Good morning, ladies and gentlemen, and welcome to the Air Liquide Q1 twenty eighteen Revenue Conference Call. All participants are currently in listen only until we conduct a question and answer session and instructions will be given at that time. Today's conference is being recorded. I'll now hand over the to the Air Liquide team. Please begin your meeting and I will be standing by.
Good morning, everyone. This is Rod Rodriguez, Head of Investor Relations. Thank you for joining today's conference call. Fabienne Lucor Vizier will present the 1st quarter revenue. And together with Guy Salz Gibber in Paris, and Mike Graff from Houston, it will be available for a Q And A session.
As a reminder, our next announcement for half year twenty eighteen results is scheduled for July 30. Let me now hand you over to Fabienne.
To you for attending our Q1 call. Our Q1 activity is in fact strong. With sales being up 6% on a comparable basis, and further growth in all geographies and business lines, most of our markets being well oriented. Our sales are supported by high activity level in Gas And Services, in particular, with a very solid base business and loading rate as well as by the improvement in engineering and by the dynamism of Global Markets And Technologies. An acceleration of bidding activity with many new projects coming on stream and on the studio negotiations is also very noticeable.
In terms of performance, efficiencies and synergies are being delivered in line with plans and cash flow remains high. So all in all, a very strong quarter in terms of sales, but also for development activity. Let's talk about the context for a minute before looking at the details As mentioned, most of our markets are well oriented and in particular, refining chemicals and petrochemicals, which now represent more than 70% of our large industries activities. At the same time, industrial production is stabilizing at a sustained level in most of the countries, and continues to improve in the U. S.
However, the currencies balance is still unfavorable to European Companies. With a negative ForEx impact on our published sales, reaching minus 8.2% for the quarter. The energy effect, conversely, remained modest at minus 0.3%. For the full year 2018, at current forward exchange rates, this global negative effect should reduce globally around minus 5%. Let's now look at the numbers our gas and services slightly above 1,000,000,000, up 5% on a comparable basis.
We have a strong negative ForEx effect at minus 8.3%, coupled with a minus 0.3% synergy effect and a minus 0.7% effect linked to the sale of the Airgas refrigerants activity last year. As a result, public shares are down by minus 4.3%. Significant recovery in engineering construction as well as the perceived development in Global Market And Technologies also contribute to the strong growth of our group sales at +6 percent. Then for the same reasons, published sales are down 3.2%. We had numerous growth levels this quarter.
All of our geographies showed good progression and in particular, Americas at 4.5 and Asia at +7 percent, developing economies at +11 percent, and they are supported by China and Latin America, but also by South Africa and Turkey. In terms of businesses, large industry was stronger at plus 6% while merchant remains solid. In fact, our business significantly strengthened again to reach a sustained 3.9% growth, a level we had not seen since 2011. Startups, 3 for the period, and ramp ups contributed 1.3%. Part of the impact is, of course, coming from the ramp up of our oxygen unit started in December for SAS in South Africa, the largest in the world.
This business further improvement and development initiative, both supported the accelerated growth now for six quarters in a row. Let's now review our geographies in Americas sales up 4.5%. Large Industries benefit from strong oxygen demand in North America and in particular in Canada and from a ramp up in South America. In Industrial Merchant, Airgas growth remains solid despite the low contribution of bolt on acquisitions and Brazil is clearly recovering. Healthcare is supported by strong medical gases in the U.
S. And robust activity in order zone. Electronic is penalized by lower equipment and installation by gas and advanced materials remain solid. Europe is up 3%, penalized by 1 fewer working day. Demand in hydrogen is high as well as cogeneration activity, resulting in a very solid growth in industries, in particular, the Benelux.
Merchant market are well oriented in all countries and in particular, in Italy, Benelux and Developing Europe. Healthcare remain robust, supported by volume increase in normal scare and by specialty ingredients. Asia is strong at +7 percent. Large Industries benefit from ramp ups in China and increased demand in Korea and Australia. Merchant is still developing very rapid in China with growth of both 15% while Australia recovered.
Electronics is also strong throughout the zone, above 10%, driven by China, South Korea and Singapore. To finish with, Africa Middle East benefit from the ramp up of the Sasol unit in South Africa and from the high load of Yanboo in Saudi, but also from strong growth in Egypt And Development in Healthcare. The SIM trends show in the business side analysis. Industrial Merchant benefits from strong volumes in most of the countries and impact current developing economies with an exceptional growth in China. Pricing is also summing up at 2.1%.
