Good morning, ladies and gentlemen, and welcome to the Air Liquide 2018 Interim Results Conference Call. I would now hand the call over to the Air Liquide team.
Good morning, everyone. This is Claude Rodriguez, Head of Investor Relations. Thank you for joining today's conference call. Vunoit Poetier and Fabienne Lucar Vivier will present the first half twenty eighteen performance. Mike Half is also with us and will participate in the Q And A session.
On October 24, we will announce our 3rd quarter revenue and on November 30, our climate objectives Let me now hand you over to Benoit.
Thank you, Ode, and good morning, everyone. Thank you for attending this conference call. We'll start with the agenda on Page 2. Our first half results are strong, both in terms of growth and in terms of performance as We'll see in a few minutes. One of the good news of this semester is the acceleration of business opportunities and new signatures in particular in Large Industry And Electronics.
And so we confirm our guidance for 2018. I'm now on Page 4, where we can start with growth and performance. Number 1 growth. Overall, we delivered growth in all business lines. But also in all geographies.
Sales were up 5.8% in first half, which is split of 6% in Q1 water. I'm electronics and health care were the strongest contributors this quarter as well as Asia Pacific, Africa, Middle East and Americas. In terms of performance, our efficiencies were above targets as where the Airgas synergies in the first half so that we now expect the full EUR 300,000,000 synergies to be delivered 1 year ahead of plan. It leads to a 30 basis point improvement of margin ratio for gas and services, excluding energy, with a positive impact in Americas and Europe. Our net profit as reported is at 12.1% and is even at more than 20% without the effect of foreign change.
And finally, cash flow generation is robust at +11 percent showing a good quality of the results. On Page 5, my second point is related to business development acceleration. If we look at the sequence of a series of half years since the second half of twenty sixteen, the acceleration is very visible and we are now back to a historical growth. H1 twenty eighteen is even the highest growth rate since the first half of twenty fourteen. Investment decisions at a high level, EUR 2,900,000,000 on a 12 month moving average, which will fuel growth and efficiency for the coming years.
If I look at Page 6, how we implement the neos strategy Fabienne will show you later how it relates to the economic and industrial production background, but we have to remember Neos Foundation. First of all, we had a 6% to 8% sales growth, including the 2% effect from the consolidation of half of airgas more or less, we are on track. Efficiencies above CHF 300,000,000 every year. We are also on track. Fabienne will detail the first half.
The net debt in A category, and thanks the strong cash flow, we also ticked that box and the return on capital employed at more than 10% in 5, 6 years after the beginning of the plan, on that as well, we are on track. Our NEEO strategy is being deployed in several business lines, and I'd like to highlight 1 or 2 key points in margins definitely. Our strategy is focused on basins, and I have in mind, in particular, Northern Europe And Wealth Basin, but also the Gulf Coast in the U. S. And also on the application of new digital, softwares and solutions, And we have deployed the SIO smart innovative operations in already 3 clusters in the world, and we are working on it for the U.
S. In I'm, I would like to highlight the impact digital, in particular, the portals, the web portals that are in place, the strategy of density around existing basins or zones and of course, a focus on Airgas and deployment of both cost and revenue synergies. In electronics, clearly new precursors, new molecules, bringing contribution, but also carrier gases in particular in Asia Pacific. And in health care, our Ehealth solutions are running. They are already in place, in particular for chronic care.
And we also have our geographic expansion that is doing pretty well. Everything is supported on Page 7 by, 3 things: 1, a customer focus with, of course, Airgas being a sort of reference in industrial merchant for the group. And in particular, in Packaged Gas And E Commerce, we are now benefiting from this experience at a group level. The second point is, of course, the development of integrated digital solution, I insist on the world integrated. It's not just to apply a software that we would buy off the shelf It's actually to build our sales solutions for business.
And we have a department called LaFactory, in France that actually developed solutions, digital solutions for the business. It means We have business people, digital people, 90 people working together on solutions. And they were the ones that actually created the SIO, which is, as I said earlier, being deployed in the world. And my third point is a reinforcement of our innovation potential with upgrading a new research and innovation centers in now nearly all regions in the world on the basis of not just R&D centers, but also wherever we can sort of campus of open innovation to benefit also from the innovation coming from start ups. Our program will be more or less completed by mid-twenty 19.
This is what I wanted to say as an introduction, and I'd like to leave the floor to Fabienne.
Thank you, Benoit, and good morning, everyone. Our H1 performance is, in fact, characterized by a pursuit strong momentum in all activities supported by high growth in the base business. At the same time, we managed to improve our Gas And Services margin by 30 basis points, our cash flow is strong, net debt is under control. And therefore, we are well positioned to benefit from the acceleration of quality investment opportunities. Let's look for it at key figures on slide 10, Gas And Services sales are 5%, with a slightly stronger Q2, engineering sales up 29.8% for the period and global markets and technologies continued to progress strongly above 29%.
