L'Air Liquide S.A.

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

Thank you for joining our conference call today. Benoît Potier and Fabienne Lecorvaisier will present the first half 2019 performance.

Michael Graff is also with us and will participate in the Q&A session. Our next announcement is on October 24 for our third quarter earnings.

Let me now hand you over to Benoît.

Thank you all. Good morning everyone, and thank you for being with us.

The agenda today is around this first half which is a good combination of sales and margin improvement. And we'll try to detail that with Fabienne and Mike.

We will also look at the transformation, which is accelerating and delivering as we see that in the numbers and we'll come back also to the outlook. So I will start on page 4, which shows that we have delivered a very solid performance this first half thanks to the excellent teamwork that we could achieve in the group globally in all geographies.

We see that all indicators are improving with nearly 8% as published sales growth and 4.9% increase in sales on comparable basis. We have delivered sustained sales increase, which shows our ability to grow in – I would say, a slightly more contracted environment.

And I think we'll come back later. We have done that while generating a step-up in margin with 70 basis points increase in operating income recurring-to-sales ratio.

As for net profit, if we exclude the one-off which is linked to Fujian divestiture, but also the financial gain we had last year, we have a net profit recurring increase by 12%, which is actually leveraging on the 7.8% growth in top line. The strength of the balance sheet is further also improving with a return on capital employed increasing by 30 basis points and the gearing is down 71%.

I'll let Fabienne comment on the details and how we achieved that. If we look at page 5 where – by business line where this growth is coming from.

On the left part you have the two quarters. But if we look at the first half, we have now reached again this – for nearly eight quarters this 4% to 6% growth in sales.

And if we look at the first half, we have a very strong growth from Electronics and Healthcare respectively 13.5% and 6%, which shows that we have the underlying business that is there and providing what we expected. Large Industries back to more than 5% with significant number of startups and ramp-ups.

Again, we'll come later on that. And in Industrial Merchant which is slightly lower than before and we have only identified a few market segments in particular in the U.S.

that are slowing down. And again, Fabienne will come back to that later.

The second highlight of this first half is actually the step-up in margin with an improvement of 70 basis points in the first half, which means that the step-up is initiated and will go on. There are three drivers supporting this increase.

The first one is the price/mix. Actually, price has increased in all regions to reflect in part the cost increase that we had and I'm thinking in particular around transportation cost, but not only.

And also, we had the ability to increase helium prices, because as you know, there is a tightness in helium sourcing in the world. But we also act on the product mix by trying to increase the value of our products and services, so not just we have pricing environment, but also a management of the mix.

The second lever is definitely the efficiency program, which now includes in full the Airgas say activities. The first phase after the acquisition was to deliver synergies, which is now as you know done.

And so we are now focusing on putting in place the efficiency programs of Air Liquide legacy into Airgas, and it is producing. And the third lever is portfolio management, with a certain number of small, but altogether contributing divestures that is also helping the improvement in margin.

The – of course, this improvement in margin will also have an effect on the improvement in return on capital employed. This is the operations.

If we look at how much we invest and I'm on page 7, we have had a very active business development preparing future growth. The industrial investment decisions were above €1.3 billion, since the second half of 2018 -- or 2017.

And in the first half of 2019, the €1.8 billion of investment decisions include the Tech Air acquisition that we -- which is as you know sort of mini Airgas covering many regions in the U.S. If we exclude Tech Air, Americas is the first geography in terms of investment decisions.

And over the last 18 months, we signed for more than US$ 400 million of investment essentially on the Gulf Coast. And we recently announced the signing of three long-term contracts with Marathon and GCGV on the Gulf Coast which are two main customers in the U.S.

And most likely, there will be more to come. In Europe, also for example, we recently announced a new long-term contract with Severstal in Russia which means that the trust is actually there between the two companies because we have had already a long-term history with this customer.

We signed less significant investments this first half in Asia mainly, but we did it with Electronics customers. My next slide is page 8.

It's related to the group transformation which is accelerating and delivering and we have highlighted a few examples for each of the NEOS objectives that prove that this transformation is taking place. We have actually a high level of signing which is securing future sales growth.

That's point number one. The transformation projects also allow increased efficiencies.

There are many. For those who were present during our last Capital Day NEOS in France, you saw in real what the smart innovative operations is all about.

But also you saw the automation of our cylinder business that is taking place. And on top of that, I could mention some structural projects related to the organization of shared services in Europe that are taking place.

The Airgas acquisition is now fully digested as I said earlier with gearing back in the 60%, 80% range. And I'm talking about the debt, so third point.

And we had recently an outlook which was revised by S&P to positive. So that's another example of NEOS objective that is contributing.

And if I look at the return on capital employed, we have an active management of capital and efficiencies which lead to another -- further improvement of the return on capital employed. Last, I would just like to mention the decision we took the divest Fujian.

All of you are aware of that. This is of course an important decision which was taken in agreement with the customer.

But we also had in terms of other objective, climate objectives in particular some innovations in biomethane, in hydrogen energy and new processes that we are testing like the one we announced with ThyssenKrupp in Germany to partially replace coal by hydrogen in blast furnace. I would say that all those examples are supporting the achievement of our climate objectives.

So the innovation is real. On that basis, I would like to hand over to Fabienne for more details about the performance.

Fabienne?

