Good morning, ladies and gentlemen, and welcome to the Air Liquide Q1 call. All participants are currently in listen only mode until we conduct a question and answer session and instructions will be given at that time. I will now hand over to the key team. Please begin your meeting, and I will be standing by.
Good morning, everyone. This is Rod Rodriguez, Head of Investor Relations. Thank you for joining our conference call today. Baden Lucarvillier will present the first quarter revenue and Mike Graff will focus on our electronics activity, its transformation and strategy. His caregiver is also attending the call and will participate in the Q And A session.
In the agenda, our next announcement for half year twenty nineteen results is scheduled for July 30.
Again for joining the call. We are happy to report another strong quarter for Air Liquide. Our sales growth remains high at and 5% on a comparable basis. The market environment remains supportive with inflections in some segments, but continued solid demand in others and that we'll try to give you more color on this in a minute. Our reinforced section plans for increased efficiencies and performance are launched and will ramp up progressively throughout the year.
Cash flow is strong at more than 20% of sales and we pursued our business development in in a very dynamic environment. Let's come back to the context. Thanks to the strengthening of the U. S. Dollar, we now benefit from a tailwind close to 3%.
Conversely the energy impact is softening, thanks to a slowdown of natural gas pricing, mainly in Europe, which has certainly been beneficial to some of our customers. In terms of markets compared to what we presented to you mid February, we see an inflection in construction notably in the U. S. Apart from that, most of our markets remain well oriented. If we look more precisely at the figures, Gas And Services are up 8.4% as published and 4.8% comparable despite 1 less business day in Q1 compared to last year.
Engineering pursued its progressive stabilization in terms of sales and margin. With 1,000,000 of additional order intake. Global Market And Technologies continue to be strong, supported by techno sales and by a 50% increase in our biogas sales with an order book which is also slightly above last year. The period has been very active again for Aliki. I already mentioned the focus on performance, but we also inaugurated our new innovation center in top together with our electronic customers.
In terms of growth initiatives, we completed the acquisition of Takecare in the U. S. Which is very good news for the development of Airgas and we extended our relationship with Severstal in Russia by signing a new long term oxygen contract. And last but not least, in line with our climate objectives, we decided to build the world's largest electrolyzer in Canada following our equity investment in Hydrogenics at theendoflastyear. All the businesses still show very solid growth with much at 3%, but remember we have 1 less working day.
Large Industries on the scale at +5 percent and electronics double digit In terms of geography, the strongest performance of the quarter are again Asia supported by the strong restart of China after Chinese New Year notably in merchant and electronics together with developing economies at large in large industries meant The growth of our base business excluding the contribution of start up and ramp up remains solid at 2.9% despite one network day as most of our units are well loaded. The contribution of the new unit is close to 2% slightly higher than for previous quarters. Let's now go around the world. Americas at 2% are penalized by high 2018 comparison basis in Large in the freeze and by the missing working day at Airgas. However, volume demand remains strong in particular for hydrogen and merchant continue to be supported by solid metal fabrication market and pricing.
Healthcare progression is high above 7% notably in the U. S. And in America, while health drinks are 15% thanks to gases and equipment. Europe at +3 percent benefits from strong hydrogentlemen in Benelux, startups in Turkey on Kazakhstan as well as from growing cylinder volumes and further reinforced pricing effect. Healthcare above 5% continues to be supported by high home health care with rapid growth in diabetes in particular.
Asia is up 13% thanks to ramp ups in margin within China and solid demand in Australia and Singapore notably. Merchant is strong again with higher volumes everywhere except in Australia and positive pricing. Electronics continues to post record growth in connection with new carrier gases contracts advanced materials progression and equipment and installation deliveries. China alone is progressing double digit in the 4 business lines. Africa Middle East is back to steady growth post Sasol startup impact.
Industrial Merchant is progressing very well in the middle performance of industrial merchant is really reassuring given the fact that we have 1 less business day. It's driven by oxygen and acetylance cylinder volumes. And high pricing at 3.3%, driven by Americas and Europe. Large Industries, of course, benefiting from startup, but also from high hydrogen volume up plus 12% and solid oxygen and nitrogen. Healthcare growth is above 5% driven by Europe and Americas.
