Good morning, ladies and gentlemen, and welcome to the Air Liquide Third Quarter 2024 Revenue Conference Call. All participants are currently in listen-only mode until we conduct a question and answer session, and instructions will be given at that time. I'll 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 attending the call today. François Jackow and Jérôme Pelletan will present the third quarter review. For the Q&A session, they will be joined by Emilie Mouren-Renouard, Group VP, overseeing Air Liquide operations in Europe, Africa, Middle East, and India, and by Adam Peters, Group VP, CEO of Air Liquide, North America. Adam is on the phone with us from the U.S. In the agenda, our next announcement is on February twenty-first next year for our full year twenty twenty-four results. 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 the highlights of the third quarter of twenty twenty-four. In a few words, once again, we demonstrated remarkable resilience, delivering a strong performance fully on track in a challenging environment, while actively driving business development to build for the future. Let's start with the financial highlights of our performance on slide three. The numbers speak for themselves. First, the 3.3% comparable sales growth. This underscores the resilience of our business model in soft markets. Notably, we have seen sequential improvement in comparable sales growth, both with and without the effect of significant devaluation in Argentina. Jérôme will come back to the detailed momentum between regions and business lines. Some are confirming their sequential improvement, clearly, others are slowing down.
The second figure highlights our 100 basis point of OIR margin improvement, excluding energy pass-through, by the end of September. It remains ahead of target. This reflects our strong commitment to performance. We deliver on our promises. The 100 basis point expansion also marks an acceleration from previous periods, demonstrating our strong focus on execution in terms of efficiency, pricing, and portfolio management, in spite of macroeconomic headwinds. To sustain this improvement of our profitability, you know that we have launched significant transformation initiatives of our organization and operations. Those initiatives will be more and more visible as they bring structural improvements in 2025, 2026, and beyond. The third figure is our EUR 4.2 billion backlog, which exceed, again, EUR 4 billion. This is a solid indicator of future growth when the projects currently under construction will start up.
In summary, Q3 reflects our unwavering commitment in three areas: Resilience, Performance, and Business Development. Let's move now to slide four. At EUR 1.4 billion, investment decisions are at a record level this quarter. These investments include various mid-size projects, and I'm excited to highlight some of the major long-term agreements signed this quarter. Let's start with the most recent one in the U.S., where we will supply oxygen to LG Chem for their Electric Vehicle Battery Plant in Tennessee. It is a $150 million investment in an air separation unit, a Liquefier, Storage Equipment, and Small Pipeline, which will enable us to more than double our Local Liquid Capacities for the industrial merchant market. We will also source renewable electricity to offer low carbon products to customers.
This project highlights the group ability to leverage our traditional business model in supporting customers with the emerging energy transition markets. The second project is in China, where we announced the takeover of an air separation unit and the signing of a long-term contract with Wanhua Chemical Group. This is a EUR 60 million investment that also includes a new liquid argon production unit to serve the local industrial merchant markets on top of oxygen and nitrogen. This is also our first contract with Wanhua, the largest polyurethane supplier worldwide, and we look forward to establishing a mutual, beneficial, long-term relationship with this customer. Let's finish with Europe, with a renewed partnership to supply Aurubis, a leading copper producer, with large volumes of oxygen and nitrogen.
We will invest EUR 100 million in an air separation unit in Bulgaria to replace older units, consuming 7% less electricity, and we will work with the customer to source part of the energy from renewable electricity. The investment also includes the modernization of four existing air separation units in Germany. These plants will also support the development of industrial merchant markets in both regions. Those three projects, and on this quarter, across key major economic regions, illustrate the strength and adaptability of Air Liquide's business model to the current environment.
... I will now turn over to Jérôme to present the details of the Q3 performance. Jérôme, please.
Thank you, François, and good morning, everyone. We'll now review our activity numbers in more detail. So coming back to Q3 sales, and now on slide 6, sales have remained resilient on a comparable basis, excluding energy pass-through and Forex. There are no significant scope effect this quarter. Gas and Services segment for Q3 achieved a +3.6% increase versus last year. In the smaller segment, Engineering & Construction sales remained stable, with order intake rising to EUR 1 billion year-to-date, 80% of which attributed to group project. Global Markets and Technologies are down -4.6% due to a scope effect, following the divestiture of aerospace and defense business, while order intake, which is a solid EUR 573 million year-to-date.