Thank you, Benoît and good morning everyone. As just highlighted, our performance is supported by sustained sales growth grew to 5% in Q2 and by an acceleration in margin improvement linked to a series of actions on which I will come back.

Cash flow is also solid for the period and return on capital employed improved accordingly. This clearly enabled us to pursue active new project signing.

Looking at the numbers in more detail on page 11, Gas & Services are up 4.9% for the semester with a slight acceleration in Q2 at 5% versus Q1 at 4.8%. Engineering & Construction sales contribution is slightly down as we had more group project than third-party project this semester, while we remain confident in the level of order intake consistent with last year.

Global Markets & Technologies continue to grow double-digit, benefiting from high-tech sales and expanding biogas. For the group, we also end up with a 4.9% very solid comparable sales growth.

But looking at published numbers, the ForEx effect has been positive at 2.5%. The energy effect is negligible.

And therefore we enjoy a very strong 7.8% growth. In terms of markets, we are clearly facing a situation which is now a little bit more contracted.

For Large Industries, chemicals remain relatively solid, but with different drivers, petrochemicals in Benelux and more methanol in the U.S. The demand for oil and gas is still strong in Europe, in Benelux, but there's still is visible in Europe in particular.

In terms of merchant, we saw the market linked to investment temporary softening with a kind of wait-and-see attitude in the U.S., notably impacting metal fabrication and construction for example. Conversely, markets linked to consumption like food and pharma remained robust.

In Electronics, all segments are still relatively well-oriented in the countries where we operate, despite a slowdown in the investment. I am on Page 13.

The Q1 growth levers were more or less confirmed in Q2 with strong pricing and positive volumes in Industrial Merchant in Europe, Asia, and the Middle East, strong Large Industries in Asia and Europe, and high Healthcare growth and still very dynamic Electronics in the U.S. and Asia.

For Gas & Services, base business at 3.3% in Q2 continues to be strongly contributive, while startups ramp-ups and bolt-on acquisitions bring an additional 1.7% growth. The Tech Air acquisition in the U.S.

accounted significant perimeters since April 1st and therefore not part of the comparable growth is bringing an additional 0.8%. Let's now go deeper in the geographies on Page 15.

This is the Q2 comments. Americas, to start with, is posting a 2% growth.

Large Industries is better supported by more premium pricing than in Q1 in the U.S. as well as by strong oxygen volumes in the U.S., Canada, and Brazil.

Industrial Merchant conversely softening mostly due to the slowdown of metal fabrication and construction markets in the U.S., strongly impacting our hard goods sales, while food, pharma, and techno continued to grow. Pricing remains very strong throughout the zone.

Healthcare is up double-digits, thanks in particularly to the U.S., supported by medical gases sales to proximity care and to growing home healthcare volumes in Latin America. Electronics demand remained strong with a high level of equipment and installation.

Europe growth is close to 6%, a level we have not seen for quite a long time. In Large Industries, hydrogen volumes refiners are high in Benelux and we benefit from the ramp-ups in Turkey and the takeover Kazakhstan.

Industrial Merchant is supported by a further reinforcement of the pricing at 3.8% in Q2, now aligned with cost inflation and by steady underlying volumes. Healthcare is strong about 6%, supported by stable medical gases, and high home healthcare growth at plus 9%.

Asia remained very strong at plus 9%. Large Industries growth is supported by oxygen ramp-ups, in particular, in China.

Industrial Merchant growth is still up double-digits in China with positive pricing and strong volumes, in particular in packaged gas and is also solid in Southeast Asia. Conversely, the Australian market remains quite difficult.

News are still very good in Electronics with a 15% growth despite equipment and installation progression being slightly less than in Q1. Carrier gases in particular are benefiting from strong demand and new ramp-ups.

Africa and Middle East has been affected by major outage at Sasol which ended mid-June, while merchant continues to be strong in Saudi, the Emirates, Egypt, and India. I'm now on Page 17, I'm not going to comment the activity by business line in detail, but I will just share with you a few highlights.

Industrial Merchant pricing remained very strong. It reflects a stronger inflation on cost, a clear unbalance between offer and demand in helium, but also significant proactive salesforce action.

However, markets are now a little more contracting. Large Industries are improving, thanks to volume growth hydrogen in Europe and oxygen mostly in the U.S.

and in Asia. Healthcare continues to be above historical average, thanks to home healthcare in most geographies with the expansion of a new therapy and to medical gases in America.

In Electronics, the drivers remained strong growth in carrier gases and advanced materials, supported by startups and strong demand, driven by memories for integrated circuits and flat panels in China. Let's now talk about performance on Page 19, clearly showing a significant improvement.

In fact all operating cost purchases and staff expenses are progressing slower than sales. You see that due to IFRS 16 new accounting standard, there is a transfer from other expenses to amortization.

But excluding this impact, these two categories are also increasing slower than sales. As a consequence, operating profit recurring as published is up 12.2% and 9.4% on a comparable basis.

Operating margin is therefore up 70% for the group and 60% for Gas & Services only. The application of IFRS 16 only accounts for 10 basis points of this improvement.

As explained by Benoît in his introduction, our performance improvement programs rely on three main pillars; pricing and mix management, and then efficiency, and portfolio management. Let's start with pricing and mix on Page 20.

