L'Air Liquide Ord

Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations. Thank you very much for joining our conference call today. François Jacob and Jérôme Pelton will present the first half 2022 performance. For the Q&A session, they are joined today by Mike Graff and for the first time, Pascal Vinet, Senior VP in charge of Europe Industries and Africa Middle East. In the agenda, our next announcement is on October 26th for our third quarter revenue. Let Nina hand you over to François.

Thank you, Aude, and good morning, everyone. It is my pleasure to be with you today to share our strong performance in the first half of 2022. Our business model not only again demonstrated its resilience to a challenging environment, but delivered growth across a number of metrics, which I will address in just a moment. Before we start, I would like to remind two main events of the past six months. First, the successful launch of our midterm strategic plan, ADVANCE, in March. Second, the transition in terms of new governance for the group. Let's start with slide three to show how we delivered a very strong performance in the first half across all criteria. A strong comparable sales growth of 8%, plus 50 base point of margin improvement, excluding the energy path through impact. And despite the inflationary context, more than 20% of recurring net profit at constant exchange rate, a strong leverage, a high cash flow, about 23% of sales excluding energy, and the project activity remains strong, as reflected by the 3 billion euro of backlog of signed projects, which positions us very well for future growth. In terms of performance, we ticked all the boxes in the first half, and this is not to mention the return on capital employed at 9.7% at the end of June, very close to the 10% of the advanced objective for 2023. This was thanks to the outstanding commitment of the teams worldwide, their focus on value creation, and thanks also to a business model balance for both resilience and growth. This was, of course, needless to say, despite a very challenging environment. Indeed, we faced many headwinds over the last few months. the unprecedented spike in energy prices. It means for us more than 1.8 billion euro of additional energy cost that we managed to pass through our large industry customers. It is already above the 2021 full year figure. So this is quite substantial. We also faced accelerating inflation it amounted to more than 750 million euros additional cost. In the context of high inflation, we have proven our strong reactivity by increasing our prices in industrial merchant, reaching plus 14% in Q2 globally, a record high level. We managed to overcome many challenges, to name a few, the COVID-19 lockdowns in China in Q2, the supply chain constraints, with limited direct impact on air liquid, but really creating disruption for some of our customers. Also, workforce shortage in some regions, and of course, the war in Ukraine with many indirect implications. Our slow performance in such a challenging environment shows, one more time, the strong resilience of our business. The performance of this first semester is well in line with the ambition we set out in our Advance Plan. I am now on page five. Indeed, we delivered on financial performance in H1, as we just have seen, but also on extra financial performance. I will come back to the first one, decarbonizing the planet in more details, as we have made very significant progress. But let's talk about the second one, developing new markets through innovation. Electronics is a strong growth driver again in H1, and the portfolio of projects remains very active. In healthcare, we are launching value-based offers in selective countries, and it is a way to transform the home care market. As acting for all is concerned, and still in healthcare, the teams remained committed to fight against the COVID-19 in the regions where the virus is still active. Also, our contribution to the global fight against climate change has been recognized with the SBTI validation of our CO2 trajectory, the first and only validation received in the industry so far. By the way, we just learned yesterday that the Climate Action 100 Plus initiative has also recognized the significant steps we have taken in the past months towards climate. I would encourage you, if you want, to go and check their website. Let me zoom in on the first objective around decarbonizing the planet and supporting the energy transition. I am now on slide six, which is crowded. but represents the numerous successes we had. The first six months of the year have been very active with tangible projects and many achievements. In carbon capture, several projects received European funding, making them ready to be launched. The development of electrolysis with two projects of 200 megawatts each to produce green hydrogen and the announcement of the creation of the manufacturing joint venture with Siemens Energies. H2 mobility projects are expanding not only in Europe but also in Asia and Americas. They deal with the development of infrastructure for airports and for trucks or production of liquid hydrogen. We also signed two renewable energy sourcing contracts during the first half in the Netherlands and in Italy. In a time where not only environmental impact but also security of supply are becoming key, we are clearly leading the industry, taking significant position in various industrial markets. Before I conclude, I would like to talk about resilience that is so important in the current environment. As you know, resilience has been a trademark of Air Liquide thanks to a strong business model illustrated by long-term contracts, take-off pay clauses, fixed revenue from rentals, and also a high diversity of business switch in terms of geographies, activities, and markets, but also customers. ADVANCE is reinforcing this resilience by first positioning a liquid on growth markets, energy transition, electronics, healthcare, relying on very strong fundamental drivers, but also ADVANCE is reinforcing this resilience by focusing the entire organization on performance, as illustrated by our results on pricing, cost containment, and portfolio management with no taboo. So to conclude, the key takeaways of this first half of 2022 are, first, we reinforced resilience thanks to focus on performance and a strong positioning on growth markets of the future. And then, we deliver growth and prepare future growth with concrete progress in energy transition and electronics. On this basis, we confirm the 2022 guidance. And now, Jérôme, please, could you explain in more details the H1 performance?

