Linde plc

Thanks, Chris. Good morning, everyone, and thank you for attending our first quarter earnings call and webcast.

This is Juan Pelaez, Head of Investor Relations and I am 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 linde.com in the Investors section.

Please read the forward-looking statement disclosure on page 2 of the slides and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted pro forma numbers are in the appendix of this presentation.

Steve and Matt will now review Linde's first quarter results and provide a full year outlook. We will then be available to answer questions.

Let me now turn the call over to Steve.

Thanks, Juan. Just a few comments before I turn it over to Matt.

Our hold separate order was lifted on March 1, so the first quarter contains only one month of combined operations. Good start to the year, 12% EPS growth, some positive leverage from sales and operating profit as a result pricing and cost synergies.

We paid $477 million in dividends and purchased $700 million of stock, net of issuances, in addition to the $600 million purchased in December of last year. The backlog remains healthy at $3.5 billion.

This excludes a project that many of you have heard about, which is a project with ExxonMobil in Singapore that value to us will be about $1.4 billion of capital investment. Jurong Island in Singapore is ExxonMobil's largest integrated manufacturing complex and is anchored by a 600,000-barrel per day refinery.

They are investing $5 billion in their largest downstream project, which goes by the acronym of CRISP. We are building four gasifiers to tie into two existing gasifiers that Linde operates today.

We will be taking pitch from ExxonMobil and returning hydrogen, oxogas and nitrogen to ExxonMobil, as well as hydrogen and carbon monoxide to multiple customers via by our pipeline system. You can see our project is very much integrated into ExxonMobil's new project.

This project will be executed by Linde Engineering. We see a solid return anchored by a base facility fee structure and we expect contract signing to be in the next 30 to 60 days.

Regarding key milestones. We completed the squeeze out of our minority Linde AG shareholders on April 8.

We announced the divestiture of our South Korea assets on April 30, which represents about 75% of the expected value from our required divestitures in Asia. All our employees are excited about the merger.

We see a strong pull for application technology as we begin to appreciate each other's capabilities a strong pull for plant capabilities and best practices in every aspect of our business. We are currently working through a very detailed cost and restructuring initiatives.

We held our first zero based budget review for all corporate functions a few weeks ago and I have to say that I'm pleased with the progress we're making. Key priorities going forward: a successful integration, obviously; price management to make sure that we're covering cost inflation all around the world; delivering on our cost, CapEx and growth synergies; and building a high-performance culture in every sense of the word.

Regarding guidance, I'll let Matt elaborate further, but we may be a bit conservative at this point. Just keep in mind, we're only one month into this merger.

And now I'll turn it over to Matt.

Thanks, Steve, and good morning, everyone. On slide 3, you'll find the first quarter adjusted pro forma results.

As a reminder, these figures are modified from U.S. GAAP in two ways.

First, they're pro forma, which means all periods are recast to reflect the merger, including removal of the regulatory mandated divestitures. Second, figures have been adjusted to exclude items not indicative of ongoing business trends, which primarily relate to purchase price accounting and one-time merger and restructuring related costs.

Going forward, we'll continue to present numbers in this format since they best represent the trends on the combined business. Sales of $6.9 billion are even with prior year, driven by a negative 5% foreign currency headwind.

Virtually every foreign currency has devalued against the U.S. dollar with most losing 5% to 10%.

You may recall that the first half of 2018 had a weaker U.S. dollar than the second half, so I expect this trend to continue for the second quarter.

Excluding foreign currency, underlying sales grew 5% comprised of 3% volume and 2%. We achieved mid to high single-digit growth rates across every segment with the exception of EMEA, which only grew 1% due to a slowing economy evidenced by weaker industrial production levels.

Global price of 2% was in line with inflation, although we are actively working to further increase prices to recover higher input costs. The combination of price improvements and volume contribution enabled 6% growth or 40 basis point improvement to underlying gross margins.

Note that the late start to the merger hampered our ability to achieve variable cost savings this quarter. However, since March 1, we've been actively integrating procurement, productivity and logistical resources to enable further improvement in gross margin, as existing supply contracts are renegotiated.

Operating profit grew faster than gross profit, resulting in a 30 basis point improvement in operating margin to 17.7%. Overall, fixed cost synergies are tracking to expectations, although we are making faster progress in corporate than the segments due to the restrictive commercial and operational interfaces prior to March 1.

We fully anticipate synergies to continue to ramp throughout the year, as we have more time to integrate the two organizations. Diluted EPS of $1.69 was 17% above the prior year when excluding foreign exchange impact.

