Hello, and welcome to the Air Liquide First Half twenty twenty one Results. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded. All participants are currently in listen only mode until we conduct Q and A session and instructions will be given at that time. I will now hand you over to your host, Audrey Rodriguez, Head of Investor Relations to begin today's conference.
Thank you.
Good morning, everyone. This is Audre D'Herriaglia of Investor Relations. Thank you very much Next line, they will both participate in the Q and A session. In the agenda, our next announcement is on October
Thank you, Rod, and good morning, everyone. Thank you very much for attending this call. The first half of twenty twenty one has been a special semester By many aspects, after a first quarter marked by sales growth recovery in all our activities, we saw an acceleration in the second With Q2 sales not only growing double digit compared to a low Q2 2020, But also showing growth above 2019 in all regions and all business lines. Overall, we've been able to deliver an outstanding financial performance, thanks to a higher demand with a strong Margin improvement as well as a high cash flow, which allowed us to invest in growth, to close the Sasol takeover, To pay the dividend, of course, while significantly reducing the gearing ratio compared to the first half of twenty twenty. By the COVID-nineteen pandemic in some countries, our teams have been fully mobilized to put in place alternative supply to deliver medical oxygen sometimes in remote areas or in regions where the group Not or almost not present.
We'll come back on that. And despite this unusual environment, we've been able to reinforce our backlog, and we will provide you with more granularity as well as some update on the key achievements regarding the Energy On Slide 4, to start with, I wanted to highlight Closing at the end of June of the Sasol 16 ASUs acquisition, which, as you know, is the largest air gases production site in World in Secunda, South Africa. It is also the first time we signed an agreement with a customer to jointly commit to the reduction of emissions, which is fully aligned with the objective we disclosed during our last Sustainability Day in March. This is truly a first of its kind deal in the energy transition area, Europe. So a major contract for the group that started to contribute on the 1st July.
On Slide 5, a few key figures to illustrate the financial performance in the first half. Start with comparable sales growth is plus 9 This is compared to a low basis last year. If you now compare to the first half of twenty 19, sales are growing by 5%, which clearly shows the good recovery of our markets and activities. Margin also increased by a significant plus 100 basis points, excluding the energy pass through impact, and we'll see later that energy Portfolio management and cost containment plan that we put in place last year and which is progressively The recurring net profit is up plus 19%, excluding foreign And the cash flow is still very high at 23% of the sales. On Slide 6, the graph shows the acceleration of the growth since the beginning of 2020, up plus 15% for the second of this year, whereas last year, it was only down by 7%.
We also provided With growth figures by business line on right part of the slide compared to 2020. And as you can see, we enjoyed a double Growth for LI and I'm that were the activities the most impacted by the pandemic last year. But Healthcare and Electronics also posted close to double digit growth this year, while these activities were both growing in Q2 20, slightly for Electronics and at a higher pace for Healthcare. On Slide 7, you can better evaluate the strength Of the recovery, when referring to 2019, in Q2, all business lines and geographies are posting growth compared to 20 America has plus 4%, the main drivers being LI and Healthcare Europe plus 7% with a strong healthcare and solid industrial merchant and large industry And Asia at plus 6%, driven by China and all activities, Middle East and Africa is plus 8% above Q2 2019 Sales. By business line on the right, figures show an outstanding Healthcare, of course, high Electronics And Large Industry and I'm sales are now 1% above 2019.
All in all, group sales are plus 6% above Q2 2019, which demonstrates the strong resilience of our business together with In addition to our strong financial performance, You know that sustainable growth is also at the heart of our strategy as previously explained during the Sustainability Day in last March. As a matter of fact, we all know the pandemic is not fully over yet. So we brought a continued Support to several countries severely affected by COVID-nineteen. On Slide 8, you can see I know you have this major Healthcare Society of Contribution TO Fight Against the Pandemic. Not to mention them We highlighted here a few examples of countries or sometimes regions where the group has limited oxygen capacity French or the local army in order to supply medical oxygen to COVID patients.
Thanks To this tremendous effort, 30,000 patients per day received oxygen in India, 10,000 in Russia. We also supplied 1,000 on oxygen concentrators in Brazil And South Africa. And we are we have been also very active and is still the case now in Tunisia or previously in Egypt. And I take this opportunity to warmly thank all the teams that were deeply involved in the management of these critical situations. We also like to highlight the solidarity of our industrial customers Who accepted to reduce or stop their oxygen consumptions so that we could medicalize the oxygen and redirect The volumes to hospitals.
Also in terms of sustainability, the 1st semester was also very active in the field of energy As I said earlier, on Slide 9, in the continuity of our Sustainability Day last March, We want to share with you our key achievements in Energy Transition Projects in the first half. In Europe, 1st, For these projects to succeed,
you need
to develop local ecosystems by combining several key factors such as technology, Customer relationships, but also availability of renewable energy or fundings to help in first stage of the competitiveness In the first half of twenty twenty one, we signed more than 10 MOUs or partnerships. We were awarded 6 national or European fundings, and we're preselected for more than 10, And we signed 2 PPAs, and we are currently working more than 10. In Asia, high end mobility is developing quickly, especially in Korea and Japan, and we signed 4 MOUs or partnerships This first half, Air Liquide Technology is recognized by customers and has been chosen as an example Being is introduced to promote new technologies and solutions for energy transition like the The Hydrogen Shot program or the Clean Hydrogen Production Act, which are not fully validated yet, but no doubt Projects will develop quickly as well in the U. S. As soon as these new regulations are implemented.
But we already started In North America, just to remind you, we are operating the largest PEM electrolyzer in Canada since the end of And we plan to start a major hydrogen liquefier in the Q4 of this year to supply the hydrogen Mobility market in California. So energy transition really is taking place in Americas as well. To conclude, a very active semester in the form of Energy Transition. Now these Energy Transition will soon be added to the backlog. On Slide 10, we provide you with some granularity in our backlog at the end of June.
