L'Air Liquide S.A.

Aude Rodriguez - Head, IR Benoît Potier - Chairman and CEO Fabienne Lecorvaisier - EVP, Finance, Operations Control and General Secretariat Michael Graff - EVP, Americas Hub

Andrew Stott - UBS Markus Mayer - Baader-Helvea Paul Walsh - Morgan Stanley Neil Tyler - Redburn Patrick Lambert - Raymond James Jean-Luc Romain - CM-CIC Market Solutions Theodora Joseph - Goldman Sachs Peter Clark - Societe Generale Christian Faitz - Kepler Cheuvreux Laurence Alexander - Jefferies

Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations.

Thank you for joining today's conference call. Benoît Potier and Fabienne Lecorvaisier will present the first half 2018 performance.

Michael Graff is also with us and will participate in the Q&A session. On October 24, we will announce our third quarter revenue and on November 13, our climate objectives.

Let me now hand you over to Benoît.

Thank you, Aude, and good morning, everyone. Thank you for attending this conference call.

We'll start with the agenda on page two. Our first half results are strong, both in terms of growth and in terms of performance, as we'll see in a few minutes.

One of the good news of this semester is the acceleration of business opportunities and new signatures, in particular, in large industry and in electronics. And so, we confirm our guidance for 2018.

Now page four where we can start with growth and performance. Number one, growth.

Overall, we delivered growth in all business lines, but also in all geographies. Sales were up 5.8% in first half, was a split of 6% in Q1 and 5.6% in Q2, which confirmed the good trend shown in first quarter.

IM, electronics and health care were the strongest contributors in this quarter as well as Asia Pacific, Africa, Middle East and Americas. In terms of performance, our efficiencies were above target as were the Airgas synergies in the first half.

So that we now expect the full 300 million synergies to be delivered 1 year ahead of plan. It leads to a 30 basis-point improvement of margin ratio for gas and services, excluding energy, with a positive impact in Americas and Europe.

Our net profit, as reported, is at 12.1% and is even at more than 20% without the effect of foreign exchange. And finally, cash flow generation is robust at plus 11%, showing the good quality of the results.

On page five, my second point is related to business development acceleration. If we look at the sequence of a series of half years since the second half of '16, the acceleration is very visible, and we are now back to historical growth.

H1 '18 is even the highest growth rate since the first half of 2014. It is combined with investment decisions at the high level, €2.9 billion on a 12-month moving average, which will fuel growth and efficiency for the coming years.

If I look at page six, how we implement the NEOS strategy. Fabienne will show you later how it relates to the economic and industrial production background.

But we have to remember our NEOS foundation. First of all, we had a 6% to 8% face growth, including the 2% effect from the consolidation of half of Airgas more or less.

We are on track. Efficiency is above €300 million every year, we are also in track, Fabienne will detail the first half.

The net debt in A category, and thanks to the strong cash flow, we also tick that box and the return on capital employed at the more than, 10%, in 5, 6 years, after the beginning of the plan. On that as well, we are on track.

Our NEOS strategy is being deployed in several business lines, and I'd like to highlight one or two key points. In Large Industries, definitely, our strategy is focused on basins, and I have in mind, in particular, Northern Europe, Antwerp basin, but also the Gulf Coast in the U.S.

And also on the application of new digital softwares and solutions, and we have deployed the SIO, Smart Innovative Operations, in already 3 clusters in the world, and we are working on it for the U.S. In IM, I would like to highlight the impact of digital, in particular, the portals -- the web portals that are now in place.

The strategy of density around existing basins or zones, and of course, our focus on Airgas and deployment of both cost and revenue synergies. On electronics, clearly new precursors, new molecules are bringing contribution, but also carry Airgas in -- particularly, in Asia Pacific.

And in the healthcare, our eHealth solutions are running. They are already in place, and in particular for chronic care, and we also have our geographic expansion that is doing pretty well.

Everything is supported on page seven by three things. One, a customer focus with, of course, Airgas being a sort of reference in Industrial Merchant for the group, and in particular, in packaged gas and e-commerce.

We are now benefiting from this experience at a good level. The second point is, of course, the development of integrated digital solution.

I insist on the word integrated, it's not just to apply a software that we would buy off the shelf, it's actually to build our sales solution for business, and we have a department called La Factory in France, that actually develop solutions -- digital solutions for the business. It means, we have business people, digital people and IT people working together on solutions.

And they were the ones that actually created the SIO, which is, as I said earlier, being deployed in the world. And my third point is a reinforcement of our innovation potential with upgraded and new research and innovation centers in now nearly all regions in the world.

On the basis of not just R&D centers but also wherever we can sort of campus of open innovation to benefit also from the innovation coming from startups. Our program will be more or less completed by mid-2019.

This is what I wanted to say as an introduction. And now I'd like to leave the floor to Fabienne.

