Good morning, ladies and gentlemen. Welcome to the L'Air Liquide 2018 Interim Results Conference Call. All participants are currently in listen mode only until we conduct a question and answer session. Instructions will be given at that time. I would now hand the call over to the L'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 today's conference call. Benoît Potier and Fabienne Lecorvaisier will present the first half 2018 performance. Mike Graff is also with us and will participate in the Q&A session. On October 24th, we will announce our third quarter revenue. On November 30th, our climate objectives. Let me now hand you over to Benoît.
Thank you, Aude. Good morning, everyone. Thank you for attending this conference call. We will start with the agenda on page two. Our first half results are strong, both in terms of growth and in terms of performance, as we will 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. We confirm our guidance for 2018. Now, page four, where we can start with growth and performance. Number one, growth. Overall, we delivered growth in all business lines. Also in all geographies. Sales were up 5.8% in the first half, with a split of 6% in Q1 and 5.6% in Q2, which confirmed the good trend shown in the first quarter.
IM, Electronics and Home Healthcare were the strongest contributors this quarter, as well as Asia Pacific, Africa, Middle East, and Americas. In terms of performance, our efficiencies were above target, as were the Airgas synergies in the first half, so that we now expect the full $300 million synergies to be delivered one 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 exchange. Finally, cash flow generation is robust at plus 11%, showing the good quality of the results. On page five, 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 2016, the acceleration is very visible and we are now back to a historical growth. H1 2018 is even the highest growth rate since the first half of 2014. It is combined with investment decisions at a high level, EUR 2.9 billion on a 12-month moving average, which will fuel growth and efficiency for the coming years. If I look at page six, how we implement the NEOS strategy. Fabienne will show you later how it relates to the economic and industrial production background. We have to remember our NEOS foundations. First of all, we had a 6%-8% sales growth, including the 2% effect from the consolidation of half of Airgas, more or less. We are on track. Efficiency is above EUR 300 million every year. We are also on track.
Fabienne will detail the first half. The net debt in A category, and thanks to the strong cash flow, we also tick that box, and the return on capital employed at more than 10% in five, six years after the beginning of the plan. On that as well, we are on track. Our new strategy is being deployed in several business lines. I'd like to highlight one or two key points. In large industry, definitely. Our strategy is focused on basins, and I have in mind, particular Northern Europe, Antwerp basin, but also the Gulf Coast in the U.S. Also on the application of new digital softwares and solutions. We have deployed the SIO, Smart Innovative Operations, in already three clusters in the world. We are working on it for the U.S.
In IM, I would like to highlight the impact of digital, in particular the portals, the web portals that are in place. The strategy of density around existing basins or zones, and of course, the focus on Airgas and deployment of both cost and revenue synergies. In electronics, clearly new precursors, new molecules are bringing contribution, but also carrier gases, in particular in Asia Pacific. In healthcare, our e-health solutions are running. They are already in place, in particular for chronic care. We also have our geographic expansion that is doing pretty well. Everything is supported on page seven by three things. One, 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 word 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. We have a department called La Factory in France that actually develop solutions, digital solutions for the business. It means we have business people, digital people, and IT people working together on solutions. They were the ones that actually created, the SIO, which is, as I said earlier, being deployed in the world.
My third point is a reinforcement of our innovation potential with upgraded and 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 startups. Our program will be more or less completed by mid-2019. This is what I wanted to say as an introduction. Now I'd like to leave the floor to Fabienne.
Thank you, Benoît, and good morning, everyone. Our H1 performance is in fact characterized by a pursued 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. Therefore, we are well positioned to benefit from the acceleration of quality investment opportunities. Let's look first at key figures on slide 10. Gas and services sales are up 5%, with a slightly stronger Q2. Engineering sales are up 29.8% for the period. Global markets and technologies continue to progress strongly above 29%. As a result, group sales are up 5.8%, which position us at the top of the expected NEOS range, which is between 4%-6% excluding scope effects.
