The operator introduces the Linde's First Quarter 2024 Earnings Call and Webcast. Juan Pelaez, Head of Investor Relations, is joined by Sanjiv Lamba, CEO, and Matt White, CFO. The presentation materials are available on their website and the forward-looking statement disclosure applies to all statements made during the teleconference. Sanjiv highlights the solid performance of the company with record levels of EPS, ROC, and operating margins despite a decline in volumes. This decline is attributed to the stagnant manufacturing environment in EMEA and the company aims to focus on growth in the future.

The company is focused on growth opportunities beyond pricing, such as small on-site applications and investments. Healthcare and food and beverage markets have shown stability and growth, while electronics has been affected by lower volumes in the first half of the year. However, there is optimism for a potential recovery in the second half due to increasing demand for AI chips and data centers. The company also plans to trim certain areas of their portfolio, such as equipment hard goods, to focus on more profitable investments.

The Metals and Mining industry has seen flat growth due to pricing increases being offset by volume declines, particularly in EMEA. However, there are opportunities for growth in low-carbon electric arc furnaces and partnerships with companies focused on reducing their carbon footprint. Chemicals and Energy saw a 4% increase, driven by higher on-site volumes in the Americas and APAC. The manufacturing end market was up 1% due to pricing, but volumes were down in EMEA and the US, with some stability in other sectors such as battery manufacturing and clean energy.

The company has recently announced an investment in an electrolyzer to expand their hydrogen network in Brazil and support decarbonization efforts. They expect their base volumes to track local industrial production, with some growth in sectors like batteries and clean energy. They also have a backlog of $5 billion and are confident in their ability to manage earnings in sluggish economic conditions. The company's sales declined slightly in the first quarter, but underlying sales increased due to price increases. Localized pricing is correlated with inflation levels, which have stabilized after some disinflation in China.

Despite a 1% decrease in volumes compared to the previous year, operating profit and EPS have increased. This is due to a combination of price and cost management, as well as a lower share count and favorable tax rate. Capital expenditures have also increased, but the company is taking steps to lower them in the future. Operating cash flow for the first quarter was slightly above last year, but lower than the fourth quarter due to timing issues. However, free cash flow remains strong and the company has implemented its capital allocation policy, including share repurchases and issuing long-term debt at favorable rates.

Linde's strong balance sheet and steady free cash flow have been crucial during these uncertain times. The company has provided guidance for the second quarter and full year, assuming no economic improvement. They will continue to manage things within their control to drive shareholder value. There is optimism around the electronics market, which accounts for about 10% of their portfolio, and could provide leverage and higher margins for the company.

The speaker discusses the company's investment in electronics and expects a recovery in the second half of the year. They also mention the progress of their clean energy projects, which they see as moderating and becoming more focused on feasibility studies. They mention a study by McKinsey that shows only 7% of announced projects make it to FID, but they are seeing high-quality projects moving forward.

The company has a solid pipeline of projects that are taking longer to develop, but they are still expected to make investment decisions of $8-10 billion in the next few years. They have contracted with ExxonMobil for CO2 sequestration and will use their carbon capture technology. The company has narrowed their full year guidance range, but the CEO shares that they have seen positive results around the world, particularly in the US, and this sets the tone for their outlook.

The market is the most important factor for the company, and it has been resilient. In the first quarter, base volumes in the U.S. were flat to slightly negative, with manufacturing declining and chemicals and energy increasing. U.S. packaged gas volumes were down due to softer demand from electronics, but hard goods were flat. Latin America was slightly positive. Looking ahead, the Americas are expected to be flat to slightly positive in the second quarter, with strong hydrogen demand in the U.S. Gulf Coast. In EMEA, the trend has been largely unchanged, with a slight pickup in on-site and packaged volumes but negative merchant volumes. There are no significant catalysts for a change in this trend.

In the APAC region, China saw a 10% increase in chemicals output in Q1, but full year expectations have been lowered to 4-5%. Crude steel was negative, but Tier 1 players are benefiting from industry shakeout. Traditional manufacturing sectors were mostly flat, but sectors like automotive and EVs saw growth. Electronics also saw growth, but overall market is expected to be mid to high single-digit growth. China accounts for 7% of sales and 75% of business is locked in with Tier 1 customers. Rest of Asia saw slight volume increases, with backlogs contributing to growth, particularly in chemicals.

The paragraph discusses the impact of the ongoing elections in India on the country's economy. The speaker, Matt White, explains that they have taken into account the current stagnant or declining state of the economy in their guidance for the rest of the year. They will continue to monitor the situation and make adjustments if necessary. They are being cautious in their approach due to the uncertainty surrounding the elections.

The EMEA region's margins have surpassed the Americas, with strong performance in Europe. This is a result of various factors, such as price and cost management, managing spreads, and using AI for power management. The team has worked hard to achieve these margins, and they are expected to be sustainable. EMEA is now the target for other segments to strive towards.

The speaker addresses the company's performance, noting that EMEA margins have overtaken Americas and pricing strategies have been successful. They also mention that volumes were down 1%, with new projects contributing 2% growth and base volumes down 2%. The speaker also mentions that the average EBITDA margin is around 37%, and the helium business is either above or below that level.

