Good morning, ladies and gentlemen, and welcome to the Air Liquide 2021 results conference call. All participants are currently in listen mode only until we conduct a question and answer session, and instructions will be given at that time. I will now hand over to the Air Liquide team. Please begin your meeting, and I will be standing by.
Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations. Thank you very much to be with us today. Benoît Potier and Jérôme Pelletan will present the full year 2021 performance. For the Q&A session, they will be joined by François Jackow, Executive VP supervising Europe, Africa, Middle East, and Healthcare hubs. On the phone from Houston, Michael Graff, Executive VP supervising Americas and Asian hubs and the electronics business line. In the agenda, our next events are on March 22, our Capital Markets Day, and on April 27, our first quarter revenue announcement. Let me now hand you over to Benoît.
Thank you, Aude, and good morning, everyone. Thank you very much for attending this call. I'll start immediately with page three of our presentation. As you can see, 2021 has been such a year of strong, profitable growth in a record inflationary environment, especially in the second half of the year. In terms of performance, we ticked all boxes in 2021, being able to deliver on growth, efficiency, pricing, and signing. We will come back on each item. As we previously communicated to all of you over 2021, it has also been a year of key achievements in energy transition. I'll come back to that later. Importantly, it's another year of very active business development with high level of signing and strong backlog, which positions us very well for future growth.
On page four, starting with performance on the left, we recall the main characteristics of the environment in 2021. We faced an unprecedented spike in energy prices in H2 of the year, with, for example, in Europe, natural gas price being multiplied by five between the first of July and the peak in December. Inflation has been firming up as well in all regions, and COVID-19 pandemic has remained present in the background in all countries, lingering local lockdowns, disturbing operations, and the overall business environment. In such a context, we've managed to deliver strong results across all performance criteria. After resilient sales in 2020, they increased by +14% and +8% on a comparable basis in 2021, and we are +6% above 2019.
Despite the inflationary context, the operating income recurring margin improved again by 70 basis points, excluding energy pass-through impact, with a strong leverage on net profit growing at +13% on a recurring basis, excluding foreign exchange. Investment decisions have been high again, about EUR 3 billion for the fourth consecutive year, notably thanks to a strong cash flow at 24% on sales. Jérôme will come back later on the details of the performance. On slide five, we highlight important key achievements in 2021, which position us well for the future. First, of course, the strong involvement of the team to supply medical oxygen to COVID-19 patients. Liquid medical oxygen volumes increased by +50% in 2021 compared to 2019.
Second is the announcement in March of ambitious sustainability objective, first of its kind in our industry, including carbon neutrality by 2050 with key milestones, one of them being to reduce by one-third our CO2 emissions in absolute value by 2035. We also announced social and societal objectives on which Jérôme will come back at the end of the presentation. The takeover of the 16 ASU of Sasol at its Secunda site in South Africa in June is another key achievement of the year. This takeover is combined with a joint commitment with a customer to reduce the CO2 emissions of these assets by 30%-40% within the next 10 years, and it is progressing very well.
Innovation has been supporting business development, especially focusing on energy transition by adapting our ASU to the use of renewable energy, for example, or working on new technologies to produce low carbon hydrogen. This has been possible thanks to the outstanding commitment of the teams worldwide, facing the challenges of COVID-19 and spike in energy prices. If we now turn to page six and focus on energy transition in particular, we went through major steps and took major business positions in 2021. You have on the slide many examples of either signed projects or MOUs or partnerships on this slide, and I won't come back on to each of them. As you know, Europe clearly is leading the way, especially for industrial projects, and this is the region where we have been able to achieve the most. This is the upper part of the slide.
The U.S. are quickly catching up, but they are still not there on the map, and we are winning many projects in hydrogen mobility in Asia. This is the yellow color on the slide. We've been awarded fundings among numerous projects, and these fundings will contribute to the development of these ambitious projects to reduce our carbon footprint, as well as the one of our customers. All these achievements demonstrate that Air Liquide is taking key positions, and it is essential for climate, and this is also key to prepare for future growth. We are engaging with key players, you have all the names on the slides, and partnering with market leaders. We will be pleased to explain in more details all these opportunities during our next CMD on March 22.
On slide seven, we propose for 2022 a dividend per share of EUR 2.9, representing an increase of 5.5% in line with the recurring net profit growth, which would lead to a payout ratio about 50%, as you can see on the slide. Plus 6% compounded annual growth rate of the dividend over 20 years. I think the number, Aude, is?
7.7.
7.7. Okay. Thank you. In addition to that, the board of directors has decided to consider a new free share allocation for June 2022, all of which demonstrating our steadfast commitment to our shareholders. I now let Jérôme explain the 2021 performance. Jérôme?
Thanks, Benoît, and good morning, everyone. I suggest we now review the detail of our Q4 activity and full year performance. I'm on page nine. Coming back to the full year, group sales have been strong in Q4, reflecting a very dynamic year overall on a comparable basis, meaning excluding Forex, energy pricing passthrough, and significant scope effects. Gas & Services sales for the year are showing a +7.3% increase versus last year, following a Q4 at +6.7%. Engineering & Construction sales have increased by +35% compared to a low base last year. Order intake has ramped up to reach EUR 1.2 billion for the full year, mainly supported by energy transition projects.