As already discussed, our Industrial Merchant pricing has significantly improved over the last three years, thanks to salesforce refocus, much better inflation pass-through, and leverage on our helium competitive position. Regarding project mix, more emphasis has been put on added value products and services, new applications, and cylinders in particular.

In terms of efficiencies on Page 21, we continue to on-board teams and expand our programs with Airgas being now fully on-board. CapEx efficiencies were also reinforced.

We have moved from more optimization project to real transformation project, like the SIO project in Large Industries for some centralized diluting an real-time value attraction from our network capabilities, like extended business support centers, which we are using back offices or the sharing of technical teams between business lines. For H1, total efficiencies are close to €200 million, value line with €400 million full year objective.

The third pillar is portfolio management with quite a large number of projects already closed or ongoing. We have, in particular, completed the sale of three non-synergistic businesses at Airgas, refrigerant gases first and then on-site safety services and ophthalmic protection equipment.

In Europe, we have finalized the sale of INTEGA in electronic equipment in Germany. And in Asia, we have signed the sale of Fujian and completed a swap with a competitor in China.

We have more transactions going on and hope to complete some of them before the end of this year. This helps us to refocus on the most contributive activities, and allows us to be more active on our bolt-on and complementary acquisition program.

Coming back to the P&L on page 23, we've been able to generate a slight net profit growth, despite the exceptional gain of €55 million recorded last year in financials and the one-off provision linked to Fujian this year. Excluding these two impacts, net of taxes, net profit is up 12%.

To give you a little more detail, the cost of debt is stable at 3%, an average for the period despite increased factoring cost, and in line with our forecast. The tax rate is slightly higher than last year, due to a variety of small impacts including increased taxes on dividend and non-deductibility of the Fujian accrual.

Performance is also good for cash flow, up 14.8% with for growth, which is above sales even if we exclude the IFRS impact. And our gearing is 8% under last year's level.

In fact, operating cash flow stands at 21% of sales. The increase in working capital includes an increase in inventory linked to high equipment and installations, sales and global markets and technologies growth in particular.

Inventory investments for the period include €450 million for acquisition while gross industrial CapEx represents 11% of sales. Our net debt level at €13.7 billion reflects the acquisition of Tech Air in the U.S.

and the seasonality of the dividend. Performance improvement and portfolio management contribute to return capital employed improvement.

I'm on page 25, and we are now at 8.3%, if we exclude the Fujian one-off. As mentioned by Benoît, investment activity did not slow down in Q2.

Our portfolio of investment opportunities remained at €2.7 billion. We're balanced in terms of geographies and size, despite a good level of signing.

Investment decision at the end of H1 reached €1.8 billion, including €450 million for acquisition. In Large Industries, we signed new projects and renewals in our main core business.

And in Industrial Merchant, we reinforced our core capacity in connection with large bulk customers' demand, in particular, in developing economies. At the same time, we continue to sign new contracts with Electronics customers in Asia.

We started 12 projects in the beginning of the year, of which four in Large Industries and five in Electronics. In terms of contribution of startups and ramp-ups, we are at €185 million year-to-date, and we confirm that we should be around €300 million for the year, despite the divestiture of the Fujian assets, which should materialize somewhere in Q3.

Investment backlog is steady at €2.2 billion and the sales backlog is still around €850 million. So to conclude and based on the quality of the H1 performance, in terms of sales, margins, cash flow and return on capital employed, of course, we confirm our outlook, which is today the net profit growth in 2019.

So this is what we wanted to share with you as an introduction. Thank you very much for your attention, and we are now going to open our Q&A session.

-- for your business. Can you hear me now?

Hello?

Okay. Great.

We can hardly. Can you start again from scratch please?

I will do, of course, yeah. Two questions if I can start.

Firstly, you've always historically at least guided for a 20 to 30 basis point margin improvement in your business per year. Can you highlight how much of the now 70 basis point was driven by each of the factors that you highlight and how much of that we should expect going forward?

That's the first one. And the second one, I noticed in the chart that you've given that the base business accelerated from Q1 sequentially.

What was the driving factor behind that acceleration, specifically in the base business? Thank you.

Thank you. So, well, we're going to share the answer between Fabienne and I.

But the first one, it's clear that we've been able to produce on the average 20 to 30 basis points. But if you remember, the equation was clearly the pricing power that we had, the efficiency and the cost increase that was not actually passed through prices.

I think what has changed, and this is very visible on one of the slides when you look at the pricing evolution over time, is that we have regained more pricing power, which means that the retention rate of our efficiencies is higher than before. And I think that's probably one of the main reasons why we were able to produce more improvement in margin than before.

This is one. So this is the pricing side.

But I would say that, overall, this is a sort of addition of many small things that we were able to put in place. Any strong efficiency program like the one we initiated when we announced we were going from €300 million to €400 million is something that is well prepared in advance.

It was the case and it has been communicated to the teams on a worldwide basis, with not just the big centers, the hubs, but also the clusters in the countries, but also business lines. So what you can see today is the real effect of the transformation and the structural changes that were implemented in the group.

And we feel very confident that this is here to stay, in that, if we combine a good pricing and product mix environment, a good efficiency program like the one we have put in place, in particular, with Airgas now joining the group program. But also, I would say, a good portfolio management of three pillars are going to really be strong in the future to sustain a good margin improvement.

That's the global comment I wanted to make. And it's not just by chance that this 70 basis points happened.