As a result, group sales up 5.8%, which position us at the top of the expected Neos range which is between 4% to 6% excluding scope effects. In Q2, we benefited from strong demand in all of our main shown on the graph on Page 11 is Europe. In terms of foreign exchange, we still have a negative impact, but it's softened in Q2 at minus 5.2% compared to minus 8.2% in Q1, resulting in a minus 6.8% for H1. For the full year, we still expect a negative impact as well between minus 3% and minus 4%. Conversely, the energy impact turned positive at +1 percent in Q2 and should be marginal for the full year.
All our businesses and geographies are but I would like to point out the improvement in Q2. Americas at 5% supported by strong AGAT performance in particular as well as developing economies in all regions. Asia at 11% is booming. In terms of business lines, merchant also improved at 4.5% when growth in Healthcare And Electronics are accelerating, we expect to be at plus 7% and plus 8%. The base business progression, excluding startups, ramp ups and small acquisition, is now above 4% supported by solid volume and positive pricing.
The contribution of startups and ramp ups is consistent with Q1, contributing 1.4% to global growth. Let's now review the Q2 highlights in the various geographies. We had a good quarter in Americas despite turnaround in Hydrogen in large industries on the Gulf Coast. Activity was strong in industrial merchant, in particular, at Airgas and in Latin America. As most of our end markets were well oriented.
Healthcare growth, driven by medical gases in the U. S. And home health care in Canada South America was close to 10%. Electronics in the U. S.
Benefited from high equipment and inefficiencies. In Europe, more turnarounds than last year, similarly, resulted in softer large industries. Despite the impact of the CO2 crisis, merchant remained solid, in particular in Italy, Spain, Central Europe And Eastern Country. SKNY strong Germany, Benelux, Scandinavia and Poland. Eastern Europe delivered double digit growth.
Globally, Europe underlying growth remains around 3% Asia had a very strong quarter in all businesses and every country, China alone grew 15% and South Korea and Singapore grew double digits as well. Large Industries were driven by strong demand for oxygen and even more hydrogen. Merchant growth benefited from high volumes and pricing in China and is back on the rise in Australia. Electronics were exceptionally high, benefiting from numerous equipment and installations contracts, while gas sales grew 7%. In Africa, Middle East, the progression reflects the ramp up of Sasol in Africa as well as good merchant business in South Africa and Egypt.
Healthcare benefits from our recent acquisition in Saudi. I will go quickly through the business lines to wrap up. Merchants is at 5% supported by globally well oriented end markets in particular for Manufacturing And Metals fabrication. We have well managed the CO2 crisis in Europe, focusing on the most critical customer needs. Pricing effect positive in Q2 at 1.7% on average, improving in Europe, solid in the U.
S. And remains high in Developing Asia and in particular in China. Large Industries was impacted by a number of hydrogen customer turnarounds above average in the U. S. And in Europe and which output grows by more than 1%.
Nevertheless, thanks to ramp ups on to solid oxygen demand for chemicals, growth reach 4%. Healthcare outperformed in all segments with home health care being up 8% on medical gases 7%, bolt on acquisition contributed 1.5% to the global performance. To finish with, electronics is 8% higher than last year, supported by strong demand from integrated circuits and flat panels to be noted equipment and installation sales are exceptionally high at plus 28%. So globally an excellent level of activity in Gas And Services this quarter. The engineering sales continue to threaten plus 4% in Q2 and plus 30% for the semester, and more importantly, we booked 1,000,000 of new order intakes since the beginning of the year to be compared to 1,000,000 last year.
Global Market And Technology continues to progress rapidly with high order intake as well. We now took We'll now talk about the performance. Excluding Forex, our operating profit recurring is up 4.8% compared to sales at plus 5.5%. Finally, our operating margin excluding energy is broadly stable despite pursued losses in engineering and higher spending in R&D And Hydrogen Development. On a comparable basis, operating profit is up 6.2%, to be compared to sales at +5.8 percent.
For Gas And Services, we delivered a 30 basis point improvement this means that the strong activity level as well as the efficiencies and synergies are more than compensating for the mix effect characterized by high equipment and installation for the pricing pressure in healthcare as well as for non recurring business events. To be noted, purchases are impacted by higher energy prices and strong equipment and installations, but personnel and other are well under control. We have pursued our efficiency programs and delivered EUR 174,000,000 of sustainable cost reduction over the 1st semester and close to EUR 500,000,000 since the launch of Neos, will be again above our EUR 300,000,000 objective for the year. The speech reflects our continuous industrial and procurement program, as well as further restructuring in particular in engineering. Airgas Energy has now reached $260,000,000 cumulative of which EUR 250,000,000 are cost synergies and EUR 45,000,000 gross synergies.
