Good morning, ladies and gentlemen, and welcome to the Air Liquide Q3 2023 Revenue 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 attending the call today. François Jackow, Jérôme Pelletan, Pascal Vinet, and Mike Graff will present the third quarter revenue and answer your questions. In the agenda, our next announcement is on February 20th next year for our full year 2023 results. Let me now hand you over to François.
Thank you very much, Aude, and good morning, everyone. It is my pleasure to be with you today to share the highlights of the third quarter of 2023. In two words, we deliver more than ever, resilience and performance, while preparing for the future with major contract signings this quarter. Let's start first with the financial highlights of our performance on slide three. As far as our resilience and performance are concerned, all our performance KPIs are, again, very well-oriented, especially given the macroeconomic and geopolitical context, and last year comparable in Q3. First, a very resilient top line with the 1.5% comparable sales growth. Let's keep in mind that it comes on top of the 8.3% increase in Q3 2022.
It highlights again the strengths and the balance of our business model, Healthcare and Industrial Merchant being the strong growth drivers this quarter, while Large Industries and Electronics experienced softer activity in line with our expectations. We currently see Q3 as the lowest quarter of the year. Second, three performance indicators. Industrial Merchant pricing increased again very significantly at 6.5%, which comes in addition to the +18% in Q3 2022. It is a result of our data-driven spot pricing management in an inflationary environment, balancing pricing power, value creation, and of course, customer satisfaction. Second, efficiencies, which have reached a high level at EUR 320 million at the end of September, which is year to date, 22% higher than last year. Then, a very strong cash flow again this quarter, growing at +9% year to date.
We are steadfast in our commitment to deliver profitable growth, regardless of the macroeconomic conditions. Pricing management and strong efficiencies are very promising for margin improvement, of course. All in all, we remain fully committed to outperform our Advanced plan and targets as we maintained strong execution and delivery this quarter. This performance couldn't be achieved without the strong commitment of our teams that I would like to warmly thank today. Looking forward, the investment backlog reached a record high level of EUR 4.2 billion. It shows that we continue to prepare the future whilst remaining disciplined in our investment decisions to optimize value creation. It is a result of several major project signings, and I will now highlight some of these great achievements. Let's start on slide 4 with the H2 hydrogen electrolyzer that is now under construction in the Normandy Basin in France.
This is the largest PEM electrolyzer worldwide by far, with a capacity of 200 MW. Let me remind you that we have been operating a 20 MW PEM electrolyzer in Canada since 2021, and we are about to start another one, 20 MW PEM electrolyzer in Germany. So with this Normandy project, we achieve a very significant scale-up, being the undisputed leader in the PEM electrolyzer operations worldwide. Technology-wise, this is made possible thanks to our manufacturing joint venture and innovation partnership with Siemens Energy, with our new state-of-the-art manufacturing plant that will be inaugurated next month in Germany. Business-wise, we signed a long-term agreement with TotalEnergies for 100 MW based on our Large Industries business model. For the rest, for the rest of the capacity, we will serve another, industrial site, and we will dedicate part of the capacity to develop hydrogen mobility.
We will invest more than EUR 400 million in this electrolyzer and have been awarded EUR 190 million by the French government. 250,000 tonnes of CO2 emissions will be avoided from the second half of 2026, when the electrolyzer will be starting up. This is a major step in the decarbonization roadmap of the Normandy Basin, as illustrated on slide 5, and fully in line with our ADVANCE strategic and financial goals. Indeed, we showed you this map already in 2021 when we announced the decarbonization plan of the Normandy Basin. We are delivering step by step. We have an existing SMR hydrogen plant at Port-Jérôme, on which we added a carbon capture unit, Air Liquide proprietary Cryocap technology, that has been running since 2015.
The CO2 capture is used by Industrial Merchant customers locally, for example, in greenhouses or to produce carbonated drinks. In 2021, we announced the takeover of another SMR from TotalEnergies that we connected through the creation of a local pipeline network. This is a second step highlighted in the map. Third is the current construction of the hydrogen electrolyzer connected to this pipeline, and that will be using renewable energy to produce green hydrogen. Soon, and this is the fourth step, we will be able to leverage our industrial infrastructure on the basin to deploy hydrogen mobility. Next steps are under development phases.
Number 5, the deployment of our offer of carbon capture as a service to other industrials in the basin, following the memorandum of understanding that we signed in 2021, and related, number 6, to invest in a carbon capture unit for the SMR taken over from TotalEnergies. So, as you can see, we are delivering step by step on the roadmap set up two years ago, leveraging strong synergies in the Normandy Basin and creating an ecosystem which Air Liquide is leading, thanks to our unique value proposition. Let's turn now to another major project signed this quarter, also in the energy transition, but this time in North America, to build a low-carbon industrial gas production basin in Bécancour, Quebec, Canada. I am now on slide 6. First, this project addresses a new growing market, the manufacturing of battery components for electric vehicles.
