Linde Group SWOT and PESTLE Analysis

Strength

1. Financial performance, investor’s wealth creation: Increased efficiency as the operating margin went up by 1.2% to 24.2% in 2016. This is the highest till date comparing the past 5 years. Though the sales have been down by €99 Million from €17.944 Billion in 2015 to €17.845 Billion (reports say the revenue to be €16.948 as revenue from Gist is reported as discontinued operations). The positive side that EPS has gone up to €6.5 from €6.19 in 2015. The net profit has seen a rise to€1.206 Billion in 2016 from €1.149 Billion 2015 but is a recovery from the declining trend since 2013. Highest market capitalisation in the 7 years from 2010 to 2016 at €28.978 Billion. Higher dividend pay-out at €3.7 per share in 2016, creating motives for investors, a steady increasing trend in dividend pay-out irrespective of profits fluctuation (5.7% of net profits distributed in 2016).

2. Wide presence: Present in more than 100 countries with 600 affiliated companies offering industrial, retail, trade, science, research & public sectors a comprehensive product & service. The recent agreement of the Linde with Abu Dhabi National Oil Company (ADNOC), 30 year development partnership between Linde material Handling & Porsche Engineering are amongst the few partnerships of the company.

3. Extensive gases product line extension: The gas division of the company has a diverse industry sectors offering product portfolio. The increasing efficiency has increased operating margin to 28.3% in 2016. The performance in America market has seen the continuous upward trend and recorded sales of €5.232 Billion in 2016 and most profitable market being EMEA (Europe, Middle East & Africa) with an operating profit of 31.5% in 2016. Healthcare product division seeing the best growth and recorded sales of €3.74 Billion.

4. R&D expenses and sustainability: Though the R&D expenses have reduced but the company has filled for 360 new patents. The major R&D is being carried on digitalisation and its use for the gas & engineering division & on advanced materials. Advanced materials are for testing various other uses of the gases and especially on the 3D printing line of business. “Sustainability is the principle upon which corporate strategy rests”, therefore the steps to reduce effects of operations on the environment are being taken and the total waste generated being lowest at 63.6 thousand tons in 2016.

5. Restructure Programs to reduce costs by €550 Million (FOCUS & LIFT): Two restructure programs to reduce costs to the extent of €550 Million combined. FOCUS (2015-2017): Key organisational adjustment steps in recent years to implement structures that will ensure effective procedures in the future, too. In the three-year period from 2015 to 2017, this program aims to reduce costs by around €180 Million. LIFT (2016-2019): In the autumn of 2016, in order to secure its entrepreneurial success in the long term, too as well as reviewing the range of products and services being offered. The company will be withdrawing from unattractive regional markets. Program intends to reduce costs by around €370 Million a year from 2019 onwards. With the overall reduction of cost to the extent of €550 million will increase the bottom value of the company and also the EPS.

6. Digital distribution channels: Building digital capabilities to facilitate the business and the company is investing also for this. As of day the company has 9 apps to help its business and its customers. It also has launched its Asia Pacific Digitalization Hub to develop and trial emergent digital technologies for industrial applications in partnership with Singapore Economic Development Board (EDB) and invested S$30m in the Hub. This will expand the digital capabilities of the company and lead a digital transformation of gases and engineering industries. It will also help improve safety & process efficiency, delivering better value to its customers.

Weakness

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Opportunity

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Threat

1. Safety regulations: The transportation of gas products needs lot of protection as they can be hazardous. The engineering also needs to meet the safety regulations of the country. These can be challenging. Accidents in such cases can be fatal and therefore need extra care. Therefore law regulates such products and there is a strict compliance. Also with an accident the company could possibly loose the license to operate and/or even the customers.

2. Government reforms and regulations: Change in laws governing the industries and tax reforms affect the working of the industries. Additional tariffs or reduce of government spending can impact the industry and revenues. The permissible levels of waste generations and disposal are the challenges being faced by the company. A change in the regulations can lead to huge capital expenditure. For example, if the government reduces the limits of carbon dioxide generation as waste, this will have the company to alter its processes and therefore causing capital expenditure. Also in the same way to reduce the exploitation of air as a free resource, the government may increase duty & taxes on the gas products

References

1. https://www.the-linde-group.com/en/investor_relations/business_model/business_model.html

2. https://www.the-linde-group.com/internet.global.thelindegroup.global/en/images/TLG%20FY%202016%20Presentation14_400556.pdf?v=7.0

3. https://www.the-linde-group.com/internet.global.thelindegroup.global/en/images/12989_Linde-FB-2016-EN-online_2017-03-0814_401906.pdf?v=9.0

4. https://www.gasworld.com/lindes-asia-pacific-digitalisation-hub/2014160.article

5. https://www.the-linde-group.com/en/news_and_media/press_releases/news_20180205.html

6. https://www.the-linde-group.com/en/news_and_media/linde_apps/index.html

7. https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Life-Sciences-Health-Care/gx-lshc-2017-health-care-outlook-infographic.pdf

