Good morning, ladies and gentlemen, and welcome to the Air Liquide Q3 2018 Revenue Conference Call. Today's conference is being recorded. And answer session and instructions will be given at that time. I will now hand over to the Air Liquide team. Please begin your meeting and I will be standing by.
Good morning, everyone. This is Oswald Rodriguez, Head of Investor Relations. Thank you for joining our conference call today. Fabienne Lucarier will present the 3rd quarter revenue and my draft will update you on the next development. This is also with us and will participate in the Q And A session.
In the agenda, our next announcement are on November 30 for our climate objectives and on February 14, next year for our full year 2018 results. Let me now hand you over to Fabienne.
Thank you, and good morning, everyone. Thank you very much for being with us this morning. I will start with the highlights of the Q3 activity and performance. And then I will hand over to my graph for focus on business development, new project signings and opportunities. But maybe first before you add question on the subject.
I would like to comment for a minute on the recent news. There is of course not a surprise. It has been around for now 2 years. Finally, what we see is that it's more portfolio recombination and a real merger, meaning there is or change on local positions. We are now going to be 2 co leaders far ahead of the competitors and to be noted, During this last two years, Air Liquide moved ahead.
We acquired an integrated Airgas, the reinforcing our position in the U. S. And also in merchant. We launched Neos on the line, the team, along a customer driven vision, with ambitious objectives and the ID connected network organization. And we reinvented our innovation approach, leverage our digital transformation and took a leading position in the hydrogen energy development.
This move definitely raised our confidence in our ability to deliver profitable growth over the long term. Let's now come back to our Q2 performance. The trends we identified in each one were confirmed with a strong growth at the top of the neos range in all Gas And Services business lines. We also saw an improvement in engineering as well as perceived development in Global Market And Technologies. Efficiencies and synergies continue to be delivered in line with plans.
And the investment opportunities are ramping up. Let's look at the sales evolution. I'm on slide 4, Growth for Gas And Services is 5.2 percent on a comparable basis, slightly higher than for H1. In engineering construction, sales continued to recover and profits are breakeven for the quarter. Global Markets And Technologies has +23 percent are supported in particular by strong my time activity and new biogas projects.
For the group sales, we are up 6% on a comparable basis and 6.6% as published, benefiting from a softer negative ForEx headwind and from a positive energy pricing effect. In fact, in Q3, the global environment remains favorable. With the same watch point as for Q2 regarding industrial production in Europe. Currencies are now more aligned with last year priorities even if we still expect a minus 4% negative effect for the full year. Conversely, energy pricing is becoming more positive and we should be at +1percentfullyear.
Coming back to growth drivers, Americas are up 5% supported in particular by higher growth in the U. S. And Canada. Developing economies at plus 11% benefit from the dynamism of our business in China and Asia globally is at plus 6%. All of our business lines were strong and in the upper range of their newest objectives.
Similarly to what we saw in Q2, the base business in other words, the loading of our existing capacities generated more than 4% growth, benefiting from well oriented end markets and better pricing, and this is more than compensating for a slightly lower contribution from startups and ramp ups. Let's now review the main geographies. Americas are up 5%, demand in Large Industries strong throughout the region in oxygen in particular, while the OCI and maternal plant is ramping up on the Gulf Coast. Industrial Merchant, most packaged gas end markets are very sound in the U. S.
And in Canada, and the pricing effect is increasing along with inflation. Escar growth is supported by medical gases in the U. S. And developments in Latin America. And gases and equipment sales are solid in electronics in the U.
S. Europe is up 3% upward by the divestiture of a noncore subsidiary in electronics at the beginning of the year. Large Industries benefit from solid hydrogen demand in oil and gas and some high waste Europe. As well as from cogeneration activity. We also finalized the takeover of a first unit in Kazakhstan.
In Merchant, the pricing effect is ramping up, while growth for packaged gas remains lower than for bulk in Western Europe. Conversely, Eastern Europe is showing double digit growth. Homescafe is also very solid in particular in Germany and Northern Europe. Asia is up 6%, driven by solid merchant on buoyant electronics. More than compensating for lower large industries due to several customer turnaround not having China.
Merchant continues to be driven by strong volumes and pricing in China and by their recovery in Australia. Electronics sales are really strong for gases and even more for equipment and installation throughout the region and in particular in China, Korea and Singapore. Middle Eastern Africa is supported by the Sasol ramp up in South Africa and by strong in Egypt as well as by our Healthcare acquisition in Saudi. Now starting on Page 10, a quick wrap up by business line. In Merchant, we are aligned with Q2 trends with most of our end market well oriented in particular in North America and for Developing Economies, driven by strong China.
