Good morning, ladies and gentlemen, and welcome to the Air Liquide Quarter Three 2020 Revenue Conference Call. All participants are currently in a listen-only mode until we conduct a question and answer session, and instructions will be given at that time. 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 Aude Rodriguez, Head of Investor Relations. Thank you very much for joining our conference call this morning. Fabienne Lecorvaisier will present the third quarter revenue, and she's joined by François Jackow, Executive VP Supervising Healthcare Africa, Middle East, and European Hub, and on the phone from Houston, Mike Graff, Executive VP Supervising Americas and Asia Hubs and the Electronics business line. They will both participate in the Q&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 23rd, our Sustainability Day. Let me now hand you over to Fabienne.
Thank you, Aude. 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 with still very contrasted paces and situations. Nevertheless, we managed in Q3 to preserve comparable sales at a level very close to last year, with a decrease limited to -0.9%. The deployment of a margin improvement plan has 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 refocus 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 two major projects for which I will give you more details.
Just to make things clear up front, the Q3 performance reinforces our confidence in our full-year guidance. Let's now review the key figures on slide three. Q3 gas and services sales are only down -0.9%, having recovered the level of last year in most geographies, which reduced the year-to-date gap to -2%. Engineering sales are slightly better, still at -24% for third-party sales contributing to consolidation, but only at -19% in total. Order intake year-to-date now reaches EUR 428 million to be compared to EUR 499 million last year, with clearly a better momentum after summer. Global market and technologies are back growth, supported by high-tech sales, membranes in particular, and biogas. There, the order intake hits a record at EUR 485 million, 30% higher than in 2019 year-to-date. As a result, comparable group sales are also close to flat for Q3 at -0.9% and -2.4% year-to-date.
In Q3, the negative Forex impact and energy pricing impact have amplified, respectively at -3.7% and -1.5%, penalizing published sales. We're also recording a -2.6% large scope impact, resulting mainly from the divestitures of Fujian in 2019 and of Schülke & Mayr in Q3 2020. Our published sales are down 8.7%, showing a high gap to comparable sales. All regions are improving. Americas being the only one still under last year, due in particular to the high proportion of industrial merchant business in North America. Europe still benefits from strong healthcare growth and from growth in Eastern Europe. Asia is very contrasted, driven by an impressive recovery in China, when Africa, Middle East is globally back to last year level. Let's now dig a little into details. I am on slide five. Americas first.
Large industry volumes are slightly recovering despite the impact of Hurricane Laura in the U.S. We also benefit from startup and ramp-ups in Latin America. In merchant, the improvement is progressive. We had 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 +3.6%, while hard goods sales are still significantly down. Healthcare sales are still strong in Latin America, driven by medical oxygen, but also recovering in the U.S. Electronic sales continue 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. Healthcare is still very strong at +9.5%, driven by medical equipment sales and small acquisitions in home healthcare. 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. Cylinders are recovering quicker, while equipment and installation remain strongly down. Electronics continue to be a strong growth driver, above 10%, excluding equipment and installation, thanks to carrier gases and advanced materials. Africa, Middle East is flat, supported by positive Large Industries, recovering Merchants in the Middle East and India, and strong Healthcare throughout the zone.
Let's now look at the various business lines, starting on slide seven. After a weak Q2 pulled 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, volumes still remain so far on the last year's level. The pricing effect is still very solid, at plus 2.6% 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, we still benefit from startups and ramp-ups.
In terms of markets, we see chemicals recovering quicker, but we also had more positive signals in methanol in Europe at the end of September. Healthcare remains very strong, driven in particular by high medical equipment, which more than tripled compared to last year in connection to the pandemic, of course. Home healthcare is also better than anticipated, thanks to diabetes and to a few small acquisitions. Medical gases are sustained in Europe and strongly recovered in the U.S., while Latin America and Middle East, Africa continue to grow. Electronics benefiting from a high loading of the semiconductors industry 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.
To conclude on the activity analysis, we now have three 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 latter. In terms of performance, on slide nine, 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 three pillars of our margin improvement plan continue to be very valid. Pricing remains very solid, thanks to the campaigns launched at the beginning of 2020 and to proactive management. The mix is also contributing, thanks to lower hard goods and equipment, and installation sales in merchant and Electronics, as well as free of packaged gas in some countries, and to the growth of advanced materials in Electronics.
