Good morning, ladies and gentlemen, and welcome to the Air Liquidep 2020 Interim Results Conference Call. All participants I will now hand over to the Air Liquide team. Please begin your meeting and I will be standing by.
This is Rod Rodriguez, Head of Investor Relations. Thank you very much for joining our conference call today. Vinwapiti and Fabienne Luca Vazier will present the first half twenty twenty performance. Francois Jacob, executive VP, supervising Europe Africa Middle East And Healthcare Hubs and on the phone from Houston, Minecraft Executive VP, supervising Americas, Asian hubs and the electronic business lines, they will boost participate in the Q And A session. In the agenda, our next announcement is on October 23rd for our 3rd quarter revenue.
Let me now hand you over to Benoit.
Thank you. Good morning everyone. Thank you very much for attending this call. Before presenting the formats, let me just start by recognizing our teams for their dedication courage during this period. Is unprecedented global sanitary And Economy crisis.
Overall, the performance in the first half and especially the second quarter has proven the high resilience across businesses. We've been able to deliver significant margin improvements in very difficult context, in particular, thanks to the responsiveness of all the teams to deploy temporary measures, those who are necessary to reduce costs, fixed costs, and to adapt to lower activity level. Fabienne will come back to this later. In all regions, the healthcare teams continued to fight the pandemic and I commend their strong commitment. Business development has been very active in the first half with a high level of investment decisions and a high and increasing number of investment opportunities.
Finally, we have updated our assumptions in the current environment and given the evolution of the pandemic worldwide, we are in a position to confirm our full year guide I would like also to take this opportunity to announce that we will be postponing our next Capital Market Day that we originally intended to hold in the first quarter next year But indeed, we will reschedule it for the first quarter of 2022. And in between, we will revise our 5 year strategic plan in light of the lessons that we drew out from the COVID-nineteen, but also we would like to use 2021 as a reference, which is a much better reference than 2020, for the starting point of our new strategic plan. But of course, we'll give you visibility for 20 T1. On Slide page 4, we highlight the key figures that illustrate the resilience of the group in the first half, with first limited sales decreased to minus 3.2% on a comparable basis, a stable operating income recurring, resulting in a significant improvement of margin both at the group and gas and service levels. We have actually 100 basis points improvement for the group as published and 50 basis points drilling energy pass through impact.
We managed to preserve net profit already in the first half growing by 1.8% is very much in line with the guidance. And also to be highlighted as well as the strong cash flow, thanks to a very close management of expenses and a good rate of collection. The cash flow is basis points improvement versus last year. On the next page, I would like to come back on the sales and their evolution over the first in Asia. China was the 1st country hit by the COVID-nineteen in first quarter.
And recovery was very quick there with growing sales in the second quarter. Other countries in the region have been hit by the pandemic in the second quarter and lockdown measures has not been listed yet in some countries. As a matter of fact, only Taiwan and Korea were in positive territory in terms of sales in first half. Europe has been severely affected by the sanitary crisis from mid March, especially in the Southwest of Europe in industry, and recovery is very progressive since the beginning of May. Our activities in Northern Europe some extent and Eastern Europe have resisted better.
Sales resilience in the region also comes from the high share of the health care activities, which represent around 40% of the sales in the region. Situation is very contrasted in Americas, U. S. And Canada were hits from the end of March after showing first signs of recovery in May in some markets activities has stabilized in June and several states strengthened lockdown measures following a resurgence of the virus Latin America has been impacted later and lockdowns are still in place covery. Moving to margins.
Next slide, we delivered a significant margin improvement in first half, driven by 3 main actions. The pursued efficiency program that was already in place and that happened despite lower volumes. The second part is the agility of the teams to quickly deploy in all our operations, the cost containment program, to reduce costs and adapt to lower level of activity. Fabienne will come back on that in more details. And the third point is the sustained pricing in industrial margins, with a 2.9% increase in pricing over the first half.
On Slide 7, in this crisis environment, interestingly, business development remained very active. The 12 month portfolio of investment opportunities increased to a high EUR 2,900,000,000 and we see more up opportunities of asset takeovers. Signings and decisions remain also at a high level of 1,300,000,000 despite difficult context with a record level of electronics projects, especially in Asia and the U. S. With major signings also in large industry with one project.
We announced in Russia that includes a takeover of assets for hydrogen and rare gas production. We also see more projects related to energy transition, in fact, close to 1 third of our signings were related to energy transition in the first half. And to be mentioned are the 25 long term on-site contracts we signed in industrial margins during the semester. As you know, active business development today prepare the growth of tomorrow. All numbers do not include Sasol Secunda oxygen plants take over, which was announced Yesterday, the site represents 42,000 tons per day capacity, which is the biggest oxygen site in the world.
On Slide 8, finally, the main outcome today from this global sanitary crisis, is that a new era is already starting, even if the pandemic is not yet over. What we observe is that the pre COVID trends emerge stronger, at least for those which are related to our business. And we have identify 3, the 3 major trends. Firstly, health care, trend, we the pandemic has increased the focus on healthcare systems everywhere. The pandemic was global, but the responses have been local, and the healthcare will look now for more local health care solutions.
And if we look at, R and D, probably the R and D particular on vaccines, but probably also on diseases in general will be more global. So there will be a shift in the healthcare industry taking lessons of this pandemic. We also like to mention that the extensive use of AI and platforms in healthcare is a lesson learned from the crisis. Actually, AI was used for managing the pandemic, and the platforms were used to give access to data. And I think this is a trend that will go on.
In the future. The equipment manufacturing footprint also will change. Maybe there will be less focus There were less a focus in the past. So the crisis has demonstrated the strategic importance of equipment to deliver drugs as well as the need for manufacturing locally. And I think it will be part of the new Healthcare footprint in the future.