The improved leverage from operating profit was due to lower net interest, lower tax rate and a lower share count. Net interest was favorable to prior year, primarily from higher cash balances and lower debt levels.

The effective tax rate for the quarter was 24% and is anticipated to remain around that level for the rest of this year. The global treasury and tax teams are actively working to find further capital structure synergies above the stated $1.1 billion target, and I believe they're off to a solid start.

Finally, net share count is lower due to the stock repurchase program. Through April, the company has repurchased approximately 9.5 million shares and will continue to buy more throughout the year.

At the end of March, net debt was $8.1 billion, when excluding purchase price accounting effects. This does not include the Linde AG squeeze-out cash payment of $3.2 billion or the Korean divestiture proceeds of $1.2 billion, both of which occurred in April of this year.

The sale gas project backlog remains at $3.5 billion as a startup in South Korea was replaced with the new project win in the Netherlands. In addition, our engineering business is off to a good start, with a healthy project backlog of $5 billion.

Both backlogs will provide future, contractually secured growth over the next three years. Please turn to slide four, which provides an update of the 2019 outlook.

We are increasing the full year EPS growth rate to a range of 9% to 13%, or 12% to 16% excluding anticipated currency headwinds. We expect positive contribution from cost synergies to continue to ramp each quarter as integration efforts are implemented.

Furthermore, the projected FX headwind of negative 3% is primarily front-end loaded with a negative 4% to negative 5% occurring in the first half of this year and negative 1% to negative 2% headwind for the second half. Although, we are not providing second quarter EPS guidance at this time, we anticipate moderate Q1 to Q2 sequential improvement from ramping synergies.

We expect further improvement into the third quarter, so second half EPS levels should be higher than the first half. Overall, this outlook incorporates improving cost synergies but some softening of industrial production growth rates.

If current volume trends and economic conditions maintain or improve we would be at the upper end of this range or possibly better. However, at this time we believe it's prudent to guide to these levels while we integrate the combined organization in an uncertain economy.

I'd now like to turn the call over to Q&A.

Hey, guys. Nice star to the year.

Matt just in terms of your outlook regarding softening of industrial production, you did 3% volume growth in the first quarter total. Some of that has project growth in it.

What's sort of the underlying like current growth rate that you're seeing that would sort of get you to the upper end if it stays at this level?

Yeah. I think Mike as discussed, if you assume things were flat that kind of flat to declining is how we view the current.

Now, obviously on a year-over-year basis things were pretty strong, especially in the first and into the second and third quarter of last year. So on a year-over-year basis I wouldn't anticipate much change on those rates.

It's more sequential the way to think about it. But as discussed, if sequentially this kind of trends hold we would definitely believe we'd be at the upper end.

So we'll have to see, but we absolutely feel quite confident on our synergies and what we can deliver in the self-help and it's just a matter of where foreign currency rates go where underlying volumes go.

Okay. And as a quick follow-up it does sound to some degree that there could be some conservatism here.

When you think about what you can control to help move yourself to the upper end where do you think that'll come from? And is it more just your ability to execute on the synergies growth pricing?

Give us some your thoughts there.

Mike, this is Steve. Obviously, currency is something that's difficult to control and volumes to a large extent, we don't control.

The things we do control are obviously cost synergies and that's something we're all very, very focused on today and we want to deliver that as soon as we can. And I'll also add price management.

We have to make sure that in every corner of the world that we're doing everything we can to offset cost inflation both prior cost inflation and the current cost inflation that we're seeing. Those are things that we can control.

Matt talked about net interest benefit, so I won't say any more about that. But those are the controllables and that's what we're focused.

Thank you.

Thank you. Good morning.

Steve your Asia margins are level of those of your U.S. peer.

Can you discuss the reasons why and the opportunity to raise those margins over the medium to longer term?

Well, I mean we all have different geographical profiles when you look across Asia and for example in our case the new Linde case, China is a prominent player, but also Australia is a prominent player. And Australia, unfortunately has had a long period of I'll call it the industrialization more of a secular trend, and so that's something that, we have to address.

And you can see in the comments that, Asia sales if we had -- take out Australia, and take out the effective divestitures the rest of its plus 10%. So, those numbers are pretty good.

And that's without the benefit of really the much in the way of large project contribution. So, clearly we have some opportunities here.

We had more integration from a regional business standpoint. There's more integration in Asia than anywhere else.

So, we have some cost synergy opportunities there. Clearly, inflation has been something that's been very apparent, in that region for many years.

And we need to make sure that we focus on that. But clearly, the objective is to steadily increase, a quality of our business there as measured by operating margins.