The pricing effect is at 2.9% for the group, to be compared with 1.9% in H1 and is now more in line with inflation. Large Industries are more contrasted with a stronger demand in Americas and in a lesser extent in Europe, while Asia is impacted by turnarounds. Global YOOX gen volumes are 8% and hydrogen volumes are up 5%. Healthcare is showing 6% growth, reported by Omer's scale plus 8 percent and solid hygiene and specialty ingredients. To finish with, electronics is up 9% for the quarter.
Carrier gives sales are growing double digit in Asia, thanks to new contracts and 9% globally. Equipment and installation sales remain very high and are 25% up through last year. As mentioned, engineering continues to recover on the level of order intake of 3 30% to last year will drive positive performance in 2019. To be noted, of the global market and technology's order intake is clearly supported by innovation and mainly driven by biogas projects and advanced technologies with the launch of a new generation 1,000,000 of efficiency, which is an 11% increase to last year. The group efficiency programs are progressively being deployed at Airgas, which contributes 1,000,000 to this amount.
Industrial And Logistics Program represents 50% of the saving with an important part coming from merchant activity. We, therefore, confirmed that we'll be again above the EUR 300,000,000 objective for the full year. At Airgas, cumulative synergies resulting from the integration are now close to $275,000,000, and we can confirm that the initial $300,000,000 objective will be achieved early 2019, which is more than 1 year ahead of plan. Cost synergies are already above the pre acquisition target and sales synergies continue to ramp up progressively. The cash performance is also very solid.
Year to date, we have delivered more than 1,000,000,000 of cash flow at 19.5%. Of sales, a 70 basis point improvement to last year. Net CapEx at 1,000,000,000 are close to year number with more industrial CapEx and slightly less acquisitions since the beginning of the year. Net debt continues to decrease following the May peak due to the dividend payment and we are back under 1,000,000,000, while gearing remains under control and has lowered slightly at 78%. So to make it short, another very strong quarter for Air Liquide in all of our businesses, This is not, as we said at the beginning, the only good news that business development continues to accelerate And I will now hand over to Mike for a focus on investment to give you some more color on our signings and opportunities.
Thanks Fabienne. With the continued success of our business development activities, we've seen a high level of new business signed in the 1st 9 months of the year, totaling 1,900,000,000 at the end of September. This is a level we've not seen since 2013. If we focus on the main projects signed since January, 14 are above EUR 20,000,000 of CapEx, including 3 projects that are above EUR 100,000,000. 7 of these projects are in Asia, primarily in electronics, 4 in the Americas and 3 are in Europe.
In total, these year to date signings represent a total capital investment above EUR 750,000,000. In general, we've seen a very high success rate in our existing large industry basins, especially on the Gulf Coast of the U. S, but also in Benelux and in Korea. In electronics, all of the new business signed is aligned with key growth markets and supports our leading positions with Tier 1 customers. In line with the acceleration which, as a reminder, is the aggregate total investment in projects above EUR 10,000,000 that are under construction, but not yet started.
That backlog is now up to EUR 2,400,000,000. This underpins a future annual sales contribution of roughly EUR 1,000,000,000 with new decisions clearly more than offsetting startups. There were limited major startups in the third quarter. 3 of a more modest size, including the one take over in Kazakhstan that Fabienne mentioned. We project 10 new startups in the fourth quarter the major ones will be located in Asia.
In regard to Fuzhou, the plant is running and we have obtained our 2 final permits for safety and environment, which is clearly good news. However, the customer is still discussing the implementation of the signed contract and therefore, we remain prudent on the commercial start update. Year to date, the contribution of startups and ramp ups to sales growth stands at 1000000 and we expect to reach around 2 1,000,000 in additional sales for full year 2018. If we turn to bidding activity on Slide 20, it is very dynamic. We see a strong This is 20% higher than a year ago returning to a level we haven't seen since the second half of twenty fifteen.
In terms of size, roughly half are less than EUR 50,000,000 with an average size of EUR 20,000,000. There are 6 opportunities in the 100 1,000,000 investment range as well. The smaller overall size of the average project in the portfolio, along with the large number of projects reduces project risk and will yield a smoother growth trajectory for the future. As you can see in Slide 21, the portfolio is well aligned with the market trends we've discussed. A number of the business development opportunities are concentrated in the Americas, with the share in Asia and the Middle East increasing as well, along with a slight decrease in Europe.