Forms in our own health care business, and we have equipment manufacturing centers. So we think we are well positioned on those trends. The second trend is energy transition. There is a strong demand from citizens and from the society globally to embark even further and quicker to energy transition. The hydrogen momentum, there were announcements from Europe, from Germany, from Portugal, and I think yesterday from Spain, that they would put in place significant plans with several 1,000,000,000 between 1,000,000,000 and 1,000,000,000 each country to boost the hydrogen development and the hydrogen society.
This is, of course, a great opportunity for Air Liquide And in that regard, I'd like to mention the fact that we have now 92 members in the Hydrogen Council with 2 new steering members and 9 new members or an extended members And interestingly, amongst the 2, one was CMA, the maritime transportation company. And the second one is Microsoft. So it means that now the digital industry is thinking about making their industry green. We also see, of course, that all industries recognize strong needs to decarbonize their production processes and we see more takeover opportunities. Of course, the Sasol deal is the perfect illustration of an industrial deal on the one side, but also a climate deal on the other.
And the combination of the 2 is probably a good proxy of what may happen in the future. Digital have mentioned the usage of digital in the health care sector, but this is really pervading all industries. New ways of working that have been put in place. So there will be something left after the pandemic there would be need for more, semiconductors. So it will directly and indirectly, improve and boost the electronics business.
And if we look at what will be the next big developments and needs in digital investments will be in B2B, but also in B2gg, meaning So there will be an active transformation, but it has started already. And we think overall, we are very well positioned to be a leader in this global transition. I'd like now to hand over to Fabienne.
Thank you, Benoit, and good morning, everyone. We'll now review our numbers in more details and the limited sales decrease during the 1st phase of this crisis, as indeed demonstrated again, the resilience of our valued business models, gas and services comparable sales for H1 at -2.7 percent, show a modest decrease despite significantly lower volumes in Large Industries and in electronics And Healthcare for different reasons remains strong. We will review that in a moment. To be noted, June activity was better than anticipated in some region. Contribution of Engineering to consolidated sales continued to be low in with the active development of group projects and with the temporary closure of workshops and construction sites.
Total engineering sales are down 20% with order intake picking up in Q2. Global Markets And Technologies saw a deep increase in cryogenic equipment sales in Q2, but still delivered growth over H1. And the order intake is very strong 45% above last year. Overall comparable group sales are down 3.2% for H1, while published sales at -6.2 percent, are penalized by the decrease in energy prices as well as a negative scope effect as the acquisition of Take care in the U. S.
Is not completely balancing for the divestiture of Fujian last year. Looking now at the geographies, it is clearly in America that we saw the strongest COVID impact in Q2. First, due to the late development of pandemic in this zone, but also to our extended presence in merchant. Large Industries were penalized by low oxygen volume in North America, but continued to progress in Latin America with the help of startups and ramp ups. Merchant volumes and in particular hardgoods volumes where we in the U.
S, notably for the industrial markets, but rentals and pricing remains strong. In the U. S, we saw a slight recovery in May, but some kind of plateau in electronics, Advanced Materials And Equipment And Installation Sale continued to be high, and Healthcare sales were significantly up Latin America in connection with COVID. In Europe, the pattern has clearly been different with a slight improvement in Southwest and Central Europe since the middle of May and a very strong health care contribution. Large Industrial III suffered from very deep price production as well as from lower demand for chemicals in Western Europe, but resisted better in Eastern Europe.
Merchant was mostly in France, Spain, Italy and to a lesser extent, Central And Northern Europe, but we saw signals of recovery in particular for packaged gas at the end of the period. The pricing also remained positive. In Asia, the good news is obviously the return to growth in China, in all business lines. However, the COVID impact amplified in Japan and Southeast Asia, which are not out of crisis yet. Outside of China, in large industries, demand was low notably in hydrogen in Singapore with 1 major turnaround.
Industrial Merchant volumes outside of China were also weak, around 85 percent of pre crisis level across the zone. Conversely, in electric carrier gases and advanced materials, sales continued to be very strong, showing more than 10% growth sustained by ramp ups, even if equipment and installation continued to below compared to the exceptional level of last year. Africa Middle East was hit by the COVID impact on merchant demand, but our major large industries operations helped In terms of business lines, as expected, Industrial Merchant is the most impacted with sales decreasing 14% in Q2 in most of the countries except China. Markets linked to consumption and however, started to show progressive recovery since mid May, which was slightly more solid in Europe than in Americas. We managed to maintain strong pricing all over the period at 2.9% in Q2, like in Q1, including for Helium, where the pricing has not softened yet despite a lower demand.
In Large Industries, in Airgas is we only saw chemicals bottoming up at the end of the period. This remains weak in mature economies while recovering in developing economies. China and Latin America in particular. Electronics was penalized by low equipment level of last year in Asia. But conversely, Kyra, this is an advanced material sales.
We are very strong around 9% throughout the semester, supported by solid demand in Americas and Asia as well as ramp ups of new units. Our teams are confident that this very good trend will continue in Q3. In Healthcare, growth at +8 percent in continues to be driven by hygiene and medical equipment. Medical Gasys sales to hospital linked to the COVID are softening progressively at least in Europe, and the restart of Elektaive surgery as well as the reopening of private uniques takes time. In Omell Care, the onboarding of your patient is progresses picking up in the defining area.
