Linde plc Price & Performance (LIN)

Thanks, Sawan, and good morning, everyone. Looking back, 2024 was another I'd like to personally thank the 65,000 plus employees for their relentless drive to deliver shareholder value while deliver core values every day. This isn't something that happens overnight.

Or can be copied or indeed driven top down from a handful of individuals. Rather is a result stemming from decades long culture, mindset and operating rhythm. And it can best be exemplified by the results shown on Slide three. From my perspective, there are four key categories that Lindy must excel at. Day in and day out.

To maintain our long term industry leading position. Of course, must deliver on our key financial metrics and remain responsible stewards of our owner's capital. That's a given. But we have a sustainable leadership position For that, and the long term, that requires continual investments in our people and surrounding communities. As well as doing our part to help improve the environment. Finally, we must position ourselves for the future. To ensure resilient and continuous growth and improvement. We can never be complacent based on past performance. Want to start with our people communities. Because Lindy's success has always been and always will be attributed to our employees' ownership mentality and collective efforts. We continuously strive to be good corporate citizens in thousands of communities where we live and work. Also having a safe and diverse workforce is a top priority. In order to ensure Linde's competitiveness, for many years to come.

And you can see the improvements we've made More work is to be done, and I fully expect to leverage technology in that effort. But I am pleased to see the progress made to date. While people and communities are a priority, efforts towards ensuring a sustainable environment are becoming more challenging [indiscernible] I think it's fair to say we're seeing more extreme weather now than in prior years. And here at Linde, we will continue to do our part help the environment. Through an increased focus on low carbon power, Linde increased its active low carbon and renewable energy consumption by 19% year over year. In 2024, over 40% of our total power consumption is now low carbon based.

These are just a few of the many accomplishments and I want to encourage you to read our annual report for many more. Furthermore, it is rewarding to see our sustainability efforts being recognized. By some of the most prestigious names such as the Dow Jones, which included Lindy in its Sustainability World Index for the twenty second consecutive year. In addition, we pride ourselves in helping our customers avoid more than two times our CO2 emissions through the use of our products and services. But there is much more work ahead to achieve our ambitious sustainability goals. Including reducing our greenhouse gas emissions 35% by 02/1935. Turning to financial performance. Lindy once again led the industry across key metrics. 25.9% ROC, EBIT margins increased 190 basis points to 29.5%. EPS increasing 10% ex FX and $7,000,000,000 of capital return to shareholders. From the significant excess free cash flow.

These are the best metrics in the industry. Some by a wide margin, This provides us with a source of pride and ownership but we also recognize [indiscernible] Valuations are derived from a combination of past performance future expectations. So we must continuously position ourselves for future growth. Regardless of the macroeconomic conditions. Positioning for future starts with a concise strategy. And a capital allocation policy, At Lindy, we know that the investments we make and the ones we avoid are equally important because mistakes in this industry can have long lasting consequences. This is why sticking to our core business while maintaining disciplined contract terms, is critical to building safe, reliable and profitable supply infrastructure. The year ended with more than $10,000,000,000 in back including a record sale of gas backlog of $7,000,000,000 Included in this is a $2,000,000,000 plus billion dollars Dow win in Canada which is a great example of a high quality project in a core geography. This project not only has fixed payment structure, with predicted returns but materially improves our local supply density in a fast growing region for clean energy. I fully expect to be announcing new projects and customers in the near future.

But growing in industrial gases in more than just mega projects.

We have to continue keeping our eye on smaller opportunities as well ensuring that they add attractive annuity like growth.

During 2024, we once again set a record for small on-site wins signing 59 long term agreements for a total of 64 plus all of which will increase reliability, and strengthen our network density. Acquisitions of small tuck in package gas opportunities also remain an important part of synergized growth with 18 signed transactions with annualized revenues of approximately $200,000,000 All in, 2024 was another successful year. Despite the many challenges. That being said, it's time to move forward and look ahead. All of you have seen the new earnings guidance for 2025. And therefore, I believe it's important to reiterate the components of our long standing EPS growth algorithm on Slide four. For many years now, we've defined our EPS growth into three categories.

Of which both capital allocation and management actions are within Afinfro. And the economy is not Capital allocation represents contributions from a long standing and stable capital management policy. Main elements include our contractual project backlog, share repurchases, small bolt on acquisitions, and capital structure efficiencies generally achieved through interest Linde tax management. It's important to note that our backlog definition is unique Linde our as it only includes incremental growth from contractually committed customers with fixed payment elements and termination provisions to ensure a minimum return on capital. While no other company follows the strict interpretation, it certainly provides Linda greater certainty of backlog EPS contribution in any environment.

Similarly, the majority of acquisitions are justified on cost synergies only. And therefore provide a high degree of confidence on capital return and thus EPS generation. Finally, share repurchases offer an attractive and flexible use of excess free cash flow As project start up and acquisition cadence will ebb and flow, enabling a highly consistent EPS contribution from overall capital allocation. All of these elements have historically contributed 4% to 6% EPS growth and I feel confident this will continue for the years to come.

