Good morning, ladies and gentlemen, welcome to the Air Liquide Q3 2018 Revenue Conference Call. Today's conference is being recorded. All participants are currently in a listen-only mode until we conduct a question and answer session, instructions will be given at that time. I will now hand over to the Air Liquide team. Please begin your meeting, I will be standing by.
Good morning, everyone. This is Aude Rodriguez, head of investor relations. Thank you for joining our conference call today. Fabienne Lecorvaisier will present the third quarter revenue, Michael Graff will update you on business development. Guy Salzgeber is also with us, will participate in the Q&A session. In the agenda, our next announcements are on November 30th for our climate objectives, on February 14th next year for our full year 2018 results. Let me now hand you over to Fabienne.
Thank you, good morning, everyone. Thank you very much for being with us this morning. I will start with the highlights of the Q3 activity, performance, then I will hand over to Michael Graff for a focus on business development, new project signings, opportunities. Maybe first, before you ask questions on the subject, I would like to comment for a minute on the recent news. The announcement of the merger between Linde and Praxair is, of course, not a surprise. It has been around for now two years. Finally, what we see is that it's more portfolio recombination than a real merger, meaning very little change on local positions. We are now going to be two co-leaders far ahead of the competitors. To be noted, during these last two years, Air Liquide moved ahead.
We acquired, integrated Airgas, thus reinforcing our position in the U.S., also in merchant. We launched NEOS, aligned the teams along a customer-driven vision with ambitious objectives on the ID connected network organization. We reinvented our innovation approach, leveraged our digital transformation, 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 Q3 performance. The trends we identified in H1 were confirmed, with a strong growth at the top of the NEOS range in all gas, services business lines. We also saw an improvement in engineering as well as pursued developments in Global Markets & Technologies. Efficiencies, synergies continue to be delivered in line with plans, the investment opportunities are ramping up. Let's look at the sales evolution.
I'm on slide four. Growth for gas and services is 5.2% on a comparable basis, slightly higher than for H1. In engineering construction, sales continue to recover and profits are breakeven for the quarter. Global Markets & Technologies at +23% are supported in particular by strong maritime 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 foreign exchange wind 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 -4% negative effect for the full year. Conversely, energy pricing is becoming more positive, and we should be at +1% full year.
Coming back to growth drivers, Americas are up 5%, supported in particular by higher growth in the U.S. and Canada. Developing economies at +11% benefit from the dynamism of our business in China, and Asia globally is at +6%. All of our business lines were strong and in the upper range of their NEOS 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 market 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 industry is strong throughout the region, in oxygen in particular, while the OCI methanol plant is ramping up on the Gulf Coast.
In 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. Healthcare growth is supported by medical gases in the U.S. and developments in Latin America. Gases and equipment sales are solid in electronics in the U.S. Europe is up 3%, hampered by the divestiture of a non-core subsidiary in electronics at the beginning of the year. Large industries benefit from solid hydrogen demand in oil and gas in Central Western 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.
Home healthcare is also very solid, in particular in Germany and Northern Europe. Asia is up 6%, driven by solid Merchant and buoyant Electronics, more than compensating for lower Large Industries due to several customer turnaround, notably in China. Merchant continues to be driven by strong volumes and pricing in China and by the recovery in Australia. Electronics sales are really strong for gases and even more for equipment and installations throughout the region, and in particular in China, Korea, and Singapore. Middle East and Africa is supported by the Sasol ramp-up in South Africa and by strong activity in Egypt, as well as by our healthcare acquisition in Saudi. Starting on page 10, a quick wrap-up by business line. In Merchant, we are aligned with Q2 trends, with most of our end markets 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. Globally, oxygen volumes are up 8% and hydrogen volumes are up 5%. Healthcare is showing 6% growth, supported by Home Healthcare at plus 8% and solid Hygiene and Specialty Ingredients. To finish with, Electronics is up 9% for the quarter. Cryogases sales are growing double digits in Asia, thanks to new contracts, and 9% globally. Equipment and installation sales remain very high and are 25% up to last year. As mentioned, Engineering continues to recover, and the level of order intake, up 30% to last year, will drive positive performance in 2019.
