Good morning, ladies and gentlemen, and welcome to the Air Liquide Quarter 3 2020 Revenue Conference Call. All participants are currently in Today's conference is being recorded. I will now hand over to the Air Liquide team. Please begin your meeting, and I'll be standing by.
Good morning, everyone. This is Rod Rodriguez, Head of Investor Relations. Thank you very much for joining our conference call this morning. Fabienne Lucardier will present the 3rd quarter revenue, and she's joined by Francois Jacob, executive VP, supervising Healthcare, Africa, Middle East, and European hub. And on the phone from Houston, my graph executive leases, supervising Americas and Asia hubs and the electronic business lines.
They will both participate in the Q And A session. In the agenda, our next announcements are on February 10th next year for our full year 2020 results, and I am happy to announce on March 23, our sustainability day. Let me now hand you over to Fabienne.
Thank you, Ode. Good morning, everyone, and thank you for attending this Q3 2020 activity conference call. In line with what we told you at the end of Q2, signs of recovery have been confirmed in all regions, but we've still very contrasted basis on situations. Nevertheless, we managed in Q3 to preserve comparable sales at a level very close to last year. With a decrease limited to minus 0.9 percent.
The deployment of a margin improvement plan been pursued and our additional cost containment measures were maintained and they both delivered. The business development activity is still dynamic, but we see a clear focus of our customers on the growing end market with more signing and opportunities in developing economies and for energy transition. In this field, we are about to start 2 major projects for which I will give you more details. And just to make things clear upfront, the Q3 performance reinforces our confidence in our full year guidance. Let's now review the key figures on Slide 3.
Q3 Gas And Services sales are only down minus 0.9% having recovered the level of last year in most geographies, which reduced the year to date gap to minus 2%. Engineering sales are slightly better still at minus 24% of third party sales contributing to consolidation, but only at minus 19% in total. Order intake year to date now reaches EUR 428,000,000 to be compared to EUR 499,000,000 last year, with clearly a better momentum after summer. Global Market And Technology have had growth supported by high-tech sales main Brins in particular and biogas. There, the order intake is a record at EUR 185,000,000, thirty percent higher than in 2019 year to date.
As a result, comparable group sales are also close to flat for Q3 at minus 0.9% and minus 2.4% year to date. In Q3, the negative ForEx impact and the energy pricing impact have amplified, respectively at minus 3.7 percent and -1.5 percent penalizing published sales. We are also recording a minus 2 point 6% large scope impact, resulting mainly from the divestitures of Fujian in 2019 and of Shil Kumar in Q3 2020 Therefore, our publishers are down 8.7% showing a high gap to comparable All regions are improving. America has been the only one still under last year due in particular to the high proportion of Industrial Machining Business in North America. Europe still benefits from strong health care growth and from growth in Eastern Europe, Asia is very contrasted by driven by an impressive recovery in China when Africa, Middle East is globally back to Latin Let's now dig a little into details.
I am on Slide 5. America's first large industry volumes are slightly recovering despite the impact of the hurricane LoRa in the U. S. We also benefit from startup and ramp ups in Latin America. In merchant, the improvement is progressive.
We are the reassuring months of July a plateau in August and a better momentum in September. Gas sales are supported by better consumption markets and very solid pricing at +3 point 6 percent, while hardwood sales are still significantly down. Escar sales are still strong in Latin America, driven by medical segment, but also recovering in the U. S. Electronic sales continued to be driven by equipment and installation.
In Europe, we are back to positive. Large industry volumes remain weak in France and Iberia, but improve elsewhere in particular in Central And Northern Europe and are growing in Russia and Turkey with volumes to chemicals now close to 2019 levels. Merchant is much better than in Q2 in particular in Benelux and Northern Europe and is up in Eastern Europe with a good mix, driven by cylinders now close to last year. Then, Healthcare is still very strong at +9.5 percent driven by medical equipment sales and small acquisitions in Omenske. Asia is very contrasted, driven by the dynamism of China.