We signed long-term contracts with several customers on the basin. In Bécancour, we will invest more than EUR 140 million in a new air separation unit, sourced with hydropower to produce renewable oxygen, nitrogen, and argon. Investment also includes a pipeline network to connect the air separation units with the 20-megawatt PEM electrolyzer, producing already renewable hydrogen since 2021. We will reuse the low-carbon oxygen off gas from the electrolyzer in this pipeline network. What you see here is the first of its kind, low-carbon industrial gas platform that will support the decarbonization of local industrial customers. Leveraging on this infrastructure and an hydrogen liquefier already in operation, we are also deploying hydrogen mobility in the region.
As you can see, we are doing as we are doing in Normandy, we are building on our existing basins, leveraging synergies with our industrial activities and solid customer base to develop low-carbon offers, supporting the decarbonization of industry and mobility. Let's stay in North America and in the energy transition to discuss another major success for the group this quarter. I am on slide 7. Since last week, Air Liquide has been named partner in 6 out of 7 clean hydrogen hubs in the U.S. To our knowledge, there have been no other industrial gas companies, nor any industrial player selected in 6 out of 7 hydrogen hubs. So this is an outstanding achievement. To succeed, we leverage both our unique footprint across the U.S. and our leadership expertise in hydrogen.
You, of course, understand that this announcement by the DOE is a key milestone, which will take some time to fully unfold. By the end of the year, the DOE will start the process of allocating the $7 billion funding. What we know is that Air Liquide will be a key player in the development of hydrogen across the U.S., especially as we have announced in September, a collaboration with Trillium, a leading supplier of sustainable fueling infrastructure in the U.S., to pursue the development of heavy-duty hydrogen fueling markets in the U.S. So, as you know, we discussed previously the leadership position Air Liquide is taking in energy transition in Europe. We see now, with those two examples, also things unfolding in North America. To conclude, with the key takeaways for this quarter.
First, this quarter demonstrate, one more time, our commitment and ability to deliver financial performance regardless of the environment, while actively securing future growth. The major successes that I mentioned illustrate the relevance of the Air Liquide value proposition across geographies. I would like to say, there are more to come. I will now ask Jérôme to present the details of our activity in Q3.
Thanks, François, and good morning, everyone. So coming back to Q3 sales, I am now on page 9. Comparable group sales have been resilient overall. Gas and service sales for Q3 have shown a resilient 1 + 1.7% increase versus last year. Turning to the much smaller segment, Engineering & Construction sales have stayed stable at -0.8% year-on-year, compared to high third-party sales last year. Order intake has increased up to 1.2 billion EUR quarter, Q3 year-to-date, the highest level over the past 10 years, with a majority of Group projects. Global Markets and Technologies stood at -3.9%, as a consequence of the small biogas distribution divestiture scope effect last year, while organic growth remains strong at +6%, and order intake has reached 224 million EUR the last quarter.
So overall, group sales are up at +1.5% on a comparable basis for the third quarter, while published sales are down, down -17.4%. As a consequence of the high energy price decrease, which translate into -13.3%, energy LI pass-through effect, which, as you know, has no negative impact on the operating margin value. Forex effect is also negative at -6.3%, and the significant scope effect is slightly positive at +0.7%. So from a business line standpoint, Industrial Merchant and Healthcare drove growth in Q3, while Large Industries showed a mixed performance, and Electronics compared with an exceptionally strong comparable basis last year. On a geography standpoint, except for Asia, Asia, which was impacted mainly by market downturn in Electronics, all other geographies posted resilient growth.
This highlights, again, the value of our global development strategy and the resilience of our model, capitalizing on the complementarity and optimal balance among our geographies and business line. Let us now review the activity for each of our main geographies. I am now on page 11. After a strong, strong Q2, sales in the Americas remained solid at +2% growth. Large Industries volumes in air gases have been impacted by lower demand in chemicals and steel, while we saw better hydrogen demand with positive volume and solid cogen in the U.S. Activity has also been impacted by some customer turnarounds. In Merchant, sales have grown solidly, supported by high pricing effect at +5%. Gases volume in the U.S., the U.S. are resilient and impacted by one less working day, with positive dynamics in construction and aerospace.
Growth in Healthcare has been very strong at +12%, supported by strong pricing in proximity care in the U.S., while Medical Gases and Home Healthcare have been very dynamic in Latin America. Finally, Electronics have been impacted by a very strong comparison basis in Q3 last year. Advanced Materials have been affected by the slowdown in slowdown in memory production, while Carrier Gases sales have been solid. Sales in Europe have increased by +3% compared to Q3 last year, despite a still very challenging environment. In Large Industries, volumes in hydrogen have improved for refineries, although demand in chemicals and steel customer remains soft. Energy prices, while significantly reduced versus last year, remain higher than before the energy crisis. Note that the energy combined effect was not significant this quarter.