And by the way, we have an excellent teamwork in the group, which was again visible during our last international meeting we had in June, with all the managers from the world. I think it's really -- the buy-in from the teams is very strong.

Fabienne?

Well, not much to add on the margin. We had made very clear that we were launching a number of action plans in various fields to improve the performance.

And I think it is starting to deliver. And you had a question on the base business.

It's true that it's a little bit better in Q2 than in Q1. This is mainly linked to the improvement in Large Industry and the scale while Electronics remained, as you've seen, very, very strong.

And we also have, if we look at the geographies, a global improvement in Europe. And Europe at 6% is a very, very nice growth for a zone which is made mostly of larger countries.

So it's in several business, I would say, Large Industry, Healthcare, Electronics and in terms of geography Europe, while Asia remains very strong as well.

Thanks great. Thank you.

Thank you. Next question.

Hi. Good morning, everyone.

I've got a couple of questions. So the first one was back to pricing.

Just wondered, if you're prepared to disclose the contribution from helium to the 4.1%. And also just address that market again for me, just to understand where we are with helium overall.

And then, the second one is, probably just a question for Mike actually. The margin performance in Americas was a standout geographically.

And that's despite a pretty slow top line relative to the other regions at least. Can you just delayer some of that 100 basis points?

And then, I'm very wary that the second half margin in Americas is much, much tougher for you, or is much tougher for you going into the second half. Just any thoughts on the sustainability of growth in the Americas margin.

Okay. Thank you.

So the helium question, Fabienne, can you give that --

Well, you know that the helium market is pretty unbalanced at the moment, meaning the demand is stronger than the offer. Some of our competitors have put their customers under allocation, which is fortunately not the case.

We have a policy of competitive position at Air Liquide, with several sources. And also, as you may remember, our cavern in Germany, when we can start a certain quantity of helium for our customers.

So it's clear that, in this market the pricing has been increasing very rapidly. We are more or less 50% higher than last year.

And this contributes to the global IM pricing. We have in Q2, an IM pricing impact which is at 4.1%.

Helium, is accounting approximately for 1%, in this total.

Thanks, Fabienne.

Thank you. Just also remind you that as far as helium is concerned, this is a very tricky molecule, because a number of sources in the world are not really numerous.

We have a few. There were closures of some sources in the U.S.

So for now several years we've been planning the access to new sources, as point number one. And point number two we have opened this cavern in Germany which gives us the ability to actually supply some of our key customers when there is a crisis of supply in the world.

And I think this strategy has been very effective. And as we grow, I think we'll keep a very strong position in helium and in the helium market.

Now for Americas, I think Mike and the American teams deserve a good congratulation for this outstanding margin performance. And I would like him to make the comments.

Mike?

Thanks, Benoît and good morning, Andrew. I think we touched on the price management.

And I think that continues to be a focus. But, there's many underlying layers here to this.

First of all, there's this continued drive for efficiency. And also to assure that you're managing cost in the right way.

And so, the layers really evolve into procurement and a continued drive on managing that especially with the larger spend we have across the Americas including Airgas a lot of work on the supply chain. Clearly, we saw the ability to leverage that in the synergies that we delivered, as part of the Airgas integration.

And we have continued with that mindset not just in terms of looking for further opportunity within Airgas, but across all of the merchants and all the Healthcare businesses in the Americas. We've also got the benefit of the evolving hub and cluster organization.

And as we've seen that evolve, the ability to go ahead and better share business support functions, and all of the basic underpinning of back offices continues to be a driver for us. There's a lot of momentum right now.

As we think about the evolution in Airgas moving from synergies to efficiencies. So we haven't lost that in our DNA.

And I think there's a lot of opportunity there, as we move forward. And then, I think the final thing is digital.

And I think Fabienne touched on that in terms of what we're doing in Large Industries and certainly that's a core component of what we started to deliver, within Large Industries in the Americas. But there's a sizable component to that as well.

If we look at the merchant business, whether you go and look at the order-to-pay cycle, whether you look at logistics, and you think about production planning, there's a lot of various ripe for opportunity that we continue to work on. And similarly in the Healthcare business, looking at the back office as well as logistics and even the smart cylinders make us better in the way we think about serving our customers.

So, I think all of this really bodes well, not only in terms of what we delivered in the first half but the continued focus across all the businesses moving forward. In terms of a view on the second half in the Americas, I break it down by the first saying that Large Industries is strong.

We saw solid oxygen volumes and an evolution of that going from the first quarter to the second quarter, throughout North America, whether that's the U.S. or it's Canada.

We saw good Airgas volumes as well throughout South America. And we've just started up the Pemex facilities as well.

So I think we continue to see strength in the base business of what we have in Large Industries. And the Americas and Cogen as well is quite strong in North America.

In the merchant business Fabienne touched on some of the markets that we've seen some softness in. Clearly, in manufacturing and metal fabrication, we saw some softening especially driven by, whether that was automotive or some of the heavy equipment areas where you've got investments maybe in mining equipment.

You've got construction equipment. You've got Class A trucks.

We see that that was on the decline going from the first quarter to the second quarter. But a lot of that seems to have stabilized and seems to have bottomed out.

Interestingly enough in terms of heavy equipment rail and repair on rail continues to be very strong. In the basics of metal fabrication, the heart of metal fabrication has not seen a decline.

It continues to be strong in its various elements across the country. And looking at construction, I talked about that in the first quarter results.