Large Industry is globally up, thanks to China, Korea and Australia. Merchant is the most contrasted with strong China, better Australia, but very low Japan and Southeast Asia. Zealanders are recovering quicker while equipment and installation remains strongly down. Electronics continued to be a strong growth driver, above 10%, excluding equipment and installation, thanks to Kaja Gases And Advanced Materials. Flat, supported by positive large industries, recovering merchants in the Middle East and India, and strong health care throughout the zone.
Let's now look at the volume business line starting on Slide 7. After a week, you to pull down by industrial markets, the progressive recovery of industrial merchant is visible in all geographies. Most of the developing economies are back to growth led by China. In mature economies, we have contrasted situations, but volumes still remain so far under last year's level. However, the pricing effect is still very solid at +2 point 6 percent globally and particularly strong in Americas despite relatively low demand, confirming the progress made by our teams in terms of price management.
Large Industries are back to 2019 level, driven once again by developing economies and despite diverse situations, Volumes in the existing unit and network are improving sequentially, both for oxygen and hydrogen, and we still benefit from start ups and ramp ups. In terms of markets, we see chemicals recovering quicker, but we also had more positive signals in Metals in Europe at the end of September. Healthcare remains very strong, driven in particular by high mid equipment, which more than tripled compared to last year in connection to the pandemic, of course. Romel Sky is also better than on anticipated, thanks to the abetis and to a few small acquisitions. Medical gases are sustained in Europe and strongly recovered in the US while Latin America and Middle East Africa continue to grow.
Electronics benefiting from a high loading of the semiconductors in the 3 continues to be a strong growth driver. Growth is above 7% globally and above 10% in Asia if we exclude equipment and installations. The mix has improved regularly with a 20% growth trend for Advanced Materials over the last quarter. So to conclude on the activity analysis, we in our 3 business lines, which are back to positive, in line with our expectations, Industrial Merchant, which is the most correlated to IP, is the only one to remain on the last In terms of performance on Slide 9, we continue to rely on our structured performance improvement plan on one hand and on the additional cost containment plan on the other hand, which are both delivering. On Slide 10, the 3 pillars of our margin improvement plan continued to be very valid.
Pricing remains very solid, thanks to the campaign's launch at the beginning of 2020 and to proactive management. The mix is also contributing, thanks to lower adgoods and equipment administration sales in merchant and electronic, as well as free of packaged gas in some countries and to the growth of Advanced Materials in electronics. Efficiencies reached EUR 311,000,000 year to date, well aligned with the yearly objective above EUR 400,000,000, transversal project at smart innovative operations and business support center deployment continued despite the travel bans. Portfolio management was also pursued with ongoing divestitures and reorganization to focus on the most promising market and activities as well as more bolt on acquisition. Good news is that these efforts also translate in a very strong cash flow close to 24% of sales.
And thanks to the high focus of the teams on collections, working capital remains well under control. The investment activity kept its high levels of Q2, although we saw our cut with refocusing on growing end markets. The 12 months portfolio reached EUR 3,000,000,000, with more opportunities in developed economies, including takeovers as well as for electronics, when in mature economies, development focus is clearly with energy transition. We decided EUR 790,000,000 of new investments and decision year to date are now above EUR 2,000,000,000. The investment backlog is also increasing accordingly at EUR 3,000,000,000 with more efficiency projects for close to EUR 1,000,000,000 of future sales.
Just as a reminder, the Sasol project investment is not included in these numbers. I would now like to take a few minutes to insist on 2 major projects, which are about to start as we speak, presented on Slide 12, 1st, the electrolyzer in Beaconco in Quebec, which is our 1st large scale production unit for 100% renewable hydrogen, This electrolyzer relies on PEM technology and will use up to 20 megawatt of hydro electricity to produce approximately 8 tonne per day of green hydrogen, which makes it a first of its kind. This site, which has a liquid filer, will serve mobility and merchant market and will be the largest PEM unit in the world. This is a major step forward for the group, supported by our partnership with Adrogenic. 2nd, a unit using Air Liquids SMR X Technology will start up in Q4, supplying hydrogen to Covestro site in Antwerp.
