The Linde Group saw positive business trends in the first quarter of 2018. After adjusting for exchange rate effects and for the impact of the first-time application of new accounting standard IFRS 15, revenue rose by 1.4% compared with the first quarter of 2017.

“We have continued to grow and have achieved a substantial increase in our profitability,” said Professor Dr. Aldo Belloni, CEO of Linde AG. “The significant improvement in our group margin is the result of the efficiency measures we have introduced, continued portfolio optimisation and good macroeconomic conditions.”

In the first quarter of 2018, group revenue from continuing operations fell by 7.8% to €4.044bn ($4.940bn) (2017: €4.385bn ($5.357bn)). Exchange rate effects were the main reason for this decrease. In addition, the first-time application of IFRS 15 had a negative impact on revenue. After adjusting for exchange rate effects arising solely on translation and for the impact from the first-time application of IFRS 15, group revenue was 1.4% above the figure for the prior-year period.

Group operating profit from continuing operations rose by 3.8% to €1.081bn ($1.31bn) (2017: €1.041bn ($1.27bn)). After adjusting for exchange rate effects, the increase was as much as 12.1%. At 26.7%, the group operating margin was significantly higher than the figure for the first quarter of 2017 of 23.7%. 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.

Operating cash flow was €656m ($801m), a similar figure to that for the prior-year period of €653m ($797m). It should be noted here that in the first quarter of 2018 payments of €122m ($149m) were made for restructuring costs and costs related to the proposed merger with Praxair (2017: €38m ($46m)).

In the Gases Division, Linde generated revenue in the first quarter of 2018 of €3.512bn ($4.290bn), a decrease of 7.6% when compared with the figure for the first quarter of 2017 of €3.799bn ($4.641bn). 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 2.8%. On a comparable basis (after also adjusting for changes in the price of natural gas), revenue growth was 2.6%. Operating profit was €1.079bn ($1.318bn), which was 2.5% higher than the figure for the prior-year period of €1.053bn ($1.286bn). After adjusting for exchange rate effects, operating profit increased by 10.9%. At 30.7%, the operating margin was significantly higher than the figure for the first quarter of 2017 of 27.7%.

In the EMEA segment, Linde’s largest sales market, the group generated revenue of €1.466bn ($1.791bn) in the first three months of 2018, which was 0.8% below the figure achieved in the first three months of 2017 of €1.478bn ($1.805bn). On a comparable basis, revenue rose by 3.0%. Operating profit was €518m ($632m), an increase of 12.1% when compared with the figure for the first quarter of 2017 of €462m ($564m). After adjusting for exchange rate effects, the increase was 14.9%. The operating margin rose to 35.3% (2017: 31.3%). Efficiency improvement measures contributed towards this increase. During the reporting period, Linde also recognised a gain on deconsolidation of around €40m ($48m) on the sale of its subsidiary Tega – Technische Gase und Gasetechnik GmbH.

Positive trends were to be seen in the EMEA segment in almost all product areas. In the liquefied gases and cylinder gas product areas in particular, revenue increased in virtually all regions. In the on-site business, there were volume reductions as a result of the sale of parts of a production facility.

In the Asia/Pacific segment, Linde generated revenue in the three months to 31 March 2018 of €1.009bn ($1.232bn), which was 6.0% below the figure for the first three months of 2017 of €1.073bn ($1.310bn). On a comparable basis, revenue increased by 4.6%. At €283m ($345m), operating profit was 5.6% above the figure for the prior-year period of €268m ($327m). After adjusting for exchange rate effects, the increase in operating profit achieved by Linde was 15.5%. The operating margin rose to 28.0% (2017: 25.0%).

In the Asia/Pacific segment as well, positive trends were to be seen in virtually all the product areas. Price and volume increases were achieved in particular in the liquefied gases and cylinder gas business in China. In the South Pacific, the prevailing weak economic environment in manufacturing and declining investment in the mining industry had an adverse impact on revenue growth. However, the measures introduced as part of the LIFT efficiency programme had a positive impact on earnings.

In the Americas segment, revenue fell in the first quarter of 2018 by 16.1% to €1.088bn ($1.329bn) (2017: €1.297bn ($1.584bn)). On a comparable basis, revenue rose by 1.0%. When compared with the prior-year period, operating profit fell by 13.9% to €278m ($339m) (2017: €323m ($394m)). After adjusting for exchange rate effects, Linde achieved a slight increase in operating profit of 0.4%. The operating margin was 25.6% (2017: 24.9%).

Revenue and earnings trends in the Americas segment were affected by a number of different factors. Positive trends were to be seen in the liquefied gases and cylinder gas business in North America. The Healthcare business in North America delivered a stable performance, but opposing trends were to be seen. Although the business achieved volume increases, price reductions imposed by private health insurers had a negative impact. In the on-site business, the stoppage of a plant led to a decline in revenue.

Revenue in the Engineering Division fell in the first quarter of 2018 by 7.1% to €602m ($735m) (2017: €648m ($791m)). Operating profit increased to €60m ($73m) (2017: €53m ($64m)). At 10.0%, the operating margin was significantly above the figure for the first quarter of 2017 of 8.2% and exceeded the target of around 9% which Linde Engineering has set itself for the 2018 financial year. This was due not only to higher earnings from individual plant construction projects, but also to improved capacity utilisation.

The order backlog remained solid at €4.166bn ($5.089bn) (31 December 2017: €4.178bn ($5.104bn)). The market for international large-scale plant construction remains difficult and is characterised by intense competition. However, the Engineering Division succeeded in increasing its order intake by 34.8%to €616m ($752m) (2017: €457m ($558m)).

Financial analysis euro coins

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 will seek to achieve a return on capital employed of around 10%.

Linde is seeking to achieve the following targets in the Gases Division in the 2018 financial year. 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.

Linde assumes it will generate revenue in the Engineering Division in the 2018 financial year of between €2.2bn ($2.6bn) and €2.6bn ($3.1bn). It is expecting to achieve an operating margin here of around 9%.

Proposed merger with Praxair
The merger control and regulatory processes are in full swing. Linde 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, Ukraine and, most recently, Zimbabwe. 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.