To be noted, the progression of the Global Markets & Technologies order intake is clearly supported by innovation and mainly driven by biogas projects and advanced technologies with the launch of a new generation of turbines. In terms of performance, year-to-date, we have been able to deliver EUR 254 million of efficiency, which is an 11% increase to last year. The group efficiency programs are progressively being deployed at Airgas, which contributes EUR 22 million to this amount. The industrial and logistic program represents 50% of the saving, with an important part coming from Merchant activity. We therefore confirm that we'll be, again, above the EUR 300 million objective for the full year. At Airgas, cumulative synergies resulting from the integration are now close to $275 million, and we can confirm that the initial $300 million objective will be achieved early 2019, which is more than one 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 EUR 3 billion of cash flow at 19.5% of sales, a 70 basis point improvement to last year. Net CapEx at EUR 1.7 billion are close to last 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 EUR 14 billion, while gearing remains under control and has lowered slightly at 78%. 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, as 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 first nine months of the year, totaling EUR 1.9 billion 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 million of CapEx, including 3 projects that are above EUR 100 million. 7 of these projects are in Asia, primarily in Electronics, 4 are in the Americas, and 3 are in Europe. In total, these year-to-date signings represent a total capital investment above EUR 750 million. 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 One customers. In line with the acceleration of our business development activity, our project backlog, which, as a reminder, is the aggregate total investment in projects above EUR 10 million that are under construction but not yet started, that backlog is now up to EUR 2.4 billion. This underpins a future annual sales contribution of roughly EUR 1 billion, 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 takeover 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 Fujian, 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 startup date. Year-to-date, the contribution of startups and ramp-ups to sales growth stands at EUR 192 million, and we expect to reach around EUR 250 million in additional sales for full year 2018. If we turn to bidding activity on Slide 20, it is very dynamic. We see a strong increase of business development opportunities that could be awarded in the next 12 months, reaching a level of EUR 2.6 billion. This is 20% higher than a year ago, returning to a level we haven't seen since the second half of 2015.
In terms of size, roughly half are less than EUR 50 million, with an average size of EUR 20 million. There are 6 opportunities in the EUR 100 to EUR 200 million 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.
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. In addition, the business development opportunities are clearly increasing and will fuel future growth. Thank you for your attention. We are now happy to answer your questions.
Again, as a reminder, that's star one if you would like to ask a question over the telephone. We'll pause for a brief moment to allow everyone signal. We can now take our first question from Theodora Joseph from Goldman Sachs. Please go ahead. Your line is open.
Hi, good morning. Thank you for taking my question. I've got two. The first is in industrial merchant. I note that you have very high pricing in industrial merchant. When I look at the volumes by region, I see an improvement sequentially in Europe and APAC, quite a steep decline in the Americas. Just wondering if this is something structural and if it's something that you can give color on. My second question is on electronics. I think we've seen quite weak commentary on Asia Electronics by some of the industry participants there. Just wondering if you think it's a fair caution for the market on your electronic growth in coming quarters, or is this something that we should not be worried about? Thank you.
Thank you for your questions. Maybe I will start to answer for IM and hand over to Mike for electronics. 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. You notice that in other zone, the global growth continues to improve. This is mainly due to two elements. First of all, we are developing portfolio management actions at Airgas. We're focusing on the most active and profitable customers. Second, there was a slight slowdown in helium due to the sourcing issues with the BLM. This is quite exceptional event that we identify very well. Apart from that, the end markets continue 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. Worries about electronics, Mike?
What we're seeing in electronics, and you can see it in the numbers, we see actually continuing strength and continuing growth over the course of the three quarters of the year. Carrier gases are up 8.6%, and that's really primarily driven by Asia. 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 in the uptake of advanced materials. We also saw the ramp of the enScribe molecules for laser use in the electronic sector as well. E&I continued to grow as well. That was up very significantly in the quarter. It's been strong 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.
Okay. Thank you very much, Fabienne and Mike.
