Committee, formed under § 27 (3) of the German Codetermination Law (MitbestG), the Standing Committee, the Audit Committee and the Nomination Committee. The Chairman of the Supervisory Board chairs all the committees with the exception of the Audit Committee. The current members of each committee are listed on in chapter Supervisory Board committees. Information about the responsibilities of each committee is given in the Corporate Governance Report.

The Standing Committee of the Supervisory Board held three meetings during the reporting year. In addition, one resolution was passed during written proceedings. The Chairman of the Standing Committee also remained in close contact with the other committee members outside meetings in order to liaise on particular issues. The Standing Committee appointed an independent external remuneration consultant to conduct a review of the Executive Board’s remuneration system and prepared Supervisory Board decisions on the emoluments paid to the Executive Board. In addition, the Standing Committee prepared the appointment of the two new Executive Board members, Dr Christian Bruch and Bernd Eulitz. In making its appointment recommendation, the Standing Committee adhered to the criteria set out in the German Corporate Governance Code and the terms of the Supervisory Board’s procedural rules and German Stock Corporation Law (AktG), particularly with regard to broad industrial and technological expertise, international experience and managerial qualities. The Standing Committee also adopted changes to the articles of association required as a result of the issuing of shares to fulfil share options and gave its consent to members of the Executive Board taking up mandates and secondary occupations with other companies, establishments and institutions. During an extraordinary meeting convened at short notice in the form of a telephone conference, the Executive Board provided information on an ad-hoc announcement required under capital market law with regard to impairment losses and the adjustment of the company’s growth targets in conjunction with the third-quarter reporting.

The Audit Committee met on four occasions during the year under review in the presence of the auditors, the Chief Executive Officer and the Chief Financial Officer. It discussed and reviewed in detail the annual financial statements of Linde AG and the Group financial statements, the management reports, the proposed appropriation of profits and the audit reports, including the report on the audit focus and the oral presentation by the auditors of the main results of the audit. The Audit Committee raised no objections on the basis of its reviews. No significant weaknesses in the accounting-related internal control system or in the system for the early identification of risks were detected by the auditors. The Audit Committee also discussed the interim and half-year financial reports prior to their publication based on reports presented by the Executive Board and the auditors. Discussions also covered the ad-hoc announcement in relation to Q3 reporting. In addition, this Committee prepared the proposal from the Supervisory Board on the appointment of the auditors at the Annual General Meeting, issued the audit mandate to the auditors, determined the audit focus and agreed the audit fees. The Audit Committee monitored the independence, qualifications, rotation and efficiency of the auditors and the services provided by the auditors in addition to the audit itself. It also entered into an agreement with the auditors in accordance with the Group’s internal rules about the provision of services not related to the audit, and the auditors informed the Committee at each of its meetings about the fees it had charged in relation to such services. Furthermore, it kept up to date on the evolution of the risk management system and compliance structures, compliance issues, any legal or regulatory risks, the risk position and the identification and monitoring of risk within the Group. The Audit Committee also reviewed the evolution of internal control systems within the Group based on a presentation by the Executive Board. It received a report on the structure, roles and responsibilities within the Internal Audit department, on its audit work and the audit plan for 2014. The Audit Committee was briefed on the efficiency of the internal control system, risk management system and internal audit system; it discussed the findings in detail and was duly satisfied as to the efficacy of the systems in question. The Executive Board also briefed the Audit Committee on a regular basis with regard to the status of various activities relating to the external and internal financing of the Group and the safeguarding of its liquidity. It reported on current issues such as Linde activities in Russia, the binding risk assessment process and tax issues. For selected agenda items, department heads also attended meetings of the Audit Committee, submitting reports and answering questions. In addition, the Chairman of the Audit Committee held talks on issues of significance in the periods between committee meetings, with the Chairman of the Supervisory Board, Chief Executive Officer, Chief Financial Officer and the auditors in particular. The Audit Committee and, where necessary, the Supervisory Board were regularly appraised of the outcome of these discussions.

The Nomination Committee and Mediation Committee did not need to be convened during the year under review.

All committee members were present at the respective committee meetings. Two members of the Supervisory Board were unable to take part in the Standing Committee’s telephone conference on ad hoc reporting due to the short notice.