In Merchant, sales have grown significantly, supported by the strong pricing effect of +10% on top of a +30% pricing effect last year in Q3 2022. Volumes excluding helium and CO2, which have been impacted by supply chain constraints for months, are showing resilience, while also impacted by the one less working day effect. Volumes are growing in automotive, fabrication, and pharmacy. Finally, Healthcare growth was strong. Sales have indeed been supported by both a dynamic Home Healthcare activity, notably in diabetes and sleep apnea, and by some growth in Medical Gases with high price effect in response to inflation and growing volumes. I am now on page 12. Sales in Asia have been impacted mainly by the slowdown in Electronics. In Large Industries , sales and volume remain affected by low demand, notably in chemicals in China, while Korea is growing.
Sales have also been impacted by customer turnaround, notably one customer stoppage in China that will last until the end of the year. Sales in Merchant have grown significantly, supported by a solid pricing effect at +6%, despite a high comparison basis last year in Q3. In China, sales have been strong, supported by volume, which have increased particularly in the fabrication sector. As mentioned before, Electronics sales slowdown was driven by a very high comparable basis in Q3 last year, which grew +22%. As regards to Advanced Materials, volume are temporarily impacted by the slowdown of memory players. Same dynamic for E quipment & Installation. On the other hand, Carrier Gases have been solid thanks to a more resilient business model. In Africa, Middle East, we have seen sales growth in all activities. In Large Industries , the activity remains solid.
Merchant growth is strong, despite the effect of the divestiture in the Middle East, completed in 2022, thanks to strong prices and increased volume in bulk and cylinder. Finally, Healthcare sales have grown, have grown, particularly in Saudi and Egypt. I will now comment on our Q3 activity by business line. I am now on page 13. In Merchant, pricing has been staying at high level, while gas volume remains resilient. The very good point, again, is that pricing has indeed continued to stay strong at +6.5% in Q3 to address inflation, increasing on top of an already very high basis last year. The other good news is that gas volume are still resilient overall, with notably growing volume in cylinder for the quarter despite one less working day. Volumes in our end markets, automotive, fabrication, and pharma, have been positively oriented....
From a Large Industries standpoint, activity also still low, has stabilized. Overall by market, chemicals activity while still low, has been stabilizing, whereas metals is slightly better. Hydrogen for volumes for oil and gas in the U.S. and in Europe were better oriented. Volumes are still impacted by customer turnaround, mainly in the Americas and in Asia. We had positive contribution for startup and ramp-up. On page 14, in Electronics, activity is decreasing, impacted by a comparison with a very high base last year. Sales in Advanced Materials, Specialty Materials, and E quipment & Installation have been impacted by the slowdown in memory market. Carrier gases sales were very solid, supported by volume startup and ramp-up. Finally, in Healthcare, we have a strong growth in all segment, with still high pricing and volume improvement.
And all Home Healthcare was again very robust, with strong sleep apnea and diabetes in Europe. Med Gas activity has been strong, with high pricing in Americas and Europe, with resilient volume. As highlighted by François, we continue to deliver on performance through strong pricing and discipline. Our pricing first, we continue to stay strong at +6.5% on top of the very high comparable, high comparison basis in 2022. I will comment more on the next page. At the end of September, we delivered a +9.2% pricing. You can see on the graph that since 2020, IM price have increased by more than 30%. We have also significantly ramped up our efficiencies to reach EUR 320 million year-to-date Q3, +22% versus last year, with a strong rebound of industrial efficiencies.
We continue to deliver on our active portfolio management strategy. Finally, we deliver a strong cash flow, very strong again this quarter, increasing by +8.6% year-to-date versus last year. I said earlier, we keep a very strong focus on margin improvement, working on all possible levels. As you can see on page 16, our IM pricing actions continue to deliver, as pricing remains strong in every geography to reach +6.5% overall in Q3. In Q3 alone, Europe achieved a nearly +10% year-on-year pricing impact, the Americas +5, +5.1%, and Asia increased at +5.7% on year-on-year. All this come on top of +18% pricing overall in Q3 last year. Page 17.
The 12-month portfolio of opportunities remains at a very high level, at EUR 3.4 billion, supported by energy transition projects, around 40% of the portfolio, including several U.S. IRA projects. In addition, our portfolio of opportunities beyond 12 months is also rising. Our industrial decisions have reached a record level this quarter of EUR 1.2 billion, which is a significant increase versus last year. In Large Industries, two significant projects in energy transition have been awarded. François described them earlier, and another significant one in Electronics. Finally, our investment backlog is very strong, has now reached a record level of EUR 4.2 billion, with a balanced breakdown between both Large Industries projects located in our main geographies and Electronics, mainly in Asia and in the U.S. I am now on page 18.
As you can see, we had about EUR 200 million of sales contribution from startup and ramp-up during the first three quarters, and we expect to reach a full year startup ramp-up contribution to sales of around EUR 270 million, due mainly to a slight shift of the U.S. project startup to 2024. To conclude, we are confident, and we confirm our guidance for this year. Thank you very much for your attention. I guess we now open the Q&A session.
Thank you. If you wish to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will take our first question. Your first question comes from the line of Alexander Jones from Bank of America. Please go ahead, your line is open.
