L'Air Liquide Ord

Good morning, ladies and gentlemen, and welcome to the Air Liquide Fall Year 2024 Revenue Conference Call. All participants are currently in listen mode only until we conduct the 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 Audrey Rodriguez, Head of Investor Relations. Thank you very much for attending the call today. François Jacob and Jérôme Pelletier will present the performance of the full year 2024. For the Q&A session, they will be joined by Émilie Mouren-Renoir and Adam Peters, both Group VP, overseeing respectively EMEA and North America. Adam is on the phone with us from the U.S. In the agenda, our next announcement is on April 24th for our first quarter revenue. Let me now hand you over to François.

Thank you, Aude, and good morning, everyone. It is my pleasure to be with you today to share the highlights of 2024, which was clearly a record year for Elite Keep. In particular, margin improvement above 100 basis points and major commercial successes that will contribute to our future growth. Let's start with the highlights of our performance on slide three. Building on the strengths of our operating model and the commitment of our teams, our performance KPIs are all positive, especially given macroeconomic and geopolitical context. Sales grew plus 3% on a comparable basis, demonstrating solid resilience. Our strong operating performance in 2024 is reflected in, first, the record level of OIR margin improvement, plus 110 base points, excluding the energy pathway effect, which shows our unweathering focus in execution. Also, the improvement in recurring ROCE now reaching 10.7% in spite of increased investment. And the second year of significant decrease of CO2 emissions, now 11% below the 2020 level. And lastly, we have secured future growth as reflected in our strong backlog of 4.2 billion euros made up of signed growth investment projects that are now under construction. In 2024, despite the macroeconomic conditions, we have been able to deliver simultaneously on growth, financial and extra financial performance while preparing for the future. This is a strength of Elicib. Let's come back to the record level of the operating margin improvement on slide four, and let's take some perspective. As you can see on the graph, after years of underlying yearly margin improvement between 10 and 20 basis points, we stepped up our performance in the range of 70 to 80 basis points. With advance, we maintained and now accelerate our margin improvement further in 2024, reaching a higher level above 100 base points of margin improvement. This momentum clearly shows our commitment to deliver even higher performance. How do we deliver on this new step up? I am on slide five. You already know the three pillars supporting our performance, pricing, efficiency, and portfolio management. These remain. and are even being reinforced as Jerome will present later. In 2024, we launched transformations to boost structural efficiencies. And the first results have already contributed to the record level of 500 million euros of efficiencies delivered in 2024. Let me give you some examples. First, streamlining of the organization. The objective is to reduce several layers throughout the organization. As an example, we removed regional hubs that were supporting the operations in Europe, Americas, or Asia. Also, we are going deeper in each entity to flatten the organization and expand span of control. This transformation is almost completed in the Americas and Asia. and is well underway in Europe, given the complexity and the required social processes. Another example, leveraging business service centers, BSEs. We previously had several small BSEs in each main region, mainly for accounting support functions. We are now setting a limited number of larger BSEs, extending their scope, to transactional tasks in HR, procurement and IT, and managing them globally to benefit fully from economies of scale. We can also talk about industrial initiatives. In primary production, we launched a systematic deployment in 400 sites worldwide of best practices, automation, and a set of digital tools. Also, in our commercial practice, we have identified five main processes that have been reviewed and benchmarked to enhance the efficiency of commercial practices worldwide. This deals with the review of fundamentals such as pricing management, daily routing, training, but also performance monitoring and rewarding through new strict incentive schemes. As a side note, for all those transformations, we are and will continue to leverage data digital tools and the new capabilities of AI. The overall objective of this transformation is to be more systematic and disciplined in the way we work, deploying standardized systems and routines with well-defined processes to be both reactive when we need to be close to the field and efficient to leverage our size. The end goal is to be more performant and more relevant for customers. However, while aiming for a state chance with significant impact, we will, of course, preserve Air Liquide's DNA and the core values that make us who we are. Extra-financial performance is a fundamental ingredient in Air Liquide's DNA. I am now on slide six. While being focused on financial results, we remain committed to extra financial performance as it is fully embedded in our strategic plan. In 2024, we delivered broadly across each of the main ESG objectives of ADVANCE. First, safety, our responsibility to all our employees and partners. In 2024, we reduced by more than 30% the lost time accident frequency rate reaching an all-time low for the group. This is very encouraging. As I mentioned earlier, CO2 emissions decreased significantly for the second consecutive year and are now 11% below the 2020 level. Carbon intensity is reduced by 40% compared to 2015, well above the minus 30% objective set for 2025. In 2024, all 67,000 employees are now under the same common basis of care coverage. And finally, we now have reached a level of 33% of managers and professionals being women, a reference in the industry. Let's move to slide seven. While delivering financial and extra financial performance in 2024, we are also preparing for the future with a record high level of investment decisions reaching 4.4 billion euro. You can clearly see on the slide the acceleration from 2 billion euro of investment decision up to 3 billion from 2018 to 2021, and now above 4 billion level since 2022. On slide eight, included in this 2024 investment decisions, we have positioned on the map the major projects signed worldwide in 2024. We are leveraging leading positions across the USA, signing contracts in the electronics with Micron, and in energy transition with LG Chem, producing materials for batteries, plus, of course, the largest project ever signed by the group with ExxonMobil on the Gulf Coast with their low-carbon hydrogen project. Looking forward, the Americas is where we have the majority of investment opportunities at above 50% of the total. In Asia, we are leveraging our global number one position in electronics, developing our business and investment there. And we sign also new contracts in other industries with Banhua in China, for example, or Mitsubishi Material in Japan. And finally, Europe, where we are clearly leading the energy transition. And I would like next to zoom on Europe. Indeed, in spite of the challenges for manufacturing in Europe, we see customers requiring decarbonization solution in selected