Large Industries is driven by a very solid demand with oxygen volumes being up 7% and ICO volume up 5%, driven by business improvement as well as by startups and ramp ups. Healthcare at +5 percent is supported by Home Healthcare at +7 percent, solid medical gases in particular in developing economies as well as specialty ingredients. Small acquisition also contribute in Japan and in the Middle East. Electronics at 6% is dynamic in all segments in line with previous quarters, with new contracts ramping up and strong equipment and installation sales in Asia. A few words now about engineering and construction, sales are now recovering, thanks to higher order intake last year.
The bidding is strong too, and we are now confident that the activity will continue to improve. I would also like to spend a few minutes on Global Market And Technologies, characterized by sustained eye order intake and sales growth. In fact, since it creation in 2015, this business unit in which we regrouped, managed and incubate our most innovative activities on a global basis. Has progressed very rapidly. It now gasses 1800 people.
Sales are close to EUR 400,000,000, and it has delivered sustained double growth, along with INEOS medium term plan objectives. I would like to give you a few examples of the market that Global Market And Technology is now attacking, thanks to the extension of the Air Liquide Court Technologies. The first one is Advanced cryogenic equipments to serve the space, Aerospace And Research Industries. As you know, we are part of the INN5 and INN6 programs, but also strong contributors to the most advanced scientific nuclear research center in Switzerland, the CERM, and to the ITAP program for nuclear fusion. We also often mentioned energy transition, but we have started to turn it in a real global business with the development of biogas purification into biomethane and its distribution.
We now operate in production sites and more than 60 retail stations in Europe and in the U. S. Global Market And Technology is also leading our developments in Hydrogen Energy And Hydrogen Mobility with numerous ongoing initiatives in the world. And finally, Global Market And Technologies, developing a range of new services for maritime logistic usages and high-tech cryogenic transportation. Let's now come back to the numbers with Performance Indicators.
Efficiencies stand at EUR 79,000,000 for the quarter, 18% above last year. It's important to mention that Airgas is now developing its own efficiency programs, along with the Alikin model, delivering 5,000,000 of recurring cost savings this quarter. On top, synergies continue to materialize in line with the upgraded plan with $22,000,000 more in Q1 or close to $240,000,000 cumulative. Cash flow is strong at 19.5 percent of sales. In terms of investments, all indicators are improving.
Our portfolio of opportunities is redeveloping with more medium sized projects and takeovers, even if America remains the 1st zone in terms of project. We saw more opportunities in Europe and in Asia, in China, in particular, New investment decisions are high too at EUR 600,000,000, with new long term contracts in Large Industries in the U. S. And the Benelux, and new carrier gases projects in Asia. The contribution of startup and ramp ups at 1,000,000 benefits from the progressive loading of the Sasol oxygen unit in South Africa.
For the full year forecast, we still have uncertainties about the Fujian project in China, It's a very complex project and even if our units are ready for startup, we are still discussing with the customer about the effect commercial start up date, depending on this date. The contribution of new unit start ups and ramp ups to 2018 sales is now estimating between 1000000 and 1000000. Backlog is also increasing at 1,000,000,000 in terms of total amount of large projects under construction, but also in terms of future sales now at 1,000,000,000. So to conclude, a strong quarter for Air Liquide. We further sales growth in all geographies and activities and very active bidding.
And therefore, we confirm that assuming a comparable environment, we are confident in delivering net profit growth calculated at constant exchange rate and excluding the 2017 exception. So this is what I want to share with you. Thank you very much for your attention, and we will now open the Q And A session.
We will now take our first question from Theodore Joseph from Goldman Sachs. Your line is open. Please go ahead.
Hello, good morning. Thank you for taking my question. I suppose I have two questions. And the first is really a new base business growth, which surprised very positively. It's strongest levels that we've seen pre-twenty 12.
So my question really is can you give us some more color around what's driven this? Whether you think this growth is sustainable going into 2018? And also, I mean, basically on your current utilization rate, would you need to invest more or is this can you cope with this growth? And then the second question is on price increases that we have seen in the Americas I'm business. Can you guide towards any further price increases you might be planning to put through in the I'm business?
And then based on backing out what the IMGrow would imply for volumes in Americas, it does seem to have slipped this quarter. So is this something that we should be concerned about Thank you.