In Q2, we benefited from a strong demand in all of our main markets, as in Q1, in line with the sustained industrial production level. The only watch point at this stage, as shown on the graph on page 11, is Europe. In terms of foreign exchange, we still have a negative impact. It softened in Q2 at -5.2%, compared to -8.2% in Q1, resulting in a -6.8% for H1. For the full year, we still expect a negative impact as well, between -3% and -4%. Conversely, the energy impact turned positive at +1% in Q2, should be marginal for the full year. All our businesses and geographies are contributing to growth. I would like to point out the improvement in Q2. Americas at 5%, supported by strong Airgas performance in particular, as well as developing economies in all regions. Asia at 11% is booming.
In terms of business lines, merchant also improves at 4.5%, when growth in healthcare and electronics are accelerating respectively at +7% and +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 Healthcare in Canada and South America, was close to 10%. Electronics in the U.S. benefited from high equipment and installation sales.
In Europe, more turnaround than last year similarly resulted in softer large industry. Despite the impact of the CO2 crisis, merchant remained solid, in particular in Italy, Spain, Central Europe, and Eastern countries. Healthcare was strong in 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 for 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 contract, while gas sales grew 7%.
In Africa and 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. Merchant is at 5%, supported by globally well-oriented end markets, in particular for manufacturing and metal fabrication. We have well managed the CO2 crisis in Europe, focusing on the most critical customer needs. Pricing effect is 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 upward grows by more than 1%. Nevertheless, thanks to ramp-ups and to solid oxygen demand for chemicals, growth reached 4%.
Healthcare outperformed in all segments, with Home Healthcare being up 8% and 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 +28%. Globally, an excellent level of activity in Gas and Services this quarter. The engineering sales continue to strengthen, +4% in Q2 and +30% for the semester, and more importantly, we booked EUR 445 million of new order intake since the beginning of the year, to be compared to EUR 330 million last year. Global Market and Technology continues to progress rapidly with high order intake as well. We'll now talk about the performance. Excluding Forex, our operating profit recurring is up 4.8% compared to sales at +5.5%.
Especially 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%. For Gas and Services, we delivered a 30 basis points improvement. This means that the strong activity level, as well as the efficiency and synergies, are more than compensating for the mixed 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 expenses are well under control. We have pursued our efficiency programs and delivered EUR 174 million of sustainable cost reduction over the first semester, and close to EUR 500 million since the launch of NEOS.
We will be again above our EUR 300 million NEOS objective for the year. The speed reflects our continuous industrial and procurement program as well as further restructuring, in particular, in engineering. Airgas synergies now reach $260 million cumulative, of which $250 million are cost synergies and $45 million growth synergies. We delivered $45 million since the beginning of the year, thanks notably to accelerated procurement program. As mentioned by Benoît, we now forecast to reach the $300 million 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 EUR 1,040 million for the group and is up 12.1% and more than 20% excluding Forex. To be noted, we recorded approximately EUR 50 million 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% of sales and is up 11% after working capital variation, which enables us to absorb higher CapEx and higher dividend payments. Accordingly, our gearing adjusted for the dividend seasonality is reduced to 79%. Thanks to higher level of net profit and tight capital employment management, our return on capital employed improved at 8% compared to 7.7% recurring last year. It would even be at 8.3% at constant exchange rate, so a 60 basis point improvement. Our objective remains to reach 10% in 2021, 2022. Let's now move to investments. In line with Q1, we continue to see a clear acceleration for new customer projects and investment opportunities.
The 12 months portfolio is increasing at EUR 2.5 billion. We have decided EUR 1.4 billion of new investments since January. We signed significant new contracts in large industries in Europe and in the U.S., in electronics, in particular in Asia. Bolt-on acquisitions were modest at less than EUR 100 million in healthcare, in China, and at Airgas, where we celebrated our 500th year since the creation. Startups and ramp-ups contributed EUR 146 million to sales growth in H1. We started seven new units since the beginning of the year. We expect much more in H2. In fact, for the full year, our major 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 ramp-ups between EUR 250 million-EUR 300 million, 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 the total amount of projects above EUR 10 million in construction but not started, is up at EUR 2.3 billion. The future contribution is now close to EUR 1 billion. 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. This is obviously good news for our future. Thank you very much for your attention. We are now ready to answer to your questions.
Thank you, Fabienne. We can take the first question. Again, I'm with Fabienne and Mike Graff to answer all your questions. First question, please.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will now take the first question from Andrew Stott from UBS. Please go ahead.
