L'Air Liquide S.A.

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

Thank you very much for joining our conference call today. Benoît Potier and Fabienne Lecorvaisier will present the first half 2020 performance.

François Jackow, Executive VP, Supervising Europe, Africa-Middle East and Healthcare Hubs. And on the phone from Houston, Mike Graff, Executive VP, Supervising Americas, Asia-Pacific hubs and the Electronics business lines.

They will both participate in the Q&A session. In the agenda, our next announcement is on October 23 for our third quarter revenue.

Let me now hand you over to Benoît.

Thank you, Aude. Good morning, everyone.

Thank you very much for attending this call. Before presenting the performance, let me just start by recognizing our teams for their dedication and courage during this period, this unprecedented global sanitary and economic crisis.

Overall, the performance in the first half and especially the second quarter, has proven the high resilience across businesses. We’ve been able to deliver significant margin improvement in a very difficult context, in particular, thanks to the responsiveness of all the teams to deploy temporary measures, those who were necessary to reduce costs -- fixed costs and to adapt to lower activity level.

Fabienne will come back to this later. In all regions, the Healthcare teams continued to fight the pandemic, and I commend their strong commitment.

Business development has been very active in the first half with a high level of investment decisions and a high and increasing number of investment opportunities. Finally, we have updated our assumptions in the current environment, and given the evolution of the pandemic worldwide, we are in a position to confirm our full year guidance.

I would like also to take this opportunity to announce that we will be postponing our next Capital Market Day that we originally intended to hold in the first quarter next year. But indeed, we will reschedule it for the first quarter of 2022.

And in between, we will revise our 5-year strategic plan in light of the lessons that we drew up from the COVID-19. But also, we would like to use 2021 as a reference, which is a much better reference than 2020 for the starting point of our new strategic plan.

But of course, we’ll give you visibility for 2021. On slide -- Page 4, we highlight the key figures that illustrates the resilience of the group in the first half, with first limited sales decreased to minus 3.2% on a comparable basis; a stable operating income recurring, resulting in a significant improvement of margins, both at the group and Gas & Service levels, we have actually 100 basis points improvement for the group, as published, and 50 basis points, excluding energy passthrough impact.

We managed to preserve net profit already in the first half, growing by 1.8%. It’s very much in line with the guidance.

And also to be highlighted as well is the strong cash flow, thanks to a very close management of expenses and a good rate of collection. The cash flow is at 23.1% of sales, which is a 170 basis points improvement versus last year.

On the next page, I would like to come back on the sales and the evolution over the first half. In Asia, China was the first country hit by the COVID-19 in first quarter, and recovery was very quick there with growing sales in the second quarter.

Other countries in the region have been hit by the pandemic in the second quarter and lockdown measures have not been lifted yet in some countries. As a matter of fact, only Taiwan and Korea were in positive territory in terms of sales in the first half.

Europe has been severely affected by the sanitary crisis from mid-March, especially in the southwest of Europe in Industry, and recovery is very progressive since the beginning of May. Our activities in Northern Europe, to some extent, and Eastern Europe have resisted better.

Sales resilience in the region also comes from the high share of the Healthcare activities, which represent around 40% of the sales in the region. Situation is very contrasted in Americas.

U.S. and Canada were hit from the end of March.

After showing first signs of recovery in May in some markets, activity has stabilized in June and several states strengthened lockdown measures following a resurgence of the virus. Latin America has been impacted later and is still fighting the pandemic.

Finally, Africa-Middle East was impacted later and lockdowns are still in place in most countries. Sales evolution in each region reflects this contrasted pace of recovery.

Moving to margins, next slide. We delivered a significant margin improvement in first half, driven by three main actions: the pursued efficiency program that was already in place and that happened despite lower volumes; the second one is the agility of the teams to quickly deploy in all our operations, the cost containment program to reduce costs and adapt to lower level of activity.

Fabienne will come back on that in more details; and the third point is the sustained pricing in Industrial Merchant, with a 2.9% increase in pricing over the first half. On Slide 7, in this crisis environment, interestingly, business development remained very active.

The 12-month portfolio of investment opportunities increased to a high €2.9 billion, and we see more opportunities of asset takeovers. Signings and decisions remain also at a high level of €1.3 billion despite the difficult context, with a record level of Electronics projects, especially in Asia and the U.S., with major signings also in Large Industry with 1 project we announced in Russia that include the takeover of assets for hydrogen and rare gas production.

We also see more projects related to energy transition. In fact, close to 1/3 of our signings were related to energy transition in the first half.

And to be mentioned are the 25 long-term on-site contracts we signed in Industrial Merchant during the semester. As you know, active business development today prepare the growth of tomorrow.

All those numbers do not include Sasol Secunda oxygen plants takeover, which was announced yesterday. The site represents 42,000 tons per day capacity, which is the biggest oxygen site in the world.

On Slide 8, finally, the main outcome today from this global sanitary crisis is that a new era is already starting even if the pandemic is not yet over. What we observed is that the pre-COVID trends emerged stronger, at least for those which are related to our business.

And we have identified the 3 major trends. First, the Healthcare trend.

The pandemic has increased the focus on health care systems everywhere. The pandemic was global, but the responses have been local, and the health care systems will look now for more local health care solutions.

And if we look at R&D, probably the R&D, in particular on vaccines, but probably also on diseases in general, will be more global. So there will be a shift in the health care industry, taking lessons of this pandemic.

We also like to mention that the extensive use of AI and platforms in health care is a lesson learned from the crisis. Actually, AI was used for managing the pandemic and the platforms were used to give access to data.

And I think this is a trend that will go on in the future. The equipment manufacturing footprint also will change, maybe there will be less focused in the past.