Jérôme? Thank you, François, and good morning, everyone. I suggest that now we review our numbers more precisely. So coming back to the first half year, and I am now on page 10, group sales have been very strong overall on a comparable basis, excluding energy pricing, forex, and significant scope effect. Indeed, gas and services sales for H1 are showing a strong plus 7.2% increase versus last year, following a Q1 at plus 7.1%. Engineering and construction sales have increased by plus 29% in H1 compared to last year. Ordering tech has ramped up to reach 526 million euros in the first half year, a high level close to what we had at the end of H1 last year. Global markets and technology have seen a dynamic activity with plus 14% comparable growth, boosted again by our biogas activity. So overall, group sales are up plus 7.7% on a comparable basis for the first half, while published sales are very significantly up at plus 31%, supported by a strong impact of the spike in energy price during the semester, which translates into a 16.8% energy pass-through effect in our LI activity for the first half. Also, impacted by a positive 4X effect at plus 5.8%, and with a significant scope effect at plus 0.7% due to the takeover of the SASOL ASU in July 2021. Specific to Q2, we saw very strong comparable growth at the 7.5% after a very good Q1 at 7.9%. So when we look at gas and services growth only, and I'm now on page 11, all our geographies are posting high growth versus last year to reach 8% comparable year on year for group sales. From a business line standpoint, sales growth remains high in merchant and electronics, while healthcare, reflecting the strong comparable basis last year due to COVID, and large industry are more contrasted. To be done it again, this comparable growth of 8% doesn't take into account the acquisition of the 16th ICU of Cecil in June 2021, which are reported again in significant scope to contribute another plus 0.7%. Let us now review the activity for each of our main geographies. My comments will be mainly related to Q2. I am now on page 12. After a strong Q1, America has also seen a dynamic Q2 with sales at plus 9.5%. Large industry volumes have been strong in the U.S. Gulf Coast, in air gases, mainly in steel and chemicals, supported by two startups. Cogen is down versus a high Q2-21 due to a one-off freeze impact last year, hydrogen sales in Latin America were solidly supported by startup and ramp-up contributions. In merchants, sales are significantly up. Our pricing power is confirmed with an acceleration at plus 13% versus last year in conjunction with rising inflation. On a volume standpoint, gases and our goods are following end-market trends and are well-oriented, benefited also from construction recovery in the U.S., with the exception of helium, which is impacted by the shortage in global supply. Health care activity has been solid, despite a strong basis last year due to COVID. In the U.S., volumes in medical oxygen and proximity care were solid. Finally, in Latin America, oxygen cells have normalized after the COVID peak last year, with home health care still continuing at high levels. Finally, electrolytic cells are growing strongly with positive contributions from all segments in carrier gas, equipment and installation, and specialty materials. In Europe now, we have seen a strong growth at plus 6%, supported by record pricing in merchants, offsetting lower demand in large industries, and despite a strong basis in healthcare last year due to COVID-19. Large industries are seeing lower demand in all sectors, with numerous customer turnarounds, notably in high-core industries, and some refineries using lighter crude oil with lower hydrogen consumption. In merchants, the spike in energy costs and overall inflation has again been successfully mitigated with a record historical pricing effect accelerating at plus 22%. Sales have grown in all end markets, and on a volume standpoint in merchants, those are slightly positive, mainly in packaged gases. Finally, healthcare sales have remained robust. thanks to strong home health care, notably thanks to diabetes, boosted by volume and an acquisition in Poland, and also we have strong specialty ingredients. Medical oxygen demand is normalizing compared to last year's high basis to fight COVID. In Asia, I am now on page 13. Despite COVID-19 lockdown in China in April and May, we have seen strong growth overall, driven