Looking at the second quarter, we continue to see strength in the Gulf Coast. We had not seen the startup of new projects kind of off the Gulf Coast.

I mentioned at that point in time, a lot of those were waiting sanctioning. And a lot of those sanctions have started to occur, they're waiting on permits.

And so whether that's new investment in the midstream, especially for new pipeline projects, whether that's the evolution of the transformation to natural gas power plants from coal and a lot of other aspects that you will see in infrastructure projects. We expect some of these will start to come to fruition sometime going into the third quarter, or fourth quarter depending on permitting.

And on power plants, you're probably not going to invest in the next power plant based on natural gas until you see the investment in the infrastructure that's going to follow. So I think we'll see those trends begin to pick-up as we go through the year.

And then I think finally in both the energy and chemical segments, we've actually seen good strengthening on that going from the first quarter to the second quarter. And that bodes well for the rest of the year.

You continue to see the growth in chemicals on the Gulf Coast not just in terms of new investment opportunities, but in terms of the startups. And so the run rates for maintenance, the run rates for specialty gases to support that continue to grow.

We saw I would say good refining turnaround activity in the second quarter. We'll likely see that mirrored in the second half.

And now you're starting to see the startup of new LNG facilities, which we not only see pushing some of the opportunities in construction activity, but with their startup the ongoing maintenance and support for those activities will bode well as we see the future. And then finally, I think in life sciences, and everything that we see in food and beverage and other retail areas that's continued to be a good growth vector for us and likely we'll continue that into the future.

Thank you, Mike.

Next question.

Hello. Could you characterize two things?

First, how you think about – what the trends are for Chinese growth in Q2 and the first half in aggregate? And secondly for merchant pricing, how you think about the sustainability of these price trends if merchant volumes stay negative?

Well, I will again share the answer with Fabienne. Well, overall China is doing very well.

I mean, if we look at every single business line, Large Industries merchant and Electronics all of them are doing really very, very well. The – we have a growth rate right now which is above 20%.

So this is really very, very strong. Whenever China stabilizes more or less in our markets it's anything between 10% and 20%.

So it is really very, very strong. And we've not seen a real slowdown.

It's interesting to compare our sales with the IP, or the GDP that is progressively slowing down. I mean, little-by-little.

But we've not seen that. We understand.

I mean, the – in the Large Industries there's a lot of chemical – new chemical facilities and oxygen, when it's supplied it's in massive quantities. So we still have a strong growth in that sector.

The Electronics is not going to slow down at all. I mean, the international situation between the big powers is more pushing China as a country to boost its electronics segment.

And as you know, there are different sub-segments in the – in every business line that we have. And the Electronics segment is nearly 90% in integrated circuits.

And this is split between logic memory and analog. And even if you have a slowdown in one of the sub-segments, the other ones are doing very well.

And in China, in particular we have a lot of flat panel display industry and this one is still doing very, very well. So the only – if we look at China now more in depth, the only thing that we are looking at or watching carefully is the automotive market.

And we've not mentioned it yet. But if there's one signal that we are following carefully is what is happening in the car industry – now – not the world doesn't need cars, but that this industry is undergoing very significant transformation.

And there were huge investments in electric cars that need's to be absorbed. And they will be before there's any new investment in new technologies.

So this industry is undergoing a very significant transformation. And when you think about what the car is, a car is a concentration of steel of chemicals, of semiconductors, of glass, of many tires.

I mean, a lot of different industries actually end up into cars. So when the car industry is doing, I mean, not badly, but suffers I would say then there are consequences.

And we can see some minor consequences on the metals, on the steel industry. And the recent announcement from the chemical industry are more linked to the slowdown in the car industry than anything else.

So that's a more general comment about China. But China as such apart from automotive is doing very, very well and we see that clearly.

I don't know Fabienne whether you have another comment now maybe about China. Merchant pricing and sustainability, we believe that we have reached a point where we have a good balance now between our ability to price in the market and the demand and the capacities the loading factor globally.

So we are confident that this pricing will go on. It doesn't mean that it will grow up to the sky.

Of course, it will stabilize at a point in time. But at least in the second half of this year, we still see a good pricing environment.

And it will be again sort of, recovery of the past cost that we had. Because for several years due to a very low inflation in the world, we lost part of our pricing power that we seem to have recovered as we speak.

Fabienne, maybe you -- additional comment?

No. I think, we keep the high level of pricing in H2.

No question, we don't have any sign of slowdown. You mentioned a reduction in volumes.

Let's remember that it's only in certain markets in Americas and many coming from hardgoods. So it's not a global slowdown in volumes not at all.

Also to be mentioned, the comparison basis will become a little bit more challenging in particular in Q4 because actually the part -- the pricing started to increase significantly in Q4 last year. But so far so good.

Thank you. Next question.

Yes. Good morning, Benoît, Fabienne and Aude.

I've got two questions. The first one is on efficiencies so a big step-up in the second quarter.

I noticed that the guidance is for at least 400 million. And I'm just wondering to what extent the improvement in the second quarter can be a run rate for the second half?

Or do we have to bear in mind tough comps? And then the second question is around portfolio management and the six active projects that you flagged in this very helpful slide.

So I'm just wondering if you can give us any color. Is there any common link?

I noticed that I think it's the first time in a year that we see a slide pack that has asset swaps in it. So any color there would be very helpful?