Thank you, Benoît, and good morning, everyone. Our H1 performance is in fact characterized by a [indiscernible] strong momentum in all activities, supported by high growth in the base business.

At the same time, we managed to improve our Gas & Services margin by 30 basis points. Our cash flow is strong, net debt is under control.

And therefore, we are well-positioned to benefit from the acceleration of quality investment opportunities. Let's look for it at key figures on Slide 10.

Gas & Services sales 5%, we were slightly stronger Q2. Engineering sales are 29.8% for the period and Global Markets & Technologies continue to progress strongly above 29%.

As the result, group sales are 5.8%, which positions us at the top of the expected newest range, which is between 4% to 6%, excluding scope effect. In Q2, we benefited from a strong demand in all of our main markets.

As in Q1, in line with the sustained industry production level. The only wedge point at this stage is shown on the graph of page 11 is Europe.

In terms of foreign-exchange, we still have a negative impact but it's softened in Q2 at minus 5.2% compared to minus 8.2% in Q1, resulting in a minus 6.8% for H1. For the full year, we did expect a negative impact as well between minus 3% and minus 4%.

Conversely, the energy impact on positive at plus 1% in Q2, and should be marginal for the full year. All our businesses and geographies are contributing to growth, but I would like to point out the improvement in Q2.

Americas at 5%, supported by the strong Airgas performance in particular as well as developing economies in all regions. Asia at 11% is booming.

In terms of business science, merchant also improved at 4.5% when growth in healthcare and electronics are accelerating respectively at plus 7% and plus 8%. The business progression excluding startups, ramp-ups and small acquisition, is now about 4%, supported by solid volume and positive pricing.

The contribution of startups and ramp-ups is consistent with Q1, contributing 1.4% to global growth. Let's now review the Q2 highlights in the valued geographies.

We had a good quarter in Americas despite turnaround in hydrogen in large industries on the Gulf Coast. Activity was strong in Industrial Merchant, in particularly at Airgas and in Latin America as most of our end markets were well-oriented.

Healthcare growth driven by Medical Gasses in the U.S. and Home Healthcare in Canada and South America was close to 10%.

Electronics in the U.S. benefited from high equipment and installation sales.

In Europe, more turnarounds in LAT Europe similarly resulted in softer Large Industries. Despite the impact of the CO2 crisis, merchants remained solid, in particular in Italy, Spain, Central Europe and Eastern countries.

Healthcare was strong in Germany, Benelux, Scandinavia and Poland. Eastern Europe delivered double-digit growth.

Globally, Europe underlying growth remains around 3%. Asia had a very strong quarter in all businesses and every country.

China had only grow 15% and South Korea and Singapore grew double-digits as well. Large Industries were driven by strong demand for oxygen and even more for hydrogen.

Merchant growth benefited from high volumes and pricing in China and is back on the rise in Australia. Electronics were exceptionally high, benefiting from numerous equipment and installations contracts, while gas sales grew 7%.

In Africa and Middle East, the progression reflect the ramp-up of Sasol in Africa as well as good merchant business in South Africa and Egypt. And this can benefit from our recent acquisition in Saudi.

I will go quickly through the business in order to wrap up. Merchant is at 5%, supported by globally well-oriented end markets, in particular, for manufacturing and metal fabrication.

We have well managed the Q2 crisis in Europe, focusing on the much critical customer needs. Pricing effect is positive in Q2 at 1.7% on average, improving in Europe, so is in the U.S., and remains high in developing Asia, and in particular, in China.

Large Industries were impacted by a number of hydrogen customer turnaround above average in the U.S. and in Europe and which upward grew by more than 1%.

Nevertheless, thanks to ramp-ups and to solid oxygen demands for chemicals, growth reached 4%. Healthcare performed in all segments, with almost gearing up 8% and Medical Gases 7%.

Bolt-on acquisition contributed for 1.5% to the global performance. To finish with, electronic is 8% higher than last year, supported by strong demand from integrated [indiscernible] on flat panels.

To be noted, Equipment & Installation sales are exceptionally high at plus 28%. So globally, our next [indiscernible] of activity in Gas & Services this quarter.

The engineering sales continue to threaten, plus 4% in Q2 and plus 20% for the semester. And more importantly, we booked €445 million of new order intakes since the beginning of the year to be compared to €330 million last year.

Global market and technology continues to progress rapidly with high order intake as well. We'll now talk about the performance.

Excluding ForEx, our operating profit recurring is up 4.8% compared to sales at plus 5.5%. As shown, operating margin excluding energy is broadly stable, despite [indiscernible] in engineering and higher spending in R&D and hydrogen development.

On a comparable basis, operating profit is up 6.2% to be compared to sales at plus 5.8%. For Gas & Services, we delivered a 30 basis-point improvement.