Focusing on the end markets large industries represents more than 60% of the opportunities, driven primarily by the chemical and oil and gas sectors. Electronics opportunities comprise 15% of the portfolio. So to conclude with continued strong growth, and solid performance in the third quarter. We confirm our guidance for net profit growth for full year 2018. Opportunities
We can now take our first question from Theodore Joseph from Goldman Sachs. Please go ahead. Your line is open.
Hi, good morning and thank you for taking my questions. So I've got 2, the first is in industrial merchant. So I note that you have very high pricing in industrial merchant. But when I look at the volumes by region, I see an improvement sequentially in Europe and APAC, but quite a steep decline in the Americas. So just wondering if this is something true and if it's something that you can give color on?
And my second question is on electronics. I think we've seen quite weak commentary on Asia electronics by some of the industry participants there. So Just wondering if you think it's a fair caution for the market on your electronic growth in coming quarters or is it something that we should not be worried about? Thank you.
Well, thank you for your questions. Maybe I will start to answer for IIM and on the Mike electronics. And in industrial merchant, I would say that the pricing is better. I would not qualify it at a high pricing, though. We have a slight volume decrease in Americas, and you notice that as a zone, the global growth continues to improve.
This is mainly due to 2 elements. First of all, we are developing portfolio management actions at Airgas. We're focusing on the most active and profitable customers. And second, there was a slight slowdown in Allian due to the resourcing issues with the BLM. This is a quite exceptional event that we identified very well.
Apart from that, The end markets continued to be very well oriented, for our industrial merchant business in North America, as they were in Q2. It's even a little bit better in Canada, in particular, in metal fabrication. Where is the boat electronics, Mike?
You know, what we're seeing in electronics and you can see it in the numbers. We see continuing 6% and that's really primarily driven by Asia. You know, China, Japan and Taiwan all saw significant increases in the quarter and we expect those to continue. The Advanced Materials business continues to grow. We're in double digits for the quarter.
All geographies in Asia saw a continuing ramp and the uptake of advanced materials. And we also saw the ramp of the NScribe molecules for laser use. In the electronic sector as well. And E and I continued to grow as well. That was up very significantly in the quarter.
It's been throughout the year and again, driven by Asia. We continue to see new projects and new opportunities and growth specifically in Asia around electronics and we would expect that to continue.
Thank you. We can now take our next question from Thomas Riggsworth from Citi. Please go ahead. Your line is open.
Thank you very much. Two questions, if I may. Firstly, with regards to obviously, the concerns that were taking place specifically with China and the destocking that we're seeing today, is there any evidence that you're seeing of softness in the fourth quarter with regards to where you might be exposed there either in cylinder or industrial merchants. Any insights there would be much appreciated. And secondly, on the equipment and installations in electronics, could you just help me understand where we are?
Obviously, 50% growth in the quarter, very, very strong. But is that now back to the level that we were, say, exiting, was it 2016 and we should now and what should be our expectations for the equipment and installations component into 2019.
So regarding China, our business in China remains very strong. It has been like that now for more than 2 years. What we've seen this quarter is it's slowdown in large industries and this is directly due to a certain number of to turnarounds, most of them were planned. So this is not a surprise. Apart from that, merchant continues to be extremely strong.
In terms of volumes and in terms of pricing as well with double digit growth. And electronics is also, as Mike mentioned, continuing to develop here again, and we have a very stronger double digit growth. We don't see any sign of through down in Q4. Some of the customer outage will continue until the end of November, but some we'll restart on the I'm on the electronic side. Everything continues to be well aligned.
Your second question was about E and I. I think we are at a level which is exceptionally high. Compared to our history, $70,000,000 or so just for the quarter. We have a book to bill ratio, which is at 1.4, which means that it will continue into Q4, and then we should see slow down in the at the beginning of next year and probably at least mid-twenty 19 but then we should have the continued ramp up of the cayogases.
Thank you. We can now take our next question from Martin Rodiger from Kepler Cheuvreux. Please go ahead.
Just coming back to the large industries in Asia and the turnarounds you mentioned in the last contribution from ramp ups, can you put a figure behind that? What was the impact from that? Why overall comparable sales growth was minus 1.2% in Q3 so that we can get a better grip on what we have to expect in Q4 and then beyond. And Secondly, on electronics in Europe, I know this is a rather small business for you, but I remember that in Q2, you had suffered substantially with strong negative comparable sales growth because you have done a divestiture of a small electronic subsidiary Now in Q3, I don't see that anymore. It's up quite nicely.
