Good morning, ladies and gentlemen, and welcome to the Air Liquide 2019 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.
Thank you for joining our conference call today. Benoit Pozzi will present the highlights of the year and Fabienne Luka Vierge's 2019 performance and the outlook for 2020. Mike Graff and Francois Jacob are also with us and they will participate in the Q And A session. Our next announcement for first quarter 2020 revenue will be on April 24th. Let me now hand you over to Benoit.
Thank you, all. Good morning, everyone, and thank you for being with us. Start immediately, just looking at the year globally. 2019 is a landmark year for Eliki for many three reasons. Number 1, we delivered a clear step up 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 3 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. 19 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. And third, we have a strong commitment to climate. As you remember, we introduce our climate objectives and of 2018.
Many actions were launched in the operations to reduce our carbon intensity and reach our climate objectives. And we also launched an increased number of major initiatives. I could say breakthrough projects, some in Powder keep with customers, and I'll come back later on that. On page 4, if we look at the main numbers and start with financial performance, 19 has been a strong year with a robust top line first with 4.3% growth in public in published growth. We had also a strong leverage on results with a step up in operating income recurring margin improvement 70 basis points, excluding energy and even 90 basis points 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. So we are on track with our 5 year plan And in addition, we had increased cash flow, which enable, higher investments. If I just turn to page 5, I would like just to highlight the fact that this sustainable performance, is a result of structured program, which is in place, where we have 1st reinforced existing plans, which are based on, and you know that, pricing, efficiencies and continuous improvement and bolt on acquisitions. But on top of it, new actions were announced end of 2018 or beginning of 2019. There were essentially product mix management and to the extent possible priority was given to higher margin products in each world business line, in particular, push on cylinders in I'm.
The second point is transformation programs with, for example, the implementation of shared services across countries, sort of visualization 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 and 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 engaged management.
I said it, and it goes through higher investments and order intakes in engineering. Investment decision stand at a high level in 2019 with EUR 3,200,000,000 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 other in engineering and construction.
The activity being mainly focused on internal projects for Large Industry And Electronics, And this is why the reported numbers are decreasing, but the actual level of activity E and C is increasing. All of that is leading us to propose a dividend, page 7, a dividend distribution in 2020, which is 2.7 per share, which is a 12.4 percent increase, compared with last year, if we take into account a 1.4.10 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 3rd point I wanted to make was related to climate and to the, carbon intensity, with a carbon intensity at 4 point 6 in 'nineteen.
Number 1, we are below the initial commitment, which is visible on the graph. But 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. And so, everything will depend on the timing of those startups of production units in particular. But we are generally speaking on track to reach the carbon intensity target that was set in November 18 of minus 30 percent in carbon intensity from 2015 to 2025. Let me just highlight a few major initiatives that we took, page 9.
Commitment to climate is also for longer term, with these, number of major initiatives or breakthrough in some cases. A few examples. 1st, CCS, carbon capture and storage projects. We have just announced 2 partnerships with customers. 1 is in Norway.
Is it the European scale and 2 projects within Rotterdam And Antwerp and all of them will be around 1st capturing CO 2 transporting then the CO 2 either through pipeline or liquid form. To a sequestration site. The 2nd major initiative was related to green hydrogen with the investment in electrolyzer in Quebec, it's about 20 Megawatt PEM technology electrolyzer. It's a it's a it's a world premiere. I think and apart the second project was a partnership with ENGIE in the south of France to also build, new electrolyzers from sun, from solar energy.
In the low CO2 product we have partnerships with 2 customers in the steel industry, which is probably the first one to a Series study, the, 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 And the 3rd, the 4th 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.
We recently and with a small company, Wupu, also in China. So we can say that the hydrogen county is very, very, active, and we have a meeting with seen study about cost competitiveness for hydrogen. So all in all, it's a landmark year for Air Liquide. I'd like to hand over to Fabienne for the detail.
Thank you, Benoit. Good morning to all of you. So as mentioned by Benoit, 29 has been quite a special year for Air Liquide within particular the evidence that our performance improvement plans are delivering, in a pretty unequal environment and in particular, facing a more difficult 4th quarter, the resilience of our model allowed us deliver 4.3% sales growth. And regardless of the relatively soft context, operating margin increased to 17.3 percent for the group. Cash flow to sales is above 22% and our recurring return on capital employed now stands at 8.6%.
