Thank you, and we'll I will be standing by. Good morning, everyone. This is Rod Rodriguez, Head of Investor Relations. Thank you for joining our conference call today. Benoit Pozzi and Fabienne Lucarvillier will present the first half twenty nineteen performance.
Mike Raf is also with us and will participate in the Q And A session. Our next announcement is on October 24th, for our third quarter revenue. Let me now hand you over to Benoit.
Thank you, all. Good morning, everyone, and 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 Sadian and Mike. We'll also look at the transformation, which is accelerating and delivering as we see that in the numbers, and we'll come back also to the outlook. So I will start with page 4, 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 contrast environment and I think we'll 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 profit, 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 let Fabienne comment on the details and how we achieve that. If we look at page 5 where by business line where this growth is coming from. On the left part, you have the 2 quarters, but if we look at the first half we have now, reached again this, for nearly eight quarters this 4% to 6% growth in sales. And if we look at the first half, we have a very strong growth from electronics and health care, respectively 13.5% 6% which shows that we have the underlying business that is sent with a significant number of startups and ramp ups. Again, we'll come back later on that.
And in industrial merch, which is slightly lower than before. And we have only identified a few market segments in particular in the U. S. That are slowing down. And 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 3 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, and I'm thinking in particular, about transportation costs, but not only And also we had the ability to increase helium prices because as you know, there's a tightness in a helium sourcing in the world, but we also act on the product mix by trying to increase the value of our products and services.
So 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, say activities, the 1st phase after the acquisition was to deliver synergies, which is now, as you know, done And so we are now focusing on putting in place the efficiency programs of Air Liquide legacy into gas and it is producing. And the 3rd lever is the portfolio management with a certain number of small but altogether, contributing, divestitures that is also helping the improvement in margin. The of course, the 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 7, we have had were above 1,000,000,000 since the second half of twenty eighteen. On 2017. And in the first half of twenty nineteen, the EUR 1,800,000,000 of investment decisions include the Teck Air Acquisition that we which is, as you know, sort of mini Airgas covering many regions in the U. S. If we exclude Tech Air, Americas is the 1st geography in terms of investment decisions.
And over the last 18 months, signed for more than USD 400,000,000 of investment essentially on the Gulf Coast. And we recently announced the signing of 3 long term contracts with marathon and GCGV on the Gulf Coast, which are 2 main customers, in the And most likely there will be more to come. In Europe, also, for example, we recently announced a new long term contract with Stella in Russia, which means that the, the the trust, is actually there between the two companies because we 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 8 is related to the group transformation, which is accelerating and delivering.
And we have highlighted a few examples for each of the NEOS objectives that proves that this transformation is taking place. We have actually a high level of signing which is securing future sales growth, that's point number 1. The transformation projects also allow increased efficiencies There are many for those who are present during our last cattle day in Lyon in France you saw in Rio what the smart innovative operations is all about, but also you saw the automation of our cylinder business that is taking place. And 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 digesters, as I said earlier, with a gearing back in the 60, 80 range.
And I'm talking about the debt. So the 3rd point, and we had recently an outlook, which was revised by S And T, to positive. So that's another example of a NEOS objective that is, contributing. And 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, this is, of course, an important decision, which was taken in agreement with a customer But we also had in terms of other objective, climate objectives, in particular, some innovations in bio methane, 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 blast furnace. I would say that all those examples are supporting the achievement of our climate objectives. So the innovation is real. On that basis, I would like to hand over to Fabienne for more details about the performance. Fabienne?
Thank you, Benoit, and 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 and 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 are 4.9% for the semester, with a slight acceleration in Q2 at 5% versus Q1 at 4.8%.
I'm generating consumption sales contribution is slightly down as we add more group projects than 3rd party project is semester. While we remain confident in the level of order intake consistent with last year. Global Markets And Technologies continued 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. But looking at published numbers, the ForEx effect has been positive at 2.5% The energy effect is negligible and 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 remains relatively solid, but with different drivers, petrochemicals in Benelux and more methanol in the US, The demand for oil and gas is still strong in Europe and Benelux, but the steel through Darwin is visible in Europe in particular. In terms of merchant, we saw the market linked to investment temporary softening with a kind of latency attitude in the U. S. Notably impacting metal fabrication construction, for example.