sectors. In the past couple of years, there has been a lot of unrealistic hope, I would say, even if maybe height on hydrogen. We welcome a much more realistic time which confirms our strategy where low-carbon hydrogen plays a key role in decarbonizing selected industries. For the time being, refining and biorefining, supported by European and national regulations, are leading the way of commercial applications. We have identified and successfully seized these opportunities. We have now an indisputed leadership position in energy transition capabilities. We have announced seven low-carbon hydrogen units, including four units that are in operation or under construction. This gives us a lot of credibility with our customers to continue to support them in their future decarbonization needs. There is one very important point I would like to make regarding all our commercial successes in Europe, but also globally in the US and in Asia. It is the key role of our differentiating technologies, being the large size electrolyzers, the modular oxygen plants for Exxon, or the patented energy efficient nitrogen generators for electronics. In our industry, technology and Innovation leadership matters. All these projects provide us with strong visibility in terms of future growth, of course. Now moving to slide 10, I want to reiterate our commitment to create value for our shareholders. We remain committed to rewarding our shareholders. We propose to the vote of the General Assembly a dividend per share of 3.3% in 2025, it's an increase of 13.7% compared to last year, and it provides a 7.8% average TPF growth over the last 20 years. I take this opportunity to also highlight that the 1 for 10 free share attribution in June 2024 will result in associated dividends for these free shares. The annual average TSR over the past 20 years has reached 12%, proving our commitment to delivering shareholder value over the long term, enabled by our resilient and growth-driven business model, and of course, our strong focus on margin improvement. Leaving here the 2024 results, I would like to step back and look at our performance trajectory. First, on slide 11, after three years, of our four-year strategic plan, all our objectives are well on track. Two objectives have already been successfully reached. The recurring ROCE sustained above 10% since the end of 2022, one year ahead of the plan. And after two consecutive years of significant absolute CO2 emission reduction in 2023 and 2024, we confirmed the achievement of the advanced strategic plan projected inflection point for our absolute value of the CO2 emission already. In 2025, the evolution of CO2 emissions should be limited. Also, two objectives are firmly aligned with our ambition. Comparable self-growth calculated from the end of 2021 to the end of 2024, at a constant energy prices and exchange rates of 2021 are now reaching 6.5% per year. Investment decisions with cumulative amount from 2022 to 2024 at 12.7 billion euro are well on track. With this in mind, I would like to finish with today's important new announcements. the second upgrade of our margin improvement ambition on slide 12. You remember, we set our initial ambition in March 2022 at plus 160 basis points over four years. Given our good performance at midpoint of advance in February 2024, we revived this upwards to plus 320 basis points, doubling the original ambition. With the 2024 performance, we are now at 260 basis points since the start of advance. So today, we are raising the target for the second time and extending it by an additional year. It now stands at plus 460 basis points over five years from 2022 to 2026. It means at least the cumulative plus 200 basis points additional for the period 2025 to 2026. The second step up of our margin ambition shows our confidence and strong commitment to deliver. Thank you for your attention. I will now ask Jérôme to present the details of our financial performance. Thanks, François, and good morning, everyone. So we now review our numbers in more detail. Coming back to the full year and now on page 14, group cells have been resilient overall in a still very difficult environment. On a comparable basis, excluding energy pass-through and forex, there was no significant scope effect in 2024. Per-gallon services cells achieved a plus 2.7% increase versus last year. Turning to the more smaller segments, engineering construction cells have increased by 6% in 2024. Order intake has increased significantly up to 1.8 billion, plus 20% versus last year, with third-party sales representing only 23% of it. Global market technologies are down minus 2.5%, but show an increased extreme divestiture for aerospace and defense activity, while order intake reached a solid 7.75 million euros. I take this opportunity to inform you that part of the group structural transformation where we moved the engineering and construction and the GM&T activity into a new engineering and technology business unit. Financial reporting will follow this new organization from 2025. So overall group sales are up plus 2.6% on a comp basis versus last year. The contribution from Argentina is at plus 1.9% for the year. As a reminder, Argentina has no impact on published variations. Specific to Q4, comparable growth is at plus 1.8%, with a sequential decrease of the Argentina contribution at only plus 1.2%. The impact on Argentina is expected to be limited in 2025, of course, if there is no further devaluation. All gas and services business line delivered growth in 2024, led by healthcare and improved electronics performance, From a geographical standpoint, the Americas have delivered the strongest growth, while Asia improved in the last two quarters. EMEA grew, excluding the effect of the sales of a co-gen unit in Germany, remember, in January 2024. Let us now review the activity for each of our main geographies. My comments will be mainly related to Q4, and I'm now on page 60. You will notice that we have merged reporting of Europe and Africa Middle East in the same geography. You can refer to the appendix for reconciliation with the former format. Sales first in the Americas have been strong and have grown in all business lines to reach plus 5% on a comp basis that includes plus 3% from Argentina. Large industries in the U.S. were solid, benefited from a major startup contribution and from going by base volumes in air gas for chemicals. H2 was lower as we faced some customer turnarounds in that time. In merchant sets, we are driven by the continued solid pricing effect at plus 6% year-on-year, supported by active pricing management at Airgas, which represents 60% of the pricing impact in the Americas, and in Argentina to counter local hyperinflation. Gas volumes at Airgas remain resilient overall, excluding our goods. Growth in healthcare was strong, supported firstly by strong pricing and resilient volume in proximity care in the U.S., and secondly also by strong pricing in Argentina and increased number of patients in home healthcare in Latin America. Finally, electronic cells were robust, supported by good growth in carrier gases and advanced materials, while equipment and installation are to be compared with a strong base last year, while specialty materials remain low. Now, cells in EMEA are slightly down with continued strong growth in SKA. In large industry EMEA, demand from customer remained at a low level, slightly better in chemicals, while hydrogen volume were impacted by some turnarounds, notably a major