Good morning, ladies and gentlemen, and welcome to the Air Liquide 2019 Results Conference Call. All participants are currently in listen-only mode until we conduct a question-and-answer session. Instructions will be given at that time. I will now hand over to the Air Liquide team. Please begin your meeting. I will be standing by.
Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations. Thank you for joining our conference call today. Benoît Potier will present the highlights of the year and Fabienne Lecorvaisier the 2019 performance and the outlook for 2020. Mike Graff and François Jackow are also with us, and they will participate in the Q&A session. Our next announcement for first quarter 2020 revenue will be on April 24th. Let me now hand you over to Benoît.
Thank you, Aude. Good morning, everyone, thank you for being with us. I'll start immediately just looking at the year globally. 2019 is a landmark year for Air Liquide for many three reasons. Number one, we delivered a clear step-up in performance and margin improvement as a result of a structured program that we put in place end of 2018 to strengthen essentially the existing programs. We have three levers, pricing and mix, and we'll be coming back on details later. The second lever is efficiencies, and the third one is portfolio management. 2019 also stands out by the high level of investment decisions, which shows our commitment to our customers, but also to efficiency, because part of these investments were related to efficiencies. Third, we have a strong commitment to climate. As you remember, we introduced our climate objectives end of 2018.
Many actions were launched in the operations to reduce our carbon intensity and reach our climate objectives. We also launched an increased number of major initiatives, or I could say breakthrough projects, some in partnership with customers, and I'll come back later on that. On page four, if we look at the main numbers and start with financial performance, 2019 has been a strong year with a robust top line first, with 4.3% growth in published growth. We had also a strong leverage on results with a step-up in operating income recurring margin improvement with 70 basis points excluding energy and even 90 basis point as published, as a matter of fact, and 11.1% of recurring net profit growth. The ROCE, and in particular the recurring ROCE, grew by 60 basis points, we are on track with our five-year plan.
In addition, we had increased cash flow which enable higher investments. If I just turn to page five, I would like just to highlight the fact that this sustainable performance is a result of a structured program which is in place where we have first reinforced existing plans, which are based on, and you know that, pricing, efficiencies, and continuous improvement, and bolt-on acquisitions. On top of it, new actions were launched end of 2018 or beginning of 2019. They were essentially product mix management, and to the extent possible, priority was given to higher margin products in each world business line. In particular, a push on cylinders in IM.
The second point is transformation programs with, for example, the implementation of shared services across countries, sort of mutualization of means, the reorganization of some activities or the accelerated deployment of digital tools, because behind those efficiencies, there's a lot of digital initiatives. Further streamlining of the portfolio of activities to focus more on core business and to densify operations. Thanks to the structured program in place, we can commit to further improve the operating margin, assuming, of course, no major change in the environment, and in particular, also the international health situation is under control. Teams are really focused on implementing the program, and I thank them for their full engagement. Second point I'd like to make is the investment program. Those investments are towards customers and efficiency, I said it, and it goes through higher investments and order intakes in engineering.
Investment decisions stand at a high level in 2019 with EUR 3.2 billion for industrial decisions, which is the highest level over the past 10 years. It includes investment for our customers, which means new projects and renewals in particular, but also to support efficiency program. Now about 13% of our industrial investment decisions are dedicated to efficiency programs. The order intake is also recovering in engineering and construction. The activity being mainly focused on internal projects for large industry and electronics, this is why the reported numbers are decreasing. The actual level of activity E&C is increasing. All of that is leading us to propose a dividend, page seven, a dividend distribution in 2020, which is EUR 2.7 per share, which is a 12.4% increase compared with last year.
If we take into account the 1,410 free share attribution that took place last October, it is reflecting the step-up in performance improvement, and if we look at the past 20 years, this is a 9% compounded annual growth rate in dividends. The third point I wanted to make was related to climate and to the carbon intensity. With the carbon intensity at 4.6 in 2019. Number one, we are below the initial commitment, which is visible on the graph. I would like just to highlight the fact that things are not going to be linear, because every time we start up a new plant, we have new emissions, either direct or indirect. Everything will depend on the timing of those startups of production units in particular.
We are, generally speaking, on track to reach the carbon intensity target that we set in November 2018 of - 30% in carbon intensity, from 2015- 2025. Let me just highlight a few major initiatives that we took, page nine. Commitment to climate is also for longer term with these number of major initiatives or breakthrough in some cases. Few examples. First, CCS, this carbon capture and storage projects. We have just announced two partnerships with customers. One is in Norway, and is the European scale, and two projects are within Rotterdam and Antwerp, and all of them will be around first capturing CO2, transporting then the CO2, either through pipeline or liquid form, to a sequestration site. The second major initiative was related to green hydrogen with the investment in an electrolyzer in Quebec. It's about 20 MW PEM technology electrolyzer. It's a world premiere, I think.
The second project was a partnership with Engie in the South of France to also build new electrolyzers from solar energy. In the low-CO2 production, we have a partnership with two customers in the steel industry, which is probably the first one to seriously study with significant reduction in CO2 and the potential use of hydrogen to replace coke in the blast furnace. We will help them to study and to implement pilot projects to significantly reduce their carbon footprint. The fourth example was the hydrogen mobility, where we are developing today several solutions in different countries. We can mention California. We can mention China. We signed an agreement with Sinopec recently and with a small company, Houpu, also in China.
We can say that the Hydrogen Council is very active, and we had recently a meeting with about 40 CEOs in Versailles, in France, where we commissioned a very interesting study about cost competitiveness for hydrogen. All in all, it's a landmark year for Air Liquide, and I'd like to hand over to Fabienne for the details.