Conversely, market leading to consumption like Food And Pharma remained robust. In electronics, all segments are still relatively well oriented in the countries where we operate, despite, 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 Merchant in Europe, Asia and the Middle East. Strong Large Industries in Asia and Europe, and ISK are growth and still very dynamic electronics in the US and Asia.
For Gas And Services business at 3.3 percent in Q2 continues to be strongly contributive, while startup ramp ups and on acquisition, bring an additional 1.7% growth. The Take care acquisition in the U. S. Are continued a 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 q 2, comments. America is to start with is posting a 2% growth. Large Industries 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 softening mostly due through down 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 digit since in particular to the US, supported by medical reality sales to proximity care and to growing home health care volumes in Latin America.
Electronics demand remains strong with high level of equipment and in steady Europe growth is close to 6%, a level we had not seen for quite a long time, In large industry, hydrogen volumes, refiners are high in Benelux, and we benefit from a ramp up in Turkey and the 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 volume. SKI is strong above 6% supported by stable medical gases and high Omelcare growth at +9 percent. Asia remains very strong at +9 percent. Large Industries growth is supported by Gen ramp ups in particular in China.
Industrial Merchant growth is still up double digit 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. We were 15% growth despite equipment on e station progression being slightly less than Q1.
QIA Gases particular, 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, but 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 imbalance between offer and demand in helium, but also significant proactive sales force action. However, markets are now a little more contrast. Large Industries are improving, thanks to volume growth, hydrogen in Europe and oxygen mostly in the U. S. And in Asia.
Escar continues to be above historical average, thanks to home health care and most geographies with the extension of new therapy and to medical gases in America. In electronics, the drivers remain the strong growth in tire gases and advanced materials, supported by startups 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 6 in new accounting standard. There is a transfer from other expenses to amortization, but 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 60% for Gas And Services only. The application of IFRS 16 only accounts for 10 basis points of this improvement. As explained by Benoit is introducing our performance improvement programs rely on 3 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 3 years, thanks to Salesforce refocus, much better inflation path forward and leverage on our helium competitive position. Regarding project mix, more emphasis has been put on added value product 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 3 for centralized by looting and real time value extraction from our network capabilities, like extended our business support centers materializing back offices or the sharing of technical teams between business lines.
For H1, total efficiency are close to 1,000,000, well aligned with our 1,000,000 fully objects. The 3rd pillar is portfolio management with quite a large number of projects already closed or ongoing. We have in particular completed the sale of 3 non synergetic businesses at Airgas, refrigerant gas and off time protection equipment. In Europe, we have finalized the sale of Intega, in electronic equipment in Germany and in Asia, we 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 progress. Coming back to the P and L on page 23, we've been able to generate a slight net profit growth despite the exceptional gain of 1,000,000 recorded in last year in financials and the 1 off provision linked to Fujian this year. Excluding these 2 impacts, net of taxes, net profit is up 12%. To give you a little more details, the cost of debt is stable 3% on average for the period despite increased factoring cost and in line with our forecast, the tax rate is slightly higher than last year. Due to a variety of small impacts, including increased taxes and dividend 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 excludes 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 includes an increase in inventory linked to high equipment on its station. Sales and our global market and technology growth in particular. Payment on investment for the period include EUR 450,000,000 for acquisition when growth in Industrial CapEx will present 11% of sales. Our net debt level at EUR 13,700,000,000 reflects the acquisition of Take care in the US and the seasonality of the dividend.
Performance improvement and portfolio management contribute to return capital employed improvement. I'm on Page 25, And we are now at 8.3% if we exclude the Fujian 1 off. As mentioned by Benoit, the investment activity did not slow down in Q2. Our portfolio of investment opportunities remain at 1,000,000,000 well balanced in terms of geographies and size despite a good level of signing. Investment decision at the end of each one reached 1,800,000,000 including EUR 450,000,000 for acquisitions.
