Linde’s earnings suffer due to financing expansions

Announces fall in profits as surging finance costs negate growth in revenues.

KARACHI:

Linde Pakistan – manufacturer and distributor of industrial, medical and specialty gases – announced its results on Friday, where earnings contracted and expenses climbed, particularly finance costs as the company seeks to expand.

Linde reported a profit of Rs92.27 million for the half-year period ending June 30, 2013, which was 37% lower than Rs147 million it earned in the corresponding period of 2012. The earnings announcement was also accompanied by a payout of Rs1.5 per share.

Revenues, however, climbed 12.1% to Rs2 billion during the semi-annual period of 2013, while margins shrunk 300 basis points to 21.6%, compared to 24.5% in the corresponding period last year.

Climbing expenses negated the effect of growth in revenues as the company managed to spend 11.4% more than what it did in the same semi-annual period of 2012. Linde’s expenses totalled Rs244 million in the period.

The Achilles heel for Linde, however, was exponentially higher finance costs despite interest rate cuts by the State Bank of Pakistan to 9%. Finance costs reported were 33 times higher to Rs44.3 million against a meagre Rs1.4 million spent on financing in the corresponding half-year period of 2012.

In February, the company announced that it will install an air separation plant in Muzaffargarh, Punjab. Moreover, as the company’s Lahore plant kicked-off operations in November, the board also approved relocation of the existing air separation plant from Taxila to Linde’s Port Qasim site to cater the increased demand in the southern region. The relocated plant was expected to commence commercial production by June 2013. The different projects cost the company Rs600 million, which will be funded with a combination of company’s internal resources and external borrowings.

The Lahore plant is the largest air separation plant in Pakistan, capable of producing 150 tons per day of gaseous oxygen, nitrogen and argon for the merchant gases market. The investment value of the plant, along with related supply chain equipment, is more than Rs2 billion.

Linde Pakistan has been financing its expansion plans through external borrowing as well; hence it’s income statement is under pressure.

Published in The Express Tribune, August 17^th, 2013.

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