Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations. Thank you for joining our conference call today. Benoît Potier and Fabienne Lecorvaisier will present the first half 2019 performance. Mike Graff is also with us and will participate in the Q&A session. Our next announcement is on October 24th for our third quarter revenue. Let me now hand you over to Benoît.
Thank you, Aude. Good morning, everyone, thank you for being with us. The agenda today is around this first half, which is a good combination of sales and margin improvement, and we'll try to detail that with Fabienne and Mike. We'll also look at the transformation, which is accelerating and delivering as we see that in the numbers. We'll come back also to the outlook. I will start with page four, which shows that we have delivered a very solid performance this first half, thanks to the excellent teamwork that we could achieve in the group globally in all geographies. We see that all indicators are improving with nearly 8% as published sales growth and 4.9% increase in sales on comparable basis.
We have delivered sustained sales increase, which shows our ability to grow in, I would say, a slightly more contrasted environment, and I think we will come back later. We have done that while generating a step-up in margin with 70 basis points increase in operating income recurring to sales ratio. As for net profits, if we exclude the one-off, which is linked to Fujian divestiture, but also the financial gain we had last year, we have a net profit recurring increase by 12%, which is actually leveraging on the 7.8 growth in top line. The strength of the balance sheet is further also improving, with a return on capital employed increasing by 30 basis points, and the gearing is down 71%. I will let Fabienne comment on the details on how we achieve that. If we look at page five, by business line, where this growth is coming from.
On the left part, you have the two quarters. If we look at the first half, we have now reached again, for nearly eight quarters, this 4%-6% growth in sales. If we look at the first half, we have a very strong growth from Electronics and Healthcare, respectively 13.5% and 6%, which shows that we have the underlying business that is there and providing what we expected. Large Industries is back to more than 5% with a significant number of start-ups and ramp-ups. Again, we'll come back later on that. An Industrial Merchant, which is slightly lower than before. We have only identified a few market segments, in particular in the U.S., that are slowing down. Again, Fabienne will come back to that later.
The second highlight of this first half is actually the step-up in margin with an improvement of 70 basis points in the first half, which means that the step-up is initiated and will go on. There are three drivers supporting this increase. The first one is the price mix. Actually, prices increase in all regions to reflect in part the cost increase that we had. I'm thinking in particular about transportation costs, but not only. Also we had the ability to increase helium prices because, as you know, there's a tightness in helium sourcing in the world. We also acted on the product mix by trying to increase the value of our products and services. Not just we have the pricing environment, but also a management of the mix. The second lever is definitely the efficiency program, which now includes in full the Airgas activities.
The first phase after the acquisition was to deliver synergies, which is now, as you know, done. We are now focusing on putting in place the efficiency programs of Air Liquide legacy into Airgas, and it is producing. The third lever is the portfolio management with a certain number of small but altogether contributing divestitures that is also helping the improvement in margin. Of course, this improvement in margin will also have an effect on the improvement in return on capital employed. This is the operations. If we look at how much we invest, and on page seven, we have had a very active business development preparing huge growth. The industrial investment decisions were above EUR 1.3 billion since the second half of 2018, on 2017.
In the first half of 2019, the $1.8 billion of investment decisions include the Tech Air acquisition, which is, as you know, sort of mini Airgas covering many regions in the U.S.. If we exclude Tech Air, Americas is the first geography in terms of investment decisions, and over the last 18 months, we signed for more than $400 million of investment, essentially on the Gulf Coast. We recently announced the signing of three long-term contracts with Marathon and GCGV on the Gulf Coast, which are two main customers in the U.S. Most likely, there will be more to come. In Europe also, for example, we recently announced a new long-term contract with Severstal in Russia, which means that the trust is actually there between the two companies, because we have had already a long-term history with this customer.
We signed less significant investment this first half in Asia, mainly, but we did it with electronics customers. My next slide is page eight, is related to the group transformation, which is accelerating and delivering. We have highlighted a few examples for each of the NEOS objectives that prove that this transformation is taking place. We have actually a high level of signing, which is securing future sales growth. That's point number one. The transformation projects also allow increased efficiencies. There are many. For those who were present during our last Capital Markets Day in Lyon in France, you saw in real what the Smart Innovative Operations is all about, but also you saw the automation of our cylinder business that is taking place. On top of that, I could mention some structural projects related to the organization of shared services in Europe that are taking place.
The Airgas acquisition is now fully digested, as I said earlier, with gearing back in the 60-80 range. I'm talking about the debt, so the third point. We had recently an outlook, which was revised by S&P to positive. That's another example of NEOS' objective that is contributing. If I look at the return on capital employed, we have an active management of capital and efficiencies, which lead to another further improvement of the return on capital employed. Last, I would just like to mention the decision we took to divest Fujian. All of you are aware of that. This is, of course, an important decision which was taken in agreement with a customer.
We also had, in terms of other objectives, climate objectives in particular, some innovations in biomethane, in hydrogen energy, and new processes that we are testing, like the one we announced with ThyssenKrupp in Germany to partially replace coal by hydrogen in a blast furnace. I would say that all those examples are supporting the achievement of our climate objectives. The innovation is real. On that basis, I would like to hand over to Fabienne for more details about the performance. Fabienne?