Thank you. We can now take our next question from Tom Wrigglesworth 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 are 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 merchant? Any insights there would be much appreciated. Secondly, on the equipment and installations in electronics. Could you just help me understand where we are? Obviously, 50% growth in the quarter, very strong. Is that now back to the level that we were, say, exiting, was it 2016? What should be our expectations for the equipment and installations component into 2019? Thank you.
Regarding China, our business in China remains very strong. It has been like that now for more than two years. What we've seen this quarter is a slowdown in large industries. This is directly due to a certain number of customer turnarounds. Most of them were planned, so this is not a surprise. Apart from that, IM continues to be extremely strong in terms of volumes and in terms of pricing as well, with double-digit growth. Electronics is also, as Mike mentioned, continuing to develop. Here again, we have a very strong double-digit growth. We don't see any sign of slowdown in Q4. Some of the customer outage will continue until the end of November, but some will restart. On the IM and the electronic side, everything continues to be well-aligned. Your second question was about E&I.
I think we are at a level which is exceptionally high compared to our history, EUR 70 million 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. We should see a slowdown at the beginning of next year and probably at least mid-2019. We should have the continuous ramp-up of the cryogases.
Very clear. Thank you very much, Fabienne.
Thank you. We can now take our next question from Martin Roediger from Kepler Cheuvreux. Please go ahead.
Yes, thank you for taking two questions from my side. Just coming back to the large industries in Asia and the turnarounds you mentioned and the less contribution from ramp-ups. Can you put a figure behind that? What was the impact from that? Why overall comparable sales growth was -1.2% in Q3, that we can get a better grip on what we have to expect in Q4 and beyond? 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. I just wonder, how that comes that you have shown a strong rebound in comparable sales growth here in that area?
Okay, on large industries in Asia, there are two components into play. The turnaround I mentioned, you remember also that we sold three units in the north of China at the end of last year. There is also a small perimeter effect. If we exclude that, the underlying growth of LI in Asia is 4%. It remains solid. Yes, we had the divestiture of a non-core electronic subsidiary in Europe at the very beginning of the year, that continues to impact, as I mentioned in my commentary. It impacts the growth of Europe by approximately 0.5%. That will start to soften in Q4. It is still there, and electronics in Europe is still down in Q3 as it was in Q2.
Thank you.
Thank you. Again, as a reminder, that's star one to ask a question. We can now take our next question from Andrew Stott from UBS. Please go ahead. Your line is open.
Good morning, everyone. Thanks for taking the questions. 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. 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 the 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, the contribution from startups. The question on margin is, are you comfortable with consensus for roughly plus 50 basis points in the second half?
On the large industries question, I think you said when we met Fabienne in September that EUR 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 EUR 250 goes up?
Okay, let's start by the first question about U.S. and Canada, and in particular, hard goods. Mike, do you want to take that one?
Sure. Clearly, we've continued to see significant growth in all sectors, especially in North America. 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, 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 were in startup, and now we're starting to see new construction efforts and new growth in that regard as well.
Finally, even in the specialty construction markets, we're also seeing a lot of growth, and that's more in the sectors that support maybe the oil and gas efforts and the upstream and the midstream, as well as a lot of infrastructure projects as well. 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. It's been very strong.
Thank you, Mike. 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, 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 Fujian 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, EUR 250, Fabienne, for 2019 as well is a broad guidance. Is that correct?
It is the best forecast we can give you.
Yeah. Perfect. Thank you very much.
Thank you. We can now take our next question from Neil Tyler from Redburn. Please go ahead. Your line is open.
Good morning, everyone. A couple from 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? 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 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, a bit of a long one.
The second one, your investment decisions, is the amount, the number, the EUR 380 million 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 you would expect the returns on those projects to compare to your broader, longer-term returns target, please?
Thank you. On the merchant pricing, within America, you saw that we have a pricing effect of 3.4%. North America alone is at 3%. Yes, we have a component coming from the inflation in South America, and particularly in Argentina, but it's not the main part of it, obviously, as North America alone is at 3%. We are better recovering our cost, and our price effect is, I think, well in line with inflation in North America, still a bit behind inflation in Europe. It's obvious that the pass-through is going to be better than what we had at the beginning of the year. I think we are not still completely in line with inflation, in particular, in Europe. Investment decision, Mike?
