The Linde Group continued to give a steady business performance in the 2013 financial year, again achieving increases in group revenue and operating profit. Operations in the Healthcare product area, and positive trends in the engineering business, made a particular contribution.
With its robust business model based on sustainability and its well-balanced global position, Linde believes that it is properly equipped for the future. “After adjusting for exchange rate effects, we are expecting solid growth in group revenue in the 2014 financial year. We anticipate that we will achieve a moderate improvement in Group operating profit,” declared Professor Dr Wolfgang Reitzle, Chief Executive Officer of Linde AG.
In the 2016 financial year, Linde is still seeking to achieve group operating profit of at least €5bn and a return on capital employed (reported ROCE) of around 13% (or adjusted ROCE of around 14%). These medium-term targets were set at the end of 2012 based on the assumption that there would not be any significant shifts in exchange rates compared with the rates prevailing at that time. However, if the unfavourable exchange rates which applied at the end of 2013 were to continue to apply over the coming years, this would reduce group operating profit in 2016 by around €400m and might also have an adverse impact on return on capital employed.
Linde achieved revenue growth in the Gases Division in the 2013 financial year of 5.7% to €13.971bn (2012: €13.214bn). The Lincare business contributed revenue of €1.563bn to the total revenue of the Gases Division. On a comparable basis (i.e. after adjusting for exchange rate effects, changes in the price of natural gas and the impact on the consolidation of the Lincare acquisition), the increase in revenue in the Gases Division was 3.3%. Within the Gases Division, Lincare is included in the Americas segment and the Healthcare product area. Linde’s Gases Division achieved a 7.9% increase in operating profit to €3.846bn (2012: €3.566bn). This gives an operating margin of 27.5% (2012: 27%).
Business trends in the individual segments in the Gases Division varied in each case, depending on prevailing economic conditions.
In the EMEA segment (Europe, Middle East, Africa), revenue in the 2013 financial year of €6.090bn was a little higher than the figure for the 2012 financial year of €6.061bn. On a comparable basis, the growth in revenue was 3.6%. Operating profit in the EMEA region improved slightly by 2.1% to €1.759bn (2012: €1.722bn). The operating margin rose to 28.9% (2012: 28.4%). The Continental European homecare operations acquired by Linde at the end of April 2012 from Air Products were a contributory factor in the strengthening of the business in the EMEA region.
Business trends in the EMEA segment were adversely affected by the continuation of unfavourable economic conditions in the eurozone. Demand here in the liquefied gases and cylinder gas product areas was correspondingly modest. The on-site business, on the other hand, saw positive trends, boosted by the start-up of new plants. The market environment in Eastern Europe was characterised by a downturn in economic activity in 2013, whereas the economy in the Middle East remained relatively robust.
In the Asia/Pacific segment, Linde generated revenue in the 2013 financial year of €3.767bn, a figure which was not quite as high as the figure of €3.860bn achieved in 2012. This was mainly as a result of unfavourable exchange rate effects. On a comparable basis, the group achieved an increase in revenue in this segment of 4.1%. Business performance was adversely affected in particular by the weaker economic environment in manufacturing and in the mining industry in the South Pacific region.
Operating profit in the Asia/Pacific segment in 2013 of €1.005bn was slightly higher than the figure for 2012 of €996m. The operating margin therefore increased to 26.7% (2012: 25.8%).
Within the Asia/Pacific segment, the most positive trends were to be seen in the business in South & East Asia, where Linde achieved volume increases in all product areas. The group also generated revenue growth in the Greater China region, whereas the market in the South Pacific region was characterised by declining volumes.
In the Americas segment, revenue in the 2013 financial year grew by 24.7% to €4.231bn (2012: €3.394bn). This significant increase was due above all to the contribution made by US homecare company Lincare. Lincare operates solely in North America and in the 2013 financial year contributed EUR 1.563 bn to the total revenue of the Americas segment. On a comparable basis, the increase in revenue was 2.4%. This is in line with economic trends in the region. Operating profit rose by 27.6% to €1.082bn (2012: €848m), mainly as a result of the Lincare business. The operating margin was 25.6%, which was higher than the figure for 2012 of 25%.
Within the Gases Division, revenue in the Healthcare product area grew 48.2% in the 2013 financial year to 23.015bn (2012: €2.035bn) following the acquisitions made by the group in the course of 2012. After adjusting for the effect of the Lincare acquisition on the consolidation and for exchange rate effects, the increase in revenue in the Healthcare business was 4.8%.
In the cylinder gas product area, revenue was €4.050bn. On a comparable basis, this was 1% above the prior-year figure of €4.009bn. In the liquefied gases business, revenue increased on a comparable basis by 2.4% to €3.328bn (2012: €3.249bn). In the on-site business (where Linde supplies gases on site to major customers), revenue rose on a comparable basis by 5.6% to €3.578bn (2012: €3.389bn). Growth in this product area was adversely affected by the reversal of a contract to purchase air separation plants which had been transferred to Linde in 2012 by a steel company in the Greater China region. If an adjustment is made for this, the increase in revenue in the on-site business would have been 6.2%.
Gases Division - Outlook
Recent economic forecasts indicate that the global gases market will grow at a slightly faster pace in 2014 than was the case in 2013. Linde remains committed to its original target in the gases business of outperforming the market and continuing to increase productivity.
In its on-site business, Linde has a healthy project pipeline which will make a contribution to revenue and earnings in the 2014 financial year and an even more significant contribution to revenue and earnings in subsequent years. The group is forecasting that its liquefied gases and cylinder gas product areas will perform in line with macroeconomic trends. In the Healthcare product area, a steady business performance is expected.
Against this background, Linde expects to achieve (after adjusting for exchange rate effects) a moderate increase in revenue and operating profit in the Gases Division in 2014 when compared with the 2013 financial year.