Thank you, Benoît, good morning, everyone. As just highlighted, our performance is supported by sustained sales growth close to 5% in Q2 and by an acceleration in margin improvement linked to a series of action on which I will come back. Cash flow is also solid for the period, our return on capital employed improved accordingly. This clearly enabled us to pursue active new project signing. Looking at the numbers in more details on page 11, gas and services sales are 4.9% for the semester, with a slight acceleration in Q2 at 5% versus Q1 at 4.8%. Engineering construction sales contribution is slightly down as we had more group project than third-party project this semester, while we remain confident in a level of order intake consistent with last year. Global Markets & Technologies continue to grow double digit, benefiting from high techno sales and expanding biogas.
For the group, we also end up with a 4.9% very solid comparable sales growth. By looking at published numbers, the Forex effect has been positive at 2.5%. Therefore we enjoy a very strong 7.8% growth. In terms of market, we are clearly facing a situation which is now a little bit more contrasted. For large industries, chemicals remain relatively solid but with different drivers, petrochemicals in Benelux and more methanol in the U.S. The demand for oil and gas is still strong in Europe, in Benelux, the steel slowdown is visible in Europe in particular. In terms of merchant, we saw the market linked to investment temporary softening with a kind of wait-and-see attitude in the U.S., notably impacting metal fabrication construction, for example. Conversely, markets linked to consumption like food and pharma remained robust.
In electronics, all segments are still relatively well-oriented in the countries where we operate, despite a slowdown in the investment. I am on Page 14. The Q1 growth levels were more or less confirmed in Q2, with strong pricing and positive volumes in industrial merchants in Europe, Asia, and the Middle East, strong large industries in Asia and Europe, and high healthcare growth, and still very dynamic electronics in the U.S. and Asia.
For Gas & Services, base business at 3.3% in Q2 continues to be strongly contributive, while start-up ramp-ups and bolt-on acquisition bring an additional 1.7% growth. The Tech Air acquisition in the U.S. are counted as significant perimeter since April 3rd, and therefore, not part of the comparable growth, is bringing an additional 0.8%. Let's now go deeper in the geographies on Page 15. This is a Q2 comment. Americas, to start with, is posting a 2% growth.
Large Industries is better, supported by more premium pricing than in Q1 in the U.S., as well as by strong oxygen volumes in the U.S., Canada, and Brazil. Industrial Merchant, conversely, is softening, mostly due to the slowdown of metal fabrication and construction markets in the U.S., strongly impacting our hard goods sales, while food, pharma, and techno continue to grow. Pricing remains very strong throughout the zone. Healthcare is up double-digits, thanks in particular to the U.S., supported by medical gases sales to proximity care, and to growing home healthcare volumes in Latin America. Electronics demand remains strong with a high level of equipment and installation. Europe growth is close to 6%, a level we had not seen for quite a long time. In Large Industries, hydrogen volumes through refiners are high in Benelux, and we benefit from a ramp-up in Turkey and a takeover in Kazakhstan.
Industrial Merchant is supported by a further reinforcement of the pricing at 3.8% in Q2, now aligned with cost inflation and by steady underlying volumes. Healthcare is strong, above 6%, supported by stable medical gases and high home healthcare growth at +9%. Asia remains very strong at +9%. Large Industries' growth is supported by oxygen ramp-ups, in particular in China. Industrial Merchant growth is still up double digits in China, with positive pricing and strong volumes, in particular in packaged gas, and is also solid in Southeast Asia. Conversely, the Australian market remains quite difficult. News are still very good in Electronics, with a 15% growth despite equipment and installation progression being slightly less than in Q1. Cryo gases, in particular, are benefiting from strong demand and new ramp-ups.
Africa, Middle East has been affected by a major outage at Sasol, which ended mid-June, while merchant continued to be strong in Saudi, the Emirates, Egypt, and India. I'm now on Page 17. I'm not going to comment the activity by business line in detail, I will just share with you a few highlights. In industrial merchant, pricing remains very strong. It reflects a stronger inflation on cost, a clear unbalance between offer and demand in helium, but also significant proactive sales force action. Markets are now a little more contrasting. Large industries are improving, thanks to volume growth, hydrogen in Europe, and oxygen, mostly in the U.S. and in Asia. Healthcare continues to be above historical average, thanks to home healthcare in most geographies, with the extension of new therapy and to medical gases in Americas.
In electronics, the drivers remain the strong growth in Cryo gases and Advanced Materials, supported by start-ups and strong demand, driven by memories for integrated circuits and flat panels in China. Let's now talk about performance on page 19, clearly showing a significant improvement. In fact, all operating costs, purchases, and staff expenses are progressing slower than sales. You see that due to IFRS 16 new accounting standard, there is a transfer from other expenses to amortization. Excluding this impact, these two categories are also increasing slower than sales. As a consequence, operating profit recurring as published is up 12.2% and 9.4% on a comparable basis. Operating margin is therefore up 70% for the group and 16% for Gas and Services only. The application of IFRS 16 only accounts for 10 basis points of this improvement.
As explained by Benoît in his introduction, our performance improvement programs rely on three main pillars: pricing and mix management, enhanced efficiencies, and portfolio management. Let's start with pricing and mix on Page 20. As already discussed, our industrial merchant pricing has significantly improved over the last three years, thanks to sales force refocus, much better inflation pass-through, and leverage on our helium competitive position. Regarding product mix, more emphasis has been put on added-value products and services, new applications, and cylinders, in particular. In terms of efficiencies on Page 21, we continue to onboard teams and expand our programs, with Airgas being now fully embarked. CapEx efficiencies were also reinforced.