So the crisis has demonstrated the strategic importance of equipment to deliver drugs as well as the need for manufacturing locally. And I think it will be part of the new health care footprint in the future.

We, as Air Liquide, have a local presence, and we have developed the digital tools and the platforms in our own Healthcare business, and we have equipment manufacturing centers. So we think we are well positioned on those trends.

The second trend is energy transition. There is a strong demand from citizens and from the society globally to embark even further and quicker to energy transition.

The proof is really in the hydrogen momentum. There were announcements from Europe, from Germany, from Portugal, and I think yesterday, from Spain, that they would put in place significant plans with several billions, between €5 billion and €10 billion each country, to boost the hydrogen development and the hydrogen society.

This is, of course, a great opportunity for Air Liquide. And in that regard, I’d like to mention the fact that we have now 92 members in the Hydrogen Council, with 2 new steering members and 9 new members or, I mean, standard members.

And interestingly, amongst the 2, 1 was CMA, the maritime transportation company; and the second one is Microsoft. So it means that now the digital industry is thinking about making their industry greener.

We also see, of course, that all industries recognize strong needs to decarbonize their production processes and we see more takeover opportunities. Of course, the Sasol deal is the perfect illustration of an industrial deal on the one side, but also a climate deal on the other.

And the combination of the 2 is probably a good proxy of what may happen in the future. Digital, I have mentioned the usage of digital in the health care sector, but this is really pervading all industries.

There are new ways of working that have been put in place. So there will be something left after the pandemic.

There would be need for more semiconductors. So it will directly and indirectly improve and boost the electronics business.

And if we look at what will be the next big developments and needs in digital investments will be in B2B, but also in B2G, G meaning governments. So, there will be an active transformation but this has started already.

And we think, overall, we are very well positioned to be a leader in this global transition. I’d like now to hand over to Fabienne.

Thank you, Benoît, and good morning, everyone. I will now review our numbers in more details.

The limited sales decrease during the first phase of this crisis has indeed demonstrated, again, the resilience of our various business models. Gas & Services comparable sales for H1 at minus 2.7% show a modest decrease despite significantly lower volumes in Large Industries and in Merchant.

Electronics and Healthcare, for different reasons, remain strong. We will review that in a moment.

To be noted, June activity was better than anticipated in some regions. Contribution of Engineering to consolidated sales continued to be low in connection with the active development of group projects and with the temporary closure of workshops and construction sites.

Total Engineering sales are down 20%, with order intake picking up in Q2. Global Markets & Technologies saw a decrease in cryogenic equipment sales in Q2, but still delivered growth over H1.

And the order intake is very strong, 45% above last year. Overall, comparable group sales are down 3.2% for H1, while published sales, at minus 6.2%, are penalized by the decrease in energy prices as well as a negative scope effect as the acquisition of Tech Air in the U.S.

is not completely balancing for the divestiture of Fujian last year. Looking now at the geographies.

It is clearly in Americas that we saw the strongest COVID impact in Q2. First, due to the latter development of the pandemic in this zone, but also to our extended presence in Merchant.

Large Industries were penalized by low oxygen volumes in North America, but continue to progress in Latin America with the help of start-ups and ramp-ups. Merchant volumes, and in particular, hardgoods volumes, were weak in the U.S., notably for the industrial markets, but rentals and pricing remained strong.

In the U.S., we saw a slight recovery in May, but some kind of plateau in June. In Electronics, advanced materials and equipment and installation sales continue to be high.

And Healthcare sales were significantly up in Latin America in connection with COVID. In Europe, the pattern has clearly been different, with a slight improvement in Southwest and Central Europe since the middle of May and a very strong Healthcare contribution.

Large Industries suffered from very deprived production as well as from lower demand for chemicals in Western Europe but resisted better in Eastern Europe. Merchant was mostly hit in France, Spain, Italy and to a lesser extent, Central and Northern Europe, but we saw signals of recovery, in particular for packaged gas, at the end of the period.

The pricing also remained positive. In Asia, the good news is obviously the return to growth in China in all business lines.

However, the COVID impact amplified in Japan and Southeast Asia, which are not out of crisis yet. Outside of China, in Large Industries, demand was low, notably in hydrogen in Singapore with 1 major turnaround.

Industrial Merchant volumes outside of China were also weak, around 85% of precrisis level across the zone. Conversely, in Electronics, cryogenic gases and advanced materials sales continued to be very strong, showing more than 10% growth sustained by ramp-ups, even if equipment and installation continued to be low compared to the exceptional level of last year.

Africa/Middle East was hit by the COVID impact on Merchant demand, but our major Large Industries operations held strong. In terms of business lines, as expected, Industrial Merchant is the most impacted, with sales decreasing 14% in Q2 in most of the countries, except China.

Markets linked to consumption and services, however, started to show progressive recovery since mid-May, which was slightly more solid in Europe than in Americas. We managed to maintain strong pricing all over the period at 2.9% in Q2, like in Q1, including for Helium, where the pricing has not softened yet despite a lower demand.

In Large Industries, in air gases, we only saw chemicals bottoming up at the end of the period. It remains weak in mature economies while recovering in developing economies, China and Latin America, in particular.

Electronics was penalized by low equipment and installation sales compared to the exceptional level of last year in Asia. But conversely, Carrier Gases and Advanced Material sales were very strong, around 9% throughout the semester, supported by solid demand in Americas and Asia as well as ramp-ups of new units.

Our teams are confident that this very good trend will continue in Q3. In Healthcare, growth at plus 8% in Q2 continues to be driven by hygiene and medical equipment.

Medical gases sales to hospital linked to the COVID are softening progressively as seen Europe, and the restart of elective surgery as well as the reopening of private clinics takes time. In Healthcare, the onboarding of new patient is progressively picking up in the de-confining area.

