L'Air Liquide S.A.

Aude Rodriguez - IR Benoît Potier - CEO Fabienne Lecorvaisier - CFO Pierre Dufour - SVP, Director

Paul Walsh - Morgan Stanley Tom Wrigglesworth - Citi Martin Roediger - Kepler Cheuvreux Neil Tyler - Redburn Patrick Lambert - Raymond James Stephanie Bothwell - Bank of America Francisco Rodriguez - Banco de Sabadell Peter Clark - Societe Generale

Thank you Aude and good morning to all of you. Thank you for being with us.

We know that you had a busy morning in the chemical industry, so thank you for sharing this hour with us. For Air Liquide, 2016 is definitely a successful year and a transformational year.

Successful because we completed the Airgas acquisition from zero to 100. And transformational because it's an increase in size, about 30% bigger in size, once the 100% of Airgas is consolidated.

But also this year was the introduction of our NEOS four year plan, 2016-2020, which was launched in the first half and presented during our Capital Market Day in July. The major steps that were achieved this year are definitely Airgas from antitrust to close of the financing and the successful integration of the IM business in the U.S.

into Airgas. The strategic plan NEOS is definitely also a transformation.

Why? Essentially, because it's customer centric and here I would like to say that the digital technologies are leading us to actually redefine our processes and our systems from customers.

I must admit Airgas is a good benchmark in this respect in the industrial merchant. This is also about growth.

We have a growth plan, which is less capital intensive, which is leveraging the megatrends that we have identified in the preparation work. We will be back to fundamentals in all our businesses but with more digitized components, and we will be operating with a new organization, a sort of network organization, who was put in place at the beginning of last year.

Our portfolio of activities has been adjusted. We have now about 95% of our turnover, which is gas and services.

Some highlights and Fabienne will come back on the detailed numbers later. It's a solid performance.

We have consolidated seven and a half months of Airgas and it was done on top of a robust base that leads to an increase in sales of about 15%, 14.6% exactly; a growth in operating income recurring about 6%. The net earnings was growing at 5%, which is in line with the guidance, and the EPS is also growing in line with the guidance because we have an accretive year after the Airgas acquisition and the rights issue.

One other main characteristic of this year is the strong cash flow generation. It's nearly a 12% increase before a change in working capital and plus 30% after a change in working capital.

And, as a result, the net debt was reduced beyond our forecast to 90% to equity. On this basis, the Board has decided to propose to shareholders a dividend of €2.60 which is actually, when we make the calculation, a slight increase of 2.7% on the adjusted dividend of 2015, which is €2.53 after the capital increase effect.

The payout ratio is about 56% on that basis. And, in addition, the Board has decided to give a bonus share of 1 for 10, which will be implemented in the second half of 2017.

All in all, we start 2017 on a solid foundation with the following blocks. Number one, we've seen the IP, industrial production, stabilizing in the U.S.in particular, which is good news because U.S.

was negative in the past 18 months. I'm talking industrial production index.

The organization is in place. It's been in place since the first quarter of 2016, so we have now one year of experience of this new organization which is working very well.

The scope of activities is now more sustainable I would say after the divestiture of the diving and the welding to be discontinued. A set of NEOS growth, but also efficiency objectives, will be supplemented by the Airgas synergies.

So growth and efficiency plus synergies will be on the agenda. If we look at ForEx and energy, they are turning more favorable in Q4 if they stay more or less where they are today.

And finally, our new visual identity, which is materializing the integration of Airgas and the transformation of Air Liquide in a digitized world, is in place and we are very happy with the first reactions inside and outside the Company. So in brief, it is a new Air Liquide in good marching order that enters into 2017.

I now hand over to Fabienne.

Thank you Benoît. Good morning everyone.

As mentioned by Benoît, we have delivered in 2016 a 14.6% sales growth thanks of course to the Airgas consolidation but also to the performance of our legacy business. Gas and services are at 17.5%, as published, and 2.7% on a comparable basis, meaning excluding the Airgas acquisition, the rated divestitures and transfer of the diving and welding activities to profit from discontinued operation at the bottom of the P&L, as well as the foreign exchange and energy pricing impacts.

As a reminder, all the operations of Airgas and Air Liquide in the U.S. have been merged on October 1, and therefore this figure is an estimate.

Nevertheless, in a changing environment we have delivered growth again above the market and above our peers. Activity has remained weak in engineering and we end up with a 38% sales decrease.

But conversely global markets and technologies have developed very well with new contracts with the space industry and extended activities in biogas. Coming back to the worldwide environment on slide 10, we still have a minus 3.6% ForEx and energy negative impact for the full year, but the trend is progressively reversing as shown in the Q4 figures, which were positive.

Industrial production, as mentioned, is also stabilizing, but was still negative in the U.S. in Q4 despite a certain number of positive signals.

Apart from the Airgas acquisition, our main drivers of the year have been the strong performance in large industries throughout the world, and in particular in America and in the Middle East, the growth in healthcare activities, and the positive development our innovative and high tech business under the leadership of global markets and technologies. Developing economies have also performed very well at plus 8% for the year driven by China, Turkey, Poland, and Latin America too.

I will now try to give you more color about the Q4 activity in the various geographical zones. Europe first shows a 2% growth for the full year with a better Q4 at 4%.