In terms of performance, we continued to improve along with our commitments, with sales decreasing 6.2% as public, and 3.2% comparable. We managed to maintain operating profit to raise operating margin by 50 basis points as explained by Benoit at the beginning and to slightly increase net profit as published. Our teams also did a tremendous job resulting in a cash flow to sales above 23 percent, 170 basis points higher than last year. Digging a little bit more in the details, purchases and external costs were very proactively adapted to the low demand and personnel expenses were frozen while the low depreciation increased benefits from the sale of Fujian in to last year, partly compensating for the 2020 startup. This resulted in an operating margin at 17.6% to be compared 16.6 percent for H1 last year, progressing 100 basis points as published and point, excluding the energy pricing impact.
Margin improvement is supported both by our structural plan, with ion pricing, efficiencies and portfolio management and by the crisis cost containment plan. This additional plan, which delivered an amount of cost reduction, around 100,000,000 over H1 is compensating for the low level of activity, and it's not supposed to be sustainable over time. What is really important is that the focus remains on our structured improvement plan. Pricing is holding in particularly in Americas with campaigns at Airgas and excellent adjustment to inflation in Latin America. And in a lesser extent in Europe as well.
Efficiencies are very high at EUR 200,000,000 at last year's level, which is a real achievement in a context of lower volumes, thanks in particular to the acceleration of operation centralization and optimization projects in large industry and and to the deployment of business opportunities. We are confident to reach our 1,000,000 objective for the year. Access Portfolio Management continues, cryopeddp and Schulcutaneous should close very soon. More divested projects have been launched and we pursue our bolt on acquisition program in Merchant And Healthcare in particular. A quick look now at the bottom of the P and L.
Nonrecurring operating income and expenses are close to last year. They included last year's impairment linked to the Fujian Divestiture and include around 1,000,000 of exceptional COVID expenses this year. Restructuring expense around 1,000,000 are in line with last year. Cost of debt is down at 2.9% in average, which coupled with the progressive deleveraging results in decreasing financial costs. Effective tax rate is pretty stable to last year.
If we exclude the impact of the non deductibility is up 1.8% and recurring net profit, meaning excluding Fujian last year and exceptional COVID expenses this year is within 1.1%. To be noticed, we are already more or less aligned with our full year guidance. Thanks to the effort on cash and debt management, as well as on collection, we managed to reduce our gearing again Net debt stands at 1,000,000,000 at the end of H1, an 800,000,000 increase despite the full payment of the 1,300,000,000 dividend in H1. And the 1,000,000 scope. As mentioned before, our cash flow was exceptionally strong at 23.1 of sales and also allowed to finance solid industrial CapEx above last year's levels.
On top, we have refinanced all of our maturities for the year, fully securing liquidity. Benoit already mentioned the dynamism of the investment activity is, the 12 month portfolio is up, thanks to electronics and energy transition, while we have more requests for takeover from our customers. Industrial decision for the semester remain high at the level of 2019, resulting in an increased backlog as 1,000,000,000. Once again, these figures do not include the Sasol project announced yesterday for which we are in exclusive negotiation with the of startup and ramp ups, with 10 startups already completed to be between 100 and CN101 and 1,000,000. This amount should increase to around 1,000,000 in 2021.
To conclude on the basis of our resilient H1 performance, we confirm our guidance for the full year, recognizing we have some uncertainty on the actual end of the lockdown in certain geographies and in the US in particular, We nevertheless remain confident in our ability to continue to improve margins and to maintain net profit at the level close to last year.
Please. We will now take our first question from Gunther Zechmann from Bernstein. Please go ahead.
Hi, good morning. Thanks for taking my questions. Can I start with 2 please? Firstly, could you talk us through what exit rates in terms of growth you've seen in each region globally? And particularly in industrial merchant, if you can, And the second one is on health care.
It's still a business for you that is very heavily screwed towards Europe. Given COVID-nineteen, has that changed your strategic view of diversifying that geographically possibly with acquisitions. Just your thoughts on that would be very much appreciated. Thank you.
So if I understand well, The first question is more related to growth rates in, I am. As a matter of fact, when we look at the different market segments, there's a huge contrast between the different market segments. I mean, it goes from we just take the second quarter from minus 10 to minus 50 in terms of market. If you take the car industry, they were down by that minus 48%, nearly minus 50%. There were others like, beverage food, which we had is down by a few points.
So the growth rate in the 3rd fourth quarter will depend of course, on all those market subsegments recovery. And, we, What we can say is that if we just look at the end of the second quarter and the beginning of the third quarter, July. There's no major change in the trend in that no further deterioration of the, the sales. For those countries where the pandemic is still very active, it is a very slow recovery, and I'm thinking about the U. S.
In particular, where we saw an improvement, a very small improvement end of May was sort of a plateau in June, slightly better at the beginning of July. So the the truth is that it's going to be slow. For others, for Europe, the signs of recovery are, let's say, more visible So we hope that Q3 is going to be somehow sort of catch up with what we saw in the second quarter, but this is the holiday, the summer holiday period. So it's not the best in terms of business activity. And if we look at Asia, China in particular, the Fabienne mentioned that the I'm growth in China was 6% in the second quarter.
So China did rebound in the second quarter. So overall, overall, I think that the most affected sectors like the, car the aerospace, the the the trains truck construction in general we'll probably do better in the second half, which is good news because that was the most affected. The food and farmer market will probably come back to positive territory in the second half, Materials And Energy where we have the the primary energy sources, the conversion, chemicals, metals, glass, basic, minerals or utilities we'll probably be nearing the, the the, the 0% in the, in the second half. And technology and research, which were down, are normally, recovering faster. So that's what we can say in terms of segments and as all those segments are present everywhere, Normally, there should be, in in in line, but, clearly, it will depend on the on the lockdowns and it will depend on the way the pandemic is actually eradicated if it can be in the second true that most of our sales are in Europe.
