Germany-founded Linde has been active in Hungary’s industrial gas market since 1992, when it acquired a state-owned operation. The company this month cleared the final regulatory hurdle to complete its mega merger with U.S. peer Praxair. The Budapest Business Journal talks with Andreas X. Müller, managing director of the Hungarian business and also cluster head for South and Eastern Europe about what that means for the business here.
BBJ: In March, the merger was finally approved, creating the world’s largest industrial gas business. What is the impact of that on the Hungarian operation?
Andreas X. Müller: Indeed, we are now the number one globally in industrial and medical gases. We have a global market cap of around USD 90 billion. This also makes us the second largest chemical company globally. With industrial gases we are involved in many industries: chemicals, steel, welding and cutting in manufacturing industries, freezing applications for the food industry, carbonation for beverages as well as in the medical field, just to list a few. We have big industrial customers who outsource their gas supply to us, and we operate plants within their factories, supplying, for example, hydrogen or carbon monoxide. In the short-term, the merger will not have an immediate impact locally; there was no Praxair business in Hungary. In the longer-term, we expect the logic of the merger will give us, and especially our customers, many advantages. We will further enhance our product offering and our engineering expertise. Globally there will also be lots of cost benefits from the merger. And we are now such a big company that we will have even more funds to invest.
BBJ: One of the stated aims of the merger is to create an “innovation powerhouse”, bringing together both companies’ R&D activities. Is there a plan for any such R&D activity to come to Hungary, given the incentives available here?
AXM: Not immediately, though we are, of course, aware of the subsidies and think they are one of the really positive benefits of the environment here. In R&D we do what we call Application Technology; developing innovative applications of gas usage to improve the production processes of our customers. Our mission is “making our world more productive”. We have a larger team of application experts here who already work regularly with other centers to develop new applications we implement globally. Praxair has been a big believer in local empowerment and we would like to adopt that. We also look at how we can run plants more efficiently and how to optimize our logistics, especially leveraging digitalization.
BBJ: How was 2018 for Linde in Hungary?
AXM: It was a pretty good year. We grew sales by 15%, to roughly HUF 60 bln, and net profit after tax by almost 20%. That was organic; we grew a lot with our existing customers, but also took on new customers who are also growing. We are the number one supplier here.
BBJ: What are the business goals for Hungary for 2019?
AXM: This year we will look to continue to grow. Industrial gases are mainly a local business and we are benefitting from the positive economic development in Hungary. Also, we have two European hubs here. We have natural CO2 wells in Répcelak (185 km west of Budapest), from where we are supplying the whole of Europe. We also have a hub for N2O – laughing gas – there, and we began building the next plant last year. That will come on stream this year.
There are two programs we are driving in particular this year. We have started a digital transformation process where we took 20 top talents, brought them together and asked them how they would transform the market. For example, our Webshop. That might not seem so revolutionary, but customer-facing B2B channels are not so prevalent in Hungary. This year we will be launching an upgrade, which will help our clients not just with buying products but also with stock management. I am happy we are already quite profitable, but there is still potential to improve through digitization of processes, both for our customers and for ourselves. We have some plants that run completely unmanned, for example.
The other program concerns performance culture I started here two years ago, and the operation had always been very traditionally managed. Now we are looking at how we can improve compensation, we have introduced incentive systems, there is increased internal communication, and our employee engagement surveys already show very positive results. Our staff fluctuation is currently only 3%, which is really quite low, looking at the market. That is something we want to continue, to apply more modern management.
This year I want to continue to grow profits in the double digits, and the first two months of the year give me confidence we can achieve that. We can grow our market share by delivering better quality and through our application technology, which gives us a market advantage. We also want to grow in new areas. Last year, we saw growth in refrigerant agents used for air conditioning units, e.g. for cars. This is a market which grew a lot last year due to a regulatory change, from an emissions perspective, that drove a change in product generations.
We also saw growth in market share on the medical side, and we have more aspirations here, particularly with the government’s approach to developing super hospitals. We offer a total gas management service where we take responsibility for installing and operating the systems. We promise the hospitals we can optimize their gas use, and costs, by properly managing their gas needs. We are also seeing healthcare growth through the spread of new therapies such as non-invasive pain relief, for example for dentistry, as well as sleep and long term oxygen therapy in the homecare sector.
BBJ: Are you satisfied with the regulatory framework here?
AXM: Basically, yes. We see a lot of positives. My main pain point currently is electricity prices, because the cost is so high here and rising. We like the social contribution tax relief on salary levels (which we have passed on to our employees), for example. The one thing that concerns me mid-term is the scarcity of labor. We have really well-skilled engineers, and right now we have relatively few problems filling positions. We have a very loyal staff, but my concerns are about what happens when this generation begins to retire. It will require concerted action to make sure there are the resources to replace them.