Large industries have shown robust volume in air gases, but also have benefited from an exceptional due to a contract renegotiation with one customer at the end of the year. In Industrial Merchant, we saw more of the same in Q4.

Bulk volumes continued to recover very progressively, while cylinder and the volumes remain very contrasted between market segment and regions. On the positive side, Merchant in southwest Europe is up and Eastern Europe is very strong.

The pricing in Europe continued to be down slightly at minus 0.7%. Healthcare accelerated a little bit in Q4 in Europe compared to the beginning of the year at plus 5%.

Americas are up 120% in Q4, thanks to the Airgas consolidation and flat on a comparable basis. Oxygen volumes are very strong also compensating for several turnarounds on the hydrogen Gulf Coast network.

In Merchant, North America remains weak despite positive signals, in particular for packaged gas, for construction, in the context of still negative industrial production. Central and America is strongly up and Latin America benefits from positive pricing again.

Globally, for the zone, prices are up 2.6% in Q4. Healthcare in Americas continued its strong progression driven by South America and Canada with the contribution of small bolt-on acquisitions.

Moving to Asia, growth is lower in Q4, but it's mainly due to turnarounds in Large Industries and to lower electronic sales in Northeast Asia compared to last year where we had high equipment and installation and neon sales. Electronics remains strong, very strong, in the rest of the zone.

Merchant is a little weak in Japan but very solid elsewhere, in particular in China. And the global pricing effect has turned positive in Q4.

Australia is also back to growth and global [indiscernible] activity is solid. Africa and the Middle East is down in Q4 in connection with maintenance at Yanbu in Saudi.

South Africa continues to deliver modest growth when Egypt is strong in all business lines. If we look now at those business lines, we'll find the same trends.

Large Industries up 4% in Q4 with several significant turnarounds being compensated by high oxygen volumes at plus 6% and the positive one-off in Europe. Industrial merchant is up 74%, but comparable activity remains very contracted with better bulk volumes when packaged gas is still challenging in North America, some parts of Europe, and Japan.

In terms of markets, food is growing, manufacturing is stabilizing, and construction is still down. Average pricing effect is better, recovering close to plus 1% in Q4.

Healthcare is up 17% with the Airgas contribution. On a comparable basis, it continues to deliver a steady 5% growth with Home Healthcare at plus 5%, stable medical gases and very dynamic hygiene and specialty ingredients.

Electronics is penalized by a very high comparison basis for equipment and installation as well as specialty gases for the second part of the year. Carrier gases are up and advanced materials continued to grow around 20%.

In engineering and construction, order intake improved slightly in Q4 but activity remains low compared to last year. On another hand, global markets and technologies orders are very strong, above €400 million, supported again by space and renewables.

Let's move now to the performance analysis on slide 17. It is not an easy task this year with the Airgas consolidation, the divestitures, and the reclassification of the other activities in profit from discontinued operation.

We also recorded a large number of exceptionals, as you can imagine, in line with the Airgas integration. With published sales being up 14.6%, purchases remain well controlled at plus 13.6%.

Personnel expenses and other expenses grew quicker than sales and this is mainly due to the business mix with more business in industrial merchant, which is more [indiscernible] in large industries for example. The weight of labor costs is increasing.

On top, depreciation is increasing quite strongly, in line with the start-up of the year but also due to the amortization linked to Airgas and to the Airgas purchase price accounting. As a result and due to the effect of the Airgas integration, operating margin decreased to last year of course but remains very solid at 16.7% of sales.

Efficiencies for the year are very high at €315 million, or 2.7%, of the cost base and are already more than aligned with the NEOS objective which was at €300 million starting in 2017. Industrial projects accounted for 45%, procurement close to 35%, and administrative are high at 20% in connection with the values adaptation plans of the year, in particular in engineering.

The retention rate is above 25%, which is a decent level, given the challenging pricing environment. The first Airgas synergies are also materializing, in particular since the operational merger in October.

And $45 million have already been recorded and we classify them in four major domains. Cylinder operations, where redundancies are eliminated progressively and sites closed, bulk operations from sourcing to logistic, processes and procurement, and of course, back office.

Regarding the Airgas synergies, the global $300 million objective is of course confirmed. Cost synergies should be delivered before the end of 2018 when revenue synergies will be deployed over a three-year period.

The 2017 objective is to deliver more than $130 million additional synergies as shown on slide 20. Looking now at the bottom of the P&L, other non-recurring income and expenses show €36 million positive, which is the balance of the capital gain recorded on the FTC divestitures in the US, and the full non-recurring acquisition and integration expenses linked to Airgas.

€60 million of restructuring expenses have also been recorded in various countries in the legacy business to better adapt to the market conditions. As explained a few months ago, the capital gain recorded in the year with U.S.

divestitures fully compensates the non-recurring charges linked to Airgas, including also around €30 million of non-recurring financing expenses. These non-recurring financial costs, together with the increase of debt linked to the acquisition, concur to the €403 million of net financial expenses.

However, thanks to the successful Airgas refinancing, the average cost of debt has decreased from 3.6% last year to 2.9% now, which is pretty low, knowing that the average duration is now above six years and that more than 90% of the net debt shows fixed rates. Profit from discontinued operations shows for 2015 the net profit of the diving and welding activity.