Home Healthcare is up 8% despite a minus 1% price effect supported in particular by respiratory therapies and diabetes. Met gas is solid, notably in the U. S. Thanks to proximity care, and to the launch of the Air Liquide small cylinder offer in the agal network. I would like now to stop for a moment on electronics.
You asked us numerous questions about the growth in this business line and about its sustainability. For that, I will hand over to my graph, which supervising electronics.
Thanks Fabienne. Over the last 15 years, as you can see, we've transformed our electronics business. Increasing our value to the industry through the introduction and growth of innovative offers and advanced materials and in larger, more efficient and reliable plants to produce the Ultra Pure Gases, which were really a lifeblood for our customers' fabs. Our services, specialty materials and equipment businesses are also provide critical products and services for the industry and enable more touch points to strengthen the relationship with our customers and drive greater value for them. Overall, our business has more than doubled over this timeframe with a clear and intentional focus on growing our offer in high value differentiated products, which enable customer technology advancement and positioning Air Liquide as the leader in electronics.
Our business is diverse across Asia, the U. S. And Europe with strong positions in the integrated circuit market as well as in the flat panel display industry. Production volumes along with the shift in demand to more advanced nodes continue to drive our materials business in the mid to long term forecast remains very promising. 2018 was another strong year with a record level of investments to support new production that will enable our customers growth and continue to expand our technologically advanced offer.
This clear and intentional focus on innovation is driving solid growth along with strongly enhanced and sustainable margin improvement. We continue to leverage our core strength and advanced air separation technologies and industrial operations to provide large, efficient and reliable plants to meet the ever growing needs of the industry. Our know how and global presence provide a strong backbone for project execution and operational support to ensure continuing safe, reliable and consistent supply to each of our customers. On the Advanced Materials front, we leverage our strong technical capabilities and our growing network of materials, scientists and chemists, to work within the semiconductor industry to drive innovation in a time of technology advancement that relies ever more on materials in our highly specialized gases offer. Over time, we have developed a strong collaboration and partnership with Tier 1 customers and OEMs to drive industry impact our lives more and more each day.
Connected devices are now common and impact not only our personal lives, but access to big data is driving the digital revolution in all sectors of the world from healthcare to basic industry to transportation to education to the financial sector. The proliferation of new applications along with the maturing of the industry has reduced the historic cyclicality seen in the early 2000s, especially in integrated circuit market which accounts for almost 90% of our electronics business. In a matter of respect, this is really just the beginning. The digitally connected smart society will become even more of a reality with 5G enabling enhanced connectivity in the next few years. Artificial intelligence will drive new ways of working, new ways of learning, and new ways of communicating.
All of these key industry drivers and more are enabled by technology advancement in the electronics industry. And Air Liquide helps to enable this. Fabienne, back to you.
You know better understand what the growth levels of our electronic business are and why we are pretty confident in its future development. Let's talk now about the performance. As mentioned at the beginning additional action plans are mostly launched to be able to deliver more efficiencies and to strengthen the performance and will start to deliver in Q2. Our efficiency program also on their way at Airgas. For Q1, we have delivered 1,000,000 of sustainable cost reduction, aligned with the planned seasonality.
Climate related initiatives continue to represent approximately 1 third of those efficiencies and include energy optimization logistic management and reduction of cylinder leakage for helium in particular. Is now to reach 1,000,000,000 communities. This will of course enable us to improve our margins and return on capital employed but also to finance increased digitization and innovation efforts to secure our future. Cash flow also remains very solid at 20.3 percent of sales. Business development continued to be extremely active as shown by the 12 months portfolio of business opportunities, which is slightly increased again with new projects more than replacing the award ones.