We delivered EUR 45,000,000 since the beginning of the year, thanks notably to accelerated procurement program. As mentioned by Benoit, we now forecast to reach a $300,000,000 announced initially, in H1 2019, which is 12 months earlier than in the initial plan. The net profit for the period is very high at 1,000,000,000 for the group and is up 12.1% and more than 20% excluding ForEx. To be noted, we recorded approximately 1,000,000 of exceptional ForEx gains linked to the reorganization of the U. S.
Debt, which more than overcome higher non recurring restructuring expense. The effective tax rate is decreasing, including a 200 basis point reduction resulting from the U. S. Tax reform. Cash flow is also strong at 19.7 percent of sales and it's up 11% after working capital variation, which enabled us to absorb higher CapEx and higher dividend payments.
Accordingly, we are giving adjusted for the dividend seasonality is reduced to 79%. Thanks to higher level of net profit and tight capital employed management, our return capital employed improves at 8% compared to 7.7% recurring last year. It would even be at 8.3% at constant exchange rates, so a 60 basis point improvement. Our objective remains to reach 10% in 2021, 2020 Let's now move to investments in line with Q1. We continue to see a clear acceleration for new customer project and these investment opportunities, the 12 months portfolio is increasing at 1,000,000,000 and we have decided 1,400,000,000 of new investments in January.
We signed significant new contracts in Large Industries in Europe and in the U. S, and in electronics in particular in Asia. Bolt on acquisitions were modest at less than $100,000,000 in Healthcare. In China and at Airgas, where we celebrated our 500 deal in the creation. Startups and ramp ups contributed 100 1,000,000 to sales growth in H1.
We started 7 new units in the beginning of the year, and we expect much more in H2 In fact, for the full year, our manager startups are on time. Fujian is now running full speed, pursuing its testing period. We maintain a full year estimate for the contribution of startup and wrap ups between 1000000 and 1000000 depending on Fujian startup date. Startups should also continue at a very strong pace in 2019. In line with the acceleration of business development, our project backlog, which is a total amount of projects above 10,000,000 in construction that not started.
Is up at 1,000,000,000 and the future contribution is now close to 1,000,000,000. So to conclude, thanks to strong growth and solid performance in H1, we confirm our guidance for net profit growth in 2018, the business development opportunities are clearly increasing, and this is obviously good news for our future. Thank you very much for your attention. We are now ready to answer your questions.
Thank you Fabienne. And we can take the first question again. I'm with Fabienne and Mike Graff. To answer all your questions. First question, please.
Thank
We will now take the first question from Andrew Stott from UBS. Please go ahead.
Good morning, all. Thanks for taking the question. Is actually probably a best address to Mike on the Americas. It looks like you've picked up quite a bit of business, looking at your press release around the Americas. So I'm just wondering what sort of end markets we should be thinking about here in terms of new businesses.
This oil and gas, as it comes, is it other? Just give us an idea please of the mix of new opportunities you're seeing in the Americas. I had a second question, which was sort of more looking at Q1, Q2 balance. So I think Fabienne, you said China was up 15% overall. I just wanted to check that was China rather than just China I'm and just also check that that's the same growth rate as Q1.
There were my two questions. Thank you.
Thank you. So, Mike, can you take the first one?
Absolutely. Good morning, everyone. In terms of the growth we're seeing in the Americas, it's pretty broad based across all the businesses. In large industries, there's clearly a significant uptick in the last 6 to 9 months in terms of business development activity on the Gulf Coast associated with chemicals. We seem to be accelerating into the 2nd wave of projects and that is really helping to drive a lot of the business development activity there.
There's also a lot of support as well for ongoing refinery projects as well. And we've benefited from some of the off gas from the chemical plant projects to go ahead and support that. In addition, I think in the merchant business, we see very significant growth in support of metal fab and support of energy materials and chemicals as well as construction. So that continues to be a vector of growth overall, whether that's in the Americas or even up in Canada. And actually in South America and Central America, seeing good growth as well.
Some of that's in metals, some of that's in energy, some of that's in and also the I'm businesses. And then finally in electronics, we're seeing a pickup in carrier gas activity. We're seeing continued ramp of our Advanced Materials business. And in the healthcare space, we've continued to see acquisitions for healthcare as long as we've seen the addition of organic growth as well. So I think overall, we see in all markets a good growth trajectory.
Thank you Fabienne.
Well, China is progressing 15% globally in Q2 with a strong push in all the businesses for Q1, it was 10%, industrial merchant alone in China is much higher than that. So we continue to see a strong demand, higher volumes and also very solid pricing effect in Industrial Merchant.
Okay. But you didn't state the growth in industrial merchant in China then?
No, but it's close to 20% again.
Okay, that's useful. Thank you very much.
Thank you.
Thank you. Next question.
Thank you. We will now take The next question from Markus Mayer from Baader Helve. Please go ahead.