Sure. 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 returns that will get us to a double-digit ROCE in general for the group. Which means whether it's a large industries 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. That's clearly where we're at, and we continue with that going forward.
Yeah. 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 a basin where we have a strong position after full ramp-up and mutualization 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.
Morning, Fabienne. Morning, Mike. Just a couple of questions from me. When I think about the backlog that you have increased to EUR 2.4 billion and the EUR 1 billion of sales in the pipeline, you're giving a steer for EUR 250 next year, which is your best guess. 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 EUR 1 billion in sales? Two separate questions. The EUR 2.4, could that breach three, for example, over coming quarters given what you can see right now? And in terms of the EUR 1 billion that you've talked about, how quickly do we see those sales coming through, i.e., should it be more or less EUR 250 a year for the next four years?
My second question is on GM&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&T, where that's coming from? Is it the biomethane business, and the kind of margins that business or that new intake is generating? Because that is traditionally a relatively low-margin business. Are we to believe that the increased activity is at those low margins, or do we see better mix in that intake as well? Thank you.
Maybe in terms of the backlog and where we see that growing too. 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. Even though Europe was a little bit lower, recognize that it's really driven primarily by the fact that the entire portfolio has grown. As a percentage, it's a bit off. In general, we see continued growth. I wouldn't forecast it will be a three 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. Whether that is a EUR 2.6 or EUR 2.8 or whatever it is, the point is that it's very strong.
In terms of realizing those revenues, typically for a large industries project, you're looking at a course of a three-year horizon. For some of the electronics investments, maybe a two-year horizon. Somewhere in the two to three-year range is probably where we should be thinking.
Understood. Just on that, Mike, because we see some of your competitors signing some 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. Is there anything that's making you shy away from some of those really big potential contracts out there? Is it on the radar, but just you haven't found the right ones yet?
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 a variety of other geographies, that some of the smaller to mid-size projects are clearly accretive in nature and a real opportunity.
Yeah
Especially when they align with our major customers and the tier 1 players in electronics. Again, there's a half a dozen major projects in the EUR 100 million-EUR 200 million range. I think we are still very focused on the large projects as well.
Okay. GM&T?
Regarding GM&T, what you need to understand is that in GM&T, you have a variety of different type of businesses. A bit less than 50% of the GM&T business relies on order intake. It's not all of the business. 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 3-4 years delivery. It's very long contracts and projects that are spread over time, or you can have order intake regarding biogas unit, and that could be delivered in one year. It's difficult out of the order intake to draw a future growth. However, you've seen that since its creation, GM&T had growth between 10% and 30%.
I can confirm that we still expect an average growth around 20% for the months to come, the business remains very dynamic.
Yeah.
In terms of profitability for GM&T, here again, you have very different businesses. Our advanced technology contract have a margin which is more or less in line with the group average, when the most innovative investment, like in hydrogen energy, for example, have very low margin, if not no margin at all. Here again, it is a mix.
Generally speaking, 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&T, we are happy with the margin around 10%, and the objective is really to use the most of the profitable business to finance more innovation and a more active development in the business.
Got it.
of tomorrow or 10 years from now. The objective in GM&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 Laurence Alexander from Jefferies. Please go ahead. Your line is open.
Good morning. Two quick questions. First, could you speak a little bit about the difference you're seeing in industrial merchant between non-residential construction and industrial markets in China and in North America? Can you give a characterization on how you're thinking about the backlog of acquisition targets for the packaged gas business in the U.S.?
Okay. In IM, the very detailed analysis that Mike shared with you for Americas by end market, we obviously do not have the same level of detail in China where we more follow our business by region. What is driving IM performance in China, and as since the beginning of the year, is 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, I spoke to the construction activity that's underway. 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 really ramp back up when oil prices increased. In the upstream part of the business, 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 areas, and that's more spread throughout North America, especially throughout the U.S.