Thank you, Benoît. Good morning to all of you. As mentioned by Benoît, 2019 has been quite a special year for Air Liquide, with in particular the evidence that our performance improvement plans are delivering. In a pretty unequal environment, and in particular facing a more difficult fourth quarter, the resilience of our model allowed us to deliver 4.3% sales growth, and regardless of the relatively soft context, operating margin increased to 17.3% for the group. Cash flow to sales is above 22%, and our recurring return on capital employed now stands at 8.6%. Sales have been subject to pretty contrasted markets, on which I will come back in a minute. Gas and services sales at EUR 21 billion are up 3.5% on a comparable basis.
Sales are actually up for the year in all businesses and geographical zones, the Q4 slowdown in certain markets, adding to a strong comparison basis last year impacted our growth, in particular in the U.S., Japan, and Australia, as well as more globally in Industrial Merchant. Engineering third party sales decreased 25% in 2019, with a larger part of the resources being allocated to Group projects. To be noted, sales are up 3% for the year in total. At the same time, Global Markets & Technologies sales, supported by advanced cryogenic technologies and maritime services, were up 15%. As a result, Group sales progressed 3.2% on a comparable basis, which given the environment, confirms the solidity of the model.
Forex was positive until the end of the year, thanks in particular to the strengthening of the U.S. dollar with a 2.1% positive effect on published sales, while the perimeter effect also added 0.4% in connection in particular with the TakeCare acquisition in the U.S. Conversely, growth was hampered by -1.4% negative energy price impact. In total, we've seen that published sales growth is 4.3%. Let's now take a few minutes to review our main markets. The trends we observed in Q3 persisted in Q4, with some widening of the gap between growing markets and more difficult ones. Actually, we do not expect anything different in Q1 2020, even if most of our customers are talking about a progressive return to more balanced markets.
For our large industry customers, demand remains solid in refining, and particularly in Northern Europe, when metal and chemicals have stabilized at lower level, with quite a large number of maintenance stoppage in Q4. In Industrial Merchant, consumption-driven markets, and in particular food and beverage, are stronger when sectors like automotive, construction, or metals are softer. Despite the slowdown of equipment and installation, the Electronics market remains very well-oriented under the drive of integrated circuits. To finish with, in Healthcare, demand for medical gases is growing, and the number of patients to be treated at home is also strongly increasing. In this contrasted context, the understanding of the growth dynamics nearly requires a by business and by country analysis. What I'm going to share with you now is more selected highlights than a complete analysis, and my comments will be focused on Q4.
Americas posted a 1.5% growth for the year and a slight decrease in Q4, mostly driven by customer outages, impairing large industry growth by nearly 5%. In merchant, the pricing effect remained high at 3.9%, while volumes in industrial markets were penalized by a significant drop in hard goods. Medical gases were strong in the U.S., where, as a reminder, we are the number one player in the segment. In electronic gases, sales were good, with equipment and installation suffered from a high comparison basis last year. Europe was up 3.4% for the year and 2% in Q4. Large industry was slightly positive, thanks to refining. Merchant mix was good, with more packaged gas, positive volume, and pricing effect at 2.5%. Organic growth in home healthcare remained really strong, notably driven by diabetes.
Growth was globally more dynamic in Northern Europe and Eastern countries than in the rest of the zone. Asia posted a high 8% for the year, with a softer Q4 at 2%. This slowdown is mostly due to difficult Japanese and Australian markets, as well as to lower sales in equipment and installation in electronics. China is still doing well, with ramp-ups in large industries, high cylinder and carrier gases, and advanced material sales. Large industry and industrial merchant are also strong in Singapore and in Malaysia. The zone is globally benefiting from helium demand and pricing, as well as from electronic gases and advanced material growth. In Africa and Middle East, our large units are fully loaded and industrial merchant continues to progress very well in Western Africa, Tunisia, the Emirates, Egypt, and India. I'm on page 16.
I will now try to give you a little bit more color on our various businesses. Merchant was flat in Q4 in an even more unequal environment. The good news is that despite the hard goods significant decrease, cylinder volume growth remains solid, and pricing effect continued to be strong at 3.2% globally. Large Industry was clearly penalized by an abnormal number of customer turnaround or accident in Q4 in Americas. Hydrogen volumes continued to be strong in Europe. Chemical demand was soft, and metals seems to stabilize at the previous low level. Healthcare performed very well, supported by home healthcare development in Europe, generating high single-digit growth and strong medical gases in the U.S. Electronics published numbers are impacted by a sharp decrease in equipment and installation compared to the exceptional level of last year.
Excluding those equipment and installation sales, we are up 7% with a global growth which is perfectly in line with previous quarters and even stronger for carrier gases and advanced materials. This is for the activity. Let's move now to the P&L analysis on page 18. With sales up 4.3% as published, total costs are nearby 1.2%. The decrease in purchases reflects notably the lower energy price, but also the decrease in hard goods, as well as the outcome of procurement efficiency programs. The increase of personnel expense is linked to bolt-on acquisition, as well to the growth mix and in particular to the stronger growth in home healthcare, which is the most labor-intensive of our activities. Average salary increase are less than 2%.