Great, good morning. Thanks very much for taking my questions. Two, if I may. The first, just to follow up, Jérôme, on your comments on margins. I wonder if, given the stage of the year, right, you can be a little more quantitative on the guidance for the year. I know in the first half, you delivered 80 basis points expansion, ex the energy effect. Should we expect anything similar in the second half, or are there other moving parts that we need to be aware of? And then the second thing, to follow up on the comments on the electrolyzer project in Normandy. I guess you've got, you know, you're increasing the scale of electrolyzer 10x with this project.
Can you talk a little bit about the operational risks that come with that, and how you manage that within the return profile that you demand from the project? Thank you.
Thank you very much, Alexander. Good morning. So, Jérôme, can you talk about the first point? Yes, thank you very much, Alexander. So on margin improvement, I will tell the following, in fact. Clearly, you know, performance remains a key focus, as we have demonstrating in what we've been able to deliver in H1, and you recall, plus 80 basis points, which is remarkable, remarkable, given the challenging environment. We are still, you know, in the framework of ADVANCE, plus 160 basis points of margin improvement over the four years, even though you know that we have outperformed for the time being. What we can say is, you have seen the pricing management, I would say, result, which was very significant in Q3.
You have seen as well that we have a strong efficiency in this quarter, year to date, +22%, EUR 320 million. So this is very strong cash flow. So all of these are quite promising for the margin improvement. So I will say this for the time being, you know, we are absolutely committed. We were confident, and we will deliver margin improvement in the second half. That will be my statement today.
Thank you very much, Jérôme. So on your question regarding the project in Normandy, so indeed, it's first of its kind, the largest in the world, 10 times larger than anything that has been ever built. We feel very confident about the technology. You recall that we are using fully our partnership with Siemens Energy. We do believe they are an extremely strong partner from an industry realization point of view, but it's really a complementary partnership, because with them, we are bringing a lot of operating experience. We have today more than 40 electrolyzer in operation in the world, so we have thousands of operating hours. And in the design already we are including a lot of things that we have learned.
We are also taking a conservative approach in how we are considering the operation, with some of the things being unknown and for which we have taken provision to be able to replace pieces of equipment if needed, as we go. But I think that's something which is well managed. Keep in mind also that before the startup of the plant, we will have another plant, which is using the same technology in Germany, that we are starting in a few weeks, which will provide a very useful, also, operating experience. So all in all, I think we are quite confident about this technology.
Clearly, Air Liquide is leading the way, but we have very strong credentials and strong grounds to be confident for the scale up of this technology.
Thank you. Thank you. We will take our next question. Your next question comes from the line of Gunther Zechmann from Bernstein. Please go ahead. Your line is open.
Hi, good morning, Gunther Zechmann from Bernstein. A couple of questions, please. Firstly, good to see the strong growth in Healthcare pricing. The business that historically had deflationary pricing, which you turned around to positive pricing, could you just comment more quantitatively as to what level of price increases you're seeing in that business, and also what's been contractually put through for the coming quarters? That's the first question. Then secondly, sorry to keep it quite short term, but you mentioned, Jérôme, on the introductory remarks, that Q3 is trough for growth and that Electronics in particular should improve from here. Can you just give us a near-term outlook on the next one or two quarters in terms of the order book in the Electronics business, please?
If I can sneak one more in, any quantification of the IRA-related projects that you've signed in the U.S. cumulatively would be very helpful. Thank you.
Thank you very much, Gunther. So, let's talk about the Healthcare first. As you can see, I mean, the Healthcare business line overall is showing very strong growth, which I think is good. We have passed the COVID effect, and both the Medical Gases and the home care are showing a high single digit growth overall. If you look at the details and to answer your question on the pricing, clearly, most of the contribution in the Medical Gases worldwide is coming from the pricing contribution. The volumes are slightly positive, I would say, within what we historically have seen in that market. What is new, clearly, is the fact that we have a strong high single digit pricing for Medical Gases.
This is true in North America, where we have been leveraging our position and offering also, but I would say in all parts of the world, including in Europe. For the Home Healthcare, the contribution is split between the volume growth and the pricing. But there again, compared to what we have seen in the past, the pricing contribution is much stronger. I think this is the results of all the work that we have done to really demonstrate the value of our offering. I think to some extent, if I may say so, I mean, the COVID period has helped to show the value of medical oxygen and also being a Healthcare professional, reliable supplier in the Med Gas and the Home Healthcare.
So I think that's really a shift in the structure of this model, because as I mentioned earlier, now, in most of the new tenders for public hospitals in Med Gas, we are able to include indexation and price increase to reflect the increase of the cost. So that's for the Healthcare. To talk about the Electronics and what we see today for the next quarter in Electronics, maybe, Mike, you can answer that, and also some comments on the IRA projects.
Sure. Good morning, Gunther. So first of all, on Electronics, yeah, as Jérôme pointed out-
... very strong comparator in Q3 of last year, basically the highest quarter we've ever seen of 21% growth. The lower demand is really driven primarily by the memory market, which we saw a very significant run-up in, during the COVID years. Right now, that's a bit softer. In terms of logic, we continue to see resilience in the logic sector, and significant growth continuing for all of the advanced nodes. For us, our Carrier Gases business remains very strong. Materials, both Specialty and ADVANCE , as well as E&I, have kind of followed the market trend that we've seen. But in general, the long-term growth fundamentals still remain very strong.