It Stands right now at EUR 3,100,000,000 and these projects under construction will deliver growth in the next few years. It is of very good quality, the portfolio, and well balanced, be it by end markets, geographies Indeed, large industry represents close to 60% of the total, mostly, as you can Chemicals with only 8% of projects in refining. You add electronics, you reach more than 80 percent of total backlog that are under long term contracts. By geographies on the right part of the slide, Americas come first with 41 percent, projects being mainly in chemicals Asia with 34% interest more most of the electronics projects And the backlog is made of around 70 projects, having an average size of EUR 45,000,000. Therefore, our growth doesn't rely on a few large projects.
Such a diversified and well balanced backlog considerably reduce the risk the level of risk So the financial performance combined with the strong backlog make the 1st semester a very
Thanks, Benoit, and good morning, everyone. I'm on Page 12, and I suggest we review our numbers more precisely. So coming back to half year, we can Comparable gas and services sales for H1 showed plus 8% increase versus last year. We, of course, contrast between Q1 and Q2 with a favorable comparison effect in Q2. For the semester, all geographies and business lines, including large industry Industrial Merchant that were most impacted during the crisis are posting a very strong growth in Q2 as explained by Manuel.
We'll review that in a moment. Engineering and Construction Consolidated sales have increased by plus 66% in H1 in connection to the active development of group projects and the low There is a Pursuit order intake picking up plus 13% in Q2, representing €257,000,000 Global market and technology have also accelerating and are now showing a +-thirty 5 percent in H1 boosted Biogas activity as well as last year base effect. Overall, comparable gross sales are up plus 9.2% for H1, while published effect at minus 2.8 percent, balanced with a very significant impact of the increase in energy price, plus 4% over the first half year. Now for Q2, as I said before, very strong growth with a marked recovery. We are then at plus 6% above 2019 level of sales for the group and even sales for the business line that were the most impacted by the crisis are now above 2019.
I'm on Page 13, and I'm getting back on geographies. We can remember that Q2 last year was the most impacted for the Americas due to lockdown in place everywhere and due to This 2019 level. Large industry volumes have accelerated, and underlying air gases capacities are now fully loaded in June 2021 in the U. S, while Latin America continued to grow, also supported by the contribution from ramp ups. That is still lagging behind.
Our goods are still below pre COVID level, but overall in I'm at plus 3.2% price Health Care sales are strong due to Med Gas sales in Latin America, but also from Home Health Care recovery. In North America, there is significant contribution from medical gases during the peak Of the COVID crisis, medias for Proximity Care and Elective Surgery are progressively taking over. In Europe, we have seen an acceleration of growth the last three quarters, we fell significantly above pre COVID levels. Large industry air gases have benefited from Significant increase in steel and chemical market in Western Europe, while returning steel soft, especially in the southern part of Europe. Eastern Europe is also strong with takeover in Kazakhstan during Q1.
In merchant, all markets are well with good bell volume on a good pricing dynamic. Western Europe remained well above 2019 level, while growth remained strong in Eastern Finally, while Healthcare sales are still supported by strong medical gases at plus 13% due to COVID crisis, Home Healthcare has accelerated with a significant development of diabetes treatment and sleep apnea. I'm on Page 14 and On Asia, Asia is still contrasting with China continuing to show high momentum in all business lines, while the rest of Asia is As a reminder, China started to recover at the end of Q1 2020 as the rest of Asia had more impact Still in Q2 2020. In Large Industries, China sales and volumes are supported by strong chemical and steel demand, while hydrogen and CO volume are In Korea and in Singapore. In Industrial Merchant in China, all end markets are well oriented, especially metal fabrication and electronic components, and contributing to post a plus 15% growth with all product lines contributing, while the rest of Asia is improving still impacted by Finally, electronic sales are strong with a good level in recurring growth and in E and I.
Carrier gas in China are strong Advanced Materials are growing sustained by some exceptional sales in Korea and June. In Africa and Middle East, I'm sales are recovering progressively despite the continued impact of the pandemic while health care is supported by medical gases. As mentioned, Sasol takeover in large industry has been closed in June 2021 With no impact in sales in H1. I'm on Page 15. In terms of business line and as a reminder, Industry and Merchant and to a lesser large industry sales in Q2 last year were the most impacted by COVID crisis, contrary to electronics and health care that were still progressing.
Healthcare has been at the forefront of the pandemic fight and is still benefiting from high medical gases in various Geography despite a high comparable basis last year related to equipment sales in particular. Activities So benefited from the ramp up of elective surgery that were on hold during the crisis. We are seeing now an acceleration in Home particularly in Europe sustained mainly by diabetes and sleep apnea. In industrial merchant, bulk and on-site are strong growth driver and all end Markets are recovering rapidly, our sales in some of them being now above 2019 level, except construction in the U. S, which is a bit slower.
Pricing overall is picking up at plus 2.4 percent with a limited impact of helium price at minus 0.1%. I'm on Page 16. In Large Industry, we have seen Airgas is benefiting from good recovery in chemical and steel, while refining and HEICO were contrasting being soft in Europe while catching up in the U. S. To be noted, a significant contribution of And ramp up into the first half growth.
Electronics is pursuing growth, thanks to carrier gas activity at plus 10% supported by startup and ramp up. E and I as well, and Advanced Materials are growing with an exceptional sales in Journey and Korea. I'm on Page 17, looking at margin Getting into the detail, you can see that purchases and external costs have been strongly impacted by the increase in energy price and improvement of the activity, while Personnel expense are under control and have only very slightly increased excluding ForEx. Depreciation is only slightly up excluding ForEx following the impact of start up during the first half and benefiting from last year's portfolio review impact. To be noted, all as published figures are significantly impacted by a negative ForEx effect from minus 4% to minus 5%.
