2018 Annual Results: interview with Benoît Potier, Chairman & CEO of Air Liquide

First, 2018 is a very good year at the end of a solid fourth quarter, and we can say that all indicators are in the green. Consolidated sales are growing by 6.1%, which is the strongest growth since 2011. The gas and services margin is 30 basis points above last year, and the net result is up 4.2%. The return on capital employed, which is a very important point for us, is 60 basis points higher than last year, excluding currency effects. Finally, investment decisions that prepare the future are growing by 22%.

The macroeconomic environment obviously plays an important role. We have three indicators that we follow. First, the industrial production index, which remained solid worldwide throughout 2018. There are of course differences by geography, but it was positive overall, including at the end of the year, as we had a very good fourth quarter. The second is the currency effect, which was globally negative for the year at -3.6%, but it diminished in the second half and was almost zero in the fourth quarter. As for energy prices, they are indeed the third parameter we follow. They were negative at the start of the year but turned positive from the second quarter.

I think the good performance is linked to the implementation of the transformation strategy we have, a transformation strategy that is centered on customers and today we can say bears fruit. This strategy is visible in all activities. First, the main activity, gas and services, which grew by 5.2% in 2018 and even 5.6% in the fourth quarter. Engineering and construction, the technological part, continued its recovery, with orders up 44% and sales up 31%. And then the other aspect, the third branch that is interesting, is what we call global markets and technologies. These are activities that could be qualified as deep tech, like biomethane or energy hydrogen, which grew by 30%, showing the place of innovation in the growth of the Air Liquide group.

Yes, we have two industrial business lines. Industrial merchant, which is also the main activity of Airgas that we acquired in 2015, was very solid this year. It represents 47% of the group and grew by 4.5% in 2018. The second industrial activity is large industry, these large contracts, which grew by 5%. And we had the benefit of start-ups, including an important one in South Africa in 2010. So for 2018, the third branch is health, which is developing regularly with growth of 6% for the year 2018. And then there is the electronics and more technological activity, which had a remarkable year, with growth of 10% for the year and even 18% in the fourth quarter.

The geographic distribution, which is also very important, we shifted more towards the Americas after the Airgas acquisition. So I will start with the Americas, which grew by 5%. It is the first zone of activity for the group, representing more than 40% of gas and services activities, and growth is of course driven by the United States, which is the largest market for industrial gases in the world. Europe represents about 35%, it grew by 3%, which is good growth for Europe, with notably industrial merchant activity positive in volume and price. Asia-Pacific grew by 8%, with of course China very strong with double-digit growth, and in general in Asia-Pacific, high activity in electronics, as 70% of the activity is there. And the Middle East, which is more modest but has a high growth rate of 15.5% for the year thanks to the contract in South Africa.

First, we have a price situation that is improving, reflecting the increase in costs. That is a good thing, good news for the group's activities. Next, we had a very good performance, even exceeding the efficiency program. We had an objective of 300 million euros planned for the year, and we were able to deliver 351 million euros, which is obviously much more than the objective. We also finalized nearly the synergies from gas, which were 300 million euros. These synergies of 300 million will be achieved in the first quarter of this year, more than a year ahead of the schedule we set. And we have a net result growing by 4.2%, and even 8.7% if we exclude currency effects, meaning a growth rate of the result that is quite appreciable.

The balance sheet is very solid, since this debt ratio that had increased strongly was finally brought down to 69% of equity. I remind you that it was 90% at the end of 2016, and this thanks to the increase in cash flow this year of 11%, which allows us to show an improved return on capital employed, as it is 8%, and even 8.3% excluding currency effects for the year. We can say that all indicators are in the green.

Investment decisions are 3.1 billion euros, growing by 22%. We can say that 2018 is a record year, the highest level in 10 years, or of course, great acquisition. We also follow industrial investments that are under execution, as these will generate almost immediate growth, and they are 2.2 billion euros currently. And of course, we also focus on investing in innovation, which is a strength of Air Liquide, and I can say that we will have completely renovated five major innovation campuses in the world in 2018, which gives us a formidable tool to address innovation in the coming years.

When we look at the year, we can say that markets remain well-oriented. We saw this at the end of the year, and even at the start of this year. So perspectives are positive for the first half of 2019. There is also a dynamic of investment that I spoke of, which is very solid with a still high level of opportunities in the portfolio, so contracts likely to be signed in the coming months. And in terms of management, we have efficiency programs that are reinforced from 2019. We were at 300 million euros per year, and we now plan to generate about 400 million on average per year, so 100 million more compared to the initial objective of our new NEOS 2020 plan. All this should allow us to maintain the objective of return on capital employed at 10% or more in 2021-2022.

Yes, in a comparable environment, the Air Liquide group is confident in its ability to achieve in 2019 a growth in net result at constant currency. A final word to conclude, I would say that as we see in the 2018 figures, the group has transformed over the last two years and continues to transform. The 2018 results are good. I would like to thank the teams, and also thank our clients and our shareholders, and tell them that we are ready for 2019. Thank you.