one at Kimbu. In addition, comparable cells grew, excluding the impact of the cells of a cogent unit in Kimbu. In merchants now, as explained in the last quarter, we saw a decrease in bulk pricing due to the energy indexation in our contract in the context of a decline in energy across. Thanks to proactive actions, pricing has overall turned positive in Q4 with a strong contribution from packaged gas, which is a good and very good performance. Volumes remain soft. I remind you also the impact of the divestiture of activity in 12 African countries. Finally, health care growth was solid at plus 3%. Cells have been supported by strong home health care activity, notably in diabetes and sleep apnea, while with the number of patients increasing. Growth in medical gases remained solid, helped sustain pricing action in response to inflation. Finally, activity in Asia enjoyed growth, solid growth in Q4, confirming the Q3 trend. In large industries, sales growth benefited from startups in China and new volume in Korea. Sales in merchant were down, mainly impacted by helium in China. Excluding helium, cells were stable in Asia. In China now, cells were stable and growing, excluding helium, especially in packaged gas, benefiting notably from the contribution of Bolton acquisitions. Electronic cells strongly improved thanks to carrier gases supported by the startup contribution, very high sales of equipment and installation, and growth in advanced material, while specialty materials remain soft. I will now comment on our Q4 activity by Business 9, now on page 17. In Merchant, we continue to see solid pricing with plus 3.6% in Q4 and about plus 30% over the last years, the last four years, sorry. Overall volumes remain soft, mainly in Argos in the U.S. and Helium in China. In large industries, startup contribution offset turnaround. 2024 startups have positively contributed in China and the U.S. in Q4. From a market standpoint, chemicals have slightly improved in the U.S. and Europe, while steel has been stuffed overall. Activity was impacting again by the sale of a cogen unit in Q1, in Europe in Q1, as well as turnaround in Q4, including a major one in Saudi Arabia, which now has been completed. Page 18. Electronics has shown growth in all regions. Sales benefited from a very solid contribution from carrier gas, start-up and ramp-up during the quarter. In addition, advanced materials have improved in the US and in Asia, while specialty materials remain low. Finally, in healthcare, we still pursue strong trends with growth in both Medicare gases and home healthcare. Home healthcare was again very robust, supported by sleep apnea, oxygen therapy, and diabetes. In Medgas activity, sales growth was solid, with steady pricing addressing inflation in the Americas and in Europe. On page 19, as François mentioned, the success of our performance plans has been again demonstrated by an improved operating margin, which was up by a record plus 100 basis points, excluding the impact of the energy pass-through effect for financial year 2024. Getting into the detail, purchases have decreased following the decline of energy prices, many in Europe, while personal expenses have increased below inflation. Depreciation is well contained. This is resulting in a group operating margin close to 20%. Again, a record plus 110 basis points increase, excluding the impact of the energy pass-through. And to be clear, there is no impact from Argentina here. On page 28, this margin improvement is supported by a structured execution plan based on three pillars. First, IAM pricing is solid despite a high comparable basis as you see on the graph. As François mentioned, we have also executed a record level of efficiency close to 500 million in 2024, significantly above our yearly advanced objective of 400 million. This takes into account the first efficiency delivered thanks to the deployment of our structural transformation initiative as mentioned by François. Portfolio management has been pursued. We closed 20 acquisitions in 2024 and executed 17 divestitures with a continued focus on strategic, profitable and margin accretive opportunities. Let us now quickly review the bottom lines of the P&L. I am now on page 21. Non-recurring operating income and expense accounts for $446 million. Restructuring costs account for slightly more than $200 million, as we informed you last quarter. The rest mostly coming from non-cash impairment of assets. Net financial costs are stable, with lower net cost of debt and slightly higher other financial costs. The cost of debt remains stable at 3.4%. On an effective tax rate standpoint, our ratio is at around 24%, slightly up versus last year. as the 2023 tax rate benefited from a low tax rate on the sale of our state in hydrogenics recorded in 2023. So net profit growth is up plus 7%. Recurring net profit excluding Forex is significantly up at plus 11.5%, plus 5% excluding Argentina. On page 22, our strong cash flow of finance increasing CapEx at 3.8 billion gross value, or 3.6 billion euros net, plus our dividend distribution, while our debt remains stable despite a non-favorable currency effect at the end. As you can see, recurring return on capital employed continues to ramp up, above the 10% objective in advance, and despite the increase of investment. And again, to make it clear, there is no impact from Argentina on this metric. On page 24 now. The 12-month portfolio of opportunities at record level of €4.1 billion. Our total industrial and financial decisions for the quarter also reached a record high level of €4.4 billion. Finally, our investment backlog remained very strong at €4.2 billion, well balanced across geographies and business lines. And to re-emphasize, this backlog is only made of gross projects. And projects in electronics represent one-third of that total backlog. It will significantly increase when it will include the full amount for the ExxonMobil and Eligator project. We achieved €250 million of sales contribution from start-up and run-up in 2024. And for 2025, we are confident that the contribution from start-up and run-up of projects will increase significantly to deliver more than €310 million. On page 25, as François mentioned in his introduction, you see here our new guidance for 2025 and the margin improvement outlook for the next two years, a second step up in our ambition now to reach plus 460 basis points over five years, 2022-2026. Thank you very much for your attention. I now hand over to François for his conclusion. Thank you very much, Jérôme. To conclude, 2024 was a record year, both in terms of margin improvement and major project wins. Now looking ahead, notably thanks to the ongoing structural transformations, we commit today to a second step up in our margin improvement ambition, providing you with increased visibility to our performance for the next two years. Our strong backlog on growth projects is also a key indicator of future growth. I strongly believe technology is a key enabler. It is one of our strengths and embedded in all our business offerings to our customers. We are fully committed to delivering regular earnings growth that will come both from top line growth and from the ongoing accelerated operational margin improvement. We'll stop here and open the floor for Q&A.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to your first question. One moment, please. And your first question comes from the line of Alexander Jones from Bank of America. Please go ahead.

