Linde plc(US:LIN)2023-07-26 16:00PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The unaudited condensed consolidated financial statements detail performance for the three and six months ended June 30, 2023 Consolidated Statements of Income - Q2 2023 vs Q2 2022 | Metric | Q2 2023 (Millions USD) | Q2 2022 (Millions USD) | Change | | :--- | :--- | :--- | :--- | | Sales | 8,204 | 8,457 | -3.0% | | Operating Profit | 2,011 | 589 | +241.4% | | Net Income – Linde plc | 1,575 | 372 | +323.4% | | Diluted EPS | $3.19 | $0.74 | +331.1% | Consolidated Statements of Income - Six Months Ended June 30, 2023 vs 2022 | Metric | H1 2023 (Millions USD) | H1 2022 (Millions USD) | Change | | :--- | :--- | :--- | :--- | | Sales | 16,397 | 16,668 | -1.6% | | Operating Profit | 3,944 | 2,069 | +90.6% | | Net Income – Linde plc | 3,091 | 1,546 | +99.9% | | Diluted EPS | $6.25 | $3.04 | +105.6% | Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2023 (Millions USD) | Dec 31, 2022 (Millions USD) | | :--- | :--- | :--- | | Total Assets | 78,718 | 79,658 | | Total Liabilities | 37,470 | 38,271 | | Total Equity | 41,235 | 41,374 | | Cash and cash equivalents | 3,357 | 5,436 | Condensed Consolidated Statements of Cash Flows Highlights - Six Months Ended June 30 | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | 4,058 | 4,133 | | Net cash used for investing activities | (2,498) | (1,507) | | Net cash used for financing activities | (3,656) | (1,759) | | Change in cash and cash equivalents | (2,079) | 832 | Note 2. Other Charges The company incurred charges for severance and reorganization, including a significant 2022 loss from Russian business deconsolidation - Other charges for Q2 2023 were $22 million, primarily related to severance in the Engineering segment and expenses from an intercompany reorganization34 - In Q2 2022, the company deconsolidated its Russian gas and engineering businesses due to the Russia-Ukraine conflict, resulting in a pre-tax loss of $787 million37 Note 10. Segments Segment performance shows the Americas as the largest contributor to sales and operating profit, with growth across all geographic segments Sales by Segment - Six Months Ended June 30 (Millions USD) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Americas | 7,092 | 6,759 | | EMEA | 4,337 | 4,292 | | APAC | 3,281 | 3,253 | | Engineering | 1,035 | 1,372 | | Other | 652 | 992 | | Total | 16,397 | 16,668 | Segment Operating Profit - Six Months Ended June 30 (Millions USD) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Americas | 2,095 | 1,814 | | EMEA | 1,237 | 1,039 | | APAC | 895 | 825 | | Engineering | 256 | 248 | | Other | 9 | (33) | | Total | 4,492 | 3,893 | Note 12. Revenue Recognition Revenue is primarily generated from industrial gases, with remaining performance obligations estimated at approximately $47 billion - The company's industrial gas revenue is generated through three main distribution methods: on-site (long-term contracts), merchant (bulk liquid), and packaged gases (cylinders)91 Sales by Distribution Method - Q2 2023 (Millions USD) | Method | Americas | EMEA | APAC | Engineering | Other | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Merchant | 1,094 | 704 | 570 | — | 53 | 2,421 | | On-Site | 756 | 493 | 677 | — | — | 1,926 | | Packaged Gas | 1,638 | 946 | 366 | — | 12 | 2,962 | | Other | 53 | 17 | 70 | 495 | 260 | 895 | | Total | 3,541 | 2,160 | 1,683 | 495 | 325 | 8,204 | - The company estimates remaining performance obligations from future minimum purchase requirements and plant sales to be approximately $47 billion, excluding Russian projects impacted by sanctions106 Note 13. Business Acquisition The company acquired the remaining stake in nexAir, LLC for $859 million, expanding its geographic footprint in the Americas - Linde acquired the remaining 77% of nexAir, LLC on January 5, 2023, for a total purchase price of $859 million in an all-cash transaction107 - The acquisition added $101 million in sales for Q2 2023 and $204 million for the six months ended June 30, 2023, and was consolidated into the Americas business segment108 - The preliminary purchase price allocation includes $245 million in customer relationships (intangible assets) and $458 million in goodwill110112113 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a sales decline driven by lower cost pass-through but highlights increased adjusted operating profit from pricing and productivity Consolidated Results Q2 2023 sales decreased 3% to $8.2 billion, while adjusted operating profit and adjusted diluted EPS grew by 15% Q2 2023 vs Q2 2022 Performance Summary | Metric | Q2 2023 | Q2 2022 | Variance | | :--- | :--- | :--- | :--- | | Sales | $8,204M | $8,457M | (3)% | | Reported Operating Profit | $2,011M | $589M | 241% | | Adjusted Operating Profit | $2,286M | $1,988M | 15% | | Reported Diluted EPS | $3.19 | $0.74 | 331% | | Adjusted Diluted EPS | $3.57 | $3.10 | 15% | - Key drivers for the 3% sales decline in Q2 2023 were cost pass-through (-4%), acquisitions/divestitures (-2%), engineering (-2%), currency (-1%), and volume (-1%), offset by a 7% increase from price/mix118124 Segment Discussion All geographic segments reported operating profit growth in Q2 2023, driven by strong pricing, while Engineering sales declined - Americas Q2 sales grew 1% to $3.54B, with operating profit up 18% to $1.07B, driven by 6% price/mix improvement and the nexAir acquisition152154 - EMEA Q2 sales increased 1% to $2.16B, with operating profit up 18% to $630M, benefiting from an 11% price/mix increase that offset a 4% volume decline155157159 - APAC Q2 sales grew 2% to $1.68B, with operating profit up 11% to $472M, supported by 3% volume growth and 5% price/mix improvement, despite a 5% currency headwind160161162 Liquidity, Capital Resources and Other Financial Data Operating cash flow remained strong at $4.1 billion, while investing and financing activities increased due to acquisitions and share repurchases - Cash from operations for H1 2023 was $4,058 million, down 2% from $4,133 million in H1 2022, mainly due to higher working capital requirements173174 - Investing activities in H1 2023 used $2,498 million, including $1,688 million in capital expenditures and $834 million for acquisitions (primarily nexAir)176177 - Financing activities in H1 2023 used $3,656 million, consisting of $1,746 million in net share repurchases and $1,246 million in dividends173179180181 Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures remain materially unchanged from the company's 2022 Annual Report on Form 10-K - The company's disclosures regarding market risk have not materially changed and are detailed in its 2022 Annual Report on Form 10-K210 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the quarter212 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls212 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ongoing legal matters related to Brazilian tax, German shareholder proceedings, and Russian project arbitration - The company is involved in various legal proceedings, as detailed in Note 9 to the condensed consolidated financial statements214 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the 2022 Annual Report - There have been no material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K215 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased approximately 2.5 million shares for $912 million in Q2 2023 under its existing buyback program Share Repurchases - Q2 2023 | Period | Shares Purchased (Thousands) | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2023 | 830 | $361.66 | | May 2023 | 997 | $361.52 | | June 2023 | 682 | $368.70 | | Total Q2 2023 | 2,509 | $363.52 | - As of June 30, 2023, $3.6 billion of share repurchases remain authorized under the $10 billion program that expires on July 31, 2024216 Item 5. Other Information An executive vice president adopted a Rule 10b5-1 trading plan for potential sales of company shares - An executive, Sean Durbin, adopted a Rule 10b5-1 trading plan on June 15, 2023, for potential sales of company shares through May 31, 2024219 Item 6. Exhibits The filing includes required exhibits such as officer certifications, debt agreements, and interactive data files - The report includes several exhibits, such as debt agreements, officer certifications (Rule 13a-14(a) and Section 1350), and XBRL interactive data files220