Morning, ladies and gentlemen, and welcome to the Air Liquide 2022 interim results conference call. All participants are currently in listen mode only until we conduct a question and answer session, and instructions will be given at that time. I will now hand over to the Air Liquide team. Please begin your meeting, and I will be standing by.
Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations. Thank you very much for joining our conference call today. François Jackow and Jérôme Pelletan will present the first half 2022 performance. For the Q&A session, they are joined today by Mike Graff and, for the first time, Pascal Vinet, Senior VP in charge of Europe Industries and Africa, Middle East. In the agenda, our next announcement is on October 25 for our third quarter revenue. Let me now hand you over to François.
Thank you, Aude, and good morning, everyone. It is my pleasure to be with you today to share our strong performance in the first half of 2022. Our business model not only again demonstrated its resilience to a challenging environment but delivered growth across a number of metrics, which I will address in just a moment. Before we start, I would like to remind two main events of the past six months. First, the successful launch of our midterm strategic plan, ADVANCE, in March. Second, the transition in terms of new governance for the group. Let's start with slide three to show how we delivered a very strong performance in the first half across all criteria. A strong comparable sales growth of 8%, plus 50 basis points of margin improvement, excluding the energy pass-through impact, and despite the inflationary context.
More than 20% of recurring net profit at constant exchange rate. Strong leverage. A high cash flow, above 23% of sales, excluding energy. The project activity remains strong, as reflected by the EUR 3 billion of backlog of signed projects, which positions us very well for future growth. In terms of performance, we ticked all the boxes in the first half, and this is not to mention the return on capital employed at 9.7% at the end of June, very close to the 10% of the ADVANCE objective for 2023. This was thanks to the outstanding commitment of the teams worldwide, their focus on value creation, and thanks also to a business model balanced for both resilience and growth. This was, of course, needless to say, despite a very challenging environment. Indeed, we faced many headwinds over the last few months.
First, the unprecedented spike in energy prices. It means for us more than EUR 1.8 billion of additional energy costs that we managed to pass through our large industry customers. It is already above the 2021 full year figure, so this is quite substantial. We also faced accelerating inflation. It amounted to more than EUR 750 million additional cost. In the context of high inflation, we have proven our strong reactivity by increasing our prices in Industrial Merchant, reaching +14% in Q2 globally, a record high level. We managed to overcome many challenges. To name a few, the COVID-19 lockdowns in China in Q2, the supply chain constraints, with limited direct impact on Air Liquide, but really creating disruption for some of our customers. Also, workforce shortage in some regions, and of course, the war in Ukraine with many indirect implications.
Our strong performance in such a challenging environment shows one more time the strong resilience of our business. The performance of this first semester is well in line with the ambition we set out in our ADVANCE plan. I am now on page five. Indeed, we delivered on financial performance in H1, as we just have seen, but also on extra-financial performance. I will come back to the first one, decarbonizing the planet, in more details, as we have made very significant progress, but let's talk about the second one, developing new markets through innovation. Electronics is a strong growth driver again in H1, and the portfolio of projects remains very attractive. In healthcare, we are launching value-based offers in selective countries, and it is a way to transform the home care market.
As Acting for All is concerned, and still in healthcare, the teams remained committed to fight against the COVID-19 in the regions where the virus is still active. Also, our contribution to the global fight against climate change has been recognized with the SBTi validation of our CO2 trajectory, the first and only validation received in the industry so far. By the way, we just learned yesterday that the Climate Action 100+ initiative has also recognized the significant steps we have taken in the past months. Toward climate. I would encourage you, if you want, to go and check their website. Let me zoom in on the first objective around decarbonizing the planet and supporting the energy transition. I am now on slide 6, which is crowded, but represents the numerous successes we had.
The first six months of the year have been very active with tangible projects and many achievements. In carbon capture, several projects received European funding, making them ready to be launched. The development of electrolysis with two projects of 200 MW each to produce green hydrogen, and the announcement of the creation of the manufacturing joint venture with Siemens Energy. H2 mobility projects are expanding not only in Europe, but also in Asia and Americas. They deal with the development of infrastructure for airports and for trucks or production of liquid hydrogen. We also signed two renewable energy sourcing contracts during the first half in the Netherlands and in Italy. In a time where not only environmental impact, but also security of supply are becoming key, we are clearly leading the industry, taking significant position in various industrial markets.
Before I conclude, I would like to talk about resilience that is so important in the current environment. As you know, resilience has been a trademark of Air Liquide, thanks to a strong business model illustrated by long-term contracts, take or pay clauses, fixed revenue from rentals, and also a high diversity of business reach in terms of geographies, activities and markets, but also customers. Advance is reinforcing this resilience by, first, positioning Air Liquide on growth markets, energy transition, electronics, healthcare, relying on very strong fundamental drivers. Advance is reinforcing this resilience by focusing the entire organization on performance, as illustrated by our results on pricing, cost containment, and portfolio management with no taboo. To conclude, the key takeaways of this first half of 2022 are, first, we reinforce resilience thanks to focus on performance and a strong positioning on growth markets of the future.
We deliver growth and prepare future growth with concrete progress in energy transition and electronics. On this basis, we confirm the 2022 guidance. Now, Jérôme, please could you explain in more details the H1 performance. Jérôme?
