L'Air Liquide S.A.

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

Thank you very much for attending the call today. Francois Jackow and Jérôme Pelletan will present the first half performance.

For the Q&A session, we will be joined by Pascal Vinet, Executive VP in charge of the Europe Industries and the Africa Middle East hub; Marcelo Fioranelli, Group VP, currently CEO of Airgas, he is on the phone with us from the U.S. In the agenda, our next announcement is on October 25 for our third quarter revenue.

Let me now hand you over to Francois.

Thank you very much, Aude. Good morning, everyone.

It's my great pleasure to be with you today to share the highlights of the first semester of 2023. In a few words, we delivered a strong performance, and we continued to build the future.

Let's start first with the financial highlights of our performance on Slide 3. All performance KPIs are very well oriented.

On the top line, first half sales grew plus 5% on a comparable basis. Margin improved by plus 80 basis points, excluding the energy passthrough, which is a remarkable performance in the current environment.

It shows our strong commitment to our profitable growth strategy, regardless of the macroeconomic conditions. We achieved a growth of plus 11% of recurring net profit at constant exchange rate, demonstrating a very strong leverage.

This is also reflected in the cash flow growing at plus 13% at constant exchange rate. Again, this strong performance was delivered despite an adverse environment, which shows, once more, the resilience of our business model and the commitment of our teams who I would like to thank very warmly today.

At the same time, we continue to build the future, as illustrated by the investment backlog at the high level of EUR 3.5 billion. I will come back to this later.

I also want to highlight that we are fully in line with our CO2 trajectory and more than 40% of our portfolio of project opportunities is directly linked to the energy transition. Slide 4, focusing on the 3 levers driving our performance in H1, with continued strong execution and delivery this semester.

First, plus 11% of pricing in Industrial Merchant. This is a very high level compared to historical average, whilst our data-driven smart pricing management continues to be successfully implemented in all regions, of course, balancing pricing power, value creation and customer satisfaction.

Second, over EUR 200 million of efficiencies, growing plus 24%, compared to last year in an inflationary environment, which is again not favorable to procurement savings, another strong performance. Third, systematic portfolio management in line with our strategic priorities.

We closed 9 acquisitions since January, made one divestiture in Latin America and we sold our financial stake in Hydrogenics. As you can see, overall, we maintained discipline and determination to execute and deliver performance.

Fully aligned with ADVANCE, we are positioning ourselves very well for the future. I am on Slide 5.

A few examples. In Asia, we have strengthened our position as a leader in electronics.

Indeed, while we started 9 plants representing more than EUR 500 million in CapEx over the last 18 months, it is more than an additional EUR 1 billion of investment that has been decided in Asia over the same period. It mainly consists of 10 major carrier gases projects as well as the construction of 2 new production centers of Advanced Materials for USD 200 million in Taiwan and in South Korea.

The objective is to localize the production close to our semiconductor customers in order to accelerate innovation through close collaboration, speed to solution and ability to ramp up to full production in a safe, reliable and high-quality manner. We strengthened, again, our unrivaled capabilities among all industrial gas players to supply the semicon industry in Asia.

Start-ups of these projects will be spread out through 2025 and will deliver consistent growth over the next several years. Another great example illustrating our leadership to build the future is shown on Slide 6.

Regarding energy transition, 19 projects involving Air Liquide have been awarded fundings in Europe. This is an excellent track record.

Definitely, one of the best among any company in Europe, demonstrate the unique positioning of Air Liquide as a key enabler of the energy transition. For 12 of those projects, the cumulative growth CapEx amounts to EUR 2.7 billion.

This is a very significant amount. The good news is that project REIT is spread over 12 midsized projects and not a couple of mega projects carrying, of course, higher risk.

What is included here? Eight of these projects deal with carbon capture and CO2 export hubs for a cumulative reduction of 5.8 million tonnes of CO2 emissions.

And 4 projects are large electrolyzer projects, representing more than 600 megawatts of electrolysis capacity. Also, our technology leadership has been recognized with 7 additional projects, including Air Liquide technologies awarded for funding.

This is mostly sales of proprietary Cryocap equipment, electrolyzer to the cement, the steel or the energy industries. Please note that all those projects have offtaker and customers as part of the projects.

Also, this is the, I would say, the tip of the iceberg as several projects under discussion with customers have not yet all been awarded fundings. There is more to come as we will continue to demonstrate our leadership in energy transition in all regions of the world.

On Slide 7, looking now at our decarbonization road map. The first half of 2023 has been very, very active.

Regarding the decarbonization of our customer assets, we have signed MOUs for long-term large industry contracts with 2 customers in the cement and in the lime industries. Our carbon capture solutions will help them reduce their CO2 emissions by 2.6 million tonnes per year.

These are new end markets for Air Liquide representing large opportunities. We have also announced a partnership between Air Liquide Engineering and KBR for low-carbon ammonia production.

Air Liquide in this case is providing its proprietary ATR and carbon capture technologies to produce low-carbon hydrogen with KBR being the worldwide leader in ammonia production. This will also contribute to the development of a global low-carbon hydrogen market where hydrogen, when transformed into ammonia, can easily be transported over long distance or used in chemical fertilizer applications.