In 2016, the capital gain on the diving sale has been balanced by an impairment of the welding business value to prepare for divestiture. All in all, net profit Group share is up 5% and the net income per share after the dilutive impact of the rights issue is also up by 2.4%, in line with our guidance.

In line with guidance as well, gearing is back to 90% after a peak above 150% at the end of June. The cash flow reached €3.5 billion at 19.4% of sales, or 20.4% after working capital variation.

In fact, the working capital needs are slightly decreasing with improvement on the Air Liquide side compensating for the impact of the Airgas acquisition, knowing that Airgas has higher inventory needs than the Air Liquide traditional activity. So a very good performance in terms of cash flow, as mentioned by Benoît earlier.

The total net investment at €13.6 billion includes €11.6 billion for Airgas acquisition net of FTC divestitures and €2.0 billion for the other net investments. Capital expenditures re under control and end up at 12.5% of sales.

Net debt is contained at €15.4 billion and this is despite a strong €440 million unfavorable ForEx effect. It's even a better performance at constant ForEx.

Looking more precisely at the investment activities on page 24, we have been, over 2016, rebalancing our 12-months portfolio of opportunities with more classical medium-sized projects when some of the mega projects have been delayed beyond the 12-month period. This is clearly lowering our global risk exposure and improving the profile of our portfolio.

In 2016, we have decided €2.2 billion of new investments worldwide, including €230 million for Airgas. Our start-ups and ramp-ups have contributed €225 million to sales growth.

And the 2017 contribution should be in the same order of magnitude depending on the start-up of a major Chinese project. Our backlog, which is as a reminder is a total amount of projects above €10 million which are under construction and not starting yet, continues to decrease progressively along with the start-up of the new units.

This €2.1 billion of work in progress will deliver €800 million of additional sales after full ramp up. As described in the NEOS plan, and even more following the Airgas acquisition, the improvements of the return on capital employed is one of our focuses and is part of all of our business decisions now.

In 2016, return on capital employed as published is 7.8%, with a strong value creation at 3.5%. However, the restated return on capital employed fully integrated the Airgas impact over 12 months and which will be the comparison basis for next year stands at 6.9%.

Our commitment remains to come back to double-digit return on capital employed within five to six years supported by effective synergies and controlled CapEx. Thanks a lot for your attention.

I will now let Benoît share with you our 2017 priorities and guidance.

Thank you Fabienne, and as you just highlighted it, 2016 has been a transition year in many regards. That being said, we are advancing towards NEOS in all our business lines with essentially growth and new contracts in large industry, and this is probably more true in Americas and to a lesser extent in Europe and less in Asia as we speak.

But we still have a good portfolio of projects in hand. The second point will be the early delivery of synergies in industrial merchant.

We have been able to deliver $45 million and Fabienne just highlighted that we have objectives to produce more than €130 million in 2017 for Airgas. The third point is the expansion in healthcare, which is still going on.

It's doing well. We didn't have a lot of acquisitions in 2016.

But this business is, on an organic base, growing satisfactorily, and also we have opportunities for more small bolt-on acquisitions. And finally, in the electronics business, the focus clearly is on the advanced materials.

They are doing very well. They have high margin ratios and are an excellent supplement of the traditional carrier gas business which is long term and cash flow generating.

Finally, if we look at the global markets and technologies, we expect a strong development in new businesses. It's interesting to see that in this segment we've been able to generate business on the basis of new technologies, and this is very promising in the future.

The long-term contracts, just a word about them, are with Tier 1 customers and they were more recently in China, South America, and Eastern Europe. We see the size of the projects going down, which is good in terms of risk management.

NEOS was all about performing, connecting, and innovating. I think performance will be related to synergies from Airgas.

Also efficiencies will relate to customer reliability, and also a high focus on return on capital employed. I would like to insist on that.

I think Fabienne just gave you a minute ago the objective; reaffirm this objective of going back to a double-digit return on capital employed. NEOS was about connecting and introducing digital into the business.

We've commissioned a very interesting large industry connect project in France, which is a sort of center of operation near Lyon, which is able to manage 22 plants in France and introducing a lot of new technologies from start-ups. We have a lot of initiatives also in the i-Lab that we created three years ago, progressing well in the connected cylinder, and also in the e-Health sector.

And finally, innovation is, of course, open. We have our venture capital arm that is still investing in start-ups.

We have created the Hydrogen Council, which is a world initiative not just in mobility, car mobility, but also in other segments where we think we can open markets. There was 13 companies joining this Hydrogen Council announced in Davos a month ago, and we are also making good progress in biogas.

So it just gives you some substance around NEOS and the way we intend to actually connect with the objectives of NEOS. It leads me to 2017 and the outlook.

How do we see 2017? First of all, we have a solid base to start with.

2016 was clearly a very solid base where everything has been done according to plan. We see in 2017 a steady underlying activity.

Many markets and customers are today sending positive signals. We must be cautious not to over interpret those signals.

But they are in the right direction, even if growth recovery will be certainly progressive but we had a good start of the year and good signals from customers. We need to help ourselves by delivering efficiencies and synergies.

We have a plan and we know exactly how we're going to do that so that will be a very significant component of this year. And, of course, we will focus on cash.