It recovers the heat from the excess team co produce, which translate into lower feedstock consumption, and that's the result, 5% less CO2 emissions. On top part of the remaining CO2 will be captured and reused as a feedstock by Covestro for its own production in a cyclo model. Also in the Antwerp Basin, we are involved in a consortium with the port of Antwerp and other major industrial companies to deploy carbon capture at the port with cross border CO2 transportation and sequestration, supported by public subsidies. This project confirms Air Liquide willingness to remain at the forefront of the energy transition in the industry. And it is also the opportunity for me to announce that we will host a sustainability day on March 23 2021.
During which we will provide you with further details on allocated climate and hydrogen strategy and quantified objectives. In terms of contribution of startups and ramp ups on Page 13, we reach 1,000,000 in Q3. We now believe that for 2020, we will be at the top of our forecasted range with a 1,000,000 Revolution, thanks in particular some projects being executed quicker than expected. For 2021, the contribution should between EUR 320,000,350,000,000, despite further delays in customer's construction project and thanks to the additional sales to Sasol around EUR 100,000,000 for the year. Regarding the Sasol project, we will be in a tooling model for our 1st phase, and we move to full energy management in the 2nd phase after metering works have been completed.
Which can take around 18 months. In the 2nd phase, sales will increase significantly with eliminated impact on the profit contribution So this ends our review. Let's now move to the outlook. As mentioned at the beginning and based on the Q3 recovery, we in Western Europe, the pace of the recovery remains, of course, very uncertain and our best estimate for the moment is to have Q4 broadly aligned with Q3. However, relying on the ability of our teams to ensure the continuity of operations And on our performance plan, we are confident in a further increase of our margins and on a broadly stable net profit.
Thank you very much for your attention. As that we now open the Q
We'll now move to our first question over the phone, which comes from Martin Radziger from Kepler. Please go ahead. Your line is now open.
Yes, good morning, and thank you. I have three questions. First question is on page 13 of your handout. I'm a bit puzzled about the guidance for sales contribution from startups and ramp up Compared to the last conference call in Q2, you now expect the upper end of the previous 150,000,000 to 180,000,000 contribution range So you lift your figure for this year by between 1,000,000 and 1,000,000. For next year, you lift your expectation from previously 1,000,000 to a range of EUR 320,000,000 to EUR 350,000,000, which is an increase of EUR 20,000,000 to EUR 50,000,000.
But this figure for next year includes the position of SAZO, which is 100,000,000 sales. And moreover, the trust implies that one startup in the U. S. Is postponed from Q4 this year to Q1 next year. So normally your sales contribution forecast for 2021 should be clearly above 1,000,000.
What do I miss here? The second question is on pricing in industrial merchant in Asia. Which was minus 0.5% in Q3. You say helium prices have stabilized in Q3. On a global level, helium prices contributed, however, 0.7% of pricing.
So my question is, did helium prices drop in Asia and staying with Industrial Merchant Pricing. Can you talk about the pricing situation in China since the price discipline and among the competitors weaken, that would be strange because the comparable sales growth in China in industrial merchant was rather strong with plus 8.3% in Q3. Thank you.
So thank you, Ritu. I will start with the first question on sales contribution of startups and ramp up. So on one end, we have projects being executed quicker in 2020. So those projects will not contribute as much in 2021 because they start earlier. On another end, we have a number of projects which are delayed due to the sanitary situation.
It's mostly on our customer side. So some customers are late to start. When for Air Liquide, we are well aligned with what we were presenting, in at the end of Q2. So those projects will translate progressively to 2021, and we'll have from 2021 to 2020 2 and we'll have also some projects which were forecasted for 2022, which are now delayed until 2023. So all that is translating to a few months later.
And on top of that, we have more this year, so meaning less next year, but it's clear that if we put Sasol on the side, the forecast we are giving to you now for 20 21 is lower than that time. It's not lost. It's many delays, that will that will translate to the next years. Question on the pricing in Asia. And the contribution of helium.