We have moved from more optimization project to real transformation project. Like the SIO project in large industries for centralized piloting and real-time value extraction from our network capabilities, like extended business support centers materializing back offices, or the sharing of technical teams between business lines. For H1, total efficiencies are close to EUR 200 million, well-aligned with our EUR 400 million full-year objective. The third pillar is portfolio management, with quite a large number of projects already closed or ongoing. We have in particular completed the sale of three non-synergetic businesses at Airgas, refrigerant gases first, and then on-site safety services and thermal protection equipment. In Europe, we have finalized the sale of INTEGA in electronic equipment in Germany. In Asia, we have signed the sale of Fujian and completed a swap with a competitor in China.
We have more transactions going on and hope to complete some of them before the end of this year. This help us to refocus on the most contributive activities and allows us to be more active on our bolt-on and complementary acquisition program. Coming back to the P&L on page 23, we've been able to generate a slight net profit growth despite the exceptional gain of EUR 55 million recorded last year in financials and the one-off provision linked to Fujian this year. Excluding these two impacts, net of taxes, net profit is up 12%. To give you a little more detail, the cost of debt is stable at 3% on average for the period despite increased factoring cost.
In line with our forecast, the tax rate is slightly higher than last year due to a variety of small impacts, including increased taxes on dividends and non-deductibility of the Fujian accrual. Performance is also good for cash flow, up 14.8%, with a growth which is above sales even if we exclude the IFRS impact, and our gearing is 8% on the last year's level. In fact, operating cash flow stands at 21% of sales. The increase in working capital needs includes an increase in inventory linked to high equipment and installation sales and Global Markets & Technologies growth in particular. Payment on investment for the period include EUR 450 million for acquisition, when growth industrial CapEx represent 11% of sales. Our net debt level at EUR 13.7 billion reflects the acquisition of Tech Air in the U.S. and the seasonality of the dividend.
Performance improvement and portfolio management contribute to return capital employed improvement. I'm on page 25. We are now at 8.3% if we exclude the Fujian one-off. As mentioned by Benoît, the investment activity did not slow down in Q2. Our portfolio of investment opportunities remain at EUR 2.7 billion, well-balanced in terms of geographies and size despite a good level of signing. Investment decision at the end of H1 reached EUR 1.8 billion, including EUR 450 million for acquisition. In Large Industries, we sign new projects and renewals in our main core basins. In Industrial Merchants, we reinforce local capacity in connection with large bulk customers demand, in particular in developing economies. At the same time, we continue to sign new contracts with Electronics customers in Asia. We started 12 projects in the beginning of the year, of which four in Large Industries and five in Electronics.
In terms of contribution of startup and ramp-ups, we are at EUR 185 million year to date, and we confirm that we should be around EUR 300 million for the year despite the divestiture of the Fujian assets, which should materialize somewhere in Q3. Investment backlog is steady at EUR 2.2 billion, and the sales backlog is still around EUR 850 million. To conclude, and based on the quality of the H1 performance in terms of sales, margins, cash flow, and return capital employed, of course, we confirm our outlook, which is to deliver net profit growth in 2019. This is what we wanted to share with you as an introduction. Thank you very much for your attention, and we are now going to open the Q&A session.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will now take our first question from Gunther Zechmann from Bernstein. Please go ahead.
For your business. Hi, can you hear me now? Hello?
Go ahead. We can hear you.
Can you start again from scratch, please?
I will do. Of course, yeah. Two questions, if I can start. Firstly, you've always historically at least guided for a 20 to 30 basis point margin improvement in your business per year. Can you highlight how much of the now 70 basis point was driven by each of the factors that you've highlight, and how much of that we should expect going forward? That's the first one. The second one, I noticed in the chart that you've given that the base business accelerated from Q1 sequentially. What was the driving factor behind that acceleration, specifically in the base business? Thank you.
Thank you. Well, we're going to share the answer between Fabienne and I about the first one. It's clear that we've been able to produce, on the average, 20 to 30 basis points. If you remember, the equation was clearly the pricing power that we had, the efficiency, and the cost increase that was not actually passed through prices. I think what has changed, and this is very visible on one of the slides when you look at the pricing evolution over time, is that we have regained more pricing power, which means that the retention rate of our efficiencies is higher than before. I think that's probably one of the main reasons why we were able to produce more improvement in margin than before. This is one. This is the pricing side.
I would say that overall, this is a sort of addition of many small things that we were able to put in place. Any strong efficiency program, like the one we initiated when we announced we were going from 300 to 400, is something that is well prepared in advance. It was the case, and it has been communicated to the teams on a worldwide basis with not just the big centers, the hubs, but also the clusters and the countries, but also business lines.
What you can see today is the real effect of the transformation and the structural changes that were implemented in the group. We feel very confident that this is here to stay, in that if we combine a good pricing and product mix environment, a good efficiency program like the one we have put in place, in particular with Airgas now joining the group program. Also, I would say, a good portfolio management. Those three pillars are going to really be strong in the future to sustain a good margin improvement.