Cash generation in 2016 was good. On CapEx, we've had a disciplined CapEx in 2016 and we will continue.

We will, of course, also focus on value creation because that's the name of the game at the end of the day. So our guidance is in line with this underlying statement.

We assume a comparable environment and in this comparable environment, we are confident that we have the ability to deliver net profit growth in 2017. I'd like to stop there and start the Q&A session, thank you.

Yes, thanks guys. Just a couple questions if I can largely around Airgas.

It's a punchy synergy number for 2017. Can I just be clear whether or not that's a gross number or a net number?

I.e. the $130 million, do you expect that to come in absolute into the P&L?

Second question just around Airgas and the underlying integration of that business. Fabienne, can you try and give us a steer as to how much EBIT, excluding synergies, that business contributed to 2016 so that I can try and figure out more clearly the full year consolidation impact in 2017?

Just a final third question. You sound a little bit more optimistic around pricing, around industrial merchant activity in North America, but obviously, turnarounds had an impact on organic growth in fourth quarter.

You had it in large industries in APAC, hydrogen in Americas, and Yanbu in the Middle East. What effect did those turnarounds, do you think, have on gases and services' organic growth in Q4, thank you?

Right, so Fabienne is going to take the first and the second. I will take a portion of the third and Pierre will supplement.

Fabienne.

So, clearly the $130 million synergy is what is going to impact our operating income recurring. Apart from that, we will still have a certain number of operational expenses, non-recurring operational expenses, linked to the integration.

Most of them have been recorded in 2016, but there will be a marginal part that will still have to be recorded in 2017 but below the operating income recurring. In terms of Airgas integration, you remember that before the acquisition the operating margin of Airgas was around 12%.

Following the acquisition, we have re-evaluated a certain number of assets as imposed by the accounting standards and therefore, the depreciation has increased as well in connection with these re-evaluation of assets. The Airgas margin, post purchase price allocation is more in the 11% range.

So I guess with that you will be able to do your calculation.

Will you split out the purchase price allocation or will it just be included in recurring operating income?

The purchase price allocation impact on depreciation will be in the €60 million range for the full year.

Okay. Understood.

That’s clear. Thank you.

It will probably be included in the P&L.

It will be included in the regular depreciation and therefore in the P&L.

Sure, sure. That’s right.

But you can recalculate if you want.

Exactly. Just old money terms versus the new guidance.

That's all I'm trying to figure out.

Yes, exactly. Just one comment if I may.

It is difficult in a year like last year to exactly know how much comes from Airgas, how much comes from the IM business, U.S. business, because they were all integrated into one starting October 1.

So we've made our best actually to recalculate the impact of Airgas and the impact of the legacy business, so-called legacy business in the US. The 11% margin ratio that Fabienne just mentioned is our best estimate of the margin of Airgas last year.

But you have to realize that in such a big transaction there are some of the costs that remain in the legacy business for a while until we've been able to deliver all the synergies. So where should it be in the assessment of the EBIT contribution of Airgas?

It's debatable. So don't try to be too precise, if I may, on the impact of Airgas last year because we had to make some choices in how to allocate those remaining costs that will, by the way, disappear as the synergies grow.

So I think we made our best to give you a good understanding. But I think the wisest thing to do is to actually take the basis of 2016 as a new base, take the pro forma numbers that we will be giving as a set of -- base of comparison in 2016, and then make all the comparisons on that pro forma basis in 2017.

Fabienne, you may make a comment if you want.

No, I just wanted to mention that the pro forma as if Airgas had been acquired on January 1, 2016, sales and operating profit will be shown in the document returns.

Right, so you have all the numbers. Your last question about the more optimistic IM view in North America and the trends and the turnaround in particular in large industry, the IM business in the U.S.

in particular was affected more or less in line with what you see in the industrial production index. The forecast for the world production index at the end of 2015 was about 3.1% worldwide and it was way below that in reality.

So there was a sort of -- and I'm not talking Air Liquide; I'm talking about the official indexes. So there was a different environment in 2016, totally different from what we expected.

What we saw at the end of Q4 was a slight improvement which is confirmed at the beginning of 2017. Now we need to be a little bit cautious because one month is not making even a quarter.

But yes, it's slightly better, but it remains to be seen more profoundly into the P&L. And Pierre will make any further comments from the pure Airgas perspective.

Turnarounds in large industry, there are some, and customers normally have turnarounds when they feel it's the right time and they are not going to lose too much market share in doing their turnarounds. This is what we have now.

It might be a sign that they are preparing themselves for a sort of recovery. We're not sure of that.

But it might be also a sort of positive signal. The effect in Q4, I don't have the exact effect.

The biggest one was clearly in the Middle East, in Yanbu, because this was a big refinery and you can see that in the numbers. But I don't have the total effect in Q4.

I think Pierre must have that. Pierre.

Okay, to come back to Airgas, there is a, I would say, a general mild optimism in the sales force of Airgas regarding 2017. The sales people are always difficult to appreciate with their vision of reality.

But even if we keep telling them no, we don't see that in the numbers da, da, da, da, they keep saying that their customers are starting to talk about growth and that they are actually mildly optimistic about 2017. So if you join that with the rig count, which is higher than it has been in the oil industry, you see that the very good volumes from the chemical industry, we see that from our Gulf Coast business, there are signs.

