SOURCE: The Linde Group
Linde achieves growth in a difficult market environment and increases its dividend
"Despite unfavourable conditions and adverse exchange rate effects, we have delivered a good performance in the past financial year," said Dr Wolfgang Büchele, Chief Executive Officer of Linde AG. "We achieved growth in revenue and earnings, after adjusting for exchange rate effects, and once again an increase in operating cash flow. We are therefore in the gratifying position of being able to maintain our dividend policy which is geared towards continuity," explained Büchele. The Executive Board and Supervisory Board will propose a resolution at the Annual General Meeting that a dividend of EUR 3.15 per share be paid. This is an increase of 5.0 percent compared with the prior-year dividend of EUR 3.00.
"We are currently implementing a wide range of measures which will enable us to build on our strengths and to continue to enhance our long-term profitability. Our focus here is on our customers and on our core business. We have a clear view of our targets and are well on the way towards achieving them," continued Büchele. In the 2015 financial year, the Group expects to generate Group revenue of between EUR 18.2 bn and EUR 19.0 bn, depending on economic trends and exchange rate movements. Linde anticipates that it will achieve an increase in Group operating profit (after adjusting for non-recurring items) to between EUR 4.1 bn and EUR 4.3 bn.
Positive business trends in 2014
Linde achieved a 2.4 percent increase in Group revenue in the 2014 financial year to EUR 17.047 bn (2013: EUR 16.655 bn). Revenue trends were significantly affected by adverse exchange rate fluctuations, especially in the first nine months of the year. After adjusting for the negative impact of currency fluctuations, equivalent to revenue of EUR 346 m, the increase in Group revenue for the 2014 financial year was 4.5 percent.
The exchange rate effects also had an unfavourable impact on Group operating profit. Linde achieved Group operating profit of EUR 3.920 bn, which was not quite as high as the prior-year figure of EUR 3.966 bn. Without these distortions, which reduced earnings in the 2014 financial year by EUR 83 m, Linde would have achieved an increase in Group operating profit of 1.0 percent. The Group operating margin for 2014 was 23.0 percent (2013: 23.8 percent). As far as the margin is concerned, it should be noted that, as expected, the Engineering Division contributed more to Group revenue in the 2014 financial year than in 2013. The engineering business has a lower margin than the Group's gases operations.
Linde achieved earnings per share in the 2014 financial year of EUR 5.94 (2013: EUR 7.10). This figure was adversely affected by non-recurring items in the second half of 2014. Non-recurring items comprised mainly impairment losses in the Gases Division. They also included costs in respect of additional efficiency improvement measures. Earnings per share before non-recurring items rose to EUR 7.13 (2013: EUR 7.10).
After adjusting for the payment of EUR 300 m made in 2014 to provide additional external funding for the pension plans in Germany, operating cash flow rose by 5.0 percent to EUR 3.301 bn (2013: EUR 3.144 bn).Return on capital employed was 9.5 percent in 2014 (2013: 9.7 percent). The decrease in ROCE was mainly due to the increase in capital employed at 31 December 2014 as a result of exchange rate effects.Growth in all segments in the Gases Division on a comparable basis
In the Gases Division, Linde generated revenue in the 2014 financial year of EUR 13.982 bn, a similar figure to that achieved in 2013 (EUR 13.971 bn). Unfavourable exchange rate effects need to be taken into account when making a comparison with the prior year. If an adjustment were to be made for these effects, Linde would have achieved a 2.7 percent increase in revenue.
The operating profit of the Gases Division in 2014 was EUR 3.835 bn, almost the same as the prior-year figure of EUR 3.846 bn. Unfavourable exchange rate effects also need to be considered when looking at earnings trends in the Gases Division. Without these distortions, which had an impact on earnings of EUR 86 m, Linde would have achieved a 2.0 percent increase in operating profit in this division. At 27.4 percent, the operating margin remained virtually identical to the operating margin achieved in 2013 of 27.5 percent.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), Linde generated revenue in the 2014 financial year of EUR 5.980 bn (2013: EUR 6.090 bn). On a comparable basis, this was equivalent to an increase of 0.1 percent. Operating profit improved slightly during the financial year, by 1.1 percent to EUR 1.778 bn (2013: EUR 1.759 bn). The operating margin rose to 29.7 percent (2013: 28.9 percent).
Business trends varied in the individual sub-regions of the EMEA segment. The prevailing unfavourable economic conditions in the eurozone resulted in correspondingly modest demand in the various product areas in the Continental & Northern Europe region. Business performance in this region was boosted by the start-up of new plants. In the UK and in Eastern Europe, Linde achieved above-average growth, especially in the on-site business. On the whole, however, the market environment in Eastern Europe in 2014 was characterised by an economic slowdown. In the Middle East, on the other hand, the economy remained robust.