It's true that the helium pricing are still up to last year and stabilizing globally. However, they are a little bit under, in, in Asia than they were last year. It's not the only reason where you have a slight negative pricing in Asia. You know that in Asia, we have a pricing, which is always more tied than in the other zones. The pricing is positive in bulk and we have a little bit more pressure in package guys.
I said that packaged gas is recovering quicker, that, but this is too many for Europe. In Asia, it is the opposite. We have bulk recovery quicker than a stronger pricing on bulk and weaker pricing in packaged gas. This is also very true in, in, China. With a slight decrease on the helium passing, but really a slight decrease and, a little bit of pressure on the package guys price which were pretty high last year.
Mike, I don't know if you want to add something on the Asian pricing,
Sure. Good morning, everybody. And just to add to what Fabian already articulated I think that both prices were in a pretty good place as we went through Q3 in China. I think, however, you have to recognize that there's multiple elements to the pricing here. I think, maybe, inarticulated well, where we are with Helium.
And, and, of course, in different parts of the world and for different customers, Helium, you may have a a midterm kind of contract price over a number of years. In some cases, it's more on a transactional basis. And so I think you'll see you see some softening in helium in some markets is a result of that. But I think the other driver that we can't lose sight of is for the merchant business, you have the impact of a lag of a cost associated with energy prices that are built into some of the pricing and some of the contracts. And so there's a bit of a lag where early in the year, we saw a decline and some of the energy prices associated with that, that are now fully in place as we move through the year.
So there's a bit of a lag that runs there. That you wouldn't normally see. And we see the upside when it goes the other way.
Thank you, Mike. Next question.
Thank you, ma'am. Our next question comes from Andrew Scott from UBS. Please go ahead. Your line is open.
Yeah. Good morning. Morning, Fabienne morning, Mike. Just a quick couple for me. On Sasol, Just wanna check some numbers with you, Fabienne.
So a 100,000,000 for next year. How quickly do you then ramp up to the more than 400 you mentioned in the press release. Does that happen in year 2, or did it happen on a multiyear basis? Also, sticking with Sasol, you will book that as scope, I assume, rather than organic. And then what are the margins attached to that revenue?
Are they typical on-site margins or or somewhat lower? As I'm looking at the purchase price in I'm thinking it's the it's the latter. Such I'll stop there. I've got a second question on health care, but we can just take the Sasol stuff first. Thanks.
Okay. So I confirm, the Sasol contribution will be accounted for at scope. So it will not be part of the comparable sales, for the and margins. Maybe I will hand over to, Frontera, Vice is, supervising as you know, Middle East and Africa.
Thank you very much Fabienne. Good morning, Andrew, and good morning, everybody. So regarding the contribution on the margin of this new deal, it's going to be similar to what we are doing in Large Industry Business. Taking into account, I mean, some of the profile of the customer and the country. So it going to be well in line with the profitability of the Large Industry business.
Regarding the the contribution to the sales. The 1st phase of the project is going to be, as mentioned, by Fabienne without the energy contribution. This is due mostly to the fact that, the units are currently in place do not have the proper metering to be able to measure the energy consumption fully. This is done at certain battery limit, but not exactly at the battery limit of the scope that we are considering. So we have already launched a project to complete the metering of the units that we are taking over.
Depending on the execution rate. And of course, assuming that we've got the confirmation from the competition authority at the end of the year, This will take between 1 year 18 months, potentially 2 years, but we target for 18 months. So once we have that, there's going to be a step change. So it's not really a ramp up it's going to be a step change in the contract and in the sales.
Okay. Thanks, Vanessa.
Yes, if I may add, the result of that is that during the 1st phase of tooling period, you will have a higher margin because these are going to be much lower than in the 2nd phase as published.
Yeah. And just just to be clear, it sounds like the 2nd phase of setup is probably only part of 2022. So may so should I assume 2023 you're getting to that over 400 level? Would that be there?
Yes. That's probably the timeline to consider. We will update you as we go, of course, and give you some the ability.