Good morning, and thanks very much for taking my questions. Two, if I can. First, on the margin, thanks for the new guidance and all the detail around it. Can I ask you to look out a little further once you've finished this plan at the end of 2026 and delivered another 200 basis points? Will the group then be in a place you're happy with from a sort of profitability, performance and efficiency perspective? Or do you see the opportunity to continue significantly expanding the margin at a similar pace in the years thereafter? And secondly, you talked about the strong investment decisions last year. Could you also talk about your customer conversations more recently around clean energy projects, given the policy uncertainty, I guess, both in the U.S. and Europe, and whether that's delaying you and your customers taking any final investment decisions in 2025? Thank you.

Thank you very much, Alexander. Regarding the margin, so, yes, you have well noted that we have increased and extended our margin improvement ambition. up to the end of 2026. What's next? It's a little bit too early to commit on this, but you can imagine that the structural transformation that we are putting in place will continue to deliver margin improvements in the year after 2026. So, improvement of the margin is an endless fight, I would say, and commitment. So I'm not going to give you numbers, but indeed, the massive structural transformation that we are undergoing will take effect in 25, 26, and the year beyond. Regarding the customer feedback in the current context, I will ask Adam to comment on the U.S., and Emily also to comment for Europe, two of the main regions. Adam, do you hear us?

Yes, I do. Thanks, Francois. And, Alexander, thanks for the question. Maybe speaking specifically about the U.S. and obviously in the context of the new election and basically looking at the clean energy projects in the U.S., I'll make a few remarks about that. I think we've gotten some clarity in some cases, and I think we're in the definition, the continued definition phase in other cases. So if you look at the regulations around 45V, 45V is obviously an important aspect for clean energy projects in the U.S. I think we've gotten clarity in 45V in January, and now I think we're in this period of definition where the new administration is looking at what are their priorities going to be going forward and how do they want to look at the energy space going forward and what does that mean. I think what this means overall, when I talk to our customers and I look at where we're working and where we're developing projects, is that the developments continue to remain very, very high. But when I look at the investment decisions, I think investment decisions will largely be delayed until the second half of this year. So I think the developments will continue. I think many of our customers remain bullish about what's going to happen. But I think until we have clarity from the administration around priorities, I think we're going to wait and see investment decisions more in the second half of this year. So overall, pretty bullish, given the slate of opportunities in front of us, and certainly the work done in 2024 in this regard.