Since I've been subject to pretty contrasted markets, on which I will come back in a minute. Gas And Services sales at 1,000,000,000 are up 3.5% on a comparable basis. Sales are actually up for the year in all businesses and geographical zones, but 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 29 with a larger part of the resources being relocated to group project to be noted sales up 3% for the year.
In total. At the same time, Global Market And Technology Sales, supported by Advanced Cryogenic Technologies And Maritime Services were up 15% half. 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 threatening of the dollar with a 2.1% positive effect on published sales, while the perimeter effect also added 0.4 in connection in particular with the Take Care acquisition in the US. Conversely, growth was hampered by minus 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 gaps, bit in growing market and more difficult ones. And 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 in our equipment and installation, the electronic market remains very well oriented under the drive of integrated circuits and to finish with. In health care, demand for medical gases is growing and the number of patients to be treated at home is also strongly increasing. In this contrast in context, the understanding of the growth dynamics nearly requires by business and by analysis.
So 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. America has posted a 1.5% growth for the year, and the slight decrease in Q4, mostly driven by customer outages, including large industry growth by nearly 5%. In merchant, the pricing of agreement high at 3.9 percent, 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 business 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 package gas, positive volume and pricing effect at 2.5%.
Organic growth in home health care remained really strong, no time is driven by diabetes. Growth was globally more dynamic in Northern Europe than an instant countries than in the rest of the zoo. Asia posted a high 8% for the year with a softer Q4 at 2%. This slowdown is mostly due to difficult Japanese industrial 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 Karya Gases and Advanced Materials Sales.
Large Industry And Industrial Merchant are also strong in Singapore and in Malaysia as the zone is globally benefiting from ADM demand and pricing as well as from electronic gases and advanced material growth. In Africa, Middle East, our large units are fully loaded and industrial merchant continues to progress very well in Western Africa Tunisia, DME rate, Egypt, and India. I'm on Page 16. I will now try to give you a little bit more color on our value businesses merchant was flat in Q4 in an even more unequal environment. The good news is that despite The had good significant decrease in under volume growth remained solid and pricing effect continued to be strong at 3.2% globally.
Large were clearly penalized by an abnormal number of customer turnaround or accident in Q4 in America. Hydrogen volumes continued to be strong in Europe. Chemical demand was soft and metal since stabilize at the previous low level. Healthcare performed very well, supported by home health care development in Europe generating high single digit growth 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 car hire gases and advanced materials.
So this is for the activity. Let's move now to the P and L analysis on page 18. We still up 4.3% as published total costs are on year by 1.2%. The decrease in purchases reflects notably the lower energy price, but also the decrease in our goods as well as the outcome of procurement efficiency program. The increase of personal expense is linked to bolt on acquisition are as well to the growth mix and in particular to the stronger growth in Omenske.
Which is the most labor intensive of our activities. Average center increase are less than 2%. The leverage is significant as the operating profit before depreciation level, which stands now at 20 7.1% of sales, a 230 basis point progression and still 130 basis points excluding the first haptic of the IFRS 16 accounting standard. Depreciation is high and in many impacted again by IFRS 16, includes 9 months of the Fujian operation. Excluding IFRS and ForEx, the amortization is 4.5%, which is really in line with the start ups of the year.
As a result, operating income recurring increases by 10% showing a 70 basis point 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 midyear, our performance improvement program to realize on 3 pillars, pricing and mix management, and then sufficiencies on portfolio management, And I will take a moment to update you on the progress we have made in each of those 3 domains. In terms of mix, we of course have a favorable impact of the low equipment and inflation and our good 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 Airgain, In terms of efficiencies, we have delivered EUR 433,000,000 of additional sustainable cost reduction, 20 3% more than last year, above our objective. The largest path still come from a huge number of industrial efficiency ramps and for procurement actions, while digitization and transformation projects are starting to ramp up. The pursuit deployment of the Air Liquide Efficiency Program at Airgas generating 18% of the total. Since the launch of our news plan in 2017, we have generated a total of 1,100,000,000 efficiencies on top of the Agals acquisition energy. 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 6 divestitures, We're still 9 ongoing at the beginning of the year, as well as 24 acquisitions. For at Airgas, including Take Care, a major addition to our youth network, since in China, to reinforce our packaged gas activities and 5 in healthcare. As part of this portfolio effort, as you know, we are studying the sale of our hygiene activities under the umbrella Kumaya in Germany, and we exited Fujian, a large carol gasification project in China. I'm now on page 23 below operating profit. The year is characterized by significant nonrecurring expenses, which include, of course, the loss incurred with the Fujian Divestiture, but also CHF 95,000,000 for restructuring and reorganization plans all over the world.