Regarding the decarbonization of our own assets, 2 sets of actions. First, several renewable power sourcing contracts have been signed in South Africa to supply the Secunda site where we operate 17 air separation units, and in China also where we signed our first long-term agreement.

Altogether, it represents more than 1 gigawatt hour of renewable electricity that will allow the reduction of close to 1 million tonnes of CO2 emissions per year. We are also building an industrial scale pilot plant for ammonia cracking into hydrogen in the port of Antwerp.

If and when low-carbon ammonia becomes widely available, we want to be ready to use it as an alternative low-carbon source of hydrogen. Finally, in the hydrogen mobility market, by going through joint ventures with key partners, we scaled up the development of hydrogen refueling stations and related infrastructure for heavy-duty vehicles.

One joint venture is now going live in Korea with LOTTE Chemical and another joint venture has been decided with TotalEnergies to develop the European network with the deployment of more than 100 hydrogen stations all over European countries. In addition, and in line with the MOU signed with Iveco, the first high-pressure hydrogen station for trucks was inaugurated in the south part of France, and should be followed by other station openings in Europe.

So as you can see, many projects are now materializing, showing an acceleration in terms of decarbonization, be it to decarbonize our own assets, those of our customers or when developing hydrogen mobility ecosystem. To conclude with the key takeaways for H1 2023.

Clearly, we delivered a strong performance in a difficult context. We also accelerated developments in energy transition, positioning ourselves for future growth.

I provided several examples either in terms of business development or action to decarbonize our own assets or to develop hydrogen mobility market and ecosystem. Delivering performance while being able to actively secure future growth, once again, demonstrate the resilience of our business model, the relevance of Air Liquide value proposition and the outstanding commitment of our teams.

I will stop here and ask Jérôme to present our financial performance. Jérôme?

Thanks, Francois, and good morning, everyone. We will now review our numbers in more detail.

So coming back to the first half year. I am now on Page 10.

Group sales have been very solid overall on a comparable basis excluding energy passthrough, ForEx and significant FX scope effects. Gas & Services sales for H1 are showing a strong plus 5.3% increase versus last year.

Turning now to the much smaller segment. Engineering & Construction sales have decreased by minus 17% in H1 compared to high third-party sales last year.

Order intake has increased up to EUR 530 million year-to-date with third-party sales representing half of it. Global Markets & Technologies are up 3.9% as a consequence of the small biogas distribution divestiture scope effect, while underlying growth is strong at plus 17% and order intake is significantly up at close to EUR 500 million.

So overall, group sales are up at plus 4.9% on a comparable basis for the first half, while published sales are down minus 1.6%, as a consequence of the high energy price decreased during the semester, which translate into a minus 4.7% energy LI passthrough effect, which, as you know, has no impact on the operating margin in absolute value, plus a negative ForEx effect of minus 2.1% and a significant scope effect at plus 0.3%. Specific now to Q2, comparable growth is still solid at plus 3.8% after a very good Q1 at plus 6.7%.

Now when we look at Gas & Services Q2 year-on-year growth, I'm now on Page 11, all our geographies posted solid growth versus last year to reach a plus 4% comparable group sales growth. Again, this highlights the value of our global development strategy, capitalizing on the complementarity and right balance amongst our geographies and business lines.

From a business line standpoint, indeed, Industrial Merchant and Healthcare are driving growth in the Q2 while Electronics to be compared with an exceptionally strong basis last year and large industry being more contrasted. Let us now review the activity for each of our main geographies.

My comments will be mainly related to Q2. I am now on Page 12.

So after a very strong Q1, Americas has seen a solid Q2 with sales at plus 4.6% on a comparable basis. Sales in [ North ] industry have been impacted by customer turnaround, mostly in Lat Am.

In the U.S., activity was strong in Cogen and volumes remain relatively solid in the Gulf Coast. Merchant sales now have been strong in Q2, driven by still high pricing at plus 5.3%.

On a volume standpoint, those are growing, driven by bulk and helium and sustained by demand, notably in the automotive and fabrication market. Healthcare activity was strong with sales up 16%, supported by positive volume in the U.S.

while home health care has been strong -- very strong in Canada and Latin America, also supported by pricing. Electronics sales have been impacted by less demand in Advanced Materials and Specialty Materials in the context of a slowdown of the memory market, partly compensated by equipment and installation sales, sorry, that have grown up.

Gas vector are stable. In Europe now, we have seen a solid growth at plus 4%, supported by still high pricing in Merchant coupled with a strong Healthcare activity, especially in home health care, offsetting lower demand in Large Industry.

The Large Industry in Europe has seen improved activity this quarter versus half year 2022, that was impacting by energy price increase and is stable versus Q1 2023. Air gases are indeed impacting by lower demands in chemicals and steel, while hydrogen volumes are benefiting from stronger demand in oil and gas with refining.

In Merchant now, sales growth has been lifted by a still strong pricing effect at plus 16%. Volumes have remained positive, excluding both helium and delinquency crisis hitting Europe, supported mainly by a resilient automotive market.

Finally, Healthcare sales continue to be very strong, although less so in France, Switzerland and Benelux, sustained by home health care, thanks to the development mainly in diabetes and also sleep apnea. Medical gases sales have been strong, supported by price increase, addressing the inflation context.

Specialty Ingredients have been strong again in Beauty Care. In Asia now, I'm on Page 13, sales while being more contrasted have continued to grow.