So overall, group sales are up +3.3% on a comparable basis for Q3 year-on-year, while published sales are down -0.7%, as a consequence of the energy price during the quarter, which translates into -0.9% energy and pass-through effect, which, as you know, has no impact on the operating income. Additionally, a negative Forex effect of -3.1% was mainly due to the Argentina devaluation over the period. Argentina contributed to +2% to the group, +3.3% comparable sales in Q3. Again, Argentina has no impact on published valuation. There is no significant scope effect, as I said, over the period.
The + 3.3% comparable growth in Q3 shows a sequential improvement after + 2.6% in H1, is also the case when you exclude Argentina. Slide seven now. You see that all gas and services business line deliver growth in Q3, led by healthcare and improved electronics. Geographically, both the Americas and Asia have been dynamic. This highlights, again, the value of our global development strategy and the resilience of our business model, capitalizing on the complementary nature and optimal balance between our geographies and business lines. Let us now review the activity for each of our main geographies. My comments will be mainly related to Q3. We are now on page eight. After an already good Q2, sales in the Americas have been strong and have grown in all business lines to reach + 8% on a comparable basis.
That includes +5% from Argentina, mainly because the impact of hyperinflation is not offset by the devaluation when we exclude the currency impact. Large Industries now in the U.S. are benefiting from a major startup and output contributions, driving the recovery. Base volumes have been growing and were very solid overall in chemicals, in both air gases and hydrogen, while we face some customer turnarounds, mainly in Latin. In Merchant, sales were driven by a continued solid pricing effect of +6.9% year-on-year, supported by active pricing management and campaigns at Airgas, which is 60% of the pricing impact in the Americas, and in Argentina, 45% of the pricing impact to counter local hyperinflation. Gas volume at Airgas remains resilient overall, excluding outputs.
Growth in healthcare were sharp, supported by solid volume and high pricing in Proximity Healthcare in the U.S., with again, a strong pricing in Argentina and increased number of patients in Latin. Finally, electronic sales were strong, supported by growth in Carrier Gases and strong Equipment & Installation activity, while materials remain low. Sales in Europe now are slightly down, with sustained growth in healthcare. In large industry in Europe, demand from customer still remains stable, while hydrogen volume for refining and chemical improve. In addition, as mentioned in H1, comparable sales continue to be adversely affected by the sale of a cogen unit in Germany in general. In merchants, as in Electronics, as explained so in the last two quarters, we saw a decrease in bulk pricing due to the energy indexation in our contract, in the context of the decline in energy price.
On the other hand, excluding this energy component, thanks to proactive action, pricing has stayed positive and strong, offsetting almost all the indexation impact, which is a remarkable performance. Volumes remain soft, but slightly growing compared to the previous quarter. Finally, healthcare growth was very solid at + 3%. Sales have been supported by strong home healthcare activity, notably in diabetes and sleep apnea, with an increased number of patients. Growth in medical gases remains solid, with both volume and sustained pricing action in response to inflation. On page nine, activity in Asia returned to growth in Q3. In large industry, the activity increased in China, benefiting from a major hydrogen startup in March. On the positive side as well, volumes were less impacted by customer turnaround, especially in China. Sales in merchant were slightly negative, mainly impacted by helium in China.
Activity excluding helium has been quite soft in China in bulk, but strong in packaged gases, benefiting notably from the contribution of Boton acquisition. The rest of Asia experienced better volume year-on-year and stable pricing. Sales in electronics are improving compared to a low base in Q3 last year, with growing sales in Carrier Gases, supported by startup contribution, and in Advanced Materials with double-digit growth, while Equipment & Installation also posted high sales. Only Specialty Materials remain soft. In Africa and the Middle East, sales are up by 6.5%, excluding the divestiture of 12 countries in Africa. In Large Industries , the activity was resilient across the region. Merchant growth, excluding this divestiture, was dynamic, thanks to strong pricing at +6.7% and robust volumes in bulk and packaging gases, and sales have been strong as well.