Large global markets and technology have also accelerated and are now showing a +18% comparable growth, boosted by dynamic activity levels in our biogas activity. Overall, comparable growth is up 8.2% for the full year, while published sales at +13.9% are impacted by a negative FX impact at -1.6% and a small perimeter effect at -1.1%. It is balanced with a very significant impact of the spike in energy price effect at +8.4%, which is passed through to our customer. It is important to highlight that this level of growth is built on a resilient performance in 2020, as our sales were almost flat last year despite the pandemic crisis.
In regards to the market we address, and I'm now on page 10, the vast majority of our end markets have improved and reinvigorated strongly compared to last year. Steel and chemicals are indeed solid, with slower construction and automotive. This drove a positive impact across all geographies and our four business lines. As a consequence, I am now on page 11. All geographies and business lines are posting a very strong growth on a comparable basis versus last year to reach a +8% growth comparable year-on-year for group sales. This percentage doesn't take into account the acquisition of the 60 ASU of Sasol in June 2021, representing insignificant scope. Let's now review the activity for each of our main geographies. My comments will be mainly related to Q4. I am now on page 12.
After a good Q3, Americas has seen a strong contribution for all business line. Large Industries volumes have been strong in air gases and underlying hydrogen demand was solid, both being supported by startup and ramped contribution in the U.S. and Latin America. In merchant, gas sales and volume are growing with well-oriented industrial and services market, except low construction in U.S., which impacts the level of recovery in our hard goods business. This, coupled with customer portfolio refocus, results in hard goods volume in the U.S. to below pre-COVID level. Pricing finally has been very strong, with an acceleration at +7% versus last year in conjunction with the rising inflation. Electronics sales have also improved thanks to very high E&I sales for large customer and strong Specialty Materials, Advanced Materials growing steadily.
Healthcare activity is strong due to dynamic medical gas sales in Latin America, but also due to home healthcare recovery. In North America, medical gases are strongly supported by proximity care and COVID-19 volume in early Q4. In Europe now, we have seen an acceleration of growth in the last four quarters with sales significantly above pre-COVID levels. Large Industries has been solid despite strong base effect last year with the one-off sales in Q4 2020 in Russia, benefiting from a continued strong underlying demand in steel and chemicals for air gases. Refining is catching up, and we have now new project contributions in Eastern Europe. In merchant, all end markets are growing and have been well-oriented with good bulk volume, in particular in Western Europe. Energy cost impact has been very well managed with a strong and record pricing effect at 10%.
Finally, healthcare sales have remained robust thanks to strong home healthcare, diabetes, sleep apnea, and strong specialty ingredients despite normalizing medical oxygen demand for COVID. This versus a high base last year together with exceptional equipment and respirator sold in Q4 2020. Asia is still contrasted. I'm now on page 13, with China continuing to show high momentum while the rest of Asia is progressively improving. In large industry, China sales and volume are still impacted by easing dual energy control and plant maintenance turnaround in Q4, while sales are strong in Singapore and Japan for steel. In merchant, we have seen a very strong China supported by volumes and an acceleration in pricing, especially in bulk, with all end markets well oriented, in particular for packaged gas and on site.
This is contributing to post a +18% growth there, while the rest of Asia is improving, notably in Singapore. To be noted, an accelerating pricing effect at +2.6% overall for Asia. Finally, electronics sales are strong, with recurring sales at +10%, driven by strong carrier gas from the startup and ramp-up of several units and advanced material over the region, partly offset by low equipment and installation sales compared to high base effect in Q4 2020. Finally, Africa, Middle East activity sales in merchant are recovering progressively despite the continued impact of the pandemic, while healthcare is impacted by normalizing demand in medical gases versus acute COVID crisis in Q4 2020. Finally, again, larger industry has continued to recover thanks to higher loading at gas rest. Sasol contribution is strong and as a reminder, is accounted for in significant perimeter.
I am now on page 14. In terms of business line and as a reminder, Industrial Merchant and to a lesser extent, Large Industries sales were the most impacted by COVID-19 crisis in 2020, creating a rebound effect contrary to Electronics and Healthcare that they were still progressing last year. Large Industries has seen air gases benefiting from strong recovery in chemicals and steel, while refining and HyCO are improving well in Europe and catching up in the U.S. above 2019 level. In China again, dual control of energy consumption has been softening, while several customers took the opportunity to perform turnarounds in Q4. To be noted, a significant contribution of the startup and ramp-up, which is accelerating versus Q3. Finally, Electronics is pursuing strong growth, thanks to both carrier gas, gases contribution, supported by ramp-ups in Asia, as well as specialty and Advanced Materials that benefited from strong volumes.
Industrial sales are stable versus a strong Q4 2020 base in Asia. On page 15 now, in merchant gases volume growth drivers are vigorous and all end markets have continued to recover rapidly, except construction in the U.S., which is slower. Pricing impact is very high and picking up at +7%, showing our ability to implement faster pricing campaigns that quickly precipitate. Healthcare has been at the forefront of the pandemic fight and is still supported by solid medical gases growth despite a high comparable Q4 base last year related to equipment sales and oxygen volumes in particular. Activity is also benefiting from the ramp-up of proximity care in the U.S. that were on hold during the crisis. We are also seeing an acceleration in home healthcare, particularly in Europe, sustained mainly by strong diabetes activity.