In large industries, we signed new projects and renewed in our main core basing and an industrial merchant will 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 electronic customers in Asia. We started 12 projects in the beginning of the year, of which 4 in large industry and 5 in electronics. In terms of contribution of start up and ramp ups, we are at 1000000 year to date. And we confirm that we should be around 1,000,000 for the year despite the divestiture of the Fujian assets which should materialize somewhere in Q3.
Investment backlog is steady at EUR 2,200,000,000 and the sales by clock is still around EUR 850,000,000. So 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. So this is what we wanted to share with you as an introduction. Thank you very much for your attention.
Session.
We will now take our first question from Gunther Segment from Bernstein. Please go ahead.
For your business. Can you
hi, can you hear me now?
Hello. Go
ahead. We can hear you.
Hi, Holly. 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 business per year.
Can you highlight how much of the now 70 basis point was driven by each of the factors that you highlight and how much of that we should expect going forward. That's the first one. And 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. So, 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. But 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.
And I think that's that's probably one of the main reasons why we were able to produce more improvement in in the margin, than before. This is this is 1. So this is the pricing side, but I would say that overall, this is a, an, a, sort of, addition of many small things that we were able to, 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 in the countries, but also business lines.
So what you can see today is the real effect of the transformation and the structural changes that were implemented in the group. And 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 1 we have put in place in particular with Airgas now joining the group program, but also I would say a good portfolio management of 3 pillars are going to really be strong in the future to sustain a good margin improvement. That's the global a comment I wanted to make, and and it's not just by chance that the 70 basis points happened. And 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 it's really where 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 this starting to deliver. You had a question on the 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 Industry anded care while electronics remains, as you've seen, very, very strong.
And we also have, if we look at the geographies, is a global improvement in Europe and Europe at 6% is a is a very, very nice growth for a, a zone which is made mostly of of mature countries. So it's, it's in several business. I would say large industry, health care, electronic, and in terms of geography, Europe. Why the Jia remains very strong as well.
Next question
Our next question comes from Andrew Scott from EBS. Please go ahead. Your line is open.
Hi. Good morning, everyone. I've got a couple of questions. So 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.
And then the second one is probably just a question for Mike, actually. The margin performance in Americas with the standout geographically. And that's despite, a pretty slow top line relative to the other regions, at least. Can you just sort of delay some of that 100 basis points? And then I'm very wary that the second half margin in Americas was much, much tougher fee or is much tougher for you going into the second half.
So just any thoughts on the sustainability of growth in the Americas margin?
Okay. Thank you. So the Helium question, Fabienne,
you can give you know that the easier market is pretty unbalanced at the moment, meaning the demand is stronger than the offer. Some of our competitors have put their customers on the allocation, which is fortunately not the case. We have a competitive position at Air Liquide, with several, sources and also, as, you may remember, our covering in Germany when we can stock a certain quantity of value for our customer So 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 contributed to the global I'm pricing we have in Q2 and I am a pricing impact, which is at 4.1%.
ADM is accounting approximately for 1%. In these two total. Thanks,
Sabei.
Thank you. Just also remind you that as far as helium is concerned, this is this is a very tricky molecules because the number of sources in the world are not really, numerous. We have a few. There were closures of some sources in the US. So for now, several years, we've been planning, the access to new sources as point number 1 and point number 2, we have opened this cavern in Germany, which gives us the ability to actually supply some of our key customers, when there there is a crisis of supply in the world.
And 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 good congratulations for this outstanding margin performance. And I would like him to make the comments. Mike?
Thanks, Benoit, and good morning, Andrew. I think we touched on the price management and I think that continues to be a focus, but 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. And so 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. And 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 we think about the evolution in Airgas moving from synergies to efficiencies.
So we haven't lost that in our DNA and I think there's a lot of opportunity there as we move forward. And then 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 started to deliver, within large industries in the Americas. But 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, right, for opportunity that we continue to work on. And similarly in the healthcare business looking at the back office as well as logistics and even the smart cylinders make us better in the way we think about serving our customers. So 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 and the Americas, I break it down by first saying that large industries is strong. We saw sound oxygen volumes in an evolution of that going from the first quarter to 2nd quarter.
