“The Linde Group is on the right track” said its CEO as the German company announced its 2018 half-year financial results.
After adjusting for exchange rate effects and for the first-time application of new accounting standard IFRS 15, revenue rose by 4.7% compared with the first half of 2017. Group operating profit increased by 10.1%. At 25.6%, Linde’s operating margin was also significantly higher than the figure for the first half of 2017 of 23.9%.
“We are seeing encouraging growth in revenue and were able once again to achieve a significant increase in our Group margin,” said Professor Dr. Aldo Belloni, CEO of Linde AG. “We are working consequently to ensure that the efficiency improvement measures we introduced are being successfully implemented and that we continue to optimise our portfolio.”
In the first half of 2018, Group revenue was €8.7bn ($10.2bn), compared with €8.9bn ($10.4bn) in 2017. Exchange rate effects and the first-time application of IFRS 15 had a negative impact on revenue. After adjusting for both, Group revenue was 4.7% above the figure for the prior-year period. Group operating profit rose by 3.5% to €2.2bn ($2.6bn).
At 25.6%, the Group operating margin was significantly higher than the figure for the first half of 2017 of 23.9%. Factors contributing to this improvement included not only the measures introduced as part of the Group-wide efficiency programme LIFT, portfolio optimisation and good macroeconomic conditions, but also the impact of the first-time application of IFRS 15.
Operating cash flow was €1.3bn ($1.5bn), slightly below the figure for the first half of 2017. The company stressed, “It should be noted here that payments of around €180m ($210.5bn) were made in the reporting period for restructuring costs and costs related to the proposed merger with Praxair.”
Segments in detail
In its Gases Division, Linde generated revenue in the first half of 2018 of €7.2bn ($8.4bn), a decrease of 5.2% below the previous year. Despite this, revenue in the Gases Division increased by 3.8%. At 30.4%, the operating margin was well above the figure for the first half of 2017 of 28.6%.
In the Europe, Middle East, Africa (EMEA) segment, Linde’s largest sales market, the Group generated revenue in the first six months of 2018 of €3bn ($3.5bn), which was 0.3% higher than the figure achieved in the first half of 2017. Operating profit was €968m ($1.1bn), an increase of 4.8% when compared with the figure for the first half of 2017. The operating margin rose to 32.7%. Efficiency improvement measures also contributed towards this increase. In the first quarter of 2018, Linde recognised a gain on deconsolidation of around €40m ($47bn) on the sale of its subsidiary Tega – Technische Gase und Gasetechnik GmbH.”
“Positive trends were to be seen in the EMEA segment in all product areas. In the liquefied gases and cylinder gas product areas in particular, revenue increased in virtually all regions. In the on-site business, there were volume reductions resulting from the sale of parts of a production facility,” the company said.
Revenue in Linde’s Asia/Pacific segment was down, showing a 4.1% loss to total €2bn ($2.3bn), however revenue did increase by 4.3% on a comparable basis. In 2017 there was a one-off effect from the sale of assets of €70m ($82m). The operating margin rose to 28.8%.
“Positive trends were to be seen in particular in the on-site and liquefied gases business. One of the factors contributing to this growth was the start-up of multiple air separation plants in China. In the South Pacific, the prevailing weak economic environment in manufacturing and declining investment in the mining industry had an adverse impact on revenue growth. However, the measures introduced as part of the LIFT efficiency programme had a positive impact on the earnings trend,” the company explained.
In the Americas segment, revenue fell by 11.8% in the first half of 2018 to €2.2bn ($2.6bn). On a comparable basis, revenue rose by 3.1%. When compared with the prior-year period, operating profit decreased by 1.8% to €616m ($720m). Linde achieved a significant increase in operating profit of 10.6%. There was a substantial increase in the operating margin to 27.5%. Linde said the first-time application of IFRS 15 and the measures introduced as part of the Group-wide efficiency programme LIFT had a positive impact on the margin.
“There were positive trends in the liquefied gases and cylinder gas business in North America. Revenue in the Healthcare business in North America also remained stable. However, opposing trends were to be seen here. Although the business achieved volume increases, price reductions imposed by private health insurers continued to have a negative impact. In the on-site business, the stoppage of a plant in the first quarter led to a decline in revenue.”
Revenue in the Engineering Division rose in the first half of 2018 by 12.5%. Operating profit increased by 41.2% to €137m ($160m). At 10%, the operating margin was above the figure for the first half of 2017 and exceeded the target of around 9% which Linde Engineering has set itself for the 2018 financial year. “This was due not only to higher earnings from individual plant construction projects, but also to improved capacity utilisation,” the company explained.
The market for international large-scale plant construction remains volatile and subject to intense competition. Nevertheless, the Engineering Division was able to increase its order intake by 60.5% to €1.9bn ($2.2bn).
Outlook for the Tier One player’s 2018 full-year financials is “expected to be similar to that achieved in 2017 or to increase by up to 4%”.
Proposed merger with Praxair
“The merger control and regulatory processes are in full swing,” Linde announced in a statement.
Merger approvals have already been received for several countries. In the previous week, Linde has entered into an agreement with a consortium comprising companies of German industrial gases manufacturer Messer Group and CVC Capital Partners Fund VII to sell the majority of the gases business in North America and certain business activities in South America.
“Linde considers a divestiture of such business necessary in order to allow merger clearance of the proposed business combination by the relevant competition agencies. This sale is still subject to the completion of the proposed business combination of Linde and Praxair and regulatory approvals. Linde is in constructive talks with the remaining authorities. Linde and Praxair continue to assume that they will be able to complete the business combination in the second half of 2018 following the timely receipt of all the required approvals,” the company said.