Linde plc

Good day, and thank you for standing by. Welcome to the first quarter 2021 Lindy Earnings Call. At this time, all participants 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 and then one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star and then zero. I would now like to hand the conference over to your speaker today, Mr. Juan Pulez. Head of Investor Relations. Sir, you may begin.

Crystal, thank you. Good morning, everyone, and thanks for attending our 2021 First Quarter Earnings Call and Webcast. I'm Juan Pelaez, Head of Investor Relations, and I'm joined this morning by Matt White, Chief Financial Officer, and Sanjeev Lamba, Chief Operating Officer. Today's presentation materials are available on our website at lindy.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 of the adjusted numbers are in the appendix to this presentation. Sanjeev and Matt will now give an update on Linde's business outlook and first quarter performance, and will then be available to answer your questions.

Sanjeev, all yours. Thanks, Juan, and good morning, everyone. Once again, the Lynda team delivered another stellar quarter across all fronts. 32% growth in EPS, 57% growth in operating cash flows, operating margins expanding 320 basis points, and of course, ROC at 14.5%. And of course, very strong progress across IESG goals of reducing carbon intensity and making strides in gender diversity. Matt will walk through the details on the financial numbers, but frankly, they speak for themselves. A few months ago, we marked the two-year anniversary of the merger. So I'd like to take the opportunity to recap both our performance and also provide you a medium-term outlook on expected financial performance going ahead. Let me move on to slide three. Slide three shows our 2018 to 2020 growth relative to key competitors across four major financial metrics. EPS, operating profit margin, operating cash flows, and of course, very importantly, return on capital. From my perspective, these are the four most important financial metrics to determine performance in this industry. And it is, of course, quite clear from that slide, as you see, that we have led across all four. In fact, I'd say with some pride that Lynda has the undisputed best performance in the entire industry since our merger. Our employees have accomplished this while integrating two global companies during possibly the worst pandemic in a century. But of course, this is nothing new. We have been the industry leader for almost three decades now. And I want to move on to slide four and talk a little bit about that history. of over 25 years, from 1993 to 2017, as the last full year before the merger. The compound annual growth rate of Lindus sales, EPS, dividend, and operating cash flow exceeds both competitors across the board. We have a long history of generating compound value for our shareholders while sustainably and profitably growing the company. And, of course, Linda's outperformance extends beyond just our industry. On the right-hand side over there, you can see the EPS CAGR that we've had over the same period against the broader S&P 500. So it's clear we've been the industry leader for many years, and we fully expect to continue that trend for decades to come. Our midterm strategy, which is on our next slide, five, provides a roadmap on how we plan to get this. Most of you have seen this strategy before. It's fairly straightforward and simple enough that we can summarize it on one page. It starts, of course, with optimizing our base business of industrial gases and engineering. I've said this before, our unique operating rhythm provides a real competitive advantage in how we extract value year in and year out, irrespective of the macroeconomic climate. We've, of course, proven this in the prior recessions and some black swan events, including the most recent COVID pandemic. So while our resilient business model provides downside protection, we also have the ability to leverage and any economic recovery due to our exposure to the cyclical end markets, primarily here through merchant and packaged gases. Of course, the pricing structure here also helps as it closely correlates with inflation. You've already seen some of that demonstrated in the last few quarters, and I anticipate further upside if the economy continues to recover. Finally, we will continue to grow by capitalizing on future opportunities. Linda has demonstrated the highest compound growth rate in the industry across all key financial metrics, and we expect to maintain this distinction. Currently, there are secular growth drivers around two of our key markets that comprise about 30% of our sales. These are healthcare and electronics. You're all familiar with what is happening in the electronics space today. Our customers are looking to expand production of chips to meet soaring demand while improving and strengthening local supply chain logistics. We are an integral part of this development as industrial gases are a critical component to successfully operating a modern fab today. I fully expect electronics to comprise the largest portion of backlog wins over the next couple of years, as we continue to see high levels of interest for new customer builds. Furthermore, the healthcare market continues to grow as well. Combination of demographics and trend towards telehealth. As you know, our healthcare business, particularly the home care business, served as a critical second line of defense during the recent pandemic. And of course, we expect future trends to create new growth opportunities, allowing us to leverage our leading dense network to support momentum towards a distributed healthcare market. The combination of these strategic elements should enable us to grow annual earnings per share, on average, more than 10%. That is something we've demonstrated throughout our history and we feel confident we can continue for the long term. Now, you will notice I said 10% EPS outlook excludes the impact from the transition to clean energy. Currently, we view the benefits from this transition as incremental to our EPS outlook. Clean energy, of course, is a hot topic, as you all know. In fact, I hadn't quite realized how many global hydrogen experts there really were until only six months ago. Producing, storing, and supplying hydrogen to enable cleaner fuels is something we've been doing for