This means that the strong activity levels as well as the efficiencies and synergies are more than compensating for the mix effect, characterized by high equipment and installation for the pricing pressure in gas as well as for non-recurring business events. To be noted, purchases are impacted by higher energy prices and strong equipment and installations, but personal and other expenses are well under control.

We have pursued our efficiency programs and delivered €174 million of sustainable cost reduction over the first semester, and close to €500 million since the launch of NEOS. We'll be again, above our €300 million objective for the year.

This speed reflects our continuous industrial and procurement program as well as further restructuring, in particular, in engineering. Airgas synergy has now reached $260 million cumulated, of which, $215 million are cost synergies and $45 million growth synergies.

We delivered $45 million since the beginning of the year and functional to agreed to accelerated procurement program. As mentioned by Benoît, we now forecast to reach to $300 million announced initially in H1 2019, which is 12 months earlier than in the initial plan.

The net profit for the period is very high at €1,040,000,000 for the group and is up 12.1% and more than 20%, excluding ForEx. To be noted, we recorded approximately €50 million of exceptional ForEx gains linked to the reorganization of the U.S.

debt, which more than overcome higher nonrecurring restructuring expense. The effective tax rate is decreasing, including a 200 basis-point reduction resulting from the U.S.

tax reform. Cash flow is also strong at 19.7% of sales and is up 11% after working capital valuation, which enables us to absorb higher CapEx and higher dividend payments.

Accordingly, given adjusted for the dividend seasonality is reduced to 79%. Thanks to higher level of net profit and tight capital employee management, our return capital employee improves at 8% compared to 7.7% recurring last year.

It would even be at 8.3% at constant exchange rate, so a 60 basis-point improvement. Our objective remains to reach 10% in 2021, 2022.

Let's now move to investments. In line with Q1, we continue to see a clear acceleration for new customer project and investment opportunities.

The 12 months portfolio is increasing at €2.5 billion and we have decided €1.4 billion of new investments since January. We signed significant new contracts in Large Industries in Europe and in the U.S, and in electronics, in particular, in Asia.

Bolt-on acquisitions well [indiscernible] at less than €100 million in Healthcare. In China and at Airgas, where we celebrated our 500th year in the creation.

Startups and Ramp-ups contributed €136 million to sales growth in H1. We started 7 new units in the beginning of the year, and we expect much more in H2.

In fact, for the full year, our major startups are on time. Fuijan is now running full speed pursuing its testing period.

We maintain a full year estimate for the contribution of startups and ramp-ups between €250 million and €300 million, depending on Fujian startup date. Startup should also continue at a very strong pace in 2019.

In line with the acceleration of business development, our project backlog, which is a total amount of projects above €10 million in construction but not started, is up at €2.3 billion and the future contribution is now close to €1 billion. So to conclude, thanks to strong growth and solid performance in H1, we confirm our guidance for net profit growth in 2018.

The business development opportunities are clearly increasing, and this is, as you see, good news for our future. Thank you very much for your attention.

We are now ready to answer to your questions.

Thank you, Fabienne. And we can the first question -- again, with Fabienne and Mike Graff to answer all your question.

First question please.

It's actually -- probably best to address it to Mike on the Americas, it looks like you've picked up quite a bit of business looking at your press release around the Americas. So I'm just wondering, what sort of end markets we should be thinking about here in terms of new businesses?

Is this oil and gas? Is it chem?

Is it other? Just give us an idea please of the mix of new opportunities you're seeing in the Americas.

And the second question, which was sort of more -- looking at Q1, Q2 balance. So, I think, Fabienne, you said China was up 15% overall.

I just wanted to check that was China rather just China IM. And just also check that that's the same growth rate as Q1?

They were my 2 questions.

Thank you. So Mike, can you take the first one?

Absolutely. Good morning, everyone.

In terms of the growth we're seeing in the Americas, it's pretty broad based across all the businesses. And in Large Industries there's clearly a significant uptick in the last 6 to 9 months in terms of business to have dollar-make activity on the Gulf Coast associated with chemicals.

We seem to be accelerating into the second wave of projects, and that is really helping to drive a lot of the business development activity there. There's also a lot of support as well for ongoing refinery projects as well, and we benefited from some of the off gas from the chemical plant projects to go ahead and support that.

In addition, I think in the merchant business we see very significant growth in support of metal fab and support of energy materials and chemicals as well as construction. So that continues to be a vector of growth overall, whether that's in the Americas or even up in Canada.

And actually, in South America and Central America we're seeing good growth as well. Some of that's in metal, some of that's in energy, some of that's in also the IM businesses.

And then finally, in electronics, we're seeing a pickup in carrier gas activity, we're seeing continued ramp of our Advanced Materials business. And then in Healthcare space, we've continued to see acquisitions for Healthcare as long as we've seen the additions of organic growth as well.