Well, thank you, Ciudora. I will take the question about the base business. And I will hand over to Mike for the question on the U. S. Industry merchant price variations.
So it's true that the business is very high this quarter at 3.9%. It's in fact a level we had not seen since the beginning of 2011. So for it, it's an excellent signal. It is actually fueled by all activities. In large industry, we have strong volumes.
You saw a large industry at 6 percent. The base business is very strong in Large Industries with a strong, very strong hydrogen demand in Europe, a good cogeneration activity. This is very winter, but it's contributing in this first quarter. Same thing in the U. S.
With a very strong Airgas demand. In Asia, in China, in particular, we have 2 ramp ups, So it's a global contribution. Industrial Merchant, you saw that we are still solid above 4% worldwide. We've strongly increasing volume in particular in developing economies, but positive everywhere. In electronics, we have a high, high growth in the carrier Gizys sales, and in health care, the number of patients that we treat at home continues to increase.
And we also have very nice medical gases development, in the emerging countries. So it's a global contribution. Is that going to last it's always difficult to tell. We don't have any negative signal at the moment, the activity really remains solid. In terms of loading, the loading of our existing capacities in merchant is between 65% 70% everywhere except for a developed in Asia where we are more in the 75% range.
So we still have available capacity to continue to feed our business development at the moment. Mike, do you want to elaborate on the U. S. Pricing?
Thanks Fabienne and good morning. Sure. You know, Fabienne mentioned the pricing improvement in Q1, you know, we saw roughly, 2.6% over the quarter, versus 1.9% in Q4. And I think with the businesses fully integrated, and everything, all on the same ERP systems. We don't have any uneven comparators of the historical price changes.
Across the various legacy businesses, and we took strong pricing action in Q1, joint with the improved market environment. And we expect to continue the dynamic as the year progresses. I think we've got a good balance actually between pricing and volume growth The one level of headwind that we had a bit in the quarter, specific to the U. S. Was just in regard to Argonne availability.
There were a series of severe winter storms that affected overall operations industry wide in the Gulf Coast in early January, And that impacted Argon production early in the quarter and the supply chain was slow to recover, against the backdrop of strong growth in the market demand for Argonne in the quarter, and that's catching up as we move through the quarter. So I think overall, a good balance there, and we continue with the pricing efforts.
Okay. Thank you very much. I'll be in and Mike, very helpful.
Thank you. We'll take the next question.
We'll now take our next question from Paul Wells from Morgan Stanley. Please go ahead.
Can you talk a little bit about the ongoing trends in the engineering business, please Fabienne, in terms of, the repeatability of the organic growth number in Q1. I know the comp year on year was particularly weak in engineering? And also maybe any comments around the level of profitability that business might be able to achieve given the recovery you're seeing Secondly, can you talk a bit about cash flow? Cash flow looks have improved noticeably in Q1 year on year. And really what the dynamics are behind that improvement.
And then just lastly, obviously activity levels across the board are picking up. Could you elaborate a little bit on how you're feeling about new investment decisions given what's on your radar screen, in the next couple of quarters? Thank you.
Well, thank you, Paul. A lot of good questions about engineering the increase of the engineering sales compared to last year is impressive, but you're absolutely right last year was very, very low. So we'll continue to see sales increase along the year. However, it's important to understand that our engineering capacities are not yet fully loaded. So we are confident in the medium term we don't expect the engineering activities to come back to profitability this year.
Will be in the best case balanced. So it's a recovery period. The order intake you've seen is at 1,000,000 for the quarter to be compared to slightly above 1,000,000 last year. So The order intake continues to progress as well, but to come back to the profitability, which is expected from engineering between 5% 10% will probably take us until 2019. In terms of cash flow, where the cash flow improvement is coming from the dynamism of a big business, mainly in terms of working capital, the pattern is quite similar to last year.
So we are just improving in terms of sales percentage as the business is doing better.
So just to be explicit on that Fabienne, is that just higher EBITDA then?
Well, you know, we are not commenting on the margin at the quarter. It's good management of our cash worldwide and sustainable EBITDA. In terms of new investment decision, to be clear, we expect the level of decision to be to continue to be high. And even maybe to increase in the quarter to come. We are really working on a very large number of new projects at the moment.
So of course, we are not going to win. All of them but our current forecast is an acceleration investment decision.