Good morning, all. Thanks for taking the question. It's actually probably best addressed 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. I'm just wondering what sort of end markets we should be thinking about here in terms of new business. Is this oil and gas? Is it chems? Is it other? Just give us an idea, please, of the mix of new opportunities you're seeing in the Americas. A second question, which is more looking at Q1, Q2 balance. I think, Fabienne, you said China was up 15% overall. I just wanted to check that was China rather than just China IM. And just also check that that's the same growth rate as Q1. They were my two questions. Thank you.
Thank you. 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 six to nine months in terms of business development activity on the Gulf Coast associated with chemicals. We seem to be accelerating into the second 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.
That continues to be a vector of growth overall, whether that's in the Americas or even up in Canada. Actually in South America and Central America, we're seeing good growth as well. Some of that's in metals, some of that's in energy, some of that's in also the IM businesses. Finally, in electronics. We're seeing a pickup in carrier gas activity. We're seeing continued ramp of our advanced materials business. In the healthcare space, we've continued to see acquisitions for healthcare as long as we've seen the additions of organic growth as well. 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. We continue to see a strong demand, higher volumes, and also very solid pricing effect in Industrial Merchant.
Okay, you didn't state the growth in industrial merchant in China then?
No, 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 Helvea. Please go ahead.
Good morning. Thank you for taking my three questions. First of all, I have a question on this consolidation of the industrial gas market. Now Messer's reentering the U.S. market at bulk in particular. Do you fear negative effects here as you saw this when Messer was allowed to reenter 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? The last question is basically on the startups. On this page 27, thank you for this indication, you're showing four to five large startups, and you say overall you have seven. Does it mean it's basically four to five large ones and two smaller ones? And when are the smaller ones expected to come? Thank you.
Yes. Thank you. I'll take the first, and probably Fabienne will take the two others. Maybe I'll make a comment on CO2 as well. Consolidation is just a fact of life. 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 two 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. So far, we're just waiting for the outcome. One word on the CO2 shortage, 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 past few years to try to avoid a crisis. Despite that, we saw that some of the sources, and I must say at the industry level, were down at the same time. It is essentially because it was sources linked to the chemical industry, ammonia in particular. 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 raw CO2. That is a lesson we will 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 a little bit over EUR 3 million 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 is increasing the cost. In terms of startups, it is true that on our side, we only show the main one, theoretically the one above 50 million. We have much more. We expect around 20 startups in 2018, including a 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 Walsh from Morgan Stanley. Please go ahead.
Yeah, thanks very much. Morning, guys. My first question is just around a comment you made, Fabienne, in your presentation. You talked about non-recurring business events having an impact on margin in the first half. I wondered if you could elaborate on that, please.
Okay. It's very simple. It's things we have already mentioned. You have the turnaround 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. In Asia, E&I are up 75% in Q2. It's really a level which is clearly exceptional.
Quantifying the impact on the margin, can you do that?
It's quite difficult to give you the split, but obviously, the E&I mix is costing us between 10 and 20 basis points.
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 look 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 large industry project, at least for the moment. What happened at Yanbu is that the customer decided to change the mix in terms of feedstock. He has the right to do that under the contract, the indexations are different. It result in a different margin on the project. The margin remains quite comfortable on this project, but it is not the same as what it was last year.
Thank you. Just maybe one final question. Obviously, business activity is picking up, and you are 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 is 11%-12%. As you see bigger contracts, more contracts being won, how could that evolve going forwards, please?
Clearly last year we were in the low range in terms of CapEx. Our industrial CapEx was 9% of sales. In H1, we are at 11% of sales. We expect an acceleration of the CapEx in Q2, in H2, sorry. For the full year, we'll be more in the 12%-13% range. Clearly, we will move to the top of the range, if not slightly above. Same for the decision, we'll probably have more investment decision than what we had in our initial news plan. However, we'll adjust the way we manage the various parameters so that our return capital on 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. It's coming back in China as well.
I think it's really good news, 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. Of course, the target is to deliver the return on capital employed by the end of the period, as we said earlier. When we said there are more growth opportunities, it's really good news, because it sort of reassures both ourselves and the market that there are opportunities to follow, and they are good quality opportunities. What we also intend to do is to make sure that part of the CapEx is actually used for efficiencies. I think it is important that we balance well the amount of money we put in growth and the amount of money we put in efficiencies. I think the efficiencies are doing well, as you saw in the numbers.