This was our strategy because we have a strong position and because we were able to actually, grow the business and develop the home healthcare. We are present in, the medical gas everywhere, and it's doing pretty well in the North And South America, together with Europe, Asia in general is slower in the development of medical gases. Africa Middle East had a good start, but still very modest in terms of weight in the health care. So the real question actually relates to home. And home health care.
It may also relate to the medical equipment that we are very small in the medical equipment. So I don't think we have to expect a fundamental change in the strategy in the near future, meaning the maybe the 12, 18 months, if there are opportunities because the healthcare global system is changing, we will look at the opportunities to expand our business, but we will be, I would say, reasonably cautious in our approach because we have tested those markets in the past. And we know that some of them are pretty difficult others present opportunities and maybe a good source of growth in the future. So no real big change short term and midterm will depend on how the global system is actually recovering Next question.
We will now take our next question from Theodore Joseph from Goldman Sachs. Please go ahead. Hi, good morning. Thank you for taking my questions. 2, if I may.
The first relates to the Sasol contract that was announced yesterday. Just wondering if you're able to give any color when you expect that to close when you expect that to contribute to your top line, the magnitude of contribution and whether I'm right to to understand that your expectations of the contributions from next year doesn't include anything from the contract. And based on the capital intensity of such a contract that the potential contribution might be no more than what you're expecting for next year in terms of startups and ramp ups? And then my second question is more relating to hydrogen. It's a little bit of a more of a thought experiment, but we have seen quite a few interesting recent developments here.
So just wondering how you think this is going to develop, whether you think in future hydrogen production is going to be more like a local production and consumption model, like your current industrial gas business model, or whether there is more of a global opportunity that involves significantly more cross continent transportation? Thank you.
Yes. I think Francois will take the first one. Just a brief comment on Sasol. It's very interesting to see that the whole deal was actually negotiated during the COVID crisis. So be it a result of crisis or just an acceleration of the trend that was before, it's hard to say, but, we did nearly everything during the 3 months of second quarter, and we are pleased to announce that deal.
This is an industrial deal, a very major one, But this is also a deal that relates to our climate change policy because as we announced, we'll be able to reduce the CO2 emissions of this site by 30% to 40% in cooperation with Sasol of course and by investing on different portions of the plan and by using the expertise and the best technologies that Air Liquide That said, I would like to hand over to Francois to cover your questions.
Thank you very much, Benoit, and good morning, everybody. So indeed, we made the announcement about the Sasol takeover yesterday, which is a great news and a great contribution to, Sasol, to Air Liquide, of course, but also as mentioned by Benoit, to the climate. So we are in the phase of finalization of the definitive agreement with the customer We do expect, pending, I mean, the due, regulatory approvals, to close everything in Q4 of this year. So we should see, some, contribution by the end of the year, but definitely next year. Again, it depends on some regulatory approval.
You have to notice that during the 1st few months, something like the 1st 12 months, there will be an interim period where, actually, we will be putting in place all the metering for the energy measurements. So the sales, contribution that will see will not take into account the energy portion. So it's going to be a maybe a little difficult for you to interpret in the 1st year, let's say, but after it's going to be a full classical over the sense sales contribution. Order of magnitude when the contract is going to be running is in the range of 1,000,000 per year based on the current exchange rate and energy pricing, of course.
So the capital intensity of this deal is much lower than usual, but this is just explained by the depreciated assets and the fact that for the size of the site, which is 42,000 tonnes per day of capacity, we are investing a limited amount, for a big business. So this is unusual low capital intensity. Your second question was related to hydrogen. There's an interesting momentum, as you mentioned, there's an appetite from countries, governments, most of the key governments in the world have now issued their plan, Japan and Korea and China were the first. But in Europe, we have now Germany, Portugal, Spain yesterday and the European Commission, which actually issued on the 8th July, a very ambitious hydrogen plan.
So it means that there's a high interest in this energy vector, for the future. When we look at the new members of the Hudgin and Cancio, we have not just industrial companies, but we also have, I mentioned, Microsoft but also we have financial institutions now at our members. We have a special category of members that we group the financial solutions. And it's interesting because now we're going to be able to build a real investment plan, for the world actually hydrogen because those institutions would be much more aware of what is at stake and how much money and how efficient we can be in investing in hydrogen. The model is going to be both local and global, local because if we have small electrolyzers in the future, using electricity, renewable electricity to produce hydrogen locally, it will be the equivalent of the on-site business on the I'm business line today.
So we are prepared for that because we can produce, we can store, and we can transport or directly deliver this product to customers. If you look at the large industries, those who are consuming hydrogen today, like the oil and gas, the chemical, and other industries, they will progressively shift to low carbon hydrogen. So that would be a large industry business. There would be more infrastructure being built, pipelines, particular. And so access to hydrogen will be easier.
That would be more an Ally model. And finally, the supply chain that we have today in oil, in natural gas, in particular, liquefied for gas, may be applicable to hydrogen in the future. We can just think about those countries that have sun and ability to export, they can actually set up a new supply chain with sport of hydrogen from producing countries to the countries that would consume it. So that would be the global supply chain on hydrogen. So there's a local, there's a large industry bubble, and there's, a large supply chain model that may apply to hydroelectric.
I think I have covered your and cross continents transportation will be of course, also possible. And we have good technologies to achieve that in very, in a very efficient way because we, as you know, GMT are our, Global Markets And Technologies division is actually selling a lot of technologies for the LNG chain to preserve the the losses from, from that.
Yes. Just on, sorry, on the first question, the extremely clear, the Sasol contribution is not included in the 1,000,000 startup and wrap up contribution that we presented for next year,
Thank you. Next question.