While PCs and smartphones and tablets are still looking to recover, there is a lot of strength evolving in cloud computing and infrastructure, automotive, basically anything associated with IoT or artificial intelligence, as well as virtual reality. So the market continues to look forward. We continue to see investment opportunities really in all geographies, Asia, the Americas, as well as in Europe. Really, we see that we're kind of at the bottom of where we are in the cycle. And while we may not see full recovery until well into next year, we do see a very, very strong fundamental in the investment opportunities. And just to tie that in place, we actually see investment in Electronics actually improving in terms of the original forecast this year.
So the equipment spend is actually improved from where it was earlier in the year, and construction of new fabs is actually up 8% on a year-over-year basis. So I think the fundamentals are still there, and they're still very strong. In terms of the IRA and maybe where we are with the whole hydrogen hubs at this point in time, which are primarily, at this point, an outgrowth of the Bipartisan Infrastructure Act. This is kind of the evolution that we have talked about, where we've seen in Europe a lot of strength in driving the energy transition with announced projects. We've talked about the fact that there's that same growth dynamic and desire in the US, and now we're starting to see that come to fruition.
I think the beginning of that is the announcement we saw around hydrogen hubs, where they're going to go ahead and basically allocate $7 billion to seven hubs, with the intent to basically kickstart the national clean hydrogen ecosystem. And as part of that, likely we will see the production of about 3 million tons of hydrogen, and the elimination of 25 million tons of carbon from the atmosphere on an annual basis. So a lot of strength behind this, a lot of drive behind this. As François pointed out, we are a named partner in six of the seven hubs. We are in the early stages of what that development means. There are four major stages or four phases to this whole project.
Before you enter the first phase, you've got to negotiate with the DOE in order to go ahead and finalize all the terms and all the conditions. So it's a little early to talk about specific projects and what will evolve, but it's fair to say in the four major hubs that we've been announced for, we have anchor projects in each of those. And in all six hubs, not only are we directly involved, but we are also eligible for demand-side funding. So as François talked about something like Trillium and how that might, might evolve, that could be part of a demand-side perspective.
Thank you very much, Mike. Please also keep in mind that those hubs are not only mobility for hydrogen. We discussed that quite a bit, and there has been quite a bit of discussion around that. But there is also an industrial side on this, especially the one in Houston, for example. So, we will play the two cards, of course, I mean, the industrial side of those and the mobility market. Thank you very much. Next question, please.
That's great. Thank you.
Thank you. We will take our next question. Your next question comes from the line of Martin Roediger from Kepler Cheuvreux. Please go ahead. Your line is open.
Thanks, and good morning. Three questions. Firstly, the operating cash flow before working capital. On reported data, it was down by 7% in Q3, but plus 9% before FX effects. That means FX had a drag of 16%. Can you provide some color how a 6% drag on sales can impact cash flow by minus 16%? Secondly, on pricing in Industrial Merchant, I see an acceleration in pricing in Middle East Africa in Q3. Can you elaborate on that? What was the driver for that? And because we saw that, pricing in all other regions is softening versus the previous quarters. And then thirdly, you mentioned in your speech, strong volumes in Industrial Merchant in China in the third quarter. Can you provide any color on the end markets, please? Thanks.
Thank you very much, Martin. So, Jérôme will talk about the cash flow, and Pascal will talk about the pricing, especially in the Middle East. And I'll come back to China at the end. Jérôme?
Yes, thank you, Martin. So basically, on the cash flow, what is important is to discuss probably excluding FX, because, you know, there is a mix of of Forex during the quarter and the compared to last year, that was positive, +8% last year, and as you saw, it was negative this quarter. So all in all, the cash flow is good, and it's at +9%, excluding FX, and this is comparing to last year, a cash flow at +16%, which was very much driven, and it was an exceptional, exceptionally high, due to the impact of also the peak of the pricing effect. As you noted, it was at +18%.
So all in all, this is a good cash flow, but I would say that it's very important when we discuss the cash flow about the excluding FX effect, in fact. That would be, would be my comments, in fact. Thank you.
Okay, thank you very much, Jérôme. Pascal? So good, good morning. So on the pricing in IM, I guess you've seen that we continue to deliver on pricing. It remains very positive in all geographies, and the 6.5% overall in Q3 is 5%-6% in the Americas and in APAC, and it's 10% in Europe and 12% in MEI. So what we are demonstrating is our ability to pass through all our costs in terms of pricing. And in the case of MEI, we have more inflation right now in some of the countries we operate in, and we are just passing through this inflation to our end users.