The ability to actually spend a little bit more money on 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, Benoît. Thank you.
Thank you. Next question.
Thank you. We will now take the next question from Neil Tyler from Redburn. Please go ahead.
Hey, good morning. 2 from me on the margin and then a little bit more insight on the healthcare perhaps in Americas. Starting with the margin. The margin in Asia was down, as you mentioned, despite the very strong volume growth and pricing impact. Other than the E&I sales that you called out, was there any other dynamic within that margin that we should be aware of in trying to understand the operating leverage in that region? Talking 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 EUR 300 million before we start thinking about the volume contribution. You talk in your release about a limited inflationary environment.
I wonder if you could help me understand what some of the other offsets were. Obviously, currencies is one, what some of the other offsets were that prevented a greater level of profit growth and margin expansion in the 1st half of the year? The 3rd question on healthcare really is just a little bit more insight 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 1st question by a global comment, 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 IM business where most of the efficiencies apply. We've seen that quarter after quarter, and we still see that in the 1st half. I think it's very reassuring because it means that all the efforts that we are doing is actually bringing benefits. In IM, pricing, as you just also mentioned, is important, the pricing in the 1st half is actually good overall, and it remains good in the 2nd quarter in the different regions. There are actually 3 out of 4 regions where the pricing in IM improved in the 2nd quarter compared with the 1st. The efficiency and the margin ratio improved in IM.
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. We have an exposure to hydrogen today in refining, which is a little bit more linked to how the refiners operate their plants. We said that Yanbu in particular has an effect on margin as a result of essentially fuel mix usage of natural gas as opposed to liquid fuels. The turnarounds in Europe and Americas in the refining sector had also a negative impact.
When we look at the margin evolution in the first half, IM was very positive. LI was negative due to those turnarounds, essentially, and healthcare was slightly negative because of the pricing pressure. All in, we were able to deliver 30 basis points. When we think about what it means, it means that structurally we see an improvement in IM, which is exactly what we aim at. We have some fluctuations from one quarter to the other in the LI business and a slight pressure on pricing in healthcare, which tends to decrease over time. We have had probably the biggest pressure in the past years, and it tends to stabilize.
My last comment about business content is the electronics where the margin is stable, despite a very strong activity in E&I, and as you know, E&I is normally lower margin. 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. There's a cycle issue that we know and we follow very carefully, but nothing to be afraid of and to be concerned about. 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 geographies. Fabienne?
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 two projects ramping up, so that are not yet at their nominal profitability. We also had a technical problem in a large industry plant in Japan. That's all the reason. If you look now at Americas, margin are up 60 basis points. The synergies of Airgas and the improvement in IM is really there and it's delivering. Remember as well that at Airgas, when the growth is accelerating, it's accelerating for gases sales, but it's even more accelerating for our goods when the markets are well-oriented. As you know, our goods in terms of margin is very similar to equipment and installation, far under what we have for gases sales.
This is, I think, the two main variation that deserves some explanations.
On the second part of your question, the second question, Mike, healthcare in Americas.
In regards to healthcare, we've really seen good broad growth across all of the Americas. Very strong medical gas growth with Airgas in the U.S., that continues to be very resilient for us. Strong growth in Canada, primarily more organic in terms of Home Healthcare, 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 Colombia, you'll recall, we entered the Colombian healthcare market roughly a little over a year ago, one large, one small acquisition, that continues to bring good growth in the Home Healthcare space. In South America, across Brazil and Argentina and Chile specifically, we continue to see very good organic growth in those geographies with Home Healthcare 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. Please go ahead.
Hi. Good morning, everybody. Thanks for taking a few questions. The first one is a small detailed one on European growth quarterly Q2. I think it was 1.2%. I have problems to reconcile the growth by industry, 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 question number 1. Maybe I'll stop there and ask progressively the questions.
You're very cautious. This is good.
Yeah, you're-
Fabienne is going to take the first.