That's the global comment I wanted to make. It's not just by chance that these 70 basis points happened. By the way, we had an excellent teamwork in the group, which was again visible during our last international meeting we had in June with all the managers from the world. I think the buy-in from the teams is very strong. Fabienne?
Well, not much to add on the margin. We had made very clear that we were launching a number of action plans in various fields to improve the performance, and I think it is starting to deliver. You had a question on the base business. It's true that it's a little bit better in Q2 than in Q1. This is excuse me, mainly linked to the improvement in Large Industries and Healthcare, while Electronics remains, as you've seen, very strong. We also have, if we look at the geographies, a global improvement in Europe, and Europe at 6% is a very nice growth for a zone which is made mostly of mature countries. It's in several business. I would say Large Industries, Healthcare, Electronics, and in terms of geography, Europe, while Asia remains very strong as well.
That's great. Thank you.
Thank you. Next question.
Our next question comes from Andrew Stott from UBS. Please go ahead. Your line is open.
Morning, everyone. I've got a couple of questions. The first one was back to pricing. Just wondered if you're prepared to disclose the contribution from helium to the 4.1%, and also just to address that market again for me, just to understand where we are with helium overall. The second one was probably just a question for Mike, actually. The margin performance in Americas was the standout geographically, and that's despite a pretty slow top line relative to the other regions, at least. Can you just sort of delayer some of that 100 basis points? I'm very wary that the second half margin in Americas was much tougher for you, or is much tougher for you going into the second half. Just any thoughts on the sustainability of growth in the Americas margin?
Thank you. The helium question, Fabienne, you can give that.
Well, you know that the helium market is pretty unbalanced at the moment, meaning the demand is stronger than the offer. Some of our competitors have put their customers under allocation, which is fortunately not the case. We have a pretty competitive position at Air Liquide, with several sources and also, as you may remember, our cavern in Germany, when we can stock a certain quantity of helium for our customers. It's clear that on this market, the pricing has been increasing very rapidly. We are more or less 30% higher than last year, and this contributes to the global IM pricing. We have in Q2 an IM pricing impact, which is at 4.1%. Helium is accounting approximately for 1% in this total.
Thanks, Fabien.
Thank you. Just to also remind you that as far as helium is concerned, this is a very tricky molecule because the number of sources in the world are not really numerous. We have a few. There were closures of some sources in the U.S.. For now, several years, we've been planning the access to new sources as point number one, and point number two, we have opened this cavern in Germany, which gives us the ability to actually supply some of our key customers when there is a crisis of supply in the world.
I think this strategy has been very effective, and as we go, I think we'll keep a very strong position in helium and in the helium market. Now for Americas, I think Mike and the American teams deserve a good congratulations for this outstanding margin performance, and I would like him to make the comments. Mike?
Thanks, Benoît, and good morning, Andrew. I think we touched on the price management, and I think that continues to be a focus. There's many underlying layers here to this. First of all, there's this continued drive for efficiency and also to assure that you're managing costs in the right way. The layers really evolve into procurement and a continued drive on managing that, especially with the larger spend we have across the Americas, including Airgas. A lot of work on the supply chain. Clearly, we saw the ability to leverage that in the synergies that we delivered as part of the Airgas integration, and we have continued with that mindset, not just in terms of looking for further opportunity within Airgas, but across all of the merchant and all the healthcare businesses in the Americas.
We've also got the benefit of the evolving hub and cluster organization. As we've seen that evolve, the ability to go ahead and better share business support functions, and all of the basic underpinning of back offices continues to be a driver for us. There's a lot of momentum right now as we think about the evolution in Airgas moving from synergies to efficiencies. We haven't lost that in our DNA, and I think there's a lot of opportunity there as we move forward. I think the final thing is digital, and I think Fabienne touched on that in terms of what we're doing in Large Industries, and certainly, that's a core component of what we've started to deliver within Large Industries in the Americas. There's a sizable component to that as well.
If we look at the merchant business, whether you go and look at the order-to-pay cycle, whether you look at logistics, and you think about production planning, there's a lot of areas ripe for opportunity that we continue to work on. Similarly, in the healthcare business, looking at the back office as well as logistics. Even the smart cylinders make us better in the way we think about serving our customers. I think all of this really bodes well, not only in terms of what we delivered in the first half, but the continued focus across all the businesses moving forward. In terms of a view on the second half in the Americas, I break it down by first saying that Large Industries is strong.
We saw sound oxygen volumes, an evolution of that going from the first quarter to the second quarter, throughout North America, whether that's the U.S. or it's Canada. We saw good Airgas volumes as well throughout South America, we've just started up the Pemex facilities as well. I think we continue to see strength in the base business of what we have in large industries in the Americas, and cogen as well is quite strong in North America. In the merchant business, Fabienne touched on some of the markets that we've seen some softness in. Clearly in manufacturing and metal fabrication, we saw some softening, especially driven by whether that was automotive, or some of the heavy equipment areas where you've got investments maybe in mining equipment. You've got construction equipment, you've got Class A trucks.
We see that was in the decline going from the first quarter to the second quarter, but a lot of that seems to have stabilized and seems to have bottomed out. Interestingly enough, in terms of heavy equipment, rail, and repair on rail continues to be very strong. In the basics of metal fabrication, the heart of metal fabrication has not seen a decline. It continues to be strong in its various elements across the country. In looking at construction, I talked about that in the first quarter results. Looking at the second quarter, we continue to see strength in the Gulf Coast. We had not seen the startup of new projects off the Gulf Coast. I mentioned at that point in time, a lot of those were awaiting sanctioning. A lot of those sanctions have started to occur, and they're waiting on permits.
