Sales down 7.6 percent to 2.695 billion euro, 5.3 percent after adjusting for exchange rate effects
Operating profit* down 10.6 percent to 538 million euro, 7.3 percent after adjusting for exchange rate effects
Accelerated implementation of programme for sustainable improvements in productivity
Capacity adjustments necessary in some areas and regions - at an expected cost of around 70 million euro, of which 20 million euro have already been booked in Q1
Outlook for 2009 unchanged: scenario-driven based on the global economic development
Munich, 5 May 2009 - The technology group The Linde Group saw relatively steady trends in the first quarter of the 2009 financial year against the background of a significant weakening in the global economy. After adjusting for exchange rate effects, there was a single-digit decline in sales and earnings. "We are still comparatively stable, despite the fact that also we are being affected by substantial falls in demand," said Professor Dr Wolfgang Reitzle, Chief Executive Officer of Linde AG. "There is currently no evidence to suggest a swift recovery. It is therefore our responsibility as entrepreneurs to do everything we can to survive this difficult economic phase relatively unscathed. We will accelerate the implementation of our integrated programme for sustainable process optimisation and increased productivity. In certain areas and regions this is combined with capacity adjustments, for example through process and organisational improvements such as an overall consolidation of functions. The cost of these measures in the first quarter was 20 million euro. We will continue to adopt a prudent approach and will apply an additional amount of around 50 million euro to sustainable efficiency improvements in the coming months." Linde's overall aim is to achieve cost reductions of between 650 million and 800 million euro over the next four years as a result of its optimisation programme.
Linde is continuing to examine various scenarios in its corporate planning for the rest of the 2009 financial year against the background of the uncertainty attached to future global economic development. "Sales and earnings trends can not be determined before the second half of the year," explained Reitzle. "Seen from today's standpoint, we need to anticipate a decline. Our positive scenario, Group sales and earnings on the same level as in 2008 has become less likely in the light of the further deterioration of the economic outlook."
In the first quarter of 2009, Group sales fell by 5.3 percent compared with the prior year period after adjusting for exchange rate effects. On the basis of reported figures, i.e. if exchange rate effects are not taken into account, Group sales for the first quarter of 2.695 billion euro were 7.6 percent below the prior year figure of 2.917 billion euro. Group operating profit* was 7.3 percent lower, after adjusting for exchange rate effects. Furthermore, if the cost of the capacity adjustments had not been charged to income, Group profit would be a mere 3.8 percent lower than the prior year figure. On the basis of reported figures, Group operating profit of 538 million euro was 10.6 percent lower than the prior year figure of 602 million euro.
Earnings before taxes on income (EBT) of 170 million euro were lower than the figure for the comparable prior year period of 239 million euro. The reasons for the decrease include the restructuring costs of 20 million euro incurred in 2009 and the gains on disposal of businesses of 15 million euro achieved in the first quarter of 2008. ´
Earnings after tax at 31 March 2009 were 128 million euro (2008: 172 million euro). Earnings attributable to Linde AG shareholders were 115 million euro (2008: 160 million euro), giving earnings per share (EPS) of 0.68 euro (2008: 0.96 euro). Account should be taken here too, when comparing the figures for the first quarters of 2009 and 2008, of the restructuring costs charged in 2009 and the gains on disposal of businesses recognised in 2008. On an adjusted basis, i.e. after adjusting for the impacts of the purchase price allocation on the acquisition of BOC as well as profits on disposal, earnings per share in the first quarter of 2009 stood at 0.99 euro (2008: 1.29 euro). In this figure, the restructuring costs booked in the first quarter are still included. Cash flow from operating activities rose by 22.3 percent from 337 million euro in the first quarter of 2008 to 412 million euro in the first quarter of 2009. This was mainly due to improvements in working capital management.
In the Gases Division, sales in the first quarter fell by 6.3 percent to 2.157 billion euro (2008: 2.301 billion euro). The decline in sales after adjusting for exchange rate effects was 3.5 percent. On a comparable basis, i.e. if changes in the price of natural gas and changes in Group structure are also taken into account, the fall in sales was 4.4 percent.
The operating profit of the Gases Division for the three months ended 31 March 2009 was 546 million euro, 6.8 percent below the prior year figure of 586 million euro. After adjusting for exchange rate effects, this represents a reduction of 3.2 percent. The operating margin at 25.3 percent has remained virtually the same as the figure for the first quarter of 2008 of 25.5 percent.
The business trends in the individual regions and product areas of the Gases Division were as follows:
In the Western Europe operating segment, sales declined by 9.2 percent to 935 million euro (2008: 1.030 billion euro), partly as a result of the substantial loss in value of the British pound. On a comparable basis, the fall in sales would have been a mere 3.5 percent. Operating profit in Western Europe of 247 million euro was 12.7 percent lower than the figure for the corresponding prior year period of 283 million euro. The operating margin fell from 27.5 percent to 26.4 percent. As industrial production weakened considerably, the markets in the Western Europe region saw volume reductions, sometimes significant. Our main sales markets in Germany, the UK and Scandinavia were also affected.
