The Linde Group delivered a solid performance in the 2017 financial year, achieving increases in both group revenue and group operating profit after adjusting for exchange rate effects.
In the results released today, the Tier One company said the main factors contributing to this performance were continuing positive trends in the EMEA and Asia/Pacific segments and in the Engineering Division. Linde is making more rapid progress with its LIFT efficiency programme than planned.
“We’ve had a very decent year. We met our targets in full and achieved increased in revenue and earnings after adjusting for exchange rate effects. Our proposed merger with Praxair remains on schedule,” CEO Professor Dr. Aldo Belloni said.
Performance and earnings power
In the 2017 financial year, group revenue from continuing operations stood at €17.1bn compared to €16.9bn in 2016, 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 2017 financial year.
This rose to €4.2bn, compared with a prior-year figure of just under €4.1bn.
After adjusting for exchange rate effects, group revenue was 2.1% higher than in 2016. Group operating profit rose by 4.1% after adjusting for exchange rate effects. At 24.6%, the group margin was 40 basis points above the 2016 figure of 24.2%.
Profit for the year from continuing operations increased from €1.3bn in 2016 to €1.5bn in 2017. This was due to the US tax reform.
In the Gases Division, revenue increased in the 2017 financial year by 0.6% to €14.99bn (€14.89bn). After adjusting for exchange rate effects and changes in the price of natural gas, revenue rose by 1.2%. Meanwhile operating profit in the Gases Division rose by 1.4% to €4.27bn (2016: €4.21bn), giving an operating margin of 28.5% (2016: 28.3%).
In the EMEA segment (Europe, Middle East, Africa), revenue in the 2017 financial year was €5.9bn, which was 2.4% above the figure for 2016 of €5.73bn. On a comparable basis, Linde achieved an increase in revenue of 2.9%.
Operating profit in the region improved slightly to €1.87bn (2016: €1.8bn). The operating margin rose to 31.9% (2016: 31.5%).
All products in the EMEA segment saw positive trends. In the on-site business, where the company supplies gases on site to major customers, Linde was able to achieve revenue growth in Germany, Northern Europe and in the Middle East & Eastern Europe as a result of plant start-ups. In the liquefied gases and cylinder gas product areas, increases in revenue were achieved in virtually all regions.
In the Asia-Pacific segment, the revenue trend was positive, with revenue increasing by 6.5% to €4.4bn (2016: €4.1bn).
Operating profit rose by 10.9% to €1.2bn (2016: €1.08bn); operating margin was 27.5% (26.4%).
Positive trends in all product areas were to be seen in South & East Asia and in China. Solid volume and revenue increases were achieved above all in the liquefied gases and on-site product areas. As far as customer segments are concerned, electronic gases were particularly in demand.
In the Americas segment, revenue fell by 6.2% to €4.9bn (2016: €5.23bn). On a comparable basis, the decrease in revenue was 5.4%. Operating profit dropped by 9.6% to €1.2bn (2016: €1.31bn). Operating margin fell as a result from 25.2% to 24.3%.
A variety of effects in different directions had an impact on revenue and earnings trends. In the Healthcare business in North America, price reductions as a result of government tenders are continuing to have an effect. Meanwhile, positive trends were to be seen in the liquefied gases and on-site business in North America. In South America, economic conditions remained rather subdued in 2017.
Revenue in the Engineering Division rose in the 2017 financial year by 1.6% to €2.4bn (2016: €2.35bn). Operating profit increased significantly, by 12.2% to €220 m (2016: €196 m). Linde was able to improve its operating margin in this division from 8.3% in 2016 to 9.2% in 2017. This was due to higher profits on specific plant construction projects and to better capacity utilisation.
Given the high level of uncertainty associated with exchange rates, and the fact that exchange rates are outside the company’s control, Linde is presenting its revenue and earnings forecasts in the form of percentage ranges after adjustment for exchange rate effects. The 2018 forecasts for group revenue and the revenue of the Gases Division have also been adjusted for the effect of the first-time application of the new accounting standard IFRS 15 (Revenue from Contracts with Customers). The new standard is effective from 1st January 2018 and will result in a reduction in the revenue figures reported of around €400m.
After adjusting for the effects of IFRS 15 and exchange rate effects, group revenue in the 2018 financial year is expected to be similar to that achieved in 2017 or to increase by up to 4%. Group operating profit after adjusting for exchange rate effects is expected to be in a range similar to that achieved in 2017 or to increase by up to 5%. Linde is seeking to achieve a return on capital employed in the 2018 financial year of around 10%. Linde is expecting to incur additional costs in 2018 relating to the proposed merger with Praxair totalling around €150m. As in previous reporting periods, these will be disclosed as special items. Due to the proposed merger with Praxair and the antitrust conditions which will be imposed as a result, assets will come up for sale in the course of the 2018 financial year. This may lead to an adjustment being made to the forecast.
After adjusting for the effects of IFRS 15 and for exchange rate effects, revenue in the Gases Division is expected to be similar to that achieved in 2017 or to increase by up to 4%. Operating profit after adjusting for exchange rate effects is expected to be in a range similar to that achieved in 2017 or to increase by up to 5%.
Proposed merger with Praxair
Linde said the merger control and regulatory processes are in full swing. The company is engaged in constructive talks with the relevant authorities and in parallel with potential buyers. Merger approvals have already been received for the following countries: Algeria, Ecuador, Kenya, Pakistan, Paraguay, the Philippines, Russia, South Africa, Turkey and Ukraine. Linde and Praxair continue to assume that they will be able to complete the merger in the second half of 2018 following the timely receipt of all the required approvals.