Business Intelligence Financial – Linde – Q4 2014

gasworld’s Business Intelligence provides you with the latest analysis of Linde’s Q4 2014 earnings reports.

Headlines

• Reported corporate sales up +6.5% YoY in Q4 to €4.5bn – highest growth since mid-2013 – taking annual revenues to over $17bn.
• Strong Operating Cash Flow generated at over $3.3bn.
• Gases growth up +3.5% in Q4 on reported basis but on comparable basis up only +1.5%, slowest YoY growth in over four years.
• Gases account for around 80% of Linde corporate sales with Engineering nearly 20% and Other businesses (Gas distribution services) less than 2%.

• Corporate Operating Income up nearly +5% in Q4, with Gases Operating Income up over +7% in Q4 – both highest growth in over a year.
• Group Operating Margin continues to trend around 12-13%, while Gases Margin continues to run at about 15%.
• Reported ROCE eased slightly from 9.7% to 9.5%.
• Engineering profitability above industry margin due to favourable project mix.
• Revenue growth expected at +7-12% for 2015, driven by new capacity and volume/price gains.

• Gases growth +3.5% in Q4 helped by positive currency impact (+2.4% after previous negative effects), only partly offset by a small negative impact of natural gas/energy pass-through (-0.1%). Major currency impacts in 2014 were driven by Australian Dollar, South African Rand and Venezuelan Bolivar (all negative), only partly offset by positive impact of Sterling.

• Underlying growth slipped to +1.3% YoY – its lowest growth since mid-2012, and below the average for gas majors in Q4. Estimated to be driven by only modest growth effects from both volumes and pricing.

 Linde Business Performance

• Merchant gases represent over half of Linde’s gas business with Cylinders 28% and Bulk 24%. Onsites account for 26% and Healthcare 22%.
• Healthcare became highest growth business on comparable basis  in Q4 followed by Liquid. Onsites appears to have slipped towards flat performance YoY, while the negative growth in Cylinders appeared to deepen in Q4.
• Healthcare growth boosted by strong volume development, particularly in US Homecare.
• Strong bulk growth in Q4 in N. America and Continental Europe – contrast with weaker development in Southern Hemisphere countries. Positive cylinder growth in Americas in Q4 offset by softer demand in W. Europe and Australia.
• Increasing share of merchant revenues driven by tailored applications – up from 30% in 2010, to 40% in 2014.

• Regionally, Europe is Linde’s largest region accounting for 43% of gas sales, while Americas and Asia-Pacific represent 31% and 27%, respectively.
• Europe gases growth appears to continue to be down YoY on a reported basis, as it had been throughout 2014. Reported growth in Americas and Asia-Pacific appeared to accelerate in Q4 to the highest rate in over a year.

• On a comparable basis the relative performance between regions remained the same as through the past year.
• Asia-Pacific continued to show highest growth at around +5% YoY, followed by Americas which slowed slightly towards +3.5%. Europe/M. East/Africa improved in Q4 to +2% – its best performance in 2014.
• Asia-Pacific growth driven by China (+10%) and strong start-ups, but S. Pacific weak. Americas saw solid growth in N. America (particularly Healthcare), but climate continued to deteriorate in S. America. Europe saw solid demand in the UK, strongest comparable growth (+6%) in M. East and E. Europe, but Continental Europe remains soft and Africa difficult – strongest contribution in EMEA from Bulk.

• Regionally, Europe/M. East/Africa remains the largest profit source for Linde, accounting for around half of gases Operating Income with Americas and Asia-Pacific both around a quarter.
• Europe Operating Margin remains highest in group but edging down in recent quarters towards 17% – higher contributions from the UK and M. East. Asia-Pacific continues in the range of 12-13% despite weakness in S. Pacific. Americas has also recovered towards similar margins, despite dilution impact of natural gas prices in N. America and weakness in S. America.
• Actions taken to improve regional profitabilities including Q4 charges in Europe and restructuring actions for Southern Hemisphere.

• Reported capex appeared to rise sharply in Q4, with a quarterly spend over the last year close to $0.5bn. Around 80% of major project investments in growth markets (including N. America). Asia capex halved in last year (due to start-ups) but Americas (N. America up) and EMEA (E. Europe and M. East) both up.
• This spend is equivalent to over 14% of sales over the last year – slightly higher than the average for its peers but below Linde rate for previous two years. Ratio expected to be lower in coming quarters at around 13%.
• Portfolio of market opportunities reduced sequentially to $3.4bn, due to deteriorating investment climate for example, in the energy industry. Half of opportunities in growth markets, over quarter in N. America and under quarter in other mature markets.
• Due to increasing project size, average execution time increased to 36 months.