Targets and strategy of The Linde Group

A world leader

Linde has set itself the target of becoming the leading gases and engineering company in the world. This means becoming the leading company not only in terms of its key financial figures, such as revenue and operating profit, but also in terms of its reputation in the market and with customers and all other stakeholders. Linde sees its role as providing its customers with high-quality products and services and offering sustainable value added, as well as serving those customers in the best way possible.

Linde is committed to behaving responsibly towards people and the environment and to conserving natural resources. The Group complies thereby with its foundational principle of sustainability, one of four principles underlying the Linde Spirit. The Linde Spirit defines the values of the Group. More information about this can be found at www.linde.com/lindespirit.

Earnings-based growth

The strategy of the Group is geared towards sustainable earnings-based growth. Using its integrated business model as a base, Linde is always working to achieve improvements in the Group’s performance and focusing on the expansion of the Group’s business activities. Linde wants to continue to strengthen its core business and to take best advantage of the synergies between its engineering business and gases business. The Group has a strong customer focus and cooperates closely with its customers, developing innovative gases applications which are tailor-made for its customers’ requirements.

Linde is also keen to benefit disproportionately from the following growth areas: energy, the environment and health. Another of the Group’s objectives is to exploit the excellent opportunities presented by the growth regions in the most effective way possible.

Especially in China, Linde has a leading market position. The Group became involved here at an early stage, installing technologies which were relevant to those markets, thus gaining a competitive advantage. Linde intends to translate this advantage into market share and to secure and expand its market share over the coming years. To this end, Linde is investing above all in projects with particularly good prospects in the on-site business (on-site supply of gases to customers): for example, in the chemical industry. Most of the Group’s investment in the 2014 financial year (EUR 1.244 bn) was made in the growth markets (2013: EUR 1.587 bn). The plan is to continue to apply this strategy over the next few years.

In the promising market for energy and environmental technologies, Linde is continuing to expand its product portfolio. The range comprises processes and technologies required along the entire length of the value chain of renewable and fossil fuels: from production via conversion, transport and storage to their most efficient use. The Group has also focused its research funds on the continuing development of this promising market. See Research and development.

In the energy sector, the importance of shale gas (natural gas recovered from shale) has been growing in the past few years. Linde is benefiting from this trend in both its Engineering Division and its Gases Division. This is because the newly extracted natural gas does not simply result in greater demand for natural gas processing plants but also in the construction and expansion of chemical clusters. One example of this is the petrochemical site in La Porte, Texas. Linde is going to develop the supply of gases on this site by building a large air separation plant and installing a new gasification train for its existing synthesis gas complex. See Gases Division.

It should, however, be noted that the significant fall in the price of oil over the past few months might put a temporary brake on new investment in major projects in the petrochemical and natural gas processing industry.

In the case of enhanced oil and gas recovery (EOR and EGR), industrial gases such as nitrogen also play a key role. Linde is well positioned for the award of new projects in this market.

With its broad range of skills in the plant construction business, the Group is also well equipped to deal with the growing importance of liquefied natural gas (LNG).

Moreover, Linde is a pioneer in the development of hydrogen technology and is continuing to drive forward the establishment of a hydrogen filling station infrastructure. The Group is also working on exploiting growing market potential for its technical skills in the field of power-to-gas. Examples of this are processes designed to convert energy from renewable sources into gas such as hydrogen using electrolysis, so that it may be stored more easily.

Since its acquisition of Lincare and the purchase of Air Products’ Continental European homecare operations in 2012, Linde has become a globally leading gases healthcare company specialising along an integrated respiratory care path. Linde is leveraging its international platform to expand its respiratory therapies and clinical care services worldwide. The Group has defined its strategy in the Healthcare segment as providing a similar range of products and services in all regions of the world, achieving synergies and making further improvements in its sales and cost structures.

Another element of Linde’s strategy is to ensure that it benefits from long-term growth drivers in the global healthcare sector. The market is characterised by a growing, ageing population, an increase in chronic diseases such as asthma and COPD (chronic obstructive pulmonary disease), and a greater emphasis on patient care in settings other than hospitals. Rising prosperity especially in Asia is also generating ever-growing demand for healthcare.

High Performance Organisation

Linde will continue to refine its processes on the basis of its HPO (High Performance Organisation) programme, a holistic concept designed to achieve sustainable efficiency gains.