This has resulted in an operating margin at 18% compared to 17.6% last year, a +40 basis point increase And an outstanding plus 100 basis point increase, excluding the energy price impact. As you can see, the energy pass through has a significant Mathematical dilutive impact on the as published margin this semester that is not reflecting the strong underlying margin improvement, this impact needs to be I'm on Page 18 on structural This is still delivering. The focus on our structural improvement is indeed impactful. Pricing is accelerating in Turkey Driven in the We've campaigned at Airgas and in Europe. Efficiencies are very high at €206,000,000 We are then confident to reach our target of more than €400,000,000 for the year.
Of more than €400,000,000 for the year. At last portfolio management has been pursued, we executed 5 divestitures in H1 and on the margin improvement, which is supported by both our structural plan, rely on pricing efficiencies and portfolio management as well as the impact of the cost containment implemented last year that has still delivered effect in H1. This combination of structural existing And cost containment impact have contributed to deliver this plus 100 basis point margin improvement in H1. And along with the activity The progression was softened in Page 2 comparing to an already very high level basis last year. I'm on Page 20.
Let us now look quickly at the bottom of the P and L. Nonrecurring operating Income and expense have decreased compared to last year as 2020 was impacted by EUR 45,000,000 of exceptional COVID expenses that did not repeat this year Effective tax rate is slightly down benefiting from a lower income tax in France. As a result, net profit as published Significantly up at plus 15%, same for the recurring net profit at plus 19.3%, Excluding ForEx, as the recurring net profit in 2020, excluding the exceptional costs related to COVID. I'm on Page 21, and I will comment that thanks to the effort on cash and debt management and our collection, we have managed to reduce to continue to reduce our gearing since last year. Net debt is at €12,000,000,000 minus €1,200,000,000 versus last year in June following H1 dividend CapEx, including Sasol payment in June.
Gearing has then dropped to 56% versus 65% last year. As I mentioned before, cash flow has also been very strong at 22.9% of sales, a plus 70 basis point versus improvement if we exclude the energy effect and as allowed to well finance our high industrial CapEx at EUR 1,970,000,000 including the CapEx linked to Sasol at EUR 480,000,000 and well financed dividend payment, which at above Consequently with this, Standard and Poor's has upgraded our credit rating from previously A- to a stable that supports the high level of trust in our cash model and balance sheet structure. Benoit has already commented about the dynamics of our investment and backlog activity. The 12 months portfolio is also very strong at EUR 3,000,000,000 decision for the semester have been also very strong at €1,900,000,000 including €400,000,000 for the Sasol deal only. Our backlog is strong and very diversified and has increased to EUR 3,100,000,000 On Page We can see that the level of start up and ramp up contribution to sales has reached EUR 130,000,000 in H1 twenty With the Sasol takeover that will start to precipitate in July 2021, this should reach about EUR 320,000,000 for the Including the €70,000,000 contribution from Sasol takeover in H2.
I'm on Page 24. As discussed, we have the right we have right now very strong investment momentum. The recurring return In H1, we confirm our guidance for the year. In the context of recovery in the second half, we remain confident in our ability to continue to improve And to deliver recurring net profit increase at constant FX. Thank you very much for your attention.
And we will now open the Q
Please ensure your line remains Thank you very much for your patience. We do have a few questions coming through. And our first question comes from the line of Gunther Zechmann from Bernstein. Gunther, please go ahead. Your line is now unmuted.
Hi, good morning. I've got a couple of questions on Margins, please. So the first one, pretty straightforward. On the full year guidance, you used to comment on earnings calls But quantitatively, we should look at about 70 basis points of operating margin improvement. Is that still the case Given what you're saying about the H2 comps and the results on profitability that you've delivered now in the first half?
And then secondly, if we could look at the European margins a little bit closer please, that's the region that's been lagging the other Areas geographically with 30 basis points improvement excluding energy. Could you help us The convolute, the moving factors within that and why that's been lagging. I know that Shulcare divestment has been a slightly more Profitable business than the rest, but then you divested also operations in Greece and France, so that should be accretive. The growth is very good, so there should be Some operating leverage, pricing is good. So if you could just give some color around what has been going on there and what we should expect going forward, please?
Yes. Thank you, Gunther. Maybe Jerome will take the first question about the guidance, and We'll give you more insight into the European margin together with Francois.
All right. Good morning, Gunther. So effectively, we communicated last Significant margin improvement in 2020, plus 80 basis points. On the margin for the second half of the year, You had to have in mind that last year was a significant improvement in our margin at 110 basis points, which was the result of the starting the coming back of the activity and also the fact that we have the full impact Of the cost containment that was started to be implemented last year. So for the year, what do we expect?
We expect I have a second half here that will where the impact of the cost containment will start to decrease. However, we'll have the Benefit as well of the efficiency that we are continuing to develop and that would reach more than €400,000,000 for the year. So basically, Overall, for financial year 2021, we target margin improvement, I would say, at least aligned with the recurring part of the improvement we
Thank you. So maybe for Europe, specifically, Francois can take over, and I'll make a global comment about what we saw in the first Francois?
Yes. Thank you, Benoit. Good morning, everybody. So in Europe, overall, we had a good performance. In This is true that the margin improvement is to some extent lower than what we have seen in other parts of the world.
But there are few specific factors that can explain that. Overall, there has been a very strong energy Impact, the rise of the energy has been very significant. Maybe not everything is captured in what we call the energy But we have seen that clearly both on natural gas and on electricity in Europe. That was Quite fast also and sometimes not being catch by some of the index in our pricing. But overall, The main reason for the lower improvement again in comparison to the rest of the region is due to the mix of the activities.