Efficiencies reached EUR 311 million year to date, well aligned with the yearly objective above EUR 400 million. Transversal project at Smart Innovative Operations and business support centers deployment continued despite the travel bans. Portfolio management was also pursued with ongoing divestitures and reorganization to focus on the most promising markets 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. 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 customers refocusing on growing end markets. The 12 months portfolio reached EUR 3 billion, with more opportunities in developing economies, including takeovers as well as for electronics. While in mature economies, the development focus is clearly with energy transition.
We decided EUR 790 million of new investments, and decision year to date are now above EUR 2 billion. The investment backlog is also increasing accordingly at EUR 3 billion, with more efficiency projects for close to EUR 1 billion 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 two major projects which are about to start as we speak, presented on slide 12. First, the electrolyzer in Bécancour in Québec, which is our first large-scale production unit for 100% renewable hydrogen. This electrolyzer relies on PEM technology and will use up to 20 MW of hydroelectricity to produce approximately 8 tons per day of green hydrogen, which makes it a first of its kind.
This site, which has a liquefier, will serve mobility and merchant market. It will be the largest PEM unit in the world. This is a major step forward for the group, supported by our partnership with Hydrogenics. Second, a unit using Air Liquide's SMR-X technology will start up in Q4, supplying hydrogen to Covestro site in Antwerp. It recovers the heat from the excess steam co-produce, which translates into lower feedstock consumption, and as a result, 5% less CO2 emissions. On top, part of the remaining CO2 emissions will be captured and reused as a feedstock by Covestro for its own production in a circular 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. It is also the opportunity for me to announce that we will host a sustainability day on March 23rd, 2021, during which we will provide you with further details on Air Liquide's climate and hydrogen strategy and quantified objectives. In terms of contribution of startups and ramp-ups on page 13, we reached EUR 53 million in Q3. We now believe that for 2020, we will be at the top of our forecasted range, with a EUR 180 million contribution, thanks in particular to some projects being executed quicker than expected. For 2021, the contribution should be between EUR 320 million and EUR 350 million, despite further delays in customers' construction project, and thanks to the additional sales to Sasol, around EUR 100 million for the year.
Regarding the Sasol project, we will be in a tolling model for first phase, and we move to full energy management in the second phase after metering works have been completed, which can take around 18 months. In the second phase, sales will increase significantly with a limited impact on the profit contribution. This ends our review. Let's now move to the outlook. As mentioned at the beginning and based on the Q3 recovery, we definitely confirm our guidance. Given the recent rise of the pandemic, in particular 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 plans, we are confident in a further increase of our margins and on a broadly stable net profit. Thank you very much for your attention. I suggest that we now open the Q&A session.
Thank you, ma'am. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, ladies and gentlemen, that is star one to ask a question. We'll now move to our first question over the phone, which comes from Martin Rödiger 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 am 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 EUR 150 million-EUR 180 million sales contribution range. You lift your figure for this year by between EUR 0 million and EUR 30 million. For next year, you lift your expectation from previously EUR 300 million to a range of EUR 320 million-EUR 350 million, which is an increase of EUR 20 million-EUR 50 million. This figure for next year includes the acquisition of Sasol, which is EUR 100 million sales. Moreover, the chart implies this one startup in the U.S. is postponed from Q4 this year to Q1 next year.
Normally, your sales contribution forecast for 2021 should be clearly above EUR 400 million. What do I miss here? The second question is on pricing in industrial merchant in Asia, which was -0.5% in Q3. You say helium prices have stabilized in Q3. On a global level, helium prices contributed, however, 0.7% of pricing. My question is, did helium prices drop in Asia? Staying with industrial merchant pricing, can you talk about the pricing situation in China? Did the price discipline among the competitors weaken? That would be strange because the comparable sales growth in China in industrial merchant was rather strong with +8.3% in Q3. Thank you.
Thank you. I will start with the first question on sales contribution of startup and ramp-up. On one end, we have projects being executed quicker in 2020. 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 at the end of Q2. Those projects will translate progressively to 2021 and from 2021 to 2022, and we'll have also some projects which were forecasted for 2022, which are now delayed until 2023. All that is translating to a few months later. On top of that, we have more this year, so meaning less next year.
It's clear that if we put Sasol on the side, the forecast we are giving to you now for 2021 is lower than last time. It's not lost, it's mainly delayed. 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 Asia than they were last year. It's not the only reason where you have a slightly negative pricing in Asia. You know that in Asia we have a pricing which is always more volatile than in the other zones. The pricing is positive in bulk, and we have a little bit more pressure in packaged gas. I said that packaged gas is recovering quicker than bulk. This is true mainly for Europe.