Now these signs, as Benoît said, are just signs. They're not numbers yet.

But that's what makes us say that we're not completely depressed about what's happening in 2017 if I may use an understatement. As far as the turnarounds are concerned, we have turnarounds just about every quarter as you know.

We talk about them per region and they are not always happening in the same region at the same time. I would say the normal turnarounds which we have all the time are not significantly different in the fourth quarter.

The big elephant in the room is Yanbu. It's a very large project.

The client had a turnaround and they restarted, then just a few days after they restarted they had an issue and they had to shut down again. So we ended up with more than a month and a half of interruption and that of course is a big amount which we don't normally see.

The rest of them, they might be in different places. Then it's more in Europe, less in the US, but we see them basically every quarter.

Thank you very much for taking my questions. Three if I may.

Just a quick one following up from your comments on the industrial merchant business there. Ex Airgas, you stated at the Capital Markets Day a growth rate of 2% to 5% over the period 2016 to 2020.

Can I interpret from your comments that you think you'll be within that growth rate now for 2017 based on your increased optimism? Secondly, on working capital.

Obviously a very good performance on the business there. Is there more to come from working capital improvements, or is that the full effect that we're now seeing in terms of that development?

Then lastly, just looking back at my notes from 2015, you said the investment backlog of €2.3 billion would yield about €1.0 billion of sales. Now you're saying €2.1 billion yields €800 million of sales.

So 9% top backlog reduction but a 20% sales reduction. Can you just help me understand the mechanics of that change between the backlog orders and the revenue generation?

Thank you.

Yes, sure. Pierre is going to take the first question, Fabienne the others.

Yes, I mean again as I said, the optimism of the salesforce in the U.S. is something that we can't really put numbers on.

That being said, we believe that the hypothesis we took in the NEOS plan are still valid. It's a question of timing.

We had a decent month of January. Again, it's only a month, but basically we hope that all of these optimistic signs will translate into good solid growth in the second half of the year.

We don't really know. I mean I'll keep joking with my U.S.

colleagues telling them make sure you lobby the White House in the U.S. so that the Mexican wall is built out of steel so we can some welding business.

But I mean it's at a point where we don't really know when the infrastructure investments will be done. When all of that is going to translate into real business, we don't know.

But there is good signs that make us believe that our hypothesis that you refer to, that we expressed last year, are basically valid depending on -- all that we don't really know is when it's actually going to show up. But is it the second half of the year?

Is it the second quarter? Is it the third quarter?

We don't really know. But the underlying growth that we quoted we are confident in.

Fabienne.

On working capital requirement, we have done a lot of progress on the Air Liquide side this year. If you look at 2015, we had a working capital excluding tax to sales which was at 8%.

For the Air Liquide only, we are more in the 5% this year but we are integrating Airgas. Structurally, the Airgas business is more having a capital need of 14% of sales, or that was the historical number.

So the combination is back to 8% again, meaning that the improvement on the Air Liquide side have compensated the Airgas integration which structurally has higher working capital. On the Air Liquide side, it's better collections, it's a little bit of factoring.

There's also a better control of the new ERPs that we had implemented in Asia and Japan and in the US. Is there more to come?

Yes, this is the objective. We will now start working with the Airgas team to see if we can apply more of the Air Liquide cash management processes on the -- to the Airgas business.

And we should continue to improve knowing that we still have a different mix in large industry, for example, and merchant. The backlog, well the -- still the future sales contribution of the backlog is really depending of the mix.

You know that the capital intensity is much higher on the oxygen project than on the hydrogen project. So project -- per project there is no change.

It's just that in our backlog we have no more oxygen project. All we have signed this year in large industry in fact is oxygen.

We have also our Sasol project in South Africa which is progressing. So it's a mix issue, but project by project nothing has changed.

On top of that, if I may, there's a timing issue. What we tried to give you is a yearly impact and we are not 100% clear on exactly when customers are going to start up their plants.

Say if they have a two month or three-month delay in a given year, it will of course affect the sales. But back to Fabienne's point.

Fundamentally, by product, oxygen, hydrogen or others, there's no fundamental change.

Yes, thanks for taking my questions. Firstly, again on North America.

I remembered that Air Products mentioned in their latest reporting low volumes in Americas in the period October to December driven by -- partly by customer driven outage at the Gulf Coast. So my question is did you benefit from their problems in Q4 especially in large industries?

The second question related to Airgas, is it right to understand that as you have now fully consolidated or incorporated Airgas as of October, there is no chance for your side to indicate what was the comparable sales growth of Airgas in Q4 and especially in merchant business as well as in hard goods. And the third question is on M&A.

Right now there is a lot of things going on [indiscernible] in the Air Products thing. How do you see the chances that these deals will go through?

And if so, how are your chances that you can acquire some of the remedies of these combinations?

Pierre, you want to make comments on the first one, Fabienne the second one.

No, we did not benefit from Air Products problems. I think the issue, as I mentioned is that there is a lot of customers out there and they take their turnarounds when they are ready.

And it might be -- I don't -- and I've not looked at the Air Products portfolio. But it might be that the Air Products customers took turnarounds when -- because it was basically their time to do it whereas ours took them in the third quarter, or will take them next year.