The leverage is significant at the operating profit before depreciation level, which stands now at 27.1% of sales, a 230 basis points progression, and still 130 basis points excluding the first application of the IFRS 16 accounting standard. Depreciation is high and in many impacted again by IFRS 16. It includes nine months of the Fujian operation. Excluding IFRS and forex, the amortization is up 4.5%, which is really in line with the startups of the year. As a result, operating income recurring increases by 10%, showing a 70 basis points progression of the operating margin for the group and 60 basis points for Gas and Services, excluding the energy effect. As published, to be noted, the group operating margin is now 17.3%. As discussed at mid-year, our performance improvement programs relies on three pillars, pricing and mix management, and then efficiencies and portfolio management.
I will take a moment to update you on the progress we have made in each of those three domains. In terms of mix, we of course have a favorable impact of the low equipment and installation and hard goods sales, but our efforts in packaged gas and the focus on high-value application also delivers. In terms of pricing, the price of helium was very favorable, and this will continue, of course, in 2020. Pricing campaigns are also already planned for other products, in particular, in Europe and at Airgas. In terms of efficiencies, we have delivered EUR 433 million of additional sustainable cost reduction, 23% more than last year, above our objectives. The largest part still come from a huge number of industrial efficiency programs and from procurement actions, while digitalization and transformation projects are starting to ramp up.
The pursued deployment of the Air Liquide efficiency programs at Airgas, generating 18% of the total. Since the launch of our new plan in 2017, we have generated a total of EUR 1.1 billion efficiencies on top of the Airgas acquisition synergy. In 2019, we also clearly accelerated our portfolio reviews, as well as bolt-on acquisition programs in order to improve the productivity of the capital employed. This resulted notably in six divestitures, with still nine ongoing at the beginning of the year, as well as 24 acquisitions, four at Airgas, including Take Care, a major addition to our U.S. network, since in China, to reinforce our packaged gas activities, and five in healthcare. As part of this portfolio effort, as you know, we are studying the sale of our hygiene activities under the umbrella of Schülke & Mayr in Germany, and we exited Fujian, a large coal gasification project in China.
I'm now on page 23. Below operating profit, the year is characterized by significant non-recurring expenses, which include, of course, the loss incurred with the Fujian divestiture, but also EUR 95 million for restructuring and reorganization plans all over the world. Cost of debt is slightly down, excluding the impact of Argentina, and most of the growth is linked to the exceptional gain we recognized last year on the U.S. debt restructuring for EUR 55 million, and to the first application of IFRS 16 for EUR 40 million, and to a lesser extent, to pension actualization. The effective tax rate is slightly increasing, the main reason being the non-deductibility of the Fujian loss. As a result, our net profit for the group stands at EUR 2.24 billion and is up 6.1% as published and 11.1% if we exclude major exceptionals, meaning the financial gain in 2018 and the Fujian loss in 2019.
Cash flow is also progressing significantly and stands at 22.2% of sales, a record high for Air Liquide. Working capital variation is in line with the activity evolution following a stabilization of the factory initiative. CapEx, including Take Care acquisition, were high at EUR 2.6 billion, with industrial CapEx up 17% to last year. Nevertheless, thanks to the strong cash performance, net debt continues to be reduced with a year-end gearing now under 65%. As mentioned earlier, the return on capital employed improved by 60 basis points excluding Fujian loss and stands now at 8.6%. That's another step forward to reach our 10% objective in 2021 or 2022, depending on the investment pace. The investment opportunities actually continue to be numerous, showing the confidence of our customers in the medium-term perspective. Our 12-month portfolio of opportunities is up to EUR 2.9 billion, with an increase in the number of takeover projects.
Investment decisions are at a record high, close to EUR 3.7 billion, with a large part being dedicated to Large Industries and Electronics projects, and with also a notable increase of efficiencies and renewals investment. We also have more investment in advanced technologies, biogas, and hydrogen energy and mobility. To finish with, we started 80 new units, which together with the ramp-ups, contributed EUR 336 million to the top line. For next year, we confirm that the estimation of the contribution of start-up and ramp-ups should be in the EUR 230 million range before a pickup in 2021.
The backlog, which is the total amount of projects above EUR 10 million, which are under construction and not producing yet, is also up to EUR 2.8 billion and should deliver EUR 0.9 billion of new yearly sales after the full ramp-up. Benoît already shared with you the principles of our outlook, which is extended to a commitment on margin improvement in 2020. Of course, as many companies, we face uncertainties linked to the development of the coronavirus. In this regard, our priority is to protect our people and to ensure the continuity of the operations. Nevertheless, we are confident that the resilience of the model and all the efforts engaged will allow us to continue to deliver an improved performance and a higher return while pursuing our investments for our future. Thank you for your attention, and back to Benoît for the opening of the Q&A session.
Thank you, Fabienne. Before we start the Q&A, let me just give you a few numbers on China. First, I'd like to pay tribute to our teams. What you have to know is that we have 4,700 people altogether in China, out of which 300 are located in the Wuhan regions. They have been highly mobilized in the past two weeks, nearly 24/7, essentially to supply products to customers. We also supply oxygen to hospitals, and you can guess that this has been a busy time. The main issue for us in the months to come is going to go from a crisis situation to a more sustainable way of managing this crisis. As we speak, if I look at the different business lines, in large industry, about 60%-70% of our plants have a normal load, which means that we are running, we are supplying customers.
We have rather few customers that actually stopped. The LI is not under normal conditions, but I would say close to. The E&C, as we have a workshop in Hangzhou, which is not that far from Wuhan, what we expect is some sort of delays in the execution of projects, because some of our cold boxes are actually fabricated and assembled in Hangzhou. In electronics, it's almost normal operations, meaning that the carrier gases are produced and sold to our customers. We've not seen any major impact today on carrier gases. There's some pressure on the specialty materials and advanced materials, but it's manageable. Of course, the E&I projects, supply of equipment, are postponed essentially after the crisis. In IM, as it is a very local business, it can be impacted locally.