Thank you, François, and good morning everyone. I suggest that now we review our numbers more precisely. Coming back to the first half year, and I am now on page 10, Group sales have been very strong overall on a comparable basis, excluding energy pricing, Forex, and significant scope effect. Indeed, gas and services sales for H1 are showing a strong +7.2% increase versus last year, following a Q1 at +7.1%. Engineering & Construction sales have increased by +29% in H1 compared to last year. Order intake has ramped up to reach EUR 526 million in the first half year, high level, close to what we had end of H1 last year. Global Markets & Technologies has seen a dynamic activity with +14% comparable growth, boosted again by our biogas activity.
Overall, group sales are up at +7.7% on a comparable basis for the first half, while published sales are very significantly up at +31%, supported by a strong impact of the spike in energy price during the semester, which translate into a +16.8% energy pass-through effect in our LI activity for the first half. Also impacted by a positive Forex effect at +5.8% and with a significant scope effect at +0.7% due to the takeover of the Sasol ASU in July 2021. Specific to Q2, we saw very strong comparable growth at +7.5% after a very good Q1 at +7.9%.
When we look at gas and services growth only, and I'm now on page 11, all our geographies are posting high growth versus last year to reach a +8% comparable year-on-year for group sales. From a business line standpoint, sales growth remain high in merchant and electronics, while healthcare reflecting a strong comparable basis last year due to COVID and Large Industries are more contrasted. To be noted again, this comparable growth of 8% doesn't take into account the acquisition of the 16 ASU of Sasol in June 2021, which are reported again in significant scope to contribute another +0.7%. Let us now review the activity for each of our main geographies. My comments will be mainly related to Q2. I am now on page 12.
After a strong Q1, Americas has also seen a dynamic Q2 with sales at +9.5%. Large industry volumes have been strong in the US Gulf Coast, in air gases, mainly in steel and chemicals, supported by two startups. Cogen is down versus a high Q2 2021 due to Winter Storm Uri's impact last year. Hydrogen sales in Latin America were solidly supported by startup and ramped contribution. In merchant, sales are significantly up. Our pricing power is confirmed with an acceleration at +13% versus last year in conjunction with rising inflation. On a volume standpoint, gases and hardgoods are following end market trends and are well oriented, benefited also from construction recovering in the US with the exception of helium, which is impacted by the shortage in global supply. Healthcare activity has been solid despite a strong basis last year due to COVID-19.
In the U.S., volumes in medical oxygen and proximity care were solid. Finally, in Latin America, oxygen sales have normalized after the COVID-19 peak last year, with home healthcare still continuing at high levels. Finally, electronic sales are growing strongly with positive contribution from all segments in carrier gas, equipment and installation, and specialty materials. In Europe now, we have seen a strong growth at +6% supported by record pricing in merchant, offsetting lower demand in large industry and despite a strong basis in scale last year due to COVID-19. Large industry has seen lower demand in all sectors with numerous customer turnarounds, notably in HYCO and some refineries using lighter crude oil with lower hydrogen consumption. In merchant, the spike in energy cost and overall inflation has again been successfully mitigated with a record historical pricing effect accelerating at +22%.
Sales have grown in all end markets and on a volume standpoint in merchant, those are slightly positive, mainly packaged gases. Finally, healthcare sales have remained robust thanks to strong home healthcare, notably thanks to diabetes, boosted by volume and an acquisition in Poland, and also we have strong specialty ingredients. Medical oxygen demand is normalizing compared to last year high basis to fight COVID-19. In Asia, I am now on page 13. Despite COVID-19 lockdown in China in April and May, we have seen strong growth overall, driven by high momentum in electronics with sales at +7%. In large industry, sales are back to a positive trend with a still soft China impacted by lockdowns. In merchant, we have also seen an accelerating pricing effect at +7%, mainly in China but also in Japan, Australia and Singapore.
On a volume standpoint, China has been impacted by lower volume due to COVID-19, but in fact resisted well. We saw improved demand in Singapore. Finally, electronics sales are buoyant and have not been impacted by COVID-19 lockdowns in China. Recurring sales are at very high +17% driven by strong carrier gas with positive impact from start up and ramp up of several units. Advanced material sales are also strong across the region. Finally, equipment and installation sales are also booming, especially with our key customer. Finally, in Africa, Middle East, large industry sales are up, supported by strong demand in Saudi Arabia, in Yanbu and Egypt. The contribution of the Sasol takeover is strong and aligned with expectation, and as a reminder, accounted for a significant perimeter.
Sales in merchant are slightly negative following small divestiture in the Middle East, and this with good pricing at +5%, while healthcare is following the normalizing demand in medical gases after COVID-19 impact last year. I will now comment our Q2 activity by business line. I am now on page 14. In merchant, pricing has been record and volumes resilient. Pricing indeed has continued to accelerate in all geographies to reach a +14.4% in Q2 to address the unprecedented spike in energy and other costs, showing again our strong ability to implement faster pricing campaign that quickly precipitate to pass through this cost. Volumes are resilient, especially in Europe, but are hampered by helium shortage. In regard to the end market we serve, food and beverage, fabrication and electronic components markets are dynamic, while craftsman and research are soft.