8. https://www2.deloitte.com/global/en/pages/life-sciences-and-healthcare/articles/global-health-care-sector-outlook.html

9. https://www.businesstoday.in/opinion/columns/trends-healthcare-industry-healthcare-sectors-artificial-intelligence/story/267321.html

10. https://www.linde-mh.com.sg/2013/10/13/30-years-development-partnership-between-linde-mh-and-porsche-engineering/

11. https://www.the-linde-group.com/internet.global.thelindegroup.global/en/images/Press%20Release%20ADNOC%20Linde%20final_2017111614_441798.pdf?v=5.0

12. https://www.chemistryworld.com/news/linde-to-cut-costs-and-jobs/1017635.article

Political

1. Dependence on the government agendas and spending budget: The focus of the government depends a lot. If the government is focusing on industrial growth in terms of manufacturing, then Linde would get number of revenue options. The government spending affects the revenue, as the government may grant subsidies to the sectors it is promoting and this would lead to eventually increased business. Projects like power generation plants etc. of the government or to develop base industries or the government plans to establish companies and plants in that space. These majorly depend on the economics and the need of the country. Developing countries have these kinds of projects. These open up opportunities to Linde for business.

2. Sector regulations: Some sectors are highly regulated by the government, such as healthcare, food & beverages etc. Linde then has to adhere to all the laws and regulations under this. These also vary from country to country and therefore a standard practice is difficult. Developed economies have stringent laws and policies compared to developing economies.

Economic

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Social

1. Employee welfare, work life balance and involving employees: Linde helps its employees achieve a better work-life balance by providing a variety of opportunities& training worldwide. In particular, these include flexible working models such as flexi-time, part-time work and tele-working. The Group also focuses on supporting employees who are reliant on childcare or have a family member requiring care, and on providing assistance to employees during periods of poor health or social hardship. It encourages its employees to contribute their knowledge and ideas to the Group to support improvements and innovations. It also confers awards on employees and teams who have demonstrated particular commitment to corporate objectives and values. Linde commits to the principles of the UN Human Rights Charter, the core labour standards of the International Labour Organisation (ILO) and other international obligations and industry standards. The Group conducts regular reviews of the processes in place in the regions which are designed to ensure compliance with labour standards.

Technological

1. Research & development: Though the R&D expenses have reduced but the company has filled for 360 new patents. During the 2016 financial year, Linde spent a total of EUR €121 Million on research and development (2015: €131 Million). The Corporate & Support Function Technology & Innovation was set up in 2015 to further boost the effectiveness and intensity of R&D projects. In 2016, this Corporate & Support Function developed an integrated innovation strategy focusing on five key areas: advanced materials, efficiency, environment & resources, quality of life and the overarching topic of digitalisation. The company currently has 9 apps and it also has launched its Asia Pacific Digitalisation Hub to develop and trial emergent digital technologies for industrial applications in partnership with Singapore Economic Development Board (EDB) and has invested S$30m. This will expand the digital capabilities of the company. It will help lead a digital transformation and give Linde an edge over competition. It will also help improve safety & process efficiency, better monitoring & servicing ability & overall delivering better value to its customers.

2. Innovative ways of gases production such carbon dioxide: A major product of the company is carbon dioxide. Around 80 percent of the raw material required is recovered from recycling processes, of which about 10 percent comes from purely organic processes. Carbon dioxide is a by-product from the fermentation of renewable raw materials.

Legal

This section is available only in the 'Complete Report' on purchase.

Environmental

This section is available only in the 'Complete Report' on purchase.

References

1. https://www.the-linde-group.com/en/investor_relations/business_model/business_model.html

2. https://www.the-linde-group.com/internet.global.thelindegroup.global/en/images/TLG%20FY%202016%20Presentation14_400556.pdf?v=7.0

3. https://www.the-linde-group.com/internet.global.thelindegroup.global/en/images/12989_Linde-FB-2016-EN-online_2017-03-0814_401906.pdf?v=9.0

4. https://www.gasworld.com/lindes-asia-pacific-digitalisation-hub/2014160.article

5. https://www.the-linde-group.com/en/news_and_media/press_releases/news_20180205.html

6. https://www.the-linde-group.com/en/news_and_media/linde_apps/index.html

7. https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Life-Sciences-Health-Care/gx-lshc-2017-health-care-outlook-infographic.pdf

8. https://www2.deloitte.com/global/en/pages/life-sciences-and-healthcare/articles/global-health-care-sector-outlook.html

9. https://www.businesstoday.in/opinion/columns/trends-healthcare-industry-healthcare-sectors-artificial-intelligence/story/267321.html

10. https://www.linde-mh.com.sg/2013/10/13/30-years-development-partnership-between-linde-mh-and-porsche-engineering/

11. https://www.the-linde-group.com/internet.global.thelindegroup.global/en/images/Press%20Release%20ADNOC%20Linde%20final_2017111614_441798.pdf?v=5.0

12. https://www.chemistryworld.com/news/linde-to-cut-costs-and-jobs/1017635.article