Yeah. Good morning, everybody, and thanks for taking the questions. And the first one's probably Franco again, just back to the Sasol deal. Could I just check a couple of things so firstly, did you say the revenues attached to that were 1,000,000? I just wanted to check that.
Secondly, Actually, Benoit, you mentioned the carbon footprint, moving down by 30 to 40%. I read that I read that partly this might be related to the renewable energy purchases that Sasol is thinking around. Is that all of that, or or does that really keep bringing something specific to those ASUs that can reduce the carbon emissions for Sassle. And then finally, what what's the actual contract? How many years have you signed up for or sorry, have Sasol signed up for the ASUs.
So sorry, that's one question with lots of small questions in it. The second one is more straightforward. Pricing, I think 2.8% for I'm in Q2, How are you thinking now for the second half and also for 2021 thinking about all the moving parts and of course helium as well? Thank you.
Andrew, good morning. Thank you very much for your question and thank you to come back through this Sasol deal because it's indeed a very significant achievement. We have been chasing this for, I would say, 40 years As you know, this is the largest oxygen site in the world, today. And, what we have been accomplished, I think, is very significant. In term of business opportunities, but also in term of contribution to the climate.
So yes, I do confirm that what I said is I was not clear is that when the contract is going to be a fully running we do expect a 1,000,000 sales, per year in term of contribution. Of course, as any large industry contract, it does depend on the price of energy in this case, mostly electric Regarding the carbon footprint, which is a very important element. And as a matter of fact, that's an integral part of the offering. And for us, it's absolutely key and that was we are very well aligned with the customer, and this is our objective to reduce by 30% to 40% the carbon, the CO2 emission associated to the oxygen production. And clearly, with this deal, you see that it's a concrete, illustration on, of what we can do for our customer and how we can contribute to the energy transition of existing sites with existing CO2 emission.
So how are we going to do that? There are a few levers and basically we have listed already and we are working with the customer on a series of, key initiatives that will allow us to reach that goal. Part of it is to bring the best of reality in term of operations, meaning all the know how on how to optimize Of course, the safety, the reliability, but also the efficiency of the plants, to bring digital tools to do a part of the remote optimization of the site also being connected to all the network of the Air Liquide plants. To bring, of course, the best experts and to rely on SASful experts, which are also very good, but to give them some tools. We will be doing some investment, small investment to improve the efficiency to modernize part of the equipment.
There is another part which is, more significant, investment, which could be new units. You know that, in 2015, We have started the Train 17, which was a new investment, 200,000,000 for, 5000 tons per day plant. It's possible and we have some plans for additional units similar to this one that we'll be replacing older and less efficient asset. So that definitely will be another way to contribute to this objective. And the last part is, as you mentioned, the renewable energy sourcing.
Today, most of the energy is either sourced from the grid or internally produced by Sasol, either through electricity or through steam generation. We will replace a large part of that by securing a large quantity of renewable energy which would be a way to decrease the carbon footprint, which would be also a way overall to improve the energy mix of, I would say, South Africa in general as promoting renewable energy is one of the key objectives of the country. So you see again, there are a portfolio of initiative and opportunities that we are bringing to reduce the carbon footprint of this site. The last point, the contract is a 15 year contract, classical, strong, large industry contract.
Thank you, Francois. Fabienne, can you take the pricing question?
Yes, sure. So you've seen that the pricing has remained relatively constant over the period Q1, Q2. You also know because we mentioned it in Q1 that there is an helium component in this pricing effect. What we've seen in the 1st semester is the demand for helium reducing significantly in volumes. But the pricing remaining strong.
However, this helium effect on pricing is going to soften over the second period of the year, just because of the comparison effects because the price of video started to rise significantly in Q3 last year. For the rest for the other gazes, the price increase, relies on, of course pricing campaigns, but also a very good adaptation to inflation in some countries. And we are confident that this should continue for the full year. Then 2021, we don't think that inflation is going to slow down or accelerate much, but of course, the pricing capacity will depend on the pace of the economic recovery. So it's clearly too early to So H2, the annual component is softening.
The rest will continue and the 2021 will We discussed that later in the year, I think.
Thank you, Fabienne. Next question.
We will now take our next question from Toni Jones from Redburn.
Good morning, everybody. Thanks for taking my questions. I've got 2. Firstly, you mentioned on the call, asset takeovers And I seem to remember in the last financial crisis, customers came to you, and activity stepped up Is that correct? And can you talk a little bit about which regions or any particular end market where there's an increasing activity?
And then my second question is on the US. If we get a change in government and switch to Democrats, could you talk about the tax impact at potentially any other implications like health care? Thank you.
So take over opportunities, yes, we see a trend because most of the customers start thinking about their co business number 1, the economic situation forces them to take decisions And because of the energy transition and the pressure that climate is putting on every single business, They may very well say I'm better off outsourcing my industrial gases. That's more or less exactly what happened Sassol, and we expect to have more in the future. So yes, this is a trend. We cannot say how many deals will be done, but this is clearly a trend. What regions and markets do we see with a decrease in activity, we don't see a decrease of activity.
You mean, we were hoping have a sort of beginning of recovery end of Q2. It was the case until the pandemic we started again or did not disappear. And so it slowed down the recovery, but there's no decrease as we speak in the activity and in the different markets. And I can mention all of the segments of all business lines. There's nothing really decreasing as we can see it right now.
The tax in the U. S, yes, it will have an impact, and I think Fabienne will cover it.
So, in fact, if Mr. Biden is elected, he will raise the taxes. We all know that. So we, of course, have done our own, estimation. The income tax should go up from 21 to 21.5 to 28%, then we should have also an increase on the BEAT tax on international flows.