And I just want to how that comes with you have shown a strong rebound in comparable sales growth here in that area?
Okay. So on large industries in Asia, there are 2 two components into play is the turnaround I mentioned. And you remember also that we solved a three units in the north of China at the end of last year. So there is also a small perimeter effect. If we exclude that, the underlying growth of Eli in Asia is 4%.
So it remains solid. Yes, we had a divestiture of non core electronic subsidiary in Europe at the very beginning of the year. And that continues to impact, as I mentioned in my commentary, it impacts the growth of Europe by approximately 0.5%. And that will start to soften in Q4. But it is still there and electronics in Europe is still down in Q3 as it was in Q2.
We can now take our next question from Andrew Stott from UBS. Please go ahead. Your line is open.
First one was going back to the U. S. And Canada. I think you said when you bought Airgas that you felt the hard goods business was your sort of lead indicator, I guess, particularly so now in the absence of the Welding franchise. So I just wondered if you could tell us how that business has performed through the quarter and then in the early part of October.
It sounds as though there's no change, but I just want to see trajectory there, if possible. Second question is on margin for the second half. And also related to this in a way is for next year that the contribution from startup. So the question on margin is Are you comfortable with consensus for roughly plus 50 bps in the second half? And on the large industries question, I think you said when we met Fabienne in September, the 250, which is obviously your guidance for this year would be a sort of broad number for next year.
With Fujian slipping into next year, does that mean 250 goes up?
Okay. So let's start by the first question about, U. S. And Canada and in particular, are good, Mike? Do you want to that one?
Sure. Clearly, we've continued to see significant growth in all sectors, especially in North America. But the manufacturing and metal fabrication operations have been very strong throughout the year and they continue to be strong in the third quarter. Order backlogs continue to remain very strong in that part of the business. And I think that we are going to continue to see the strength that we've seen throughout the year.
Also in the construction market, you know, in terms of general contractors, we've actually seen an uptick in the third quarter. I think on the year over year comparator earlier in the year, we were suffering a little bit from some of the big projects that had lapsed They had been completed, especially in the Gulf Coast and we're in startup and now we're starting to see, new construction efforts and new growth in that regard as well. And then finally, even in the specialty construction markets, we're also seeing a lot of growth. And that's more in the sectors that that support maybe the oil and gas efforts and the upstream and the midstream, as well as a lot of infrastructure projects as well. So we see a continued trajectory of growth in the metal fab market.
We see a continued trajectory of growth in the construction markets in general in North America. And that's continuing to be led by hard goods growth. I think hard goods growth was 9.3% in the quarter. So it's been very strong.
Thank you, Mike. So I will take the margin question, my favorite one, as you know. I'm not going to tell you if the consensus is right, that would be quite unusual. As you know, our margin is not our leading indicator However, we are committed to continuously improve our margins. Nothing is going to deviate from that.
In H2. Concerning the startup and ramp up contribution for next year, when we discussed that last time, we already knew that the few food gen startup was slipping a little bit by the end of 2018. Now it's more likely to be the beginning of 2019, but at this stage, it does not change our estimate.
Okay. So 250 Fabienne for 2019 as well is a broad guidance. Is that correct?
It is the best forecast we can give you.
We can now take our next question from Neil Tyler from Redburn. Please go ahead. Your line is open.
Yeah, good morning, everyone. A couple for me, please. Firstly, within the pricing dynamic in industrial merchant, can you give us an indication within Americas? How much of that really reflects perhaps local currency weakening in some of the South American regions and offsetting the related inflation with that. And on balance, I suppose a follow-up to Andrew's question really, when you look at the first half versus the second half and the current exit rate on pricing, how that compares to the rate of cost inflation.
Is the broad message that I think I'm interpreting from your statement that the the cost recovery is better in the second half than it was in the first, but not yet fully recovering the rate of cost inflation, if we exclude the savings and synergies? That's the first question, but a long one. And then the second one, Your investment decisions, is the amount the number of the 1,000,000 in aggregate that you say is within the existing hubs. That's approximately 20% of the total year to date Can you give us an indication of how the returns you would expect returns on those projects to compare to your broad your broader sort of longer term returns target, please.
