gasworld Business Intelligence provides you with the latest analysis of Linde’s Q1 2017 earnings report.

Headlines

  • Total corporate sales in Q1 were reported at €4.39bn. This was an increase of over 6% YoY, or 4% growth when adjusted for currency. This was a further improvement over the previous 3 quarters, which had shown the weakest reported performance since late 2013.
  • Gases account for over 80% of Linde corporate sales, with Engineering under 20%. Other businesses (mainly Gist distribution) have been moved into discontinued business, as Linde seeks to divest this business.
  • Reported Gases growth also accelerated to nearly 5% YoY in Q1, which was significantly better than the previous year. This again shows growth of around 2% on a comparable basis.
  • Engineering sales increased over 14% YoY in Q1 but, at $648m, remained below the average of recent years. Order intake was up, but backlog was again down YoY.
Linde Group Sales Growth
  • Total Group
  • Gases
  • Gases Comparable
,Total Group,Gases,Gases Comparable 2012 Q1,5.4%,2.9%,4.1% 2012 Q2,6.4%,7.2%,1.3% 2012 Q3,13.2%,17.3%,0.3% 2012 Q4,17.9%,23.2%,4.3% 2013 Q1,10.3%,14.8%,1.8% 2013 Q2,10.8%,14.3%,2.6% 2013 Q3,5.4%,0.0%,2.5% 2013 Q4,-4.1%,-3.7%,3.1% 2014 Q1,1.5%,-2.3%,3.1% 2014 Q2,-1.3%,-3.2%,2.3% 2014 Q3,2.6%,2.4%,3.9% 2014 Q4,6.6%,3.6%,1.5% 2015 Q1,8.7%,9.0%,0.8% 2015 Q2,11.4%,12.3%,2.0% 2015 Q3,3.3%,7.3%,1.7% 2015 Q4,-1.4%,5.5%,1.5% 2016 Q1,-3.0%,-1.3%,1.6% 2016 Q2,-7.4%,-4.6%,-0.4% 2016 Q3,-2.4%,-3.8%,-2.7% 2016 Q4,3.8%,2.5%,2.3% 2017 Q1,6.1%,4.8%,1.8%
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  • Reported corporate operating income showed slower growth at 2% YoY to be €540m, with reported gases operating income slightly down YoY.
  • The previously announced discussion with Praxair over a potential merger/acquisition is proceeding with completion by mid-2017 targeted.
  • Special charge of €22m in Q1 related to restructuring and pre-merger costs. Restructuring continuing across all units under the ‘LIFT’ programme, with a total charge of €400m expected in 2017 (vs €116m in 2016).
Linde Operating Income Growth
  • Total Group
  • Gases
,Total Group,Gases 2012 Q1,5.5%,7.7% 2012 Q2,6.4%,8.9% 2012 Q3,6.4%,8.4% 2012 Q4,2.4%,5.3% 2013 Q1,6.5%,8.7% 2013 Q2,11.8%,9.2% 2013 Q3,15.7%,13.5% 2013 Q4,5.5%,7.6% 2014 Q1,-1.0%,-2.1% 2014 Q2,-2.8%,-0.2% 2014 Q3,0.2%,1.1% 2014 Q4,-8.1%,-5.7% 2015 Q1,4.8%,7.4% 2015 Q2,10.5%,13.3% 2015 Q3,1.8%,8.3% 2015 Q4,-5.9%,3.0% 2016 Q1,-2.4%,0.4% 2016 Q2,-9.4%,-4.4% 2016 Q3,2.7%,0.0% 2016 Q4,10.4%,4.6% 2017 Q1,2.1%,-0.2%
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  • Gases operating margin slipped further in Q1 towards the recent lows of 14.5%. This also drove decline in corporate margin, although Engineering margin also appeared to slip slightly in Q1.
  • Margin up slightly, if adjusted for energy pass-through impact.
  • Stable operating cash flow in gases in Q1.
  • Earnings per share up 7% YoY in Q1.
  • Expectations for 2017 as a standalone business confirmed, showing a range of -3% to 3% revenue growth. Operating income up 0% to 7% against 2016 and ROCE is still expected to be between 9-10%.