Yeah. And I would just add David, as you know contract the nature of a contract can play a big part as well, whether you opt to pass through power or elect tolling arrangements.

Most of our contracts across Asia are passing through power. It's just from an IRR perspective from a return from a cash flow they're similar.

But margin profile may be a little bit different. So those are things, I think also consider when comparing.

Very helpful and Matt, just on synergies from Q1 to Q2 the ramp, how should we think about that from a maybe a dollar perspective?

I'll take that. This is Steve.

As we look at synergies for the year. And I'm sure you all remember last call I gave you a number of about $225 million of cost synergies for the year, about 70% of that, I'd say is going to be at the back half.

And even a little more weighted towards Q4. So, really kind of minimal synergies, in Q1 because of the limited time we had to work on it, starts to ramp in Q2.

But again 70% or, so back half.

Thank you very much.

Hi. Good morning guys.

First question is, now with what seems official the tariffs on China business. I'm sure you've done a lot of war gaming.

Walk us through kind of how you've thought about that? How that may impact your business if those tariffs end up kind of being long-lived?

Well, Duffy, I would say that unlike companies who have global supply chains. And depend on China for exports for the United States, so global supply chains coming exports going the other way or even vice versa.

As you know our business is very local. So the product is produced and sold locally.

So the direct effect is minimal. But there is a potential for indirect effect…

Yes.

… as our customers start to see the effects on their business. So, I don't have a number to put on this.

I'll say it's something that we'll continue to observe to work, to make sure that we position ourselves as well as possible. But it also kind of leads me to not the point you were making but another point which is, we have a very stable business model.

And again, product is produced locally. It's sold locally.

That's the focus of our organizational structure. We generate high cash flow, pretty much throughout the cycle.

When the CapEx opportunities start to limit themselves, we have more free cash flow to redeploy to share buybacks and potentially increasing dividends. So, we view ourselves, as a very safe port in the storm.

And you can see in my earlier comments that I said, I want to make sure that we're increasing our operating margins, the quality of our operating businesses, regardless of what the economic environment may be.

Great, thanks. And then just a second one, on the engineering business, because that's the business I would say, we're all less familiar with.

Now that you've had a chance to kind of come in and look at that is that run as you would want it? Or when you look back some of the business they've been on isn't right?

Just I guess structurally how could that business look different three years from now?

Well, to -- the way it could look different three years from now, we have all agreed internally that we want to shift the balance of Linde Engineering's business more towards over-the-fence projects versus third-party sales. We think that's a healthier place for that business to be overtime.

But even beyond that, we all know that the sweet spot of our industry is the over-the-fence business model and we want to make sure that we are as competitive as we can possibly be in driving selling gas business opportunities. So that really is the focus going forward.

So if you were to say that maybe historically Linde Engineering would be 20% internal over-the-fence and 80% external, if we can get that more balanced something closer to 50-50, I think that's a much better place to be. If I look at the Singapore project which Linde Engineering will be executing I take a lot of comfort in the fact that they really have all the capabilities, the experiences, the disciplines, the know-how to execute very complex projects like that.

And if they couldn't believe me, ExxonMobil would not have selected us. So that's something I'm beginning to appreciate more and more as I get into this.

Great, thank you guys.

Hi everyone. Thanks for taking my question.

And thank you for the helpful comments on net debt and what's happening in Q1. And could you just give us a reminder of – and the bridge from here to year-end in terms of are the disposals on track or perhaps better than you originally thought?

Is the buyback going as per what you expected? And then I had a second question.

On Europe which seems to be the weakest area are there any specific end markets which underperformed versus others? And when you talk about your outlook for the year, assuming that actually market conditions get worse, are there any specific geographies or end markets that you would point to?

Nicola, this is Matt. I'll answer the first one and then Steve will answer the second.

So on net debt, yes as stated we ended the quarter at just about $8.1 billion. And what we're doing is adjusting out, it's about $230 million $240 million of PPA] step up.

As you can imagine it's not cash. It's not what we repay.

It was just a mark to market. So look excluding that we're about $8.1 billion.

As discussed in April we had a $3.2 billion out on the squeeze out and the $1.2 billion in on the proceeds. So that would raise net debt holding all else equal to a little bit over $10 billion.

Going forward clearly as you've probably seen we're on a path of buybacks. We continue to work on that path.

When the $6 billion was approved you may recall it had a 2-year limit on it, so we're working within those confines. So I would see net debt rising throughout the year as we continue to execute the buyback throughout our program.