Sure. Thanks Francois. And then, yeah, just a quick follow-up on Healthcare. I think you've ended up doing somewhat better than your initial expectations, for the second half at least so far. Do you put that down to this one off sale that you mentioned in the press release, or are you starting to reconsider the original guidance you gave for the second half?
Before.
Also, do you want to take that one?
Yes,
of course. So regarding the health care performance, on the top line. Indeed, we had a good performance, which was boosted by equipment sale, which was exceptional equipment sales. We do see some of these stay, but probably to a lesser extent in Q4, of course, depending on the overall market demand territory situation. For the rest of the business, we are really, I mean, on the trend that we discussed before, namely, in summary, we have seen a clear recovery in the home care activity.
You remember that we have seen some decrease in the number of new installation, mostly because people were not going to visit physicians. We have seen, I mean, an increase in the recovery on that for the medical gases for hospital, basically, we have seen a normalization of this in most of the region. Now we have to be cautious because with the second wave being present and ramping up in several geographies. We see this trend, I mean, shifting a little bit. We see already, I mean, in several location, a significant increase in the oxygen demand for hospital, which may continue for some months.
Okay. Thanks, Francois. Thanks, Fabienne.
Thank you, Francois. Next question please.
Thank you, ma'am. We'll now take our next question from Toni Jones from Redburn. Please go ahead. Your line is open.
Oh, good morning, everybody. Tony Jones at Redburn. I've got 3 really quick technical ones. So, firstly, are you able to give some, guidance on the absolute currency impact for Q4. And then also similarly for the bolt ons, the 7 bolt ons that you call out in the slide Could you give some indication of the sales perimeter impact for merchants and health care in 2021?
And then just finally circling back to the helium price, do you see risk that prices start to drift downwards in 20 21 on improved availability.
The first one on the currency impact, you know, that we are always calculating our forecast taking into account that the current rates will lap until the end of the year. If it is a case for the full year, we should have a minus 2% approximate the ForEx impact and a minus 2% approximately as well in energy impact. So this is what we have for the full year right now, providing the the situation is, is stabilized. So, yeah, guidance for, for bolt on and small perimeter, you know, that we continue our portfolio management actions with small divestitures and bolt on acquisition. For the full year, it should approximately compensate.
I believe. And depending on the success rate we have, we may be fit an acceleration of bolt on in 2021 following the crisis and following the announcement by need to burden of potentially increasing the tax and capital gain in the US. But, but with Then we will still have a relatively significant, large scope impact due to the divestiture of Kumayla in particular. Then the last one on Elvion pricing, do you expect price to decrease in 2021? Thanks to improved availability.
So we have a huge still a huge helium pricing impact because we still compare to a period where, the price has not completely, gone up. To next year, we'll have a comparison basis that is going to be far less favorable. Are the new sources going to come on stream in 2021? The initial forecast was end of 2021, in particular, for the Russian sources. And, actually, we don't expect a significant contribution before 2022.
Next question please.
Thank you, ma'am. We'll now move on to our next question, which comes from Laurent Saver from Exane. Please go ahead. Your line is open.
Yes. Good morning, all. I have 2 simple ones please. The first one Fabienne is on temporary savings. I think in H1, you talked about 100,000,000 of gains there.
Most of those being in Q2, can you perhaps help us on the impact in Q3 and what thinking for a full year of H2. And then the second question, a bit cheeky. I think you said for Q4 that you expected a similar performance as in Q3. Can you clarify if you were talking about, I guess, year on year or sequential development So Q4 versus Q4 last year or Q4 versus Q3? Thank you.
For the temporary saving, the plan continued to deliver pretty strongly in it will soften in Q4, especially in Ergas in the U. S. Where We, we are out of follow, for a number of people. So we expect to be a little bit under 2 times H1 for the for the full year. However, you need to remember that those savings are not sustainable.
They are completely linked to the crisis and to the strong decrease of the activity. The good news is that on the side, we continue to deploy our efficiency plans and they continue to contribute at the level expected, which is an excellent performance from the team in the current context. So similar performance then in Q3 in Q4. We see a kind of plateau in the recovery. We said that in Notion, we were halfway And we imagine that we stay halfway for a while.