Linde Operating Margin
  • Total Group
  • Gases
,Total Group,Gases 2012 Q1,13.6%,16.0% 2012 Q2,13.5%,15.9% 2012 Q3,13.1%,14.8% 2012 Q4,12.9%,14.7% 2013 Q1,13.1%,15.2% 2013 Q2,13.7%,15.2% 2013 Q3,14.4%,16.9% 2013 Q4,14.2%,16.4% 2014 Q1,12.8%,15.2% 2014 Q2,13.5%,15.7% 2014 Q3,12.6%,14.9% 2014 Q4,12.1%,14.8% 2015 Q1,12.4%,15.0% 2015 Q2,13.4%,15.8% 2015 Q3,12.4%,15.1% 2015 Q4,11.6%,14.4% 2016 Q1,12.4%,15.2% 2016 Q2,13.1%,15.9% 2016 Q3,13.1%,15.6% 2016 Q4,12.3%,14.7% 2017 Q1,12.0%,14.5%
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  • Reported gases growth accelerated again in Q1, with an increase of nearly 5% YoY. Drivers for this growth were equally split between underlying growth and other factors. Energy pass-through made a small positive contribution to top line growth (1%) for the first time in over 2 years, whilst currency had a larger positive contribution of nearly 3% (driven most significantly by impact of US and Australian Dollars partly offset by Sterling impact). Small negative impact from acquisitions, albeit less than 1%, reflected the balance of bolt-on healthcare acquisitions in North America being partly offset by the divestment of the small specialty pharma business.
  • Underlying growth remained in positive territory, although this slipped back slightly. It appears that the driver of this underlying growth is volume, boosted by project start-ups in both the onsites and merchant businesses. Pricing contribution remains under pressure, substantially driven by healthcare pricing and neon.
Linde Underlying Growth Revenue Drivers
  • Total Underlying Growth
  • Volume
  • Price
,Total Underlying Growth,Volume,Price 2011 Q1,8.3%,7.3%,1.0% 2011 Q2,8.8%,6.9%,1.9% 2011 Q3,6.5%,4.5%,2.0% 2011 Q4,4.5%,2.9%,1.6% 2012 Q1,4.1%,2.0%,2.0% 2012 Q2,1.4%,0.7%,0.7% 2012 Q3,0.3%,0.1%,0.2% 2012 Q4,2.3%,1.2%,1.2% 2013 Q1,3.7%,1.2%,2.5% 2013 Q2,2.6%,1.5%,1.1% 2013 Q3,2.3%,1.4%,0.9% 2013 Q4,2.3%,1.5%,0.9% 2014 Q1,2.9%,2.0%,0.9% 2014 Q2,2.2%,1.7%,0.5% 2014 Q3,4.0%,2.8%,1.2% 2014 Q4,1.3%,0.8%,0.5% 2015 Q1,1.0%,1.5%,-0.5% 2015 Q2,2.3%,2.3%,0.0% 2015 Q3,1.8%,1.7%,0.1% 2015 Q4,1.7%,1.5%,0.2% 2016 Q1,1.7%,1.9%,-0.2% 2016 Q2,-0.5%,0.1%,-0.5% 2016 Q3,-2.2%,-1.9%,-0.3% 2016 Q4,2.4%,2.5%,-0.1% 2017 Q1,1.8%,2.8%,-1.0%
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Linde Business Performance

  • Merchant gases represented over half of Linde’s gas business, with Cylinders 28% and Bulk 24%. Onsites accounted for 26% and Healthcare 22%.
  • Onsites and Liquid Merchant accelerated solid growth YoY at around 6-7% in Q1, while Merchant Cylinders improved to be flat YoY. Bulk positive in all regions, particularly within Asia. Small improvement in industrial cylinders offset by a weakness in specialty gases.
  • Underlying Onsites growth was again assisted by new project start-ups and ramp-ups.
  • Healthcare growth remained significantly negative YoY in Q1, even after removing the negative impact of Pharma divestment. Positive underlying volumes were offset by deepening negative price impact of competitive bidding, which will continue through 2017. Underlying growth declined by 7.5%.