I will now comment on our Q3 activity by business line and now on page ten. You see that in Merchant, we continue to see solid pricing, albeit up 6.5% last year. Overall volumes remain soft. Pricing is still strong, especially in the Americas, while flat in Europe for the reasons I explained earlier. Markets such as food, technology, research, and chemicals in the Americas, IC packaging and fabrication in Asia are posting volume growth. In Large Industries, activity is improving, though trends vary by geography. Startups are positively contributing in China and the US. From a market standpoint, chemicals are improving in the U.S., refining in Europe, while steel has been soft overall. Again, activity was impacted by the sale of a cogen unit in Europe in Q1, as well as turnaround, however, less than in Q2.
I take the opportunity to highlight a planned large turnaround at Yanbu, Saudi Arabia, in Q4. Page eleven. Electronics is growing with solid contribution from startup and ramp-up. Indeed, we have solid, very solid contribution from start-up and ramp-up during the quarter. In addition, Advanced Materials have improved. Equipment & Installation have been at a record level in the U.S. and in Asia as well, while overall, Specialty Materials are still low. Finally, in healthcare, we still pursue strong trends with growth in both med gas and home healthcare, with high pricing and volume increase. Home healthcare was again very robust, with sleep apnea, oxygen, oxygen therapy, and diabetes growing. In med gas activity, sales growth was solid, with steady pricing, addressing inflation in the Americas and Europe, and solid volume.
On page twelve now, this + 100 basis points of margin improvement year to date is supported, as said by François, by our plan structure around three pillars, and that continues to deliver. First, IM pricing remains solid, despite the high comparable basis, as you can see. We have also significantly ramped up our efficiency year to date, reaching a record EUR 353 million versus last year. We are very well ahead of our annual target, thanks to an acceleration of structural efficiencies, as mentioned by François earlier. While procurement and industrial efficiencies continue to deliver. I take the opportunity to bring you more visibility on severance costs expected for twenty twenty-four, linked to the transformation plan and new organization, we should be close to EUR 200 million for the year.
Moving now to portfolio management, that means further pursuit and accelerating, which was 14 bolt-on acquisitions over the period and executed 5 divestiture, with a continued focus on strategic, profitable, and margin accretive opportunities. As François highlighted, we remain deeply focused on margin improvement, working on all possible levels. As said before, on page 13, our pricing action continued to deliver to reach + 4.1% over Q3. The decline in pricing for our bulk activity in Europe was expected because it is linked again to the energy cost decrease due to the indexation. However, we experienced continued accretive margin contribution as spread between pricing and costs have stayed positive. The Americas are also strong in pricing, and in Asia, pricing will be slightly positive when we exclude India.
On page 14, the 12 months portfolio of opportunity below one year, as you see, this growth is stable at a high level of EUR 4 billion. This portfolio, again, is very well balanced between energy transition, electronics, and also traditional business. Our investment decisions for the quarter, which are at a record high level of EUR 1.4 billion. And finally, our investment backlog remains also very strong at EUR 4.2 billion, well balanced across geographies and business lines. As you can see, we achieved EUR 185 million of sales contribution from startup and ramp-up year to date, and we expect to reach a full year startup contribution to sales between EUR 230 Million and EUR 250 million this year. Thank you very much for your attention. François, back to you.
Thank you very much, Jérôme. I am now on page fifteen, where we summarize the key takeaways from this third quarter. As you see, in the third quarter, we continue to deliver according to our Advance strategic plan. The sequential sales growth, demonstrating our strong resilience, enhanced performance, driven by the ongoing structural transformation of the group, which will lead to sustainable efficiencies and a strong backlog, consistently exceeding EUR 4 billion, laying a solid foundation for the future. In that context, we confidently reaffirm our guidance for twenty twenty-four and the updated ambition for 2025 . Thank you very much for your attention. Now, we will open the floor for Q&A.