Yeah, good morning. Thank you for taking my 3 questions. First of all, I have a question on now this consolidation of the industrial gas market now mesas reentering the U. S. Market as Bulk in particular.
Do you fear negative effects here as you saw this when Mesa was allowed to re enter the Western European market? That's my first question. The second question is on the CO2 shortage in Europe. Could you quantify this effect on you? And then the last question is basically on the startups.
On this page 27, thank you for this indication. You're showing 4 to 5 large startups and you say, overall, you have 7, does it mean it's basically 4 to 5 large ones and 2 smaller ones? And when when are the smaller ones expected to come? Thank you.
Yes. Thank you. I'll take the first and probably Fabienne will take the 2 others. Maybe I'll make a comment on CO2 as well. Consolidation is just a fact of life.
So we'll see how it develops in particular with potentially new players in Europe and the U. S. The only fact that we know is that the 2 announced buyers of the divested assets are industrial players, which is, I think, a good thing for the industry we'll see how the market will readjust in the U. S, but there's no real fear from our side about a negative impact of those potential consolidation movements. We need to see if and when it happens.
And so far we're just waiting for the outcome. The one word on the CO2 short page and Fabienne will give you the quantification It is not really a surprise to have a CO2 crisis during summer. That said, we took some structural measures in the past few years to try to avoid a crisis. And despite that, we saw that some of the sources and I must say, at the industry level, we're down at the same time. It's essentially because it was, sources linked to the chemical 3, ammonia in particular, and we have to think about how we can better plan the diversification of our sources amongst different industries not to be trapped into such a shortage of supply of rose So that's a lesson we'll try to draw out from this situation.
That said Fabienne, I leave it to you to quantify it.
Well, the impact of the CO2 crisis estimated by the team is around 1000000 or a little bit over 1000000 of sales in Europe in merchant in Q2. However, it has also an impact on the margin because as you can imagine in such a situation, you have to drive more kilometers to be able to serve your key customers. And of course, it's increasing the In terms of startups, it's true that on our side, we only show the main one theoretically the one above 1,000,000. We have much more. We expect around 20 startups in 2018, including smaller oxygen project in various countries of the world and many electronics projects as well.
Okay. Thank you very much.
Thank you. The next question.
Thank you. We will now take the next question from Paul from Morgan Stanley. Please go ahead.
Yeah, thanks very much. Good morning guys. My first question is just around the comment you made Fabienne in your in your presentation. You talked about nonrecurring business events having an impact on margin in the first half. I wondered if you could elaborate on that, please.
Okay. So it's very simple. It's things we have already mentioned. You have the turnarounds in refining for hydrogen customers in Europe and in the U. S.
As well. You have this CO2 crisis And on top, you have, of course, the high mix in terms of equipment and installation line. In Asia, E and I are up 75% in Q2. So it's really a level which is clearly exceptional.
And quantifying the impacts on the margin. Can you do that?
It's quite difficult to give you the speed by obviously, the E and I mix is costing us between 10 and 20 basis points.
And my second question is on the Middle Eastern business, you talk about resetting margins downwards, because of some hydrogen business I wasn't aware of any reset. Maybe it's relatively small, but the margin delta in that region looked quite large. Could you also just give us a bit more insights into what was going on there, please?
Yes, it's true that Africa Middle East is very dependent now on our a large industry project, at least for the moment. What happened at Janbo is that the customer decided to change the mix in terms of feedstock, he has the right to do that under the contract and the indexations are different. It's result in a different margin on the project, but the margin remains quite comfortable. On this project, but it is not the same as what it was last year.
Thank you. And just maybe one final question. Obviously, business activity is picking up, and you're seeing an increased number of potential projects on the radar screen. Can you talk about that within the context of your future CapEx plans as well? Because clearly, right now, CapEx running at about 11% of sales, I think the target range from that 12%, as you see bigger contracts, more contracts being won, how could that evolve going forward, please?
Well, clearly, last year, we were in the low range in terms of CapEx in the CapEx was at 9% of sales. So with at in each one, we are at 11% of sales. We expect an acceleration of the the CapEx in Q2, in H2, sorry. So for the full year, we'll be more in the 12%, thirteen percent range. So clearly, we will move, to the top of the range, if not, if not like you're going to think for the decision, we'll probably have more investment decision than what we had in our initial NEOS plan.
However, we'll adjust the way we manage the various parameters so that our return capital employed objectives are delivered. I think it's really good news to see the opportunities accelerating again. Quite a lot in the U. S, but also in other countries, coming back in China as well. So I think I think it's really good news and we'll manage the group accordingly to be able to assign the best opportunities.
Brilliant. Thanks a lot guys. Thank you.