The bulk business is 50%, 60% load today, whereas the packaged gas is more in the 10%, 15%, because it's very local, and because many shops and activities are actually closed. We are very small in healthcare in China. It's limited, the impact will be limited. This is where we stand, and any cost related to the coronavirus will be accounted in exceptional costs. If you have more questions, I think Fabienne or Mike will be ready to answer your questions. Thank you, and we can start now the Q&A session.
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. We will now take our first question from Tom Wrigglesworth from Citi. Please go ahead. Your line is open.
Benoît, Fabienne, thank you very much for your presentation and that detail there on the China impact. Couple of questions from me, please. Firstly, on the product mix management and focusing on IM pricing, I think 3.6% was the full-year pricing performance 2019. Could you break out what was pure price and what was mix through 2019? Looking forwards on that, you talk about pricing campaigns for 2020. What would be a base case for 2020, excluding any coronavirus impact? A second question, if I may. You talked about nine potential targets for portfolio streamlining. Could you help dimensionalize what's the amount of sales that would be attached with those nine identified targets? That'd be very helpful. Thank you.
Okay. Briefly on the product mix management, out of the 3.6%, I think 1/3 , more or less, comes from helium. You all know what the helium situation is. There's a shortage of supply because it comes from a limited number of sources in the world, and probably this situation will be prolonged during 2020 before we see in 2021, normally, new sources coming in the market. The split between the pure pricing and the mix, I don't have the number off my head. I don't know whether we have that somehow available, Fabienne?
It's quite difficult to segregate because it's really a mix of both. There is probably more pure pricing in the U.S. as a catch-up of previous situation, and a little bit of more mix in Europe, where we had packaged gas growing quicker than bulk.
That being said, you said, can we expect a sort of the same order of magnitude in the future? I think there's the helium first, and second, there's a sort of catch-up situation where we had to face significant transportation cost increase in the past. We had to pass on those costs to the market. I think we have done it pretty well in the past year. It's not going to last forever. Probably in the long run, we will be closer to inflation or inflation plus as a rule of thumb for pricing. We intend to continue the pricing management, be it pure pricing or a product mix, because there are a lot of things to do.
When you densify your portfolio of customers, when you restudy the distance between your filling plant or your production plant to your customers, there are many things you can do. In the end, the pricing, but also the cost side of it, is improving. We intend to keep a pretty good and sustainable pricing level over time that will be close to inflation or inflation plus. That's more or less what we can do at this stage. Potential targets for portfolio, Fabienne?
In the potential targets, we have under study the divestiture of Schülke & Mayr in Germany. This one is major and will be treated, of course, as large parameter. The others are relatively modest. You probably saw that we announced 10 days ago the divestiture of Czechia and Slovakia. Together, it's clearly less than EUR 20 million. The other divestiture will be relative on margin, but should have a modest impact on sales, which is very likely to be compensated by our bolt-on acquisitions.
Okay. Very helpful. Thank you both.
Thank you. Next question.
Our next question comes from Andrew Stott from UBS. Please go ahead. Your line is open.
Hello, morning, everyone. Thanks for taking the questions. Probably the first one's from Mike around two issues in the U.S. You were hit pretty hard in Q4 with - 9% on hard goods. Also you had the U.S. turnarounds both Q3 and Q4, which you quantified at around about 4% impact. As you look into 2020, in so much as is possible, can you just give me an idea of how you see the moving parts in the Americas in general? That's the first question. The second question was an accounting question. Fabienne, when I look at the six disposals you did in 2019, where did the impact of that come in the P&L, please? Thank you.
Okay. Easy, Mike. We start, Fabienne, you follow.
Great. Thanks, Benoît. Morning, Andrew. I guess first starting with the hard goods piece and more importantly, the Airgas markets. I think as Fabienne mentioned, there's kind of a widening contrast between the industrial markets and the consumption markets. What we saw slow, especially as we moved through the year and definitely into Q4, we saw a much softer construction environment and also manufacturing and metal fab. That drove both the decline in hard goods, as well as a mitigation on gases. The gases were more flat in some areas and construction slightly off, but the real drive was a significant negative downturn in the hard goods themselves. If you looked at more the downstream energy and chemicals, actually, we continued to see that to be very resilient.
I think there's been a lot of growth actually in downstream refining and also chemicals over the course of the last five years. Maintenance spend is actually up 31%. As we go into the coming year, we expect that in those areas, they likely, as we get into the first quarter, will continue as they are. On the construction segment, it's a bit mixed. You've got the situation where the more traditional construction with general contractors is down. They've completed a lot of new projects. The new ones are yet to come out of the ground. They will. Business development has been very strong. I also think that you're seeing the midstream being a bit flatter. A lot of the work in midstream pipeline systems and that sort of thing has kind of come to a more stable level.
In manufacturing, we saw automotive flat and stable. We saw Class A tractors decline significantly over the year. I think the order book for those fell by about 60% from where they were at the end of 2018 going into the end of 2019. That's stabilized now. I think the impact of all that has evolved to a more stable situation. What's important to recognize, especially on the hard goods, it's not only the activity levels of today, but it's also a level of destocking for those inventories. Yet in the other markets, if we look at the consumption markets, they are still growing very, very significantly. Looking at more of the large industry scope, we saw a very, very heavy set of turnarounds in the second half of the year. Both in Airgas and some very, very significant turnarounds from a hydrogen standpoint.