In Large Industry, sales and volume remained affected by low demand, notably in steel in Japan and chemicals overall. Sales have also been impacting by customer turnaround, notably one customer stoppage in China that will last until the end of the year.

In Merchant, we have seen also a strong pricing effect, although sustaining at plus 8.5%. On a volume standpoint, this is positive, driven by China in particular, in packaged gases.

In this geography, we noticed an overall improvement in [indiscernible] and volume in both food and beverage and material and energy. Pricing remains strong in the rest of Asia.

Finally, Electronic sales, while softening, are still growing against a very high comparable base last year. Advanced Materials and Specialty Materials are impacted by the slowdown in the semiconductor memory market while carrier gases are growing -- strongly growing, supported by start-up and ramp-up of new units in all geographies.

Finally, in Africa Middle East, we have seen growth in all activities. In Large Industry, sales have grown fast in Air gases, notably in Egypt and South Africa.

Merchant growth is solid despite the divestiture in the Middle East completed in 2022, thanks to strong pricing and increased volume in bulk and on site. I will now comment on our Q2 by business line.

I'm now on Page 14. In Merchant, pricing has been staying at high levels, while the volume remained positive.

A very good point again is that pricing, while softening due to high comparison basis last year, has indeed continued to stay strong at plus 8.6% in Q2 to address inflation. The other good news is that the volumes are still positive overall for the quarter.

Our end markets were slightly positive oriented, notably fabrication, construction and automotive. On the development side, our good momentum for on-site signings is confirmed.

From a Large Industry standpoint, activity, although still low has been stable. Overall, by market, chemicals activity has been staying low, whereas metal is slightly better, refining is more contrasting with hydrogen volume for oil and gas in Europe better oriented.

Volumes have been also impacting by customer turnaround in U.S., Europe and Asia, while underlying volume is stable overall versus Q1 and improved versus H2 2022. We had also good contributions from start-up and ramp up.

Page 15. In Electronics, activity softening in comparison with a very high base last year.

Sales have indeed been impacted by Lower Specialty and Advanced Materials, while carrier gases are still very strong at plus 16%, supported by volume start-up and ramp-up. Equipment and installation are still growing at mid-single digits.

Finally, in Healthcare, we have strong growth in all segments with softening but still high pricing and volumes improvement. Home health care is again very robust with strong sleep, mainly in Canada and Europe and diabetes.

Med gas activity has also been strong with high pricing and positive volume in all regions, including good volume at Airgas in the U.S. On Page 16, the success of our performance improvement plan has been, again, demonstrated by our operating margin being up by plus 160 basis points overall and plus 80 basis points, excluding the impact of the energy passthrough effect.

Getting into the details, we can see that purchase have decreased following the decline of energy price, mainly in Europe, while personnel expense and other costs have increased with activity and inflation. Depreciation is well contained with D&A growth below sales growth, excluding FX and energy.

This has resulted in a group operating margin of 17.7% with Gas & Services at 19.3%, again, a significant plus 80 basis point increase. Excluding the impact of the energy passthrough, OIR increase is at plus 13% year-on-year on a comparable basis.

This margin improvement shows both the strength of the business model coupled with our performance mindset acceleration. This margin improvement is supported as said by Francois by our structured margin improvement plan that continues to deliver based again on 3 pillars.

First, IM pricing is still strong at plus 8.6% versus a high comparison basis in 2022, delivering profitable growth. We have also significantly ramped up our efficiencies in H1 to reach EUR 206 million at plus 24% versus last year, with a strong rebound of industrial efficiencies and in procurement, and this has been achieved despite the significant adverse effect of inflation.

Portfolio management has been further pursued. We closed 9 bolt-on acquisitions over the period and executed 2 divestiture, among which was the sale of our stake in Hydrogenics with a continued focus on profitable and margin accretive opportunities.

As said by Francois, we keep a very strong focus on margin improvement, working on all possible levers. As you can see on Page 18, our pricing actions continue to deliver as pricing remains strong in every geography to reach plus 8.6% overall in Q2.

In Q2 alone, achieved -- Europe achieved a plus 16% year-on-year pricing impact, while the Americas delivered plus 5% and Asia increased at plus 9% year-on-year. Let us now review quickly the bottom of the P&L.

I'm now on Page 19. Nonrecurring operating expense has been impacted mainly from 3 exceptional items: first, we sold our financial stake in Hydrogenics, triggering a capital cash gain of around EUR 175 million.

Then we have reassessed down the value of an intangible asset following a contract renewal. And in addition, we reassessed down the value of some assets held for sale, in line with our portfolio management, both last items are noncash.

Net financial costs are stable following the progressive deleverage and the high share of fixed rate funding with a cost of debt around 3%. On an effective tax rate standpoint, our ratio is down to 23.4%, mainly due to the reduced tax accounted for the one Hydrogenics stake sales.

As you can see, net profit as published is very significantly up at plus 32% due to our strong performance in H1 2023 and also due to a favorable comparable basis last year, a consequence of our Russian activities impairment accounted for in H1 2022. As a result, recurring net profit is significantly up at plus 11%, excluding FX and excluding major exceptional items.