Throughout North America, whether that's the US or it's Canada. We saw good air gas volumes as well throughout South America. And we've just started up the Pemex facilities as well. So I think we continue to see strength in the base business of what we have in large industries in the Americas in 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 that was in the decline going from the first quarter to 2nd 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 kind of off the Gulf Coast I mentioned at that point in time, a lot of those were waiting sanctioning. And and a lot of those sanctions have started to occur and they're waiting on permits. And so whether that's a new investment in the midstream, especially for new pipeline projects, whether that's the evolution of the transformation to net 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 4th quarter depending on permitting. And on power plants, you're probably not going to invest in that next power plant based on in terms of what's going to happen.
So, I think we'll see those trends begin to pick up as we go through the year And then I think finally in both the Energy And Chemical segments, we've actually seen good strengthening on that going from the 1st to 2nd 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. And so 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. And 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 well as we see the future. And then 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 we'll continue that into the future.
Great. Thank you, Mike. Thank you. Next question.
We'll now take our next question from Lawrence Alexander from Jefferies. Please go ahead. Your line is open.
Hello. Could you characterize 2 things? First, how you think about what the trends are for Chinese growth in Q2 and the first half in aggregate? And secondly, for merchant pricing, how you think about the sustainability of these price trends if merchant volumes stay negative?
Well, I will again share the answer with with Fabienne. Well, overall, China is doing very well. I mean, if we look at every single business line, a large industry, merchant and electronics, all of them are doing really very, very well. The we have a growth rate right now, which is above 20%. So this is really very, very strong.
Whenever China stabilizes more or less, in our markets, it's anything between 10% 20%. So it is really very, 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 very, I mean, little by little, but we've not seen that. We understand. I mean, in in the large industry, there's a lot of chemical, new chemical facilities and and oxygen when it's, when it's applied.
It's in massive quantities. So we still have a strong growth in that sector. The electronics is not going to slowdown at all. I mean, the international situation between the big powers is more pushing China as a country to boost its, electronics segment. And as you know, there are different subsegments in the in every business line that we have and the electronics segment is nearly 90 and integrated circuits, and this is split between logic memory and analog.
And even if you have slowdown in one of the sub segments, the other ones are doing very, very well. And in China, in particular, we have a lot of flat panel display industries and this one is still doing very, very well. So the only if we look at China more in-depth, the only, thing that we are looking at or watching carefully is the automotive. Market. And 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 and there were 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.
So this this industry is undergoing a very significant transformation. And when you think about what a car is a car is a concentration of steel of chemicals, of, semiconductors, of glass, of many tires, I mean, a lot of different industries actually end up into cars. So when the car industry is doing mean, not not not badly, but but, suffers, I would say. Then there are consequences. And we can see some minor consequences on the metals, on the steel industry.
And the recent announcement from the chemical industry or more linked to the slowdown in the car industry than anything else. So that that's a more general comment than China. But China, as such, apart from automotive, is doing very, 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 the demand and the capacities, the the loading factor, globally, So 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, but, at least in the second half of this year, we still see a good pricing environment, and, it will be again sort of recovery of the past cost that we had because for several years, due to a very low inflation in the world, we we lost part of our pricing power that we seem to have recovered as we speak. Fabienne, maybe you can't additional comment?
No. I think we'll we'll keep pricing in H2. No question. We don't have any sign ups through down. You mentioned the reduction in volumes, let's remember that only in certain markets in Americas and many coming from our goods.
So 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 part pricing started to, to increase significantly in Q4 last year. But, so far so good.
Thank you. Next question.
Our next question is from Laurent Fab from a Please go ahead. Your line is open.
Yes. Good morning, Benoit Fabienne and Ode I've got two questions. The first one is on efficiencies. So big step up in the second quarter. I noticed that the guidance is for at least 400,000,000, 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?
And then the second question is around portfolio management and the 6 active projects that you flagged, in this very helpful slide. So I'm just wondering if you can give us any color. Is there any comment link I noticed that, I think it's the first time in a year that we see a slide pack that has assets swapped in it. So any color there would be very helpful. Thank you.