And is that a blend of energy and chemicals or is there a stand out right now?
It's mostly it's mostly refining and chemicals at the moment.
We will now take our next question from Thomas Wigglesworth from Citi. Please go ahead.
Good morning Fabienne. Thank you very much for taking my questions. 2, if I may. Obviously, the full year, you plotted an improving trend in return on capital employed. And I think we're at 7.7% of the return on capital employed.
I know you don't I know that you don't report, obviously, the first quarter return on capital employed, but should we, are these sales numbers commensurate with with that kind of improving trend on return on capital employed? And then secondly, just more about the sequencing of growth, just looking at some of these merchant markets, both in Americas and in Europe, looks like that in the first quarter, or the headline, the comparable growth of 4.3% in the Americas was a touch off versus the 6.1% in the 4th quarter. So are we seeing a moderation in the rate of growth there? Obviously, noting that the pricing effect has obviously kicked in. And then similarly, again, you didn't give a 4th quarter Europe, but it was 3.8 in the second half versus 3.2 in merchants.
So has merchant hit its kind of peak run rate I noticed that I think industrial PMI expectations are starting to soften. So should we just think this is the growth rate, this is second half was a bit kind of, kind of got ahead of itself maybe and we're now seeing a, albeit a stable level and a good level and more a more, you know, a more a slightly lower level of, of growth in merchant in U. S. And America and Europe?
Okay. Thank you. On the return on capital employed, even if we were communicating, I don't think that the return on capital employed for a quarter would mean much. Our objective is to continue to improve our return capital employed to come back above 10% and we are aligned with our plans. I don't think I can say more after only 3 months in 2018.
I would like to give my comment about the industrial merchant growth, maybe in Europe first with Guy?
Yes, good morning. So, for I'm in Europe, fundamentally between the last quarter of 2017 1st quarter this year. We have an impact of the number of working days, which is slightly more negative in the first quarter 2018 than it was in 2017q4 2017. In fact, we have exactly 1.1 working days less in Q1 18. Beyond that, so
Sorry, is that about a 1.5% of impact? Is that how we should be adding back?
For Europe, for Europe, on its minus 1.1%. So for Europe,
this is quite significant. So, I would say overall, the activity in Europe is remaining very solid in IIM. We see some fundamental good things happening in the markets of the small customers, which is good news. The maintenance, the metal workshops, the constructions, that
is going in
the right direction. So that's also supporting the future perspectives. The other thing that is very good news in Europe is clearly the improved pricing power that we have reached. We were around 4.4% in Q4. And we are now at 0.8, which is a good news also and I think solid when we look towards the future.
Thank you, Guy. Mike, do you want to comment about the America's growth in industrial merchant?
Sure. You know, overall sales growth was clearly up with strong demand in all markets. I think that in general, North American sales and packaged gases and hard goods, both for the U. S. And for Canada showed continued strength.
I mentioned the adverse impact in terms of argon availability in the U. S. Due to the winter storms. So that put a bit of pressure on volume availability. We certainly managed price accordingly.
And also in Canada, actually, we saw liquid nitrogen sales in the oil well services market, impacted by a reduction and fracking activity. And actually the reduction in fracking activity was the direct result of a shortage in some supply of the sand that's actually used as proven in the fracking process, some issues in the supply chain. And that That is an issue that dealt with, and it has nothing to do with the strength of the market. And we see that clearly improving as we speak. But in general, if I look at, the manufacturing and mental fab markets, especially in the U.
S, They were very strong, led by growth in industrial equipment, heavy equipment and metal processing. And, food, beverage, retail and services were also very strong CO2 demand was good, and also the continued growth in poultry processing with the food modernization and safety act all the other markets for Airgas continue to have strength.
We will now take our next question from Martin Roediger from Kepler Cheuvreux. Please go ahead, sir.
Yes, thanks. I've just three minor questions. First on the financing, you launched 2 renminbi bonds in China at a form of around 6% each. But these bonds have I'm not trying a coupon then for example, if you would launch bonds in France, why don't you launch bonds in France and does this route then proceeds to China? That's my first question.
The second is on, what statement on your presentation on page 25? Were you mentioned that you have sold 3 large industry units in Asia. Was there any book gain attached to this? Disposal. And directly, a clarification question on your outlook that startups and ramp ups will contribute 1,000,000 to 1,000,000 to sales in the full year 2018.