by high momentum in electronics, which says at plus 7%. In large industries, sales are back to a positive trend, with a still soft China impacted by lockdowns. In merchants, we have also seen an accelerating pricing effect at plus 7%, mainly in China, but also in Japan, Australia and Singapore. On a volume standpoint, China has been impacted by a lower volume due to COVID, but in fact resisted well. We saw improved demand in Singapore. Finally, electronic sales are buoyant and have not been impacted by COVID lockdowns in China. Recurring sales are at very high, plus 17% driven by strong carrier gas, with positive impact from startup and ramp-up of several units. Advanced material sales are also strong across the region. Finally, equipment and installation sales are also booming, especially with our key customers. Finally, in Africa, Middle East. Large industry sales are up, supported by strong demand in Saudi Arabia, in Jambu and Egypt. The contribution of the SASOL takeover is strong and aligned with expectations, and as a reminder, accounted for a significant perimeter. Sales in merchants are slightly negative, following small divestiture in the Middle East, and this with good pricing at plus 5%, while healthcare is following the normalizing demand in medical gases after COVID impact last year. I will now comment our Q2 activity by business line. I am now on page 14. In merchant, pricing has been record and volumes resilient. Pricing indeed has continued to accelerate in all geographies to reach a plus 14.4% in Q2 to address the unprecedented spike in energy and other costs, showing again our strong ability to implement faster pricing campaigns that quickly precipitate to pass through these costs. Volumes are resilient, especially in Europe, but are hampered by helium shortage. In regard to the end-market research, food and beverage fabrication and electronic components markets are dynamic, while craftsmen and research are soft. On a large industry business line standpoint, activity has been contrasted. America's has been solid, with high air gases volume from steel and chemical, especially in the U.S. Gulf Coast, while Europe has seen lower demand in all sectors, impacted by customer turnaround and lower hydrogen demand. Asia has been soft, notably in China due to lockdown impact. Lastly, in South Africa, Thessalace, you take over, is fully delivering according to expectation. Page 15, electronics activity is still very much booming. Indeed, momentum in electronics is very strong in all segments with over plus 17% growth in carrier gas, specialty materials, equipment, and installations. This growth is supported by significant contributions from startups and ramp-ups, and to be noted, a strong pricing effect in specialty materials driven by rare gases. Finally, in health care, despite a high comparison basis last year due to COVID-19, sales are up, driven by dynamic home health care. Lower volumes overall for COVID-19 in medical gases have been largely offset by strong sales in proximity care in the U.S. Homelscare grows continue to be strongly supported by diabetes and the contribution of an acquisition in Poland. Finally, specialty ingredients are also dynamic, and on a pricing standpoint, this has improved and is positive in all regions. On page 16, our performance improvement has been again demonstrated by an operating margin being up plus 50 basis funds for both the group and gas and services. This is excluding the impact of the increase in energy pass-through in large industries. Getting into the detail, we can see that purchases and other costs have been impacted by the increase in energy price, as well as inflation, which is also an increase in personal expense. Depreciation is well managed, the impact of startups, including the SaaS impact, being well offset by drops during the year. This has resulted in an operating margin, excluding energy at 18.5%, which is 16.1% as published, of course, due to the energy dilutive effect. Again, a significant plus 50 basis point increase, excluding the energy price impact. This margin improvement shows the strength of the business model and our performance overall, all the more that it compares with a high basis effect last year. And despite the mechanical dilutive effect of the energy price and overall inflationary increase in our merchant sales. Page 17. This margin improvement is supported by a structured margin improvement