So it should increase our tax in the U. S. By providing a little bit more than 1,000,000. So it's slightly significant. 1,000,000, considering that the new tax flow is effective January 4th 1 2021, which may or may not be the case.
You remember that the Trump's new cash flow, was promulgated on December 23, retroactive January 1st. So you never know. So that's where we stand for the moment. We would also have a massive adjustment on our deferred, deferred taxes. Deferred bank denial leases in particular, but, of course, this will be noncash on the 3 that's the one off.
What we can say at this stage.
And we won't ask, Mike, to give you any forecast who might be elected. That is really something we cannot comment, of course. Next question, please.
The next question from Martin Rodriguez from Kepler. Please go ahead.
Good morning Benoit Fabienne Forsard. I have actually two questions. First is an ESG question. Coming back to the Salzoil deal. At this point in time, all these 16 air separation units run on coal generation power and I calculate roughly 6,000,000 tons CO2 emissions at this point in time.
Who will book these CO2 emissions in scope 1? Is it Eliquit or is it Zasol? And the second question is on your guidance for operating margin, excluding the energy effects, the margin was up by 50 basis points. Given the efficiency measures you further implement, given solid pricing in the second half, given likely operation leverage, and assuming that the business in the second half will be higher than the first half. Is it fair to assume that in the full year, you will have an even stronger margin expansion, or less equal than in the first half?
Thank you.
Okay. Definitely the second question will be for Fabienne, but I take the first one It's true that the energy today supply to the air separation plants in Secunda is a combination of electricity and steam. So electricity is more the national grid and the mix of the country, and the steam is coming from the site, the Sasol site. We have a lot of progress to make, and that's part of what we intend to do, try to transform the electricity into renewable electricity as much as we can. That's why we have this PPA, in the pipeline that could improve the CO2 emissions.
And we may also act on the steam side, but that's a cooperation with Sasol. The steam is actually a steam which is produced by the process. And if we don't use it anymore, then Sasol will have to find a use of it or to reduce it. So it's exactly at the heart of what needs to be done to improve the CO2 emissions of the site. We don't report the scope 1 because scope 1 is when you directly emit the CO2.
So in the oxygen business, it's a scope 2. It's through electricity that we report emissions, and we will be supporting the emissions of this to. It will be very clear. There are international rules now for, reporting script 2, if you make an acquisition, you actually have a rule to report how much does it represent and how you're going to reduce that. It will be fully transparent.
But we will also have to think about the Scope 3 because part of the oxygen is used in the chemical process transformation of fossil energies for chemicals essentially and for fuel. So we will be working more widely on the scope 3 of Air Liquide in the next 12 months. And probably come back to the market next year on that. So it's not scope 1. It will be scope 2.
It will be reduced as we invest. And we will be, thinking about scope 3 and include that all what we can include into the CO3 later, in 2021. That that's more or less a summary of the ESG situation for Sasol. Guidance, Fabienne?
So what is going to happen in H2? Hopefully, the activity is going to continue to recover progressively. So the margin will still be supported by our performance improvement plan. Pricing efficiency, portfolio management, but the additional, cost containment program effects are going to soft unprogressively, when the activity recovers. So we are confident that we will be able to deliver significant margin improvement for the full year.
As we all mentioned, we have a number of uncertainties So I think it's far too early, to promise, anything. We are going to improve the margins it's going to be, significant for the full year as it is for the first
Thank you, Fabienne. Next question.
We will now take our next question from Charlie Webb from Morgan Stanley. Please go ahead.
Good morning, everyone. Thank you for taking questions. Just a couple from me. Just firstly circling back on the margins. Can you shed any light on what the kind of order of magnitude was for the temporary savings you you saw in H1?
Whether putting that in context to the kind of the 1,000,000 structural savings that you made. Just trying to understand what the temporary effect was And then second question, just on hydrogen, relative to your expectation 6 months ago, as you see all these countries come out with their plans as well as EU obviously coming out with a, very positive plan for hydrogen. How does that compare to your previous expectations
you know,
if you were to try and look at what this could mean for Air Liquide, in 25, 2030, in terms of its hydrogen business. How has that changed, versus your previous expectations? Can you give us any sort of sense of how that shape could look based upon what countries have set out. Anything around that, I think, would be very helpful.
Yes. Of course. Margins, I think,
margin again. So the temporary Stellington has delivered around €100,000,000 of additional cost reduction in H1. But once again, this is only as a compensation of the low activity, meaning we are reducing the external staff. We are reducing the travel expense, the consulting expense, some of the business development expenses. If we look at China, inside China, the people are traveling as much as before because they want to to recover the time lost and they are very active on business development.
So when the activity recovers, the additional cost containment plan is going to soften accordingly. So 100,000,000 on H1, certainly not reproducible in H2.
But the normal efficiency plan will go on, of course. And this is more structural. The hydrogen Well, yes, I agree with you. This is really positive. I mean, to see so many countries announcing new plants and putting billions on the table is really very positive.
It is not really different from what we expected even though it's come it's coming faster. If you remember, we had a plan that we published with the Hydrogen Council related to 2050, which is far away. And if the consumption of hydrogen could represent about $2,500,000,000,000 by the time. We had a, a sort of milestone in 2040, But in between now and 2040s, it was a big question mark. It depended on how fast the countries would actually take over the hydrogen topic and put in place plans.
The real test was the 10 year, the decay between 2020 2030. What we see now with all those plants is that the starting point is pretty fast. So countries now have realized. There's a lot of industries that think they can use hydrogen for many things for decarbonizing progressively their sales, their products, their processes. So the the the spirit and the mindset is is, much more positive than what we thought it would be even 1 or 2 years ago.