Management actions represent a daily self Linde initiatives our employees undertake ensure growth regardless of the macro climate.

Digital solutions and AI are increasingly supporting productivity, price and cost management which are controllable initiatives deeply embedded into our culture and operating rhythm. And which allow us to grow earnings regardless of the economy. History has proven for these to be the largest compound value generator. As they are not directly correlated to overall economic activity. This combination of capital allocation and management actions is expected to deliver 10 plus percent EPS growth each year with margin expansion. And 2025 is no exception. With a pre or post merger, these two components have been the dominant drivers of our long term double digit EPS growth CAGR. While I remain confident in our ability to deliver on this 10%, we are constantly striving to find more opportunities Conversely, we cannot control the third category, which represents macroeconomic factors. [indiscernible] these are two factors that matter the most the foreign exchange rates and industrial production as a proxy for base volume [indiscernible] Recall that we are a U. S. Dollar functional company, with approximately two thirds of earnings denominated in foreign currencies, and thus exposed to FX translation. Similarly, while our customers are often under long term contracts with fixed facility fees, The incremental gas they consume is a function of their own production rates which typically highly correlates to industrial demand.

Hence, why Global IP is a generic proxy for our customer gas consumption of base volumes. The current 2025 guidance range is assumes a 4% FX translation [indiscernible] While the midpoint of the range assumes 0% IP growth environment.

Overall, it's clear that the growth algorithm is well intact. But we have a work cut out regarding unfavorable FX translation. This does not come as a surprise you may recall from our statements last quarter, and subsequent self help actions that we initiated, Furthermore, we will continue to identify an to mitigate macro weakness. Eventually, these economic headwinds will convert to tailwind, as we always do, And until then, you can be rest assured that the entire Linde organization will be focused on creating shareholder value and maintaining our long term industry leadership. No matter the environment. I'll turn the call over to Matt to walk through our financial results. Thanks Sanjeev. Fourth quarter results can be found on Slide five. Sales of $8,300,000,000 are flat prior year. And down 1% sequentially. For both the prior year and sequential comparisons, foreign currency translation was a 2% headwind. Excluding FX and cost pass through, underlying sales grew 2% versus last year and were flat from the third quarter. Price increases of 2% over 2023 and one percent sequentially continued to track with globally weighted inflation. Volume growth was flat Linde as contribution from the project backlog in The Americas and APAC offset lower base volumes [indiscernible] The sequential volume decline is primarily attributed to softer EMEA metals and mining volumes and seasonality factors In general, economic trends mostly followed our prior guidance although the FX impact was worse than expected, from a significant strengthening of the U. S. Dollar, toward the back half of the fourth quarter, Operating profit at $2,500,000,000 grew 9% and resulted in a 29.9% margin.

Primarily from management actions around price, costs and productivity.

EPS $3.97 grew 11% or 13% excluding FX. The 9% CapEx increase is entirely driven by contractual projects. As base CapEx decreased from a combination of currency, productivity, and lower base volumes. I anticipate this trend to continue as we execute on the record $7,000,000,000 sale of gas backlog to support future growth. Further details on capital management can be found on Slide six. Full year operating cash flow ended at $9,400,000,000 with almost 60% occurring in the second half. As mentioned in prior calls, I expect this split to remain due to seasonality of specific cash outflows. Including incentive payments, taxes, and interest. The pie chart on the right shows the full year capital allocation. We invested $5,000,000,000 back into the business. With half underpinned by secured high quality growth opportunities. And we returned $7,000,000,000 to shareholders in the form of dividends, and stock repurchases. Returning this amount of capital to our owners year after year requires a disciplined capital allocation policy and a very healthy balance sheet. Two things that are much easier said than done. I'll wrap up with guidance [indiscernible] We're initiating full year EPS guidance of $16.15 to $16.55 representing 4% to 7% growth or 8% to 11% when excluding an estimated 4% currency headwind.

As mentioned earlier, the 4% impact is from the accounting translation of foreign earnings. Which experienced a rapid strengthening of the U. S. Dollar toward the end of twenty twenty four. Recall this is merely a projection. As we're required to book the actual month's average rate the income statement.

The methodology used for this estimate is consistent with prior practice. By using the forward curves on a weighted basis for each foreign currency. At the start of the month. Large currency devaluations have often been followed by periods of more [indiscernible] local inflation, With 2022 being a recent example, If that occurs, I'd anticipate incremental pricing opportunities to recover the currency devaluation impact. These potential pricing opportunities are not baked into the guidance range at this time since the amount or timing of subsequent inflation is difficult to estimate. The midpoint of this range assumes no economic improvement from the current environment. And thus assumes flat base volumes.

As Sanjay mentioned, our base volumes derive from customer supply contracts. Their growth is a function of gas consumption from our contracted tanks and Linde. Hence why local industrial production tends to be the best proxy. First quarter EPS guidance range is $3.85 to $3.95 With similar assumptions, to the full year. At this time, we believe it's appropriate to remain prudent with a more cautious economic outlook. If things turn out better, so too will our results. And if they worsen, we'll take additional mitigating actions. But regardless of the economy, I'm confident Lindy will continue to create shareholder value through our time tested execution culture, disciplined capital allocation, and proven management actions This has been embedded in our DNA for decades.

