Linde : Transcript

J.P. Morgan Chemicals

Jeff Zekauskas Moderator

Fireside Chat with Linde COO Sanjiv Lamba

June 16, 2021; 10:00 AM ET

Operator:

Good morning and welcome to the J.P. Morgan Fireside Chat with Linde. This call is not intended for EEA clients that only subscribe to written research, and members of the press are not permitted on this call. Members of the J.P. Morgan Investment and Corporate Banking are not permitted on this call. If you are with the press, or subject to MIFIID 2 and do not have high touch access, or a member of the J.P.

Morgan Investment and Corporate Banking, please disconnect now. This conference call is being recorded, and a transcript of the call may be made public.

Operator:

Much of this conference call may also be reproduced in J.P. Morgan research. If you have any objections, you may disconnect at this time. At this time, all participants are in a listen only mode. I will now like to turn the call over to your host, Mr. Jeff Zekauskas, with J.P. Morgan. Please proceed.

Jeff Zekauskas:

Hi, good morning, this is Jeff Zekauskas. I cover North American Chemicals for J.P. Morgan. It's my pleasure this morning to introduce Sanjiv Lamba, chief operating officer of Linde PLC. Sanjiv began his career at Linde in 1989, in India, in finance. He was the long standing head of Linde AG's Asian operations, and served as a member of the executive board of Linde AG. The form of our discussion will be a fireside chat, but if you have a question that you would like to pose, please email me at [e-mail], or submit your question through the question cue on the dashboard, and I will ask them. I'll weave them into our chat.

Jeff Zekauskas:

Sanjiv, welcome. Thank you for coming to speak with us today. My first question is, how did an Linde AG guy, come to be the Chief Operating Officer of a merged company with Praxair? How did you accomplish that?

Sanjiv Lamba:

Thank you, Jeff, and it's great to be with you this morning for this chat. Jeff, I'm going to get a little bit lost as I try and answer that question, because my view is, this isn't about a Linde guy in the way maybe you've described it. I'd say, today maybe we think about ourselves, as all of us as being Linde guys and girls of course, but the way I'd like to address that is, when you think about any senior leadership position, the things that you're looking for and I'm expecting this is what Steve and the board would have thought about, is you're looking for leadership, having me demonstrate it, a track record on that.

Sanjiv Lamba:

You're looking for people who have an impact across the business, people who move the needle, and you're looking for a track record of performance. Again, I'm pleased to say that as I think about senior leadership positions within the business as well, these are things that I look for. Hopefully that's what I brought to the table as those discussions happen for me to be here today, having this conversation with you.

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J.P. Morgan Chemicals

Jeff Zekauskas Moderator

Fireside Chat with Linde COO Sanjiv Lamba

June 16, 2021; 10:00 AM ET

Jeff Zekauskas:

Are the incentives of the new Linde PLC very different than the incentives of Linde AG, or are they quite similar?

Sanjiv Lamba:

I'd certainly say they're different. I would also say Jeff, that there's a lot more talk that goes into them. One of the things that I think makes Linde PLC today, can motivate the organization to get to the results with delivering, and hopefully meet the expectations that we've set out there, is the fact that we're able to align that compensation, and the philosophy of pay for performance runs right through. It goes from the top, right down to the guy who's filling a cylinder, or who's delivering product, or who's offering a plant.

Sanjiv Lamba:

We've been able to do that by aligning the interest of our shareholders and investors, to the interest of the senior leadership team, and cascade that down across the business. That's a fundamental difference, having that clear alignment and paying for performance, that create the motivation levels and the energy that you need in the organization to be able to deliver the results that we're doing today, and look forward to doing in the future.

Jeff Zekauskas:

How do you come from Linde AG and working with Steve Angel? How does your vision of the company overlay with Steve's, or in what way is it a different take on things?

Sanjiv Lamba:

That's a great question, Jeff. I'm going to take a step back and just try and at least articulate the vision. Then we'll talk about how it's aligned or where it overlaps. When I think about Linde PLC today Jeff, what is our vision? What do we want to be? We want to be the best performing gasses and engineering company. Best performing in every aspect of our business. We are ambitious, as you know. When we put our minds to it, we want to achieve the goals we set for ourselves. We try to capture that in our vision by staying best performing.