Cost of debt is slightly the first application of IFRS 14,000,000 for EUR 40,000,000 and in a lesser extent to pension actualization. The effective tax rate is like increasing the main reason being the non deductibility of the food channels. As a result, our net profit for the group stands at 1,000,000,000 and is up 6.1% as published and 11.1% if we include 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 percent of sales, a record Ericide. Working capital variation is in line with the activity evolution following stabilization of the factoring initiative.
CapEx, including Tech Car acquisition, were high at EUR 2,600,000,000, with industrial CapEx up 17% to last year. Nevertheless, thanks to strong cash performance. Net debt continued to be reduced with a year end gearing now under 65%. As mentioned earlier, the return capital employed improved by 60 basis points excluding Fujian Loss and stands now at 8.6 It's another step forward to reach our 10 percent objective in 2021 or 2022, depending on the investment phase. The investment opportunities actually continued to be numerous, showing the confidence of our customers in the medium term perspective.
Our 12 months portfolio of opportunities is up to 1,000,000,000 with an increase in the number of takeover projects. Investment decision are at a record high close to EUR 3,700,000,000 with a large part being indicated to large Industries And Electronics project, and we've also a notable increase of efficiencies and renewals investment. We also have more investment in advanced technologies, biogas, and hydrogen energy and mobility. And to finish with, we started 18 new units, which together with the ramp ups contributed 3 1,000,000 to the top line. For next year, we confirm that the estimation of the contribution of startup and ramp up should be in the 1,000,000 range before a pickup in 2021.
The backlog, which is a total amount of projects above 10,000,000, which are under construction and not producing yet, is also up to 800,000,000 and should deliver 1,000,000,000 of new yearly sales after the full ramp up. Benoit 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 operation. Nevertheless, we are the performance and a higher return while pursuing our investments for our future. So thank you for your attention.
And I hand back to Benoit for the opening of the Q And A session.
Thank you Fabienne. Before we start the Q and 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 4700 people altogether in China, out of which 300 are located in the Huwan, which They have been highly mobilized in the past 2 weeks, nearly 20 fourseven 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 into a more sustainable way of managing this crisis. As we speak, if I look at the different business lines in large industry, about 60% to 70% of our plants are have a normal load, which means that we are running. We are supplying customers. We have rather a few customers that are really stopped. But the LIE is not under normal conditions, but I would say close to.
The E and C, as we have a workshop in Hongzhou, which is not that far from Wuhan. What we expect is some sort of delays in, in, the execution of projects because some of our call 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, it's manageable.
Of course, the E and I projects supply of equipment are postponed essentially after the crisis. In I'm, as it is a very local business, it can be impacted locally. The bulk and 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. And we are very small in health care in China. It's limited, so the impact will be limited.
So this is where we stand. And any costs related to the coronavirus will be accounted in exceptional costs and have more questions, I think Fabienne or Mike will be ready to answer your questions. So, thank you. And we can start now the Q and A session.
We will now take our first question from Tom Wrigglesworth from Citi. Please go ahead. Your line is open.
Benoit Fabienne, thank you very much for your presentation and that detail there on the on the China impacts. Couple of questions from me, please. Firstly, on the, the product mix management and focusing on I am pricing. I think it was 6 point 3.6% was the full year pricing performance, 2019. Could you break out what was pure price and what was mix in that through 2019.
And then looking forward on that, you talk about pricing and niche campaigns for 2020.
You know, what would be
a base case for 2020, excluding, you know, any coronavirus impact? And the second question, if I may, You talked about 9 potential, targets for portfolio streamlining. Could you help dimensionalize you know, what's the amount of sales that would be attached with those, with those 9, identified targets That would be very helpful. Thank you.
Okay. Briefly on the product mix management, out of the 3.6 I think one third more or less comes from helium. And you will know what the helium situation is. There's a shortage of supply because it comes from a limited number of sources in, 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 fuel pricing in the mix. I don't have the number of my head. I don't know whether we have that, somehow available, Fabienne.