The speaker discusses their company's focus on growth and efforts to increase base volume. They mention that helium sales are a small part of their overall sales and do not significantly impact their EBITDA margin. In regards to CapEx, they explain that they are taking productivity actions and optimizing their CapEx in response to weak industrial activity. However, they remain open to increasing CapEx for growth initiatives if necessary.

The company is closely monitoring its Americas performance, specifically in the manufacturing and healthcare sectors. The hard goods business saw a mid-single digit decline due to rationalization of the equipment portfolio. In healthcare, while there was continued demand for sleep, oxygen, and respiratory products, there was also a rationalization of the DME portfolio. These actions were intentional in order to improve the overall quality of the business.

The company has adjusted for declines in manufacturing and a timing difference in the packaged gas business. The decline in aerospace volumes was due to a lumpy nature of the industry, but the company expects volumes to rebound in the next three quarters due to an increase in launches. Project cost inflation does not affect the decision between sale of gas and sale of plant, as the company looks at the risk-return profile of each project. They have a competitive advantage in having the option to pursue either sale of gas or sale of plant for projects.

The speaker, Sanjiv Lamba, responds to a question about recent announcements regarding decaptivating assets from a metal customer in Asia and investing in electrolyzers in Latin America. He explains that decaptivation opportunities must meet investment criteria and that they typically only pursue a few out of a dozen opportunities in a year. The specific decaptivation with Baowu was chosen because it fits well with their network and improves network density. They are happy to be selective with these projects as they arise.

The speaker discusses the success of a clean energy project in Brazil and attributes it to factors such as the availability and competitiveness of renewable energy, as well as high natural gas prices. They also mention the start of decarbonization efforts and the ongoing productivity initiatives in the Americas and EMEA regions. They emphasize that there is no one solution for productivity and that the company runs thousands of projects each year.

The company has a track record of successfully driving productivity projects in both the Americas and EMEA, resulting in improved margins. The Americas have a strong focus on managing costs and productivity projects, while EMEA has been successful in managing cash fixed costs and developing projects. The company is confident in their ability to continue managing costs and meeting their guidance, even in the current economic conditions. In APAC, while pricing has moderated, there is a deflationary environment from a cost perspective, and the company considers both factors when determining their pricing strategy.

The speaker emphasizes the importance of managing the spread and mentions China's role in the APAC segment. They note deflationary conditions in China and discuss cost actions taken to address this. They also mention the impact of helium on South Korea due to their larger electronics portfolio. The speaker emphasizes the importance of monitoring margins as a measure of effective management. Overall, they state that APAC margins are still expanding despite challenges, indicating successful management.

The speaker is asked about the company's potential for acquisitions and increasing network density. They state that they are committed to tuck-in acquisitions anywhere in the world, and have had success with this model in the past. They are actively pursuing opportunities in the U.S. and other regions, but recognize that large acquisitions may not be feasible. The company's project intake has decreased, and it is unclear if this is due to a focus on higher quality projects or other factors.

Sanjiv Lamba discusses the current backlog and order intake for Linde's engineering business. The backlog is currently at $8.3 billion and there is a healthy order intake pipeline. The company takes on high quality projects and is sought after by customers due to its position as a leader in gas processing. The sale of gas backlog is just under $5 billion and the company expects to start up $1.5 billion to $2 billion worth of projects this year. This will reduce the backlog, but they anticipate adding more projects to maintain a backlog of $5 billion. Overall, Lamba feels confident about the company's position and expects more order intake later in the year.

The company expects to add back backlog in gas sales and aims to reach a $5 billion mark in engineering by the end of the year. They clarify that their involvement in the H2 green steel project is limited to air separation and they are pursuing other projects in Europe. The cutoff date for Q1 cash flow and working capital may have a significant impact.

In paragraph 24 of the article, Laurent Favre asks about the outflow in Q1 and if it is related to the timing of Good Friday. Matt White confirms that the majority of the working capital outflow is due to this timing and that they expect to see it come back in the second quarter. He also mentions that the only thing that stuck out was the AR, which was impacted by the timing of the holiday. In response to a question about the difference in pricing philosophy, the company does not mention any specific impact on share gains but does note that there are contractual terms with customers. The company also mentions that there may be a pent-up project list from customers waiting for political clarity before moving forward.

Sanjiv Lamba, in response to a question about the impact of elections on project pipeline and backlog, states that traditional projects are not significantly affected by elections and the pipeline is healthy. He expects the backlog to reach $5 billion by the end of the year, indicating a strong pipeline. However, he notes that there is a moderation in momentum in clean energy projects, not necessarily due to elections but possibly due to seeking clarity on incentives and penalties in Europe.

The speaker discusses how people are focusing on understanding and making informed investment decisions rather than being influenced by elections. They also mention their pricing strategy, which is based on tracking global inflation and taking actions to sustain price increases. This approach has been reflected in their performance. The speaker concludes by thanking the participants and ending the call.

This summary was generated with AI and may contain some inaccuracies.