In Asia, it is the opposite. We have bulk recovering quicker, then a stronger pricing on bulk and a weaker pricing in packaged gas. This is also very true in China, with a slight decrease on the helium pricing, but really a slight decrease and a little bit of pressure on the packaged gas 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. Just to add to what Fabienne already articulated. I think that bulk 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 Fabienne articulated well where we are with helium, and of course, in different parts of the world and for different customers. Helium, you may have a midterm kind of contract price over a number of years. In some cases, it's more on a transactional basis. I think you see some softening in helium in some markets as a result of that. 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 costs associated with energy prices that are built into some of the pricing and some of the contracts. There's a bit of a lag where early in the year we saw a decline in some of the energy prices associated with that that are now fully in place as we move through the year. There's a bit of a lag difference there that you wouldn't normally see, and we see the upside when it goes the other way.
Thank you.
Thank you, Mike. Next question.
Thank you, ma'am. Our next question comes from Andrew Stott from UBS. Please go ahead. Your line is open.
Good morning. Morning, Fabienne. Morning, Mike. A quick couple from me. Sasol, want to check some numbers with you, Fabienne. EUR 100 million for next year. How quickly do you ramp up to the more than EUR 400 million you mentioned in the press release? Does that happen in year two, or does it happen on a multi-year basis? Sticking with Sasol, you will book that as scope, I assume, rather than organic. What are the margins attached to that revenue? Are they typical onsite margins or somewhat lower? I'm looking at the purchase price, I'm thinking it's the latter. I'll stop there. I've got a second question on healthcare, if we can take the Sasol stuff first. Thanks.
Okay, I confirm the Sasol contribution will be accounted for as scope. It will not be part of the comparable sales. For the contribution and margins, maybe I will hand over to François Jackow, as he's supervising, as you know, Middle East and Africa.
Thank you very much, Fabienne. Good morning, Andrew, good morning, everybody. 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 some of the profile of the customer and the country. It's going to be well in line with the profitability of the large industry business. Regarding the contribution to the sales, the first 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 which 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, not exactly at the battery limit of the scope that we are considering.
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 one year and 18 months, potentially two years, but we target for 18 months. Once we have that, there's going to be a step change. It's not really a ramp-up. It's going to be a step change in the contract and in the sales.
Okay, thanks François.
Also, Yeah, if I may add, the result of that is that during the first phase, the tolling period, you will have a higher margin because sales are going to be much lower than in the second phase, as published.
Yeah. Just to be clear, it sounds like the phase II, the step-up is probably only part of 2022. Should I assume 2023, you're getting to that over 400 level? Would that be fair?
Yes. That's probably the timeline to consider. We will update you as we go, of course, and give you some visibility.
Sure. Thanks, François. 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?
François, do you want to take that one?
Yes, of course. Regarding the healthcare 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 this stay, but probably to a lesser extent in Q4. Of course, depending on the overall market demand and sanitary situation. For the rest of the business, we are really on the trend that we discussed before. Namely, in some area, 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 an increase and a recovery on that. For the medical gases for hospital, basically, we have seen a normalization of this in most of the region.
We have to be cautious because with the second wave being present and ramping up in several geographies, we see this trend shifting a little bit. We see already, in several locations, a significant increase in the oxygen demand for hospitals, which may continue for some months.
Okay, thanks, François. Thanks, Fabienne.
Thank you, François. Next question, please.
Thank you, ma'am. We'll now take our next question from Tony Jones from Redburn. Please go ahead. Your line is open.
Hello, good morning, everybody. Tony Jones at Redburn. I have got three really quick technical ones. Firstly, are you able to give some guidance on the absolute currency impact for Q4? Then also similarly for the bolt-ons, the seven bolt-ons that you call out in the slide deck, could you give some indication of the sales perimeter impact from merchants and healthcare in 2021? Then just finally circling back to the helium price, do you see risk that prices start to drift downwards in 2021 on improved availability? Thank you.
The first one on the currency impact. You know that we are always calculating our forecast, taking into account that the current rates will last until the end of the year. If it is the case for the full year, we should have a -2% approximately FOREX impact and a -2% approximately as well energy impact. This is what we have for the full year right now, providing the situation is stabilized. Guidance 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 facing an acceleration of bolt-on in 2021 following the crisis and following the announcement by Mr. Biden of potentially increasing the tax on capital gain in the U.S.