I don't really know. All I can say is that our turnarounds worldwide, except for Yanbu, we're roughly in line with what we typically expect.

And we have them mostly in Europe and also in Singapore in Q4 and in 2016 in general.

Fabienne, the second question about comparable sales in Q4 for Airgas.

As we said, it is very difficult for us after October 1 to segregate the Airgas activity on the Air Liquide legacy IM and the gas activities in North America. So what we've done is estimate.

If you look at Q4, you have a comparable sales on gas and services at 1.7% and we have a published sales at plus 30.4% excluding forex and energy. So if you compare those two numbers you have the Airgas contribution.

But apart from that I don't think we can do better.

And back to my point, when you integrate $1 billion business into five, it's rather difficult to honestly allocate -- sales are easy -- but the costs in general in the -- out of the P&L. So we sort of resisted to make a too deep analysis because it doesn't really matter.

What we need to do now is to grow the overall business and this is what we are busy at. M&A, we -- will they get completed, we honestly don't know.

This is not in our hands and there are a lot of speculations that we won't comment. If the biggest one goes ahead and if there are remedies imposed by the antitrust authorities, at least in the U.S.

maybe elsewhere, of course we will have a look. We will try to acquire whatever we can acquire under the regulations.

It's very difficult at this stage to figure out what is going to happen, if it is going to happen, and what is going to happen. But we would be prepared to make acquisitions of some of the packages if we can and if they make sense for us.

I mean I think we have strong positions in nearly all major countries. But they are small or mid-sized countries where we may be interested to acquire or look at our options.

So I think it's -- the game is a little bit open for us if it happens. But at this stage I cannot make any further comments about the likelihood.

I'd like to come back to the -- so a couple of quick questions on the backlog please. Within the mix that you mentioned, can you just clarify whether there's -- whether that backlog really is entirely large industries' customers or whether there's other perhaps merchant projects within that and how that therefore would influence the ramp-up timescale of the backlog?

And on a similar topic, you mention the higher number of smaller projects on your -- I think on slide 24. Again, do you expect that to translate to any I suppose perceptible shift forward in the revenue generation from those projects?

And then finally, can you help me just on the financials try to reconcile the €290 million disposal gain that you talk about in the -- or that you reflect in the cash flow statement with the net disposal gains that you mention in operating income. I'm just trying to get my head around how those numbers fit together.

Thank you.

Yes, right. I think in terms of backlog, yes, we do have a mix of projects.

We've mentioned that oxygen and hydrogen is an example. But also they are -- there's a mix of large industry business but also electronics business.

In particular carrier gases and there were several in 2016. And some of the merchant business -- large merchant business projects -- can be included in those start-up and in the sales.

But essentially, by order of importance, it's number one, large industry, number 2, electronics, and number three, IM. Now what is the proportion?

I don't have all the numbers with me, but I would guess that -- 80% is the sum of the two, electronics and large industry.

Remember that it is only projects above €10 million. So of course it includes more of LI and electronics.

Your second question is related to the new mix if I may say, or the new composition of the large industry projects' portfolio. With more small projects there is shifts in revenue generation.

I may ask Pierre to answer that question. Pierre?

Thanks for the question Neil. You may remember that when I discussed this backlog issue in previous calls, especially referring to Yanbu, I indicated that the very large projects had a number of impacts on our revenue generation.

One of them is that they take longer to develop and to executive. And the second one is that they generate a more lumpy growth.

That you suddenly get big spikes of growth whereas the smaller projects are more evenly distributed over time and the impact of an individual project is not as significant. I think that's what we're going to see.

We don't have a change in the project intrinsic sales' generation profile project by project. Except that when they are medium size, they give us a smoother growth profile than when you have a big lumpy project that comes in.

So we have two reasonably large lumpy projects that should start up in 2017, one in China, one in South Africa. But what we have today in the portfolio does not have so many of those large projects.

So basically we should go back in swing years to a little bit more even revenue profile from those projects.

The third question Fabienne, can you reconciliate?

So the €290 million that you see in the cash flow statements are the reconciliation to the operational cash flow. It's post-tax.

When what you see in the P&L in the non-recurring items it is pre-tax. So I confess it's a little bit difficult to reconciliate.

So the €290 million will be mostly the gain. It's only the gain, the gain that we recorded on the FTC divestitures.

After tax we also have a small other divestiture. You remember that we sold our activity in Hungary for example, our IM in Korea.

So we have small other divestitures. But you won't find in there the capital gain on the sale of the diving activity as it is fully compensated by accruals and the welding activity.

So the €290 million is mostly the gain on the FTC divestiture net of tax and some smaller other gain. Pre-tax again on the FTC divestiture is €430 million.

A few questions. The first one is could you remind us, looking at 2017, the timing of your biggest project, the three big large industry projects, the Sasol, the Fujian and the OCI and what type of contribution could we expect in the first phases of ramp ups?

First question. Second question.

Electronics and electronics margin in particular, it seems that the mix would have a pretty good impact on margins. Could you comment on the absolute EBIT contribution of electronics in 2016 versus 2015 in terms of the second part being negative growth.

But does it really impact the EBIT per se? And last -- well two little ones.

Fabienne, you didn't comment -- you said you couldn't comment too much on Airgas Q4. But have you seen a stabilization in the air goods volumes which were down pretty high single digit I think over the past few quarters?