That said, if we think about EUR 2,500,000,000,000 in 2050, That means that the world would have to invest probably $2,500,000,000,000,000 altogether by 2050, which is a huge amount of money. The 5, the 10, the 15,000,000,000 that the countries have announced is just a drop in ocean in the if we just take the view, the vision of 2050, but it's coming sooner. And so for me, it's a very good sign that things are going to move in this decade, where in particular, in those industrial countries that have announced a plan. And in which segment, the mobility segment, heavy duty is clearly starting very fast now. The power to gas is a good is a is in a good momentum and the transformation of the process as the industrial processes, be it in steel, in chemicals, in oil and gas, and many others, will go fast in the transformation the construction, the, I mean, the building segment is going to be probably slower and the use of hydrogen for industrial heat, the replacement of natural gas LPG or oil to produce heat in industrial processes will come a little bit later, but it can accelerate pretty So that's what we see today.
It's pretty well in line with the views of the Hydrogen Council but overall, it's fast. The only thing that is missing today is the implementation of the financial plan. So building infrastructure requires capital, and we've not seen yet a lot of initiatives in that field, but probably it will come in the next 2 to 3 That's the best I can say. Okay. So next question.
We will now take our next question from Andreas Sinha from MainFirst. Please go ahead.
I have 2, basically. Thanks for taking them. The first is, the if I if I understood it right, then the nonrecurring items include COVID 19 impacts. Would you elaborate a little bit on that, what that means? As you book the savings, as normal, and how that's, going into the second half.
And secondly, again, on hydrogen, you have expanded now what's used in hydrogen is. Maybe you can also share some thoughts how all the key sees how these hydrogen will be produced. I learned that this molecule is available available in different colors in green and blue, in yellow, in work using gray. What is where, Alecky sees the highest chance for itself to participate in this hydrogen production? And how do you see the timeline in those?
Yes. Fabienne is going to take the first, and I'll take the second.
To be very clear, the impact of the COVID crisis in terms of under activity and sales decrease are in the operational numbers. What we have recorded is an exceptional for an amount around 1,000,000 is really the exceptional cost, along with our accounting standard, meaning for example, the purchase of protection equipment, the additional disinfection costs, the additional quarantine costs because we had to pay for the quarantine of some of our employees. It bonuses that we are giving to the health care team who have often delivered over the period. So it's just the exceptional cost the consequences, I would say, are the pandemic are clearly in our operational numbers.
Thank you, Fabienne. Hydrogen, it's true that hydrogen is becoming a rainbow. There are colors all across the planet what we the position of the Hydrogen Council and we, of course, standby is the fact that we should not put color on hydrogen, no more. We should just say, look, the starting point is very cheap and very competitive hydrogen produced with natural gas today. We will have to go to low carbon hydrogen that we call clean hydrogen and progressively mix it with hydrogen from renewables, renewables, be it either electricity or biogas or whatever.
And the name of the game is to make hydrogen clean in the end, but it will be around progressively. So we are not pushing for green, blue, gray, black, or whatever. We are pushing for hydrogen that becomes cleaner and cleaner as we go. Wheat means by the way that production technologies will have to be improved. The traditional one is well known, but the electrolyzer technology using either alkaline or, PEM Technologies will have to be improved.
But as the quantities grow, the cost of those technologies will decrease. And as R and D improve the membranes that are used, it will also increase efficiency and decrease the cost. So there's a lot of things to do, but that's a good thing. It means that hydrogen has the potential to become even more competitive as we go the best chance for Air Liquide is actually to make sure that we master production technologies, but also packaging and distribution technologies, supply chain in general. This is where we are good.
This is where we can really add our expertise, in the game. And we have the experience. We have 50 years of experience today. We want Hydrogen to be safe, to be reliable, and to be competitive as we go. And we think we have the best position, in, in, let's say, in all industries to achieve the The timeline, we are working hard on technologies, on markets.
We are signing deals We are working with customers to actually make their process cleaner by either reducing the CO2 emissions. Example is asol, but also by promoting hydrogen through in the steel industry to replace potentially up Gen and Cole in the future. So the timeline is now, but the progress will be, slow at the beginning and accelerating as we go. And we expect to see really a difference in the next 10 years with a milestone in 5 years. Next question.
Next question. So We still have room Hello?
Hi there. I'm not sure if you can hear me. It's it's Jean Baptiste Tono from from Bank of America. I I'm gonna start with 2 Hi, Benoit. Hi, thank you for taking my questions.
I just wanted to check with you, you talked you have talked about a further or new signings being related to hydrogen. At the same time, I see that you have signed 25 new long term industrial merchant contracts. Are these 2 how are these two numbers related? Is it is it hydrogen which is supporting such a high sustained level of long term, in those IIM contracts? Versus the signing level you had last year of 14 of 40 contracts?
And then second question is related to hydrogen. So I'm trying to understand exactly or at least to have an idea about how or when rather, hydrogen could actually get into your numbers. It looks to me that obviously you have a sustained level of signing as we just discussed. And at the same time, you're not just, you know, you're not just seeking business in green hydrogen, which is probably going to take a longer time to develop So most likely you're going to be having a more higher level of contracts in relation to carbon capture and utilization, etcetera. Do you expect a pickup in those contracts in the coming 2 to 3 years?
Do you expect also the industry as as you just talked about externalization in relation to CO2 footprint, etcetera, are you do you think that the level of, of contracts that you could gain from, the refining industry, which we know is actually a lot captive at the moment. You believe that there could be there is an opportunity coming within the 2 to the next 4 years for contract signing. And then could you maybe just give an idea about how long it would take then to filter into your numbers, whether it would take more like more likely 2 or more likely 5 years?