Growth by Business
  • Onsites
  • Cylinder
  • Liquid
  • Healthcare
,Onsites,Cylinder,Liquid,Healthcare 2011 Q1,12.1%,7.5%,7.3%,5.8% 2011 Q2,10.7%,8.4%,8.4%,5.0% 2011 Q3,6.5%,6.4%,11.4%,4.2% 2011 Q4,5.1%,4.9%,7.2%,5.1% 2012 Q1,3.0%,3.0%,6.4%,4.0% 2012 Q2,-0.2%,1.0%,2.2%,3.4% 2012 Q3,4.1%,0.8%,-0.8%,32.5% 2012 Q4,9.1%,1.6%,2.6%,221.7% 2013 Q1,5.0%,0.0%,0.7%,146.5% 2013 Q2,6.6%,1.2%,2.3%,113.5% 2013 Q3,3.7%,2.7%,3.0%,-243.5% 2013 Q4,7.1%,0.1%,3.6%,245.1% 2014 Q1,7.2%,0.3%,4.1%,146.5% 2014 Q2,1.8%,0.9%,4.5%,113.5% 2014 Q3,7.2%,-0.3%,2.8%,-260.0% 2014 Q4,0.6%,-1.7%,2.6%,0.0% 2015 Q1,-0.7%,-2.2%,0.3%,0.0% 2015 Q2,2.7%,-2.0%,0.1%,0.0% 2015 Q3,-3.8%,1.5%,1.4%,0.0% 2015 Q4,-0.6%,0.3%,0.6%,0.0% 2016 Q1,-0.3%,2.1%,1.1%,0.0% 2016 Q2,-1.3%,-1.1%,-0.1%,0.0% 2016 Q3,3.1%,-7.3%,-0.4%,0.0% 2016 Q4,6.9%,-1.3%,6.2%,0.0% 2017 Q1,8.4%,-0.1%,7.3%,0.0%
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  • Regionally, Europe was Linde’s largest region, accounting for 43% of gas sales. Meanwhile the Americas and Asia/Pacific represented 31% and 27% of sales respectively.
  • Asia Pacific accelerated again to become highest growth region on reported basis, at over 10% YoY.
  • Americas fell back to show only slight growth YoY.
  • Reported Europe gases sales improved by nearly 5% in Q1, the region’s highest growth since late-2012.
Reported Growth by Region
  • EMEA
  • AsiaPacific
  • Americas
,EMEA,AsiaPacific,Americas 2011 Q1,10.2%,22.5%,12.8% 2011 Q2,6.1%,13.1%,2.1% 2011 Q3,5.1%,13.9%,0.0% 2011 Q4,4.6%,9.1%,4.7% 2012 Q1,4.8%,26.7%,15.9% 2012 Q2,5.8%,25.2%,14.7% 2012 Q3,7.7%,27.0%,56.5% 2012 Q4,9.1%,23.1%,80.9% 2013 Q1,2.5%,3.3%,56.8% 2013 Q2,2.3%,1.3%,59.3% 2013 Q3,-1.5%,-8.1%,11.2% 2013 Q4,-1.3%,-5.3%,-5.0% 2014 Q1,-2.0%,-6.0%,0.6% 2014 Q2,-2.0%,-2.6%,-4.4% 2014 Q3,-0.7%,6.3%,2.3% 2014 Q4,-1.3%,7.1%,9.7% 2015 Q1,0.3%,14.3%,18.1% 2015 Q2,1.5%,15.4%,25.6% 2015 Q3,-0.6%,4.1%,23.1% 2015 Q4,0.8%,3.4%,13.5% 2016 Q1,-4.2%,-2.5%,2.6% 2016 Q2,-5.3%,-7.8%,-0.5% 2016 Q3,-6.6%,0.4%,-4.3% 2016 Q4,-0.2%,5.1%,5.8% 2017 Q1,4.8%,10.7%,1.0%
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  • On a comparable basis, the relative performance between regions widened significantly, largely due to the Americas underperforming the other two regions in Q1.
  • Americas declined by 2%, significantly driven by the disposal of SpecialtyPharma. Bulk and onsites were both stronger, but spec gas weaker. Furthermore, competitive bidding pressure in healthcare continues.
  • EMEA accelerated significantly to over 4%, its best performance since 2011. The highest growth contributions came within Northern Europe, Eastern Europe and the Middle East, as well as strong onsites growth.
  • Asia Pacific growth improved further towards 5%, returning it to the 2011-14 average. Asia growth stood a 6.6%, however, the Pacific was modest/down with the South Pacific stabilising. Positive bulk growth in all parts of region.