The Group began to apply this programme in 2008 and is continuing to implement the measures defined therein. These activities are linked to measurable targets. Linde is seeking to achieve reductions in gross costs of EUR 750 m to EUR 900 m in the four-year period from 2013 to 2016. The Group sees potential above all in the supply chain for the cylinder gas and liquefied gases business as well as in the areas of procurement and IT. Linde intends to make further improvements in the organisation of procurement in order to continue to achieve a lasting positive impact on costs and cash flow in future. This applies to both expenditure and processes. In addition to making structural changes, the Group will also continue to work on optimising its supplier portfolio and product range in order to reduce costs. In 2013, for example, Linde embarked on a number of sustainable improvement projects for complex categories of goods. The aim of these projects is to implement the structures which will ensure that procedures continue to be effective in future. Important factors in this context are cooperation across functional and organisational boundaries, standardisation and optimised processes. Moreover, Linde is implementing pricing initiatives to counteract rising costs in the volatile markets for energy and raw materials.

Sustainability

Sustainability is a vital component of the Group’s strategy. Linde combines long-term economic value added with environmental and social responsibility.

Linde wants to apply the fundamental principle of sustainability to an even greater extent to drive its business operations. The Group is constantly analysing how its products help its customers develop more sustainable processes: e. g. through increased energy efficiency or reduced emissions.

The main decision-making body for sustainability-related activities is the Corporate Responsibility Council. The members of this committee are the Chief Executive Officer, another member of the Executive Board, together with the heads of the Group’s Corporate & Support Functions: Corporate Communications & Investor Relations, Group Human Resources, Group Legal & Compliance, Corporate Internal Audit and HSE. In 2014, the CR Council advised inter alia on customer requirements in relation to sustainability and on the introduction of a global safety target for the Group.

Linde is continually evaluating which themes are relevant to the sustainable development of the Group. Based on this materiality analysis, Linde establishes its priorities for sustainability measures. To do so, it is constantly analysing the requirements of external stakeholders and evaluating their feedback, as well as conducting workshops involving in-house experts on particular topics and strategies. In the course of this process, Linde also considers information about environmental and social risks derived from the Group risk management analysis.

The Group maintains regular contact in a variety of ways with its main stakeholders. These include Linde employees, shareholders, customers, suppliers, non-governmental organisations, politicians, the research and scientific community, neighbours and the general public. Linde is also involved in trade associations and scientific collaborations, and with specialist subject networks, as well as with sustainability networks such as the UN Global Compact, which it supports.

Measurable medium-term targets

Linde will continue to pursue a corporate strategy of sustainable earnings-based growth. Linde underpins its claim of being the leading gases and engineering company in the world with measurable targets. For the 2016 financial year, Linde originally set itself the target of achieving Group operating profit of at least EUR 5 bn and a return on capital employed (ROCE) of around 13 percent. These medium-term targets were founded on the assumption that there would not be any significant changes in exchange rates compared with those prevailing at 31 December 2012 when the medium-term outlook was formulated. The medium-term targets were also defined based on the expectation that there would be dynamic growth in the global economy in the planning period from 2013 to 2016.

In fact, conditions have been more unfavourable than expected. Therefore, Linde revised its medium-term targets at the end of October when it published its interim report for the nine months to 30 September 2014 in order to take account of the change in conditions. Depending on economic trends and on the basis of the exchange rates prevailing at the end of October, Linde expects to achieve Group operating profit of EUR 4.5 bn to EUR 4.7 bn and ROCE of 11 percent to 12 percent in 2017.

Linde has also set itself a number of non-financial targets. These targets are linked to further improvements in the area of safety and environmental protection and in the area of personnel development. The Group is focusing on ensuring production-related safety and transport safety, increasing energy efficiency and reducing emissions, as well as on diversity in the workforce. Linde had set itself a target for 2017 of a 5 percent improvement in the average energy consumption of the air separation plants it has installed and has achieved this target early in the 2014 financial year. The benchmark is the global average efficiency of the air separation plants operating at the design plant load. The base year is 2008. In 2015, Linde plans to decide on new targets.

Linde has also set itself a target for the hydrogen plants (HyCO plants) it has installed. The Group aims to increase the energy efficiency of its hydrogen plants by 2 percent by the end of 2015, compared with the base year of 2009.

In the 2014 financial year, the Group set a global target for occupational safety. Linde wants to continue to reduce the number of accidents. As the next step, it has set itself the target of continuing, between now and 2020, to reduce the rate of workplace accidents which result in at least one day of absence per million hours worked. The base year is 2012. Linde is also seeking to halve the number of serious transport incidents by the end of 2017, compared with the base year 2012.

In the area of personnel, Linde has set itself the global target of increasing the proportion of women in senior management positions to 13 to 15 percent by 2018. Given the changes which are expected to be made to the German Stock Corporation Law (AktG), Linde will provide more detail about this target in due course.

Information about the extent to which non-financial targets have been reached is given in chapters Employees and society and Safety and environmental protection.