In terms of performance, we continue to improve, along with our commitments, with sales decreasing 6.2% as published and 3.2% comparable. We manage to maintain operating profit, to raise operating margin by 50 basis points, as explained by Benoît at the beginning, and to slightly increase net profit as published.

Our teams also did a tremendous job in terms of cash management and collections, resulting in a cash-flow-to-sales above 23%, 170 basis points higher than last year. Digging a little bit more in the details.

Purchases and external costs were very proactively adapted to the low demand. And personnel expenses were frozen, while the low depreciation, increased benefit from the sale of Fujian in H2 last year, partly compensating for the 2020 start-ups.

This resulted in an operating margin at 17.6% to be compared to 16.6% for H1 last year, progressing 100 basis points, as published; and 50 basis points, excluding the energy pricing impact. Margin improvement is supported both by our structural plan with IM pricing, efficiencies and portfolio management and by the crisis cost containment plan.

This additional plan, which delivered an amount of cost reduction around €100 million over H1 is compensating for the low level of activity and is not supposed to be sustainable over time. What is really important is that the focus remains on our structured improvement plan.

Pricing is holding, in particular in Americas, with campaigns at Airgas and excellent adjustment to inflation in Latin America and in a lesser extent, in Europe as well. Efficiencies are very high at €200 million, at last year’s level, which is a real achievement in the context of lower volumes, thanks, in particular, to the acceleration of operation centralization and optimization projects in Large Industries and Merchant and to the deployment of business support centers.

We are confident to reach our €400 million objective for the year. Active portfolio management continues.

CRYOPDP and Schülke deals should close very soon. More divestiture projects have been launched, and we pursue our bolt-on acquisition program in Merchant and Healthcare in particular.

A quick look now at the bottom of the P&L. Nonrecurring operating income and expenses are close to last year.

They included last year’s impairment linked to the Fujian divestiture and include around €45 million of exceptional COVID expenses this year. Restructuring expense around €30 million are in line with last year.

Cost of debt is down at 2.9% in average, which, coupled with the progressive deleveraging, results in decreasing financial costs. Effective tax rate is pretty stable to last year if we exclude the impact of the nondeductibility of the Fujian impairment in 2019.

As a result, net profit as published is up 1.8% and recurring net profit, meaning excluding Fujian last year and exceptional COVID expenses this year, is decreasing 1.1%. To be noticed, we are already more or less aligned with our full year guidance.

Thanks to the effort on cash and debt management as well as on collection, we managed to reduce our gearing again. Net debt stands at €13.2 billion at the end of H1, an €800 million increase despite the full payment of the €1.3 billion dividend in H1 and the €130 million scope effect.

As mentioned before, our cash flow was exceptionally strong at 23.1% of sales and also allowed to finance solid industrial CapEx above last year’s level. On top, we have refinanced all of our maturities for the year, fully securing our liquidity.

Benoît already mentioned the dynamism of the investment activities. The 12-month portfolio is up, thanks to electronics and energy transition, while we have more requests for takeover from our customers.

Industrial decisions for the semester remain high at the level of 2019, resulting in an increased backlog at €2.9 billion. Once again, these figures do not include the Sasol project announced yesterday, for which we are in exclusive negotiations with the customer.

Despite delays due to the pandemic, we also confirmed the full year guidance for the contribution of start-up and ramp-ups with 10 start-ups already completed to be between €150 million and €180 million. This amount should increase to around €300 million in 2021.

To conclude, on the basis of our resilient H1 performance, we confirm our guidance for the full year. Recognizing we have some uncertainty on the actual end of the lockdown in certain geographies and in the U.S.

in particular, we nevertheless remain confident in our ability to continue to improve margins and to maintain net profit at a level close to last year. Thank you very much for your attention.

We will now open the Q&A session.

Thank you, Fabienne.

Can I start with 2, please? Firstly, could you talk us through what exit rates, in terms of growth, you’ve seen in each region globally?

And particularly, in Industrial Merchant, if you can. And the second one is on Healthcare.

It’s still a business for you that is very heavily skewed towards Europe. Given COVID-19, has that changed your strategic view of diversifying that geographically, possibly with acquisitions?

Just your thoughts on that would be very much appreciated.

So, if I understand well, the first question is more related to growth rates in IM. As a matter of fact, when we look at the different market segments, there’s a huge contrast between the different market segments.

I mean it goes from -- we just take the second quarter from minus 10% to minus 50% in terms of market. If you take the car industry, they were down by about minus 48%, nearly minus 50%.

There were others like beverage, food, which was just down by a few points. So, the growth rate in the third and fourth quarter will depend, of course, on all those market sub segments’ recovery.

And we what we can say is that if we just look at the end of the second quarter and the beginning of the third quarter, so July, there’s no major change in the trend in that no further deterioration of the sales. For those countries where the pandemic is still very active, it is a very slow recovery, and I’m thinking about the U.S.

in particular, where we saw an improvement, a very small improvement end of May, but sort of a plateau in June, slightly better at the beginning of July. So, the truth is that it’s going to be slow.

For others, for Europe, the signs of recovery are with, let’s say, more visible. So, we hope that Q3 is going to be somehow sort of catch-up with what we saw in the second quarter, but this is the holiday -- the summer holiday period.

So it’s not the best in terms of business activity. And if we look at Asia and China in particular, the -- Fabienne mentioned that the IM growth in China was 6% in the second quarter.

So China did rebound in the second quarter. So, overall, I think that the most affected sectors like the car, the aerospace, the trains -- track construction in general will probably do better in the second half, which is good news because that was the most affected.