Does this include the Fujian project or not? Or is it right to understand that the high end of that range includes the Fujian project in the low end not? Thanks.
Okay. So in the financing, it's true that we issued 2 bonds in China on the onshore market, which is the first time for Air Liquide, and we are one of the 1st European companies to do that. We want to match the currency of our financing and the currency of our cash flow. So in China, we finance in renminbi. So we have 2 main possibilities either we issue in euro, which is much less expensive, as you mentioned, but then we have to do a cross currency swap to transform those in Remindy.
And then we have a cost, which is much higher, or we can issue now on is new because the regulation has been opening. We can issue directly on the Chinese market, and we have not only issued those 2 bonds, but we have opened a more global program that allows us to issue up to 10,000,000,000 women deals. So it's slightly more expensive, but only slightly around 10 to 20 basis points more after taking into account the cost of the cross currency swap. But it allows us to have real long term financing, which is very difficult to get in renminbi otherwise. And it also allows us to have local financing, which means that the renminbi generated by our activity in China will be directly used to reimburse the debt.
And we'll not have to cross the frontiers, which is a protection if the regulation changes. So all in all, we diversified our investor base, and we finance locally for a few basis points more and a few basis points more only. Yes, we mentioned the sale of 3 large industry units in China, in the north of China in a quite remote site. This divestiture happened at the end of last year, and there was a capital gain, which was recorded in last year numbers. Now on the outlook for startup and ramp up, Fujian is delayed.
We hope to start it at the end of March and it has not happened. Discussions are ongoing with the customer on the effective commercial date. So that's why we have updated the contribution of the rural startup and ramp ups to our 2018 sales. The lower part of the range, EUR 250,000,000, is integrate seeing a startup of Fujian delayed into 2019. So the 250 does not include Fujian.
The 300 includes a part of Fujian. So it's a delay on a very large project that happens quite often. We are not particularly worried about that, but we thought it was fair to update you on the contribution to the 2018 sales.
Thank you. Just to clarify, the book gains you booked in last year the end of last year. Can you quantify them for the disposal of 3 units in the isha?
Well, we don't give the detail. It was included in the non recurring income and expense of last year on the balance of design was quite more or less, as you can remember.
We will now take our next question from Patrick Lambert from Raymond James. Please go ahead.
Hi, good morning and congratulations for a good start. The first question regards the base versus startup ramp ups, but specifically for large industry, And if you can help us quantify a bit the contribution of both the 6% of that And more importantly going forward with the pushback of Fusion, how do you see the 6% developing, in 20 the rest of 2018 and, in 2019 startups contribution, would you venture into giving us your view on the contribution of 2019 ramp up start positive future. The second question is relating to M And A. I think you're being mentioning that you will step up in the reminder of the year. Are we still expecting about, I think, you mentioned at the end of 2017 that million of M and A spending.
Is that correct?
Thank you, Patrick. So on the pleased of the Ally growth. So we are 6%. In fact, this 6% is around in rough figures, 4% business improvement, 4% startup and ramp up, and then we have minus 2% of divestiture. And that's how you get to the 6%.
So the large industry unit that we divested by reorganizing EBITA portfolio. On the 2019 contribution, frankly, it's a little bit early. It depends on the startup data. Fujian, of course, of the pace of ramp up of certain units, we'll try to update you at the end of H1. In terms of M and A, it's true that we do not have very impressive M and A for Q1, but you know that last year, we had difficulties to sign because of the values tax reforms.
We have deals that should materialize in Q2. If we exclude any acquisition linked to the Praxell in the deal, which should be more in the 1,000,000 for bolt on acquisitions.
Any news on, Linda Praxer packages to be
And we talk to bankers as you may do as well. Well, no comment. I think we already said everything on this topic. There are a few assets that we would be interested in. None many because of our strong position in many markets.
So, and that's it and no news on this side for the moment.
We will now take our next question from UBS. Please go ahead.
So I saw on pricing, a pretty impressive I'm pricing number and you've referred obviously to some of that. I think being Argon, I just wanted to check that that part of that was Argon. And the main question though was how do we think about the margin impact of that pricing? Just getting a feeling for what your variable costs have done in Q1. I know I'm not looking for an exact number.
I'm just sort of generally thinking about whether we're positive or neutral? Secondly, on the EUR 2,300,000,000, which clearly shows progress on your full of opportunities. I just wonder if Fabienne, if you can give me an idea of the split between new projects and site takeovers because you referred to takeovers, obviously, as being part of that activity.