Whether that's new investment in the midstream, especially for new pipeline projects, whether that's the evolution of the transformation to natural gas power plants from coal, and a lot of other aspects that you will see in infrastructure projects. We expect some of these will start to come to fruition sometime going into the third quarter or fourth quarter, depending on permitting. On power plants, you're probably not going to invest in that next power plant based on natural gas until you see the investment in the infrastructure that's going to follow. I think we'll see those trends begin to pick up as we go through the year. I think finally in both the energy and chemical segments, we've actually seen good strengthening on that going from the first to the second quarter, and that bodes well for the rest of the year.
You continue to see the growth in chemicals on the Gulf Coast, not just in terms of new investment opportunities, but in terms of the startups. The run rates for maintenance, the run rates for specialty gases to support that continue to grow. We saw, I would say, good refining turnaround activity in the second quarter. We'll likely see that mirrored in the second half. Now you're starting to see the startup of new LNG facilities, which we not only see pushing some of the opportunities in construction activity, but with their startup. The ongoing maintenance and support for those activities will bode well as we see the future. Finally, I think in life sciences and everything that we see in food and beverage and other retail areas, that's continued to be a good growth factor for us and likely will continue that into the future.
Thank you, Mike.
Thank you. Next question.
We'll now take our next question from Laurence Alexander from Jefferies. Please go ahead. Your line is open.
Could you characterize two things? First, how you think about what the trends are for Chinese growth in Q2 in the first half in aggregate? Secondly, for merchant pricing, how you think about the sustainability of these price trends if merchant volumes stay negative?
I will again share the answer with Fabienne. Overall, China is doing very well. If we look at every single business line, Large Industries, Merchant, and Electronics, all of them are doing really very well. We have a growth rate right now, which is above 20%. This is really very strong. Whenever China stabilizes more or less in our markets, it's anything between 10% and 20%. It is really very strong, and we've not seen a real slowdown. It's interesting to compare our sales with the IP or the GDP that is progressively slowing down little by little. We've not seen that. We understand, in the Large Industries, there's a lot of new chemical facilities, and oxygen, when it's supplied, it's in massive quantities. We still have a strong growth in that sector. The Electronics is not going to slow down at all.
The international situation between the big powers is more pushing China as a country to boost its electronics segment. As you know, there are different sub-segments in every business line that we have. The electronic segment is nearly 90% integrated circuits. This is split between logic, memory, and analog. Even if you have a slowdown in one of the sub-segments, the other ones are doing very well. In China, in particular, we have a lot of flat panel display industries, and this one is still doing very well. If we look at China more in-depth, the only thing that we are looking at or watching carefully is the automotive market. We've not mentioned it yet, but if there's one signal that we are following carefully is what is happening in the car industry.
Not that the world doesn't need cars, but that this industry is undergoing a very significant transformation. There were huge investments in electric cars that needs to be absorbed, and they will be before there's any new investment in new technologies. This industry is undergoing a very significant transformation. When you think about what a car is, a car is a concentration of steel, of chemicals, of semiconductors, of glass, of many tires. A lot of different industries actually end up into cars. When the car industry is doing not badly, but suffers, I would say, then there are consequences. We can see some minor consequences on the metals, on the steel industry. The recent announcement from the chemical industry were more linked to the slowdown in the car industry than anything else. That's a more general comment than China.
China as such, apart from automotive, is doing very well, and we see that clearly. I don't know, Fabienne, whether you have another comment now, maybe, about China. Merchant pricing and sustainability. We believe that we have reached a point where we have a good balance now between our ability to price in the market and the demand and the capacities, the loading factor globally. We are confident that this pricing will go on. It doesn't mean that it will grow up to the sky, of course.
It will stabilize at a point in time. At least in the second half of this year, we still see a good pricing environment. It will be, again, a sort of recovery of the past cost that we had, because for several years, due to a very low inflation in the world, we lost part of our pricing power that we seem to have recovered as we speak. Fabienne, maybe a comment, additional comment?
No, I think we'll keep a high level of pricing in H2. No question. We don't have any sign of slowdown. You mentioned the reduction in volumes. Let's remember that it's only in certain markets in Americas and mainly coming from hard goods. It's not a global slowdown in volumes, not at all. Also to be mentioned, the comparison basis will become a little bit more challenging, in particular in Q4, because actually the pricing started to increase significantly in Q4 last year. So far, so good.
Thank you. Next question.
Our next question is from Laurent Favre from Exane. Please go ahead. Your line is open.
Good morning, Benoît, Fabienne, and Aude. I got two questions. The first one is on efficiencies. Big step up in the second quarter. I noticed that the guidance is for at least EUR 400 million, and I'm just wondering to what extent the improvement in the second quarter can be a run rate for the second half, or do we have to bear in mind tough comps? The second question is around portfolio management and the six active projects that you flagged in this very helpful slide. I'm just wondering if you can give us any color. Is there any common link? I noticed that I think it's the first time in a year that we see a slide pack that has asset swap in it? Any color there would be very helpful. Thank you.
Thank you. Fabienne is actually impatient to answer the two questions.
