Linde plc — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Linde operates industrial gases businesses across the Americas, EMEA and APAC, alongside Engineering and other businesses. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Sales | $8,211 | $7,243 | +13% |
| Operating profit, reported | $1,480 | $1,213 | +22% |
| Operating margin, reported | 18.0% | 16.7% | +1.3 percentage points |
| Operating profit, adjusted | $1,905 | $1,688 | +13% |
| Operating margin, adjusted | 23.2% | 23.3% | -0.1 percentage points |
| Net income attributable to Linde | $1,174 | $980 | +20% |
| Diluted EPS, reported | $2.30 | $1.86 | +24% |
| Diluted EPS, adjusted | $2.93 | $2.49 | +18% |
| Operating cash flow | $2,000 | $2,109 | -5% |
| Capital expenditures | $649 | $762 | -15% |
Adjusted measures are non-GAAP and exclude items including Linde AG purchase-accounting impacts and cost-reduction and other charges. The $425 million difference between reported and adjusted operating profit in Q1 2022 primarily reflects $429 million of purchase-accounting impacts, partly offset by a $4 million net benefit from cost-reduction and other charges.
Cash, debt and liquidity
- Cash and cash equivalents were $4,464 at March 31, 2022, up from $2,823 at December 31, 2021. Net debt was $11,992, compared with $11,384 at year-end.
- Total debt was $16,456, up from $14,207 at year-end. Short-term debt rose to $2,549 from $1,163; long-term debt was $12,833.
- Operating cash flow was $2,000; investing cash outflow was $665; financing cash inflow was $244. Working-capital requirements were a $239 million use of cash.
- Linde had an undrawn $5 billion revolving credit facility expiring in March 2024, with no financial maintenance covenants. Management said it believed cash and funding sources were sufficient for business needs.
- The company repurchased $1.719 billion of ordinary shares and paid $592 million in dividends. The board authorized a further $10 billion repurchase program in February; $8.7 billion remained authorized at quarter-end.
Material changes and management commentary
- Sales growth reflected 6% price/mix, 3% volume growth and 6% contractual cost pass-through, partly offset by a 3% currency headwind. Cost pass-through increased revenue but had minimal impact on operating profit.
- Reported operating profit and EPS benefited from higher pricing, productivity and cost-reduction initiatives, lower merger-related depreciation and amortization, and fewer diluted shares. Adjusted operating profit growth was partly offset by inflation; adjusted margin was slightly lower year over year.
- Sales grew 14% in the Americas, 19% in EMEA, 12% in APAC and 8% in Engineering. Engineering operating profit rose 31%, partly due to project timing. Other-segment operating loss widened to $44 million from $18 million, mainly due to lower global helium volumes and higher sourcing costs.
- There is no specific financial guidance in this 10-Q. Linde said it provides quarterly updates and guidance through earnings releases and investor calls.
Risks, contingencies and unusual items
- Russia/Ukraine: Russia generated about 1% of 2021 consolidated sales and represented about 1% of assets; Ukraine was immaterial. Approximately $2 billion of contract liabilities related to Russian Engineering projects were recorded at quarter-end. Projects being wound down represented about $350 million of Q1 sales. Linde said it was complying with sanctions, winding down affected work and reducing its Russian footprint; future impairment or other charges and impacts on cash flows or results are possible.
- Brazil tax claims: Estimated exposure was approximately $235 million, including interest and penalties. No liability was recorded based on management’s assessment and outside counsel’s advice. Resolution timing is uncertain.
- Brazil competition case: Linde reported that a fine against a former Brazilian subsidiary had been overturned at lower court levels, with further proceedings pending. The company said cash outflows were extremely unlikely and recorded no reserve.
- Other litigation: Linde described Brazilian tax disputes and German appraisal proceedings relating to the Linde AG minority-shareholder squeeze-out. It said outcomes could affect results in a given period, though aggregate losses were not expected to materially affect consolidated financial position or liquidity.
- Management identified no material changes to the risk factors in the 2021 Form 10-K. Forward-looking statements remain subject to risks including energy and raw-material costs, inflation and pricing, currency and interest rates, sanctions and geopolitical events, litigation, regulation and customer demand.
Important facts for investors to verify
- Track whether pricing and productivity continue to offset inflation, and whether adjusted operating margin stabilizes or improves.
- Monitor Russia project wind-downs, the status and recoverability of the approximately $2 billion contract-liability balance, and any resulting impairment or cash-flow charges.
- Assess the increase in debt and net debt alongside buybacks, dividends, cash generation and the remaining repurchase authorization.
- Follow developments in the approximately $235 million Brazilian tax exposure and the other material legal proceedings; these amounts are claims or exposures, not recorded liabilities where noted.
- Compare reported and non-GAAP results carefully: adjusted figures exclude substantial purchase-accounting impacts and are not substitutes for GAAP measures.