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.