Notably in the US and in in Europe. Maybe I'll ask Mike and Francois comment on their anticipation of the Q4 activity. Mike, for U. S. And Asia,
Sure. Thanks, Vivienne. I think that the level of activity in Q4 will continue what we see in Q3. We've seen the continued evolution in most of the markets that we serve. On the industrial side, if I look at Asia and the Americas in general, I think that, you know, things have recovered back to 90% of normal.
Whether it's large industries, whether it's the industrial side of the merchant business. And we continue to see very good growth in healthcare, as Francois mentioned earlier and also in electronics being very strong in a global nature. And we expect all of those trends to continue of improvement in the merchant business and the continued growth in healthcare and electronics as we go through the fourth quarter. I think there will be certainly some comparables for specific business lines as we look on a year over year basis, where things really spiked in certain areas in the fourth quarter of last year. But I think taking in the aggregate it'll be both sequential and continued improvement for those businesses.
For Europe, we do expect to see some of the trends continuing. Basically, for our large industry, we the recovery. Clearly, we are probably now close to 90% on the Airgas' volume. And close to last year volume on the hydrogen. This being said, we do expect that chemical will continue to recover, but, I mean, depending on the product line at different rates.
The refinery, we have seen kind of a plateau and it's highly dependent on the fuel consumption. So we do not expect a strong recovery there. For the steel industry, which has been weak for, already some time, We see actually in the past few weeks, some signs of recovery in Europe. This is the case in Germany, for example, or in France on the larger steel mills. So I mean, there could be a slight rebound in this in Europe to be expected.
For industrial merchant overall, it's going to be highly, of course, dependent on the I would say the impact of the second wave on the economies, but overall, I mean, today, we have a recovery, which is I would say good in most of the countries with packaged gas and bulk business being between minus 5% and minus 10% of the previous pre COVID volumes. The markets that we do expect to recover the most are the one that are the most resilience. We do expect, I mean, to continue to see some of the markets in food, for example, or in some of the research to continue to grow. For health care to finish, probably we will have a softer growth than what we have seen. As I mentioned before, we do expect to see less sale of exceptional equipments, and we see a normalization on the hospital business and the home care.
All that is of course highly dependent on the sanitary situation Thank
you.
Next question.
Thank you, ma'am. Our next question comes from Gunther Man from Bernstein.
Questions. Just a couple of quick ones from my side, please. Firstly, could you share what the book to bill ratio in equipment and installation in the electronics businesses at the moment, please. And then secondly, as we go into year end, thinking about any games on showcase. That's something you can guide more closely on that, please?
Okay. So the book to bill ratio in electronic at the end of Q3 is slightly above 1.051. To be precise when we were at 0.94 at the end of Q2. So a slight increase, I would say, around 1. So E and I, in electronics should, should stabilize sequentially, capital gain will still come.
Yes, we would record a capital gain on Schulker. However, with the end of the newest plan, we have engaged again in a review of our portfolio of assets. And it's very likely that we will record a certain number of provision linked to the evolution of the strategy and the destination of those assets. So, our estimate at the moment is that the balance of the 2 is going to be marginal.
That's helpful. Thank you.
Next question
Thank you, ma'am. Our next question will come from Peter Clark from Societe Generale.
Yes. Good morning. Thank you. Two questions as well. On methanol 1, you mentioned obviously it's been prone to delays.
I I'm writing things that this thing is built now. So this thing is definitely gonna come on in 2021 because we've been waiting, obviously, 4 years or something for it. And then on the postponement, you mentioned, obviously, mostly customers, delaying things, but I'm just wondering what areas they're in. Are the are these small or large industry projects or are they elsewhere in the portfolio? Thank you.
So I will take the second question first and we'll hand over to Mike for the question on the YCI Metinal facility. On project, it's mostly large industry and it's mostly linked to, oil and gas, end of the barrel, that kind of recycling project In electronics, we are well aligned, and in chemicals, we are mostly well aligned. Then on the specific case of YCai, Michael.
