Business review of The Linde Group
The revenue of The Linde Group for the nine months ended 30 September 2016 was EUR 12.967 bn, 4.3 percent below the revenue of the prior-year period of EUR 13.552 bn. Operating profit also fell in the reporting period, by 2.3 percent to EUR 3.066 bn (2015: EUR 3.137 bn). Relevant factors were not only the lower contribution made to revenue and earnings by the Engineering Division in the first nine months of 2016 when compared with the prior-year period, but also adverse exchange rates. After adjusting for these exchange rate effects arising solely on the translation of local currencies into the euro, Group revenue was 1.1 percent below the figure for the prior-year period. Group operating profit rose by 0.8 percent after adjusting for exchange rate effects.1
The Group operating margin for the first nine months of 2016 was 23.6 percent, which was 50 basis points higher than the figure of 23.1 percent for the first nine months of 2015. Contributing to this improvement were the efficiency measures introduced back in 2015.
It is expected that further costs will be incurred in the remaining part of 2016 which relate to measures designed to enhance efficiency. Linde has launched a Group-wide efficiency programme. The three-year programme taken together with measures introduced from 2015 onwards should result in cost savings of around EUR 550 m per annum from 2019. Around EUR 370 m of the total cost savings per annum will come from the new programme. Total restructuring costs relating to this programme of around EUR 400 m will be incurred by the end of 2017. By improving its internal processes and reducing complexity and hierarchies, Linde wants to increase significantly both the speed of decision-making and its efficiency.
In the nine months to 30 September 2016, costs relating to efficiency measures of EUR 50 m have already been recognised. These increased over the course of the reporting period and have therefore been classified as non-recurring items. In 2015, restructuring costs of EUR 192 m had also been disclosed as non-recurring items.
Cost of sales decreased by 4.8 percent, a greater percentage decrease than that in revenue, falling to EUR 8.320 bn (2015: EUR 8.744 bn). The gross margin increased as a result to 35.8 percent (2015: EUR 35.5 percent). This was mainly due to the lower contribution made to revenue by the Engineering Division in the first nine months of 2016 compared with the first nine months of 2015.
EBIT in the nine months ended 30 September 2016 was EUR 1.619 bn, which was 5.6 percent above the figure for the first nine months of 2015 of EUR 1.533 bn. After adjusting for non-recurring items, EBIT was EUR 1.669 bn (2015: EUR 1.725 bn).
The net financial expense in the reporting period was EUR 252 m (2015: EUR 301 m). The figure was lower than in the prior-year period mainly as a result of the repayment made by Linde of two hybrid bonds (a EUR 700 m 7.375 percent bond and a GBP 250 m 8.125 percent bond). Linde therefore generated a profit before tax of EUR 1.367 bn (2015: EUR 1.232 bn).
The income tax expense was EUR 333 m (2015: EUR 295 m). This gives an income tax rate of 24.4 percent (2015: 23.9 percent). In the first nine months of 2016, Linde’s profit for the period (after deducting the tax expense) was EUR 1.034 bn (2015: EUR 937 m).
After adjusting for non-controlling interests, profit for the period attributable to Linde AG shareholders was EUR 945 m (2015: EUR 860 m), giving earnings per share of EUR 5.09 (2015: EUR 4.63). Earnings per share before non-recurring items stood at EUR 5.30, which was 0.9 percent below the figure for the prior-year period of EUR 5.35.
1 To calculate growth in revenue and earnings after adjusting for exchange rate effects and changes in the price of natural gas, prior-year figures have been revised.