May I just add one comment on CapEx? Our reference remains Neos. And what we do within this 4 year period. And of course, the target is to deliver the return on capital employed by the end of the period as we said earlier. So when we said, there are more growth opportunities, it's really good news because it sort of reassures, I mean, the both ourselves in the market that there are opportunities to follow and there are good quality opportunities.
What we also intend to do is to make sure that part of the CapEx is actually used for efficiencies And I think it is important that money we put in efficiencies. I think the efficiencies are doing well, as you saw in the numbers, And the ability to actually spend a little bit more money and efficiency in the future is something we are looking at because we think that to really reach the target of neos, we need to make sure that the balance is the right one. That was another comment I wanted to make.
Thanks a lot. Thank you.
Thank you. Next question.
Thank you. We will now take the next question from Neil Taylor from Redburn. Please go ahead.
Hey, good morning. 2 from me on the margin and then a little a little bit more insight on health care, perhaps in Americas. But starting with the margin, the margin in Asia was was down, as you mentioned, despite the very strong volume growth and pricing impact. Other than the E and I sales that you called out, was there any other dynamic within that margin and that we should be aware of in trying to understand the operating leverage in that region. And then talk about the Gas And Services margin more broadly across the group.
If I take your comments on pricing, on the NEOS savings on the Airgas efficiencies. In aggregate, they seem to sort of achieve a positive figure of well over 1,000,000 before we start thinking about the volume contribution. And yet you talk in your release about a limited inflationary environment. So I wonder if you can help me understand what some of the other offsets were, obviously, currencies is 1, but what some of the other offsets were that prevented a greater level of profit growth and margin expansion in the first half of the year. And then the 3rd question on Healthcare really is just a little bit more into the Americas Healthcare growth, please, if you can talk about the dynamic between the acquisitions and pricing and volume.
Thank you.
Yes. Let me just start the answer to the first question by a global comment and then I'll ask Fabienne to give you a little bit more details. When we look at the efficiencies that we are producing each and every quarter and that we report, those efficiencies actually bring margin improvement in the I'm business where most of the efficiencies apply. And we we've seen that quarter after quarter and we still see that in the first half. And I think it's very reassuring because it means that all the efforts that we are doing is actually bringing benefits.
In I'm pricing, as you just also mentioned is important and the pricing in the first half is actually good overall, and it remains good in the 2nd quarter in the different regions. And there are actually 3 out of 4 regions where the pricing in I'm improved in the 2nd quarter compared with the first. So the efficiency and the margin ratio improves in I'm. If I just look at large industry, we have ups and downs which are more due to how customers consume their products how the plants are running, when we have more turnarounds, it negatively affects margin ratio And we have an exposure to hydrogen today, in refining, which is a little bit more linked to how the refiners operate their plants. And we said that, youngboo in particular, has an effect on margin as a result of essentially fuel mix usage of natural gas as opposed to liquid fuels.
And the turnarounds in Europe and America in the refining sector had also a negative impact So when we look at the margin evolution in the first half, I'm was very positive LI was negative due to those turnarounds essentially and health care was slightly negative because of the pricing pressure. And all in, we were able to deliver 30 basis points. But when we think about what it means, it means that structurally, we see an improvement in I'm, which is exactly what we aim at. And we have some fluctuations from 1 quarter to the other, in the in the Ally business and a slight pressure on pricing in healthcare which tends to decrease over time. We have had probably the biggest pressure in the years in the past years and it tends to stabilize.
In my last comment about business content is the electronics where the margin is stable despite a very strong activity in E and I. And as you know, E and I is normally lower margin, but it's a good news for the future because it means that the new fabs will be equipped and they will be consuming more gas. So there's a cycle issue that we know and we follow very carefully, but nothing to be afraid of and to be concerned about. So that's a general comment about the analysis of our margins in the first half. I'd like to leave it to Fabienne to give you more insight and comments about geography is.
Fabienne?
So margin is slightly down in Asia. You mentioned the equipment and installation sales, which are really, really high. On top of that, we have a ramp up effect in China. We have 2 projects ramping up, so that are not yet at their nominal profitability. And we also had a technical problem in a large industry plant in Japan.
So that's all the reason. If you look now at Americas, margin are up 60 basis points. So, the synergies of Airgas and the improvement in I'm is really there and this is delivering. Remember as well that at Airgas, when the growth is accelerating, it's accelerating for gas itself, but it's even more accelerating for our goods when the markets are well oriented. And as you know, are good in terms of margin is very similar to equipment and installation, far under what we have for gases sales.
So this is a 2, I think, the 2 main variation that deserve some explanations.
On the second part of your question, the second question, Mike, Healthcare And Americas?
In regards to health care, we've really seen good broad growth, across all of, all of the Americas very strong medical gas growth with Airgas in the U. S. So that continues to be very resilient for us. Strong growth in Canada, primarily more organic in terms of home health care, looking at respiratory services looking at sleep apnea, as well as some other offers. We've also had a few smaller accretive acquisitions over the year.