Okay. Thank you. So on merchant pricing, within America, you saw that we have a pricing effect of 3.4%. North America alone, that's 3%. So yes, we have a component coming from the inflation in South America, in particular in Argentina.
But it's not the main part of it, obviously, as North America alone is at 3%. We are better recovering our costs and our price effect is, I think, well in line with inflation in North America, still a bit behind inflation in Europe. So it's obvious that the pass through is going to be better than what we had at beginning of the year. I think we are not still completely, in line with inflation in particular in Europe. Investment decision, Mike?
Sure. I mean, in terms of investment decisions, as we talked about before, with a long term goal of double digit ROCE and a clear trajectory to get there. We continue to focus on the level of turns that will get us to a double digit ROCE in general for the group, which means whether it's a large industry's investment, whether it's carrier gases and electronics, We've got to have those double digit returns if we're going to go ahead and succeed. So that's clearly where we're at and we continue with that going forward.
Yes, just I mean, just to follow-up, I fully understand the long term goal, but within that, component of the investment decisions, Is it safe to say or safe to assume that the returns on those hub investments will be substantially above your long term return?
Well, I think you know that when we invest in the basin where we have a strong position after full ramp up maturization of the source through the pipeline. Yes, that's where we have the best return obviously.
Okay. Thank you.
Thank you. We can now take our next question from Paul Walsh. Please go ahead. Your line is open.
Good morning, Fabienne. Morning, Mike. Just a couple of questions from me. When I think about the backlog that you have increased to 1,000,000,000 and 1,000,000,000 of sales in the pipeline, you're going to stay for 2 50 next year, which is your best guess, but I guess two questions on the backlog. Given the number of pipeline opportunities, how big can that backlog get?
And over what period would you anticipate delivering that billion in sales? So two separate questions. The 2.4, could that breach 3, for example, over coming quarters given what you can see right now? And in terms of the billion that you've talked about, how quickly do we see those sales coming through? I.
E. Should it be more or less 2 50 a year for the next 4 years? And then my second question is on GM and T, where we've seen almost a doubling in order intake in that business. Can you talk about what that does for the growth dynamics in GM and T, where that's coming from? Is it the Biomethane business and the kind of margins that that business or that new intake is generating?
Because that's it's traditionally a relatively low margin business, but are we to believe that the increased activity is at those low margins or do we see better mix in that intake as well?
So maybe in terms of the backlog and where we see that growing to Clearly, there's a lot of strength right now in business development activity. And we see very solid growth, whether that's in the Americas, whether that's in Asia, whether that's in the Middle East, And even though Europe was a little bit lower recognized that it's really driven primarily by the fact that the entire portfolio has grown. So as a percentage, it's a bit off But in general, we see continued growth. I wouldn't forecast it will be at 3 by the end of the year. I think the point is we continue to see significant business development opportunities.
We continue to see all the dynamics of growth and we don't see that slowing down. So whether that is a 2.6 or 2.8 or whatever it is, the point is that it's very, very strong. In terms of realizing those revenues, typically for a large industries project, you're looking at a course of a 3 year horizon for some of the electronics investments, maybe a 2 year horizon So somewhere in the 2 to 3 year range is probably where should we should be thinking.
Understood. And just on that, Mike, because you see we see some your competitors signing some very, very large contracts. And it's just interesting to me that you've focused on some of the smaller opportunities and the hub opportunities as you've just talked about. Anything that's making you shy away from some of those really, really big potential contracts out there? Or is it it's on the radar, but just you haven't found the right ones yet?
No. Like I said in the commentary, we clearly are focused on the opportunities as they present themselves. We aren't just focused on a particular size project. It works out especially with where we are in the pipeline systems and in a variety of other geographies. That some of the smaller to midsize projects are clearly accretive in nature and real opportunity, especially when they align with our major customers and the tier 1 players in electronics.
But again, there's, there's a half a dozen major projects in the $100,000,000 to 200,000,000 EURO range. So I think we are still very focused on the large projects as well.
Regarding GM and T, what you need to understand is that in GM and T, you have a variety of different type of businesses. So at a bit less than 50% of the GMT business relies on our draw intake. So it's not all of the business. Now in this 50% of the business relying on order intake, you can find order intake for the space industry, for example, where you can have a 3 to 4 years delivery. It's very long, contracts and projects that spread over time, or you can have order intake regarding biogas unit, and that could be delivered in 1 year.