It's quite difficult to segregate because it's a it's really a mix of both there is a, probably more pure pricing in the US as a catch up of produce situation, the little bit of more mix in Europe, where we had packaged guys growing quicker than bulk.
Now that being said, you said, okay, can we expect a sort of the same order of magnitude in the future? I think This is this is I mean, there's a helium first and second, there's a sort of catch up situation where we had to face significant transportation cost increase in the past. And, we had to pass on those costs to the market. And I think we have done it pretty well in the past year. It's not going to last forever.
So probably in the long run, we will be closer to inflation or inflation plus as a rule of thumb for pricing, but we intend to continue the pricing management, be it pure pricing or product mix, because there are a lot of things to do. I mean, when you identify 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. And in the end, the pricing, but also the cost side of it, is improving. So we intend to keep a pretty good and sustainable pricing level over time.
That will be close to inflation or inflation plus and that's more or less what we can do at this stage. Potential targets for portfolio for the end.
So, in the potential target, we have understood the divestiture of Schul Kumar in Germany. So, this one is major and will be treated, of course, as large perimeter. The others are relatively modest. You probably saw that we announced and is go the divestiture of Czechia and Slovakia together, it's clearly less than 1,000,000. So the other divestiture will be relative on margin, but should have an impact, a moderate impact on sales, which show is very likely to be compensated by our bolt on acquisitions.
Thank you. Next question.
Our next question comes from Andrew Scott from UBS. Please go ahead. Your line is open.
Probably the first one's from Mike, around 2 issues in the US. You hit pretty hard in Q4 with minus 9% on hard goods. And also you had the US turnarounds, both Q3 and Q4, which you quantified at, around about 4% impact. So 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.
Second question was an accounting question. Fabienne, when you when I look at the 6 disposals you did in 19, where do they where do the impact of that come in the P and L please. Thank you.
Okay. Easy, Mike. Mr. Fabienne, you follow.
Great. Thanks Benoit. Good morning, Andrew. I guess first starting with, with, the hard goods piece and, and more importantly, the, the Airgas market. So I think As Fabienne mentioned, there's kind of a widening contrast between the industrial markets and the consumption markets.
And what we saw slow, especially as we move through the year in definitely into Q4. We saw a much softer construction environment and also manufacturing and metal fab. And and so that drove both the decline in hardgoods, as as well as a mitigation on on gases. The gases were more flat in some areas and construction slightly off, but the real drive was to say significant negative downturn in the hard goods themselves. If you looked at more the downstream energy in 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 chemical over the course of the last 5 years and maintenance spend is actually up 31%. So 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 on the construction segment, it's it's a bit mixed. You've got the situation where, the more traditional, construction with general contractors is down. They've complete a lot of new projects and the new ones are yet to come out of the ground.
They will. Business development has been very strong. And 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, 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. And that's stabilized now. So I think the impact of all that has evolved to 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.
And 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 turnaround in the second half of the year, both in air gases 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, on us as well. So 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. But still, I think that that 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 look like in the first half of twenty nineteen.
Thank you. Thank you.
Thank you. 2nd question is accounting and the 60 disposals. So,
yes, the impact of the disposals is visible on all the lines of the p and l. As you can imagine, it's in the comparable business because it's small disposals. If we look at the balance of disposals, reclass, and small acquisition on the comparable sales, it ampers the sales by 1,000,000. So it's it has a small impact a negative impact on sales by EUR 25,000,000 approximately. Conversely, it has a positive impact on of EUR 5,000,000 on operating income.
So this is a balance of small divestitures and small acquisition. And do you see that it starts to be relative on the performance. And it's certainly something that we will continue in the years to come those portfolio use more proactive portfolio reviews.
Thank you. Next question.
Our next question comes from Gunther Zechmann from Bernstein.
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, So is it then fair to be looking at a similar level of operating margin improvement in 2020 including any impact potentially from coronavirus.
So around the 70 basis point mark, that's the first one. And 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, on the margin and also on the return on capital employed.
So I would 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. Short, 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. So clearly, the 70 basis point 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 backed to 10% in 2021, 2022. And then we need to align on this objective and to continue to increase our return on capital employed significantly year after year.
And if I just may add something if you look at the split in the efficiencies, the 433,000,000, there's a there's a vast majority, which is the optimization of what we do, and it's across business lines. I mean, it can be energy consumption, improvement in reliability, production, it's it's, the reduction of losses when you have products like Helium that you need to transport, and so on and on and on. So this part is important and it will continue. The procurement part, which is about 1 third or 30% is also something that we can improve. So that's a structural approach more than just a present approach.