We also had the impact of a severe industrial accident that affected one of the companies on the Gulf Coast that also had an impact on us as well. We are managing our way through all that. We expect as we go into the first quarter, at least in terms of the basic fundamentals of the industries on the Gulf Coast, they are very sound. As the various companies came out of their turnarounds, they returned back to normal operating levels and volume levels, and we expect that to continue into Q1, barring what we know about what could happen with the coronavirus impact and that sort of thing. Still, I think that's come back. We still expect turnarounds in the first and second quarter. We don't have good visibility on all of them, but they likely will look more like they looked like in the first half of 2019.
Thank you.
Thank you.
Thank you. Second question to the accounting and the six disposals from.
The impact of the disposals is visible on all the lines of the P&L. As you can imagine, it's in the comparable business, because it's small disposals. If you look at the balance of disposals, reclass, and small acquisition on the comparable sales, it hampers the sales by EUR 25 million. It has a small impact, negative impact on sales by EUR 25 million approximately. Conversely, it has a positive impact of EUR 5 million on operating income. This is a balance of small divestitures and small acquisition, and you see that it starts to be relative on the performance. It's certainly something that we will continue in the years to come, those portfolio reviews, more proactive portfolio reviews.
Thank you. Next question.
Our next question comes from Gunther Zechmann from Bernstein. Please go ahead, your line is open.
Hi, good morning. Thanks for taking my questions. The first one is on the margin guidance. I just wanted to confirm a couple of things. It looks like most of the fundamental trends that you mentioned behind the margin improvement that you saw in 2019 are here to stay. The pricing in the merchant business, the mix improvements, the efficiencies. Is it unfair to be looking at a similar level of operating margin improvement in 2020, excluding any impact potentially from coronavirus, so around the 70 basis points mark? That's the first one. The second one, it's good to see the acceleration in the ROCE improvement. Similar question there. Is that pace sustainable as we move towards the 2021, 2022 targets? Thank you.
I think, Fabienne, you can comment on the margin and also on the return on capital employed.
I will agree with you that this margin improvement is supported by a structured program with a certain number of levels, which are not a specific 2019 shot, but that will continue to be deployed in the years to come. If you look at the history, the last 20 years, the OI to sales has increased on average by 14 basis points a year. Clearly, the 70 basis points of this is a step-up. We are not going to give you a quantified margin guidance, but the fact that we have included a commitment on margin in our outlook is clearly a signal that we want to continue to accelerate our performance improvement.
On the return on capital employed, it's even more true, as we have given you an objective of being back to 10% in 2021, 2022, then we need to align on this objective and to continue to increase our return on capital employed significantly year- after- year.
Okay, thanks.
If I just may add something. If you look at the split in the efficiencies, the EUR 433 million, there's a vast majority, which is the optimization of what we do, and it's across business lines. It can be energy consumption, improvement in reliability, production. It's the reduction of losses when you have products like helium that you need to transport, and so on and on and on. This part is important, and it will continue. The procurement part, which is about 1/3 or 30%, is also something that we can improve. That's a structural approach more than just a present approach. What is new is the transformation part, which added on to the efficiency results that we have. This part is just starting. When we put all that together, we have enough grounds actually to make those efficiency last in the coming years.
It gives, I would say, a good substance. To a further improvement in margin. It's not just the 13 basis points that Fabienne mentioned over the past 20 years. I think we've put in place now a more structured approach to efficiency that will allow us in the future to maintain a good margin improvement. Next question.
Our next question comes from Martin Rödiger from Kepler Cheuvreux. Please go ahead. Your line is open.
Hello. Good morning. Thanks for taking my questions. The first one is for Fabienne. You mentioned, in your outlook comment for Q1 2020 being similar to Q4. You also mentioned that some customers talk about a more balanced market. Can you explain which kind of end markets or industries you are referring to in this regard? The second question is a clarification question on your ROCE figure of 8.6%. With the disposal of the Fujian project, does your capital employed figure for 2019 still include Fujian? If so, what should we pencil in as disposal effects on capital employed for 2020? Finally, that's for Benoît. A question on carbon intensity. Now with 4.6 kg CO2 per EBITDA, you're very close to your target for 2025.
You said it's not linear, but your target does not appear now challenging, even if you factor in that the disposal of Fujian and some maintenance turnarounds have helped you. Do you need to update your target? Thanks.
Okay. Fabienne, you start with the first two and take the third one.
What we've heard from our customers and what we read for the market forecast is that the outlook actually for metal was better for the beginning of the year than it was at the end of last year. For the other sectors, in particular, chemicals, our customers are more talking about a rebound second part of the year. For electronics, we see the demand remaining solid, but here again, most probably a small acceleration in H2. Regarding your question on the return on capital employed, so the figure of 8.6% exclude the Fujian loss in the R. In the capital employed, the way we calculate them is the average on three semester end. When you look at the return capital employed at the end of 2019, we take the capital employed at the end of 2018, at the end of June, or at the end of 2019.
At the beginning of the year, end of 2018, we had the capital employed of Fujian, in the capital employed, same at the end of June. Before we have a return of capital employed, which is completely clean for Fujian, you will have to wait until the end of 2020. In this case, the Fujian asset will have completely disappeared of the average of the capital employed. It's a little bit complicated, but we don't have it in the R, but we still have it in the capital employed for two of the three pillars that we average. Hope it's clear.
Yes.