Thank you. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please then hear your name to be announced. To withdraw your question, please press star one one again. We will now take our first question. Please stand by. And the first question comes from the line of Alexander Jones from Bank of America. Please go ahead. Your line is now open.
Good morning. Thanks very much for taking my questions. Two, if I may. The first on electronics. Other players in the sort of equipment value chain have talked about customers deferring orders and even plant startups. Be interested in what you're seeing in your conversations with customers, and whether that might affect growth in future quarters, particularly in Carrier Gases. And then the second question on margins. You know, continued very impressive improvement this quarter. Can you talk about how, if anything, the changes you've made in sort of incentive structures in the organization have contributed to that? Are you now incentivizing more employees on margins or adding margins to scorecards, where previously they might have been focused on something else? Thank you very much.
Thank you very much, Alexander, for your two questions. Let's talk first about electronics. So as we were expecting before, we have seen in Q3 clear signs of recovery globally in the electronics business, and if we look at this from different angle, clearly, I mean, we have seen growth in some key regions, namely the US, Taiwan, China, Japan, Korea, were quite strong. Looking at the products, the carrier gas was in the high single digit growth, which basically reflects, I mean, our strong portfolio in the carrier gas and the new projects also coming online.
We have seen also clearly strong growth in the Advanced Materials and the semi business with double-digit growth for those two segments. Finally, if we look at the type of customers and what we have seen in the different sub-markets of the electronics, clearly we have seen the logic segment with a very strong growth, double-digit growth in most of the geographies. The memory market also was growing quite strongly. However, the analog business for our customer, which is a smaller share of our business for silicon, saw a decrease in the quarter. So what we can expect and what we hear from customers, and we have a frequent contact with customer. I was in Asia last week.
Clearly, we see a continuous recovery in the Q4 and looking forward, being fueled by the carrier gas business. Again, more than 40% of our portfolio, and also the development of Advanced Material in that segment, reflecting basically the sequential recovery of this segment. Let's keep in mind, however, that for us, in our business, we have a fairly high comparable for the Q4 with one off sales last year in E&I and Advanced Material. But again, the underlying trend is growth looking forward. Finally, I'd like to mention the confirmed acceleration in the projects and for new fabs and expansion.
This is a global trend, and we have seen in the past few months and past few weeks, a continuous acceleration, new requests for quotation coming in different parts of the world. Again, that illustrate, I mean, the trend of the electronic segment. For the margin, clearly, what we have set is an overall plan for margin improvement, and Jérôme mentioned some of the key elements. You had a specific question about incentives and how we are driving this performance culture in the group. Yes, we have adjusted our way we incentivize our teams and especially the management, with margin being one of the key criteria for the bonus and long-term incentive. Thank you very much. Next question, please.
Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Chetan Udeshi from JP Morgan. Please go ahead, your line is now open.
Yeah. Hi, thanks. You know, my first question was on this Wanhua takeover. And if I'm not mistaken, Wanhua, I think from what I've seen, you know, they typically use Linde as their supplier of industrial gases. So I'm just curious, this plant that you are taking over, is that something that was built and operated by Wanhua themselves? But maybe the engineering part, is it from Air Liquide or is it from Linde? And if it's from Linde, how do you manage the transition to maybe Air Liquide equipment over time? I'm just curious, how does the value accretion economics work for such projects, where maybe the original equipment might not actually be supplied by Air Liquide?
And maybe if you can give any sort of indication of what is the revenue or earnings or potential of this project, just to understand the value creation upside that you might have from this business. And the second question I had was just looking at your large industries business, especially in the U.S. or Americas, you know, almost 11% growth, organic. It just seems quite strong, and you are calling out rebound in chemical volumes. It just feels like the chemical demand, in general, isn't that great. So I'm just curious if you can shed some light on what might be happening in your U.S. on-site business. And just broadly speaking, what are the trends that you see in Q4, or just at the moment across some of your key divisions? Thank you.