And over the years, while many have claimed they'll simply copy this model, all have failed. Because here at Linde Linde, we're often imitated but never. Duplicated. I'll now turn the call over to Q and A. Thank you. And we'll now begin the question and answer session. And your first question comes from the line of Mike Lighthead with Barclays.

Great. Thank you. Good morning, guys. Sanjeev, there's a lot of political noise out there right now with [indiscernible] some pullback on green energy funding, I guess how has your discussions with potential project partners evolved at all? I'm really trying to get at, say, projects that are pre FID today Have those discussions slowed down or picked up at all?

So Mike, as we've referenced in previous calls, we have seen people take a little bit more time and apply a bit more rigor before going to FID. I think it's a good thing because you do need that when you're doing multi billion dollar project [indiscernible] And I think we're seeing that phase continue. In there built in there obviously is Some uncertainty around the regulatory framework, and requirements in terms of what the new administration may or may not do. The one thing I do want to emphasize though, and I think in the context of clean hydrogen, this is particularly important People tend to think about the IRA Linde there's a lot of talk around what happens with the IRA and the new administration. Within the IRA, there is a specific provision, an IRS provision Linde fact called 45 Q. Which predates the IRA actually goes back to around 02/2008, when it was implemented. And about 90% of the projects that we are developing in The U. S. Are actually looking at 45Q as a potential incentive. And I think we feel fairly confident that that structure around the 45 Q will remain as given particularly that it predates the IRA.

So I just want to provide that specific clarification because I get a lot of questions around that. But generally, we're seeing people take a bit more time to get to FID. And we're seeing that they are actually being a little bit more rigorous in their approach before they make a final call in terms of putting capital on the ground. Other point I'd just quickly add to that, Mike, is you're aware that in the past we've talked about I think it was actually two years ago, we talked about $8,000,000,000 to $10,000,000,000 in clean energy investments from a Linde Linde. About halfway there given the two projects, the large projects we've already announced North America We're obviously continuing to develop projects elsewhere. Those two current projects we're working on are both likely to see another phase which likely means that we will see equivalent investment there. Plus the other projects as well. So when I look at the overall pipeline, I feel pretty good about the quality of projects that we're pursuing and the path to getting to that $8,000,000,000 to $10,000,000,000 of investments over the next few years pretty much intact. Great.

Thank you.

And your next question comes from the line of Stephen Haynes with Morgan Stanley.

Good morning. Thanks for taking my question. So it kind of looks like exiting year to year EMEA margins are now like 200 basis points ahead of Americas, maybe 100 Linde the cost pass through. So do you think your Americas margins will gain ground in 25% Linde then also as a second piece of this, I think the gap is kind of widening versus APAC. So I was wondering if you could also kind of frame the opportunity there?

Thanks, Stephen. So if you go back historically, about five years ago, many of you asked the same question when Americas margins were leading and I think APAC and EMEA were at 1719%. And we had said then and I want to repeat again today, that our business is homogeneous Linde there is no impediment to getting to the highest margins we see anywhere in our business. The one thing I often point out when we have this conversation around margins is, each one of our segments has a country or a business that has a margin with a four number in front of it. And in many ways, we encourage our businesses, each of the segments, to push and try and understand what those successful businesses with a 40 plus percent margins are doing to ensure that we can bridge the gap. So to answer your question, both for Americas and APAC, my expectation remains that margins will continue to improve And again, we've said our prepared remarks earlier on, you should expect to see margin expansion in 2025, for Linde PLC overall, which obviously is an aggregation of the different segments, I'd say to you that I'd probably say that that margin expansion range between 20 to 15 basis points typically That's what we expect.

Longer term, Obviously, we've been delivering well in excess of that and that's obviously sets up some expectations. But expect margin expansion. Each of those segments will continue to grow margin No impediment to APAC. Bridging that gap. And of course, America has got a solid business which will continue to expand its margin as well.

Thank you.

And your next question comes from the line of Duffy with Goldman Sachs. Your line is open.

Yes, good morning, guys. You talk about IP being your biggest KPI, which is fair. Roughly what is the leverage if IP is up or down 1%? How much EPS does that generally drive for you? And then if you would maybe just take a spin around the world, what are you seeing IP? I know guiding to flat is prudent, But where do you see potentials for things to be better or worse than that? Duffy, I'll let Matt talk a little bit about about the IP correlation Linde then I'll give you a walk around the world. [indiscernible] to start, as you probably know, so we split our volumes into project and base and our project volumes solely track our start up. So that is, as you know, completely independent.