Good morning, Peter. On YCI, it's more a matter from their standpoint of some COVID delays and some other issues that push them into next year. Our facilities are up and ready to go. So it's just a matter of them completing their facilities and and, being ready for startup. We're contractually protected throughout all this.
So we're well positioned to go ahead and move forward once we're ready.
Thank you. Next question.
Thank you, ma'am. But just as a quick reminder, ladies and gentlemen, it is Our next question comes from Jean Luc Romain from CIC Market Solutions. Please go ahead. Your line is open.
Good morning. My question relates to the startup of the hydrogen electrolyzer in Quebec next year. Do you already have customers for that? What can what would be the outlet for this hydrogen? And will it be accounted for in large industries or industrial metrics, or will it work?
So the, the Bitcoin collateral is clearly a large industry project. Managed by our large industry and engineering team. So it will be accounted for, for large industry for the upstream production. And then the downstream is going to be in merchant and in hydrogen energy for the mobility, mobility parts. So maybe, Mike, you want to add on the On the potential customers?
Mike, are you
good? Good morning.
Yes, I am.
Can you hear me? So Fabienne said it well. I think it's a combination of things. The first one is that, there's clear growing industrial need that we need to continue to meet in the area that will be served by the hydrogen produced second core. But it's also going to go ahead and provide basically the startup requirements as we begin to see mobility opportunities in Canada and in the Northeast of the U.
S. And we see that begin to grow and evolve into the future. So it'll be multi facet it's the 1st state of the art pen membrane system of its kind. We're working with Hydrogenics on this. We're proving this technology at the industrial scale.
And we see true promise for this in the future. So I think we see this as a growth mechanism.
Thank you.
Thank you. Our next question.
Thank you, ma'am. Our next question comes from Sheetan Udeshi from JP Morgan. Please go ahead. Your line is open.
Yes, hi. Thank you.
Just a couple of questions from my side. The first question was, on the Sasol project. As as part of their own disclosures, they mentioned that they may have had to invest more than million over the next 15 years to modernize that plant. So can you give us some feel of what is your thinking on incremental CapEx that Air Liquide might have to invest in the future on top of pre 450,000,000 or so that you are spending to take over those, ASU? That's the first question.
2nd question. Do you have any view on it in terms of the year on year progression in gases and services margin in second half? Should we expect similar to what we saw in first half in terms of magnitude or is there a reason to believe it would be higher or lower?
Thank you.
Okay. So Francois, you'll take the first one for Sasol and I will come back for the margin management?
Yes, thank you Fabienne. So, on Castle, as we mentioned before, we are going to take over the existing facility. And convert that into a long term, over the fence contract. So we will bring the state of the art in terms of technology and operation of the plant, which is going to provide energy efficiency and which is of course going to reviewed also to the reduction of the carbon footprint. You remember that we said that we want to reduce by at least 30% CO2 emission related to the oxygen production for this site.
So how are we going to do that? We are going to bring, of course, the AAD see the state of the art standard in term of operation, we will review, I mean, how the plant is being operated. Renew equipment. Some of them are quite old and will benefit from the latest technology. We are also reviewing the process and the integration of the 16 units, the way they are operating.
We'll put a lot of digital tools that we are using elsewhere in the world. Movement and for equipment check. So we will be changing some smaller pieces of equipment again for efficiency, but also to convert some of the equipment, which today are using steam to be a convert to use electricity. This will allow us to use more renewable electricity because that's one also of the lever that we are going to use. Supply renewable energy for the site.
Finally, we will be also looking at a larger potentially replacing some of the air separation units probably for bigger ones to benefit from the economies of scales, but also the latest technology. So we will have and we have today a roadmap for some investment over the years and over the life of the contract.
Thank you, Francois. So in terms of margin improvement, we told you at the end of each one that we had 2 components in our margin improvement. 1 is the efficiency plan. The recurring 1 is a sustainable one. And second is, of course, the additional non recurring cost containment plan.