But what is new is the transformation part which added on to the efficiency results that we have. And this part is just starting So when we put all see, last in the in the coming years. And so it gives, I would say, a good substance to 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.
Question comes from Martin Rodriguez from Kepler Cheuvreux.
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, but you also mentioned that some customers talk about a more balance 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 Fujium project, does your capital employed figure for 2019 still include Fusion? And if so, what should we pencil in as disposal effects on capital employed for 2020? And finally, that's for Benoit. The a question on carbon intensity now with 4.6 kilogram 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 dispose of Fujian and some maintenance turnarounds have helped you. So do you need to update your target? Thanks.
Okay. So Fabienne, you start with the first 2 and take the third
So what we've heard from our customers and what we've 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. Why for electronics, we see a demand, the demand remains 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 a 3, semester end.
So 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 the end of 2019. So at the beginning of the year, end of 2018, we add the capital employed of Fujian, in the capital employed, same at the end of June. So 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 average of the capital employed. So 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 2 of the three pillars that we average. Hope it's clear.
Yes. It was hoped for the absolute figure.
But this is clear for me, so that's good. And because we are on Fujian, you're very right in saying that the Fujian divestiture is actually removing a 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 say it again.
We still keep for the time being the 4 point for target for 2025 because this was done about 2, two and a half years ago. But as we will have to give you next year, we will seize the opportunity to also look at the climate objectives and, let's say, re examine and re sets, those objectives with the reality that we have to see end of this year. So we are aware of the fact that We are nearing now the targets. So it will be time next year to give another objective for the next 5. By the way, it will not just be 20 25 because when we see, what the world now is requiring, including investors the way, is a view on 2030, if not 2040 and how we can pair ourselves with the 1.5 or 2 degree scenario because this is what is important.
So we'll take the year 20 20 to think about how Air Liquide can actually contribute to that objective And so we will be back with new numbers next year to be very clear.
Thank you.
Thank you. Our next question
Our next question comes from Toni Jones from Rahelburn. Please go ahead. Your line is open.
One left from me. It relates to China and the coronavirus impact. So 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.
So 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. So so they continue to hold. And and I think what's important is while we don't know exactly how long this will go, we 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. And and So our planning is such that we recognize that differential. So I think that by the time we get to the second half of the year, we should be into more recovery mode for sure. And I don't think we're going to see this prolonged for a long period of time.
Okay. Next question.
Our next question comes from Jean Baptiste Rolland from Bank of America. Please go ahead. Your line is open.
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 I mean, the macroeconomic environment is pretty challenged. So I'm just wondering if your are you growing, above the the rate of the industry? That would be my first question. And then the second on efficiencies, you're talking about a pickup for, for 2021 versus 2020.
And I think I remember that you provided a guidance for GBP 230,000,000 for 2020. What sort of level would you get back to in 2021? Are we talking about getting back to 1,000,000 kind of levels again? Thank you.
Okay. The 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, in, 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 we had a significant synergy with the existing basins to put in place we were successful. And I think it's it's just a good, a good illustration of both the competitiveness and the ability to develop and win projects. So we might be a little bit, above competition. I'm thinking not just large industry, but also electronics. And I think in electronics, we've been really very successful in the past 6 to 12 the pickup in 2021, maybe Fabienne would like to give some color on,
My pleasure. So you're mentioning efficiencies are. It's not efficiencies we are talking about. It's a tribution of startup and ramp ups sound to be very clear. 2019, was relatively high, but in including a Fujian contribution.
2020 will be lower at 230,000,000. We will be higher in 2021. With quite a good number of large industry and electronic projects starting up. So it's always difficult 2 years in advance to know exactly at what moment the project we start, but we should be more in the 300,000,000 range than than in the 2:30 for sure. And then we'll update you progressively as we get closer to the effective starting dates those projects.
Now I'd like to seize this opportunity to ask Francois Jacob and Mike to ask them whether they see delays for 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 for in Europe, Middle East, and Africa, and Mike, in America and Asia.