So, I think, overall, we see in all markets a good growth trajectory.

Thank you. Fabienne?

Well, China is progressing 15% globally in Q2. We have a strong push in all the businesses.

For Q1, it was 10%. Industrial Merchant alone in China is much higher than that.

So we continue to see a strong demand, higher volumes and also a very solid pricing effect in Industrial Merchant.

Okay, but you didn't state the growth in Industrial Merchant in China then?

No. But it's close to 20% again.

First of all, I have a question on [indiscernible] consolidation of the industrial gas market. Now Messer is reentering the U.S.

market at Park [ph] in particular. Do you fear negative effects here, as you saw this when Messer was allowed to reenter the Western European market?

That's my first question. The second question is on the CO2 shortage in Europe.

Could you quantify it, this effect on you? And then, the last question is basically on the startups.

On the page 27, thank you for this indication. You're showing 4 to 5 large startups and it say -- when you have 7.

Does it mean it's basically 4 to 5 large ones and 2 small ones? And when are the smaller one expected to come?

Yes. Thank you, I'll take the first and probably, Fabienne will take the 2 others, maybe I'll make a comment on CO2 as well.

Consolidation is just a fact of [indiscernible]. We'll see how we develop, in particular with potentially new players in Europe and the U.S.

The only fact that we know is that the 2 announced buyers of the divested assets are industrial players, which is, I think, a good thing for the industry. We'll see how the market will readjust in the U.S., but there is no real fear from our side about a negative impact of those potential consolidation movements.

We need to see if and when it happens. And so far, we're just waiting for the outcome.

The one word on the CO2 shortage, and Fabienne will give you the quantification. It is not really a surprise to have a CO2 crisis during summer.

That said, we took some structural measures in the past few years to try to avoid a crisis. And despite that, we saw that some of the sources, and I must say, at the industry level, were down at the same time.

It's essentially because it was sources linked to the chemical industry, ammonia in particular. And we have to think about how we can better plan the diversification of our sources amongst different industries, not to be trapped into such a shortage of supply of raw CO2.

So that's a lesson we'll try to draw out from the situation. That said, Fabienne, I'll leave it to you to quantify it.

Well, the impact of the CO2 crisis estimated by the team is around 3 -- a little bit over €3 million of sales in Europe in Merchant in Q2. However, it has a certain impact on the margin because as you can imagine, in such a situation, you have to drive more kilometers to be able to serve your key customers on, of course, its increasing their cost.

In terms of startups and it's true that on our side, we only showed the main one, particularly the one above €50 million. We have much more.

We expect around 20 startups in 2018, including smaller oxygen project in various countries of the world and many electronics project as well.

My first question is just around the comment you made, Fabienne, in your presentation. You talked about nonrecurring business events having an impact on margin in the first half.

I wondered if you could elaborate on that please?

So it's very simple, it's same as we have already mentioned. You have the turnarounds in refining for hydrogen customers in Europe and in the U.S.

as well. You have this CO2 crisis, and on top you have, of course, the high mix in terms of equipment on the installation line.

In Asia, EMI are up 75% in Q2. So it's really a level which is clearly exceptional.

And quantifying the impacts on the margin, can you do that?

It's quite difficult to give you this feedback. If you see the EMI mix, it's costing us between 10 and 20 basis point.

And my second question is, on the Middle Eastern business, you talk about resetting margins downwards because there's some hydrogen business. I wasn't aware of any reset, maybe it's relatively small, but the margins delta in that region, they're quite large.

Could you also just give us a bit more insights into what was going on there, please?

Yes, it is true that Africa and Middle East is very dependent now on our Large Industry project, at least for the moment. What happened at Yanbu is that the customer decided to change the mix in terms of feed stock.

They had a right to do that under the contract and the indexations are different. It result in a different margin on the project.

But the margin remains quite comfortable on this project, but it is not the same as what it was last year.

Okay. And just maybe, one final question.

Obviously, business activity is picking up and you are seeing an increased number of potential projects on the radar screen. Can you talk about that within the context of your future CapEx plans as well because clearly, right now, CapEx running at about 11% of sales.

I think, the target range is 11% to 12%. As you see bigger contracts -- more contracts being won, how could that evolve going forward, please?

Well, clearly, last year, we were in the low range in terms of CapEx. Industrial CapEx was 9% of sales.

So with -- at-- in H1 we are at 11% of sales. We expect an acceleration of the CapEx in Q2 -- in H2, sorry.

So for the full year, we'll be more in the 12%, 13% range. So clearly, we will move to the top of the range, if not slightly above.

And same for the decision, we'll probably have more investment decision than what we had in our initial NEOS plan. However, we'll adjust the way we manage the various parameters so that our return on capital employed don't -- objectives are delivered.

