Linde's profit soars 264 times despite operating loss

Linde Bangladesh secured in the third quarter through September a profit 264 times higher than in the same quarter a year ago.

During the same period, the company's business, however, did not go well, which is why it endured a loss of Tk 267 million. It could show a hefty profit for the quarter only because of the money received from the sale of its welding business.

The multinational industrial gas producer earned Tk 7.72 billion from the sale of its subsidiary, Linde Industries Pvt Ltd during the quarter.

Linde earned a gross amount of Tk 9.10 billion from the sale of its welding business. From the gross amount, it deducted the investment amount of Tk 1.38 billion.

Despite the operating loss, investors in the equity market rushed to buy the stock following the earnings disclosure on Sunday. As a result, the stock jumped 7.5 per cent to Tk 1,012.9 per share on the Dhaka Stock Exchange.

In July this year, Linde sold its welding electrode business to an American-Swedish industrial company ESAB Group and subsequently transferred 138.2 million shares to it. The subsidiary's shares were sold at approximately Tk 65.80 each.

The sale proceeds boosted Linde's nine-month profit too. Its income in January-September climbed 39 times year-on-year to Tk 6.28 billion.

Though sales were up 3 per cent year-on-year to Tk 1.68 billion in the nine months to September, the increase in revenue did not translate into a profit from operations. Instead, Linde experienced an operating loss of Tk 2.5 million during the period.

Higher operating expenses eroded Linde's operating profit.

Operating costs soared 228 per cent year-on-year to Tk 430 million in the July-September quarter. The costs escalated as the company paid retirement benefits to employees after the sell-off of the subsidiary.

Investors should not consider such a one-off hefty income while making investment decisions, said Akramul Alam, head of research at Royal Capital.

"There is no material impact on the company's valuation," he said.

Following the sale of the welding business, Linde declared a record 4,100 percent interim cash dividend for January-July this year based on audited financial reports for the period.

That was the highest ever cash dividend declared by any company listed in Bangladesh's stock market.

Linde explained that it had secured capital gains from selling the subsidiary business and the board of directors decided to distribute the gains among shareholders as cash dividends.

Since Linde did not have significant loans to pay back, it would have huge cash sitting idle after the sale of the business and so it paid dividends to its shareholders.

Linde shareholders received Tk 410 against each share. At present, Linde's total number of shares is 15.218 million, meaning the company paid Tk 6.24 billion in dividend.

Its sponsor-directors received a bigger chunk of the dividends as they jointly hold a 60 per cent stake in the company, according to data updated until September this year.

Linde had also paid a 1,540 per cent cash dividend for the 10 months through October 2023. At the time, it disbursed Tk 2.34 billion in dividends, nearly nine times the profit earned in January-October last year.

Therefore, as much as Tk 2.08 billion came from retained earnings.

As Linde sold its major revenue-generating business, making profits out of its remaining operations may become challenging in the future unless it expands its business in the industrial and medical gas segment, market analysts say.

The management sold the welding unit due to higher input costs and fluctuations in raw materials' prices in the global market.

The unit used to generate more than half of Linde's revenue until 2022. It then faced tough competition from both domestic and Chinese players.

The shipbuilding, infrastructure and real estate projects in the country also fought a severe headwind, which resulted in subdued demand for welding electrodes.

Annual business

performance

The key player in Bangladesh's medical and industrial gas sector operates 18 selling centres across the country.

Linde did good business in 2021, particularly in the medical segment, as the need for life-saving medical oxygen shot up for Covid patients dealing with breathing distress in hospitals.

As the pandemic waned and raw material prices skyrocketed due to the outbreak of the Russia-Ukraine war, revenue from the segment kept falling.

Subsequently, Linde saw a six-year low profit of Tk 883 million in 2022. The shrinking profit compelled the company to cut down annual cash dividends to 420 per cent for 2022 from 550 per cent paid for 2021.

The decline in profit continued in 2023, leading to a 40 per cent lower income to Tk 525.68 million in 2023, compared to the year before.

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