The 2006 financial year has seen the most significant process of change our company has undergone in its 128 year history. Nothing is the same as it was before. As a result of the merger with the British company The BOC Group and our simultaneous divestment of the Material Handling business segment, we have made Linde into a globally-oriented, world-leading gases and plant construction group, thus ensuring our independence in the long term. We have renamed our restructured company The Linde Group. This name takes into account the longstanding traditions and origins of both the merged companies. At the same time, it stands for the internationalism of a group which is active throughout the world.

The business logic behind our reorganisation is incontrovertible. The market for industrial gases is in every sense a growth market, with a predicted average increase in demand of 7 percent over the next four years. The key companies in this industry sector are achieving high operating margins and have improved their earnings per share in the past ten years by an average of 8 percent per annum. The industrial gases business is characterised by long-term supply contracts and diversified customer segments. This ensures stable and reliable cash flow trends. As a leading company in the industry, we have also created the best conditions for achieving sustainable and disproportionate earnings-based growth.

This is even more true now, because Linde and BOC complement each other almost perfectly. Linde, for example, has strong market positions in Europe and South America, while BOC is particularly well-placed in the Asia/Pacific region. Together, we are in a leading position in around 70 countries worldwide.

However, the merger does not only make sense in geographical terms, but also in terms of the major product areas. Following the acquisition of BOC, we have risen to become the undisputed number one in the cylinder gas business, and we have become the current market leader in three out of the six major customer segments – the manufacturing industry, the food industry and metallurgy (Glossary). The Linde Group is also extremely well-positioned in the main growth markets in the international gases industry. In three out of six of these we are the market leader, i.e. in the regional markets of Eastern Europe and Asia and, on the product side, in the market for specialty gases.

The BOC acquisition was undoubtedly a financial tour de force. The requisite funds of €15 billion were provided in a financial package by an international banking consortium via a credit agreement. To refinance this credit, we have taken various capital measures, successfully completing an increase in share capital in July 2006, the proceeds of which were around €1.8 billion. In addition, we issued a hybrid bond worth just over €1 billion, which was extremely well-received by the capital market.

To repay the loan, we are also using the profits arising on the disposal of certain business activities, where the disposals were made in order to comply with conditions imposed by the competition authorities, as well as the profit on the sale of our forklift truck division at the end of the year. We were able to fulfil most of these conditions promptly. Due to a good market environment, I am delighted to report that we achieved good prices which exceeded our original expectations.

We will continue to work to ensure that we gradually reduce the level of our debt, while still making targeted investments which will support our strategy of earnings-based growth.

Despite the numerous additional challenges we had to overcome as a result of the BOC transaction, we have continued to develop our operating activities. Group sales – including Material Handling and the consolidation of BOC for the first time – increased by 30.8 percent to €12.439 billion. After adjusting for BOC, we achieved a 10.6 percent rise in sales. On a comparable basis, i.e. excluding BOC, operating profit (EBITDA (Glossary)) showed a 10.0 percent increase to €1.876 billion. This means that we have fulfilled our forecast, i.e. that we would achieve sales and earnings growth when compared with the previous year. Earnings after taxes on income were €1.858 billion, significantly above the prior year figure of €523 million. This disproportionate increase includes the book profit arising on the sale of the Material Handling business segment.

For many years, Linde has pursued an earnings-based dividend policy. We will continue to do so, while at the same time taking account of any specific requirements arising from the BOC acquisition. Therefore, the Executive Board and the Supervisory Board will recommend a moderate increase in the dividend at the Shareholders’ Meeting on 5 June 2007, giving a dividend per share of €1.50 (2006: €1.40).

A thorough reorganisation of the Group and strategic concentration on the industrial gases and plant construction business, not to mention an improvement in operating performance – these are achievements which have been recognised in the capital market. A strong year for shares across the world, 2006 saw a 22 percent increase in the German Share Index or DAX. Linde shares again performed better than the average, with an increase in price over the year of around 25 percent. This in spite of the fact that the market had to absorb some 37 million new Linde shares, issued in the course of our capital increase. During 2006, the stock market value of our company rose from €7.5 billion to €12.6 billion.

In the past year, we have created the right conditions so that we may continue this positive trend. Now, it is a question of ensuring that the integration process is implemented swiftly and with due care. We have already made substantial progress here. The new Executive Board team had already been appointed by Day One of the merger, and at that stage we also defined our eight main service functions, known as global functions. The new organisational model, comprising global and regional Business Units and Business Areas, became effective on 1 January 2007.

This is how we are bringing together outstanding skills and talents from both companies in an integrated group. We are well-placed now in terms of our organisation and will be able to realise quickly and efficiently the numerous benefits arising from the merger between Linde and BOC.

With BOC, we have even better access to the international growth markets and can offer our customers a significantly wider range of products and services – around the world. Together, we will continue with confidence to implement our strategy of earnings-based growth and will achieve sustainable increases in corporate value.

The Linde Group therefore offers outstanding prospects for all its stakeholders: for our staff, for our customers and last, but not least, for our shareholders.

Professor Dr Wolfgang Reitzle
Chief Executive Officer of Linde AG