Thank you, Benoit. Good morning. No, today, we don't see any significant startup coming from the customers. As mentioned by, by Fabienne, I mean, several of the customer who were seeing lower activity at the end of 2019 actually are more optimistic for 2020 and especially the 2nd part of the year. So this is true for, for steel, especially And as they have to also tackle the carbon footprint, they are quite active actually at considering a new checks 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, so far the customer are continuing on on their project. Finally, 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 slow down, but, redesigning of some of the projects. However, it's still a very active region of the world where we see several opportunities that should materialize in the next 12 to 8 months.
Okay. And America and Asia?
In 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, and, recognized need for the future. So I think that bodes well. Both for the business development activity in the region as well as for the start ups that are planned. Similarly, in the U.
S, we've signed on the order of 8 major contracts for the Gulf Coast, over the course of the last 18 to 24 months. And 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. And again, the business development activity continues as well, in the U. S.
In that regard. And then finally in electronics, I think we signed 6 carrier gas projects last year. That continues to be very robust. The market drivers for integrated circuits is very significant we look going forward. And even though there was a bit of a slowdown in certain areas, of the industry in 20 18.
All of that is expected to return to normal and be caught up in 2020 and beyond. And especially in the advance note, those under 20 7 nanometer 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. So I think it bodes well for the future.
Thank you. We can take next questions.
Our next question comes from Rodriguez from Bank of Sabadell. Please go ahead. Your line is open.
Yes, hello. Good morning. I would have, three questions, quick ones. The first one going to your or 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 increased, fortunately 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 could have more full picture. And the last one would be, regarding engineering construction, if could give us some color on what, 2020 could look like?
So again, you can start with the first two questions.
So for the efficiencies, we you know that we use efficiency to fill the gap between the increase of cost and the increase in price 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. But 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 market remaining Q1, even if our exceptional effect, like the, E and I comparison, and the turnaround on the Gulf Coast will cease. So the, the comparable growth should be, of course, a little bit better in Q1 and Q4, but quite difficult to say at the moment in particular with your new uncertainty, linked to the coronavirus.
And the third question is related to the forecast for the perspective for E and C. You've understood that E and see is actually highly focused on the group sales, meaning executing the projects for the group. So it translates into less 3rd party sales or less revenues, I think we've probably reached a sort of bottom where we were in the second half last year. So probably the best guess would be to be stable or slightly positive for E and C in 2020. And again, this is not an activity level.
This is more due to the fact that E and C is going to serve the group and executes, project, for, for the group. And that's you remember, we have decided a lot of investments, so there will be a lot of new plants to build in the coming 2 years. Next question.
Our next question comes from Peter Clark from Societe Generale. 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 a new leadership for what the best part of a year. And I guess on the other side, Toya 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. And then the second question on the on the minor disposals coming or certainly the reshaping.
I mean, Schulke, you've announced. I'm just wondering the logic for septic and ingredients. You always said this is quite strong synergies with the rest of the health care, but just, just on the septic business. Thank you.
All right. Well, globally, I don't know whether there is a clear link between the consolidation of the industry pricing. Of course, we have the question many times. From our perspective, it's clear that the pricing we have had, I would say, in the past 2 years is more the result of our actions, the sort of catching up in the transportation costs that we had to incur in the past years, the very low inflation because when the inflation is low, your pricing power is more difficult. And also the product mix will 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 are we we we bring innovation to the market. We have good examples in the cylinder market was our new, tops that have been launched in the past 6 months in Europe. They are really promising and they offer new functionalities to customers. So the pricing is slightly different, and it translates into more price So in the nutshell, no real impact visible from the change in, in the structure of the industry. But more pricing, results, which are the result of, of our programs.
The reshaping of the portfolio, Fabienne? And the question about Celine?
Yeah. I think, we've Schulke and Cpeek. We have 2 very different situation. Should go with the aging product is now acting on a mass market where we have very strong competitors, large international groups. So to remain competitive in this market, we would need to invest massively into Schulke.
Schulke is not a priority on our strategy and that's why we have decided to, study a potential divestiture. CPIC is very different. CPIC is on a niche market, we are able to continue to grow CPIC with small acquisition, with R And D, with innovation, and to continue to develop both sales and margin at CEPIC. It's a very nice addition to our health care portfolio So two very different strategic situation, and that's why we are studying the divestiture of sugar are not at all Oxypiq.
Thank you.
Next question.
Our next question comes from chetan Udeshi from JPMorgan. 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 we told you that the impact of the Elium on pricing is approximately 1 third of the total price impact on 2019, which by the way will continue in 2020. Then, if you look at Elum Globally, a little bit more than 1,000,000 sales at the group level out of 1,000,000,000. 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, so it's, it's it's contributing, but it's not what is doing the improvement of the margin for sure.