On page 16, this performance improvement is also very well demonstrated by operating margin being up plus 70 basis points for the group and plus 80 basis points for gas and services, excluding the impact of the energy price pass-through increase. Getting into the detail, we can see that purchases and other costs have been impacted by the increase in energy price and improvement of the activity, while personnel expenses have only very slightly increased. Depreciation is slightly up after the impact of start-ups during the year, compensated by drops mainly. This has resulted again in a published operating margin at 17.8%, which is consolidated in 19.2, excluding the energy effect. Again, a significant plus 70 basis point increase, excluding the energy price impact after 80 basis point already achieved last year.
This margin improvement shows the strength of our business model and our performance overall. All the more that it compared with high base effect last year, where we benefited from the full impact of the cost containment plan launched by the group during the peak of the COVID pandemic. This margin improvement is supported by a structural margin improvement plan that continues to deliver on page 17. As you can see, IM pricing has significantly accelerated in all regions at a fast and record pace. I will come back in more detail in the next slide. We have also exceeded our objective for efficiency to reach EUR 430 million for the full year. Portfolio management has been pursued. We executed six divestitures and closed about 21 bolt-on acquisitions over the period with our continued focus on our profitable activities.
As you can see on the slide page 18, our pricing action in merchant have been very impactful and campaign executed in a very quick and efficient way, mainly in bulk and packaged gases, leveraging on our escalation formula and surcharges to pass through the energy cost. In Q4 only, Europe achieved a +10% year-on-year pricing impact, a record landmark. François will maybe come back later, as he was leading the effort, while the Americas delivered a +7% and Asia +2.6%, mainly in China, year-on-year. Let's now quickly look at the bottom of the P&L. Net non-recurring operating expense are close to last year level.
As a reminder, 2020 was impacted by the capital gain linked to the divestiture of Schülke and negatively by the asset review portfolio, as well as exceptional COVID costs. Net financial costs have also decreased following the progressive de-leverage. Cost of debt is decreasing versus 2020, down to 2.75%. Effective tax rate is at 25%, which is comparable to last year, excluding the non-recurring item of last year. As a result, net profit as published is up +5.6% and +8.9% excluding Forex. Now when we talk about recurring net profit, excluding major exceptional items of 2020, is significantly up as well at +13.3% excluding effect, in line with our guidance.
On page 20, as mentioned before, cash flow has also been very strong and is up +9.1% at constant exchange rate, 24.5% to sales, which is +40 basis points versus last year if we exclude the energy effect. This has allowed us to well finance our industrial and financial CapEx at EUR 3.4 billion, including the acquisition of the Air Separation Units for EUR 480 million. Thanks to the effort on cash, working capital and debt management, we have managed to reduce our gearing. Net debt reduced to EUR 10.4 billion with our dividend payment at EUR 3 billion and despite a EUR 465 million unfavorable currency effect.
On page 21, we can see this improvement of the cash flow to sales for the last 20 years with a strong acceleration since 2016 at +8.5% in average for the last five years. This 12-month portfolio of opportunities remains at a very high level at EUR 3.3 billion, on page 22, despite the good level of decisions for the quarter, supported by energy transition projects and the high proportion of Electronics projects. Industrial and financial decisions for the year have been very strong at EUR 3.6 billion, including EUR 480 million for the acquisition of Air Separation Unit. Finally, our sales backlog is also strong and very diversified.
It has increased likely to EUR 3.2 billion, representing EUR 1.1 billion of additional sales after full ramp up. On page 23, with the Sasol takeover that started to contribute in July 2021, the level of start-up and ramp-up has reached a very high number close to EUR 350 million contribution for the year 2021, slightly above our initial guidance. For 2022, the contribution should be in the range of EUR 410 million-EUR 435 million, including Sasol impact at EUR 135 million. On page 24, those cumulative effects of very strong results and cash management are translating into a return on capital employed at 9.3%, recurring and as published at the end of December 2021.
As you can see, we are very well on track to reach our objective to meet double-digit levels by 2023, 2024. On page 25, since the announcement of our new sustainability objective in March, including in particular carbon neutrality by 2050, we have made significant progress. CO2e, CO2 emissions are now managed similarly as financial KPIs through budget allocation and regular reporting. We will publish, in addition, a first set of water objective in our registration document. In addition, already 1 million people have been granted with access to oxygen in low and middle income countries. Finally, we have already 31% of women among managers in line to achieve 35% by 2025. As you can see, non-financial objectives are now fully embedded in our global performance.
Finally, to be noted also, all ESG rating agencies are positioning Air Liquide in the first quartile, and we have recently confirmed our A rating with CDP both on CO2 and water. Finally, on page 26, this is to conclude on the basis of our excellent performance in 2021, we are setting up our guidance for next year. Taking the assumption that there will be no major economic disruption in 2022, we believe in our ability to continue to improve margin and to deliver a recurring net profit increase at constant FX compared to 2021. Thank you very much again for your attention, and we will now open the Q&A session.
