Linde plc

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 and full year 2019 Lindy Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Juan Palaez. head of investor relations. Thank you. Please go ahead, sir.

Thank you, Daniel. Good afternoon, everyone, and thank you for attending our 2019 fourth quarter earnings call and webcast. Once again, this is Juan Pelais, head of investor relations, and I'm joined this morning by Steve Angel, chief executive officer, and Matt White, chief financial officer. Today's presentation materials are available on our website at lynda.com in the investor section. Please read the forward-looking statement disclosure on page two of the slides and note that it applies to all statements made during this teleconference. The reconciliations and adjusted performance numbers are in the appendix to this presentation. Steve and Matt will now give us an update on LINDA's performance, including 2019 highlights and our new 2028 sustainability targets. We will then be available to answer questions. Let me turn the call over to Steve.

So if you had told me a year ago that this is where we would be today as a new company, I would have been delighted. We had the plans in place, but we had a lot of work to do. And I'm pleased to say the team executed beautifully. A few financial highlights for the year. We saw underlying growth of 4%, half price and half volume. Operating margins climbed nicely, 160 basis points to 18.7%. Enterings per share grew 23% XFX. We had strong cash flow for the year, especially in the second half, which is always a good sign of a healthy and improving business. I'll let Matt expand more on that. And with that strong cash flow, we invested $4 billion back into the business in CapEx, half were contracted large projects, and returned $8 billion to shareholders between dividends, share buybacks, and the squeeze-out of our minority shareholders. And return on capital, the single most important metric for any capital-intensive business, rose 130 basis points to 11.6 percent. We also reached a record backlog of projects, $4.4 billion for our cell of gas business and $5.7 billion for our third-party engineering business. $10 billion in total. I'm pleased to say that we won practically every project we chose to pursue. This provides the foundation for growth in future years as we bring these projects online. And with respect to integration, it's largely done. We conducted our first employee survey, and we were pleased with the overall results. This is a good indication of how well the team integrated two high-quality companies in a relatively short period of time. We began implementing our strategy, which is to build network density and core industrial gas geographies, leverage our significant advantage in engineering and technology to win more than our fair share of cell gas opportunities, and capture the full value of the merger. which includes cost and CapEx efficiencies and growth synergies. And it is the latter that we are getting more and more excited about every day. Coming out of this year, we definitely expect to see additional growth from merger synergies on top of base industrial production, price, and project startups. And beyond that, beyond the typical three-year kind of post-merger phase, I believe the greatest and most enduring value created from our merger will come from the sharing of our collective knowledge, experience, and capabilities. We also wanted to establish a strong foundation of operational excellence. Our safety performance continues to trend positively with best-in-class performance in many categories. Another key priority for this year was to implement a robust productivity initiative, and we made a lot of progress towards that end. Productivity initiatives need to be revitalized from time to time, and we see the expansion of our digital tools and capabilities driving continuous improvement in our company for years to come. Let's talk about 2020. Yes, it is an uncertain world. We gave you a chart in the back so you can understand our exposure on a country-by-country basis. It's never a bad idea to have nearly a third of your sales and operating profit in the United States. It is a good time for me to remind you of the resiliency of our business model. We generate strong cash flow through the economic cycle. When the economy is strong, we invest more in CapEx for growth. And when it is weaker, we return more of that cash to shareholders. Add to that the value created by our merger, and you can see why I am confident in our ability to continue to generate double-digit earnings growth. Regarding climate change, everyone wants to know if you're a part of the problem or a part of the solution. Here at Lindy, we are definitely part of the solution. We have a long track record of success in sustainability, having been recognized in the Dow Jones Sustainability World Index chemical sector for 17 consecutive years, the only chemical company in 2019 that can make that claim. We are also aligned with the aspirations of the Paris Climate Accord. However, this requires many parties, government, industry, and society as a whole to come together and play an active role. I can tell you that as a leading industrial company, we will certainly continue to do our part to make our world more sustainable. In fact, that is our mission statement, making our world more productive. Through our solutions, technologies, and services, we are making our customers more successful and helping to protect and sustain our planet. At Linde, we make products that are beneficial to our environment and society as a whole. In fact, over 50% of our sales today come from our sustainability portfolio, that is, products that bring environmental and social benefits. We make high-purity oxygen for medical needs and to purify water for drinking. We produce krypton that is used for insulation. We make nitrogen that helps keep our customers' operations safer. We manufacture coatings for turbine blades that make aircraft engines more energy efficient. And we make hydrogen to desulfurize and decarbonize transportation fuels to meet ever stricter environmental standards. In terms of greenhouse gas impact, the products we provide enable our customers to avoid more than twice as much greenhouse gas emissions as Lindy emits as an entire company. That is a track record we are proud of, and we certainly want to continue to live out our mission statement of making our world more productive. But in addition to that, we want to set new sustainability goals. By the year 2028, which marks 10 years from the date of our merger, we will invest at least $1 billion in new decarbonization capital projects. Examples of that would be carbon capture and sequestration, hydrogen mobility, like the agreement we just signed to build hydrogen refueling stations in South Korea, green hydrogen projects for industrial customers, and hydrogen to produce renewable fuels. We will spend at least one-third of our R&D annual budget on decarbonization. We will continue to develop industry-leading technologies, like dry reforming, which uses CO2 as a feedstock in lieu of steam to produce syngas. This is a technology we developed in conjunction with BASF. And we want to continue to advance our own carbon capture technologies to make them more economically viable. We will continue to invest in promising green hydrogen technologies, like our $50 million investment in ITM to scale up their electrolyzer technology for industrial and hydrogen mobility applications. We will double our annual purchases of renewable power. How much is that, you might ask? Today, we buy about 16 terawatts of renewable power, or about $1 billion of renewable power purchased each year. That is enough electricity to power 4.7 million homes here in Germany, and our goal is to double the amount of renewable power we will purchase. As a result, we will lower our greenhouse gas emissions intensity by 35%. Why not more, you might ask? We would love to, but that's going to be a function of the availability and reliability of renewable power, which is far from certain today in many of the countries we operate in around the world. I can tell you that everyone at Linde, all 80,000 of us, are excited and passionate about what we can do to make our world more sustainable. And now I'll turn it over to Matt.