Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Air Liquide SA (AIQUF, Financial) demonstrated resilience and strong performance in soft markets, with a solid comparable sales growth of 3%.
- The company achieved a significant OIR margin improvement of 100 basis points, and 110 basis points for Gas & Services, excluding energy pass-through.
- Recurring return on capital employed (ROCE) improved to 10.7%, despite higher investments under construction.
- Investment backlog exceeded EUR 4 billion, with more than 40% linked to energy transition projects.
- Major projects like the ExxonMobil hydrogen production and Micron electronics projects are set to drive future growth, with significant investments and long-term contracts.
Negative Points
- Sales growth was negatively impacted by Argentina's devaluation, affecting overall performance.
- The large industry segment in Asia faced a margin decline due to one-off effects and customer turnarounds, particularly in China.
- The energy pass-through effect led to a 3.5% decrease in published sales, reflecting the continued energy price decrease.
- Non-recurring operating expenses increased to EUR 87 million, mainly due to restructuring costs.
- The start-up contribution for 2024 is expected to be lower than initially anticipated, with some projects delayed to 2025.
Q & A Highlights
Q: Regarding the performance in Asia, EBIT margin in Asia was down by 40 basis points, reported in minus 50 basis points, excluding energy pass-through effects. What is the reason for this margin decline?
A: Jerome Pelletan, CFO: The margin decline in Asia is due to a one-off effect from last year, specifically a customer indemnity payment. Excluding this non-recurring effect, the underlying business in Asia is performing well.
Q: In your press release, you mentioned stronger demand from chemical customers in Europe and the US in the second quarter. Is this driven by lower comps or improving momentum at your chemical customers?
A: Pascal Vinet, EVP: The improved performance in large industries in Europe is due to increased hydrogen volumes in the chemical market, particularly in Benelux and Germany. Refining is stable, and the steel market remains soft. Adam Peters, CEO North America: In the US, we see improved sales growth and volumes in large industries, driven by lower customer turnarounds and overall recovery.
Q: When you receive subsidies from the European Union or other governments, how do you account for them in your P&L?
A: Jerome Pelletan, CFO: Subsidies are treated as a reduction in CapEx and are not recognized as immediate cash gains in the P&L. They impact the balance sheet but not the P&L directly.
Q: Why is the earnings impact from Argentina on EBIT 4%, which is almost double the impact on revenue at 2%?
A: Jerome Pelletan, CFO: The higher EBIT impact is due to the hyperinflation in Argentina, which has a significant effect on the local business. The devaluation offsets this impact in the published figures, but excluding FX, the hyperinflation effect amplifies the EBIT impact.
Q: Why is the backlog conversion taking so long, and why is the start-up contribution for 2025 expected to be more than EUR250 million?
A: Francois Jackow, CEO: The backlog includes larger energy transition projects that take longer to complete. Despite delays, we are confident that the start-up contribution for next year will exceed EUR250 million due to the pipeline of projects coming online.
Q: What are the costs and benefits associated with the recent reorganization of the group?
A: Jerome Pelletan, CFO: Specific costs are not disclosed as they are part of our ongoing margin improvement initiatives. Francois Jackow, CEO: The reorganization aims to improve agility, efficiency, and decision-making, contributing to the group's performance and employee satisfaction.
Q: Can you provide an outlook on pricing, efficiencies, and volumes for Industrial Merchant (IM)?
A: Pascal Vinet, EVP: Pricing remains strong, especially in the Americas and Europe. Efficiencies are improving, with a focus on procurement and industrial efficiencies. IM volumes are expected to be stable in Europe, positive in China excluding helium, and potentially positive in the US depending on interest rates.
Q: What is the outlook for pricing in Industrial Merchant (IM) worldwide?
A: Pascal Vinet, EVP: Pricing is expected to remain positive globally, with strong contributions from Airgas in the Americas and underlying pricing in Europe. The impact of energy indexes will moderate, but overall pricing momentum is expected to continue.
Q: How much of the efficiency gains are hitting the bottom line, and what are the key drivers?
A: Jerome Pelletan, CFO: Efficiency gains are significant, with a 13% increase in H1. Key drivers include industrial efficiencies, procurement, and transformation programs. The value of the cost base tackled is higher than last year, contributing to margin improvement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