First question. Thank you, Jérôme. First question is coming from Andrew Stott, UBS. Andrew?
Yeah, morning, everybody, and thanks for taking the questions. First one is on pricing. You've obviously done a very strong job in Q4, but just wondering on the math here. So what was the exit number? If 7% is the average, what were you doing by the time you got to December 31? Also, is there a surcharge within the 7% or are they price increases that, you know, are fully negotiated, if you like? That's the first question. Second question was on the dividend. I get the fact that it's in line roughly with your reported net income, but given the cash flow performance is good, given the recurring net income growth is 13%, just wondering why only 5.5% divvy growth.
Is that one eye on the bonus allocation in June, or is there other thinking there? Thank you.
Thank you, Andrew. As Europe was really making very good performance in pricing, I will ask François to answer the first question, and I take the second one.
Thank you, Benoît. Good morning, everybody, and good morning, Andrew. Indeed, Europe was very strong in terms of pricing. Just as a reminder, how we started the year with the 1% for the Q1 , then 1.7, 2.2, and 10.4% pricing in IM for the last quarter. Clearly the momentum was there. When we are talking about pricing, we are talking about IM, of course, but mostly to catch up with the very strong energy increase. There, this is mostly the bulk business which has been impacted. Keep in mind that for bulk, around 60% of the costs are related to energy. For that, I mean, of course, we have a contract with index, not all of them. Maybe in Europe, 60% of the contracts have an index.
We checked all the indices to make sure that they are well applied, that they are applied with no delay. Whenever that was the case that either the index was not appropriate or was basically lagging, we came back to the customer with a very strong position and a legitimate position to cover our costs. We changed and updated the indices. That was a very good opportunity, thanks to the very strong action of the commercial team, to also, I would say, dust off all the indices that we have in the different contracts, make sure that they are well aligned. Whenever the energy increase was not covered by the contract or with the index, we applied some temporary surcharges. We have well in mind that those are temporary measures.
In almost all the situations, we have managed also to negotiate with the customer a new set of indices to make sure that we can carry on the fact that we will cover our cost. All in all, a very strong momentum. We were not used to do that in Europe for sure. You remember that we have been talking about this for now a few months, almost two years, trying to apply also what we have learned through the Airgas organization, through training, through tools, but also the mindset, the incentive of the sales force, and clearly, this has been paying off.
Thank you, François. Your second question about dividends.
Second question about dividends. The first parameter that we take into account is obviously the growth in net earnings. The second one is the payout. We have a payout of 55%, which is high. It's okay, it's reasonable, but it's more on the high side. Third, because we have already said we would allocate a bonus share in June, that would automatically translate into an increase in dividend of 10% the following year. When we take everything into account, we think at this stage that we have a fair way of returning cash to shareholders. That being said, cash flow allocation, if cash flow grows, there will be more opportunities for both investments but also return to shareholders, and I'm sure we'll be talking about that during our Capital Markets Day.
Thank you.
Thank you very much. Next question.
The next question comes from the line of Martin Rödiger from Kepler Cheuvreux. Please go ahead.
Yes. Good morning, Benoît, Jérôme.
Good morning, Martin.
François, Mike, and the whole IR team. Just, first of all, a clarification question on your guidance to expand the margin in 2022. Is it correct that this guide excludes the dilution from energy pass-through in large industries, but it includes the price hikes in Industrial Merchant to cover cost inflation? That is my first question.
The answer is very simple, yes.
Okay.
Yes. It excludes energy, and it includes any pass-through of inflation in Merchant.
A follow-up question to Andrew's question. What is the time lag in Industrial Merchant to pass on the increased energy cost to customers, if there is any, and if there is any difference in the respective region? Just talked about Europe, but there are also inflationary tendencies in other regions.
Yes. Thank you. I think we talked about Europe already, so I may ask Mike to make comments about what he saw and he still sees in the U.S., in particular in Airgas, which is the number one operations we have in the world in Merchant. Mike?
Yeah. Thanks, Benoît. Good morning, everyone. Martin, specific to the question of timing, for the liquid business, for the bulk business, there's typically a bit of a time lag. Might be on average about three months to fully capture all the energy increase that passes through. You see that on a regular basis. On the packaged gases and hard goods, that's all driven primarily by pricing campaigns. All that would evolve clearly with the price campaign immediacy in terms of acting upon inflationary trends, energy, whatever the case may be. That's really how that evolves. You will see that in each of the geographies, that is a critical driver. The other critical driver, of course, on pricing is availability of product.
I think what you've seen in Asia is a drive with those elements, as well as the fact with the dual energy control in Asia. A bit of a decline in the amount of available byproduct liquid from a variety of facilities, which also helped to aid some of the pricing.
Okay. Thank you. Next question.
The next question comes from the line of Tony Jones from Redburn.