In, in Columbia, you'll recall, we entered the Colombian Healthcare market, roughly a little over a year ago. And one large, one small acquisition and that continues to bring good growth in the home health care space. And then in South America, across Brazil, in Argentina and Chile specifically, we continue to see very good organic growth, in those geographies with home health care. And also a few smaller accretive acquisitions as well.
That's very helpful. Thank you.
Thank you. Next question.
Thank you. We will now take the next question from Patrick Lambert from Raymond James.
Hi, good morning, everybody. Thanks for taking a few questions. The first one is a detailed, small detailed one on European growth quarterly. Q2, I think it was 1.2%. I have problems to reconcile the growth by industry, which because it implies electronics to be down pretty sharply.
Can you give us a bit more details on that if you transferred some of the sales of electronics anywhere else? That's a question number. And maybe I'll stop there and ask progressively your questions.
You're very cautious. He's good. So Fabienne is going to take the first. I think
we are going to forget your question. Okay. So on Europe, in fact, you have 3 nonrecurring events that penalize the Europe growth in Q2. The first one we already mentioned is the turnaround in hydrogen. The second one is a CO2 crisis that we have mentioned as well.
And the third one is the divestiture of a very small, electronic cabinet, but not exactly consistent with the gas we sell, so a non cost subsidiary that we have divested effective January 1st. So if you exclude those 3 non recurring impact, the underlying is really above 3% as it was in Q1. So you're very smart. Yes, there is something with electronics, but it's transferred nowhere. It's transferred to outside of the group.
Perfect, perfect. Pricing Asia, 2. I think 2.1%. Could you, Fabienne, give us some So breakdown of countries in particular, I think, especially China, which was, I think, 50% of the growth in Q1, Is that still the case? A bit more colors on the pricing in Asia would be helpful.
So pricing in Asia remains driven by China as it was in Q1. We have a positive pricing in China, which is above 4%. Japan is somewhere between stable and slightly negative. And the good news is that we see now the Australian market really recovering with slightly positive price. So these are the 3 countries where we have the major variations.
Perfect. The 3rd question also, if I put a 1 offs in terms of of turnarounds, and the free units sold in China in particular. Could you quantify the impact on the top line of all. You commented on CO2, things like this, but just on the turnarounds and the disposal of these three units.
You mean at the group level or? Well, as the gas is level, including the turnaround and the various non recurring events, we would be close to 2% higher.
So the impact is minus 2% of all these
Between minus 1 and minus too, but you always have that kind of small non recurring event. I'm not telling you that it will be 2% higher next summer. Semester.
And finally, tax rate, pretty good tax rate in H1. How do we see H2? I think you commented on 200 basis points lower for the full year, which means, but what 154 for H2?
Well, the impact of the U. S. Tax reform is exactly what we affected. It's lowering our tax rate by 200 basis points. On top in H1, we had another 100 basis points positive coming from a change in the French law on the way you recognize performance share and tax relief to performance.
So I'm not going to go into details, but we have a 300 basis point impact in H1 and we'll have a near 200 basis point impact in H2. So for the full year, the tax rate, effective tax rate should be between 25% 26%. And remember that next year, the in with the EDA T tax in the U. S. Is going to increase from 5% to 10%.
So the advantage you will get will be more point and 200 basis points on. So we should see our effective tax rate increasing a little bit again next year.
And finally, the Fujent project anymore precision on the start date still hesitating, I guess, 6 months to go before the end of
each year? I said it all. I said it all. Our plant is running full speed. Everything goes well.
We are in the testing period. Validating your permits with the EPA and negotiating with the customer. I don't think we can add more than that. And of course, we'll keep you posted.
Thank you Fabienne. Next question.
Thank you. We will now take the next question from Jean Luc Roman from CNCIC Market Solutions. Please go ahead.
Good morning. My question relates to the efficiencies and major synergies with Airgas as you will have achieved your targets 1 year ahead. What comes on top of that if there is more to come?
Yes. Thank you. Brief comment and then Mike will elaborate. It is clear that the cost synergies are ahead of schedule. We were able in particular in procurement and in cylinder management, essentially we could get cost synergies earlier than forecasted.
The revenue synergies are on track at this stage, but we probably see more potential in the future as we have integrated the 2 organizations. And so, overall, I would say the AGAS synergy story is positive. And as we stand today, we can just say that the full synergies of CHF 300,000,000 will be actually achieved with 1 year in advance. And I think it's really good news and showing the good momentum Turner. I'll let Mike to further comment the detail of those synergies.
Mike?
Thanks, Benoit. Just to add to what Benoit said, clearly, with the acceleration of delivery, we not only see further cost benefits in terms of synergies, but further opportunities as things evolve. So in terms of the value added piece, that Ben lost spoke of, we continue to see that ramp as expected. However, once we reach the 300 in synergies themselves, the value added piece of this will only continue. We've already seen for some of the early key technologies and applications their clear application is driving growth in some of the key markets.
