L'Air Liquide Ord

Good morning, ladies and gentlemen, and welcome to the Early Keep 2020 Interim Results Conference Call. All participants are currently in a listen-only mode, only until we conduct a question-and-answer session, and instructions will be given at the time. I will now hand over to the Early Keep team. Please begin your meeting, and I will be standing by.

Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations, Thank you very much for joining our conference call today. Benoit Poitier and Fabienne Le Corvizier will present the first half 2020 performance. François Jacob, Executive VP, supervising Europe, Africa, Middle East, and healthcare hubs. And on the phone from Houston, Mike Graf, Executive VP, supervising Americas, Asian hubs, and the electronic business line. They will both participate in the Q&A session. In the agenda, our next announcement is on October 23rd for our third quarter revenue. Let me now hand you over to Benoit.

Thank you. Good morning, everyone. Thank you very much for attending this call. Before presenting the performance, let me just start by recognizing our teams for their dedication and courage during this period, this unprecedented global sanitary and economic crisis. Overall, the performance in the first half, and especially the second quarter, has proven the high resilience across businesses. We've been able to deliver significant margin improvements in a very difficult context, in particular thanks to the responsiveness of all the teams to deploy temporary measures, those where necessary, to reduce costs, fixed costs, and to adapt to lower activity levels. Fabienne will come back to this later. In all regions, the healthcare teams continue to fight the pandemic and I commend their strong commitment. Business development has been very active in the first half with a high level of investment decisions and an increasing number of investment opportunities. Finally, we have updated our assumptions in the current environment and given the evolution of the pandemic worldwide, we are in a position to confirm our full year guidance. I would like also to take this opportunity to announce that we will be postponing our next capital market day that we originally intended to hold in the first quarter next year, but indeed we will reschedule it for the first quarter of 2022. And in between, we will revise our five-year strategic plan in light of the lessons that we drew up from the COVID-19. But also, we would like to use 2021 as a reference, which is a much better reference than 2020 for the starting point of our new strategic plan. But of course, we'll give you visibility for 2021. On slide page four, we highlight the key figures that illustrate the resilience of the group in the first half, with first limited sales decrease to minus 3.2% on a comparable basis, a stable operating income recurring, resulting in a significant improvement of margins, both at the group and gas and service levels. We have actually 100 basis points improvement for the group. as published and 50 basis points including energy path through impact. We managed to preserve net profit already in the first half growing by 1.8%. It's very much in line with the guidance. And also to be highlighted as well is the strong cash flow thanks to a very close management of expenses and a good rate of collection. The cash flow is at 23.1% of the sales, which is a 170 basis points improvement versus last year. On the next page, I would like to come back on the sales and their evolution over the first half. In Asia, China was the first country hit by the COVID-19 in the first quarter, and recovery was very quick there with growing sales in the second quarter. Other countries in the region have been hit by the pandemic in the second quarter and lockdown measures have not been listed yet in some countries. As a matter of fact, only Taiwan and Korea were in positive territory in terms of sales in the first half. Europe has been severely affected by the sanitary crisis from mid-March, especially in the southwest of Europe in industry. And recovery is very progressive since the beginning of May. Our activities in Northern Europe, to some extent, and Eastern Europe have resisted better. Sales resilience in the region also comes from the high share of the healthcare activities, which represent around 40% of the sales in the region. The situation is very contrasted in America. The U.S. and Canada were hit from the end of March. after showing first signs of recovery in May in some markets, activity has stabilized in June, and several states strengthened lockdown measures following a resurgence of the virus. Latin America has been impacted later and is still fighting the pandemic. Finally, Africa and the Middle East was impacted later and lockdowns are still in place in most countries. Sales evolution in each region reflects this contrasted pace of recovery. Moving to margins, next slide, we delivered a significant margin improvement in the first half, driven by three main actions. The pursued efficiency program that was already in place and that happened despite lower volumes. The second point is the agility of the teams to quickly deploy in all our operations the cost containment program to reduce costs and adapt to lower level of activity. Fabienne will come back on that in more details. And the third point is the sustained pricing in industrial merchants with a 2.9% increase in pricing over the first half. On slide seven, in this crisis environment, interestingly, business development remained very active. The 12-month portfolio of investment opportunities increased to a high 2.9 billion euros, and we see more opportunities of asset takeovers. Signings and decisions remain also at a high level of 1.3 billion, despite difficult context, with a record level of electronics projects, especially in Asia and the U.S., with major signings also in large industry, with one project we announced in Russia that includes a takeover of assets for hydrogen and rare gas production. We also see more projects related to energy transition. In fact, close to one-third of our signings were related to energy transition in the first half. And to be mentioned are the 25 long-term on-site contracts we signed in industrial merchants during the semester. As you know, active business development today prepare the growth of tomorrow. All those numbers do not include Sassol Secunda oxygen plants takeover, which was announced yesterday. The size represents 42,000 tons per day capacity, which is the biggest oxygen site in the world. On slide 8, finally, the main outcome today from this global sanitary crisis is that a new era is already starting, even if the pandemic is not yet over. What we observe is that the pre-COVID trends emerge stronger, at least for those which are related to our business. And we have identify the three major trends. First, the healthcare trend. The pandemic has increased the focus on healthcare systems everywhere. The pandemic was global, but the responses have been local, and the healthcare systems will look now for more local healthcare solutions. And if we look at R&D, probably the R&D in particular on vaccines, but probably also on diseases in general will be more global. So there will be a shift in the healthcare industry taking lessons of this pandemic. We also like to mention that the extensive use of AI and platforms in healthcare is a lesson learned from the crisis. Actually AI was used for managing the pandemic and the platforms were used to give access to data And I think this is a trend that will go on in the future. The equipment manufacturing footprint also will change. Maybe there will be less focus, there were less focus in the past. But the crisis has demonstrated the strategic importance of equipment to deliver drugs, as well as the need for manufacturing locally. And I think it will be part of the new healthcare footprint in the future. We, as EarlyKid, have a local presence, and we have developed the digital tools and the platforms in our own healthcare business, and we have equipment manufacturing centers, so we think we are well positioned on those trends. The second trend is energy transition. There is a strong demand from citizens and from the society globally to embark even further and quicker energy transition. The proof is really in the hydrogen momentum. There were announcements from Europe, from Germany, from Portugal, and I think yesterday from Spain, that they would put in place significant plans with several billions, between 5 and 10 billions each country, to boost the hydrogen development and the hydrogen society. This is, of course, a great opportunity for Aliquid. And in that regard, I'd like to mention the fact that we have now 92 members in the Hydrogen Council, with two new steering members and nine new members, or standard members. And interestingly amongst the two, one was CMA, the Maritime Transportation Company, and the second one is Microsoft. So it means that now the digital industry is thinking about making their industry greener. We also see, of course, that all industries recognize strong needs to decarbonize their production processes. And we see more takeover opportunities. Of course, the CECL deal is the perfect illustration of an industrial deal on the one side, but also a climate deal on the other. And the combination of the two is probably a good proxy of what may happen in the future. Digital, I mentioned the usage of digital in the healthcare sector, but it is really pervading all industries. There are new ways of working that have been put in place, so there will be something left after the pandemic. There will be need for more semiconductors, so it will directly and indirectly improve and boost the electronics business. And if we look at what will be the next big developments and needs in digital investment will be in B2B, but also in B2GG, meaning governments. So there will be an active transformation, but it has started already. And we think overall we are very well positioned to be a leader in this global transition. I'd like now to hand over to Fabienne.