So nothing special about MEI, just the same recipe we have applied everywhere worldwide. All right. Thank you very much, Pascal. So a few words on Industrial Merchant in China, because we hear a lot about the slowdown in China, but when you look at our numbers, they are pretty good, actually, because they are high single digit growth overall for our Industrial Merchant in China for this quarter. If you look at where this is coming from, basically, there is a pricing impact, which is limited, because we are basically at a flat pricing. And keep in mind that in comparison with many other countries, the inflation is now very low in China, below 1%.
So most of the sales growth is coming actually from the volumes, and again, quite strong. So when we look at this, we see very strong volume in our packaged gas business, strong volume also in our bulk business. So I think that's very good. That's the results of our footprint and our development. And you remember that we had a mix of organic growth and acquisition quarter after quarter. So that's paying off with a very good density in term of Industrial Merchant in some key regions. And when you look at the market, you see clearly there is a very strong growth in the material and energy segment, the metallurgy, the primary production, some of the glass also.
So, I think this is, this is good. The automotive and fabrication is also to some extent good, a little less, but it's stronger also. So everything related to automotive overall and metal fabrication. And also, as I mentioned, a lot of sales related to the packaged gas business that we are developing, which is extremely solid. So all in all, I don't think we can complain at all for the Industrial Merchant in China, which is strong and which should continue in that way. Thank you very much. Next question, please.
Thank you. We will take our next question. Your next question comes from the line of Charlie Webb from Morgan Stanley. Please go ahead. Your line is open.
Morning, everyone. Maybe just kind of following up on the comment around Q3 being the trough. You know, just helpful to understand what's inflicting as we kind of move forward, or is it more just comparatively, things are perhaps less tough as we think about Electronics? Just trying to understand that comment a little bit. It'd also be useful to kind of hear about Large Industries in terms of where you see customer utilization rates moving into the fourth quarter. Obviously, you talk about it being somewhat flattish at these levels, Q on Q in Q3, but how do you see that trending in Q4, based on what you see today? Would be very helpful. Thank you.
All right. Thank you very much, Charlie. So, if we look at the different markets overall, indeed, Large Industries, we have seen stabilization of the demand in steel, chemical, and, as mentioned, mixed in refining in Q3. We do expect similar trend, maybe a little bit of upside in some region, for example, in North America and potentially also in Europe. So I think, also due to the comparison effect, as you mentioned, that will be much stronger and back into the positive ground, for the next quarter for Large Industries . But again, we see a general trend being stabilization and probably a little bit of upside in some region.
Industrial Merchant, as we mentioned, still, the pricing, as mentioned by Pascal, will continue with positive pricings. The volume, based on what we are seeing today, are still quite resilient in most of the region of the world, with some upside, as I mentioned, in China, for example, but that could be the case also in other parts of the world, especially in the Americas. Electronics, I think, Mike mentioned that, so we do expect, I mean, some pickup in Q4, but probably more largely during the year of 2024.
And finally, for the Healthcare, we do expect a continuous strong growth above the historical average, both for Medical Gases and for Home Health care for Q4.
... That's very helpful. And just in terms of the ramp up to the startups, obviously, you lowered the expectation for 2023, presumably mostly just phasing, pushing that into 2024. Any particular projects or kind of markets? Is that the Electronics projects that have been delayed? Is that what we're-
So what we see today are mostly one or two projects in North America on the pipeline being delayed. I think there is nothing really special about that in the current market condition. It's delays of a few months, which, by the way, have a very, very little impact on Air Liquide overall growth. And keep in mind, here, we are talking about maybe EUR 30 million of sales contribution for the full year, less than what we were expecting to have out of the overall sales of Air Liquide. So it's insignificant, I would say, at the scale of the group. But more important, we don't see any alarming trends with our customers.
As mentioned by Mike, on the Electronics, there is a little bit of a paradox being at the bottom of the cycle. We still see customers really pushing ahead for new projects and for startups as soon as the visibility will be better. So, no, again, there is no significant trend that we can read from this.
That's really helpful. Thank you very much.
Thank you. We will take our next question. The question comes from the line of Peter Clark from Société Générale. Please go ahead. Your line is open.
Yes, good morning, everyone. Two questions. First one, back on the IM pricing. You talked about the very significant pricing management. When I look at the 3-year stack now, back at 2020, it looks like IM picked up again, and the driver behind that actually was the Americas, which was against the peers, a bit sluggish in Q2, but obviously you've stepped up again in Q3. So I'm just wondering if there's anything in that that you can tell me. And then on the U.S. hydrogen hubs, yeah, very impressive, 6 out of 7, and particularly given the targets here, I mean, I think they're targeting a third of the hydrogen production by 2030 through these hydrogen hubs. But your comment on why you think you were so successful in getting 6 out of 7?
Thank you.
Thank you very much, Peter. Good morning. Pascal, do you want to talk about the pricing? And Mike, maybe give some perspective on the success in the H2 hubs.
Yes, good morning, Peter. On the IM pricing, nothing in particular. I mentioned that we are passing through our cost, and what you see is the exact reflecting aspect of that cost environment. So, we pass through. We have demonstrated we can do it, and we keep doing it, and we intend to keep doing it in the coming quarters. So nothing special from one geography to the next. It's just a general willingness to pass through our cost in pricing.