To some extent, the large industry has seen less improvement than the industrial merchant. And Also the Healthcare, which has been growing very fast and growing again in some of the activities like the Home Care had a little bit Dilutive impact for that growth on the overall. The mix for large industry is due to We're mixed in terms of regions and mixed also in terms of product lines with the HEICO Seeing some growth in some area, but very little growth, especially in the southern part of Europe. Overall, We are quite confident about the road map for the margin improvement in Europe. There are several things that are going to contribute, Especially in Industrial Merchant, which overall is very well oriented in term of growth, but also in term And you mentioned the pricing.
The pricing in Europe, especially, I think, is something which is positive. You remember that in 1st quarter, we have seen a 1% pricing increase. And in the second one, we are registering 1.7%. I think More is to come, probably in the same trend. So we are more optimistic than, I would say, at the beginning of the year regarding the pricing in Europe.
And this is mostly due to the fact that we have some indexes, which are which are little bit lagging behind in the bulk in term of energy recovery And the energy increase is going through as we speak into the pricing. And also, we had a very active I think campaigns in several countries in Europe. You remember that at the end of last year, we launched campaign in the Nordics, in Iberia, for example, but beginning of the year, France, Italy, Benelux, UK, Germany I've seen price increase campaign being launched, and we are seeing the effect, and we will see more in the second After the year. Denis Benoit, you want to comment?
Yes. Just to supplement what Francois and Jerome said. When we look at the business lines in the first half of this year, overall, I'm did very This is across the board in the 4 regions, meaning Europe, Americas, Asia Pacific and Africa. Large Industries more or less the same to the exception of Asia Pacific where we saw the effect of the pricing structure because growth With more volume growth, so people just took more volume within the framework of their contract. So the margin ratio for additional volume In a contract is under the average of the margin.
There's no impact of the fixed part Of the invoicing. So that's what we see. In Electronics, we still have this impact Of the transformation of short term sales into Mid term sales, I think we made this comment already in the Q1. So we have the impact in Advanced Materials of A slight transformation, positive transformation of the model from short term to mid term sales, And we had to accept some price decrease in specific molecules, but this impact is And finally, I think Francois made the comment on Healthcare. Healthcare was okay In 3 regions and only in Europe, we had 2 impacts.
1 is the price pressure that we see in Europe, but also the divestiture So, Shulker, which impacted negatively the margin. So overall, I would say that apart from those In LI and I'm and Healthcare, except Europe, we had positive margins. And Electronics It's positive in Asia, but we have a slight negative effect due to this transformation
of short
to So that's a business line comment in supplement. Thank you. You can take the next question.
Thank you very much. Our next question comes from the line of Andrew Scott from UBS. Andrew, please go ahead. Your line is now unmuted.
Good morning, everybody, and first hello to Jerome as well. I have two questions, please. Thank you for Slide 7. It's a very interesting map of the recovery. I was slightly surprised though to see that Asia Pac was The 3rd worst of the 4 regions in terms of that 2 year stack.
Are you surprised? Or is there a good explanation? I'm just wondering if it's around that equipment sales phasing on that base of 'nineteen. So that's the first question, your performance in Asia. Second question was back to margin.
Can I just Clarify that I heard correctly that you're saying you'll do at least the same as last year On recurring margin, and in other words, is that the definition on ex energy, so 80 basis points, which was last year's ex energy? I'm sorry, I'm going to steal another GBP 2,500,000,000 I think. Just a very quick one on the investment It seems to have gone down from £3,200,000,000 to £3,000,000,000. At least that's how I read it. I wanted to check that that's the case.
Or has Sasol dropped out and gone into the backlog? Thank you.
Okay. As my graph is online, I would like to ask Mike to comment the Asia Pacific. Actually, Asia Pacific is doing very well. I mean, overall and during crisis, so maybe The interpretation of this lagging growth compared to the others needs some clarification. So Mike?
Thanks, Benoit. Good morning, everybody. Andrew, I think in terms of Asia, we see very strong fundamentals. And I think I would start by saying that part of the differentiation in Asia that Benoit And Jerome mentioned earlier is the fact that in Asia, China obviously was mostly impacted In Q1 of last year and recovery there started to begin clearly in Q2, Whereas the rest of Asia really started to feel the more significant impacts later in Q1 and continued to feel those impacts Into Q2 and in some cases into Q3. But if we look at the numbers across the business, all the business lines And all the geographies are clearly posting growth in the first half.
I think that if you look at large industries, Sales are up double digit. We see a lot of strength continuing in China In terms of demand for steel, demand for chemicals, and also now we see the resurgence of growth in steel for Japan. We see very strong hydrogen volumes evolving in Singapore as well as for HEICO in South Korea. So I think the demand there is very strong and is really recovering and certainly volumes are above where they were in 2019 very significantly. A lot of that initially driven by China, but then South Korea and then picking up elsewhere in Asia.
In terms of the merchant business, We've continued to see very strong growth, clearly driven by China. The numbers are up 14% in the second quarter. Volumes in China, if we compare it to the first half of twenty nineteen are up very significantly. We see clear growth in metal fab. We see it in electric components.
In China, think the recovery there began with a lot of investment in construction and infrastructure. And I think as we get towards the end of Q2 of this year, we see that very significant double digit growth benefit begin to wane a little bit because of the year over year comparator And the fact that much of the infrastructure spend has started to evolve to a more normal basis and at the same time we see anything tied to Technology, anything tied to manufacturing, looking at automobiles, looking at secondary electronics and primary electronics, Everything is starting to grow very significantly if we look at China in that regard. So across all segments, bulk, on sites and packaged gases, very strong growth. If we look outside of China to the rest of Asia, the volumes are all improving. And I think all the volumes Now we're basically back up in general above 2019 levels.
And clearly, we see that exceeded when we look at Liquid in the developing economies especially is very strong. And then from an electronic standpoint, as it was already mentioned, I think it's very strong. It was very strong last year, continues to be very strong this year, close to double digit growth in the second quarter. I think that clearly we see some differentiation between the various sectors there. The carrier gases are strong, equipment and sales Are a bit off, but I think that in general things will continue to grow and be very strong.