Thank you, Benoît. In terms of efficiencies, we stick to our objective, which is above EUR 400 million for the year. We said in Q1 that we were launching a certain number of projects that would deliver later. We are aligning with the objective. I would not take the level of Q2 and take the same for Q3 and Q4. You have projects ramping up, then stabilizing, et cetera. I think the objective above EUR 400 million for the year is a good one. In terms of portfolio management, it's mostly small projects. We have a few in Europe, in countries where we have difficulties to reach a sustainable market share level. We have some in peripheral activities of healthcare, et cetera.
We are pursuing the screening of our portfolio and really trying to identify the activities which are either not synergetic with the rest of the businesses of the group, or which will not deliver value in the long term for a certain number of reasons. In terms of asset swap, you know that all of the markets wants to do asset swap. It's difficult because it's not easy to find a balance between what you want to sell and what you want to acquire and what the competitors wants to sell and what you want to acquire.
Actually, we did a very interesting one in China. Our competitors is not willing to disclose, so that's why I will remain quite vague. We exchanged our participation in two different JVs in two different regions, which allows each of us to fully consolidate the activity in one of the regions. Hope that is responding to the question. I can't do more, actually.
Thank you.
The underlying message is clearly that portfolio is part of margin improvement and will continue to be part of it without necessarily pushing hard for that. We have now put that again as one of the three pillars of our efficiency improvement. Next question.
Our next question is coming from Neil Tyler from Redburn. Please go ahead. Your line is open.
G ood morning. A couple more from me, please. Firstly, on Asia and the comparable growth there. In the Electronics performance, can you give us an indication of how much of that growth was contributed by the startups that you refer to, and how much was the base business there? Also within the, I think you said EUR 185 million from total startups in the first half of the year. How much of that was contributed by the Fujian project? By my calculation, I think it's about a little bit less than 1/3 of that. If you could help me there. The third question is a small one on the cash flow. There's a reference to a EUR 55 million profit on disposal. Can you tell me where that drops into the income statement, please? Is that within continuing operating profit or is it within the non-operating items? Thanks.
A word about electronics in Asia, Mike, could you just make a comment? At least.
I think we continue to see very good growth in Asia. The startup, obviously, of the carrier gas business continues to drive our electronics performance. We saw sound double digits associated with that, both with the startups and the continuing evolution of the business that we have. In terms of the startups and the ramp ups, obviously commensurate with all the signings we've had, it's a good portion of what we have. I think that overall, we end up. Probably 2/3 of what's in there, in terms of the carrier gas piece that's in double digits, is associated with the startups. We've got similar growth, obviously, with Advanced Materials, the startup of G1 and a variety of other things that are servicing our customers there.
Thank you.
Fabienne?
About the contribution of Fujian, it's clear that the ramp-up of Fujian has been supporting part of the growth in Asia. If you look at the growth of Asia for H1, we are at +11%. 5% is the base business, and 6% is the contribution of startup and ramp-ups. Not only Fujian, as you know, we have other startup in oxygen, in China in particular. Approximately half, a little bit more than half of the startup contribution in Asia is due to Fujian.
Thank you.
The EUR 65 million in cash flow, question?
This is, of course, a non-recurring expense. Below the operating profit.
Thank you.
Thank you. Next question.
Our next question is from Peter Clark from Société Générale . Please go ahead, your line is open.
G ood morning, everyone. Thank you for taking two questions. A little bit of clarification, I think. There's been a lot of talk, obviously, on IM price and just looking in the Asia region where I think it was flat at 1.4% both quarters in the first half. Is there any differential you can give us between, say, Japan and Australia and emerging Asia? Because obviously one of your U.S. peers has just sort of reported or suggested they had explosive price in emerging Asia for them. Secondly, this is the clarification, and it's for Mike. America's IM volumes, you're suggesting that things appear to have stabilized, so would that mean that the sort of - 4% volumes we're probably seeing in North America is about as bad as you think it will get as we go into the third and fourth quarter? That's the IM business. Thank you.
Fabienne, you take the first one.
IM pricing in Asia is positive mainly in China and in Southeast Asia. We look at Japan, industrial merchant is slightly growing. We have a price which is more or less stable on the slight growth in volumes. Slight growth, but quite good news. The industrial merchant in Australia is clearly down. It's a mix of pricing and volume. The Australian market has been pretty difficult for a while. We still see a fierce competition and pricing going down. All in all, we have a positive in Asia, supported in particular by developing economies.
More generally, I think Australia and New Zealand is the only country in the world that show, in the second quarter, negative pricing, that all the others were in positive territory, which shows that this is pretty strong. Even if there are differences between the continents, we had a well-spread pricing effect in IM in the second quarter. Next question.
Maybe if I could.
Oh, Dan. Sorry, yes.
Maybe if I could. Peter, on your question volumes in the Americas. The driver here is more hard goods than it is gas. When you look at the numbers, hard goods is the major player in the decline, with a slight decline in terms of the Airgas volumes. In the markets that probably have seen the greatest softening are the ones that are more hard goods intensive rather than fully gas intensive. The gas-intensive markets continue on a good growth trajectory. I think that we have seen some stabilization in where we are. I don't think we're going to see major change as we go through the rest of the year. There may be some things on a comparable basis in a given area that will show some up and down. I think we see some stabilization in the key markets and growth in others.