Thank you very much, Adam. Some perspective from Europe, Emilie? Sure.

Thank you for the question. So, in Europe, we still see, I would say, active project development. We've had significant wins and commercial successes throughout the year, and especially in the field of clean energy. We had Lamed, but also more recently, as you've seen, the announcement for two large-scale electrolyzers in the Netherlands. to supply renewable and low-carbon hydrogen for an investment of about 1 billion euros. However, several projects FID are taking longer than expected, given with regulatory uncertainty. Some customers look for clarification of the regulation or other incentives. If I look just a little bit from what we hear from our customers in the different markets and sectors, Some sectors like the steel industry are taking, I would say, a pause as they struggle to find the right economics for their decarbonization program. Other sectors like the cement industry are continuing on their journey, and we continue to have very active discussions with them. You know, a number of them have been granted funds already from Europe. Now it all depends on finalizing the regulation and some mechanism like the CCSD notably to make a final decision. So overall, I would say in Europe, the momentum is still here. We see positive signals. We've had major recent wins, and RET is leading in energy transition in Europe, leveraging our innovation and technology capabilities.

Thank you very much. Next question, please.

Thank you. Your next question comes from the line of from JP Morgan. Please go ahead.

Hi, thanks. You know, Jerome and Franca, you've taken one question away from us. You know, we used to bugger you always, you know, what margin guidance do you have, and you've already given us at the start of the year, so maybe a different question. You know, at the moment, of course, there's a bit more hopeful. At least people are hopeful that Europe can become great again. But just stepping back, you know, at the moment, we are seeing chemical plants shut down, steel plants shut down. And I'm just curious, how does that impact liquid in five to ten years overall? You know, once that plant goes out of the take-or-pay contract mode, do you have to write it off? Do you have to... what exactly, how does that play for a liquid in the long term? And the second question was, can you confirm, maybe because there's a bit of a confusion in terms of when do you recognize and announce a project on onsite? Let's take an example of the Total projects. Have they both been FID'd by Total? Because I think with the Exxon, it didn't reach the final investment decisions. I'm just curious, how does Aliki decide when to announce and include these projects in the backlog and start spending on it? Thank you.

Thank you very much, Shetan. I'm really sorry that I'm taking some questions out of your list, but I think it shows that we listen to you and to our investors, and we clearly stand with our conviction that We can and we will improve the performance of the group even further. So I think you appreciate, I mean, the visibility and the commitment of the margin improvement, and I would say this is just the beginning. Regarding Europe, this is true that Europe is going through a kind of moment of truth regarding the industry. There are many issues and topics. However, we should not undermine the strengths of Europe, both in terms of innovation capabilities, but also, I would say, direction for the transformation of the industry, the manufacturing and the decarbonization of the industry. This being said, it's a time of transformation. So what does that mean for us when we have long-term contracts? You know very well that the basis of our model is to make sure that we match the economic lifetime of our assets with our contracts. So this means that when we arrived at the end of the contract, we typically have no or limited exposure for the assets, taking into account also that in Europe, and that's one of our friends, many of our assets are shared assets on the network system, meaning that they don't rely only on one customer, but a set of customers, which is one way also to be more resilient and to manage the decrease or the shutdown of some of the units. But I think we have to face the fact that part of the industry in Europe will disappear. But as mentioned by Emilie, we see also new opportunities. And I think that's extremely positive. And again, the fact that Air Liquide has a leadership position and is being able to leverage both our asset base, our customer intimacy, and our technologies, I think is very promising. When we talk about cement, the cement industry is not a current customer. It's a massive opportunity for us in Europe. So in five years, ten years down the road, we can imagine that part customers of today will be replaced by new customers in the seventh, for example. Now, let's come back to your question about the FID and what you have seen, because this is true that we have announced in the past few months partial amounts in the investment decision, being quite cautious for some of those projects. Jérôme, maybe you want to give us a little bit more detail. Maybe just a few comments. Thank you, Chetan, for this question. You know, first, in terms of backlog, something which is important, we only account for growth in our backlog.

They're only growth projects. That's very important to remind. That's the first point. The second point is that when do we recognize an announcement of project, for example, we do it fully when, you know, there is, I would say, all the conditions precedent to make it happen that are listed.