I think, it's really good news to see the opportunities accelerating again, quite a lot in the U.S, but also, in other countries. It's coming back in China as well.

So, I think, it's really good news, and we'll manage the group accordingly to be able to decide the best opportunity.

May I just add one comment on CapEx. Our reference remains NEOS, and what we do within this 4-year period.

And of course, the target is to deliver the return on capital employed by the end of the period, as we've said earlier. So when we say that there are more growth opportunities, it's really good news because it, sort of, reassures, I mean, the -- both our sales in the market that there are opportunities to follow and there are good quality opportunities.

What we also intend to do is to make sure that part of the CapEx is actually used for efficiencies. And I think it is important that we balance well the amount of money we put in growth and the amount of money we put in efficiencies.

I think, the efficiencies are doing well, as you saw in the numbers. And the ability to actually spend a little bit more money in efficiency in the future is something we are looking at, because we think that to really reach the target of NEOS, we need to make sure that the balance is the right one.

That's -- that was another comment I wanted to make.

Two for me on the margin and then, a little bit more insight on healthcare, perhaps in the Americas. But starting with the margin, the margin in Asia was down, as you mentioned, despite the very strong volume growth and pricing impact.

And other than the E&I sales that you called out, was there any other dynamic within that margin that we should be aware of and try to understand the operation leverage in that region? And then, talking about the Gas & Services margin more broadly across the group.

If I take your comments on pricing on the NEOS savings, on the Airgas efficiencies, in aggregate, they seem to, sort of, achieve a positive figure of well over €300 million, before we start thinking about the volume contribution. And yet, you talked in your release about a limited inflationary environment.

So I'm wondering if you could help me understand what some of the other offsets were -- obviously, currency is one, but what some of the other offsets were that prevented a greater level of profit growth and margin expansion in the first half of the year. And then the third question on healthcare is really, just a little more insight into the Americas healthcare growth, please.

If you can talk about the dynamic between the acquisitions and pricing of volume?

Yes, let me just start the answer to the first question by a global comment. And then, I'll ask Fabienne to give you a little bit more details.

When we look at the efficiencies that we are producing each and every quarter and that we report, those efficiencies actually bring margin improvement in the IM business, where most of these efficiencies apply. And we've seen that quarter after quarter and we still see that in the first half.

And I think it's very reassuring because it means that all the efforts that we are doing is actually bringing benefits. In IM, pricing, as you just also mentioned, it's important and the pricing in the first half is actually good overall and it remains good in the second quarter in the different regions.

There are actually 3 out of 4 regions where the pricing in IM improved in the second quarter compared with the first. So the efficiency and the margin ratio improved in IM.

If I just look at large industry, we have ups and downs, which are more due to how customers consume the products; how the plants are running -- when we have more turnarounds, it negatively affects margin ratio; and we have an exposure to hydrogen today in refining, which is a little bit more linked to how the refiners operate their plants. And we say that Yanbu, in particular, has an effect on margin as a result of essentially, fumage, usage of natural gas as opposed to liquid fuels and the turnarounds in Europe and America, in the refining sector, had also a negative impact.

So when we look at the margin evolution in the first half, IM was very positive, LI was negative due to those turnarounds essentially, and healthcare was slightly negative because of the pricing pressure. And all in, we were able to deliver 30 basis points.

But when we think about what it means, it means that structurally, we see an improvement in IM, which is exactly what we aim at. And we have some fluctuations from one quarter to the other in the LI business and a slight pressure on pricing in healthcare, which tends to decrease over time.

We have had probably the biggest pressure in the years -- in the past years and it tends to stabilize. In my last comment about business content is the electronics, where the margin is stable, despite a very strong activity in E&I, and as you know, E&I is normally lower margin, but it's a good news for the future because it means that the new fabs will be equipped and they will be consuming more gas.

So there is a cycle issue that we know and we follow very, very carefully, but nothing to be afraid of and to be concerned about. So that's a general comment about the analysis of our margins in the first half.

I'd like to leave it to Fabienne to give you more insight and comments about geographies. Fabienne?

So margin is slightly down in Asia. You mentioned the equipment and installation fees, which are really, really high.

On top of that, we have a ramp-up effect in China, we have 2 projects ramping up so that are not yet at their nominal profitability, and we also had a technical problem in a Large Industries plant in Japan. So that's all the reasons.

If you look now at Americas, margin are up 60 basis points, so the synergies of Airgas, on improvement in IM, is really there. And this is delivering -- and remember as well that at Airgas, when the growth is accelerating, it's accelerating for gas itself, but it's even more accelerating for hardgoods when the markets are well oriented.

And as you know, hardgood in terms of margin, is very similar to Equipment & Installation, far under what we have forgases sales. So this is the 2, the 2 main variations that deserve some explanation.

