(Adds CEO comments on hydrogen, outlook)
By Nick Tattersall and Frank Siebelt
WIESBADEN, Germany, Sept 25 (Reuters) - The head of German industrial group Linde forecast soaring hydrogen sales in coming years as the car industry invests in fuel cell technology, but said this did not necessarily mean becoming a pure gas player.
Wolfgang Reitzle, a former Ford executive who took over at the helm of Linde at the start of the year, said he was investing heavily in the group's hydrogen business, forecasting double-digit annual sales growth there in coming years.
"Linde will have invested 420 to 500 million euros ($483 to $575 million) in the gas division this year," he told Reuters in an interview embargoed until Thursday, adding that that was about 12 percent of revenues at the group's largest unit.
"Between 10 and 20 percent of investment at Linde Gas goes into the hydrogen business."
Many investors have been hoping Linde will shake off its conglomerate structure by selling its refrigeration and forklift trucks units, which are vulnerable to swings in the economy, and concentrating on the more stable industrial gases business.
But Reitzle hinted that the focus on hydrogen and the gas business did not mean that the group would necessarily sell its materials handling business, which makes forklift trucks, or that it was in any hurry to dispose of the refrigeration unit.
"Why should I sell materials handling? That would not be clever. We have used two and a half years of a difficult economic environment to restructure it and we expect it to grow again," Reitzle said, adding the unit had a high free cash flow when the economy was booming.
Materials handling, which had revenues last year of just under three billion euros -- or around a third of group sales, saw profits fall 10 percent in the first half of the year as demand for Linde forklifts fell, particularly in Germany.
The company will spin off its refrigeration unit, which has suffered as retailers cut back on spending, by the end of the year. Reitzle said the unit had two to three years to meet its targets or it could be sold or put in to a joint venture.
Linde stock was down 0.9 percent at 36.39 euros by 1526 GMT, against a 1.2 percent rise for Germany's blue-chip DAX .
FUEL CELL HOPES
Reitzle said he was convinced that the car industry would in the long term replace conventional engines with fuel cells -- which use hydrogen and oxygen to make electricity and water and therefore emit no pollutants.
"All the big car companies are currently working on hydrogen. I don't believe in the electric car, the convincing solution is the hydrogen fuel cell," Reitzle said.
"The technology will be relevant once we have 10,000 cars in Germany running on hydrogen. This will be the case in ten to 15 years time."
Although carmakers have built their fortunes on the internal combustion engine, fuel cell and hydrogen research makes sense as governments, especially in Europe, crack down on emissions.
Such industry names as DaimlerChrysler , General Motors and BMW are all working on fuel cell technology, although Daimler, which has yearly revenues of some 150 billion euros, has said it will only have spent $1 billion on researching the technology in the 14 years to 2004.
Reitzle repeated that core profit at gas and engineering, the biggest division, would fall slightly this year due largely to exchange rates, noting that sales in North and South America were suddenly worth 20 percent less when translated into euros.
"Despite the currency effect at the gas business we stick to our comment that at the end of the year we will have slightly better revenues and operating profit than last year (across the group)," he said. "Slightly means a few million above."
Linde posted earnings before interest, tax and amortisation (EBITA) of 647 million euros in 2002.