The food and pharma markets will probably come back to positive territory in the second half. Materials and energy, where we have the primary energy sources, the conversion, chemicals, metals, glass, basic minerals or utilities, will probably be nearing the 0% in the second half.

And technology and research, which were down, are normally recovering faster. So that’s what we can say in terms of segments.

And as all those segments are present everywhere, normally, they should be in line, but clearly, it will depend on the lockdowns, and it will depend on the way the pandemic is actually eradicated, if it can be, in the second half. The Healthcare question, it is true that most of our sales are in Europe.

This was our strategy because we have a strong position and because we were able to actually grow the business and develop the home healthcare. We are present in the medical gas everywhere.

And it’s doing pretty well in North and South America, together with Europe. Asia, in general, is slower in the development of medical gases.

Africa/Middle East had a good start, but it’s still very modest in terms of weight in the health care. So the real question actually relates to home and home healthcare.

It may also relate to the medical equipment, that we are very small in the medical equipment. So I don’t think you have to expect a fundamental change in the strategy in the near future.

Meaning the -- maybe the 12, 18 months. If there are opportunities because the health care global system is changing, we will look at the opportunities to expand our business but we will be, I would say, reasonably cautious in our approach because we have tested those markets in the past.

And we know that some of them are pretty difficult. Others present opportunities and may be a good source of growth in the future.

So no real big change short term. And midterm will depend on how the global system is actually recovering from this crisis.

Two, if I may. The first relates to the Sasol contract that was announced yesterday.

Just wondering if you’re able to give any color when you expect that to close, when you expect that to contribute to your top line, the magnitude of contribution. And whether I’m right to understand that your expectations of the contribution for next year doesn’t include anything from the contract.

And based on the capital intensity of such a contract that the potential contribution might be more than what you’re expecting for next year in terms of start-ups and ramp-ups. And then my second question is more relating to hydrogen.

It’s a little bit more of a sort of experiment, but we have seen quite a few interesting recent developments here. So just wondering how you think this is going to develop?

Whether you think in future hydrogen production is going to be more like a local business production and consumption model, like your current industrial gas business model or whether there is more of a global opportunity that involves significantly more cross-continent transportation?

Yes. I think, François will take the first one.

Just a brief comment on Sasol. It’s very interesting to see that the whole deal was actually negotiated during the COVID crisis.

So be it a result of a crisis or just an acceleration of a trend that was before, it’s hard to say. But we did nearly everything during the 3 months of the second quarter, and we are pleased to announce that deal.

This is an industrial deal, a very major one, but this is also a deal that relates to our climate change policy because as we announced, we’ll be able to reduce the CO2 emissions at this site by 30% to 40%, in cooperation with Sasol, of course, and by investing on different portions of the plant and by using the expertise and the best technologies that Air Liquide has. That said, I would like to hand over to François to cover your question.

Thank you very much, Benoît, and good morning, everybody. So indeed, we made the announcement about the Sasol takeover yesterday, which is a great news and a great contribution to Sasol, to Air Liquide, of course, but also as mentioned by Benoît, to the climate.

So we are in the phase of finalization of the definitive agreement with the customer. We do expect, pending, I mean, the due regulatory approvals to close everything in Q4 of this year.

So we should see some contribution by the end of the year, but definitely next year. Again, it depends on some regulatory approval.

You have to notice that during the first few months, so something like the first 12 months, there will be an interim period where actually, we will be putting in place all the metering for the energy measurement. So the sales contribution that you will see will not take into account the energy portion.

So it’s going to be maybe a little bit difficult for you to interpret in the first year, let’s say. But after, it’s going to be a full classical over the fence sales contribution.

Order of magnitude, when contract is going to be running, is in the range of €400 million per year, based on the current exchange rate and energy pricing, of course.

So, the capital intensity of this deal is much lower than usual, but this is just explained by the depreciated assets and the fact that for the size of the site, which is 42,000 tons per day of capacity, we are investing a limited amount for a big business. So this is unusual low capital intensity.

Your second question was related to hydrogen. There’s an interesting momentum, as you mentioned it, there’s an appetite from countries, governments.

Most of the key governments in the world have now issued their plan. Japan and Korea and China were the first.

But in Europe, we have now Germany; Portugal; Spain, yesterday; and the European Commission, which actually issued on the 8th of July a very ambitious hydrogen plan. So it means that there’s a high interest in this energy vector for the future.

When we look at the new members of the Hydrogen Council, we have not just industrial companies, but we also have, I mentioned Microsoft, but also we have financial institutions now at our members. We have a special category of members that we group, the financial institutions.

And it’s interesting because now we’re going to be able to build a real investment plan for the world, actually, in hydrogen because those institutions would be much more aware of what is at stake and how much money and how efficient we can be in investing in hydrogen. The model is going to be both local and global.

Local because if we have small electrolyzers in the future using electricity, renewable electricity to produce hydrogen locally, it will be the equivalent of the on-site business of the IM business line today. So, we are prepared for that because we can produce, we can store and we can transport or directly deliver this product to customers.

If you look at the large industries, those who are consuming hydrogen today, like the oil and gas, the chemical and other industries, they will progressively shift to low-carbon hydrogen. So, that would be a large industry business.

There will be more infrastructure being built, pipelines, in particular, and so access to hydrogen will be easier. That will be more an LI model.

And finally, the supply chain that we have today in oil, in natural gas, in particular, liquefied natural gas, may be applicable to hydrogen in the future. We can just think about those countries that have sun, an ability to export, that can actually set up a new supply chain with export of hydrogen from producing countries to the countries that would consume it.

So, that would be the global supply chain on hydrogen. So, there’s a local, there’s a large industry model and there’s a large supply chain model that may apply to hydrogen.