Okay. So the, let's be clear, the signings were not related to hydrogen energy, but to energy transition So it's different. And we can't clearly relate customer signing contracts because they want to make progress on their climate and CO2 emissions and consume less energy because it's all related to energy but not to hydrogen energy yet, that's clear. The second question and third question, everything is related. We have embarked into an energy transition.
Air Liquide is already selling for 1,000,000,000 worth of hydrogen. So we're not We are not a newcomer. This hydrogen today is for the chemical and the refining industry. They will have to transform their own processes. And we may expect to have in the future new contracts signed with those industries on the basis of cleaner hydrogen, which means either sequestration of carbon through CC as And there might be a partner in the S, in the sequestration.
And so if you take a refinery, We may expect that in the next 5 years, the hydrogen produced for the refinery will be based on a cleaner process be it either capturing and orchestrating the CO2, which is 1, or mixing hydrogen with renewable hydrogen. Renewable hydrogen means hydrogen produced from renewable energy. I am expecting to see a significant change in, say, next 5 years from those 2 industries, chemical and refining. The hydrogen energy, portion the pure sales to mobility or to new applications will be modest in the next year or so but the number of people who are interested. And it's not just industrial customers.
You have a lot of, cities. You have a lot of regions for buses, for, trucks, for in the future for planes and for boats, if you take all those industries, they are today studying the use of hydrogen in their products. So it will come, I cannot say exactly how fast, but I made the same comment as the one I made earlier. In the next 10 years, we should see all those sectors take off. And start producing business opportunities and so sales for Air Liquide.
And it will take 5 to 10 years, but the it is starting now. We may take, one last question, maybe 2. So the next one, and we'll see whether we can be short in the question and in the answer, and so that we can take another Next?
Next question is from Peter Clark from Societe Generale. Please go ahead.
Yes. Thank you. I was squeezing. Actually,
I I'm I'm one of
my favorite subjects. Sasol and and hydrogen. Sasol, just to be clear, I mean, it looks a very good deal, certainly financially. I presume this reflects the investment you have to put in and that you're going to give some indication of that Obviously, with a lot of spend and upgrading. And then on hydrogen, obviously, I think Yes.
Hydrogen, obviously, the big competitor and the global movement, the big competitor announced the green ammonia just wondering your thoughts on that, obviously, if you think a very obviously a carbon free hydrogen scale as against the additional cost of the ASU and the be separating of the hydrogen at the end. So just your thoughts on the green ammonia route for the hydrogen story. Thank you.
Well, thank you, Francois. Can you take the question
Yes, thank you, Peter. Regarding the investment, we have included already, I would say, in the economics and in the contract investment for maintenance, for modernization, for refurbishment of all the facilities. If we have to decide large new units that will be an additional investment, which is not included for the time being. Which will be decided. We have agreed with Sasol on the process to do that, but it's not included in the initial investment.
Ah, hydrogen and the competitive nature of hydrogen and field The market is still at the beginning. So it's difficult to say today where amongst the five market segments we identified early on, where the first ones are going to be developed. We think hydrogen mobility for heavy duty is going to be 1. We think, of course, that hydrogen as a feedstock to process industries is going just going to be greener and cleaner, no doubt. The rest remains to be seen.
There are many, companies that have stated that they are interested So we'll see how we can develop. But we think we have a big competitive advantage because we are present along the supply chain. From production to the application. And in any industrial gas, you need to know not just how to produce, but also how to package transport, deliver, and use. And I think we have a significant advantage in that.
You mentioned the green ammonia route, which is, for those who don't understand or don't know, the production of hydrogen from renewables, then the conversion of hydrogen into ammonia than the shipping of this ammonia across the globe, and then the storage of ammonia and the conversion of ammonia back into hydrogen locally. It's a full chain. It's, in some cases, it may be but I'm cautious. It may be competitive, but it's not a proven case yet. It's being studied by those who know how to, to make the calculation.
It might be an option, but it will not be the in the future. I still think that hydrogen will be produced locally. And if it is produced from a sunny country, then we'll see the liquid hydrogen and the ammonia being developed in the future. So it's the jury is out and we'll see how the calculations might
come up with.
So, we're going to take the last question.
From Chetan Udeshi from JP Morgan. Please go ahead.
Yeah, hi. Thank you. Last question, hopefully, quick to answer. Just looking at the full year, if I were to assume the full year net income on recurring basis to be flat year on year, it implies second half net income to be up 7%, eight percent versus first half. So just thinking about that improvement in second half versus first half is that driven by the expectation of better EBIT in second half or you have some below the EBIT items, which is also driving some of that improvement in second half versus first half.
Thank you.
Fabienne, we'll take this 1, I think.
Well, I'm I'm I'm not sure, and I'm not sure I fully understand your question. Net income is flat in H1. Our objective is to maintain that for the full year. Of course, excluding the capital gain on the divestiture of Schulkemeyera, which will be treated separately. So why would that apply a better or a lower level of EBIT.
I mean, we are already flat and the objective is really to try to maintain this net profit even if we still have a certain number of uncertainties. So I'm I'm not sure really understand your question. Very sorry.
I was just talking about sequential second half versus first half, but it's okay. We can I can take that with all separately?
Well, once again, sequentially, the activity should be better, but then we will have less cost cutting. So, in a way, it's going to balance, you know, Okay. Does that answer your question? Yes. Thank you.
Okay. Thank you.
Okay. Thank you very much. So thank you for having being with us. It's probably time for Breck, because I'm a Breck for most of you. So I wish you the best during that period.
Be safe. The pandemic is not over. And we still have a lot of things to do, in between now and the end of the year. So, thank you for being with us, and we'll be back in October. As all announced it.
Thanks, and have a good day.
Thank you. That will conclude today's conference call. Thank you for your participation.