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 better in those areas. I think we see that growth. I wouldn't differentiate that we look at the non-residential growth, and we look at the industrial growth, and we're comparing the two. Rather, I would say we see a good trajectory for both at the moment.
In terms of acquisition, you know that a bolt-on acquisition to extend our local presence remains a component of the growth strategy. This is true for Airgas. Airgas continues to work on small acquisition and to entertain a portfolio of independent players that could join the group one way or another. This is not the only place. We have programs in China, we have programs in Latin America. You see bolt-on acquisition programs continue to be a component of the merchant development strategy.
Thank you.
Thank you. We can now take our next question from Markus Mayer from Baader Helvea. Please go ahead.
Good morning, Fabienne. Good morning, Mike. Three main questions. First one is on the startups in periods of time where you have quite uncertainty, in particular in China, you saw that also the effect that startups have been delayed quite heavily. Do you see this risk as well for this year? First question. The second question is on electronic gases. Maybe you can shed some light what has structurally changed over the last years. In the past, electronic gases was highly cyclical. Now it looks like that a part of your business is more large industry character like businesses take or pay contracts. Maybe you can tell us how many of these contracts have now such a take or pay structure. The last one is on the shortage or tightness of truck drivers in the U.S. Do you see higher personal costs there?
How is your ability to pass on this higher cost to your customers? Thank you.
Okay. On the startup and ramp-up delays, 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. We had taken an undisputed leading position in China with strongest market share with a Tier One player. Today, if you look at the electronic business, 40% is cryogas. For cryogas, we have medium-term contract, not as long as for large industry, but from 8 to 10 years. For those contracts, most of the time we have got take or pays. The rest of the business, 20% specialty gases, 20% advanced materials, E&I is not governed by long-term contract or take or pay. It's a different world.
Shortage of drivers, maybe Mike, this one is for you.
There's no doubt there's been a lot of discussion about a shortage of drivers, especially in the U.S. today. We have not had any problems in terms ourselves of finding drivers. We're seen 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. I think all that's in a good place.
Okay. Perfect. Thanks so much.
Thank you. Again, as a reminder, it's star one to ask a question. We can now take our next question from Chetan Udeshi from J.P. Morgan. Please go ahead.
Yeah. Hi. Thanks. 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. In terms of your industrial merchant business, can you just give us some sense of how long a visibility you guys normally have in this business? The crux of the question is, we've seen all of these data points coming out of China, et cetera, suggesting a slowdown, whereas you guys are still talking very bullishly on China demands. 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. Thank you.
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. Then we adapt our objectives, or we amend our objectives based on the evolution of the industrial production. That's how we work it out. Maybe, Guy, you want to add something with the example of Europe, for example, maybe?
Yes. Maybe just to illustrate a little bit how the merchant market sort of develops. Merchant 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 broad variety of markets. Typically, in Europe today, we see a certain number of strong drivers 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 substituted by others. We hear a lot about the automotive industry that maybe is less dynamic, that has perspectives issues midterm or transforming itself. 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 and sensitive topic today, therefore, for which we can bring specific offers and products in those markets. Fundamentally, the merchant market is a robust, resilient activity that has also a lot of capacity to introduce some innovations on which we continuously work. It is offering some compensations between the different subsegments. When we look at all our segments today worldwide, they're all more or less green looking forward. I think we have in front of us something that should continue to show a strong robustness.
Maybe if I can follow up in terms of linearity of the growth through the Q3. 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? You mentioned the Chinese pricing being strong as well. Any sort of change there in linearity, or do you think it was fairly stable through the quarter?
No. We saw 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 actions. Guy mentioned innovation. It can be also bolt-on acquisition. It can be customer-centric initiative to go more direct to the final customer. We can also influence growth by our own actions, but we've not seen any sign of slowdown, even at the end of the quarter.
Okay. Thank you very much.
Thank you. We can now take our next question from Peter Clark from Société Générale. Please go ahead. Your line is open.