You think we are going to forget your question. On Europe, in fact, you have three non-recurring events that penalize the Europe growth in Q2. The first one we already mentioned is the turnaround in hydrogen. The second one is the CO2 crisis that we mentioned as well. The third one is the divestiture of a very small electronic subsidiary in making gas cabinets, but not exactly consistent with the gas we sell. A non-core subsidiary that we have divested effective January 1st. If you exclude those three non-recurring impact, the underlying is really above 3% as it was in Q1. You're very smart. Yes, there is something with electronics, but it's transferred nowhere. It's transferred to outside of the group.
Perfect. Pricing Asia, I think 2.1%. Could you, Fabienne, give us some 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.
Pricing in Asia remains driven by China as it was in Q1. Now we have the positive pricing in China, which is above 4%. Japan is somewhere between stable and slightly negative. The good news is that we see now the Australian market really recovering with slightly positive pricing. These are the three countries where we are doing the major variations.
Perfect. Third question, if I put every one of in terms of turnarounds, and the three units sold in China in particular, could you quantify the impact on the top line of all? You commented on CO2, things like this, just on the turnarounds, and the disposal of these three units.
You mean at the group level or-
Yeah. At all the gases level.
Well, at the gases level, including the turnaround and the various non-recurring event, we would be close to 2% higher.
The impact is minus 2% of all these-
Between -1% and -2%. You always have that kind of small non-recurring event, I'm not telling you that it will be 2% higher next semester.
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 about what, 150 basis points for H2?
Well, the impact of the U.S. tax reform is exactly what we expected. 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 credit linked to performance share. I'm not going to go into details, we have a 300 basis points impact in H1, and we'll have only a 200 basis points impact in H2. For the full year, the tax rate, effective tax rate should be between 25% and 26%. Remember that next year, the famous BEAT tax in the U.S. is going to increase from 5% to 10%. The advantage we'll get will be more 100 basis points than 200 basis points.
We should see our effective tax rate increasing a little bit again next year.
Finally, the Fujian project. Any more precision on the start date? Still hesitating, six months to go before the end of this year.
I said it all. Our plant is running full speed. Everything goes well. We are in the testing period, validating our permits with the EPA and negotiating with the customer. I don't think we can add more than that. Of course, we'll keep you posted.
Thank you. Thank you very much.
Thank you, Fabienne. Next question.
Thank you. We will now take the next question from Jean-Luc Romain from CIC Market Solutions. Please go ahead.
Good morning. My question relates to the efficiencies and merger synergies with Airgas. As you will have achieved your targets one year ahead, what comes on top of that, if there is more to come?
Yes. Thank you. Brief comment. 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 two organizations. Overall, I would say the Airgas synergy story is positive. As we stand today, we can just say that the full synergies of EUR 300 million will be actually achieved with one year in advance. I think it's really good news and showing the good momentum. I'll let Mike do a further comment, the detail of those synergies. Mike?
Thanks, Benoît. Just to add to what Benoît said. Clearly, with the acceleration of delivery, we not only see further cost benefits in terms of synergies, but further opportunities as things evolve. In terms of the value-added piece that Benoît spoke of, we continue to see that ramp as expected. However, once we reach the $300 million 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. Now we're starting to see other markets where the application of those technologies and those applications, whether that's in heat treatment for metalworking 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.
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 L'Air Liquide into the Airgas markets and customers to continue growth and continue evolution of that business. In addition, obviously, as the cost synergies that actually we're able to accomplish with the combination of the two companies evolve, you can see already that efficiencies are ramping. Those efficiencies will continue into the future. The base business will benefit from continued focus on cost and efficiencies. We'll see the continued growth in terms of technologies and applications. In addition to that, 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.
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&T business into the future. 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 very much.
Thank you. We have five remaining questions in the queue. May I ask you just to ask only one question per person. It will actually ease the process. Next one.
Thank you. We will now take the next question from Theodora Joseph from Goldman Sachs. Please go ahead.
Great. Good morning. Thank you for taking my question. I wanted to concentrate in the North American business. We've heard there's been quite some logistical constraints in North America, particularly kind of finding the difficulties in finding truck drivers. 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 recall correctly, you actually had one key 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?
I think first of all, obviously we continue to monitor inflation tendencies, we continue to manage pricing accordingly. We don't wait for a particular point in time necessarily to manage pricing looking at inflationary policies and trends. 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 of last year. Actually, for this year, all of that effort took place in the fourth quarter of last year. We immediately began to see the pricing implementations and benefits, in the first quarter of 2018. 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. 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. 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.