Thank you.

Yes, thank you. Fabienne is actually impatient to answer the two questions.

Thank you, Benoît. In terms of efficiencies we stick to our objective which is a above 400 million for the year.

We said in Q1 that we were launching a certain number of projects that would deliver later so we are aligning with the objective. I would not take the level of Q2 and take the same for Q3 and Q4.

You have projects ramping up then stabilizing et cetera. So I think the objective above 400 million for the year is a good one.

In terms of portfolio management it's mostly small projects. We have a few in Europe in countries where we have difficulties to reach a sustainable market share level.

We have some in peripheral activities of health care et cetera. We are pursuing the screening of our portfolio and really trying to identify the activities which are even not synergistic with the rest of the businesses of the group or which will not deliver value in the long-term for a certain number of reasons.

In terms of asset swaps, you know, that all of the markets wants to do asset swaps. It's difficult because -- it's not easy to find the balance between what you want to sell and what you want to acquire and what the competitor wants to sell and he wants to acquire.

Actually, we did a really interesting one in China. Our competitor is not willing to disclose so that's why I will remain quite vague.

But we exchanged our participation in two different JVs, in two different regions which allows each of us to fully consolidate the activity in one of the regions. Hope that is responding to the question, but I can't do more, actually.

Thank you.

The message -- the underlying message is clearly that portfolio is part of margin improvement and will continue to be part of it without necessarily pushing hard for that. But we have now put that again as one of the three pillars of our efficiency improvement.

Next question?

Yes. Good morning.

And a couple more for me please. Firstly, on Asia and the comparable growth there in the Electronics performance.

Can you give us an indication of how much of that growth was contributed by the startups that you referred to? And how much was the base business there?

And then also within the -- I think you said 185 million from total startups in the first half of the year. How much of that was contributed by the Fujian project?

By my calculation I think it's about a little bit less than a third of that but if you can help me there? And then the third question is a small one on the cash flow.

There's a reference to a €55 million profit on disposal. Can you tell me where that drops into the income statement please?

Is that within continuing operating profit? Or is it within the non-operating items?

Thanks.

A word about Electronics in Asia, Mike could you just make a comment about that please?

Sure. I mean, I think we continue to see very, very good growth in Asia.

The startup, obviously, of the carrier gas business continues to drive our Electronics performance. We saw sound double-digits associated with that both with the startups and the continuing evolution of the business that we have.

In terms of the startups and the ramp-ups, obviously, commensurate with all the signings we've had, it's a good portion of what we have. I think that overall we end up probably two-thirds of what's in there in terms of the carrier gas piece that's in double digits is associated with the startups.

We've had similar growth, obviously, with advanced materials, the startup of G1 and a variety of other things that are servicing our customers there.

Thank you.

Fabienne?

Yeah. On the contribution of Fujian, it's clear that the ramp-up of Fujian has been supporting part of the growth in Asia.

So if you look at the growth of Asia for H1, we are plus 11%. 5% is the base business and 6% is the contribution of startup and ramp-ups.

But not only Fujian as you know we have other startups in oxygen in China in particular. So approximately half, a little bit more than half of the startup contribution in Asia is due to Fujian.

Thank you.

And the €65 million in cash flow question?

This is, of course, non-recurring expense so below the operating profit.

Thank you.

Okay, thank you. Next question?

Yes good morning, everyone. Thank you for taking two questions and a little bit of clarification I think.

There's been a lot of talk, obviously, on IM price. And just looking in the Asia region where I think it was flat at 1.4% both quarters in the first half, is there any differential you can give us between say Japan and Australia and emerging Asia?

Because, obviously, one of the U.S. players has just reported or suggested they had exclusive price in emerging Asia for them?

And then secondly, this is the clarification and it's for Mike. Americas IM volumes you're suggesting that things appear to have stabilized.

So would that mean that this minus 4% volumes we're probably seeing in North America is about as bad as you think it will get as we go into the third and fourth quarter? And that's for the IM business.

Thank you.

Okay. Fabienne you take the first one.

So IM pricing in Asia is positive mainly in China and in Southeast Asia. If we look at Japan, Industrial Merchant is slightly growing.

We have a price, which is more or less stable on the slight growth in volumes, so slight growth but quite good news. The Industrial Merchant in Australia is carried down.

It's a mix of pricing and volume. So the Australian market has been pretty difficult for a while.

We can see a serious competition and pricing going down. But all-in-all, we have a positive in Asia supported in particular by developing economics.

And more generally I think Australia and New Zealand is the only country in the world that's in the second quarter negative pricing. But all the others were in positive territory, which shows that this is pretty strong.

And even if we have -- there are differences between the continents we had a well-spread pricing effect in IM in the second quarter. Next question?

Maybe if I could, Peter on your question on the volumes in the Americas. So, the driver here is more hard goods than it is gas.

So when you look at the numbers hard goods is the major player in the decline with a slight decline in terms of the Airgas volumes. And the markets that probably have seen the greatest softening are the ones that are more hardgoods-intensive rather than fully gas intensive.

So the gas intensive markets continue on a good growth trajectory. And I think that we have seen some stabilization on where we are.

So I don't think we're going to see major changes. We go through the rest of the year, there may be some things that on a comparable basis in a given area that will show some up and down.

But I think we see some stabilization in the key markets and growth in others.