Of any IP or macroeconomic factor Linde it's purely contractual based on the fixed element. So that one is part of the capital allocation contribution of the UBS algorithm. But to your point, when you think about base volumes, as Sanjeev mentioned, we have the rental, which is fixed irregardless, that gets back to the resilience of our model. As you recall, about 65% of our revenues are fairly resilient. But of the molecules that they take, whether in the Linde, or whether in the tank for liquid, and to some extent over fixed fees in the pipe, that's just going to be a function of their production. So from that end, that tends to best proxy to IP. And so I would say within the base volume piece, it aligns. Now to your point, we tend to get higher IP leverage in developing countries, where they are expanding more, what you'll look at is intensity of gas per capita.

Whereas in more developed nations, it's closer to one to one ratio you tend to see on the IP and the base volume tracked. So that's how I would think about that. When you look around the world, I think we can all agree that how some countries report IP is not equal. All countries. But when we adjust for what we feel are a little bit of some noise in the numbers, What we've been seeing is IP close to zero, maybe tens of bps globally weighted in our businesses. Is what it's been ranging at. But we'll have to see how it plays out going forward. I think EMEA, a drag, as you know, Americas has been pretty solid Linde I think China, depending on which number you actually want to use, it can range anywhere from close to zero to the official number of 5%.

And that's how we would kind of see the IP. But I'll hand off to Sanjay, maybe give you a little walk around the world just with general color on trends.

Thanks, Matt. So that's helpful. It just kind of grounding you on how IP [indiscernible] Tati, let me just walk you through the wall. I think it's a question I'm sure it's on many people's minds. I'm going to try and break this down and parse it by by two different perspectives. I'll start off with the markets that we have the end markets Linde use that as a characteristic to kind of define what we're expecting. And then talk about different geographies as well. So let's start off with resilient end markets. By the very nature, U. Them to grow. Linde therefore, we expect low to mid single digit growth in our resilient end markets driven primarily by electronics and food and beverage. Industrial sector, obviously more cyclical impacted by industrial activity and demand. We do expect lower volumes there Linde versus last year, we expect flat to lower volumes, particularly in Metals and Chemicals. If I now take the other perspective and talk about geography, and I'm going to start off with maybe The Americas. Our expectation low single digit growth in The Americas across the resilient end markets, The industrial sector also expected to be kind of flattish against what we see last year.

I won't specifically talk about The U. S. Though. And in The U. S, I'd say to you, our current view remains I've said this before, right? U. S. Volumes and sales at a high watermark Our expectation remains that in the first half of the year, they're likely to be flattish That's what we're hearing from our customers. Towards the back end of the year, the second half for sure we are expecting increased momentum across The U. S. And we will see that play through in how we see The Americas volumes Linde and growth activity come through. On the other hand, a bit of a contrast unfortunately, In Europe, we expect to see continued softening. This is primarily in Western Europe, also a little bit in Eastern Europe, but primarily in Western Europe. The resilient end markets will continue to grow. There is a good trajectory there Linde we'll expect that. But metals, manufacturing, chemicals, energy, all expected to be softer and lower volumes versus previous year. So Europe, unfortunately, is a drag at the moment. Now as far as Asia Pacific is concerned, I'll start over China because I know that's on a number of your minds.

I was in China two weeks ago, spent a week with the team talking to our customers, meeting a number CEOs and getting a flavor of what I think is going to happen in China. And I think my short summary is From our perspective, we don't expect anything significant in China in 2025. We're not baking in any kind of recovery. I think industrial volumes and activity will remain stable. But flat no recovery in any of those sectors. Metals and mining specifically is likely to be negative year on year.

For a number of reasons driven partly by demand, but equally by some large turnarounds that our customers are taking in the course of the year. So we Linde of see that play in Q1 and Q2. But again, metals and mining, unlike to see any growth, The one sector in China that is growing. Today and will continue to grow is their electronic sector. Lot of energy and a lot of money has been put into that sector by the government as well. We do expect that that will play out and continue to see some level of growth. If I was looking at China a bit more broadly, I'd say to you two trends of particular note coming out of my visit. The first that the government has recognized the need for support if it's got to get personal private consumption, and the property market to pick up. It said a lot of things. Not enough stimulus has gone into the market, so we haven't seen any improvements other than the fact that the last quarter you saw a bit of improvement from industrial activity for [indiscernible] but we haven't really seen private consumption pickup happen. Now there are all kinds of subsidies in place that they're putting out there a small but hopefully they will have an impact over a period of time.

So I'd say to you, I wouldn't hold my breath for 2025 in terms of improvement. But beyond that longer term, certainly we will see the China market stabilize and probably grow at a small pace than we're used to. But certainly, we will expect to see growth come back. The rest of Asia Pacific is largely [indiscernible] versus previous year except for India Linde, which is obviously the growth story at the moment. And again, given our strong presence in India, we are making the most of it, winning more than our fair share, feel really good about where that's going.

That's kind of a view around what we see across the world. And expect in 2025.

Great. Thank you, guys.

And your next question comes from the line of David Begleiter with Deutsche Bank. Your line is open. Hi, it's David Huang here for Dave.