Is that stabilizing and again related to the comments you said about more optimism in terms of IP in the US? And the last one, can you give us a bit of details of the one-off in large industry Europe, what it is exactly and how big that one-off is?

Thanks.

Right, so Pierre you start.

Yes, the three largest projects we have under execution today and by order of size are Fujian in China, Sasol in South Africa and a big methanol plant for OCI in the US. The three of them are going to be starting up either very late in the third quarter or in the fourth quarter.

So their impact in 2017 is going to be what it is. So Fujian today is planned for the late -- for a late third quarter.

It's a huge project for us and for the customer. So that is going well but you never really know.

The Sasol project in South Africa is due to start up in I believe November or December. So it's today on schedule.

But again, it's a big project for the customer as well, so it's difficult to predict with precision. And the YCI project, or the OCI project I should say, the methanol project, is also today looking at late in the year.

So most of the sales generation for these projects will happen in 2018. There will be a modest contribution in 2017.

Modest as a percentage of the total generation that they will provide, but still significant enough that it will show.

And the Fujian is it one phase? It's all the -- I think there's eight plants at least built by Air Liquide.

Is that in one go or it's more progressive than that?

I assume you talk about the eight units within Fujian. It's all one integrated complex.

Okay.

The electronic margin, you're right in saying that the advanced material is actually improving the margin ratio as we go. And that's the strategy that we have in mind.

Fabienne, can you make any comment about the margin level?

Well the margin dramatically improved in the last three years I would say thanks to the refocus on high value materials. And we are now slightly above the Group average.

I would say.

Yes, that's exactly right. I mean we reached the Group average and that's good news.

But it has been long and tedious work over the past 15 years. But I think we have a very good mix now and good growth rate in this activity.

The stabilization of the hard goods business in Q4, I think Pierre may make a comment about that.

Yes, the drop-in sales of hard goods is, I would say it's not getting worse but it's still going down. It looks like it's not going down as much as it is for all of the smaller distributors that are in the market.

But it is still going down. And when it starts to go up then we'll have the real sign that the economy is bouncing back.

That's the first thing that goes up and the first thing that comes back up when the economy goes up. Today, this is what we keep telling our salesforce.

Yes, you are more optimistic, but where are the hard goods sales? And they tell, yes, don't worry it's coming, don't worry it's coming but it's not coming yet.

So, I can't say any more.

Okay. Thank you.

But any new pipeline in the U.S. if we talk about energy and what may happen with the new administration, is the big -- it's the Keystone Pipeline is built, I mean that would be a huge market for welding.

And typically this is the type of project that would have a positive impact for the construction industry in the US. But we'll see.

Yes. Here we renegotiated the contract with the customer with a change in the future volumes.

And there was an upfront compensation which is equivalent to the future cash flow that we would have had if the volumes had remained the same. So it's a little bit more than compensating for the turnaround of the fourth quarter.

It's part of the ups and downs that we have more or less all the time.

Just a couple of follow-up questions. You said in your introductory remarks around your long-term contracts that most of them were with Tier 1 contracts in China -- Tier 1 customers in China.

Over the course of the last few months we have seen increased noise coming out of China in terms of capacity rationalization and consolidation across the board in basic materials industries such as steel. Can you just give us a sense in terms of how you think about that in the long run for the Air Liquide business?

And the second question was one on Airgas. Can you help us with how much you spent on M&A on rollouts in the second half and what we should anticipate for 2017?

Thank you.

Okay, Pierre?

Yes, it's a -- clearly China is attempting to restructure a lot of their basic industries with mixed success. The more obvious part of it is steel.

There is a huge -- I would say low-grade capacity in steel making in China. This is what is being restructured.

These plans do not typically use oxygen because the plants that made the investment in PCI -- in pulverized coal injection -- which drives the oxygen demand, these plants are still running. The ones that will get eventually shutdown provided the Chinese can manage their social issues with that are ones that do not really use industrial gases today.

So, today, the volumes for steel with one or two exceptions are not growing very much but are not disappearing. In chemicals there is oversupply in certain chemicals.

Still large -- and a lot of imports in others and basically the Chinese are managing that part pretty well. We don't see any big mid-term issue with the chemical industry in China.

And refining is the same. The Chinese are trying to upgrade their refineries which will in time require more hydrogen.

But the hydrogen -- the outsourced hydrogen in China is not very high as we speak. So yes, there is restructuring.

It's slow and it's today and probably in the foreseeable future not impacting us too much. M&A for Airgas, of course, we closed on the Airgas acquisition at the end of May.

Before that, the market -- the M&A market for those kinds of M&A activities was in a waiting mode because they wanted to see what Air Liquide would do. Would Air Liquide maintain the strategy?

Once we got that cleared up a few opportunities came up. We must have invested about $40 million in acquisitions.

Mostly small ones. And now the pipeline is full, but everybody is waiting for the new tax issues.

So before selling they want to make sure that they are not getting themselves into a bad situation because the tax impact they would want to benefit from. So today we have a bit of a lull waiting for the new administration's tax policy.

But the pipeline of opportunities is full.