We keep that balance, ensuring there's kind of that right work and family life balance for our drivers and making sure we're competitive.
Great. Thank you, Mike.
Thank you. Next question.
Thank you. We will now take the next question from Chetan Udeshi from JPMorgan. Please go ahead.
Yeah. Hi. Thanks. I had a question again on the margin and ROCE targets of over 10% by 2021, 2022, which means you essentially need to grow the margin. Maybe you can correct me if I'm wrong, but improvements of 50 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 IM. In general, what are the key levers you have to accelerate that ROCE improvement to, say, 50 basis points per year on average over the next four 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?
We are currently managing the group with our return capital employed objectives in mind every day in each industrial decision. Remember that, what you take into account for calculating your return capital employed is net profit, not operating profit. We work on all lines of the P&L. Clearly the operating profit margin is a driver. The reduction of debt and 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.
Thank you. Next question.
Thank you. We will now take the next question from Peter Clark from Societe Generale. Please go ahead.
Good morning. Despite Patrick's best efforts, I have made it, thankfully. I have just got one long question anyway. It was about the Gulf Coast. I am just wondering how much CapEx is associated with the new LyondellBasell supply contract. What is the latest on the Yuhuang Chemical methanol plant? I think it is Q4 2019 now. Finally, in the backlog, you are indicating a lot in America. I presume you are indicating in the portfolio a fair amount on the Gulf Coast. Thank you.
Thank you, Mike.
First of all, in terms of Lyondell, I do not think we have published anything in terms of the actual investment numbers. Basically, we are in the process of continuing to move forward with those contracts. It is a sizable oxygen contract, so that is in a good place. In terms of overall growth in the Gulf Coast, as Fabienne mentioned, we have just recently started up the OCI facility there 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 have worked to go ahead and assure they have their financing in a good place, and that is continuing to evolve. There is no question that project will play out. It will 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 the level of business development activity. I think for the group, something like 40% of the overall portfolio of opportunities reside in the Americas. I would say that what I talked about before in terms of the chemical industry, the level of growth with the second phase of investment, both across the Texas side of the Gulf Coast as well as in Mississippi, continues to be resilient.
Good. Thank you.
Thank you. Next question.
Thank you. 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, is suffering the most? Thanks.
Yeah, I think we can talk about Europe and we can 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 a significant impact, and it may evolve in that the trade discussions or negotiations are in course. 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 LI.
No, that's right, Benoît. We really have not seen any impact at all on operations, nor have we seen an impact in terms of the level of 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. 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.
Okay, great. Thanks.
Thank you. Next question.
Thank you. 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.
Yeah. Okay. Well, subject to and 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 tension, may remain high or become higher. 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 margins are high. 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 environmental norms for maritime business that will have an impact. If I remember, Mike, 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 sulfur emission out of the marine and shipping fuel. It will have an impact on desulfurization and impact on new projects. Mike, I'd like you to confirm.
Yeah, I think, Benoît, 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. We really don't expect much significantly later in the year at this particular point in time. In terms of future needs, Benoît said it exactly right, there's going to be some issues around maritime fuels that will kick in that timeframe.
We've also continued our discussions with refiners as they look for ways to go ahead and better manage their 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 via those means as well.
Thank you.
We are just reaching the end of our conference call. Let me just conclude in one or two sentences. First of all, sales growth is strong. 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. That's good news. The second point is the 30 basis points margin improvement in Gas and Services is actually positive. It should not be seen as negative because it's a mix of strong growth in IM business. We are seeing the impact of efficiencies and synergies. The net-net is just due to the fact that LI and, to a lesser extent, Home Healthcare, have seen a decrease in margin ratio. The net-net is 30 basis points. I think the underlying margin improvement is there. We can see it.
Number three, the cash flow is very strong. This is really good news for the future, not just in terms of debt, but also in terms of our ability to partly self-finance our growth. All in, we think this is a robust set of numbers. We are confident in our ability to deliver a net earnings growth at constant exchange rate for the full year. Thank you very much. Thank you for attending. Have a good rest for those who can take holidays. Bye.
Bye-bye. Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.