What are your concerns if any of the proxy Linde Lindeploy book will be now employed at our products given the recent management change? I guess would that be a negative for Linde as it shift away from focusing too much on mega projects? Or could that change without being a even more rational industry pricing environment? Gabe, I didn't get your question entirely, but I'm going to answer it anyway. Lindy has a leadership position in the market because of a number of factors. I said in my prepared remarks, you cannot replicate and I think Matt put it really nicely You can try and copy, but you can never really duplicate what Linde has developed over many decades. And that's built into our operating rhythm, it's built into our performance culture, And more importantly, it is built into the networks that we have developed across the world where because of the network density we have, we're able to get the margin improvement that we see and of course command the strength of the relationship with the customer and have the pricing That's what's demonstrated in the margin expansion you've consistently seen over the last five years.

We will continue to work on that. What others will or won't work on really is a question you will need to address to them But I think Linde is the market leader and we will reflect that in the behaviors we put out there in the marketplace Consistently.

And your next question comes from the line of Laurent BNP Paribas. Your line is open.

Yes. Good morning, guys. I've got a question on Hess Care, where I think you've been around 0% organic growth every quarter in 2024.

Was wondering if you could talk about what you've seen on price versus volumes Linde if there's any specific area that is providing a big headwind And I guess if you can expand into what what you're thinking for 2025 for this one? Thank you.

Thanks, Laura. You've heard me say this before that in the healthcare space, we expect long term kind of mid single digit growth Linde that's what we would expect. Now you know the healthcare sector is made up of two sub segments if you like. The hospital care business, which is growing reasonably well and well on its way Linde then obviously the home cabinets around the world which tends to be moving forward as well. Now we have, as you're aware, from past calls, we've said that we were doing some portfolio rationalization in our home care business out of The U. S. And in many ways, what the numbers you're seeing at the moment are reflecting some of the rationalization that has been done in that Link Care business. That is moving forward well. As you know, the home care business in particular, given the inflationary environment that we see, has to work really hard on productivity efforts. And I'm happy to see that at LindCare, we are really seeing that progress being made. So it's looking pretty robust and resilient as things stand. At some stage, we will lap these portfolio actions and you would see the long term kind of mid single low to mid single digit growth that we would expect from healthcare overall.

Thank you. And if I can have a follow-up on the project Linde. You talked most about decarbonization related projects that could be signed in the future. You didn't mention electronics. Is there a specific reason for that? I don't think we've seen significant new in electronics on your side over the last couple of years. This an area where we should be expecting new projects? Laura, I'll only tell you there's a 20% of my all time record sale of gas backlog is electronics. We are executing on electronics projects as we speak And I'm more than happy to tell you that we'll be announcing new wins very shortly as well. So I'm not sure whether that question really addressed a specific point, but I think really good about electronics and our specific position in there In fact, we took our board recently to our Phoenix facility, which serves TSMC.

Which you know has been a very successful project for TSMC. So feel really good about it, executing a number of projects as we speak. They are starting up Linde providing impact and we continue to win more than our fair share.

Excellent. Thank you.

And your next question comes from the line of Jeff Zekauskas with JPMorgan. Your line is open.

Thanks very much.

Linde In 2024, your cash flow from operations was up 1% even though your EPS grew about 10%. Was that a depressed number? And so when you look at 2025 and you're EPS growth of 4% to seven is cash flow from operations going to grow higher or lower? And then secondly, in terms of market share in the overall industrial gas market, Is market share pretty much constant for all of the major players or are you gaining share overall or losing share? Is there any share shift Thanks.

Yes. I'll let Matt talk about the cash flows Linde then we'll talk about the market.

Yes. Yes, Jeff. So on the OCF, to your point, we tend to look at EBITDA operates, the OCF rates, So similar to what you're saying, but instead of EPS, EBITDA. Okay. And to your point though, they should grow similarly Linde the ratio we tend to always look to achieve on OCFT to EBITDA. Is usually in the low 80s.

And to your exact point, what we had occur over the last probably I would say twenty four months give or take is this unwinding of our engineering portfolio as we worked out the sanctioned projects. And so what that created was you had a large influx of deposits of cash that stopped Linde then we had to settle the payments to basically suppliers and you had a very rapid acceleration of an unwind. So that created a large outflow of cash associated with the engineering business.

And that's what created a slower growth of OCF relative to EBITDA because essentially what you had was some liabilities, which are the contract liabilities. If you look at that specific line, has been quite unfavorable. And what it is, is liabilities are unwinding on the wind down, but they're not cash generative. So that's why they create that unfavorable aspect on the working capital line that you see.

So that is what's been driving this, inability for the EBITDA and OCF to grow together. We've substantially gotten through all that.

In our engineering business.

I expect 2025 to be a lot closer aligned on those growth rates. But this is normally this is how the engineering percent completion business works. Normally, it's spread over a four year build cycle, so you don't notice it. But given the events of the sanctioned projects, it got compressed into a much tighter structure as we had to deal with the sanctioned projects.

