The Linde Group delivered a solid performance in the 2016 financial year, achieving increases in both group revenue and group operating profit after adjusting for exchange rate effects.

In the results released today, the company revealed that its performance was hampered by the lower contribution made to revenue by the Engineering Division in 2016 compared with 2015, as well as by adverse exchange rate effects.

Group margin did increase, however, and the company enjoyed a strong fourth quarter (2016) in particular, as reflected by returning CEO Professor Dr. Aldo Belloni.

“Despite the low price of oil and the economic headwind, we were able to meet expectations and achieve increases in revenue and earnings after adjusting for exchange rate effects, especially in a strong fourth quarter,” he said.

“We have increased our group margin and our operating cash flow has remained at a high level, so we have been able to maintain our dividend distribution which is geared towards continuity.”

Observers and analysts might argue this aspect of the results is especially significant, given the announcement of the company’s LIFT programme in October and a pending merger of equals with fellow Tier One player Praxair, Inc., a company lauded for its strong margins and profitability.

“Our efforts to make Linde even more profitable are already having an impact,” added Dr. Belloni. “Following the implementation of numerous internal measures designed to enhance efficiency and save costs, we will be able to operate even more successfully in the market in the future.”

Performance and earnings power

In the 2016 financial year, group revenue from continuing operations stood at €16.9bn compared to €17.3bn in 2015, while Linde was also able to maintain its stable earnings power and achieve a slight increase in group operating profit from continuing operations in the 2016 financial year.

This rose to just under €4.1bn, compared with a prior-year figure of €4.087bn.

Due to the planned sale of Gist in 2017, the revenue and operating profit contributed by this division have been reported as a discontinued operation and are therefore not included in the group figures for 2016. This resulted in a reduction in group revenue of €602m and in group operating profit of €44m for the past financial year, suggesting performance was even better than headline figures convey.

The same is true of other factors. After adjusting for the impact of its engineering division and adverse exchange rate effects on group revenue, group revenue was 0.2% higher than in 2015. Linde even achieved an increase in group operating profit of 2.7% after adjusting for exchange rate effects. At 24.2%, the group’s operating margin was 60 basis points above the prior-year figure of 23.6%.

One factor contributing to this improvement were efficiency improvement measures introduced back in 2015 (the Focus Programme). In the three-year period from 2015 to 2017, this programme is expected to have reduced costs by a total of up to €180m. Linde launched another group-wide efficiency programme in October 2016, called LIFT. Through this three-year programme, additional cost savings of around €370m per annum are targeted. In total, Linde expects annual savings of around €550m to be achieved from 2019.

What is Linde’s LIFT programme?

Profit for the year stood at €1.3bn (2015: €1.2bn), giving earnings per share for continuing operations of €6.50 (2015: €6.10), while the return on capital employed (ROCE) was 9.4% (2015: 9.5%) in the 2016 financial year. At €3.4bn, operating cash flow remains high.

“Following the implementation of numerous internal measures designed to enhance efficiency and save costs, we will be able to operate even more successfully in the market in the future”

Professor Dr. Aldo Belloni, CEO

Underlying growth in the group’s Gases Division was solid in 2016, though the impact of exchange rate effects and changes in the price of natural gas were inescapable, causing revenue to fall by 1.8% to just under €15bn (€15.17bn). After adjusting for these effects, however, revenue actually rose by 1.4%.

Varying business trends were to be seen in the individual segments in the Gases Division, depending on prevailing economic conditions, but Linde described stronger underlying performance in the North America and Asia-Pacific markets on a comparable basis.

Linde’s 2016 results: Performance breakdown


Looking ahead, Linde expects the market environment to continue to be challenging in the 2017 financial year.

Recent economic forecasts indicate that the global gases market will grow at a similar rate in 2017 to that seen in 2016, the company noted, while in contrast the market environment in the international plant construction business could see a slight improvement – although it might yet continue to be beset by uncertainty.

For the group as a whole, Linde is seeking to achieve an increase in revenue of 3% after adjusting for exchange rate effects, although the ‘challenging market environment’ could still result in a decrease of up to 3%. After adjusting for exchange rate effects, the group expects its operating profit in 2017 to be similar to that achieved in 2016 or, in a higher growth scenario, to increase by up to 7%.

Based on the prevailing exchange rates as of 31st December 2016, this is equivalent to group operating profit falling within the range from €4.2bn to €4.5bn – the target Linde set itself at the end of 2015.

Referring to the hot topic that some might view as the elephant in the room, Linde simply stated that preparations for the proposed merger of equals with Praxair are ‘on schedule’.

The business combination agreement is endeavoured to be finalised by the end of April or beginning of May 2017, the company confirmed.