Signings were also strong with significant investment decision driven by energy transition in Canada and Norway and regain momentum in regional M and A. The acquisition of Takeda closed in March with Reinforcement positioning and generate high synergies. We started up 7 units in Q1 of which 3 in electronics the contribution of startup and ramp ups at 1,000,000 is driven as usual by large industries, but also by electronics. And once again by Energy Transition. Startups for the full year are confirmed and therefore we maintained the initial Kat for more than 1,000,000 sales contribution including Fujian in China for 2019.
So in a few words, and that's a conclusion, we enjoyed another strong quarter in terms of activity and we reinforced our focus on performance while continuing to be very active on new investment opportunities. On this business, we of course confirm our outlook, which is to, deliver net profit growth in 2019. So this is what we wanted to share with you, this morning. Thank you very much for your attention. And we would like
you. We will now take our first question from Andrew Stott of UBS. Please go ahead. Your line is open.
Add a couple of questions. So first of all, on Industrial Merchant, so pricing was up 3. Organic was 3, so obviously volumes were flat. And I hear you on the trading days, that's probably what 1.5%. It still seems a bit light relative how you're traveling through Q4.
So I guess the question is to you Fabienne, you mentioned that you'd seen a sort of inflection point in construction So I just wonder if you could elaborate on that. And whether there are any other softer spots that you saw in Q1 relative to February comments? That's question 1. Question 2, simple one. Is there an update on the Fujian contract?
Well, thank you. So, I am first, it's true that, the sales progression, the pricing are more or less aligned, we have the missing working day, which is accounting for approximately 1% of sales. So, if we have the same number of working days, the progression of IMO would be 1% higher. Another point to be taken into account is that in the pricing component, you have a medium component, you know that globally, the area market is relatively tight. And then we have a strong volume pricing as the other competitors.
So, this is also a plain on the pricing. Apart from that, I will ensure you the volumes are growing. The pattern is a little bit different from one geographical zone to another. So maybe we'll start with Asia and then hand over to Mark and Guy for a few words about I am India as a region. So in Asia, we have a strong volume growth.
The pricing is positive, but clearly, lower than natural in China in particular. We continue to grow high double digit. We deploy our cylinder offer and the sales increase is very significant, but this is also true in most of the zone, we had the positive growth in Japan, which is not always the case. On the, it's like, skewed down in Australia but apart from that, Asia strong and Asia strong in all markets. Maybe Mike a few words about America as well?
Sure. I think in the Americas, First of all, I would say that metal fab continues to be strong. Whether that's Airgas, whether that's Canada, I think throughout the Americas, industrial markets continue to drive growth, especially more in the long investment cycle businesses. The machinery and heavy equipment. Even though automotive is slightly off peak, it still remains at very high sustained levels of output.
And we continue to see factory investment with a continued focus more on automation whether that's automated cutting, welding or in parts positioning. Fabienne mentioned construction and I think it's really a mix a mixed bag here. There's a good backlog of projects. I think spend on the Gulf Coast especially for petrochemical plants and LNG terminals continues to be quite strong and it continues to grow and evolve. I had mentioned before that we had a number of pipeline projects, power plant projects and infrastructure projects and geographies that were outside the Gulf Coast outside the Gulf Coast and they've really come to a close.
And there's other projects that are being considered, but they're not sanctioned yet. So that's where I think we see a bit of a difference in the weakening and construction in that particular part. Energy Chemicals continues to see strength especially in the chemicals and refining space. And that's not only construction that that's continued routine maintenance turnarounds and a number of other activities that go on at the sites. In the non industrial segments, I think the food and beverage markets especially continued to be strong.
And continue to grow similar to fact that we saw one less working day, the other area is hardgoods and the safety products and that sort of thing. They're at a very high level as we end the year and they continue stay at that high level but in a more stable range.
Thank you. Maybe just a few additional words about Europe and the giving a little bit of color what is happening also in Europe. We also had a significant pricing contribution. We have been ramping up the pricing now from all over the last quarters in 2018 and the first quarter this year also we're reaching levels of 3.2%, which is quite positive. The the Europe is also impacted by a working day effect that also explains some of the less volume contribution.
