2019 Annual Results: interview with Benoît Potier, Chairman & CEO of Air Liquide

I would say that 2019 first shows good results, but it is also a significant year for us since we made fairly decisive progress in three areas. The first is the improvement in performance, and in particular the operating margin. The second is the very significant increase in investments made for our clients but also for efficiency—that's somewhat new. And the third is that we implemented throughout the year our climate plan, which had been announced at the end of 2018. So overall, it was a fairly significant year.

Well, it's always better if results grow more strongly than sales. So sales grew by 4.3% and operating profit by 10%. When we translate this operating result into net profit, we arrive at a net profit of 2.2 billion euros, which translates into a recurring net profit up 11.1%. An important element too is cash flow—cash flow progressed by 14%, which ultimately allowed us to finish the year with a net debt ratio of 64%, a very strong performance within our typical range. And finally, return on capital employed stands at 8.6% based on recurring net profit. So you can see, despite the economic slowdown observed in the fourth quarter, notably across all continents, the group delivered two very solid results that are in line with our medium-term program objectives.

Yes. We have four major activities within Gas & Services. First, Large Industries, which grew by 3% over the full year. This business benefited from hydrogen volumes that were supported in Europe and Asia for refining and petrochemicals, the two main markets. It also benefited from several production ramp-ups—once units are started, they progressively increase in capacity. The second major market is Industrial Merchant, which experienced a slightly less favorable economic environment in the second half, resulting in 2% growth for the full year, supported by effective pricing management. Third is Healthcare, which continued its development with 6% sales growth throughout the year, a very steady progression. And then Electronics, a star last year, maintained a high growth level at 8%.

I would first say that all geographic regions are progressing, which shows the diversity of Air Liquide's activities, but at different rates. The Americas grew by 2%, reflecting a somewhat mixed situation depending on the markets. Europe at 3%, which outperforms the Americas—we're pleased about that, as it's not always the case. Asia-Pacific remains very strong at 8%, with China notably very sustained and solid throughout the year. And the Middle East and Africa posted more modest growth of 2%, but following a very high growth rate the previous year.

Yes. In these other activities, we essentially find Technology—which includes engineering and construction—with orders that are growing. This is important as it reflects the activity level of this branch of Air Liquide. There's a split between sales to non-consolidated group companies and third-party sales. Activity is growing, but revenues from third-party markets are declining, which overall gives sales down 25%. But I'll note that activity itself remains on the rise. The second major Technology activity is what we call Global Markets & Technologies—there we find LNG, new activities like biomethane or hydrogen, and those activities grew by 15%.

I must first recall that the margin had already improved the previous year. This year's improvement is much better—70 basis points excluding energy effects. There are three levers. The first is pricing and product mix: we have the ability to offer our clients differentiated solutions with higher added value, translating into higher prices. The second lever is efficiencies: we previously had a program of 300 million per year, then raised it to 400, and this year we achieved 433 million euros in efficiencies over the full year, which is quite remarkable. And the third lever is dynamic management of the business portfolio—there are always activities that can exit, so we manage the portfolio more dynamically. I'll add that we will obviously continue our margin improvement efforts in 2020.

We allocated 3.7 billion euros in investments this year, which is very high—we're normally at a pace of about 3 billion in a normal year. This reflects two things: a strong level of commitment and investment for our clients, translating into new contract signings, notably in Large Industries and Electronics; and we also decided to invest more in efficiency, which is how we managed to increase the margin.

Absolutely.

We are on track. The objectives were ambitious but realistic. For the first time, we had a full first year of climate objectives, and we are in fact below the emissions we had planned, which is excellent news. I'd like to cite a few examples. First, in hydrogen, we began construction in Canada of an electrolyzer that will be powered by renewable energy to produce hydrogen—its size is practically the largest in the world for this type of technology. Second, reducing CO2 emissions from our clients: we accompany them through process changes. We signed studies with ThyssenKrupp and more recently ArcelorMittal to try using hydrogen in blast furnaces, which would reduce CO2 emissions by roughly 20%.

2020 will obviously be a different year. Before speaking about outlook, I'd like to say a word about the health situation in China. I want to salute the professionalism of the Air Liquide teams who are fully mobilized to manage both the health situation and to continue serving our clients and patients. More broadly, market evolution remains mixed as it was in the fourth quarter—sectors like construction and metal manufacturing are at a low point, while others are fairly dynamic like healthcare and food. This is precisely where the Air Liquide model plays to its full strength: great diversity of clients and markets across more than 85 countries, with long-term indexed contracts, very varied applications, and a genuine innovation strategy. Another important factor is investments—we have approximately 2.9 billion euros in investment opportunities at this stage, practically a full year's worth. So even though 2019 was already a very good year, we expect to continue this dynamic of margin improvement and growth. In 2020, in a comparable environment, Air Liquide is confident in its ability to again increase its operating margin and achieve growth in net profit at constant exchange rates.

Yes, absolutely. I would say it's confidence and at the same time continuing to invent the future—that's been our business for over a century. I'd like to take this opportunity to thank all the Air Liquide employees who are more than ever mobilized for the success of the group.