Okay. Thank you.

Thank you Mike.

Thank you. Next question?

Yeah hi, thanks. Three questions.

Firstly, on the previous comments on hardgoods, I was just wondering in your assessment, have you guys seen any sort of correlation on how hardgoods could be an indicator of future business trends in the gases business as well? Because it seems in the past that was the first shoe to drop and only then you actually see that gases sort of start to slow down.

Is that the case you guys have observed is the first question. Second question was on the refining where the hydrogen volumes were very strong in Europe.

Is there a structural change in the hydrogen intensity in the refining business which is driving that? Or is that just a normal ebb and flow of maybe just the production phasing of your customers?

And just last question wanted to understand did you -- in the response to one of the previous question, did you comment that the Chinese prices are actually down in the merchant business? Thank you.

Well, the third question clearly no. China -- in China prices were up.

And I just made a comment that in each and every country except Australia, it was up in the second quarter, and I think the trend was the same in the first quarter. So it's really pretty strong.

So let's be clear Chinese prices were up. The correlation between hardgoods and the outlook I would say when the hardgoods are doing, I mean, weakly is it a sort of an announcement that the gas business is going to be weak?

My answer is nom because it's a little bit more complex than that. Because hardgoods is used in some of the segments of the IM industry, but many other segments don't necessarily require hardgoods in their manufacturing process.

So if we look at the five key segments in IM, which are automotive and fabrication definitely in this segment they are using a lot of hardgoods. But it's around one-third of our IM business worldwide.

But in the others that are materials and energy, food and pharma, professionals and retail and technology and research the four others are not consuming necessarily a lot of hardgoods. So predicting the IM business on the basis of what happening in one segment is a little bit I would say risky.

We've not seen that correlation actually really in the field in the past. And I don't think Mike you're going to correct me if I'm wrong, but I don't think that what we've just observed this first half in the U.S.

is just a proxy of a slowdown of the global IM market in the U.S.

No Benoît, I'd agree with what you said. I think it's well said that there are certain markets like metal fabrication that they're heavily weighted in terms of hardgoods.

Some of the construction activity obviously very heavily weighted in terms of hardgoods. And it's a fair comment that as you see the hardgoods decline over time, you'll see gases decline in those areas.

But that's only a portion of our portfolio today. And we've continued not only to grow the industrial pieces of the portfolio, but life sciences food and beverage.

I mean, just take food and beverage, it's not only regulations that have driven the need and the demand for more gases, but it's people's consumption patterns. I mean, people are looking for more organic foods.

They're looking for fresh foods. They're looking for already prepared foods.

And all of these drivers in the world around us continue to drive industrial gas consumption and make those things work. So there's a little bit of a balance there.

Obviously, if everything is growing then obviously everything within the IM segment looks great. But there is a differentiation between the markets.

On the hydrogen and the refining industry, it's interesting, because just before we started this conference call we had a discussion with Mike, the reasons why we sell hydrogen pretty good in Europe. There are two main reasons for refiners to consume hydrogen.

One is, sulfur, the removal of sulfur. And we see a boom every time you have a change in regulation.

This is not the case right now in 2019. It will be the case next year with the IMO and the new regulations for bunker fuel, which will require more hydrogen.

But as we speak this year there was no fundamental and big reason to have a change. The second reason why customers consume hydrogen is light versus heavy crude so the quality of the crude.

And I think the fact -- the game-changer today is the U.S., because the U.S. has now the ability to produce more oil.

And the quality of the oil in the U.S. is slightly different from the average of the quality we had before from different sources in the world.

So when the U.S. produces more, it's lighter.

And so part of the heavy fuel that was going to the U.S. is actually going elsewhere, which includes Europe and Asia.

So it might very well be that Europe has imported more heavy crude than in the past, which means more hydrogen treatment because when you have more heavier fuel, you need more hydrogen. That's my understanding.

But Mike is definitely even more knowledgeable than I am. So I'd like him to make further comments on that.

I don't think I can add much to what Benoît said. I think clearly the drivers like Benoît said are the sulfurization and environmental requirements for transportation fuels.

And the other piece is crude mix. If you look at the mix of heavy and high sulfur crude and how that rebalances around the world clearly, that can help drive hydrogen consumption in any given refinery that starts to see a heavier crude slate.

So I would just support what he said.

Thank you.

Thank you. Next question.

My first question was which information can you give about the next dividend? And my second question was what are your guidance for H2 like in terms of margins or sales?

Thank you.

Well dividends actually we just distributed dividends 1.5 months ago. So it's not really the right timing to even talk about dividends.

What we need is a good cash flow to be able to distribute a good dividend and that's exactly we are focused during the year. But the dividend policy has been very stable over time.

And I think it will continue. So no real comment about dividends.

Guidance for the second half maybe Fabienne you'll say that with the right level of precision.

So you know that we don't give a guidance with our sales. On margin, however, I think that with all the discussion we had on the details of the activity and on the action plans that are ongoing to improve the performance you'll have the confidence that the strong level of improvement will continue.

Okay. Thank you very much.

Thank you. Next question.

Yeah. Good afternoon.

Two questions from my side the remaining ones. One is on your engineering activities.

If I combine both, they were down year-over-year. Is this just this lumpiness of this business?

Or do you see the investment decision of your customers have been delayed? That's the first question.