On Page 20, as mentioned before, cash flow has also been very strong at plus 13% at constant exchange rate versus last year, which provided capacity to more than finance dividend and our industrial and financial CapEx. Net debt is down by minus EUR 1.5 billion versus June last year to EUR 10.5 billion after our CapEx and dividend payment at EUR 1.7 billion.

Our gearing is now at 39%, adjusted for the dividend payment seasonality effect. Finally, due to the strong results and cash management, we have delivered a return on capital employed still above 10%.

Page 21. The 12 months portfolio of opportunities remain at a very high level at EUR 3.4 billion, supported by energy transition project, about 40% of the portfolio including several U.S.

IRA project. Our industrial and financial decision for the semester has still been selectively increasing to reach a very strong level at EUR 1.8 billion, same as last year.

Finally, our investment backlog is still very solid and has increased to reach now EUR 3.5 billion, representing EUR 1.2 billion of additional sales after full ramp up. I am now on Page 22.

As you can see, we got about EUR 139 million sales contribution from start-up and ramp-up during the first half, and we expect to reach a full year start-up and ramp-up contribution to sales probably at the low end of the EUR 300 million to EUR 330 million range, as shared earlier this year. To conclude, on the basis of the strong preferred performance in the first half of 2023, we confirm our guidance for this year.

Again, thank you very much for your attention, and we will now open the Q&A session.

Thank you very much, Jérôme. So I think we are going to take the question as usual.

So I'm not sure who is the first one, so we'll wait just a few minutes to make sure that everything is connected.

The first one on those 12 projects you talked about, the EUR 2.7 billion CapEx. How long do you expect it to take for some of those to translate into firm orders and signed contracts?

Should we expect it to be in line with what you said at the start of the year that you'd signed several major projects this year? And what are the major hurdles for those getting over the line?

Is it the economic environment? Is it permitting or anything else you can highlight there?

And then the second question just on merchant pricing. I think when you look at the sort of 3-year price increases you put through there, then roughly similar sequentially in Q2 versus Q1 despite what I imagine is the start of a negative impact from indexation.

So can you talk a little bit about whether you're putting through some further increases in packaged and how we should expect that to evolve in the next few quarters as indexation continues to have more of an impact?

Thank you very much, Alexander, for the question. So I will talk about the projects that I mentioned.

And then I will let Pascal to talk about the merchant pricing in Europe and Marcelo to talk about pricing in the U.S., which are the 2 key regions, of course. So as you have seen, I mean, for the projects, I mean we've been extremely successful in convincing basically, I mean, that the projects are quite relevant.

Those projects, as I mentioned, are always with customers and off-takers, and I think they are being recognized as being both innovative and absolutely well aligned with the strategy, either of the different European countries or the European Commission. We do expect that those projects will be confirmed and start construction for some of them in the next few weeks or months.

And for the rest, it's going to be over the next 12 to 18 months. We have to say that many of those projects are already quite well developed, both in terms of business scheme, but also in terms of technology, site, permitting and so on.

So that's basically the nature of those very large projects, but all those projects are basically in the pipeline, moving from one in that time frame. Now to talk about the pricing, Pascal, do you want to talk on pricing in Europe and what we see looking forward?

Yes. Thank you.

So pricing in short in Europe has stayed very, very strong in Q2 with plus 16.4%, H1 being at 19%. Yes, it's a slightly lower percentage in Q2, but that's because of the higher comparison point last year -- versus last year.

Again, it was already 10.7% last year in Q1 and 14.4% last year in Q2. The other reason for that slightly lower percentage in Q2 is because of the energy prices being actually slightly lower now in Europe.

Now all that has been very well sustained. I would say, 3 points maybe because of the increased underlying inflation, yes, we have less energy cost in Europe, but we have more underlying inflation.

We have the scarcity of some products. I would mention helium and CO2.

And Francois mentioned it, we have smart pricing campaigns in some geographies. But to your question on outlook, we think that the pricing should remain very well sustained in Europe, again, because of the sustained underlying inflation and also because we intend to continue some of our pricing actions.

Now be careful, we will have very high comparison points again in Q3 and Q4. Last year, Q3 was 18% and Q4 15.4%.

Thank you very much, Pascal. Marcelo, can you give us a little bit the tone in the U.S?

Absolutely, Francois, and thank you, Alexander, for the question. I think very similar to what Pascal has just described it.

We did have strong pricing in IM in Americas, as you saw, about 5% in Industrial Merchant and very strong in Healthcare space as well. I do expect that the trend will continue for the second half of the year, although, again, the base of comparison will be higher compared to the first 2 quarters of this year.

I think the smart pricing -- data-driven pricing actions will continue. I do expect that we still see and expect opportunities in terms of pricing due to still very high inflation in the core of the inflation in the U.S., if you exclude the impact of energy and also the impact of food in general.

And then the traditional process of following our indexation formulas for our bulk and on-site business in general. Hard goods, in general, I do expect a more stable pricing for the second half.

But overall, I'm still very confident on the positive impact of pricing vis-a-vis inflation for the second half of 2023.

Thank you very much, Marcelo, for sharing this.

The first one is on the balance sheet, please. It's -- you don't need to strengthen it seems your balance sheet any further.

And the business clearly generates more cash than it needs. So can you just talk about other than the CapEx plan where you've been very explicit already about capital allocation and what's the good leverage ratio?