I think I have covered your question. On cross-continents, transportation will be, of course, also possible.

And we have good technologies to achieve that in a very efficient way because we -- as you know, GMT or Global Markets & Technologies division, is actually selling a lot of technology for the LNG chain to preserve the losses from that. I think Fabienne would like to add some...

Yes. Just on -- sorry, on the first question, to be extremely clear, the Sasol contribution is not included in the €300 million start-up and ramp-up contribution that we presented for next year.

The first one is probably François again, just back to the Sasol deal. Could I just check a couple of things?

So firstly, did you say the revenues attached to that were €400 million? I just wanted to check that.

Secondly, actually, Benoît, you mentioned the carbon footprint moving down by 30% to 40%. I read that partly, this might be related to the renewable energy purchases that Sasol was thinking around.

Is that all of that or does Air Liquide bring something specific to those ASUs that can reduce the carbon emissions for Sasol? And then finally, what’s the actual contract?

How many years have you signed up for -- or sorry, have Sasol signed up for the ASUs? And so sorry, that’s one question with lots of small questions in it.

The second one is more straightforward. Pricing, I think 2.8% for IM in Q2.

How are you thinking now for the second half and also for 2021, thinking about all the moving parts and, of course, helium as well

Andrew, thank you very much for your question, and thank you to come back to this Sasol deal because it’s indeed a very significant achievement. We have been chasing this for, I would say, 40 years.

As you know, this is the largest oxygen site in the world today. And what we have been accomplished, I think, is very significant in term of business opportunities, but also in term of contribution to the climate.

So yes, I do confirm that what I said, if I was not clear, is that when the contract is going to be fully running, we do expect a €400 million sales per year in term of contribution. Of course, as any large industry contract, it does depend on the price of energy.

In this case, mostly electricity. Regarding the carbon footprint, which is a very important element, and as a matter of fact, that’s an integral part of the offering.

And for us, it’s absolutely key, and that was we are very well aligned with the customer. And this is our objective to reduce by 30% to 40% the carbon -- the CO2 emission associated to the oxygen production.

And clearly, with this deal, you see that it’s a concrete illustration on -- of what we can do for our customer and how we can contribute to the energy transition of existing sites with existing CO2 emission. So how are we going to do that?

There are a few levers. And basically, we have lifted already, and we are working with the customer on a series of key initiatives that will allow us to reach that goal.

Part of it is to bring the best of Air Liquide in terms of operations. Meaning all the know-how on how to optimize, of course, the safety, the reliability, but also the efficiency of the plants; to bring digital tools; to do part of the remote optimization of the site also being connected to all the network of the Air Liquide plants; to bring, of course, the best experts; and to rely on Sasol experts, which are also very good, but to give them some tools.

We will be doing some investment, small investment, to improve the efficiency, to modernize part of the equipment. There is another part which is a more significant investment, which could be new units.

You know that in 2015, we are starting the Train 17, which was a new investment, €200 million for 5,000 tons per day plant. It’s possible, and we have some plans for additional units, similar to this one, that will be replacing, older, less efficient assets.

So that definitely will be another way to contribute to this objective. And the last part is, as you mentioned, the renewable energy sourcing.

Today, most of the energy is either sourced from the grid or internally produced by Sasol, either through electricity or through steam generation. We will replace a large part of that by securing a large quantity of renewable energy, which would be a way to decrease the carbon footprint, which would be also a way overall to improve the energy mix of, I would say, South Africa in general, as promoting renewable energy is one of the key objective of the country.

So you see, again, there are a portfolio of initiatives and opportunities that we are bringing to reduce the carbon footprint on this site. The last point, the contract is a 15-year contract, classical, strong, Large Industry contract.

Thank you, François. Fabienne can you take the pricing question?

Yes, sure. So you’ve seen that the pricing has remained relatively constant over the period, Q1, Q2.

You also know, because we mentioned this in Q1, that there is an helium component in this pricing effect. What we’ve seen in the first semester is the demand for helium reducing significantly in volumes, but the pricing remaining strong.

However, this helium effect on pricing is going to soften over the second period of the year just because of the comparison FX because the price of helium started to rise significantly in Q3 last year. For the rest, for the other gases, the price increase relies on, of course, pricing campaigns, but also a very good adaptation to inflation in some countries.

And we are confident that this should continue for the full year. Then 2021, we don’t think that inflation is going to slow down or accelerate much.

But of course, the pricing capacities will depend on the pace of the economic recovery. So it’s clearly too early to say so.

H2, the helium component is softening, the rest will continue. And 2021, we’ll discuss that later in the year, I think.

Yes. I’ve got 2.

Firstly, you’ve mentioned on the call asset takeovers. And I seem to remember in the last financial crisis, customers came to you and activity stepped up.

Is that correct? And can you talk a little bit about which regions or any particular end market where there’s an increase in activity?

And then my second question is on the U.S. If we get a change in governments and a switch to Democrats, could you talk about the tax impact and potentially any other implications, like in health care?

Yes. So takeover opportunities, yes, we see a trend because most of the customers start thinking about their core business, number one.

The economic situation forces them to take decisions. And because of the energy transition and the pressure that climate is putting on every single business, they may very well say, I’m better off outsourcing my industrial gases.

That’s more or less exactly what happened with Sasol, and we expect to have more in the future. So yes, this is a trend.

We cannot say how many deals will be done, but this is clearly a trend. What regions and markets do we see with a decrease in activity?

We don’t see a decrease of activity. I mean we were hoping to have a sort of beginning of recovery end of Q2.

It was the case until the pandemic actually started again or did not disappear. And so it slowed down the recovery, but there’s no decrease as we speak in the activity and in the different markets.

