You are the Chairman and CEO of Air Liquide.
Today you are announcing your 2019 Full Year results. It's always an important moment. Was 2019 a good year and what are the highlights?
2019 is a year of robust results but also a landmark year for us, with decisive progress in three areas:
- First, a step-up in performance improvement, and in particular a higher operating margin.
- Second, the very significant increase when it comes to investments for customers but also to strengthen efficiency, and this is quite new
- Third, we have implemented during the year our Climate Action Plan announced at the end of 2018.
Overall, it was a landmark year.
Let’s start with the financial performance. With sales reaching 22 billion euros, which indicators would you say have improved the most? Sales? Net profit?
It’s always better when net profit is progressing more than sales.
Sales increased by 4.3% and the operating income improved by 10%.
This operating income translated into a 2.2 billion euro net profit. Recurring net profit climbed 11.1%.
Another important element is Cash flow. It improved by 14%, allowing us to end this year with a net debt-to-equity ratio of 64%, a very good performance, in our historical range.
Finally, the return on capital employed is another indicator we follow closely. It stands at 8.6%, based on recurring net profit.
As you can see, despite the global economic slowdown observed in the 4th quarter, on all continents, the Group has achieved robust results. They are in line with the objectives of our mid-term company program NEOS.
Let’s come back to sales and in particular Gas & Services which account for 96% of your revenue. Can you give us more color on each of these activities?
Yes. We have 4 big activities within Gas & Services.
First, Large Industries was up 3% over the year as a whole. This activity was sustained thanks to hydrogen volumes, notably in Europe and in Asia for refining and petrochemicals, two major markets of this activity. It benefited also from the several production unit ramp-ups as they ramp-up progressively once started.
The second important market is that of Industrial Merchant. In a slightly less favorable economic environment in the second half-year, Industrial Merchant progressed at a slower pace of 2% for the year, helped by efficient price management.
Third, Healthcare continued its steady development, with sales growth of 6% all year long, so a very steady progress.
Finally, Electronics, the star last year, maintained a high level of growth of 8%.
And in terms of regions, which are the ones developing the most?
First, I would like to point out that all regions progressed well, which illustrates well Air Liquide’s business diversity, but they progressed at different paces. The Americas were up +2%, this reflects contrasted situations by markets.
Europe was up +3% and grew more than Americas, it is not always the case and that is good news of course.
Asia Pacific was still very strong at +8%, with China remaining solid for the year overall.
And the Middle East & Africa region, which posted this year a modest growth of +2% but had a very strong growth the previous year.
We’ve just reviewed Gas & Services. What about your two other businesses? Although smaller they are important for the Group.
These other businesses gather mainly our technological activities. That’s Engineering and Construction, with an order intake that is increasing.
It’s important because it measures the true activity level of this business for Air Liquide, with a breakdown between internal sales to the Group, that are not consolidated, and sales to third party customers.
The activity is growing, but revenues for third parties are decreasing. As a result, sales are down 25% facially, but in reality, the activity is increasing. The other important technological activity is what we call Global Markets & Technologies. It includes deeptech and new businesses such as biomethane, and hydrogen energy. These activities were up 15%.
When we analyze this performance, the step-up in operating margin improvement stands out. Its progress has been impressive this year. What were the levers?
First, you must recall that last year the Group’s operating margin had already improved. We have a much better improvement this year. With a 70 basis point improvement,
excluding the energy impact. Three levers were used:
The first lever is pricing and product mix. We are able to offer our customer differentiating solutions, with higher added value, which convert into higher prices.
The second lever is efficiency. We had in the past an efficiency program of 300 million euros per year, then we increased it to 400 millions euros. This year, we achieved 433 million euros which is quite remarquable.
Finally, the last lever is the dynamic management of the business portfolio. There are always activities within the portfolio and others that can be disposed of. Therefore we are managing this portfolio more actively.
And, in 2020 we will continue to focus our efforts on improving the margin.
In terms of investments, how do you define them this year? You have invested for your customers, but for what else, to be more efficient?
We have decided to invest 3.7 billion euros this year. A very high figure! We usually decide around 3 billion on a regular year. This level means 2 things:
It reflects a high level of commitment to our customers with new projects signed, for example in Large Industries and Electronics. But we have also decided to invest a bit more in industrial efficiency, which in turn converts into better margin.
So you invested for your customers but also to be more efficient?
Absolutely.
Now, I am interested in the 3rd major subject of the year: Climate. We talked about it at the beginning of this interview. We remember you announced your Climate objectives back in 2018. Where do you stand today?
We are well on track. Our objectives were ambitious, but realistic. For the first time, we have had our first complete year to measure our progress on Climate objectives. We stand below our emissions forecasts, which is excellent news.
I would like to mention two examples of our actions.
First, in the field of hydrogen, where we have launched the construction in Canada of the largest Proton-Exchange Membrane electrolyzer in the world, to produce carbon-free hydrogen thanks to renewable energy.
What is so unique is the size of this electrolyzer, the largest in the world for this type of technology.
The second exemple is about the reduction of our customers’ CO2 emissions. We are accompanying them to reduce their emissions through new processes.
For instance, with a steel producer, thyssenkrupp, and more recently with ArcelorMittal, we signed projects to test hydrogen in steel furnaces. This could lead to a CO2 emissions reduction of around 20%.
How do you see 2020?
2020 will be of course a different year. And before we mention perspectives, I would like to say a word about the sanitary situation in China, and take a moment to recognize the professionalism of our teams in China. They are fully mobilized to manage both the sanitary situation, but also to serve our customers and patients, as we have to deliver the best possible service to them.
More generally, regarding trends, they are still contrasted among our markets, as it was the case in the 4th quarter, with sectors such as construction and metal fabrication which appear to be slowing; and others such as food and pharmaceuticals where momentum remains strong.
And it is in situations like these that Air Liquide’s resilient model works to its full potential: a large range of customers, diversity of markets, of countries; long-term contracts, indexed on energy costs; a wide range of applications for our molecules and a real innovation strategy that, in fact, fully drives Air Liquide development.
Another important factor is investments. To invest you need opportunities. We continue to benefit from a high level with approximately 2.9 billion euros of investment opportunities. This represents almost the level of one year of annual investment decisions.
In short, even if the Group performed well in 2019, we expect to continue this operational margin improvement momentum, but also to keep on growing.
Accordingly, in 2020, assuming a comparable environment, Air Liquide is confident in its ability to further increase its operating margin and deliver net profit growth, at constant exchange rates.
So confidence would be your final word?
Yes, absolutely. Confidence and at the same time, continuing to “invent the future”. It’s been our job for over a century and I would like to take this opportunity to thank all of Air Liquide’s employees who – more than ever – are committed to the Group’s success.
Benoît Potier, thank you.
Thank you