So it's true that we said that the cost containment plan effect may soften in H2. On another end, the efficiency plan are ramping up. So I in no reason why the improvement should be lower in, in H2 than it has been in H1. Of course, we still have some uncertainty of the situation, as you know, and, we are working on it.
Thank you.
The next
question
Thank you, ma'am. Our next question comes from Lawrence Alexander from Jefferies. Please go ahead. Your line is open.
Good morning. Could you give a sense for your regional split in biogas contracts now or in the How should we think about the cadence of green hydrogen and CCS projects over the next 3 to 5 years like what's currently in your pipeline?
Okay. So on biogas, we are developing biogas project, many in the US and in Europe. It's in the US that we have the strongest growth at the moment with particular one, startup of a new unit. In Europe, at the moment, it's mainly developing in UK. With a few contracts there.
In terms of quantified ambition, in terms of renewable hydrogen and carbon capture and storage project. Our promise and commitment is that we will give you more precise objectives during our sustainability day in March. As a complex to estimate, the contribution in 3 years or 5 years from now of those different projects, but, and we need a little more time. We have numbers, but we need a little more time to confirm them And we promised that we'll give you numbers in March.
Thank you.
Maybe the last question.
Thank you, ma'am. We'll now take our last from Jean Baptiste Rolland from Bank of America. Please go ahead. Your line is open.
I don't want to preempt your sustainability date for 2021, but without necessarily asking about precise quantification. I just wanted to, ask you what's in terms of your strategy around electrolysis. And I guess the project in Bitcoin is related to that. Would you the electrolyzer that you're putting in place is a time electrolyzer. I'm quite curious what you think in terms of technology whether you would also be interested in alkaline at all or whether at this point in time you believe that PEM is the right technology for the future for scaling up, etcetera?
And that's where you are basically making your bets. Thank you.
Okay. So 1st, in term, in term of hydrogen, clearly, our ambition is to master the full value chain. So secure access renewable energy, produce renewable or low carbon hydrogen and supply it to customer either directly through, on-site and pipes or through a full supply chain, including Equifax packaging, transformation, etcetera to be used by our customer in particular to decarbonize their own processes. So electorize this is not an objective electoralize this is one of the means, that we need to use to get there. In terms of techno, I would say that, it's still in the making.
Yeah. We also team on a large scale for the first time. We have not given up at all on the other technologies. We are testing them as well. For the moment, we believe them is promising, but it's still to be it's still to be confirmed honestly.
Mike, I don't know if you want to add something.
Sure. Thanks Fabienne, and good morning, Jean Baptiste. But just to add what Fabienne said, I mean, just recognize, I think we operate on the order of 40 electrolyzers in the world today. Many of them smaller scale and many of them alkaline. In terms of what we do in different parts of the world.
So we're familiar with that technology. The PEM technology brings series of nuances from a technology perspective and an operability perspective that we think hold a lot of promise for the future as well. The footprint for the same amount of, production, the ease of use, in, in the fundamental nature of its design You don't have a lot of liquid, that you have to manage through the system. So you don't have pumps and a lot of auxiliary facilities that need to be managed. Even in terms of the frequency of power available as it shifts or in terms of utilizing renewable power, which we all know if you use wind or use solar, is not there 100% of the time.
The PEM electrolyzer is much more forgiving in its operation. It's much easier to start up and shut down. It literally will do that itself. And we think on the maintenance of it, it's much easier as well. But these are all things that we want to improve with the investment affecting core working joint with Hydrogenics and we will continue to go ahead and work to master both technologies as we go forward.
Thank you, Mike.
This was our last question. So we will end the conference call. Thank you again to you all for your participation and for your questions. You've seen that Q3 has been credited again a good quarter. Of course, taking into account the concept, the context in which we are evolving.
The teams are really are really focused and motivated to continue to handle the situation in the best manner in Q4, whatever happens. And we'll talk to you again, at the beginning of February, but we are very, confident in the guidance that we shared with you. Have a nice day, goodbye everyone.
Ladies and gentlemen, this does conclude today's call. Thank you for your participation. You may now disconnect.