On a large industry business line standpoint, activity has been contrasted. Americas has indeed been solid with high air gases volume from steel and chemical, especially in the U.S. Gulf Coast, while Europe has seen lower demand in all sectors impacted by customer turnaround and lower hydrogen demand. Asia has been soft, notably in China due to lockdown impact. Lastly, in South Africa, Sasol ASU takeover is fully delivering according to expectation. Page 15. In electronics, activity is still very much booming. Indeed, momentum in electronics is very strong in all segments with over +17% growth in carrier gas, specialty materials, equipment and installation. This growth is supported by significant contribution from start up and ramp up, and to be noted, a strong pricing effect in specialty material driven by rare gases.
Finally, in healthcare, despite a high comparison basis last year due to COVID-19, sales are up, driven by dynamic home healthcare. Lower volume overall for COVID-19 in medical gases have been largely offset by strong sales in proximity care in the US. Home healthcare growth continue to be strongly supported by diabetes and the contribution of an acquisition in Poland. Finally, specialty ingredients are also dynamic and on a pricing standpoint, this has improved and is positive in all regions. On page 16, our performance improvement has been again demonstrated by our operating margin being up +50 basis points for both the group and Gas & Services. This is excluding the impact of the increase in energy pass-through in Large Industries.
Getting into the detail, we can see that purchases and other costs have been impacted by the increase in energy price as well as inflation, with also an increase in personnel expense. Depreciation is well managed, the impact of startup, including the Sasol impact being well offset by disposals during the year. This has resulted in an operating margin excluding energy at 18.5%, which is 16.1% as published, of course, due to the energy dilutive effect. Again, a significant +50 basis point increase excluding the only pricing, the energy price impact. This margin improvement shows the strength of the business model and our performance overall, all the more that it compares with a high basis effect last year and despite the mechanical dilutive effect of the energy price and overall inflationary increase in our merchant sales. Page seventeen.
This margin improvement is supported by our structural margin improvement plan that continues to deliver. As you can see, pricing is significantly accelerating again in our regions at a fast historical pace. We'll come back in more detail in the next slide. We have also ramped up our efficiencies in Q2 to reach EUR 167 million in the first half, despite the significant adverse effect of inflation on our procurement activity. As you know, avoided costs are not reported in efficiency, and they were significant and contributed positively to the performance in the first half. Portfolio management has been further pursued. We executed three divestitures and closed eight bolt-on acquisitions over the period with our continued focus on profitable and margin accretive opportunities. We keep a strong focus on margin improvement, working on all possible levels.
As you can see on page 18, our pricing action in Merchant has significantly accelerated in every geography to reach +14.4% overall in Q2. Our pricing campaign has been again executed in a very quick and efficient way with record impact, mainly in packaged gases, leveraging on our escalation formula, surcharges and pricing actions to address inflation and pass through the spike in energy costs. In Q2 alone, Europe achieved a +22% year-on-year pricing impact, a record landmark with pricing strong in bulk, while the Americas delivered a +13% and with a notable sequential acceleration in Asia at +7%, mainly in China year-on-year. Let us now review quickly the bottom of the P&L. I am now on page 19.
Non-recurring operating income and expense have been impacted mainly by two exceptional non-cash items for a net impact of EUR -270 million. First, we took a controlling stake in one of our large venture in China, which triggered the revaluation of the asset with an exceptional non-cash book gain around EUR 200 million. We adjusted down the value of Russian assets and recorded an exceptional non-cash provision amounting to approximately EUR -400 million. Net financial costs are stable following the progressive deleverage. Cost of debt is indeed close to last year H1 2021 level at 2.96%. On an effective tax rate standpoint, our ratio is also stable at 25%.
As a result, while net profit as published is up at +5.3%, recurring net profit is significantly up at +20%, excluding FX and excluding major exceptional items that have no impact on the operating income recurring in H1, in line with our guidance. On page 20, as mentioned before, cash flow has been also very strong at +11.5% at constant FX, which is a 23.5% upside, +60 basis points versus last year if we exclude the energy effect, which provided the capacity to finance dividends of EUR 1.6 billion and a high and industrial and financial CapEx at EUR 1.5 billion. Net debt is stable at EUR 12 billion versus last year, despite a negative EUR 500 million currency effect. Our gearing is now at 46%. Page 21.
The 12-month portfolio of opportunities remains at a very high level of EUR 3.3 billion, despite the very good level of decisions for the quarter, supported by both energy transition projects, above 40%, and a high proportion of electronics projects. Our industrial and financial decisions for the semester have still been dynamic and selective to reach a very strong level at EUR 1.8 billion. Finally, our investment backlog is still very solid and very high at EUR 3 billion, and despite major start-ups during the quarter, representing EUR 1.1 billion of additional sales after full ramp-up. I am now on page 22.
We got about EUR 213 million sales contribution from startup and ramp up during the first semester, and we expect to reach a full year startup and ramp up contribution to sales between EUR 410 million and EUR 435 million, including EUR 35 million from Sasol accounting for insignificant perimeter. Page 23. Cumulative effect of strong results and cash management are delivering a return on capital employed of 9.7% recurring at the end of June 2022. As you can see, we are very well on track to reach our advanced objective to meet double-digit level ROCE by 2023, as we announced during our capital markets day, sorry, in March this year. To conclude, on the basis of our strong performance in the first half of 2022, despite adverse effect in H1, we confirm our guidance for this year.