We'll hope for the absolute figure.
At least it is clear for me, Fabienne, so that's good.
Okay.
Because we are on Fujian, you're very right in saying that the Fujian divestiture is actually removing significant tons of CO2 out of the climate balance sheet, if I may say so, or CO2 balance sheet of Air Liquide. The 4.6 is partly due to that Fujian divestiture, but it's also due to all the programs that we have put in place. It is below the expected emissions. That said, it's not linear. You just said it again. We still keep for the time being the 4.4 target for 2025 because this was done about two and a half years ago.
As we will have to give you a new perspective on 2021, 2025 next year, beginning of next year, we will seize the opportunity to also look at the climate objectives and, I would say, re-examine and reset those objectives with the reality that we have to see end of this year. We are aware of the fact that we are nearing now the target. It will be time next year to give another objective for the next five. By the way, it will not just be 2025, because when we see what the world now is requiring, including investors, by the way, is a view on 2030, if not 2040, and how we can compare ourselves with the 1.5 or two degree scenario, because this is what is important.
We'll take the year 2020 to think about how Air Liquide can actually contribute to that objective. We will be back with new numbers next year, to be very clear.
Thank you.
Thank you. Next question.
Our next question comes from Tony Jones from Redburn. Please go ahead. Your line is open.
Good morning, everybody. Just one left from me. It relates to China and the coronavirus impact. Appreciate the additional color you gave, but given the exceptional circumstances, do take or pay contracts still hold if this large industry, lower demand deteriorated or carried on for a longer period? Thank you.
I think you can take this one.
The take or pay contracts, Tony, still hold. I mean, they're in place. They're structural for both large industries and for the carrier gases. They continue to hold. I think what's important is, while we don't know exactly how long this will go, when we think about this in terms of a prolonged impact, nobody's talking about years. They're trying to understand, is this weeks or months? Our planning is such that we recognize that differential. I think that by the time we get to the second half of the year, we should be into more recovery mode for sure. I don't think we're going to see this prolonged for a long period of time.
Thank you. That's perfect.
Okay. Next question.
Our next question comes from Jean-Baptiste Rolland from Bank of America. Please go ahead. Your line is open.
Good morning. Thank you for taking my questions. I would have two, please. On the backlog, it seems that you're having a meaningful improvement suggesting that the environment or the level of activity for you is pretty good. Meanwhile, the macroeconomic environment is pretty challenged. I'm just wondering, are you growing above the rate of the industry? That would be my first question. The second on efficiencies. You're talking about a pickup for 2021 versus 2020, and I think I remember that you provided a guidance for EUR 230 million for 2020. What sort of level would you get back to in 2021? Are we talking about getting back to EUR 430 million kind of levels again? Thank you.
Okay. You're right. I mean, the backlog is pretty healthy. I think we've been winning a significant number of projects, and not just in North America. North America was clearly the place where we have signed a significant number of contracts, but it also applied in Europe and Asia, also in Middle East, where there's a lot of activity right now. It's difficult to say whether we are winning more than our major competitors. I think we are not necessarily bidding on the same projects, but for those where we have put efforts and where we had a significant synergy with the existing basins to put in place, we were successful. I think it's just a good illustration of both the competitiveness and the ability to develop and win projects. We might be a little bit above competition. I'm thinking not just large industry, but also electronics.
I think in Electronics, we've been really very successful in the past 6- 12 months. The pickup in 2021, maybe Fabienne would like to give some color.
My pleasure.
the comment.
You're mentioning efficiencies, and it's not efficiencies we are talking about. The contribution of startup and ramp-ups are to be very clear. 2019 was relatively high by including your Fujian contribution. 2020 will be lower at EUR 230 million. We will be higher in 2021. We've quite a good number of large industry and electronic projects starting up, so it's always difficult two years in advance to know exactly at what moment the project will start, but we should be more in the EUR 300 million range than in the EUR 230 million for sure. We'll update you progressively as we get closer to the effective starting dates of those projects.
Now, I'd like to seize this opportunity to ask François Jackow and Mike, to ask them whether they see delays or a change in the customer's attitude for the new startups. Because I think so far it has been pretty good, and the number of delays that we have seen has been rather limited. François in Europe, Middle East, and Africa, and Mike, in America and Asia.
Thank you, Benoît. Good morning. No, today we don't see any significant startup coming from the customers. As mentioned by Fabienne, several of the customers who were seeing lower activity at the end of 2019 actually are more optimistic for 2020, and especially the second part of the year. This is true for steel, especially. As they have to also tackle the carbon footprint, they are quite active actually at considering new projects in Europe. Regarding refining, already some investment has been committed to cope with the new regulation, especially in bunker fuels and the new biofuels, but we do expect more to come. So far the custom
Continuing on their project. Maybe in the Middle East, there has been, in the past 12 months, quite a bit of activity. We do see a little bit of, maybe not slowdown, but redesigning of some of the projects. It's still a very active region of the world where we see several opportunities that should materialize in the next 12-18 months.
Okay. America and Asia?
In both the Americas and Asia, we do not see any sign of anyone trying to slow down a startup. Actually, I think that as we've gone through the year in Asia, while chemicals and steel both were a bit soft in 2019, especially in the chemical space, we're seeing a resurgence in terms of levels of business development activity and recognized need for the future. I think that bodes well, both for the business development activity in the region as well as for the startups that are planned. Similarly, in the U.S., we've signed on the order of eight major contracts for the Gulf Coast over the course of the last 18- 24 months. All of those are on track. Everyone is looking forward to getting those facilities up and running from the conversations we have had.