Thank you very much, Chetan, and good morning. I will speak about the Wanhua takeover in China, and Adam will comment on the U.S. Large Industries momentum that we see. So the Wanhua takeover is a great success. The unit that we are taking over has been engineered and supplied by Air Liquide Engineering, so that's Air Liquide technology. Let's keep in mind that we have a strong engineering business, especially in China, where we do some third-party sales. That's one example where we have developed the intimacy with the customer and convinced the customer to switch from the captive production to the offtake model.
Clearly, we were able to demonstrate, I mean, the know-how of Air Liquide in terms of operation with this customer. And also, we have been able to leverage our position in the merchant business in China to add merchant side of this business, and as I mentioned before, to add an argon column, to be able to supply the local market. That's a great success with a leading customer in its segment, and clearly is strengthening our position in China both in large industry and in the local merchant market. Regarding, I mean, the contribution, Chetan, you know very well our business, so I will let you, I mean, make your own calculation. It's typical capital intensity.
We said that we invested around EUR 60 million, so you can do the math. Keep in mind that the nice thing with this kind of project is we have limited CapEx risk because we are taking over a plant which is almost completed. Meaning that the startup will come sooner, and contribution will be during the year of 2025, and also will limit the risk in terms of construction risk. So that's for Wanhua. Let's talk about the US. Adam, do you want to give some colors on what you see in the large industry in North America?
Absolutely, François. Thanks for the question, Chetan. So, in the U.S. and Large Industries, we've got a very strong presence for the chemical sector along the Gulf Coast, in Texas and Louisiana in particular, but not only there. And I would say that what we've seen, probably benefiting a bit from the low price of natural gas and the favorable conditions that we have on the Gulf Coast, is a nice rebound in terms of overall activity for chemicals. I think a lot of this has to do with the customer mix that we have, and I think it also has to do a bit with the startup that we saw in Q1, reflecting a bit of the growth that we've seen.
So overall, when we look at our volumes, particularly in the chemical sector, but not only in the chemical sector, we're pretty happy about where things are and kind of the overall growth that we've seen. So, I would say that that's probably the overall picture that I can provide.
Thank you.
Thank you very much, Chetan.
Thank you.
Next question, please.
We will now go to our next question. Please stand by. And the next question comes from the line of Peter Clark from Bernstein. Please go ahead. Your line is now open.
Good morning, everyone. Yeah, I've got two questions. The first one is on the Hard goods, which you call out, a marked decline in the third quarter. My understanding was it was already down mid-single digits, so I'm assuming it's clearly a lot worse than that, maybe high single digit, whatever. I'm just wondering, I presume that's mostly the market. I know you were doing some rationalization there, but that's just a reflection of what's going on in the market. And then the second question, there's been a lot of contrasting news flow, particularly in Europe, actually, on the green hydrogen development and the blue hydrogen development over the summer. So just your take. I know you're pretty positive on both really, but actually just your take on what's going on, on the green and blue hydrogen development in Europe. Thank you.
Thank you very much, Peter, and good morning. I will ask Adam to talk about what we see, especially in Airgas Hard goods market. And then we'll come back to the green hydrogen, giving a perspective, green and blue hydrogen, giving a perspective from Europe, but also from the US, from Émilie and from Adam. Adam, do you want to start with the output in Airgas, please?
Sure. Absolutely, François. So Peter, thanks for the question. So yes, certainly when we look at Hard goods, keeping in mind that Hard goods in the US, and for our Airgas business, represents just a little bit more than 25% of our sales, on a year-to-date basis. And so when we look at that, we definitely see a volume decline, I would say, sort of mid-single digits in terms of comparable growth in Hard goods in Q3. We think that there's some effect of this being driven by the uncertainty, by the higher interest rates, really kind of having an impact on overall demand, I would say.
I would say that, when we look at this compared to our peers, because we definitely follow this in terms of how our peers in Hard goods are doing, and I would say that the same trend is notable for all major players in the Hard goods market in the U.S. We have a really good pricing campaign. Last impact that we had on the pricing campaign was in March of this year. And I would say, overall, we're managing that well. We continue to manage the pricing point well to make sure that we watch the volumes well, and then also take a look at the impact that we see from our main competitors to make sure that we're tracking that well. So, little bit of a decline there, like I said, mid-single digits.