Okay. So on the pricing, I will hand over to Mike, we said that we had some ongoing shortage in Q1. And that has penalized a little bit. Our growth is merchant in merchant, but we had real price in actions on all products? I don't know, Mike, if you want to comment further.
Sure. No, I would just echo that, certainly, Argonne was a part that, but, I think pricing improvement occurred across, all aspects of sales, looking at, the combination of where we are with, both the packaged gas sales is where we are with hard goods. It was all in, in terms of the overall pricing actions across the board. I mentioned argon because of the supply shortage and where that ended up, but it was really across the portfolio. Okay.
And would you think from a global perspective, you're looking at a net positive or are distribution and wage inflation sort of running at that level that you need a 2.1% number? I'm just trying to get a handle on that.
So you know that we are not going to comment on margins. True that with a better loading of the capacities and the stronger business, it is favorable to margin. You know that very well, I am sure. Okay. On the portfolio of opportunities, we have a few takeovers in there it does not represent more than 15% or so of the portfolio.
Sorry, 15
We will now take our next question from Lawrence Alexander from Jefferies. Please go ahead.
Good morning. A few quick ones, I hope. First, what's your sense right now on the number of days effect in Q2? Secondly, do you think the pace of the methane contracts will start accelerating 3rd, in China, apparently there's a new wave of chemical capacity being shot this year and next year. Is that going to be any sort of drag on your China footprint?
And then lastly, on Airgas, Can you talk a little bit about what your experience has been with higher logistics costs? Because in the past, Airgas had some issues handling those, at least on a shorter cycle basis?
On the number of working days, so we'll have side positive impact in Q2 at the group level, it will be it's going to be half working day. So half a day. So not much, but it's better than when it's negatively. I don't think I catch your second question. Could you repeat it, please?
Just on the Methane, whether the piece of signings will be picking up? Oh,
I'm missing. So this one, Mike, will costs, together with the logistic costs because it's mostly in the US. In China, it's true that we have more projects under discussion, in particular, for chemical plants, It depends, of course, on our success rates, but we should have we hope to have a few signings before the end of the year. Mind, do you want to comment on the methane project on one side and on the Airgas logistic costs on the other side, please?
Sure. In terms of business development activity, especially on the Gulf Coast with, low natural gas prices and this continued strength in terms of availability of natural gas liquids. It's very clear that kind of the second wave of investment in especially the chemical space, is upon us. We didn't know if there'd be a lag between the end of 1st phase and the 2nd phase. So the level of business development activity, has clearly picked up significantly.
I think you've seen references already publicized from a number of companies that are been some already announcing new investments, and we see that reflected in a very strong level of business development activity, in the U. S. So obviously, we're participating heavily in that. In terms of logistics costs and issues you referenced in the past from an Airgas perspective, recognized that clearly as part of our overall synergy program and the integration. Of, the Airgas Heritage business and the Air Liquide Heritage business in the U.
S. We've brought 2 very strong supply and logistic systems together. By the end of last year, we had those not only fully integrated operationally, but all on the same SAP platform and are now fully utilizing all the optimization capabilities we have with advanced mathematical modeling to assure actually we continue to see those costs, better managed than they could have been as 2 separate organizations We no longer have trucks passing each other on the road and that sort of thing. So all this is in a much better place. And actually, I think logistics costs are reflected as very positive in terms of the effect on synergies.
Thank you.
Thank you, Mike.
From Banco Sala Berndale. Please go ahead.
Yes, hello. Good morning. I have a couple of questions. First one would be regarding the potential impact you could have seen on activity in the U. S.
Linked to the tariffs that have been imposed to still another, with other activities. So I don't know if that has been the case? And should it be a positive factor going into Q2? And the second one would be related to synergies. Again, you're performing very well at this point and you're almost obtained you around 40% of the target for this year.
So I was wondering why and what do we need to see for you to update your guidance on synergies? I mean, meaning that, that should be pushed up, I believe. Thank you.
Mike, I think the floor is yours.
So in regard to the tariffs and their impact, obviously, this is clearly an evolving situation. To be clear, we have not seen any significant impact on sales, whether in large industries or the merchant business. And in the short term, we don't expect to see any sort of strong impact. I think once the details become clear, we'll be in a better place to assess and provide more insight. But as you know, there's still a comment period underway, for temporary or permanent exemptions and a lot of back and forth on what may be, evolving and what's being negotiated.