And the second question is again on this pricing effect. If from the base business, if you would strip out the price effect would you -- what would have been the development of the volumes year-over-year?

That would be my quick questions. Thank you.

Okay. It's good that you asked a question about E&C Engineering & Construction, because we've not mentioned it so far.

So the activity of the Engineering & Construction as you know is external sales to third-party customers or it's also to serve the group for new investments. If we look at the total sales of our engineering division, it's increasing significantly.

So the activity is there and it's good, because it means that we have enough work for maintaining if not just slightly growing the engineering division. But we are also using more and more for the group the engineering services.

So the consolidation part, in other words, the sales to third parties, which are visible as sales are lower than in the past. So the decrease in E&C is not a decrease in activity, but it's more sales to the group than net sales to third parties.

So that's the answer and it's doing well. We have resized the engineering over time.

And we think we have the right and sustainable size. We have the right organization as well between the different workshops.

So we feel pretty comfortable with what we have and our ability to sustain a good level of activity. On the base business, if we exclude the pricing effect Fabienne?

So as mentioned during the presentation, the base business is up 3.3% in Q2 at the group level, but again on service level sorry. Out of that 1.3% is pricing, because of course in IM we have the pricing strongly increasing.

But in Healthcare, it's more difficult as you know. So 3.3% out of which 1.3% is pricing and the rest is volume mix.

Okay. Perfect.

Thank you so much.

Thank you. And we may take the last question.

Maybe this one.

Hi, both. Just a couple for me.

First, on the cash flow, obviously a step-up in the inventories and you're flagging E&I as part of that reason. So perhaps you could just give us a little bit more detail exactly how -- what was going on there and then also perhaps when we should expect that to unwind in the inventory line.

And then secondly, just around I guess some of the bolt-ons. It's been a while since you're doing bolt-ons in Healthcare.

I was wondering if you see a more active market looking forward in Healthcare. And then perhaps just on Tech Air how the integration is going.

And just a reminder on the timing of -- on delivering on those synergies that you've cited.

Okay. Fabienne the inventory question?

So the cash flow is strong, but we have a deterioration in the working capital. This is due to the fact that the quarter ended up on a Sunday, so it's not excellent for collection.

So we were not at the top in terms of collection clearly and also because we have an increasing inventory. So you know that we had very strong E&I sales for a while in particular in Electronics.

If you look at the book-to-bill ratio right now, it's slightly under 0.5, meaning that the equipment and installation level is going to decrease. And therefore, we should see some reversal in the inventory level as well.

However, we have some of our businesses, which we'll continue to grow in particular in Global Markets & Technologies, which are businesses which require inventory in particular in advanced technologies that we didn't have before. So there is also a trend in terms of evolution of the business, which is leading to higher inventories than what we had in the past.

Which to a certain degree is good news, because this division is actually doing well. And they have a strong appetite from customers for new technologies in particular for transportation of cold products, I'm thinking about this reliquefaction unit that we sell very, very well which is really a fantastic product.

And we see a lot of opportunities for that. So that's a side comment nothing to do with inventories.

But it just proves that the GM&T, with maritime teams, with biogas, with hydrogen energy, this is a division that will grow. And this is good because part of those markets will be gas markets as we go in the future.

And so we are creating the markets of tomorrow. Now the price to pay is definitely to have a higher inventory.

The second question is related to bolt-ons. We still have some, but the pace has decreased slightly.

We were still in terms of strategy, we're still in particular in Healthcare to grow organically, but also to have bolt-on acquisitions. There are four right?

We had four in the beginning of the year actually. In Q1, one in Switzerland, one in Spain; and in Q2, one in the New Zealand and one in Canada.

So it's not big deal. But we continue to close those bolt-on acquisitions.

We have a certain number of them in the portfolio, we are looking at right now. So it's clearly an ongoing strategy.

But I would say we remain selective. We don't want to overpay.

So we acquire when we think it's a good business with a good future and good synergies, with existing business. Whenever we have those conditions, we will have no hesitation and we will buy.

So that's I think the – we’re reaching the end. There's no further questions.

Tech Air synergy…

Okay.

….integration?

So I think on Tech Air, it's all going very well. I think we see the rapid integration of the business into Airgas.

Clearly, this is something that Airgas does very well. The teams have a long-term history of acquisition and integration of businesses.

And I think we demonstrated that proficiency with how quickly we captured the synergies and integrated the Air Liquide merchant businesses in the U.S. into the Airgas business.

So that remains on track. It's going very well.

Recognize that this is the Tech Air business itself covered a pretty broad geography. And so it allowed us to go ahead with the various regions that it touched to go ahead and very, very quickly anchor those businesses into our businesses and very quickly begin to go ahead and drive the integration and synergy capture, so it's all going very well.

So I think we are reaching the end. Thank you for being with us.

Again, this is a strong first half. All the teams are really highly motivated to have also a strong second half.

I think we have highlighted the markets that are actually giving us this strong growth. Even though there are some that are weakening, I think we have clearly identified one or two.

Mike made the comments that we now see a more stabilization of those markets. So we remain confident on the guidance.

And assuming a comparable environment which is what we can do today we are confident in our ability to deliver our net profit growth in 2019. And this is calculated at constant exchange rate.

So thank you very much. All the best.

Happy holidays for those who can go on holidays hopefully most of you, and see you after the summer break. Thank you very much.

Have a good day.