And I can mention all of the segments of all business lines. There’s nothing really decreasing as we can see it right now.

The tax in the U.S., yes, it will have an impact. And I think Fabienne will cover it.

So, in fact, if Mr. Biden is elected, he will raise the taxes.

We all know that. So we, of course, have done our own estimation.

The income tax should go up from 21% to 21.5% to 28%. Then we should have also an increase on the BEAT Tax on international flows.

So, it should increase our tax in the U.S. by probably a little bit more than 50 million.

So it’s pretty significant. 50 million, considering that the new tax law is effective January 1, 2021, which may or may not be the case.

You remember that the Trump’s new tax law was promulgated on December 23, retroactive January 1. You never know.

So that’s where we stand for the moment. We would also have a massive adjustment on our deferred taxes, deferred taxes liabilities in particular.

But of course, this will be noncash on the treaty. That’s all I know.

That’s what we can say at this stage.

And we won’t ask Mike to give you any forecast of who might be elected. That is really something we cannot comment, of course.

I have actually two questions. First is an ESG question.

Coming back to the Sasol deal. At this point in time, all these 16 air separation units are run on coal generation power.

And I calculate roughly 6 million tons CO2 emissions at this point in time. Who will book these CO2 emissions in scope 1?

Is it Air Liquide or is it Sasol? The second question, is on your guidance for operating margin.

Excluding the energy effect, the margin was up by 50 basis points. Given the efficiency measures you further implement, given solid pricing in the second half, given likely operation leverage and assuming that the business in the second half will be higher than the first half, is it fair to assume that in the full year, you will have an even stronger margin expansion or less equal than in the first half?

Okay. Definitely, the second question will be for Fabienne, but I take the first one.

It’s true that the energy today supplied to the air separation plants in Secunda is a combination of electricity and steam. So electricity is more the national grid and the mix of the country, and the steam is coming from the site, the Sasol site.

We have a lot of progress to make. And that’s part of what we intend to do, try to transform the electricity into renewable electricity as much as we can.

That’s why we have this PPA in the pipeline that could improve the CO2 emissions. And we may also act on the steam side but that’s a cooperation with Sasol.

The steam is actually a steam which is produced by the process. And if we don’t use it anymore, and Sasol will have to find a use of it or to reduce it.

So it’s exactly at the heart of what needs to be done to improve the CO2 emissions of the site. We don’t report the scope 1 because scope 1 is when you directly emit the CO2.

So in the oxygen business, it’s a scope 2. It’s through electricity that we report emissions, and we will be supporting the emissions of the scope 2.

It will be very clear. There are international rules now for reporting Scope 2.

If you make an acquisition, you actually have a rule to report how much does it represent and how you’re going to reduce that. It will be fully transparent.

But we will also have to think about the scope 3 because part of the oxygen is used in the chemical process transformation of fossil energies for chemicals, essentially and for fuel. So we will be working more widely on the scope 3 of Air Liquide in the next 12 months and probably come back to the market next year on that.

So it’s not scope 1. It will be scope 2.

It will be reduced as we invest, and we will be thinking about scope 3 and include that -- all what we can include into the scope 3 later in 2021. That’s more or less a summary of the ESG situation for Sasol.

Guidance, Fabienne?

So what is going to happen in H2? Hopefully, the activity is going to continue to recover progressively.

So the margin, which still should be supported by our performance improvement plan, pricing efficiency, portfolio management. But the additional cost containment program effect are going to soften progressively when the activity recovers.

So we are confident that we’ll be able to deliver significant margin improvement for the full year. As we all mentioned, we have a number of uncertainties.

So I think it’s far too early to promise anything. We are going to improve the margin.

It’s going to be significant for the full year as it is for the first semester.

Thank you, Fabienne.

Just a couple from me. Just firstly, circling back on the margins.

Can you shed any light on what the kind of order of magnitude was for the temporary savings you saw in H1, whether putting that in context to the kind of the €200 million of structural savings that you made? Just trying to understand what the temporary effect was.

And then second question, just on hydrogen. Relative to your expectation 6 months ago, as you see, all these countries come out with their plans as well as the EU obviously coming out with a very positive plan for hydrogen.

How does that compare to your previous expectations? If you were to try and look at what this could mean for Air Liquide in 2025, 2030 in terms of its hydrogen business, has that changed versus your previous expectations?

Can you give us any sort of sense of how that shape could look based upon what countries have set out? Anything around that, I think, would be very helpful.

Yes, of course. Margins, I think...

Margin again? So the temporary saving plan has delivered around €100 million of additional cost reduction in H1.

But once again, this is only as a compensation of the low activity, meaning we are reducing the external staff. We are reducing the travel expense, the consulting expense, some of the business development expenses.

If we look at China, inside China, the people are traveling as much as before because they want to recover the time lost and they are very active on business development. So when the activity recovers, the additional cost containment plan is going to soften accordingly.

So, 100 million on H1, certainly not reproducible in H2.

But the normal efficiency plan will go on, of course. And this is more structural.

The hydrogen -- well, yes, I agree with you. This is really positive.

I mean, to see so many countries announcing new plants and putting billions on the table is really very positive. It is not really different from what we expected, even though it’s coming faster.

If you remember, we had a plan that we published with the Hydrogen Council related to 2050, which is far away. And if the consumption of hydrogen could represent about $2.5 trillion by that time, we have a sort of milestone in 2040.

But in between now and 2040, it was a big question mark. It depended on how fast the countries would actually take over the hydrogen topic and put in place plans.

The real test was the 10-year -- the decade between 2020 and 2030. What we see now with all those plans is that the starting point is pretty fast.

So countries now have realized. There’s a lot of industries that think they can use hydrogen for many things, for de-carbonizing progressively their sales, their products, their processes.

