The $90bn merger of equals between Linde AG and Praxair was successfully completed at the end of October following the antitrust clearance received from the Federal Trade Commission (FTC).

The exchange offer of Linde plc to Linde AG shareholders was settled on 31st October (2018). 92% of the shares have been submitted for exchange. The shares of the new group are listed on both the Frankfurt and New York stock exchanges.

The following business review for the period of January to September (2018) relates solely to The Linde Group on a stand-alone basis.

In the results released today, the Tier One corporation revealed its group revenue in the nine-month period fell by 1.7% to €13bn. Linde said this was “mainly due to exchange rate effects”.

The first-time application of the new revenue accounting model IFRS 15 a;sp had a negative impact on revenue. After adjusting for exchange rate effects arising solely from translation and for the impact of the first-time application of IFRS 15, group revenue was 4.8% higher than in the first nine months of 2017.

Group operating profit rose by 4.2% to €3.3bn (2017: €3.17bn). After adjusting for exchange rate effects, the increase was even greater at 9%.

At 25.3%, Linde’s group operating margin was significantly higher than the figure for the first nine months of 2017 (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.

Divisions

In the Gases division, Linde generated revenue in the first nine months of 2018 of €10.9bn, which was 3% below the figure for the prior-year period of €11.2bn.

After adjusting for exchange rate effects and for the impact of the first-time application of IFRS 15, revenue in the Gases Division increased by 4.5%. On a comparable basis (after also adjusting for changes in the price of natural gas), revenue growth was 4.2%.

Operating profit was €3.3bn, which was 1.7% higher than the figure for the first nine months of 2017 of €3.2bn. After adjusting for exchange rate effects, operating profit increased by 6.5%. At 29.9%, the operating margin was well above the figure for the prior-year period of 28.5%.

In the EMEA segment, Linde’s largest sales market, the group generated revenue in the first nine months of 2018 of €4.4bn, which was 0.5% higher than the figure achieved in the first nine months of 2017 of €4.39bn. On a comparable basis, revenue rose by 3.9%.

Operating profit was €1.4bn, an increase of 0.7% when compared with the figure for the first nine months of 2017 of €1.38bn. After adjusting for exchange rate effects, the increase was 2.7%.

At 31.6%, the operating margin was similar to the figure for the prior-year period of 31.5%. The first-time application of IFRS 15 and efficiency improvement measures had a positive impact on the margin.

A gain on deconsolidation of around €40m recognised in the first quarter of 2018 on the sale of its subsidiary Tega – Technische Gase und Gasetechnik GmbH also had a positive impact on the margin.

Factors which had a negative impact on the margin were different trends in specific product areas in the various EMEA regions and higher energy and natural gas prices.

In the Asia/Pacific segment, Linde generated revenue in the nine months to 30th September (2018) of €3.2bn, which was 1.9% below the figure for the first nine months of 2017 of €3.3bn. On a comparable basis, revenue increased by 5.1%.

At €930m, operating profit was 1.8% above the figure for the prior-year period of €914m. After adjusting for exchange rate effects, the growth in operating profit achieved by Linde was 7.4%. Linde noted that in 2017 there was a one-off effect from the sale of assets of €70m. The operating margin rose to 29% (2017: 27.9%).

In the Americas segment, revenue in the first nine months of 2018 fell by 7.6% to €3.4bn (2017: €3.7bn). On a comparable basis, revenue rose by 4.4%.

When compared with the prior-year period, operating profit improved by 3% to €937m (2017: €910m). After adjusting for exchange rate effects, Linde achieved a substantial increase in operating profit of 11.5%.

There was a substantial rise in the operating margin to 27.3% (2017: 24.5%). Linde said factors which had a positive impact on the margin included not only the first-time application of IFRS 15, but also the measures introduced as part of the group-wide efficiency programme LIFT as well as one-off effects.

Rob Cockerill - BW v1

Solid results for Linde, LIFT-off in efficiencies continues

These appear to be a very solid, if not impressive set of results for the soon to be supplanted Linde Group, ahead of its mega-merger with Praxair in the New Year.

The underlying numbers are very strong indeed; the application to IFRS 15, a new revenue accounting standard that came into effect on 1st January, naturally skews some of these figures a little but on closer reading there are very healthy indicators such as operating margin (25%) for Linde to reflect upon.

Greatly encouraging is the performance in the group’s Gases Division, with revenue rising 4.5% after adjusting for exchange rate effects and the impact of that first-time application of IFRS 15. Even after adjusting for changes in the price of natural gas, which can be something of a moving target, revenue growth was 4.2% – a good underlying indicator for the health of the industry.

Linde will perhaps be happiest with its various figures related to operating profit and margins, given how demonstrative this is of its well-documented efficiency programme of the last few years, LIFT.

So why merge with Praxair at all, one might ask?

Well, the answer here is synergy and strategic long-term strength. Linde’s LIFT programme can only go so far in terms of efficiency gains, of course. Introduced in 2016, LIFT is a three-year efficiency programme to lift operating profit margins, lift ROCE and lift shareholder value. It is clearly achieving all of those objectives, but it is also due to reach fulfilment by the end of 2019.

Read the full column from Rob Cockerill here

Revenue in the Engineering Division in the nine months rose by 11.2% to €2bn (2017: €1.8bn). Operating profit improved to €205m (2017: €152m).

At 10.2%, the operating margin was significantly higher than the figure for the first nine months of 2017 of 8.4% and exceeded the target of around 9% which Linde Engineering had set itself for the 2018 financial year. Linde said this was due not only to higher earnings from individual plant construction projects, but also to improved capacity utilisation.

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 from €2bn in the first nine months of 2017 to €2.9bn in the first nine months of 2018. The order backlog increased to €5bn (31st December (2017): €4.2bn).

Outlook

After adjusting for the impact of IFRS 15 and for exchange rate effects, group revenue in 2018 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 lie within a range from the prior-year figure to 5% higher. In the 2018 financial year, Linde is seeking to achieve a return on capital employed of around 10%.

Linde is seeking to achieve the following targets in the Gases Division in 2018. After adjusting for the impact of IFRS 15 and for exchange rate effects, revenue is expected to lie between the 2017 figure and a figure which is 4% higher. Operating profit after adjusting for exchange rate effects is expected to lie within a range from the prior-year figure to 5% higher.

On the basis of current developments, Linde expects that revenue and earnings for the group and for the Gases Division will be at the top end of their projected ranges.

Linde assumes that it will generate revenue in the Engineering Division in the 2018 financial year of around €2.6bn. Until now, it was assumed that revenue here would lie within a range from €2.2bn to €2.6bn.

The operating margin of the Engineering Division is now expected to be around 10%. Previously it was forecasted to be around 9%.