It's totally in line with our ADVANCE strategic plan objective presented in our CMD last month, last March. Again, thank you very much for your attention.
Thank you very much, Jerome. Now we open the floor for Q&A. As usual, I mean, we'll take the question in order, and I think we start with Andrew. Good morning, Andrew.
Can you hear me?
Yes, go ahead.
Yeah, good morning. Thanks for taking the question. I was intrigued by two things. Firstly on Industrial Merchant, I know volumes were down 1%, and you said they were broadly flat excluding the helium effect. Does that mark a slight loss of market share? I'm thinking of the, you know, demand disruption from that 14% impressive pricing. Just wondering what your thoughts are on what is obviously a more fragmented marketplace in IM. That's the first question. And the second question is on the backlog. I hear what you're saying on the effect of startups coming out of the backlog. I saw in the original press release this morning that there's a reference to Russian projects as well being excluded.
I wondered if you could just detail the effects of the two things. Thanks.
Thank you. Good morning, everyone. On the question on IM volumes, globally, slightly down and flat or slightly up excluding helium. On the European side, the only comment I can make is that we have slightly up volumes. Globally, we don't see anything that would be any loss of market share, I think despite a very high pricing environment. No, I don't think we have any pricing, any market share slippage, any fragmentation of market. I don't think we see that at all. Thank you, Pascal. Mike, do you want to give some comments for the Americas and especially North America?
Sure. Thanks, François. Good morning, everybody. Good morning, Andrew. Just to build on Pascal's comments, clearly we saw the very strong pricing, but actually we saw growth in industrial volumes, clearly led by hard goods, but in gases as well, which were offset by the Helium volumes, which is why you don't see the full effect. The reality is, I think we're clearly seeing demand continue in manufacturing. We're clearly seeing demand in metal fabrication and rising demand in construction. I think in each of those areas, there is a very clear driver, some of which for manufacturing comes from pent-up demand that has not been met due to supply chain issues or due to labor shortages. That demand continues to be there, especially for the durable goods.
In metal fabrication, I think there's a lot of drive right now, both in terms of automation, which we initially saw with some of our large customers, but now smaller and medium customers are looking more to invest in automated systems. In general, I think that whether it's fabricated metal products, construction machinery, automotive, everything is continuing to grow and it looks to be that way going forward. Then finally, in construction, in that sector, I think construction starts over the last year, up 160% over the prior year. There is just incredible growth associated in the construction sector, whether that's for the electric vehicle ecosystem, whether that's for semiconductors, LNG, restart of some of the chemical projects that were deferred and some new projects coming up.
We haven't even seen what's yet to come with the Bipartisan Infrastructure Law, and we'll probably see the impact of that later this year and clearly in 2023.
Thank you, Mike. Maybe just to complete, I mean, the global view, one comment on Asia and more specifically on China, because overall, I mean, we see a positive sales growth in China for Industrial Merchant, more in Q1 than in Q2. If you look at specifically the volume, this is clear that due to the regional lockdowns, the volume have decreased in some cases in China for Industrial Merchant. However, if we just step back, we see that overall the business has resisted very well.
I think this is due to the fact that we are getting stronger and stronger in packaged gas and onsites which have resisted much more than the bulk business in China. Slight decrease, but nothing dramatic, again, mostly in Q2 due to the lockdown. That's for China and for the volume. All in all, you see that the volume are holding fairly well in the different region. We have to be vigilant, of course, but it's holding fairly well. Jérôme, do you want to talk about the?
The backlog?
Yeah, of course. Thank you very much, Andrew. Indeed, we have sustained and strong investment backlog in Q2 at high EUR 3 billion as you noted, versus, you know, EUR 3.2 billion in Q4 2021. The decrease, as you mentioned, is clearly due to the high level of startup in Americas, and as you mentioned, the exit of two Russian projects also from the backlog. That makes a difference in fact.
Thank you.
Thank you, Jérôme. Thank you, Andrew. We can take the next question.
Next question comes on the line of Alex Stewart of Bank of America. Please go ahead.
Great. Good morning. Thanks so much for taking my questions. I have two if I may. The first just on the energy crisis in Europe, could you walk us through some of your contingency planning and what you're doing to make the business more resilient, such that you can maintain continuity of supply to customers, as much as possible through the winter? The second question related to that, clearly in the first half, you've had a high level of investment decisions. As customers look ahead at quite an uncertain macro environment, is that affecting at all, their willingness, you think, in the second half to continue sanctioning such projects? Thank you.
All right. Thank you very much, Alex. I will let Pascal comment about the European situation and what we are doing to make sure that we have a safe winter.
Thank you. Actually, of course, a very good question on a topic we pay a lot of attention to and that we currently discuss with our customers and also with the public authorities in the different European countries. Maybe I'm gonna make a few comments and explain why we expect to be very resilient in the current environment. First on the energy prices, as you know, we pass them through, so we are not exposed to the energy price aspect of the current situation. On natural gas, we use natural gas in our operations for our HYCO business and for Cogen business.