Yeah. Thank you. Fabienne is actually impatient to answer the two questions.
In terms of efficiencies, we stick to our objective, which is above 1,000,000 for the year. We said in Q1 that we were launching a certain number of projects that would deliver letters. So we are aligning with the objective I would not take the level of Q2 and and take the same for Q3 and Q4. You have projects ramping up and stabilizing, etcetera. So I think the objective, above 100,000,000 for the year is a good way.
In terms of portfolio management, it's mostly small projects. We have a few in Europe in countries where we have difficulties to to reach a a sustainable market share level. We have some in in peripheral activities of health care, etcetera. We are pursuing the screening of our portfolio and really trying to identify the activities which are either not synergistic 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.
It wants to do a set swap. It's difficult because we it's not easy to find a balance between what you want to sell and what you want to acquire and what the competitor wants to say and what he want to acquire. Actually, we did a very interesting one in China. Our competitors is not willing to disclose. So that's why I I will remain quite vague.
But we extended exchange our participation in 2 different GVs in 2 different regions, which allows each of us to fully consolidate the activity in one of the regions. Hope that that is, responding to the question, but I I can't do more. Actually.
Thank you.
The message, the underlying message is clearly that portfolio is part of margin improvement and will continue to be part of it without necessarily pushing half of that, but we have now put that again as one of the 3 pillars of our efficiency improvement.
Our next question is coming from Nyle Taylor from Redburn. Please go ahead. Your line is open.
Good morning. A couple of 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? And then also within the, I think you said 1,000,000 from total startups in the first half of the year.
How much of that was come was contributed by the Fujian, project by my calculation, I think it's about a little bit less than a third of that. But if you can help me there. And then the third question Is there a small one in the cash flow there's a reference to a 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 the non operating items? Thanks.
A word about electronics in Asia, Mike. Could you just make, a comment. Sure. Sure.
No, I mean, I think we continue to see very, very good growth in Asia. The start up, obviously, of the carrier gas business continues to drive our electronics performance. We saw sound double digit 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 thirds 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 startup of G1 and a variety of other things that are servicing our customers there.
Fabienne? Yeah. About the contribution of Fujian, it's clear that the ramp up of Fujian has been supporting part of the growth in Asia. So if you look at the growth of Asia for H1, we are at plus 11%, 5% is a base business and 6% is the contribution of startup and ramp ups, but not only Fujian, as you know, we have other startup in oxygen in China in particular. So Approximately, ALF, a little bit more than ALF of the startup contribution in Asia is due to Fujian.
Thank you.
And the $65,000,000 in cash flow question?
This is, of course, a non recurring expense below the operating
Thank you.
Okay. Thank you. Next question.
Our next question is from Peter Clark from Societe Generale. Please go ahead. Your line is open.
Yes, good morning everyone. Thank you for taking two questions. And a little bit of clarification. I think there's been a lot of talk obviously on I'm price and just looking in the Asia region where I think it was flat to 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 the US peers is just sort of reported suggested they had explosive price in emerging Asia for them. And then secondly, this is the clarification, and it's for Mike. America's I'm volumes, you're suggesting that things appear to stable have stabilized. So would that mean that the sort of minus 4% volumes we're probably seeing in North America is about as bad as you think it will get as we go into the 3rd fourth quarter. And that's the I'm business.
Thank you.
Okay. Fabienne, you take the first one.
So I am pricing in in Asia, is positive, mainly in China and in and in Southeast Asia. If we look at Japan, industrial merchant is slightly growing. We have a price which is more or less stable on this side growth in volumes, so thank growth by quite good news. The, Industrial Merchant in Australia is clearly Darwin. It's a mix of pricing and volume.
So the Australian market, has been pretty difficult for a while we still see a fierce competition on on pricing, going down. But all in all, we have a positive in Asia. Supported in particular by Developing Economies.
And more generally, I think Australia and New Zealand is the only country in the world that so in the second quarter, negative pricing, but all the others were in positive territory. Which shows that this is pretty strong. And even if we had there are differences between the continents, we had, we had a well spread pricing effect in I'm, in the second quarter. Next question.