So I think actually Asia is Clearly in the recovery mode, China back to a more normal year over year kind of comparator as we see the continuing growth and significant growth there
Thank you, Mike. Second question, maybe more clarification On margin, Jerome?
All right. So let's go back to margin. As you can recall, last year, there was about 2020, there was about 80 basis points of margin improvement that was broken down in 2 ways. First, 20 basis points, which was coming from The cost containment specific impact that we mentioned and more, I would say, recurring part of 60 basis So what we see this year, as you know, we are still committed to improve and continue to improve our operating Margin, which was, I think, very strong in H1. For the full year, you have to have in mind that, as I said before, There will be a start to have a decreasing impact of the cost containment in second part of the year, which is totally aligned, and that's good thing was the good recovery of the activity that we start to see in Q2, in H1, and that will start to continue in So this impact of the cost containment will start to slow down.
So what can we say? So overall, for financial Year 2020, 2021, we target margin improvement, as I said, aligned at least with the recurring part of the improvement we delivered Last year, to be a little more precise, last year, the recurring margin improvement, as I said, was around plus
You're right. We had a EUR 3,200,000,000 portfolio in the Q1. We have EUR 3,000,000,000. When I look at the breakdown By geography, there's absolutely no change in Africa, Middle East, in Americas and Europe. The Numbers are pretty comparable, which means that the projects we won actually were compensated by other projects that were added to the The only difference is Asia Pacific, where one specific project was removed.
This is more Hydrogen liquefier, so that is related to the Hydrogen Energy business, which is Not as accurate in terms of forecast as anything else we have. So this project may Materialized, but probably later. And so we removed that unique project out of the Asia Pacific portfolio. If we don't Do that or if we put it again, this is exactly the same. So no change in the portfolio in a nutshell.
And by region, we were able to compensate all the signed project by new All the signed project by new projects. Thank you. We can take the next question.
Thank you very much. Our next question comes from the line of Mubasher Chaudhry from Citi. Please go ahead. Your line is now unmuted.
Hi, thank you for taking my questions. I've got 2, please. Can you you've talked about the Recovery in Healthcare and Electronics from an Asia perspective particularly. Could you widen those comments out for On a group level for the second half of the year and how should you see that trending given The strong performance in 1H and whether that strength is likely to continue. And the second question is a little bit more longer term.
Could you provide a thought and well, potentially implications following the announcement of the 6455 initiative and How that impacts your thought process into the energy transition? Thank you.
Okay.
So the question will be split between Francois on Healthcare and Mike on electronics for the 2nd part of the year. I think they are well positioned to answer. Francois, maybe you start Healthcare. And Mike, then?
Yes. Thank you very much. As we mentioned before, Healthcare overall had a very Quarter and very strong first half of the year, more than 9%. And we are well above 2019 overall. So that's a mix of different FX by geography, but there are some Very high.
And this is true in many, many countries. If you just take the example of Europe and The medical oxygen volumes in the first half of the year, they were 40% above what we have seen in 2019. So you see, even if there are some progress in The reduction of the pandemic, overall, the consumption of oxygen is still very high. As mentioned by Benoit before, in many Developing countries, we see still a very strong demand. And unfortunately, with the new waves coming, we We should expect some quite high level of consumption for medical oxygen.
This being said, we do expect also things to come back to normal in term of normal use of oxygen, especially for surgeries. And that's something that we have In the past few months where many of the elective surgeries which were postponed Actually, are taking place, so we do expect something more normal to see across the world. What we have seen also During the especially the first waves of the COVID, we had many patients which did not go to the doctor to get their prescription. So we saw decrease in terms of new patients coming for the home care treatments. And in many geographies, we have seen this The underlying demand coming back to normal.
On top of that, we see the results of our strategy in terms of development, Especially in diabetes in many European countries, but also in sleep apnea. And those two therapies are enjoying very There's maybe even a little bit of a catch up, which is happening. So clearly, double digit growth for Those segments in Europe especially. So that's again a strong momentum both for The medical gases and the home care activities, they again will come back to the Normal trend, but probably at a higher level for the rest of the year. If just a comment in term of geographies, I mentioned Europe, overall, we see this momentum being strong in Europe for the 2 segments and the Med Gas and the Home Care.
In the Americas, there is a special mention to North America, where There is a special mention to North America where we see, thanks to our position in Airgas, a very strong Metgas growth For the hospital and for the clinics and in Latin America, we see a combination of a very strong medical gas demand And a strong home care demand, which is something that is that we have seen for many years, but which is now picking up very So overall, for the 2nd part of the year, good growth. Keep in mind that Comparison with last year is very high. So we need to have that in mind. But overall, the underlying growth is
Thank you, Francois. Mike, if you could make a comment also on what In the U. S. Right now in terms of investment from Asian companies and also what we see in Asia and Then how it will look like in the second half. Mike?
Sure. Thanks Benoit and Mubasher. Thanks for the question. I think before I get to the investment piece, I think the first thing I would talk about are the global drivers from a market standpoint. Clearly, we saw across the board every market for electronics, whether that's End use PCs and smartphones, servers, cloud data, IoT, automotive, 5 gs, everything last Continued to grow despite the pandemic and we saw similar growth trends in the first half of this year.
And as we look to the second half of the year and more importantly looking out to the next several years, We see those trends and those drivers actually continuing to accelerate and beginning to look Later in the year and going into next year, double digit growth drivers everywhere. And I think as a result to Benoit's Point, we see these as very significant drivers from new investment in the industry. It was already very strong. It was already growing significantly. And I think the combination of the continuing and growing demand for devices, Especially those that use the more advanced logic and memory chips, will continue to be very pronounced going forward.