So the spirit and the mindset is much more positive than what we thought it would be even 1 or 2 years ago. That said, if we think about $2.5 trillion in 2050, that means that the world would have to invest probably $2.5 trillion to $5 trillion altogether by 2050, which is a huge amount of money.

The 5 billion, the 10 billion, the 15 billion that the countries have announced is just a drop in ocean in the -- if we just take the view, the vision of 2050. But it’s coming sooner.

And so for me, it’s a very good sign that things are going to move in this decade. Where in particular?

In those industrial countries that have announced a plan and in which segment, the mobility segment, heavy-duty is clearly starting very fast now. The power to gas is a good -- is in good momentum.

And the transformation of the processes, the industrial processes, be it in steel, in chemicals, in oil and gas and many others, will go fast in the transformation. The construction, the -- I mean, the building segment is going to be probably slower.

And the use of hydrogen for industrial heat, the replacement of natural gas, LPG or oil to produce heat in industrial processes will come a little bit later, but it can accelerate pretty fast. So that’s what we see today.

It’s pretty well in line with the views of the Hydrogen Council. But overall, it’s fast.

The only thing that is missing today is the implementation of the financial plan. So, building infrastructure requires capital, and we’ve not seen yet a lot of initiatives in that field.

But probably it will come in the next 2 to 3 years. That’s the best I can say.

I have two, basically. The first is the -- if I understood it right, then the nonrecurring items include COVID-19 impact.

Could you elaborate a little bit on that -- what that means as you book the savings as normal? And how that’s going into the second half?

And secondly, again, on hydrogen. You have expanded now what the use in hydrogen is.

Maybe you can also share some thoughts how Air Liquide sees how this hydrogen will be produced? I learned that this molecule is available in different colors: In green, in blue, in yellow, in purple, in gray.

What is -- where does Air Liquide sees the highest chance for itself to participate in this hydrogen production? And how do you see the time line in those?

Yes. Fabienne is going to take the first and I’ll take the second.

To be very clear, the impact of the COVID crisis in terms of underactivity and sales decrease are in the operational numbers. What we have recorded in exceptional for an amount around €45 million is really the exceptional cost, along with our accounting standards.

Meaning, for example, the purchase of protection equipment, the additional disinfection costs, the additional quarantine cost because we had to pay for the quarantine of some of our employees, the bonuses that we are giving to the health care teams who have over-delivered over the period. So it’s just the exceptional cost.

The consequences, I would say, of the pandemic, are clearly in our operational numbers.

Thank you, Fabienne. On hydrogen, it’s true that hydrogen is becoming a rainbow.

There are colors all across the planet. What we -- the position of the Hydrogen Council, and we, of course, stand by, is the fact that we should not put color on hydrogen, no more.

We should just say, look, with the starting point is very cheap and very competitive hydrogen produced with natural gas today. We will have to go to low-carbon hydrogen, that we call clean hydrogen, and progressively mix it with hydrogen from renewables.

Renewables, be it either electricity or biogas or whatever, and the name of the game is to make hydrogen clean in the end, but it will be around progressively. So we are not pushing for green, blue, gray, black or whatever.

We are pushing for hydrogen that becomes cleaner and cleaner as we go, which means, by the way, that production technologies will have to be improved. The traditional one is well known.

But the electrolyzer technology, using either alkaline or PEM technologies, will have to be improved. But as the quantities grow, the cost of those technologies would decrease.

And as R&D improve the membranes that are used, it will also increase efficiency and decrease the cost. So there’s a lot of things to do, but that’s a good, good thing.

It means that hydrogen has a potential to become even more competitive as we go. The best chance for Air Liquide is actually to make sure that we master production technologies but also packaging and distribution technologies, supply chain in general.

This is where we are good. This is where we can really add our expertise in the game.

And we have the experience. We have 50 years of experience today.

We want hydrogen to be safe, to be reliable and to be competitive as we go. And we think we have the best position in, let’s say, in all industries to achieve that.

The time line, we are working hard on technologies, on markets. We are signing deals.

We are working with customers to actually make their process cleaner by either reducing the CO2 emissions, example is Sasol, but also by promoting hydrogen through in the steel industry to replace potentially oxygen and coal in the future. So the time line is now but the progress will be slow at the beginning and accelerating as we go, and we expect to see really a difference in the next 10 years, with a milestone in 5 years.

We still have room for couple of questions.

Hello?

Yes, please.

I’m not sure if you can hear me. It’s Jean-Baptiste Rolland from Bank of America.

I’m going to start with 2 I just wanted to check with you. You talked you have talked about 1/3 of your new signings being related to hydrogen.

At the same time, I see that you have signed 25 new long-term Industrial Merchant contracts. Are these 2 how are these 2 numbers related?

Is it hydrogen, which is supporting such a high sustained level of long-term IM contracts versus the signing level you had last year of 14 of 40 contracts? And then second question is related to hydrogen.

So I’m trying to understand exactly, or at least to have an idea, about how or when, rather, hydrogen could actually get into your numbers. It looks to me that, obviously, you have a sustained level of signings, which you just discussed.

And at the same time, you’re not just seeking business in green hydrogen, which is probably going to take a longer time to develop. So most likely, you’re going to be having higher level of contracts in relation to carbon capture and utilization, et cetera.

Do you expect a pickup in those contracts in the coming 2 to 3 years? Do you expect also the industry, as you just talked about, externalization in relation to CO2 footprint, et cetera?

Are do you think that the level of contracts that you could gain from the refining industry, which we know is actually a lot captive at the moment, do you believe that there could be there is an opportunity coming within the 2 to next 4 years for contract signing? And then could you maybe just give an idea about how long it would take then to filter into your numbers, whether it would take more likely 2 or more likely 5 years?