Sanjiv Lamba:

Whether it's on our safety performance, whether it's on our financial performance, whether it's in gross, whether it's in how we work and deliver our sustainability goals, we want to be the best performing gasses and engineering company. That's the starting point of the vision that I believe is fundamentally important, but we also want to be leaders in innovation and sustainability. We believe innovation and sustainability, innovation as you know is in our DNA. Founded by Dr. Carl von Linde, an innovator 140 years ago, and that DNA is something that we've managed to preserve and hold onto. If anything, propagate across the organization.

Sanjiv Lamba:

Innovation and sustainability leadership is important to us for a number of reasons. One, because we believe that our approach to how we engage and support our customers, how we work within our

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J.P. Morgan Chemicals

Jeff Zekauskas Moderator

Fireside Chat with Linde COO Sanjiv Lamba

June 16, 2021; 10:00 AM ET

communities, where we operate and more broadly we set this mission statement for ourselves as well on making our world more productive. It's about how we impact the world around us and preserve it for the future. Those are aspects which are quite important for me personally, and I think organizationally these are part of our vision that can make us stronger as an organization.

Sanjiv Lamba:

There's a final piece, which I know it will bring a smile to your face, which is that we like to create value. Intrinsic to whatever we do, my vision is, as an organization, we measure our success with the amount of value we create, and that value gets created for our investors. Many of them on this call, that value gets created for our customers because of the mix of technology and solutions that we bring to bat. That value gets created for our employees, because with our growth, and our continuing moving ahead, we offer opportunities for growth to our employees as well, and finally into our communities where we participate more actively and continue to find opportunities to give back where we can. Again, if I package that all together Jeff, that's how I describe my vision for Linde PLC.

Sanjiv Lamba:

Now, I'm going to disappoint you, I know, by saying that I think this is entirely aligned not just with Steve, but in fact it's entirely aligned with 73,000 people across the world. That is our vision. Each one of us takes it and puts a personal plan to it, but that's how we think about what we do every day. I hope that helps.

Jeff Zekauskas:

Yes, it does help. Thank you for that. Maybe, would you describe current business conditions? How they appeared at the beginning of the second quarter, and how they appear today. Has the world changed very much over the past three months?

Sanjiv Lamba:

Right. Maybe the way I'll try and answer that Jeff, is maybe give you a slightly geographic view of what's happening as I see it across the various segments in which we operate, and then maybe talk a little bit about our end market. Between those two perspectives, you'll get a reasonable sense of what we're seeing in our world around us.

Sanjiv Lamba:

I'll start with Asia right down on the East, and tell you that the momentum that we've seen in the first quarter, and you're reading about it every day, that momentum largely continues across most parts of Asia. There are some COVID, there are some countries which have been tackling the COVID pandemic in a second wave, and so on and so forth, but despite that, the underlying performance more broadly across Asia, continues to be strong. China, obviously very strong volumes. Pulling along at an excellent pace.

Sanjiv Lamba:

We see with electronics lens, we see Taiwan and South Korea moving along very, very well as well. Australia's had a good recovery and they're back to pre COVID levels. You would have seen that in their

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J.P. Morgan Chemicals

Jeff Zekauskas Moderator

Fireside Chat with Linde COO Sanjiv Lamba

June 16, 2021; 10:00 AM ET

macro numbers that came out. Again, more broadly across that path, doing reasonably well. I come to the Europe or [EMIA's 00:09:45] we call that segment. Again, I have to tell you that I've been pleasantly surprised. I think the industrial recovery, we talked about it in our earnings goal that we were starting to see, and we described the hypothesis about how the industrial recovery will move forward, and we'll see the decline on medical.

Sanjiv Lamba:

For some reason, a number of investors had asked the question about, where medical oxygen volumes were, and was that a reason for the Q1 being that strong. The reality is, I mentioned it then and I'll repeat it now, that over the first quarter, we saw in most of our developed markets, the medical volumes were coming down, and many markets had pre COVID levels already. Now we can talk about the healthcare business separately and I can describe to you what the other dynamics there are, but for now, I've been pleasantly surprised. Germany and most of Europe, including Eastern Europe, many parts of Eastern Europe, showing that recover that I described was beginning in Q1.