And as a result, we have seen a very active development of new projects and resurgence of new investment in the U. S. Almost every one of the major producers Integrated circuits be that for logic, be that for memory or for analog are all looking to grow significantly. And there's a lot of Even from the government, thinking about security of supply chains and a variety of other things to drive that. We see those same efforts In Asia as well, a very significant level of new business development on top of what was already very strong, Looking at Carrier Gases, looking at Advanced Materials.
And as you also saw, the European Union announced a very strong ambition To produce roughly 20% of global demand by value in the integrated circuit and semiconductor space By 2,030. So there are the market drivers, I think there's the geographical drivers and the investment drivers that are all very strong. And As a result, if you look at the forecast for logic, for memory and for analog, as we get Closer to the end of the year and into next year, you see everything in strong double digits in terms of the actual markets themselves And obviously production will follow that. And so for our own investment, obviously we continue to go ahead and drive that Business development standpoint. And in addition, one of the things obviously that occurred as a result of the pandemic Was that our customers as well as our own new investments in terms of construction in the field were delayed Because of the impact of COVID, because of the impact of the pandemic and there were several projects that were slated to start up in the first half of this year They got somewhat delayed to the second half.
And so we'll see the benefit of that. The rest of the industry will see the benefit of that. And that will help go ahead and drive the industry forward in terms of level of growth that I mentioned. So carrier gases, Advanced Materials will continue to strengthen as we get into the Q4 and beyond.
Thank you, Mike. Maybe an additional comment from Jerome. Yes.
Thank you, Benoit, and thank you, Mike. Just to come back on figures on Electronics as a whole for the group also. As you noticed, Q2 was very strong and plus 8% for total electronic Last year, and we had a significant impact on carrier gas from start on the run rate. But basically, both recurring sales and ENI were strong in Q2. What will you expect for the next quarter is still growth, and that will be very much sustained By the carrier gas, that will be also very close to double digit.
So basically, we will we are confirming a growth in electronics for the Q3
Thank you. The third question was related to the FEED for 55. I have to apologize because the report is about 1200 pages. So I'm not as accurate as I could be. I'm not sure I will read the pages, but let's look at what is inside and what may impact Air Liquide.
And that will be that will translate hopefully into more renewable energy being invested and available to the That's good news because we need that for our Scope 2 target. We need to buy cleaner And second, because it will help developing the hydrogen market based on electrolyzers. So that's one point. The Energy Efficiency Directive and the Land Use Forestry and Agriculture won't have a great impact on On the contrary, when we look at the regulation for new cars coming down by 55% for new cars from 2,030 and 100%, meaning no industrial combustion engine cars by 2,000 and 35 will have a huge impact on electric cars, be it battery based or hydrogen based. Now I just want to highlight one thing.
The Hydrogen Council actually issued very recently a new study on what is the optimum in terms of infrastructure If we compare batteries and fuel cells for cars, and the conclusion is pretty simple. The optimal is to do both. And there are a lot of facts and numbers behind. So if you have time, I I'd like you to just read that because the consequence of that Fit for 55 new regulation It might be that we see a development not just of battery based behind growth, but also hydrogen for cars. There is also in the alternative fuels infrastructure regulation, a very important point for us is the Installation of new charging points, be it electricity or hydrogen, we are talking about 60 kilometers for every electric Margin stations and every 150 kilometers for hydrogen.
If it is implemented, it will mean Lot of investment in infrastructure, but also the development of a huge market. Two other points. One is the ETS allowances. It's So the system is being transformed. There would be more market actually covered by that.
The only As we have to mention for Air Liquide is the fact that we have now More or less in all our contracts a pass through close in our contracts so that the CO2 cost might be passed through to customers. Now it will fluctuate the way energy today is So that's an impact. And finally, I want to mention the CBAM, which is a mechanism At the border of Europe, that is a new system. We don't exactly know how it will work. It is good if it comes in supplements to the existing free of loan system.
That more or less works So that's the position that we will take as far as the C band. As we could spend hours on that, I
Thank you very much. Our next question comes from the line of Tony Jones from Redburn. Tony, please go ahead. Your line is now unmuted.
Yes. Good morning. Thanks everybody. I've got 2. Firstly, on merchant pricing, should we now be thinking that the new range for the year is going to be more like 2% to 3% rather than the 1% 2% you used to talk about.
And maybe also related to that, could you split out the volume and inflation component For the 12% purchase inflation in the first half, so that's my first sort of question. And then the second one was a bit more high level on the energy transition projects that you've got on Slide 9, can you help us understand a little bit more about how Some of the contract structures might work. So for hydrogen particularly, are most of these projects going to be long term take or Pay contracts or will they more be supplied a little bit similarly to the industrial merchant model? Thank you.
Yes. Thank you. As far as the I'm pricing, it's actually related Markets, we have 3 different continents where actually more than 3, but 3 main. U. S.
Has a market behavior that is pretty agile. I mean, when market changes, It's rather easy to explain and pass through costs. So typically, The U. S. Market shows higher price increase than others, and I think it will continue.
Airgas now is the Main player for us in North America. So we've launched in the course of the first half a price That will have to be implemented is being implemented, as we speak. And so on that issue, I mean, I think we will Be more, as you say, in the 2% to 3% range. That's for the Americas. For Europe, it is always a little bit more complex.
I think it will be higher than we saw in the past. I think Francois explained that country by country, we've launched Since September last year up to July this year, a series of price increase campaigns that should result Overall, in a higher price increase. And Asia Pacific is always more tricky to predict Because it's more linked to a demand offer situation. So by the way, that's the region right now Where price increase is the lowest because the market situation demand offer So overall, I say, yes, we should now see a slightly higher Price increase, it's never a guarantee. It takes time.