Comparable Growth by Region
  • EMEA
  • Asia Pacific
  • Americas
,EMEA,Asia Pacific,Americas 2011 Q1,6.0%,11.0%,11.1% 2011 Q2,5.8%,11.4%,12.5% 2011 Q3,5.0%,10.0%,7.9% 2011 Q4,6.0%,4.4%,4.9% 2012 Q1,3.3%,4.8%,5.9% 2012 Q2,0.7%,3.6%,0.7% 2012 Q3,-0.4%,5.1%,0.6% 2012 Q4,2.8%,6.5%,4.0% 2013 Q1,0.1%,5.4%,2.2% 2013 Q2,2.9%,3.4%,2.4% 2013 Q3,3.0%,2.6%,1.7% 2013 Q4,1.2%,5.0%,3.3% 2014 Q1,1.2%,4.6%,4.2% 2014 Q2,-0.2%,6.2%,3.4% 2014 Q3,1.4%,5.4%,5.3% 2014 Q4,-2.0%,2.6%,5.5% 2015 Q1,-1.6%,0.0%,5.2% 2015 Q2,-1.4%,-0.8%,8.8% 2015 Q3,-1.8%,-2.5%,10.9% 2015 Q4,0.0%,-1.1%,5.9% 2016 Q1,-0.2%,3.5%,1.8% 2016 Q2,-0.2%,-0.5%,-0.2% 2016 Q3,-2.0%,0.3%,-6.9% 2016 Q4,2.0%,3.9%,2.3% 2017 Q1,4.4%,4.9%,-2.6%
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  • Regionally, Europe, the Middle East & Africa remained the largest profit source for Linde and accounted for around half of gases operating income, with Americas and Asia/Pacific both accounting for around a quarter.
  • Europe operating margin remained highest in Group and bounced back to over 18% in Q1, after slipping significantly in Q4. This growth was aided by a number restructuring actions.
  • Americas margin slipped back again to 12%, after reaching its highest level of recent years in the previous quarter. The margin was assisted by strong onsite developments but adversely impacted by healthcare pricing.
  • Asia Pacific margins slipped below 12% and below the trend of recent years. YoY comparison impacted by asset sale in 2016..
Gases Operating Margin
  • EMEA
  • AsiaPacific
  • Americas
,EMEA,AsiaPacific,Americas 2011 Q1,18.3%,12.7%,11.9% 2011 Q2,17.7%,13.6%,11.3% 2011 Q3,19.4%,14.3%,9.6% 2011 Q4,19.0%,15.5%,8.1% 2012 Q1,18.8%,13.2%,12.6% 2012 Q2,17.9%,13.6%,13.7% 2012 Q3,18.3%,12.3%,11.4% 2012 Q4,18.1%,12.3%,11.3% 2013 Q1,17.8%,12.3%,12.7% 2013 Q2,18.3%,13.1%,12.0% 2013 Q3,18.1%,14.1%,10.6% 2013 Q4,18.6%,14.3%,8.6% 2014 Q1,18.3%,12.0%,12.5% 2014 Q2,19.5%,13.4%,11.0% 2014 Q3,18.9%,12.1%,11.6% 2014 Q4,17.2%,13.1%,12.9% 2015 Q1,18.5%,10.4%,13.9% 2015 Q2,19.6%,12.8%,13.5% 2015 Q3,17.5%,11.7%,14.3% 2015 Q4,17.7%,11.0%,12.9% 2016 Q1,18.6%,12.2%,13.4% 2016 Q2,19.8%,12.2%,13.8% 2016 Q3,21.0%,13.3%,11.1% 2016 Q4,17.3%,13.1%,15.9% 2017 Q1,18.4%,11.5%,12.0%
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  • Reported capex still appeared to be trending lower both in absolute value and relative to sales, with substantial sequential swings in reported capex typical of recent years.
  • Q1 gases capex at over €360m, up 21% YoY.
  • Europe and Americas each accounted for over a third of Q1 capex, with a decline in the share in Europe.
  • Capex/sales ratio also trended down through 2016. However, at just under 10% of sales in Q1, was still above the prior year. Medium term target range for the ratio remains 11-12%.
CAPEX (% of sales)
  • CAPEX (% of sales)
,CAPEX (% of sales) 2008 Q2,13.3% 2008 Q3,13.0% 2008 Q4,18.7% 2009 Q1,11.9% 2009 Q2,9.0% 2009 Q3,7.7% 2009 Q4,15.5% 2010 Q1,9.1% 2010 Q2,10.4% 2010 Q3,9.4% 2010 Q4,15.6% 2011 Q1,8.9% 2011 Q2,11.0% 2011 Q3,11.8% 2011 Q4,15.5% 2012 Q1,9.4% 2012 Q2,15.3% 2012 Q3,13.8% 2012 Q4,18.4% 2013 Q1,13.3% 2013 Q2,14.7% 2013 Q3,17.3% 2013 Q4,19.3% 2014 Q1,11.8% 2014 Q2,11.9% 2014 Q3,11.9% 2014 Q4,18.4% 2015 Q1,7.7% 2015 Q2,11.2% 2015 Q3,12.4% 2015 Q4,18.2% 2016 Q1,8.3% 2016 Q2,10.6% 2016 Q3,11.1% 2016 Q4,14.5% 2017 Q1,9.5%
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