So it's difficult out of the order intake to draw our future growth. However, you've seen that since its creation, germany had growth between 10 30%. I can confirm that you still expect an average growth around 20 the sound for the months to come and the business remains very dynamic. In terms of profitability for GM and T, here again, you are very different businesses, our Advanced Technology contract, and other margin, which is more or less in line with the group average when the most innovative investment, like in hydrogen and energy, for example, has very low margin, if not, no margin at all. So here again, it is a mix.
Okay. But generally speaking, is this should we assume a stable margin Fabienne or does the increased business activity mean that you get some operational gearing or leverage or better mix that drags it up or is it just safer to keep it relatively stable?
I think in GM and T, we are happy with the margin around 10%. And the objective is really to use most of the profitable business to finance more innovation and a more active development in the business of tomorrow or 10 years from now. So the objective in GM and T is not to boost the margin of the group, obviously not. It's just to prepare our future.
Understood. Thank you very much.
Thank you. We can now take our next question from Lawrence Alexander from Jefferies. Please go ahead. Your line is open.
Good morning. 2 quick questions. First, could you speak a and industrial markets in China and in North America. And, can you give a characterization, how you're thinking about the backlog of acquisition targets for the packaged gas business in the U. S?
Okay. So in IIM, very detailed analysis that Mike shared with you for Americas by end market. We obviously do not have the same level of did in China, where we more follow our business, by region, but what is driving high end performance in China And as since the beginning of the year, it's mostly the industrial market. I don't know, Mike, if you want to add something in Americas,
Yeah, I guess the only thing I would add is that, you know, I spoke to the construction activity that's underway. And from the industrial side clearly, we see a lot of industrial growth in construction, both in terms of the higher oil prices. And we saw that that really ramp back up when oil prices increased. So in the upstream part of the business and in terms of not just the facilities, but pipeline systems and also in the midstream, We continue to see a lot of strength there. With the next wave of chemical plants that are being built, we continue to see growth there.
And we will see that in the coming years as well as that evolves. There is a lot of infrastructure spend in the more specialized area And it's that's more spread throughout, throughout the North America, especially throughout the U. S. So whether that's on the Gulf Coast, whether that's on the West Coast, whether that's in the Northeast, there are different programs and different projects where we see infrastructure projects and actually some of the technological applications that we have with an Air Liquide that we can now leverage in the Airgas are helping us to go ahead and deliver, even even better in those areas. So I think we see that growth.
I wouldn't differentiate that we, we look at the nonresidential growth and we look the industrial growth and we're comparing the 2 rather I would say we see a good trajectory for both at the moment.
In terms of acquisition, you know that our bolt on acquisition to extend our local presence remains a component of the growth strategy. So this is true for Airgas. Airgas continues to work on small acquisition and to entertain the portfolio. Of independent players that could join the group one day or another. This is not the only place.
We have programs in China. We have programs in Latin America. So you see a bolt on acquisition programs continue to be a component of the merchant development strategy.
We can now take our next question from Markus Mayer from Vader Helvea. Please go ahead.
Yes, good morning Fabienne. Good morning, Mike. Three remaining questions. First one, is, on the startups and periods of time where you have quite a security in particular in China. So then also the effect that startups have been delayed quite heavily.
Do you see this risk as well for this year? Question is on electronic gases. Maybe you can shed some light. What has structurally changed over the last years in the past, electronic gas was highly cyclical. And now it looks like that part of your business is more, large industry character like business is take or pay context.
Maybe you can tell us what how many of these contracts have now such as take or pay structure. And then the last one is on the shortage or tightness of truck drivers in the S. Do you see higher personnel costs there? And how is your ability to pass on this higher cost to your customers?
Okay. So on the startup and ramp up, delay is the only delay or uncertainty is related to Fujian. For the rest, we don't have any specific issues. Our electronic business has evolved a lot for the last 10 to 5 years at least. You know that we have strongly reinforced our Advanced Materials activity.
And we have taken an undisputed leading position in China with a strongest market share with the Tier 1 player. So today, if you look at the electronics business, 40% is cariogas. So for cariogas, we have medium term contract, not as strong as for large industry, but from 8 to 10 years. And for those contracts, most of the time, we have got take or pays, the rest of the business, 20% specialty gives 20 percent Advanced Materials and then E and I is not governed by long term contract or co pays us. It's a different world.
Shortage of drivers, moving like this one is for you.
So there's no doubt there's been a lot of discussion about a shortage of drivers, especially in the U. S. Today, but we have not had any problems in terms ourselves of finding drivers. We're continuing we're seeing as a valued employer. We work hard to go ahead and develop long term benefits for our drivers.