So we have recorded, as you remember, around 100, more than 100 million so far in the backlog, which is totally covered by the customer of this. For the rest, you know, we discussed also with Adam that the FID is expected today around H2 2025. You know, that is conditioned also to make it happen, for example, Exxon is applying CFD subsidy scheme in Japan. So this, of course, will take over. But basically, you know, we are taking this in account when all the conditions are met. For total, that would be the same. And we are having a cautious approach, but when it is backlogged, it's guaranteed and we are fully secure for the growth to come. So this means that, Chetan, the investment decision numbers and the backlog, only account partially for those large projects. Again, very prudent approach. We register only the amount which is covered contractually with the customer. That's very good. That's very clear. Thank you very much. Thank you very much, Etan.

Next question, please. Thank you. Your next question comes from the line of Laurent Favre from BMP. Please go ahead.

Yes, good morning, all. I've got two, well, one question on margin target, another one on the study-related, but a bit different. On the margin target, can you tell us what you're assuming for volumes recovery and how much of that target is really more self-served, start-up driven, rather than the assumption on operating leverage on hopefully some volume growth at some point in time? And the second question, a bit related, is around the change of incentives that I think you've mentioned. Can you talk about, I guess, at what level of the organization this is implemented and what behavioral changes you're trying to drive? Thank you.

Thank you very much, Laurent, and good morning. If I want to make it short, I think our commitment for margin improvement is independent of the volume growth. clearly, I mean, to continue to provide improvement in the margin. This being said, we see some leverage during the year regarding the volume. If we just step back, what we see is clearly we expect some continuous gradual recovery, following probably the same trends as what we have seen in the past few months, which means that overall it will be probably in line with the Q4 last year, but picking up as the year goes. And I can give you a little bit more granularity on this, because I think the outlook is quite important. We will continue to see step-by-step recovery in electronics, which was clearly seen in the Q4. And we have signals that it does continue, especially in the carrier gases and the advanced material, starting with Asia, but also going in other regions. In the U.S., we expect to continue to see very solid pricing, which, by the way, is a good protection against the inflation that may come back or stay. And we do expect also to see a continuous volume pickup, especially in large industry, as we have seen in the past few months, and also potentially in industrial merchants, as also the economy will develop in the U.S. For Europe, we do expect to continue to see overall a slow Europe with, as we just mentioned, ongoing restructuring. For China, Because that's a big question. We continue to see upward trends in China, clearly in electronics with a strong momentum, but also at least for us in IM due to our footprint and good resilience presence. And finally, we will continue to see a steady growth in healthcare with confirmed positive pricing, especially in the med gas. and also some volume, mostly in the home healthcare. So overall, in the current context, and I would say with all the geopolitical implications, of course, we must remain cautious and agile. But this means that while we see an overall gradual recovery, we will continue to deliver values for our internal initiatives, as we just mentioned, demonstrating our resilience, And we will, of course, seize all the opportunity wherever they are. So I hope it gives you some view on 2025. I would say, again, continuous recovery during the year with some impact on the volume expected. Regarding the incentive, as we mentioned, we are changing the way we reward and recognize the performance in the organization. We are starting, of course, with the executive committee, and then we are going down for this year in the organization with all the key managers of the group being clearly rewarded for performance. This is also going down in the organization in some specific functions. like the commercial team where we have clearly reviewed the incentive schemes, both in terms of content and in terms of frequency to be much more reactive and to value, I mean, the contribution to the margin of the commercial team. For the initial operation, we are also, I mean, looking at clearly identifying some KPIs related to the industrial performance, and we are enforcing this in the variable part of our teams worldwide. So you see it's pretty broad, and I think it's very important that we have a clear view on our incentive schemes, well aligned with the strategic direction and the priorities of the group. All right? Thank you. Thank you very much.

Thank you. Your next question comes from the line of Jean-Luc Romain from CIC Market Solutions. Please go ahead.

Good morning. I would like to have some color on the contribution to margin of the outgoods compared to the rest of IN in the United States.

Good morning, Jean-Luc. I will turn over to Adam to talk about the hard goods in the U.S., maybe a little bit about the trend and the contribution, and also what we have been doing in terms of portfolio in the past year.

Adam? Yes, absolutely, Francois. So, Jean-Luc, thanks for the question. So, as we mentioned in our report, hard good volumes posted a marked decline in 2024, while our gas volumes remained resilient. And we see this kind of continuing into 2025. Hard goods remains an important part of the portfolio, and it's sort of mixed in with the gas piece in terms of the importance for margins, but something that's managed well from a pricing standpoint. So in terms of the approach that we take, we have a very strong pricing approach in terms of making sure that we cover our costs well in that and that we take strong advantage of the inflationary context and address that as needed. If you look at what's happening in the hard goods space, and you think about the current context in particular around the election and the like, one of the challenges in the hard goods space has been that there's been some uncertainty around what's going to happen because of interest rates and the like, and also new policy decisions. And this has basically held back capital equipment spending from our customers. So when we look at this, we see that the activity is basically a little bit muted going into 2025, kind of a continuation from 2024. And we expect that to basically abate after we have more clarity and then our customers release capital spending when that certainty comes later in this year.