So end of year remains to be seen, it should be something definitely higher than $10 billion, but we're always working to stay within our A/A2 rating which I think we have a lot of room right now. So I would expect net debt to keep rising throughout this year and then into next year to get closer to the A/A2 rating for our final capital structure.

So regarding your question with respect to Europe, as we look at results and really look at the forecast, I would say within those results Western Europe is weaker. U.K.

as you would imagine is fairly weak. Eastern Europe would be the bright spot, I would say on the continent.

The growth there is more positive. Going forward we're really preparing for I would say overall weakness.

If you -- I'm looking at some statistics here that say that, the beginning of the year forecast for industrial production growth in Germany was 1.6%. Now they're saying negative 1.2% for the year.

And Western Europe looks to be flat in terms of industrial production growth. So that is the largely speaking the environment that we have to work inside of.

Clearly we're going to be focused on the things we can control as I alluded to earlier which is making sure our pricing is commensurate with the cost inflation that we're seeing, the synergies that we can attain and really a focus on continuous improvement going forward.

Thanks. Can I just follow up so the expectations for the weaker second half is it fair to say that's pretty much all driven by Europe as opposed to other regions?

So that's - I would say Europe is the largest driver. But if I -- if you permit me if I could just make a couple of comments around the world, Latin America I don't expect anything positive going forward.

Everyone -- you all know the story. Even though South America is much less of an impact on the new company versus legacy Praxair there's still nothing positive that's going to come out of South America.

If I look at Asia, I made a comment about Australia so I think based on my comment you wouldn't expect anything positive to take place in the second half. Everybody wants to know about China.

You can include me on that. I don't really have a crystal ball into what's going to happen.

I mean just based on what's happened in the last 24 hours you have to be I think cautious with any kind of optimistic forecast in China. I do believe the Chinese government will do whatever they can to try to mitigate the effect of tariffs.

But that's pretty much going to be just trying to hold stay in place. If I come back to the Americas -- if I look at the U.S., I think, March was a stronger month than what we had perhaps anticipated which was a positive sign.

However, when I look within the numbers merchant liquid volumes seem to be I think at a fairly decent level. We're growing in March -- okay coming into April.

But then again I look at our cylinder gas business what we call PDI and those volumes have flattened year-over-year. In fact month -- look at the month of March year-over-year part growth was slightly negative.

So I look at that as indicative of what's going on in the overall manufacturing space in the U.S. and I can't look at that and say it's a positive sign.

Having said all of that if the economy performs better we'll certainly -- we'll participate in that and we'll be in good shape as Matt said earlier. But I think there are enough signs out there primarily in May, but there are other signs that say we shouldn't be overly optimistic.

That’s very helpful. Thank you.

Thanks very much I have a question on the ExxonMobil project. Was that project originally a sale of equipment that was renegotiated into sale of syngas?

Or was the contractual structure always the same or roughly the same? And when will that project begin to benefit your income statement?

Well, I think you can imagine that this project it was going to take a long time to execute. It's coordinated and integral to Exxon's project.

So I would expect to see anything until 2023. Now the good news is I'm in pretty good shape starting in 2023 just based on the size of this project.

And we have a lot of good projects rolling out with backlog really starting more towards the end of this year rolling forward into 2023. But my understanding of this project has always been on over-the-fence project.

It goes back many years in terms of the negotiation and again it's very integrated into their process so it took a long time for something like this to come to fruition.

Okay. And then do you think gasification is a major growth opportunity for Linde and the industrial gas industry generally?

Or do you think it's a minor opportunity?

I'd like to be able to say that there's a project like this around every corner, but it's not. Just looking at how long it took for this project to come to fruition, I think there may be a few of these like these over the next five years potentially but it's not going to be a major part of our investments or major part of our opportunity slate.

Clearly when they happen they're very large, they're very impactful but I do not expect a steady dive to this. And it really comes to I think a question a lot of people ask about this IMO 2020 -- what's going to be the effect.

And quite frankly as we have looked at this and studied this most of the major companies and for those who are not familiar with IMO 2020 this is the pre diesel requirement to reduce sulfur particulates to I think it's 0.5%. Most of the major oil companies are going to be investing in cokers.

That's what they did in the U.S. There's a lot of coker capacity.

That's what ExxonMobil announced in Antwerp. So I think most of IMO 2020 will be addressed by coker capacity.

It's a type of asset they're very familiar with, they're comfortable operating. You'll also see certain refiners look to bring a more lighter crude feedstocks.

That's the way that they can address IMO 2020. You'll have some refiners who won't do anything.

