Gases Division

Linde’s revenue in the Gases Division in the first nine months of 2016 was EUR 11.016 bn, a decrease of 3.3 percent when compared with the figure for the prior-year period of EUR 11.387 bn. After adjusting for exchange rate effects, revenue in the Gases Division increased by 0.2 percent. On a comparable basis (after also adjusting for changes in the price of natural gas), the growth in revenue was 0.8 percent.

Operating profit was EUR 3.098 bn, which was below the figure for the first nine months of 2015 of EUR 3.131 bn. Operating profit increased by 1.9 percent after adjusting for exchange rate effects. The operating margin in the reporting period rose to 28.1 percent (2015: 27.5 percent), due partly to lower prices for natural gas.

EMEA (Europe, Middle East, Africa)

In EMEA, Linde’s largest sales market, the Group generated revenue of EUR 4.272 bn, which was 5.4 percent below the figure for the first nine months of 2015 of EUR 4.515 bn. On a comparable basis, revenue was also slightly below the figure for the prior-year period. Operating profit was EUR 1.358 bn, which was a similar figure to that achieved in the first nine months of 2015 (EUR 1.350 bn). Operating profit includes income from changes to pension plans and profits on the disposal of non-current assets. The operating margin rose to 31.8 percent (2015: EUR 29.9 percent).

Different business trends were to be seen in the product areas of the various sub-regions of the EMEA segment. The on-site business was affected in particular by the insolvency of a customer in the UK. This was disclosed in the fourth quarter of 2015. In the Middle East & Eastern Europe and in Northern Europe, Linde was able to achieve revenue growth in this product area. Revenue trends in the liquefied gases and cylinder gas business were relatively stable. In its Healthcare business, Linde was able to achieve revenue growth in all sub-regions.

During the reporting period, Linde brought on stream two air separation plants in Russia. The plants provide its customer SIBUR under a long-term gas supply agreement with up to 28,000 normal cubic metres of oxygen per hour at its Dzerzhinsk site. Total investment in the project was around EUR 70 m. SIBUR is the largest petrochemical group in Russia and Eastern Europe.

In the first nine months of 2016, Linde also agreed a Letter of Intent (LoI) with Turkish steel-producer Erdemir Group for the formation of a joint venture to build an air separation plant in Iskenderun in southern Turkey. From 2017, the new plant (which will be the biggest air separation plant operated by a gas producer in Turkey) will supply steelworks run by Erdemir’s subsidiary Isdemir with up to 1,700 tonnes of oxygen and nitrogen per day.

In May 2016, Linde announced that it had signed an agreement with alternative energy company Renergen. The Free State Helium and Natural Gas plant near Welkom in South Africa is expected to commence operations in 2018. Under the terms of the agreement, Renergen will supply Linde with helium and Linde will have the distribution rights. In return, Linde’s Engineering Division will provide its patented high-tech extraction technology, a pioneering system to extract the helium and then to purify, compress and store it. Linde’s African subsidiary Afrox will operate the plant and market the helium. Along with its helium sources in the United States, Qatar, Australia and Algeria, this new supply agreement reinforces Linde’s position as a supplier with access to highly diversified helium sources.

Under the brand name BeeZero, the newly formed subsidiary Linde Hydrogen Concepts launched during the reporting period the world’s first car-sharing scheme to use only hydrogen-powered fuel-cell vehicles. Linde is expecting to gain valuable knowledge from the operation of the fuel-cell fleet which will assist with the ongoing development of hydrogen technologies and the expansion of the H2 infrastructure.

In September 2016, Linde brought on stream a new hydrogen plant in Porvoo, Finland, for Finnish oil company Neste Oil. The investment, which is related to a long-term on-site agreement for the supply of hydrogen, is worth around EUR 70 m. Neste Oil’s refinery in Porvoo has two hydrogen production plants. The older of the two has now been replaced by a more efficient plant. Linde’s Engineering Division was responsible for the construction of the turnkey plant, while the plant will be operated by Linde subsidiary AGA. The hydrogen is produced from natural gas by means of a steam reformer and is used in the refinery in a variety of processes and products: for example in the desulphurisation of diesel fuel and in the production of high-grade oils. The new agreement will enhance the existing supply relationship between the two companies on the Porvoo site. Linde already supplies air gases to Neste Oil on that site, obtaining in return raw carbon dioxide for further processing.