Thank you. Thank you, Mike.
Thank you. Next question.
Our next question is from Chetan Udeshi from JP Morgan. Please go ahead, your line is open.
Hi, thanks. Three questions. Firstly, on the previous comments on hard goods. I was just wondering, in your assessment, have you guys seen any sort of correlation on how hard goods could be indicator of future business trends in the gases business as well? It seems in the past, that was the first shoe to drop and only then you actually see the gases sort of start to slow down. Is that the case you guys have observed? Is the first question. Second question was on the refining where the hydrogen volumes were very strong in Europe?
Is there a structural change in the hydrogen intensity in the refining business which is driving that, or is that just a normal ebb and flow of maybe just the production phasing of your customers? Just last question, wanted to understand, in the response to one of the previous question, did you comment that the Chinese prices are actually down in merchant business? Thank you.
Well, the third question, clearly no. In China, prices were up. I just made the comment that in each and every country except Australia, it was up in the second quarter. I think the trend was the same in the first quarter. It's really pretty strong. Let's be clear, Chinese prices were up. The correlation between hard goods and the outlook, I would say, when the hard goods are doing weakly, is it a sort of announcement that the gas business is going to be weak? My answer is no, because it's a little bit more complex than that, because hard goods is used in some of the segments of the IM industry, but many other segments don't necessarily require hard goods in their manufacturing process.
If we look at the five key segments in IM, which are automotive and fabrication, definitely in this segment, they are using a lot of hard goods. It's around one-third of our IM business worldwide. In the others that are materials and energy, food and pharma, professionals and retail, and technology and research, the four others are not consuming necessarily a lot of hard goods. Predicting the IM business on the basis of what happened in one segment is a little bit, I would say, risky. We've not seen that correlation actually really in the field in the past, and I don't think, Mike, you're going to correct me if I'm wrong, but I don't think that what we just observed this first half in the U.S. is just a proxy of a slowdown of the IM market in the U.S.
No, Benoît, I'd agree with what you said. I think it's well said that there are certain markets, like metal fabrication, that are heavily weighted in terms of hard goods. Some of the construction activity, obviously very heavily weighted in terms of hard goods. It's a fair comment that as you see the hard goods decline over time, you'll see gases decline in those areas. That's only a portion of our portfolio today. We've continued not only to grow the industrial pieces of the portfolio, but life sciences, food and beverage. I mean, just take food and beverage. It's not only regulations that have driven the need and the demand for more gases, but it's people's consumption patterns.
I mean, people are looking for more organic foods, they're looking for fresh foods, they're looking for already prepared foods. All of these drivers in the world around us continue to drive industrial gas consumption to make those things work. There's a bit of a balance there. Obviously, if everything is growing, then obviously everything within the IM segment looks great. There is a differentiation between the markets.
On the hydrogen and the refining industry, it's interesting because just before we started this conference call, we had a discussion with Mike on the reasons why we saw hydrogen pretty good in Europe. There are two main reasons for refiners to consume hydrogen. One is sulfur, the removal of sulfur, and we see a boom every time you have a change in regulation. This is not the case right now in 2019. It will be the case next year with the IMO and the new regulations for bunker fuel, which will require more hydrogen. As we speak this year, there was no fundamental and big reason to have a change. The second reason why customers consume hydrogen is light versus heavy crude, so the quality of the crude.
I think the game changer today is the U.S. because the U.S. has now the ability to produce more oil, and the quality of the oil in the U.S. is slightly different from the average of the quality we had before from different sources in the world. When the U.S. produces more, it's lighter, and part of the heavy fuel that was going to the U.S. is actually going elsewhere, which includes Europe and Asia. It might very well be that Europe has imported more heavy crude than in the past, which means more hydrogen treatment, because when you have heavier fuel, you need more hydrogen. That's my understanding, but Mike is definitely even more knowledgeable than I am, so I'd like him to make further comments on that.
I don't think I can add much to what Benoît said. I think clearly the drivers, like Benoît said, are the desulfurization and environmental requirements for transportation fuels. The other piece is crude mix. If you look at the mix of heavy and high sulfur crude and how that rebalances around the world, clearly that can help drive hydrogen consumption in any given refinery that starts to see a heavier crude slate. I would just support what he said.
Thank you.
Thank you.
Thank you. Next question.
Our next question is from Adrien Wasylec from Oddo. Please go ahead. Your line-
Hello. My first question was, which information can you give about the next dividend? My second question was, what are your guidance for H2, like in terms of margins or sales? Thank you.
Well, we just distributed dividends a month and a half ago. It's not really the right timing to even talk about dividends. What we need is a good cash flow to be able to distribute a good dividend. That's exactly what we are focused during the year. The dividend policy has been very stable over time. I think it will continue. No real comment about dividends. Guidance for the second half, maybe Fabienne, you'll say that with the right level of precision.
You know that we don't give a guidance neither on sales, neither on margin. However, I think that with all the discussion we had on the details of the activity and on the action plans that are ongoing to improve the performance, you'll have the confidence that the strong level of improvement will continue.
Thank you very much.
Thank you. Next question.
The next question is from Markus Mayer from Baader. Please go ahead. Your line is open.