There's a lot of drive to go ahead and make sure that they get those up and on stream. Again, the business development activity continues as well, in the U.S. in that regard. Finally in electronics, I think we signed six carrier gas projects last year. That continues to be very robust. The market drivers for integrated circuits is very significant as we look going forward. Even though there was a bit of a slowdown in certain areas of the industry in 2019, all of that is expected to return to normal and be caught up in 2020 and beyond. Especially in the advanced nodes, those under 27 nm that we serve with our carrier gases and advanced materials and some of the new projects, all of those continued to grow double digit as we went through the year despite the decline in other areas.
I think it bodes well for the future.
Thank you. We can take the next questions.
Our next question comes from Francisco Rodríguez from Banco Sabadell. Please go ahead. Your line is open.
Yes. Hello, good morning. I would have three questions, quick ones. The first one, coming back to your efficiencies, could you please give us any number regarding your retention rate of those efficiencies? Just trying to look into what margins could be for next year. The second one is regarding your comparable growth, which we've seen has decreased importantly in the fourth quarter. I know that's quite a big impact of a difficult comparable basis, but going into Q1, I don't know if you could give us some color on that. You've spoken a little bit on America, but I don't know if we could have more a full picture. The last one would be regarding engineering construction, if you could give us some color on what 2020 could look like. Thank you.
Okay. Fabienne, you can start with the first two questions.
For the efficiencies, you know that we use efficiencies to fill the gap between the increase of cost and the increase in pricing. As you've seen, in 2019, we had a pretty strong pricing effect. Therefore, the retention of efficiencies is much higher than our average of 30%, more than double of that. It is linked to the conjunction of a situation of high efficiencies and high pricing at the same time. In comparable growth, I think we discussed that already. We'll see a lot of the Q4 trends in terms of markets remaining in Q1, even if our exceptional effect like the E&I comparison and the turnaround on the Gulf Coast will cease.
The comparable growth should be, of course, a little bit better in Q1 than in Q4, but quite difficult to say at the moment, in particular with the new uncertainty linked to the coronavirus.
The third question is related to the forecast for the perspective for E&C. You've understood that E&C is actually highly focused on the group sales, meaning executing the projects for the group. It translates into less third-party sales or less revenues. I think we've probably reached a sort of bottom where we were in the second half of last year. Probably the best guess would be to be stable or slightly positive for E&C in 2020. Again, this is not an activity level. This is more due to the fact that E&C is going to serve the group and execute projects for the group. As you remember, we have decided a lot of investments, so there will be a lot of new plants to build in the coming two years. Next question.
Our next question comes from Peter Clark from Société Générale . Please go ahead. Your line is open.
Yes. Good morning, everyone. Thank you. Two questions. The first one, a lot of talk on pricing, and obviously keeping quite a lot of the price you're pushing through. I'm just wondering, in Europe, obviously, you've got your biggest competitor with new leadership for what, the best part of a year, and I guess on the other side, Toyo have been for over a year in the market now. I'm just wondering if there's been any noticeable change in the discipline across the market at all. Then, the second question on the minor disposals coming or certainly the reshaping. Schülke, you've announced. I'm just wondering, the logic for Seppic and [guess]. You always said there's quite strong synergies with the rest of the healthcare, but just on the Seppic business. Thank you.
All right. Well, globally, I don't know whether there is a clear link between the consolidation of the industry and the pricing. Of course, we have the question many times. From our perspective, it's clear that the pricing that we have had, I would say, in the past two years is more the result of our actions. The sort of catching up in the transportation cost that we had to incur in the past years. The very low inflation, because when inflation is low, your pricing power is more difficult. Also the product mix. We insist on that because when you are selling more cylinders and less bulk, you have a pricing issue, which is, of course, better. We also have new offers to customers because we bring innovation to the market.
We have good examples in the cylinder market with our new tops that have been launched in the past six months in Europe. They are really promising, and they offer new functionalities to customers. The pricing is slightly different, and it translates into more pricing. In a nutshell, no real impact visible from the change in the structure of the industry, but more pricing results, which are the result of our programs. The reshaping of the portfolio, Fabienne, and a question about Seppic.
Yeah. I think with Schülke and Seppic, we have two very different situations. Schülke, the hygiene product, is now acting on a mass market where we have very strong competitors, large international groups. To remain competitive in this market, we would need to invest massively into Schülke. Schülke is not a priority on our strategy, and that's why we have decided to study a potential divestiture. Seppic is very different. Seppic is on a niche market. We are able to continue to grow Seppic with small acquisition, with R&D, with innovation, and to continue to develop both sales and margin at Seppic. It's a very nice addition to our healthcare portfolio. Two very different strategic situation, and that's why we are studying the divestiture of Schülke and not at all of Seppic.
Thank you. It's very clear.
Thank you. Next question.
Our next question comes from Chetan Udeshi from J.P. Morgan. Please go ahead. Your line is open.
Yeah. Hi, thanks. Just a quick question. Can you quantify the impact of helium pricing on your margin on gases for 2019?
Okay. Fabienne?
We told you that the impact of the helium on pricing is approximately one-third of the total pricing impact on 2019, which, by the way, will continue in 2020. If you look at helium globally, it's a little bit more than EUR 600 million sales at the group level out of nearly EUR 22 billion, so it's not that major. It's true that we have a good margin on helium, which is in the good average of the group, I would say, so higher than the average industrial merchant, but in the total group average. It's contributing, but it's not what is doing the improvement of the margin, for sure not.