It's not applicable in all contracts. But it's with The inflation we have, we should be able to pass on through cost to customers better than in the last 6 or 12 months. That's a global answer. The volume, maybe I could pass on this message this question to Jerome. Jerome, the volume?
The volume part of the of the of Industrial Merchant, it was very strong overall in the first half, Except what we said on the construction, nonresidential construction in the U. S, which is The overall market that is still lagging behind, but basically, it's mainly impact on hard goods. And you know that this is Basically, better for our mixed product because the ARVOOD margin is lower than the rest of the gas and so on. The margin is benefiting from that, but we expect still have a significant volume in the 2nd part of the year in Merchant in general, We still have question mark again related to the construction nonresidential, especially in North America.
For the rest, you should come as well.
Thank
you. For the contracts, so for Slide Page 11, I think it's differentiated. If you think about the supply of hydrogen to large industries, steel, chemicals, refining, clearly, The contracts related to Energy Transition will be typical large industry contracts, same business model. For those industries, The CO2 deals will probably be the same because we will have to invest at least in the capture part Of the CO2 supply chain, probably also in the supply chain, be it pipeline or liquid. And then there's The downstream part of the chain where you have to transport and sequestrate, which is not part of our business model.
So CO2 might be also long term contracts. On the hydrogen energy part, which is essentially related to Mobility. I think it would be more merchant type of business, and we will have to link those contracts With sources of high pressure or liquid hydrogen, the way we link it in I'm today to large industries. So So the name of the game will be build ecosystems where we have the critical mass so that we can justify Significant investment in production and packaging, meaning either liquid or high pressure, And then it will enter into a typical merchant market type of business model. So the answer to Your question is both, both Large Industry and I'm but depending on the segment.
Thank you. I hope I answered your question.
Yes. That's really helpful. Appreciate it.
Thank you very much.
Next question?
Thank you. Our next question comes from the line of Peter Clark from Societe Generale. Peter, please go ahead. Your line is now unmuted.
Yes. Good afternoon, everyone. I think it's a question for Mike, although Jerome sort of answered part of it. I think, Mike, you projected that the underlying growth against the 2019 basis in Airgas in the Americas I'm would be up about 3% or 4%. It sort of was In the Q2, I thought it would be better actually because of the winter freeze effect.
Are we saying now because construction is very Slow in recovery, it's starting to momentum now that we're going to see a kicker perhaps in the second half, maybe even 3Q where you go above that 3% to 4% improvement on the trend line against 2019. And then the second question, perhaps for Francois, I don't know, The health care price deflation you say in the statement was only very modest. And then I think Benoit mentioned actually Europe still has a drag factor. I'm just wondering when we come out of this COVID-nineteen pandemic stuff, how on earth the pricing moves from there? Will it Has this deflated a little bit?
Is it a bit better when you look forward and where you see healthcare price moving forward or is it definitely the COVID pandemic that has helped it temporarily? Thank you.
Okay. Thank you. Titar, you have allocated the questions already, so it's easy to do it. So Mike, you start.
Thanks, Benoit. Good morning, Peter. Maybe just to build on what Jerome said, because I think he said it well. Clearly, from a merchant standpoint in the The sales continue to show very significant improvement given the comparator with last year. But clearly, after the effect of the winter storm that you mentioned that we saw in February, the gas sales continue to recover and now they've The levels that are higher than we saw in the first half of twenty nineteen.
So gas volumes Are clearly backed up. Liquid well beyond where it was in 2019. Packaged gas is basically back to Covered very close. And probably where there's the lag still is in hard goods. I think that the markets That are referenced there.
Clearly construction is one of those and actually heavy equipment or heavy machinery manufacturing It's still yet to fully recover. In that market, think about major heavy equipment for oil and gas, For construction and for mining. I think on the construction piece, there's a number of factors there. Clearly, with COVID last year and a variety of other things, some projects were somewhat delayed and Continue to be reengaged as we speak. There's been a few announcements recently on some projects that were basically Stopped or deferred for a period until things sorted themselves out.
We see those now starting back up in terms of construction and finalization. At the same time, a number of major projects came to a close. And I don't think we've seen the next Wave of investment yet evolved from a chemical standpoint or even an LNG standpoint in the U. S. Markets, which will all be big drivers For Airgas as well as for the rest of our business.
So I think from a second half standpoint, we will continue to see sequential recovery In both the construction markets as well as in heavy machinery. And again, it's really the hard goods piece It is lagging a bit more because those areas are far more hardwood intensive. So we'll see clear benefit from a gas standpoint as they recover. But the hardwoods will have another level of recovery to come as well as that evolves. So I think that kind of covers it.
I think structurally with long term views on all this, you've got Reinvestment in the industrial infrastructure in the U. S, I think you see localization or reshoring on certain activities. There's also a drive to further modernization, think about automation of the U. S. Manufacturing base.
And even some of the things in the energy transition These new markets open up and the new builds begin to evolve, we'll help drive that as well.
Thank you, Mike. Healthcare, Francois, you take it.
Yes. Good morning, Peter. When we
talk about pricing in Healthcare, Basically, we have to really look at, I would say, metrics with 2 dimension, one which is the geography, Europe and basically the rest And on the other side of the metrics, I would say, the Med Gas and the Home Healthcare. And the situation is It's quite different in those different segments, I would say. If we look at the Home Care overall, we have seen Price negative price impact in Europe, which was compared to what we have seen in the past recently Moderate. This is clear. However, for the Home Care, especially in Latin America, we see a much more positive pricing impact.
For the Metgas overall, We see a pricing, which for the group is positive, taking into account that Europe remains Slightly negative, less than what we have seen in the past. And it's quite positive Very positive in the Americas, both in the U. S. And in Latin America. Now if we look forward And we try to see what could be the impact of the current situation and the COVID.