Yes. Good morning, everybody. I've got two. The first one's on the project backlog. It seems to me that the industrial gases industry should be benefiting from mid-cycle recovery, and then almost all your end markets should be seeing a CapEx-led acceleration in response to the strong price inflation we see. That translates to really good volume trends next couple of years. Is that reasonable? Any comments appreciated there. I had a second question, which was just on the underlying economics. Operating profit increased by, I think about EUR 370 million year-on-year. You booked over EUR 400 million of savings. Then if I assume comparable growth generated nearly 10% underlying earnings growth, there was quite a big EUR 450 million negative impact.
Any detail on that, on that basic math would be appreciated and what the cost headwind was. Thank you.
Okay. The first question about the backlog. What we see in the backlog is a mix of projects that were decided, I would say, before the COVID, and before the acceleration in the energy transition. That's one thing. When we look at the portfolio of opportunities and the decisions, there are more and more projects linked to the energy transition. There will be an acceleration in CapEx. We see that. It is the fourth time in a row that we decide more than EUR 3 billion, and I think it should go on. That's good news because we have also the cash flow to invest. It will definitely translate into volume and sales growth for the years to come. I think you are familiar with most of those projects.
The ones that are not yet visible are related to CO2 abatement. It will be an additional way of developing sales, service, introducing technologies into the market and probably develop something that was not existing before. All in, it will translate into volume and sales growth for the years to come. The underlying economics, I would ask Jérôme to actually take this question. Jérôme?
Yeah. Thank you, Benoît. Thank you for your question, Tony. Basically, you know, what we have said as a support to our improvement in operational performance is first, as we said, the pricing at +7%, and we say that, and it's clearly written on the bottom line. Efficiency has been very significant as well, plus a total of EUR 430 million, which is, you know, compared to last year where we had about EUR 448 million. We are on the top of our target. Target is EUR 400 million. It's clearly something that, you know, has helped.
You know, we are also monitoring our portfolio management by divesting the less profitable activity to reconfirm, to go to an acquisition that are more core business and also more profitable. All those actions are also working to drive the performance up. In addition, you know, we are all slightly also working on the rest of the activity in order to make this performance better. That's where we stand today.
Thank you very much. Thank you.
Thank you, Tony. Next question.
The next question comes from the line of Gunther Zechmann from Bernstein. Please go ahead.
Good morning. A couple of questions, please. Firstly, in the past, you gave a more quantitative guidance around how much margin expansion you expect. Can you please share your thoughts around comparable margin expansion in 2022? And how much of that is pricing that's required to offset the cost increase that you expect this year? And then secondly, return on capital employed has improved quite significantly, and isn't too far off your 2023, 2024 ambition of more than 10%. What are your expectations, if I can just push you on the previous question on CapEx a bit more? What do you expect in terms of CapEx for this and the next two years, please? Thank you.
You take the first question, Jérôme?
Yes, for the margin expansion guidance for 2022, you know, we stick to what I've just said at the beginning of the presentation, meaning that, of course, assuming no significant economic disruption, we are confident in our ability to further increase our operating margin. That's something that we say during the last year as well and to deliver recurring net profit growth at constant exchange rate. We stick to this guidance for now, and that's where we stand. We will review, you know, our Capital Markets Day, but that's where we stand today. In terms of return on capital employed, yes, it is true that today we are seeing a CapEx rate, which is around 15%.
We see clearly an acceleration on the CapEx side, which is supporting the return on capital employed, because, you know, we're extremely clear on the fact that we are taking projects which are profitable and are supporting our return on capital employed ambition. We will come back again to Capital Markets Day for other detail on capital allocation for the next years.
A little bit of patience, and I think we'll have occasions to come back to that. Thank you, Gunther. Next question.
The next question comes from the line of Laurent Favre of BNP Exane. Please go ahead.
Oh, yes. Good morning, all. My first question is on pricing. Back to Andrew's question, I was wondering if you could share the exit run rate in merchant. I'm assuming it's double-digit, but any quantification would be helpful. The second part of the pricing question is in healthcare. Maybe that's one for François. I was wondering if you could talk about the lag there in terms of getting pricing and whether or not the margin squeeze there is larger than in merchants. Then lastly, one for you, Benoît. I don't know if it was wishful thinking or I think I heard you mention buybacks in terms of the overall capital allocation piece that you would talk about at the Capital Markets Day. I just wanted to double-check.
Is that a word that you use? If you can share more thoughts on this, it would be very helpful. Thank you.
Maybe I may ask François to answer the first and the second, and I'll take the third one. François.
Thank you very much. Good morning, Laurent. Regarding the pricing as mentioned, I mean, the momentum, and here I'm talking about Europe, but this is true also in other region of the world. The pricing was very strong in October, November, December. We have seen the same kind of pricing for the beginning of the year. Some actually of the action have not precipitated yet in December and just started in January, especially in some of the Western Europe countries. For the time being, we do expect, I mean, this to continue. Of course, I mean, we watch very closely the energy price and we will make sure that we cover and recover our costs. The pricing is going to be highly impacted, of course, by the inflation.