I was wondering given all these details you've given on your guidance, looking forward to 2017 and taking into account that you will have a bigger impact of Airgas, you will have efficiencies, more synergies, probably some FX positive impact, aren't you being too cautious on the guidance you've given? And I don't know if I could question this in another way.

Could you be more precise because I know you will probably have more taxes, more financial costs and you won't have [indiscernible]? But it seems you're being too cautious and I know that could be a case.

Yes, thank you for asking this question. I think it's really a good question.

No doubt that we have a lot of good things to come about efficiencies, synergies and the like. What we don't know is why our guidance may appear a little bit cautious, is how the environment is going to develop, in particular this year with two major events last year and a certain number of elections to take place this year.

So we have assumed a reasonable and let's say comparable environment. But there are some uncertainties in the general situation in the world which makes us to be a little bit cautious in our guidance.

We know that there will be a positive impact of the last five months of consolidation of Airgas. And, as I said earlier, we think we've put the Company in good marching order.

So it may appear a little bit cautious, but it's mainly due to the uncertainties in the geopolitical situations. Fabienne and Pierre were referring to the tax policy in the U.S.

as a good example. We don't know how it's going to develop.

It might be positive for the U.S. but also for us after the Airgas acquisition.

But if it is not implemented, or if it introduces further uncertainties, it may delay a little bit the positive effect. So that's why our guidance is cautious.

We realize that, but we think we have everything in hand to be positive and have a good year in 2017. Maybe the last -- very last question and then we will conclude.

Benoît, it's a question for you to begin with. In the presentation you talk about 95% gases and services today.

I know you're committed to a lot of the non-gases businesses in there if not all of them. I'm just interested on these -- the gas identification you've been doing, swapping Hungary and particularly Korea where I believe you sold the gases business but you kept the electronics side of that.

So just if there's more that could happen there. If that's something you're pretty active on looking at the portfolio here.

On the Gulf Coast you make -- North America clearly is the leading region now in terms of the portfolio and presumably the Gulf Coast. Just how you see that developing because one of your peers is clearly very, very bullish on that.

And then finally, European Cylinders turning, or encouraging signs. That's been a drag for a long time across the patch.

I know things move up and down. I think Q3 was hit with acetylene.

Just if you feel this is something that is turning for the business as a whole, could be positive in 2017 for a change. Thank you.

Yes, thank you. Of course, yes, we have tried to identify a little bit the gas and service component of our business.

I think we did it. If there are further optimizations we can implement.

You mentioned Korea as an example. But might be some small optimizations we are eager to developing.

I mean swaps or deals that makes sense for us and for the other party. In the processes of large consolidation between two of our major competitors there might be some opportunities for different players in the industry and we are interested, of course, in improving our portfolio globally.

And the way we did it in Korea or elsewhere. So probably more to come if opportunities are there.

The Gulf Coast is doing better. There are projects.

There used to be even more projects before the energy crisis actually hit many industries. We see a good activity but we are not out of this bidding process.

We have our own plants and our own system. It is -- this system is very robust.

Recently last year we commissioned the hydrogen cavern on the Gulf Coast which is an interesting way of storing and backing up our customers in hydrogen. We are presently working on different projects in Gulf Coast.

So Gulf Coast is a good place and remains probably the zone in the world, the basins in the world where the most opportunity short term will happen. European Cylinder is encouraging I agree, but it needs to be confirmed.

I think it is directly linked to the industrial production index because it captures most of the industries that actually consume those welding gases acetylene, oxygen and argon, CO2 and others. I think after many years of nearly flat if not declining consumptions we may be a little bit encouraged with what we saw in the second half of last year.

But again, cautious should prevail because we need more than a few months to confirm that the trend is there. The second underlying force behind us in the business is our ability to transform the business into a more digitized business.

We are very active in that field and we hope we'll be able to offer new solutions to our customers as we go 2017 but also 2018 and 2019. So all together we are a little bit more optimistic in the cylinder business but it remains to be confirmed.

[Multiple Speakers] Sorry Benoît just a very quick -- when you talked about the breakthrough technology at the -- I think at the Investor Day 2013 in the cylinder business, was that all around the digitalization you're talking about now, or is that something different?

No, it's linked to that. I mean this is a business.

This is a distribution business in the end plus a technology business because the usage of the gas is very important. So everything we can do with the digital technologies to actually deliver better, quicker, more efficiently and to bring value down to the point of use should be done to actually improve this business.

Now there will be more value brought to the customer. So we expect more sales and revenues out of it because there will be savings along the chain and better usage for customers.

So that's the sense, the meaning of our -- of the digitization of the business. And we are really optimistic about what we can bring to the market.

But it will take just time as customers actually adopt those new technologies. And yes, we talked about that in the Investor Day in 2013 but also more recently last year in the Capital Market Day.

You are all busy so I suggest we stop there. So good marching order for Air Liquide, good base, solid.

We have clear objectives mid and short-term. We want to have more growth.

The recovery is getting stronger. But we also want to have our efficiencies and synergies in the pipeline in 2017.

And we'll maintain CapEx discipline because it's very important to reach long-term objective but also mid-term, in particular in ROIC. There is no magic recipe, but if we do everything we just mentioned, I think we'll have a good 2017.

Thank you very much for your attention and see you next time as Aude pointed out at the beginning of this session. Thank you and have a good day.