Yes. Good morning, everyone. Thank you. Two questions. The first one, 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 equipment sales in electronics outages. 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've gone through the third quarter against what you're seeing in the first half? Particularly bearing in mind you say the equipment's going to be strong in the fourth quarter as well.
The second question is around, you shared a number on the Gulf Coast investments, with some of the smaller investments, and I guess customers who don't 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 and signed projects? Thank you.
Regarding the margins, and on the mix, it's true that part of what we had identified in H1 is still there, and in particular, the high level of equipment and installation and the fact that in Europe, we still have a stronger bulk activity than package gas activity. Regarding the turnaround. Barring any specific incident, unfocused incident, we shouldn't have more turnarounds in Q4 this year than what we had last year. At the group level. It depends-
Sure
from one region for another, globally, it should be more or less at the same level.
Okay.
Elaborate on our presence in the Gulf Coast?
As I mentioned before, we continue to see very strong business development activity in the Americas, basically that's driven in the Gulf Coast. I think over the course of the last year, we've continued to sign a number of projects, especially in the air gases space, as well as in hydrogen offtake, that continues to grow favorably for us. We've seen both investments and opportunities in terms of the air gases space across both pipeline systems. We've continued to see some level of hydrogen opportunity as well, also investment in terms of the infrastructure on the utility systems and a variety of things like that. 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.
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 are on the Gulf Coast.
Thanks, Mike. I was actually looking back. I was trying to get a feel for what you signed from 2015 on the Gulf Coast, because I realize some customers don't want to disclose, obviously you've been signing quite a few of these smaller incremental projects. You've given us the EUR 200 million in 2018. Just wondering, over the last few years, what sort of level of signature there's been.
If you want numbers, we'll give you numbers. If you look at the five years period, 2013 year to date 2018, we have signed around EUR 900 million of investment in the U.S. This is spread between 14 projects. Does that answer to your question?
I think so. I can always come back. Don't worry. Thank you.
Thank you. We can now take our next question 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 startup and ramp-up contribution would be EUR 250 million. That would be my first, let's say, clarification. The second one is regarding margins in your engineering business, which at some point last year or the beginning of this year, we spoke about probably having single-digit margins for 2019. I'm not sure if that's still the case. The last question is regarding the margin expected for next year in the sense that, I'm quite impressed that consensus figures assume around 100 basic points, 90 to 100 basic points of increase in margins for next year. I don't know if you have any comments to make for that. Would be quite happy to hear from you.
Thank you.
Coming back to startup and ramp-up, EUR 250 million is our best estimate at the moment, and we discuss that in February when we publish our full year. Regarding E&C, you know that the E&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. 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. Margin in 2019, you know that we talk more extensively about the year to come when we publish in February, so I don't have comments at this stage. Thank you. Maybe one last question.
Certainly. We can now take our last question from Laurent Favre from Exane. Please go ahead. Your line is open.
Yes. Good morning, all, I promise it will be a quick one. On the Pemex decaf, it looks like there's a bit of a slippage in of about 3 months. I was just wondering what was driving that, maybe more generally, Fabienne, you can talk about the decaf environment. I think back when you announced the first Pemex deal, there was some expectation that the decaf opportunity was actually materializing a bit faster and a bit quicker than we assumed. We haven't seen a lot this year, I'm just wondering, has there been any change in appetite for buyers or indeed 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.
Maybe, Guy, regarding another takeover which has happened over the period.
In terms of examples of decaf, another one that is taking place there, just started in September, is the one in Kazakhstan, in the national oil company called KazMunayGas, which is the core company over there who's doing the refining. We have one project that has started up in Pavlodar refinery, and we expect maybe possible others to come. The trend is continuing. It sometimes takes a little longer than what we could expect, but fundamentally, I think this is a long-term trend that is pursuing.
When we look at the
The rest of the world, we have a certain number of takeover projects we are working on. It could take some time to materialize because the discussion with the customer may be quite long before they make the decision, but we have a bunch of them, in particular in China.
Okay, thank you.
If there are no further question, I think 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 for the short term, in terms of performance we outlined, 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.