The very good news is that we have the willingness, the ability, the tool to cover those costs whenever they happen. The second question is on healthcare, and if we focus on the pricing piece of the healthcare, what we have seen overall is in line with what we are used to see in healthcare in terms of pricing. Overall, the pricing for the med gas business globally has been positive, and the pricing for the home care business was slightly negative in Europe and overall positive in the rest of the countries. That's overall for the situation. The bulk of it, of course, is in Europe, where we typically don't have the same kind of indices in the contracts for hospital.
There again, we have been engaged into a negotiation with most of the hospital, and the good news is that we start to see in the new tender, which are coming in, Western Europe, the inclusion of the increase of the energy price in the new tender. The prices are going up for medical gases for hospital.
Thank you, François Jackow. On your third question, I don't remember having mentioned buyback, to be honest. I just said return to shareholders. This is the broader question of capital allocation, and I think we'll spend more time during the CMD on that topic. I don't want to start a discussion on that today.
Okay.
I more broadly mentioned return to shareholders.
Thank you.
Thank you, Lauren. Next question from Peter Clark, I guess.
Yes. Good morning, everyone. Thank you. The first question is on the margin squeeze you're suffering in Europe in the H2 because of the cost situation. I mean, the reporting number we have, obviously the 520 basis points hit. You can play around with the numbers you give, but it probably implies the underlying margin down 150 basis points, probably worse in Q4. When do you think you'll catch that up? When do you think the margin in Europe will be starting moving positive again on an underlying basis? Following on from that, I guess in Europe, customers have never seen Air Liquide push the industrial merchant price 10% plus. You mentioned that you've got strong tools to do that. Just wondering what the customer reaction is generally.
In the Americas, Jérôme alluded to the fact that the construction is still weighing very heavily on hard goods. There's some portfolio reorganization stuff going on there. You mentioned customers or something. Just what is going on with the hard goods business? Thank you.
François is going to take nearly your question except the hard goods, and I will let Mike to make comments on that. François.
Thank you, Benoît. Good morning, Peter. For the first question on the margin for Europe, let's keep in mind that when we report Europe overall, we have a mix of industrial operation and healthcare. Healthcare is broadly 40% of our turnover in Europe, so that has a very significant weight overall. When we look at the industrial business, the margin has improved. Okay? Most of the decrease, the 10 basis point decrease in the Europe margin, is coming from the healthcare operation. All what we mentioned about the pricing, about the efficiency, but also about the cost management in the industrial operation is actually visible in the P&L. We do expect this to continue.
Again, it's quite an achievement and that's clear for the industrial operation. The reason for the decline in the healthcare operation is basically three things. The first one is, as I mentioned, the price pressure in the home care operation, mostly in France, by the way, and this is absolutely clear. But also too, I would say comparison effect also. The first one is that you remember that we had last year for half of the year Schülke, which had an exceptional start of the year and due to the pandemic and the need for the products.
The second one is that we had exceptional sales of equipment, not only the 10,000 respirators that we mentioned, but overall, very strong sales of equipment that we don't see today. All that is explaining the decrease in the home care margin. Slight decrease, but overall, that's why you see this for Europe. Regarding another question about the customer reaction and some of the action that we have taken, I think clearly, we never find a happy customer when we have to increase the price. It's absolutely clear. What we are seeing is I would say a very high level of understanding from the customer.
Again, this is the fruit of what I mentioned before, which is not only increasing the price, but bringing the value to the customer. Whenever we can, we really work with the customer to find an added value solution. In the current context, I think it's obvious for many customer that there are very legitimate cost increase. We had to, in some cases, go the hard way, I would say, and we had to cancel some of the contracts in IM. Overall, I think the relationship and the understanding of the customer is very good. When we look at the NPS and the customer satisfaction index, we have been able last year to increase that.
Again, I think it's proof of the quality of the interaction of the commercial team with our customers.
Thank you, François, and thank you, Peter, for asking this question about construction and the markets that are not yet at the level of 2019. Mike, can you take this question on hard goods and non-residential construction in the U.S.?
Sure. Thanks, Benoît. Good morning, Peter. Specific to construction, clearly that's been the slowest to recover, coming out of the pandemic. You look at the forecast for 2022, we now see an uptick in expectations for construction. We begin to see the plans for major projects start to evolve. We would expect that the construction part of the market will improve, especially in the second half of 2022. In terms of the hard goods and gas sales, while clearly that's been a bit slower in the construction market. Actually, on a sequential basis, we do see growth in construction quarter to quarter.
I would also point out that we are seeing a significant uplift in industrial hard goods sales into metals and metal fabrication. In the fourth quarter, while clearly we saw growth in gases and growth in industrial hard goods into that sector, we clearly saw industrial hard goods in that sector outpace the growth in gases. Traditionally, a good sign. The other thing I would say in regard to portfolio management of our hard goods offer, there is a portion of our hard goods solely related to safety hard goods that has evolved over time, and even more significantly over the last couple years during COVID, that has evolved away from being associated in any way to specific gas sales.
Note that we are in the hard goods business in order to support the needs of our gas customers. Whether it's industrial or safety hard goods, we want to sell and provide those products to those that are also buying our gases. This particular segment evolved in a way that it was solely related to the sale of safety hard goods and nothing else, and it's become ever lower margin. We have looked at our portfolio, and we have moved in such a way that we are no longer focused on that part of the business.