In the Asia/Pacific segment, Linde generated revenue of EUR 3.812 bn in the 2014 financial year (2013: EUR 3.767 bn). On a comparable basis, the Group achieved 4.7 percent growth in revenue in this segment. Operating profit in the Asia/Pacific segment in 2014 of EUR 1.010 bn was slightly higher than the figure for 2013 of EUR 1.005 bn. The operating margin was 26.5 percent (2013: 26.7 percent).
Within the segment, the most positive trend (growth of 9.7 percent on a comparable basis) was to be seen in the Greater China region. Here, Linde achieved volume increases in all product areas. The Group also generated revenue growth in the South & East Asia region, whereas the market in the South Pacific region was characterised by declining volumes. Here, the prevailing weak economic environment in manufacturing industry also had an adverse impact on growth.
In the Americas segment, Linde was able to achieve an increase in revenue in the 2014 financial year to EUR 4.314 bn (2013: EUR 4.231 bn). On a comparable basis, revenue growth here was 4.6 percent. At EUR 1.047 bn, operating profit was slightly lower than the prior-year figure of EUR 1.082 bn. The operating margin fell to 24.3 percent (2013: 25.6 percent).
Linde achieved solid growth in North America in 2014, especially in the cylinder gas and liquefied gases product areas. Higher natural gas prices in North America had an adverse impact on the margin, while inflation in some of the countries of South America had an adverse impact on the earnings trend. This environment also hampered Linde's business performance in the South America region, particularly in the cylinder gas and liquefied gases product areas.
An above-average performance was to be seen in the Healthcare business in the Americas segment, especially from the operations of the subsidiary Lincare. Since its acquisition of Lincare in 2012, Linde has become a globally leading gases healthcare company specialising along an integrated respiratory care path. The Group is leveraging its international platform to expand its respiratory therapies and clinical care services worldwide. Linde has defined its strategy in the Healthcare segment as providing a similar range of products and services in all regions of the world, achieving synergies and making further improvements in its sales and cost structures.
Gases Division - Outlook
Recent economic forecasts indicate that the global gases market will grow at a slightly faster pace in 2015 than was the case in 2014. 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 2015 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, stable business trends are expected.
Depending on sector-specific trends and exchange rate movements, Linde is seeking to achieve revenue in the Gases Division in the 2015 financial year of between EUR 14.9 bn and EUR 15.4 bn and operating profit of between EUR 4.05 bn and EUR 4.25 bn.
High order backlog in the Engineering Division
Linde's international engineering project business had a successful year in 2014. Revenue and earnings trends reflected the progress made on individual projects. Revenue in the Engineering Division increased by 7.9 percent to EUR 3.106 bn (2013: EUR 2.879 bn). Operating profit of EUR 300 m was not quite as high as the figure for 2013 of EUR 319 m. The operating margin was 9.7 percent (2013: 11.1 percent), which is well above the industry average and equal to the target Linde had set itself for the 2014 financial year of around 10 percent.Order intake in 2014 was EUR 3.206 bn (2013: EUR 3.911 bn). The exceptionally high figure for order intake in 2013 included a major contract to build a large ethylene plant for ExxonMobil in Houston, Texas, USA. More than half of the new orders came from Europe. Around 25 percent of the order intake came from North America and just over 10 percent from Asia.
As a result of good trends in order intake, the order backlog in the Engineering Division continued to grow. At 31 December 2014, it stood at EUR 4.672 bn (2013: EUR 4.504 bn).Engineering Division - Outlook
The market environment in the international large-scale plant construction business in 2015 will be much more volatile than in previous years, mainly as a result of the fall in the oil price. Nevertheless, the Group is well positioned in the olefin plant, natural gas plant, air separation plant and hydrogen and synthesis gas plant product areas and also has a high order backlog.Linde assumes that it will be able to generate revenue in the Engineering Division in the 2015 financial year of between EUR 3.0 bn and EUR 3.3 bn, with an operating margin of around 8 percent."The market environment will continue to be challenging for the foreseeable future, which makes it all the more important for us to pave the way now for profitable growth in the future. With the rigorous implementation of our global Customer Focus Initiative, we will change our structures and significantly accelerate our processes. To achieve this, we are working hard every day on streamlining our organisational procedures, optimising our portfolio and investing in profitable growth areas," concluded Büchele.