They'll kind of wait and see expecting ships to put on scrubbers and so forth and they'll wait until the end. I think in a few cases, probably in Southeast Asia is where you're going to see the type of solution that we just described with ExxonMobil in Singapore.

Okay, great. Thank you so much, Steve.

Yes. Thank you.

Hi, everyone. Two questions.

First of all on the price management there's a lot of emphasis there. Just wondering what sort of things you're emphasizing to the Linde side of the -- that is on the old Linde side of the business.

You've got the 2% across the group obviously more in merchant. I mean all air products obviously came up with pretty strong merchant numbers the other day.

I'm just wondering what are the sort of things going on there? Then drilling down into the regional margin performance, I'm just wondering if there's -- what the impact of mix is in APAC, because obviously on my numbers Australia is down double-digit again which certainly in Linde used to be a high-margin market maybe not so much for you.

And then also in EMEA where I suspect the cylinders being weak are probably an element on the margin drag there. Thank you.

Okay. So with respect to pricing price management.

We have a -- we do things like we just had a workshop where we brought in everybody responsible for price management all over the world. We want to make sure we're exchanging best practices in terms of how we structure contracts, how we think about getting ahead cost inflation, how we do price increases all kinds of things that are very important and really are just part of good overall product management.

Some of you may have heard I did a video I did a price management video that was 14 minutes. So that's something that I did and it's something that we track monthly.

When we go through our monthly business reviews, we look at price realizations sliced and diced many different ways. With respect to Australia, I would say that it is a business that's of significant size.

Part of the problem too is also currency. The Aussie dollar was very weak versus the dollar.

But inside of that there are some things going on again more of a secular decline with respect to the industrial side. I think the margins of the business are not bad at all, but we have to look at what we can do to get in front of that.

With respect to EMEA I apologize I didn't quite catch your question on EMEA.

Yes, just in terms of the mix. It's the mix.

Obviously, in Asia Pac you were up 140 basis points year-on-year despite Australia being very weak. So I'm just wondering what was behind that.

And then in Europe I presume it's the high-margin cylinders that are sort of sluggish and weighing a little bit on the margin there?

It's more tied to industrial production. The cylinder business is more tied to manufacturing and that would be certainly a factor in those numbers.

Yes. And also Peter, you may have seen last year there was a gain in EMEA about of $10 million roughly on the legacy Linde side.

Going forward, as you can imagine given the purchase price accounting step up to fair market value, we're not anticipating many gains of any kind of asset actions. So and that also had an influence on the number.

Got it. Thank you.

This is Dan Rizzo on for Lawrence. How are you?

Good.

You mentioned a lot of the synergies will be at the end of the year. I was wondering if there's going to be -- if you quantified in what the dissynergies will -- if any will be in the second quarter here and I guess into the third quarter as well?

And dissynergies I mean we obviously have costs to achieve the synergies. Those mostly for now those are restructuring costs.

We are as you probably saw we had about $89 million total in the first quarter of which roughly $55 million or so actually were just merger expenses that carried over. But the remaining $33 million, $34 million were actually restructuring costs.

So we do expect to incur -- that was part of the $700 million that we laid out last quarter that we would need to spend to achieve the synergies. So we'll continue to highlight those costs to track those costs and explain them.

Other than those, I wouldn't say that there were any dissynergies that we've identified at this stage.

Okay. Thanks.

Excuse me, this is Steve. We had the remainder costs in the U.S.

that we are addressing. I kind of think of that as a cost synergy opportunity, but you may think of it as a dissynergy.

But those are -- that's something we need to address and it's also part why the leverage in the Americas isn't what you would historically expect to see in Q1.

Thank you for the clarification. And then just one other question.

You mentioned that if things were to get a little better you could definitely pass the high end of projections. But I was wondering to a certain extent if things were to substantially weaken particularly in the U.S.

and I guess Asia based upon what you can achieve with synergies and with what your current contracts, could you still hit the low end of your 2019 projections?

Yes.

Okay. Thank you.

Good morning. Markus Mayer, Baader Helvea.

Three question from my side. First one is again on your guidance.

The slight guidance increase maybe you can shed some light was -- from what aspect was this triggered? Was this more synergy aspect or more than better demand or -- yeah that would be helpful.

Second question is on the free cash flow. Maybe you can help us to understand how the cash inflow from prepayment at engineering was versus a pro forma number of last year?

And then the last question would be, on your tonnage business update on where we stand in terms of plant utilization would be very helpful as we can understand where you are in terms of utilization versus the take-or-pay contract level. Thank you.