Thank you. Very clear, everyone. Thank you.
Thank you, Mike, and thank you, Peter. Next question.
The next question comes from the line of Andrew Jones of Bank of America. Please go ahead.
Great. Thanks for taking my questions. Good morning. Two, if I may please. The first on the Sasol takeover. You disclose in the EBIT bridge that there's roughly EUR 30 million of inorganic EBIT contribution in the second half. If I annualize that and compare it to the EUR 480 million that you paid for the assets, I get to roughly a 10% post-tax return on capital. Is that the right way of thinking about that, and is that the return profile you expect for that acquisition going forward? That's the first question. The second on carbon capture. You mentioned sort of carbon abatement projects, and you received EU funding for two of those in the fourth quarter.
Could you talk a little bit about how you see that business in terms of carbon capture as a service versus just equipment sales, and how your discussions with customers are evolving on the sort of choice between those two? Thank you.
Thank you. François, can you take the first question, Sasol, and take the second one?
Thank you. Good morning, Andrew Jones. Regarding Sasol, what we reported is the sales contribution. That's EUR 70 million for 2021. It's going to be around EUR 135 million additional for next year in terms of contribution. Overall, I mean, we have not reported the specific profitability of the Sasol deal, but rest assured that this deal is above the 10% threshold that you mentioned. This is a very reasonable deal in terms of profitability. But I think it's also a demonstration of the value that we are bringing to the customer. First, the safety of the operation, but also the efficiency. We have already, I mean, started to bring some value.
We have already started to invest, and we will invest more to make this plant more efficient, but also to reduce the carbon footprint. That's for the Sasol project. Benoît?
Yes. Your second question, Alex, on the CCS. CCS is very interesting. As you know, we have technologies. We don't have just the Cryocap™. We have the full bunch of technologies. Our business model, we clearly, is to invest at a customer site, invest the Cryocap™ and all the equipment and the other technologies there, and then to sign a long-term contract then to actually take the flue gas or the CO2 stream and capture it and then orchestrate the sort of collection of the CO2 in an industrial area together with other industrial companies, and then ask an oil and gas or equivalent company to actually take care of the sequestration. That's the building of a new supply chain from the capture, the transportation to the harbor, and then the shipment to the final field.
This is something that is taking place, and you're mentioning the two funds that we will be receiving from the European Commission that are exactly focused on that. Those are consortia where we will collect the CO2 from different industries using Air Liquide technology, in many cases, signing long-term contracts, and then contracting with people that will be able to use or sequestrate the CO2. That will be a recurring business, more or less like large industry. That will be a technology and service business with the operation in our hand. That's the model we are pushing. I must admit, to make a link with the Sasol deal, that the Sasol opportunity was the first of its kind where we could couple the supply of industrial gases with the reduction of CO2.
It was not carbon capture, but that was the beginning of discussions, contractual discussions with the customer. As a result of that, we were able to deploy that strategy, in particular in Europe. I think I covered your question, Andrew Jones.
Thank you.
That's great. Thank you.
Next question.
The next question comes from the line of Chetan Udeshi from JP Morgan. Please go ahead.
Yeah. Hi. Morning. You know, a couple of questions. First is, I'm sorry if I missed this, but I was just wondering if you can give us some color on how to think about the CapEx for 2022? I'm talking about more the industrial CapEx, which is to some extent more under control. I think the second question was a bit more broader question. Can you remind us, like what is the sort of total spending you guys have on energy? So this includes both gas and electricity as a group.
How is that roughly split between, say, the on-site business where there is a pass-through arrangement and how much of that is in the rest of the businesses where maybe you have to raise prices to fully offset the inflation from time to time? Just so we have that full picture with us. Thank you.
Thank you, Chetan. The CapEx for 2022, but not just limited to 2022, will be very much in line with what we have invested in the past three or four years. We expect to see that CapEx increase slightly and progressively because we have more opportunities and because the cash flow is also increasing. In any case, we have the opportunities for that, good opportunities. The spending on energy, it's interesting. We spent last year about EUR 6.5 billion worth of energy. This is about EUR 2 billion more than the previous year. From 2020 to 2021, we actually roughly had EUR 2 billion more in energy. When you think about what it is, this is half of our operating income.
If we had not been able to pass through this energy, it would have had a significant impact on our P&L. That gives you the context of how much energy we spend and how much it represents. There's no doubt that the vast majority is in Large Industries. I would say that probably two-thirds is in Large Industries. The second consumer of energy is IM. But IM is probably one-fourth of Large Industries altogether, and the two remaining businesses, Electronics and Healthcare, are not consuming a lot. Still, Electronics is consuming a little bit, a few hundred million. Altogether, this is EUR 6.5 billion, and the vast majority is Large Industries. Large Industries has been covered because we have escalation formula.
We talked extensively about IM and our ability to pass through this energy cost into our pricing. It is not over. I'd like to just stress that. We think we still have some energy increase to pass through to customers, in particular at the beginning of this year, so in the first half of this year. We have, I think François explained that, we have the mechanisms, and we have the mindset in place today in both the three regions, Americas, Europe, which was overdue, and Asia-Pacific, to be able to really manage this energy component in our pricing in the months to come. I hope I answer your question.