But Peter, as you know very well, we discussed that. We also have leveraged a lot the Airgas mindset for the pricing and the tools and the way to do that very, very actively. So the speaker that you just heard, Pascal, you remember, he was the CEO of Airgas for a few years, and now he's heading Europe and Africa, Middle East, India. So he came back with a lot of good practices and the right mindset in his luggage. So I think this is what we see overall. And again, those are structural changes in the mindset and also the tools that we are using. Mike, some comments on the H2 hubs.
Sure. Hey, good morning, Peter. I guess just to expand on the hydrogen hubs. There's multiple aspects as to what I would say the DOE is looking at. And clearly, the main driver here is to really accelerate commercial deployment of hydrogen in use for mobility and use for decarbonizing industry and even for power generation. And given all of those demands and needs, we are in a place, and we've talked about this before, where we have all of the technologies necessary, proprietary technologies that we embody to deliver in all of those types of markets.
So whether it's truly the production of renewable power for mobility and other uses from any source, whether it is the utilization of autothermal reforming technology with our Cryocap CO2 capture capability. And in addition to that, we've got infrastructure associated with a lot of these key hubs that allow us to play within all of the aspects of those markets and being able to point to the fact where for every type of technology that I mentioned, we can already point to something that's in operation at a commercial scale. So I think it put us in a very good place in our discussions both with the DOE, but both in the partnerships as well with the other companies that are engaged in driving some of the things within the general hydrogen hub structure.
... Thank you very much, Mike. And what I would like to reinforce is that, I think those successes show that, we have been able not only to convince the, the DOE, I would say, but also our industrial partners, to, to build with us, those projects. And I think, it's very important to have been, able to convince, top names about the relevance of our offering. And as mentioned by Mike, I think the, the technology and the, the proven technologies and operating experience, made the difference. This is just the beginning of the story, but I think it's, very promising again, and, probably shows, the potential that we have to be a key player in the hydrogen deployment in, North America. Next question, please.
Thanks a lot.
Thank you. We will take our next question. Your next question comes from the line of Geoff Haire from UBS. Please go ahead. Your line is open.
Yeah. Good morning, and thank you for the presentation. I had three questions, first of all. First of all, if I look at the cost savings that you achieved in Q3, I think if my math is right, it's about EUR 114 million. You're suggesting it's going to be EUR 80 million in Q4, to get to the EUR 400 million. Is that the run rate that we should expect to carry into 2024, at about EUR 80 million a quarter? The second question is on pricing in the EU. You did 10% in Q3. I think it's 30%, according to the slides, year to date. With gas prices obviously lower year-on-year, what is the risk to EU pricing in IM?
Then the final question is on the green hydrogen projects that you've worked—you're working through. Just whenever you look at the contracts that you have in green hydrogen versus gray hydrogen, how do they differ in terms of the long-term contracts that you've signed? Are they the same, or are there different clauses on take-or-pay?
Thank you very much, Geoff. Good morning. Do you want to answer this first question, Jérôme?
Yep. Thank you, François. Thank you, Geoff. So basically, you're right. We deliver very strong performance in terms of of efficiency year to date, EUR 300 million, so +22%. And bear in mind, it is done in an environment which is difficult, which is adverse, because we're inflationary environment. So being able to deliver this kind of thing is very, is very good. So we are above, so far, our run rate. And our objective for the year is, is roughly EUR 400 million. So, so far, so good. And, we are clearly, you know, very much, I would say, above the target, at least at end of Q3. And again, it is very good because it is a very strong pillar as well.
We discussed a lot about pricing, but a strong pillar as well for promising margin improvement. So this is something which we are, you know, basically, and François has said it at the beginning, we are balancing every lever to optimize our pricing or, or sorry, our margin. We have pricing, we have portfolio management and efficiency. So I will not communicate precise numbers so far for next year, but I can tell you that, you know, in advance, we were running with an ambition of EUR 400 million per year. That will be clearly the minimum that we will, I would say, target for next year, of course. So this is, again, a very strong performance and, and we will continue to do more on this.
Thank you very much, Jérôme. Pascal?
Yes. So on the EU specific case for pricing, but just maybe looking at the overall pricing actions. You mentioned natural gas prices. They are not at all relevant for IM business. So natural gas is more pass through for LI business. It's not again not relevant for the IM business. Electricity is more relevant for the bulk business. It's a part of the bulk cost. General inflation is actually the most relevant piece for most of our IM business. It's very true for the cylinder business. It's also quite true for some parts of the bulk business. And general inflation is still there. We see salaries, we see services, we see transportation.
As mentioned, we are going to continue to pass that through to our end users. Same recipe as mentioned.
Thank you, Pascal. For your question on the green hydrogen projects. To make it short, they are extremely similar with our Large Industries contracts overall. We are targeting basically the same level of return. We have the same structure in the contract, long-term contracts with monthly fee, with take- or- pays. So the terms and conditions overall, the our golden rules of Large Industries are still fully enforced. Maybe the only thing that may be different, depending on the cases, is how we are sourcing electricity. Because in some cases, and depending on the local market, we may take from the beginning a long-term commitment through the PPAs, to make sure that we are securing renewable electricity for those projects.