decades. In fact, hydrogen has been one of our fastest-growing molecules over the past 10 years. So given this, I'd like to use the last few slides to provide you a view on the overall clean energy market, explain why Linda is exceptionally well-positioned to succeed, and share with you our overarching strategy going forward. But before I start, I want to state that we are not providing specific guidance on either expected sales or wins from clean energy at this time. This is a rapidly evolving landscape with many countries taking different paths. So the pace of the transition is just too uncertain to make multi-year detailed projections. However, what I can confirm is that Lindy has the experience, the technology, and the asset network to be a significant player in the transition. To further elaborate on this, I'd like to provide you our view of the clean energy market on the next slide, slide six. It's safe to say that nobody really knows how the decarbonization market will ultimately play out. So it may be helpful to start with an overview of the potential opportunities. We think of clean energy transition in two main pieces, the first being how we can provide solutions to managing carbon, and the second relating to clean hydrogen development. Now, we already have a number of significant applications that reduce, capture, sequester, or clean and monetize gas streams for use. A good example of this is our current carbon dioxide business at about $1.3 billion, serving several key end markets. Looking ahead, we see more opportunities for our technologies and solutions to enable our customers to reduce their carbon footprint through capture and removal of their emissions. Furthermore, we believe blue and green hydrogen will both play an important role in the transition to cleaner energy. In theory, the total available opportunity can be represented by the current $6 trillion of hydrocarbon market. However, that will be served by a blend of solutions and will take years to evolve. So as an example, one estimate assumes clean hydrogen will reach $100 billion by 2030, or say roughly 1.5% of today's hydrocarbon market, but time will tell. Given the uncertainty, as I said before, I'm not going to provide you a specific estimate or timeline today, but I do want to reiterate that This is a significant opportunity for Lynda and something we see as an upside to our Pace business. So with this as a backdrop, it may be helpful to understand what Lynda brings to the table regarding technology, asset network, and experience, which you can find on the next slide, slide seven. Whether it's production, distribution, or application and services, we have over 50 years of experience as an owner and an operator of billions of dollars of hydrogen infrastructure. We are agnostic to how that molecule is made, whether it's through reforming, chemistry, or by electrolysis. We have the technology and the operating expertise for all of them. Furthermore, we have the largest and the most dense hydrogen distribution network in the world. This will be crucial to ensuring a safe, reliable, and cost-effective energy transition. Our technology, many proprietary applications, and extended service capabilities position us exceptionally well for this opportunity. And finally, we also have the ability to leverage our engineering business to integrate various technologies into solutions and to offer sale of gas or selectively sale of equipment, providing us a unique competitive advantage. Overall, we have a very long and successful history supporting the transition to clean energy, and I believe we are incredibly well positioned across the entire value chain as this initiative accelerates. I'd like to wrap up the clean energy discussion on the next slide, slide eight, with a view of our overarching strategy and give you some key supporting examples as well. The strategy on the left is something we've mentioned before. It represents a proven approach to profitably growing an industrial gas business, including hydrogen. It starts with leveraging our leading integrated asset network. In addition to that, we execute locally market-driven strategies. We believe many of these initiatives will vary by country. We also expect to continue to advance and grow our technology leadership in this space. across the value chain by leveraging the expertise of our engineering team, as well as developing partnerships that provide us access, insight, and hopefully accelerate opportunities. Now, on the right-hand side of the slide, you'll see three projects we recently announced. I just want to remind you that these are part of our base CapEx and therefore not included in the $3.5 billion backlog. Now, these projects are over $350 million for green and blue, hydrogen infrastructure in South Korea, Germany, and the United States. Just to pick on the example in South Korea, we are partnering with one of the largest industrial conglomerates to build out a liquid hydrogen infrastructure to fuel municipality buses there. We continue to evaluate a significant and growing number of opportunities, from large megaprojects to very small ones. But irrespective of the size of the opportunity, we will always maintain a disciplined approach to pursuing projects that meet our investment criteria. This summarizes our mid-term strategy and how we currently sleep the clean energy market. But this is something I'll provide more updates on in the future as it continues to evolve. Now, before I hand over to Matt, I want to make one final point on our ESG initiatives. Simply said, ESG is embedded in our culture. It's part of our operating rhythm, and it's part of our compensation philosophy. It has been an integral part of our values and forms the foundation of Linda's mission statement, making our world more productive. I'm pleased to say we are currently tracking ahead in many of the initiatives we laid out in early 2020, including carbon emission intensity reduction and increasing gender diversity. But this isn't enough. We know we need to do more. We are therefore in the process of thoughtfully developing more ambitious ESG goals, which I expect to share with you in a future call. But until then, you can be certain that we will continue to improve our performance in this area. So with that, I'd now hand over to Matt, who will take you through the financial results and our guidance. Matt.