Thanks, Matt. And let me talk about market share. So actually, Jeff, to be honest, we don't spend a lot of time thinking and talking about market share. Think it's something that we can segment down and talk about specifics. And that's what I'm going to do for you. So I'm going to start off by just reminding you record sale of gas backlog of seven plus right? That's a good test of where market share is headed. And to be honest, we're winning more than our fair share of those large projects. Which are, as I'll remind you and as we said in our prepared remarks, those are contracted growth with good solid terms and conditions, including termination [indiscernible] a minimal return on capital that is guaranteed. So just as a reminder that very very rigorous definition of backlog where we are excelling today with a record backlog kind of demonstrates on the larger project side how we are positioned in terms of market share. For the merchant and package business, the concept of market share is less relevant. What is more important and which is where we spend most of our time thinking about network density. Clearly, if you have network density you are the leading player in the market usually by a mile.

So it is very important to make sure the network density is what you drive through the decisions you make, and in terms of how you manage your business on a day to day basis. So I feel pretty good about the network that we've developed. And the strength of our market position each one of those networks which actually results in as I said earlier, getting the margin expansion that we look for and getting the market position and the strength of our relationship with our customers because of those networks that we've developed. So I'd just summarize by saying Glenda remains the market leader. And we expect that leadership to continue to move forward given these elements that I just talked about.

Great.

Thank you.

And your next question comes from the line of Steve Byrne with Bank of America. Your line is open.

Yes, thank you. I was wanting to better understand this the 59 small on-site wins Maybe more specifically, how would you compare the contract terms of those small on sites versus the long on sites. Would assume these are long term take or pay agreements, some of them maybe even have your own employees on-site [indiscernible] how would you compare the returns on these projects versus the big ones and is can you comment on are the gases that are driving these small on sites I. E. Is this oxygen for oxyfuels or is this hydrogen, etcetera? Thank you. That's a fantastic question, Steve.

And I really wanted to somebody to raise it. So thanks for doing that. 59 long term contracts, you would have read we signed 59 long term contracts. And are building 64 plants. All of this happened in the space of the last twelve months. So feel really good about breaking that record. Now let's talk about the profile of small on sites. I get excited about small on sites because from so many different perspectives, they are actually a perfect way of generating entity income for this business. And you can imagine this thirty sixty four plants will be starting off more than one plant a week to make sure that that revenue and cash generation happen. Let's talk about returns. Terms and conditions Linde the types of gases.

So I think good to start with the types of gases.

We use both oxygen, nitrogen and indeed in the future we expect to see electrolyzer based hydrogen which is currently not included in our definition for small offset Linde, but at some stage, we'll see that as a developing portfolio element to be added on to the small outside. Oxygen, nitrogen largely. Oxygen, I'll give you a great example. So we've been working with many customers. I'll take one Owens, Illinois where we've been supporting them on their decarbonization efforts. And in this particular case, we have a piece of applications technology called Optimal that we have developed Linde we have deployed that successfully across a number of class customers. Oinsil and I being a good example of one of those, where we are able to recover, do heat recovery, which allows them to get significant efficiencies reduce natural gas consumption, and run the throughput of their furnaces at a significantly higher level. That's a good example of small on-site goes on-site, actually provides that. We do the same with paper and pulp. We do the same with electronics, etcetera, which is where we would largely use nitrogen as an example. [indiscernible] Both of these gases dry our small oil side portfolio and are kind of largely equally between the different technologies that we apply and win.

The terms of these [indiscernible] range between ten Linde fifteen years, exactly identical to what you would typically see on the large on-site fees, the terms and conditions are almost identical as Same fixed fee elements that we talk about, similar profile in terms of cash flows what tends to happen though is that the execution timeline for these projects is much shorter. Typically, we'd be able to deploy a small on-site anywhere between nine to fifteen months As you know, the large on-site projects or the larger projects that we do tend to take longer in terms of their construction commissioning period. So again, a very, very nice piece.

Often on the small on-site, we're able to derisk the execution as well because the execution or a portion of the civils is carried out by the customer. And again helps us [indiscernible] implement and construct quickly also have the customer take the risk around the civils piece as well. That brings me in the end to returns. And our returns typically for small on-site are above what we would see on average for some of the large projects So I feel really good about the return highly accretive to our portfolio, Again, you've been seeing over the last four or five years we've put a lot of focus on developing this part of the portfolio and are really seeing the benefits of that in these 59 long term contracts we signed and the 64 plants we're building up, all in, I think really a good part of the portfolio we have, very excited about it.

Thank you.

And your next question comes from the line of Michael Hi. This is Abigail on for Mike. Thanks taking my question. This was sort of touched on earlier in the call, but I wondered if you could just clarify the contributions from pricing versus product [indiscernible] Hey, Abi, it's Matt. So we don't split that out. But as Sanjee mentioned on the algorithm, so we've got 10 plus percent in the combination of the capital allocation contribution and the management action contribution. And for purposes of guidance, I'd say roughly split fifty-fifty, just say 5% at this stage. Historically, management actions have been the larger contribution. But we always need and want to think about that as a spread. Right? To think about one in isolation, to us doesn't make a lot of sense because you'll see very different inflation levels in different countries. So the local spread of price to cost inflation is a critical metric for us. Because that positive spread is what's part of the compound value creation the model. So I would say it's a very, very local discussion. But the spread needs to remain positive. That's a big component of the margin expansion, the long term margin expansion as well.