We continue to go ahead and work at that and make sure we manage that in the right way. In terms of the pass through of incremental costs, we clearly have driven pricing and whether that's the various aspects of the cost drivers, including, if it's increased in transportation costs, we do pass that through. So I think all that's in a good place.
Okay, perfect. Thanks so much.
Thank you. Question from chetan Udeshi from JP Morgan. Please go ahead.
I just had a question around the visibility that you guys have in general in your businesses. I think large industries one can agree that there's a longer visibility. But in terms of your industrial merchant business, Can you just give us some sense of how long the visibility you guys normally have in this business? And the the crux of the question is, we've seen all of these data points coming out of China, etcetera, suggesting a slowdown, whereas you guys are still talking very bullishly on China demand. So just wanted to understand, how you guys take into account what's happening on the ground and how that translates into the visibility in the business?
You know that our industrial merchant is correlated to the industrial production in the various countries where we have business. For example, when we prepare our forecast or target, the first thing we look at is the industrial production forecast. And then we adapt our objectives or we amend our objectives based on the evolution of the production. So that's how we work it out. Maybe, Dee, you want to add something as with the example of Europe, for example, maybe?
Yes, maybe just to, to illustrate a little bit how the merchant market sort of develops. Much market is a fundamentally very diversified market, okay, geographically, of course, but also from a business point of view, different products, but also addressing a variety of broad variety of markets. Typically in Europe today, we see a certain number of strong drivers in that continue in the construction, okay, as in a similar way to what Michael was also mentioning for Americas. We see also some activities, say, being substituting by others. We hear a lot about the automotive in the that maybe is less dynamic that has perspectives or issues of midterm or transforming itself.
But at the same time, we see ourselves, for that market also strongly growing in other parts of it, typically on the emission controls, aspects of things, that is a very high, very high and sensitive topic today. And therefore, for which we can bring a specific offers and products in those markets. So fundamentally, we the merchant market is a robust resilient activity. That has also a lot of capacity to introduce some innovations on which we continuously work. And it is offering some compensations between the different sub segments.
When we look at all our segments today worldwide, They're all more or less green looking forward. So I think we have in front of us something that should continue to show strong robustness.
And maybe if I can follow-up in terms of linearity of the growth through the Q3. I mean, have you seen any change in terms of maybe beginning of the quarter to end of the quarter or entering the Q4? Has there been a material change in terms of linearity of growth, especially in some of these emerging markets. And you mentioned the Chinese pricing being strong as well. So any sort of change there in linearity or do you think it was fairly stable through the quarter?
No, no, we saw an underlying business in most of our countries, if not all of our countries, which is really consistent with the Q2 trends. It continues to be very solid. We supplement, of course, those market trends by strategic Gee mentioned innovation. It can be also bolt on acquisition. It can be, customer centric initiatives.
To go more direct to the final customer. So we can also influence growth by our own actions, but we've not seen any sign of 3 darwin even at the end of the quarter.
Thank you. We can now take our next question from Peter Clark from Societe Generale.
Yes, good morning, everyone. Thank you. I have two questions. The first one, and I've heard everything you were saying to Andrew and Neil, and I recognize it's not a margin call, but just in terms of the mix effects that you were seeing in the first half and you highlighted dragging on that margin increase we saw in the first half. So the the equipment sales in electronics outages.
And I guess when I look at Q3, I'm looking at the Airgas on-site in Europe a bit softer. Just on mix, has there been a material change as we gone through the third quarter against what you're seeing in the first half? Particularly, bear in mind, you say the equipment is going to be strong in the fourth quarter as well. And then the second question is around, you shared a number on the Gulf Coast investments with some of the smaller investments, I guess customers who do want to be disclosed, have you got a number you can share for the last few years, like from 2015 what you've won on the Gulf Coast in terms of investments from signed projects? Thank you.
So regarding the margins, and on the mix, it's true that part of what we had identified in Q in H1, it is there. And in particular, the high level of equipment and installation and the fact that in Europe, we still have a year of stronger bulk activity than packaged gas activity. Regarding the turnaround borrowing any specific incident and forecasted incident. We shouldn't have more turnarounds in Q4 this year than what we had last year. At the group level, right?
Then it depends on one region for another, but globally, it should be more or less at the same level.
Okay.
Elaborate on our presence in the Gulf Coast?