But at this point, no real impact for our business In regard to the synergies, as Fabienne pointed out, we saw an additional $22,000,000 in delivery generated in Q1. So the cumulative total comes up to $237,000,000. And we had announced when we shared the perspective on full year results for 2017, that we up the level of synergies to be reached by the end of 2019, we expected to exceed $300,000,000, and we continue on that pace. Clearly, the gross synergies are increasing as planned. They represent over a third of the synergies that we generated in Q1.
So we continue to see the benefit utilization of Air Liquide Technologies through the Airgas marketing channels, also the offer of cylinders and hard goods to Heritage Air Liquide customers What we're starting to see ramp now is are the benefits, growing in Canada and especially in Mexico, with the launch of the combined packaged gas and hard goods offer in country in Mexico. And the cost synergies in the quarter continued to benefit from the additional efforts and German, cylinder management integration and also what I just talked about in terms of the optimization benefits of the fully integrated liquid supply chain. So that's kind of where we are for now.
Okay. Thank you.
We will now take our next question from Peter Clark from Susqueh General. Please go ahead.
Yes, good morning. Just two follow ups really on the price, I've heard your comments on the momentum there. I'm just wondering specifically in Europe, because I got that number. I saw the 0.4 went to 0.8. And that's pretty much as strong as you've seen, I think, since 2013.
So cycles turn there. Just wondering how it's going down into cylinders because again, I got the point that the small customers were coming back in Europe as well. So just that you've got some momentum happening there. And then the other question was regarding the portfolio. I get the feeling that it's virtually, well, it's all traditional industrial gas model essentially, there's no gasification projects you're looking at given obviously the complications with those.
But also there's a lot happening on these high return industrial gas projects that make more sense? Just those two questions.
Give me on to comment further on the European pricing in merchant?
I think globally the European pricing has, yes, indeed, significantly ramped up over the last year. In fact, you look at where we started in the first half, we were basically at 0 and the second half, between the two quarters, we were probably at 0.5 with the second quarter, slightly lower, 4th quarter, slightly lower. And then we clearly are now seeing something more in the 0.88%. So, overall, I think that's a bit like what Mike was saying for the U. S.
It's distributed around the different activities and different products. It is not specifically to 1. So we would say this is probably going to to be there and, let's say, perspective are relatively good in that way.
Okay. Regarding the gasification project, we are clearly reviewing our strategy in regard on May update you at a later date, we are not we do not have any active gasification project on which we are working at the moment.
Understood. Very clear. Thank you.
We will now take our next question from Titan Yutashi from JP Morgan. Please go ahead.
Yes, hi. Thanks. A couple of questions. First on new projects, that you are signing or in terms of bidding activity. In general, do you see any material change in the return profile of these projects compared to that in the past?
Is it better in line or say hopefully not lower than in the past in terms of return profile. And the second question is on the delay on that Chinese startup, Are there any specific reasons? Is it just a normal course or it's being a it's a big plant? And as you know, there are always delays with any new chemical plant starting up? Or are there any specific environmental related issues, maybe approvals or something which might be causing that as well?
Bidding activity on the new projects. I think we have new projects in all of our market segments. I think what interested is that, in basins. So it's the opportunity for us to reinforce our position in our existing basins in Europe, in the U. S, is much stronger than before, which is, of course, an excellent news.
Regarding Fujian, I would say this is probably normal for China. We have all of our environmental and operating permits, our units are working. So I just final discussion with the customer.
Understood. And I think again coming back to maybe I think this was asked previously the net margin benefit of higher pricing in the high end business, because I think the question is, last year, if you take the 60 basis points margin improvement for the full year? Maybe all of that can be explained only by the cost synergies you got out of gas acquisitions. So not much benefit was seen from the margin improvement sorry, the pricing improvement in IIM. So question is, will it be any different this year in terms of how do we see that higher pricing in IIM getting reflected in terms of real underlying margin improvement as such?
Or maybe if you can't answer it directly, maybe just to give us a sense of what are the different puts and takes for margin improvement this year that you want to highlight?
Well, you're asking me questions. You know, I would not answer. How does our model work? We have price increase and we have cost increase. The inflation is slightly picking up at the moment.