Asia/Pacific

Linde generated revenue in the Asia/Pacific segment in the nine months to 30 September 2016 of EUR 3.027 bn, which was 3.4 percent below the figure for the first nine months of 2015 of EUR 3.133 bn. On a comparable basis, revenue increased by 1.1 percent. Operating profit was EUR 793 m, 1.4 percent below the figure for the prior-year period of EUR 804 m, while the operating margin rose to 26.2 percent (2015: EUR 25.7 percent).

In the Asia/Pacific segment, positive trends for all product areas were to be seen in particular in South & East Asia and in China. In the South Pacific, the prevailing weak economic environment in manufacturing and declining investment in the mining industry had an adverse impact on growth. Appropriate structural and organisational countermeasures have already been implemented as part of the Customer Focus Initiative. These should lead to cost savings and a higher rate of profitability in the region. Further cost reduction measures have already been identified as part of the newly-launched efficency programme and will be introduced in the coming months.

Two large air separation plants built by Linde for Tata Steel Limited, one of the world’s biggest steel companies, at its site in the Kalinganagar industrial complex in Odisha, India, were brought on stream during the reporting period. The plants were built by Linde’s Engineering Division and involved investment of around EUR 80 m. Linde’s Gases Division is now operating the plants under a long-term on-site gas supply contract. Each of the two new air separation plants has a production capacity of 1,200 tonnes of air gases per day and supplies gaseous oxygen, nitrogen and argon to Tata Steel’s steelworks. Liquefied gases are also produced for the regional market.

Linde Eastern Oxygen Sdn Bhd (Linde EOX), a subsidiary of Linde Malaysia Sdn Bhd, announced during the reporting period that it was going to build an air separation plant in Tanjung Kidurong. The investment is worth around EUR 7 m. The plant, which is expected to come on stream in 2017, will have a production capacity of 33 tonnes of liquefied gases per day. Together with its existing air separation plant in Kuching, the new plant will make Linde EOX the largest producer of liquefied gases in Eastern Malaysia.

In China, Linde was able to bring two air separation plants on stream as scheduled. Both the air separation plants produce electronic gases for customers in the semiconductor industry. An air separation plant was also brought on stream in Taiwan. This plant supplies gases to the customer TSMC for the production of semiconductors. The investment was worth around EUR 22 m.

Linde has achieved another success in Malaysia, forming a joint venture together with PETRONAS Gas Berhad (PGB) called Pengerang Gas Solution Sdn Bhd (PGS). The joint venture will build two air separation plants to supply gaseous oxygen and nitrogen to PETRONAS at the Refinery and Petrochemicals Integrated Development (RAPID) industrial complex in Pengerang, in southern Malaysia. Total investment in the gas production plants is around EUR 150 m. The joint venture will operate the plants under a long-term gas supply agreement.

Linde was involved in another project in Malaysia in the first nine months of 2016, bringing on stream a gas production plant for BASF Petronas Chemicals Sdn Bhd, a joint venture between PETRONAS and BASF. The plant will supply the customer with hydrogen on the Gebeng site. The investment is worth around EUR 9 m.

Americas

In the Americas segment, revenue fell in the first nine months of 2016 by 0.8 percent to EUR 3.847 bn (2015: EUR 3.878 bn). On a comparable basis, revenue rose by 2.2 percent. When compared with the prior-year period, operating profit fell by 3.1 percent to EUR 947 m (2015: EUR 977 m). The operating margin dropped to 24.6 percent (2015: 25.2 percent).

Revenue and earnings trends in this segment were affected by several factors working in different directions. In the Healthcare business in North America, price reductions as a result of government tenders came into force at the beginning of the 2016 financial year and intensified as expected after 1 July. On the other hand, the acquisition of the company American HomePatient, Inc., which specialises in respiratory therapies, resulted in an increase in revenue. The contribution to revenue made by American HomePatient in the first nine months of 2016 was EUR 177 m. The acquisition should help counter the negative impact of the price reductions by increasing the number of patients cared for by Linde and thereby generating cost savings as a result of economies of scale. In the third quarter of 2016, Linde also sold two Lincare subsidiaries which traded in medicines and pharmaceutical products. As would be expected, the deconsolidation of these companies had an adverse impact on revenue in Linde’s Healthcare business.