And maybe added to that, I'll sneak in another question. Would you consider adding inorganically to your big business as well, given assets have come to the market?

And then the second question, maybe more for Jérôme on the factoring of working capital that you do. I think this is something you started with the -- when Airgas was acquired -- and we've now seen a 400, 450 bps interest rate increase.

So that translate, I think, into something like EUR 70 million additional cost. Can you just discuss how you think about the factoring program and whether you are reconsidering that given the higher interest rates, please?

Gunther, thank you very much for your questions. On the first one, it's pretty clear we have in front of us many opportunities to invest in our core business.

I think we have never seen as many opportunities, which are good opportunities, which are very well aligned from a strategic point of view in all the region of the world, I mentioned Europe, but I mean with the Inflation Reduction Act, also we see wave of projects and opportunities coming in North America. We see also in Asia that there are opportunities and in the Middle East.

So for us, it's absolutely clear. It's very important to get a very strong balance sheet today and to have the financial capabilities to seize the opportunity that we think makes sense for us.

So the gearing ratio that we have today, which is lower than what we had before, I think is very good sign. It's a demonstration of the model.

Remember, I mean, where we were when we did the Airgas acquisition, we have been able basically to digest the Airgas acquisition in 5 years. And we are ready now to seize the opportunity.

That's what we start to do. You have seen that with the investment decision, and there will be more to come.

So for us, it's absolutely key to have the financial game power, I would say, to take the opportunities, opportunities for new projects, opportunity for takeover if we see a takeover of assets as opportunity as we did for Sasol, for example, but also, I mean, acquisition in different parts of the business, as usual, but we are looking at those very carefully. We monitor the market in every segments where we are.

We look at the valuation. Again, the good news that we have today is that we don't need an acquisition.

We will take it if there is a strategic opportunity, but we don't need because of the level of growth and organic growth we can generate. Now on the factoring, Jérôme?

Yes. So basically, on the factoring cost, the volume of factoring increased last year, given the fact that it was very much connected to the energy cost increase.

But basically, when we see the level of net cost of debt, this has decreased by minus 18% in H1. So basically additional factoring costs have been fully offset, thanks to proceed from early adoption of U.S.

dollar bonds. And as you know as well, higher return on cash investments.

So we have, as you know, 90% of the gross debt, which is at fixed rates. So very well, I would say, protected in order to compensate of that.

But the size -- the key message of the fact on factoring is quite stable over time, and that's really our objective to continue in that way, in fact.

Yes. First on currency effect.

At group level, sales were down by 2.1% from FX in the first half. But your operating recurring income got a drag of 3.4% and your recurring net profit got a drag of 6.4% from FX.

Can you explain the leverage, please? Because your business is normally local.

You do not have major exports and you have a global financing. And the second question is on Healthcare Americas up by 13.5% in sales in the first half.

Is it fair to say that this was -- 2/3 of that was price driven and 1/3 was volume driven? Can you elucidate on that, please?

All right. Thank you very much, Martin, and good morning.

Jérôme, can you take the first question?

Yes. On the fact -- the impact of the sales and the fact that there is an impact on the ForEx effect and sales versus OIR is basically a mix between -- a mixed product between -- a mix bag of currencies, in fact.

The ForEx effect in sales is very much impacted by emerging countries that decreased versus the euro, and that was very much in line with Latin America, RMB and others. So that is explaining the fact that it's going down.

But on the operating margin, we are much more protected on the fact that -- because we have a main part of our Large Industry, which are -- with indexation -- ForEx indexation protection. So that explains the difference.

But that's basically a mixed bag between the fact that the mix of currencies can be different between sales and operating income. That's basically what we can say.

Martin, regarding your question on Healthcare in the Americas overall, I think you have to look at the different segment overall to understand the dynamic. Because, indeed, this is a mix of volume and pricing.

The 2 of them are quite positive for the region. If you take the med gas in North America and especially in the U.S., the pricing has been the majority of the growth with limited volume.

But if you take Latin America, for example, for the home care, you see a strong volume growth and on top of that of the pricing. So all in all, it's a mix of the 2 with probably a higher contribution in the pricing overall than on the volume if you compound all the different geographies.

But again, with dynamic, which are a little bit different. I think this leads me to, I mean, the growth of Healthcare overall, which has been very significant.

And I think we are basically in line with some of the trends that we have seen in the pre-COVID period with volumes which are normalizing in most of the countries for the med gas, but the new things, which is the pricing, and this is true. I just mentioned North America, but this is true also in Europe, and that's a good contribution.

And for home care, we see the organic growth, I mean, back in terms of volume growth, but also -- and there again, that's another good news, the pricing being compounded. So this means that the Healthcare today is in the range of 8% growth for H1.

And we do expect this to continue at the same trend for the rest of the year.

My first question is around volumes. I think if we summarize all the comments that you made in Q2, we were stable at a very low level compared to Q1.

Are there areas where you would expect further slowdown, e.g. Electronics, into the second half?

And on the other side, are there areas where you are hopeful that we should see an improvement into the second half? That's the first question.

And the second one around margins. I was wondering if you could talk about margins in the Americas.

I think the improvements over the last 2 years has only been 30 basis points, despite all the improvement on pricing in Merchant, you've talked about Healthcare. So I was wondering if you could talk about what are the drags on margins or the assets and margins in the Americas.