And now we're starting to see other markets where the application of those technologies in those applications, whether that's in heat treatment for metal working and foundries, whether that's advanced cryogenic applications for food, and for medical needs, even cryogenic cooling capabilities for construction, all these begin to take off. And I think they're just examples of how we will begin to see a further proliferation of both the technologies and the applications we have at Air Liquide into the Airgas markets and customers to continue were able to accomplish with the combination of the 2 companies evolve, you can see already that efficiencies are ramping. And so those efficiencies will continue into the future. So the base benefits business will benefit from continued focus on cost and efficiencies. We'll see the continued growth, in terms of technologies and applications.
But in addition to that, then we can really begin to leverage the Airgas business model and know how as we've already done in adjacent geographies like Mexico and Brazil into other geographies. And then utilize the business itself as we think about how we can leverage some of the new technologies and new businesses that we've developed through our GM and T business into the future. So I think there's a number of things that will continue to evolve and continue to grow well beyond what we've talked about.
Thank you. So we have 5 remaining questions in the queue. May I ask you just to ask only one question per person, it will actually ease the process. So next one.
From Theodore Joseph from Goldman Sachs.
I wanted to concentrate in the North American business. And we've heard there's been quite some logistical constraints in North America, perhaps particularly kind of finding the difficulties and finding truck drivers.
So I was just wondering if
you had any color as to what you're seeing in terms of cost inflation in the U. S. Airgas business? And as well, if I don't, if I recall correctly, you actually had a 1Q price increase in this business. Just wondering if that price increase is enough for the year in order to offset any inflation or do you actually expect to put through more throughout the remaining of the year?
Thank you.
Thank you, Mike.
So I think first of all, obviously, we continue to monitor inflation tendencies and we continue to manage pricing accordingly. And we don't wait for a particular point in time necessarily to manage pricing, looking at inflationary policies and trends. So we continue to go ahead and manage that. In terms of pricing policies and some of the issues that are there, you might recall that in the late first quarter of 2017, that we introduced, pricing policies increases across the business, which really took hold in the second quarter last year. Actually, for this year, all of that effort took place in the fourth quarter of last year when immediately began to see pricing implementations and benefits in the first quarter of 2018.
So we don't wait for a calendar year basis. We don't wait for those types of things. We continue to manage that. In terms of cost, clearly, when there are inflationary tendencies, we work hard to manage that. With the size of our buy and the leverage we see actually a number of the, I would say efficiencies that we're starting to benefit from in the procurement space have accelerated So we've actually used the size of our base to go ahead and manage downward some of the inflationary tendencies where we can, but better to go ahead and manage our cost structure.
And then finally, in terms of the shortage of drivers, clearly, I think you've seen that the U. S. Driver market is pretty tight. We pay very close attention to it. In many respects, we continue to be an employer of choice.
We emphasize maintaining a positive workplace and continue to go ahead and manage wage and benefit conditions appropriately. So we keep that balance ensuring there's kind of that right work family life balance for our drivers and making sure we're competitive.
Thank you. We will now take the next question from Chetan Udeshi from JP Morgan. Please go ahead.
I had a question again on the margin and ROCE targets of over 10%, sorry, by 2021, 2022. Which means you essentially need to grow the margin. I mean, maybe you can correct me if I'm wrong, but improvements of basis points per year on average. Now if I look at the margin improvement, it's 30 basis points in first half with synergies, good growth, better pricing in I'm. So in general, what are the key levels you have to accelerate that ROCE improvement to say 50 basis points per year on average over the next 4 years, given that as mentioned earlier, maybe the CapEx will also start to inch higher.
Thank you.
Fabienne, can you elaborate a little bit on that, please?
Okay. So, we are currently managing the group with our return capital employed objectives in mind every day in each industry decision. Remember that, what you take into account for calculating your return on capital endpoint is net profit, not operating profit. We work on all lines of the P and L and clearly your operating profit margin is a driver, the reduction of debt, on working capital requirements is a driver the tight control over our new investment and make sure they are relative to the global return capital employed of the group is also a lever and we are working on all of them at the same time.
Thank you.
Question from Peter Clark from Societe Generale. Please go ahead.
Good morning. Despite Patrick's best efforts, I've made it, thankfully. I've just got some one long question anyway. It was about the Gulf Coast. I'm just wondering how much CapEx is associated with the new Landale supply contract what's the latest on the Junghein Chemicals methanol plant?
I think it's Q4 'nineteen now. And then finally, in the backlog, you're indicating a lot in America and presume you're indicating in the portfolio a fair amount on the Gulf Coast. Thank you.
Thank you, Mike.