We do expect overall kind of a pause In the pricing pressure that we have seen in some geographies, I think it's clear, it's also the recognition of The contribution of the sector to the crisis and the importance to maintain, I would say, a healthy and robust Sector, healthcare sector to cope with such situation. Specifically in Europe, we probably will There is some pressure, but again, probably post from the government And also the impact of the value offer that we are deferring developing, which tend to So all in all, If you take a historical perspective, we do expect some of the same trend that we have seen, but probably on the decreased side, less than
Thank you. Understood.
Thank you. Thank you, Peter. We'll take the last question.
Okay. Thank you very much. Our last question comes from Chetan Udeshi from JPMorgan. Please go ahead. Your line is now unmuted.
Yes. Hi, thanks. Two questions. First is on electronics. So I think there was a reference earlier on the call that there is a price decline for certain products This year with the aim of having better sort of prospects in the future.
So can you maybe Talk about what changes in the future with the price declines that you have accepted? Is it that the market share of Eliquis rises in some of these molecules? Is it the growth is faster in these molecules, which you aim to benefit in the future? Just wanting to understand what is the upside in the future by accepting prices which are lower today. And the second question is more just around the topic of cost containment Continuing in first half.
And I was just looking at some of the numbers in the P and L, but it Seems the like the other purchases, the other operating expenses, the All these numbers are actually rising faster than the revenue growth on a constant currency basis At least in line with the revenue growth. And so I'm just wondering, does it not actually signify that some of these temporary cost Savings are actually coming back rather than being held at 2nd half levels or is it just the lag between, like I think one of you mentioned lag between the Raw material prices versus indexation on merchant prices. I mean just to specifically highlight So sales have risen about 6.5% on constant currency, but the other expenses are up 9.7% and purchases are up 17.5 percent, I think half of that may be energy, but just wanted to understand the dynamics between different lines moving Thank you.
Okay. Thank you. The second question clearly, Jerome will address it because I think we have more details. On the first one, Mike, just on this Alam pricing and the If consequences of this transformation, if you could just clarify that.
Sure. Thanks Benoit, and good morning, With the Advanced Materials business, we have an entire portfolio of molecules. It continues to evolve, And you're continually developing and introducing new molecules, that grow and evolve with their Over time, other molecules will mature over time. And so you've always got this kind of mix as things evolve. And I think the continued growth in advanced materials for the advanced nodes, a lot of the drive last Because of supply chain issues along with growth and likely the deferral of some projects That normally would have come on stream early and benefited in the overall mix for price and for volumes were somewhat delayed because of COVID.
You've always got that balance that's there. And specifically to the point that Benoit and Jerome articulated earlier, We have some molecules that over time will mature and they reach a very high volume In order to securitize the long term volumes and the long term perspective for those molecules, we may agree to a slightly lower price long Term given the very high volumes that we are delivering in order to go ahead and prolong the life of those molecules and continue To benefit from the previously made investments and all the technology that we have put into that. So I think that that's just the evolution of what we see here And absent the start up of new molecules, it's probably a little more obvious in the overall portfolio than normal.
Thank you, Mike. On the second question, the cost containment, Jerome? Yes, Benoit. Thank you very much.
Thank you, Chetan. So basically, just to come back cost containment. What we say is quite simple. We said that the cost containment impact will start to diminish in terms of impact for the But I was expecting, we are seeing now some recovery in our activity and some costs like furlough that we had last year All starting to very much diminish as well that travel expense, even though they are still contained. But we have a recovery on the activity, so we have Cost which is start to decrease.
Now it doesn't mean that we are not pursuing our structural plan. You see that we have been able to deliver plus EUR 206,000,000 inefficiency, and we are totally today very much confirming our objective of above EUR 400,000,000 for the year. So Our objective of above €400,000,000 for the year. So this efficiency will be structure, structural and will be a significant part of our Operating margin improvement that we'll continue to deliver, and that's very clear about that. Now to come back more precisely on the cost in the P and L.
Basically, we see purchase This half year, but it's totally aligned with the increase of the energy. And you know we have a 4% of impact of energy. And As it's a pass through, you buy it and you, I would say, pass it to the customer. So there is no impact Underlying margin improvement, as regard to personnel expense, they are quite well contained, and we are at Only plus 2%. And when you look at personnel cost to sales ratio, we are basically at 19.6% in H1 EUR 20.4 billion excluding energy versus EUR 21.2 billion last year.
So clearly, we see an improvement in the cost as And the structural cost organization. Finally, other expense also increases, plus 6% in published, plus 9.7 Excluding ForEx, clearly, this is due to 3 things. First, maintenance has a little bit increased this year, especially in the Americas is a consequence of the freeze that we had at the beginning of the year. I don't know if you recall, but that was significant in the U. And we had also some other costs like insurance, which is a little bit picking up as well.
But basically, It's still under the because when we look at the revenue, which is plus 10.4%, excluding ForEx, we are quite below in terms of cost versus 2%. So that will
Very clear. Thank you.
But overall, if I may, we will keep the sort of continuous improvement programs That have been in place for years, number 1. Number 2, our efficiencies and the way we produce them by investment, by Working differently, but operating differently will stay. And the more structural or transformational Programs that were put in place in the past few years will also stay. The only thing and All of them will produce. The only thing that will change and this is just understandable is Cost containment program that was put in place last year for the exceptional situation
where we nearly
We froze half of what we were doing and no traveling, no marketing, nothing and workforce reduction. We need to Readjust the base to the recovery, and that's the only thing we will do in the second half. So the impact of the cost containment will be, of Lower than what it was since last year, first half. But we are really focusing on costs. You cannot increase your margins if you are letting your costs go up, and we know that very well.
So thank you very much for all your questions. Again, good set of numbers. We are confident in our ability to increase, number 1, our operating margin and also in our ability Later in the year and the full results in February. Thank you. Have a good day.
And for those who can go on Good holidays. Thank you. Bye bye. Thank you.
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