But again, that's probably our specificities and why we are so careful to select the right projects and to build the right project for the long term, is we really want to build on our strong Large Industries business model for those new projects.
Thank you.
I think we have one more question. Let's go ahead.
We will take our next question.
The question comes from the line of Chetan Udeshi from JP Morgan. Please go ahead. Your line is open.
Yeah, hi. Thank you. Thanks for taking my question. I have couple. First one, you know, clearly the Merchant pricing has remained pretty strong. My, my question is a bit more philosophical because we've seen, more recently in Europe, especially, you know, European Commission has, you know, opened up cartel investigation now in, in multiple, you know, industrial segments, you know, fragrance industry, but also in, more recently, construction materials. And I'm just curious, how are you thinking about that, you know, in terms of, of risk of pushing these prices too high and, and, maybe, you know, just, just increasing the scrutiny of the industry, given that, you know, it's clearly one of the most consolidated market, anyway. So that's first question. And second question is more around your, your backlog, which clearly is, stepping up quite nicely.
I'm just curious, we've seen in more the renewable space, you know, pure play hydrogen space, sorry. You know, funding costs, you know, project cost escalation clearly is becoming a risk for many of these companies. And I'm just curious, you know, when you look at your backlog, how do you assess that risk that some of these projects might actually not see the day of light because of different reasons, one being just the cost of everything is going up. Thank you.
Thank you very much, Chetan. So I will ask, Pascal, the philosopher, to answer the question.
Thank you, Chetan. I don't think it's a great philosophy, but at the end of the day, we are passing through our cost in the businesses we are in, especially in IM. We are also paying a lot of attention to our customer experience, to that experience we provide to our customer. We are very careful about that. And last but not least, we are pushing new value creation offers that do imply some additional pricing capabilities. But that's something that is a critical part of our strategy, doing well, and we keep, we want to keep doing that. So no perceived risk at this point for sure.
Just a very deliberate strategy to do very well on pricing and on value creation.
Chetan, on the question regarding the backlog and the potential risk related to the backlog in the current environment. The first thing I would say is that, for every project that we are building, we have a strong signed contract with a known customer. And we are not building and wait for the market to come. And I think that's something which is very important, which is giving certainty about the need and the ability of the customer to offtake the product from those projects. So that's the rule number one, which I do believe is extremely important in the current environment, especially when you are opening new markets.
The second part is that indeed we are in an inflationary environment, so we have strengthened both our terms and conditions with the, the customer, and especially to make sure that systematically we include an index on the CapEx during the construction phase, which was not necessary the whole of the industry before. But that's what we are doing systematically. And also we have strengthened very much our execution capabilities in the different region of the world, leveraging our global E&C organization to make sure that we have the right resource to execute the projects. So I'm not saying that in the current environment there is no risk, but I do believe that we are having in place a very strong measure to mitigate those risks. I think now it's time for the last question.
Please go ahead.
Thank you. We will take our final question. Your final question comes from the line of Chris Counihan from Jefferies. Please go ahead. Your line is open.
Thank you, guys, and thanks for squeezing me in at the end. I just had a quick question to Jérôme about receivables factoring. I think at the first half result, you said it was around about the EUR 1.6 billion level. Just thinking the cost of that financing is probably linked more to spot interest rates, which obviously have increased significantly. So will Air Liquide look to reduce that form of financing and maybe just any potential financing cost impact into year-end as well?
Yeah, thank you very much. Indeed, regarding factoring, you use factoring as a source of additional funding, of course, but it's quite very narrow compared to the rest, because you have to bear in mind that 90% of our financial, of our debt is a fixed cost. So we have very limited, very limited exposure on that. We have, as you mentioned, we have a program of factoring in Americas and in Europe. But, you know, the level, the volume of factoring has decreased because it was very much connected to the increase. The increase last year was very much connected to the increase of Large Industries , you know, energy, energy invoice that were rising due to energy cost increase.
So this year it's decreasing, so the impact in terms of volume will be going down. And of course, we have, I would say, an implicit increase in terms of cost due to the funding, but it will be very limited on our base, in fact.
Thank you.
And actually, Jérôme, as we know very well, this is a way to reduce the, customer risk, which, by the way, today, we don't see an increase in, any rate of default, from, from the customers. So it's really, protecting us against this. All right, so this will now conclude this session. Thank you very much for all your questions. To summarize, we deliver resilience and performance thanks to our active pricing management, our efficiencies and investment discipline, while, as you have seen, being able to prepare for the future. It demonstrates the strength of our business model and our ability to create value for customers. We remain fully focused on execution and delivery of our ADVANCE program to achieve our midterm financial and extra- financial objectives, thus creating value for our shareholders. Thank you very much.
I wish you all a very good day. Bye-bye.
This concludes today's conference call. Thank you for participating. You may now disconnect.