Thank you. Next question, we may probably have to take 2 more questions So three maximum. Next.
Our next question comes from Laurent Favour from Exane BNP Paribas. Please go ahead. Your line is open.
Yes. Good morning. And thanks for taking one last it's from the cap capital intensity of the backlog. I was a bit surprised that the backlog went up by 600,000,000 to 2,800,000,000 but the impact on sales once fully ramped up is the same at around 900,000,000. So the ratio is seemingly above three times on CapEx $0.02 and it is a bit high.
So I was wondering what was behind that. Thank you.
Do you want to take this one?
As mentioned in our new project and investment decision, we have more renewals and more efficient C CapEx, which all contribute to the profitability. If you exclude from the backlog of those renewal, and efficiency projects. We still have a capital intensity, which is a 2.5 area as before. So it's really the impact of the in particular, the efficiency projects, which are also now in the bad
one additional remark in that regard. We, 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 but also gaining an inefficiency. And those investments have a different capital intensity by nature, So you don't see necessarily the result of this investment fully in sales, but you can measure them in profits because you have you have savings that are due to more efficient plants, and technology after 20 years or 25 years have improved. So we have a portion of the OIR, which is coming from those renewals, but you don't necessarily see them in the in the sales. And so the apparent capital intensity is higher.
That's that's common that you need also to take into account. Next two questions, and I think we will close. So first,
Our next question comes from Andreas Heine from MainFirst Bank. Please go ahead. Your line is open.
Thanks. And I restrict myself also to one question. Peer seems to change, especially for the hydrogen large industry projects, to tolling contract. Lifting these CO2 footprint, reducing this CO2 footprint and lifting the margin. Do you do the same and what is your position at heating 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. And we 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 I mean, part of our sales. If we had done that 1 or 2 times in our history, it was very specific to a a particular situation, but generally speaking, tolling, is not our favorite business model. We try to keep energy.
But we essentially because we think that we can add value to the customers. And this is true, by the way, for the ASU, for the gen 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. And if you think about climate change and emissions in the future, having the ability to offer cleaner products to our customers will icing be a plus. So that's the reason, essentially, why we are limiting tolling to a very strict minimum.
Next and final question.
And we will take our last question from Charlie Webb from Morgan Ellnick. Please go ahead. Your line is open.
Good morning all and thank you for taking my last question. Just 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 services orientated parts towards hydrogen. How should we see that evolving next next year, both in terms of the return profile for such investments and also kind of the number of such investments looking forward when do you expect these to be kind of a bigger part of the kind of growth of the business looking forward? And how do you see the kind of returns by far 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 not a short term market. Hydrogen Energy, if if I'm trying to summarize what I heard from many different sectors around the Harrison Council is going to really change the name of the game in the next 10 years. Now 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 a big difference in, in terms of, sales.
But if we look at the number of projects and how are discussed, if not decided, they are growing. You we can see projects, in every single country I think all the major industrialized countries today have hydrogen plans. We we recently countered, that about 70 to 80 percent of the major countries in the world had a hydrogen, a national hydrogen plan, So it's coming, but it will take a few years before it is really significantly materialized. And I'm talking about, in particular, hydrogen energy from renewables. CCS is different.
CCS is how do I actually, say, capture and orchestrate my carbon of today? And if you are a highly emitting industry, be it chemical, being refining, or steel, you are now under pressure from the public, from the governments, from the authorities, from the financial markets, to do something on your core business. So the projects for CCS applications are being discussed right now. And the 2 that we are 3, we remain mentioned earlier in Northern Power 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. So CCS might be seen in the next 5 years.
Hydrogen energy for mobility will start, but will be still modest in the next 5 years, and we'll probably take off between 25:30, which doesn't mean by the way that this is not the right time to act because this is something we have to prepare. And you have to remember that we took a first decision in the US to build a hydrogen, a liquid hydrogen plant number 1. 2nd, we will invest in a 20 megawatt pam 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 and we are studying many other projects. So project phase for hydrogen energy and CCS is becoming very serious. But in the next 5 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.
Yes, no, very interesting. Thank you.
Okay. So thank you very much. I think it covers more or less what we wanted to tell you. So 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 Francois 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.