But I'd say for purposes of the guidance right now, just assume it's roughly half from management actions at the 10% and half from capital allocation of the 10%, so five percent and five And as Sanjeev mentioned, we're obviously going to continue to take actions to try and improve on that. But that's what's laid out in the guidance at this stage.

Okay. And your next question comes from the line of John McNulty with BMO Capital Markets. Your line is open.

Yes, good morning. Thanks for taking my question. So a question around the $10,000,000,000 back backlog between sale of gas and sale of equipment. How much of the equipment at this point is locked in where we don't have to worry about tariffs or maybe the benefit of of the strong dollar? And how much of it is there a little bit of exposure on? How should we be thinking about that? Thanks, John. So again, as you said, dollars 10,000,000,000 in backlog, about 3.1 or 3.2 of that sits in in the SOE side, the sale of equipment side, and the Balance seven plus sitting in in the sale of gas side. So as far as tariffs are concerned, obviously, we've been looking at the portfolio On the SOE side, our contractual protection typically takes care of that. So So we go in with firm pricing with our contractors Linde wherever necessary we'll have contractual protection to make sure that events like tariffs, etcetera, get adequately covered. On the sale of gas Linde, where we're doing a lot of the procurement, we're obviously managing and tracking that quite closely. We did that study recently for our U. S. Projects Linde actually the impact of tariffs is de minimis.

So really we are not seeing any impact there. Now our experience of the past has been, Linde there were tariffs have been tariffs for a while now, including the first round of the administration a few years ago when we dealt with this, one of the things we found was when tariffs did get introduced typically they didn't really impact our firm offers that we put in on the procurement cycle. Also more importantly, we got some benefit typically out of devaluation of currencies that more than offset the tariff impact. If there was impact of any significance. So all in, I'd say to you, we've looked at tariffs as part of what we've done in the past and kind of manage it adequately. At this point in time, we feel pretty good about where our projects stand. Great. Thanks very much for the color. And your next question comes from the line of Peter Clark with Bernstein.

Your line is open.

Yes. Good morning everyone. I got kicked off. So I hope I don't ask something that's been asked before. But I'm not terribly surprised with your guidance but maybe I was a bit off on the ForEx.

And using the sales line, I get slightly lower, but I'm assuming you've got some very profitable markets in there that have been hit very hard with the currency. I'm thinking Mexico, maybe Brazil a bit.

Just wondering if there's an element of that in that guidance? And then allied to that, the tariff risk, I know gases don't travel. I know it's mostly for in the region. But again, some of these very profitable markets are ones at risk in terms of tariffs. And again, Mexico would be a classic in terms of that. Just how you think around that as well? Thank you.

Hey Peter, it's Matt. So we'll start on the FX. Yes, you actually hit on the two bigger ones. Brazil and Mexico were the larger ones. I would say if you think about the evolution of FX, through 2024, Some of the European based currencies as you probably know, were almost quite favorable to flat the beginning of 2024. But unfortunately, what you were seeing were a lot of LatAm currencies devalue fairly materially.

The peso, actually peso will be one, the Brazilian real and then Argentine peso, as you can imagine, which is on a managed devaluation, which uses hyper currency inflation. So the Latin American currencies, we're probably seeing more of the brunt in the first half to two thirds of the year. But what we saw in the fourth quarter just given some of the geopolitical and political events, with a significant flight to the dollar. I think DXY index probably the best indicator of that. If you sort of look at DXY, right around the beginning of the prior to the U. S. Elections to where it ended in the year, it appreciated almost 10%.

And I think you gave a pretty good indication of the six major basket currencies which that index is comprised of. How much those major currencies you saw that move. So that was I would say it was a two stage impact on the rates. Linde then what that ended up with was some of the more larger currencies like the euro and the the sterling and the Aussie dollar, etcetera, really devalued in the back half of the fourth quarter. So that I'd say that was the dynamic we saw. It will be what it will be, right? We'll obviously, as we mentioned, you book on the average rate each month Linde then we'll see if the devaluations do create inflationary aspects.

I think Sanjeev had mentioned the tariffs Linde as you could imagine, our impact on the tariffs is really indirect. We don't Linde we're so localized to your point, we don't have much direct impact. Anji mentioned the equipment, which is small Linde that tends to self correct. So it really just comes down to a function of the customers that we supply and what production levels they have.

Given our leading density positions Linde lot of these economies, we feel quite good that we are there to capture where the products move to. Because I think at the end of the day, what you have to ask yourself with these tariffs, is production shifting or will there be a reduction of production But in a shifting basis, we feel quite good we'll capture where it goes. And if there is a net reduction, the question will be from where? So time will tell on that, but this is more going to be a function [indiscernible] But given the guide we gave on a basically a zero IP at the midpoint, We'll have to see how things play on And your next question comes from the line of Patrick Cunningham with Citi. Your line is open.

Hi, good morning. Just on the step up in CapEx for 2025, is most of that being driven by the two large projects? And is this step up from those projects more meaningful in 2026 as well? Thank you.