And then we have our efficiencies. And depending on the gap between cost and pricing, we are retaining a certain percentage of the efficiency. So it's obvious that when we have is strong positive pricing that enables us to retain a higher percentage of our efficiencies than when we have difficulties to increase our price. And of course, it is what should happen. We should be able to retain a higher percentage than nature of our efficiencies.
However, there is always a gap between price and cost. Costs are going up quicker than price, or another way to to say it is that every year, depending on our pricing action, we share more or less of our productivity gains of our efficiencies with our cat and this is going to happen again this year.
We will now take our next question from Neil Tyler from Redburn. Please go ahead.
Good morning. A couple left from me, sticking with the theme of pricing, you'll be relieved to hear. Just circling back to the European price development, you mentioned that in the large industry business, cogen benefited from, either the severity of the weather through the quarter. I wondered if there's anything in the price or mix effect in industrial merchant that reflects a similar backdrop, namely whether, for instance, LPG pricing spike or anything like that, And then going back to Andrew's question earlier on the Argon influence. Mike, can you give us an indication as to whether you said you were able to make compensatory price moves, whether your own Argonne business year on year in Q1 in the Americas, was therefore sort of flattish, namely that you compensated for volume with price?
Thank you.
Yes. On the pricing in Europe for cogeneration this time, Guy?
Well, the
cogen benefited from the, let's say, harsh weather conditions, particularly in March, which generated, let's say, larger electricity sales than we would normally expected at that point of the year. So think that's the reason why we you saw a boost on the cogen business in the first quarter. Now this is, this is, well, you can say this is pricing, but this is also just, volumes of electricity also. Okay, that were higher because of the conditions of the weather at that point of time. The you were referring possibly to whether weather conditions could have impact on the on pricing in merchant in Europe, particularly maybe relating to LPG.
In Europe, we have very, very little LPG business in merchant. It's only a little bit in the K. But other than that, we do not have. So our pricing is not really sensitive, in Europe, very much to weather conditions of similar to that.
Sure. Just coming back to the Aragon pricing and Aragon availability, as I mentioned before, we had issues in the supply chain and recognize that these were juxtaposed to the fact that the market itself was actually in growth mode. So you had an acceleration in demand for Argonne that we were trying to fill as we saw what occurred in the early stages of quarter with argon production, the impact on the supply chain. So we continued to go ahead and manage volume growth, along with pricing growth, in order to go ahead and not only meet market demand, but also deal with the various issues that were there. And that is equilibrating as we reached end of the quarter and we begin to enter the 2nd quarter.
But I think it's a balance of both that we saw in the quarter.
Okay, very good. Thank you.
Yes, sir. Our final question is from Philippe Malone from Natixis. Please go ahead.
For taking my question. 2 complementary ones actually. On large industries, your, you have downscale by about 100,000,000 the incremental the level of incremental sales coming from startups, which is about 2 percentage points for the division. And at the same time, we have much better base business growth, which is about 4% and there's some level of cogen here. So I wonder whether you have actually changed your views or your internal forecast for the internal growth for the division for 2018, given that you have this plus and this minus just trying to have a view of the net news and another point on engineering.
In fact, that's the 4th quarter where we have order intake, which is about twice sales and a very high level plus or minus 1,000,000. So that shouldn't hit that some kind of sudden growth at one point of time to this level. So do we have to actually expect that?
So, it's true that we have a very good level of activity in Q1. Remember that cogen are active in winter, not in summer, and our main cogens are in Europe. So this is not going to continue. However, we have a strong business in all the segments. So we are, we are, reasonably optimistic at this stage, of course, but I'm afraid that, internal forecast will remain internal for the moment.
On E and C, we continue to see growth in sales mentioned, we'll have a strong growth for the full year, but we said at the end of last year, that increased order intake, would start to deliver in 2018, but will mostly deliver in 2019. And that's why I mentioned at the beginning that to come back to a regular or expected level of margin, we will have to wait until 18. But for the full year, you can expect, of course, not sales being up 75%, but sales being up by 1 third or so.
Okay. So
I hope we responded to all of your questions, if you have more team is, of course, available on the phone, to conclude, it's a very good quarter early kids. We saw improvement on accelerated growth in all activities and all businesses. Our performance indicators are in line with plans. So we are pretty optimistic going forward. Thank you very much for your attention, and have a nice day.
This concludes today's call. Thank you for your participation. You may now disconnect.