gasworld Business Intelligence provides you with the latest analysis of Linde’s Q4 2016 earnings report.

Headlines

  • Total corporate sales in 2016 are reported at €16.9bn. This indicates that sales were up nearly 4% YoY in Q4, but up only marginally by 1% on a comparable basis. This was a further improvement over the previous two quarters, which showed the weakest reported performance since late 2013.
  • Gases account for over 80% of Linde corporate sales, with Engineering accounting for under 20%. Other businesses (mainly Gist distribution) have now been moved into Discontinued business as Linde seeks to divest this business.
  • Reported Gases growth also recovered by 2.5% YoY in Q4, which is significantly better than the previous four quarters. This recovery was also better on a comparable basis with a return to marginal growth.
  • Engineering sales were up over 3% YoY in Q4 but, at €610m, remained well below the average of recent years. Order intake and backlog were both down YoY, however backlog was up again sequentially.
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%,2.7% 2012 Q3,13.2%,17.3%,3.1% 2012 Q4,17.9%,23.2%,5.5% 2013 Q1,10.3%,14.8%,3.7% 2013 Q2,10.8%,14.3%,3.5% 2013 Q3,5.4%,0.0%,2.7% 2013 Q4,-4.1%,-3.7%,3.3% 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%,2.1% 2016 Q1,-3.0%,-1.3%,1.6% 2016 Q2,-7.4%,-4.6%,-0.6% 2016 Q3,-2.4%,-3.8%,-2.8% 2016 Q4,3.8%,2.5%,1.4%
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  • Reported Corporate Operating Income showed strong gain YoY to over €560m.
  • Reported Gases Operating Income was also up solidly YoY, after adjusting for restructuring charges in the current and prior year.
  • There were further restructuring charges of €76m taken in Q4, although the total charges in 2016 were down on that of 2015. These charges were primarily in the Gases business and relate to restructuring as well as the potential Praxair merger.
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%
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  • The Focus programme (2015-17) is now complete and has been succeeded by the LIFT program (2016-19).
  • Restructuring completed in the UK and Scandinavia with programmes still underway in all other regions. Functions with restructuring costs of €400m to be accounted for as special items by the end of 2017.
  • Gases Operating Margin slipped in Q4 back towards recent lows of around 15%. This also drives decline in corporate margin with Engineering margin maintained at over 8%, which is claimed to be above peers.
  • The previously announced discussion with Praxair over a potential merger/acquisition is proceeding, with a target of completion by mid-2017.
  • Expectations for 2017 as a standalone business show range of -3% to 3% revenue growth, with operating income up 0% to 7% against 2016 and ROCE still expected to be 9-10%.

 

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%
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  • Reported gases growth returned to a positive performance in Q4, with an increase of 2.5% YoY. This growth was primarily driven by underlying factors. Energy pass-through headwind reduced to having a minimal impact for the first time in two years, whilst currency had a slightly negative impact on top line (driven most significantly by Dollar impact). Positive net impact of acquisitions (albeit less than 1%) reflected the balance of bolt-on healthcare acquisitions in North America. This was partly offset by the divestment of the company’s small specialty pharma business.
  • Underlying growth moved back into positive territory which appears to be primarily driven by a return to volume growth. It appears that a significant part of this volume growth is accounted for by project start-ups in both the onsite and merchant business sectors. We are also expecting a slightly higher contribution in 2017. Merchant pricing was flat in EMEA and Asia Pacific, but under pressure in the Americas, particularly being driven by neon pricing.

 

Underlying Growth Drivers
  • Total Underling Growth
  • Volume
  • Price
,Total Underling 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%,1.6%,0.1% 2016 Q2,-0.5%,-0.5%,0.0% 2016 Q3,-2.8%,-2.0%,-0.8% 2016 Q4,2.4%,2.2%,0.2%
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Linde Business Performance

  • Merchant gases represent over half of Linde’s gas business, with Cylinders accounting for 28% and Bulk 24%. Onsites account for 26% and Healthcare a further 22% of the business.
  • Liquid Merchant resumed solid growth YoY at 6% in Q4, while Merchant Cylinders remained in decline of 2%, albeit below the decline in the previous quarter. Liquid Bulk growth was highest in Asia and Central Europe, while Cylinders headwinds strongest in the South Pacific and Spec Gases (partly driven by weak pricing).
  • Underlying Onsites growth accelerated further to 5% growth in Q4. This was assisted by a number of new project start-ups.
  • Healthcare growth appears to have remained negative YoY in Q4 after removing the net boost from acquisition. Positive underlying volumes were offset by a deepening negative price impact of competitive bidding, which will continue into 2017.
Growth by Business (Comparable)
  • 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%,16.6% 2012 Q3,4.1%,0.8%,-0.8%,19.3% 2012 Q4,9.1%,1.6%,2.6%,16.9% 2013 Q1,5.0%,0.0%,0.7%,10.7% 2013 Q2,6.6%,1.2%,2.3%,4.9% 2013 Q3,3.7%,2.7%,3.0%,0.9% 2013 Q4,7.1%,0.1%,3.6%,2.7% 2014 Q1,7.2%,0.3%,4.1%,0.7% 2014 Q2,1.8%,0.9%,4.5%,2.3% 2014 Q3,7.2%,-0.3%,2.8%,6.0% 2014 Q4,0.6%,-1.7%,2.6%,5.4% 2015 Q1,-0.7%,-1.8%,-0.2%,6.9% 2015 Q2,2.7%,3.9%,-3.1%,7.9% 2015 Q3,-3.8%,-1.2%,1.5%,8.0% 2015 Q4,-0.6%,0.7%,-1.0%,6.8% 2016 Q1,-0.3%,2.1%,1.1%,3.5% 2016 Q2,-1.3%,-1.1%,-0.1%,0.5% 2016 Q3,3.1%,-7.3%,-0.4%,-6.7% 2016 Q4,5.0%,-1.9%,6.0%,-2.1%
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  • Regionally, Europe is Linde’s largest region, accounting for 43% of gas sales. The Americas and Asia/Pacific represent approximately 31% and 27% of gas sales respectively.
  • The Americas regained its position as Linde’s highest growth region in reported terms and was up nearly 6% YoY, in Q4. This region continues to be boosted by healthcare acquisitions.
  • Asia Pacific improved further to be up over 5% YoY.
  • Reported Europe gases sales were virtually unchanged YoY in Q4.