Operating profit not only suffered the negative impact of the US government’s price reductions, but also benefited from the positive impact of the reorganisation of pension plans and the profit arising on the disposal of the Lincare companies. In addition, Linde continually adapts its cost structures and pursues a policy of organic growth.

In North America, positive trends were to be seen in particular in the on-site business. The conditions in the individual countries in South America, especially in Brazil and Venezuela, continued to worsen in the first nine months of 2016. The economic situation in the region is characterised by high inflation and low growth rates. Although the trends in all the product areas in South America were positive, the growth achieved is from a relatively low base in the prior-year period. Solid trends were to be seen in the Healthcare business.

Product areas

Boosted by the acquisition of American HomePatient, Linde increased revenue in its Healthcare business in the first nine months of 2016 on a comparable basis by 5.0 percent to EUR 2.787 bn (2015: EUR 2.654 bn).

In the on-site product area, revenue rose on a comparable basis by 0.5 percent to EUR 2.747 bn (2015: EUR 2.733 bn). After adjusting for the effects of the expiry of contracts, revenue in this product area was 2.2 percent higher than in the first nine months of 2015.

Trends in the liquefied gases business were relatively steady. Revenue here increased slightly by 0.2 percent to EUR 2.617 bn (2015: EUR 2.612 bn). In the cylinder gas business, revenue was EUR 2.865 bn. On a comparable basis, this was 2.1 percent below the figure for the first nine months of 2015 of EUR 2.926 bn. It should be noted here that in the prior-year period positive price effects in the electronic and specialty gases sector had a favourable impact, especially in North America.

 (XLS:) Download
Gases Division: Revenue and operating profit by segment

 

 

January to September 2016

 

January to September 2015

in € million

 

Revenue

 

Operating profit

 

Operating margin
in percent

 

Revenue

 

Operating profit

 

Operating margin
in percent

EMEA

 

4,272

 

1,358

 

31.8

 

4,515

 

1,350

 

29.9

Asia/Pacific

 

3,027

 

793

 

26.2

 

3,133

 

804

 

25.7

Americas

 

3,847

 

947

 

24.6

 

3,878

 

977

 

25.2

Consolidation

 

–130

 

 

 

–139

 

 

Gases Division

 

11,016

 

3,098

 

28.1

 

11,387

 

3,131

 

27.5

 (XLS:) Download
Gases Division: Revenue and operating profit by segment

 

 

3rd Quarter 2016

 

3rd Quarter 2015

in € million

 

Revenue

 

Operating profit

 

Operating margin
in percent

 

Revenue

 

Operating profit

 

Operating margin
in percent

1

Restructuring costs of EUR 39 m were recognised in the half-year financial report, but were not classified as a non-recurring item. To ensure that the figures are comparable, the relevant quarterly figures have been disclosed after adjustment for non-recurring items.

EMEA

 

1,411

 

4301

 

30.51

 

1,510

 

435

 

28.8

Asia/Pacific

 

1,051

 

280

 

26.6

 

1,047

 

266

 

25.4

Americas

 

1,269

 

295

 

23.2

 

1,326

 

339

 

25.6

Consolidation

 

–42

 

 

 

–50

 

 

Gases Division

 

3,689

 

1,0051

 

27.21

 

3,833

 

1,040

 

27.1

 (XLS:) Download
Revenue on a comparable basis by segment

in € million

 

30.09.2016

 

30.09.2015

 

Exchange rate effect

 

Prior-year period adjusted for exchange rate effects

 

Currency-adjusted revenue trend in percent

 

Effect of natural gas prices

 

Revenue trend on a comparable basis in percent

Gases Division

 

11,016

 

11,387

 

–389

 

10,998

 

0.2

 

–74

 

0.8

EMEA

 

4,272

 

4,515

 

–176

 

4,339

 

–1.5

 

–34

 

–0.8

Asia/Pacific

 

3,027

 

3,133

 

–119

 

3,014

 

0.4

 

–20

 

1.1

Americas

 

3,847

 

3,878

 

–95

 

3,783

 

1.7

 

–20

 

2.2