Thank you.
Thank you. Next question. We may probably have to take two more questions or three maximum. Next.
Our next question comes from Laurent Favre from Exane BNP Paribas. Please go ahead. Your line is open.
Yes. Good morning, thanks for taking one last. It's on the capital intensity of the backlog. I was a bit surprised that the backlog went up by EUR 600 million to EUR 2.8 billion, but the impact on sales once fully ramped up is the same at around EUR 900 million. The ratio is seemingly above 3x on CapEx to sales, and it feels a bit high. I was wondering what was behind that. Thank you.
You want to take this one?
As mentioned in our new project and investment decision, we have more renewals and more efficiency CapEx, which all contribute to the profitability. If you exclude from the backlog both renewal and efficiency projects, we still have a capital intensity which is in 2.5 area as before. It's really the impact of the, in particular, of the efficiency project, which are also now in the backlog.
One additional remark in that regard. In the past, we had a lot of investment CapEx for growth, which meant at the time, new contract, new volumes. We have incurred in the past several years, also, a certain number of renewals where we could invest for not only renewing existing contracts, but adding more volumes to those contracts, but also gaining in efficiency. Those investments have a different capital intensity by nature. You don't see necessarily the result of this investment fully in sales, but you can measure them in profits because you have savings that are due to more efficient plants. Technology after 20 years or 25 years have improved. We have a portion of the OIR, which is coming from those renewals, but you don't necessarily see them in the sales. The apparent capital intensity is higher.
That's common that you need also to take into account. Next two questions, and I think we will close. First.
Our next question comes from Andreas Heine from MainFirst Bank. Please go ahead. Your line is open.
Thanks. I restrict myself also to one question. PIA seems to change, especially for the hydrogen large industry projects, to tolling contracts reducing the CO2 frame and lifting the margin. Do you do the same? What is your position at Air Liquide in doing this or not doing this?
Well, we still are of the opinion that if you can manage energy well, meaning if you can buy energy from different sources, in particular, when you have a network, by the way. If you can process it nicely, you have options that you can offer to your customers that has value. This is why we tend to keep the energy content in our sales, and we try to limit as much as we can the tolling, part of our sales. If we have done that one or two times in our history, it was very specific to a particular situation. Generally speaking, tolling is not our favorite business model. We try to keep energy. Essentially because we think that we can add value to the customers.
This is true, by the way, for the ASU, for the oxygen, when we buy power, and it's true for hydrogen when we buy natural gas. We have in particular in the pipeline systems, be it in Texas, Louisiana or Europe in particular, we have ability to actually source our primary energy the way we want. If you think about climate change and emissions in the future, having the ability to offer cleaner products to our customers will, I think, be a plus. That's the reason, essentially, why we are limiting tolling to a very strict minimum.
Thanks.
Next and final question.
We will take our last question from Charles Webb from Morgan Stanley. Please go ahead. Your line is open.
Morning, all. Thank you for taking my last question. Probably leading on from your last comment, just as we think about those innovative projects, carbon capture and storage, green hydrogen, I guess low CO2 steel production and some of your kind of mobility, kind of more service orientated parts towards hydrogen. How should we see that evolving next year, both in terms of the return profile for such investment and also the number of such investments looking forward? When do you expect these to be a bigger part of the growth of the business looking forward? How do you see the returns profile for this type of opportunity looking ahead? I understand obviously today, a lot of investment is required, but looking more ahead in the future.
Well, this is not a short-term market. Hydrogen energy, if I'm trying to summarize what I heard from many different sectors around the Hydrogen Council, is going to really change the name of the game in the next 10 years. How long will it take to really materialize significantly in sales? It's hard to say. I don't think 2020 is going to be a big difference in terms of sales. If we look at the number of projects that are discussed, if not decided, they are growing. We can see projects in every single country. I think all the major industrialized countries today have hydrogen plans. We recently counted that about 70%-80% of the major countries in the world had a national hydrogen plan. It's coming, but it will take a few years before it is really significantly materialized.
I'm talking about, in particular, hydrogen energy from renewables. CCS is different. CCS is how do I actually capture and sequestrate my carbon of today. If you are a highly emitting industry, be it chemical, be it refining or steel, you are now under pressure from the public, from the governments, from the authorities, from the financial market, to do something on your core business. The projects for CCS applications are being discussed right now. The two or three we mentioned earlier in northern part of Europe are real projects with real companies around the table and authorities that are ready to put also money into those big pilot projects. CCS might be seen in the next five years. Hydrogen energy for mobility will start, but will be still modest in the next five years, and will probably take off between 2025 and 2030.
This doesn't mean, by the way, that this is not the right time to act, because this is something we have to prepare. You have to remember that we took a first decision in the U.S. to build a liquid hydrogen plant, number one. Second, we will invest in a 20 MW PEM electrolyzer, which means new technology, not the traditional one, in Canada. We also took another decision in France to have a sort of renewable hydrogen in the south of France. We are studying many other projects. Project phase for hydrogen energy and CCS is becoming very serious. In the next five years, it will not be a game changer in terms of sales, but in terms of decisions to invest and to go ahead, it will be important. I hope I answered your question.
Yeah, no, very interesting. Thank you.
Okay. Thank you very much. I think it covers more or less what we wanted to tell you. A landmark year, excellent performance, committed to go on with the structured programs that we launched, and still see growth. That's why I think Mike and François actually highlighted that development is continuing, and uncertainty about the situation in China, but we'll follow that carefully. Thank you very much, and see you soon. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.