When we look at Q4 and kind of an outlook on Hard goods, we see sort of the same situation continuing. However, our outlook for twenty twenty-five, we feel a little bit better about because of expected interest rate cuts. We think this, along with the election uncertainty being behind us, is going to create a bit of a tailwind effect, especially in certain areas like defense spending, energy transition, affecting electrical equipment and the like, and heavy machinery spending. So I would say, overall, we're watching it closely. And that's kind of a picture of Hard goods, keeping in mind that our gas volumes remain quite resilient, overall in Airgas.
Thank you very much, Adam. We'll come back to you for the green and blue hydrogen development in the US, but let's turn over to Émilie to speak about what we see in Europe. Emilie, please.
Thank you, François. Good morning, everyone. So in Europe, regarding green hydrogen, I would say overall, we continue to see this momentum. Now, if I give you a few examples, maybe, we have started this year, Trailblazer in Germany, our first electrolyzer, PEM electrolyzer in Europe, 20-megawatt. This electrolyzer is serving both the industry and the mobility sector in Germany. And as you all know, we also have, in construction right now, the Normandy Proton Exchange Membrane electrolyzer, 200 megawatts, that will be up and running in 2026. And this electrolyzer will both serve the industry, the oil and gas customers we have in the basin, as well as the mobility around Axe Seine , light duty, heavy duty mobility.
So, very active in terms of the business development, as well, active project development, good pipeline in project. We're still waiting, like our customers do, for some clarification around regulations. But overall, to conclude, still a very good momentum in green hydrogen development in Europe.
Yeah, and clearly what we continue to see in Europe is what we mentioned before, is that the refining of biofuel market is the one which is driving this demand short term. We see potential in the chemical industry, maybe in the steel industry, but that's more of a midterm. But again, most of the opportunities today are driven by the refining and the transformation of the refining market in Europe, and that's quite active. Then, Adam, what do you see in North America?
Yes, so if we take a look at the development in North America around hydrogen, I'll be just a little bit broader beyond green hydrogen. I would say that we're very active in this space for sure. So certainly in terms of looking at the infrastructure that we have along the Gulf Coast, the impact that can have on blue hydrogen for instance is quite strong, and the development continues to be very, very good. When we look at the upcoming election, I think this is going to create some certainty around investment decisions that'll take place in the 2025, 2026 timeframe, which I think will be great.
When I think about 45V, for example, which I'm sure everybody's followed quite closely, we should have clarity around 45V at the end of the year, is what we're anticipating based on our conversations with officials in Washington, D.C. When I think about the hydrogen hubs that we're part of, so we're certainly part of six of the seven hydrogen hubs that have been part of the DOE program in the U.S., and we're prudently watching those. Where projects are more aligned with blue hydrogen development, I would say those are moving forward quite well. On the green side, things are a bit delayed, and certainly that'll clear up with the clarification around 45V.
But overall, we remain prudent in our approach until the uncertainty clears, but very bullish in terms of the developments overall, and I think we're well positioned with our customers and with potential customers in this space.
Thank you very much, Adam. Thank you, Peter. Next question, please.
We will now take our next question. And the next question comes from the line of Geoff Haire from UBS. Please go ahead, your line is now open.
Yeah, good morning, and thank you for the call. Can I just ask, you're obviously tracking ahead of the updated targets that you gave in February this year, of sort of roughly eighty basis points per year for 2024 and 2025. Should we expect that to continue into 2025 in terms of the run rate being higher than what you guided to back in February?
Good morning, Geoff. I will ask Jérôme to answer this question.
Yeah. Thank you very much, Geoff. So thank you for your question. You saw that we've disclosed our margin year to date, this quarter. Basically, what we wanted to do, we wanted to show you that we are on track and committed. And this, again, despite the environment, so that's quite important, I would say, commitment. And this is showing, again, our commitment to deliver performance, that's very well with them. So we have done + 100 basis points only up to the end of June. We are + 100 basis points end of September. So for the year end, I would say, Geoff, you can, we can draw the line, okay? I can say this way.