On the second part of the question, second question, Mike? Healthcare in Americas?

In regards to the Healthcare, we've really seen good broad growth across all of the Americas, very strong medical gas growth with Airgas in the U.S, so that continues to be very resilient for us. Strong growth in Canada, primarily more organic in terms of home healthcare, looking at respiratory services, looking at sleep apnea as well as some other offers.

We've also had a few smaller accretive acquisitions over the year. In Colombia, you'll recall, we entered the Colombian healthcare market roughly, a little over a year ago and 1 large, 1 small acquisition and that continues to bring good growth in the home healthcare space.

And then, in South America, across Brazil and Argentina and Chile, specifically, we continue to see very good organic growth in those geographies with the home healthcare and also a few smaller accretive acquisitions as well.

The first one is a detailed -- small detailed one on European growth, quarterly -- Q2 I think it was 1.2%. I have problems to reconcile the growth by industry, which -- because it implies electronics to be down pretty sharply.

Can you give us a bit more details on that if you transferred some of your sales anywhere else. That's a question number one, and maybe I'll stop there and ask progressively the questions.

You are very cautious, it's good. Fabienne is going to take the first question one.

You think we're going to forget the questions. Okay, on Europe, [indiscernible] you have 3 nonrecurring events that penalized the Europe growth in Q2.

The first one, we already mentioned is the turnaround in hydrogen. The second one is a CO2 crisis that we have mentioned as well.

And the third one is the divestiture of a really small electronic subsidiary in making gas cabinets but not exactly consistent with the gas we sell, non-core subsidiary that we have divested, effective January 1. So if you exclude those 3 nonrecurring impact, the underlying is really above 3% as it was in Q1.

So you are very smart. Yes, there is something with electronics but it's transferred -- nowhere it's transferred to outside of the group.

Perfect, perfect. Pricing in Asia, I think, 2.1%.

Could you, Fabienne, give us some breakdown of countries in particular. I think, especially China, which was, I think, 50% of the growth in Q1.

Is that still the case? A bit more color on the pricing in Asia would be helpful.

So the pricing in Asia remains driven by China, as it was in Q1. We have the positive pricing in China, which is above 4%.

Japan is somewhere between stable and slightly negative. And the good news is that, we see now, the Australian market really recovering with slightly positive price.

So these are the 3 countries where we are seeing the major variations.

Perfect. Third question also, if I could, [indiscernible] in terms of turnarounds and the units sold in China, in particular.

Could you quantify the impact on the top line of all? You commented on CO2 and things like this but just on the turnarounds and disposal of these 3 units?

You mean, at the group level or...

Yes or at the gases level.

Well, at the gases level, including the turnaround and the various non-recurring events, we would be close to 2% higher.

So the impact is minus 2% of all the...

[Indiscernible] between minus 1% and minus 2%. But you are aware that, that kind of nonrecurring event, I'm not telling you that it will be 2% higher next summer -- semester.

And finally, tax rate, pretty good tax rate in H1. What -- how do we see H2?

I think, you commented on 200 basis points lower for the full year, which means -- what,5 for H2?

Well, the impact of the U.S. tax reform is exactly what we expected.

It's lowering our tax rate by 200 basis points. On top, in H1, we had another 100 basis point positive coming from a change in the French law on the way you recognize performance share and tax credit into performance shares -- I'm not going to go into details, but we have a 300 basis-point impact in H1 and we'll have only a 200 basis point impact in H2.

So for the full year, the tax rate -- effective tax rate, should be between 25% and 26%. And remember that next year, the famous [indiscernible] tax in the U.S.

is going to increase from 5% to 10%. So the advantage we get will be more 100 basis points than 200 basis points.

And so we should see our effective tax rate increasing a little bit again next year.

And finally, the Fujian project. Any more precision on this update?

Still six months to go before the end of the year [indiscernible]?

I said it all, I said it all. Our plant is running full speed every single day.

We are in the testing period, validating our permits with the EPA and negotiating with the customer. So I don't think we can add more than that, and of course, we'll keep you posted.

My question relates to efficiencies and merger synergies with Airgas. As you will have achieved your target 1 year ahead, what comes on top of that, if there is more to come?

Yes, thank you. Brief comment, and then, Mike will elaborate.

It is clear that the cost synergies are ahead of schedule - we were able, and in particularly, in procurement and in cylinder management. Essentially, we could get cost synergies earlier than forecasted.

The revenue synergies are on track at this stage, but we probably see more potential in the future, as we have integrated the two organizations. And so, overall, I would say the Airgas synergy story is positive.

And as we stand today, we can just say that the full synergies of €300 million will be actually achieved with 1 year in advance. And, I think, it's really good news and showing the good momentum.

I'd like Mike to further comment on the details of the synergies. Mike?

