The encouraging signs in the gases industry in 2017 continue with the news that The Linde Group saw positive business trends in the first quarter, achieving increases in both revenue and earnings compared to first quarter 2016.
In Q1 2017, group revenue from continuing operations rose by 6.6% to €4.39bn, when compared with the Q1 2016 figure of €4.115bn.
The main factors contributing to this increase were positive trends in the EMEA (Europe, Middle East, Africa), and Asia-Pacific segments and higher revenue in the group’s Engineering Division.
Group operating profit from continuing operations rose by 5.7% to just over €1bn (2016: €985m). After adjusting for exchange rate effects, group revenue was 4.2% higher than in the prior-year period and group operating profit increased 3.1%.
At 23.7%, group operating margin was similar to the figure for Q1 2016 of 23.9%.
“We have made a proper start to the new financial year, in line with our forecast,” reflected Professor Dr. Aldo Belloni, CEO of Linde AG.
“Our positive business performance is testament to our solid business model. At the same time, the efficiency improvement measures we introduced at the end of 2016 are starting to have an effect.”
During the financial year, Linde is continuing to implement long-term efficiency improvement measures across the group through its Focus and LIFT programmes.
By the end of 2017, the LIFT programme is expected to have incurred total costs of around €400m which are disclosed as special items in the statement of profit or loss. Of these costs, €116m were realised in 2016; in Q1 2017, costs of €22m were classified as special items.
These include costs arising from the proposed merger with Praxair.
Gases Division performance
Revenue continued to increase on a comparable basis in the group’s Gases Division, where Linde generated revenue of €3.8bn in Q1 2017 – an increase of 4.9% compared to the prior-year period (€3.6bn).
After adjusting for exchange rate effects and changes in natural gas prices, the growth in revenue was 0.9%.
Operating profit rose by 2.4% after adjusting for exchange rate effects, from €1bn in Q1 2016 to €1.05bn in Q1 2017. At 27.7%, the operating margin was similar to that achieved in the prior-year period (2016: 27.8%). Higher natural gas prices had a negative impact on the operating margin, Linde explained.
By region, by far the strongest performance for the Gases Division was seen in the Asia-Pacific zone, where Linde revenue in the three months to 31st March (2017) of €1.07bn was 10.7% above the figure for Q1 2016 (€969m). On a comparable basis, revenue increased by 4.9%.
Positive trends were seen in virtually all product areas in the Asia-Pacific region in the quarter, with solid volume and price increases achieved in particular in the liquefied gases business. In the South Pacific, the decline in revenue was halted. In addition, the cost-cutting measures introduced have been showing the first signs of success in this region and resulted in an increase in operating profit compared with the prior-year period.
Positive trends were also seen in the EMEA segment, again in almost all product areas. In the onsite business, where the group supplies gases to major customers, Linde was able to achieve revenue growth in 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, revenue increased in virtually all regions.
All of which culminated in the group generating EMEA revenue of just under €1.5bn in the first three months of 2017 – 4.8% higher than the figure achieved in Q1 2016 of €1.41bn. On a comparable basis, revenue rose by 4.4%, only marginally less than in the Asia-Pacific region. Operating profit was €462m, an increase of 7.4% when compared with the figure for Q1 2016 of €430m. Operating margin rose to 31.3% (2016: 30.5%), with the efficiency improvement measures introduced in 2015 and 2016 contributing toward this increase.
The numbers appeared less encouraging in the Americas segment, where revenue increased by just 1% in the quarter to just under €1.3bn (2016: €1.284bn). In fact, after adjusting for exchange rate effects and changes in the natural gas price, revenue actually fell by 5.3%.
Revenue and earnings trends in this segment were affected by a number of factors working in different directions, Linde said. Positive trends were once again seen in the onsite business and liquefied gases business in North America, but in the Healthcare business in North America, on the other hand, the impact of the price reductions in 2016 as a result of government tenders is now being clearly felt.
Conditions in the individual countries in South America, especially in Brazil and Venezuela, did not improve substantially in the first quarter of 2017. The economic situation in the region is characterised by high inflation and low growth rates. The trends in the product areas in South America were positive, but the growth achieved is from a relatively low base in the prior-year period.
When compared with the prior-year period, Americas operating profit rose by 0.3% to €323m (2016: €322m). The operating margin showed a very marginal fluctuation at 24.9% (2016: 25.1%).
Engineering Division: Margin in line with expectations
Revenue in Linde’s Engineering Division rose considerably in Q1 2017, by 14.1% to €648m (2016: €568m). Operating profit also increased, from €46m in the first quarter of 2016 to €53m in the first quarter of 2017.
The operating margin was 8.2% (2016: 8.1%). This matched the target Linde has set itself for the current financial year.
Despite the persistently low price of oil and the resulting slack demand in plant construction, there was also an increase in order intake in the three months to 31st March 2017, to €457m (2016: €310m). The order backlog in the Engineering Division as of 31st March 2017 remained solid at €4.17bn.
Looking ahead, Linde is expecting to achieve an increase in revenue after adjusting for exchange rate effects in the 2017 financial year of 3%, although the challenging market environment could result in a complete swing – a decrease of up to 3%.
After adjusting for exchange rate effects, operating profit should be on a par with or up to 7% higher than the figure achieved in 2016. In the Gases Division, Linde is aiming to generate currency-adjusted revenue in the 2017 financial year which is up to 3% higher than in 2016, although as with revenue, the challenging market environment could result in a decrease of up to 2%.
After adjusting for exchange rate effects, operating profit is expected to be on a par with or up to 6% higher than in 2016.