We will still have a relatively significant large scope impact due to the divestiture of Schülke & Mayr in particular. The last one on helium pricing, do you expect price to decrease in 2021 thanks to improved availability? We have still a huge helium pricing impact because we still compare to a period where the price has not completely gone up. 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. Actually, we don't expect a significant contribution before 2022.
Thank you. That's really helpful.
Next question, please.
Thank you, ma'am. We'll now move on to our next question, which comes from Laurent Favre from Exane. Please go ahead. Your line is open.
Yes. Good morning, all. I've got two simple ones, please. The first one, Fabienne, is on temporary savings. I think in H1 you talked about EUR 100 million of gains there, most of those being in Q2. Can you perhaps help us on the impact in Q3 and what you're thinking for full year or H2? 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 savings, the plan continued to deliver pretty strongly in Q3. It will soften in Q4, especially in Airgas in the U.S., where we are out of furlough for a number of people. We expect to be a little bit under 2x H1 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. Similar performance than in Q3 and Q4. We see a kind of plateau in the recovery.
We said that in merchant we were halfway, and we imagine that we stay halfway for a while, notably in the U.S. and in Europe. Maybe I'll ask Mike and François to comment on their anticipation of the Q4 activity. Mike, for U.S. and Asia.
Sure. Thanks, Fabienne. 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 things have recovered back to 90% of normal, whether it's large industries, whether it's the industrial side of the merchant business. We continue to see very good growth in healthcare, as François mentioned earlier, and also in electronics being very strong on a global nature. 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. I think taken 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 large industry, we see a recovery. Clearly, we are probably now close to 90% on the air gases volume and close to last year volume on the hydrogen. This being said, we do expect that chemical will continue to recover, but depending on the product line at different rates. The refinery, we have seen a kind of a plateau, and it's highly dependent on the fuel consumption. 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 large steel mills.
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. Overall, today we have a recovery which is, I would say, good in most of the countries, with packaged gas and bulk business being between -5% and -10% of the previous pre-COVID volumes. The markets that we do expect to recover the most are the ones that are the most resilient. We do expect to continue to see some of the markets in food, for example, or in some of the research to continue to grow. For healthcare, 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 equipment, 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. That's very helpful.
Thank you for your question. Next question.
Thank you, ma'am. Our next question comes from Gunther Zechmann from Bernstein. Please go ahead. Your line is open.
Hi. Good morning, everyone. Thanks for giving me a chance to ask 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 & Instrumentation is at the moment, please? Secondly, as we go into year-end, thinking about any book gains on Schülke, that's something you can guide more closely on our business.
Okay. The book-to-bill ratio in electronic at the end of Q3 is slightly above 1.05 to be precise, when we were at 0.94 at the end of Q2. It's slight increase, I would say, around one. E&I in electronic should stabilize sequentially per se. Capital gains on Schülke. Yes, we would record a capital gain on Schülke. However, with the end of the new 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. Our estimate at the moment is that the balance of the two is going to be marginal.
That's helpful. Thank you.
Thank you. Next question.
Thank you, ma'am. Our next question will come from Peter Clark from Société Générale. Please go ahead. Your line is open.
Yes, good morning. Thank you. I have two questions as well. On Methanol one, you mentioned obviously it's been prone to delays. I might think this thing is built now. This thing is definitely going to come on in 2021 because we've been waiting obviously four years or something for it. On the postponement, you mentioned obviously mostly customers delaying things. I'm just wondering what areas they're in. Are these small or large industry projects, or are they elsewhere in the portfolio? Thank you.
I will take the second question first and will hand over to Mike for the question on YCI methanol 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. On the specific case of YCI, Mike?
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. It's just a matter of them completing their facilities and being ready for startup. We're contractually protected throughout all this, so we're well positioned to go ahead and move forward once they're ready.
Thank you.
Thank you. Next question.
Thank you, ma'am. Just as a quick reminder, ladies and gentlemen, it is star one on your telephone keypad if you would like to ask a question on today's call. 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 Québec next year. Do you already have customers for that? What will be the outlets for this hydrogen? Will it be accounted for in large industries or industrial merchant, or will it work?