Yeah, I can take the first two. This is Matt, Markus.

So on the guidance, as mentioned we - as Steven mentioned we have a rhythm assumed on what we're going to achieve and how we'll achieve the synergies, so we feel pretty confident about that. And then on top of that, we are assuming some either slowing growth rates or even reductions especially in EMEA.

As you know today you are seeing some negative industrial production rates across a lot of key geographies. So the combination of those two are assuming slowing demand but with a rising improvement in our cost management and the self-help.

And so at that stage that has led to this outlook. As Steve mentioned, we feel pretty confident that on the bottom end in almost any type scenario at this point, but we also have to be cognizant FX rates can shift and they have been getting worse.

So the combination of all this is why we laid it out, but we feel very good about this range. Obviously if levels maintained, we could be at the upper end or better as mentioned.

And if we see any improvement that could be highly accretive. So that's how we look at the guidance.

On the free cash flow, just on a high level first maybe. So as you probably saw the operating cash flow number about $1.068 billion that's something we are working on.

We expect to do better than this. I think when you think about operating cash flow on average both predecessor companies in a full year basis had operating cash flow to EBITDA ratios around mid to high-70s.

That's what both companies have consistently demonstrated. And when you look at the first quarter, so that's full year mid to high 70s.

First quarter, the average has been about mid-60s. You've had some ups and downs but over the last four or five years both companies averaged about mid-60s being operating cash flow divided by the adjusted EBITDA.

This quarter we're mid-50s. Now you may have noticed in the notes that we had about $256 million of merger related cash flow.

About $100 million is the one-time payment on the acceleration that we talked about last quarter for the retirement benefits. That's a change in control one-time item.

Another $100 million were costs incurred to divest the assets. Again the carryover, the benefit is in investing, which are the proceeds.

Unfortunately the way the accounting worked we had to put the $100 million in operating. And then the other $56 million relates mostly to either some merger costs and a little bit of restructuring.

So that number when added back we're about mid-60s. So, right now, I feel good about the track, but we do have a lot of one-time cost.

And to your specific question on engineering, the line called contract asset and liabilities that was a hurt of about $84 million that isolates what the prepayment trend has been in engineering. So obviously that prepayments are down.

There was a lot last year, so that was a bit of a headwind related to the cash flow there. But, this is something that we're working on a lot, and I expect to get these numbers back to the historical levels.

But we will have over this first six months of this year a lot of one-time cash merger costs that are still carrying over. Especially in the second quarter, we'll have some large tax out payments.

As you may recall, it will be several hundred million dollars of cash taxes we have to pay for the European divestiture. And Steve, can handle I think the tonnage update on -- yes.

So I don't have I would say information today that I have a lot of confidence in terms of sharing with respect to the reporting. Because keep in mind, we just started migrating our systems and some of this takes a little time.

But let me just kind of give you my view. If you talk about merchant liquid capacity, I would say we have capacity in Europe, because we have been growing at a pace that would absorb that capacity.

So that's not in tight supply. Same thing would be true in South America.

I think if you look at the U.S., it's been around 80% 82% kind of merchant liquid capacity utilization that's LOX and LIN and argon has been much tighter, and of course helium is in hot demand all over the world. There's shortages of helium.

If I look at pipeline demands, I would say that hydrogen -- if I look at just the base business in the U.S. Gulf Coast was a little lighter in first quarter.

We didn't see the amount of spot hydrogen that we saw last year. That's really driven by Venezuela crude and the shortage of Venezuela crude drives up costs shrinks refinery margins, they didn't run as hard.

But I think that will probably sort itself out and get a little stronger as they sort out the crude feedstock issue. With respect to metals pipelines, we operate a lot of -- our on-site business is very strong in the steel pipeline area.

And those volumes seem to be doing fine, but it's not end market demand driven. It seems to be more based on import substitution based on the tariffs, and on the fact that inventory levels for steel were quite low, so that needed to be replenished.

So that's that story. If I go to Asia, I'm just going to really just make a comment about China.

The last number as I looked at said that capacity utilization for merchant liquid was tightening up, which was a good thing. Obviously a lot of capacity come on over the years, so that's a positive.

And I think the fact that the pricing, you're hearing a lot more positive regarding price realization in China and it has historically been some of the lowest prices in the world I think would also support the fact that capacity utilization is fairly high there.

Okay. Very helpful.

Thank you so much.

Yes. Thank you.

Steve you had mentioned that roughly 80% of the engineering backlog is external sale of equipment. Can you provide a little more disclosure on what are the types of products those are?

How much of it is gases versus non-gases?