Sanjiv Lamba:

Moving on to the Americas, very strong momentum. You read about it every day. I'm not going to belabor the point. Yes, we see some inflationary cringe around that, but again, we've been talking about inflation in the company since the beginning of the year. We've been looking at it and saying, well there's a lot of money being printed across the world. Inflation's around the corner. We've got to be prepared as a team. A lot of conversations on that happen every month in fact, when we do our business reviews.

Sanjiv Lamba:

That's how I see the strength in the Americas. The US obviously our largest market and our biggest business. Seeing very strong focus growth. I know there was a winter storm. To be honest, we took it in our stride, and I don't think in the earnings we mentioned it, but the reality is, we've seen a very strong recovery from that. Everything is looking pretty solid from the US point of view, and from Lat Am, it's a mixture of countries as you know, but despite some of the COVID impact there, we are seeing that momentum that I descried again in the Q1 earnings call hold nicely, and it's good to see that.

Sanjiv Lamba:

That's a geographic view. Let me talk end markets a little bit, and again, I hae to tell you, it's a rare occasion I probably say, when I would say to you that all the end markets have shown consistent and good growth. I described on the Q1 call, and everything else that you read about in the press, only suggests that that momentum is likely to continue. Let me talk about a couple of those end markets and give you a sense.

Jeff Zekauskas:

Thank you.

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J.P. Morgan Chemicals

Jeff Zekauskas Moderator

Fireside Chat with Linde COO Sanjiv Lamba

June 16, 2021; 10:00 AM ET

Sanjiv Lamba:

Healthcare is the obvious one. I described it as being up double digits. I think 13% in Q1, sequentially up 3%. Obviously a component of the healthcare piece is the medical oxygen. I just described what we're seeing on that. Just to elaborate a little bit on that Jeff, now to say that as we see those volumes decline, the reason I've described to some investors in previous conversation, the reason I believe we'll still see that mixed single digit growth in that space is because elective surgeries which were put on hold for almost 18 months now, there's a huge back log of those elective surgeries. They're going back and action rating those surgeries across the world, and you'll see the volumes reflect that in the quarters ahead.

Sanjiv Lamba:

Electronics again have been very steady across those 18 months. I described that again for Q1, plus 10% year on year, plus 6% sequentially. I expect electronics to continue to have that momentum. You read about Intel and TSMC and Samsung making great announcements on new fabs being built. A number of them in the US as well. Contemplation of some fabs in Europe, and of course continued expansions in Asia. I would expect Jeff, talking about the back log just briefly, large part of the back log I expect this year, to come from that electronic space, because of a lot of this activity that's happening. Including a lot happening in China, which is also building its own base around that semiconductor market.

Sanjiv Lamba:

Then whether it's metals, up I think 3, and 2% probably, manufacturing up 4 and 2%, in terms of year on year and sequential, or chemicals and refining where we've seen chemicals really bounce back very strongly. In many cases, our customers running flat out on chemicals. On refining, we've seen a very strong and steady progress. It's not been, you haven't seen very significant jump ups, but very steady progress and of course the oil price as it stands today clearly supporting that. The fact that you and I are talking about traveling and meeting in person, or traveling for holidays obviously helping that cause as well.

Sanjiv Lamba:

I didn't talk about food and beverage, and I know that was a negative number in the Q1 numbers I showed, and that is really all driven sequentially around the Christmas and New Year period, which has a big swing, largely for our gist business, and the gist business is a food logistics business, and that impacted that number for Q1. Other than that, food's been very steady. It's been very stable and solid. Beverage obviously, when you shut down fast food each region, pubs and bars, then you will see an impact. I described again, I think also on the earnings call, I was describing the UK where there's obviously a lot of pent up demand for good beer, so people with these pubs opening up, we were jumping from 200 small cylinders that we'd use for carbonation, going up to 6,500 cylinders, just to give you a sense of, just a perspective of how that opening up was impacting.

Sanjiv Lamba:

That 6.5 was just marginally ahead of what we would have seen on a normal pre COVID basis. I'm going to stop there Jeff. I'm conscious that, hopefully that gives you a roundabout view on how things look like moving forward.

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