Thank you very much, Adam. Jérôme, can you remind us what is the share of hardwoods for, I guess, it's about between, depending on the time, but it can be above 25%, below 30%. What is important to know, Jean-Luc, it's a very good question, because when you look at the air gas margin improvement of the last years, every segment contributed to that, including hardwoods. And this is a result of many, many, I would say, directions that have been taken by the management, including as well portfolio management, to make sure that, you know, we are serving the most profitable and I would say segments, including . So I would say the story in terms of margin as well is very good. And again, you know that the pricing in the Americas,

has been stronger as well, including also part of . It's very much the same equity story as regard to the margin improvement .

Thank you very much. Next question, please.

Thank you. Your next question comes from the line of Peter Clark from Bernstein. Please go ahead.

Good morning, everyone. I've got two questions in the clarification, if I can. The first on the question, I think, Jerome, you did call out the 200 million of restructuring charges amongst that half billion or so of operational expenses. Just really concerning that I presume most of that is sort of employee related. And then the second question regarding the IM volume hit in EMEA, you clearly found out the disposables in Africa were an element of that. On my numbers, I get between 1% and 2% of that, but I just want to check that. And then the clarification, this discussion about the uncertainty in the U.S. about the SIDS being second half-weighted, is that the same with Exxon, I presume, and their very vocal talk around the 45B element being also critical for that project? Thank you.

Thank you very much, Peter, and good morning. Jérôme, you're talking about the restructuring cost. Emilie, probably you mentioned about the IM, and Adam, if you can clarify for the exam, that would be good.

Jérôme.

Yeah, good to hear you, Peter. So you're right, in the exceptional item, the expense, This year, we have about a little bit more than 200 million, 223 million restructuring costs. This is something that, you know, we're guiding during Q3, so it's not a surprise. And, yeah, it's related to our transformation plan, of course.

Most of it is cash. It's about one roughly third is cash. The rest is non-cash. But yes, it's related to the transformation that we are undertaking. And it's basically all regions.

Okay. Thank you very much. Emily, some comments on the IEM for Europe and Africa, Middle East, India?

Sure. So going back to your question, maybe on Africa first. As you know, we divested 12 African countries in 2024, so for a 60 million euro business. So that, of course, impacted the IM volumes in this region. For the rest of the perimeter, volumes, especially in Europe, are remaining soft in IM. So activity is steady. have been soft all over 2024, and we anticipate they will remain soft in 2025. That being said, well, we adapt, of course, our structure to that, and we continue very active pricing. So, overall, it's, we still anticipate resilience IM for EMEA in 2025. Again, compensating soft volumes by very active pricing and strong efficiencies overall.

Thank you, Emily. Adam, can you clarify, I mean, the view on Exxon? We cannot speak for Exxon, of course, but maybe you want to put some light on that.

Sure, absolutely, Francois. So, if you look at it, the FID for Exxon, we anticipate it's going to take place in the second half this year. And there's two important subsidies that are related to this. The first one was the clarification around 45V. which was issued in January of this year. And it basically puts in place a mechanism for differentiated natural gas through the new GREET model. So this is actually a very positive thing in looking at that. The second one is, as Jerome mentioned earlier, the application for the CFD in Japan related to low-carbon ammonia. And this timeline is very clear. Basically, the application process closes in March of this year. And following that, we anticipate about a six-month period for review and award, and therefore it puts the FID for the Exxon Baytown project in the second half this year.

Thank you very much.

Thank you very much. Thank you. Have a good day. We have, I think, one or two more questions.

Next, please.

Thank you. Your next question comes from the line of Sebastian Bray from Berenberg. Please go ahead.

Hello, good morning, and thank you for taking my questions. I would have two, please. The first is on merchant pricing. Is there a limit in your mind to how high price increases can go, and how would you expect prices to perform sequentially moving from the end of last year into 2025? I heard the comment that prices would likely be up year on year, but have we basically reached a high point, leaving aside raw material pass-through in Q4, or is there more to come? My second question is on the nature of the contract signed with some new energy customers. So the contract with Total, if I take an example, for Total to make an economic return on that hydrogen compared to existing gray hydrogen in Europe could require double, triple the current carbon pricing in Europe. Are there any unusual clauses in the contract signed with new energy customers that say if there's any change to prevailing regulation, maybe a change to the European emission system, maybe changes to carbon border adjustment mechanism, then we can reopen the contract and renegotiate, or is that not the case? Thank you.