In the Americas operating segment, we achieved sales of 501 million euro in the first quarter of 2009, 5.1 percent below the figure for the first quarter of 2008 of 528 million euro. On a comparable basis, the fall in sales was 7.1 percent. Operating profit in the Americas of 104 million euro was, however, exactly the same as the prior year figure. The operating margin rose from 19.7 percent to 20.8 percent.
In the Asia & Eastern Europe operating segment, sales in the first quarter of 2009 were down by 7.8 percent compared with the prior year quarter to 428 million euro (2008: 464 million euro). On a comparable basis, the fall was 7.9 percent. Operating profit was 129 million euro, only 1.5 percent lower than the figure for the first quarter of 2008 of 131 million euro. The operating margin improved by a further 190 basis points to 30.1 percent from the high figure achieved in the first three months of 2008 of 28.2 percent.
In the South Pacific & Africa operating segment, we also achieved an increase in sales in the first three months of 2009 - by 4.0 percent to 309 million euro (2008: 297 million euro). On a comparable basis, this is an increase of 2.0 percent. Operating profit, which was 66 million euro, was almost as high as the prior year figure of 68 million euro. The operating margin during the reporting period was 21.4 percent, below the figure of 22.9 percent for the first quarter of 2008. One of the reasons for the fall in margin was the first-time consolidation of the Australian LPG company Elgas. The LPG (liquefied gases) business has rather lower margins than the traditional industrial gases business. Elgas is the leading marketer of LPG in Australia and a key strategic addition to our product portfolio in an attractive market.
The business performance of the individual product areas in the Gases Division was also affected by the difficult global economic environment. On a comparable basis, sales in our liquefied gases business fell by 6.9 percent to 536 million euro (2008: 576 million euro). Sales in the tonnage or on-site business, where we supply industrial gases from plants situated directly on the user's site, were 499 million euro, 4.4 percent below the prior year figure of 522 million euro. In our cylinder gas business sales fell by 5.5 percent to 871 million euro (2008: 922 million euro). The Healthcare product area proved itself largely immune to the crisis. Sales here rose by 5.5 percent to 251 million euro (2008: 238 million euro).
Gases Division - Outlook
The current weakness in demand has not caused us to change in any way our original target for the gases business. We want to grow at a more rapid pace than the market and to continue to improve our productivity. Following the latest, once again worsened, forecasts for the global economic development, the probability for the weaker scenario has increased.
In the Engineering business, The Linde Group achieved sales in the first quarter of 2009 of 549 million euro, 1.3 percent above the figure for the first quarter of 2008 of 542 million euro. Operating profit fell slightly from 47 million euro to 45 million euro. This corresponds to an operating margin of 8.2 percent. Once again we exceeded our 8 percent target, a target well above the industry average. On the other hand, order intake of 285 million euro was lower than the prior year figure of 406 million euro, as expected, due to a significant reluctance to award new projects. The order backlog at 31 March 2009 was 4.082 billion euro (31 December 2008: 4.436 billion euro), a figure which remains very high.
Almost half the order backlog related to the air separation plant product segment. The oxygen and nitrogen produced in these plants is required primarily by oil companies for the efficient exploitation of oilfields and natural gas fields to meet the rising demand for energy worldwide. We are currently working on major projects in this area, principally for customers in the Middle East. Examples are the Enhanced Gas Recovery plant we are building for Abu Dhabi National Oil Corporation (ADNOC) and the Gas-to-Liquids (GTL) plant we are supplying for Shell in Qatar.
Engineering Division - Outlook
The continuing high order backlog provides a good basis for a relatively stable business performance in our Engineering Division over the next two years. However, even in global large-scale plant construction, we will have to contend with the award of new projects being postponed. In our weaker scenario, we must therefore assume that new orders will not be sufficient to achieve the same very high level of sales in the 2009 financial year as in 2008. On the other hand, the target for our operating margin remains at 8 percent.
N.B.: To coincide with the publication of our quarterly report, a teleconference for analysts will take place today at 2pm (German time) in English with Georg Denoke, CFO and member of the Linde AG Executive Board. Journalists will have the opportunity to listen to the conference live by dialling +49.69.589 99 -0509. Please tell the operator your name and the name of your company.
Following the teleconference, you will be able to hear a recording of the event by calling +49.30.726 167 -224. Please give the following reference number: 832453.
The Linde Group is a world leading gases and engineering company with almost 52,000 employees working in around 100 countries worldwide. In the 2008 financial year it achieved sales of EUR 12.7 billion. The strategy of The Linde Group is geared towards sustainable earnings-based growth and focuses on the expansion of its international business with forward-looking products and services.
Linde acts responsibly towards its shareholders, business partners, employees, society and the environment - in every one of its business areas, regions and locations across the globe. Linde is committed to technologies and products that unite the goals of customer value and sustainable development.
For more information, see The Linde Group online at http://www.linde.com
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* Operating profit: EBITDA before non-recurring items, including share of net income from associates and joint ventures