G ood afternoon. Two question from my side, remaining ones. One is on your engineering activities. If I combine both, they were down year-over-year. Is this just this lumpiness of this business, or do you see also that the investment decision of your customers have been delayed? That's my first question. The second question is, again, on this pricing effect. If from the base business, if you would strip out the price effect, what would have been the development of the volumes year-over-year? That would be my second question. Thank you.
It's good that you ask a question about E&C, Engineering Construction, because we've not mentioned it so far. The activity of the engineering construction, as you know is external sales to third-party customers, or it's also to serve the group for new investments. If we look at the total sales of our engineering division, it's increasing significantly. The activity is there, and it's good because it means that we have enough work for maintaining, if not just slightly growing the engineering division. We are also using more and more for the group, the engineering services. The consolidation part, in other words, the sales to third parties, which are visible as sales, are lower than in the past. The decrease in E&C is not a decrease in activity, but it's more sales to the group and less sales to third parties.
That's the answer. It's doing well. We have resized the engineering over time. Now, we think we have the right and sustainable size. We have the right organization as well between the different workshops. We feel pretty comfortable with what we had and our ability to sustain a good level of activity. On the base business, if we exclude the pricing effect, Fabienne?
As mentioned during the presentation, the base business is up 3.3% in Q2 at the group level, but the Gas & Services level, sorry. Out of that, 1.3% is pricing. Of course, in IM, we have the pricing strongly increasing, but in healthcare, it's more difficult, as you know. 3.3%, out of which 1.3% is pricing, and the rest is volume mix.
Perfect. Thank you so much.
Thank you. We may take the last question. There's this one.
Our last question is coming from Charlie Webb from Morgan Stanley. Please go ahead. Your line is open.
Hi, both. Just a couple from me. First, on the cash flow, obviously a step up in the inventories, and you're flagging E&I as part of that reason. Perhaps you can just give us a little bit more detail, exactly what was going on there. Also perhaps when we should expect that to unwind in the inventory line? Secondly, just around, I guess some of the bolt-ons. It's been a while since you did any bolt-ons in healthcare. I was wondering if you see a more active market looking forward, in healthcare, and then perhaps just on Tech Air, how the integration's going, and just a reminder on the timing of on delivering on those synergies that you've cited?
Fabienne, the inventory question.
The cash flow is strong, but we have a deterioration in the working capital. This is due to the fact that the quarter ended up on a Sunday, so it's not excellent for collection. We were not at the top in terms of collection, clearly, and also because we have an increase in inventory. You know that we had very strong E&I sales for a while, in particular in Electronics. If you look at the book-to-bill ratio right now, it's slightly under 0.5, meaning that the equipment and installation level is going to decrease, and therefore we should see some reversal in the inventory level as well.
However, we have some of our businesses which will continue to grow, in particular in Global Markets & Technologies, which are businesses which require inventory, in particular in advanced technologies that we didn't have before. There is also a trend in terms of evolution of the business, which is leading to higher inventories than what we had in the past.
Which to a certain degree is good news because this division is actually doing very well, and there's a strong appetite from customers for new technologies. In particular for transportation of cold products. I'm thinking about this really production unit that we sell very well, which is really a fantastic product, and we see a lot of opportunities for them. That's a side comment, nothing to do with inventory, but it just proves that GM&T, with maritimes, with biogas, with hydrogen energy, this is a division that will grow.
This is good because part of those markets will be gas markets as we go in the future. We are creating the markets of tomorrow. The price to pay is definitely to have a higher inventory. The second question was related to bolt-ons. We still have some, but the pace has decreased slightly. In terms of strategy, we still want, in particular in healthcare, to grow organically, but also to have bolt-on acquisitions. There are four, right.
We had four since the beginning of the year, actually. In Q1, one in Switzerland, one in Spain, and in Q2, one in the Netherlands and one in Canada. It's not big deal, but we continue to close those bolt-on acquisition. We have a certain number of them in the portfolio we are looking at right now. It's clearly an ongoing strategy.
I would say we remain selective. We don't want to overpay. We acquire when we think it's a good business with a good future and good synergies with the existing business. Whenever we have those conditions, we have no hesitation and we buy. That's, I think, we were reaching the end. There's no further question.
Tech Air synergies.
Okay.
Integration.
I think on Tech Air, it's all going very well. I think we see the rapid integration of the business into Airgas. Clearly, this is something that Airgas does very well. The teams have a long-term history of acquisition and integration of businesses, and I think we demonstrated that proficiency with how quickly we captured the synergies and integrated the Air Liquide merchant businesses in the U.S. into the Airgas business. That remains on track. It's going very well. Recognize that this is the Tech Air business itself covered a pretty broad geography, it allowed us to go ahead with the various regions that it touched to go ahead and very quickly anchor those businesses into our businesses and very quickly begin to go ahead and drive the integration and synergy capture. It's all going very well.
I think we are reaching the end. Thank you for being with us. Again, this is a strong first half. All the teams are really highly motivated to have also a strong second half. I think we have highlighted the markets that are actually giving us this strong growth, even though there are some that are weakening. I think we have clearly identified one or two. Mike made the comments that we now see a more stabilization of those markets.
We remain confident on the guidance and assuming a comparable environment, which is what we can do today, we are confident in our ability to deliver our net profit growth in 2019, and this is calculated at a constant exchange rate. Thank you very much. All the best. Happy holidays for those who can go on holidays, hopefully, most of you. See you after the summer break. Thank you very much. Have a good day.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.