Yeah, that's useful. If I can squeeze one. You know as part of your capital markets and broader capital allocation, and I think you guys have talked about portfolio management as well. I was wondering, I mean, are you guys open-minded to the ownership of some businesses which might not be, you know, within the, let's say, realm of industrial gases? I'm sort of reminding myself here of your SEPPIC business, you know, which is a healthcare excipient and adjuvants business or your electronics molecules business, where, you know, one may argue that if they were to be, you know, monetized, maybe the multiples could be higher than what you are valued as a stock today. Just any comment on that topic. Thank you.
You know we are open-minded people, of course, we've proved that, but I will let Jérôme answer your question. He's very well placed to answer.
No, thank you very much, Chetan, for your question. You talked specific—I will talk specifically about SEPPIC. You know, SEPPIC is a key part of our business today. It's not that we don't have the intention to sell it. It's really something that is part of a healthcare strategy and special ingredients also, by the way, are having a significant margin, operational margin. It contributes to the value of the group and contributes also to the acceleration of the operational margin improvement. Today, the situation is clear. We don't want to sell it.
Thank you, Jérôme. Very clear. Next question.
The next question comes from the line of Georgina Fraser from Goldman Sachs. Please go ahead.
Hi. Good morning. Thank you for taking my question. It's great to see such strong operating performance and especially the pricing strength. I was just wondering if you could highlight if there are any parts of the portfolio where Air Liquide is actually more of a price taker, and whether the current environment where you've got both inflationary pressure but also very strong growth opportunities out there, would prompt a review for owning any assets where you do not dictate pricing.
Well, first of all, thank you for your comment, Georgina, about the strong performance. I think this is very true. I don't think we have any part of the portfolio which is not so strong as such. In the pricing environment that we know, I think the weakest part, and I think François has been very clear on that, is the healthcare. Because the healthcare world is regulated. We have tariffs, and it has been, and I think it will remain difficult to really pass through energy costs into the price, the healthcare sector.
We have discussions on a yearly basis with the authorities in different countries, but it takes time, and it's not automatic in the discussion to have a recognition of a situation like the one we have in energy. That is probably one weak point. Of course, on technology and E&C, I think we have proven that we could go through a crisis. This is not really weak at all. The rest of the business is very strong. This is applicable to a large industry, to electronics, of course. What we have proved with IM and the pricing in Q4, and it will go on, is our ability to also act very significantly in IM. That's very reassuring for the future.
Honestly, I've never in my career in Air Liquide seen such a spike in energy. This is incredible. That's one thing. The second thing, we also have to realize that this has affected Europe first. If we look at the other regions, I mean, North America and Asia have been less affected by this spike in energy, in natural gas in particular, but also electricity. We've proved our resilience, which leads me to say that we don't have really any part of the portfolio which is weak or not so strong, in particular related to the energy crisis. Hope I covered your point, Georgina.
Yes. Thank you very much.
Thank you. Next question, and probably the last question.
The next question comes from the line of Marc Bianchi from Cowen. Please go ahead.
Hey, thank you. Looking at the cash from operations excluding working cap, it was very strong for the year, but when I solve for what the fourth quarter looks like, it seems to have inflected pretty significantly from the first three months, approximately EUR 1.6 billion, it looks like. I understand there's some seasonality perhaps that falls off entering into 2022. Was there anything unusual in fourth quarter that might be non-recurring or is this maybe the run rate to be thinking about going forward?
Jerome.
Yeah. As you said, you know, the cash flow has been very strong because for the year, for net profit at +8.9% excluding FX, you know, we have a cash flow from operating activity at +9%. It is a good translation into cash. There is typically strong seasonality with a high level of cash flow in Q4. You know, when you look at the cash flow, when you compare to EBITDA, you know, there is a similarity because EBITDA is also moving at +8.5%. You see very much a cash conversion, which is totally in line.
We may have from time to time, as you say, in Q4, some seasonality, but we have this year a very strong parallel between EBITDA, cash flow, and operating and net profit in fact.
Thank you very much. That's all I have.
Okay. Thank you, Marc. I think we've reached the end of this conference. Let me just briefly summarize. 2021 has been an excellent execution year, I would say, in particular in volumes. We saw recovery post-COVID. In the cost management, we had to limit the sort of boom in costs post-2020 related to PEX, the personal expenses, the G&A, cost of goods sold. We had our program, efficiency program well in place, and this is the reason why we could really post those good results. We had to absorb inflation and minimize the impact. We had, of course, to swallow EUR 2 billion increase in energy costs. I mentioned that. We had to translate part or all of that into pricing. We also had to develop. I'm thinking about CO2, hydrogen, energy transition, and technologies.
All in all, excellent execution year. I would say we are well prepared for the future, well-positioned in the market, well-equipped in technologies, in people with very good teams. Undoubtedly, we are preparing for a bright future. Thank you. Thank you all. I think we will talk to some of you later in the day or during our roadshow today or tomorrow. Thank you very much.
Thank you for joining today's call. You may now disconnect.