The way we source currently natural gas in Europe, we have no direct exposure to Gazprom, and we have no direct exposure to Uniper. We actually have a diversified sourcing with, we think, very limited exposure to Russia. Now, we also believe that in many cases, our plants, HYCO, are supplying refineries. Cogen are producing steam and electricity, and they will be in most countries, considered essential or strategic by the public authorities. In terms of geography, we have way more assets in less exposed countries, Benelux, France, and Spain, than in Germany, which is probably the most exposed country. Now, if we were to have some curtailments, we would still be contractually entitled, in most cases, to invoice our monthly fees. That's our contracts then that would help us being resilient.
The question becomes also what could be the impact of curtailments, not on our supply, but on our customers, the ones that are using natural gas. Here again, our contracts will come into play with what you already know, with the take or pays and the monthly fees. As we have shown in the past, we should be very resilient, even if some of our customers claim force majeure because of lack of natural gas. At this stage, we think the impact for us should be very, very limited. Our model is very resilient, and we have shown it in the past and we expect to show it again.
Thank you very much, Pascal. I will address the second question related to what we see in terms of macroeconomics and the investment pipeline and opportunity. I think clearly there is a disconnect, I would say, between what we hear and what we see and what our customers are telling us. Clearly, in the past few months, few weeks, we had absolutely no cancellation of any projects. Customers are confirming their projects. I would say the pipeline is probably getting stronger, as a matter of fact. If you look at the two main drivers for investment for us, energy transition and electronics, they remain very strong.
Energy transition in Europe, I think, there has been some uncertainty about the energy situation, but it seems, and that's what our customers are telling us, that this is an opportunity basically to move forward and not only to address, I mean, decarbonization of their processes, but also get more independence in terms of energy supply and also to find some savings in terms of cost. We are basically ticking all the boxes with the kind of things we can bring, being oxygen for oxycombustion or being hydrogen or carbon capture. We see a confirmed momentum in the project regarding the energy transition in Europe, for sure. I think in North America, the situation is maybe a little bit more contrasted.
I think the customers are starting to really consider and plan for projects. I was on the U.S. Gulf Coast just a few weeks ago. However, the political environment is creating some uncertainty on the subsidies and the direction to go. Maybe there is a question mark there, but we see a pipeline of projects which is quite active. In Asia, I think regarding the energy transition, we may get some, I would say, positive surprises. I was looking at the situation in China just a few days ago, and it seemed that several Chinese companies are in fact investing to decarbonize their processes. That's a good news, good news for the planet and good news for Air Liquide, I would say. Again, strong pipeline of projects.
If I finish up with electronics, there again, it's very strong, and I would say it's accelerating. In Asia, where I was last week, clearly we saw and discussing with customer, strong commitment to projects. There will be probably even new projects being announced, not only in Asia, but we have seen that recently in Europe and just in North America. A few weeks ago, we saw that, there's a dozen of new fabs, very significant investment, which are in the process of either being decided or being designed or constructed. I think it's getting stronger, clearly in electronics, and I think that's a good news.
What we may see and what we have seen in some cases is delay, not for business reasons, but mostly for the availability of workforce and sometimes supply chain constraints. Here we are talking about few months of delay, not a fundamental challenge to the projects themselves. Again, strong pipeline in spite of what we see overall in the economics. I think we're quite confident for this.
Thank you.
Next question.
Next question comes from the line of Mubashir Chaudhry of Citi. Please go ahead.
Hi. Thank you for taking my question. Could I just come back to the question on the management of the energy crisis in Europe? Pascal, I think you talked about the take or pay and contractual fees, but am I correct in understanding that that's predominantly in Large Industries? So if you could please provide some comments on the exposure on the Industrial Merchant side as well, please that would be helpful. And then the second question is around the outlook for the second half for large industries in Europe and also in Americas. The growth in large industries has kind of slowed down in the second quarter. I know you talked about kind of turnarounds in America.
Is that a trend that we're likely to see persisting into 2H, or should the growth be a little bit more like the 1Q in America? Thank you.
Mubashir, good morning. Thank you very much for your question. I will ask Pascal to answer the question on industrial merchant and outlook for large industry for Europe, and then I will turn over to Mike for perspective on North America for large industry. Pascal.
Yes, thank you. Take up the clauses. Yes, they are, you know, large industry contracts. That's a clear point. What exposure do we have on the IM business regarding the spike in energy prices? I would say, we have a global environment exposure because we have demonstrated in the past few months that we can very strongly pass through the energy prices to our customers. We have done that, and we'll continue doing that. We are very confident about this. The exposure then is what will happen globally in the economy. So far we have not seen any strong decrease of any type of market on the IM side in Europe.
Volumes have remained reasonably solid. You saw that in our Q2 numbers. I think we'll see what the near future is gonna be. So far we are very confident, and we should keep passing through our energy prices. We should keep passing through the inflation. I think that's what is happening and has happened already in Q1 and Q2.
Just to follow up on that. Sorry. So if there was force majeure and lack of gas availability or the gas availability is low, how does the contractual terms work in that sense? I assume your revenue line is exposed on the IM side, whereas you've got some bit more of a stability in the Large Industries side. The question was more around if there was curtailments rather than the price remaining high.
