Munich — German industrial gases group Linde, parent of JSE-listed African Oxygen (Afrox), announced a further restructuring on Friday in anticipating years of low growth after last month’s collapse of merger talks with US rival Praxair.
The strategy, which Linde announced on Friday alongside forecast-beating quarterly results, is designed to save an extra €370m a year from 2019, on top of an existing scheme to save €180m a year.
Linde said it would reexamine its global footprint, optimise use of capacity at its smaller engineering arm and may divest itself of noncore activities while cutting probably thousands of jobs.
Outgoing CE Wolfgang Buechele said Linde needed to resign itself to low growth and at the same time catch up with rivals in terms of profitability. "Our shareholders have very clear expectations," he said.
Shares in Linde jumped to the top of the German blue-chip index, and by 9.51 GMT were trading up 2.7%. Buechele said he had done his utmost to get the merger done, but it had not been possible to ensure the continuing status of Munich, Linde’s headquarters. Now it was time for Linde to help itself, he said.
"The deal didn’t work out and so I resolved to get things under way," he told reporters, declining to say whether the Praxair talks could be revived.
Buechele and finance chief Georg Denoke announced their departure after the Praxair deal fell through. Denoke left immediately and Buechele will stay until the end of April.
Linde’s quarterly sales were flat, constrained by price pressure at its US healthcare business as well as weak demand for plant engineering, but still beat forecasts, as did a 3% rise in adjusted operating profit.
Like peers such as Praxair, Air Liquide and Air Products, Linde is struggling with slower economic growth that has weakened demand in the manufacturing, metals and energy sectors, putting pressure on smaller players and leading to consolidation in the sector.
Expectations
Linde’s core operating profit margin was flat at 23% in the third quarter. Praxair on Thursday reported a comparable margin of 33% and Air Products a margin of 35%. Air Liquide had a first-half margin of just 17% due to its far less profitable engineering business and the integration of lower-margin Airgas.
Linde also plans to reduce capital spending to 11%-12% of sales in the medium term, from a previous average of 13%, while continuing to raise its dividend.
"Today’s reporting underpins our very positive (and contrarian) view on the stock," wrote Baader Bank analyst Markus Mayer, who rates Linde a buy.
"Numbers are above expectation, cash flow was again strong and will remain strong due to the massive capex cut. The dividend is indicated significantly above consensus expectations and the significant restructuring plan will cut Linde’s fat."
Linde’s restructuring costs will total €400m over 2016 and 2017, meaning it is likely to cut between 3,000 and 4,000 jobs from its global workforce of 65,000, according to Reuters calculations.
It reiterated its full-year forecast, which foresees both sales and adjusted operating profit falling as much as 3% or rising as much as 4%, adjusted for currency fluctuations.
Reuters
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