plan that continues to deliver. As you can see, I am pricing as significantly accelerating again in our region at a fast historical pace. We'll come back in more detail in the next slide. We have also ramped up our efficiencies in Q2 to reach 167 million euros in the first half, despite the significant adverse effect of inflation on our procurement activities. As you know, avoided costs are not reported in efficiency, and they were significant and contributed positively to the performance in the first half. Portfolio management has been further pursued. We executed three divestiture and closed eight Bolton acquisitions over the period with our continued focus on profitable and margin-accretive opportunities. We keep a strong focus on margin improvement, working on all possible levels. As you can see on page 18, our pricing action in Merchant has significantly accelerated in every geography to reach plus 14.4% overall in Q2. Our pricing campaign has been again executed in a very quick and inefficient way with record impact, mainly in package gases, leveraging on our escalation formula, surcharges, and pricing actions to address inflation and pass through the spike in energy costs. In Q2 alone, Europe achieved a plus 22% year-on-year pricing impact, a record landmark with pricing strong in bulk, while the Americas delivered a plus 13%, and with a notable sequential acceleration in Asia at plus 7%, mainly in China year-on-year. Let us now review quickly the bottom of the P&L. I am now on page 19. Non-recurring operating income and expense have been impacted mainly by two exceptional non-cash items for a net impact of minus 270 million euros. First, we took a controlling stake in one of our large ventures in China, which triggered the revaluation of the asset, with an exceptional non-cash book gain around 200 million euros. Then we adjusted down the value of Russian assets and recorded an exceptional non-cash provision amounting to approximately minus 400 million euros. Net financial costs are stable following the progressive deleverage. Cost of debt is indeed close to last year H1 2021 level at 2.96%. On an effective tax rate standpoint, our ratio is also stable at 25%. As a result, while net profit as published is up at plus 5.3%, recurring net profit is significantly up at plus 20%, excluding a fixed and excluding major exceptional items that have no impact on the operating income recurring in H1, aligned with our guidance. On page 20, as mentioned before, cash flow has been also very strong at plus 11.5% at constant FX, which is 23.5% of sales, plus 60 basis points versus last year, if we exclude the energy effect, which provided the capacity to finance dividends of $1.6 billion, and a high industry and financial capex at 1.5 billion euros. Net debt is stable at 12 billion euros versus last year, despite a negative 500 million euros currency effect. Our gearing is now at 46%. Page 21. The 12-month portfolio of opportunities remain at a very high level of 3.3 billion euros, despite a very good level of decision for the quarter, supported by both energy transition projects, above 40%, and a high proportion of electronic projects. Our industrial and financial decisions for the semester have still been dynamic and selective to reach a very strong level at 1.8 billion euros. Finally, our investment backlog is still very solid and very high at 3 billion euros, and despite major startups during the quarter, representing 1.1 billion euros of additional sales after full ramp-up. I am now on page 22. We got about €213 million sales contribution from startup and ramp-up during the first semester, and we expect to reach a full year startup and ramp-up contribution to sales between €410 and €435 million, including €35 million from SASOL, accounting for insignificant perimeter. Page 23, cumulative effect of strong results and cash management are delivering a return on capital employed of 9.7% recurring at the end of June 2022. As you can see, we are very well on track to reach our advanced objective to meet double-digit level ROCE by 2023, as we announced during our Capital Market Day in March this year. To conclude, on the basis of our strong performance in the first half of 2022, despite adverse effects in H1, We confirm our guidance for this year. It's totally aligned with our advanced strategic plan objective presented in our CMD last March. Again, thank you very much for your attention.