Just to clarify, the impact of natural gas on the Industrial Merchant is minimal. There is a very small portion which is the hydrogen supply to IM customer. It's a small business overall. Curtailment of natural gas direct impact would be basically nil for the Industrial Merchant. Keep in mind now that the share of energy Industrial Merchant is mostly in the bulk business where it's 60% of the cost. For the rest, I mean, the share of energy is much smaller overall. As mentioned by Pascal, we have been very successful in pushing through the price increase overall.
All in all, the impact and the exposure on Industrial Merchant for the natural gas situation in Europe will be absolutely minimal. Maybe, Pascal, do you want to comment on the outlook for Large Industry for Europe?
Yeah. So far we don't see a major slowdown. We have seen, as you see in our numbers,
Small slowdown in the steel industry. We have seen turnarounds in the chemical industry, and we have seen some refiners turning to light crudes and using less hydrogen to improve the efficiency of their processes, using light crudes in the past few months. Is it gonna change? So far, we have absolutely no signal about that. Yes, some of our customers are planning, you know, contingency plans in case of lack of natural gas supplies. Those are the big chemical customers having to rely on a lot of natural gas as a supply. We'll see what the near future is, but so far, again, no signal of a slowdown. Okay.
Thank you, Pascal. Mike?
Mubashir, I think for the Americas, we actually saw very strong demand in all sectors. Clearly that was offset with the number of turnarounds we had in the quarter. Also there was a high comparable basis, given the after effects of the freeze events that we had a year ago. If we look at air gases, whether that's for the chemical sector or it's for steel, demand was very strong. We also saw a lot of strength in hydrogen demand. The reality is we saw a number of startups of our facilities and our customers' facilities, throughout the first half and especially in the second quarter. That's gonna continue as we go through the rest of the year.
We see a lot of strength, not only in the current level of business activity, but to the point François Jackow mentioned, we see a very strong pipeline of business development activity, again, driven by the energy transition and the next phase of chemicals investment. We do see continuing strength there.
Thank you, Mike. Thanks very much. Let's take the next question, please.
The next question comes from the line of Tony Jones from Redburn. Please go ahead.
Good morning, everybody. I've got two. They're both on hydrogen. You talk about this switch to lighter crude. It seems that it could be structural with this move away from Russian supply. Could you actually sort of break out what the exact impact was to Q2 sales, so we can update the model? How long do you think it might take to offset that with other external growth? Secondly, on hydrogen, a slightly bigger picture question. With all the big inflation for energy and electricity impacting the cost of hydrogen, could you update us on what you think the cost of blue and green hydrogen is? Do you think that's having any impact on potential investments in the energy transition? Thank you.
Thank you very much, Tony, for your question. I think the overall, the impact of, lighter crude, that's what we have seen in some refineries in Europe, means for us that they need less hydrogen to process basically. Typically, they have been doing some kind of arbitrage. That's potentially for us, the impact of, less hydrogen being used in the process. However, we are seeing this being fully compensated, if not, surpassed by the hydrogen demand for biorefineries, which is a huge trend that we are seeing all over the world, not only in Europe. This is making fuels, especially aviation fuels, or meeting the regulation like the RED II and the RED III regulation in Europe. We see clearly that there is a switch.
I mean, the bulk of the hydrogen is still used in quote-unquote traditional processes. The conversion of many biorefineries or refineries into biorefineries is clearly creating a new need for hydrogen. Overall, your question also on the impact on hydrogen cost. It's quite significant, indeed, because in hydrogen production, 60%-70% of the cost is related to fuel costs, natural gas. You can make your math and your impact. Keep in mind that whenever we are purchasing natural gas, we are not paying the spot price. We are paying, I mean, the price of our portfolio of purchase. We are, as a matter of fact, purchasing in advance natural gas.
That's also what is making us more resilient for the next few months. We have already purchased most of our natural gas in Europe, so we are not too worried about that. Clearly that has an impact on the gray hydrogen, on the blue hydrogen, also. It's making the green hydrogen more competitive. There again, I mean, the cost of electricity today is the first component of the cost of green hydrogen. We see not so much an increase in the cost of renewable electricity, which is used for green hydrogen, so it's making green hydrogen more competitive.
As a matter of fact, the expectation is to see that, while the renewable capacity for electricity production is going to increase, the cost of electricity is going to decrease, so the cost of green hydrogen is going to be more competitive compared to blue. We are not there yet, but that's clearly the trend that we are seeing.
Thank you. That's helpful. Thank you.
Thank you very much. We can take the next question.
The next question comes from the line of Chetan Udeshi of JP Morgan. Please go ahead.
Hi, morning. I mean, I wanted to follow up on onsite or Large Industries business, and I wanted to clarify a previous comment because I was a bit confused. Can you clarify two things? First, will the take or pay agreement or contract hold if for whatever reason, Air Liquide cannot get gas and can't supply gas to the customers? Will that take or pay agreement hold in that scenario? And second, will take or pay hold in a scenario where say, a customer cannot produce because they themselves can't get access to gas? Can't they evoke a force majeure clause and not pay you the monthly take or pay? I think the question is actually tied up with the numbers that we are seeing in second quarter, right?
You know, European on-site business or large industries business sales are down 10% like for like. I mean, that's a pretty big number for a business where there is a take or pay agreement. I'm just confused, like why are we seeing 10% decline in sales when you have this take or pay agreement with your customers? Thank you.