I don't have that breakdown in front of me. I'd say it would be in the current backlog more skewed towards large natural gas plants and olefins, ethane, crackers.

There are some large -- there are obviously some A issues and some hydrogen content in there, but I think it's more skewed -- or I know it's more skewed towards natural gas and ethane crackers at this point. And of course, if you look at our gas backlog at $3.5 billion that has two large projects in there today where Linde Engineering is building hydrogen plants for our operations on the U.S.

Gulf Coast with two major refineries. So that's part of the internal backlog today.

And then, if you go back to the Singapore project that I've mentioned, there's $1.4 billion that will be added to the Selma gas backlog, but then Linde Engineering would be building that.

And just a follow-up on that Singapore project. You made a comment that you didn't think there were likely to be too many more like that or just scattered about over the years.

Was that a comment specifically about gasifying pitch? And whether you see this as an entrée to gasifying coal and whether you see any change in your outlook for that type of a gasification opportunity for Linde?

I was really referring more towards a pitch or a vacuum resids kind of gasification approach to address in part what IMO 2020 regulates. That was what I was really referring to and I was not referring to coal gasification to produce intermediate chemicals or whatever in other places of the world usually in China.

And your outlook on that opportunity, has that changed?

For the coal gasification?

Coal gasification?

I don't really -- we talked about this before. We have supplied air separation units in China for coal gasification operations along the coast.

That's been part of our density strategy. We take merchant liquids off of those projects and their customers that we feel very comfortable with going forward.

So that has been -- the bulk of what we have done it has not been in what they referred to as the coal triangle in China. That just was never part of our strategy.

We've also supplied air separation units for Petco gasification for CNOOC and they were taking hydrogen and integrating it back into the refineries. So, those are the kind of projects that we have done in China and I expect we'll see more of those going forward in the future.

But anyway that's my answer.

Thank you.

Yes, good morning. I found the adjusted pro forma disclosures in pages 11 to 13 of your release to be very helpful.

Was wondering if you intend to provide those results each quarter as we go or if there's a way to understand how 2Q versus 4Q 2018 would have trended in the future SEC filing number one? And then two Praxair in the past provided specific quarterly guidance.

You have elected not to do that today but Matt I think you indicated you're expecting moderate improvement. Just curious as to why the change?

Is it function of many moving parts in the merger or indicative of how you intend to communicate as a combined company going forward?

Hi Kevin, yes, this is Matt. I'll respond to those.

I think first to your first question, yes, absolutely we intend to continue to include these. They're necessary.

We need to have the ability to explain the walks from the GAAP to the pro forma and then to the adjusted. So, we will continue to add those.

I think on the quarterly guidance, that's something we're evaluating and we are looking toward that. As you can imagine, we really have one month in the quarter together.

We're just closing the second month. So, things like the monthly rhythm, we're getting better and better, forecasting is a big part of that and we want to improve the forecasting to a more monthly type of rhythm.

As we get better at that and we get more confidence on what I'll call short-term outlooks, those are things that we'll incorporate at the top of the house and then make decisions how we communicate those. So, I think you'd hopefully just be patient each quarter.

We expect to get better. I mean obviously we have more information here than we had in March 1st.

Sequentials will be an area we'll add next quarter. We'll start doing sequentials within 2019.

And so that is something that will become another element of this. So, with each step, I expect to get better and better, more transparency.

Obviously, we be added the new segments. But as you can imagine the first few quarters, we just got to get the system down of the combined company, get the rhythm to a point that we're more comfortable to continue to disclose these more and more information externally.

Okay. Thank you very much.

Good morning. Thank you.

How does your EPS guidance translate into an adjusted EBITDA outlook for the year? And specifically what do you expect for D&A in 2019?

Hey, James, this is Matt. So, we're not giving an EBITDA outlook.

So, I think as you saw -- if you look below the EBIT line starting there I mean, we feel pretty good about our level of interest, right now. We still have a lot of moving capital around the world with the proceeds, with some of the things like the squeeze-out, but we'll see, but we're not giving an EBITDA outlook.

I think as far as the adjusted DA, I don't expect a lot of changes in that number other than normal assets coming on and assess coming off. So, if we look at CapEx maybe $3 billion to $3.5 billion in that zone.

As projects come on stream, obviously, you'll see CapEx start to step-up and we always have assets coming off. So, I would expect a normal depreciation kind of on an adjusted basis that you would expect, but we're not -- at this point we're not giving an EBITDA outlook.

And under the new segmentation, how should we think about how the cost savings are distributed between these segments?