 

Reported Growth by Region
  • EMEA
  • Asia Pacific
  • Americas
,EMEA,Asia Pacific,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%
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  • On a comparable basis, the relative performance between regions narrowed significantly, with all three regions showing positive growth in Q4.
  • Americas growth recovered to over 4%, after adjusting for healthcare acquisition. This was partly boosted by new onsite businesses. Growth continues to be boosted by the American HomePatient acquisition in late 2015, which was partly offset by the disposal of Specialty Pharma. South America growth was boosted by higher pricing.
  • Growth in Europe/Middle East/Africa improved significantly to around 2%, its best performance since 2013. The highest growth was witnessed in the Middle East, East Europe and Scandinavia. This in turn was offset by weakness in UK steel and South Africa. There was strong growth in healthcare.
  • Asia Pacific growth improved marginally, but remains fundamentally below the trend of recent years. Weakness in South Pacific. Strongest growth in onsites with bulk.
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 Q2,3.5%,3.6%,0.7% 2012 Q3,4.0%,5.1%,0.6% 2012 Q4,5.6%,6.5%,4.0% 2013 Q1,4.0%,5.4%,2.2% 2013 Q2,4.8%,3.4%,2.4% 2013 Q3,3.5%,2.6%,1.7% 2013 Q4,2.1%,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,-0.2%,2.6%,5.5% 2015 Q1,-1.6%,0.1%,5.2% 2015 Q2,-1.4%,1.9%,8.8% 2015 Q3,-1.8%,-4.7%,10.9% 2015 Q4,0.0%,-1.7%,5.9% 2016 Q1,-0.2%,3.5%,1.8% 2016 Q2,-0.2%,-0.5%,-3.4% 2016 Q3,-2.0%,0.3%,-5.9% 2016 Q4,2.0%,3.9%,4.3%
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  • Regionally, Europe/Middle East/Africa remains the largest profit source for Linde, accounting for around half of gases Operating Income. The Americas and Asia/Pacific both accounted for around a quarter of Operating Income.
  • Europe Operating Margin remains the highest in the Group, but slipped significantly in Q4 towards 17%. This is its lowest level of recent years, despite restructuring actions.
  • Americas margin improved significantly towards 16%, its highest level of recent years. This reflects an improving trend of over five years, boosted by project start-ups
  • Asia Pacific margins remain on a fundamentally flat path at around 13%.
Gases Operating Margin by Region
  • 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%
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  • Reported capex still appears to be trending lower both in absolute value and relative to sales, with substantial sequential swings in reported capex typical of recent years.
  • Q4 gases capex close to €560m, down 18% YoY.
  • Capex/sales ratio also trended down through 2016 and averaged at around 12% of sales, which is similar to the average for its peers. Medium term target range for ratio remains at between 11 to 12%.
  • Capex as a % of Sales
,Capex as a % of Sales 2007 Q1,9% 2007 Q2,12% 2007 Q3,12% 2007 Q4,12% 2008 Q1,11% 2008 Q2,13% 2008 Q3,13% 2008 Q4,19% 2009 Q1,12% 2009 Q2,9% 2009 Q3,8% 2009 Q4,16% 2010 Q1,9% 2010 Q2,10% 2010 Q3,9% 2010 Q4,16% 2011 Q1,9% 2011 Q2,11% 2011 Q3,12% 2011 Q4,15% 2012 Q1,9% 2012 Q2,15% 2012 Q3,14% 2012 Q4,18% 2013 Q1,13% 2013 Q2,15% 2013 Q3,17% 2013 Q4,19% 2014 Q1,12% 2014 Q2,12% 2014 Q3,12% 2014 Q4,18% 2015 Q1,8% 2015 Q2,11% 2015 Q3,12% 2015 Q4,18% 2016 Q1,8% 2016 Q2,11% 2016 Q3,11% 2016 Q4,14%
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