However, what I would like to say maybe is that from a market point of view, Yes, there are some markets, particularly in the automotive industry that are a little less dynamic, but we see a lot of renewal and new markets are really boosting particularly in the food on the pharma industry, the biopharma markets, the The convenience food industry is really growing now with more and more new freezing and chilling applications. Which is all related to the changes of how people want to get their food in the cities in particular. So we see all that really as a new growth drivers. And that are really starting to materialize. The other thing that we're really experiencing now in Europe is the the change that the digital is bringing to the way people are working and expecting to be let's say, trading and doing their business with Air Liquide.
More and more of our packaged gas business is going through digital channels. Up to 20% even in certain geographies. So it's becoming very significant leading some to some very positive. I think contributions in the mid future in terms of not only how we interface with our customers, but also how we are able to create efficiencies through digital.
Thank you, Guy. The second question was about Fujian. So in Fujian, the plan continues to run at full capacity. The customer continues to offset the to offset the product. On the discussions, negotiations are still going on.
So, not much more to tell you than what we already mentioned in February when we published our full year.
Our next question comes from Martin Roediger of Kepler Cheuvreux. Please go ahead. Your line is open.
Thank you. To all of you Fabienne, Mike Gee, Ford. One follow-up question on your statements on electronics. Can you explain to me the 50% sales growth in E and I in Asia Pacific in Q1? And maybe can you also help me to understand, did you gain some market share in overall electronics and did you do some price hikes in electronics?
And the second question is on, the competitive landscape, internally in industrial gases. It is probably too early to ask. Now, Gus, I tried 2 months ago, the merger between Praxair and Lender was approved. Did you recognize that the behavior of the new Lindler is different from the former Lindler, I. E, is there more price discipline in getting processes?
Or is Linden now trying to increase same prices in gas merchants even more aggressive than they did before? And the final question is on engineering. How confident are you to return to breakeven this year and to reach normal margins going forward, because I see that the order intake is down by 23% in Q1. Thanks.
Okay. So first about electronics, and beyond this one to my account.
Sure. Thanks, Fabienne. Martin, I think there are several aspects in terms of the growth and evolution in electronics. First of all, I think that we saw roughly 14% growth obviously as Fabienne said following on roughly 18% in Q4 of 2018. And a lot of this is driven by recurring sales.
And what we see is carrier gases continue to grow significantly, especially with all the new projects that we signed in 20172018. Recall we had very high levels of investment in electronics in both years. So, we see double digit growth in carrier gases for the quarter roughly 13%, which is really one of key drivers of growth that we see. The other key driver of sustained growth is in Advanced Materials. And that's similarly at a similar level.
Significant double digit growth both in the U. S. And Asia, serving our Tier 1 customers. And we also saw the ramp of the EnScribe Edge Gas offer that we spoke about previously with the startup of new production facilities in South Korea. So both of those really underpin significant level of organic growth at almost 16% overall.
E and I continue to be strong. It's not as strong as it was in the fourth quarter of last year, which was roughly 50%. It's in the 30s, but continues to be a driver of growth as well. But long term, even as I mentioned in my discussion, I think that the growth in carrier gases the growth in advanced materials really underpin the future for us.
Well, thank you, Mike. In terms of impact thought the Lindeep Chrysler merger is probably a little bit early to say. I remind you that country by country as in most of the case, either the Linde part has been resolved or the Praxair part has been resolved. We still have this same number of competitors on the market. In terms of new Linde behavior, we've not seen much different for the moment.
You know that we have always been in a very disciplined market and we expect it to to remain, to remain that way. In terms of engineering consumption, you know, sales from 1 quarter to another is not really a proxy, as you know, that we recognize most of the seed at the end of the contract, yes, we are going to be a breakeven this year. We may be slightly negative in H1 that will be clearly positive for the full year. And we expect to come back progressively hopefully in 2020 or if not in 2021 to the average margin we had in engineering historically, let's say a bit in 5% 10% and preferably in the high parts of the range. In terms of order intake, we have a very active portfolio in engineering as well.