The committee chairmen reported in detail on the agendas and outcomes of their committee meetings at the plenary Supervisory Board meeting following their sessions.

Corporate governance and declaration of compliance

We continually monitor changes to the German Corporate Governance Code and permanently verify that the provisions are being implemented correctly. In March 2015, the Executive Board and the Supervisory Board issued an updated declaration of compliance in accordance with § 161 of the German Stock Corporation Law (AktG) and made it permanently available to its shareholders on the company’s website. Further information on corporate governance at Linde can be found in the Corporate Governance Report.

Annual financial statements and Group financial statements

KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, (KPMG) audited the annual financial statements of Linde AG prepared in accordance with the principles set out in the German Commercial Code (HGB), as well as the consolidated financial statements of The Linde Group for the year ended 31 December 2014 prepared in accordance with IFRS as adopted by the European Union including the combined management report of Linde AG and The Linde Group in accordance with German generally accepted standards for the audit of financial statements and in supplementary compliance with International Standards on Auditing (ISA). The auditors have confirmed that the Group financial statements and the combined management report meet the requirements set out in § 315a (1) of the German Commercial Code (HGB) and have issued unqualified opinions on both the Group financial statements and annual financial statements. In accordance with the terms of its engagement, KPMG performed audit reviews of the interim and half-yearly financial reports in the 2014 financial year. At no time did these reviews give rise to any objections. KPMG also confirmed that the system for the early identification of risks complies with legal requirements. No risks that might affect the viability of the company as a going concern were identified. The audit focus during the 2014 financial year was a review of the post-merger integration of acquisitions into Linde AG’s control environment, from an accounting perspective, using the specific example of Lincare USA. No significant weaknesses in the accounting-related internal control system or in the system for the early identification of risks were detected by the auditors. Once again during the reporting year, the auditors declared their independence to the Audit Committee.

The documents relating to the financial statements and the audit reports were issued to all members of the Supervisory Board in good time. They were then the subject of extensive deliberations at the Audit Committee meeting on 12 March 2015 and the meeting of the Supervisory Board to approve the financial statements on 13 March 2015. The auditors took part in the discussions both at the Audit Committee meeting and at the meeting of the full Supervisory Board. They presented the main results of their audits and were able to provide supplementary information and to answer questions. The Audit Committee also presented the results of its review to the Supervisory Board. We conducted our own examination of all of the documents submitted and the audit reports and discussed them in detail. After considering the results of the preliminary review by the Audit Committee and the final results of our own review of the documents submitted to us by the Executive Board and by the auditors, we find no grounds for objection and concur with the results of KPMG’s audit. We hereby approve and adopt the financial statements of Linde AG and the Group financial statements for the year ended 31 December 2014 as drawn up by the Executive Board; the annual financial statements of Linde AG are hereby final. We also approve the Executive Board’s proposal for the appropriation of profits.

Changes to the composition of the Supervisory Board and the Executive Board

There were no changes to the Supervisory Board during the reporting period. An overview of the composition of the Supervisory Board and its committees is provided in chapter Supervisory Board.

Dr Wolfgang Büchele took up his position on the Executive Board with effect from 1 May 2014. He succeeded Professor Dr Wolfgang Reitzle as Chief Executive Officer with effect from 20 May 2014 at the end of the Annual General Meeting. Having reached the prescribed age limit, Professor Dr Wolfgang Reitzle stepped down following twelve years on the Executive Board, eleven of them in the capacity of CEO. Having also reached the prescribed age limit, Professor Dr Aldo Belloni, the Executive Board member responsible for the Engineering Division, the EMEA (Europe, Middle East and Africa) segment and the on-site operations of the Gases Division, stepped down from the Executive Board with effect from 31 December 2014, after serving on the Board for fifteen years. With effect from 1 January 2015, we have appointed two Linde managers with international experience to the Executive Board of Linde AG. Dr Christian Bruch, previously a manager in the Engineering Division, is now the Executive Board member with responsibility for the Engineering Division. Bernd Eulitz, previously responsible for the gases region of South-East Asia in The Linde Group, is now the Executive Board member in charge of the EMEA gases segment.

Munich, 13 March 2015

On behalf of the Supervisory Board

Dr Manfred Schneider (Signature)

Dr Manfred Schneider
[Chairman of the Supervisory Board of Linde AG]