Linde plc — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. Linde is a global industrial gases and engineering company; approximately 70% of 2021 sales were outside the United States.
Financial performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Sales | $30.793 billion | $27.243 billion | +13% |
| GAAP operating profit | $4.984 billion | $3.322 billion | +50% |
| GAAP operating margin | 16.2% | 12.2% | +4.0 percentage points |
| Income from continuing operations attributable to Linde plc | $3.821 billion | $2.497 billion | +53% |
| Diluted continuing-operations EPS | $7.32 | $4.70 | +56% |
| Adjusted operating profit (non-GAAP) | $7.176 billion | $5.797 billion | +24% |
| Adjusted operating margin (non-GAAP) | 23.3% | 21.3% | +2.0 percentage points |
| Adjusted diluted continuing-operations EPS (non-GAAP) | $10.69 | $8.23 | +30% |
| Cash from operations | $9.725 billion | $7.429 billion | +31% |
| Capital expenditures | $3.086 billion | $3.400 billion | −9% |
Sales growth reflected 8% volume growth, 3% higher price/mix, 3% cost pass-through and 2% favorable currency, partly offset by a 3% reduction from acquisitions and divestitures. Cost pass-through largely had minimal operating-profit effect. All three geographic segments increased sales and segment operating profit; EMEA sales rose 19%, Americas 16%, and APAC 8%.
GAAP results include substantial merger-related purchase-accounting effects. The company’s adjusted measures exclude purchase-accounting impacts and specified other items, so they should not be treated as substitutes for GAAP results. Cost reduction and other charges were $273 million in 2021, versus $506 million in 2020.
Cash, debt and liquidity
- Cash and cash equivalents were $2.823 billion at year-end, down from $3.754 billion.
- Total debt was $14.207 billion; net debt was $11.384 billion, down from $12.400 billion in 2020. The reported global effective borrowing rate was approximately 1.4%.
- Current assets were $10.159 billion and current liabilities $13.643 billion. The company cited operating flexibility, cash reserves and funding access as adequate for its needs.
- Linde had a $5 billion undrawn revolving credit facility, with no outstanding borrowings; it reported compliance with debt covenants.
- Financing uses included $4.562 billion in net ordinary-share purchases and $2.189 billion in dividends. The annual dividend per share was $4.24, up from $3.852.
- Capital spending was primarily for growth projects. The sale-of-gas backlog of large projects under construction was approximately $3.5 billion.
Management commentary, outlook and notable items
- Management highlighted demand and project start-ups across end markets, higher pricing, and productivity and cost-reduction initiatives as drivers of improved results. Long-term customer contracts generally support cash-flow stability and provide mechanisms to pass through energy and feedstock costs.
- The filing provides no numerical 2022 earnings or revenue guidance. Linde said it gives quarterly updates and guidance through earnings releases and investor calls.
- Effective January 1, 2021, Linde deconsolidated an APAC joint venture after certain contractual rights expired. The change reduced APAC sales by about $639 million versus 2020, while the retained interest is now accounted for as an equity investment. The company recorded a $52 million gain related to the deconsolidation and a separate $35 million impairment charge on an APAC joint venture.
- Cost-reduction actions included severance charges for approximately 2,000 positions in 2021; most actions were completed, with remaining actions expected within 12 months. Remaining cash requirements for the cost-reduction program and other charges were expected to be paid through 2023.
- A U.K. tax-rate increase generated an $83 million deferred tax charge. The reported effective tax rate was 24.7%, compared with 25.0% in 2020.
- The board approved a further $10 billion share-repurchase program on February 28, 2022, after year-end. CEO Stephen Angel was expected to retire from that role and become board chairman on March 1, 2022; Sanjiv Lamba was expected to become CEO.
Risks, contingencies and controls
- Key risks include COVID-19 disruption, weaker customer markets, energy and raw-material cost or supply volatility, foreign-exchange movements, geopolitical and regulatory changes, climate-related rules and physical events, cyber incidents, operational failures, and challenges attracting employees or integrating acquisitions.
- Goodwill was $27.038 billion and other indefinite-lived intangible assets were $1.813 billion at year-end. The 2021 impairment assessment found no impairment; the filing notes that adverse changes in conditions could result in future charges.
- Brazilian tax claims had estimated exposure of approximately $200 million, including interest and penalties; Linde recorded no liability, citing its assessment and outside counsel. Related litigation can take years to resolve.
- Brazilian antitrust fines against current and former subsidiaries had been overturned by lower courts, but further appeals were pending. Linde said it believed cash outflows were extremely unlikely and recorded no reserve. Former Linde AG shareholders also had pending appraisal proceedings in Germany.
- Outstanding letters of credit, bank guarantees and surety bonds totaled approximately $3.695 billion; the filing said these were not reasonably likely to materially affect consolidated condition, results or liquidity.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective at December 31, 2021. The auditor identified revenue recognition—estimated costs to complete engineering equipment contracts—as a critical audit matter.
Important facts for investors to verify
- Reconcile GAAP and adjusted earnings, especially the $2.192 billion of 2021 adjustments to operating profit, including purchase-accounting impacts.
- Assess the sustainability of sales and margin growth after separating volume, price, currency and largely profit-neutral cost pass-through effects.
- Review the APAC joint-venture deconsolidation’s impact on reported sales, segment profit and future equity income.
- Monitor energy-cost recovery, contract performance and engineering project cost-to-complete estimates, the key audit matter.
- Track net debt, cash deployment, the new repurchase authorization and the large goodwill and intangible-asset balances.
- Follow outcomes of Brazilian tax and antitrust matters, German appraisal proceedings, and material changes in regulation or litigation.