We are expecting some signings. I think that the fact that the order intake is slightly down in Q1 should not be should not create any worry
Okay. Thanks.
Our next question comes from Gunther Zechmann of Bernstein. Hi,
good morning. Thanks for taking my questions. And the first question is, can you give an indication of the margins we should expect from the 1,000,000 of euros of orders that you signed for the maritime industry by 2020. Should we more assume a GM and T type profitability or more an alpha level type of margin on what region are you hoping to be? And the second question, a simple one, I don't think I've seen it in the press release Can you give a number for the book to bill in the equipment and installation business that you had in Q1?
Comparable to the 1.0 that it was at ye/ar end please.
Okay. So in terms of the sale of the maritime, Turbo Brighton, turbine, that was the object of the release of this week, it's really a very profitable business, not all of the businesses are at this level in Global Markets And Technology and you know that that cities are much innovative business we can have strong discrepancies between the various segments, but this one at least it's advanced cryogenic technology and the advanced cryogenic technology segment. We have margin which are fully aligned with the group average margin. In terms of geographies, it's mostly sales out of France. But which are exported all around the world.
In electronic, we have a book to bill at 0.7 So, we can expect the NII to stabilize over the months to come.
That's great. Thank you.
Our next question comes from Neil Tyler of Redburn. Please go ahead. Your line is open.
2 for me please. Back to the pricing development in for merchant business, particularly in Europe, the extent of the year on year change, even excluding the helium market seems to be at the top end at least of what's been experienced previously and allied to Guy's comments on digital efficiency there any reason that you can point out at this point why we shouldn't interpret this momentum as presenting the possibility that you can exceed your typical expectation of raising margins by 2 to 3 basis points. That's the first question. Second, the question back to the Fujian. Contract.
You said that there hasn't been much further development on top of what you mentioned in February. Does that mean that essentially the customer hasn't paid you yet? Thank you.
So, Gee, you're going to improve your margin by 300 basis points with digital.
So, maybe back a little bit on the pricing in Europe. So, yes, we are experiencing now the high end pricing contribution during the last two quarters. I think when you look at the inflation rate in Europe, at the beginning when inflation started to go up particularly with the energy pricing, we were in a sort of catch up mode now clearly we are at this period of time where fundamentally we have a positive leverage on the inflation overall. So we should indeed be having an improvement of margins. This being said, the digital applications I think are essentially going to create value first towards the customers in the way they want to operate with us.
Think that's very fundamental. We see changes of their expectations in the market. And of course, we expect those applications also to improve our own operating modes in the future. So that's what I could probably say around the pricing and the digital, how it is currently being developed in Europe. Thanks.
That's helpful.
Thank you, Guy. So back to Fujian, I think, I explained in February that the discussion dispute where the customer is about the recognition of the performance test. So, the customer claims are the performances in valid, although it has been checked and validated by an official third party. And therefore, it is paying what he had to pay under the test period when we claim he should pay according to the commercial terms of contract for a normal operating period. So we still have the dispute of the level of the monthly payment.
That's right.
Okay. So just to clarify, so you've invoiced them and the like for like that you've reported is based on your invoicing of what you believe is due. Can you just help me understand how much of the like for like growth in Asia what the contribution was from future and ramp up in Q1, please?
Well, we are not going to to disclose the numbers by the growth in Asia is very strong even excluding the Fujian contribution.
Our next question comes from John Lee Roman of CMIC Market Solutions. Please go ahead. Your line is open.
Good morning. Thank you for taking my question. My question relates to hydrogen as, as of sure. I was wondering in the GMT division, how the contribution of hydrogen as a fuel compares to biogas in terms of sales.
Okay. So, at the moment, if we look at Global Markets And Technology, 50% of sales are Advanced Technology and approximately 25% of the sales are biogas and hydrogen rights we could call globally clean mobility. It's a view that at the moment the bulk of it is with biogas. And the hydrogen cities remain much more modest.
Our next question comes from Peter Clark of Societe Generale Please go ahead.