... so now for our guidance, you recall very well that we raised in February to achieve +320 basis points for the period at the 2020 to 2025 . I would say it's too early to date to update this trajectory, okay? And I will stick to that. We will discuss that or at some point later, but again, our position is too early to update this project. But again, what is important. I'm sorry. So this, again, showing that we are on track and very committed.
It's a good question, but clearly, we are focused on the current environment to deliver one milestone after the next one. You see that we are delivering, even, over-delivering, and this is the mindset that we have, and we continue to do that.
Okay, thank you.
Next question, please.
We will now take our next question. And the next question comes from the line of Sebastian Bray from Berenberg. Please go ahead, your line is now open.
Hello, hello, good morning, and thank you for taking my questions. I have two, please. The first is on the Normandy electrolyzer project in Europe. When in 2026 is this expected to come online? I haven't been able to identify this from the press reporting around the project. I suspect it's right at the end of the year, but I'm not 100% sure. My second question is on CapEx and the composition of startups for 2025. Can you give an idea of the regions and markets across which the over EUR 250 million of startups have guided for are taking place in 2025, where are the bigger ones?
And I've also noticed that there's a range of about EUR 1 billion of CapEx for next year, and it seems like some investments have been deferred a bit on the new energy side. Could we go as high as EUR 4.5 billion in 2025 on CapEx? Thank you.
Hey, Sebastian, good morning, and thank you very much. I will ask Emilie to provide, I mean, the information on the Normandy project, the electrolyzer, and Jerome will talk about the CapEx and the startup mix. So, Emilie?
Thank you, François. So what I can confirm about this, Normandy electrolyzer is that, yes, the startup is planned for 2026, as scheduled. The execution is ongoing so far and on time.
All right. Jérôme?
Yes. So maybe on the first question on the contribution startup and output. Obviously, you know, we are confirming EUR 230 million-EUR 250 million for this year and above EUR 250 million for next year. What does it represent? We do not communicate basically on the startup and on the output by region, but you know the breakdown of our backlog. You see that it's very well balanced between geography and business lines. So I would say that it's aligned with this, and we are very confident to reach them, those numbers. So the first question, the second question on the rapidity of the CapEx.
You know, especially in those days, you know, the engineering and procurement phase can take time, and it's not so intensive in CapEx. And CapEx takes longer. That can, you know, create some little bit of lag between investment decision and CapEx. But clearly, you know, for next year, we have not communicated, but for the year, we should be at a CapEx, which is around EUR 3.7 billion, somehow for 2024, and we'll update at some point for next year. But that's basically, you know, there is clearly an understanding of the fact that between investment decision and CapEx, there can be this kind of lag, which is truly explainable in the current.
This is a question that we have often about, I mean, the profile of the CapEx. Again, I would like to reinforce what Jérôme has mentioned. For many of the energy transition projects, the projects themselves are bigger and more complex, so there is more upfront engineering, which in the current context, I think, is probably a good thing to confirm and to have less variability on the CapEx. At the same time, I mean, the customer side also is taking more time than a traditional project because very often those are large projects, for example, when you convert a biorefinery.
We notice also more and more that on the electronics side, the projects are taking a little bit longer between the award of the contract and the startup. This is you again, because of the size of the fabs which are being constructed. You see many of the announcements of our customers for startup now in twenty twenty-eight and then twenty twenty-nine. So we align our schedule to this also. This is part of the strategy to be early in term of build, to manage the engineering and to also manage the procurement. So I think this is normal, and it's becoming more and more visible as the share of those mid to large size projects increase in our portfolio. But as mentioned by Jérôme, we see the CapEx gradually increasing.
It's not again because investment are deferred, because this is not the case. It's a natural cash curve of those projects, and we do expect next year to be at four billion or around above the four billion CapEx for the overall investment. All right.
Thank you.
Next question, please. Thank you very much. Next question, please.
We will now take our next question. The next question comes from the line of Jaideep Pandya from On Field Research. Please go ahead, your line is now open.