Thanks, Benoît. Just add to what Benoît said, clearly, with the acceleration of delivery, we not only see further cost-benefits in terms of synergies but further opportunities as things evolve.

So in terms of the value-added piece that Benoît spoke of, we continue to see that ramp as expected. However, once we reach the €300 million in synergies themselves, the value-added piece of this will only continue.

We've already seen for some of the early key technologies and applications, their core application is driving growth in some of the key markets. And now, we're starting to see other markets where the application of those technologies and those applications, whether that's in heat treatment for metalworking and foundries, whether that's advanced cryogenic applications for food and for medical needs.

Even cryogenic cooling capabilities for construction. All these begin to take off.

And I think, they are just examples of how we will begin to see a further proliferation of both the technologies and the applications we have at L'Air Liquide into the Airgas markets and customers to continue growth and continue evolution of that business. In addition, obviously, as the cost synergies that actually we're able to accomplish with the combination of the 2 companies evolve, you can see already that efficiencies are ramping.

And so, those efficiencies will continue into the future. So the base benefit -- business will benefit from the continued focus on cost and efficiencies.

We'll see the continued growth in terms of technologies and applications. But in addition to that, then we can really begin to leverage the Airgas business model and knowhow, as we've already done in adjacent geographies like Mexico and Brazil into other geographies.

And then, utilize the business itself, as we think about how we can leverage some of the new technologies and new businesses that we've developed through our GM&T businesses into the future. So, I think, there's a number of things that will continue to evolve and continue to grow well beyond what we talked about.

So we have 5 remaining questions in the queue. May I ask you to ask only 1 question per person as it will ease the process.

So next one?

I wanted to concentrate in the North American business and we have heard there has been quite some logistical constraints in North America, particularly, in, kind of, finding -- difficulties in finding truck drivers. So just wondering, if you have any colors to what you're seeing in terms of cost inflation in the U.S.

Airgas business? And as well as I don't -- if I recall correctly, you actually had 1 key price increase in this business.

So just wondering if that price increase is enough for the year in order to offset any inflation or do you actually expect to put through more throughout the remaining of the year?

Thank you. Mike?

I think, first of all, obviously, we continue to monitor inflation tendencies and we continue to manage our pricing accordingly. And we don't wait for a particular point in time necessarily to manage pricing, looking at inflationary policies and trends.

So we continue to go ahead and manage that. In terms of pricing policies and some of the issues that are there, you might recall that in the late first quarter of 2017 that we introduced pricing policies increases across the business, which really took hold in the second quarter of last year.

Actually, for this year, all of that effort took place in the fourth quarter of last year, when we immediately began to see the pricing implementations and benefits in the first quarter of 2018. So we don't wait for a calendar-year basis, we don't wait for those type of things, we continue to manage that.

In terms of cost, clearly, when there are inflationary tendencies, we work hard to manage that. With the size of our buy and the leverage we see, actually, the number of I would say efficiencies that we are starting to benefit from in the procurement space have accelerated.

So we've actually, used the size of our base to go ahead and manage downward some of the inflationary tendencies when we can to better -- to go ahead and manage our core structure. And then, finally, in terms of the shortage of drivers, clearly, I think you've seen that the U.S.

driver market is pretty tight. We pay very close attention to it.

In many respects, we continue to be an employer of choice. We emphasize maintaining a positive workplace and continue to go ahead and manage wage and benefit conditions appropriately.

So we keep that balance, ensuring there's, kind of, that right work and family life balance for our drivers and making sure we are competitive.

I had a question, again, on the margin and ROCE target of forward of [ph] 10% by 2021, '22, which means, essentially, you need to grow the margin -- I mean, maybe you can correct me if I'm wrong, but improvements of 50 basis points per year on average. Now if I look at the margin improvement, it's 30 basis points in first half with synergies, good growth, better pricing in IM.

So in general, what are the key levers you have to accelerate that ROCE improvement to say, 50 basis points per year on average over the next 4 years, given that, as mentioned earlier, maybe the CapEx will also start to inch higher?

Fabienne, can you elaborate a little bit on that, please?

Okay. So we are clearly managing the group with our return capital employed objective in mind every day, in each industrial decision.

Remember that what you're taking into account for calculating the return on capital employed is net profit, not operating profit. So we work on all lines of the P&L and clearly, the operating profit margin is a driver.

The reduction of that and working capital requirements is a driver. The tight control over our new investments and make sure they are relative to the global return capital employed of the group is also a lever, and we are working on all of them at the same time.

I've just got some -- one long question, anyway, it's about the Gulf Coast. I'm just wondering how much CapEx is associated with the new Lyondell supply contract?

What's the latest on the Yuhuang Chemical methanol plant. I think, it is Q4 '19 now.

And then, finally, in the backlog, you're indicating a lot in America, I presume you're indicating in the portfolio, a fair amount on the Gulf Coast?