Thank you very much, Laurent, and good morning. I will ask later Jérôme to talk about the margin in the Americas.

But maybe some comments on the volume and more specifically, I will ask Marcelo and Pascal to comment on the volume, especially the IM volumes in the different regions. But all in all, what we see clearly is that the volume in Large Industry should basically rebound compared to what we have seen, taking into account also that we had a quite low comparable basis for H2 last year.

But you should see something which is back in the positive in H2 for Large Industry. And maybe Pascal will make some comments on what he sees also in Europe.

Clearly, we see that for the Electronics, Q2 was much lower than Q1. And we do expect Q3 to be in the same range.

This is a slowdown overall of the industry, both in terms of memory and in terms of device and chips. However, we are getting some confirmation from customers that there should be some pickup in Q4.

Let's be cautious. But let's also keep in mind that the comparison basis is -- for Electronics, very, very high.

For the last year, as a reminder, we were at 17% in Electronics. And we are -- we were at, I think, above 20% -- 21% in Q2 last year.

What we see is that the slowdown in the Electronics is mostly affecting the Advanced Material and the Electronic Specialty Material, but the carrier gases remains very strong. Due to the model with the takeoff pay and the fixed part, but also with a strong contribution of new start-up in Electronics in different parts of the world.

So that's for the Electronics. Maybe finally, in terms of volume, as I mentioned, Healthcare, we do expect to remain strong as I mentioned before, both in terms of volume and also in terms of pricing.

So maybe I turn over to Pascal for some comments on Europe IM and anything on the...

Okay. So maybe I'll start with large industries.

Clearly, we had a bottom in Europe in Q3, Q4 last year. So volumes have improved in Q1, and they have remained pretty steady between Q1 and Q2.

Right now, to give a bit of color, we only have a small minority of customers at take-or-pay level, not very many. That was slightly different at the end of last year.

Now visibility is quite low, I would say, but we expect positive comparisons anyway, given the low level we had last year. Refining is looking reasonably solid.

Still seems to be improving. In Europe, we'll also have the restart of blast furnace in France that will help us.

Chemicals are the biggest question mark. It's difficult to see what trend is really -- we are really facing in the chemical market.

For Industrial Merchant, as you have seen, volumes have been pretty flat if we expect the specific cases of CO2 and helium. With cylinders slightly up, bulk slightly down.

No super specific market differences to comment on either from a geographic point of view or an end user and end market point of view. We do expect IM to continue to show a positive pricing, as I mentioned before.

Volumes were flat in the last quarters. We don't see any change of this trend coming.

But again, visibility can be somewhat limited.

Thank you very much, Pascal. So I think [Technical Difficulty] volume, and we do expect this to continue.

Marcelo, any comments? I mean do you see this resilience in the IM merchant -- I mean the IM business in the U.S.

also?

Yes. Thank you for the question.

Thank you, Francois. Yes, I see more or less the same as you, Pascal, in Europe, in the U.S.

We do see some softening in the manufacturing sector for -- in general, for the second half, but still a strong activity in the construction market and our services related markets, including food market. So I do expect still resilient volumes for the Industrial Merchant.

Hard goods, the same. I think the related -- industrial hard goods related to the activity in general, we may see some softness as well, but we still see a very strong pipeline and opportunities in terms of industrial automation and related markets that we hope to offset eventually some trends in terms of softness in volumes for hard goods in general.

I'm very positive for the trend in volumes for Healthcare in general, not just in Canada and the U.S. in our proximity care, but also a strong performance for Latin America for the second half of the year in terms of volumes in home health care and health care in general.

And Electronics is like you said, Francois. I think applied the same here for the U.S., as low Advanced Materials in general and ESG following the global roll-down of the semiconductor industry.

But it's still very resilient on the carrier gases and good momentum in terms of equipment and installation sales in the U.S. As you know, the ship's Act is boosting the activity of the construction of new mega fabs in the U.S., and there are several projects in the pipeline that would compensate partially for the slow down in Advanced Materials and Electronic Specialty Materials.

Thank you very much, Marcelo. I think Laurent, you see and you perceive, of course, very well, I mean, the power of having a portfolio of activities because we see clearly ups and downs.

But overall, I think we are quite conservative in the way we are looking at the market. And we are ready, I mean, for any kind of softness to make sure that we continue to deliver the performance, but that's the picture we have.

I think we have to be modest now overall because in the current context, I mean, visibility, we know that very well, is low for everybody. So margin in Americas, Jérôme?

Yes. Thank you very much, Laurent.

Overall, you see a very strong margin improvement for the group. You saw that a very strong margin grow in Europe as well in Asia Pacific.

In Americas, we also continue to grow. There is basically a few effects.

First, in merchant, on the positive side, we still benefit from strong pricing, we discussed that with Marcelo, but also from strong efficiencies. And that's something that we are very happy with.

This time, on the negative side, but it's something that is very due to [ control ] is the fact that on Electronics, we have lower volume on Advanced Materials. So basically, the incremental part is lower than usual.

And to some extent, in Large Industry, we have costs that were connected to customer turnaround, as we discussed, where a few customers who took the opportunity to make some turnaround and those specific costs also were connected. So that's basically the plus and the minus, but as you saw, the margin in Americas continued to grow.

