gasworld Business Intelligence provides you with the latest analysis of Linde’s Q4 2016 earnings report.
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.
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.
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%.
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.
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.
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.
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%.
The Linde Group is expanding its commitment to China and the Asia Pacific region through a multi-million-euro investment in new onsite gas production facilities.
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