Patrick, we just referenced the sale of gas backlog being an all time high at $77,100,000,000.0 Clearly, that's the reason why you're seeing the step up in CapEx And obviously, sitting within that are the two large projects that we're executing around the energy piece, but also a number of electronics projects, etcetera. So that's all that's driving the CapEx number as things turn.

Your line is open.

Yes, thank you. Your competitor had a large non recurring helium sale in quarter.

That take down industry helium prices or how would you characterize the helium market John, I think the helium market continues to play exactly the characteristics that we've been seeing for the most of 2024 Linde fact.

As I look at the helium market today, I'd say to you that there are parts of the world where helium is long Asia is one of them. As you know, about a third of all the imports into China coming out of Russia, which obviously has unbalanced that market to some extent. Demand side on helium remains flattish. And maybe MRI, but that tends to kind of pick up during the course of the year. Pricing as things stand, remains stable. We are not seeing any significant movements on pricing Gretchen, that happened, as you know, about a year or eighteen months ago.

There's nothing unexpected happening [indiscernible] You're referencing a transaction that I won't comment on at this stage, but there are shifts in helium supply and demand all the time. There is nothing new over here that would impact the market itself.

Thank you. And your next question comes from the line of Kevin McCarthy with Vertical Research.

Your line is open. Hi, this is Matt Hetwehr on for Kevin McCarthy. Regarding the new CCS hub in Jebel, could you provide more details on the scope and structure of your investment in the project? How large is the investment?

Do you see this project being foundational in nature? Linde that it could turn into a base hub for additional follow on investments with the goal of increasing regional asset density.

Thanks, Pat. So essentially, I'm going to give you a high level view of the project. It hasn't gone to FID. When it does, you will hear us talk a bit more about it. But essentially, it's a three way joint venture that is developing, which will be in its first phase, a very large CCS project in Saudi, the three partners are led by Saudi Aramco as SLB and Linde. Each Linde of contributing their skill set into that project.

The first phase of that project is between nine to 11,000,000 tonnes per annum of CO2 being sequestered There is an expectation that there will be two more phases By the end of the third phase, when it gets completed, this could well be the world's largest CCS project at 54,000,000 or 53,000,000 tons per annum of CO2 being captured in sequestered. So yes, there is potential for growth beyond Obviously, we will assess those phases when they happen. At this point in time, this joint venture structure is developing the project, the feed has been completed, the capital is being assessed as we speak, so I'm not going to give you a phone number just yet. I expect FID in the next few months and once that happens, you'll get a lot more detail around it. But it is a fairly significant project with some exceptional partners, in a part of the world where Linda will strengthen its position and obviously there will be a future opportunity to continue to grow with this. Alongside this project, we will also look at developing flu hydrogen project, which was leverage the CCS infrastructure that has been developed in this project. But again, when that goes to FID in due course Linde meets our investment criteria we have a project worth talking about.

You'll hear us talk a bit more about that.

Thank you.

And we will now take our final question from the line of Laurence Alexander with Jefferies.

Hi.

This is Dan Rizzo on for Lawrence.

I was just wondering what your view is on the depth of the pipeline of potential hydrogen projects, particularly in the EU and Japan?

So I said this earlier Linde I'm going to maybe just quickly recap my earlier comments and then talk specifically about the markets you've mentioned. So We have seen that people are being more rigorous Linde applying more diligence before they take on FID decisions for these large projects. And when I think about our pipeline Linde the context of that, I feel really good about this We have enough pipeline that we are developing We're developing those projects as you would expect in The U. S. In Canada, so in North America, in The Middle East, largely in Saudi Arabia, but also potentially in MRS, In Europe, particularly with partners like Equinor where potentially we have an opportunity to provide low carbon hydrogen or low hydrogen into the European network And then we are looking at some projects in Asia which are localized for local markets. Your specific question around Europe and Japan, would say to you that the projects in Japan are minimal other than the fact that Japan is a very important market from an import perspective that they would want to import in either clean hydrogen or derivatives such as ammonia or methanol into their market for a host of applications that they've determined are needed for their decarbonization efforts.

So everybody is looking at Far East from a point of ability to export into that market, which is why it remains an important market.

Alongside Japan, Wilson, Korea as well.

But the development itself in Japan, I think is minimal.

As far as Europe is concerned, obviously, you see a lot of discussion around [indiscernible] including green and including blue and so on and so forth, The reality is that regulatory framework is so difficult that to be able to get to a decision point Linde a very large substantive requires a lot of time Linde I think we're seeing that play out in Europe as things stand.

Which is why there is a real fear that the European aspirations for the amount of hydrogen they need for that market will not be entirely met because the combination of the time to kind of decipher the regulatory framework and to make investment decisions in this environment is obviously a little more challenge.

Thank you very much.

And I would now like to turn the call back over to Mr. Juan Palais for any additional or closing remarks.

Abby, thank you Linde thank you everyone for participating in today's call. If you have any further questions, feel free to reach out directly. Take care.

Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.