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.
The LIFT plan was initially introduced after the first round of merger talks with Praxair broke down, with the need for the company to manage costs cited as one of the catalysts for the merger. Praxair and Linde expect to achieve synergies of up to $1.2bn (€1.1bn) annually as a result of their merger – far exceeding the savings of $390m (€370m) achieved by the end of 2019 via LIFT.
But it’s also about the combined collateral and collective strength of the newly established Linde plc that is so appealing.
There are significant geographic advantages at play, even in the event of expected divestment activities; there is greater capability to create and exploit growth trends going forward; there is expected to be a significantly strengthened cash flow of the merged company in the medium term, enabling greater CAPEX plays; and there will also be leveraged technology strengths and new windows opened in R&D and innovation.