Chetan, good morning. Maybe I will just comment on that, and I will ask Pascal to come back on the clarification on take or pay. Regarding the drop in the volume in large industry in Europe, keep in mind that what we have seen is variable volume going down in some industry as mentioned before. This is the case for steel in Germany, for example, for refining also and to some extent chemical. We have seen turnaround.
This is not exceptional, but what we have seen is probably some customer taking the opportunity of a higher energy environment to either make the turnaround in advance, sometimes to make sure that they do all what they can do to extend a little bit the period because that's not the best period for them to operate. We had also, I mean, some impact of a conversion of one contract, especially between as-available and fixed-term contracted volume, which has an impact on the sales part. That's what all in all is in the -10%. We think that in the underlying decrease is probably less than that for the reason that I just mentioned.
Pascal, do you want to clarify how the take-or-pays are working in different situations?
Yes, thank you. Just to be clear, we have two mechanisms. We have a mechanisms for normal times. If a customer does not consume what is a normal consumption, it can go down to a take or pay, and then that customer has to pay that minimum value, which is the take or pay. If a customer cannot produce and claim force majeure, we have another mechanism in our contracts which is to invoice a fixed fee. Okay. We have two mechanisms typically in our LI contract, in our large industries contract, that are protecting our business in case of downturn, the take or pay first, and then the monthly fee invoicing second.
And typically, um-
Understood.
Typically, even if the customer is claiming force majeure, they have to pay this monthly fee. That's why again we think that we are well protected. Just let's put things in perspective because we had a lot of discussion, of course, and a lot of question about the natural gas availability. Again, it's quite focused as explained by Pascal on some customer and some geographies. Clearly, I mean, Germany is number one point of attention. If you take a group perspective, and we have looked at different scenarios for major curtailment and non-availability of natural gas in Europe for customer, we see that the impact for the group will be in the range of 1%-2%, 1%-2% of the sales.
Again, let's put things in perspective. It's quite limited at the scope of the group. Next question.
Next question comes from the line of Laurent Favre of BNP Paribas. Please go ahead.
Yes, good morning. The first question is slightly related to that. It's about your utilization rates. Could give us an update on the exit run rates of Q2 between Europe and the rest of the world. I'm asking this as I'm assuming that if we do end up with lower production of your customers in Europe because of all sorts of reasons, they may have to produce more elsewhere. An indication there would be very useful. I'll ask my second question as a follow-up.
Okay, thank you. Maybe, Mike, do you want to say anything about the utilization rate in North America?
Sure. I think you know today, Laurent, utilization rates are very high. In general, like I said before, we see a lot of strength in chemicals. We see strength in steel. We see a lot of strength in refining from a hydrogen standpoint. Utilization rates are very strong. Even with the new startups, as we see the new startups, many of our customers' facilities are ramping as quickly as they can to full utilization rates. I think it's very strong. It continues to look very strong and I just don't see a real problem there at this point.
Before we go to Europe, just one word on Asia. I think on Asia overall, we see also that the utilization rate is quite high or comparable to what we have seen before. I think the good news is probably on China. Keep in mind that there has been no additional bulk capacity in China in the past few years, mostly because there were very little steel projects. Also there has been all the governmental efforts of China to rationalize the steel industry, which typically is producing liquid excess of Oxygen and Nitrogen. We are at the stage where we are now considering standalone liquid plant for China because of the tight market.
It's really new, clearly, because until now there was no standalone liquid plant in China. All of them were piggybacks from the large industry. I think that's a sign of a kind of a tension on the market and probably a much better balance. Maybe quickly word on Europe, Pascal.
Yes. In Europe, we have not seen any significant change in the utilization rates. As mentioned before, what we have seen is a slightly lower activity on the steel side. We have seen turnarounds on the chemical side, and less usage of hydrogen on the refineries. We have had, from what I know, one customer mentioning rebalancing activity between Europe and the US, and favoring a bit the Gulf Coast plants, but that's it so far. On the bulk side, our utilization rate has remained pretty high. No real change, and our volumes are still very solid on the bulk side.
Nothing significant has been seen in the past few months.
Thank you, Pascal. Any second question?
I think, Laurent, we have quite a bit of questions. I'm sorry. We are close to the end, so maybe we'll take the next question, if you don't mind. Thank you.
The next question comes from the line of Jean-Luc Romain of CIC Market Solutions. Please go ahead.
Good morning. Thank you for taking my question. I have a question on electronics. Typically, an investment like the one which was announced, Intel, for the new fab, what kind of turnover would it generate for Air Liquide, assuming you get your kind of normal share of the equipment and gases and everything?
Jean-Luc, thank you very much for this question. Unfortunately, I don't think we can communicate on this because this is, I would say, confidential information with the customer. Keep in mind that the capacity is going to be a same order of magnitude of what is being built today, so it's quite significant. I will let you, I mean, make your own calculation, but that's privileged information we cannot share.
Thank you.
I think we take the next question, please.
The next question comes from the line of Peter Clark of Société Générale. Please go ahead.
Yes. Good morning, everyone. I'm going west, so it's probably a question for Mike. The Americas gases margin, just wondering if you think you can grow that in the second half on the basis that the mix obviously is shifting a bit in the IM business, less package, more hard goods. It's against, I think, a tough comp. Just Mexico, I presume that was tidying up. There's nothing major you've sold there. Those are the two little bit questions. Thank you.