Well, I mean, it's -- this is Steve. We have -- I'll go back to what I said our last call.

When you look at the $900 million of cost synergies, we said about a third of that is from organizational decentralization and corporate functions and two-thirds of that would be from the regions, both from the standpoint of overlap and in terms of operational efficiencies, procurement, productivity, et cetera. And so, we have those numbers broken down both by corporate and by regions, by functions.

And each segment, each geography including Linde Engineering understands what their target is and they all again have developed or are developing very detailed cost and restructuring initiatives to address that. But all the regions are participating.

Clearly, there's a lot of overlap in Asia, as I mentioned earlier. But we also have overlap in the Americas.

South America is a great example. We have the U.S.

RemainCo that we have to integrate in the U.S. We have some operations in Mexico, we have to integrate.

And in Europe where there's less integration clearly from -- on the continent we do have integration in the Mideast and Russia that we're working on and that we have other initiatives around costs that we're working as well.

Thank you.

Yeah. Good morning.

I'd like to go back to the comments you made on pricing and to link that with the margin development in the Americas region year-on-year please. You mentioned that price was able to cover inflation globally.

Was that also the case in every region? And the second part of the pricing question is really to follow-up on the comments you made about suspicious gases or helium in particular, and whether that was a meaningful contributor to the overall 2% in any particular region or more broadly and when we think about looking at the pricing numbers that you've disclosed.

Thanks.

Well, let me -- obviously -- I'll just start with the last comment. And I can't say exactly with respect to specialty gas because I haven't seen that number.

But clearly helium prices are higher. Helium, I mentioned earlier is a very tight supply around the world, so it is a piece of the 2%.

I can't tell you exactly how many basis points, but price increases in the helium are higher -- certainly higher than 2% and need to be just based on the cost inflation as a result of the shortage of helium and the fact that all sourcing contracts have moved up in terms of cost around the world. But we want to make sure -- you're asking me did we cover inflation in every parts of the world and the answer is, no.

I mean, there are going to be parts of the world certain product markets that our pricing just like helium is higher than 2%. There are some areas that it's lower and we need to work on that.

So, generally speaking, you want to add a minimum as the company makes sure that you're covering your cost of inflation and that's a target that we have always had. There's certainly not a limitation of what the price realization could be.

And in terms of driving up operating margins or let's just say variable margins, you really have two ways to do that. It's increasing pricing and its driving productivity and we work both of those levers quite hard.

But it's going to be something that it's going to take some time as we -- obviously it's something we spent a lot of time on in Praxair have for many, many years. And it's going to take a little bit more time to get everyone accustomed to what we are trying to do the initiatives that we're rolling out.

I think cylinder gas business is something that can be addressed sooner because these are short-term contracts then you have merchant liquid where we have various abilities to address cost pressures and also as those contracts renew and then of course on-site is a longer-term situation.

And Neil, this Matt. Just to add two things to Steve.

I think, one just in the Americas remember Steve had mentioned this that we did have a bunch of stranded costs from divestco in the first quarter, so those obviously are something we have the ability and time now we're addressing in the second, quarter so that will have an effect on the margin but that's something that we're working on. Secondly on helium, the helium pricing will appear really across all segments because in the other we have the bulk helium or the wholesale helium.

So it sells intercompany and then also sells to large global distributors from that other category. So any intercompany transfer pricing increases would show up in other and then end market price increases would show up in the segment.

So the way our segments are laid out, helium price increases would be across kind of multiple segments including other.

That’s very helpful. Thank you.

Okay. And I think we have one last question remaining.

Hi, this is Scott Goldstein on for P.J. Thanks for taking my question.

I just wanted to ask on -- amid some of the on-site projects coming online in -- and like Exxon possibly 2023, is there any way that you can help us think about the future earnings contribution from these projects going forward? Thank you.

Well, this year as I've stated before based on the timing of the projects lot of it's at the end of the year in terms of sales and EPS contributions kind of like 1% in 2019. 2020 as I look at the numbers in 2021 looks to be more like certainly 2% on the sales, maybe 2% to 3% from an EPS contribution standpoint in 2021.

And I don't have 2022 in front of me but I would expect at least a 2% and a 2% kind of relationship as well. And then you go forward to 2023, obviously a project like Singapore puts a big dent in those numbers.

So I would expect that to be very solid when we -- when that project starts in terms of the overall contribution in sales and EPS.

Okay. Thank you.

That’s helpful.

Chris, thank you again. And thank you everyone for participating in today's call.

If you have any further questions, feel free to reach out to me directly. Thanks.