Maybe if I could, Peter, on your question on the volumes, in the Americas. So the driver here is more hard goods than it is gas. So when you look at the numbers, hard goods is the major player in the decline with the slight decline in terms of the air gas volumes. And in the markets that probably have seen the greatest softening are the ones that are more hard goods intensive rather than fully gas intensive. So the gas intensive markets continue on a good growth trajectory.
And I think that we have seen some stabilization of where we are. So I don't think we're going to see major changes 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, but I think we see some stabilization in the key markets and growth in others.
Got it. Thank you. Thank you, Mike.
Thank you. Next question.
Our next question is from chetan Udeshi from JPMorgan.
Three questions. Firstly, on the previous comments on hardgoods. I was just wondering in your assess 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? Because it seems in the past, that was the first shoe to drop and only then you'll actually see the gases sort of start to slow down. Is that the case you guys have observed?
Is the first question? 2nd 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 is driving that? Or is that just a normal ebb and flow of maybe just the production phasing of your customers? And just last question, wanted to understand, did you, 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 3rd question clearly, no, in China, prices were up and I just made the comment that in each and every country except Australia, it was up in the second quarter. And I think the trend was the same in the first quarter. So it's really pretty strong. So let's be clear, Chinese prices were up the the the correlation between hard goods and the outlook, I would say, when the hard goods are doing, I mean, weekly, is it a sort of announcement that the gas business going to be weak? My answer is no because it's a little bit more complex than that because hardgoods is used in some of the segments of the I'm industry, but many other segments don't necessarily require hard goods, in the manufacturing process.
So if we look at the 5 key segments in I'm, which are automotive and fabrication definitely in this segment they are using a lot of hard goods, but it's around 1 third of our I'm business worldwide. But in the others that are materials and energy, food and pharma professionals and retail and technology and research, the 4 others are not consuming nicely a lot of our goods. So predicting the I'm 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 it just a proxy of a slowdown of the global, the higher market in the U. S?
No, metal, 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. And it's a fair comment that as you see the hard goods decline over time, you'll see gases decline in those areas. But that's only a portion of our portfolio today.
And 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. And all of these drivers in the world around us continue to drive industrial gas consumption to make those things work.
So there's a bit of a balance there. Obviously, if everything is growing, then obviously everything within the I'm segment looks great. But 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. The reasons why we saw hydrogen pretty good in Europe. There are two main reasons for refiners to consume hydrogen. 1 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 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 And I and I think, the fact the game changer today is the US because the US has now the ability to produce more oil and the quality of the oil in the US is slightly different from the average of the quality we had before from different sources in the world. So when the US produces more, it's lighter.
And so part of the heavy fuel that was going to the U. S, it's actually going elsewhere, which includes Europe and Asia. So 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 more or 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 Benoit said. I think clearly the drivers like Benoit said are the desulfurization and environmental requirements transportation fuels. And 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 or any given refinery that starts to see a heavier crude slate. So I would just support what he said.
Thank you. Thank you. Thank you. Next question.
Our next question is from Adrian Vasilek from Odell. Please go ahead. Your line.
My first question was, like, which information can you give about the next dividend? And my second question was, what are your guidance for H2, like in terms of margins or sales? Thank you. Well, dividends are actually we just distributed dividends a month and a half ago. So it's not really 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 and that's exactly what we're focused during the year, but the dividend policy has been very stable over time, and I think it will continue So no real comment about dividends. Guidance for the second half, maybe Fabienne, you'll you'll say that with, with the right level of precision.
So you know that we don't give a guidance neither on sales neither on margin. However, I think that we have all the question 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.
Okay. Thank you very much. Thank you very much.
Thank you. Next question.
The next question is from Marcus Mayer from Beder Please go ahead. Your line is open.
Yeah, good afternoon. Two questions from my side, remaining ones. One is on your engineering activities, if I combine both, they were down year over year. Is this just the slumpiness of this business, or do you see also that the investment decision of your customers, have been delayed That's my first question. And the second question is, again, on this pricing effect, if from the base business, if you would strip out the price effect, would you, what would have been the, the development of the volumes year over year?