The Bécancour electrolyzer is clearly a large industry project, managed by our large industry and engineering team. It will be accounted for large industry for the upstream production, and then the downstream is going to be in merchant and in hydrogen energy for the mobility part. Maybe, Mike, you want to add on the-- o n the potential customers? Mike, are you with us?
Sure. Jean-Luc, good morning. Good morning. Yes, I am. Can you hear me?
Yeah.
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 at Bécancour. 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. It'll be multifaceted. It's the first state-of-the-art PEM 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. I think we see this as a growth mechanism.
Thank you.
Thank you. Next question.
Thank you, ma'am. Our next question comes from Chetan Udeshi from JP Morgan. Please go ahead. Your line is open.
Yeah. Hi. Thank you. Just couple of questions from my side. The first question was, on the Sasol project. As part of their own disclosures, they mentioned that they may have had to invest more than EUR 500 million over the next 15 years to modernize that plant. 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 the EUR 450 million or so that you are spending to take over those ASUs? That's the first question. Second question, do you have any view on, 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'll be higher or lower? Thank you.
Okay. François, you take the first one for Sasol, and we'll come back for the margin management.
Yes. Thank you, Fabienne. On Sasol, as we mentioned before, we are going to take over the existing facility and convert that into a long-term over the fence contract. 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 contribute also to the reduction of the carbon footprint. You remember that we said that we want to reduce by at least 30% the CO2 emission related to the oxygen production for this site. How are we going to do that? We are going to bring, of course, the Air Liquide, the state-of-the-art standard in terms of operation. We will review 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 existing units, the way they are operating. We'll put a lot of digital tools that we are using elsewhere in the world. We will use our remote monitoring capabilities, analysis also of the maintenance for predictive maintenance 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 converted 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 larger equipment, potentially replacing some of the air separation units, probably for bigger ones to benefit from the economies of scales, but also the latest technology.
We will have, and we have today, a roadmap for some investment over the years and over the life of the contract.
Thank you, François. In terms of margin improvement, we told you at the end of H1 that we had two components in our margin improvement. One is the efficiency plan, the recurring one, the sustainable one, and second is, of course, the additional non-recurring cost containment plan. 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 see no reason why the improvement should be lower 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.
You're fine, mate. Next question.
Thank you, ma'am. Our next question comes from Laurence 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, and how should we think about the cadence of green hydrogen and CCS projects over the next three- five years? Like what's currently in your pipeline?
Okay. On biogas, we are developing a biogas project, mainly in the U.S. and in Europe. It's in the U.S. that we have the strongest growth at the moment. We have, in particular, one startup of a new unit. In Europe, at the moment, it's mainly developing in the U.K. with a few contracts there. In terms of quantified ambition, in terms of renewable hydrogen and carbon capture and storage projects, our promise and commitment is that we will give you more precise objectives during our sustainability day in March. It's complex to estimate your contribution in three years or five years from now of those different projects. We need a little more time. We have numbers. We need a little more time to confirm them. We promise that we will give you numbers in March.
Thank you.
Maybe the last question.
Thank you, ma'am. We'll now take our last question from Jean-Baptiste Rolland from Bank of America. Please go ahead. Your line is open.
Hi, good morning, Fabienne. Good morning, everyone. Thank you for taking my question. I don't want to preempt your sustainability day for 2021. Without necessarily asking about precise quantification, I just wanted to ask you in terms of your strategy around electrolysis. I guess the project in Bécancour is related to that. The electrolyzer that you're putting in place is a PEM electrolyzer. I'm quite curious what you think in terms of technology, whether you would also be interested in alkaline at all. Whether at this point in time, you believe that PEM is the right technology for the future, for scaling up, et cetera. That's where you are basically making your bets. Thank you.
Okay. First, in term of hydrogen, clearly our ambition is to master the full value chain. Secure access to 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 liquefaction, packaging, transformation, et cetera, to be used by our customer, in particular, to decarbonize their own processes. Electrolysis is not an objective. Electrolysis 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. We are testing PEM 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 PEM is promising, but 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. Just to add what Fabienne said, 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. We're familiar with that technology. The PEM technology brings a 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 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's much easier as well. These are all things that we want to fully prove with the investment at Bécancour, working joint with Hydrogenics, and we will continue to go ahead and work to master both technologies as we go forward.
Okay. Thank you so much.
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 for Air Liquide, again, a good quarter, of course, taking into account the context in which we are evolving. The teams are really focused and motivated to continue to handle the situation in the best manner in Q4, whatever happens. 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.