Okay. So, let’s be clear, the signings were not related to hydrogen energy, but to energy transition.

So it’s different. And we can clearly relate customer signing contracts because they want to make progress on their climate and CO2 emissions and consume less energy because it’s all related to energy transition, but not to hydrogen energy yet.

That’s clear. The -- well, the second question and the third question, everything is related.

We have embarked into an energy transition. Air Liquide is already selling for €2 billion worth of hydrogen.

So we’re not -- we are not a newcomer. This hydrogen today is for the chemical and the refining industry.

They will have to transform their own processes. And we may expect to have in the future new contracts signed with those industries on the basis of cleaner hydrogen, which means either sequestration of carbon through CCS and there might be a partner in the S in the sequestration.

And so if you take a refinery, we may expect that in the next 5 years, the hydrogen produced for the refinery will be based on a cleaner process, be it either capturing and sequestrating the CO2, which is one; or mixing hydrogen with renewable hydrogen. Renewable hydrogen means hydrogen produced from renewable energy.

I am expecting to see a significant change in the, say, next 5 years from those 2 industries: chemical and refining. The hydrogen energy portion, the pure sales to mobility or to new applications will be modest in the next year or so.

But the number of people who are interested, and it’s not just industrial customers. You have a lot of cities.

You have a lot of regions, for buses, for trucks, for -- in the future for planes and for boats, if you take all those industries, they are today studying the use of hydrogen in their product. So it will come.

I cannot say exactly how fast, but I made the same comment as the one I made earlier. In the next 10 years, we should see all those factors take off and start producing business opportunities and so sales for Air Liquide.

And it will take 5 to 10 years, but it is starting now. We may take one last question, maybe 2.

So the next one, and we’ll see whether we can be short in the question and in the answer, and so that we can take another one.

Yes, I will squeeze in. Actually, one of the favorite subjects, Sasol and hydrogen.

Sasol, just to be clear, I mean it looks a very good deal, certainly financially. I presume this reflects the investment you have to put in, and that you’re going to give some indication of that, obviously, with a lot of spend and upgrading.

And then on hydrogen, obviously I think a big competitor -- yes, hydrogen, obviously, a big competitor on the global movement. The big competitor announced green ammonia recently.

Just wondering your thoughts on that. Obviously, if you think a very -- obviously, a carbon-free hydrogen scale as against the additional cost of the ASU and the separating of the hydrogen at the end.

So just your thoughts on the green ammonia route for the hydrogen story.

Well, thank you. François, can you take the question on Sasol?

I’ll take the second one.

Yes. Thank you, Peter.

Regarding the investment, we have included already, I would say, in the economics and in the contract, investment for maintenance, for modernization, for refurbishment of all the facilities. If we have to decide large new units, that will be an additional investment, which is not included for the time being, which will be decided.

We have agreed with Sasol on the process to do that, but it’s not included in the initial investment.

Hydrogen and the competitive nature of hydrogen and fields. The market is still at the beginnings, so it’s difficult to say today where, amongst the 5 market segments we identified early on, where the first ones are going to be developed.

We think hydrogen mobility for heavy-duty is going to be one. We think, of course, that hydrogen as a feedstock to process industries is going -- is just going to be greener and cleaner, no doubt.

The rest remains to be seen. There are many companies that have stated that they are interested.

So we’ll see how we can develop. But we think we have a big competitive advantage because we are present along the supply chain, from production to the application.

And in any industrial gas, you need to know not just how to produce, but also how to package, transport, deliver and use. And I think we have a significant advantage in that.

You mentioned the green ammonia route, which is, for those who don’t understand or don’t know, the production of hydrogen from renewables, then the conversion of this hydrogen into ammonia, then the shipping of this ammonia across the globe and then the storage of ammonia and the conversion of ammonia back into hydrogen locally. It’s a full chain.

It’s -- in some cases, it may be, but I’m cautious, it may be competitive, but it’s not a proven case yet. It’s being studied by those who know how to make the calculation.

It might be an option, but it will not be the option in the future. I still think that hydrogen will be produced locally.

And if it is produced from a sunny country, then we’ll see the liquid hydrogen and the ammonia being developed in the future. So it’s -- the jury is out.

And we’ll see how the calculations might come up with.

Last question, hopefully, quick to answer. Just looking at full year, if I were to assume the full year net income on recurring basis to be flat year-on-year, it implies second half net income to be up 7%, 8% versus first half.

So just thinking about that improvement in second half versus first half, is that driven by the expectation of better EBIT in second half or you have some below the EBIT items which is also driving some of that improvement in the second half versus first half?

Fabienne will take this one.

Well, I’m not sure -- I am not sure I fully understand your question. Net income is flat in H1.

Our objective is to maintain that for the full year. Of course, excluding the capital gain on the divestiture of Schülke & Mayr which will be treated separately, so why would that imply a better or lower level of EBIT?

I mean we are already flat, and the objective is really to try to maintain this net profit even if we still have a certain number of uncertainties. I’m not sure I really understand your question.

Very sorry.

I was just talking about sequential second half versus first half. But it’s okay, I can take that with Aude separately.

Well, once again, sequentially, the activity should be better, but then we will have less cost cuttings. In a way, it’s going to balance.

Okay, does that answer your question?

Yes.

Okay. Thank you very much.

So thank you for having -- being with us. It’s probably time for break, a summer break for most of you.

So I wish you the best during that period. Be safe.

The pandemic is not over, and we still have a lot of things to do in between now and the end of the year. So thank you for being with us, and we’ll be back in October, as Aude announced it.

Thanks, and have a good day.