Thank you very much, Sebastian. Regarding the merchant pricing, I will ask Emily to speak about some of the contracts, maybe not the specificities of the total contract because it's confidential and commercially sensitive, as you may understand, but she probably will give you some insights. Regarding the merchant pricing, we do see, I mean, continuous pricing in all the regions of the world. Probably the one where the pricing is the most challenge is currently China. On some specific segments, for example, on helium, and it's basically very limited positive pricing for the rest of the IM in China. But for the rest of the world, as mentioned by Adam and Emily, we see positive pricing, and we see pricing at the same level, taking into account that pricing is very much related to inflation. There's quite a bit of what's going to be the state of inflation, especially in the U.S. for the months to come, and also energy. As you know, that in the bulk part of the business, the energy content is quite high. when the energy prices have decreased, you have not seen a partial increase in the price, but if you remove the energy part in the bulk business, which is related to indices, you see that the underlying pricing is strongly positive in bulk business, but much more in the package gas. So we will play the pricing of course to make sure that at a minimum we recover our cost and we will of course demonstrate the value to our customer to be able to even go higher in the pricing and create more value for our customer but also for Air Liquide. Positive pricing will continue, highly dependent on the economies in the different parts of the world, including the inflation and the level of energy. Now, speaking about what we are signing today in terms of contracts for the energy transition, Emily, do you want to speak a little bit about how we're signing different contracts, and do you have a specific clause in your contracts?

Sure. Thank you for the question. So obviously, like Francois said, the contracts we are signing with our customers are highly confidential, so I won't give you the full details. But overall, there's not so many differences between a contract in energy transition and a typical large industry contractor. So we are very much applying the same business model. We have long-term contracts with strong and strategic customers, like Total Energy or others. We have similar clauses around take-home pay and the like, so that's good. And, of course, we do that when it makes sense both for us and for them. So there's an incentive for some of our customers, especially in the refining industry, to increase the share of hydrogen either renewable or low-carbon hydrogen, so the RFNBO hydrogen is valorized for them, so there is an economic case for them to buy from us RFNBO hydrogen, as well as for us, there is an economic case to build or operate those plants and supply them. of course, on regulations, on incentives, on subsidies. That all is in the process of being clarified in the whole Europe. Some countries are more advanced than others. But overall, again, we are making those decisions on projects based on economic value, both for our customers and ourselves, so when and where it makes sense.

And to be clear, for example, on those contracts, we don't have any provision related to CBAN, for example, or change in the CBAN. This is absolutely true that the overall context of higher value for the carbon being a tax or being an incentive is helping the business case. But as mentioned by Emilie, we have already today regulation which are in place. in some countries, which fully justify the premium to be paid for the low-carbon hydrogen. France was one of the first countries to put some regulation for the fuels. That's why you have seen the Normandy project, the Grand Prix project, the Lamed project. All those are supported by a strong business case. and we do expect that other countries will follow because it's a European regulation that needs to be translated into a national regulation. So again, we keep the same fundamental on the large industry and of course, the value of carbon overall will continue to support those projects. Thank you very much. I think we have a last question to come.

Thank you. Your last question today comes from the line of Tony Jones from Redburn Atlantic. Please go ahead.

Thanks very much. Just a quick one at the end on the new clean deal. I suppose this relates to the previous question. There are rumours that the EU is planning region-wide subsidies for green hydrogen, not just tax credits, but instead subsidies for up to 60% of the project capex. Could you comment a bit about this and what you think that might be, what it might do for growth opportunities if it's implemented? Thank you.

Thank you very much, Tony. Yes, there's a lot of discussion currently on how Europe can continue to support the decarbonization trajectory of the industry and also mobility. So I cannot speculate on things which have not been decided yet, and there's a lot of discussion. But what seems to emerge is that Europe is still committed to the energy transition and the decarbonization of the industry, which, by the way, is an opportunity for Europe to transform its manufacturing footprint and to ensure both, I mean, reduced carbon footprint, but also jobs, employment, and sovereignty. So we do believe this is going to be reinforced, and we hope what's going to change is less complexity in how to basically support the industry and hopefully more support. If indeed, I mean, this is the case, we do expect, I mean, this to unlock some projects are today on pause in various industrial sectors, including the chemical, by the way. So we do expect this to have a positive contribution to the project. But I think one of the key learning of the past few months is that I would say only, only the most solid, good project will survive. And I think that's good. There is a kind of a reality check. Many people thought that hydrogen would be everywhere and would be the silver bullet to solve all the topics of energy transition. That has not been the belief of Fair Liquide. That has not been our strategy. We have been focused on providing value to selected industrial sectors. and making sure that we help our customers to decarbonize whenever it makes economic sense and to make sure that we base our project at scale because we are ensuring industrial needs and with a good and strong economic case. That's what we see, and if the European regulation and framework is moving in that direction, I think for us, we have already taken a clear leadership in the energy transition in Europe, I think will be a great plus. So we are going to stop here. Thank you very much. This concludes our session. Thank you very much for all your questions and your comments. In the coming months, we will, as you see and as you know well, we will remain focused on execution, particularly on implementing the group structural transformations will continue to seize the growth opportunities and of course work very hard to create value for our shareholders i wish all of you a very good day and a good weekend thank you very much thank you this concludes today's conference call thanks for participating you may now disconnect speakers please