It relates to your investments in Electronics in Southeast Asia, Taiwan particularly. Given China's increasing assertiveness on Taiwan's independence, how do you take into account or consider those risks when investing in this country?

Thank you very much, Jean-Luc. I think that's a good question.

But of course, I mean, we are looking at the geopolitics and the trends in the different countries of the world. Keep in mind that our business is local.

We are investing for local customers, for companies and for sites, which are top-tier production facility. So that's very important in our assessment.

That's the first thing that we are looking at to make sure that we invest in the proper sites with the proper technology and the proper competitive advantage. Of course, I mean, we look at the geopolitics environment.

Our view is that both, I mean, China and Taiwan remain a growth market with a lot of opportunities, and there is a value for us to continue to supply customers and to invest and to invest also, again, as I mentioned, locally. So for us, we will continue to support our customers.

And again, in Electronics, but also in the energy transition, there are many opportunities to come.

Could you possibly tell us what the comparable growth was in large industries ex the turnaround impacts, both in North America and Asia? And also just on green hydrogen.

Obviously, the sale of the Hydrogenics stake. I just wondered, does that imply that you no longer believe that having access to electrolyzer technology has a strategic advantage within the green hydrogen sort of road map?

Thank you very much for those 2 questions. I will turn to Jérôme for the first one.

But I'm not sure he is able or willing to provide the details. Jérôme?

What we can say, we do not communicate, Geoff, on growth in Large Industry excluding turnaround. What I just can say is that we are very well protected by the model which is take or pay and FX, which is keeping the high level of margin that we have.

So basically, what we see today, there is a customer turnaround in the U.S., some in Europe, in Asia, but the value of the model of the Large Industry is very well protected because of the structure of the contract and you know that has always been demonstrating during a difficult time. So that is not something that we are very much afraid of in fact.

Regarding your question about green hydrogen and access to technology, I think that's a very important point. And as you know very well, I mean, Air Liquide has been leading the way in terms of producing hydrogen with electrolyzers.

We operate today more than 40 electrolyzer units in the world with a different set of technology being alkaline or PEM type of technologies. The key question is now to scale up.

And it's clear that the technologies to produce hydrogen by electrolysis are not all mature yet. That's why, as we consider, this is absolutely key in our ability to create value to master the technology or to have preferred access to the technologies.

We have, I mean, different work stream working on the different stages of the different types of technologies. So in this portfolio, we had a financial participation in Hydrogenics which was basically, I mean, the technology that we use to build what is today the largest PEM electrolyzer in the world in Canada, in Becancour.

And that was a joint collaboration between Hydrogenics and, of course, the Air Liquide engineering entity. What we see today is that really the challenge for the PEM technologies to scale up.

So 20 megawatt, it's already big. Many people are talking about a couple of megawatts.

We are already operating now for more than 1.5 years, 20 megawatts, but we are looking at 200 megawatts for the next unit. And as mentioned by Pascal and mentioned in Europe, I mean, those are the kind of projects we are developing.

So we have now a partnership with Siemens Energy, which we believe is the right partnership to scale up and to industrialize the technology. This is not something that we could find with the financial participation with Hydrogenics.

We are in a joint venture with Siemens Energy. So the new units that we are designing and we are building now are actually, I mean, a joint effort between the know-how of Siemens Energy in manufacturing and industrialization and the know-how of Air Liquide.

We will be inaugurating actually the first unit made by this joint venture in Germany in October of this year, and I think that would be a good demonstration of the capabilities. So for us, again, the name of the game today is to be able to scale up industrial units, ready to operate for 15 or 20 years and to supply industrial customer.

That's the name of the game.

I was quite curious in your thoughts on the performance of on-site or large industries versus merchant, especially on volumes, because we typically think merchant is a more cyclical macro-driven business. But what we've actually seen is the volumes in merchant have held up much better than your volumes in the on-site business, which is quite weird.

So I mean, I'm just curious how you see that dynamic into second half. Do you still think the merchant volumes will hold up as we go into second half, especially given the European PMIs, et cetera, have been quite tough in the last 2 months?

The second question was -- you mentioned improvement in on-site or positive growth in on-site in second half or large industries, sorry. I remember you had a pretty negative impact from the mathematical computation of the high energy cost impacting your on-site business last year.

So I think the point being your comps are just easy because of that mathematical impact, which was negative, and are you saying that the growth will be positive just because that mathematical impact might now be positive because the energy prices have collapsed? Or you actually think the underlying volumes when we compare second half this year to second half last year will also be better in the large industries business?

And sorry, last point -- you did about 4% organic growth in Q2. As we think about second half of this year, do you think you can sustain that level of growth?

Or should we expect some moderation just given the comps on pricing in merchant is going to be quite tough?

Thank you very much, Chetan. On your first point, I mean, reflecting on the growth and the resilience of Large Industry and Merchant, you're right.

This is a little bit counterintuitive. But as a matter of fact, I think there are some elements that can explain that.

We have seen that Merchant is quite resilient and Large Industry has been, in terms of volume, less resilient. I mean the business model is still very strong for us because we have the take-or-pays and in terms of profitability and profitability ratio.

I mean the model is extremely solid. But we have seen some customers, I mean, decreasing consumption quite significantly.