... Thanks a lot. It's a sort of a basic question, but you know, we have seen some shutdowns of capacity in Europe you know industries like chemicals and probably also refining. You know, having discussed this topic with a few chemical companies, their one of their headaches is how do they get out of the take-or-pay contracts with you know likes of yourselves? So are you starting to have these discussions, especially in Europe? And sort of what is, let's say, the situation with regards to these exit clauses, like, and what is your strategy? Are you wanting to take these plants on board, or is there a hefty payment that will come toward you if these are you know if there are shutdowns in this regard? That's my only question. Thank you.
Shirley, thank you very much for this question. Overall, we don't see an increase in this kind of discussion where customer are stopping their activity today in Europe. This is part of the normal portfolio, and from time to time, we have this, we are facing this kind of situation. So keep in mind that especially in large industry, that's where we have the long-term commitment. We have a very strong contractual framework, and this is one of the strengths of the model. This is one of the things that we really insist on.
This is the basis of our model in the large industry, where basically there are take or pays and commitments from the customer and from ourselves to supply the customer until the end of the contract. I mean, whenever the site is shutting down, we work with the customer to find the best commercial solution. Keep in mind also that we are a global company, so there are ways also to compensate on other location, on other sites. Or if we don't find other ways to compensate outside of this perimeter, we find a commercial settlement which can take different forms. But again, this is the exception and at this date, we don't see an increase in Europe on such discussion.
If I may just squeeze one more follow-up, a bit of a technical question: What is the thumb rule increase in hydrogen demand if a refinery switches from a traditional refinery to a biorefinery?
What is the increased hydrogen demand when a refinery is moving to a biorefinery? It depends a little bit on the specificities of the project, but overall, we see an increase in the demand, which may be related to two things. The process itself, which requires quite a bit of hydrogen in the hydrogenation steps. And again, the quantity of hydrogen depends on the specificities of the feedstock and also on the end product. But overall, I mean, there is a very significant hydrogen demand, and again higher than in a classical refinery.
But what we see also is that during this restructuring of the traditional refineries, sometimes the refiners are shutting down existing internal sources of by-product hydrogen, which basically change the balance of hydrogen on the site and requires more hydrogen. So all in all, in all those transformations, we see an increase in the hydrogen demand from the refineries.
Thanks a lot.
All right. Thank you very much. Let's move to the next one.
Thank you. The next question comes from the line of Thomas Wrigglesworth from Morgan Stanley. Please go ahead. Your line is now open.
François, Jérôme, thanks very much for the opportunity to ask questions. First question, if I may. You're talking about proactive price actions in Europe to offset the energy-linked contract price declines in the merchant business. Could you just give a bit of color around when that campaign started and how long, you know, these 5.4% you call out in 3Q will roll for before you need another campaign?
Okay. Thank you, Tom. Good morning. Émilie, can you speak about the specificities about the pricing action in Europe, please?
Absolutely. Thank you, François. So overall, in Europe, we have a very dynamic and active pricing management, with price increases almost fully offsetting the negative impact of energy price indexation in our bulk contract. So basically, we went from negative price impact in Q1, due to our energy indexation in our bulk contract, mechanically with energy deflation, to now flat pricing, thanks to very active pricing campaign, notably in packaged gases, as well as price actions on the non-energy related indices of our bulk contracts. So overall, this very active pricing on a continuous basis is able to almost offset the negative impact of energy deflation. We also continue our tight management of the spread between price and cost, and all this generating a positive contribution to margin improvements.
So as a conclusion, for Europe, prices are managed on a continuous basis, and we expect pricing to remain stable in Europe in Q4, with about the same dynamics and the same levels as what I just described.
All right. Thank you very much, Émilie. I think we are reaching the end of the list of the questions. So, thank you very much. This does conclude our session. Thanks a lot for your attention and insightful questions, of course. To summarize, in the coming months, we will remain focused on execution, particularly on implementing the group's structural transformation to achieve our ADVANCE midterm objective, and of course, create value for our shareholders. I wish all of you a very good day. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.