Well, as I mentioned before, we continue to see very strong business and activity in the Americas and basically that's driven in the Gulf Coast. And I think over the course of the last year, we've continued to sign a number of projects especially in the Airgas space as well as in hydrogen offtake. And that continues to grow favorably for us. So we've seen both investments and opportunities in terms of the Airgas space across both pipeline systems. We've continued to see some level of hydrogen opportunity as well.
And also investment in terms of the infrastructure on the utility systems and a variety of things like that. So I think in general, in all aspects, we've seen continued growth and we continue to see that evolve. The size of the projects evolves from one point to another. But I think as we look forward, as I said before, over 40% of the new opportunities we see are in the U. S.
And primarily all those around the Gulf Coast.
Thanks, Mike. I was actually looking back.
I was trying trying to get a feel for what you've signed from 2015 on the Gulf Coast because I realized some customers don't want to disclose and I'll you've been signing quite a few of these smaller incremental projects. So you've given us the 1,000,000 in 2018. Just wondering over the last few years, what sort of level of signature that's been
So if you want numbers, we'll give you numbers. If you look at the 5 years period, 2013 year to date 2018, we have signed around 1,000,000 of investment in the U. S. On this is spread between 14 projects. Does that answer to your question?
I think so. I think so.
From Francisco Rodriguez from Banco Sabadell. Please go ahead. Your line is open.
Yes. Hello. Good morning and thank you for your time. I have three questions actually. The first one would be just to confirm, if I'm not wrong, that your best guess for 2019 for start up and ramp up contribution would be 1,000,000.
That would be my first take clarification. The second one, it's regarding margins in your engineering business. Which, at some point, last year, well, at the beginning of this year, we spoke about probably having a margins of single digit margins for 2019. I'm not sure if that's still the case. And the last question is regarding, and, well, the margin expected for next year in the sense that, well, I quite impressed that consensus figures assume around 100 basis points.
90 to 100 basis points of increase in margins for next year. And, well, I don't know if you have any comments to make for that. It would be quite happy to hear from you. Thank you.
So coming back to start up and ramp up, $250,000,000 is our best estimate at the moment, and we will discuss that in February when we publish our full year. Regarding E and C, you know, that the E and C business has been difficult. We've been losing money in H1. The objective is to be a little bit better than breakeven for H2, but we'll still be negative for the full year. And we said we would come back positive in 2019.
However, it's certainly not going to be double digit, a mid single digit would already be a good performance compared to what we had for the last 2 years. Then margin in 2019, you know that we took more extensively about the year to come when we published in February. So I don't have comments at this stage. Thank you.
From Laurent Faves from Exane. Please go ahead. Your line is open.
Yes. Good morning, Olin. I promise it will be a quick one. On the Pemex DECAP, it looks like there's a bit of a slip engine of about 3 months. I was just wondering what was driving that and maybe more generally Fabienne, you can talk about the decap environment.
I think back when you announced the first Pemex, deal. There was some expectation that the decap opportunity was actually materializing a bit fast and bit quicker than we assumed. We haven't seen a lot this year. So I'm just wondering, has there been any change in appetite for buyers, oriented sellers around that opportunity? Thank you.
In terms of Pemex, it's just been pushed out by 3 months. The customer is not ready yet Pemex is not ready yet for the additional hydrogen. We've already taken over the facility. It's ours. It's fully protected by the typical large industries contracts.
We're just waiting for them to have the need for the hydrogen to start up the facility.
Okay.
Regarding another takeover, which has happened over the period.
So in terms of examples of decap, another one that is taking place there just started in September is the one in Kazakhstan. In the national oil refinery national oil company called KMG, which which is the core company over there to who's doing the refining. So we have one project that has started up in Papplodar refinery. And we expect maybe possible others to come. So the trend is continuing.
It sometimes takes a little longer than than what we could expect. But fundamentally, I think this is a long term trend that is pursuing.
When you look at the
We have a certain number of stakeholder projects we are working on. It could take some time to materialize because the discussion with the customer may be quite long before. Them make the decision, but we have a bunch of them in particular in China.
Okay. Thank
you. So is there no further question? I think I will we'll stop there. Thank you very much for your attention. Just as a quick conclusion, I think it's an excellent quarter for Air Liquide.
We have a lot of good news. We have a strong activity. So good news was a short term in terms of performance, we are aligned and a very promising development activity. So good news for the medium and long term as well. Thank you very much.
Have an excellent day and we'll talk to you at the end of November on a very different subject with our climate objectives. Goodbye.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.