I think you have to relate to the environment and to the weight of energy in many of those large industry customers, being the steel industry, the chemical industry, especially, or the refining. And the fact that many of the customers in high-cost regions like Europe has been affected, I think, has clearly a role to play.

On top of that, I think you have to add to the fact that, overall, the economic growth has been probably a little bit less than what was expected. And China is a big factor on the global scale, which means that some of the entities, I'm thinking about the chemical in the U.S., for example, were less export-driven that they were used to.

So I think that's something to take into consideration. And given also some of the softer market, we have seen customers extending the turnaround maybe a few weeks or a few months more than that they would do otherwise.

So I think that's probably the explanation around the Large Industry, the volumes. We do expect, as mentioned, I mean, some pickup.

The ease in the energy pricing is going to play a role. I think it's going also to probably give confidence in some -- for some European companies, which have been challenging themselves internally given the price differential between energy costs in Europe and in the U.S.

And also given, I mean, the incentive driven by the Inflation Reduction Act, especially. So I think in those conditions, probably we see Large Industry in Europe, especially, I mean, moving up.

The good news again to looking forward is probably for Industrial Merchant to continue to be resilient. Again, the exposure to the energy price is less.

And we see that those customers are quite resilient. I think it's also due to the nature of the relationship that we have with them.

The fact that we managed to adapt to their needs to continue to provide value, I think, is a good way for us to maintain market share or to gain market share in Merchant in the different region of the world. So the next point is about the mathematical effect that we have seen, if I may say so, last year, especially in Europe, Jérôme, do you want to come back to this?

Yes, I can do, because basically, it's a good question, in fact, and thanks for raising that. You remember last year, we had some, what we call, a combined effect.

We had last year in H2 2022, some minus 12% in Q3 and minus 2% in Q4 '22. So -- but -- so we may have this in the coming months, but for different reasons because the data price of energy is expected at some point to be negative, while the delta volume could be positive.

So I will not give too much to you, I've already said a lot. but we can say that it would be maybe at good level around negative mid-single digit, but it's a bit early to say.

On your last comment about the forecast in terms of growth, I mean, you know that we are not going to give you the precise guidance on the top line for different reasons, including what I mentioned. I mean the lack of visibility.

But we do expect in the second half to be probably softer in terms of top line compared to H1. That's clear.

But we don't expect a cliff, again, what I mentioned before in terms of balance between the portfolio. Electronics, as I mentioned, especially in Q3 is going to be lower, but will be partly compensated or fully compensated also with the Healthcare or with the effect on Large Industry.

So let's be cautious. And again, that's the mindset that we have, to make sure that we are not overdependent on the top line.

And that's why also we have all the other actions to make sure that we continue to deliver the performance regardless of the environment. Thank you.

And I think we are reaching close to the end of the session. But we have Peter online, I believe.

Of course, Peter.

I've got 2 questions, obviously. Obviously, if I look at the underlying margin improvement now against the advanced target of 160 basis points plus clearly, on an annualized rate, you're going to be over 200 basis points.

Just wondering if you're thinking of giving an update to that at some point? And then the second question, I think for the first time, I've read that IM pricing in Japan was up significantly.

And obviously, there's a bit of a cost element passing through, et cetera. I'm just wondering if anything structurally is improving in that market, which I think historically has probably been a bit of a drag for you?

Thank you very much, Peter. I think Jérôme is going to be delighted to answer the first question.

It's good to hear you, Peter. So we did, as you know, a very strong -- and you said it yourself, we have a very strong margin improvement in H1, plus 80 basis points.

In this environment, it's a very strong performance. You're totally right.

I will say those things and don't be surprised, Peter, but performance, of course, remains a key focus for us as we demonstrated in H1, which again is remarkable for the challenging environment. So our guidance for financial year '23 remains in a framework of advance, which is, as you know, plus 160 basis points over the next 4 years.

And that's really our advanced ambition that what today, which is a framework, and we'll stick on that. On top of that, Peter, you know that the visibility is low in H2 in this uncertain environment that we talk about, both in terms of energy price, volume.

So we will, by the way, compare with higher comparable last year, as you know. So all in all, I will not give you any specific number, but I can tell you that we are absolutely committed to deliver margin improvement.

Thank you very much, Jérôme. And Peter, thank you for noticing Japan and the improvement in Japan indeed.

And yes, you're absolutely right. I mean this is not something that we have seen for many, many years, not only for us but for the industry in general.

And we have been able to post for the H1 double-digit -- strong double-digit pricing impact in Japan. But I think this is really an illustration of the change in the mindset within Air Liquide on how we are approaching, I mean, value creation, making sure, of course, that we balance and making sure that we keep our customers satisfied.

We answered that question. We create value, but we are driving for pricing and for performance.

So yes, that's a good catch, and that's an illustration. It's not the only one, but of what we are doing every day in terms of performance.

So I think I will stop here, and this now concludes this session. Thank you all very much for your question and your participation today.

To summarize, we delivered a strong performance in the first half, while being able to build the future. I think it clearly demonstrates the resilience of our business model and our ability to create value for our customers.

In the months to come, we will remain focused on execution and delivery of our ADVANCE program to achieve our midterm objectives in terms of growth, return on capital employed, CO2 emission reduction and overall value creation for our shareholders. I wish all of you a very good day and an enjoyable summer break if you manage to take one.

Thank you very much. Goodbye and take care.