Thank you. Mike?

So first of all, in terms of Lyondell, I don't think we've published anything in terms of the actual investment numbers. So basically, we are in the process of continuing to move forward with those contracts.

It's a sizable oxygen contract. So that's in a good place.

In terms of overall growth in the Gulf Coast, as Fabienne mentioned, we just recently started up the OCI facility there in Beaumont. The next facility, with [indiscernible] will go ahead and evolve late 2019 into 2020, depending on where things evolve.

I think that clearly, they've worked to go ahead and assure they have their financing in a good place and that's continued to evolve. So there's no question that project will play out.

It will continue to grow. I think, in terms of the portfolio of opportunities and the growth perspective, it is very significant right now in terms of the level of business development activity.

I think, for the group, something like 40% of the overall portfolio of opportunities reside [indiscernible] in the Americas. So I would say that what I talked about before in terms of the chemicals industry, the level of growth with the second phase of investment, both across the Texas side of the Gulf Coast as well as Mississippi continues to be resilient.

On Large Industries, can you already observe some repercussions from the trade conflict from your customer side, for example, in the steel industry. If that is so, which region in your observation is suffering the most?

Yes, I think, we can talk about Europe and we can talk about the U.S. In Europe, as we speak, we don't see any significant impact.

We could expect to have an impact on steel because steel and aluminum are the first two categories of product that have been targeted. As we speak, we've not seen a significant impact and it may evolve and that the trade discussions or negotiations are in course.

So we definitely need to wait a little bit more to see what is the outcome. I guess, in the U.S, Mike, it's more or less the same.

We've not seen a major impact so far on our operations in LI.

No, that's right, Benoît. We really have not seen any impact at all on operations, nor have we seen an impact in terms of the level of business activity that -- business development activity that I just spoke of.

So, I think, we all see what's evolving in the press and, I think, every day, that changes just a little bit. But at this time point in time, there's really been no impact in terms of current business or what we see right now in future business.

Just quickly, can you characterize, with respect to the comments that you made about hydrogen outages in the first half of the year, how you think about the cadence of outages in the second half, and more broadly, what you are seeing in terms of hydrogen bidding activity?

Well, in large industry, I guess?

Yes.

Yes, yes. Well, okay, I subject to under the control of Mike, who has a lot of hydrogen business in the U.S.

as well. I think, it's an interesting observation to make that we had several turnarounds both in Europe and the U.S.

before the summer at a time when energy pricing is high and probably, because of the international tension may remain high or become higher. So it's as if the customers were anticipating the rise in pricing, oil price, in particular, and wanted to be ready to actually sell their products as the refining margins are high.

This is one possible interpretation of the turnaround situation. Do we see more projects worldwide in the years to come for hydrogen?

Yes, definitely because there's the new norms -- environmental norms for maritime business that will have an impact. And if I remember, Mike, you will tell me whether I'm right or wrong, the impact is forecasted for 2020.

By 2020, we need to have a significant reduction in sulfur emission out of the marine and shipping fuel. So it will have an impact on desulfurization and an impact on new projects.

Mike, I'd like you to confirm?

Yes, I think, Benoît you got it just right. In terms of the actual turnaround impact that we saw at least, in the U.S.

operations so far this year. First and second quarter, we saw a number of different outages.

First quarter, more along the lines of the hydrogen supply to our pipeline business; in the second quarter, more on the outside. And we really don't expect much significantly later in the year at this particular point in time.

In terms of future needs, Benoît has said it exactly right, there is going to be some issues around maritime fuels that will kick in, in that timeframe. And we've also continued our discussions with refiners, as they look for ways to go ahead and manage -- better manage their hydrogen supply, as we leverage the capabilities of our cavern to help meet their needs on a better available basis and to continued to pursue growth by those means as well.

So we are just reaching the end of our conference call. Let me just conclude in one or two sentences.

First of all, sales growth is strong, and I would like to highlight that. It means that we have found this first half more or less the historical growth rate that we enjoyed several years ago, so that's good news.

The second point is the 30 basis points margin improvement in Gas & Services is actually positive and it should not be seen as negative because it's a mix of a strong growth in IM business. We are seeing the impact of efficiencies and synergies.

The net-net is just due to the fact that LI, and to a lesser extent, healthcare, have seen a decrease in margin ratio, but the net-net is 30 basis points, and I think the underlying margin improvement is there, we can see it. Number 3, the cash flow is very strong and this is really good news for the future, in terms of not just in-depth but in terms of debt, but also in terms of our ability to self -- partly self finance our growth.

And so, all in, we think this is a robust set of numbers, and we are confident in our ability to deliver net earnings growth at constant exchange rate for the full year. So thank you very much.

Thank you for attending, and have a good rest for those who can take holidays. Bye.

Bye, bye. Thank you.