In its latest financials, Tier One corporation The Linde Group insists its nine month revenue figures and business performance are in line with expectations despite an equivocal set of results.

Overall, Linde posted total group revenue in the first nine months of 2016 of €13bn ($14.2bn) – a 4.3% drop below the revenue of the prior-year period of €13.6bn ($14.8bn). Operating profit also fell, declining by 2.3% to settle at €3.1bn ($3.4bn).

Linde attributes these decreases to a lower contribution in both revenue and earnings from its Engineering Division as well as adverse exchange rate movements.

After adjusting for exchange rate effects arising solely on translation, group revenue was 1.1% below the prior-year period’s figure. However, the group operating margin of 23.6% was higher than the figure of 23.1% in the first nine months of 2015, a feat that Linde credits to efficiency measures introduced last year.

Its Gases Division demonstrated a slight increase in revenue on a comparable basis over the nine-month period, inching up by 0.2% after adjusting for exchange rate effects. However, overall revenue in this business unit totalled €11bn ($12bn) – a drop of 3.3% compared to the previous fiscal year. Operating profit also declined slightly to €3.1bn ($3.4bn), but after adjusting for exchange rate effects, operating profit actually increased by 1.9%. The operating margin rose to 28.1% due in part to lower prices in natural gas.

All regional business units struggled over the nine-month period, with its EMEA segment (Europe, Middle East, Africa) showing the greatest revenue loss of 5.4% to €4.3bn ($4.7bn). On a comparable basis, revenue was slightly below the figure for the prior-year period. However, operating profit showed a slight increase, rising from €1.35bn ($1.47bn) to €1.36bn ($1.48bn).

euro finance

Revenue in its Asia/Pacific segment slumped by 3.4% from €3.13bn ($3.41bn) to €3.02bn ($3.29bn), yet rose by 1.1% on a comparable basis. Linde highlighted positive trends for all product areas in both southern and eastern Asia as well as China, but blamed the prevailing weak economic environment in manufacturing and declining investment in the region’s mining industry for the adverse impact on growth.

The company implied that appropriate structural and organisational countermeasures have been implemented as part of its Customer Focus initiative, which should deliver a higher profitability rate in the Asia/Pacific zone.

Linde also reported a slight decline of 0.8% in its Americas segment revenue, totalling €3.84bn ($4.19bn), yet revenue rose on a comparable basis by 2.2%. Operating profit fell by 3.1% to €947m ($1.03bn). The Tier One player aims to combat recent price reductions as a result of government tenders in the North American healthcare business with its acquisition of American HomePatient, Inc. 

Despite an increase in order intake which was higher than the figure for the first nine months of 2015, Linde’s Engineering Division continued to be the company’s Achilles Heel with a revenue drop of 13.1%, from €2bn ($2.18bn) to €1.73bn ($1.87bn). Although its operating margin remained above the industry average at 8.4%, the company cited slack demand in the plant construction sector due to the prevailing low price of oil as its hindrance.

Strategic focus

After conducting a review of the strategic focus and structures of the entire group across all its organisational units, The Linde Group has decided to launch ‘LIFT’ – a three-year efficiency programme that spans across the entire group and aims to drastically enhance efficiency measures.

The industrial gas corporation suggests that the implementation of ‘LIFT’, coupled with measures introduced from 2015, should achieve cost savings of around €550m ($600m) per year from 2019, with the programme alone saving around €370m ($404m).

”Overall, the company is on the right track. We will continue to pursue a growth trajectory”

Wolfgang Büchele, CEO of Linde AG

Wolfgang Büchele, CEO of Linde AG, highlighted, “Overall, the company is on the right track. By applying a variety of additional measures, the ‘LIFT’ programme will enable us to deliver greater efficiency.” 

He remained resilient and optimistic about the future, stating, “Our clear vision for Linde is to ensure that we become one of the most profitable suppliers in the industrial gases and engineering business, a preferred partner for customers and that we sustain this over the long term. We will continue to pursue a growth trajectory.”

In both 2016/2017, the company will incur a one-off restructuring cost of €400m ($436m) as a result of the ‘LIFT’ programme, but made it clear that it will remain committed to its balance sheet structure and its dividend policy.