Thank you, Peter. Indeed, we will let Mike answer your question. Mike?
Thank you. Good morning, Peter. You know, as I mentioned before, industrial volumes are clearly growing. It's led by hard goods, but we also see growth in gases as well. Traditionally, when we see hard goods leading, it's normally a sign that there is more to come. As I mentioned before, you know, we see all of the trends being very positive for manufacturing, for metal fabrication, as well as for construction. As I mentioned before, if you look at fabrication, you know, fabricated medical metal products are forecast to be easily up 6% or more. If you look at automotive for manufacturing, there's a lot of pent-up demand, and that is forecast currently going forward to grow at about 16%.
Even the equipment for transportation in addition to automotive is almost double-digit. Automated systems recognizing the impact of what we see in terms of labor shortages are driving every size customer to rethink automated systems. We offer not only the capabilities to support the fabrication, but actually some automated systems as well for our smaller customers. I think that's very strong. I mentioned the construction starts being up. If you consider the level of new investments announced, there are 30 battery EV plants that have been announced this year. The top ten account for about $25 billion in new investment. François mentioned the 12 new fabs.
In addition, there's four expansions, so there's a total of 16 fab-related investments that have been announced. For LNG facilities this year, there's been announcements that would total roughly $100 billion in new investment. Then we still have the Bipartisan Infrastructure Act yet to come, and there will be strong impact there. Actually we see good momentum. We see a lot of strength. The fact that we see hard goods leading doesn't bother us at all. It actually is a sign that maybe some of our customers are getting ready to do more.
Thank you very much, Mike. We can take the next question.
The next question comes from the line of Andreas Heine from Stifel. Please go ahead.
Yes. Good morning. Two questions, if I may. The first is on electronics with this very strong growth. As far as I know, especially the carrier gases have also energy transfer clauses. Could you elaborate a little bit how much of this very strong growth is related to this energy, and what is, let's say, underlying and sustainable? Maybe one word also on healthcare, if you split out a little bit what you can see, as a trend in home care compared to the medical gases which are going down, and we have some quantification on these two different trends. Thanks.
Thank you very much. Since we are reaching the end, we'll try to make a quick answer, Mike, on the electronics.
Sure. Andreas, very simply, for the majority of our carrier gas business, our customers supply the energy.
Okay.
There is really little escalation to any in terms of that growth. The growth is clearly driven by new volumes and new startups. You know, we had roughly EUR 2 billion in new investments over the last five years, I should say. We've got a very strong backlog of new projects. That growth trajectory is very strong in carrier gases year to date and will continue to be that way.
Just quickly on the healthcare business. We see the medical gas business normalizing in terms of volume. We knew that, but clearly what is new is we see positive pricing for the first time in a long time, long history. Not new in North America, but clearly this is something which is new in Europe, and that's positive news. For the home care, we see still a very strong momentum, and that's both organic growth and opportunities for bolt-on acquisition. This is true in advanced countries but also in developing countries. We are very confident about the underlying trend in home care.
The fact that we develop value-based home care with new ways to really, I mean, get the reimbursement based on outcome using and leveraging digital is a very strong point for us and is putting us in a good position. Maybe we take the last question, I believe.
The last question comes from the line of Jean-Baptiste Rolland of Credit Suisse. Please go ahead.
Good morning. Thank you for taking my question. I just wanted to ask about quickly about this big contract, I guess, in large industries, in the petrochemicals, where you have seen a reallocation of volumes between Europe and the U.S. I mean, could you tell actually where these volumes have been booked, whether they've been booked in the U.S. region or well, because this is originally a take-or-pay contract in Europe, whether this is actually still booked in Europe? Second question on the monthly fee, could you give us a sense of what share of the costs between sales and EBITDA does it typically cover? Thank you.
Jean-Baptiste Rolland, good morning. Just quickly to clarify on the first one, what we said is that we have entertained some discussion with customers which are considering shifting volume for new projects. For the existing one, I think we don't know. We see the petrochemical industry in North America and especially on the U.S. Gulf Coast, which is working fine, so we assume customers are doing their own arbitrage for many reasons. Since we have two strong positions in northern part of Europe and on the U.S. Gulf Coast, I think we benefit one way or the other. For the rest, this is just a discussion actually of a customer who are considering for their future plan investment location either in Europe or in the U.S. Gulf Coast.
That has no impact today on the split between the region. For the monthly fee, I mean, typically the monthly fee is covering all the fixed costs that we have, plus, of course, part of the profit that we are making. That's how it is. It varies from one contract with another one, but that's the general rule. I think with this we will conclude this session. Maybe just to summarize, in the first half we have been able to reinforce clearly our resilience, focusing, as you have seen, on performance, but also, and I think it's quite important, positioning ourself on growth markets.
I am confident that we will continue to deliver a strong performance in the second part of the year with concrete progress in energy transition and in electronics especially. With this, I would like to really thank you very much for your attention. I know it's a busy period, so I wish also a very good summer to all of you. For the one who are taking some vacation, I wish you a good vacation and we will speak to you soon after the break. Thank you very much.
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