But that would be my second question. Thank you.
Okay. It's good that you asked a question about E And C Engineering Construction we've not mentioned it so far. So, the activity of the engineering construction, as you know, is external sales to 3rd 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. So the activity is there and it's good. Because it means that we have, enough work for maintaining, if not just a slightly growing the engineering division, but we are also using more and more for the group, the engineering services So the consolidation part, in other words, the sales to third parties, which are visible as sales, are lower than in the past.
So the decrease in E and C is not a decrease in activity, but it's more sales to the group. And let sales to, third parties. So that that's the answer. And and it's, it's doing well we have resized the engineering over time. Now we think we have the right and sustainable size.
We have right organization as well between the different workshops. So we feel pretty comfortable with what we had on our ability to sustain a good level of activity. On the base business, if we exclude the pricing effect Fabienne,
So as mentioned during the presentation, the base business is up 3.3% in Q2, at the group level. But the government services level, sorry, out of that 1.3% is pricing, because of course in I'm we have the pricing strongly increasing but in a in a health care, it's more difficult as you know. So 3.3% out of which 1.3% is pricing. Yeah. And the rest, is is volume mix.
Okay, perfect. Thank you so much.
Thank you. And we may take the last question.
So our last question is coming from Charley Webb from Morgan Stanley. Please go ahead. Your line is open.
Hi, both. Just a couple for me. First on the cash flow, obviously a step up in the inventories and you're flagging E and I as part of that reason. So perhaps you can just give us a little bit more detail, exactly how, what was going on there, and then also perhaps when we should expect that to unwind in the inventory line. And then secondly, just around, I guess, some of the bolt ons, it's been a while since you're doing any bolt ons in health care.
I was wondering if you see a more active market looking forward in health care and then perhaps just on tech care, how the integration is going, and just a reminder on the timing of delivering on those synergies that you've cited.
Hey, 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 salon for collection. So we were not at the top in terms of collection clearly and also because we have an increase in inventory. So you know that we are very strong in eyesales for a while in particular in electronic. If you look at the book to bill ratio right now, it 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 learned Global Market And Technologies, which are businesses which require, inventory in particular in advanced technologies that we didn't have before. So there is also a trend in terms of evolution of the business which is leading to higher inventory 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 and thinking about these a really perfection unit that we sell very, very well, which is really a fantastic product and we see a lot of opportunities for them. So that's a side comment, nothing to do with inventories, but it just proves that the GMMT with maritimes, with biogas, with hydrogen energy. This is a division that will grow, and this is good because part of those markets will be gas markets as we go in the future. And so we are creating the markets of tomorrow.
Now the price to pay is definitely to have a higher inventory. The the second question was related to bolt ons. We we still have some, but the pace has decreased slightly. We were still in terms of strategy, we're still one in particular in healthcare to grow organically but also to have bolt on acquisitions. There are There are 4.
Right.
We had 4 in the beginning of the year, actually, in in Q1, one in Switzerland, one in Spain, and in Q2, 1 in the Netherlands and 1 in Canada. So it's not big deal, but we continue, to close those bolt on acquisitions. We have, a certain number of them in the portfolio we are looking at right now. So it's it's clearly an ongoing strategy.
But I would say we remain selective. We don't want to overpay. So 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 would buy. So that's, I think the, we were reaching the, the and there's no further questions.
Okay.
So I think on tech here, 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. So that remains on track. It's going very well. Recognize that this is the tech air business itself covered a pretty broad geography.
And so it allowed us to go ahead with the various regions that it touched to go ahead and very, 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, to have also a strong second half. I think we have highlighted the the markets that are actually giving us this, this a strong growth.
Even though there are some that are weakening, I think we have clearly identified 1 or 2, Mike make the comments that we now see a more stabilization of those markets. So 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 on net profit growth in 2019 and this is calculated at constant exchange rate. So thank you very much. All the best, happy holidays for those who can go on holidays. Hopefully, most of you and see you after the summer break.
Thank you very much. Have a good day.
Ladies and gentlemen, this concludes today's call. You may now disconnect.