Yes. Good morning, everyone. Thanks for taking the 2 questions actually. The first one is around electronics and probably for Mike. I don't know.
But the Advanced Materials, of course, is a business that can go up and down more so than the carriers. Just how stable you think that business is. And then within that on the electronics side, obviously the Versum deal now having been agreed with Merck, just how you see the competitive landscape, particularly obviously on the gassy side there and the advanced materials they're involved in? And then, and secondly on just clarify on the North American volume situation for industrial merchant. From what you're saying, if we strip out the the negative day drag, which I think was still negative volume.
You're saying you expect the volumes to move, positive again from Q2 because there was some one off effects as well and some temporaries market drags. Just clarify that. Thank you.
Mike? Yes. Audio will come.
Okay. So, I think first of all on the electronics materials. This is a obviously a growth factor for us. And I think there are several aspects to this that will continue to drive that growth and we don't see it as being cyclical. We see that is actually enabling the continued evolution of the more technologically advanced nodes all of the investment that is going into new fabs to go ahead and produce integrated circuits whether that's in logic or that's in memory.
As you go to these more advanced nodes require more carrier gases and more advanced materials. And so we see that continuing to ramp And as the industry itself utilizes these capabilities, not only does it grow in terms of the overall volumes, driven by the industry. But the actual architecture of the chips is evolving. And so traditionally when you think about production, in terms of integrated circuits, you talk about that in 1,000,000 square inches of silicon, which looks at the diameter of the wafer produced the number of wafers produced. What has happened in ship architecture is we're going from 2 dimensional geometries to significant three-dimensional growth.
And as you grow in three dimensions with multiple layers, you begin to utilize more advanced materials and more carrier gases in order to go ahead and produce that same wafer. I think a perfect example of this right now is in 3 d NAND which is evolving as a significant driver in memory. And the current evolution of 3 d NAND and the current production capability, the architecture is a 64 layer design. So, think about a KitKat on a nano scale with 64 layers. That 64 layer is going to evolve to 96 layers in the coming year and a half.
And in two years that likely is going to evolve to 128 and then grow from there. So, we see actually as this growth continues a significant drive for ever more demand for the advanced materials along with the carrier gases and our Scribe Gas offer. In terms of the volumes in North America, we actually saw, as I pointed out, positive volumes in this quarter as well. And we expect to see continued growth in volumes. The various sectors, the various markets as I pointed out have different patterns of growth.
Some of it is more lumpy like in construction, which can grow very significantly depending on the number of projects that are sanctioned. Which was very significant last year and still is underpinned by what happens on the Gulf Coast, but we do expect to see continued volume growth in that area.
Okay. And then the assumed
In terms of Versum, I mean, we've seen the evolution of Versum and Merck. I think that clearly from everything that's been said, the focus is on the continuation of the utilization of Versum and the integration into Merck which has a clear strategy. I think we'll wait to see how that evolves and I think that I'm not going to speak for them in terms of their strategy and how that's going to move forward. No. We continue on the clear path that I outlined.
We're very driven to continue to develop a highly advanced technical offer whether that's in the offer of carrier gases, whether that's in the growing evolution of our portfolio of advanced materials that are critical So the technology roadmaps for the advancement of the increasing technological architecture of the advanced nodes as well as the evolution of our enScribe gas offer that is not only the next generation of etch gases to meet the exacting requirements at the nano scale. But also provides a very sustainable offer in terms of greenhouse gas emissions.
Thank you, Mike. Do we have other questions?
As there are no further questions at this time, we'd like to hand the conference back to the LIT team for any additional or closing remarks.
Okay. So thank you very much again for joining us this morning. As you've seen, for us, again, a pretty good quarter. Most of our markets remain very well oriented even if we have contracts between one region, and another, we are confident I extensively explained by Mike that our growth in electronics is sustainable with margin, which is very strong as well. It.
Thank you very much for your attention and we'll talk to you soon. Have a good day.
This does conclude the Air Liquide Q1 2019 Revenue Conference Call. Thank you for your participation. You may now disconnect.