So, first of all, in terms of Lyondell, I don't think we've published anything in terms of the actual investment numbers. So basically, we are we are in the process of continue to move forward with those contracts It's a sizable oxygen contract. So that's in a good place. In terms of overall growth, in the Gulf Coast, As Fabienne mentioned, we've just recently started up the OCI facility. They're in Beaumont.
The next facility with the YPC will go ahead and evolve late 2019 into 2020. Depending on where things evolve. I think that clearly they've worked to go ahead and assure they have their financing in a good place and that's continuing to evolve. So there's no question that project will play out it'll continue to grow. I think in terms of the portfolio of opportunities and the growth perspective, it is very significant right now in terms of of business development activity.
I think for the group, something like 40% of the overall portfolio of opportunities reside in the Americas. So I would say that what I talked about before in terms of the chemical industry, the level of growth with the 2nd phase of investment both across the Texas side of the Gulf Coast as well as the Mississippi continues to be resilient.
We will take the next question from Christian Faitz from Kepler Cheuvreux. Please go ahead.
Yes, good morning, Fabienne. Good morning, gentlemen. On Large Industries, Can you already observe some repercussions from the trade conflicts on your customer side? For example, in the steel industry, if that is so, which region in your observation and suffering the most? Thanks.
Yes, I think we can talk about Europe and we could talk about the U. S. In Europe as we speak, we don't see any significant impact. We could expect to have an impact on steel because steel and aluminum are the first two categories of products that have been targeted. As we speak, we've not seen significant impact.
And it may evolve in that the trade this discussions or negotiations are in course. So we definitely need to wait a little bit more to see what is the outcome. I guess in the U. S, Mike, it's more or less the same. We've not seen a major impact so far on our operations in Ally?
No, that's right, Benoit. We really have not seen any impact at all on operations nor have we seen an impact in terms of the level of business activity, the business development activity that I just spoke of. I think we all see what's evolving in the press. And I think every day that changes just a little bit, but at this point in time, there's really been no impact in terms of current business or what we see right now in future business.
We will now take the last question from Laurence Alexander from Jefferies. Please go ahead.
Hi, there. Just quickly, can you characterize, with respect to the comments that you made about hydrogen outages in the first half of the year? How you think about the cadence of outages in the second half and more broadly what you're seeing in terms of hydrogen bidding activity?
Right. In large industry, I guess. Yes. Okay. Well, I subject to, under the control of Mike, who has a lot of hydrogen business in the U.
S, as well. I think it's an interesting observation to make that we had several turnarounds, both in Europe and the U. S. Before the summer at a time when energy pricing is high, and probably because of the international attention may remain high or become higher. So it's as if the customers were anticipating a rise in pricing oil price in particular and wanted to be ready to actually sell their products as the refining march in Shanghai.
This is one possible interpretation of the turnaround situation do we see more projects worldwide in the years to come for hydrogen? Yes, definitely because there's the new the new norms, environmental norms for maritime business that will have an impact And if I remember my mic, you will tell me whether I'm right or wrong, the impact is forecasted for 2020. By 2020, we need to have a significant reduction in sulphur, emission out of the marine and shipping fuel. So it will have an impact on desulfurization and impact on new projects. Mike, I'd like you to confirm.
Yes, I
think Benoit, you've got it just right. In terms of the actual turnaround impact, that we saw at least in the U. S. Operations so far this year. First And Second Quarter, we saw a number of different outages first quarter more along the lines of the hydrogen supply to our pipeline business in the second quarter more on the on sites.
And we really don't back much significantly later in the year at this particular point in time. In terms of future needs, Benoit said it exactly right. There's going to be some issues around maritime fuels, that will kick in, in that timeframe. And we've also continued our discussions with refiners as they look for ways to go ahead and manage better managed our hydrogen supply. As we leverage the capabilities of our cavern to help meet their needs on a better available basis and to continue to pursue growth by those means as well.
Thank you.
So, we are just reaching the end of our conference call. Let me just conclude in 1 or 2 sentences. First of all, sales growth is strong. And I would like to highlight that. It means that we have found this first half more or less the historical growth rate that we enjoyed several years ago.
So that's good news. The second point is the 30 basis points margin improvement in Gas And Services is actually positive. And it should not be seen as negative because it's a mix of strong growth in I'm business. We are seeing the impact efficiencies and synergies. The net net is just due to the fact that Eli and to a lesser extent, health care have seen a decrease in margin ratio, but the net net is 30 basis points.
And I think the underlying margin improvement is is there. We can see it. Number 3, the cash flow is very strong. And this is really good news for the future in terms not just in depth, but in terms of debt, but also in terms of our ability to self partly self finance our growth. And so all in, we think this is a robust set of numbers, and we are confident in our ability to deliver net earnings growth at constant exchange rate for the full year.
So thank you very much. Thank you for attending and have a good rest for those who can take holidays. Bye.
Bye. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.